<PAGE> 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 May 31, 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 July 15, 1998:
100.
1
<PAGE> 2
<TABLE>
<CAPTION>
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TABLE OF ADDITIONAL REGISTRANTS
- ---------------------------------------------------------------------------------------------------------------------------
Primary Standard
State of Other Industrial IRS Employer
Jurisdiction of Classification Identification Commission File
Name Incorporation Number Number Number
- ----------------------------------- ------------------------ ----------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Kiantone Pipeline Corporation New York 4612 25-1211902 333-35083-01
- ----------------------------------- ------------------------ ----------------------- ------------------ -------------------
Kiantone Pipeline Company Pennsylvania 4600 25-1416278 333-35083-03
- ----------------------------------- ------------------------ ----------------------- ------------------ -------------------
United Refining Company of Pennsylvania 5541 25-0850960 333-35083-02
Pennsylvania
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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
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</TABLE>
2
<PAGE> 3
UNITED REFINING COMPANY
AND SUBSIDIARIES
INDEX
- --------------------------------------------------------------------------------
PART 1. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Balance Sheets -
May 31, 1998 and August 31, 1997 4
Consolidated Statements of Operations -
Nine Months and Quarters Ended May 31, 1998 and 1997 5
Consolidated Statements of Cash Flows -
Nine Months Ended May 31, 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
<PAGE> 4
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
MAY 31, 1998 AUGUST 31,
(UNAUDITED) 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 5,695 $ 11,024
Accounts receivable, net 27,701 29,762
Inventories 61,143 67,096
Prepaid expenses and other assets 5,839 6,786
Deferred income taxes 703 712
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 101,081 115,380
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PROPERTY, PLANT AND EQUIPMENT:
Cost 257,096 234,956
Less: accumulated depreciation 67,381 60,757
- ------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 189,715 174,199
- ------------------------------------------------------------------------------------------------------------
RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS 29,400 48,168
DEFERRED FINANCING COSTS 7,442 7,807
OTHER ASSETS 856 838
- ------------------------------------------------------------------------------------------------------------
$328,494 $346,392
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Revolving credit facility $ 12,000 $ --
Current installments of long-term debt 301 218
Accounts payable 15,738 29,010
Accrued liabilities 18,204 13,753
Sales, use and fuel taxes payable 13,502 13,056
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 59,745 56,037
- ------------------------------------------------------------------------------------------------------------
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 200,963 201,054
DEFERRED INCOME TAXES 8,808 17,390
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 2,259 2,420
DEFERRED RETIREMENT BENEFITS 12,169 10,797
OTHER NONCURRENT LIABILITIES 2,759 5,757
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TOTAL LIABILITIES 286,703 293,455
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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 34,641 45,787
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TOTAL STOCKHOLDER'S EQUITY 41,791 52,937
- ------------------------------------------------------------------------------------------------------------
$328,494 $346,392
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 175,246 $ 203,644 $ 551,811 $ 638,720
COST OF GOODS SOLD 152,541 179,229 492,976 571,238
- --------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 22,705 24,415 58,835 67,482
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative expenses 19,186 17,945 56,479 53,186
Depreciation and amortization expenses 2,273 2,134 6,820 6,399
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 21,459 20,079 63,299 59,585
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 1,246 4,336 (4,464) 7,897
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OTHER INCOME (EXPENSE):
Interest income 560 262 2,274 897
Interest expense (5,649) (3,965) (16,665) (12,113)
Other, net 1 60 285 (74)
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(5,088) (3,643) (14,106) (11,290)
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INCOME (LOSS) BEFORE INCOME TAX
EXPENSE (BENEFIT) (3,842) 693 (18,570) (3,393)
INCOME TAX EXPENSE (BENEFIT) (1,528) 322 (7,424) (1,284)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (2,314) $ 371 $ (11,146) $ (2,109)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
MAY 31,
-----------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,146) $ (2,109)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 7,295 6,566
Post-retirement benefits 1,372 1,701
Change in deferred income taxes (8,582) 86
(Gain) loss on asset dispositions 33 (121)
Cash used in working capital items (2,300) (7,610)
Other, net (121) (224)
- --------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (2,303) 398
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NET CASH USED IN OPERATING ACTIVITIES (13,449) (1,711)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (22,917) (3,127)
Proceeds from asset dispositions 560 124
Net cash provided by restricted cash, cash equivalents
and investments 18,768 --
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NET CASH USED IN INVESTING ACTIVITIES (3,589) (3,003)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving credit facility 12,000 14,500
Proceeds from issuance of long term debt 156 --
Principal reductions of long-term debt (164) (16,689)
Deferred financing costs (283) (568)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,709 (2,757)
- --------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,329) (7,471)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,024 15,511
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,695 $ 8,040
- --------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net $ 2,061 $ 4,020
Inventories 5,953 (17,401)
Prepaid expenses and other assets 956 (3,570)
Accounts payable (13,272) 5,149
Accrued liabilities 1,556 4,755
Sales, use and fuel taxes payable 446 (563)
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TOTAL CHANGE $ (2,300) $ (7,610)
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 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 nine month periods ended
May 31, 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 May 31,
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.
