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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 2000
( ) 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.)
See Table of Additional Subsidiary Guarantor Registrants
15 BRADLEY STREET, WARREN, PA 16365
(Address of principal executive offices) (Zip Code)
(814) 723-1500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13, or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of November 29, 2000, 100 shares of the Registrant's common stock, $0.10 par
value per share, were outstanding. All shares of common stock of the
Registrant's are held by an affiliate. Therefore, the aggregate market value of
the voting and non-voting common equity held by non-affiliates of the Registrant
is zero.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
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State of Other Primary Standard IRS Employer
Jurisdiction of Industrial Identification Commission File
Name Incorporation Classification Number Number Number
-------------------------------- ------------------------ ------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
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 5541 25-0850960 333-35083-02
Pennsylvania
-------------------------------- ------------------------ ------------------------- --------------------- ---------------------
United Jet Center, Inc. Delaware 4500 52-1623169 333-35083-06
-------------------------------- ------------------------ ------------------------- --------------------- ---------------------
Kwik-Fill, Inc. Pennsylvania 5541 25-1525543 333-35083-05
-------------------------------- ------------------------ ------------------------- --------------------- ---------------------
Independent Gas and Oil New York 5170 06-1217388 333-35083-11
Company of Rochester, Inc.
-------------------------------- ------------------------ ------------------------- --------------------- ---------------------
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 Delaware 2911 23-2486891 333-35083-10
Corporation
-------------------------------- ------------------------ ------------------------- --------------------- ---------------------
</TABLE>
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ITEM 1. BUSINESS.
INTRODUCTION
The Company is a leading integrated refiner and marketer of petroleum
products in its primary market area, which encompasses western New York and
northwestern Pennsylvania. The Company owns and operates a medium complexity
65,000 barrel per day ("bpd") petroleum refinery in Warren, Pennsylvania where
it produces a variety of products, including various grades of gasoline, diesel
fuel, kerosene, jet fuel, No. 2 heating oil, and asphalt. The Company sells
gasoline and diesel fuel under the "Kwik Fill(R)" brand name at a network of
Company-operated retail units. As of August 31, 2000, the Company operated 303
units, 226 of which it owned. For the year ended August 31, 2000 (sometimes
referred to as "fiscal 2000"), approximately 67% and 24% of the Company's
gasoline and diesel fuel production, respectively, was sold through this
network. The Company operates convenience stores at most of its retail units,
primarily under the "Red Apple Food Mart(R)" brand name. The Company also sells
its petroleum products to long-standing regional wholesale customers.
For the fiscal year ended August 31, 2000, the Company had total
revenues of approximately $1.1 billion, of which approximately 52% were
derived from gasoline sales, approximately 38% were from sales of other
petroleum products and approximately 10% were from sales of merchandise and
other revenue. The Company's capacity utilization rates have ranged from
approximately 90% to approximately 100% over the last five years. In fiscal
2000, approximately 71% of the Company's refinery output consisted of higher
value products such as gasoline and distillates.
The Company believes that the location of its 65,000 bpd refinery in
Warren, Pennsylvania provides it with a transportation cost advantage over its
competitors, which is significant within an approximately 100-mile radius of
it's refinery. For example, in Buffalo, New York over its last five fiscal
years, the Company has experienced an approximately 2.0 cents per gallon
transportation cost advantage over those competitors who are required to ship
gasoline by pipeline and truck from New York Harbor sources to Buffalo. The
Company owns and operates the Kiantone Pipeline, a 78-mile long crude oil
pipeline which connects the refinery to Canadian, U.S. and world crude oil
sources through the Enbridge Pipe Line system. Utilizing the storage facilities
of the pipeline, the Company is able to blend various grades of crude oil from
different suppliers, allowing it to efficiently schedule production while
managing feedstock mix and product yields in order to optimize profitability.
It is the Company's view that the high construction costs and the
stringent regulatory requirements inherent in petroleum refinery operations make
it uneconomical for new competing refineries to be constructed in the Company's
primary market area. The nearest fuels refinery is over 160 miles from Warren,
Pennsylvania and the Company believes that no significant production from such
refinery is currently shipped into its primary market area.
The Company's primary market area is western New York and northwestern
Pennsylvania and its core market area encompasses its Warren County base and the
eight contiguous counties in New York and Pennsylvania. The Company's retail
gasoline and merchandise sales are split approximately 60%/40% between rural
and urban markets. Margins on gasoline sales are traditionally higher in rural
markets, while gasoline sales volume is greater in urban markets. The Company's
urban markets include Buffalo, Rochester and Syracuse, New York and Erie,
Pennsylvania.
As of August 31, 2000, the Company operated 303 retail units, of which
171 are located in New York, 123 in Pennsylvania and 9 in Ohio. The Company
owned 226 of these units. In fiscal 2000, approximately 67% of the refinery's
gasoline production was sold through the Company's retail network. In addition
to gasoline, all units sell convenience merchandise, 39 have delicatessens and
seven of the units are full-service truck stops. Customers may pay for purchases
with credit cards including the Company's own Kwik Fill(R) credit card. In
addition to this credit card, the Company maintains a fleet credit card catering
to regional truck and automobile fleets. Sales of convenience products, which
tend to have constant margins throughout the year, have served to reduce the
effects of the seasonality inherent in gasoline retail margins. The Company has
consolidated its entire retail system under the Red Apple Food Mart(R) and Kwik
Fill(R) brand names, providing the chain with a greater regional brand
awareness.
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PNC Bank, N.A. provided the Company and one of its subsidiaries a new
bank credit facility (the "New Bank Credit Facility") on June 9, 1997. During
February 2000, PNC Bank, N.A. renegotiated the Company's New Bank Credit
Facility to provide for a temporary increase in its revolving credit commitment
up to $45 million. The temporary commitment will remain in effect through
December 31, 2000 at which time it will revert to its prior maximum level of
$35 million if not renewed.
On September 29, 2000, the Company sold 42 retail units to an affiliate
for the sum of $23,870,000 subject to closing apportionments and adjustments.
Net revenues for these 42 retail units for the fiscal year ended August 31, 2000
were approximately $92 million. The Company has invested the proceeds of this
sale in short-term investments and has (as of the date of this filing) not made
a final commitment on the use of the restricted proceeds. Concurrent with the
asset sale, the Company entered into a management agreement with an affiliate to
operate and manage the retail units. The Company's Board of Directors received a
fairness opinion regarding the entire transaction's fairness to the Company from
a financial point of view.
On November 9, 2000, a subsidiary of United Refining Company submitted
a written proposal to the board of Getty Petroleum Marketing, Inc. ("Getty")
(NYSE:GPM) for the purchase of its approximately 14 million outstanding shares
of common stock. The proposal indicated that the United subsidiary would be
willing and fully prepared to pay $5.75 per share for all of the outstanding
shares. The Company has received a preliminary financing commitment from a
financial institution and is prepared to make an equity investment of up to $30
million should the transaction be consummated. If not accepted prior thereto,
this proposal will expire on December 8, 2000. To date there is one other bidder
for Getty. There is no assurance that the Company offer will be accepted by
Getty or if accepted, the transaction will be consummated. Getty markets
gasoline and petroleum products to approximately 1,300 branded locations in
thirteen Northeastern and Middle-Atlantic states. Getty is also a marketer of
heating oil in the New York Mid-Hudson Valley and is a wholesale distributor of
a variety of petroleum products through the East Coast petroleum storage and
distribution network.
INDUSTRY OVERVIEW
The Company is a regional refiner and marketer located primarily in
Petroleum Administration for Defense District I ("PADD I"). As of January 1,
2000, there were 17 refineries operating in PADD I with a combined crude
processing capacity of 1.7 million bpd, representing approximately 10% of U.S.
refining capacity. Petroleum product consumption during calendar year 1999 in
PADD I averaged 5.8 million bpd, representing approximately 30% of U.S. demand
based on industry statistics reported by the U.S. Energy Information
Administration (the "EIA"). According to the Lundberg Letter, an industry
newsletter, total gasoline consumption in the region grew by approximately 2.7%
during 1999 in response to improving economic conditions. Refined petroleum
production in PADD I is insufficient to satisfy demand for such products in the
region, making PADD I a net importer of such products.
The Company believes that domestic refining capacity utilization is
close to maximum sustainable limits because of the existing high throughput
coupled with a minimal increase in refining capacity. The Company believes that
high utilization rates coupled with little anticipated crude capacity expansion
is likely to result over the long term in improved operating margins in the
refining industry.
Asphalt is a residual product of the crude oil refining process, which
is used primarily for construction and maintenance of roads and highways and as
a component of roofing shingles. Distribution of asphalt is localized, usually
within a distance of 150 miles from a refinery or terminal, and demand is
influenced by levels of federal, state, and local government funding for highway
construction and maintenance and by levels of roofing construction activities.
The Company believes that an ongoing need for highway maintenance and domestic
economic growth will sustain asphalt demand.
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BUSINESS STRATEGY
The Company's goal is to strengthen its position as a leading producer
and marketer of high quality refined petroleum products within its primary
market area. The Company plans to accomplish this goal through continued
attention to optimizing the Company's operations at the lowest possible cost,
improving and enhancing the profitability of the Company. More specifically, the
Company intends to:
o Maximize the transportation cost advantage afforded the Company by its
geographic location by increasing retail and wholesale market shares
within its primary market area.
o Expand sales of higher margin specialty products such as jet fuel,
premium diesel, roofing asphalt and Strategic Highway Research Program
("SHRP") specification paving asphalt.
o Optimize profitability by managing feedstock costs, product yields, and
inventories through its recently improved refinery feedstock linear
programming model and its system wide distribution model.
REFINING OPERATIONS
The Company's refinery is located on a 92-acre site in Warren,
Pennsylvania. The refinery has a rated capacity of 65,000 bpd of crude oil
processing. The refinery averaged saleable production of approximately 65,000
bpd during fiscal 1999 and approximately 63,900 bpd during fiscal 2000. The
reduction is attributable to a decline in refinery production resulting from the
shutdown of certain refinery processing units for maintenance during portions of
April and May, 2000. The Company produces three primary petroleum products:
gasoline, middle distillates and asphalt. The Company believes its geographic
location in the product short PADD I is a marketing advantage. The Company's
refinery is located in northwestern Pennsylvania and is geographically distant
from the majority of PADD I refining capacity. The nearest fuels refinery is
over 160 miles from Warren, Pennsylvania and the Company believes that no
significant production from such refinery is currently shipped into the
Company's primary market area.
Products
The Company presently produces two grades of unleaded gasoline,
87-octane regular and 93-octane premium. The Company also blends its 87 and 93
octane gasoline to produce a mid-grade 89 octane. In fiscal 2000, approximately
67% of the Company's gasoline production was sold through its retail network and
the remaining 33% of such production was sold to wholesale customers.
Middle distillates include kerosene, diesel fuel, heating oil (No. 2
oil) and jet fuel. In fiscal 2000 the Company sold approximately 83% of its
middle distillate production to wholesale customers and the remaining 17% at its
retail units, primarily at its seven truck stops. The Company also produces
aviation fuels for commercial airlines (Jet-A) and military aircraft (JP-8).
The Company optimizes its bottom of the barrel processing by producing
asphalt, a higher value alternative to residual fuel oil. Asphalt production as
a percentage of all refinery production has increased over the last five fiscal
years due to the Company's ability and decision to process a larger amount of
less costly higher sulfur content crude oil in order to realize higher overall
refining margins.
Refining Process
The Company's production of petroleum products from crude oil involves
many complex steps, which are briefly summarized below.
The Company seeks to maximize refinery profitability by selecting crude
oil and other feedstocks taking into account factors including product demand
and pricing in the Company's market areas as well as price, quality and
availability of various grades of crude oil. The Company also considers product
inventory levels and any planned turnarounds of refinery units for maintenance.
The combination of these factors is optimized by a sophisticated proprietary
linear programming computer model, which selects the most profitable feedstock
and product mix. The linear programming model is continuously updated and
improved to reflect changes in the product market place and in the refinery's
processing capability.
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Blended crude is stored in a tank farm near the refinery, which has a
capacity of approximately 200,000 barrels. The blended crude is then brought
into the refinery where it is first distilled at low pressure into its component
streams in the crude and preflash unit. This yields the following intermediate
products: light products consisting of fuel gas components (methane and ethane)
and LPG (propane and butane), naphtha or gasoline, kerosene, diesel or heating
oil, heavy atmospheric distillate, and crude tower bottoms which are further
distilled under vacuum conditions to yield light and heavy vacuum distillates
and asphalt. The present capacity of the crude unit is 65,000 bpd.
The intermediate products are then processed in downstream units that
produce finished products. A naphtha hydrotreater treats naphtha with hydrogen
across a fixed bed catalyst to remove sulfur before further treatment. The
treated naphtha is then distilled into light and heavy naphtha at a
prefractionator. Light naphtha is then sent to an isomerization unit and heavy
naphtha is sent to a reformer in each case for octane enhancement. The
isomerization unit converts the light naphtha catalytically into a gasoline
component with 83 octane. The reformer unit converts the heavy naphtha into
another gasoline component with up to 94 octane depending upon the desired
octane requirement for the grade of gasoline to be produced. The reformer also
produces as a co-product all the hydrogen needed to operate hydrotreating units
in the refinery.
Raw kerosene or heating oil is treated with hydrogen at a distillate
hydrotreater to remove sulfur and make finished kerosene, jet fuels and No. 2
fuel oil. A new distillate hydrotreater built in 1993 also treats raw
distillates to produce low sulfur diesel fuel.
The long molecular chains of the heavy atmospheric and vacuum
distillates are broken or "cracked" in the fluidized catalytic cracking unit and
separated and recovered in the gas concentration unit to produce fuel gas,
propylene, butylene, LPG, gasoline, light cycle oil and clarified oil. Fuel gas
is burned within the refinery, propylene is fed to a polymerization unit which
polymerizes its molecules into a larger chain to produce an 87 octane gasoline
component, butylene is fed into an alkylation unit to produce a gasoline
component and LPG is treated to remove trace quantities of water and then sold.
Clarified oil is burned in the refinery or sold. Various refinery gasoline
components are blended together in refinery tankage to produce 87 octane and 93
octane finished gasoline. Likewise, light cycle oil is blended with other
distillates to produce low sulfur diesel and No. 2 fuel oil.
The Company's refining configuration allows the processing of a wide
variety of crude oil inputs. During the past five years the Company's inputs
have been of Canadian origin and range from light low sulfur (38 degrees API,
0.5% sulfur) to high sulfur heavy asphaltic (25 degrees API, 2.8% sulfur). The
Company's ability to market asphalt enables it to purchase selected heavier
crude oils at a lower cost.
Supply of Crude Oil
Even though the Company's crude supply is currently nearly all
Canadian, it is not dependent on this source alone. Within 60 days, the Company
could shift up to 60% of its crude oil requirements to some combination of
domestic and offshore crude. With additional time, 100% of its crude
requirements could be obtained from non-Canadian sources. Sixty-two percent of
the Company's contracts with its crude suppliers are on a month-to month
evergreen basis, with 30-to-60 day cancellation provisions; thirty-eight percent
of the Company's crude contracts are on an annual basis (with month to month
pricing provisions). As of August 31, 2000, the Company had supply contracts
with 22 different suppliers for an aggregate of 63,400 bpd of crude oil. The
Company has contracts with four vendors amounting to 59% of daily crude oil
supply (none more than 12,000 barrels per day). As of such date, the Company had
no other contract covering more than 10% of its crude oil supply.
