<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period _______ to _______.
For Quarter Ended June 30, 1996 Commission File Number:
1-10398
GIANT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0642718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23733 North Scottsdale Road, Scottsdale, Arizona 85255
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(602) 585-8888
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 [ ]
Number of Common Shares outstanding at July 31, 1996: 12,213,068 shares.
<PAGE>
<PAGE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 (Unaudited) and December 31, 1995
Condensed Consolidated Statements of Earnings
(Unaudited) Three and Six Months Ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURE<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,237 $ 9,549
Accounts receivable, net 29,246 24,025
Inventories 44,895 42,581
Prepaid expenses and other 2,202 3,880
Net assets of discontinued operations 26,324 26,689
Deferred income taxes 2,070 2,145
--------- ---------
Total current assets 111,974 108,869
--------- ---------
Property, plant and equipment 306,029 292,919
Less accumulated depreciation
and amortization (100,986) (94,357)
--------- ---------
205,043 198,562
--------- ---------
Other assets 16,913 17,431
--------- ---------
$ 333,930 $ 324,862
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,029 $ 4,063
Accounts payable 37,719 34,162
Accrued expenses 24,360 20,316
--------- ---------
Total current liabilities 66,108 58,541
--------- ---------
Long-term debt, net of current portion 130,458 142,676
Deferred income taxes 14,454 12,864
Other liabilities 3,109 1,049
Common stockholders' equity 119,801 109,732
--------- ---------
$ 333,930 $ 324,862
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.<PAGE>
<PAGE>
<TABLE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except shares and per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 135,643 $ 80,590 $ 239,743 $ 150,152
Cost of products sold 92,718 56,497 166,678 105,854
----------- ----------- ----------- -----------
Gross margin 42,925 24,093 73,065 44,298
Operating expenses 15,869 12,255 31,277 24,370
Depreciation and amortization 4,285 3,307 8,381 6,363
Selling, general and administrative expenses 5,447 3,365 9,042 6,207
----------- ----------- ----------- -----------
Operating income 17,324 5,166 24,365 7,358
Interest expense, net 3,011 2,126 6,377 4,173
----------- ----------- ----------- -----------
Earnings from continuing operations
before income taxes 14,313 3,040 17,988 3,185
Provision for income taxes 5,620 947 6,970 980
----------- ----------- ----------- -----------
Earnings from continuing operations 8,693 2,093 11,018 2,205
Discontinued operations, net (72) 59 7 94
----------- ----------- ----------- -----------
Net earnings $ 8,621 $ 2,152 $ 11,025 $ 2,299
=========== =========== =========== ===========
Earnings per common share:
Continuing operations $ 0.77 $ 0.18 $ 0.98 $ 0.19
Discontinued operations 0.01 0.01
----------- ----------- ----------- -----------
Net earnings $ 0.77 $ 0.19 $ 0.98 $ 0.20
=========== =========== =========== ===========
Weighted average number of shares outstanding 11,260,319 11,516,074 11,255,853 11,662,510
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.<PAGE>
<PAGE>
<TABLE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from continuing operating activities:
Net earnings $11,025 $ 2,299
Adjustments to reconcile net earnings to net cash
provided by continuing operating activities:
Earnings from discontinued operations (7) (94)
Depreciation and amortization 8,381 6,363
Deferred income taxes 1,665 (497)
Restricted stock award compensation 76 231
Decrease in other non-current liabilities 457 (168)
Other (47) 30
Changes in operating assets and liabilities:
(Increase) decrease in receivables (5,188) 3,894
Increase in inventories (2,314) (1,819)
Decrease in prepaid expenses and other 1,678 665
Increase in accounts payable 3,557 31
Increase (decrease) in accrued expenses 3,774 (1,417)
------- -------
Net cash provided by continuing operating activities 23,057 9,518
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment and other assets (15,780) (7,241)
Proceeds from sale of property, plant and equipment 3,352 1,116
Proceeds from sales and maturities of marketable securities 9,592
Net change in assets of discontinued operations 372 (4,890)
------- -------
Net cash used by investing activities (12,056) (1,423)
------- -------
Cash flows from financing activities:
Payments of long-term debt (12,252) (2,541)
Purchase of treasury stock (5,620)
Payment of dividends (1,156) (1,174)
Proceeds from exercise of stock options 95
------- -------
Net cash used by financing activities (13,313) (9,335)
------- -------
Net decrease in cash and cash equivalents (2,312) (1,240)
Cash and cash equivalents:
Beginning of period 9,549 12,860
------- -------
End of period $ 7,237 $11,620
======= =======
</TABLE>
Noncash Investing and Financing Activities. In the second quarter of 1996,
the Company accrued $2,250,000 for estimated preacquisition environmental
liabilities assumed in the purchase of the Bloomfield Refinery in the
fourth quarter of 1995. This amount has been added to property, plant
and equipment as an adjustment to the purchase price of the Bloomfield
Refinery.
