1. 1999 ANNUAL REPORT

2. HOLLY CORPORATION THROUGH ITS AFFILIATES, NAVAJO REFINING
COMPANY AND MONTANA REFINING COMPANY, IS ENGAGED IN THE
REFINING, TRANSPORTATION, TERMINALLING AND MARKETING OF
PETROLEUM PRODUCTS.

3. HOLLY CORPORATION
1
FINANCIAL AND OPERATING HIGHLIGHTS
Years ended July 31, 1999 1998 1997
Sales and other revenues............................................. $ 597,986,000 $ 590,299,000 $ 721,346,000
Income before income taxes....................................... $ 33,159,000 $ 24,866,000 $ 21,819,000
Net income ................................................................. $ 19,937,000 $ 15,167,000 $ 13,087,000
Net income per common share (basic and diluted).... $ 2.42 $ 1.84 $ 1.59
Net cash provided by operating activities ................... $ 47,628,000 $ 38,193,000 $ 5,457,000
Capital expenditures ................................................... $ 26,903,000 $ 49,715,000 $ 30,304,000
Total assets .................................................................. $ 390,982,000 $ 349,857,000 $ 349,803,000
Working capital........................................................... $ 13,851,000 $ 14,793,000 $ 45,241,000
Long-term debt (including current portion)................. $ 70,341,000 $ 75,516,000 $ 86,291,000
Stockholders’ equity.................................................... $ 128,880,000 $ 114,349,000 $ 105,121,000
Employees ................................................................... 614 588 572
CONTENTS
Financial and Operating Highlights ........................... 1
Letter to Stockholders ................................................ 2
Selected Financial and Operating Data...................... 8
Market Information .................................................... 8
Management’s Discussion and Analysis of
Financial Condition and Results of Operations ........ 9
Report of Independent Auditors ................................. 17
Consolidated Financial Statements............................. 18
Notes to Consolidated Financial Statements .............. 22
Board of Directors ..................................................... 32
Officers and Corporate Data...................................... 33
This Annual Report 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 9.

4. HOLLY CORPORATION
2
TO OUR STOCKHOLDERS
The fiscal year just concluded marked another year of
increased earnings and the highest such level since 1994.
In conjunction with efforts to control outlays, cash flow
increased sharply and your Company’s financial condition
strengthened.
Net income of the Company increased from $15.2
million in 1998 to $19.9 million in fiscal 1999. The
SALES AND
OTHER REVENUES
(millions of dollars)
721
676
615
590 598
95 96 97 98 99
The Company’s
Navajo Refinery in
Artesia, New Mexico
converts approximately
90% of its raw
materials into high
value refined products
and serves markets in
the southwestern
United States and
northern Mexico.

5. HOLLY CORPORATION
3
increase in income was driven by increased profitability at
the Navajo Refinery as well as increased contributions from
our transportation business. Refining results benefited from
strong margins during the latter part of the fiscal year and
the full effects of process improvements implemented at the
Navajo Refinery during 1998. Significant growth in
transportation business activities provided increased
earnings for this segment over the prior year.
The cornerstones for growth in our transportation
business division have been an expansion of the Navajo
Refinery’s supply and distribution network together with NET INCOME
(millions of dollars)
development and participation in transportation ventures (includes accounting change)
with other companies. Within the last three years, your
Company has more than doubled its pipeline network from
approximately 1,000 miles to 2,000 miles through a
combination of lease and purchase transactions and new
20
construction. We hope to continue growing this business 19
over the next several years. 18
One of the major elements of growth in our
transportation business has been the operation of a West 15
Texas crude oil gathering system, which the Company
acquired in 1998. This system provides transportation 13
revenues as well as a source of supply for the Navajo
Refinery.
During 1997, we also formed an alliance between
Navajo Refining Company and Fina, Inc., which has
resulted in a gasoline and diesel supply network for the
growing markets of West Texas, Arizona and New Mexico.
Under this agreement, Fina utilizes a Company pipeline to
transport refined products from its West Texas refinery to El
Paso. Holly began realizing both pipeline and terminalling
revenues under this arrangement during fiscal 1999.
95 96 97 98 99
During 1999, we completed construction of a 65-mile
pipeline between Lovington and Artesia, New Mexico.
Completion of this line allowed Navajo to provide
transportation of LPGs for other companies as well as
enhance its raw material supply capabilities.
This year was another successful year for our Rio Grande
Pipeline joint venture. This joint venture, in which we own
a 25% interest with Mid-America Pipeline Company and
BP Amoco, provides pipeline transportation of LPGs to
Mexico. An expansion of this pipeline’s capacity, currently
under discussion, will provide the opportunity for further
growth in earnings.
Unfortunately, the market price of Holly shares has not
reflected this strong growth in our transportation business
and our improved financial performance at the Navajo
Refinery. While we don’t profess to understand the

6. HOLLY CORPORATION
4
CAPITAL EXPENDITURES
(millions of dollars)
50
30
27
18
15
movement of markets, many observers relate the depressed
95 96 97 98 99
share price to the continued existence of the Longhorn
Partners Pipeline, L.P. lawsuit. As you may remember, this
suit was filed against us in August 1998 and alleges
damages in excess of one billion dollars. Preliminary
REFINERY PRODUCTION
procedures on this case consumed most of the last 12
(thousand barrels per day)
months, and there is no timetable yet for final adjudication.
In our judgment, this lawsuit has no merit whatsoever. In
fact, we believe that the suit’s lack of merit is more obvious
after the preliminary results, just released, of a federal
71
69 environmental assessment on the Longhorn Pipeline. The
68 68
draft report concludes that the Longhorn Pipeline would
62
have potential for significant adverse environmental impact
unless a proposed 34-part remediation plan is carried out.
While we remain sensitive to the decline in our share price
and intend to pursue efforts to increase operating cash flow
in the hopes of near-term improvement, we remain
committed to a vigorous defense of the lawsuit and ultimate
vindication for the Company.
Finally, there were some significant organizational
changes during the year. Two of our most senior executives,
Jack Reid, Executive Vice President, Refining, and Bill Gray,
Senior Vice President, Marketing and Supply, have chosen
to retire after many years of dedicated service. In light of
these changes, Matt Clifton has assumed additional
responsibilities as President of Navajo Refining Company.
While Jack’s and Bill’s contributions will be sorely missed,
95 96 97 98 99
they have both agreed to serve as consultants to the
Company and to remain on the Board of Directors. On
behalf of the Board of Directors, employees, suppliers,