The Company accesses crude through the Kiantone Pipeline, which
connects with the Enbridge Pipe Line in West Seneca, New York, which is near
Buffalo. The Enbridge Pipe Line system provides access to most North American
and foreign crude oils through three primary routes: (i) Canadian crude oils are
transported eastward from Alberta and other points in Canada; (ii) various
mid-continent crude oils from Texas, Oklahoma and Kansas are transported
northeast along the Cushing-Chicago Pipeline (foreign crude oils shipped on the
Seaway system can also access this route), which connects to Enbridge at
Griffith, Indiana; and (iii) foreign crude oils unloaded at the Louisiana
Offshore Oil Port are transported north via the Capline and Chicago pipelines
which connect to the Enbridge at Mokena, Illinois.
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The Kiantone Pipeline, a 78 mile Company-owned and operated pipeline,
connects the Company's West Seneca, New York terminal at the pipeline's northern
terminus to the refinery's tank farm at its southern terminus. The Company
completed construction of the Kiantone Pipeline in 1971 and has operated it
continuously since then. The Company is the sole shipper on the Kiantone
Pipeline, and can currently transport up to 70,000 bpd along the pipeline. The
Company's right to maintain the pipeline is derived from approximately 265
separate easements, right-of-way agreements, licenses, permits, leases and
similar agreements.
The pipeline operation is monitored by a computer at the refinery.
Shipments of crude arriving at the West Seneca terminal are separated and stored
in one of the terminal's three storage tanks, which have an aggregate storage
capacity of 485,000 barrels. The refinery tank farm has two additional crude
storage tanks with a total capacity of 200,000 barrels. An additional 35,000
barrels of crude can be stored at the refinery.
Refinery Turnarounds
Turnaround cycles vary for different refinery units. A planned
turnaround of each of the two major refinery units (the crude unit and the fluid
catalytic cracking unit) is conducted approximately every three or four years,
during which time such units are shut down for internal inspection and repair. A
turnaround, which generally takes two to four weeks to complete in the case of
the two major refinery units, consists of a series of moderate to extensive
maintenance exercises. Turnarounds are planned and accomplished in a manner that
allows for reduced production during maintenance instead of a complete plant
shutdown. The Company defers the cost of turnarounds when incurred and amortizes
the costs to operations on a straight-line basis over the period of benefit.
Thus, the Company charges costs to production over the period most clearly
benefited by the turnaround.
MARKETING AND DISTRIBUTION
General
The Company has a long history of service within its market area. The
Company's first retail service station was established in 1927 near the Warren
refinery, and it has steadily expanded its distribution network.
The Company maintains an approximate 60%/40% split between sales at
its rural and urban units. The Company believes this to be advantageous,
balancing the higher gross margins and lower volumes often achievable due to
decreased competition in rural areas with higher volumes and lower gross margins
in urban areas. The Company believes that its rural convenience store units
provide an important alternative to traditional grocery store formats. In fiscal
2000, approximately 67% and 24% of the Company's gasoline and diesel fuel
production, respectively, was sold through this retail network.
Retail Operations
As of August 31, 2000 the Company operated a retail marketing network
that includes 303 retail units, of which 171 are located in western New York,
123 in northwestern Pennsylvania and 9 in eastern Ohio. The Company owns 226 of
these units. Gasoline at these retail units is sold under the brand name Kwik
Fill(R). Most retail units operate under the brand name Red Apple Food Mart(R).
The Company believes that Red Apple Food Mart(R) and Kwik Fill(R) are
well-recognized names in the Company's marketing areas. The Company believes
that the operation of its retail units provides it with a significant advantage
over competitors that operate wholly or partly through dealer arrangements
because the Company has greater control over pricing and operating expenses,
thus establishing a potential for improved margins.
The Company classifies its stores into four categories: convenience
stores, limited gasoline stations, truck stop facilities and other stores. Full
convenience stores have a wide variety of foods, snacks, cigarettes and
beverages and self-service gasoline. Thirty-nine of such units also have
delicatessens where food (primarily submarine sandwiches, pizza, chicken and
lunch platters) is prepared on the premises for retail sales and also
distribution to other nearby Company units which do not have in-store
delicatessens. Mini convenience stores sell snacks, cigarettes and beverages and
self-service gasoline. Limited gasoline stations sell gasoline, cigarettes, oil
and related car care products and provide full service for gasoline customers.
Truckstop facilities sell gasoline and diesel fuel on a self-service and
full-service basis. All truckstops include either a full or mini convenience
store and one has a truck repair garage. As of August 31, 2000, the average
sales areas of the Company's convenience stores, limited gasoline stations,
truckstops and other stores were 2,000, 200, 1,500 and 2,500 square feet,
respectively.
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Total merchandise sales for fiscal year 2000 were $112.5 million, with
a gross profit of approximately $28.3 million. Over the last five fiscal years,
merchandise gross margins have averaged approximately 28.4% and the Company
believes that merchandise sales will continue to remain a stable source of gross
profit.
On September 29, 2000, the Company sold 42 retail units to an
affiliate. Net revenues for these 42 retail units for the fiscal year ended
August 31, 2000 were approximately $92 million.
Merchandise Supply
The Company's primary merchandise vendor is Tripifoods, which is
located in Buffalo, New York. During fiscal 2000, the Company purchased
approximately 77% of its convenience merchandise from this vendor. Tripifoods
supplies the Company with tobacco products, candy, deli foods, grocery, health
and beauty products, and sundry items on a cost plus basis for resale. The
Company also purchases dairy products, beer, soda, snacks, and novelty goods
from direct store vendors for resale. The Company annually reviews its
suppliers' costs and services versus those of alternate suppliers. The Company
believes that alternative sources of merchandise supply at competitive prices
are readily available.
Location Performance Tracking
The Company maintains a store tracking mechanism whereby transmissions
are made three times a week to collect operating data including sales and
inventory levels. Data transmissions are made using personal computers, which
are available at each location. Once verified, the data interfaces with a
variety of retail accounting systems, which support daily, weekly and monthly
performance reports. These different reports are then provided to both the field
management and office staff. Upon completion of a capital project, management
tracks "before and after" performance, to evaluate the return on investment
which has resulted from the improvements.
Wholesale Marketing and Distribution
The Company sold in fiscal year 2000, on a wholesale basis,
approximately 45,300 bpd of gasoline, distillate and asphalt products to
distributor, commercial and government accounts. In addition, the Company sells
approximately 1,100 bpd of propane to liquefied petroleum gas marketers. In
fiscal 2000, the Company's production of gasoline, distillate and asphalt sold
at wholesale was 33%, 83% and 100%, respectively. The Company sells 97.7% of its
wholesale gasoline and distillate products from its Company-owned and operated
product terminals. The remaining 2.3% are sold through third-party exchange
terminals.
The Company's wholesale gasoline customer base includes 50 branded
dealer/distributor units operating under the Company's proprietary "Keystone(R)"
and "Kwik Fill(R)" brand names. Long-term dealer/distributor contracts accounted
for approximately 14% of the Company's wholesale gasoline sales in fiscal 2000.
Supply contracts generally range from three to five years in length, with
branded prices based on the prevailing Company wholesale rack price in Warren.
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The Company believes that the location of its refinery provides it with
a transportation cost advantage over its competitors, which is significant
within an approximately 100-mile radius of the Company's refinery. For example,
in Buffalo, New York over its last five fiscal years, the Company has
experienced an approximately 2.0 cents per gallon transportation cost advantage
over those competitors who are required to ship gasoline by pipeline and truck
from New York Harbor sources to Buffalo. In addition to this transportation cost
advantage, the Company's proximity to local accounts allows it a greater range
of shipment options, including the ability to deliver truckload quantities of
approximately 200 barrels versus much larger 25,000 barrel pipeline batch
deliveries, and faster response time, which the Company believes help it provide
enhanced service to its customers.
The Company's ability to market asphalt is critical to the performance
of its refinery, since such marketing ability enables the Company to process
lower cost higher sulfur content crude oils which in turn affords the Company
higher refining margins. Sales of paving asphalt generally occur during the
summer months due primarily to weather conditions. In order to maximize its
asphalt sales, the Company has made substantial investments to increase its
asphalt storage capacity through the installation of additional tanks, as well
as through the purchase or lease of outside terminals. Partially mitigating the
seasonality of the asphalt paving business is the Company's ability to sell
asphalt year-round to roofing shingle manufacturers, which accounted for
approximately 23% of its total asphalt sales over the Company's last five fiscal
years. In fiscal 2000, the Company sold 5.8 million barrels of asphalt while
producing 5.5 million barrels. The refinery was unable to produce enough asphalt
to satisfy the demand and, therefore, purchased .3 million barrels for resale.
The Company has a significant share of the asphalt market in the cities
of Pittsburgh, Pennsylvania and Rochester and Buffalo, New York. The Company
distributes asphalt from the refinery by railcar and truck transport to its
owned and leased asphalt terminals in such cities or their suburbs. The Company
also operates a terminal at Cordova, Alabama giving it a presence in the
Southeast. Asphalt can be purchased in the Gulf Coast area and delivered by
barge to third party or Company-owned terminals near Pittsburgh. The Company's
asphalt terminal network allows the Company to enter into product exchanges.
The Company uses a network of six terminals to store and distribute
refined products. This network provides gasoline, distillate and asphalt storage
capacities (in thousands of barrels) of approximately 600, 850 and 1,650 barrels
respectively as of August 31, 2000.
During fiscal 2000, approximately 96% of the Company's refined products
were transported from the refinery via truck transports, with the remaining 4%
transported by rail. The majority of the Company's wholesale and retail gasoline
distribution is handled by common carrier trucking companies at competitive
costs. The Company also operates a fleet of ten gasoline tank trucks that supply
approximately 25% of its Kwik Fill(R) retail stations.
Product distribution costs to both retail and wholesale accounts are
minimized through product exchanges. Through these exchanges, the Company has
access to product supplies at approximately 40 sources located throughout the
Company's retail marketing area. The Company seeks to minimize retail
distribution costs through the use of a system wide distribution model.
ENVIRONMENTAL CONSIDERATIONS
General
The Company is subject to federal, state and local laws and regulations
relating to pollution and protection of the environment such as those governing
releases of certain materials into the environment and the storage, treatment,
transportation, disposal and clean-up of wastes, including, but not limited to,
the Federal Clean Water Act as amended, the Clean Air Act ("CAA") the Resource
Conservation and Recovery Act of 1976 as amended, Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), and
analogous state and local laws and regulations.
The Clean Air Act Amendments of 1990
In 1990 the Clean Air Act ("CAA") was amended to greatly expand the
role of the government in controlling product quality. The legislation included
provisions that have significantly impacted the manufacture of both gasoline and
diesel fuel including the requirement for significantly lower sulfur content and
a limit on aromatics content in diesel fuel. The Company is able to satisfy
these requirements.
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Diesel Fuel Sulfur and Aromatics Content
The United States Environmental Protection Agency ("USEPA") issued
rules under the CAA which became effective in October 1993 which limit the
sulfur and aromatics content of diesel fuels nationwide. The rules required
refiners to reduce the sulfur in on-highway diesel fuel from 0.5 Wt.% to 0.05
Wt.%. The Company meets these specifications of the CAA for all of its
on-highway diesel production.
The Company's on-road diesel represented 68% of its total distillate
sales in fiscal 2000. Since the reduction of sulfur in diesel required some new
investment at most refineries, a two-tier market has developed in distillate
sales. Due to capital constraints and timing issues, as well as strategic
decisions not to invest in diesel fuel desulfurization, some other refineries
are unable to produce specification highway diesel.
Reformulated Gasoline ("RFG")
The CAA required that by January 1, 1995 RFG be sold in the nine worst
ozone non-attainment areas of the U.S. None of these areas is within the
Company's marketing area. However, the CAA enabled the USEPA to specify 87
other, less serious ozone non-attainment areas that could opt into this program.
In 1994, the Company spent approximately $7.4 million to enable its refinery to
produce RFG for its marketing area because the Governors of Pennsylvania and New
York had opted into the RFG program. In December 1994 such states elected to
"opt out" of the program.
The CAA also contains provisions requiring oxygenated fuels in carbon
monoxide non-attainment areas to reduce pollution. There are currently no carbon
monoxide non-attainment areas in the Company's primary marketing area.
Conventional Gasoline Quality
In addition to reformulated and oxygenated gasoline requirements, the
USEPA has promulgated regulations under the CAA which relate to the quality of
"conventional" gasoline and which require expanded reporting of the quality of
such gasoline by refiners. Substantially all of the Company's gasoline sales are
of conventional gasoline. The Company closely monitors the quality of the
gasoline it produces to assure compliance at the lowest possible cost with CAA
regulations.
In February 2000, USEPA issued a final rule requiring the reduction of
the sulfur content of gasoline to 30 parts per million (PPM). Many refiners will
have to achieve this reduction by January 2004, but some smaller refiners and
those in certain Western states will be allowed to phase down sulfur more
slowly, reaching the 30 PPM level as late as January 2008. Although United
Refining Company is of a comparable size to some of the small refiners granted
more time to comply, United was not classified as a small refiner for this
purpose, nor are the Company's operations located in any of the states given
additional time. However, the rule allows individual refiners to seek additional
time to comply on a case by case basis at the discretion of USEPA, and the
Company has applied for such review by USEPA. The Company anticipates that a
material investment of funds will be required before 2008 to comply with this
rule.
Underground Storage Tank Upgrade
As of December 22, 1998, the Company completed a tank
replacement/retrofitting program at its retail units to comply with regulations
promulgated by the USEPA. These regulations require new tanks to meet all
performance standards at the time of installation. Existing tanks can be
upgraded to meet such standards. The upgrade required retrofitting for corrosion
protection (cathodic protection, interior lining or a combination of the two),
spill protection (catch basins to contain spills from delivery hoses) and
overfill protection (automatic shut off devices or overfill alarms). The total
cost of the program was over $11.0 million and resulted in full compliance with
the USEPA regulations.
COMPETITION
Petroleum refining and marketing is highly competitive. The Company's
major retail competitors include British Petroleum, Citgo, Amerada Hess, Mobil
and Sunoco, Inc. With respect to wholesale gasoline and distillate sales, the
Company competes with Sunoco, Inc., Mobil and other major refiners. The Company
primarily competes
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with Marathon Oil Company and Ashland Oil Company in the asphalt market. Many of
the Company's principal competitors are integrated multinational oil companies
that are substantially larger and better known than the Company. Because of
their diversity, integration of operations, larger capitalization and greater
resources, these major oil companies may be better able to withstand volatile
market conditions, compete on the basis of price and more readily obtain crude
oil in times of shortages.
The principal competitive factors affecting the Company's refining
operations are crude oil and other feedstock costs, refinery efficiency,
refinery product mix and product distribution and transportation costs. Certain
of the Company's larger competitors have refineries which are larger and more
complex and, as a result, could have lower per barrel costs or higher margins
per barrel of throughput. The Company has no crude oil reserves and is not
engaged in exploration. The Company believes that it will be able to obtain
adequate crude oil and other feedstocks at generally competitive prices for the
foreseeable future.
The principal competitive factors affecting the Company's retail
marketing network are location of stores, product price and quality, appearance
and cleanliness of stores and brand identification. Competition from large,
integrated oil companies, as well as from convenience stores which sell motor
fuel, is expected to continue. The principal competitive factors affecting the
Company's wholesale marketing business is product price and quality, reliability
and availability of supply and location of distribution points.
