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 February 28, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
April 14, 2003: 100.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
- ---------------------------------------------------------------------------------------------------------------------------------
TABLE OF ADDITIONAL REGISTRANTS
- ---------------------------------------------------------------------------------------------------------------------------------
Primary
Standard
State of Other Industrial IRS Employer
Jurisdiction of Classification Identification Commission
Name Incorporation Number Number File Number
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Kiantone Pipeline Corporation New York 4612 25-1211902 333-35083-01
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Kiantone Pipeline Company Pennsylvania 4600 25-1416278 333-35083-03
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United Refining Company of Pennsylvania Pennsylvania 5541 25-0850960 333-35083-02
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United Jet Center, Inc. Delaware 4500 52-1623169 333-35083-06
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Kwik Fill Corporation Pennsylvania 5541 25-1525543 333-35083-05
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Independent Gas and Oil Company of Rochester, Inc. New York 5170 06-1217388 333-35083-11
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Bell Oil Corp. Michigan 5541 38-1884781 333-35083-07
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PPC, Inc. Ohio 5541 31-0821706 333-35083-08
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Super Test Petroleum, Inc. Michigan 5541 38-1901439 333-35083-09
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Kwik-Fil, Inc. New York 5541 25-1525615 333-35083-04
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Vulcan Asphalt Refining Corporation Delaware 2911 23-2486891 333-35083-10
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2
PART I. FINANCIAL INFORMATION PAGE(S)
- ---------------------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
February 28, 2003 and August 31, 2002 4
Consolidated Statements of Operations -
Six Months and Quarters Ended February 28, 2003 and 2002 5
Consolidated Statements of Comprehensive Income (Loss) -
Six Months and Quarters Ended February 28, 2003 and 2002 6
Consolidated Statements of Cash Flows -
Six Months Ended February 28, 2003 and 2002 7
Notes to Consolidated Financial Statements 8-18
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19-28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Item 4. Controls and Procedures 30
PART II. OTHER INFORMATION 31
- -----------------------------------------
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.
3
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
FEBRUARY 28,
2003 AUGUST 31,
(UNAUDITED) 2002
-------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 9,969 $ 13,515
Accounts receivable, net 35,849 33,865
Inventories 103,224 93,567
Prepaid expenses and other assets 12,462 11,179
Refundable income taxes - 3,300
-------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 161,504 155,426
PROPERTY, PLANT AND EQUIPMENT, NET 187,202 189,894
INVESTMENT IN AFFILIATED COMPANY 1,975 1,707
DEFERRED FINANCING COSTS, NET 3,337 3,641
GOODWILL AND OTHER NON-AMORTIZABLE ASSETS 11,849 11,849
AMORTIZABLE INTANGIBLE ASSETS, NET 3,877 4,170
DEFERRED TURNAROUND COSTS AND OTHER ASSETS, NET 8,402 4,753
-------------------------------------------------------------------------------------------------------------
$ 378,146 $ 371,440
=============================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Revolving credit facility $ 46,000 $ 24,314
Current installments of long-term debt 245 236
Accounts payable 38,610 50,647
Accrued liabilities 16,004 14,002
Sales, use and fuel taxes payable 14,247 18,517
Deferred income taxes 4,234 5,323
Amounts due to affiliated companies, net 825 140
-------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 120,165 113,179
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 181,741 181,863
DEFERRED INCOME TAXES 584 360
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 1,237 1,345
DEFERRED RETIREMENT BENEFITS 24,879 24,147
OTHER NONCURRENT LIABILITIES 1,900 2,350
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 330,506 323,244
-------------------------------------------------------------------------------------------------------------
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 31,082 31,638
Accumulated other comprehensive loss (90) (90)
-------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 47,640 48,196
-------------------------------------------------------------------------------------------------------------
$ 378,146 $ 371,440
=============================================================================================================
See notes to consolidated financial statements.
4
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
-----------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------------------------------------------------------------------------
NET SALES $ 311,429 $ 214,728 $ 604,734 $ 443,232
COSTS OF GOODS SOLD 269,887 189,310 535,206 412,694
----------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 41,542 25,418 69,528 30,538
----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative expenses 27,016 23,923 53,344 42,312
Depreciation and amortization expenses 3,303 2,998 6,606 5,958
----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 30,319 26,921 59,950 48,270
----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 11,223 (1,503) 9,578 (17,732)
----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense, net (5,262) (4,877) (10,463) (9,516)
Other, net (220) (317) (288) (794)
Equity in net earnings of affiliate 217 235 268 590
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(5,265) (4,959) (10,483) (9,720)
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INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 5,958 (6,462) (905) (27,452)
INCOME TAX EXPENSE (BENEFIT) 2,296 (2,610) (349) (10,980)
----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3,662 $ (3,852) $ (556) $ (16,472)
============================================================================================================================
See notes to consolidated financial statements.
5
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3,662 $ (3,852) $ (556) $ (16,472)
OTHER COMPREHENSIVE LOSS:
Minimum pension liability, net of taxes - - - -
-------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 3,662 $ (3,852) $ (556) $ (16,472)
===============================================================================================================================
See notes to consolidated financial statements.
