FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Period Ended November 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ----------------------
Commission File No. 333-35083
UNITED REFINING COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1411751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Bradley Street
Warren, Pennsylvania 16365
(address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code 814-726-4674
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of Registrant's Common Stock as of
January 14, 2003: 100.
TABLE OF ADDITIONAL REGISTRANTS
Primary
Standard
State of Other Industrial IRS Employer
Jurisdiction of Classification Identification Commission
Name Incorporation Number Number File Number
Kiantone Pipeline
Corporation New York 4612 25-1211902 333-35083-01
Kiantone Pipeline Company Pennsylvania 4600 25-1416278 333-35083-03
United Refining Company
of Pennsylvania Pennsylvania 5541 25-0850960 333-35083-02
United Jet Center, Inc. Delaware 4500 52-1623169 333-35083-06
Kwik Fill Corporation Pennsylvania 5541 25-1525543 333-35083-05
Independent Gas and Oil
Company of Rochester,
Inc. New York 5170 06-1217388 333-35083-11
Bell Oil Corp. Michigan 5541 38-1884781 333-35083-07
PPC, Inc. Ohio 5541 31-0821706 333-35083-08
Super Test Petroleum,
Inc. Michigan 5541 38-1901439 333-35083-09
Kwik-Fil, Inc. New York 5541 25-1525615 333-35083-04
Vulcan Asphalt Refining
Corporation Delaware 2911 23-2486891 333-35083-10
2
PAGE(S)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 2002 and August 31, 2002 4
Consolidated Statements of Operations -
Three Months Ended November 30, 2002 and 2001 5
Consolidated Statements of Comprehensive Income
(Loss) - Three Months Ended November 30, 2002
and 2001 6
Consolidated Statements of Cash Flows -
Three Months Ended November 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-22
Item 4. Controls and Procedures 22
PART II. OTHER INFORMATION 23
3
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
NOVEMBER 30,
2002 AUGUST 31,
(UNAUDITED) 2002
----------- ----
ASSETS
CURRENT:
Cash and cash equivalents $ 9,328 $ 13,515
Accounts receivable, net 35,123 33,865
Inventories 80,686 93,567
Prepaid expenses and other assets 13,040 11,179
Refundable income taxes 3,300 3,300
--------- ---------
TOTAL CURRENT ASSETS 141,477 155,426
PROPERTY, PLANT AND EQUIPMENT, NET 188,754 189,894
DEFERRED INCOME TAXES 1,661 --
INVESTMENT IN AFFILIATED COMPANY 1,758 1,707
DEFERRED FINANCING COSTS, NET 3,439 3,641
GOODWILL AND OTHER NON-AMORTIZABLE ASSETS 11,849 11,849
AMORTIZABLE INTANGIBLE ASSETS, NET 4,023 4,170
DEFERRED TURNAROUND COSTS AND OTHER ASSETS, NET 5,920 4,753
--------- ---------
$ 358,881 $ 371,440
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Revolving credit facility $ 30,000 $ 24,314
Current installments of long-term debt 239 236
Accounts payable 30,573 50,647
Accrued liabilities 23,488 14,002
Sales, use and fuel taxes payable 16,517 18,517
Deferred income taxes 4,234 5,323
Amounts due to affiliated companies, net 1,177 140
--------- ---------
TOTAL CURRENT LIABILITIES 106,228 113,179
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 181,811 181,863
DEFERRED INCOME TAXES -- 360
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN
OBLIGATIONS 1,291 1,345
DEFERRED RETIREMENT BENEFITS 23,538 24,147
OTHER NONCURRENT LIABILITIES 2,035 2,350
--------- ---------
TOTAL LIABILITIES 314,903 323,244
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $.10 par value per share -
shares authorized 100; issued and
outstanding 100 -- --
Additional paid-in capital 16,648 16,648
Retained earnings 27,420 31,638
Accumulated other comprehensive loss (90) (90)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 43,978 48,196
--------- ---------
$ 358,881 $ 371,440
========= =========
4
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
NOVEMBER 30,
------------------------
2002 2001
--------- ---------
NET SALES $ 293,305 $ 228,504
COSTS OF GOODS SOLD 265,319 223,384
--------- ---------
GROSS PROFIT 27,986 5,120
--------- ---------
EXPENSES:
Selling, general and administrative expenses 26,328 18,389
Depreciation and amortization expenses 3,303 2,960
--------- ---------
TOTAL OPERATING EXPENSES 29,631 21,349
--------- ---------
OPERATING LOSS (1,645) (16,229)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 10 240
Interest expense (5,211) (4,879)
Other, net (68) (477)
Equity in net earnings of affiliate 51 355
--------- ---------
(5,218) (4,761)
--------- ---------
LOSS BEFORE INCOME TAX BENEFIT (6,863) (20,990)
INCOME TAX BENEFIT (2,645) (8,370)
--------- ---------
NET LOSS $ (4,218) $ (12,620)
========= =========
5
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - (UNAUDITED)
(IN THOUSANDS)
- -----------------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
----------------------------------
2002 2001
- -----------------------------------------------------------------------------------
NET LOSS $ (4,218) $ (12,620)
OTHER COMPREHENSIVE LOSS:
Minimum pension liability, net of taxes - -
- -----------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (4,218) $ (12,620)
===================================================================================
6
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
NOVEMBER 30,
-----------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,218) $(12,620)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,214 3,791
Post-retirement benefits (609) (238)
Change in deferred income taxes (3,110) (3,420)
Loss on asset dispositions 33 182
Cash provided by (used in) working capital
items (1,789) 8,500
Equity in net earnings of affiliate (51) (355)
Other, net (2,246) (1,441)
-------- --------
TOTAL ADJUSTMENTS (3,558) 7,019
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (7,776) (5,601)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,048) (2,312)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,048) (2,312)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving credit facility 5,686 --
Principal reductions of long-term debt (49) (32)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 5,637 (32)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,187) (7,945)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,515 35,224
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,328 $ 27,279
======== ========
CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net $ (1,258) $ 11,505
Inventories 12,881 (4,384)
Prepaid expenses and other assets (1,861) (2,072)
Accounts payable (20,074) 2,407
Accrued liabilities 9,486 2,174
Amounts due affiliated companies 1,037 (460)
Income taxes payable -- (2,373)
Sales, use and fuel taxes payable (2,000) 1,703
-------- --------
TOTAL CHANGE $ (1,789) $ 8,500
======== ========
7
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION The accompanying unaudited consolidated
financial statements have been prepared
in accordance with accounting principles
generally accepted in the United States
of America for interim financial
information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include
all of the information and footnotes
required by accounting principles
generally accepted in the United States
of America for complete financial
statements. In the opinion of
management, all adjustments (consisting
of only normal recurring accruals)
considered necessary for a fair
presentation have been included.