3. SUBSIDIARY GUARANTORS
Summarized financial information for the Company's wholly owned subsidiary
guarantors are as follows:
<TABLE>
<CAPTION>
MAY 31, 1998
(UNAUDITED) AUGUST 31, 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets $36,220 $35,653
Noncurrent assets 67,953 60,131
Current liabilities 97,399 82,131
Noncurrent liabilities 7,645 10,474
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31, 1998 MAY 31, 1997
(UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net sales $326,502 $346,482
Gross profit 47,770 50,328
Operating income (loss) (3,326) 3,630
Net income (loss) (3,939) 887
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Recent Developments
On May 19, 1998 the Company resumed refinery crude oil processing after
a scheduled shutdown of the crude distillation unit and certain other refinery
processing units for maintenance and upgrading. This shutdown was completed in
22 days, one day ahead of schedule. Upgrades installed during this shutdown will
improve refinery yields, reduce refinery energy consumption, and reduce refinery
emissions. Additional improvements, including those designed to increase
refinery capacity, will be installed following receipt of necessary permits. The
Company has tentatively scheduled an abbreviated crude distillation unit
shutdown in the spring of 1999 for installation of these improvements.
Results of Operations
For the nine months ended May 31, 1998, the Company's Cost of Goods
Sold, Gross Profit and Operating Income were negatively affected by the
reduction in the valuation of working inventories as a result of falling
petroleum prices, although these changes in valuation did not have a material
effect on the Company's operating cash flow. Most of the reduction in the
Company's inventory valuation occurred in the fiscal quarter ended February 28,
1998, and was reported in the Company's filings with the Securities and Exchange
Commission for that quarter. Subsequent to these filings, several other
companies engaged in petroleum refining and marketing reported similar negative
impacts of reductions in inventory valuation on their earnings.
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 May 31, 1998 and May 31, 1997
Net Sales. Net sales decreased $28.4 million or 13.9% from $203.6
million for the fiscal quarter ended May 31, 1997 to $175.2 million for the
fiscal quarter ended May 31, 1998. The decline was due to 24.2% and 23.6%
decreases in wholesale and retail petroleum sales prices respectively, partially
offset by a 5.0% increase in retail petroleum volume and a 12.3% increase in
retail merchandise sales. Wholesale sales volume increased slightly, despite a
22 day scheduled refinery maintenance shutdown, as inventory built in
preparation for the shutdown offset the reduction in refinery production and
maintained availability of product for wholesale customers. The price decreases
were primarily due to lower prices for petroleum products worldwide which
accompanied a 26.0% decrease in world crude oil prices, as indicated by prices
of NYMEX crude oil contracts.
8
<PAGE> 9
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Cost of Goods Sold. Cost of goods sold decreased $26.7 million or 14.9%
from $179.2 million for the fiscal quarter ended May 31, 1997 to $152.5 million
for the fiscal quarter ended May 31, 1998. This decrease was primarily due to a
26.0% decline in world crude oil prices for the quarter ended May 31, 1998 as
compared to crude oil prices for the quarter ended May 31, 1997. The decline in
the Company's cost of goods due to lower world crude oil prices was partially
offset by increased purchases of intermediate feedstocks and of finished
products for resale in order to supply product demand during the 22 day
maintenance shutdown. Lower crude oil prices were also partially offset by the
cost of supplying the increased sales volume.
