-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CaZknLRQyLiFy1dISCI+whoOt8yFBo0qD8vgrl4Tt99r3zRmFCaFztFkTO8nO1kl aj6Ol++x2pKuHOzGzFpamA== 0000950152-03-006833.txt : 20030715 0000950152-03-006833.hdr.sgml : 20030715 20030715164118 ACCESSION NUMBER: 0000950152-03-006833 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030531 FILED AS OF DATE: 20030715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIANTONE PIPELINE CO CENTRAL INDEX KEY: 0001045539 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-03 FILM NUMBER: 03787594 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED REFINING CO CENTRAL INDEX KEY: 0000101462 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 251411751 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06198 FILM NUMBER: 03787585 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIANTONE PIPELINE CORP CENTRAL INDEX KEY: 0000830253 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 251211902 STATE OF INCORPORATION: NY FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-01 FILM NUMBER: 03787593 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED REFINING CO /PA/ CENTRAL INDEX KEY: 0001040270 IRS NUMBER: 250850960 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-02 FILM NUMBER: 03787587 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KWIK FIL INC CENTRAL INDEX KEY: 0001045540 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-04 FILM NUMBER: 03787592 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KWIK FILL INC CENTRAL INDEX KEY: 0001045541 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-05 FILM NUMBER: 03787591 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED JET CENTER INC CENTRAL INDEX KEY: 0001045542 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-06 FILM NUMBER: 03787588 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL OIL CORP CENTRAL INDEX KEY: 0001045543 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-07 FILM NUMBER: 03787596 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPC INC CENTRAL INDEX KEY: 0001045544 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-08 FILM NUMBER: 03787590 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPER TEST PETROLEUM INC CENTRAL INDEX KEY: 0001045545 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-09 FILM NUMBER: 03787589 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VULCAN ASPHALT REFINING CORP CENTRAL INDEX KEY: 0001045546 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-10 FILM NUMBER: 03787586 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDEPENDENT GASOLINE & OIL CO OF ROCHESTER CENTRAL INDEX KEY: 0001045547 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-11 FILM NUMBER: 03787595 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 10-Q 1 j0191101e10vq.txt UNITED REFINING COMPANY 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 May 31, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------ ---------------------- Commission File No. 333-35083 UNITED REFINING COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1411751 - ------------------------------------ --------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 Bradley Street Warren, Pennsylvania 16365 - -------------------- ----- (address of principal (Zip Code) executive office) Registrant's telephone number, including area code 814-726-4674 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares outstanding of Registrant's Common Stock as of July 15, 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 File Name Incorporation Number Number Number - ------------------------------------------------------------------------------------------------------------------------------------ Kiantone Pipeline Corporation New York 4612 25-1211902 333-35083-01 - ---------------------------------------------------------------------------------------------------------------------------------- Kiantone Pipeline Company Pennsylvania 4600 25-1416278 333-35083-03 - ---------------------------------------------------------------------------------------------------------------------------------- United Refining Company of Pennsylvania Pennsylvania 5541 25-0850960 333-35083-02 - ---------------------------------------------------------------------------------------------------------------------------------- United Jet Center, Inc. Delaware 4500 52-1623169 333-35083-06 - ---------------------------------------------------------------------------------------------------------------------------------- Kwik Fill Corporation Pennsylvania 5541 25-1525543 333-35083-05 - ---------------------------------------------------------------------------------------------------------------------------------- Independent Gas and Oil Company of Rochester, Inc. New York 5170 06-1217388 333-35083-11 - ---------------------------------------------------------------------------------------------------------------------------------- Bell Oil Corp. Michigan 5541 38-1884781 333-35083-07 - ---------------------------------------------------------------------------------------------------------------------------------- PPC, Inc. Ohio 5541 31-0821706 333-35083-08 - ---------------------------------------------------------------------------------------------------------------------------------- Super Test Petroleum, Inc. Michigan 5541 38-1901439 333-35083-09 - ---------------------------------------------------------------------------------------------------------------------------------- Kwik-Fil, Inc. New York 5541 25-1525615 333-35083-04 - ---------------------------------------------------------------------------------------------------------------------------------- Vulcan Asphalt Refining Corporation Delaware 2911 23-2486891 333-35083-10 - ----------------------------------------------------------------------------------------------------------------------------------
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PART I. FINANCIAL INFORMATION PAGE(S) Item 1. Financial Statements Consolidated Balance Sheets - May 31, 2003 and August 31, 2002 4 Consolidated Statements of Operations - Nine Months and Quarters Ended May 31, 2003 and 2002 5 Consolidated Statements of Comprehensive Income (Loss) - Nine Months and Quarters Ended May 31, 2003 and 2002 6 Consolidated Statements of Cash Flows - Nine Months Ended May 31, 2003 and 2002 7 Notes to Consolidated Financial Statements 8-17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18-27 Item 3. Quantitative and Qualitative Disclosures about Market Risk 28 Item 4. Controls and Procedures 29 PART II. OTHER INFORMATION 30 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 10.13 - Limited Waiver and Amendment No. 3 to Credit Agreement dated as of March 24, 2003 by and among, URC, URCP, KPC, Country Fair and the Banks thereto and PNC Bank, National Association, as Agent (filed herewith). (b) No reports on Forms 8-K have been filed for the quarter for which this report is being filed.
UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------- MAY 31, 2003 AUGUST 31, (UNAUDITED) 2002 - ----------------------------------------------------------------------------------------------- ASSETS CURRENT: Cash and cash equivalents $ 9,049 $ 13,515 Accounts receivable, net 37,704 33,865 Inventories 98,399 93,567 Prepaid expenses and other assets 17,125 11,179 Refundable income taxes - 3,300 - --------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 162,277 155,426 PROPERTY, PLANT AND EQUIPMENT, NET 186,034 189,894 INVESTMENT IN AFFILIATED COMPANY 2,316 1,707 DEFERRED FINANCING COSTS, NET 3,208 3,641 GOODWILL AND OTHER NON-AMORTIZABLE ASSETS 11,849 11,849 AMORTIZABLE INTANGIBLE ASSETS, NET 3,734 4,170 DEFERRED TURNAROUND COSTS AND OTHER ASSETS, NET 7,968 4,753 DEFERRED INCOME TAXES 2,265 - - --------------------------------------------------------------------------------------------- $379,651 $371,440 ============================================================================================= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT: Revolving credit facility $ 47,500 $ 24,314 Current installments of long-term debt 457 236 Accounts payable 30,496 50,647 Accrued liabilities 22,763 14,002 Sales, use and fuel taxes payable 18,422 18,517 Deferred income taxes 4,234 5,323 Amounts due to affiliated companies, net 1,588 140 - --------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 125,460 113,179 LONG TERM DEBT: LESS CURRENT INSTALLMENTS 181,879 181,863 DEFERRED INCOME TAXES - 360 DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 1,184 1,345 DEFERRED RETIREMENT BENEFITS 26,509 24,147 OTHER NONCURRENT LIABILITIES 1,787 2,350 - --------------------------------------------------------------------------------------------- TOTAL LIABILITIES 336,819 323,244 - --------------------------------------------------------------------------------------------- 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 26,274 31,638 Accumulated other comprehensive loss (90) (90) - --------------------------------------------------------------------------------------------- TOTAL STOCKHOLDER'S EQUITY 42,832 48,196 - --------------------------------------------------------------------------------------------- $379,651 $371,440 =============================================================================================
See notes to consolidated financial statements. 4 UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------------------------------------------ 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- NET SALES $331,124 $278,408 $935,858 $721,640 COSTS OF GOODS SOLD 303,434 244,739 838,640 657,433 - ---------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 27,690 33,669 97,218 64,207 - ---------------------------------------------------------------------------------------------------------------------------- EXPENSES: Selling, general and administrative expenses 26,737 25,249 80,081 67,561 Depreciation and amortization expenses 3,304 3,222 9,910 9,180 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 30,041 28,471 89,991 76,741 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (2,351) 5,198 7,227 (12,534) - ---------------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest expense, net (5,431) (5,004) (15,894) (14,520) Other, net (445) (189) (733) (983) Equity in net earnings of affiliate 342 211 610 801 - ---------------------------------------------------------------------------------------------------------------------------- (5,534) (4,982) (16,017) (14,702) - ---------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (7,885) 216 (8,790) (27,236) INCOME TAX EXPENSE (BENEFIT) (3,077) 87 (3,426) (10,893) - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (4,808) $ 129 $ (5,364) $(16,343) =============================================================================================================================
See notes to consolidated financial statements. 5 UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - (UNAUDITED) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, --------------------------------------------- 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------- NET INCOME (LOSS) $(4,808) $129 $(5,364) $(16,343) OTHER COMPREHENSIVE LOSS: Minimum pension liability, net of taxes - - - - - ----------------------------------------------------------------------------------------------- TOTAL COMPREHENSIVE INCOME (LOSS) $(4,808) $129 $(5,364) $(16,343) ===============================================================================================
See notes to consolidated financial statements. 6 UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------- NINE MONTHS ENDED MAY 31, --------------------------- 2003 2002 - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,364) $(16,343) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 12,722 11,613 Equity in net earnings of affiliate (610) (801) Change in deferred income taxes (3,714) (4,541) Loss on asset dispositions 58 210 Cash used in working capital items (21,345) (20,043) Change in operating assets and liabilities: Deferred retirement benefits 2,362 1,634 Other, net (565) 159 - ---------------------------------------------------------------------------------------------- TOTAL ADJUSTMENTS (11,092) (11,769) - ---------------------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (16,456) (28,112) - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of business, net of cash acquired - (16,900) Additions to property, plant and equipment (5,260) (7,182) Additions to deferred turnaround costs (5,506) (1,336) Proceeds from asset dispositions - 3 - ---------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (10,766) (25,415) - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on revolving credit facility 23,186 29,000 Dividends - (2,130) Deferred financing costs (250) (144) Principal reductions of long-term debt (180) (93) - ---------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 22,756 26,633 - ---------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (4,466) (26,894) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,515 35,224 - ---------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,049 $ 8,330 ============================================================================================== CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS: Accounts receivable, net $ (3,839) $ 9,980 Inventories (4,832) (35,412) Prepaid expenses and other assets (5,946) (6,605) Accounts payable (20,142) 7,437 Accrued liabilities 8,761 7,063 Amounts due to affiliated companies, net 1,448 (784) Income taxes payable - (2,542) Refundable income taxes 3,300 - Sales, use and fuel taxes payable (95) 820 - ---------------------------------------------------------------------------------------------- CASH USED IN WORKING CAPITAL ITEMS $(21,345) $(20,043) ==============================================================================================
See notes to consolidated financial statements. 7 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. DESCRIPTION OF The consolidated financial statements include the BUSINESS AND BASIS accounts of United Refining Company and its OF PRESENTATION 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 nine month periods ended May 31, 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 Effective July 1, 2001, the Company adopted certain AND GOODWILL 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 nine months ended May 31, 2003. As of May 31, 2003 and August 31, 2002, the Company's intangible assets and goodwill, included in the Company's retail business, were as follows (in thousands):
MAY 31, 2003 AUGUST 31, 2002 -------------------------------------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION - -------------------------------------------------------------------------------- Amortizable intangible assets: Vendor contracts $ 2,600 $526 $ 2,600 $248 Deed restrictions 800 45 800 21 Non-compete agreement 400 113 400 53 Leasehold covenants 1,537 145 1,537 68 ------------------------------------------------- $ 5,337 $829 $ 5,337 $390 ================================================= Non-amortizable assets: Trade name $10,500 $ -- $10,500 $ -- Goodwill 1,349 -- 1,349 -- ------------------------------------------------- $11,849 $ -- $11,849 $ -- =================================================
