-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQX1XqCdqbMQx2JI2vZKoN7U2b+t88DX3a4HWYVzPYsoBirK4+V4WRZHkiUKVvID CgsGi5wlFp1fd9L5fWAnrg== 0000856465-97-000003.txt : 19970329 0000856465-97-000003.hdr.sgml : 19970329 ACCESSION NUMBER: 0000856465-97-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIANT INDUSTRIES INC CENTRAL INDEX KEY: 0000856465 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 860642718 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10398 FILM NUMBER: 97566096 BUSINESS ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 6025858888 MAIL ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 10-K405 1 GIANT INDUSTRIES INC. 1996 10-K 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, 1996. 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 28, 1997, 11,097,867 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 $100,200,000 based on New York Stock Exchange closing prices on February 28, 1997. 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 1997 Annual Meeting of Stockholders - Items 10, 11, 12, and 13. 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 retail facilities, independent wholesalers and retailers, industrial/commercial accounts and sales and exchanges with major oil companies. 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, 1996, the Company had 11,097,867 shares of outstanding Common Stock. In early 1996, the Company approved a plan of disposition for its oil and gas 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. On August 30, 1996, the Company completed the sale of substantially all of its oil and gas assets for $25,500,000. Certain oil and gas assets with a net asset value of approximately $4,300,000, including a production payment, were retained by the Company. These assets consist primarily of a working interest in certain natural gas properties that qualify for the coal seam gas tax credits under Section 29 of the Internal Revenue Code, an office building and some equipment. The Company's long-term strategy is to increase its integration 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 through their sale in the Company's retail network. The Company also intends to increase its market presence in its secondary markets, including the Phoenix and Tucson areas, which could provide additional opportunities for selective market expansion. Through selective acquisitions, the Company plans to expand into new markets outside the Four Corners area where the Company's management believes it can duplicate its business strategy. REFINING AND MARKETING REFINING Giant Arizona owns and operates two refineries. The Ciniza refinery is located on 880 acres near Gallup, New Mexico and the Bloomfield refinery is located on 285 acres near Farmington, New Mexico. Both of these refineries are geographically 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 refinery yields which are comparable to that achieved by larger more complex refineries located outside of the area. Both refineries are equipped with fluid catalytic cracking, naphtha hydrotreating, reforming, and LPG recovery units, as well as diesel hydrotreating and sulfur recovery units to manufacture low sulfur diesel fuel. The Ciniza refinery utilizes an alkylation process to manufacture high octane gasoline from its catalytic cracking unit olefins. The Bloomfield refinery accomplishes this using 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, including gasoline, diesel fuel and jet fuel, from each barrel of crude oil refined. The refineries manufacture a product slate that includes 100% unleaded gasoline and 100% low sulfur diesel fuel. Set forth below is data with respect to refinery operations and the primary refined products produced during the indicated periods.
Year Ended December 31, ------------------------------------ 1996 1995(1) 1994 1993 1992 ---- ---- ---- ---- ---- Feedstock throughput:(2) Crude oil 34,800 23,700 19,100 20,300 20,800 NGLs and oxygenates 5,400 5,000 4,500 5,000 4,800 ------ ------ ------ ------ ------ Total 40,200 28,700 23,600 25,300 25,600 ====== ====== ====== ====== ====== Crude oil throughput (as a % of total) 87% 83% 81% 80% 81% Rated crude oil capacity utilized 90% 88% 92% 98% 101% Refinery margin ($/bbl) $ 6.21 $ 5.13 $ 5.60 $ 6.69 $ 4.77 Products:(2) Gasoline 24,900 18,500 15,200 16,300 16,100 Diesel fuel 10,900 7,200 5,200 5,400 5,400 Jet fuel 1,100 900 1,300 1,800 2,000 Other 3,300 2,100 1,900 1,800 2,100 ------ ------ ------ ------ ------ Total 40,200 28,700 23,600 25,300 25,600 ====== ====== ====== ====== ====== High Value Products: Gasoline 62% 65% 64% 65% 63% Diesel fuel 27% 25% 22% 21% 21% Jet fuel 3% 3% 6% 7% 8% ------ ------ ------ ------ ------ Total 92% 93% 92% 93% 92% ====== ====== ====== ====== ====== (1) The 1995 operating data reflects the operations of the Bloomfield refinery effective October 4, 1995. (2) Average barrels per day
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 refinery operating unit requires regular maintenance and repair shutdowns (referred to as "turnarounds") during which it is not in operation. Turnaround cycles vary for different units. In general, refinery turnarounds are managed so that some units continue to operate while others are down for scheduled maintenance. Maintenance turnarounds are implemented using refinery personnel as well as some additional contract labor. Turnaround work proceeds on a continuous 24-hour basis in order to minimize unit down time. Giant has historically expensed current maintenance charges and capitalized turnaround costs which are then amortized over the estimated period until the next turnaround which is generally twenty-four to forty-eight months depending on the unit involved. In general, a major refinery turnaround is scheduled every four years. The most recent major turnaround occurred at the Ciniza refinery during March and April 1994. A major turnaround is scheduled for the Bloomfield refinery in the second quarter of 1997. 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 Alaska North Slope ("ANS") crude oil, accessed from the West Coast through the Company's gathering systems interconnection with 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. The Company believes that local crude oil production currently approximates 98% of aggregate local crude oil demand. Secondary recovery projects implemented in 1996 in some units in the gathering area have increased local production. Based on projections of local crude oil availability from the field and current levels of usage of ANS, the Company believes an adequate crude oil supply will be available, without the use of significant additional supplemental supply alternatives, to sustain refinery operations at planned levels, at least through 1997. The Company continues to evaluate other supplemental crude oil supply alternatives for its refineries on both a short-term and long-term basis. Among other alternatives, the Company has considered making additional equipment modifications to increase its ability to use alternative crude oils and natural gas liquids and could 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. The Company understands that production of ANS is declining and is aware of proposals that would, at some time in the future, eliminate the shipping of ANS through the Four Corners pipeline system. In such event, the Company has identified potential opportunities for accessing other supplemental crude oil supplies via this pipeline. In addition, the Four Corners area produces significant amounts of NGLs, most of which are currently shipped out of the area by pipeline. The Company will undertake several projects at its refineries in 1997 to increase its ability to utilize NGLs, which historically are a lower cost feedstock than crude oil, in the production of gasoline. These 1997 projects should increase the amount of natural gasoline used by the Company's refineries by approximately 2,500 barrels per day and will result in the production of an equivalent number of barrels per day of additional gasoline. If additional supplemental crude oil becomes necessary, the Company intends to implement then 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, would be the delivery of supplemental crude oil from outside of the Four Corners area by pipeline. Such crude oil may be of lesser quality than locally available crude oils, and the Company believes such crude oil will generally have a delivered cost greater than that of locally available crude oil. Implementation of supplemental supply alternatives may result in additional raw material costs, operating costs, capital costs, or a combination thereof in amounts which are not presently ascertainable by the Company but which will vary depending on factors such as the specific alternative implemented, the quantity of supplemental feedstocks required, and the date of implementation. Implementation of some supply alternatives requires the consent or cooperation of third parties and other considerations beyond the control of the Company. Crude oil is acquired from a number of 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 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. As stated above, the Company will undertake several projects in 1997 to increase its ability to use natural gas liquids in the production of gasoline. OXYGENATES The Company owns a dry mill ethanol processing plant in Portales, New Mexico. The ethanol plant 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. Oxygenates are oxygen-containing compounds that can be used as a motor vehicle fuel supplement to reduce motor vehicle carbon monoxide emissions. The use of gasoline containing oxygenates has been government-mandated in a number of metropolitan areas near Giant's operations. On October 2, 1995, the Company announced the temporary suspension of operations at the facility due to high grain costs. 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. Based on current raw material and product prices, the Company currently plans to reopen the plant in 1997. 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 is the primary market area for the Company's refined products. 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 1996, its gasoline production was distributed 57% in New Mexico, 28% in Arizona, 10% in Colorado and 5% 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 approximately 40% of the refineries' sales barrels in 1996. REFINED PRODUCT SALES. During 1996, the Company sold approximately 9,200,000 barrels of gasoline and 3,900,000 barrels of diesel fuel from its refineries. The Company's retail units sold an equivalent of approximately 22% of these gasoline and 14% of these diesel sales. Gasoline and diesel deliveries made through product exchanges with large oil companies accounted for approximately 24% 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, 1996, the Company operated 52 service station/convenience stores located in New Mexico, Arizona and Colorado, one more unit than in 1995, and a Travel Center located on I-40 adjacent to the Ciniza refinery near Gallup, New Mexico. The Company's retail units sold approximately 105,800,000 gallons of gasoline and diesel fuel in 1996 compared to approximately 107,400,000 gallons in 1995, a 1 1/2% decrease. Merchandise sales increased approximately 7% in 1996, to $49,100,000 from $45,700,000. This increase was primarily due to an aggressive remodeling program, improved merchandising and the addition of higher volume units with increased merchandising capacity, which replaced lower volume, underperforming units, which were sold. During 1996, the Company acquired seven units, constructed two new units, and sold eight units. One unit was closed for remodeling in late 1996 and is scheduled to reopen in the first quarter of 1997. In addition, a number of new sites were acquired in 1996 for planned growth in 1997. The Company plans to acquire or construct a minimum of twenty-six units during 1997. This additional growth is expected to be in the Company's primary and secondary market areas. In addition, other sites are expected to be acquired during 1997 to continue future retail expansion and several rebuilds and remodels will also be undertaken. During 1996, the Company continued to look for acquisition opportunities to expand its retail marketing. In June, the Company completed the acquisition of seven Diamond Shamrock retail units in the Four Corners area. These will continue to be operated under the Diamond Shamrock brand for a period of time. In 1997, the Company will continue to look for acquisition opportunities to expand its retail marketing in areas that are consistent with its strategic refining and marketing objectives. The majority of the Company's service stations are typically modern high-volume self-service stations. During 1996, the Company remodeled twenty-eight units and continued its program to install credit card readers in dispensers at its higher volume units. Card readers were installed at eight units and new product dispensers were installed at two units. In addition, the Company installed state-of-the-art integrated point of sale equipment at nineteen units. The program to upgrade dispensers and card readers is expected to continue during 1997. The Company's service stations are augmented with convenience stores at many locations, which provide items such as general merchandise, alcoholic and nonalcoholic beverages, fast foods, health and beauty aids and automotive products. In 1996, the Retail Division expanded its proprietary fast food operations in three of its newly constructed and remodeled units. "The Deli at Giant", now in eight stores, offers a full-scale deli and fast food menu. The Company owns and operates a 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, 1996, the Company sold approximately 15,400,000 gallons of diesel fuel at the Travel Center (approximately 18% of the Ciniza refinery's total diesel production). The Travel Center facility includes 18 high volume diesel fuel islands, a large truck repair facility, and a 29,000 square foot shopping mall. The facility contains a 265 seat full service restaurant, two large convenience stores, 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 28, 1997, 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, 700 (including 70 part-time) were employed in the service station division and 250 (including 10 part-time) were employed at the Travel Center. 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 Company is aware of a number of proposals or industry discussions regarding product pipeline projects that if or when undertaken and completed could impact portions of its marketing areas, either directly or indirectly. One of these projects, the expansion of the Emerald Line into Albuquerque, is being implemented and is currently scheduled for completion in 1997. Another of these proposed projects would result in a refined products pipeline from Southeastern New Mexico to the Albuquerque and Farmington markets. The various proposed projects involve new construction of connecting pipelines and in some cases the reversal of existing crude oil or natural gas liquids pipelines. The completion of some or all of these projects would result in increased competition by increasing the amount of refined products available, either directly or indirectly, in the Albuquerque and Farmington market areas. 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 costs 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 costs may be approximately $3.0 million to $3.5 million, which will be incurred over a period of approximately five years beginning in 1997. 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 seven of the Company's service stations satisfy the 1998 standards. The Company anticipates that it will make the necessary modifications at all of these stations in 1997, at a cost of approximately $500,000. At the request of the governor of the State of Arizona, EPA has issued proposed regulations that would make gasoline sold within Maricopa County subject to the Amendments' Reformulated Gasoline ("RFG") program. As proposed, the Program would become effective for all persons other than retailers and wholesale purchaser-consumers on June 1, 1997 and would become effective for retailers and wholesale purchaser-consumers on July 1, 1997. EPA has indicated that it would allow Maricopa County to leave the RFG program if an opt-out request was submitted by the governor prior to January 1, 1998. Because the amount of refined products manufactured at the Company's refineries and sold in Maricopa County has been very small, the Company does not intend to make the changes necessary to produce RFG if EPA's proposed regulations are adopted. The Company has other alternatives for supplying its retail units in Maricopa County, such as acquiring RFG by trade with other companies. The Company does not believe that any other gasoline produced at the refineries would be subject to the Amendments' RFG regulatory program, unless a state governor requests that Reformulated Gasoline be required in certain other areas. 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 Environment 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 the land treatment facility. Although there is no guarantee, the Company anticipates that NMED will approve the proposal later this year. 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. 