FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period _______ to _______.
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendments to this Form 10-K. [X]
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 [ ]
As of February 29, 1996, 11,250,618 shares of the registrant's
Common Stock, $.01 par value, were outstanding and the aggregate
market value of the voting stock held by non-affiliates of the
registrant was approximately $80,083,000 based on New York Stock
Exchange closing prices on February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in
Part III of this Form 10-K Report:
Proxy Statement for Registrant's 1996 Annual Meeting of
Stockholders - Items 10, 11, 12, and 13.<PAGE>
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
GENERAL
Giant Industries, Inc., a Delaware corporation ("Giant" or the
"Company"), through its wholly-owned subsidiary Giant Industries
Arizona, Inc. ("Giant Arizona"), is engaged in the refining and
marketing of petroleum products. The Company is the largest refiner
and one of the largest marketers of petroleum products in the Four
Corners area of the southwestern United States where New Mexico,
Arizona, Colorado and Utah adjoin. The Company provides petroleum
products through company-operated branded retail facilities, as well
as through independent wholesalers and retailers, industrial/commercial
accounts and sales and exchanges with major oil companies. The Company
also is engaged in the transportation of crude oil and natural gas.
The Company was incorporated in 1989 to effect the concurrent
merger of Giant Arizona and Hixon Development Company ("Hixon"), now
Giant Exploration and Production ("Giant E&P"), into wholly-owned
subsidiaries of the Company. Giant Arizona was founded in 1961 and
operated as a sole proprietorship until incorporation in the State of
Arizona in 1969. Hixon was incorporated in the State of Texas in
1964. Concurrently with the merger of Giant Arizona and Hixon, the
Company completed an initial public offering of 2,788,750 shares of
the Company's Common Stock. At December 31, 1995, the company had
11,249,129 shares of outstanding Common Stock.
Giant E&P is engaged in the exploration for and production of
crude oil and natural gas. In early 1996, the Company approved a
plan of disposition for these 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. Following this disposition,
the Company will focus its efforts on its core business of refining
and marketing. The Company is in the process of searching for a buyer
for the assets or the business of Giant E&P and expects to complete a
sale in 1996.
The Company's long-term strategy is to increase its market share
of refined products sold and to capture a significant portion of the
anticipated future growth in demand for refined products in the Four
Corners market. This strategy is designed to increase control over
the distribution of a greater portion of the Company's refined
products. Additionally, the Company intends to reduce its dependence
on particular customers, obtain higher margins through increased
sales at the retail level and develop markets for the sale of refined
products in targeted regions. Through selective acquisitions, the
Company plans to expand into new markets where the Company's
management believes it can duplicate its business strategy. The
Company also intends to maintain its market presence in its secondary
markets, including the Phoenix metropolitan area, which could provide
additional opportunities for selective market expansion.
REFINING AND MARKETING
REFINING
Giant Arizona owns and operates the Ciniza refinery located on
880 acres near Gallup, New Mexico and the Bloomfield refinery,
purchased in early October, 1995, located on 285 acres near
Farmington, New Mexico. Both of these refineries are located in the
Four Corners area. This area serves as the Company's primary market
for its refined products and as the primary source of its crude oil
and natural gas liquids ("NGLs") supplies.
Management believes that the technical capabilities of both
refineries, together with the high quality of locally available
feedstocks, enable the Company to achieve a refinery conversion yield
which is comparable to that achieved by larger refineries located
outside of the area. Both refineries are equipped with fluid
catalytic cracking, naphtha hydrotreating, reforming, LPG recovery,
and diesel hydrotreating and sulfur recovery units to manufacture low
sulfur diesel fuel. At the Ciniza refinery an alkylation unit is
utilized to manufacture high octane gasoline from cat cracker
olefins. At the Bloomfield refinery this is accomplished utilizing a
catalytic polymerization unit. The Ciniza refinery is also equipped
with isomerization and cogeneration facilities. These processing
configurations enable the refineries to yield in excess of 90% high
value products, such as gasoline, diesel fuel and jet fuel, from each
barrel of crude oil refined and to manufacture a gasoline slate that
is 100% unleaded and diesel fuel that is 100% low sulfur diesel.
Set forth below is data with respect to refinery operations and
the primary refined products produced during the indicated periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995(1) 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Feedstock throughput:(2)
Crude oil 23,700 19,100 20,300 20,800 19,300
NGLs and oxygenates 5,000 4,500 5,000 4,800 4,300
------ ------ ------ ------ ------
Total 28,700 23,600 25,300 25,600 23,600
====== ====== ====== ====== ======
Crude oil throughput
(as a % of total) 83% 81% 80% 81% 82%
Rated crude oil
capacity utilized 88% 92% 98% 101% 94%
Refinery margin ($/bbl) $ 5.13 $ 5.60 $ 6.69 $ 4.77 $ 3.88
Products:(1)
Gasoline 18,500 15,200 16,300 16,100 15,200
Diesel fuel 7,200 5,200 5,400 5,400 5,200
Jet fuel 900 1,300 1,800 2,000 1,800
Other 2,100 1,900 1,800 2,100 1,400
------ ------ ------ ------ ------
Total 28,700 23,600 25,300 25,600 23,600
====== ====== ====== ====== ======
High Value Products:
Gasoline 65% 64% 65% 63% 64%
Diesel fuel 25% 22% 21% 21% 22%
Jet fuel 3% 6% 7% 8% 8%
------ ------ ------ ------ ------
Total 93% 92% 93% 92% 94%
====== ====== ====== ====== ======
(1) The 1995 operating data reflects the operations of the Bloomfield
refinery since October 4, 1995.
(2) Average barrels per day
</TABLE>
The purchase of the Bloomfield refinery in October 1995 increased
the Company's total rated crude oil refining capacity owned by 18,000
bpd.
Each unit in a refinery requires regular maintenance and repair
(referred to as a "turnaround") during which it is not in operation.
Turnaround cycles vary for different units and, in general, refinery
management plans product inventories and unit maintenance to permit
some operations to continue even when certain units are inactive.
Maintenance turnarounds involve the refineries' own personnel and some
additional contract labor. Turnarounds are effected on a continuous
24-hour basis in order to minimize the unproductive time of the units
involved. Giant has historically expensed current maintenance charges
and capitalized turnaround costs which are then amortized over the
estimated period until the next turnaround.
In general, a major turnaround is scheduled every four years.
The most recent major turnaround occurred at the Ciniza refinery during
March and April 1994. This type of turnaround occurred at the
Bloomfield refinery in 1993. Unscheduled maintenance shutdowns also
occur, but the Company believes that the record of both refineries with
respect to unscheduled maintenance shutdowns is generally good compared
with the industry as a whole.
RAW MATERIAL SUPPLY
The refineries primarily process a mixture of high gravity, low
sulfur crude oil, condensate and NGLs and a material known as Lisbon
condensate. The locally produced, high quality crude oil known as
Four Corners Sweet is the primary feedstock for the refineries. The
refineries also supplement their supply of crude oil with Alaskan
North Slope ("ANS") crude oil, accessed from the West Coast through
the Four Corners and Texas-New Mexico pipeline systems, which
together can transport approximately 65,000 barrels per day. The
Ciniza refinery also has access to West Texas Intermediate and other
lesser known crude oils by rail, should the need arise and should
economic conditions allow the use of such alternate crude oils.
With the acquisition of the Bloomfield refinery and based on
projections of local crude oil availability from the field, current
levels of usage of ANS and the Company's inventory levels, the
Company believes an adequate crude oil supply will be available,
without the use of additional supplemental supply alternatives, to
sustain both refineries' operations at planned levels, at least
through 1996.
The Company believes that local crude oil production currently
approximates 95% of aggregate local crude oil demand. 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.
Generally, such supplemental 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.
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 crude oil 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.
The Company's equity interest in producing wells, which is
a part of discontinued operations, currently accounts for
approximately 3% of the refineries' crude oil requirements. Crude
oil is acquired from a number of other sources, including major oil
companies and large and small independent producers, under
arrangements which contain market-responsive pricing provisions.
Many of these arrangements are subject to cancellation by either
party or have terms that are not in excess of one year. In addition,
these arrangements are subject to periodic renegotiation. A portion
of the refineries' purchases are structured as exchange agreements.
In such exchanges, purchases are made in conjunction with matching
sales to the supplier at other domestic locations, as may be negotiated
periodically. The effect of such arrangements is to make a portion of
the cost of the refineries' supply dependent upon market conditions
in other locations, which may differ from those pertaining to the
Four Corners area. In addition, the Company participates in various
government supply programs available to smaller refiners.
In addition to crude oil, the Ciniza refinery currently has the
capability of processing approximately 5,200 barrels per day of NGLs,
consisting of natural gasoline, normal butane and isobutane. NGLs are
used as gasoline blending components and to supply the refinery's
isomerization and alkylation units. NGLs increase the percentage of
gasoline and the octane levels that the refinery can produce, which
typically increase the Company's refining margins. NGLs further
enhance refinery margins because the Company has historically been
able to purchase NGLs at a lower cost per barrel than crude oil.
An adequate supply of NGLs is available for delivery to the
Ciniza refinery, primarily through a Company-owned pipeline connecting
the Ciniza refinery to natural gas liquids fractionation plants
operated by third parties. NGLs can also be transported to the Ciniza
refinery by rail or transport truck. The Company currently acquires
substantially all of its NGL feedstocks pursuant to two long-term
agreements with suppliers under which NGLs are made available to the
Company at the fractionation plants. These agreements contain market
sensitive pricing arrangements under which prices are adjusted on a
monthly basis.
OXYGENATES
The Company owns an ethanol processing plant in Portales, New
Mexico. The ethanol plant, a dry mill facility, has the capacity to
produce approximately 14.0 million gallons of ethanol per year,
137,000 tons of protein-enriched cattlefeed and beverage quality
carbon dioxide. Ethanol is an oxygenate which can be used as a
gasoline blending component. An oxygenate is an oxygen-containing
compound that can be used as a motor vehicle fuel supplement.
Substitution of oxygenated fuels for non-oxygenated gasoline can
reduce motor vehicle carbon monoxide emissions. Accordingly, the use
of gasoline containing oxygenates has been government-mandated in
certain geographical areas.
On October 2, 1995, the Company announced the temporary
suspension of operations at the facility due to high grain costs.
The plant is expected to be closed until grain prices return to more
favorable levels. While operations are suspended the Company will not
generate any production related income tax credits. The Company
anticipates that it will be able to purchase sufficient quantities of
oxygenates from third parties at acceptable prices during the period
the plant's operations are suspended.
TRANSPORTATION
Crude oil supply for the Ciniza and Bloomfield refineries comes
primarily from the Four Corners area and is either connected by
Company owned pipeline or delivered by Company owned truck transports
to pipeline injection points or refinery tankage. The Company owns
about 240 miles of pipeline for gathering and delivery of crude oil
to the refineries. The pipeline system reaches into the San Juan
Basin and connects with common carrier pipelines. The Ciniza refinery
receives NGL's through a 13-mile Company owned pipeline connected to
a natural gas liquids fractionation plant.
Currently, over 40 Company-owned truck transports are involved
in the collection of crude oil from producing wells to supply the
refineries.
MARKETING AND DISTRIBUTION
THE FOUR CORNERS MARKET. The Four Corners area, which is the
primary market area for the Company's refined products, is the area
which is bounded on the north by Grand Junction, Colorado, on the west
by central Arizona, on the south by Las Cruces, New Mexico and on the
east by central New Mexico. The Company's New Mexico market includes
the greater Albuquerque area, the largest market in New Mexico.
Substantially all of the Company's refined products are distributed in
the Four Corners market. The Company estimates that, during 1995, its
gasoline production was distributed 60% in New Mexico, 28% in Arizona,
9% in Colorado and 3% in Utah; and its diesel production was distributed
56% in New Mexico, 29% in Arizona, 11% in Colorado and 4% in Utah.
The Company's truck transports support refinery sales in its primary
market as well as its secondary markets. These vehicles hauled 52%
of the refineries' sales barrels in 1995.
REFINED PRODUCT SALES. During 1995, the Company sold
approximately 6,600,000 barrels of gasoline and 2,600,000 barrels
of diesel fuel from both refineries. The Company's retail outlets
sold an equivalent of approximately 34% of these gasoline and 25% of
these diesel sales. Gasoline and diesel sales made through product
exchanges with large oil companies accounted for approximately 18% of
the volume sold by the refineries. The remaining gasoline and diesel
sales were made to wholesalers, retailers and industrial/commercial
customers. Supplementing sales barrels sourced from both refineries
were periodic purchases, for resale, of gasoline and diesel from other
sources. Specific economic and/or market conditions are the major
factors affecting the timing and volume of these resale transactions.
The Company's other refined products, including military jet
fuels, are marketed to various third party customers.
RETAIL MARKETING. At December 31, 1995, the Company operated 51
self-service retail stations located in New Mexico, Arizona and
Colorado, and the Travel Center, located on I-40 near the Ciniza
refinery. This was the same number of operating units as in
December, 1994. During 1995, four units were sold, four new units
were constructed and two units were demolished and rebuilt. The
Company's retail outlets sold approximately 122,000,000 gallons of
gasoline and diesel fuel in 1995, approximately the same volume as
in 1994. Gross merchandise sales in 1995 were approximately
$45,700,000, a 7% increase over 1994 sales of $42,700,000.
In the first two months of 1996, three additional service
stations were sold bringing the number of operating units to 48.
The Company is planning to construct five new units and substantially
remodel eight units in 1996 depending on a variety of factors,
including economic conditions.
The Company's service stations are typically modern, high-volume
self-service stations. During 1995, the Company continued its
program to install credit card readers in dispensers ("CRINDS") in
its higher volume units. CRINDS were installed in thirteen units and
five units were converted from single product to multiple product
dispensers ("MPDs"). Also in 1995, the Company completed a pilot
test program of an integrated point of sale system. This system
includes, among other things, bar code scanning and integrated credit
and dispenser controls. At December 31, 1995, this system had been
installed at four units. The Company plans to install this system
with MPDs and CRINDS in approximately thirty units during 1996.
The Company's service stations are augmented by convenience
stores at most locations, which provide items such as general
merchandise, alcoholic and nonalcoholic beverages, fast foods, health
and beauty aids and automotive products. In 1995, the Retail
Division expanded its deli operation to five of its newly constructed
and remodeled units. Named, "The Deli at Giant", these stores offer
a full scale deli and fast food menu.
The Company owns and operates the Travel Center adjacent to the
Ciniza refinery on I-40. The Travel Center provides a direct market
for a portion of the Ciniza refinery's diesel production and allows
diesel fuel to be sold at virtually no incremental transportation
cost. In the twelve months ended December 31, 1995, the Company sold
approximately 19,800,000 gallons of diesel fuel at the Travel Center
(approximately 21% of the Ciniza refinery's total diesel production).
The Travel Center facility includes 18 high volume diesel fueling
islands, a large truck repair facility, and a 29,000 square foot
shopping mall that contains a 265-seat full service restaurant, a
large convenience store, a fast food diner, a 24-hour movie theater, a
gift shop, a western wear and boot shop, a hair salon and other
accommodations such as showers, laundry, security and lighted parking.
EMPLOYEES
The Company and its subsidiaries employed approximately 1,500
persons on February 29, 1996, including approximately 1,400 full-time
and approximately 100 part-time employees. Approximately 1,250 were
employed in refining and marketing operations including 100 part-time
employees. Of these, 650 (including 90 part-time) were employed in
the service station division and 300 (including 10 part-time) were
employed at the Travel Center. Giant E&P operations employed
approximately 50 persons. The Company currently has no labor union
employees.
OTHER MATTERS
COMPETITIVE CONDITIONS
The industry in which the Company is engaged is highly
competitive. Many of the Company's competitors are large, integrated
oil companies which, because of their more diverse operations,
stronger capitalization and better brand name recognition, may be
better able than the Company to withstand volatile industry
conditions, including shortages or excesses of crude oil or refined
products or intense price competition.
The principal competitive factors affecting the Company's
refining and marketing operations are the quality, quantity and
delivered costs of crude oil, NGLs and other refinery feedstocks,
refinery processing efficiencies, refined product mix, refined
product selling prices and the cost of delivering refined products to
markets. Other competitive factors include the ability of competitors
to deliver refined products into the Company's primary market area by
pipeline. The Company's larger competitors have refineries which are
located outside the Four Corners area but which are larger and more
efficient than the Company's refineries and, as a result, have lower
per barrel of crude oil refinery processing costs. The Company
competes with major and larger integrated oil companies and with
independent refiners in Southeastern New Mexico, West Texas, the
Texas Panhandle, Utah, Colorado and Southern California for selling
refined products. Refined products from the Texas and Southeastern
New Mexico refineries can be shipped to Albuquerque, New Mexico,
primarily through two common carrier pipelines, one originating in El
Paso, Texas and the second originating in Amarillo, Texas. The
principal competitive factors affecting the Company's retail
marketing business are location of service stations, product price,
product quality, appearance and cleanliness of service stations and
brand identification.
REGULATORY, ENVIRONMENTAL AND OTHER MATTERS AFFECTING REFINING
AND MARKETING
OPERATIONS. The Company's refining and marketing operations are
subject to a variety of federal, state and local health and
environmental laws and regulations governing the discharge of
pollutants into the air and water, product specifications, and the
generation, treatment, storage, transportation and disposal of solid
and hazardous waste and materials. The Company believes that the
refineries are capable of processing currently utilized feedstocks in
substantial compliance with existing, currently effective
environmental laws and regulations. However, environmental laws and
regulations are becoming increasingly stringent, and the Company is
aware of regulations which will become effective in the future which
may affect the refining and marketing industry. The following
currently appear to be the most significant of such laws and
regulations as they relate to the Company's operations. Where
possible, the Company has attempted to estimate a range of its cost
of compliance based upon its current understanding of such laws and
regulations. The current estimates of costs provided are preliminary
only and actual costs may differ significantly from these estimates.
The Company will be subject to additional environmental
regulations adopted by the Environmental Protection Agency ("EPA") and
state and local environmental agencies to implement the Clean Air Act
Amendments of 1990 (the "Amendments"). Among other things, the
Amendments require all major sources of hazardous air pollutants, as
well as certain other sources of air pollutants, to obtain state
operating permits. The permits must contain applicable federal and
state emission limitations and standards as well as satisfy other
statutory requirements. All sources subject to the permit program
must pay an annual permit fee. The Company believes that operating
permits will be required at both of its refineries and also believes
that it will be able to obtain these permits. Although additional
costs will be incurred in connection with these permits, the Company
does not believe these costs will be material.
The Amendments also require EPA to adopt emission standards for
categories of hazardous air pollutant sources. In accordance with
this directive, EPA has adopted emission standards that apply to
hazardous air pollutants emitted by petroleum refineries. The
standards are applicable to emissions from, among other things,
process vents, storage vessels, equipment leaks, wastewater
operations and gasoline loading racks. The Company believes its
compliance cost may be approximately $2,900,000 to $3,400,000, which
will be incurred over a period of approximately five years.
EPA may adopt regulations that would require enhanced monitoring
of air emissions at the refineries and potentially at other Company
facilities. Based on the preliminary information currently available,
if these regulations are adopted the Company believes that its
compliance cost would be in the range of $1,000,000 to $3,000,000.
EPA has adopted regulations requiring underground storage tanks
that were installed before December 1988 to be in compliance with
specified standards by December 1998. In particular, steel tanks,
and associated steel piping, must be protected against corrosion and
devices must be in place to prevent tank spills and overfills.
Underground storage tanks that were installed after December 1988
already are subject to these requirements. The underground storage
tanks at all but nine of the Company's service stations satisfy the
1998 standards. The Company anticipates that it will make the
necessary modifications at six of these stations in 1997 and at the
remaining three stations in 1998, at a cost of approximately $450,000
and $240,000 respectively.
The Company does not believe that any gasoline produced at the
refineries will be subject to the Clean Air Act Amendments'
Reformulated Gasoline regulatory program, unless a state governor
requests that Reformulated Gasoline be required in certain areas. The
Company already complies with the Amendments' Oxygenated Gasoline
requirements, and other state or local oxygenated fuel requirements,
in connection with gasoline sold in Bernalillo County, New Mexico,
Maricopa County and Pima County, Arizona, Denver County, Colorado and
El Paso County, Texas. The Company has not experienced any problems
to date obtaining oxygenates to comply with these requirements.
The State of Arizona has adopted legislation requiring gasoline
sold in Maricopa County to have a Reid Vapor Pressure ("RVP") that
does not exceed nine pounds per square inch during the period
September 30 through March 31. The legislation also requires gasoline
sold in Maricopa County to have a RVP of seven pounds per square inch
during the period May 31 through September 30. To date, the Company
has chosen not to install equipment necessary to produce gasoline
complying with the standards and has pursued other alternatives for
supplying the Maricopa County market, such as acquiring petroleum
products by trade with other companies.
The Company from time to time needs to obtain new environmental
permits or modifications to existing permits. Although there can be
no guarantee that the Company will be able to obtain all required
permits, the Company does not presently anticipate any unusual
problems in obtaining the necessary permits and permit modifications,
nor does it anticipate any significant problems in connection with
the renewal of existing permits prior to their expiration.
The Company cannot predict what additional health and
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 interpreted with respect to products or
activities to which they have not been previously applied. Compliance
with more stringent laws or regulations, as well as more vigorous
enforcement policies of 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.
NOTICES OF VIOLATIONS. Notices of Violations and similar
governmental notices ("NOVs") are issued by governmental authorities
and may allege violations of environmental requirements. The Company
is in receipt of a NOV, dated February 9, 1993, from the New Mexico
Environmental Department ("NMED") alleging that the Company failed to
comply with certain notification requirements contained in one of the
permits applicable to the Ciniza refinery's land treatment facility.
As a result, the Company has submitted a proposal for closure of all
or a portion of the land treatment facility. Other options are also
being discussed with NMED, including modification of the existing
permit. NMED has indicated that it probably will not require the
Company to undertake any cleanup activities if the land treatment
facility is closed, although periodic monitoring and site maintenance
could be required. The Company has not disposed of any hazardous
waste at the land treatment facility since 1990.
The Company has received other NOVs from time to time relating
to matters such as regulatory filing requirements. The Company has
responded or intends to respond to all such matters. The Company does
not believe any such matters to be material.
DISCHARGES AND RELEASES. Refining, pipeline, trucking and
marketing operations are inherently subject to accidental spills,
discharges or other releases of petroleum or hazardous substances
which may give rise to liability to governmental entities or private
parties under federal, state or local environmental laws, as well as
under common law. Accidental discharges of contaminants have occurred
from time to time during the normal course of the Company's
operations, including discharges associated with the Company's
refineries, pipeline and trucking operations. The Company has
undertaken, intends to undertake or has completed all investigative
or remedial work thus far required by governmental agencies to
address potential contamination by the Company.
The Company anticipates that it will incur remediation costs
from time to time in connection with current and former gasoline
service stations operated by the Company. The Company's experience
has been that such costs generally do not exceed $100,000 per
location, and a portion of such costs may be subject to reimbursement
from State underground storage tank funds.
The Company has discovered hydrocarbon contamination adjacent to
a 55,000 barrel crude oil storage tank that is no longer in use
located in Bloomfield, New Mexico. The Company believes that all or a
portion of the tank and the 5.5 acres owned by the Company on which
the tank is located may have been a part of a refinery owned by
various other parties that ceased operations approximately
thirty-five years ago. The Company has completed a site
investigation, which indicates that contaminated groundwater may
extend approximately 300 feet south of the property boundary.
Without admitting liability for the contamination, the Company
intends to conduct remediation activities under the oversight of the
New Mexico Oil Conservation Division ("OCD"). The Company accrued a
$250,000 environmental reserve in relation to this site.