Operating Expenses. Operating expenses increased $1.4 million or 6.9%
from $20.1 million for the fiscal quarter ended May 31, 1997 to $21.5 million
for the fiscal quarter ended May 31, 1998. The increase was primarily due to
increased retail expenses for sales promotions, retail station wages and
maintenance and environmental expenses, and to increased professional and
consulting fees. 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 promotion expenses were primarily in connection
with a "frequent fueler" program which has been effective in increasing retail
gasoline volume.
Operating Income. Operating income decreased $3.1 million from $4.3
million for the fiscal quarter ended May 31, 1997 to $1.2 million for the fiscal
quarter ended May 31, 1998. This was primarily due to lower retail gross profit,
both in terms of total dollars and as percentage of sales. This was the result
of lower per gallon retail petroleum margins, only partially offset by higher
sales volumes and improved retail merchandise margins. Refining gross profit
improved both in terms of total dollars and as percentage of sales, as lower
crude oil costs more than offset reduced production due to a scheduled May 1998
shutdown for maintenance and upgrading. Overall gross profit improved in terms
of percentage of sales, despite the decline in total dollar terms.
Interest Expense. Net interest expense (interest expense less interest
income) increased $1.4 million from $3.7 million for the fiscal quarter ended
May 31, 1997 to $5.1 million for the fiscal quarter ended May 31, 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 interest income received on
restricted cash and investments.
Income Taxes. The provisions for income taxes for the fiscal quarters
ended May 31, 1997 and May 31, 1998 have been computed based upon management's
estimate of its annualized effective tax rate of approximately 46.5% and 39.8%
respectively.
Comparison of the Nine Months ended May 31, 1998 and May 31, 1997
Net Sales. Net sales decreased $86.9 million or 13.6% from $638.7
million for the nine months ended May 31, 1997 to $551.8 million for the nine
months ended May 31, 1998. The decline was due to 18.3% and 16.1% decreases in
wholesale and retail petroleum sales prices, respectively and a 5.4%
9
<PAGE> 10
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
decrease in wholesale petroleum volume, partially offset by a 10.2% increase in
retail merchandise sales and a 0.5% increase in retail petroleum volume. The
price decreases were primarily due to lower prices for petroleum products
worldwide which accompanied a 21.5% decrease in world crude oil prices, as
indicated by prices of NYMEX crude oil contracts. The reduction in wholesale
sales volumes was primarily the result of lower production due to the planned
shutdown of certain major refinery processing units for maintenance and
upgrading in October 1997 and May 1998.
Cost of Goods Sold. Cost of goods sold decreased $78.3 million or 13.7%
from $571.2 million for the nine months ended May 31, 1997 to $493.0 million for
the nine months ended May 31, 1998. This decrease was primarily due to a 21.5%
decline in world crude oil prices for the nine months ended May 31, 1998 as
compared to crude oil prices for the nine months ended May 31, 1997. The decline
in the Company's cost of goods sold resulting from lower world crude oil prices
was partially offset by increased purchases of intermediate feedstocks and of
finished products for resale in order to supply product demand during the
maintenance shutdowns ended in October 1997 and May 1998. Also partially
offsetting lower crude oil prices were increases to cost of goods sold from
changes in inventory prices. The per barrel value of the Company's inventories
declined during the nine months ended May 31, 1998 as a result of declining
world petroleum prices during that nine months. The declining prices reduced the
value of Company's working inventories by approximately $8.9 million. These
reductions in inventory value contributed corresponding increases to cost of
goods sold. For the nine months ended May 31, 1997, the corresponding reduction
in working inventory value had increased cost of goods sold by approximately
$0.5 million. The Company maintains certain volumes of working inventory
necessary to support normal operations, and changes in valuation of this
inventory occur with fluctuations in world petroleum prices. The lower pricing
of the Company's working inventories on May 31, 1998, for example, was the
result of world petroleum prices which ended May approximately 22% below the
average for the Company's last five full fiscal years.