Operating results for the three month
period ended November 30, 2002 are not
necessarily indicative of the results
that may be expected for the year ending
August 31, 2003. For further
information, refer to the consolidated
financial statements and footnotes
thereto incorporated by reference in the
Company's Form 10-K filing dated
November 27, 2002.
2. RECENT ACCOUNTING STANDARDS In June 2001, the Financial Accounting
Standards Board ("FASB") finalized
Statements No. 141, "Business
Combinations" ("Statement 141"), and
No. 142, "Goodwill and Other Intangible
Assets" ("Statement 142"). Statement
141 requires the use of the purchase
method of accounting and prohibits
the use of the pooling-of-interests
method of accounting for business
combinations initiated after June 30,
2001. Statement 141 also requires that
the Company recognize acquired
intangible assets apart from goodwill if
the acquired intangible assets meet
certain criteria. Statement 141 applies
to all business combinations initiated
after June 30, 2001 and for purchase
business combinations completed on or
after July 1, 2001. It also requires,
upon adoption of Statement 142 that
the Company reclassify the carrying
amounts of intangible assets and
goodwill based on the criteria in
Statement 141.
Statement 142 requires, among other
things, that companies no longer
amortize goodwill, but instead test
goodwill for impairment at least
annually. In addition, Statement 142
requires that the Company identify
reporting units for the purposes of
assessing potential future impairments
of goodwill, reassess the useful lives
of other existing recognized intangible
assets, and cease amortization of
goodwill and other intangible assets
with an indefinite useful life. Goodwill
and other intangible assets with
indefinite useful lives should be tested
for impairment in accordance with the
guidance in Statement 142. Statement 142
is required to be applied in fiscal
years beginning after December 15, 2001
to all goodwill and other intangible
assets recognized at that date,
regardless of when those assets were
initially recognized. Statement 142
requires the Company to complete a
transitional goodwill impairment test
six months from the date of adoption.
The Company is also required to reassess
the useful lives of other intangible
assets within the first interim quarter
after adoption of Statement 142.
The Company's previous business
combinations were accounted for using
the purchase method. As of November 30,
2002, the net carrying amount of
goodwill is $1,349,000, non-amortizable
intangible assets is $10,500,000 and
amortizable intangible assets is
$4,795,000. Amortization expense for the
three months ended November 30, 2002 was
$147,000.
The Company is currently assessing how
the adoption of Statement 141 and 142
will impact its financial position and
results of operations.
In June 2001, the FASB also issued
Statement No. 143, "Accounting for
Obligations Associated with the
Retirement of Long-Lived Assets"
("Statement 143"). The objective of
Statement 143 is to establish an
accounting standard for the recognition
and measurement of an asset retirement
obligation on certain long-lived assets.
The retirement obligation must be one
that results from the acquisition,
construction or normal operation of a
long-lived asset. Statement 143 requires
the legal obligation associated with the
retirement of a tangible long-lived
asset to be recognized at fair value as
a liability when incurred, and the cost
to be capitalized by increasing the
carrying amount of the related
long-lived asset. Statement 143 was
8
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
effective for the Company's fiscal
year beginning September 1, 2002.
The adoption of Statement 143 did not
have a material effect on the Company's
financial position or results of
operations.
In October 2001, the FASB issued
Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived
Assets" ("Statement 144"). Statement 144
supersedes Statement No. 121,
"Accounting for the Impairment of
Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("Statement
121") and retains the basic requirements
of Statement 121 regarding when and how
to measure an impairment loss. Statement
144 provides additional implementation
guidance on accounting for an impairment
loss. Statement 144 is effective for all
fiscal years beginning after December
15, 2001.
The Company's adoption of Statement 144
did not have a material effect on the
Company's financial position or results
of operations.
In April 2002, the FASB issued Statement
No. 145, "Rescission of Statements No.
4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical
Corrections" ("Statement 145").
Statement 145 eliminates extraordinary
accounting treatment for reporting gains
or losses on debt extinguishments, and
amends other existing authoritative
pronouncements to make various technical
corrections, clarify meanings, or
describe their applicability under
changed conditions. The provisions of
this Statement are effective for fiscal
years beginning after May 15, 2002;
however, early application of Statement
145 is encouraged. Debt extinguishments
reported as extraordinary items prior to
scheduled or early adoption of this
Statement would be reclassified to other
income in most cases following adoption.
