-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KJegk6/gr3r3zaPZXw1SFoiN60NOqFHlxxegsZfHKXlSgGsFxO2za546buiX0RbI UXf9YLXMZP35jTeGiJn/ng== 0000950128-98-000721.txt : 19980415 0000950128-98-000721.hdr.sgml : 19980415 ACCESSION NUMBER: 0000950128-98-000721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980414 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED REFINING CO CENTRAL INDEX KEY: 0000101462 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 251411751 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06198 FILM NUMBER: 98593412 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIANTONE PIPELINE CORP CENTRAL INDEX KEY: 0000830253 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 251211902 STATE OF INCORPORATION: NY FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-01 FILM NUMBER: 98593413 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED REFINING CO /PA/ CENTRAL INDEX KEY: 0001040270 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 250850960 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-02 FILM NUMBER: 98593414 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIANTONE PIPELINE CO CENTRAL INDEX KEY: 0001045539 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-03 FILM NUMBER: 98593415 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KWIK FIL INC CENTRAL INDEX KEY: 0001045540 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-04 FILM NUMBER: 98593416 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KWIK FILL INC CENTRAL INDEX KEY: 0001045541 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-05 FILM NUMBER: 98593417 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED JET CENTER INC CENTRAL INDEX KEY: 0001045542 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-06 FILM NUMBER: 98593418 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL OIL CORP CENTRAL INDEX KEY: 0001045543 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-07 FILM NUMBER: 98593419 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPC INC CENTRAL INDEX KEY: 0001045544 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-08 FILM NUMBER: 98593420 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPER TEST PETROLEUM INC CENTRAL INDEX KEY: 0001045545 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-09 FILM NUMBER: 98593421 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VULCAN ASPHALT REFINING CORP CENTRAL INDEX KEY: 0001045546 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-10 FILM NUMBER: 98593422 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDEPENDENT GASOLINE & OIL CO OF ROCHESTER CENTRAL INDEX KEY: 0001045547 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-35083-11 FILM NUMBER: 98593423 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 10-Q 1 UNITED REFINING CO. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Period Ended February 28, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ----------------------- Commission File No. 333-35083 UNITED REFINING COMPANY - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 25-1411751 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 Bradley Street - ------------------ Warren, Pennsylvania 16365 - -------------------- ----- (address of principal (Zip Code) executive office) Registrant's telephone number, including area code 814-726-4674 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X ------- ------- Number of shares outstanding of Registrant's Common Stock as of April 14, 1998: 1,000. 1 2
- --------------------------------------------------------------------------------------------------------------------------- TABLE OF ADDITIONAL REGISTRANTS - --------------------------------------------------------------------------------------------------------------------------- Primary Standard State of Other Industrial IRS Employer Jurisdiction of Classification Identification Commission Name Incorporation Number Number File Number - --------------------------------------------------------------------------------------------------------------------------- Kiantone Pipeline Corporation New York 4612 25-1211902 333-35083-01 - --------------------------------------------------------------------------------------------------------------------------- Kiantone Pipeline Company Pennsylvania 4600 25-1416278 333-35083-03 - --------------------------------------------------------------------------------------------------------------------------- United Refining Company of Pennsylvania 5541 25-0850960 333-35083-02 Pennsylvania - --------------------------------------------------------------------------------------------------------------------------- United Jet Center, Inc. Delaware 4500 52-1623169 333-35083-06 - --------------------------------------------------------------------------------------------------------------------------- Kwik-Fill, Inc. Pennsylvania 5541 25-1525543 333-35083-05 - --------------------------------------------------------------------------------------------------------------------------- Independent Gas and Oil Company New York 5170 06-1217388 333-35083-11 of Rochester, Inc. - --------------------------------------------------------------------------------------------------------------------------- Bell Oil Corp. Michigan 5541 38-1884781 