10-Q 1 d92911e10-q.txt FORM 10-Q FOR QUARTER ENDED OCTOBER 31, 2001 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, 2001 ------------------------- 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 --- --- 15,546,528 shares of Common Stock, par value $.01 per share, were outstanding on December 11, 2001. HOLLY CORPORATION INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet - (Unaudited) October 31, 2001 and July 31, 2001 3 Consolidated Statement of Income (Unaudited) - Three Months Ended October 31, 2001 and 2000 4 Consolidated Statement of Cash Flows (Unaudited) - Three Months Ended October 31, 2001 and 2000 5 Consolidated Statement of Comprehensive Income (Unaudited) - Three Months Ended October 31, 2001 and 2000 6 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 6. Exhibits and Reports on Form 8-K 25 Signatures 26
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 11. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HOLLY CORPORATION CONSOLIDATED BALANCE SHEET Unaudited
OCTOBER 31, JULY 31, 2001 2001 ------------ ------------ (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents ........................................................... $ 88,527 $ 65,840 Accounts receivable: Product ............................................... 43,393 50,364 Crude oil resales ..................................... 64,346 95,710 ------------ ------------ 107,739 146,074 Inventories: Crude oil and refined products ........................ 52,512 42,390 Materials and supplies ................................ 9,838 10,092 Reserve for lower of cost or market ................... (2,346) (2,346) ------------ ------------ 60,004 50,136 Income taxes receivable ............................................................ -- 3,514 Prepayments and other ............................................................... 15,009 18,566 ------------ ------------ TOTAL CURRENT ASSETS ........................................................... 271,279 284,130 Properties, plants and equipment, at cost .............................................. 390,922 384,783 Less accumulated depreciation, depletion and amortization .............................. (204,963) (200,628) ------------ ------------ 185,959 184,155 Investments in and advances to joint ventures .......................................... 18,063 16,303 Other assets ........................................................................... 5,421 5,841 ------------ ------------ TOTAL ASSETS ................................................................... $ 480,722 $ 490,429 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable .................................................................... $ 147,026 $ 181,182 Accrued liabilities ................................................................. 31,489 31,985 Income taxes payable ................................................................ 10,711 4,661 Current maturities of long-term debt ................................................ 8,571 8,571 ------------ ------------ TOTAL CURRENT LIABILITIES ...................................................... 197,797 226,399 Deferred income taxes .................................................................. 28,411 28,010 Long-term debt, less current maturities ................................................ 34,286 34,286 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; 16,628,596 and 16,580,096 shares issued as of October 31, 2001 and July 31, 2001 .. 166 166 Additional capital .................................................................. 12,227 11,568 Retained earnings ................................................................... 216,790 198,118 ------------ ------------ 229,183 209,852 Common stock held in treasury, at cost - 1,104,468 and 1,099,468 shares as of October 31, 2001 and July 31, 2001 ........... (7,885) (7,793) Accumulated other comprehensive income (loss) ....................................... (1,070) (325) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY ..................................................... 220,228 201,734 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 480,722 $ 490,429 ============ ============
See accompanying notes. 3 HOLLY CORPORATION CONSOLIDATED STATEMENT OF INCOME Unaudited
THREE MONTHS ENDED OCTOBER 31, ------------------------------- 2001 2000 ------------ ------------ (In thousands, except per share data) SALES AND OTHER REVENUES ......................... $ 257,947 $ 325,963 OPERATING COSTS AND EXPENSES Cost of products sold ......................... 191,984 254,235 Operating expenses ............................ 24,746 24,382 Selling, general and administrative expenses .. 5,430 6,973 Depreciation, depletion and amortization ...... 6,431 6,552 Exploration expenses, including dry holes ..... 299 234 ------------ ------------ TOTAL OPERATING COSTS AND EXPENSES ....... 228,890 292,376 ------------ ------------ INCOME FROM OPERATIONS ........................... 29,057 33,587 OTHER INCOME (EXPENSE) Equity in earnings of joint ventures .......... 2,748 1,067 Interest income ............................... 682 576 Interest expense .............................. (940) (1,436) Gain on sale of equity securities ............. 1,522 -- ------------ ------------ 4,012 207 ------------ ------------ INCOME BEFORE INCOME TAXES ....................... 33,069 33,794 Income tax provision Current ....................................... 12,697 13,013 Deferred ...................................... 150 369 ------------ ------------ 12,847 13,382 ------------ ------------ NET INCOME ....................................... $ 20,222 $ 20,412 ============ ============ NET INCOME PER COMMON SHARE - BASIC .............. $ 1.30 $ 1.35 ============ ============ NET INCOME PER COMMON SHARE - DILUTED ............ $ 1.27 $ 1.35 ============ ============ CASH DIVIDENDS PAID PER COMMON SHARE ............. $ 0.10 $ 0.09 ============ ============ AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic ......................................... 15,508 15,102 Diluted ....................................... 15,944 15,102