Operating Expenses. Operating expenses increased $3.7 million or 6.2%
from $59.6 million for the nine months ended May 31, 1997 to $63.3 million for
the nine months ended May 31, 1998. The increase was primarily due to increased
retail expenses for sales promotions, retail station wages and maintenance and
environmental expense, and to increased professional and consulting fees.
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 which has been effective in increasing retail gasoline volume.
Operating Income. Operating income decreased $12.4 million from a $7.9
million operating income for the nine months ended May 31, 1997 to a $4.5
million operating loss for the nine months ended May 31, 1998. This was
primarily due to a decline in gross profit as the result of an $8.9 million
negative impact on cost of goods sold for changes in working inventory value.
Also contributing to the decline in gross profit and operating income was the
reduction in refinery production resulting from the scheduled maintenance
shutdowns in October 1997 and May 1998. Gross profit as a percentage of sales,
however, increased slightly, as increased refining margins and a $1.1 million
increase in retail merchandise gross profit partially offset the reduced
refinery production and the reduced inventory values.
10
<PAGE> 11
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Interest Expense. Net interest expense (interest expense less interest
income) increased $3.2 million from $11.2 million for the nine months ended May
31, 1997 to $14.4 million for the nine months ended May 31, 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 interest income received on restricted cash and
investments.
Income Taxes. The provisions for income taxes for the nine months ended
May 31, 1997 and May 31, 1998 have been computed based on management's estimate
of its annualized tax rate of approximately 37.8% and 40.0% respectively.
Liquidity and Capital Resources
Working Capital (current assets minus current liabilities) at May 31,
1998 was $41.3 million and at August 31, 1997 was $59.3 million. The Company's
current ratio (current assets divided by current liabilities) was 1.7:1 at May
31, 1998 and was 2.1:1 at August 31, 1997.
Net cash used in operating activities totaled $13.4 million for the
nine months ended May 31, 1998 compared to net cash used in operating activities
of $1.7 million for the nine months ended May 31, 1997. This decrease is
primarily a result of the net loss of $11.1 million and a decrease in accounts
payables, which was partially offset by decreases in accounts receivable and
inventories. 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 $22.9 million and $3.1 million for the nine months ended
May 31, 1998 and 1997, respectively. For the nine months ended May 31, 1998, the
Company used $18.8 million of restricted cash, cash equivalents and investments
to fund the Company's Capital Improvement Plan.
Net cash provided by financing activities was $11.7 million for the
nine months ended May 31, 1998 compared to a use of $2.8 million for the nine
months ended May 31, 1997. The cash was provided by net borrowings on the
Company's revolving credit facility of $12 million. As of May 31, 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 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 at a budgeted cost of approximately $13.8 million. An additional
$4.5 million has been budgeted for maintenance and non-discretionary capital
expenditures for 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.
11
<PAGE> 12
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
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
<PAGE> 13
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
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
<PAGE> 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: July 15, 1998
UNITED REFINING COMPANY
--------------------------------
(Registrant)
/s/ Myron L. Turfitt
--------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
--------------------------------
James E. Murphy
Chief Financial Officer
14
<PAGE> 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: July 15, 1998
KIANTONE PIPELINE CORPORATION
--------------------------------
(Registrant)
/s/ Myron L. Turfitt
--------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
--------------------------------
James E. Murphy
Chief Financial Officer
15
<PAGE> 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: July 15, 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
<PAGE> 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: July 15, 1998
KIANTONE PIPELINE COMPANY
----------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------
James E. Murphy
Chief Financial Officer
17
<PAGE> 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: July 15, 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
<PAGE> 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: July 15, 1998
KWIK-FILL, INC.
----------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------
James E. Murphy
Chief Financial Officer
19
<PAGE> 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: July 15, 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
<PAGE> 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: July 15, 1998
BELL OIL CORP.
----------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------
James E. Murphy
Chief Financial Officer
21
<PAGE> 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: July 15, 1998
PPC, INC.
----------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------
James E. Murphy
Chief Financial Officer
22
<PAGE> 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: July 15, 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
<PAGE> 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: July 15, 1998
KWIK-FIL, INC.
----------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------
James E. Murphy
Chief Financial Officer
24
<PAGE> 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: July 15, 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
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