Although the Company has invested substantial resources to
prevent and minimize future accidental discharges and to remediate
contamination resulting from prior discharges, there can be no
assurance that accidental discharges will not occur in the future,
that future action will not be taken in connection with past
discharges, that governmental agencies will not assess penalties
against the Company in connection with any past or future
contamination, or that third parties will not assert claims against
the Company for damages allegedly arising out of any past or future
contamination.
FARMINGTON PROPERTY/LEE ACRES LANDFILL. In 1973, the Company
constructed the Farmington refinery which was operated until 1982.
The Company became aware of soil and shallow groundwater
contamination at this facility in 1985. The Company hired
environmental consulting firms to investigate the contamination and
undertake remedial action. The consultants identified several areas
of contamination in the soils and shallow groundwater underlying the
Farmington property. A consultant to the Company has indicated that
contamination attributable to past operations at the Farmington
property has migrated off the refinery property, including a
hydrocarbon plume that appears to extend no more than 1,800 feet
south of the refinery property. Remediation activities are ongoing
by the Company under OCD's supervision. The Company had reserved
approximately $1,000,000 for possible environmental expenditures
relating to its Farmington Property, of which approximately $800,000
still remains.
The Farmington property is located adjacent to the Lee Acres
Landfill (the "Landfill"), a closed landfill formerly operated by San
Juan County which is situated on lands owned by the United States
Bureau of Land Management ("BLM"). Industrial and municipal wastes
were disposed of in the Landfill by numerous sources. During the
period that it was operational, the Company disposed of office trash,
maintenance shop trash, used tires and water from the Farmington
refinery's evaporation pond at the Landfill. In May 1991, EPA
notified the Company that it may be a potentially responsible party
under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") for the release or threatened release of
hazardous substances, pollutants or contaminants at the Landfill. 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 Giant's
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 any 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
of 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.
Preliminary studies have indicated that the groundwater gradient
in the vicinity of the Landfill is in the direction of the Farmington
property and that contaminants from the Landfill may be migrating
through the groundwater underlying the Farmington property. Sampling
data have also indicated the presence of contaminants in the
groundwater underlying a residential subdivision known as the Lee
Acres Subdivision, which may have migrated downgradient from the
Landfill and the Farmington property area. An alternate water supply
has been provided to residents of the Lee Acres Subdivision by BLM.
The Lee Acres Landfill was added to the National Priorities List
as a CERCLA Superfund site in 1990. In connection with this listing,
EPA defined the site as the Landfill and the Landfill's associated
groundwater plume. EPA excluded any releases from the Farmington
refinery itself from the definition of the site.
BLM may assert claims against the Company and others for
reimbursement of investigative, cleanup and other costs incurred by
BLM in connection with the Landfill and surrounding areas. It is also
possible that the Company will assert claims against BLM in
connection with contamination that may be originating from the
Landfill. Private parties and other governmental entities may also
assert claims against BLM, the Company and others for property
damage, personal injury and other damages allegedly arising out of
any contamination originating from the Landfill and the Farmington
property. Parties may also request judicial determination of their
rights and responsibilities, and the rights and responsibilities of
others, in connection with the Landfill and the Farmington property.
Currently, however, there is no outstanding litigation against the
Company by BLM or any other party.
BLOOMFIELD REFINERY. In connection with the acquisition of the
Bloomfield refinery, the Company assumed certain environmental
obligations including Bloomfield Refining Company's ("BRC") obligations
under an Administrative Order issued by EPA in 1992 pursuant to RCRA
(the "Order"). The Order required BRC to investigate and propose
measures for correcting any releases of hazardous waste or hazardous
constituents at or from the Bloomfield refinery. The Company is in
the process of gathering and analyzing information in order to
establish an environmental reserve. Such reserve, which the Company
does not believe will be material, will be recorded as additional
purchase price and allocated to the assets acquired.
RIGHTS-OF-WAY. Certain irregularities in title may exist with
respect to a limited number of the Company's rights-of-way or
franchises for its crude oil pipeline gathering system. The Company,
however, has continued its use of the entirety of its pipeline
gathering system. As of this date, no claim stemming from any right-
of-way or franchise matter has been asserted against the Company.
The Company does not believe that its use or enjoyment of the
pipeline gathering system will be adversely affected by any such
right-of-way matters or irregularities in title.
TAXES. 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 produces crude oil and natural gas, or purchases crude oil as a
first purchaser, from properties located in a geographic area outside
the boundaries of the Navajo Indian Reservation in which the Navajo
Tribe has asserted the right to impose severance and other taxes. A
portion of the Company's pipeline gathering system also is located in
this geographic area. The extent of the Tribe's taxing authority in the
geographic area is subject to doubt. The Company has received several
tax assessments from the Tribe pertaining to the geographic area,
including a $1.8 million severance tax assessment issued in November
1991. The Company has invoked its appeal rights with the Tribe's Tax
Commission in connection with these matters and intends to oppose the
severance tax assessment. It is the Company's understanding that its
appeals will be held in abeyance pending further judicial
clarification of the Tribe's taxing authority by means of litigation
involving other companies. It is possible, however, that the
Company's assessments will have to be litigated by the Company before
final resolution. The Company also may receive further tax
assessments before judicial resolution of the Tribe's taxing
authority. The Company intends to continue its production and
purchasing activities in the geographic area.
DISCONTINUED OPERATIONS
EXPLORATION & PRODUCTION
GENERAL
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. Following this disposition, the Company will focus
its efforts on its core business of refining and marketing. The
Company is in the process of searching for a buyer for the assets or
the business and expects to complete a sale in 1996. Based on current
information, the Company does not expect to incur a loss on the
disposal of the operation.
The independent oil and gas consulting firms of Malkewicz Hueni
Associates, Inc. ("MHA") and LaRoche, Swindell & Associates
("LaRoche") conducted an audit of reserves as of December 31, 1995.
MHA reviewed the properties located in the San Juan Basin, Paradox
Basin and Anadarko Basin. The properties located in these areas were
audited by Intera Information Technologies, Inc. (Intera) in 1994.
Intera's key personnel, previously responsible for auditing these
properties, joined the firm of MHA during 1995. LaRoche, Swindell, &
Associates was commissioned to audit the reserves of the Big Foot
field in South Texas acquired in 1995 by the Company. It is the
opinion of MHA and LaRoche that the reserves are, in the aggregate,
reasonable and have been prepared in accordance with generally
accepted petroleum engineering and evaluation principles as set forth
in the Standards Pertaining to the Estimating and Auditing of Oil and
Gas Reserve Information promulgated by the Society of Petroleum
Engineers.
At December 31, 1995, the Company's total proved reserves were
estimated at 4,959,800 barrels of oil (79% proved developed) and
15,263,800 Mcf of gas (83% proved developed). At December 31, 1995,
the Company's net equivalent barrels of proved reserves were
estimated at approximately 7,503,800 barrels and at December 31,
1994, approximately 4,191,200 barrels. This represents an increase of
79% from year-end 1994 on an equivalent barrel ("BOE") basis. During
1995, the Company produced 664,500 BOE. Approximately 530% of this
production was replaced by reserve additions of 3,519,000 BOE during
1995. Overall, the Company realized a net increase of 3,312,700 BOE
as a result of acquisitions, development drilling, improved well
performance, and new zone discoveries. The Company also earned a
positive interest revision of 6.7% in certain proved developed gas
properties pursuant to a 1992 purchase and sale agreement described
below. See "San Juan Basin Properties." This revision increased the
Company's net reserves by 279,100 Mcf.
Approximately 63.8% of the Company's total proved reserves are
in the San Juan and Paradox Basins, both of which are in the Four
Corners area. 13.2% of the Company's reserves are located on the
border of Kansas and Oklahoma near the Anadarko Basin. The Company
exchanges crude oil from this area with other producers within the
primary market area of its refineries. The remaining 23% of the
reserves are in the Big Foot Field, located south of San Antonio,
Texas. The Company operates substantially all of its producing oil
and gas properties in the San Juan, Paradox and Anadarko Basin areas.
During the twelve months ended December 31, 1995, the
exploration & production operations sold a daily average of
approximately 1,111 net barrels of oil and approximately 3,499 net
Mcf of gas from a total of 627 producing wells. Of this total,
approximately 236 net barrels of oil and 231 net Mcf of gas were from
non-operated properties.
<PAGE>
<PAGE>
The following table provides certain information regarding
the Company's principal oil and gas properties and reserves as of
December 31, 1995.
<TABLE>
<CAPTION>
Proved Reserves
------------------------------------
Number Number Average Total Proved Proved Developed
of Gross of Net Average Net ----------------- -----------------
Producing Producing Working Revenue Oil Gas Oil Gas
Wells(1) Wells(2) Interest(3) Interest(4) MBbls MMcf MBbls MMcf
--------- --------- ----------- ----------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
San Juan Basin 280 200.2 71.5% 60.7% 2,184.6 13,042.2 1,658.4 10,595.5
Anadarko Basin(5) 40 30.3 75.6% 63.7% 717.9 1,643.5 607.6 1,512.5
Paradox Basin 23 12.9 56.2% 46.7% 359.0 408.3 345.9 379.3
South Texas 286 102.9 36.0% 31.3% 1,698.3 169.8 1,307.3 130.7
--- ----- ---- ---- ------- -------- ------- --------
Total or Weighted
Averages 629 346.3 55.0% 47.3% 4,959.8 15,263.8 3,919.2 12,618.0
=== ===== ==== ==== ======= ======== ======= ========
</TABLE>
1) Gross producing wells is the total number of producing wells in
which the Company has a working interest. Wells with multiple
completions in the same bore hole are counted as one well. The
Company had 19 gross (15.6 net) multiple completion wells. Any
well in which one of the multiple completions is an oil
completion is classified as an oil well. At December 31, 1995,
the Company had 498 gross (284 net) producing oil wells and
131 gross (62 net) producing gas wells. The Company also
operates 30 injection wells associated with waterflooding and
pressure maintenance operations.
2) Net producing wells is the number of gross producing wells
multiplied by the percentage working interest owned by the
Company in the properties.
3) Average based on the sum of working interest divided by the
number of wells.
4) Average based on the sum of net revenue interests divided by the
number of gross wells. Some royalty rates decreased in 1993,
1994 & 1995 pursuant to Title 43 of the Code of Federal Regulations
Part 3103.4-1, pertaining to stripper oil wells. This results in
higher net revenue interests.
5) These properties are subject to reversionary working interest
varying from 4% to 6%. The Company does not believe that these
reversions will become effective for several years.
<PAGE>
<PAGE>
The following tables summarize the Company's oil and gas revenues,
average daily net production volumes sold of oil and gas, weighted
average oil and gas sales prices, total proved reserves, production
costs (lifting costs) and depreciation, depletion and amortization
("DD&A") rates for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Oil and Gas Revenues (in 000's)
San Juan Basin $4,266 $3,851 $4,967
South Texas Area 1,407
Anadarko Basin 2,169 1,851 2,040
Paradox Basin 446 241 369
------ ------ ------
Total $8,288 $5,943 $7,376
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Oil Gas Oil Gas Oil Gas
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Average Daily Net
Production Sold (1,4)
San Juan Basin 504 2,967 419 2,611 474 3,163
South Texas Area 226 38
Anadarko Basin 312 418 279 361 275 376
Paradox Basin 69 76 39 63 56 72
----- ----- ----- ----- ----- -----
Total 1,111 3,499 737 3,035 805 3,611
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
Oil Gas Oil Gas Oil Gas
(Bbl) (MCF) (Bbl) (MCF) (Bbl) (MCF)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Average Sales Price (4)
San Juan Basin $16.59 $1.15 $15.36 $1.58 $16.35 $1.85
South Texas Area 16.86 1.66
Anadarko Basin 16.36 1.99 15.28 2.22 16.63 2.70
Paradox Basin 16.51 1.07 15.28 1.01 16.50 1.24
------ ----- ------ ----- ------ -----
Weighted Average
sales price $16.52 $1.24 $15.33 $1.64 $16.46 $1.92
====== ===== ====== ===== ====== =====
Proved Reserves
(in 000's) at
Year End (4) 4,960 15,264 2,215 11,860 2,196 12,998
Average Production Costs:
(Per Equivalent Barrel)(3)
Average Lifting Costs (2) $ 4.60 $ 4.58 $ 5.89
Average Production Taxes 0.89 1.10 1.02
------ ------ ------
Total $ 5.49 $ 5.68 $ 6.91
====== ====== ======
Average DD&A Rate
(Per Equivalent Barrel)(3)
(Units Only)* $ 4.65 $ 5.32 $ 7.50
*Before the writedown of the carrying value of oil and gas properties.
</TABLE>
1) Net production sold represents product volumes sold after
deduction of all royalty and similar interests held by others.
2) Lifting costs include direct lease operating expenses,
workovers, pipeline expenses (net of revenues) and production
taxes. Total Lease Operating Expense ("LOE") for 1995 includes
the newly acquired, non-operated Big Foot Field. LOE of Giant
operated properties was $3.97 per barrel oil equivalent in 1995,
a decrease of 13% from the previous year.
3) Equivalent barrels combine oil and gas volumes assuming that six
Mcf of gas is equivalent to one barrel of oil.
4) All volumes and prices are stated on a per barrel basis for oil
and on a per Mcf basis for gas.
SAN JUAN BASIN PROPERTIES
In 1992, the Company sold a volume of reserves equal to
approximately 50% of its then working interest in certain proved
developed natural gas reserves along with a portion of the associated
gathering system. The Purchase and Sale Agreement associated with
that transaction contains a provision whereby the ownership interest
in the subject reserves is adjusted annually at December 31, 1993
through 1996, based on year end reserve reports, so that the buyer
receives a cumulative working interest estimated for the life of the
reserves equal to the reserve volume purchased. At December 31, 1995
the Company earned a positive interest revision of approximately
279,100 Mcf under this provision of that agreement.
As of December 31, 1995, the Company had net proved Coalbed
Methane gas reserves of 7,219,100 Mcf (6,730,500 Mcf operated plus
488,600 Mcf non-operated) based on MHA's audit. This represents an
increase of 17% from the Company's December 31, 1994 consulting
engineer's reserve estimate of 6,162,900 Mcf. The increase is
primarily the result of improved well performance, lower operating
expenses and a resulting increase in the Company's net revenue
interest in certain properties pursuant to the 1992 Purchase and Sale
Agreement described above.
Prior to December 31, 1992, the Company had drilled or
participated in the drilling of 91 coal seam gas wells which qualified
for federal tax credits under Section 29 of the Fuel Use Act regarding
Alternative Fuels. The Company's interest in the production of the
estimated reserves at December 31, 1995, is expected to generate
approximately $2.95 million of federal income tax credits on a present
value basis which is available to be used to offset income taxes
through the year 2002. Through December 31, 1995 , the Company had
generated approximately $4.5 million in federal tax credits of which
$1.7 million was utilized to offset taxes payable, $1.9 million
carried forward to offset future tax obligations and $0.9 million
was unable to be used. The Company's ability to utilize such credits
generated in the future depends upon the Company's ability to generate
taxable earnings.
SOUTH TEXAS PROPERTIES
Effective January 1, 1995, the Company purchased a non-operated
working interest in the Big Foot field, located south of San Antonio,
Texas. Additional, small working interests were purchased in the same
field effective February 1 and June 1, 1995. A total of 38 wells were
drilled and completed in the field in 1995. Two additional wells were
drilled and awaiting completion at year end.
<PAGE>
<PAGE>
OIL AND GAS RESERVES
The following table sets forth as of December 31, 1995,
estimates of the Company's proved reserves, projected future
production and estimated future net revenues from production of
proved reserves, using selling prices and estimated development and
production costs as of December 31, 1995. The discounted present
values of estimated future net revenues shown in the table are not
intended to represent the fair market value of oil and gas reserves
owned by the Company.
<TABLE>
<CAPTION>
Proved Reserves
------------------------------------ Future Net Percent
Total Proved Proved Developed Percent Future Percent Revenues of
----------------- ----------------- of Total Net of Future Discounted Discounted
Oil Gas Oil Gas Proved Revenues(2) Net @ 10% Future Net
MBbls MMcf MBbls MMcf Reserves(1) ($M) Revenues ($M) Revenues
------- -------- ------- -------- ----------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
San Juan Basin 2,184.6 13,042.2 1,658.4 10,595.5 58.1% $25,256.6 51.4% $14,884.0 50.3%
Anadarko Basin 717.9 1,643.5 607.6 1,512.5 13.2% 10,434.3 21.2% 6,864.1 23.2%
Paradox Basin 359.0 408.3 345.9 379.3 5.7% 3,982.2 8.1% 2,720.5 9.2%
South Texas 1,698.3 169.8 1,307.3 130.7 23.0% 9,498.4 19.3% 5,111.3 17.3%
------- -------- ------- -------- ------ --------- ------ --------- ------
Totals 4,959.8 15,263.8 3,919.2 12,618.0 100.0% $49,171.5 100.0% $29,579.9 100.0%
======= ======== ======= ======== ====== ========= ====== ========= ======
</TABLE>
1) Equivalent gas information is based on a ratio of gas to oil of
six Mcf to one Bbl.
2) Production of oil and gas, unit prices, and gross revenues are
based on prices which take into account fixed and determinable
changes in existing prices as a result of contractual
arrangements, operation of law, or regulatory agency action.
The Company's reserve report assumes that plugging expenses
equal salvage value.
<PAGE>
<PAGE>
There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting future rates of
production and timing of development expenditures, including many
factors beyond the control of the producer. The reserve data set
forth herein represents only estimates. Reserve engineering is a
subjective process of estimating underground accumulations of oil and
gas that cannot be measured in an exact way, and the accuracy of any
reserve estimate is a function of the quality of available data and
of engineering and geological interpretation and judgment. As a
result, estimates of different engineers often vary. In addition,
results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimates. Accordingly,
reserve estimates are often different from the quantities of oil and
gas that are ultimately recovered. Further, the estimated future net
revenues from proved reserves and the present value thereof are based
upon certain assumptions about prices, timing of development and
future production levels and cost, that may not prove correct over
time. Predictions about prices and future production levels are
subject to great uncertainty, and the meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions
upon which they are based.
Except to the extent the Company acquires additional properties
containing proved reserves or conducts successful exploration and
development activities, or both, the proved reserves, and the
revenues generated from the production thereof, will decline as
reserves are produced. Increases or decreases in prices of oil and
gas will also affect revenues and the present value of estimated
future net cash flows from the Company's properties. The revenues
generated from the Company's future exploration and production
activities are therefore highly dependent upon the level of success
in acquiring or discovering additional reserves and the costs
incurred in doing so.
The Company has filed estimates of oil and gas reserve data with
the United States Department of Energy ("DOE") in accordance with the
DOE's annual survey of domestic oil and gas reserves. The reserves
reported to the DOE are required to be on a gross basis and,
therefore, are not comparable to reserve data reported herein.
<PAGE>
<PAGE>
EXPLORATORY AND DEVELOPMENTAL ACREAGE
The following table provides information regarding the Company's
developed and undeveloped acreage held at December 31, 1995:
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres
--------------------- ---------------------
Gross Net Gross Net
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
New Mexico 54,726.92 42,049.32 2,416.71 2,416.71
Colorado 11,360.42 2,138.35 320.00 55.00
Oklahoma 2,908.21 2,100.38 232.24 180.63
Kansas 7,979.68 6,035.94 1,264.00 584.00
Utah 10,371.31 6,845.04 7,303.68 6,238.94
Wyoming 1,259.62 1,199.62
Texas 8,307.88 3,264.24
Nevada 28,757.87 17,459.52
--------- --------- --------- ---------
Total 95,654.42 62,433.27 41,554.12 28,134.42
========= ========= ========= =========
</TABLE>
In 1995 there was an increase in developed acreage which
generally reflects the Company's purchase of producing properties
in the San Juan and Paradox Basins and in South Texas. A 1995
decrease in undeveloped acreage reflects the release of tracts
in Wyoming and Nevada which the Company had impaired in 1994.
The following table sets forth certain information regarding the
Company's drilling activities for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995(1) 1994 1993
----------- ----------- -----------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Productive Wells 47.0 19.7 6.0 3.3 4.0 0.5
Dry Holes 1.0 0.3 1.0 0.6 1.0 1.0
</TABLE>
1) A dry hole is an exploratory or development well found to be
incapable of producing either oil or gas in sufficient
quantities to justify completion as an oil or gas well. The
Company drilled 48 gross (20 net) wells in 1995. Of this total,
45 gross (19.4 net) were development wells, and 3 gross (.6 net)
were exploratory wells. One (.3 net) of the exploratory wells was a
dry hole.
<PAGE>
<PAGE>
The following table sets forth the capital expenditures (in
$000's) incurred by the Company for oil and gas property
acquisitions, exploration and development during the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Property Acquisitions:
Unproved (16) 357 327
Proved 5,192 326 87
Exploration 251 123 290
Development 6,095 2,759 3,211
------ ----- -----
Total 11,522 3,565 3,915
====== ===== =====
</TABLE>
MARKETING OF CRUDE OIL AND NATURAL GAS
Crude oil production in the Four Corners area is primarily
delivered directly to the refineries via pipeline or by truck for
processing. Crude oil produced outside the Four Corners area is
exchanged for barrels in the Four Corners area or sold on the open
market.
The majority of the Company's natural gas in the San Juan Basin
is sold through third-party gas brokers at spot market prices and
transported to market by interstate and intrastate pipelines.
Contracts with these brokers are generally short term in nature (less
than 18 months) and allow for prices to adjust to the marketplace.
The Company believes that because of the competitive nature of the
industry today, the loss of any one of its natural gas purchasers
would not have an adverse effect on its business.
OTHER MATTERS
COMPETITIVE CONDITIONS
The Company's exploration and production operation is subject to
intense competition particularly with respect to the acquisition of
desirable properties. There is also competition for the acquisition of
oil and gas leases suitable for exploration and the hiring of
experienced personnel.
The Company's competitors in oil and gas exploration, development,
production and marketing include major integrated oil and gas
companies, numerous independent oil and gas companies, drilling and
production purchase programs and individual producers and operators.
The ability of the Company to increase its holdings of proved oil and
gas reserves in the future is directly dependent upon the Company's
ability to select and acquire suitable producing properties and
prospects for future drilling in competition with these companies and
the availability of capital. Many competitors have financial
resources, staffs, facilities and other resources significantly
greater than those of the Company.
Crude oil prices are affected by a variety of factors that are
beyond the control of the Company. The principal factors currently
influencing prices, in addition to local factors discussed previously
under the caption RAW MATERIAL SUPPLY, include the pricing and production
policies of members of the Organization of Petroleum Exporting Countries
("OPEC"), the availability to world markets of production from troubled
areas of the world and the worldwide and domestic demand for oil and
refined products. Oil pricing will continue to be unpredictable and
greatly influenced by governmental and political forces.
A small portion of the Company's natural gas continues to be sold
on contracts which control the gas price. As a result of the Federal
Energy Regulatory Commission's ("FERC") Order No. 636, no gas is now
sold to interstate pipeline companies, and these contracts have now
been transferred to third party marketing companies which have
recently purchased all of the gas the Company is able to deliver under
the contracts. The majority of the Company's natural gas is purchased
at the wellhead by natural gas marketers and brokers, who then arrange
for transportation of the natural gas from the wellhead to a sales
point where the gas is sold to an end user or local distribution
company. Prices paid by natural gas marketers and brokers fluctuate
monthly in response to market factors which are generally controlled
by demand for natural gas at the end user level. While deliverability
of natural gas has not been curtailed by market factors, the Company
cannot accurately predict whether current levels of deliverability of
natural gas will continue in the future. The Company cannot control or
accurately predict future pricing.
REGULATION AND OTHER FACTORS AFFECTING EXPLORATION AND
PRODUCTION
GENERAL. Oil and gas exploration and production activities are
heavily regulated by federal, state and local governmental entities;
and expenses and delays often associated with compliance with such
regulations may adversely affect the Company's operations.