See accompanying notes to condensed consolidated financial statements.<PAGE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
and reclassifications considered necessary for a fair and comparable
presentation have been included and are of a normal recurring nature.
Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1996. The enclosed financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to the June 30, 1995
financial statements to conform to the statement classifications used
in the 1996 period relating to the classification of the Company's
exploration and production business as discontinued operations.
<PAGE>
<PAGE>
NOTE 2 - PRO FORMA FINANCIAL INFORMATION:
On October 4, 1995, the Company completed the purchase of the
Bloomfield Refinery along with related pipeline and transportation
assets from Gary-Williams Energy Co. and its wholly-owned subsidiary,
Bloomfield Refining Company ("BRC").
The following Statements of Earnings compare the consolidated
results of Giant Industries, Inc. ("Giant"), including the results
of the Bloomfield Refinery, for the six months ended June 30, 1996
with the pro forma combined condensed statement of earnings of
the Company and BRC ("Pro Forma") for the six months ended June 30,
1995. The pro forma statement includes the results of operations
of the Company and BRC, along with adjustments which give effect to
events that are directly attributable to the transaction and which
are expected to have a continuing impact. The information assumes
the transaction was consummated as of the beginning of the period
presented.
The unaudited pro forma combined condensed financial
information does not purport to represent the results of operations
that actually would have resulted had the purchase occurred on the
date specified, nor should it be taken as indicative of the future
results of operations.
<TABLE>
STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands except shares and per share data)
(Unaudited)
<CAPTION>
Giant Pro Forma
1996 1995
---------- ----------
<S> <C> <C>
Net revenues $ 239,743 $ 219,151
Cost of products sold 166,678 156,025
---------- ----------
Gross margin 73,065 63,126
Operating expenses 31,277 31,126
Depreciation and amortization 8,381 7,738
Selling, general and administrative expenses 9,042 7,518
---------- ----------
Operating income 24,365 16,744
Interest expense, net 6,377 6,147
---------- ----------
Earnings from continuing operations before income taxes 17,988 10,597
Provision for income taxes 6,970 3,861
---------- ----------
Earnings from continuing operations $ 11,018 $ 6,736
========== ==========
Earnings per common share for continuing operations $ 0.98 $ 0.58
========== ==========
Weighted average number of shares outstanding 11,255,853 11,662,510
========== ==========
</TABLE>
<PAGE>
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS
In early 1996, the Company approved a plan of disposition of its
exploration and production operations. The decision was based upon
management's review of the prospects for this operation, which
indicated that substantial new capital would be necessary to further
develop this business and reach an acceptable level of profitability
and integration. The Company expects to complete a sale in the third
quarter of 1996. Based on current information, the Company does not
expect the disposal of the exploration and production assets to have
a significant impact on the Company's results of operations.
The summarized balance sheet of the exploration and production
segment was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(In thousands)
<S> <C> <C>
Assets:
Current assets $ 827 $ 1,489
Oil and gas properties, plant and equipment, net 31,816 33,140
Other assets 381 373
------- -------
Total assets 33,024 35,002
------- -------
Liabilities:
Current liabilities 383 1,996
Deferred taxes and other liabilities 6,317 6,317
------- -------
Total liabilities 6,700 8,313
------- -------
Net assets of discontinued operations $26,324 $26,689
======= =======
</TABLE>
The amounts for discontinued operations, net in the Condensed
Consolidated Statements of Earnings, are nominal for all periods
presented.
<PAGE>
<PAGE>
NOTE 4 - INVENTORIES:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(In thousands)
<S> <C> <C>
Inventories consist of the following:
First-in, first-out ("FIFO") method:
Crude oil $21,510 $15,465
Refined products 14,942 17,605
Refinery and shop supplies 6,985 6,871
Retail method:
Merchandise 2,670 2,721
------- -------
46,107 42,662
Allowance for last-in, first-out
("LIFO") method (1,212) (81)
------- -------
$44,895 $42,581
======= =======
/TABLE
<PAGE>
<PAGE>
NOTE 5 - LONG-TERM DEBT:
In November 1993, the Company issued $100,000,000 of 9 3/4% senior
subordinated notes ("Notes"). Repayment of the Notes is jointly and
severally guaranteed on an unconditional basis by the Company's direct
and indirect wholly-owned subsidiaries, subject to a limitation
designed to ensure that such guarantees do not constitute a fraudulent
conveyance. Except as otherwise allowed in the Indenture pursuant to
which the Notes were issued, there are no restrictions on the ability
of such subsidiaries to transfer funds to the Company in the form of
cash dividends, loans or advances. General provisions of applicable
state law, however, may limit the ability of any subsidiary to pay
dividends or make distributions to the Company in certain
circumstances.
