Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F7nnxpuNqse1NQwVmih00ezjAYiHXUSNiWyQnnoLFhvxF8yURFpWlg9+nTJ2yG8T r/65mHl2QPBqdRQ/CxCuDg== 0001193125-08-080869.txt : 20080414 0001193125-08-080869.hdr.sgml : 20080414 20080414163003 ACCESSION NUMBER: 0001193125-08-080869 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20080229 FILED AS OF DATE: 20080414 DATE AS OF CHANGE: 20080414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED REFINING CO CENTRAL INDEX KEY: 0000101462 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 251411751 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06198 FILM NUMBER: 08754884 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VULCAN ASPHALT REFINING CORP CENTRAL INDEX KEY: 0001045546 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-10 FILM NUMBER: 08754886 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL OIL CORP CENTRAL INDEX KEY: 0001045543 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-07 FILM NUMBER: 08754890 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDEPENDENT GASOLINE & OIL CO OF ROCHESTER CENTRAL INDEX KEY: 0001045547 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-11 FILM NUMBER: 08754891 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KWIK FILL CORP CENTRAL INDEX KEY: 0001045541 IRS NUMBER: 251411751 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-05 FILM NUMBER: 08754892 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FORMER COMPANY: FORMER CONFORMED NAME: KWIK FILL INC DATE OF NAME CHANGE: 19970905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED REFINING CO /PA/ CENTRAL INDEX KEY: 0001040270 IRS NUMBER: 250850960 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-02 FILM NUMBER: 08754894 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIANTONE PIPELINE CO CENTRAL INDEX KEY: 0001045539 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-03 FILM NUMBER: 08754895 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIANTONE PIPELINE CORP CENTRAL INDEX KEY: 0000830253 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 251211902 STATE OF INCORPORATION: NY FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-01 FILM NUMBER: 08754896 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPC INC CENTRAL INDEX KEY: 0001045544 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-08 FILM NUMBER: 08754889 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COUNTRY FAIR INC CENTRAL INDEX KEY: 0001171162 IRS NUMBER: 251149799 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-12 FILM NUMBER: 08754885 BUSINESS ADDRESS: STREET 1: 15 BRADLEY STREET CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY STREET CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED JET CENTER INC CENTRAL INDEX KEY: 0001045542 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-06 FILM NUMBER: 08754893 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPER TEST PETROLEUM INC CENTRAL INDEX KEY: 0001045545 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-09 FILM NUMBER: 08754888 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KWIK FIL INC CENTRAL INDEX KEY: 0001045540 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-35083-04 FILM NUMBER: 08754887 BUSINESS ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 BUSINESS PHONE: 8147231500 MAIL ADDRESS: STREET 1: 15 BRADLEY ST CITY: WARREN STATE: PA ZIP: 16365 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2008

¨	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 incorporation or organization)		(I.R.S. Employer Identification No.)

15 Bradley Street
Warren, Pennsylvania		16365
(Address of principal executive office)		(Zip Code)

814-723-1500

(Registrant’s telephone number, including area code)

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 ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 14, 2008, there were 100 shares of common stock, par value $.10 per share, of the Registrant outstanding.

TABLE OF ADDITIONAL REGISTRANTS


Name	State of Other Jurisdiction of Incorporation	IRS Employer Identification Number	Commission File Number
Kiantone Pipeline Corporation	New York	25-1211902	333-35083-01
Kiantone Pipeline Company	Pennsylvania	25-1416278	333-35083-03
United Refining Company of Pennsylvania	Pennsylvania	25-0850960	333-35083-02
United Jet Center, Inc.	Delaware	52-1623169	333-35083-06
Kwik-Fill Corporation	Pennsylvania	25-1525543	333-35083-05
Independent Gas and Oil Company of Rochester, Inc.	New York	06-1217388	333-35083-11
Bell Oil Corp.	Michigan	38-1884781	333-35083-07
PPC, Inc.	Ohio	31-0821706	333-35083-08
Super Test Petroleum, Inc.	Michigan	38-1901439	333-35083-09
Kwik-Fil, Inc.	New York	25-1525615	333-35083-04
Vulcan Asphalt Refining Corporation	Delaware	23-2486891	333-35083-10
Country Fair, Inc.	Pennsylvania	25-1149799	333-35083-12

FORM 10-Q – CONTENTS


		PAGE(S)
*PART I.*	*FINANCIAL INFORMATION*	4

Item 1.	Financial Statements	4

	Consolidated Balance Sheets – February 29, 2008 (unaudited) and August 31, 2007	4

	Consolidated Statements of Operations – Quarter and Six Months Ended February 29, 2008 and February 28, 2007 (unaudited)	5

	Consolidated Statements of Cash Flows – Six Months Ended February 29, 2008 and February 28, 2007 (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

*PART II.*	*OTHER INFORMATION*	25

Item 1.	Legal Proceedings.	25

Item 1A.	Risk Factors.	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25

Item 3.	Defaults Upon Senior Securities.	25

Item 4.	Submission of Matters to a Vote of Security Holders.	25

Item 5.	Other Information.	25

Item 6.	Exhibits.	25

Signatures		26

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	February 29, 2008 (Unaudited)			August 31, 2007
Assets
Current:
Cash and cash equivalents	$	76,955		$	135,441
Marketable securities		18,500			75,854
Accounts receivable, net		80,050			79,703
Inventories		158,521			166,024
Prepaid expenses and other assets		40,530			16,957

Total current assets		374,556			473,979
Property, plant and equipment, net		232,689			217,837
Investment in affiliated company		4,404			3,510
Deferred financing costs, net		5,152			5,635
Goodwill		1,349			1,349
Tradename		10,500			10,500
Amortizable intangible assets, net		1,952			2,191
Deferred turnaround costs and other assets, net		15,642			9,252
Deferred income taxes		7,699			7,313

