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Table of Contents

 

 

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 May 31, 2011

 

or

 

¨

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. 001-06198

 

 

 

LOGO

[LOGO] UNITED REFINING COMPANY

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

 

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

 

Large accelerated filer  ¨

  

Accelerated filer  ¨

Non-accelerated filer  x  (Do not check if a smaller reporting company)

  

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 July 8, 2011, there were 100 shares of common stock, par value $.10 per share, of the Registrant outstanding.

 

 

 


Table of Contents

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   

 

2


Table of Contents

FORM 10-Q – CONTENTS

 

          PAGE(S)  

PART I.

  

FINANCIAL INFORMATION

     4   

Item 1.

  

Financial Statements.

     4   
  

Consolidated Balance Sheets – May 31, 2011 (unaudited) and August 31, 2010

     4   
  

Consolidated Statements of Operations – Quarter and Nine Months Ended May 31, 2011 and 2010 (unaudited)

     5   
  

Consolidated Statements of Cash Flows – Nine Months Ended May 31, 2011 and 2010 (unaudited)

     6   
  

Notes to Consolidated Financial Statements (unaudited)

     7   

Item 2.

  

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

     18   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk.

     27   

Item 4.

  

Controls and Procedures.

     27   

PART II.

  

OTHER INFORMATION

     29   

Item 1.

  

Legal Proceedings.

     29   

Item 1A.

  

Risk Factors.

     29   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds.

     29   

Item 3.

  

Defaults Upon Senior Securities.

     29   

Item 4.

  

(Removed and Reserved).

     29   

Item 5.

  

Other Information.

     29   

Item 6.

  

Exhibits.

     29   

Signatures.

     31   

 

3


Table of Contents

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Consolidated Balance Sheets

(in thousands, except share amounts)

 

     May 31,
2011
(Unaudited)
    August 31,
2010
 

Assets

    

Current:

    

Cash and cash equivalents

   $ 27,710      $ 17,170   

Accounts receivable, net

     123,184        64,192   

Refundable income taxes

     —          36,390   

Inventories

     200,163        206,838   

Prepaid expenses and other assets

     42,713        27,941   

Amounts due from affiliated companies, net

     1,966        2,972   
                

Total current assets

     395,736        355,503   

Property, plant and equipment, net

     271,737        261,775   

Deferred financing costs, net

     10,036        2,114   

Goodwill

     1,349        1,349   

Tradename

     10,500        10,500   

Amortizable intangible assets, net

     1,296        1,376   

Deferred turnaround costs and other assets, net

     15,566        3,894   

Deferred income taxes

     414        592   
                
   $ 706,634      $ 637,103   
                

Liabilities and Stockholder’s Equity

    

Current:

    

Revolving credit facility – non-controlling interest

   $ 10,900      $ —     

Current installments of long-term debt

     956        1,888   

Accounts payable

     55,015        65,620   

Accrued liabilities

     22,793        15,569   

Income taxes payable

     3,097        552   

Sales, use and fuel taxes payable

     18,989        18,455   

Deferred income taxes

     5,997        5,997   
                

Total current liabilities

     117,747        108,081   

Revolving credit facility

     102,000        83,000   

Long term debt: less current installments

     355,384        328,165   

Deferred retirement benefits

     88,292        91,620   
                

Total liabilities

     663,423        610,866   
                

Commitments and contingencies

    

Stockholder’s equity:

    

Common stock; $.10 par value per share – shares authorized 100; issued and outstanding 100

     —          —     

Additional paid-in capital

     22,500        22,500   

Retained earnings

     19,494        18,231   

Accumulated other comprehensive loss

     (14,094     (14,494
                

Controlling interest equity

     27,900        26,237   

Non-controlling interest

     15,311        —     
                

Total stockholder’s equity

     43,211        26,237   
                
   $ 706,634      $ 637,103   
                

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Consolidated Statements of Operations – (Unaudited)

(in thousands)

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
     2011     2010     2011     2010  

Net sales

   $ 808,115      $ 705,322      $ 2,119,541      $ 1,920,996   
                                

Costs and expenses:

        

Costs of goods sold (exclusive of depreciation and amortization)

     736,968        674,641        1,957,646        1,862,603   

Selling, general and administrative expenses

     37,512        37,191        110,117        111,634   

Depreciation and amortization expenses

     5,256        5,467        16,243        16,435   
                                
     779,736        717,299        2,084,006        1,990,672   
                                

Operating income (loss)

     28,379        (11,977     35,535        (69,676
                                

Other income (expense):

        

Interest expense, net and financing costs

     (11,761     (8,983     (29,570     (26,162

Other, net

     (805     (620     (2,196     (1,432

Loss on early extinguishment of debt

     (1,245     —          (1,245     —     
                                
     (13,811     (9,603     (33,011     (27,594
                                

Income (loss) before income tax expense (benefit)

     14,568        (21,580     2,524        (97,270

Income tax expense (benefit)

     5,259        (4,728     950        (35,763
                                

Net income (loss)

     9,309        (16,852     1,574        (61,507

Less net income attributable to non-controlling interest

     218        —          311        —     
                                

Net income (loss) attributable to United Refining Company’s Stockholder

   $ 9,091      $ (16,852   $ 1,263      $ (61,507
                                

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows – (Unaudited)

(in thousands)

 

     Nine Months Ended
May 31,
 
     2011     2010  

Cash flows from operating activities:

    

Net income (loss)

   $ 1,263      $ (61,507

Adjustments to reconcile net income (loss) to net cash used in operating activities:

    

Depreciation and amortization

     17,410        16,686   

Deferred income taxes

     (100     (5,413

Non-cash portion of loss on early extinguishment of debt

     330        —     

Loss on asset dispositions

     239        825   

Cash used in working capital items

     (29,995     (37,794

Net income attributable to non-controlling interest

     311        —     

Other, net

     (2     2   

Change in operating assets and liabilities:

    

Deferred retirement benefits

     (2,649     9,387   

Other noncurrent liabilities

     —          (4
                

Total adjustments

     (14,456     (16,311
                

Net cash used in operating activities

     (13,193     (77,818
                

Cash flows from investing activities:

    

Additions to property, plant and equipment

     (23,178     (19,559

Additions to deferred turnaround costs

     (14,702     (1,060

Proceeds from asset dispositions

     57        25   
                

Net cash used in investing activities

     (37,823     (20,594
                

Cash flows from financing activities:

    

Net borrowings on revolving credit facilities

     29,900        93,000   

Proceeds from issuance of common stock of non-controlling interest

     15,000        —     

Proceeds from issuance of long term debt

     352,021        —     

Principal reductions of long term debt

     (324,809     (1,290

Deferred financing costs

     (10,556     (10
                

Net cash provided by financing activities

     61,556        91,700   
                

Net increase (decrease) in cash and cash equivalents

     10,540        (6,712

Cash and cash equivalents, beginning of year

     17,170        31,062   
                

Cash and cash equivalents, end of period

   $ 27,710      $ 24,350   
                

Cash provided by (used in) working capital items:

    

Accounts receivable, net

   $ (58,992   $ 94   

Refundable income taxes

     36,390        —     

Inventories

     6,675        38,213   

Prepaid expenses and other assets

     (14,772     (43,023

Amounts due from affiliated companies, net

     1,006        2,253   

Accounts payable

     (10,605     (35,552

Accrued liabilities

     7,224        6,761   

Income taxes payable

     2,545        (5,149

Sales, use and fuel taxes payable

     534        (1,391
                

Total change

   $ (29,995   $ (37,794
                

Cash paid during the period for:

    

Interest

   $ 22,068      $ 18,072   

Income taxes

   $ 1,351      $ 5,651   
                

Non-cash investing activities:

    

Property additions & capital leases

   $ 212      $ 805   
                

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

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, Kiantone Pipeline Corporation (collectively, the “Company”), and United Refining Asphalt, Inc. (“URA”) a variable interest entity that was created in January 2011 for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

 

A variable interest entity (“VIE”) is defined as an entity that either has investor voting rights that are not proportional to their economic interests or has equity investors that do not provide sufficient financial resources for the entity to support its activities. A VIE is required to be consolidated by a company if that company is the primary beneficiary. The primary beneficiary of the VIE is the company that controls the VIE’s activities and is subject to a majority of the risk of loss from the VIE’s activities or, if no company is subject to a majority of such risk, the company that is entitled to receive a majority of the VIE’s residual returns.

