United Store 10-Q 2012 Q2 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 February 29, 2012

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

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  x    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 April 16, 2012, there were 100 shares of common stock, par value $.10 per share, of the Registrant outstanding.

TABLE OF ADDITIONAL REGISTRANTS

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

2

FORM 10-Q – CONTENTS

		PAGE(S)
PART I.	FINANCIAL INFORMATION		4
Item 1.	Financial Statements		4
	Consolidated Balance Sheets – February 29, 2012 (unaudited) and August 31, 2011		4
	Consolidated Statements of Operations – Quarter and Six Months Ended February 29, 2012 and February 28, 2011 (unaudited)		5
	Consolidated Statements of Cash Flows – Six Months Ended February 29, 2012 and February 28, 2011 (unaudited)		6
	Notes to Consolidated Financial Statements (unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		25
Item 4.	Controls and Procedures		25
PART II.	OTHER INFORMATION		26
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3.	Defaults Upon Senior Securities		26
Item 4.	Mine Safety Disclosures		26
Item 5.	Other Information		26
Item 6.	Exhibits		26
Signatures			27

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	February 29, 2012 (unaudited)			August 31, 2011
Assets
Current:
Cash and cash equivalents	$	17,462		$	16,660
Accounts receivable, net		113,247			111,426
Inventories		194,425			171,880
Prepaid expenses and other assets		22,587			40,387
Deferred income taxes		—			14,458
Amounts due from affiliated companies, net		2,416			3,104
Total current assets		350,137			357,915
Property, plant and equipment, net		271,763			270,974
Deferred financing costs, net		9,308			10,148
Goodwill		1,349			1,349
Tradename		10,500			10,500
Amortizable intangible assets, net		1,217			1,270
Deferred turnaround costs and other assets, net		20,310			18,455
	$	664,584		$	670,611
Liabilities and Stockholder’s Equity
Current:
Current installments of long-term debt	$	1,088		$	978
Accounts payable		44,047			79,946
Derivative liability		5,295			55,720
Accrued liabilities		12,437			15,358
Income taxes payable		—			2,627
Sales, use and fuel taxes payable		18,337			16,637
Deferred income taxes		4,206			—
Total current liabilities		85,410			171,266
Revolving credit facility		66,000			24,000
Long term debt: less current installments		357,116			356,109
Deferred income taxes		25,469			11,353
Deferred retirement benefits		69,044			87,130
Total liabilities		603,039			649,858
Commitments and contingencies
Stockholder’s equity:
Common stock; $.10 par value per share – shares authorized 100; issued and outstanding 100		—			—
Additional paid-in capital		24,789			24,789
Retained earnings		40,913			10,112
Accumulated other comprehensive loss		(4,157	)		(14,148	)
Total stockholder’s equity		61,545			20,753
	$	664,584		$	670,611

See accompanying notes to consolidated financial statements.

4

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Statements of Operations – (Unaudited)

(in thousands)

	Three Months Ended						Six Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
Net sales	$	848,844		$	692,279		$	1,792,875		$	1,311,426
Costs and expenses:
Costs of goods sold (exclusive of depreciation, amortization and losses/(gains) on derivative contracts)		782,540			639,841			1,615,252			1,220,678
Losses/(gains) on derivative contracts (See Note 3)		11,839			—			(39,452	)		—
Selling, general and administrative expenses		37,940			36,819			78,587			72,605
Depreciation and amortization expenses		5,964			5,351			11,937			10,987
		838,283			682,011			1,666,324			1,304,270
Operating income		10,561			10,268			126,551			7,156
Other income (expense):
Interest expense, net		(10,260	)		(8,895	)		(20,513	)		(17,809	)
Other, net		(703	)		(810	)		(1,280	)		(1,391	)
		(10,963	)		(9,705	)		(21,793	)		(19,200	)
Income (loss) before income tax expense (benefit)		(402	)		563			104,758			(12,044	)
Income tax expense (benefit)		(165	)		209			42,949			(4,309	)
Net income (loss)		(237	)		354			61,809			(7,735	)
Less net income attributable to non-controlling interest		—			93			—			93
Net income (loss) attributable to United Refining Company’s Stockholder	$	(237	)	$	261		$	61,809		$	(7,828	)

See accompanying notes to consolidated financial statements.