EMPLOYEES
As of August 31, 2000 the Company had approximately 1,717 full-time and
1,400 part-time employees. Approximately 2,477 persons were employed at the
Company's retail units, 390 persons at the Company's refinery, Kiantone Pipeline
and at terminals operated by the Company, with the remainder at the Company's
office in Warren, Pennsylvania. The Company has entered into collective
bargaining agreements with International Union of Operating Engineers Local No.
95, United Steel Workers of America Local No. 2122-A, the International Union of
Plant Guard Workers of America Local No. 502 and General Teamsters Local Union
No. 397 covering 216, 7, 20 and 18 employees, respectively. The agreements
expire on February 1, 2001, January 31, 2003, June 25, 2002 and July 31, 2005,
respectively. The Company believes that its relationship with its employees is
good.
INTELLECTUAL PROPERTY
The Company owns various federal and state service marks used by the
Company, including Kwik-Fill(R), United(R) and Keystone(R). The Company has
obtained the right to use the Red Apple Food Mart(R) service mark to identify
its retail units under a royalty-free, nonexclusive, nontransferable license
from Red Apple Supermarkets, Inc., a corporation which is indirectly wholly
owned by John A. Catsimatidis, the sole stockholder, Chairman of the Board and
Chief Executive Officer of the Company. The license is for an indefinite term.
The licensor has the right to terminate this license in the event that the
Company fails to maintain quality acceptable to the licensor. The Company
licenses the right to use the Keystone(R) trademark to approximately 50
independent distributors on a non-exclusive royalty-free basis for contracted
wholesale sales of gasoline and distillates.
The Company does not own any patents. Management believes that the
Company does not infringe upon the patent rights of others, nor does the
Company's lack of patents have a material adverse effect on the business of the
Company.
GOVERNMENTAL APPROVALS
The Company has obtained all necessary governmental approvals, licenses
and permits to operate the refinery and convenience stores.
FINANCING
On June 9, 1997, the Company completed the sale (the "Private
Offering") of $200 million principal amount of 10-3/4% Series A Senior Notes
due 2007 to Dillon, Read & Co. Inc. and Bear, Stearns & Co. Inc. in a
transaction exempt from registration under the Securities Act of 1933, as
amended. Subsequent to this issue, the Company exchanged the Series A Senior
Notes for its 10-3/4% Series B Senior Notes due 2007 which were previously
registered under the Securities Act of 1933, as amended. An aggregate of $200
million in principal amount of Series A Senior Notes were exchanged for Series
B Senior Notes effective January 16, 1998. The form and terms of the Series B
Senior Notes are identical in all material respects to the form and terms of
the Series A Senior Notes except that the Series B Senior Notes are registered
under the Securities Act and, therefore, do not bear legends restricting the
transfer thereof. The Series B Senior Notes do not represent additional
indebtedness of the Company and are entitled to the benefits of the Indenture,
which is the same Indenture as the one under which the Series A Senior Notes
were issued.
ITEM 2. PROPERTIES.
The Company owns a 92-acre site in Warren, Pennsylvania upon which it
operates its refinery. The site also contains a building housing the Company's
principal executive office.
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The Company owns various real property in the states of Pennsylvania, New York
and Ohio as of August 31, 2000, upon which it operates 226 retail units and two
crude oil and six refined product storage terminals. The Company also owns the
78 mile long Kiantone Pipeline, a pipeline which connects the Company's crude
oil storage terminal to the refinery's tank farm. The Company's right to
maintain the pipeline is derived from approximately 265 separate easements,
right-of-way agreements, leases, permits, and similar agreements. The Company
also has easements, right-of-way agreements, leases, permits and similar
agreements that would enable the Company to build a second pipeline on property
contiguous to the Kiantone Pipeline.
The Company also leases an aggregate of 77 sites in Pennsylvania, New
York and Ohio as of August 31, 2000, upon which it operates retail units. As
of August 31, 2000, the leases had an average remaining term of 43 months,
exclusive of option terms. Annual rents on such retail units range from
$2,760 to $79,500.
ITEM 3. LEGAL PROCEEDINGS.
In 1995, the Pennsylvania Environmental Defense Foundation ("PEDF")
commenced a lawsuit in the United States District Court for the Western District
of Pennsylvania under Section 505 of the federal Water Pollution Control Act, 33
U.S.C. Section 1251, et. seq. The complaint alleges a series of discharges to
the Allegheny River at the Company's refining facility in Warren, Pennsylvania
exceeding the limits contained in the Company's waste water discharge permits.
The complaint sought to enjoin future discharges in excess of permitted limits,
civil money penalties up to $25,000 per day as provided in the Act, and an award
of attorneys' fees. The case was tried to the Court without a jury and concluded
in September 1998. On March 21, 2000 the Court entered a civil money award in
the amount of $400,000 and denied PEDF's request for injunctive relief. PEDF
also seeks attorneys' fees as provided by the Act. The amount of such fees
remains to be determined. The Company believes this claim will not have any
material adverse effect upon its operations or consolidated financial condition.
The United States Environmental Protection Agency ("USEPA") has issued
certain Notices of Violation, an Administrative Order, and has asserted certain
additional claims arising under federal and state statutory and regulatory law
through and including August 5, 1998 (collectively the "Claims"). The Claims
arise from allegations that (1) the Company failed to properly and consistently
monitor, report and control emissions of Volatile Organic Compounds ("VOCs")
from its refining facility in Warren, Pennsylvania; (2) fuel gas used in the
refining process has in the past contained levels of hydrogen sulfide in excess
of permitted parameters, and; (3) the Company in the past has failed to properly
calculate and report emissions of benzene from its refining facility. The USEPA
has also issued a Notice of Violation dated October 18, 1999 asserting certain
additional claims (collectively the "Additional Claims"). The Additional Claims
allege certain violations of statutory and regulatory law in connection with (a)
certain construction activities with the Company's Warren, Pennsylvania physical
plant; and (b) operation by the Company of certain equipment within the
Company's physical plant. The Claims and Additional Claims allege violations of
the federal Clean Air Act, as amended, and associated federal and state
regulatory requirements. USEPA's review of the Company's operations is
continuing. The Claims and Additional Claims seek civil money penalties in
accordance with USEPA's penalty policies in an amount yet to be determined.
Until the scope of the Additional Claims is known, the Company is unable to
determine the aggregate effect of the Claims and Additional Claims upon its
operations and consolidated financial condition.
The Company has been named as a defendant in a lawsuit involving the
marketing of petroleum products containing Methyl Tertiary Butyl Ether ("MTBE")
and the alleged contamination of groundwater with MTBE within the State of New
York. This case, together with other similar cases involving other parties, has
been centralized before the U.S. District Court for the Southern District of New
York pursuant to Transfer Order of the Judicial Panel on Multidistrict
Litigation filed October 20, 2000. The complaint seeks, inter alia, compensatory
and punitive damages and certification as a class action. Preliminary discovery
has commenced and is continuing. No specific monetary demand has been made.
Until the scope of the MTBE related claims is known, the Company is unable to
determine their aggregate effect upon its operations and consolidated financial
position.
In addition to the foregoing proceedings, the Company and its
subsidiaries are from time to time parties to various legal proceedings that
arise in the ordinary course of their respective business operations. These
proceedings include various administrative actions relating to federal, state
and local environmental laws and regulations. The Company believes that if these
legal proceedings in which it is currently involved are determined against the
Company, they would not result in a material adverse effect on the Company's
operations or its consolidated financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
NONE
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended August 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales (2) $ 834,682 $ 872,361 $ 759,525 $ 758,204 $ 1,119,815
Gross margin (1) (2) 169,304 165,166 152,466 166,824 200,379
Refinery operating expenses 63,218 60,746 60,840 60,990 70,812
Selling, general and administrative expenses 70,968 73,200 75,064 77,487 80,390
Operating income (2) 26,902 22,990 8,242 19,305 39,009
Interest expense 17,606 17,509 22,188 22,377 22,962
Interest income 1,236 1,296 2,701 1,027 288
Other income (expense) (2) (904) (341) (1,587) (560) (2,822)
Income (loss) before income tax expense (benefit) 9,628 6,436 (12,832) (2,605) 13,513
Income tax expense (benefit) 3,787 2,588 (5,132) (1,006) 6,828
Income (loss) before extraordinary item and
cumulative effect of accounting change 5,841 3,848 (7,700) (1,599) 6,685
Extraordinary item, net of tax benefit of $4,200 -- (6,653) -- -- --
Cumulative effect of accounting change, net of
taxes of $3,122 -- -- -- 4,783 --
Net income (loss) 5,841 (2,805) (7,700) 3,184 6,685
Balance Sheet Data (at end of period):
Total assets 306,104 346,392 342,579 349,240 340,368
Total debt 136,777 201,272 201,309 206,173 201,111
Total stockholder's equity 84,027 52,937 45,237 48,421 55,106
</TABLE>
-------------
(1) Gross margin is defined as gross profit plus refining operating expenses.
Refinery operating expenses are expenses incurred in refining and included
in cost of goods sold in the Company's financial statements. Refining
operating expense equals refining operating expenses per barrel, multiplied
by the volume of total saleable products per day, multiplied by the number
of days in the period.
(2) Certain amounts of prior year's consolidated financial statements have been
reclassified to conform to the presentation in the current year.
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
COMPANY BACKGROUND
General
The Company is engaged in the refining and marketing of petroleum
products. In fiscal 2000, approximately 67% and 24% of the Company's gasoline
and diesel fuel production, respectively, was sold through the Company's network
of service stations and truckstops. The balance of the Company's refined
products were sold to wholesale customers. In addition to transportation and
heating fuels, primarily gasoline and distillate, the Company is a major
regional wholesale marketer of asphalt. The Company also sells convenience
merchandise at convenience stores located at most of its service stations. The
Company's profitability is influenced by fluctuations in the market prices of
crude oils and refined products. Although the Company's product sales mix helps
to reduce the impact of large short-term variations in crude oil price, net
sales and costs of goods sold can fluctuate widely based upon fluctuations in
crude oil prices. Specifically, the margins on wholesale gasoline and distillate
tend to decline in periods of rapidly declining crude oil prices, while margins
on asphalt and retail gasoline and distillate tend to improve. During periods of
rapidly rising crude oil prices, margins on wholesale gasoline and distillate
tend to improve, while margins on asphalt and retail gasoline and distillate
tend to decline. Gross margins on the sale of convenience merchandise have been
between 25% and 31% for the last five years and are essentially unaffected by
variations in crude oil and petroleum products prices.
In addition to their effect on petroleum product margins, fluctuations
in crude oil prices can affect the Company's reported financial results by
producing significant changes in the value of the Company's working inventories.
The change in the value of working inventory is that portion in the total change
in the Company's inventory value, which is due to changes in the pricing of
working inventory volumes. Working inventory volumes are those volumes of
inventory of the Company's various products and feedstocks necessary to support
normal operations. While changes in the value of working inventory affect the
Company's reported gross profit, operating income and net income, they have no
material effect on the Company's operating cash flow.
The Company includes in costs of goods sold operating expenses incurred
in the refining process. Therefore, operating expenses reflect only selling,
general and administrative expenses, including all expenses of the retail
network, and depreciation and amortization.
RECENT DEVELOPMENTS
The Company's results in fiscal 2000 were significantly impacted by the
continued recovery of worldwide crude oil prices, as indicated by crude oil
contracts traded on the New York Mercantile Exchange (NYMEX), from the extremely
low levels reached midway through fiscal 1999. NYMEX crude prices, which were
less than $12 per barrel for January 1999, averaged more than $31 per barrel for
July 2000 and over $29 per barrel for August 2000. For all of fiscal 2000, NYMEX
crude oil price averaged approximately $27 per barrel versus approximately $15
per barrel for fiscal 1999.
The higher worldwide crude oil prices increased the benefit to the
Company of its ability to process a significant percentage of heavy sulfur
grades of crude oil, as higher prices stimulated increased production of these
crude oil grades, which had been depressed by low prices during fiscal 1999, and
made crude producers willing to increase the discounts for these heavy high
sulfur grades versus the light low sulfur crude oil traded via NYMEX contracts.
This resulted in an increase of approximately $0.39 per barrel in fiscal 2000
versus fiscal 1999 in the average discount the Company received versus NYMEX
crude prices. As is typically the case in such market conditions, rising crude
oil and petroleum product prices also had the effect of increasing the margins
on the Company's wholesale gasoline and distillate sales, and rising prices also
benefited the Company's cost of goods sold by increasing the value of the
Company's working inventory. However, the use of the LIFO cost method to value
petroleum inventories on August 31, 2000 versus the market value method used one
year earlier partially offset the increase in inventory value which would
otherwise have been realized due to rising oil prices.
The beneficial effects of the increases in worldwide crude oil and
petroleum product prices was partially offset by somewhat reduced margins on
asphalt and retail gasoline, which typically occur under these market
conditions.
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<PAGE> 16
Overall, however, the market conditions in fiscal 2000 were significantly more
favorable to the Company than in fiscal 1999.
On September 29, 2000, the Company sold 42 retail units to an affiliate
for the sum of $23,870,000 subject to closing apportionments and adjustments.
Net revenues for these 42 retail units for the fiscal year ended August 31,
2000 were approximately $92 million.
On November 9, 2000, a subsidiary of United Refining Company submitted
a written proposal to the board of Getty Petroleum Marketing, Inc. ("Getty")
(NYSE:GPM) for the purchase of its approximately 14 million outstanding shares
of common stock. The proposal indicated that the United subsidiary would be
willing and fully prepared to pay $5.75 per share for all of the outstanding
shares. The Company has received a preliminary financing commitment from a
financial institution and is prepared to make an equity investment of up to $30
million should the transaction be consummated. If not accepted prior thereto,
this proposal will expire on December 8, 2000. To date there is one other bidder
for Getty. There is no assurance that the Company offer will be accepted by
Getty or if accepted, the transaction will be consummated. Getty markets
gasoline and petroleum products to approximately 1,300 branded locations in
thirteen Northeastern and Middle-Atlantic states. Getty is also a marketer of
heating oil in the New York Mid-Hudson Valley and is a wholesale distributor of
a variety of petroleum products through the East Coast petroleum storage and
distribution network.
RESULTS OF OPERATIONS
Comparison of Fiscal 2000 and Fiscal 1999.
Net Sales. Net sales increased $361.6 million or 47.7% from $758.2
million for fiscal 1999 to $1.1 billion for fiscal 2000. Retail sales
increased $150.2 million, or 34.3% from $438.2 million to $588.4 million, while
wholesale sales increased $211.4 million or 66.1% from $320.0 million to $531.4
million. Net sales increases were primarily due to price increases of 70.2% and
32.9% for wholesale and retail petroleum, respectively and to 4.9% and 16.4%
increases in retail petroleum volume and merchandise sales, respectively,
partially offset by a 2.3% decrease in wholesale petroleum volume. The price
increases were primarily due to a 78.6% increase in worldwide crude oil prices
for fiscal 2000 versus fiscal 1999, as indicated by the prices of NYMEX crude
oil contracts. The decrease in wholesale petroleum volume was primarily due to a
decrease in crude oil processed at the Company's refinery as the result of the
shutdown of certain refinery processing units for maintenance during portions of
April and May, 2000.
