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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 333-35083
UNITED REFINING COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1411751
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Bradley Street
Warren, Pennsylvania 16365
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(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
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Number of shares outstanding of Registrant's Common Stock as of
January 16, 2001: 100.
2
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TABLE OF ADDITIONAL REGISTRANTS
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- -------------------------------------- ----------------------- ----------------------- ------------------- -------------------
Primary Standard
State of Other Industrial IRS Employer
Jurisdiction of Classification Identification Commission
Name Incorporation Number Number File Number
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Kiantone Pipeline Corporation New York 4612 25-1211902 333-35083-01
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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 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
- -------------------------------------- ----------------------- ----------------------- ------------------- -------------------
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PART I. FINANCIAL INFORMATION PAGE(S)
- --------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 2000 and August 31, 2000 4
Consolidated Statements of Operations -
Quarters Ended November 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
Quarters Ended November 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
PART II. OTHER INFORMATION 16
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3
4
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
=======================================================================================================================
NOVEMBER 30,
2000 AUGUST 31,
(UNAUDITED) 2000
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 30,108 $ 7,430
Accounts receivable, net 40,442 44,304
Inventories 91,319 61,894
Prepaid expenses and other assets 13,052 8,877
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 174,921 122,505
PROPERTY, PLANT AND EQUIPMENT, NET 191,955 207,746
DEFERRED FINANCING COSTS 5,260 5,497
OTHER ASSETS 5,912 4,620
- -----------------------------------------------------------------------------------------------------------------------
$378,048 $340,368
=======================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Current installments of long-term debt 152 150
Accounts payable 40,910 18,434
Income taxes payable 1,264 538
Accrued liabilities 18,619 12,810
Sales, use and fuel taxes payable 14,355 15,809
Deferred income taxes 5,571 5,571
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 80,871 53,312
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 200,927 200,961
DEFERRED INCOME TAXES 11,647 13,103
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 1,721 1,775
DEFERRED RETIREMENT BENEFITS 16,585 15,738
OTHER NONCURRENT LIABILITIES 264 373
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TOTAL LIABILITIES 312,015 285,262
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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 16,648 7,150
Retained earnings 49,385 47,956
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TOTAL STOCKHOLDER'S EQUITY 66,033 55,106
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$378,048 $340,368
=======================================================================================================================
4
5
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
(IN THOUSANDS)
====================================================================================================
THREE MONTHS ENDED
NOVEMBER 30,
----------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------
NET SALES $295,461 $244,488
COSTS OF GOODS SOLD 264,814 216,995
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GROSS PROFIT 30,647 27,493
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EXPENSES:
Selling, general and administrative expenses 18,895 19,156
Depreciation and amortization expenses 2,732 2,589
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TOTAL OPERATING EXPENSES 21,627 21,745
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OPERATING INCOME 9,020 5,748
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OTHER INCOME (EXPENSE):
Interest income 531 64
Interest expense (5,440) (5,572)
Other, net (347) (133)
Costs associated with acquisition (1,300) --
- ---------------------------------------------------------------------------------------------------
(6,556) (5,641)
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INCOME BEFORE INCOME TAX EXPENSE 2,464 107
INCOME TAX EXPENSE 1,035 42
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NET INCOME $ 1,429 $ 65
===================================================================================================
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6
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(IN THOUSANDS)
=======================================================================================================================
THREE MONTHS ENDED
NOVEMBER 30,
---------------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,429 $ 65
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,731 3,350
Post-retirement benefits 847 735
Change in deferred income taxes 627 262
Gain on asset dispositions -- (70)
Cash used in working capital items (557) (4,265)
Other, net (2,216) (430)
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TOTAL ADJUSTMENTS 2,432 (418)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,861 (353)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities (2,008) --
Additions to property, plant and equipment (2,674) (2,148)
Proceeds from asset dispositions 23,531 102
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 18,849 (2,046)
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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 (32) (59)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (32) 4,093
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NET INCREASE IN CASH AND CASH EQUIVALENTS 22,678 1,694
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,430 8,925
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,108 $ 10,619
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CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net $ 3,862 $ 957
Inventories (29,425) 330
Prepaid expenses and other assets (2,167) 1,272
Accounts payable 22,476 (10,038)
Income taxes payable 342 --
Accrued liabilities 5,809 5,021
Sales, use and fuel taxes payable (1,454) (1,807)
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TOTAL CHANGE $ (557) $ (4,265)
========================================================================================================================
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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, 2000 are not necessarily
indicative of the results that may be expected
for the year ending August 31, 2001. 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, 2000.
