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, 1997 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, 1997 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, 1997: 11,094,367 shares. GIANT INDUSTRIES, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets March 31, 1997 (Unaudited) and December 31, 1996 Condensed Consolidated Statements of Earnings (Unaudited) Three Months Ended March 31, 1997 and 1996 Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1997 and 1996 Notes to Condensed Consolidated Financial Statements (Unaudited) 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 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, 1997 December 31, 1996 -------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,881 $ 12,628 Accounts receivable, net 30,579 30,764 Inventories 45,414 38,226 Prepaid expenses and other 2,391 3,252 Deferred income taxes 1,636 1,636 --------- --------- Total current assets 83,901 86,506 --------- --------- Property, plant and equipment 326,526 322,260 Less accumulated depreciation and amortization (111,837) (108,715) --------- --------- 214,689 213,545 --------- --------- Other assets 22,816 23,956 --------- --------- $ 321,406 $ 324,007 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 457 $ 1,439 Accounts payable 32,773 35,754 Accrued expenses 21,601 27,772 --------- --------- Total current liabilities 54,831 64,965 --------- --------- Long-term debt, net of current portion 119,978 113,081 Deferred income taxes 19,132 19,042 Other liabilities 4,772 4,795 Common stockholders' equity 122,693 122,124 --------- --------- $ 321,406 $ 324,007 ========= ========= 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, ------------------------------ 1997 1996 ----------- ----------- Net revenues $ 116,138 $ 104,100 Cost of products sold 86,588 73,960 ----------- ----------- Gross margin 29,550 30,140 Operating expenses 15,822 15,408 Depreciation and amortization 5,005 4,096 Selling, general and administrative expenses 4,448 3,595 ----------- ----------- Operating income 4,275 7,041 Interest expense, net 2,468 3,366 ----------- ----------- Earnings from continuing operations before income taxes 1,807 3,675 Provision for income taxes 683 1,350 ----------- ----------- Earnings from continuing operations 1,124 2,325 Earnings from discontinued operations, net 79 ----------- ----------- Net earnings $ 1,124 $ 2,404 =========== =========== Earnings per common share: Continuing operations $ 0.10 $ 0.21 Discontinued operations - - ----------- ----------- Net earnings $ 0.10 $ 0.21 =========== =========== Weighted average number of shares outstanding 11,097,867 11,251,386 =========== =========== 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, -------------------- 1997 1996 -------- -------- Cash flows from continuing operating activities: Net earnings $ 1,124 $ 2,404 Adjustments to reconcile net earnings to net cash used by continuing operating activities: Earnings from discontinued operations (79) Depreciation and amortization 5,005 4,096 Deferred income taxes 91 341 Restricted stock award compensation 38 Decrease in other non-current liabilities (23) (127) Other 192 (89) Changes in operating assets and liabilities: Decrease (increase) in receivables 810 (1,847) Increase in inventories (7,188) (7,868) Decrease (increase) in prepaid expenses and other 861 (1,887) (Decrease) increase in accounts payable (2,981) 1,336 Increase in accrued expenses 739 1,760 -------- -------- Net cash used by continuing operating activities (1,370) (1,922) -------- -------- Cash flows from investing activities: Refinery acquisition contingent payment (6,910) (1,198) Purchases of property, plant and equipment and other assets (5,886) (4,920) Proceeds from sale of property, plant and equipment 62 2,389 Net change in assets of discontinued operations (2) -------- -------- Net cash used by investing activities (12,734) (3,731) -------- -------- Cash flows from financing activities: Proceeds of long-term debt 17,000 Payments of long-term debt (11,085) (2,872) Payment of dividends (558) (594) Proceeds from exercise of stock options 40 -------- -------- Net cash provided (used) by financing activities 5,357 (3,426) -------- -------- Net decrease in cash and cash equivalents (8,747) (9,079) Cash and cash equivalents: Beginning of period 12,628 9,549 -------- -------- End of period $ 3,881 $ 470 ======== ======== 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, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1 "Environmental Remediation Liabilities." The Company adopted this SOP in the first quarter of 1997. Based on a review of current environmental remediation activities, there is no current impact on the Company's financial position or results of operations. Certain reclassifications have been made to the 1996 financial statements to conform to the statement classifications used in 1997. NOTE 2 - INVENTORIES: March 31, 1997 December 31, 1996 -------------- ----------------- (In thousands) Inventories consist of the following: First-in, first-out ("FIFO") method: Crude oil $16,802 $10,443 Refined products 20,267 22,462 Refinery and shop supplies 7,408 7,439 Retail method: Merchandise 2,710 2,768 ------- ------- 