Separate financial statements of the subsidiaries are not included
herein because the subsidiaries are jointly and severally liable; the
aggregate assets, liabilities, earnings, and equity of the subsidiaries
are substantially equivalent to the assets, liabilities, earnings and
equity of the Company on a consolidated basis; and the separate
financial statements and other disclosures concerning the subsidiaries
are not deemed material to investors.
<PAGE>
<PAGE>
NOTE 6 - CONTINGENCIES:
The Company and certain subsidiaries are defendants to various
legal actions. Certain of these pending legal actions involve or may
involve compensatory, punitive or other damages. Litigation is
subject to many uncertainties and it is possible that some of the
legal actions, proceedings or claims referred to above could be
decided adversely. Although the amount of liability at June 30,
1996 with respect to these matters is not ascertainable, the Company
believes that any resulting liability should not materially affect the
Company's financial condition or results of operations.
Federal, state and local laws and regulations relating to health
and the environment affect nearly all of the operations of the
Company. As is the case with all companies engaged in similar
industries, the Company faces significant exposure from actual or
potential claims and lawsuits involving environmental matters. These
matters include soil and water contamination, air pollution and
personal injuries or property damage allegedly caused by substances
manufactured, handled, used, released or disposed of by the Company.
Future expenditures related to health and environmental matters
cannot be reasonably quantified in many circumstances due to the
speculative nature of remediation and clean-up cost estimates and
methods, the imprecise and conflicting data regarding the hazardous
nature of various types of substances, the number of other
potentially responsible parties involved, various defenses which may
be available to the Company and changing environmental laws and
interpretations of environmental laws.
The United States Environmental Protection Agency notified the
Company in May 1991 that it may be a potentially responsible party
for the release or threatened release of hazardous substances,
pollutants, or contaminants at the Lee Acres Landfill, which is owned
by the United States Bureau of Land Management and which is adjacent
to the Company's Farmington Refinery which was operated until 1982.
Potentially responsible party liability is joint and several, such
that a responsible party may be liable for all of the clean-up costs
at a site even though it was responsible for only a small part of
such costs. At the present time, the Company is unable to determine
the extent of potential liability, if any, in this matter and has
made no provision therefore in its financial statements.
The Company has established an environmental liability accrual
of approximately $3,400,000 of which approximately $1,100,000
relates to ongoing environmental projects, including the remediation
of a hydrocarbon plume at the Company's Farmington Refinery and
hydrocarbon contamination on 5.5 acres the Company owns in
Bloomfield, New Mexico. The remaining amount of approximately
$2,300,000 is an estimate, recorded in the second quarter of 1996, of
certain environmental obligations assumed in the acquisition of the
Bloomfield Refinery. This amount has been recorded as an adjustment
to the purchase price and allocated to the assets acquired. The
environmental accrual is recorded in the current and long-term
sections of the Company's consolidated balance sheet.
The Company has received several tax notifications and
assessments from the Navajo Tribe relating to crude oil and natural
gas removed from properties located outside the boundaries of the
Navajo Indian Reservation in an area of disputed jurisdiction,
including a $1,800,000 severance tax assessment issued to Giant
Arizona in November 1991. The Company has invoked its appeal rights
with the Tribe's Tax Commission in connection with this assessment
and intends to oppose the assessment. The Company may receive further
tax assessments before the resolution of this matter. <PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Earnings From Continuing Operations Before Income Taxes
- -------------------------------------------------------
Earnings from continuing operations before income taxes were
$14.3 million for the three months ended June 30, 1996, an increase of
approximately $11.3 million from $3.0 million for the three months
ended June 30, 1995. For the six months ended June 30, 1996, earnings
from continuing operations before income taxes were $18.0 million, an
increase of $14.8 million from the $3.2 million reported in the same
1995 period. The increase in both periods is primarily the result of
the acquisition of the Bloomfield Refinery and increases in Ciniza
Refinery average margins of 50% and 45% for the three and six month
periods respectively. These increases were partially offset by
increases in operating and administrative costs.
The Company acquired seven retail units on June 26, 1996, which
had minimal impact on the Company's results of operations for the
above periods.