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 was 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 was located may have been a part of a refinery owned by various other parties that ceased operations approximately thirty-five years ago. The Company completed a site investigation in 1995, 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 has approximately $250,000 accrued as an 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 $700,000 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. The Lee Acres Landfill was added to the National Priorities List as a Comprehensive Environmental Response, Compensation and Liability Act ("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. In May 1991, EPA notified the Company that it may be a potentially responsible party under CERCLA for the release or threatened release of hazardous substances, pollutants or contaminants at the Landfill. In September 1996, BLM made its proposed plan of action for the Landfill available to the public. Remediation alternatives examined by BLM in connection with the development of its proposed plan ranged in projected cost from no cost to approximately $14.5 million. BLM is proposing the adoption of a remedial action alternative that it believes would cost approximately $3.9 million to implement. BLM's $3.9 million cost estimate is based on certain assumptions which may or may not prove to be correct and is contingent on confirmation that remedial actions, once implemented, are adequately addressing Landfill contamination. BLM has received public comment on its proposed plan. The Company understands that BLM, EPA and NMED intend to consult to select the final remedy for the site. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM's proposed plan. In 1989, a consultant to the Company estimated, based on various assumptions, that the Company's potential liability could be approximately $1.2 million. This figure was based upon estimated Landfill remediation costs significantly higher than those being proposed by BLM. The figure was also based on 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. 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 has established an environmental reserve of $2.25 million in connection with this matter. 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 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 produced 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 position that it is in substantial compliance with the laws applicable to the disputed area and, therefore, has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. The Company also may receive further tax assessments. The Company intends to continue purchasing activities in the geographic area. DISCONTINUED OPERATIONS OIL & GAS OPERATIONS In early 1996, the Company approved a plan of disposition for its oil and gas 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. On August 30, 1996, the Company sold substantially all of its oil and gas assets to Central Resources, Inc., a privately owned oil and gas company based in Denver, Colorado. The assets were sold for $25,500,000. The Company retained its ownership in natural gas wells located in San Juan County, New Mexico which qualified for federal coal seam gas tax credits under Section 29 of the Internal Revenue Code. Future Section 29 tax credits, estimated to be approximately $3.2 million, generated from natural gas production will be realized by the Company and, when earned, will be used to offset income taxes payable through the year 2002. These wells are subject to a production payment to Central Resources, Inc., under which the natural gas reserves related to these wells will be produced for the benefit of the buyer, as well as a "suboperating" agreement under which the buyer assumes substantially all of the responsibilities and risks of operation of the wells. Additionally, the Company retained an office building located at 2200 Bloomfield Highway, Farmington, New Mexico. 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" 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 56 President and Chief October 1989 Executive Officer Fredric L. Holliger 49 Executive Vice President October 1989 and Chief Operating Officer A. Wayne Davenport 48 Vice President and May 1994 Chief Financial Officer Morgan Gust 49 Vice President and August 1990 General Counsel, Vice President Administration and 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 started Giant Arizona in 1969 and has served continuously as its Chairman of the Board of Directors, President and Chief Executive Officer. Mr. Acridge is also Chairman of the Board of Directors of Giant E&P. 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, the Company's principal wholly-owned subsidiary, as Senior Vice President and President of the Giant 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, Mr. Holliger has also served as a director, President and Chief Executive Officer of Giant E&P, which was the Company's other principal wholly-owned subsidiary until the Company sold substantially all of its oil and gas assets in August 1996. 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 of the Company. He also serves in such positions for Giant Arizona 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. 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. 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, 1996 16 1/8 13 3/4 September 30, 1996 16 1/4 13 3/8 June 30, 1996 15 5/8 12 1/4 March 31, 1996 14 10 7/8 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 For 1996 and 1995, the Company's Board of Directors declared quarterly cash dividends on common stock 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. At December 31, 1996, retained earnings available for dividends under the terms of the Indenture was approximately $16,123,000. 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 267 holders of record of Common Stock on February 28, 1997. 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:
FINANCIAL AND OPERATING HIGHLIGHTS (In Millions, Except Percentages, Per Share and Operating Data) Year Ended December 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- FINANCIAL STATEMENT DATA Continuing Operations: Net Revenues $ 499.2 $ 332.9 $ 291.6 $ 313.2 $ 301.7 Operating Income 39.7 20.6 20.1 31.4 15.3 Net Earnings 17.0 7.7 7.4 17.5 7.1 Earnings Per Common Share 1.52 .68 .61 1.43 .58 Discontinued Operations Net Earnings (Loss)(1) .2 (2.9) (11.3) (9.5) Earnings (Loss) Per Common Share .01 (.24) (.92) (.78) Weighted Average Common Shares Outstanding 11.2 11.5 12.1 12.2 12.2 Dividends Paid Per Common Share .20 .20 Stockholders' Equity 122.1 109.7 109.7 105.9 98.6 Book Value Per Common Share 11.00 9.75 9.15 8.69 8.07 Return on Average Stockholders' Equity 14.7% 7.2% 4.2% 5.8% Total Assets 324.0 324.9 279.4 274.4 233.3 Working Capital 21.5 50.3 86.4 88.0 47.2 Long-Term Debt as a Percentage of Total Capitalization 48.1% 56.5% 51.4% 52.5% 46.8% Long-Term Debt 113.1 142.7 116.1 117.3 86.9 OPERATIONS DATA - CONTINUING OPERATIONS: REFINING AND MARKETING:(2) Rated Crude Oil Capacity Utilized 90% 88% 92% 98% 101% Refinery Sourced Sales Barrels (Bbls/Day) 38,814 27,430 23,054 24,412 24,477 Average Crude Oil Costs ($/Bbl) $ 21.80 $ 18.41 $ 16.97 $ 18.09 $ 20.21 Refinery Margin ($/Bbl) $ 6.21 $ 5.13 $ 5.60 $ 6.69 $ 4.77 Service Stations: Fuel Gallons Sold (In Thousands)(3) 87,499 85,872 85,550 71,129 67,708 Product Margin ($/Gallon)(3) $ 0.201 $ 0.196 $ 0.200 $ 0.185 $ 0.152 Merchandise Sold ($ In Thousands) $ 42,037 $ 38,091 $ 32,727 $ 22,367 $ 18,159 Merchandise Margin 30% 30% 29% 28% 27% Number of Outlets at Year End 52 51 50 50 41 Travel Centers:(4) Fuel Gallons Sold (In Thousands) 18,298 21,522 30,337 32,148 38,253 Product Margin ($/Gallon) $ 0.104 $ 0.102 $ 0.118 $ 0.128 $ 0.121 Merchandise Sold ($ In Thousands) $ 7,092 $ 7,640 $ 9,929 $ 10,125 $ 10,041 Merchandise Margin 46% 47% 45% 45% 47% Number of Outlets at Year End 1 1 1 2 2 Retail Fuel Volumes Sold as a % of Refinery Sourced Sales Barrels(3) 18% 26% 33% 28% 28%
(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) Operations data includes the operations of the Bloomfield refinery from October 4, 1995. (3) In the fourth quarter of 1996, certain operations previously reported as part of the Company's retail division were transferred to the refining division as part of a reorganization. The amounts reflected here have been restated to reflect this reorganization. (4) The Company's Giant Express travel center was sold November 2, 1994. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 - --------------------------------------------------------------------- The primary factors affecting the results of the Company's 1996 continuing operations as compared to its 1995 continuing operations are the acquisition of the Bloomfield refinery in the beginning of the fourth quarter of 1995, an increase in 1996 refinery margins and the temporary suspension of operations at the Company's ethanol production plant during 1996. In early 1996, the Company approved a plan of disposition for its oil and gas assets. In August 1996, the Company completed the sale of substantially all of these assets. The operations connected with these assets are classified as discontinued operations in the Company's consolidated financial statements for all years presented. EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES - ------------------------------------------------------- Earnings from continuing operations before income taxes were $28.2 million for the year ended December 31, 1996, an increase of approximately $16.8 million from $11.4 million for the year ended December 31, 1995. The increase is primarily the result of the acquisition of the Bloomfield refinery and increases in average refinery margins of approximately 21%. These increases were partially offset by increases in operating and administrative costs. REVENUES - -------- Revenues for the year ended December 31, 1996, increased $166.3 million or 50% to $499.2 million from $332.9 million in the comparable 1995 period. Finished product sales of $130.3 million from the Bloomfield refinery accounts for approximately 78% of the increase. In addition, a 19% increase in Ciniza refinery weighted average selling prices and a 10% increase in service station merchandise sales contributed to increased revenues. Offsetting these increases was a decline in third party sales from the Company's ethanol plant due to a temporary suspension of operations during 1996. The increase in service station merchandise sales is the result of a 9% increase in same store volumes and a net increase in sales during the year from fourteen units that have been acquired or constructed in the last twenty-four months over thirteen units that have been disposed of during the same period. The volumes of refined products sold through retail units decreased approximately 1% from 1995 levels due to a 15% decline in volumes sold from the Company's travel center, offset in part by a 2% increase in service station volumes. It is believed that travel center volumes have declined because of increased local competition due to the construction of several new truck stops in the Company's market area in the past several years. Service station volumes have increased due to a net increase in sales volumes during the year from the fourteen units that have been acquired or constructed in the last twenty-four months over the thirteen units that have been disposed of during the same period. This increase was offset by a slight decline in same store volumes resulting from increased competition. Average monthly sales volumes during the last two years for the fourteen units acquired or constructed is approximately 151,000 gallons per month compared to 104,000 gallons per month for the thirteen units that have been disposed of. COST OF PRODUCTS SOLD - --------------------- For the year ended December 31, 1996, cost of products sold increased $127.6 million or 54% to $361.9 million from $234.3 million in the corresponding 1995 period. Cost of products sold of $101.0 million relating to the Bloomfield refinery accounts for approximately 79% of the increase. Also contributing to increased costs was an 18% increase in average crude oil costs and a 12% increase in the cost of merchandise sales from the service stations. These increases were partially offset by a decrease in costs relating to the temporary suspension of operations at the Company's ethanol plant and the liquidation of certain lower cost crude oil LIFO inventory layers which resulted in a reduction in cost of products sold of approximately $2.8 million in 1996 compared to a similar reduction of approximately $0.5 million in 1995. OPERATING EXPENSES - ------------------ For the year ended December 31, 1996, operating expenses increased $12.4 million or 24% to $64.3 million from $51.9 million in the year ended December 31, 1995. Operating expenses increased due to the acquisition of the Bloomfield refinery (18%) and for other operations (12%). The 12% increase for other operations is due to increases in payroll and related costs (6%), higher fuel costs at the Ciniza refinery (1%) and for various other expense increases (5%). Partially offsetting these increases was a decrease of 6% due to the temporary suspension of operations at the ethanol plant. Payroll and other costs have increased due to annual wage increases and, in the retail operations, due to expanded programs such as twenty-four hour operations, fuel pump island attendant program, pay at the pump program, deli operations and store remodeling and expansion. DEPRECIATION AND AMORTIZATION - ----------------------------- For the year ended December 31, 1996, depreciation and amortization increased approximately $4.3 million or 32% to $17.6 million from $13.3 million in the same 1995 period. The increase is primarily the result of the acquisition of the Bloomfield refinery, along with the addition of service station and transportation assets. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- For the year ended December 31, 1996, selling, general and administrative expenses increased approximately $2.8 million or 22% to $15.6 million from $12.8 million in the corresponding 1995 period. The increase is primarily the result of expense accruals for incentive bonus plans (14%), increases in payroll and related costs (5%), expense accruals for estimated severance tax assessments(2%) and increases in various other general expense categories (10%). These increases were partially offset by 1996 expense reductions for decreases in estimated liabilities for self insured workman's compensation and property and casualty claims and other items (9%). INTEREST EXPENSE (INCOME) - ------------------------- For the year ended December 31, 1996, interest expense increased approximately $0.8 million or 7% to $12.3 million from $11.5 million in the same 1995 period. The increase is primarily related to the addition of certain variable rate long-term debt incurred to finance the acquisition of the Bloomfield refinery, offset in part by a reduction in other long-term debt. For the year ended December 31, 1996, interest and investment income decreased approximately $1.4 million or 66% to $0.8 million from $2.2 million in 1995. The decrease is primarily due to a decrease in excess funds available for investment related to the acquisition of the Bloomfield refinery in October 1995 and, in 1996, to the use of operating cash flows and the proceeds from the sale of the Company's oil and gas assets for the payment of long-term debt and capital expenditures. INCOME TAXES - ------------ Income taxes for the years ended December 31, 1996 and 1995 were computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, resulting in effective tax rates of approximately 39% and 32%, respectively. The difference in the two rates is primarily due to alcohol fuel tax credits generated from the operation of the Company's ethanol plant, which temporarily suspended operations in October 1995, as well as coal seam gas tax credits in 1995. DISCONTINUED OPERATIONS - ----------------------- On August 30, 1996, the Company completed the sale of substantially all of its oil and gas assets for $25.5 million. The transaction was structured so that the Company retained only the oil and gas properties that will generate future coal seam gas tax credits under Section 29 of the Internal Revenue Code. The reserves related to these properties will be produced by the buyer and tax credits will be realized by the Company. The net asset value assigned to these properties is approximately $4.3 million and is included in other assets and liabilities in the accompanying Consolidated Balance Sheet. The Company also retained an office building and some equipment. Future coal seam gas tax credits, when earned, will be used to offset income taxes payable. Loss on the disposal of the oil and gas segment for 1996 is a loss on the sale of the oil and gas properties of approximately $18,000, including a provision for income taxes of $53,000, offset by earnings from operations of approximately $5,000, including income tax benefits of $861,000. For 1995 and 1994, earnings (loss) from operations were $143,000, net of income taxes of $154,000, and $(2,934,000), net of income tax benefit of $1,351,000, respectively. A pre-tax charge for a reduction of the carrying value of crude oil and natural gas properties of $3,395,000 was recorded in 1994. OUTLOOK - ------- The Company intends to focus its efforts in 1997 on increasing and developing its retail operations through construction and acquisition, while continuing to seek additional opportunities to expand refining capacity through acquisition and selected refinery projects. 