Bear Stearns 16 th Annual Global Credit Conference. May 16, 2007

Transcription

1 Bear Stearns 16 th Annual Global Credit Conference May 16, 2007

2 Disclaimer The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These forward-looking statements are based on Management s current expectations and beliefs, as well as a number of assumptions concerning future events. These statements are based on certain assumptions and analyses made by Management in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with Management s expectations and predictions is subject to a number of risks and uncertainties, general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by United Refining; actions by competitors; changes in laws or regulations; and other factors, many of which are beyond the control of United Refining. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied, as more fully discussed in our safe harbor statements found in our SEC filings, including, without limitation, the discussion under the heading Risk Factors in the company s annual report on Form 10-K. All forward-looking statements are based on information available to Management on this date and United Refining assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward looking statements, whether as a result of new information, future events or otherwise. This material also contains certain non-gaap financial measures as defined under the Securities and Exchange Commission rules. 2

3 Introductions John Catsimatidis Chairman of the Board, CEO Myron Turfitt President, COO Jim Murphy CFO Robert Kaemmerer Vice-President, Finance 3

4 Company Overview 4

5 Corporate History Company founded in Warren, PA Kiantone Pipeline completed Acquired by John Catsimatidis Began production of low sulfur diesel fuel Country Fair Acquisition 69 Stores Ultra Low Sulfur Diesel Compliance Refinery expanded to 70 MBPD Refinery expanded to 65 MBPD Capital Improvement Program Acquisition of 50 competing retail outlets Compliance with EPA Phase 1 Gasoline Standards 5

6 Corporate Profile Refinery (union & management) 389 Corporate 169 Retail stations 3,829 Total Employment 4,387 6

7 Key Credit Strengths Integrated R&M Assets Advantageous Location 70 MBPD Refinery in Warren, PA With the ability to process up to 80% heavy crude Retail marketing (371 company-operated stores) Kiantone crude pipeline Attractive end-market with nearest competing refinery 160 miles away 1.96 cents per gallon transportation cost advantage vs. Buffalo Access to Canadian crude with cost-effective access to other sources Favorable Sector Fundamentals Positive refining margin outlook Favorable PADD 1 supply / demand characteristics Positive light-heavy differential prospects Strong Financial Position Strong Cash Flow $137MM LTM EBITDA up from $60MM in 2004 Reduced leverage 1.85x Total Debt to LTM EBITDA vs. 3.5x at 2004 Substantial cash-on-cash return from expansion Untapped convenience store real estate value Proven, Experienced Management Average 26 years industry experience Reliable operating history Supportive, long-term shareholder 7

8 Experienced Management Team Name Position Years With Company Years of Industry Experience John A. Catsimatidis Chairman of the Board, CEO Myron L. Turfitt President and Chief Operating Officer Ashton L. Ditka Senior Vice President, Marketing Thomas E. Skarada Vice President, Refining Frederick J. Martin, Jr. Vice President, Supply and Transportation James E. Murphy Chief Financial Officer Dennis E. Bee, Jr. Treasurer John R. Wagner Vice President, General Counsel and Secretary Robert A. Kaemmerer Vice President, Finance 5 5 Average

9 Refining Most cost-effective supplier with a 100-mile radius 3.26 c./gal. advantage vs. nearest refinery and 1.96 c./gal. vs. Buffalo Closest competitor is 160 miles away in Canton, OH Detroit (MAP) Toledo (BP/Sun) Lima (Premcor) (Valero) Toronto (PetroCanada) Nanticoke (Esso) Erie Cleveland Buffalo Warren Canton Pittsburgh (MAP) 200 miles 100 miles COP NYC/Philadelphia Product Yield 8% Other 26% Asphalt Gasoline and Blends 42% Distillates 24% 9

10 Product Distribution Gasoline Distribution Wholesale 20% 80% Retail Distillate Distribution Asphalt 20% Retail Speciality 4% Roofing 28% Wholesale 55% Paving 80% Emulsion Base 13% 10

11 Reliable Operating History United has maintained utilization levels above the national average due to An effective maintenance and turnaround program Timely capital improvements Favorable demand conditions in its target market Utilization (Throughput / Capacity) (%) Crude Unit Turnaround Crude Unit Turnaround Crude Unit Turnaround Crude Unit Turnaround (1) 87 United Average = 96% Industry Average = 92% YTD Source: Energy Information Administration and Company Filings United Industry Note: (1) Completed during week of April 16,

