##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2003.                                            
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition
    period           to           .                                      

Commission File Number: 1-10398

Giant Industries, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                                 |  |                                         
|------------------------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                                         |  | 86-0642718                              
|(State or other jurisdiction of
    incorporation or organization)                               |  | (I.R.S. Employer
    Identification No.)
|                                                                                                
|23733 North Scottsdale Road,
    Scottsdale, Arizona(Address of principal executive
    offices) |  | 85255(Zip Code)                         

Registrants telephone number, including
area code:

(480) 585-8888


Securities registered pursuant to
Section 12(b) of the Act:

|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of Each Class          |  | Name of Each Exchange on Which Registered
|                             |  |                                          
|Common Stock, $.01 par value |  | New York Stock Exchange                  

Securities registered pursuant to
Section 12(g) of the Act:

None


Indicate by check
mark 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     þ          No o

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendments to this
Form 10-K.     o

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Exchange Act
Rule 12b-2).     Yes o          No þ

As of June 30,
2003, 8,785,555 shares of the registrants Common Stock,
$.01 par value, were outstanding and the aggregate market
value of the voting stock held by non-affiliates of the
registrant was approximately $51,682,000 based on the
New York Stock Exchange closing price on June 30, 2003.

As of
February 27, 2004, 8,861,601 shares of the
registrants Common Stock, $.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy
Statement for the Registrants 2004 Annual Meeting of
Stockholders are incorporated by reference in Part III of
this Form 10-K Report.



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---

TABLE OF CONTENTS



|                                                                                                              |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                                       
|                                                                                                              | Items 1. and 2. Business and Properties.                                                     
|                                                                                                              | General                                                                                      
|                                                                                                              | Refining Group                                                                               
|                                                                                                              | Retail Group                                                                                 
|                                                                                                              | Phoenix Fuel                                                                                 
|                                                                                                              | Refining Group                                                                               
|                                                                                                              | Retail Group                                                                                 
|                                                                                                              | Phoenix Fuel                                                                                 
|                                                                                                              | Employees                                                                                    
|                                                                                                              | Other Matters                                                                                
|                                                                                                              | Regulatory, Environmental and Other Matters                                                  
|                                                                                                              | Motor Fuel Programs                                                                          
|                                                                                                              | MTBE Litigation                                                                              
|                                                                                                              | Alleged Regulatory Violations                                                                
|                                                                                                              | Discharges, Releases and Cleanup Activities                                                  
|                                                                                                              | Health and Safety                                                                            
|                                                                                                              | Changes in Environmental, Health and Safety Laws                                             
|                                                                                                              | Rights-Of-Way                                                                                
|                                                                                                              | Jet Fuel Claims                                                                              
|                                                                                                              | Yorktown Power Outage Claim                                                                  
|                                                                                                              | Item 3. Legal Proceedings.                                                                   
|                                                                                                              | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                                                                                                              | Executive Officers of the Registrant                                                         
|PART II                                                                                                      
|                                                                                                              | Item 5. Market For the Registrants Common Equity and Related Stockholder Matters            
|                                                                                                              | Item 6. Selected Financial Data.                                                             
|FINANCIAL AND OPERATING HIGHLIGHTS                                                                           
|                                                                                                              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                                              | Company Overview                                                                             
|                                                                                                              | Critical Accounting Policies                                                                 
|                                                                                                              | Contingencies, Including Environmental Remediation and Litigation Liabilities                
|                                                                                                              | Impairment of Long-Lived Assets                                                              
|                                                                                                              | Asset Retirement Obligations                                                                 
|                                                                                                              | Pension and Post-Retirement Plans                                                            
|                                                                                                              | Results of Operations                                                                        
|                                                                                                              | Comparison of the Years Ended December 31, 2003 and December 31, 2002                        
|                                                                                                              | Discontinued Operations                                                                      
|                                                                                                              | Outlook                                                                                      
|                                                                                                              | Comparison of the Years Ended December 31, 2002 and December 31, 2001                        
|                                                                                                              | Discontinued Operations                                                                      
|                                                                                                              | Liquidity and Capital Resources                                                              
|                                                                                                              | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                                                                                              | Item 8. Financial Statements and Supplementary Data                                          
|INDEPENDENT AUDITORS REPORT                                                                                 
|GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS                                          
|GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS                                
|GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                      
|GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS                                
|GIANT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           
|                                                                                                              | Note 1 -- Organization and Significant Accounting Policies:                                  
|                                                                                                              | Note 2 -- Stock-Based Employee Compensation:                                                 
|                                                                                                              | Note 3 -- Business Segments:                                                                 
|                                                                                                              | Refining Group                                                                               
|                                                                                                              | Retail Group                                                                                 
|                                                                                                              | Phoenix Fuel                                                                                 
|                                                                                                              | Note 4 -- Asset Retirement Obligations:                                                      
|                                                                                                              | Note 5 -- Goodwill and Other Intangible Assets:                                              
|                                                                                                              | Note 6 -- Acquisitions:                                                                      
|                                                                                                              | Note 7 -- Discontinued Operations, Asset Disposals, and Assets Held For Sale:                
|                                                                                                              | Note 8 -- Earnings Per Share:                                                                
|                                                                                                              | Note 9 -- Related Party Transactions:                                                        
|                                                                                                              | Note 10 -- Inventories:                                                                      
|                                                                                                              | Note 11 -- Property, Plant and Equipment:                                                    
|                                                                                                              | Note 12 -- Accrued Expenses:                                                                 
|                                                                                                              | Note 13 -- Long-Term Debt:                                                                   
|                                                                                                              | Note 14 -- Financial Instruments and Hedging Activity:                                       
|                                                                                                              | Note 15 -- Income Taxes:                                                                     
|                                                                                                              | Note 16 -- 401(k) Plans:                                                                     
|                                                                                                              | Note 17 -- Pension and Post-Retirement Benefits:                                             
|                                                                                                              | Weighted Average Plan Assumptions                                                            
|                                                                                                              | Plan Assets                                                                                  
|                                                                                                              | Assumed Health Care Cost Trend Rates                                                         
|                                                                                                              | Note 18 -- Stock Incentive Plans:                                                            
|                                                                                                              | Note 19 -- Interest, Operating Leases and Rent Expense:                                      
|                                                                                                              | Note 20 -- Commitments and Contingencies:                                                    
|                                                                                                              | Environmental and Litigation Accruals                                                        
|                                                                                                              | Yorktown Environmental Liabilities                                                           
|                                                                                                              | Yorktown Consent Decree                                                                      
|                                                                                                              | Yorktown 1991 Order                                                                          
|                                                                                                              | Claims for Reimbursement from BP                                                             
|                                                                                                              | Farmington Refinery Matters                                                                  
|                                                                                                              | Lee Acres Landfill                                                                           
|                                                                                                              | Bloomfield Refinery Environmental Obligations                                                
|                                                                                                              | Bloomfield Tank Farm (Old Terminal)                                                          
|                                                                                                              | Notices of Violation at Four Corners Refineries                                              
|                                                                                                              | Jet Fuel Claim                                                                               
|                                                                                                              | MTBE Litigation                                                                              
|                                                                                                              | Yorktown Power Outage Claim                                                                  
|                                                                                                              | Former CEO Matters                                                                           
|                                                                                                              | Note 21 -- Quarterly Financial Information (Unaudited)                                       
|                                                                                                              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                                                                              | Item 9A. Controls and Procedures                                                             
|PART III                                                                                                     
|                                                                                                              | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                                                                              | Item 11. Executive Compensation                                                              
|                                                                                                              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                                                                              | Item 13. Certain Relationships and Related Transactions                                      
|                                                                                                              | Item 14. Principal Accountant Fees and Services                                              
|PART IV                                                                                                      
|                                                                                                              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                                                                                   
|INDEPENDENT AUDITORS REPORT                                                                                 
|                                                                                                              | SCHEDULE II                                                                                  
|GIANT INDUSTRIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended December 31, 2003
|ANNUAL REPORT ON FORM 10-K Year Ended December 31, 2003                                                      
|INDEX TO EXHIBITS                                                                                            
|Exhibit 4.3                                                                                                  
|Exhibit 4.7                                                                                                  
|Exhibit 4.8                                                                                                  
|Exhibit 10.3                                                                                                 
|Exhibit 10.4                                                                                                 
|Exhibit 10.9                                                                                                 
|Exhibit 10.28                                                                                                
|Exhibit 10.29                                                                                                
|Exhibit 10.30                                                                                                
|Exhibit 10.31                                                                                                
|Exhibit 10.33                                                                                                
|Exhibit 14.1                                                                                                 
|Exhibit 21.1                                                                                                 
|Exhibit 23.1                                                                                                 
|Exhibit 31.1                                                                                                 
|Exhibit 31.2                                                                                                 
|Exhibit 32.1                                                                                                 
|Exhibit 32.2                                                                                                 



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##### Table of Contents






PART I




Items 1. and
2.     Business and
Properties.




General

Giant Industries, Inc., through our
subsidiary Giant Industries Arizona, Inc. and its
subsidiaries, refines and sells petroleum products. We do this:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On the East Coast  primarily in
    Virginia, Maryland, and North Carolina, and                                                                 
|
| |  | In the Southwest  primarily in New
    Mexico, Arizona, and Colorado, with a concentration in the Four
    Corners area where these states meet.

In addition, our Phoenix Fuel Co., Inc.
subsidiary distributes commercial wholesale petroleum products
primarily in Arizona.

We have three business units:



| |   |                      
| | - | ---------------------
| |  | Our refining group,  
|
| |  | Our retail group, and
|
| |  | Phoenix Fuel         




Refining Group

Our refining group operates our Ciniza and
Bloomfield refineries in the Four Corners area of New Mexico and
the Yorktown refinery in Virginia. It also operates a crude oil
gathering pipeline system in New Mexico, two finished products
distribution terminals, and a fleet of crude oil and finished
product trucks. Our three refineries make various grades of
gasoline, diesel fuel, and other products from crude oil, other
feedstocks, and blending components. We also acquire finished
products through exchange agreements and from various suppliers.
We sell these products through our service stations, independent
wholesalers and retailers, commercial accounts, and sales and
exchanges with major oil companies. We purchase crude oil, other
feedstocks and blending components from various suppliers.




Retail Group

Our retail group operates service stations, which
include convenience stores or kiosks. We also operated a travel
center in New Mexico until June 19, 2003, when the travel
center was sold. Our service stations sell various grades of
gasoline, diesel fuel, general merchandise, including tobacco
and alcoholic and nonalcoholic beverages, and food products to
the general public. Our refining group or Phoenix Fuel supplies
the gasoline and diesel fuel our retail group sells. We purchase
general merchandise and food products from various suppliers. At
December 31, 2003, we operated 127 service stations
with convenience stores or kiosks.




Phoenix Fuel

Phoenix Fuel distributes commercial wholesale
petroleum products. It includes several lubricant and bulk
petroleum distribution plants, an unmanned fleet fueling
operation, a bulk lubricant terminal facility, and a fleet of
finished product and lubricant delivery trucks. Phoenix Fuel
purchases petroleum fuels and lubricants from suppliers and to a
lesser extent from our refining group.

1



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##### Table of Contents






Refining Group



| |                      
| | ---------------------
| | Our Yorktown Refinery



| |         
| | --------
| | Refining

Our Yorktown refinery is located on
570 acres of land known as Goodwins Neck, which lies
along the York River in York County, Virginia. It has a crude
oil throughput capacity of 61,900 barrels per day. The
Yorktown refinery is situated adjacent to its own deep-water
port on the York River, close to the Norfolk military complex
and Hampton Roads shipyards.

Our Yorktown refinery has a Solomon complexity
rating of 11.0. The Solomon complexity rating is a relative
measure of a refinerys processing complexity based upon
the number and complexity of process units utilized for refining
crude oil into finished products. A refinery that has only crude
oil distillation capability would have a Solomon complexity
rating of 1.0. The most complex refineries have Solomon
complexity ratings in excess of 16.0. Our Yorktown refinery can
process a wide variety of crude oils into high-value finished
products, including both conventional and reformulated gasoline,
as well as low- and high-sulfur distillate, including heating
oil, diesel fuel, and fuel oil.

The refinerys location on the York River,
and its own deep-water port access, allows us to receive supply
shipments from many different locations around the world and
provides us the ability to transport finished products by barge,
without dependence on area pipelines. This flexibility gives us
the opportunity to purchase the most cost-effective crude oil
available and to sell finished products in the most
cost-effective markets.

Below is operating and other data for our
Yorktown refinery:

|                                       |                                       |              |      |         |        |   |      |        |        |  
|-------------------------------------- | ------------------------------------- | ------------ | ---- | ------- | ------ | - | ---- | ------ | ------ | -
|                                       |                                       |             
|                                       |                                       | Year Ended  
|                                       |                                       | December 31,
|                                       |                                       |             
|                                       |                                       | 2003         |      | 2002(2)
|                                       |                                       |              |      |        
|Feedstock throughput(1):               |                                       |              |      |         |        |   |      |       
|                                       | Crude oil                             |              |      | 51,600  |        |   |      | 53,300 |       
|                                       | Residual feedstocks and intermediates |              |      | 6,100   |        |   |      | 4,000  |       
|                                       |                                       |              |      |         |        |   |      |       
|                                       |                                       | Total        |      |         | 57,700 |   |      |        | 57,300 |  
|                                       |                                       |              |      |         |        |   |      |       
|Crude oil throughput (as a % of total) |                                       |              | 89   | %       |        |   | 93   | %     
|Rated crude oil capacity utilized      |                                       |              | 83   | %       |        |   | 86   | %     
|Refinery margin ($ per barrel)         |                                       | $            | 4.07 |         |        | $ | 2.32 |       
|Products(1):                           |                                       |              |      |         |        |   |      |       
|                                       | Gasoline                              |              |      | 30,200  |        |   |      | 30,400 |       
|                                       | Diesel fuel and No. 2 fuel oil        |              |      | 20,500  |        |   |      | 19,100 |       
|                                       | Other(3)                              |              |      | 7,000   |        |   |      | 7,800  |       
|                                       |                                       |              |      |         |        |   |      |       
|                                       |                                       | Total        |      |         | 57,700 |   |      |        | 57,300 |  
|                                       |                                       |              |      |         |        |   |      |       
|High-value products (as a % of total): |                                       |              |      |         |        |   |      |       
|                                       | Gasoline                              |              |      | 52      | %      |   |      | 53     | %     
|                                       | Diesel fuel and No. 2 fuel oil        |              |      | 35      | %      |   |      | 33     | %     
|                                       |                                       |              |      |         |        |   |      |       
|                                       |                                       | Total        |      |         | 87     | % |      |        | 86     | %
|                                       |                                       |              |      |         |        |   |      |       



---



|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|(1) | Average barrels per day.                                                                        
|   
|(2) | Since our acquisition of the refinery on
    May 14, 2002.                                      
|   
|(3) | Other products include petroleum coke, converted
    to a fuel oil equivalent number of barrels.

2



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##### Table of Contents





| |            
| | -----------
| | Turnarounds

The operating units at our refineries require
regular maintenance, as well as major repair and upgrade
shutdowns (known as turnarounds) during which they
are not in operation. Turnaround cycles vary for different units.

For turnaround purposes, we divide the operating
units at our Yorktown refinery into three major groups. Each of
these groups has a major turnaround every five years that lasts
approximately three to four weeks. The groups are scheduled for
a major turnaround in 2006, 2007, and 2008. In addition, some
production units must be shut down approximately once a year,
for 10 to 14 days at a time, for maintenance that is
necessary to improve the efficiency of the unit. During these
shutdowns, equipment inspections are made and maintenance is
performed. Unscheduled maintenance shutdowns may also occur at
the refinery from time to time.



| |                    
| | -------------------
| | Raw Material Supply

Most of the feedstocks for our Yorktown refinery
come from Canada, the North Sea, West Africa, and South America.
The refinery can process a wide range of crude oils, including
certain lower quality crude oils. The ability to process a wide
range of crude oils allows our Yorktown refinery to vary crude
oils in order to maximize margins. Lower quality crude oils can
generally be purchased at a lower cost, compared to higher
quality crude oils, and this can result in improved refinery
margins for us. At times, the Yorktown refinery also may
purchase some process unit feedstocks to supplement the
feedstocks going into various process units, and blendstocks, to
optimize refinery operations and blending operations.



| |                  
| | -----------------
| | Statoil Agreement

We recently entered into a long-term crude oil
supply agreement with Statoil Marketing and Trading (USA),
Inc., pursuant to which Statoil agreed to supply us and we
agreed to purchase acidic crude oil. We believe this arrangement
will satisfy a significant portion of our Yorktown
refinerys crude oil needs. We began taking supplies of
this crude oil at our Yorktown refinery in February 2004.
Following various upgrades at the refinery, which are scheduled
to take place in the third quarter of 2004, the deliveries will
substantially increase. The term of this agreement expires when
we have received the total volumes of crude oil committed to be
provided by Statoil, which we believe will be in approximately
five years. Either we or Statoil may terminate the agreement
earlier, however, in certain circumstances, including:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | An event of force majeure, such as an act of God,
    wars or terrorism, occurs and continues for more than
    60 days, or            
|
| |  | An event of default occurs and is not cured
    within the applicable cure period, if any. Events of default
    include, among others:



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Failure of a party to make payments when due;                                                                                                                                            
|
| |  | Failure of a party to perform its obligations;                                                                                                                                           
|
| |  | Bankruptcy or change of control of a
    party; and                                                                                                                                      
|
| |  | An event of default by us under our senior
    secured revolving credit agreement or our failure to make any
    payment in respect of indebtedness of more than $5 million
    when due.



| |               
| | --------------
| | Transportation

Our Yorktown refinerys strategic location
on the York River and its own deep-water port access allow it to
receive supply shipments from various regions of the world.
Crude oil tankers deliver all of the crude oil supplied to our
Yorktown refinery and most of the finished products sold by the
refinery are shipped out by barge. As a result, we have greater
flexibility to receive and move product than some of our
competitors who rely on pipeline systems.

3



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##### Table of Contents





| |                           
| | --------------------------
| | Marketing and Distribution

The Yorktown
Markets.The markets for our Yorktown
refinery are grouped into tiers, which represent varying
refining margin potential. Tier 1 areas generally have the
highest refining margin potential and include the Yorktown
region. Tier 2 markets include Salisbury and Baltimore,
Maryland and Norfolk, Virginia. North and South Carolina are
considered Tier 3 markets, and the New York Harbor
area is designated Tier 4. We focus on selling products
within Tiers 1, 2 and 3, unless favorable refining
margin opportunities arise in the New York Harbor.

To date, we have concentrated our sales of
finished products in Tiers 1 and 2. Approximately 75%
of this product is shipped out of the refinery by barge, with
the remaining amount being shipped out by truck or rail. We
primarily use third party trucks to deliver products to our
Tier 1 customers. The CSX rail system, which runs through
the refinery property, transports shipments of mixed butane and
anode coke from the refinery to our customers.

Dock System and
Storage.Our refinerys dock
system is capable of handling 98,000-ton deadweight tankers and
barges up to 100,000 barrels. We handle all crude oil
receipts and the bulk of our finished product deliveries at the
dock. The refinery includes approximately 1,900,000 barrels
of crude tankage, including approximately 500,000 barrels
of storage capacity in a tank leased from Virginia Power. We
also own approximately 600,000 barrels of gasoline tank
storage, 800,000 barrels of gasoline blend stock tank
storage, and 300,000 barrels of distillate tank storage.



| |                       
| | ----------------------
| | Refined Product Sales.

Our refined products, including products we
acquire from other sources, are sold through independent
wholesalers and retailers, commercial accounts, and sales and
exchanges with large oil companies. Refined products produced at
the refinery were distributed as follows:

|                                                                    |  |      |     |      |  |  |     | 
|------------------------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                                    |  | 2003 |     | 2002
|                                                                    |  |      |     |     
|Direct sales to wholesalers, retailers and
    commercial customers |  |      | 81% |      |  |  | 95% | 
|Sales and exchanges with large oil companies                        |  |      | 19% |      |  |  | 5%  | 



| |                                         
| | ----------------------------------------
| | Our Ciniza and Bloomfield
    Refineries



| |         
| | --------
| | Refining

Our refining group operates the only active
refineries in the Four Corners area. Our Ciniza refinery has a
crude oil throughput capacity of 20,800 barrels per day and
a total capacity including natural gas liquids of
26,000 barrels per day. It is located on 880 acres
near Gallup, New Mexico. Our Bloomfield refinery has a crude oil
throughput capacity of 16,000 barrels per day and a total
throughput capacity including natural gas liquids of
16,600 barrels per day. It is located on 285 acres
near Farmington, New Mexico. We operate the two refineries in an
integrated fashion. We achieve efficiency gains and cost
reductions by consolidating various administrative and operating
functions.

The Four Corners area is the primary market for
the refined products and is also the primary source of crude oil
and natural gas liquids supplies for both refineries.

We believe the technical capabilities of these
two refineries, together with the high quality of locally
available feedstocks, enable us to produce a high percentage of
high value products. Our Ciniza refinery has a Solomon
complexity rating of 7.9. Our Bloomfield refinery has a Solomon
complexity rating of 6.7. Each barrel of raw materials processed
by our Four Corners refineries has resulted in 90% or more of
high-value finished products, including gasoline and diesel
fuel. The product slate of both refineries can include 100%
unleaded gasoline and 100% low sulfur diesel fuel that satisfies
current low sulfur standards.

4



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##### Table of Contents



Below is operating and other data for our Four
Corners refineries:

|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |        |        |  
|-------------------------------------- | ---------------------------------- | ----------------------- | ---- | ------ | ------ | ---- | ---- | ------ | ------ | ---- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | ---- | ------ | ------ | -
|                                       |                                    |                        
|                                       |                                    | Year Ended December 31,
|                                       |                                    |                        
|                                       |                                    | 2003                    |      | 2002   |        | 2001 |      | 2000   |        | 1999
|                                       |                                    |                         |      |        |        |      |      |        |        |     
|Feedstock throughput:(1)               |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|                                       | Crude oil                          |                         |      | 24,500 |        |      |      | 26,600 |        |      |      | 27,000 |        |   |      | 29,600 |        |   |      | 31,900 |       
|                                       | Natural gas liquids and oxygenates |                         |      | 6,100  |        |      |      | 5,900  |        |      |      | 6,200  |        |   |      | 5,800  |        |   |      | 6,500  |       
|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|                                       |                                    | Total                   |      |        | 30,600 |      |      |        | 32,500 |      |      |        | 33,200 |   |      |        | 35,400 |   |      |        | 38,400 |  
|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|Crude oil throughput (as a % of total) |                                    |                         | 80   | %      |        |      | 82   | %      |        |      | 82   | %      |        |   | 84   | %      |        |   | 83   | %     
|Rated crude oil capacity utilized      |                                    |                         | 67   | %      |        |      | 72   | %      |        |      | 73   | %      |        |   | 80   | %      |        |   | 87   | %     
|Refinery margin ($ per barrel)         |                                    | $                       | 8.81 |        |        | $    | 6.84 |        |        | $    | 9.69 |        |        | $ | 7.63 |        |        | $ | 6.89 |       
|Products:(1)                           |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|                                       | Gasoline                           |                         |      | 20,900 |        |      |      | 21,400 |        |      |      | 21,400 |        |   |      | 22,500 |        |   |      | 23,800 |       
|                                       | Diesel fuel                        |                         |      | 6,900  |        |      |      | 8,100  |        |      |      | 8,600  |        |   |      | 9,600  |        |   |      | 10,700 |       
|                                       | Other                              |                         |      | 2,800  |        |      |      | 3,000  |        |      |      | 3,200  |        |   |      | 3,300  |        |   |      | 3,900  |       
|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|                                       |                                    | Total                   |      |        | 30,600 |      |      |        | 32,500 |      |      |        | 33,200 |   |      |        | 35,400 |   |      |        | 38,400 |  
|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|High Value Products (as a % of total): |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|                                       | Gasoline                           |                         |      | 68     | %      |      |      | 66     | %      |      |      | 65     | %      |   |      | 64     | %      |   |      | 62     | %     
|                                       | Diesel fuel                        |                         |      | 23     | %      |      |      | 25     | %      |      |      | 26     | %      |   |      | 27     | %      |   |      | 28     | %     
|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       
|                                       |                                    | Total                   |      |        | 91     | %    |      |        | 91     | %    |      |        | 91     | % |      |        | 91     | % |      |        | 90     | %
|                                       |                                    |                         |      |        |        |      |      |        |        |      |      |        |        |   |      |        |        |   |      |       



---



|    |                         
|--- | ------------------------
|(1) | Average barrels per day.



| |            
| | -----------
| | Turnarounds

In general, a major refinery turnaround is
scheduled for each of our Four Corners refineries every four
years. A typical major refinery turnaround takes approximately
30 days. Our Ciniza refinery is scheduled for a major
turnaround in the second quarter of 2004. Our Bloomfield
refinery had a major turnaround in the fourth quarter of 2001.
In addition, one of the production units at each refinery must
be shut down approximately one or two times a year, for
approximately ten days at a time, for maintenance that is
necessary to improve the efficiency of the unit. During these
short shutdowns, equipment inspections are made and maintenance
is performed. Unscheduled maintenance shutdowns may also occur
at the refineries from time to time.



| |                    
| | -------------------
| | Raw Material Supply

The primary feedstock for our Four Corners
refineries is Four Corners Sweet, a locally produced, high
quality crude oil. We supplement the crude oil used at our
refineries with other feedstocks. These other feedstocks
currently include locally produced natural gas liquids and
condensate as well as other feedstocks produced outside of the
Four Corners area. The most significant of these other
feedstocks are the natural gas liquids, consisting of natural
gasoline, normal butane and isobutane.

Our Ciniza refinery is capable of processing
approximately 6,000 barrels per day of natural gas liquids.
An adequate supply of natural gas liquids is available for
delivery to our Ciniza refinery primarily through a pipeline we
own that connects the refinery to a natural gas liquids
processing plant. We currently acquire the majority of our
natural gas liquids feedstocks by a long-term agreement.

In addition, the use of gasoline containing
oxygenates has been government-mandated in some areas in which
we sell gasoline. Oxygenates are oxygen-containing compounds
that can be used as a supplement to reduce carbon monoxide
emissions. We anticipate that we will be able to purchase
sufficient quantities of oxygenates from suppliers at acceptable
prices for the foreseeable future.

5



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##### Table of Contents



We purchase crude oil from a number of sources,
including major oil companies and independent producers, under
arrangements that contain market-responsive pricing provisions.
Many of these arrangements are subject to cancellation by either
party or have terms of one year or less. In addition, these
arrangements are subject to periodic renegotiation, which could
result in our paying higher or lower relative prices for crude
oil.

Our Ciniza and Bloomfield refineries continue to
be affected by reduced crude oil production in the Four Corners
area. The Four Corners basin is a mature production area and as
a result is subject to a natural decline in production over
time. This natural decline is being offset to some extent by new
drilling, field workovers, and secondary recovery projects,
which have resulted in additional production from existing
reserves.

As a result of the declining production of crude
oil in the Four Corners area in recent years, we have not been
able to cost-effectively obtain sufficient amounts of crude oil
to operate our Four Corners refineries at full capacity. Crude
oil utilization rates for our Four Corners refineries have
declined from 87% in 1999 to 67% in 2003. Our current
projections of Four Corners crude oil production indicate that
our crude oil demand will exceed the crude oil supply that is
available from local sources for the foreseeable future and that
our crude oil capacity utilization rates at our Four Corners
refineries will continue to decline. If additional crude oil or
other refinery feedstocks become available in the future, we may
increase production runs at our Four Corners refineries
depending on the demand for finished products and the refining
margins attainable. To that end, we continue to assess
short-term and long-term options to address the continuing
decline in Four Corners crude oil production. The options being
considered include:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | evaluating potentially economic sources of crude
    oil produced outside the Four Corners area, including ways to
    reduce raw material transportation costs to our refineries,
|
| |  | evaluating ways to encourage further production
    in the Four Corners area,                                                                                                     
|
| |  | changes in operation/configuration of equipment
    at one or both refineries to further the integration of the two
    refineries, and reduce fixed costs, and                   
|
| |  | with sufficient further decline in raw material
    supply, the temporary, partial or permanent discontinuance of
    operations at one or more refineries.                       

None of these options, however, may prove to be
economically viable. We cannot assure you that the Four Corners
crude oil supply for our Ciniza and Bloomfield refineries will
continue to be available at all or on acceptable terms for the
long term. Because large portions of the refineries costs
are fixed, any significant interruption or decline in the supply
of crude oil or other feedstocks would have an adverse effect on
our Four Corners refinery operations and on our overall
operations.



| |               
| | --------------
| | Transportation

Crude oil supply for our Four Corners refineries
comes primarily from the Four Corners area and is either
connected by pipelines, including pipelines we own, or delivered
by our trucks to pipeline injection points or refinery tankage.
Our pipeline system reaches into the Paradox and San Juan
Basins, located in the Four Corners area, and connects with
local common carrier pipelines. We currently own approximately
250 miles of pipeline for gathering and delivering crude
oil to the refineries. Our Ciniza refinery receives natural gas
liquids primarily through a 13-mile pipeline we own that is
connected to a natural gas liquids processing plant.



| |                           
| | --------------------------
| | Marketing and Distribution

The Four Corners
Market.We group the markets for our
Four Corners refineries into two tiers, which represent varying
refining margin potential. Tier 1 has the highest refining
margin potential and is the Four Corners area. Tier 2
includes both the Albuquerque and Flagstaff areas, the largest
markets in New Mexico, and Northern Arizona. The Tier 2
markets are primarily supplied from our Ciniza refinery.

6



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##### Table of Contents



The majority of our Four Corners gasoline and
diesel fuel production is distributed in New Mexico and Arizona.
Our fleet of approximately 45 trucks delivers products to
some of our customers.


Terminal Operations.We own a finished products terminal near Flagstaff, Arizona,
with a daily capacity of 6,000 barrels per day. This
terminal has approximately 65,000 barrels of finished
product tankage and a truck loading rack with three loading
spots. Product deliveries to this terminal are made by truck
from our Four Corners refineries.

We also own a finished products terminal in
Albuquerque, New Mexico, with a daily capacity of
10,000 barrels per day. This terminal has approximately
170,000 barrels of finished product tankage and a truck
loading rack with two loading spots. Product deliveries to this
terminal are made by truck from our Ciniza refinery or by
pipeline from El Paso, Texas.



| |                       
| | ----------------------
| | Refined Product Sales.

Our refined products, including products our
refining group acquires from other sources, are sold through
independent wholesalers and retailers, commercial accounts, our
own retail units, and sales and exchanges with large oil
companies. Refined products produced at the refineries were
distributed as follows:

|                                                                    |  |      |     |      |  |  |     | 
|------------------------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                                    |  | 2003 |     | 2002
|                                                                    |  |      |     |     
|Direct sales to wholesalers, retailers and
    commercial customers |  |      | 55% |      |  |  | 54% | 
|Direct sales to our own retail units                                |  |      | 26% |      |  |  | 28% | 
|Sales and exchanges with large oil companies                        |  |      | 18% |      |  |  | 16% | 
|Other                                                               |  |      | 1%  |      |  |  | 2%  | 

We sold our travel center in June 2003. In
connection with this sale, we entered into a long-term supply
arrangement with the purchaser.




Retail Group

At December 31, 2003, we operated 127
service stations. These service stations are located in New
Mexico, Arizona, and Colorado. This represents a decrease of
eight units since December 31, 2002.

On December 31, 2003, we had 50 units
branded Conoco pursuant to a strategic branding/licensing
agreement. In addition, 21 units were branded Giant,
49 units were branded Mustang, 5 units were branded
Thriftway, and 1 each were branded Gasman and Diamond
Shamrock.

Many of our service stations are modern,
high-volume self-service stations. Our service stations are
augmented with convenience stores at most locations, which
provide items such as general merchandise, tobacco products,
alcoholic and nonalcoholic beverages, fast food, health and
beauty aids, and automotive products. In addition, most
locations offer services such as automated teller machines and
free air and water. These stores offer a mix of our own branded
food service/delicatessen items and some of the stores offer
nationally franchised products. Service stations with kiosks
offer limited merchandise, primarily tobacco products, but also
candy and other snacks and some automotive products.

Until June 19, 2003, when it was sold, we
also owned and operated a travel center adjacent to our Ciniza
refinery near Gallup, New Mexico. The travel center provided a
direct market for a portion of the Ciniza refinerys
production. In connection with the sale, the refinery group
entered into a long-term product supply agreement with the
purchaser.

7



---



##### Table of Contents



Below is data with respect to our retail
operations:

|             |                     |                                   |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|------------ | ------------------- | --------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|             |                     |                                  
|             |                     | Year Ended December 31,          
|             |                     |                                  
|             |                     | 2003                              |  | 2002 |         | 2001 |  | 2000 |         | 1999
|             |                     |                                   |  |      |         |      |  |      |         |     
|Retail Group |                     |                                   |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |  
|             | Service Stations(1) |                                   |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |        
|             |                     | Fuel gallons sold (in thousands)  |  |      | 156,581 |      |  |      | 168,956 |      |  |   | 187,152 |   |  |   | 208,125 |   |  |   | 211,873 |  
|             |                     | Product margin ($/gallon)         |  | $    | 0.197   |      |  | $    | 0.154   |      |  | $ | 0.170   |   |  | $ | 0.168   |   |  | $ | 0.179   |  
|             |                     | Merchandise sold ($ in thousands) |  | $    | 130,336 |      |  | $    | 135,767 |      |  | $ | 138,403 |   |  | $ | 131,825 |   |  | $ | 111,603 |  
|             |                     | Merchandise margin                |  |      | 29      | %    |  |      | 27      | %    |  |   | 28      | % |  |   | 28      | % |  |   | 28      | %
|             |                     | Number of outlets at year end     |  |      | 127     |      |  |      | 135     |      |  |   | 150     |   |  |   | 179     |   |  |   | 172     |  
|             | Travel Center(2)    |                                   |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |        
|             |                     | Fuel gallons sold (in thousands)  |  |      | 10,227  |      |  |      | 24,906  |      |  |   | 24,964  |   |  |   | 26,698  |   |  |   | 27,991  |  
|             |                     | Product margin ($/gallon)         |  | $    | 0.071   |      |  | $    | 0.094   |      |  | $ | 0.103   |   |  | $ | 0.104   |   |  | $ | 0.111   |  
|             |                     | Merchandise sold ($ in thousands) |  | $    | 2,703   |      |  | $    | 6,103   |      |  | $ | 6,128   |   |  | $ | 6,719   |   |  | $ | 7,291   |  
|             |                     | Merchandise margin                |  |      | 42      | %    |  |      | 44      | %    |  |   | 44      | % |  |   | 46      | % |  |   | 45      | %
|             |                     | Number of outlets at year end     |  |      |        |      |  |      | 1       |      |  |   | 1       |   |  |   | 1       |   |  |   | 1       |  



---



|    |                                                 
|--- | ------------------------------------------------
|(1) | Includes continuing and discontinued operations.
|   
|(2) | 2003 figures are from January 1 to June 19.     




Phoenix Fuel

Phoenix Fuel is a commercial wholesale petroleum
products distributor selling diesel fuel, gasoline, jet fuel,
kerosene, motor oil, hydraulic oil, gear oil, cutting oil,
grease and various chemicals and solvents. As part of these
operations, we have lubricant and bulk petroleum distribution
plants, unmanned fleet fueling locations, a bulk lubricant
terminal facility, and a fleet of finished product transports,
finished product tankwagons and lubricant delivery trucks. These
operations are located throughout Arizona, and we sell products
primarily in Arizona and also in Nevada, New Mexico and Texas.
We also offer our customers a variety of related services,
including fuel management systems, tank level monitoring, and
automated dispatch. We sell under the trade names Phoenix Fuel,
Firebird Fuel, Tucson Fuel, Mesa Fuel, and PFC Lubricants. Our
principal customers are in the mining, construction, utility,
manufacturing, aviation and agriculture industries. We purchase
petroleum products for resale from other refiners and marketers
and to a lesser extent from our refining group.

Below is data with respect to our Phoenix Fuel
operations:

|                                    |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |  |                        
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2003                    |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                    |  |                         |         |      |  |      |         |      |  |     
|Phoenix Fuel                        |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Fuel gallons sold (in thousands)(1) |  |                         | 429,198 |      |  |      | 376,711 |      |  |      | 394,158 |   |  |   | 424,290 |   |  |   | 351,949 |  
|Product margin ($/gallon)(2)        |  | $                       | 0.053   |      |  | $    | 0.054   |      |  | $    | 0.050   |   |  | $ | 0.052   |   |  | $ | 0.064   |  
|Lubricant sales ($ in thousands)    |  | $                       | 24,475  |      |  | $    | 21,544  |      |  | $    | 22,347  |   |  | $ | 24,210  |   |  | $ | 22,067  |  
|Lubricant margin                    |  |                         | 15      | %    |  |      | 17      | %    |  |      | 17      | % |  |   | 16      | % |  |   | 15      | %



---



|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes fuel gallons supplied to our retail
    group and refining group at no margin.                                                               
|   
|(2) | Calculated as fuel revenues, including delivery
    charges billed to the customer, less cost of fuel products sold,
    divided by fuel gallons sold.

8



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##### Table of Contents






Employees

On February 29, 2004, we employed the
following number of employees in each area of our business:

|                           |  |           |       |           |  |       |     |  |  |  |       | 
|-------------------------- |  | --------- | ----- | --------- |  | ----- | --- |  |  |  | ----- | 
|                           |  | Full-Time |       | Part-Time |  | Total
|                           |  |           |       |           |  |      
|Refining group             |  |           | 618   |           |  |       | 1   |  |  |  | 619   | 
|Retail group               |  |           | 1,289 |           |  |       | 116 |  |  |  | 1,405 | 
|Phoenix Fuel               |  |           | 213   |           |  |       | 1   |  |  |  | 214   | 
|Corporate staff operations |  |           | 88    |           |  |       |    |  |  |  | 88    | 
|                           |  |           |       |           |  |       |     |  |  |  |       | 
|                           |  |           | 2,208 |           |  |       | 118 |  |  |  | 2,326 | 
|                           |  |           |       |           |  |       |     |  |  |  |       | 

The Paper, Allied  Industrial,
Chemical and Energy Workers International Union Local 2-10
represents the hourly workforce at our Yorktown refinery. The
current agreement with the union expires in 2006. At
February 29, 2004 there were 124 employees represented by
this union. In January 2004, the Paper, Allied 
Industrial, Chemical and Energy Workers International Union
attempted to organize the employees at our Ciniza refinery and
an election was scheduled. The union withdrew from the election
before it took place.




Other Matters



| |                       
| | ----------------------
| | Competitive Conditions

We operate in a highly competitive industry. Many
of our competitors are large, integrated oil companies which,
because of their more diverse operations, stronger
capitalization and better brand name recognition, are better
able to withstand volatile industry conditions than we are,
including shortages or excesses of crude oil or refined
products, or intense price competition. The refineries operated
by our competitors are typically larger and more efficient than
our refineries. As a result, these refineries may have lower per
barrel processing costs. Furthermore, mergers between large
integrated oil companies, and upgrades to competitors
refineries have, and in the future may, result in increased
competition for our refineries.

The principal competitive factors affecting our
refining operations are:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | the quality, quantity and delivered costs of
    crude oil, natural gas liquids and other refinery feedstocks,
|
| |  | refinery processing efficiencies,                                                                             
|
| |  | refined product mix,                                                                                          
|
| |  | refined product selling prices,                                                                               
|
| |  | refinery processing costs per barrel,                                                                         
|
| |  | the cost of delivering refined products to
    markets, and                                                   
|
| |  | the ability of competitors to deliver refined
    products into our market areas by pipeline or other means.  

The principal competitive factors affecting our
retail marketing business are:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the level of customer service provided,                                                                                                                 
|
| |  | the location of our service stations,                                                                                                                   
|
| |  | product selling prices,                                                                                                                                 
|
| |  | product availability and cost, including prices
    being offered for refined products by major oil companies to our
    competitors in certain markets,
|
| |  | the appearance and cleanliness of our service
    stations,                                                                                             

9



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##### Table of Contents





| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | brand acceptance, and                                                                                                                   
|
| |  | the development of gasoline retail operations by
    non-traditional marketers, such as supermarkets and club
    membership warehouses.

The principal competitive factors affecting
Phoenix Fuel are:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the level of customer service provided,                                                                                                                     
|
| |  | product selling prices,                                                                                                                                     
|
| |  | product availability and cost, including prices
    being offered for refined products by major oil companies to our
    competitors in certain markets, and
|
| |  | business integration of new technology.                                                                                                                     



| |                                                  
| | -------------------------------------------------
| | Competitors in the Yorktown Refinerys
    Market

We compete with major and larger integrated oil
companies as well as independent refiners. Including our
Yorktown refinery, there are approximately 11 refineries
supplying products into our markets. In addition, we compete
with refineries in the Gulf Coast via the Colonial Pipeline,
which runs from the Gulf Coast area to New Jersey. We also
compete with offshore refiners that deliver product by water
transport.



| |                                                       
| | ------------------------------------------------------
| | Competitors in the Four Corners
    Refineries Market

We compete with major and larger integrated oil
companies and with independent refiners that have refineries
located outside the Four Corners area. Refined products can be
shipped to Albuquerque, New Mexico and the Four Corners area
through three pipelines originating in El Paso, Texas;
Amarillo, Texas; and southeastern New Mexico.

We have been informed that the potential
conversion and extension of the existing Texas-New Mexico crude
oil pipeline to transport refined products from West Texas to
New Mexico, including Albuquerque and potentially Bloomfield,
has been terminated. We also have been informed, however, that
the Longhorn Pipeline project that runs from Houston, Texas to
El Paso, Texas and connects the Chevron pipeline to the
Albuquerque area and to the Kinder-Morgan pipeline to the
Phoenix and Tucson, Arizona markets has a planned starting date
of June 2004. In view of past postponements of previously
announced start-up dates, we do not know if the Longhorn
Pipeline will begin operation in June 2004 or at all. In
addition, there are proposals that may eventually increase the
volume of product that can be transported by pipeline from
El Paso to the Phoenix and Tucson markets. The completion
of some or all of these projects, including the Longhorn
Pipeline, would result in increased competition by increasing
the amount of refined products potentially available in these
markets, as well as improving competitor access to these areas.
It also could result in new opportunities for us, as we are a
net purchaser of refined products in some of these areas.




Regulatory, Environmental and Other
Matters



| |           
| | ----------
| | Operations

Our operations are subject to a variety of
federal, state and local environmental laws. These laws apply
to, among other things:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | the discharge of pollutants into the soil, air
    and water,                                             
|
| |  | product specifications,                                                                                   
|
| |  | the generation, treatment, storage,
    transportation and disposal of solid and hazardous
    wastes, and
|
| |  | employee health and safety.                                                                               

We believe that all of our business units are
operating in substantial compliance with current environmental,
health and safety laws. Despite our efforts, actual or potential
claims and lawsuits involving

10



---



##### Table of Contents



alleged violations of law have been asserted
against us from time to time and, despite our efforts to comply
with applicable laws, may be asserted in the future.





Motor Fuel Programs

Various federal and state programs relating to
the composition of motor fuels apply to our operations. We
believe that these environmental programs will have the most
significant impact on our operations, except for matters
relating to alleged regulatory violations and cleanup
activities. Significant programs affecting the composition of
our motor fuels are described below. It is possible that
additional laws affecting motor fuel specifications may be
adopted that would impact geographic areas in which we sell our
products.

Low Sulfur Fuels.Rules issued by the federal Environmental Protection Agency
(EPA) require refiners to reduce the sulfur content
in gasoline and diesel fuels. Refiners must begin producing
gasoline that satisfies low sulfur gasoline standards in 2004,
with most refiners required to be in full compliance for all
production in 2006. Most refiners also must begin producing
highway diesel fuel that satisfies low sulfur diesel standards
by June 2006. All refiners and importers must be in full
compliance with the new standards by 2010 without exception.

Yorktown Compliance
Extension.We applied for temporary
relief from the low sulfur gasoline standards at the Yorktown
refinery. In March 2003, EPA approved our application and issued
a compliance plan. This compliance plan allowed us to postpone
in excess of $25,000,000 of capital expenditures for up to three
years from the date we would otherwise have begun these
expenditures. We must be in full compliance with the gasoline
and diesel sulfur standards by January 1, 2008. The
compliance plan requires us to provide EPA with an annual report
on our adherence to the compliance plan and on our progress in
meeting the low sulfur standards. If we fail to comply with the
conditions set by EPA, the compliance plan could be modified or
revoked. Further, EPA reserved the right to modify or revoke the
compliance plan for other reasons. EPA must, however, provide us
with reasonable notice of any anticipated changes in the
compliance plan and reasonable lead time to implement any
modifications due to changes in the compliance plan.
Modifications to or revocation of the compliance plan could
increase the quantity of high-sulfur products, including product
components, that do not meet the new standards. This would
likely reduce our refining earnings.

We anticipate that the cost of purchasing and
installing the equipment necessary to produce low sulfur
gasoline and diesel fuel at the Yorktown refinery will be
between $60,000,000 and $70,000,000 depending on the methods
selected to reduce the sulfur content and the volume of low
sulfur fuel to be produced at the facility. We also anticipate
that the majority of these expenditures will occur primarily
from 2005 through 2007.

Four Corners
Compliance.With respect to the Ciniza
and Bloomfield refineries, we believe that we qualify under
existing regulations for an extension of the low sulfur gasoline
standards until 2007, the date when the annual average sulfur
content of our Four Corners gasoline must begin to be reduced.
Full compliance is, however, required in 2008. We anticipate
that we will spend between $15,000,000 and $20,000,000 to comply
with the low sulfur gasoline and low sulfur diesel rules. We
also anticipate that the majority of these expenditures will
occur primarily in 2005 and 2006.

There are a number of factors that could affect
our cost of compliance with the low sulfur standards. For
example, because these regulations affect the entire industry,
engineering and construction companies will be busy and may
charge a premium for their services.

Reformulated
Gasoline.Federal law requires the
sale of specially formulated gasoline in designated areas of the
country, including some market areas serviced by the Yorktown
refinery. The Yorktown refinery manufactures gasoline that
satisfies the requirements of its markets. Motor fuels produced
by our Four Corners refineries are not sold in any areas where
the applicable law requires specially formulated gasoline.
Arizona, however, has adopted a cleaner burning gasoline program
that is applicable to gasolines sold or used in Maricopa County,
Arizona, which includes the Phoenix metropolitan area. We do not

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presently manufacture gasolines that satisfy the
Maricopa County, Arizona specifications, but we do produce
gasolines that meet the specifications applicable to other areas
of Arizona. We are able to purchase or exchange for cleaner
burning gasolines to supply our needs in the Maricopa County
area.


