-----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, DztLjY/wjVLTzVyJhQVADzoQ9Ma4XtPEXssmowxrxDPro29/pY1GYzxRjgsgXCHQ m+dh7fMsb1Es89Q1FIzeSg== 0000950134-97-004479.txt : 19970610 0000950134-97-004479.hdr.sgml : 19970610 ACCESSION NUMBER: 0000950134-97-004479 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970606 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: 97620468 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 ENDED APRIL 30, 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 April 30, 1997 ----------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 1-3876 ----------- HOLLY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1056913 - ---------------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Crescent Court, Suite 1600 Dallas, Texas 75201-6927 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (214) 871-3555 --------------------- - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 8,253,514 shares of Common Stock, par value $.01 per share, were outstanding on June 4, 1997. 2 HOLLY CORPORATION INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet - April 30, 1997 (Unaudited) and July 31, 1996 3 Consolidated Statement of Income (Unaudited) - Three Months and Nine Months Ended April 30, 1997 and 1996 4 Consolidated Statement of Cash Flows (Unaudited) - Nine Months Ended April 30, 1997 and 1996 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HOLLY CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Thousands Except Per Share Amounts)
Unaudited April 30, July 31, 1997 1996 ---------- --------- ASSETS ------ Current assets Cash and cash equivalents $ 49,207 $ 63,959 Accounts receivable: Product 37,980 43,642 Crude oil resales 56,111 54,456 Note receivable - 6,288 --------- --------- 94,091 104,386 Inventories: Crude oil and refined products 44,101 32,090 Materials and supplies 7,516 6,583 --------- --------- 51,617 38,673 Prepayments and other 8,264 10,008 --------- --------- Total current assets 203,179 217,026 Properties, plants and equipment, at cost 271,363 261,621 Less accumulated depreciation, depletion and amortization 131,244 130,177 --------- --------- 140,119 131,444 Equity interest in joint venture 4,992 734 Other assets 6,735 2,067 --------- --------- $ 355,025 $ 351,271 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities Accounts payable $ 118,390 $ 122,421 Accrued liabilities 15,440 12,453 Income taxes payable 1,732 4,728 Current maturities of long-term debt 10,775 10,775 --------- --------- Total current liabilities 146,337 150,377 Deferred income taxes 19,585 18,361 Long-term debt, less current maturities 86,282 86,290 Commitments and contingencies Stockholders' equity Preferred stock, $1.00 par value - 1,000,000 shares authorized; none issued - - Common stock, $.01 par value - 20,000,000 shares authorized; 8,650,282 shares issued 87 87 Additional capital 6,132 6,132 Retained earnings 97,171 90,593 --------- --------- 103,390 96,812 Common stock held in treasury, at cost - 396,768 shares (569) (569) --------- --------- Total stockholders' equity 102,821 96,243 --------- --------- $ 355,025 $ 351,271 ========= =========
See accompanying notes. 3 4 HOLLY CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Thousands Except Per Share Amounts)
Unaudited Unaudited Three Months Ended Nine Months Ended April 30, April 30, ---------------------- ---------------------- 1997 1996 1997 1996 ---------- --------- --------- --------- Revenues Refined products $ 178,826 $ 166,318 $ 546,225 $ 481,020 Oil and gas 1,020 1,938 4,067 3,465 Miscellaneous 235 216 636 603 --------- --------- --------- --------- 180,081 168,472 550,928 485,088 Costs and expenses Cost of refined products 156,877 151,309 503,962 435,071 General and administrative 3,362 3,581 10,307 10,552 Depreciation, depletion and amortization 4,595 4,898 14,535 13,364 Exploration expenses, including dry holes 689 1,016 1,914 2,661 --------- --------- --------- --------- 165,523 160,804 530,718 461,648 --------- --------- --------- --------- Income from operations 14,558 7,668 20,210 23,440 Other Equity in earnings of joint venture 171 - 171 - Interest income 740 844 2,672 2,034 Interest expense (2,347) (2,682) (7,103) (7,131) --------- --------- --------- --------- (1,436) (1,838) (4,260) (5,097) --------- --------- --------- --------- Income before income taxes 13,122 5,830 15,950 18,343 Income tax provision (benefit) Current 5,522 1,996 4,989 7,149 Deferred (255) 331 1,412 212 --------- --------- --------- --------- 5,267 2,327 6,401 7,361 --------- --------- --------- --------- Net income $ 7,855 $ 3,503 $ 9,549 $ 10,982 ========= ========= ========= ========= Income per common share $ .95 $ .42 $ 1.16 $ 1.33 Cash dividends paid per share $ .12 $ .10 $ .36 $ .30 Average number of shares of common stock outstanding (in thousands) 8,254 8,254 8,254 8,254
See accompanying notes. 4 5 HOLLY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands)