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, 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 were the acquisition of the Bloomfield refinery in 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 October 1995. 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 increase in service station volumes resulting in part from the addition of six new units, offset by reduced volumes at some units due to increased competition and the sale or remodeling of several 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 and a decrease in merchandise sales from the travel centers. OPERATING EXPENSES - ------------------ For the year ended December 31, 1995, operating expenses increased approximately $0.1 million 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, 2% due to the temporary suspension of operations at the ethanol plant, 1% due to lower purchased fuel costs for the Ciniza refinery and 3% due to various other expense decreases. DEPRECIATION AND AMORTIZATION - ----------------------------- For the year ended December 31, 1995, depreciation and amortization increased $1.1 million or 9% 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 $0.9 million 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 being accrued 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 $0.3 million 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. For the year ended December 31, 1995, interest and investment income increased approximately $0.5 million 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 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 oil and gas operations ("Giant E&P") recorded net earnings of $0.1 million 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. 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. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATIONS - ------------------------- Net cash provided by operating activities of continuing operations totaled $42.8 million for the year ended December 31, 1996, compared to $24.5 million for the comparable 1995 period. Operating cash flows increased primarily as the result of the acquisition of the Bloomfield refinery. WORKING CAPITAL - --------------- Working capital at December 31, 1996, consisted of current assets of $86.5 million and current liabilities of $65.0 million, or a current ratio of 1.33:1. At December 31, 1995, the current ratio was 1.86:1, with current assets of $108.9 million and current liabilities of $58.5 million. The Company's current ratio has declined primarily as the result of using cash generated from operations and the sale of the Company's oil and gas assets for the payment of long-term debt and capital expenditures. Current assets have decreased since December 31, 1995, primarily due to decreases in the net assets of discontinued operations and inventories, offset in part by increases in cash and cash equivalents and accounts receivable. The net assets of discontinued operations have decreased because of the sale or reclassification of the net assets of the Company's oil and gas operations. Inventories have decreased primarily as the result of processing crude oil inventories. Cash and cash equivalents have increased in part from a net increase in operating cash flows, proceeds from the sale of the Company's oil and gas assets and borrowings on the Company's working capital line, offset by payments on long-term debt and for the acquisition of property, plant and equipment. Accounts receivable have increased due to increases in trade receivables, resulting from higher sales volumes and prices, and excise tax refunds due on product transfers to the Company's Albuquerque Terminal. Current liabilities have increased due to an increase in accounts payable and accrued expenses. Accounts payable have increased primarily due to increases in the volume and cost of raw materials. Accrued expenses have increased primarily as the result of a contingent payment related to the acquisition of the Bloomfield refinery and an increase in accruals for incentive bonus and 401(k) plans. CAPITAL EXPENDITURES AND RESOURCES - ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment and other assets totaled approximately $27.5 million for the year 1996, including the acquisition of seven retail units; the construction of two and the reconstruction or remodeling of twenty-eight retail units; the acquisition of finished product and crude truck transports; and upgrades and turnaround expenditures at the refineries. In addition, the Company accrued approximately $2.3 million for estimated preacquisition environmental liabilities assumed in the purchase of the Bloomfield refinery. The Company also accrued a contingent payment related to this acquisition of approximately $6.9 million. Both of these amounts have been added to property, plant and equipment and allocated to the assets acquired. For 1996, the Company received proceeds of approximately $4.4 million from the sale of eight operating service stations. A gain of approximately $0.1 million resulted from these sales. As described above, the Company completed the sale of substantially all of its oil and gas assets in 1996 for $25.5 million. In October 1995, the Company temporarily closed its ethanol processing plant in Portales, New Mexico due to high grain prices. Based on current raw material and product prices, the Company currently plans to reopen the plant in 1997. The Company has budgeted approximately $81.4 million for capital expenditures in 1997. Of this amount, approximately $10.7 million is budgeted for non-discretionary projects that are required by law or regulation or to maintain the physical integrity of existing assets. These expenditures are primarily for operational and environmental projects at the refineries, including a major maintenance turnaround at the Bloomfield refinery scheduled for the second quarter of 1997. The remaining budget of $70.7 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 later category include retail site acquisitions and the acquisition or construction of twenty-six retail units, capacity enhancement projects at the refineries and transportation facility and equipment upgrades. In addition to these budgeted amounts, the Company could incur an additional contingent payment related to the acquisition of the Bloomfield refinery, in accordance with the Bloomfield refinery acquisition agreement, if certain criteria are met. The amount of these capital projects that are actually undertaken in 1997 will depend on, among other things, identifying acceptable acquisitions, general business conditions and results of operations. The capital projects undertaken are expected to be funded from operating cash flows, future borrowings and lease financings. The Company is also actively pursuing the possible sale or exchange of non-strategic or underperforming assets. 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. Changes in the tax laws, changes in federal and state clean air and clean fuel requirements and other changes in environmental laws and regulations may increase future capital expenditure levels. In addition, the Company continues to investigate strategic acquisitions as well as additional capital improvements to its existing facilities. 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 $0.7 million, $0.5 million and $0.6 million was spent in 1996, 1995 and 1994, respectively, and $2.2 million is expected to be spent in 1997. 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. CAPITAL STRUCTURE - ----------------- At December 31, 1996 and 1995, the Company's long-term debt was 48.1% and 56.5% of total capital, respectively. The decrease is primarily due to the repayment of long-term debt and an increase in stockholders' equity due to net earnings. At December 31, 1996 and 1995, the Company's net debt (long-term debt less cash and cash equivalents) to total capitalization percentages were 45.1% and 54.8%, respectively. The Company's capital structure includes $100 million of 9 3/4% senior subordinated notes due in 2003 ("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. This revolving term facility has been repaid from cash on hand and proceeds from the sale of the Company's oil and gas assets. The $30.0 million that was repaid is currently available for reborrowing under this facility for the acquisition of property, plant and equipment. This facility has a floating interest rate that is tied to various short-term indices. At December 31, 1996, this rate was approximately 6.5% per annum. In addition, the Credit Agreement contains a three-year unsecured working capital facility to provide working capital and letters of credit in the ordinary course of business. The availability under this working capital facility is the lesser of (i) $40.0 million, or (ii) the amount determined under a borrowing base calculation tied to eligible accounts receivable and inventories as defined in the Credit Agreement. At December 31, 1996, the lesser amount was $40.0 million. This facility has a floating interest rate that is tied to various short-term indices. At December 31, 1996, this rate was approximately 6.5% per annum. Direct borrowings under this arrangement were $10.0 million at December 31, 1996, and there were $16.0 million of irrevocable letters of credit outstanding, primarily to secure purchases of raw materials. Borrowings under this facility are generally higher at month end due to payments for raw materials and various taxes. The direct borrowings were repaid in early January 1997. 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 direct and indirect wholly-owned subsidiaries. The Company is required to pay a quarterly commitment fee based on the unused amount of each facility. In 1996, the Company prepaid its 10.91% senior unsecured note due to an insurance company from operating cash flows and the proceeds from the sale of the Company's oil and gas assets. 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 1996, the Company repurchased 0.2 million shares of its common stock under this program for approximately $2.8 million. From the inception of the repurchase program, the Company has repurchased 1.1 million shares at a weighted average cost of approximately $9.60 per share, including commissions, for a total cost of approximately $10.8 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 12, 1996, the Company's Board of Directors declared a cash dividend on common stock of $0.05 per share payable to stockholders of record on January 24, 1996. This dividend was paid on February 6, 1997. For the year 1996, the Board of Directors declared cash dividends on common stock totaling $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 for various reasons, including the speculative nature of remediation and cleanup cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. Rules and regulations implementing federal, state and local laws relating to health and the environment will continue to affect the operations of the Company. The Company cannot predict what health or environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or enforced with respect to products or activities of the Company. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by the Company. In May 1991, the Environmental Protection Agency notified the Company that it may be a potentially responsible party for the release, or threatened release, of hazardous substances, pollutants or contaminants at the Lee Acres Landfill, adjacent to the Company's Farmington refinery. This refinery was operated until 1982. Although a final plan of action for the Landfill has not yet been adopted by the Bureau of Land Management ("BLM"), the BLM has developed a proposed plan of action which it projects will cost approximately $3.9 million to implement. This cost projection is based on certain assumptions which may or may not prove to be correct and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, BLM is proposing to take additional remedial actions with an estimated cost of approximately $1.8 million. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM's proposed plan. 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 estimated Landfill remediation costs significantly higher than those being proposed by BLM. The figure was also based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site. The consultant, however, did not conduct an analysis of the Company's potential legal defenses and arguments including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Actual liability, if any, may differ significantly from the consultant's estimate. In addition, the Company is remediating a hydrocarbon plume that appears to extend no more than 1,800 feet south of its inactive Farmington refinery. The Company has established an environmental liability accrual of approximately $3.0 million. Approximately $1.0 million relates to ongoing environmental projects, including the remediation of the hydrocarbon plume described above and hydrocarbon contamination on and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico. The remaining $2.0 million relates to an original estimate of approximately $2.3 million, recorded in the second quarter of 1996, for certain environmental obligations assumed in the acquisition of the Bloomfield refinery. That amount was recorded as an adjustment to the purchase price and allocated to the assets acquired. The environmental accrual is recorded in the current and long-term sections of the Company's Consolidated Balance Sheet. The Company is subject to audit on an ongoing basis of the various taxes that it pays to federal, state, local and tribal agencies. These audits may result in 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. 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 $1.8 million 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 position that it is in substantial compliance with laws applicable to the disputed area and, therefore, has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. The Company believes that local crude oil production currently approximates 98% of aggregate local crude oil demand. Secondary recovery projects implemented in 1996 in some units in the gathering area have increased local production. The Company is currently able to supplement local crude oil supplies with Alaska North Slope crude oil ("ANS") through its gathering systems interconnection with the Four Corners and Texas-New Mexico common carrier pipeline systems. Based on projections of local crude oil availability from the field and current levels of usage of ANS, the Company believes an adequate crude oil supply will be available, without the use of significant additional supplemental supply alternatives, to sustain refinery operations at planned levels, at least through 1997. The Company continues to evaluate other supplemental crude oil supply alternatives for its refineries on both a short-term and long-term basis. Among other alternatives, the Company has considered making additional equipment modifications to increase its ability to use alternative crude oils and natural gas liquids and could 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. The Company understands that production of ANS is declining and is aware of proposals that would, at some time in the future, eliminate the shipping of ANS through the Four Corners pipeline system. In such event, the Company has identified potential opportunities for accessing other supplemental crude oil supplies via this pipeline. In addition, the Four Corners area produces significant amounts of natural gas liquids, most of which are currently shipped out of the area by pipeline. The Company will undertake several projects at its refineries in 1997 to increase its ability to utilize natural gas liquids, which historically are a lower cost feedstock than crude oil, in the production of gasoline. These 1997 projects should increase the amount of natural gasoline used by the Company's refineries by approximately 2,500 barrels per day and will result in the production of an equivalent number of barrels per day of additional gasoline. If additional supplemental crude oil becomes necessary, the Company intends to implement then 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, would be the delivery of supplemental crude oil from outside of the Four Corners area by pipeline. Such crude oil may be of lesser quality than locally available crude oils, and the Company believes such crude oil will generally have a delivered cost greater than that of locally available crude oil. Implementation of supplemental supply alternatives may result in additional raw material costs, operating costs, capital costs, or a combination thereof in amounts which are not presently ascertainable by the Company but which will vary depending on factors such as the specific alternative implemented, the quantity of supplemental feedstocks required, and the date of implementation. Implementation of some supply alternatives requires the consent or cooperation of third parties and other considerations beyond the control of the Company. The Company is aware of a number of proposals or industry discussions regarding product pipeline projects that if or when undertaken and completed could impact portions of its marketing areas, either directly or indirectly. One of these projects, the expansion of the Emerald line into Albuquerque, is being implemented and is currently scheduled for completion in 1997. Another of these proposed projects would result in a refined products pipeline from southeastern New Mexico to the Albuquerque and Farmington markets. The various proposed projects involve new construction of connecting pipelines and in some cases the reversal of existing crude oil or natural gas liquids pipelines. The completion of some or all of these projects would result in increased competition by increasing the amount of refined products available, either directly or indirectly, in the Albuquerque and Farmington market areas. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This report contains forward-looking statements that involve risks and uncertainties, including but not limited to economic, competitive and governmental factors affecting the Company's operations, markets, products, services and prices; the adequacy of raw material supplies; the ability of the Company to successfully abate various tax assessments; the potential effects of various pipeline projects as they relate to the Company's market areas and future profitability and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. 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, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Phoenix, Arizona March 3, 1997