	$	653,943		$	731,566

Liabilities and Stockholder’s Equity
Current:
Current installments of long-term debt	$	2,052		$	1,808
Accounts payable		60,810			69,806
Accrued liabilities		13,009			15,643
Income tax payable		—			36,514
Sales, use and fuel taxes payable		17,684			20,725
Deferred income taxes		7,218			7,218
Amounts due to affiliated companies, net		7,189			2,177

Total current liabilities		107,962			153,891
Long term debt: less current installments		356,558			357,144
Deferred gain on settlement of pension plan obligations		162			270
Deferred retirement benefits		77,965			77,305
Other noncurrent liabilities		24			46

Total liabilities		542,671			588,656

Commitments and contingencies
Stockholder’s equity:
Common stock; $.10 par value per share – shares authorized 100; issued and outstanding 100		—			—
Additional paid-in capital		22,031			22,031
Retained earnings		109,917			141,555
Accumulated other comprehensive loss		(20,676	)		(20,676	)

Total stockholder’s equity		111,272			142,910

	$	653,943		$	731,566

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS—(Unaudited)

(in thousands)


	Three Months Ended						Six Months Ended
	February 29,			February 28,			February 29,			February 28,
	2008			2007			2008			2007
Net sales	$	663,718		$	492,781		$	1,357,286		$	1,077,377
Costs of goods sold		632,795			451,348			1,257,818			998,125

Gross profit		30,923			41,433			99,468			79,252

Expenses:
Selling, general and administrative expenses		35,298			33,239			70,729			68,081
Depreciation and amortization expenses		4,041			3,480			8,080			6,977

Total operating expenses		39,339			36,719			78,809			75,058

Operating income (loss)		(8,416	)		4,714			20,659			4,194

Other income (expense):
Interest expense, net		(7,550	)		(5,951	)		(14,231	)		(11,106	)
Other, net		(749	)		(255	)		(1,095	)		(482	)
Equity in net earnings of affiliate		208			340			894			835

		(8,091	)		(5,866	)		(14,432	)		(10,753	)

Income (loss) before income tax expense (benefit)		(16,507	)		(1,152	)		6,227			(6,559	)
Income tax expense (benefit)		(6,768	)		(473	)		2,553			(2,690	)

Net income (loss)	$	(9,739	)	$	(679	)	$	3,674		$	(3,869	)

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Unaudited)

(in thousands)


	Six Months Ended
	February 29, 2008			February 28, 2007
Cash flows from operating activities:
Net income (loss)	$	3,674		$	(3,869	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		10,405			8,823
Equity in net earnings of affiliate		(894	)		(835	)
Deferred income taxes		(386	)		(819	)
Loss on asset dispositions		783			—
Cash used in working capital items		(62,590	)		(42,338	)
Other net		(3	)		(1	)
Change in operating assets and liabilities:
Deferred retirement benefits		660			4,450
Other assets		16			(33	)
Other noncurrent liabilities		(22	)		(240	)

Total adjustments		(52,031	)		(30,993	)

Net cash used in operating activities		(48,357	)		(34,862	)

Cash flows from investing activities:
Additions to property, plant and equipment		(22,974	)		(17,033	)
Additions to deferred turnaround costs		(8,634	)		(416	)

Net cash used in investing activities		(31,608	)		(17,449	)

Cash flows from financing activities:
Net borrowings on revolving credit facility		—			17,000
Proceeds from sale of investment securities		57,354			—
Proceeds from issuance of long term debt		178			1,644
Dividends to stockholder		(35,312	)		(9,090	)
Principal reductions of long term debt		(633	)		(435	)
Deferred financing costs		(108	)		—

Net cash provided by financing activities		21,479			9,119

Net decrease in cash and cash equivalents		(58,486	)		(43,192	)
Cash and cash equivalents, beginning of year		135,441			59,197

Cash and cash equivalents, end of period	$	76,955		$	16,005

Cash used in working capital items:
Accounts receivable, net	$	(347	)	$	20,587
Inventories		7,503			(574	)
Prepaid expenses and other assets		(23,573	)		(12,009	)
Accounts payable		(8,996	)		(24,016	)
Accrued liabilities		(2,634	)		(4,862	)
Income taxes payable		(36,514	)		(16,947	)
Sales, use and fuel taxes payable		(3,041	)		(4,593	)
Amounts due from affiliated companies, net		5,012			76

Total change	$	(62,590	)	$	(42,338	)

Cash paid during the period for:
Interest	$	18,649		$	12,040
Income taxes	$	42,059		$	15,078

Non-cash investing activities:
Property additions & capital leases	$	500		$	—

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Description of Business and Basis of Presentation

The consolidated financial statements include the accounts of United Refining Company and its subsidiaries, United Refining Company of Pennsylvania and its subsidiaries, and Kiantone Pipeline Corporation (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

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, supplying petroleum products to the retail segment and the marketing of petroleum products to wholesale and industrial customers. The retail segment sells petroleum products under the Kwik Fill^® , Citgo^® and Keystone^® brand names through a network of Company-operated retail units and convenience and grocery items through gasoline stations and convenience stores under the Red Apple Food Mart^® and Country Fair^® brand names.

The Company is a wholly-owned subsidiary of United Refining, Inc., a wholly-owned subsidiary of United Acquisition Corp., which in turn is a wholly-owned subsidiary of Red Apple Group, Inc. (the “Parent”).

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 and six months ended February 29, 2008 are not necessarily indicative of the results that may be expected for the year ending August 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended August 31, 2007.

2.	Recent Accounting Pronouncements

In September 2006, the FASB issued Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” (“Position No. AUG AIR-1”). Position No. AUG AIR-1 prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities.