See accompanying notes. 4 HOLLY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited
THREE MONTHS ENDED OCTOBER 31, ---------------------------- 2001 2000 ------------ ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................ $ 20,222 $ 20,412 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization .......... 6,431 6,552 Deferred income taxes ............................. 150 369 Equity in earnings of joint ventures .............. (2,748) (1,067) (Increase) decrease in current assets Accounts receivable ............................. 38,206 (14,015) Inventories ..................................... (9,868) 195 Income taxes receivable ......................... 3,514 -- Prepayments and other ........................... 81 667 Increase (decrease) in current liabilities Accounts payable ................................ (34,156) 13,456 Accrued liabilities ............................. (214) 3,369 Income taxes payable ............................ 6,050 7,947 Turnaround expenditures ........................... (1,840) (471) Other, net ........................................ (1,424) 164 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES ........ 24,404 37,578 CASH FLOWS FROM FINANCING ACTIVITIES Debt issuance costs ................................... -- (50) Issuance of common stock upon exercise of options ..... 659 -- Purchase of treasury stock ............................ (92) -- Cash dividends ........................................ (1,550) (1,359) ------------ ------------ NET CASH USED FOR FINANCING ACTIVITIES ........... (983) (1,409) CASH FLOWS FROM INVESTING ACTIVITIES Additions to properties, plants and equipment ......... (6,384) (5,153) Investments and advances to joint ventures ............ -- (1,049) Distributions from joint ventures ..................... 1,150 -- Proceeds from sale of marketable equity securities .... 4,500 -- ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES ........... (734) (6,202) ------------ ------------ CASH AND CASH EQUIVALENTS INCREASE FOR THE PERIOD ............................... 22,687 29,967 Beginning of year ..................................... 65,840 3,628 ------------ ------------ END OF PERIOD ......................................... $ 88,527 $ 33,595 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for Interest ......................................... $ 242 $ 363 Income taxes ..................................... $ 2,958 $ 5,023
See accompanying notes. 5 HOLLY CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited
THREE MONTHS ENDED OCTOBER 31, ---------------------------- 2001 2000 ------------ ------------ (In thousands) NET INCOME ................................................................... $ 20,222 $ 20,412 Other comprehensive income (loss) Unrealized loss on securities available for sale .......................... -- (1,856) Reclassification adjustment to net income on sale of equity securities .... (1,522) -- Derivative instruments qualifying as cash flow hedging instruments Change in fair value of derivative instruments ......................... (802) -- Reclassification adjustment into net income ............................ 1,084 -- ------------ ------------ Total income on cash flow hedges .......................................... 282 -- ------------ ------------ Other comprehensive income before income taxes ............................. (1,240) (1,856) Income tax benefit ........................................................ (495) (740) ------------ ------------ Other comprehensive loss ..................................................... (745) (1,116) ------------ ------------ TOTAL COMPREHENSIVE INCOME ................................................... $ 19,477 $ 19,296 ============ ============
See accompanying notes. 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, reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's consolidated financial position as of October 31, 2001, the consolidated results of operations and comprehensive income for the three months ended October 31, 2001 and 2000, and consolidated cash flows for the three months ended October 31, 2001 and 2000. 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, 2001. 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 2002 are not necessarily indicative of the results to be expected for the full year. Note B - New Accounting Pronouncements In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This statement changes how goodwill and other intangible assets are accounted for subsequent to their initial recognition. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, with early adoption permitted, however, all goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the provisions of this statement. The Company has not completed evaluating the effects this statement will have on its financial reporting and disclosures. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement requires that the fair value for an asset retirement obligation be capitalized as part of the carrying amount of the long-lived asset if a reasonable estimate of fair value can be made. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. The Company has not completed evaluating the effects this statement will have on its financial reporting and disclosures. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", but carries over the key guidance from SFAS No. 121, in establishing the framework for the recognition and measurement of long-lived 7 HOLLY CORPORATION assets to be disposed of by sale and in addressing significant implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, with early adoption permitted. The Company has not completed evaluating the effects this statement will have on its financial reporting and disclosures. Note C - Earnings Per Share Basic income per share is calculated as net income divided by average number of shares of common stock outstanding. Diluted income per share assumes, when dilutive, issuance of the net incremental shares from stock options. Income per share amounts reflect the two-for one stock split in July 2001. The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for net income:
THREE MONTHS ENDED OCTOBER 31, ------------ ------------ 2001 2000 ------------ ------------ (In thousands, except share data) Net income ............................................. $ 20,222 $ 20,412 Average number of shares of common stock outstanding ... 15,508 15,102 Effect of dilutive stock options ....................... 436 -- ------------ ------------ Average number of shares of common stock outstanding assuming dilution .................. 15,944 15,102 ============ ============ Income per share - basic ............................... $ 1.30 $ 1.35 ============ ============ Income per share - diluted ............................. $ 1.27 $ 1.35 ============ ============
Note D - Stockholders' Equity On October 30, 2001, the Company announced plans to repurchase up to $20 million of the Company's common stock. Such repurchases are expected to be made from time to time in open market purchases or privately negotiated transactions, subject to price and availability. The repurchases will be financed with currently available corporate funds. An amendment to the Company's Credit Agreement was made to allow for the repurchases. Note E - Derivative Instruments and Hedging Activities During the quarter ended April 30, 2001, the Company entered into commodity price swaps and collar options to help manage the exposure to price volatility relating to forecasted purchases of natural gas from May 2001 to May 2002. These transactions were designated as cash flow hedges of forecasted purchases. The values of the outstanding hedges were marked to the current fair value as 8 HOLLY CORPORATION of October 31, 2001 and a resulting income of $282,000 is included in first quarter of fiscal 2002 comprehensive income. The accumulated loss included in comprehensive income is $1.78 million. Gains (losses) on the natural gas hedges will be reclassified from comprehensive income to operating expenses through May 2002 when the forecasted transactions impact earnings. Note F - 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 Refining segment also includes the equity earnings from the Company's 50% interest in NK Asphalt Partners, which manufactures and markets asphalt and asphalt products in Arizona and New Mexico. The Pipeline Transportation segment includes approximately 1,000 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% interest 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 in the Company's Annual Report on Form 10-K for the year ended July 31, 2001. The Company's reportable segments are strategic business units that offer different products and services. 9 HOLLY CORPORATION
TOTAL FOR PIPELINE REPORTABLE CORPORATE CONSOLIDATED REFINING TRANSPORTATION SEGMENTS & OTHER TOTAL ------------ -------------- ------------ ------------ ------------ (In thousands) THREE MONTHS ENDED OCTOBER 31, 2001 Sales and other revenues ............. $ 252,812 $ 4,565 $ 257,377 $ 570 $ 257,947 EBITDA(1) ............................ $ 37,079 $ 3,116 $ 40,195 $ (437) $ 39,758 Income (loss) from operations ........ $ 28,765 $ 2,482 $ 31,247 $ (2,190) $ 29,057 Income (loss) before income taxes .... $ 31,096 $ 2,767 $ 33,863 $ (794) $ 33,069 THREE MONTHS ENDED OCTOBER 31, 2000 Sales and other revenues ............. $ 320,353 $ 4,647 $ 325,000 $ 963 $ 325,963 EBITDA(1) ............................ $ 40,005 $ 3,400 $ 43,405 $ (2,199) $ 41,206 Income (loss) from operations ........ $ 33,154 $ 2,820 $ 35,974 $ (2,387) $ 33,587 Income (loss) before income taxes .... $ 33,766 $ 3,029 $ 36,795 $ (3,001) $ 33,794
(1) Earnings Before Interest, Taxes, Depreciation and Amortization. Note G - 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, BP/Amoco Pipeline Company, Williams Pipeline Company, and the Beacon Group Energy Investment Fund, L.P. and Chisholm Holdings as limited partners. The suit, as most recently amended by Longhorn Partners in September 2000, 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 actions of the Company complained of in the Longhorn Suit, as currently amended, are alleged solicitation of and support for allegedly baseless lawsuits brought by Texas ranchers in federal and state courts to challenge the proposed Longhorn Pipeline project, support of allegedly fraudulent public relations activities against the proposed Longhorn Pipeline project, entry into a contractual "alliance" with Fina Oil and Chemical Company, threatening litigation against certain partners in Longhorn Partners, and alleged interference with the federal court settlement agreement that provided for an Environmental Assessment of the Longhorn Pipeline. A hearing on the Company's amended motion for summary judgment, which seeks a court ruling that would terminate this litigation, was held January 3, 2001; as of the date of this report, the court has not issued a ruling with respect to this motion. The Company believes that the Longhorn Suit is wholly without merit and plans to continue 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. 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") under this Item 2 regarding the Company's financial position and results of operations and those in Item 1 "Legal Proceedings" in Part II, 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, effects of governmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of the Company's capital investments and marketing strategies, the costs of defense and the risk of an adverse decision in the Longhorn Pipeline litigation, and general economic conditions. Should one or more of these risks or uncertainties, among others as set forth in this Form 10-Q, materialize, actual results may vary materially from those estimated, anticipated or projected. Although the Company believes that the expectations reflected by such forward-looking statements are reasonable based on information currently available to the Company, no assurances can be given that such expectations will prove to have been 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, 2001 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 Quarterly Report on 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. 