7. HOLLY CORPORATION
5
The Company’s STOCKHOLDERSÕ
EQUITY
Montana Refinery
(millions of dollars)
near Great Falls,
129
Montana can
process a wide
114
range of crude oils
105
and serves markets
primarily in 96
Montana.
80
customers and ourselves, we wish to thank Jack and Bill for 95 96 97 98 99
their many years of service and significant contributions to
the success of the Company.
We also had an increase in the membership of our
Board this year. W. John Glancy, Senior Vice President, NET CASH PROVIDED BY
General Counsel and Secretary, was elected in September OPERATING ACTIVITIES
1999. John has been associated with Holly in a variety of (millions of dollars)
capacities over more than 25 years and we look forward to
his continuing contributions.
In closing, we would like to express once again our
48
thanks to you for your continued confidence and support.
44
Sincerely,
38
34
Lamar Norsworthy
Chairman of the Board and
Chief Executive Officer
5
Matthew P. Clifton
President
95 96 97 98 99
October 28, 1999

8. HOLLY CORPORATION
6
JACK P. REID AND WILLIAM J. GRAY RETIRE
NAVAJO REFINING COMPANY
1999 Sales of Refinery Produced Products
63,700 bpd
4%
LPG & OTHERS 2,400
5%
ASPHALTS 3,600
DIESEL FUELS 13,400 21%
GASOLINE 37,400 59%
11%
JET FUELS 6,900
Jack P. Reid (sitting), Holly Corporation’s former
Executive Vice President, Refining and President of
Navajo Refining Company, retired effective August
1, 1999. Jack has played a key leadership role in
MONTANA REFINING COMPANY
Navajo Refining Company for the last thirty years.
1999 Sales of Refinery Produced Products
The Company will always be grateful for his 6,700 bpd
leadership and unmatched dedication and loyalty to
LPG & OTHERS 300 5%
Navajo Refining Company, its employees, and its
community. 25%
ASPHALTS 1,700
William J. Gray (standing), formerly Holly
GASOLINE 2,800 42%
Corporation’s Senior Vice President, Marketing and
Supply, and Senior Vice President of Navajo DIESEL FUELS 1,500 22%
Refining Company, retired effective October 1,
JET FUELS 400 6%
1999. Bill’s contributions throughout his thirty-year
career in leading the Company’s marketing and
pipeline activities have been important to the
success of the Company. His great sense of humor
and sincere caring for the Company’s employees
and the community made Navajo Refinery and
Artesia, New Mexico better places to work and live.
Both Jack and Bill will continue to serve as
members of Holly’s Board of Directors. We thank
Jack and Bill for their many years of fine service to
the Company and wish each of them a happy
retirement.

9. HOLLY CORPORATION
7
MONTANA REFINING COMPANY
REFINERIES/TERMINALS
TERMINALS
COMPANY OWNED PRODUCT PIPELINES
COMMON CARRIER PRODUCT PIPELINES
LEASED PRODUCT PIPELINE
JOINT VENTURE LPG PIPELINE
PLANNED TERMINAL
NAVAJO REFINING COMPANY

10. HOLLY CORPORATION
8
SELECTED FINANCIAL AND OPERATING DATA
($ in thousands, except per share amounts)
Years ended July 31, 1999 1998 1997 1996 1995
FINANCIAL DATA
For the year
Sales and other revenues........................................................ $ 597,986 $ 590,299 $ 721,346 $ 676,290 $ 614,830
Income before income taxes and cumulative
effect of accounting change ............................................. $ 33,159 $ 24,866 $ 21,819 $ 31,788 $ 20,147
Income tax provision.............................................................. 13,222 9,699 8,732 12,554 7,730
------------------------------------ ------------------------------------ -------------------------------------- ------------------------------------ ------------------------------------
Income before cumulative effect of accounting change ........ 19,937 15,167 13,087 19,234 12,417
Cumulative effect of accounting change................................ – – – – 5,703
------------------------------------ ------------------------------------ -------------------------------------- ------------------------------------ ------------------------------------
Net income ............................................................................ .$......19,937. .$.................
. 15,167 .$..................
. 13,087 .$......19,234. .$......18,120.
. .......... . .......... . ..........
Income per common share
Income before cumulative effect
of accounting change (basic and diluted)................... $ 2.42 $ 1.84 $ 1.59 $ 2.33 $ 1.51
Cumulative effect of accounting change.......................... – – – – .69
------------------------------------ ------------------------------------ -------------------------------------- ------------------------------------ ------------------------------------
Net income (basic and diluted)........................................ .$..........2.42. .$................. .$..................
. 1.84 . 1.59 .$..........2.33. .$..........2.20.
. ...... . ...... . ......
Cash dividends per common share........................................ $ .64 $ .60 $ .51 $ .42 $ .40
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 .............................. $ 47,628 $ 38,193 $ 5,457 $ 44,452 $ 34,241
At end of year
Working capital...................................................................... $ 13,851 $ 14,793 $ 45,241 $ 66,649 $ 17,740
Total assets.............................................................................. $ 390,982 $ 349,857 $ 349,803 $ 351,271 $ 287,384
Long-term debt (including current portion)............................ $ 70,341 $ 75,516 $ 86,291 $ 97,065 $ 68,840
Stockholders’ equity ............................................................... $ 128,880 $ 114,349 $ 105,121 $ 96,243 $ 80,043
OPERATING DATA
For the year
Sales of refined products – barrels-per-day ............................ 75,400 67,700 69,300 70,300 69,800
Refinery production – barrels-per-day.................................... 70,700 61,800 68,600 68,400 68,100
MARKET INFORMATION
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
1998
First Quarter............................................................................................. $ 28 13/16 $ 25 13/16 $ .15 721,200
Second Quarter ....................................................................................... 28 24 7/8 .15 416,900
Third Quarter........................................................................................... 33 3/8 25 5/8 .15 871,500
Fourth Quarter......................................................................................... 31 3/4 24 1/8 .15 648,600
1999
First Quarter............................................................................................. $ 26 1/8 $ 14 3/8 $ .16 1,053,500
Second Quarter ....................................................................................... 17 3/8 14 .16 712,200
Third Quarter........................................................................................... 15 5/8 12 1/4 .16 1,043,700
Fourth Quarter......................................................................................... 15 3/4 12 5/8 .16 1,425,900
As of July 31, 1999, the Company had approximately 1,800 stockholders of record.
On September 24, 1999, the Company’s Board of Directors declared a regular quarterly dividend in the amount of $.17 per share
payable on October 8, 1999. 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, the financial condition of the
Company and other factors. The Senior Notes and Credit Agreement limit the payment of dividends. See Note 6 to the Consolidated
Financial Statements.