The provisions of Position No. AUG AIR-1 are effective for fiscal years beginning after December 15, 2006. The adoption of AUG AIR-1 by the Company effective September 1, 2007 had no impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“Statement 141R”), which replaces Statement No. 141. Statement 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. Statement 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. Statement 141R is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of Statement 141R on the Company’s consolidated financial position, results of operations and cash flows.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of Accounting Research Bulletin No. 51” (“Statement 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. Statement 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owner. Statement 160 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of Statement 160 on the Company’s consolidated financial position, results of operations and cash flows.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement classification, accounting for interest and penalties and accounting in interim periods and disclosure. The Company adopted FIN No. 48 effective September 1, 2007, with no cumulative effect adjustment required, and the adoption has no effect on the Company’s financial position, results of operations and cash flows.

The Company’s results of operations are included in the consolidated Federal tax return of the Parent and separately in various state jurisdictions. The Company is open to examination for tax years 2002 through 2006. There is currently one state tax audit in process and there are no unsettled income tax assessments outstanding.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of interest expense, net and other, net, respectively. No amounts of such expenses are currently accrued.

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

As of February 29, 2008 and August 31, 2007, the replacement cost of LIFO inventories exceeded their LIFO carrying values by approximately $94,796,000 and $63,209,000, respectively. The February 29, 2008 LIFO calculation was computed using quantities and prices which are not necessarily indicative of the actual quantities and prices which will exist at fiscal year-end. Due to anticipated fluctuations in inventory levels and the many factors which enter into the LIFO calculation which are beyond management’s control, it is the policy of the Company to record the LIFO inventory adjustment only at fiscal year-end.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

5.	Subsidiary Guarantors

Certain of United Refining Company’s (the “issuer”) subsidiaries function as guarantors under the terms of the $350,000,000 Senior Unsecured Note Indenture due August 15, 2012. Financial information for the issuer and its wholly owned subsidiary guarantors is as follows:

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)


	February 29, 2008												August 31, 2007
	Issuer			Guarantors			Eliminations			Consolidated			Issuer			Guarantors			Eliminations			Consolidated
Assets
Current:
Cash and cash equivalents	$	64,399		$	12,556		$	—		$	76,955		$	123,858		$	11,583		$	—		$	135,441
Marketable securities		18,500			—			—			18,500			75,854			—			—			75,854
Accounts receivable, net		47,700			32,350			—			80,050			49,577			30,126			—			79,703
Inventories		128,545			29,976			—			158,521			139,382			26,642			—			166,024
Prepaid expenses and other assets		32,437			8,093			—			40,530			12,660			4,297			—			16,957
Intercompany		149,511			16,706			(166,217	)		—			135,343			17,374			(152,717	)		—

Total current assets		441,092			99,681			(166,217	)		374,556			536,674			90,022			(152,717	)		473,979
Property, plant and equipment, net		156,060			76,629			—			232,689			141,955			75,882			—			217,837
Investment in affiliated company		4,404			—			—			4,404			3,510			—			—			3,510
Deferred financing costs, net		5,152			—			—			5,152			5,635			—			—			5,635
Goodwill and other non-amortizable assets		—			11,849			—			11,849			—			11,849			—			11,849
Amortizable intangible assets, net		—			1,952			—			1,952			—			2,191			—			2,191
Deferred turnaround costs & other assets		15,554			1,259			(1,171	)		15,642			9,079			1,344			(1,171	)		9,252
Deferred income taxes		12,034			(4,335	)		—			7,699			13,063			(5,750	)		—			7,313

	$	634,296		$	187,035		$	(167,388	)	$	653,943		$	709,916		$	175,538		$	(153,888	)	$	731,566

Liabilities and Stockholder’s Equity
Current:
Current installments of long-term debt	$	1,199		$	853		$	—		$	2,052		$	1,003		$	805		$	—		$	1,808
Accounts payable		43,672			17,138			—			60,810			54,421			15,385			—			69,806
Accrued liabilities		8,195			4,814			—			13,009			10,474			5,169			—			15,643
Income taxes payable		—			—			—			—			38,215			(1,701	)		—			36,514
Sales, use and fuel taxes payable		14,282			3,402			—			17,684			16,736			3,989			—			20,725
Deferred income taxes		7,870			(652	)		—			7,218			9,041			(1,823	)		—			7,218
Amounts due to affiliated companies, net		6,968			221			—			7,189			1,107			1,070			—			2,177
Intercompany		—			166,217			(166,217	)		—			—			152,717			(152,717	)		—

Total current liabilities		82,186			191,993			(166,217	)		107,962			130,997			175,611			(152,717	)		153,891
Long term debt: less current installments		353,106			3,452			—			356,558			353,407			3,737			—			357,144
Deferred gain on settlement of pension plan obligations		162			—			—			162			270			—			—			270
Deferred retirement benefits		78,587			(622	)		—			77,965			77,298			7			—			77,305
Other noncurrent liabilities		—			24			—			24			—			46			—			46

Total liabilities		514,041			194,847			(166,217	)		542,671			561,972			179,401			(152,717	)		588,656

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		12,533			10,651			(1,153	)		22,031			12,533			10,651			(1,153	)		22,031
Retained earnings		128,547			(18,630	)		—			109,917			156,236			(14,681	)		—			141,555
Accumulated other comprehensive loss		(20,825	)		149			—			(20,676	)		(20,825	)		149			—			(20,676	)

Total stockholder’s equity		120,255			(7,812	)		(1,171	)		111,272			147,944			(3,863	)		(1,171	)		142,910

	$	634,296		$	187,035		$	(167,388	)	$	653,943		$	709,916		$	175,538		$	(153,888	)	$	731,566

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)


	Three Months Ended February 29, 2008												Three Months Ended February 28, 2007
	Issuer			Guarantors			Eliminations			Consolidated			Issuer			Guarantors			Eliminations			Consolidated
Net sales	$	501,562		$	337,769		$	(175,613	)	$	663,718		$	349,770		$	255,425		$	(112,414	)	$	492,781
Costs of goods sold		500,952			307,456			(175,613	)		632,795			334,465			229,297			(112,414	)		451,348