11 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED OCTOBER 31, ---------------------------------- 2001 2000 -------------- -------------- (In thousands, except share data) Sales and other revenues ............................. $ 257,947 $ 325,963 Operating costs and expenses Cost of products sold ............................. 191,984 254,235 Operating expenses ................................ 24,746 24,382 Selling, general and administrative expenses ...... 5,430 6,973 Depreciation, depletion and amortization .......... 6,431 6,552 Exploration expenses, including dry holes ......... 299 234 -------------- -------------- Total operating costs and expenses ........... 228,890 292,376 -------------- -------------- Income from operations ............................... 29,057 33,587 Other income (expense) Equity in earnings of joint ventures .............. 2,748 1,067 Interest expense, net ............................. (258) (860) Gain on sale of equity securities ................. 1,522 -- -------------- -------------- 4,012 207 -------------- -------------- Income before income taxes ........................... 33,069 33,794 Income tax provision ................................. 12,847 13,382 -------------- -------------- Net income ........................................... $ 20,222 $ 20,412 ============== ============== Net income per common share - basic(1) ............... $ 1.30 $ 1.35 Net income per common share - diluted(1) ............. $ 1.27 $ 1.35 Average number of common shares outstanding:(1) Basic .............................................. 15,508 15,102 Diluted ............................................ 15,944 15,102 Sales and other revenues(2) Refining .......................................... $ 252,812 $ 320,353 Pipeline Transportation ........................... 4,565 4,647 Corporate and Other ............................... 570 963 -------------- -------------- Consolidated ...................................... $ 257,947 $ 325,963 ============== ============== Income (loss) from operations(2) Refining .......................................... $ 28,765 $ 33,154 Pipeline Transportation ........................... 2,482 2,820 Corporate and Other ............................... (2,190) (2,387) -------------- -------------- Consolidated ...................................... $ 29,057 $ 33,587 ============== ==============
12 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 1) A two-for-one stock split was effected in July 2001. All references to the number of shares and per share amounts have been adjusted to reflect the split on a retroactive basis. 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. Included in the Refining Segment are costs relating to pipelines and terminals that operate in conjunction with the Refining segment as part of the supply and distribution networks of the refineries. The Pipeline Transportation segment includes approximately 1,000 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. REFINING SEGMENT OPERATING DATA (Unaudited)
THREE MONTHS ENDED OCTOBER 31, ----------------------------- 2001 2000 ------------ ------------ Crude charge (BPD)(1) .................. 60,200 68,100 Average per barrel(2) Refinery margin ...................... $ 9.32 $ 9.73 Cash operating costs(3) .............. 4.22 3.92 ------------ ------------ Net cash operating margin ............ $ 5.10 $ 5.81 ============ ============ Sales of produced refined products Gasolines ............................ 52.6% 53.3% Diesel fuels ......................... 21.3 22.9 Jet fuels ............................ 10.2 10.7 Asphalt .............................. 12.4 9.8 LPG and other ........................ 3.5 3.3 ------------ ------------ Total ........................... 100.0% 100.0% ============ ============
---------- (1) Barrels per day of crude oil processed. (2) Represents average per barrel amounts for produced refined products sold. (3) Includes operating costs and selling, general and administrative expenses of refineries, as well as pipeline expenses that are part of refinery operations. 13 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) FIRST QUARTER OF FISCAL 2002 COMPARED TO FIRST QUARTER OF FISCAL 2001 Net income for the first quarter ending October 31, 2001 was $20.2 million ($1.30 per share), as compared to $20.4 million ($1.35 per share) for the first quarter of the prior fiscal year. Both revenues and cost of products sold were lower for the first quarter of fiscal 2002 as compared to the first quarter of fiscal 2001, due principally to lower refined product sales prices and lower cost of purchased crude oil. Production was slightly lower due to a planned maintenance of the Artesia crude distillation unit in August 2001. Refinery margins in the first quarter of fiscal 2002 were only slightly lower than the first quarter of fiscal 2001 remaining relatively high compared to prior years and continuing the recent industry trend. Refinery margins since the end of the first quarter of fiscal 2002, while not as high as for the quarter ended October 31, 2001, have remained somewhat above historic levels, although the production during the second quarter of fiscal 2002 will be reduced due to an extended planned turnaround involving a number of process units at the Artesia and Lovington facilities. Operating costs remained relatively unchanged for the first quarter of 2002 compared to prior year's first quarter. Lower general and administrative expenses in the first quarter of 2002 as compared to the prior year's first quarter were due primarily to decreased costs associated with legal proceedings and to a decrease in compensation costs. Other income improved in the first quarter, as compared to the prior year's first quarter, as the Company realized additional revenues from the Company's share of earnings in an asphalt joint venture formed in July 2000 with a subsidiary of Koch Industries, Inc. In the first quarter of 2002, the Company also realized a $1.5 million gain on the sale of equity securities. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased by $22.7 million to $88.5 million during the three months ended October 31, 2001 as cash flows generated from operations were significantly greater than cash flows required for investing activities and dividends paid. Working capital increased during the three months ended October 31, 2001 by $15.8 million to $73.5 million. In April 2001, the Company entered into an agreement with a group of banks led by Canadian Imperial Bank of Commerce to extend its Revolving Credit Agreement. The expiration date of the Credit Agreement will be October 10, 2003 if there is a satisfactory resolution in the Longhorn Partners Pipeline lawsuit prior to October 10, 2002 and will be October 10, 2002 if there is not such a satisfactory resolution by October 10, 2002. Under the current agreement, the Company has access to $90 million of commitments for both revolving credit loans and letters of credit. Up to $45 million of this facility may be used for revolving credit loans. At October 31, 2001 the Company had letters of credit outstanding under the facility of $22.4 million and had no borrowings outstanding under the facility. On October 30, 2001, the Company announced plans to repurchase up to $20 million of the Company's common stock. Such repurchases are expected to be made from time to time in open market purchases or privately negotiated transactions, subject to price and availability. An 14 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) amendment to the Company's Credit Agreement was made to allow for the repurchases. At the end of the first quarter of fiscal 2002, 5,000 shares had been repurchased for $92,000. The Company believes its internally generated cash flow, along with its Credit Agreement, provides sufficient resources to fund planned capital projects, scheduled repayments of the Senior Notes, continued payment of dividends (although dividend payments must be approved by the Board of Directors and cannot be guaranteed) and the Company's liquidity needs. In May 2000, the Company announced a cost reduction and production efficiency program that is expected to yield annual pre-tax improvements totaling approximately $20 million. The program is currently being implemented and should be completed by July 2002. The cost reduction and production efficiency program includes productivity enhancements and a reduction in workforce. As part of the implementation of cost reductions, the Company offered a voluntary early retirement program to eligible employees under which 55 employees retired in fiscal 2001. The pre-tax cost of the voluntary early retirement program was $6.8 million and was reflected in the Company's earnings for the quarter ended July 31, 2000. Estimated capital expenditures of approximately $9 million were included in the capital budgets for fiscal 2001 and 2002 to effectuate some of the production improvements. Net cash provided by operating activities amounted to $24.4 million for the first three months of fiscal 2002, as compared to $37.6 million for the same period of the prior year. The decrease was due to a buildup of inventory in preparation for the second quarter of fiscal 2001 turnaround and other working capital items. Cash flows used for financing activities amounted to $1.0 million in the first three months of fiscal 2002, as compared to $1.4 million in the same period of the prior year. Cash flows used for financing activities in the first three months of both fiscal years consisted principally of $1.5 million and $1.4 million respectively of dividends paid to shareholders. In the first quarter of fiscal 2002, the Company received cash of $0.7 million from the issuance of common stock upon exercise of options. The Company has not made any bank borrowings during the current fiscal year. The next principal payment of $8.6 million on the Company's Senior Notes is due in December 2001. Cash flows used for investing activities were $0.7 million for the first three months of fiscal 2002, as compared to $6.2 million for the same period of the 2001 fiscal year. Cash expended on capital projects in the first three months of the current and prior fiscal years were $6.4 million and $5.2 million respectively. The Company's net cash flow used for investing activities was reduced during the first three months of fiscal 2002 by a $1.1 million distribution to the Company from the Rio Grande Pipeline joint venture and by $4.5 million of proceeds from the sale of equity securities. The Company has invested significant amounts in capital expenditures in recent years to enhance the Navajo Refinery and expand its supply and distributions network. For the 2002 fiscal year, the capital budget of Navajo Refinery, including its supply and distribution network, totals approximately $34 million. The components of this budget are $10 million for refinery improvements, $20 million for costs to complete the hydrotreater project described below, and $4 15 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) million for refinery related pipeline and transportation projects. In addition to these projects, the Company plans to expend in the 2002 fiscal year approximately $10 million on projects, principally for refinery improvements, that were approved in previous capital budgets. In