Costs of Goods Sold. Costs of goods sold increased $337.8 million or
51.8% from $652.4 million for fiscal 1999 to $990.2 million for fiscal 2000.
Retail costs of goods sold increased $149.6 million or 40.7% from $367.8 million
to $517.4 million, while wholesale costs of goods sold increased $188.2 million
or 66.1% from $284.6 million to $472.8 million. The increase in consolidated
costs of goods sold was primarily the result of the increase in world crude oil
prices, partially offset by a 5.0% decrease in crude processing and larger
discounts received on heavy, high sulfur crude oil purchases. Costs of goods
sold in fiscal 2000 were reduced by the beneficial effect of an increase of
approximately $7.2 million in the value of the Company's working inventories.
Had the same method been used to value petroleum inventories on August 31, 2000
and on August 31, 1999, the benefit to costs of goods sold from the increase in
working inventory would have been approximately $14.2 million for fiscal 2000
versus approximately $10.5 million for fiscal 1999. However, the increase in
working inventory value for fiscal 2000 was partially offset by the effect of
valuing the Company's inventories on August 31, 2000 under the LIFO cost method,
whereas on August 31, 1999, inventories had been valued at market, whereas LIFO
had exceeded market. For all the Company's petroleum inventories, including the
working inventories, the effect of using the LIFO method was to value the
August 31, 2000 inventories approximately $6.2 million lower than if the FIFO
method had been used.
Operating Expenses. Operating expenses increased $4.1 million or 4.7%
from $86.5 million for fiscal 1999 to $90.6 million for fiscal 2000. This
increase was primarily due to the increased cost of providing employee health
benefits, to retail expenses for sales promotions and credit card processing and
to increased depreciation on new capital equipment installed under the Company's
Capital Improvement Plan. Increased retail promotions expenses were primarily in
connection with a "frequent fueler" program which has been effective in
promoting customer
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<PAGE> 17
loyalty. Increased credit card processing expense was primarily due to increased
customer use of major credit cards at stations offering recently installed "Pay
at the Pump" service and to higher retail gasoline selling prices which
increased the processing fee per transaction.
Operating Income. Operating income increased $19.7 million from $19.3
million for fiscal 1999 to $39.0 million for fiscal 2000. Retail operating
income decreased $2.9 million from $4.9 million to $2.0 million, while wholesale
operating income increased $22.6 million from $14.4 million to $37.0 million.
The consolidated net income increase was primarily due to an increase in
wholesale margins which accompanied an increase in worldwide crude oil prices,
partially offset by a reduction of per gallon retail petroleum margins, which
typically occur during periods of rapidly increasing crude oil prices.
Interest Expense. Net interest expense (interest expense less interest
income) increased $1.3 million from $21.4 million for fiscal 1999 to $22.7
million for fiscal 2000. The increased net interest expense was due to a
decrease in interest income earned, as a result of lower balances of restricted
cash and investments, and to increased use of the Company's bank revolving
credit facility to finance inventories at the higher crude oil and petroleum
product prices.
Income Taxes. The Company's effective tax rate for fiscal 2000 was
approximately 50.5% compared to a rate of 38.6% for fiscal 1999. The higher rate
for fiscal 2000 was primarily due to prior year tax audits.
Comparison of Fiscal 1999 and Fiscal 1998.
Net Sales. Net sales decreased $1.3 million or 0.2% from $759.5 million
for fiscal 1998 to $758.2 million for fiscal 1999. Retail sales increased $2.8
million, or 0.6% from $435.4 million to $438.2 million, while wholesale sales
decreased $4.1 million or 1.2% from $324.1 million to $320.0 million. Sales
volume increases of 9.2%, 2.6% and 18.5% for wholesale petroleum, retail
petroleum and retail merchandise, respectively, were slightly more than offset
by per unit price decreases of 9.6% and 5.9% for wholesale and retail petroleum,
respectively.
Costs of Goods Sold. Costs of goods sold decreased $15.5 million or
2.3% from $667.9 million for fiscal 1998 to $652.4 million for fiscal 1999.
Retail costs of goods sold decreased $2.4 million or 0.6% from $370.2 million to
$367.8 million, while wholesale costs of goods sold decreased $13.1 million or
4.4% from $297.7 million to $284.6 million. The decrease in consolidated costs
of goods sold was primarily the result of a decrease in world crude oil prices
and reduction of costs of goods sold by changes in inventory prices, which more
than offset a 12.7% increase in crude processing and smaller discounts received
on heavy, high sulfur crude oil purchases. Worldwide crude oil prices, as
indicated by NYMEX contracts ended a prolonged decline in January 1999 and
recovered by the end of fiscal 1999 to levels significantly higher than at the
end of fiscal 1998. This resulted in an increase of $10.5 million in the value
of the Company's working inventories, which reduced costs of goods sold. In
fiscal 1998, declining worldwide crude oil prices had resulted in a $12.8
million decrease in the value of the Company's working inventories, which
increased the Company's costs of goods sold.
Operating Expenses. Operating expenses increased $3.1 million or 3.7%
from $83.4 million for 1998 to $86.5 million for fiscal 1999. This increase was
primarily due to increased retail expenses for sales promotions and for credit
card processing and to increased depreciation on new capital equipment installed
under the Company's Capital Improvement Plan. Increased retail promotions
expenses were primarily in connection with a "frequent fueler" program which has
been effective in increasing retail gasoline volume. Increased credit card
processing expense was primarily due to increased customer use of major credit
cards at stations offering recently installed "Pay at the Pump" service.
Operating Income. Operating income increased $11.1 million from $8.2
million for fiscal 1998 to $19.3 million for fiscal 1999. Retail operating
income increased $2.9 million from $2.0 million to $4.9 million, while wholesale
operating income increased $8.2 million from $6.2 million to $14.4 million. The
consolidated net income increase was primarily due to a decrease in costs of
goods sold as the result of lower worldwide crude oil prices and as the result
of the reduction to costs of goods sold from a $10.5 million increase in working
inventory value.
Interest Expense. Net interest expense (interest expense less interest
income) increased $1.9 million from $19.5 million for fiscal 1998 to $21.4
million for fiscal 1999. The increased net interest expense was due to a
decrease in interest income earned, as a result of lower balances of restricted
cash and investments.
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<PAGE> 18
Income Taxes. The Company's effective tax rate for fiscal 1999 was
approximately 38.6% compared to a rate of 40.0% for fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets minus current liabilities) at August
31, 2000, was $69.2 million and at August 31, 1999 was $53.3 million. The
Company's current ratio (current assets divided by current liabilities) was
2.3:1 at August 31, 2000, and was 1.8:1 at August 31, 1999.
Net cash provided by operating activities totaled $8.7 million for
fiscal 2000 compared to net cash used in operating activities of $13.8 million
in fiscal 1999. The net cash provided by operating activities for fiscal 2000
was achieved principally from an increase in cash generated by earnings (net
income plus depreciation and amortization) of $20.2 million, less net increases
in operating assets and liabilities (working capital) of ($17.3) million, a
change in deferred income taxes of $4.5 million and other items of $1.3 million.
Net cash used in investing activities totaled $5.1 million for the year
ended August 31, 2000 as compared to net cash used in investing activities of
$8.3 million for fiscal 1999. The net cash used in investing activities for
fiscal 2000 resulted from net capital additions of $5.9 million, less reduction
of long term assets of ($.8) million. For the fiscal year ended August 31, 2000
and 1999 respectively, cash and cash equivalents included $2.1 million and $2.5
million in government securities and commercial paper.
The Company reviews its capital expenditures on an ongoing basis.
During fiscal 2000, the Company invested approximately $5.9 million for capital
improvements, which were funded from cash flow. The Company currently has
budgeted approximately $6.0 million for capital expenditures in fiscal 2001.
Maintenance and non-discretionary capital expenditures have averaged
approximately $4 million annually over the last three years for the refining and
marketing operations.
Net cash used in financing activities totaled $5.1 million primarily
due to the reductions of borrowings on the revolving credit facility and
scheduled principal payments on long-term debt.
On September 29, 2000, the Company sold 42 retail units to an affiliate
for the sum of $23,870,000 subject to closing apportionments and adjustments.
The Company has invested the proceeds of this sale in short-term investments
and has (as of the filing date) not made a final commitment for the use of the
restricted proceeds.
On November 9, 2000, a subsidiary of the Company submitted a written
proposal to the board of Getty for the purchase of all the outstanding common
stock of Getty. The proposal indicated that the United subsidiary would be
willing and fully prepared to pay $5.75 per share for all of the outstanding
shares. The Company has received a preliminary financing commitment from a
financial institution and is prepared to make an equity investment of up to $30
million should the transaction be consummated. If not accepted prior thereto,
this proposal will expire on December 8, 2000. To date there is one other bidder
for Getty. There is no assurance that the Company offer will be accepted by
Getty or if accepted, the transaction will be consummated.
Future liquidity, both short and long-term, will continue to be
primarily dependent on realizing a refinery margin sufficient to cover fixed and
variable expenses, including planned capital expenditures. The Company expects
to be able to meet its working capital, capital expenditure and debt service
requirements out of cash flow from operations, cash on hand and borrowings under
the Company's secured revolving credit facility (the "Facility") with PNC Bank,
N.A. as Agent Bank. During February 2000 the Company renegotiated its secured
revolving credit facility to provide for a temporary increase in its revolving
credit commitment up to $45,000,000. The commitment increase shall remain in
effect through December 31, 2000, at which time it will revert to its prior
maximum level of $35,000,000 if not renewed. The Facility expires on June 9,
2002 and is secured by certain qualifying cash accounts, accounts
18
<PAGE> 19
receivable, and inventory. The interest rate on borrowings varies with the
Company's earnings and is based on the higher of the bank's prime rate or
Federal funds rate plus 1/2% for base rate borrowings and the LIBOR rate for
Euro-Rate borrowings, which was 8.62% as of August 31, 2000. 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.
In February 2000, USEPA issued a final rule requiring the reduction
of the sulfur content of gasoline. The Company anticipates that a material
investment of funds will be required before 2008 to comply with the rule.
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. As a result,
the margin on gasoline prices versus crude oil costs generally tends to increase
in the spring and summer, while margins on home heating oil and kerosene tend to
increase in winter.
INFLATION
The effect of inflation on the Company has not been significant during
the last five fiscal years.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("Statement 133"),
"Accounting for Derivative Instruments and Hedging Activities." Statement 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
these instruments at fair value. The accounting for changes in the fair value of
a derivative, that is, gains and losses, depends on the intended use of the
derivative and its resulting designation.
Statement 133, as amended, is effective for all transactions entered
into after June 15, 2000. Management believes that the adoption of Statement 133
will not have a material effect on the Company's financial position or results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements." In
June 2000, the SEC delayed the required implementation date to the fourth
quarter of fiscal years beginning after December 15, 1999. The Company does not
expect the implementation of SAB101 to have a material effect on its results of
operations and financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants 21
Consolidated Financial Statements:
Balance Sheets 22
Statements of Operations 23
Statements of Stockholder's Equity 24
Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26 thru 41
20
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
United Refining Company
We have audited the accompanying consolidated balance sheets of United Refining
Company and subsidiaries as of August 31, 2000 and 1999, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended August 31, 2000. These consolidated
financial statements are the responsibility of the management of United Refining
Company and its subsidiaries. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Refining
Company and subsidiaries as of August 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 2000 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
New York, New York
October 31, 2000, except for Note 18 which is as of November 9, 2000
21
<PAGE> 22
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 7,430 $ 8,925
Accounts receivable, net 44,304 33,239
Inventories 61,894 70,728
Prepaid expenses and other assets 8,877 10,146
-------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 122,505 123,038
PROPERTY, PLANT AND EQUIPMENT, NET 207,746 213,422
DEFERRED FINANCING COSTS, NET 5,497 6,370
OTHER ASSETS 4,620 6,410
-------------------------------------------------------------------------------------------------------
$340,368 $349,240
=======================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Revolving credit facility $ -- $ 5,000
Current installments of long-term debt 150 217
Accounts payable 18,434 34,727
Income taxes payable 538 --
Accrued liabilities 12,810 12,374
Sales, use and fuel taxes payable 15,809 16,856
Deferred income taxes 5,571 661
-------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 53,312 69,835
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 200,961 200,956
DEFERRED INCOME TAXES 13,103 13,515
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 1,775 1,990
DEFERRED RETIREMENT BENEFITS 15,738 14,055
OTHER NONCURRENT LIABILITIES 373 468
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 285,262 300,819
-------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $.10 par value per share - shares authorized
100; issued and outstanding 100 -- --
Additional paid-in capital 7,150 7,150
Retained earnings 47,956 41,271
-------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 55,106 48,421
-------------------------------------------------------------------------------------------------------
$340,368 $349,240
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
----------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (INCLUDES CONSUMER EXCISE TAXES OF
$158,503, $148,007 AND $145,316) $ 1,119,815 $ 758,204 $ 759,525
COSTS OF GOODS SOLD 990,248 652,370 667,899
--------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 129,567 105,834 91,626
--------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative expenses 80,390 77,487 75,064
Depreciation and amortization expenses 10,168 9,042 8,320
--------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 90,558 86,529 83,384
--------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 39,009 19,305 8,242
--------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 288 1,027 2,701
Interest expense (22,962) (22,377) (22,188)
Other, net (2,822) (560) (1,587)
--------------------------------------------------------------------------------------------------------------------------------
(25,496) (21,910) (21,074)
--------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 13,513 (2,605) (12,832)
--------------------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT):
Current 2,330 (194) (319)
Deferred 4,498 (812) (4,813)
--------------------------------------------------------------------------------------------------------------------------------
6,828 (1,006) (5,132)
--------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,685 (1,599) (7,700)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAXES OF $3,122 -- 4,783 --
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 6,685 $ 3,184 $ (7,700)
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1997 100 $ -- $ 7,150 $ 45,787 $ 52,937
Net loss -- -- (7,700) (7,700)
------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1998 100 -- 7,150 38,087 45,237
Net income -- -- 3,184 3,184
------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1999 100 -- 7,150 41,271 48,421
Net income -- -- 6,685 6,685
------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 2000 100 $ -- $ 7,150 $ 47,956 $ 55,106
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,685 $ 3,184 $ (7,700)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Cumulative effect of accounting change -- (7,905) --
Depreciation and amortization 13,492 12,143 8,973
Post-retirement benefits 1,683 1,705 1,553
Change in deferred income taxes 4,498 2,311 (4,813)
(Gain) loss on asset dispositions 621 (783) 503
Cash provided by (used in) working capital items (17,328) (24,489) 16,892
Other, net (920) 13 (42)
------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 2,046 (17,005) 23,066
------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,731 (13,821) 15,366
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash and cash equivalents
and investments -- 15,289 32,879
Additions to property, plant and equipment (5,900) (26,047) (33,516)
Proceeds from asset dispositions 807 2,417 913
------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,093) (8,341) 276
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (reductions) borrowings on revolving credit facility (5,000) 5,000 --
Principal reductions of long-term debt (235) (313) (250)
Proceeds from issuance of long-term debt 152 -- 287
Deferred financing costs (50) -- (303)
------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,133) 4,687 (266)
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,495) (17,475) 15,376
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,925 26,400 11,024
------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,430 $ 8,925 $ 26,400
==============================================================================================================================
CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net (11,065) $ (6,222) $ 2,745
Inventories 8,834 (15,499) 11,972
Prepaid expenses and other assets 1,269 (2,419) (941)
Accounts payable (16,293) 9,429 (3,712)
Accrued liabilities 436 (608) (6,142)
Income taxes payable 538 -- --
Sales, use and fuel taxes payable (1,047) (9,170) 12,970
------------------------------------------------------------------------------------------------------------------------------
TOTAL CHANGE $(17,328) $(24,489) $ 16,892
==============================================================================================================================
CASH PAID DURING THE PERIOD FOR:
Interest $ 23,043 $ 22,084 $ 22,454
Income taxes $ 125 $ 207 $ 266
==============================================================================================================================
NON-CASH FINANCING ACTIVITIES:
Capital leases $ 21 $ 177 $ --
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. ACCOUNTING POLICIES
Basis of Presentation
United Refining Company is a wholly-owned subsidiary of United
Refining, Inc. ("United"), a wholly-owned subsidiary of United Acquisition
Corporation ("UAC") which, in turn is a wholly-owned subsidiary of Red Apple
Group, Inc. (the "Parent").
