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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JULY 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
100 CRESCENT COURT 75201-6927
SUITE 1600 (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 871-3555
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
On October 13, 1995, the aggregate market value of the Common Stock, par
value $.01 per share, held by non-affiliates of the registrant was $98,000,000.
(This is not to be deemed an admission that any person whose shares were not
included in the computation of the amount set forth in the preceding sentence
necessarily is an "affiliate" of the registrant.)
8,253,514 shares of Common Stock, par value $.01 per share, were
outstanding on October 13, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's proxy statement for its annual meeting of
stockholders in December 1995, which proxy statement will be filed with the
Securities and Exchange Commission within 120 days after July 31, 1995, are
incorporated by reference in Part III.
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ANNUAL REPORT ON FORM 10-K
OF HOLLY CORPORATION
FISCAL YEAR ENDED JULY 31, 1995
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTY
Holly Corporation, including its consolidated and wholly-owned
subsidiaries, herein referred to as the "Company" unless the context otherwise
indicates, is an independent refiner of petroleum and petroleum derivatives and
produces high value light products such as gasoline, diesel fuel and jet fuel
for sale primarily in the southwestern United States and northern Mexico.
Navajo Refining Company ("Navajo"), one of the wholly-owned subsidiaries, owns
a high-conversion petroleum refinery in Artesia, New Mexico, which it operates
in conjunction with crude, vacuum distillation and other facilities situated 65
miles away in Lovington, New Mexico (collectively, the "Navajo Refinery"). The
Navajo Refinery has a crude capacity of 60,000 barrels-per-day ("BPD") and can
process a variety of high sulphur sour crude oils. The Company also owns
Montana Refining Company, a Partnership ("MRC"), which owns a 7,000 BPD
petroleum refinery near Great Falls, Montana ("Montana Refinery"), which can
process a range of crude oils and which serves primarily the State of Montana.
In addition to its refining operations, the Company also conducts a
small-scale oil and gas exploration and production program.
The Company was incorporated in Delaware in 1947.
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The following table sets forth certain information about the refinery
operations of the Company during the last five fiscal years:
Years ended July 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Refinery production (BPD)(1) . . . . . . . 68,100 64,300(2) 65,300 55,200 44,800(2)
Crude charge (BPD) (3) . . . . . . . . . . 65,636 60,911(2) 62,115 51,723 43,838(2)
Refinery utilization(4) . . . . . . . . . 98.0% 90.9%(2) 92.7% 88.2% 93.3%(2)
Average per barrel:
Net sales . . . . . . . . . . . . . . . $24.02 $22.88 $25.43 $24.84 $29.79
Raw material costs(5) . . . . . . . . . 19.02 16.99 20.10 20.41 24.61
------ ------ ------ ------ ------
Gross margin . . . . . . . . . . . . . . $ 5.00 $ 5.89 $ 5.33 $ 4.43 $ 5.18
====== ====== ====== ====== ======
Product sales (percent of total sales volume)(6):
Gasolines . . . . . . . . . . . . . . . 55.5% 54.5% 52.0% 49.4% 46.6%
Diesel fuels . . . . . . . . . . . . . . 20.1 20.1 23.6 21.1 20.1
Jet fuels . . . . . . . . . . . . . . . 11.3 11.7 10.4 13.2 18.2
Asphalt . . . . . . . . . . . . . . . . 8.4 9.4 9.8 10.8 8.9
LPG and other . . . . . . . . . . . . . 4.7 4.3 4.2 5.5 6.2
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
__________
(1) Barrels per calendar day of refined products produced from crude oil and
other raw materials.
(2) Refinery production, crude charge and utilization rates were reduced as
a result of a scheduled turnaround for major maintenance at the Navajo
Refinery.
(3) Barrels per day of crude oil processed.
(4) Crude charge divided by crude capacity.
(5) Includes cost of refined products purchased for resale.
(6) Includes refined products purchased for resale representing 2.3%, 3.9%,
3.2%, 0.7% and 0.7%, respectively, of total sales volume for the
periods shown in the table above.
NAVAJO REFINING COMPANY
FACILITIES
With the completion of a major expansion in December 1991, Navajo's
refinery capacity increased from 40,000 to 60,000 BPD. The Navajo Refinery has
the ability to process a variety of sour crude oils and, as a result of the
expansion, has increased the proportion of throughput that can be converted
into high value light products (such as gasoline, diesel fuel and jet fuel).
The expansion has also increased internal high octane capabilities and has
augmented overall operating flexibility.
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For the last three fiscal years, sour crude oils have represented
approximately 85% of the crude oils processed by the Navajo Refinery. The
Navajo Refinery's processing capabilities enable management to vary its crude
supply mix to take advantage of changes in raw materials prices and to respond
to fluctuations in the availability of crude oil supplies. The Navajo Refinery
converts approximately 86% of its raw materials throughput into high value
light products. For fiscal 1995, gasoline, diesel fuel and jet fuel (including
volumes purchased for resale) represented 57.8%, 19.5%, and 11.0%,
respectively, of Navajo's sales volume. For the last three fiscal years,
excluding downtime for scheduled maintenance and turnarounds, the Navajo
Refinery has operated at an average annual crude capacity utilization rate of
approximately 97%.
The following table sets forth certain information concerning the
operations of Navajo during the last five fiscal years:
Years ended July 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Refinery production (BPD)(1) . . . . . . . 61,900 57,400(2) 58,600 48,900 38,800(2)
Crude charge (BPD) (3) . . . . . . . . . . 59,614 54,089(2) 55,488 45,363 37,663(2)
Refinery utilization(4) . . . . . . . . . 99.4% 90.1%(2) 92.5% 87.8% 94.2%(2)
Average per barrel:
Net sales . . . . . . . . . . . . . . . $23.90 $22.63 $25.39 $24.69 $29.89
Raw material costs(5) . . . . . . . . . 19.13 17.20 20.26 20.53 24.67
------ ------ ------ ------ ------
Gross margins . . . . . . . . . . . . . $ 4.77 $ 5.43 $ 5.13 $ 4.16 $ 5.22
====== ====== ====== ====== ======
__________
(1) Barrels per calendar day of refined products produced from crude oil and
other raw materials.
(2) Refinery production, crude charge and utilization rates were reduced as
a result of a scheduled turnaround for major maintenance.
(3) Barrels per day of crude oil processed.
(4) Crude charge divided by crude capacity.
(5) Includes cost of refined products purchased for resale.
Navajo's Artesia facility is located on a 300-acre site and has fully
integrated crude, FCC, vacuum distillation, alkylation, hydrodesulfurization
and reforming units, and approximately 1.5 million barrels of feedstock and
product tank storage, as well as other supporting units and office buildings at
the site. The Artesia facilities are operated in conjunction with integrated
refining facilities located in Lovington, New Mexico, approximately 65 miles
east of Artesia. The principal equipment at Lovington consists of a crude unit
and an associated vacuum unit. The Lovington facility processes crude oil into
intermediate products, which are transported to Artesia through a Company-owned
eight-inch pipeline or by tanker truck.
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The Company's 500 miles of crude gathering pipelines lead to the Artesia
and Lovington facilities from various points in southeastern New Mexico. The
Company distributes refined products from the Navajo Refinery to its principal
markets primarily through (i) a Company-owned pipeline which extends from
Artesia to El Paso and (ii) a Company-owned pipeline extending from Artesia to
Orla, Texas and from there west to El Paso. The Company has product storage at
terminals in Tucson, Albuquerque, Artesia and El Paso in which the Company has
50% or greater interests. The Company also owns a segment of products pipeline
running from Orla to Odessa, Texas, which is currently inactive.
MARKETS AND COMPETITION
The Navajo Refinery primarily serves the growing southwestern United
States market, including El Paso, Albuquerque, Phoenix and Tucson, and the
northern Mexico market. The Company's products are shipped by pipeline from El
Paso to Albuquerque via a products pipeline system owned by Chevron Pipeline
Company and to Tucson and Phoenix via a products pipeline system owned by Santa
Fe Pacific Pipeline. Access to the Company's markets by Gulf Coast refiners is
limited primarily by the lack of available product pipelines.
The petroleum refining business is highly competitive. Among the
Company's competitors are some of the world's largest integrated petroleum
companies, which have their own crude oil supplies, distribution and marketing
systems. The Company competes with independent refiners as well. Competition
in particular geographic markets is affected primarily by the amounts of
refined products produced by refineries located in such markets and by the
availability of refined products and the cost of transportation to such markets
from refineries located outside those markets. Diamond Shamrock, Inc., an
independent refiner and marketer, is building a 420-mile, ten-inch refined
products pipeline from its McKee refinery near Dumas, Texas to El Paso, the
Company's largest market. Diamond Shamrock has announced that it expects to
complete that pipeline, which will have an initial capacity of 25,000 BPD, in
the fourth quarter of calendar 1995, and that it intends to use its pipeline to
supply fuel to the El Paso, Arizona and northern Mexico markets. The Diamond
Shamrock pipeline could substantially increase the supply of refined products
in the Company's principal markets. In addition, there is excess pipeline
capacity from the West Coast into the Company's Arizona markets. There can be
no assurance that West Coast refiners will not seek to increase shipments of
refined products into the Company's markets through existing pipelines, new
pipelines or otherwise. In addition, in June 1995, an investor group announced
that it is negotiating to purchase an existing crude oil pipeline running from
West Texas to a refinery near Houston as part of the investor group's plan to
reverse the line and extend it for use in transporting refined products from
the Gulf Coast to El Paso. An increased supply of products in the Company's
markets could adversely affect its sales volume and/or the prices it can obtain
for its products.
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At times in the past, the common carrier pipelines used by the Company
to serve the Arizona markets have been operated at or near their capacity and
have been subject to periods of proration. In July 1993, the Company entered
into a settlement agreement regarding that pipeline system. Under the
agreement, the occurrence of certain defined events will require increases in
the capacity of the pipeline. It is anticipated that this settlement lessens,
at least in the foreseeable future, the likelihood of prolonged future
constraints on the movement of the Company's products into Arizona. In
addition, the common carrier pipeline used by the Company to serve the
Albuquerque market currently is operating at or near capacity. As a result,
the volume of refined products that the Company and other shippers have been
able to deliver to this market at times has been limited. In general, no
assurances can be given that the Company will not experience future constraints
on its ability to deliver its products through common carrier pipelines or that
any existing constraints will not worsen. In particular, the flow of
additional product into El Paso for shipment to Arizona, either as a result of
the new Diamond Shamrock pipeline or otherwise, could result in the
reoccurrence of such constraints.