Unaudited Nine Months Ended April 30, -------------------- 1997 1996 -------- -------- Cash flows from operating activities Net income $ 9,549 $ 10,982 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization 14,535 13,364 Deferred income taxes 1,412 212 Equity in earnings of joint venture (171) - Dry hole costs and leasehold impairment 394 1,045 (Increase) decrease in operating assets Accounts receivable 10,295 (22,481) Inventories (12,944) 2,077 Income taxes receivable - 804 Prepayments and other (210) 1,350 Increase (decrease) in operating liabilities Accounts payable (4,031) 21,407 Accrued liabilities 2,987 3,262 Income taxes payable (2,996) 140 Turnaround expenditures (5,365) (1,561) Other, net 110 564 -------- -------- Net cash provided by operating activities 13,565 31,165 Cash flows from financing activities Increase in notes payable - 39,000 Payment of long-term debt (8) (8) Debt issuance costs - (403) Cash dividends (2,971) (2,476) -------- -------- Net cash provided by (used for) financing activities (2,979) 36,113 Cash flows from investing activities Additions to properties, plants and equipment (21,251) (10,920) Investment in joint venture (4,087) - -------- -------- Net cash used for investing activities (25,338) (10,920) -------- -------- Cash and cash equivalents Increase (decrease) for the period (14,752) 56,358 Beginning of year 63,959 13,432 -------- -------- End of period $ 49,207 $ 69,790 ======== ======== Supplemental disclosure of cash flow information Cash paid during period for Interest $ 4,407 $ 3,782 Income taxes $ 7,505 $ 5,874
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 April 30, 1997, the consolidated results of operations for the three months and nine months ended April 30, 1997 and 1996, and consolidated cash flows for the nine months ended April 30, 1997 and 1996. Certain notes and other information have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996. Certain previously reported amounts have been reclassified to conform to current classifications. References herein to the "Company" are for convenience of presentation and may include obligations, commitments or contingencies that pertain solely to one or more affiliates of the Company. Results of operations for the first nine months of fiscal 1997 are not necessarily indicative of the results to be expected for the full year. Note B - Accounting Pronouncement In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is effective for periods ending after December 15, 1997. The statement simplifies the standards for computing earnings per share and makes them comparable to international standards. The impact of Statement No. 128 on the calculation of income per common share of the Company is not expected to be material. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Form 10-Q, including without limitation statements in this Item 2 under the headings "Results of Operations," "Liquidity and Capital Resources" and "Recent Developments That May Affect Future Results," other than statements of historical facts, are forward-looking statements. Such statements are subject to certain risks and uncertainties, including risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company's markets, demand and supply for crude oil and for refined products, the spread between market prices for refined products and crude oil, the possibility of constraints on the 6 7 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) transportation of refined products, the possibility of inefficiencies or shutdowns in refinery operations, governmental regulations and policies, the availability of financing to the Company on favorable terms, the effectiveness of Company capital investments and marketing strategies, and completion of the recently announced alliance with FINA, Inc. and such alliance producing desired results. Because of these and other risks and uncertainties, actual results may vary materially from those estimated, anticipated or projected. Although the Company believes that the expectations reflected by the forward-looking statements contained in this Report are reasonable based on information currently available to the Company, no assurances can be given that such expectations will prove to be correct. This summary discussion of risks and uncertainties that may cause actual results to differ from those indicated in forward-looking statements should be read in conjunction with the discussion under the heading "Additional Factors That May Affect Future Results" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996 and in conjunction with the discussion below under the heading "Recent Developments That May Affect Future Results." All forward-looking statements included in this Form 10-Q and all subsequent oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth above. Results of Operations Net income for the third quarter ended April 30, 1997 was $7.9 million as compared to $3.5 million, for the third quarter of the prior year. For the nine months ended April 30, 1997, net income was $9.5 million as compared to $11.0 million, for the first nine months in the same period of fiscal 1996. The increase in earnings in the third quarter of fiscal 1997 was due principally to improved refinery margins, and a small increase in volumes sold, as compared to the third quarter of the prior year. For the nine months ended April 30, 1997 as compared to the same period in fiscal 1996, the decrease in earnings was caused by small reductions in refinery margins and volumes sold. Refinery margins recovered in the current year's third quarter from the very depressed levels in the immediately preceding quarter, as crude oil prices fell at a greater rate than product prices. The latter part of the quarter experienced particularly strong margins. Recently refining margins have fallen off somewhat from those high levels of the latter part of the third quarter. Revenues increased in both the third quarter and nine months ended April 30, 1997 from the prior year's comparable periods principally as the result of higher sales prices. 