333-35083-07 - --------------------------------------------------------------------------------------------------------------------------- PPC, Inc. Ohio 5541 31-0821706 333-35083-08 - --------------------------------------------------------------------------------------------------------------------------- Super Test Petroleum, Inc. Michigan 5541 38-1901439 333-35083-09 - --------------------------------------------------------------------------------------------------------------------------- Kwik-Fil, Inc. New York 5541 25-1525615 333-35083-04 - --------------------------------------------------------------------------------------------------------------------------- Vulcan Asphalt Refining Delaware 2911 23-2486891 333-35083-10 Corporation - ---------------------------------------------------------------------------------------------------------------------------
2 3 UNITED REFINING COMPANY AND SUBSIDIARIES INDEX - ------------------------------------------------------------------------------- PART 1. FINANCIAL INFORMATION PAGE(S) - ---------------------------------- Item 1. Financial Statements Consolidated Balance Sheets- February 28, 1998 and August 31, 1997 4 Consolidated Statements of Operations- Six Months and Quarters Ended February 28, 1998 and 1997 5 Consolidated Statements of Cash Flows- Six Months Ended February 28, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 PART II. OTHER INFORMATION 13 - ------------------------------ 3 4 PART 1 -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------- FEBRUARY 28, 1998 AUGUST 31, (UNAUDITED) 1997 - ---------------------------------------------------------------------------------------------------- ASSETS CURRENT: Cash and cash equivalents $ 4,507 $ 11,024 Accounts receivable, net 22,042 29,762 Inventories 71,640 67,096 Prepaid expenses and other assets 7,697 6,786 Deferred income taxes 703 712 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 106,589 115,380 - ---------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT: Cost 248,241 234,956 Less: accumulated depreciation 65,119 60,757 - ---------------------------------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT 183,122 174,199 - ---------------------------------------------------------------------------------------------------- RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS 35,330 48,168 DEFERRED FINANCING COSTS 7,658 7,807 OTHER ASSETS 906 838 - ---------------------------------------------------------------------------------------------------- $333,605 $346,392 - ---------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT: Revolving credit facility $ 14,000 $ - Current installments of long-term debt 220 218 Accounts payable 22,635 29,010 Accrued liabilities 11,487 13,753 Sales, use and fuel taxes payable 11,107 13,056 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 59,449 56,037 - ---------------------------------------------------------------------------------------------------- LONG TERM DEBT: LESS CURRENT INSTALLMENTS 200,943 201,054 DEFERRED INCOME TAXES 11,487 17,390 DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 2,312 2,420 DEFERRED RETIREMENT BENEFITS 11,359 10,797 OTHER NONCURRENT LIABILITIES 3,950 5,757 - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 289,500 293,455 - ---------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common stock, $.10 par value per share - shares authorized 100; issued and outstanding 100 - - Additional paid-in capital 7,150 7,150 Retained earnings 36,955 45,787 - ---------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDER'S EQUITY 44,105 52,937 - ---------------------------------------------------------------------------------------------------- $333,605 $346,392 - ---------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
4 5 UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28, FEBRUARY 28, ----------------------------------------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ NET SALES $ 163,263 $ 207,812 $ 376,565 $ 435,076 COST OF GOODS SOLD 154,314 190,284 340,435 392,009 - ------------------------------------------------------------------------------------------------------------------------------ GROSS PROFIT 8,949 17,528 36,130 43,067 - ------------------------------------------------------------------------------------------------------------------------------ EXPENSES: Selling, general and administrative expenses 18,177 17,391 37,293 35,241 Depreciation and amortization expenses 2,273 2,132 4,547 4,265 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES 20,450 19,523 41,840 39,506 - ------------------------------------------------------------------------------------------------------------------------------ OPERATING INCOME (LOSS) (11,501) (1,995) (5,710) 3,561 - ------------------------------------------------------------------------------------------------------------------------------ OTHER INCOME (EXPENSE): Interest income 760 297 1,714 635 Interest expense (5,508) (3,923) (11,016) (8,148) Other, net 314 41 284 (134) - ------------------------------------------------------------------------------------------------------------------------------ (4,434) (3,585) (9,018) (7,647) - ------------------------------------------------------------------------------------------------------------------------------ LOSS BEFORE INCOME TAX BENEFIT (15,935) (5,580) (14,728) (4,086) INCOME TAX BENEFIT (6,378) (2,198) (5,896) (1,606) - ------------------------------------------------------------------------------------------------------------------------------ NET LOSS $ (9,557) $ (3,382) $ (8,832) $ (2,480) - ------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
