FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period _______ to _______.
For Quarter Ended March 31, 1994 Commission File Number: 1-10398
GIANT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0642718
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23733 North Scottsdale Road, Scottsdale, Arizona 85255
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 585-8888
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of Common Shares outstanding at April 30, 1994: 12,192,770
shares.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1994 (Unaudited) and December 31, 1993
Condensed Consolidated Statements of Earnings (Unaudited)
Three Months Ended March 31, 1994 and 1993
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1994 and 1993
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Computation of Per Share Data (Exhibit 11)
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURE
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 1994 December 31, 1993
-------------- -----------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 32,960 $ 19,807
Marketable securities 20,158 36,146
Accounts receivable, net 14,172 15,082
Income tax refunds receivable 216 254
Inventories 25,819 23,341
Prepaid expenses and other 2,199 3,571
Deferred income taxes 3,749 3,749
--------- ---------
Total current assets 99,273 101,950
--------- ---------
Property, plant and equipment 302,322 292,519
Less accumulated depreciation,
depletion and amortization (133,875) (130,276)
--------- ---------
168,447 162,243
--------- ---------
Other assets 15,042 15,106
--------- ---------
$ 282,762 $ 279,299
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 4,007 $ 3,035
Accounts payable 14,077 14,883
Accrued expenses 18,640 19,725
--------- ---------
Total current liabilities 36,724 37,643
--------- ---------
Long-term debt, net of current portion 119,123 117,270
Deferred income taxes 15,688 15,850
Other liabilities 3,779 2,622
Common stockholders' equity 107,448 105,914
--------- ---------
$ 282,762 $ 279,299
========= =========
See accompanying notes to condensed consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except shares and per share data)
Three Months Ended
March 31,
------------------------------
1994 1993
----------- -----------
Net revenues $ 63,795 $ 77,363
----------- -----------
Cost of products sold 41,654 54,420
Operating expenses 17,868 17,164
Interest expense, net 2,312 1,044
----------- -----------
61,834 72,628
----------- -----------
Earnings before income taxes 1,961 4,735
Provision for income taxes 549 1,468
----------- -----------
Net earnings $ 1,412 $ 3,267
=========== ===========
Earnings per common share $ 0.12 $ 0.27
=========== ===========
Weighted average number
of shares outstanding 12,192,770 12,223,768
=========== ===========
See accompanying notes to condensed consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
-------------------
1994 1993
------- -------
Cash flows from operating activities:
Net earnings $ 1,412 $ 3,267
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation, depletion and amortization 3,801 3,893
Deferred income taxes (162) (240)
Restricted stock award compensation 122 117
Changes in operating assets and liabilities:
Decrease (increase) in receivables 948 (3,146)
(Increase) decrease in inventories (2,478) 431
Decrease in prepaid expenses and other 1,372 197
Decrease in accounts payable (806) (191)
(Decrease) increase in accrued expenses (1,095) 4,067
Increase in other non-current liabilities 1,157
------- -------
Net cash provided by operating activities 4,271 8,395
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment
and other assets (7,010) (2,351)
Proceeds from sale of property, plant and
equipment 120 134
Purchases of marketable securities (23,685)
Proceeds from sales of marketable securities 39,673
------- -------
Net cash provided by (used in)
investing activities 9,098 (2,217)
------- -------
Cash flows from financing activities:
Payments of long-term debt (92) (3,230)
Deferred financing costs (124)
------- -------
Net cash used in financing activities (216) (3,230)
------- -------
Net increase in cash and cash equivalents 13,153 2,948
Cash and cash equivalents:
Beginning of period 19,807 8,842
------- -------
End of period $32,960 $11,790
======= =======
Noncash Investing and Financing Activities. A portion of the
acquisition price of nine retail units was seller financed for $2,917.
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments and
reclassifications considered necessary for a fair and comparable
presentation have been included and are of a normal recurring nature.
Operating results for the three months ended March 31, 1994 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1994. The enclosed financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
NOTE 2 - MARKETABLE SECURITIES:
The Company has implemented Statement of Financial Accounting
Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." Marketable securities are comprised of taxable
corporate bonds, taxable and non-taxable municipal bonds and adjustable
rate preferred stocks and are managed as part of the Company's
short-term cash management program and are classified as
available-for-sale securities. Such classification requires these
securities to be reported at fair market value, with unrealized gains
and losses excluded from earnings and reported in a separate component
of stockholders' equity. At March 31, 1994, the cost of these
securities approximated fair market value.