47,187 43,112 Allowance for last-in, first-out ("LIFO") method (1,773) (4,886) ------- ------- $45,414 $38,226 ======= ======= NOTE 3 - 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. Separate financial statements of the subsidiaries are not 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 4 - CONTINGENCIES: The Company and certain subsidiaries are defendants to various legal actions. Certain of these pending legal actions involve or may involve claims for compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of these legal actions, proceedings or claims could be decided adversely. Although the amount of liability at March 31, 1997 with respect to these matters is not ascertainable, the Company believes that any resulting liability should not materially affect the Company's financial condition or results of operations. Federal, state and local laws and regulations relating to health and the environment affect nearly all of the operations of the Company. As is the case with all companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances due to the speculative nature of remediation and clean-up cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. The United States Environmental Protection Agency notified the Company in May 1991 that it may be a potentially responsible party for the release or threatened release of hazardous substances, pollutants, or contaminants at the Lee Acres Landfill ("Landfill"), which is owned by the United States Bureau of Land Management ("BLM") and which is adjacent to the Company's Farmington refinery. This refinery was operated until 1982. Although a final plan of action for the Landfill has not yet been adopted by the BLM, the BLM has developed a proposed plan of action, which it projects will cost approximately $3,900,000 to implement. This cost projection is based on certain assumptions which may or may not prove to be correct, and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, BLM is proposing to take additional remedial actions with an estimated cost of approximately $1,800,000. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though it was responsible for only a small part of such costs. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM's proposed plan. The Company has an environmental liability accrual of approximately $2,900,000. Approximately $900,000 relates to ongoing environmental projects, including the remediation of a hydrocarbon plume at the Company's Farmington refinery and hydrocarbon contamination on and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico. The remaining amount of approximately $2,000,000 relates to certain environmental obligations assumed in the acquisition of the Bloomfield refinery. The environmental accrual is recorded in the current and long-term sections of the Company's Consolidated Balance Sheet. The Company has received several tax notifications and assessments from the Navajo Tribe relating to crude oil and natural gas removed from properties located outside the boundaries of the Navajo Indian Reservation in an area of disputed jurisdiction, including a $1,800,000 severance tax assessment issued to Giant Arizona in November 1991. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with this assessment and intends to oppose the assessment. It is the Company's position that it is in substantial compliance with laws applicable to the disputed area and, therefore, has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. NOTE 5 - SUBSEQUENT EVENTS: On April 23, 1997, the Company announced the signing of an agreement to acquire, through lease and purchase, ninety-six retail service station/convenience stores from Thriftway Marketing Corp. of Farmington, New Mexico and related entities. In addition, seven locations under development, Thriftway's petroleum products transportation operation and certain other assets will be acquired. The stores, located in New Mexico, Arizona, Colorado and Utah are in or adjacent to the Company's primary market. A portion of the service station/convenience stores and the transportation operations will be purchased for $16.0 million at the closing. The remaining service station/convenience stores will be leased for 10 years and purchased pursuant to options to purchase during the 10 year period for an additional $23.0 million. The transaction, subject to due diligence and government approval, is scheduled to close on May 31, 1997. Funding of the purchase will come primarily from bank financing. The acquisition also includes an option to purchase additional units owned by Thriftway and related entities in New Mexico, Arizona, Wyoming, Texas and Montana. The Company is also entering into long-term supply arrangements with Thriftway to provide gasoline and diesel fuel to service stations in the area that will continue to be operated by Thriftway. On May 6, 1997, the Company announced the signing of an agreement to acquire 100% of the stock of Phoenix Fuel Co., Inc. Phoenix Fuel Co., Inc. is an independent industrial/commercial petroleum products distributor, headquartered in Phoenix, Arizona, that owns and operates seven bulk petroleum distribution plants, twenty cardlock locations and a lubricant storage and distribution terminal. These operations are located throughout the State of Arizona. In addition, Phoenix Fuel Co., Inc. owns and operates a fleet of finished product transports. This transaction is scheduled to close on June 2, 1997, subject to due diligence, government approval and satisfaction of the conditions to closing. Funding of the acquisition will come from bank financing. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES - ------------------------------------------------------- Earnings from continuing operations before income taxes were $1.8 million for the three months ended March 31, 1997, a decrease of approximately $1.9 million from $3.7 million for the three months ended March 31, 1996. The decrease is primarily the result of higher depreciation, administrative and operating costs in the 1997 quarter and ethanol inventory profits realized in the first quarter of 1996. REVENUES - -------- Revenues for the three months ended March 31, 1997, increased approximately $12.0 million or 12% to $116.1 million from $104.1 million in the comparable 1996 period. A 17% increase in refinery weighted average selling prices accounts for substantially all of the increase. Refinery finished product sales volumes were comparatively unchanged quarter to quarter. The volumes of refined products sold through the Company's retail units decreased approximately 3% from 1996 first quarter levels due to a 15% decline in volumes sold from the travel center. This decline results in part from competition from several new truck stops that have been constructed in the Company's market area in the past several years. Service station volumes were virtually unchanged quarter to quarter. COST OF PRODUCTS SOLD - --------------------- For the three months ended March 31, 1997, cost of products sold increased $12.6 million or 17% to $86.6 million from $74.0 million in the corresponding 1996 period. A 21% increase in average crude oil costs accounts for most of the increase. In addition, the liquidation of certain lower cost crude oil LIFO inventory layers in the first quarter of 1996 reduced 1996 cost of products sold by approximately $2.1 million. There were no similar liquidations in the 1997 first quarter. OPERATING EXPENSES - ------------------ For the three months ended March 31, 1997, operating expenses increased approximately $0.4 million or 3% to $15.8 million from $15.4 million in the three months ended March 31, 1996. The increase is primarily due to increases in payroll and related costs, higher refinery fuel costs and increased retail advertising costs. These increases were offset in part by a reduction in refinery contract labor expenditures. DEPRECIATION AND AMORTIZATION - ----------------------------- For the three months ended March 31, 1997, depreciation and amortization increased approximately $0.9 million or 22% to $5.0 million from $4.1 million in the same 1996 period. The increase is primarily related to 1996 acquisitions, construction, remodeling and upgrades in retail and refinery operations, along with the amortization of certain 1996 refinery unit turnaround costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- For the three months ended March 31, 1997, selling, general and administrative expenses increased approximately $0.9 million or 24% to $4.5 million from $3.6 million in the corresponding 1996 period. The increase is primarily the result of higher payroll and related costs, due in part to planning for and in anticipation of future growth, and employee profit sharing bonus accruals, offset in part by a reduction in customer relations expenditures. INTEREST EXPENSE, NET - --------------------- For the three months ended March 31, 1997, net interest expense (interest expense less interest income) decreased approximately $0.9 million or 27% to $2.5 million from $3.4 million in the same 1996 period. The decrease is primarily due to a reduction in interest expense related to the payment of approximately $32.0 million of long-term debt in 1996 from operating cash flow and the sale of the Company's oil and gas operations. INCOME TAXES - ------------ Income taxes for the three months ended March 31, 1997 and 1996 were computed in accordance with Statement of Financial Accounting Standards No. 109, resulting in effective tax rates of approximately 38% and 37%, respectively. DISCONTINUED OPERATIONS - ----------------------- Substantially all of the Company's oil and gas assets were sold in August 1996. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATIONS - ------------------------- Operating cash flows increased in the first quarter of 1997 over the comparable 1996 quarter, primarily as the result of the differences in the net changes in working capital items in each period, offset in part by lower net earnings in the 1997 quarter. Net cash used by operating activities of continuing operations totaled $1.4 million for the three months ended March 31, 1997, compared to $1.9 million for the comparable 1996 period. WORKING CAPITAL - --------------- Working capital at March 31,1997 consisted of current assets of $83.9 million and current liabilities of $54.8 million, or a current ratio of 1.53:1. At December 31, 1996, the current ratio was 1.33:1 with current assets of $86.5 million and current liabilities of $65.0 million. Current assets have decreased since December 31, 1996, primarily due to a decrease in cash and cash equivalents, offset in part by an increase in inventories. Inventories have increased primarily as the result of a 78% increase in crude oil inventory volumes. Current liabilities have decreased due to a decrease in accounts payable and accrued expenses. Accounts payable have decreased primarily as the result of a decline in the cost of raw materials. Accrued expenses have declined primarily due to the payment of a contingent payment related to the Bloomfield refinery acquisition. CAPITAL EXPENDITURES AND RESOURCES - ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment and other assets totaled approximately $5.9 million for the first quarter of 1997, including capacity enhancement projects, facility upgrades and turnaround preparation expenditures at the refineries; major remodeling expenditures at two retail units and transportation equipment upgrades. On April 23, 1997, the Company announced the signing of an agreement to acquire, through lease and purchase, ninety-six retail service station/convenience stores from Thriftway Marketing Corp. of Farmington, New Mexico and related entities. In addition, seven locations under development, Thriftway's petroleum products transportation operation and certain other assets will be acquired. The stores, located in New Mexico, Arizona, Colorado and Utah are in or adjacent to the Company's primary market. A portion of the service station/convenience stores and the transportation operations will be purchased for $16.0 million at the closing. The remaining service station/convenience stores will be leased for 10 years and purchased pursuant to options to purchase during the 10 year period for an additional $23.0 million. The transaction, subject to due diligence and government approval, is scheduled to close on May 31, 1997. Funding of the purchase will come primarily from bank financing. The acquisition also includes an option to purchase additional units owned by Thriftway and related entities in New Mexico, Arizona, Wyoming, Texas and Montana. The Company is also entering into long-term supply arrangements with Thriftway to provide gasoline and diesel fuel to service stations in the area that will continue to be operated by Thriftway. On May 6, 1997, the Company announced the signing of an agreement to acquire 100% of the stock of Phoenix Fuel Co., Inc. Phoenix Fuel Co., Inc. is an independent industrial/commercial petroleum products distributor, headquartered in Phoenix, Arizona, that owns and operates seven bulk petroleum distribution plants, twenty cardlock locations and a lubricant storage and distribution terminal. These operations are located throughout the State of Arizona. In addition, Phoenix Fuel Co., Inc. owns and operates a fleet of finished product transports. This transaction is scheduled to close on June 2, 1997, subject to due diligence, government approval and satisfaction of the conditions to closing. Funding of the acquisition will come from bank financing. CAPITAL STRUCTURE - ----------------- At March 31, 1997, and December 31, 1996, the Company's long-term debt was 49.4% and 48.1% of total capital, respectively. The increase is primarily due to an increase in long-term debt resulting from borrowings on the Company's working capital facility, offset in part by an increase in stockholders' equity due to net earnings. The Company's net debt (long-term debt less cash and cash equivalents) to total capitalization percentages were 48.6% and 45.1% at March 31, 1997 and December 31, 1996, respectively. The Company's capital structure includes $100 million of 10 year 9 3/4% senior subordinated notes ("Notes"). Repayment of the Notes is jointly and severally guaranteed on an unconditional basis by the Company's direct and indirect wholly-owned subsidiaries, subject to a limitation designed to ensure that such guarantees do not constitute a fraudulent conveyance. Except as otherwise allowed in the Indenture pursuant to which the Notes were issued, there are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. General provisions of applicable state law, however, may limit the ability of any subsidiary to pay dividends or make distributions to the Company in certain circumstances. In October 1995, the Company entered into a Credit Agreement with a group of banks under which $30.0 million was borrowed pursuant to a three-year unsecured revolving term facility to provide financing for the purchase of the Bloomfield refinery. This revolving term facility has been repaid from cash on hand and proceeds from the sale of the Company's oil and gas assets. The $30.0 million that was repaid is currently available for reborrowing under this facility for the acquisition of property, plant and equipment. This facility has a floating interest rate that is tied to various short-term indices. At March 31, 1997, this rate was approximately 7% per annum. The Company is currently negotiating an increase in this facility to accommodate the acquisitions described above. In addition, the Credit Agreement contains a