11. HOLLY CORPORATION
9
MANAGEMENTÕS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS AFFECTING FORWARD- RESULTS OF OPERATIONS
LOOKING STATEMENTS
Financial Data
This Annual Report contains certain “forward-looking Years Ended July 31,
($ in thousands,
statements” within the meaning of the U.S. Private except per share data) (1) 1999 1998 1997
Sales and other revenues ......... $597,986 $590,299 $721,346
Securities Litigation Reform Act of 1995. All statements,
Costs and expenses
other than statements of historical facts included in this
Cost of products sold............ 428,472 440,042 586,604
Annual Report, including without limitation those under
Operating expenses.............. 80,654 76,420 70,009
“Liquidity and Capital Resources” and “Additional
Selling, general and
Factors that May Affect Future Results” under this
administrative expenses..... 22,159 13,714 13,348
“Managemen’s Discussion and Analysis of Financial
Depreciation, depletion
Condition and Results of Operations” regarding the
and amortization............... 26,358 24,379 20,153
Company’s financial position and results of operations,
Exploration expenses,
are forward-looking statements. Such statements are
including dry holes ........... 1,370 2,979 3,732
subject to risks and uncertainties, including but not ------------------------------- ------------------------------- -------------------------------
limited to risks and uncertainties with respect to the 559,013 557,534 693,846
------------------------------- ------------------------------- -------------------------------
actions of actual or potential competitive suppliers of Income from operations........... 38,973 32,765 27,500
refined petroleum products in the Company’s markets, Other
the demand for and supply of crude oil and refined Equity in earnings of
products, the spread between market prices for refined joint ventures..................... 1,965 1,766 414
products and crude oil, the possibility of constraints on Interest expense, net............. (7,779) (7,725) (6,095)
the transportation of refined products, the possibility of Transaction costs of
inefficiencies or shutdowns in refinery operations or terminated merger............. – (1,940) –
------------------------------- ------------------------------- -------------------------------
pipelines, governmental regulations and policies, the (5,814) (7,899) (5,681)
------------------------------- ------------------------------- -------------------------------
availability and cost of financing to the Company, the Income before income taxes.... 33,159 24,866 21,819
effectiveness of capital investments and marketing Income tax provision ............... 13,222 9,699 8,732
------------------------------- ------------------------------- -------------------------------
strategies by the Company, the costs of defense and the Net income.............................. $ 19,937 $ 15,167 $ 13,087
................ ................ ................
risk of an adverse decision in the Longhorn Pipeline
Income per common share
litigation, the accuracy of technical analysis and
(basic and diluted) ................ $ 2.42 $ 1.84 $ 1.59
evaluations relating to the Year 2000 Problem, and the
abilities of third-party suppliers to the Company to avoid Sales and other revenues (2)
adverse effects of the Year 2000 Problem on their Refining ................................ $582,172 $582,277 $715,023
capacities to supply the Company. Should one or more Pipeline Transportation ......... 11,936 695 –
of these risks or uncertainties, among others as set forth Corporate and other ............. 3,878 7,327 6,323
------------------------------- ------------------------------- -------------------------------
in this Annual Report or in the Form 10-K Annual Report
Consolidated......................... $597,986 $590,299 $721,346
................ ................ ................
for the fiscal year ended July 31, 1999, materialize,
actual results may vary materially from those estimated, Income (loss) from operations (2)
anticipated or projected. Although the Company believes Refining ................................ $ 42,118 $ 38,290 $ 33,877
that the expectations reflected by such forward-looking Pipeline Transportation ........ 6,552 302 –
statements are reasonable based on information currently Corporate and other ............. (9,697) (5,827) (6,377)
------------------------------- ------------------------------- -------------------------------
available to the Company, no assurances can be given Consolidated......................... $ 38,973 $ 32,765 $ 27,500
................ ................ ................
that such expectations will prove to have been correct.
1) Certain reclassifications have been made to prior reported amounts to conform to
Cautionary statements identifying important factors that current classifications.
could cause actual results to differ materially from the 2) The Refining segment includes the Company’s principal refinery in Artesia, New
Mexico, which is operated in conjunction with refining facilities in Lovington, New
Company’s expectations are set forth in this Annual Mexico (collectively, the Navajo Refinery) and the Company’s refinery near Great Falls,
Report and in the Form 10-K Annual Report for the fiscal Montana. The petroleum products produced by Refining segments are marketed in the
southwestern United States, Montana and northern Mexico. Certain pipelines and
year ended July 31, 1999, including without limitation in terminals operate in conjunction with the Refining segment as part of the supply and
conjunction with the forward-looking statements distribution networks of the refineries, which costs are included in the Refining segment.
The Pipeline Transportation segment includes approximately 900 miles of the Company’s
included in this Annual Report that are referred to above. pipeline assets in Texas and New Mexico. Revenues from the Pipeline Transportation
All forward-looking statements included in this Annual segment are earned through transactions with unaffiliated parties for pipeline
transportation, rental and terminalling operations. Included in Corporate and other are
Report and all subsequent written or oral forward-looking costs associated with Holly Corporation, the parent company, consisting primarily of
statements attributable to the Company or persons acting 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
on its behalf are expressly qualified in their entirety by stations and convenience stores. Insignificant amounts of intersegment sales were
these cautionary statements. eliminated in consolidation.

