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, 2001
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
- ------------------------------------ ---------------------
(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 17,
2002: 100.
- ------------------------------------------------------------------------------------------------------------------------------
TABLE OF ADDITIONAL REGISTRANTS
- ------------------------------------------------------------------------------------------------------------------------------
State of Other Primary Standard IRS Employer
Jurisdiction of Industrial Identification Commission File
Name Incorporation Classification Number Number Number
- ------------------------------------------------------------------------------------------------------------------------------
Kiantone Pipeline Corporation New York 4612 25-1211902 333-35083-01
- ------------------------------------------------------------------------------------------------------------------------------
Kiantone Pipeline Company Pennsylvania 4600 25-1416278 333-35083-03
- ------------------------------------------------------------------------------------------------------------------------------
United Refining Company of Pennsylvania 5541 25-0850960 333-35083-02
Pennsylvania
- ------------------------------------------------------------------------------------------------------------------------------
United Jet Center, Inc. Delaware 4500 52-1623169 333-35083-06
- ------------------------------------------------------------------------------------------------------------------------------
Kwik Fill Corporation Pennsylvania 5541 25-1525543 333-35083-05
- ------------------------------------------------------------------------------------------------------------------------------
Independent Gas and Oil Company of New York 5170 06-1217388 333-35083-11
Rochester, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Bell Oil Corp. Michigan 5541 38-1884781 333-35083-07
- ------------------------------------------------------------------------------------------------------------------------------
PPC, Inc. Ohio 5541 31-0821706 333-35083-08
- ------------------------------------------------------------------------------------------------------------------------------
Super Test Petroleum, Inc. Michigan 5541 38-1901439 333-35083-09
- ------------------------------------------------------------------------------------------------------------------------------
Kwik-Fil, Inc. New York 5541 25-1525615 333-35083-04
- ------------------------------------------------------------------------------------------------------------------------------
Vulcan Asphalt Refining Corporation Delaware 2911 23-2486891 333-35083-10
- ------------------------------------------------------------------------------------------------------------------------------
2
PART I. FINANCIAL INFORMATION PAGE(S)
- --------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 2001 and August 31, 2001 4
Consolidated Statements of Operations -
Quarters Ended November 30, 2001 and 2000 5
Consolidated Statements of Cash Flows -
Quarters Ended November 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-16
PART II. OTHER INFORMATION 17
-----------------------------
3
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30,
2001 AUGUST 31,
(UNAUDITED) 2001
----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 27,279 $ 35,224
Accounts receivable, net 30,432 41,937
Inventories 66,938 62,554
Prepaid expenses and other assets 15,384 13,312
----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 140,033 153,027
PROPERTY, PLANT AND EQUIPMENT, NET 190,121 190,951
INVESTMENT IN AFFILIATED COMPANY 1,884 1,529
DEFERRED FINANCING COSTS 3,892 4,102
OTHER ASSETS 6,590 5,948
----------------------------------------------------------------------------------------------------------------------
$ 342,520 $ 355,557
----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT:
Current installments of long-term debt $ 112 $ 121
Accounts payable 24,613 22,206
Income taxes payable - 2,373
Accrued liabilities 18,389 12,411
Sales, use and fuel taxes payable 14,585 16,686
Deferred income taxes 4,157 4,157
Amounts due affiliated companies 1,445 1,905
----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 63,301 59,859
LONG TERM DEBT: LESS CURRENT INSTALLMENTS 180,956 180,979
DEFERRED INCOME TAXES 14,153 17,573
DEFERRED GAIN ON SETTLEMENT OF PENSION PLAN OBLIGATIONS 1,506 1,560
DEFERRED RETIREMENT BENEFITS 19,118 19,356
OTHER NONCURRENT LIABILITIES 140 264
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 279,174 279,591
----------------------------------------------------------------------------------------------------------------------
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 16,648
Retained earnings 46,698 59,318
----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 63,346 75,966
----------------------------------------------------------------------------------------------------------------------
$ 342,520 $ 355,557
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4
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
-------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
------------------------------------
2001 2000
----------------------------------------------------------------------------------------------------------