5 6 UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (UNAUDITED) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, ------------------------ 1998 1997 - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,832) $ (2,480) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,870 4,375 Post-retirement benefits 562 857 Change in deferred income taxes (5,894) (256) (Gain) loss on asset dispositions 33 (121) Cash used in working capital items (10,029) (8,666) Other, net (171) (453) - ---------------------------------------------------------------------------------------------- TOTAL ADJUSTMENTS (10,629) (4,264) - ---------------------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (19,461) (6,744) - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (14,062) (2,214) Proceeds from asset dispositions 560 124 Net cash provided by restricted cash, cash equivalents and investments 12,838 - - ---------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (664) (2,090) - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on revolving credit facility 14,000 16,500 Principal reductions of long-term debt (109) (16,623) Deferred financing costs (283) (75) - ---------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 13,608 (198) - ---------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (6,517) (9,032) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,024 15,511 - ---------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,507 $ 6,479 - ---------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS: Accounts receivable, net $ 8,070 $ 6,535 Inventories (4,544) (11,625) Prepaid expenses and other assets (911) (525) Accounts payable (6,725) 4,457 Accrued liabilities (3,970) (3,584) Sales, use and fuel taxes payable (1,949) (3,924) - ---------------------------------------------------------------------------------------------- TOTAL CHANGE $(10,029) $ (8,666) - ---------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
6 7 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended February 28, 1998 are not necessarily indicative of the results that may be expected for the year ending August 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto incorporated by reference in the Company's Form 10-K filing dated November 28, 1997. 2. CREDIT FACILITY The Company's revolving credit facility contains certain covenants which provide for the maintenance of a minimum net worth and fixed charges. As of February 28, 1998, the company was not in compliance with the minimum fixed charge ratio contained in its revolving credit agreement. The Company has received a waiver from the banks for this period. 7 8 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------- Recent Developments World crude oil prices, as indicated by New York Mercantile Exchange (NYMEX) contract prices, which had declined steadily since October 1997, reached a low in mid March. The decline caused decreases in the pricing of the Company's working inventories, which had a negative effect on reported earnings. Also, because the Company's monthly crude oil pricing is typically determined approximately 30 days in advance of the pricing of products produced from crude, the steady price decline had the effect of reducing refinery gross margins, as products were produced from more expensive crude oil purchased the previous month. Since the mid March low, NYMEX crude oil contract prices have recovered over $2 per barrel, with corresponding recoveries in world prices of petroleum products. Early April prices of the Company's gasoline and distillate sales, both retail and wholesale, have increased versus March lows. With April crude oil costs established at lower prices during March, the Company's early April gross margins are the strongest since October 1997. Continued recovery in selling prices would also be expected to result in pricing gains on the Company's working inventories. Certain refinery improvements originally scheduled to be completed during a shutdown for refinery maintenance in May will be rescheduled for a later date. The rescheduled improvements are primarily those designed to increase long term refinery crude oil throughput capacity and are part of the refinery upgrade portion of the Company's Capital Improvement Plan. These improvements are being rescheduled pending completion of additional permitting requirements and their subsequent approval by regulatory agencies. The Company expects to complete these improvements following receipt of the necessary permits. Also, the Company expects to complete in May, as originally scheduled, a number of other refinery upgrade items included in the Capital Improvement Plan. These items will improve refinery yields, reduce refinery energy consumption, and reduce refinery emissions. Results of Operations Matters discussed below should be read in conjunction with the accompanying unaudited