2. DERIVATIVE INSTRUMENTS AND Effective September 1, 2000, the Company
HEDGING ACTIVITIES adopted 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.
The adoption of Statement 133 did not have a
material effect on the Company's financial
position or results of operations.
3. RECENT ACCOUNTING STANDARD In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No.
101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 provides
guidance on applying generally accepted
accounting principles to revenue recognition in
financial statements. The Company is currently
assessing the impact of SAB 101 on its
consolidated financial statements, and believes
that the effect, if any, will not be material
to the Company's operating results.
4. RECLASSIFICATION Certain amounts in the prior year's
consolidated financial statements have been
reclassified to conform with the presentation
in the current year.
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8
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. INVENTORIES Inventories consist of the following:
NOVEMBER 30, 2000
(UNAUDITED) AUGUST 31, 2000
- ---------------------------------------------------------------------------------
Crude Oil $36,897 $16,975
Petroleum Products 31,908 22,819
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Total @ LIFO 68,805 39,794
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Merchandise 9,444 9,020
Supplies 13,070 13,080
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Total @ FIFO 22,514 22,100
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Total Inventory $91,319 $61,894
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6. SUBSIDIARY GUARANTORS Summarized financial information for the
Company's wholly owned subsidiary guarantors is
as follows (in thousands):
================================================================================
NOVEMBER 30, 2000
(UNAUDITED) AUGUST 31, 2000
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Current Assets $ 47,457 $ 45,304
Noncurrent Assets 69,839 85,443
Current Liabilities 108,420 127,180
Noncurrent Liabilities 6,553 9,300
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THREE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED)
------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------
Net Sales $141,030 $134,650
Gross Profit 14,769 18,466
Operating Income (Loss) (421) 2,272
Net Income (Loss) (1,442) 183
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9
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. 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 tables (in
thousands):
THREE MONTHS ENDED
NOVEMBER 30,
(UNAUDITED)
--------------------------------------
2000 1999
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Net Sales
Retail $139,860 $133,328
Wholesale 155,601 111,160
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$295,461 $244,488
=================== ==================
Intersegment Sales
Wholesale $ 70,201 $ 55,578
=================== ==================
Operating Income (Loss)
Retail $ (879) $ 1,558
Wholesale 9,899 4,190
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$ 9,020 $ 5,748
=================== ==================
Depreciation and Amortization
Retail $ 765 $ 716
Wholesale 1,967 1,873
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$ 2,732 $ 2,589
=================== ==================
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10
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
NOVEMBER 30, 2000
(UNAUDITED) AUGUST 31, 1999
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Total Assets
Retail $ 95,778 $108,925
Wholesale 282,270 231,443
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$378,048 $340,368
======================== =====================
Capital Expenditures
Retail $ 941 $ 1,455
Wholesale 1,733 4,445
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$ 2,674 $ 5,900
======================== =====================
8. TRANSACTIONS WITH AFFILIATED COMPANIES
On September 29, 2000, the Company sold 42 retail units to an affiliate
for $23,870,000. The excess of the sales price over the net historic cost of the
assets and liabilities of $9,497,000 (net of income taxes) was credited to
additional paid-in capital during the quarter. The Company has invested the
proceeds of this sale in short-term investments and has not made a final
commitment on the use of the restricted proceeds. For the quarter ended November
30, 2000, net sales to the affiliate amounted to $8,762,000.
Concurrent with the asset sale, the Company terminated the leases on 8
additional retail locations which it had previously leased from a non-subsidiary
affiliate. The Company has entered into a management agreement with the
non-subsidiary affiliate to operate and manage the retail units on a turnkey
basis. For the quarter ended November 30, 2000, the Company billed the affiliate
$202,000 for management fees and overhead expenses incurred in the management
and operation of the 50 retail units.
The management agreement further requires the Company to periodically
reimburse the affiliate for the gross revenues less direct costs, overhead
expenses and management fees incurred by the Company in the operation of the
units. As of November 30, 2000 the Company was indebted to the affiliate for
$218,000 under the terms of the agreement, which is included in accounts
payable.