12 Integrated Retail Marketing 371 company-operated units 186 company-owned New York, Pennsylvania and Ohio Secures outlet for production 80% of gasoline Well-recognized regional brands Regional Brands Cleveland Ohio 13 Country Fair 75 Kwik Fill 296 Erie Buffalo Warren Pittsburgh Rochester Syracuse Harrisburg Binghamton Pennsylvania 188 New York

13 Latest Retail Construction Country Fair St. Mary s, Pa KwikFill Marienville, Pa 13

14 Flexible Crude Access Reliable access to Western Canadian crude through the Enbridge system Cost-effective to U.S. onshore and global offshore crude as well Edmonton Enbridge Montreal Portland Enbridge Enbridge Toronto Portland Chicago Enbridge Kiantone Warren Chicap Capline St. James 14

15 Industry Outlook 15

16 Favorable Refining Margin Outlook Gasoline demand at highest levels ever Gasoline supply below last year and 5-year average Gasoline Demand (MMbpd) Gasoline Days Supply January April August December 21 January April August December March Year Average Year Average Source: Energy Information Administration Source: Energy Information Administration 16

17 PADD I Dynamics Limited incremental source of supply since PADD I is a net importer of refined products Adjoining PADD II is also net product short precluding competitive threat from refineries in the region United s core regional marketing area is protected from imported products due to economic barriers to entry Barrels (MM) 3,000 PADD I Balance Barrels (MM) PADD I Weekly Inventory Gasoline ,500 2,000 1,936 2,012 2,025 2,093 2,123 2,148 2,159 2,142 2,282 2,355 2, , , Distillate Source: Energy Information Administration

18 Lagged NYMEX Crackspreads $16.00 $ $12.00 $10.00 $8.00 $6.00 $4.00 $ $0.00 FY02 FY03 FY04 FY05 FY06 Proj 07 18

19 Attractive Light-Heavy Differential Outlook Light / Heavy Differential (WTI / Lloyd Blend US$) A 2004A 2005A 2006A 2007E MA ME 2008E 2009E 2010E 2011E Source: Sproule Associates 19

20 Strong, Growing Cash Flow and Reduced Leverage (1) $MM FY02 FY03 FY04 FY05 FY06 LTM EBITDA $ (5.6) $ 28.6 $ 60.1 $ 58.0 $ $ TOTAL DEBT CASH NET DEBT Interest Expense Total Debt / EBITDA (x) NM Net Debt / EBITDA (x) NM EBITDA / Interest (x) NM Notes: (1) LTM from quarterly reports based on FIFO inventory cost accounting. LIFO adjustment occurs at fiscal year-end 20

21 Recent Developments 21

22 Recent Operating and Financial Highlights Achieved Ultra Low Sulfur Diesel compliance in May 2006, with an investment of $3.8MM $100MM revolving credit facility extended to November 2011 with lower pricing and springing covenants based on excess availability Achieved record earnings of $64MM and record sales of $2.4Bn in fiscal year 2006 Announced results of second fiscal quarter with $5.4MM increase in operating income over previous year Issued $125 additional notes at net proceeds to Company of $129.3 million Moody s and S&P upgrade bond ratings to B3 and B 22

23 Capex Projects 23

24 Capacity Expansion Description: Estimated Cost: Funding: Expansion to increase refinery to 70 MBPD; Modifications to heaters, desalter and pipeline pumps to permit incremental 5 MBPD at present crude slate (approximately 57% heavy asphaltic crude) $9.0MM To be funded from proceeds of add-on transaction Timing: To be operational in May 2007 Anticipated Benefits: Construction Details: Incremental EBITDA of $24MM / year United staff with detailed engineering and construction management assistance by ABB Lummus 24

25 Revamp Heavy Crude Unit Description: Estimated Cost: Funding: Allow use of 80% asphaltic crude $6.0MM To be funded from proceeds of add-on transaction Timing: Summer 2007 Anticipated Benefits: Incremental EBITDA of $23MM / year Construction Details: United staff with detailed engineering and construction management assistance by ABB Lummus 25