CRUDE OIL AND FEEDSTOCK SUPPLIES
The Navajo Refinery is situated near the Permian Basin in an area with
historically abundant crude supplies. The Company purchases crude oil from
producers in nearby southeastern New Mexico and west Texas, from major oil
companies and on the spot market. Crude oil is gathered both through the
Company's pipelines and tank trucks and through third party crude oil pipeline
systems. Crude oil acquired in locations distant from the refinery is
exchanged for crude oil that is transportable to the refinery. In 1993, the
Company reactivated a subsidiary, Navajo Crude Oil Marketing Company, to
facilitate the purchase of crude oil from leases in west Texas and New Mexico.
PRINCIPAL PRODUCTS AND MARKETS
The Navajo Refinery converts approximately 86% of its raw materials
throughput into high value light products. Set forth below is certain
information regarding the principal products of Navajo during the last five
fiscal years:
Years ended July 31,
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- ---------------- -------------- -------------- --------------
BPD % BPD % BPD % BPD % BPD %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Product sales (percent of
total sales volumes)(1)
Gasolines . . . . . . . . 36,400 57.8% 33,200 56.5% 32,600 53.4% 24,800 50.3% 18,500 47.7%
Diesel fuels . . . . . . . 12,300 19.5 11,600 19.7 14,500 23.7 10,300 20.9 7,600 19.6
Jet fuels . . . . . . . . 6,900 11.0 6,500 11.1 5,900 9.7 6,200 12.6 7,200 18.5
Asphalt . . . . . . . . . 4,500 7.1 4,900 8.3 5,500 9.0 5,000 10.1 2,900 7.5
LPG and other . . . . . . 2,900 4.6 2,600 4.4 2,600 4.2 3,000 6.1 2,600 6.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
63,000 100% 58,800 100% 61,100 100% 49,300 100% 38,800 100%
- ------------- ====== ==== ====== ==== ====== ==== ====== ==== ====== ====
(1) Includes refined products purchased for resale representing 1.9%,
4.0%, 3.2%, 0.4%, and 0.5%, respectively, of total sales volume
for the periods shown in the table above.
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Light products are shipped by product pipelines or are made available at
distant points by exchanges with others. Light products are also available to
customers through truck loading facilities at the refineries and at terminals.
The demand for the Company's gasoline and asphalt products has historically
been stronger from March through October, which are the peak "driving" and road
construction months, than during the rest of the year.
The Company's principal customers for gasoline include other refiners,
convenience store chains, independent marketers, an affiliate of PEMEX (the
government-owned energy company of Mexico) and retailers. Navajo's gasoline is
marketed in the southwestern United States, including the metropolitan areas of
El Paso, Phoenix, Albuquerque, and Tucson, and in portions of northern Mexico.
Diesel fuel is sold to other refiners, wholesalers, independent dealers and
railroads. Jet fuel is sold primarily for military use. Military jet fuel is
sold to the Defense Fuel Supply Center (the "DFSC") of the Defense Logistics
Agency under a series of one-year contracts that can vary significantly from
year to year. Navajo sold approximately 6,700 BPD of jet fuel to the DFSC in
its 1995 fiscal year and has a contract to supply 8,500 BPD to the DFSC for the
year ending September 30, 1996. Asphalt is sold to contractors and government
authorities for highway construction and maintenance. Carbon black oil is sold
for further processing, and LPGs are sold to petrochemical plants and are used
as fuel in refinery operations.
Approximately 12% of the Company's revenues for fiscal 1995 resulted
from the sale of military jet fuel to the United States government. Although
there can be no assurance that the Company will be awarded such contracts in
the future, the Company has had a supply contract with the United States
government for each of the last 26 years. Approximately 7% of the Company's
revenues for fiscal 1995 resulted from the sale of gasoline to an affiliate of
PEMEX. Those sales were made under a contract that expires in mid-1997. The
loss of the Company's supply contract with the United States government or with
PEMEX could have a material adverse effect on the Company's results of
operations.
CAPITAL IMPROVEMENT PROJECTS
As part of its efforts to improve operating efficiencies, management
currently intends to enhance the Navajo Refinery by constructing an
isomerization unit and upgrading the fluid catalytic cracking unit (FCC).
The first of these projects is the conversion of an idled reformer to a
UOP Isomerization unit. This unit, which is expected to be on-line during the
fourth quarter of fiscal 1996, will increase the refinery's internal octane
generating capabilities, thereby improving light product yield and increasing
the refinery's ability to upgrade additional amounts of lower priced purchased
natural gasoline into finished gasoline. The other significant project is a
revamp of the refinery's FCC. This revamp, which will be implemented during
its next scheduled turnaround in the fall of 1996, will improve the yield of
high value products from the FCC by incorporating certain state-of-the-art
upgrades. Engineering and equipment procurement will proceed during fiscal
1996, with completion of the revamp and realization of benefits occurring
during fiscal 1997. The estimated costs of these two projects is $12.5
million.
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The Company is pursuing a joint venture with Mapco and Amoco Pipeline to
provide transportation of liquid petroleum gases from West Texas to Mexico. In
connection with this project, a new 12-inch pipeline would be constructed from
the Navajo Refinery to El Paso, Texas which would allow realization of reduced
operating expenses at current throughputs and, position Navajo to transport
higher volumes in the event of future refinery expansion. The new line would
replace the currently used 8-inch pipeline which in turn would be transferred
to the joint venture. The Company is to have a 25% interest in the joint
venture. The net cash investment of the Company in the project, including the
Company's interest in the joint venture, is estimated to be $22 million.
MONTANA REFINING COMPANY
MRC owns a 7,000 BPD petroleum refinery near Great Falls, Montana, which
can process a range of crude oils and which serves primarily the State of
Montana. For the last three fiscal years, excluding downtime for scheduled
maintenance and turnarounds, the Montana Refinery has operated at an average
annual crude capacity utilization rate of approximately 94%.
The following table sets forth certain information regarding the
principal products of MRC during the last five years:
Years ended July 31,
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- -------------- --------------- --------------
BPD % BPD % BPD % BPD % BPD %
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Product sales (percent of
total sales volumes)(1)
Gasolines . . . . . . . . . 2,400 35.3% 2,700 38.6% 2,700 39.1% 2,800 42.4% 2,400 40.0%
Diesel fuels . . . . . . . . 1,700 25.0 1,700 24.3 1,600 23.2 1,500 22.7 1,400 23.4
Jet fuels . . . . . . . . . 1,100 16.2 1,100 15.7 1,200 17.4 1,100 16.7 900 15.0
Asphalt . . . . . . . . . . 1,300 19.1 1,300 18.6 1,200 17.4 1,100 16.7 1,100 18.3
LPG and other . . . . . . . 300 4.4 200 2.8 200 2.9 100 1.5 200 3.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
6,800 100% 7,000 100% 6,900 100% 6,600 100% 6,000 100%
- ------------- ===== ==== ===== ==== ===== ==== ===== ==== ===== ====
(1) Includes refined products purchased for resale representing 6.5%,
3.4%, 3.2%, 2.6%, and 2.1%, respectively, of total sales volume
for the periods shown in the table above.
The Montana Refinery obtains its supply of crude oils primarily from
suppliers in Canada via a 93-mile, Company-owned pipeline, which runs from
near the Canadian border. The Montana Refinery's principal markets include
Great Falls, Helena, Bozeman and Billings, Montana. MRC competes principally
with three other Montana refineries.
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JET FUEL TERMINAL
The Company owns and operates a 120,000 barrel capacity jet fuel
terminal near Mountain Home, Idaho, which serves as a terminalling facility for
jet fuel sold by unaffiliated producers to the Mountain Home United States Air
Force Base.
NAVAJO WESTERN ASPHALT COMPANY
Navajo Western Asphalt Company, a wholly-owned subsidiary of the
Company, owns and operates an asphalt marketing facility near Phoenix. The
Company has recently completed construction of asphalt processing and storage
facilities that should allow it to expand this operation. In addition to
serving as a marketing outlet for asphalt produced by Navajo at the Lovington
facility, Navajo Western markets asphalt for third parties.
EXPLORATION AND PRODUCTION
The Company contracts with two independent oil and gas consulting groups
that identify oil and gas exploration and production projects for the Company.
The scope of this activity is presently modest relative to the Company's
refining operations. For fiscal 1996, the Company has budgeted approximately
$2 million for capital expenditures related to oil and gas exploration
activities.
EMPLOYEES AND LABOR RELATIONS
The Company has approximately 543 employees. Of its employees, 211 are
covered by collective bargaining agreement ("covered employees"). Contracts
relating to the covered employees at all facilities were negotiated during 1993
and will expire in 1996. The Company considers its employee relations to be
good.
REGULATION
Refinery operations are subject to federal, state and local laws
regulating the discharge of matter into the environment or otherwise relating
to the protection of the environment. Over the years, there have been and
continue to be ongoing communications, including notices of violations, and
discussions about environmental matters between the Company and federal and
state authorities, some of which have resulted in changes of operating
procedures and in capital expenditures by the Company. Compliance with
applicable environmental laws and regulations will continue to have an impact
on the Company's operations and capital requirements.
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Effective January 1, 1995, certain cities in the country were required
to use only reformulated gasoline ("RFG"), a cleaner burning fuel. While none
of the Company's principal markets presently requires RFG, this requirement
could be implemented over time. Further, other requirements of the Clean Air
Act could cause the Company to be required to expend substantial amounts for
compliance at its refineries. Expenditures in connection with the Clean Air
Act at the Montana Refinery could be proportionally larger than similar
expenditures at the Navajo Refinery. The specifics and extent of these
requirements and their attendant costs are not presently determinable.
The Company is and has been the subject of various state, federal and
private proceedings relating to environmental regulations, conditions and
inquiries. The most significant of these is the enforcement action which has
been brought by the United States Department of Justice ("DOJ"), on behalf of
the EPA, and which is discussed in the Management's Discussion and Analysis of
Financial Condition and Results of Operations and in Note 12 to the
Consolidated Financial Statements. In addition to the expenditures that will
likely be incurred in connection with a resolution of this matter, current and
future environmental regulations inevitably will require other expenditures,
including remediation, at the New Mexico and Montana refineries. The extent of
any such expenditures cannot be presently determined.
The Company's operations are also subject to various laws and
regulations relating to occupational health and safety. The Company maintains
safety, training and maintenance programs as part of its ongoing efforts to
ensure compliance with applicable laws and regulations. Moreover, recently
enacted comprehensive health and safety legislation require substantial
expenditures and modifications of procedures.
Notwithstanding the Company's efforts, following an eight-month series
of inspections at MRC, the Occupational Safety and Health Administration issued
numerous citations alleging a variety of matters of noncompliance. MRC has
contested all citations and it cannot presently be determined the extent of any
fines for which it will ultimately be responsible. While the parties have been
engaged in substantive settlement discussions, no assurance can be given that a
settlement will ultimately be reached.
INSURANCE
The Company's operations (including its limited exploration and
production activities) 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 are prohibitive.