9. SUBSEQUENT EVENTS
On November 9, 2000, a subsidiary of United Refining Company ("United")
submitted a written proposal to the board of Getty Petroleum Marketing, Inc.
("Getty") for the purchase of its approximately 14 million outstanding shares of
common stock. The proposal indicated that the United subsidiary would be willing
and fully prepared to pay $5.75 per share for all of the outstanding shares. On
December 7, 2000, the subsidiary increased its offer to $6.00 per share. The
amended proposal was not accepted by Getty and expired on December 8, 2000. The
Company has recorded a $1,300,000 charge at November 30, 2000 for the estimated
expenses associated with the unsuccessful acquisition.
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11
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
Effective January 8, 2001, the Company renegotiated its secured
revolving credit facility to provide for an increase in its revolving credit
commitment up to $50,000,000. The Facility expires on June 9, 2002 and is
secured by certain qualifying cash accounts, accounts receivable, and inventory.
The interest rate on borrowings varies with the Company's earnings and is based
on the higher of the bank's prime rate or Federal funds rate plus 1/2% for base
rate borrowings and the LIBOR rate for Euro-Rate borrowings, which was 8.62% as
of November 30, 2000.
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12
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
Recent Developments
Worldwide crude oil prices, as indicated by prices of crude oil
contracts on the New York Mercantile Exchange (NYMEX), which had risen rapidly
in fiscal 2000 and in the 1st quarter of fiscal 2001, ended November 30, 2000,
peaked at over $35 per barrel in trading of NYMEX contracts for delivery in
December 2000. In early January 2001, NYMEX crude contracts were trading more
than $5 per barrel below these peak prices. As is typically the case, the rising
worldwide prices in the 1st fiscal quarter had increased the Company's wholesale
margins but reduced the Company's retail margins, as retail prices did not keep
pace with rapidly rising wholesale prices. The decrease in worldwide crude oil
prices from the peak reached in trading of December 2000 contracts reduced
December wholesale margins but increased December retail margins. In early
January 2001, with worldwide crude oil prices appearing to have stabilized, at
least temporarily, at lower levels, both the Company's wholesale gasoline and
distillate margins and its retail margins were stronger than in January the
prior year.
On September 29, 2000, the Company sold 42 retail locations to a
non-subsidiary affiliate for $23.9 million. Simultaneously with this
transaction, the Company terminated the leases on 8 additional retail locations
which it had previously leased from a non-subsidiary affiliate. However, the
Company continues to manage these 50 locations under a management agreement
entered into simultaneously with the transactions, and continues to supply
petroleum products to these locations.
Results of Operations
Comparison of Fiscal Quarters ended November 30, 2000 and November 30,
1999
Net Sales. Net sales increased $51.0 million or 20.8% from $244.5
million for the fiscal quarter ended November 30, 1999 to $295.5 million for the
fiscal quarter ended November 30, 2000. Retail sales increased $6.6 million, or
4.9% from $133.3 million to $139.9 million, while wholesale sales increased
$44.4 million or 40.0% from $111.2 million to $155.6 million. The retail sales
increase was due to a 20.2% increase in retail petroleum prices, which more than
offset an 9.9% decrease in retail petroleum volume, and an 8.5% decrease in
retail merchandise sales. The wholesale sales increase was due to a 48.9%
increase in wholesale prices, which more than offset a 6.1% decrease in
wholesale volume.
Retail sales volumes were reduced and wholesale sales volumes
correspondingly increased as a result of the September 29, 2000 sale and lease
terminations as previously discussed. These transactions reduced the Company's
retail sales, but increased wholesale sales, as the Company now supplies these
affiliate locations on a wholesale basis. On a same-store basis, excluding prior
period retail sales by these 50 locations and including as wholesale sales prior
period petroleum products supplied to these locations, retail petroleum volume
increased 2.2%, retail petroleum prices increased 20.7% and retail merchandise
sales increased 6.8%. On that same-store basis, wholesale volume decreased 10.7%
and wholesale prices increased 47.7%. The increase in same-store retail
petroleum volume and merchandise sales was primarily due to the performance of
the locations upgraded under the Company's Capital Improvement Plan completed at
the end of fiscal 1999. The decrease in wholesale volume on a comparable basis
was due primarily to lower gasoline production and to lower asphalt sales
despite higher asphalt production. The lower gasoline production was due to
slightly lower crude oil processing rates, to a heavier mix of crude oils which
increased asphalt production at the expense of
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13
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
gasoline, and to the shutdown of certain refinery gasoline-producing units for
planned maintenance activities during the quarter ended November 30, 2000. These
maintenance activities reduced gasoline production to a greater extent than did
similar activities during the prior year quarter. Lower asphalt sales were
primarily due to much less favorable weather for paving activities than was the
case in the prior period. The less favorable weather caused less asphalt to be
sold, while more asphalt was placed in inventory for the following spring paving
season. The increase in retail and wholesale petroleum prices was primarily due
to a 44.6% increase in worldwide crude oil prices as indicated by prices of
NYMEX crude oil contracts for the fiscal quarter ended November 30, 2000 as
compared to contracts for the prior year quarter.