Regulations affect, among other things, the timing and cost of
drilling operations, conservation matters, marketing, transportation
and production of oil and gas, prices received for such production,
taxes and numerous other matters. Many states also restrict allowable
rates of production of oil and gas to their respective statewide
market demands. In addition, some states have enacted statutes
prescribing ceiling prices for gas sold within such states.
Regulations affecting the Company's activities are frequently revised
and new or amended regulations in the future could significantly
impact the Company's oil and gas exploration operations.
The transportation and sale of natural gas has historically been
subject to regulation by federal and state regulatory authorities
pursuant to a number of statutes, including the Natural Gas Act of
1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA").
The provisions of the NGA and the NGPA and regulations promulgated
thereunder significantly impact the transportation of the Company's
produced natural gas through interstate and intrastate pipelines.
Although the Company is currently able to arrange for the
transportation of its produced gas volumes under generally satisfactory
conditions, there can be no assurance that future regulatory developments
will not adversely affect the Company.
Various federal, state and local laws and regulations which
relate to the protection of the environment may affect the Company's
operations and costs as a result of their effect on oil and gas
exploration, development and production operations. At present, the
Company believes it is in substantial compliance with applicable
environmental rules and regulations in areas in which it drills and
produces crude oil and natural gas. However, the Company is not able
to predict the ultimate cost associated with compliance with current
environmental regulations or future regulatory changes.
The Company is subject to all of the risks normally incident to
the exploration for and production of oil and gas, including
blowouts, cratering, down hole problems, pollution and fires, each of
which could result in damage to or destruction of oil and gas wells,
producing formations or production facilities, or damage to persons
and other property. As is common in the industry, the Company does
not fully insure against all these risks either because insurance is
not readily available or because the Company elects not to insure due
to prohibitive premium costs. The occurrence of an event not fully
covered by insurance could have a material adverse effect on the
financial position and results of operations of the Company. In
addition, exploratory drilling carries a significant risk that no
commercial oil or gas production will be obtained.
TITLE MATTERS. Title to the Company's oil and gas properties is
subject to royalty, overriding royalty, carried working and other
similar interests and contractual arrangements customary in the oil
and gas industry (including farmout and development agreements,
operating agreements and joint venture arrangements), to liens for
current taxes not yet due and to other minor defects and
encumbrances. The Company believes that such burdens do not
materially detract from the value of such properties or from the
Company's interest therein or materially interfere with the operation
of the Company's business.
As is generally customary in the oil and gas industry in the
case of undeveloped properties, an in-house title review is made
prior to or at the time of acquisition. More comprehensive title
investigations, including in most cases receipt of a title opinion of
outside legal counsel, are generally made prior to the consummation
of an acquisition of producing property and before commencement of
drilling operations.
With regard to the Company's coal seam gas reserves, potential
legal questions may arise as to whether the right to produce such
reserves is granted to the Company by certain of its oil and gas
leases or are instead retained by the landowner or whether the
Company's right to produce such reserves is subject to or affected by
existing or future leases granted to others to develop the associated
coal reserves. The bulk of the Company's coal seam gas reserves are
held pursuant to substantially identical leases granted by the BLM. A
United States Department of Interior Solicitor's opinion issued in
1981 supports the Company's belief that it has the right to produce
coal seam gas reserves underlying lands subject to the Company's
existing oil and gas leases granted by the BLM and that any
subsequent coal leases or oil and gas leases granted by the BLM or
other parties will not have a material adverse effect on the
Company's right to produce such gas. The Company believes that the
commercial impracticability of mining the associated coal reserves
and other factors further reduce the risk of a bona fide dispute with
anyone other than the BLM regarding ownership of and the right to
drill for and produce the Company's coal seam gas. In view of the
foregoing and its analysis of relevant leases and current case law,
the Company believes that any potential future claims by the BLM or
other parties will not have any material adverse effect on its title
to such coal gas reserves.
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to ordinary routine litigation incidental
to its business. There is also hereby incorporated by reference the
information under the headings "Regulatory, Environmental, and Other
Matters Affecting Refining and Marketing" and "Regulation and Other
Factors Affecting Exploration and Production" in Items 1 and 2, the
discussions contained in Item 7, and the information regarding
contingencies in Note 15 to the Consolidated Financial Statements in
Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Executive Officers of the Registrant.
Executive
Officer
Name Age Position Since
- ---- --- -------- ---------
James E. Acridge 55 President and Chief October 1989
Executive Officer
A. Wayne Davenport 47 Vice President and May 1994
Chief Financial Officer
Fredric L. Holliger 48 Executive Vice President October 1989
and Chief Operating
Officer
Morgan Gust 48 Vice President and August 1990
General Counsel, Vice
President Administration
and Secretary
Gary L. Nielsen 53 Vice President Finance, October 1989
Treasurer and Assistant
Secretary
The officers of the Company are elected annually by the
Board of Directors and each officer serves until his successor is
chosen and qualified or until his earlier resignation or removal.
There are no family relationships among the officers of the
Company.
James E. Acridge has served as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company
since October 1989. Mr. Acridge also serves as Chairman of the
Nominating Committee. Mr. Acridge is Chairman of the Board of
Directors, President and Chief Executive Officer of Giant Arizona
and Chairman of the Board of Directors of Giant E&P. Mr. Acridge
founded Giant Arizona in 1969 and has served continuously as its
Chairman of the Board of Directors, President and Chief Executive
Officer.
A. Wayne Davenport served as Vice President and Corporate
Controller commencing May 1994 and, since May 1995, serves as Vice
President and Chief Financial Officer. He also serves in such
positions for Giant and Giant E&P. Prior to joining the Company in
March 1994, Mr. Davenport was an investor in crude oil and natural
gas properties and a consultant to the industry. From February 1987
to September 1992, he served in various positions, the last being
Executive Vice President and Chief Financial Officer, with Hondo Oil
& Gas Company, a company engaged in refining, marketing, exploration
and production. Mr. Davenport was an audit partner for the accounting
firm of Ernst & Young from May 1982 until February 1987.
Fredric L. Holliger has served as a director, Executive Vice
President and Chief Operating Officer of the Company since
October 1989. Mr. Holliger joined Giant Arizona as Senior Vice
President and President of the Giant Arizona refining division in
February 1989 and continues to serve as a director, Executive
Vice President and Chief Operating Officer of Giant Arizona.
Since May 1993, he has also served as a director and President
and Chief Executive Officer of Giant E&P. Before joining Giant
Arizona, he served for two years as President of Northern Natural
Gas Company, a division of Enron Corp., Omaha, Nebraska
("Northern Natural") and prior thereto was employed by Northern
Natural for 14 years, serving in a variety of marketing, supply,
operations and petroleum engineering capacities.
Morgan Gust has served as Secretary and General Counsel of
the Company since August 1990 and as Vice President since
September 1990. In addition, he has served as Vice President
Administration since October 1992. He also serves in such
capacities and as a director of Giant Arizona and Giant E&P.
Before joining the Company, Mr. Gust was President of Tucson
Resources, Inc., an investment and financial services company,
where he served first in the capacity of Vice President and
General Counsel and later as Executive Vice President. From
September 1975 to July 1988, Mr. Gust was a partner in the law
firm of Gust, Rosenfeld and Henderson.
Gary L. Nielsen has served as Treasurer and Assistant
Secretary of the Company since October 1989, Vice President since
September 1990 and Vice President Finance since September 1992.
He also serves in such capacities for both Giant Arizona and
Giant E&P. Mr. Nielsen joined Giant Arizona as its Treasurer in
October 1986. Before joining Giant Arizona, he was senior Vice
President and Chief Financial Officer of the casino hotel
division of Del Webb Corporation from April 1978 to March 1986,
and Chief Financial Officer of the Crescent Hotel Group from
March 1986 to October 1986.<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal United States market on which the Company's
Common Stock is traded is the New York Stock Exchange. The high
and low sales prices for the Common Stock for each full quarterly
period as reported on the New York Stock Exchange Composite Tape
for the last two fiscal years is as follows:
Quarter Ended High Low
------------------ ------ ------
December 31, 1995 12 1/4 9 5/8
September 30, 1995 11 3/8 7 7/8
June 30, 1995 8 7/8 7 1/8
March 31, 1995 8 7/8 6 5/8
December 31, 1994 9 1/4 6 3/4
September 30, 1994 8 7/8 7 1/8
June 30, 1994 9 7/8 7 3/8
March 31, 1994 10 3/4 8 5/8
For 1995, the Company's Board of Directors declared quarterly
common stock dividends of $0.05 per share. Any future dividends are
subject to the results of the Company's operations, declarations by
the Board of Directors and existing debt covenants, as described
below.
The Company has issued $100,000,000 of 9 3/4% Senior Subordinated
Notes ("Notes"). The Notes were issued pursuant to an Indenture dated
November 29, 1993 (the "Indenture") among the Company, its
Subsidiaries, as guarantors, and NBD Bank, National Association, as
trustee. The Indenture contains a number of covenants, which, among
other provisions, place restrictions on the payment of dividends. A
similar provision is contained in the agreement governing the
Company's 10.91% senior unsecured note. At December 31, 1995,
retained earnings available for dividends under the terms of the
Indenture was approximately $13,137,000. The Indenture includes the
payment of dividends in its definition of "Restricted Payments" which
are subject to limitations, the most significant of which are
summarized as follows:
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless:
(a) no Default or Event of Default shall have
occurred and be continuing at the time of or immediately
after giving effect to such Restricted Payment;
(b) at the time of and immediately after giving
effect to such Restricted Payment, the Company would be able
to incur at least $1.00 of additional Indebtedness pursuant
to the first paragraph of the covenant captioned "Limitation
on Incurrence of Additional Indebtedness"; and
(c) immediately after giving effect to such
Restricted Payment, the aggregate amount of all Restricted
Payments declared or made after the Issue Date does not
exceed the sum of (A) 50% of the Consolidated Net Income of
the Company and its Restricted Subsidiaries (or in the event
such Consolidated Net Income shall be a deficit, minus 100%
of such deficit) during the period (treated as one
accounting period) subsequent to September 30, 1993 and
ending on the last day of the fiscal quarter immediately
preceding the date of such Restricted Payment and (B) $15
million. Consolidated Net Income excludes, among other
things, any full cost ceiling limitation writedown.
Also see the "Capital Structure" discussion in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 hereof.
Capitalized items used but not defined above have the
meaning assigned to them in the Indenture.
There were 315 holders of record of Common Stock on
February 29, 1996.<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes recent financial information
of the Company. This selected financial data should be read in
conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations at Item 7 and the
Consolidated Financial Statements, related notes thereto, and the
Auditors' Report included in Item 8 hereof:
<TABLE>
<CAPTION>
FINANCIAL AND OPERATING HIGHLIGHTS
(In Millions, Except Percentages, Per Share and Operating Data)
Year Ended December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL STATEMENT DATA
Continuing Operations:
Net Revenues $ 332.9 $ 291.6 $ 313.2 $ 301.7 $ 285.5
Operating Income (Loss) 20.6 20.1 31.4 15.3 (1.5)
Net Earnings (Loss) 7.7 7.4 17.5 7.1 (6.3)
Earnings (Loss) Per Common Share .68 .61 1.43 .58 (.51)
Discontinued Operations
Net Earnings (Loss)(1) .2 (2.9) (11.3) (9.5) (.3)
Earnings (Loss) Per Common Share .01 (.24) (.92) (.78) (.03)
Weighted Average Common
Shares Outstanding 11.5 12.1 12.2 12.2 12.2
Dividends Paid Per Common Share .20 .225
Stockholders' Equity 109.7 109.7 105.9 98.6 99.8
Book Value Per Common Share 9.75 9.15 8.69 8.07 8.16
Return on Average Stockholders' Equity 7.2% 4.2% 5.8%
Total Assets 324.9 279.4 274.4 233.3 253.9
Working Capital 50.3 86.4 88.0 47.2 61.9
Long-Term Debt as a Percentage
of Total Capitalization(2) 56.5% 51.4% 52.5% 46.8% 51.1%
Long-Term Debt 142.7 116.1 117.3 86.9 104.3
OPERATIONS DATA - CONTINUING OPERATIONS:
REFINING AND MARKETING:(3)
Rated Crude Oil Capacity Utilized 88% 92% 98% 101% 94%
Refinery Sourced Sales Barrels (Bbls/Day) 27,430 23,054 24,412 24,477 23,787
Average Crude Oil Costs (Per Bbl) $ 18.41 $ 16.97 $ 18.09 $ 20.21 $ 21.76
Refinery Margin ($/Bbl) $ 5.13 $ 5.60 $ 6.69 $ 4.77 $ 3.88
Service Stations:
Fuel Gallons Sold (In Thousands) 100,601 100,685 77,684 71,068 67,447
Product Margin ($/Gallon) $ 0.175 $ 0.177 $ 0.177 $ 0.150 $ 0.121
Merchandise Sold (In Thousands) $ 38,091 $ 32,727 $ 22,367 $ 18,159 $ 14,958
Merchandise Margin 30% 29% 28% 27% 28%
Number of Outlets at Year End 51 51 51 42 44
Travel Centers:(4)
Fuel Gallons Sold (In Thousands) 21,522 30,337 32,148 38,253 33,229
Product Margin ($/Gallon) $ 0.102 $ 0.118 $ 0.128 $ 0.121 $ 0.124
Merchandise Sold (In Thousands) $ 7,640 $ 9,929 $ 10,125 $ 10,041 $ 8,970
Merchandise Margin 47% 45% 45% 47% 47%
Number of Outlets at Year End 1 1 2 2 2
Retail Fuel Volumes Sold as a % of
Refinery Sourced Sales Barrels 29% 37% 29% 29% 28%
OPERATIONS DATA - DISCONTINUED OPERATIONS:
EXPLORATION AND PRODUCTION:
Crude Oil Production Sold (Net Bbls/Day) 1,111 737 805 918 1,207
Natural Gas Production Sold (Net Mcf/Day) 3,499 3,035 3,611 5,286 4,152
Crude Oil Average Selling Price (Per Bbl) $ 16.52 $ 15.33 $ 16.46 $ 19.00 $ 20.13
Natural Gas Average Selling
Price (Per Mcf) $ 1.24 $ 1.64 $ 1.92 $ 1.63 $ 1.34
Lifting Costs ($/BOE) $ 5.49 $ 5.68 $ 6.91 $ 5.58 $ 5.07
Year End Proved Reserves, Net:(5)
Crude Oil (Thousand Barrels) 4,960 2,215 2,196 3,285 3,320
Natural Gas (MMcf) 15,264 11,860 12,998 15,943 35,083
Combined (OEB) 7,504 4,191 4,362 5,942 9,167
Percent of Refinery Crude Oil Throughput
Represented by:
Equity Interests 5% 4% 4% 4% 6%
Controlling Interests 6% 6% 6% 7% 10%
</TABLE>
(1) The 1994, 1993 and 1992 amounts include a $2.2 million, $9.9
million and $8.6 million net of tax charge, respectively, for
the reduction of the carrying value of crude oil and natural gas
properties.
(2) In certain prior reports, the Company included deferred income
taxes as a component of total capitalization. Deferred income
taxes are excluded from capitalization calculations in this
report.
(3) Operations data includes the operations of the Bloomfield refinery
from October 4, 1995.
(4) The Company's Giant Express travel center was sold November 2,
1994.
(5) Based on annual reserve report.<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
- ---------------------------------------------------------------------
The primary factors affecting the results of the Company's 1995
continuing operations as compared to its 1994 continuing operations
are the acquisition of the Bloomfield refinery shortly after the
beginning of the fourth quarter of 1995, a decline in refinery
margins, an increase in refinery sourced sales volumes from the
Ciniza refinery and the temporary suspension of operations at the
Company's ethanol production plant.
In early 1996, the Company approved a plan of disposition of its
exploration and production business. The Company's financial
statements have been restated to classify these operations as
discontinued operations. Based on current information, the Company
does not expect to incur a loss on the disposal of these operations.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
- -------------------------------------------------------
Earnings from continuing operations before income taxes were
$11.4 million for the year ended December 31, 1995, an increase of
$1.3 million from $10.1 million for the year ended December 31, 1994.
The increase is primarily the result of the acquisition of the
Bloomfield refinery, a 5% increase in Ciniza refinery finished
product sales volumes and a 16% increase in service station
merchandise sales. These increases were partially offset by a 10%
decrease in Ciniza refinery average margins and a decrease in third
party sales volumes from the ethanol plant.
REVENUES
- --------
Revenues for the year ended December 31, 1995, increased $41.3
million or 14% to $332.9 million from $291.6 million in the
comparable 1994 period. Finished product sales of $29.5 million from
the Bloomfield refinery accounts for approximately 71% of the
increase. In addition, a 5% increase in Ciniza refinery finished
product sales volumes, a 4% increase in Ciniza refinery weighted
average selling prices and a 16% increase in service station
merchandise sales contributed to increased revenues. Offsetting these
increases were a decline in third party sales from the ethanol plant
and an overall decline in other revenues from retail operations.
The increase in Ciniza refinery finished product sales volumes
in 1995 was partially the result of a scheduled major maintenance
turnaround started in March and completed in April 1994 and an
accident at the refinery in July 1994 which reduced production for a
period of approximately sixty days. The increase in service station
merchandise sales is the result of increased same store sales and the
addition of six units. The overall decline in other revenues from
retail operations is primarily related to the sale of the Giant
Express travel center in November 1994.
The volumes of refined products sold through retail outlets
decreased approximately 7% from 1994 levels due to a 29% decrease in
volumes sold from the travel centers, primarily related to the sale
of the Giant Express, and a slight decrease in service station
volumes resulting from increased competition and the sale or
remodeling of several units, offset in part by the addition of six
new units.
COST OF PRODUCTS SOLD
- ---------------------
For the year ended December 31, 1995, cost of products sold
increased $38.8 million or 20% to $234.3 million from $195.5 million
for the corresponding 1994 period. Cost of products sold of $22.4
million relating to the Bloomfield refinery accounts for
approximately 58% of the increase. Also contributing to increased
costs was an 8% increase in average crude oil costs and a 5% increase
in the volume of finished products sold from the Ciniza refinery,
along with a 15% increase in the cost of merchandise sales from the
service stations. The increase is partially offset by a decrease in
costs relating to the temporary suspension of operations at the
ethanol plant, a decrease in merchandise sales from the travel
centers and $1.4 million of estimated insurance reimbursements
included in 1994 cost of products sold.
OPERATING EXPENSES
- ------------------
For the year ended December 31, 1995, operating expenses
increased approximately $33,000 to $51.9 million from $51.8 million
in the corresponding 1994 period.
Operating expenses increased approximately 5% due to the
acquisition of the Bloomfield refinery and 5% due to payroll and
related costs for other continuing operations. Partially offsetting
these increases were declines of approximately 4% due to the sale of
the Giant Express, 3% due to declines in incurred self insurance
costs and adjustments to various self insurance accruals, 2% due to
the temporary suspension of operations at the ethanol plant and 1%
due to lower purchased fuel costs for the Ciniza refinery.
DEPRECIATION AND AMORTIZATION
- -----------------------------
For the year ended December 31, 1995, depreciation and
amortization increased $1.1 million to $13.3 million from $12.2
million in the corresponding 1994 period. The increase is primarily
related to the acquisition of the Bloomfield refinery and the
separate purchase of crude oil gathering operations in September
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
For the year ended December 31, 1995, selling, general and
administrative expenses increased approximately $848,000 or 7% to
$12.8 million from $11.9 million in the corresponding 1994 period.
The increase is primarily the result of a reduction in 1994 first
quarter expenses from the recording of a $1.0 million insurance
settlement relating to environmental costs incurred in prior years
and higher payroll costs in the 1995 period. Offsetting these items
was a reduction in expenses from no management incentive bonus in the
1995 period and reductions in 1995 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 (INCOME)
- -------------------------
For the year ended December 31, 1995, interest expense
decreased approximately $299,000 or 3% to $11.5 million from $11.8
million in the same 1994 period. The decrease is primarily related to
the reduction of certain fixed rate long-term debt and the
capitalization of interest in the 1995 period, offset in part by the
addition of certain variable rate long-term debt incurred in part to
finance the acquisition of the Bloomfield refinery and for working
capital purposes.
For the year ended December 31, 1995, interest and investment
income increased approximately $506,000 or 29% to $2.2 million from
$1.7 million. The increase is primarily due to interest received on
the refund of income taxes paid in prior periods and higher interest
rates. These increases were partially offset by a decrease due to a
decline in the amount of excess funds available for investment.
INCOME TAXES
- ------------
Income taxes for the years ended December 31, 1995 and 1994 were
computed in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, resulting in effective tax rates of
approximately 32% and 26%, respectively. The difference in rates is
due in part to the amounts of alcohol fuel tax credits generated
in 1994 compared to 1995, relating to the temporary suspension of
operations at the Company's ethanol plant, as well as coal seam
gas tax credits generated in each year, as they relate to varying
amounts of annual income.
DISCONTINUED OPERATIONS
- -----------------------
For the years ended December 31, 1995 and 1994, the Company's
exploration and production operations ("Giant E&P") recorded net
earnings of $143,000 and a net loss of $2.9 million, respectively.
The improvement is primarily due to a writedown in the carrying value
of crude oil and natural gas properties in the third quarter of 1994,
and in 1995, to increases in crude oil and natural gas production,
along with an increase in crude oil selling prices, offset in part by
a decline in natural gas selling prices in 1995.
Revenues, including intercompany revenues of $5.3 million in
1995 and $4.1 million in 1994, totaled $8.4 million for the year
ended December 31, 1995, an increase of $2.4 million or 40% from the
$6.0 million reported for the comparable 1994 period. This increase
is due to a 51% increase in crude oil production, an 8% increase in
average crude oil selling prices and a 15% increase in natural gas
production. These increases were offset in part by a 24% decline in
average natural gas selling prices.
The increase in crude oil production is primarily the result of
the acquisition of various crude oil producing reserves during 1995.
The increase in natural gas production is due to a favorable 1994 year
end adjustment of coal seam gas reserves sold in 1992, determined
pursuant to an annual redetermination clause contained in the 1992
purchase and sale agreement, which resulted in the addition of
approximately 1,018 million cubic feet of natural gas reserves.
For the year ended December 31, 1995, operating costs and
expenses increased $1.2 million or 18% to $8.1 million from $6.9
million in the comparable 1994 period primarily due to increases in
production.
OUTLOOK
- -------
With the acquisition of the Bloomfield refinery and additional
crude oil gathering operations, along with the anticipated
disposition of the Company's exploration and production operations,
the Company will focus its efforts on its primary business of
refining and marketing of petroleum products. The Company's future
results of operations are primarily dependent on producing and
selling sufficient quantities of refined products at margins
sufficient to cover fixed and variable expenses.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
- ---------------------------------------------------------------------
The primary factors affecting the results of the Company's 1994
continuing operations as compared to its 1993 continuing operations
are a decline in refining margins, the acquisition of nine retail
units, an increase in interest costs, a decline in refinery sourced
sales volumes and higher operating expenses and grain costs.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
- -----------------------------------------------------------
Earnings from continuing operations before income taxes were
$10.1 million for the year ended December 31, 1994, a decrease of
$17.0 million or 63% from $27.1 million for the year ended December
31, 1993. The decrease is primarily the result of a 16% decline in
average refinery margins, a 6% decrease in refinery sourced finished
product sales volumes, higher ethanol plant grain costs and higher
interest and operating expenses. These factors were partially offset
by a 19% increase in finished product sales volumes and a 31%
increase in merchandise sales from the Company's retail units.
REVENUES
- --------
Revenues for the year ended December 31, 1994, decreased $21.6
million or 7% to $291.6 million from $313.2 million in the comparable
1993 period. The decrease is primarily due to an 11% decline in
refinery weighted average selling prices, a 6% decrease in refinery
sourced finished product sales volumes and a 1% decline in retail
selling prices. Offsetting these decreases was a 19% increase in the
volume of finished products sold from the retail units along with a
31% increase in merchandise sales. Also included in 1994 revenues is a
$0.5 million gain resulting from the settlement of property damage
claims relating to an accident at the refinery in July 1994.
