United Refining 10-Q 2005 Q3 Quarterly report

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, 2005

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. 333-35083

^{UNITED REFINING COMPANY}

(Exact name of registrant as specified in its charter)

Pennsylvania	25-1411751
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
15 Bradley Street Warren, Pennsylvania	16365
(address of principal executive office)	(Zip Code)

814-726-4674

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Number of shares outstanding of Registrant’s Common Stock as of July 14, 2005: 100.

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

		PAGE(S)
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets – May 31, 2005 (unaudited) and August 31, 2004	4
	Consolidated Statements of Operations – Quarters and Nine Months Ended May 31, 2005 and 2004 (as restated) (unaudited)	5
	Consolidated Statements of Cash Flows – Nine Months Ended May 31, 2005 and 2004 (as restated) (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION	25
Item 1.	Legal Proceedings (None)	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds (None)	25
Item 3.	Defaults Upon Senior Securities (None)	25
Item 4.	Submission of Matters to a Vote of Security Holders (N/A)	25
Item 5.	Other Information (None)	25
Item 6.	Exhibits	25

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

3

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	May 31, 2005 (Unaudited)			August 31, 2004
Assets
Current:
Cash and cash equivalents	$	24,761		$	11,552
Accounts receivable, net		51,894			44,596
Inventories		115,314			75,623
Prepaid expenses and other assets		32,158			16,476
Total current assets		224,127			148,247
Property, plant and equipment, net		182,565			184,705
Investment in affiliated company		1,319			846
Deferred financing costs, net		7,045			6,723
Goodwill		1,349			1,349
Tradename		10,500			10,500
Amortizable intangible assets, net		3,620			3,874
Deferred turnaround costs and other assets, net		8,872			10,138
Deferred income taxes		48			—
	$	439,445		$	366,382
Liabilities and Stockholder’s Equity
Current:
Revolving credit facility	$	35,000		$	13,000
Current installments of long-term debt		387			452
Accounts payable		55,711			28,732
Accrued liabilities		18,900			16,300
Income tax payable		—			795
Sales, use and fuel taxes payable		19,514			19,466
Deferred income taxes		3,919			3,919
Amounts due to affiliated companies, net		227			132
Total current liabilities		133,658			82,796
Long term debt: less current installments		224,907			199,496
Deferred income taxes		—			1,898
Deferred gain on settlement of pension plan obligations		754			915
Deferred retirement benefits		35,642			32,402
Other noncurrent liabilities		1,463			1,769
Total liabilities		396,424			319,276
Commitments and contingencies
Stockholder’s equity:
Common stock; $.10 par value per share – shares authorized 100; issued and outstanding 100		—			—
Additional paid-in capital		16,648			16,648
Retained earnings		28,677			32,762
Accumulated other comprehensive loss		(2,304	)		(2,304	)
Total stockholder’s equity		43,021			47,106
	$	439,445		$	366,382

4

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS—(Unaudited)

(in thousands)

	Three Months Ended May 31,						Nine Months Ended May 31,
	2005			2004 (As Restated see Note 2)			2005			2004 (As Restated see Note 2)
Net sales	$	479,548		$	374,320		$	1,290,390		$	1,032,100
Costs of goods sold		426,813			330,022			1,177,707			909,670
Gross profit		52,735			44,298			112,683			122,430
Expenses:
Selling, general and administrative expenses		30,343			27,540			87,051			82,474
Depreciation and amortization expenses		3,348			3,211			10,033			9,618
Total operating expenses		33,691			30,751			97,084			92,092
Operating income		19,044			13,547			15,599			30,338
Other income (expense):
Interest expense, net		(6,638	)		(5,478	)		(18,292	)		(15,947	)
Other, net		(639	)		(283	)		(1,673	)		(1,325	)
Equity in net earnings (loss) of affiliate		(195	)		67			473			578
		(7,472	)		(5,694	)		(19,492	)		(16,694	)
Income (loss) before income tax expense (benefit)		11,572			7,853			(3,893	)		13,644
Income tax expense (benefit)		4,627			3,161			(1,551	)		5,494
Net income (loss)	$	6,945		$	4,692		$	(2,342	)	$	8,150

5

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Unaudited)

(in thousands)

	Nine Months Ended May 31,
	2005			2004 (As Restated see Note 2)
Cash flows from operating activities:
Net income (loss)	$	(2,342	)	$	8,150
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		13,003			12,484
Equity in net earnings of affiliate		(473	)		(578	)
Deferred income taxes		(1,946	)		4,092
Loss on asset dispositions		818			94
Cash used in working capital items		(33,744	)		(33,954	)
Change in operating assets and liabilities:
Deferred retirement benefits		3,240			480
Other assets		(185	)		(64	)
Other noncurrent liabilities		(306	)		261
Total adjustments		(19,593	)		(17,185	)
Net cash used in operating activities		(21,935	)		(9,035	)
Cash flows from investing activities:
Distribution from affiliated company		—			400
Additions to property, plant and equipment		(8,268	)		(6,593	)
Additions to deferred turnaround costs		(885	)		(3,696	)
Net cash used in investing activities		(9,153	)		(9,889	)
Cash flows from financing activities:
Net borrowings on revolving credit facility		22,000			26,500
Proceeds from issuance of long term debt		25,750			—
Dividend to stockholder		(1,743	)		—
Principal reductions of long-term debt		(623	)		(596	)
Deferred financing costs		(1,087	)		(498	)
Net cash provided by financing activities		44,297			25,406
Net increase in cash and cash equivalents		13,209			6,482
Cash and cash equivalents, beginning of year		11,552			13,819
Cash and cash equivalents, end of period	$	24,761		$	20,301
Cash used in working capital items:
Accounts receivable, net	$	(7,298	)	$	(617	)
Inventories		(39,691	)		(41,940	)
Prepaid expenses and other assets		(15,682	)		(5,483	)
Accounts payable		26,979			4,880
Accrued liabilities		2,600			6,904
Income taxes payable		(795	)		729
Sales, use and fuel taxes payable		48			638
Amounts due to affiliated companies, net		95			935
Total change	$	(33,744	)	$	(33,954	)
Cash paid during the period for:
Interest	$	12,618		$	11,156
Income taxes	$	1,849		$	1,192