 

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 at a network of Company-operated retail units and convenience and grocery items through Company-owned 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 nine months ended May 31, 2011 are not necessarily indicative of the results that may be expected for the year ending August 31, 2011. 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, 2010.

 

Certain items have been reclassified to conform to current period presentation.

 

2.

Derivative Financial Instruments

 

From time to time, the Company uses derivatives to reduce its exposure to fluctuations in crude oil purchase costs and refining margins. Derivative products, specifically crude oil option contracts and crack spread option contracts are used to hedge the volatility of these items. The Company accounts for changes in the fair value of its contracts by marking them to market and recognizing any resulting gains or losses in its Statement of Operations.

 

7


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

During the quarter ended May 31, 2011, the Company had 5,250,000 barrels of heating oil and gasoline crackspread swaps outstanding as part of its risk management strategy. The crackspread swaps expire sequentially beginning June 2011 through December 2012. These derivative instruments are being used by the Company to lock in margins on future sales of diesel fuel and gasoline.

 

The fair value gain position (recorded in the Consolidated Statements of Operations) of our derivatives at May 31, 2011 are as follows:

 

      May 31, 2011  
      Notional
Balance
   Maturity
Date
     Prepaid
Expenses
 

Designated as hedges under ASC 815

        

None

        

Not designated as hedges under ASC 815

        

Heating oil and gasoline crackspread swaps

  

5,250,000 barrels

     Monthly June 2011 thru December 2012       $ 897,123   
              

Total derivative instruments

         $ 897,123   
              

 

During the three months ended May 31, 2011 net gains of $1.3 million from the realized net gains and changes in the fair value of our forward contracts were recognized as a reduction of cost of goods sold in the Company’s Consolidated Statement of Operations. The Company has included the carrying amount of the contract in prepaid expenses and other assets in its Consolidated Balance Sheet.

 

3.

Inventories

 

Inventories are stated at the lower of cost or market, with cost being determined under the Last-in, First-out (LIFO) method for crude oil and petroleum product inventories and the First-in, First-out (FIFO) method for merchandise. Supply inventories are stated at either lower of cost or market or replacement cost and include various parts for the refinery operations.

 

Inventories consist of the following:

 

     May 31,
2011
     August 31,
2010
 
     (in thousands)  

Crude Oil

   $ 39,019       $ 78,165   

Petroleum Products

     103,826         86,993   
                 

Total @ LIFO

     142,845         165,158   
                 

Asphalt – URA

     15,290         —     

Merchandise

     19,310         20,403   

Supplies

     22,718         21,277   
                 

Total @ FIFO

     57,318         41,680   
                 

Total Inventory

   $ 200,163       $ 206,838   
                 

 

As of May 31, 2011 and August 31, 2010, the replacement cost of LIFO inventories exceeded their LIFO carrying values by approximately $105,729,000 and $50,265,000, respectively.

 

8


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

4.

Credit Facility

 

On May 18, 2011, the Company, United Refining Company of Pennsylvania, Kiantone Pipeline Corporation, Country Fair, Inc. and Kwik-Fill Corporation (as Guarantor) entered into an amended and restated Revolving Credit Facility (“Amended and Restated Revolving Credit Facility”) with PNC Bank, National Association as Administrator (the “Agent”) increasing the maximum facility commitment from $130,000,000 to $175,000,000 and extending the term to May 18, 2016. Under the Amended and Restated Revolving Credit Facility, interest is calculated as follows: (a) for base rate borrowings, at the greater of the Agent’s prime rate, federal funds open rate plus 0.5% or the daily LIBOR rate plus 1.0% plus the applicable margin of 1.25% to 1.75% and (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 2.75% to 3.25%. The applicable margin will vary depending on a formula calculating the Company’s unused availability under the facility. The Amended and Restated Revolving Credit Facility continues to be secured primarily by certain cash accounts, accounts receivable and inventory. Until expiration on May 18, 2016, we may borrow on a borrowing base formula as set forth in the facility. The participating banks in the Amended and Restated Revolving Credit Facility are PNC Bank, National Association, Bank of America, N.A., Manufacturers and Traders Trust Company, and Bank Leumi USA.

 

5.

Long Term Debt

 

On March 8, 2011, the Company sold $365,000,000 of 10.500% First Priority Senior Secured Notes due 2018 (the “Senior Secured Notes”) for $352,020,600, resulting in original issue discount of $12,979,400, which will be amortized over the life of the Senior Secured Notes using the interest method. The net proceeds of the offering of $344,249,000 were used to retire all of its outstanding 10 1/2% Senior Notes due 2012, pay accrued interest of $3,400,000 and a redemption premium related thereto. A loss of $1,245,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $915,000, a write-off of unamortized net debt premium of $1,153,000 and a write-off of deferred financing costs of $1,483,000. The Senior Secured Notes are guaranteed on an unsecured basis by all of our domestic subsidiaries existing at March 8, 2011. The Senior Secured Notes are secured on a first-priority basis by our assets comprising our refinery located in Warren, Pennsylvania and the capital stock of our pipeline subsidiary, subject to permitted liens. The Senior Secured Notes will rank equally with all of our existing and future senior indebtedness that is not subordinate in right of payment to the Senior Secured Notes.

 

On February 22, 2011 the Company announced the launch of a cash tender offer (the “Tender Offer”) for any and all of its outstanding 10 1/2 % Senior Notes due 2012 issued under an indenture dated as of August 6, 2004 (the “2012 Indenture”) and consent solicitation (the “Solicitation”) for certain proposed amendments to the 2012 Indenture (the “Proposed Amendments”). Each holder who validly tendered its Senior Notes due 2012 and delivered consents to the Proposed Amendments prior to 5:00 pm, New York City time, on March 7, 2011, (the “Consent Date”), received the total consideration of $1,005, which included $975 as the tender offer consideration and $30 as a consent payment. In addition, accrued but unpaid interest up to, but not including, the applicable payment date of the Senior Notes due 2012 was paid in cash on all validly tendered and accepted the Senior Notes due 2012. The Company paid a total of $188,607,726 on March 8, 2011 for $181,764,375 principal amount of the Senior Notes due 2012, $5,592,750 for consent payment (which is included in interest expense, net and financing costs), and $1,250,601 for accrued interest on those Senior Notes due 2012 tendered.

 

The Tender Offer expired at 12:00 midnight, New York City time, on March 21, 2011. Holders who validly tendered their Senior Notes due 2012 after the Consent Date received only the tender offer consideration and were not entitled to receive a consent payment pursuant to the Tender Offer. The Company paid the total consideration or tender offer consideration, as the case may be, plus accrued but unpaid interest, for the Senior Notes due 2012 accepted for purchase promptly following the date of such acceptance (such date, the “Final

 

9


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

Payment Date”). On March 22, 2011, the Company paid a total of $678,225 for $670,800 principal amount of the Senior Notes due 2012 and $7,425 for accrued interest on those Senior Notes due 2012 tendered between the Consent Date (March 7, 2011) and the Final Payment Date (March 21, 2011).