The decline in refinery sourced finished product sales volumes
was primarily due to a scheduled major maintenance turnaround started
in March and completed in April and an accident at the refinery in
mid-July which damaged the alkylation unit and curtailed production
for a period of approximately sixty days. The increase in retail
finished product and merchandise sales is the result of increased same
store sales and volumes and the acquisition of nine units in the
Company's primary market area.
Volumes of refined products sold through retail outlets increased
approximately 19% from 1993 levels primarily due to a 30% increase in
volumes sold from the service stations offset in part by a 6% decrease
in travel center volumes, 5% at the Giant Travel Center and 11% at the
Giant Express which was sold on November 2, 1994.
COST OF PRODUCTS SOLD
- ---------------------
For the year ended December 31, 1994, cost of products sold
decreased $14.3 million or 7% to $195.5 million from $209.8 million
for the corresponding 1993 period. A 6% decline in average crude oil
costs and a 6% decline in the volume of finished products sold from
the refinery accounts for most of the decrease. These decreases were
partially offset by an increase in costs relating to increased
merchandise sales from the retail units and a $1.8 million increase in
average grain costs due to forward grain purchase contracts and higher
costs resulting from the effects of the poor grain harvest of 1993.
Also included in 1994 cost of products sold is $1.4 million of
preliminary estimates of reimbursements for losses under the Company's
business interruption insurance policies relating to the refinery
accident in July.
OPERATING EXPENSES
- ------------------
For the year ended December 31, 1994, operating expenses
increased $4.9 million or 10% to $51.8 million from $46.9 million in
the corresponding 1993 period. The increase is primarily due to
operating expenses of nine retail units acquired, an increase in
payroll and related costs for other operations and increases in repairs
and maintenance and utility costs at the refinery. Partially offsetting
these increases was a decrease in refinery purchased fuel costs.
DEPRECIATION AND AMORTIZATION
- -----------------------------
For the year ended December 31, 1994, depreciation and
amortization increased approximately $831,000 to $12.2 million from
$11.4 million in the corresponding 1993 period. The increase is
primarily related to nine retail units acquired, the completion and
start up of a diesel desulfurization unit at the refinery in
September 1993 and amortization of costs relating to the major
maintenance turnaround completed at the refinery in April 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
For the year ended December 31, 1994, selling, general and
administrative expenses decreased $1.7 million or 13% to $11.9 million
from $13.6 million for the year ended December 31, 1993. The decline
is primarily due to a decrease in the management incentive bonus
accrual and the recording of a $1.0 million insurance settlement in
the first quarter of 1994 relating to environmental costs incurred in
prior years. Partially offsetting these decreases were increases in
payroll and related costs and a reduction in 1993 third quarter
expenses by $0.9 million for a decrease in the estimated liability for
self insured workmen's compensation claims.
INTEREST EXPENSE (INCOME)
- -------------------------
For the year ended December 31, 1994, interest expense increased
$6.0 million or 105% to $11.8 million from $5.8 million in the same
1993 period. The increase is primarily due to the issuance of $100
million of 9 3/4% senior subordinated notes in November 1993, the
proceeds of which were partially used to retire existing debt with
lower effective interest rates, but with significantly shorter
maturities. In addition, the amortization of proceeds from a
terminated interest rate swap were lower in the 1994 period.
For the year ended December 31, 1994, interest and investment
income increased approximately $247,000 or 17% to $1.7 million from
$1.5 million in the comparable 1993 period primarily due to the
investment of larger amounts of excess cash, in part from the
issuance of the senior subordinated notes, at slightly higher
interest rates.
INCOME TAXES
- ------------
Income taxes for the years ended December 31, 1994 and 1993 were
computed in accordance with SFAS No. 109, resulting in effective tax
rates of approximately 26% and 35%, respectively. The difference in the
two rates is primarily due to the relationship of relatively consistent
amounts of alcohol fuel and coal seam gas tax credits in each year to
varying amounts of annual income and the effect of the statutory rate
increase in 1993 on deferred income taxes resulting from the enactment
of the Revenue Reconciliation Act of 1993 which increased the
statutory U.S. federal income tax rate to 35% from 34%.
DISCONTINUED OPERATIONS
- -----------------------
For the years ended December 31, 1994 and 1993, Giant E&P
recorded net losses of $2.9 million and $11.3 million, respectively,
including the effects of "ceiling test" writedowns. The 1994 net
writedown of $2.2 million was primarily due to low crude oil and
natural gas prices at September 30, 1994, impairment of certain
unproved properties and downward revisions of certain reserves. The
1993 net writedown of $9.9 million was primarily due to downward
revisions of oil and gas reserves and low crude oil prices at
December 31, 1993. Exclusive of the "ceiling test" writedowns, the
1994 period reflected a smaller loss compared to the same 1993 period
primarily due to lower production costs relative to declines in crude
oil and natural gas production and selling prices.
Revenues from Giant E&P, including intercompany revenues of $4.1
million in 1994 and $4.8 million in 1993, totaled $6.0 million for
the year ended December 31, 1994, a decrease of $1.4 million or 20%
from the $7.4 million reported for the comparable 1993 period. This
decrease is due to an 8% decline in crude oil production, a 7%
decline in average crude oil selling prices, a 16% decline in natural
gas production and a 15% decline in natural gas selling prices. The
decline in natural gas production is due to an unfavorable 1993 year
end adjustment of coal seam gas reserves sold in 1992, determined
pursuant to an annual redetermination clause contained in the 1992
purchase and sale agreement, which resulted in a decrease of
approximately 1,159 million cubic feet in natural gas reserves.
Operating costs and expenses of Giant E&P decreased approximately
24% for the year ended December 31, 1994, compared to the same 1993
period. The decline is primarily related to a decrease in production.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
- -------------------------
Net cash provided by operating activities from continuing
operations totaled $24.5 million for the year ended December 31,
1995, compared to $7.8 million for the comparable 1994 period.
Operating cash flows increased primarily as a result of differences
in the net changes in working capital items.
WORKING CAPITAL
- ---------------
Working capital at December 31,1995 consisted of current assets
of $108.9 million and current liabilities of $58.5 million, or a
current ratio of 1.86:1. At December 31, 1994, the current ratio was
3.12:1 with current assets of $127.2 million and current liabilities
of $40.8 million. Current assets include the net assets of the
discontinued operations because the Company anticipates selling this
business during 1996.
Current assets have decreased since December 31, 1994, primarily
due to a decrease in cash and cash equivalents, marketable securities
and income tax refunds and other receivables. Marketable securities
have declined due to the liquidation of the Company's portfolio
through sales and maturities. Other receivables have decreased as a
result of insurance reimbursements received and a decline in the
amount of investment income receivable. Trade receivables and
inventories have increased primarily as the result of the
acquisition of the Bloomfield refinery, along with increases in
prices. Net assets of discontinued operations have increased as the
result of reserve acquisitions. Current liabilities have increased
due to an increase in accounts payable and accrued expenses. Accounts
payable have increased primarily due to an increase in raw material
purchases due to the acquisition of the Bloomfield refinery and crude
gathering operations. In addition, 1995 year end crude prices were
approximately 10% higher than in 1994. Accrued expenses have
increased due to higher excise taxes payable as a result of the
Bloomfield refinery acquisition.
CAPITAL EXPENDITURES AND RESOURCES
- ----------------------------------
Net cash used in investing activities for the purchase of
property, plant and equipment and other assets totaled approximately
$78.0 million for the year 1995. This amount includes the acquisition
of the Bloomfield refinery; the acquisition, construction, rebuilding
or substantial remodeling of twelve retail units; the acquisition of a
crude oil gathering operation, including long-term supply contracts;
upgrades to improve operations and efficiencies at the Ciniza
refinery and in transportation operations; along with information
system enhancements.
On October 4, 1995, the Company through a wholly-owned
subsidiary, completed the purchase of the 18,000 barrel per day
("bpd") Bloomfield refinery ("Bloomfield") located in Bloomfield, New
Mexico, along with related pipeline and transportation assets.
Bloomfield and the related assets were purchased for $55 million,
plus approximately $7.5 million for crude oil and refined product
inventories associated with the refinery operations. The purchase was
funded with $32.5 million of cash on hand and $30.0 million provided
under a Credit Agreement. The purchase agreement also provides for
potential contingent payments to be made to the seller over
approximately the next six years, not to exceed a present value of
$25.0 million, should certain criteria be met. At December 31, 1995,
the Company had accrued approximately $1.2 million under this
arrangement relating to 1995 operations and adjusted the purchase
price accordingly. In addition, the Company assumed certain
environmental obligations and is in the process of gathering and
analyzing information in order to establish an environmental reserve.
Such reserve, which the Company does not believe will be material,
will be recorded as additional purchase price and allocated to the
assets acquired. Included in the purchase was the seller's interest
in approximately 25 miles of pipeline connecting the Bloomfield
refinery to the Texas-New Mexico and Four Corners common carrier
pipeline systems and various automobiles and small trucks.
On a pro forma basis, assuming the purchase took place on
January 1, 1994, the Company's net revenues would have been $439.7
million and $432.1 million, net earnings from continuing operations
would have been $14.8 million and $18.9 million and earnings from
continuing operations per common share would have been $1.29 and
$1.56 for the years ended December 31, 1995 and 1994, respectively.
This unaudited pro forma financial information does not purport to
represent the results of operations that actually would have
resulted had the purchase occurred on the dates specified, nor
should it be taken as indicative of the future results of operations.
In the third quarter of 1995, the Company, through a
wholly-owned subsidiary, completed the acquisition of a crude oil
gathering operation. The assets acquired include land, buildings,
equipment and long-term crude oil supply contracts. The amounts
allocated to the long-term supply contracts will be amortized to cost
of products sold over the life of the contracts which have a duration
of three to twelve years. The acquisition should lower raw material
and transportation costs by providing long-term crude oil purchase
agreements and through consolidation of the crude oil trucking
operations with the Company's current operations and those acquired
with the Bloomfield refinery.
On July 25, 1995, the Company completed the exchange of two of
its retail service stations located in Tucson, Arizona for a
finished products terminal in Albuquerque, New Mexico previously
owned by a major oil Company. The effect of the exchange is to
replace two service stations not considered to be strategic to the
Company's overall marketing strategies with a finished products
terminal which is a part of the Company's strategy to maximize both
product volumes and netbacks to the Ciniza and Bloomfield refineries,
maximize the Company's customer base and improve access to product
pipelines in Albuquerque.
In 1995, the Company purchased two retail units, constructed and
opened four others and substantially remodeled six more. In
addition, the Company received proceeds of approximately $2.6 million
from the sale of three operating service stations, certain
non-strategic real estate and other assets. A gain of approximately
$237,000 resulted from these sales.
On October 2, 1995, the Company announced the temporary
suspension of operations at its ethanol processing plant due to high
grain costs. The plant is expected to be closed until grain prices
return to more favorable levels. The Company does not anticipate any
problems in acquiring oxygenates while the plant operations are
suspended. Included in the Company's financial results are ethanol
plant third party revenues of $7.0 million and operating losses of
$782,000 for the year ended December 31, 1995, and third party
revenues of $12.7 million and operating losses of $1.4 million for
the year ended December 31, 1994.
The Company has budgeted approximately $48.2 million for capital
expenditures in 1996. Approximately $7.8 million is budgeted for
non-discretionary projects that are required by law or regulation or
to maintain the physical integrity of existing assets in 1996. These
projects include, among others, operational and environmental
projects at the refineries, retail operations and crude gathering
operations, along with a contingency payment to the seller of the
Bloomfield refinery under the Bloomfield refinery acquisition agreement.
The remaining budget of $40.4 million is for discretionary projects to
sustain or enhance the current level of operations, increase earnings
on existing or new business and to expand operations. The primary
projects in this category include the acquisition, construction,
rebuilding and remodeling of retail units, multiple pump dispensers
and card readers for retail operations, upgrades to the refineries and
information system enhancements.
The amount of these budgeted discretionary projects that are
actually undertaken in 1996 will depend on, among other things,
identifying acceptable acquisitions, general business conditions and
results of operations. All of the budgeted capital projects
undertaken are expected to be funded from working capital. 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.
Although the Company is not currently aware of any pending
circumstances which would change these capital budget expectations,
changes in the tax laws, the imposition of any changes in federal and
state clean air and clean fuel requirements and other changes in
environmental laws and regulations may also increase future capital
expenditure levels. Future capital expenditures are also subject to
business conditions affecting the industry. In addition, 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.
Much of the capital currently planned to be spent by the Company
for environmental compliance is integrally related to operations or
to operationally required projects. The Company does not specifically
identify capital expenditures related to such projects on the basis
of whether they are for environmental as opposed to economic
purposes. However, with respect to capital expenditures budgeted
primarily to satisfy environmental regulations, it is estimated that
approximately $0.5 million, $0.6 million and $5.0 million was spent
in 1995, 1994 and 1993, respectively, and $1.3 million is expected to
be spent in 1996. With respect to the Company's operating expenses
for environmental compliance, while records are not kept specifically
identifying or allocating such expenditures, management believes that
the Company incurs significant operating expense for such purposes.
DISCONTINUED OPERATIONS
- -----------------------
In early 1996, the Company approved a plan of disposition of the
exploration and production segment. 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. With the acquisition of the Bloomfield refinery and
crude oil gathering operations, the Company will focus its efforts on
its core business of refining and marketing. The Company is in the
process of searching for a buyer for the assets or the business and
expects to complete a sale in 1996. Based on current information, the
Company does not expect to incur a loss on the disposal of the
segment.
Net assets, including deferred tax liabilities of $4.2 million
in 1995 and $2.4 million in 1994, of this operation were $26.7
million and $20.4 million at December 31, 1995 and 1994,
respectively. Net earnings (loss) and net earnings (loss) per share
were $143,000 and $0.01, $(2.9) million and $(0.24), and $(11.3)
million and $(0.92) for the years ended December 31, 1995, 1994 and
1993, respectively.
CAPITAL STRUCTURE
- -----------------
At December 31, 1995 and 1994, the Company's long-term debt was
56.5% and 51.4% of total capital, respectively. The increase is
primarily due to an increase in long-term debt associated with the
Bloomfield acquisition.
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. The principal balance is due
in October 1998 and has a floating interest rate that is tied to various
short-term indices. At December 31, 1995, this rate was approximately
7%. On November 6, 1995, $10.0 million of this revolving term facility
was prepaid from cash on hand.
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. This facility has a floating
interest rate that is tied to various short-term indices. At
December 31, 1995, this rate was approximately 8 1/2%. As of
December 31, 1995, direct borrowings under this arrangement were
$11.0 million and there were $16.9 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.
The Company is required to pay a quarterly commitment fee based
on the unused amount of each facility.
The Credit Agreement contains certain covenants and
restrictions which require the Company to, among other things,
maintain a minimum consolidated net worth; minimum fixed charge
coverage ratio; minimum funded debt to total capitalization
percentage; and places limits on investments, prepayment of senior
subordinated debt, guarantees, liens and restricted payments. The
Credit Agreement is guaranteed by substantially all of the Company's
wholly-owned subsidiaries.
The Company's Board of Directors has authorized the repurchase
of a total of 1.5 million shares of the Company's common stock or
approximately 12% of all shares issued as of the inception of the
repurchase program. These purchases may be made from time to time as
conditions permit. Shares may be repurchased through
privately-negotiated transactions, block share purchases and open
market transactions. In 1995, the Company repurchased 737,200 shares
of its common stock for approximately $6.3 million. From the
inception of the repurchase program, the Company has repurchased
939,500 shares at a weighted average cost of approximately $8.52 per
share, including commissions, or approximately $8.0 million. These
shares are treated as treasury shares.
Any repurchased shares are available for a variety of corporate
purposes. The number of shares actually repurchased will be
dependent upon market conditions and there is no guarantee as to the
exact number of shares to be repurchased by the Company. The Company
may suspend or discontinue the program at any time without notice.
On December 14, 1995, the Company's Board of Directors declared
a common stock dividend of $0.05 per share payable to stockholders of
record on January 24, 1996. This dividend was paid on February 6,
1996. For the year 1995, the Board of Directors declared common stock
dividends of $0.20 per share. 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.
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.
It is expected that 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 EPA 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 an environmental liability accrual of
approximately $1.1 million relating 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 accrual is
recorded in the current and long-term sections of the Company's
consolidated balance sheet. In addition, the Company assumed certain
environmental obligations related to the acquisition of the
Bloomfield refinery and is in the process of gathering and analyzing
information in order to establish an environmental reserve. Such
reserve, which the Company does not believe will be material, will be
recorded as additional purchase price and allocated to the assets
acquired.
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, and such assessments are or will be the subject of
litigation or administrative appeals.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Company has not completed the process
of evaluating the impact that will result from adopting this Statement.
However, management does not believe the adoption will have a
significant impact on the Company's financial position or results
of operations. SFAS No. 121 is required to be adopted in the first
quarter of 1996.
With the acquisition of the Bloomfield refinery and 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 additional
supplemental supply alternatives, to sustain both refineries'
operations at planned levels, at least through 1996.
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 crude oil
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.
"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
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>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Giant Industries, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of
Giant Industries, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Giant Industries, Inc. and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 4, 1996<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
1995 1994
--------- ---------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,549 $ 12,860
Marketable securities 35,631
Receivables:
Trade, less allowance for doubtful
accounts of $424,000 and $546,000 22,264 14,818
Income tax refunds 380 2,144
Other 1,381 4,303
--------- ---------
24,025 21,265
--------- ---------
Inventories 42,581 32,270
Prepaid expenses and other 3,880 2,317
Net assets of discontinued operations 26,689 20,396
Deferred income taxes 2,145 2,490
--------- ---------
Total current assets 108,869 127,229
--------- ---------
Property, plant and equipment 292,919 223,821
Less accumulated depreciation
and amortization (94,357) (85,863)
--------- ---------
198,562 137,958
--------- ---------
Other assets 17,431 14,258
--------- ---------
$ 324,862 $ 279,445
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,063 $ 4,107
Accounts payable 34,162 19,066
Accrued expenses 20,316 17,640
--------- ---------
Total current liabilities 58,541 40,813
--------- ---------
Long-term debt, net of current portion 142,676 116,090
Deferred income taxes 12,864 11,322
Other liabilities 1,049 1,530
Stockholders' equity:
Preferred stock, par value,
$.01 per share, 10,000,000 shares
authorized, none issued
Common stock, par value $.01 per share,
50,000,000 shares authorized,
12,188,629 and 12,187,629
shares issued 122 122
Additional paid-in capital 72,389 72,373
Retained earnings 45,373 40,373
Unearned employee benefits
related to ESOP (514)
Unearned compensation related to
restricted stock (151) (614)
Unrealized loss on securities
available-for-sale, net (398)
--------- ---------
117,733 111,342
Less common stock in treasury-at
cost, 939,500 and 202,300 shares (8,001) (1,652)
--------- ---------
109,732 109,690
--------- ---------
$ 324,862 $ 279,445
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
(In thousands except shares and per share data)
<S> <C> <C> <C>
Net revenues $ 332,888 $ 291,623 $ 313,187
Cost of products sold 234,271 195,489 209,769
----------- ----------- -----------
Gross margin 98,617 96,134 103,418
Operating expenses 51,856 51,823 46,945
Depreciation and amortization 13,345 12,246 11,415
Selling, general and administrative expenses 12,778 11,930 13,642
----------- ----------- -----------
Operating income 20,638 20,135 31,416
Interest expense (11,506) (11,805) (5,765)
Interest and investment income 2,239 1,733 1,486
----------- ----------- -----------
Earnings from continuing operations before
income taxes 11,371 10,063 27,137
Provision for income taxes 3,638 2,608 9,597
----------- ----------- -----------
Earnings from continuing operations 7,733 7,455 17,540
Discontinued operations:
Earnings (loss) from exploration and
production operations (net of income taxes
(benefit) of $154 in 1995, $(1,351) in
1994, and $(5,825) in 1993) 143 (2,934) (11,275)
----------- ----------- -----------
Earnings before extraordinary item 7,876 4,521 6,265
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $252 (384)
----------- ----------- -----------
Net earnings $ 7,876 $ 4,521 $ 5,881
=========== =========== ===========
Earnings (loss) per common share:
Continuing operations $ 0.68 $ 0.61 $ 1.43
Discontinued operations 0.01 (0.24) (0.92)
----------- ----------- -----------
Earnings before extraordinary item 0.69 0.37 0.51
Extraordinary loss (0.03)
----------- ----------- -----------
Net earnings $ 0.69 $ 0.37 $ 0.48
=========== =========== ===========
Weighted average number of shares outstanding 11,478,779 12,127,481 12,225,177
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned
Unearned compen- Unrealized
Common stock employee sation loss on Total
----------------- Additional benefits related to securities Treasury stock stock-
Shares Par paid-in Retained related to restricted available- ---------------- holders'
issued value capital earnings ESOP stock for-sale Shares Cost equity
---------- ----- ---------- -------- ---------- ---------- ---------- ------- ------- --------
(In thousands except number of shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993 12,223,768 $122 $72,764 $29,971 $(2,247) $(2,008) $ 98,602
Stock options exercised 3,700 37 37
Benefits allocated to
employees by ESOP 900 900
Compensation related to
restricted stock awards 494 494
Restricted stock award
shares forfeited (34,698) (384) 384
Net earnings 5,881 5,881
---------- ---- ------- ------- ------- ------- ----- ------- ------- --------
Balances, December 31, 1993 12,192,770 122 72,417 35,852 (1,347) (1,130) 105,914
Purchase of treasury stock 202,300 $(1,652) (1,652)
Stock options exercised 500 3 3
Benefits allocated to
employees by ESOP 833 833
Compensation related to
restricted stock awards 469 469
Restricted stock award
shares forfeited (5,641) (47) 47
Unrealized loss on
securities available-
for-sale $(398) (398)
Net earnings 4,521 4,521
---------- ---- ------- ------- ------- ------- ----- ------- ------- --------
Balances, December 31, 1994 12,187,629 122 72,373 40,373 (514) (614) (398) 202,300 (1,652) 109,690
Purchase of treasury stock 737,200 (6,349) (6,349)
Stock options exercised 1,000 8 8
Benefits allocated to
employees by ESOP 514 514
Compensation related to
restricted stock awards 8 463 471
Dividends declared (2,876) (2,876)
Change in unrealized loss
on securities available-
for-sale 398 398
Net earnings 7,876 7,876
---------- ---- ------- ------- ------- ------- ----- ------- ------- --------
Balances, December 31, 1995 12,188,629 $122 $72,389 $45,373 $ $ (151) $ 939,500 $(8,001) $109,732
========== ==== ======= ======= ======= ======= ===== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------
1995 1994 1993
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,876 $ 4,521 $ 5,881
Adjustments to reconcile net earnings to
net cash provided by continuing operating activities:
(Earnings) loss from discontinued operations (143) 2,934 11,275
Depreciation and amortization 13,345 12,246 11,415
Deferred income taxes 1,632 (1,058) (258)
Restricted stock award compensation 471 469 494
Extraordinary loss on extinguishment of debt 384
Gain on involuntary conversion of refinery assets (533)
Proceeds from settlement of interest rate swap agreement 1,514
(Decrease) increase in other liabilities (328) 1,019 (1,190)
Other 57 341 9
Changes in operating assets and liabilities:
Increase in receivables (2,513) (7,200) (1,880)
(Increase) decrease in inventories (10,311) (8,929) 1,458
(Increase) decrease in prepaid expenses and other (1,563) 1,120 (1,753)
Increase (decrease) in accounts payable 15,096 5,037 (1,965)
Increase (decrease) in accrued expenses 904 (2,121) 9,513
--------- -------- --------
Net cash provided by continuing operating activities 24,523 7,846 34,897
--------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment
and other assets (77,978) (17,165) (9,187)
Proceeds from sale of property, plant and
equipment and other assets 2,588 5,611 410
Insurance proceeds from involuntary conversion of
refinery assets 438
Purchase of ESOP loan from bank (1,347)
Payments received on ESOP loan 514 833
Purchases of marketable securities (101,562) (57,109)
Proceeds from sales and maturities of marketable securities 35,991 100,849 20,963
Net change in assets of discontinued operations (6,150) 639 (312)
--------- -------- --------
Net cash used by investing activities (45,035) (10,357) (46,582)
--------- -------- --------
Cash flows from financing activities:
Proceeds of long-term debt 41,000 100,000
Payments of long-term debt (14,458) (3,025) (73,885)
Purchase of treasury stock (6,349) (1,652)
Deferred financing costs (698) (100) (2,199)
Payment of dividends (2,302)
Proceeds from exercise of stock options 8 3 37
--------- -------- --------
Net cash provided (used) by financing activities 17,201 (4,774) 23,953
--------- -------- --------
Net (decrease) increase in cash and cash equivalents (3,311) (7,285) 12,268
Cash and cash equivalents:
Beginning of year 12,860 20,145 7,877
--------- -------- --------
End of year $ 9,549 $ 12,860 $ 20,145
========= ======== ========
</TABLE>
Noncash Investing and Financing Activities. For the year ended
December 31, 1995, two retail units with a net book value of
$1,613,000 were exchanged for a finished products terminal
and $1,198,000 was incurred as a contingent payment related
to the acquisition of the Bloomfield refinery. For the year
ended December 31, 1994, a portion of the acquisition price of
nine retail units was seller financed for $2,917,000.