9 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Amortization expense for the three and nine month periods ended May 31, 2003 was $146,000 and $439,000, 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 In June 2001, the FASB issued Statement No. 143, STANDARDS "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. 10 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- The adoption of Statement 145 did not have a material impact on the Company's financial position or results of operations. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("Statement 146"), which changes the accounting for costs such as lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity initiated after December 31, 2002. The standard requires companies to recognize the fair value of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The adoption of Statement 146 did not have an effect on the Company's financial position or results of operations as the Company did not exit, discontinue or restructure any of its operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("Interpretation 45"). Interpretation 45 elaborates on the disclosures that a guarantor should make in its interim and annual financial statements regarding its obligations relating to the issuance of certain guarantees. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Interpretation 45 provides specific guidance identifying the characteristics of contracts that are subject to its guidance and it also provides for scope exceptions from the guidance in its entirety and from only the initial recognition and measurement provisions. The recognition and measurement provisions of Interpretation 45 are effective on a prospective basis for guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year end. Interpretation 45 specifically prohibits the guarantor to revise or restate its previous accounting for guarantees issued prior to December 31, 2002. The disclosure requirements of Interpretation 45 are effective for interim and annual period financial statements ending after December 15, 2002. The 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 11 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 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 is currently evaluating the effect of implementing Interpretation 46 on its financial position and results of operations. 4. INVENTORIES Inventories consist of the following (in thousands):
MAY 31, 2003 AUGUST 31, 2002 -------------------------------------------------------------- Crude Oil $18,581 $26,384 Petroleum Products 50,546 38,407 -------------------------------- Total @ LIFO 69,127 64,791 -------------------------------- Merchandise 15,438 15,362 Supplies 13,834 13,414 -------------------------------- Total @ FIFO 29,272 28,776 -------------------------------- Total Inventory $98,399 $93,567 ================================
5. CREDIT FACILITY The Company and the participating banks amended the credit facility on March 24, 2003, 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 is $70,000,000. From August 1, 2003 through and including September 30, 2003, the credit facility commitment is $60,000,000. The temporary increase expires as of September 30, 2003. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. 6. SUBSIDIARY Certain of United Refining Company's (the "issuer") GUARANTORS 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: 12 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Condensed Consolidating Balance Sheets (in thousands)
May 31, 2003 August 31, 2002 ------------------------------------------------- ------------------------------------------------- Issue Guarantors Elimination Consolidated Issuer Guarantors Eliminations Consolidated ------------------------------------------------- ------------------------------------------------- Assets Current: Cash and cash equivalents $ 1,096 $ 7,953 $ -- $ 9,049 $ 4,254 $ 9,261 $ -- $ 13,515 Accounts receivable, net 26,578 11,126 -- 37,704 22,584 11,281 -- 33,865 Inventories 76,812 21,587 -- 98,399 71,939 21,628 -- 93,567 Prepaid expenses and other assets 13,018 4,107 -- 17,125 8,574 2,605 -- 11,179 Refundable income taxes -- -- -- -- 3,300 -- -- 3,300 Intercompany 92,364 18,863 (111,227) -- 93,867 18,892 (112,759) -- ----------------------------------------------- ----------------------------------------------- Total current assets 209,868 63,636 (111,227) 162,277 204,518 63,667 (112,759) 155,426 Property, plant and equipment, net 116,567 69,467 -- 186,034 118,840 71,054 -- 189,894 Investment in affiliated company 2,316 -- -- 2,316 1,707 -- -- 1,707 Deferred financing costs, net 3,208 -- -- 3,208 3,641 -- -- 3,641 Goodwill and other non-amortizable assets -- 11,849 -- 11,849 -- 11,849 -- 11,849 Amortizable intangible assets, net -- 3,734 -- 3,734 -- 4,170 -- 4,170 Deferred turnaround costs & other assets, net 7,995 1,144 (1,171) 7,968 4,891 1,033 (1,171) 4,753 Deferred income taxes 6,892 (4,627) -- 2,265 -- -- -- -- ----------------------------------------------- ----------------------------------------------- $346,846 $ 145,203 $(112,398) $379,651 $333,597 $151,773 $(113,930) $371,440 =============================================== =============================================== Liabilities and Stockholder's Equity Current: Revolving credit facility $ 47,500 $ -- $ -- $ 47,500 $ 24,314 $ -- $ -- $ 24,314 Current installments of long-term debt 92 365 -- 457 86 150 -- 236 Accounts payable 17,422 13,074 -- 30,496 34,384 16,263 -- 50,647 Accrued liabilities 18,688 4,075 -- 22,763 10,083 3,919 -- 14,002 Sales, use and fuel taxes payable 15,385 3,037 -- 18,422 15,228 3,289 -- 18,517 Deferred income taxes Amounts due to 4,955 (721) -- 4,234 5,746 (423) -- 5,323 affiliated companies, net 577 1,011 -- 1,588 (640) 780 -- 140 Intercompany -- 111,227 (111,227) -- -- 112,759 (112,759) -- -------------------------------------------------------------------------------------------------- Total current liabilities 104,619 132,068 (111,227) 125,460 89,201 136,737 (112,759) 113,179 Long term debt: less current installments 180,398 1,481 -- 181,879 180,462 1,401 -- 181,863 Deferred income taxes -- -- -- -- (3,227) 3,587 -- 360 Deferred gain on settlement of pension plan obligations 1,184 -- -- 1,184 1,345 -- -- 1,345 Deferred retirement benefits 24,815 1,694 -- 26,509 22,643 1,504 -- 24,147 Other noncurrent liabilities -- 1,787 -- 1,787 -- 2,350 -- 2,350 ----------------------------------------------- ----------------------------------------------- Total liabilities 311,016 137,030 (111,227) 336,819 290,424 145,579 (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) -- -- 18 (18) -- Additional paid-in capital 7,150 10,651 (1,153) 16,648 7,150 10,651 (1,153) 16,648 Retained earnings 28,770 (2,496) -- 26,274 36,113 (4,475) -- 31,638 Accumulated other comprehensive loss (90) -- -- (90) (90) -- -- (90) -------------------------------------------------------------------------------------------------- Total stockholder's equity 35,830 8,173 (1,171) 42,832 43,173 6,194 (1,171) 48,196 ----------------------------------------------- ----------------------------------------------- $ 346,846 $145,203 $(112,398) $379,651 $333,597 $151,773 $(113,930) $371,440 =============================================== ===============================================
13 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Condensed Consolidating Statements of Operations (in thousands)
Three Months Ended May 31, 2003 Three Months Ended May 31, 2002 ------------------------------------------------- ------------------------------------------------- Issue Guarantors Elimination Consolidated Issuer Guarantors Eliminations Consolidated ------------------------------------------------- ------------------------------------------------- Net sales $207,072 $183,698 $(59,646) $331,124 $167,307 $161,608 $(50,507) $278,408 Costs of goods sold 209,256 153,824 (59,646) 303,434 157,557 137,689 (50,507) 244,739 ----------------------------------------------- ----------------------------------------------- Gross profit (2,184) 29,874 -- 27,690 9,750 23,919 -- 33,669 ----------------------------------------------- ----------------------------------------------- Expenses: Selling, general and administrative expenses 4,090 22,647 -- 26,737 3,712 21,537 -- 25,249 Depreciation and amortization expenses 2,170 1,134 -- 3,304 2,060 1,162 -- 3,222 ----------------------------------------------- ----------------------------------------------- Total operating expenses 6,260 23,781 -- 30,041 5,772 22,699 -- 28,471 ----------------------------------------------- ----------------------------------------------- Operating income (loss) (8,444) 6,093 -- (2,351) 3,978 1,220 -- 5,198 ----------------------------------------------- ----------------------------------------------- Other income (expense): Interest expense, net (4,368) (1,063) -- (5,431) (3,906) (1,098) -- (5,004) Other, net (651) 206 -- (445) (415) 226 -- (189) Equity in net earnings of affiliate 342 -- -- 342 211 -- -- 211 ----------------------------------------------- ----------------------------------------------- (4,677) (857) -- (5,534) (4,110) (872) -- (4,982) ----------------------------------------------- ----------------------------------------------- Income (loss) before income tax expense (benefit) (13,121) 5,236 -- (7,885) (132) 348 -- 216 Income tax expense (benefit) (5,212) 2,135 -- (3,077) (53) 140 -- 87 ----------------------------------------------- ----------------------------------------------- Net income (loss) $ (7,909) $ 3,101 $ -- $ (4,808) $ (79) $ 208 $ -- $ 129 =============================================== ===============================================