6
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
FEBRUARY 28,
------------------------------------------------------
2003 2002
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (556) $ (16,472)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 8,429 7,628
Equity in net earnings of affiliate (268) (590)
Change in deferred income taxes (865) (4,474)
Loss on asset dispositions 39 210
Cash used in working capital items (23,244) (9,233)
Change in operating assets and liabilities:
Deferred retirement benefits 732 718
Other, net (450) (187)
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TOTAL ADJUSTMENTS (15,627) (5,928)
-------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (16,183) (22,400)
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired - (16,900)
Additions to property, plant and equipment (3,659) (4,499)
Additions to deferred turnaround costs (5,277) (973)
Proceeds from asset dispositions - 2
-------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,936) (22,370)
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving credit facility 21,686 20,000
Dividends - (2,130)
Deferred financing costs - (42)
Principal reductions of long-term debt (113) (63)
-------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,573 17,765
-------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,546) (27,005)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,515 35,224
-------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,969 $ 8,219
=========================================================================================================================
CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net $ (1,984) $ 13,689
Inventories (9,657) (16,928)
Prepaid expenses and other assets (1,283) (1,888)
Accounts payable (12,037) 3,863
Accrued liabilities 2,002 (378)
Amounts due to affiliated companies, net 685 (1,679)
Income taxes payable - (2,533)
Refundable income taxes 3,300 -
Sales, use and fuel taxes payable (4,270) (3,379)
-------------------------------------------------------------------------------------------------------------------------
CASH USED IN WORKING CAPITAL ITEMS $ (23,244) $ (9,233)
=========================================================================================================================
See notes to consolidated financial statements.
7
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND The consolidated financial statements
BASIS OF PRESENTATION include the accounts of United Refining
Company and its subsidiaries, United
Refining Company of Pennsylvania and its
subsidiaries, and Kiantone Pipeline
Corporation (collectively, the
"Company"). All significant intercompany
balances and transactions have been
eliminated in consolidation.
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.
United Refining Company is a
wholly-owned subsidiary of United
Refining, Inc., a wholly-owned
subsidiary of United Acquisition
Corporation which, in turn is a
wholly-owned subsidiary of Red Apple
Group, Inc.
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 and six
month periods ended February 28, 2003
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 included in the Company's Form
10-K filing dated November 27, 2002.
2. INTANGIBLE ASSETS AND Effective July 1, 2001, the Company
GOODWILL adopted certain provisions of Financial
Accounting Standards Board ("FASB") No.
141, "Business Combinations,"
("Statement 141") and effective
September 1, 2002 the Company adopted
the full provisions of Statement 141 and
Statement 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 142 requires, among other
things, that companies no longer
amortize goodwill and certain indefinite
lived intangible assets
8
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
but instead test goodwill and certain
indefinite lived intangible assets for
impairment at least annually in
accordance with the guidance in
Statement 142. 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.
The Company acquired 100% of the
operations and working capital assets of
County Fair, Inc. on December 21, 2001.
The goodwill and certain intangible
assets acquired therewith were not
subject to amortization in accordance
with Statement 142. Consequently,
historic earnings as previously reported
were not affected by the adoption of
Statement 142 and no disclosures are
required pursuant to Accounting
Principles Board ("APB") Opinion No. 20,
"Accounting Changes".
In conjunction with the implementation
of Statement 142, the Company has
completed the transitional impairment
review. Statement 142 prescribes a
two-step process for impairment testing
of goodwill. The first step of this
test, used to identify impairment,
compares the fair value of a reporting
unit with its carrying amount including
goodwill. The second step (if
necessary), measures the amount of the
impairment. Using the guidance in
Statement 142, the Company has
determined that its subsidiary, Country
Fair, Inc. is a reporting unit. The
Company's transitional goodwill
impairment test indicated that the fair
value of the reporting unit exceeded the
reporting unit's carrying amount;
accordingly, the second step was not
necessary. The Company has noted no
subsequent indicators that would require
testing goodwill for impairment.
There were no changes in the carrying
amount of goodwill for the six months
ended February 28, 2003.
As of February 28, 2003 and August 31,
2002, the Company's intangible assets
and goodwill, included in the Company's
retail business, were as follows:
9
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
FEBRUARY 28, 2003 AUGUST 31, 2002
--------------------------------------------------------------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
- ----------------------------------------------------------------------------------------------------------------------------
Amortizable intangible assets:
Vendor contracts $ 2,600 $ 433 $ 2,600 $ 248
Deed restrictions 800 38 800 21
Non-compete agreement 400 93 400 53
Leasehold covenants 1,537 119 1,537 68
--------------------------------------------------------------------------------------
$ 5,337 $ 683 $ 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 and
six month periods ended February 28,
2003 was $146,000 and $293,000,
respectively.
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.
3. RECENT ACCOUNTING STANDARDS In June 2001, the FASB 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
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.
10
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
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.
11
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
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 adoption of Interpretation 45 did
not have a material impact on the
Company's financial position or results
of operations.
In January 2003, the FASB issued
Interpretation No. 46, "Consolidation of
Variable Interest Entities"
("Interpretation 46"). Interpretation 46
clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated
Financial Statements", to certain
entities in which equity investors do
not have the characteristics of a
controlling financial interest or do not
have sufficient equity at risk for the
entity to finance its activities without
additional subordinated financial
support from other parties.
Interpretation 46 is applicable
immediately for variable interest
entities created after January 31, 2003.
For variable interest entities created
prior to January 31, 2003, the
provisions of Interpretation 46 are
applicable no later than July 31, 2003.
The Company does not expect the adoption
of Interpretation 46 to have an effect
on its financial position or results of
operations.