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<PAGE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Giant Industries, Inc. ("Giant" or the "Company") was organized
to combine the refining and marketing business of Giant Industries
Arizona, Inc. ("Giant Arizona") with the exploration and production
business of Hixon Development Company ("Hixon") through a merger in
December 1989 in which Giant Arizona and Hixon became wholly-owned
subsidiaries of the Company. In conjunction with the merger, the
Company completed its initial public offering. In 1990, Hixon was
renamed Giant Exploration & Production Company ("Giant E&P").
In early 1996, the Company approved a plan of disposition of the
exploration and production business, Giant E&P. As a result, the
Company's financial statements have been retroactively restated to
present the exploration and production business as a discontinued
operation. (See Note 3 for further discussion.)
DESCRIPTION OF BUSINESS
The Company operates primarily as an independent refiner and
marketer of petroleum products. The Company has two operating
refineries in New Mexico. The Ciniza refinery, with a crude oil
throughput capacity of 20,800 barrels per day ("bpd") and a total
capacity including natural gas liquids of 26,000 bpd, is located near
Gallup, New Mexico. In October 1995, the Company acquired the
Bloomfield refinery, with a crude oil throughput capacity of 18,000
bpd and a total capacity including natural gas liquids of 18,600 bpd,
located in Bloomfield, New Mexico. (See Note 2 for further discussion.)
The Company's principal business is the refining of crude oil
into petroleum products which are sold through branded retail outlets
as well as through distributors, industrial/commercial accounts and
major oil companies. The Company is the largest refiner and one of
the largest marketers of petroleum products in the Four Corners area
of the southwestern United States where New Mexico, Arizona, Colorado
and Utah adjoin. The Company also owns an ethanol production plant
which supplies ethanol for blending by the Company as well as for
sale to third party customers. Due to high grain costs, this facility
has temporarily suspended operations and will be reopened when grain
prices become more favorable. As an adjunct to its retail outlets,
the Company sells merchandise through stores.
The Company is in the process of selling its exploration and
production business which engages in the exploration for and the
acquisition, development and production of crude oil, condensate and
natural gas primarily in New Mexico, Kansas, Oklahoma and South Texas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Giant and all its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
NET REVENUES
Revenues are recognized from sales when product ownership is
transferred to the customer. Excise and other similar taxes are
excluded from net revenues.
STATEMENTS OF CASH FLOWS
All highly liquid instruments with an original maturity of three
months or less are considered to be cash equivalents.
FUTURES CONTRACTS
The Company periodically enters into futures contracts to hedge
its exposure to price fluctuations on crude oil and refined products.
Gains and losses on hedge contracts are deferred and reported as a
component of the related transaction. For the purposes of the
Statement of Cash Flows, hedging transactions are considered to be
operating activities.
INTEREST RATE SWAPS
In the past, interest rate management techniques such as swaps
and caps were entered into in order to effectively manage and reduce
net interest expense. Net settlements on swap transactions are
reported as an adjustment to net interest expense.
MARKETABLE SECURITIES
All marketable securities were sold or matured in 1995. In 1994,
all marketable securities were classified as available-for-sale and
consisted of taxable corporate bonds, non-taxable municipal bonds
and variable rate preferred stocks and were stated at fair value.
Fair value was estimated based on quoted market prices. Marketable
securities were managed as part of the Company's short-term cash
management program.
CONCENTRATION OF CREDIT RISK
Credit risk with respect to customer receivables is concentrated
in a small geographic area in which the Company operates and relates
to customers in the oil and gas industry. To minimize this risk, the
Company performs ongoing credit evaluations of its customers'
financial position and requires collateral, such as letters of credit,
in certain circumstances.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs for
crude oil and refined products produced by the refineries are
determined by the last-in, first-out ("LIFO") method. Costs for
exchange and terminal refined products and shop supplies are
determined by the first-in, first-out ("FIFO") method. Costs for
merchandise inventories are determined by the retail inventory method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and, except for
oil and gas properties, are depreciated on the straight-line method
over their respective estimated useful lives. The estimated useful
lives for the various categories of property, plant and equipment are:
Oil and gas properties Units of production
Buildings and improvements 7-30 years
Machinery and equipment 7-24 years
Pipelines 30 years
Furniture and fixtures 2-15 years
Vehicles 3-7 years
The full cost method of accounting is followed for oil and gas
properties. Under this method of accounting, the cost of unsuccessful
as well as successful exploration and development activities are
capitalized as oil and gas properties.
The sum of net capitalized costs and estimated future development
and dismantlement costs is amortized over the production of proved
reserves using the units of production method. Depreciation,
depletion and amortization per equivalent barrel of production sold
for the years ended December 31, 1995, 1994 and 1993 was $4.65, $5.32,
and $7.50, respectively, excluding the effect of the Company's
writedown of oil and gas properties. Excluded from amounts subject to
amortization are costs associated with unevaluated properties of
$1,004,000 and $1,551,000 at December 31, 1995 and 1994, respectively,
until proved reserves associated with the properties have been
determined or impairment occurs. Net capitalized costs exceeding the
estimated present value of future cash inflows from proved oil and gas
reserves reduced by estimated future operating expenses and
development expenditures are charged to current operations. Gain or
loss on the sale or other disposition of oil and gas properties is not
recognized unless significant oil and gas reserves are involved.
Routine maintenance, repairs and replacement costs are charged
against earnings as incurred. Turnaround costs, which consist of
complete shutdown and inspection of significant units of the refineries
at intervals of two or more years for necessary repairs and
replacements, are deferred and amortized over the period until the
next expected shutdown. Expenditures which materially increase
values, expand capacities or extend useful lives are capitalized.
Interest expense is capitalized as part of the cost of constructing
major facilities and equipment.
TREASURY STOCK
The Company's Board of Directors has authorized the repurchase of
up to 1,500,000 shares of the Company's common stock or approximately
12% of all shares issued as of the inception of the repurchase program.
These purchases may be made from time to time as conditions permit.
Shares may be repurchased through privately-negotiated transactions,
block share purchases and open market transactions. Through the end of
1995, the Company had repurchased 939,500 shares at a cost of
approximately $8,001,000. These shares are being treated as treasury
shares.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to
an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study.
INCOME TAXES
The provision (benefit) for income taxes is based on earnings
(loss) reported in the financial statements. Deferred income taxes
are provided on temporary differences between the basis of assets
and liabilities for financial reporting purposes and income tax purposes.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed on the weighted
average number of shares of common stock outstanding during each
period. The exercise of outstanding stock options would not result in
a material dilution of earnings per share.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Company has not completed the process
of evaluating the impact that will result from adopting this Statement.
However, management does not believe the adoption will have a
significant impact on the Company's financial position or results
of operations. SFAS No. 121 is required to be adopted in the first
quarter of 1996.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123 "Accounting for Stock Based Compensation." The
Company has determined that it will not change to the fair value
method and will continue to use Accounting Principles Board Opinion
No. 25 for measurement and recognition of employee stock based
compensation. SFAS No. 123 will require additional disclosures in
the 1996 financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform to the statement classifications used
in 1995 relating to the classification of the exploration and production
business as discontinued operations.
<PAGE>
<PAGE>
NOTE 2--ACQUISITION:
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 purchase price was $55,000,000 plus approximately $7,500,000
for crude oil and refined products inventories associated with the
refinery operations. The purchase agreement also provides for
potential contingent payments to be made to BRC over approximately
the next six years, not to exceed a present value of $25,000,000,
should certain criteria be met. At December 31, 1995, the Company
had accrued approximately $1,198,000 under this arrangement relating
to 1995 operations. In addition, the Company assumed certain
environmental obligations and is in the process of gathering and
analyzing information in order to establish an environmental reserve.
Such reserve, which the Company does not believe will be material,
will be recorded as additional purchase price and allocated to
the assets acquired.
The following unaudited pro forma combined condensed financial
information for the twelve months ended December 31, 1995 and 1994
include the results of operations of the Company, including the
operations of the Bloomfield refinery for the fourth quarter of 1995,
and BRC for nine months of 1995 and twelve months of 1994, 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 each 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 dates specified,
nor should it be taken as indicative of the future results of
operations.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net revenues $ 439,719 $ 432,089
Cost of products sold 313,353 294,964
----------- -----------
Gross margin 126,366 137,125
----------- -----------
Operating expenses 61,504 64,755
Depreciation and amortization 15,408 14,996
Selling, general and administrative expenses 14,339 14,495
----------- -----------
Operating income 35,115 42,879
Interest expense, net and other 12,229 14,021
----------- -----------
Earnings from continuing operations
before income taxes 22,886 28,858
Provision for income taxes 8,118 9,955
----------- -----------
Earnings from continuing operations 14,768 18,903
Discontinued operations:
Earnings (loss) from exploration and
production operations (net of income taxes
(benefit) of $154 in 1995 and $(1,351)
in 1994) 143 (2,934)
----------- -----------
Net earnings $ 14,911 $ 15,969
=========== ===========
Earnings (loss) per common share:
Continuing operations $ 1.29 $ 1.56
Discontinued operations 0.01 (0.24)
----------- -----------
Net earnings $ 1.30 $ 1.32
=========== ===========
</TABLE>
<PAGE>
NOTE 3--DISCONTINUED OPERATIONS:
In early 1996, the Company approved a plan of disposition of the
exploration and production segment. 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. With the acquisition of the Bloomfield refinery and
crude oil gathering operations, the Company will focus its efforts on
its core business of refining and marketing. The Company is in the
process of searching for a buyer for the assets or the business and
expects to complete a sale in 1996. Based on current information, the
Company does not expect to incur a loss on the disposal of the segment.
The summarized balance sheet of the exploration and production
segment at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Assets:
Current assets $ 1,489 $ 1,143
Oil and gas properties, plant and equipment, net 33,140 24,958
Other assets 373 417
------- -------
Total assets 35,002 26,518
------- -------
Liabilities:
Current liabilities 1,996 1,592
Deferred taxes and other liabilities 6,317 4,530
------- -------
Total liabilities 8,313 6,122
------- -------
Net assets of discontinued operations $26,689 $20,396
======= =======
</TABLE>
The following is a summary of the operating results of the
exploration and production segment for the three years ended December
31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Net revenues $ 8,363 $ 5,959 $ 7,409
Operating costs and expenses 8,066 6,849 8,998
Reduction of carrying value of crude oil and
natural gas properties 3,395 15,511
------- ------- --------
297 (4,285) (17,100)
Provision (benefit) for income taxes(1) 154 (1,351) (5,825)
------- ------- --------
Net earnings (loss) from discontinued operations $ 143 $(2,934) $(11,275)
======= ======= ========
</TABLE>
(1) Coal seam gas tax credits generated from these operations of
$700,000, $635,000 and $752,000 in 1995, 1994 and 1993,
respectively, which could not be used on a separate return
basis, have been allocated to continuing operations based on
the Company's tax sharing arrangement.<PAGE>
<PAGE>
NOTE 4--MARKETABLE SECURITIES:
On January 1, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 requires the classification of securities at acquisition
into one of three categories: held-to-maturity, available-for-sale,
or trading--with different reporting requirements for each
classification.
At December 31, 1995, the Company had no marketable securities.
At December 31, 1994, all of the Company's marketable securities were
classified as available-for-sale and had a fair value of $35,631,000.
A valuation allowance of $654,000 was recorded in 1994 to reduce the
carrying value of the portfolio to estimated fair value and the
after-tax adjustment necessary to mark the securities to market
reduced stockholders' equity by $398,000. This adjustment had no
effect on the 1994 results of operations. A summary of the Company's
securities at December 31, 1994 was as follows:
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $34,270 $2 $(236) $34,036
Corporate debt securities 55 55
Equity securities 1,960 (420) 1,540
------- -- ----- -------
$36,285 $2 $(656) $35,631
======= == ===== =======
</TABLE>
An analysis of the caption "Unrealized loss on securities available-
for-sale, net" in the Consolidated Balance Sheet is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)*
<S> <C> <C>
Unrealized loss on securities available-
for-sale, January 1 $(398) $
Net change in unrealized loss, due principally
to the liquidation of the investment portfolio
in 1995 and higher interest rates in 1994 398 (398)
----- -----
Unrealized loss on securities available-
for-sale, December 31, $ 0 $(398)
===== =====
*These amounts have been tax effected.
</TABLE>
Included in the Company's investment portfolio at December 31, 1994,
was $2,000,000 of Orange County, California Tax and Revenue Anticipation
Notes due July 28, 1995 (the "Orange County Notes"). Orange County filed
for bankruptcy on December 6, 1994. The Company wrote this investment
down by $200,000 in 1994 to reflect an estimated other than temporary
impairment. In 1995, the Company was paid in full for these Orange
County Notes.
In recording gains and losses on the sale of marketable securities,
cost is determined using specific identification. In 1995, the Company
realized gross losses of approximately $310,000 offset in part by the
$200,000 gain realized on the full payment of the Orange County Notes.
Gains and losses were nominal for all other years presented.<PAGE>
<PAGE>
NOTE 5--INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
First-in, first-out ("FIFO") method:
Crude oil $15,465 $13,611
Refined products 17,605 11,054
Refinery and shop supplies 6,871 5,705
Retail method:
Merchandise 2,721 2,428
------- -------
Subtotal 42,662 32,798
Allowance for last-in, first-out ("LIFO") method (81) (528)
------- -------
Total $42,581 $32,270
======= =======
</TABLE>
The Company uses the LIFO method of inventory valuation. The
portion of inventories valued on a LIFO basis totaled $29,710,000 and
$21,717,000 at December 31, 1995 and 1994, respectively. The
following data will facilitate comparison with operating results of
companies using the FIFO method.
If inventories had been determined using the FIFO method at
December 31, 1995, 1994 and 1993, net earnings and earnings per share
for the years ended December 31, 1995, 1994 and 1993 would have been
higher (lower) by $(268,000) and $(0.02), $357,000 and $0.03 and $237,000
and $0.02, respectively.
<PAGE>
<PAGE>
NOTE 6--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Land and improvements $ 21,582 $ 20,888
Buildings and improvements 56,165 50,997
Machinery and equipment 178,301 120,666
Pipelines 8,875 8,426
Furniture and fixtures 15,195 13,837
Vehicles 6,552 4,613
Construction in progress 6,249 4,394
-------- --------
Subtotal 292,919 223,821
Accumulated depreciation and amortization (94,357) (85,863)
-------- --------
Total $198,562 $137,958
======== ========
</TABLE>
<PAGE>
<PAGE>
NOTE 7--ACCRUED EXPENSES:
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Excise taxes $ 8,608 $ 5,952
Payroll and related costs 3,975 3,373
Interest 1,390 1,285
Other 6,343 7,030
------- -------
Total $20,316 $17,640
======= =======
</TABLE>
<PAGE>
<PAGE>
NOTE 8--LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
9 3/4% senior subordinated notes, due
2003, interest payable semi-annually $100,000 $100,000
Unsecured credit agreement, due 1998, floating
interest rate, interest payable quarterly 31,000
10.91% senior unsecured note, due 1995 to
1999, interest payable quarterly 8,750 11,250
Notes payable to others, collateralized
by real estate, 9% to 11%, due 1995 to
2010, interest payable monthly or annually 3,645 4,594
8% secured promissory note, due 1995 to
1997, interest payable quarterly 1,945 2,917
Other 1,399 1,436
-------- --------
Subtotal 146,739 120,197
Less current portion (4,063) (4,107)
-------- --------
Total $142,676 $116,090
======== ========
</TABLE>
The Indenture supporting the 9 3/4% senior subordinated notes
("Notes") contains certain covenants that, among other things,
restrict the ability of the Company and its subsidiaries to create
liens, incur or guarantee debt, pay dividends, sell certain assets or
subsidiary stock, engage in certain mergers, engage in certain
transactions with affiliates or alter the Company's current line of
business. At December 31, 1995, the Company was in compliance with
these covenants. In addition, the Company is, subject to certain
conditions, obligated to offer to purchase a portion of the Notes at a
price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase, with the net cash
proceeds of certain sales or other dispositions of assets. Upon a
change of control, the Company will be required to offer to purchase
all of the Notes at 101% of the principal amount thereof, plus accrued
interest, if any, to the date of purchase. At December 31, 1995,
retained earnings available for dividends under the terms of the
Indenture was approximately $13,137,000.
In October 1995, the Company entered into a Credit Agreement with
a group of banks under which $30,000,000 was borrowed pursuant to a
three-year unsecured revolving term facility to provide financing for
the purchase of the Bloomfield refinery. The principal balance is due
in October 1998 and has a floating interest rate that is tied to
various short-term indices. At December 31, 1995, this rate was
approximately 7%. On November 6, 1995, $10,000,000 of this revolving
term facility was prepaid from cash on hand.
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) $40,000,000, or (ii) the
amount determined under a borrowing base calculation tied to eligible
accounts receivable and inventories as defined in the Credit Agreement.
At December 31, 1995, the lesser amount was $40,000,000. This facility
has a floating interest rate that is tied to various short-term indices.
At December 31, 1995, this rate was approximately 8 1/2%. At December
31, 1995, direct borrowings under this arrangement were $11,000,000 and
there were $16,948,000 of irrevocable letters of credit outstanding.
The Company is required to pay a quarterly commitment fee based
on the unused amount of each facility.
The Credit Agreement contains certain covenants and restrictions
which require the Company to, among other things, maintain a minimum
consolidated net worth; minimum fixed charge coverage ratio; minimum
funded debt to total capitalization percentage; and places limits on
investments, prepayment of senior subordinated debt, guarantees, liens
and restricted payments. At December 31, 1995, the Company was in
compliance with these covenants. The Credit Agreement is guaranteed
by substantially all of the Company's wholly-owned subsidiaries.
The 10.91% senior unsecured note is due to an insurance company
and the related agreement includes certain covenants, determined on a
FIFO inventory basis, that require the Company to maintain a minimum
net worth and working capital; places certain restrictions on, while
not precluding, the purchase or redemption of the Company's capital
stock, payment of dividends and payments of subordinated debt and
interest; limits the dollar amount of new operating leases; and
specifies certain conditions for new long-term debt obligations. At
December 31, 1995, the Company was in compliance with these
covenants. The remaining balance is payable in seven semi-annual
installments of $1,250,000 through 1999.
In 1995, 1994 and 1993, the Company's interest expense was
reduced by approximately $242,000, $288,000 and $1,304,000, respectively,
as a result of amortizing the proceeds received from a terminated
interest rate swap agreement. At December 31, 1995, there were
approximately $364,000 of deferred swap proceeds to be amortized over
the remaining term of the 10.91% note.
Aggregate annual maturities of long-term debt as of December 31,
1995 are: 1996 - $4,063,000; 1997 - $4,128,000; 1998 - $34,047,000;
1999 - $3,346,000; 2000 - $49,000; and all years thereafter -
$101,106,000.
<PAGE>
<PAGE>
NOTE 9--FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments" and
SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments." The estimated fair value
amounts have been determined by the Company using available market
information and valuation methodologies described below. However,
considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates
presented herein may not be indicative of the amounts that the Company
could realize in a current market exchange. The use of different
market assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet--Financial
Instruments:
Assets:
Marketable securities $ 35,631 $ 35,631
Liabilities:
Fixed rate long-term debt $115,637 $103,582 $120,068 $106,854
</TABLE>
The carrying values of cash and cash equivalents, receivables,
accounts payable and accrued expenses approximate fair values due to
the short-term maturities of these instruments. Variable rate
long-term debt instruments are estimated to approximate fair values as
rates are tied to short-term indices.
MARKETABLE SECURITIES
The fair value of marketable securities was determined based on
quoted market prices from various brokers. (See Note 4 for further
discussion.)
FIXED RATE LONG-TERM DEBT
The fair value of fixed rate long-term debt was estimated by
discounting future cash flows using rates estimated to be currently
available for debt of similar terms and remaining maturities.
HEDGING ACTIVITIES
The Company purchases crude oil futures contracts and options to
reduce price volatility and to fix margins in its refining and
marketing operations. In addition, the Company uses forward grain
purchase contracts and options to reduce price volatility on and to
secure grain supplies for its ethanol production operations. These
contracts permit settlement by delivery of commodities and,
therefore, are not financial instruments, as defined by SFAS No. 105.
The Company uses these contracts in its hedging activities. At
December 31, 1995, the Company's hedging activities had futures
contracts maturing in 1996 covering 85,000 barrels of crude oil and
options had been purchased on 240,000 barrels of crude oil. At
December 31, 1994, the Company's hedging activities had futures
contracts maturing in 1995 covering 168,000 barrels of crude oil and
grain purchase contracts for approximately 190,000,000 pounds of
grain, equating to approximately 90% of grain demand through
September 1995. In addition, options had been purchased on
approximately 58,000,000 pounds of the contracted grain commitment.
The crude oil futures contracts qualify as hedges and any gains or
losses resulting from market changes will be offset by losses or
gains on the Company's hedging contracts. The crude oil options
provide the Company downside protection on a portion of crude oil
barrels in inventory in excess of current operating needs. The grain
purchase contracts were forward purchase contracts and had the effect
of fixing the Company's grain cost. The grain options purchased
would have allowed the Company to participate in the market if grain
prices dropped significantly. These options expired unexercised in
1995. Gains and losses on hedging contracts are deferred and
reported as a component of the related transaction. Net deferred
gains for the Company's petroleum hedging activities were
approximately $116,000 and $17,000 at December 31, 1995 and 1994,
respectively.
The Company is exposed to loss in the event of nonperformance by
the other parties to these contracts. However, the Company does not
anticipate nonperformance by the counterparties.
<PAGE>
<PAGE>
NOTE 10--INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current: Federal $ 1,140 $ 3,283 $ 8,264
State 866 385 1,582
Deferred: Federal 1,438 (1,189) 5
State 194 129 (254)
------- ------- -------
$ 3,638 $ 2,608 $ 9,597
======= ======= =======
</TABLE>
Income taxes paid in 1995, 1994 and 1993 were $0, $5,379,000 and
$6,672,000, respectively.