14 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Condensed Consolidating Statements of Operations (in thousands)
Nine Months Ended May 31, 2003 Nine Months Ended May 31, 2002 ------------------------------------------------- ------------------------------------------------- Issue Guarantors Elimination Consolidated Issuer Guarantors Eliminations Consolidated ------------------------------------------------- ------------------------------------------------- Net sales $581,352 $531,664 $(177,158) $935,858 $450,661 $403,101 $(132,122) $721,640 Costs of goods sold 561,621 454,177 (177,158) 838,640 445,315 344,240 (132,122) 657,433 ----------------------------------------------- ----------------------------------------------- Gross profit (loss) 19,731 77,487 -- 97,218 5,346 58,861 -- 64,207 ----------------------------------------------- ----------------------------------------------- Expenses: Selling, general and administrative expenses 12,207 67,874 -- 80,081 12,321 55,240 -- 67,561 Depreciation and amortization expenses 6,510 3,400 -- 9,910 6,180 3,000 -- 9,180 ----------------------------------------------- ----------------------------------------------- Total operating expenses 18,717 71,274 -- 89,991 18,501 58,240 -- 76,741 ----------------------------------------------- ----------------------------------------------- Operating income (loss) 1,014 6,213 -- 7,227 (13,155) 621 -- (12,534) ----------------------------------------------- ----------------------------------------------- Other income (expense): Interest expense, net (12,699) (3,195) -- (15,894) (11,505) (3,015) -- (14,520) Other, net (1,256) 523 -- (733) (1,382) 399 -- (983) Equity in net earnings of affiliate 610 -- -- 610 801 -- -- 801 ----------------------------------------------- ----------------------------------------------- (13,345) (2,672) -- (16,017) (12,086) (2,616) -- (14,702) ----------------------------------------------- ----------------------------------------------- Income (loss) before income tax expense (benefit) (12,331) 3,541 -- (8,790) (25,241) (1,995) -- (27,236) Income tax expense (benefit) (4,988) 1,562 -- (3,426) (10,110) (783) -- (10,893) ----------------------------------------------- ----------------------------------------------- Net income (loss) $ (7,343) $ 1,979 $ -- $ (5,364) $(15,131) $ (1,212) $ -- $(16,343) =============================================== ===============================================
15 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- Condensed Consolidating Statements of Cash Flows (in thousands)
Nine Months Ended May 31, 2003 Nine Months Ended May 31, 2002 ---------------------------------------- ------------------------------------------ Guaran- Elimin- Consoli- Guaran- Elimin- Consoli- Issuer tors ation dated Issuer tors ation dated ---------------------------------------- ------------------------------------------ Net cash provided by (used in) operating activities $(16,477) $ 21 $-- $(16,456) $(30,122) $ 2,010 $-- $(28,112) ---------------------------------------- ------------------------------------------ Cash flows from investing activities: Purchase of business, net of cash acquired -- -- -- -- (17,281) 381 -- (16,900) Additions to property, plant and equipment (4,235) (1,025) -- (5,260) (4,185) (2,997) -- (7,182) Additions to deferred turnaround costs (5,315) (191) -- (5,506) (772) (564) -- (1,336) Proceeds from asset dispositions -- -- -- -- -- 3 -- 3 ---------------------------------------- ------------------------------------------ Net cash used in investing activities (9,550) (1,216) -- (10,766) (22,238) (3,177) -- (25,415) ---------------------------------------- ------------------------------------------ Cash flows from financing activities: Net borrowings on revolving credit facility 23,186 -- -- 23,186 29,000 -- -- 29,000 Dividends -- -- -- -- (2,130) -- -- (2,130) Deferred financing costs (250) -- -- (250) (144) -- -- (144) Principal reductions of long-term debt (67) (113) -- (180) -- (93) -- (93) ---------------------------------------- ------------------------------------------ Net cash provided by (used in) financing activities 22,869 (113) -- 22,756 26,726 (93) -- 26,633 ---------------------------------------- ------------------------------------------ Net decrease in cash and cash equivalents (3,158) (1,308) -- (4,466) (25,634) (1,260) -- (26,894) Cash and cash equivalents, beginning of year 4,254 9,261 -- 13,515 29,197 6,027 -- 35,224 ---------------------------------------- ------------------------------------------ Cash and cash equivalents, end of period $ 1,096 $ 7,953 $-- $ 9,049 $ 3,563 $ 4,767 $-- $ 8,330 ======================================== ==========================================
16 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 NINE MONTHS ENDED MAY 31, MAY 31, ----------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------------------- Net Sales Retail $ 182,494 $ 160,405 $ 528,408 $ 399,613 Wholesale 148,630 118,003 407,450 322,027 ----------------------------------------------------------------------------- $ 331,124 $ 278,408 $ 935,858 $ 721,640 ============================================================================= Intersegment Sales Wholesale $ 58,442 $ 49,304 $ 173,902 $ 128,634 ============================================================================= Operating Income (Loss) Retail $ 6,214 $ 610 $ 5,886 $ (77) Wholesale (8,565) 4,588 1,341 (12,457) ----------------------------------------------------------------------------- $ (2,351) $ 5,198 $ 7,227 $ (12,534) ============================================================================= Depreciation and Amortization Retail $ 1,072 $ 1,112 $ 3,214 $ 2,850 Wholesale 2,232 2,110 6,696 6,330 ----------------------------------------------------------------------------- $ 3,304 $ 3,222 $ 9,910 $ 9,180 =============================================================================
MAY 31, 2003 AUGUST 31, 2002 -------------------------------------------------------------------------------------- Total Assets Retail $120,400 $127,712 Wholesale 259,251 243,728 ---------------------------------- $379,651 $371,440 ================================== Capital Expenditures (including non-cash) Retail $ 1,078 $ 4,552 Wholesale 4,590 5,747 ---------------------------------- $ 5,668 $ 10,299 ==================================
8. CRUDE OIL OPTIONS CONTRACTS In anticipation of the war in Iraq and consequent volatility of crude costs, the Company hedged approximately 700,000 barrels of May crude from March 7 through March 20, 2003. As a result of this strategy, the Company benefited from a gain of approximately $1.6 million, which is included as a reduction of costs of goods sold. 17 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 Fiscal third quarter 2003 worldwide crude oil prices, as indicated by prices of crude oil contracts on the New York Mercantile Exchange (NYMEX), decreased from the peak in March of $35.73/BBL to $28.14/BBL in May 2003 or by about 21%. 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. For the recent quarter compared to the prior year quarter, crude prices have increased about 36% from $23.82/BBL to $32.34/BBL. NYMEX Crude oil prices appear to have hit a low point for May through June at slightly over $28/BBL before increasing to about $30/BBL for July through August. Industry experts have noted that despite the fact that the market remains "well supplied", oil prices have maintained an upward trend since late April attributing the trend to "the slower-than-anticipated recovery in Iraqi oil production, coupled with unusually low stock levels." Analysts expect crude oil prices to remain near $30/BBL due to low global inventories, the expectation of no immediate surge in Iraqi exports, OPEC's proven ability to manage its price band, and a forecast demand growth of about 1% this year. The Company's results were positively influenced by the improved discounts on heavy sour crude oils. The discount for the recent quarter represents the highest discount since the first quarter of fiscal 2002 yet it is still significantly lower compared to fiscal 2001 and early 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 quarter compared to the prior year quarter, the Company realized a 66% increase in the "sweet-sour" crude price differential. The future trend for this differential is somewhat uncertain given world turmoil in key oil areas, availability of foreign crude to US traders, weak refining margins, refinery turnarounds and unplanned downtime for refineries that process heavy, sour crude. The continuing strong NYMEX crude oil futures 18 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- prices have pushed the trans-Atlantic arbitrage to a level making it economical to ship crude across the Atlantic to the US. Strong US prices and weaker demand in Asia has led to an inflow of foreign crude to the US. 