6

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

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

The Company is a petroleum refiner and marketer in its primary market area of Western New York and Northwestern Pennsylvania. Operations are organized into two business segments: wholesale and retail.

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

The Company is a wholly-owned subsidiary of United Refining, Inc., a wholly-owned subsidiary of United Acquisition Corporation, 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, 2005 are not necessarily indicative of the results that may be expected for the year ending August 31, 2005. 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, 2004.

2. Restatement of Financial Statements

During the quarter ended February 28, 2005 the Company’s management reviewed its application of generally accepted accounting principles for inventory pricing. The Company has decided to restate its previously issued financial statements for the three and nine month periods ended May 31, 2004.

Historically, on an interim basis, the Company has recorded a portion of its refined product inventories at net realizable value, reduced by the LIFO Reserve. The Company has restated its financial statements to record all refined product inventories using the first-in first-out cost (FIFO), reduced by the LIFO reserve. The resulting restatements have no impact on cash flows. The following is a summary of the impact of the Restatement on the Company’s Statements of Operations for the periods affected (all amounts in thousands).

	Three Months Ended May 31, 2004
	As Previously Reported			Restatement Adjustments			As Restated
Net sales	$	374,320		$			$	374,320
Costs of goods sold		325,894			4,128			330,022
Gross profit		48,426			(4,128	)		44,298
Operating expenses		30,751						30,751
Operating income		17,675			(4,128	)		13,547
Other expenses		(5,694	)					(5,694	)
Income before income tax expense		11,981			(4,128	)		7,853
Income tax expense		4,823			(1,662	)		3,161
Net income	$	7,158		$	(2,466	)	$	4,692

7

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	Nine Months Ended May 31, 2004
	As Previously Reported			Restatement Adjustments			As Restated
Net sales	$	1,032,100		$			$	1,032,100
Costs of goods sold		902,986			6,684			909,670
Gross profit		129,114			(6,684	)		122,430
Operating expenses		92,092						92,092
Operating income		37,022			(6,684	)		30,338
Other expenses		(16,694	)					(16,694	)
Income before income tax expense		20,328			(6,684	)		13,644
Income tax expense		8,186			(2,692	)		5,494
Net income	$	12,142		$	(3,992	)	$	8,150

3. Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standard Board (FASB) issued Statement No. 151, “Inventory Costs” (“Statement 151”). Statement 151 amends prior guidelines for inventory pricing by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) be recognized as current period charges regardless of magnitude. In addition, Statement 151 requires that the allocation of fixed production overhead costs to the costs of conversion be based on the normal capacity of the production facilities.

The provisions of Statement 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of Statement 151 will have a material effect on its financial position or results of operations.

In December 2004, the FASB issued Statement No 153, “Exchange of Nonmonetary Assets” (“Statement 153”). Statement 153 eliminates prior guidance for nonmonetary transactions by eliminating the exception for nonmonetary exchanges of similar production assets and replaces it with a general exception for exchange of nonmonetary assets lacking commercial substance.

The provisions of Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of Statement 153 will have a material effect on its financial position or results of operations.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligation” (“Interpretation 47”). Interpretation 47 clarifies that the term conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional as a future event that may or may not be within the contract of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) methods of settlement. Thus, the timing and (or) method of settlement may be conditional as a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Interpretation 47 specifies when a liability is incurred; generally upon acquisition, construction, or development of the asset.

Interpretation 47 is effective for fiscal years ending after December 15, 2005. The Company is currently evaluating the possible impact of Interpretation 47 on its financial position or its results of operations.

8

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections” (“Statement 154”). Statement 154 requires companies to recognize changes in accounting principle, including changes required by a new accounting pronouncement when the pronouncement does not include specific transition provisions, retrospectively to prior periods’ financial statements.

Statement 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not believe that the adoption of Statement 154 will have a material effect on its financial position or results of operations.

4. Inventories

As of May 31, 2005 and August 31, 2004, the replacement cost of LIFO inventories exceeded their LIFO carrying values by approximately $21,706,000 and $19,515,000, respectively. The May 31, 2005 LIFO calculation was computed using quantities and prices which are not necessarily indicative of the actual quantities and prices which will exist at fiscal year-end. Due to anticipated decreases in inventory levels and the many factors which enter into the LIFO calculation which are beyond management’s control, it is the policy of the Company to record the LIFO inventory adjustment only at fiscal year-end.

