-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJoHlWhsjgSmx2NfzV3KKXk+Ae6tk1vFTunnKd8RxLB89lRtcU9s29K7aXFctCMd skEFN4iK09BcNR8oRbBG+g== 0000950134-97-001584.txt : 19970310 0000950134-97-001584.hdr.sgml : 19970310 ACCESSION NUMBER: 0000950134-97-001584 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970307 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLY CORP CENTRAL INDEX KEY: 0000048039 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 751056913 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03876 FILM NUMBER: 97552426 BUSINESS ADDRESS: STREET 1: 100 CRESCENT COURT STREET 2: STE 1600 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2148713555 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL APPLIANCE CORP DATE OF NAME CHANGE: 19680508 10-Q 1 FORM 10-Q FOR QUARTER ENDING JANUARY 31, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1997 ------------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------- Commission File Number 1-3876 ------ HOLLY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1056913 - --------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Crescent Court, Suite 1600 Dallas, Texas 75201-6927 - ---------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (214) 871-3555 --------------------------- - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 8,253,514 shares of Common Stock, par value $.01 per share, were outstanding on March 5, 1997. 2 HOLLY CORPORATION INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet - January 31, 1997 (Unaudited) and July 31, 1996 3 Consolidated Statement of Income (Unaudited) - Three Months and Six Months Ended January 31, 1997 and 1996 4 Consolidated Statement of Cash Flows (Unaudited) - Six Months Ended January 31, 1997 and 1996 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HOLLY CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Thousands Except Per Share Amounts)
Unaudited January 31, July 31, 1997 1996 ---------- --------- ASSETS Current assets Cash and cash equivalents $ 53,715 $ 63,959 Accounts receivable: Product 40,865 43,642 Crude oil resales 67,212 54,456 Note receivable - 6,288 ---------- --------- 108,077 104,386 Inventories: Crude oil and refined products 41,944 32,090 Materials and supplies 6,999 6,583 ---------- --------- 48,943 38,673 Income taxes receivable 4,269 -- Prepayments and other 8,441 10,008 ---------- --------- Total current assets 223,445 217,026 Properties, plants and equipment, at cost 275,311 261,621 Less accumulated depreciation, depletion and amortization 138,209 130,177 ---------- --------- 137,102 131,444 Equity interest in joint venture 3,276 734 Other assets 5,161 2,067 ---------- --------- $ 368,984 $ 351,271 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 142,561 $122,421 Accrued liabilities 12,981 12,453 Income taxes payable 526 4,728 Current maturities of long-term debt 10,775 10,775 ---------- --------- Total current liabilities 166,843 150,377 Deferred income taxes 19,903 18,361 Long-term debt, less current maturities 86,282 86,290 Commitments and contingencies Stockholders' equity Preferred stock, $1.00 par value - 1,000,000 shares authorized; none issued -- -- Common stock, $.01 par value - 20,000,000 shares authorized; 8,650,282 shares issued 87 87 Additional capital 6,132 6,132 Retained earnings 90,306 90,593 ---------- --------- 96,525 96,812 Common stock held in treasury, at cost - 396,768 shares (569) (569) ---------- --------- Total stockholders' equity 95,956 96,243 ---------- --------- $ 368,984 $ 351,271 ========== =========
See accompanying notes. 3 4 HOLLY CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Thousands Except Per Share Amounts)
Unaudited Unaudited Three Months Ended Six Months Ended January 31, January 31, -------------------------- --------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- --------- Revenues Refined products $ 182,004 $ 150,174 $ 367,399 $ 314,702 Oil and gas 1,621 1,336 3,047 1,527 Miscellaneous 276 268 401 387 --------- --------- --------- --------- 183,901 151,778 370,847 316,616 Costs and expenses Cost of refined products 176,169 138,841 347,085 283,762 General and administrative 3,309 3,446 6,945 6,971 Depreciation, depletion and amortization 4,840 4,493 9,940 8,466 Exploration expenses, including dry holes 602 1,015 1,225 1,645 --------- --------- --------- --------- 184,920 147,795 365,195 300,844 --------- --------- --------- --------- Income (loss) from operations (1,019) 3,983 5,652 15,772 Other Interest income 873 859 1,932 1,190 Interest expense (2,384) (2,540) (4,756) (4,449) --------- --------- --------- --------- (1,511) (1,681) (2,824) (3,259) --------- --------- --------- --------- Income (loss) before income taxes (2,530) 2,302 2,828 12,513 Income tax provision (benefit) Current (1,850) 985 (533) 5,153 Deferred 834 (59) 1,667 (119) --------- --------- --------- --------- (1,016) 926 1,134 5,034 --------- --------- --------- --------- Net income (loss) $ (1,514) $ 1,376 $ 1,694 $ 7,479 ========= ========== ========= ======== Income (loss) per common share $ (.18) $ .17 $ .21 $ .91 Cash dividends paid per share $ .12 $ .10 $ .24 $ .20 Average number of shares of common stock outstanding (in thousands) 8,254 8,254 8,254 8,254
See accompanying notes. 4 5 HOLLY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands)