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ITEM 3. LEGAL PROCEEDINGS
In July 1993, the DOJ, acting on behalf of the EPA, filed a complaint in
the United States District Court for the District of New Mexico alleging that
Navajo, beginning in September 1990 and continuing until the present, had
violated and continues to violate RCRA and implementing regulations of the EPA
by treating, storing and disposing of certain hazardous wastes without
necessary authorization and without compliance with regulatory requirements.
The complaint seeks a court order directing Navajo to comply with these
regulatory standards and civil penalties for the alleged non-compliance. The
Company believes that the parties are in the final stages of negotiations that
should resolve the litigation. Based on these negotiations, the Company would
close the existing evaporation ponds of its wastewater management system and
implement an alternative wastewater treatment system. Any settlement with DOJ
and EPA also is expected to involve payment of a civil penalty. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 12 to the Consolidated Financial Statements.
The Company is a party to various other litigation and proceedings which
it believes, based on advice of counsel, will not have a materially adverse
impact on its financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's 1995 fiscal year.
Executive Officers of Registrant (per instruction 3 to Item 401(b) of
Regulation S-K)
The executive officers of the Company as of October 20, 1995 are as
follows:
Executive
Name Age Position Officer Since
---- --- -------- -------------
Lamar Norsworthy 49 Chairman of the Board, 1971
President and Chief
Executive Officer
Jack P. Reid 59 Executive Vice President, 1976
Refining and Director
William J. Gray 54 Senior Vice President, 1976
Marketing and Supply
Matthew P. Clifton 44 Senior Vice President 1988
and Director
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David G. Blair 37 Vice President, Marketing 1994
Asphalt and LPG
Christopher L. Cella 38 Vice President, General 1990
Counsel and Secretary
Karl N. Knapp 37 Vice President 1994
John A. Knorr 45 Vice President, Crude Oil 1988
Supply and Trading
Virgil R. Langford 50 Vice President, Refining 1989
Mike Mirbagheri 56 Vice President, International 1982
Crude Oil and Refined
Products
Henry A. Teichholz 52 Vice President, Treasurer 1984
and Controller
Gregory A. White 38 Vice President, Marketing 1994
Light Oils
In addition to the persons listed above, Kathryn Walker, age 45, was
appointed Controller of Navajo Refining Company in August 1993; prior thereto
she served from 1985 as Assistant Controller of Navajo.
All officers of the Company are elected annually to serve until their
successors have been elected. Mr. Cella has occupied the additional office of
Secretary since December 1994. Mr. Clifton previously served as Vice
President, Economics, Engineering and Legal Affairs from 1988 to 1991. Mr.
Knorr is also President of one of the partners of MRC and serves as the General
Manager of MRC. Messrs. Blair, Knapp and White were elected to their
respective positions in September 1994. Mr. Blair has served as Marketing
Manager of Asphalt and LPG of Navajo since 1989 and previously held various
marketing and supply positions. Mr. Knapp joined the Company in 1992 and
served as Director of Corporate Development from 1992 to 1994. Mr. Knapp was
Director of Corporate Planning for Northwest Airlines from 1991 to 1992, and
prior to that was associated with the management consulting firm of Monitor
Company from 1987 to 1991. Mr. White has served as Marketing Manager of Light
Oils of Navajo since 1989 and previously held various marketing and supply
positions.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock is traded on the American Stock Exchange
under the symbol "HOC". The following table sets forth the range of the daily
high and low sales prices per share of common stock, dividends paid per share
and the trading volume of common stock for the periods indicated:
Total
Fiscal years ended July 31, High Low Dividends Volume
- --------------------------- ---- --- --------- ------
1994
First Quarter . . . . . . $30 $26 5/8 $.075 255,800
Second Quarter . . . . . 30 25 3/8 .075 269,400
Third Quarter . . . . . . 30 1/2 27 1/8 .10 165,200
Fourth Quarter . . . . . 33 3/8 28 1/4 .10 275,200
1995
First Quarter . . . . . . $28 1/2 $23 3/4 $.10 230,200
Second Quarter . . . . . 26 1/2 24 .10 184,100
Third Quarter . . . . . . 26 3/4 23 .10 252,500
Fourth Quarter . . . . . 28 1/2 21 3/8 .10 1,218,600
As of July 31, 1995, the Company had approximately 2,000 stockholders of
record.
On September 29, 1995, the Company's Board of Directors declared a
regular quarterly dividend in the amount of $.10 per share payable on October
27, 1995. The Company intends to consider the declaration of a dividend on a
quarterly basis, although there is no assurance as to future dividends since
they are dependent upon future earnings, capital requirements and financial
condition of the Company as well as other factors. The Senior Notes and Credit
Agreement limit the payment of dividends. See Note 6 to the Consolidated
Financial Statements.
-13-
14
ITEM 6. SELECTED FINANCIAL DATA
($ in thousands, except per share amounts)
Years ended July 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
For the year
Revenues . . . . . . . . . . . . . . . . $614,830 $552,320 $630,621 $506,668 $489,333
Income before income taxes and
cumulative effect of
accounting change . . . . . . . . . . . $ 20,147 $ 35,002 $ 33,317 $ 662 $ 18,416
Income tax provision (benefit) . . . . . 7,730 14,285 13,384 (2,097) 6,682
-------- -------- -------- -------- --------
Income before cumulative effect
of accounting change . . . . . . . . . 12,417 20,717 19,933 2,759 11,734
Cumulative effect of
accounting change . . . . . . . . . . 5,703 - (958) - -
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . . $ 18,120 $ 20,717 $ 18,975 $ 2,759 $ 11,734
======== ======== ======== ======== ========
Income per common share
Income before cumulative
effect of accounting
change . . . . . . . . . . . . . . $ 1.51 $ 2.51 $ 2.42 $ .33 $ 1.42
Cumulative effect of
accounting change . . . . . . . . . .69 - (.12) - -
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . $ 2.20 $ 2.51 $ 2.30 $ .33 $ 1.42
======== ======== ======== ======== ========
Cash dividends per common
share . . . . . . . . . . . . . . . . $ .40 $ .35 $ .30 $ .45 $ .48
Average number of shares of
common stock outstanding . . . . . . . 8,254,000 8,254,000 8,254,000 8,254,000 8,254,000
Net cash provided by
operating activities . . . . . . . . . . $ 34,241 $ 27,684 $ 38,737 $ 961 $ 27,907
At end of year . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . $ 17,740 $ 18,236 $ 12,145 $ 5,031 $ 18,658
Total assets . . . . . . . . . . . . . . $287,384 $281,814 $249,807 $245,462 $212,095
Long-term debt (including
current portion) . . . . . . . . . . . $ 68,840 $ 74,448 $ 80,056 $ 80,164 $ 80,638
Stockholders' equity . . . . . . . . . . $ 80,043 $ 64,772 $ 46,478 $ 29,505 $ 29,811
-14-
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 Versus 1994
Net income for the 1995 fiscal year was $18.1 million, including a $5.7
million accounting change in the first quarter of fiscal 1995, compared to
$20.7 million in the prior year.
Refining margins for the year were weak as crude oil costs increased at
a greater rate than product prices. Margins at the Montana refinery were
particularly poor in the first nine-month period of fiscal 1995 as compared to
the prior year's period. The 11% increase in the Company's revenues for the
year ended July 31, 1995 is attributable to a 6% increase in sales volume and
higher selling prices. The prior year's sale volumes were reduced by a major
maintenance turnaround at Navajo Refining Company's New Mexico facilities.
Effective August 1, 1994, the Company changed its method of accounting
for turnaround costs. Turnarounds consist of preventive maintenance on major
processing units, as well as the shutdown and restart of units, and generally
are scheduled at two to three year intervals. Previously, the Company
estimated the costs of the next scheduled turnaround and ratably accrued the
related expenses prior to the actual turnaround. To provide for a better
matching of turnaround costs with revenues, the Company changed its accounting
method for turnaround costs to one that results in the amortization of costs
incurred over the period until the next scheduled turnaround. The amortization
of turnaround costs is recorded in depreciation, depletion and amortization
expense, whereas previously the expenses accrued prior to the turnaround were
recorded in cost of sales as an operating expense. The increase in the current
year in depreciation expense is primarily the result of this change in
accounting. See Note 2 to the Consolidated Financial Statements for the effect
of the accounting change.
1994 Versus 1993
Net income for the 1994 fiscal year ended July 31, 1994 was $20.7
million compared to $19.9 million before an accounting change in the prior
fiscal year. A charge of $1.0 million relating to a change in the method to
account for income taxes reduced net income to $19.0 million in fiscal 1993.
While refinery margins for the 1994 fiscal year as a whole improved over
the levels of the prior year, the margins were adversely impacted by poor
refined product margins experienced by Navajo Refining Company in the year's
fourth quarter, as product prices did not increase commensurately with a rise
in crude oil costs. Montana Refining Company had a third consecutive record
year in fiscal 1994, as favorable margins were sustained for the entire year.
Most of the increase in profitability resulting from the Company's higher
refinery margins was offset by the effect of a 3% reduction in sales volumes
and the net effect of the other items described below. Net sales for the 1994
fiscal year were down 13% as the result of lower prices on product sales and
the decrease in volumes. The reduction in sales volume for the year was caused
primarily by a planned major maintenance turnaround of Navajo Refining
Company's New Mexico facilities which occurred in the first months of fiscal
1994. A charge
-15-
16
of $2.9 million was recorded in the fourth quarter of fiscal 1993 to reflect an
increase in the estimate for the costs to be incurred in the turnaround, and an
additional $1.5 million in excess of the revised accrual at July 31, 1993 was
included as an expense in the second quarter of fiscal 1994. Further reducing
income in fiscal 1994 were other operating expense increases and an increase in
exploration expenses, including dry holes.
Income in fiscal 1993 was improved by $4 million relating to the
settlement of litigation with a common carrier pipeline and was reduced by a $2
million charge relating to an action by the United States Department of
Justice, acting on behalf of the Environmental Protection Agency (EPA). Both
of these items are more fully discussed below.
1993 Versus 1992
Net income for the year ended July 31, 1993 was $19.9 million before an
accounting change compared to $2.8 million in the prior year. The cumulative
effect through the 1992 fiscal year of adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which amends the
accounting for income taxes from the deferral method to the liability method,
was to decrease net income by $1.0 million, to $19.0 million for the year ended
July 31, 1993. Other than the cumulative effect of the adjustment, the effect
of the change on income for the year ended July 31, 1993 was not significant.
Net income for the year ended July 31, 1993 improved substantially over
the prior year due to improved refinery margins and higher sales volumes.
