-----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, Psi3Jb16Ct8R4TKR44s/8yQx7EsQfFCuRCssphZ25hB91UmbY49AdVdJROgzYK0S Ao1SIo4LSoinVwN9DdJqYg== 0000950128-99-000678.txt : 19990415 0000950128-99-000678.hdr.sgml : 19990415 ACCESSION NUMBER: 0000950128-99-000678 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: 99593660 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: 99593661 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: 99593662 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: 99593663 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: 99593664 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: 99593665 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: 99593666 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: 99593667 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: 99593668 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: 99593669 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: 99593670 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: 99593671 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 COMPANY 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, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------ --------------------- Commission File No. 333-35083 --------- UNITED REFINING COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1411751 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 Bradley Street - ----------------- Warren, Pennsylvania 16365 - --------------------- ---------- (address of principal (Zip Code) executive office) Registrant's telephone number, including area code 814-726-4674 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Number of shares outstanding of Registrant's Common Stock as of April 14, 1999: 100. 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 of New York 5170 06-1217388 333-35083-11 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 Corporation Delaware 2911 23-2486891 333-35083-10 -----------------------------------------------------------------------------------------------------------------------------
2 3 UNITED REFINING COMPANY AND SUBSIDIARIES INDEX ================================================================================
PART I. FINANCIAL INFORMATION PAGE(S) Item 1. Financial Statements Consolidated Balance Sheets - February 28, 1999 and August 31, 1998 4 Consolidated Statements of Operations - Six Months and Quarters Ended February 28, 1999 and 1998 5 Consolidated Statements of Cash Flows - Six Months Ended February 28, 1999 and 1998 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 PART II. OTHER INFORMATION 14
3 4 PART 1 -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNITED REFINING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ================================================================================
FEBRUARY 28, 1999 AUGUST 31, (UNAUDITED) 1998 - ---------------------------------------------------------------------------------------------------- ASSETS CURRENT: Cash and cash equivalents $ 7,756 $ 26,400 Accounts receivable, net 21,001 27,017 Inventories 61,391 55,124 Prepaid expenses and other assets 11,372 7,727 Deferred income taxes 5,024 5,024 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 106,544 121,292 - ---------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT: Cost 265,791 256,895 Less: accumulated depreciation 62,558 58,918 - ---------------------------------------------------------------------------------------------------- NET PROPERTY, PLANT AND EQUIPMENT 203,233 197,977 - ---------------------------------------------------------------------------------------------------- RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS 9,892 15,289 DEFERRED FINANCING COSTS, NET 6,800 7,244 OTHER ASSETS 713 777 - ---------------------------------------------------------------------------------------------------- $327,182 $342,579 - ---------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT: Revolving credit facility $ 14,000 -- Current installments of long-term debt 256 283 Accounts payable 19,600 25,298 Accrued liabilities 11,241 11,823 Sales, use and fuel taxes payable 11,648 26,026 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 56,745 63,430 LONG TERM DEBT: LESS CURRENT INSTALLMENTS 200,870 201,026 DEFERRED INCOME TAXES 14,125 16,889 DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 2,097 2,205 DEFERRED RETIREMENT BENEFITS 12,974 12,350 OTHER NONCURRENT LIABILITIES 2,289 1,442 - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 289,100 297,342 - ---------------------------------------------------------------------------------------------------- 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 30,932 38,087 - ---------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDER'S EQUITY 38,082 45,237 - ---------------------------------------------------------------------------------------------------- $327,182 $342,579 - ----------------------------------------------------------------------------------------------------
