SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported)
October 4, 1995
GIANT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or jurisdiction of incorporation)
1-10398 86-0642718
(Commission File Number) (IRS Employer 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
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 4, 1995, Giant Industries Arizona, Inc. and
San Juan Refining Company (collectively "the Company"), each a
direct or indirect wholly-owned subsidiary of Giant
Industries, Inc. ("Giant"), completed the purchase of the
18,000 barrel per day ("bpd") Bloomfield Refinery ("the
Refinery") located in Bloomfield, New Mexico, along with
related pipeline and transportation assets. The Refinery and
related assets were purchased from Gary-Williams Energy Co.
and its wholly-owned subsidiary Bloomfield Refining Company
("BRC"), a privately-held company not affiliated with the
Company or Giant, for a price of $55 million, determined as a
result of arms'-length negotiations, plus approximately $7.5
million for crude oil and refined products inventories
associated with the refinery operations. The purchase
agreement also provides for potential contingent payments to
be made to BRC over approximately the next six years should
certain criteria be met.
The Refinery includes the following major processing
units:
- 18,000 bpd Crude Distillation Unit
- 6,200 bpd Catalytic Cracking Unit
- 4,000 bpd Catalytic Reforming Unit
- 4,000 bpd Naphtha Hydrotreating Unit
- 3,000 bpd Distillate Hydrotreating Unit
- 2,000 bpd Catalytic Polymerization Unit
Also included in the purchase is approximately 25 miles
of pipeline connecting the Refinery to the Texas-New Mexico
and Four Corners common carrier pipeline systems and various
automobiles and small trucks.
The Refinery has been and will continue to be used to
process primarily locally acquired crude oil into refined
products which are distributed principally in Southern Utah,
Southern Colorado, Northwestern New Mexico and Northeastern
Arizona.
The purchase was funded with approximately $32.5 million
of cash on hand and $30.0 million provided under a three-year
unsecured revolving term facility evidenced by a Credit
Agreement (the "Agreement") with Bank of America Illinois and
Bank of America National Trust and Savings Association, as
Agent. In addition, the Agreement contains a three-year
unsecured working capital facility to provide working capital
and letters of credit in the ordinary course of business. The
availability of funds under this working capital facility will
be the lesser of (i) $40.0 million, or (ii) the amount under a
borrowing base as defined in the Agreement. Both credit
facilities have floating interest rates that are tied to
various short-term indices. The Agreement contains certain
covenants and restrictions which require Giant to, among other
things, maintain a minimum consolidated net worth; minimum
fixed charge coverage ratio; minimum funded debt to total
capitalization percentage; and places limits on investments,
prepayment of senior subordinated debt, guarantees, liens and
restricted payments.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
BLOOMFIELD REFINING COMPANY
CONDENSED BALANCE SHEET
JUNE 30, 1995
ASSETS
JUNE 30,
1995
-----------
(UNAUDITED)
CURRENT ASSETS
Cash and temporary investments $ 5,004,313
Accounts receivable - affiliates 8,119,859
Accounts receivable 452,296
Inventories 8,955,818
Prepaid crude oil - affiliate 6,017,091
Prepaid expenses and other 990,457
-----------
Total current assets 29,539,834
-----------
PROPERTY, PLANT AND EQUIPMENT
Refinery property, plant and equipment 23,296,346
Gas plants, property and equipment 5,124,801
Less: Accumulated depreciation (7,410,590)
-----------
21,010,557
Construction in progress 277,979
-----------
Total property, plant and equipment 21,288,536
-----------
Other 281,783
-----------
TOTAL ASSETS $51,110,153
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $12,200,562
Accounts payable 296,331
Accrued liabilities 2,144,797
Income taxes payable - affiliate 863,000
-----------
Total current liabilities 15,504,690
-----------
NON-CURRENT LIABILITIES
Deferred income taxes, net 1,216,700
Accrued turnaround costs 2,525,447
Other 115,941
-----------
Total non-current liabilities 3,858,088
-----------
Commitments and contingencies (Note 3)
SHAREHOLDER'S EQUITY
Common stock, .01 par value: 1,000 voting shares
authorized, issued and outstanding 10
Contributed capital 3,200,090
Retained earnings 28,547,275
-----------
Total shareholder's equity 31,747,375
-----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $51,110,153
===========
The accompanying notes to financial statements are an integral part of these
statements.
