<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 November 30, 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 January 14,
2000: 100.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF ADDITIONAL REGISTRANTS
--------------------------------------------------------------------------------------------------------------------------
Primary Standard
State of Other Industrial IRS Employer
Jurisdiction of Classification Number Identification Commission File
Name Incorporation 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
--------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE(S)
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 1999 and August 31, 1999 4
Consolidated Statements of Operations -
Quarters Ended November 30, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Quarters Ended November 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION 14
</TABLE>
3
<PAGE> 4
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
NOVEMBER 30,
1999 AUGUST 31,
(UNAUDITED) 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 10,619 $ 8,925
Accounts receivable, net 32,282 33,239
Inventories 70,398 70,728
Prepaid expenses and other assets 8,874 10,146
------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 122,173 123,038
------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Cost 282,005 279,895
Less: accumulated depreciation 69,056 66,473
------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 212,949 213,422
------------------------------------------------------------------------------------------------------------------
DEFERRED FINANCING COSTS 6,148 6,370
OTHER ASSETS 6,152 6,410
------------------------------------------------------------------------------------------------------------------
$347,422 $349,240
------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Revolving credit facility $ 9,000 $ 5,000
Current installments of long-term debt 214 217
Accounts payable 24,689 34,727
Accrued liabilities 17,395 12,374
Sales, use and fuel taxes payable 15,049 16,856
Deferred income taxes 661 661
------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 67,008 69,835
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 201,052 200,956
DEFERRED INCOME TAXES 13,777 13,515
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 1,936 1,990
DEFERRED RETIREMENT BENEFITS 14,790 14,055
OTHER NONCURRENT LIABILITIES 373 468
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 298,936 300,819
------------------------------------------------------------------------------------------------------------------
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 41,336 41,271
------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 48,486 48,421
------------------------------------------------------------------------------------------------------------------
$347,422 $349,240
------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
----------------------------
1999 1998
------------------------------------------------------------------------------------------------------------
(RESTATED)
<S> <C> <C>
NET SALES $245,084 $187,092
COSTS OF GOODS SOLD 216,995 161,883
------------------------------------------------------------------------------------------------------------
GROSS PROFIT 28,089 25,209
------------------------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative expenses 19,936 19,624
Depreciation and amortization expenses 2,589 2,356
------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 22,525 21,980
------------------------------------------------------------------------------------------------------------
OPERATING INCOME 5,564 3,229
------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 64 515
Interest expense (5,572) (5,435)
Other, net 51 957
------------------------------------------------------------------------------------------------------------
(5,457) (3,963)
------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 107 (734)
INCOME TAX EXPENSE (BENEFIT) 42 (284)
------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 65 $ (450)
------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
-----------------------
1999 1998
------------------------------------------------------------------------------------------------------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 65 $ (450)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 3,350 3,098
Post-retirement benefits 735 (217)
Change in deferred income taxes 262 210
Gain on asset dispositions (70) (1,078)
Cash used in working capital items (4,265) (8,964)
Other, net (430) (69)
------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (418) (7,020)
------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (353) (7,470)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,148) (7,039)
Proceeds from asset dispositions 102 1,998
Decrease in restricted cash, cash equivalents
and investments -- 3,980
------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,046) (1,061)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving credit facility 4,000 --
Proceeds from issuance of long term debt 152 --
Principal reductions of long term debt (59) (116)
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,093 (116)
------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,694 (8,647)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,925 26,400
------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,619 $ 17,753
------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net $ 957 $ 3,014
Inventories 330 6,663
Prepaid expenses and other assets 1,272 (107)
Accounts payable (10,038) (11,030)
Accrued liabilities 5,021 5,473
Sales, use and fuel taxes payable (1,807) (12,977)
------------------------------------------------------------------------------------------------------
TOTAL CHANGE $ (4,265) $ (8,964)
------------------------------------------------------------------------------------------------------
</TABLE>
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 month period ended
November 30, 1999 are not necessarily
indicative of the results that may be
expected for the year ending August 31,
2000. 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 29, 1999.