Gross profit		610			30,313			—			30,923			15,305			26,128			—			41,433

Expenses:
Selling, general and administrative expenses		5,232			30,066			—			35,298			5,677			27,562			—			33,239
Depreciation and amortization expenses		2,631			1,410			—			4,041			2,291			1,189			—			3,480

Total operating expenses		7,863			31,476			—			39,339			7,968			28,751			—			36,719

Operating income (loss)		(7,253	)		(1,163	)		—			(8,416	)		7,337			(2,623	)		—			4,714

Other income (expense):
Interest expense, net		(6,160	)		(1,390	)		—			(7,550	)		(3,124	)		(2,827	)		—			(5,951	)
Other, net		(1,050	)		301			—			(749	)		(599	)		344			—			(255	)
Equity in net earnings (loss) affiliate		208			—			—			208			340			—			—			340

		(7,002	)		(1,089	)		—			(8,091	)		(3,383	)		(2,483	)		—			(5,866	)

Income (loss) before income tax expense (benefit)		(14,255	)		(2,252	)		—			(16,507	)		3,954			(5,106	)		—			(1,152	)
Income tax expense (benefit)		(5,916	)		(852	)		—			(6,768	)		1,863			(2,336	)		—			(473	)

Net income (loss)	$	(8,339	)	$	(1,400	)	$	—		$	(9,739	)	$	2,091		$	(2,770	)	$	—		$	(679	)

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)


	Six Months Ended February 29, 2008												Six Months Ended February 28, 2007
	Issuer			Guarantors			Eliminations			Consolidated			Issuer			Guarantors			Eliminations			Consolidated
Net sales	$	1,030,141		$	676,883		$	(349,738	)	$	1,357,286		$	776,630		$	524,348		$	(223,601	)	$	1,077,377
Costs of goods sold		989,123			618,433			(349,738	)		1,257,818			753,959			467,767			(223,601	)		998,125

Gross profit		41,018			58,450			—			99,468			22,671			56,581			—			79,252

Expenses:
Selling, general and administrative expenses		11,359			59,370			—			70,729			11,354			56,727			—			68,081
Depreciation and amortization expenses		5,263			2,817			—			8,080			4,582			2,395			—			6,977

Total operating expenses		16,622			62,187			—			78,809			15,936			59,122			—			75,058

Operating income (loss)		24,396			(3,737	)		—			20,659			6,735			(2,541	)		—			4,194

Other income (expense):
Interest expense, net		(11,077	)		(3,154	)		—			(14,231	)		(5,578	)		(5,528	)		—			(11,106	)
Other, net		(1,676	)		581			—			(1,095	)		(1,045	)		563			—			(482	)
Equity in net earnings (loss) affiliate		894			—			—			894			835			—			—			835

		(11,859	)		(2,573	)		—			(14,432	)		(5,788	)		(4,965	)		—			(10,753	)

Income (loss) before income tax expense (benefit)		12,537			(6,310	)		—			6,227			947			(7,506	)		—			(6,559	)
Income tax expense (benefit)		4,914			(2,361	)		—			2,553			388			(3,078	)		—			(2,690	)

Net income (loss)	$	7,623		$	(3,949	)	$	—		$	3,674		$	559		$	(4,428	)	$	—		$	(3,869	)

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended February 29, 2008											Six Months Ended February 28, 2007
	Issuer			Guarantors			Eliminations		Consolidated			Issuer			Guarantors			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(53,649	)	$	5,292		$	—	$	(48,357	)	$	(40,712	)	$	5,850		$	—	$	(34,862	)

Cash flows from investing activities:
Additions to property, plant and equipment		(18,930	)		(4,044	)		—		(22,974	)		(11,612	)		(5,421	)		—		(17,033	)
Additions to deferred turnaround costs		(8,596	)		(38	)		—		(8,634	)		(325	)		(91	)		—		(416	)

Net cash used in investing activities		(27,526	)		(4,082	)		—		(31,608	)		(11,937	)		(5,512	)		—		(17,449	)

Cash flows from financing activities:
Net borrowings on revolving credit facility		—			—			—		—			17,000			—			—		17,000
Proceeds from sales of investment securities		57,354			—			—		57,354			—			—			—		—
Proceeds from issuance of long-term debt		—			178			—		178			399			1,245			—		1,644
Dividends to stockholder		(35,312	)		—			—		(35,312	)		(9,090	)		—			—		(9,090	)
Principal reductions of long-term debt		(218	)		(415	)		—		(633	)		(103	)		(332	)		—		(435	)
Deferred financing costs		(108	)		—			—		(108	)		—			—			—		—

Net cash provided by (used in) financing activities		21,716			(237	)		—		21,479			8,206			913			—		9,119

Net (decrease) increase in cash and cash equivalents		(59,459	)		973			—		(58,486	)		(44,443	)		1,251			—		(43,192	)
Cash and cash equivalents, beginning of year		123,858			11,583			—		135,441			52,375			6,822			—		59,197

Cash and cash equivalents, end of period	$	64,399		$	12,556		$	—	$	76,955		$	7,932		$	8,073		$	—	$	16,005

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6.	Segments of Business

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						Six Months Ended
	February 29, 2008			February 28, 2007			February 29, 2008			February 28, 2007
Net Sales
Retail	$	336,628		$	254,173		$	674,668		$	521,827
Wholesale		327,090			238,608			682,618			555,550

	$	663,718		$	492,781		$	1,357,286		$	1,077,377

Intersegment Sales
Wholesale	$	174,472		$	111,162		$	347,523		$	221,080

Operating Income (loss)
Retail	$	(1,712	)	$	(2,622	)	$	(4,372	)	$	(1,544	)
Wholesale		(6,704	)		7,336			25,031			5,738