Costs of Goods Sold. Costs of goods sold increased $47.8 million or
22.0% from $217.0 million for the fiscal quarter ended November 30, 1999 to
$264.8 million for the fiscal quarter ended November 30, 2000. Retail costs of
goods sold increased $10.1 million or 8.7% from $115.6 million to $125.7
million, while wholesale costs of goods sold increased $37.7 million or 37.2%
from $101.4 million to $139.1 million. The increase in consolidated costs of
goods sold was primarily the result of the increase in worldwide crude oil
prices, partially offset by increased discounts for heavy sour grades of crude
oil. The previously discussed sale and lease terminations involving 50 retail
locations now owned by a non-subsidiary affiliate had the effect of partly
offsetting the increase in retail costs of goods sold due to higher worldwide
petroleum prices, as the Company had fewer retail locations to supply. However,
as the Company is now supplying these locations on a wholesale basis, this
transaction correspondingly increased wholesale costs of goods sold, reinforcing
the effect of higher worldwide petroleum prices. Costs of goods sold for the
quarter ended November 30, 2000 was negatively impacted by an approximate $2.5
million decrease in the value of the Company's working inventories on a FIFO
basis, which increased costs of goods sold. This was partially offset by a
reduction in the LIFO reserve, which increased the value of the Company's total
inventories by $2.0 million. In the quarter ended November 30, 1999, costs of
goods sold had benefited from a $4.7 million increase in the value of working
inventories. In the prior year quarter, LIFO exceeded market, thus inventories
were valued at net realizable value.
Gross Profit. Gross Profit increased $3.1 million from $27.5 million
for the fiscal quarter ended November 1999 to $30.6 million for the fiscal
quarter ended November 30, 2000. This increase was primarily due to improved
industry wholesale margins and larger discounts on heavy high-sulfur crude oil
grades processed by the Company, partially offset by lower retail petroleum
margins, as industry retail prices did not keep pace with rapidly rising
wholesale prices. The increase was also partially offset by the negative impact
on costs of goods sold of changes in working inventory prices, versus a
beneficial impact in the prior year quarter.
Operating Expenses. Operating expenses decreased $0.1 million or 0.5%
from $21.7 million for the fiscal quarter ended November 30, 1999 to $21.6
million for the fiscal quarter ended November 30, 2000. This decrease was
primarily due to the elimination of station operating expenses associated with
the 50 retail locations now owned by a non-subsidiary affiliate and to the
reduction of retail overhead expenses by application of payments received from
the non-subsidiary affiliate under an agreement by which the Company will manage
those locations for the affiliate. These reductions slightly more than offset
increased depreciation, increased same-station retail operating expenses for
wages and benefits and for credit card processing, and increased corporate
overhead expenses. Increased depreciation was primarily due to capital equipment
installed under the Company's Capital Improvement Plan. Increased
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14
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
same-store retail wages and benefits were due primarily to higher average hourly
wages and to increased cost of providing employee health benefits. Increased
same-store credit card processing fees were the result of increased customer use
of "Pay at the Pump" facilities and to higher retail prices, which increase
per-transaction fees.
Operating Income. As a result of the above, operating income increased
$3.3 million from $5.7 million for the fiscal quarter ended November 30, 1999 to
$9.0 million for the fiscal quarter ended November 30, 2000.
Interest Expense. Net interest expense (interest expense less interest
income) decreased $0.6 million from $5.5 million for the fiscal quarter ended
November 30, 1999 to $4.9 million for the fiscal quarter ended November 30,
2000. The decreased net interest expense was due to lower balances on the
Company's revolving credit facility and to interest income earned on the
proceeds from the sale of 42 retail locations to a non-subsidiary affiliate.