The consolidated financial statements include the accounts of United
Refining Company and its subsidiaries (collectively, the "Company"), United
Refining Company of Pennsylvania and its subsidiaries, and Kiantone Pipeline
Corporation.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investment securities with maturities of three
months or less at date of acquisition to be cash equivalents.
Inventories and Exchanges
Inventories are stated at the lower of cost or market, with cost being
determined under the Last-in, First-out (LIFO) method for crude oil and
petroleum product inventories and the First-in, First-out (FIFO) method for
merchandise. Supply inventories are stated at either lower of cost or market or
replacement cost and include various parts for the refinery operations. If the
cost of inventories exceeds their market value, provisions are made currently
for the difference between the cost and the market value. As of August 31, 2000,
had the Company utilized the FIFO inventory method, petroleum product
inventories would have been higher by $6,206,000. The Company, at August 31,
2000, had a LIFO layer liquidation which resulted in an inventory reduction of
approximately $1,400,000. As of August 31, 1999, LIFO cost exceeded market by
approximately $3,800,000, resulting in the valuation of petroleum inventories
at market.
Inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------
2000 1999
---------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Crude Oil $ 16,975 $ 24,222
Petroleum Products 22,819 23,277
---------------------------------------------------------------
Total @ LIFO 39,794 47,499
---------------------------------------------------------------
Merchandise 9,020 9,953
Supplies 13,080 13,276
---------------------------------------------------------------
Total @ FIFO 22,100 23,229
---------------------------------------------------------------
Total Inventory $ 61,894 $ 70,728
===============================================================
</TABLE>
26
<PAGE> 27
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Included in petroleum product inventories are exchange balances either
held for or due from other petroleum marketers. These balances are not
significant.
The Company does not own sources of crude oil and depends on outside
vendors for its needs.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated by the
straight-line method over the respective estimated useful lives.
Routine current maintenance, repairs and replacement costs are charged
against income. Turnaround costs, which consist of complete shutdown and
inspection of significant units of the refinery at intervals of two or more
years for necessary repairs and replacements, are deferred when incurred and
amortized on a straight-line basis over the period of benefit (see Change in
Accounting Principle). Expenditures which materially increase values, expand
capacities or extend useful lives are capitalized. A summary of the principal
useful lives used in computing depreciation expense is as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS)
------------------------------------------------------
<S> <C>
Refinery Equipment 20-30
Marketing 15-30
Transportation 20-30
------------------------------------------------------
</TABLE>
Revenue Recognition
Revenues from wholesale sales are recognized upon shipment or when
title passes. Retail revenues are recognized immediately upon sale to the
customer.
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company joins with the Parent and the Parent's other subsidiaries
in filing a Federal Income tax return on a consolidated basis. Income taxes are
calculated on a separate return basis with consideration of the tax sharing
agreement between the Parent and its subsidiaries. Pursuant to the tax sharing
agreement, included in prepaid expenses and other assets are amounts due from
the Parent of approximately $ -0- and $1,600,000 as of August 31, 2000 and 1999,
respectively.
27
<PAGE> 28
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Post-retirement Healthcare Benefits
The Company provides at no cost to retirees, post-retirement healthcare
benefits to salaried and certain hourly employees. The benefits provided are
hospitalization, medical coverage and dental coverage for the employee and
spouse until age 65. After age 65, benefits continue until the death of the
retiree, which results in the termination of benefits for all dependent
coverage. If an employee leaves the Company as a terminated vested member of a
pension plan prior to normal retirement age, the person is not entitled to any
post-retirement healthcare benefits.
The Company accrues post-retirement benefits other than pensions,
during the years that the employee renders the necessary service, of the
expected cost of providing those benefits to an employee and the employee's
beneficiaries and covered dependents. The Company has elected to amortize the
transition obligation of approximately $12,000,000 on a straight-line basis over
a 20-year period.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company extends credit based on evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
The Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.
Environmental Matters
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures, which extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Company determines its liability on a site by site basis and
records a liability at the time when it is probable and can be reasonably
estimated. The Company's estimated liability is reduced to reflect the
anticipated participation of other potentially responsible parties in those
instances where it is probable that such parties are legally responsible and
financially capable of paying their respective shares of the relevant costs. The
estimated liability of the Company is discounted, but is not reduced for
possible recoveries from insurance carriers (Note 14).
Long-Lived Assets
Long-lived assets, such as intangible assets and property and
equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
the estimated undiscounted future cash flows from the use of these assets. When
any such impairment exists, the related assets will be written down to fair
value.
28
<PAGE> 29
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Change in Accounting Principle
Effective September 1, 1998, the Company changed its method of
accounting for major maintenance turnarounds and recorded a $4,783,000 credit,
net of income taxes of $3,122,000 as the cumulative effect change as of
September 1, 1998. Under the new accounting principle, the Company defers the
cost of turnarounds when incurred and amortizes the costs to operations on a
straight-line basis over the period of benefit. Previously, turnaround costs
were estimated and accrued and charged to operations over the period preceding
the next scheduled turnaround. The change was due to the increasingly difficult
estimation process of determining the accurate costs charged to operations, due
in part to the numerous and ever changing environmental rules and regulations.
This change enables the Company to more accurately charge costs to production
over the period most clearly benefited by the turnaround. As of August 31, 2000,
net deferred turnaround costs included in other assets amounted to $4,100,000,
net of accumulated amortization of $6,142,000.
Pro forma amounts assuming the new accounting method is applied
retroactively are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1998
-----------------------------
As reported Proforma
adjusted
--------------------------------------------------------------------------------
<S> <C> <C>
Loss before income tax benefit and $ (12,832) $ (11,916)
cumulative effect of accounting change
Net loss before cumulative effect of $ (7,700) $ (7,150)
accounting change
================================================================================
</TABLE>
Segment Disclosures
Effective in 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("Statement 131"), "Disclosure about Segments of an
Enterprise and Related Information." Statement 131 standardizes the way that
public companies report information about operating segments in annual and
interim financial statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas and major
customers. Statement 131 requires segments to be determined based upon how
operations are managed and evaluated internally. (See Note 15).
Employee Benefit Plan Disclosures
Effective in 1999, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and other
Post-retirement Benefits," which standardizes the disclosure requirements for
pension and other post-retirement benefit plans. In addition, the statement
requires additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures that are no longer
useful. Certain prior period disclosures have been restated to conform to the
new reporting requirements and additional information has been added.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("Statement 133"),
"Accounting for Derivative Instruments and Hedging Activities." Statement 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all
29
<PAGE> 30
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. The accounting for changes
in the fair value of a derivative, that is, gains and losses, depends on the
intended use of the derivative and its resulting designation.
Statement 133, as amended, is effective for all transactions entered
into after June 15, 2000. Management believes that the adoption of Statement 133
will not have a material effect on the Company's financial position or results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." In June 2000, the SEC delayed the required implementation date
to the fourth quarter of fiscal years beginning after December 15, 1999. The
Company does not expect the implementation of SAB 101 to have a material effect
on its results of operations and financial position.
Reclassification
Certain amounts in the prior year's consolidated financial statements
have been reclassified to conform with the presentation in the current year.
2. ACCOUNTS RECEIVABLE, NET
As of August 31, 2000 and 1999, accounts receivable were net of
allowance for doubtful accounts of $460,000 and $365,000 respectively.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------
2000 1999
--------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Refinery equipment,
Including construction-in-progress $172,947 $169,941
Marketing (i.e. retail outlets) 101,152 102,905
Transportation 7,136 7,049
--------------------------------------------------------------------------------
281,235 279,895
Less: Accumulated depreciation 73,489 66,473
--------------------------------------------------------------------------------
$207,746 $213,422
================================================================================
</TABLE>
30
<PAGE> 31
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
2000 1999
-------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Interest $ 4,842 $ 4,923
Payrolls and benefits 5,649 6,197
Other 2,319 1,254
-------------------------------------------------------------------------
$ 12,810 $ 12,374
=========================================================================
</TABLE>
5. LEASES
The Company occupies premises, primarily retail gas stations and
convenience stores and office facilities under long-term leases which require
minimum annual rents plus, in certain instances, the payment of additional rents
based upon sales. The leases generally are renewable for one to three five-year
periods.
As of August 31, 2000 and 1999, capitalized lease obligations, included
in long-term debt, amounted to $656,000 and $719,000, respectively, net of
current portion of $47,000 and $88,000 respectively. The related assets (retail
gas stations and convenience stores) as of August 31, 2000 and 1999 amounted to
$502,000 and $550,000 respectively, net of accumulated amortization of $354,000
and $715,000, respectively.
Lease amortization amounting to $70,000, $72,000, and $85,000 for the
years ended August 31, 2000, 1999, and 1998 respectively, is included in
depreciation and amortization expense.
Future minimum lease payments as of August 31, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED AUGUST 31, LEASES LEASES
------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
2001 $ 134 $3,030
2002 112 2,465
2003 114 1,684
2004 118 1,197
2005 121 462
Thereafter 972 882
------------------------------------------------------------------------------
Total minimum lease payments 1,571 9,720
Less: Minimum sublease rents -- 142
------------------------------------------------------------------------------
Net minimum sublease payments 1,571 $9,578
======
Less: Amount representing interest 915
------------------------------------------------------------
Present value of net minimum
lease payments $ 656
============================================================
</TABLE>
31
<PAGE> 32
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Net rent expense for operating leases amounted to $3,324,000,
$3,386,000 and $3,338,000 for the years ended August 31, 2000, 1999 and 1998
respectively.
6. CREDIT FACILITY
In June 1997, the Company negotiated a $35,000,000 secured revolving
credit facility (the "Facility") with a syndicate of banks with PNC Bank, N.A.
as Agent Bank. The Facility provides for revolving credit loans and for the
issuance of letters of credit. During February 2000, the Company renegotiated
the Facility to provide for a temporary increase in its revolving credit
commitment up to $45,000,000. The temporary commitment increase shall remain in
effect through December 31, 2000 at which time it will revert to its prior
maximum level of $35,000,000 if not renewed. The Facility expires on June 9,
2002 and is secured by certain qualifying cash accounts, accounts receivable,
and inventory, which amounted to $75,207,000 as of August 31, 2000. Until
maturity, the Company may borrow, repay and reborrow on an amount not exceeding
certain percentages of secured assets. The interest rate on borrowings varies
with the Company's earnings and is based on the higher of the bank's prime rate
or Federal funds rate plus up to .75% for base rate borrowings and the LIBOR
rate plus 1.25% to 2.5% for Euro-Rate borrowings, which was 8.62% as of August
31, 2000. As of August 31, 2000 no letters of credit or borrowings were
outstanding under the agreement. As of August 31, 1999 no letters of credit and
$5,000,000 of borrowings were outstanding. The Company pays a commitment fee of
3/8% per annum on the unused balance of the Facility.
7. LONG-TERM DEBT
During June 1997, the Company sold $200,000,000 of 10 3/4% Senior
Unsecured Notes due 2007, Series A. Subsequent to this issue, the Company
exchanged these notes for its 10 3/4% Senior Unsecured Notes due 2007, Series B.
Such notes are fully and unconditionally guaranteed on a senior unsecured basis
by all of the Company's subsidiaries (Note 16).
Both the senior unsecured notes and secured credit facility require
that the Company maintain certain minimum levels of tangible net worth, working
capital ratios and cash flow and restrict the amount available to distribute
dividends. The Company is currently in compliance with its loan covenants.
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------
2000 1999
----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
10.75% senior unsecured notes due June 9, 2007,
Series B $200,000 $200,000
Other long-term debt 455 454
Capitalized lease obligations (Note 5) 656 719
----------------------------------------------------------------------------------------------------
201,111 201,173
Less: Current installment long-term debt 150 217
----------------------------------------------------------------------------------------------------
Total long-term debt, less current installments $200,961 $200,956
====================================================================================================
</TABLE>
32
<PAGE> 33
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The principal amount of long-term debt outstanding as of August 31,
2000, matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C>
2001 $ 150
2002 127
2003 110
2004 122
2005 90
Thereafter 200,512
-----------------------------------------------------------------
$201,111
=================================================================
</TABLE>
The following financing costs have been deferred and are being
amortized to expense over the term of the related debt:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
2000 1999
----------------------------
(IN THOUSANDS)
-------------------------------------------------------------------------
<S> <C> <C>
Deferred Financing Costs 8,390 8,340
Less: Accumulated Amortization 2,893 1,970
-------------------------------------------------------------------------
$ 5,497 $ 6,370
=========================================================================
</TABLE>
8. EMPLOYEE BENEFIT PLANS
Substantially all employees of the Company are covered by
noncontributory defined benefit retirement plans. The benefits are based on each
employee's years of service and compensation. The Company's policy is to
contribute the minimum amounts required by the Employee Retirement Income
Security Act of 1974, as amended. The assets of the plans are invested in an
investment trust fund and consist of interest-bearing cash and bank
common/collective trust funds.
In addition to the above, the Company provides certain post-retirement
healthcare benefits to salaried and certain hourly employees. These
post-retirement benefit plans are unfunded and the costs are shared by the
Company and its retirees.
