1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2001
--------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-3876
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HOLLY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1056913
- --------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Crescent Court, Suite 1600
Dallas, Texas 75201-6927
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 871-3555
---------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
7,550,814 shares of Common Stock, par value $.01 per share, were outstanding on
March 5, 2001.
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HOLLY CORPORATION
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - (Unaudited)
January 31, 2001 and July 31, 2000 3
Consolidated Statement of Income (Unaudited) -
Three Months and Six Months Ended January 31, 2001 and 2000 4
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended January 31, 2001 and 2000 5
Consolidated Statement of Comprehensive Income (Unaudited) -
Three Months and Six Months Ended January 31, 2001 and 2000 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 23
This Quarterly Report on Form 10-Q (including documents incorporated by
reference herein) contains statements with respect to the Company's
expectations or beliefs as to future events. These types of statements are
"forward-looking" and are subject to uncertainties. See "Factors Affecting
Forward-Looking Statements" on page 11.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOLLY CORPORATION
CONSOLIDATED BALANCE SHEET
Unaudited
JANUARY 31, JULY 31,
2001 2000
------------ ------------
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents .................................................................. $ 28,531 $ 3,628
Accounts receivable: Product .............................................................. 55,337 65,988
Crude oil resales .................................................... 93,742 123,978
------------ ------------
149,079 189,966
Inventories: Crude oil and refined products ....................................... 55,670 49,340
Materials and supplies ............................................... 10,109 10,193
Reserve for lower of cost or market .................................. (2,934) (2,934)
------------ ------------
62,845 56,599
Income taxes receivable .................................................................... 2,629 --
Prepayments and other ...................................................................... 13,221 16,911
------------ ------------
TOTAL CURRENT ASSETS .................................................................. 256,305 267,104
Properties, plants and equipment, at cost ..................................................... 373,664 359,937
Less accumulated depreciation, depletion and amortization ..................................... (192,668) (184,628)
------------ ------------
180,996 175,309
Investments in and advances to joint ventures ................................................. 11,407 11,749
Other assets .................................................................................. 7,910 10,200
------------ ------------
TOTAL ASSETS .......................................................................... $ 456,618 $ 464,362
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................................................................... $ 198,686 $ 223,870
Accrued liabilities ........................................................................ 24,901 22,956
Income taxes payable ....................................................................... 1,085 6,177
Current maturities of long-term debt ....................................................... 13,738 13,738
------------ ------------
TOTAL CURRENT LIABILITIES ............................................................. 238,410 266,741
Deferred income taxes ......................................................................... 25,291 25,183
Long-term debt, less current maturities ....................................................... 34,286 42,857
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value - 1,000,000 shares authorized; none issued ................ -- --
Common stock, $.01 par value - 20,000,000 shares authorized; 8,650,282 shares issued ....... 87 87
Additional capital ......................................................................... 6,132 6,132
Retained earnings .......................................................................... 160,529 130,293
------------ ------------
166,748 136,512
Common stock held in treasury, at cost - 1,099,468 shares .................................. (7,793) (7,793)
Other comprehensive income (loss) .......................................................... (324) 862
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ............................................................ 158,631 129,581
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................ $ 456,618 $ 464,362
============ ============
See accompanying notes.
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HOLLY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(In thousands, except per share data)
SALES AND OTHER REVENUES ................................... $ 283,140 $ 218,424 $ 609,103 $ 419,055
OPERATING COSTS AND EXPENSES
Cost of products sold ................................... 224,761 190,692 478,996 350,522
Operating expenses ...................................... 25,807 21,885 50,189 45,124
Selling, general and administrative expenses ............ 5,190 5,287 12,163 10,155
Depreciation, depletion and amortization ................ 6,407 6,957 12,959 13,373
Exploration expenses, including dry holes ............... 599 299 833 602
------------ ------------ ------------ ------------
TOTAL OPERATING COSTS AND expenses ................. 262,764 225,120 555,140 419,776
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS .............................. 20,376 (6,696) 53,963 (721)
OTHER INCOME (EXPENSE)
Equity in earnings of joint ventures .................... 908 (73) 1,975 558
Interest income ......................................... 823 159 1,399 423
Interest expense ........................................ (1,342) (1,458) (2,778) (3,019)
------------ ------------ ------------ ------------
389 (1,372) 596 (2,038)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES .......................... 20,765 (8,068) 54,559 (2,759)
Income tax provision (benefit)
Current ................................................. 7,765 (2,917) 20,778 (585)
Deferred ................................................ 458 (248) 827 (497)
------------ ------------ ------------ ------------
8,223 (3,165) 21,605 (1,082)
------------ ------------ ------------ ------------
NET INCOME (LOSS) .......................................... $ 12,542 $ (4,903) $ 32,954 $ (1,677)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE (basic and diluted) ..... $ 1.66 $ (0.59) $ 4.36 $ (0.20)
============ ============ ============ ============
CASH DIVIDENDS PAID PER COMMON SHARE ....................... $ 0.18 $ 0.17 $ 0.36 $ 0.34
============ ============ ============ ============
AVERAGE NUMBER OF SHARES OF COMMON STOCK outstanding ....... 7,551 8,254 7,551 8,254
============ ============ ============ ============
See accompanying notes.