9

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

5. Subsidiary Guarantors

Certain of United Refining Company’s (the “issuer”) subsidiaries function as guarantors under the terms of the $225,000,000 Senior Unsecured Note Indenture due August 15, 2012. Financial information for the issuer and its wholly owned subsidiary guarantors is as follows:

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	May 31, 2005												August 31, 2004
	Issuer			Guarantors			Eliminations			Consolidated			Issuer			Guarantors			Eliminations			Consolidated
Assets
Current:
Cash and cash equivalents	$	13,794		$	10,967		$	—		$	24,761		$	4,709		$	6,843		$	—		$	11,552
Accounts receivable, net		36,583			15,311			—			51,894			33,459			11,137			—			44,596
Inventories		93,175			22,139			—			115,314			54,481			21,142			—			75,623
Prepaid expenses and other assets		25,571			6,587			—			32,158			12,090			4,386			—			16,476
Intercompany		102,786			18,918			(121,704	)		—			87,468			19,223			(106,691	)		—
Total current assets		271,909			73,922			(121,704	)		224,127			192,207			62,731			(106,691	)		148,247
Property, plant and equipment, net		113,234			69,331			—			182,565			115,363			69,342			—			184,705
Investment in affiliated company		1,319			—			—			1,319			846			—			—			846
Deferred financing costs, net		7,045			—			—			7,045			6,723			—			—			6,723
Goodwill and other non-amortizable assets		—			11,849			—			11,849			—			11,849			—			11,849
Amortizable intangible assets, net		—			3,620			—			3,620			—			3,874			—			3,874
Deferred turnaround costs & other assets, net		8,357			1,686			(1,171	)		8,872			9,462			1,847			(1,171	)		10,138
Deferred income taxes		48			—			—			48			—			—			—			—
	$	401,912		$	160,408		$	(122,875	)	$	439,445		$	324,601		$	149,643		$	(107,862	)	$	366,382
Liabilities and Stockholder’s Equity
Current:
Revolving credit facility	$	35,000		$	—		$	—		$	35,000		$	13,000		$	—		$	—		$	13,000
Current installments of long-term debt		(76	)		463			—			387			(181	)		633			—			452
Accounts payable		42,063			13,648			—			55,711			14,530			14,202			—			28,732
Accrued liabilities		14,237			4,663			—			18,900			11,100			5,200			—			16,300
Income taxes payable		—			—			—			—			958			(163	)		—			795
Sales, use and fuel taxes payable		15,998			3,516			—			19,514			16,217			3,249			—			19,466
Deferred income taxes		4,363			(444	)		—			3,919			4,363			(444	)		—			3,919
Amounts due to affiliated companies, net		(481	)		708			—			227			(206	)		338			—			132
Intercompany		—			121,704			(121,704	)		—			—			106,691			(106,691	)		—
Total current liabilities		111,104			144,258			(121,704	)		133,658			59,781			129,706			(106,691	)		82,796
Long term debt: less current installments		223,822			1,085			—			224,907			198,076			1,420			—			199,496
Deferred income taxes		(3,619	)		3,619			—			—			(1,845	)		3,743			—			1,898
Deferred gain on settlement of pension plan obligations		754			—			—			754			915			—			—			915
Deferred retirement benefits		34,522			1,120			—			35,642			31,236			1,166			—			32,402
Other noncurrent liabilities		—			1,463			—			1,463			—			1,769			—			1,769
Total liabilities		366,583			151,545			(121,704	)		396,424			288,163			137,804			(106,691	)		319,276
Commitment and contingencies
Stockholder’s equity
Common stock, $.10 par value per share—shares authorized 100; issued and outstanding 100		—			18			(18	)		—			—			18			(18	)		—
Additional paid-in capital		7,150			10,651			(1,153	)		16,648			7,150			10,651			(1,153	)		16,648
Retained earnings		30,427			(1,750	)		—			28,677			31,536			1,226			—			32,762
Accumulated other comprehensive loss		(2,248	)		(56	)		—			(2,304	)		(2,248	)		(56	)		—			(2,304	)
Total stockholder’s equity		35,329			8,863			(1,171	)		43,021			36,438			11,839			(1,171	)		47,106
	$	401,912		$	160,408		$	(122,875	)	$	439,445		$	324,601		$	149,643		$	(107,862	)	$	366,382

10

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

	Three Months Ended May 31, 2005												Three Months Ended May 31, 2004 (As Restated see Note 2)
	Issuer			Guarantors			Eliminations			Consolidated			Issuer			Guarantors			Eliminations			Consolidated
Net sales	$	341,477		$	234,328		$	(96,257	)	$	479,548		$	249,091		$	203,124		$	(77,895	)	$	374,320
Costs of goods sold		313,641			209,429			(96,257	)		426,813			228,939			178,978			(77,895	)		330,022
Gross profit (loss)		27,836			24,899			—			52,735			20,152			24,146			—			44,298
Expenses:
Selling, general and administrative expenses		5,632			24,711			—			30,343			3,947			23,593			—			27,540
Depreciation and amortization expenses		2,218			1,130			—			3,348			2,144			1,067			—			3,211
Total operating expenses		7,850			25,841			—			33,691			6,091			24,660			—			30,751
Operating income (loss)		19,986			(942	)		—			19,044			14,061			(514	)		—			13,547
Other income (expense):
Interest expense, net		(4,982	)		(1,656	)		—			(6,638	)		(4,455	)		(1,023	)		—			(5,478	)
Other, net		(598	)		(41	)		—			(639	)		(418	)		135			—			(283	)
Equity in net earnings (loss) of affiliate		(195	)		—			—			(195	)		67			—			—			67
		(5,775	)		(1,697	)		—			(7,472	)		(4,806	)		(888	)		—			(5,694	)
Income (loss) before income tax expense (benefit)		14,211			(2,639	)		—			11,572			9,255			(1,402	)		—			7,853
Income tax expense (benefit)		5,646			(1,019	)		—			4,627			3,639			(478	)		—			3,161
Net income (loss)	$	8,565		$	(1,620	)	$	—		$	6,945		$	5,616		$	(924	)	$	—		$	4,692