MTBE.Methyl
tertiary butyl ether (MTBE) is a gasoline blending
component used by many refiners in producing specially
formulated gasoline. MTBE has been phased out, or is in the
process of being phased out, in some areas where we market our
products. We currently do not anticipate any significant impact
on our operations due to the phase out of MTBE in these areas.

Oxygenates.As
previously discussed under the heading Refining
Group, the use of gasoline containing oxygenates has been
government-mandated in some areas in which we sell motor vehicle
fuel. We anticipate that we will be able to purchase sufficient
quantities of oxygenates at acceptable prices for the
foreseeable future.




MTBE Litigation

Lawsuits have been filed in over 20 states
alleging that MTBE has contaminated water wells. We are aware of
three MTBE lawsuits filed in the fourth quarter of 2003 in
Virginia state courts in Patrick, Buchanan, and Greensville
Counties. We are a named defendant in each suit, but the
plaintiffs have not served us with notice. The suits allege MTBE
contamination of water wells owned and operated by the
plaintiffs. For a further discussion of this matter, see
Note 20 to our Consolidated Financial Statements in
Item 8, captioned Commitments and Contingencies.




Alleged Regulatory Violations

Governmental authorities issue notices of
violations, compliance orders, and similar notices that allege,
among other things, violations of environmental requirements.
They also may assess fines for the alleged violations. We have
received a draft compliance order for our Ciniza refinery and a
compliance order for our Bloomfield refinery from the New Mexico
Environment Department alleging violations of air quality
regulations. We also have assumed environmental obligations
under a preexisting consent decree with EPA at our Yorktown
refinery. The consent decree includes provisions for penalties
if EPA alleges violations of these obligations. For a discussion
of these matters as well as other outstanding orders, see
Note 20 to our Consolidated Financial Statements in
Item 8, captioned Commitments and Contingencies.

We have received other allegations of regulatory
violations from governmental authorities from time to time. We
have responded or intend to respond in a timely manner to all
such matters. Despite our ongoing efforts to comply with
environmental laws, we may receive allegations of regulatory
violations from governmental authorities in the future.




Discharges, Releases and Cleanup
Activities

By their very nature, our operations are
inherently subject to accidental spills, discharges or other
releases of petroleum or hazardous substances. These events may
give rise to liability for us. Accidental discharges of
contaminants have occurred from time to time during the normal
course of our operations. We have undertaken, intend to
undertake, or have completed all investigative or remedial work
thus far required by governmental agencies to address potential
contamination by us. For a discussion of significant cleanup
activities in which we are involved, see Note 20 to our
Consolidated Financial Statements in Item 8, captioned
Commitments and Contingencies.

We are incurring, and anticipate that we will
continue to incur from time to time, remedial costs in
connection with current and former gasoline service stations
operated by us. Our experience has been that these costs
generally do not exceed $100,000 per incident, and some of
these costs may be reimbursed from state environmental funds.

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Although we have invested substantial resources
to prevent and minimize future accidental discharges and to
remedy contamination resulting from prior discharges, any of the
following may occur in the future:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | new accidental discharges,                                                                                       
|
| |  | we will fail to adequately remedy past discharges,                                                               
|
| |  | governmental agencies may impose fines for past
    or future contamination,                                     
|
| |  | we may not receive anticipated levels of
    reimbursement from third parties, or                                
|
| |  | third parties may assert claims against us for
    damages allegedly arising out of past or future contamination.




Health and Safety

Our operations also are subject to a variety of
federal, state, and local laws relating to occupational health
and safety. We have ongoing safety and training programs to
assist us in complying with health and safety requirements. Our
goal is to achieve compliance and to protect our employees and
the public. Despite our efforts to comply with health and safety
requirements, there can be no assurance that governmental
authorities will not allege in the future that violations of law
have occurred.




Changes in Environmental, Health and Safety
Laws

We cannot predict what new environmental, health
and safety laws will be enacted or become effective in the
future. We also cannot predict how existing or future laws will
be administered or interpreted with respect to products or
activities to which they have not been previously applied. In
addition, environmental, health and safety laws are becoming
increasingly stringent. Compliance with more stringent laws, as
well as more vigorous enforcement by regulatory agencies, could
have an adverse effect on our financial position and the results
of our operations and could require substantial expenditures by
us for, among other things:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | the installation and operation of refinery
    equipment, pollution control systems and equipment we currently
    do not possess,
|
| |  | the acquisition or modification of permits
    applicable to our activities, and                                                  
|
| |  | the initiation or modification of cleanup
    activities.                                                                         




Rights-Of-Way

In connection with our crude oil pipeline
gathering system, we have obtained various rights-of-way from
various third parties. Irregularities in title may exist with
respect to a limited number of these rights-of-way. We have,
however, continued our use of the entirety of our pipeline
gathering system. As of this date, no claim stemming from any
right-of-way matter has been brought against us. We do not
believe that any right-of-way matters or irregularities in title
will adversely affect our use or enjoyment of the pipeline
gathering system.

Certain rights-of-way for our crude oil pipeline
system must be renewed periodically. A portion of the system,
consisting of eight miles or approximately 3% of the entire
system, must be renewed in 2006. We expect that substantial lead
time will be required to negotiate and complete renewal of these
rights-of-way. Additional rights-of-way for pipeline sections
consisting of 174 miles or about 70% of the system must be
renewed in 2009, and initial discussions for renewal are
expected to begin in 2007.




Jet Fuel Claims

In February 2003, we filed a complaint against
the United States in the United States Court of Federal Claims
in connection with military jet fuel that we sold to the Defense
Energy Support Center from 1983 through 1994. We asserted that
the federal government underpaid us for jet fuel by

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approximately $17,000,000. For a discussion of
this matter, see Note 20 to our Consolidated Financial
Statements in Item 8, captioned Commitments and
Contingencies.





Yorktown Power Outage Claim

On April 28, 2003, a breaker failure
disrupted operations at the electric generation plant that
supplies our Yorktown refinery with power. As a result of the
failure, the refinery suffered a complete loss of power and shut
down all processing units. We incurred costs of approximately
$1,254,000 as a result of the loss of power. Reduced production
also resulted in a loss of earnings. We are pursuing
reimbursement from the power station owner. For a further
discussion of this matter, see Note 20 to our Consolidated
Financial Statements in Item 8, captioned Commitments
and Contingencies.






|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.

We are a party to ordinary routine litigation
incidental to our business. We also incorporate by reference the
discussion of legal proceedings contained in Items 1 and 2
under the headings Regulatory, Environmental and Other
Matters, the discussions contained in Item 7, and the
information regarding certain related party transactions in
Note 9 and commitments and contingencies in Note 20 to
the Companys Consolidated Financial Statements in
Item 8.






|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.

Not applicable.




Executive Officers of the Registrant

Our executive officers as of March 1, 2004
are listed below:

|                  |  |     |    |          |  |                                                                                 |  |  |               | 
|----------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------------------- |  |  | ------------- | 
|Name              |  | Age |    | Position |  | Executive Officer Since                                                        
|                  |  |     |    |          |  |                                                                                
|Fred L. Holliger  |  |     | 56 |          |  | Chairman of the Board and Chief Executive Officer                               |  |  | October 1989  | 
|Morgan Gust       |  |     | 56 |          |  | President                                                                       |  |  | August 1990   | 
|C. Leroy Crow     |  |     | 53 |          |  | Executive Vice President of our Refining Group
    Strategic Business Unit      |  |  | February 2000 | 
|Jack W. Keller    |  |     | 59 |          |  | President of Phoenix Fuel Strategic Business Unit                               |  |  | February 1999 | 
|Robert C. Sprouse |  |     | 47 |          |  | Executive Vice President of our Retail Group
    Strategic Business Unit        |  |  | April 2003    | 
|S. Leland Gould   |  |     | 47 |          |  | Executive Vice President, Governmental Affairs
    and Real Estate              |  |  | March 2002    | 
|Kim H. Bullerdick |  |     | 50 |          |  | Vice President, General Counsel, and Secretary                                  |  |  | February 1999 | 
|Mark B. Cox       |  |     | 45 |          |  | Vice President, Treasurer, Chief Financial
    Officer, and Assistant Secretary |  |  | February 1999 | 
|Roger D. Sandeen  |  |     | 58 |          |  | Vice President, Chief Accounting Officer, and
    Assistant Secretary           |  |  | July 2003     | 

Fred L. Holliger has served as one of our
directors since we went public in October 1989 and as our
chairman of the board and chief executive officer since
March 29, 2002. From October 1989 to March 29, 2002,
Mr. Holliger was our executive vice president and chief
operating officer. Mr. Holliger joined us as senior vice
president, and president of our refining division, in February
1989.

Morgan Gust has served as our president since
March 29, 2002. From February 1999 to March 29, 2002,
Mr. Gust served as our executive vice president.
Mr. Gust joined the company in August 1990, and

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over the years served in various senior
management positions for us, including vice president, vice
president administration, general counsel, and corporate
secretary.


C. Leroy Crow has served as executive vice
president of our refining group strategic business unit since
March 2000. From February 1999 to February 2000, Mr. Crow
served as our senior vice president, refinery operations and raw
material supply. Mr. Crow joined us in June 1997 when we
acquired Phoenix Fuel, and since then has served in various
senior management positions for us, including senior vice
president, operations division and vice president of operations.

Jack W. Keller has served as the president
of our Phoenix Fuel strategic business unit since its formation
in February 1999. He also has served as the president of Phoenix
Fuel since we acquired it in June 1997 and as chief operating
officer of Phoenix Fuel since May 1998.

Robert C. Sprouse has served as executive
vice president of our retail group strategic business unit since
April 2003. From January 2000 to April 2003, Mr. Sprouse
served as our director of retail operations. From 1996 to
January 2000, Mr. Sprouse held several management positions
with Strasburger Enterprises, Inc., a retail management
consulting company.

S. Leland Gould has served as our executive
vice president, governmental affairs and real estate since June
2002. From March 2002 to June 2002, Mr. Gould served as our
executive vice president of retail operations. Mr. Gould
joined us in August 2000 as vice president, strategic business
development. Prior to August 2000, Mr. Gould was vice
president and national sales manager for Wolf Camera, a photo
retail store chain with 800 stores nationwide.

Kim H. Bullerdick has served as our vice
president and corporate secretary since December 1998 and our
general counsel since May 2000. From December 1998 to May 2000,
Mr. Bullerdick was our legal department director.

Mark B. Cox has served as our vice
president, treasurer, financial officer and assistant secretary
since December 1998. On March 29, 2002, Mr. Cox was
named chief financial officer.

Roger D. Sandeen has served as our vice
president, chief accounting officer and assistant secretary
since July 2003. In January 2004, Mr. Sandeen was also
named as our chief information officer. From January 2002 to
July 2003, Mr. Sandeen was senior vice president and chief
financial officer for Venerable Group, a privately-owned company
involved in the real estate, business and information consulting
and dental industries. From 2000 through 2001, Mr. Sandeen
was an independent financial consultant to several
organizations, including the Venerable Group. From 1989 to 2000,
Mr. Sandeen was an executive officer for Xcel Energy, Inc.
serving from time to time in various senior management
positions, including chief financial officer, chief accounting
officer and chief information officer.

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##### Table of Contents






PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market For the Registrants Common
    Equity and Related Stockholder Matters

Our common stock is traded on the New York
Stock Exchange. The high and low sales prices for our common
stock for each full quarterly period as reported on the
New York Stock Exchange Composite Tape for the last two
fiscal years are as follows:

|                   |  |      |       |     |  |   |      | 
|------------------ |  | ---- | ----- | --- |  | - | ---- | 
|Quarter Ended      |  | High |       | Low
|                   |  |      |       |    
|December 31, 2003  |  | $    | 12.73 |     |  | $ | 7.10 | 
|September 30, 2003 |  |      | 8.10  |     |  |   | 5.57 | 
|June 30, 2003      |  |      | 6.32  |     |  |   | 4.42 | 
|March 31, 2003     |  |      | 5.50  |     |  |   | 2.85 | 
|December 31, 2002  |  | $    | 3.85  |     |  | $ | 1.86 | 
|September 30, 2002 |  |      | 8.13  |     |  |   | 3.15 | 
|June 30, 2002      |  |      | 12.55 |     |  |   | 7.50 | 
|March 31, 2002     |  |      | 10.39 |     |  |   | 8.21 | 

We currently do not pay dividends on our common
stock. The board of directors will periodically review our
policy regarding the payment of dividends. Any future dividends
are subject to the results of our operations, declaration by the
board of directors, and existing debt covenants, as described
below.

We have issued $150,000,000 of 9% Senior
Subordinated Notes due 2007 (the 9% Notes) and
$200,000,000 of 11% Senior Subordinated Notes due 2012 (the
11% Notes). The 9% Notes were issued under
an Indenture dated August 26, 1997 (the 9%
Indenture) and the 11% Notes were issued under an
Indenture dated May 14, 2002 (the 11%
Indenture, and collectively with the 9% Indenture, the
Indentures). Both Indentures are among the Company,
its subsidiaries, as guarantors, and The Bank of New York,
as trustee. The Indentures contain a number of covenants, one of
which restricts our ability to pay dividends and to purchase our
common stock.

At December 31, 2003, retained earnings
available for dividends under the most restrictive terms of the
Indentures were approximately $18,402,000.

Also see the Capital Structure
discussion in Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
Item 7.

On March 5, 2004, there were 249
stockholders of record for our common stock.

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##### Table of Contents






Item 6.     Selected
Financial Data.

The following table summarizes our recent
financial information. This selected financial data should be
read with Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7, and the
Consolidated Financial Statements and related notes thereto,
included in Item 8:






FINANCIAL AND OPERATING HIGHLIGHTS


|                                                           |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |         |  
|---------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------------------- | ------- | --------- | - | ---- | ------- | --------- | - | ---- | ------- | ------- | - | - | ------- | --------- | - | - | ------- | ------- | -
|                                                           |                                                |                                                                 
|                                                           |                                                | Year Ended December 31,                                         
|                                                           |                                                |                                                                 
|                                                           |                                                | 2003                                                             |         | 2002      |   | 2001 |         | 2000      |   | 1999
|                                                           |                                                |                                                                  |         |           |   |      |         |           |   |     
|                                                           |                                                |                                                                 
|                                                           |                                                | (In thousands, except percentages, per share and operating data)
|Financial Statement Data                                   |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |        
|Continuing Operations:                                     |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |        
|                                                           | Net Revenues                                   |                                                                  | $       | 1,808,259 |   |      | $       | 1,249,286 |   |      | $       | 907,327 |   |   | $       | 1,004,834 |   |   | $       | 720,025 |  
|                                                           | Operating Income                               |                                                                  |         | 63,834    |   |      |         | 20,556    |   |      |         | 45,748  |   |   |         | 35,525    |   |   |         | 37,125  |  
|                                                           | Net Earnings (Loss)                            |                                                                  |         | 12,337    |   |      |         | (11,099   | ) |      |         | 13,845  |   |   |         | 7,858     |   |   |         | 10,615  |  
|                                                           | Earnings (Loss) Per Common Share  Basic       |                                                                  | $       | 1.41      |   |      | $       | (1.29     | ) |      | $       | 1.56    |   |   | $       | 0.85      |   |   | $       | 0.99    |  
|                                                           | Earnings (Loss) Per Common Share 
    Diluted |                                                                  | $       | 1.40      |   |      | $       | (1.29     | ) |      | $       | 1.55    |   |   | $       | 0.85      |   |   | $       | 0.99    |  
|Discontinued Operations:                                   |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |        
|                                                           | Net Revenues                                   |                                                                  | $       | 28,179    |   |      | $       | 63,776    |   |      | $       | 84,352  |   |   | $       | 94,526    |   |   | $       | 73,158  |  
|                                                           | Operating Income (Loss)                        |                                                                  |         | (690      | ) |      |         | 3,053     |   |      |         | (2,439  | ) |   |         | (948      | ) |   |         | 272     |  
|                                                           | Net Earnings (Loss)                            |                                                                  |         | (414      | ) |      |         | 1,832     |   |      |         | (1,464  | ) |   |         | (569      | ) |   |         | 163     |  
|                                                           | Earnings (Loss) Per Common Share  Basic       |                                                                  | $       | (0.05     | ) |      | $       | 0.21      |   |      | $       | (0.16   | ) |   | $       | (0.06     | ) |   | $       | 0.02    |  
|                                                           | Earnings (Loss) Per Common Share 
    Diluted |                                                                  | $       | (0.05     | ) |      | $       | 0.21      |   |      | $       | (0.16   | ) |   | $       | (0.06     | ) |   | $       | 0.02    |  
|Cumulative Effect of Change in Accounting
    Principle    |                                                | $                                                                | (704    | )         |   |      |        |           |   |      |        |         |   |   |        |           |   |   |        |        
|                                                           | Loss Per Common Share  Basic                  |                                                                  | $       | (0.08     | ) |      |         |          |   |      |         |        |   |   |         |          |   |   |         |        |  
|                                                           | Loss Per Common Share  Diluted                |                                                                  | $       | (0.08     | ) |      |         |          |   |      |         |        |   |   |         |          |   |   |         |        |  
|Weighted Average Common Shares
    Outstanding  Basic     |                                                |                                                                  | 8,732   |           |   |      | 8,566   |           |   |      | 8,871   |         |   |   | 9,214   |           |   |   | 10,679  |        
|Weighted Average Common Shares
    Outstanding  Diluted   |                                                |                                                                  | 8,830   |           |   |      | 8,566   |           |   |      | 8,885   |         |   |   | 9,223   |           |   |   | 10,719  |        
|Working Capital                                            |                                                | $                                                                | 108,347 |           |   | $    | 91,333  |           |   | $    | 56,228  |         |   | $ | 53,537  |           |   | $ | 48,584  |        
|Total Assets                                               |                                                |                                                                  | 707,354 |           |   |      | 702,286 |           |   |      | 507,174 |         |   |   | 528,565 |           |   |   | 546,799 |        
|Long-Term Debt                                             |                                                |                                                                  | 355,601 |           |   |      | 398,069 |           |   |      | 256,749 |         |   |   | 258,009 |           |   |   | 258,272 |        
|Stockholders Equity                                       |                                                |                                                                  | 139,436 |           |   |      | 127,317 |           |   |      | 136,410 |         |   |   | 127,703 |           |   |   | 132,462 |        
|Long-Term Debt as a Percentage of Total
    Capitalization |                                                |                                                                  | 71.8    | %         |   |      | 75.8    | %         |   |      | 65.3    | %       |   |   | 66.9    | %         |   |   | 66.1    | %      
|Book Value Per Common Share Outstanding                    |                                                | $                                                                | 15.87   |           |   | $    | 14.85   |           |   | $    | 15.95   |         |   | $ | 14.27   |           |   | $ | 12.86   |        
|Return on Average Stockholders Equity                     |                                                |                                                                  | 8.4     | %         |   |      |        |           |   |      | 9.4     | %       |   |   | 5.6     | %         |   |   | 8.3     | %      
|Operating Data                                             |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |        
|Refining Group:                                            |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |        
|Four Corners Operations:                                   |                                                |                                                                  |         |           |   |      |         |           |   |      |         |         |   |   |         |           |   |   |         |        
|                                                           | Rated Crude Oil Capacity Utilized              |                                                                  |         | 67        | % |      |         | 72        | % |      |         | 73      | % |   |         | 80        | % |   |         | 87      | %
|                                                           | Refinery Sourced Sales Barrels (Bbls/Day)      |                                                                  |         | 29,900    |   |      |         | 31,907    |   |      |         | 32,025  |   |   |         | 34,287    |   |   |         | 37,368  |  
|                                                           | Average Crude Oil Costs ($/Bbl)                |                                                                  | $       | 29.32     |   |      | $       | 23.62     |   |      | $       | 25.00   |   |   | $       | 29.26     |   |   | $       | 17.64   |  
|                                                           | Refinery Margin ($/Bbl)                        |                                                                  | $       | 8.81      |   |      | $       | 6.84      |   |      | $       | 9.69    |   |   | $       | 7.63      |   |   | $       | 6.89    |  

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|                        |                                               |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |         |  
|----------------------- | --------------------------------------------- | ---------------------------------------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                        |                                               |                                                                 
|                        |                                               | Year Ended December 31,                                         
|                        |                                               |                                                                 
|                        |                                               | 2003                                                             |   | 2002    |         | 2001 |   | 2000    |         | 1999
|                        |                                               |                                                                  |   |         |         |      |   |         |         |     
|                        |                                               |                                                                 
|                        |                                               | (In thousands, except percentages, per share and operating data)
|Yorktown Operations:(1) |                                               |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |        
|                        | Rated Crude Oil Capacity Utilized             |                                                                  |   | 83      | %       |      |   | 86      | %       |      |   |         |         |   |   |         |         |   |   |         |        
|                        | Refinery Sourced Sales Barrels (Bbls/Day)     |                                                                  |   | 58,931  |         |      |   | 58,771  |         |      |   |         |         |   |   |         |         |   |   |         |        
|                        | Average Crude Oil Costs ($/Bbl)               |                                                                  | $ | 29.79   |         |      | $ | 27.01   |         |      |   |         |         |   |   |         |         |   |   |         |        
|                        | Refinery Margin ($/Bbl)                       |                                                                  | $ | 4.07    |         |      | $ | 2.32    |         |      |   |         |         |   |   |         |         |   |   |         |        
|Retail Group:           |                                               |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |        
|                        | Service Stations: (Continuing
    Operations) |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                        |                                               | Fuel Gallons Sold (In Thousands)                                 |   |         | 147,861 |      |   |         | 146,104 |      |   |         | 152,834 |   |   |         | 168,115 |   |   |         | 172,041 |  
|                        |                                               | Product Margin ($/Gallon)                                        |   | $       | 0.198   |      |   | $       | 0.157   |      |   | $       | 0.175   |   |   | $       | 0.171   |   |   | $       | 0.185   |  
|                        |                                               | Merchandise Sold ($ In Thousands)                                |   | $       | 127,146 |      |   | $       | 123,657 |      |   | $       | 123,369 |   |   | $       | 118,162 |   |   | $       | 100,868 |  
|                        |                                               | Merchandise Margin                                               |   |         | 29      | %    |   |         | 27      | %    |   |         | 28      | % |   |         | 28      | % |   |         | 28      | %
|                        | Operating Retail Outlets at Year
    End:     |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                        |                                               | Continuing Operations                                            |   |         | 124     |      |   |         | 122     |      |   |         | 123     |   |   |         | 152     |   |   |         | 146     |  
|                        |                                               | Discontinued Operations                                          |   |         | 3       |      |   |         | 13      |      |   |         | 27      |   |   |         | 27      |   |   |         | 26      |  
|                        | Travel Center:(2)                             |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                        |                                               | Fuel Gallons Sold (In Thousands)                                 |   |         | 10,227  |      |   |         | 24,906  |      |   |         | 24,964  |   |   |         | 26,698  |   |   |         | 27,991  |  
|                        |                                               | Product Margin ($/Gallon)                                        |   | $       | 0.071   |      |   | $       | 0.094   |      |   | $       | 0.103   |   |   | $       | 0.104   |   |   | $       | 0.111   |  
|                        |                                               | Merchandise Sold ($ In Thousands)                                |   | $       | 2,703   |      |   | $       | 6,103   |      |   | $       | 6,128   |   |   | $       | 6,719   |   |   | $       | 7,291   |  
|                        |                                               | Merchandise Margin                                               |   |         | 42      | %    |   |         | 44      | %    |   |         | 44      | % |   |         | 46      | % |   |         | 45      | %
|                        |                                               | Number of Outlets at Year End                                    |   |         |        |      |   |         | 1       |      |   |         | 1       |   |   |         | 1       |   |   |         | 1       |  
|Phoenix Fuel:           |                                               |                                                                  |   |         |         |      |   |         |         |      |   |         |         |   |   |         |         |   |   |        
|                        | Fuel Gallons Sold (In Thousands)              |                                                                  |   | 429,198 |         |      |   | 376,711 |         |      |   | 394,158 |         |   |   | 424,290 |         |   |   | 351,949 |        
|                        | Product Margin ($/Gallon)                     |                                                                  | $ | 0.053   |         |      | $ | 0.054   |         |      | $ | 0.050   |         |   | $ | 0.052   |         |   | $ | 0.064   |        
|                        | Lubricant Sales ($ In Thousands)              |                                                                  | $ | 24,475  |         |      | $ | 21,544  |         |      | $ | 22,347  |         |   | $ | 24,210  |         |   | $ | 22,067  |        
|                        | Lubricant Margin                              |                                                                  |   | 15      | %       |      |   | 17      | %       |      |   | 17      | %       |   |   | 16      | %       |   |   | 15      | %      



---



|    |                          
|--- | -------------------------
|(1) | Acquired on May 14, 2002.
|   
|(2) | Sold June 19, 2003.      






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations




Company Overview

We refine and sell petroleum products and operate
service stations and convenience stores. Our operations are
divided into three strategic business units, the refining group,
the retail group and Phoenix Fuel. The refining group operates
two refineries in the Four Corners area of New Mexico and one
refinery in Yorktown, Virginia. The refining group sells its
products to approximately 700 wholesale distributors and
retail chains. Our retail group operated 127 service
stations at December 31, 2003. The retail group sells its
petroleum products and merchandise to consumers located in New
Mexico, Arizona and southern Colorado. Phoenix Fuel distributes
commercial wholesale petroleum products primarily in Arizona.

In order to maintain and improve our financial
performance, we are focused on several critical and challenging
objectives. We will be addressing these objectives in the
short-term as well as over the next three to five years. In our
view, the most important of these objectives are:



| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing gross margins through management of
    inventories and taking advantage of sales and purchasing
    opportunities, while minimizing or reducing operating expenses
    and capital expenditures.

18



---



##### Table of Contents





| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing the available crude oil supply for our
    Four Corners refineries.                                                                                                       
|
| |  | Cost effectively complying with current
    environmental regulations as they apply to our refineries,
    including future clean air standards, between now and the end of
    2008.
|
| |  | Planning for the retirement of our 9% senior
    subordinated notes, in the principal amount of $150,000,000, due
    in 2007.                                                       
|
| |  | Improving our overall financial health and
    flexibility by reducing our debt and overall cost of capital,
    including our interest and financing costs.                         




Critical Accounting Policies

A critical step in the preparation of our
financial statements is the selection and application of
accounting principles, policies, and procedures that affect the
amounts that are reported. In order to apply these principles,
policies, and procedures, we must make judgments, assumptions,
and estimates based on the best available information at the
time. Actual results may differ based on the accuracy of the
information utilized and subsequent events, some of which we may
have little or no control over. In addition, the methods used in
applying the above may result in amounts that differ
considerably from those that would result from the application
of other acceptable methods. The development and selection of
these critical accounting policies, and the related disclosure
below, have been reviewed with the audit committee of our board
of directors.

Our significant accounting policies, including
revenue recognition, inventory valuation and maintenance costs,
are described in Note 1 to our Consolidated Financial
Statements included in Item 8. The following accounting
policies are considered critical due to the uncertainties,
judgments, assumptions and estimates involved:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | accounting for contingencies, including
    environmental remediation and litigation liabilities,
|
| |  | assessing the possible impairment of long-lived
    assets,                                      
|
| |  | accounting for asset retirement
    obligations, and                                             
|
| |  | accounting for our pension and post-retirement
    benefit plans.                                




Contingencies, Including Environmental
Remediation and Litigation Liabilities

We have recorded various environmental
remediation liabilities described in more detail in Note 20
to our Consolidated Financial Statements in Item 8. For the
most part, these liabilities result from:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | past operations, including liabilities arising
    out of changes in environmental laws, and
|
| |  | liabilities assumed in connection with acquired
    assets.                                 

We are remediating these matters. We record
liabilities if environmental assessments and/or remedial efforts
are probable and the costs can be reasonably estimated. We do
not discount environmental liabilities to their present value.
In general, we record environmental liabilities without
consideration of potential recoveries from third parties,
although we do take into account amounts that others are
contractually obligated to pay us. We employ independent
consultants or our internal environmental personnel to
investigate and assemble pertinent facts, recommend an
appropriate remediation plan in light of regulatory standards,
assist in estimating remediation costs based on existing
technologies, and complete remediation according to approved
plans. If we do not use consultants, we estimate remediation
costs based on the knowledge and experience of our employees
having responsibility for the remediation project. Because of
the uncertainty involved in our various remediation efforts and
the period of time our efforts may take to complete, estimates
are based on current regulatory standards. We update our
estimates as needed to reflect changes in the facts known to us,
available technology, or applicable laws. We often make
subsequent adjustments to estimates, which may be significant,
as more information becomes

19



---



##### Table of Contents



available to us, as the requirements of
government agencies are changed or clarified, or as other
circumstances change.


We record liabilities for litigation matters when
it is probable that the outcome of litigation will be adverse
and the costs and damages can be reasonably estimated. We
estimate these costs and damages based on the facts and
circumstances of each case, our knowledge and experience, and
the knowledge and experience of others with whom we may consult.
We often make subsequent adjustments to our estimates, which may
be significant, as more information becomes available to us or
as other circumstances change.




Impairment of Long-Lived Assets

We review the carrying values of our long-lived
assets, including goodwill and other intangibles, for possible
impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable.
For assets held for sale, we report long-lived assets at the
lower of the carrying amount or fair value less cost to sell.
For assets held and used, we use an undiscounted cash flow
methodology to assess their recoverability. If the sum of the
expected future cash flows for these assets is less than their
carrying value, we record impairment losses. Goodwill and
certain intangible assets with indefinite lives are also subject
to an annual impairment test. Changes in current economic
conditions, assumptions regarding the timing and amounts of cash
flows, or fair market value estimates could result in additional
write-downs of these assets in the future. For a discussion of
our impairment of long-lived assets, see Note 7 to our
Consolidated Financial Statements in Item 8.




Asset Retirement Obligations

We have legal obligations associated with the
retirement of some of our long-lived assets. These obligations
are related to:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | some of our solid waste management facilities,             
|
| |  | some of our crude pipeline right-of-way
    agreements, and
|
| |  | our underground and above-ground storage tanks.            

We use a discounted cash flow model to calculate
the fair value of the asset retirement obligations. Key
assumptions we used in estimating the fair value of these
obligations are:



| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Settlement date occurs at the end of the economic
    useful life, and                                                                                                                                                        
|
| |  | Settlement prices are estimated using consultant
    proposals and third-party contractor invoices for substantially
    equivalent work and a market risk premium to cover uncertainties
    and unforeseeable circumstances.

Changes in current economic conditions,
assumptions regarding the timing and amounts of cash flows, or
fair market value estimates could result in a change in the
obligation in the future.

For a discussion of our asset retirement
obligations, see Note 4 to our Consolidated Financial
Statements in Item 8.




Pension and Post-Retirement Plans

The plan obligations and related assets of our
pension and post retirement plans are presented in Note 17
to our Consolidated Financial Statements. Plan assets, which
consist of equity and debt securities, are valued using market
prices. Plan obligations and the annual pension and
post-retirement medical

20



---



##### Table of Contents



expense are determined by independent actuaries
and are based on a number of assumptions. The key assumptions
used in measuring the plan obligations include:




| |   |                                             
| | - | --------------------------------------------
| |  | Discount rate,                              
|
| |  | Long-term rate of return on plan assets, and
|
| |  | Healthcare cost trend rates.                

Changes in our actuarial assumptions used in
calculating our pension and other postretirement benefit
liability and expense can have a significant impact on our
earnings and financial position. We review these assumptions on
an annual basis and adjust them as necessary.

The following chart reflects the sensitivities
that a change in certain actuarial assumptions for our Cash
Balance Plan would have had on the 2003 projected benefit
obligation, our 2003 reported pension liability on our
Consolidated Balance Sheet and our 2003 reported pension expense
on our Consolidated Statement of Operations:

|                                                  |             |                     |   |                   |   |                 |   |          |   |  |   |          |  
|------------------------------------------------- | ----------- | ------------------- | - | ----------------- | - | --------------- | - | -------- | - |  | - | -------- | -
|                                                  |             |                    
|                                                  |             | Increase/(Decrease)
|                                                  |             |                    
|                                                  |             | Impact on Projected |   | Impact on         |   | Impact on      
|Actuarial Assumption(a)                           |             | Benefit Obligation  |   | Pension Liability |   | Pension Expense
|                                                  |             |                     |   |                   |   |                
|Discount rate:                                    |             |                     |   |                   |   |                 |   |          |   |  |   |         
|                                                  | Increase 1% |                     | $ | (1,686,000        | ) |                 | $ | (289,000 | ) |  | $ | (289,000 | )
|                                                  | Decrease 1% |                     |   | 1,961,000         |   |                 |   | 387,000  |   |  |   | 387,000  |  
|Expected long-term rate of return on plan assets: |             |                     |   |                   |   |                 |   |          |   |  |   |         
|                                                  | Increase 1% |                     |   |                  |   |                 |   | (3,000   | ) |  |   | (3,000   | )
|                                                  | Decrease 1% |                     |   |                  |   |                 |   | 3,000    |   |  |   | 3,000    |  



---



|    |  |                                                                                             
|--- |  | --------------------------------------------------------------------------------------------
|(a) |  | Each fluctuation assumes that the other
    components of the calculation are held constant.

The following chart reflects the sensitivities
that a change in certain actuarial assumptions for our Retiree
Medical Plan would have had on the 2003 accumulated
postretirement benefit obligation on our Consolidated Balance
Sheet and our 2003 reported postretirement benefit expense on
our Consolidated Statement of Operation:

|                                |             |                     |   |                 |   |  |   |         |  
|------------------------------- | ----------- | ------------------- | - | --------------- | - |  | - | ------- | -
|                                |             |                    
|                                |             | Increase/(Decrease)
|                                |             |                    
|                                |             | Impact on           |   | Impact on      
|                                |             | Accumulated         |   | Other          
|                                |             | Postretirement      |   | Postretirement 
|Actuarial Assumption(a)         |             | Benefit Obligation  |   | Benefit Expense
|                                |             |                     |   |                
|Discount rate:                  |             |                     |   |                 |   |  |   |        
|                                | Increase 1% |                     | $ | (488,000        | ) |  | $ | (42,000 | )
|                                | Decrease 1% |                     |   | 609,000         |   |  |   | 74,000  |  
|Health care cost trend rate(b): |             |                     |   |                 |   |  |   |        
|                                | Increase 1% |                     |   | 89,000          |   |  |   | 15,000  |  
|                                | Decrease 1% |                     |   | (88,000         | ) |  |   | (15,000 | )



---



|    |  |                                                                                             
|--- |  | --------------------------------------------------------------------------------------------
|(a) |  | Each fluctuation assumes that the other
    components of the calculation are held constant.
|   
|(b) |  | This assumes a 1% change in the initial and
    ultimate health care cost trend rate.       




Results of Operations

The Companys recent financial information
is summarized in Selected Financial Data in Item 6. The
following discussion of our Results of Operations should be read
in conjunction with the Consolidated Financial Statements and
related notes thereto included in Item 8, primarily
Note 3  Business Segments.

21



---



##### Table of Contents



Below is operating data for our operations:

|                               |                                           |                                      |   |         |        |      |   |         |        |  |   |         |        | 
|------------------------------ | ----------------------------------------- | ------------------------------------ | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                               |                                           |                                     
|                               |                                           | Year Ended December 31,             
|                               |                                           |                                     
|                               |                                           | 2003                                 |   | 2002    |        | 2001
|                               |                                           |                                      |   |         |        |     
|Refining Group Operating Data: |                                           |                                      |   |         |        |      |   |         |        |  |   |        
|                               | Four Corners Operations:                  |                                      |   |         |        |      |   |         |        |  |   |         |       
|                               |                                           | Crude Oil/NGL Throughput (BPD)       |   |         | 30,552 |      |   |         | 32,535 |  |   |         | 33,167 | 
|                               |                                           | Refinery Sourced Sales Barrels (BPD) |   |         | 29,900 |      |   |         | 31,907 |  |   |         | 32,025 | 
|                               |                                           | Average Crude Oil Costs ($/Bbl)      |   | $       | 29.32  |      |   | $       | 23.62  |  |   | $       | 25.00  | 
|                               |                                           | Refining Margins ($/Bbl)             |   | $       | 8.81   |      |   | $       | 6.84   |  |   | $       | 9.69   | 
|                               | Yorktown Operations:                      |                                      |   |         |        |      |   |         |        |  |   |         |       
|                               |                                           | Crude Oil/NGL Throughput (BPD)       |   |         | 57,672 |      |   |         | 57,297 |  |   |         |        | 
|                               |                                           | Refinery Sourced Sales Barrels (BPD) |   |         | 58,931 |      |   |         | 58,771 |  |   |         |        | 
|                               |                                           | Average Crude Oil Costs ($/Bbl)      |   | $       | 29.79  |      |   | $       | 27.01  |  |   |         |        | 
|                               |                                           | Refining Margins ($/Bbl)             |   | $       | 4.07   |      |   | $       | 2.32   |  |   |         |        | 
|Retail Group Operating Data:   |                                           |                                      |   |         |        |      |   |         |        |  |   |        
|(Continuing operations only)   |                                           |                                      |   |         |        |      |   |         |        |  |   |        
|                               | Fuel Gallons Sold (000s)                 |                                      |   | 147,861 |        |      |   | 146,104 |        |  |   | 152,834 |       
|                               | Fuel Margins ($/gal)                      |                                      | $ | 0.1977  |        |      | $ | 0.1566  |        |  | $ | 0.1751  |       
|                               | Merchandise Sales ($ in 000s)            |                                      | $ | 127,146 |        |      | $ | 123,657 |        |  | $ | 123,369 |       
|                               | Merchandise Margins                       |                                      |   | 29.0    | %      |      |   | 27.1    | %      |  |   | 28.1    | %     
|                               | Operating Retail Outlets at Year
    End: |                                      |   |         |        |      |   |         |        |  |   |         |       
|                               |                                           | Continuing Operations                |   |         | 124    |      |   |         | 122    |  |   |         | 123    | 
|                               |                                           | Discontinued Operations              |   |         | 3      |      |   |         | 14     |  |   |         | 28     | 
|Phoenix Fuel Operating Data:   |                                           |                                      |   |         |        |      |   |         |        |  |   |        
|                               | Fuel Gallons Sold (000s)                 |                                      |   | 429,198 |        |      |   | 376,711 |        |  |   | 394,158 |       
|                               | Fuel Margins ($/gal)                      |                                      | $ | 0.0525  |        |      | $ | 0.0539  |        |  | $ | 0.0498  |       
|                               | Lubricant Sales ($ in 000s)              |                                      | $ | 24,475  |        |      | $ | 21,544  |        |  | $ | 22,347  |       
|                               | Lubricant Margins                         |                                      |   | 15.4    | %      |      |   | 16.7    | %      |  |   | 16.6    | %     

The comparability of our continuing results of
operations for the year ended December 31, 2003 with the
year ended December 31, 2002 is affected by, among others,
the following factors:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The acquisition of our Yorktown refinery on
    May 14, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In the first four and one-half months of
    operation following its acquisition in 2002, our Yorktown
    refinery experienced three significant unscheduled unit
    shutdowns, which impacted the amount of high value products we
    were able to produce and the volume of crude oil we were able to
    process at the refinery.                                                                                                                                                                                                                        
|
| |  | A processing unit turnaround at our Yorktown
    refinery, which resulted in the refinery being out of operation
    from March 21, 2003 to April 16, 2003.                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | On April 28, 2003, a breaker failure
    disrupted operations at the electric generation plant that
    supplies our Yorktown refinery with power. As a result of the
    failure, the refinery suffered a complete loss of power and shut
    down all processing units. The refinery was operating at full
    capacity by the middle of May. We incurred costs of
    approximately $1,254,000 as a result of the loss of power, all
    of which were expensed in the second quarter of 2003. Reduced
    production also resulted in the loss of earnings.

22



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##### Table of Contents





| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | Stronger net refining margins at our refineries
    in 2003, due to, among other things:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | lower domestic crude oil and finished product
    inventories, and
|
| |  | strong domestic finished product demand,                          



| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | Weaker net refining margins at our refineries in
    2002 due to, among other things:



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | continuing high inventories of distillates
    resulting from a drop in jet fuel demand following the
    September 11, 2001 terrorists attack,
|
| |  | warmer than normal winter temperatures in the
    Northeast,                                                                                   
|
| |  | worldwide crude oil production levels and Middle
    East tensions, which added to higher crude values,                                        
|
| |  | imported finished products that placed downward
    pressure on gasoline values, and                                                           
|
| |  | losses on various crude oil futures contracts.                                                                                                 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continued reduced production at our Four Corners
    refineries because of lower crude oil receipts due to supplier
    production problems and reduced supply availability.                                                                                                                                                                                                                                                         
|
| |  | Stronger finished product sales volumes with
    relatively stable margins for our Phoenix Fuel operations. The
    shutdown of the Kinder Morgan pipeline, which supplies the
    Phoenix, Arizona market, in the middle of August 2003 caused
    some supply imbalances and negatively impacted inventory values.
    This negative impact was offset in part by higher margins for
    Phoenix Fuels unattended fuel operations.
|
| |  | Strong retail fuel margins and improved
    merchandise margins in 2003 for several of our market areas.
    This was offset in part due to increased competition in certain
    of our markets.                                                                                                                                                                                                                                     
|
| |  | Net losses on the disposal/ write-down of assets
    of $1,837,000 in 2003. In 2002, we recorded net gains on the
    disposal/ write-down of assets of $741,000.                                                                                                                                                                                                                                                                    




Comparison of the Years Ended
December 31, 2003 and December 31, 2002



| |                                                                   
| | ------------------------------------------------------------------
| | Earnings (Loss) From Continuing Operations
    Before Income Taxes

Our earnings from continuing operations before
income taxes increased $38,884,000 for the year ended
December 31, 2003. This increase was primarily due to the
following four factors:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | An increase in operating earnings from our
    Yorktown refinery of $28,427,000.
|
| |  | A 29% increase in our Four Corners
    refineries refining margins.            
|
| |  | A 26% increase in our retail group fuel margins.                                
|
| |  | A 7% increase in our retail group merchandise
    margins.                      

Factors negatively affecting our earnings include:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | A 20% increase in our selling, general and
    administrative costs.                       
|
| |  | A 9% increase in operating expenses for our
    operations other than Yorktown.            
|
| |  | A 6% decline in our Four Corners refineries
    fuel volumes sold.                        
|
| |  | A 7% increase in interest expense.                                                         
|
| |  | Net losses on the disposal/write-down of assets
    in 2003 compared to a net gain in 2002.

23



---



##### Table of Contents





| |                  
| | -----------------
| | Yorktown Refinery

We owned our Yorktown refinery for all of 2003,
but only for seven and one-half months in 2002. The refinery
operated at an average throughput rate of approximately
57,700 barrels per day in 2003 and 57,300 barrels per
day in 2002. Refining margins for 2003 were $4.07 per
barrel and $2.32 for 2002.

Revenues for our Yorktown refinery increased in
2003 due to a 58% increase in finished product volumes sold and
a 16% increase in finished product selling prices. Most of the
volume increase was due to the number of months of ownership.
Sales volumes were reduced in each year because of the items
previously discussed above, and additionally in 2003, hurricane
Isabel required us to shutdown the refinery for a period of time.

Cost of products sold for our Yorktown refinery
increased in 2003 primarily due to the increase in finished
product volumes sold and a 10% increase in average crude oil
costs.

In February 2004, we entered into a long-term
supply agreement with Statoil, which we believe will provide a
significant proportion of our Yorktown refinerys crude oil
needs over the next five years. Under the terms of the
agreement, supplies of acidic crude oil will be delivered to our
Yorktown refinery beginning in late February 2004. In September
2004, we plan to shut down certain units at the refinery for 20
to 30 days for various upgrades related to the acidic crude
oil we will be processing. Following these upgrades at the
refinery, the deliveries of crude oil under the Statoil
agreement will substantially increase. We believe our ability to
process this higher acid crude oil will reduce our crude oil
costs, improve our high-value product output, and contribute
significantly to higher earnings. We believe this agreement will
improve our competitiveness and reduce the impact of pricing
volatility.

In 2003, our Yorktown refining margins improved
due to a combination of factors, including:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Cold weather in the Northeast in the early part
    of the year, resulting in an increased demand for heating oil,
|
| |  | An extended summer driving season, resulting in
    part from warmer than normal east coast temperatures, and     
|
| |  | Reduced foreign gasoline imports, due in part to
    the phase in of stricter gasoline specifications.            

Operating, SG&A and depreciation expenses for
our Yorktown refinery also increased in 2003.



| |                        
| | -----------------------
| | Four Corners Refineries

Our Four Corners refineries operated at an
average throughput rate of approximately 30,552 barrels per
day in 2003 and 32,535 barrels per day in 2002. Refining
margins for 2003 were $8.81 per barrel and $6.84 for 2002.

Revenues for our Four Corners refineries
increased in 2003 primarily due to a 24% increase in finished
product selling prices, offset in part by a 6% decrease in
finished product volumes sold. Sales volumes were reduced
because of lower crude oil supplies due to the reasons
previously discussed. Sales volumes previously sold to our
travel center, which was sold in 2003, continue to be sold to
the purchaser of the travel center under a long-term supply
agreement.

Cost of products sold for our Four Corners
refineries increased in 2003 primarily due to a 24% increase in
average crude oil costs, offset in part by a 6% decrease in
finished product volumes sold.

Our Four Corners refining margins improved 29% in
2003 due to a combination of factors, including:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Refinery supply problems on the west coast,                                                                                                  
|
| |  | Refinery turnarounds by our competitors, and                                                                                                 
|
| |  | The Kinder-Morgan Pipeline rupture in August
    2003, which affected fuel supplies in the Phoenix, Arizona and
    Northern Arizona markets.

24



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##### Table of Contents



Operating expenses for our Four Corners
refineries increased in 2003 due to increased purchased fuel
costs, because of higher prices, and higher general insurance
costs.

Depreciation expense for our Four Corners
refineries declined in 2003 due to lower refinery turnaround
amortization costs in 2003. Our Ciniza refinery is scheduled for
a major turnaround in the second quarter of 2004.



| |             
| | ------------
| | Retail Group

Average gasoline and diesel margins for our
retail group were $0.198 per gallon for 2003 and were
$0.157 per gallon for 2002. Gasoline and diesel fuel
volumes sold for 2003 increased approximately 1%. Average
merchandise margins for our retail group were 29.0% in 2003 and
were 27.1% in 2002.

Revenues for our retail group increased in 2003
primarily due to a 16% increase in finished product selling
prices.