4. INVENTORIES Inventories consist of the following:
FEBRUARY 28, 2003 AUGUST 31, 2002
- -----------------------------------------------------------------------------------------------------------
Crude Oil $ 27,266 $ 26,384
Petroleum Products 46,543 38,407
-----------------------------------------------------------
Total @ LIFO 73,809 64,791
-----------------------------------------------------------
Merchandise 15,598 15,362
Supplies 13,817 13,414
-----------------------------------------------------------
Total @ FIFO 29,415 28,776
-----------------------------------------------------------
Total Inventory $ 103,224 $ 93,567
===========================================================
12
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
5. CREDIT FACILITY As of February 28, 2003, the Company did
not meet the criteria of the facility's
fixed charge coverage ratio as defined
in the Credit Agreement dated July 12,
2002, as amended November 27, 2002,
February 19, 2003 and March 24, 2003,
expiring on May 9, 2007. The Company has
received a waiver for compliance with
this covenant from the participating
banks in the facility for the four
quarters ended February 28, 2003.
Concurrent with this waiver, both
parties have amended the facility
allowing for a temporary increase in the
credit facility commitment from
$50,000,000 to $70,000,000. From the
effective date of the amendment to and
including July 31, 2003, the credit
facility commitment will be $70,000,000.
From August 1, 2003 through and
including September 30, 2003, the credit
facility commitment will be $60,000,000.
After September 30, 2003, the credit
facility commitment will be reduced to
its original $50,000,000. Additionally,
the amendment revised select covenant
calculations, including the fixed charge
coverage ratio and redefined select
definitions.
6. 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 issuer and its
wholly owned subsidiary guarantors is as
follows:
13
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Condensed Consolidating Balance Sheets
(in thousands)
February 28, 2003
---------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
---------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 2,857 $ 7,112 $ - $ 9,969
Accounts receivable, net 25,264 10,585 - 35,849
Inventories 80,661 22,563 - 103,224
Prepaid expenses and other assets 6,876 5,586 - 12,462
Refundable income taxes - - - -
Intercompany 101,675 19,324 (120,999) -
---------------------------------------------------------------------
Total current assets 217,333 65,170 (120,999) 161,504
Property, plant and equipment, net 117,543 69,659 - 187,202
Investment in affiliated company 1,975 - - 1,975
Deferred financing costs, net 3,337 - - 3,337
Goodwill and other non-amortizable assets - 11,849 - 11,849
Amortizable intangible assets, net - 3,877 - 3,877
Deferred turnaround costs & other assets, net 8,433 1,140 (1,171) 8,402
---------------------------------------------------------------------
$ 348,621 $ 151,695 $ (122,170) $ 378,146
=====================================================================
Liabilities and Stockholder's Equity
Current:
Revolving credit facility $ 46,000 $ - $ - $ 46,000
Current installments of long-term debt 92 153 - 245
Accounts payable 27,799 10,811 - 38,610
Accrued liabilities 12,178 3,826 - 16,004
Sales, use and fuel taxes payable 11,652 2,595 - 14,247
Deferred income taxes 4,955 (721) - 4,234
Amounts due to affiliated companies, net 629 196 - 825
Intercompany - 120,999 (120,999) -
---------------------------------------------------------------------
Total current liabilities 103,305 137,859 (120,999) 120,165
Long term debt: less current installments 180,418 1,323 - 181,741
Deferred income taxes (3,343) 3,927 - 584
Deferred gain on settlement of pension 1,237 - - 1,237
plan obligations
Deferred retirement benefits 23,265 1,614 - 24,879
Other noncurrent liabilities - 1,900 - 1,900
---------------------------------------------------------------------
Total liabilities 304,882 146,623 (120,999) 330,506
---------------------------------------------------------------------
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 36,679 (5,597) - 31,082
Accumulated other
comprehensive loss (90) - - (90)
---------------------------------------------------------------------
Total stockholder's equity 43,739 5,072 (1,171) 47,640
---------------------------------------------------------------------
$ 348,621 $ 151,695 $ (122,170) $ 378,146
=====================================================================
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
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
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, net - 4,170 - 4,170
Deferred turnaround costs & other assets, net 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 to affiliated companies, net (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
=======================================================================
14
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Operations
(in thousands)
Three Months Ended February 28, 2003
----------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
----------------------------------------------------------------------
Net sales $ 201,020 $ 171,409 $ (61,000) $ 311,429
Costs of goods sold 181,596 149,291 (61,000) 269,887
----------------------------------------------------------------------
Gross profit 19,424 22,118 - 41,542
----------------------------------------------------------------------
Expenses:
Selling, general and administrative expenses 4,082 22,934 - 27,016
Depreciation and amortization expenses 2,170 1,133 - 3,303
----------------------------------------------------------------------
Total operating expenses 6,252 24,067 - 30,319
----------------------------------------------------------------------
Operating income (loss) 13,172 (1,949) - 11,223
----------------------------------------------------------------------
Other income (expense):
Interest expense, net (4,206) (1,056) - (5,262)
Other, net (335) 115 - (220)
Equity in net earnings of affiliate 217 - - 217
----------------------------------------------------------------------
(4,324) (941) - (5,265)
----------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 8,848 (2,890) - 5,958
Income tax expense (benefit) 3,413 (1,117) - 2,296
----------------------------------------------------------------------
Net income (loss) $ 5,435 $ (1,773) $ - $ 3,662
======================================================================
Three Months Ended February 28, 2002
----------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
----------------------------------------------------------------------
Net sales $ 125,198 $ 126,348 $ (36,818) $ 214,728