BLOOMFIELD REFINING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
----------- -----------
Operating revenues $69,613,751 $65,637,591
Operating expenses 58,315,363 52,494,058
----------- -----------
Gross margin 11,298,388 13,143,533
General and administrative expenses 3,552,587 3,465,778
----------- -----------
Operating income 7,745,801 9,677,755
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 142,617 153,994
Interest expense (134,757) (138,756)
Other 96,829 56,947
----------- -----------
104,689 72,185
----------- -----------
Income before income taxes 7,850,490 9,749,940
INCOME TAX EXPENSE
Current (3,020,000) (3,722,000)
Deferred (32,200) (107,900)
----------- -----------
(3,052,200) (3,829,900)
----------- -----------
NET INCOME $ 4,798,290 $ 5,920,040
=========== ===========
NET INCOME PER COMMON SHARE $ 4,798.29 $ 5,920.04
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,000 1,000
=========== ===========
STATEMENTS OF RETAINED EARNINGS
Balance at January 1 $27,138,322 $23,854,523
Net income 4,798,290 5,920,040
Dividends ($3,389.34 per share in 1995
and $1,200.00 per share in 1994) (3,389,337) (1,200,000)
----------- -----------
Balance at June 30 $28,547,275 $28,574,563
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
BLOOMFIELD REFINING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
----------- -----------
Cash flows from operating activities:
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 4,798,290 $ 5,920,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 859,671 851,908
Accrued turnaround costs 571,776 571,776
Changes in assets and liabilities (5,795,054) (5,301,705)
----------- -----------
Net cash provided by operating activities $ 434,683 $ 2,042,019
=========== ===========
Cash flows used in investing activities:
Capital expenditures - refinery (151,487) (946,759)
Capital expenditures - gas plants (269,147) (30,929)
----------- -----------
Net cash used in investing activities (420,634) (977,688)
----------- -----------
Cash flows used in financing activities:
Principal payments on debt (2,875,000)
Dividends distributed (3,389,337) (1,200,000)
----------- -----------
Net cash used in financing activities (3,389,337) (4,075,000)
----------- -----------
Net decrease in cash and temporary investments (3,375,288) (3,010,669)
Cash and temporary investments at beginning of period 8,379,601 9,501,500
----------- -----------
Cash and temporary investments at end of period $ 5,004,313 $ 6,490,831
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
BLOOMFIELD REFINING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
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 the Management of Bloomfield
Refining Company, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included
and are of a normal recurring nature. Operating results for the
six months ended June 30, 1995 are not necessarily indicative of
the results that may be expected for the year ending December 31,
1995. The enclosed financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company's December 31, 1994 annual financial
statements.
(2) INVENTORIES
-----------
Inventories are valued at the lower of first-in, first-out
cost or market. Inventories at June 30, 1995 are as follows:
June 30,
1995
----------
Refined, unrefined and intermediate products $5,314,051
Crude oil 2,792,252
Materials and supplies 849,515
----------
$8,955,818
==========
(3) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is subject to certain environmental and other
regulations primarily administered by the United States Environmental
Protection Agency (E.P.A.) and various state agencies. Management of
the Company believes it has complied with all material aspects
associated with these regulations. The Company entered into an
administrative order with the E.P.A. to perform a study to assess the
nature of any environmental cleanup requirements at the refinery which
was substantially completed in 1994. Management is currently
evaluating the E.P.A.'s response and is uncertain as to what, if any,
additional costs may be required.
The Company and its parent are members of a consolidated tax group
which files a consolidated income tax return. The Internal Revenue
Service concluded a field audit of the consolidated tax group's income
tax return for the fiscal year 1990 resulting in a "Notice of
Deficiency" for that fiscal year. Proposed adjustments to income and
tax credits resulted in a proposed tax deficiency of approximately
$4,800,000 plus penalties. The Company's parent filed a petition with
the United States Tax Court contesting the notice and believes that it
has meritorious legal defenses to the proposed tax deficiency, but the
ultimate outcome of the Tax Court case is uncertain.
The Company is subject to various claims and business disputes in
the ordinary course of business. Management does not anticipate that
the ultimate outcome of these issues will have a material impact on the
Company's financial position or results of operations.
An affiliate of the Company entered into a ten year lease
agreement for office space in November 1989. The Company has
guaranteed the performance of the affiliate's obligations. Terms of
the lease provided for annual rent of $553,000 in 1994 and escalating
to $796,000 in years six through ten. In addition to the rent, the
Company has guaranteed the annual payment of $328,000 in occupancy
costs with provisions for escalation based on actual expenses.
Currently, the affiliate of the Company is subleasing certain office
space to a third party and a related party.
(4) SUBSEQUENT EVENT
----------------
Effective October 4, 1995, the Company sold to a third party
substantially all of its refining assets for $55,000,000 and
potential contingent payments to be made over approximately the
next six years should certain criteria be met. In addition,
related refinery inventories were sold for approximately
$7,500,000.
ARTHUR ANDERSEN LLP
BLOOMFIELD REFINING COMPANY
FINANCIAL STATEMENTS
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
AS OF DECEMBER 31, 1994, 1993 AND 1992
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Bloomfield Refining Company:
We have audited the accompanying balance sheets of Bloomfield
Refining Company (a Delaware corporation) as of December 31,
1994 and 1993, and the related statements of operations,
retained earnings 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 financial statements referred to above
present fairly, in all material respects, the financial
position of Bloomfield Refining Company as of December 31,
1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
October 13, 1995.
