UNITED STATES SECURITIES AND EXCHANGE COMMISSION

(Mark One)

For the quarterly period ended September 30, 2004

OR

For the transition period from                                        to                                       

Commission File Number 1-3876

HOLLY CORPORATION

Registrant’s telephone number, including area code (214) 871-3555

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

31,280,566 shares of Common Stock, par value $.01 per share, were outstanding on November 1, 2004.

HOLLY CORPORATION
INDEX

- 2 -

PART I

FORWARD-LOOKING STATEMENTS

References throughout this document to Holly Corporation include Holly Corporation and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to Holly Corporation and its consolidated subsidiaries or to Holly Corporation or an individual subsidiary and not to any other person.

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, those under “Results of Operations,” “Liquidity and Capital Resources” and “Additional Factors that May Affect Future Results” (including “Risk Management”) in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I and those in Item 1 “Legal Proceedings” in Part II, are forward-looking statements. These statements are based on management’s belief and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance, and involve certain risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors, including, but not limited to:

	•		risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in our markets;
	•		the demand for and supply of crude oil and refined products;
	•		the spread between market prices for refined products and market prices for 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 our financing;
	•		the effectiveness of our capital investments and marketing strategies;
	•		our efficiency in carrying out construction projects;
	•		our ability to successfully purchase and integrate any future acquired operations;
	•		the outcome of litigation with Frontier Oil Corporation;
	•		the possibility of terrorist attacks and the consequences of any such attacks;
	•		general economic conditions;
	•		other financial, operational and legal risks and uncertainties detailed from time to time in our SEC filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including without limitation in conjunction with the forward-looking statements included in this Form 10-Q that are referred to above. This summary discussion should be read in conjunction with the discussion under the heading “Additional Factors That May Affect Future Results” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2003 and in conjunction with the discussion in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Liquidity and Capital Resources” and “Additional Factors That May Affect Future Results.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made, other than as

- 3 -

required by law, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

DEFINITIONS

Within this report, the following terms have these specific meanings:

     “Alkylation” means the reaction of propylene or butylene (olefins) with isobutane to form an iso-paraffinic gasoline (inverse of cracking).

     “BPD” means the number of barrels per day of crude oil or petroleum products.

     “Cracking” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules.

     “Crude distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing slightly above atmospheric pressure the vapor back to liquid in order to purify, fractionate or form the desired products.

     “Fluid catalytic cracking” means the breaking down of large, complex hydrocarbon molecules into smaller, more useful ones by the application of heat, pressure and a chemical (catalyst) to speed the process.

     “Hydrodesulfurization” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen and a catalyst at relatively high temperatures.

     “Isomerization” means a refinery process for converting C5/C6 gasoline compounds into their isomers, i.e., rearranging the structure of the molecules without changing their size or chemical composition.

     “LPG” means liquid petroleum gases.

     “Refining gross margin” or “refinery gross margin” means the difference between average net sales price and average raw material costs per barrel of produced refined products.

     “Reforming” means the process of converting gasoline type molecules into aromatic, higher octane gasoline blend stocks while producing hydrogen in the process.

     “Sour crude oil” means crude oil containing quantities of hydrogen sulfur greater than 0.4%, while “sweet crude oil” would contain quantities of hydrogen sulfur less 0.4%.

     “Vacuum distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing below atmospheric pressure the vapor back to liquid in order to purify, fractionate or form the desired products.

- 4 -

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOLLY CORPORATION

See accompanying notes.

- 5 -

HOLLY CORPORATION

See accompanying notes.

- 6 -

HOLLY CORPORATION

See accompanying notes.

- 7 -

HOLLY CORPORATION

See accompanying notes.

- 8 -

HOLLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A — Description of Business and Presentation of Financial Statements

     References herein to Holly Corporation include Holly Corporation and its consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines, this Quarterly report on Form 10-Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to Holly Corporation and its consolidated subsidiaries or to Holly Corporation or an individual subsidiary and not to any other person.

     See Note E to the Consolidated Financial Statements for additional information and for information about changes that have occurred due to the initial public offering in July 2004 of limited partnership interests in Holly Energy Partners, L.P., a Delaware limited partnership (“Holly Energy Partners”) which is owned 51% by us and 49% by other investors in Holly Energy Partners. We consolidate the results of Holly Energy Partners and show the interest we do not own as a minority interest in ownership and earnings.

     As of September 30, 2004, following the initial public offering of Holly Energy Partners, we:

	•		owned and operated three refineries consisting of a petroleum refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively known as the “Navajo Refinery”), and refineries in Woods Cross, Utah and Great Falls, Montana;
	•		owned approximately 1,000 miles of crude oil and intermediate product pipelines located principally in West Texas and New Mexico;
	•		owned a 49% interest in NK Asphalt Partners, which manufactures and markets asphalt products from various terminals in Arizona and New Mexico; and
	•		owned a 51% interest in Holly Energy Partners, which owns assets including approximately 780 miles of refined product pipelines located principally in West Texas and New Mexico (including 340 miles of leased pipeline); nine refined product terminals (three of which are owned 50% by Holly Energy Partners and 50% by unaffiliated parties) in Albuquerque, Moriarty and Bloomfield, New Mexico; Tucson, Arizona; El Paso, Texas; Burley and Boise, Idaho; Spokane, Washington; and Mountain Home, Idaho; and a 70% interest in Rio Grande Pipeline Company, which owns a 249-mile pipeline that transports liquid petroleum gases, or LPGs, from west Texas to the Texas/Mexico border near El Paso for further transport into Northern Mexico.