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, --------------------- 1996 1995 --------- --------- (In thousands) ASSETS Current assets: Cash and cash equivalents $ 12,628 $ 9,549 Receivables: Trade, less allowance for doubtful accounts of $254,000 and $424,000 25,014 22,264 Income tax refunds 1,355 380 Other 4,395 1,381 --------- --------- 30,764 24,025 --------- --------- Inventories 38,226 42,581 Prepaid expenses and other 3,252 3,880 Net assets of discontinued operations 26,689 Deferred income taxes 1,636 2,145 --------- --------- Total current assets 86,506 108,869 --------- --------- Property, plant and equipment 322,260 292,919 Less accumulated depreciation and amortization (108,715) (94,357) --------- --------- 213,545 198,562 --------- --------- Other assets 23,956 17,431 --------- --------- $ 324,007 $ 324,862 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,439 $ 4,063 Accounts payable 35,754 34,162 Accrued expenses 27,772 20,316 --------- --------- Total current liabilities 64,965 58,541 --------- --------- Long-term debt, net of current portion 113,081 142,676 Deferred income taxes 19,042 12,864 Other liabilities 4,795 1,049 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, 12,221,367 and 12,188,629 shares issued 122 122 Additional paid-in capital 72,617 72,389 Retained earnings 60,170 45,373 Unearned compensation related to restricted stock (151) --------- --------- 132,909 117,733 Less common stock in treasury-at cost, 1,123,500 and 939,500 shares (10,785) (8,001) --------- --------- 122,124 109,732 --------- --------- $ 324,007 $ 324,862 ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Year Ended December 31, ----------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (In thousands except shares and per share data) Net revenues $ 499,184 $ 332,888 $ 291,623 Cost of products sold 361,864 234,271 195,489 ----------- ----------- ----------- Gross margin 137,320 98,617 96,134 Operating expenses 64,315 51,856 51,823 Depreciation and amortization 17,673 13,345 12,246 Selling, general and administrative expenses 15,602 12,778 11,930 ----------- ----------- ----------- Operating income 39,730 20,638 20,135 Interest expense (12,318) (11,506) (11,805) Interest and investment income 771 2,239 1,733 ----------- ----------- ----------- Earnings from continuing operations before income taxes 28,183 11,371 10,063 Provision for income taxes 11,132 3,638 2,608 ----------- ----------- ----------- Earnings from continuing operations 17,051 7,733 7,455 Discontinued operations: Earnings (loss) from oil and gas operations (net of taxes) 143 (2,934) Loss on disposal of oil and gas operations (net of taxes) (13) ----------- ----------- ----------- Net earnings $ 17,038 $ 7,876 $ 4,521 =========== =========== =========== Earnings (loss) per common share: Continuing operations $ 1.52 $ 0.68 $ 0.61 Discontinued operations 0.01 (0.24) ----------- ----------- ----------- Net earnings $ 1.52 $ 0.69 $ 0.37 =========== =========== =========== Weighted average number of shares outstanding 11,220,380 11,478,779 12,127,481 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
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) Balances, January 1, 1994 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 Purchase of treasury stock 184,000 (2,784) (2,784) Stock options exercised 32,750 216 216 Compensation related to restricted stock awards 12 151 163 Restricted stock award fractional shares redeemed/canceled (12) Dividends declared (2,241) (2,241) Net earnings 17,038 17,038 ---------- ---- ------- ------- ------- ------- ----- --------- -------- -------- Balances, December 31, 1996 12,221,367 $122 $72,617 $60,170 $ $ $ 1,123,500 $(10,785) $122,124 ========== ==== ======= ======= ======= ======= ===== ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- (In thousands) Cash flows from operating activities: Net earnings $ 17,038 $ 7,876 $ 4,521 Adjustments to reconcile net earnings to net cash provided by continuing operating activities: Loss (earnings) from discontinued operations 13 (143) 2,934 Depreciation and amortization 17,673 13,345 12,246 Deferred income taxes 6,514 1,632 (1,058) Restricted stock award compensation 163 471 469 Gain on involuntary conversion of refinery assets (533) Increase (decrease) in other liabilities 470 (328) 1,019 Other 73 57 341 Changes in operating assets and liabilities: Increase in receivables (6,718) (2,513) (7,200) Decrease (increase) in inventories 4,355 (10,311) (8,929) Decrease (increase) in prepaid expenses and other 647 (1,563) 1,120 Increase in accounts payable 1,644 15,096 5,037 Increase (decrease) in accrued expenses 883 904 (2,121) -------- -------- -------- Net cash provided by continuing operating activities 42,755 24,523 7,846 -------- -------- -------- Cash flows from investing activities: Refinery acquisition (55,000) Purchases of property, plant and equipment and other assets (27,468) (22,978) (17,165) Proceeds from sale of property, plant and equipment and other assets 4,587 2,588 5,611 Insurance proceeds from involuntary conversion of refinery assets 438 Payments received on ESOP loan 514 833 Purchases of marketable securities (101,562) Proceeds from sales and maturities of marketable securities 35,991 100,849 Proceeds from sale of discontinued operations 24,106 Net cash (used) provided by discontinued operations (3,831) (6,150) 639 -------- -------- -------- Net cash used by investing activities (2,606) (45,035) (10,357) -------- -------- -------- Cash flows from financing activities: Proceeds of long-term debt 10,000 41,000 Payments of long-term debt (42,218) (14,458) (3,025) Purchase of treasury stock (2,784) (6,349) (1,652) Deferred financing costs (698) (100) Payment of dividends (2,284) (2,302) Proceeds from exercise of stock options 216 8 3 -------- -------- -------- Net cash (used) provided by financing activities (37,070) 17,201 (4,774) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 3,079 (3,311) (7,285) Cash and cash equivalents: Beginning of year 9,549 12,860 20,145 -------- -------- -------- End of year $ 12,628 $ 9,549 $ 12,860 ======== ======== ========
Noncash Investing and Financing Activities. For the year ended December 31, 1996, the Company accrued $2,250,000 for estimated preacquisition environmental liabilities assumed in the purchase of the Bloomfield refinery and $6,910,000 was incurred as a contingent payment, also related to the acquisition of the Bloomfield refinery. Both of these amounts have been added to property, plant and equipment as an adjustment to the purchase price of the Bloomfield refinery. 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. 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 oil and gas 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 for disposition of its oil and gas business. On August 30, 1996, the Company completed the sale of substantially all of its oil and gas assets. (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 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 temporarily suspended operations in October 1995. Based on current raw material and product prices, the Company has reevaluated its options regarding this facility and currently plans to reopen the plant in 1997. 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. As an adjunct to its retail outlets, the Company sells merchandise through its stores. 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 AND OPTION CONTRACTS The Company periodically enters into futures or option 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 over the life of the associated debt instruments. These debt instruments were repaid in 1996, and the remaining net settlement proceeds were recorded as an adjustment to interest expense. MARKETABLE SECURITIES All marketable securities were sold or matured in 1995. Marketable securities were stated at fair value which was generally 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 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: 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 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 which generally ranges from twenty-four to forty- eight months depending on the type of shutdown and the unit involved. 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 1996, the Company had repurchased 1,123,500 shares at a cost of approximately $10,785,000. 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. INCOME TAXES The provision for income taxes is based on earnings 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 adopted this Statement in the first quarter of 1996 and based on an evaluation of its operations in accordance with the criteria specified in the Statement, determined that there was no material impact to the Company's financial position or results of operations. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock Based Compensation." The Company determined that it will not change to the fair value method prescribed in the Statement and will continue to use Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock based compensation. SFAS No. 123 requires additional disclosures to be made in the financial statements. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1 "Environmental Remediation Liabilities." The Company has not completed the process of evaluating the impact that will result from adopting this SOP. However, management does not believe the adoption will have a significant impact on the Company's financial position or results of operations. SOP 96-1 is required to be adopted in the first quarter of 1997. RECLASSIFICATIONS Certain reclassifications have been made to the 1995 financial statements and notes to conform to the statement classifications used in 1996. 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 provides for potential contingent payments to be made to BRC over approximately six years from the acquisition date, not to exceed a present value of $25,000,000, should certain criteria be met. These contingent payments are considered to be additional purchase price and will be allocated to the assets acquired in the same proportions as the original purchase price was allocated, not to exceed the estimated current replacement cost, and amortized over the estimated remaining life of the assets. At December 31, 1996 and 1995, the Company had accrued $6,910,000 and $1,198,000, respectively, under this arrangement relating to 1996 and 1995 operations. In addition, the Company accrued $2,250,000 relating to certain environmental obligations assumed in the purchase. The above accruals have been recorded as additional purchase price and allocated to the assets acquired. The following Statements of Earnings compare the consolidated results of Giant, including the results of the Bloomfield refinery, for the year ended December 31, 1996, with the pro forma combined condensed statement of earnings of the Company and BRC ("Pro Forma") for the year ended December 31, 1995. The pro forma statement assumes the transaction was consummated January 1, 1995, and includes the results of operations of the Company and BRC, along with adjustments which give effect to events that are directly attributable to the transaction and which are expected to have a continuing impact. The unaudited pro forma combined condensed financial information does not purport to represent the results of operations that actually would have resulted had the purchase occurred on the date specified, nor should it be taken as indicative of the future results of operations. STATEMENTS OF EARNINGS (IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------- GIANT PRO FORMA 1996 1995 ----------- ----------- (UNAUDITED) Net revenues $ 499,184 $ 439,719 Cost of products sold 361,864 313,353 ----------- ----------- Gross margin 137,320 126,366 ----------- ----------- Operating expenses 64,315 61,504 Depreciation and amortization 17,673 15,408 Selling, general and administrative expenses 15,602 14,339 ----------- ----------- Operating income 39,730 35,115 Interest expense, net and other 11,547 12,229 ----------- ----------- Earnings from continuing operations before income taxes 28,183 22,886 Provision for income taxes 11,132 8,118 ----------- ----------- Earnings from continuing operations $ 17,051 $ 14,768 =========== =========== Earnings from continuing operations per common share $ 1.52 $ 1.29 =========== ===========
NOTE 3 DISCONTINUED OPERATIONS: In early 1996, the Company approved a plan of disposition for its oil and gas 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. The net assets of the oil and gas segment at December 31, 1995, were approximately $26,689,000, consisting primarily of oil and gas properties and related deferred taxes. On August 30, 1996, the Company completed the sale of substantially all of its oil and gas assets for $25,500,000. The transaction was structured so that the Company retained only the oil and gas properties that will generate future coal seam gas tax credits under Section 29 of the Internal Revenue Code. The reserves related to these properties will be produced by the buyer and tax credits will be realized by the Company. The net asset value assigned to these properties is approximately $4,300,000 and is included in other assets and liabilities in the accompanying Consolidated Balance Sheet. The Company also retained an office building and some equipment. Future coal seam gas tax credits, when earned, will be used to offset income taxes payable. Revenues for the oil and gas operations in 1996, up to the date of sale, were $6,891,000 and were $8,363,000 and $5,959,000 for the years 1995 and 1994, respectively. These revenues are not included in revenues as reported in the Consolidated Statements of Earnings. Loss on the disposal of the oil and gas segment for 1996 is a loss on the sale of the oil and gas properties of approximately $18,000, including a provision for income taxes of $53,000, offset by earnings from operations of approximately $5,000, including income tax benefits of $861,000. For 1995 and 1994, earnings (loss) from operations were $143,000, net of income taxes of $154,000, and $(2,934,000), net of income tax benefit of $1,351,000, respectively. A pre-tax charge for a reduction of the carrying value of crude oil and natural gas properties of $3,395,000 was recorded in 1994. Coal seam gas tax credits generated from these operations in 1996 of $519,000 were allocated to discontinued operations. Similar tax credits generated in 1995 and 1994 of $700,000 and $635,000, respectively, which could not be used on a separate return basis, were allocated to continuing operations based on the Company's tax sharing arrangement. NOTE 4--MARKETABLE SECURITIES: During 1995, all of the Company's marketable securities, which were classified as available-for-sale as defined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," were sold or matured. 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 a $200,000 gain realized on the full payment of certain notes which had been written down by that amount in 1994 to reflect an estimated other than temporary impairment. NOTE 5--INVENTORIES: Inventories consist of the following:
December 31, ------------------- 1996 1995 ------- ------- (In thousands) First-in, first-out ("FIFO") method: Crude oil $10,443 $15,465 Refined products 22,462 17,605 Refinery and shop supplies 7,439 6,871 Retail method: Merchandise 2,768 2,721 ------- ------- Subtotal 43,112 42,662 Allowance for last-in, first-out ("LIFO") method (4,886) (81) ------- ------- Total $38,226 $42,581 ======= =======
The Company uses the LIFO method of inventory valuation. The portion of inventories valued on a LIFO basis totaled $25,887,000 and $29,710,000 at December 31, 1996 and 1995, respectively. The following data will facilitate comparison with the operating results of companies using the FIFO method. If inventories had been determined using the FIFO method at December 31, 1996, 1995 and 1994, net earnings and earnings per share for the years ended December 31, 1996, 1995 and 1994 would have been higher (lower) by $2,883,000 and $0.26, $(268,000) and $(0.02) and $357,000 and $0.03, respectively. NOTE 6--PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost, consist of the following:
December 31, --------------------- 1996 1995 --------- -------- (In thousands) Land and improvements $ 24,053 $ 21,582 Buildings and improvements 61,955 56,165 Machinery and equipment 195,964 178,301 Pipelines 9,510 8,875 Furniture and fixtures 16,568 15,195 Vehicles 8,372 6,552 Construction in progress 5,838 6,249 --------- -------- Subtotal 322,260 292,919 Accumulated depreciation and amortization (108,715) (94,357) --------- -------- Total $ 213,545 $198,562 ========= ========