NET SALES $ 228,504 $ 296,183
COSTS OF GOODS SOLD 223,384 265,536
----------------------------------------------------------------------------------------------------------
GROSS PROFIT 5,120 30,647
----------------------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative expenses 18,389 18,895
Depreciation and amortization expenses 2,960 2,732
----------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 21,349 21,627
----------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (16,229) 9,020
----------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 240 531
Interest expense (4,879) (5,440)
Other, net (477) (347)
Costs associated with acquisition - (1,300)
Equity in net earnings of affiliate 355 -
----------------------------------------------------------------------------------------------------------
(4,761) (6,556)
----------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (20,990) 2,464
INCOME TAX EXPENSE (BENEFIT) (8,370) 1,035
----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (12,620) $ 1,429
----------------------------------------------------------------------------------------------------------
5
UNITED REFINING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
-------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30,
-------------------------------------
2001 2000
---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (12,620) $ 1,429
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,791 3,731
Post-retirement benefits (238) 847
Change in deferred income taxes (3,420) 627
Loss on asset dispositions 182 -
Cash provided by (used in) working capital items 8,500 (557)
Equity in net earnings of affiliate (355) -
Other, net (1,441) (2,216)
---------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 7,019 2,432
---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,601) 3,861
---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities - (2,008)
Additions to property, plant and equipment (2,312) (2,674)
Proceeds from asset dispositions - 23,531
---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,312) 18,849
---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal reductions of long-term debt (32) (32)
---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (32) (32)
---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,945) 22,678
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 35,224 7,430
---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,279 $ 30,108
---------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) WORKING CAPITAL ITEMS:
Accounts receivable, net $ 11,505 $ 3,862
Inventories (4,384) (29,425)
Prepaid expenses and other assets (2,072) (2,167)
Accounts payable 2,407 22,476
Accrued liabilities 2,174 5,809
Amounts due affiliated companies (460) -
Income taxes payable (2,373) 342
Sales, use and fuel taxes payable 1,703 (1,454)
---------------------------------------------------------------------------------------------------------------
TOTAL CHANGE $ 8,500 $ (557)
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6
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 accounting principles
generally accepted in the United States
of America 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 accounting principles
generally accepted in the United States
of America 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, 2001 are not
necessarily indicative of the results
that may be expected for the year ending
August 31, 2002. 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, 2001.
2. RECENT ACCOUNTING STANDARDS In June 2001, the Financial Accounting
Standards Board ("FASB") finalized
Statements No. 141, "Business
Combinations," ("Statement 141") and No.
142, "Goodwill and Other Intangible
Assets" ("Statement 142"). Statement 141
requires the use of the purchase method
of accounting and prohibits the use of
the pooling-of-interests method of
accounting for business combinations
initiated after June 30, 2001. Statement
141 also requires that the Company
recognize acquired intangible assets
apart from goodwill if the acquired
intangible assets meet certain criteria.
Statement 141 applies to all business
combinations initiated after June 30,
2001 and for purchase business
combinations completed on or after July
1, 2001. It also requires, upon adoption
of Statement 142 that the Company
reclassify the carrying amounts of
intangible assets and goodwill based on
the criteria in Statement 141.
Statement 142 requires, among other
things, that companies no longer
amortize goodwill, but instead test
goodwill for impairment at least
annually. In addition, Statement 142
requires that the Company identify
reporting units for the purposes of
assessing potential future impairments
of goodwill, reassess the useful lives
of other existing recognized intangible
assets, and cease amortization of
intangible assets with an indefinite
useful life. An intangible asset with an
indefinite useful life should be tested
for impairment in accordance with the
guidance in Statement 142. Statement 142
is required to be applied in fiscal
years beginning after December 15, 2001
to all goodwill and other intangible
assets recognized at that date,
regardless of when those assets were
initially recognized. Statement 142
requires the Company to complete a
transitional goodwill impairment test
six months from the date of adoption.