Unaudited Six Months Ended January 31, --------------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities Net income $ 1,694 $ 7,479 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization 9,940 8,466 Deferred income taxes 1,667 (119) Dry hole costs and leasehold impairment 247 501 (Increase) decrease in operating assets Accounts receivable (3,691) 11,345 Inventories (10,270) (2,546) Income taxes receivable (4,269) (1,176) Prepayments and other (360) 736 Increase (decrease) in operating liabilities Accounts payable 20,140 (9,002) Accrued liabilities 528 (1,354) Income taxes payable (4,202) 191 Other, net (3,003) 496 -------- -------- Net cash provided by operating activities 8,421 15,017 Cash flows from financing activities Increase in notes payable - 39,000 Payment of long-term debt (8) (8) Debt issuance costs - (425) Cash dividends (1,981) (1,651) -------- -------- Net cash provided by (used for) financing activities (1,989) 36,916 Cash flows from investing activities Additions to properties, plants and equipment (14,134) (7,974) Investment in joint venture (2,542) - -------- -------- Net cash used for investing activities (16,676) (7,974) -------- -------- Cash and cash equivalents Increase (decrease) for the period (10,244) 43,959 Beginning of year 63,959 13,432 -------- -------- End of period $ 53,715 $ 57,391 ======== ======== Supplemental disclosure of cash flow information Cash paid during period for Interest $ 4,652 $ 3,769 Income taxes $ 7,505 $ 5,854
See accompanying notes. 5 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 January 31, 1997, the consolidated results of operations for the three months and six months ended January 31, 1997 and 1996, and consolidated cash flows for the six months ended January 31, 1997 and 1996. Certain notes and other information have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996. Certain previously reported amounts have been reclassified to conform to classifications adopted in fiscal 1996. References herein to the "Company" are for convenience of presentation and may include obligations, commitments or contingencies that pertain solely to one or more affiliates of the Company. Results of operations for the first six months of fiscal 1997 are not necessarily indicative of the results to be expected for the full year. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Form 10-Q, including without limitation statements in this Item 2 under the headings "Results of Operations," "Liquidity and Capital Resources" and "Recent Developments That May Affect Future Results," other than statements of historical facts, are forward-looking statements. Such statements are subject to certain risks and uncertainties, including risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company's markets, demand and supply for crude oil and for refined products, the spread between market prices for refined products and crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies or shutdowns in refinery operations, governmental regulations and policies, the availability of financing to the Company on favorable terms, and the effectiveness of Company capital investments and marketing strategies. Because of these and other risks and uncertainties, actual results may vary materially from those estimated, anticipated or projected. Although the Company believes that the expectations reflected by the forward-looking statements contained in this Report are reasonable based on information currently available to the Company, no assurances can be given that such expectations will prove to be correct. This summary discussion of risks and uncertainties that may cause actual 6 7 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) results to differ from those indicated in forward-looking statements should be read in conjunction with the discussion under the heading "Additional Factors That May Affect Future Results" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996 and in conjunction with the discussion below under the heading "Recent Developments That May Affect Future Results." All forward-looking statements included in this Form 10-Q and all subsequent oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth above. Results of Operations The Company incurred a net loss for the second quarter ended January 31, 1997 of $1.5 million as compared to net income of $1.4 million, for the second quarter of the prior year. For the six months ended January 31, 1997, net income was $1.7 million as compared to $7.5 million, for the first six months in the same period of fiscal 1996. The decreases in earnings in the second quarter and six month period ending January 31, 1997 were principally due to reduced refinery margins, as compared to the same periods of the prior year. Refinery margins industry wide were at very depressed levels in the current year's second quarter, as product prices did not keep pace with the substantial increases in crude oil costs, particularly on the West Coast. Refining margins have recently shown some improvement from the low levels of the current year's second quarter period. Revenues increased in both the second quarter and six months ended January 31, 1997 from the prior year's comparable periods as a result of higher sales prices, partially offset by small decreases in refined product sales. The increases in depreciation, depletion and amortization in both comparable periods related primarily