November 1997, the Company purchased a hydrotreater unit for $5 million from a closed refinery. This purchase will 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. During the last two years, the Company spent approximately $8 million on relocation, engineering and equipment fabrication related to the hydrotreater project. The remaining costs to complete the hydrotreater project, estimated to be approximately $20 million, have been included in the capital budget for 2002. Subject to obtaining necessary permitting in a timely manner, the Company currently expects that the hydrotreater project could be completed by the fall of 2003. The hydrotreater will enhance higher value light products yields and expand the Company's ability to meet 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, and to meet the recently proposed EPA nationwide Low-Sulfur Gasoline requirements scheduled to become effective in 2004. Based on the current configuration of the Navajo Refinery, the Company can supply current sales volumes for the Phoenix market under the CARB standards prior to completion of the hydrotreater. Additionally, in fiscal 2001, the Company completed the construction of a new sulfur recovery unit, which is currently utilized to enhance sour crude processing capabilities and will recover additional extracted sulfur when the hydrotreater is completed. 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 and a diesel fuel terminal 40 miles east of Albuquerque in Moriarty. Transportation of petroleum products to markets in northwest New Mexico and diesel fuels to Moriarty began in the last months of calendar 1999. The Company is expanding its pumping capacity on the Leased Pipeline and its terminal in Moriarty to include gasoline and jet fuel. The increase in pipeline capacity and the expanded terminal are expected to be operational by the end of calendar 2001. When these initiatives are completed, the Company will be positioned to expand the transportation of petroleum products from the Navajo Refinery to the Albuquerque area. 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, 2001. The proposed Longhorn Pipeline is an additional potential source of pipeline transportation of refined products from Gulf Coast refineries to El Paso. 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. ("Longhorn Partners"), is a 16 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 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 heavily 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. 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. Additionally, the Longhorn Pipeline is not operating because it lacks valid easements from the Texas General Land Office for crossing certain stream and river beds and state-owned lands; the Texas Land Commissioner has indicated that these easements will not be granted until he is satisfied that the pipeline meets safety and other standards. The March 1999 settlement agreement in the federal lawsuit that resulted in the injunction against operation of the Longhorn Pipeline required the preparation of an Environmental Assessment under the authority of the EPA and the DOT while the federal court retained jurisdiction. A final Environmental Assessment (the "Final EA") on the Longhorn Pipeline was released in November 2000. The Final EA is accompanied by a Finding of No Significant Impact that is conditioned on the implementation by Longhorn Partners of a proposed mitigation plan developed by Longhorn Partners which contains 40 mitigation measures, including the replacement of approximately 19 miles of pipe in the Austin area with new thick-walled pipe protected by a concrete barrier. 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 plaintiffs in the federal court lawsuit that resulted in the Environmental Assessment of the Longhorn Pipeline have challenged the Final EA in further federal court proceedings that began in January 2001. In May 2001, one of the intervenor plaintiffs in the federal court lawsuit, the Lower Colorado River Authority ("LCRA"), entered into a settlement agreement with Longhorn Partners under the terms of which Longhorn Partners has agreed to implement specified additional mitigation measures relating to water supplies in certain areas of Central Texas and the LCRA has agreed to dismiss with prejudice its participation as an intervenor in the federal court lawsuit; this settlement agreement has not yet received final approval from the federal court. Longhorn Partners has recently announced that it has begun construction on certain pipeline improvements in the Austin, Texas area prior to a ruling by the federal court on the pending legal challenges to the Final EA. Longhorn Partners had previously indicated that construction relating to certain mitigation measures included in the Final EA might not begin until conclusion of legal challenges to the Final EA. At the date of this report, it is not possible to predict the outcome of legal challenges to the Longhorn Pipeline. 17 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) If the Longhorn Pipeline is allowed to operate as currently proposed, the substantially lower requirement for capital investment permitted by the direct route through Austin, Texas and over the Edwards Aquifers would permit Longhorn Partners to give its shippers a cost advantage through lower tariffs that could, at least for a period, result in significant downward pressure on wholesale refined products prices and refined products margins in El Paso and related markets. Although some current suppliers in the market might not compete in such a climate, the Company's analyses indicate that, because of location, recent capital improvements, and on-going enhancements to operational efficiency, the Company's position in El Paso and markets served from El Paso could withstand such a period of lower prices and margins. However, the Company's results of operations could be adversely impacted if the Longhorn Pipeline were allowed to operate as currently proposed. It is not possible to predict whether and, if so, under what conditions, the Longhorn Pipeline ultimately will be allowed to operate, nor is it possible to predict the consequences for the Company of Longhorn Pipeline's operations if they occur. 