Increased sales volumes of 23% and revenues of 24% over the prior year were the
result of higher throughputs made possible by the refinery expansion completed
in December 1991 and the alleviation of product pipeline distribution
constraints in October 1992. Refinery margins and sales volumes for the 1993
fiscal year also may have been favorably affected by a temporary suspension of
production during most of the year by a refinery in the Company's principal
market area. Additionally contributing to 1993's performance was Montana
Refining Company's second consecutive record year. Increases in fiscal 1993 in
operating expenses, principally an increase made in the fourth quarter of $2.9
million in the estimate for a planned major maintenance turnaround scheduled
for the fall of 1993, depreciation, depletion and amortization, primarily
attributable to the refinery expansion, and general and administrative expense
reduced profitability. Net income in the fourth quarter of the 1993 fiscal
year was improved by pre-tax income of $4 million and reduced by a pre-tax
charge of $2 million, both of which are described below.
The year ended July 31, 1993 included income of $4 million relating to a
settlement of litigation with a common carrier pipeline company. As part of
the settlement, trigger events were established which would require increases
in the capacity of the pipeline the Company uses to access the Arizona markets.
-16-
17
As discussed in detail under Financial Condition below, the $2 million
pre-tax charge relates to an enforcement action brought by the United States
Department of Justice, acting on behalf of the EPA, which alleges that the
Company's subsidiary, Navajo Refining Company, beginning in September 1990 and
continuing until the present, violated and continues to violate the Resource
Conservation and Recovery Act (RCRA) and implementing regulations of the EPA by
treating, storing and disposing of certain hazardous wastes without required
authorization and without compliance with regulatory requirements. The
complaint seeks a court order directing Navajo to comply with these regulatory
standards and civil penalties for the alleged non-compliance.
Net income in the fourth quarter of fiscal 1992 was improved by the
elimination, as a consequence of the Company's acquisition of the remaining
interest in Montana Refining Company, of a $2.6 million liability for deferred
taxes that had been reflected on the Company's financial statements.
FINANCIAL CONDITION
Cash flows from operations during fiscal 1995 were greater than capital
expenditures, debt payments and dividends paid, resulting in a net increase of
cash and cash equivalents of $10.1 million. Working capital decreased during
fiscal 1995 by $.5 million to $17.7 million at July 31, 1995. At July 31,
1995, the Company had $25 million of borrowing capacity under the Credit
Agreement which can be used for short-term working capital needs. The Company
believes that these sources of funds, together with future cash flows from
operations and a new private placement and extension of debt currently being
completed as described below, should provide sufficient resources, financial
strength and flexibility for the Company to satisfy its liquidity needs,
capital requirements, and debt service obligations and to permit the payment of
dividends for the foreseeable future.
Net cash provided by operating activities amounted to $34.2 million in
fiscal 1995, compared to $27.7 million in fiscal 1994 and $38.7 million in
fiscal 1993. The primary reason for the differences in cash provided from
operations during the three years ended July 31, 1995 was changes in working
capital accounts. Significant amounts of funds were required in fiscal 1994 to
maintain working capital levels as compared to both the 1995 and 1993 fiscal
year.
Cash flows used for investing activities totalled $57.8 million over the
last three years, $15.2 million in 1995, $22.5 million in 1994 and $20.1
million in 1993, all for capital expenditures. In fiscal 1993 and 1994, most
of the funds expended were for refinery projects including diesel
desulfurization units at the Artesia, New Mexico facility and the Montana
refinery in order to meet the October 1993 requirements for lower sulphur
content in diesel fuel. The New Mexico unit was completed in August 1993 and
the Montana unit was completed in December 1993.
The Company has adopted capital budgets totalling $44 million for fiscal
1996. The major components of this budget are projects at the Company's 60,000
barrel per day Navajo Refinery in Artesia, New Mexico. The projects entail
both refinery upgrades to improve product yields and a joint venture to ship
liquid petroleum gas (LPGs) to Mexico.
-17-
18
The Company believes its presently scheduled capital projects will
improve product yields and enhance refining profitability. The first of these
projects, a UOP Isomerization unit, will increase the refinery's internal
octane generating capabilities and will result in improved light product
yields. This unit is expected to be operational during the fourth quarter of
fiscal 1996. In addition, the Company has determined to make certain
state-of-the-art upgrades to its fluid catalytic cracking unit (FCC), which
will improve FCC high value product yields. Engineering and equipment
procurement for this project will proceed during fiscal 1996, with completion
and realization of benefits occurring during fiscal 1997. The total estimated
cost of these two projects is $12.5 million.
The Company's previously announced joint venture with Amoco and Mapco to
transport LPGs to Mexico is in the final stages of negotiation with Pemex.
Assuming successful completion of negotiations, a new 12" pipeline would be
constructed from the Navajo refinery in Artesia, New Mexico to El Paso, Texas,
thereby allowing Navajo to realize reduced operating expenses at current
throughput rates and position it, to expand capacity and ship greater volumes
to its El Paso-origin markets, if such steps later prove advantageous. The new
line would replace an 8" pipeline currently used by Navajo which, in turn,
would be transferred to the joint venture. The Company's total net cash
investment in the project, including a 25% interest in the joint venture, is
estimated to be $22 million.
The remainder of the approved budget will be for various refinery
improvements, environmental and safety enhancements and approximately $2
million for exploration and production activities.
Cash flows used for financing activities amounted to $8.9 million in
fiscal 1995, $8.5 million in fiscal 1994 and $13.4 million in fiscal 1993.
Financing activities over the last three years included the renewals of the
Company's Credit Agreement in July 1993 and July 1995 with a group of banks,
which provides for a total facility of $100 million, the full amount of which
may be used to support letters of credit and $25 million of which may be used
for direct borrowings for short-term working capital needs. The Company had
$10.5 million of borrowings outstanding under its Credit Agreement as of July
31, 1992, the full amount of which was paid off during fiscal 1993. The
Company made principal payments of $5.6 million on the Senior Notes in June
1994 and 1995.
In October 1995, the Company negotiated with a group of insurance
companies a new private placement of senior notes in the amount of $39 million
and the extension of $21 million of existing Senior Notes for capital
expenditures and for general corporate purposes. Closing of this transaction
is expected in November 1995. The $39 million of new senior notes have a 10
year maturity, with equal annual principal payments of $5.6 million beginning
at the end of the fourth year and will have an interest rate of 7.62%. The
extension of $21 million of Series B Notes extends the final maturity from June
2001 to December 2005, with the first principal payment due changed from June
1996 to December 1999 and with an interest rate subsequent to the original
maturity date of 7.82%. Both the new notes and the extension have terms and
conditions similar to the existing Senior Notes. Maturities of long-term debt
for the next five fiscal years upon closing of this transaction are as follows:
1996 -- $10,775,000; 1997 -- $10,775,000; 1998 -- $10,775,000; 1999 --
$5,175,000 and 2000 -- $13,746,000.
-18-
19
See Note 6 to the Consolidated Financial Statements for a summary of the
Senior Notes and Credit Agreement.
Diamond Shamrock, Inc., an independent refiner and marketer, is building
a 420-mile, ten-inch refined products pipeline from its McKee refinery near
Dumas, Texas to El Paso, the Company's largest market. Diamond Shamrock has
announced that it expects to complete that pipeline, which will have an initial
capacity of 25,000 BPD, in the fourth quarter of calendar 1995, and that it
intends to use its pipeline to supply fuel to the El Paso, Arizona and northern
Mexico markets. The Diamond Shamrock pipeline could substantially increase the
supply of products in the Company's principal markets. In addition, in June
1995, an investor group announced that it is negotiating to purchase an
existing crude oil pipeline running from West Texas to a refinery near Houston
as part of the investor group's plan to reverse the line and extend it for use
in transporting refined products from the Gulf Coast to El Paso.
At times in the past, the common carrier pipelines used by the Company
to serve the Tucson and Phoenix markets have been operated at or near their
capacity. In addition, the common carrier pipeline used by the Company to
serve the Albuquerque market currently is operating at or near capacity. As a
result, the volume of refined products that the Company and other shippers have
been able to deliver to these markets at times has been limited. In general,
there is no assurance that the Company will not experience future constraints
on its ability to deliver its products through common carrier pipelines or that
any existing constraints will not worsen. In particular, the flow of
additional product into El Paso for shipment to Arizona, either as a result of
the new Diamond Shamrock pipeline or otherwise, could result in the
reoccurrence of such constraints.
In July 1993, the United States Department of Justice (DOJ), on behalf
of the United States Environmental Protection Agency (EPA), filed a suit
against the Company's subsidiary, Navajo Refining Company (Navajo) alleging
that, beginning in September 1990 and continuing through the present, Navajo
has violated and continues to violate the Resource Conservation and Recovery
Act (RCRA) and implementing regulations of the EPA by treating, storing and
disposing of certain hazardous wastes without compliance with regulatory
requirements. The Company believes that the parties are in the final stages of
negotiating a resolution of the litigation. If settled as anticipated, the
Company would close the existing evaporation ponds of its wastewater management
system at a cost believed to be substantially less than $1 million. The
settlement also contemplates that the Company would implement one of several
alternatives to the existing wastewater treatment system. Depending upon which
approach were utilized, the Company could incur total costs of approximately $3
million over the next several years. The costs to implement an alternative
wastewater treatment system would be capitalized and amortized over the future
useful life of the resulting asset in accordance with generally accepted
accounting principles. The settlement with the DOJ also is expected to involve
the payment of a civil penalty of less than $2 million. In fiscal 1993, the
Company recorded a $2 million reserve for the litigation.
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20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Reference
---------
Report of Independent Auditors . . . . . . . . . . . . . . . 21
Consolidated Balance Sheet at July 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Income for the
years ended July 31, 1995, 1994 and 1993 . . . . . . . . . 23
Consolidated Statement of Cash Flows for
the years ended July 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 24
Consolidated Statement of Stockholders' Equity
for the years ended July 31, 1995, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . 26-39
-20-
21
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors
and Stockholders of Holly Corporation
We have audited the accompanying consolidated balance sheet of Holly
Corporation at July 31, 1995 and 1994, and the related consolidated statements
of income, cash flows and stockholders' equity for each of the three years in
the period ended July 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Holly Corporation at July 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended July 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
September 26, 1995
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22
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEET
($ in thousands, except per share amounts) July 31,
--------------------------------
1995 1994
-------- --------
ASSETS
Current assets
Cash and cash equivalents (Note 6) . . . . . . . . . . . . . . . $ 13,432 $ 3,297
Accounts receivable (Notes 3 and 6) . . . . . . . . . . . . . . 85,825 94,280
Inventories (Notes 4 and 6) . . . . . . . . . . . . . . . . . . 42,181 43,995
Income taxes receivable . . . . . . . . . . . . . . . . . . . . 1,540 697
Prepayments and other . . . . . . . . . . . . . . . . . . . . . 10,032 9,340
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . 153,010 151,609
Properties, plants and equipment, net (Note 5) . . . . . . . . . . 131,185 128,962
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,189 1,243
-------- --------
$287,384 $281,814
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable (Note 3) . . . . . . . . . . . . . . . . . . . $106,817 $112,084
Accrued liabilities (Note 9) . . . . . . . . . . . . . . . . . . 13,702 14,945
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 476 736
Current maturities of long-term debt (Note 6). . . . . . . . . . 14,275 5,608
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . 135,270 133,373
Deferred income taxes (Note 7) . . . . . . . . . . . . . . . . . . 17,506 14,829
Long-term debt, less current maturities (Note 6). . . . . . . . . . 54,565 68,840
Contingencies (Notes 10 and 12)
Stockholders' equity (Notes 6, 8 and 9)
Preferred stock, $1.00 par value - 1,000,000
shares authorized; none issued . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value - 20,000,000 shares . . . . . . . .
authorized; 8,650,282 shares issued . . . . . . . . . . . . . 87 87
Additional capital . . . . . . . . . . . . . . . . . . . . . . . 6,132 6,132
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 74,803 59,942
-------- --------
81,022 66,161
Common stock held in treasury, at cost -
396,768 shares . . . . . . . . . . . . . . . . . . . . . . . . (569) (569)
Deferred charge - amount due from ESOP . . . . . . . . . . . . . (410) (820)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . 80,043 64,772
-------- --------
$287,384 $281,814
======== ========
See accompanying notes.
