ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to ordinary routine litigation incidental to its business. There is also hereby incorporated by reference the information under the headings "Regulatory, Environmental, and Other Matters Affecting Refining and Marketing" and "Regulation and Other Factors Affecting Exploration and Production" in Items 1 and 2, the discussions contained in Item 7, and the information regarding contingencies in Note 14 to the Consolidated Financial Statements in Item 8.
ITEM 4.
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 54 President and Chief October 1989 Executive Officer
A. Wayne Davenport 46 Vice President and May 1994 Corporate Controller
Fredric L. Holliger 47 Executive Vice President October 1989 and Chief Operating Officer
James W. Griffitts 49 Vice President September 1990 Information Systems
Morgan Gust 47 Vice President and August 1990 General Counsel, Vice President Administration, and Secretary
Gary L. Nielsen 52 Vice President Finance, October 1989 Treasurer and Assistant Secretary
The officers of the Company are elected annually by the Board of Directors and each officer serves until his successor is chosen and qualified or until his earlier resignation or removal. There are no family relationships among the officers of the Company.
James E. Acridge has served as Chairman of the Board of Directors, President and Chief Executive Officer of the Company since October 1989. Mr. Acridge also serves as Chairman of the Nominating Committee. Mr. Acridge is Chairman of the Board of Directors, President and Chief Executive Officer of Giant Arizona and Chairman of the Board of Directors of Giant E&P. Mr. Acridge founded Giant Arizona in 1969 and has served continuously as its Chairman of the Board of Directors, President and Chief Executive Officer.
A. Wayne Davenport has served as Vice President and Corporate Controller since May 1994. He also serves in such positions for Giant and Giant E&P. Prior to joining the Company in March 1994, Mr. Davenport was an investor in crude oil and natural gas properties and a consultant to the industry. From February 1987 to September 1992, he served in various positions, the last being Executive Vice President and Chief Financial Officer, with Hondo Oil & Gas Company, a company engaged in refining, marketing, exploration and production. Mr. Davenport was an audit partner for the accounting firm of Ernst & Young from May 1982 until February 1987.
Fredric L. Holliger has served as a director, Executive Vice President and Chief Operating Officer of the Company since October 1989. Mr. Holliger joined Giant Arizona as Senior Vice President and President of the Giant Arizona refining division in February 1989 and continues to serve as a director, Executive Vice President and Chief Operating Officer of Giant Arizona. Since May 1993, he has also served as a director and President and Chief Executive Officer of Giant E&P. Before joining Giant Arizona, he served for two years as President of Northern Natural Gas Company, a division of Enron Corp., Omaha, Nebraska ("Northern Natural") and prior thereto was employed by Northern Natural for 14 years, serving in a variety of marketing, supply, operations and petroleum engineering capacities.
James W. Griffitts has served as Vice President Information Systems since May 1994. He also serves in such positions for Giant Arizona and Giant E&P. He served as Vice President Accounting and Information Services from December 1991 to May 1994 and as Vice President, Information Systems for the Company from September 1990 until December 1991. Prior to September 1990, he served first Giant Arizona and then the Company as Director of Information Systems. Mr. Griffitts joined Giant Arizona in January 1977 and since that date has served in a variety of positions in the areas of personnel, accounting and systems.
Morgan Gust has served as Secretary and General Counsel of the Company since August 1990 and as Vice President since September 1990. In addition, he has served as Vice President Administration since October 1992. He also serves in such capacities and as a director of Giant Arizona and Giant E&P. Before joining the Company, Mr. Gust was President of Tucson Resources, Inc., an investment and financial services company, where he served first in the capacity of Vice President and General Counsel and later as Executive Vice President. From September 1975 to July 1988, Mr. Gust was a partner in the law firm of Gust, Rosenfeld and Henderson.
Gary L. Nielsen has served as Treasurer and Assistant Secretary of the Company since October 1989, Vice President since September 1990, and Vice President Finance since September 1992. He also serves in such capacities for both Giant Arizona and Giant E&P. Mr. Nielsen joined Giant Arizona as its Treasurer in October 1986. Before joining Giant Arizona, he was senior Vice President and Chief Financial Officer of the casino hotel division of Del Webb Corporation from April 1978 to March 1986, and Chief Financial Officer of the Crescent Hotel Group from March 1986 to October 1986.
PART II
ITEM 5.
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, 1994 9 1/4 6 3/4 September 30, 1994 8 7/8 7 1/8 June 30, 1994 9 7/8 7 3/8 March 31, 1994 10 3/4 8 5/8
December 31, 1993 12 3/4 10 September 30, 1993 13 3/8 9 1/4 June 30, 1993 10 1/2 7 3/8 March 31, 1993 7 3/4 5 1/8
The Company did not declare a dividend in any quarter in 1994 or 1993. On January 9, 1995, the Company's Board of Directors declared a common stock dividend of $0.05 per share payable to stockholders of record on January 23, 1995. This dividend was paid on February 3, 1995. On March 2, 1995, the Company's Board of Directors declared another common stock dividend of $0.05 per share payable to stockholders of record on April 24, 1995, with payment to be made May 5, 1995. 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.
On November 29, 1993, the Company issued $100,000,000 of 9 3/4% Senior Subordinated Notes ("Notes"). The Notes were issued pursuant to an Indenture dated November 29, 1993 (the "Indenture") among the Company, its Subsidiaries, as guarantors, and NBD Bank, National Association, as trustee. The Indenture contains a number of covenants, which, among other provisions, place restrictions on the payment of dividends. A similar provision is contained in the agreement governing the Company's 10.91% senior unsecured note. At December 31, 1994, retained earnings available for dividends under the terms of the Indenture was approximately $13,800,000. 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 337 holders of record of Common Stock on March 1, 1995.
ITEM 6.
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
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993 --------------------------------------------------------------------- The primary factors affecting the comparative results of the Company's 1994 and 1993 operations are the writedown of the Company's proved oil and gas properties in 1993 compared to 1994, a decline in refining margins, the acquisition of nine retail units, an increase in interest costs, a decline in refinery sourced sales volumes and higher operating expenses and grain costs.
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM --------------------------------------------------- Earnings before income taxes and extraordinary item were $5.8 million for the year ended December 31, 1994, a decrease of $4.2 million or 42% from $10.0 million for the year ended December 31, 1993. The decrease is primarily the result of a 16% decline in average refinery margins, a 6% decrease in refinery sourced finished product sales volumes, higher ethanol plant grain costs and higher interest and operating expenses. These factors were partially offset by a $12.1 million decrease in the writedown in the carrying value of oil and gas properties due to "ceiling test" calculations in 1994 compared to 1993 and a 19% increase in finished product sales volumes and a 31% increase in merchandise sales from the Company's retail units.
For the years ended December 31, 1994 and 1993, the Company's exploration and production operations ("Giant E&P") recorded losses of $4.3 million and $17.1 million, respectively, including the "ceiling test" writedowns. The 1994 writedown was primarily due to low crude oil and natural gas prices at September 30, 1994, impairment of certain unproved properties and downward revisions of certain reserves. The 1993 writedown was primarily due to downward revisions of oil and gas reserves and low crude oil prices at December 31, 1993. Exclusive of the "ceiling test" writedowns, the 1994 period reflected a smaller loss compared to the same 1993 period due primarily to lower production costs relative to declines in crude oil and natural gas production and selling prices.
REVENUES -------- Revenues for the year ended December 31, 1994, decreased $22.3 million or 7% to $293.5 million from $315.8 million in the comparable 1993 period. The decrease is primarily due to an 11% decline in refinery weighted average selling prices, a 6% decrease in refinery sourced finished product sales volumes and a 1% decline in retail selling prices. Offsetting these decreases was a 19% increase in the volume of finished products sold from the retail units along with a 31% increase in merchandise sales. Also included in 1994 revenues is a $0.5 million gain resulting from the settlement of property damage claims relating to the accident at the refinery in July.