NOTE 3 - INVENTORIES:
March 31, 1994 December 31, 1993
-------------- -----------------
(In thousands)
Inventories consist of the following:
First-in, first-out ("FIFO") method:
Crude oil $ 8,199 $ 4,820
Refined products 8,680 10,607
Refinery and shop supplies 5,420 5,372
Retail method:
Merchandise 2,415 2,495
------- -------
24,714 23,294
Allowance for last-in, first-out
("LIFO") method 4,105 3,747
Allowance for lower of cost or market (3,000) (3,700)
------- -------
$25,819 $23,341
======= =======
NOTE 4 - LONG-TERM DEBT:
In November 1993, the Company issued $100,000,000 of 9 3/4% senior
subordinated notes ("Notes"). Repayment of the Notes is jointly and
severally guaranteed on an unconditional basis by the Company's direct
and indirect wholly-owned subsidiaries, subject to a limitation designed
to ensure that such guarantees do not constitute a fraudulent
conveyance. Except as otherwise allowed in the Indenture pursuant to
which the Notes were issued, there are no restrictions on the ability of
such subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances. General provisions of applicable State
law, however, may limit the ability of any subsidiary to pay dividends
or make distributions to the Company in certain circumstances.
No separate financial statements of the subsidiaries are included
herein because the subsidiaries are jointly and severally liable; the
aggregate assets, liabilities, earnings, and equity of the subsidiaries
are substantially equivalent to the assets, liabilities, earnings and
equity of the Company on a consolidated basis; and the separate
financial statements and other disclosures concerning the subsidiaries
are not deemed material to investors.
NOTE 5 - 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 March 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 and 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 the party 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.
At December 31, 1993, the Company had received approximately $2.4
million in connection with the settlement of past and future claims of
the Company against various of its insurance carriers relating to
various environmental issues. In April 1994, the Company completed a
review of its environmental matters and determined that approximately
$1.4 million of these settlements related to ongoing environmental
projects, including the remediation of a free phase hydrocarbon plume
that extends approximately 1,000 feet south of the Company's Farmington
refinery, and therefore such amounts have been designated as
environmental liability accruals in the current and long-term sections
of the Company's condensed consolidated balance sheet at March 31, 1994.
The remaining $1.0 million has been recorded as a credit to operating
expenses in the condensed consolidated statement of earnings for the
three months ended March 31, 1994, reflecting a recovery of
environmental costs expensed in prior years.
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 Industries Arizona, Inc., a
wholly-owned subsidiary of the Company, 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.
EXHIBIT 11
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
Three Months Ended
March 31,
-----------------------
1994 1993
---------- ----------
Net earnings $1,412,000 $3,267,000
========== ==========
Weighted average number of shares
outstanding during the period 12,192,770 12,223,768
========== ==========
Earnings per common share $ 0.12 $ 0.27
========== ==========
Additional Primary Computation:
- - -------------------------------
Net earnings $1,412,000
==========
Additional adjustment to weighted average
number of shares outstanding:
Weighted average number of shares
outstanding above 12,192,770
Add - dilutive effect of outstanding
options (a) 55,813
----------
Weighted average number of shares
outstanding as adjusted 12,248,583
==========
Earnings per common share $ 0.12 (b)
==========
Fully Diluted Computation:
- - --------------------------
Net earnings $1,412,000
==========
Additional adjustment to weighted average
number of shares outstanding:
Weighted average number of shares
outstanding above 12,192,770
Add - dilutive effect of outstanding
options (a) 55,813
----------
Weighted average number of shares
outstanding as adjusted 12,248,583
==========
Earnings per common share $ 0.12 (b)
==========
/TABLE
(a) As determined by the application of the treasury stock method.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required per note 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Earnings Before Income Taxes
- - ----------------------------
For the three month period ended March 31, 1994 earnings before
income taxes decreased $2.8 million or 59% to $1.9 million from $4.7
million in the same 1993 period. The decrease is primarily the result of
a 15% decline in refinery sourced finished product sales volumes, a 20%
decline in third party ethanol sales volumes, a 47% decline in ethanol
margins and higher interest and operating expenses. These negative
factors were partially offset by a 23% and 4% increase in volumes and
margins, respectively, for finished products and a 36% and 3% increase
in merchandise sales and margins, respectively, from the Company's
retail units, a 9% increase in average refinery margins and the
recording of an insurance settlement relating to previously incurred
environmental costs.
For the three months ended March 31, 1994, the Company's
exploration and production operations ("Giant E&P") recorded a loss of
$0.4 million, a $0.3 million increase from a loss of $0.1 million in the
comparable 1993 period. The increase in the loss was primarily due to a
decrease in crude oil and natural gas production and selling prices.
Revenues
- - --------
Revenues for the three months ended March 31, 1994, decreased $13.6
million or 18% to $63.8 million from $77.4 million in the comparable
1993 period. The decrease is primarily due to a 15% decline in
refinery sourced finished product sales volumes, a 17% decrease in
refinery weighted average selling prices and a 20% and 11% decline in
third party ethanol sales volumes and selling prices, respectively.