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23
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share amounts) Years ended July 31,
-----------------------------------------
1995 1994 1993
--------- --------- ---------
REVENUES
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . $613,402 $550,903 $629,884
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 1,428 1,417 737
--------- --------- ---------
614,830 552,320 630,621
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 554,083 480,916 565,638
General and administrative . . . . . . . . . . . . . . . . . . 13,716 12,369 11,951
Depreciation, depletion and amortization . . . . . . . . . . . 15,796 10,871 11,344
Exploration expenses, including dry holes . . . . . . . . . . 3,608 4,441 2,867
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 148 183 150
--------- --------- ---------
587,351 508,780 591,950
--------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . . . 27,479 43,540 38,671
OTHER INCOME (EXPENSE)
Interest income . . . . . . . . . . . . . . . . . . . . . . . 1,020 447 169
Interest expense (Note 6) . . . . . . . . . . . . . . . . . . (8,352) (8,985) (9,523)
Other (Note 11) . . . . . . . . . . . . . . . . . . . . . . . - - 4,000
--------- --------- ---------
(7,332) (8,538) (5,354)
--------- --------- ---------
Income before income taxes and cumulative effect
of accounting change . . . . . . . . . . . . . . . . . . . . . . 20,147 35,002 33,317
Income tax provision (Notes 2, 7 and 10)
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,042 11,785 12,647
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,688 2,500 737
--------- --------- ---------
7,730 14,285 13,384
--------- --------- ---------
Income before cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,417 20,717 19,933
Cumulative effect of accounting change
(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,703 - (958)
--------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,120 $ 20,717 $ 18,975
========= ========= =========
Income per common share
Income before cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.51 $ 2.51 $ 2.42
Cumulative effect of accounting change . . . . . . . . . . . . . .69 - (.12)
--------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.20 $ 2.51 $ 2.30
========= ========= =========
Cash dividends paid per common share . . . . . . . . . . . . . . $ .40 $ .35 $ .30
========= ========= =========
Average number of shares of common
stock outstanding (in thousands) . . . . . . . . . . . . . . . 8,254 8,254 8,254
========= ========= =========
See accompanying notes.
-23-
24
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands) Years ended July 31,
-----------------------------------
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,120 $ 20,717 $ 18,975
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization . . . . . . . . . . . 15,796 10,871 11,344
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 1,688 2,500 737
Dry hole costs and leasehold impairment . . . . . . . . . . . 903 1,509 1,175
Cumulative effect of accounting change . . . . . . . . . . . . (5,703) - 958
(Increase) decrease in operating assets
Accounts receivable . . . . . . . . . . . . . . . . . . . . 8,455 (17,413) 12,222
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 1,814 (6,023) (2,365)
Income taxes receivable. . . . . . . . . . . . . . . . . . . (843) (697) 2,115
Prepayments and other . . . . . . . . . . . . . . . . . . . 829 (2,403) (197)
Increase (decrease) in operating liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (5,267) 25,297 (19,964)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 1,298 (1,703) 6,419
Income taxes payable . . . . . . . . . . . . . . . . . . . . (218) (6,572) 7,427
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (2,631) 1,601 (109)
-------- -------- --------
Net cash provided by operating activities . . . . . . . . . 34,241 27,684 38,737
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable . . . . . . . . . . . . . . . . . . . . - - (10,500)
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . (5,608) (5,608) (108)
Issuance costs of debt . . . . . . . . . . . . . . . . . . . . . . - - (291)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (3,301) (2,889) (2,476)
-------- -------- --------
Net cash used for financing activities . . . . . . . . . . . (8,909) (8,497) (13,375)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties, plants and equipment . . . . . . . . . . (15,197) (22,521) (20,120)
-------- -------- --------
Net cash used for investing activities . . . . . . . . . . . (15,197) (22,521) (20,120)
-------- -------- --------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year . . . . . . . . . . . . . . . . . 10,135 (3,334) 5,242
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 3,297 6,631 1,389
-------- -------- --------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,432 $ 3,297 $ 6,631
======== ======== ========
See accompanying notes.
-24-
25
HOLLY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
($ in thousands)
Amount Total
due stock-
Common Additional Retained Treasury from holders'
stock capital earnings stock ESOP equity
------ ------ ------- ------- ------- -------
BALANCE AT JULY 31, 1992 . . . . . . . . . . . $ 87 $6,132 $25,496 $ (569) $(1,641) $29,505
Net income . . . . . . . . . . . . . . . . . . - - 18,975 - - 18,975
Dividends paid . . . . . . . . . . . . . . . . - - (2,476) - - (2,476)
Reduction in amount due from ESOP . . . . . . . - - - - 411 411
Tax benefit of dividends paid to ESOP
on unallocated shares . . . . . . . . . . . . - - 63 - - 63
------ ------ ------- ------- ------- -------
BALANCE AT JULY 31, 1993 . . . . . . . . . . . 87 6,132 42,058 (569) (1,230) 46,478
Net income . . . . . . . . . . . . . . . . . . - - 20,717 - - 20,717
Dividends paid . . . . . . . . . . . . . . . . - - (2,889) - - (2,889)
Reduction in amount due from ESOP . . . . . . . - - - - 410 410
Tax benefit of dividends paid to ESOP
on unallocated shares . . . . . . . . . . . . - - 56 - - 56
------ ------ ------- ------- ------- -------
BALANCE AT JULY 31, 1994 . . . . . . . . . . . 87 6,132 59,942 (569) (820) 64,772
Net income . . . . . . . . . . . . . . . . . . - - 18,120 - - 18,120
Dividends paid . . . . . . . . . . . . . . . . - - (3,301) - - (3,301)
Reduction in amount due from ESOP . . . . . . . - - - - 410 410
Tax benefit of dividends paid to ESOP
on unallocated shares . . . . . . . . . . . - - 42 - - 42
------ ------ ------- ------- ------- -------
BALANCE AT JULY 31, 1995 . . . . . . . . . . . $ 87 $6,132 $74,803 $ (569) $ (410) $80,043
====== ====== ======= ====== ======= =======
See accompanying notes.
-25-
26
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company is principally engaged in the refining of petroleum
products. Although the Company is also engaged in certain exploration and
production activities, such activities do not represent a significant segment
of the Company's assets or operations.
The consolidated financial statements include the accounts of the
Company, its subsidiaries and Montana Refining Company, a Partnership (MRC).
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time
of purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost, using the last-in,
first-out (LIFO) method for crude oil and refined products and the average cost
method for materials and supplies, or market.
REVENUE RECOGNITION
Sales and related cost of sales are recognized when products are shipped
to customers and title passes. Sales are reported exclusive of excise taxes.
DEPRECIATION
Depreciation is provided by the straight-line method over the estimated
useful lives of the assets, primarily 10 to 30 years for refining and pipeline
facilities and 3 to 10 years for corporate and other assets.
-26-
27
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
OIL AND GAS EXPLORATION AND DEVELOPMENT
The Company accounts for the acquisition, exploration, development and
production costs of its oil and gas activities using the successful efforts
method of accounting. Lease acquisition costs are capitalized; undeveloped
leases are written down when determined to be impaired and written off upon
expiration or surrender. Geological and geophysical costs and delay rentals
are expensed as incurred. Exploratory well costs are initially capitalized,
but if the effort is unsuccessful, the costs are charged against earnings.
Development costs, whether or not successful, are capitalized. Productive
properties are stated at the lower of amortized cost or estimated realizable
value of underlying proved oil and gas reserves. Depreciation, depletion and
amortization of such properties is computed by the unit-of-production method.
At July 31, 1995, the Company had not discovered a material amount of proven
reserves.
EARNINGS PER SHARE
Earnings per share amounts are based upon the weighted average number of
common shares outstanding during each period.
FUTURES CONTRACTS
The Company enters into commodity futures contracts to hedge a portion
of the price risk associated with crude oil and refined products. Gains or
losses on contracts are recognized when the related inventory is sold or the
hedged transaction is consummated.
2. ACCOUNTING CHANGE
Effective August 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which
amends the accounting for income taxes from the deferral method to the
liability method. Under the liability method, deferred taxes are stated at the
income tax rates currently in effect or scheduled to be implemented rather than
at the tax rate in effect when the taxes were provided. The cumulative effect
of this accounting change through the 1992 fiscal year was a $958,000 increase
in the Company's deferred tax liability at August 1, 1992. This additional
income tax expense was reflected as a reduction of $958,000 in net income in
the first quarter of the 1993 fiscal year or $.12 per share. Excluding the
provision for the cumulative effect upon adoption of the new standard, the
effect of the change on net income was not material.
-27-
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
Effective August 1, 1994, the Company changed its method of accounting
for turnaround costs. Turnarounds consist of preventive maintenance on major
processing units as well as the shutdown and restart of all units, and
generally are scheduled at two to three year intervals. Previously, the
Company estimated the costs of the next scheduled turnaround and ratably
accrued the related expenses prior to the actual turnaround. To provide for a
better matching of turnaround costs with revenues, the Company changed its
accounting method for turnaround costs to one that results in the amortization
of costs incurred over the period until the next scheduled turnaround. The
cumulative effect of this accounting change through the 1994 fiscal year was an
increase in net income in the first quarter of the 1995 fiscal year of
$5,703,000 (net of deferred taxes of $3,865,000), or $.69 per common share.