Cost of products sold for our retail group
increased in 2003 primarily due to a 15% increase in finished
product purchase prices.

Our retail fuel margins improved 26% in 2003 due
to a combination of factors, including



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Kinder-Morgan pipeline rupture, which
    affected the supply of finished products in the Phoenix, Arizona
    and Southern Arizona markets,
|
| |  | more effectively managing our fuel
    pricing, and                                                                                             
|
| |  | more favorable market conditions.                                                                                                               

Our retail merchandise margins improved 7% in
2003 due to a combination of factors, including:



| |   |                                          
| | - | -----------------------------------------
| |  | more favorable market conditions,        
|
| |  | implementation of marketing programs, and
|
| |  | favorable supplier arrangements.         

Operating expenses for our retail group increased
in 2003 due to higher payroll and related costs, higher credit
card processing fees due to higher gasoline and diesel fuel
selling prices, and increased environmental costs.

Depreciation expense for our retail group
declined in 2003 due to some retail assets becoming fully
depreciated.



| |             
| | ------------
| | Phoenix Fuel

Gasoline and diesel fuel volumes sold by Phoenix
Fuel increased by 14% in 2003. Average gasoline and diesel fuel
margins for Phoenix Fuel were $0.053 per gallon for 2003 and
were $0.054 per gallon for 2002.

Revenues for Phoenix Fuel increased in 2003
primarily due to a 16% increase in finished product selling
prices and a 14% increase in finished product volumes sold.
Finished product sales volumes increased due to marketing
efforts to attract new customers and increased sales to existing
customers because of increased demand and expanded customer
operations.

Cost of products sold for Phoenix Fuel increased
in 2003 due to a 16% increase in finished product purchase
prices and a 14% increase in finished product volumes sold.

Our Phoenix Fuel finished product margins
remained relatively stable in 2003, declining approximately 3%
as a result of market conditions.

25



---



##### Table of Contents



Operating expenses for Phoenix Fuel increased in
2003 due to higher payroll and related costs due to higher sales
volumes, and higher repair and maintenance costs due to expanded
fleet expenses, also related to higher sales volumes.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Selling, General and Administrative
    Expenses from Continuing Operations

For the year ended December 31, 2003,
SG&A expenses increased approximately $5,062,000 or 20% to
$30,617,000 from $25,555,000 in the comparable 2002 period. The
increase includes SG&A increases relating to the Yorktown
refinery of $1,569,000. SG&A expense increases for our other
operations were due to:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | accruals for management incentive bonuses,                                            
|
| |  | increased costs for our self-insured health plan,
    due to higher claims experience,
|
| |  | higher workers compensation costs,                                                    
|
| |  | increased letter of credit fees, and                                                  
|
| |  | higher officers and directors insurance premiums.                                     

The first quarter of 2002 included a credit of
$471,000 in SG&A expenses for the revision of estimated
accruals for 2001 management incentive bonuses, following the
determination of bonuses to be paid to employees.



| |                                                
| | -----------------------------------------------
| | Interest Expense from Continuing
    Operations

For the year ended December 31, 2003,
interest expense increased approximately $2,685,000 or 7% to
$38,993,000 from $36,308,000 in the comparable 2002 period.
Interest expense increased approximately $8,348,000 due to the
issuance of senior subordinated notes for the May 2002
acquisition of our Yorktown refinery. This increase was offset
in part by a decrease in interest expense of approximately
$4,821,000 relating to our $100,000,000 of
9 3/4% Senior Subordinated Notes due 2003 that were
repaid with a portion of the proceeds of the issuance of the
senior subordinated notes in 2002, and lower interest expense of
approximately $840,000 relating to lower borrowings under our
revolving credit facility in 2003.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Net (Gain) Loss on the Disposal/ Write-Down
    of Assets from Continuing Operations

For the year ended December 31, 2003, we
recorded net losses on the disposal/ write-down of assets of
$1,837,000. This amount includes the write-off of $901,000 of
capitalized costs relating to a capital project associated with
our Four Corners refinery operations, which management
determined was no longer viable after completing an ongoing
evaluation, impairment write-downs of $796,000 related to
various retail assets and vacant land and net losses of $140,000
related to other asset sales and write-offs. In 2002, we
recorded net gains on the disposal/ write-down of assets of
$741,000, primarily related to the sale of various retail units
and vacant land, offset in part by impairment write-downs
related to various retail assets.



| |                                            
| | -------------------------------------------
| | Income Taxes from Continuing
    Operations

The effective tax rate for the year ended
December 31, 2003 was approximately 39%. The effective tax
benefit rate for year ended December 31, 2002 was
approximately 40%. We believe that the tax benefit created in
2002 will be fully realized.




Discontinued Operations

Discontinued operations include the operations of
some of our retail service station/convenience stores and our
travel center, which was sold on June 19, 2003. See
Note 7 to our Consolidated Financial Statements included in
Item 8 for additional information relating to these
operations.

26



---



##### Table of Contents






Outlook

Overall, we believe that our current refining
fundamentals are more positive now than the same time last year.
Fuel and merchandise margins for our retail group are stronger
now than they were this time last year, with same store fuel and
merchandise volumes above the prior years levels. Phoenix
Fuel currently continues to see growth in both wholesale and
unmanned fleet fueling volumes with relatively stable margins.
The businesses we are in, however, are very volatile and there
can be no assurance that currently existing conditions will
continue for any of our business segments.




Comparison of the Years Ended
December 31, 2002 and December 31, 2001

Certain factors affecting the Companys
operations for the year ended December 31, 2002, include,
among others, the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The acquisition of the Yorktown refinery on
    May 14, 2002. Shortly after the acquisition, the Yorktown
    refinery experienced three significant unscheduled unit
    shutdowns, the last of which occurred on July 23, 2002.
    These shutdowns impacted the amount of high value products we
    were able to produce and the volume of crude oil we were able to
    process at the refinery.
|
| |  | Weaker refining margins at our refineries due to,
    among other things, high nationwide inventories of distillates;
    an increase in imported finished products; and higher crude
    values due to worldwide crude oil production levels, Middle East
    tensions and a labor strike in Venezuela.                                                                                             
|
| |  | A significantly greater volume of products
    produced and sold by the Yorktown refinery as compared to our
    other refining operations, results in us having a larger
    exposure to volatile refinery margins, which will positively or
    negatively affect our profitability.                                                                                                               
|
| |  | Continuing decline in Four Corners crude
    oil supplies.                                                                                                                                                                                                                                                                                                                                          
|
| |  | Competitive conditions in our Phoenix and Tucson
    retail markets due to increased price competition.                                                                                                                                                                                                                                                                                              
|
| |  | Net gains on the disposal/write-down of assets of
    $741,000 in 2002. In 2001, we recorded net losses of $5,009,000
    on the disposal/write-down of assets.                                                                                                                                                                                                                                      
|
| |  | The fourth quarter of 2002 showed a general
    improvement in refining margins and finished product margins,
    for all segments of our operations, compared to those posted for
    most of the three previous quarters of 2002. This resulted in a
    significant improvement in operating earnings for the fourth
    quarter compared to prior 2002 quarters.                                 



| |                                                                   
| | ------------------------------------------------------------------
| | Earnings (Loss) From Continuing Operations
    Before Income Taxes

For the year ended December 31, 2002, we
incurred a loss before income taxes of $18,576,000, compared to
earnings before income taxes of $22,547,000 for the year ended
December 31, 2001. This decrease was primarily due to the
following factors:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 29% decrease in our Four Corners
    refineries refining margins,                                                                                        
|
| |  | An operating loss of $6,388,000 for our Yorktown
    refinery, and                                                                                          
|
| |  | Increased interest expense and amortization of
    financing costs related to our Yorktown refinery acquisition and
    the refinancing of our 9 3/4% notes.

Other factors contributing to the decrease in
earnings include:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | An 11% decrease in our retail group fuel margins,           
|
| |  | A 4% decrease in our retail group fuel volumes
    sold, and
|
| |  | A 4% decrease in our retail group merchandise
    margins,  

27



---



##### Table of Contents



These factors were partially offset by:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A net gain on the disposal/write-down of assets
    of $741,000 in 2002 and net losses on the disposal/write-down of
    assets of $5,009,000 in 2001,
|
| |  | A 14% decrease in our selling, general and
    administrative costs for our operations other than Yorktown,                                           
|
| |  | A 5% decrease in operating expenses for our
    operations other than Yorktown, and                                                                   
|
| |  | An 8% increase in Phoenix Fuel fuel margins.                                                                                                          



| |                  
| | -----------------
| | Yorktown Refinery

We owned our Yorktown refinery for seven and
one-half months in 2002. The refinery operated at an average
throughput rate of approximately 57,300 barrels per day and
had refining margins $2.32 per barrel.

Sales volumes for our Yorktown refinery of
13,635,000 barrels were reduced because of the items
previously discussed.

Refining margins for Yorktown were $2.32 per
barrel for 2002 and were affected by the items previously
discussed in addition to a drop in finished product values
shortly after our acquisition of the refinery which resulted in
low margins because of the higher value of the inventories we
acquired.



| |                        
| | -----------------------
| | Four Corners Refineries

Our Four Corners refineries operated at an
average throughput rate of approximately 32,535 barrels per
day in 2002 and 33,167 barrels per day in 2001. Refining
margins for our Four corners refineries in 2002 were
$6.84 per barrel and were $9.69 per barrel for 2001.

Revenues for our Four Corners refineries
decreased in 2002 primarily due to a 10% decrease in finished
product selling prices.

Cost of products sold for our Four Corners
refineries decreased in 2002 primarily due to a 6% decrease in
average crude oil costs.

Refining margins for our Four Corners refineries
declined in 2002 by 29% due to the factors previously discussed.

Operating expenses for our Four Corners
refineries increased due to higher purchased fuel costs, because
of higher prices, higher payroll and related costs, and higher
general insurance costs. These increases were offset in part by
lower repair and maintenance costs.

Depreciation and amortization expense for our
Four Corners refineries was higher in 2002 due to a 2001
revision in the estimated amortization period for certain
refinery turnaround costs incurred in 1998, and capital
expenditure projects during 2001 and 2002.



| |             
| | ------------
| | Retail Group

Average gasoline and diesel fuel margins for our
retail group were $0.157 per gallon for 2002 and were
$0.175 per gallon for 2001. Gasoline and diesel fuel
volumes sold in 2002 decreased approximately 4%.

Revenues for our retail group decreased in 2002
primarily due to a 7% decrease in finished product selling
prices and a 4% decrease in finished product volumes sold.

Cost of products sold for our retail group
decreased in 2002 primarily due to a 6% decrease in finished
product purchase prices and a 4% decrease in finished product
volumes sold.

28



---



##### Table of Contents



Our retail fuel margins declined 11% in 2002
primarily due to increased competition from non-traditional
marketers, such as supermarkets and club membership warehouses,
and from independent and major oil companies.

Our retail merchandise margins declined 4% in
2002 primarily due to market conditions.

Operating expenses for our retail group decreased
in 2002 due to, among other things, lower lease expense due to
the repurchase of 59 retail units from FFCA Capital Holding
Corporation (FFCA) in July 2001 that had been sold
to FFCA as part of a sale-leaseback transaction in December
1998, reduced expenses for payroll and related costs, and other
operating expenses due in part to the sale or closure of
29 retail units since the end of 2000, as well as the
implementation of certain cost reduction programs.

Depreciation expense for our retail group
decreased in 2002 due to reductions in depreciation expense due
to the sale or closure of 29 retail units since the end of
2000 and the non-amortization of goodwill in 2002 due to the
adoption of SFAS No. 142. These decreases were
partially offset by increases relating to the FFCA transaction
discussed above and construction, remodeling and upgrades during
2001 and 2002.



| |             
| | ------------
| | Phoenix Fuel

Gasoline and diesel fuel volumes sold by Phoenix
Fuel decreased in 2002 by approximately 4%. Average gasoline and
diesel fuel margins for Phoenix Fuel were $0.054 per gallon
for 2002 and were $0.050 per gallon for 2001.

Revenues for Phoenix Fuel decreased in 2002
primarily due to a 4% decrease in finished product selling
prices and a 4% decrease in finished product volumes sold.

Cost of products sold for Phoenix Fuel decreased
in 2002 due to a 4% decrease in finished product purchase prices
and a 4% decrease in finished product volumes sold.

Our Phoenix Fuel finished product margins
increased approximately 8% in 2002 as a result of market
conditions.

Operating expenses for Phoenix Fuel were lower in
2002 primarily due to lower payroll and related costs and lower
repair and maintenance costs.

Depreciation and amortization expense for Phoenix
Fuel decreased in 2002 primarily due to the non-amortization of
goodwill in 2002 due to the adoption of SFAS No. 142.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Selling, General and Administrative
    Expenses from Continuing Operations

For the year ended December 31, 2002,
SG&A expenses decreased approximately $3,486,000 or 12% to
$25,555,000 from $29,041,000 in the comparable 2001 period.
Included in the decrease are SG&A expenses of $718,000
relating to the Yorktown refinery.

SG&A expense decreases relating to our other
operations were primarily due to:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | lower expense accruals for management incentive
    bonuses in 2002,                                                                                
|
| |  | the revision of estimated accruals for 2001
    management incentive bonuses following the determination of
    bonuses to be paid to employees, and
|
| |  | expenses incurred in 2001 related to certain
    related party transactions and certain environmental matters.                                      

These decreases were offset in part by expenses
recorded for the settlement of certain claims, assessments, and
legal matters, including the matter set forth in Note 20 to
our Consolidated Financial Statements included in Item 8,
and increased letter of credit fees.

29



---



##### Table of Contents





| |                                                         
| | --------------------------------------------------------
| | Interest Expense (Income) from Continuing
    Operations

For the year ended December 31, 2002,
interest expense increased approximately $12,210,000 or 51% to
$36,308,000 from $24,098,000 in the comparable 2001 period.
Approximately $17,168,000 of the increase is due to the issuance
of new senior subordinated notes and borrowings under our new
loan facilities entered into in connection with the acquisition
of the Yorktown refinery as more fully described in Note 13
to our Consolidated Financial Statements included in
Item 8. In addition, because of the timing of the Yorktown
refinery acquisition and the 11% Notes financing, we were
unable to provide the 45 day notice required by the
Indenture supporting our 9 3/4% Notes for refinancing
the notes prior to the issuance of the 11% Notes. As a
result, we paid interest on the 9 3/4% Notes for
45 days after the financing, which amounted to
approximately $1,230,000. These increases were offset in part by
a decrease in interest expense of approximately $6,159,000
relating to the repayment of $100,000,000 of
9 3/4% Senior Subordinated Notes due 2003 with a
portion of the proceeds of the issuance of $200,000,000 of
11% Notes.

For the year ended December 31, 2002,
interest income decreased approximately $1,229,000 or 74% to
$432,000 from $1,661,000 in the comparable 2001 period. The
decrease was primarily due to a reduction in interest and
investment income from the investment of funds in short-term
instruments. This reduction was due in part to a reduction in
the amount of funds available for investment because of the
repurchase of 59 retail units from FFCA in July 2001 and the
acquisition of the Yorktown refinery. In addition, no interest
income was accrued in 2002 relating to the note from a related
party discussed in Note 9 to our Consolidated Financial
Statements included in Item 8.



| |                                                                          
| | -------------------------------------------------------------------------
| | Amortization/ Write-Off of Financing Costs
    from Continuing Operations

In connection with the acquisition of the
Yorktown refinery and the refinancing of 9 3/4% Notes
we incurred approximately $17,436,000 of deferred financing
costs relating to new senior subordinated debt and new senior
secured loan facilities. These costs are being amortized over
the term of the related debt.

The increase in the amortization/write-off of
financing costs for the year ended December 31, 2002 was
$2,492,000, primarily related to the amortization of the costs
described above. The increase also includes the write-off of
approximately $364,000 in deferred financing costs related to
the 9 3/4% Notes that were refinanced.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Net (Gain) Loss on the Disposal/ Write-Down
    of Assets from Continuing Operations

For the year ended December 31, 2002, we
recorded net gains on the disposal/ write-down of assets of
$741,000. This amount included net gains of $1,401,000 primarily
related to the sale of vacant land and various retail units,
offset in part by $418,000 of impairment write-downs related to
various retail assets and $242,000 of other write-offs. In 2001,
we recorded losses of $5,009,000. This amount included losses of
$609,000 on the sale of assets in the ordinary course of
business, primarily related to the sale of eleven service
station/convenience stores; losses of $1,516,000 on the
write-down of assets due to impairment, resulting from the
application of Statement of Financial Accounting Standard
(SFAS) No. 121 due to a strategy to sell
certain service station/convenience stores, some of which were
closed; losses of $592,000 relating to the value of leasehold
improvements included in leased service station/convenience
stores returned to the lessors; and losses of $2,292,000
primarily related to the retirement or replacement of certain
refinery property, plant, and equipment. In addition, the
Company recorded a reserve in the amount of $5,409,000 in 2001,
for a note and interest receivable from a related party as
discussed in Note 9 to the Companys Consolidated
Financial Statements in Item 8.



| |                                            
| | -------------------------------------------
| | Income Taxes from Continuing
    Operations

The effective tax benefit rate for year ended
December 31, 2002 was approximately 40%. We believe that
the tax benefit created in 2002 will be fully realized. The
effective tax rate for the year ended December 31, 2001 was
approximately 38%.

30



---



##### Table of Contents






Discontinued Operations

Discontinued operations include the operations of
some of our retail service station/convenience stores and our
travel center. See Note 7 to our Consolidated Financial
Statements included in Item 8 for additional information
relating to these operations.




Liquidity and Capital Resources



| |                  
| | -----------------
| | Capital Structure

At December 31, 2003 we had long-term debt
of $355,601,000, net of the current portion of $11,128,000. At
December 31, 2002 our long-term debt was $398,069,000, net
of the current portion of $10,251,000. Both of these amounts
include:



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | $150,000,000 of 9% Senior Subordinated Notes
    due 2007, and
|
| |  | $200,000,000 of 11% Senior Subordinated
    Notes due 2012.   

We also have a $100,000,000 revolving credit
facility. The credit facility is primarily a working capital and
letter of credit facility. At December 31, 2003, we had no
direct borrowings outstanding under this facility and
$36,961,000 of letters of credit outstanding. At
December 31, 2002, we had $25,000,000 of direct borrowings
outstanding under this facility and $41,193,000 of letters of
credit outstanding.

We also have a mortgage loan facility that had a
balance of $22,000,000 at December 31, 2003 and $32,222,000
at December 31, 2002.

See Note 13 to our Consolidated Financial
Statements included in Item 8 for a further description of
these obligations.

At December 31, 2003, our long-term debt was
71.8% of total capital. At December 31, 2002, it was 75.8%.
Our net debt (long-term debt less cash and cash equivalents) to
total capitalization percentage at December 31, 2003, was
70.1%. At December 31, 2002, this percentage was 75.3%. The
decrease in each percentage is primarily related to the
reduction in long-term debt during 2003.

As described in more detail in Note 13 to
our Consolidated Financial Statements included in Item 8,
the indentures governing our notes and our credit facility and
loan facility contain restrictive covenants and other terms and
conditions that if not maintained, if violated, or if certain
conditions are met, could result in default, affect our ability
to borrow funds, make certain payments, or engage in certain
activities. A default under any of the notes, the credit
facility or the loan facility could cause such debt, and by
reason of cross-default provisions, our other debt to become
immediately due and payable. If we are unable to repay such
amounts, the lenders under our credit facility and loan facility
could proceed against the collateral granted to them to secure
that debt. If those lenders accelerate the payment of the credit
facility and loan facility, we cannot provide assurance that our
assets would be sufficient to pay that debt and other debt or
that we would be able to refinance such debt or borrow more
money on terms acceptable to us, if at all. Our ability to
comply with the covenants, and other terms and conditions, of
the indentures, the credit facility and the loan facility may be
affected by many events beyond our control, and we cannot
provide assurance that our operating results will be sufficient
to allow us to comply with the covenants.

We expect to be in compliance with the covenants
going forward, and we do not believe that any presently
contemplated activities will be constrained. A prolonged period
of low refining margins, however, would have a negative impact
on our ability to borrow funds and to make expenditures for
certain purposes and would have an impact on compliance with our
debt covenants.

Our high degree of leverage and these covenants
may, among other things:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | limit our ability to use cash flow, or obtain
    additional financing, for future working capital needs, capital
    expenditures, acquisitions or other general corporate purposes,
|
| |  | restrict our ability to pay dividends or purchase
    shares of our common stock,                                                                                                    

31



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##### Table of Contents





| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require a substantial portion of our cash flow
    from operations to make debt service payments,                                                                                                                              
|
| |  | limit our flexibility to plan for, or react to,
    changes in business and industry conditions,                                                                                                                               
|
| |  | place us at a competitive disadvantage compared
    to less leveraged competitors, and                                                                                                                                         
|
| |  | increase our vulnerability to the impact of
    adverse economic and industry conditions and, to the extent of
    our outstanding debt under our floating rate debt facilities,
    the impact of increases in interest rates.

If we are unable to:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | generate sufficient cash flow from operations,                    
|
| |  | borrow sufficient funds to service our
    debt, or               
|
| |  | meet our working capital and capital expenditure
    requirements,

then, due to borrowing base restrictions,
increased letter of credit requirements, or otherwise, we may be
required to:



| |   |                                                        
| | - | -------------------------------------------------------
| |  | sell additional assets,                                
|
| |  | reduce capital expenditures,                           
|
| |  | refinance all or a portion of our existing
    debt, or
|
| |  | obtain additional financing.                           

We cannot provide assurance that we will be able
to do any of these things on terms acceptable to us, or at all.

We presently have senior subordinated ratings of
B3 from Moodys Investor Services and
B- from Standard & Poors. At the
present time, we have no indication from these agencies that
they intend to change these ratings in the near future.



| |                          
| | -------------------------
| | Cash Flow From Operations

Our operating cash flows increased by $24,281,000
for the year ended December 31, 2003 compared to the year
ended December 31, 2002, primarily as a result of an
increase in net earnings before depreciation and amortization,
amortization of financing costs, deferred income taxes, and net
(gain) loss on disposal/ write-down of assets in 2003. This
increase was offset in part by the use of cash in 2003 related
to changes in working capital items while cash was provided by
working capital items in 2002.

Our cash flow from operations depends primarily
on producing and selling quantities of refined products at
margins sufficient to cover fixed and variable expenses. In
recent years, crude oil costs and prices of refined products
have fluctuated substantially. These costs and prices depend on
numerous factors, including:



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | the supply of and demand for crude oil, gasoline
    and other refined products;                                                      
|
| |  | changes in the economy;                                                                                                               
|
| |  | changes in the level of foreign and domestic
    production of crude oil and refined products;                                        
|
| |  | worldwide political conditions;                                                                                                       
|
| |  | the extent of government laws; and                                                                                                    
|
| |  | local factors, including market conditions,
    pipeline capacity, and the level of operations of other
    refineries in our markets.

Our crude oil requirements are supplied from
sources that include major oil companies, large independent
producers, and smaller local producers. Except for our long-term
supply agreement with

32



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##### Table of Contents



Statoil, our crude oil supply contracts are
generally relatively short-term contracts. These contracts
generally contain market-responsive pricing provisions. An
increase in crude oil prices could adversely affect our
operating margins if we are unable to pass along the increased
cost of raw materials to our customers.


Our sale prices for refined products are
influenced by the commodity price of crude oil. Generally, an
increase or decrease in the price of crude oil results in a
corresponding increase or decrease in the price of gasoline and
other refined products. The timing of the relative movement of
the prices, however, as well as the overall change in product
prices, could reduce profit margins and could have a significant
impact on our refining and marketing operations, earnings, and
cash flows. In addition, we maintain inventories of crude oil,
intermediate products, and refined products, the values of which
are subject to rapid fluctuation in market prices. Price level
changes during the period between purchasing feedstocks and
selling the manufactured refined products could have a
significant effect on our operating results. Any long-term
adverse relationships between costs and prices could impact our
ability to generate sufficient operating cash flows to meet our
working capital needs. Furthermore, because of the significantly
greater volume of products produced and sold by our Yorktown
refinery, as compared to our other refining operations, we have
a much larger exposure to volatile refining margins than we had
in the past.

Moreover, the industry is highly competitive.
Many of our competitors are large, integrated oil companies
which, because of their more diverse operations, larger
refineries, stronger capitalization and better brand name
recognition, may be better able than we are to withstand
volatile industry conditions, including shortages or excesses of
crude oil or refined products or intense price competition at
the wholesale and retail levels. Because some of our
competitors refineries are larger and more efficient than
the our refineries, these refineries may have lower per barrel
crude oil refinery processing costs.

Our ability to borrow funds under our current
revolving credit facility could be adversely impacted by low
product prices that could reduce the borrowing base related to
eligible accounts receivable and inventories. In addition, the
structuring of the Statoil supply agreement will result in a
lower availability of funds under the borrowing base calculation
of our credit facility, but because of the terms of the Statoil
agreement, our borrowing needs will be reduced. Our debt
instruments also contain restrictive covenants that limit our
ability to borrow funds if certain thresholds are not
maintained. See the discussion above in Capital
Structure for further information relating to these loan
covenants.

We anticipate that working capital, including
that necessary for capital expenditures and debt service, will
be funded through existing cash balances, cash generated from
operating activities, existing credit facilities, and, if
necessary, future financing arrangements. Future liquidity, both
short and long-term, will continue to be primarily dependent on
producing or purchasing, and selling, sufficient quantities of
refined products at margins sufficient to cover fixed and
variable expenses. Based on the current operating environment
for all of our operations, we believe that we will have
sufficient working capital to meet our needs over the next
12-month period.



| |                
| | ---------------
| | Working Capital

Working capital at December 31, 2003
consisted of current assets of $259,402,000 and current
liabilities of $151,055,000, or a current ratio of 1.72:1. At
December 31, 2002, the current ratio was 1.76:1, with
current assets of $211,684,000 and current liabilities of
$120,351,000.

Current assets have increased since
December 31, 2002 by $47,718,000, primarily due to
increases in cash and cash equivalents, accounts receivable and
inventories.

Accounts receivable have increased primarily due
to higher trade receivables, due in part to higher finished
product selling prices. The receipt of $4,110,000 of income tax
refunds in 2003 partially offset these account receivable
increases.

33



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##### Table of Contents



Inventories have increased primarily due to:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | increases in refinery onsite crude oil volumes,
    primarily at Yorktown;        
|
| |  | increases in crude oil and refined product prices;                                
|
| |  | increases in Yorktown, terminal, and Phoenix Fuel
    refined product volumes; and
|
| |  | increases in retail merchandise inventories.                                      

These increases were offset, in part, by
decreases in refined product volumes at the Four Corners
refineries and retail operations.

Current liabilities have increased since
December 31, 2002 by $30,704,000, primarily due to
increases in accounts payable and accrued expenses. Accounts
payable have increased primarily due to higher raw material and
finished product costs. Accrued expenses have increased
primarily as a result of higher fuel taxes payable and accruals
for management incentive bonuses.



| |                                       
| | --------------------------------------
| | Capital Expenditures and
    Resources

Net cash used in investing activities for capital
expenditures totaled approximately $17,879,000 for the year
ended December 31, 2003 and $12,990,000 for the year ended
December 31, 2002. Expenditures for 2003 primarily were for
turnaround expenditures at the Yorktown refinery and operational
and environmental projects for the refineries and retail
operations. Expenditures in 2002 were primarily for turnaround
expenditures for the Ciniza and Bloomfield refineries, financial
accounting software upgrades, and operational and environmental
projects for the refineries and retail operations.

We received proceeds of approximately $21,433,000
from the sale of property, plant and equipment and other assets
in 2003 and $19,517,000 in 2002. Proceeds received in 2003
primarily were from the sale of our corporate headquarters
building and approximately 8 acres of surrounding land, the
sale of our travel center, and the sale of nine service
station/convenience stores. Proceeds received in 2002 were
primarily from the sale of 13 service station/convenience stores
and vacant land. In connection with the sale of our headquarters
building and surrounding land, we entered into a ten-year
agreement to leaseback the building. A gain on the sale of this
property of approximately $924,000 has been deferred and is
being amortized over the original lease term. In the first
quarter of 2004, we entered into an agreement to sell
40 acres of vacant land known as the Jomax property. Under
the current terms of the agreement this transaction would close
in the second quarter of 2004.

We continue to monitor and evaluate our assets
and may sell additional non-strategic or underperforming assets
that we identify as circumstances allow. We also continue to
evaluate potential acquisitions in our strategic markets,
including lease arrangements.

On May 14, 2002, we acquired the Yorktown
refinery from BP Corporation North America Inc. and
BP Products North America Inc. for $127,500,000 plus
$65,182,000 for inventories, the assumption of certain
liabilities, and a conditional earn-out, the maximum amount of
which cannot exceed $25,000,000. We also incurred transaction
costs of approximately $2,000,000 in connection with the
acquisition. See Note 6 to our Consolidated Financial
Statements in Item 8 for a more detailed discussion of this
transaction.

We financed our Yorktown refinery acquisition and
the refinancing of our $100,000,000 of 9 3/4% Senior
Subordinated Notes due 2003, with the proceeds from our
$200,000,000 of 11% Senior Subordinated Notes due 2012, our
revolving credit facility, our mortgage loan facility and cash
on hand. We also paid approximately $17,436,000 of financing
fees to various financial institutions in connection with these
financing arrangements.

As part of the Yorktown acquisition, we agreed to
pay earn-out payments, up to a maximum of $25,000,000, to the
sellers, beginning in 2003 and concluding at the end of 2005
based upon certain market value factors. For the year ended
December 31, 2003, we paid $8,854,000 in earn-outs under the

34



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##### Table of Contents



purchase agreement. For a further discussion of
these earn-out payments see Note 6 to our Consolidated
Financial Statements in Item 8.


Following the acquisition of our Yorktown
refinery, we developed a debt reduction strategy with the goal
of reducing indebtedness by $50,000,000 prior to year-end 2002.
The goal was to be accomplished by managing inventory to a lower
level, reducing non-essential capital expenditures, and selling
non-core and/or underperforming assets. Although we did not
reach our goal in 2002, the strategy was carried forward into
2003. The result of the debt reduction strategy follows:

|                          |  |                |            |                |  |                 |            |  |  |   |            | 
|------------------------- |  | -------------- | ---------- | -------------- |  | --------------- | ---------- |  |  | - | ---------- | 
|                          |  | 2003 Reduction |            | 2002 Reduction |  | Total Reduction
|                          |  |                |            |                |  |                
|Revolving credit facility |  | $              | 25,000,000 |                |  | $               | 35,000,000 |  |  | $ | 60,000,000 | 
|Term loan                 |  |                | 10,222,000 |                |  |                 | 7,778,000  |  |  |   | 18,000,000 | 
|Capital lease obligations |  |                | 6,703,000  |                |  |                 |           |  |  |   | 6,703,000  | 
|                          |  |                |            |                |  |                 |            |  |  |   |            | 
|Total                     |  | $              | 41,925,000 |                |  | $               | 42,778,000 |  |  | $ | 84,703,000 | 
|                          |  |                |            |                |  |                 |            |  |  |   |            | 

These reductions were paid from operating cash
flows and the proceeds from the sale of assets described above.

In prior years, we initiated two capital projects
relating to our Four Corners refinery operations, and
capitalized costs associated with these projects of
approximately $3,000,000. In the third quarter of 2003, we
completed an ongoing evaluation of these projects and wrote off
$901,000 of capitalized costs relating to one project after
determining that it was no longer viable. We determined that the
other project was potentially still viable and will continue to
monitor it.

We have budgeted for up to approximately
$50,000,000 for capital expenditures in 2004 excluding any
potential acquisitions. Of this amount, approximately $4,800,000
is for the completion of projects that were started in 2003. In
addition, approximately $17,800,000 is budgeted for
non-discretionary projects that are required by law or
regulation or to maintain the physical integrity of existing
assets. These expenditures are primarily for operational and
environmental projects at our existing refineries, including
approximately $7,200,000 for various processing unit turnarounds
at our Ciniza refinery, and replacements and upgrades for our
retail operations. Another $6,500,000 is budgeted for
discretionary projects to sustain or enhance the current level
of operations, increase earnings associated with existing or new
business and to expand existing operations. This amount includes
$5,300,000 for our retail operations to be used to build one new
unit and for operational and service upgrades for other units.
The remaining budget of $18,900,000 is for discretionary growth
projects. This amount includes $17,500,000 for various upgrades
at our Yorktown refinery to handle the crude oil we will be
receiving under our recently announced long-term supply
contract. Our budget also includes $2,000,000 for capital
expenditure contingencies.

In future years, we will be making substantial
capital expenditures for government mandated environmental
projects, including the low sulfur fuel requirements discussed
previously. See discussions under the caption Regulatory,
Environmental and Other Matters included in Items 1
and 2 for more details of these projects and below under
the caption Clean Fuels and Consent Decree Expenditures.

We continue to investigate other capital
improvements to our existing facilities. The amount of capital
projects that are actually undertaken in 2004 will depend on,
among other things, general business conditions and results of
operations.

Much of the capital currently budgeted for
environmental compliance is integrally related to operations or
to operationally required projects. We do not specifically
identify capital expenditures related to such projects on the
basis of whether they are for environmental as opposed to
economic purposes. With

35



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respect to capital expenditures budgeted
primarily to satisfy environmental regulations, we estimate that
the following amounts were spent:




| |   |                     
| | - | --------------------
| |  | 2003  $2,468,000   
|
| |  | 2002  $565,000; and
|
| |  | 2001  $1,900,000.  

We anticipate that approximately $6,290,000 will
be spent in 2004 primarily to satisfy environmental regulations.

With respect to our operating expenses for
environmental compliance, while records are not kept
specifically identifying or allocating such expenditures, we
believe that we incur significant operating expense for such
purposes.

Changes in the tax laws and changes in federal
and state environmental laws also may increase future capital
and operating expenditure levels.



| |                      
| | ---------------------
| | Long-Term Commitments

Included in the table below is a list of our
obligations to make future payments under contracts and other
agreements, as well as certain other contingent commitments.

|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |        |        | 
|---------------------------- | -------------------------------- | -------------- | --------- | ------------- | --------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------ | ------ | 
|                             |                                  |               
|                             |                                  | Payments Due  
|                             |                                  |               
|                             |                                  |                |           | All Remaining
|                             |                                  | Total          |           | 2004          |           | 2005 |         | 2006    |         | 2007 |         | 2008    |         | Years
|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |      
|                             |                                  |               
|                             |                                  | (In thousands)
|Long-Term Debt*              |                                  | $              | 372,017   |               |           | $    | 11,128  |         |         | $    | 10,889  |         |         | $     |        |         |         | $ | 150,000 |         |         | $ |        |         |         | $ | 200,000 |       
|Operating Leases             |                                  |                | 37,529    |               |           |      | 6,034   |         |         |      | 4,890   |         |         |       | 4,229   |         |         |   | 3,408   |         |         |   | 2,878   |         |         |   | 16,090  |       
|Purchase Obligations:        |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       
|                             | Raw Material Purchases           |                |           | 2,013,954     |           |      |         | 281,701 |         |      |         | 453,617 |         |       |         | 427,196 |         |   |         | 429,936 |         |   |         | 421,504 |         |   |         |       |       
|                             | Finished Product Purchases       |                |           | 13,167        |           |      |         | 13,167  |         |      |         |        |         |       |         |        |         |   |         |        |         |   |         |        |         |   |         |       |       
|                             | Services                         |                |           | 328           |           |      |         | 140     |         |      |         | 113     |         |       |         | 75      |         |   |         |        |         |   |         |        |         |   |         |       |       
|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       
|                             |                                  | Total          |           |               | 2,027,449 |      |         |         | 295,008 |      |         |         | 453,730 |       |         |         | 427,271 |   |         |         | 429,936 |   |         |         | 421,504 |   |         |        |       | 
|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       
|Other Long-Term Obligations: |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       
|                             | Aggregate environmental reserves |                |           | 7,592         |           |      |         | 1,253   |         |      |         | 1,061   |         |       |         | 2,456   |         |   |         | 923     |         |   |         | 663     |         |   |         | 1,236  |       
|                             | Pension Obligations              |                |           | 2,200         |           |      |         | 2,200   |         |      |         |        |         |       |         |        |         |   |         |        |         |   |         |        |         |   |         |       |       
|                             | Aggregate Litigation Reserves    |                |           | 573           |           |      |         | 573     |         |      |         |        |         |       |         |        |         |   |         |        |         |   |         |        |         |   |         |       |       
|                             | Interest Obligations             |                |           | 235,240       |           |      |         | 36,601  |         |      |         | 36,037  |         |       |         | 35,500  |         |   |         | 30,987  |         |   |         | 22,000  |         |   |         | 74,115 |       
|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       
|                             |                                  | Total          |           |               | 245,605   |      |         |         | 40,627  |      |         |         | 37,098  |       |         |         | 37,956  |   |         |         | 31,910  |   |         |         | 22,663  |   |         |        | 75,351 | 
|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       
|Total Obligations            |                                  | $              | 2,682,600 |               |           | $    | 352,797 |         |         | $    | 506,607 |         |         | $     | 469,456 |         |         | $ | 615,254 |         |         | $ | 447,045 |         |         | $ | 291,441 |       
|                             |                                  |                |           |               |           |      |         |         |         |      |         |         |         |       |         |         |         |   |         |         |         |   |         |         |         |   |         |       



---



|  |                                   
|- | ----------------------------------
|* | Excluding original issue discount.

The amounts set out in the table, including
payment dates, are our best estimates at this time, but may vary
as circumstances change or we become aware of additional facts.

Raw material and finished product purchases were
determined by multiplying contract volumes by the price
determined under the contract as of December 31, 2003, or
if the contract was not in effect at December 31, 2003, as
if the contract was in effect as of December 31, 2003. The
contracts underlying these calculations all have variable
pricing arrangements.

The above table does not include amounts for
outstanding purchase orders at December 31, 2003, amounts
under contracts that are cancelable by either party upon giving
notice, and amounts under agreements that are based on a
percentage of sales, such as credit card processing fees.

36



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##### Table of Contents



We cannot estimate our future pension
expenditures beyond 2004. We are obligated to make a lump-sum
payment to the pension retirement plan each year. Not included
in the table are certain retiree medical and asset retirement
obligations for which annual funding is not required. Our asset
retirement obligations are discussed in more detail in
Note 4 to our Consolidated Financial Statements in
Item 8 and our pension plan and retiree medical plan
obligations are described in more detail in Note 17.

The indentures governing our notes and our credit
facility and loan facility contain restrictive covenants and
other terms and conditions that if not maintained, if violated,
or if certain conditions are met, could result in default, early
redemption of the notes, affect our ability to borrow funds,
make certain payments, or engage in certain activities. A
default under any of the notes, the credit facility or the loan
facility could cause such debt, and by reason of cross-default
provisions, our other debt to become immediately due and payable.

Included in the table below is a list of our
commitments under our revolving credit facility.

|                                                          |  |                                 |         |               |  |      |        |      |  |      |         |      |  |       |   |  |  |   |   |  |  |   |   |  |  |   |   | 
|--------------------------------------------------------- |  | ------------------------------- | ------- | ------------- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ----- | - |  |  | - | - |  |  | - | - |  |  | - | - | 
|                                                          |  |                                
|                                                          |  | Amount of Commitment Expiration
|                                                          |  |                                
|                                                          |  |                                 |         | All Remaining
|Other Commercial Commitments                              |  | Total                           |         | 2004          |  | 2005 |        | 2006 |  | 2007 |         | 2008 |  | Years
|                                                          |  |                                 |         |               |  |      |        |      |  |      |         |      |  |      
|                                                          |  |                                
|                                                          |  | (In thousands)                 
|Line of Credit* (including Standby Letters of
    Credit) |  | $                               | 100,000 |               |  | $    |       |      |  | $    | 100,000 |      |  | $     |  |  |  | $ |  |  |  | $ |  |  |  | $ |  | 
|Standby Letters of Credit                                 |  |                                 | 36,961  |               |  |      | 36,961 |      |  |      |        |      |  |       |  |  |  |   |  |  |  |   |  |  |  |   |  | 



---



|  |                                                                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Standby letters of credit reduce the availability
    of funds for direct borrowings under the line of credit. At
    December 31, 2003 there were no direct borrowings under the
    line of credit.

We purchase crude oil and other feedstocks from a
number of suppliers to operate our refineries. We acquire the
feedstocks for our Yorktown refinery from a number of domestic
and international suppliers. As to Yorktown, we have not
historically participated in these markets, and as such, have
not had a credit relationship with these suppliers. Several of
these suppliers required us to provide letters of credit for
either a portion or the full amount of our purchases, due to the
weak economy and the poor profitability experienced by refiners
and marketers, including ourselves, throughout 2002. Due to our
improved financial condition and the overall improvement in our
refining fundamentals in 2003, we will be working with these
suppliers to reduce or eliminate these letter of credit
requirements.

The availability of letters of credit under our
credit facility is $50,000,000. Our inability to post
satisfactory letters of credit could constrain our ability to
purchase feedstocks on the most beneficial terms.



| |                                                
| | -----------------------------------------------
| | Clean Fuels and Consent Decree
    Expenditures

See discussions under the caption Regulatory,
Environmental and Other Matters included in Items 1 and 2
and Note 20 to our Consolidated Financial Statements in
Item 8 for more details of these projects.

The following table shows amounts we anticipate
spending to meet certain clean fuel regulations and to comply
with an environmental consent decree that requires certain
actions to be taken at our Yorktown refinery. The table does not
include amounts for which environmental accruals have been
established, which are instead included in the long-term
commitments table above. These amounts are our best estimates at
this time, but may vary as circumstances change or we become
aware of additional facts.

|                                   |  |        |         | 
|---------------------------------- |  | ------ | ------- | 
|Projected Capital Expenditures     |  | Amount
|                                   |  |       
|Yorktown  Clean Fuels             |  | $      | 70,000  | 
|Four Corners  Clean Fuels         |  |        | 20,000  | 
|RFI/ CMS  Sewer System            |  |        | 5,000   | 
|Yorktown Consent Decree            |  |        | 27,000  | 
|                                   |  |        |         | 
|Total Anticipated Cash Obligations |  | $      | 122,000 | 
|                                   |  |        |         | 

37



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##### Table of Contents



The amounts shown in the above table are the high
end of our estimated costs for these projects. We anticipate
that the costs could be between the following ranges:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | Yorktown  Clean Fuels 
    $60,000,000 to $70,000,000    
|
| |  | Four Corners  Clean Fuels 
    $15,000,000 to $20,000,000
|
| |  | RFI/ CMS  Sewer System 
    $3,000,000 to $5,000,000     
|
| |  | Consent Decree  $20,000,000 to
    $27,000,000            



| |                  
| | -----------------
| | Cash Requirements

We believe we will have sufficient resources to
meet our working capital requirements, including that necessary
for capital expenditures and debt service, over the next
12-month period because of:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | an improved operating environment for all of our
    operations;  
|
| |  | current cash balances;                                            
|
| |  | availability of funds under our revolving credit
    facility; and
|
| |  | compliance with our debt covenants.                               

In order to create additional flexibility and to
assist us in meeting future anticipated expenditures, we are in
the process of evaluating a number of strategies to further
reduce debt and interest expense. Until these strategies are
implemented, we will use operating cash flows and borrowings
under our revolving credit facility to meet our commitments.



| |                                    
| | -----------------------------------
| | Stock Repurchases and
    Dividends

Our board of directors had previously authorized
the repurchase of up to 2,900,000 shares of our common
stock. This share repurchase program was discontinued in 2002.
Over the life of the program we repurchased
2,582,566 shares for approximately $25,716,000, resulting
in a weighted average cost of approximately $9.96 per
share. The repurchased shares are treated as treasury shares and
are available for a number of corporate purposes including,
among other things, for options, bonuses, and other employee
stock benefit plans.

We currently do not pay dividends on our common
stock. The board of directors will periodically review our
policy regarding the payment of dividends. Any future dividends
are subject to the results of our operations, declaration by the
board of directors, and existing debt covenants.

38



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##### Table of Contents





| |                           
| | --------------------------
| | Related Party Transactions

In the past, we engaged in a number of
transactions with related parties, primarily James E. Acridge,
our former Chairman, President and Chief Executive Officer (the
Former CEO). Certain of these transactions are
summarized in the table below.

|                                                                |  |                        |     |      |  |      |     |  |  |   |           |  
|--------------------------------------------------------------- |  | ---------------------- | --- | ---- |  | ---- | --- |  |  | - | --------- | -
|                                                                |  |                       
|                                                                |  | Material Related Party
|                                                                |  | Transactions          
|                                                                |  |                       
|Transaction                                                     |  | 2003                   |     | 2002 |  | 2001
|                                                                |  |                        |     |      |  |     
|Purchase of Jomax Real Property                                 |  |                        | N/A |      |  |      | N/A |  |  | $ | 5,000,000 |  
|Purchase of Jomax Rights                                        |  |                        | N/A |      |  |      | N/A |  |  | $ | 600,000   |  
|Purchase of Artwork for Corporate Headquarters                  |  |                        | N/A |      |  |      | N/A |  |  | $ | 162,550   |  
|Purchase of Stock                                               |  |                        | N/A |      |  |      | N/A |  |  | $ | 3,520,000 |  
|Principal Amount of Loan Receivable at the end of
    each year |  |                        | N/A |      |  |      | N/A |  |  | $ | 5,000,000 |  
|Interest Income on Loan                                         |  |                        | N/A |      |  |      | N/A |  |  | $ | 537,499   |  
|Interest Receivable at 12/31                                    |  |                        | N/A |      |  |      | N/A |  |  | $ | 394,384   |  
|Other Receivables at 12/31                                      |  |                        | N/A |      |  |      | N/A |  |  | $ | 88,338    |  
|Other Amounts Classified as Compensation                        |  |                        | N/A |      |  |      | N/A |  |  | $ | 696,204   |  
|Other Receipts                                                  |  |                        | N/A |      |  |      | N/A |  |  | $ | (39,440   | )

For a discussion of the matters included in the
above table, see Note 9 to our Consolidated Financial
Statements included in Item 8.

Excluded from the above table are a number of
immaterial transactions involving ourselves and our former CEO
or entities controlled, or previously controlled, by our former
CEO, including: (1) amounts paid to us for purchases of
fuel; (2) payments made to entities controlled, or
previously controlled, by our former CEO for events held at
facilities owned by such entities; (3) reimbursements for
certain landscaping and maintenance services provided for our
former CEO and entities controlled, or previously controlled, by
our former CEO; and (4) the value of products and services
provided to us by our former CEO or entities controlled, or
previously controlled, by him. Various immaterial amounts
involving other related parties are also excluded from the
table. Additionally, in 2002, we extended for one year the
period of time that our former CEO had to exercise a grant of
55,800 stock options. These stock options were due to expire on
June 27, 2002 due to our former CEOs termination on
March 29, 2002. Because the extension changed the terms of
the original stock option grant under our 1998 Stock Incentive
Plan, we recorded compensation expense in the amount of $79,500.