	$	(8,416	)	$	4,714		$	20,659		$	4,194

Depreciation and Amortization
Retail	$	1,310		$	1,138		$	2,619		$	2,294
Wholesale		2,731			2,342			5,461			4,683

	$	4,041		$	3,480		$	8,080		$	6,977


	February 29, 2008		August 31, 2007
Total Assets
Retail	$	156,613	$	158,164
Wholesale		497,330		573,402

	$	653,943	$	731,566

Capital Expenditures (including non-cash)
Retail	$	3,883	$	7,783
Wholesale		19,591		35,831

	$	23,474	$	43,614

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7.	Employee Benefit Plans

For the periods ended February 29, 2008 and February 28, 2007, net pension and other postretirement benefit costs were comprised of the following:


	Pension Benefits						Other Post-Retirement Benefits
	Six Months Ended						Six Months Ended
	February 29, 2008			February 28, 2007			February 29, 2008		February 28, 2007
	(in thousands)
Service cost	$	1,330		$	1,034		$	1,312	$	1,131
Interest cost on benefit obligation		2,293			1,574			2,131		1,696
Expected return on plan assets		(2,413	)		(1,589	)		—		—
Amortization of transition obligation		35			35			298		298
Amortization and deferral of net loss		102			243			507		499

Net periodic benefit cost	$	1,347		$	1,297		$	4,248	$	3,624

As of February 29, 2008, $3,600,000 of contributions have been made to the Company pension plans for the fiscal year ending August 31, 2008.

8.	Derivative Financial Instruments

At February 29, 2008, the Company had no open future positions of crude oil. The Company recorded realized losses of $3,518,000 on these future positions for the six months ending February 29, 2008 which is recorded in cost of sales.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains certain statements that constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements may include, among other things, United Refining Company and its subsidiaries current expectations with respect to future operating results, future performance of its refinery and retail operations, capital expenditures and other financial items. Words such as “expects”, “intends”, “plans”, “projects”, “believes”, “estimates”, “may”, “will”, “should”, “shall”, “anticipates”, “predicts”, and similar expressions typically identify such forward looking statements in this Quarterly Report on Form 10-Q.

By their nature, all forward looking statements involve risk and uncertainties. All phases of the Company’s operations involve risks and uncertainties, many of which are outside of the Company’s control, and any one of which, or a combination of which, could materially affect the Company’s results of operations and whether the forward looking statements ultimately prove to be correct. Actual results may differ materially from those contemplated by the forward looking statements for a number of reasons.

Although we believe our expectations are based on reasonable assumptions within the bounds of its knowledge, investors and prospective investors are cautioned that such statements are only projections and that actual events or results may differ materially depending on a variety of factors described in greater detail in the Company’s filings with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, reports on Form 8-K, etc. In addition to the factors discussed elsewhere in this Quarterly Report on Form 10-Q, the Company’s actual consolidated quarterly or annual operating results have been affected in the past, or could be affected in the future, by additional factors, including, without limitation:

•

the demand for and supply of crude oil and refined products;

•

the spread between market prices for refined products and market prices for crude oil;

•

repayment of debt;

•

general economic, business and market conditions;

•

risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in our markets;

•

the possibility of inefficiencies or shutdowns in refinery operations or pipelines;

•

the availability and cost of financing to us;

•

environmental, tax and tobacco legislation or regulation;

•

volatility of gasoline prices, margins and supplies;

•

merchandising margins;

•

labor costs;

•

level of capital expenditures;

•

customer traffic;

•

weather conditions;

•

acts of terrorism and war;

•

business strategies;

•

expansion and growth of operations;

•

future projects and investments;

•

future exposure to currency devaluations or exchange rate fluctuations;

•

expected outcomes of legal and administrative proceedings and their expected effects on our financial position, results of operations and cash flows;

•

future operating results and financial condition; and

•

the effectiveness of our disclosure controls and procedures and internal control over financial reporting.

All subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any such forward looking statements that may be made to reflect events or circumstances that occur, or which we become aware of, after the date of this Quarterly Report on Form 10-Q.

Recent Developments

The Company continues to be impacted by the volatility of the petroleum market in fiscal year 2008. Crude prices have increased to record highs during the third quarter of fiscal year 2008. A NYMEX record high closing of $110.87 per barrel was reached on April 9, 2008.

The Company experienced a fire at a light gas oil pump on March 19, 2008 which temporarily resulted in suspending operation of the crude and other related units. There were no injuries and repairs were completed within three days. The total cost of the repairs is not considered to be material. The Company will also be conducting a brief maintenance shutdown in April to complete normal maintenance items and to perform the annual regeneration of Reformer Unit catalyst as well as replacing the catalyst in the Distillate Hydrotreater unit. The maintenance shutdown is scheduled to last approximately 14 days. There will also be a five-day shutdown of the FCC unit in late May to perform required maintenance work.

The Company continues to evaluate its financing options relating to the Coker project, there has been no change in its status.

Results of Operations

A discussion and analysis of the factors contributing to the Company’s results of operations are presented below. The accompanying Consolidated Financial Statements and related Notes, together with the following information, are intended to supply investors with a reasonable basis for evaluating the Company’s operations, but should not serve as the only criteria for predicting the Company’s future performance.