 

On March 9, 2011, the Company issued a Notice of Redemption to all holders of its 10 1/2 % Senior Notes due 2012 redeeming these Senior Notes due 2012 at 100% par value plus accrued but unpaid interest on the redemption date of April 8, 2011. On April 8, 2011, $138,962,427 was paid in total, of which $136,847,000 was for principal amount of Senior Notes due 2012 and $2,115,427 was for accrued interest.

 

6.

Subsidiary Guarantors

 

All the Company’s wholly-owned subsidiaries fully and unconditionally guarantee on an unsecured basis, on a joint and several basis, the Company’s Senior Secured Notes. There are no restrictions within the consolidated group on the ability of the Company or any of its subsidiaries to obtain loans from or pay dividends to other members of the consolidated group. Financial information of the Company’s wholly-owned subsidiary guarantors is as follows:

 

Condensed Consolidating Balance Sheets

(in thousands)

 

    May 31, 2011  
    United
Refining
Company
    Guarantors     Eliminations     United Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Assets

             

Current:

             

Cash and cash equivalents

  $ 11,992      $ 14,745      $ —        $ 26,737      $ 973      $ —        $ 27,710   

Accounts receivable, net

    60,248        47,174        —          107,422        15,762        —          123,184   

Inventories

    155,457        29,416        —          184,873        15,290        —          200,163   

Prepaid expenses and other assets

    52,198        5,805        —          58,003        —          (15,290     42,713   

Amounts due from affiliated companies

    9,194        (1,489     —          7,705        (5,739     —          1,966   

Intercompany

    137,218        16,261        (153,479     —          —          —          —     
                                                       

Total current assets

    426,307        111,912        (153,479     384,740        26,286        (15,290     395,736   

Property, plant and equipment, net

    196,100        75,637        —          271,737        —          —          271,737   

Deferred financing costs, net

    9,842        —          —          9,842        194        —          10,036   

Goodwill and other non-amortizable assets

    —          11,849        —          11,849        —          —          11,849   

Amortizable intangible assets, net

    —          1,296        —          1,296        —          —          1,296   

Deferred turnaround costs & other assets

    15,089        477        —          15,566        —          —          15,566   

Deferred income taxes

    8,671        (8,257     —          414        —          —          414   

Investment in subsidiaries

    5,825        —          (5,825     —          —          —          —     
                                                       
  $ 661,834      $ 192,914      $ (159,304   $ 695,444      $ 26,480      $ (15,290   $ 706,634   
                                                       

Liabilities and Stockholder’s Equity

             

Current:

             

Revolving credit facility – non-controlling interest

  $ —        $ —        $ —        $ —        $ 10,900      $ —        $ 10,900   

Current installments of long-term debt

    577        379        —          956        —          —          956   

Accounts payable

    32,414        22,601        —          55,015        —          —          55,015   

Accrued liabilities

    17,141        5,599        —          22,740        53        —          22,793   

Income taxes payable

    4,909        (2,028     —          2,881        216        —          3,097   

Sales, use and fuel taxes payable

    14,412        4,577        —          18,989        —          —          18,989   

Deferred revenue

    15,290        —          —          15,290        —          (15,290     —     

Deferred income taxes

    7,049        (1,052     —          5,997        —          —          5,997   

Intercompany

    —          153,479        (153,479     —          —          —          —     
                                                       

Total current liabilities

    91,792        183,555        (153,479     121,868        11,169        (15,290     117,747   

Revolving credit facility

    102,000        —          —          102,000        —          —          102,000   

Long term debt: less current installments

    353,735        1,649        —          355,384        —          —          355,384   

Deferred retirement benefits

    86,407        1,885        —          88,292        —          —          88,292   
                                                       

Total liabilities

    633,934        187,089        (153,479     667,544        11,169        (15,290     663,423   
                                                       

 

10


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

    May 31, 2011  
    United
Refining
Company
    Guarantors     Eliminations     United Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Commitment and contingencies

             

Stockholder’s equity

             

Common stock, $.10 par value per share – shares authorized 100; issued and outstanding 100

    —          18        (18     —          —          —          —     

Additional paid-in capital

    22,500        10,651        (10,651     22,500        15,000        (15,000     22,500   

Retained earnings

    19,494        (3,685     3,685        19,494        311        (311     19,494   

Accumulated other comprehensive loss

    (14,094     (1,159     1,159        (14,094     —          —          (14,094
                                                       

Controlling interest equity

    27,900        5,825        (5,825     27,900        15,311        (15,311     27,900   

Non-controlling interest

    —          —          —          —          —          15,311        15,311   
                                                       

Total stockholder’s equity

    27,900        5,825        (5,825     27,900        15,311        —          43,211   
                                                       
  $ 661,834      $ 192,914      $ (159,304   $ 695,444      $ 26,480      $ (15,290   $ 706,634   
                                                       

 

11


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

Condensed Consolidating Balance Sheets

(in thousands)

 

    August 31, 2010  
    United
Refining
Company
    Guarantors     Eliminations     United Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining

Company
Consolidated
 

Assets

             

Current:

             

Cash and cash equivalents

  $ 7,765      $ 9,405      $ —        $ 17,170      $ —        $ —        $ 17,170   

Accounts receivable, net

    30,266        33,926        —          64,192        —          —          64,192   

Refundable income taxes

    37,921        (1,531     —          36,390        —          —          36,390   

Inventories

    176,748        30,090        —          206,838        —          —          206,838   

Prepaid expenses and other assets

    22,461        5,480        —          27,941        —          —          27,941   

Amounts due from affiliated companies

    3,455        (483     —          2,972        —          —          2,972   

Intercompany

    111,228        16,374        (127,602     —          —          —          —     
                                                       

Total current assets

    389,844        93,261        (127,602     355,503        —          —          355,503   

Property, plant and equipment, net

    185,349        76,426        —          261,775        —          —          261,775   

Deferred financing costs, net

    2,114        —          —          2,114        —          —          2,114   

Goodwill and other non-amortizable assets

    —          11,849        —          11,849        —          —          11,849   

Amortizable intangible assets, net

    —          1,376        —          1,376        —          —          1,376   

Deferred turnaround costs & other assets

    3,233        661        —          3,894        —          —          3,894   

Deferred income taxes

    7,909        (7,317     —          592        —          —          592   

Investment in subsidiaries

    9,263        —          (9,263     —          —          —          —     
                                                       
  $ 597,712      $ 176,256      $ (136,865   $ 637,103      $ —        $ —        $ 637,103   
                                                       

Liabilities and Stockholder’s Equity

             

Current:

             

Current installments of long-term debt

  $ 1,390      $ 498      $ —        $ 1,888      $ —        $ —        $ 1,888   

Accounts payable

    40,689        24,931        —          65,620        —          —          65,620   

Accrued liabilities

    9,457        6,112        —          15,569        —          —          15,569   

Income taxes payable

    196        356        —          552        —          —          552   

Sales, use and fuel taxes payable

    14,461        3,994        —          18,455        —          —          18,455   

Deferred income taxes

    7,049        (1,052     —          5,997        —          —          5,997   

Intercompany

    —          127,602        (127,602     —          —          —          —     
                                                       

Total current liabilities

    73,242        162,441        (127,602     108,081        —          —          108,081   

Revolving credit facility

    83,000        —          —          83,000        —          —          83,000   

Long term debt: less current installments

    326,239        1,926        —          328,165        —          —          328,165   

Deferred retirement benefits

    88,994        2,626        —          91,620        —          —          91,620   
                                                       

Total liabilities

    571,475        166,993        (127,602     610,866        —          —          610,866   
                                                       