11

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

	Nine Months Ended May 31, 2005												Nine Months Ended May 31, 2004 (As Restated see Note 2)
	Issuer			Guarantors			Eliminations			Consolidated			Issuer			Guarantors			Eliminations			Consolidated
Net sales	$	895,382		$	652,432		$	(257,424	)	$	1,290,390		$	669,535		$	560,175		$	(197,610	)	$	1,032,100
Costs of goods sold		858,109			577,022			(257,424	)		1,177,707			621,764			485,516			(197,610	)		909,670
Gross profit		37,273			75,410			—			112,683			47,771			74,659			—			122,430
Expenses:
Selling, general and administrative expenses		14,503			72,548			—			87,051			12,846			69,628			—			82,474
Depreciation and amortization expenses		6,653			3,380			—			10,033			6,432			3,186			—			9,618
Total operating expenses		21,156			75,928			—			97,084			19,278			72,814			—			92,092
Operating income (loss)		16,117			(518	)		—			15,599			28,493			1,845			—			30,338
Other income (expense):
Interest expense, net		(13,968	)		(4,324	)		—			(18,292	)		(13,009	)		(2,938	)		—			(15,947	)
Other, net		(1,757	)		84			—			(1,673	)		(1,594	)		269			—			(1,325	)
Equity in net earnings of affiliate		473						—			473			578			—			—			578
		(15,252	)		(4,240	)		—			(19,492	)		(14,025	)		(2,669	)		—			(16,694	)
Income (loss) before income tax expense (benefit)		865			(4,758	)		—			(3,893	)		14,468			(824	)		—			13,644
Income tax expense (benefit)		231			(1,782	)		—			(1,551	)		5,647			(153	)		—			5,494
Net income (loss)	$	634		$	(2,976	)	$	—		$	(2,342	)	$	8,821		$	(671	)	$	—		$	8,150

12

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, 2005											Nine Months Ended May 31, 2004 (As Restated see Note 2)
	Issuer			Guarantors			Eliminations		Consolidated			Issuer			Guarantors			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(30,277	)	$	8,342		$	—	$	(21,935	)	$	(19,747	)	$	10,712		$	—	$	(9,035	)
Cash flows from investing activities:
Distribution from affiliated company		—			—			—		—			400			—					400
Additions to property, plant and equipment		(4,555	)		(3,713	)		—		(8,268	)		(4,397	)		(2,196	)		—		(6,593	)
Additions to deferred turnaround costs		(885	)		—			—		(885	)		(2,899	)		(797	)		—		(3,696	)
Net cash used in investing activities		(5,440	)		(3,713	)		—		(9,153	)		(6,896	)		(2,993	)		—		(9,889	)
Cash flows from financing activities:
Net borrowings on revolving credit facility		22,000			—			—		22,000			26,500			—			—		26,500
Proceeds from issuance of long term debt		25,750			—					25,750			—			—			—		—
Dividend to stockholder		(1,743	)		—			—		(1,743	)		—			—			—		—
Principal reductions of long-term debt		(118	)		(505	)		—		(623	)		(71	)		(525	)		—		(596	)
Deferred financing costs		(1,087	)		—			—		(1,087	)		(498	)		—			—		(498	)
Net cash provided by (used in) financing activities		44,802			(505	)		—		44,297			25,931			(525	)		—		25,406
Net increase (decrease) in cash and cash equivalents		9,085			4,124			—		13,209			(712	)		7,194			—		6,482
Cash and cash equivalents, beginning of year		4,709			6,843			—		11,552			3,383			10,436			—		13,819
Cash and cash equivalents, end of period	$	13,794		$	10,967		$	—	$	24,761		$	2,671		$	17,630		$	—	$	20,301

13

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6. Segments of Business

Intersegment revenues are calculated using estimated market prices and are eliminated upon consolidation. Summarized financial information regarding the Company’s reportable segments is presented in the following tables (in thousands):

	Three Months Ended May 31,						Nine Months Ended May 31,
	2005			2004 (As Restated see Note 2)			2005			2004 (As Restated see Note 2)
Net Sales
Retail	$	233,083		$	201,923		$	648,874		$	556,567
Wholesale		246,465			172,397			641,516			475,533
	$	479,548		$	374,320		$	1,290,390		$	1,032,100
Intersegment Sales
Wholesale	$	95,012		$	76,694		$	253,866		$	194,002
Operating Income (loss)
Retail	$	(988	)	$	(834	)	$	(673	)	$	1,239
Wholesale		20,032			14,381			16,272			29,099
	$	19,044		$	13,547		$	15,599		$	30,338
Depreciation and Amortization
Retail	$	1,080		$	1,019		$	3,230		$	3,041
Wholesale		2,268			2,192			6,803			6,577
	$	3,348		$	3,211		$	10,033		$	9,618
							May 31, 2005			August 31, 2004
Total Assets
Retail							$	133,768		$	123,069
Wholesale								305,677			243,313
							$	439,445		$	366,382
Capital Expenditures (including non-cash)
Retail							$	3,165		$	3,559
Wholesale								5,103			7,206
							$	8,268		$	10,765