Retail Operations:


	Three Months Ended						Six Months Ended
	February 29, 2008			February 28, 2007			February 29, 2008			February 28, 2007
	(dollars in thousands)
Net Sales
Petroleum	$	286,715		$	206,909		$	570,842		$	423,854
Merchandise and other		49,913			47,264			103,826			97,973

Total Net Sales	$	336,628		$	254,173		$	674,668		$	521,827
Costs of Goods Sold	$	307,099		$	228,230		$	617,338		$	464,616

Gross Profit	$	29,529		$	25,943		$	57,330		$	57,211
Operating Expenses	$	31,241		$	28,565		$	61,702		$	58,755

Segment Operating Income/(Loss)	$	(1,712	)	$	(2,622	)	$	(4,372	)	$	(1,544	)

Petroleum Sales (thousands of gallons)		89,547			87,164			184,436			176,174

Gross Profit
Petroleum (a)	$	16,302		$	13,134		$	29,698		$	30,737
Merchandise and other		13,227			12,809			27,632			26,474

	$	29,529		$	25,943		$	57,330		$	57,211

Petroleum margin ($/gallon) (b)		.1820			.1507			.1610			.1745
Merchandise margin (percent of sales)		26.5	%		27.1	%		26.6	%		27.0	%

(a)	Includes the effect of intersegment purchases from the Company’s wholesale segment at prices which approximate market.

(b)

Company management calculates petroleum margin per gallon by dividing petroleum gross margin by petroleum sales volumes. Management uses fuel margin per gallon calculations to compare profitability to other companies in the industry. Petroleum margin per gallon may not be comparable to similarly titled measures used by other companies in the industry.

Comparison of Fiscal Quarters Ended February 29, 2008 and February 28, 2007

Net Sales

Retail sales increased during the fiscal quarter ended February 29, 2008 by $82.4 million or 32.4% from $254.2 million to $336.6 million for the comparable period in fiscal 2007. The $82.4 million is due to the following increases: $79.8 million in petroleum sales and $2.6 million in merchandise sales. The petroleum sales increase resulted from a 34.9% increase in retail selling prices per gallon, and a 2.4 million gallon or 2.7% increase in retail petroleum volume. Merchandise sales increase is primarily due to increased prepared food, beverages and cigarette sales due to promotional campaigns and increased selling prices.

Costs of Goods Sold

Retail costs of goods sold increased during the fiscal quarter ended February 29, 2008 by $78.9 million or 34.6% for the comparable period in fiscal 2007 from $228.2 million to $307.1 million. The $78.9 million is due primarily to the following increases: petroleum purchases of $74.0 million due to an increase in prices and volume, fuel tax of $2.7 million, freight cost of $.4 million and merchandise cost of $2.2 million.

Gross Profit

Retail gross profit increased during the fiscal quarter ended February 29, 2008 by $3.6 million or 13.8% for the comparable period in fiscal 2007. The Company increased its petroleum margins by $3.2 million or 24.1% and merchandise margin increased by $.4 million or 3.3%.

Operating Expenses

Retail operating expenses increased during the fiscal quarter ended February 29, 2008 by $2.7 million or 9.4% for the comparable period in fiscal 2007. The increase of $2.7 million is due to the following: payroll and related payroll costs of $.8 million; maintenance/supplies costs of $.3 million, environmental costs of $.1 million, credit/customer service costs of $.9 million, advertising/promotional costs of $.1 million, insurance/utilities/tax cost of $.2 million and other miscellaneous costs of $.3 million.

Comparison of Six Months Ended February 29, 2008 and February 28, 2007

Net Sales

Retail sales increased during the six months ended February 29, 2008 by $152.8 million or 29.3% from $521.8 million to $674.6 million for the comparable period in fiscal 2007. The increase was primarily due to $147.0 million in petroleum sales, and $5.8 million in merchandise sales. The petroleum sales increase resulted from an 8.3 million gallon or 4.7% increase in retail petroleum volume and a 28.6% increase in retail selling prices per gallon. The merchandise sales increase is primarily due to increased prepared food, beverages and cigarette sales due to promotional campaigns and increased selling prices.

Costs of Goods Sold

Retail costs of goods sold increased during the six months ended February 29, 2008 by $152.7 million or 32.9% from $464.6 million to $617.3 million for the comparable period in fiscal 2007. The increase of $152.7 million is due to the following: petroleum purchases of $140.5 million due to an increase in volume and prices, fuel taxes of $6.6 million, freight costs of $.4 million, merchandise costs of $4.7 million directly related to the increase in petroleum sales and an inventory adjustment of $.5 million due mainly to an increase in petroleum inventory shrink.

Gross Profit

Retail gross profit increased during the six months ended February 29, 2008 by $.1 million or .2% for the comparable period in fiscal 2007. The Company increased its merchandise margin $1.1 million or 4.4%, offset by a decrease in petroleum margins by $1.0 million or 3.4%.

Operating Expenses

Retail operating expenses increased during the six months ended February 29, 2008 by $2.9 million or 5.0% for the comparable period in fiscal 2007. The increase of $2.9 million is due to the following: credit/customer service costs of $1.3 million, payroll and related payroll costs of $1.2 million, maintenance costs of $.2 million and insurance/utilities/taxes of $.2 million.

Wholesale Operations:


	Three Months Ended					Six Months Ended
	February 29,			February 28,		February 29,		February 28,
	2008			2007		2008		2007
	(dollars in thousands)
Net Sales (a)	$	327,090		$	238,608	$	682,618	$	555,550
Costs of Goods Sold		325,696			223,118		640,480		533,509

Gross Profit		1,394			15,490		42,138		22,041

Operating Expenses		8,098			8,154		17,107		16,303

Segment Operating Income		(6,704	)		7,336		25,031		5,738

Crude throughput (thousand barrels per day)		60.7			66.6		59.3		66.9

Refinery Product Yield

(thousands of barrels)


	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2008		2007		2008		2007
Gasoline and gasoline blendstock	2,624		2,658		4,744		5,427
Distillates	1,373		1,444		2,652		3,032
Asphalt	1,602		1,730		3,288		3,450
Butane, propane, residual products, internally produced fuel and other (“Other”)	541		660		1,120		1,185

Total Product Yield	6,140		6,492		11,804		13,094

% Heavy Crude Oil of Total Refinery Throughput (b)	58	%	58	%	60	%	57	%

Product Sales

(dollars in thousands) (a)