12. HOLLY CORPORATION
10
Operating Data and gas income due to decreased prices for oil and gas
and a reduction in scope of the Company’s oil and gas
Years Ended July 31,
program, and increases in depreciation and amortization
1999 1998 1997
Refinery Production (BPD)....... 70,700 61,800 68,600 expenses resulting primarily from the prior year’s
Sales of Refined turnaround expenditures and the increase in pipeline
Products (BPD) (1) .................. 75,400 67,700 69,300 transportation operations.
Refinery Margins
(per produced barrel sold) .... $ 5.91 $ 6.09 $ 5.18 1998 Compared to 1997
For the 1998 fiscal year, net income was $15.2
1) Includes refined products purchased for resale of 5,000 BPD, 4,600 BPD and
million ($1.84 per share) as compared to $13.1 million
2,200 BPD, respectively, for the years shown in the above table.
($1.59 per share) for fiscal 1997. Transaction costs
1999 Compared to 1998 associated with the planned merger with Giant
For the year ended July 31, 1999, net income was Industries, Inc., which was terminated, reduced earnings
$19.9 million ($2.42 per share), as compared to $15.2 by $1.2 million ($.14 per share) for the 1998 fiscal year.
million ($1.84 per share) for fiscal 1998. The increase in The increase in income in the 1998 fiscal year
net income for fiscal 1999 was primarily attributable to compared to 1997 was principally due to increased
increased refined product sales volumes and increased refinery margins of 17.6%. Refined product revenues
pipeline transportation income, partially offset by lower decreased in the year ended July 31, 1998 from the prior
refinery margins and increased selling, general and year as a result of reduced sales prices and reduced
administrative expenses. overall sales volumes for the 1998 fiscal year, due
Refinery margins decreased 3.0% during fiscal 1999 principally to decreased production at the Navajo
compared to the prior year, as product prices decreased Refinery. Refinery margins increased significantly during
at a slightly greater rate than crude prices. However, the the fourth quarter of fiscal 1998 as crude oil prices
Company experienced higher refinery margins in April decreased at a faster rate than refined product prices in
through July 1999 as product prices increased at a the Company’s markets. However, a 9.9% reduction in
greater rate than crude prices in the California refined production of refined products partially offset the year-
products market, which impacts product pricing for the over-year refinery margin increases.
Company’s Navajo Refinery in New Mexico. Such The reduced production for the 1998 fiscal year
margins have declined since that time. Increased resulted from a planned maintenance shutdown (a
production volumes of 14.4% for fiscal 1999 more than “turnaround”) at the Company’s Navajo Refinery. The
offset the reduced margins, compared to fiscal 1998, turnaround, which is scheduled approximately every four
when such volumes were reduced due to a turnaround at years, was conducted in the first quarter and early part of
the Navajo Refinery. Refined product revenues did not the second quarter of fiscal 1998. This turnaround
change significantly as the decrease in product prices included an upgrade of the fluid catalytic cracking unit
was offset by the increase in sales volumes, due (“FCC”) to more efficient technology. The effects of this
principally to the increased production at the Navajo upgrade, combined with the effects of the isomerization
Refinery. Refining operating expenses were relatively unit which became operational at the end of the prior
constant from year-to-year. fiscal year, have substantially improved the high value
Pipeline Transportation revenues increased product yields of the Navajo facility. The increase in
significantly as the result of the initiation of pipeline and these yields contributed favorably to refinery margins
terminalling related revenues under agreements with beginning in the second quarter of fiscal 1998. Earnings
FINA, Inc. and from operation of a West Texas crude oil in fiscal 1998 were adversely impacted by an increase in
gathering system the Company purchased in June 1998. depreciation, depletion and amortization resulting from
Additionally, the Company began generating the amortization of higher turnaround costs beginning in
transportation revenues in June 1999 from deliveries of the second quarter. Additionally impacting earnings for
isobutane to another refinery. Most of the increase in the 1998 fiscal year was the inclusion in operating
operating expenses for the Company results from the expenses of costs associated with the lease of 300 miles
increased pipeline transportation operations. of 8quot; pipeline which began late in the fourth quarter of
Earnings were negatively impacted in the 1999 fiscal fiscal 1997. The Company plans to utilize this pipeline to
year, as compared to the prior year, by an increase in transport petroleum products from the Navajo Refinery to
general and administrative expenses relating principally markets in Albuquerque and northwest New Mexico
to legal proceedings and non-recurring compensation during the 2000 fiscal year. Earnings for fiscal 1998 were
expense, partially offset by charges in fiscal 1998 in also impacted by a decrease in interest income due to a
connection with the terminated merger with Giant lower level of cash investments in fiscal 1998 as
Industries, Inc. Additionally, earnings were impacted compared to fiscal 1997.
during fiscal 1999 relative to fiscal 1998 by lower oil

13. HOLLY CORPORATION
11
LIQUIDITY AND CAPITAL RESOURCES capital expenditure requirements and dividend payments
of $5.0 million more than offset higher cash flow from
Cash and cash equivalents increased during the year operating activities, resulting in an outstanding balance
ended July 31, 1999 by $1.6 million to $4.2 million, as of $11.6 million under the Credit Agreement.
cash flows from operations were greater than capital The Company believes its internally generated cash
expenditures, principal repayments, including the flow, along with its Credit Agreement, provides sufficient
repayment of $11.6 million which represents all resources to fund capital projects, scheduled repayments
outstanding borrowings under the Credit Agreement, and of the Senior Notes, continued payment of dividends
dividend payments. Subsequent to July 31, 1999, the (although dividend payments must be approved by the
Company has generated cash balances in excess of its Board of Directors and cannot be guaranteed) and the
ongoing liquidity requirements. The Company believes Company’s liquidity needs for at least the next twelve
that this cash, in conjunction with its Credit Agreement, months. The Company’s Credit Agreement expires in
which can be used for direct borrowings of up to $50 October 2000, and the Company has recently initiated
million and which will expire in October 2000 unless discussions with its banks on an extension of the Credit
extended, together with future cash flows from Agreement. While the Company expects such
operations, should provide sufficient resources to enable negotiations to result in the extension of the Credit
the Company to satisfy its liquidity needs, capital Agreement, there can be no assurance that such
requirements, and debt service obligations while negotiations will be successful.
continuing the payment of dividends for at least the next See Note 6 to the Consolidated Financial Statements
twelve months. for a summary of the terms and conditions of the Senior
Notes and of the Credit Agreement.
Cash Flows from Operating Activities
Net cash provided by operating activities amounted Cash Flows for Investing Activities and Capital Projects
to $47.6 million in fiscal 1999, compared to $38.2 Cash flows used for investing activities totalled
million in fiscal 1998 and $5.5 million in fiscal 1997. $109.3 million over the last three years, $24.0 million in
Comparing fiscal 1999 to fiscal 1998, the increase in 1999, $51.0 million in 1998 and $34.4 million in 1997.
cash provided from operating activities was principally All of these amounts were expended on capital projects
due to expenditures of $18.8 million incurred in fiscal with the exceptions of $2.0 million during fiscal 1998
1998 relating to the Navajo turnaround, offset partially invested in a joint venture to operate retail gasoline
by changes in working capital items. Comparing fiscal stations and convenience stores in Montana, $3.0 million
1998 to fiscal 1997, cash provided from operating invested during 1998 in shares of common stock of a
activities was significantly higher. The increase was publicly traded company and $4.1 million invested
principally due to an increase in cash generated by during 1997 in the Rio Grande joint venture described
earnings, offset partially by higher expenditures incurred below. The net negative cash flow for investing activities
in fiscal 1998 relating to the Navajo turnaround was offset by distributions to the Company from the Rio
compared to similar but smaller advance expenditures in Grande joint venture of $2.9 million in fiscal 1999 and
the latter part of fiscal 1997 and offset by a $19.6 million $3.7 million in fiscal 1998.
increase in inventories during 1997, primarily related to The Company has adopted a capital budget of $23
preparation for the turnaround in fiscal 1998. A million for fiscal 2000. The components of this budget
significant portion of this inventory increase was are $9 million for various refinery improvements, $9
liquidated in fiscal 1998; however the impact of this million for costs relating to the purchase of a gasoil
inventory liquidation was reduced because of an hydrotreater, as described below, $4 million for various
increase in inventory caused by the Company’s purchase pipeline and transportation projects and under $1 million
of the West Texas crude gathering system. for oil and gas exploration and production activities. In
addition to these projects, the Company plans to expend
Cash Flows for Financing Activities during 2000 a total of $8 million on items that were
Cash flows used for financing activities amounted to approved in previous capital budgets primarily relating to
$22.1 million in fiscal 1999, compared to $4.7 million in pipeline and terminalling activities.
fiscal 1998 and $15.0 million in fiscal 1997. As part of its efforts to improve operating efficiencies,
During 1999, increased cash flows from operating the Company constructed an isomerization unit and
activities and lower capital expenditures relative to 1998 upgraded the FCC unit at the Navajo Refinery. The
enabled the Company to retire its outstanding bank debt, isomerization unit, which was completed in February
make scheduled amortization payments on the Senior 1997, increases the refinery’s internal octane generating
Notes and pay $5.3 million in dividends. In 1998, higher capabilities, thereby improving light product yields and