Revenues
- --------
Revenues for the three months ended June 30, 1996 increased $55.0
million or 68% to $135.6 million from $80.6 million in the comparable
1995 period. Finished product sales of $45.5 million from the
Bloomfield Refinery accounts for approximately 83% of the increase. In
addition, a 21% increase in Ciniza Refinery weighted average selling
prices and a 12% increase in service station merchandise sales
contributed to increased revenues. Offsetting these increases was a
decline in third party sales from the Company's ethanol plant due to a
temporary suspension of operations and a 1% decline in Ciniza Refinery
finished product sales volumes.
The increase in service station merchandise sales is the result
of increased same store volumes and a net increase in the aggregate
sales from five new or reopened units over the aggregate sales of
ten units that have been disposed of in the last twelve months.
The volumes of refined products sold through retail outlets
decreased approximately 10% from 1995 second quarter levels due to a
19% decrease in volumes sold from the travel center and an 8% decline
in service station volumes resulting from increased competition, the
sale of ten units and a slight decline in same store volumes, offset
in part by the addition of four new units and the reopening of a unit
that had been closed for remodeling.
Revenues for the six months ended June 30, 1996 increased $89.6
million or 60% to $239.7 million from $150.1 million in the comparable
1995 period. Finished product sales of $74.6 million from the
Bloomfield Refinery accounts for approximately 83% of the increase. In
addition, a 17% increase in Ciniza Refinery weighted average selling
prices and a 14% increase in service station merchandise sales
contributed to increased revenues. Offsetting these increases was a
decline in third party sales from the Company's ethanol plant due to a
temporary suspension of operations and a 1% decline in Ciniza Refinery
finished product sales volumes.
The increase in service station merchandise sales is the result
of increased same store volumes and a net increase in the aggregate
sales from six new or reopened units over the aggregate sales of
ten units that have been disposed of in the last twelve months.
The volumes of refined products sold through retail outlets
decreased approximately 6% from 1995 six month levels due to a 12%
decrease in volumes sold from the travel center and a 4% decline in
service station volumes resulting from increased competition, the sale
of ten units and a slight decline in same store volumes, offset in
part by the addition of five new units and the reopening of a unit
that had been closed for remodeling.
Cost of Products Sold
- ---------------------
For the three months ended June 30, 1996, cost of products sold
increased $36.2 million or 64% to $92.7 million from $56.5 million for
the corresponding 1995 period. Cost of products sold of $33.6 million
relating to the Bloomfield Refinery accounts for approximately 93% of
the increase. Also contributing to increased costs was a 14% increase
in average crude oil costs and a 15% increase in the cost of
merchandise sales from the service stations. These increases were
partially offset by a decrease in costs relating to the temporary
closure of the Company's ethanol plant.
For the six months ended June 30, 1996, cost of products sold
increased $60.8 million or 57% to $166.7 million from $105.9 million
for the corresponding 1995 period. Cost of products sold of $55.5
million relating to the Bloomfield Refinery accounts for
approximately 91% of the increase. Also contributing to increased
costs was a 10% increase in average crude oil costs and a 16%
increase in the cost of merchandise sales from the service stations.
These increases were partially offset by a decrease in costs relating
to the temporary closure of the Company's ethanol plant and the
liquidation of certain lower cost LIFO inventory layers in the first
quarter of 1996 which resulted in a reduction in cost of products sold
of approximately $2.1 million compared to a similar reduction of
approximately $900,000 in the 1995 first quarter.
Operating Expenses
- ------------------
For the three months ended June 30, 1996, operating expenses
increased $3.6 million or 29% to $15.9 million from $12.3 million in
the three months ended March 31, 1995.
For the six months ended June 30, 1996, operating expenses
increased $6.9 million or 28% to $31.3 million from $24.4 million in
the six months ended June 30, 1995.
Operating expenses in both comparative periods increased
approximately 24% due to the acquisition of the Bloomfield Refinery
and 3% due to increases in payroll and related costs for other
operations.
Depreciation and Amortization
- -----------------------------
For the three months ended June 30, 1996, depreciation and
amortization increased approximately $1.0 million or 30% to $4.3
million from $3.3 million in the comparable 1995 period. For the
six months ended June 30, 1996, depreciation and amortization
increased approximately $2.0 million or 32% to $8.4 million from
$6.4 million in the same 1995 period. The increases are primarily
the result of the acquisition of the Bloomfield Refinery, along
with other 1995 property, plant and equipment additions.
Selling, General and Administrative Expenses
- --------------------------------------------
For the three months ended June 30, 1996, selling, general and
administrative expenses increased approximately $2.1 million or 62% to
$5.4 million from $3.3 million in the corresponding 1995 period. The
increase is primarily the result of expense accruals for incentive
bonus plans, estimated severance tax assessments and environmental
expenditures, along with increases in payroll and related costs.