Costs of goods sold 118,067 108,061 (36,818) 189,310
----------------------------------------------------------------------
Gross profit 7,131 18,287 - 25,418
----------------------------------------------------------------------
Expenses:
Selling, general and administrative expenses 4,279 19,644 - 23,923
Depreciation and amortization expenses 2,060 938 - 2,998
----------------------------------------------------------------------
Total operating expenses 6,339 20,582 - 26,921
----------------------------------------------------------------------
Operating income (loss) 792 (2,295) - (1,503)
----------------------------------------------------------------------
Other income (expense):
Interest expense, net (3,993) (884) - (4,877)
Other, net (443) 126 - (317)
Equity in net earnings of affiliate 235 - - 235
----------------------------------------------------------------------
(4,201) (758) - (4,959)
----------------------------------------------------------------------
Income (loss) before income tax expense (benefit) (3,409) (3,053) - (6,462)
Income tax expense (benefit) (1,412) (1,198) - (2,610)
----------------------------------------------------------------------
Net income (loss) $ (1,997) $ (1,855) $ - $ (3,852)
======================================================================
15
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Operations
(in thousands)
Six Months Ended February 28, 2003
----------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
----------------------------------------------------------------------
Net sales $ 374,280 $ 347,966 $ (117,512) $ 604,734
Costs of goods sold 352,365 300,353 (117,512) 535,206
----------------------------------------------------------------------
Gross profit (loss) 21,915 47,613 - 69,528
----------------------------------------------------------------------
Expenses:
Selling, general and administrative expenses 8,117 45,227 - 53,344
Depreciation and amortization expenses 4,340 2,266 - 6,606
----------------------------------------------------------------------
Total operating expenses 12,457 47,493 - 59,950
----------------------------------------------------------------------
Operating income (loss) 9,458 120 - 9,578
----------------------------------------------------------------------
Other income (expense):
Interest expense, net (8,331) (2,132) - (10,463)
Other, net (605) 317 - (288)
Equity in net earnings of affiliate 268 - - 268
----------------------------------------------------------------------
(8,668) (1,815) - (10,483)
----------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 790 (1,695) - (905)
Income tax expense (benefit) 224 (573) - (349)
----------------------------------------------------------------------
Net income (loss) $ 566 $ (1,122) $ - $ (556)
======================================================================
Six Months Ended February 28, 2002
----------------------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
----------------------------------------------------------------------
Net sales $ 283,354 $ 241,493 $ (81,615) $ 443,232
Costs of goods sold 287,758 206,551 (81,615) 412,694
----------------------------------------------------------------------
Gross profit (loss) (4,404) 34,942 - 30,538
----------------------------------------------------------------------
Expenses:
Selling, general and administrative expenses 8,609 33,703 - 42,312
Depreciation and amortization expenses 4,120 1,838 - 5,958
----------------------------------------------------------------------
Total operating expenses 12,729 35,541 - 48,270
----------------------------------------------------------------------
Operating income (loss) (17,133) (599) - (17,732)
----------------------------------------------------------------------
Other income (expense):
Interest expense, net (7,599) (1,917) - (9,516)
Other, net (967) 173 - (794)
Equity in net earnings of affiliate 590 - - 590
----------------------------------------------------------------------
(7,976) (1,744) - (9,720)
----------------------------------------------------------------------
Income (loss) before income tax expense (benefit) (25,109) (2,343) - (27,452)
Income tax expense (benefit) (10,057) (923) - (10,980)
----------------------------------------------------------------------
Net income (loss) $ (15,052) $ (1,420) $ - $ (16,472)
======================================================================
16
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Cash Flows
(in thousands)
Six Months Ended February 28, 2003
--------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
--------------------------------------------------------
Net cash provided by (used in) operating activities $ (14,727) $ (1,456) $ - $ (16,183)
--------------------------------------------------------
Cash flows from investing activities:
Purchase of business, net of cash acquired - - - -
Additions to property, plant and equipment (3,042) (617) - (3,659)
Additions to deferred turnaround costs (5,277) - - (5,277)
Proceeds from asset dispositions - - - -
--------------------------------------------------------
Net cash used in investing activities (8,319) (617) - (8,936)
--------------------------------------------------------
Cash flows from financing activities:
Net borrowings on revolving credit facility 21,686 - - 21,686
Dividends - - - -
Deferred financing costs - - - -
Principal reductions of long-term debt (37) (76) - (113)
--------------------------------------------------------
Net cash provided by (used in) financing activities 21,649 (76) - 21,573
--------------------------------------------------------
Net decrease in cash and cash equivalents (1,397) (2,149) - (3,546)
Cash and cash equivalents, beginning of year 4,254 9,261 - 13,515
--------------------------------------------------------
Cash and cash equivalents, end of period $ 2,857 $ 7,112 $ - $ 9,969
========================================================
Six Months Ended February 28, 2002
-------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
-------------------------------------------------------
Net cash provided by (used in) operating activities $ (22,967) $ 567 $ - $ (22,400)
-------------------------------------------------------
Purchase of business, net of cash acquired (17,281) 381 - (16,900)
Additions to property, plant and equipment (2,609) (1,890) - (4,499)
Additions to deferred turnaround costs (973) - - (973)
Proceeds from asset dispositions - 2 - 2
-------------------------------------------------------
Net cash used in investing activities (20,863) (1,507) - (22,370)
-------------------------------------------------------
Cash flows from financing activities:
Net borrowings on revolving credit facility 20,000 - - 20,000