14. HOLLY CORPORATION
12
increasing the refinery’s ability to upgrade additional venture (“Rio Grande”) with Mid-America Pipeline
amounts of lower priced purchased natural gasoline into Company and Amoco Pipeline Company to transport
finished gasoline. The upgrade of the refinery’s FCC unit, liquid petroleum gases to Mexico. Deliveries by the joint
which was implemented during the Navajo Refinery’s venture began in April 1997. In October 1996, the
scheduled turnaround in the first quarter and early part Company completed a new 12quot; refined products pipeline
of the second quarter of fiscal 1998, improves the yield from Orla to El Paso, Texas, which replaced a portion of
of high value products from the FCC unit by an 8quot; pipeline previously used by Navajo that was
incorporating certain state-of-the-art upgrades. transferred to Rio Grande. Discussions regarding
In addition to the above projects, the Company expansion of this line are currently underway.
purchased a hydrotreater unit for $5 million from a The additional pipeline capacity resulting from the
closed refinery in November 1997. This purchase should new pipelines constructed in conjunction with the Rio
give the Company the ability to reconstruct the unit at Grande joint venture and from the Leased Pipeline
the Navajo Refinery at a substantial savings relative to should reduce pipeline operating expenses at existing
the purchase cost of a new unit. The hydrotreater will throughputs. In addition, the new pipeline capacity will
enhance higher value, light product yields and facilitate allow the Company to increase volumes, through refinery
the Company’s ability to meet the present California Air expansion or otherwise, that are shipped into existing
Resources Board (“CARB”) standards, which have been and new markets and could allow the Company to shift
adopted in the Company’s Phoenix market for winter volumes among markets in response to any future
months beginning in the latter part of 2000. Included in increased competition in particular markets.
the fiscal 2000 capital budget are commitments related In the fourth quarter of fiscal 1998, the Company
to the hydrotreater of $9 million, which include costs to purchased from Fina Oil and Chemical Company a crude
relocate the unit to the Navajo Refinery and construct a oil gathering system in West Texas. The assets purchased
sulfur recovery unit, which will be immediately utilized include approximately 500 miles of pipelines and over
and work in conjunction with the hydrotreater when 350,000 barrels of tankage. Approximately 23,000
completed, and certain long-lead-time pieces of barrels per day of crude oil were gathered on these
equipment. The Company, subject to obtaining necessary systems in fiscal 1999. The Company believes that these
permitting in a timely manner, expects to complete the assets should generate a stable source of transportation
hydrotreater in the latter part of 2001. Remaining costs to service income, and will give Navajo the ability to
complete the hydrotreater are estimated to be purchase crude oil at the lease in new areas, thus
approximately $20 million, in addition to the current $9 potentially enhancing the stability of crude oil supply
million budgeted amount. Based on the current and refined product margins for the Navajo Refinery.
configuration at the Navajo Refinery, the Company During the fourth quarter of fiscal 1999, the Company
believes it can supply current sales volumes into the completed 65 miles of new pipeline between Lovington
Phoenix market under the CARB standards prior to and Artesia, New Mexico, to permit the delivery of
completion of the hydrotreater. isobutane (and/or other LPGs) to an unrelated refiner in
The Company has leased from Mid-America Pipeline El Paso as well as to increase the Company’s ability to
Company more than 300 miles of 8quot; pipeline running access additional raw materials.
from Chavez County to San Juan County, New Mexico The Company announced in February 1997 the
(the “Leased Pipeline”). The Company has completed a formation of an alliance with FINA, Inc. (“FINA”) to
12quot; pipeline from the Navajo Refinery to the Leased create a comprehensive supply network that can increase
Pipeline as well as terminalling facilities in Bloomfield. substantially the supplies of gasoline and diesel fuel in
The Company is in the process of completing the the West Texas, New Mexico, and Arizona markets to
construction of a diesel fuel terminal 40 miles east of meet expected increasing demand in the future. FINA
Albuquerque in Moriarty and is considering different constructed a 50-mile pipeline which connected an
alternatives regarding its terminalling needs in existing FINA pipeline system to the Company’s 12quot;
Albuquerque. When the project, including the pipeline between Orla, Texas and El Paso, Texas pursuant
Albuquerque portion, is completed, these facilities will to a long-term lease of certain capacity of the Company’s
allow the Company to use the Leased Pipeline to 12quot; pipeline. In August 1998, FINA began transporting to
transport petroleum products from the Navajo Refinery to El Paso gasoline and diesel fuel from its Big Spring, Texas
Albuquerque and markets in northwest New Mexico. refinery. Pursuant to a long-term lease agreement, FINA
Transportation of petroleum products to markets in will ultimately have the right to transport up to 20,000
northwest New Mexico and diesel fuels to Moriarty, New BPD to El Paso on this interconnected system. In August
Mexico, near Albuquerque, are planned to begin in late 1998, the Company began to realize pipeline rental and
1999. terminalling revenues from FINA under these
The Company has a 25% interest in a pipeline joint agreements.