2. DERIVATIVE INSTRUMENTS AND In June 1998, the Financial Accounting
HEDGING ACTIVITIES Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133
("Statement 133"), "Accounting for
Derivative Instruments and Hedging
Activities". Statement 133 establishes
accounting and reporting standards for
derivative instruments, including certain
derivative instruments embedded in other
contracts, and for hedging activities. It
requires that an entity recognize all
derivatives as either assets or liabilities
in the statement of financial position and
measure these instruments at fair value. The
accounting for changes in the fair value of
a derivative, that is, gains and losses,
depends on the intended use of the
derivative and its resulting designation.
Statement 133 is effective for all fiscal
quarters of fiscal years beginning after
June 15, 2000. Management believes that the
adoption of Statement 133 will not have a
material effect on the Company's financial
position or results of operations.
3. RESTATEMENT Effective September 1, 1998, the Company
changed its method of accounting for major
maintenance turnarounds. Accordingly, the
Company has restated its financial
statements for the three months ended
November 30, 1998 to reflect this change as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30, 1998
-------------------------------
AS REPORTED AS RESTATED
- ---------------------------------------------------------------------------
<S> <C> <C>
Loss before income tax benefit $(893) $(734)
Net loss $(546) $(450)
- ---------------------------------------------------------------------------
</TABLE>
7
<PAGE> 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 (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
(UNAUDITED) AUGUST 31, 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 48,019 $ 45,027
Noncurrent assets 88,492 88,431
Current liabilities 129,771 125,789
Noncurrent liabilities 10,042 10,312
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED)
----------------------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $134,959 $105,170
Gross profit 18,775 16,601
Operating income(loss) 684 (1,189)
Net loss (659) (872)
- --------------------------------------------------------------------------------
</TABLE>
5. SEGMENTS OF BUSINESS
The Company is a petroleum refiner and marketer in its primary market
area of Western New York and Northwestern Pennsylvania. Operations are organized
into two business segments: wholesale and retail.
The wholesale segment is responsible for the acquisition of crude oil,
petroleum refining, and the marketing of petroleum products to wholesale and
industrial customers. The retail segment sells petroleum products and
convenience and grocery items through company owned gasoline stations and
convenience stores under the Kwik Fill(R) and Red Apple Food Mart(R) brand
names.
Intersegment revenues are calculated using estimated market prices and
are eliminated upon consolidation. Summarized financial information regarding
the Company's reportable segments is presented in the following table.
8
<PAGE> 9
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED)
----------------------------------
1999 1998
- ------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Net Sales
Retail $133,770 $103,919
Wholesale 111,314 83,173
----------------------------------
$245,084 $187,092
----------------------------------
Intersegment Sales
Wholesale $ 55,578 $ 33,334
----------------------------------
Operating Income (Loss)
Retail $ 99 $ (1,502)
Wholesale 5,465 4,731
----------------------------------
$ 5,564 $ 3,229
----------------------------------
Depreciation and Amortization
Retail $ 723 $ 660
Wholesale 1,866 1,696
----------------------------------
$ 2,589 $ 2,356
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
(UNAUDITED) AUGUST 31, 1999
- ---------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Total Assets
Retail $117,595 $113,599
Wholesale 229,827 235,641
-------------------------------------
$347,422 $349,240
-------------------------------------
Capital Expenditures $ 782 $ 18,698
Retail 1,366 7,526
-------------------------------------
Wholesale $ 2,148 $ 26,224
-------------------------------------
</TABLE>
9
<PAGE> 10
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Recent Developments
The Company's results for fiscal 1999 were negatively impacted by
reduced discounts for heavy, high sulfur grades of crude oil and by the
resulting reduction in the Company's crude cost advantage versus refiners
processing light, low sulfur crude oils. In the fiscal quarter ended November
30, 1999, reduced crude price discounts continued to negatively impact the
Company's results, but the discounts, while smaller than the year earlier
quarter, were improved significantly from average fiscal 1999 levels. With
continued increases in world crude oil prices for December 1999 and January
2000, preliminary information indicates further improvement in crude oil price
discounts, and the Company anticipates its crude cost advantage will be greater
than for those same months one year earlier.
Results of Operations
Comparison of Fiscal Quarters ended November 30, 1999 and November 30,
1998
Net Sales. Net sales increased $58.0 million or 31.0% from $187.1
million for the fiscal quarter ended November 30, 1998 to $245.1 million for the
fiscal quarter ended November 30, 1999. Retail sales increased $29.9 million, or
28.7% from $103.9 million to $133.8 million, while wholesale sales increased
$28.1 million or 33.8% from $83.2 million to $111.3 million. The retail sales
increase was due to a 4.8% increase in retail petroleum volume, a 23.6% increase
in retail petroleum prices, and a 25.7% increase in retail merchandise sales.
