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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
NONE
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
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(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.
ITEM 7.
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.
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
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.
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
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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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
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
UNITED REFINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
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See accompanying notes to consolidated financial statements.
UNITED REFINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
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See accompanying notes to consolidated financial statements.
UNITED REFINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
See accompanying notes to consolidated financial statements.
UNITED REFINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
================================================================================
See accompanying notes to consolidated financial statements.
UNITED REFINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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:
UNITED REFINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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:
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.
UNITED REFINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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.
UNITED REFINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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):
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
UNITED REFINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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:
UNITED REFINING COMPANY AND SUBSIDIARIES
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4. ACCRUED LIABILITIES
Accrued liabilities include the following:
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:
UNITED REFINING COMPANY AND SUBSIDIARIES
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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:
UNITED REFINING COMPANY AND SUBSIDIARIES
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The principal amount of long-term debt outstanding as of August 31, 2000, matures as follows:
The following financing costs have been deferred and are being amortized to expense over the term of the related debt:
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.
UNITED REFINING COMPANY AND SUBSIDIARIES
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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:
The following table summarizes the change in benefit obligations and fair values of plan assets for the years ended August 31, 2000 and 1999:
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:
UNITED REFINING COMPANY AND SUBSIDIARIES
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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:
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:
UNITED REFINING COMPANY AND SUBSIDIARIES
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Deferred income tax liabilities (assets) are comprised of the following:
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.
UNITED REFINING COMPANY AND SUBSIDIARIES
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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.
UNITED REFINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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:
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.
UNITED REFINING COMPANY AND SUBSIDIARIES
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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:
UNITED REFINING COMPANY AND SUBSIDIARIES
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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)
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.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE
PART III
ITEM 10.
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not Applicable
ITEM 11.
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.
[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.
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
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:
COMPENSATION OF DIRECTORS
Non-officer directors receive a stipend of $15,000 per year and $1,000 for each meeting attended.
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.
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.
ITEM 13.
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
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.
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.
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.
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
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
UNITED REFINING COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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.
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