BLOOMFIELD REFINING COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
1994 1993
----------- -----------
CURRENT ASSETS
Cash and temporary investments $ 8,379,601 $10,800,111
Accounts receivable - affiliates 6,008,872 5,646,661
Accounts receivable 257,820 35,783
Inventories 7,887,826 6,046,026
Prepaid crude oil - affiliate 2,312,338 819,868
Prepaid expenses and other 584,495 879,839
Deferred tax asset --- 291,500
----------- -----------
Total current assets 25,430,952 24,519,788
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Refinery property, plant and equipment 23,165,353 22,177,094
Gas plants, property and equipment 4,855,654 4,652,324
Less: Accumulated depreciation (6,550,919) (4,854,519)
----------- -----------
21,470,088 21,974,899
Construction in progress 147,712 409,970
----------- -----------
Total property, plant and equipment 21,617,800 22,384,869
----------- -----------
Other 289,005 240,720
----------- -----------
TOTAL ASSETS $47,337,757 $47,145,377
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $10,853,802 $ 8,513,020
Accounts payable 649,983 935,698
Current portion of long-term debt --- 2,875,000
Accrued liabilities 2,227,067 2,558,658
Income taxes payable - affiliate --- 2,496,600
----------- -----------
Total current liabilities 13,730,852 17,378,976
----------- -----------
NON-CURRENT LIABILITIES
Deferred income taxes, net 1,184,500 1,750,300
Accrued turnaround costs 1,953,671 810,119
Other 130,312 151,359
----------- -----------
Total non-current liabilities 3,268,483 2,711,778
----------- -----------
Commitments and contingencies (Note 9)
SHAREHOLDER'S EQUITY
Common stock, .01 par value; 1,000
voting shares authorized, issued and
outstanding 10 10
Contributed capital 3,200,090 3,200,090
Retained earnings 27,138,322 23,854,523
----------- -----------
Total shareholder's equity 30,338,422 27,054,623
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $47,337,757 $47,145,377
=========== ===========
The accompanying notes to financial statements are an integral part of
these balance sheets.
BLOOMFIELD REFINING COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
------------ ------------ ------------
Operating revenues $141,701,590 $148,822,139 $143,974,427
Operating expenses 114,999,480 118,026,762 124,573,250
------------ ------------ ------------
Gross margin 26,702,110 30,795,377 19,401,177
General and administrative expenses 7,529,972 8,470,542 8,542,979
------------ ------------ ------------
Operating income 19,172,138 22,324,835 10,858,198
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of assets 8,568 (8,503) 1,495,553
Interest income 375,022 259,062 272,471
Interest expense (265,862) (357,446) (753,046)
Other 268,858 15,839 89,671
------------ ------------ ------------
386,586 (91,048) 1,104,649
------------ ------------ ------------
Income before income taxes 19,558,724 22,233,787 11,962,847
INCOME TAX EXPENSE (NOTE 4)
Current (7,396,500) (7,635,100) (4,993,000)
Deferred (248,800) (1,220,800) ---
------------ ------------ ------------
(7,645,300) (8,855,900) (4,993,000)
------------ ------------ ------------
NET INCOME $ 11,913,424 $ 13,377,887 $ 6,969,847
============ ============ ============
NET INCOME PER COMMON SHARE $ 11,913.42 $ 13,377.88 $ 6,969.85
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,000 1,000 1,000
============ ============ ============
STATEMENTS OF RETAINED EARNINGS
Balance at January 1 $ 23,854,523 $ 16,077,577 $ 11,367,632
Net income 11,913,424 13,377,887 6,969,847
Dividends ($8,629.63, $5,600.94 and
$2,230.57 per share in 1994, 1993
and 1992, respectively) (8,629,625) (5,600,941) (2,230,572)
Excess of additional pension liability
over unrecognized prior service cost --- --- (29,330)
------------ ------------ ------------
Balance at December 31 $ 27,138,322 $ 23,854,523 $ 16,077,577
============ ============ ============
The accompanying notes to financial statements are an integral part of these
statements.
BLOOMFIELD REFINING COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993
1992
------------- -------------
- -------------
Cash flows from operating activities:
Cash received from customers $ 141,129,762 $ 148,745,079 $
143,704,941
Cash paid to suppliers and employees (120,708,328) (120,947,666)
(130,035,607)
Cash outlay for turnaround --- (3,202,273)
(3,522)
Interest received 382,751 263,429
264,519
Interest paid (266,117) (359,739)
(806,318)
Income taxes (10,416,200) (6,260,500)
(5,062,500)
Other 266,933 7,703
135,602
------------- -------------
- -------------
Net cash provided by operating activities 10,388,801 18,246,033
8,197,115
------------- -------------
- -------------
Cash flows from investing activities:
Capital expenditures - refinery (1,276,862) (8,744,591)
(743,730)
Acquisition of gas plants interests (Note 1) --- ---
(2,544,653)
Capital expenditures - gas plants (29,574) (528,826)
(88,426)
Proceeds from sale of assets 1,750 29,657
3,308,618
------------- -------------
- -------------
Net cash used in investing activities (1,304,686) (9,243,760)
(68,191)
------------- -------------
- -------------
Cash flows from financing activities:
Borrowings under revolving credit agreement --- 3,000,000
---
Principal payments on debt (2,875,000) (2,892,496)
(5,376,267)
Dividends distributed (8,629,625) (5,600,941)
(2,230,572)
------------- -------------
- -------------
Net cash used in financing activities (11,504,625) (5,493,437)
(7,606,839)
------------- -------------
- -------------
Net (decrease) increase in cash and temporary investments (2,420,510) 3,508,836
522,085
Cash and temporary investments at beginning of year 10,800,111 7,291,275
6,769,190
------------- -------------
- -------------
Cash and temporary investments at end of year $ 8,379,601 $ 10,800,111 $
7,291,275
============= =============
=============
The accompanying notes to financial statements are an integral part of these
statements.