- 9 -

HOLLY CORPORATION

Note A — Description of Business and Presentation of Financial Statements (continued)

     On August 2, 2004, we announced that our Board of Directors approved a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The stock dividend was paid on August 30, 2004 to all record holders of common stock at the close of business on August 16, 2004. As a result of this split, all references to the number of shares (other than common stock and treasury stock on the Consolidated Balance Sheet) and per share amounts in the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements have been adjusted to reflect the split on a retroactive basis. Previously awarded stock options and restricted stock awards and all other compensation arrangements based on the market value of our common stock have been adjusted to reflect the split.

     We have prepared these consolidated financial statements without audit. In management’s opinion, these consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our consolidated financial position as of September 30, 2004, the consolidated results of operations and comprehensive income for the three months and nine months ended September 30, 2004 and 2003 and consolidated cash flows for the nine months ended September 30, 2004 and 2003 in accordance with the rules and regulations of the SEC. Although certain notes and other information required by accounting principles generally accepted in the United States of America have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our 2003 Form 10-K.

     Our results of operations for the first nine months of 2004 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior reported amounts to conform to current classifications.

- 10 -

HOLLY CORPORATION

Note B — 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. The following is a reconciliation of basic and diluted per share computations for net income:

     On August 2, 2004, we announced that our Board of Directors approved a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The dividend was paid on August 30, 2004 to all record holders of common stock at the close of business on August 16, 2004. The average number of shares outstanding have been adjusted to reflect the two for one stock split.

Note C — Stock-Based Compensation

     We have compensation plans under which certain officers and employees have been granted stock options. All the options have been granted at prices equal to the market value of the shares at the time of the grant and normally expire on the tenth anniversary of the grant date. Our stock option based compensation is measured in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no compensation expense is recognized for fixed option plans because the exercise prices of employee stock options equal or exceed the market prices of the underlying stock on the dates of grant.

- 11 -

HOLLY CORPORATION

Note C — Stock-Based Compensation (continued)

     The following table represents the effect on net income and earnings per share as if we had applied the fair value based method and recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” to stock based employee compensation.

     During the nine months ended September 30, 2004 we issued 275,200 shares (net of forfeitures) of restricted stock under our Long Term Incentive Compensation Plan. The 148,900 shares issued in the first quarter of 2004 generally vest 50% on January 1, 2005 and 50% on January 1, 2006 (with later performance based vesting in the case of shares granted to certain key executives). The 126,300 shares issued in the second quarter of 2004 generally vest 33.3% on January 1, 2007, 33.3% on January 1, 2008 and 33.4% on January 1, 2009 (with later performance based vesting in the case of shares granted to certain key executives). We also issued 17,010 shares of restricted stock to outside directors during the second quarter of 2004. These shares will vest on the date of the Annual Meeting of Stockholders in 2007. Although ownership in these shares will not transfer to the recipients until the vesting terms have expired, recipients have dividend and voting rights on these shares from the date of grant. We are recording the cost of these grants over their corresponding vesting periods and have expensed $1.3 million in the nine months ended September 30, 2004.

     During the nine months ended September 30, 2004, we also granted 289,200 performance share units (net of forfeitures) under our Long Term Incentive Compensation Plan. The 162,900 units (net of forfeitures) issued during the first quarter of 2004 generally vest on January 1, 2005. The 126,300 units (net of forfeitures) issued during the second quarter of 2004 generally vest on January 1, 2007. The cash benefit payable under these grants will be based upon our total shareholder return during the period as compared to the total shareholder return of our peer group refining companies. We are recording the cost of these grants over their corresponding vesting periods and have expensed $5.9 million in the nine months ended September 30, 2004.

- 12 -

HOLLY CORPORATION

Note C — Stock-Based Compensation (continued)

     Previously awarded stock options and all other compensation arrangements based on the market value of our common stock have been adjusted to reflect the split.

Note D — Initial Public Offering of Holly Energy Partners

     On March 15, 2004, we filed a registration statement on Form S-1 with the SEC relating to a proposed underwritten initial public offering of limited partnership interests in Holly Energy Partners. Holly Energy Partners was formed to acquire, own and operate substantially all of our refined product pipeline and terminalling assets that support our refining and marketing operations in West Texas, New Mexico, Utah and Arizona and to own our 70% interest in Rio Grande Pipeline Company (“Rio Grande”), all of which were contributed to Holly Energy Partners upon the closing of its initial public offering.