The Company is also required to reassess
the useful lives of other intangible
assets within the first interim quarter
after adoption of Statement 142.
7
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
The Company anticipates that the
adoption of Statements 141 and 142 will
not have a material effect on the
Company's financial position or results
of operations.
In October 2001, the FASB issued
Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived
Assets" ("Statement 144"). Statement 144
supersedes Statement No. 121,
"Accounting for the Impairment of
Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("Statement
121") and retains the basic requirements
of Statement 121 regarding when and how
to measure an impairment loss. Statement
144 provides additional implementation
guidance on accounting for an impairment
loss. Statement 144 is effective for all
fiscal years beginning after December
15, 2001.
The Company anticipates that the
adoption of Statement 144 will not have
a material effect on the Company's
financial position or results of
operations.
3. RECLASSIFICATION Certain amounts in the prior year's
consolidated financial statements have
been reclassified to conform with the
presentation in the current year.
4. INVENTORIES Inventories consist of the following:
NOVEMBER 30, 2001
(UNAUDITED) AUGUST 31, 2001
- --------------------------------------------------------------------------------------------------
Crude Oil $ 16,672 $ 15,236
Petroleum Products 26,593 24,412
-----------------------------------------------
Total @ LIFO 43,265 39,648
-----------------------------------------------
Merchandise 10,659 10,099
Supplies 13,014 12,807
-----------------------------------------------
Total @ FIFO 23,673 22,906
-----------------------------------------------
Total Inventory $ 66,938 $ 62,554
- --------------------------------------------------------------------------------------------------
5. SUBSIDIARY GUARANTORS Certain of United Refining Company's
(the "issuer") subsidiaries function as
guarantors under the terms of the
$200,000,000 Senior Unsecured Note
Indenture due June 9, 2007. Financial
information for the Company's wholly
owned subsidiary guarantors is as
follows:
8
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
Condensed Consolidating Balance Sheets
(in thousands)
November 30, 2001 August 31, 2001
---------------------------------------------- --------------------------------------------
Issuer Guarantors Eliminations Consolidated Issuer Guarantors Eliminations Consolidated
---------------------------------------------- --------------------------------------------
Assets
Current:
Cash and cash equivalents $ 21,106 $ 6,173 $ - $ 27,279 $ 29,197 $ 6,027 $ - $ 35,224
Accounts receivable, net 22,747 7,685 - 30,432 32,669 9,268 - 41,937
Inventories 52,104 14,834 - 66,938 47,177 15,377 - 62,554
Prepaid expenses and other assets 13,211 2,173 - 15,384 11,154 2,158 - 13,312
Intercompany 78,320 17,176 (95,496) - 81,308 18,345 (99,653) -
-------------------------------------------- --------------------------------------------
Total current assets 187,488 48,041 (95,496) 140,033 201,505 51,175 (99,653) 153,027
Property, plant and equipment, net 120,154 69,967 - 190,121 121,074 69,877 - 190,951
Investment in affiliated company 1,884 - - 1,884 1,529 - - 1,529
Deferred financing costs, net 3,892 - - 3,892 4,102 - - 4,102
Other assets 7,078 683 (1,171) 6,590 6,665 454 (1,171) 5,948
-------------------------------------------- --------------------------------------------
$ 320,496 $ 118,691 $ (96,667) $ 342,520 $ 334,875 $ 121,506 $(100,824) $ 355,557
============================================ ============================================
Liabilities and Stockholder's Equity
Current:
Current installments of long-term
debt $ - $ 112 $ - $ 112 $ - $ 121 $ - $ 121
Accounts payable 18,716 5,897 - 24,613 16,857 5,349 - 22,206
Income taxes payable - - - - 2,413 (40) - 2,373
Accrued liabilities 15,368 3,021 - 18,389 9,739 2,672 - 12,411
Sales, use and fuel taxes payable 14,610 (25) - 14,585 16,542 144 - 16,686