5

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows – (Unaudited)

(in thousands)

	Six Months Ended
	February 29, 2012			February 28, 2011
Cash flows from operating activities:
Net income (loss)	$	61,809		$	(7,828	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		13,704			11,227
Unrealized gain on derivative contracts		(48,612	)		—
Deferred income taxes		25,837			1,282
Loss on asset dispositions		695			238
Cash (used in) provided by working capital items		(47,438	)		21,936
Net income attributable to non-controlling interest		—			93
Other, net		—			(4	)
Change in operating assets and liabilities:
Additions to other assets, net		(3,264	)		—
Deferred retirement benefits		(1,152	)		(1,649	)
Total adjustments		(60,230	)		33,123
Net cash provided by operating activities		1,579			25,295
Cash flows from investing activities:
Additions to property, plant and equipment		(9,955	)		(18,183	)
Additions to deferred turnaround costs		(1,261	)		(6,029	)
Proceeds from asset dispositions		7			57
Net cash used in investing activities		(11,209	)		(24,155	)
Cash flows from financing activities:
Net borrowings (reductions) on revolving credit facilities		42,000			(7,700	)
Proceeds from issuance of common stock of non-controlling interest		—			15,000
Dividend to stockholder		(31,008	)		—
Principal reductions of long term debt		(560	)		(599	)
Deferred financing costs		—			(424	)
Net cash provided by financing activities		10,432			6,277
Net increase in cash and cash equivalents		802			7,417
Cash and cash equivalents, beginning of year		16,660			17,170
Cash and cash equivalents, end of period	$	17,462		$	24,587
Cash provided by (used in) working capital items:
Accounts receivable, net	$	(1,821	)	$	(16,040	)
Derivative asset/liability		(1,813	)		—
Refundable income taxes		—			36,390
Inventories		(22,545	)		25,786
Prepaid expenses and other assets		17,800			(7,329	)
Amounts due from affiliated companies, net		688			(642	)
Accounts payable		(35,899	)		(8,657	)
Accrued liabilities		(2,921	)		(1,292	)
Income taxes payable		(2,627	)		(488	)
Sales, use and fuel taxes payable		1,700			(5,792	)
Total change	$	(47,438	)	$	21,936
Cash paid during the period for:
Interest	$	19,674		$	18,225
Income taxes	$	22,733		$	995
Non-cash investing activities:
Property additions & capital leases	$	750		$	34

See accompanying notes to consolidated financial statements.

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 operates a network of Company operated retail units under the Red Apple Food Mart^® and Country Fair^® brand names selling petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names, as well as convenience and grocery items.

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended February 29, 2012 are not necessarily indicative of the results that may be expected for the year ending August 31, 2012. 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, 2011.

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

2. Recent Accounting Pronouncements

In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance clarifies the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. This guidance will be effective for reporting periods beginning after December 15, 2011, and will be applied prospectively. We do not anticipate that the adoption of this amended guidance will have a material impact on our consolidated financial statements.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminates one of the presentation options provided by current U.S. GAAP, that is, to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective for reporting periods beginning after December 15, 2011 and will be applied retrospectively. The adoption of this guidance will not have a material impact on our consolidated financial statements.

7

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We do not anticipate that the adoption of this accounting standard update will have a material impact on our consolidated financial statements.

3. Derivative 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, historically crude oil option contracts (puts) and crackspread option contracts have been used to hedge the volatility of these items. The Company does not enter such contracts for speculative purposes. 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. The Company includes the carrying amounts of the contracts in derivative asset or derivative liability in its Consolidated Balance Sheet.