     On July 7, 2004, Holly Energy Partners priced 6,100,000 common units for the initial public offering and on July 8, 2004, Holly Energy Partners’ common units began trading on the New York Stock Exchange under the symbol “HEP.” On July 13, 2004, Holly Energy Partners closed its initial public offering of 7,000,000 common units at a price of $22.25 per unit, which included a 900,000 share over-allotment option that was exercised by the underwriters. Proceeds to Holly Energy Partners from the sale of the units were $145.5 million, net of underwriting commissions. We own a 51% interest in Holly Energy Partners, consisting of a 2% general partner interest and a 49% subordinated limited partner interest. The initial public offering represented the sale by us of a 49% interest in Holly Energy Partners.

     In July 2004, Holly Energy Partners repaid Holly Corporation for $30.1 million of debt and made a distribution to Holly Corporation of $125.6 million. Beginning with the third quarter of 2004, we consolidate the results of Holly Energy Partners with minority interest treatment for the common units.

     We hold 7,000,000 subordinated units of Holly Energy Partners. Our rights as holder of subordinated units to receive distributions of cash from Holly Energy Partners are subordinated to the rights of the other limited partners to receive such distributions.

     In connection with the offering, we entered into a 15-year pipelines and terminals agreement with Holly Energy Partners under which we agreed generally to transport or terminal volumes on certain of Holly Energy Partners’ initial facilities that will result in revenues that will equal or exceed a specified minimum revenue amount annually (which will initially be $35.4 million and will adjust upward based on the producer price index) over the term of the agreement.

- 13 -

HOLLY CORPORATION

Note D — Initial Public Offering of Holly Energy Partners (continued)

     The following table sets forth the changes in the minority interest balance attributable to third party investors’ interests in Holly Energy Partners subsequent to its initial public offering. The opening balance represents our minority interest in Rio Grande Pipeline Company (“Rio Grande”) as of the date of the initial public offering of Holly Energy Partners, as our interest in Rio Grande was contributed to Holly Energy Partners.

Note E — Cash and Cash Equivalents and Investments in Marketable Securities

     Our investment portfolio consists of cash, cash equivalents, and investments in debt securities of government entities.

     We consider all highly-liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market value and are invested in conservative, highly-rated instruments issued by financial institutions or government entities with strong credit standings.

     Starting in the third quarter of 2004, we began investing in highly-rated marketable debt securities primarily issued by government entities that have maturities greater than three months. The maximum maturity of any individual issue is not greater than two years, while the maximum duration of the portfolio of investments (including cash equivalents) is not greater than one year. These instruments are classified as available-for-sale, and as a result, are reported at fair value. Unrealized gains and losses, net of related income taxes, are reported as a component of accumulated other comprehensive income.

     Our available-for-sale investments mature from December 2004 through September 2006. During the nine months ended September 30, 2004, we recognized less than $0.1 million in gains related to two sales where we received $3.1 million. The realized gains represent the difference between the purchase price and market value on the maturity date or sales date. The following table details the net change in unrealized losses for the nine months ended September 30, 2004.

- 14 -

HOLLY CORPORATION

Note F — Investments in Joint Ventures

     NK Asphalt Partners, a joint venture owned 49% by us and 51% by a subsidiary of Koch Materials Company (“Koch”), manufactures and markets asphalt products from various terminals in Arizona and New Mexico under the name “Koch Asphalt Solutions — Southwest.” We account for this investment using the equity method. We made a contribution to the joint venture in July 2004 of $3.25 million and are required to make additional contributions to the joint venture of up to $3.25 million for each of the next six years contingent on the earnings level of the joint venture. We plan to finance such contributions from our share of cash flows of the joint venture. In the event we fail to make the required contributions, we may lose our voting rights during such default and the other partner could cause the partnership to bring a proceeding to collect the unpaid contributions plus interest at the prime rate plus 2.0%. All asphalt produced at our Navajo Refinery is sold at market prices to the joint venture under a supply agreement. Sales to the joint venture during the nine months ended September 30, 2004 and 2003 were $25.6 million and $23.8 million, respectively.

     The Rio Grande Pipeline Company (“Rio Grande”) is a pipeline joint venture partnership that as of September 30, 2004 is owned 35.7% indirectly by us through our 51% ownership of Holly Energy Partners, 30% by BP p.l.c. and 34.3% by outside investors in Holly Energy Partners and serves northern Mexico by transporting liquid petroleum gases (“LPGs”) from a point near Odessa, Texas to Pemex Gas (“Pemex”) at a point near El Paso, Texas. Pemex then transports the LPGs to its Mendez Terminal near Juarez, Mexico. Prior to the initial public offering of Holly Energy Partners on July 13, 2004, Rio Grande was owned 70% by us and 30% by BP p.l.c. Prior to June 30, 2003, Rio Grande was owned 25% by us and 75% collectively by two parties unaffiliated with us. On June 30, 2003, we purchased an additional 45% interest in Rio Grande, through a wholly-owned indirect subsidiary, adding to the 25% interest that our subsidiary already owned. Prior to the 45% acquisition, we accounted for the earnings in the joint venture using the equity method. Effective with the purchase, we consolidate the results of Rio Grande and show the interest we do not own as a minority interest in ownership and earnings. The purchase price for the additional 45% interest was $28.7 million, less cash of $7.3 million that we recorded due to the consolidation of Rio Grande at the time of the additional 45% acquisition. In addition to cash, at the date of the acquisition, Rio Grande owned current assets of $0.6 million, net property, plant and equipment of $34.9 million, other net assets of $7.8 million and current liabilities of $0.4 million.