The adoption of Statement 145 did not
have a material impact on the Company's
financial position or results of
operations.
In June 2002, the FASB issued Statement
No. 146, "Accounting for Costs
Associated with Exit or Disposal
Activities" ("Statement 146"), which
changes the accounting for costs such as
lease termination costs and certain
employee severance costs that are
associated with a restructuring,
discontinued operation, plant closing,
or other exit or disposal activity
initiated after December 31, 2002. The
standard requires companies to recognize
the fair value of costs associated with
exit or disposal activities when they
are incurred rather than at the date of
a commitment to an exit or disposal
plan.
The adoption of Statement 146 did not
have an effect on the Company's
financial position or results of
operations as the Company did not exit,
discontinue or restructure any of its
operations.
In November 2002, the FASB issued
Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements
for Guarantees, Including Indirect
Guarantees of Indebtedness of Others"
("Interpretation 45"). Interpretation 45
elaborates on the disclosures that a
guarantor should make in its interim and
annual financial statements regarding
its obligations relating to the issuance
of certain guarantees. It also requires
a guarantor to recognize, at the
inception of a guarantee, a liability
for the fair value of the obligation
undertaken in issuing the guarantee.
Interpretation 45 provides specific
guidance identifying the characteristics
of contracts that are subject to its
guidance and it also provides for scope
exceptions from the guidance in its
entirety and from only the initial
recognition and measurement provisions.
The recognition and measurement
provisions of Interpretation 45 are
effective on a prospective basis for
guarantees issued or modified after
December 31, 2002, regardless of the
guarantor's fiscal year end.
Interpretation 45 specifically prohibits
the guarantor to revise or restate its
previous accounting for guarantees
issued prior to December 31, 2002.
The disclosure requirements of
Interpretation 45 are effective for
interim and annual period financial
statements ending after December 15,
2002.
The Company is currently evaluating the
effects of Interpretation 45 on its
financial position and results of
operations.
3. INVENTORIES Inventories consist of the following:
NOVEMBER 30,
2002 AUGUST 31,
(UNAUDITED) 2002
----------- ----
Crude Oil $16,380 $26,384
Petroleum Products 34,602 38,407
------ ------
Total @ LIFO 50,982 64,791
------ ------
Merchandise 15,922 15,362
Supplies 13,782 13,414
------ ------
Total @ FIFO 29,704 28,776
------ ------
Total Inventory $80,686 $93,567
======= =======
4. CREDIT FACILITY As of November 30, 2002 the Company did
not meet the criteria of the facility's
fixed charge coverage ratio. The
Company has received a waiver of this
covenant from the participating banks
in the facility for the fiscal quarter
ended November 30, 2002. The Company
and the banks are currently discussing
further amendments to the facility.
5. SUBSIDIARY GUARANTORS Certain of United Refining Company's
(the "issuer") subsidiaries function as
guarantors under the terms of the
$200,000,000 Senior Unsecured Note
Indenture due June 9, 2007. Financial
information for the Company's wholly
owned subsidiary guarantors is as
follows:
9
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheets
(in thousands)
November 30, 2002
------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
Assets
Current:
Cash and cash equivalents $ 1,450 $ 7,878 $ -- $ 9,328
Accounts receivable, net 23,649 11,474 -- 35,123
Inventories 58,823 21,863 -- 80,686
Prepaid expenses and other assets 9,111 3,929 -- 13,040
Refundable income taxes 3,300 -- -- 3,300
Intercompany 97,588 18,117 (115,705) --
--------- --------- --------- ---------
Total current assets 193,921 63,261 (115,705) 141,477
Property, plant and equipment, net 118,379 70,375 -- 188,754
Deferred income taxes 5,577 (3,916) -- 1,661
Investment in affiliated company 1,758 -- -- 1,758
Deferred financing costs, net 3,439 -- -- 3,439
Goodwill and other non-amortizable assets -- 11,849 -- 11,849
Amortizable intangible assets, net -- 4,023 -- 4,023
Deferred turnaround costs & other assets, net 6,061 1,030 (1,171) 5,920
--------- --------- --------- ---------
$ 329,135 $ 146,622 $(116,876) $ 358,881
========= ========= ========= =========
Liabilities and Stockholder's Equity
Current:
Revolving credit facility $ 30,000 $ -- $ -- $ 30,000
Current installments of long-term debt 88 151 -- 239
Accounts payable 18,734 11,839 -- 30,573
Accrued liabilities 19,286 4,202 -- 23,488
Sales, use and fuel taxes payable 13,480 3,037 -- 16,517
Deferred income taxes 4,955 (721) -- 4,234
Amounts due to affiliated companies, net 571 606 -- 1,177
Intercompany -- 115,705 (115,705) --
--------- --------- --------- ---------
Total current liabilities 87,114 134,819 (115,705) 106,228
Long term debt: less current installments 180,449 1,362 -- 181,811
Deferred income taxes -- -- -- --
Deferred gain on settlement of pension 1,291 -- -- 1,291
plan obligations
Deferred retirement benefits 21,977 1,561 -- 23,538
Other noncurrent liabilities -- 2,035 -- 2,035
--------- --------- --------- ---------
Total liabilities 290,831 139,777 (115,705) 314,903
--------- --------- --------- ---------
Commitment and contingencies
Stockholder's equity
Common stock, $.10 par value per share -
shares authorized 100; issued and
outstanding 100 -- 18 (18) --
Additional paid-in capital 7,150 10,651 (1,153) 16,648