The wholesale sales increase was due to a 33.8% increase in wholesale prices
which more than offset a 6.1% decrease in wholesale volume. The higher retail
and wholesale prices were primarily the result of a 58.4% increase in world
crude oil prices as indicated by prices of NYMEX crude oil contracts for the
fiscal quarter ended November 30, 1999 compared to contracts for the year
earlier quarter. The higher retail sales volumes were primarily the result of
the performance of retail locations upgraded under the Company's Capital
Improvement Plan, the retail portion of which was completed in the final quarter
of fiscal 1999. The lower wholesale volume was primarily the result of lower
refinery crude oil processing, which was reduced in November 1999 due to the
planned maintenance shutdown of certain refinery processing units.
Costs of Goods Sold. Costs of goods sold increased $55.1 million or
34.0% from $161.9 million for the fiscal quarter ended November 30, 1998 to
$217.0 million for the fiscal quarter ended November 30, 1999. Retail costs of
goods sold increased $27.9 million or 31.8% from $87.8 million to $115.7
million, while wholesale costs of goods sold increased $27.2 million or 36.7%
from $74.1 million to $101.3 million. The increase in consolidated costs of
goods sold was primarily the result of the increase in world crude oil prices,
partially offset by lower refinery crude oil processing and by the beneficial
impact on costs of goods sold of increases in the value of the Company's working
inventories. The value of the working inventories increased approximately $4.7
million in the fiscal quarter ended November 30, 1999, which reduced costs of
goods sold. In the fiscal quarter ended November 30, 1998, the value of working
inventories decreased $1.4 million, which increased costs of goods sold.
Gross Profit. Gross profit increased $2.9 million from $25.2 for the
fiscal quarter ended November 30, 1998 to $28.1 million for the fiscal quarter
ended November 30, 1999. Gross profit as a percentage of sales, however,
declined from 13.5% for the fiscal quarter ended November 30, 1998 to
10
<PAGE> 11
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
11.5% for the fiscal quarter ended November 30, 1999 due primarily to asphalt
and retail petroleum selling prices which did not keep pace with increases in
crude costs.
Operating Expenses. Operating expenses increased $0.5 million or 2.5%
from $22.0 million for the fiscal quarter ended November 30, 1998 to $22.5
million for the fiscal quarter ended November 30, 1999. This increase was
primarily due to increased depreciation on new capital equipment installed under
the Company's Capital Improvement Plan, and to increased retail expenses for
sales promotions and for credit card processing, partially offset by lower
retail maintenance and environmental expenses. Increased retail promotions
expenses were primarily in connection with a "frequent fueler" program which has
been effective in increasing retail gasoline volume. Increased credit card
processing expenses were primarily due to increased customer use of credit cards
at stations offering recently installed "Pay at the Pump" service. Reduced
retail environmental expenses were primarily due to the completion in December
1998 of the Federally mandated program of replacing or upgrading underground
storage tanks.
Operating Income. As a result of the above, operating income increased
$2.4 million from $3.2 million for the fiscal quarter ended November 30, 1998 to
$5.6 million for the fiscal quarter ended November 30, 1999.
Interest Expense. Net interest expense (interest expense less interest
income) increased $0.6 million from $4.9 million for the fiscal quarter ended
November 30, 1998 to $5.5 million for the fiscal quarter ended November 30,
1999. The increased net interest expense was primarily due to a decrease in
interest income earned, as a result of lower balances of restricted cash and
investments.
Income Taxes. The Company's effective tax rate for the fiscal quarter
ended November 30, 1999 was approximately 39.3% compared to a rate of 38.7% for
the fiscal quarter ended November 30, 1998.
Liquidity and Capital Resources
Working capital (current assets minus current liabilities) at November
30, 1999 was $55.2 million and at August 31, 1999 was $53.2 million. The
Company's current ratio (current assets divided by current liabilities) was
1.8:1 at November 30, 1999 and August 31, 1998 respectively.
Net cash used in operating activities totaled $.4 million and $7.5
million for the three months ended November 30, 1999 and 1998 respectively.
Net cash used in investing activities for purchases of property, plant
and equipment totaled $2.1 million and $7.0 million for the three months ended
November 30, 1999 and 1998 respectively.