BLOOMFIELD REFINING COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993
1992
----------- -----------
- -----------
Reconciliation of net income to net cash provided
by operating activities:
Net income $11,913,424 $13,377,887 $
6,969,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,739,979 1,370,415
1,288,601
Accrued turnaround costs 1,143,552 1,014,887
883,716
(Gain) loss on sale of assets (8,568) 8,503
(1,495,553)
Changes in assets and liabilities:
Increase in accounts receivable (584,248) (150,662)
(873,550)
(Increase) decrease in inventories (1,841,800) 1,815,826
37,323
(Increase) decrease in prepaid expenses and other (1,370,882) 462,695
461,337
Decrease (increase) in deferred tax asset 291,500 (291,500)
- ---
(Increase) decrease in other assets (48,285) ---
387,561
Increase (decrease) in accounts payable 2,569,167 (787,383)
(13,964)
(Decrease) increase in accrued liabilities (331,591) 1,356,798
242,090
(Decrease) increase in income taxes payable - affiliate (2,496,600) 1,374,600
(69,500)
(Decrease) increase in accrued turnaround costs --- (2,809,000)
301,775
(Decrease) increase in other liabilities (21,047) (9,333)
77,432
(Decrease) increase in deferred income taxes (565,800) 1,512,300
- ---
----------- -----------
- -----------
Net cash provided by operating activities $10,388,801 $18,246,033 $
8,197,115
=========== ===========
===========
The accompanying notes to financial statements are an integral part of these
statements.
BLOOMFIELD REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) BACKGROUND AND ORGANIZATION
---------------------------
Organization
- ------------
On August 31, 1994, Bloomfield Refining Company, a Delaware
corporation (the Company), was incorporated. The Company's primary
activities are the refining of petroleum products and gas plant
operations. The Company is a wholly-owned subsidiary of
Gary-Williams Energy Corporation (GWEC). The Company operates a
refinery in Bloomfield, New Mexico with a throughput capacity of
17,000 barrels per day and has ownership interests in two gas
plants located in Utah.
During 1992, the Company acquired additional interests in
a gas plant located in Utah for approximately $2,500,000. Also
during 1992, the Company sold all rights, title and interest in
a gas plant gathering system, an extraction plant, and certain
related equipment and appurtenances located in Colorado to
third parties, resulting in a gain on sale of gas plant assets
of $1,495,553.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Cash and Temporary Investments
- ------------------------------
For purposes of these statements, the Company considers
investments purchased with an original maturity of three months or
less to be cash or temporary investments. Temporary investments
consist primarily of certificates of deposit and commercial paper.
These securities are classified as held to maturity investments as
defined by Statement of Financial Accounting Standards No. 115. At
December 31, 1994 and 1993, these securities are recorded at a
market value of $7,663,000 and $8,520,000, respectively. Realized
gains and losses from sales of these securities are included in
interest income in the accompanying statements of operations. The
net unrealized gain or loss on these securities was not material as
of December 31, 1994 and 1993.
Inventories
- -----------
Inventories are valued at the lower of first-in, first-out
cost or market. Inventories at December 31, 1994 and 1993, are as
follows:
December 31, December 31,
1994 1993
----------- -----------
Refined, unrefined and intermediate products $4,181,728 $3,692,757
Crude oil 2,811,004 1,432,350
Materials and supplies 895,094 920,919
---------- ----------
$7,887,826 $6,046,026
========== ==========
Property, Plant and Equipment
- -----------------------------
The initial purchase and additions to property, plant and
equipment are recorded at cost. Depreciation is provided using the
straight-line method based on estimated useful lives ranging from 2
to 35 years, with an average initial life of approximately 19
years.
Ownership interests in gas plants are recorded at cost and
proportionately consolidated for financial statement purposes.
Depreciation is provided using the straight-line method with
estimated useful lives ranging from 5 to 10 years, with an average
initial life of approximately 7 years.
General and Administrative Expenses
- -----------------------------------
The Company reimbursed GWEC $5,146,145, $4,999,212 and
$5,395,703 for general and administrative services relating to
the supply and marketing of raw materials and refined products
and gas plant operations in 1994, 1993 and 1992, respectively.
Accrued Turnaround Costs
- ------------------------
Major repair and maintenance expenses (turnaround costs) are
accrued and charged to current operations in anticipation of the
work to be performed in future periods to renew the related
refinery assets. Accrued turnaround costs are classified as either
current or non-current liabilities based upon the scheduling of
major expenditures.
Capitalized Interest
- --------------------
The Company capitalizes interest on debt associated with the
financing of capital construction projects. During 1993 interest
of $109,480 was capitalized to property, plant and equipment. No
such interest was capitalized during 1994 or 1992.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified for
consistency with the current year presentation.