14

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. Employee Benefit Plans

For the periods ended May 31, 2005 and 2004, net pension and other postretirement benefit costs were comprised of the following:

	Pension Benefits						Other Post-Retirement Benefits
	Nine Months Ended May 31,						Nine Months Ended May 31,
	2005			2004			2005		2004
				(in thousands)
Service cost	$	1,924		$	1,624		$	1,192	$	1,114
Interest cost on benefit obligation		2,871			2,601			1,838		1,858
Expected return on plan assets		(2,596	)		(2,101	)		—		—
Amortization of transition obligation		105			105			448		448
Amortization and deferral of net loss		516			471			374		405
Net periodic benefit cost	$	2,820		$	2,700		$	3,852	$	3,825

As of May 31, 2005, $3,706,000 of contributions have been made to the Company pension plans. The Company presently anticipates contributing an additional $527,000 to fund its pension plans in fiscal 2005 for a total of $4,233,000.

8. Secured Credit Facility

Effective April 19, 2005 the Company amended its secured credit facility to increase the maximum facility commitment from $75,000,000 to $100,000,000 on a permanent basis. The facility expires on May 9, 2007, and is secured by certain cash accounts, accounts receivable, and inventory. The interest rate on borrowings varies with the Company’s earnings and is based on the higher of the bank’s prime rate or Federal funds rate for base rate borrowings and the LIBOR rate for Euro-Rate borrowings.

The Company had outstanding letters of credit of $810,000 and approximately $64,190,000 unused and available on the facility as of May 31, 2005.

15

UNITED REFINING COMPANY AND SUBSIDIARIES

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 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;

16

• expansion and growth of operations;

• future projects and investments;

• future exposure to currency devaluations or exchange rate fluctuations;

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

• future operating results and financial condition; and

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

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

Recent Developments

The Company’s results for the 2005 third fiscal quarter ended May 31, 2005, benefited from improving product margins but were still subject to a continuing volatile crude market. The 2005 third fiscal quarter saw worldwide crude oil prices, as indicated by prices of crude oil contacts on the New York Mercantile Exchange (NYMEX) for delivery in the third quarter averaging $51.96/BBL, 44.6% higher than the prior year third fiscal quarter. For the third fiscal quarter, ended May 31, 2004, comparable NYMEX crude oil prices averaged $35.94/BBL. NYMEX crude oil prices for delivery in the 2005 fourth fiscal quarter, to date, are averaging approximately $56.40/BBL.

Industry-wide wholesale margins on gasoline and distillate for the 2005 third fiscal quarter versus the comparable 2004 fiscal quarter, as indicated by the difference between the prices of crude oil contacts traded on the NYMEX and the prices of NYMEX gasoline and heating oil contracts, increased 32.9% for gasoline and increased 60.0% for heating oil. Diesel prices as reported by Platts at the New York Harbor have also improved for the third fiscal quarter 2005 as compared to the third fiscal quarter 2004, increasing 55.7%. The margin increase associated with distillate is highly unusual entering the summer season. Higher margins for distillate have resulted in the refinery optimizing its production of distillate rather than producing the maximum amount of gasoline which is usually done during the summer driving season.

While margins on products have improved, the volatility of NYMEX crude oil prices continued. Prices for NYMEX crude oil contracts for delivery in June ranged from $46.80 to $52.07 during the month. Prices of NYMEX crude oil contracts for delivery in July have shown similar volatility with prices reaching a high of $60.54 on June 27^th.

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.

17

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

Retail Operations:

	Three Months Ended May 31,						Nine Months Ended May 31,
	2005			2004 (As Restated see Note 2)			2005			2004 (As Restated see Note 2)
	(dollars in thousands)
Net Sales
Petroleum	$	186,055		$	156,978		$	512,886		$	425,403
Merchandise and other		47,028			44,945			135,988			131,164
Total Net Sales		233,083			201,923			648,874			556,567
Costs of Goods Sold		208,406			178,247			574,124			482,975
Gross Profit		24,677			23,676			74,750			73,592
Operating Expenses		25,665			24,510			75,423			72,353
Segment Operating Income / (Loss)	$	(988	)	$	(834	)	$	(673	)	$	1,239
Petroleum Sales (thousands of gallons)		85,915			86,157			251,764			253,673
Gross Profit
Petroleum (a)	$	11,580		$	10,724		$	36,859		$	35,968
Merchandise and other		13,097			12,952			37,891			37,624
	$	24,677		$	23,676		$	74,750		$	73,592
Petroleum margin ($/gallon) (b)		.1348			.1245			.1464			.1418
Merchandise margin (percent of sales)		27.8	%		28.8	%		27.9	%		28.7	%

(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, 2005 and May 31, 2004

Net Sales

Retail sales increased during the fiscal quarter ended May 31, 2005 by $31.2 million or 15.4% from $201.9 million to $233.1 million over the comparable period in fiscal 2004. The retail sales increase resulted from a $29.1 million increase in petroleum sales and a $2.1 million increase in merchandise sales. The petroleum sales increase resulted from an 18.9% increase in retail selling prices per gallon, offset by a .2 million gallon or .3% decrease in retail petroleum volume. The decrease in petroleum volume was mainly attributed to a retail store being closed for remodeling during this time period. The increase in merchandise sales was due to increased promotions, increased cigarette sales and increased selling prices of certain deli items.