Note G — Debt

     On July 1, 2004, we entered into a new $175 million secured revolving credit facility with a term of four years and an option to increase the facility to $225 million under certain conditions. The new credit facility with Bank of America as administrative agent and a lender replaces the credit facility in place as of June 30, 2004. We have not borrowed under this facility and as of September 30, 2004, we had letters of credit outstanding of $1.2 million under this facility.

     The maximum amount we borrowed under our previous $100 million revolving credit facility with the Canadian Imperial Bank of Commerce as administrative agent and a lender during the first nine months of 2004 was $80.0 million.

- 15 -

HOLLY CORPORATION

Note G — Debt (Continued)

     One of our affiliates, Holly Energy Partners Operating Company, L.P., a wholly owned subsidiary of Holly Energy Partners, entered into a four-year $100 million credit facility with Union Bank of California, as administrative agent and a lender, in conjunction with the initial public offering of Holly Energy Partners, with an option to increase the amount to $175 million under certain conditions. At September 30, 2004, $25.0 million was drawn under the facility. The obligations under Holly Energy Partner’s credit facility are secured by substantially all of their assets, and such obligations are non-recourse to our general partner interest in Holly Energy Partners.

Note H — Environmental

     Consistent with our accounting policy for environmental remediation and cleanup costs, we expensed $0.7 million and $2.6 million for the nine months ended September 30, 2004 and 2003, respectively, for environmental remediation and cleanup obligations. The accrued liability reflected in the consolidated balance sheet was $3.6 million at September 30, 2004, of which $2.6 million was classified as other long-term liabilities. Costs of future expenditures for environmental remediation are not discounted to their present value.

Note I — Income Taxes

     The current income tax provision was $31.4 million and $71.0 million for the three and nine months ended September 30, 2004, respectively. These amounts relate both to taxes on pre-tax income for the respective periods, and taxes of approximately $25 million arising from transfers made in connection with the formation of Holly Energy Partners.

Note J — Stockholders’ Equity

     On October 30, 2001, we announced plans to repurchase up to $20.0 million of our common stock. On August 2, 2004, we announced that we would resume our plans to repurchase shares of our common stock under the $20.0 million repurchase program. The repurchases have been made from time to time in open market purchases or privately negotiated transactions, subject to price and availability and have been financed with currently available corporate funds. During the three months ended September 30, 2004, we repurchased 766,300 shares at a cost of approximately $15.3 million. From inception of the plan through September 30, 2004, we repurchased 1,311,100 shares at a cost of approximately $20.0 million and have now completed the $20.0 million repurchase program.

     On August 2, 2004, we announced that our Board of Directors approved a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The stock dividend was paid on August 30, 2004 to all record holders of common stock at the close of business on August 16, 2004.

- 16 -

HOLLY CORPORATION

Note K — Derivative Instruments and Hedging Activities

     We periodically utilize petroleum commodity futures contracts to reduce our exposure to the price fluctuations associated with crude oil and refined products. Such contracts historically have been used principally to help manage the price risk inherent in purchasing crude oil in advance of the delivery date and as a hedge for fixed-price sales contracts of refined products. We have also utilized commodity price swaps and collar options to help manage the exposure to price volatility relating to forecasted purchases of natural gas. We regularly utilize contracts that provide for the purchase of crude oil and other feedstocks and for the sale of refined products. Certain of these contracts may meet the definition of a derivative instrument in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. We believe these contracts qualify for the normal purchases and normal sales exception under SFAS No. 133, as amended, because deliveries under the contracts will be in quantities expected to be used or sold over a reasonable period of time in the normal course of business. Accordingly, we have designated these contracts as normal purchases and normal sales contracts and we are not required to record these as derivative instruments under SFAS No. 133, as amended.

     In December 2002, we entered into cash flow hedges relating to certain forecasted transactions to buy crude oil and sell gasoline in March 2003. The purpose of the hedges was to help protect us from the risk that refinery margins would decline with respect to the hedged crude oil and refined products. To effect the hedges, we entered into gasoline and crude oil futures transactions. Gains and losses initially reported in accumulated other comprehensive income were reclassified into income when the forecasted transactions occurred. In March 2003, as the forecasted transactions occurred, we reclassified $108,000 of actual losses from comprehensive income to cost of sales. The ineffective portion of the hedges resulted in a $32,000 gain that was also included in cost of sales.