Retained earnings 31,244 (3,824) -- 27,420
Accumulated other
comprehensive loss (90) -- -- (90)
--------- --------- --------- ---------
Total stockholder's equity 38,304 6,845 (1,171) 43,978
--------- --------- --------- ---------
$ 329,135 $ 146,622 $(116,876) $ 358,881
========= ========= ========= =========
August 31, 2002
-------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
Assets
Current:
Cash and cash equivalents $ 4,254 $ 9,261 $ -- $ 13,515
Accounts receivable, net 22,584 11,281 -- 33,865
Inventories 71,939 21,628 -- 93,567
Prepaid expenses and other assets 8,574 2,605 -- 11,179
Refundable income taxes 3,300 -- -- 3,300
Deferred income taxes -- -- -- --
Intercompany 93,867 18,892 (112,759) --
--------- --------- --------- ---------
Total current assets 204,518 63,667 (112,759) 155,426
Property, plant and equipment, net 118,840 71,054 -- 189,894
Deferred income taxes -- -- -- --
Investment in affiliated company 1,707 -- -- 1,707
Deferred financing costs, net 3,641 -- -- 3,641
Goodwill and other non-amortizable assets -- 11,849 -- 11,849
Amortizable intangible assets -- 4,170 -- 4,170
Deferred turnaround costs & other assets 4,891 1,033 (1,171) 4,753
--------- --------- --------- ---------
$ 333,597 $ 151,773 $(113,930) $ 371,440
========= ========= ========= =========
Liabilities and Stockholder's Equity
Current:
Revolving credit facility $ 24,314 $ -- $ -- $ 24,314
Current installments of long-term debt 86 150 -- 236
Accounts payable 34,384 16,263 -- 50,647
Accrued liabilities 10,083 3,919 -- 14,002
Sales, use and fuel taxes payable 15,228 3,289 -- 18,517
Deferred income taxes 5,746 (423) -- 5,323
Amounts due affiliated companies (640) 780 -- 140
Intercompany -- 112,759 (112,759) --
--------- --------- --------- ---------
Total current liabilities 89,201 136,737 (112,759) 113,179
Long term debt: less current installments 180,462 1,401 -- 181,863
Deferred income taxes (3,227) 3,587 -- 360
Deferred gain on settlement of pension 1,345 -- -- 1,345
plan obligations
Deferred retirement benefits 22,643 1,504 -- 24,147
Other noncurrent liabilities -- 2,350 -- 2,350
--------- --------- --------- ---------
Total liabilities 290,424 145,579 (112,759) 323,244
--------- --------- --------- ---------
Commitment and contingencies
Stockholder's equity
Common stock, $.10 par value per share -
shares authorized 100; issued and
outstanding 100 -- 18 (18) --
Additional paid-in capital 7,150 10,651 (1,153) 16,648
Retained earnings 36,113 (4,475) -- 31,638
Accumulated other
comprehensive loss (90) -- -- (90)
--------- --------- --------- ---------
Total stockholder's equity 43,173 6,194 (1,171) 48,196
--------- --------- --------- ---------
$ 333,597 $ 151,773 $(113,930) $ 371,440
========= ========= ========= =========
10
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statements of Operations
(in thousands)
Three Months Ended November 30, 2002
------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
Net sales $ 173,260 $ 176,557 $ (56,512) $ 293,305
Costs of goods sold 170,769 151,062 (56,512) 265,319
--------- --------- --------- ---------
Gross profit (loss) 2,491 25,495 -- 27,986
--------- --------- --------- ---------
Expenses:
Selling, general and administrative expenses 4,035 22,293 -- 26,328
Depreciation and amortization expenses 2,170 1,133 -- 3,303
--------- --------- --------- ---------
Total operating expenses 6,205 23,426 -- 29,631
--------- --------- --------- ---------
Operating income (loss) (3,714) 2,069 -- (1,645)
--------- --------- --------- ---------
Other income (expense):
Interest income 1,273 239 (1,502) 10
Interest expense (5,398) (1,315) 1,502 (5,211)
Other, net (270) 202 -- (68)
Equity in net earnings of affiliate 51 -- -- 51
--------- --------- --------- ---------
(4,344) (874) -- (5,218)
--------- --------- --------- ---------
Income (loss) before income tax expense (benefit) (8,058) 1,195 -- (6,863)
Income tax expense (benefit) (3,189) 544 -- (2,645)
--------- --------- --------- ---------
Net income (loss) $ (4,869) $ 651 $ -- $ (4,218)
========= ========= ========= =========
Three Months Ended November 30, 2001
------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
Net sales $ 158,156 $ 115,145 $ (44,797) $ 228,504
Costs of goods sold 169,691 98,490 (44,797) 223,384
--------- --------- --------- ---------
Gross profit (11,535) 16,655 -- 5,120
--------- --------- --------- ---------
Expenses:
Selling, general and administrative expenses 4,330 14,059 -- 18,389
Depreciation and amortization expenses 2,060 900 -- 2,960
--------- --------- --------- ---------
Total operating expenses 6,390 14,959 -- 21,349
--------- --------- --------- ---------
Operating income (loss) (17,925) 1,696 -- (16,229)
--------- --------- --------- ---------
Other income (expense):
Interest income 1,518 282 (1,560) 240
Interest expense (5,124) (1,315) 1,560 (4,879)
Other, net (524) 47 -- (477)
Equity in net earnings of affiliate 355 -- -- 355
--------- --------- --------- ---------
(3,775) (986) -- (4,761)
--------- --------- --------- ---------
Income (loss) before income tax expense (benefit) (21,700) 710 -- (20,990)
Income tax expense (benefit) (8,645) 275 -- (8,370)
--------- --------- --------- ---------
Net income (loss) $ (13,055) $ 435 $ -- $ (12,620)
========= ========= ========= =========
11
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Statements of Cash Flows
(in thousands)
Three Months Ended November 30, 2002
---------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
-------- ---------- ------------ ------------
Net cash provided by (used in) operating activities $ (6,770) $ (1,006) $ -- $ (7,776)