Dividends (2,130) - - (2,130)
Deferred financing costs (42) - - (42)
Principal reductions of long-term debt - (63) - (63)
-------------------------------------------------------
Net cash provided by (used in) financing activities 17,828 (63) - 17,765
-------------------------------------------------------
Net decrease in cash and cash equivalents (26,002) (1,003) - (27,005)
Cash and cash equivalents, beginning of year 29,197 6,027 - 35,224
-------------------------------------------------------
Cash and cash equivalents, end of period $ 3,195 $ 5,024 $ - $ 8,219
=======================================================
17
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
7. SEGMENTS OF BUSINESS
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 SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------------------------------------------------------------------------
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales
Retail $ 170,255 $ 125,171 $ 345,914 $ 239,208
Wholesale 141,174 89,557 258,820 204,024
----------------------------------------------------------------------------------------
$ 311,429 $ 214,728 $ 604,734 $ 443,232
========================================================================================
Intersegment Sales
Wholesale $ 59,846 $ 35,641 $ 115,460 $ 79,330
========================================================================================
Operating Income (Loss)
Retail $ (2,482) $ (2,603) $ (328) $ (687)
Wholesale 13,705 1,100 9,906 (17,045)
----------------------------------------------------------------------------------------
$ 11,223 $ (1,503) $ 9,578 $ (17,732)
========================================================================================
Depreciation and Amortization
Retail $ 1,071 $ 888 $ 2,142 $ 1,738
Wholesale 2,232 2,110 4,464 4,220
----------------------------------------------------------------------------------------
$ 3,303 $ 2,998 $ 6,606 $ 5,958
========================================================================================
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------------------------------------------------------------------------------
Total Assets
Retail $ 126,864 $ 127,712
Wholesale 251,282 243,728
----------------------------------------------------------------
$ 378,146 $ 371,440
================================================================
Capital Expenditures
Retail $ 433 $ 4,552
Wholesale 3,226 5,747
----------------------------------------------------------------
$ 3,659 $ 10,299
================================================================
18
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. 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
Worldwide crude oil prices, as indicated by prices of crude oil
contracts on the New York Mercantile Exchange (NYMEX), increased steadily from
December 2002 at $26.21/BBL to February 2003 at $32.70/BBL or by about 25%. For
the recent quarter compared to the prior year quarter, crude prices have
increased about 50% from $19.60/BBL to $29.43/BBL. NYMEX Crude oil prices appear
to have peaked in mid March for April crude delivery just before the start of
the Iraqi war before dropping after the start of the Iraqi war. The March
average calendar month NYMEX crude price was $35.73/BBL, the highest since
$35.92/BBL in November 1990.
Since the start of the Iraqi war in mid March, the crude prices have
dropped as much as $8/BBL, but recovered about $2/BBL by late March. The recent
crude price market is changing as expectations for the length of the conflict
changes. Recent estimates are that the war will last longer than first thought,
resulting in a short-term increase in crude prices due to supply concerns in the
Middle East.
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 steady increase in the Company's purchased crude cost during the
second fiscal quarter had the effect of increasing refinery gross margins as
products were produced from less expensive crude oil purchased the previous
month. Given the recent drop in crude price and the industry forecasted steady
decline in crude price for the remainder of fiscal 2003, the Company expects
narrower refinery margins in the third fiscal quarter with a return to strong
refinery margins in the fourth quarter.
The Company's results continued to be negatively influenced by the
weaker discounts on heavy sour crude oils compared to fiscal 2001 and the first
half of fiscal 2002. 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
19
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
quarter compared to the prior year quarter, the Company realized a 15% decrease
in the light/heavy crude price differential. The future trend for this
differential is somewhat uncertain given world turmoil in key oil areas -
including a strike in Nigeria, the war in Iraq, the availability of the heavy
Venezuelan crude oil, and the delivery of Saudi crude to the U.S.
Cold winter weather and strong gasoline demand helped improve refining
margins during the second quarter of fiscal 2003. The direction of the economy
will be a major factor in the health of downstream margins for the remainder of
this year. The duration and outcome of the Iraqi war will play a primary role in
the course of the economy, as well as crude prices. Shortly before the war in
Iraq began, analysts expressed confidence that the recovery in refining margins
would persist for several quarters especially if oil prices fall based on recent
sharp declines in product inventories. Tight U.S. refining capacity, high
capital costs to comply with clean air regulations, changes in product
specifications, and continued industry consolidation are main reasons for
analysts' expectation that margins will be strong for the next several years.
Crude and product stocks are at historically low levels due to the
strike in Venezuela, a colder-than-expected winter and high product demand. Cold
winter weather delayed some refiners' transition to gasoline production, instead
producing more heating oil. As gasoline stocks continue to be tight, the
likelihood of starting the summer driving season with modest gasoline supply and
high refining margins increases.
For the second quarter of fiscal 2003, the Company experienced a 30.8%
decline in retail diesel margins and a 12.0% decline in retail gasoline margins
compared to the first quarter of fiscal 2003. For the second quarter of fiscal
2003 compared to the prior year quarter, retail diesel margins were 22.4% lower
and retail gasoline margins were 21.6% higher.
RESULTS OF OPERATIONS
The following table reflects the Company's financial and operating
highlights for the three and six month periods ended February 28, 2003 and 2002
(in thousands).