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 decrease in the Company's purchased crude cost during the third fiscal quarter, due primarily to the decline in the NYMEX crude price, had the effect of decreasing refinery gross margins as products were produced from more expensive crude oil purchased at prior month crude prices. Refining margins in the third fiscal quarter have slipped from the strong second fiscal quarter margins when the cold weather, and the loss of crude and product exports from key US supplier Venezuela boosted refining margins. The Company expects crude prices to remain flat for the remainder of the calendar year and there are indications that margins may improve slightly in the fourth fiscal quarter. The outlook for the next few months is critically dependent on the US summer driving season. Although crude and product stocks are at historically low levels, near-term concerns for refiners include rising product stocks and high refinery throughput. In fact, refiners may set a throughput record during the second calendar quarter that has contributed to a build in gasoline inventory. Product inventories have been building faster than crude inventories. If this trend continues, this would not be a favorable indicator for refining margins. In addition, since the beginning of the summer driving season starting Memorial Day weekend, gasoline demand has not been as strong as many analysts were expecting. As of mid June, gasoline demand remained weak because of the cold and rainy weather on the East Coast which was present for most of the spring. Aside from the weather, high oil and natural gas prices have translated into higher energy bills for US consumers. These higher energy costs combined with a sluggish economy has dented consumer spending which results in less traffic on the streets and less gasoline demand. Continued high natural gas prices for refineries, weak gasoline demand in what is normally a high gasoline demand period, and the rapid decline in distillate margins have contributed to lower earnings projections for the near-term. Looking forward to the second half of the calendar year, some industry analysts expect margins to rebound as gasoline demand increases as the driving season continues, gasoline imports moderate, crude prices decline, and distillate stocks build ahead of winter. RESULTS OF OPERATIONS The following table reflects the Company's financial and operating highlights for the three and nine month periods ended May 31, 2003 and 2002 (in thousands). 19 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, --------------------------- ------------------------ 2003 2002 2003 2002 --------------------------- ------------------------ Net Sales Retail $182,494 $160,405 $528,408 $399,613 Wholesale 148,630 118,003 407,450 322,027 --------------------------- ------------------------ $331,124 $278,408 $935,858 $721,640 =========================== ======================== Costs of Goods Sold Retail $152,654 $137,232 $451,715 $341,857 Wholesale 150,780 107,507 386,925 315,576 --------------------------- ------------------------ $303,434 $244,739 $838,640 $657,433 =========================== ======================== Gross Profit / (Loss) Retail $ 29,840 $ 23,173 $ 76,693 $ 57,756 Wholesale (2,150) 10,496 20,525 6,451 --------------------------- ------------------------ $ 27,690 $ 33,669 $ 97,218 $ 64,207 =========================== ======================== Operating Expenses Retail $ 23,626 $ 22,563 $ 70,807 $ 57,833 Wholesale 6,415 5,908 19,184 18,908 --------------------------- ------------------------ $ 30,041 $ 28,471 $ 89,991 $ 76,741 =========================== ======================== Operating Income / (Loss) Retail $ 6,214 $ 610 $ 5,886 $ (77) Wholesale (8,565) 4,588 1,341 (12,457) --------------------------- ------------------------ $ (2,351) $ 5,198 $ 7,227 $(12,534) =========================== ========================
All percentage amounts referred to below were derived using underlying data in thousands. COMPARISON OF FISCAL QUARTERS ENDED MAY 31, 2003 AND MAY 31, 2002 NET SALES Retail sales increased during 2003 by $22.1 million, or 14% from $160.4 million to $182.5 million. The retail sales increase was primarily due to a $3.7 million increase in merchandise sales and a $18.4 million increase in petroleum sales. The petroleum sales increase results from a 16.2% increase in retail selling prices (on a same store basis and including the Country Fair locations) offset by a .6% decrease in retail petroleum volume (on a same store basis and including the Country Fair locations). Wholesale sales increased during 2003 by $30.6 million or 26% from $118.0 million to $148.6 million. The wholesale sales increase was due to a 32.0% increase in wholesale prices offset by a 4.6% decrease in wholesale volume. 20 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- COSTS OF GOODS SOLD Retail costs of goods sold increased during 2003 by $15.5 million or 11% from $137.2 million to $152.7 million. The increase in retail costs of goods sold results from a $12.5 million or 11.6% increase in petroleum costs and a $3.0 million or 10.0% increase in merchandise costs. The increased merchandise costs coincide with the $3.8 million increase in merchandise sales. Increased petroleum costs are due primarily to increased crude oil prices. Wholesale costs of goods sold increased during 2003 by $43.3 million or 40% from $107.5 million to $150.8 million. The increase in wholesale costs of goods was primarily due to a 31.7% increase in the Company's average crude oil purchase price for the three months ended May 31, 2003 as compared to the prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil contract prices, increased 35.8% as compared to the prior year period. Offsetting costs of goods sold was a .5% reduction in crude runs for the three months ended May 31, 2003 as compared to the prior year period. For the three months ended May 31, 2003, costs of goods sold was negatively impacted by an approximate $5.3 million decrease in the value of the Company's working inventories on a market valuation basis, which increased costs of goods sold. The Company has experienced increased refinery energy costs due to higher natural gas prices. Costs of goods sold also include a gain of approximately $1.6 million from various crude oil options contracts used to hedge crude oil purchases and inventory. GROSS PROFIT/(LOSS) Retail gross profit increased during 2003 by $6.6 million or 28% from $23.2 million to $29.8 million. Inclusive of Country Fair, the Company increased its petroleum margins by $5.9 million and its merchandise margin by $.7 million. These margin increases were a result of $3.8 million in increased merchandise sales, offset by a reduction in sales volume of .6 million gallons. Wholesale gross profit decreased $12.7 million from $10.5 million to $(2.2) million for the three months ended May 31, 2002 and 2003, respectively. This decrease was primarily due to the increase in crude costs, increased fuel consumed expense and a 4.6% decrease in wholesale volume. OPERATING EXPENSES Retail operating expenses increased during 2003 by $1.1 million or 5%. The increases to operating expenses were due to increased payroll and payroll costs of $.4 million, increased pension/post retirement costs of $.2 million, increased credit/customer service costs of $.2 million, increased rent expense of $.2 million and increased insurance/utilities of $.1 million. Wholesale operating expenses increased $.5 million for the three months ended May 31, 2003 versus the three months ended May 31, 2002. Operating expenses increased $.2 million due to increased payroll and payroll costs, $.2 million in increased pension/post retirement costs and all other remaining costs increased by $.1 million. 