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, -------------------------------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------- NET SALES $ 144,662 $ 163,263 $ 331,754 $ 376,565 COSTS OF GOODS SOLD 127,995 154,314 290,037 340,435 - ------------------------------------------------------------------------------------------------------------- GROSS PROFIT 16,667 8,949 41,717 36,130 - ------------------------------------------------------------------------------------------------------------- EXPENSES: Selling, general and administrative expenses 19,570 18,177 39,194 37,293 Depreciation and amortization expenses 2,356 2,273 4,712 4,547 - ------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 21,926 20,450 43,906 41,840 - ------------------------------------------------------------------------------------------------------------- OPERATING LOSS (5,259) (11,501) (2,189) (5,710) - ------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income 228 760 743 1,714 Interest expense (5,456) (5,508) (10,891) (11,016) Other, net (421) 314 536 284 - ------------------------------------------------------------------------------------------------------------- (5,649) (4,434) (9,612) (9,018) - ------------------------------------------------------------------------------------------------------------- LOSS BEFORE INCOME TAX BENEFIT (10,908) (15,935) (11,801) (14,728) INCOME TAX BENEFIT (4,299) (6,378) (4,646) (5,896) - ------------------------------------------------------------------------------------------------------------- NET LOSS $ (6,609) $ (9,557) $ (7,155) $ (8,832) =============================================================================================================
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, ----------------------- 1999 1998 - ----------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (7,155) $ (8,832) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,046 4,870 Post-retirement benefits 624 562 Change in deferred income taxes (2,764) (5,894) (Gain) loss on asset dispositions (918) 33 Cash used in working capital items (23,623) (10,029) Other, net (19) (171) - ----------------------------------------------------------------------------------------------- TOTAL ADJUSTMENTS (21,654) (10,629) - ----------------------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (28,809) (19,461) - ----------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash, cash equivalents and investments 5,397 12,838 Additions to property, plant and equipment (11,189) (14,062) Proceeds from asset dispositions 2,140 560 - ----------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (3,652) (664) - ----------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on revolving credit facility 14,000 14,000 Principal reductions of long-term debt (183) (109) Deferred financing costs -- (283) - ----------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 13,817 13,608 - ----------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (18,644) (6,517) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,400 11,024 - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,756 $ 4,507 =============================================================================================== CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS: Accounts receivable, net $ 6,016 $ 8,070 Inventories (6,267) (4,544) Prepaid expenses and other assets (3,645) (911) Accounts payable (5,698) (6,725) Accrued liabilities 349 (3,970) Sales, use and fuel taxes payable (14,378) (1,949) - ----------------------------------------------------------------------------------------------- TOTAL CHANGE $(23,623) $(10,029) ===============================================================================================
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, 1999 are not necessarily indicative of the results that may be expected for the year ending August 31, 1999. 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 30, 1998. 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, 1999, the Company was not in compliance with the minimum net worth ratio contained in its revolving credit agreement. The Company has received a waiver from the banks for this period. 3. COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For interim reporting purposes, SFAS No. 130 requires disclosure of total comprehensive income. Total comprehensive income for the three and six month periods ended February 28, 1999 and 1998 is the same as the reported net income. 7 8 UNITED REFINING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- 4. SUBSIDIARY GUARANTORS Summarized financial information for the Company's wholly owned subsidiary guarantors is as follows:
FEBRUARY 28, 1999 (UNAUDITED) AUGUST 31, 1998 ----------------------------------------------------------- Current assets $ 40,923 $ 39,901 Noncurrent assets 79,080 73,666 Current liabilities 112,207 103,977 Noncurrent liabilities 10,752 10,651 -----------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 28, FEBRUARY 28, ------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------- Net sales $ 96,516 $ 101,773 $ 201,686 $ 216,929 Gross profit 17,528 15,333 34,129 32,774 Operating loss (125) (1,625) (1,314) (1,057) Net loss (1,134) (1,807) (2,006) (1,969) --------------------------------------------------------------------------