At February 29, 2012, the Company had 2,130,000 barrels of heating oil and gasoline crackspread swaps outstanding as part of its risk management strategy. This represents approximately 26.7% of the Company’s scheduled motor gasoline production through March 2012 and approximately 43.0% of scheduled distillate production through December 2012. These crackspread swap contracts expire sequentially beginning March 2012 through December 2012. These derivative instruments are being used by the Company to lock in margins on future sales by the Company of heating oil and gasoline.

The fair value and balance sheet classification of our derivative instruments at February 29, 2012 and August 31, 2011 are as follows:

	February 29, 2012
	Notional Balance		Maturity Date		Derivative Liability
	(in thousands)
Designated as hedges under ASC 815
None		—		—	$	—
Not designated as hedges under ASC 815
Heating oil and gasoline crackspread swaps		2,130 barrels		Monthly March 2012 through December 2012		5,295
Total derivative instruments		2,130 barrels			$	5,295

8

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

	August 31, 2011
	Notional Balance		Maturity Date		Derivative Liability
	(in thousands)
Designated as hedges under ASC 815
None		—		—	$	—
Not designated as hedges under ASC 815
Heating oil and gasoline crackspread swaps		4,575 barrels		Monthly September 2011 through December 2012		55,720
Total derivative instruments		4,575 barrels			$	55,720

During the three months ended February 29, 2012, the Company recognized $(814,000) and $(11,025,000) of realized and unrealized losses in its Consolidated Statement of Operations, respectively. For the six months ended February 29, 2012, the Company recognized $(9,160,000) of realized losses and $48,612,000 of unrealized gains in its Consolidated Statement of Operations, respectively.

At February 28, 2011, the Company had no derivative financial instruments outstanding and did not recognize any gains or losses from its risk management strategy for the three and six month periods then ended.

4. 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:

	February 29, 2012		August 31, 2011
	(in thousands)
Crude Oil	$	30,959	$	32,829
Petroleum Products		119,076		95,370
Total @ LIFO		150,035		128,199
Merchandise		21,278		21,408
Supplies		23,112		22,273
Total @ FIFO		44,390		43,681
Total Inventory	$	194,425	$	171,880

As of February 29, 2012 and August 31, 2011, the replacement cost of LIFO inventories exceeded their LIFO carrying values by approximately $108,483,000 and $92,059,000, respectively.

5. 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

9

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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, except share and per share amounts)