The decline in refinery sourced finished product sales volumes was primarily due to a scheduled major maintenance turnaround started in March and completed in April and an accident at the refinery in mid-July which damaged the alkylation unit and curtailed production for a period of approximately sixty days. The increase in retail finished product and merchandise sales is the result of increased same store volumes and the acquisition of nine units in the Company's primary market area.
Volumes of refined products sold through retail outlets increased approximately 19% from 1993 levels primarily due to a 30% increase in volumes sold from the service stations offset in part by a 6% decrease in travel center volumes, 5% at the Giant Travel Center and 11% at the Giant Express which was sold on November 2, 1994.
Revenues from Giant E&P, including intercompany revenues of $4.1 million in 1994 and $4.8 million in 1993, totaled $6.0 million for the year ended December 31, 1994, a decrease of $1.4 million or 20% from the $7.4 million reported for the comparable 1993 period. This decrease is due to an 8% decline in crude oil production, a 7% decline in average crude oil selling prices, a 16% decline in natural gas production and a 15% decline in natural gas selling prices. The decline in natural gas production is due to a 1993 year end adjustment of coal seam gas reserves sold in 1992, determined pursuant to an annual redetermination clause contained in the 1992 purchase and sale agreement.
COST OF PRODUCTS SOLD --------------------- For the year ended December 31, 1994, cost of products sold decreased $14.4 million or 7% to $193.4 million from $207.8 million for the corresponding 1993 period. A 6% decline in average crude oil costs and a 6% decline in the volume of finished products sold from the refinery accounts for most of the decrease. These decreases were partially offset by an increase in costs relating to increased merchandise sales from the retail units and a $1.8 million increase in average grain costs due to forward grain purchase contracts and higher costs resulting from the effects of the poor grain harvest of 1993. Also included in 1994 cost of products sold is $1.4 million of preliminary estimates of reimbursements for losses under the Company's business interruption insurance policies relating to the refinery accident in July.
Cost of products sold by Giant E&P decreased approximately 30% for the year ended December 31, 1994, compared to the same 1993 period. The decline is primarily related to a decrease in production.
OPERATING EXPENSES ------------------ For the year ended December 31, 1994, operating expenses increased $5.0 million or 10% to $53.9 million from $48.9 million in the corresponding 1993 period. The increase is primarily due to operating expenses of the nine retail units acquired, an increase in payroll and related costs for other operations and increases in repairs and maintenance and utility costs at the refinery. Partially offsetting these increases was a decrease in refinery purchased fuel costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -------------------------------------------- For the year ended December 31, 1994, selling, general and administrative expenses decreased $1.7 million or 13% to $11.9 million from $13.6 million for the year ended December 31, 1993. The decline is primarily due to a decrease in the management incentive bonus accrual and the recording of a $1.0 million insurance settlement in the first quarter of 1994 relating to environmental costs incurred in prior years. Partially offsetting these decreases were increases in payroll and related costs and a reduction in 1993 third quarter expenses by $0.9 million for a decrease in the estimated liability for self insured workmen's compensation claims.
DEPRECIATION, DEPLETION AND AMORTIZATION ---------------------------------------- For the year ended December 31, 1994, depreciation, depletion and amortization ("DD&A") declined $0.6 million to $15.0 million from $15.6 million in the corresponding 1993 period. The decrease is primarily due to a decline in DD&A in the Company's exploration and production operations related to declines in production and the writedown of proved oil and gas properties. This decrease is partially offset by increases related to nine retail units acquired, the completion and start up of a diesel desulfurization unit at the refinery in September 1993 and amortization of costs relating to the major maintenance turnaround completed at the refinery in April 1994.
INTEREST EXPENSE (INCOME) ------------------------- For the year ended December 31, 1994, interest expense increased $6.0 million or 105% to $11.8 million from $5.8 million in the same 1993 period. The increase is primarily due to the issuance of $100 million of 9 3/4% senior subordinated notes in November 1993, the proceeds of which were partially used to retire existing debt with lower effective interest rates, but with significantly shorter maturities. In addition, the amortization of proceeds from a terminated interest rate swap were lower in the 1994 period.
For the year ended December 31, 1994, interest income increased $0.2 million or 17% to $1.7 million from $1.5 million in the comparable 1993 period primarily due to the investment of larger amounts of excess cash, in part from the issuance of the senior subordinated notes, at slightly higher interest rates.
INCOME TAXES ------------ Income taxes for the years ended December 31, 1994 and 1993 were computed in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), resulting in effective tax rates of approximately 22% and 38%, respectively. The difference in the two rates is primarily due to the relationship of relatively consistent amounts of alcohol fuel and coal seam gas tax credits in each year to varying amounts of annual income and the effect of the statutory rate increase in 1993 on deferred income taxes resulting from the enactment of the Revenue Reconciliation Act of 1993 which increased the statutory U.S. federal income tax rate to 35% from 34%.
OUTLOOK ------- The Company's future results of operations, which continue to be determined by its principal business of refining and marketing of petroleum products, 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, 1993 AND DECEMBER 31, 1992 --------------------------------------------------------------------- The primary factors affecting the comparative results of the Company's 1993 and 1992 operations are the significant improvement in 1993 in refining and retail margins, the writedown of the Company's proved oil and gas properties in both 1993 and 1992 and higher operating expenses incurred in 1993. The Company believes that the relatively higher margins were due to a general improvement in economic conditions in its market area, increased market demand and operating problems at other regional refineries during the first and second quarters of 1993 which resulted in decreased output. In the fourth quarter of 1993, the Company had an impairment in the carrying amount of its proved oil and gas properties. A similar writedown was made in the first quarter of 1992. In both years the impairment was partially due to downward revisions of oil and gas reserves, along with low crude oil prices at December 31, 1993 and low natural gas prices at March 31, 1992. Operating expenses increased in 1993 primarily due to the reinstatement of a management incentive bonus and higher payroll and related costs, primarily in retail operations.
EARNINGS (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ---------------------------------------------------------- Earnings before income taxes and extraordinary item increased $16.1 million from a loss of $6.1 million for the year ended December 31, 1992, to earnings of $10.0 million for the year ended December 31, 1993. The increase is primarily due to a 40% improvement in average refining margins, a 16% increase in retail refined product margins, increased merchandise sales through the service stations at slightly higher margins, a reduction in interest expense and an increase in interest income. Partially offsetting these positive factors were higher operating costs in 1993 and a $15.5 million charge in 1993 for a writedown in the carrying value of the Company's oil and gas properties compared to a similar charge of $13.8 million in 1992.
For the year ended December 31, 1993, the loss of Giant E&P compared to the year ended December 31, 1992, increased $2.9 million, including the $1.7 million increase in the writedown of the oil and gas properties. The remainder of the decline was primarily due to a decrease in crude oil and natural gas production and a decline in crude oil selling prices. These declines were partly offset by increases in natural gas selling prices.
REVENUES -------- For the year ended December 31, 1993, revenues increased $10.9 million or 4% when compared to the corresponding 1992 period. The increase was primarily due to higher retail refined product selling prices and merchandise sales offset in part by a 1% decline in finished product volumes sold from the refinery. Weighted average refinery selling prices were less than 1% higher in 1993 than in 1992.
For the comparable periods, volumes of refined products sold through retail outlets increased approximately 1%. A 9% increase in service station volumes was partially offset by a 16% decline in travel center volumes. The decline in volumes at the Travel Center was due to a combination of factors including severe weather conditions along I-40 in the first quarter of 1993, increased price competition and the recent requirement that posted prices for diesel fuel in New Mexico include state excise taxes, resulting in the commercial truck customer having to pay these taxes at the time of purchase. Service station volumes increased primarily due to station maturity and the addition of nine stations in the fourth quarter of 1993 operated under a management agreement.