financial information. Certain statements contained in this report are forward-looking. Although management believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include general economic, business and market conditions, volatility of gasoline prices, merchandise margins, customer traffic, weather conditions, labor costs and the level of capital expenditures. For other important factors that may cause actual results to differ materially from expectations and underlying assumptions, see the Company's periodic filings with the Securities and Exchange Commission. Comparison of the Fiscal Quarters ended February 28, 1998 and February 28, 1997 Net Sales. Net sales decreased $44.5 million or 21.4% from $207.8 million for the fiscal quarter ended February 28, 1997 to $163.3 million for the fiscal quarter ended February 28, 1998. The decrease was due to 25.1% and 21.5% decreases in wholesale and retail petroleum selling prices respectively and a 14.7% decrease in wholesale petroleum volume, partially offset by a 1.3% increase in retail petroleum volume and a 9.7% increase in retail merchandise sales. The price decreases were primarily due to lower 8 9 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------- prices for petroleum products worldwide which accompanied a 25.2% decrease in world crude oil prices, as indicated by prices of NYMEX crude oil contracts. The reduction in wholesale sales volume allowed a portion of the refinery production to be used to build inventory to assure availability of product for customers during the scheduled May 1998 shutdown of a portion of the refinery for maintenance and upgrading. For the fiscal quarter ended February 28, 1998, refinery production decreased 0.4%. Cost of Goods Sold. Cost of goods sold decreased $36.0 million or 18.9% from $190.3 million for the fiscal quarter ended February 28, 1997 to $154.3 million for the fiscal quarter ended February 28, 1998. This decrease was primarily due to a 25.2% decline in world crude oil prices for the quarter ended February 28, 1998 as compared to crude oil prices for the quarter ended February 28, 1997. The decline in the Company's cost of goods sold due to lower world crude oil prices was partially offset by increased charges to cost of goods sold for changes in inventory prices. The per barrel value of the Company's inventories declined during the quarter ended February 28, 1998 as a result of the declining world petroleum prices during that quarter. This loss of inventory value generated an $8.2 million charge to cost of goods sold, which partially offset the effect of lower crude oil costs. For the quarter ended February 28, 1997, corresponding changes in inventory prices had the effect of decreasing the Company's cost of goods sold by approximately $0.3 million. The Company maintains certain volumes of working inventory necessary to support normal operations and changes in the valuation of this inventory occur with fluctuations in world petroleum prices. The lower pricing of the Company's working inventories on February 28, 1998, for example, was the result of world petroleum prices which ended February approximately 20% below the average for the Company's last five full fiscal years. Operating Expenses. Operating expenses increased $0.9 million or 4.7% from $19.5 million for the fiscal quarter ended February 28, 1997 to $20.5 million for the fiscal quarter ended February 28, 1998. The increase was primarily due to retail sales promotions, including a "frequent fueler" program to increase retail gasoline volume; to higher retail station wages resulting from an increase in the federal minimum wage, and to increased professional and consulting fees. Operating Income. Operating income decreased $9.5 million from a $2.0 million operating loss for the fiscal quarter ended February 28, 1997 to a $11.5 million operating loss for the fiscal quarter ended February 28, 1998. This was primarily due to a decline in gross profit as the result of the $8.2 million charge to the cost of goods sold for changes in inventory prices. Interest Expense. Net interest expense (interest expense less interest income) increased $1.1 million from $3.6 million for the fiscal quarter ended February 28, 1997 to $4.7 million for the fiscal quarter ended February 28, 1998. The increase was primarily due to an increase in the amount of long-term debt outstanding following the Company's sale of $200 million of Senior Unsecured Notes in June 1997. This was partially offset by a reduction in the average interest rate on long-term debt outstanding and by interest income received on restricted cash and investments. Income Taxes. The provisions for income taxes for the fiscal quarters ended February 28, 1997 and February 28, 1998 have been computed based upon management's estimate of its annualized effective tax rate of approximately 39.4% and 40.0% respectively. 