20
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED FEBRUARY 28, SIX MONTHS ENDED FEBRUARY 28,
----------------------------------------- ----------------------------------------
2003 2002 2003 2002
----------------------------------------- ----------------------------------------
Net Sales
Retail $ 170,255 $ 125,171 $ 345,914 $ 239,208
Wholesale 141,174 89,557 258,820 204,024
----------------------------------------- ----------------------------------------
$ 311,429 $ 214,728 $ 604,734 $ 443,232
========================================= ========================================
Gross Profit / (Loss)
Retail $ 21,431 $ 17,844 $ 46,853 $ 34,583
Wholesale 20,111 7,574 22,675 (4,045)
----------------------------------------- ----------------------------------------
$ 41,542 $ 25,418 $ 69,528 $ 30,538
========================================= ========================================
Operating Expenses:
Selling, General & Administrative
Retail $ 22,842 $ 19,559 $ 45,039 $ 33,532
Wholesale 4,174 4,364 8,305 8,780
----------------------------------------- ----------------------------------------
$ 27,016 $ 23,923 $ 53,344 $ 42,312
========================================= ========================================
Depreciation & Amortization
Retail $ 1,071 $ 888 $ 2,142 $ 1,738
Wholesale 2,232 2,110 4,464 4,220
----------------------------------------- ----------------------------------------
$ 3,303 $ 2,998 $ 6,606 $ 5,958
========================================= ========================================
Total Operating Expenses
Retail $ 23,913 $ 20,447 $ 47,181 $ 35,270
Wholesale 6,406 6,474 12,769 13,000
----------------------------------------- ----------------------------------------
$ 30,319 $ 26,921 $ 59,950 $ 48,270
========================================= ========================================
Operating Income / (Loss)
Retail $ (2,482) $ (2,603) $ (328) $ (687)
Wholesale 13,705 1,100 9,906 (17,045)
----------------------------------------- ----------------------------------------
$ 11,223 $ (1,503) $ 9,578 $ (17,732)
========================================= ========================================
All percentage amounts referred to below were derived using underlying data in
thousands.
COMPARISON OF FISCAL QUARTERS ENDED FEBRUARY 28, 2003 AND FEBRUARY 28, 2002
NET SALES
Retail sales increased during 2003 by $45.1 million, or 36% from $125.2
million to $170.3 million. The retail sales increase was primarily due to a $7.1
million increase in merchandise sales and a $38.0 million increase in petroleum
sales. The petroleum sales increase results from a 7.2% increase in retail
petroleum volume (on a same store basis and including the Country Fair
locations) and a 32.7% increase in retail selling prices (on a same store basis
and including the Country Fair locations).
21
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
On December 21, 2001, the Company acquired 100% of the operations and
working capital assets of Country Fair, Inc. ("Country Fair"). The fiscal
quarter ended February 28, 2003 was positively impacted by the additional sales
from Country Fair for the entire quarter versus the fiscal quarter ended
February 28, 2002 in which Country Fair sales were only included from the
acquisition date of December 21, 2001.
Wholesale sales increased during 2003 by $51.7 million or 58% from
$89.5 million to $141.2 million. The wholesale sales increase was due to a 58.1%
increase in wholesale prices offset by a .3% decrease in wholesale volume.
COSTS OF GOODS SOLD
Retail costs of goods sold increased during 2003 by $41.5 million or
39% from $107.3 million to $148.8 million. The increase in retail costs of goods
sold results from a $36.1 million or 44% increase in petroleum costs and a $5.4
million or 21% increase in merchandise costs. Retail operations for the three
months ended February 28, 2003 included Country Fair sales for the entire
quarter versus the fiscal quarter ended February 28, 2002 in which Country Fair
operations were only included from the acquisition date of December 21, 2001.
The increased merchandise costs coincide with the $7.1 million increase in
merchandise sales. Petroleum costs are due primarily to increased crude oil
prices combined with an increase in sales of retail petroleum volume and the
additional days of operation for Country Fair in the second fiscal quarter 2003.
Wholesale costs of goods sold increased during 2003 by $39.0 million or
48% from $82.0 million to $121.0 million. The increase in wholesale costs of
goods was primarily due to a 54.1% increase in the Company's average crude oil
purchase price for the three months ended February 28, 2003 as compared to the
prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil
contract prices, increased 50.2% as compared to the prior year period.
Offsetting costs of goods sold was a 3% reduction in crude runs for the three
months ended February 28, 2003 as compared to the prior year period. For the
three months ended February 28, 2003, costs of goods sold was positively
impacted by an approximate $10.2 million increase in the value of the Company's
working inventories on a market valuation basis, which decreased costs of goods
sold.
GROSS PROFIT / (LOSS)
Retail gross profit increased during 2003 by $3.6 million or 20% from
$17.8 million to $21.4 million. Inclusive of Country Fair, the Company increased
its petroleum margins by $2.4 million and its merchandise margin by $1.2
million. These margin increases were a result of 5.6 million gallons of
additional volume sold and $7.1 million in increased merchandise sales.
Wholesale gross profit increased $12.5 million from $7.6 million to
$20.1 million for the three months ended February 28, 2002 and 2003,
respectively. This increase was primarily due to the increase in wholesale
selling prices offset by a slight decrease in wholesale volume.
OPERATING EXPENSES
Retail operating expenses increased during 2003 by $3.4 million or 17%.