A reconciliation of the difference between the provision
for income taxes and income taxes at the statutory U.S. federal
income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income taxes at the statutory
U.S. federal income tax rate $ 3,980 $ 3,522 $ 9,498
Increase (decrease) in taxes
resulting from:
State taxes, net 563 505 1,333
Statutory rate change related
to deferred income taxes 461
General business credits, net (679) (910) (888)
Federal tax credits from
nonconventional fuel (700) (635) (752)
Other, net 474 126 (55)
------- ------- -------
$ 3,638 $ 2,608 $ 9,597
======= ======= =======
</TABLE>
<PAGE>
<PAGE>
Deferred income taxes are provided to reflect temporary
differences in the basis of net assets for income tax and financial
reporting purposes. The tax effected temporary differences and credit
carryforwards which comprise deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------------ -------------------------------
Assets Liabilities Total Assets Liabilities Total
------- ----------- -------- ------- ------------ --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Nondeductible accruals for
uncollectible receivables $ 168 $ 168 $ 217 $ 217
Insurance accruals 597 597 716 716
Insurance settlements 106 106 597 597
Other nondeductible accruals 130 130 382 382
Other reserves 616 616
Inventory costs capitalized
for income tax purposes 137 137 323 323
Nondeductible writedown of
marketable securities 255 255
Other 391 391
------- -------- -------- ------- -------- --------
Total current 2,145 2,145 2,490 2,490
------- -------- -------- ------- -------- --------
Other nondeductible accruals 349 349 528 528
Other reserves 638 638
Restricted stock awards $ (28) (28) $ (179) (179)
Operating lease (1,003) (1,003) (1,061) (1,061)
Accelerated depreciation (19,953) (19,953) (19,163) (19,163)
Other 42 (979) (937) 128 (8) 120
Tax credit carryforwards 8,708 8,708 7,795 7,795
------- -------- -------- ------- -------- --------
Total noncurrent 9,099 (21,963) (12,864) 9,089 (20,411) (11,322)
------- -------- -------- ------- -------- --------
Total $11,244 $(21,963) $(10,719) $11,579 $(20,411) $ (8,832)
======= ======== ======== ======= ======== ========
</TABLE>
At December 31, 1995, the Company had a minimum tax credit
carryforward of approximately $5,438,000 available to offset future
income taxes payable to the extent regular income taxes payable
exceeds alternative minimum taxes payable. Minimum tax credits can be
carried forward indefinitely.
At December 31, 1995, the Company also had approximately
$3,270,000 of general business credits available to offset future
regular taxes payable. Pursuant to Federal income tax law, these
carryover credits must be used before any minimum tax credit carry-
forward can be used. Of the total general business credit available,
$885,000 will expire in 2008, $1,341,000 will expire in 2009, and
$1,044,000 will expire in 2010.<PAGE>
<PAGE>
NOTE 11--EMPLOYEE STOCK OWNERSHIP PLAN:
The Company and its subsidiaries have an Employee Stock
Ownership Plan ("ESOP") which is a noncontributory defined
contribution plan established primarily to acquire shares of the
Company's common stock for the benefit of all eligible employees.
The ESOP's assets included 1,435,965 and 1,534,878 shares of the
Company's common stock at December 31, 1995 and 1994, respectively.
At December 31, 1995, all shares had been allocated to the
participants. At December 31, 1994, 1,460,322 shares had been
allocated to the participants and 74,556 shares remained unallocated.
Shares are allocated to participants when principal payments are made
on the loan discussed below. Allocations to participant accounts are
made on a formula based on the ratio that each participant's
compensation, during the Plan year, bears to the compensation of all
such participants. The Company treats all ESOP shares as outstanding
for earnings per share purposes.
The ESOP originally borrowed $6,500,000 from a bank and
purchased shares of the Company's common stock from existing
shareholders. The loan was purchased by the Company from the bank in
1993. In 1995, the $514,000 balance remaining on the loan obligation
was paid by the ESOP. The loan obligation had an interest rate equal
to 80% of the prime rate. The loan obligation was considered
unearned employee benefit expense and, as such, recorded as a
reduction of the Company's stockholders' equity. Both the loan
obligation and the unearned benefit expense were reduced by the
amount of any loan repayments made by the ESOP. Contributions to the
ESOP are made at the discretion of the Board of Directors. The
Company made contributions of $900,000, $900,000 and $889,000 to the
ESOP for 1995, 1994 and 1993, respectively.<PAGE>
<PAGE>
NOTE 12--STOCK INCENTIVE PLAN:
The Company established the 1989 Stock Incentive Plan under which
500,000 shares of the Company's common stock were authorized to be
issued to deserving employees in the form of options and/or restricted
stock. The Plan is administered by the Compensation Committee of the
Board of Directors.
The following summarizes stock option transactions under this
plan:
<TABLE>
<CAPTION>
Number of Option
Options outstanding at Shares Prices
- ---------------------- --------- ------
<S> <C> <C>
January 1, 1993 252,142 $5.25 to 10.63
Granted 113,500 7.75
Forfeited (57,085) 8.96 to 10.63
Exercised (3,700) 5.25 to 10.63
-------
December 31, 1993 304,857 5.25 to 10.63
Granted 10,000 9.25 to 10.38
Forfeited (2,000) 5.25
Exercised (500) 5.25
-------
December 31, 1994 312,357 5.25 to 10.63
Forfeited (5,000) 7.75
Exercised (1,000) 7.75
-------
December 31, 1995 306,357 $5.25 to 10.63
=======
Options exercisable at December 31:
1995 222,973 $5.25 to 10.63
1994 154,481 5.25 to 10.63
1993 85,503 5.25 to 10.63
</TABLE>
In 1990, an additional 29,500 shares of restricted stock were
granted under this plan of which 8,572 were forfeited in 1993 and
1,286 in 1994.
At December 31, 1995, there were 168,801 shares available for
future grants.
Prior to adoption of the 1989 Stock Incentive Plan, the Company
granted shares to employees under Restricted Stock Plans as follows:
Shares
---------
1989 124,097*
1988 214,447**
*Net of 21,045 shares forfeited.
**Net of 33,746 shares forfeited.
All of the options or restricted stock grants are subject to
forfeiture with vesting ranging from 14% to 33% annually beginning one
year after the date of grant for restricted stock and exercise dates
of stock options. Compensation expense related to restricted stock
grants is charged to earnings over the appropriate vesting period.
All options were granted at fair market value at the date of grant and
expire on the tenth anniversary of the grant date.
<PAGE>
<PAGE>
NOTE 13--401(k) PLAN:
In 1993, the Company adopted a 401(k) retirement plan for its
employees. This plan complements the Company's Employee Stock
Ownership Plan by allowing the employees to invest on a pre-tax basis
in non-Giant stock investments thus diversifying their retirement
portfolios. For the years ended December 31, 1995, 1994 and 1993, the
Company had expensed $188,000, $189,000 and $109,000, respectively,
for matching contributions under this plan.
<PAGE>
<PAGE>
NOTE 14--INTEREST, OPERATING LEASES AND RENT EXPENSE:
Interest paid and capitalized for 1995 was $11,833,000 and
$190,000, for 1994 was $11,644,000 and $0, and for 1993 was
$4,711,000 and $249,000, respectively.
The Company is committed to annual minimum rentals under
noncancelable operating leases that have initial or remaining lease
terms in excess of one year as of December 31, 1995 as follows:
<TABLE>
<CAPTION>
Land, building, machinery
and equipment leases
(In thousands)
-------------------------
<S> <C>
1996 $ 516
1997 501
1998 470
1999 464
2000 415
Later years 58
------
Total minimum payments required $2,424
======
</TABLE>
Total rent expense was $1,982,000, $1,890,000 and $1,584,000
for 1995, 1994 and 1993, respectively.
<PAGE>
<PAGE>
NOTE 15--COMMITMENTS AND 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 December 31,
1995 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.
In 1994, the Company established an environmental liability
accrual for approximately $1,400,000 relating to ongoing
environmental projects, including the remediation of a hydrocarbon
plume at the Company's Farmington refinery. In late 1994, the Company
accrued an additional $250,000 relating to hydrocarbon contamination
on 5.5 acres the Company owns in Bloomfield, New Mexico. At
December 31, 1995, the balance of the accrual was approximately
$1,100,000, 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. It is the Company's understanding
that these appeals will be held in abeyance pending further judicial
clarification of the Tribe's taxing authority by means of litigation
involving other companies. It is possible, however, that the Company's
assessments will have to be litigated by the Company before final
resolution. The Company may receive further tax assessments before
judicial resolution of the Tribe's taxing authority.
<PAGE>
<PAGE>
NOTE 16--QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------
Quarter
--------------------------------------
First Second Third Fourth(1)
------- ------- ------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Continuing Operations:
Net revenues $69,562 $80,590 $78,400 $104,336
Cost of products sold 49,357 56,497 53,719 74,698
------- ------- ------- --------
Gross margin 20,205 24,093 24,681 29,638
------- ------- ------- --------
Operating expenses 12,115 12,255 13,120 14,366
Depreciation and amortization 3,056 3,307 2,986 3,996
Selling, general and administrative expenses 2,842 3,365 3,333 3,238
Net earnings 112 2,093 1,968 3,560
Net earnings per common share $ 0.01 $ 0.18 $ 0.17 $ 0.32
Discontinued Operations:
Net earnings $ 35 $ 59 $ 10 $ 39
Net earnings per common share $ 0.01
(1) Fourth quarter 1995 includes the results of operations of the
Bloomfield refinery which was acquired on October 4, 1995.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
--------------------------------------
Quarter
--------------------------------------
First Second Third Fourth
------- ------- ------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Continuing Operations:
Net revenues $63,202 $73,831 $76,760 $ 77,830
Cost of products sold 41,195 47,554 53,940 52,800
------- ------- ------- --------
Gross margin 22,007 26,277 22,820 25,030
------- ------- ------- --------
Operating expenses 12,124 12,537 13,759 13,403
Depreciation and amortization 3,028 3,103 3,047 3,068
Selling, general and administrative expenses 2,209 3,545 3,124 3,052
Net earnings 1,667 3,112 287 2,389
Net earnings per common share $ 0.14 $ 0.25 $ 0.02 $ 0.20
Discontinued Operations:
Net earnings (loss) $ (255) $ (155) $(2,540) $ 16
Net loss per common share $ (0.02) $ (0.01) $ (0.21)
</TABLE>
<PAGE>
<PAGE>
NOTE 17--SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED):
The following is historical information relating to the
Company's oil and gas business which has been recorded as a
discontinued operation.
Excluded from amounts subject to amortization as of December 31,
1995 and 1994 are $1,004,000 and $1,551,000, respectively, of costs
associated with unevaluated properties.
COSTS EXCLUDED FROM AMORTIZATION
<TABLE>
<CAPTION>
Year Costs Incurred Excluded
----------------------------- Costs at
Prior December 31,
Years 1993 1994 1995 1995
----- ---- ---- ---- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Property acquisition $336 $327 $357 $(16) $1,004
==== ==== ==== ===== ======
</TABLE>
CAPITALIZED COSTS
The Company's net investment in oil and gas properties was as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Capitalized costs:
Proved properties $90,256 $78,388
Unproved properties 1,004 1,551
------- -------
91,260 79,939
Less accumulated depreciation, depletion
and amortization 59,910 56,919
------- -------
Net capitalized costs $31,350 $23,020
======= =======
</TABLE>
During 1994, the Company recognized a non-cash writedown of its
oil and gas properties of $3,395,000 for the excess of net capitalized
costs over the estimated present value of net future cash inflows.
This writedown was recorded as an increase to accumulated depreciation,
depletion and amortization.
COSTS INCURRED
Costs incurred (exclusive of general support facilities) in oil
and gas exploration activities (all in the United States) were as
follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Property acquisition costs:
Proved properties $ 5,192 $ 326 $ 87
Unproved properties (16) 357 327
------- ------ ------
Subtotal 5,176 683 414
Development costs 6,095 2,759 3,211
Exploration costs 251 123 290
------- ------ ------
Total $11,522 $3,565 $3,915
======= ====== ======
</TABLE>
ESTIMATED QUANTITIES (ALL IN THE UNITED STATES) OF PROVED OIL AND GAS
RESERVES
Proved reserves are estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and
operating methods. The Company's reserves are located primarily in
the southwestern United States.
The following schedules set forth the Company's net proved and
proved developed oil and gas reserves, as determined by independent
consultants, along with a summary of the changes in the quantities of
net proved reserves:
<TABLE>
<CAPTION>
Oil Gas
(Thousands (Millions
of barrels) of cubic feet)
------------ --------------
<S> <C> <C>
Proved Reserves:
At January 1, 1993 3,285 15,943
Revisions of previous estimates (1,036) (2,748)
Extension, discoveries and other additions 234 1,284
Production (287) (1,481)
------ ------
At December 31, 1993 2,196 12,998
------ ------
Revisions of previous estimates 151 (187)
Extension, discoveries and other additions 135 404
Production (267) (1,355)
------ ------
At December 31, 1994 2,215 11,860
------ ------
Revisions of previous estimates (44) 3,018
Extension, discoveries and other additions 1,254 1,315
Purchase of minerals in place 1,936 658
Production (401) (1,587)
------ ------
At December 31, 1995 4,960 15,264
====== ======
</TABLE>
Downward revisions in prior years were due to unsuccessful
drilling efforts, reduced well economic productivity and limitations
in drilling for the replacement of reserves. Current year upward
revisions are due to recompletions, workovers and improved well
performance. In 1992, the Company sold a volume of reserves equal to
approximately 50% of its then working interest in certain proved
developed natural gas reserves along with a portion of the associated
gathering system. The purchase and sale agreement associated with
that transaction contains a provision whereby the ownership interest
in the subject reserves is adjusted annually at December 31, 1993
through 1996, based on year end reserve reports, so that the buyer
receives a cumulative working interest estimated for the life of the
reserves equal to the reserve volume purchased. In 1995 and 1994,
there were positive gas revisions of 279 and 1,018 million cubic
feet, respectively. In 1993, there was a negative gas revision of
approximately 1,159 million cubic feet.
<TABLE>
<CAPTION>
Oil Gas
(Thousands (Millions
of barrels) of cubic feet)
------------ --------------
<S> <C> <C>
Proved developed reserves included in above:
At December 31, 1993 1,855 8,225
At December 31, 1994 1,884 9,269
At December 31, 1995 3,919 12,618
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves ("Standardized Measure") is a
disclosure requirement under SFAS No. 69. The Standardized Measure
does not purport to present the fair market value of a company's
proved oil and gas reserves. This would require consideration of
expected future economic and operating conditions, which are not taken
into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were
estimated by applying year end prices, adjusted for fixed and
determinable escalations, to the estimated future production of year
end proved reserves. Prices tend to be volatile and have increased
slightly for natural gas and decreased somewhat for crude oil since
year end. Future cash inflows were reduced by estimated future
production and development costs to determine pre-tax cash inflows.
Future income taxes were computed by applying the statutory tax rate
to the excess of pre-tax cash inflows over the Company's tax basis in
the associated proved oil and gas properties. Tax credits, including
the federal coal seam gas credit, and permanent differences were also
considered in the future income tax calculation. Future net cash
inflows after income taxes were discounted using a 10% annual
discount rate to arrive at the Standardized Measure.
<PAGE>
<PAGE>
Set forth below is the Standardized Measure relating to proved
oil and gas reserves:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Future cash inflows $108,301 $ 54,061 $ 56,958
Future production and
development costs (59,130) (24,515) (23,722)
-------- -------- --------
Future net cash flows
before income taxes 49,171 29,546 33,236
10% annual discount for estimated
timing of cash flows (19,591) (10,588) (12,589)
-------- -------- --------
Discounted future net cash
flows before income taxes 29,580 18,958 20,647
Income taxes (discounted) (3,412) (915)
-------- -------- --------
Standardized measure of
discounted future net cash flows $ 26,168 $ 18,958 $ 19,732
======== ======== ========
</TABLE>
<PAGE>
<PAGE>
Changes in the Standardized Measure of Discounted Future Net Cash
Flows Relating to Proved Oil and Gas Reserves for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Sales of oil and gas produced, net of
production costs $(5,459) $(3,416) $ (4,496)
Net changes in prices and production costs
relating to future production (2,889) (4,368) (10,758)
Extensions, discoveries and improved recovery 6,691 970 2,331
Development costs incurred during the period 6,095 2,759 3,211
Changes in estimated future development costs (5,196) 133 (2,459)
Revisions in previous quantity estimates 2,063 644 (10,031)
Net changes due to purchases of minerals in place 9,188
Accretion of discount 1,896 1,973 3,194
Net changes in income taxes (3,412) 915 4,797
Other (1,767) (384) 2,006
------- ------- --------
Net increase (decrease) 7,210 (774) (12,205)
Beginning of year 18,958 19,732 31,937
------- ------- --------
End of year $26,168 $18,958 $ 19,732
======= ======= ========
</TABLE>
<PAGE>
<PAGE>
Results of operations for exploration and production
activities (all in the United States):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenues $ 8,363 $ 5,959 $ 7,409
Production costs and
other expenses (4,791) (4,055) (4,776)
Reduction of carrying value
of crude oil and natural
gas properties (3,395) (15,511)
Depreciation, depletion
and amortization (3,275) (2,794) (4,222)
------- ------- --------
297 (4,285) (17,100)
Income tax (expense) benefit (154) 1,351 5,825
------- ------- --------
Results of operations for
producing activities (excluding
corporate overhead
and interest expense) $ 143 $(2,934) $(11,275)
======= ======= ========
</TABLE>
<PAGE>
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
<PAGE>
PART III
Certain information required by Part III is omitted from
this Report by virtue of the fact that the Registrant will file
with the Securities and Exchange Commission a definitive proxy
statement relating to the Company's Annual Meeting of
Stockholders to be held May 16, 1996 pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information
to be included therein is incorporated herein by reference. The
Company expects to disseminate the Proxy Statement to
stockholders on or about March 29, 1996.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required
by this Item is incorporated by reference to the information
contained in the Proxy Statement under the caption "Election of
Directors."
The information concerning the Company's executive officers
required by this Item is incorporated by reference to the section
in Part I, Item 4 hereof entitled "Executive Officers of the
Registrant."
The information concerning compliance with Section 16(a) of
the Exchange Act required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the caption "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the captions "Election of Directors," "Executive
Compensation," "Compensation Committee Report on Executive
Compensation" and "Compensation Committee Interlocks and Insider
Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the captions "Election of Directors" and "Security
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the captions "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions."<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The following financial statements are included
in Item 8:
(i) Independent Auditors' Report
(ii) Consolidated Balance Sheets - December 31, 1995
and 1994
(iii) Consolidated Statements of Earnings - Years
ended December 31, 1995, 1994 and 1993
(iv) Consolidated Statements of Stockholders' Equity
- Years ended December 31, 1995, 1994 and 1993
(v) Consolidated Statements of Cash Flows - Years
ended December 31, 1995, 1994 and 1993
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedule. The following financial
statement schedule of Giant Industries, Inc. for the years ended
December 31, 1995, 1994 and 1993 is filed as part of this Report
and should be read in conjunction with the Consolidated Financial
Statements of Giant Industries, Inc.
Independent Auditors' Report on Schedule . . . . . S-1
Schedule II - Valuation and Qualifying Accounts . . S-2
Schedules not listed above have been omitted because
they are not applicable or are not required or because the
information required to be set forth therein is included in the
Consolidated Financial Statements or Notes thereto.
(3) Exhibits. The Exhibits listed on the accompanying
Index to Exhibits immediately following the financial statement
schedule are filed as part of, or incorporated by reference
into, this Report.
Contracts with management and any compensatory plans or
arrangements relating to management are as follows:
Exhibit
No. Description
- ------- -----------
10.1 1989 Stock Incentive Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, File No. 1-10398.
10.3 ESOP Substitute Excess Deferred Compensation Benefit
Plan. Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-10398.
10.6 Amended 1988 Restricted Stock Plan of Registrant.
Incorporated by reference to Exhibit 10.3 to Form S-1.
10.7 1989 Stock Option Plan of Registrant. Incorporated by
reference to Exhibit 10.4 to Form S-1.
10.30 Employment Agreement, dated as of November 16, 1989,
between James E. Acridge and the Company. Incorporated by
reference to Exhibit 10.52 to Amendment No. 2.
10.31 Employment Agreement, dated as of November 16, 1989,
between Fredric L. Holliger and the Company. Incorporated
by reference to Exhibit 10.53 to Amendment No. 2.
10.32 Employment Agreement, dated as of August 1, 1990 between
Morgan Gust and the Company. Incorporated by reference to
Exhibit 10.64 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, File No. 1-10398.
10.35 Giant Industries, Inc. and Affiliated Companies 401(k)
Plan. Incorporated by reference to Exhibit 10.46 to
Amendment No. 2 to the Form S-3 Registration Statement
under the Securities Act of 1933 as filed November 12,
1993, File No. 33-69252.
_________________________________
Form S-1--Refers to the Form S-1 Registration Statement
under the Securities Act of 1933 as filed October 16, 1989, File
No. 33-31584.
Amendment No. 2--Refers to the Amendment No. 2 to Form S-1
Registration Statement under the Securities Act of 1933 as filed
November 20, 1989, File No. 33-31584.
(b) Reports on Form 8-K. Report on Form 8-K dated October 18,
1995, with respect to the Company's acquisition of the Bloomfield
refinery, including for Bloomfield Refining Company unaudited
financial statements as of June 30, 1995 and audited financial
statements for the three years ended December 31, 1994, and for the
Company an unaudited pro forma combined condensed balance sheet as of
June 30, 1995, and unaudited pro forma combined condensed statements
of earnings for the six months ended June 30, 1995 and for the year
ended December 31, 1994.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GIANT INDUSTRIES, INC.
By: / s / James E. Acridge
------------------------------
James E. Acridge
Chairman of the Board, President
and Chief Executive Officer
March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
/s/ James E. Acridge
- ---------------------------------------
James E. Acridge, Chairman of the Board,
President, Chief Executive Officer
and Director
March 28, 1996
/s/ A. Wayne Davenport
- ---------------------------------------
A. Wayne Davenport
Vice President and Chief Financial Officer
(Principal Financial Officer and
Prinicipal Accounting Officer)
March 28, 1996
/s/ Fredric L. Holliger
- ---------------------------------------
Fredric L. Holliger, Executive Vice President,
Chief Operating Officer and Director.
March 28, 1996
<PAGE>
<PAGE>
/s/ F. Michael Geddes
- ---------------------------------------
F. Michael Geddes, Director
March 28, 1996
/s/ George C. Hixon
- ---------------------------------------
George C. Hixon, Director
March 28, 1996
/s/ Harry S. Howard, Jr.
- ---------------------------------------
Harry S. Howard, Jr., Director
March 28, 1996
/s/ Richard T. Kalen, Jr.
- ---------------------------------------
Richard T. Kalen, Jr., Director
March 28, 1996
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Giant Industries, Inc.
Scottsdale, Arizona
We have audited the consolidated financial statements of Giant
Industries, Inc. and subsidiaries (the "Company") as of December 31,
1995 and 1994, and for each of the three years in the period ended
December 31, 1995, and have issued our report thereon dated March 4,
1996; such report is included elsewhere in this Form 10-K. Our audits
also included the financial statement schedule of the Company listed
in Item 14. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 4, 1996
S-1
<PAGE>
<PAGE>
<TABLE>
SCHEDULE II
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three years ended December 31, 1995
(In thousands)
<CAPTION>
Charged
Balance at (credited) Balance
beginning to costs at end
of period and expenses Deduction(b) of period
---------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts $546 $(82)(a) $ (40) $424
==== ==== ===== ====
Year ended December 31, 1994:
Allowance for doubtful accounts $429 $167 $ (50) $546
==== ==== ===== ====
Year ended December 31, 1993:
Allowance for doubtful accounts $415 $133 $(119) $429
==== ==== ===== ====
(a)Includes an adjustment of $162,000 credited to costs and expenses to
revise the Company's estimated Allowance for Doubtful Accounts.
(b)Deductions are specific trade accounts determined to be uncollectible.