Commitment and contingencies

             

Stockholder’s equity

             

Common stock, $.10 par value per share – shares authorized 100; issued and outstanding 100

    —          18        (18     —          —          —          —     

Additional paid-in capital

    22,500        10,651        (10,651     22,500        —          —          22,500   

Retained earnings

    18,231        (140     140        18,231        —          —          18,231   

Accumulated other comprehensive loss

    (14,494     (1,266     1,266        (14,494     —          —          (14,494
                                                       

Controlling interest equity

    26,237        9,263        (9,263     26,237        —          —          26,237   

Non-controlling interest

    —          —          —          —          —          —          —     
                                                       

Total stockholder’s equity

    26,237        9,263        (9,263     26,237        —          —          26,237   
                                                       
  $ 597,712      $ 176,256      $ (136,865   $ 637,103      $ —        $ —        $ 637,103   
                                                       

 

12


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

Condensed Consolidating Statements of Operations

(in thousands)

 

    Three Months Ended May 31, 2011  
    United
Refining
Company
    Guarantors     Eliminations     United
Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Net sales

  $ 605,334      $ 445,692      $ (240,683   $ 810,343      $ 23,620      $ (25,848   $ 808,115   
                                                       

Costs and expenses:

             

Costs of goods sold (exclusive of depreciation and amortization)

    575,266        405,284        (240,683     739,867        22,949        (25,848     736,968   

Selling, general and administrative expenses

    4,129        33,380        —          37,509        3        —          37,512   

Depreciation and amortization expenses

    3,704        1,552        —          5,256        —          —          5,256   
                                                       
    583,099        440,216        (240,683     782,632        22,952        (25,848     779,736   
                                                       

Operating income

    22,235        5,476        —          27,711        668        —          28,379   
                                                       

Other income (expense):

             

Interest expense, net

    (11,333     (277     —          (11,610     (151     —          (11,761

Other, net

    (936     278        —          (658     (147     —          (805

Loss on early extinguishment of debt

    (1,245     —          —          (1,245     —          —          (1,245

Equity in net income of subsidiaries

    2,978        —          (2,978     —          —          —          —     
                                                       
    (10,536     1        (2,978     (13,513     (298     —          (13,811
                                                       

Income before income tax expense

    11,699        5,477        (2,978     14,198        370        —          14,568   

Income tax expense

    2,608        2,499        —          5,107        152        —          5,259   
                                                       

Net income

    9,091        2,978        (2,978     9,091        218        —          9,309   

Less net income attributable to non-controlling interest

    —          —          —          —          —          218        218   
                                                       

Net income attributable to United Refining Company’s Stockholder

  $ 9,091      $ 2,978      $ (2,978   $ 9,091      $ 218      $ (218   $ 9,091   
                                                       
    Three Months Ended May 31, 2010  
    United
Refining
Company
    Guarantors     Eliminations     United
Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Net sales

  $ 520,558      $ 355,218      $ (170,454   $ 705,322      $ —        $ —        $ 705,322   
                                                       

Costs and expenses:

             

Costs of goods sold (exclusive of depreciation and amortization)

    524,448        320,647        (170,454     674,641        —          —          674,641   

Selling, general and administrative expenses

    4,771        32,420        —          37,191        —          —          37,191   

Depreciation and amortization expenses

    3,973        1,494        —          5,467        —          —          5,467   
                                                       
    533,192        354,561        (170,454     717,299        —          —          717,299   
                                                       

Operating (loss) income

    (12,634     657        —          (11,977     —          —          (11,977
                                                       

Other income (expense):

             

Interest expense, net

    (8,676     (307     —          (8,983     —          —          (8,983

Other, net

    (842     222        —          (620     —          —          (620

Equity in net loss of subsidiaries

    (2,805     —          2,805        —          —          —          —     
                                                       
    (12,323     (85     2,805        (9,603     —          —          (9,603
                                                       

(Loss) income before income tax (benefit) expense

    (24,957     572        2,805        (21,580     —          —          (21,580

Income tax (benefit) expense

    (8,105     3,377        —          (4,728     —          —          (4,728
                                                       

Net loss

    (16,852     (2,805     2,805        (16,852     —          —          (16,852

Less net income attributable to non-controlling interest

    —          —          —          —          —          —          —     
                                                       

Net loss attributable to United Refining Company’s Stockholder

  $ (16,852   $ (2,805   $ 2,805      $ (16,852   $ —        $ —        $ (16,852
                                                       

 

13


Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

Condensed Consolidating Statements of Operations

(in thousands)

 

    Nine Months Ended May 31, 2011  
    United
Refining
Company
    Guarantors     Eliminations     United
Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Net sales

  $ 1,569,734      $ 1,163,498      $ (611,718   $ 2,121,514      $ 23,875      $ (25,848   $ 2,119,541   
                                                       

Costs and expenses:

             

Costs of goods sold (exclusive of depreciation and amortization)

    1,506,148        1,066,115        (611,718     1,960,545        22,949        (25,848     1,957,646   

Selling, general and administrative expenses

    12,701        97,411        —          110,112        5        —          110,117   

Depreciation and amortization expenses

    11,519        4,724        —          16,243        —          —          16,243   
                                                       
    1,530,368        1,168,250        (611,718     2,086,900        22,954        (25,848     2,084,006   
                                                       

Operating income (loss)

    39,366        (4,752     —          34,614        921        —          35,535   
                                                       

Other income (expense):

             

Interest expense, net

    (28,707     (690     —          (29,397     (173     —          (29,570

Other, net

    (2,656     681        —          (1,975     (221     —          (2,196

Loss on early extinguishment of debt

    (1,245     —          —          (1,245     —          —          (1,245

Equity in net loss of subsidiaries

    (3,546     —          3,546        —          —          —          —     
                                                       
    (36,154     (9     3,546        (32,617     (394     —          (33,011
                                                       

Income (loss) before income tax expense (benefit)

    3,212        (4,761     3,546        1,997        527        —          2,524   

Income tax expense (benefit)

    1,949        (1,215     —          734        216        —          950   
                                                       

Net income (loss)

    1,263        (3,546     3,546        1,263        311        —          1,574   

Less net income attributable to non-controlling interest

    —          —          —          —          —          311        311   
                                                       

Net income (loss) attributable to United Refining Company’s Stockholder

  $ 1,263      $ (3,546   $ 3,546      $ 1,263      $ 311      $ (311   $ 1,263   
                                                       

 

    Nine Months Ended May 31, 2010  
    United
Refining
Company
    Guarantors     Eliminations     United
Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Net sales

  $ 1,390,833      $ 999,659      $ (469,496   $ 1,920,996      $ —        $ —        $ 1,920,996   
                                                       

Costs and expenses:

             

Costs of goods sold (exclusive of depreciation and amortization)

    1,430,586        901,513        (469,496     1,862,603        —          —          1,862,603   

Selling, general and administrative expenses

    16,476        95,158        —          111,634        —          —          111,634   

Depreciation and amortization expenses

    11,918        4,517        —          16,435        —          —          16,435   
                                                       
    1,458,980        1,001,188        (469,496     1,990,672        —          —          1,990,672   
                                                       

Operating loss

    (68,147     (1,529     —          (69,676     —          —          (69,676
                                                       

Other income (expense):

             