9 10 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------- Comparison of the Six Months ended February 28, 1998 and February 28, 1997 Net Sales. Net sales decreased $58.5 million or 13.4% from $435.1 million for the six months ended February 28, 1997 to $376.6 million for the six months ended February 28, 1998. The decrease was due to 15.4% and 12.1% decreases in wholesale and retail petroleum sales prices respectively and 8.0% and 1.9% decreases in wholesale and retail petroleum volume respectively, partially offset by a 9.0% increase in retail merchandise sales. However, on a per store basis, retail petroleum volumes increased slightly. The price decreases were primarily due to lower prices for petroleum products worldwide which accompanied a 19.6% decrease in world crude oil prices, as indicated by prices of NYMEX crude oil contracts. The reduction in sales volumes was the result of lower production due to the shutdown of certain major refinery processing units for maintenance and upgrading in the quarter ended November 30, 1997, and of a reduction of wholesale sales in the quarter ended February 28, 1998 which allowed a portion of refinery production to be used to build inventory to assure availability of product for customers during the scheduled May 1998 shutdown of a portion of the refinery for maintenance and upgrading. For the six months ended February 28, 1998, refinery production decreased 2.6%. Cost of Goods Sold. Cost of goods sold decreased $51.6 million or 13.2% from $392.0 million for the six months ended February 28, 1997 to $340.4 million for the six months ended February 28, 1998. This decrease was primarily due to a 19.6% decline in world crude oil prices for the six months ended February 28, 1998 as compared to crude oil prices for the six months ended February 28, 1997. The decline in the Company's cost of goods due to lower world crude oil prices was partially offset by increased charges to cost of goods sold for changes in inventory prices. The per barrel value of the Company's inventories declined during the six months ended February 28, 1998 as a result of declining world petroleum prices during that six months. This loss of inventory value generated a $9.3 million charge to cost of goods sold, which partially offset the effect of lower crude oil costs. For the six months ended February 28, 1997, corresponding changes in inventory prices had the effect of decreasing the Company's cost of goods sold by approximately $2.1 million. The Company maintains certain volumes of working inventory necessary to support normal operations and changes in the valuation of this inventory occur with fluctuations in the world petroleum prices. The lower pricing of the Company's working inventories on February 28, 1998, for example, was the result of world petroleum prices which ended February approximately 20% below the average for the Company's last five full fiscal years. Operating Expenses. Operating expenses increased $2.3 million or 5.9% from $39.5 million for the six months ended February 28, 1997 to $41.8 million for the six months ended February 28, 1998. The increase was primarily due to increased professional and consulting fees and to increased retail expenses for sales promotions, retail station wages and maintenance and environmental expense. Increased retail station wages were primarily due to an increase in the federal minimum wage, while increased retail environmental expenses were primarily connected with the upgrading of underground storage tanks to new federal standards and will be partially recovered through future reimbursement received from indemnification funds from the states of Ohio and Pennsylvania. Increased retail promotions expenses were primarily in connection with a "frequent fueler" program to increase retail gasoline volume. 10 11 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------- Operating Income. Operating income decreased $9.3 million from a $3.6 million operating income for the six months ended February 28, 1997 to a $5.7 million operating loss for the six months ended February 28, 1998. This was primarily due to a decline in gross profit as the result of the $9.3 million charge to cost of goods sold for changes in inventory pricing. Interest Expense. Net interest expense (interest expense less interest income) increased $1.8 million from $7.5 million for the six months ended February 28, 1997 to $9.3 million for the six months ended February 28, 1998. The increase was primarily due to an increase in the amount of long-term debt outstanding following the Company's sale of $200 million of Senior Unsecured Notes in June 1997. This was partially offset by a reduction in the average interest rate for long-term debt outstanding and by interest income received on restricted cash and investments. Income Taxes. The provisions for income taxes for the six months ended February 28, 1997 and February 28, 1998 have been computed based on management's estimate of its annualized effective tax rate of approximately 39.3% and 40.0% respectively. Liquidity and Capital Resources Working Capital (current assets minus current liabilities) at February 28, 1998 was $47.1 million and at August 31, 1997 was $59.3 million. The Company's current ratio (current assets divided by current liabilities) was 1.8:1 at February 28, 1998 and was 2.1:1 at August 31, 1997. Net cash used in operating activities totaled $19.5 million for the six months ended February 28, 1998 compared to net cash used in operating activities of $6.7 million for the six months ended February 28, 1997. This decrease is primarily a result of the net loss of $8.8 million, the Company's