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HOLLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
SIX MONTHS ENDED
JANUARY 31,
----------------------------
2001 2000
------------ ------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................................ $ 32,954 $ (1,677)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation, depletion and amortization ................. 12,959 13,373
Deferred income taxes .................................... 827 (497)
Dry hole costs and leasehold impairment .................. 328 --
Equity in earnings of joint ventures ..................... (1,975) (558)
(Increase) decrease in current assets
Accounts receivable .................................... 42,186 (28,255)
Inventories ............................................ (6,246) 1,429
Income taxes receivable ................................ (2,629) (5,447)
Prepayments and other .................................. 714 51
Increase (decrease) in current liabilities
Accounts payable ....................................... (25,184) 50,154
Accrued liabilities .................................... 1,945 (584)
Income taxes payable ................................... (5,092) (7,641)
Turnaround expenditures .................................. (977) (125)
Other, net ............................................... 306 (308)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............... 50,116 19,915
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings under credit agreement ................ -- 4,300
Payment of long-term debt .................................... (8,571) (8,579)
Debt issuance costs .......................................... (100) --
Cash dividends ............................................... (2,718) (2,806)
------------ ------------
NET CASH USED FOR FINANCING ACTIVITIES .................. (11,389) (7,085)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties, plants and equipment ................ (14,875) (10,882)
Investments and advances to joint ventures ................... (1,049) --
Distributions from joint ventures ............................ 2,100 750
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES .................. (13,824) (10,132)
------------ ------------
CASH AND CASH EQUIVALENTS
INCREASE FOR THE PERIOD ...................................... 24,903 2,698
Beginning of year ............................................ 3,628 4,194
------------ ------------
END OF PERIOD ................................................ $ 28,531 $ 6,892
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during period for
Interest ................................................ $ 2,970 $ 3,307
Income taxes ............................................ $ 28,404 $ 12,456
See accompanying notes.
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HOLLY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(In thousands)
NET INCOME (LOSS) ............................................... $ 12,542 $ (4,903) $ 32,954 $ (1,677)
Other comprehensive income
Unrealized income (loss) on securities available for sale .... (116) 787 (1,972) 1,312
Income tax provision (benefit) ............................... (46) 309 (786) 526
---------- ---------- ---------- ----------
(70) 478 (1,186) 786
---------- ---------- ---------- ----------
TOTAL COMPREHENSIVE INCOME (LOSS) ............................... $ 12,472 $ (4,425) $ 31,768 $ (891)
========== ========== ========== ==========
See accompanying notes.
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Presentation of Financial Statements
In the opinion of the Company, the accompanying consolidated financial
statements, which have not been audited by independent accountants, reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position as of January 31,
2001, the consolidated results of operations and comprehensive income for the
three months and six months ended January 31, 2001 and 2000, and consolidated
cash flows for the six months ended January 31, 2001 and 2000.
Certain notes and other information have been condensed or omitted.
Therefore, these financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 2000.
References herein to the "Company" are for convenience of presentation
and may include obligations, commitments or contingencies that pertain solely to
one or more affiliates of the Company. Results of operations for the first six
months of fiscal 2001 are not necessarily indicative of the results to be
expected for the full year.
Note B - New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and that those instruments be
measured at fair value. SFAS No. 133 also prescribes the accounting treatment
for changes in the fair value of derivatives which depends on the intended use
of the derivative and the resulting designation. Designations include hedges of
the exposure to changes in the fair value of a recognized asset, liability or
firm commitment, hedges of the exposure to variable cash flows of a forecasted
transaction, hedges of the exposure to foreign currency translations, and
derivatives not designated as hedging instruments. SFAS No. 133 requires that
changes in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge criteria are met. Specific accounting for
qualifying hedges allows a derivative instrument's gains and losses to offset
related results on the hedged item in the statement of income, to the extent
effective, and requires that a company formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 with early adoption permitted. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities an
amendment of FASB Statement No. 133," which amended certain accounting and
reporting standards of FASB 133. Effective as of August 1, 2000, the Company
adopted SFAS No. 133.
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In January 2001, the Company entered into energy commodity futures
contracts to hedge certain firm commitments to purchase crude oil and deliver
gasoline. The purpose of the hedge is to help protect the Company from the risk
that the refining margin with respect to the hedged gasoline sales will decline.
Due to the strict requirements of SFAS 133 in measuring effectiveness of hedges,
this particular hedge transaction did not qualify for hedge accounting. The
energy commodity futures contracts entered into were marked to the current fair
market value at January 31, 2001, and as a result a gain of $20,000 was included
in revenue for the quarter ended January 31, 2001.
Note C - Earnings Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for net income.
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(In thousands, except share data)
Net income (loss) ........................................ $ 12,542 $ (4,903) $ 32,954 $ (1,677)
Average number of shares of common stock outstanding ..... 7,551 8,254 7,551 8,254
Effect of dilutive stock options ......................... 19 -- 2 --
---------- ---------- ---------- ----------
Average number of shares of common stock
outstanding assuming dilution .................... 7,570 8,254 7,553 8,254
========== ========== ========== ==========
Income (loss) per share - basic .......................... $ 1.66 $ (0.59) $ 4.36 $ (0.20)
========== ========== ========== ==========
Income (loss) per share - diluted ........................ $ 1.66 $ (0.59) $ 4.36 $ (0.20)
========== ========== ========== ==========
Note D - Segment Information
The Company has two major business segments: Refining and Pipeline
Transportation. The Refining segment is engaged in the refining of crude oil and
wholesale marketing of refined products, such as gasoline, diesel fuel and jet
fuel, and includes the Company's Navajo Refinery and Montana Refinery. The
petroleum products produced by the Refining segment are marketed in the
southwestern United States, Montana and northern Mexico. Certain pipelines and
terminals operate in conjunction with the Refining segment as part of the supply
and distribution networks of the refineries. The Refining segment also includes
the equity earnings from the Company's 50% interest in NK Asphalt Partners,
which manufactures and markets asphalt and asphalt products in Arizona
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and New Mexico. The Pipeline Transportation segment includes approximately 1,300
miles of the Company's pipeline assets in Texas and New Mexico. Revenues from
the Pipeline Transportation segment are earned through transactions with
unaffiliated parties for pipeline transportation, rental and terminalling
operations. The Pipeline Transportation segment also includes the equity
earnings from the Company's 25% interest in Rio Grande Pipeline Company, which
provides petroleum products transportation. Operations of the Company that are
not included in the two reportable segments are included in Corporate and Other,
which includes costs of Holly Corporation, the parent company, consisting
primarily of general and administrative expenses and interest charges, as well
as a small-scale oil and gas exploration and production program, and a small
equity investment in retail gasoline stations and convenience stores.