Interest expense, net

    (25,200     (962     —          (26,162     —          —          (26,162

Other, net

    (2,326     894        —          (1,432     —          —          (1,432

Equity in net loss of subsidiaries

    (4,105     —          4,105        —          —          —          —     
                                                       
    (31,631     (68     4,105        (27,594     —          —          (27,594
                                                       

Loss before income tax (benefit) expense

    (99,778     (1,597     4,105        (97,270     —          —          (97,270

Income tax (benefit) expense

    (38,271     2,508        —          (35,763     —          —          (35,763
                                                       

Net loss

    (61,507     (4,105     4,105        (61,507     —          —          (61,507

Less net income attributable to non-controlling interest

    —          —          —          —          —          —          —     
                                                       

Net loss attributable to United Refining Company’s Stockholder

  $ (61,507   $ (4,105   $ 4,105      $ (61,507   $ —        $ —        $ (61,507
                                                       

 

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UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

Condensed Consolidating Statements of Cash Flows

(in thousands)

 

    Nine Months Ended May 31, 2011  
    United
Refining
Company
    Guarantors     Eliminations     United
Refining
Company &
Subsidiaries
    United
Refining
Asphalt, Inc
    Eliminations     United
Refining
Company
Consolidated
 

Net cash provided by (used in) by operating activities

  $ 1,950      $ 9,369      $ —        $ 11,319      $ (24,512   $ —        $ (13,193
                                                       

Cash flows from investing activities:

             

Additions to property, plant and equipment

    (19,544     (3,634     —          (23,178     —          —          (23,178

Additions to deferred turnaround costs

    (14,702     —          —          (14,702     —          —          (14,702

Proceeds from asset dispositions

    56        1        —          57        —          —          57   
                                                       

Net cash used in investing activities

    (34,190     (3,633     —          (37,823     —          —          (37,823
                                                       

Cash flows from financing activities:

             

Net borrowings on revolving credit facilities

    19,000        —          —          19,000        10,900        —          29,900   

Proceeds from issuance of common stock of non-controlling interest

    —          —          —          —          15,000        —          15,000   

Proceeds from issuance of long term debt

    352,021        —          —          352,021        —          —          352,021   

Principal reductions of long-term debt

    (324,413     (396     —          (324,809     —          —          (324,809

Deferred financing costs

    (10,141     —          —          (10,141     (415     —          (10,556
                                                       

Net cash provided by (used in) financing activities

    36,467        (396     —          36,071        25,485        —          61,556   
                                                       

Net increase in cash and cash equivalents

    4,227        5,340        —          9,567        973        —          10,540   

Cash and cash equivalents, beginning of year

    7,765        9,405        —          17,170        —          —          17,170   
                                                       

Cash and cash equivalents, end of period

  $ 11,992      $ 14,745      $ —        $ 26,737      $ 973      $ —        $ 27,710   
                                                       

 

    Nine Months Ended May 31, 2010  
    United
Refining
Company
    Guarantors     Eliminations     United
Refining
Company
&
Subsidiaries
    United
Refining
Asphalt,
Inc
    Eliminations     United
Refining
Company
Consolidated
 

Net cash (used in) provided by operating activities

  $ (91,725   $ 13,907      $ —        $ (77,818   $ —        $ —        $ (77,818
                                                       

Cash flows from investing activities:

             

Additions to property, plant and equipment

    (15,116     (4,443     —          (19,559     —          —          (19,559

Additions to deferred turnaround costs

    (1,009     (51     —          (1,060     —          —          (1,060

Proceeds from asset dispositions

    25        —          —          25        —          —          25   
                                                       

Net cash used in investing activities

    (16,100     (4,494     —          (20,594     —          —          (20,594
                                                       

Cash flows from financing activities:

             

Net borrowings on revolving credit facility

    93,000        —          —          93,000        —          —          93,000   

Principal reductions of long-term debt

    (513     (777     —          (1,290     —          —          (1,290

Deferred financing costs

    (10     —          —          (10     —          —          (10
                                                       

Net cash provided by (used in) financing activities

    92,477        (777     —          91,700        —          —          91,700   
                                                       

Net (decrease) increase in cash and cash equivalents

    (15,348     8,636        —          (6,712     —          —          (6,712

Cash and cash equivalents, beginning of year

    21,265        9,797        —          31,062        —          —          31,062   
                                                       

Cash and cash equivalents, end of period

  $ 5,917      $ 18,433      $ —        $ 24,350      $ —        $ —        $ 24,350   
                                                       

 

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UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

7.

Segments of Business

 

Intersegment revenues are calculated using 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
May 31,
    Nine Months Ended
May 31,
 
     2011      2010     2011     2010  

Net Sales

         

Retail

   $ 444,800       $ 354,064      $ 1,160,800      $ 996,382   

Wholesale

     363,315         351,258        958,741        924,614   
                                 
   $ 808,115       $ 705,322      $ 2,119,541      $ 1,920,996   
                                 

Intersegment Sales

         

Wholesale

   $ 239,791       $ 169,300      $ 609,020      $ 466,219   
                                 

Operating Income (Loss)

         

Retail

   $ 4,078       $ 988      $ (6,274   $ (1,333

Wholesale

     24,301         (12,965     41,809        (68,343
                                 
   $ 28,379       $ (11,977   $ 35,535      $ (69,676
                                 

Depreciation and Amortization

         

Retail

   $ 1,380       $ 1,314      $ 4,207      $ 3,976   

Wholesale

     3,876         4,153        12,036        12,459   
                                 
   $ 5,256       $ 5,467      $ 16,243      $ 16,435   
                                 

 

     May 31, 2011      August 31, 2010  

Total Assets

     

Retail

   $ 162,431       $ 146,932   

Wholesale

     544,203         490,171   
                 
   $ 706,634       $ 637,103   
                 

Capital Expenditures (including non-cash)

     

Retail

   $ 3,197       $ 5,180   

Wholesale

     20,193         22,233   
                 
   $ 23,390       $ 27,413   
                 

 

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UNITED REFINING COMPANY AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

 

8.

Employee Benefit Plans

 

For the periods ended May 31, 2011 and 2010, net pension and other postretirement benefit costs were comprised of the following:

 

     Pension Benefits  
       Three Months Ended
May 31,  
    Nine Months Ended
May 31,
 
         2011             2010         2011     2010  
     (in thousands)  

Service cost

   $ 447      $ 918      $ 1,342      $ 2,724   

Interest cost on benefit obligation

     1,245        1,481        3,734        4,397   

Expected return on plan assets

     (1,135     (1,016     (3,405     (3,016

Amortization and deferral of net loss

     508        850        1,523        2,594   
                                

Net periodic benefit cost

   $ 1,065      $ 2,233      $ 3,194      $ 6,699   
                                

 

     Other Post-Retirement Benefits  
       Three Months Ended
May 31,  
     Nine Months Ended
May 31,
 
         2011             2010          2011     2010  
     (in thousands)  

Service cost

   $ 377      $ 892       $ 1,131      $ 2,624   

Interest cost on benefit obligation

     630        1,257         1,889        3,702   

Amortization of transition obligation

     —          —           —          149   

Amortization and deferral of net loss

     (282     488         (846     1,436   
                                 

Net periodic benefit cost

   $ 725      $ 2,637       $ 2,174      $ 7,911   
                                 

 

As of May 31, 2011, $5,390,000 of contributions have been made to the Company pension plans for the fiscal year ending August 31, 2011.

 

9.

Fair Value Measurements

 

The carrying values of all financial instruments classified as a current asset or current liability approximate fair value because of the short maturity of these instruments. The fair value of marketable securities is determined by available market prices. The fair value exceeded (was less than) the carrying value of the notes at May 31, 2011 and August 31, 2010 by $5,622,000 and ($29,846,000), respectively.

 

10.

Subsequent Events

 

The URA credit facility with Bank of America, N.A., acting as the Agent bank (“Agent Bank”) is secured by URA’s cash accounts, accounts receivable and inventory. The applicable margin under the facility is: (a) for base rate borrowings the Agent Bank’s prime rate plus an applicable margin of 2.75%; (b) for euro-rate based borrowings, at the LIBOR Rate plus an applicable margin of 3.75%. The Agent Bank’s prime rate at May 31, 2011 was 3.25%. The $30 million facility is due to expire September 30, 2011.