All of the material foregoing transactions were
reviewed and approved by our board of directors or committees of
the board.

As discussed in more detail in Note 20 to
our Consolidated Financial Statements included in Item 8,
our former CEO, and three entities controlled by our former CEO,
have commenced Chapter 11 bankruptcy proceedings. We are
pursuing claims in the bankruptcy proceedings for, among other
things, the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the loan and related interest discussed above,                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | the other receivables outstanding discussed above,                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | approximately $700,000 of costs incurred through
    December 31, 2003 to resolve a lease dispute and related
    litigation in which an entity controlled by our former CEO was a
    sublessee of ours and a limited liability company in which the
    bankruptcy estate of an entity controlled by Mr. Acridge
    formerly owned a 51% interest is the Landlord (costs incurred
    subsequent to December 31, 2003 also will be pursued),
|
| |  | approximately $124,000 for the time spent by an
    employee of ours on projects for entities controlled, or
    previously controlled, by our former CEO,                                                                                                                                                                                                                                                                                     

39



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| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately $89,000 for landscaping services
    provided by our employees that benefited our former CEO;                          
|
| |  | approximately $15,600 for what we believe are
    non-company expenses incurred by our former CEO on one of our
    credit cards, and
|
| |  | approximately $1,400 of other miscellaneous
    amounts.                                                                             

We do not know whether, and to what extent,
creditors, including ourselves, will receive any recovery on
their respective debts from any of the four bankruptcy estates.

In addition, with respect to the lease dispute
described above, we have demanded reimbursement of amounts paid
to resolve the dispute from an entity controlled by our former
CEO that is not involved in bankruptcy. We do not know whether
we will receive any of the amounts we are attempting to recover.



| |                
| | ---------------
| | Risk Management

We are exposed to various market risks, including
changes in certain commodity prices and interest rates. To
manage the volatility relating to these normal business
exposures, we may, from time to time, use commodity futures and
options contracts to reduce price volatility, to fix margins in
our refining and marketing operations, and to protect against
price declines associated with our crude oil and finished
products inventories. Our policies for the use of derivative
financial instruments set limits on quantities, require various
levels of approval and require review and reporting procedures.

In 2003 and 2002, we entered into various crude
oil and gasoline futures contracts to economically hedge crude
oil and other inventories and purchases for our Yorktown
refinery operations. For the year ended December 31, 2003,
we recognized losses on these contracts of approximately
$1,594,000 in cost of products sold. For the year ended
December 31, 2002, we recognized losses on similar
contracts of approximately $1,637,000. These transactions did
not qualify for hedge accounting in accordance with
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, and
accordingly were marked to market each month. There were no open
crude oil futures contracts or other commodity derivative
contracts at December 31, 2003.

Our credit facility is floating-rate debt tied to
various short-term indices. As a result, our annual interest
costs associated with this debt may fluctuate. At
December 31, 2003, there were no direct borrowings
outstanding under this facility.

Our loan facility is floating-rate debt tied to
various short-term indices. As a result, our annual interest
costs associated with this debt may fluctuate. At
December 31, 2003, there was $22,000,000 outstanding under
this facility. The potential increase in annual interest expense
from a hypothetical 10% adverse change in interest rates on
these borrowings at December 31, 2003, would be
approximately $24,600.

Our operations are subject to the normal hazards,
including fire, explosion and weather-related perils. We
maintain various insurance coverages, including business
interruption insurance, subject to certain deductibles. We are
not fully insured against some risks because some risks are not
fully insurable, coverage is unavailable or premium costs, in
our judgment, do not justify such expenditures.

Credit risk with respect to customer receivables
is concentrated in the geographic areas in which we operate and
relates primarily to customers in the oil and gas industry. To
minimize this risk, we perform ongoing credit evaluations of our
customers financial position and require collateral, such
as letters of credit, in certain circumstances.



| |      
| | -----
| | Other

Federal, state and local laws relating to the
environment, health and safety affect nearly all of our
operations. As is the case with other companies engaged in
similar industries, we face significant exposure from actual or
potential claims and lawsuits involving environmental, health
and safety matters. These

40



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matters include soil and water contamination, air
pollution and personal injuries or property damage allegedly
caused by substances made, handled, used, released or disposed
of by us or by our predecessors.


Various laws govern the investigation and
remediation of contamination at our current and former
properties, as well as at third-party sites to which we sent
wastes for disposal. We may be held liable for contamination
existing at our current or former properties even though a prior
operator of the site, or other third party, caused the
contamination. We also may be held responsible for costs
associated with contamination cleanup at third-party disposal
sites even if the original disposal activities met all
applicable regulatory requirements at the time. We are now
engaged in a number of these remediation projects.

Our future expenditures for compliance with
environmental, health and safety matters cannot be estimated in
many circumstances for various reasons. These reasons include:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | the speculative nature of remediation and cleanup
    cost estimates and methods;                    
|
| |  | imprecise and conflicting data regarding the
    hazardous nature of various substances;             
|
| |  | the number of other potentially responsible
    parties involved;                                    
|
| |  | defenses that may be available to us; and                                                            
|
| |  | changing environmental, health and safety laws,
    including changing interpretations of these laws.

We cannot give assurance that compliance with
laws, investigations, enforcement proceedings, private-party
claims, or cleanup requirements will not have a material adverse
effect on our business, financial condition or operating
results. For a further discussion of environmental, health and
safety matters affecting our operations, see the discussion of
these matters contained in Items 1 and 2 under the heading
Regulatory, Environmental and Other Matters.

Rules and regulations implementing federal, state
and local laws relating to the environment, health and safety
will continue to affect our operations. We cannot predict what
new environmental, health or safety 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 our products or activities. Compliance
with more stringent laws or regulations, as well as more
vigorous enforcement policies of the regulatory agencies, could
have an adverse effect on our financial position and operating
results and could require substantial expenditures by us for,
among other things:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | the installation and operation of refinery
    equipment, pollution control systems and other equipment not
    currently possessed by us;
|
| |  | the acquisition or modification of permits
    applicable to our activities; and                                                          
|
| |  | the initiation or modification of cleanup
    activities.                                                                                 

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As of December 31, 2003 and 2002, we had
environmental liability accruals of approximately $7,592,000 and
$8,367,000, respectively, and litigation accruals of
approximately $573,000 and $349,000, respectively. The
environmental liability accruals summarized in the table below
are recorded in the current and long-term sections of our
Consolidated Balance Sheets. Note 20 to our Consolidated
Financial Statements in Item 8 contains a more detailed
discussion of the more significant of these projects.

Summary of Accrued Environmental
Contingencies

|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |          |       |       |  |   |     |     |  |   |      |        |   |   |       |       | 
|------------------------------------- | ------ | -------------- | --- | ---------- |  | -------- | ----- | -------- |  | ---------- | ---- | -------- | - | -------- | ----- | ----- |  | - | --- | --- |  | - | ---- | ------ | - | - | ----- | ----- | 
|                                      |        | As of          |     | Increase   |  |          |       | As of    |  | Increase   |      |          |   | As of   
|                                      |        | 12/31/01       |     | (Decrease) |  | Payments |       | 12/31/02 |  | (Decrease) |      | Payments |   | 12/31/03
|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |         
|                                      |        |               
|                                      |        | (In thousands)
|Farmington Refinery                   |        | $              | 570 |            |  | $        |      |          |  | $          |     |          |   | $        | 570   |       |  | $ |    |     |  | $ |     |        |   | $ | 570   |      
|Ciniza  Land Treatment Facility      |        |                | 208 |            |  |          |      |          |  |            | (19  | )        |   |          | 189   |       |  |   |    |     |  |   | (3   | )      |   |   | 186   |      
|Bloomfield Tank Farm (Old Terminal)   |        |                | 149 |            |  |          | (48   | )        |  |            | (12  | )        |   |          | 89    |       |  |   |    |     |  |   | (22  | )      |   |   | 67    |      
|Ciniza  Solid Waste Management Units |        |                | 286 |            |  |          |      |          |  |            | (11  | )        |   |          | 275   |       |  |   |    |     |  |   |     |        |   |   | 275   |      
|Bloomfield Refinery                   |        |                | 977 |            |  |          | (412  | )        |  |            | (255 | )        |   |          | 310   |       |  |   |    |     |  |   | (43  | )      |   |   | 267   |      
|Ciniza Well Closures                  |        |                | 100 |            |  |          |      |          |  |            |     |          |   |          | 100   |       |  |   | 40  |     |  |   |     |        |   |   | 140   |      
|Retail Service Stations  Various     |        |                | 194 |            |  |          |      |          |  |            | (75  | )        |   |          | 119   |       |  |   | 60  |     |  |   | (33  | )      |   |   | 146   |      
|East Outfall  Bloomfield             |        |                |    |            |  |          |      |          |  |            |     |          |   |          |      |       |  |   | 202 |     |  |   | (177 | )      |   |   | 25    |      
|Yorktown Refinery                     |        |                |    |            |  |          | 7,500 |          |  |            | (785 | )        |   |          | 6,715 |       |  |   |    |     |  |   | (799 | )      |   |   | 5,916 |      
|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |          |       |       |  |   |     |     |  |   |      |        |   |   |       |      
|                                      | Totals |                | $   | 2,484      |  |          | $     | 7,040    |  |            | $    | (1,157   | ) |          | $     | 8,367 |  |   | $   | 302 |  |   | $    | (1,077 | ) |   | $     | 7,592 | 
|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |          |       |       |  |   |     |     |  |   |      |        |   |   |       |      

We have a cash balance retirement
plan and a retiree medical plan for the employees of our
Yorktown refinery. These plans contain many of the same features
of plans that were in place for the employees of the former
owners. All Yorktown employees meeting the eligibility
requirements are automatically included in the cash plan. We
must make a lump-sum payment to the cash plan each year. The
medical plan is a defined post-retirement benefit plan. The
medical plan will pay a percentage of the medical premium for
coverage under the plan. Coverage is available to full-time
Yorktown employees who are age 50 or older with 10 or more
years of service. Note 17 to our Consolidated Financial
Statements contains a more detailed discussion of these plans.

As previously discussed, lawsuits have been filed
in over 20 states alleging that MTBE, a blendstock used by
many refiners in producing specially formulated gasoline, has
contaminated water wells. For a discussion of MTBE lawsuits
filed against us, see Note 20 to our Consolidated Financial
Statements in Item 8, captioned Commitments and
Contingences.

In February 2003, we filed a complaint against
the United States in the United States Court of Federal Claims
in connection with military jet fuel that we sold to the Defense
Energy Support Center from 1983 through 1994. We asserted that
the federal government underpaid us for jet fuel by
approximately $17,000,000. For a discussion of this matter, see
Note 20 to our Consolidated Financial Statements in
Item 8, captioned Commitments and Contingencies.

Our Ciniza and Bloomfield refineries primarily
process a mixture of high gravity, low sulfur crude oil,
condensate and natural gas liquids. The locally produced, high
quality crude oil known as Four Corners Sweet is the primary
feedstock for these refineries. Our current projections of Four
Corners crude oil production indicate that our crude oil demand
will exceed the crude oil supply that is available from local
sources for the foreseeable future. We expect to operate the
Ciniza and Bloomfield refineries at lower levels than otherwise
would be scheduled as a result of shortfalls in Four Corners
crude oil production. For a further discussion of raw material
supply for our refineries, see the discussion contained in
Items 1 and 2 under the heading Raw Material
Supply.

42



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##### Table of Contents



We are aware of a number of actions, proposals or
industry discussions regarding product pipeline projects that
could impact portions of our marketing areas. The completion of
some or all of these projects would result in increased
competition by increasing the amount of refined products
potentially available in our markets, as well as improving
competitor access to these areas. It also could result in new
opportunities for us, as we are a net purchaser of refined
products in some of these areas. For a further discussion of the
potential impact of pipeline projects on our operations, as well
as other competitive factors affecting these operations, see the
discussion of competitive factors contained in Items 1 and
2 under the heading Competitive Conditions.

Our refining activities are conducted at our two
refinery locations in New Mexico and the Yorktown refinery in
Virginia. These refineries constitute a significant portion of
our operating assets, and the two New Mexico refineries supply a
significant portion of our retail operations. As a result, our
operations would be significantly interrupted if any of the
refineries were to experience a major accident, be damaged by
severe weather or other natural disaster, or otherwise be forced
to shut down. If any of the refineries were to experience an
interruption in supply or operations, our business, financial
condition and operating results could be materially and
adversely affected.

On March 29, 2002, the board of directors
terminated James E. Acridge as our President and Chief Executive
Officer and replaced him as Chairman of the Board, although he
currently remains on the board of directors. For a further
discussion of matters relating to Mr. Acridge, see the
discussion included under the caption Related Party
Transactions included in Item 7 and in Notes 9
and 20 to our Consolidated Financial Statements in Item 8.



| |                           
| | --------------------------
| | Forward-Looking Statements

This report includes forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities and Exchange Act of 1934.
These statements are included throughout this report, including
in the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations.
These statements relate to projections of capital expenditures
and other financial items. These statements also relate to our
business strategy, goals and expectations concerning our market
position, future operations, acquisitions, dispositions,
margins, profitability, liquidity and capital resources. We have
used the words believe, expect,
anticipate, estimate, could,
plan, intend, may,
project, predict, will and
similar terms and phrases to identify forward-looking statements
in this report.

Although we believe the assumptions upon which
these forward-looking statements are based are reasonable, any
of these assumptions could prove to be inaccurate, and the
forward-looking statements based on these assumptions could be
incorrect. While we have made these forward-looking statements
in good faith and they reflect our current judgment regarding
such matters, actual results could vary materially from the
forward-looking statements.

Actual results and trends in the future may
differ materially depending on a variety of important factors.
These important factors include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the availability of crude oil and the adequacy
    and costs of raw material supplies generally;                                                                                                                                                                                                                                                                                                                                          
|
| |  | our ability to negotiate new crude oil supply
    contracts;                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | the risk that our long-term crude oil supply
    agreement with Statoil will not supply a significant portion of
    the crude oil needs of our Yorktown refinery over the term of
    the agreement, and will not reduce our crude oil costs, improve
    our high-value product output, contribute significantly to
    higher earnings, improve our competitiveness, or reduce the
    impact of crude oil markets pricing volatility;
|
| |  | our ability to successfully manage the
    liabilities, including environmental liabilities, that we
    assumed in the Yorktown acquisition;                                                                                                                                                                                                                                                                                             
|
| |  | our ability to obtain anticipated levels of
    indemnification;                                                                                                                                                                                                                                                                                                                                                                          

43



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| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | competitive pressures from existing competitors
    and new entrants, including the potential effects of various
    pipeline projects and various actions that have been undertaken
    to increase the supply of refined products to El Paso,
    Texas;
|
| |  | volatility in the difference, or spread, between
    market prices for refined products and crude oil and other
    feedstocks;                                                                                                                           
|
| |  | the risk that our operations will not remain
    competitive and realize acceptable sales volumes and margins in
    those markets where they currently do so;                                                                                            
|
| |  | our ability to adequately control operating
    expenses and non-essential capital expenditures;                                                                                                                                                          
|
| |  | the risk of increased costs resulting from
    employee matters, including unionization efforts and increased
    employee benefit costs;                                                                                                                 
|
| |  | the risk that we will not receive the expected
    amounts from the potential sale of assets;                                                                                                                                                             
|
| |  | state, federal or tribal legislation or
    regulation, or findings by a regulator with respect to existing
    operations, including the impact of government-mandated
    specifications for gasoline and diesel fuel on our operations;                
|
| |  | unplanned or extended shutdowns in refinery
    operations;                                                                                                                                                                                               
|
| |  | the risk that we will not remain in compliance
    with covenants, and other terms and conditions, contained in our
    notes, credit facility and loan facility;                                                                                         
|
| |  | the risk that we will not be able to post
    satisfactory letters of credit;                                                                                                                                                                             
|
| |  | general economic factors affecting our
    operations, markets, products, services and prices;                                                                                                                                                            
|
| |  | unexpected environmental remediation costs;                                                                                                                                                                                                               
|
| |  | weather conditions affecting our operations or
    the areas in which our products are refined or marketed;                                                                                                                                               
|
| |  | the risk we will be found to have substantial
    liability in connection with existing or pending litigation;                                                                                                                                            
|
| |  | the occurrence of events that cause losses for
    which we are not fully insured; and                                                                                                                                                                    
|
| |  | other risks described elsewhere in this report or
    described from time to time in our other filings with the
    Securities and Exchange Commission.                                                                                                   

All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf
are expressly qualified in their entity by the previous
statements. Forward-looking statements we make represent our
judgment on the dates such statements are made. We assume no
obligation to update any information contained in this report or
to publicly release the results of any revisions to any
forward-looking statements to reflect events or circumstances
that occur, or that we become aware of, after the date of this
report.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

The information required by this item is
incorporated herein by reference to the Risk
Management section in our Managements Discussion and
Analysis of Financial Condition and Results of Operations in
Item 7.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data




INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

Giant Industries, Inc.


Scottsdale, Arizona


We have audited the accompanying consolidated
balance sheets of Giant Industries, Inc. and subsidiaries
(the Company) as of December 31, 2003 and 2002,
and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2003. 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
auditing standards generally accepted in the United States of
America. 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, such consolidated financial
statements present fairly, in all material respects, the
financial position of Giant Industries, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 1 to the financial
statements, in 2003 the Company changed its method of accounting
for asset retirement obligations to comply with Statement of
Financial Accounting Standards (SFAS) No. 143,
Asset Retirement Obligations and in 2002 the Company
changed its method of accounting for goodwill and other
intangible assets to comply with SFAS No. 142,
Goodwill and Other Intangible Assets and changed its
method of accounting for the impairment or disposal of
long-lived assets to comply with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

March 12, 2004


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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |          |         | 
|---------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                                                       |                                                                                                                       |                                                                 
|                                                                       |                                                                                                                       | December 31,                                                    
|                                                                       |                                                                                                                       |                                                                 
|                                                                       |                                                                                                                       | 2003                                                             |         | 2002    
|                                                                       |                                                                                                                       |                                                                  |         |         
|                                                                       |                                                                                                                       |                                                                 
|                                                                       |                                                                                                                       | (In thousands, except                                           
|                                                                       |                                                                                                                       | share and per share data)                                       
|ASSETS                                                                
|Current assets:                                                        |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       | Cash and cash equivalents                                                                                             |                                                                  | $       | 27,263   |         |   | $       | 10,168   |        
|                                                                       | Receivables:                                                                                                          |                                                                  |         |          |         |   |         |          |        
|                                                                       |                                                                                                                       | Trade, less allowance for doubtful accounts of
    $390 and $650 |         |          | 76,926  |   |         |          | 69,311  | 
|                                                                       |                                                                                                                       | Income tax refunds                                               |         |          | 1,393   |   |         |          | 4,359   | 
|                                                                       |                                                                                                                       | Other                                                            |         |          | 4,469   |   |         |          | 2,418   | 
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       |                                                                  | 82,788  |          |         |   | 76,088  |         
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       | Inventories                                                                                                           |                                                                  |         | 133,621  |         |   |         | 107,782  |        
|                                                                       | Prepaid expenses and other                                                                                            |                                                                  |         | 8,030    |         |   |         | 7,877    |        
|                                                                       | Deferred income taxes                                                                                                 |                                                                  |         | 7,700    |         |   |         | 9,769    |        
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       | Total current assets                                             |         |          | 259,402 |   |         |          | 211,684 | 
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|Property, plant and equipment                                          |                                                                                                                       |                                                                  | 628,718 |          |         |   | 626,574 |         
|                                                                       | Less accumulated depreciation and amortization                                                                        |                                                                  |         | (235,539 | )       |   |         | (211,576 | )      
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       |                                                                  | 393,179 |          |         |   | 414,998 |         
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|Goodwill                                                               |                                                                                                                       |                                                                  | 24,578  |          |         |   | 19,465  |         
|Assets held for sale                                                   |                                                                                                                       |                                                                  | 5,190   |          |         |   | 24,404  |         
|Other assets                                                           |                                                                                                                       |                                                                  | 25,005  |          |         |   | 31,735  |         
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       | $                                                                | 707,354 |          |         | $ | 702,286 |         
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                      
|LIABILITIES AND STOCKHOLDERS
    EQUITY                              
|Current liabilities:                                                   |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       | Current portion of long-term debt                                                                                     |                                                                  | $       | 11,128   |         |   | $       | 10,251   |        
|                                                                       | Accounts payable                                                                                                      |                                                                  |         | 86,651   |         |   |         | 67,282   |        
|                                                                       | Accrued expenses (Note 12)                                                                                            |                                                                  |         | 53,276   |         |   |         | 42,818   |        
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       | Total current liabilities                                        |         |          | 151,055 |   |         |          | 120,351 | 
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|Long-term debt, net of current portion                                 |                                                                                                                       |                                                                  | 355,601 |          |         |   | 398,069 |         
|Deferred income taxes                                                  |                                                                                                                       |                                                                  | 39,092  |          |         |   | 37,612  |         
|Other liabilities and deferred income                                  |                                                                                                                       |                                                                  | 22,170  |          |         |   | 18,937  |         
|Commitments and contingencies
    (Notes 4,6,7,9,13,14,16,17,18,19,20) |                                                                                                                       |                                                                  |         |          |         |   |         |         
|Stockholders equity:                                                  |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       | Preferred stock, par value $.01 per share,
    10,000,000 shares authorized, none issued                              |                                                                  |         |          |         |   |         |          |        
|                                                                       | Common stock, par value $.01 per share,
    50,000,000 shares authorized, 12,537,535 and
    12,323,759 shares issued |                                                                  |         | 126      |         |   |         | 123      |        
|                                                                       | Additional paid-in capital                                                                                            |                                                                  |         | 74,660   |         |   |         | 73,763   |        
|                                                                       | Retained earnings                                                                                                     |                                                                  |         | 101,104  |         |   |         | 89,885   |        
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       |                                                                  | 175,890 |          |         |   | 163,771 |         
|                                                                       | Less common stock in treasury  at
    cost, 3,751,980 shares                                                         |                                                                  |         | (36,454  | )       |   |         | (36,454  | )      
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       | Total stockholders equity                                       |         |          | 139,436 |   |         |          | 127,317 | 
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         
|                                                                       |                                                                                                                       | $                                                                | 707,354 |          |         | $ | 702,286 |         
|                                                                       |                                                                                                                       |                                                                  |         |          |         |   |         |         

The accompanying notes are an integral part of
these consolidated financial statements.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |        |       |  
|--------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------- | --------- | ---- | ----- | ---- | --------- | ------ | ----- | - | ------- | ------ | ----- | -
|                                                                                                    |                                                    |                                                        
|                                                                                                    |                                                    | Year Ended December 31,                                
|                                                                                                    |                                                    |                                                        
|                                                                                                    |                                                    | 2003                                                    |           | 2002 |       | 2001
|                                                                                                    |                                                    |                                                         |           |      |       |     
|                                                                                                    |                                                    |                                                        
|                                                                                                    |                                                    | (In thousands, except per share data)                  
|Net revenues                                                                                        |                                                    | $                                                       | 1,808,259 |      |       | $    | 1,249,286 |        |       | $ | 907,327 |       
|Cost of products sold (excluding depreciation and
    amortization)                                 |                                                    |                                                         | 1,510,981 |      |       |      | 1,042,606 |        |       |   | 692,685 |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Gross margin                                                                                        |                                                    |                                                         | 297,278   |      |       |      | 206,680   |        |       |   | 214,642 |       
|Operating expenses                                                                                  |                                                    |                                                         | 164,214   |      |       |      | 126,252   |        |       |   | 98,646  |       
|Depreciation and amortization                                                                       |                                                    |                                                         | 36,776    |      |       |      | 35,058    |        |       |   | 30,789  |       
|Selling, general and administrative expenses                                                        |                                                    |                                                         | 30,617    |      |       |      | 25,555    |        |       |   | 29,041  |       
|Net loss (gain) on the disposal/write-down
    of assets                                            |                                                    |                                                         | 1,837     |      |       |      | (741      | )      |       |   | 5,009   |       
|Allowance for related party note and interest
    receivable                                        |                                                    |                                                         |          |      |       |      |          |        |       |   | 5,409   |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Operating income                                                                                    |                                                    |                                                         | 63,834    |      |       |      | 20,556    |        |       |   | 45,748  |       
|Interest expense                                                                                    |                                                    |                                                         | (38,993   | )    |       |      | (36,308   | )      |       |   | (24,098 | )     
|Amortization/write-off of financing costs                                                           |                                                    |                                                         | (4,696    | )    |       |      | (3,256    | )      |       |   | (764    | )     
|Interest and investment income                                                                      |                                                    |                                                         | 163       |      |       |      | 432       |        |       |   | 1,661   |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Earnings (loss) from continuing operations before
    income taxes                                  |                                                    |                                                         | 20,308    |      |       |      | (18,576   | )      |       |   | 22,547  |       
|Provision (benefit) for income taxes                                                                |                                                    |                                                         | 7,971     |      |       |      | (7,477    | )      |       |   | 8,702   |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Earnings (loss) from continuing operations                                                          |                                                    |                                                         | 12,337    |      |       |      | (11,099   | )      |       |   | 13,845  |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Discontinued operations (Note 7)                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    | Loss from operations of discontinued retail assets |                                                         |           | (736 | )     |      |           | (2,100 | )     |   |         | (1,236 | )    
|                                                                                                    | Gain on disposal                                   |                                                         |           | 279  |       |      |           | 6,463  |       |   |         |       |      
|                                                                                                    | Net loss on asset sales/write-downs                |                                                         |           | (233 | )     |      |           | (1,310 | )     |   |         | (1,203 | )    
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    |                                                    |                                                         | (690      | )    |       |      | 3,053     |        |       |   | (2,439  | )     
|                                                                                                    | (Benefit) provision for income taxes               |                                                         |           | (276 | )     |      |           | 1,221  |       |   |         | (975   | )    
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    | (Loss) earnings from discontinued operations       |                                                         |           | (414 | )     |      |           | 1,832  |       |   |         | (1,464 | )    
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Cumulative effect of change in accounting
    principle, net of income tax benefit of $468 (Note 4) |                                                    |                                                         | (704      | )    |       |      |          |        |       |   |        |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Net earnings (loss)                                                                                 |                                                    | $                                                       | 11,219    |      |       | $    | (9,267    | )      |       | $ | 12,381  |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|Net earnings (loss) per common share:                                                               |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    | Basic                                              |                                                         |           |      |       |      |           |        |       |   |         |        |      
|                                                                                                    |                                                    | Continuing operations                                   |           | $    | 1.41  |      |           | $      | (1.29 | ) |         | $      | 1.56  |  
|                                                                                                    |                                                    | Discontinued operations                                 |           |      | (0.05 | )    |           |        | 0.21  |   |         |        | (0.16 | )
|                                                                                                    |                                                    | Cumulative effect of change in accounting
    principle |           |      | (0.08 | )    |           |        |      |   |         |        |      |  
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    |                                                    | $                                                       | 1.28      |      |       | $    | (1.08     | )      |       | $ | 1.40    |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    | Assuming dilution                                  |                                                         |           |      |       |      |           |        |       |   |         |        |      
|                                                                                                    |                                                    | Continuing operations                                   |           | $    | 1.40  |      |           | $      | (1.29 | ) |         | $      | 1.55  |  
|                                                                                                    |                                                    | Discontinued operations                                 |           |      | (0.05 | )    |           |        | 0.21  |   |         |        | (0.16 | )
|                                                                                                    |                                                    | Cumulative effect of change in accounting
    principle |           |      | (0.08 | )    |           |        |      |   |         |        |      |  
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       
|                                                                                                    |                                                    | $                                                       | 1.27      |      |       | $    | (1.08     | )      |       | $ | 1.39    |       
|                                                                                                    |                                                    |                                                         |           |      |       |      |           |        |       |   |         |       

The accompanying notes are an integral part of
these consolidated financial statements.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |               |  |        |         |   |  |  |           |  |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | --------------------------------------- | ---------- | ---------- |  | ------- | --- | -------------- |  | ------ | ------ | ------------- |  | ------ | ------- | - |  |  | --------- |  |  | - | ------- | - |  | - | ------- | -
|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |              
|                                                  |  | Common Stock                            |            |            |  |         |     |                |  |        |        |              
|                                                  |  |                                         |            |            |  |         |     |                |  |       
|                                                  |  |                                         |            | Additional |  |         |     | Treasury Stock |  | Total 
|                                                  |  | Shares                                  |            | Par        |  | Paid-in |     | Retained       |  |        |        | Stockholders
|                                                  |  | Issued                                  |            | Value      |  | Capital |     | Earnings       |  | Shares |        | Cost          |  | Equity
|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |               |  |       
|                                                  |  |                                        
|                                                  |  | (In thousands, except number of shares)
|Balances, January 1, 2001                         |  |                                         | 12,282,688 |            |  | $       | 122 |                |  | $      | 73,099 |               |  | $      | 87,262  |   |  |  | 3,334,680 |  |  | $ | (32,780 | ) |  | $ | 127,703 |  
|Purchase of treasury stock                        |  |                                         |           |            |  |         |    |                |  |        |       |               |  |        |        |   |  |  | 417,300   |  |  |   | (3,674  | ) |  |   | (3,674  | )
|Stock options exercised                           |  |                                         | 126,601    |            |  |         | 2   |                |  |        | 1,105  |               |  |        |        |   |  |  |          |  |  |   |        |   |  |   | 1,107   |  
|Shares cancelled on net exercise of stock options |  |                                         | (103,430   | )          |  |         | (1  | )              |  |        | (615   | )             |  |        | (491    | ) |  |  |          |  |  |   |        |   |  |   | (1,107  | )
|Net earnings                                      |  |                                         |           |            |  |         |    |                |  |        |       |               |  |        | 12,381  |   |  |  |          |  |  |   |        |   |  |   | 12,381  |  
|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |               |  |        |         |   |  |  |           |  |  |   |         |   |  |   |         |  
|Balances, December 31, 2001                       |  |                                         | 12,305,859 |            |  |         | 123 |                |  |        | 73,589 |               |  |        | 99,152  |   |  |  | 3,751,980 |  |  |   | (36,454 | ) |  |   | 136,410 |  
|Stock options exercised                           |  |                                         | 17,900     |            |  |         |    |                |  |        | 94     |               |  |        |        |   |  |  |          |  |  |   |        |   |  |   | 94      |  
|Stock option compensation                         |  |                                         |           |            |  |         |    |                |  |        | 80     |               |  |        |        |   |  |  |          |  |  |   |        |   |  |   | 80      |  
|Net loss                                          |  |                                         |           |            |  |         |    |                |  |        |       |               |  |        | (9,267  | ) |  |  |          |  |  |   |        |   |  |   | (9,267  | )
|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |               |  |        |         |   |  |  |           |  |  |   |         |   |  |   |         |  
|Balances, December 31, 2002                       |  |                                         | 12,323,759 |            |  |         | 123 |                |  |        | 73,763 |               |  |        | 89,885  |   |  |  | 3,751,980 |  |  |   | (36,454 | ) |  |   | 127,317 |  
|401(k) plan contribution                          |  |                                         | 213,776    |            |  |         | 3   |                |  |        | 897    |               |  |        |        |   |  |  |          |  |  |   |        |   |  |   | 900     |  
|Net earnings                                      |  |                                         |           |            |  |         |    |                |  |        |       |               |  |        | 11,219  |   |  |  |          |  |  |   |        |   |  |   | 11,219  |  
|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |               |  |        |         |   |  |  |           |  |  |   |         |   |  |   |         |  
|Balances, December 31, 2003                       |  |                                         | 12,537,535 |            |  | $       | 126 |                |  | $      | 74,660 |               |  | $      | 101,104 |   |  |  | 3,751,980 |  |  | $ | (36,454 | ) |  | $ | 139,436 |  
|                                                  |  |                                         |            |            |  |         |     |                |  |        |        |               |  |        |         |   |  |  |           |  |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of
these consolidated financial statements.

48



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##### Table of Contents






GIANT INDUSTRIES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |         |        |         |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | -------- | ------ | ------- | -------- | -------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                         |                                                                                                |                                                                                                            
|                                                         |                                                                                                | Year Ended December 31,                                                                                    
|                                                         |                                                                                                |                                                                                                            
|                                                         |                                                                                                | 2003                                                                                                        |                                                   | 2002     |        | 2001   
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |        
|                                                         |                                                                                                |                                                                                                            
|                                                         |                                                                                                | (In thousands)                                                                                             
|Cash flows from operating activities:                    |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|                                                         | Net earnings (loss)                                                                            |                                                                                                             | $                                                 | 11,219   |        |         | $        | (9,267   | )      |         | $       | 12,381  |       
|                                                         | Adjustments to reconcile net earnings (loss) to
    net cash provided by operating activities: |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |         |       
|                                                         |                                                                                                | Cumulative effect of change in accounting
    principle                                                     |                                                   |          | 704    |         |          |          |       |         |         |         |       |        
|                                                         |                                                                                                | Depreciation and amortization, including
    discontinued operations                                        |                                                   |          | 37,517 |         |          |          | 37,134 |         |         |         | 33,111 |        
|                                                         |                                                                                                | Amortization/write-off of financing costs                                                                   |                                                   |          | 4,696  |         |          |          | 3,256  |         |         |         | 764    |        
|                                                         |                                                                                                | Deferred income taxes                                                                                       |                                                   |          | 7,971  |         |          |          | 131    |         |         |         | 4,170  |        
|                                                         |                                                                                                | Deferred lease expense                                                                                      |                                                   |          |       |         |          |          |       |         |         |         | 296    |        
|                                                         |                                                                                                | Allowance for related party note and interest
    receivable                                                |                                                   |          |       |         |          |          |       |         |         |         | 5,409  |        
|                                                         |                                                                                                | Net loss (gain) on the disposal/writedown of
    assets included in continuing operations                   |                                                   |          | 1,837  |         |          |          | (741   | )       |         |         | 5,009  |        
|                                                         |                                                                                                | Net (gain) loss on disposal/writedown of assets
    included in discontinued operations                     |                                                   |          | (46    | )       |          |          | (5,153 | )       |         |         | 1,203  |        
|                                                         |                                                                                                | Interest received on related party note receivable                                                          |                                                   |          |       |         |          |          |       |         |         |         | 938    |        
|                                                         |                                                                                                | Interest accrued on related party note receivable                                                           |                                                   |          |       |         |          |          |       |         |         |         | (537   | )      
|                                                         |                                                                                                | Other                                                                                                       |                                                   |          | 7      |         |          |          | (171   | )       |         |         | 1,343  |        
|                                                         |                                                                                                | Changes in operating assets and liabilities,
    excluding the effects of the Yorktown acquisition in 2002: |                                                   |          |        |         |          |          |        |         |         |         |        |        
|                                                         |                                                                                                |                                                                                                             | (Increase) decrease in receivables                |          |        | (6,700  | )        |          |        | (32,558 | )       |         |        | 32,177  |  
|                                                         |                                                                                                |                                                                                                             | (Increase) decrease in inventories                |          |        | (25,386 | )        |          |        | 18,831  |         |         |        | (4,645  | )
|                                                         |                                                                                                |                                                                                                             | Increase (decrease) in prepaid expenses and other |          |        | (210    | )        |          |        | (4,230  | )       |         |        | (133    | )
|                                                         |                                                                                                |                                                                                                             | Increase (decrease) in accounts payable           |          |        | 19,369  |          |          |        | 25,027  |         |         |        | (24,206 | )
|                                                         |                                                                                                |                                                                                                             | Increase (decrease) in accrued expenses           |          |        | 11,371  |          |          |        | 5,809   |         |         |        | (2,024  | )
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Net cash provided by operating activities                |                                                                                                |                                                                                                             | 62,349                                            |          |        |         | 38,068   |          |        |         | 65,256  |        
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Cash flows from investing activities:                    |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|                                                         | Yorktown refinery acquisition                                                                  |                                                                                                             |                                                   |         |        |         |          | (194,733 | )      |         |         |        |       
|                                                         | Capital expenditures                                                                           |                                                                                                             |                                                   | (17,879  | )      |         |          | (12,990  | )      |         |         | (57,056 | )     
|                                                         | Purchases of other assets                                                                      |                                                                                                             |                                                   |         |        |         |          |         |        |         |         | (5,602  | )     
|                                                         | Refinery acquisition contingent payment                                                        |                                                                                                             |                                                   | (8,854   | )      |         |          |         |        |         |         | (5,139  | )     
|                                                         | Proceeds from sale of property, plant and
    equipment and other assets                       |                                                                                                             |                                                   | 21,433   |        |         |          | 19,517   |        |         |         | 7,889   |       
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Net cash used by investing activities                    |                                                                                                |                                                                                                             | (5,300                                            | )        |        |         | (188,206 | )        |        |         | (59,908 | )      
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Cash flows from financing activities:                    |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|                                                         | Proceeds of long-term debt                                                                     |                                                                                                             |                                                   |         |        |         |          | 234,144  |        |         |         |        |       
|                                                         | Payments of long-term debt                                                                     |                                                                                                             |                                                   | (14,954  | )      |         |          | (107,822 | )      |         |         | (1,429  | )     
|                                                         | Proceeds from line of credit                                                                   |                                                                                                             |                                                   | 96,000   |        |         |          | 93,000   |        |         |         |        |       
|                                                         | Payments on line of credit                                                                     |                                                                                                             |                                                   | (121,000 | )      |         |          | (68,000  | )      |         |         |        |       
|                                                         | Purchase of treasury stock                                                                     |                                                                                                             |                                                   |         |        |         |          |         |        |         |         | (3,674  | )     
|                                                         | Deferred financing costs                                                                       |                                                                                                             |                                                   |         |        |         |          | (17,436  | )      |         |         | (537    | )     
|                                                         | Proceeds from exercise of stock options                                                        |                                                                                                             |                                                   |         |        |         |          | 94       |        |         |         |        |       
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Net cash (used) provided by financing
    activities     |                                                                                                |                                                                                                             | (39,954                                           | )        |        |         | 133,980  |          |        |         | (5,640  | )      
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                |                                                                                                             | 17,095                                            |          |        |         | (16,158  | )        |        |         | (292    | )      
|                                                         | Cash and cash equivalents:                                                                     |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |         |       
|                                                         |                                                                                                | Beginning of year                                                                                           |                                                   |          | 10,168 |         |          |          | 26,326 |         |         |         | 26,618 |        
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|                                                         |                                                                                                | End of year                                                                                                 |                                                   | $        | 27,263 |         |          | $        | 10,168 |         |         | $       | 26,326 |        
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Income taxes (refunded)/paid                             |                                                                                                | $                                                                                                           | (2,960                                            | )        |        | $       | (3,466   | )        |        | $       | 4,675   |        
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        
|Interest paid                                            |                                                                                                | $                                                                                                           | 38,645                                            |          |        | $       | 34,426   |          |        | $       | 24,135  |        
|                                                         |                                                                                                |                                                                                                             |                                                   |          |        |         |          |          |        |         |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

49



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##### Table of Contents



Significant Noncash Investing and Financing
Activities.On January 1, 2003,
in accordance with SFAS No. 143, we recorded an asset
retirement obligation of $2,198,000, asset retirement costs of
$1,580,000 and related accumulated depreciation of $674,000. We
also reversed a previously recorded asset retirement obligation
for $120,000, and recorded a cumulative effect adjustment of
$1,172,000 ($704,000 net of taxes). See Note 4. On
April 3, 2003, we contributed 213,776 newly issued shares
of our common stock, valued at $900,000, to our 401(k) plan as a
discretionary contribution for the year 2002. On
September 30, 2003, we paid off certain capital lease
obligations by paying approximately $4,703,000 in cash and by
applying a $2,000,000 deposit that had been included in
Other Assets. On November 4, 2003, we sold our
corporate headquarters building and approximately 8 acres
of surrounding land. In connection with the sale, we entered
into a ten-year agreement to lease back our corporate
headquarters building. The gain on the sale of the property of
approximately $924,000 has been deferred and is being amortized
over the original lease term. During 2002, we issued
$200,000,000 of 11% Senior Subordinated Notes at a discount
of $5,856,000. During 2001, we received 103,430 shares of
our own common stock valued at approximately $1,107,000 from
James E. Acridge, our former Chairman, President and Chief
Executive Officer (the Former CEO), as payment for
the exercise by the Former CEO of 126,601 common stock options.
These shares were immediately cancelled. In addition, we
repurchased, for cash, 59 service station/ convenience stores
from FFCA Capital Holding Corporation (FFCA) for
approximately $38,052,000 plus closing costs. These service
station/convenience stores had been sold to FFCA in a
sale-leaseback transaction completed in December 1998. Certain
deferrals on the Balance Sheet relating to the sale-leaseback
transaction reduced the cost basis of the assets recorded in
Property, Plant and Equipment by approximately
$1,736,000. These deferrals included a deferred gain on the
original sale to FFCA and deferred lease allocations included in
Other Liabilities and Deferred Income, and deferred
costs associated with the original sale included in Other
Assets.

The accompanying notes are an integral part of
these consolidated financial statements.

50



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##### Table of Contents






GIANT INDUSTRIES, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




Note 1  Organization and
Significant Accounting Policies:



| |             
| | ------------
| | Organization

Giant Industries, Inc., through our
subsidiary Giant Industries Arizona, Inc. and its
subsidiaries, refines and sells petroleum products. We do this:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On the East Coast  primarily in
    Virginia, Maryland, and North Carolina, and                                                                 
|
| |  | In the Southwest  primarily in New
    Mexico, Arizona, and Colorado, with a concentration in the Four
    Corners area where these states meet.

In addition, our Phoenix Fuel Co., Inc.
subsidiary distributes commercial wholesale petroleum products
primarily in Arizona.

We have three business units:



| |   |                      
| | - | ---------------------
| |  | Our refining group,  
|
| |  | Our retail group, and
|
| |  | Phoenix Fuel         

See Note 3 for a further discussion of
business segments and Notes 6 and 7 for recent acquisitions
and dispositions.



| |                            
| | ---------------------------
| | Principles of Consolidation

Our consolidated financial statements include the
accounts of Giant Industries, Inc. and all of its
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.



| |                                                                
| | ---------------------------------------------------------------
| | Use of Estimates in the Preparation of
    Financial Statements

The preparation of our consolidated financial
statements, in conformity with accounting principles generally
accepted in the United States of America, requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.



| |             
| | ------------
| | Net Revenues

Our business units recognize revenues when
realized and earned with all of the following criteria being met:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | Persuasive evidence of an arrangement exists;                    
|
| |  | Delivery has occurred or services have been
    rendered;        
|
| |  | The sellers price to the buyer is fixed or
    determinable; and
|
| |  | Collectibility is reasonably assured.                            

Excise and other similar taxes are excluded from
net revenues.



| |                         
| | ------------------------
| | Statements of Cash Flows

We consider all highly liquid instruments with an
original maturity of three months or less to be cash equivalents.

51



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Derivatives

Our policies for the use of derivative financial
instruments set limits on quantities, require various levels of
approval, and require review and reporting procedures.

We are exposed to various market risks, including
changes in certain commodity prices and interest rates. To
manage the volatility relating to these normal business
exposures, from time to time, we use commodity futures and
options contracts to reduce price volatility, to fix margins in
our refining and marketing operations, and to protect against
price declines associated with our crude oil and finished
products inventories. For purposes of the Statement of Cash
Flows, such transactions are considered to be operating
activities.

Gains and losses on all transactions that do not
qualify for hedge accounting are reflected in earnings in the
period that they occur.

We had no open commodity futures or options
contracts at December 31, 2003.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Our credit risk with respect to customer
receivables is concentrated in the geographic areas in which we
operate and relates primarily to customers in the oil and gas
industry. To minimize this risk, we perform ongoing credit
evaluations of our customers financial position and
require collateral, such as letters of credit, in certain
circumstances. We maintain our cash and cash equivalents with
federally insured banking institutions or other financial
service providers. From time to time, balances maintained in
these institutions may exceed amounts that are federally
insured. All of the financial institutions we use are major
banking institutions and reputable financial service providers.



| |                  
| | -----------------
| | Trade Receivables

Our trade receivables result primarily from the
sale of refined products, various grades of gasoline and diesel
fuel, lubricants, and merchandise from our three refineries and
Phoenix Fuel. These sales are made to independent wholesalers
and retailers, industrial/commercial accounts and major oil
companies. In addition, our service station/convenience stores
sell refined products, merchandise, and food products, some of
which are purchased by the customer by use of a credit card.

We extend credit to our refining and Phoenix Fuel
customers based on criteria established by our management,
including ongoing credit evaluations. We usually extend credit
on an unsecured basis, but we may require collateral, such as
letters of credit, in some circumstances. An allowance for
doubtful accounts is provided based on a number of factors that
include, but are not limited to, the current evaluation of each
customers credit risk; the delinquent status of a
customers account; collection efforts made; current
economic conditions; past experience and other available
information. Uncollectible trade receivables are charged against
the allowance for doubtful accounts when we have exhausted all
reasonable efforts to collect the amounts due, including
litigation if the amounts and circumstances warrant such action.
The allowance for doubtful accounts is reflected in our
Consolidated Balance Sheets as a reduction of trade receivables.

Our trade receivables are pledged as collateral
for borrowings under our revolving credit facility. At
December 31, 2003 and 2002, there was $0 and $25,000,000,
respectively, of direct borrowings outstanding under this
facility.

52



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Our major categories of trade receivables are as
follows:

|             |  |      |        |      |  |   |        | 
|------------ |  | ---- | ------ | ---- |  | - | ------ | 
|             |  | 2003 |        | 2002
|             |  |      |        |     
|Trade        |  | $    | 75,529 |      |  | $ | 66,944 | 
|Credit cards |  |      | 1,397  |      |  |   | 2,367  | 
|             |  |      |        |      |  |   |        | 
|             |  | $    | 76,926 |      |  | $ | 69,311 | 
|             |  |      |        |      |  |   |        | 



| |            
| | -----------
| | Inventories

Our inventories are stated at the lower of cost
or market. Costs for crude oil and refined products produced by
our refineries, and the lubricants and other merchandise of
Phoenix Fuel, are determined by the last-in, first-out
(LIFO) method. Costs for our retail, exchange and
terminal refined products inventories and shop supplies are
determined by the first-in, first-out (FIFO) method.
Costs for merchandise inventories at our retail locations are
determined by the retail inventory method. See Note 10 for
additional information on inventories.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Our property, plant and equipment are stated at
cost and are depreciated on the straight-line method over their
respective estimated useful lives.