26 Capital Spending Overview Investment Estimated Cost EBITDA Project Description ($MM) ($MM) Details Capacity Expansion $9 $24 Modifications to heaters, desalter and pipeline pumps Incremental 5 MBPD Approximately 57% heavy asphaltic crude Revamp Heavy Crude Unit $6 $23 Allow operation at 100% asphaltic crude upon coker installation Add tankage to improve margin on asphalt $5 $7 Increase the margin on incremental asphalt produced by an estimated $50 per ton Total $20 $54 26

27 Planned EBITDA Expansion Capex Projects EBITDA ($MM) $60.0 $40.0 $23.0 $7.0 $54.0 $24.0 $20.0 $0.0 Capacity Expansion Revamp Heavy Crude Unit Additional Tankage Total Cost: $9.0 $6.0 $5.0 $

28 Financial Overview 28

29 Historical Financial Performance (1) $MM FY02 FY03 FY04 FY05 FY06 PF LTM (2) Net Sales $1,052.0 $1,290.4 $1,488.9 $1,890.2 $2,437.1 $2,434.0 Cost of Goods Sold , , , , ,166.2 Gross Margin SG&A Depreciation & Amortization Operating Income (Loss) (20.7) Net Interest Expense Other Income (Expense) (1.3) (1.3) (2.2) (3.1) (1.9) (3.7) Earnings in Affiliates Non-Recurring Gain (Expense) - - (6.8) Income (Loss) Before Income Taxes (40.5) (8.6) Income Tax Expense (Benefit) (15.6) (3.4) Net Income (Loss) (24.9) (5.3) EBITDA (3) ($5.6) $28.6 $60.1 $58.0 $150.3 $137.3 Notes: All values based on August 31 fiscal year end. LTM as of 02/28/07 (1.) LTM from quarterly reports based on FIFO inventory cost accounting. LIFO adjustment occurs at fiscal year-end (2.) PF LTM assumes full year interest expense on $100MM 10.50% Senior Notes Add-On and 40% tax rate. Assumes amortization of fees and issuance premium over remaining life of notes (3.) EBITDA defined as the sum of net income before non-recurring items, income tax expense, interest expense, depreciation and amortization 29

30 Historical Financial Performance EBITDA CAGR 74.0% Revenue CAGR 23.6% $MM $MM 2,500 2,437 2, ,000 1,500 1, , , , ,290 1, PF LTM PF LTM Wholesale Operations Retail - Petroleum Retail - Merchandise and Other 30

31 Historical Credit Profile $MM FY02 FY03 FY04 FY05 FY06 PF LTM (1) Cash $13.5 $13.8 $11.6 $43.2 $59.2 $118.3 Debt Revolver Long Term Debt Other Debt Total Debt Shareholder's Equity Total Book Capitalization $254.6 $256.4 $260.1 $278.0 $319.9 $428.7 EBITDA (5.6) Interest Expense Capital Expenditures FCF (2) (43.4) (6.3) Credit Statistics Total Debt / EBITDA NM 7.5x 3.5x 3.9x 1.5x 2.5x Net Debt / EBITDA NM 7.0x 3.4x 3.2x 1.1x 1.7x EBITDA / Interest Expense NM 1.3x 2.8x 2.4x 6.1x 4.0x (EBITDA - Capex) / Interest Expense NM NM 2.3x 1.9x 5.2x 3.2x Notes: (1.) Pro Forma interest expense assumes full year interest on $100MM 10.50% Senior Notes Add-on and amortization of fees and issuance premium over remaining life of notes (2.) Free Cash Flow defined as Cash Flow from Operations less Cash Flow from Investing Cash Flow 31

32 Historical Capex Analysis Over the past five years, the Company has averaged approximately $4.7MM / year for maintenance capex Discretionary capex has typically been funded with free cash flow $MM Maintenance Capex Discretionary Capex Note: All values based on August 31 fiscal year end. 32

33 Liquidity Profile $MM $180 $160 $142 $159 $140 $120 $100 $80 Country Fair Acquisition $74 $99 $100 $99 $60 $40 $20 $0 $83 $39 $42 $62 $25 $28 $43 $59 $14 $14 $12 $ As of 2/28/07 Cash Available Revolver Capacity Note: Based on fiscal year ending August 31 33

34 Bear Stearns 16 th Annual Global Credit Conference May 16, 2007