-------- -------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,709) (339) -- (2,048)
-------- -------- ------- --------
Net cash used in investing activities (1,709) (339) -- (2,048)
-------- -------- ------- --------
Cash flows from financing activities:
Net borrowings on revolving credit facility 5,686 -- -- 5,686
Principal reductions of long-term debt (11) (38) -- (49)
-------- -------- ------- --------
Net cash provided by (used in) financing activities 5,675 (38) -- 5,637
-------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents (2,804) (1,383) -- (4,187)
Cash and cash equivalents, beginning of year 4,254 9,261 -- 13,515
-------- -------- ------- --------
Cash and cash equivalents, end of period $ 1,450 $ 7,878 $ -- $ 9,328
======== ======== ======= ========
Three Months Ended November 30, 2001
---------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
-------- ---------- ------------ ------------
Net cash provided by (used in) operating activities $ (6,951) $ 1,350 $ -- $ (5,601)
-------- -------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,140) (1,172) -- (2,312)
-------- -------- ------- --------
Net cash used in investing activities (1,140) (1,172) -- (2,312)
-------- -------- ------- --------
Cash flows from financing activities:
Net borrowings on revolving credit facility -- -- -- --
Principal reductions of long-term debt -- (32) -- (32)
-------- -------- ------- --------
Net cash provided by (used in) financing activities -- (32) -- (32)
-------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents (8,091) 146 -- (7,945)
Cash and cash equivalents, beginning of year 29,197 6,027 -- 35,224
-------- -------- ------- --------
Cash and cash equivalents, end of period $ 21,106 $ 6,173 $ -- $ 27,279
======== ======== ======= ========
12
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. SEGMENTS OF BUSINESS
The Company is a petroleum refiner and marketer in its primary market area
of Western New York and Northwestern Pennsylvania. Operations are organized into
two business segments: wholesale and retail.
The wholesale segment is responsible for the acquisition of crude oil,
petroleum refining, and the marketing of petroleum products to wholesale and
industrial customers. The retail segment sells petroleum products and
convenience and grocery items through company owned gasoline stations and
convenience stores under the Kwik Fill(R), Red Apple Food Mart(R) and Country
Fair(R) brand names.
Intersegment revenues are calculated using estimated market prices and are
eliminated upon consolidation. Summarized financial information regarding the
Company's reportable segments is presented in the following tables (in
thousands):
THREE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED)
----------------------------
2002 2001
--------- ---------
Net Sales
Retail $ 175,659 $ 114,037
Wholesale 117,646 114,467
--------- ---------
$ 293,305 $ 228,504
========= =========
Intersegment Sales
Wholesale $ 55,614 $ 43,689
========= =========
Operating Income (Loss)
Retail $ 2,154 $ 1,916
Wholesale (3,799) (18,145)
--------- ---------
$ (1,645) $ (16,229)
========= =========
Depreciation and Amortization
Retail $ 1,071 $ 850
Wholesale 2,232 2,110
--------- ---------
$ 3,303 $ 2,960
========= =========
NOVEMBER 30, 2002
(UNAUDITED) AUGUST 31, 2002
----------------- ---------------
Total Assets
Retail $129,226 $127,712
Wholesale 230,376 243,728
-------- --------
$359,602 $371,440
======== ========
Capital Expenditures
Retail $ 310 $ 4,552
Wholesale 1,738 5,747
-------- --------
$ 2,048 $ 10,299
======== ========
13
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. BUSINESS COMBINATIONS
On December 21, 2001, the Company acquired 100% of the operation and
working capital assets of Country Fair. In accordance with Statement 142,
"Business Combination," the following schedule summarizes the acquired
intangible assets and goodwill included in the Company's retail business segment
disclosures (in thousands).
NOVEMBER 30, 2002
(UNAUDITED) AUGUST 31, 2002
------------------------------------------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
- ------------------------------------------------------------------------------------------------------------------
Amortizable intangible assets:
Vendor contracts $ 2,600 $ 341 $ 2,600 $ 248
Deed restrictions 800 24 800 21
Non-compete agreement 400 73 400 53
Leasehold covenants 1,537 99 1,537 68
-----------------------------------------------------------------
$ 5,337 $ 537 $ 5,337 $ 390
=================================================================
Non-amortizable assets:
Trade name 10,500 - 10,500 -
Goodwill 1,349 - 1,349 -
-----------------------------------------------------------------
$ 11,849 $ - $ 11,849 $ -
=================================================================
Amortization expense for the three months ended November 30, 2002
was $147,000.
Amortization expense for intangible assets subject to amortization for
each of the years in the five year period ending August 31, 2007 is estimated to
be $585,000 in 2003, 2004, and 2005, $582,000 in 2006, and $499,000 in 2007.
14
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
This document includes statements that constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and that are intended to come
within the safe harbor protection provided by those sections. By their nature,
all forward looking statements involve risk and uncertainties. Actual results
may differ materially from those contemplated by the forward looking statements
for a number of reasons.
Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge, investors and
prospective investors are cautioned that such statements are only projections
and that actual events or results may differ materially from those expressed in
any such forward-looking statements. In addition to the factors discussed
elsewhere in this report, the Company's actual consolidated quarterly or annual
operating results have been affected in the past, or could be affected in the
future, by additional factors, including, without limitation, general economic,
business and market conditions; risks and uncertainties with respect to the
actions of actual or potential competitive suppliers of refined petroleum
products in the Company's markets, the demand for and supply of crude oil and
refined products, the spread between market prices for refined products and
market prices for crude oil, the possibility of inefficiencies or shutdowns in
refinery operations or pipelines, the availability and cost of financing to the
Company, environmental, tax and tobacco legislation or regulation; volatility of
gasoline prices, margins and supplies; merchandising margins; customer traffic;
weather conditions; labor costs and the level of capital expenditures.
RECENT DEVELOPMENTS
Fiscal first quarter 2003 worldwide crude oil prices, as indicated by
prices of crude oil contracts on the New York Mercantile Exchange (NYMEX), have
stayed relatively flat ($28.91/BBL) following a volatile fiscal 2002, but have
increased by about 9% above fourth quarter fiscal 2002 ($26.48/BBL) and 15%
above first quarter fiscal 2002 ($25.07/BBL). NYMEX delivered month crude prices
have continued to increase about 12% from December 2002 to January 2003, or from
$26.21/BBL to $33.08/BBL, due to the Venezuelan strike, the increasing
likelihood of war in Iraq and the threat that any military action could hamper
crude exports from neighboring Saudi Arabia and Kuwait. NYMEX delivered month
crude oil contracts have increased 49% from a low of $19.40/BBL for crude
deliveries in January 2002 to an average of $28.91/BBL for the first quarter of
fiscal 2003. However, not all analysts believe that the current high crude
prices will continue much longer. In fact, early in the week of January 6, NYMEX
crude price for delivery in February fell more than $2/BBL based on indications
that OPEC is making an orchestrated effort to counter crude availability issues
and extra crude will be added to the system. The crude price may decrease
further and sharply if it becomes clear that military action in Iraq will not
hinder nearby oil exporters or if the Venezuelan situation is resolved.
Supporting this view are indications that US product inventories are steadily
rebuilding and that alternate crude supplies from other OPEC members should
mitigate the current demand-supply imbalance.
For the first quarter of fiscal 2003, the Company experienced a 22.0%
increase in retail diesel margins and a 2.9% decline in retail gasoline margins
compared to the fourth quarter of fiscal 2002. For the recent quarter compared
to the prior year quarter, retail diesel margins were 32.7% lower and retail
15
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
gasoline margins were 8.9% lower. Analysts expect refining margins to trend
above break-even levels, however they have concerns for the Iraq and Venezuela
situations that could cause tightening and higher cost feedstocks to erode
margins. Based on a 1-2% improvement in product demand, product inventories
remaining in the bottom half of their five-year range and normal weather
conditions, analysts expect average US refining margins to improve to a
"normalized" level compared to 2002.
The Company's monthly crude oil pricing is typically determined
approximately 30 days in advance of the pricing of products produced from crude.
Thus, the decline in the Company's purchased crude cost near the end of the
first fiscal quarter had the effect of reducing refinery gross margins as
products were produced from more expensive crude oil purchased the previous
month. Given the current high crude price and industry forecasted steady decline
in crude price for the remainder of fiscal 2003, narrow refinery gross margins
could continue for the near term.
The Company's results continued to be negatively influenced by the weaker
discounts on heavy sour crude oils. Since the refinery crude supply is comprised
of approximately equal proportions of sour and sweet crude, the difference
between their prices ("sweet-sour differential") impacts the costs of goods sold
and hence gross profit. For the recent quarter compared to the prior year
quarter, the Company realized a 16% decrease in the light/heavy crude price
differential. This differential is expected to remain essentially the same as
the average for the first fiscal quarter for the remainder of fiscal 2003. If
the Venezuelan crisis persists, resulting in the continued lack of availability
of the heavy Venezuelan crude oil, the differential could narrow creating a
negative impact on gross profit.
RESULTS OF OPERATIONS
The following table reflects the Company's financial and operating
highlights for the three month periods ended November 30, 2002 and 2001. All
percentage amounts were derived using the underlying data in thousands.
THREE MONTHS ENDED NOVEMBER 30,
-----------------------------------------------
2002 2001 % CHANGE
--------- --------- ---------
Net Sales
Retail $ 175,659 $ 114,037 54%
Wholesale 117,646 114,467 3%
--------- ---------
$ 293,305 $ 228,504
========= =========
Gross Profit / (Loss)
Retail $ 25,422 $ 16,739 52%
Wholesale 2,564 (11,619) 122%
--------- ---------
$ 27,986 $ 5,120
========= =========
Operating Expenses
Retail $ 23,268 $ 14,823 57%
Wholesale 6,363 6,526 (3%)
--------- ---------
$ 29,631 $ 21,349
========= =========
Operating Income (Loss)
Retail $ 2,154 $ 1,916 12%
Wholesale (3,799) (18,145) 79%
--------- ---------
$ (1,645) $ (16,229)
========= =========
16
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
NET SALES
November 30, 2002 vs. November 30, 2001
Retail sales increased during 2002 by $61.6 million, or 54% from $114.0
million in 2001 to $175.6 million in 2002. The retail sales increase was
primarily due to a $21.6 million increase in merchandise sales and a $40.0
million increase in petroleum sales. The petroleum sales increase results from a
28.5% increase in retail petroleum volume (on a same store basis and including
the Country Fair locations) and a 12.3% increase in retail selling prices (on a
same store basis and including the Country Fair locations).