The estimated useful lives for our various
categories of property, plant and equipment are:

|                           |  |  |            | 
|-------------------------- |  |  | ---------- | 
|Buildings and improvements |  |  | 7-30 years | 
|Machinery and equipment    |  |  | 3-24 years | 
|Pipelines                  |  |  | 30 years   | 
|Furniture and fixtures     |  |  | 2-15 years | 
|Vehicles                   |  |  | 3-7 years  | 

Routine maintenance, repairs and replacement
costs are charged against earnings as incurred. Turnaround
costs, which consist of complete shutdown and inspection of
significant units of the refineries at intervals of two or more
years for necessary repairs and replacements, are deferred and
amortized over the period until the next expected shutdown,
which generally ranges from 24 to 60 months depending on
the type of shutdown and the unit involved. For turnaround
purposes, we divide the operating units at our Yorktown refinery
into three major groups. Each of these major groups has a major
turnaround every five years. For our Four Corners refineries,
major turnarounds are generally scheduled every four years, but
may be more frequent for some units. Unscheduled maintenance
shutdowns may also occur at the refineries from time to time.
Expenditures that materially increase values, expand capacities
or extend useful lives are capitalized. Interest expense is
capitalized as part of the cost of constructing major facilities
and equipment.

In December 2003, the Accounting Standards
Executive Committee (AcSEC) of the American
Institute of Certified Public Accountants (AICPA)
submitted an exposure draft of a proposed Statement of Position
(SOP), Accounting for Certain Costs Related to
Property, Plant, and Equipment to the Financial Accounting
Standards Board (FASB) for clearance. At
December 31, 2003, we had $10,418,000 of deferred
turnaround costs included in property, plant and equipment on
our balance sheet and classified as machinery and equipment. In
the current draft of the SOP, costs of planned major maintenance
activities are not considered a separate property, plant and
equipment asset or component. Those costs should be charged to
expense as incurred, except for acquisitions or replacements of
components that are capitalizable under the in-service stage
guidance of this SOP. The final SOP is expected to be effective
for fiscal years beginning after December 15, 2004. We are
evaluating the effect

53



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the SOP will have on our financial position and
results of operations, which may include the expensing of
certain deferred costs and expensing significant portions of
future turnaround costs as incurred.



| |         
| | --------
| | Goodwill

On January 1, 2002, we adopted Statement of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. This Statement
requires, among other things, that goodwill not be amortized,
but be tested for impairment annually, or as events and
circumstances indicate. See Note 5 for applicable
disclosures.

Goodwill, which results from business
acquisitions, represents the excess of the purchase price over
the fair value of the net assets acquired and is carried at cost
less accumulated amortization and write-offs. Prior to
January 1, 2002, goodwill was being amortized on the
straight-line method over the period of expected benefit ranging
from 15 to 30 years.



| |                  
| | -----------------
| | Long-Lived Assets

On January 1, 2002, we adopted
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement defines
impairment as the condition that exists when the carrying
amount of a long-lived asset (asset group) is not recoverable
and exceeds its fair value. The Statement provides for a
single accounting model for the disposal of long-lived assets,
whether previously held or newly acquired. Specific guidance is
provided for recognition and measurement and reporting and
disclosure for long-lived assets held and used, disposed of
other than by sale, and disposed of by sale. This new standard
had no impact on our financial position and results of
operations at adoption, but we have reflected certain operations
as discontinued operations in the years presented to comply with
this statement.

In accordance with SFAS No. 144, we
review the carrying values of our long-lived assets for possible
impairment whenever events or changes in circumstances indicate
that the carrying amount of assets to be held and used may not
be recoverable. For assets to be disposed of, we report
long-lived assets and certain identifiable intangibles at the
lower of carrying amount or fair value less cost to sell. See
Note 7 for information relating to the impairment of
certain assets.



| |               
| | --------------
| | Treasury Stock

We have 3,751,980 shares of our common stock
classified as treasury stock. These shares were acquired under a
stock repurchase program and an issuer tender offer at a
weighted average cost of approximately $9.72 per share.
These shares are available for a number of corporate purposes
including, among others, for options, bonuses, and other
employee stock benefit plans.



| |                           
| | --------------------------
| | Environmental Expenditures

Environmental expenditures that relate to current
operations are expensed or capitalized depending on the
circumstances. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments and/or remedial
efforts are probable and the costs can be reasonably estimated.
Environmental liabilities are not discounted to their present
value and are recorded without consideration of potential
recoveries from third parties, although we do take into account
amounts that others are contractually obligated to pay us.
Subsequent adjustments to estimates, which may be significant,
may be made as more information becomes available or as
circumstances change. See Note 20.

54



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |             
| | ------------
| | Income Taxes

The provision for income taxes is based on
earnings (loss) reported in the financial statements. Deferred
income taxes are provided to reflect temporary differences
between the basis of assets and liabilities for financial
reporting purposes and income tax purposes, as well as the
effects of tax credits. We file consolidated federal and state
income tax returns for the states in which we operate, except in
states that are not unitary.



| |                          
| | -------------------------
| | Earnings Per Common Share

Earnings per share are calculated in accordance
with SFAS No. 128, Earnings Per Share.
Basic earnings per common share are computed by dividing
consolidated net earnings by the weighted average number of
shares of common stock outstanding during each period. Earnings
per common share assuming dilution are computed by dividing
consolidated net earnings by the sum of the weighted average
number of shares of common stock outstanding plus additional
shares representing the exercise of outstanding common stock
options using the treasury stock method, unless such calculation
is antidilutive. See Note 8.



| |                           
| | --------------------------
| | Other Comprehensive Income

For the years ended December 31, 2003, 2002,
and 2001, respectively, the only component of other
comprehensive income is net income as reported on our
Consolidated Statements of Operations.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In December 2002, FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure
(SFAS No. 148). SFAS No. 148
amends SFAS No. 123 to permit alternative methods of
transition for adopting a fair value based method of accounting
for stock-based employee compensation. We use the intrinsic
value method to account for stock-based employee compensation.
See Note 2 for disclosures relating to stock-based employee
compensation.

On January 1, 2003, we adopted
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143).
SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived
asset. See Note 4 for disclosures relating to
SFAS No. 143 and the related cumulative effect
adjustment.

On January 1, 2003, we adopted the
provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (Interpretation
No. 45). Interpretation No. 45 elaborates on
existing disclosure requirements for guarantees and clarifies
that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The adoption of
Interpretation No. 45 had no material effect on our
financial statements.

In December 2003, FASB issued FASB Interpretation
No. 46 (Revised), Consolidation of Variable Interest
Entities (Interpretation No. 46
(Revised)). Interpretation No. 46 (Revised) clarifies
the application of existing consolidation requirements to
entities where a controlling financial interest is achieved
through arrangements that do not involve voting interests. Under
Interpretation No. 46 (Revised), a variable interest entity
(VIE) is consolidated if a company is subject to a
majority of the risk of loss from the VIEs activities or
entitled to receive a majority of the entitys residual
returns. We have no existing VIEs as defined by this
Interpretation. The application of Interpretation No. 46
(Revised) is not expected to have any effect on our financial
statements.

55



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 2003, FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify
a financial instrument that is within its scope as a liability
(or an asset in some circumstances). Many of those instruments
were previously classified as equity. We have no existing
financial instruments that fall within the scope of this
statement.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to prior
years consolidated financial statements to conform to the
statement classifications used in the current year. These
reclassifications relate primarily to the discontinued operation
requirements of SFAS No. 144 adopted by us on
January 1, 2002. These reclassifications had no effect on
reported earnings or stockholders equity.




Note 2  Stock-Based Employee
Compensation:

We have a stock-based employee compensation plan
that is more fully described in Note 18. We account for
this plan under the recognition and measurement principles of
Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. We use the
intrinsic value method to account for stock-based employee
compensation. In 2002, approximately $48,000 of compensation,
net of tax, was recorded in accordance with APB No. 25
relating to certain stock options for which the exercise period
had been extended. The following table illustrates the effect on
net earnings (loss) and net earnings (loss) per share as if we
had applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ------------------------------------- | ------ | ---- |  | ---- | ------ | ----- | - | - | ------ | ---- | 
|                                                                                                                                                       |                       |                                      
|                                                                                                                                                       |                       | Year Ended December 31,              
|                                                                                                                                                       |                       |                                      
|                                                                                                                                                       |                       | 2003                                  |        | 2002 |  | 2001
|                                                                                                                                                       |                       |                                       |        |      |  |     
|                                                                                                                                                       |                       |                                      
|                                                                                                                                                       |                       | (In thousands, except per share data)
|Net earnings (loss), as reported                                                                                                                       |                       | $                                     | 11,219 |      |  | $    | (9,267 | )     |   | $ | 12,381 |     
|Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effect                                          |                       |                                       |       |      |  |      | 48     |       |   |   |       |     
|Deduct: Total stock-based employee compensation
    expense determined under the fair value based method for all
    awards, net of related tax effect |                       |                                       | (238   | )    |  |      | (220   | )     |   |   | (530   | )   
|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |     
|Pro forma net earnings (loss)                                                                                                                          |                       | $                                     | 10,981 |      |  | $    | (9,439 | )     |   | $ | 11,851 |     
|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |     
|Net earnings (loss) per share:                                                                                                                         |                       |                                       |        |      |  |      |        |       |   |   |        |     
|                                                                                                                                                       | Basic  as reported   |                                       | $      | 1.28 |  |      | $      | (1.08 | ) |   | $      | 1.40 | 
|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |     
|                                                                                                                                                       | Basic  pro forma     |                                       | $      | 1.26 |  |      | $      | (1.10 | ) |   | $      | 1.34 | 
|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |     
|                                                                                                                                                       | Diluted  as reported |                                       | $      | 1.27 |  |      | $      | (1.08 | ) |   | $      | 1.39 | 
|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |     
|                                                                                                                                                       | Diluted  pro forma   |                                       | $      | 1.24 |  |      | $      | (1.10 | ) |   | $      | 1.33 | 
|                                                                                                                                                       |                       |                                       |        |      |  |      |        |       |   |   |        |     

56



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 3  Business
Segments:

We are organized into three operating segments
based on manufacturing and marketing criteria. These segments
are the Refining Group, the Retail Group and Phoenix Fuel. A
description of each segment and its principal products follows:




Refining Group

Our refining group operates our Ciniza and
Bloomfield refineries in the Four Corners area of New Mexico and
the Yorktown refinery in Virginia. It also operates a crude oil
gathering pipeline system in New Mexico, two finished products
distribution terminals, and a fleet of crude oil and finished
product trucks. Our three refineries make various grades of
gasoline, diesel fuel, and other products from crude oil, other
feedstocks, and blending components. We also acquire finished
products through exchange agreements and from various suppliers.
We sell these products through our service stations, independent
wholesalers and retailers, commercial accounts, and sales and
exchanges with major oil companies. We purchase crude oil, other
feedstocks and blending components from various suppliers.




Retail Group

Our retail group operates service stations, which
include convenience stores or kiosks. We also operated a travel
center in New Mexico until June 19, 2003, when the travel
center was sold. Our service stations sell various grades of
gasoline, diesel fuel, general merchandise, including tobacco
and alcoholic and nonalcoholic beverages, and food products to
the general public. Our refining group or Phoenix Fuel supplies
the gasoline and diesel fuel our retail group sells. We purchase
general merchandise and food products from various suppliers. At
December 31, 2003, we operated 127 service stations with
convenience stores or kiosks.




Phoenix Fuel

Phoenix Fuel distributes commercial wholesale
petroleum products. It includes several lubricant and bulk
petroleum distribution plants, an unmanned fleet fueling
operation, a bulk lubricant terminal facility, and a fleet of
finished product and lubricant delivery trucks. Phoenix Fuel
purchases petroleum fuels and lubricants from suppliers and to a
lesser extent from our refining group.

Our operations that are not included in any of
the three segments are included in the category
Other. These operations consist primarily of
corporate staff operations.

Operating income for each segment consists of net
revenues less cost of products sold, operating expenses,
depreciation and amortization, and the segments SG&A
expenses. Cost of products sold reflects current costs adjusted,
where appropriate, for LIFO and lower of cost or market
inventory adjustments.

The total assets of each segment consist
primarily of net property, plant and equipment, inventories,
accounts receivable and other assets directly associated with
the segments operations. Included in the total assets of
the corporate staff operations are a majority of our cash and
cash equivalents, and various accounts receivable, net property,
plant and equipment, and other long-term assets.

57



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Disclosures regarding our reportable segments
with reconciliations to consolidated totals are presented below.

|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |        |           | 
|----------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------- | --------- | ------- | ------- | --------- | ------- | ------- | ------ | ----------- | ------- | ------------ | ----- | ------- | ------ | ------- | ------- | --- | -------- | -------- | ------ | -------- | --------- | ------- | ------ | --------- | 
|                                                            |                                                    |                                               
|                                                            |                                                    | As of and for the Year Ended December 31, 2003
|                                                            |                                                    |                                               
|                                                            |                                                    | Refining                                       |           | Retail  |         | Phoenix   |         |         |        | Reconciling |         |             
|                                                            |                                                    | Group                                          |           | Group   |         | Fuel      |         | Other   |        | Items       |         | Consolidated
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |             
|                                                            |                                                    |                                               
|                                                            |                                                    | (In thousands)                                
|Customer net revenues:                                      |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            | Finished products:                                 |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |       
|                                                            |                                                    | Four Corners operations                        |           | $       | 287,288 |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |        |          
|                                                            |                                                    | Yorktown operations                            |           |         | 752,115 |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |        |          
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            |                                                    |                                                | Total     |         | $       | 1,039,403 |         |         | $      | 201,278     |         |              | $     | 397,163 |        |         | $       |    |          |          | $      |         |           |         | $      | 1,637,844 | 
|                                                            | Merchandise and lubricants                         |                                                |           |        |         |           |         | 133,039 |        |             |         | 26,262       |       |         |        |        |         |     |          |         |        |          |           | 159,301 |       
|                                                            | Other                                              |                                                |           | 20,797  |         |           |         | 16,184  |        |             |         | 1,775        |       |         |        | 537     |         |     |          |         |        |          |           | 39,293  |       
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            |                                                    |                                                | Total     |         |         | 1,060,200 |         |         |        | 350,501     |         |              |       | 425,200 |        |         |         | 537 |          |          |        |         |           |         |        | 1,836,438 | 
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|Intersegment net revenues:                                  |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            | Finished products                                  |                                                |           | 175,898 |         |           |         |        |        |             |         | 47,304       |       |         |        |        |         |     |          | (223,202 | )      |          |           |        |       
|                                                            | Other                                              |                                                |           | 15,862  |         |           |         |        |        |             |         |             |       |         |        |        |         |     |          | (15,862  | )      |          |           |        |       
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            |                                                    |                                                | Total     |         |         | 191,760   |         |         |        |            |         |              |       | 47,304  |        |         |         |    |          |          |        | (239,064 | )         |         |        |          | 
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|Total net revenues                                          |                                                    |                                                | 1,251,960 |         |         |           | 350,501 |         |        |             | 472,504 |              |       |         | 537    |         |         |     | (239,064 | )        |        |          | 1,836,438 |        
|Net revenues of discontinued operations                     |                                                    |                                                |          |         |         |           | 28,179  |         |        |             |        |              |       |         |       |         |         |     |         |          |        |          | 28,179    |        
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|Net revenues of continuing operations                       |                                                    | $                                              | 1,251,960 |         |         | $         | 322,322 |         |        | $           | 472,504 |              |       | $       | 537    |         |         | $   | (239,064 | )        |        | $        | 1,808,259 |        
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|Operating income (loss):                                    |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            | Four Corners operations                            |                                                | $         | 41,932  |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |       
|                                                            | Yorktown operations                                |                                                |           | 22,039  |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |       
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            |                                                    | Total operating income (loss)                  |           | $       | 63,971  |           |         | $       | 13,476 |             |         | $            | 8,483 |         |        | $       | (20,995 | )   |          | $        | (1,791 | )        |           | $       | 63,144 |          
|                                                            | Discontinued operations                            |                                                |           |        |         |           |         | (736    | )      |             |         |             |       |         |        |        |         |     |          | 46       |        |          |           | (690    | )     
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            | Operating income (loss) from continuing operations |                                                | $         | 63,971  |         |           | $       | 14,212  |        |             | $       | 8,483        |       |         | $      | (20,995 | )       |     | $        | (1,837   | )      |          | $         | 63,834  |       
|Interest expense                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          | (38,993   | )      
|Amortization of financing costs                             |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          | (4,696    | )      
|Interest income                                             |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          | 163       |        
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|Earnings from continuing operations before income
    taxes |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        | $        | 20,308    |        
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|Depreciation and amortization:                              |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            | Four Corners operations                            |                                                | $         | 15,846  |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |       
|                                                            | Yorktown operations                                |                                                |           | 7,951   |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |         |       
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            |                                                    | Total                                          |           | $       | 23,797  |           |         | $       | 10,656 |             |         | $            | 1,763 |         |        | $       | 1,301   |     |          | $        |       |          |           | $       | 37,517 |          
|                                                            | Discontinued operations                            |                                                |           |        |         |           |         | 741     |        |             |         |             |       |         |        |        |         |     |          |         |        |          |           | 741     |       
|                                                            |                                                    |                                                |           |         |         |           |         |         |        |             |         |              |       |         |        |         |         |     |          |          |        |          |           |        
|                                                            | Continuing operations                              |                                                | $         | 23,797  |         |           | $       | 9,915   |        |             | $       | 1,763        |       |         | $      | 1,301   |         |     | $        |         |        |          | $         | 36,776  |       
|Total assets                                                |                                                    | $                                              | 459,253   |         |         | $         | 116,083 |         |        | $           | 72,188  |              |       | $       | 59,830 |         |         | $   |         |          |        | $        | 707,354   |        
|Capital expenditures                                        |                                                    | $                                              | 14,428    |         |         | $         | 2,322   |         |        | $           | 295     |              |       | $       | 834    |         |         | $   |         |          |        | $        | 17,879    |        
|Yorktown refinery acquisition                               |                                                    | $                                              | 8,854     |         |         | $         |        |         |        | $           |        |              |       | $       |       |         |         | $   |         |          |        | $        | 8,854     |        

58



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |        |           | 
|------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ----------- | ------- | ------------ | ----- | ------- | ------ | ------- | ------- | --- | -------- | -------- | ----- | -------- | --------- | ------- | ------ | --------- | 
|                                                        |                                                    |                                               
|                                                        |                                                    | As of and for the Year Ended December 31, 2002
|                                                        |                                                    |                                               
|                                                        |                                                    | Refining                                       |         | Retail  |         | Phoenix |         |         |        | Reconciling |         |             
|                                                        |                                                    | Group                                          |         | Group   |         | Fuel    |         | Other   |        | Items       |         | Consolidated
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |             
|                                                        |                                                    |                                               
|                                                        |                                                    | (In thousands)                                
|Customer net revenues:                                  |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        | Finished products:                                 |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |       
|                                                        |                                                    | Four Corners operations                        |         | $       | 253,826 |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |        |          
|                                                        |                                                    | Yorktown operations(1)                         |         |         | 408,936 |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |        |          
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        |                                                    |                                                | Total   |         | $       | 662,762 |         |         | $      | 189,008     |         |              | $     | 269,316 |        |         | $       |    |          |          | $     |         |           |         | $      | 1,121,086 | 
|                                                        | Merchandise and lubricants                         |                                                |         |        |         |         |         | 141,870 |        |             |         | 23,345       |       |         |        |        |         |     |          |         |       |          |           | 165,215 |       
|                                                        | Other                                              |                                                |         | 8,226   |         |         |         | 15,791  |        |             |         | 2,564        |       |         |        | 180     |         |     |          |         |       |          |           | 26,761  |       
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        |                                                    |                                                | Total   |         |         | 670,988 |         |         |        | 346,669     |         |              |       | 295,225 |        |         |         | 180 |          |          |       |         |           |         |        | 1,313,062 | 
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|Intersegment net revenues:                              |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        | Finished products                                  |                                                |         | 151,189 |         |         |         |        |        |             |         | 54,709       |       |         |        |        |         |     |          | (205,898 | )     |          |           |        |       
|                                                        | Other                                              |                                                |         | 16,352  |         |         |         |        |        |             |         |             |       |         |        |        |         |     |          | (16,352  | )     |          |           |        |       
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        |                                                    |                                                | Total   |         |         | 167,541 |         |         |        |            |         |              |       | 54,709  |        |         |         |    |          |          |       | (222,250 | )         |         |        |          | 
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|Total net revenues                                      |                                                    |                                                | 838,529 |         |         |         | 346,669 |         |        |             | 349,934 |              |       |         | 180    |         |         |     | (222,250 | )        |       |          | 1,313,062 |        
|Net revenues of discontinued operations                 |                                                    |                                                |        |         |         |         | 63,776  |         |        |             |        |              |       |         |       |         |         |     |         |          |       |          | 63,776    |        
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|Net revenues of continuing operations                   |                                                    | $                                              | 838,529 |         |         | $       | 282,893 |         |        | $           | 349,934 |              |       | $       | 180    |         |         | $   | (222,250 | )        |       | $        | 1,249,286 |        
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|Operating income (loss):                                |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        | Four Corners operations                            |                                                | $       | 30,822  |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |       
|                                                        | Yorktown operations(1)                             |                                                |         | (6,388  | )       |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |       
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        |                                                    | Total operating income (loss)                  |         | $       | 24,434  |         |         | $       | 3,249  |             |         | $            | 7,014 |         |        | $       | (16,982 | )   |          | $        | 5,894 |          |           | $       | 23,609 |          
|                                                        | Discontinued operations                            |                                                |         |        |         |         |         | (2,100  | )      |             |         |             |       |         |        |        |         |     |          | 5,153    |       |          |           | 3,053   |       
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        | Operating income (loss) from continuing operations |                                                | $       | 24,434  |         |         | $       | 5,349   |        |             | $       | 7,014        |       |         | $      | (16,982 | )       |     | $        | 741      |       |          | $         | 20,556  |       
|Interest expense                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          | (36,308   | )      
|Amortization/write-off of financing costs               |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          | (3,256    | )      
|Interest income                                         |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          | 432       |        
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|Loss from continuing operations before income
    taxes |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       | $        | (18,576   | )      
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|Depreciation and amortization:                          |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        | Four Corners operations                            |                                                | $       | 16,759  |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |       
|                                                        | Yorktown operations(1)                             |                                                |         | 4,493   |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |         |       
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        |                                                    | Total                                          |         | $       | 21,252  |         |         | $       | 12,540 |             |         | $            | 2,046 |         |        | $       | 1,296   |     |          | $        |      |          |           | $       | 37,134 |          
|                                                        | Discontinued operations                            |                                                |         |        |         |         |         | 2,076   |        |             |         |             |       |         |        |        |         |     |          |         |       |          |           | 2,076   |       
|                                                        |                                                    |                                                |         |         |         |         |         |         |        |             |         |              |       |         |        |         |         |     |          |          |       |          |           |        
|                                                        | Continuing operations                              |                                                | $       | 21,252  |         |         | $       | 10,464  |        |             | $       | 2,046        |       |         | $      | 1,296   |         |     | $        |         |       |          | $         | 35,058  |       
|Total assets                                            |                                                    | $                                              | 432,655 |         |         | $       | 132,397 |         |        | $           | 66,274  |              |       | $       | 70,960 |         |         | $   |         |          |       | $        | 702,286   |        
|Capital expenditures                                    |                                                    | $                                              | 9,573   |         |         | $       | 1,016   |         |        | $           | 545     |              |       | $       | 1,856  |         |         | $   |         |          |       | $        | 12,990    |        
|Yorktown refinery acquisition                           |                                                    | $                                              | 194,733 |         |         | $       |        |         |        | $           |        |              |       | $       |       |         |         | $   |         |          |       | $        | 194,733   |        



---



|    |                                   
|--- | ----------------------------------
|(1) | Since acquisition on May 14, 2002.

59



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |         |         | 
|----------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ----------- | ------- | ------------ | ------- | - | ------- | ------- | --- | - | -------- | -------- | -------- | - | ------- | ------- | ------- | 
|                                                            |                                                    |                                               
|                                                            |                                                    | As of and for the Year Ended December 31, 2001
|                                                            |                                                    |                                               
|                                                            |                                                    | Refining                                       |         | Retail  |         | Phoenix |         |         |         | Reconciling |         |             
|                                                            |                                                    | Group                                          |         | Group   |         | Fuel    |         | Other   |         | Items       |         | Consolidated
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |             
|                                                            |                                                    |                                               
|                                                            |                                                    | (In thousands)                                
|Customer net revenues:                                      |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|                                                            | Finished products                                  |                                                | $       | 280,636 |         |         | $       | 228,533 |         |             | $       | 284,430      |         |   | $       |        |     |   | $        |         |          |   | $       | 793,599 |        
|                                                            | Merchandise and lubricants                         |                                                |         |        |         |         |         | 144,531 |         |             |         | 24,555       |         |   |         |        |     |   |          |         |          |   |         | 169,086 |        
|                                                            | Other                                              |                                                |         | 9,373   |         |         |         | 17,315  |         |             |         | 2,062        |         |   |         | 244     |     |   |          |         |          |   |         | 28,994  |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|                                                            |                                                    | Total                                          |         |         | 290,009 |         |         |         | 390,379 |             |         |              | 311,047 |   |         |         | 244 |   |          |          |         |   |         |         | 991,679 | 
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|Intersegment net revenues:                                  |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|                                                            | Finished products                                  |                                                |         | 166,546 |         |         |         |        |         |             |         | 80,125       |         |   |         |        |     |   |          | (246,671 | )        |   |         |        |        
|                                                            | Other                                              |                                                |         | 16,671  |         |         |         |        |         |             |         |             |         |   |         |        |     |   |          | (16,671  | )        |   |         |        |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|                                                            |                                                    | Total                                          |         |         | 183,217 |         |         |         |        |             |         |              | 80,125  |   |         |         |    |   |          |          | (263,342 | ) |         |         |        | 
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|Total net revenues                                          |                                                    |                                                | 473,226 |         |         |         | 390,379 |         |         |             | 391,172 |              |         |   | 244     |         |     |   | (263,342 | )        |          |   | 991,679 |        
|Net revenues of discontinued operations                     |                                                    |                                                |        |         |         |         | 84,352  |         |         |             |        |              |         |   |        |         |     |   |         |          |          |   | 84,352  |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|Net revenues of continuing operations                       |                                                    | $                                              | 473,226 |         |         | $       | 306,027 |         |         | $           | 391,172 |              |         | $ | 244     |         |     | $ | (263,342 | )        |          | $ | 907,327 |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|Operating income (loss)                                     |                                                    | $                                              | 66,148  |         |         | $       | 5,214   |         |         | $           | 4,731   |              |         | $ | (21,163 | )       |     | $ | (11,621  | )        |          | $ | 43,309  |        
|                                                            | Discontinued operations                            |                                                |         |        |         |         |         | (1,236  | )       |             |         |             |         |   |         |        |     |   |          | (1,203   | )        |   |         | (2,439  | )      
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|                                                            | Operating income (loss) from continuing operations |                                                | $       | 66,148  |         |         | $       | 6,450   |         |             | $       | 4,731        |         |   | $       | (21,163 | )   |   | $        | (10,418  | )        |   | $       | 45,748  |        
|Interest expense                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   | (24,098 | )      
|Amortization of financing costs                             |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   | (764    | )      
|Interest income                                             |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   | 1,661   |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|Earnings from continuing operations before income
    taxes |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          | $ | 22,547  |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|Depreciation and amortization                               |                                                    | $                                              | 16,463  |         |         | $       | 12,709  |         |         | $           | 2,696   |              |         | $ | 1,243   |         |     | $ |         |          |          | $ | 33,111  |        
|                                                            | Discontinued operations                            |                                                |         |        |         |         |         | 2,322   |         |             |         |             |         |   |         |        |     |   |          |         |          |   |         | 2,322   |        
|                                                            |                                                    |                                                |         |         |         |         |         |         |         |             |         |              |         |   |         |         |     |   |          |          |          |   |         |        
|                                                            | Continuing operations                              |                                                | $       | 16,463  |         |         | $       | 10,387  |         |             | $       | 2,696        |         |   | $       | 1,243   |     |   | $        |         |          |   | $       | 30,789  |        
|Total assets                                                |                                                    | $                                              | 228,403 |         |         | $       | 165,176 |         |         | $           | 65,539  |              |         | $ | 48,056  |         |     | $ |         |          |          | $ | 507,174 |        
|Capital expenditures                                        |                                                    | $                                              | 13,310  |         |         | $       | 41,337  |         |         | $           | 985     |              |         | $ | 1,424   |         |     | $ |         |          |          | $ | 57,056  |        




Note 4  Asset Retirement
Obligations:

On January 1, 2003, we adopted
SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial
accounting and reporting obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. This statement applies to all entities.
It addresses legal obligations associated with the retirement of
long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. As
used in this statement, a legal obligation is an obligation that
a party is required to settle as a result of an existing or
enacted law, statute, ordinance, or written or oral contract, or
by legal construction of a contract under the doctrine of
promissory estoppel.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

This statement requires that the fair value of a
liability for an Asset Retirement Obligation (ARO)
be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated
Asset Retirement Cost (ARC) is capitalized as part
of the carrying amount of the long-lived asset. To initially
recognize our ARO liability, we capitalized the fair value of
all AROs that we identified, calculated as of the date the
liability would have been recognized were SFAS No. 143
in effect at that time. In accordance with
SFAS No. 143, we also recognized the cumulative
accretion and accumulated depreciation from the date the
liability would have been recognized had the provisions of
SFAS No. 143 been in effect, to January 1, 2003,
the date we adopted SFAS No. 143. As a result, on
January 1, 2003, we recorded an ARO liability of
$2,198,000, ARC assets of $1,580,000 and related accumulated
depreciation of $674,000. We also reversed a previously recorded
asset retirement obligation of $120,000, and recorded a
cumulative effect adjustment of $1,172,000 ($704,000 net of
taxes). Our legally restricted assets that are set aside for
purposes of settling ARO liabilities are less than $500,000.
These assets are set aside to fund costs associated with the
closure of certain solid waste management facilities.

We identified the following AROs:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Landfills  pursuant to
    Virginia law, the two solid waste management facilities at our
    Yorktown refinery must satisfy closure and post-closure care and
    financial responsibility requirements.                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 2. Crude Pipelines  our
    right-of-way agreements generally require that pipeline
    properties be returned to their original condition when the
    agreements are no longer in effect. This means that the pipeline
    surface facilities must be dismantled and removed and certain
    site reclamation performed. We do not believe these right-of-way
    agreements will require us to remove the underground pipe upon
    taking the pipeline permanently out of service. Regulatory
    requirements, however, may mandate that such out-of-service
    underground pipe be purged.
|
| | 3. Storage Tanks  we have a legal
    obligation under applicable law to remove all underground and
    aboveground storage tanks, both on owned property and leased
    property, once they are taken out of service. Under some lease
    arrangements, we also have committed to restore the leased
    property to its original condition.                                                                                                                                                                                                                                                   

The following table reconciles the beginning and
ending aggregate carrying amount of our AROs for the years
ended December 31, 2003 and 2002.

|                                 |  |                   |       |                   |  |   |       | 
|-------------------------------- |  | ----------------- | ----- | ----------------- |  | - | ----- | 
|                                 |  |                   |       | December 31, 2002
|                                 |  | December 31, 2003 |       | (Pro Forma)      
|                                 |  |                   |       |                  
|                                 |  |                  
|                                 |  | (In thousands)   
|Liability beginning of year      |  | $                 | 2,198 |                   |  | $ | 1,719 | 
|Liabilities incurred             |  |                   |      |                   |  |   | 340   | 
|Liabilities settled              |  |                   | (146  | )                 |  |   |      | 
|Accretion expense                |  |                   | 171   |                   |  |   | 139   | 
|Revision to estimated cash flows |  |                   |      |                   |  |   |      | 
|                                 |  |                   |       |                   |  |   |       | 
|Liability end of period          |  | $                 | 2,223 |                   |  | $ | 2,198 | 
|                                 |  |                   |       |                   |  |   |       | 

The effect of the change on earnings, excluding
the cumulative effect adjustment, for the year ended
December 31, 2003 was approximately $178,000 or
$0.02 per diluted share.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The pro forma information below for the years
ended December 31, 2002 and 2001 reflect the effects of
additional depreciation and accretion expense net of related
income taxes as if the requirements of SFAS No. 143
were in effect as of the beginning of the period.

|                                      |                                  |                       |        |        |       |   |        |        |      | 
|------------------------------------- | -------------------------------- | --------------------- | ------ | ------ | ----- | - | ------ | ------ | ---- | 
|                                      |                                  |                      
|                                      |                                  | Year Ended           
|                                      |                                  | December 31,         
|                                      |                                  |                      
|                                      |                                  | 2002                  |        | 2001  
|                                      |                                  |                       |        |       
|                                      |                                  |                      
|                                      |                                  | (In thousands, except
|                                      |                                  | per share data)      
|Net (loss) earnings as reported       |                                  | $                     | (9,267 | )      |       | $ | 12,381 |       
|Deduct:                               |                                  |                       |        |        |       |   |        |       
|                                      | Accretion expense, net of tax    |                       |        | (84    | )     |   |        | (77    | )   
|                                      | Depreciation expense, net of tax |                       |        | (79    | )     |   |        | (68    | )   
|                                      |                                  |                       |        |        |       |   |        |       
|                                      | Pro forma net (loss) earnings    |                       | $      | (9,430 | )     |   | $      | 12,236 |     
|                                      |                                  |                       |        |        |       |   |        |       
|Net (loss) earnings per common share: |                                  |                       |        |        |       |   |        |       
|                                      | Basic:                           |                       |        |        |       |   |        |        |     
|                                      |                                  | As reported           |        | $      | (1.08 | ) |        | $      | 1.40 | 
|                                      |                                  | Pro forma             |        | $      | (1.10 | ) |        | $      | 1.38 | 
|Assuming dilution:                    |                                  |                       |        |        |       |   |        |       
|                                      |                                  | As reported           |        | $      | (1.08 | ) |        | $      | 1.39 | 
|                                      |                                  | Pro forma             |        | $      | (1.10 | ) |        | $      | 1.38 | 




Note 5  Goodwill and Other
Intangible Assets:

SFAS No. 142, Goodwill and Other
Intangible Assets, addresses financial accounting and
reporting for intangible assets acquired individually or with a
group of other assets (but not those acquired in a business
combination) at acquisition. This statement also addresses
financial accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition.
SFAS No. 142, among other things, specifies that
goodwill and certain intangible assets with indefinite lives no
longer be amortized, but instead be subject to periodic
impairment testing.

We elected to conduct our annual goodwill
impairment test as of the first day of each fourth fiscal
quarter (October 1). For 2003, we identified four reporting
units for the purpose of the annual impairment test. The
reporting units consisted of the Yorktown Refinery Unit, Four
Corners Refinery Unit, the Retail Unit and the Phoenix Fuel
Unit. The fair value of each reporting unit was determined using
a discounted cash flow model based on assumptions applicable to
each reporting unit. The fair value of the reporting units
exceeded their respective carrying amounts, including goodwill.
As a result, the goodwill of each reporting unit was considered
not impaired.

In addition to the annual goodwill impairment
test, if events and circumstances indicate that goodwill of a
reporting unit might be impaired, then goodwill also will be
tested for impairment when the impairment indicator arises.

At December 31, 2003 and 2002, we had
goodwill of $24,578,000 and $19,465,000, respectively.

62



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The changes in the carrying amount of goodwill
for the year ended December 31, 2003 are as follows:

|                                                                     |  |                |       |        |  |         |       |       |  |   |        |  |  |   |        |  
|-------------------------------------------------------------------- |  | -------------- | ----- | ------ |  | ------- | ----- | ----- |  | - | ------ |  |  | - | ------ | -
|                                                                     |  | Refining       |       | Retail |  | Phoenix |       |      
|                                                                     |  | Group          |       | Group  |  | Fuel    |       | Total
|                                                                     |  |                |       |        |  |         |       |      
|                                                                     |  |               
|                                                                     |  | (In thousands)
|Balance as of January 1, 2003                                        |  | $              | 125   |        |  | $       | 4,618 |       |  | $ | 14,722 |  |  | $ | 19,465 |  
|Yorktown refinery acquisition contingent
    consideration (Note 6)  |  |                | 5,254 |        |  |         |      |       |  |   |       |  |  |   | 5,254  |  
|Goodwill written off related to the sale of
    certain retail units |  |                |      |        |  |         | (113  | )     |  |   |       |  |  |   | (113   | )
|Impairment losses related to the closure of
    certain retail units |  |                |      |        |  |         | (28   | )     |  |   |       |  |  |   | (28    | )
|                                                                     |  |                |       |        |  |         |       |       |  |   |        |  |  |   |        |  
|Balance as of December 31, 2003                                      |  | $              | 5,379 |        |  | $       | 4,477 |       |  | $ | 14,722 |  |  | $ | 24,578 |  
|                                                                     |  |                |       |        |  |         |       |       |  |   |        |  |  |   |        |  

Certain of our retail units classified as held
for sale or held and used are tested for impairment when
circumstances change. In 2003, offers were received for certain
retail units, while others continued to be marketed for sale,
and these units were tested for impairment. This resulted in
goodwill impairment write-downs for two units of $28,000. Also,
goodwill of $113,000 relating to retail units sold was written
off and is included in the net gain on the disposal of these
units reported as a part of discontinued operations. See
Note 7.

Liquor licenses, which are our only indefinite
lived intangible assets, were evaluated for impairment as
required by SFAS No. 142. We believe that there are no
legal, regulatory, contractual, competitive, economic or other
factors limiting the useful life of our liquor licenses. If
events and circumstances indicate that our liquor licenses might
not be recoverable, then an impairment loss would be recognized
if the carrying amount of the liquor licenses exceeds their fair
value.

Intangible assets with finite lives will continue
to be amortized over their respective useful lives and will be
tested for impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.

A summary of intangible assets that are included
in Other Assets in the Consolidated Balance Sheets
at December 31, 2003 and 2002 are presented below:

|                                               |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |          | 
|---------------------------------------------- | -------------------- | ----------------- | ------ | ----------------- |  | -------- | ----- | -------- |  | ------------ | ----- | -------- |  | ------------ | ------ | ----- |  | - | ----- | ----- |  | - | ----- | ----- |  |  |  | -------- | 
|                                               |                      |                   |        |                   |  |         
|                                               |                      | December 31, 2003 |        | December 31, 2002 |  |         
|                                               |                      |                   |        |                   |  | Weighted
|                                               |                      | Gross             |        |                   |  | Net      |       | Gross    |  |              |       | Net      |  | Average     
|                                               |                      | Carrying          |        | Amortization      |  | Carrying |       | Carrying |  | Accumulated  |       | Carrying |  | Amortization
|                                               |                      | Value             |        | Accumulated       |  | Value    |       | Value    |  | Amortization |       | Value    |  | Period      
|                                               |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |             
|                                               |                      |                   |        |                  
|                                               |                      | (In thousands)    |        |                  
|Amortized intangible assets:                   |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |         
|                                               | Rights-of-way        |                   | $      | 3,564             |  |          | $     | 2,545    |  |              | $     | 1,019    |  |              | $      | 3,564 |  |   | $     | 2,376 |  |   | $     | 1,188 |  |  |  | 21 years | 
|                                               | Contracts            |                   |        | 3,971             |  |          |       | 3,595    |  |              |       | 376      |  |              |        | 3,971 |  |   |       | 3,476 |  |   |       | 495   |  |  |  | 12 years | 
|                                               | Licenses and permits |                   |        | 786               |  |          |       | 147      |  |              |       | 639      |  |              |        | 786   |  |   |       | 59    |  |   |       | 727   |  |  |  | 9 years  | 
|                                               |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |         
|                                               |                      |                   | 8,321  |                   |  |          | 6,287 |          |  |              | 2,034 |          |  |              | 8,321  |       |  |   | 5,911 |       |  |   | 2,410 |       |  |  |  |         
|                                               |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |         
|Intangible assets not subject to amortization: |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |         
|                                               | Liquor licenses      |                   |        | 7,455             |  |          |       |         |  |              |       | 7,455    |  |              |        | 7,409 |  |   |       |      |  |   |       | 7,409 |  |  |  |          | 
|                                               |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |         
|Total intangible assets                        |                      | $                 | 15,776 |                   |  | $        | 6,287 |          |  | $            | 9,489 |          |  | $            | 15,730 |       |  | $ | 5,911 |       |  | $ | 9,819 |       |  |  |  |         
|                                               |                      |                   |        |                   |  |          |       |          |  |              |       |          |  |              |        |       |  |   |       |       |  |   |       |       |  |  |  |         

63



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Intangible asset amortization expense for the
year ended December 31, 2003 was $376,000. Estimated
amortization expense for the five succeeding fiscal years is as
follows:

|     |  |                |     | 
|---- |  | -------------- | --- | 
|     |  | (In thousands)
|2004 |  | $              | 376 | 
|2005 |  |                | 376 | 
|2006 |  |                | 374 | 
|2007 |  |                | 273 | 
|2008 |  |                | 253 | 

The following table sets forth a reconciliation
of net earnings (loss) and earnings (loss) per share information
for the years ended December 31, 2003, 2002 and 2001
adjusted for the non-amortization provisions of
SFAS No. 142.

|                                              |                              |                         |        |      |  |      |        |       |   |   |        |      | 
|--------------------------------------------- | ---------------------------- | ----------------------- | ------ | ---- |  | ---- | ------ | ----- | - | - | ------ | ---- | 
|                                              |                              |                        
|                                              |                              | Year Ended December 31,
|                                              |                              |                        
|                                              |                              | 2003                    |        | 2002 |  | 2001
|                                              |                              |                         |        |      |  |     
|                                              |                              |                        
|                                              |                              | (In thousands)         
|Reported net earnings (loss)                  |                              | $                       | 11,219 |      |  | $    | (9,267 | )     |   | $ | 12,381 |     
|Add: Goodwill amortization, net of tax effect |                              |                         |       |      |  |      |       |       |   |   | 641    |     
|                                              |                              |                         |        |      |  |      |        |       |   |   |        |     
|Adjusted net earnings (loss)                  |                              | $                       | 11,219 |      |  | $    | (9,267 | )     |   | $ | 13,022 |     
|                                              |                              |                         |        |      |  |      |        |       |   |   |        |     
|Basic earnings (loss) per share:              |                              |                         |        |      |  |      |        |       |   |   |        |     
|                                              | Reported net earnings (loss) |                         | $      | 1.28 |  |      | $      | (1.08 | ) |   | $      | 1.40 | 
|                                              | Adjusted net earnings (loss) |                         | $      | 1.28 |  |      | $      | (1.08 | ) |   | $      | 1.47 | 
|Diluted earnings (loss) per share:            |                              |                         |        |      |  |      |        |       |   |   |        |     
|                                              | Reported net earnings (loss) |                         | $      | 1.27 |  |      | $      | (1.08 | ) |   | $      | 1.39 | 
|                                              | Adjusted net earnings (loss) |                         | $      | 1.27 |  |      | $      | (1.08 | ) |   | $      | 1.46 | 




Note 6 
Acquisitions:

On May 14, 2002, we acquired the
61,900 bpd Yorktown refinery from BP Corporation North
America Inc. and BP Products North America Inc. (collectively
BP) for $127,500,000 plus $65,182,000 for the value
of inventory at closing, the assumption of certain liabilities,
and a conditional earn-out. In addition, we incurred direct
costs related to this transaction of approximately $2,000,000.

Under SFAS No. 141, Business
Combinations, the Yorktown acquisition was accounted for
as a purchase. As such, the purchase price was allocated to the
assets acquired and liabilities assumed based upon their
respective fair market values at the date of acquisition. No
material adjustments have been made to our initial allocation of
the purchase price of the Yorktown refinery except as noted
below.

As part of the acquisition, we agreed to pay to
BP, beginning in 2003 and concluding at the end of 2005,
earn-out payments up to a maximum of $25,000,000 when the
average monthly spreads for regular reformulated gasoline or
No. 2 distillate over West Texas Intermediate equivalent
light crude oil on the New York Mercantile Exchange exceed
$5.50 or $4.00 per barrel, respectively. For the year ended
December 31, 2003, we incurred $8,854,000 under this
provision of the purchase agreement. These earn-out payments are
an additional element of cost that represents an excess of
purchase price over the net amounts assigned to the assets
acquired and liabilities assumed. We allocated $5,254,000 of
this amount to goodwill and $3,600,000 to a deferred tax asset.

The Yorktown acquisition was funded with cash on
hand, $32,000,000 in borrowings under a $100,000,000 senior
secured revolving credit facility, $40,000,000 in borrowings
from a senior secured

64



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

mortgage loan facility, and part of the proceeds
from the issuance of $200,000,000 of 11% Senior
Subordinated Notes due 2012 (the 11% Notes). In
addition, we incurred approximately $17,436,000 of financing
costs in connection with these obligations. See Note 13 for
a discussion of these obligations.

The December 31, 2002 financial statements
include the results of operations of the Yorktown acquisition
since the date of acquisition.