7 8 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The increase in depreciation, depletion and amortization in the nine month comparable periods related primarily to increased production from oil and gas properties, as most of last year's oil and gas depreciation, depletion and amortization did not commence until the second quarter of fiscal 1996. Although oil and gas revenues have increased slightly for the nine months ended April 30, 1997 as compared to the same period of the prior year, production and revenues for the third quarter of fiscal 1997 are lower than the third quarter of the prior year, due to deferred production, resulting from production facility completions. Liquidity and Capital Resources Cash flows from operations during the nine months ended April 30, 1997 were less than capital expenditures and dividends paid, resulting in a net decrease of cash and cash equivalents of $14.8 million. Working capital decreased during the nine months ended April 30, 1997 by $9.8 million to $56.8 million. The Company's long-term debt now represents 48.6% of total capitalization as compared to 50.2% at July 31, 1996. At April 30, 1997, the Company had $25 million of borrowing capacity under the Credit Agreement which can be used for short term working capital needs. The Company believes that these sources of funds, together with future cash flows from operations should provide sufficient resources, financial strength and flexibility for the Company to satisfy its liquidity needs, capital requirements, and debt service obligations and to permit the payment of dividends for the foreseeable future. Net cash provided by operating activities amounted to $13.6 million in the first nine months of fiscal 1997, as compared to $31.2 million in the same period of the prior year. The primary reason for the decrease in net cash flows from operating activities was changes in working capital accounts. Cash flows used for financing activities amounted to $3.0 million in the first nine months of fiscal 1997, as compared to cash flows provided by financing activities of $36.1 million in the same period of the prior year. In the second quarter of fiscal 1996, the Company completed the funding from a group of insurance companies of a new private placement of Senior Notes in the amount of $39 million. The next principal payment of $10.8 million on the Company's Senior Notes is due June 1997. The maturity date of the Company's Credit Agreement has been extended to November 1, 1997. The Company is in the process of renewing, and expects to renew, the Credit Agreement beyond that date on terms similar to those presently in effect. 8 9 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cash flows used for investing activities were $25.3 million in the first nine months of fiscal 1997, as compared to $10.9 million in the same period of the prior year. The Company has a capital budget totalling $32 million for fiscal 1997. The major components of this budget are $13 million for the construction of a pipeline connection from the Navajo Refinery to an 8" pipeline that has been leased by the Company for products transport (the "Lease Agreement") and related product terminals, $12 million for various refinery improvements and environmental and safety enhancements and $7 million for exploration and production activities. In addition to these projects, the Company is in the process of completing the major items approved in the 1996 capital budget, including a joint venture to ship liquid petroleum gases (LPGs) to Mexico and two projects at the Navajo Refinery which entail upgrades to improve product yields. The Lease Agreement is with Mid-America Pipeline Company and involves more than 300 miles of 8" pipeline running from Chavez County to San Juan County, New Mexico. The Company is preparing to construct a 60 mile pipeline, from the Navajo Refinery to the leased pipeline, and related terminalling facilities. These facilities will allow the Company to use the pipeline to transport refined products from its Navajo Refinery to markets in Albuquerque and northwest New Mexico. The pipeline and related facilities are expected to be operational near the end of calendar 1997. The Company is in a joint venture with Mid-America Pipeline Company and Amoco Pipeline Company to transport liquid petroleum gases (LPGs) to Mexico, which deliveries began in April 1997. The Company has a 25% interest in the joint venture. For the Company, the project involved the construction of a 12" pipeline from Orla to El Paso, Texas, which replaced a portion of 8" pipeline previously used by Navajo that was transferred to the joint venture. The 12" pipeline was completed in October 1996. The Company's total net cash investment in the projects (in addition to the contribution of a portion of the existing 8" pipeline to the joint venture) was $8 million, of which $7 million was spent in fiscal 1997, including contributions to the joint venture. The additional pipeline capacity associated with the new pipeline constructed in conjunction with the joint venture and with the Lease Agreement and the construction of the related pipeline and terminalling facilities should reduce pipeline operating expenses at current throughputs and allow the Company to expand volumes, through refinery expansion or otherwise, shipped into existing and new markets. 