S-2
/TABLE
<PAGE>
<PAGE>
GIANT INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1995
INDEX TO EXHIBITS
Definitions:
Form S-1--Refers to the Form S-1 Registration Statement under the
Securities Act of 1933 as filed October 16, 1989, File No. 33-31584.
Amendment No. 1--Refers to the Amendment No. 1 to Form S-1
Registration Statement under the Securities Act of 1933 as filed
October 27, 1989, File No. 33-31584.
Amendment No. 2--Refers to the Amendment No. 2 to Form S-1
Registration Statement under the Securities Act of 1933 as filed
November 20, 1989, File No. 33-31584.
Amendment No. 3--Refers to the Amendment No. 3 to Form S-1
Registration Statement under the Securities Act of 1933 as filed
December 12, 1989, File No. 33-31584.
Form S-3--Refers to the Form S-3 Registration Statement under the
Securities Act of 1933 as filed September 22, 1993, File No. 33-69252.
Exhibit No. Description
- ----------- -----------
2.1* Purchase and Sale Agreement, dated August 8, 1995, among
Bloomfield Refining Company and Gary-Williams Energy
Corporation, as Sellers, and Giant Industries Arizona,
Inc., as Buyer. Incorporated by reference to Exhibit 2.1
to the Company's Report on Form 8-K for the period October
4, 1995, File No. 1-10398.
2.2 First Amendment, dated September 29, 1995, to Purchase and
Sale Agreement, dated August 8, 1995, among Bloomfield
Refining Company and Gary-Williams Energy Corporation, as
Sellers, and Giant Industries Arizona, Inc. as Buyer.
Incorporated by reference to Exhibit 2.2 to the Company's
Report on Form 8-K for the period October 4, 1995, File
No. 1-10398.
2.3 Second Amendment, dated October 2, 1995, to Purchase and
Sale Agreement, dated August 8, 1995, among Bloomfield
Refining Company and Gary-Williams Energy Corporation, as
Sellers, and Giant Industries Arizona, Inc. as Buyer.
Incorporated by reference to Exhibit 2.3 to the Company's
Report on Form 8-K for the period October 4, 1995, File
No. 1-10398.
3.1 Restated Certificate of Incorporation of the Giant
Industries, Inc., a Delaware corporation (the "Company").
Incorporated by reference to Exhibit 3.1 to Amendment No. 3.
3.2 Bylaws of the Company, as amended. Incorporated by
reference to Exhibit 3.2 to Amendment No. 3.
3.3 Articles of Incorporation of Giant Exploration & Production
Company, a Texas corporation ("Giant Exploration"), formerly
Hixon Acquisition Corp. Incorporated by reference to Exhibit
2.1, Annex III to Form S-1.
3.4 Bylaws of Giant Exploration. Incorporated by reference to
Exhibit 2.1, Annex IV to Form S-1.
3.5 Articles of Incorporation of Giant Industries Arizona, Inc.,
an Arizona corporation ("Giant Arizona") formerly Giant
Acquisition Corp. Incorporated by reference to Exhibit 2.1,
Annex V to Form S-1.
3.6 Bylaws of Giant Arizona. Incorporated by reference to
Exhibit 2.1, Annex VI to Form S-1.
3.7 Articles of Incorporation of Ciniza Production Company.
Incorporated by reference to Exhibit 3.7 to Form S-3.
3.8 Bylaws of Ciniza Production Company. Incorporated by
reference to Exhibit 3.8 to Form S-3.
3.9 Articles of Incorporation of Giant Stop-N-Go of New Mexico,
Inc. Incorporated by reference to Exhibit 3.9 to Form S-3.
3.10 Bylaws of Giant Stop-N-Go of New Mexico, Inc. Incorporated
by reference to Exhibit 3.10 to Form S-3.
3.11 Articles of Incorporation of Giant Four Corners, Inc.
Incorporated by reference to Exhibit 3.11 to Form S-3.
3.12 Bylaws of Giant Four Corners, Inc. Incorporated by
reference to Exhibit 3.12 to Form S-3.
3.13 Articles of Incorporation of Giant Mid-Continent, Inc.
Incorporated by reference to Exhibit 3.13 to the Company's
Report on Form 10-K for fiscal year ended December 31,
1994, File No. 1-10398.
3.14 Bylaws of Giant Mid-Continent, Inc. Incorporated by
reference to Exhibit 3.14 to the Company's Report on Form
10-K for fiscal year ended December 31, 1994, File No.
1-10398.
3.15** Articles of Incorporation of San Juan Refining Company.
3.16** Bylaws of San Juan Refining Company.
4.1 Amended and Restated Note Agreement, dated as of
September 30, 1993, among the Prudential Insurance Company
of America ("Prudential"), Pruco Life Insurance Company
("Pruco"), the Company and Giant Arizona, relating to
$20,000,000 of 10.91% Senior Notes due March 31, 1999.
Incorporated by reference to Exhibit 4.13 to Amendment
No. 2 to the Form S-3 Registration Statement under the
Securities Act of 1933 as filed November 12, 1993,
File No. 33-69252.
4.2 Letter Amendment No. 1, dated December 31, 1994, to Amended
and Restated Note Agreement, dated September 30, 1993,
among Prudential, Pruco, the Company and Giant Arizona.
Incorporated by reference to Exhibit 4.2 to the Company's
Report on Form 10-K for fiscal year ended December 31,
1994, File No. 1-10398.
4.3 Letter Amendment No. 2, dated May 9, 1995, to Amended and
Restated Note Agreement, dated September 30, 1993, among
Prudential, Pruco, the Company and Giant Arizona.
Incorporated by reference to Exhibit 4 to the Company's
Report on Form 10-Q for the quarter ended September 30,
1995, File No. 1-10398.
4.4 Indenture, dated as of November 29, 1993 among the Company,
as Issuer, the Subsidiary Guarantors, as guarantors, and
NBD Bank, National Association, as Trustee, relating to
$100,000,000 of 9 3/4% Senior Subordinated Notes due 2003.
Incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated November 29, 1993, File
No. 1-10398.
4.5 Credit Agreement, dated October 4, 1995, among Giant
Industries, Inc., as Borrower, Giant Industries Arizona,
Inc., Ciniza Production Company, San Juan Refining Company,
Giant Exploration & Production Company and Giant Four
Corners, Inc., as Guarantors and Bank of America National
Trust and Savings Association, as Agent, Bank of America
Illinois, as a Bank and as Letter of Credit Issuing Bank
and the Other Financial Institutions Parties hereto.
Incorporated by reference to Exhibit 4.1 to the Company's
Report on Form 8-K for the period October 4, 1995,
File No. 1-10398.
10.1 1989 Stock Incentive Plan of the Company. Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989,
File No. 1-10398.
10.2 Employee Stock Ownership Plan and Trust Agreement of the
Company, as amended. Incorporated by reference to Exhibit
10.1 of the Company's Report on Form 10-Q for the quarter
ended September 30, 1994, File No. 1-10398.
10.3 ESOP Substitute Excess Deferred Compensation Benefit Plan.
Incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File 1-10398.
10.4 Loan Agreement, dated December 20, 1991, between NBD Bank,
National Association and Continental Bank, N.A. as trustee
under the Employee Stock Ownership Plan and Trust Agreement
of the Company. Incorporated by reference to Exhibit 10.7
to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1991, File No. 1-10398.
10.5 Term Note for $2,896,831.80, dated December 20, 1991,
between NBD Bank, National Association and the Employee
Stock Ownership Plan and Trust Agreement of the Company.
Incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for fiscal year ended
December 31, 1991, File No. 1-10398.
10.6 Amended 1988 Restricted Stock Plan of the Company.
Incorporated by reference to Exhibit 10.3 Form S-1.
10.7 1989 Stock Option Plan of the Company. Incorporated by
reference to Exhibit 10.4 to Form S-1.
10.8 Form of Assignment of Oil & Gas and Mineral Leases between
Mtrust Corp., N.A., Alexander P. Hixon and George C. Hixon,
Trustees of the Elizabeth F. Hixon Trust, and Hixon
Development Company. Incorporated by reference to Exhibit
10.12 to Form S-1.
10.9 Form of Assignment of Overriding Royalty Interest between
Mtrust Corp., N.A., Alexander P. Hixon and George C. Hixon,
Trustees of the Elizabeth F. Hixon Trust, and Hixon
Development Company. Incorporated by reference to Exhibit
10.13 to Form S-1.
10.10 Purchase Agreement, dated November 29, 1990, between Giant
Arizona and Prime Pinnacle Peak Properties Limited
Partnership. Incorporated by reference to Exhibit 10.16 of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
10.11 Escrow Instructions, dated January 7, 1991, between Prime
Pinnacle Peak Properties Limited Partnership and Giant
Arizona. Incorporated by reference to Exhibit 10.17 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
10.12 Agreement for Leasing of Service Station Site, dated
March 1, 1991, between Giant Arizona and Prime Pinnacle Peak
Properties Limited Partnership. Incorporated by reference
to Exhibit 10.18 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, File
No. 1-10398.
10.13 First Amendment to Agreement for Leasing of Service Station
Site, dated March 1, 1991, between Giant Arizona and Prime
Pinnacle Peak Properties Limited Partnership. Incorporated
by reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992,
File 1-10398.
10.14 Purchase and Sale Agreement, dated as of May 7, 1991,
between New Bank of New England N.A., Den Norske Bank,
Kansallis--Osake--Pankki--and Portales Energy Company, Inc.
and the Company. Incorporated by reference to Exhibit 10.4
to the Company's Report on Form 10-Q for the quarter ended
June 30, 1991, File No. 1-10398.
10.15 Aircraft Lease Purchase Agreement, dated as of June 21,
1991, between Metlife Capital Corporation and the Company.
Incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1991,
File No. 1-10398.
10.16 Promissory Note for $600,000, dated December 1, 1988, from
JEA to Metlife Capital Corporation ("Metlife").
Incorporated by reference to Exhibit 10.38 to Form S-1.
10.17 Promissory Note for $825,000, dated December 20, 1988, from
JEA to Metlife. Incorporated by reference to Exhibit 10.39
to Form S-1.
10.18 Promissory Note for $750,000, dated December 28, 1987, from
JEA to Metlife. Incorporated by reference to Exhibit 10.40
to Form S-1.
10.19 Promissory Note for $825,000, dated June 28, 1988, from JEA
to Metlife. Incorporated by reference to Exhibit 10.41 to
Form S-1.
10.20 Promissory Note for $900,000, dated August 31, 1988, from
JEA to Metlife. Incorporated by reference to Exhibit 10.42
to Form S-1.
10.21 Promissory Note for $1,125,000, dated April 21, 1989, from
JEA to Metlife. Incorporated by reference to Exhibit 10.43
to Form S-1.
10.22 Promissory Note for $1,087,500, dated December 30, 1988,
from JEA to Metlife. Incorporated by reference to Exhibit
10.44 to Form S-1.
10.23 Promissory Note for $1,082,900, dated December 30, 1988,
from JEA to Metlife. Incorporated by reference to Exhibit
10.45 to Form S-1.
10.24* Sales Agreement, dated June 6, 1989, between Giant Arizona
and Mobil Oil Corporation. Incorporated by reference to
Exhibit 10.47 to Amendment No. 2.
10.25* Amendment, dated April 20, 1990, to Sales Agreement, dated
June 6, 1989, between Giant Arizona and Mobil Oil
Corporation. Incorporated by reference to Exhibit 10.51 of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
10.26* Sales Agreement, dated February 10, 1989, between Giant
Arizona and Conoco Inc. Incorporated by reference to Exhibit
10.48 to Amendment No. 2.
10.27* Crude Oil and Condensate Sales and Purchase Agreement, dated
August 1, 1994, between Meridian Oil Trading Inc. (Seller)
and Giant Refining Company, a division of Giant Industries
Arizona, Inc. (Buyer). Incorporated by reference to Exhibit
10.27 to the Company's Report on Form 10-K for fiscal year
ended December 31, 1994, File No. 1-10398.
10.28* Natural Gas Liquids Sales and Purchase Agreement, dated
October 27, 1994, between Meridian Oil Hydrocarbons Inc.
and Giant Refining Company, a division of Giant Industries
Arizona, Inc. Incorporated by reference to Exhibit 10.28 to
the Company's Report on Form 10-K for fiscal year ended
December 31, 1994, File No. 1-10398.
10.29* Natural Gasoline Purchase and Sale Agreement, dated
September 1, 1990, between Sunterra Gas Processing Company
and Giant Arizona. Incorporated by reference to Exhibit
10.57 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, File No. 1-10398.
10.30 Employment Agreement, dated as of November 16, 1989, between
James E. Acridge and the Company. Incorporated by reference
to Exhibit 10.52 to Amendment No. 2.
10.31 Employment Agreement, dated as of November 16, 1989, between
Fredric L. Holliger and the Company. Incorporated by
reference to Exhibit 10.53 to Amendment No. 2.
10.32 Employment Agreement, dated as of August 1, 1990 between
Morgan Gust and the Company. Incorporated by reference to
Exhibit 10.64 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, File
No. 1-10398.
10.33 Consulting Agreement, dated January 1, 1990, between the
Company and Kalen and Associates. Incorporated by reference
to Exhibit 10.66 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, File
No. 1-10398.
10.34 Consulting Agreement, dated March 12, 1992, between the
Company and Geddes and Company. Incorporated by reference
to Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1992, File No. 1-10398.
10.35 Giant Industries, Inc. and Affiliated Companies 401(k) Plan.
Incorporated by reference to Exhibit 10.46 to Amendment No.
2 to the Form S-3 Registration Statement under the Securities
Act of 1933 as filed November 12, 1993, File No. 33-69252.
11.1** Statement regarding computation of earnings per share.
18.1 Letter regarding change in accounting principles.
Incorporated by reference to Exhibit 18.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-10398.
21.1** Subsidiaries of the Company.
23.1** Consent of Malkewicz Hueni Associates, Inc.
23.2** Consent of LaRoche, Swindell & Associates.
23.3** Consent of Deloitte & Touche LLP to incorporate reports in
previously filed Registration Statement.
27 ** Financial Data Schedule.
99.1** Information required by Rule 15d-21 under the Securities Act
of 1934 for the year ended December 31, 1995 for the Giant
Industries, Inc. and Affiliated Companies Employee Stock
Ownership Plan.
*Certain information contained in these documents has been afforded
confidential treatment.
**Filed herewith.
EXHIBIT 3.15
ARTICLES OF INCORPORATION
OF
SAN JUAN REFINING COMPANY
The undersigned, acting as incorporator of a corporation under
the New Mexico Business Corporation Act, adopts the following
Articles of Incorporation for the corporation:
ARTICLE I
NAME
The name of the corporation is SAN JUAN REFINING COMPANY.
ARTICLE II
PURPOSE
The purposes for which the corporation is organized are: to own
and operate properties and businesses engaged in buying, refining,
selling, marketing, distributing and transporting petroleum
products and other goods and services and to transact any lawful
business for which corporations may be incorporated under the New
Mexico Business Corporation Act.
ARTICLE III
DURATION
The period of the duration of the corporation shall be
perpetual, unless dissolved according to law.
ARTICLE IV
STOCK
The aggregate number of authorized shares which the
corporation shall have authority to issue is 500,000 shares of
common, no par value per share.
ARTICLE V
REGISTERED OFFICE AND AGENT
Its initial registered office address is 325 Paseo de Peralta,
Santa Fe, New Mexico 87501, and its initial registered agent at
that address is Montgomery & Andrews, Professional Association.
ARTICLE VI
INITIAL BOARD OF DIRECTORS
The business of the Corporation shall be managed by a Board of
Directors consisting of not fewer than one (1) person, the exact
number to be determined from time to time by the Board of
Directors. The Directors shall have the power to adopt, amend and
rescind the ByLaws of the Corporation which shall govern the
regulation of the internal affairs of the Corporation.
The names and street addresses of the members of the initial
Board of Directors of the Corporation, who shall hold office until
the initial meeting of the shareholders, and thereafter until their
successors are elected and qualified are as follows:
NAME ADDRESS
James E. Acridge 4939 E. Horseshoe Road
Chairman of the Board Paradise Valley, AZ 85253
Morgan M. Gust 4636 N. Dromedary
Phoenix, AZ 85377
Fredric L. Holliger 10422 E. Windrose Drive
Scottsdale, AZ 85259
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall indemnify its directors and officers to
the fullest extent permitted by New Mexico law.
ARTICLE VIII
LIMITATION OF LIABILITY OF DIRECTORS
In accordance with N.M.S.A. 1978, S.S. 53-12-2 (E) (Cum. Supp.
1993), a director shall not be personally liable to the corporation
or its shareholders for monetary damages for breach of fiduciary
duty as a director unless:
1. The director has breached or failed to perform the duties
of the director's office in compliance with subsection
(B) of Section 53-11-35 N.M.S.A. 1978;
2. The breach or failure to perform constitutes:
a. negligence, willful misconduct or recklessness in the
case of a director who has either an ownership
interest in the corporation or receives in his
capacity as a director or as an employee of the
corporation compensation of more than Two Thousand
Dollars ($2,000.00) from the corporation in any
calendar year; or
b. willful misconduct or recklessness in the case of a
director who does not have an ownership interest in
the corporation and does not receive in his capacity
as director or as an employee of the corporation
compensation of more than Two Thousand Dollars
($2,000.00) from the corporation in any calendar
year.
The foregoing provision shall only eliminate the liability of
a director for action taken as a director or any failure to take
action as a director at meetings of the board of directors or of a
committee of the board of directors, or by virtue of action of the
directors without a meeting pursuant to Section 53-11-43 N.M.S.A.
1978, on or after the date when such provision in the Articles of
Incorporation becomes effective.
ARTICLE IX
INCORPORATION
The name and address of the incorporator is as follows:
NAME ADDRESS
Gary Kilpatric 325 Paseo de Peralta
Santa Fe, New Mexico 87501
DATED: 9/15/1995
/s/ GARY KILPATRIC
------------------------------
Gary Kilpatric
325 Paseo de Peralta
Santa Fe, New Mexico 87501
<PAGE>
<PAGE>
AFFIDAVIT OF ACCEPTANCE OF APPOINTMENT
BY DESIGNATED INITIAL REGISTERED AGENT
TO: THE STATE CORPORATION COMMISSION
STATE OF NEW MEXICO
STATE OF NEW MEXICO )
) ss.
COUNTY OF SANTA FE )
On this 15th day of September, 1995, before me, a Notary
Public in and for the State and County aforesaid, personally
appeared Gary Kilpatric, Vice-President/Treasurer of Montgomery &
Andrews, Professional Association, who is known to be the person
and who, being by me duly sworn, acknowledged to me that he does
hereby acknowledge that corporation's acceptance of the appointment
as the initial Registered Agent of the corporation which is named
in the foregoing Articles of Incorporation, and which is applying
for a Certificate of Incorporation.
MONTGOMERY & ANDREWS
Professional Association
By /s/ GARY KILPATRIC
-------------------------------
Gary Kilpatric
Its Vice-President/Treasurer
Acknowledged, subscribed and sworn before me on the day, month
and year first set forth above.
---------------------------------
Notary Public
My commission expires:
11/22/95
- ---------------------
EXHIBIT 3.16
BYLAWS
OF
SAN JUAN REFINING COMPANY
I.
SHAREHOLDERS
A. MEETINGS: The Annual Meeting of Shareholders will be
held in the month of May at the time and place fixed by the
Board. Special Meetings of Shareholders may be called by the
President, the Board, or the holders of one-tenth of the shares
entitled to vote at the meeting, and will be held at the time and
place fixed by the person calling the Special Meeting. If the
place of meeting is not fixed, the meeting will be held at the
registered office of the Corporation.
B. NOTICE: Written Notice stating the time, place, and, if
a Special Meeting, the purpose, will be delivered not less than
ten nor more than fifty days before the meeting date either
personally or by mail at the direction of the President, the
Secretary, or the persons calling the meeting, to each
Shareholder of record entitled to vote at the meeting. If
mailed, a Notice is deemed delivered when deposited postage
prepaid in the United States mail addressed to the Shareholder at
the address shown by the Corporation transfer books.
C. QUORUM - VOTING: A majority of the shares entitled to
vote represented in person or by proxy will constitute a quorum
at a meeting of Shareholders. A quorum once attained continues
until adjournment despite voluntary withdrawal of enough shares
to leave less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on the subject matter will be the
act of the Shareholders unless the vote of a greater number or
class voting is required by the Business Corporation Act.
II.
DIRECTORS
A. NUMBER, TENURE, QUALIFICATION, ELECTION:
The Board will consist of not less than three (3) nor more
than five (5) Directors who will be elected annually by the
Shareholders at their Annual Meeting to serve until their
successors have been elected and qualified. A Director need not
be a Shareholder or a New Mexico resident. A Director may be
removed with or without cause by the Shareholders, or may resign.
Vacancies may be filled by a majority of the remaining Directors
though less than a quorum. Newly created directorships may be
filled by the Directors for a term of office continuing only
until the next election of Directors by the Shareholders.
B. MEETINGS: An Annual Meeting of the Board will be held
without notice immediately following the Shareholders' Annual
Meeting. Special Meetings of the Board may be called by any
Director or Officer, and will be held at the time and place fixed
by the person calling the Special Meeting. Written Notice
stating the time, place and purpose of the Special Meeting will
be delivered either personally, by mail, or by telegram at the
direction of the person calling the meeting, to each Director at
least 24 hours before the Special Meeting time. If mailed or
telegraphed, a Notice is deemed delivered when deposited, postage
or charges prepaid, with the transmitting agency, addressed to
the Director.
C. QUORUM - ACTION: A majority of the number of Directors
then in office will constitute a quorum at Board Meetings. A
quorum once attained continues until adjournment despite
voluntary withdrawal of enough Directors to leave less than a
quorum. The act of a majority of Directors present at a meeting
at which a quorum is present will be the act of the Board. The
Directors will manage the business and affairs of the
Corporation, and may act only as a Board with each Director
having one vote.
D. COMMITTEES: The Board of Directors, by resolution
adopted by a majority of the full Board, may designate from among
its members one or more committees each of which shall have and
may exercise all the authority of the Board to the extent
provided by law.
III.
OFFICERS
A. NUMBER, TENURE, QUALIFICATION AND ELECTION: The
officers of the Corporation will be a President/Chief Executive
Officer; Executive Vice President/Chief Operating Officer; Vice
President/Chief Financial Officer; Vice President and General
Counsel, Vice President Administration and Secretary; and, Vice
President Finance, Treasurer and Assistant Secretary, and such
other officers as the Board may decide, who will be elected
annually by the Board at its Annual Meeting to serve until their
successors are elected and qualified. Officers need not be
Shareholders, or Directors, or New Mexico residents. An officer
may be removed with or without cause by the Board, or may resign.
Vacancies and newly created offices will be filled by the Board.
One person may hold more than one office, but no person may be
both President and Secretary. Officers will perform the duties,
and will have the power and authority, assigned by the Board,
incident to the office, and provided in these Bylaws.
B. PRESIDENT AND EXECUTIVE VICE PRESIDENT: The President,
or the Executive Vice President during the absence, disability,
or failure to act of the President, will be the chief executive
officer of the Corporation, will preside at all Corporation
meetings, and when authorized will execute and deliver documents
in the name of the Corporation.
C. SECRETARY AND ASSISTANTS: The Secretary, or any
Assistant Secretary during the absence, disability, or failure to
act, of the Secretary, will keep and have custody of, the record
of Shareholders, the stock transfer books, and the minutes of the
proceedings of the Shareholders and Directors, will give all
Notices required, and when authorized will execute, attest, seal
and deliver documents of the Corporation.
D. TREASURER AND ASSISTANTS: The Treasurer, or any
Assistant Treasurer during the absence, disability, or failure to
act, of the Treasurer, will be custodian of the property of, and
will be responsible for keeping, correct and complete books and
records for account for, the Corporation.
IV.