Offsetting these decreases was a 35% increase in the volume of finished
products sold from the service stations along with a 49% increase in
merchandise sales.
The decline in refinery sourced finished product sales volumes was
primarily due to a scheduled major maintenance turnaround. This
turnaround, performed every four years to conduct preventative
maintenance and equipment upgrading activity, was started in March and
successfully completed in early April as planned. The refinery is now
back to full operation and performing as expected. The decline in third
party ethanol sales volumes was caused by operating problems experienced
in the early part of the quarter and the lowering of production due to
high grain costs and low selling prices resulting from an over supply of
oxygenates. The increase in service station finished product and
merchandise sales is the result of increased same store volumes and the
addition of nine units in the Company's primary market area.
Volumes of refined products sold through retail outlets increased
approximately 23% from 1993 first quarter levels primarily due to a 35%
increase in volumes sold from the service stations offset by a 3%
decline in travel center volumes.
Revenues, including intercompany revenues, from Giant E & P totaled
$1.4 million for the three months ended March 31, 1994, a decrease of
$0.6 million or 31% from the $2.0 million reported for the comparable
1993 period. This decrease is due to a 14% decline in crude oil
production, a 28% decline in crude oil selling prices, a 20% decline in
natural gas production and a 10% decline in natural gas selling prices.
The decline in natural gas production is due to a 1993 upward 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 three months ended March 31, 1994, cost of products sold
decreased $12.8 million or 23% to $41.6 million from $54.4 million for
the corresponding 1993 period. A 15% decline in the volume of finished
products sold from the refinery and a 24% decline in average crude oil
costs accounts for the decrease. These decreases were partially offset
by an increase in costs relating to increased merchandise sales from the
service stations and a 33% increase in average grain costs.
Cost of products sold by Giant E & P decreased approximately 22% in
the three months ended March 31, 1994, compared to the same 1993 period.
The decline is primarily related to a decrease in production.
Operating Expenses
- - ------------------
For the three months ended March 31, 1994, operating expenses
increased $0.7 million or 4% to $17.9 million from $17.2 million for the
three months ended March 31, 1993. The increase is primarily due to $0.7
million in operating expenses relating to the nine retail units
acquired, an increase of $0.5 million in payroll and related costs for
other operations and $0.5 million of other increases, primarily
depreciation, purchased fuel and supplies. These increases were
partially offset by the recording of a $1.0 million insurance settlement
relating to environmental costs incurred in prior years.
Interest Expense, Net
- - ---------------------
For the three months ended March 31, 1994, interest expense, net
(interest expense less interest income) increased $1.3 million or 121%
to $2.3 million from $1.0 million for the same period in 1993. 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 an interest rate management strategy
utilizing an interest rate swap were lower in the 1994 quarter.
Partially offsetting these items was an increase in interest income
resulting from the investment of excess cash in marketable securities
and short-term financial instruments.
Income Taxes
- - ------------
Income taxes for the three months ended March 31, 1994 and 1993
have been computed in accordance with Statement of Financial Accounting
Standards No. 109, resulting in an effective tax rate of approximately
28% and 31%, respectively. The variance from the statutory U.S. federal
tax rate of 35% for the 1994 period and 34% for the 1993 period is
primarily due to the relationship of estimated alcohol fuel and coal
seam gas credits to estimated annual income, partially offset by
estimated state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operations
- - -------------------------
Net cash provided by operating activities totaled $4.3 million for
the three months ended March 31, 1994, compared to $8.4 million for the
comparable 1993 period. Operating cash flows decreased primarily as the
result of a decline in net earnings and the net changes in working
capital items.
Working Capital
- - ---------------
Working capital at March 31, 1994 consisted of current assets of
$99.3 million and current liabilities of $36.7 million, or a current
ratio of 2.70:1. 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 decreased since December 31, 1993, primarily
due to a net decrease in cash and cash equivalents and marketable
securities, a decline in trade receivables, due in part to lower sales
volumes, and a decrease in prepaid expenses, principally deposits.
Partially offsetting these decreases is an increase in inventories due
to an increase in raw material volumes on hand, partially resulting from
the scheduled major maintenance turnaround which was still in progress
at the end of the quarter. Finished product volumes were down 28% from
year end levels. Current liabilities have decreased primarily due to a
decrease in accounts payable and accrued liabilities. Accounts payable
have declined primarily due to a decline in raw material costs. Accrued
liabilities have declined primarily due to 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, the payment of management incentive
bonuses and a decline in estimated income taxes payable. These decreases
were offset in part by an increase in accrued interest.