8 9 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ================================================================================ Recent Developments The long decline in world crude oil prices continued into the fiscal quarter ended February 28, 1999, with the average prices of NYMEX crude oil contracts traded for January 1999 reaching the lowest level in well over a decade. However, prices increased significantly thereafter with NYMEX crude oil contracts for April 1999 averaging more than $2.30 per barrel above the January average. These increases in crude oil prices were accompanied by corresponding increases in contract prices for refined petroleum products. Such increases in crude and petroleum prices tend to increase the Company's wholesale margins, as refined products are produced and sold from crude oil purchased approximately one month earlier at significantly lower prices. Results of Operations For the six months ended February 28, 1999, the Company's results were negatively impacted by industry wide petroleum margins which were among the lowest in the past ten years. These were partially offset by higher retail petroleum and merchandise sales volume and by increased refinery efficiency due to installation of refinery improvements in May 1998. For the six months ended February 28, 1999, Costs of Goods Sold, Gross Profit and Operating Income continued to be negatively affected by the reduction in the valuation of working inventories as a result of falling petroleum prices, but to a much lesser extent than was the case in the six months ended February 28, 1998. The reduction in the valuation of working inventories for the six months ended February 28, 1999 was approximately $2.8 million compared to a reduction in valuation of $9.5 million for the six months ended February 28, 1998. However, such changes in inventory valuation did not have a material effect on the Company's operating cash flow. 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 Fiscal Quarters ended February 28, 1999 and February 28, 1998 Net Sales. Net sales decreased $18.6 million or 11.4% from $163.3 million for the fiscal quarter ended February 28, 1998 to $144.7 million for the fiscal quarter ended February 28, 1999. The decline was due to 29.9% and 26.1% decreases in wholesale and retail petroleum sales prices, respectively, partially offset by 12.5% and 5.2% increases in wholesale and retail petroleum volume, respectively, and by a 23.8% increase in retail merchandise sales. The price decreases were primarily due to lower prices 9 10 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ================================================================================ for petroleum products worldwide which accompanied a 33.3% decrease in world crude oil prices, as indicated by average prices of NYMEX crude oil contracts for the fiscal quarter ended February 28, 1999 as compared to average prices of these contracts for the quarter ended February 28, 1998. Increases in wholesale volume were primarily due to higher refinery runs, while increased retail petroleum and merchandise volumes were in large part the result of the ongoing program for retail upgrades. Costs of Goods Sold. Costs of goods sold decreased $26.3 million or 17.1% from $154.3 million for the fiscal quarter ended February 28, 1998 to $128.0 million for the fiscal quarter ended February 28, 1999. This decrease was primarily due to the decline in world crude oil prices for the quarter ended February 28, 1999 as compared to crude oil prices for the quarter ended February 28, 1998 and to a smaller negative impact on costs of goods sold from changes in the working inventory valuation in the quarter ended February 28, 1999 than in the quarter ended February 28, 1998. The decline in costs of goods due to these factors was partially offset by an increase in the volume of crude oil processed. The change in the impact of the working inventory valuation on costs of goods was primarily responsible for the increase in gross profit. Operating Expenses. Operating expenses increased $1.5 million or 7.2% from $20.4 million for the fiscal quarter ended February 28, 1998 to $21.9 million for the fiscal quarter ended February 28, 1999. Contributing to the increase were higher retail expenses for sales promotion and environmental expenses. Increased retail environmental expenses were primarily connected with the upgrading of underground storage tanks to new federal standards. The Company's program of underground tank upgrades was completed in the quarter ended February 28, 1999 as mandated by federal regulations. Increased retail promotion expenses were primarily in connection with a "frequent fueler" program which has been effective in increasing retail gasoline volume. Operating Income. Operating income increased $6.2 million from an $11.5 million operating loss for the fiscal quarter ended February 28, 1998 to a $5.3 million operating loss for the fiscal quarter ended February 28, 1999. This improvement was due to the increase in gross profit, partially offset by an increase in operating expense. Interest Expense. Net interest expense (interest expense less interest income) increased $0.5 million from $4.7 million for the fiscal quarter ended February 28, 1998 to $5.2 million for the fiscal quarter ended February 28, 