The increase was primarily related to costs associated with Country Fair for the
entire quarter versus the fiscal quarter ended February 28, 2002 in which
Country Fair operations were only included from the acquisition date of
22
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
December 21, 2001. Country Fair's operating expenses for the three months ended
February 28, 2003 increased $2.2 million. This increase in operating expenses is
primarily the result of the additional days of operation for Country Fair in
second fiscal quarter 2003 versus the same period prior year. The remaining
increases to operating expenses were due to increased payroll and payroll costs
of $.5 million, increased pension/post retirement costs of $.1 million,
increased credit/customer service costs of $.2 million, increased maintenance
costs of $.2 million and increased depreciation and amortization of $.2 million.
Wholesale operating expenses remained essentially the same for the
three months ended February 28, 2003 and February 28, 2002.
INTEREST EXPENSE, NET
Net interest expense (interest expense less interest income) increased
$0.4 million from $4.9 million for the fiscal quarter ended February 28, 2002 to
$5.3 million for the fiscal quarter ended February 28, 2003, primarily due to
increased borrowings on the Company's revolving credit facility.
INCOME TAX EXPENSE / (BENEFIT)
The Company's effective tax rate for the fiscal quarter ended February
28, 2002 was approximately 40.4% compared to a rate of 38.5% for the fiscal
quarter ended February 28, 2003, due to the relationship of permanent
differences to book income before tax.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2003 AND FEBRUARY 28, 2002
NET SALES
Retail sales increased during 2003 by $106.7 million, or 45% from
$239.2 million to $345.9 million. The retail sales increase was primarily due to
a $28.7 million increase in merchandise sales and a $78.0 million increase in
petroleum sales. The petroleum sales increase results from a 17.9% increase in
retail petroleum volume (on a same store basis and including the Country Fair
locations) and a 21.5% increase in retail selling prices (on a same store basis
and including the Country Fair locations).
On December 21, 2001 the Company acquired 100% of the operations and
working capital assets of Country Fair. The six months ended February 28, 2003
was positively impacted by the additional sales from Country Fair for the entire
period versus the six months ended February 28, 2002 in which Country Fair sales
were only included from the acquisition date of December 21, 2001.
Wholesale sales increased during 2003 by $54.8 million or 27% from
$204.0 million to $258.8 million. The wholesale sales increase was due to a
37.1% increase in wholesale prices offset by a 7.5% decrease in wholesale
volume.
COSTS OF GOODS SOLD
Retail costs of goods sold increased during 2003 by $94.5 million or
46% from $204.6 million to $299.1 million. The increase in retail costs of goods
sold results from a $74.3 million or 46% increase in
23
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
petroleum costs and a $20.2 million or 47% increase in merchandise costs. On
December 21, 2001 the Company acquired 100% of the operation and working capital
assets of Country Fair. The six months ended February 28, 2003 was impacted by
the additional sales from Country Fair for the entire period versus the six
months ended February 28, 2002 in which Country Fair sales were only included
from the acquisition date of December 21, 2001.
Wholesale costs of goods sold increased during 2003 by $28.0 million or
13% from $208.1 million to $236.1 million. The increase in wholesale costs of
goods was primarily due to a 32.2% increase in the Company's average crude oil
purchase price for the six months ended February 28, 2003 as compared to the
prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil
contract prices, increased 30.6% as compared to the prior year period.
Offsetting costs of goods sold was a 11% reduction in crude runs for the six
months ended February 28, 2003 as compared to the prior year period. The
refinery throughput decrease for the six months ended February 28, 2003 was due
to a scheduled maintenance turnaround resulting in a 21 day shutdown of units at
the refinery. For the six months ended February 28, 2003 costs of goods sold was
positively impacted by an approximate $7.8 million increase in the value of the
Company's working inventories on a market valuation basis, which decreased costs
of goods sold. The Company recorded a reduction in the LIFO reserve, which
increased the value of the Company's total inventories by $.6 million. In the
prior year period, LIFO exceeded market; thus, inventories were valued at net
realizable value.
GROSS PROFIT / (LOSS)
Retail gross profit increased during 2003 by $12.3 million or 35% from
$34.6 million to $46.9 million. Inclusive of Country Fair, the Company increased
its petroleum margins by $4.1 million and its merchandise margin by $8.2
million. These margin increases were a result of 26.3 million gallons of
additional volume sold and $28.7 million in increased merchandise sales.
Wholesale gross profit increased $26.7 million or 661% from ($4.0)
million to $22.7 million for the six months ended February 28, 2002 and 2003,
respectively. This increase was primarily due to the increase in wholesale
selling prices offset by a decrease in wholesale volume.
OPERATING EXPENSES
Retail operating expenses increased during 2003 by $11.9 million or
34%. Retail operations for the six months ended February 28, 2003 included
Country Fair for the entire period versus the six months ended February 28, 2002
in which Country Fair operations were only included from the acquisition date of
December 21, 2001. Country Fair's operating expenses for the six months ended
February 28, 2003 increased $9.9 million. This increase in operating expenses is
primarily the result of the additional days of operation for Country Fair during
the six months ended February 28, 2003 versus the same period prior year. The
remaining increases to operating expenses were due to increased payroll and
payroll costs of $.9 million, increased pension/post retirement costs of $.2
million, increased credit/customer service costs of $.4 million, increased
maintenance costs of $.3 million, increased depreciation and amortization of $.4
million offset by lower advertising costs of $.2 million.
Wholesale operating expenses remained essentially the same for the six
months ended February 28, 2003 and February 28, 2002.