21 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 $0.4 million from $5.0 million for the fiscal quarter ended May 31, 2002 to $5.4 million for the fiscal quarter ended May 31, 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 May 31, 2002 was approximately 40.3% compared to a rate of 39.0% for the fiscal quarter ended May 31, 2003, due to the relationship of permanent differences to book income before tax. COMPARISON OF THE NINE MONTHS ENDED MAY 31, 2003 AND MAY 31, 2002 NET SALES Retail sales increased during 2003 by $128.8 million, or 32% from $399.6 million to $528.4 million. The retail sales increase was primarily due to a $32.1 million increase in merchandise sales and a $96.7 million increase in petroleum sales. The petroleum sales increase results from an 11.0% increase in retail petroleum volume (on a same store basis and including the Country Fair locations) and a 19.1% 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 nine months ended May 31, 2003 was positively impacted by the additional sales from Country Fair for the entire period versus the nine months ended May 31, 2002 in which Country Fair sales were only included from the acquisition date of December 21, 2001. Wholesale sales increased during 2003 by $85.5 million or 27% from $322.0 million to $407.5 million. The wholesale sales increase was due to a 35.3% increase in wholesale prices offset by a 6.5% decrease in wholesale volume. COSTS OF GOODS SOLD Retail costs of goods sold increased during 2003 by $109.9 million or 32% from $341.8 million to $451.7 million. The increase in retail costs of goods sold results from a $86.8 million or 32.2% increase in petroleum costs and a $23.1 million or 31.7% increase in merchandise costs. On December 21, 2001 the Company acquired 100% of the operation and working capital assets of Country Fair. The nine months ended May 31, 2003 was impacted by the additional sales from Country Fair for the entire period versus the nine months ended May 31, 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 $71.3 million or 23% from $315.6 million to $386.9 million. The increase in wholesale costs of goods was primarily due to a 32.3% increase in the Company's average crude oil purchase price for the nine months ended May 31, 2003 as compared to the prior year period. Worldwide crude oil prices, as indicated by NYMEX crude oil contract prices, increased 32.4% as compared to the prior year period. Offsetting costs of goods sold was a 7% reduction in crude runs for the nine months ended May 31, 2003 as compared to the prior year period. The refinery throughput decrease for the nine months ended May 31, 2003 was due to a scheduled maintenance turnaround resulting in a 21 day shutdown of units at the refinery. For the nine months ended May 31, 22 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- 2003 costs of goods sold was positively impacted by an approximate $1.0 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. The Company has experienced increased refinery energy costs due to higher natural gas prices. Costs of goods sold also include a gain of approximately $1.6 million from various crude oil options contracts used to hedge crude oil purchases and inventory. GROSS PROFIT/(LOSS) Retail gross profit increased during 2003 by $18.9 million or 33% from $57.8 million to $76.7 million. Inclusive of Country Fair, the Company increased its petroleum margins by $9.9 million and its merchandise margin by $9.0 million. These margin increases were a result of 25.7 million gallons of additional volume sold and $32.5 million in increased merchandise sales. Wholesale gross profit increased $14.1 million or 220% from $6.4 million to $20.5 million for the nine months ended May 31, 2002 and 2003, respectively. This increase was primarily due to the increase in wholesale selling prices offset by a decrease in wholesale volume. Also contributing to the decline in gross profit were the higher natural gas prices and higher general insurance premiums. OPERATING EXPENSES Retail operating expenses increased during 2003 by $13.0 million or 22%. Retail operations for the nine months ended May 31, 2003 included Country Fair for the entire period versus the nine months ended May 31, 2002 in which Country Fair operations were only included from the acquisition date of December 21, 2001 which resulted in increased operating expenses of $10.5 million. The remaining increases to operating expenses were due to increased payroll and payroll costs of $1.1 million, increased pension/post retirement costs of $.4 million, increased credit/customer service costs of $.5 million, increased maintenance costs of $.4 million, increased depreciation and amortization of $.3 million offset by lower advertising costs of $.2 million. Wholesale operating expenses increased $.3 million for the nine months ended May 31, 2003 versus the nine months ended May 31, 2002. INTEREST EXPENSE, NET Net interest expense (interest expense less interest income) increased $1.4 million from $14.5 million for the nine months ended May 31, 2002 to $15.9 million for the nine months ended May 31, 2003. The increased net interest expense was due to a $.3 million reduction in interest income earned, $0.9 million increased interest expense for borrowings on the Company's revolving credit facility, $.1 million increased interest expense for capitalized lease obligations and $.1 million for other obligations. INCOME TAX EXPENSE/(BENEFIT) The Company's effective tax rate for the nine months ended May 31, 2002 was approximately 40.0% compared to a rate of 38.9% for the nine months ended May 31, 2003, primarily due to the relationship of permanent differences to book income before tax. 23 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Working capital (current assets minus current liabilities) at May 31, 2003 was $36.8 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 May 31, 2003 and 1.4:1 at August 31, 2002. Net cash used in operating activities totaled $16.5 million and $28.1 million for the nine months ended May 31, 2003 and 2002, respectively. The net cash used in operating activities for the nine months ended May 31, 2003 results from a net loss of ($5.4) million, a change in deferred income taxes of ($3.7) million, cash used in working capital items of ($21.4) million, a change in other, net of ($.5) million, equity in net earnings of affiliate of ($.6) million, offset by a change in deferred retirement benefits of $2.4 million and depreciation and amortization of $12.7 million. Net cash used in investing activities totaled $10.8 million and $25.4 million for the nine months ended May 31, 2003 and 2002, respectively. Purchases of property, plant and equipment totaled $5.3 million for the nine months ended May 31, 2003. Additions to deferred turnaround costs and other assets totaled $5.5 million. The Company reviews its capital expenditures on an ongoing basis. Maintenance and normal repair 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 $22.8 million for the nine months ended May 31, 2003 due from borrowings of $23.2 million on the Company's revolving credit facility offset by $.2 deferred financing costs and $.2 in reduction of long-term debt. 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, contractual obligations, letter of credit and debt service 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 (subject to temporary increases described below), which was renewed for five years on July 12, 2002 and amended on November 27, 2002 and February 19 and March 24, 2003. At May 31, 2003, there was approximately $21,650,000 unused and available on the credit 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. The Company and the participating banks amended the credit facility on March 24, 2003, 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 is $70,000,000. From August 1, 2003 through and including September 30, 2003, the credit facility commitment is $60,000,000. The temporary increase expires as of September 30, 2003. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. 24 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- In addition to these obligations, the Company had outstanding letters of credit of $850,000 as of May 31, 2003. 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. INFLATION The effect of inflation on the Company has not been significant during the last five fiscal years. 25 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- 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 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 26 UNITED REFINING COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- 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 is currently evaluating the effect of implementing Interpretation 46 on its financial position and results of operations. 27 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 hedged approximately 700,000 bbls of May crude from March 7 through March 20, 2003. As a result of this strategy, the Company benefited from a gain of approximately $1.6 million. The Company has since exited from this strategy, but it remains available should management deem it necessary at a later date. At May 31, 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. 28 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. 29 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 10.13 - Limited Waiver and Amendment No. 3 to Credit Agreement dated as of March 24, 2003 by and among, URC, URCP, KPC, Country Fair and the Banks thereto and PNC Bank, National Association, as Agent (filed herewith). (b) No reports on Forms 8-K have been filed for the quarter for which this report is being filed. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 15, 2003 UNITED REFINING COMPANY ------------------------------------------- (Registrant) /s/ Myron L. Turfitt ------------------------------------------- Myron L. Turfitt President /s/ James E. Murphy ------------------------------------------- James E. Murphy Chief Financial Officer 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 15, 2003 KIANTONE PIPELINE CORPORATION ------------------------------------------- (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: July 15, 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 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: July 15, 2003 KIANTONE PIPELINE COMPANY ------------------------------------------- (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: July 15, 2003 UNITED JET CENTER, INC. ------------------------------------------- (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: July 15, 2003 KWIK FILL CORPORATION ------------------------------------------- (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: July 15, 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 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: July 15, 2003 BELL OIL CORP. ------------------------------------------- (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: July 15, 2003 PPC, INC. ------------------------------------------- (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: July 15, 2003 SUPER TEST PETROLEUM, 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: July 15, 2003 KWIK-FIL, 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: July 15, 2003 VULCAN ASPHALT REFINING CORPORATION ------------------------------------------- (Registrant) /s/ Myron L. Turfitt ------------------------------------------- Myron L. Turfitt President /s/ James E. Murphy ------------------------------------------- James E. Murphy Chief Financial Officer 42 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: July 15, 2003 Signature: /s/ John A. Catsimatidis ---------------- --------------------------- Principal Executive 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, 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: July 15, 2003 Signature: /s/ James E. Murphy ---------------- --------------------------- Principal Financial Officer 44 EX-10.13 3 j0191101exv10w13.txt EXHIBIT 10.13 EXHIBIT 10.13 LIMITED WAIVER AND AMENDMENT NO. 3 TO CREDIT AGREEMENT THIS LIMITED WAIVER AND AMENDMENT NO. 3 TO CREDIT AGREEMENT ("Amendment No. 3") is dated as of March 24, 2003 and is made by and among UNITED REFINING COMPANY, a Pennsylvania corporation ("United Refining'), UNITED REFINING COMPANY OF PENNSYLVANIA, a Pennsylvania corporation ("United Refining of PA"), KIANTONE PIPELINE CORPORATION, a New York corporation ("Kiantone"), COUNTRY FAIR, INC., a Pennsylvania corporation ("Country Fair"), MANUFACTURERS AND TRADERS TRUST COMPANY ("M&T") and PNC BANK, NATIONAL ASSOCIATION ("PNC") as Agent ("Agent"). WITNESSETH: WHEREAS, United Refining, United Refining of PA, Kiantone and Country Fair as Borrowers (collectively, the "Borrowers"), PNC and the Banks (as defined in the Credit Agreement, the "Banks") are party to that certain Amended and Restated Credit Agreement dated as of July 12, 2002, as amended by that Amendment No. 1 to Credit Agreement dated as of November 27, 2002 and as amended by that Limited Waiver and Amendment No. 2 dated as of February 19, 2003 (as amended, restated, supplemented or modified, the "Credit Agreement"); WHEREAS, capitalized terms used herein shall have the meanings given to them in the Credit Agreement; WHEREAS, Section 7.2.15 of the Credit Agreement provides in part that the Fixed Charge Coverage Ratio must equal 1.0 to 1.0 as of the Measurement Date occurring on February 28, 2003; WHEREAS, Borrowers' Fixed Charge Coverage Ratio was less than 1.0 to 1.0 as of February 28, 2003 and the Borrowers have requested that the Banks waive the requirement that Borrowers comply with the covenant set forth in Section 7.2.15 for the period ended February 28, 2003 subject to the terms and conditions hereof; WHEREAS, Borrowers have also requested that the Banks amend the covenant set forth in Section 7.2.15 subject to the terms and conditions hereof; WHEREAS, the Loan Parties and the Banks desire to amend the Credit Agreement to make certain other modifications as more fully set forth herein. NOW, THEREFORE, the parties hereto and in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. Amendment of Definitions. The following definitions in Section 1.1 of the Credit Agreement shall be amended and restated as follows: "Fixed Charge Coverage Ratio shall mean and include, with respect to any fiscal period, the ratio of (a) EBITDA to (b) interest expense, scheduled principal payments on Indebtedness (excluding principal payments on Loans), current portion of income tax expense, non-financed capital expenditures (capital expenditures which are (1) not financed with Indebtedness (other than Revolving Credit Loans) or (2) financed with Revolving Credit Loans) to the extent that the amount thereof exceeds $5,000,000 in the aggregate over the relevant reporting period (i.e. 1,2, 3 or 4 quarters as provided for in Section 7.2.15), plus payments for stock repurchases during such period." "Revolving Credit Commitment shall mean, as to any Bank at anytime, the amount initially set forth opposite its name on Schedule 1.1(B) for the relevant time period in the column labeled "Amount of Commitment for Revolving Credit Loans," and thereafter on Schedule I to the most recent Assignment and Assumption Agreement, and Revolving Credit Commitments shall mean the aggregate Revolving Credit Commitments of all of the Banks." 45 2. Amendment of Section 1.3 of the Credit Agreement. Section 1.3 of the Credit Agreement is hereby amended and restated as follows: "1.3 Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided, however, that all accounting terms used in Section 7.2 [Negative Covenants] (and all defined terms used in the definition of any accounting term used in Section 7.2 shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing the Annual Statements referred to in subsection 5.1.9(i) [Historical Statements]. Notwithstanding the foregoing, for all periods subsequent to November 30, 2002, inventory shall be valued based on the first in first out lower of cost or market method. In the event of any change after the date hereof in GAAP, and if such change would result in the inability to determine compliance with the financial covenants set forth in Section 7.2 based upon a Borrower's regularly prepared financial statements by reason of the preceding sentence, then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would not affect the substance thereof, but would allow compliance therewith to be determined in accordance with such Borrower's financial statements at that time." 3. Amendment of Section 7.2.15 of the Credit Agreement. Section 7.2.15 of the Credit Agreement is hereby amended and restated as follows: "7.2.15 Minimum Fixed Charge Coverage Ratio. The Loan Parties shall not permit the Fixed Charge Coverage Ratio, calculated as of the end of each fiscal quarter set forth below (each a "Measurement Date") for the period set forth below (each a "Measurement Period") to be less than the ratio set forth below for the periods specified:
Measurement Date Measurement Period Minimum Ratio ---------------- ------------------ ------------- May 31, 2002 Quarter then ended 1.0 to 1.0 August 31, 2002 Two quarters then ended 1.0 to 1.0 November 30, 2002 Three quarters then ended 1.0 to 1.0 February 28, 2003 Quarter then ended 1.75 to 1.0 May 31, 2003 Two quarters then ended 1.25 to 1.0 August 31, 2003 Three quarters then ended 1.25 to 1.0 November 30, 2003 and each Four quarters then ended 1.0 to 1.0 fiscal quarter thereafter