(3) LONG-TERM DEBT
--------------
The Company has a revolving credit facility, as amended, with
a group of banks under which it may borrow up to $8,000,000 in cash
and/or issue letters of credit which in the aggregate cannot exceed
the lesser of $35,000,000 or the borrowing base. The borrowing
base, which consists principally of accounts receivable, inventory,
exchange balances and unused outstanding letters of credit was
approximately $21,000,000 and $18,000,000 as of December 31, 1994
and 1993. The Company had no amounts outstanding under the
revolving credit facility, however, letters of credit totaling
approximately $20,000,000 and $14,000,000 had been issued as of
December 31, 1994 and 1993. Borrowings under the revolving credit
facility bear interest at a rate based on the bank's prime rate.
The credit facility is secured by substantially all of the
assets of the Company and, among other things, requires the
maintenance of certain financial covenants and ratios. The
revolving credit facility matures June 1, 1996; however, the credit
agreement provides for extensions of the maturity date.
The Company borrowed $3,000,000 in 1993 for capital projects
at the Bloomfield refinery pursuant to an amendment to the credit
agreement. Interest was based on the bank's prime rate or
alternatively, interest rates could be fixed for 30, 60 or 90 day
periods on portions of the term loan at a floating Eurocurrency
rate. At December 31, 1993, the weighted average interest rate
being paid was approximately 6.2%. The entire balance was paid
during 1994.
(4) INCOME TAXES
------------
The Company and GWEC are members of a consolidated tax group
which files a consolidated federal income tax return. An agreement
was entered into between the Company and GWEC whereby the Company
determines, on a stand alone basis, the tax liability or benefit as
if it were not a member of the tax group. The Company then
reimburses GWEC for its current income tax liability on a quarterly
basis. Deferred income taxes are paid to GWEC periodically. The
Company is entitled to be reimbursed by GWEC for its income tax
benefit when the Company could otherwise have utilized such benefit
on a stand alone basis.
Effective January 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", (SFAS 109). SFAS 109 requires that deferred
income taxes be recognized for the differences between the tax and
financial reporting bases of assets and liabilities at each year-
end based on enacted tax laws and statutory tax rates. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The adoption of SFAS
109 had no material impact on the Company's financial position or
results of operations for the year ended December 31, 1993.
The net deferred tax liability consists of the following:
December 31, December 31,
1994 1993
------------ ------------
Gross deferred tax assets:
Turnaround expenses $ 760,000 $ 315,100
Inventory costs capitalized for tax and other 182,100 150,700
Other 148,600 140,800
----------- -----------
1,090,700 606,600
Gross deferred tax liabilities:
Accelerated tax depreciation (2,798,300) (2,065,400)
----------- -----------
(1,707,600) (1,458,800)
Payments to affiliate 523,100
Valuation allowance
----------- -----------
Net deferred tax liability $(1,184,500) $(1,458,800)
=========== ===========
The difference between the statutory federal income tax rate
and the Company's effective income tax rate is summarized as follows:
Year Ended December 31,
-------------------------------
1994 1993 1992
---- ---- ----
Federal income tax rate 34% 34% 34%
State income taxes 5% 6% 6%
Other 2%
---- ---- ----
39% 40% 42%
==== ==== ====
In management's opinion, it is more likely than not that the
gross deferred tax assets will be realized based on past earnings
history.
Tax Deficiency
- --------------
The Internal Revenue Service concluded a field audit of the
consolidated tax group's income tax return for the fiscal year 1990
resulting in a "Notice of Deficiency" for that fiscal year.
Proposed adjustments to income and tax credits resulted in a
proposed tax deficiency of approximately $4,800,000 plus penalties.
The Company filed a petition with the United States Tax Court
contesting the notice and believes that it has meritorious legal
defenses to the proposed tax deficiency, but the ultimate outcome
of the Tax Court case is uncertain.
(5) OPERATING REVENUES AND EXPENSES BY SEGMENTS
--------------------------------------------
The following segment information reflects operating revenues,
operating expenses and gross margins for the years ended December
31, 1994 and 1993.
Refining Gas Plants Total
------------ ---------- ------------
December 31, 1994
------------------------------------------
Operating Revenues $139,073,511 $2,628,079 $141,701,590
Operating Expenses 112,824,818 2,174,662 114,999,480
------------ ---------- ------------
Gross Margin $ 26,248,693 $ 453,417 $ 26,702,110
============ ========== ============
December 31, 1993
------------------------------------------
Operating Revenues $145,878,017 $2,944,122 $148,822,139
Operating Expenses 115,829,494 2,197,268 118,026,762
------------ ---------- ------------
Gross Margin $ 30,048,523 $ 746,854 $ 30,795,377
============ ========== ============
December 31, 1992
------------------------------------------
Operating Revenues $140,088,307 $3,886,120 $143,974,427
Operating Expenses 122,005,814 2,567,436 124,573,250
------------ ---------- ------------
Gross Margin $ 18,082,493 $1,318,684 $ 19,401,177
============ ========== ============
(6) RELATED PARTY TRANSACTIONS
--------------------------
A supply and marketing service agreement was entered into
between the Company and GWEC, whereby GWEC purchases crude oil and
other raw materials for resale to the Company, at cost, for
processing at the refinery. The intercompany purchases of raw
materials include all amounts accrued and owing by GWEC to third
parties, including prepayments and offsite inventory and represent
substantially all raw material purchases made by the Company. Also,
the Company sells substantially all of its refined petroleum
products to GWEC, at market, for resale by GWEC.