Excluding the cumulative effect, the change increased net income for fiscal
1995 by $886,000 or $.11 per common share. If the accounting change for
turnaround costs had been retroactively applied, pro forma net income and net
income per common share would have been as follows:
($ in thousands, except per share amounts) 1994 1993
-------- ------
As reported
Net income . . . . . . . . . . . . . . $ 20,717 $ 18,975
Net income per share . . . . . . . . . $ 2.51 $ 2.30
Pro forma amounts
Net income . . . . . . . . . . . . . . $ 21,983 $ 21,085
Net income per share . . . . . . . . . $ 2.66 $ 2.55
3. ACCOUNTS RECEIVABLE
($ in thousands) 1995 1994
-------- --------
Product . . . . . . . . . . . . . . . . . $ 37,733 $ 45,259
Crude oil resales . . . . . . . . . . . . 48,092 49,021
-------- --------
$ 85,825 $ 94,280
======== ========
Crude oil resales accounts receivable principally represent the sell
side of reciprocal crude oil buy/sell exchange arrangements involved in
supplying crude oil to the refineries, with an approximate like amount
reflected in accounts payable. The net differential of these crude oil
buy/sell exchanges is reflected in cost of sales. The exchange differentials
result principally from crude oil type and location differences.
Credit losses are provided for in the financial statements and
consistently have been minimal.
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
4. INVENTORIES
($ in thousands) 1995 1994
-------- --------
Crude oil and refined products . . . . . . $ 35,649 $ 37,949
Materials and supplies . . . . . . . . . . 6,532 6,046
-------- --------
$ 42,181 $ 43,995
======== ========
The excess of current cost over the LIFO value of inventory was
$7,840,000 and $12,228,000 at July 31, 1995 and 1994, respectively.
5. PROPERTIES, PLANTS AND EQUIPMENT
($ in thousands) 1995 1994
-------- --------
Properties, plants and equipment, at cost
Refining and pipeline facilities . . . . . . . . $234,528 $224,540
Oil and gas exploration
and development . . . . . . . . . . . . . . . 14,222 10,607
Corporate and other . . . . . . . . . . . . . . 1,064 1,038
-------- --------
249,814 236,185
Accumulated depreciation, depletion and . . . . . .
amortization . . . . . . . . . . . . . . . . . . 118,629 107,223
-------- --------
$131,185 $128,962
======== ========
Refining and pipeline facilities at July 31, 1995 and 1994 include
$1,578,000 and $4,452,000, respectively, of construction in progress which was
not being depreciated at those dates, pending completion of the construction
projects.
6. DEBT
($ in thousands) 1995 1994
-------- --------
Senior Notes . . . . . . . . . . . . . . . . . . $ 68,800 $ 74,400
Other . . . . . . . . . . . . . . . . . . . . . . 40 48
------ ------
68,840 74,448
Less current maturities of long-
term debt . . . . . . . . . . . . . . . . . . 14,275 5,608
-------- ------
$ 54,565 $ 68,840
======== ========
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30
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
SENIOR NOTES
In June 1991, the Company sold $80 million of Senior Notes to a group of
insurance companies. The Senior Notes were issued in two Series and are
unsecured. The Series A Notes are in the principal amount of $28 million, have
a 7- year life, require equal annual principal payments of $5,600,000 beginning
June 15, 1994 and bear interest at 9.72%. The Series B Notes are in the
principal amount of $52 million, have a 10-year life, require equal annual
principal payments of $8,667,000 beginning June 15, 1996 and bear interest at
10.16%. The note agreement imposes certain restrictive covenants, including
limitations on liens, additional indebtedness, sale of assets, investments,
business combinations and dividends, which collectively are less restrictive
than the terms of the bank Credit Agreement.
CREDIT AGREEMENT
In June 1995, the Company and certain of its subsidiaries amended its
current bank Credit Agreement (Credit Agreement) extending the term for two
additional years. The Credit Agreement provides a $100 million facility for
letters of credit, or for direct borrowings of up to $25 million, with such
borrowings being subject to an annual 20-day cleanup period. Interest on
borrowings is based upon, at the Company's option, (i) the agent bank's prime
rate plus 1/2% per annum; (ii) various Eurodollar related rates; and (iii)
various certificate of deposit related rates. A fee of 1% per annum is payable
quarterly on the outstanding balance of all letters of credit, and a commitment
fee of 3/8 of 1% per annum is payable on the unused portion of the facility.
The borrowing base for the facility consists of cash, cash equivalents,
accounts receivable and inventory, all of which secure the facility. The
Credit Agreement imposes certain restrictions, including: (i) a prohibition of
other indebtedness in excess of $3 million with exceptions for, among other
things, indebtedness under the Company's Senior Notes and certain nonrecourse
debt; (ii) maintenance of certain levels of net worth, working capital and
interest coverage; (iii) limitations on investments and dividends; and (iv) a
prohibition of incursions on controlling ownership, material changes in senior
management and business combinations with unaffiliated entities.
At July 31, 1995, the Company had outstanding letters of credit
totalling $24,776,000 and no borrowings. The unused commitment under the
Credit Agreement at July 31, 1995 was $75,224,000, of which up to $25,000,000
may be used for additional direct borrowings.
The average and maximum amounts outstanding and the effective average
interest rate for borrowings under the Company's current and prior credit
agreements were as follows:
($ in thousands) 1995 1994 1993
---- ---- ----
Average amount outstanding . . . . . . . . $ - $ 39 $ 3,565
Maximum balance . . . . . . . . . . . . . . $ - $ 1,900 $22,330
Effective average interest rate . . . . . . - 6.6% 6.6%
-30-
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
The Senior Notes and Credit Agreement restrict investments and
distributions, including dividends, to an amount in the aggregate not to exceed
75% of cumulative consolidated net income (as defined). Under the most
restrictive of these covenants, at July 31, 1995 approximately $26.6 million
was available for the payment of dividends.
Maturities of long-term debt for the next five fiscal years are as
follows: 1996 -- $14,275,000; 1997 -- $14,275,000; 1998 -- $14,275,000; 1999
- -- $8,675,000 and 2000 -- $8,675,000.
The Company made interest payments of $8,183,000 in 1995, $8,744,000 in
1994 and $9,058,000 in 1993.
Based on the borrowing rates that the Company believes would be available
for replacement loans with similar terms and maturities of the debt of the
Company now outstanding, the fair value of long-term debt including current
maturities would be $73.2 million at July 31, 1995.
7. INCOME TAXES
Effective August 1, 1992, the Company adopted SFAS No. 109 to account for
income taxes (see Note 2).
The statutory federal income tax rate applied to pre-tax book income
reconciles to income tax expense as follows:
($ in thousands) 1995 1994 1993
---- ---- ----
Tax computed at
statutory rate . . . . . . . . . . $ 7,051 $12,251 $11,521(1)
State income taxes, net of federal
tax benefit . . . . . . . . . . . . 982 1,888 1,744
Other . . . . . . . . . . . . . . . . (303) 146 119
------- ------- -------
$ 7,730 $14,285 $13,384
======== ======= =======
(1) Blended rate, as federal income tax rate changed effective January 1,
1993.
-31-
32
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
Operations of the corporation that was the sole limited partner of MRC
prior to the acquisition of such corporation by the Company (see Note 10)
resulted in unused net operating loss carryforwards of approximately
$7,000,000, which are expected to be available to the Company to a limited
extent each year through 2006 based on the income of such corporation. As of
July 31, 1995, approximately $6,000,000 of these net operating loss
carryforwards remain available to offset future income. For financial
reporting purposes, any benefit of these net operating loss carryforwards is
being offset against any contingent future payments relating to the acquisition
of such corporation.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The Company's deferred
income tax assets and liabilities as of July 31, 1995 and 1994 are as follows:
($ in thousands)
1995
----
Assets Liabilities Total
------ ----------- ------
Deferred taxes
Accrued employee benefits . . . . . . . $1,336 $ - $ 1,336
Deferred turnaround costs . . . . . . . - (1,532) (1,532)
Prepayments and other . . . . . . . . . 1,425 (1,783) (358)
------ -------- --------
Total current . . . . . . . . . . . . . . 2,761 (3,315) (554)
Properties, plants and equipment
(primarily tax in excess of
book depreciation) . . . . . . . . . . - (17,923) (17,923)
Intangible drilling costs . . . . . . . - (1,020) (1,020)
Nondeductible oil and gas costs . . . . 2,233 - 2,233
Deferred turnaround costs . . . . . . . - (887) (887)
Other . . . . . . . . . . . . . . . . . 150 (59) 91
------ -------- --------
Total noncurrent . . . . . . . . . . . . 2,383 (19,889) (17,506)
------ -------- --------
5,144 (23,204) (18,060)
Valuation allowance . . . . . . . . . . . - - -
------ -------- --------
Total . . . . . . . . . . . . . . . . . . $5,144 $(23,204) $(18,060)
====== ======== ========
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33
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
($ in thousands)
1994
----
Assets Liabilities Total
------ ----------- ------
Deferred taxes
Accrued employee benefits . . . . . . . $1,376 $ - $ 1,376
Provision for future maintenance . . . 1,353 - 1,353
Prepayments and other . . . . . . . . . 1,339 (1,747) (408)
------ --------- --------
Total current . . . . . . . . . . . . . . 4,068 (1,747) 2,321
Properties, plants and equipment
(primarily tax in excess of
book depreciation) . . . . . . . . . . - (16,038) (16,038)
Intangible drilling costs . . . . . . . - (704) (704)
Nondeductible oil and gas costs . . . . 1,813 - 1,813
Other . . . . . . . . . . . . . . . . . 152 (52) 100
------ --------- --------
Total noncurrent . . . . . . . . . . . . 1,965 (16,794) (14,829)
------ --------- --------
6,033 (18,541) (12,508)
Valuation allowance . . . . . . . . . . . - - -
------ --------- --------
Total . . . . . . . . . . . . . . . . . . $6,033 $ (18,541) $(12,508)
====== ========= ========
The Company made income tax payments of $7,144,000 in 1995, $18,893,000
in 1994 and $5,138,000 in 1993.
The Company's federal income tax returns have been examined by the
Internal Revenue Service through 1990.
8. STOCKHOLDERS' EQUITY
At July 31, 1995 and 1994, no stock options were outstanding and 751,500
shares of common stock were reserved for issuance under the Company's stock
option plan.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a non-contributory defined benefit retirement plan that
covers substantially all employees. The Company's policy is to make
contributions annually of not less than the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. Benefits are based on the
employee's years of service and compensation.