Revenues, including intercompany revenues, for Giant E&P decreased $2.1 million for the year ended December 31, 1993, compared to the same 1992 period. The decrease was due to a 12% decline in crude oil production, a 13% decline in crude oil selling prices and a 32% decline in natural gas production, partially offset by an 18% increase in natural gas selling prices. Natural gas production has declined in part due to the sale of a portion of the Company's coal seam gas reserves in 1992.
COST OF PRODUCTS SOLD --------------------- Cost of products sold for the year ended December 31, 1993 decreased $9.0 million or 4% compared to the same 1992 period. The decrease is primarily the result of a 10% decline in crude oil costs, an 8% decline in average grain costs and a 1% decline in refined product sales from the refinery. Partially offsetting these decreases were higher costs relating to higher merchandise sales at the retail units.
Cost of products sold by Giant E&P decreased approximately 4% for the year ended December 31, 1993 compared to the corresponding 1992 period, primarily as a function of the decline in production.
OPERATING EXPENSES ------------------ Operating expenses increased $4.8 million or 11% for the year ended December 31, 1993 compared to the corresponding 1992 period. Increases in payroll and related costs, higher repair and maintenance expenditures and increased purchased fuel and chemical costs accounted for substantially all of the increase.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -------------------------------------------- Selling, general and administrative expenses increased $1.8 million or 15% for the year ended December 31, 1993 compared to the same 1992 period. Reinstatement of the management incentive bonus, offset by a $0.9 million adjustment to workmen's compensation expense resulting from a decrease in the estimated liability for self insured claims accounts for substantially all of the increase.
DEPRECIATION, DEPLETION AND AMORTIZATION ---------------------------------------- Depreciation, depletion and amortization decreased $1.6 million or 9% for the year ended December 31, 1993 compared to the year ended December 31, 1992. The decrease is primarily due to the extension of the service lives of certain refinery equipment from 16 to 24 years, which was effective in the fourth quarter of 1992.
INTEREST EXPENSE (INCOME) ------------------------- Interest expense declined $1.9 million or 25% in the twelve months ended December 31, 1993 compared to the same 1992 period. The decrease was primarily due to a reduction in the amount of long-term debt outstanding, a general decline in short-term interest rates, an interest rate management strategy utilizing an interest rate swap and interest capitalized in the 1993 period. The average amount of long- term debt outstanding in 1993 was $8.3 million lower than in 1992. The increase in interest income was due to the investment of excess cash in short-term investments and marketable securities.
INCOME TAXES ------------ The provision for income taxes for the years ended December 31, 1993 and 1992, have been computed in accordance with Statement of Financial Accounting Standards No. 109 resulting in an effective tax rate of approximately 38% for the 1993 period and an effective tax benefit rate of approximately 60% for the 1992 period. The difference in the two rates is partially due to the enactment of the Revenue Reconciliation Act of 1993 which increased the statutory U.S. federal income tax rate to 35% for all of 1993. This increase includes an adjustment to current income taxes payable as well as to previously recorded deferred income taxes payable. In addition, the 1993 effective rate reflects relatively higher state income taxes due to state loss carryback provisions affecting 1992 and lower alcohol fuel and coal seam gas credits.
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT -------------------------------------------- The extraordinary loss of approximately $0.4 million in 1993 on the early extinguishment of debt resulted from the prepayment of certain long-term debt from the proceeds of the issuance of $100,000,000 in senior subordinated notes. The loss results primarily from the writeoff of deferred financing costs and prepayment penalties.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS ------------------------- Net cash provided by operating activities totaled $12.4 million for the year ended December 31, 1994, compared to $37.6 million for the comparable 1993 period. Operating cash flows decreased primarily as the result of a decline in net earnings adjusted for non-cash items and net changes in working capital items, primarily increases in receivables and inventories.
WORKING CAPITAL --------------- Working capital at December 31, 1994 consisted of current assets of $108.0 million and current liabilities of $42.4 million, or a current ratio of 2.55:1. At December 31, 1993, the current ratio was 2.71:1 with current assets of $102.0 million and current liabilities of $37.6 million.
Current assets have increased since December 31, 1993, primarily due to an increase in inventories and receivables. Inventories have increased as a result of a 123% increase in raw material volumes on hand, partially resulting from the Company's decision to accumulate raw material inventory during periods of reduced production such as those resulting from the scheduled major maintenance turnaround in March and April and a refinery accident in July. Finished product inventory volumes were up slightly from 1993 year end levels. Receivables have increased due to higher trade receivables resulting from higher refinery sourced sales volumes and prices in December 1994 and an increase in other receivables because of insurance reimbursements accrued as a result of the refinery accident in July, excise tax reimbursements resulting from exchange sales and an increase in interest receivable on marketable security investments. In addition, income tax refunds have increased due to the overpayment of estimated income taxes. These increases are partially offset by a decrease in cash and cash equivalents and marketable securities, a decrease in prepaid expenses, principally deposits and prepaid insurance premiums, and a decrease in current deferred income tax assets.
Current liabilities have increased due to an increase in accounts payable and the current portion of long-term debt. Accounts payable have increased primarily due to an increase in the purchase price and volumes of raw materials acquired in December 1994. Partially offsetting these increases is a decrease in accrued liabilities primarily due to a decrease in management incentive bonus accruals, the reclassification of deferred insurance refunds in part to a long-term reserve for environmental liabilities and in part as a recovery of previously incurred environmental expenditures and a decline in estimated income taxes payable. These decreases were offset in part by an increase in accrued interest payable.
CAPITAL EXPENDITURES AND RESOURCES ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment totaled approximately $21.0 million for the year 1994, including the cash portion of the acquisition of nine retail units and certain other assets from a privately-held retailer/jobber; scheduled major maintenance turnaround costs; equipment replacement at the refinery due to an accident in July; costs incurred to secure a supplemental and standby power supply for the refinery and adjacent travel center; various other operational and environmental projects at the refinery; construction, rebuilding and remodeling of various retail units; oil and gas well drilling and leasehold costs and various other projects. In addition, as part of the Company's short-term cash management program there were net purchases of marketable securities.
On July 16, 1994, a propane treatment vessel associated with the refinery's alkylation unit failed, causing several units at the refinery to be temporarily shutdown and damaging the alkylation unit, necessitating extensive repairs. Repairs to the propane treatment vessel and adjacent equipment damaged in the incident were completed and the alkylation unit returned to full operation on September 16, 1994. The Company has settled all claims with its insurance companies relating to property damage coverage under its policies as the claims relate to this incident for approximately $0.7 million.
On November 2, 1994, the Company completed the sale of its Giant Express truck stop located in Winslow, Arizona for approximately $5.5 million. In addition to the cash purchase price, the agreement includes a 5 year product supply contract for the facility, which enables the Company to retain the outlet for a portion of its Ciniza Refinery's diesel fuel production. The sale of this facility will not have a material impact on the Company's future results of operations.
The Company has budgeted approximately $41.2 million for capital expenditures in 1995. Approximately $11.7 million is budgeted for non-discretionary projects that are required by law or regulation or to maintain the physical integrity of existing assets. These projects include, among others, operational and environmental projects at the refinery and exploration and production operations, multiple pump dispensers and card readers for the retail operations and informational system enhancements to improve all operations. The remaining budget of $29.5 million is for discretionary projects to sustain or enhance the current level of operations or to grow or increase earnings on existing or new business. The primary projects in this category include the acquisition and development of oil and gas properties, drilling and improvement of current exploration and production holdings and the acquisition, construction, rebuilding and remodeling of retail units.