15. HOLLY CORPORATION
13
ADDITIONAL FACTORS THAT MAY from the significant capital outlays associated with
AFFECT FUTURE RESULTS refineries, terminals, pipelines and related facilities.
Furthermore, future regulatory requirements or
The Company’s operating results have been, and will competitive pressures could result in additional capital
continue to be, affected by a wide variety of factors, expenditures, which may or may not produce the results
many of which are beyond the Company’s control, that intended. Such capital expenditures may require
could have adverse effects on profitability during any significant financial resources that may be contingent on
particular period. Among these factors is the demand for the Company’s continued access to capital markets and
crude oil and refined products, which is largely driven by commercial bank markets. Additionally, other matters,
the conditions of local and worldwide economies as well such as regulatory requirements or legal actions may
as by weather patterns and the taxation of these products restrict the Company’s continued access.
relative to other energy sources. Governmental Until 1998, the El Paso market and markets served
regulations and policies, particularly in the areas of from El Paso were generally not supplied by refined
taxation, energy and the environment, also have a products produced by the large refineries on the Texas
significant impact on the Company’s activities. Operating Gulf Coast. While wholesale prices of refined products
results can be affected by these industry factors, by on the Gulf Coast have historically been lower than
competition in the particular geographic markets that the prices in El Paso, distances from the Gulf Coast to El Paso
Company serves and by factors that are specific to the (more than 700 miles if the most direct route is used)
Company, such as the success of particular marketing have made transportation by truck unfeasible and have
programs and the efficiency of the Company’s refinery discouraged the substantial investment required for
operations. development of refined products pipelines from the Gulf
In addition, the Company’s profitability depends Coast to El Paso.
largely on the spread between market prices for refined In 1998, a Texaco, Inc. subsidiary completed a 16-
petroleum products and crude oil prices. This margin is inch refined products pipeline running from the Gulf
continually changing and may significantly fluctuate Coast to Midland, Texas along a northern route (through
from time to time. Crude oil and refined products are Corsicana, Texas). This pipeline, now owned by Equilon
commodities whose price levels are determined by Enterprises LLC (“Equilon”), is linked to a 6-inch
market forces beyond the control of the Company. pipeline, also owned by Equilon, that is currently being
Additionally, due to the seasonality of refined products used to transport to El Paso approximately 18,000 BPD of
markets and refinery maintenance schedules, results of refined products that are produced on the Texas Gulf
operations for any particular quarter of a fiscal year are Coast (this volume replaces a similar volume produced
not necessarily indicative of results for the full year. In in the Shell Oil Company refinery in Odessa, Texas,
general, prices for refined products are significantly which was recently shut down). The Equilon line from
influenced by the price of crude oil. Although an the Gulf Coast to Midland has the potential to be linked
increase or decrease in the price for crude oil generally to existing or new pipelines running from the Midland,
results in a similar increase or decrease in prices for Texas area to El Paso with the result that substantial
refined products, there is normally a time lag in the additional volumes of refined products could be
realization of the similar increase or decrease in prices transported from the Gulf Coast to El Paso.
for refined products. The effect of changes in crude oil An additional potential source of pipeline
prices on operating results therefore depends in part on transportation from Gulf Coast refineries to El Paso is the
how quickly refined product prices adjust to reflect these proposed Longhorn Pipeline. This pipeline is proposed to
changes. A substantial or prolonged increase in crude oil run approximately 700 miles from the Houston area of
prices without a corresponding increase in refined the Gulf Coast to El Paso, utilizing a direct route. The
product prices, a substantial or prolonged decrease in owner of the Longhorn Pipeline, Longhorn Partners
refined product prices without a corresponding decrease Pipeline, L.P., a Delaware limited partnership that
in crude oil prices, or a substantial or prolonged includes affiliates of Exxon Pipeline Company, BP/Amoco
decrease in demand for refined products could have a Pipeline Company, Williams Pipeline Company, and the
significant negative effect on the Company’s earnings and Beacon Group Energy Investment Fund, L.P. and
cash flows. Chisholm Holdings as limited partners (“Longhorn
The Company is dependent on the production and Partners”), has proposed to use the pipeline initially to
sale of quantities of refined products at margins sufficient transport approximately 72,000 BPD of refined products
to cover operating costs, including any increases in costs from the Gulf Coast to El Paso and markets served from
resulting from future inflationary pressures. The refining El Paso, with an ultimate maximum capacity of 225,000
business is characterized by high fixed costs resulting