Deferred income taxes 4,507 (350) - 4,157 4,507 (350) - 4,157
Amounts due affiliated companies 873 572 - 1,445 1,495 410 - 1,905
Intercompany - 95,496 (95,496) - - 99,653 (99,653) -
-------------------------------------------- -------------------------------------------
Total current liabilities 54,074 104,723 (95,496) 63,301 51,553 107,959 (99,653) 59,859
Long term debt: less current
installments 180,135 821 - 180,956 180,135 844 - 180,979
Deferred income taxes 7,469 6,684 - 14,153 11,009 6,564 - 17,573
Deferred gain on settlement of
pension plan obligations 1,506 - - 1,506 1,560 - - 1,560
Deferred retirement benefits 18,359 759 - 19,118 18,610 746 - 19,356
Other noncurrent liabilities - 140 - 140 - 264 - 264
-------------------------------------------- --------------------------------------------
Total liabilities 261,543 113,127 (95,496) 279,174 262,867 116,377 (99,653) 279,591
-------------------------------------------- --------------------------------------------
Commitment and contingencies
Stockholder's equity
Common stock, $.10 par value per
share - shares authorized 100;
issued and outstanding, 100 - 18 (18) - - 18 (18) -
Additional paid-in capital 7,150 10,651 (1,153) 16,648 7,150 10,651 (1,153) 16,648
Retained earnings 51,803 (5,105) - 46,698 64,858 (5,540) - 59,318
-------------------------------------------- --------------------------------------------
Total stockholder's equity 58,953 5,564 (1,171) 63,346 72,008 5,129 (1,171) 75,966
-------------------------------------------- --------------------------------------------
$ 320,496 $ 118,691 $ (96,667) $ 342,520 $ 334,875 $ 121,506 $(100,824) $ 355,557
============================================ ============================================
9
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
Condensed Consolidating Statements of Operations
(in thousands)
Three Months Ended November 30, 2001 Three Months Ended November 30, 2000
------------------------------------------------- -------------------------------------------
Issuer Guarantors Eliminations Consolidated Issuer Guarantors Elimination Consolidated
------------------------------------------------- -------------------------------------------
Net sales $ 158,156 $ 115,145 $ (44,797) $228,504 $226,524 $ 141,030 $ (71,371) $ 296,183
Costs of goods sold 169,691 98,490 (44,797) 223,384 210,646 126,261 (71,371) 265,536
--------------------------------------------------------------------------------------------
Gross profit (11,535) 16,655 -- 5,120 15,878 14,769 -- 30,647
--------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative
expenses 4,330 14,059 -- 18,389 4,516 14,379 -- 18,895
Depreciation and amortization
expenses 2,060 900 -- 2,960 1,921 811 -- 2,732
--------------------------------------------------------------------------------------------
Total operating expenses 6,390 14,959 -- 21,349 6,437 15,190 -- 21,627
--------------------------------------------------------------------------------------------
Operating income (loss) (17,925) 1,696 -- (16,229) 9,441 (421) -- 9,020
--------------------------------------------------------------------------------------------
Other income (expense):
Interest income 1,518 282 (1,560) 240 2,942 457 (2,868) 531
Interest expense (5,124) (1,315) 1,560 (4,879) (5,852) (2,456) 2,868 (5,440)
Other, net (524) 47 -- (477) (381) 34 -- (347)
Costs associated with acquisition -- -- -- -- (1,300) -- -- (1,300)
Equity in net earnings of affiliate 355 -- -- 355 -- -- -- --
--------------------------------------------------------------------------------------------
(3,775) (986) -- (4,761) (4,591) (1,965) -- (6,556)
--------------------------------------------------------------------------------------------
Income (loss) before income tax (21,700) 710 -- (20,990) 4,850 (2,386) -- 2,464
expense (benefit)
Income tax expense (benefit) (8,645) 275 -- (8,370) 1,979 (944) -- 1,035
--------------------------------------------------------------------------------------------
Net income (loss) $ (13,055) $ 435 $ -- $(12,620) $ 2,871 $ (1,442) $ -- 1,429