The amount of these budgeted discretionary projects that are actually undertaken in 1995 will depend on, among other things, identifying acceptable acquisitions, general business conditions and results of operations. All of the budgeted capital projects undertaken are expected to be funded from working capital. Working capital, including that necessary for capital expenditures and debt service will be funded through cash generated from operating activities, existing cash and marketable securities balances and, if necessary, future borrowings. Future liquidity, both short and long-term, will continue to be primarily dependent on producing and selling sufficient quantities of refined products at margins sufficient to cover fixed and variable expenses.
Although the Company is not currently aware of any pending circumstances which would change these capital budget expectations, changes in the tax laws, the imposition of any changes in federal and state clean air and clean fuel requirements and other changes in environmental laws and regulations may also increase future capital expenditure levels. Future capital expenditures are also subject to business conditions affecting the industry. In addition, the Company continues to investigate other strategic acquisitions, including the possibility of acquiring an additional refinery, and other capital improvements to its existing facilities. The Company is also actively pursuing the possible sale or exchange of non-strategic or underperforming assets.
Much of the capital currently planned to be spent by the Company for environmental compliance is integrally related to operations or to operationally required projects, and the Company does not specifically identify capital expenditures related to such projects on the basis of environmental as opposed to economic purposes. However, with respect to capital expenditures budgeted primarily to satisfy environmental regulations, it is estimated that approximately $0.6 million, $5.0 million and $6.6 million was spent in 1994, 1993 and 1992, respectively, and $1.3 million is expected to be spent in 1995. 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, 1994, and December 31, 1993, the Company's long-term debt was 51% and 53% of total capital, respectively. The decrease is the result of an increase in retained earnings and a decrease in long-term debt.
The Company's capital structure includes $100 million of 10 year 9 3/4% senior subordinated notes ("Notes"). Repayment of the Notes is jointly and severally guaranteed on an unconditional basis by the Company's direct and indirect wholly-owned subsidiaries, subject to a limitation designed to ensure that such guarantees do not constitute a fraudulent conveyance. Except as otherwise allowed in the Indenture pursuant to which the Notes were issued, there are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. General provisions of applicable State law, however, may limit the ability of any subsidiary to pay dividends or make distributions to the Company in certain circumstances.
The Company has a $20.0 million uncommitted line of credit available to support the issuance of letters of credit in the ordinary course of business. At December 31, 1994, there were approximately $13.6 million in irrevocable letters of credit outstanding under this arrangement. This uncommitted line of credit is subject to a negative pledge on working capital.
On April 15, 1994, the Company's Board of Directors authorized the repurchase of up to 5% or approximately 600,000 shares of the Company's common stock. On October 5, 1994, the Board of Directors voted to increase the number of shares authorized to be repurchased to 1,000,000 shares, or approximately 8% of all outstanding shares. These purchases may be made over the next year 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 the year, the Company had repurchased 202,300 shares of its common stock for approximately $1.7 million at a weighted average cost of $8.16 per share, including commissions. As of February 28, 1995, the Company had repurchased an additional 276,200 shares at a weighted average cost of $8.30 per share, including commissions. These shares are being treated as treasury shares.
Any repurchased shares would be 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 January 9, 1995, the Company's Board of Directors declared a common stock dividend of $0.05 per share payable to stockholders of record on January 23, 1995. This dividend was paid on February 3, 1995. This was the first dividend paid since the Company suspended its regular quarterly dividend in November 1991. On March 2, 1995, the Company's Board of Directors declared another common stock dividend of $0.05 per share payable to stockholders of record on April 24, 1995, with payment to be made May 5, 1995. 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 involve alleged soil and water contamination, air pollution and personal injuries or property damage allegedly caused by exposure to hazardous materials manufactured, handled or used by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances due to the speculative nature of remediation and clean-up cost estimates and methods, the imprecise and conflicting data regarding the hazardous nature of various types of waste, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws.
It is expected that rules and regulations implementing federal, state and local laws relating to health and the environment will continue to affect the operations of the Company. The Company cannot predict what additional health or environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or enforced with respect to products or activities of the Company. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for the installation and operation of pollution control systems and equipment not currently possessed by the Company.
In May 1991, the EPA notified the Company that it may be a potentially responsible party for the release, or threatened release, of hazardous substances, pollutants or contaminants at the Lee Acres Landfill, which is adjacent to the Company's Farmington refinery which was operated until 1982. At the present time, the Company is unable to determine the extent of its potential liability, if any, in the matter. In 1989, a consultant to the Company estimated, based on various assumptions, that the Company's share of potential liability could be approximately $1.2 million. This figure was based upon the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site. The consultant, however, did not conduct an analysis of the Company's potential legal defenses and arguments including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Actual liability, if any, may differ significantly from the consultant's estimate. In addition, the Company is remediating a free-phase hydrocarbon plume that extends approximately 1,000 feet south of the Farmington refinery.
In 1994, the Company established an environmental liability accrual for approximately $1.4 million relating to ongoing environmental projects, including the remediation of the free-phase hydrocarbon plume described above. In late 1994, the Company accrued an additional $0.3 million relating to hydrocarbon contamination on 5.5 acres the Company owns in Bloomfield, New Mexico. At December 31, 1994, the balance of the accrual was approximately $1.6 million and was recorded in the current and long-term sections of the Company's consolidated balance sheet.
The Company is subject to audit on an ongoing basis of the various taxes that it pays to federal, state, local and Tribal agencies. These audits may result in additional assessments or refunds along with interest and penalties. In some cases the jurisdictional basis of the taxing authority is in dispute and is the subject of litigation or administrative appeals. In one such case, the Company has received several tax assessments from the Navajo Tribe, including a $1.8 million severance tax assessment issued to Giant Industries Arizona, Inc., a wholly-owned subsidiary of the Company, in November 1991 relating to crude oil removed from properties located outside the boundaries of the Navajo Indian Reservation in an area of disputed jurisdiction. It is the Company's position that it is in substantial compliance with laws applicable to the disputed area, and such assessments are or will be the subject of litigation or administrative appeals.
The Company uses the full cost method of accounting for oil and gas activities. Under this method, the Company is required to write down capitalized costs, adjusted for accumulated amortization and related deferred income taxes, if those costs exceed a "cost ceiling." This "cost ceiling" is determined by calculating the value of the Company's estimated reserves utilizing, among other things, the price of crude oil and natural gas at the end of each quarter. During periods of declining prices and reserves, the Company may be required to write down these capitalized costs due to impairment in value. At December 31,1994, the Company's adjusted capitalized costs and the "cost ceiling" were approximately the same. Whether or not a writedown will be necessary in the future depends upon future prices and reserve volumes.
The Company is in the process of completing its insurance claims for reimbursement under its business interruption policies as the claims relate to the accident that occurred at the refinery in July 1994. The Company has accrued $1.4 million as a preliminary estimate of expected reimbursement under these policies. The Company expects to reach final settlement with the insurance companies during the second quarter of 1995.
Due in part to a decision to accumulate raw material inventory during periods of reduced production such as those resulting from a major maintenance project at the refinery in early 1994 and an accident in July 1994, and due in part to better than forecasted receipts of crude oil from the field, the Company's inventories of crude oil have increased to approximately 763,000 barrels as of December 31, 1994. Based on projections of local crude oil availability from the field, current levels of usage of Alaska North Slope crude oil ("ANS"), and the Company's inventory levels, the Company believes an adequate crude oil supply will be available, without the use of additional supplemental supply alternatives, to sustain refinery operations at planned levels into the first quarter of 1996.
Because exploration and production activity has been at a relatively low level over the last few years, total crude oil production in the Four Corners area currently reflects the trend of normal depletion of reservoirs without the supplements of significant new discoveries. The Company believes that local crude oil supply currently approximates 95% of aggregate local crude oil demand. The Company is currently able to supplement local crude oil supplies with ANS and other alternate grades of crude oil through its gathering systems' interconnection with the Four Corners and Texas-New Mexico common carrier pipeline systems and by truck or rail. Generally, such crude oil is of lesser quality than locally available crude oils, and, with the exception of ANS, the Company believes such crude oil generally has a delivered cost greater than that of locally available crude oil.