33
<PAGE> 34
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Net periodic pension cost and post-retirement healthcare benefit cost
consist of the following components for the years ended August 31, 2000, 1999,
and 1998:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POST-RETIREMENT BENEFITS
------------------------------------ ------------------------------------
2000 1999 1998 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,487 $ 1,430 $ 1,381 $ 747 $ 689 $ 620
Interest cost on benefit obligation 2,149 2,014 1,897 1,064 931 892
Expected return on plan assets (2,762) (2,315) (1,921) -- -- --
Amortization of transition obligation 140 140 140 597 597 597
Amortization and deferrals (252) (121) (175) (124) (179) (211)
------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 762 $ 1,148 $ 1,322 $ 2,284 $ 2,038 $ 1,898
==============================================================================================================================
</TABLE>
The following table summarizes the change in benefit obligations and
fair values of plan assets for the years ended August 31, 2000 and 1999:
<TABLE>
<CAPTION>
OTHER
POST-RETIREMENT
PENSION BENEFITS BENEFITS
------------------------- -------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation @ beginning of year $ 29,975 $ 25,079 $ 13,796 $ 12,450
Service cost 1,487 1,430 747 689
Interest cost 2,149 2,014 1,064 931
Actuarial (gains) losses (955) 2,434 1,027 195
Benefits paid (777) (982) (908) (469)
--------------------------------------------------------------------------------------------------------------------
Benefit obligation @ end of year 31,879 29,975 15,726 13,796
--------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair values of plan assets @ beginning of year 30,150 24,965 -- --
Actual return on plan assets 5,082 5,059 -- --
Company contributions 936 1,108 908 469
Benefits paid (777) (982) (908) (469)
--------------------------------------------------------------------------------------------------------------------
Fair values of plan assets @ end of year 35,391 30,150 -- --
--------------------------------------------------------------------------------------------------------------------
Funded status (3,512) (175) 15,726 13,796
Unrecognized actuarial gains 10,181 7,233 3,152 4,303
Unrecognized prior service cost (768) (844) -- --
Unrecognized transition obligation (1,051) (1,190) (7,758) (8,355)
--------------------------------------------------------------------------------------------------------------------
Accrued benefit cost $ 4,850 $ 5,024 $ 11,120 $ 9,744
====================================================================================================================
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 7.5% 7.5% 7.5% 7.5%
=========================
Expected return on plan assets 9.0% 9.0%
Rate of compensation increase 3.0%-4.5% 3.0%-4.5%
=========================
</TABLE>
For measurement purposes, the assumed annual rate of increase in the per capita
cost of covered medical and dental benefits was 6.8% and 5%, respectively for
2000; the rates were assumed to decrease gradually to 5% for both medical and
dental benefits until 2007 and remain at that level thereafter. The healthcare
cost trend rate assumption has a significant effect on the amounts reported. To
illustrate, a 1 percentage point change in the assumed healthcare cost trend
rate would have the following effects:
34
<PAGE> 35
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
1% POINT 1% POINT
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components $ 338 $ (312)
Effect on post-retirement benefit obligation 2,654 (2,483)
</TABLE>
The Company also contributes to voluntary employee savings plans
through regular monthly contributions equal to various percentages of the
amounts invested by the participants. The Company's contributions to these plans
amounted to $607,000, $576,000 and $548,000 for the years ended August 31, 2000,
1999 and 1998, respectively.
9. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------
2000 1999 1998
--------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current $ 1,525 $ (185) $ (600)
Deferred 3,743 (668) (2,971)
--------------------------------------------------------------------
5,268 (853) (3,571)
--------------------------------------------------------------------
State:
Current 805 (9) 281
Deferred 755 (144) (1,842)
--------------------------------------------------------------------
1,560 (153) (1,561)
--------------------------------------------------------------------
$ 6,828 $ (1,006) $ (5,132)
====================================================================
</TABLE>
Reconciliation of the differences between income taxes computed at the
Federal statutory rate and the provision for income taxes attributable to income
(loss) before income tax expense (benefit) and cumulative effect of accounting
change is as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
U. S. federal income taxes at the statutory rate of 34% $ 4,595 $ (886) $ (4,363)
State income taxes, net of Federal benefit 1,118 (172) (664)
Federal income tax audit 966 - -
Reduction of taxes provided in prior year - - (51)
Nondeductible expenses 170 16 174
Other (21) 36 (228)
-----------------------------------------------------------------------------------------------------------------
Income tax attributable to income (loss) before
income tax expense (benefit) and cumulative effect
of accounting change $ 6,828 $ (1,006) $ (5,132)
=================================================================================================================
</TABLE>
35
<PAGE> 36
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Deferred income tax liabilities (assets) are comprised of the
following:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------
2000 1999
---------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Current deferred income tax liabilities (assets):
Inventory valuation $ 6,536 $ 2,610
Accounts receivable allowance (85) (141)
Accrued liabilities (872) (1,775)
Other (8) (33)
---------------------------------------------------------------------------------------
5,571 661
---------------------------------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment 29,373 29,898
Accrued liabilities (7,492) (6,725)
Tax credits and carryforwards (6,181) (7,146)
State net operating loss carryforwards (3,287) (3,437)
Valuation allowance 644 854
Other 46 71
---------------------------------------------------------------------------------------
13,103 13,515
---------------------------------------------------------------------------------------
Net deferred income tax liability $ 18,674 $ 14,176
=======================================================================================
</TABLE>
The Company's results of operations are included in the consolidated
Federal tax return of the Parent. The Company has a net operating loss for
regular tax purposes of $8,400,000 which will expire after 2018. For financial
reporting purposes, valuation allowances of $644,000 and $854,000 at August 31,
2000 and 1999 were recognized for state net operating loss carryforwards not
anticipated to be realized before expiration.
The Tax Reform Act of 1986 created a separate parallel tax system
called the Alternative Minimum Tax ("AMT") system. AMT is calculated separately
from the regular U.S. Federal income tax and is based on a flat rate of 20%
applied to a broader tax base. The higher of the two taxes is paid. The excess
AMT over regular tax is a tax credit, which can be carried forward indefinitely
to reduce regular tax liabilities in excess of AMT liabilities of future years.
The Company generated AMT credits in prior years of approximately $3,000,000
that is available to offset the regular tax liability in the future years.
10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
The carrying amount of cash and cash equivalents, trade accounts
receivable and current liabilities approximate fair value because of the short
maturity of these instruments.
The fair value of long-term debt (Note 7) was determined using the fair
market value of the individual debt instruments. As of August 31, 2000, the
carrying amount and estimated fair value of these debt instruments approximated
$201,111,000 and $126,893,000, respectively.
36
<PAGE> 37
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. CONTINGENCIES
In addition to the environmental matters discussed in Note 13, the
Company is a defendant in various claims, legal actions and complaints arising
in the ordinary course of business. In the opinion of management, all such
matters are adequately covered by insurance, or if not so covered, are without
merit or are of such kind, or involve such amounts that an unfavorable
disposition would not have a material adverse effect on the consolidated
financial position of the Company.
12. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company paid a service fee relating to certain costs incurred by
its Parent for the Company's New York office. During the years ended August 31,
2000, 1999 and 1998, such fees amounted to approximately $1,000,000, $995,000
and $980,000 respectively.
An affiliate of the Company leases eight retail gas station and
convenience stores to the Company under various operating leases which all
expire in 2001. Rent expense relating to these leases was $248,000 for the year
ended August 31, 2000 and $264,000 for each of the years ended August 31, 1999
and 1998.
13. ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
relating to pollution and protection of the environment such as those governing
releases of certain materials into the environment and the storage, treatment
transportation, disposal and clean-up of wastes, including, but not limited to,
the Federal Clean Water Act, as amended, the Resource Conservation and Recovery
Act of 1976, as amended, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and analogous state and local laws and
regulations.
The Company entered into a Consent Order and Agreement (the
"Agreement") with the Pennsylvania Department of Environmental Protection
("DEP") on July 31, 2000. The Agreement resolves certain claims arising out of
discharges from the Company's Industrial Wastewater Treatment Plant ("IWTP) as
well as other sources. The Agreement covers all discharges between approximately
September 24, 1997 and May 4, 2000 alleged by DEP to be in violation of
applicable law, regulation and permits issued to the Company. The Agreement
requires the Company to pay a civil money penalty in the amount of $70,000,
revise its PPC Plan and waste sampling procedures and evaluate and upgrade
certain physical components associated with the Company's Warren, Pennsylvania
refining facility. Failure by the Company to comply with the Agreement carries a
$250 per day stipulated civil penalty. The Company believes it has complied in
all respects with the ongoing requirements of the Agreement and that compliance
with the Agreement will not have a material adverse effect upon the operations
or consolidated financial position of the Company.
Due to the nature of the Company's business, the Company is and will
continue to be subject to various environmental claims, legal actions and
complaints. The Company is unable to determine the aggregate effect of the
claims asserted by the United States Environmental Protection Agency pursuant to
certain Notices of Violation and an Administrative Order or the effect of Methyl
Tertiary Butyl Ether ("MTBE")-related litigation upon its operations or
consolidated financial condition until the scope of the claims is fully known.
In the opinion of management, all other current matters are without merit or are
of such kind or involve such amounts that an unfavorable disposition would not
have a material adverse effect on the consolidated financial position or
operations of the Company.
Management of the Company believes that remediation and related
environmental costs incurred during the normal course of business are not
expected to be material.
37
<PAGE> 38
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. OTHER LIABILITIES
During 1994, the Company incurred a loss of $1,598,000 in connection
with the settlement of a claim dating back to a period prior to the acquisition
by the Parent (Note 1). The related settlement amount of $2,300,000 ($1,598,000
after being discounted at 13% per annum) is payable in quarterly installments of
$125,000 commencing on January 13, 1995, and continuing to October 13, 1998, at
which time annual payments of $160,000 will be required until the remaining
outstanding balance is liquidated on October 13, 2002. The outstanding balance
as of August 31, 2000 and 1999 was $373,000 and $468,000 respectively.
The undiscounted amounts due as of August 31, 2000 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
(IN THOUSANDS)
<S> <C>
2001 $ 160
2002 160
2003 160
-----------------------------------------------------------
$ 480
===========================================================
</TABLE>
15. SEGMENTS OF BUSINESS
The Company is a petroleum refiner and marketer in its primary market
area of Western New York and Northwestern Pennsylvania. Operations are organized
into two business segments: wholesale and retail.
The wholesale segment is responsible for the acquisition of crude oil,
petroleum refining, and the marketing of petroleum products to wholesale and
industrial customers. The retail segment sells petroleum products and
convenience and grocery items through company owned gasoline stations and
convenience stores under the Kwik Fill(R) and Red Apple Food Mart(R) brand
names.
The accounting policies of the reportable segments are the same as
those described in Note 1 to the consolidated financial statements. 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 table.
38
<PAGE> 39
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales
Retail $ 588,398 $ 438,235 $ 435,473
Wholesale 531,417 319,969 324,052
------------------------------------------------------
$1,119,815 $ 758,204 $ 759,525
======================================================
Intersegment Sales
Wholesale $ 264,698 $ 142,039 $ 156,959
======================================================
Operating income
Retail $ 2,040 $ 4,889 $ 1,987
Wholesale 36,969 14,416 6,255
------------------------------------------------------
$ 39,009 $ 19,305 $ 8,242
======================================================
Total Assets
Retail $ 108,925 $ 113,599 $ 95,654
Wholesale 231,443 235,641 246,925
------------------------------------------------------
$ 340,368 $ 349,240 $ 342,579
======================================================
Depreciation and Amortization
Retail $ 2,938 $ 2,310 $ 1,957
Wholesale 7,230 6,732 6,363
------------------------------------------------------
$ 10,168 $ 9,042 $ 8,320
======================================================
Capital Expenditures
Retail $ 1,455 $ 18,698 $ 16,880
Wholesale 4,445 7,526 16,636
------------------------------------------------------
$ 5,900 $ 26,224 $ 33,516
======================================================
</TABLE>
During FYE 2000, the Company changed its methodology for allocating
administrative overhead and its accounting classification of commission income
resulting in the reclassification of prior period data.
16. SUBSIDIARY GUARANTORS
Summarized financial information for the Company's wholly-owned
subsidiary guarantors (Note 7) is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
2000 1999
-------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Current Assets $ 45,304 $ 45,027
Noncurrent Assets 85,443 88,431
Current Liabilities 127,180 125,789
Noncurrent Liabilities 9,300 10,312
=========================================================================
</TABLE>
39
<PAGE> 40
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales $ 593,535 $ 443,786 $ 440,465
Gross Profit 73,509 73,624 67,059
Operating Income 3,679 6,822 2,434
Net loss (3,090) 556 (2,133)
=================================================================================
</TABLE>
Separate financial statements of the wholly-owned subsidiary guarantors
are not presented because management believes they would not be meaningful to
investors.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
INCOME
(LOSS) BEFORE
GROSS CUMULATIVE
NET SALES PROFIT EFFECT CHANGE
--------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
2000
First Quarter $ 245,268 $ 28,273 $ 65
Second Quarter 250,927 29,355 206
Third Quarter 277,022 32,205 1,851
Fourth Quarter 346,598 39,734 4,563
1999
First Quarter $ 187,306 $ 25,423 $ (450)
Second Quarter 144,854 17,146 (6,435)
Third Quarter 185,566 33,098 4,214
Fourth Quarter 240,478 30,167 1,072
================================================================================
</TABLE>
In the fourth quarter of 2000, the Company revised its accounting
classification of commission income, resulting in the reclassification of prior
quarterly data presented in the above table.
18. SUBSEQUENT EVENT
On September 29, 2000, the Company sold 42 retail units to an affiliate
for the sum of $23,870,000 subject to closing apportionments and adjustments.
Net revenues for these 42 retail units for the fiscal year ended August 31, 2000
were approximately $92 million. The Company has invested the proceeds of this
sale in short-term investments and has not made a final commitment on the use of
the restricted proceeds. Concurrent with the asset sale, the Company entered
into a management agreement with an affiliate to operate and manage the retail
units.
On November 9, 2000, a subsidiary of United Refining Company submitted
a written proposal to the board of Getty Petroleum Marketing, Inc. ("Getty") for
the purchase of its approximately 14 million outstanding shares of common stock.
The proposal indicated that the United subsidiary would be willing and fully
prepared to pay $5.75 per share for all of the outstanding shares. The Company
has received a preliminary financing commitment from a financial institution and
is prepared to make an equity investment of up to $30 million should the
transaction be consummated. If not accepted prior thereto, this proposal will
expire on December 8, 2000. To date there is one other bidder for Getty. There
is no assurance that the Company offer will be accepted by Getty or if accepted,
the transaction will be consummated. Getty markets gasoline and petroleum
products to approximately 1,300 branded locations in thirteen Northeastern and
Middle-Atlantic states. Getty is also a marketer of heating oil in the New York
Mid-Hudson Valley and is a wholesale distributor of a variety of petroleum
products through the East Coast petroleum storage and distribution network.
40
<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information as of November 29, 2000 with respect to
all directors and executive officers of the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION PRINCIPAL OCCUPATION FOR THE PAST 5 YEARS
---- --- ----- -------- -----------------------------------------
<S> <C> <C> <C> <C>
John A. Catsimatidis 52 1986 Chairman of the Chairman of the Board, Chief Executive Officer and
Board, Chief President of Red Apple Group, Inc. (a holding company
Executive for certain businesses, including the Company and
Officer, corporations which operate supermarkets in New York);
Director Chief Executive Officer and Director of Gristede's Foods,
Inc., a public company whose common stock is listed on the
American Stock Exchange and operates supermarkets in New
York; a director of News Communications, Inc., a public
company whose stock is traded over-the-counter and Fonda
Paper Company, Inc., a privately held company.
Myron L. Turfitt 48 1988 President, Chief President and Chief Operating Officer of the Company
Operating since September 1996. From June 1987 to September
Officer, 1996 he was Chief Financial Officer and Executive
Director Vice President of the Company.
Thomas C. Covert 66 1988 Vice Chairman Vice Chairman of the Company since September 1996.
And Director From December 1987 to September 1996 he was Executive
Vice President and Chief Operating Officer of the Company.
Ashton L. Ditka 59 -- Senior Vice Senior Vice President - Marketing of the Company since
President - July 1990.
Marketing
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
Director
Name Age Since Position Principal Occupation for the Past 5 Years
---- --- ----- -------- -----------------------------------------
<S> <C> <C> <C> <C>
Thomas E. Skarada 58 --- Vice President - Vice President - Refining of the Company since
Refining February 1996. From September 1994 to February 1996
he was Assistant Vice President - Refining.
Frederick J. Martin, Jr. 46 --- Vice President - Vice President - Supply and Transportation of the
Supply and Company since February 1993.