For the six months ended June 30, 1996, selling, general and
administrative expenses increased approximately $2.8 million or 46% to
$9.0 million from $6.2 million in the corresponding 1995 period. The
increase is primarily the result of expense accruals for incentive
bonus plans, estimated severance tax assessments and environmental
expenditures, along with increases in payroll and related costs and
a reduction in 1995 first quarter expenses for a decrease in the
estimated liability for self insured workmen's compensation claims and
an adjustment in the estimated allowance for doubtful accounts.
Interest Expense, Net
- ---------------------
For the three months ended June 30, 1996, net interest expense
(interest expense less interest income) increased $885,000 or 42% to
$3.0 million from $2.1 million in the same 1995 period. For the six
months ended June 30, 1996, net interest expense increased $2.2
million or 53% to $6.4 million from $4.2 million in the same 1995
period. The increase in both periods is primarily due to a decline in
investment income because of a decrease in excess funds available for
investment and an increase in interest expense from the addition of
certain variable rate long-term debt, both related to the acquisition
of the Bloomfield Refinery in October 1995.
Income Taxes
- ------------
Income taxes for the three and six months ended June 30, 1996 and
1995 were computed in accordance with Statement of Financial
Accounting Standards No. 109, resulting in effective tax rates of
approximately 39% for the 1996 periods and 31% for the 1995 periods.
The difference in the two rates is primarily due to estimated alcohol
fuel tax credits in 1995, due to the operation of the Company's
ethanol plant which temporarily suspended operations in October 1995,
as well as estimated coal seam gas tax credits in each year, as they
relate to varying amounts of estimated annual income.
Discontinued Operations
- -----------------------
For the three and six months ended June 30, 1996 and 1995, the
Company's exploration and production operations recorded nominal net
earnings or losses.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operations
- -------------------------
Net cash provided by operating activities of continuing
operations totaled $23.1 million for the six months ended June 30,
1996, compared to $9.5 million for the comparable 1995 period.
Operating cash flows increased primarily as the result of improved
earnings and the differences in the net changes in working capital
items in each period.
Working Capital
- ---------------
Working capital at June 30,1996 consisted of current assets of
$112.0 million and current liabilities of $66.1 million, or a current
ratio of 1.69:1. At December 31, 1995, the current ratio was 1.86:1
with current assets of $108.9 million and current liabilities of $58.5
million.
Current assets have increased since December 31, 1995, primarily
due to increases in trade receivables and inventories, offset in part
by a decrease in cash and cash equivalents and prepaid insurance and
deposits. Trade receivables have increased due to higher sales volumes
and prices. Inventories have increased primarily as the result of a
46% increase in pipeline crude oil inventory volumes, along with an
increase in crude oil acquisition costs and the liquidation of certain
lower cost LIFO inventory layers. Deposits have decreased because of
the refund of funds placed in escrow in connection with the proposed
acquisition of the Wingate fractionation plant which was ultimately
not completed. Current liabilities have increased due to an increase
in accounts payable and accrued expenses. Accounts payable have
increased primarily due to an increase in the volume and cost of raw
materials. Accrued expenses have increased primarily due to an
increase in income and excise taxes payable.
Capital Expenditures and Resources
- ----------------------------------
Net cash used in investing activities for the purchase of
property, plant and equipment and other assets totaled approximately
$15.8 million for the first six months of 1996, including the
acquisition of seven retail units at the end of the second quarter;
the construction and remodeling of various other retail units; the
acquisition of finished product and crude truck transports; and
upgrades and turnaround expenditures to improve operations and
efficiencies at the refineries.
In the first six months, the Company received proceeds of
approximately $3.3 million from the sale of five operating service
stations. A gain of approximately $214,000 resulted from these sales.
The Company continues to investigate other strategic acquisitions
as well as capital improvements to its existing facilities. The
Company is also actively pursuing the possible sale or exchange of
non-strategic or underperforming assets.
Working capital, including that necessary for capital
expenditures and debt service, will be funded through cash generated
from operating activities, the sale of the exploration and production
assets, existing cash balances and, if necessary, future borrowings.
Future liquidity, both short and long-term, will continue to be
primarily dependent on producing and selling sufficient quantities of
refined products at margins sufficient to cover fixed and variable
expenses.
Discontinued Operations
- -----------------------
In early 1996, the Company approved a plan of disposition of its
exploration and production operations. The decision was based upon
management's review of the prospects for this operation, which
indicated that substantial new capital would be necessary to further
develop this business and reach an acceptable level of profitability
and integration. The Company expects to complete a sale in the third
quarter of 1996. Based on current information, the Company does not
expect the disposal of the exploration and production assets to have a
significant impact on the Company's results of operations.