16. HOLLY CORPORATION
14
BPD. A critical feature of this proposed petroleum operate as currently proposed. It is not possible to
products pipeline is that it would utilize, for predict whether and, if so, under what conditions, the
approximately 450 miles (including areas overlying the Longhorn Pipeline ultimately will be allowed to operate,
environmentally sensitive Edwards Aquifer and Edwards- nor is it possible to predict the consequences for the
Trinity Aquifer and heavily populated areas in the Company of Longhorn Pipeline’s operations if they occur.
southern part of Austin, Texas) an existing pipeline In August 1998, a lawsuit (the “Longhorn Suit”) was
(previously owned by Exxon Pipeline Company) that was filed by Longhorn Partners in state district court in El
constructed in about 1950 for the shipment of crude oil Paso, Texas against the Company and two of its
from West Texas to the Houston area. subsidiaries (along with an Austin, Texas law firm which
The Longhorn Pipeline is not currently operating was subsequently dropped from the case). The suit, as
because of a federal court injunction in August 1998 and amended by Longhorn Partners in March 1999, seeks
a settlement agreement in March 1999 entered into by damages alleged to total up to $1,050,000,000 (after
Longhorn Partners, the United States Environmental trebling) based on claims of violations of the Texas Free
Protection Agency (“EPA”) and Department of Enterprise and Antitrust Act, unlawful interference with
Transportation (“DOT”), and the other parties to the existing and prospective contractual relations, and
federal lawsuit that had resulted in the injunction. The conspiracy to abuse process. The specific action of the
March 1999 settlement agreement required the Company complained of in the Longhorn Suit is the
preparation of an Environmental Assessment under the support of lawsuits brought by ranchers in West Texas to
authority of the EPA and the DOT. A draft Environmental challenge the proposed use by the Longhorn Pipeline of
Assessment (the “Draft EA”) on the Longhorn Pipeline easements and rights-of-way that were granted over 50
was released on October 22, 1999. The Draft EA years ago for the Exxon crude oil pipeline. The Company
proposes a preliminary Finding of No Significant Impact believes that the Longhorn Suit is wholly without merit
with respect to the Longhorn Pipeline provided that and plans to defend itself vigorously. The Company also
Longhorn Partners carries out a proposed mitigation plan plans to pursue at the appropriate time any affirmative
developed by Longhorn Partners which contains 34 remedies that may be available to it relating to the
elements. Some of the elements of the proposed Longhorn Suit.
mitigation plan are required to be completed before the In April 1999, the Williams Companies and Equilon
Longhorn Pipeline is allowed to operate, with the Enterprises LLC (a joint venture of Texaco Inc. and the
remainder required to be completed later or to be Royal Dutch/Shell Group) announced a 1,010-mile
implemented for as long as operations continue. Public pipeline, called the “Aspen Pipeline,” to carry gasoline
comments on the Draft EA may be submitted to the EPA and other refined fuels from Texas to Utah. It was
and DOT until the end of November 1999 and in announced that the pipeline would have a capacity of
November 1999 there will be a series of five public 65,000 BPD and shipments will begin in late 2000. In
meetings on the Draft EA at specified locations in Texas. addition to the pipeline, product terminals would be
The Company believes that public comments will raise built, including a terminal in Albuquerque, New Mexico.
questions concerning certain elements of the Draft EA. A This venture could result in an increase in the supply of
final determination by the EPA and DOT with respect to products to some of the Company’s markets.
the matters considered in the Draft EA could be issued as An additional factor that could affect the Company’s
early as 30 days following the end of the public market is excess pipeline capacity from the West Coast
comment period. into the Company’s Arizona markets after the pipeline’s
If the Longhorn Pipeline is allowed to operate as expansion this year. If additional refined products
currently proposed, the substantially lower requirement become available on the West Coast in excess of
for capital investment would permit Longhorn Partners to demand in that market, additional products may be
give its shippers a cost advantage through lower tariffs shipped into the Company’s Arizona markets with
that could, at least for a period, result in significant resulting possible downward pressure on refined product
downward pressure on wholesale refined products prices prices in the Company’s markets.
and refined products margins in El Paso and related In addition to the projects described above, other
markets. Although some current suppliers in the market projects have been explored from time to time by refiners
might not compete in such a climate, the Company’s and other entities, which projects, if consummated,
analyses indicate that, because of location and recent could result in a further increase in the supply of
capital improvements, the Company’s position in El Paso products to some or all of the Company’s markets.
and markets served from El Paso could withstand such a In recent years there have been several refining and
period of lower prices and margins. However, the marketing consolidations or acquisitions between entities
Company’s results of operations could be adversely competing in the Company’s geographic market. While
impacted if the Longhorn Pipeline were allowed to these transactions could increase the competitive

17. HOLLY CORPORATION
15
pressures on the Company, the specific ramifications of discussed above, will help the Company to meet these
these or other potential consolidations cannot presently requirements.
be determined.
The common carrier pipelines used by the Company Risk Management
to serve the Arizona and Albuquerque markets are The Company uses certain strategies to reduce some
currently operated at or near capacity and are subject to commodity price and operational risks. The Company
proration. As a result, the volumes of refined products does not attempt to eliminate all market risk exposures
that the Company and other shippers have been able to when the Company believes the exposure relating to
deliver to these markets have been limited. The flow of such risk would not be significant to the Company’s
additional products into El Paso for shipment to Arizona, future earnings, financial position, capital resources or
either as a result of the Longhorn Pipeline or otherwise, liquidity or that the cost of eliminating the exposure
could further exacerbate such constraints on deliveries to would outweigh the benefit.
Arizona. No assurances can be given that the Company The Company’s profitability depends largely on the
will not experience future constraints on its ability to spread between market prices for refined products and
deliver its products through the pipelines to Arizona. In crude oil. A substantial or prolonged decrease in this
the case of the Albuquerque market, the common carrier spread could have a significant negative effect on the
pipeline used by the Company to serve this market Company’s earnings, financial condition and cash flows.
currently operates at or near capacity with resulting At times, the Company utilizes petroleum commodity
limitations on the amount of refined products that the futures contracts to minimize a portion of its exposure to
Company and other shippers can deliver. As previously price fluctuations associated with crude oil and refined
discussed, the Company has entered into a Lease products. Such contracts are used solely to help manage
Agreement for a pipeline between Artesia and the the price risk inherent in purchasing crude oil in advance
Albuquerque vicinity and Bloomfield, New Mexico with of the delivery date and as a hedge for fixed-price sales
Mid-America Pipeline Company. The Company has contracts of refined products and do not increase the
completed a refined products terminal in Bloomfield and market risks to which the Company is exposed. Gains
is completing construction of a diesel fuel terminal east and losses on contracts are deferred and recognized in
of Albuquerque. The Company is also in the process of cost of refined products when the related inventory is
pursuing different alternatives to address terminalling sold or the hedged transaction is consummated. No such
needs in Albuquerque. While the Company is proceeding contracts were outstanding at July 31, 1999.
as expeditiously as possible on the Albuquerque project, At July 31, 1999, the Company had outstanding
it is not possible at present to determine when the unsecured debt of $70.3 million and had no borrowings
project will be completed. Completion of this project outstanding under its Credit Agreement. The Company
would allow the Company to transport products directly does not have significant exposure to changing interest
to Albuquerque on the leased pipeline, thereby rates on its unsecured debt because the interest rates are
eliminating third party tariff expenses and the risk of fixed, the average maturity is approximately three years
future pipeline constraints on shipments to Albuquerque. and such debt represents less than 40% of the
Any future constraints on the Company’s ability to Company’s total capitalization. During much of fiscal
transport its refined products to Arizona or Albuquerque 1999, the Company had outstanding borrowings under
could, if sustained, adversely affect the Company’s results the Credit Agreement. Since interest rates on borrowings
of operations and financial condition. are reset frequently based on either the bank’s daily
Effective January 1, 1995, certain cities in the country effective prime rate, or the LIBOR rate, interest rate
were required to use only reformulated gasoline (“RFG”), market risk is very low. Additionally, the Company
a cleaner burning fuel. Phoenix is the only principal invests any available cash only in investment grade,
market of the Company that currently requires RFG highly liquid investments with maturities of three months
although this requirement could be implemented in other or less. As a result, the interest rate market risk implicit in
markets over time. Phoenix has adopted even more these cash investments is low, as the investments mature
rigorous California Air Resources Board (“CARB”) fuel within three months. A ten percent change in the market
specifications for winter months beginning in the latter interest rate over the next year would not materially
part of 2000. This new requirement, other requirements impact the Company’s earnings or cash flow, as the
of the federal Clean Air Act or other presently existing or interest rates on the Company’s long-term debt are fixed,
future environmental regulations could cause the and the Company’s borrowings under the Credit
Company to expend substantial amounts to permit the Agreement and cash investments are at short-term market
Company’s refineries to produce products that meet rates and such interest has historically not been
applicable requirements. Completion of the hydrotreater, significant as compared to the total operations of the