============================================================================================
10
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
Condensed Consolidating Statements of Cash Flows
(in thousands)
Three Months Ended November 30, 2001
--------------------------------------------------------
Issuer Guarantors Eliminations Consolidated
--------------------------------------------------------
Net cash provided by (used in) operating activities $ (6,951) $ 1,350 $ - $ (5,601)
--------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,140) (1,172) - (2,312)
--------------------------------------------------------
Net cash provided by (used in) investing activities (1,140) (1,172) - (2,312)
--------------------------------------------------------
Cash flows from financing activities:
Principal reductions of long-term debt - (32) - (32)
--------------------------------------------------------
Net cash used in financing activities - (32) - (32)
--------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (8,091) 146 - (7,945)
Cash and cash equivalents, beginning of period 29,197 6,027 - 35,224
--------------------------------------------------------
Cash and cash equivalents, end of period $ 21,106 $ 6,173 $ - $ 27,279
========================================================
Three Months Ended November 30, 2000
-----------------------------------------------------
Issuer Guarantors Eliminations Consolidated
-----------------------------------------------------
Net cash provided by (used in) operating activities $ 25,301 $ (21,440) $ - $ 3,861
-----------------------------------------------------
Cash flows from investing activities:
Purchase of investment securities (2,008) - - (2,008)
Additions to property, plant and equipment (1,733) (941) - (2,674)
Proceeds from asset dispositions - 23,531 - 23,531
-----------------------------------------------------
Net cash provided by (used in) investing activities (3,741) 22,590 - 18,849
-----------------------------------------------------
Cash flows from financing activities:
Principal reductions of long-term debt - (32) - (32)
-----------------------------------------------------
Net cash used in financing activities - (32) - (32)
-----------------------------------------------------
Net increase (decrease) in cash and cash equivalents 21,560 1,118 - 22,678
Cash and cash equivalents, beginning of period 4,107 3,323 - 7,430
-----------------------------------------------------
Cash and cash equivalents, end of period $ 25,667 $ 4,441 $ - $30,108
=====================================================
11
UNITED REFINING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
6. 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)
--------------------------------
2001 2000
- -------------------------------------------------------------------------
Net Sales
Retail $ 114,037 $ 139,860
Wholesale 114,467 156,323
------------------------------
$ 228,504 $ 296,183
------------------------------
Intersegment Sales
Wholesale $ 43,689 $ 70,201
------------------------------
Operating Income (Loss)
Retail $ 1,916 $ (879)
Wholesale (18,145) 9,899
------------------------------
$ (16,229) $ 9,020
------------------------------
Depreciation and Amortization
Retail $ 850 $ 765
Wholesale 2,110 1,967
------------------------------
$ 2,960 $ 2,732
------------------------------
NOVEMBER 30, 2001
(UNAUDITED) AUGUST 31, 2001
- -------------------------------------------------------------------------
Total Assets
Retail $ 96,004 $ 103,161
Wholesale 246,516 252,396
------------------------------
$ 342,520 $ 355,557
------------------------------
Capital Expenditures
Retail $ 1,172 $ 3,704
Wholesale 1,140 6,348
------------------------------
$ 2,312 $ 10,052
------------------------------
7. SUBSEQUENT EVENT
On December 21, 2001, the Company acquired all of the outstanding
shares of stock of Country Fair, Inc. (CFI). CFI operates 69 convenience stores
throughout northwestern Pennsylvania, southwestern New York and eastern Ohio.