 

As of June 14, 2011 the URA credit facility was paid in full. As of June 21, 2011 the $15.0 million advance from URA’s parent URI was paid in full, all URA inventory was liquidated and all URA sales were completed. URA has terminated its credit facility as of the close of business on June 28, 2011.

 

 

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Table of Contents

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;

 

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Table of Contents
 

 

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; and

 

 

 

future operating results and financial condition.

 

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 extreme volatility of daily pricing changes in the petroleum market in fiscal year 2011. Average crude prices for the fourth quarter of fiscal year 2011 have fallen as compared to the third quarter of fiscal year 2011. The average NYMEX price for crude oil for the fourth quarter of fiscal year 2011 was $97.53 per barrel as measured on July 1, 2011, a $3.39 decrease over the third quarter average of $100.92 per barrel.

 

The lagged 3-2-1 crackspread for the fourth fiscal quarter of 2011, as measured by the difference between the price of crude oil contracts traded on the NYMEX for the proceeding month to the prices for NYMEX gasoline and heating oil contracts in the current trading month, has decreased as compared to the third quarter of fiscal year 2011. The lagged 3-2-1 crackspread for the fourth quarter of fiscal 2011 as measured on July 1, 2011, was $26.33 as compared to $29.45 for the third fiscal quarter of 2011, a $3.12 or 11% reduction.

 

On July 26, 2010, a rupture occurred in Line 6B pipeline on Enbridge’s Lakehead system in Michigan. The Company’s heavy crude oil purchases are shipped on Line 6B from western Canada. As a result, the Company was forced to reduce production in its crude processing unit until such time as the Enbridge Line 6B could be repaired and returned to normal service. As a result of the pipeline rupture, the Company filed a claim with its insurance carriers under its property insurance coverage which contains a provision for contingent business interruption in the maximum amount of $15 million plus up to $5 million towards expenses. The Company is currently in discussions with its insurance carriers to settle the claim. The Company intends to seek restitution from Enbridge for all of the losses that the Company incurred above any payments it receives from its insurance carriers.

 

Results of Operations

 

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.

 

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.

 

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Table of Contents

Retail Operations:

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
     2011     2010     2011     2010  
     (dollars in thousands)  

Net Sales

        

Petroleum

   $ 380,032      $ 288,066      $ 971,733      $ 809,509   

Merchandise and other

     64,768        65,998        189,067        186,873   
                                

Total Net Sales

     444,800        354,064        1,160,800        996,382   

Costs of goods sold

     406,067        319,512        1,065,794        899,131   

Selling, general and administrative expenses

     33,275        32,250        97,073        94,608   

Depreciation and amortization expenses

     1,380        1,314        4,207        3,976   
                                

Segment Operating (Loss) Income

   $ 4,078      $ 988      $ (6,274   $ (1,333
                                

Retail Operating Data:

        

Petroleum sales (thousands of gallons)

     99,042        98,424        292,543        289,850   

Petroleum margin (a)

   $ 22,257      $ 17,804      $ 47,032      $ 50,012   

Petroleum margin ($/gallon) (b)

     .2247        .1809        .1608        .1725   

Merchandise and other margins

   $ 16,476      $ 16,750      $ 47,974      $ 47,239   

Merchandise margin (percent of sales)

     25.4     25.4     25.4     25.3

 

(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 May 31, 2011 and 2010

 

Net Sales

 

Retail sales increased during the fiscal quarter ended May 31, 2011 by $90.7 million or 25.6% for the comparable period in fiscal 2010 from $354.1 million to $444.8 million. The increase was primarily due to $92.0 million in petroleum sales offset by a decrease of $1.3 million in merchandise sales. The petroleum sales increase resulted from a 31.1% increase in retail selling prices per gallon, and a .6 million gallon or .6% increase in retail petroleum volume. The merchandise sales decrease is primarily due to a decrease in beverage sales due to inclement weather and cigarette sales primarily in New York State as a result of higher taxes and selling prices.

 

Costs of Goods Sold

 

Retail costs of goods sold increased during the fiscal quarter ended May 31, 2011 by $86.6 million or 27.1% for the comparable period in fiscal 2010 from $319.5 million to $406.1 million. The increase was primarily due to $85.4 million in petroleum purchase prices, fuel tax of $2.1 million, offset by a decrease in merchandise cost of $.9 million.

 

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Table of Contents

Selling, General and Administrative Expenses

 

Retail Selling, General and Administrative (“SG&A”) expenses increased during the fiscal quarter ended May 31, 2011 by $1.0 million or 3.2% for the comparable period in fiscal 2010 from $32.3 million to $33.3 million. The increase was primarily due to payroll costs of $.2 million, credit/customer service costs of $1.1 million and legal/professional fees of $.1 million, offset by a reduction in pension/post retirement costs of $.4 million. The decrease was primarily due to changes made in pension/post retirement benefits. Effective September 1, 2010, postretirement medical benefits for new hires and active salaried employees retiring after September 1, 2010 were eliminated. Additionally, effective January 1, 2011, deductibles and co-payments were added to the medical benefits plan for all plan participants. For salaried employees meeting certain age and service requirements, the Company will contribute a defined dollar amount towards the cost of retiree healthcare based upon the employee’s length of service. Similarly, effective September 1, 2010, benefits under the Company’s defined benefit pension plan were frozen for all salaried employees, including the Company’s Chief Executive Officer and Chief Financial Officer. The Company will provide an enhanced contribution under its defined contribution 401(k) plan for all eligible employees as well as a transition contribution for older employees.

 

Comparison of Nine Months Ended May 31, 2011 and 2010

 

Net Sales

 

Retail sales increased during the nine months ended May 31, 2011 by $164.4 million or 16.5% for the comparable period in fiscal 2010 from $996.4 million to $1,160.8 million. The increase was primarily due to $162.2 million in petroleum sales, and $2.2 million in merchandise sales. The petroleum sales increase resulted from an 18.9% increase in retail selling prices per gallon and a 2.7 million gallon or .9% increase in sales volume. The merchandise sales increase is primarily due to increased prepared food, beverages and increased selling prices.

 

Costs of Goods Sold

 

Retail costs of goods sold increased during the nine months ended May 31, 2011 by $166.7 million or 18.5% for the comparable period in fiscal 2010 from $899.1 million to $1,065.8 million. The increase was primarily due to $160.0 million in petroleum purchase prices, merchandise costs of $1.6 million, fuel taxes of $4.1 million and freight costs of $1.0 million. This increase in petroleum purchase prices resulted in lower petroleum retail margins, which is typical in a rising market when retail pricing does not keep pace with the rising market.

 

Selling, General and Administrative Expenses

 

Retail SG&A expenses increased during the nine months ended May 31, 2011 by $2.5 million or 2.6% for the comparable period in fiscal 2010 from $94.6 million to $97.1 million. The increase was due to payroll costs of $1.1 million, credit/customer service costs of $1.9 million, insurance/utilities/taxes of $.4 million and maintenance costs of $.3 million offset by a reduction in pension/post retirement costs of $1.2 million. The decrease was primarily due to changes made in pension/post retirement benefits, as discussed above.