Income Taxes. The Company's effective tax rate for the fiscal quarter
ended November 30, 2000 was approximately 42.0% compared to a rate of 39.3% for
the fiscal quarter ended November 30, 1999.
Liquidity and Capital Resources
Working capital (current assets minus current liabilities) at November
30, 2000 was $94.1 million and at August 31, 2000 was $69.2 million. The
Company's current ratio (current assets divided by current liabilities) was
2.2:1 at November 30, 2000 and 2.3:1 at August 31, 2000.
Net cash provided by operating activities totaled $3.9 million for the
three months ended November 30, 2000 and net cash used by operating activities
totaled $.4 million for the three months ended November 30, 1999.
Net cash used in investing activities for the purchase of stock of
potential acquisition candidate totaled $2.0 million for the three months ended
November 30, 2000. Net cash used in investing activities for purchases of
property, plant and equipment totaled $2.7 million and $2.1 million for the
three months ended November 30, 2000 and 1999 respectively. Also, net cash
provided by investing activities was $23.5 million and $.1 from the sale of
assets for the three months ended November 30, 2000 and 1999 respectively.
The Company reviews its capital expenditures on an ongoing basis. The
Company currently has budgeted approximately $6.0 million for capital
expenditures in fiscal 2001. 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
2001.
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
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15
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
requirements out of cash flow from operations, cash on hand and borrowings under
the Company's secured revolving credit facility (the "Facility") with PNC Bank,
N.A. as Agent Bank. The Company has renegotiated its secured revolving credit
facility to provide for an increase in its revolving credit commitment up to
$50,000,000. The commitment increase became effective January 8, 2001. The
Facility expires on June 9, 2002 and is secured by certain qualifying cash
accounts, accounts receivable, and inventory. The interest rate on borrowings
varies with the Company's earnings and is based on the higher of the bank's
prime rate or Federal funds rate plus 1/2% for base rate borrowings and the
LIBOR rate for Euro-Rate borrowings, which was 8.62% as of November 30, 2000.
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.
In February 2000, the United States Environmental Protection Agency
(USEPA) issued a final rule requiring the reduction of the sulfur content of
gasoline. The Company anticipates that a material investment of funds will be
required before 2008 to comply with this rule.
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 the 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 the 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 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.
Inflation
The effect of inflation on the Company has not been significant during
the last five fiscal years.
15
16
PART II - OTHER INFORMATION
Item 1. 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 8-K
(a) Exhibit 10.20. Fifth Amendment to Credit
Agreement.
(b) No reports on Forms 8-K have been filed for the
quarter for which this report is being filed.
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: January 16, 2001
UNITED REFINING COMPANY
-----------------------
(Registrant)
/s/ Myron L. Turfitt
-----------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-----------------------
James E. Murphy
Chief Financial Officer
17
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 16, 2001
KIANTONE PIPELINE CORPORATION
-----------------------------
(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: January 16, 2001
UNITED REFINING COMPANY OF PENNSYLVANIA
---------------------------------------
(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: January 16, 2001
KIANTONE PIPELINE COMPANY
-------------------------
(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: January 16, 2001
UNITED JET CENTER, 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: January 16, 2001
KWIK-FILL, INC.
-----------------------
(Registrant)
/s/ Myron L. Turfitt
-----------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-----------------------
James E. Murphy
Chief Financial Officer
22
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 16, 2001
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
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: January 16, 2001
BELL OIL CORP.
-----------------------
(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: January 16, 2001
PPC, 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: January 16, 2001
SUPER TEST PETROLEUM, INC.
--------------------------
(Registrant)
/s/ Myron L. Turfitt
--------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
--------------------------
James E. Murphy
Chief Financial Officer
26
27
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 16, 2001
KWIK-FIL, INC.
-----------------------
(Registrant)
/s/ Myron L. Turfitt
-----------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-----------------------
James E. Murphy
Chief Financial Officer
27
28
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 16, 2001
VULCAN ASPHALT REFINING CORPORATION
-----------------------------------
(Registrant)
/s/ Myron L. Turfitt
-----------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-----------------------------------
James E. Murphy
Chief Financial Officer
28