24
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
INTEREST EXPENSE, NET
Net interest expense (interest expense less interest income) increased
$1.0 million from $9.5 million for the six months ended February 28, 2002 to
$10.5 million for the six months ended February 28, 2003. The increased net
interest expense was due to a $.3 million reduction in interest income earned,
$0.6 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.
INCOME TAX EXPENSE / (BENEFIT)
The Company's effective tax rate for the six months ended February 28,
2002 was approximately 40.0% compared to a rate of 38.6% for the six months
ended February 28, 2003, primarily due to the relationship of permanent
differences to book income before tax.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) at February
28, 2003 was $41.3 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 February 28, 2003 and 1.4:1 at August 31, 2002.
Net cash used in operating activities totaled $16.2 million and $22.4
million for the six months ended February 28, 2003 and 2002, respectively. The
net cash used in operating activities for the six months ended February 28, 2003
results from a net loss of ($.6) million, a change in deferred income taxes of
($.9) million, cash used in working capital items of ($23.2) million, a change
in other, net of ($.4) million, equity in net earnings of affiliate of ($.2)
million, offset by a change in deferred retirement benefits of $.7 million and
depreciation and amortization of $8.4 million.
Net cash used in investing activities totaled $8.9 million and $22.4
million for the six months ended February 28, 2003 and 2002, respectively.
Purchases of property, plant and equipment totaled $3.7 million for the six
months ended February 28, 2003. Additions to deferred turnaround costs and other
assets totaled $5.2 million.
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 $21.6 million for the
six months ended February 28, 2003 due from borrowings of $21.6 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
25
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
requirements out of cash flow from operations, cash on hand and borrowings under
the Company's secured revolving credit facility (the "credit 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, amended on November 27, 2002, February 19, 2003
and March 24, 2003 and expires on May 9, 2007. At February 28, 2003, there was
approximately $3,200,000 unused and available on the facility.
The credit 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 for base rate borrowings and the LIBOR rate for Euro-Rate
borrowings. As of February 28, 2003, the Company did not meet the criteria of
the facility's fixed charge coverage ratio as defined in the Credit Agreement.
The Company has received a waiver for compliance with this covenant from the
participating banks in the facility for the four quarters ended February 28,
2003. Concurrent with this waiver, both parties have amended the facility
allowing for a temporary increase in the credit facility commitment from
$50,000,000 to $70,000,000. From the effective date of the amendment to and
including July 31, 2003, the credit facility commitment will be $70,000,000.
From August 1, 2003 through and including September 30, 2003, the credit
facility commitment will be $60,000,000. After September 30, 2003, the credit
facility commitment will be reduced to its original $50,000,000. Additionally,
the amendment revised select covenant calculations, including the fixed charge
coverage ratio and redefined select definitions.
In addition to these obligations, the Company had outstanding letters
of credit of $850,000 as of February 28, 2003.
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.
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.
26
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
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.
RECENT ACCOUNTING STANDARDS
In June 2001, the FASB 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 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
27
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
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 adoption of Interpretation 45 did not have a material impact on the
Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("Interpretation 46"). Interpretation 46
clarifies the application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements", to certain entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Interpretation 46
is applicable immediately for variable interest entities created after January
31, 2003. For variable interest entities created prior to January 31, 2003, the
provisions of Interpretation 46 are applicable no later than July 31, 2003.
The Company does not expect the adoption of Interpretation 46 to have an
effect on its financial position or results of operations.
28
UNITED REFINING COMPANY
AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The Company uses its revolving credit facility to finance a portion of
its operations. These on-balance sheet financial instruments, to the extent they
provide for variable rates, expose the Company to interest rate risk resulting
from changes in the PNC Prime rate, the Federal Funds or LIBOR rate.
The Company has exposure to price fluctuations of crude oil and refined
products. The Company does not manage the price risk related to all of its
inventories of crude oil and refined products with a permanent formal hedging
program, but does manage its risk exposures by managing inventory levels. In
anticipation of the war in Iraq and consequent volatility of crude costs, the
Company did hedge approximately 700,000 bbls of May crude from March 7 through
March 20, 2003. The Company has since exited from this strategy, but it remains
available should management deem it necessary at a later date. At February 28,
2003, the Company was exposed to the risk of market price declines with respect
to a substantial portion of its crude oil and refined product inventories.
29
UNITED REFINING COMPANY
AND SUBSIDIARIES
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.
30
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) 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.
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: April 14, 2003
UNITED REFINING COMPANY
---------------------------------------
(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: April 14, 2003
KIANTONE PIPELINE CORPORATION
---------------------------------------
(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: April 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
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: April 14, 2003
KIANTONE PIPELINE COMPANY
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
35
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: April 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
36
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: April 14, 2003
KWIK FILL CORPORATION
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
37
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: April 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
38
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: April 14, 2003
BELL OIL CORP.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
39
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: April 14, 2003
PPC, INC.
----------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------
James E. Murphy
Chief Financial Officer
40
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: April 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
41
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: April 14, 2003
KWIK-FIL, INC.
---------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------
James E. Murphy
Chief Financial Officer
42
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: April 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
43
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
registrant's board of directors:
(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: April 14, 2003 Signature: /s/ John A. Catsimatidis
-------------- ------------------------
Principal Executive Officer
44
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
registrant's board of directors:
(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: April 14, 2003 Signature: /s/ James E. Murphy
----------------- --------------------
Principal Financial Officer
45