Costs of Goods Sold

Retail costs of goods sold increased during the fiscal quarter ended May 31, 2005 by $30.2 million or 16.9% over the comparable period in fiscal 2004 from $178.2 million to $208.4 million. The cost of gasoline increased

18

21.0%, on a per gallon basis, over the fiscal quarter ended May 31, 2004. The cost of distillates increased 55.6%, on a per gallon basis, over the prior year fiscal quarter. As a result, costs of goods sold for petroleum purchases increased $24.7 million, fuel taxes increased $3.2 million, freight costs increased $.5 million and merchandise costs increased $1.9 million.

Gross Profit

Retail gross profit increased during the fiscal quarter ended May 31, 2005 by $1.0 million or 4.2% over the comparable period in fiscal 2004. The Company increased its petroleum margins by $.9 million and merchandise margins increased by $.1 million. The increased petroleum margins were due to increased retail prices offset by a slight .2 million gallon decrease in fuel sales.

Operating Expenses

Retail operating expenses increased during the fiscal quarter ended May 31, 2005 by $1.2 million or 5.0% over the comparable period in fiscal 2004. Primarily contributing to the increases were increased payroll and payroll costs of $.3 million, increased maintenance costs of $.3 million, and increased credit/customer service costs of $.3 million.

Comparison of Nine Months Ended May 31, 2005 and May 31, 2004

Net Sales

Retail sales increased during the nine months ended May 31, 2005 by $92.3 million, or 16.6% over the comparable period in fiscal 2004 from $556.6 million to $648.9 million. The retail sales increase resulted from a $87.5 million increase in petroleum sales and a $4.8 million increase in merchandise sales. The petroleum sales increase results from a 21.5% increase in retail selling prices per gallon, offset by a 1.9 million gallon or .8% decrease in retail petroleum volume. The decrease in volume resulted from new competition and promotional pricing in certain areas of the Company’s market.

Costs of Goods Sold

Retail costs of goods sold increased during the nine months ended May 31, 2005 by $91.1 million or 18.9% from $483.0 million to $574.1 million. The cost of gasoline increased 28.9%, on a per gallon basis, over the nine months ended May 31, 2004. The cost of distillates increased 56.1%, on a per gallon basis, over the comparable nine month period. As a result, costs of goods sold for petroleum purchases increased $79.9 million. In addition, fuel taxes increased $5.9 million and merchandise costs increased $4.5 million.

Gross Profit

Retail gross profit increased during the nine months ended May 31, 2005 by $1.2 million or 1.6% over the comparable period in fiscal 2004. The Company increased its petroleum margins by $.9 million or 2.5% while merchandise margin decreased by $.3 million. The increased petroleum margins were due to increased retail selling prices offset by a slight 1.9 million gallon decrease in fuel sales.

Operating Expenses

Retail operating expenses increased during the nine months ended May 31, 2005 by $3.1 million or 4.3% over the comparable period in fiscal 2004. Primarily contributing to the increases were increased payroll and payroll costs of $.6 million, increased credit/customer service costs of $.8 million, increased rent expense of $.1 million, increased legal/professional services of $.1 million, increased pension costs of $.1 million, increased maintenance costs of $.3 million, and increased advertising costs of $.2 million.

19

Wholesale Operations:

	Three Months Ended May 31,						Nine Months Ended May 31,
	2005			2004 (As Restated see Note 2)			2005			2004 (As Restated see Note 2)
	(dollars in thousands)
Net Sales (a)	$	246,465		$	172,397		$	641,516		$	475,533
Costs of Goods Sold		218,407			151,775			603,583			426,695
Gross Profit	$	28,058			20,622		$	37,933			48,838
Operating Expenses		8,026			6,241			21,661			19,739
Segment Operating Income	$	20,032		$	14,381		$	16,272		$	29,099
Crude throughput (thousand barrels per day)		64.8			61.7			62.5			62.9
Refinery Product Yield (thousands of barrels)
	Three Months Ended May 31,						Nine Months Ended May 31,
	2005			2004			2005			2004
Gasoline and gasoline blendstock		2,559			2,233			7,449			7,532
Distillates		1,656			1,505			4,712			4,488
Asphalt		1,741			1,508			4,946			4,679
Butane, propane, residual products, internally produced fuel and other (“Other”)		611			920			1,681			2,075
Total Product Yield		6,567			6,166			18,788			18,774
% Heavy Crude Oil of Total Refinery Throughput (b)		53	%		52	%		54	%		54	%
Product Sales (dollars in thousands) (a)
	Three Months Ended May 31,						Nine Months Ended May 31,
	2005			2004			2005			2004
Gasoline and gasoline blendstock	$	98,956		$	74,520		$	254,845		$	196,413
Distillates		92,187			54,805			236,875			152,158
Asphalt		51,120			39,619			138,371			115,799
Other		4,202			3,453			11,425			11,163
	$	246,465		$	172,397		$	641,516		$	475,533

20

Product Sales (thousand of barrels) (a)
	Three Months Ended May 31,		Nine Months Ended May 31,
	2005	2004	2005	2004
Gasoline and gasoline blendstock	1,594	1,426	4,473	4,385
Distillates	1,391	1,242	3,849	3,689
Asphalt	1,986	1,750	5,351	5,160
Other	138	150	391	459
	5,109	4,568	14,064	13,693

(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, 2005 and May 31, 2004

Net Sales

Wholesale sales increased during the three months ended May 31, 2005 by $74.1 million or 43.0% over the comparable period in fiscal 2004 from $172.4 million to $246.5 million. The wholesale sales increase was due to a 27.9% increase in wholesale prices and an 11.8% increase in wholesale volume.