12
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
Recent Developments
Recent Developments
Worldwide crude oil prices, as indicated by prices of crude oil
contracts on the New York Mercantile Exchange (NYMEX), which had peaked early in
fiscal 2001 declined steadily and continued into the first quarter of fiscal
2002. NYMEX Crude oil contracts for delivery in November 2001 traded at about $5
per barrel lower than ending August contracts. In early January 2002, NYMEX
crude oil contracts were trading almost $3 per barrel below the November 2001
NYMEX close. The falling worldwide prices in the first fiscal quarter resulted
in a reduction in the Company's wholesale margins. The Company experienced an
increase in retail diesel margins and retail gasoline margins declined from the
fourth quarter of fiscal 2001; however, retail gasoline margins were higher than
the first quarter fiscal 2001. Most analysts expect a further softening of crude
oil prices in the early part of 2002 in response to sluggish global economic
performance and weakened oil product demand (especially given the high US
inventories) and questionable confidence in Opec's ability to influence global
crude production followed by a global economic recovery in the second half of
2002 to arrest the price slide.
The decline in NYMEX contract prices caused decreases in the pricing of
the Company's working inventories, which had a negative effect on reported
earnings. Also, because the Company's monthly crude oil pricing is typically
determined approximately 30 days in advance of the pricing of products produced
from crude, the steady price decline had the effect of reducing refinery gross
margins, as products were produced from more expensive crude oil purchased the
previous month. Recovery in selling prices expected later this year would be
expected to result in pricing gains on the Company's working inventories.
Results of Operations
Comparison of Fiscal Quarters ended November 30, 2001 and November 30, 2000
Net Sales. Net sales decreased $67.7 million or 22.9% from $296.2
million for the fiscal quarter ended November 30, 2000 to $228.5 million for the
fiscal quarter ended November 30, 2001. Retail sales decreased $25.9 million, or
18.5% from $139.9 million to $114.0 million, while wholesale sales decreased
$41.8 million or 26.8% from $156.3 million to $114.5 million.
On September 29, 2000, the Company sold 42 retail locations to a
non-subsidiary affiliate and terminated the leases on 8 additional retail
locations, which it had previously leased from a non-subsidiary affiliate. The
retail petroleum sales volume was reduced and the wholesale petroleum sales
volume correspondingly increased by the transfer of these 50 retail locations 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, the
retail sales decrease was due to a 17.0% decrease in retail petroleum prices
offset by a slight increase in retail petroleum sales volume of .3% and
increased merchandise sales of 4.6%.
The wholesale sales decrease was due to a 31.1% decrease in wholesale
prices, which more than offset a 2.8% increase in wholesale volume. The increase
in wholesale volume was due primarily to 15.4% higher gasoline sales although
distillate sales were 17.2% lower and to 13.2% higher asphalt sales despite 8.4%
lower asphalt production. Although crude oil processing rates were 5.1% lower
and certain refinery gasoline-producing units were shutdown for planned
maintenance activities during the quarter ended November 30, 2001, gasoline and
distillate production were 4.2% higher due to reductions in intermediate
refinery inventories which provided feed to other gasoline and distillate
producing units.
13
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
These maintenance activities reduced gasoline and distillate production to a
lesser extent than did similar activities during the prior year quarter. Higher
asphalt sales were primarily due to more favorable weather for paving activities
than was the case in the prior period. The more favorable weather caused more
asphalt to be sold and provided more inventory capacity to store asphalt for the
following spring paving season. The decrease in retail and wholesale petroleum
prices was primarily due to a 23.2% decrease in worldwide crude oil prices as
indicated by prices of NYMEX crude oil contracts for the fiscal quarter ended
November 30, 2001 as compared to contracts for the prior year quarter.
Costs of Goods Sold. Costs of goods sold decreased $42.1 million or
15.9% from $265.5 million for the fiscal quarter ended November 30, 2000 to
$223.4 million for the fiscal quarter ended November 30, 2001. Retail costs of
goods sold decreased $28.4 million or 22.6% from $125.7 million to $97.3
million, while wholesale costs of goods sold decreased $13.7 million or 9.9%
from $139.8 million to $126.1 million. The decrease in consolidated costs of
goods sold was primarily the result of the decrease in worldwide crude oil
prices, partially offset by slightly lower discounts for heavy sour grades of
crude oil. Costs of goods sold for the quarter ended November 30, 2001 was
negatively impacted by an approximate $9.4 million decrease in the value of the
Company's working inventories, which caused an increase in the costs of goods
sold.