 

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Table of Contents

Wholesale Operations:

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
     2011      2010     2011      2010  
     (dollars in thousands)  

Net Sales (a)

   $ 363,315       $ 351,258      $ 958,741       $ 924,614   

Costs of goods sold (exclusive of depreciation and amortization)

     330,901         355,129        891,852         963,472   

Selling, general and administrative expenses

     4,237         4,941        13,044         17,026   

Depreciation and amortization expenses

     3,876         4,153        12,036         12,459   
                                  

Segment Operating (Loss) Income

   $ 24,301       $ (12,965   $ 41,809       $ (68,343
                                  

 

Key Wholesale Operating Statistics:

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
     2011     2010     2011     2010  

Refinery Product Yield (thousands of barrels)

        

Gasoline and gasoline blendstock

     1,774        2,400        5,724        6,909   

Distillates

     975        1,341        3,322        3,585   

Asphalt

     1,323        1,628        3,443        4,709   

Butane, propane, residual products, internally produced fuel and other (“Other”)

     411        597        1,718        1,678   
                                

Total Product Yield

     4,483        5,966        14,207        16,881   
                                

% Heavy Crude Oil of Total Refinery Throughout (b)

     60     58     49     60

Crude throughput (thousand barrels per day)

     46.6        60.5        47.7        57.8   
                                

Product Sales (thousand of barrels) (a)

        

Gasoline and gasoline blendstock

     1,277        1,482        3,711        4,014   

Distillates

     727        1,115        2,619        2,807   

Asphalt

     1,215        1,416        3,284        4,647   

Other

     123        253        441        799   
                                

Total Product Sales Volume

     3,342        4,266        10,055        12,267   
                                

Product Sales (dollars in thousands) (a)

        

Gasoline and gasoline blendstock

   $ 164,048      $ 132,501      $ 402,431      $ 342,812   

Distillates

     99,469        103,939        302,020        247,570   

Asphalt

     91,412        102,224        228,847        294,099   

Other

     8,386        12,594        25,443        40,133   
                                

Total Product Sales

   $ 363,315      $ 351,258      $ 958,741      $ 924,614   
                                

 

(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 May 31, 2011 and 2010

 

During the three months ended May 31, 2011 the refinery incurred a 21 day scheduled maintenance turnaround. Refinery crude throughput decreased by 13.9 thousand barrels per day (bpd) or 23.2% for the comparable period in fiscal 2010 from 60.0 bpd to 46.6 bpd. Refinery product yields decreased 1.5 thousand barrels or 24.9% from 6.0 to 4.5 thousand barrels during the same comparable period.

 

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Net Sales

 

Wholesale sales increased during the three months ended May 31, 2011 by $12.1 million or 3.4% for the comparable period in fiscal 2010 from $351.2 million to $363.3 million. The increase was due to a 32.08% increase in wholesale prices offset by a 21.7% decrease in wholesale volume.

 

Costs of Goods Sold (exclusive of depreciation and amortization)

 

Wholesale costs of goods sold decreased during the three months ended May 31, 2011 by $24.2 million or 6.8% for the comparable period in fiscal 2010 from $355.1 million to $330.9 million. The decrease in wholesale costs of goods sold during this period was primarily due to a decrease in cost of raw materials.

 

Selling, General and Administrative Expenses

 

Wholesale SG&A expenses decreased during the three months ended May 31, 2011 by $.7 million or 14.2% for the comparable period in fiscal 2010 from $4.9 million or 1.4% of net wholesale sales to $4.2 million or 1.2% of net wholesale sales. The decrease was primarily due to changes made in pension/post retirement benefits, as discussed above.

 

Comparison of Nine Months Ended May 31, 2011 and 2010

 

During the first and second fiscal quarters of 2011, wholesale sales were negatively affected by the Enbridge Pipeline disruption and the 30-day scheduled refinery maintenance turnaround in October 2010. These two events resulted in the Company running an average crude throughput of 40,500 bbl per day for the first fiscal quarter 2011 versus 56,500 bbl per day for the comparable period in fiscal 2010. The average crude throughput for the second quarter of fiscal year 2011 was 55,900 bbl per day as compared to 56,500 bbl per day for the second quarter of fiscal year 2010. The Enbridge Pipeline disruption also resulted in the Company running 22% of heavy crude oil for the first fiscal quarter of 2011 versus 61% for the comparable period in fiscal 2010. Heavy crude oil usage for the second quarter of fiscal year 2011 was 60%, the same percentage as the comparable period in fiscal year 2010. The Company experienced no material effects in the third quarter of fiscal year 2011 as a result of the Enbridge Pipeline disruption.

 

Net Sales

 

Wholesale sales increased during the nine months ended May 31, 2011 by $34.1 million or 3.7% for the comparable period in fiscal 2010 from $924.6 million to $958.7 million. The increase was due to a 26.5% increase in wholesale prices offset by a 18.0% decrease in wholesale volume.

 

Costs of Goods Sold (exclusive of depreciation and amortization)

 

Wholesale costs of goods sold decreased during the nine months ended May 31, 2011 by $71.6 million or 7.4% for the comparable period in fiscal 2010 from $963.5 million to $891.9 million. The decrease in wholesale costs of goods sold was primarily due to a decrease in the costs of product purchased and refinery expenses.

 

Selling, General and Administrative Expenses

 

Wholesale SG&A expenses decreased during the nine months ended May 31, 2011 by $4.0 million or 23.4% for the comparable period in fiscal 2010 from $17.0 million or 1.8% of net wholesale sales to $13.0 million or 1.4% of net wholesale sales. The decrease was primarily due to changes made in pension/post retirement benefits, as discussed above.

 

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Consolidated Expenses:

 

Interest Expense, net

 

Net interest expense (interest expense less interest income) for the three months ended May 31, 2011 increased $2.8 million or 30.9% for the comparable period in fiscal 2010 from $9.0 million to $11.8 million. The increase was primarily due to the Company concurrently accruing interest expense on the new issue of First Priority Senior Secured Notes due 2018 from the issue date of March 5, 2011 until the final redemption of the Senior Notes due 2012 on April 7, 2011.

 

Net interest expense (interest expense less interest income) for the nine months ended May 31, 2011 increased $3.4 million or 13.0% for the comparable period in fiscal 2010 from $26.2 million to $29.6 million. The increase was primarily due to the Company concurrently accruing interest expense on the new issue of First Priority Senior Secured Notes due 2018 from the issue date of March 5, 2011 until the final redemption of the Senior Notes due 2012 on April 7, 2011.

 

Income Tax Expense / (Benefit)

 

The Company’s effective tax rate for the three months ended May 31, 2011 and 2010 was approximately 36% and 22% respectively and for the nine month periods was approximately 38% and 37% respectively.

 

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):

 

     May 31, 2011  

Cash and cash equivalents

   $ 27,710   

Working capital

   $ 277,989   

Current ratio

     3.4   

Debt

   $ 469,240   

 

Primary sources of liquidity have been cash and cash equivalents, 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.

 

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     Nine Months Ended
May 31, 2011
 
     (in millions)  

Significant uses of cash

  

Investing activities:

  

Additions to deferred turnaround costs

   $ (14.7

Property, plant and equipment

  

Other general capital items (tank repairs, refinery piping, etc)

     (10.1

Retail maintenance (blacktop, roof, HVAC, rehab)

     (2.0

Environmental

     (1.9

Computers and equipment upgrade

     (1.4

Retail petroleum upgrade

     (.6

State and federal mandates:

  

Renewable fuels

     (4.0

Reduction of benzene and gasoline

     (3.1
        

Total property, plant and equipment

   $ (23.1
        

Net cash used in investing activities

   $ (37.8
        

Financing activities:

  

Net proceeds from issuance of long term debt

   $ 352.0   

Net borrowings on revolving credit facility

     29.9   

Proceeds from issuance of common stock of non-controlling interest

     15.0   

Principal reductions of long term debt

     (324.8

Deferred financing costs

     (10.5
        

Net cash provided by financing activities

   $ 61.6   
        

Working capital items:

  

Refundable income taxes

   $ 36.4   

Accrued liabilities decrease

     7.2   

Decrease in inventory

     6.7   

Income taxes payable decrease

     2.6   

Amounts due from affiliated companies, net

     1.0   

Sales, use and fuel taxes payable increase

     .5   

Accounts receivable increase

     (59.0

Prepaid expense increase

     (14.8

Accounts payable decrease

     (10.6
        

Cash provided by working capital items

   $ (30.0
        

 

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 2011.