18. HOLLY CORPORATION
16
Company. A ten percent change in the market interest at risk of failure due to the Year 2000 Problem; the
rate over the next year would not materially impact the Company believes that it has remediated all items of
Company’s financial condition, as the average maturity of equipment containing at-risk chips. Because of the
the Company’s long-term debt is approximately three nature of the non-IT systems, there can be no assurance
years and such debt represents less than 40% of the that the Company has correctly identified all non-IT
Company’s total capitalization, and the Company’s systems that are subject to failure because of the Year
borrowings under the Credit Agreement and cash 2000 Problem. Any failure of non-IT systems because of
investments are at short-term market rates. the Year 2000 Problem could reduce production levels or
The Company’s operations are subject to normal potentially shut down the refinery operations of the
hazards of operations, including fire, explosion and Company.
weather-related perils. The Company maintains various To the extent possible, the Company has either tested
insurance coverages, including business interruption or received certifications with respect to all significant IT
insurance, subject to certain deductibles. The Company and non-IT systems.
is not fully insured against certain risks because such The Company has also initiated contingency planning
risks are not fully insurable, coverage is unavailable or to respond to the possible effects of the Year 2000
premium costs, in the judgement of the Company, do not Problem on third parties that are important to the
justify such expenditures. Company’s operations. The Company is communicating
regularly on this issue with critical third parties, such as
The Year 2000 Problem suppliers of power or telecommunications services to the
The Year 2000 Problem is the result of older computer Company’s operational facilities, third-party carriers of
systems using a two-digit format rather than a four-digit raw materials and refined products, and major
format to define the applicable year with the result that customers. As problems of third parties are identified
such computer systems may be unable to interpret during the preparation of the contingency plan, the
properly dates beyond the year 1999. This inability could Company will take any steps available to mitigate the
lead to a failure of information systems and disruptions impact on the Company of a failure in a third party
of business and financial operations. Year 2000 risks exist caused by the Year 2000 Problem. While the Company
both in information technology (“IT”) systems that believes that it has made adequate arrangements to deal
employ computer hardware and software and in non-IT with these contingencies, it continues to update such
systems such as embedded computer chips or plans as additional information becomes available.
microcontrollers that control the operation of the The cost to the Company of dealing with the Year
equipment in which they are installed. Computer failures 2000 Problem is not expected to be material. Although a
because of the Year 2000 Problem could affect the portion of the time of IT personnel and related
Company either because of failures of computers used in management has been and will be employed in
the Company’s operations and record-keeping or because evaluating the problem, taking corrective actions and
of computer failures that adversely affect third parties preparing contingency plans, the Company does not
that are suppliers to or customers of the Company. believe that other IT projects or operations have been or
Partly with the assistance of outside consultants, the will be adversely affected. Monetary costs expected to be
Company has taken steps to identify key financial, involved in dealing with the Year 2000 Problem are not
informational and operational systems that may be expected to be significant: all costs to the Company of
affected by the Year 2000 Problem. Based on review, analysis and corrective action (excluding IT
certifications by third-party suppliers of the Company’s system upgrades that were scheduled to be implemented
principal IT systems, the Company believes that its without regard to the Year 2000 Problem) are expected to
principal IT systems either are now unaffected by the be slightly less than $1 million, most of which has been
Year 2000 Problem or have been upgraded to make these incurred.
systems free of Year 2000 issues. Based on the analysis performed to this point, the
The Company has made an inventory of non-IT Company believes that the most important Year 2000 risk
systems embedded in equipment used in the Company’s to the Company’s results of operations and financial
operations and has assessed the extent to which these condition is that third-party suppliers important to the
non-IT systems could fail because of the Year 2000 operations of the Company’s principal operating assets,
Problem and thereby cause significant problems for the the Navajo Refinery at Artesia and Lovington, New
Company’s operations, financial condition or liquidity. Mexico and the Montana Refinery near Great Falls,
The Company has identified, based on information Montana, would for a period of time be unable to
and/or certifications from suppliers or other third parties, perform their normal roles because of difficulties created
the types of non-IT systems that appear to be significantly by the Year 2000 Problem for the third parties and/or for

19. HOLLY CORPORATION
17
persons supplying the third parties. The Company New Accounting Pronouncements
believes that its most significant risk would be in the case In June 1998, the Financial Accounting Standards
of the Company’s principal or sole sources for essential Board (“FASB”) issued Statement of Financial Accounting
inputs — for example power to operate a refinery. If such Standards (“SFAS”) No. 133, “Accounting for Derivative
a provider were to be unable to continue supplying the Instruments and Hedging Activities,” which requires that
refinery because of the Year 2000 Problem, the Company all derivatives be recognized as either assets or liabilities
could be forced to suspend the affected operations until in the statement of financial position and that those
the provider could solve the problem or in some cases instruments be measured at fair value. SFAS No. 133 also
until an alternative supply could be arranged. The prescribes the accounting treatment for changes in the
Company intends to continue until the year 2000 regular fair value of derivatives which depends on the intended
contacts with critical suppliers to determine their use of the derivative and the resulting designation.
evaluations of vulnerability to the Year 2000 Problem. In Designations include hedges of the exposure to changes
the event that a particular supplier appears to be in the fair value of a recognized asset or liability, hedges
vulnerable, the Company will seek to obtain alternative of the exposure to variable cash flows of a forecasted
supplies to the extent they are available. However, in the transaction, hedges of the exposure to foreign currency
case of some inputs, alternative supplies may not translations, and derivatives not designated as hedging
realistically be available even if the supply problem is instruments. In June 1999, the FASB issued SFAS No.
identified months in advance. In other cases, an 137, “Accounting for Derivative Instruments and Hedging
unexpected third-party failure could occur in spite of Activities - Deferral of the Effective Date of FASB
extensive prior communications with key suppliers and Statement No. 133.” Under SFAS No. 137, SFAS No. 133
the only feasible remedy to the Company for a becomes effective for all fiscal quarters of all fiscal years
substantial period might be emergency corrective action beginning after June 15, 2000 with early adoption
by the affected third party if the third party were capable permitted. The Company has not completed evaluating
of taking such action. the effects this statement will have on its financial
reporting and disclosures.
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, 1999
and 1998, and the related consolidated statements of income, cash flows, stockholders’ equity and
comprehensive income for each of the three years in the period ended July 31, 1999. 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
July 31, 1999, in conformity with generally accepted accounting principles.
Dallas, Texas
September 22, 1999