planned build-up of inventories for the refinery turnaround in May 1998, and decreases in accounts payable and accrued expenses, offset by an increase in receivables. However, the $8.8 million net loss was primarily due to a charge of $9.3 million representing a loss of inventory value. Such changes in the carrying value of the Company's inventory are the result of fluctuations in world petroleum prices and do not have a material effect on the Company's operating cash flow. Net cash used in investing activities for purchases of property, plant and equipment totaled $14.1 million and $2.2 million for the six months ended February 28, 1998 and 1997, respectively. For the six months ended February 28, 1998, the Company used $12.8 million of restricted cash, cash equivalents and investments to fund the Company's Capital Improvement Plan. Net cash provided by financing activities was $13.6 million for the six months ended February 28, 1998 compared to a use of $0.2 million for the six months ended February 28, 1997. The cash was provided by net borrowings on the Company's revolving credit facility of $14 million. As of February 28, 1998, the Company was in default of the minimum fixed charge ratio covenant. The bank has granted the Company a waiver for this default. The Company reviews its capital expenditures on an ongoing basis. The Company currently has budgeted approximately $28.2 million for capital expenditures in fiscal 1998 with $3.3 million for completion of projects relating to underground storage tanks. The remaining $24.9 million for fiscal 1998 11 12 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------- is budgeted for the refinery expansion and retail capital improvement program, refinery environmental compliance and routine maintenance. The refinery expansion and retail capital improvement program is expected to be completed in fiscal 1999. Maintenance and non-discretionary capital expenditures have averaged approximately $4 million annually over the last three years for the refining and marketing operations. 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 bank credit facility with PNC Bank. Although the Company is not aware of any pending circumstances which would change its expectation, changes in the tax laws, the imposition of and changes in federal and state clean air and clean fuel requirements and other changes in environmental laws and regulations may also increase future capital expenditure levels. Future capital expenditures are also subject to business conditions affecting the industry. The Company continues to investigate strategic acquisitions and capital improvements to its existing facilities. Federal, state and local laws and regulations relating to the environment affect nearly all the operations of the Company. As is the case with all 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 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 the 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. Also, because winter weather in the Company's market is not favorable for paving activity, the Company's asphalt sales in winter months are composed of a much lower percentage of paving asphalt and a correspondingly higher percentage of roofing asphalt whose demand is much less seasonal. In addition, the Company stores a significant portion of winter asphalt production for sale the following spring and summer. 12 13 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8K (a) Exhibit 27 - Financial Data Schedule (b) No reports on Forms 8-K have been filed for quarter for which this report is being filed. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 UNITED REFINING COMPANY ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 KIANTONE PIPELINE CORPORATION ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 UNITED REFINING COMPANY OF PENNSYLVANIA ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 KIANTONE PIPELINE COMPANY ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 UNITED JET CENTER, INC. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 KWIK-FILL, INC. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 INDEPENDENT GASOLINE AND OIL COMPANY OF ROCHESTER, INC. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 20 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 BELL OIL CORP. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 PPC, INC. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 SUPER TEST PETROLEUM, INC. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 23 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 KWIK-FIL, INC. ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 14, 1998 VULCAN ASPHALT REFINING CORPORATION ---------------------------------------- (Registrant) /s/ MYRON L. TURFITT ---------------------------------------- Myron L. Turfitt President /s/ JAMES E. MURPHY ---------------------------------------- James E. Murphy Chief Financial Officer 25 EX-27 2 UNITED REFINING CO.
5 0000101462 UNITED REFINING COMPANY 1,000 U.S. DOLLARS 6-MOS AUG-31-1998 SEP-01-1997 FEB-28-1998 1 4,507 0 22,042 479 71,640 106,589 248,241 65,119 333,605 59,449 200,943 0 0 0 44,105 333,605 376,565 376,565 340,435 37,293 0 100 11,449 (14,728) (5,896) (8,832) 0 0 0 (8,832) 0 0
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