Costs of Goods Sold

Wholesale costs of goods sold increased during the three months ended May 31, 2005 by $66.6 million or 43.9% over the comparable period in fiscal 2004 from $151.8 million to $218.4 million. Cost of goods sold increased due to crude throughput increase of 5.0%. In addition, crude oil prices increased by 32.3% on a quarter to quarter basis.

Gross Profit

Wholesale gross profit increased $7.5 million to $28.1 million for the fiscal quarter ended May 31, 2005 from $20.6 million for fiscal quarter ended May 31, 2004. This increase was primarily due to increased product selling prices which exceeded the increase in crude costs during this period.

Operating Expenses

Operating expenses increased during the three months ended May 31, 2005 by $1.8 million over such expenses for the comparable period in fiscal 2004. For fiscal 2005, operating expenses were $8.0 million, or 3.2% of net wholesale sales, compared to $6.2 million, or 3.6% of net wholesale sales for fiscal 2004.

Comparison of Nine Months Ended May 31, 2005 and May 31, 2004

Net Sales

Wholesale sales increased during the nine months ended May 31, 2005 by $166.0 million or 34.9% over the comparable period in fiscal 2004 from $475.5 million to $641.5 million. The wholesale sales increase was due to a 31.4% increase in wholesale prices and a 2.7% increase in wholesale volume.

21

Costs of Goods Sold

Wholesale costs of goods sold increased during the nine months ended May 31, 2005 by $176.9 million or 41.4% over the comparable period in fiscal 2004 from $426.7 million to $603.6 million. The increase in wholesale costs of goods was primarily due to a 39.4% increase in the Company’s average crude oil purchase price for the nine months ended May 31, 2005 as compared to the prior year period.

Gross Profit

Wholesale gross profit decreased for the nine months ended May 31, 2005 by $10.9 million or 22.3% to $37.9 million from $48.8 million during the comparable period in fiscal 2004. This decrease was primarily due to the increase in crude oil costs.

Operating Expenses

Operating expenses increased during the nine months ended May 31, 2005 by $2.0 million over such expenses for the comparable period in fiscal 2004. For fiscal 2005, operating expenses were $21.7 million, or 3.4% of net wholesale sales, compared to $19.7 million, or 4.2% of net wholesale sales for fiscal 2004.

Consolidated Expenses:

Interest Expense, net

Net interest expense (interest expense less interest income) increased $1.1 million or 21.2% to $6.6 million for fiscal quarter ended May 31, 2005 from $5.5 million for fiscal quarter ended May 31, 2004. This increase is primarily attributed to an increase in the amount of long-term debt outstanding as of May 31, 2005 compared to May 31, 2004.

Net interest expense increased $2.3 million or 14.7% for the nine months ended May 31, 2005 as compared to the nine months ended May 31, 2004. This increase is primarily attributed to an increase in the amount of long-term debt outstanding as of May 31, 2005 compared to May 31, 2004.

Income Tax Expense / (Benefit)

For the three months ended May 31, 2005, the Company’s effective tax rate was 40.0% compared to a rate of 40.3% for the three months ended May 31, 2004. The effective tax rate for the nine months ended May 31, 2005 was approximately 39.8% compared to a rate of 40.0% for the nine months ended May 31, 2004. The decrease is primarily due to an increase in various permanent differences.

Liquidity and Capital Resources

The Company operates in an environment where its 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 the Company’s 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. For further information related to risks and other factors, see “Forward-Looking Statements” in Item 2.

22

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

	May 31, 2005		August 31, 2004
Cash and cash equivalents	$	24,761	$	11,552
Working capital	$	90,469	$	65,451
Current ratio		1.7		1.8
Debt	$	260,294	$	212,948

Primary sources of liquidity have been cash and cash equivalents, cash flows from operations and borrowing availability under a revolving line of credit. We believe available capital resources will be adequate to meet its 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. During the nine months ended May 31, 2005, significant uses of cash include $8.3 million for purchases of property, plant and equipment, $.6 million for reductions to debt, $.9 million for additions to deferred turnaround costs, $1.7 million dividend to stockholder, $1.1 million for deferred financing costs and $21.9 million used in operating activities principally for increased inventories and prepaid expenses. This use of cash was funded primarily from net borrowings of $22.0 million on the revolving credit facility and net proceeds of $25.7 million from the issuance of $25 million Senior Notes due 2012. The net effect from operating, investing and financing activities for the nine months ended May 31, 2005 was an increase of cash and cash equivalents by $13.2 million from $11.6 million as of August 31, 2004 to $24.8 million as of May 31, 2005.