In response to the decline in local crude oil production, the Company has evaluated, and will continue in the future to evaluate, supplemental crude oil supply alternatives on both a short-term and long-term basis. Among other alternatives, the Company has considered making equipment modifications to the refinery to increase its ability to use ANS crude oil from its current level of approximately 1,000 barrels per day and has considered the installation of additional rail facilities to enable the Company to provide the incremental crude oil to supplement local supply sources when required in the most cost effective manner available. In addition, the Company has considered, and has in fact entered into, additional long-term agreements with local crude oil suppliers to provide additional security for the Company's local supply sources.
As additional supplemental crude oil becomes necessary, the Company intends to implement one or more of these available alternatives as necessary and as is most advantageous under the then prevailing conditions. The Company currently believes that the most desirable strategy to supplement local crude oil supplies, on a long- term basis, is the delivery of supplemental crude oil from outside of the Four Corners area by pipeline. Implementation of supplemental supply alternatives will result in additional raw material costs, operating costs, capital costs, or a combination thereof in amounts which are not presently ascertainable by the Company but which will vary depending on factors such as the specific alternative implemented, the quantity of supplemental crude oil required, and the date of implementation. Implementation of some supply alternatives requires the consent or cooperation of third parties and other considerations beyond the control of the Company.
ITEM 8.
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, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona March 6, 1995
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Noncash Investing and Financing Activities. 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 exploration and production business of Hixon Development Company ("Hixon") through a merger in December 1989 in which Giant Arizona and Hixon became wholly-owned subsidiaries of the Company. In conjunction with the merger, the Company completed its initial public offering. In 1990, Hixon was renamed Giant Exploration & Production Company ("Giant E&P").
DESCRIPTION OF BUSINESS
The Company operates primarily as an independent refiner and marketer of petroleum products and also engages in the exploration for and the acquisition, development and production of crude oil, condensate and natural gas primarily in New Mexico, Kansas and Oklahoma. The Company has one operating refinery in New Mexico with a crude oil throughput capacity of 20,800 barrels per day and total capacity including natural gas liquids of 26,000 barrels per day.
Its 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 also operates an ethanol production plant which supplies ethanol for blending at the Company's refinery as well as for sale to third party customers. As an adjunct to its retail outlets, the Company sells merchandise through 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.
NET REVENUES
Revenues are recognized from sales when product ownership is transferred to the customer. Excise and other similar taxes are excluded from net revenues.
STATEMENTS OF CASH FLOWS
All highly liquid instruments with an original maturity of three months or less are considered to be cash equivalents.
FUTURES CONTRACTS
The Company periodically enters into futures contracts to hedge its exposure to price fluctuations on crude oil and refined products. Gains and losses on hedge contracts are deferred and reported as a component of the related transaction. For the purposes of the Statement of Cash Flows, hedging transactions are considered to be operating activities.
INTEREST RATE SWAPS
Commencing in 1991, interest rate management techniques such as swaps and caps were entered into in order to effectively manage and reduce net interest expense. Periodic net settlements on swap transactions are reported as an adjustment to net interest expense.
MARKETABLE SECURITIES
Marketable securities, all of which are available-for-sale, consisting of taxable corporate bonds, non-taxable municipal bonds and variable rate preferred stocks are stated at fair value. Fair value is estimated based on quoted market prices. Marketable securities are 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 refinery are determined by the last-in, first-out ("LIFO") method. Costs for exchange and terminal refined products and shop supplies are determined by the first-in, first-out ("FIFO") method. Costs for merchandise inventories are determined by the retail inventory method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and, except for oil and gas properties, are depreciated on the straight-line method over their respective estimated useful lives. The estimated useful lives for the various categories of property, plant and equipment are:
Oil and gas properties Units of production Buildings and improvements 7-30 years Machinery and equipment 7-24 years Pipelines 30 years Furniture and fixtures 2-15 years Vehicles 3-7 years
The full cost method of accounting is followed for oil and gas properties. Under this method of accounting, the cost of unsuccessful as well as successful exploration and development activities are capitalized as oil and gas properties.
The sum of net capitalized costs and estimated future development and dismantlement costs is amortized over the production of proved reserves using the units of production method. Depreciation, depletion and amortization per equivalent barrel of production sold for the years ended December 31, 1994, 1993 and 1992 was $5.32, $7.50, and $6.31, respectively, excluding the effect of the Company's writedown of oil and gas properties. Excluded from amounts subject to amortization are costs associated with unevaluated properties of $1,551,000 and $2,973,000 at December 31, 1994 and 1993, respectively, until proved reserves associated with the properties have been determined or impairment occurs. Net capitalized costs exceeding the estimated present value of future cash inflows from proved oil and gas reserves reduced by estimated future operating expenses and development expenditures are charged to current operations. Gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant oil and gas reserves are involved.
Routine maintenance, repairs and replacement costs are charged against earnings as incurred. Turnaround costs, which consist of complete shutdown and inspection of significant units of the refinery at intervals of two or more years for necessary repairs and replacements, are deferred and amortized over the period until the next expected shutdown. Expenditures which materially increase values, expand capacities or extend useful lives are capitalized. Interest expense is capitalized as part of the cost of constructing major facilities and equipment.
TREASURY STOCK
In 1994, the Company's Board of Directors authorized the repurchase of 1,000,000 shares of the Company's common stock, or approximately 8% of all outstanding shares. These purchases may be made over the next year 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 the year, the Company had repurchased 202,300 shares at a cost of approximately $1,652,000. These shares are being treated as treasury shares.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study.
INCOME TAXES
The provision (benefit) for income taxes is based on earnings (loss) reported in the financial statements. Deferred income taxes are provided on temporary differences between reported earnings and taxable income.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1992 financial statements to conform to the statement classifications used in 1994, including selling, general and administrative expenses and depreciation, depletion and amortization previously included in cost of products sold and operating expenses.
NOTE 2--MARKETABLE SECURITIES
On January 1, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires the classification of securities at acquisition into one of three categories: held-to-maturity, available-for-sale, or trading--with different reporting requirements for each classification. All of the Company's marketable securities are classified as available-for-sale.
Securities that are being held for indefinite periods of time, including those securities which may be sold in response to needs for liquidity are classified as available-for-sale. At December 31, 1994, the Company's marketable securities had a fair value of $35,631,000. A valuation allowance of $654,000 was recorded in 1994 to reduce the carrying value of the portfolio to estimated fair value and the after- tax adjustment necessary to mark the securities to market reduced stockholders' equity by $398,000. This adjustment had no effect on the current results of operations. A summary of the Company's securities is as follows:
Contractual maturities of securities, other than equity securities, at December 31, 1994 are as follows:
Actual maturities may differ from contractual maturities because the borrowers have the right to call or prepay certain obligations, sometimes without call or prepayment penalties.
An analysis of the caption "Unrealized loss on securities available- for-sale, net" in the Consolidated Balance Sheet is as follows:
Included in the Company's investment portfolio is $2,000,000 of Orange County, California Tax and Revenue Anticipation Notes due July 28, 1995. Orange County filed for bankruptcy on December 6, 1994. The Company has written this investment down by $200,000 as of December 31, 1994, to reflect an other than temporary impairment.
In recording gains and losses on the sale of marketable securities, cost is determined using specific identification. Such gains and losses are nominal for all years presented.
NOTE 3--ACCOUNTING CHANGE:
During the fourth quarter of 1992, the Company extended the service lives of certain refinery equipment from 16 to 24 years. The effect of this change in estimate was to increase net earnings by $1,164,000 or $0.10 per share for 1994 and 1993 and $270,000 or $0.02 per share for 1992.