	February 29, 2012												August 31, 2011
	United Refining Company			Guarantors			Eliminations			United Refining Company  & Subsidiaries			United Refining Company			Guarantors			Eliminations			United Refining Company  & Subsidiaries
Assets
Current:
Cash and cash equivalents	$	6,727		$	10,735		$	—		$	17,462		$	5,927		$	10,733		$	—		$	16,660
Accounts receivable, net		75,786			37,461			—			113,247			66,758			44,668			—			111,426
Inventories		168,752			25,673			—			194,425			145,713			26,167			—			171,880
Prepaid expenses and other assets		16,052			6,535			—			22,587			36,731			3,656			—			40,387
Deferred income taxes		—			—			—			—			13,120			1,338			—			14,458
Amounts due from affiliated companies		1,851			565			—			2,416			2,586			518			—			3,104
Intercompany		121,858			19,132			(140,990	)		—			121,933			20,882			(142,815	)		—
Total current assets		391,026			100,101			(140,990	)		350,137			392,768			107,962			(142,815	)		357,915
Property, plant and equipment, net		196,394			75,369			—			271,763			196,521			74,453			—			270,974
Deferred financing costs, net		9,308			—			—			9,308			10,148			—			—			10,148
Goodwill and other non-amortizable assets		—			11,849			—			11,849			—			11,849			—			11,849
Amortizable intangible assets, net		—			1,217			—			1,217			—			1,270			—			1,270
Deferred turnaround costs & other assets		18,560			1,750			—			20,310			17,803			652			—			18,455
Investment in subsidiaries		8,225			—			(8,225	)		—			9,267			—			(9,267	)		—
	$	623,513		$	190,286		$	(149,215	)	$	664,584		$	626,507		$	196,186		$	(152,082	)	$	670,611
Liabilities and Stockholder’s Equity
Current:
Current installments of long-term debt	$	808		$	280		$	—		$	1,088		$	654		$	324		$	—		$	978
Accounts payable		23,788			20,259			—			44,047			58,246			21,700			—			79,946
Derivative liability		5,295			—			—			5,295			55,720			—			—			55,720
Accrued liabilities		6,753			5,684			—			12,437			8,726			6,632			—			15,358
Income taxes payable		—			—			—			—			3,181			(554	)		—			2,627
Sales, use and fuel taxes payable		14,604			3,733			—			18,337			12,322			4,315			—			16,637
Deferred income taxes		5,544			(1,338	)		—			4,206			—			—			—			—
Intercompany		—			140,990			(140,990	)		—			—			142,815			(142,815	)		—
Total current liabilities		56,792			169,608			(140,990	)		85,410			138,849			175,232			(142,815	)		171,266
Revolving credit facility		66,000			—			—			66,000			24,000			—			—			24,000
Long term debt: less current installments		355,341			1,775			—			357,116			354,264			1,845			—			356,109
Deferred income taxes		16,415			9,054			—			25,469			3,245			8,108			—			11,353
Deferred retirement benefits		67,420			1,624			—			69,044			85,396			1,734			—			87,130
Total liabilities		561,968			182,061			(140,990	)		603,039			605,754			186,919			(142,815	)		649,858
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		24,789			10,651			(10,651	)		24,789			24,789			10,651			(10,651	)		24,789
Retained earnings		40,913			(1,446	)		1,446			40,913			10,112			(354	)		354			10,112
Accumulated other comprehensive loss		(4,157	)		(998	)		998			(4,157	)		(14,148	)		(1,048	)		1,048			(14,148	)
Total stockholder’s equity		61,545			8,225			(8,225	)		61,545			20,753			9,267			(9,267	)		20,753
	$	623,513		$	190,286		$	(149,215	)	$	664,584		$	626,507		$	196,186		$	(152,082	)	$	670,611

10

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Operations

(in thousands)

	Three Months Ended February 29, 2012
	United Refining Company			Guarantors			Eliminations			United Refining Company & Subsidiaries
Net sales	$	661,665		$	401,067		$	(213,888	)	$	848,844
Costs and expenses:
Costs of goods sold (exclusive of depreciation, amortization and losses on derivative contracts)		621,933			374,495			(213,888	)		782,540
Losses on derivative contracts		11,839			—			—			11,839
Selling, general and administrative expenses		4,783			33,157			—			37,940
Depreciation and amortization expenses		4,411			1,553			—			5,964
		642,966			409,205			(213,888	)		838,283
Operating income (loss)		18,699			(8,138	)		—			10,561
Other income (expense):
Interest expense, net		(10,147	)		(113	)		—			(10,260	)
Other, net		(866	)		163			—			(703	)
Equity in net loss of subsidiaries		(4,956	)		—			4,956			—
		(15,969	)		50			4,956			(10,963	)
Income (loss) before income tax expense (benefit)		2,730			(8,088	)		4,956			(402	)
Income tax expense (benefit)		2,967			(3,132	)		—			(165	)
Net (loss) income	$	(237	)	$	(4,956	)	$	4,956		$	(237	)