Net assets, including deferred tax liabilities of $4.2 million in
each period, of this operation were $26.3 million and $26.7 million at
June 30, 1996 and December 31, 1995, respectively.
Capital Structure
- -----------------
At June 30, 1996 and December 31, 1995, the Company's long-term
debt was 52.1% and 56.5% of total capital, respectively. The decrease
is primarily due to the repayment of long-term debt and an increase in
stockholders' equity due to net earnings.
The Company's capital structure includes $100 million of 10 year
9 3/4% senior subordinated notes ("Notes"). Repayment of the Notes is
jointly and severally guaranteed on an unconditional basis by the
Company's direct and indirect wholly-owned subsidiaries, subject to a
limitation designed to ensure that such guarantees do not constitute a
fraudulent conveyance. Except as otherwise allowed in the Indenture
pursuant to which the Notes were issued, there are no restrictions on
the ability of such subsidiaries to transfer funds to the Company in
the form of cash dividends, loans or advances. General provisions of
applicable state law, however, may limit the ability of any subsidiary
to pay dividends or make distributions to the Company in certain
circumstances.
In October 1995, the Company entered into a Credit Agreement with
a group of banks under which $30.0 million was borrowed pursuant to a
three-year unsecured revolving term facility to provide financing for
the purchase of the Bloomfield Refinery. On November 6, 1995 and
August 8, 1996, $10.0 million of this revolving term facility was
prepaid from cash on hand. The $20.0 million that was repaid is
currently available under this facility for the acquisition of
property, plant and equipment.
In addition, the Credit Agreement contains a three-year unsecured
working capital facility to provide working capital and letters of
credit in the ordinary course of business. The availability under
this working capital facility is the lesser of (i) $40.0 million, or
(ii) the amount determined under a borrowing base calculation tied to
eligible accounts receivable and inventories as defined in the Credit
Agreement. At June 30, 1996, the lesser amount was $40.0 million.
Direct borrowings under this arrangement at June 30, 1996 were $2.0
million and there were $16.0 million of irrevocable letters of credit
outstanding, primarily to secure purchases of raw materials.
Borrowings under this facility are generally higher at month end due
to payments for raw materials and various taxes.
On May 15, 1996, the Company's Board of Directors declared a
common stock dividend of $0.05 per share payable to stockholders of
record on July 24,1996. This dividend was paid on August 6, 1996.
Future dividends, if any, are subject to the results of the Company's
operations, existing debt covenants and declaration by the Company's
Board of Directors.
In addition, on that date the Board of Directors voted to extend
the Company's stock repurchase program for an additional year.
Purchases may be made from time to time as conditions dictate.
Other
- -----
Federal, state and local laws and regulations relating to health
and the environment affect nearly all of the operations of the
Company. As is the case with all companies engaged in similar
industries, the Company faces significant exposure from actual or
potential claims and lawsuits involving environmental matters. These
matters include soil and water contamination, air pollution and
personal injuries or property damage allegedly caused by substances
manufactured, handled, used, released or disposed of by the Company.
Future expenditures related to health and environmental matters cannot
be reasonably quantified in many circumstances due to the speculative
nature of remediation and cleanup cost estimates and methods,
imprecise and conflicting data regarding the hazardous nature of
various types of substances, the number of other potentially
responsible parties involved, various defenses which may be available
to the Company and changing environmental laws and interpretations of
environmental laws.
Rules and regulations implementing federal, state and local laws
relating to health and the environment will continue to affect the
operations of the Company. The Company cannot predict what health or
environmental legislation or regulations will be enacted or become
effective in the future or how existing or future laws or regulations
will be administered or enforced with respect to products or
activities of the Company. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of the
regulatory agencies, could have an adverse effect on the financial
position and the results of operations of the Company and could
require substantial expenditures by the Company for the installation
and operation of pollution control systems and equipment not currently
possessed by the Company.
In May 1991, the Environmental Protection Agency notified the
Company that it may be a potentially responsible party for the
release, or threatened release, of hazardous substances, pollutants or
contaminants at the Lee Acres Landfill, which is adjacent to the
Company's Farmington Refinery which was operated until 1982. At the
present time, the Company is unable to determine the extent of its
potential liability, if any, in the matter. In 1989, a consultant to
the Company estimated, based on various assumptions, that the
Company's share of potential liability could be approximately $1.2
million. This figure was based upon the consultant's evaluation of
such factors as available clean-up technology, BLM's involvement at
the site and the number of other entities that may have had
involvement at the site. The consultant, however, did not conduct an
analysis of the Company's potential legal defenses and arguments
including possible setoff rights. Potentially responsible party
liability is joint and several, such that a responsible party may be
liable for all of the clean-up costs at a site even though the party
was responsible for only a small part of such costs. Actual
liability, if any, may differ significantly from the consultant's
estimate. In addition, the Company is remediating a hydrocarbon plume
that appears to extend no more than 1,800 feet south of its inactive
Farmington Refinery.