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
Pension expense includes the following components:
($ in thousands) 1995 1994 1993
---- ----- ----
Service cost - benefits earned
during the year . . . . . . . . . . . . $1,131 $ 1,014 $1,124
Interest cost on projected benefit
obligations . . . . . . . . . . . . . . 1,830 1,603 1,711
Actual return on plan assets . . . . . . (3,421) (841) (1,802)
Net amortization and deferral . . . . . . 1,296 (1,252) (379)
------ ------ ------
Pension expense . . . . . . . . . . . . . $ 836 $ 524 $ 654
====== ====== ======
The following table sets forth the funded status of the plan and amounts
recognized in the consolidated balance sheet:
($ in thousands) 1995 1994
---- ----
Plan assets at fair value . . . . . . $ 25,985 $ 23,256
Actuarial present value of projected
benefit obligations
Accumulated benefit obligations
Vested . . . . . . . . . . . . . 19,717 17,733
Unvested . . . . . . . . . . . . 259 222
Provision for future salary
increases . . . . . . . . . . . . 7,189 6,171
-------- --------
Projected benefit obligations . . . . 27,165 24,126
-------- --------
Plan assets less than projected
benefit obligations . . . . . . . . (1,180) (870)
Unrecognized net (gain) loss . . . . (197) 248
Unrecognized prior service
cost . . . . . . . . . . . . . . 72 108
Unrecognized transition net
asset . . . . . . . . . . . . . . (1,222) (1,435)
-------- --------
Accrued pension liability
recognized in the consolidated
balance sheet . . . . . . . . . . . $ (2,527) $ (1,949)
======== ========
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35
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
The principal actuarial assumptions were:
1995 1994 1993
---- ---- ----
Discount rate . . . . . . . . . . . 7.5% 7.5% 7.5%
Rate of future compensation
increases . . . . . . . . . . . . 5% 5% 5%
Expected long-term rate of return
on assets . . . . . . . . . . . . 8.5% 8.5% 8.5%
Pension costs are determined using the assumptions as of the beginning
of the year. The funded status is determined using the assumptions as of the
end of the year.
Approximately 57% of plan assets is invested in equity securities and
43% is invested in fixed income securities and other instruments at July 31,
1995.
The Company has adopted a retirement restoration plan that provides for
additional payments from the Company so that total retirement plan benefits for
executives will be maintained at the levels provided in the Retirement Plan
before the application of Internal Revenue Code limitations. During 1995, the
Company accrued $237,000 in connection with this plan.
EMPLOYEE STOCK OWNERSHIP PLAN
In December 1985, the Company established an Employee Stock Ownership
Plan (ESOP). The ESOP is non-contributory and includes substantially all
employees of the Company and its subsidiaries who meet certain length of
service requirements and are not covered by a collective bargaining agreement.
In 1985, the ESOP borrowed from the Company the $4,102,000 needed to
purchase 1,500,000 shares of the Company's common stock. The loan is repayable
in ten annual installments of $410,000 (subject to certain adjustments)
commencing August 1, 1986 and bears interest at 12% per annum. The Company is
obligated to make annual contributions sufficient to enable the ESOP to repay
the loan with interest. The unearned compensation of $4,102,000 was recorded
as a reduction of stockholders' equity and is being reduced as payments are
made. Interest income earned on the note due from the ESOP is offset against
an equal amount contributed to the ESOP by the Company.
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36
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
10. MONTANA REFINING COMPANY, A PARTNERSHIP
The Company acquired on July 31, 1992, the corporation that was the
limited partner in MRC in connection with a settlement of litigation. The
acquisition involved among other items contingent future payments of up to
$189,000 per year over the period 1993 through 2005.
11. OTHER INCOME
The 1993 fiscal year included income of $4,000,000 relating to a
settlement with a common carrier pipeline concerning product pipeline
distribution constraints.
12. CONTINGENCIES
In July 1993, the United States Department of Justice (DOJ), on behalf
of the United States Environmental Protection Agency (EPA), filed a suit
against the Company's subsidiary, Navajo Refining Company (Navajo) alleging
that, beginning in September 1990 and continuing through the present, Navajo
has violated and continues to violate the Resource Conservation and Recovery
Act (RCRA) and implementing regulations of the EPA by treating, storing and
disposing of certain hazardous wastes without compliance with regulatory
requirements. The Company believes that the parties are in the final stage of
negotiating a resolution of the litigation. If settled as anticipated, the
Company would close the existing evaporation ponds of its wastewater management
system at a cost believed to be substantially less than $1 million. The
settlement also contemplates that the Company would implement one of several
alternatives to the existing wastewater treatment system. Depending upon which
approach is utilized, the Company could incur total costs of approximately $3
million over the next several years. The costs to implement an alternative
wastewater treatment system would be capitalized and amortized over the future
useful life of the resulting asset in accordance with generally accepted
accounting principles. The settlement with the DOJ also is expected to involve
the payment of civil penalty of less than $2 million. In fiscal 1993, the
Company recorded a $2 million reserve for the litigation.
The Company is a party to various other litigation and proceedings which
it believes, based on advice of counsel, will not have a materially adverse
impact on its financial condition or operations.
-36-
37
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
13. SIGNIFICANT CUSTOMERS
Virtually all revenues were domestic revenues (including domestic sales
for export to Mexico). Approximately $74,000,000 (12%) of the Company's
revenues for fiscal 1995, $67,000,000 (12%) of revenues for fiscal 1994 and
$65,000,000 (10%) for fiscal 1993 were from the sale of military jet fuel to
the United States Government. Approximately $41,000,000 (7%) of the Company's
revenues for fiscal 1995 and $58,000,000 (11%) of revenues for fiscal 1994 were
from the sale of gasoline to an affiliate of PEMEX (the government-owned energy
company of Mexico). In addition to the United States Government and PEMEX,
another refiner, which is a purchaser of gasoline and diesel for resale to
retail customers, accounted for approximately $75,000,000 (12%) of the
Company's revenues in fiscal 1993. While a loss of, or reduction in amounts
purchased by, major purchasers that resell to retail customers could have an
adverse effect on the Company, the Company believes that the impact of such a
loss on the Company's results of operations should be limited because the
Company's sales volume with respect to products whose end-users are retail
customers is more dependent on the general retail demand in the Company's
primary markets than on sales to any specific customer.
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38
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 31, 1995, 1994 and 1993
14. QUARTERLY INFORMATION (UNAUDITED)
First Second Third Fourth
Financial Data Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- --------
($ in thousands, except per share amounts)
1995
Revenues . . . . . . . . . . . . . . . $ 160,724 $146,962 $ 147,047 $160,097 $ 614,830
Operating margin (net sales less
cost of sales) . . . . . . . . . . $ 21,353 $ 10,860 $ 9,251 $ 17,855 $ 59,319
Income (loss) before income taxes and
cumulative effect of accounting
change . . . . . . . . . . . . . . $ 12,166 $ 1,649 $ (931) $ 7,263 $ 20,147
Income (loss) before cumulative effect
of accounting change . . . . . . . $ 7,252 $ 983 $ (376) $ 4,558 $ 12,417
Cumulative effect of accounting
change . . . . . . . . . . . . . . 5,703 - - - 5,703
--------- -------- --------- -------- ---------
Net income (loss) . . . . . . . . . . $ 12,955 $ 983 $ (376) $ 4,558 $ 18,120
========= ======== ========= ======== =========
Income per common share
Income (loss) before cumulative
effect of accounting change . . . $ .88 $ .12 $ (.05) $ .56 $ 1.51
Cumulative effect of
accounting change . . . . . . . . .69 - - - .69
--------- -------- --------- -------- ---------
Net income (loss) . . . . . . . . . $ 1.57 $ .12 $ (.05) $ .56 $ 2.20
========= ======== ========= ======== =========
Dividends per common share . . . . . . $ .10 $ .10 $ .10 $ .10 $ .40
Average number of shares of
common stock outstanding
(in thousands) . . . . . . . . . . 8,254 8,254 8,254 8,254 8,254
-38-
39
HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 31, 1995, 1994 and 1993
First Second Third Fourth
Financial Data Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- --------
(continued) ($ in thousands, except per share amounts)
1994
Revenues . . . . . . . . . . . . . . . $135,518 $120,689 $143,934 $152,179 $552,320
Operating margin (net sales less
cost of sales) . . . . . . . . . . $ 22,570 $ 15,790 $ 23,420 $ 8,207 $ 69,987
Income (loss) before
income taxes . . . . . . . . . . . $ 13,835 $ 7,134 $ 14,635 $ (602) $ 35,002
Net income (loss) . . . . . . . . . . $ 8,273 $ 4,266 $ 8,730 $ (552) $ 20,717
Income (loss) per
common share . . . . . . . . . . . $ 1.00 $ .52 $ 1.06 $ (.07) $ 2.51
Dividends per common share . . . . . . $ .075 $ .075 $ .10 $ .10 $ .35
Average number of shares of
common stock outstanding
(in thousands) . . . . . . . . . . 8,254 8,254 8,254 8,254 8,254
First Second Third Fourth
Operating Data Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- --------
(barrels-per-day)
1995
Sales of
refined products . . . . . . . . . . 71,200 67,900 69,500 70,700 69,800
Refinery production . . . . . . . . . 67,000 68,200 68,600 68,400 68,100
1994
Sales of
refined products . . . . . . . . . . 58,500 62,300 73,100 69,600 65,800
Refinery production . . . . . . . . . 54,100 66,000 69,900 67,500 64,300
-39-
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information regarding the directors of the Company is
incorporated herein by this reference to information set forth under the
caption "Election of Directors" in the Company's Proxy Statement for its Annual
Meeting of Stockholders to be held in December 1995 which will be filed within
120 days of July 31, 1995 (the "Proxy Statement").
The required information regarding the executive officers of the Company
is included herein in Part I, Item 4.
Required information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by this reference to
information set forth under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
this reference to information set forth under the captions "Executive
Compensation and Other Information" and "Compensation Committee Report on
Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by this reference to information set
forth under the captions "Principal Stockholders" and "Election of Directors"
in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by this reference to information set forth under the
caption "Election of Directors" in the Proxy Statement.
-40-
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Index to Consolidated Financial Statements
Page in
Form 10-K
---------
Report of Independent Auditors . . . . . . . . . . . 21
Consolidated Balance Sheet at
July 31, 1995 and 1994 . . . . . . . . . . . . . . 22
Consolidated Statement of Income for
the years ended July 31, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . . 23
Consolidated Statement of Cash Flows
for the years ended July 31, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . . 24
Consolidated Statement of Stockholders'
Equity for the years ended July 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . 26-39
(2) Index to Consolidated Financial Statement Schedules
All schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
See Index to Exhibits on pages 44 to 48.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's fourth
quarter that ended July 31, 1995.