NOTE 7--ACCRUED EXPENSES: Accrued expenses are comprised of the following:
December 31, ------------------- 1996 1995 ------- ------- (In thousands) Excise taxes $ 8,212 $ 8,608 Bloomfield refinery acquisition contingent payment 6,910 1,198 Payroll and related costs 3,804 3,975 Bonus, profit sharing and retirement plans 2,850 538 Interest 1,267 1,390 Other 4,729 4,607 ------- ------- Total $27,772 $20,316 ======= =======
NOTE 8--LONG-TERM DEBT: Long-term debt consists of the following:
December 31, --------------------- 1996 1995 -------- -------- (In thousands) 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 10,000 31,000 10.91% senior unsecured note repaid October 1996 8,750 Notes payable to others, collateralized by real estate, 9% to 11%, due 1996 to 2010, interest payable monthly or annually 2,208 3,645 8% secured promissory note, due 1996 to 1997, interest payable quarterly 973 1,945 Other 1,339 1,399 -------- -------- Subtotal 114,520 146,739 Less current portion (1,439) (4,063) -------- -------- Total $113,081 $142,676 ======== ========
Repayment of the 9 3/4% senior subordinated notes ("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. No separate financial statements of the subsidiaries are included herein because the subsidiaries are jointly and severally liable; the aggregate assets, liabilities, earnings, and equity of the subsidiaries are substantially equivalent to the assets, liabilities, earnings, and equity of the Company on a consolidated basis; and the separate financial statements and other disclosures concerning the subsidiaries are not deemed material to investors. The Indenture supporting the 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, 1996, 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, 1996, retained earnings available for dividends under the terms of the Indenture was approximately $16,123,000. 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. At December 31, 1996, this revolving term facility had been repaid. The $30,000,000 that was repaid is currently available for reborrowing under this facility for the acquisition of property, plant and equipment. This facility has a floating interest rate that is tied to various short-term indices. 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, 1996, the lesser amount was $40,000,000. At December 31, 1996, direct borrowings under this arrangement were $10,000,000 and there were $15,928,000 of irrevocable letters of credit outstanding. This facility has a floating interest rate that is tied to various short-term indices and was 6.5% per annum at December 31, 1996. 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, 1996, the Company was in compliance with these covenants. The Credit Agreement is guaranteed by substantially all of the Company's wholly-owned subsidiaries. On October 17, 1996, the 10.91% senior unsecured note due to an insurance company was repaid. In 1996, 1995 and 1994, the Company's interest expense was reduced by approximately $363,000, $242,000 and $288,000, respectively, as a result of amortizing the proceeds received from a terminated interest rate swap agreement that was related to this note. At December 31, 1996, the balance of the deferred swap proceeds was fully amortized due to the repayment of the 10.91% note. Aggregate annual maturities of long-term debt as of December 31, 1996 are: 1997 - $1,439,000; 1998 - $10,395,000; 1999 - $1,530,000; 2000 - $49,000; 2001 - $56,000; and all years thereafter - $101,051,000. 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:
December 31, ------------------------------------------ 1996 1995 -------------------- -------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (In thousands) Balance Sheet--Financial Instruments: Fixed rate long-term debt $104,449 $108,491 $115,637 $116,259
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. FIXED RATE LONG-TERM DEBT The fair value of fixed rate long-term debt was determined using quoted market prices, where applicable, or 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, to fix margins in its refining and marketing operations and to protect against price declines for excess inventory volumes. 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, 1996, the Company's hedging activities had futures contracts maturing in 1997 covering 16,000 barrels of crude oil. 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. The crude oil options provided the Company downside protection on a portion of crude oil barrels in inventory in excess of current operating needs. The crude oil futures contracts qualify as hedges and any gains or losses resulting from market changes are substantially offset by losses or gains on the Company's hedging contracts. Gains and losses on hedging contracts are deferred and reported as a component of the related transaction. Net deferred (losses)/gains for the Company's petroleum hedging activities were approximately $(30,000) and $116,000 at December 31, 1996 and 1995, 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. NOTE 10--INCOME TAXES: The provision for income taxes is comprised of the following:
Year Ended December 31, ------------------------------- 1996 1995 1994 ------- ------- ------- (In thousands) Current: Federal $ 3,712 $ 1,140 $ 3,283 State 906 866 385 Deferred: Federal 5,471 1,438 (1,189) State 1,043 194 129 ------- ------- ------- $11,132 $ 3,638 $ 2,608 ======= ======= =======
Income taxes paid in 1996, 1995 and 1994 were $8,909,000, $0, and $5,379,000, 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:
Year Ended December 31, ------------------------------- 1996 1995 1994 ------- ------- ------- (In thousands) Income taxes at the statutory U.S. federal income tax rate $ 9,864 $ 3,980 $ 3,522 Increase (decrease) in taxes resulting from: State taxes, net 1,346 563 505 General business credits, net (679) (910) Federal tax credits from nonconventional fuel (700) (635) Other, net (78) 474 126 ------- ------- ------- $11,132 $ 3,638 $ 2,608 ======= ======= =======
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:
December 31, 1996 December 31, 1995 ------------------------------ ------------------------------- Assets Liabilities Total Assets Liabilities Total ------- ----------- -------- ------- ------------ -------- (In thousands) (In thousands) Nondeductible accruals for uncollectible receivables $ 101 $ 101 $ 168 $ 168 Insurance accruals 373 373 597 597 Insurance settlements 213 213 106 106 Other nondeductible accruals 208 208 130 130 Other reserves 617 617 616 616 Inventory costs capitalized for income tax purposes 124 124 137 137 Other 391 391 ------- -------- -------- ------- -------- -------- Total current 1,636 1,636 2,145 2,145 ------- -------- -------- ------- -------- -------- Other nondeductible accruals 1,114 1,114 349 349 Restricted stock awards $ (28) (28) Operating lease $ (938) (938) (1,003) (1,003) Accelerated depreciation (25,717) (25,717) (19,953) (19,953) Other 27 (1,664) (1,637) 42 (979) (937) Tax credit carryforwards 8,136 8,136 8,708 8,708 ------- -------- -------- ------- -------- -------- Total noncurrent 9,277 (28,319) (19,042) 9,099 (21,963) (12,864) ------- -------- -------- ------- -------- -------- Total $10,913 $(28,319) $(17,406) $11,244 $(21,963) $(10,719) ======= ======== ======== ======= ======== ========
At December 31, 1996, the Company had a minimum tax credit carryforward of approximately $5,537,000 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, 1996, the Company also had approximately $2,599,000 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, $214,000 will expire in 2008, $1,341,000 will expire in 2009 and $1,044,000 will expire in 2010. 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 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 when the loan had a principal balance of $1,347,000. In 1995, the ESOP paid the balance due on the loan of $514,000. At December 31, 1996 and 1995, the ESOP's assets included 1,296,088 and 1,435,965 shares of the Company's common stock, respectively. All of these shares have been allocated to the participants. Shares were allocated to participants when principal payments were made on the loan discussed above. The 1996 contribution of $450,000 was invested in a balanced mutual fund. 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. Contributions to the ESOP are made at the discretion of the Board of Directors. The Company made contributions of $450,000, $900,000 and $900,000 to the ESOP for 1996, 1995 and 1994, respectively. 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, but to the extent required under Section 16 of the Securities Exchange Act of 1934, any transaction between the Company or the Plan and an executive officer of the Company that involves a grant, award or other acquisition of the Company's equity securities must be approved by the Board of Directors. 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 prescribed in the Statement and will continue to use Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock based compensation. The following summarizes stock option transactions:
WEIGHTED AVERAGE EXERCISE Options outstanding at SHARES PRICE - ---------------------- -------- -------- January 1, 1994 304,857 $8.05 Granted 10,000 9.81 Exercised (500) 5.25 Forfeited (2,000) 5.25 ------- December 31, 1994 312,357 8.13 Exercised (1,000) 7.75 Forfeited (5,000) 7.75 ------- December 31, 1995 306,357 8.14 Exercised (32,750) 6.61 Forfeited (6,600) 6.39 ------- December 31, 1996 267,007 $8.37 ======= Options exercisable at December 31: 1996 256,573 $8.44 1995 222,973 8.29 1994 154,481 8.41
The following summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------- ------------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE -------- ----------- ----------- -------- ----------- -------- $ 8.96 108,857 2.5 Years $ 8.96 108,857 $ 8.96 10.50 5,000 3.6 Years 10.50 5,000 10.50 10.63 26,000 4.2 Years 10.63 26,000 10.63 5.25 30,400 5.3 Years 5.25 23,300 5.25 7.75 86,750 6.3 Years 7.75 86,750 7.75 9.81 10,000 7.2 Years 9.81 6,666 9.81 ------- ------- 267,007 4.4 Years $ 8.37 256,573 $ 8.44 ======= =======
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, 1996, there were 175,401 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 214,436** *Net of 21,045 shares forfeited. **Net of 33,757 shares forfeited/redeemed/canceled. 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. 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, 1996, 1995 and 1994, the Company had expensed $800,000, $188,000 and $189,000, respectively, for matching contributions under this plan. NOTE 14--INTEREST, OPERATING LEASES AND RENT EXPENSE: Interest paid and capitalized for 1996 was $12,804,000 and $43,000, for 1995 was $11,833,000 and $190,000 and for 1994 was $11,644,000 and $0, 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, 1996 as follows:
Land, building, machinery and equipment leases ------------------------- (In thousands) 1997 $ 939 1998 878 1999 659 2000 396 2001 68 ------ Total minimum payments required $2,940 ======
Total rent expense was $1,930,000, $1,982,000 and $1,890,000 for 1996, 1995 and 1994, respectively. 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 claims for compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of these legal actions, proceedings or claims could be decided adversely. Although the amount of liability at December 31, 1996 with respect to these matters is not ascertainable, the Company believes that any resulting liability should not materially affect the Company's financial condition or results of operations. Federal, state and local laws and regulations relating to health and the environment affect nearly all of the operations of the Company. As is the case with all companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances due to the speculative nature of remediation and clean-up cost estimates and methods, 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 ("BLM") and which is adjacent to the Company's Farmington refinery. This refinery was operated until 1982. Although a final plan of action for the Landfill has not yet been adopted by the BLM, the BLM has developed a proposed plan of action, which it projects will cost approximately $3,900,000 to implement. This cost projection is based on certain assumptions which may or may not prove to be correct, and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, BLM is proposing to take additional remedial actions with an estimated cost of approximately $1,800,000. 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. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM's proposed plan. The Company has established an environmental liability accrual of approximately $3,000,000. Approximately $1,000,000 relates to ongoing environmental projects, including the remediation of a hydrocarbon plume at the Company's Farmington refinery and hydrocarbon contamination on and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico. The remaining amount of approximately $2,000,000 relates to an original estimate of approximately $2,300,000, recorded in the second quarter of 1996, of certain environmental obligations assumed in the acquisition of the Bloomfield refinery. That amount was recorded as an adjustment to the purchase price and allocated to the assets acquired. The environmental accrual is recorded in the current and long-term sections of the Company's Consolidated Balance Sheet. The Company has received several tax notifications and assessments from the Navajo Tribe relating to crude oil and natural gas removed from properties located outside the boundaries of the Navajo Indian Reservation in an area of disputed jurisdiction, including a $1,800,000 severance tax assessment issued to Giant Arizona in November 1991. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with this assessment and intends to oppose the assessment. It is the Company's position that it is in substantial compliance with laws applicable to the disputed area and, therefore, has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. NOTE 16--QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Year Ended December 31, 1996(1) -------------------------------------- Quarter -------------------------------------- First Second Third Fourth ------- ------- ------- -------- (In thousands except per share data) Continuing Operations: Net revenues $104,100 $135,643 $136,032 $123,409 Cost of products sold 73,960 92,718 100,567 94,619 -------- -------- -------- -------- Gross margin 30,140 42,925 35,465 28,790 -------- -------- -------- -------- Operating expenses 15,408 15,869 16,141 16,897 Depreciation and amortization 4,096 4,285 4,508 4,784 Selling, general and administrative expenses 3,595 5,447 3,423 3,137 Net earnings 2,325 8,693 5,283 750 Net earnings per common share $ 0.21 $ 0.77 $ 0.47 $ 0.07 Discontinued Operations: Net earnings (loss) $ 79 $ (72) $ (20) Net earnings (loss) per common share $ - $ - $ -
Year Ended December 31, 1995 -------------------------------------- Quarter -------------------------------------- First Second Third Fourth(2) ------- ------- ------- -------- (In thousands except per share data) 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) 1996 includes the results of operations of the Bloomfield refinery for all periods presented. (2) Fourth quarter 1995 includes the results of operations of the Bloomfield refinery which was acquired on October 4, 1995.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 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 8, 1997 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 27, 1997. 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". 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, 1996 and 1995 (iii) Consolidated Statements of Earnings - Years ended December 31, 1996, 1995 and 1994 (iv) Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994 (v) Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 (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, 1996, 1995 and 1994 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. 10.2 Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-10398. 10.5 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. 10.24 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. 10.25 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. 10.26 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. 10.29 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. 10.30 First Amendment of the Giant Industries, Inc. And Affiliated Companies 401(k) Plan, dated October 17, 1996. _________________________________ 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. No reports on Form 8-K were filed by the Company during the fiscal year ended December 31, 1996. 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 26, 1997 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 26, 1997 /s/ A. Wayne Davenport - --------------------------------------- A. Wayne Davenport Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 26, 1997 /s/ Fredric L. Holliger - --------------------------------------- Fredric L. Holliger, Executive Vice President, Chief Operating Officer and Director. March 26, 1997 /s/ Anthony J. Bernitsky - --------------------------------------- Anthony J. Bernitsky, Director March 26, 1997 /s/ F. Michael Geddes - --------------------------------------- F. Michael Geddes, Director March 26, 1997 /s/ Harry S. Howard, Jr. - --------------------------------------- Harry S. Howard, Jr., Director March 26, 1997 /s/ Richard T. Kalen, Jr. - --------------------------------------- Richard T. Kalen, Jr., Director March 26, 1997 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, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated March 3, 1997; such financial statements and report are 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 3, 1997 S-1 SCHEDULE II GIANT INDUSTRIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three years ended December 31, 1996 (In thousands)