The Company has established an environmental liability accrual of
approximately $3.4 million. Approximately $1.1 million relates to
ongoing environmental projects, including the remediation of the
hydrocarbon plume described above and hydrocarbon contamination on
and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico.
The remaining amount of approximately $2.3 million is an estimate,
recorded in the second quarter of 1996, of certain environmental
obligations assumed in the acquisition of the Bloomfield Refinery.
This amount has been recorded as an adjustment to the purchase price
and allocated to the assets acquired. The environmental accrual is
recorded in the current and long-term sections of the Company's
consolidated balance sheet.
The Company is subject to audit on an ongoing basis of the
various taxes that it pays to federal, state, local and tribal
agencies. These audits may result in additional assessments or
refunds along with interest and penalties. In some cases the
jurisdictional basis of the taxing authority is in dispute and is the
subject of litigation or administrative appeals. In one such case, the
Company has received several tax assessments from the Navajo Nation,
including a $1.8 million severance tax assessment issued to Giant
Industries Arizona, Inc., a wholly-owned subsidiary of the Company, in
November 1991 relating to crude oil removed from properties located
outside the boundaries of the Navajo Indian Reservation in an area of
disputed jurisdiction. It is the Company's position that it is in
substantial compliance with laws applicable to the disputed area.
Based on projections of local crude oil availability from the
field, current levels of usage of Alaska North Slope crude oil ("ANS")
and the Company's inventory levels, the Company believes an adequate
crude oil supply will be available, without the use of significant
additional supplemental supply alternatives, to sustain both
refineries' operations at planned levels, at least through the second
quarter of 1997.
The Company believes that local crude oil production currently
approximates 95% of aggregate local crude oil demand. The Company is
currently able to supplement local crude oil supplies with ANS and
other alternate grades of crude oil through its gathering systems'
interconnection with the Four Corners and Texas-New Mexico common
carrier pipeline systems and by truck or rail. Generally, such crude
oil is of lesser quality than locally available crude oils, and, with
the exception of ANS, the Company believes such crude oil generally
has a delivered cost greater than that of locally available crude oil.
The Company continues to evaluate supplemental crude oil supply
alternatives for both of its refineries on both a short-term and
long-term basis. Among other alternatives, the Company has considered
making equipment modifications to increase its ability to use
alternative crude oils and may install additional rail facilities to
enable the Company to provide incremental crude oil and other
intermediate feedstocks to supplement local supply sources in the most
cost effective manner.
As additional supplemental crude oil becomes necessary, the
Company intends to implement one or more of these available
alternatives as necessary and as is most advantageous under the then
prevailing conditions. The Company currently believes that the most
desirable strategy to supplement local crude oil supplies, on a
long-term basis, is the delivery of supplemental crude oil from
outside of the Four Corners area by pipeline. Implementation of
supplemental supply alternatives will result in additional raw
material costs, operating costs, capital costs, or a combination
thereof in amounts which are not presently ascertainable by the
Company but which will vary depending on factors such as the specific
alternative implemented, the quantity of supplemental feedstocks
required, and the date of implementation. Implementation of some
supply alternatives requires the consent or cooperation of third
parties and other considerations beyond the control of the Company.
There have been various announcements and discussions within the
industry regarding the possible building or expansion of product
pipelines, some of which could impact the Company's marketing areas,
either directly or indirectly. If certain of these proposals are
implemented, they could result in increased competition in portions of
the Company's markets for refined products.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995: This report contains forward-looking statements
that involve risks and uncertainties, including but not limited to
economic, competitive and governmental factors affecting the Company's
operations, markets, products, services and prices; the adequacy of
raw material supplies; the ability of the Company to sustain and
leverage the competitive advantages generated by the acquisition of
the Bloomfield Refinery; the results of the disposal of the Company's
exploration and production operations; the ability of the Company to
successfully abate various tax assessments and other risks detailed
from time to time in the Company's filings with the Securities and
Exchange Commission.<PAGE>
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings required to be
reported pursuant to Item 103 of Regulation S-K. The Company is a
party to ordinary routine litigation incidental to its business. In
addition, there is hereby incorporated by reference the information
regarding contingencies in Note 6 to the Unaudited Condensed
Consolidated Financial Statements set forth in Item 1, Part I hereof
and the discussion of certain contingencies contained herein under the
heading "Liquidity and Capital Resources - Other."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 16, 1996.