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 most recently amended by Longhorn Partners in September 2000, 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 actions of the Company complained of in the Longhorn Suit, as currently amended, are alleged solicitation of and support for allegedly baseless lawsuits brought by Texas ranchers in federal and state courts to challenge the proposed Longhorn Pipeline project, support of allegedly fraudulent public relations activities against the proposed Longhorn Pipeline project, entry into a contractual "alliance" with Fina Oil and Chemical Company, threatening litigation against certain partners in Longhorn Partners, and alleged interference with the federal court settlement agreement that provided for the Environmental Assessment of the Longhorn Pipeline. The Company believes that the Longhorn Suit is wholly without merit and plans to continue to defend itself vigorously. However, because of the size of the damages claimed and in spite of the apparent lack of merit in the claims asserted, the Longhorn Suit has created problems for the Company, including the exclusion of the Company from the possibility of certain types of major corporate transactions, an adverse impact on the cost and availability of debt financing for Company operations, and what appears to be a continuing adverse effect on the market price of the Company's common stock. The Company plans to pursue at the appropriate time any affirmative remedies that may be available to it relating to the Longhorn Suit. For additional information on the Longhorn Suit, see Part II "Other Information," Item 1, "Legal Proceedings." Other legal proceedings that could affect future results are described in Part II "Other Information", Item 1, "Legal Proceedings." 18 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 that 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 reducing or 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. During the quarter ended April 30, 2001, the Company entered into commodity price swaps and collar options to help manage the exposure to price volatility relating to forecasted purchases of natural gas from May 2001 to May 2002. At October 31, 2001, the Company has contracts outstanding for natural gas hedges of approximately .8 million MMBtu, relating to approximately 50% of the forecasted natural gas purchases for the Navajo Refinery. The price swaps and collar options effectively established minimum and maximum prices to be paid for the portion of natural gas hedged of $5.29 and $5.63 per MMBtu, respectively. The values of the outstanding hedges were marked to the current fair value as of October 31, 2001 and a resulting income of $282,000 is included in the first quarter of fiscal 2002. The accumulated loss included in comprehensive income is $1.78 million. Gains (losses) on the natural gas hedges will be reclassified from comprehensive income to operating expenses through May 2002 when the forecasted transactions impact earnings. At October 31, 2001, the Company had outstanding unsecured debt of $42.9 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 approximately two years and such debt represent less than 20% of the Company's total capitalization. As the interest rates on the Company's bank borrowings, if any, under its Credit Agreement are reset frequently based on either the bank's daily effective prime rate or the LIBOR rate, interest rate market risk is very low. There were no bank borrowings during fiscal 2001 or for the first quarter of fiscal 2002. Additionally, the Company invests any available cash only in investment grade, highly liquid investments with maturities of three months or less and hence the interest rate market risk implicit in these cash investments is low. A ten percent change in the market interest rate over the next year would also not materially impact the Company's earnings or cash flow, as the interest rates on the Company's 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 also not materially impact the Company's financial condition, since the average maturity of the Company's long-term debt is approximately two 19 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) years and such debt represents less than 20% of the Company's total capitalization, and since the Company's borrowings, if any, 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 judgment of the Company, do not justify such expenditures. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This statement changes how goodwill and other intangible assets are accounted for subsequent to their initial recognition. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, with early adoption permitted, however, all goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the provisions of this statement. The Company has not completed evaluating the effects this statement will have on its financial reporting and disclosures. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement requires that the fair value for an asset retirement obligation be capitalized as part of the carrying amount of the long-lived asset if a reasonable estimate of fair value can be made. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. The Company has not completed evaluating the effects this statement will have on its financial reporting and disclosures. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", but carries over the key guidance from SFAS No. 121, in establishing the framework for the recognition and measurement of long-lived assets to be disposed of by sale and to address significant implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, with early adoption permitted. The Company has not completed evaluating the effects this statement will have on its financial reporting and disclosures. 