three-year unsecured working capital facility to provide working capital and letters of credit in the ordinary course of business. The availability under this working capital facility is the lesser of (i) $40.0 million, or (ii) the amount determined under a borrowing base calculation tied to eligible accounts receivable and inventories as defined in the Credit Agreement. At March 31, 1997, the lesser amount was $40.0 million. This facility has a floating interest rate that is tied to various short-term indices. At March 31, 1997, this rate was approximately 7% per annum. Direct borrowings under this arrangement were $17.0 million at March 31, 1997, and there were approximately $16.0 million of irrevocable letters of credit outstanding, primarily to secure purchases of raw materials. Borrowings under this facility are generally higher at month end due to payments for raw materials and various taxes. The Credit Agreement contains certain covenants and restrictions which require the Company to, among other things, maintain a minimum consolidated net worth; minimum fixed charge coverage ratio; minimum funded debt to total capitalization percentage; and places limits on investments, prepayment of senior subordinated debt, guarantees, liens and restricted payments. The Credit Agreement is guaranteed by substantially all of the Company's direct and indirect wholly-owned subsidiaries. The Company is required to pay a quarterly commitment fee based on the unused amount of each facility. On February 27, 1997, the Company's Board of Directors declared a cash dividend on common stock of $0.05 per share payable to stockholders of record on April 24, 1997. This dividend was paid on May 6, 1997. In addition, the Company's Board of Directors declared a similar cash dividend at their May 8, 1997 meeting, payable August 6, 1997 to stockholders of record on July 24, 1997. Future dividends, if any, are subject to the results of the Company's operations, existing debt covenants and declaration by the Company's Board of Directors. OTHER - ----- Federal, state and local laws and regulations relating to health and the environment affect nearly all of the operations of the Company. As is the case with all companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances for various reasons, including the speculative nature of remediation and cleanup cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. Rules and regulations implementing federal, state and local laws relating to health and the environment will continue to affect the operations of the Company. The Company cannot predict what health or environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or enforced with respect to products or activities of the Company. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by the Company. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1 "Environmental Remediation Liabilities." The Company adopted this SOP in the first quarter of 1997. Based on a review of current environmental remediation activities, there is no current impact on the Company's financial position or results of operations. The Arizona Legislature has mandated the use of reformulated gasolines in Maricopa County, Arizona, effective July 1997. The Company currently owns and operates six service station/convenience stores in Maricopa County and is in the process of acquiring other retail/wholesale marketing operations, with the acquisition of Phoenix Fuel Co., Inc. as described above, some of which are also located in Maricopa County. The Company does not believe the mandate will have a material impact on current or future operations. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This report contains forward-looking statements that involve risks and uncertainties, including but not limited to economic, competitive and governmental factors affecting the Company's operations, markets, products, services and prices; the impact of the mandated use of reformulated gasolines on the Company's operations; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. 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 4 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 8, 1997. 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" ------------ ------------- 9,841,172 86,597 Harry S. Howard, Jr. was elected as a director of the Company. The vote was as follows: SHARES VOTED SHARES VOTED "FOR" "WITHHOLDING" ------------ ------------- 9,826,828 100,941 Deloitte & Touche LLP were ratified as independent auditors for the Company for the year ending December 31, 1997. The vote was as follows: SHARES VOTED SHARES VOTED SHARES VOTED "FOR" "AGAINST" "ABSTAINING" ------------ ------------ ------------- 9,831,313 23,302 73,154 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 11 - Computation of Per Share Data. 27 - Financial Data Schedule. (b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended March 31, 1997. 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, 1997 to be signed on its behalf by the undersigned thereunto duly authorized. GIANT INDUSTRIES, INC. /s/ A. WAYNE DAVENPORT ------------------------------------------ A. Wayne Davenport Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 14, 1997