	Three Months Ended				Six Months Ended
	February 29,		February 28,		February 29,		February 28,
	2008		2007		2008		2007
Gasoline and gasoline blendstock	$	139,807	$	94,567	$	275,961	$	209,927
Distillates		126,798		86,311		240,009		189,068
Asphalt		45,435		54,675		144,622		148,418
Other		15,050		3,055		22,026		8,137

	$	327,090	$	238,608	$	682,618	$	555,550

Product Sales

(thousand of barrels) (a)


	Three Months Ended		Six Months Ended
	February 29,	February 28,	February 29,	February 28,
	2008	2007	2008	2007
Gasoline and gasoline blendstock	1,389	1,395	2,823	3,094
Distillates	1,111	1,173	2,187	2,510
Asphalt	1,493	1,570	3,906	3,386
Other	252	87	387	226

	4,245	4,225	9,303	9,216

(a)	Sources of total product sales include products manufactured at the refinery located in Warren, Pennsylvania and products purchased from third parties.

(b)	The Company defines “heavy” crude oil as crude oil with an American Petroleum Institute specific gravity of 26 or less.

Comparison of Fiscal Quarters Ended February 29, 2008 and February 28, 2007

Net Sales

Wholesale sales increased during the three months ended February 29, 2008 by $88.5 million or 37.1% for the comparable period in fiscal 2007 from $238.6 million to $327.1 million. The wholesale sales increase was due to a 37.1% increase in wholesale prices and a .5% increase in wholesale volume.

Costs of Goods Sold

Wholesale costs of goods sold increased during the three months ended February 29, 2008 by $102.6 million or 46.0% for the comparable period in fiscal 2007 from $223.1 million to $325.7 million. The increase in wholesale costs of goods sold during this period was primarily due to an increase in cost of raw materials.

Gross Profit

Wholesale gross profit decreased $14.1 million or 91.0% from $15.5 million for the fiscal quarter ended February 28, 2007 to $1.4 million for fiscal quarter ended February 29, 2008. The decrease was primarily due to declining margins.

Operating Expenses

Operating expenses decreased during the three months ended February 29, 2008 by $.1 million or .7% under the comparable period in fiscal 2007.

Comparison of Six Months Ended February 29, 2008 and February 28, 2007

Net Sales

Wholesale sales increased during the six months ended February 29, 2008 by $127.1 million or 22.9% from $555.5 million to $682.6 million for the comparable period in fiscal 2007. The wholesale sales increase was due to a 22.9% increase in wholesale prices and a 1.0% increase in wholesale volume.

Costs of Goods Sold

Wholesale costs of goods sold increased during the six months ended February 29, 2008 by $107.0 million or 20.1% from $533.5 million to $640.5 million for the comparable period in fiscal 2007. The increase in wholesale costs of goods sold was primarily due to an increase in raw and finished material costs and losses in the Company’s hedging program.

Gross Profit

Wholesale gross profit increased during the six months ended February 29, 2008 by $20.1 million or 91.2% from $22.0 million to $42.1 million for the comparable period in fiscal 2007. The increase was primarily due to increases in volume and selling prices.

Operating Expenses

Operating expenses increased during the six months ended February 29, 2008 by $.8 million or 4.9% over the comparable period in fiscal 2007. This was due to increased payroll/pension costs of $.4 million, legal/audit fees of $.2 million and other miscellaneous costs of $.2 million. For 2008 operating expenses were $17.1 million, or 2.5% of net wholesale sales, compared to $16.3 million, or 2.9% of net wholesale sales for six months ended February 28, 2007.

Consolidated Expenses:

Interest Expense, net

Net interest expense (interest expense less interest income) for the three months ended February 29, 2008 increased $1.6 million or 26.9% to $7.5 million from $5.9 million for the comparable period in fiscal 2007, primarily due to the additional $125 million of senior notes issued February 2007.

Net interest expense (interest expense less interest income) for the six months ended February 29, 2008 increased $3.1 million or 28.1% to $14.2 million from $11.1 million for the comparable period in fiscal 2007, primarily due to the additional $125 million of senior notes issued February 2007.

Income Tax Expense / (Benefit)

The Company’s effective tax rate for the three months and six months ended February 29, 2008 and February 28, 2007 remained relatively constant at approximately 41%.

Liquidity and Capital Resources

We operate in an environment where our liquidity and capital resources are impacted by changes in the price of crude oil and refined petroleum products, availability of credit, market uncertainty and a variety of additional

factors beyond our control. Included in such factors are, among others, the level of customer product demand, weather conditions, governmental regulations, worldwide political conditions and overall market and economic conditions.

The following table summarizes selected measures of liquidity and capital sources (in thousands):


	February 29, 2008		August 31, 2007
Cash and cash equivalents	$	76,955	$	135,441
Working capital	$	266,594	$	320,088
Current ratio		3.5		3.1
Debt	$	358,610	$	358,952

Primary sources of liquidity have been cash and cash equivalents, cash flows from operations and borrowing availability under a revolving line of credit. We believe available capital resources will be adequate to meet our working capital, debt service, and capital expenditure requirements for existing operations.

Our cash and cash equivalents consist of bank balances and investments in money market funds. These investments have staggered maturity dates, none of which exceed three months. They have a high degree of liquidity since the securities are traded in public markets.