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 provisions for income taxes for the fiscal quarters ended February 28, 1998 and February 28, 1999 have been computed based upon management's estimate of its annualized effective tax rate of approximately 40.0% and 39.4% respectively. Comparison of the Six Months ended February 28, 1999 and February 28, 1998 Net Sales. Net sales decreased $44.8 million or 11.9% from $376.6 million for the six months ended February 28, 1998 to $331.8 million for the six months ended February 28, 1999. The decline was due to 28.6% and 26.3% decreases in wholesale and retail petroleum sales prices, respectively, partially 10 11 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ================================================================================ offset by 14.7% and 5.2% increases in wholesale and retail petroleum volume, respectively, and by a 15.9% increase in retail merchandise sales. The price decreases were primarily due to lower prices for petroleum products worldwide which accompanied a 31.5% decrease in world crude oil prices, as indicated by average prices of NYMEX crude oil contracts for the six months ended February 28, 1999 as compared to average prices of these contracts for the six months ended February 28, 1998. Increases in wholesale volume were primarily due to higher refinery runs, while increased retail petroleum and merchandise volumes were in large part the result of the ongoing program of retail upgrades. Costs of Goods Sold. Costs of goods sold decreased $50.4 million or 14.8% from $340.4 million for the six months ended February 28, 1998 to $290.0 million for the six months ended February 28, 1999. This decrease was primarily due to the decline in world crude oil prices for the six months ended February 28, 1999 as compared to crude oil prices for the six months ended February 28, 1998 and to a smaller negative impact on costs of goods sold from changes in the working inventory valuation in the six months ended February 28, 1999 than in the six months ended February 28, 1998. The decline in the Company's costs of goods due to these factors was partially offset by an increase in the volume of crude oil processed. The gross profit increased $5.6 million for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998. This increase was due to the $6.8 million change in the impact of the working inventory valuation on costs of goods, partially offset by lower industry-wide petroleum margins. Operating Expenses. Operating expenses increased $2.1 million or 4.9% from $41.8 million for the six months ended February 28, 1998 to $43.9 million for the six months ended February 28, 1999. Contributing to the increase were higher retail expenses for sales promotion and environmental expenses. Increased retail environmental expenses were primarily connected with the upgrading of underground storage tanks to new federal standards. The Company's program of underground tank upgrades was completed during the six months ended February 28, 1999 as mandated by federal regulations. Increased retail promotion expenses were primarily in connection with a "frequent fueler" program which has been effective in increasing retail gasoline volume. Operating Income. Operating income increased $3.5 million from a $5.7 million operating loss for the six months ended February 28, 1998 to a $2.2 million operating loss for the six months ended February 28, 1999. This improvement was due to the increase in gross profit, partially offset by an increase in operating expense. Interest Expense. Net interest expense (interest expense less interest income) increased $0.8 million from $9.3 million for the six months ended February 28, 1998 to $10.1 million for the six months ended February 28, 1999. The increased net interest expense was due to a decrease in interest income earned, as the result of lower balances of restricted cash and investments. Income Taxes. The provisions for income taxes for the six months ended February 28, 1998 and February 28, 1999 have been computed based upon management's estimate of its annualized effective tax rate of approximately 40.0% and 39.4% respectively. 11 12 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ================================================================================ Liquidity and Capital Resources Working capital (current assets minus current liabilities) at February 28, 1999 was $49.8 million and at August 31, 1998 was $57.9 million. The Company's current ratio (current assets divided by current liabilities) was 1.9:1 at February 28, 1999 and 1.9:1 at August 31, 1998. Net cash used in operating activities totaled $28.8 million for the six months ended February 28, 1999 compared to net cash used in operating activities of $19.5 million for the six months ended February 28, 1998. Net cash used in investing activities for purchases of property, plant and equipment totaled $11.2 million and $14.1 million for the six months ended February 28, 1999 and 1998, respectively. For the six months ended February 28, 1999, the Company used $5.4 million of restricted cash, cash equivalents and investments to fund the Company's Capital Improvement Plan compared to $12.8 million for the six months ended February 