Proxies for the meeting were solicited under Regulation 14A. There
were no matters submitted to a vote of security holders other than the
election of one director and approval of auditors as specified in
the Company's Proxy Statement. There was no solicitation in opposition
to management's nominee to the Board of Directors.
F. Michael Geddes was elected as a director of the Company. The
vote was as follows:
Shares Voted Shares Voted
"FOR" "WITHHOLDING"
------------ -------------
10,377,300 138,648
Deloitte & Touche LLP were ratified as independent auditors for
the Company for the year ending December 31, 1996. The vote was as
follows:
Shares Voted Shares Voted Shares Voted
"FOR" "AGAINST" "ABSTAINING"
------------ ------------ ------------
10,377,841 31,752 106,355
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 - Computation of Per Share Data.
27 - Financial Data Schedule.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended June 30, 1996.<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report on Form 10-Q for the
quarter ended June 30, 1996 to be signed on its behalf by the undersigned
thereunto duly authorized.
GIANT INDUSTRIES, INC.
/s/ A. WAYNE DAVENPORT
--------------------------------------------
A. Wayne Davenport
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 13, 1996
<PAGE>
<TABLE>
EXHIBIT 11
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings from continuing operations $ 8,693,000 $ 2,093,000 $11,018,000 $ 2,205,000
Discontinued operations, net (72,000) 59,000 7,000 94,000
----------- ----------- ----------- -----------
Net earnings $ 8,621,000 $ 2,152,000 $11,025,000 $ 2,299,000
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 11,260,319 11,516,074 11,255,853 11,662,510
=========== =========== =========== ===========
Earnings per common share:
Continuing operations $ 0.77 $ 0.18 $ 0.98 $ 0.19
Discontinued operations 0.01 0.01
----------- ----------- ----------- -----------
Net earnings $ 0.77 $ 0.19 $ 0.98 $ 0.20
=========== =========== =========== ===========
Additional Primary Computation
- ------------------------------
Earnings from continuing operations $ 8,693,000 $ 2,093,000 $11,018,000 $ 2,205,000
Discontinued operations, net (72,000) 59,000 7,000 94,000
----------- ----------- ----------- -----------
Net earnings $ 8,621,000 $ 2,152,000 $11,025,000 $ 2,299,000
=========== =========== =========== ===========
Additional adjustment to weighted average
number of shares outstanding:
Weighted average number of
shares outstanding above 11,260,319 11,516,074 11,255,853 11,662,510
Add - dilutive effect of
outstanding options(a) 125,722 22,373 111,090 22,475
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding as adjusted 11,386,041 11,538,447 11,366,943 11,684,985
=========== =========== =========== ===========
Earnings per common share:(b)
Continuing operations $ 0.76 $ 0.18 $ 0.97 $ 0.19
Discontinued operations 0.01 0.01
----------- ----------- ----------- -----------
Net earnings $ 0.76 $ 0.19 $ 0.97 $ 0.20
=========== =========== =========== ===========
/TABLE
<PAGE>
<PAGE>
<TABLE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fully Diluted Computation
- -------------------------
Earnings from continuing operations $ 8,693,000 $ 2,093,000 $11,018,000 $ 2,205,000
Discontinued operations, net (72,000) 59,000 7,000 94,000
----------- ----------- ----------- -----------
Net earnings $ 8,621,000 $ 2,152,000 $11,025,000 $ 2,299,000
=========== =========== =========== ===========
Additional adjustment to
weighted average number of
shares outstanding:
Weighted average number of
shares outstanding above 11,260,319 11,516,074 11,255,853 11,662,510
Add - dilutive effect of
outstanding options(a) 127,019 28,526 129,443 28,526
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding as adjusted 11,387,338 11,544,600 11,385,296 11,691,036
=========== =========== =========== ===========
Earnings per common share:(b)
Continuing operations $ 0.76 $ 0.18 $ 0.97 $ 0.19
Discontinued operations 0.01 0.01
----------- ----------- ----------- -----------
Net earnings $ 0.76 $ 0.19 $ 0.97 $ 0.20
=========== =========== =========== ===========
(a) As determined by the application of the treasury stock method.
(b) This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less
than 3%.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,237
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 44,895
<CURRENT-ASSETS> 111,974
<PP&E> 306,029
<DEPRECIATION> 100,986
<TOTAL-ASSETS> 333,930
<CURRENT-LIABILITIES> 66,108
<BONDS> 130,458
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 333,930
<SALES> 239,743
<TOTAL-REVENUES> 239,743
<CGS> 166,678
<TOTAL-COSTS> 206,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,988
<INCOME-TAX> 6,970
<INCOME-CONTINUING> 11,018
<DISCONTINUED> 7
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,025
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0
</TABLE>