In December 1998, we completed a sale-leaseback
transaction with FFCA Capital Holding Corporation
(FFCA). Under the terms of the Sale and Lease
Agreement (the Agreement), FFCA purchased 83 service
station/convenience stores from us for approximately
$51,763,000. We, in turn, leased the 83 service
station/convenience stores back from FFCA under an operating
lease arrangement with an initial term of 15 years and
three separate options to continue the lease for successive
periods of five years. In the second half of 1999, we reacquired
24 of the service station/convenience stores for approximately
$13,711,000, which was the original selling price of these
properties. In the second quarter of 2001, FFCA approached us to
determine whether we had any interest in reacquiring the
remaining 59 service station/convenience stores. Subsequently,
in July 2001, we repurchased, for cash, the 59 service
station/convenience stores for approximately $38,052,000, which
was the original selling price of these properties, plus closing
costs. Certain deferrals on the Balance Sheet relating to the
sale-leaseback transaction reduced the cost basis of the assets
recorded in Property, Plant and Equipment by
approximately $1,736,000. These deferrals included a deferred
gain on the original sale to FFCA, deferred lease allocations,
and deferred costs associated with the original sale. Lease
expense related to these assets totaled $0 for 2002 and
$2,610,000 for 2001. Depreciation expense related to these same
assets totaled $3,983,000 for 2002 and $2,937,000 in 2001.






|         |                                                                        
|-------- | -----------------------------------------------------------------------
|Note 7  | Discontinued Operations, Asset Disposals, and
    Assets Held For Sale:

The following table contains information
regarding our discontinued operations, all of which are included
in our retail group and include some service station/convenience
stores and our travel center, which was sold on June 19,
2003.

|                                                |  |                         |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                |  |                        
|                                                |  | Year Ended December 31,
|                                                |  |                        
|                                                |  | 2003                    |        | 2002 |  | 2001
|                                                |  |                         |        |      |  |     
|                                                |  |                        
|                                                |  | (In thousands)         
|Net revenues                                    |  | $                       | 28,179 |      |  | $    | 63,776 |   |  | $ | 84,352 |  
|Net operating loss                              |  | $                       | (736   | )    |  | $    | (2,100 | ) |  | $ | (1,236 | )
|Gain on disposal                                |  | $                       | 279    |      |  | $    | 6,463  |   |  | $ |       |  
|Impairment and other write-downs                |  | $                       | (233   | )    |  | $    | (1,310 | ) |  | $ | (1,203 | )
|                                                |  |                         |        |      |  |      |        |   |  |   |        |  
|(Loss) earnings before income taxes             |  | $                       | (690   | )    |  | $    | 3,053  |   |  | $ | (2,439 | )
|                                                |  |                         |        |      |  |      |        |   |  |   |        |  
|Net (loss) earnings                             |  | $                       | (414   | )    |  | $    | 1,832  |   |  | $ | (1,464 | )
|Allocated goodwill included in gain on disposal |  | $                       | 113    |      |  | $    | 308    |   |  | $ |       |  

65



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Included in Assets Held for Sale in
the accompanying Consolidated Balance Sheets are the following
categories of assets.

|                                                                                  |                               |                |       |              |  |   |        |        | 
|--------------------------------------------------------------------------------- | ----------------------------- | -------------- | ----- | ------------ |  | - | ------ | ------ | 
|                                                                                  |                               | December 31,   |       | December 31,
|                                                                                  |                               | 2003           |       | 2002        
|                                                                                  |                               |                |       |             
|                                                                                  |                               |               
|                                                                                  |                               | (In thousands)
|Operating retail units held for sale and included
    in discontinued operations: |                               |                |       |              |  |   |        |       
|                                                                                  | Property, plant and equipment |                | $     | 330          |  |   | $      | 12,322 | 
|                                                                                  | Inventories                   |                |       | 106          |  |   |        | 558    | 
|                                                                                  |                               |                |       |              |  |   |        |       
|                                                                                  |                               |                | 436   |              |  |   | 12,880 |       
|Vacant land  residential/commercial
    property                                 |                               |                |      |              |  |   | 6,351  |       
|Closed retail units                                                               |                               |                | 3,158 |              |  |   | 2,376  |       
|Vacant land  industrial site                                                     |                               |                | 1,596 |              |  |   | 1,596  |       
|Vacant land  adjacent to retail units                                            |                               |                |      |              |  |   | 1,201  |       
|                                                                                  |                               |                |       |              |  |   |        |       
|                                                                                  |                               | $              | 5,190 |              |  | $ | 24,404 |       
|                                                                                  |                               |                |       |              |  |   |        |       

All of these assets are or were being marketed
for sale at the direction of management. We expect to dispose of
the remaining properties within the next 12 months. In
2003, certain properties were reclassified to property, plant
and equipment because we were unable to dispose of them within
12 months. These properties included:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | nine closed retail units with a net book value of
    $1,219,000;                         
|
| |  | vacant land  residential/commercial
    property with a net book value of $6,278,000; and
|
| |  | vacant land  adjacent to retail units
    with a net book value of $1,189,000.           

In addition, two closed retail units were added
to assets held for sale, two were sold, one unit was
written-off, and impairment write-downs of $796,000 were
recorded relating to various other assets.

On June 19, 2003, we completed the sale of
our travel center to Pilot Travel Centers LLC
(Pilot) and received net proceeds of approximately
$5,820,000, plus an additional $491,000 for inventories. As a
result of this transaction, we recorded a pre-tax loss of
approximately $44,600, which included charges that were a direct
result of the decision to sell the travel center. In connection
with the sale, we entered into a long-term product supply
agreement with Pilot. We will receive a supply agreement
performance payment at the end of five years if there has been
no material breach under the supply agreement and all
requirements have been met for such payment.

On November 4, 2003 we sold our corporate
headquarters building and approximately 8 acres of
surrounding land. In connection with the sale, we entered into a
ten-year agreement to lease back our corporate headquarters
building. The gain on the sale of the property of approximately
$924,000 has been deferred and is being amortized over the
original lease term. The deferred gain is included in
Other Liabilities and Deferred Income on our
Consolidated Balance Sheet for December 31, 2003.

66



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 8  Earnings Per
Share:

The following is a reconciliation of the
numerators and denominators of the basic and diluted per share
computations for earnings as required by SFAS No. 128:

|                                                        |  |                         |        |      |  |      |         |   |  |   |        |  
|------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|Numerator                                               |  | 2003                    |        | 2002 |  | 2001
|                                                        |  |                         |        |      |  |     
|                                                        |  |                        
|                                                        |  | (In thousands)         
|Earnings (loss) from continuing operations              |  | $                       | 12,337 |      |  | $    | (11,099 | ) |  | $ | 13,845 |  
|Earnings (loss) from discontinued operations            |  |                         | (414   | )    |  |      | 1,832   |   |  |   | (1,464 | )
|Cumulative effect of change in accounting
    principle |  |                         | (704   | )    |  |      |        |   |  |   |       |  
|                                                        |  |                         |        |      |  |      |         |   |  |   |        |  
|Net earnings (loss)                                     |  | $                       | 11,219 |      |  | $    | (9,267  | ) |  | $ | 12,381 |  
|                                                        |  |                         |        |      |  |      |         |   |  |   |        |  

|                                                  |  |                         |           |      |  |      |           |   |  |  |           | 
|------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | 
|                                                  |  |                        
|                                                  |  | Year Ended December 31,
|                                                  |  |                        
|Denominator                                       |  | 2003                    |           | 2002 |  | 2001
|                                                  |  |                         |           |      |  |     
|Basic  weighted average shares
    outstanding   |  |                         | 8,731,672 |      |  |      | 8,565,992 |   |  |  | 8,871,006 | 
|Effect of dilutive stock options                  |  |                         | 98,692    |      |  |      |          | * |  |  | 14,128    | 
|                                                  |  |                         |           |      |  |      |           |   |  |  |           | 
|Diluted  weighted average shares
    outstanding |  |                         | 8,830,364 |      |  |      | 8,565,992 |   |  |  | 8,885,134 | 
|                                                  |  |                         |           |      |  |      |           |   |  |  |           | 



---



|  |                                                                           
|- | --------------------------------------------------------------------------
|* | The additional 8,650 shares would be antidilutive
    due to the net loss.

|                                                        |  |                         |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|Basic Earnings Per Share                                |  | 2003                    |       | 2002 |  | 2001
|                                                        |  |                         |       |      |  |     
|Earnings (loss) from continuing operations              |  | $                       | 1.41  |      |  | $    | (1.29 | ) |  | $ | 1.56  |  
|Earnings (loss) from discontinued operations            |  |                         | (0.05 | )    |  |      | 0.21  |   |  |   | (0.16 | )
|Cumulative effect of change in accounting
    principle |  |                         | (0.08 | )    |  |      |      |   |  |   |      |  
|                                                        |  |                         |       |      |  |      |       |   |  |   |       |  
|Net earnings (loss)                                     |  | $                       | 1.28  |      |  | $    | (1.08 | ) |  | $ | 1.40  |  
|                                                        |  |                         |       |      |  |      |       |   |  |   |       |  

|                                                        |  |                         |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|Diluted Earnings Per Share                              |  | 2003                    |       | 2002 |  | 2001
|                                                        |  |                         |       |      |  |     
|Earnings (loss) from continuing operations              |  | $                       | 1.40  |      |  | $    | (1.29 | ) |  | $ | 1.55  |  
|Earnings (loss) from discontinued operations            |  |                         | (0.05 | )    |  |      | 0.21  |   |  |   | (0.16 | )
|Cumulative effect of change in accounting
    principle |  |                         | (0.08 | )    |  |      |      |   |  |   |      |  
|                                                        |  |                         |       |      |  |      |       |   |  |   |       |  
|Net earnings (loss)                                     |  | $                       | 1.27  |      |  | $    | (1.08 | ) |  | $ | 1.39  |  
|                                                        |  |                         |       |      |  |      |       |   |  |   |       |  

At December 31, 2003 and 2002, there were
8,785,555 and 8,571,779 shares, respectively, of our common
stock outstanding.

On February 25, 2004, we contributed 49,046
newly issued shares of our common stock to fund our 401(k) plan
discretionary contribution for the year ended December 31,
2003. In 2003, we contributed 213,776 newly issued shares of our
common stock to fund our 401(k) plan discretionary contribution
for the year ended December 31, 2002. See Note 16 for
a description of the 401(k) plan.

There were no transactions subsequent to
December 31, 2003, except as noted above, that if the
transactions had occurred before December 31, 2003, would
materially change the number of common shares or potential
common shares outstanding as of December 31, 2003.

67



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 9  Related Party
Transactions:

In the past, we engaged in a number of
transactions with related parties, primarily James E. Acridge,
our former Chairman, President and Chief Executive Officer (the
Former CEO). Certain of these transactions are
summarized in the table below.

|                                                                   |  |                        |     |      |  |      |     |  |  |   |           |  
|------------------------------------------------------------------ |  | ---------------------- | --- | ---- |  | ---- | --- |  |  | - | --------- | -
|                                                                   |  |                       
|                                                                   |  | Material Related Party
|                                                                   |  | Transactions          
|                                                                   |  |                       
|Transaction                                                        |  | 2003                   |     | 2002 |  | 2001
|                                                                   |  |                        |     |      |  |     
|Purchase of Jomax Real Property(1)                                 |  |                        | N/A |      |  |      | N/A |  |  | $ | 5,000,000 |  
|Purchase of Jomax Rights(2)                                        |  |                        | N/A |      |  |      | N/A |  |  | $ | 600,000   |  
|Purchase of Artwork for Corporate Headquarters(3)                  |  |                        | N/A |      |  |      | N/A |  |  | $ | 162,550   |  
|Purchase of Stock(4)                                               |  |                        | N/A |      |  |      | N/A |  |  | $ | 3,520,000 |  
|Principal Amount of Loan Receivable at the end of
    each year(5) |  |                        | N/A |      |  |      | N/A |  |  | $ | 5,000,000 |  
|Interest Income on Loan(5)                                         |  |                        | N/A |      |  |      | N/A |  |  | $ | 537,499   |  
|Interest Receivable at 12/31(5)                                    |  |                        | N/A |      |  |      | N/A |  |  | $ | 394,384   |  
|Other Receivables at 12/31(6)                                      |  |                        | N/A |      |  |      | N/A |  |  | $ | 88,338    |  
|Other Amounts Classified as Compensation(7)                        |  |                        | N/A |      |  |      | N/A |  |  | $ | 696,204   |  
|Other (Receipts) Payments(8)                                       |  |                        | N/A |      |  |      | N/A |  |  | $ | (39,440   | )



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On January 25, 2001, we accepted an offer
    from the Former CEO, on behalf of a trust of which the Former
    CEO is the beneficiary (the Trust), to sell a parcel
    of land (the Jomax Property) to us, for the lesser
    of $5,000,000 or the Jomax Propertys appraisal value. In
    March 2001, we purchased the Jomax Property for $5,000,000. A
    portion of the proceeds from the sale was used to pay all
    interest due and payable as of March 28, 2001 under the
    terms of an outstanding loan to the Former CEO we had made
    previously. As part of the transaction, the Trust also was
    granted an option, exercisable for a period of two years, to
    repurchase the property at the greater of the amount paid by us
    to purchase the property and the propertys appraised
    value, and a right of first refusal, exercisable for a period of
    two years, to repurchase the property on the same terms as
    contained in a bona fide offer from a bona fide purchaser.                                                                                                                                                                                                                                                                                                             
|   
|(2) | On September 20, 2001, we purchased the
    Trusts option and right of first refusal (collectively,
    the Rights) for $600,000. At the time of the sale,
    we were negotiating with a potential purchaser for the sale of
    the Jomax Property for a price in excess of the purchase price
    we paid. The potential purchaser was requiring us to represent
    in the purchase and sale agreement that there were no effective
    options to purchase, or rights of first refusal, affecting the
    property. Our purchase of the Rights would have enabled us to
    make this representation and would have avoided any other
    complications associated with the Rights that potentially could
    have affected the sale. The potential purchaser subsequently
    advised us that it was discontinuing negotiations regarding the
    possible sale because general market and economic conditions,
    coupled with the financial uncertainties arising out of the
    events that occurred on September 11, 2001, had severely
    depressed the real estate market. We continue to market this
    property for sale, and in the first quarter of 2004 entered into
    an agreement to sell it. Under the current terms of the
    agreement, this transaction would close in the second quarter of
    2004.
|   
|(3) | In the first quarter of 2001, we purchased
    artwork from the Former CEO for display in our headquarters
    building for its appraised value of $162,550. The proceeds of
    that transaction were used by the Former CEO to pay balances due
    on certain amounts owed to us by the Former CEO and by entities
    controlled, or previously controlled, by the Former CEO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

68



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | During 2001, we repurchased 400,000 shares
    of our common stock from the Former CEO for $3,520,000 or
    $8.80 per share. This was the market price of our stock on
    the date our board of directors approved the purchase. We
    purchased all of these shares under our stock repurchase
    program, and all of the repurchased shares are treated as
    treasury shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(5) | We loaned $4,000,000 to the Former CEO on
    September 17, 1998 (the Loan). The Loan was
    originally evidenced by an unsecured promissory note bearing
    interest at the prime rate published by the Wall Street Journal
    on September 17, 1998 (the Prime Rate) plus 2%.
    Principal and accrued interest were due and payable in one lump
    sum on February 28, 1999. On December 23, 1998, we
    entered into a revised loan agreement with the Former CEO. The
    amount of the Loan was increased to $5,000,000, the Loans
    interest rate was increased to the Prime Rate plus 3%, and the
    Loans maturity date was extended to February 28,
    2001. An initial interest payment was made on February 28,
    1999 for interest due through December 31, 1998. Subsequent
    interest was due and payable semi-annually on June 30 and
    December 31 of each year.

The Loan was modified again on March 10,
2000. The terms of the Loan were revised so that all principal
and interest, including interest that otherwise would have been
payable on December 31, 1999, became due and payable on
February 28, 2001. As security for the modified loan, we
received a pledge by a limited liability company owned by the
Former CEO (Pinnacle Rodeo) of a 49% equity interest
in another limited liability company (Pinnacle
Rawhide). We believe that Pinnacle Rodeos principal
asset was full ownership of Pinnacle Rawhide, and that Pinnacle
Rawhides principal asset was certain real property in
north Scottsdale, Arizona, on which the Rawhide Wild West Town
is located, which was subject to secured liens (the Real
Property). The loan was further modified on
February 28, 2001 to extend the Loans maturity date
to March 28, 2001. This modification reflected the fact
that our purchase of the Jomax Property had not closed. A
portion of the proceeds of this sale was used to pay the
interest that became due and payable under the Loan on
February 28, 2001. On March 21, 2001, we approved an
additional two-year extension of the Loans maturity date,
making all principal and interest due and payable on
March 28, 2003. This extension was conditioned upon, among
other things, the Former CEOs payment of all interest due
and payable on March 28, 2001, which was paid. In return
for the extension of the Loan, the Former CEO provided
additional security for the Loan by pledging all of his equity
interest in Pinnacle Rodeo.

On July 18, 2001, we were advised that
Pinnacle Rodeo was unable to make the monthly payment due and
owing in the month of July under certain loans entered into by
Pinnacle Rodeo (the Rodeo Loans). We were asked to
make this payment, in the amount of $240,833, on behalf of the
Former CEO for the benefit of Pinnacle Rodeo. It was our
understanding that the Rodeo Loans were secured by prior liens
on the Real Property. We made the July payment in order to avoid
a default under the Rodeo Loans.

As of December 31, 2001, we established a
reserve for the entire amount of the Loan plus interest accrued
through December 31, 2001. The amount of the reserve is
$5,409,000. Subsequently, the Former CEO personally, and three
entities controlled, or previously controlled, by the Former
CEO, commenced Chapter 11 Bankruptcy proceedings, including
Pinnacle Rodeo and Pinnacle Rawhide. The four bankruptcy cases
are jointly administered. It is unknown whether and to what
extent creditors, including us, will receive any recovery on
their respective debts from any of the four bankruptcy estates.
In the course of the bankruptcy proceeding, the bankruptcy court
permitted the principal lienholder on the Real Property to take
back title to the property. In view of this development, we have
continued to maintain the reserve established as of
December 31, 2001.

On July 31, 2003, we filed a complaint in
the Acridge bankruptcy proceeding in which we sought a
determination that certain of the amounts we believe are owed to
us by Mr. Acridge, including amounts due on the loan, are
not dischargeable in bankruptcy. Included in this complaint is a
claim for interest on the loan arising since we established the
reserve at December 31, 2001. For 2002, this

69



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amount is $402,226, and for 2003, this amount is
$537,500. We have not, however, established a receivable for
these interest amounts. The court has entered a default against
Mr. Acridge in connection with our complaint. The court,
however, has not yet ruled on whether we are entitled to receive
any of the damages that we have requested. Even if the court
decides that we can receive damages, we do not know whether we
would be able to recover any of these damages from
Mr. Acridge.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Total includes amounts due from entities
    controlled, or previously controlled, by the Former CEO for
    rent, landscaping, and fuel purchases. Because of the bankruptcy
    proceedings discussed above, a reserve for these receivables has
    been recorded as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(7) | In the third quarter of 2001, we transferred to
    the Former CEO a life insurance policy on his life with a cash
    surrender value of $251,078. This policy and life insurance
    policies for another executive had been issued prior to when we
    went public in 1989. In connection with our determination that
    the policy should be transferred to the Former CEO, we
    considered historical information and other relevant matters
    relating to the policy, including the fact that several life
    insurance policies on the other executives life had
    previously been transferred to that executive. The cash value of
    the life insurance policy was considered compensation to the
    Former CEO for tax purposes in 2001. The $251,078 cash surrender
    value recorded on our books was expensed in the third quarter
    and was included in selling, general and administrative expenses
    (SG&A).

In the third quarter of 2001, the Former CEO also
submitted statements to us for reimbursement of certain
expenditures made by the Former CEO in the current year and
prior years. In August 2001, we reimbursed the Former CEO
$228,379 in connection with such statements. Of this amount,
$204,293 was considered compensation to the Former CEO for tax
purposes in 2001. The $204,293 was expensed in the third quarter
and was included in SG&A.

In addition, the payment of $240,833 described in
footnote five above made on behalf of the Former CEO also was
expensed in the third quarter of 2001. This amount was
considered compensation to the Former CEO for tax purposes in
2001 and was included in SG&A.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | The total represents the net amount of
    (i) certain miscellaneous amounts paid by us to the Former
    CEO or entities controlled, or previously controlled, by the
    Former CEO, including certain amounts for joint marketing
    programs, the lease of certain real property for one of our
    service stations, and the assumption by us of a lease, and
    (ii) certain miscellaneous amounts paid by, or due from,
    the Former CEO or entities controlled, or previously controlled,
    by the Former CEO, including rent for office space in our
    headquarters building.

Excluded from the above table are a number of
immaterial transactions involving us and the Former CEO or
entities controlled, or previously controlled, by the Former
CEO, including: (i) amounts paid to us for purchases of
fuel, (ii) payments made to entities controlled, or
previously controlled, by the Former CEO for events held at
facilities owned by such entities, (iii) reimbursements for
certain landscaping and maintenance services provided for the
Former CEO and entities controlled, or previously controlled, by
the Former CEO, and (iv) the value of products and services
provided to us by the Former CEO or entities controlled, or
previously controlled, by him. Various immaterial amounts
involving other related parties are also excluded from the
table. Additionally, in 2002, we extended for one year the
period of time that the Former CEO had to exercise a grant of
55,800 stock options. These stock options were due to expire on
June 27, 2002 due to the Former CEOs termination on
March 29, 2002. Because the extension changed the terms of
the original stock option grant under our 1998 Stock Incentive
Plan, we recorded compensation expense in the amount of $79,500.

All of the material foregoing transactions were
reviewed and approved by our board of directors or committees of
the board.

70



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As discussed in more detail in Note 20, the
Former CEO, and three entities controlled by the Former CEO have
commenced Chapter 11 bankruptcy proceedings. We are
pursuing claims in the bankruptcy proceedings for, among other
things, the following: (i) the loan and related accrued
interest discussed above, (ii) the other receivables
outstanding as of December 31, 2003 discussed above,
(iii) approximately $700,000 of costs incurred through
December 31, 2003 to resolve a lease dispute and related
litigation in which an entity controlled by the Former CEO was a
sublessee of ours and a limited liability company in which the
bankruptcy estate of an entity controlled by Mr. Acridge
formerly owned a 51% interest was the Landlord (costs incurred
subsequent to December 31, 2003 also will be pursued),
(iv) approximately $124,000 for the time spent by one of
our employees on projects for entities controlled, or previously
controlled, by the Former CEO,(v) approximately
$89,000 for landscaping services provided by us that benefited
the Former CEO, (vi) approximately $15,600 for what we
believe are non-company expenses incurred by the Former CEO on a
company credit card, and (vii) approximately $1,400 of
other miscellaneous amounts. It is unknown whether, and to what
extent, creditors, including us, will receive any recovery on
their respective debts from any of the four bankruptcy estates.

In addition, with respect to the lease dispute
described above, we have demanded reimbursement of amounts paid
to resolve the dispute from an entity controlled by our former
CEO that is not involved in bankruptcy. We do not know whether
we will receive any of the amounts we are attempting to recover.




Note 10 
Inventories:

Our inventories consist of the following:

|                                                      |                            |                |         |        |         |  |        |        |         | 
|----------------------------------------------------- | -------------------------- | -------------- | ------- | ------ | ------- |  | ------ | ------ | ------- | 
|                                                      |                            |               
|                                                      |                            | December 31,  
|                                                      |                            |               
|                                                      |                            | 2003           |         | 2002  
|                                                      |                            |                |         |       
|                                                      |                            |               
|                                                      |                            | (In thousands)
|First-in, first-out (FIFO) method:                  |                            |                |         |        |         |  |        |       
|                                                      | Crude oil                  |                | $       | 54,771 |         |  | $      | 34,192 |        
|                                                      | Refined products           |                |         | 68,622 |         |  |        | 59,896 |        
|                                                      | Refinery and shop supplies |                |         | 11,306 |         |  |        | 11,362 |        
|                                                      | Merchandise                |                |         | 2,946  |         |  |        | 3,374  |        
|Retail method:                                        |                            |                |         |        |         |  |        |       
|                                                      | Merchandise                |                |         | 11,474 |         |  |        | 8,599  |        
|                                                      |                            |                |         |        |         |  |        |       
|                                                      |                            | Subtotal       |         |        | 149,119 |  |        |        | 117,423 | 
|Adjustment for last-in, first-out
    (LIFO) method |                            |                | (15,498 | )      |         |  | (9,641 | )     
|                                                      |                            |                |         |        |         |  |        |       
|                                                      |                            | Total          |         | $      | 133,621 |  |        | $      | 107,782 | 
|                                                      |                            |                |         |        |         |  |        |       

The portion of inventories valued on a LIFO basis
totaled $89,239,000 and $70,329,000 at December 31, 2003
and 2002, respectively. The data in the following paragraph will
facilitate comparison with the operating results of companies
using the FIFO method of inventory valuation.

If inventories had been determined using the FIFO
method at December 31, 2003, 2002 and 2001, net earnings
and diluted earnings per share would have been higher
(lower) as follows:

|                           |  |                         |           |      |  |      |           |  |  |   |            |  
|-------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  | - | ---------- | -
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2003                    |           | 2002 |  | 2001
|                           |  |                         |           |      |  |     
|Net earnings               |  | $                       | 3,514,000 |      |  | $    | 7,401,000 |  |  | $ | (6,981,000 | )
|Diluted earnings per share |  | $                       | 0.40      |      |  | $    | 0.86      |  |  | $ | (0.79      | )

71



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

We liquidated certain lower cost refinery LIFO
inventory layers in 2003, 2002 and 2001, which resulted in an
increase in our net earnings and related diluted earnings per
share as follows:

|                           |  |                         |           |      |  |      |         |  |  |   |         | 
|-------------------------- |  | ----------------------- | --------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2003                    |           | 2002 |  | 2001
|                           |  |                         |           |      |  |     
|Net earnings               |  | $                       | 1,156,000 |      |  | $    | 660,000 |  |  | $ | 139,000 | 
|Diluted earnings per share |  | $                       | 0.22      |      |  | $    | 0.08    |  |  | $ | 0.02    | 

In 2001, cost of products sold were increased by
approximately $3,302,000 as a result of a reduction in the
carrying value of inventories related to a decline in crude oil
and refined product prices.




Note 11  Property, Plant and
Equipment:

Our property, plant and equipment, at cost,
consist of the following:

|                                                |          |                |          |         |  |   |          |         | 
|----------------------------------------------- | -------- | -------------- | -------- | ------- |  | - | -------- | ------- | 
|                                                |          |               
|                                                |          | December 31,  
|                                                |          |               
|                                                |          | 2003           |          | 2002   
|                                                |          |                |          |        
|                                                |          |               
|                                                |          | (In thousands)
|Land and improvements                           |          | $              | 44,394   |         |  | $ | 38,498   |        
|Buildings and improvements                      |          |                | 101,865  |         |  |   | 113,730  |        
|Machinery and equipment (including turnarounds) |          |                | 433,479  |         |  |   | 424,657  |        
|Pipelines                                       |          |                | 10,268   |         |  |   | 10,456   |        
|Furniture and fixtures                          |          |                | 25,190   |         |  |   | 24,300   |        
|Vehicles                                        |          |                | 7,683    |         |  |   | 7,876    |        
|Construction in progress                        |          |                | 5,839    |         |  |   | 7,057    |        
|                                                |          |                |          |         |  |   |          |        
|                                                | Subtotal |                |          | 628,718 |  |   |          | 626,574 | 
|Accumulated depreciation and amortization       |          |                | (235,539 | )       |  |   | (211,576 | )      
|                                                |          |                |          |         |  |   |          |        
|                                                | Total    |                | $        | 393,179 |  |   | $        | 414,998 | 
|                                                |          |                |          |         |  |   |          |        




Note 12  Accrued
Expenses:

Our accrued expenses are comprised of the
following:

|                                                            |       |                |        |        |  |   |        |        | 
|----------------------------------------------------------- | ----- | -------------- | ------ | ------ |  | - | ------ | ------ | 
|                                                            |       |               
|                                                            |       | December 31,  
|                                                            |       |               
|                                                            |       | 2003           |        | 2002  
|                                                            |       |                |        |       
|                                                            |       |               
|                                                            |       | (In thousands)
|Excise taxes                                                |       | $              | 24,623 |        |  | $ | 16,130 |       
|Payroll and related costs                                   |       |                | 10,034 |        |  |   | 8,523  |       
|Bonus, profit sharing and retirement plan
    contributions |       |                | 4,980  |        |  |   | 3,632  |       
|Interest                                                    |       |                | 7,319  |        |  |   | 7,359  |       
|Other                                                       |       |                | 6,320  |        |  |   | 7,174  |       
|                                                            |       |                |        |        |  |   |        |       
|                                                            | Total |                | $      | 53,276 |  |   | $      | 42,818 | 
|                                                            |       |                |        |        |  |   |        |       

72



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 13  Long-Term
Debt:

Our long-term debt consists of the following:

|                                                                                                                                  |          |                |         |         |  |   |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------- | -------- | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                                                  |          |               
|                                                                                                                                  |          | December 31,  
|                                                                                                                                  |          |               
|                                                                                                                                  |          | 2003           |         | 2002   
|                                                                                                                                  |          |                |         |        
|                                                                                                                                  |          |               
|                                                                                                                                  |          | (In thousands)
|11% senior subordinated notes, due 2012, net
    of unamortized discount of $5,288 and $5,651, interest payable
    semi-annually |          | $              | 194,712 |         |  | $ | 194,349 |        
|9% senior subordinated notes, due 2007,
    interest payable semi-annually                                                        |          |                | 150,000 |         |  |   | 150,000 |        
|Senior secured revolving credit facility, due
    2005, floating interest rate, interest payable monthly                          |          |                |        |         |  |   | 25,000  |        
|Senior secured mortgage loan facility, due 2005,
    floating interest rate, principal and interest payable monthly               |          |                | 22,000  |         |  |   | 32,222  |        
|Capital lease obligations, 11.3%, interest
    payable monthly, repaid in 2003                                                    |          |                |        |         |  |   | 6,703   |        
|Other                                                                                                                             |          |                | 17      |         |  |   | 46      |        
|                                                                                                                                  |          |                |         |         |  |   |         |        
|                                                                                                                                  | Subtotal |                |         | 366,729 |  |   |         | 408,320 | 
|Less current portion                                                                                                              |          |                | (11,128 | )       |  |   | (10,251 | )      
|                                                                                                                                  |          |                |         |         |  |   |         |        
|                                                                                                                                  | Total    |                | $       | 355,601 |  |   | $       | 398,069 | 
|                                                                                                                                  |          |                |         |         |  |   |         |        

Our direct and indirect wholly-owned subsidiaries
jointly and severally guarantee on an unconditional basis, the
repayment of the two issues of senior subordinated notes,
subject to a limitation designed to ensure that such guarantees
do not constitute a fraudulent conveyance. Except as otherwise
specified in the indentures pursuant to which the notes were
issued, there are no restrictions on the ability of such
subsidiaries to transfer funds to us 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 us in certain
circumstances.

Separate financial statements of our subsidiaries
are not included herein because the aggregate assets,
liabilities, earnings, and equity of the subsidiaries are
substantially equivalent to our assets, liabilities, earnings,
and equity on a consolidated basis; the subsidiaries are jointly
and severally liable for the repayment of the notes; and the
separate financial statements and other disclosures concerning
the subsidiaries are not deemed by us to be material to
investors.

The indentures governing the notes contain
restrictive covenants that, among other things, restrict our
ability to:



| |   |                                                       
| | - | ------------------------------------------------------
| |  | create liens;                                         
|
| |  | incur or guarantee debt;                              
|
| |  | pay dividends;                                        
|
| |  | repurchase shares of our common stock;                
|
| |  | sell certain assets or subsidiary stock;              
|
| |  | engage in certain mergers;                            
|
| |  | engage in certain transactions with
    affiliates; or
|
| |  | alter our current line of business.                   

73



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In addition, subject to certain conditions, we
are obligated to offer to purchase a portion of the notes at a
price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase,
with the net cash proceeds of certain sales or other
dispositions of assets. Upon a change of control, we would be
required to offer to purchase all of the notes at 101% of the
principal amount thereof, plus accrued interest, if any, to the
date of purchase. At December 31, 2003, retained earnings
available for dividends under the most restrictive terms of the
indentures were approximately $18,402,000.

We have a $100,000,000 three-year senior secured
revolving credit facility (the Credit Facility) with
a group of banks. We also have a $40,000,000 three-year senior
secured mortgage loan facility (the
Loan Facility) with a group of financial
institutions.

The Credit Facility is primarily a working
capital and letter of credit facility. The availability of funds
under this facility is the lesser of (i) $100,000,000, or
(ii) the amount determined under a borrowing base
calculation tied to the eligible accounts receivable and
inventories. At December 31, 2003 the availability of funds
under the Credit Facility was $100,000,000. There were no direct
borrowings outstanding under this facility at December 31,
2003, and there were approximately $36,961,000 of irrevocable
letters of credit outstanding, primarily to crude oil suppliers,
insurance companies and regulatory agencies.

The interest rate applicable to the Credit
Facility is tied to various short-term indices. At
December 31, 2003, the weighted average rate was
approximately 4.9% per annum. We are required to pay a
quarterly commitment fee of 0.50% per annum of the unused
amount of the facility.

The obligations under the Credit Facility are
guaranteed by each of our principal subsidiaries and secured by
a security interest in our personal property, including:



| |   |                                             
| | - | --------------------------------------------
| |  | accounts receivable;                        
|
| |  | inventory;                                  
|
| |  | contracts;                                  
|
| |  | chattel paper;                              
|
| |  | trademarks;                                 
|
| |  | copyrights;                                 
|
| |  | patents;                                    
|
| |  | license rights;                             
|
| |  | deposits; and                               
|
| |  | investment accounts and general intangibles.

The obligations under the Credit Facility also
are secured by first priority liens on the Bloomfield and Ciniza
refineries, including:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | the land, improvements, equipment and fixtures
    related to the refineries;
|
| |  | certain identified New Mexico service
    station/convenience stores;        
|
| |  | the stock of our various direct and indirect
    subsidiaries; and           
|
| |  | all proceeds and products of this additional
    collateral.                 

The lenders under the Loan Facility are
entitled to participate with the lenders under the Credit
Facility in this additional collateral pro rata based on the
obligations we owe under the Credit Facility and the
Loan Facility.

74



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Credit Facility contains negative covenants
limiting, among other things:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | our ability to incur additional indebtedness;                                                               
|
| |  | create liens;                                                                                               
|
| |  | dispose of assets;                                                                                          
|
| |  | consolidate or merge;                                                                                       
|
| |  | make loans and investments;                                                                                 
|
| |  | enter into transactions with affiliates;                                                                    
|
| |  | use loan proceeds for certain purposes;                                                                     
|
| |  | guarantee obligations and incur contingent
    obligations;                                                 
|
| |  | enter into agreements restricting the ability of
    subsidiaries to pay dividends to us;                   
|
| |  | make distributions or stock repurchases;                                                                    
|
| |  | make significant changes in accounting practices
    or change our fiscal year; and                         
|
| |  | except on terms acceptable to the senior secured
    lenders, to prepay or modify subordinated indebtedness.

The Credit Facility also requires us to meet
certain financial covenants, including maintaining a minimum
consolidated tangible net worth, a minimum fixed charge coverage
ratio, a total leverage ratio, and a senior leverage ratio of
consolidated senior indebtedness to consolidated earnings before
interest, taxes, depreciation and amortization
(EBITDA, as defined in the agreement), and to
achieve a minimum quarterly consolidated EBITDA.

Pursuant to the Loan Facility, we issued
notes to the lenders, which bear interest at a rate that is tied
to various short-term indices. At December 31, 2003, this
rate was approximately 6.7% per annum. The remainder of the
notes fully amortize during the remaining term as follows:
2004  $11,111,000 and 2005  $10,889,000.

The Loan Facility is secured by the Yorktown
refinery property, fixtures and equipment, excluding inventory,
accounts receivable and other Yorktown refinery assets securing
the Credit Facility. We and our other principal subsidiaries
also guarantee the loan and have granted the lenders the same
additional collateral as described above in connection with the
Credit Facility. The Loan Facility contains the same
negative covenants as in the Credit Facility and requires the
Company to meet the same financial covenants as in the Credit
Facility.

Our failure to satisfy any of the covenants in
the Credit Facility and the Loan Facility is an event of
default under both facilities. Both facilities also include
other customary events of default, including, among other
things, a cross-default to our other material indebtedness and
certain changes of control.

In 1997, as part of the acquisition of certain
service station/convenience stores, we entered into capital
leases. We purchased the remaining assets in 2003 and retired
the capital lease obligations of approximately $6,703,000 with
$4,703,000 in cash and applying a $2,000,000 deposit that had
been included in Other Assets in our Consolidated
Balance Sheet.

Aggregate annual maturities of long-term debt,
excluding unamortized discount, as of December 31, 2003
are: 2004  $11,128,000; 2005  $10,889,000;
2006  $0; 2007  $150,000,000;
2008  $0 and all years thereafter 
$200,000,000.

75



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 14  Financial Instruments
and Hedging Activity:

The following disclosure of the estimated fair
value of financial instruments is made in accordance with the
requirements of SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, as amended by
SFAS No. 133. Using available market information and the
valuation methodologies described below, we determined the
estimated fair value amounts. Considerable judgment is required,
however, in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not
be indicative of the amounts that we could realize in a current
market exchange. The use of different market assumptions or
valuation methodologies may have a material effect on the
estimated fair value amounts.

The carrying amounts and estimated fair values of
our financial instruments are as follows:

|                                       |                           |                |   |            |  |          |   |            |  |  |   |         |  |  |   |         | 
|-------------------------------------- | ------------------------- | -------------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                                       |                           |               
|                                       |                           | December 31,  
|                                       |                           |               
|                                       |                           |                |   |           
|                                       |                           | 2003           |   | 2002      
|                                       |                           |                |   |           
|                                       |                           | Carrying       |   | Estimated  |  | Carrying |   | Estimated 
|                                       |                           | Amount         |   | Fair Value |  | Amount   |   | Fair Value
|                                       |                           |                |   |            |  |          |   |           
|                                       |                           |               
|                                       |                           | (In thousands)
|Balance Sheet  Financial Instruments: |                           |                |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|                                       | Fixed rate long-term debt |                | $ | 366,729    |  |          | $ | 394,516    |  |  | $ | 401,617 |  |  | $ | 365,264 | 

We determined the fair value of fixed rate
long-term debt by using quoted market prices, where applicable,
or by discounting future cash flows using rates estimated to be
currently available for debt of similar terms and remaining
maturities.

We believe the carrying values of our cash and
cash equivalents, receivables, accounts payable and accrued
expenses approximate fair values due to the short-term
maturities of these instruments. We believe the carrying value
of our variable rate long-term debt instruments approximate fair
values because their rates are tied to short-term indices.



| |                   
| | ------------------
| | Hedging Activities

We are exposed to various market risks, including
changes in commodity prices and interest rates. To manage the
volatility relating to these normal business exposures, from
time to time, we use commodity futures and options contracts to
reduce price volatility, to fix margins in our refining and
marketing operations, and to protect against price declines
associated with our crude oil and finished products inventories.

In 2003 and 2002, we entered into various crude
oil futures contracts in order to economically hedge crude oil
inventories and crude oil purchases for the Yorktown refinery
operations. For the years ended December 31, 2003 and 2002,
we recognized losses on these contracts of approximately
$1,594,000 and $1,637,000, respectively, in cost of products
sold. In 2001, we incurred losses of $10,000 related to these
activities. These transactions did not qualify for hedge
accounting in accordance with SFAS No. 133
Accounting for Derivative Instruments and Hedging
Activities, as amended, and accordingly were marked to
market each month.

At December 31, 2003 and 2002, we had no
open crude oil futures contracts or other commodity derivatives.

76



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 15  Income
Taxes:

Our provision (benefit) for income taxes from
continuing operations is comprised of the following:

|                                                         |         |                         |       |       |   |      |        |        |   |   |       |       |  
|-------------------------------------------------------- | ------- | ----------------------- | ----- | ----- | - | ---- | ------ | ------ | - | - | ----- | ----- | -
|                                                         |         |                        
|                                                         |         | Year Ended December 31,
|                                                         |         |                        
|                                                         |         | 2003                    |       | 2002  |   | 2001
|                                                         |         |                         |       |       |   |     
|                                                         |         |                        
|                                                         |         | (In thousands)         
|Current:                                                 |         |                         |       |       |   |      |        |        |   |   |       |      
|                                                         | Federal |                         | $     |      |   |      | $      | (6,446 | ) |   | $     | 3,819 |  
|                                                         | State   |                         |       |      |   |      |        | (1,162 | ) |   |       | 713   |  
|                                                         |         |                         |       |       |   |      |        |        |   |   |       |      
|                                                         |         |                         |      |       |   |      | (7,608 | )      |   |   | 4,532 |      
|                                                         |         |                         |       |       |   |      |        |        |   |   |       |      
|Deferred:                                                |         |                         |       |       |   |      |        |        |   |   |       |      
|                                                         | Federal |                         |       | 8,244 |   |      |        | (796   | ) |   |       | 4,184 |  
|                                                         | State   |                         |       | (273  | ) |      |        | 927    |   |   |       | (14   | )
|                                                         |         |                         |       |       |   |      |        |        |   |   |       |      
|                                                         |         |                         | 7,971 |       |   |      | 131    |        |   |   | 4,170 |      
|                                                         |         |                         |       |       |   |      |        |        |   |   |       |      
|Total provision (benefit) from continuing
    operations |         | $                       | 7,971 |       |   | $    | (7,477 | )      |   | $ | 8,702 |      
|                                                         |         |                         |       |       |   |      |        |        |   |   |       |      

We paid income taxes in 2003, 2002, and 2001 of
$1,150,000, $472,000, and $4,675,000, respectively.

We received income tax refunds in 2003 and 2002
of $4,110,000 and $3,938,000, respectively.

We reconcile the difference between our provision
(benefit) for income taxes and income taxes calculated using
statutory U.S. federal income tax rates for continuing
operations as follows:

|                                                                      |                  |                         |       |      |  |      |        |      |   |   |       |       |  
|--------------------------------------------------------------------- | ---------------- | ----------------------- | ----- | ---- |  | ---- | ------ | ---- | - | - | ----- | ----- | -
|                                                                      |                  |                        
|                                                                      |                  | Year Ended December 31,
|                                                                      |                  |                        
|                                                                      |                  | 2003                    |       | 2002 |  | 2001
|                                                                      |                  |                         |       |      |  |     
|                                                                      |                  |                        
|                                                                      |                  | (In thousands)         
|Income taxes at the statutory U.S. federal
    income tax rate of 35% |                  | $                       | 7,108 |      |  | $    | (6,502 | )    |   | $ | 7,891 |      
|Increase (decrease) in taxes resulting from:                          |                  |                         |       |      |  |      |        |      |   |   |       |      
|                                                                      | State taxes, net |                         |       | 792  |  |      |        | (906 | ) |   |       | 1,029 |  
|                                                                      | Other, net       |                         |       | 71   |  |      |        | (69  | ) |   |       | (218  | )
|                                                                      |                  |                         |       |      |  |      |        |      |   |   |       |      
|Total provision (benefit) from continuing
    operations              |                  | $                       | 7,971 |      |  | $    | (7,477 | )    |   | $ | 8,702 |      
|                                                                      |                  |                         |       |      |  |      |        |      |   |   |       |      

77



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

We record deferred income taxes to reflect
temporary differences in the basis of our assets and liabilities
for income tax and financial reporting purposes, as well as
available tax credit carryforwards. These temporary differences
result in amounts that will be taxable or deductible in future
years on our tax returns. The tax effected temporary differences
and credit carryforwards which comprise our deferred taxes on
our balance sheet are as follows:

|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |         |         |  
|--------------------------------- | ------------------------------------ | ----------------- | ------ | ----------------- | ------ | ----- | - | ------- | ------- | ----------- | ------ | ------- | ------- | - | ------ | ----- | ------ |  | ---- | ------- | ------- | - | ------ | ------- | ------- | -
|                                  |                                      |                   |        |                  
|                                  |                                      | December 31, 2003 |        | December 31, 2002
|                                  |                                      |                   |        |                  
|                                  |                                      | Assets            |        | Liabilities       |        | Total |   | Assets  |         | Liabilities |        | Total  
|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |        
|                                  |                                      |                  
|                                  |                                      | (In thousands)   
|Deductible Temporary Differences: |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|                                  | Accounts receivable                  |                   | $      | 84                |        |       | $ |        |         |             | $      | 84      |         |   | $      | 182   |        |  | $    |        |         |   | $      | 182     |        
|                                  | Insurance accruals                   |                   |        | 939               |        |       |   |        |         |             |        | 939     |         |   |        | 579   |        |  |      |        |         |   |        | 579     |        
|                                  | Insurance settlements                |                   |        |                  |        |       |   |        |         |             |        |        |         |   |        | 24    |        |  |      |        |         |   |        | 24      |        
|                                  | Vacation accruals                    |                   |        | 1,220             |        |       |   |        |         |             |        | 1,220   |         |   |        | 1,227 |        |  |      |        |         |   |        | 1,227   |        
|                                  | Other reserves                       |                   |        | 1,557             |        |       |   |        |         |             |        | 1,557   |         |   |        | 1,207 |        |  |      |        |         |   |        | 1,207   |        
|                                  | Accrued environmental and retirement |                   |        | 3,900             |        |       |   |        |         |             |        | 3,900   |         |   |        | 6,700 |        |  |      |        |         |   |        | 6,700   |        
|Taxable inventory costs           |                                      |                   |       |                   |        |       |  |         |         |             |       |         |         |   |       |       |        |  | (150 | )       |         |   | (150   | )      
|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|                                  |                                      | Total current     |        |                   | 7,700  |       |   |         |        |             |        |         | 7,700   |   |        |       | 9,919  |  |      |         | (150    | ) |        |         | 9,769   |  
|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|Deductible Temporary Differences: |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|                                  | Other accruals                       |                   |        | 487               |        |       |   |        |         |             |        | 487     |         |   |        | 1,211 |        |  |      | (126    | )       |   |        | 1,085   |        
|                                  | Other                                |                   |        |                  |        |       |   | (290    | )       |             |        | (290    | )       |   |        | 1,916 |        |  |      | (453    | )       |   |        | 1,463   |        
|Taxable Temporary Differences:    |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|                                  | Accelerated plant costs              |                   |        |                  |        |       |   | (702    | )       |             |        | (702    | )       |   |        |      |        |  |      | (1,176  | )       |   |        | (1,176  | )      
|                                  | Accelerated depreciation             |                   |        |                  |        |       |   | (52,520 | )       |             |        | (52,520 | )       |   |        |      |        |  |      | (52,764 | )       |   |        | (52,764 | )      
|                                  | Inventory tax basis difference       |                   |        |                  |        |       |   | (7,079  | )       |             |        | (7,079  | )       |   |        |      |        |  |      | (5,968  | )       |   |        | (5,968  | )      
|Net operating loss carryforward   |                                      |                   | 7,136  |                   |        |       |  |         |         |             | 7,136  |         |         |   | 9,531  |       |        |  |     |         |         |   | 9,531  |        
|Tax credit carryforwards          |                                      |                   | 13,876 |                   |        |       |  |         |         |             | 13,876 |         |         |   | 10,217 |       |        |  |     |         |         |   | 10,217 |        
|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|                                  |                                      | Total noncurrent  |        |                   | 21,499 |       |   |         | (60,591 | )           |        |         | (39,092 | ) |        |       | 22,875 |  |      |         | (60,487 | ) |        |         | (37,612 | )
|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        
|                                  |                                      | Total             |        | $                 | 29,199 |       |   | $       | (60,591 | )           |        | $       | (31,392 | ) |        | $     | 32,794 |  |      | $       | (60,637 | ) |        | $       | (27,843 | )
|                                  |                                      |                   |        |                   |        |       |   |         |         |             |        |         |         |   |        |       |        |  |      |         |         |   |        |        

At December 31, 2003, we had an alternative
minimum tax credit carryforward and a general business credit of
approximately $9,841,000 and $4,035,000, respectively. Our
alternative minimum tax credits can be carried forward
indefinitely to offset future taxable income. Our general
business tax credits, that are available to offset future income
taxes, expire beginning in 2007 through 2023. Our net operating
loss carryover, that can offset future taxable income, will
expire in 2022. These credits and loss carryovers are subject to
utilization based on various tax laws and tax return situations.