     In October 2003, we entered into price swaps to help manage the exposure to price volatility relating to forecasted purchases of natural gas from December 2003 to March 2004. We designated these transactions as cash flow hedges of forecasted purchases. The contracts to hedge natural gas costs were for 6,000, 500, and 2,000 MMBtu per day for the Navajo Refinery, Montana Refinery, and the Woods Cross Refinery, respectively. The January to March 2004 contracts resulted in net realized gains of $270,000 and were recorded as a reduction to refinery operating expenses. There was no ineffective portion of these hedges. There were no price swaps outstanding at September 30, 2004.

Note L — Segment Information

     As of July 13, 2004, the closing of the initial public offering of Holly Energy Partners, we changed our segments to reflect our new lines of business. Our two new major business segments are: Refining and Holly Energy Partners. The new Refining segment will not be the same as the old Refining segment as some of the old Refining segment’s assets were contributed to Holly Energy Partners. Likewise, Holly Energy Partners will not be the same as the old Pipeline Transportation segment. Since it is impractical to restate prior periods for our new business segments, we are including the old business segments for all periods presented as well as the new business segments from July 13, 2004 forward.

- 17 -

HOLLY CORPORATION

Note L — Segment Information (continued)

     As of July 13, 2004, the Refining segment involves the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel, and includes our Navajo Refinery, Montana Refinery and Woods Cross Refinery. The petroleum products produced by the Refining segment are marketed in Texas, New Mexico, Arizona, Utah, Wyoming, Montana, Idaho and northern Mexico. Certain crude oil and intermediate product pipelines still owned by us operate in conjunction with the Refining segment as part of the supply networks of the refineries. The Refining segment also includes our equity in earnings from our 49% interest in NK Asphalt Partners, which manufactures and markets asphalt and asphalt products in Arizona and New Mexico. The cost of pipeline transportation and terminal services provided by Holly Energy Partners is also included in the Refining segment. The Holly Energy Partners segment includes approximately 780 miles of our pipeline assets in Texas and New Mexico. Revenues from the Holly Energy Partners segment were earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations and the earnings from our indirect interest in Rio Grande Pipeline Company (see Note G to the Consolidated Financial Statements), which provides petroleum products transportation. Results of operations involving the assets included in the new Holly Energy Partners segment prior to July 13, 2004 are included in the new Refining segment for reporting purposes. Our operations not included in the Refining or Holly Energy Partners 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 elimination column includes the elimination of the revenue and costs associated with our pipeline transportation services between us and Holly Energy Partners as well as the elimination of our minority interest in income of Holly Energy Partners.

     Prior to July 13, 2004, we had two major business segments: Refining and Pipeline Transportation. The Refining segment involved the refining of crude oil and wholesale marketing of refined products, such as gasoline, diesel fuel and jet fuel, and includes our Navajo Refinery, Montana Refinery and Woods Cross Refinery. We acquired the Woods Cross Refinery in June 2003. The petroleum products produced by the Refining segment are marketed in Texas, New Mexico, Arizona, Utah, Wyoming, Montana, Idaho 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 our equity in earnings from our 49% interest in NK Asphalt Partners, which manufactures and markets asphalt and asphalt products in Arizona and New Mexico, and the minority interest in income of Holly Energy Partners. The Pipeline Transportation segment included approximately 500 miles of our pipeline assets in Texas and New Mexico. Revenues from the Pipeline Transportation segment were earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations. Pipeline Transportation segment revenues do not include any amounts relating to pipeline transportation services provided for our refining operations but do include earnings from our 70% (25% prior to June 30, 2003) interest in Rio Grande Pipeline Company (see Note G to the Consolidated Financial Statements), which provides petroleum products transportation. Our operations 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.

- 18 -

HOLLY CORPORATION

Note L — Segment Information (continued)

     The accounting policies for the segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2003. Our reportable segments are strategic business units that offer different products and services.

Business segments after July 13, 2004 (reporting January 1, 2004 through September 30, 2004 amounts):

Business segments prior to July 13, 2004 (reporting January 1, 2004 through September 30, 2004 amounts):

- 19 -

HOLLY CORPORATION

Note M — Contingencies

     On July 20, 2004, the United States Court of Appeals for the District of Columbia Circuit issued its opinion on petitions for review of rulings by the FERC in proceedings brought by us and other parties against SFPP. The appeals court ruled in favor of our positions on most of the disputed issues that concern us and remanded the case to the FERC for additional consideration of several issues, some of which are involved in our claims. These proceedings relate to tariffs of common carrier pipelines, which are owned and operated by SFPP, for shipments of refined products from El Paso, Texas to Tucson and Phoenix, Arizona and from points in California to points in Arizona. We are one of several refiners that regularly utilize an SFPP pipeline to ship refined products from El Paso, Texas to Tucson and Phoenix, Arizona. Rulings by the FERC that were the subject of proceedings in the appeals court resulted in reparations payments to us in 2003 totaling approximately $15.3 million relating principally to the period from 1993 through July 2000. Because of the remand of the proceedings to the FERC for further consideration of several issues, it is not yet possible to determine whether the amount of reparations actually due to us for the period at issue will be found to be less than or more than the $15.3 million we received in 2003. Although it is not possible at the date of this report to predict the final outcome of these proceedings, we believe that future proceedings following the July 2004 appeals court decision are not likely to result in an obligation for us to repay a significant portion of the reparations payments already received and could result in payment of additional reparations to us. The final reparations amount will be determined only after the rulings by the FERC on the remanded issues and any further court proceedings on the case, which could include further review by the appeals court and possibly a petition by one or more of the parties to the United States Supreme Court for review of issues in the case.