NOTE 4--INVENTORIES:
Inventories consist of the following:
The Company uses the LIFO method of inventory valuation. The portion of inventories valued on a LIFO basis totaled $21,717,000 and $12,699,000 at December 31, 1994 and 1993, respectively. The following data will facilitate comparison with operating results of companies using the FIFO method.
If inventories had been determined using the FIFO method at December 31, 1994, 1993 and 1992, net earnings and earnings per share for the years ended December 31, 1994, 1993 and 1992 would have been higher (lower) by $357,000 and $0.03, $237,000 and $0.02 and ($191,000) and ($0.02), respectively.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consist of the following:
NOTE 6--ACCRUED EXPENSES:
Accrued expenses are comprised of the following:
NOTE 7--LONG-TERM DEBT:
Long-term debt consists of the following:
The Indenture supporting the 9 3/4% senior subordinated notes ("Notes") contains certain covenants that, among other things, restrict the ability of the Company and its subsidiaries to create liens, incur or guarantee debt, pay dividends, sell certain assets or subsidiary stock, engage in certain mergers, engage in certain transactions with affiliates or alter the Company's current line of business. At December 31, 1994, 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, 1994, retained earnings available for dividends under the terms of the Indenture was approximately $13,800,000.
The 10.91% senior unsecured note is due to The Prudential Insurance Company of America ("Prudential") and the related agreement includes certain covenants, determined on a FIFO inventory basis, that require the Company to maintain a minimum net worth and working capital; places certain restrictions on, while not precluding, the purchase or redemption of the Company's capital stock, payment of dividends and payments of subordinated debt and interest; limits the dollar amount of new operating leases; and specifies certain conditions for new long-term debt obligations. At December 31, 1994, the Company was in compliance with these covenants. The remaining balance is payable in nine semi-annual installments of $1,250,000 through 1999.
On March 1, 1994, the Company issued a $2,917,000, 8% promissory note as part of the purchase price of nine service stations. The principal is due in three equal annual installments with the first payment due on March 1, 1995. Interest is payable quarterly.
At December 31, 1994, there was a $20,000,000 uncommitted credit facility in place with a major bank to support the issuance of letters of credit. At that date, the Company had $13,621,000 of irrevocable letters of credit outstanding under this arrangement. This uncommitted line of credit is subject to a negative pledge on working capital.
In 1994 and 1993, the Company's interest expense was reduced by approximately $288,000 and $1,304,000, respectively, as a result of amortizing the proceeds received from a terminated interest rate swap agreement. At December 31, 1994, there was approximately $606,000 of deferred swap proceeds to be amortized over the remaining term of the 10.91% Prudential note.
Aggregate annual maturities of long-term debt as of December 31, 1994 are: 1995 - $4,107,000; 1996 - $4,178,000; 1997 - $4,257,000; 1998 - $3,153,000; 1999 - $3,346,000; and all years thereafter - $101,156,000.
NOTE 8--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:
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair values due to the short-term maturities of these instruments. Variable rate long-term debt instruments are estimated to approximate fair values as rates are tied to short-term indices.
MARKETABLE SECURITIES
The fair value of marketable securities was determined based on quoted market prices from various brokers. See Note 2.
FIXED RATE LONG-TERM DEBT
The fair value of fixed rate long-term debt was estimated by discounting future cash flows using rates estimated to be currently available for debt of similar terms and remaining maturities.
HEDGING ACTIVITIES
The Company purchases crude oil futures contracts to reduce price volatility and to lock-in margins in its refining and marketing operations. In addition, the Company uses forward grain purchase contracts and options to reduce price volatility on and to secure grain supplies for its ethanol production operations. These contracts permit settlement by delivery of commodities and, therefore, are not financial instruments, as defined by SFAS No. 105. The Company uses these contracts in its hedging activities. At December 31, 1994, the Company's hedging activities had futures contracts maturing in 1995 covering 168,000 barrels of crude oil and grain purchase contracts for approximately 190,000,000 pounds of grain, equating to approximately 90% of grain demand through September of 1995. In addition, options had been purchased on approximately 58,000,000 pounds of the contracted grain commitment. At December 31, 1993, the Company's hedging activities had futures contracts maturing in 1994 covering 395,000 barrels of crude oil and grain purchase contracts maturing in 1994 and 1995 for approximately 146,000,000 pounds of grain. The crude oil futures contracts qualify as hedges, and any gains or losses resulting from market changes will be offset by losses or gains on the Company's hedging contracts. The grain purchase contracts are forward purchase contracts and have the effect of locking-in the Company's grain cost. The options purchased will allow the Company to participate in the market if grain prices drop significantly. Gains and losses on hedging contracts are deferred and reported as a component of the related transaction. Net deferred gains (losses) for the Company's petroleum hedging activities were approximately $17,000 and $(476,000) at December 31, 1994 and 1993, 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 9--INCOME TAXES:
The provision (benefit) for income taxes is comprised of the following:
Income taxes paid in 1994, 1993 and 1992 were $5,379,000, $6,672,000 and $3,803,000, respectively.
A reconciliation of the difference between the provision (benefit) for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows:
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:
At December 31, 1994, the Company had a minimum tax credit carryforward of approximately $5,694,000 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, 1994, the Company also had approximately $2,101,000 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, $868,000 will expire in 2008 and $1,233,000 will expire in 2009.
NOTE 10--EMPLOYEE STOCK OWNERSHIP PLAN:
The Company and its subsidiaries have an Employee Stock Ownership Plan ("ESOP") which is a noncontributory defined contribution plan established primarily to acquire shares of the Company's common stock for the benefit of all eligible employees. The ESOP's assets include 1,534,878 and 1,599,204 shares of the Company's common stock at December 31, 1994 and 1993, respectively. At December 31, 1994 and 1993, 1,460,322 and 1,403,711, respectively, of these shares had been allocated to participants and 74,556 and 195,493, respectively, remained unallocated. Shares are allocated to participants when principal payments are made on the loan discussed below. Allocations to participant accounts are made on a formula based on the ratio that each participant's compensation, during the Plan year, bears to the compensation of all such participants. The Company treats all ESOP shares as outstanding for earnings per share purposes.
The ESOP originally borrowed $6,500,000 from a bank and purchased shares of the Company's common stock from existing shareholders. The loan was purchased by the Company from the bank in 1993, when the loan had a principal balance of $1,347,000. The loan obligation of the ESOP bears interest at 80% of the prime rate. In 1994, the ESOP made a principal payment of $833,000 leaving a balance of $514,000 due and payable in September 1995. The loan obligation is considered unearned employee benefit expense and, as such, recorded as a reduction of the Company's stockholders' equity. Both the loan obligation and the unearned benefit expense are reduced by the amount of any loan repayments made by the ESOP. Contributions to the ESOP are made at the discretion of the Board of Directors. The Company made contributions of $900,000, $889,000 and $900,000 to the ESOP for 1994, 1993 and 1992, respectively.
NOTE 11--STOCK INCENTIVE PLAN:
The Company established the 1989 Stock Incentive Plan under which 500,000 shares of the Company's common stock were authorized to be issued to deserving employees in the form of options and/or restricted stock. The Plan is administered by the Compensation Committee of the Board of Directors.
The following summarizes stock option transactions under this plan:
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, 1994, there were 163,801 shares available for future grants.
Prior to adoption of the 1989 Stock Incentive Plan, the Company granted shares to employees under Restricted Stock Plans as follows:
Shares --------- 1989 124,097* 1988 214,447**
*Net of 21,045 shares forfeited. **Net of 33,746 shares forfeited.