ACTION WITHOUT A MEETING
Any action required or permitted to be taken at a meeting of
Shareholders or Directors may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by
all of the Shareholders entitled to vote with respect to the
subject matter thereof, or by all the Directors, as the case may
be.
V.
WAIVER OF NOTICE
Whenever any notice is required to be given to any
Shareholder or Director, a waiver thereof in writing signed by
the person entitled to the notice is equivalent to the giving of
the notice. The attendance of a Shareholder in person or by
proxy, or of a Director, at a meeting constitutes a waiver of
notice of the meeting except when attendance is for the sole
purpose of objecting because the meeting is not lawfully called
or convened.
VI.
SEAL
The Board may adopt a corporate seal which the Corporation
may use by impressing or affixing it or a facsimile thereof, but
the failure to have or affix a corporate seal does not affect the
validity of any instrument or any action taken in reliance
thereon or in pursuance thereof.
VII.
SHARE CERTIFICATES AND TRANSFER
The Board will adopt a form of certificate to represent the
shares of the Corporation. Each Shareholder is entitled to a
certificate, signed by the President or Executive Vice President,
and the Secretary or an Assistant Secretary, and representing the
number of full and fractional fully paid shares owned by the
Shareholder. Share transfer and issuance will be done by the
Secretary, or the designee thereof, in the manner provided by the
Business Corporation Act and Uniform Commercial Code of New
Mexico. The name and address of the Shareholder to whom the
certificate is issued, the number and class of shares
represented, and the date of original issue or from whom
transferred shall be entered on the record of Shareholders of the
Corporation. The person or entity in whose name shares stand on
the record of Shareholders of the Corporation will be the
Shareholder and will be deemed by the Corporation to be the owner
of the shares for all purposes whether or not the Corporation has
other knowledge. Shares will be transferred only on the stock
transfer books of the Corporation.
VIII.
MONETARY MATTERS
A. FUNDS AND BORROWING: The depository for corporate
funds, the persons entitled to draw against these funds, the
persons entitled to borrow on behalf of the Corporation, and the
manner of accomplishing these matters will be determined by the
Board.
B. COMPENSATION: The compensation for Directors and
Officers will be established by the Board. Compensation of
employees will be established by the President subject to review
by the Board.
C. FISCAL YEAR: The fiscal year of the Corporation will
end December 31 or such other date as may be established by the
Board.
IX.
INTERESTED PARTIES
No transaction of the Corporation will be affected because a
Shareholder, Director, Officer or Employee of the Corporation is
interested in the transaction. Such interested parties will be
counted for quorum purposes, and may vote, when the Corporation
considers the transaction. Such interested parties will not be
liable to the Corporation for the party's profits, or the
Corporation's losses, from the transaction.
X.
INDEMNIFICATION
The Corporation will indemnify and defend each of its
Officers, Directors and employees, to the full extent permitted
by law, against all claims and actions against any such person by
reason of the fact that the person is or was an Officer, Director
or employee of the Corporation.
XI.
AMENDMENTS
These Bylaws may be altered, amended, or repealed by the
Board unless the power to do so is reserved to the Shareholders
by the Articles of Incorporation.
<PAGE>
<PAGE>
SECRETARY'S CERTIFICATE
I certify the foregoing to be the true copy of the Bylaws
duly adopted by the Corporation on September 15, 1995.
/s/ MORGAN GUST
---------------------------------
Secretary
<TABLE>
EXHIBIT 11.1
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Earnings from continuing operations $ 7,733,000 $ 7,455,000 $ 17,540,000
Earnings (loss) from discontinued
operations 143,000 (2,934,000) (11,275,000)
----------- ----------- ------------
Earnings before extraordinary item 7,876,000 4,521,000 6,265,000
Extraordinary loss, net (384,000)
----------- ----------- ------------
Net earnings $ 7,876,000 $ 4,521,000 $ 5,881,000
=========== =========== ============
Weighted average number
of shares outstanding
during the period 11,478,779 12,127,481 12,225,177
=========== =========== ============
Earnings (loss) per common share:
Continuing operations $ 0.68 $ 0.61 $ 1.43
Discontinued operations 0.01 (0.24) (0.92)
----------- ----------- ------------
Earnings before extraordinary item 0.69 0.37 0.51
Extraordinary loss, net (0.03)
----------- ----------- ------------
Net earnings $ 0.69 $ 0.37 $ 0.48
=========== =========== ============
Additional Primary Computation
- ------------------------------
Earnings from continuing operations $ 7,733,000 $ 7,455,000 $ 17,540,000
Earnings (loss) from discontinued
operations 143,000 (2,934,000) (11,275,000)
----------- ----------- ------------
Earnings before extraordinary item 7,876,000 4,521,000 6,265,000
Extraordinary loss, net (384,000)
----------- ----------- ------------
Net earnings $ 7,876,000 $ 4,521,000 $ 5,881,000
=========== =========== ============
Additional adjustment to
weighted average number of
shares outstanding:
Weighted average number of
shares outstanding above 11,478,779 12,127,481 12,225,177
Add - dilutive effect of
outstanding options(a) 40,541 31,821 60,097
----------- ----------- ------------
Weighted average number of shares
outstanding as adjusted 11,519,320 12,159,302 12,285,274
=========== =========== ============
Earnings (loss) per common share:(b)
Continuing operations $ 0.67 $ 0.61 $ 1.43
Discontinued operations 0.01 (0.24) (0.92)
----------- ----------- ------------
Earnings before extraordinary item 0.68 0.37 0.51
Extraordinary loss, net (0.03)
----------- ----------- ------------
Net earnings $ 0.68 $ 0.37 $ 0.48
=========== =========== ============
</TABLE>
<PAGE>
<PAGE>
<TABLE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Fully Diluted Computation
- -------------------------
Earnings from continuing operations $ 7,733,000 $ 7,455,000 $ 17,540,000
Earnings (loss) from discontinued
operations 143,000 (2,934,000) (11,275,000)
----------- ----------- ------------
Earnings before extraordinary item 7,876,000 4,521,000 6,265,000
Extraordinary loss, net (384,000)
----------- ----------- ------------
Net earnings $ 7,876,000 $ 4,521,000 $ 5,881,000
=========== =========== ============
Additional adjustment to
weighted average number of
shares outstanding:
Weighted average number of
shares outstanding above 11,478,779 12,127,481 12,225,177
Add - dilutive effect of
outstanding options(a) 103,084 33,456 84,629
----------- ----------- ------------
Weighted average number of shares
outstanding as adjusted 11,581,863 12,160,937 12,309,806
=========== =========== ============
Earnings (loss) per common share:(b)
Continuing operations $ 0.67 $ 0.61 $ 1.43
Discontinued operations 0.01 (0.24) (0.92)
----------- ----------- ------------
Earnings before extraordinary item 0.68 0.37 0.51
Extraordinary loss, net (0.03)
----------- ----------- ------------
Net earnings $ 0.68 $ 0.37 $ 0.48
=========== =========== ============
(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>
EXHIBIT 21.1
SUBSIDIARIES OF
GIANT INDUSTRIES, INC.
(a Delaware corporation)
Jurisdiction of Names Under Which
Subsidiary Incorporation Company Does Business
- ---------- --------------- ---------------------
Giant Industries
Arizona, Inc. Arizona Giant Refining Company
Ciniza Pipe Line
Company
- Ciniza Production
Company* New Mexico
- Giant Stop-N-Go of
New Mexico, Inc.* New Mexico
- San Juan Refining
Company* New Mexico
- Giant Four Corners,
Inc.* Arizona
- Giant Mid-Continent,
Inc.* Arizona
Giant Exploration &
Production Company Texas
_______________
*A wholly-owned subsidiary of Giant Industries Arizona, Inc.
EXHIBIT 23.1
Malkewicz Hueni Associates, Inc.
(LOGO)
March 22, 1996
Mr. Dave Ahl
Manager SEC Reporting
Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Gentlemen:
The firm of Malkewicz Hueni Associates, Inc. was returned to conduct
a year-end audit, effective December 31, 1995, of reserves for oil
and gas interests held by Giant Industries Inc. ("Giant") through
its wholly-owned subsidiaries, Giant Exploration & Production
Company, Ciniza Production Company and Giant Mid-Continent, Inc.
This letter authorizes Giant to use Malkewicz Hueni Associates,
Inc.'s report, dated February 23, 1996 regarding the December 31,
1995 reserve audit, in preparing its Form 10-K Annual Report to
be filed with the United States Securities and Exchange Commission.
Malkewicz Hueni Associates Inc. has no interest in Giant or any
of its affiliated companies or subsidiaries and is not entitled to
receive any such interest as payment for such reports. Malkewicz
Hueni Associates Inc. is not employed by Giant on a contingent basis.
Very truly yours,
MALKEWICZ HUENI ASSOCIATES, INC.
/s/ M. DAVID CLOUATRE
- --------------------------------
M. DAVID CLOUATRE
REGISTERED PETROLEUM ENGINEER
14142 Denver West Parkway, Suite 190
Golden, Colorado 80401 U.S.A.
(303) 277-0270
Fax: (303) 277-0267
EXHIBIT 23.2
LaRoche, Swindell & Associates
Petroleum Consultants
Suite 305
4625 Greenville Avenue
Dallas, Texas 75206
(214) 363-3337
March 21, 1996
Mr. Dave Ahl
Manager SEC Reporting
Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Gentlemen:
The firm of LaRoche, Swindell & Associates was retained to conduct a
year-end audit, effective December 31, 1995, of reserves for oil and
gas interests held by Giant Industries Inc. ("Giant") through its
wholly-owned subsidiaries, Giant Exploration & Production Company,
Ciniza Production Company and Giant Mid Continent, Inc. This letter
authorizes Giant to use LaRoche, Swindell & Associates' report,
dated September 27, 1995 regarding the December 31, 1995 reserve
audit, in its Form 10-K Annual Report to be filed with the United
States Securities and Exchange Commission.
LaRoche, Swindell & Associates has no interest in Giant or any of its
affiliated companies or subsidiaries and is not entitled to receive
any such interest as payment for such reports. LaRoche, Swindell &
Associates is not employed by Giant on a contingent basis.
Very truly yours,
LaRoche, Swindell & Associates
/s/ GARY S. SWINDELL
--------------------------------
Gary S. Swindell
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-35357 of Giant Industries, Inc. on Form S-8 of our reports
dated March 4, 1996 appearing in the Annual Report on Form 10-K of
Giant Industries, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,549
<SECURITIES> 0
<RECEIVABLES> 22,688
<ALLOWANCES> 424
<INVENTORY> 42,581
<CURRENT-ASSETS> 108,869
<PP&E> 292,919
<DEPRECIATION> 94,357
<TOTAL-ASSETS> 324,862
<CURRENT-LIABILITIES> 58,541
<BONDS> 142,676
<COMMON> 122
0
0
<OTHER-SE> 109,610
<TOTAL-LIABILITY-AND-EQUITY> 324,862
<SALES> 332,888
<TOTAL-REVENUES> 332,888
<CGS> 234,271
<TOTAL-COSTS> 299,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,506
<INCOME-PRETAX> 11,371
<INCOME-TAX> 3,638
<INCOME-CONTINUING> 7,733
<DISCONTINUED> 143
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,876
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 11-K
ANNUAL REPORT
_____________
PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal year Ended December 31, 1995
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN
GIANT INDUSTRIES, INC.
______________________
The principal executive offices of Giant Industries, Inc. are
located at 23733 North Scottsdale Road, Scottsdale, Arizona 85255.
<PAGE>
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
- ---------------------------------
(a) Financial Statements and Supplemental Schedule
Page Number
-----------
Independent Auditors' Report F-1
Statements of net assets available F-2
for benefits - December 31, 1995 and 1994
Statements of changes in net assets F-3
available for benefits - Years ended
December 31, 1995, 1994 and 1993
Notes to financial statements F-4 to F-7
Supplemental Schedule:
Schedule of assets held for investment purposes F-8
(b) Exhibits - none
2<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Committee has duly caused this annual report
to be signed by the undersigned thereunto duly authorized.
EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT
INDUSTRIES, INC. AND AFFILIATED COMPANIES
Date: 3-27-96 Signature: /s/ Gary L. Nielsen
_______________________________
Gary L. Nielsen,
Vice President Finance-Treasurer
Date: 3-27-96 Signature: /s/ Morgan Gust
_______________________________
Morgan Gust,
Vice President-General Counsel
Date: 3-27-96 Signature: /s/ Debra A. McKinney
_______________________________
Debra A. McKinney,
Director of Personnel
3<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Administrative Committee
Employee Stock Ownership Plan of
Giant Industries, Inc. and Affiliated Companies
Scottsdale, Arizona
We have audited the accompanying statements of net assets available
for benefits of the Employee Stock Ownership Plan of Giant
Industries, Inc. and Affiliated Companies as of December 31, 1995 and
1994, and the related statements of changes in net assets available
for benefits for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the
Plan'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 financial statements referred to above present
fairly, in all material respects, the net assets available for
benefits of the Employee Stock Ownership Plan of Giant Industries,
Inc. and Affiliated Companies as of December 31, 1995 and 1994, and
the changes in net assets available for benefits for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The supplemental
schedule for the year ended December 31, 1995 on page F-8 is
presented for the purpose of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the
responsibility of the Plan's management. Such schedule has been
subjected to the auditing procedures applied in our audit of the
basic 1995 financial statements and, in our opinion, is fairly stated
in all material respects when considered in relation to the basic
financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 15, 1996
F-1<PAGE>
<PAGE>
<TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN
OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
- ------
Investments at fair value (Notes 3, 4 and 5):
Mutual funds $ 1,732,010 $ 1,066,062
Limited partnership 22,200 22,200
Common stock of Giant Industries, Inc. 17,590,571 11,511,590
Loans to participants 40,808 50,614
----------- -----------
Total investments at fair value 19,385,589 12,650,466
Interest and dividends receivable 2,329 1,832
Other receivables 3,582 3,116
Cash and cash equivalents 260,260 45,625
----------- -----------
Total assets 19,651,760 12,701,039
----------- -----------
LIABILITIES
- -----------
Other liabilities 9,288 10,259
Note payable (Notes 4 and 6) 513,679
----------- -----------
Total liabilities 9,288 523,938
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $19,642,472 $12,177,101
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<PAGE>
<TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN
OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Additions:
Net appreciation in fair
value of investments (Note 3) $ 7,230,900 $ - $ 8,166,489
Interest and dividend income 319,843 30,035 52,490
Employer contribution 900,000 900,000 889,441
----------- ----------- -----------
Total additions 8,450,743 930,035 9,108,420
----------- ----------- -----------
Deductions:
Net depreciation in fair value of
investments (Note 3) 4,249,045
Distributions to participants 957,969 654,130 828,258
Interest expense 27,249 66,766 96,167
Other 154 250
----------- ----------- -----------
Total deductions 985,372 4,970,191 924,425
----------- ----------- -----------
Net increase (decrease) 7,465,371 (4,040,156) 8,183,995
Net Assets Available for Benefits:
Beginning of Year 12,177,101 16,217,257 8,033,262
----------- ----------- -----------
End of Year $19,642,472 $12,177,101 $16,217,257
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. DESCRIPTION OF THE PLAN:
GENERAL - On June 30,1987, Giant Industries, Inc. (the
"Company") converted through an amendment, its Joint
Profit Sharing Plan to an Employee Stock Ownership Plan.
The Employee Stock Ownership Plan of Giant Industries,
Inc. and Affiliated Companies (the "Plan") is a non-
contributory defined contribution plan which covers all
eligible employees. The purpose of the Plan is to
enable participants to share in the ownership of the
Company. The Summary Plan Description describes the
Plan, including contribution allocations, termination,
vesting and benefit provisions. The Plan is subject to
the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA").
CONTRIBUTIONS - The Plan provides for a contribution
from the Company from its current or accumulated net
income as may be determined annually at the discretion
of its Board of Directors.
PARTICIPATION AND VESTING - Each employee hired on or
after July 1, 1993 shall become a participant on his or
her participation date, which is defined as the January
1 or July 1 coincident with or next following the date
on which the employee shall have completed one year of
service. The participation date of any employee hired
prior to July 1, 1993 shall be determined in accordance
with the terms of the Plan prior to the seventh
amendment. Participants' interests in their accounts
vest over a seven year period. In the event the Plan is
terminated by the Company, all participants would
immediately become 100% vested in their accrued benefits
as of the date of Plan termination.
ALLOCATIONS - Each participant's account is credited
with an allocation of the Company's contribution,
investment income and forfeitures of terminated
participants' non-vested accounts. Allocations to
participant accounts are made on a formula based on the
ratio that each participant's compensation, as defined,
during the Plan year, bears to the compensation of all
such participants.
PLAN ADMINISTRATION - The Company administers the Plan
through an administrative committee comprised of three
employees who are appointed by the Company's Board of
Directors. Most expenses pertaining to the
administration of the Plan are being paid by the
Company, at the Company's option. Bank of America is
the Plan's trustee and custodian and Boyce & Associates
is the Plan's recordkeeper.
AMENDMENTS - The Plan was amended six times prior to
1993.
F-4<PAGE>
<PAGE>
A seventh amendment was executed on August 4, 1993, to
be effective as of January 1, 1993. This amendment
changed Plan eligibility provisions for employees hired
on or after July 1, 1993, eliminated the availability of
life insurance within the Plan, amended dividend
allocation procedures and amended participant loan
provisions. In addition, changes were made to maintain the
Plan in compliance with current regulations.
An eighth amendment was executed on October 5, 1994 to
be effective as of July 1, 1987. This amendment was
adopted in order to comply with the Tax Reform Act of
1986 and any subsequent amendments to the Internal
Revenue Code, including but not limited to the
Unemployment Compensation Amendments of 1992 and the
Omnibus Budget Reconciliation Act of 1993, and any
related Internal Revenue Service regulations and
pronouncements.
TERMINATION - Although it has not expressed any intent to
do so, the Company has the right under the Plan to discontinue
its contributions at any time and to terminate the Plan
subject to the provisions of ERISA.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accounting records of the Plan are maintained on the
accrual basis. Investments included in the Statement of
Net Assets Available for Benefits are stated at fair
value. The fair value of marketable securities and
mutual funds is determined based on quoted market prices
as of the Plan's year end. The fair value of the
limited partnership is management's best estimate based
on an independent appraisal provided by Bank of America.
Giant Industries, Inc.'s common stock value is
determined based on the quoted market price as reported
by the New York Stock Exchange as of the Plan's year
end. The net change in the fair value of investments is
recorded in the Statements of Changes in Net Assets
Available for Benefits as net appreciation (depreciation)
in fair value of investments. Interest and dividend income
is recorded on the accrual basis. Benefits are recorded
when paid.
F-5<PAGE>
<PAGE>
3. Investments:
The following tables present the fair value of investments at
December 31, 1995 and 1994, with mutual funds and common stock
of the Company representing investments greater than 5% of the
Plan's net assets at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------- ------------------------
Number of Number of
shares or shares or
principal Fair principal Fair
amount Value amount Value
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Mutual Funds:
ML Lee Acquisition 25 $ 15,796 25 $ 17,725
Bank of America:
Equity Fund 118,168 384,281 91,071 218,516
Fixed Income Fund 243,507 565,498 138,043 279,055
Core Equity Growth Fund 7,312 197,287 8,753 169,415
Short Term Government Fund 87,020 187,785 87,277 162,449
Convertible Securities Fund 60,482 190,352 43,188 108,045
Aggressive Equity Fund 32,700 191,011 25,410 110,857
----------- -----------
Total mutual funds 1,732,010 1,066,062
Limited Partnership:
Recorp. Mtg. Investors II 1.5 22,200 1.5 22,200
Giant Industries, Inc.
common stock 1,435,965 17,590,571 1,534,878 11,511,590
Loans to participants 40,808 50,614
----------- -----------
$19,385,589 $12,650,466
=========== ===========
</TABLE>
Net appreciation (depreciation) in fair value of the Plan's
investments (including investments bought, sold and held during
the period) for the years ended December 31 consists for the
following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Limited partnership $ $ 22,199 $
Preferred stocks (589) 2,150
Common stocks (6,530) 40,228
Mutual funds 272,245 20,584 (4,300)
Giant Industries, Inc., common stock 6,958,655 (4,284,709) 8,127,789
Corporate bonds 622
---------- ----------- ----------
Net appreciation (depreciation) $7,230,900 $(4,249,045) $8,166,489
========== =========== ==========
</TABLE>
F-6
<PAGE>
<PAGE>
4. INVESTMENTS IN COMMON STOCK OF GIANT INDUSTRIES, INC.:
The Company stock owned by the Plan is made up of
allocated and unallocated shares. The allocated shares
are those which are held in the accounts of the
participants of the Plan. The unallocated shares are
those which are held by the Plan Trustee. These shares
are allocated to participants when principal payments
are made on the note payable.
During 1995, 1994, and 1993, the Plan allocated 74,556, 120,937,
and 130,616 shares, respectively, of the unallocated shares
of the Company stock to the participants as a result of
principal payments on the note payable. During 1995, 1994, and
1993, the Company contributed $900,000, $900,000, and $889,441,
respectively, of which $27,249, $66,766, and $96,167, respectively,
was used to make interest payments on the note, and $513,679,
$833,234, and $793,274, respectively, was used to reduce
the principal balance on the note.
The following is a summary of the allocated and
unallocated shares of the Company stock owned by the
Plan at December 31 (all shares are rounded to
whole shares):
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Shares Fair Value Shares Fair Value Shares Fair Value
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Allocated
Shares 1,435,965 $17,590,571 1,460,322 $10,952,418 1,403,711 $14,388,038
Unallocated
Shares 74,556 559,172 195,493 2,003,803
--------- ----------- --------- ----------- --------- -----------
Total Shares 1,435,965 $17,590,571 1,534,878 $11,511,590 1,599,204 $16,391,841
========= =========== ========= =========== ========= ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
The total balance of loans to participants at December 31,
1995 and 1994 includes $35,912 and $50,134, respectively,
of balances due from executive officers of the Company.
6. NOTE PAYABLE:
During 1993, the Company purchased the Plan's existing
note payable to the bank. The note was paid in full in
September 1995.
7. FEDERAL INCOME TAX STATUS:
The Plan obtained its latest determination letter dated
September 16, 1994 in which the Internal Revenue Service
stated that the Plan, as then designed, was in compliance
with the applicable requirements of the Internal Revenue
Code.
F-7<PAGE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
SUPPLEMENTAL SCHEDULE
AT DECEMBER 31, 1995
ITEM 27a - ASSETS HELD FOR INVESTMENT PURPOSES
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------- -------------------------------------------- ---------- -----------
DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUE, BORROWER, COLLATERAL, RATE OF INTEREST, MATURITY CURRENT
LESSOR, OR SIMILAR PARTY DATE, PAR OR MATURITY VALUE COST VALUE
- ---------------------------- -------------------------------------------- ---------- -----------
<S> <C> <C> <C>
ML Lee Acquisition Mutual Fund - 25 Shares $ 25,000 $ 15,796
Bank of America Equity Fund - 118,168 shares 298,154 384,281
Bank of America Fixed Income Fund - 243,507 shares 514,568 565,498
Bank of America Core Equity Growth Fund - 7,312 shares 148,978 197,287
Bank of America Short-Term Government Fund - 87,020 shares 167,227 187,785
Bank of America Convertible Securities Fund - 60,482 shares 163,086 190,352
Bank of America Aggressive Equity Fund - 32,700 shares 152,647 191,011
Recorp. Mtg. Investors II Limited Partnership - 1.5 units 60,000 22,200
Giant Industries, Inc. Common stock - 1,435,965 shares 6,931,849 17,590,571
Loans to Participants Loans at 12%, collateralized by vested
accounts, due 1996 through 2002 40,808 40,808
---------- -----------
Total assets held for investment purposes $8,502,317 $19,385,589
========== ===========
F-8
</TABLE>