	Six Months Ended February 29, 2008
	(dollars in millions)
Significant uses of cash
Cash used in investing activities
Property, plant and equipment	$	(23.0	)
Refinery turnaround costs		(8.6	)

Total	$	(31.6	)

Cash provided by financing activities
Proceeds from sale of investment securities	$	57.4
Dividends to stockholders		(35.3	)
Other		(.6	)

Total	$	21.5

Working capital items
Income taxes payable decrease	$	(36.5	)
Prepaid expense increase		(23.6	)
Accounts payable decrease		(9.0	)
Sales, use and fuel taxes payable decrease		(3.0	)
Accrued liabilities increase		(2.6	)
Accounts receivable increase		(.3	)
Decrease in inventory due to decrease in volumes		7.5
Amounts due from affiliated companies, net increase		5.0

Total	$	(62.5	)

We require a substantial investment in working capital which is susceptible to large variations during the year resulting from purchases of inventory and seasonal demands. Inventory purchasing activity is a function of sales activity and turnaround cycles for the different refinery units.

Maintenance and non-discretionary capital expenditures have averaged approximately $6.0 million annually over the last three years for the refining and marketing operations. Management does not foresee any increase in these maintenance and non-discretionary capital expenditures during fiscal year 2008.

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. We expect to be able to meet our working capital, capital expenditure, contractual obligations, letter of credit and debt service requirements out of cash flow from operations, cash on hand and borrowings under our Revolving Credit Facility with PNC Bank, N.A. as Agent Bank. In November 2006, we extended the term of our $100,000,000 Revolving Credit Facility from May 9, 2007 to November 27, 2011, and amended certain terms and provisions thereof, including a reduction in the interest rate and a modification of certain covenants. Under the amended Revolving Credit Facility, interest is calculated as follows: (a) for base rate borrowings, at the greater of the Agent Bank’s prime rate less an applicable margin of .5% to 0% or federal funds rate plus 1%; (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 1.25% to 1.75%. The applicable margin will vary depending on a formula calculating our average unused availability under the facility.

The Revolving Credit Facility is secured primarily by certain cash accounts, accounts receivable and inventory. Until maturity, we may borrow on a borrowing base formula as set forth in the facility. We had outstanding letters of credit of $.4 million as of February 29, 2008 and there were no outstanding borrowings under the Revolving Credit Facility resulting in net availability of $99.6 million. The Company’s working capital ratio exceeded 3.5 as of February 29, 2008.

Although we are not aware of any pending circumstances which would change our 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. We continue to investigate strategic acquisitions and capital improvements to our existing facilities.

Federal, state and local laws and regulations relating to the environment affect nearly all of our operations. As is the case with all the companies engaged in similar industries, we face 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. We 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company uses its revolving credit facility to finance a portion of its operations. As of the date of this Report, $26,000,000 was outstanding under the revolving line of credit. These on-balance sheet financial instruments, to the extent they provide for variable rates, expose the Company to interest rate risk resulting from changes in the PNC Prime rate, the Federal Funds or LIBOR rate.

The Company has exposure to price fluctuations of crude oil and refined products. The Company does not manage the price risk related to all of its inventories of crude oil and refined products with a permanent formal hedging program, but does manage its risk exposures by managing inventory levels. During the first six months of fiscal year 2008, the Company had 1,500,000 barrels of crude oil future positions all of which were sold or expired prior to February 29, 2008. The resulting loss on these positions amounted to $3,518,000 which was recorded in cost of sales. The Company had no open future positions at February 29, 2008.

See also Recent Developments section of Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4.

CONTROLS AND PROCEDURES.

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Internal control over financial reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, our CEO and CFO and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•

Provide reasonable assurance that transaction are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition or disposition of our assets that could have a material effect on the financial statements.

Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.

Based on an evaluation by management of the Company’s disclosure controls and procedures (as defined in Rules 13(a) – 15(e) and 15(d) – 15(e) of the Exchange Act), as of the end of the Company’s fiscal quarter ended February 29, 2008, (the “Evaluation Date”) the Company’s CEO and CFO (its principal executive officer and principal financial officer, respectively) have concluded that these controls and procedures are effective in providing reasonable assurance that information requiring disclosure is recorded, processed, summarized and reported with the timeframe specified by the SEC’s rules and forms.

There have not been any changes in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended February 29, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

None.

ITEM 1A.

RISK FACTORS.

There have been no material changes in our Risk Factors disclosed in the Form 10-K for the year ended August 31, 2007.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

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.



Exhibit 31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

UNITED REFINING COMPANY

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

KIANTONE PIPELINE CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

UNITED REFINING COMPANY OF PENNSYLVANIA

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

KIANTONE PIPELINE COMPANY

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

UNITED JET CENTER, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

KWIK-FILL CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

BELL OIL CORP.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

PPC, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

SUPER TEST PETROLEUM, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

KWIK-FIL, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

VULCAN ASPHALT REFINING CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 14, 2008

COUNTRY FAIR, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President and Chief Operating Officer

/s/ James E. Murphy

James E. Murphy

Vice President – Finance

EX-31.1 2 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John A. Catsimatidis certify that:

1.	I have reviewed this quarterly report on Form 10-Q of United Refining Company (the “registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: April 14, 2008	Signature:	/s/ John A. Catsimatidis
		John A. Catsimatidis
		Principal Executive Officer

EX-31.2 3 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James E. Murphy certify that:

1.	I have reviewed this quarterly report on Form 10-Q of United Refining Company (the “registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: April 14, 2008	Signature:	/s/ James E. Murphy
		James E. Murphy
		Principal Financial Officer

EX-32.1 4 dex321.htm SECTION 906 CEO CERTIFICATION Section 906 CEO Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of United Refining Company (the “Company”) on Form 10-Q for the quarter ended February 29, 2008, as filed with the Securities and Exchange Commission (the “Report”), I, John A. Catsimatidis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

To my knowledge:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.


Dated: April 14, 2008	By:	/s/ John A. Catsimatidis
		John A. Catsimatidis
		Principal Executive Officer

EX-32.2 5 dex322.htm SECTION 906 CFO CERTIFICATION Section 906 CFO Certification

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

To my knowledge:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.


Dated: April 14, 2008	By:	/s/ James E. Murphy
		James E. Murphy
		Principal Financial Officer

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