     On August 20, 2003, Frontier Oil Corporation (“Frontier”) filed a lawsuit in the Delaware Court of Chancery against us seeking declaratory relief and unspecified damages based on allegations that we repudiated our obligations and breached an implied covenant of good faith and fair dealing under a merger agreement announced in late March 2003 under which we and Frontier would be combined. On August 21, 2003, we formally notified Frontier of our position that pending and threatened toxic tort litigation with respect to oil properties operated by a subsidiary of Frontier from 1985 to 1995 adjacent to the campus of Beverly Hills High School constituted a breach of Frontier’s representations and warranties in the merger agreement as to the absence of litigation or other circumstances which could reasonably be expected to have a material adverse effect on Frontier. On September 2, 2003, we filed in the Delaware Court of Chancery our Answer and Counterclaims seeking declaratory judgments that we had not repudiated the merger agreement, that Frontier had repudiated the merger agreement, that Frontier had breached certain representations made by Frontier in the merger agreement, that our obligations under the merger agreement were and are excused and that we may terminate the merger agreement without liability, and seeking unspecified damages as well as costs and attorneys’ fees. The trial with respect to Frontier’s Complaint and our Answer and Counterclaims began in the Delaware Court of Chancery on February 23, 2004 and was completed on March 5, 2004. In this litigation, the maximum amount of damages asserted by Frontier against us is approximately $161 million plus interest and the maximum amount of damages we are asserting against Frontier is approximately $148 million plus interest. Post-trial briefing was completed in late April 2004 and on May 4, 2004 the court heard oral argument. A decision is expected to be announced within several months from the date of this report. Although it is not possible at the date of this report to predict the outcome of this litigation, we believe that the claims made by Frontier in the litigation are wholly without merit and that our counterclaims are well founded.

     We are a party to various other litigation and proceedings not mentioned in this Form 10-Q which we believe, based on advice of counsel, will not have a materially adverse impact on our financial condition, results of operations or cash flows.

- 20 -

HOLLY CORPORATION

Note N — Longhorn Partners Pipeline, L.P. Settlement

     In November 2002, we settled, by agreement, litigation brought in August 1998 by Longhorn Partners Pipeline, L.P. (“Longhorn Partners”) against us in a state court in El Paso, Texas and litigation brought in August 2002 by us against Longhorn Partners and related parties in a state court in Carlsbad, New Mexico. In November 2002, under the settlement agreement developed in voluntary mediation, we paid $25.0 million to Longhorn Partners as a prepayment for the transportation of 7,000 barrels per day (“BPD”) of refined products from the Gulf Coast to El Paso for a period of up to six years from the date of the Longhorn Pipeline’s start-up. Longhorn Partners also issued to us an unsecured $25.0 million promissory note, subordinated to certain other indebtedness, that became payable with interest when the Longhorn Pipeline did not begin operations by July 1, 2004. On July 1, 2004, we received $27.2 million from Longhorn Partners which represents payment of $25.0 million principal and $2.2 million interest on the note and results in a termination of our transportation rights under the November 2002 settlement agreement.

Note O — Sale of Pipeline Assets

     On March 4, 2003, we sold our 400 mile Iatan crude oil gathering system located in West Texas to Plains All-American Pipeline, L.P. for $24.0 million in cash. In connection with the transaction, we have entered into a six-and-a-half year agreement with Plains that commits us to transport on that gathering system at an agreed upon tariff any crude oil we purchase in the relevant area of the Iatan system. The Iatan system, while profitable, was not considered central to our refining operations. The sale resulted in a pre-tax gain of $16.2 million. The proceeds from the sale increased our cash resources available for investment in our core refining operations, including our acquisition of the Woods Cross Refinery.

Note P — Refinery and Retail Assets Acquisition

     On June 1, 2003, we acquired from ConocoPhillips the Woods Cross Refinery, located near Salt Lake City, Utah, and related assets, including a refined products terminal in Spokane, Washington, and a 50% ownership interest in refined products terminals in Boise and Burley, Idaho for an agreed price of $25.0 million plus inventory less obligations assumed. The Woods Cross Refinery has a crude oil capacity of 25,000 BPD. The purchase also included certain pipelines and other transportation assets used in connection with the refinery, 25 retail service stations located in Utah and Wyoming (which we sold in August 2003), and a 10-year exclusive license to market fuels under the Phillips brand in the states of Utah, Wyoming, Idaho and Montana. The total cash purchase price, including expenses and the $2.5 million deposit made in 2002, was $58.3 million. In accounting for the purchase, we recorded inventory of $35.5 million, property, plant and equipment of $25.6 million, intangible assets of $1.6 million and recorded a $4.4 million liability, principally for pension obligations.