20 HOLLY CORPORATION 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." 21 HOLLY CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings 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, BP/Amoco Pipeline Company, Williams Pipeline Company, and the Beacon Group Energy Investment Fund, L.P. and Chisholm Holdings as limited partners. The suit, as most recently amended by Longhorn Partners in September 2000, 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 actions of the Company complained of in the Longhorn Suit, as currently amended, are alleged solicitation of and support for allegedly baseless lawsuits brought by Texas ranchers in federal and state courts to challenge the proposed Longhorn Pipeline project, support of allegedly fraudulent public relations activities against the proposed Longhorn Pipeline project, entry into a contractual "alliance" with Fina Oil and Chemical Company, threatening litigation against certain partners in Longhorn Partners, and alleged interference with the federal court settlement agreement that provided for an Environmental Assessment of the Longhorn Pipeline. A hearing on the Company's amended motion for summary judgment, which was filed in October 2000 and seeks a court ruling that would terminate this litigation, was held January 3, 2001; as of the date of this report, the court has not issued a ruling with respect to this motion. A motion filed by the Company to transfer the venue for trial of the case from the El Paso court to another Texas court has been pending since May 2000, and no hearing on this motion is currently scheduled. The Company believes that the Longhorn Suit is wholly without merit and plans to continue 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. On May 10, 2001, the Environmental Protection Division of the New Mexico Environment Department ("NMED") issued a Compliance Order Requiring Compliance and Assessing a Civil Penalty (the "Compliance Order") which alleges that the fluid catalytic cracking unit ("FCCU") at the Company's Navajo Refinery has operated in excess of allegedly applicable air emissions limits for certain pollutants in substantial portions or all of the period from 1992 to the present. The Compliance Order seeks immediate compliance with the emission limits alleged to be applicable or a settlement agreement with the Company establishing a binding schedule for installing equipment to achieve compliance with the specified limits. The Compliance Order states that a civil penalty will be calculated by the NMED during the penalty phase of proceedings under the Compliance Order and asserts the applicability of provisions of New Mexico law authorizing penalties of up to $15,000 per day or per hour for violations of air emissions permit limits. The Company filed in June 2001 a Request for Hearing and Answer challenging the Compliance Order. Proceedings with respect to the Compliance Order are currently stayed to permit settlement discussions involving the NMED and other parties as described in the next paragraph. 22 HOLLY CORPORATION In July 2001, the Company initiated discussions among the Company, the EPA, the NMED, and the Montana Department of Environmental Quality with respect to a possible global settlement of issues concerning the application of air quality requirements to past and future operations of the Company's refineries. A tentative agreement on these issues has been negotiated and the Company believes that it is likely that a final agreement on these issues based on the tentative agreement can be entered into. If a final agreement is entered into, it is expected that such agreement would involve capital investments by the Company, some of them substantial, and the payment of a monetary penalty. At the date of this report no assurance is possible that such a final agreement will be entered into. In May and June 2001, the Company filed claims with the Department of Defense under the Contract Disputes Act asserting that additional amounts are due to the Company with respect to jet fuel sales to the Defense Fuel Supply Center in the years 1982 through 1995. The total of all claims filed by the Company is approximately $210 million. In November 2001, the Department of Defense issued final decisions rejecting the Company's claims and asserting counterclaims totaling approximately $8,000,000 if part or all of the Company's claims are allowed. Any recovery by the Company with respect to the claims would require further proceedings. It is not possible at the date of this report to predict what amount, if any, will ultimately be payable to the Company with respect to these claims. 23 HOLLY CORPORATION Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of stockholders on December 13, 2001, all nine of the management's nominees for directors as listed in the proxy statement were elected. ELECTION OF DIRECTORS
Total Votes Total Votes "For" "Withheld" ------------ ------------- Matthew P. Clifton 12,973,050 347,517 W. John Glancy 12,970,650 349,917 William J. Gray 13,186,548 134,019 Marcus R. Hickerson 13,179,576 140,991 Thomas K. Matthews, II 13,181,701 138,866 Robert G. McKenzie 13,186,848 133,719 Lamar Norsworthy 12,897,134 423,433 Jack P. Reid 12,530,224 790,343 Paul T. Stoffel 13,184,915 135,652
24 HOLLY CORPORATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K: None. 25 HOLLY CORPORATION 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, 2001 By /s/ Kathryn H. Walker ----------------- ----------------------------------------- Kathryn H. Walker Vice President, Accounting (Principal Accounting Officer) By /s/ Stephen J. McDonnell ----------------------------------------- Stephen J. McDonnell Vice President and Chief Financial Officer (Principal Financial Officer) 26