Charged Balance at (credited) Balance beginning to costs at end of period and expenses Deduction(b) of period ---------- ------------ --------- --------- Year ended December 31, 1996: Allowance for doubtful accounts $424 $(30)(a) $(140) $254 ==== ==== ===== ==== 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 ==== ==== ===== ==== (a) Includes adjustments of $100,000 and $162,000 in 1996 and 1995, respectively, 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 GIANT INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1996 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. Incorporated by reference to Exhibit 3.15 to the Company's Report on Form 10-K for fiscal year ended December 31, 1995, File No. 1-10398. 3.16 Bylaws of San Juan Refining Company. Incorporated by reference to Exhibit 3.16 to the Company's Report on Form 10-K for fiscal year ended December 31, 1995, File No. 1-10398. 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 Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-10398. 10.3 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. 10.4** Ninth Amendment of the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. And Affiliated Companies dated October 1, 1996. 10.5 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. 10.6 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 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. 10.9 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. 10.10 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. 10.11 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. 10.12 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. 10.13 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. 10.14 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. 10.15 Promissory Note for $825,000, dated December 20, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.39 to Form S-1. 10.16 Promissory Note for $750,000, dated December 28, 1987, from JEA to Metlife. Incorporated by reference to Exhibit 10.40 to Form S-1. 10.17 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. 10.18 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. 10.19* Sales Agreement, dated June 6, 1989, between Giant Arizona and Mobil Oil Corporation. Incorporated by reference to Exhibit 10.47 to Amendment No. 2. 10.20* 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. 10.21* 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. 10.22* 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. 10.23* 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. 10.24 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. 10.25 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. 10.26 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. 10.27 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. 10.28 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. 10.29 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. 10.30** First Amendment of the Giant Industries, Inc. And Affiliated Companies 401(k) Plan, dated October 17, 1996. 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 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, 1996 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. EX-10.4 2 EXHIBIT 10.4 NINTH AMENDMENT OF THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES Effective as of July 1, 1987, Giant Industries, Inc., an Arizona corporation, and Ciniza Pipe Line, Inc., a New Mexico corporation, amended and restated the Joint Profit Sharing Plan and Trust Agreement of Giant Industries, Inc., Giant Western Service Stations, Inc., and Ciniza Pipe Line Inc., as the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and Affiliated Companies (the "Plan"). Effective as of July 1, 1987, the plan was adopted by Ciniza Production Company, a New Mexico corporation ("Ciniza"), and by J.E.A. Company, Inc., an Arizona corporation. Effective as of September 28, 1989, Ciniza Pipe Line Inc. was merged into Giant Industries, Inc., an Arizona corporation. Effective as of October 12, 1989, J.E.A. Company, Inc. was merged into Giant Industries, Inc. and Giant Industries, Inc. changed its name to Giant Industries Arizona, Inc. ("Giant Arizona"). On October 15, 1989, Giant Arizona entered into an Agreement and Plan of Reorganization with Hixon Development Company, a Texas corporation, ("Hixon") contemplating a merger whereby Giant Arizona and Hixon would become wholly owned subsidiaries of Giant Industries, Inc., a Delaware corporation ("Giant"). The stock of Giant became publicly traded on December 15, 1989, and the merger was consummated on December 21, 1989. Effective as of December 21, 1989, the Plan was adopted by Giant and by Hixon. The name of Hixon was changed to Giant Exploration & Production Company, a Texas corporation ("E&P"), effective June 12, 1990. Giant, Giant Arizona, E&P, Ciniza, Giant Stop-N-Go of New Mexico, a New Mexico corporation, and Giant Four Corners, Inc., an Arizona corporation, and such other entities described in section 1.14 of the Plan are hereinafter collectively referred to as the "Employer". Under Section 11.1 of the Plan, Giant has been granted the right to amend the Plan in whole or in part at any time and from time to time, subject to certain restrictions set forth in the Plan, on behalf of the Employer. NOW THEREFORE, Giant deems it advisable to amend the Plan in the manner hereinafter set forth and hereby adopts this ninth amendment. Pages 1.7 through 1.18 and 11.2 through 11.4 of the existing Plan are removed and replaced by the attached replacement pages numbered 1.7 through 1.19 and 11.2 through 11.4 which are incorporated herein by this reference. The terms used in this Ninth Amendment which are defined in the Plan shall have the same meaning given to such terms in the Plan. Except as modified by this Ninth Amendment, the Plan shall continue in full force and effect and the Plan and all amendments thereto shall be read, taken and construed as one and the same document. Executed on the 1st day of October, 1996 to be effective as of January 1, 1996, except that the deletion of Section 11.1(f) is effective August 15, 1996. FOR THE EMPLOYER: ADMINISTRATIVE COMMITTEE: GIANT INDUSTRIES, INC. A Delaware Corporation /s/ Morgan Gust --------------------------------- By /s/ A. Wayne Davenport Morgan M. Gust ------------------------ VP & CFO /s/ A. Wayne Davenport ------------------------ --------------------------------- A. Wayne Davenport By /s/ Morgan Gust ------------------------ /s/ Debra A. McKinney VP --------------------------------- ------------------------ Debra A. McKinney TRUSTEE: BANK OF AMERICA, N.T. & S.A. By /s/ O.B. Martinez, Jr. ------------------------------- Its TRUST ADMINISTRATOR terms of this Section any Leased Employee is included in the term "Employee", all contributions or benefits provided for or on behalf of such Leased Employee by a leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer and shall offset any benefit otherwise provided under the terms of this Plan. 1.14 "EMPLOYER," effective as of December 21, 1989, shall mean Giant Industries, Inc., a Delaware corporation, Giant Industries Arizona, Inc., an Arizona corporation, Hixon Development Company (renamed Giant Exploration & Production Company, effective June 12, 1990), a Texas corporation, and Ciniza Production Company, a New Mexico Corporation. The term "Employer" shall also include any other corporation which becomes a member of a controlled group of corporations (within the meaning of Section 1563(a) of the Code, determined without regard to Sections 1563(a)(4) and (e)(3)(c) of the Code) in which Giant is a component member and each entity (whether or not incorporated) which comes under common control with Giant (as defined in Section 414(c) of the Code and regulations issued thereunder) effective as of the date the corporation or entity becomes a member of a controlled group in which Giant is a member or comes under common control with Giant, including Giant Stop-N-Go of New Mexico, Inc., a New Mexico corporation, and Giant Four Corners, Inc., an Arizona Corporation, unless the Board of Directors or the corporation or entity which becomes a member of such controlled group affirmatively elects to exclude such corporation or entity from the definition of Employer. In addition, for purposes of determining Hours of Service and Years of -1.7- (Replacement Page, Ninth Amendment) Service, (i) all service completed by a prior employee of Shell Oil Company and Shell Pipe Line Corporation who became an Employee on or about April 1, 1982 in connection with the acquisition of the Ciniza Refinery and Pipeline by Giant Industries, Inc., shall be included as service with the Employer, (ii) all service completed by an Employee of Hixon prior to December 21, 1989 who was employed by Hixon on December 20, 1989 shall be included as service with the Employer under this Plan, (iii) effective as of January 1, 1996, all service by a prior employee of Bloomfield Refining Company ("Bloomfield") or The Gary-Williams Company ("Gary-Williams") for service with either company or with any of their affiliates or predecessor employers to the extent service was credited to the prior employee under The Gary Tax Advantaged Savings Program and Profit-Sharing Plan on October 4, 1595, but only if such employee was employed by Bloomfield or Gary- Williams on October 3, 1995, and became an Employee of the Employer on October 4, 1995, in connection with the sale of assets of Bloomfield to the Employer, and (iv) effective as of January 1, 1996, all service by a prior employee of Meridian Oil Inc., Meridian Oil Gathering Inc., or Meridian Trading Inc. (collectively "Meridian") for service with Meridian or with any affiliate or predecessor employer of Meridian to the extent service was credited to the prior employee under the Burlington Resources Retirement Savings Plan on August 18, 1995, but only if such employee was employed by Meridian on August 17, 1995, and became an Employee of the Employer on August 18, 1995, in connection with the sale of assets of Meridian to the Employer. -1.8- (Replacement Page, Ninth Amendment) 1.15 "EMPLOYER REAL PROPERTY" shall mean real property (and related personal property) which is leased to an Employer or to an affiliate of such Employer as defined under Section 407(d)(7) of BRISA. Employer Real Property shall be deemed to be acquired by the Plan on the date on which the Plan acquires the property or on the date on which a lease from the Plan to the Employer (or affiliate) is entered into, whichever is later. 1.16 "EMPLOYER STOCK" prior to December 21, 1989, shall mean shares of common stock of Giant Industries Arizona, Inc., an Arizona corporation, having a combination of voting power and dividend rights equal to or in excess of that class of common stock having the greatest voting power and that class of common stock having the greatest dividend rights, and on or after December 21, 1989 shall mean shares of common stock issued by Giant Industries, Inc., a Delaware corporation. Any valuation of Employer Stock prior to December 21, 1989, and any valuation in the event shares of common stock of Giant Industries, Inc. cease to be readily tradeable on an established securities market after December 21, 1989, shall be performed by an independent appraiser who meets the requirements of Code Section 410(a)(28)(c). 1.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.18 "EXEMPT LOAN" shall mean an exempt loan within the meaning of Code Section 4975(d)(3) and Treasury Regulations Section 54.4975-7 (b) (iii), the requirements of which are more fully set forth in Section 9.2. -1.9- (Replacement Page, Ninth Amendment) 1.19 "FIDUCIARY" shall mean, in accordance with Section 3(21) of ERISA, any person who exercises any discretionary authority or discretionary control respecting management of the Plan or any authority or control respecting management or disposition of Plan assets, who renders investment advice for a fee or other compensation (direct or indirect) with respect to Plan assets or who has any authority or responsibility to do so, and any person who has any discretionary authority or discretionary responsibility in the administration of the Plan. The term Fiduciary shall be construed as including the term "Named Fiduciary" as defined in Section 402(a)(2) of ERISA with respect to those Fiduciaries who are identified in the Plan as "Named Fiduciaries". 1.20 "FISCAL YEAR" shall mean the year beginning on January 1 and ending on December 31, and such Fiscal Year shall be the plan year for all purposes under ERISA and the Code. 1.21 "FORMER PARTICIPANT" shall mean a Participant whose employment with the Employer has terminated but who has vested Accounts under the Plan which have not been paid in full and which continue to participate in the increase or decrease in Plan assets including, for any Former Participant on or after December 21, 1989, any increase or decrease in Employer Stock. 1.22 "GIANT" means Giant Industries, Inc., a Delaware corporation. 1.23 "GIANT ARIZONA" means Giant Industries Arizona, Inc., an Arizona corporation. -1.10- (Replacement Page, Ninth Amendment) 1.24 "HIGHLY COMPENSATED EMPLOYEE" means, effective for any Fiscal Year beginning on or after January 1, 1987, any Employee who is a highly compensated employee as defined in Code Section 414(q) and the applicable Treasury regulations. Generally, any Employee is considered a Highly Compensated Employee if during the Determination Year or the Look-Back Year such Employee: (a) was a "5% owner" as defined in Code Section 416(i)(B)(i) (i.e. who owns (or is treated as owning) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer.) In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c) and (m) shall be treated as separate employers; (b) received Section 415 Compensation from the Employer in excess of $75,000; (c) received Section 415 Compensation from the Employer in excess of $50,000 and was in the "Top-Paid Group." An Employee is in the Top-Paid Group if such Employee is in the group consisting of the top twenty percent (20%) of Employees when ranked on the -1.11- (Replacement Page, Ninth Amendment) basis of Section 415 Compensation (as adjusted below); or (d) was an officer of the Employer whose Section 415 Compensation (as adjusted below) is greater than $45,000 (or such other amount which is equal to fifty percent (50%) of the amount specified in Code Section 415(b)(1)(A) for the calendar year in which the Determination Year or the Look-Back Year begins. For purposes of this Section, the Determination Year shall be the Plan Year in which testing is being performed. The Employer has elected to treat the calendar year ending with or within the Determination Year as the Look-Back Year as provided for in Treasury regulations. Solely for purposes of identifying Highly Compensated Employees under the terms of this Section and Code Section 414(q), Section 415 Compensation means Section 415 Compensation as defined in Section 3.1(b) plus amounts described under Code Sections 125, 402(e)(3) (formerly 402(a)(8)) or 402(h)(1)(B) that are otherwise excluded from Section 415 Compensation; and the dollar threshold amount specified in subsections (b) and (c) of this Section shall be adjusted at such time and in such manner as is provided in the Code. The term "Highly Compensated Employee" also includes a former Employee who separated from service (or has a deemed separation from service as determined under Treasury regulations) prior to the Determination Year, performs no services for the Employer during the Determination Year, and was a Highly -1.12- (Replacement Page, Ninth Amendment) Compensated Employee either for the Look-Back Year or any Determination Year ending on or after his 55th birthday. The Committee shall make the determination of who is a Highly Compensated Employee, including the determination of the number and identity of the Top-Paid Group, the number of officers includible in subsection (d), the number and identity of former Employees considered to be Highly Compensated Employees, the identity of "Excluded Employees," and Section 415 Compensation, in a manner consistent with Code Section 414(q). For purposes of this Section, an "Excluded Employee" is defined under Code Section 414(q)(8) and generally includes (i) Employees who have not completed six (6) months of service; (ii)Employees who normally work less than 17 1/2 hours per week; (iii) Employees who normally work during not more than six (6) months during any Determination Year; (iv) Employees who have not attained age 21; and (v) employees who are included in a unit of employees covered by a collective bargaining agreement. The number of officers taken into account under subsection (d) will not exceed the greater of 3 or 10% of the total number of Employees (after subtracting Excluded Employees) but will not exceed 50 officers. If no Employee satisfies the dollar threshold amount in subsection (d) for the relevant Fiscal Year, the Committee will treat the highest paid officer as satisfying subsection (d) for that Fiscal Year. For purposes of applying any nondiscrimination test in a manner consistent with the applicable Treasury regulations, the Committee will treat as a single Highly Compensated Employee any -1.13- (Replacement Page, Ninth Amendment) Highly Compensated Employee, who is a 5% owner or is one of the 10 Highly Compensated Employees with the greatest Section 415 compensation for the Determination Year, and his spouse, lineal ascendants or descendants or spouses of lineal ascendants or descendants even if such family members are Highly Compensated Employees in their own right. 