The accounting policies for the segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-K for the year ended July 31, 2000. The Company's reportable segments
are strategic business units that offer different products and services.
TOTAL FOR
PIPELINE REPORTABLE CORPORATE CONSOLIDATED
REFINING TRANSPORTATION SEGMENTS & OTHER TOTAL
-------- -------------- ---------- --------- ------------
(In thousands)
THREE MONTHS ENDED JANUARY 31, 2001
Sales and other revenues ............. $277,394 $ 4,902 $ 282,296 $ 844 $ 283,140
EBITDA(1) ............................ $ 25,582 $ 3,958 $ 29,540 $ (1,849) $ 27,691
Income (loss) from operations ........ $ 19,531 $ 2,834 $ 22,365 $ (1,989) $ 20,376
Income (loss) before income taxes .... $ 19,473 $ 3,576 $ 23,049 $ (2,284) $ 20,765
THREE MONTHS ENDED JANUARY 31, 2000
Sales and other revenues ............. $213,686 $ 3,683 $ 217,369 $ 1,055 $ 218,424
EBITDA(1) ............................ $ (1,249) $ 2,296 $ 1,047 $ (859) $ 188
Income (loss) from operations ........ $ (7,510) $ 2,022 $ (5,488) $ (1,208) $ (6,696)
Income (loss) before income taxes .... $ (7,584) $ 2,007 $ (5,577) $ (2,491) $ (8,068)
SIX MONTHS ENDED JANUARY 31, 2001
Sales and other revenues ............. $597,747 $ 9,549 $ 607,296 $ 1,807 $ 609,103
EBITDA(1) ............................ $ 65,587 $ 7,358 $ 72,945 $ (4,048) $ 68,897
Income (loss) from operations ........ $ 52,685 $ 5,654 $ 58,339 $ (4,376) $ 53,963
Income (loss) before income taxes .... $ 53,239 $ 6,605 $ 59,844 $ (5,285) $ 54,559
SIX MONTHS ENDED JANUARY 31, 2000
Sales and other revenues ............. $409,535 $ 7,334 $ 416,869 $ 2,186 $ 419,055
EBITDA(1) ............................ $ 9,451 $ 5,243 $ 14,694 $ (1,484) $ 13,210
Income (loss) from operations ........ $ (2,388) $ 4,008 $ 1,620 $ (2,341) $ (721)
Income (loss) before income taxes .... $ (2,528) $ 4,661 $ 2,133 $ (4,892) $ (2,759)
(1) Earnings Before Interest, Taxes, Depreciation and Amortization.
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HOLLY CORPORATION
Note E - Contingencies
In August 1998, a lawsuit (the "Longhorn Suit") was filed in state
district court in El Paso, Texas against the Company and two of its subsidiaries
(along with an Austin, Texas law firm which was subsequently dropped from the
case). The suit was filed by Longhorn Partners Pipeline, L.P. ("Longhorn
Partners"), a Delaware limited partnership composed of Longhorn Partners GP,
L.L.C. as general partner and affiliates of Exxon Pipeline Company, BP/Amoco
Pipeline Company, Williams Pipeline Company, and the Beacon Group Energy
Investment Fund, L.P. and Chisholm Holdings as limited partners. The suit, as
most recently amended by Longhorn Partners in September 2000, seeks damages
alleged to total up to $1,050,000,000 (after trebling) based on claims of
violations of the Texas Free Enterprise and Antitrust Act, unlawful interference
with existing and prospective contractual relations, and conspiracy to abuse
process. The specific actions of the Company complained of in the Longhorn Suit,
as currently amended, are alleged solicitation of and support for allegedly
baseless lawsuits brought by Texas ranchers in federal and state courts to
challenge the proposed Longhorn Pipeline project, support of allegedly
fraudulent public relations activities against the proposed Longhorn Pipeline
project, entry into a contractual "alliance" with Fina Oil and Chemical Company,
threatening litigation against certain partners in Longhorn Partners, and
alleged interference with the federal court settlement agreement that provided
for an Environmental Assessment of the Longhorn Pipeline. A hearing on the
Company's amended motion for summary judgment, which seeks a court ruling that
would terminate this litigation, was held January 3, 2001; as of the date of
this report, the court has not issued a ruling with respect to this motion. The
Company believes that the Longhorn Suit is wholly without merit and plans to
continue to defend itself vigorously. The Company also plans to pursue at the
appropriate time any affirmative remedies that may be available to it relating
to the Longhorn Suit.