Retail sales were increased by the acquisition of Country Fair in December
2001. Country Fair sales were $48.3 million of the $175.6 million for the three
months ended November 30, 2002. Country Fair sales volume contributed 18.8
million gallons to the total retail sales volume of 88.7 million gallons for the
three months ended November 30, 2002.
Wholesale sales increased during 2002 by $3.2 million or 3% from $114.5
million in 2001 to $117.7 million in 2002. The wholesale sales increase was due
to a 19.9% increase in wholesale prices offset by a 14.3% decrease in wholesale
volume.
17
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
COSTS OF GOODS SOLD
November 30, 2002 vs. November 30, 2001
Retail costs of goods sold increased during 2002 by $52.9 million or 54%
from $97.3 million in 2001 to $150.2 million in 2002. The increase in retail
costs of goods sold is largely attributed to the acquisition of Country Fair in
December 2001. Country Fair's costs of goods sold for the three months ended
November 30, 2002 was $38.9 million.
Wholesale costs of goods sold decreased during 2002 by $11.0 million or 9%
from $126.1 million in 2001 to $115.1 million in 2002. The decrease in wholesale
costs of goods sold was primarily due to a 19% reduction in crude runs offset by
a 14.5% increase in the Company's average crude oil purchase price for the three
months ended November 30, 2002 as compared to the prior year period. The
refinery throughput decrease for the first fiscal quarter of 2003 was due to a
scheduled maintenance turnaround resulting in a 21 day shutdown of units at the
refinery. Worldwide crude oil prices, as indicated by NYMEX crude oil contract
prices, increased 15.3% as compared to the prior year period. For the three
months ended November 30, 2002 costs of goods sold was negatively impacted by an
approximate $2.5 million decrease in the value of the Company's working
inventories on a market valuation basis, which increased costs of goods sold.
This was partially offset by a reduction in the LIFO reserve, which increased
the value of the Company's total inventories by $.6 million.
GROSS PROFIT / (LOSS)
November 30, 2002 vs. November 30, 2001
Retail gross profit increased during 2002 by $8.7 million or 52% from
$16.7 million in 2001 to $25.4 million in 2002. Inclusive of Country Fair, the
Company increased its petroleum margins by $1.9 million and its merchandise
margin by $6.8 million. These margin increases were a result of 19.7 million
gallons of additional volume sold and $21.6 million in increased merchandise
sales.
Wholesale gross profit increased $14.2 million from ($11.6) million in
2001 to $2.6 million in 2002 for the three months ended November 30, 2001 and
2002, respectively. This increase was primarily due to the increase in wholesale
selling prices offset by a decrease in wholesale volume.
18
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
OPERATING EXPENSES
The following table presents certain information relative to the Company's
operating expenses for the three month periods ended November 30, 2002 and 2001:
THREE MONTHS ENDED NOVEMBER 30,
---------------------------------
2002 2001
------- -------
(IN THOUSANDS)
Selling, General and Administrative
Retail $22,197 $13,973
Wholesale 4,131 4,416
------- -------
$26,328 $18,389
======= =======
Depreciation and Amortization
Retail $ 1,071 $ 850
Wholesale 2,232 2,110
------- -------
$ 3,303 $ 2,960
======= =======
Total Operating Expenses
Retail $23,268 $14,823
Wholesale 6,363 6,526
------- -------
$29,631 $21,349
======= =======
November 30, 2002 vs. November 30, 2001
Retail operating expenses increased during 2002 by $8.4 million or 57%.
This increase was primarily due to the acquisition of Country Fair in December
2001. Country Fair's operating expenses for the three months ended November 30,
2002 were $7.7 million. Country Fair's operating expenses included $1.6 million
of rental expense primarily for the lease of fixed assets from related entities,
as well as leases to third parties. The remaining increases to operating
expenses were due to increased payroll and payroll costs
19
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
of $.4 million, increased pension/post retirement costs of $.1 million, and
increased credit/customer service costs of $.2 million.
Wholesale operating expenses decreased during 2002 by $.1 million.
NET INTEREST EXPENSE
Net interest expense (interest expense less interest income) increased by
$0.6 million from $4.6 million for the fiscal quarter ended November 30, 2001 to
$5.2 million for the fiscal quarter ended November 30, 2002. The increased net
interest expense was due to a $.2 million reduction in interest income earned,
$0.3 million increased interest expense for borrowings on the Company's
revolving credit facility and $.1 million increased interest expense for
capitalized lease obligations and taxes. This decline is primarily due to a
reduction in the state corporate income tax rate.
INCOME TAX EXPENSE / (BENEFIT)
The Company's effective tax rate for the fiscal quarter ended November 30,
2002 was approximately 38.5% compared to a rate of 39.9% for the fiscal quarter
ended November 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) at November 30,
2002 was $35.2 million and at August 31, 2002 was $42.2 million. The Company's
current ratio (current assets divided by current liabilities) was 1.3:1 at
November 30, 2002 and 1.4:1 at August 31, 2002.
Net cash used in operating activities totaled $7.8 million and $5.6
million for the three months ended November 30, 2002 and 2001, respectively. The
net cash used in operating activities for the three months ended November 30,
2002 results from a change in deferred income taxes of ($3.1) million, cash used
in working capital items of ($1.8), a change in post-retirement benefits of
($.6) million and a change in other, net of ($2.3) million.