- 21 -

HOLLY CORPORATION

Note Q — Sale of Woods Cross Retail Assets

     In August 2003, we sold our retail assets located in Utah and Wyoming for $7.0 million, less our prorated share of property taxes and certain transaction expenses, plus $1.8 million for inventories, resulting in net cash proceeds of $8.5 million. The sale resulted in a pre-tax loss of approximately $.4 million, due mainly to transaction expenses. The asset package included twenty-five operating retail sites and three closed properties that we acquired from ConocoPhillips on June 1, 2003 in the acquisition of the Woods Cross Refinery. We will continue to supply the stations with fuel from our Woods Cross Refinery under a long-term supply agreement.

Note R — Retirement Plan

     We have a non-contributory defined benefit retirement plan that covers substantially all employees. Our policy is to make contributions annually of not less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Benefits are based on the employee’s years of service and compensation.

     The net periodic pension expense consisted of the following components:

     The expected long-term annual rate of return on plan assets is 8.5%. This rate was used in measuring 2004 and 2003 net periodic benefit cost. Through September 30, 2004, we have made $3.0 million in contributions and we expect to make an additional contribution in 2004 within a range of zero and $10.0 million.

- 22 -

HOLLY CORPORATION

Item 2. Management’s Discussion and Analysis of Financial Condition And Results of Operations

     This Item 2, including but not limited to the sections on “Liquidity and Capital Resources” and “Additional Factors that May Affect Future Results,” contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of Part I.

OVERVIEW

     We are principally an independent petroleum refiner operating three refineries in Artesia and Lovington, New Mexico (operated as one refinery), Woods Cross, Utah and Great Falls, Montana. Our profitability depends largely on the spread between market prices for refined petroleum products and crude oil prices. At September 30, 2004, we also owned a 51% interest in Holly Energy Partners which owns and operates pipeline and terminalling assets and owns a 70% investment in the Rio Grande Pipeline Company.

     On March 15, 2004, we filed a registration statement on Form S-1 with the SEC relating to a proposed underwritten initial public offering of limited partnership interests in Holly Energy Partners. Holly Energy Partners was formed to acquire, own and operate substantially all of our refined product pipeline and terminalling assets that support our refining and marketing operations in West Texas, New Mexico, Utah and Arizona and to own our 70% interest in Rio Grande. On July 13, 2004, Holly Energy Partners closed its initial public offering of 7,000,000 common units at a price of $22.25 per unit, which included a 900,000 share over-allotment option that was exercised by the underwriters. Proceeds to Holly Energy Partners from the sale of the units were $145.5 million, net of underwriting commissions. We own a 51% interest in Holly Energy Partners, including the general partner interest. The initial public offering represented the sale by us of a 49% interest in Holly Energy Partners. Holly Energy Partners’ common units trade on the New York Stock Exchange under the symbol “HEP.” See —Liquidity and Capital Resources#Initial Public Offering of Holly Energy Partners” below for additional information and for information about changes that have occurred due to the initial public offering for Holly Energy Partners.

     Our principal source of revenue is from the sale of high value light products such as gasoline, diesel fuel and jet fuel in markets in the western United States. Our sales and other revenues for the nine months ended September 30, 2004 were $1,629.2 million and our net income for the nine months ended September 30, 2004 was $76.5 million. Our sales and other revenues and net income for the nine months ended September 30, 2004 increased from $1,053.5 million and $47.1 million, respectively, for the nine months ended September 30, 2003. Our principal expenses are costs of products sold and operating expenses. Our total operating costs and expenses for nine months ended September 30, 2004 were $1,502.1 million, an increase from $1,007.9 million for the nine months ended September 30, 2003. For the nine months ended September 30, 2003, we realized a $16.2 million gain on the sale of our 400-mile Iatan crude oil gathering system located in West Texas to Plains All-American Pipeline, L.P. and $15.2 million in reparation payments received.

     On April 26, 2004, our stock began trading on the New York Stock Exchange under the trading symbol “HOC”. Our stock formerly traded on the American Stock Exchange.

     On July 1, 2004, we received $27.2 million from Longhorn Partners which represents a principal payment of $25.0 million plus $2.2 million in interest on a note that became payable when the Longhorn Pipeline did not begin operations by July 1, 2004. This payment also resulted in the termination of our

- 23 -

HOLLY CORPORATION

prepaid transportation rights on the Longhorn Pipeline.

     On July 1, 2004, we entered into a new $175 million secured revolving credit facility with Bank of America as administrative agent and a lender, with a term of four years and an option to increase the facility to $225 million under certain conditions. The new credit facility replaces our prior revolving credit facility with the Canadian Imperial Bank of Commerce and may be used to fund working capital requirements, capital expenditures, acquisitions and other general corporate purposes.