4. Amendments to Schedules: Temporary Increase in Commitments. Schedule 1.1(B) is hereby amended and restated in its entirety to read as set forth on Schedule 1.1 (B) hereto. In connection with the temporary increase in Commitments, the Borrowers shall repay all of the Loans, subject to the Borrowers' obligation under Section 4.6.2 [Indemnity] of the Credit Agreement, on the date hereof, and the Borrowers shall re-borrow the same amount of Loans on such date without the necessity of a Loan Request or without other notice to the Agent or the Banks. Thereafter, the Banks shall (i) participate in the new Loans, and (ii) make Participation Advances for Letters of Credit, on and after the date hereof ratably according to their Revolving Credit Commitments as modified on such date. 5. Amendments to Revolving Credit Notes. The Revolving Credit Notes made by Borrowers in favor of each Bank are hereby amended and restated to reflect the maximum Revolving Credit Commitment of each such Bank, and the Borrowers shall execute and deliver new Revolving Credit Notes evidencing such increased Revolving Credit Commitments on or prior to the Effective Date of this Amendment No. 3. 6. Waiver. Prior to giving effect to the amendment to the Fixed Charge Coverage Ratio provided for herein, the Borrowers were required to maintain a Fixed Charge Coverage Ratio of 1.0 to 1.0 for the 46 four quarters ended February 28, 2003. The Banks hereby waive the requirement that the Borrowers comply with the covenant set forth in Section 7.2.15 that the Borrowers maintain a Fixed Charge Coverage Ratio of 1.0 to 1.0 for the four quarters ended February 28, 2003, provided that (i) the Borrowers hereby represent and warrant and covenant that the Fixed Charge Coverage Ratio was at least, after giving effect to this Amendment No. 3, (a) .84 to 1.0 as of the four quarters ended February 28, 2003 and (b) 1.75 to 1.0 for the quarter ended February 28, 2003 and (ii) the Borrowers' compliance certificate to be delivered under Section 7.3.3 of the Credit Agreement for the four quarters ended and for the quarter ended February 28, 2003 shall evidence that the Fixed Charge Coverage Ratio equaled or exceeded the relevant ratios required in clause (i) of this sentence for the four quarters ended February 28, 2003 and the quarter ended February 28, 2003 respectively. Any breach of the warranty contained in clause (i) of the preceding sentence shall constitute an Event of Default under the Credit Agreement on and after the date hereof The Banks do not waive the covenant contained in Section 7.2.15 for periods prior to or after February 28, 2003. 7. Conditions to Effectiveness. This Amendment No. 3 shall be effective on the date (the "Effective Date") on which each of the following conditions have been satisfied: (i) Borrowers shall pay to the Agent for the benefit of the Banks (a) a fee of $200,000 on account of the increase in Revolving credit Commitments, to be allocated to the Banks according to their pro rata share of the increase in Revolving Credit Commitments after giving effect to the increase in Revolving Credit Commitments provided for in this Amendment No. 3, and (b) a fee of $50,000 on account of the amendments provided for herein, to be allocated to the Banks according to their pro rata share of the Revolving Credit Commitments prior to giving effect to the increase in Revolving Credit Commitments provided for in this Amendment No. 3, (ii) there shall have been delivered to the Agent for the benefit of each Bank a certificate dated as of the date hereof and signed by the Secretary or an Assistant Secretary of each of the Loan Parties certifying as appropriate to: (a) all corporate action taken by each Loan Party in connection with this Amendment No. 3 together with a copy of the resolutions of each Loan Party evidencing same; (b) the names of the officer or officers authorized to sign this Amendment No. 3 and the true signatures of such officer or officers and specifying the officers authorized to act on behalf of each Loan Party for purposes of this Amendment No. 3 and the true signatures of such officers, on which the Agent and each Bank may conclusively rely; and (c) a certificate from the Secretary or Assistant Secretary stating that each Loan Party's organizational documents, including its certificate or articles of incorporation and bylaws have not changed since the Closing Date and are in effect on the date hereof as on the Closing Date together with certificates of the appropriate state officials as to the continued existence and good standing of each Loan Party in each state where organized or qualified to do business, (iii) the Borrowers shall have executed and delivered to the Agent a Revolving Credit Note in favor of each Bank evidencing the total amount of Revolving Credit Commitment of such Bank, (iv) Borrowers shall pay all of Agent's outstanding legal fees and expenses through the Effective Date, (v) this Amendment No. 3 shall have been executed by the Banks, the Agent and the Borrowers and delivered to the Agent, (vi) the Borrowers shall repay all of the Loans, subject to the Borrowers' obligation under Section 4.6.2 [Indemnity] of the Credit Agreement, on the date hereof, and (vii) the Borrowers shall re-borrow the same amount of Loans on such date without the necessity of a Loan Request or without other notice to the Agent or the Banks. The Effective Date shall be the same as the date of this Amendment No. 3 first written above. 8. Full Compliance. The Borrowers represent and warrant that (after giving effect to the waiver set forth in paragraph 6 above) they are in full compliance with each of the provisions of the Credit Agreement and that no Potential Default or Event of Default exists (after giving effect to the waiver set forth in Paragraph 6 above). The Banks do not amend or waive any provisions of the Credit Agreement, except as expressly set forth herein. All terms of the Credit Agreement and each of the other Loan Documents remain in full force and effect on and after the date hereof except as provided herein. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 47 IN WITNESS WHEREOF, the parties hereto by their duly authorized officers have executed this Limited Waiver and Amendment No. 3 as of the day and year first written above. UNITED REFINING COMPANY /s/ John R. Wagner --------------------------------------------------- Title: Vice President, Secretary & General Counsel -------------------------------------------- UNITED REFINING COMPANY OF PENNSYLVANIA /s/ John R. Wagner --------------------------------------------------- Title: Vice President, Secretary & General Counsel -------------------------------------------- KIANTONE PIPELINE CORPORATION /s/ John R. Wagner --------------------------------------------------- Title: Vice President, Secretary & General Counsel -------------------------------------------- COUNTRY FAIR, INC. /s/ John R. Wagner --------------------------------------------------- Title: Vice President, Secretary & General Counsel -------------------------------------------- PNC BANK, NATIONAL ASSOCIATION, individually and as Agent /s/ James Steffy --------------------------------------------------- Title: Vice President -------------------------------------------- MANUFACTURERS AND TRADERS TRUST COMPANY /s/ Geoffrey Fenn --------------------------------------------------- Title: Administrative Vice President -------------------------------------------- 48 SCHEDULE 1.1 (B) COMMITMENT OF BANKS AND ADDRESSES FOR NOTICES PAGE 1 OF 2 PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS
- --------------------------------------------------------------------------------------------------------- AMOUNT OF COMMITMENT FOR REVOLVING CREDIT LOANS FROM AMOUNT OF CLOSING DATE TO COMMITMENT FOR BUT NOT INCLUDING RATABLE SHARE REVOLVING CREDIT RATABLE SHARE AMENDMENT NO. 3 FROM CLOSING LOANS FROM FROM AMENDMENT EFFECTIVE DATE DATE TO BUT NOT AMENDMENT NO. 3 NO. 3 EFFECTIVE AND FROM OCTOBER INCLUDING EFFECTIVE DATE TO DATE TO AND 1, 2003 AND AMENDMENT NO. 3 AND INCLUDING INCLUDING BANK THEREAFTER EFFECTIVE DATE JULY 31, 2003 JULY 31, 2003 ---- ---------- --------------- ------------- ------------- Name: PNC Bank, National Association Address: One PNC Plaza, 3rd floor 249 Fifth Avenue Pittsburgh, PA 15222-2707 Attention: James Steffy Telephone: 412-768-6387 Telecopy: 412-768-4369 $30,000,000 60% $46,000,000 65.71% Name: Manufacturers and Traders Trust Company Address: One Fountain Plaza Buffalo, NY 14203-1495 Attention: Geoffrey Fenn Telephone: 716-848-7308 Telecopy: 716-848-7318 $20,000,000 40% $24,000,000 34.29% Total: $50,000,000 100.00% $70,000,000 100.00% ----------- ------ ----------- ------- - ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------- AMOUNT OF COMMITMENT FOR REVOLVING CREDIT RATABLE SHARE LOANS FROM FROM AUGUST 1, AUGUST 1, 2003 2003 TO AND TO AND INCLUDING INCLUDING SEPTEMBER 30, SEPTEMBER 30, BANK 2003 2003 ---- ---- ---- Name: PNC Bank, National Association Address: One PNC Plaza, 3rd floor 249 Fifth Avenue Pittsburgh, PA 15222-2707 Attention: James Steffy Telephone: 412-768-6387 Telecopy: 412-768-4369 $38,000,000 63.33% Name: Manufacturers and Traders Trust Company Address: One Fountain Plaza Buffalo, NY 14203-1495 Attention: Geoffrey Fenn Telephone: 716-848-7308 Telecopy: 716-848-7318 $22,000,000 36.67% Total: $60,000,000 100.00% ----------- ------- - ----------------------------------------------------------------------
49 SCHEDULE 1.1 (B) COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES PAGE 2 OF 2 Part 2 - Addresses for Notices to Borrowers and Guarantors AGENT Address: PNC Bank, National Association One PNC Plaza, 3rd Floor 249 Fifth Avenue Pittsburgh, PA 15222-7207 Attention: James Steffy Telephone: 412-768-6387 Telecopy: 412-768-4369 BORROWERS AND GUARANTORS Address: c/o United Refining Company 15 Bradley Street Warren, PA 16365 Attention: Myron L. Turfitt Telephone: 814-723-1500 Telecopy: 814-723-4371 50 -----END PRIVACY-ENHANCED MESSAGE-----