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. All statements, other than statements of historical facts included
in this Form 10-Q, including without limitation those under "Results of
Operations," "Liquidity and Capital Resources" and "Additional Factors that May
Affect Future Results" (including "Risk Management") under this Item 2 regarding
the Company's financial position and results of operations, are forward-looking
statements. Such statements are subject to risks and uncertainties, including
but not limited to risks and uncertainties with respect to the actions of actual
or potential competitive suppliers of refined petroleum products in the
Company's markets, the demand for and supply of crude oil and refined products,
the spread between market prices for refined products and crude oil, the
possibility of constraints on the transportation of refined products, the
possibility of inefficiencies or shutdowns in refinery operations or pipelines,
governmental regulations and policies, the availability and cost of financing to
the Company, the effectiveness of the Company's capital investments and
marketing strategies, and the costs of defense and the risk of an adverse
outcome in the Longhorn Pipeline litigation. Because of these and other risks
and uncertainties, actual results may vary materially from those estimated,
anticipated or projected. Although the Company believes that the expectations
reflected by the forward-looking statements contained in this Quarterly Report
are reasonable based on information currently available to the Company, no
assurances can be given that such expectations will prove to be correct. This
summary discussion of risks and uncertainties that may cause actual results to
differ from those indicated in forward-looking statements should be read in
conjunction with the discussion under the heading "Additional Factors That May
Affect Future Results" included in Item 7 of the Company's Annual Report on Form
10-K for the fiscal year ended July 31, 2000 and in conjunction with the
discussion below under the headings "Liquidity and Capital Resources" and
"Additional Factors That May Affect Future Results." All forward-looking
statements included in this Quarterly Report on Form 10-Q and all subsequent
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements set forth above.
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESULTS OF OPERATIONS
FINANCIAL DATA (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(In thousands, except share data)
Sales and other revenues ................................... $ 283,140 $ 218,424 $ 609,103 $ 419,055
Operating costs and expenses
Cost of products sold ................................... 224,761 190,692 478,996 350,522
Operating expenses ...................................... 25,807 21,885 50,189 45,124
Selling, general and administrative expenses ............ 5,190 5,287 12,163 10,155
Depreciation, depletion and amortization ................ 6,407 6,957 12,959 13,373
Exploration expenses, including dry holes ............... 599 299 833 602
------------ ------------ ------------ ------------
Total operating costs and expenses ................. 262,764 225,120 555,140 419,776
------------ ------------ ------------ ------------
Income (loss) from operations .............................. 20,376 (6,696) 53,963 (721)
Other income (expense)
Equity in earnings of joint ventures .................... 908 (73) 1,975 558
Interest expense, net ................................... (519) (1,299) (1,379) (2,596)
------------ ------------ ------------ ------------
389 (1,372) 596 (2,038)
------------ ------------ ------------ ------------
Income (loss) before income taxes .......................... 20,765 (8,068) 54,559 (2,759)
Income tax provision ....................................... 8,223 (3,165) 21,605 (1,082)
------------ ------------ ------------ ------------
Net income (loss) .......................................... $ 12,542 $ (4,903) $ 32,954 $ (1,677)
============ ============ ============ ============
Net income (loss) per common share (basic and diluted) ..... $ 1.66 $ (0.59) $ 4.36 $ (0.20)
============ ============ ============ ============
Average number of shares of common stock outstanding ....... 7,551 8,254 7,551 8,254
============ ============ ============ ============
Sales and other revenues(1)
Refining ................................................ $ 277,394 $ 213,686 $ 597,747 $ 409,535
Pipeline Transportation ................................. 4,902 3,683 9,549 7,334
Corporate and Other ..................................... 844 1,055 1,807 2,186
------------ ------------ ------------ ------------
Consolidated ............................................ $ 283,140 $ 218,424 $ 609,103 $ 419,055
============ ============ ============ ============
Income (loss) from operations(1)
Refining ................................................ $ 19,531 $ (7,510) $ 52,685 $ (2,388)
Pipeline Transportation ................................. 2,834 2,022 5,654 4,008
Corporate and Other ..................................... (1,989) (1,208) (4,376) (2,341)
------------ ------------ ------------ ------------
Consolidated ............................................ $ 20,376 $ (6,696) $ 53,963 $ (721)
============ ============ ============ ============
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(1) The Refining segment includes the Company's principal refinery in
Artesia, New Mexico, which is operated in conjunction with refining
facilities in Lovington, New Mexico (collectively, the Navajo Refinery)
and the Company's refinery near Great Falls, Montana. Included in the
Refining Segment are costs relating to pipelines and terminals that
operate in conjunction with the Refining segment as part of the supply
and distribution networks of the refineries. The Pipeline
Transportation segment includes approximately 1,300 miles of the
Company's pipeline assets in Texas and New Mexico. Revenues from the
Pipeline Transportation segment are earned through transactions with
unaffiliated parties for pipeline transportation, rental and
terminalling operations.
REFINING SEGMENT OPERATING DATA (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Crude charge (BPD)(1) .................... 66,900 66,300 67,500 63,900
Average per barrel(2)
Refinery margin ........................ $ 7.90 $ 3.44 $ 8.83 $ 4.55
Cash operating costs(3) ................ 4.17 3.77 4.04 3.90
---------- ---------- ---------- ----------
Net cash operating margin (deficit) .... $ 3.73 $ (0.33) $ 4.79 $ 0.65
========== ========== ========== ==========
Sales of produced refined products
Gasolines .............................. 58.6% 60.2% 55.9% 58.4%
Diesel fuels ........................... 22.8 21.1 22.9 20.7
Jet fuels .............................. 10.1 10.0 10.4 9.9
Asphalt ................................ 5.2 5.4 7.5 7.4
LPG and other .......................... 3.3 3.3 3.3 3.6
---------- ---------- ---------- ----------
Total ............................. 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========
- ----------
(1) Barrels per day of crude oil processed.
(2) Represents average per barrel amounts for produced refined products sold.
(3) Includes operating costs and selling, general and administrative expenses
of refineries, as well as pipeline expenses that are part of refinery
operations.