	Three Months Ended February 28, 2011
	United Refining Company			Guarantors			Eliminations			United Refining Company & Subsidiaries			United Refining Asphalt, Inc			Eliminations			United Refining Company Consolidated
Net sales	$	519,256		$	365,825		$	(193,057	)	$	692,024		$	255		$	—		$	692,279
Costs and expenses:
Costs of goods sold (exclusive of depreciation and amortization)		492,399			340,499			(193,057	)		639,841			—			—			639,841
Selling, general and administrative expenses		4,348			32,469			—			36,817			2			—			36,819
Depreciation and amortization expenses		3,764			1,587			—			5,351			—			—			5,351
		500,511			374,555			(193,057	)		682,009			2			—			682,011
Operating income (loss)		18,745			(8,730	)		—			10,015			253			—			10,268
Other income (expense):
Interest expense, net		(8,659	)		(214	)		—			(8,873	)		(22	)		—			(8,895	)
Other, net		(913	)		177			—			(736	)		(74	)		—			(810	)
Equity in net loss of subsidiaries		(5,528	)		—			5,528			—			—			—			—
		(15,100	)		(37	)		5,528			(9,609	)		(96	)		—			(9,705	)
Income (loss) before income tax expense (benefit)		3,645			(8,767	)		5,528			406			157			—			563
Income tax expense (benefit)		3,384			(3,239	)		—			145			64			—			209
Net income (loss)		261			(5,528	)		5,528			261			93			—			354
Less net income attributable to non-controlling interest		—			—			—			—			—			93			93
Net income (loss) attributable to United Refining Company’s Stockholder	$	261		$	(5,528	)	$	5,528		$	261		$	93		$	(93	)	$	261

11

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Operations

(in thousands)

	Six Months Ended February 29, 2012
	United Refining Company			Guarantors			Eliminations			United Refining Company & Subsidiaries
Net sales	$	1,399,894		$	822,665		$	(429,684	)	$	1,792,875
Costs and expenses:
Costs of goods sold (exclusive of depreciation, amortization and gains on derivative contracts)		1,290,101			754,835			(429,684	)		1,615,252
Gains on derivative contracts		(39,452	)		—			—			(39,452	)
Selling, general and administrative expenses		12,091			66,496			—			78,587
Depreciation and amortization expenses		8,821			3,116			—			11,937
		1,271,561			824,447			(429,684	)		1,666,324
Operating income (loss)		128,333			(1,782	)		—			126,551
Other income (expense):
Interest expense, net		(20,282	)		(231	)		—			(20,513	)
Other, net		(1,729	)		449			—			(1,280	)
Equity in net loss of subsidiaries		(1,092	)		—			1,092			—
		(23,103	)		218			1,092			(21,793	)
Income (loss) before income tax expense (benefit)		105,230			(1,564	)		1,092			104,758
Income tax expense (benefit)		43,421			(472	)		—			42,949
Net income (loss)	$	61,809		$	(1,092	)	$	1,092		$	61,809

	Six Months Ended February 28, 2011
	United Refining Company			Guarantors			Eliminations			United Refining Company & Subsidiaries			United Refining Asphalt, Inc			Eliminations			United Refining Company Consolidated
Net sales	$	964,400		$	717,806		$	(371,035	)	$	1,311,171		$	255		$	—		$	1,311,426
Costs and expenses:
Costs of goods sold (exclusive of depreciation and amortization)		930,882			660,831			(371,035	)		1,220,678			—			—			1,220,678
Selling, general and administrative expenses		8,572			64,031			—			72,603			2			—			72,605
Depreciation and amortization expenses		7,815			3,172			—			10,987			—			—			10,987
		947,269			728,034			(371,035	)		1,304,268			2			—			1,304,270
Operating income (loss)		17,131			(10,228	)		—			6,903			253			—			7,156
Other income (expense):
Interest expense, net		(17,374	)		(413	)		—			(17,787	)		(22	)		—			(17,809	)
Other, net		(1,720	)		403			—			(1,317	)		(74	)		—			(1,391	)
Equity in net loss of subsidiaries		(6,524	)		—			6,524			—			—			—			—
		(25,618	)		(10	)		6,524			(19,104	)		(96	)		—			(19,200	)
(Loss) income before income tax (benefit) expense		(8,487	)		(10,238	)		6,524			(12,201	)		157			—			(12,044	)
Income tax (benefit) expense		(659	)		(3,714	)		—			(4,373	)		64			—			(4,309	)
Net (loss) income		(7,828	)		(6,524	)		6,524			(7,828	)		93			—			(7,735	)
Less net income attributable to non-controlling interest		—			—			—			—			—			93			93
Net (loss) income attributable to United Refining Company’s Stockholder	$	(7,828	)	$	(6,524	)	$	6,524		$	(7,828	)	$	93		$	(93	)	$	(7,828	)