1.25 "HIXON" shall mean Hixon Development Company, a Texas corporation. 1.26 "HOUR OF SERVICE" shall mean each hour for which the Employee is directly or indirectly paid or entitled to payment by the Employer for performance of duties for the Employer including each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer, and including each hour for which payment is made or payable to the Employee for periods during which the Employee is on an Employer approved leave of absence for vacation, jury, sick, or disability leave, or military service. Hours of Service shall, also include hours during such additional periods of service as may be required pursuant to Department of Labor regulations. Hours for nonperformance of duties shall be credited in accordance with DOL Regulations Section 2530.200b-2(b). Hours shall be credited to the applicable computation period in accordance with DOL Regulations Section 2530.200b-2(c). 1.27 "INELIGIBLE PARTICIPANT" shall mean, for purposes of allocating Section 1042 Employer Stock, (a) a Participant who is a more than twenty-five percent (25%) owner (or a Participant who is treated under Code Section 409(n) as a more than twenty-five -1.14- (Replacement Page, Ninth Amendment) percent (25%) owner) of any class of outstanding stock of Giant Industries, Inc. (or prior to December 21, 1989, of Giant Industries Arizona, Inc.) or of the total value of any class of outstanding stock of Giant Industries, Inc. (or prior to December 21, 1989, of Giant Industries Arizona, Inc.) whether he has elected nonrecognition of gain under Section 1042 of the Code or not, or (b) a Participant (or a Participant who is related within the meaning of Code Section 409(n) to a Participant) who has elected nonrecognition of gain under Section 1042 of the Code in connection with the sale of Employer Stock to the Plan. A Participant who is described in section 1.27(b) but not in Section 1.27(a) shall be an "Ineligible Participant" only for the period beginning on the date on which the Employee Stock for which he elected Code Section 1042 treatment was sold to the Plan and ending on the later of (1) the date which is ten (10) years after the date of such sale or (2) the date on which any allocation under the Plan is made which is attributable to the final payment of any indebtedness incurred by the Plan in connection with such sale. 1.28 "INVESTMENT MANAGER" shall mean a fiduciary (other than a Trustee or Named Fiduciary) designated by the Committee under this Plan to whom has been delegated the power to manage, acquire or dispose of all or any of the assets of the Plan, who is registered as an investment advisor under the Investment Advisers Act of 1940, is a bank as defined under the Investment Advisers Act of 1940 or is an insurance company qualified to manage, acquire, or dispose of assets under the laws of more than one State, and who -1.15- (Replacement Page, Ninth Amendment) has acknowledged in writing that he is a fiduciary with respect to the management, acquisition and control of Plan assets. 1.29 "PARTICIPANT" shall mean any Employee of the Employer who becomes eligible for participation in accordance with the provisions of this Plan. 1.30 "PLAN" shall mean the qualified stock bonus plan and trust set forth in this Agreem6nt, which is intended to be a qualified employee stock ownership plan and trust. 1.31 "QUALIFYING EMPLOYER REAL PROPERTY" shall mean Employer Real Property: (a) if a substantial number of the parcels are dispersed geographically; (b) if each parcel of real property and the improvements thereon are suitable (or adaptable without excessive cost) for more than one use; (c) even if all such real property is leased to one lessee (which may be an employer, or an affiliate of an employer); and (d) if the acquisition and retention of such property comply with the provisions of this part of ERISA (other than section 404(a)(1)(B) to the extent it requires diversification, and sections 404(a)(1)(C), 406, and subsection (a) of this section). 1.32 "SECTION 1042 EMPLOYER STOCK" shall mean Employer Stock acquired by the Plan prior to December 21, 1989 in a transaction which qualified for nonrecognition of gain under Code Section 1042. -1.16- (Replacement Page, Ninth Amendment) 1.33 "SECTION 1042 EMPLOYER STOCK ACCOUNT" shall mean the account used to reflect an interest in Section 1042 Employer Stock. 1.34 "SUSPENSE ACCOUNT" shall mean the account used to hold Employer Stock purchased pursuant to Article IX of the Plan with the proceeds of an Exempt Loan, prior to allocation of such stock to the Accounts of Participants under the Plan. 1.35 "TEMPORARY STOCK ACCOUNT" shall mean the interim account used to hold Employer Stock purchased by the Trustee, other than Employer Stock purchased pursuant to Article IX of the Plan with the proceeds of an Exempt Loan, and to hold Employer Stock contributed to the Plan by the Employer, prior to the allocation of such stock to the Accounts of Participants each Fiscal Year in accordance with Sections 4.4(a), 4.7(a) and 4.7(c). 1.36 "TRUST" or "TRUST FUND" shall mean the trust which is established herein to hold and invest contributions made under this Plan. 1.37 "TRUSTEE" shall mean the one or more individuals, banks, trust companies or other financial institutions, which are appointed in accordance with Article VIII to hold and manage the assets of the Trust. 1.38 "UNION EMPLOYEE" shall mean any person employed by Employer who is a member of a unit of employees covered by any collective bargaining agreement between employee representatives and the Employer, wherein retirement benefits were the subject of good faith bargaining between the parties thereto, unless said agreement provides for participation in this Plan. -1.17- (Replacement Page, Ninth Amendment) 1.39 "UNRESTRICTED EMPLOYER STOCK" shall mean Employer Stock which was not acquired in a transaction qualifying for nonrecognition of gain under Section 1042 of the Code. 1.40 "UNRESTRICTED EMPLOYER STOCK ACCOUNT" shall mean the account used to reflect an interest in Unrestricted Employer Stock. 1.41 "VALUATION DATE" shall mean the last day of each Fiscal Year unless otherwise specifically indicated. 1.42 "YEAR OF SERVICE" shall mean, for purposes of eligibility under the Plan, the twelve (12) consecutive month period commencing on (a) the first day the Employee completes an Hour of Service, or (b) if the Employee incurs a Break in Service, the first day the Employee completes an Hour of Service after such Break in Service, and, each succeeding twelve (12) consecutive month period beginning on anniversaries of that date during which the Employee completes at least one thousand (1,000) Hours of Service. The twelve (12) consecutive month period determined under this Section for the calculation of a Year of Service for eligibility shall be the Eligibility Computation Period. 1.43 "YEAR OF SERVICE" shall mean, for purposes of vesting under the Plan, the Fiscal Year (a) during which a Participant first completed an Hour of Service either as an Employee or as a Union Employee; or (b) if an Employee or a union Employee incurs a Break in Service, the Fiscal Year during which the Employee or -1.18- (Replacement Page, Ninth Amendment) Union Employee completes an Hour of Service after such Break in Service, and each succeeding Fiscal Year during which an Employee or a Union Employee completes at least one thousand (1,000) Hours of Service; provided, however, that any Employee or a Union Employee hired on or before June 30, 1993 who becomes a Participant under the terms of Section 2.1 prior to the Seventh Amendment shall be credited in all events with one Year of Service for the Fiscal Year in which such Employee or Union Employee becomes a Participant. The Fiscal Year shall be the Vesting Computation Period. -1.19- (Replacement Page, Ninth Amendment) a Participant of his or her nonforfeitable rights to benefits accrued to the date of the amendment. Further, effective for Fiscal Years beginning on or after January 1, 1989, if the Vesting Schedule of the Plan is amended each Participant with at least three (3) Years of Service with the Employer may elect, within a reasonable period after the adoption of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the later of: (1) 60 days after the amendment is adopted; (2) 60 days after the amendment becomes effective; or (3) 60 days after the Participant is issued written notice of the amendment by the Employer or plan administrator; and 11.2 DISCONTINUANCE OF PLAN. It is the Employer's expectation that this Plan and the payment of contributions hereunder will be continued indefinitely, and the Trust related to this Plan is irrevocable, but continuance of the Plan by the Employer is not assumed as a contractual obligation, and the Employer reserves the right at any time to reduce, temporarily suspend, or discontinue contributions hereunder. In the event of the Employer's complete discontinuance of contributions, the entire interest of each Participant shall vest immediately and become non-forfeitable. The Employer may terminate this Plan at any time upon written notice to the Trustee. Upon termination or partial termination of the Plan, the entire interest of each of the -11.2- (Replacement Page, Ninth Amendment) Participants shall immediately vest and become non-forfeitable. The Trustee shall thereafter, upon direction of the Committee, distribute to the Participants the amount in such Participants' accounts in the same manner as set forth in Article V, subject, where appropriate, to Section 403(d)(1) of ERISA and regulations of the Secretary of Labor thereunder as may affect allocation of assets upon termination of the Plan. Notwithstanding any provision of Article XI to the contrary, upon the termination of the Plan, the Trustee shall not be obligated to distribute assets from the Plan, until the Plan has received a favorable determination from the Internal Revenue Service that the Plan termination has not adversely affected the qualification of the Plan under Section 401, or until the Employer agrees to indemnify the Trustee against any income tax liability incurred by the Trust as a consequence of an adverse determination, provided the Trustee agrees to accept the Employer's indemnification. 11.3 MERGER OR CONSOLIDATION. This Plan shall not be merged or consolidated with, nor shall its assets or liabilities be transferred to, any other plan unless each Participant in this Plan (if the Plan then terminated) would receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit such Participants, respectively, would have been entitled to receive immediately before the merger, consolidation, or transfer (if this Plan had been terminated). Where the foregoing requirement is satisfied this Plan and its related Trust may be merged or consolidated with another qualified plan and trust. -11.3- (Replacement Page, Ninth Amendment) 11.4 FAILURE TO CONTRIBUTE. Any failure by the Employer to contribute to the Trust in any year when no contribution is required under this Plan shall not of itself be a discontinuance of contributions under this Plan. -11.4- (Replacement Page, Ninth Amendment) EX-10.30 3 EXHIBIT 10.30 FIRST AMENDMENT OF THE GIANT INDUSTRIES, INC. & AFFILIATED COMPANIES 401(K) PLAN WHEREAS, Giant Industries, Inc. and certain of its affiliates (the Employer ) adopted the Giant Industries, Inc. & Affiliated Companies 401(k) Plan (the Plan ) effective July 1, 1993; and WHEREAS, the Employer amended and restated the Plan, effective July 1, 1993, through an adoption agreement dated September 10, 1994; and WHEREAS, the Employer has the authority to amend the Plan. NOW, THEREFORE, the Employer hereby amends the Plan as follows: Pages 2, 10, 13 and 18, and the sheet attached to page 3, of the existing Plan are hereby removed and replaced by the attached replacement pages 2, 10, 13, and 18, and the sheet to be attached to page 3, and the Attachment to Adoption Agreement for Giant Industries, Inc. & Affiliated Companies 401(k) Plan is hereby adopted as part of the Plan. This amendment is effective January 1, 1996, except as otherwise stated in the replacement pages of the attachment. GIANT INDUSTRIES, INC. & AFFILIATED COMPANIES 10-17-96 /s/ A. WAYNE DAVENPORT - -------------- ------------------------------ Date A. Wayne Davenport Vice President and CFO Accepted by: FIDELITY MANAGEMENT TRUST COMPANY, as Trustee 11-14-96 /s/ WAYNE A. ISSAC - -------------- ------------------------------ Date Name: Wayne A. Issac Title: Sr. Legal Counsel/ Authorized Signatory (2) [X] Amendment Effective Date: 1-1-96. This is (check one): (A) [X] an amendment of The CORPORATE plan for Retirement Adoption Agreement previously executed by the Employer; or (B) [ ] a conversion from another plan document into The CORPORATE plan for Retirement. The original effective date of the Plan: 7-1-93 The substantive provisions of the Plan shall apply prior to the Effective Date to the extent required by the Tax Reform Act of 1986 or other applicable laws. 1.02 EMPLOYER (a) THE EMPLOYER IS: Giant Industries, Inc. Address: 23733 N. Scottsdale Rd. Scottsdale, AZ 85255 Contact s Name: Debra A. McKinney Telephone Number: (602) 585-8888 (1) Employer s Tax Identification Number: 86-0642718 (2) Business form of Employer (check one): (A) [X] Corporation (B) [ ] Sole proprietor or partnership (C) [ ] Subchapter S Corporation (D) [ ] Governmental (E) [ ] Tax-exempt organization (F) [ ] Rural Electric Cooperative (3) Employer s fiscal year end: 12/31 (4) Date business commenced: 12/68 NS8/1/93 2 Substitute Page effective January 1, 1996 (4) ELIGIBLITY REQUIREMENT(S) A Participant who makes Deferral Contributions during the Plan Year under Section 1.05(b) shall be entitled to Matching Contributions for that Plan Year if the Participant satisfies the following requirement(s) (Check the appropriate box(es). Options (B) and (C) may not be elected together): (A)[X] Is employed by the Employer on the last day of the Plan Year. See attachment. (B)[ ] Earns at least 500 Hours of Service during the Plan Year. (C)[ ] Earns at least 1,000 Hours of Service during the Plan Year. (D)[ ] Is not a Highly Compensated Employee for the Plan Year. (E)[ ] Is not a Partner of the Employer, if the Employer is a partnership. (F)[ ] No requirements. NOTE: If option (A), (B) or (C) above is selected then Matching Contributions can only be funded by the Employer after the Plan Year ends. Any Matching Contribution funded before Plan Year end shall not be subject to the eligibility requirements of this Section 1.05(c)(4)). If Option (A), (B), or (C) is adopted during a Plan Year, such option shall not become effective until the first day of the next Plan Year. (d) [ ] EMPLOYEE AFTER-TAX CONTRIBUTIONS (check one): (1) [ ] FUTURE CONTRIBUTIONS Participants may make voluntary non-deductible Employee Contributions pursuant to Section 4.09 of the Plan. This option may only be elected if the Employer has elected to permit Deferral Contributions under Section 1.05(b). Matching Contributions by the Employer are not allowed on any voluntary non-deductible Employee Contributions. Withdrawals are limited to one per year unless Employee Contributions were allowed under a previous plan document which authorized more frequent withdrawals. (2) [ ] FROZEN CONTRIBUTIONS Participants may not make voluntary non-deductible Employee Contributions but the Employer does maintain frozen Participant voluntary non-deductible Employee Contribution accounts. NS8/1/93 10 Substitute Page effective January 1, 1996 1.08 PREDECESSOR EMPLOYER SERVICE [X] SERVICE FOR PURPOSES OF ELIGIBILITY IN SECTION 1.03(a)(1) AND VESTING IN SECTION 1.07(a) OF THIS PLAN SHALL INCLUDE SERVICE WITH THE FOLLOWING EMPLOYER(S): (a) See attachment. (b) See attachment. (c) See attachment. (d) 1.09 PARTICIPANT LOANS PARTICIPANT LOANS (check (a) or (b)): (a) [ ] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.09, SUBJECT TO A $1,000 MINIMUM AMOUNT AND WILL BE GRANTED (check (1) or (2)): (1) [ ] for any purpose. (2) [ ] for hardship withdrawal (as defined in Section 7.10) purposes only. (b) [X] WILL NOT BE ALLOWED. 