All of the options or restricted stock grants are subject to forfeiture with vesting ranging from 14% to 33% annually beginning one year after the date of grant for restricted stock and exercise dates of stock options. Compensation expense related to restricted stock grants is charged to earnings over the appropriate vesting period. All options were granted at fair market value at the date of grant and expire on the tenth anniversary of the grant date.
NOTE 12--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 year ended December 31, 1994 and 1993, the Company had expensed $189,000 and $109,000, respectively, for matching contributions under this plan.
NOTE 13--INTEREST, OPERATING LEASES AND RENT EXPENSE:
Interest paid and capitalized for 1994 was $11,644,000 and $0, for 1993 was $4,711,000 and $249,000, and for 1992 was $7,871,000 and $162,000, respectively.
The Company is committed to annual minimum rentals under noncancelable operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1994 as follows:
Total rent expense was $1,890,000, $1,584,000 and $1,430,000 for 1994, 1993 and 1992, respectively.
NOTE 14--COMMITMENTS AND CONTINGENCIES:
The Company and certain subsidiaries are defendants to various legal actions. Certain of these pending legal actions involve or may involve compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings or claims referred to above could be decided adversely. Although the amount of liability at December 31, 1994 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 involve alleged soil and water contamination, air pollution and personal injuries or property damage allegedly caused by exposure to hazardous materials manufactured, handled or used by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances due to the speculative nature of remediation and clean-up cost estimates and methods, the imprecise and conflicting data regarding the hazardous nature of various types of waste, 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 which was operated until 1982. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though it was responsible for only a small part of such costs. At the present time, the Company is unable to determine the extent of potential liability, if any, in this matter and has made no provision therefore in its financial statements.
In 1994, the Company established an environmental liability accrual for approximately $1,400,000 relating to ongoing environmental projects, including the remediation of a free-phase hydrocarbon plume at the Company's Farmington Refinery. In late 1994, the Company accrued an additional $250,000 relating to hydrocarbon contamination on 5.5 acres the Company owns in Bloomfield, New Mexico. At December 31, 1994, the balance of the accrual was approximately $1,600,000, recorded in the current and long-term section 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 vigorously oppose the assessment. It is the Company's understanding that these appeals will be held in abeyance pending further judicial clarification of the Tribe's taxing authority by means of litigation involving other companies. It is possible, however, that the Company's assessments will have to be litigated by the Company before final resolution. The Company may receive further tax assessments before judicial resolution of the Tribe's taxing authority.
NOTE 15--QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
NOTE 16--SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED):
The following is historical information relating to the Company's oil and gas operations.
Excluded from amounts subject to amortization as of December 31, 1994 and 1993 are $1,551,000 and $2,973,000, respectively, of costs associated with unevaluated properties. The majority of the evaluation activities are expected to be completed in five years.
COSTS EXCLUDED FROM AMORTIZATION
CAPITALIZED COSTS
The Company's net investment in oil and gas properties was as follows:
During 1994 and 1993, the Company recognized non-cash writedowns of its oil and gas properties of $3,395,000 and $15,511,000, respectively, for the excess of net capitalized costs over the estimated present value of net future cash inflows. These writedowns were recorded as increases to accumulated depreciation, depletion and amortization.
COSTS INCURRED
Costs incurred (exclusive of general support facilities) in oil and gas exploration activities (all in the United States) were as follows:
ESTIMATED QUANTITIES (ALL IN THE UNITED STATES) OF PROVED OIL AND GAS RESERVES
Proved reserves are estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. The Company's reserves are located primarily in the southwestern United States.
The following schedules set forth the Company's net proved and proved developed oil and gas reserves, as determined by independent consultants, along with a summary of the changes in the quantities of net proved reserves:
Revisions are due to unsuccessful drilling efforts, downward revisions of well economic productivity and limitations in drilling for the replacement of reserves caused by reduced capital expenditures. In 1992, the Company sold a volume of reserves equal to approximately 50% of its then working interest in certain proved developed natural gas reserves along with a portion of the associated gathering system. The purchase and sale agreement associated with that transaction contains a provision whereby the ownership interest in the subject reserves is adjusted annually at December 31, 1993 through 1996, based on year-end reserve reports, so that the buyer receives a cumulative working interest estimated for the life of the reserves equal to the reserve volume purchased. In 1994, there was a positive gas revision for the Company equal to approximately 1,018 million cubic feet and in 1993, there was a negative gas revision of approximately 1,159 million cubic feet.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves ("Standardized Measure") is a disclosure requirement under SFAS No. 69. The Standardized Measure does not purport to present the fair market value of a company's proved oil and gas reserves. This would require consideration of expected future economic and operating conditions, which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying year-end prices, adjusted for fixed and determinable escalations, to the estimated future production of year-end proved reserves. Prices tend to be volatile and have decreased significantly for natural gas and increased somewhat for crude oil since year-end. Future cash inflows were reduced by estimated future production and development costs to determine pre-tax cash inflows. Future income taxes were computed by applying the statutory tax rate to the excess of pre-tax cash inflows over the Company's tax basis in the associated proved oil and gas properties. Tax credits, including the federal coal seam gas credit, and permanent differences were also considered in the future income tax calculation. Future net cash inflows after income taxes were discounted using a 10% annual discount rate to arrive at the Standardized Measure.
Set forth below is the Standardized Measure relating to proved oil and gas reserves:
Changes in the Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves for 1994, 1993 and 1992:
Results of operations for exploration and production activities (all in the United States):
ITEM 9.
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 18, 1995 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 30, 1995.
ITEM 10.
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.
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.
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.
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.
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, 1994 and 1993
(iii) Consolidated Statements of Operations - Years ended December 31, 1994, 1993 and 1992
(iv) Consolidated Statements of Stockholders' Equity - Years ended December 31, 1994, 1993 and 1992
(v) Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992
(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, 1994, 1993 and 1992 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Giant Industries, Inc.
Independent Auditors' Report on Schedule . . . . . S-1
Schedule II - Valuation and Qualifying Accounts . . S-2
Schedules not listed above have been omitted because they are not applicable or are not required or because the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.
(3) Exhibits. The Exhibits listed on the accompanying Index to Exhibits immediately following the financial statement schedule are filed as part of, or incorporated by reference into, this Report.
Contracts with management and any compensatory plans or arrangements relating to management are as follows:
Exhibit No. Description ------- ----------- 10.1 1989 Stock Incentive Plan of the Registrant. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-10398.
10.3 ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-10398.
10.6 Amended 1988 Restricted Stock Plan of Registrant. Incorporated by reference to Exhibit 10.3 to Form S-1.
10.7 1989 Stock Option Plan of Registrant. Incorporated by reference to Exhibit 10.4 to Form S-1.
10.30 Employment Agreement, dated as of November 16, 1989, between James E. Acridge and the Company. Incorporated by reference to Exhibit 10.52 to Amendment No. 2.
10.31 Employment Agreement, dated as of November 16, 1989, between Fredric L. Holliger and the Company. Incorporated by reference to Exhibit 10.53 to Amendment No. 2.
10.32 Employment Agreement, dated as of August 1, 1990 between Morgan Gust and the Company. Incorporated by reference to Exhibit 10.64 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.35 Giant Industries, Inc. and Affiliated Companies 401(k) Plan. Incorporated by reference to Exhibit 10.46 to Amendment No. 2 to the Form S-3 Registration Statement under the Securities Act of 1933 as filed November 12, 1993, File No. 33-69252. _________________________________
Form S-1--Refers to the Form S-1 Registration Statement under the Securities Act of 1933 as filed October 16, 1989, File No. 33-31584.
Amendment No. 2--Refers to the Amendment No. 2 to Form S-1 Registration Statement under the Securities Act of 1933 as filed November 20, 1989, File No. 33-31584.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fiscal year ended December 31, 1994.