to increased production commencing in the second quarter of fiscal 1996 from the oil and gas properties. Liquidity and Capital Resources Cash flows from operations during the six months ended January 31, 1997 were less than capital expenditures and dividends paid, resulting in a net decrease of cash and cash equivalents of $10.2 million. Working capital decreased during the six months ended January 31, 1997 by $10.0 million to $56.6 million. The Company's long-term debt now represents 50.3% of total capitalization as compared to 50.2% at July 31, 1996. At January 31, 1997, the Company had $25 million of borrowing capacity under the Credit Agreement which can be used for short term working capital needs. The Company believes that these sources of funds, together with future cash flows from operations should provide sufficient resources, financial strength and flexibility for the Company to satisfy its liquidity needs, capital requirements, and debt service obligations and to permit the payment of dividends for the foreseeable future. 7 8 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Net cash provided by operating activities amounted to $8.4 million in the first six months of fiscal 1997, as compared to $15.0 million in the same period of the prior year. The primary reason for the decrease in net cash flows from operating activities was the decrease in earnings. Cash flows used for financing activities amounted to $2.0 million in the first six months of fiscal 1997, as compared to cash flows provided by financing activities of $36.9 million in the same period of the prior year. In the second quarter of fiscal 1996, the Company completed the funding from a group of insurance companies of a new private placement of Senior Notes in the amount of $39 million. The next principal payment of $10.8 million on the Company's Senior Notes is due June 1997. Cash flows used for investing activities were $16.7 million in the first six months of fiscal 1997, as compared to $8.0 million in the same period of the prior year. The Company adopted capital budgets totalling $32 million for fiscal 1997. The major components of this budget are $13 million for the construction of a pipeline connection from the Navajo Refinery to an 8" pipeline that will be leased by the Company for products transport (the "Lease Agreement") and related product terminals, $12 million for various refinery improvements and environmental and safety enhancements and $7 million for exploration and production activities. In addition to these projects, the Company plans to complete the major items approved in the 1996 capital budget, including a joint venture to ship liquid petroleum gas (LPGs) to Mexico and two projects at the Navajo Refinery which entail upgrades to improve product yields. The Lease Agreement is with Mid-America Pipeline Company and involves more than 300 miles of 8" pipeline running from Chavez County to San Juan County, New Mexico. The Company plans to construct a 60 mile pipeline, from the Navajo Refinery to the leased pipeline, and related terminalling facilities. These facilities will allow the Company to use the pipeline to transport refined products from its Navajo Refinery to markets in Albuquerque and northwest New Mexico. The pipeline and related facilities are projected to be operational near the end of calendar 1997. The Company is in a joint venture with Mid-America Pipeline Company and Amoco Pipeline Company to transport liquid petroleum gases (LPGs) to Mexico. The Company has a 25% interest in the joint venture. The project involved the construction of a 12" pipeline from Orla to El Paso, Texas which replaced a portion of 8" pipeline used by Navajo, which was transferred to the joint venture. The 12" pipeline was completed during October 1996. The Company's total net cash investment in the projects (in addition to the contribution of a portion of the existing 8" pipeline to the joint venture) is now estimated to be $8 million, of which $7 million is to be spent in fiscal 1997, including contributions to the joint venture. The Company anticipates the realization of transportation revenues from the joint venture to start in the second half of fiscal 1997. 8 9 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The additional pipeline capacity associated with the new pipeline constructed in conjunction with the joint venture and with the Lease Agreement and the construction of the related pipeline and terminalling facilities should reduce pipeline operating expenses at current throughputs and allow the Company to expand volumes, through refinery expansion or otherwise, shipped into existing and new markets. The Company announced in February 1997, the formation of an alliance with FINA, Inc. to create a comprehensive supply network which should provide sufficient gasoline and diesel supply to satisfy the demand growth in the West Texas, New Mexico, and Arizona markets for at least the next five years. When fully operational, the system will have the capacity to provide up to 155,000 barrels of refined products per day to these Southwest markets. The project will utilize existing assets. FINA's bi-directional Amdel Pipeline could be converted, when needed, from crude oil to refined products and transport up to 50,000 barrels per day from FINA's Port Arthur Refinery on the Gulf Coast, while 45,000 barrels per day