12

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Cash Flows

(in thousands)

	Six Months Ended February 29, 2012
	United Refining Company			Guarantors			Eliminations		United Refining Company & Subsidiaries
Net cash (used in) provided by operating activities	$	(3,981	)	$	5,560		$	—	$	1,579
Cash flows from investing activities:
Additions to property, plant and equipment		(5,769	)		(4,186	)		—		(9,955	)
Additions to deferred turnaround costs		(66	)		(1,195	)		—		(1,261	)
Proceeds from asset dispositions		—			7			—		7
Net cash used in investing activities		(5,835	)		(5,374	)		—		(11,209	)
Cash flows from financing activities:
Net borrowings on revolving credit facility		42,000			—			—		42,000
Dividend to stockholder		(31,008	)		—			—		(31,008	)
Principal reductions of long-term debt		(376	)		(184	)		—		(560	)
Net cash provided by (used in) financing activities		10,616			(184	)		—		10,432
Net increase in cash and cash equivalents		800			2			—		802
Cash and cash equivalents, beginning of year		5,927			10,733			—		16,660
Cash and cash equivalents, end of period	$	6,727		$	10,735		$	—	$	17,462

	Six Months Ended February 28, 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	$	50,962		$	3,987		$	—	$	54,949		$	(29,654	)	$	—	$	25,295
Cash flows from investing activities:
Additions to property, plant and equipment		(16,089	)		(2,094	)		—		(18,183	)		—			—		(18,183	)
Additions to deferred turnaround costs		(6,029	)		—			—		(6,029	)		—			—		(6,029	)
Proceeds from asset dispositions		56			1			—		57			—			—		57
Net cash used in investing activities		(22,062	)		(2,093	)		—		(24,155	)		—			—		(24,155	)
Cash flows from financing activities:
Net (reductions) borrowings on revolving credit facilities		(23,000	)		—			—		(23,000	)		15,300			—		(7,700	)
Proceeds from issuance of common stock of non-controlling interest		—			—			—		—			15,000			—		15,000
Principal reductions of long-term debt		(306	)		(293	)		—		(599	)		—			—		(599	)
Deferred financing costs		(9	)		—			—		(9	)		(415	)		—		(424	)
Net cash (used in) provided by financing activities		(23,315	)		(293	)		—		(23,608	)		29,885			—		6,277
Net increase in cash and cash equivalents		5,585			1,601			—		7,186			231			—		7,417
Cash and cash equivalents, beginning of year		7,765			9,405			—		17,170			—			—		17,170
Cash and cash equivalents, end of period	$	13,350		$	11,006		$	—	$	24,356		$	231		$	—	$	24,587

13

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

6. 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						Six Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
Net Sales
Retail	$	399,838		$	364,781		$	820,157		$	716,000
Wholesale		449,006			327,498			972,718			595,426
	$	848,844		$	692,279		$	1,792,875		$	1,311,426
Intersegment Sales
Wholesale	$	212,659		$	192,013		$	427,176		$	369,229
Operating Income (Loss)
Retail	$	(8,036	)	$	(9,079	)	$	(1,816	)	$	(10,352	)
Wholesale		18,597			19,347			128,367			17,508
	$	10,561		$	10,268		$	126,551		$	7,156
Depreciation and Amortization
Retail	$	1,397		$	1,414		$	2,798		$	2,827
Wholesale		4,567			3,937			9,139			8,160
	$	5,964		$	5,351		$	11,937		$	10,987
Capital Expenditures (including non-cash)
Retail	$	1,097		$	791		$	3,500		$	1,933
Wholesale		2,906			6,506			7,205			16,284
	$	4,003		$	7,297		$	10,705		$	18,217