Transportation
James E. Murphy 55 --- Vice President Chief Financial Officer of the Company since January
and Chief 1997. He was Vice President - Finance from April
Financial 1995 to December 1996.
Officer
John R. Wagner 41 --- Vice President, Vice President, General Counsel and Secretary of
General the Company since August 1997. Prior to joining
Counsel and the Company, Mr. Wagner served as Counsel to
Secretary Dollar Bank, F.S.B. from 1988 until assuming his
current position.
Dennis E. Bee, Jr. 58 --- Treasurer Treasurer of the Company since May 1988.
Martin R. Bring 57 1988 Director A member of the law firm of Wolf, Block, Schorr and
Solis-Cohen, LLP, New York since 1978. He also serves
as a Director of Gristede's Foods, Inc., a
supermarket chain.
Evan Evans 74 1997 Director Chairman of Holvan Properties, Inc., a privately
owned petroleum industry consulting firm since 1983.
He is also a director of U.S. Energy Systems, Inc., a
public company whose common stock is quoted on the
Nasdaq SmallCap Market, and of Alexander-Allen, Inc.,
a privately owned company which owns a refinery in
Alabama which is currently shutdown. He has been a
director of both of these companies since 1994.
Kishore Lall 53 1997 Director Director of Gristede's Foods, Inc., since October
1997. Consultant to Red Apple Group Inc. from January
1997 to October 1997. Private investor from June 1994
to December 1996.
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Director
Name Age Since Position Principal Occupation for the Past 5 Years
---- --- ----- -------- -----------------------------------------
<S> <C> <C> <C> <C>
Douglas Lemmonds 53 1997 Director Independent consultant since August of 1999. Prior to becoming a
consultant, he was Managing Director and the Chief Operating
Officer, Private Banking-Americas of the Deutsche Bank Group
from May 1996. From June 1991 to May 1996 Mr. Lemmonds was the
Regional Director of Private Banking of the Northeast Regional
Office of the Bank of America and from August 1973 to June 1991
he held various other positions with Bank of America.
Andrew Maloney 68 1997 Director Counsel to Kramer Levin Naftalis & Frankel, LLP in New York
since April 1998. Partner of Brown & Wood LLP, a New York law
firm, from December 1992 to April 1998. From June 1986 to
December 1992 he was the United States Attorney for the Eastern
District of New York.
Dennis Mehiel 57 1997 Director Chairman and Chief Executive Officer of The Fonda Group, Inc.,
since 1988. Since 1966 he has been the Chairman of Four M, a
converter and seller of interior packaging, corrugated sheets
and corrugated containers which he co-founded, and since 1977
(except during a leave of absence from April 1994 through July
1995) he has been the Chief Executive Officer of Four M. Mr.
Mehiel is also the Chairman of MannKraft Corporation, a
manufacturer of corrugated containers, and Chief Executive
Officer and Chairman of Creative Expressions, Group, Inc.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not Applicable
43
<PAGE> 44
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for the three fiscal years ended August
31, 1998, 1999 and 2000 the compensation paid by the Company to its Chairman of
the Board and Chief Executive Officer and each of the four other executive
officers of the Company whose salary and bonus exceeded $100,000 for the fiscal
year ended August 31, 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------
OTHER ANNUAL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
NAME & PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2)
------------------------- ---- --------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
John A. Catsimanois 2000 $360,000 $225,000 $ -- $9,056
Chairman of the Board & 1999 360,000 290,000 -- 8,488
Chief Executive Officer 1998 360,000 265,000 -- 8,052
Myron L. Turfitt 2000 $235,000 $190,000 $5,107 $6,257
President & 1999 235,000 225,000 4,780 6,796
Chief Operating Officer 1998 235,000 200,000 5,325 6,932
Ashton L. Ditka 2000 $142,100 $ 7,000 $2,464 $7,427
Senior Vice President 1999 140,000 20,000 2,712 7,427
Marketing 1998 140,000 11,200 2,985 7,214
Thomas E. Skarada 2000 $112,750 $ 5,500 $6,647 $5,893
Vice President 1999 110,000 20,000 6,750 5,893
Refining 1998 110,000 8,000 6,781 5,490
Frederick J. Martin, Jr. 2000 $101,550 $ 5,000 $4,151 $4,213
Vice President 1999 100,000 8,000 5,564 4,042
Supply & Transportation 1998 100,000 8,000 4,915 4,036
</TABLE>
[FN]
(1) AMOUNTS INCLUDE AUTOMOBILE ALLOWANCES.
(2) AMOUNTS INCLUDE COMPANY MATCHING CONTRIBUTIONS UNDER THE COMPANY'S 401(K)
INCENTIVE SAVINGS PLAN AND HEALTH AND TERM LIFE INSURANCE BENEFITS.
</FN>
44
<PAGE> 45
PENSION PLAN
The Company maintains a defined benefit pension plan for eligible
employees. The following table shows estimated annual benefits payable upon
retirement in specified compensation categories and years of service
classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------
AVERAGE EARNINGS 15 20 25 30 35
----------------
<S> <C> <C> <C> <C> <C>
$100,000 $15,892 $21,190 $26,488 $31,785 $37,082
$125,000 20,580 27,440 34,300 41,160 48,020
$150,000 25,267 33,690 42,113 50,535 58,958
$160,000 or more 27,142 35,990 45,238 54,285 63,333
</TABLE>
The benefit formula is based on the average earnings of the participant
for the three years in which such participant's earnings were the highest.
Earnings include salary and bonus up to a maximum of $160,000 per year. Benefits
are calculated by multiplying the sum of (a) 1% of average earnings up to the
Social Security compensation base, plus (b) 1.25% of average earnings in excess
of the Social Security compensation base, by (c) the number of years of service.
Payments of retirement benefits are not reduced by any Social Security benefits
received by the participant. The Social Security compensation base for 2000 is
$76,200.
Assuming that the following officers continue to be employed by the
Company until they reach age 65, their credited years of service will be as
follows:
<TABLE>
<CAPTION>
CURRENT YEARS YEARS OF SERVICE
NAME OF INDIVIDUAL OF SERVICE AT AGE 65
------------------ ---------- ---------
<S> <C> <C>
John A. Catsimatidis 14 27
Myron L. Turfitt 22 39
Ashton L. Ditka 24 30
Thomas E. Skarada 7 14
Frederick J. Martin Jr. 20 39
</TABLE>
COMPENSATION OF DIRECTORS
Non-officer directors receive a stipend of $15,000 per year and $1,000
for each meeting attended.
45
<PAGE> 46
EMPLOYMENT AND CONSULTING AGREEMENTS
Thomas C. Covert entered into a consulting agreement with the Company,
the initial term of which commenced on September 1, 1996 and expired on August
31, 1998. The Agreement provided that its term shall be extended for two
additional one year periods unless the Company or Mr. Covert gives written
notice of cancellation to the other party within specified time periods. Under
such provision the term of the Agreement had been extended to August 31, 2000.
Under the agreement Mr. Covert was obligated to render services to the Company
on a limited time basis of between 30-40 hours per month in such capacities as
the Board of Directors of the Company may designate. Under the agreement the
Company had agreed to pay Mr. Covert $170 per hour for services rendered, but in
no event less than $6,800 per month for each month during the term of the
agreement. The agreement expired on August 31, 2000 and was not renewed.
Mr. Covert has also entered into a Deferred Compensation Agreement with
the Company pursuant to which since the date of his retirement on September 1,
1996, the Company has been paying Mr. Covert a retirement benefit at the rate of
approximately $12,300 per year. The benefit is payable to Mr. Covert until his
death, whereupon Mr. Covert's wife is entitled to a benefit of approximately
$6,150 per year until her death if she does not predecease him.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership
of Common Stock on November 29, 2000 by: (i) each stockholder known to the
Company to own beneficially, directly or indirectly, more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's directors; and
(iii) all officers and directors of the Company as a group. The Company believes
that ownership of the shares by the persons named below is both of record and
beneficial and such persons have sole voting and investing power with respect to
the shares indicated.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Number of Shares Percent of Class
<S> <C> <C>
John Catsimatidis
823 Eleventh Avenue 100 100%
New York, NY 10019
All officers and directors 100 100%
as a group (15 persons)
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company paid a service fee relating to certain costs incurred by
its indirect parent, Red Apple Group, Inc., ("RAG"), for the Company's New York
office for fiscal 2000 amounting to approximately $1,000,000. Pursuant to a
Servicing Agreement entered into between the Company and RAG in June 1997, the
Company will pay up to a $1,000,000 per year fee relating to these costs. The
term of the Servicing Agreement expired on June 9, 2000, but the term shall be
automatically extended for periods of one year if neither party gives notice of
termination of the Servicing Agreement prior to the expiration of the then
current term.
As of August 31, 2000, United Refining, Inc., the parent of the Company
and indirectly owned by John A. Catsimatidis, was leasing to the Company eight
retail units. The term of each lease expires on April 1, 2001. The annual
rentals payable under the leases aggregate $248,000, which the Company believes
are market rates. As of the date hereof, the Company was current on all rent
obligations under such leases.
RAG files a consolidated tax return with affiliated entities, including
the Company. Commencing in June 1997, RAG, the Company and certain of their
affiliates entered into a tax sharing agreement (the "Tax Sharing Agreement").
Under the Tax Sharing Agreement the parties established a method for allocating
the consolidated federal income tax liability and combined state tax liability
of the RAG affiliated group among its members; for reimbursing RAG for payment
of such tax liability; for compensating any member for use of its net operating
loss or
46
<PAGE> 47
tax credits in arriving at such tax liability; and to provide for the allocation
and payment of any refund arising from a carryback of net operating loss or tax
credits from subsequent taxable years. Pursuant to the tax sharing agreement
included in prepaid expenses and other assets are amounts due from the Parent of
approximately $0 and $1,600,000 as of August 31, 2000 and 1999, respectively.
During fiscal 2000, the Company made payments for services rendered to
it by Wolf, Block, Schorr and Solis-Cohen, LLP, ("WBS&S-C"), a law firm of which
Martin R. Bring, a director of the Company, is a member. The Company believes
that the fees paid to WBS&S-C for legal services are comparable to fees it would
pay to a law firm for similar services, none of whose members are officers,
directors or principal stockholders of the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
A list of all financial statements filed as part of this report is contained in
the index to Item 8, which index is incorporated herein by reference.
(2) Financial Statement Schedules
Report of Independent Certified Public Accountants
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits
Number Description
------ -----------
3.1 Certificate of Incorporation of United Refining Company ("URC").
Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-4 (File No. 333-35083) (the
"Registration Statement").
3.2 Bylaws of URC. Incorporated by reference to Exhibit 3.2 to the
Registration Statement.
3.3 Certificate of Incorporation of United Refining Company of
Pennsylvania ("URCP"). Incorporated by reference to Exhibit 3.3 to
the Registration Statement.
3.4 Bylaws of URCP. Incorporated by reference to Exhibit 3.4 to the
Registration Statement.
3.5 Certificate of Incorporation of Kiantone Pipeline Corporation
("KPC"). Incorporated by reference to Exhibit 3.5 to the
Registration Statement.
3.6 Bylaws of KPC. Incorporated by reference to Exhibit 3.6 to the
Registration Statement.
3.7 Certificate of Incorporation of Kiantone Pipeline Company ("KPCY").
Incorporated by reference to Exhibit 3.7 to the Registration
Statement.
3.8 Bylaws of KPCY. Incorporated by reference to Exhibit 3.8 to the
registration Statement.
3.9 Certificate of Incorporation of Kwik Fill, Inc. ("KFI").
Incorporated by reference to Exhibit 3.9 to the Registration
Statement.
3.10 Bylaws of KFI. Incorporated by reference to Exhibit 3.10 to the
Registration Statement.
3.11 Certificate of Incorporation of Independent Gasoline & Oil Company
of Rochester, Inc. ("IGOCRI"). Incorporated by reference to Exhibit
3.11 to the Registration Statement.
3.12 Bylaws of IGOCRI. Incorporated by reference to Exhibit 3.12 to the
Registration Statement.
3.13 Certificate of Incorporation of Bell Oil Corp. ("BOC").
Incorporated by reference to Exhibit 3.13 to the Registration
Statement.
3.14 Bylaws of BOC. Incorporated by reference to Exhibit 3.14 to the
Registration Statement.
3.15 Certificate of Incorporation of PPC, Inc. ("PPCI"). Incorporated by
reference to Exhibit 3.15 to the Registration Statement.
3.16 Bylaws of PPCI. Incorporated by reference to Exhibit 3.16 to the
Registration Statement.
3.17 Certificate of Incorporation of Super Test Petroleum, Inc.
("STPI"). Incorporated by reference to Exhibit 3.17 to the
Registration Statement.
3.18 Bylaws of STPI. Incorporated by reference to Exhibit 3.18 to the
Registration Statement.
47
<PAGE> 48
3.19 Certificate of Incorporation of Kwik-Fil, Inc. ("K-FI").
Incorporated by reference to Exhibit 3.19 to the Registration
Statement.
3.20 Bylaws of K-FI. Incorporated by reference to Exhibit 3.20 to the
Registration Statement.
3.21 Certificate of Incorporation of Vulcan Asphalt Refining Corporation
("VARC"). Incorporated by reference to Exhibit 3.21 to the
Registration Statement.
3.22 Bylaws of VARC. Incorporated by reference to Exhibit 3.22 to the
Registration Statement.
3.23 Certificate of Incorporation of United Jet Center, Inc. ("UJCI").
Incorporated by reference to Exhibit 3.23 to the Registration
Statement.
3.24 Bylaws of UJCI. Incorporated by reference to Exhibit 3.24 to the
Registration Statement.
4.1 Indenture dated as of June 9, 1997 between URC, URCP, KPC, KPCY,
KFI, IGOCRI, BOC, PPCI, STPI, K-FI, VARC, UJCI and IBJ Schroder
Bank & Trust Company ("Schroder"), relating to the 10 3/4% Series A
Senior Notes due 2007. Incorporated by reference to Exhibit 4.1 to
the Registration Statement.
4.2 Form of Note. Incorporated by reference to Exhibit 4.2 to the
Registration Statement.
10.1 Purchase Agreement dated June 4, 1997 between URC, URCP, KPC, KPCY,
KFI, IGOCRI, BOC, PPCI, STPI, K-FI, VARC, UJCI, Dillion, Read & Co.
Inc. ("DRCI") and Bear, Stearns & Co. Inc. ("BSCI"). Incorporated
by reference to Exhibit 10.1 to the Registration Statement.
10.2 Registration Rights Agreement dated June 9, 1997 between URC, URCP,
KPC, KPCY, KFI, IGOCRI, BOC, PPCI, STPI, K-FI, VARC, UJCI, DRCI,
and BSCI. Incorporated by reference to Exhibit 10.2 to the
Registration Statement.
10.3 Escrow Agreement dated June 9, 1997 between Schroder, as Escrow
Agent, Schroder, as Trustee, and URC. Incorporated by reference to
Exhibit 10.3 to the Registration Statement.
10.4 Servicing Agreement dated June 9, 1997 between URC and Red Apple
Group, Inc. Incorporated by reference to Exhibit 10.4 to the
Registration Statement.
10.5 Collective Bargaining Agreement dated February 1, 1996 between URC
and International Union of Operating Engineers, Local No. 95.
Incorporated by reference to Exhibit 10.5 to the Registration
Statement.