will be shipped from FINA's Big Spring Refinery. In addition, the Navajo Refinery will continue to provide 60,000 barrels per day of refined products. FINA will construct a 50 mile extension of its Amdel Pipeline from Wink, Texas to the Company's pipeline station at Orla, Texas, where a long-term agreement with FINA will enable them to transport up to 20,000 barrels per day on the Company's recently completed 12" pipeline to El Paso. In New Mexico, the completion by the Company of the 8" inch pipeline from the Navajo Refinery to the Company's recently leased pipeline from Mid-America Pipeline Company (the Lease Agreement) will then provide direct service to Albuquerque and northwest New Mexico. The alliance will provide product supply along the full extent of this system, from Bloomfield in northwest New Mexico, east to Duncan, Oklahoma, and south to El Paso. This pipeline system, along with other recently announced El Paso area pipeline expansions, will provide sufficient supply to fully utilize all existing common carrier pipelines which ship product from El Paso to New Mexico, Arizona and Mexico. It is anticipated that this pipeline network should be fully operational by August 1998 at which time the Company will begin to realize certain pipeline and terminalling revenues from Fina. The Company believes the scheduled capital projects to upgrade the Navajo Refinery will improve product yields and enhance refining profitability. The UOP Isomerization unit, which will increase the refinery's internal octane generating capabilities and improve light product yields, was completed in February 1997. In addition, the planned state-of-the-art upgrades to the Navajo Refinery's fluid catalytic cracking unit (FCC), which will improve FCC high value product yields, are now expected to be completed by fall 1997. The total estimated cost of these two projects is $15 million, of which $9 million is to be spent in fiscal 1997 through early fiscal 1998. 9 10 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Recent Developments That May Affect Future Results Ultramar Diamond Shamrock Corporation, an independent refiner and marketer, completed in November 1995 the construction of a 409-mile, ten-inch refined products pipeline from its McKee refinery near Dumas, Texas to El Paso. Ultramar Diamond Shamrock has announced that this pipeline currently has a capacity of 30,000 BPD, and with the addition of two pumping stations to be built in the first half of 1997, it will have a 45,000 BPD capacity. Ultramar Diamond Shamrock has stated its intention to use its pipeline to supply fuels to the El Paso, New Mexico, Arizona and northern Mexico markets. This pipeline has increased and could further increase the supply of products in the Company's principal markets. Recently there have been several refining and marketing consolidations or acquisitions between entities competing in the Company's geographic market. While this could increase the competitive pressures on the Company, the specific ramifications of these or other potential consolidations cannot presently be determined. Unocal has recently agreed to sell to Tosco Corporation all of the operating assets of 76 Products Company, Unocal's West Coast refining and marketing division. The parties have said they expect to close in the first quarter of 1997. The total combined sales by the Company to Tosco Corporation and its affiliates and to Unocal's West Coast refining and marketing division currently amount to approximately 20%. Effective January 1, 1995, certain cities in the United States were required to use only reformulated gasoline ("RFG"), a cleaner burning fuel. While none of the Company's principal markets presently requires RFG, the Phoenix metropolitan area has indicated, subject to public comments, that it will require RFG by June 1, 1997, and subsequently other requirements may be instituted. The Company believes it is in position, with the recent completion of its isomerization unit, to be able to meet the RFG specification. The specific fuel specifications which will ultimately be required in this market, as well as the Company's other principal markets, cannot presently be determined. Other requirements of the Clean Air Act, or other presently existing or future environmental regulations, could cause the Company to expend substantial amounts at its refineries. The specifics and extent of these or other regulations and their attendant costs are not presently determinable. This discussion should be read in conjunction with the discussion under the heading "Additional Factors That May Affect Future Results" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996. 10 11 HOLLY CORPORATION PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Index to Exhibits on page 13. (b) Reports on Form 8-K: None. 11 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: March 7, 1997 By /S/Henry A. Teichholz ------------- ---------------------------- Henry A. Teichholz Vice President, Treasurer and Controller (Duly Authorized Principal Financial and Accounting Officer) 12 13 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JUL-31-1997 JAN-31-1997 53,715 0 108,077 0 48,943 223,445 275,311 138,209 368,984 166,843 86,282 0 0 87 95,869 368,984 370,446 370,847 347,085 365,195 0 0 4,756 2,828 1,134 1,694 0 0 0 1,694 .21 .21
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