9 10 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company announced in February 1997, the formation of an alliance with FINA, Inc. to create a comprehensive supply network which should provide sufficient gasoline and diesel supply to satisfy the demand growth in the West Texas, New Mexico, and Arizona markets for at least the next five years. When fully operational, the system will have the capacity to provide up to 155,000 barrels of refined products per day to these Southwest markets. The project will utilize existing assets. FINA's bi-directional Amdel Pipeline could be converted, when needed, from crude oil to refined products and transport up to 50,000 barrels per day from FINA's Port Arthur Refinery on the Gulf Coast, while 45,000 barrels per day will be shipped from FINA's Big Spring Refinery. In addition, the Navajo Refinery will continue to provide 60,000 barrels per day of refined products. FINA will construct a 50 mile extension of its Amdel Pipeline from Wink, Texas to the Company's pipeline station at Orla, Texas, where a long-term agreement with FINA will enable FINA to transport up to 20,000 barrels per day on the Company's recently completed 12" pipeline to El Paso. In New Mexico, the completion by the Company of the 8" inch pipeline from the Navajo Refinery to the pipeline recently leased from Mid-America Pipeline Company (the Lease Agreement) will then provide direct service to Albuquerque and northwest New Mexico. The alliance will provide product supply along the full extent of this system, from Bloomfield in northwest New Mexico, east to Duncan, Oklahoma, and south to El Paso. This pipeline system, along with other recently announced El Paso area pipeline expansions, will provide sufficient supply to fully utilize all existing common carrier pipelines which ship product from El Paso to New Mexico, Arizona and Mexico. It is anticipated that this pipeline network should be fully operational by August 1998 at which time the Company will begin to realize certain pipeline and terminalling revenues from Fina. The Company believes the scheduled capital projects to upgrade the Navajo Refinery will improve product yields and enhance refining profitability. The UOP Isomerization unit, which will increase the refinery's internal octane generating capabilities and improve light product yields, was completed in February 1997. In addition, the planned state-of-the-art upgrades to the Navajo Refinery's fluid catalytic cracking unit (FCC), which will improve FCC high value product yields, are now expected to be completed by fall 1997. The total estimated cost of these two projects is $15 million, of which $9 million is to be spent in fiscal 1997 and early fiscal 1998. Recent Developments That May Affect Future Results Ultramar Diamond Shamrock Corporation, an independent refiner and marketer, completed in November 1995 the construction of a 409-mile, ten-inch refined products pipeline from its McKee refinery near Dumas, Texas to El Paso. Ultramar Diamond Shamrock has announced that this pipeline currently has a capacity of 30,000 BPD, and that, with the addition of two pumping stations to be built in the first half of 1997, it will have a 45,000 BPD capacity. Ultramar Diamond Shamrock has stated its intention to use its pipeline to supply fuels to the El Paso, New Mexico, Arizona and northern Mexico markets. This pipeline has increased and could further increase the supply of products in the Company's principal markets. 10 11 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Phillips Petroleum Company recently announced that it plans to construct a new pipeline and modify an existing pipeline to carry petroleum products from its Borger, Texas refinery to markets in El Paso, Texas and Arizona. The project involves reversing and converting an existing eight-inch natural gas liquids pipeline that extends from Borger to Gaines, Texas, constructing a new 220-mile, ten-inch pipeline from Gaines to El Paso and building a new terminal at El Paso. Phillips announced that it expects to complete the project in late 1998. This project could also increase the supply of products in the Company's principal markets. Recently there have been several refining and marketing consolidations or acquisitions between entities competing in the Company's geographic market. While this could increase the competitive pressures on the Company, the specific ramifications of these or other potential consolidations cannot presently be determined. Tosco Corporation has recently purchased from Unocal all of the operating assets of 76 Products Company, Unocal's West Coast refining and marketing division. The total combined sales by the Company to Tosco Corporation and its affiliates now amount to approximately 20%. Effective January 1, 1995, certain cities in the United States were required to use only reformulated gasoline ("RFG"), a cleaner burning fuel. While none of the Company's principal markets presently requires RFG, Arizona will require RFG by late June 1997, with more stringent fuel specifications to be mandated in 1999. The Company believes it is in position, with the recent completion of its isomerization unit, to be able to meet these specifications, as they are presently formulated. Other requirements of the Clean Air Act, or other presently existing or future environmental regulations, could cause the Company to expend substantial amounts at its refineries. The specifics and extent of these or other regulations and their attendant costs are not presently determinable. This discussion should be read in conjunction with the discussion under the heading "Additional Factors That May Affect Future Results" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1996. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Index to Exhibits on page 13. (b) Reports on Form 8-K: None. 11 12 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOLLY CORPORATION -------------------------------- (Registrant) Date: June 6, 1997 By /s/ Henry A. Teichholz ------------ ----------------------------- Henry A. Teichholz Vice President, Treasurer and Controller (Duly Authorized Principal Financial and Accounting Officer) 12 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 9-MOS JUL-31-1997 APR-30-1997 49,207 0 94,091 0 51,617 203,179 271,363 131,244 355,025 146,337 86,282 0 0 87 102,734 355,025 550,292 550,928 503,962 530,718 0 0 7,103 15,950 6,401 9,549 0 0 0 9,549 1.16 1.16
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