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
SECOND QUARTER OF FISCAL 2001 COMPARED TO SECOND QUARTER OF FISCAL 2000
Net income for the second quarter ending January 31, 2001 was $12.5
million ($1.66 per share), a record level for the second quarter, as compared to
a net loss of $4.9 million ($.59 per share loss) for the second quarter of the
prior year. The favorable change in income for the second quarter of fiscal 2001
as compared to the same quarter of the prior year was principally due to
significantly higher refinery margins, which were 130% above margins in the
prior year's second quarter. Continuing from the first quarter of fiscal 2001,
refinery margins stayed very strong through most of the second quarter in the
refined product markets served by the Company's Navajo Refinery. Both revenues
and cost of products sold were higher in the second quarter of 2001, as compared
to the second quarter of fiscal 2000, due to the increased cost of purchased
crude oil and, with respect to revenues, higher margins. Income from the
pipeline transportation segment also improved in the second quarter, as compared
to the prior year, as the Company realized additional revenues from refined
product and crude oil transportation activities.
Operating expenses increased in the second quarter of fiscal 2001, as
compared to the prior year's second quarter, resulting principally from
increased utility costs. Favorably impacting earnings in the second quarter of
the current year was the beginning of realization of significant benefits from
the cost reduction and production efficiency program announced in May 2000,
which is currently being implemented.
Since the end of the second fiscal quarter, margins for the Company's
refining operations have continued to be relatively strong. However, the
favorable effect of such margins was reduced in February 2001 due to a decrease
in production resulting from planned scheduled maintenance at the Navajo
Refinery.
Net income for the six months ending January 31, 2001 was $33.0 million
($4.36 per share), a record level for two consecutive quarters, as compared to a
net loss of $1.7 million ($.20 per share loss) for the first six months of the
prior year. The favorable change in income for the first six months of fiscal
2001 as compared to the same period of the prior year was principally due to
significantly higher refinery margins, which were 94% above margins in the prior
year's first six months. Beginning in July 2000 and continuing throughout most
of the second quarter of fiscal 2001, refinery margins were very strong in the
refined product markets served by the Company's Navajo Refinery. The Company's
increased production capabilities for cleaner-burning gasolines required in its
Phoenix market enabled the Company to participate more fully in the particularly
strong margins for this product in the current fiscal year. In addition,
refining income was favorably affected by a 4.5% increase in sales volume in the
six months ended January 31, 2001, as compared to the prior year's comparable
period. Both revenues and cost of products sold were higher in the first six
months of fiscal 2001 due principally to the increased cost of purchased crude
oil.
The Company experienced an increase in operating expenses in the first
six months of fiscal 2001, as compared to the prior year's six months; this
increase in expenses was principally attributable to increased utility costs,
offset by lower maintenance and consulting service costs.
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
General and administrative expenses increased in the six months ended January
31, 2001, due to increased accrued compensation and costs associated with legal
proceedings. Contributing to income in the first six months of the current
fiscal year, over the prior period, was the Company's share of earnings in an
asphalt joint venture with a subsidiary of Koch Industries, Inc., which was
formed in July 2000, and an increase in pipeline transportation income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $24.9 million to $28.5 million
during the six months ended January 31, 2001 as cash flows generated from
operations were significantly greater than cash flows required for investing
activities, scheduled debt repayments and dividends paid. Working capital
increased during the six months ended January 31, 2001 by $17.5 million to $17.9
million. In April 2000, the Company entered into an agreement with a group of
banks led by Canadian Imperial Bank of Commerce to extend its Revolving Credit
Agreement until October 10, 2001. The Company is currently in discussions with
its banks on an extension of this agreement. Under the current agreement, the
Company has access to $90 million of commitments for both revolving credit loans
and letters of credit. Up to $45 million of this facility may be used for
revolving credit loans. At January 31, 2001 the Company had letters of credit
outstanding under the facility of $35.8 million and had no borrowings
outstanding. The Company believes its internally generated cash flow, along with
its Credit Agreement, provides sufficient resources through October 2001 to fund
capital projects, scheduled repayments of the Senior Notes, continued payment of
dividends (although dividend payments must be approved by the Board of Directors
and cannot be guaranteed) and the Company's liquidity needs.
In May 2000, the Company announced a cost reduction and production
efficiency program that is expected to yield annual pre-tax improvements
totaling approximately $20 million. The program is currently being implemented
and should be completed by July 2002. The cost reduction and production
efficiency program includes productivity enhancements and a reduction in
workforce. As part of the implementation of cost reductions, the Company offered
a voluntary early retirement program to eligible employees, under which 55
employees are scheduled to retire in fiscal 2001, most of whom retired by
December 31, 2000. The pre-tax cost of the voluntary early retirement program
was $6.8 million and was reflected in the Company's earnings for the quarter
ended July 31, 2000. It is estimated that capital expenditures of approximately
$9 million will be required to effectuate some of the production improvements
included in the program, of which expenditures totaling approximately $5 million
are included in the fiscal 2001 capital budget.
Net cash provided by operating activities amounted to $50.1 million for
the first six months of fiscal 2001, as compared to $19.9 million for the same
period of the prior year. The increase was primarily due to strong cash flows
from the refining operations of the Company in the first six months of the
current fiscal year.
Cash flows used for financing activities amounted to $11.4 million in
the first six months of fiscal 2001, as compared to $7.1 million in the same
period of the prior year. Cash flows used for
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
financing activities in the first six months of both fiscal years consisted
principally of repayments of $8.6 million of fixed term debt and dividends paid
to shareholders. The Company has not made any bank borrowings during the current
fiscal year. During the first six months of the prior fiscal year, the Company
made net bank borrowings of $4.3 million. The next principal payment of $5.2
million on the Company's Senior Notes is due in June 2001.