Net cash used in investing activities for the purchase of property, plant
and equipment, totaled $2.0 million and $2.3 million for the three months ended
November 30, 2002 and 2001, respectively.
20
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
The Company reviews its capital expenditures on an ongoing basis.
Maintenance and non-discretionary capital expenditures have averaged
approximately $4 million annually over the last three years for the refining and
marketing operations. Management does not foresee any increase in maintenance
and non-discretionary capital expenditures during fiscal 2003. The Company
anticipates spending approximately $5 million as part of its Tier 2 Gasoline
Sulfur Program under 40 CFR Part 80, Subpart H during fiscal year 2003. Since
the bulk of this anticipated expenditure is near the fiscal year end, it is
possible a portion of this $5 million could actually occur during fiscal 2004.
Net cash provided by financing activities totaled $5.6 million for the
three months ended November 30, 2002 due to borrowings of $5.6 million on the
Company's revolving credit facility.
Future liquidity, both short and long-term, will continue to be primarily
dependent on realizing a refinery margin sufficient to cover fixed and variable
expenses, including planned capital expenditures. The Company expects to be able
to meet its working capital, capital expenditure and debt service requirements
out of cash flow from operations, cash on hand and borrowings under the
Company's secured revolving credit facility (the "facility") with PNC Bank, N.A.
as Agent Bank. This is a $50,000,000 revolving credit facility which was renewed
on July 12, 2002 and expires on May 9, 2007. At November 30, 2002, there was
approximately $19,200,000 unused and available on the facility. The facility is
secured by certain cash accounts, accounts receivable, and inventory. The
interest rate on borrowings varies with the Company's earnings and is based on
the higher of the bank's prime rate or Federal funds rate plus 1% plus a margin
for base rate borrowings and the LIBOR rate plus a margin for Euro-Rate
borrowings. As of November 30, 2002, the Company did not meet the criteria of
the facility's fixed charge coverage ratio. The Company has received a waiver of
this covenant from the participating banks in the facility for the fiscal
quarter ended November 30, 2002. The Company and the banks are currently
discussing further amendments to the facility.
In addition to these obligations, the Company had outstanding letters of
credit of $850,000.
We believe that funds generated by operations and the facility will
provide the financial resources sufficient to meet our foreseeable working
capital, letter of credit, contractual obligations, debt repayment and capital
expenditure requirements.
Although the Company is not aware of any pending circumstances which would
change its expectation, changes in the tax laws, the imposition of and changes
in federal and state clean air and clean fuel requirements and other changes in
environmental laws and regulations may also increase future capital expenditure
levels. Future capital expenditures are also subject to business conditions
affecting the industry. The Company continues to investigate strategic
acquisitions and capital improvements to its existing facilities.
Federal, state and local laws and regulations relating to the environment
affect nearly all the operations of the Company. As is the case with all the
companies engaged in similar industries, the Company faces significant exposure
from actual or potential claims and lawsuits involving environmental matters.
Future expenditures related to environmental matters cannot be reasonably
quantified in many circumstances due to the uncertainties as to required
remediation methods and related clean-up cost estimates. The Company cannot
predict what additional environmental legislation or regulations will be enacted
or become effective in the future or how existing or future laws or regulations
will be administered or interpreted with respect to products or activities to
which they have not been previously applied.
21
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
SEASONAL FACTORS
Seasonal factors affecting the Company's business may cause variation in
the prices and margins of some of the Company's products. For example, demand
for gasoline tends to be highest in spring and summer months, while demand for
home heating oil and kerosene tends to be highest in winter months.
As a result, the margin on gasoline prices versus crude oil costs
generally tends to increase in the spring and summer, while margins on home
heating oil and kerosene tend to increase in winter.
INFLATION
The effect of inflation on the Company has not been significant during the
last five fiscal years.
ITEM 4. CONTROLS AND PROCEDURES
Pursuant to Exchange Act Rules 13a-15 and 15d-15, within the 90 days prior
to the date of this report, the Company carried out an evaluation, under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operations of the Company's disclosure controls
and procedures. Based upon that evaluation, the principal executive officer and
principal financial officer concluded that the Company's disclosure controls and
procedures are effective. There have not been any significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of evaluation.
22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99.1 - Principal Executive Officer Certification
pursuant to 18 U.S.C.Section 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002) (filed herewith).
Exhibit 99.2 - Principal Executive Officer Certification
pursuant to 18 U.S.C. Section 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002) (filed herewith).
(b) No reports on Forms 8-K have been filed for the quarter
for which this report is being filed.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
UNITED REFINING COMPANY
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
KIANTONE PIPELINE CORPORATION
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
UNITED REFINING COMPANY OF PENNSYLVANIA
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
KIANTONE PIPELINE COMPANY
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
UNITED JET CENTER, INC.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
KWIK FILL CORPORATION
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
INDEPENDENT GASOLINE AND OIL COMPANY OF
ROCHESTER, INC.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
BELL OIL CORP.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
PPC, INC.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
SUPER TEST PETROLEUM, INC.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
KWIK-FIL, INC.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
VULCAN ASPHALT REFINING CORPORATION
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
35
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John A. Catsimatidis certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Refining
Company (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared:
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling
the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: January 14, 2003 Signature: /s/ John A. Catsimatidis
---------------- ---------------------------
Principal Executive Officer
36
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James E. Murphy certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Refining
Company (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared:
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling
the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: January 14, 2003 Signature: /s/ James E. Murphy
----------------- ---------------------------
Principal Financial Officer
37