10.6 Collective Bargaining Agreement dated June 23, 1993 between URC and
International Union, United Plant Guard Workers of America and
Local No. 502. Incorporated by reference to Exhibit 10.6 to the
Registration Statement.
10.7 Collective Bargaining Agreement dated February 1, 1997 between URC
and United Steel Workers of America Local Union No. 2122-A.
Incorporated by reference to Exhibit 10.7 to the Registration
Statement.
10.8 Collective Bargaining Agreement dated August 1, 1995 between URC
and General Teamsters Local Union No. 397. Incorporated by
reference to Exhibit 10.8 to the Registration Statement.
10.9 Credit Agreement dated as of June 9, 1997 by and among, URC, URCP,
KPC and the Banks party thereto and PNC Bank, National Association,
as Agent. Incorporated by reference to Exhibit 10.9 to the
Registration Statement.
10.10 Continuing Agreement of Guaranty and Suretyship dated as of June 9,
1997 by URC. Incorporated by reference to Exhibit 10.10 to the
Registration Statement.
10.11 Continuing Agreement of Guaranty and Suretyship dated as of June 9,
1997 by URCP. Incorporated by reference to Exhibit 10.11 to the
Registration Statement.
10.12 Continuing Agreement of Guaranty and Suretyship dated as of June 9,
1997 by KPC. Incorporated by reference to Exhibit 10.12 to the
Registration Statement.
10.13 Security Agreement dated as of June 9, 1997 by and among, URC,
URCP, KPC and the Banks party thereto and PNC Bank, National
Association, as Agent. Incorporated by reference to Exhibit 10.13
to the Registration Statement.
10.14 Waiver and Amendment to Credit Agreement dated as of July 15, 1998
by and among, URC, URCP, KPC and the banks party thereto and PNC
Bank, National Association, as Agent. Incorporated by reference to
Exhibit 10.14 of Registrant's Annual Report on Form 10K for fiscal
year ended August 31, 1998.
10.15 Consulting Agreement dated September 1, 1996 with Thomas C. Covert.
Incorporated by reference to Exhibit 10.14 of Registrant's Annual
Report on Form 10K for fiscal year ended August 31, 1998.
10.16 Deferred Compensation Agreement dated September 1, 1996 with Thomas
C. Covert. Incorporated by reference to Exhibit 10.14 of
Registrant's Annual Report on Form 10K for fiscal year ended August
31, 1998.
48
<PAGE> 49
10.17 Waiver and Amendment to Credit Agreement dated as of April 13, 1999
by and among URC, URCP, KPC and the banks party thereto and PNC
Bank, National Association, as Agent. Incorporated by reference to
Exhibit 10.17 of Registrant's Annual Report on Form 10K for fiscal
year ended August 31, 1999.
10.18 Amendment to Credit Agreement dated as of February 4, 2000 by and
among URC, URCP, KPC and the banks party thereto and PNC Bank,
National Association, as Agent. Incorporated by reference to
Exhibit 10.18 of Registrant's Quarterly Report on Form 10Q for
fiscal quarter ended February 28, 2000.
10.19 Waiver and Amendment to Credit Agreement dated as of September 29,
2000 by and among URC, URCP, KPC and the banks party thereto and
PNC Bank, National Association, as Agent.*
21.1 Subsidiaries of the Registrants. Incorporated by reference to
Exhibit 21.1 to the Registration Statement.
27.1 Financial data schedule for the twelve months ended August 31,
2000.*
(b) Reports on Form 8-K
NONE
* Filed herewith
49
<PAGE> 50
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of United Refining Company
The audits referred to in our report dated October 31, 2000 relating to
the consolidated financial statements of United Refining Company and
Subsidiaries included the audits of the financial statement Schedule II -
Valuation and Qualifying Accounts for each of the three years in the period
ended August 31, 2000. This financial statement schedule is the responsibility
of management. Our responsibility is to express an opinion on this schedule
based on our audits.
In our opinion, such financial statement Schedule - Valuation and
Qualifying Accounts, presents fairly, in all material respects, the information
set forth therein.
/s/ BDO SEIDMAN, LLP
New York, New York
October 31, 2000
50
<PAGE> 51
UNITED REFINING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Costs and Balance at End
Description Period Expenses Deductions Of Period
-------------------------------------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Year ended August 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
Accounts $ 511 $ 258 $(364) $ 405
===== ===== ===== =====
Year ended August 31, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
Accounts $ 405 $ 195 $(235) $ 365
===== ===== ===== =====
Year ended August 31, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
Accounts $ 365 $ 697 $(602) $ 460
===== ===== ===== =====
</TABLE>
51
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED REFINING COMPANY
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
-------------------------------------
Myron L. Turfitt
President and Chief
Operating Officer
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
President, Chief Operating Officer
/s/ Myron L. Turfitt and Director November 29, 2000
-------------------------------
Myron L. Turfitt
/s/ Thomas C. Covert Vice Chairman and Director November 29, 2000
-------------------------------
Thomas C. Covert
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
/s/ Martin R. Bring Director November 29, 2000
-------------------------------
Martin R. Bring
/s/ Evan Evans Director November 29, 2000
-------------------------------
Evan Evans
/s/ Kishore Lall Director November 29, 2000
-------------------------------
Kishore Lall
/s/ Douglas Lemmonds Director November 29, 2000
-------------------------------
Douglas Lemmonds
/s/ Andrew Maloney Director November 29, 2000
-------------------------------
Andrew Maloney
/s/ Dennis Mehiel Director November 29, 2000
-------------------------------
Dennis Mehiel
</TABLE>
52
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED REFINING COMPANY OF
PENNSYLVANIA
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
President and Chief Operating
Officer
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt President, Chief Operating Officer November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KIANTONE PIPELINE CORPORATION
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President and Chief Operating
Officer
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
President, Chief Operating Officer
/s/ Myron L. Turfitt and Director November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
54
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KIANTONE PIPELINE COMPANY
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED JET CENTER, INC.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
-------------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
56
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VULCAN ASPHALT REFINING
CORPORATION
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
---------------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
57
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KWIK-FIL, INC.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
-------------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KWIK-FILL, INC.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
-----------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
59
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INDEPENDENT GASOLINE & OIL
COMPANY OF ROCHESTER, INC.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
--------------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
60
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BELL OIL CORP.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
---------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
61
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PPC, INC.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
---------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
62
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SUPER TEST PETROLEUM, INC.
Dated: November 29, 2000 By: /s/ Myron L. Turfitt
----------------------------------
Myron L. Turfitt
Executive Vice President
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board, Chief
/s/ John A. Catsimatidis Executive Officer and Director November 29, 2000
-------------------------------
John A. Catsimatidis
/s/ Myron L. Turfitt Executive Vice President November 29, 2000
-------------------------------
Myron L. Turfitt
Vice President and Chief Financial
/s/ James E. Murphy Officer (Principal Accounting
------------------------------- Officer) November 29, 2000
James E. Murphy
</TABLE>
63
<PAGE> 64
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
No annual report or proxy material was sent to security holders by the
Corporation during the fiscal year ended August 31, 2000.
EXHIBITS
Number Description
------ -----------
3.1 Certificate of Incorporation of United Refining Company ("URC").
Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-4 (File No. 333-35083) (the
"Registration Statement").
3.2 Bylaws of URC. Incorporated by reference to Exhibit 3.2 to the
Registration Statement.
3.3 Certificate of Incorporation of United Refining Company of
Pennsylvania ("URCP"). Incorporated by reference to Exhibit 3.3 to
the Registration Statement.
3.4 Bylaws of URCP. Incorporated by reference to Exhibit 3.4 to the
Registration Statement.
3.5 Certificate of Incorporation of Kiantone Pipeline Corporation
("KPC"). Incorporated by reference to Exhibit 3.5 to the
Registration Statement.
3.6 Bylaws of KPC. Incorporated by reference to Exhibit 3.6 to the
Registration Statement.
3.7 Certificate of Incorporation of Kiantone Pipeline Company ("KPCY").
Incorporated by reference to Exhibit 3.7 to the Registration
Statement.
3.8 Bylaws of KPCY. Incorporated by reference to Exhibit 3.8 to the
registration Statement.
3.9 Certificate of Incorporation of Kwik Fill, Inc. ("KFI").
Incorporated by reference to Exhibit 3.9 to the Registration
Statement.
3.10 Bylaws of KFI. Incorporated by reference to Exhibit 3.10 to the
Registration Statement.
3.11 Certificate of Incorporation of Independent Gasoline & Oil Company
of Rochester, Inc. ("IGOCRI"). Incorporated by reference to Exhibit
3.11 to the Registration Statement.
3.12 Bylaws of IGOCRI. Incorporated by reference to Exhibit 3.12 to the
Registration Statement.
3.13 Certificate of Incorporation of Bell Oil Corp. ("BOC").
Incorporated by reference to Exhibit 3.13 to the Registration
Statement.
3.14 Bylaws of BOC. Incorporated by reference to Exhibit 3.14 to the
Registration Statement.
3.15 Certificate of Incorporation of PPC, Inc. ("PPCI"). Incorporated by
reference to Exhibit 3.15 to the Registration Statement.
3.16 Bylaws of PPCI. Incorporated by reference to Exhibit 3.16 to the
Registration Statement.
3.17 Certificate of Incorporation of Super Test Petroleum, Inc.
("STPI"). Incorporated by reference to Exhibit 3.17 to the
Registration Statement.
3.18 Bylaws of STPI. Incorporated by reference to Exhibit 3.18 to the
Registration Statement.
3.19 Certificate of Incorporation of Kwik-Fil, Inc. ("K-FI").
Incorporated by reference to Exhibit 3.19 to the Registration
Statement.
3.20 Bylaws of K-FI. Incorporated by reference to Exhibit 3.20 to the
Registration Statement.
3.21 Certificate of Incorporation of Vulcan Asphalt Refining Corporation
("VARC"). Incorporated by reference to Exhibit 3.21 to the
Registration Statement.
3.22 Bylaws of VARC. Incorporated by reference to Exhibit 3.22 to the
Registration Statement.
3.23 Certificate of Incorporation of United Jet Center, Inc. ("UJCI").
Incorporated by reference to Exhibit 3.23 to the Registration
Statement.
3.24 Bylaws of UJCI. Incorporated by reference to Exhibit 3.24 to the
Registration Statement.
4.1 Indenture dated as of June 9, 1997 between URC, URCP, KPC, KPCY,
KFI, IGOCRI, BOC, PPCI, STPI, K-FI, VARC, UJCI and IBJ Schroder
Bank & Trust Company ("Schroder"), relating to the 10 3/4% Series A
Senior Notes due 2007. Incorporated by reference to Exhibit 4.1 to
the Registration Statement.
4.2 Form of Note. Incorporated by reference to Exhibit 4.2 to the
Registration Statement.
10.1 Purchase Agreement dated June 4, 1997 between URC, URCP, KPC, KPCY,
KFI, IGOCRI, BOC, PPCI, STPI, K-FI, VARC, UJCI, Dillion, Read & Co.
Inc. ("DRCI") and Bear, Stearns & Co. Inc. ("BSCI"). Incorporated
by reference to Exhibit 10.1 to the Registration Statement.
10.2 Registration Rights Agreement dated June 9, 1997 between URC, URCP,
KPC, KPCY, KFI, IGOCRI, BOC, PPCI, STPI, K-FI, VARC, UJCI, DRCI,
and BSCI. Incorporated by reference to Exhibit 10.2 to the
Registration Statement.
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<PAGE> 65
10.3 Escrow Agreement dated June 9, 1997 between Schroder, as Escrow
Agent, Schroder, as Trustee, and URC. Incorporated by reference to
Exhibit 10.3 to the Registration Statement.
10.4 Servicing Agreement dated June 9, 1997 between URC and Red Apple
Group, Inc. Incorporated by reference to Exhibit 10.4 to the
Registration Statement.
10.5 Collective Bargaining Agreement dated February 1, 1996 between URC
and International Union of Operating Engineers, Local No. 95.
Incorporated by reference to Exhibit 10.5 to the Registration
Statement.
10.6 Collective Bargaining Agreement dated June 23, 1993 between URC and
International Union, United Plant Guard Workers of America and
Local No. 502. Incorporated by reference to Exhibit 10.6 to the
Registration Statement.
10.7 Collective Bargaining Agreement dated February 1, 1997 between URC
and United Steel Workers of America Local Union No. 2122-A.
Incorporated by reference to Exhibit 10.7 to the Registration
Statement.
10.8 Collective Bargaining Agreement dated August 1, 1995 between URC
and General Teamsters Local Union No. 397. Incorporated by
reference to Exhibit 10.8 to the Registration Statement.
10.9 Credit Agreement dated as of June 9, 1997 by and among, URC, URCP,
KPC and the Banks party thereto and PNC Bank, National Association,
as Agent. Incorporated by reference to Exhibit 10.9 to the
Registration Statement.
10.10 Continuing Agreement of Guaranty and Suretyship dated as of June 9,
1997 by URC. Incorporated by reference to Exhibit 10.10 to the
Registration Statement.
10.11 Continuing Agreement of Guaranty and Suretyship dated as of June 9,
1997 by URCP. Incorporated by reference to Exhibit 10.11 to the
Registration Statement.
10.12 Continuing Agreement of Guaranty and Suretyship dated as of June 9,
1997 by KPC. Incorporated by reference to Exhibit 10.12 to the
Registration Statement.
10.13 Security Agreement dated as of June 9, 1997 by and among, URC,
URCP, KPC and the Banks party thereto and PNC Bank, National
Association, as Agent. Incorporated by reference to Exhibit 10.13
to the Registration Statement.
10.14 Waiver and Amendment to Credit Agreement dated as of July 15, 1998
by and among, URC, URCP, KPC and the banks party thereto and PNC
Bank, National Association, as Agent. Incorporated by reference to
Exhibit 10.14 of Registrant's Annual Report on Form 10K for fiscal
year ended August 31, 1998.
10.15 Consulting Agreement dated September 1, 1996 with Thomas C. Covert.
Incorporated by reference to Exhibit 10.14 of Registrant's Annual
Report on Form 10K for fiscal year ended August 31, 1998.
10.16 Deferred Compensation Agreement dated September 1, 1996 with Thomas
C. Covert. Incorporated by reference to Exhibit 10.14 of
Registrant's Annual Report on Form 10K for fiscal year ended August
31, 1998.
10.17 Waiver and Amendment to Credit Agreement dated as of April 13, 1999
by and among URC, URCP, KPC and the banks party thereto and PNC
Bank, National Association, as Agent. Incorporated by reference to
Exhibit 10.17 of Registrant's Annual Report on Form 10K for fiscal
year ended August 31, 1999.
10.18 Amendment to Credit Agreement dated as of February 4, 2000 by and
among URC, URCP, KPC and the banks party thereto and PNC Bank,
National Association, as Agent. Incorporated by reference to
Exhibit 10.18 of Registrant's Quarterly Report on Form 10Q for
fiscal quarter ended February 28, 2000.
10.19 Waiver and Amendment to Credit Agreement dated as of September 29,
2000 by and among URC, URCP, KPC and the banks party thereto and
PNC Bank, National Association, as Agent.*
21.1 Subsidiaries of the Registrants. Incorporated by reference to
Exhibit 21.1 to the Registration Statement.
27.1 Financial data schedule for the twelve months ended August 31,
2000.*
(c) Reports on Form 8-K
NONE
* Filed herewith
65