Cash flows used for investing activities were $13.8 million for the
first six months of fiscal 2001, as compared to $10.1 million for the same
period of the 2000 fiscal year. Substantially all amounts expended were on
capital projects except for $1.0 million invested in a joint venture created in
July 2000 to manufacture and market asphalt products. The Company's net cash
flow used for investing activities was reduced during the first six months of
fiscal 2001 by a $2.1 million distribution to the Company from the asphalt joint
venture and during the first six months of fiscal 2000 by a $0.8 million
distribution from the Rio Grande Pipeline Company joint venture.
The Company has adopted a capital budget of $20 million for fiscal 2001.
The components of this budget are $12 million for refinery improvements, $1
million for engineering costs relating to a purchased hydrotreater, as described
below, $6 million for pipeline and transportation projects and less than $1
million for oil and gas exploration and production activities. In addition to
these projects, the Company plans to expend in the 2001 fiscal year
approximately $10 million on capital projects that were approved in previous
capital budgets, including a sulfur recovery unit at the Navajo Refinery and a
product terminal to be used in conjunction with the leased pipeline to northwest
New Mexico described below.
In November 1997, the Company purchased a hydrotreater unit for $5
million from a closed refinery. This purchase should give the Company the
ability to reconstruct the unit at the Navajo Refinery at a substantial savings
relative to the purchase cost of a new unit. The hydrotreater would enhance
higher value, light product yields and expand the Company's ability to meet the
present California Air Resources Board ("CARB") standards, which have been
adopted in the Company's Phoenix market for winter months beginning in the
latter part of 2000, and to meet the recently proposed EPA nationwide Low-Sulfur
Gasoline requirements scheduled to begin in 2004. During fiscal 2000, the
Company relocated the purchased hydrotreater equipment to the Navajo Refinery
and purchased certain long-lead-time pieces of equipment for the hydrotreater.
Included in the fiscal 2001 capital budget are commitments of approximately $1
million for engineering costs related to the hydrotreater project. Additionally,
the Company is finalizing the construction of a sulfur recovery unit, which will
be immediately utilized to enhance sour crude processing capabilities and would
recover additional extracted sulfur when the hydrotreater is completed. The
Company, subject to obtaining necessary permitting in a timely manner, currently
expects that the hydrotreater project could be completed by the latter half of
calendar 2002. Remaining costs to complete the hydrotreater project are
estimated to be approximately $20 million, in addition to engineering costs
budgeted for fiscal 2001. Based on the current configuration of the Navajo
Refinery, the Company is able to supply current sales volumes into the Phoenix
market under the CARB standards prior to completion of the hydrotreater.
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The Company has leased from Mid-America Pipeline Company more than 300
miles of 8" pipeline running from Chavez County to San Juan County, New Mexico
(the "Leased Pipeline"). The Company has completed a 12" pipeline from the
Navajo Refinery to the Leased Pipeline as well as terminalling facilities in
Bloomfield and a diesel fuel terminal 40 miles east of Albuquerque in Moriarty.
Transportation of petroleum products to markets in northwest New Mexico and
diesel fuels to Moriarty began in the latter part of calendar 2000. The Company
is expanding its terminal in Moriarty to include gasoline and jet fuel, and the
expanded terminal is expected to be operational by the summer of 2001. When the
Moriarty terminal expansion is completed, the Company will be positioned to
expand the transport of petroleum products from the Navajo Refinery to the
Albuquerque area.
In July 2000, Navajo Western Asphalt Company ("Navajo Western"), a
wholly-owned subsidiary of the Company, and a subsidiary of Koch Materials
Company ("Koch") formed a joint venture, NK Asphalt Partners, to manufacture and
market asphalt and asphalt products in Arizona and New Mexico under the name
"Koch Asphalt Solutions - Southwest." Navajo Western contributed all of its
assets to NK Asphalt Partners and Koch contributed its New Mexico and Arizona
asphalt and manufacturing assets to NK Asphalt Partners. Each Company owns a 50%
interest in the joint venture. All asphalt produced at the Navajo Refinery will
be sold to the joint venture under a supply agreement. The Company is required
to make additional contributions to the joint venture for each of the next ten
years of up to $3,250,000 per year, contingent on the earnings level of the
joint venture. The Company expects to finance such contributions from its share
of cash flows of the joint venture.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
This discussion should be read in conjunction with the discussion under
the heading "Additional Factors That May Affect Future Results" included in Item
7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
2000.
The proposed Longhorn Pipeline is an additional potential source of
pipeline transportation of refined products from Gulf Coast refineries to El
Paso. This pipeline is proposed to run approximately 700 miles from the Houston
area of the Gulf Coast to El Paso, utilizing a direct route. The owner of the
Longhorn Pipeline, Longhorn Partners Pipeline, L.P. ("Longhorn Partners"), is a
Delaware limited partnership that includes affiliates of Exxon Pipeline Company,
BP/Amoco Pipeline Company, Williams Pipeline Company, and the Beacon Group
Energy Investment Fund, L.P. and Chisholm Holdings as limited partners. Longhorn
Partners has proposed to use the pipeline initially to transport approximately
72,000 BPD of refined products from the Gulf Coast to El Paso and markets served
from El Paso, with an ultimate maximum capacity of 225,000 BPD. A critical
feature of this proposed petroleum products pipeline is that it would utilize,
for approximately 450 miles (including areas overlying the environmentally
sensitive Edwards Aquifer and Edwards-Trinity Aquifer and heavily populated
areas in the southern part of Austin, Texas) an existing pipeline (previously
owned by Exxon Pipeline Company) that was constructed in about 1950 for the
shipment of crude oil from West Texas to the Houston area.