The Company has guaranteed the payment by GWEC of an aggregate
maximum at any one time of $2,000,000 of present and/or future
indebtedness owed to a third party crude oil supplier.
(7) EMPLOYEE BENEFIT PLANS
----------------------
The Company has a profit sharing plan (defined contribution
plan) covering certain non-union employees who meet eligibility
requirements as to age and length of service. Contributions to the
plan are determined annually by the Company. Contributions of
$187,357, $173,139 and $169,002 were accrued for the years ended
December 31, 1994, 1993 and 1992, respectively.
The Company also has a defined benefit pension plan for union
employees. The Company's funding policy is to contribute annually
an amount to fund normal cost and amortize unfunded actuarial
liabilities over 19 years. Plan assets at December 31, 1994 and
1993 consist primarily of private and public debt and equity
investments.
In 1993 and 1992, benefits were based on a percentage of the
employee's earnings, as defined, as of June 1, 1990, and years of
credited service up to a maximum of 30 years. In 1994, the plan
was amended to base benefits on a percentage of the employee's
earnings as of June 1, 1993.
The following table sets forth the funded status and amounts
recognized in the Company's statements of financial position and
operations at December 31, 1994, 1993 and 1992, for the defined
benefit pension plan:
1994 1993 1992
--------- --------- ---------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $417,559, $406,405 and $364,702
at December 31, 1994, 1993 and 1992, respectively $(433,264) $(424,162)
$(377,359)
========= ========= =========
Projected benefit obligation for service rendered to date $(433,264) $(424,162)
$(377,359)
Plan assets at fair value 302,952 272,803 216,667
--------- --------- ---------
Projected benefit obligation in excess of plan assets (130,312) (151,359)
(160,692)
Unrecognized net obligation existing at January 1, 1989
being recognized over 19 years 8,926 9,590 10,255
Prior service cost not yet recognized 77,483 14,091 14,951
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 70,391 160,797 176,517
Adjustment to recognize minimum liability (156,800) (184,478)
(201,723)
--------- --------- ---------
Accrued pension liability included in other liabilities $(130,312) $(151,359)
$(160,692)
========= ========= =========
Net pension cost includes the following components:
Service cost $ 55,079 $ 49,580 $ 35,988
Interest cost 29,266 23,202 18,060
Actual return on plan assets 6,557 (31,641)
(18,597)
Net amortization and deferral of other components (19,922) 20,237 6,712
--------- --------- ---------
Net periodic pension cost $ 70,980 $ 61,378 $ 42,163
========= ========= =========
The discount rate used in determining the actuarial present value
of the projected benefit obligation was 7.0% for 1994, 6.0% for 1993,
and 5.75% for 1992. The expected long-term rate of return on pension
plan assets was 8.0% in 1994 and 1993 and 9% in 1992.
(8) MAJOR CUSTOMER
---------------
During the years ended December 31, 1994, 1993 and 1992, the
Company sold 100% of the refined products to GWEC. Also, during that
period, the Company purchased 100% of the crude oil and raw materials
from GWEC.
(9) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is subject to certain environmental and other
regulations primarily administered by the United States Environmental
Protection Agency (E.P.A.) and various state agencies. Management of
the Company believes it has complied with all material aspects
associated with these regulations. The Company entered into an
administrative order with the E.P.A. to perform a study to assess the
nature of any environmental cleanup requirements at the refinery which
was substantially completed in 1994. Management is currently
evaluating the E.P.A.'s response and is uncertain as to what, if any,
additional costs may be required.
The Company is subject to various claims and business disputes in
the ordinary course of business. Management does not anticipate that
the ultimate outcome of these issues will have a material impact on the
Company's financial position or results of operations.
An affiliate of the Company entered into a ten year lease
agreement for office space in November 1989. The Company has
guaranteed the performance of the affiliate's obligations. Terms of
the lease provided for annual rent of $553,000 in 1994 and escalating
to $796,000 in years six through ten. In addition to the rent, the
Company has guaranteed the annual payment of $318,000 in occupancy
costs with provisions for escalation based on actual expenses.
Currently, the affiliate of the Company is subleasing certain office
space to a third party and a related party.
(10) SUBSEQUENT EVENT
----------------
Effective October 4, 1995, the Company sold to a third party
substantially all of its refining assets for $55,000,000 and
potential contingent payments to be made over approximately the
next six years should certain criteria be met. In addition,
related refinery inventories were sold for approximately
$7,500,000.
(b) Pro Forma Financial Information
On October 4, 1995, Giant Industries Arizona, Inc. and
San Juan Refining Company (collectively "the Company"), each a
direct or indirect wholly-owned subsidiary of Giant Industries,
Inc. ("Giant"), completed the purchase of the Bloomfield
Refinery ("the Refinery") along with related pipeline and
transportation assets from Gary-Williams Energy Co. and its
wholly-owned subsidiary Bloomfield Refining Company ("BRC").