Note 16  401(k)
Plans:

On May 14, 2002, we adopted the Giant
Yorktown 401(k) Retirement Savings Plan (Yorktown
401(k)). The Yorktown 401(k) is for the employees of our
Yorktown refinery who meet plan eligibility

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

requirements. For purposes of eligibility and
vesting, anyone who was employed by the Yorktown refinery on or
before December 31, 2002, received credit for time worked
for the refinerys previous owners BP/ Amoco and certain
other prior employers. Subject to approval from our board of
directors each year, we match the employees contributions
to the Yorktown 401(k), including after-tax contributions, at a
rate of 100% up to a maximum of 7% of the employees annual
compensation, subject to a per participant maximum contribution
amount. For the years ended December 31, 2003 and 2002, we
expensed $985,000 and $546,000, respectively, for matching
contributions under this plan. Our matching contribution can be
invested in available options at the discretion of the
participant. We did not make a discretionary contribution to
this plan for the year ended December 31, 2003.

For our other employees who meet plan eligibility
requirements, we sponsor the Giant Industries, Inc and
Affiliated Companies 401(k) Plan (Giant 401(k)).
Subject to board approval each year, we match the
employees contributions to the Giant 401(k), including
catch-up contributions, at a rate of 50% up to a maximum of 6%
of the employees annual compensation, subject to a per
participant maximum contribution amount. For the years ended
December 31, 2003, 2002, and 2001, we expensed $1,231,000,
$1,560,000, and $1,454,000, respectively, for matching
contributions under this plan. Our matching contribution can be
invested in available options at the discretion of the
participant. Additional contributions to the Giant 401(k) are
made at the discretion of our board of directors. For the year
ended December 31, 2003, we accrued $900,000 for a
discretionary contribution to the Giant 401(k). This
discretionary contribution was funded with 49,046 newly issued
shares of our common stock on February 25, 2004. For the
year ended December 31, 2002, we accrued $900,000 for a
discretionary contribution to the Giant 401(k), which was funded
with 213,776 newly issued shares of our common stock. For the
year ended December 31, 2001, we made a discretionary cash
contribution of $900,000 to the 401(k). The cash contribution
was used to purchase shares of our common stock. All shares are
allocated to eligible employees accounts in the manner set
forth in the Giant 401(k). At December 31, 2003 and 2002,
the assets of the Giant 401(k) included 1,099,277 and
1,159,384 shares of our common stock, respectively.

In March 2004 the Yorktown 401(k) and the Giant
401(k) were combined into one 401(k) plan for administrative
convenience and to reduce costs. The benefits available to
Yorktown and non-Yorktown employees did not materially change.




Note 17  Pension and
Post-Retirement Benefits:

In December 2003, FASB revised
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, to enhance
disclosures of relevant accounting information by providing
additional information on plan assets, obligations, cash flows,
and net cost. The revisions are reflected in this footnote.

On December 8, 2003, the President signed
the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act). One feature of the
Act is a government subsidy of prescription drug costs. We have
not yet quantified the effect, if any, on the accumulated
post-retirement benefit obligation or the net periodic
post-retirement benefit cost in our financial statements and
accompanying notes. Specific accounting guidance for this
subsidy is pending, including transition rules.

In 2002, we established the Giant Yorktown Cash
Balance Plan (Cash Plan). The Cash Plan is a defined
benefit plan for our Yorktown employees. The Cash Plan is a
cash balance retirement plan fully funded by us
without employee contributions. All Yorktown employees meeting
the eligibility requirements are automatically included in the
Cash Plan. Under the Cash Plan, an account is established for
each eligible employee that in general reflects pay credits,
based on a percentage of eligible pay determined by age or years
of service, whichever yields the greater percentage, plus
regular interest credits. Interest credits are generally equal
to the greater of 5% or the 12-month average of the one-year
U.S. Treasury constant maturity rates plus 1%. Yorktown
employees who were covered by the BP retirement plan on

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

July 1, 2000, are generally eligible for a
grandfather provision that affects the calculation of the
benefit under the plan.

We have established an investment policy for the
Cash Plan that targets allocation percentages among various
asset classes. This investment policy is designed to reach
long-term return goals, while mitigating against downside risk
and considering expected cash flows. The current weighted
average target for asset allocation is:



| |   |                          
| | - | -------------------------
| |  | equity securities: 50-70%
|
| |  | debt securities: 30-50%  
|
| |  | real estate: 0%          
|
| |  | other: 0%                

Our investment policy is reviewed from time to
time to ensure consistency with our objectives. Equity
securities do not include any of our common stock.

We must make a lump-sum payment to the Cash Plan
each year. The amount of our annual payment is based on various
factors, including actuarial calculations linked to the
potential retirement ages of Yorktown employees. Our payment to
the Cash Plan for the year ending December 31, 2002 was
$1,086,000 and was made in September 2003. We expect to
contribute about $2,200,000 to the Cash Plan in 2004.

In 2002, we established the Giant Yorktown
Retiree Medical Plan (the Medical Plan), which is a
defined post-retirement benefit plan for Yorktown employees. The
Medical Plan will pay a percentage of the medical premium for
coverage under the plan. Coverage is generally available to
full-time employees who are age 50 or older with 10 or more
years of service. We will pay from 50% to 80% of the premium
cost, depending on age and years of service. Unlike the Cash
Plan, we are not required to fund the Medical Plan annually. We
did not make a payment to the Medical Plan for the year ending
December 31, 2002 and do not anticipate making a payment to
the Medical Plan for the year ending December 31, 2003.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table contains certain disclosures
for our pension plan and retiree medical plan for 2003 and 2002:

|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |           | 
|--------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------- | ---------- | -------------------- | - | ---- | ---------- | --------- |  | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                                                                                                  |                                                |                   |            |                     
|                                                                                                                                  |                                                | Cash Balance Plan |            | Retiree Medical Plan
|                                                                                                                                  |                                                |                   |            |                     
|                                                                                                                                  |                                                | 2003              |            | 2002                 |   | 2003 |            | 2002     
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |          
|Reconciliation of benefit obligation:                                                                                             |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|                                                                                                                                  | Benefit obligation at beginning of year        |                   | $          | 8,550,561            |   |      | $          |          |  |   | $          | 2,498,637 |  |   | $          |          | 
|                                                                                                                                  | Service cost                                   |                   |            | 1,151,983            |   |      |            | 576,969   |  |   |            | 192,379   |  |   |            | 101,972   | 
|                                                                                                                                  | Interest cost                                  |                   |            | 530,955              |   |      |            | 310,251   |  |   |            | 177,612   |  |   |            | 93,005    | 
|                                                                                                                                  | Benefit paid                                   |                   |            | (46,361              | ) |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Actuarial loss                                 |                   |            | 624,655              |   |      |            | 401,341   |  |   |            | 494,601   |  |   |            | 162,660   | 
|                                                                                                                                  | Plan amendments                                |                   |            |                     |   |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Acquisitions                                   |                   |            |                     |   |      |            | 7,262,000 |  |   |            |          |  |   |            | 2,141,000 | 
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|                                                                                                                                  | Benefit obligation at year end                 |                   | $          | 10,811,793           |   |      | $          | 8,550,561 |  |   | $          | 3,363,229 |  |   | $          | 2,498,637 | 
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|Reconciliation of plan assets:                                                                                                    |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|                                                                                                                                  | Fair value of plan assets at beginning of year |                   | $          |                     |   |      | $          |          |  |   | $          |          |  |   | $          |          | 
|                                                                                                                                  | Actual return on plan assets                   |                   |            | 47,706               |   |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Employer contributions                         |                   |            | 1,086,000            |   |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Benefits paid                                  |                   |            | (46,361              | ) |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Acquisitions                                   |                   |            |                     |   |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|                                                                                                                                  | Fair value of plan assets at end of year       |                   | $          | 1,087,345            |   |      | $          |          |  |   | $          |          |  |   | $          |          | 
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|Unfunded status                                                                                                                   |                                                | $                 | (9,724,448 | )                    |   | $    | (8,550,561 | )         |  | $ | (3,363,229 | )         |  | $ | (2,498,637 | )        
|Unrecognized net transition obligation                                                                                            |                                                |                   |           |                      |   |      |           |           |  |   |           |           |  |   |           |          
|Unrecognized net prior service cost                                                                                               |                                                |                   |           |                      |   |      |           |           |  |   |           |           |  |   |           |          
|Unrecognized net loss                                                                                                             |                                                |                   | 1,001,853  |                      |   |      | 401,341    |           |  |   | 647,114    |           |  |   | 162,660    |          
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|Accrued benefit cost(a)                                                                                                           |                                                | $                 | (8,722,595 | )                    |   | $    | (8,149,220 | )         |  | $ | (2,716,115 | )         |  | $ | (2,335,977 | )        
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|(a) The amounts are reflected in Other
    Liabilities and Deferred Income in the accompanying
    Consolidated Balance Sheets. |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|Net periodic benefit cost included the following:                                                                                 |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|                                                                                                                                  | Service cost                                   |                   | $          | 1,151,983            |   |      | $          | 576,969   |  |   | $          | 192,379   |  |   | $          | 101,972   | 
|                                                                                                                                  | Interest cost                                  |                   |            | 530,955              |   |      |            | 310,251   |  |   |            | 177,612   |  |   |            | 93,005    | 
|                                                                                                                                  | Expected return on assets                      |                   |            | (23,563              | ) |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Amortization of prior service cost             |                   |            |                     |   |      |            |          |  |   |            |          |  |   |            |          | 
|                                                                                                                                  | Recognized net actuarial (gain)/loss           |                   |            |                     |   |      |            |          |  |   |            | 10,147    |  |   |            |          | 
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          
|                                                                                                                                  | Net periodic benefit cost                      |                   | $          | 1,659,375            |   |      | $          | 887,220   |  |   | $          | 380,138   |  |   | $          | 194,977   | 
|                                                                                                                                  |                                                |                   |            |                      |   |      |            |           |  |   |            |           |  |   |            |          

The accumulated benefit obligation for the Cash
Plan was $6,592,179 and $3,915,673 at December 31, 2003 and
December 31, 2002, respectively.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Weighted Average Plan Assumptions

|                                                                                                          |                                |                   |  |                      |   |      |  |            |   |  |  |            |   |  |  |            |  
|--------------------------------------------------------------------------------------------------------- | ------------------------------ | ----------------- |  | -------------------- | - | ---- |  | ---------- | - |  |  | ---------- | - |  |  | ---------- | -
|                                                                                                          |                                |                   |  |                     
|                                                                                                          |                                | Cash Balance Plan |  | Retiree Medical Plan
|                                                                                                          |                                |                   |  |                     
|                                                                                                          |                                | 2003              |  | 2002                 |   | 2003 |  | 2002      
|                                                                                                          |                                |                   |  |                      |   |      |  |           
|Weighted average assumptions used to determine
    benefit obligations at December 31:                    |                                |                   |  |                      |   |      |  |            |   |  |  |            |   |  |  |           
|                                                                                                          | Measurement date               |                   |  | 12/31/2003           |   |      |  | 12/31/2002 |   |  |  | 12/31/2003 |   |  |  | 12/31/2002 |  
|                                                                                                          | Discount rate                  |                   |  | 6.00                 | % |      |  | 6.50       | % |  |  | 6.00       | % |  |  | 6.50       | %
|                                                                                                          | Rate of compensation increase* |                   |  | 4.00                 | % |      |  | 4.00       | % |  |  |           |   |  |  |           |  
|Weighted average assumptions used to determine
    net periodic benefit cost for years ended December 31: |                                |                   |  |                      |   |      |  |            |   |  |  |            |   |  |  |           
|                                                                                                          | Discount rate                  |                   |  | 6.50                 | % |      |  | 7.00       | % |  |  | 6.50       | % |  |  | 7.00       | %
|                                                                                                          | Expected return on assets      |                   |  | 8.50                 | % |      |  | 8.50       | % |  |  |           |   |  |  |           |  
|                                                                                                          | Rate of compensation increase* |                   |  | 4.00                 | % |      |  | 4.00       | % |  |  |           |   |  |  |           |  



---



|  |                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Salary increases are assumed to increase at a
    rate of 4% per year. An additional 5% increase is added to
    the ultimate rate for those with less than one year of service
    grading down to 0% once a participant has five years of service.

We based our expected long-term rate of return on
a review of the anticipated long-term performance of individual
asset classes and consideration of the appropriate asset
allocation strategy, given the anticipated requirements of the
Cash Plan, to determine the average rate of earnings expected on
the funds invested to provide benefits. Although we consider
recent fund performance and historical returns, the assumption
is primarily a long-term, prospective rate. We expect the
long-term return assumption for the Cash Plan will remain at
8.5% per year.




Plan Assets

Our pension plan asset allocations at
December 31, 2003, and 2002, by asset category are as
follows:

|                  |       |                    |     |      |  |  |    |      | 
|----------------- | ----- | ------------------ | --- | ---- |  |  | -- | ---- | 
|                  |       |                   
|                  |       | Percentage of Plan
|                  |       | Assets at         
|                  |       | December 31,      
|                  |       |                   
|Asset Category    |       | 2003               |     | 2002
|                  |       |                    |     |     
|Equity securities |       |                    | 71% |      |  |  | 0% |     
|Debt securities   |       |                    | 29% |      |  |  | 0% |     
|Real estate       |       |                    | 0%  |      |  |  | 0% |     
|Other             |       |                    | 0%  |      |  |  | 0% |     
|                  |       |                    |     |      |  |  |    |     
|                  | Total |                    |     | 100% |  |  |    | 100% | 
|                  |       |                    |     |      |  |  |    |     

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Assumed Health Care Cost Trend Rates

|                                                         |                                                                                       |                  |  |      |       |   |  |      |       |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------- |  | ---- | ----- | - |  | ---- | ----- | -
|                                                         |                                                                                       |                 
|                                                         |                                                                                       | ?Retiree Medical
|                                                         |                                                                                       | Plan?           
|                                                         |                                                                                       |                 
|                                                         |                                                                                       | 2003             |  | 2002
|                                                         |                                                                                       |                  |  |     
|Assumed health care cost trend rates at
    December 31: |                                                                                       |                  |  |      |       |   |  |     
|                                                         | Health care cost trend rate assumed for next year:                                    |                  |  |      |       |   |  |      |      
|                                                         |                                                                                       | HMO              |  |      | 10.50 | % |  |      | 11.50 | %
|                                                         |                                                                                       | Pre-65 Non-HMO   |  |      | 12.50 | % |  |      | 13.50 | %
|                                                         |                                                                                       | Post-65 Non-HMO  |  |      | 14.50 | % |  |      | 16.00 | %
|                                                         | Rate to which the cost trend rate is assumed to
    Decline (the ultimate trend rate) |                  |  | 4.50 | %     |   |  | 4.50 | %    
|                                                         | Year that the rate reaches the ultimate trend rate                                    |                  |  | 2012 |       |   |  | 2012 |      

Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care
plan. A 1%-point change in assumed health care cost trend rates
would have the following effect:

|                                                            |  |          |        |          |  |   |         |  
|----------------------------------------------------------- |  | -------- | ------ | -------- |  | - | ------- | -
|                                                            |  |         
|                                                            |  | 1%-Point
|                                                            |  |         
|                                                            |  | Increase |        | Decrease
|                                                            |  |          |        |         
|Effect on total of service and interest cost
    components |  | $        | 10,060 |          |  | $ | (9,443  | )
|Effect on postretirement benefit obligation                 |  |          | 89,117 |          |  |   | (87,521 | )






|        |                         
|------- | ------------------------
|Note 18 |  Stock Incentive Plans:

Under the 1998 Stock Incentive Plan (the
1998 Plan), shares of our common stock are
authorized to be issued to deserving employees in connection
with awards of options, appreciation rights, restricted shares,
performance shares or performance units, all as defined in the
1998 Plan. Appreciation rights, performance shares and
performance units may be settled in cash, our common shares or
any combination thereof.

The total number of shares available for grant
under the 1998 Plan is 2% of the total number of common shares
outstanding as of the first day of each calendar year, which
amount was 171,435 shares for 2003, 171,077 shares for
2002, and 178,960 shares for 2001. Grants also are subject
to a 400,000 share annual limitation on the number of
common shares available for the grant of options that are
intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code. Common shares
available for grant in any particular calendar year that are
not, in fact, granted in such year cannot be added to the common
shares available for grant in any subsequent calendar year. For
2004, the number of shares available for grant is 175,711.

On May 9, 2003, 140,500 incentive stock
options were granted to 15 employees under the 1998 Plan. The
exercise price for all of the options was $5.24, which was the
closing price of our common stock on the New York Stock
Exchange on the date of grant. One-half of each grant vests on
May 9, 2004 and the remaining one-half on May 9, 2005.
All of the options expire on May 8, 2013.

On December 11, 2002, 171,000 incentive
stock options were granted to 13 employees under the 1998 Plan.
The exercise price for all of the options was $2.85, which was
the closing price of our common stock on the New York Stock
Exchange on the date of grant. One-half of each grant vests on
December 11, 2003 and the remaining one-half on
December 11, 2004. All of the options expire on
December 10, 2012.

On May 17, 2001, 177,500 nonqualified stock
options were granted to 13 employees under the 1998 Plan. The
exercise price for all of the options was $9.95, which was the
closing price for our common stock on the New York Stock
Exchange on the date of grant. One-third of each grant vested on
the date

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of grant, one-third on May 17, 2002, and the
remaining one-third on May 17, 2003. All of the options
expire on May 16, 2011.

The 1998 Plan provides that all grants are
subject to restrictions, conditions and terms more specifically
described in the 1998 Plan, including, but not limited to, the
exercise price for stock options and appreciation rights and
time vesting requirements for all awards. In general, the 1998
Plan provides that grants of stock options and appreciation
rights must expire no more than 10 years from the date of
grant. In addition, all grants under the 1998 Plan are subject
to forfeiture under certain circumstances, and all unvested
awards may vest immediately under various circumstances defined
in the 1998 Plan.

Under our 1989 Stock Incentive Plan (the
1989 Plan), 500,000 shares of our common stock
were authorized to be issued to deserving employees in the form
of options and/or restricted stock. At December 31, 2003,
no shares were available for future grants under the 1989 Plan
because, by its terms, no new awards may be made after
December 11, 1999.

All of the remaining options or restricted stock
granted under the 1989 Plan expired in 2003.

The following summarizes stock option
transactions under the 1989 and 1998 Plans:

|                                    |           |        |         |                  |   |   |       |       | 
|----------------------------------- | --------- | ------ | ------- | ---------------- | - | - | ----- | ----- | 
|                                    |           |        |         | Weighted Average
|Options Outstanding At              |           | Shares |         | Exercise Price  
|                                    |           |        |         |                 
|January 1, 2001                     |           |        | 374,051 |                  |   |   | 10.34 |      
|                                    | Granted   |        |         | 177,500          |   |   |       | 9.95  | 
|                                    | Exercised |        |         | (126,601         | ) |   |       | 8.74  | 
|                                    | Expired   |        |         | (26,000          | ) |   |       | 10.63 | 
|                                    |           |        |         |                  |   |   |       |      
|December 31, 2001                   |           |        | 398,950 |                  |   |   | 10.65 |      
|                                    | Granted   |        |         | 171,000          |   |   |       | 2.85  | 
|                                    | Exercised |        |         | (17,900          | ) |   |       | 5.25  | 
|                                    |           |        |         |                  |   |   |       |      
|December 31, 2002                   |           |        | 552,050 |                  |   |   | 8.41  |      
|                                    | Granted   |        |         | 140,500          |   |   |       | 5.24  | 
|                                    | Expired   |        |         | (103,550         | ) |   |       | 8.36  | 
|                                    | Forfeited |        |         | (65,000          | ) |   |       | 6.35  | 
|                                    |           |        |         |                  |   |   |       |      
|December 31, 2003                   |           |        | 524,000 |                  |   | $ | 7.83  |      
|                                    |           |        |         |                  |   |   |       |      
|Options exercisable at December 31: |           |        |         |                  |   |   |       |      
|                                    | 2003      |        |         | 314,500          |   |   | $     | 10.08 | 
|                                    | 2002      |        |         | 321,876          |   |   |       | 11.08 | 
|                                    | 2001      |        |         | 280,613          |   |   |       | 10.95 | 

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following summarizes information about stock
options outstanding under the 1998 Plan at December 31,
2003:

|                    |                 |                     |  |                  |         |             |  |                |           |  |  |  |         |  |  |   |       | 
|------------------- | --------------- | ------------------- |  | ---------------- | ------- | ----------- |  | -------------- | --------- |  |  |  | ------- |  |  | - | ----- | 
|                    |                 |                     |  |                 
|Options Outstanding |                 |                    
|                    |                 | Options Exercisable
|                    |                 | Weighted            |  |                 
|                    |                 | Average             |  |                  |         | Weighted   
|Range of Exercise   |                 | Number              |  | Remaining        |         | Number      |  | Average       
|Prices              |                 | Outstanding         |  | Contractual Life |         | Exercisable |  | Exercise Price
|                    |                 |                     |  |                  |         |             |  |               
|                    | $12.00 to 18.50 |                     |  |                  | 100,000 |             |  |                | 4.1 years |  |  |  | 100,000 |  |  | $ | 15.25 | 
|                    | 9.95            |                     |  |                  | 145,500 |             |  |                | 7.4 years |  |  |  | 145,500 |  |  |   | 9.95  | 
|                    | 2.85            |                     |  |                  | 138,000 |             |  |                | 8.9 years |  |  |  | 69,000  |  |  |   | 2.85  | 
|                    | 5.24            |                     |  |                  | 140,500 |             |  |                | 9.4 years |  |  |  |        |  |  |   | 5.24  | 
|                    |                 |                     |  |                  |         |             |  |                |           |  |  |  |         |  |  |   |       | 
|                    |                 |                     |  |                  | 524,000 |             |  |                | 7.7 years |  |  |  | 314,500 |  |  | $ | 10.08 | 
|                    |                 |                     |  |                  |         |             |  |                |           |  |  |  |         |  |  |   |       | 

In October 1995, the FASB issued
SFAS No. 123 Accounting for Stock Based
Compensation. At that time, we determined that we would
not change to the fair value method prescribed in the Statement
and would continue to use the intrinsic value method to account
for stock-based employee compensation. In December 2002, FASB
issued SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure, an
amendment of FASB Statement No. 123. SFAS 148 amends
SFAS 123 to permit alternative methods of transition for
adopting a fair value based method of accounting for stock-based
employee compensation. We have determined that we will not adopt
the provisions of SFAS No. 148.

If we had elected to recognize compensation costs
based on the fair value at the date of grant, consistent with
the provisions of SFAS No. 123, our net earnings
(loss) and diluted earnings (loss) per share for the years ended
December 31, 2003, 2002, and 2001 would have decreased
(increased) by approximately $238,000 and $0.03 per
share, $(172,000) and $(0.02) per share, and $530,000 and
$0.06 per share, respectively.

The estimated weighted average fair values of
options granted during 2003, 2002 and 2001 were $3.28, $1.81 and
$5.96 per share, respectively, and were estimated using the
Black-Scholes option-pricing model with the following weighted
average assumptions:

|                        |  |      |     |      |  |      |     |   |  |  |     |  
|----------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                        |  | 2003 |     | 2002 |  | 2001
|                        |  |      |     |      |  |     
|Expected life in years  |  |      | 7   |      |  |      | 7   |   |  |  | 8   |  
|Risk-free interest rate |  |      | 3.6 | %    |  |      | 4.0 | % |  |  | 5.4 | %
|Volatility              |  |      | 60  | %    |  |      | 61  | % |  |  | 47  | %
|Dividend Yield          |  |      |    |      |  |      |    |   |  |  |    |  




Note 19  Interest, Operating
Leases and Rent Expense:

We paid interest of $38,645,000, $34,426,000, and
$24,135,000 in 2003, 2002, and 2001, respectively. We did not
have any long-term construction projects in these years, so we
did not capitalize any interest charges.

As discussed in Note 6, on December 31,
1998, we completed a sale-leaseback transaction with FFCA. Under
the terms of the Agreement, FFCA purchased 83 service
station/convenience stores from us and we in turn leased the 83
service station/convenience stores back from FFCA under an
operating lease arrangement. We reacquired 24 of the service
station/convenience stores in the second half of 1999 and the
remaining 59 in the third quarter of 2001.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In connection with the sale of an 8.47-acre tract
of land in North Scottsdale that included our corporate
headquarters building, we entered into a ten-year agreement to
lease back our corporate headquarters building.

We are committed to annual minimum rentals under
noncancelable operating leases that have initial or remaining
lease terms in excess of one year as of December 31, 2003
as follows:

|                                |  |                  |        | 
|------------------------------- |  | ---------------- | ------ | 
|                                |  | Land, Building, 
|                                |  | Machinery and   
|                                |  | Equipment Leases
|                                |  |                 
|                                |  | (In thousands)  
|2004                            |  | $                | 6,034  | 
|2005                            |  |                  | 4,890  | 
|2006                            |  |                  | 4,229  | 
|2007                            |  |                  | 3,408  | 
|2008                            |  |                  | 2,878  | 
|2009  2024                     |  |                  | 16,090 | 
|                                |  |                  |        | 
|Total minimum payments required |  | $                | 37,529 | 
|                                |  |                  |        | 

Our total rent expense was $6,760,000,
$6,140,000, and $8,459,000 for 2003, 2002, and 2001,
respectively.




Note 20  Commitments and
Contingencies:

We have various legal actions, claims,
assessments and other contingencies arising in the normal course
of our business, including those matters described below,
pending against us. Some of these matters involve or may involve
significant claims for compensatory, punitive or other damages.
These matters are subject to many uncertainties, and it is
possible that some of these matters could be ultimately decided,
resolved or settled adversely. We have recorded accruals for
losses related to those matters that we consider to be probable
and that can be reasonably estimated. We currently believe that
any amounts exceeding our recorded accruals should not
materially affect our financial condition or liquidity. It is
possible, however, that the ultimate resolution of these matters
could result in a material adverse effect on our results of
operations for a particular reporting period.

Federal, state and local laws relating to the
environment, health and safety affect nearly all of our
operations. As is the case with all companies engaged in similar
industries, we face 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 made, handled, used, released or disposed
of by us or by our predecessors.

Future expenditures related to environmental,
health and safety matters cannot be reasonably quantified in
many circumstances for various reasons. These reasons include
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 that may be available to us and changing environmental,
health and safety laws, including changing interpretations of
those laws.




Environmental and Litigation
Accruals

As of December 31, 2003 and 2002, we had
environmental liability accruals of approximately $7,592,000 and
$8,367,000, respectively, which are summarized below, and
litigation accruals in the

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

aggregate of $573,000 at December 31, 2003
and $349,000 at December 31, 2002. Environmental accruals
are recorded in the current and long-term sections of our
Consolidated Balance Sheets.

Summary of Accrued Environmental
Contingencies

|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |          |       |       |  |   |     |     |  |   |      |        |   |   |       |       | 
|------------------------------------- | ------ | -------------- | --- | ---------- |  | -------- | ----- | -------- |  | ---------- | ---- | -------- | - | -------- | ----- | ----- |  | - | --- | --- |  | - | ---- | ------ | - | - | ----- | ----- | 
|                                      |        | As of          |     | Increase   |  |          |       | As of    |  | Increase   |      |          |   | As of   
|                                      |        | 12/31/01       |     | (Decrease) |  | Payments |       | 12/31/02 |  | (Decrease) |      | Payments |   | 12/31/03
|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |         
|                                      |        |               
|                                      |        | (In thousands)
|Farmington Refinery                   |        | $              | 570 |            |  | $        |      |          |  | $          |     |          |   | $        | 570   |       |  | $ |    |     |  | $ |     |        |   | $ | 570   |      
|Ciniza  Land Treatment Facility      |        |                | 208 |            |  |          |      |          |  |            | (19  | )        |   |          | 189   |       |  |   |    |     |  |   | (3   | )      |   |   | 186   |      
|Bloomfield Tank Farm (Old Terminal)   |        |                | 149 |            |  |          | (48   | )        |  |            | (12  | )        |   |          | 89    |       |  |   |    |     |  |   | (22  | )      |   |   | 67    |      
|Ciniza  Solid Waste Management Units |        |                | 286 |            |  |          |      |          |  |            | (11  | )        |   |          | 275   |       |  |   |    |     |  |   |     |        |   |   | 275   |      
|Bloomfield Refinery                   |        |                | 977 |            |  |          | (412  | )        |  |            | (255 | )        |   |          | 310   |       |  |   |    |     |  |   | (43  | )      |   |   | 267   |      
|Ciniza Well Closures                  |        |                | 100 |            |  |          |      |          |  |            |     |          |   |          | 100   |       |  |   | 40  |     |  |   |     |        |   |   | 140   |      
|Retail Service Stations  Various     |        |                | 194 |            |  |          |      |          |  |            | (75  | )        |   |          | 119   |       |  |   | 60  |     |  |   | (33  | )      |   |   | 146   |      
|East Outfall  Bloomfield             |        |                |    |            |  |          |      |          |  |            |     |          |   |          |      |       |  |   | 202 |     |  |   | (177 | )      |   |   | 25    |      
|Yorktown Refinery                     |        |                |    |            |  |          | 7,500 |          |  |            | (785 | )        |   |          | 6,715 |       |  |   |    |     |  |   | (799 | )      |   |   | 5,916 |      
|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |          |       |       |  |   |     |     |  |   |      |        |   |   |       |      
|                                      | Totals |                | $   | 2,484      |  |          | $     | 7,040    |  |            | $    | (1,157   | ) |          | $     | 8,367 |  |   | $   | 302 |  |   | $    | (1,077 | ) |   | $     | 7,592 | 
|                                      |        |                |     |            |  |          |       |          |  |            |      |          |   |          |       |       |  |   |     |     |  |   |      |        |   |   |       |      

Approximately $6,820,000 of this accrual is for
the following projects discussed below:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | the remediation of the hydrocarbon plume that
    appears to extend no more than 1,800 feet south of our
    inactive Farmington refinery,
|
| |  | environmental obligations assumed in connection
    with our acquisitions of the Yorktown refinery and the
    Bloomfield refinery, and   
|
| |  | hydrocarbon contamination on and adjacent to the
    5.5 acres that we own in Bloomfield, New Mexico.                                     

The remaining amount of the accrual relates to



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the closure of certain solid waste management
    units at the Ciniza refinery, which is being conducted in
    accordance with the refinerys Resource Conservation and
    Recovery Act permit,
|
| |  | closure of the Ciniza refinery land treatment
    facility including post-closure expenses,                                                                                                      
|
| |  | estimated monitoring well closure costs at the
    Ciniza refinery, and                                                                                                                          
|
| |  | amounts for smaller remediation projects.                                                                                                                                                        




Yorktown Environmental Liabilities

We assumed certain liabilities and obligations in
connection with our purchase of the Yorktown refinery from BP.
BP agreed to reimburse us in specified amounts for some matters.
Among other things, and subject to certain exceptions, we
assumed responsibility for all costs, expenses, liabilities, and
obligations under environmental, health and safety laws caused
by, arising from, incurred in connection with or relating to the
ownership of the refinery or its operation. We agreed to
reimburse BP for losses incurred in connection with or related
to liabilities and obligations assumed by us.

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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Yorktown Consent Decree

Environmental obligations assumed by us include
BPs responsibilities relating to the Yorktown refinery
under a consent decree among various parties covering many
locations (the Consent Decree). Parties to the
Consent Decree include the United States, BP Exploration and Oil
Co., Amoco Oil Company, and Atlantic Richfield Company. We
assumed BPs responsibilities as of January 18, 2001,
the date the Consent Decree was lodged with the court. As
applicable to the Yorktown refinery, the Consent Decree
requires, among other things, reduction of NOx,
SO2 and particulate matter emissions and upgrades to
the refinerys leak detection and repair program. We
estimate that we will incur capital expenditures of between
$20,000,000 and $27,000,000 to comply with the Consent Decree
through 2006, although we believe we will incur most of those
expenditures in 2005 and 2006. In addition, we estimate that we
will incur operating expenses associated with the requirements
of the Consent Decree of between $1,600,000 and
$2,600,000 per year.




Yorktown 1991 Order

In connection with the Yorktown acquisition, we
also assumed BPs obligations under an administrative order
issued by EPA in 1991 under the Resource Conservation and
Recovery Act. The order requires an investigation of certain
areas of the refinery and the development of measures to correct
any releases of contaminants or hazardous substances found in
these areas. A Resource Conservation and Recovery Act Facility
Investigation and a Corrective Measures Study (RFI/
CMS) already has been prepared. It was revised by BP, in
draft form, to incorporate comments from EPA and the Virginia
Department of Environmental Quality (VDEQ). A final
RFI/ CMS has not yet been approved. The draft RFI/ CMS proposes
investigation, sampling, monitoring, and cleanup measures,
including the construction of an on-site corrective action
management unit that would be used to consolidate hazardous
solid materials associated with these measures. These proposed
actions relate to soil, sludge, and remediation wastes relating
to solid waste management units. Groundwater in the aquifers
underlying the refinery, and surface water and sediment in a
small pond and tidal salt marsh on the refinery property also
will be addressed in the RFI/ CMS.

EPA issued a proposed cleanup plan for public
comment in December 2003. EPA will review all comments, will
issue an approved RFI and CMS in coordination with VDEQ, and
will make a final remedy decision. We estimate that expenses
associated with the actions described in the proposed RFI/ CMS
will cost from $19,000,000 to $21,000,000, and will be incurred
over a period of approximately 30 years. We believe that
about $5,000,000 of this amount will be incurred over an initial
3-year period, and additional expenditures of about $5,000,000
will be incurred over the following 3-year period. We may not be
responsible, however, for all of these expenditures due to the
environmental reimbursement provisions included in our purchase
agreement with BP, as more fully discussed below. Additionally,
the facilitys underground sewer system will be cleaned,
inspected and repaired as needed as part of the RFI/ CMS
process. We anticipate that this work will cost from $3,000,000
to $5,000,000 over a period of three to five years, beginning
around the time the construction of the corrective action
management unit and related remediation work is completed in
approximately 2007 or 2008.




Claims for Reimbursement from BP

BP has agreed to reimburse us for all losses that
are caused by or relate to property damage caused by, or any
environmental remediation required due to, a violation of
environmental health, and safety laws during BPs operation
of the refinery. In order to have a claim against BP, however,
the total of all our losses must exceed $5,000,000, in which
event our claim only relates to the amount exceeding $5,000,000.
After $5,000,000 is reached, our claim is limited to 50% of the
amount by which our losses exceed $5,000,000 until the total of
all our losses exceeds $10,000,000. After $10,000,000 is
reached, our claim

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

would be for 100% of the amount by which our
losses exceed $10,000,000. In applying these provisions, losses
amounting to a total of less than $250,000 arising out of the
same event are not added to any other losses for purposes of
determining whether and when the $5,000,000 or $10,000,000 has
been reached. After the $5,000,000 or $10,000,000 has been
reached, BP has no obligation to reimburse us for any losses
amounting to a total of less than $250,000 arising out of the
same event. Except as specified in the refinery purchase
agreement, in order to seek reimbursement from BP, we must
notify BP of a claim within two years following the closing
date. Further, BPs total liability for reimbursement under
the refinery purchase agreement, including liability for
environmental claims, is limited to $35,000,000.




Farmington Refinery Matters

In 1973, we constructed the Farmington refinery
that was operated until 1982. In 1985, we became aware of soil
and shallow groundwater contamination at this facility. We hired
environmental consulting firms to investigate the contamination
and undertake remedial action. The consultants identified
several areas of contamination in the soils and shallow
groundwater underlying the Farmington property. One of our
consultants indicated that contamination attributable to past
operations at the Farmington property has migrated off the
refinery property, including a hydrocarbon plume that appears to
extend no more than 1,800 feet south of the refinery
property. Our remediation activities are ongoing under the
supervision of the New Mexico Oil Conservation Division
(OCD), although OCD has not issued a cleanup order.
Our environmental reserve for this matter is about $570,000 at
December 31, 2003.




Lee Acres Landfill

The Farmington refinery property is located next
to the Lee Acres Landfill, a closed landfill formerly operated
by San Juan County. The landfill is situated on lands owned
by the United States Bureau of Land Management (the
BLM). Industrial and municipal wastes were disposed
of in the landfill by numerous sources. While the landfill was
operational, we used it to dispose of office trash, maintenance
shop trash, used tires and water from the Farmington
refinerys evaporation pond.

The landfill was added to the National Priorities
List as a Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) Superfund site in 1990. In
connection with this listing, EPA defined the site as the
landfill and the landfills associated groundwater plume.
EPA excluded any releases from the Farmington refinery itself
from the definition of the site. In May 1991, EPA notified us
that we may be a potentially responsible party under CERCLA for
the release or threatened release of hazardous substances,
pollutants or contaminants at the landfill.

BLM made a proposed cleanup plan for the landfill
available to the public in 1996. Remediation alternatives
examined by BLM in connection with the development of its
proposed plan ranged in projected cost from no cost to
approximately $14,500,000. BLM proposed the adoption of a
remedial action alternative that it believes would cost
approximately $3,900,000 to implement. BLMs $3,900,000
cost estimate is based on certain assumptions that 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.

BLM has received public comment on its proposed
plan. The final remedy for the site, however, has not yet been
selected. Although we were given reason to believe that a final
remedy would be selected in 2003, that selection did not occur.
We have been advised that the site remedy may be announced in
2004. In 1989, one of our consultants estimated, based on
various assumptions, that our share of potential liability could
be approximately $1,200,000. This figure was based upon
estimated landfill remediation costs significantly higher than
those being proposed by BLM. The figure also was based on the
consultants evaluation of such factors as available
clean-up technology, BLMs involvement at the site and the
number

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of other entities that may have had involvement
at the site, but did not include an analysis of all of our
potential legal defenses and arguments, including possible
setoff rights.

Potentially responsible party liability is joint
and several, which means 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 the contamination.
Although it is possible that we may ultimately incur liability
for clean-up costs associated with the landfill, a reasonable
estimate of the amount of this liability, if any, cannot be made
at this time for various reasons. These reasons include:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | the final site remedy has not been selected;                                                     
|
| |  | a number of entities had involvement at the site;                                                
|
| |  | allocation of responsibility among potentially
    responsible parties has not yet been made; and
|
| |  | potentially applicable factual and legal issues
    have not been resolved.                      

We have not recorded a liability in relation to
BLMs proposed plan because the amount of any potential
liability is currently not determinable.

BLM may assert claims against us and others for
reimbursement of investigative, cleanup and other costs incurred
by BLM in connection with the landfill and surrounding areas. We
may assert claims against BLM in connection with contamination
that may be originating from the landfill. Private parties and
other governmental entities also may assert claims against us,
BLM, and others for property damage, personal injury and other
damages allegedly arising out of any contamination originating
from the landfill and the Farmington property. Parties also may
request judicial determination of their rights and
responsibilities, and the rights and responsibilities of others,
in connection with the landfill and the Farmington property.
Currently, however, there is no outstanding litigation against
us by BLM or any other party.




Bloomfield Refinery Environmental
Obligations

In connection with the acquisition of the
Bloomfield refinery, we assumed certain environmental
obligations including Bloomfield Refining Companys
(BRC) obligations under an administrative order
issued by EPA in 1992 pursuant to the Resource Conservation and
Recovery Act. The order required BRC to investigate and propose
measures for correcting any releases of hazardous waste or
hazardous constituents at or from the Bloomfield refinery. EPA
has delegated its oversight authority over the order to
NMEDs Hazardous Waste Bureau (HWB). In
December 2002, HWB and OCD approved a cleanup plan for the
refinery, subject to various actions to be taken by us to
implement the plan. We estimate that remediation expenses
associated with the cleanup plan will be approximately $267,000,
and that these expenses will be incurred through approximately
2018.




Bloomfield Tank Farm (Old Terminal)

We have discovered hydrocarbon contamination
adjacent to a 55,000 barrel crude oil storage tank that was
located in Bloomfield, New Mexico. We believe that all or a
portion of the tank and the 5.5 acres we own on which the
tank was located may have been a part of a refinery, owned by
various other parties, that, to our knowledge, ceased operations
in the early 1960s. We received approval to conduct a pilot
bioventing project to address remaining contamination at the
site, which was completed in June 2001. Bioventing involves
pumping air into the soil to stimulate bacterial activity which
in turn consumes hydrocarbons. Based on the results of the pilot
project, we submitted a remediation plan to OCD proposing the
use of bioventing to address the remaining contamination. This
remediation plan was approved by OCD in June 2002. We anticipate
that we will incur about $50,000 in soil remediation expenses
through 2005 in connection with the bioventing plan and
approximately $20,000 to continue groundwater

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

monitoring and testing until natural attenuation
has completed the process of groundwater remediation. Our
environmental accrual for this matter is approximately $67,000
as of December 31, 2003.




Notices of Violation at Four Corners
Refineries

In June 2002, we received a draft compliance
order from the New Mexico Environment Department
(NMED) in connection with alleged violations of air
quality regulations at the Ciniza refinery. These alleged
violations relate to an inspection completed in April 2001.

In August 2002, we received a compliance order
from NMED in connection with alleged violations of air quality
regulations at the Bloomfield refinery. These alleged violations
relate to an inspection completed in September 2001.

In the second quarter of 2003, the EPA informally
told us that it also intended to allege air quality violations
in connection with the 2001 inspections at both refineries. We
have since participated in joint meetings with NMED and EPA.
These discussions have included alleged violations through
December 31, 2003, in addition to matters relating to the
2001 inspections. In February 2004 NMED and EPA advised us that
the potential penalties amount to about $2,000,000. In the first
quarter of 2004, EPA informally advised us that its potential
penalties could amount to between $1,000,000 and $3,000,000. We
have accrued significantly less than these amounts because
settlement discussions with NMED and EPA are ongoing. These
discussions may result in reductions in the amount of potential
penalties. In lieu of fines and as part of an administrative
settlement, we expect that EPA and NMED may require us to
undertake certain environmentally beneficial projects, known as
supplemental environmental projects. We have not yet determined
the nature or scope of any work that may be required in lieu of
fines.

In the first quarter of 2004, EPA told us that
any administrative settlement also must be consistent with the
consent decrees EPA has entered with other refiners as part of
its national refinery enforcement program. In these other
settlements, EPA generally has required that the refiner:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | implement controls to reduce emissions of
    nitrogen oxide, sulfur dioxide, and particulate matter from the
    largest emitting process units;
|
| |  | upgrade leak-detection and repair practices;                                                                                                     
|
| |  | minimize the number and severity of flaring
    events; and                                                                                      
|
| |  | adopt strategies to ensure compliance with
    benzene waste requirements.                                                                       




Jet Fuel Claim

In February 2003, we filed a complaint against
the United States in the United States Court of Federal Claims
related to military jet fuel that we sold to the Defense Energy
Support Center (DESC) from 1983 through 1994. We
asserted that the U.S., acting through DESC, underpaid for the
jet fuel by about $17,000,000. Our claims include a request that
we be made whole in connection with payments that were less than
the fair market value of the fuel, as well as a request that we
be reimbursed for the value of transporting the fuel in some
contracts, as well as for certain additional costs of complying
with the governments special requirements. The
U.S. has said that it may counterclaim and assert, based on
its interpretation of the contracts, that we owe additional
amounts of between $2,100,000 and $4,900,000. The
U.S. denied all liability in a motion for partial summary
judgment filed in the second quarter of 2003. In July 2003, we
responded to the U.S.s motion and filed our own
cross-motion for partial summary judgment. All legal briefs on
the U.S.s motion and our cross-motion were filed with the
court by November 2003. We are awaiting further action by the
court. Due to the preliminary nature of this matter, there can
be no assurance that we will ultimately prevail on our claims or
the U.S.s potential counterclaim, nor is it possible to
predict when any payment will be received if we are successful.

91



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##### Table of Contents



GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accordingly, we have not recorded a receivable
for these claims or a liability for any potential counterclaim.




MTBE Litigation

Lawsuits have been filed in over 20 states
alleging that MTBE, a blendstock used by many refiners in
producing specially formulated gasoline, has contaminated water
wells. MTBE contamination primarily results from leaking
underground or aboveground storage tanks. We are aware of three
MTBE lawsuits filed in the fourth quarter of 2003 in Virginia
state courts in Patrick, Buchanan, and Greensville Counties.
Although we are a named defendant in each suit, we have not been
served with notice by the plaintiffs. The plaintiffs are two
county boards of education and a county water authority. The
suits allege MTBE contamination of water wells owned and
operated by the plaintiffs. The plaintiffs assert that numerous
refiners, distributors, or sellers of MTBE and/or gasoline
containing MTBE are responsible for the contamination. The
plaintiffs also claim that the defendants are jointly and
severally liable for compensatory and punitive damages, costs,
and interest. Joint and several liability means that each
defendant may be liable for all of the damages even though that
party was responsible for only a small part of the damages. The
defendants who have been served have moved to remove the suits
to Virginia federal court. We have given our consent to removal
of the Patrick and Buchanan suits to federal court. We are
evaluating whether to consent to removal of the Greensville suit
to federal court.




Yorktown Power Outage Claim

On April 28, 2003, a breaker failure
disrupted operations at the electric generation plant that
supplies our Yorktown refinery with power. As a result of the
failure, the refinery suffered a complete loss of power and shut
down all processing units. By the middle of May 2003, the
refinery was operating at full capacity. We incurred costs of
approximately $1,254,000 as a result of the loss of power, all
of which we expensed in the second quarter of 2003. Reduced
production also resulted in a loss of earnings. We are pursuing
reimbursement from the power station owner. We are currently
unable to determine the probability of recovery of any amounts
related to this claim, so we have not recorded any receivables
related to this claim.