 

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 Amended and Restated Revolving Credit Facility is $175,000,000. This provides the Company with flexibility relative to its cash flow requirements in light of market fluctuations, particularly involving crude oil prices and seasonal business cycles

 

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and will assist the Company in meeting its working capital, ongoing capital expenditure needs and for general corporate purposes. The agreement expires on May 18, 2016. Under the Amended and Restated Revolving Credit Facility, the applicable margin is calculated on the average unused availability as follows: (a) for base rate borrowing, at the greater of the Agent Bank’s prime rate the Federal Funds Open Rate plus 1.5%; or the Daily LIBOR rate plus 3%; plus an applicable margin of 0% to .5%; (b) for euro-rate based borrowings, at the LIBOR Rate plus an applicable margin of 2.75% to 3.25%. The Agent Bank’s prime rate at May 31, 2011 was 3.25%.

 

The Amended and Restated 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 standby letters of credit of $4.4 million as of May 31, 2011 and there were outstanding borrowings under the Amended and Restated Revolving Credit Facility in the amount of $102.0 million resulting in net availability of $68.6 million. As of July 7, 2011 there was $96.0 million outstanding on the $175 million Amended and Restated Revolving Credit Facility and standby letters of credit in the amount of $4.4 million, resulting in a net availability of $74.6 million and the Company had full access to it. The Company’s working capital ratio was 3.4 as of May 31, 2011.

 

On January 14, 2011, we entered into an Asphalt Purchase and Sale Agreement and Asphalt Product Throughput and Terminal Services Agreement (together, the “Asphalt Agreements”) with United Refining Asphalt, Inc. (“URA”), a special purpose entity formed by United Refining, Inc. (our “Parent”) in connection with the Asphalt Agreements, under the terms of which, we may sell asphalt to URA during the winter months at such times and in such amounts as may be mutually agreed by the parties, and are required to provide storage and related services until such asphalt is resold and delivered to third parties during the summer months. URA received financing for up to $30 million in purchases under the agreements, and was capitalized with $15 million in cash by our Parent.

 

We have determined that URA meets the definition of a variable interest entity and, in connection with the Asphalt Agreements, the Company is the primary beneficiary. Therefore we are required to treat URA similar to a consolidated subsidiary for financial reporting purposes. As a result, we have consolidated the financial results of URA, including its entire balance sheet with the shareholder’s equity of URA displayed as a component of equity (noncontrolling interest) and its entire income statement (after intercompany eliminations). The net income (loss) of URA will not increase (or decrease) our net income, but rather will be included in our equity section as an increase (or decrease) to noncontrolling interest.

 

The URA credit facility with Bank of America, N.A., acting as the Agent bank (“Agent Bank”) is secured by URA’s cash accounts, accounts receivable and inventory. The applicable margin under this facility is; (a) for base rate borrowings the Agent Bank’s prime rate plus an applicable margin of 2.75%; (b) for euro-rate based borrowings, at the LIBOR Rate plus an applicable margin of 3.75%. The Agent Bank’s prime rate at May 31, 2011 was 3.25%. The $30 million facility is due to expire September 30, 2011.

 

As of June 14, 2011 the URA credit facility was paid in full. As of June 21, 2011 the $15.0 million advance from URA’s parent URI was paid in full, all URA inventory was liquidated and all URA sales were complete. URA has terminated its credit facility, as of the close of business on June 28, 2011.

 

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

 

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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 Amended and Restated Revolving Credit Facility to finance a portion of its operations. As of July 7, 2011, there was $96.0 million outstanding under the Amended and Restated Revolving Credit Facility. 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.

 

From time to time, the Company uses derivatives to reduce its exposure to fluctuations in crude oil purchase costs and refining margins. Derivative products, specifically crude oil option contracts and crack spread option contracts are used to hedge the volatility of these items. The Company accounts for changes in the fair value of its contracts by marking them to market and recognizing any resulting gains or losses in its Statement of Operations.

 

During the quarter ended May 31, 2011, the Company had 5,250,000 barrels of heating oil and gasoline crackspread swaps outstanding as part of its risk management strategy. The crackspread swaps expire sequentially beginning June 2011 through December 2012. These derivative instruments are being used by the Company to lock in margins on future sales of diesel fuel and gasoline. See Footnote 2, in the Company’s Consolidated Financial Statements.

 

Item 4.

Controls and Procedures.

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of May 31, 2011. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives

 

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and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of May 31, 2011, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

There have not been any changes in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended May 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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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, 2010 and in the Form 10-Q for the quarter ended February 28, 2011.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.

Defaults Upon Senior Securities.

 

None.

 

Item 4.

(Removed and Reserved).

 

Item 5.

Other Information.

 

None.

 

Item 6.

Exhibits.

 

Exhibit 4.1*

  

Supplemental Indenture, dated as of March 8, 2011, between the Company, the Subsidiary Guarantors and The Bank of New York Mellon (f/k/a The Bank of New York), as trustee.

Exhibit 4.2**

  

Indenture, dated as of March 8, 2011, between the Company, the Subsidiary Guarantors and The Bank of New York Mellon Trust Company, N.A., as Trustee.

Exhibit 10.1*

  

Security Agreement, dated as of March 8, 2011, between the Company and The Bank of New York Mellon Trust Company, N.A., as Collateral Agent.

Exhibit 10.2*

  

Intercreditor Agreement dated as of March 8, 2011, The Bank of New York Mellon Trust Company, N.A., as Collateral Agent, PNC, Bank National Association, as Agent, the Company, United Refining Company of Pennsylvania, Kiantone Pipeline Corporation, Country Fair, Inc., and Kwik-Fill Corporation.

Exhibit 10.3*

  

Open-End Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as of March 8, 2011, between the Company and The Bank of New York Mellon Trust Company, N.A., as Collateral Agent.

Exhibit 10.4***

  

Amended and Restated Credit Agreement, dated May 18, 2011, by and among United Refining Company, United Refining Company of Pennsylvania, Kiantone Pipeline Corporation, Country Fair, Inc., the lenders party thereto, PNC Capital Markets LLC and Merrill Lynch, Pierce, Fenner & Smith Inc., as Co-Lead Arrangers and Joint Bookrunners, PNC Bank, National Association, as Administrative Agent and Bank of America, N.A., as Documentation Agent.

 

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

 

*

Incorporated by reference to the Company’s Current Report on Form 8-K (dated March 8, 2011), filed on March 11, 2011

**

Incorporated by reference to the Company’s Current Report on Form 8-K/A (dated March 8, 2011), filed on March 22, 2011

***

Incorporated by reference to the Company’s Registration Statement of Form S-4, as amended on May 19, 2011

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

UNITED REFINING COMPANY

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

KIANTONE PIPELINE CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

UNITED REFINING COMPANY OF

PENNSYLVANIA

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

KIANTONE PIPELINE COMPANY

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

UNITED JET CENTER, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

KWIK-FILL CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

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

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

BELL OIL CORP.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

PPC, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

SUPER TEST PETROLEUM, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

KWIK-FIL, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

VULCAN ASPHALT REFINING CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

 

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SIGNATURES

 

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

 

Date: July 8, 2011

 

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

 

43