The historical financial statements of BRC include the
assets and results of operations of two gas plants not
included in the purchase and exclude the assets of the
Refinery pipeline and transportation operations which were
acquired. The pre-tax operating results of the pipeline and
transportation operations are included in BRC's historical
cost of products sold line item in the Unaudited Pro Forma
Combined Condensed Statements of Earnings.
For purposes of presenting the Unaudited Pro Forma Combined
Condensed Balance Sheet, only the historical Balance Sheet of Giant
is presented since only property, plant
and equipment and inventories of BRC were purchased.
The fiscal year for both companies ends on December 31. For
purposes of presenting the Unaudited Pro Forma Combined Condensed
Statements of Earnings, the results of the full year ended December
31, 1994, and for the six months ended June 30, 1995 for both
companies are included in the respective Pro Forma statements.
The Unaudited Pro Forma Combined Condensed Balance Sheet assumes
the Purchase was consummated on June 30, 1995, and the Unaudited Pro
Forma Combined Condensed Statements of Earnings assume the Purchase
was consummated January 1, 1994.
The unaudited pro forma combined financial information does not
purport to represent the results of operations that actually would
have resulted had the purchase occurred on January 1, 1994, nor
should it be taken as indicative of the future results of operations.
The unaudited pro forma combined financial information should be read
in conjunction with the Notes to Unaudited Pro Forma Combined
Financial Information and the separate financial statements and notes
thereto of Giant and BRC.
On October 2, 1995, Giant announced the temporary closure
of its ethanol processing plant. The plant is expected to be
closed until grain prices return to more favorable levels. Included
in Giant's historical numbers are ethanol plant third party revenues
of $12.7 million and operating losses of $1.4 million for the
year ended December 31, 1994, and third party revenues of $5.3 million
and operating earnings of $450,000 for the six months ended
June 30, 1995.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
HISTORICAL
---------- PRO FORMA PRO FORMA
GIANT ADJUSTMENTS COMBINED
---------- ----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 11,518 $ (7,101)<F1> $ 4,417
Marketable securities 26,039 (26,039)<F1>
Accounts receivable, net 17,804 17,804
Income tax refunds receivable 259 259
Inventories 34,089 7,500 <F1> 41,589
Prepaid expenses and other 2,344 2,344
Deferred income taxes 2,419 2,419
--------- -------- ---------
Total current assets 94,472 (25,640) 68,832
--------- -------- ---------
Property, plant and equipment 319,903 55,000 <F1> 374,903
Less accumulated depreciation,
depletion and amortization (151,113) (151,113)
--------- -------- ---------
168,790 55,000 223,790
--------- -------- ---------
Other assets 13,382 640 <F1> 14,022
--------- -------- ---------
$ 276,644 $ 30,000 $ 306,644
========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 4,133 $ $ 4,133
Accounts payable 19,745 19,745
Accrued expenses 16,791 16,791
--------- -------- ---------
Total current liabilities 40,669 40,669
--------- -------- ---------
Long-term debt, net of current portion 113,523 30,000 <F1> 143,523
Deferred income taxes 13,851 13,851
Other liabilities 3,462 3,462
Common stockholders' equity 105,139 105,139
--------- -------- ---------
$ 276,644 $ 30,000 $ 306,644
========= ======== =========
See accompanying notes to pro forma combined condensed financial
statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
HISTORICAL
----------------------- PRO FORMA PRO
FORMA
GIANT BRC ADJUSTMENTS
COMBINED
---------- ---------- --------------
- ----------
Net revenues $ 151,558 $ 69,614 $ (1,189)<F4> $
220,557
574 <F8>
Cost of products sold 104,627 58,316 (1,065)<F4>
154,798
(69)<F5>
(7,314)<F7>
303 <F8>
---------- ---------- --------
- ----------
Gross margin 46,931 11,298 7,530
65,759
---------- ---------- --------
- ----------
Operating expenses 25,476 6,756 <F7>
32,232
Depreciation, depletion and amortization 7,694 1,375 <F3>
9,069
(587)<F3>
587 <F7>
Selling, general and administrative expenses 6,207 3,552 (41)<F4>
7,518
(2,437)<F5>
250 <F6>
16 <F8>
(29)<F7>
---------- ---------- --------
- ----------
Operating income 7,554 7,746 1,640
16,940
Interest expense, net and other 4,173 (104) 1,200 <F1>
6,147
111 <F1>
663 <F2>
104 <F5>
---------- ---------- --------
- ----------
Earnings before income taxes 3,381 7,850 (438)
10,793
Provision for income taxes 1,082 3,052 (171)<F9>
3,963
---------- ---------- --------
- ----------
Net earnings $ 2,299 $ 4,798 $ (267) $
6,830
========== ========== ========
==========
Earnings per common share $ 0.20 $ 4,798.29 $
0.59
========== ==========
==========
Weighted average number of shares outstanding 11,662,510 1,000
11,662,510
========== ==========
==========
See accompanying notes to pro forma combined financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