Former CEO Matters

On March 29, 2002, the board of directors
terminated James E. Acridge as our President and Chief Executive
Officer, and replaced him as our Chairman of the Board. He
remains on the board of directors. On July 22, 2002,
Mr. Acridge filed a lawsuit in the Superior Court of
Arizona for Maricopa County against a number of our officers and
directors. The lawsuit was also filed against unidentified
accountants, auditors, appraisers, attorneys, bankers and
professional advisors. Mr. Acridge alleged that the
defendants wrongfully interfered with his employment agreement
and caused the board to fire him. The complaint sought
unspecified damages to compensate Mr. Acridge for the
defendants alleged wrongdoing, as well as punitive
damages, and costs and attorneys fees. The complaint also
stated that Mr. Acridge intended to initiate a separate
arbitration proceeding against us, alleging that we breached his
employment agreement and violated an implied covenant of good
faith and fair dealing. The court subsequently ruled that the
claims raised in Mr. Acridges lawsuit were subject to
arbitration and the lawsuit was dismissed. Arbitration
proceedings have not been initiated. Subsequent to the filing of
the claims, Mr. Acridge filed for bankruptcy. The trustee
appointed in the Chapter 11 bankruptcy proceeding has
questioned whether the Superior Court should have stayed the
lawsuit until after the arbitration was completed instead of
dismissing it. Regardless, we believe that the officers and
directors sued by Mr. Acridge are entitled to
indemnification from us in connection with the defense of, and
any liabilities arising out of, the claims alleged by
Mr. Acridge.

We have an outstanding loan to Mr. Acridge
in the principal amount of $5,000,000. In the fourth quarter of
2001, we established a reserve for the entire amount of the loan
plus interest accrued through

92



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

December 31, 2001. In view of developments
in the bankruptcy proceedings relating to Mr. Acridge
described below, we have continued to maintain the reserve.

In addition to Mr. Acridges personal
bankruptcy filing, Pinnacle Rodeo LLC, Pinnacle Rawhide LLC, and
Prime Pinnacle Peak Properties, Inc., three entities
originally controlled by Mr. Acridge, have commenced
Chapter 11 bankruptcy proceedings. A Chapter 11
trustee has been appointed in these cases. The four bankruptcy
cases are administered together. We have filed proofs of claim
in the bankruptcy proceedings seeking to recover amounts we
believe are owed to us by Mr. Acridge, and the other
entities, including amounts relating to the outstanding
$5,000,000 loan. We also filed a complaint in the Acridge
bankruptcy proceeding on July 31, 2003 in which we sought a
determination that certain of the amounts we believe are owed to
us by Mr. Acridge are not dischargeable in bankruptcy. The
court has entered a default against Mr. Acridge in
connection with our complaint. The court, however, has not yet
ruled on whether we are entitled to receive any of the damages
that we have requested. Even if the court decides that we can
receive damages, we do not know whether we would be able to
recover any of these damages from Mr. Acridge.

The official committee of unsecured creditors for
the bankruptcy cases filed a plan of reorganization on
November 7, 2003. The plan describes a process for the
liquidation of the estates and the payment of liquidation
proceeds to creditors. It will only become effective if approved
by the bankruptcy court. Under the committees plan, we
would make a payment, which would have no material effect on the
Companys financial statements, for the benefit of
unsecured creditors in the Acridge estate. Additionally, we
would give up all of our claims against the estates, with the
exception of a claim for our share of any assets of the Acridge
estate that have not yet been identified. In return, the four
estates would release us from all of their claims against us, if
any. The plan would not preclude us from pursuing our
non-dischargeability complaint against Mr. Acridge.

In 2003, the trustee for the Acridge estate asked
the bankruptcy court to permit him to engage in discovery to
determine whether any claims against us, or persons or entities
associated with us, may exist. The bankruptcy court authorized
the Acridge trustee to take the deposition of three of our
officers or directors and to obtain documents from them.

In order for the committees plan to be
approved, the committee must first obtain bankruptcy court
approval of a disclosure statement which describes the plan and
the process by which creditors can vote on the plan. The Acridge
trustee and the unsecured creditors committee are working on a
summary to be included in the disclosure statement containing
each of their positions on whether the committees plan
should be approved. We anticipate that this statement may not be
sent out until after our three officers or directors are deposed.

The trustee in the Prime Pinnacle proceeding
filed a separate plan of reorganization. The Prime Pinnacle
Trustee initially indicated that he was going to object to the
proof of claim that we filed in the Prime Pinnacle proceeding.
In addition, the Prime Pinnacle Trustee indicated that he was
going to evaluate any possible preferential or fraudulent
transfer of assets from Prime Pinnacle to us in satisfaction of
debts owed by Mr. Acridge or his other entities. An
agreement was subsequently reached between the Prime Pinnacle
Trustee, the unsecured creditors committee, and us. The
committee agreed to carve out the Prime Pinnacle estate from the
Committees Plan. We agreed not to receive any distribution
on our unsecured claim against the Prime Pinnacle estate. The
Prime Pinnacle Trustee agreed to incorporate the terms of the
Committees settlement with us in the Prime Pinnacle plan
and to release us from any claims the Prime Pinnacle estate may
have against us. The Prime Pinnacle Trustees agreement to
release us and our agreement not to receive a distribution from
the Prime Pinnacle estate are both conditioned upon the entry of
a final court order, which is not subject to appeal, confirming
the unsecured creditors committees plan.

93



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

We do not know whether the unsecured creditors
committees plan or the plan prepared by the Prime Pinnacle
Trustee will be approved. We also do not know whether or when
creditors, including us, will receive any recovery on their
debts from any of the four bankruptcy estates.




Note 21  Quarterly Financial
Information (Unaudited)

|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------- | - | ------- | - | ----- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                         |                                                              |                                      
|                                                         |                                                              | Year Ended December 31, 2003(1)      
|                                                         |                                                              |                                      
|                                                         |                                                              |                                      
|                                                         |                                                              | Quarter                              
|                                                         |                                                              |                                      
|                                                         |                                                              | First                                 |   | Second  |   | Third |   | Fourth 
|                                                         |                                                              |                                       |   |         |   |       |   |        
|                                                         |                                                              |                                      
|                                                         |                                                              | (In thousands, except per share data)
|Continuing Operations:                                   |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Net revenues                                                 |                                       | $ | 479,425 |   |       | $ | 407,597 |   |  | $ | 472,635 |   |  | $ | 448,602 |  
|                                                         | Cost of products sold                                        |                                       |   | 408,759 |   |       |   | 337,679 |   |  |   | 389,182 |   |  |   | 375,361 |  
|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Gross margin                                                 |                                       |   | 70,666  |   |       |   | 69,918  |   |  |   | 83,453  |   |  |   | 73,241  |  
|                                                         | Operating expenses                                           |                                       |   | 38,673  |   |       |   | 41,165  |   |  |   | 41,194  |   |  |   | 43,182  |  
|                                                         | Depreciation and amortization                                |                                       |   | 9,052   |   |       |   | 9,355   |   |  |   | 9,310   |   |  |   | 9,059   |  
|                                                         | Selling, general and administrative expenses                 |                                       |   | 7,024   |   |       |   | 7,272   |   |  |   | 8,126   |   |  |   | 8,195   |  
|                                                         | (Gain) loss on the disposal/write-down of assets             |                                       |   | 410     |   |       |   | (177    | ) |  |   | 1,081   |   |  |   | 523     |  
|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Operating earnings                                           |                                       | $ | 15,507  |   |       | $ | 12,303  |   |  | $ | 23,742  |   |  | $ | 12,282  |  
|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Net earnings                                                 |                                       | $ | 2,453   |   |       | $ | 762     |   |  | $ | 7,648   |   |  | $ | 1,474   |  
|                                                         | Net earnings per common share  basic                        |                                       | $ | 0.28    |   |       | $ | 0.09    |   |  | $ | 0.87    |   |  | $ | 0.17    |  
|                                                         | Net earnings per common share 
    assuming dilution        |                                       | $ | 0.28    |   |       | $ | 0.09    |   |  | $ | 0.86    |   |  | $ | 0.17    |  
|Discontinued Operations:                                 |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Net revenues                                                 |                                       | $ | 13,187  |   |       | $ | 10,217  |   |  | $ | 3,047   |   |  | $ | 1,728   |  
|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Loss from operations                                         |                                       | $ | (341    | ) |       | $ | (198    | ) |  | $ | (8      | ) |  | $ | (189    | )
|                                                         | Gain (loss) on disposal                                      |                                       |   | 137     |   |       |   | (250    | ) |  |   | (14     | ) |  |   | 406     |  
|                                                         | Net (loss) gain on asset sales/write-downs                   |                                       |   |        |   |       |   | (77     | ) |  |   | (177    | ) |  |   | 21      |  
|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Operating earnings (loss)                                    |                                       | $ | (204    | ) |       | $ | (525    | ) |  | $ | (199    | ) |  | $ | 238     |  
|                                                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Net earnings (loss)                                          |                                       | $ | (123    | ) |       | $ | (315    | ) |  | $ | (119    | ) |  | $ | 143     |  
|                                                         | Net earnings (loss) per common share 
    basic             |                                       | $ | (0.01   | ) |       | $ | (0.04   | ) |  | $ | (0.01   | ) |  | $ | 0.01    |  
|                                                         | Net earnings (loss) per common share 
    assuming dilution |                                       | $ | (0.01   | ) |       | $ | (0.04   | ) |  | $ | (0.01   | ) |  | $ | 0.01    |  
|Cumulative effect of change in accounting
    principle: |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                                                         | Net loss                                                     |                                       | $ | (704    | ) |       | $ |        |   |  | $ |        |   |  | $ |        |  
|                                                         | Net loss per common share  basic                            |                                       | $ | (0.08   | ) |       | $ |        |   |  | $ |        |   |  | $ |        |  
|                                                         | Net loss per common share  assuming
    dilution            |                                       | $ | (0.08   | ) |       | $ |        |   |  | $ |        |   |  | $ |        |  



---



|    |                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Subsequent to the previously filed
    Form 10-Qs, certain reclassifications have been made
    to present continuing and discontinued operations in accordance
    with SFAS No. 144.

94



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GIANT INDUSTRIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |         |  
|------------------------ | ------------------------------------------------------------ | ------------------------------------- | - | ------- | - | ----- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                         |                                                              |                                      
|                         |                                                              | Year Ended December 31, 2002(1)      
|                         |                                                              |                                      
|                         |                                                              |                                      
|                         |                                                              | Quarter                              
|                         |                                                              |                                      
|                         |                                                              | First                                 |   | Second  |   | Third |   | Fourth 
|                         |                                                              |                                       |   |         |   |       |   |        
|                         |                                                              |                                      
|                         |                                                              | (In thousands, except per share data)
|Continuing Operations:   |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net revenues                                                 |                                       | $ | 177,920 |   |       | $ | 287,976 |   |  | $ | 382,082 |   |  | $ | 401,308 |  
|                         | Cost of products sold                                        |                                       |   | 134,588 |   |       |   | 238,587 |   |  |   | 330,717 |   |  |   | 338,714 |  
|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Gross margin                                                 |                                       |   | 43,332  |   |       |   | 49,389  |   |  |   | 51,365  |   |  |   | 62,594  |  
|                         | Operating expenses                                           |                                       |   | 22,843  |   |       |   | 29,649  |   |  |   | 36,174  |   |  |   | 37,586  |  
|                         | Depreciation and amortization                                |                                       |   | 7,960   |   |       |   | 8,653   |   |  |   | 9,147   |   |  |   | 9,298   |  
|                         | Selling, general and administrative expenses                 |                                       |   | 5,425   |   |       |   | 6,130   |   |  |   | 7,031   |   |  |   | 6,969   |  
|                         | (Gain) loss on the disposal/write-down of assets             |                                       |   | 4       |   |       |   | (127    | ) |  |   | (157    | ) |  |   | (461    | )
|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Operating earnings (loss)                                    |                                       | $ | 7,100   |   |       | $ | 5,084   |   |  | $ | (830    | ) |  | $ | 9,202   |  
|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net earnings (loss)                                          |                                       | $ | 570     |   |       | $ | (3,290  | ) |  | $ | (7,139  | ) |  | $ | (1,240  | )
|                         | Net earnings (loss) per common share 
    basic             |                                       | $ | 0.06    |   |       | $ | (0.38   | ) |  | $ | (0.83   | ) |  | $ | (0.14   | )
|                         | Net earnings (loss) per common share 
    assuming dilution |                                       | $ | 0.06    |   |       | $ | (0.38   | ) |  | $ | (0.83   | ) |  | $ | (0.14   | )
|Discontinued Operations: |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net revenues                                                 |                                       | $ | 15,826  |   |       | $ | 17,412  |   |  | $ | 17,379  |   |  | $ | 13,159  |  
|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Loss from operations                                         |                                       | $ | (743    | ) |       | $ | (472    | ) |  | $ | (526    | ) |  | $ | (359    | )
|                         | Gain (loss) on disposal                                      |                                       |   |        |   |       |   | (132    | ) |  |   | 4,921   |   |  |   | 1,674   |  
|                         | Net loss on asset sales/write-downs                          |                                       |   |        |   |       |   | (1,054  | ) |  |   | (117    | ) |  |   | (139    | )
|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Operating earnings (loss)                                    |                                       | $ | (743    | ) |       | $ | (1,658  | ) |  | $ | 4,278   |   |  | $ | 1,176   |  
|                         |                                                              |                                       |   |         |   |       |   |         |   |  |   |         |   |  |   |        
|                         | Net earnings (loss)                                          |                                       | $ | (447    | ) |       | $ | (994    | ) |  | $ | 2,567   |   |  | $ | 706     |  
|                         | Net earnings (loss) per common share 
    basic             |                                       | $ | (0.05   | ) |       | $ | (0.12   | ) |  | $ | 0.30    |   |  | $ | 0.08    |  
|                         | Net earnings (loss) per common share 
    assuming dilution |                                       | $ | (0.05   | ) |       | $ | (0.12   | ) |  | $ | 0.30    |   |  | $ | 0.08    |  



---



|    |                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Subsequent to the previously filed
    Form 10-Qs, certain reclassifications have been made
    to present continuing and discontinued operations in accordance
    with SFAS No. 144.

95



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of Disclosure Controls and
Procedures

Our management, with the participation of our
chief executive officer and chief financial officer, evaluated
the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this report. Based on that
evaluation, the chief executive officer and chief financial
officer concluded that our disclosure controls and procedures as
of the end of the period covered by this report were effective
as of the date of that evaluation.

(b) Change in Internal Control Over
Financial Reporting

No change in our internal control over financial
reporting occurred during our most recent fiscal quarter that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




PART III

Certain information required by Part III is
omitted from this report by virtue of the fact that we will file
with the Securities and Exchange Commission a definitive proxy
statement relating to our Annual Meeting of Stockholders to be
held April 29, 2004 pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year
covered by this report, and certain information to be included
therein is incorporated herein by reference. We expect to
disseminate the proxy statement to stockholders on or about
March 19, 2004.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item concerning
our directors, including our audit committee members and audit
committee financial expert, and the information concerning our
code of ethics, is incorporated by reference to the information
contained in the 2004 proxy statement under the caption
Election of Directors.

The information concerning our executive officers
required by this item is incorporated by reference to the
section in Part I of this report entitled Executive
Officers of the Registrant, following Item 4.

The information concerning compliance with
Section 16(a) of the Exchange Act required by this Item is
incorporated by reference to the information contained in the
2004 proxy statement under the caption Section 16(a)
Beneficial Ownership Reporting Compliance.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is
incorporated by reference to the information contained in the
2004 proxy statement under the captions Election of
Directors, Executive Compensation,
Compensation Committee Report on Executive
Compensation and Compensation Committee Interlocks
and Insider Participation.

96



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|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The following table includes information
regarding securities authorized for issuance under our equity
compensation plans.

|                                                               |  |                         |         |                      |  |                                |      |  |  |  |   | 
|-------------------------------------------------------------- |  | ----------------------- | ------- | -------------------- |  | ------------------------------ | ---- |  |  |  | - | 
|                                                               |  | Number of Securities to |         |                      |  | Number of Securities Remaining
|                                                               |  | be Issued Upon          |         | Weighted-Average     |  | Available for Future Issuance 
|                                                               |  | Exercise                |         | Exercise Price of    |  | Under Equity Compensation     
|                                                               |  | of Outstanding Options, |         | Outstanding Options, |  | Plans (Excluding Securities   
|Plan Category                                                  |  | Warrants and Rights     |         | Warrants and Rights  |  | Reflected in Column (a))      
|                                                               |  |                         |         |                      |  |                               
|                                                               |  | (a)                     |         | (b)                  |  | (c)                           
|Equity compensation plans approved by security
    holders     |  |                         | 524,000 |                      |  | $                              | 7.83 |  |  |  | * | 
|Equity compensation plans not approved by
    security holders |  |                         |        |                      |  |                                |     |  |  |  |  | 
|                                                               |  |                         |        |                      |  |                                |      |  |  |  |  | 
|                                                               |  |                         |         |                      |  |                                |      |  |  |  |   | 
|Total                                                          |  |                         | 524,000 |                      |  | $                              | 7.83 |  |  |  | * | 
|                                                               |  |                         |         |                      |  |                                |      |  |  |  |   | 



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The total number of shares available for grant is
    2% of the total number of common shares outstanding as of the
    first day of each calendar year. Grants also are subject to a
    400,000 share annual limitation on the grant of options
    intended to qualify as incentive stock options under
    Section 422 of the Internal Revenue Code. Common shares
    available for grant in any particular calendar year that are
    not, in fact, granted in such year cannot be added to the common
    shares available for grant in any subsequent calendar year.

For a description of our equity compensation
plans see Note 18 to our Consolidated Financial Statements
included in Item 8.

The other information required by this item is
incorporated by reference to the information contained in the
2004 proxy statement under the captions Election of
Directors, Security Ownership of Management
and Shares Owned by Certain Shareholders.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference to the information contained in the
2004 proxy statement under the captions Compensation
Committee Interlocks and Insider Participation,
Certain Transactions, Indebtedness of
Management and Legal Proceedings.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this item is
incorporated by reference to the information contained in the
2004 proxy statement under the caption Audit Fees.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a)(1) The following financial statements
are included in Item 8:



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | (i) Independent Auditors Report                                                                           
|
| | (ii) Consolidated Balance Sheets 
    December 31, 2003 and 2002                                          
|
| | (iii) Consolidated Statements of
    Operations  Years ended December 31, 2003, 2002
    and 2001         
|
| | (iv) Consolidated Statements of
    Stockholders Equity  Years ended
    December 31, 2003, 2002 and 2001

97



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##### Table of Contents





| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | (v) Consolidated Statements of Cash
    Flows  Years ended December 31, 2003, 2002 and
    2001
|
| | (vi) Notes to Consolidated Financial
    Statements                                             

(2) Financial Statement Schedule. The
following financial statement schedule of Giant
Industries, Inc. for the years ended December 31,
2003, 2002 and 2001 is filed as part of this report and should
be read in conjunction with the Consolidated Financial
Statements of Giant Industries, Inc.

|                                                    |  | 
|--------------------------------------------------- |  | 
|Independent Auditors Report on Schedule            |  | 
|Schedule II  Valuation and
    Qualifying Accounts |  | 

Schedules not listed above have been omitted
because they are not applicable or are not required or because
the information required to be set forth therein is included in
the Consolidated Financial Statements or Notes thereto.

(3) Exhibits. The Exhibits listed on
the accompanying Index to Exhibits immediately following the
financial statement schedule are filed as part of, or
incorporated by reference into, this Report.

Contracts with management and any compensatory
plans or arrangements relating to management are as follows:

|            |    |             |  |                                                                                                                                                                                                                                                                                          
|----------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .10         |  | Giant Industries, Inc. 1998 Stock Incentive
    Plan. Incorporated by reference to Appendix H to the Joint Proxy
    Statement/Prospectus included in the Companys Registration
    Statement on Form S-4 under the Securities Act of 1933 as
    filed May 4, 1998, File No. 333-51785.
|            | 10 | .11         |  | Amendment No. 1 to 1998 Stock Incentive
    Plan, dated September 13, 2000. Incorporated by reference
    to Exhibit 10.8 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2002, File No
    1-10398.                                              
|            | 10 | .12         |  | Amendment No. 2 to 1998 Stock Incentive
    Plan, dated March 27, 2002. Incorporated by reference to
    Exhibit 10.9 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2002, File No
    1-10398.                                                  
|            | 10 | .13         |  | ESOP Substitute Excess Deferred Compensation
    Benefit Plan. Incorporated by reference to Exhibit 10.8 to
    the Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 1992, File No. 1-10398.                                                              
|            | 10 | .28*        |  | Employment Agreement, dated as of
    December 12, 2003, between Fred L. Holliger and Giant
    Industries, Inc.                                                                                                                                                                         
|            | 10 | .29*        |  | Employment Agreement, dated as of
    December 12, 2003, between Morgan Gust and Giant
    Industries, Inc.                                                                                                                                                                              
|            | 10 | .30*        |  | Employment Agreement, dated as of
    December 12, 2003, between Mark B. Cox and Giant
    Industries, Inc.                                                                                                                                                                              
|            | 10 | .31*        |  | Employment Agreement, dated as of
    December 12, 2003, between Kim H. Bullerdick and Giant
    Industries, Inc.                                                                                                                                                                        



---



|  |                
|- | ---------------
|* | Filed herewith.

(b) Reports on Form 8-K. We filed the
following reports on Form 8-K during the fourth quarter of
2003 and to date:



| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) On November 10, 2003, we filed a
    Form 8-K dated November 10, 2003, containing a press
    release detailing our earnings for the third quarter of 2003.                                    
|
| | (ii) On February 12, 2004, we filed a
    Form 8-K dated February 12, 2004, containing a press
    release detailing a supply agreement with Statoil Marketing and
    Trading (USA), Inc.         
|
| | (iii) On March 8, 2004, we filed a
    Form 8-K dated March 8, 2004, containing a press
    release detailing our earnings for the fourth quarter of 2003
    and the year ended December 31, 2003.

98



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                       
| | ----------------------
| | GIANT INDUSTRIES, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ FRED L. HOLLIGER

| |                            
| | ---------------------------
| |                            
| | Fred L. Holliger           
| | Chairman of the Board      
| | and Chief Executive Officer

March 15, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the date indicated.

|                                               |  |                                                                                |  |                |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------ |  | -------------- |  | 
|                                              
|/s/ FRED L. HOLLIGERFred L. Holliger           |  | Chairman of the Board, Chief Executive Officer
    and Director                |  | March 15, 2004
|                                              
|/s/ MARK B. COXMark B. Cox                     |  | Vice President, Treasurer, Chief Financial
    Officer and Assistant Secretary |  | March 15, 2004
|                                              
|/s/ ROGER D. SANDEENRoger D. Sandeen           |  | Vice President, Chief Accounting Officer and
    Assistant Secretary           |  | March 15, 2004
|                                              
|James E. Acridge                               |  | Director                                                                       |  | March 15, 2004
|                                              
|/s/ ANTHONY J. BERNITSKYAnthony J. Bernitsky   |  | Director                                                                       |  | March 15, 2004
|                                              
|/s/ LARRY L. DEROINLarry L. DeRoin             |  | Director                                                                       |  | March 15, 2004
|                                              
|/s/ RICHARD T. KALEN, JR.Richard T. Kalen, Jr. |  | Director                                                                       |  | March 15, 2004
|                                              
|/s/ BROOKS J. KLIMLEYBrooks J. Klimley         |  | Director                                                                       |  | March 15, 2004
|                                              
|/s/ GEORGE M. RAPPORTGeorge M. Rapport         |  | Director                                                                       |  | March 15, 2004
|                                              
|/s/ DONALD M. WILKINSONDonald M. Wilkinson     |  | Director                                                                       |  | March 15, 2004

99



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##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of
Giant Industries, Inc.

Scottsdale, Arizona


We have audited the consolidated financial
statements of Giant Industries, Inc. and subsidiaries
(the Company) as of December 31, 2003 and 2002,
and for each of the three years in the period ended
December 31, 2003, and have issued our report thereon dated
March 12, 2004 which expresses an unqualified opinion and
includes an explanatory paragraph relating to changes in
accounting methods for the adoption of Statement of Financial
Accounting Standards (SFAS) No. 143,
Asset Retirement Obligations in 2003 and
SFAS No. 142, Goodwill and Other Intangible
Assets and SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets in 2002;
such financial statements and report are included elsewhere in
this Form 10-K. Our audits also included the consolidated
financial statement schedule of the Company, listed in
Item 15. This consolidated financial statement schedule is
the responsibility of the Companys management. Our
responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

March 12, 2004


100



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##### Table of Contents






SCHEDULE II




GIANT INDUSTRIES, INC. AND
SUBSIDIARIES

Valuation and Qualifying Accounts

Three Years Ended December 31,
2003


Trade Receivables:

|                                |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 
|------------------------------- |  | -------------- | --- | -------- |  | ------------ | --- | ---------- |  | - | ---- | - |  | - | --- | 
|                                |  |                |     | Charged  |  |              |     |           
|                                |  | Balance at     |     | to Costs |  |              |     | Balance at
|                                |  | Beginning      |     | and      |  |              |     | End of    
|                                |  | of Period      |     | Expenses |  | Deduction(a) |     | Period    
|                                |  |                |     |          |  |              |     |           
|                                |  |               
|                                |  | (In thousands)
|Year ended December 31, 2003:   |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 
|Allowance for doubtful accounts |  | $              | 650 |          |  | $            | 0   |            |  | $ | (260 | ) |  | $ | 390 | 
|                                |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 
|Year ended December 31, 2002:   |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 
|Allowance for doubtful accounts |  | $              | 540 |          |  | $            | 517 |            |  | $ | (407 | ) |  | $ | 650 | 
|                                |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 
|Year ended December 31, 2001:   |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 
|Allowance for doubtful accounts |  | $              | 356 |          |  | $            | 602 |            |  | $ | (418 | ) |  | $ | 540 | 
|                                |  |                |     |          |  |              |     |            |  |   |      |   |  |   |     | 



---



|    |  |                                                                            
|--- |  | ---------------------------------------------------------------------------
|(a) |  | Deductions are primarily trade accounts
    determined to be uncollectible.

Related Party Note and Interest
Receivable:

|                                |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 
|------------------------------- |  | ---------- | ----- | ---------- |  | ------------ | ----- | ---------- |  | - | ------ | - |  | - | ----- | 
|                                |  | Balance at |       | Charged to |  |              |       | Balance at
|                                |  | Beginning  |       | Costs and  |  |              |       | End of    
|                                |  | of Period  |       | Expenses   |  | Deduction(b) |       | Period    
|                                |  |            |       |            |  |              |       |           
|Year ended December 31, 2003:   |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 
|Allowance for doubtful accounts |  | $          | 5,409 |            |  | $            | 0     |            |  | $ | (5,409 | ) |  | $ | 0     | 
|                                |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 
|Year ended December 31, 2002:   |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 
|Allowance for doubtful accounts |  | $          | 5,409 |            |  | $            | 0     |            |  | $ | 0      |   |  | $ | 5,409 | 
|                                |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 
|Year ended December 31, 2001:   |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 
|Allowance for doubtful accounts |  | $          | 0     |            |  | $            | 5,409 |            |  | $ | 0      |   |  | $ | 5,409 | 
|                                |  |            |       |            |  |              |       |            |  |   |        |   |  |   |       | 



---



|    |  |                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------
|(b) |  | The related party note and interest receivable
    were determined to be uncollectible in 2003.

101



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##### Table of Contents



GIANT INDUSTRIES, INC.






ANNUAL REPORT ON FORM 10-K


Year Ended December 31, 2003





INDEX TO EXHIBITS

Definitions:

Form S-1  Refers to the
Form S-1 Registration Statement under the Securities Act of
1933 as filed October 16, 1989, File No. 33-31584.

Amendment No. 3  Refers to the
Amendment No. 3 to Form S-1 Registration Statement
under the Securities Act of 1933 as filed December 12,
1989, File No. 33-31584.

Form S-3  Refers to the
Form S-3 Registration Statement under the Securities Act of
1933 as filed September 22, 1993, File No. 33-69252.

|        |   |             |  |                                                                                                                                                                                                                                                                                                                                     
|------- | - | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|No.     |   | Description
|        |   |            
|        | 2 | .1          |  | Asset Purchase Agreement dated February 8,
    2002, by and among, BP Corporation North America Inc., BP
    Products North America Inc., and Giant Industries, Inc.
    Incorporated by reference to Exhibit 2.3 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended December 31, 2001, File No. 1-10398.
|        | 3 | .1          |  | Restated Certificate of Incorporation of Giant
    Industries, Inc., a Delaware corporation. Incorporated by
    reference to Exhibit 3.1 to Amendment No. 3.                                                                                                                                                                       
|        | 3 | .2          |  | Bylaws of Giant Industries, Inc., a Delaware
    corporation, as amended September 9, 1999. Incorporated by
    reference to Exhibit 3.2 to the Companys Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1999, File No. 1-10398.                                                                         
|        | 3 | .3          |  | Articles of Incorporation of Giant Industries
    Arizona, Inc., an Arizona corporation (Giant
    Arizona) formerly Giant Acquisition Corp. Incorporated by
    reference to Exhibit 2.1, Annex V to Form S-1.                                                                                                                   
|        | 3 | .4          |  | Bylaws of Giant Arizona. Incorporated by
    reference to Exhibit 2.1, Annex VI to Form S-1.                                                                                                                                                                                                                                        
|        | 3 | .5          |  | Articles of Incorporation of Ciniza Production
    Company. Incorporated by reference to Exhibit 3.7 to
    Form S-3.                                                                                                                                                                                                               
|        | 3 | .6          |  | Bylaws of Ciniza Production Company. Incorporated
    by reference to Exhibit 3.8 to Form S-3.                                                                                                                                                                                                                                      
|        | 3 | .7          |  | Articles of Incorporation of Giant Stop-N-Go of
    New Mexico, Inc. Incorporated by reference to
    Exhibit 3.9 to Form S-3.                                                                                                                                                                                                      
|        | 3 | .8          |  | Bylaws of Giant Stop-N-Go of New
    Mexico, Inc. Incorporated by reference to Exhibit 3.10
    to Form S-3.                                                                                                                                                                                                                        
|        | 3 | .9          |  | Articles of Incorporation of Giant Four
    Corners, Inc. Incorporated by reference to
    Exhibit 3.11 to Form S-3.                                                                                                                                                                                                                
|        | 3 | .10         |  | Bylaws of Giant Four Corners, Inc.
    Incorporated by reference to Exhibit 3.12 to Form S-3.                                                                                                                                                                                                                                       
|        | 3 | .11         |  | Articles of Incorporation of Giant
    Mid-Continent, Inc. Incorporated by reference to
    Exhibit 3.13 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 1994, File
    No. 1-10398.                                                                                                         
|        | 3 | .12         |  | Bylaws of Giant Mid-Continent, Inc.
    Incorporated by reference to Exhibit 3.14 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended December 31, 1994, File No. 1-10398.                                                                                                                                
|        | 3 | .13         |  | Articles of Incorporation of San Juan
    Refining Company. Incorporated by reference to Exhibit 3.15
    to the Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 1995, File No. 1-10398.                                                                                                            
|        | 3 | .14         |  | Bylaws of San Juan Refining Company.
    Incorporated by reference to Exhibit 3.16 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended December 31, 1995, File No. 1-10398.                                                                                                                               



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 3  | .15         |  | Amended and Restated Articles of Incorporation of
    Phoenix Fuel Co., Inc. Incorporated by reference to
    Exhibit 3.15 to the Companys Registration Statement
    on Form S-4 under the Securities Act of 1933 as filed
    July 15, 2002, File No. 333-92386.                                                                                                                                                            
|        | 3  | .16         |  | Amended Bylaws of Phoenix Fuel Co., Inc.
    Incorporated by reference to Exhibit 3.18 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended December 31, 1997, File No. 1-10398.                                                                                                                                                                                                                      
|        | 3  | .17         |  | Articles of Incorporation of Giant Pipeline
    Company. Incorporated by reference to Exhibit 3.21 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended December 31, 1999, File No. 1-10398.                                                                                                                                                                                                          
|        | 3  | .18         |  | Bylaws of Giant Pipeline Company. Incorporated by
    reference to Exhibit 3.22 to the Companys Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1999, File No. 1-10398.                                                                                                                                                                                                                             
|        | 3  | .19         |  | Certificate of Incorporation of Giant
    Yorktown, Inc. Incorporated by reference to
    Exhibit 3.21 to the Companys Annual Report on Form
    10-K for the year ended December 31, 2001, File
    No. 1-10398.                                                                                                                                                                                                             
|        | 3  | .20         |  | Bylaws of Giant Yorktown, Inc. Incorporated
    by reference to Exhibit 3.22 to the Companys Annual
    Report on Form 10-K for the year ended December 31, 2001,
    File No. 1-10398.                                                                                                                                                                                                                                       
|        | 3  | .21         |  | Certificate of Incorporation of Giant Yorktown
    Holding Company. Incorporated by reference to Exhibit 3.23
    to the Companys Registration Statement on Form S-4
    under the Securities Act of 1933 as filed July 15, 2002,
    File No. 333-92386.                                                                                                                                                                     
|        | 3  | .22         |  | Bylaws of Giant Yorktown Holding Company.
    Incorporated by reference to Exhibit 3.24 to the
    Companys Registration Statement on Form S-4 under the
    Securities Act of 1933 as filed July 15, 2002, File
    No. 333-92386.                                                                                                                                                                                           
|        | 4  | .1          |  | Indenture dated as of August 26, 1997, among
    the Company, as Issuer, the Subsidiary Guarantors, as
    guarantors, and The Bank of New York, as Trustee, relating
    to $150,000,000 of 9% Senior Subordinated Notes due 2007.
    Incorporated by reference to Exhibit 4.8 to the
    Companys Registration Statement on Form S-4 under the
    Securities Act of 1933 as filed October 9, 1997, File
    No. 333-37561.
|        | 4  | .2          |  | Indenture, dated as of May 14, 2002, among
    the Company, as Issuer, the Subsidiary Guarantors, as
    guarantors, and The Bank of New York, as Trustee, relating
    to $200,000,000 of 11% Senior Subordinated Notes 2012.
    Incorporated by reference to Exhibit 4.2 to the
    Companys Registration Statement on Form S-4 under the
    Securities Act of 1933 as filed July 15, 2002, File
    No. 333-92386.       
|        | 4  | .3*         |  | Giant Industries, Inc. & Affiliated
    Companies 401(k) Basic Plan Document, effective October 9,
    2003.                                                                                                                                                                                                                                                                                                                   
|        | 4  | .4          |  | Giant Industries, Inc. & Affiliated
    Companies 401(k) Plan Adoption Agreement, effective
    June 24, 2003. Incorporated by reference to
    Exhibit 4.1 to the Companys Quarterly Report on Form
    10-K for the quarter ended June 30, 2003, File
    No 1-10398.                                                                                                                                                       
|        | 4  | .5          |  | First Amendment to Giant
    Industries, Inc. & Affiliated Companies 401(k)
    Plan Adoption Agreement, effective June 24, 2003.
    Incorporated by reference to Exhibit 4.2 to the
    Companys Quarterly Report on Form 10-K for the quarter
    ended June 30, 2003, File No 1-10398.                                                                                                                                    
|        | 4  | .6          |  | Second Amendment to Giant
    Industries, Inc. & Affiliated Companies 401(k)
    Plan Adoption Agreement, effective July 1, 2003.
    Incorporated by reference to Exhibit 4.3 to the
    Companys Quarterly Report on Form 10-K for the quarter
    ended June 30, 2003, File No 1-10398.                                                                                                                                    
|        | 4  | .7*         |  | Third Amendment to Giant
    Industries, Inc. & Affiliated Companies 401(k)
    Plan Adoption Agreement, effective January 1, 2004.                                                                                                                                                                                                                                                                                            
|        | 4  | .8*         |  | Fourth Amendment to Giant
    Industries, Inc. & Affiliated Companies 401(k)
    Plan Adoption Agreement, effective March 1, 2004.                                                                                                                                                                                                                                                                                             
|        | 10 | .1          |  | Second Amended and Restated Credit Agreement,
    dated May 14, 2002, among Giant Industries, Inc., Bank
    of America, N.A., as Administrative Agent and as Letter of
    Credit Bank, and the Lenders parties thereto. Incorporated by
    reference to Exhibit 10.1 to the Companys
    Registration Statement on Form S-4 under the Securities Act
    of 1933 as filed July 15, 2002, File No. 333-92386.               



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .2          |  | First Amendment, dated October 28, 2002 to
    Second Amended and Restated Credit Agreement, dated May 14,
    2002, among Giant Industries, Inc., Bank of America, N.A.,
    as Administrative Agent and as Letter of Credit Issuing Bank,
    and the Lenders parties thereto. Incorporated by reference to
    Exhibit 10.1 to the Companys Report on Form 10-Q for
    the quarter ended September 30, 2002, File No. 1-10398.                                                       
|        | 10 | .3*         |  | Second amendment, dated September 30, 2003,
    to Second Amended and Restated Credit Agreement, dated
    May 14, 2002, among Giant Industries, Inc., Bank of
    America, N.A., as Administrative Agent and as Letter of Credit
    Issuing Bank, and the Lenders parties thereto.                                                                                                                                                                                                      
|        | 10 | .4*         |  | Third Amendment, dated February 9, 2004, to
    Second Amended and Restated Credit Agreement, dated May 14,
    2002, among Giant Industries, Inc., Bank of America, N.A.,
    as Administrative Agent and as Letter of Credit Issuing Bank,
    and the Lenders parties thereto.                                                                                                                                                                                                         
|        | 10 | .5          |  | Loan Agreement, dated as of May 14, 2002, by
    and among Giant Yorktown, Inc., as Borrower, Wells Fargo
    Bank Nevada, National Association, as Collateral Agent, and the
    Persons listed on Schedule IA thereto, as Lenders. Incorporated
    by reference to Exhibit 10.38 to the Companys
    Registration Statement on Form S-4 under the Securities Act
    of 1933 as filed July 15, 2002, File No. 333-92386.                                                              
|        | 10 | .6          |  | Amendment to Loan Agreement and Omnibus
    Amendment, dated as of May 22, 2002 among Giant
    Yorktown, Inc., Giant Industries, Inc., Giant
    Industries Arizona, Inc., Wells Fargo Bank Nevada, National
    Association, as Collateral Agent, and the Lenders listed on the
    signature pages thereto. Incorporated by reference to
    Exhibit 10.2 to the Companys Report on Form 10-Q for
    the quarter ended September 30, 2002, File No. 1-10398.                         
|        | 10 | .7          |  | Second Amendment to Loan Agreement and Omnibus
    Amendment, dated as of October 28, 2002, among Giant
    Yorktown, Inc., Giant Industries, Inc., Giant
    Industries Arizona, Inc., Wells Fargo Bank Nevada, National
    Association, as Collateral Agent, and the Lenders listed on the
    signature pages thereto. Incorporated by reference to
    Exhibit 10.3 to the Companys Report on Form 10-Q for
    the quarter ended September 30, 2002, File No. 1-10398.             
|        | 10 | .8          |  | Third Amendment to Loan Agreement and Omnibus
    Amendment, dated as of December 20, 2002, among Giant
    Yorktown, Inc., Giant Industries, Inc., Giant
    Industries Arizona, Inc., Wells Fargo Bank Nevada, National
    Association, as Collateral Agent, and the Lenders listed on the
    signature pages thereto. Incorporated by reference to
    Exhibit 10.6 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2002, File
    No 1-10398.
|        | 10 | .9*         |  | Fourth Amendment to Loan Agreement and Omnibus
    Amendment, dated February 9, 2004, Among Giant
    Yorktown, Inc., Giant Industries, Inc., Giant
    Industries Arizona, Inc., Wells Fargo Bank Nevada, National
    Association, as Collateral Agent, and the Lenders listed on the
    signature pages thereto.                                                                                                                                                                      
|        | 10 | .10         |  | Giant Industries, Inc. 1998 Stock Incentive
    Plan. Incorporated by reference to Appendix H to the Joint Proxy
    Statement/Prospectus included in the Companys Registration
    Statement on Form S-4 under the Securities Act of 1933 as
    filed May 4, 1998, File No. 333-51785.                                                                                                                                                                                                 
|        | 10 | .11         |  | Amendment No. 1 to 1998 Stock Incentive
    Plan, dated September 13, 2000. Incorporated by reference
    to Exhibit 10.8 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2002, File
    No 1-10398.                                                                                                                                                                                                                                               
|        | 10 | .12         |  | Amendment No. 2 to 1998 Stock Incentive
    Plan, dated March 27, 2002. Incorporated by reference to
    Exhibit 10.9 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2002, File
    No 1-10398.                                                                                                                                                                                                                                                   
|        | 10 | .13         |  | ESOP Substitute Excess Deferred Compensation
    Benefit Plan. Incorporated by reference to Exhibit 10.8 to
    the Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 1992, File No. 1-10398.                                                                                                                                                                                                                                                               
|        | 10 | .14         |  | Agreement dated September 17, 1998, between
    James E. Acridge (Borrower) and Giant
    Industries, Inc. (Lender). Incorporated by
    reference to Exhibit 10.34 to the Companys Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1998, File No. 1-10398.                                                                                                                                                                                                
|        | 10 | .15         |  | Modification Agreement dated December 23,
    1998, to Agreement dated September 17, 1998, between James
    E. Acridge (Borrower) and Giant
    Industries, Inc. (Lender). Incorporated by
    reference to Exhibit 10.36 to the Companys Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1998, File No. 1-10398.                                                                                                                                         



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .16         |  | Amended and Restated Loan Agreement dated
    March 20, 2000, between James E. Acridge
    (Borrower) and Giant Industries, Inc.
    (Lender). Incorporated by reference to
    Exhibit 10.26 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 1999, File
    No. 1-10398.                                 
|        | 10 | .17         |  | Loan Modification Agreement dated
    February 28, 2001, by and among James E. Acridge
    (Borrower), Giant Industries, Inc., and
    Pinnacle Rodeo, L.L.C. Incorporated by reference to
    Exhibit 10.18 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2000, File
    No. 1-10398.                    
|        | 10 | .18         |  | First Amendment to Amended and Restated
    Promissory Note and Loan Modification Agreement dated
    March 28, 2001, by James E. Acridge and Giant
    Industries, Inc. Incorporated by reference to
    Exhibit 10.19 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2000, File
    No. 1-10398.           
|        | 10 | .19         |  | Promissory Note for $4,000,000 dated
    September 17, 1998, from James E. Acridge to Giant
    Industries, Inc. Incorporated by reference to
    Exhibit 10.35 to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 1998,
    File No. 1-10398.                                                                   
|        | 10 | .20         |  | Amended and Restated Promissory Note for
    $5,000,000 dated December 23, 1998, from James E. Acridge
    to Giant Industries, Inc. Incorporated by reference to
    Exhibit 10.37 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 1998, File
    No. 1-10398.                                               
|        | 10 | .21         |  | Amended and Restated Promissory Note for
    $5,000,000 dated March 10, 2000, from James E. Acridge to
    Giant Industries, Inc. Incorporated by reference to
    Exhibit 10.27 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 1999, File
    No. 1-10398.                                                  
|        | 10 | .22         |  | Modification Agreement dated February 28,
    2001, between James E. Acridge (Borrower) and Giant
    Industries, Inc. Incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on Form
    10-Q for the quarter ended March 31, 2001, File
    No. 1-10398.                                                                
|        | 10 | .23         |  | Amended and Restated Promissory Note dated
    February 28, 2001. Incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on Form
    10-Q for the quarter ended March 31, 2001, File
    No. 1-10398.                                                                                                                       
|        | 10 | .24         |  | Fourth Amended and Restated Promissory Note dated
    March 28, 2001, from James E. Acridge to Giant
    Industries, Inc. Incorporated by reference to
    Exhibit 10.21 to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001,
    File No. 1-10398.                                                          
|        | 10 | .25         |  | Pledge and Security Agreement dated
    March 10, 2000 from James E. Acridge and Pinnacle Rodeo,
    L.L.C., to Giant Industries, Inc. Incorporated by reference
    to Exhibit 10.28 to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 1999, File
    No. 1-10398.                                             
|        | 10 | .26         |  | First Amendment dated March 9, 2001, to
    Pledge and Security Agreement dated March 10, 2000, from
    James E. Acridge and Pinnacle Rodeo, L.L.C., to Giant
    Industries, Inc. Incorporated by reference to
    Exhibit 10.24 to the Companys Annual Report on Form
    10-K for the fiscal year ended December 31, 2000, File
    No. 1-10398.
|        | 10 | .27         |  | Pledge and Security Agreement dated
    March 28, 2001, by James E. Acridge in favor of Giant
    Industries, Inc. Incorporated by reference to
    Exhibit 10.25 to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2000,
    File No. 1-10398.                                                                 
|        | 10 | .28*        |  | Employment Agreement, dated as of
    December 12, 2003, between Fred L. Holliger and Giant
    Industries, Inc.                                                                                                                                                                                                                                     
|        | 10 | .29*        |  | Employment Agreement, dated as of
    December 12, 2003, between Morgan Gust and Giant
    Industries, Inc.                                                                                                                                                                                                                                          
|        | 10 | .30*        |  | Employment Agreement, dated as of
    December 12, 2003, between Mark B. Cox and Giant
    Industries, Inc.                                                                                                                                                                                                                                          
|        | 10 | .31*        |  | Employment Agreement, dated as of
    December 12, 2003, between Kim H. Bullerdick and Giant
    Industries, Inc.                                                                                                                                                                                                                                    



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .32         |  | Consulting Agreement dated January 1, 1990,
    between the Company and Kalen and Associates. Incorporated by
    reference to Exhibit 10.66 to the Companys Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1990, File No. 1-10398.
|        | 10 | .33*  **    |  | Crude Oil Purchase/Sale Agreement 2004-2008,
    effective as of February 9, 2004, between Giant
    Yorktown, Inc. and Statoil Marketing & Trading
    (US) Inc.                                                                                              
|        | 14 | .1*         |  | Code of Ethics.                                                                                                                                                                                                                                                
|        | 18 | .1          |  | Letter regarding change in accounting principles.
    Incorporated by reference to Exhibit 18.1 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 1990, File No. 1-10398.                                             
|        | 21 | .1*         |  | Subsidiaries of the Company.                                                                                                                                                                                                                                   
|        | 23 | .1*         |  | Consent of Deloitte & Touche LLP to
    incorporate report in previously filed Registration Statements.                                                                                                                                                        
|        | 31 | .1*         |  | Certification of Principal Executive Officer
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                    
|        | 31 | .2*         |  | Certification of Principal Financial Officer
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                    
|        | 32 | .1*         |  | Certification of Principal Executive Officer
    Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|        | 32 | .2*         |  | Certification of Principal Financial Officer
    Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 



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| |   |                
| | - | ---------------
| | * | Filed herewith.



|   |                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Portions have been omitted pursuant to a request
    for confidential treatment filed by the Registrant with the
    Commission. The omitted portions have been filed separately with
    the Commission.