-41-
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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)
/s/ Lamar Norsworthy
---------------------
Lamar Norsworthy
Chairman of the Board,
President and Chief
Executive Officer
Date: October 26, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Capacity Date
--------- -------- ----
/s/ Lamar Norsworthy Chairman of Board of Directors, October 26, 1995
- --------------------------- President and Chief Executive
Lamar Norsworthy Officer of the Company
/s/ Jack P. Reid Executive Vice President, October 26, 1995
- --------------------------- Refining and Director
Jack P. Reid
/s/ Matthew P. Clifton Senior Vice President October 26, 1995
- --------------------------- and Director
Matthew P. Clifton
/s/ Henry A. Teichholz Vice President, Treasurer and October 26, 1995
- --------------------------- Controller (Principal Financial
Henry A. Teichholz and Accounting Officer)
-42-
43
Signature Capacity Date
--------- -------- ----
/s/ W. John Glancy Director October 26, 1995
- ---------------------------
W. John Glancy
/s/ Marcus R. Hickerson Director October 26, 1995
- ---------------------------
Marcus R. Hickerson
/s/ A. J. Losee Director October 26, 1995
- ---------------------------
A. J. Losee
/s/ Robert G. McKenzie Director October 26, 1995
- ---------------------------
Robert G. McKenzie
/s/ Thomas K. Matthews, II Director October 26, 1995
- ---------------------------
Thomas K. Matthews, II
-43-
44
HOLLY CORPORATION
INDEX TO EXHIBITS
(Exhibits are numbered to correspond to the exhibit table in
Item 601 of Regulation S-K)
Exhibit
Number Description
------ -----------
3(a) - Restated Certificate of Incorporation of the Registrant, as amended (incorporated by
reference to Exhibit 3(a), of Amendment No. 1 dated December 13, 1988 to Registrant's
Annual Report on Form 10-K for its fiscal year ended July 31, 1988, File No. 1-3876).
3(b) - Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3(b) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July 31, 1993, File No.
1-3876).
4(a) - 9.72% Series A Senior Note of Holly Corporation, dated as of June 26, 1991, to Hartnat &
Co. with schedule attached thereto of four other substantially identical Notes which
differ only in the respects set forth in such schedule (incorporated by reference to
Exhibit 4.1 of Registrant's Form 8-K dated June 26, 1991, File No. 1-3876).
4(b) - 10.16% Series B Senior Note of Holly Corporation, dated as of June 26, 1991, to New York
Life Insurance Company with schedule attached thereto of seven other substantially
identical Notes which differ only in the respects set forth in such schedule
(incorporated by reference to Exhibit 4.2 of Registrant's Form 8-K dated June 26, 1991,
File No. 1-3876).
4(c) - Guaranty, dated as of June 15, 1991, of Navajo Refining Company, Navajo Pipeline Co.,
Midland-Lea, Inc., and Lea Refining Company in favor of Kentucky Central Life Insurance
Company, Pan-American Life Insurance Company, American International Life Assurance
Company of New York, Safeco Life Insurance Company, The Manhattan Life Insurance Company,
The Union Central Life Insurance Company, The Penn Insurance and Annuity Company, The
Penn Mutual Life Insurance Company, Confederation Life Insurance Company, John Hancock
Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, and New York
Life Insurance Company (incorporated by reference to Exhibit 4.3 of Registrant's Form 8-K
dated June 26, 1991, File No. 1-3876).
-44-
45
Exhibit
Number Description
------ -----------
4(d) - Note Agreement of Holly Corporation, dated as of June 15, 1991, to John Hancock Mutual
Life Insurance Company, with schedule attached thereto of eleven other substantially
identical Note Agreements which differ only in the respects set forth in such schedule
(incorporated by reference to Exhibit 4.8 of Registrant's Form 8-K dated June 26, 1991,
File No. 1-3876).
4(e) - First Amended and Restated Credit Agreement, dated as of July 23, 1993, among Holly
Corporation, Navajo Refining Company, Navajo Holdings, Inc., Holly Petroleum, Inc.,
Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company, Montana
Refining Company, A Partnership and NationsBank of Texas, N.A., Banque Paribas, The First
National Bank of Boston, The Bank of Nova Scotia and NationsBank of Texas, N.A. as the
agent (incorporated by reference to Exhibit 4(e) of Registrant's Annual Report on Form
10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
4(f) - First Amendment to First Amended and Restated Credit Agreement, dated as of April 7,
1994, among Holly Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo
Pipeline Co., Navajo Holdings, Inc., Lea Refining Company, Navajo Western Asphalt
Company, Montana Refining Company, A Partnership and Navajo Crude Oil Marketing Company,
and NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Banque Paribas,
The First National Bank of Boston, and The Bank of Nova Scotia (incorporated by reference
to Exhibit 4(f) of Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1994, File No. 1-3876).
4(g) - Second Amendment to First Amended and Restated Credit Agreement, dated as of June 13,
1995, among Holly Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo
Pipeline Co., Navajo Holdings, Inc., Lea Refining Company, Navajo Western Asphalt
Company, Montana Refining Company, A Partnership and Navajo Crude Oil Marketing Company,
and NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., Banque Paribas,
The First National Bank of Boston, and The Bank of Nova Scotia.
4(h) - Promissory Note of Holly Corporation, dated as of July 23, 1993, to NationsBank of Texas,
N.A. with schedule attached thereto of three other substantially identical Notes which
differ only in the respects set forth in such schedule (incorporated by reference to
Exhibit 4(f) of Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1993, File No. 1-3876).
-45-
46
Exhibit
Number Description
------ -----------
4(i) - Guaranty, dated as of July 30, 1991, of Navajo Refining Company, Holly Petroleum, Inc.,
Navajo Pipeline Co., and Midland-Lea, Inc. in favor of NCNB Texas National Bank, Banque
Paribas, The First National Bank of Boston, The Bank of Nova Scotia and NCNB Texas
National Bank as agent for itself and the other banks (incorporated by reference to
Exhibit 4.2 of Registrant's Form 8-K dated July 30, 1991, File No. 1-3876).
4(j) - First Supplement, executed as of February 20, 1992, to Guaranty, dated as of July 30,
1991, among Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc., Navajo
Pipeline Co., Lea Refining Company and Navajo Western Asphalt Company in favor of NCNB
Texas National Bank, Banque Paribas, The First National Bank of Boston, and The Bank of
Nova Scotia and NCNB Texas National Bank as agent for the banks (incorporated by
reference to Exhibit 4.4 of Registrant's Quarterly Report on Form 10-Q for the quarterly
period ending January 31, 1992, File No. 1-3876).
4(k) - Confirmation of Guaranty, executed as of July 23, 1993 by Navajo Refining Company, Holly
Petroleum, Inc., Navajo Pipeline Co., Navajo Holdings, Inc., Navajo Western Asphalt
Company and Lea Refining Company which confirms the Guaranty (Exhibit 4(i) of this Form
10-K) and First Supplement to the Guaranty (Exhibit 4(j) of this Form 10-K) (incorporated
by reference to Exhibit 4(i) of Registrant's Annual Report on Form 10-K for its fiscal
year ended July 31, 1993, File No. 1-3876).
4(l) - Second Supplement to Guaranty, executed as of April 7, 1994, by Navajo Refining Company,
Holly Petroleum, Inc., Navajo Holdings, Inc., Navajo Pipeline Co., Lea Refining Company,
Navajo Western Asphalt Company and Navajo Crude Oil Marketing Company, in favor of
NationsBank of Texas, N.A., Banque Paribas, The First National Bank of Boston, The Bank
of Nova Scotia, and NationsBank of Texas, N.A., as agent for the banks (incorporated by
reference to Exhibit 4(k) of Registrant's Annual Report on Form 10-K for its fiscal year
ended July 31, 1994, File No. 1-3876).
4(m) - Security Agreement, dated as of July 30, 1991, among Holly Corporation, Navajo Refining
Company, Holly Petroleum, Inc., Navajo Pipeline Co., Midland-Lea, Inc., Lea Refining
Company, Navajo Western Asphalt Company and NCNB Texas National Bank as agent for itself,
Banque Paribas, The First National Bank of Boston and The Bank of Nova Scotia
(incorporated by reference to Exhibit 4.3 of Registrant's Form 8-K dated July 30, 1991,
File No. 1-3876).
-46-
47
Exhibit
Number Description
------ -----------
4(n) - First Supplement, executed as of February 20, 1992, to the Security Agreement, dated as
of July 30, 1991, among Holly Corporation, Navajo Refining Company, Holly Petroleum,
Inc., Navajo Holdings, Inc., Navajo Pipeline Co., Lea Refining Company, Navajo Western
Asphalt Company and NCNB Texas National Bank as agent for itself, Banque Paribas, The
First National Bank of Boston and The Bank of Nova Scotia (incorporated by reference to
Exhibit 4.3 of Registrant's Quarterly Report on Form 10-Q for the quarterly period ending
January 31, 1992, File No. 1-3876).
4(o) - Confirmation of Security Agreement, executed as of July 23, 1993 by Holly Corporation,
Navajo Pipeline Co., Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings,
Inc., Lea Refining Company and Navajo Western Asphalt Company which confirms the
Security Agreement (Exhibit 4(m) of this Form 10-K) and First Supplement to the Security
Agreement (Exhibit 4(n) of this Form 10-K) (incorporated by reference to Exhibit 4(l) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July 31, 1993, File No.
1-3876).
4(p) - Security Agreement, dated as of July 23, 1993, between Montana Refining Company, A
Partnership, and NationsBank of Texas, N.A. as agent for itself, Banque Paribas, The
First National Bank of Boston and The Bank of Nova Scotia (incorporated by reference to
Exhibit 4(m) of Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1993, File No. 1-3876).
4(q) - Second Supplement to Security Agreement, executed as of April 7, 1994, by and among Holly
Corporation, Navajo Refining Company, Holly Petroleum, Inc., Navajo Holdings, Inc.,
Navajo Pipeline Co., Lea Refining Company, Navajo Western Asphalt Company and Navajo
Crude Oil Marketing Company, and NationsBank of Texas, N.A., as agent, Banque Paribas,
The First National Bank of Boston and The Bank of Nova Scotia (incorporated by reference
to Exhibit 4(p) of Registrant's Annual Report on Form 10-K for its fiscal year ended July
31, 1994, File No. 1-3876).
4(r) - Holly Corporation Stock Option Plan - As adopted at the Annual Meeting of Stockholders of
Holly Corporation on December 13, 1990 (incorporated by reference to Exhibit 4(i) of
Registrant's Annual Report on Form 10-K for its fiscal year ended July 31, 1991, File No.
1-3876).
-47-
48
Exhibit
Number Description
------ -----------
10(a) - Supplemental Payment Agreement, dated as of July 8, 1993, between Lamar Norsworthy and
Holly Corporation (incorporated by reference to Exhibit 10(a) of Registrant's Annual
Report on Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
10(b) - Supplemental Payment Agreement, dated as of July 8, 1993, between Jack P. Reid and Holly
Corporation (incorporated by reference to Exhibit 10(b) of Registrant's Annual Report on
Form 10-K for its fiscal year ended July 31, 1993, File No. 1-3876).
(21) - Subsidiaries of Registrant
(23) - Consent of Independent Auditors
(27) - Financial Data Schedule
(99) - Copy of civil action against the Company's subsidiary, Navajo Refining Company, filed on
July 16, 1993 by the United States, in the United States District Court for the District
of New Mexico, seeking civil penalties and other compliance measures under the Resource
Conservation and Recovery Act and implementing regulations of the Environmental
Protection Agency (incorporated by reference to Exhibit 28 of Registrant's Form 8-K dated
July 16, 1993, File No. 1-3876).
-48-