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The Longhorn Pipeline is not currently operating because of a federal
court injunction in August 1998 and a settlement agreement in March 1999 entered
into by Longhorn Partners, the United States Environmental Protection Agency
("EPA") and Department of Transportation ("DOT"), and the other parties to the
federal lawsuit that had resulted in the injunction and settlement.
Additionally, the Longhorn Pipeline is not operating because it lacks valid
easements from the Texas General Land Office for crossing certain state-owned
stream and river beds; the Texas Land Commissioner has indicated that these
easements will not be granted until he is satisfied that the pipeline meets
federal safety and other standards.
The March 1999 settlement agreement in the federal lawsuit that resulted
in the injunction against operation of the Longhorn Pipeline required the
preparation of an Environmental Assessment under the authority of the EPA and
the DOT while the federal court retained jurisdiction. A final Environmental
Assessment (the "Final EA") on the Longhorn Pipeline was released in November
2000. The Final EA is accompanied by a Finding of No Significant Impact that is
conditioned on the implementation by Longhorn Partners of a proposed mitigation
plan developed by Longhorn Partners which contains 40 mitigation measures,
including the replacement of approximately 19 miles of pipe in the Austin area
with new thick-walled pipe protected by a concrete barrier. Some elements of the
proposed mitigation plan are required to be completed before the Longhorn
Pipeline is allowed to operate, with the remainder required to be completed
later or to be implemented for as long as operations continue. The plaintiffs in
the federal court lawsuit that resulted in the Environmental Assessment of the
Longhorn Pipeline have challenged the Final EA in further federal court
proceedings that began in January 2001. Longhorn Partners has indicated that
construction relating to certain mitigation measures included in the Final EA
may not begin until conclusion of legal challenges to the Final EA. At the date
of this report, it is not possible to predict the outcome of legal challenges to
the Longhorn Pipeline.
If the Longhorn Pipeline is allowed to operate as currently proposed, the
substantially lower requirement for capital investment permitted by the direct
route through Austin, Texas and over the Edwards Aquifers would permit Longhorn
Partners to give its shippers a cost advantage through lower tariffs that could,
at least for a period, result in significant downward pressure on wholesale
refined products prices and refined products margins in El Paso and related
markets. Although some current suppliers in the market might not compete in such
a climate, the Company's analyses indicate that, because of location, recent
capital improvements, and on-going enhancements to operational efficiency, the
Company's position in El Paso and markets served from El Paso could withstand
such a period of lower prices and margins. However, the Company's results of
operations could be adversely impacted if the Longhorn Pipeline were allowed to
operate as currently proposed. It is not possible to predict whether and, if so,
under what conditions, the Longhorn Pipeline ultimately will be allowed to
operate, nor is it possible to predict the consequences for the Company of
Longhorn Pipeline's operations if they occur.
In August 1998, a lawsuit (the "Longhorn Suit") was filed by Longhorn
Partners in state district court in El Paso, Texas against the Company and two
of its subsidiaries (along with an Austin, Texas
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
law firm which was subsequently dropped from the case). The suit, as most
recently amended by Longhorn Partners in September 2000, seeks damages alleged
to total up to $1,050,000,000 (after trebling) based on claims of violations of
the Texas Free Enterprise and Antitrust Act, unlawful interference with existing
and prospective contractual relations, and conspiracy to abuse process. The
specific actions of the Company complained of in the Longhorn Suit, as currently
amended, are alleged solicitation of and support for allegedly baseless lawsuits
brought by Texas ranchers in federal and state courts to challenge the proposed
Longhorn Pipeline project, support of allegedly fraudulent public relations
activities against the proposed Longhorn Pipeline project, entry into a
contractual "alliance" with Fina Oil and Chemical Company, threatening
litigation against certain partners in Longhorn Partners, and alleged
interference with the federal court settlement agreement that provided for the
Environmental Assessment of the Longhorn Pipeline. The Company believes that the
Longhorn Suit is wholly without merit and plans to continue to defend itself
vigorously. However, because of the size of the damages claimed and in spite of
the apparent lack of merit in the claims asserted, the Longhorn Suit has created
increasing problems for the Company, including the exclusion of the Company from
the possibility of certain types of major corporate transactions, an adverse
impact on the cost of debt financing for Company operations, and what appears to
be a continuing adverse effect on the market price of the Company's common
stock. The Company plans to pursue at the appropriate time any affirmative
remedies that may be available to it relating to the Longhorn Suit. For
additional information on the Longhorn Suit, see Part II "Other Information,"
Item 1, "Legal Proceedings."
RISK MANAGEMENT
The Company uses certain strategies to reduce some commodity price and
operational risks. The Company does not attempt to eliminate all market risk
exposures when the Company believes that the exposure relating to such risk
would not be significant to the Company's future earnings, financial position,
capital resources or liquidity or that the cost of reducing or eliminating the
exposure would outweigh the benefit.
The Company's profitability depends largely on the spread between market
prices for refined products and crude oil. A substantial or prolonged decrease
in this spread could have a significant negative effect on the Company's
earnings, financial condition and cash flows. At times, the Company utilizes
petroleum commodity futures contracts to minimize a portion of its exposure to
price fluctuations associated with crude oil and refined products. In January
2001, the Company entered into energy commodity futures contracts to hedge
certain firm commitments to purchase crude oil and deliver gasoline. The hedge
is to help protect the Company from the risk that the refining margin with
respect to the hedged gasoline sales will decline.