HISTORICAL
----------------------- PRO FORMA PRO
FORMA
GIANT BRC ADJUSTMENTS
COMBINED
---------- ---------- --------------
- ----------
Net revenues $ 293,458 $ 141,702 $ (2,628)<F4> $
433,924
1,392 <F8>
Cost of products sold 193,359 115,000 (2,177)<F4>
292,834
(190)<F5>
(14,042)<F7>
884 <F8>
---------- ---------- --------
- ----------
Gross margin 100,099 26,702 14,289
141,090
---------- ---------- --------
- ----------
Operating expenses 53,884 12,932 <F7>
66,816
Depreciation, depletion and amortization 15,040 2,750 <F3>
17,790
(1,110)<F3>
1,110 <F7>
Selling, general and administrative expenses 11,930 7,530 (93)<F4>
14,495
(5,393)<F5>
500 <F6>
21 <F8>
Reduction of carrying value of crude oil and
natural gas properties 3,395
3,395
---------- ---------- --------
- ----------
Operating income 15,850 19,172 3,572
38,594
Interest expense, net and other 10,072 (387) 2,400 <F1>
14,021
223 <F1>
1,326 <F2>
387 <F5>
---------- ---------- --------
- ----------
Earnings before income taxes 5,778 19,559 (764)
24,573
Provision for income taxes 1,257 7,645 (298)<F9>
8,604
---------- ---------- --------
- ----------
Net earnings $ 4,521 $ 11,914 $ (466) $
15,969
========== ========== ========
==========
Earnings per common share $ 0.37 $11,913.42 $
1.32
========== ==========
==========
Weighted average number of shares outstanding 12,127,481 1,000
12,127,481
========== ==========
==========
See accompanying notes to pro forma combined financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET AND STATEMENTS OF EARNINGS
The Unaudited Pro Forma Combined Condensed Balance Sheet was
prepared as if the purchase took place on June 30, 1995.
The Unaudited Pro Forma Combined Condensed Statements of Earnings
were prepared as if the purchase took place on January 1, 1994.
The following is a summary of reclassifications and adjustments
reflected in the Unaudited Pro Forma Combined Condensed Balance Sheet
and Statements of Earnings:
<F1> Represents the purchase of the Refinery, pipeline and
transportation assets along with the associated inventories
for cash and the issuance of long-term debt to partially
finance the purchase. The Statements of Earnings reflect the
increase in interest expense based on the issuance of
long-term debt at an assumed interest rate of 8%. Debt
issuance costs of approximately $640,000 are amortized to
interest expense over three years, the term of the Loan.
It is assumed that all debt was issued on January 1, 1994
and was outstanding through June 30, 1995.
<F2> Represents the reduction in interest income due to a decrease
in cash available for investment.
<F3> Represents Giant's depreciation expense due to the purchase
and reverses BRC depreciation expense included in the
historical amounts.
<F4> Represents the elimination of the Gas Plant operations not
purchased, but included in the historical amounts.
<F5> Represents the elimination of certain GWEC general and
administrative expenses allocated to BRC and other income
(expense), included in the historical amounts, which will not
be duplicated subsequent to the purchase.
<F6> Represents the estimated increase in Giant's general and
administrative costs due to the purchase.
<F7> Represents the reclassification of BRC operating expenses
to conform to Giant's presentation.
<F8> Represents the reclassification of pipeline and
transportation pre-tax operating results, after the
elimination of intercompany transactions.
<F9> Represents the tax effect of the Statements of Earnings
adjustments based upon the statutory rate in effect for the
periods shown.
(c) Exhibits
2.1 Purchase and Sale Agreement, dated August 8, 1995,
among Bloomfield Refining Company and Gary-Williams
Energy Corporation, as Sellers, and Giant Industries
Arizona, Inc., as Buyer.
2.2 First Amendment, dated September 29, 1995, to Purchase
and Sale Agreement, dated August 8, 1995, among
Bloomfield Refining Company and Gary-Williams Energy
Corporation, as Sellers, and Giant Industries Arizona,
Inc. as Buyer.
2.3 Second Amendment, dated October 2, 1995, to Purchase
and Sale Agreement, dated August 8, 1995, among
Bloomfield Refining Company and Gary-Williams Energy
Corporation, as Sellers, and Giant Industries Arizona,
Inc. as Buyer.
4.1 Credit Agreement, dated October 4, 1995, among
Giant Industries, Inc., as Borrower, Giant Industries
Arizona, Inc., Ciniza Production Company, San Juan
Refining Company, Giant Exploration & Production
Company and Giant Four Corners, Inc., as Guarantors
and Bank of America National Trust and Savings
Association, as Agent, Bank of America Illinois, as a
Bank and as Letter of Credit Issuing Bank and the
Other Financial Institutions Parties hereto.
23.1 Consent of Arthur Andersen LLP to incorporate reports
in previously filed Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
GIANT INDUSTRIES, INC.
/s/ A. WAYNE DAVENPORT
-----------------------------
A. Wayne Davenport
Vice President and Chief
Financial Officer
(Principal Accounting Officer)
Date: October 18, 1995