The Company requires 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 $4 million annually over the last three years for the refining and marketing operations. Management may increase these maintenance and non-discretionary capital expenditures during fiscal year 2005.

Future liquidity, both short and long-term, will continue to be primarily dependent on realizing a refinery margin sufficient to cover fixed and variable expenses, including planned capital expenditures. We expect to be able to meet our working capital, capital expenditure, contractual obligations, letter of credit and debt service requirements out of cash flow from operations, cash on hand and borrowings under our revolving credit facility (the “facility”) with PNC Bank, N.A. as Agent Bank. This is a $100,000,000 revolving facility, which expires May 9, 2007. The Revolving Credit Facility is secured primarily by certain cash accounts, accounts receivable, and inventory. Until maturity, we may borrow on a borrowing base formula as set forth in the facility. For Base Rate borrowings, interest is calculated at the greater of the agent bank’s prime rate or federal fund rate plus 1%, plus an applicable margin of .25% to .75%. For Euro-Rate borrowings, interest is calculated at the LIBOR rate plus an applicable margin of 1.75% to 3.00%. The applicable margin varies with our facility leverage ratio calculation. As of May 31, 2005, $35,000,000 of Euro-Rate borrowings and no Base Rate borrowings were outstanding under the agreement. As of July 1, 2005, there were no Euro-Rate borrowings and $10,000,000 of Base Rate borrowings outstanding under the agreement.

We had outstanding letters of credit of $810,000 and approximately $64,190,000 unused and available on the facility as of May 31, 2005. As of July 1, 2005, we had outstanding letters of credit of $810,000 and approximately $89,190,000 of unused and available on the facility.

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.

23

Federal, state and local laws and regulations relating to the environment affect nearly all of our operations. As is the case with all the companies engaged in similar industries, we face significant exposure from actual or potential claims and lawsuits involving environmental matters. Future expenditures related to environmental matters cannot be reasonably quantified in many circumstances due to the uncertainties as to required remediation methods and related clean-up cost estimates. We cannot predict what additional environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not been previously applied.

Seasonal Factors

Seasonal factors affecting the Company’s business may cause variation in the prices and margins of some of the Company’s products. For example, demand for gasoline tends to be highest in spring and summer months, while demand for home heating oil and kerosene tends to be highest in winter months.

As a result, the margin on gasoline prices versus crude oil costs generally tends to increase in the spring and summer, while margins on home heating oil and kerosene tend to increase in winter.

Inflation

The effect of inflation on the Company has not been significant during the last five fiscal years.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company uses its revolving credit facility to finance a portion of its operations. These on-balance sheet financial instruments, to the extent they provide for variable rates, expose the Company to interest rate risk resulting from changes in the PNC Prime rate, the Federal Funds or LIBOR rate.

The Company has exposure to price fluctuations of crude oil and refined products. The Company does not manage the price risk related to all of its inventories of crude oil and refined products with a permanent formal hedging program, but does manage its risk exposures by managing inventory levels. At May 31, 2005 the Company was exposed to the risk of market price declines with respect to a substantial portion of its crude oil and refined product inventories.

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

ITEM 4. CONTROLS AND PROCEDURES

(a) Based on an evaluation by management of the Company’s disclosure controls and procedures (as defined in Rules 13(a) – 15(e) and 15(d) – 15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the Company’s fiscal quarter ended May 31, 2005, (the “Evaluation Date”) the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) have concluded that the Company’s disclosure controls and procedures were effective as of the Evaluation Date .

(b) There have not been any significant changes in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended May 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

(c) As described in Note 2 to the consolidated financial statements, the Company has restated its financial statements for the three and nine month periods ended May 31, 2004, and three and six month periods ended February 29, 2004 and the three months ended November 30, 2004 and 2003 in order to record all refined product inventories using the first-in first-out cost (FIFO), reduced by the LIFO reserve. Such restatement has been identified as a material weakness by the Company’s independent registered public accounting firm. Management believes the actions taken in the second quarter of fiscal 2005 have effectively addressed the issue identified by the Company’s independent registered public accounting firm.

24

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

(None)

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(None)

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

(None)

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(N/A)

ITEM 5. OTHER INFORMATION

(None)

ITEM 6. EXHIBITS

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of Chief Executive Officer 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

25

SIGNATURES

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

Date: July 14, 2005

UNITED REFINING COMPANY

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

26

SIGNATURES

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

Date: July 14, 2005

KIANTONE PIPELINE CORPORATION

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

27

SIGNATURES

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

Date: July 14, 2005

UNITED REFINING COMPANY OF PENNSYLVANIA

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

28

SIGNATURES

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

Date: July 14, 2005

KIANTONE PIPELINE COMPANY

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

29

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 14, 2005

UNITED JET CENTER, INC.

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

30

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 14, 2005

KWIK-FILL CORPORATION

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

31

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 14, 2005

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

32

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 14, 2005

BELL OIL CORP.

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

33

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 14, 2005

PPC, INC.

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

34

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 14, 2005

SUPER TEST PETROLEUM, INC.

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

35

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 14, 2005

KWIK-FIL, INC.

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

36

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 14, 2005

VULCAN ASPHALT REFINING CORPORATION

(Registrant)

/s/  Myron L. Turfitt

Myron L. Turfitt

President

/s/  James E. Murphy

James E. Murphy

Chief Financial Officer

37

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 14, 2005

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

38