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 30, 1995
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 30, 1995
/s/ A. Wayne Davenport --------------------------------------- A. Wayne Davenport Vice President and Corporate Controller (Principal Accounting Officer)
March 30, 1995
/s/ Fredric L. Holliger --------------------------------------- Fredric L. Holliger, Executive Vice President, Chief Operating Officer and Director.
March 30, 1995
/s/ Gary L. Nielsen --------------------------------------- Gary L. Nielsen, Vice President Finance and Treasurer (Principal Financial Officer)
March 30, 1995
/s/ F. Michael Geddes --------------------------------------- F. Michael Geddes, Director
March 30, 1995
/s/ George C. Hixon --------------------------------------- George C. Hixon, Director
March 30, 1995
/s/ Harry S. Howard, Jr. --------------------------------------- Harry S. Howard, Jr., Director
March 30, 1995
/s/ Richard T. Kalen, Jr. --------------------------------------- Richard T. Kalen, Jr., Director
March 30, 1995
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, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated March 6, 1995. 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 6, 1995
S-1
SCHEDULE II GIANT INDUSTRIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three years ended December 31, 1994 (In thousands)
Charged Balance at (credited) Balance beginning to costs Deduction at end of period and expenses (a) of period ---------- ------------ --------- ---------
Year ended December 31, 1994: Allowance for doubtful accounts $429 $167 $ (50) $546 ==== ==== ===== ====
Year ended December 31, 1993: Allowance for doubtful accounts $415 $133 $(119) $429 ==== ==== ===== ====
Year ended December 31, 1992: Allowance for doubtful accounts $335 $127 $ (47) $415 ==== ==== ===== ====
(a) 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, 1994
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 ----------- ----------- 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.
3.14*** Bylaws of Giant Mid-Continent, Inc.
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.
4.3 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.
10.1 1989 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-10398.
10.2 Employee Stock Ownership Plan and Trust Agreement of the Company, as amended. Incorporated by reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-10398.
10.3 ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File 1-10398.
10.4 Loan Agreement, dated December 20, 1991, between NBD Bank, National Association and Continental Bank, N.A. as trustee under the Employee Stock Ownership Plan and Trust Agreement of the Company. Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1991, File No. 1-10398.
10.5 Term Note for $2,896,831.80, dated December 20, 1991, between NBD Bank, National Association and the Employee Stock Ownership Plan and Trust Agreement of the Company. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1991, File No. 1-10398.
10.6 Amended 1988 Restricted Stock Plan of the Company. Incorporated by reference to Exhibit 10.3 Form S-1.
10.7 1989 Stock Option Plan of the Company. Incorporated by reference to Exhibit 10.4 to Form S-1.
10.8 Form of Assignment of Oil & Gas and Mineral Leases between Mtrust Corp., N.A., Alexander P. Hixon and George C. Hixon, Trustees of the Elizabeth F. Hixon Trust, and Hixon Development Company. Incorporated by reference to Exhibit 10.12 to Form S-1.
10.9 Form of Assignment of Overriding Royalty Interest between Mtrust Corp., N.A., Alexander P. Hixon and George C. Hixon, Trustees of the Elizabeth F. Hixon Trust, and Hixon Development Company. Incorporated by reference to Exhibit 10.13 to Form S-1.
10.10 Purchase Agreement, dated November 29, 1990, between Giant Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.11 Escrow Instructions, dated January 7, 1991, between Prime Pinnacle Peak Properties Limited Partnership and Giant Arizona. Incorporated by reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.12 Agreement for Leasing of Service Station Site, dated March 1, 1991, between Giant Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.13 First Amendment to Agreement for Leasing of Service Station Site, dated March 1, 1991, between Giant Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File 1-10398.
10.14 Purchase and Sale Agreement, dated as of May 7, 1991, between New Bank of New England N.A., Den Norske Bank, Kansallis--Osake--Pankki--and Portales Energy Company, Inc. and the Company. Incorporated by reference to Exhibit 10.4 to the Company's Report on Form 10-Q for the quarter ended June 30, 1991, File No. 1-10398.
10.15 Aircraft Lease Purchase Agreement, dated as of June 21, 1991, between Metlife Capital Corporation and the Company. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1991, File No. 1-10398.
10.16 Promissory Note for $600,000, dated December 1, 1988, from JEA to Metlife Capital Corporation ("Metlife"). Incorporated by reference to Exhibit 10.38 to Form S-1.
10.17 Promissory Note for $825,000, dated December 20, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.39 to Form S-1.
10.18 Promissory Note for $750,000, dated December 28, 1987, from JEA to Metlife. Incorporated by reference to Exhibit 10.40 to Form S-1.
10.19 Promissory Note for $825,000, dated June 28, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.41 to Form S-1.
10.20 Promissory Note for $900,000, dated August 31, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.42 to Form S-1.
10.21 Promissory Note for $1,125,000, dated April 21, 1989, from JEA to Metlife. Incorporated by reference to Exhibit 10.43 to Form S-1.
10.22 Promissory Note for $1,087,500, dated December 30, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.44 to Form S-1.
10.23 Promissory Note for $1,082,900, dated December 30, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.45 to Form S-1.
10.24* Sales Agreement, dated June 6, 1989, between Giant Arizona and Mobil Oil Corporation. Incorporated by reference to Exhibit 10.47 to Amendment No. 2.
10.25* Amendment, dated April 20, 1990, to Sales Agreement, dated June 6, 1989, between Giant Arizona and Mobil Oil Corporation. Incorporated by reference to Exhibit 10.51 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.26* Sales Agreement, dated February 10, 1989, between Giant Arizona and Conoco Inc. Incorporated by reference to Exhibit 10.48 to Amendment No. 2.
10.27** Crude Oil and Condensate Sales and Purchase Agreement, dated August 1, 1994, between Meridian Oil Trading Inc. (Seller) and Giant Refining Company, a division of Giant Industries Arizona, Inc. (Buyer).
10.28** Natural Gas Liquids Sales and Purchase Agreement, dated October 27, 1994, between Meridian Oil Hydrocarbons Inc. and Giant Refining Company, a division of Giant Industries Arizona, Inc.
10.29* Natural Gasoline Purchase and Sale Agreement, dated September 1, 1990, between Sunterra Gas Processing Company and Giant Arizona. Incorporated by reference to Exhibit 10.57 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.30 Employment Agreement, dated as of November 16, 1989, between James E. Acridge and the Company. Incorporated by reference to Exhibit 10.52 to Amendment No. 2.
10.31 Employment Agreement, dated as of November 16, 1989, between Fredric L. Holliger and the Company. Incorporated by reference to Exhibit 10.53 to Amendment No. 2.
10.32 Employment Agreement, dated as of August 1, 1990 between Morgan Gust and the Company. Incorporated by reference to Exhibit 10.64 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.33 Consulting Agreement, dated January 1, 1990, between the Company and Kalen and Associates. Incorporated by reference to Exhibit 10.66 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
10.34 Consulting Agreement, dated March 12, 1992, between the Company and Geddes and Company. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1992, File No. 1-10398.
10.35 Giant Industries, Inc. and Affiliated Companies 401(k) Plan. Incorporated by reference to Exhibit 10.46 to Amendment No. 2 to the Form S-3 Registration Statement under the Securities Act of 1933 as filed November 12, 1993, File No. 33-69252.
11.1*** Statement regarding computation of earnings per share.
18.1 Letter regarding change in accounting principles. Incorporated by reference to Exhibit 18.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398.
21.1*** Subsidiaries of the Company.
23.1*** Consent of Intera Information Technologies, Inc.
23.2*** 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, 1994 for the Giant Industries, Inc. and Affiliated Companies Employee Stock Ownership Plan.
*Certain information contained in these documents has been afforded confidential treatment. **Incomplete versions filed; portions for which confidential treatment has been requested filed supplementary. ***Filed herewith.