28, 1998. Net cash provided by financing activities was $13.8 million for the six months ended February 28, 1999 compared to cash provided of $13.6 million for the six months ended February 28, 1998. The cash was provided by net borrowings on the Company's revolving credit facility of $14 million. As of February 28, 1999, the Company was in default of the minimum net worth 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 $20.0 million for capital expenditures in fiscal 1999. As of February 28, 1999, the capital expenditure escrow account balance was $9.9 million. Of this balance, approximately $2.3 million is reserved for refining projects and $7.6 million is reserved for retail projects. The refinery and retail capital improvement program is expected to be completed by August 31, 1999. Maintenance and non-discretionary capital expenditures have averaged approximately $4 million annually over the last three years for the refining and marketing operations. Management does not foresee any increase in maintenance and non-discretionary capital expenditures during fiscal 1999. 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, N.A. as Agent 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 12 13 UNITED REFINING COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ================================================================================ 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. Inflation The effect of inflation on the Company has not been significant during the last five fiscal years. Year 2000 Computer Issues The year 2000 presents many challenges to our industry with respect to, among other things, date-related functions in some computer systems. Historically, certain computer programs have been written using two digits rather than four to define the applicable year, which could result in the computer recognizing a date using "00" as the year 1900 rather than the year 2000. This in turn could result in major system failures or miscalculations and is generally referred to as the "Year 2000" problem. The Company is examining all areas of our business to ensure Year 2000 readiness, including computer hardware and software applications. The Company is addressing Year 2000 issues primarily with internal resources to ensure that the transition to the Year 2000 will not disrupt the Company's operations. The Company anticipates that essentially all of its systems will be compliant by calendar year end 1999, including its non-information technology systems. In addition, the Company has communicated with and evaluated the systems of its customers, suppliers, financial institutions and others with which it does business to identify any Year 2000 issues. Costs incurred by the Company to date to implement its plan have not been material and are not expected to have a material effect on the Company's financial condition or results of operations. There can be no assurance, however, that the Year 2000 issue will not adversely affect the Company and its business. 13 14 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 the quarter for which this report is being filed. 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, 1999 UNITED REFINING COMPANY ---------------------------------------------- (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, 1999 KIANTONE PIPELINE CORPORATION ---------------------------------------------- (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, 1999 UNITED REFINING COMPANY OF PENNSYLVANIA ---------------------------------------------- (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, 1999 KIANTONE PIPELINE COMPANY ---------------------------------------------- (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, 1999 UNITED JET CENTER, 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, 1999 KWIK-FILL, 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, 1999 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 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, 1999 BELL OIL CORP. ---------------------------------------------- (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, 1999 PPC, 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, 1999 SUPER TEST PETROLEUM, 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, 1999 KWIK-FIL, INC. ---------------------------------------------- (Registrant) /s/ Myron L. Turfitt ---------------------------------------------- Myron L. Turfitt President /s/ James E. Murphy ---------------------------------------------- James E. Murphy Chief Financial Officer 25 26 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, 1999 VULCAN ASPHALT REFINING CORPORATION ---------------------------------------------- (Registrant) /s/ Myron L. Turfitt ---------------------------------------------- Myron L. Turfitt President /s/ James E. Murphy ---------------------------------------------- James E. Murphy Chief Financial Officer 26 EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 6-MOS AUG-31-1999 SEP-01-1998 FEB-28-1999 7,756 0 21,001 541 61,391 106,544 265,791 62,558 327,182 56,745 200,870 0 0 0 38,082 327,182 331,754 331,754 290,037 39,194 0 222 11,334 (11,801) (4,646) (7,155) 0 0 0 (7,155) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----