Capital Expenditures and Resources
- - ----------------------------------
Net cash used in investing activities for the purchase of property,
plant and equipment and other assets totaled approximately $7.0 million
for the first three months of 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, 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 sales of marketable securities of
approximately $16.0 million in the quarter.
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.
The Company continues to investigate other strategic acquisitions,
including the possibility of acquiring an additional refinery and the
acquisition of producing oil and gas properties, as well as capital
improvements to its existing facilities and is actively pursuing the
possible sale or exchange of certain non-strategic assets.
Capital Structure
- - -----------------
At March 31, 1994, and December 31, 1993, the Company's long-term
debt was 53% of total capital.
In November 1993, the Company issued $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 $5.0 million cash secured credit facility
available to support the issuance of letters of credit in the ordinary
course of business. At March 31, 1994, there were approximately $2.6
million in irrevocable letters of credit outstanding under this
arrangement.
No dividends were declared in the first quarter of 1994. 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.
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. Repurchases may be made from time to time in the open
market in compliance with Securities and Exchange Commission guidelines.
The 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.
Other
- - -----
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.
At December 31, 1993, the Company had received approximately $2.4
million in connection with the settlement of past and future claims of
the Company against various of its insurance carriers relating to
various environmental issues. In April 1994, the Company completed a
review of its environmental matters and determined that approximately
$1.4 million of these settlements related to ongoing environmental
projects, including the remediation of the free phase hydrocarbon plume
described above, and therefore such amounts have been designated as
environmental liability accruals in the current and long-term sections
of the Company's condensed consolidated balance sheet at March 31, 1994.
The remaining $1.0 million has been recorded as a credit to operating
expenses in the condensed consolidated statement of earnings for the
three months ended March 31, 1994, reflecting a recovery of
environmental costs expensed in prior years.
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 March 31, 1994, the
"cost ceiling" approximated the adjusted capitalized costs. Whether or
not a writedown will be necessary in the future depends upon future
prices and reserve volumes.
Due to low ethanol prices and high grain costs resulting from 1993
flooding in the Midwest, the Company reduced production at its ethanol
facility for a period of time in the first quarter of 1994. With the
prospect of continuing high grain costs and depressed ethanol prices,
the Company is planning to run the facility at 75% of capacity for the
second and third quarters of 1994. For the longer term, the Company
remains optimistic about the prospects for the facility due to the
introduction of reformulated gasoline in January 1995, required by the
1990 Clean Air Act Amendments, and an expected return to more favorable
grain prices.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings required to be
reported pursuant to Item 103 of Regulation S-K. The Company is a party
to ordinary routine litigation incidental to its business. In addition,
there is hereby incorporated by reference the information regarding
contingencies in Note 5 to the Unaudited Condensed Consolidated
Financial Statements set forth in Item 1, Part I hereof and the
discussion of certain contingencies contained herein under the heading
"Liquidity and Capital Resources - Other."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 12, 1994.
Proxies for the meeting were solicited under Regulation 14A. There
were no matters submitted to a vote of security holders other than
the election of two directors and approval of auditors as specified
in the Company's Proxy Statement. There was no solicitation in
opposition to management's nominees to the Board of Directors.
Fredric L. Holliger was elected as a director of the Company.
The vote was as follows:
Shares Voted Shares Voted
"FOR" "WITHHOLDING"
------------ -------------
11,445,267 78,886
Harry S. Howard, Jr. was elected as a director of the Company.
The vote was as follows:
Shares Voted Shares Voted
"FOR" "WITHHOLDING"
------------ -------------
11,446,645 77,508
Deloitte & Touche were ratified as independent auditors for the
Company for the year ending December 31, 1994. The vote was as
follows:
Shares Voted Shares Voted Shares Voted
"FOR" "AGAINST" "ABSTAINING"
------------ ------------- ------------
11,462,482 27,595 30,698
ITEM 5. OTHER
At a meeting of the Board of Directors held on May 12, 1994, A.
Wayne Davenport was elected Vice President and Corporate Controller of
the Company. Mr. Davenport has over twenty years of experience in the
oil industry. Most recently he worked with the Navajo Nation on a
project to establish an oil and gas company. Prior to that he served as
Executive Vice President, Chief Financial Officer and Treasurer for
Hondo Oil & Gas Company where he was involved with their exploration and
production and refining operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
11 - Computation of Per Share Data (see Part I, Item 1).
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended March 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report on Form 10-Q for the
quarter ended March 31, 1994 to be signed on its behalf by the
undersigned thereunto duly authorized.
GIANT INDUSTRIES, INC.
A. WAYNE DAVENPORT
-------------------------------------
A. Wayne Davenport
Vice President and Corporate Controller
(Principal Accounting Officer)
Date: May 13, 1994