At January 31, 2001, the Company had outstanding unsecured debt of $48.0
million and had no borrowings outstanding under its Credit Agreement. The
Company does not have significant exposure to changing interest rates on its
unsecured debt because the interest rates are fixed, the average maturity is
less than three years and such debt represents less than 25% of the Company's
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
total capitalization. As the interest rates on the Company's bank borrowings, if
any, under its Credit Agreement are reset frequently based on either the bank's
daily effective prime rate or the LIBOR rate, interest rate market risk is very
low. Additionally, the Company invests any available cash only in investment
grade, highly liquid investments with maturities of three months or less. As a
result, the interest rate market risk implicit in these cash investments is low,
as the investments mature within three months. A ten percent change in the
market interest rate over the next year would also not materially impact the
Company's earnings or cash flow, as the interest rates on the Company's
long-term debt are fixed, and the Company's borrowings under the Credit
Agreement and cash investments are at short-term market rates and such interest
has historically not been significant as compared to the total operations of the
Company. A ten percent change in the market interest rate over the next year
would also not materially impact the Company's financial condition, since the
average maturity of the Company's long-term debt is less than three years and
such debt represents less than 25% of the Company's total capitalization, and
since the Company's borrowings, if any, under the Credit Agreement and cash
investments are at short-term market rates.
The Company's operations are subject to normal hazards of operations,
including fire, explosion and weather-related perils. The Company maintains
various insurance coverages, including business interruption insurance, subject
to certain deductibles. The Company is not fully insured against certain risks
because such risks are not fully insurable, coverage is unavailable or premium
costs, in the judgment of the Company, do not justify such expenditures.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and that those instruments be
measured at fair value. SFAS No. 133 also prescribes the accounting treatment
for changes in the fair value of derivatives which depends on the intended use
of the derivative and the resulting designation. Designations include hedges of
the exposure to changes in the fair value of a recognized asset, liability or
firm commitment, hedges of the exposure to variable cash flows of a forecasted
transaction, hedges of the exposure to foreign currency translations, and
derivatives not designated as hedging instruments. SFAS No. 133 requires that
changes in the derivative instrument's fair value be recognized currently in
earnings unless specific hedge criteria are met. Specific accounting for
qualifying hedges allows a derivative instrument's gains and losses to offset
related results on the hedged item in the statement of income, to the extent
effective, and requires that a company formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 with early adoption permitted. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities an
amendment of FASB Statement No. 133," which amended certain accounting and
reporting standards of FASB 133. Effective as of August 1, 2000, the Company
adopted SFAS No. 133. In January 2001, the Company entered into energy commodity
futures contracts to hedge certain firm commitments to purchase crude oil and
deliver gasoline. The purpose of the hedge is to help protect
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HOLLY CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
the Company from the risk that the refining margin with respect to the hedged
gasoline sales will decline. Due to the strict requirements of SFAS 133 in
measuring effectiveness of hedges, this particular hedge transaction did not
qualify for hedge accounting. The energy commodity futures contracts entered
into were marked to the current fair market value at January 31, 2001, and as a
result a gain of $20,000 was included in revenue for the quarter ended January
31, 2001.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
See "Risk Management" under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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HOLLY CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In August 1998, a lawsuit (the "Longhorn Suit") was filed in state district
court in El Paso, Texas against the Company and two of its subsidiaries (along
with an Austin, Texas law firm which was subsequently dropped from the case).
The suit was filed by Longhorn Partners Pipeline, L.P. ("Longhorn Partners"), a
Delaware limited partnership composed of Longhorn Partners GP, L.L.C. as general
partner and affiliates of Exxon Pipeline Company, BP/Amoco Pipeline Company,
Williams Pipeline Company, and the Beacon Group Energy Investment Fund, L.P. and
Chisholm Holdings as limited partners. The suit, as most recently amended by
Longhorn Partners in September 2000, seeks damages alleged to total up to
$1,050,000,000 (after trebling) based on claims of violations of the Texas Free
Enterprise and Antitrust Act, unlawful interference with existing and
prospective contractual relations, and conspiracy to abuse process. The specific
actions of the Company complained of in the Longhorn Suit, as currently amended,
are alleged solicitation of and support for allegedly baseless lawsuits brought
by Texas ranchers in federal and state courts to challenge the proposed Longhorn
Pipeline project, support of allegedly fraudulent public relations activities
against the proposed Longhorn Pipeline project, entry into a contractual
"alliance" with Fina Oil and Chemical Company, threatening litigation against
certain partners in Longhorn Partners, and alleged interference with the federal
court settlement agreement that provided for an Environmental Assessment of the
Longhorn Pipeline. A hearing on the Company's amended motion for summary
judgment, which was filed in October 2000 and seeks a court ruling that would
terminate this litigation, was held January 3, 2001; as of the date of this
report, the court has not issued a ruling with respect to this motion. A motion
filed by the Company to transfer the venue for trial of the case from the El
Paso court to another Texas court has been pending since May 2000, and no
hearing on this motion is currently scheduled. The Company believes that the
Longhorn Suit is wholly without merit and plans to continue to defend itself
vigorously. The Company also plans to pursue at the appropriate time any
affirmative remedies that may be available to it relating to the Longhorn Suit.
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HOLLY CORPORATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits on page 25.
(b) Reports on Form 8-K: None.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOLLY CORPORATION
----------------------------------------------
(Registrant)
Date: March 9, 2001 By /s/ Kathryn H. Walker
--------------- -------------------------------------------
Kathryn H. Walker
Vice President, Accounting
(Principal Accounting Officer)
By /s/ Scott C. Surplus
------------------------------------------
Scott C. Surplus
Vice President, Treasury and Tax
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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 - By-Laws of Holly Corporation as amended and restated
March 9, 2001
27 - Financial Data Schedule