1.10 HARDSHIP WITHDRAWALS PARTICIPANT WITHDRAWALS FOR HARDSHIP PRIOR TO TERMINATION OF EMPLOYMENT (check one): (a) [X] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.10, SUBJECT TO A $1,000 MINIMUM AMOUNT. (b) [ ] WILL NOT BE ALLOWED NS8/1/93 13 Substitute Page effective January 1, 1996 (b) PLAN INVESTMENT OPTIONS The Employer hereby establishes a Trust under the plan in accordance with the provisions of Article 14, and the Trustee signifies acceptance of its duties under Article 14 by its signature below. Participant Accounts under the Trust will be invested among the Fidelity Funds listed below pursuant to Participant and/or Employer directions. FUND NAME FUND NUMBER (1) FMMT Retirement Gov t (2) Government Securities (3) Contrafund (4) Fidelity Asset Manager (5) Fidelity Asset Manager; Growth (6) Diversified International (7) Emerging Growth Fund (8) (9) (10) Funds 6 & 7 added effective October 1, 1996 /s/ A. WAYNE DAVENPORT ---------------------- A. Wayne Davenport September 11, 1996 NOTE: An additional annual recordkeeping fee will be charged for each fund in excess of five funds. To the extent that the Employer selects as an investment option the Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit Plans (the Group Trust ), the Employer hereby (A) agrees to the terms of the Group Trust and adopts said terms as a part of this Agreement and (B) acknowledges that it has received from the Trustee a copy of the Group Trust, the Declaration of Separate Fund for the Managed Income Portfolio of the Group Trust, and the Circular for the Managed Income Portfolio. NOTE: The method and frequency for change of investments will be determined under the rules applicable to the selected funds or, if applicable, the rules of the Employer adopted in accordance with Section 6.03. Information will be provided regarding expenses, if any, for changes in investment options. NS8/1/93 18 (Sheet to be attached to page 3) DATES OF INCORPORATION DATE OF INCORPORATION Giant Industries, Inc., a Delaware corporation September 21, 1989 Giant Industries Arizona, Inc., an Arizona December 11, 1968 corporation amendment: April 23, 1974 (Giant Industries, Inc.); October 12, 1989 (Giant Industries Arizona, Inc.) Giant Exploration & Production Company, a July 3, 1964 Texas corporation (name change effective June 12, 1990) Ciniza Production Company, a New Mexico corporation August 13, 1987 Giant Stop-N-Go of New Mexico, Inc., a New January 18, 1991 Mexico corporation Giant Four Corners, Inc., an Arizona corporation August 4, 1993 Giant Mid-Continent, Inc., an Arizona corporation December 22, 1994 San Juan Refining Company, a New Mexico corporation September 15, 1995 ATTACHMENT TO ADOPTION AGREEMENT FOR GIANT INDUSTRIES, INC. AFFILIATED COMPANIES 401(k) PLAN Section 1.05(c)(4)(A). An Employee of Giant Exploration & Production company ( E&P ) who is employed by E&P on July 16, 1996, and who is not thereafter transferred from E&P to another affiliate or division that is part of the Employer, shall be deemed to satisfy the requirements of this Section 1.05(c)(4)(A) for the Plan Year ending December 31, 1996. Section 1.08 (a) Effective as of January 1, 1996, Bloomfield Refining Company ( Bloomfield ), The Gary-Williams Company ( Gary-Williams ), and any affiliate or predecessor employer of either, but only to the extent service was credited under The Gary Tax Advantaged Savings Program and Profit-Sharing Plan on October 4, 1995 with respect to such employer, and only for employees who were employed by Bloomfield or Gary-Williams on October 3, 1995, and became Employees of the Employer on October 4, 1995, in connection with the sale of assets of Bloomfield Refining Company to the Employer. (b) Effective as of January 1, 1996, Meridian Oil Inc., Meridian Oil Gathering Inc., and Meridian Oil Trading Inc. (collectively Meridian ), and any affiliate or predecessor employer of Meridian, but only to the extent service was credited under the Burlington Resources Retirement Savings Plan on August 18, 1995 with respect to such employer, and only for employees who were employed by Meridian on August 17, 1995, and became Employees of the Employer on August 18, 1995, in connection with the sale of assets of Meridian to the Employer. (c) Effective as of January 1, 1996, Texaco Refining and Marketing Inc. ( Texaco ), and any affiliate or predecessor employer of Texaco, but only to the extent service was credited under any plan sponsored by Texaco that qualified under Section 401(a)(4) of the Code, and only for an employee who was employed by Texaco on July 24, 1993, and became an Employee of the Employer on July 25, 1995 in connection with the sale of assets of Texaco to the Employer. AMENDMENT TO BASIC PLAN DOCUMENT By way of clarification and emphasis, Section 13.01 is amended by inserting the words Discretionary authority at the beginning of each clauses (b)-(f), and in each such clause, revising To to read to . EX-11.1 4 EXHIBIT 11.1 GIANT INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF PER SHARE DATA
Year Ended December 31, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Earnings from continuing operations $17,051,000 $ 7,733,000 $ 7,455,000 Earnings (loss) from discontinued operations (13,000) 143,000 (2,934,000) ----------- ----------- ----------- Net earnings $17,038,000 $ 7,876,000 $ 4,521,000 =========== =========== =========== Weighted average number of shares outstanding during the period 11,220,380 11,478,779 12,127,481 =========== =========== =========== Earnings (loss) per common share: Continuing operations $ 1.52 $ 0.68 $ 0.61 Discontinued operations - 0.01 (0.24) ----------- ----------- ----------- Net earnings $ 1.52 $ 0.69 $ 0.37 =========== =========== =========== Additional Primary Computation - ------------------------------ Earnings from continuing operations $17,051,000 $ 7,733,000 $ 7,455,000 Earnings (loss) from discontinued operations (13,000) 143,000 (2,934,000) ----------- ----------- ----------- Net earnings $17,038,000 $ 7,876,000 $ 4,521,000 =========== =========== =========== Additional adjustment to weighted average number of shares outstanding: Weighted average number of shares outstanding above 11,220,380 11,478,779 12,127,481 Add - dilutive effect of outstanding options(a) 115,964 40,541 31,821 ----------- ----------- ----------- Weighted average number of shares outstanding as adjusted 11,336,344 11,519,320 12,159,302 =========== =========== =========== Earnings (loss) per common share:(b) Continuing operations $ 1.50 $ 0.67 $ 0.61 Discontinued operations - 0.01 (0.24) ----------- ----------- ----------- Net earnings $ 1.50 $ 0.68 $ 0.37 =========== =========== ===========
GIANT INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF PER SHARE DATA
Year Ended December 31, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Fully Diluted Computation - ------------------------- Earnings from continuing operations $17,051,000 $ 7,733,000 $ 7,455,000 Earnings (loss) from discontinued operations (13,000) 143,000 (2,934,000) ----------- ----------- ----------- Net earnings $17,038,000 $ 7,876,000 $ 4,521,000 =========== =========== =========== Additional adjustment to weighted average number of shares outstanding: Weighted average number of shares outstanding above 11,220,380 11,478,779 12,127,481 Add - dilutive effect of outstanding options(a) 123,007 103,084 33,456 ----------- ----------- ----------- Weighted average number of shares outstanding as adjusted 11,343,387 11,581,863 12,160,937 =========== =========== =========== Earnings (loss) per common share:(b) Continuing operations $ 1.50 $ 0.67 $ 0.61 Discontinued operations - 0.01 (0.24) ----------- ----------- ----------- Net earnings $ 1.50 $ 0.68 $ 0.37 =========== =========== =========== (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%.
EX-21.1 5 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. EX-23.3 6 EXHIBIT 23.1 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 3, 1997 and March 12, 1997 appearing in the Annual Report on Form 10-K of Giant Industries, Inc. for the year ended December 31, 1996 and in the Annual Report on Form 11-K of Giant Industries, Inc. for the year ended December 31, 1996, respectively. DELOITTE & TOUCHE LLP Phoenix, Arizona March 26, 1997 EX-27 7 ART. 5 FDS FOR YEAR ENDED DECEMBER 31, 1996
5 1000 YEAR DEC-31-1996 DEC-31-1996 12,628 0 25,268 254 38,226 86,506 322,260 108,715 324,007 64,965 113,081 122 0 0 122,002 324,007 499,184 499,184 361,864 443,852 0 0 12,318 28,183 11,132 17,051 (13) 0 0 17,038 1.52 0
EX-99.1 8 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, 1996 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. FINANCIAL STATEMENTS AND EXHIBITS - --------------------------------- (a) Financial Statements and Supplemental Schedules Page Number ----------- Independent Auditors' Report F-1 Statements of net assets available F-2 for benefits - December 31, 1996 and 1995 Statements of changes in net assets F-3 available for benefits - Years ended December 31, 1996, 1995 and 1994 Notes to financial statements F-4 to F-7 Supplemental Schedules: Schedule of assets held for investment purposes F-8 Schedule of reportable transactions F-9 (b) Exhibits - none 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: March 26, 1997 Signature: /s/ A. Wayne Davenport ------------------------------- A. Wayne Davenport, Vice President and Chief Financial Officer Date: March 26, 1997 Signature: /s/ Morgan Gust ------------------------------- Morgan Gust, Vice President-General Counsel Date: March 26, 1997 Signature: /s/ Charley Yonker, Jr. ------------------------------- Charley Yonker, Jr., Director of Human Resources 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, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the changes in net assets available for benefits for each of the three years in the period ended December 31, 1996 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 schedules for the year ended December 31, 1996 on pages F-8 and F-9 are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are 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. These schedules are the responsibility of the Plan's management. Such schedules have been subjected to the auditing procedures applied in our audit of the basic 1996 financial statements and, in our opinion, are 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 12, 1997 F-1 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- ASSETS - ------ INVESTMENTS AT FAIR VALUE (Notes 3, 4 and 5): Cash and cash equivalents $ 400,426 $ 260,260 Mutual funds 2,448,435 1,732,010 Limited partnership 6,600 22,200 Common stock of Giant Industries, Inc. 18,145,232 17,590,571 Loans to participants 32,253 40,808 ----------- ----------- Total investments at fair value 21,032,946 19,645,849 INTEREST AND DIVIDENDS RECEIVABLE 2,603 2,329 OTHER RECEIVABLES 1,227 3,582 ----------- ----------- Total assets 21,036,776 19,651,760 LIABILITIES - ----------- ACCRUED LIABILITIES 9,247 9,288 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $21,027,529 $19,642,472 =========== ===========
See notes to financial statements. F-2 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994 ----------- ----------- ----------- ADDITIONS: Net appreciation in fair value of investments (Note 3) $ 2,871,648 $ 7,230,900 $ Interest and dividend income 297,862 319,843 30,035 Employer contribution 450,000 900,000 900,000 ----------- ----------- ----------- Total additions 3,619,510 8,450,743 930,035 ----------- ----------- ----------- DEDUCTIONS: Net depreciation in fair value of investments (Note 3) 4,249,045 Distributions to participants 2,234,453 957,969 654,130 Interest expense 27,249 66,766 Other 154 250 ----------- ----------- ----------- Total deductions 2,234,453 985,372 4,970,191 ----------- ----------- ----------- NET INCREASE (DECREASE) 1,385,057 7,465,371 (4,040,156) NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 19,642,472 12,177,101 16,217,257 ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $21,027,529 $19,642,472 $12,177,101 =========== =========== ===========
See notes to financial statements. F-3 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 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. DISTRIBUTIONS - Benefits are recorded when paid. The Plan records distribution expenses for Plan participants who have requested payment of their account in stock at the market value of the stock on the date that the shares are reregistered in the name of the participant. 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. F-4 AMENDMENTS - The Plan was amended seven times prior to 1994. 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. A ninth amendment was executed on October 15, 1996 to be effective January 1, 1996 to permit prior service credit to individuals who became employees of the Company in connection with the purchase of certain assets from Bloomfield Refining Company and Meridian Oil, Inc. and related companies. 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. SUMMARY OF 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. The Company'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. 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 additions and deductions during the reporting period. Actual results could differ from these estimates. F-5 3. INVESTMENTS The following tables present the fair value of investments at December 31, 1996 and 1995, with mutual funds and common stock of the Company representing investments greater than 5% of the Plan's net assets at December 31, 1996 and 1995.
DECEMBER 31, 1996 ----------------------- NUMBER OF SHARES OR PRINCIPAL AMOUNT FAIR VALUE Cash and cash equivalents: Bank of America Short-term Investment Fund 400,426 $ 400,426 ----------- Mutual Funds: ML Lee Acquisition 25 11,632 Bank of America Balanced Fund 115,464 2,436,803 ----------- Total mutual funds 2,448,435 ----------- Limited partnership - Recorp. Mtg. Investors II 1.5 6,600 Giant Industries, Inc. common stock 1,296,088 18,145,232 Loans to participants 32,253 ----------- Total $21,032,946 ===========
DECEMBER 31, 1995 ----------------------- NUMBER OF SHARES OR PRINCIPAL AMOUNT FAIR VALUE Cash and cash equivalents: Bank of America Short-term Investment Fund 260,260 $ 260,260 ----------- Mutual Funds: ML Lee Acquisition 25 15,796 Bank of America: Equity Fund 118,168 384,281 Fixed Income Fund 243,507 565,498 Core Equity Growth Fund 7,312 197,287 Short-term Government Fund 87,020 187,785 Convertible Securities Fund 60,482 190,352 Aggressive Equity Fund 32,700 191,011 ----------- Total mutual funds 1,732,010 ----------- Limited partnership - Recorp. Mtg. Investors II 1.5 22,200 Giant Industries, Inc. common stock 1,435,965 17,590,571 Loans to participants 40,808 ----------- Total $19,645,849 ===========
F-6 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 of the following:
1996 1995 1994 ---------- ---------- ----------- Limited partnership $ 22,199 Preferred stocks (589) Common stocks (6,530) Recorp. Mtg. Investors II $ (15,600) Mutual funds 285,354 $ 272,245 20,584 Giant Industries, Inc. common stock 2,601,894 6,958,655 (4,284,709) ---------- ---------- ----------- Net appreciation (depreciation) $2,871,648 $7,230,900 $(4,249,045) ========== ========== ===========
4. INVESTMENTS IN COMMON STOCK OF GIANT INDUSTRIES, INC. The Company stock owned by the Plan was previously 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 were those which were held by the Plan Trustee. Shares were allocated to participants when principal payments were made on the Plan's note payable. During 1995, the Plan allocated the last 74,556 shares of the unallocated shares of the Company stock to the participants as a result of principal payments on the note payable. During 1995, the Company contributed $900,000, of which $27,249 was used to make interest payments on the note and $513,679 was used to pay off the principal balance on the note. 5. RELATED PARTY TRANSACTIONS The total balance of loans to participants at December 31, 1996 and 1995 includes $0 and $35,912, 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 on 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. The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan's financial statements. F-7 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES SUPPLEMENTAL SCHEDULE DECEMBER 31, 1996 ITEM 27a - ASSETS HELD FOR INVESTMENT PURPOSES
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 - ---------------------------- -------------------------------------------- ---------- ----------- Bank of America Short-term Investment Fund - 400,426 shares $ 400,426 $ 400,426 ML Lee Acquisition Mutual Fund - 25 Shares 25,000 11,632 Bank of America Balanced Fund - 115,464 shares 2,359,399 2,436,803 Recorp. Mtg. Investors II Limited Partnership - 1.5 units 60,000 6,600 Giant Industries, Inc. Common stock - 1,296,088 shares 6,094,254 18,145,232 Loans to participants Loans at prime + 3%, collateralized by vested accounts, due 1997 through 2002 32,253 32,253 ---------- ----------- Total assets held for investment purposes $8,971,332 $21,032,946 ========== =========== F-8
EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES SUPPLEMENTAL SCHEDULE DECEMBER 31, 1996 ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN G COLUMN H COLUMN I - ---------------------- -------------------------- ---------- ---------- ---------- ----------- ---------- CURRENT VALUE OF ASSET ON IDENTITY OF PURCHASE SELLING COST TRANSACTION NET GAIN PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE OF ASSET DATE OR (LOSS) - ---------------------- -------------------------- ---------- ---------- ---------- ---------- ---------- SINGLE TRANSACTIONS Bank of America Balanced Fund $1,929,714 $1,929,714 $1,929,714 SERIES OF TRANSACTIONS Bank of America Balanced Fund 2,388,563 2,388,563 2,388,563 Bank of America Balanced Fund $ 29,826 29,164 29,826 $ 662 Bank of America Short-Term Investment Fund 2,518,196 2,518,196 2,518,196 Bank of America Short-Term Investment Fund 2,378,030 2,378,030 2,378,030 Bank of America Giant Industries, Inc. 8,019 8,019 8,019 Bank of America Giant Industries, Inc. 1,035,343 738,267 1,035,343 297,076 NOTE: Reportable transactions are those transactions which either singularly or in series of combined purchases and sales during the year exceed 5% of the fair value of the Plan's assets at the beginning of the year. F-9
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