Gross Profit. Gross Profit decreased $25.5 million from $30.6 million
for the fiscal quarter ended November 30, 2000 to $5.1 million for the fiscal
quarter ended November 30, 2001. This decrease was primarily due to lower
industry wholesale margins and slightly lower 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
falling wholesale prices. The increase was also partially offset by the negative
impact on cost of goods of changes in working inventory prices, versus a
beneficial impact in the prior year quarter.
Operating Expenses. Operating expenses decreased $0.3 million or 1.3%
from $21.6 million for the fiscal quarter ended November 30, 2000 to $21.3
million for the fiscal quarter ended November 30, 2001. Lower utilities and
costs associated with credit card transactions were offset by higher payroll
costs due to normal wage increases and higher professional services.
Operating Income. As a result of the above, operating income decreased
$25.2 million from $9.0 million for the fiscal quarter ended November 30, 2000
to ($16.2) million for the fiscal quarter ended November 30, 2001.
Interest Expense. Net interest expense (interest expense less interest
income) decreased $0.3 million from $4.9 million for the fiscal quarter ended
November 30, 2000 to $4.6 million for the fiscal quarter ended November 30,
2001. The decreased net interest expense was due to lower balances on the
Company's revolving credit facility.
Income Taxes. The Company's effective tax rate for the fiscal quarter
ended November 30, 2001 was approximately 39.9% compared to a rate of 42.0% for
the fiscal quarter ended November 30, 2000.
Liquidity and Capital Resources
Working capital (current assets minus current liabilities) at November
30, 2001 was $76.7 million and at August 31, 2001 was $93.2 million. The
Company's current ratio (current assets divided by current liabilities) was
2.2:1 at November 30, 2001 and 2.6:1 at August 31, 2001.
14
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
Net cash used in operating activities totaled $4.3 million for the
three months ended November 30, 2001 and net cash provided by operating
activities totaled $3.9 million for the three months ended November 30, 2000.
Net cash used in investing activities for purchases of property, plant
and equipment totaled $2.3 million and $2.7 million for the three months ended
November 30, 2001 and 2000 respectively. Net cash provided by investing
activities was $23.5 million from the sale of assets for the three months ended
November 30, 2000. Also, 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.
The Company reviews its capital expenditures on an ongoing basis. The
Company currently has budgeted approximately $6.0 million for capital
expenditures in fiscal 2002. 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
2002.
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 secured revolving credit facility (the "Facility") with PNC Bank,
N.A. as Agent Bank. The Facility commitment is currently $50,000,000, and
expires on June 9, 2002. The Facility 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 for base rate borrowings and the LIBOR rate for
Euro-Rate borrowings, which was 5.08% as of November 30, 2001.
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 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.
15
UNITED REFINING COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
================================================================================
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.
16
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
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) No reports on Forms 8-K have been filed
for the quarter for which this report is
being filed.
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 17, 2002
UNITED REFINING COMPANY
---------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
---------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
---------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
KIANTONE PIPELINE CORPORATION
------------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
------------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
------------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
UNITED REFINING COMPANY OF PENNSYLVANIA
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
KIANTONE PIPELINE COMPANY
-------------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
-------------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-------------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
UNITED JET CENTER, INC.
----------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
----------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
----------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
KWIK FILL CORPORATION
-----------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
-----------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-----------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
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
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 17, 2002
BELL OIL CORP.
-------------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
-------------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-------------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
PPC, INC.
------------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
------------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
------------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
SUPER TEST PETROLEUM, INC.
------------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
------------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
------------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
KWIK-FIL, INC.
-----------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
-----------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
-----------------------------------------------
James E. Murphy
Chief Financial Officer
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 17, 2002
VULCAN ASPHALT REFINING CORPORATION
------------------------------------------------
(Registrant)
/s/ Myron L. Turfitt
------------------------------------------------
Myron L. Turfitt
President
/s/ James E. Murphy
------------------------------------------------
James E. Murphy
Chief Financial Officer
29