     We are involved in litigation with Frontier Oil Corporation relating to our agreement to merge entered into on March 30, 2003. The trial with respect to Frontier’s amended Complaint and our Answer and Counterclaims began in the Delaware Court of Chancery on February 23, 2004 and was completed on March 5, 2004. In this litigation, the maximum amount of damages currently asserted by Frontier against us is approximately $161 million plus interest and the maximum amount of damages currently asserted by us against Frontier is approximately $148 million plus interest. A decision is expected to be announced within several months.

     On August 2, 2004, we announced that our Board of Directors approved a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The dividend was paid on August 30, 2004 to all record holders of common stock at the close of business on August 16, 2004. As a result of this split, all references to the number of shares (other than common stock and treasury stock on the Consolidated Balance Sheet) and per share amounts have been adjusted to reflect the split on a retroactive basis. We also announced that we would be resuming repurchases of stock under the $20.0 million stock repurchase program that was originally announced in October 2001, and have now completed such $20.0 million repurchase program.

- 24 -

HOLLY CORPORATION

RESULTS OF OPERATIONS

Financial Data (Unaudited)

- 25 -

HOLLY CORPORATION

- 26 -

HOLLY CORPORATION

Balance Sheet Data (Unaudited)

(1)

The total debt to capitalization ratio is calculated by dividing total debt, including current maturities and bank borrowings, by the sum of total debt, including current maturities and bank borrowings, and stockholders’ equity.

Other Financial Data (Unaudited)

(1)

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income plus (i) interest expense net of interest income, (ii) income tax provision, and (iii) depreciation, depletion and amortization. EBITDA is not a calculation provided for under generally accepted accounting principles in the United States of America, however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it enhances an investor’s understanding of our ability to satisfy principal and interest obligations with respect to our indebtedness and to use cash for other purposes, including capital expenditures. EBITDA is also used by our management for internal analysis and as a basis for compliance with financial covenants. EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported under Generally Accepted Accounting Principles” following Item 3 of Part I of this Form 10-Q.

     As of July 13, 2004, the closing of the initial public offering of Holly Energy Partners, we changed our segments to reflect our new lines of business. Our two new major business segments are: Refining and Holly Energy Partners. The new Refining segment will not be the same as the old Refining segment since some of those assets were contributed to Holly Energy Partners. Likewise, Holly Energy Partners will not be the same as the old Pipeline Transportation segment. Since it is impracticable to restate prior

- 27 -

HOLLY CORPORATION

periods for our new business segments, we are including the old business segments for all periods presented as well as the new business segments from July 13, 2004 forward.

Business segments after July 13, 2004 (reporting January 1, 2004 through September 30, 2004 amounts):

Business segments prior to July 13, 2004 (reporting January 1, 2004 through September 30, 2004 amounts):

- 28 -

HOLLY CORPORATION

	(1)		As of July 13, 2004, the Refining segment includes our principal refinery in Artesia, New Mexico, which is operated in conjunction with refining facilities in Lovington, New Mexico (collectively, the “Navajo Refinery”), the Woods Cross Refinery near Salt Lake City, Utah, and our refinery in Great Falls, Montana. Included in the Refining segment are costs relating to certain crude oil and intermediate product pipelines that we still own and operate in conjunction with the Refining segment as part of the supply networks of the refineries. The Refining segment also includes the purchasing of crude oil and wholesale and branded marketing of refined products, along with our equity in earnings from our 49% interest in NK Asphalt Partners, which manufactures and markets asphalt and asphalt products in Arizona and New Mexico. The cost of pipeline transportation and terminal services provided by Holly Energy Partners is included in the Refining segment. The Holly Energy Partners segment includes approximately 780 miles of our pipeline assets in Texas and New Mexico. Revenues from the Holly Energy partners segment were earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations and the earnings from our indirect interest in Rio Grande Pipeline Company which provides petroleum products transportation. Results of operations involving the assets included in the new Holly Energy Partner’s segment prior to July 13, 2004 are included in the new refining segment for reporting purposes. The elimination column includes the elimination of the revenue and costs associated with our pipeline transportation services between us and Holly Energy Partners as well as the elimination of minority interest in income of Holly Energy Partners.
	(2)		Prior to July 13, 2004, the Refining segment includes our principal refinery in Artesia, New Mexico, which is operated in conjunction with refining facilities in Lovington, New Mexico (collectively, the “Navajo Refinery”), the Woods Cross Refinery near Salt Lake City, Utah, and our refinery in 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 Refining segment also includes our equity in earnings from our 49% interest in NK Asphalt Partners and the minority interest in income of Holly Energy Partners. The Pipeline Transportation segment included approximately 500 miles of our pipeline assets in Texas and New Mexico and our 70% interest in Rio Grande Pipeline Company. Revenues of the Pipeline Transportation segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations.

Refining Operating Data (Unaudited)

     Our refinery operations include the Navajo Refinery, the Woods Cross Refinery and the Montana Refinery. The following tables set forth certain information, including non-generally accepted accounting principles (“GAAP”) performance measures about our refinery operations. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported under Generally Accepted Accounting Principles” following Item 3 under Part I of this Form 10-Q.

- 29 -

HOLLY CORPORATION