The Company reviews its capital expenditures on an ongoing basis. The
Company currently has budgeted approximately $5.0 million for capital
expenditures in fiscal 2000. 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
2000.
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, 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
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.
12
<PAGE> 13
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
Year 2000 risks exist in both information technology ("IT") systems which
employ computer hardware and software and in non-information technology systems
such as embedded computer chips or microcontrollers that control the operation
of the equipment in which they are installed. Potential computer failures due to
the Year 2000 problem could adversely affect the Company either in its
operations and record keeping or from suppliers and/or customers of the Company
that experience Year 2000 computer problems.
The Company is examining all areas of our business to ensure Year 2000
readiness, including computer hardware and software application testing. 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 or record keeping.
The Company has completed an inventory of its non-IT systems for Year 2000
compliance relative to embedded equipment used in the Company's operations. The
Company believes that these systems have been identified and those at risk for
failure due to Year 2000 problems have been corrected through replacement or
remediation with Year 2000 compliant third party software and/or devices.
Because of the nature of the non-IT systems, there can be no assurance that the
Company has correctly identified all non-IT systems that are subject to failure
due to the Year 2000 problem. Any failure of non-IT systems resulting from the
Year 2000 problem could adversely affect the Company's operations and record
keeping. 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.
The Company has a contingency plan to respond to the possible effects of
the Year 2000 problem on third parties that are important to the Company's
operations. The Company has communicated with its critical suppliers, vendors,
customers, utilities, financial institutions and telecommunication providers
with whom it does significant business to identify any Year 2000 issues. The
Company will continue to communicate with and review the progress of these third
party enterprises in resolving their Year 2000 issues. The ability to accurately
assess the Company's third parties' readiness is dependent in large part upon
the reliability and completeness of their representations.
The Company feels the most significant risk to its results of operations
and financial condition is that third party supplier(s) of essential inputs
(such as power to operate the refinery) would be unable to perform their normal
services for an extended period of time because of difficulties created by the
Year 2000 problem. This type scenario could cause the Company to suspend the
affected operations until the supplier solves the problem or in some cases until
an alternative supply could be arranged. The Company, in the event that a
particular supplier appears to be vulnerable, will seek to obtain alternative
supplies to the extent they are available. However, in the case of some inputs,
alternative supplies may not realistically be available even if the supply
problem is identified months in advance. In other cases, an unexpected third
party failure could occur despite extensive prior communication and assurances
from key suppliers. To the extent possible, the Company has either tested or
received certifications with respect to all significant IT and non-IT systems.
While the Company believes that it has made adequate arrangements to deal with
these contingencies, it continues to update such plans as additional information
becomes available.
13
<PAGE> 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
<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: January 14, 2000
UNITED REFINING COMPANY
--------------------------------------------
(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: January 14, 2000
KIANTONE PIPELINE CORPORATION
--------------------------------------------
(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: January 14, 2000
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
<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: January 14, 2000
KIANTONE PIPELINE COMPANY
--------------------------------------------
(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: January 14, 2000
UNITED JET CENTER, 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: January 14, 2000
KWIK-FILL, 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: January 14, 2000
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
<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: January 14, 2000
BELL OIL CORP.
--------------------------------------------
(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: January 14, 2000
PPC, 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: January 14, 2000
SUPER TEST PETROLEUM, 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: January 14, 2000
KWIK-FIL, INC.
--------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
--------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
--------------------------------------------
James E. Murphy
Chief Financial Officer
25
<PAGE> 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: January 14, 2000
VULCAN ASPHALT REFINING CORPORATION
--------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
--------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
--------------------------------------------
James E. Murphy
Chief Financial Officer
26
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 10,619
<SECURITIES> 0
<RECEIVABLES> 32,282
<ALLOWANCES> 437
<INVENTORY> 70,398
<CURRENT-ASSETS> 122,173
<PP&E> 282,005
<DEPRECIATION> 69,056
<TOTAL-ASSETS> 347,422
<CURRENT-LIABILITIES> 67,008
<BONDS> 201,052
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 347,422
<SALES> 245,084
<TOTAL-REVENUES> 245,084
<CGS> 216,995
<TOTAL-COSTS> 19,936
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<INTEREST-EXPENSE> 5,794
<INCOME-PRETAX> 107
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