	February 29, 2012		August 31, 2011
Total Assets
Retail	$	161,387	$	167,359
Wholesale		503,197		503,252
	$	664,584	$	670,611

14

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

7. Employee Benefit Plans

For the periods ended February 29, 2012 and February 28, 2011, net pension and other postretirement benefit costs were comprised of the following:

	Pension Benefits
	Three Months Ended						Six Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
	(in thousands)
Service cost	$	340		$	448		$	763		$	895
Interest cost on benefit obligation		2,672			1,245			3,990			2,489
Expected return on plan assets		(2,543	)		(1,135	)		(3,722	)		(2,270	)
Amortization and deferral of net loss		49			506			425			1,015
Net periodic benefit cost	$	518		$	1,064		$	1,456		$	2,129

	Other Post-Retirement Benefits
	Three Months Ended						Six Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
	(in thousands)
Service cost	$	151		$	377		$	617		$	754
Interest cost on benefit obligation		595			629			1,343			1,259
Amortization and deferral of net loss		(102	)		(282	)		(366	)		(564	)
Net periodic benefit cost	$	644		$	724		$	1,594		$	1,449

As of February 29, 2012, $2,686,000 of contributions have been made to the Company pension plans for the fiscal year ending August 31, 2012.

In November 2011, the Company reached an agreement with the International Union of Operating Engineers Local 95, which represents the employees operating the refinery. The new agreement is effective February 1, 2012 and expires on February 1, 2017. Under the new collective bargaining agreement (Agreement), changes were made to healthcare and pension benefits provided by the Company. Effective February 1, 2012, medical benefits in retirement for new hires and active employees covered under the Agreement were eliminated. For employees covered under the Agreement 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 February 1, 2012, benefits under the Company’s defined benefit pension plan sponsored for employees covered under the agreement were frozen. The Company will provide an enhanced contribution under its defined contribution 401 (k) plan as well as a transition contribution for older employees. Additionally, deductibles and co-payments will be added to the medical benefits for employees covered under the Agreement.

As a result of the November, 2011 agreement and related plan design changes, a remeasurement of fiscal year 2012 expense pursuant to ASC 715-30 and ASC 715-60 was required, resulting in plan curtailments. As a result of such curtailments during the quarter ended November 30, 2011, the pension liability was reduced by $4,743,000 with a credit to accumulated other comprehensive loss (AOCL) of $4,552,000 and a credit to income of $191,000. Further, the postretirement welfare plan liability was reduced by $12,161,000 and AOCL credited for $12,298,000, with a charge to income of $137,000. The activity in AOCL was recorded net of related income tax effects.

15

UNITED REFINING COMPANY AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company accrues post-retirement benefits other than pensions, during the years that the employees render the necessary service, of the expected cost of providing those benefits to an employee and the employee’s beneficiaries and covered dependents.

8. 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 (was less than) exceeded the carrying value of the senior notes at February 29, 2012 and August 31, 2011 by $(9,199,000) and $6,684,000, respectively.

16

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;

17

• future exposure to currency devaluations or exchange rate fluctuations;

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

• future operating results and financial condition; and

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

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

Recent Developments

The Company continues to be impacted by the volatility of the petroleum market in fiscal year 2012. The average NYMEX crude price for the third fiscal quarter based on values published on April 5, 2012 was $103.93/bbl, a $5.24/bbl or 5.3% increase from the average price for the second fiscal quarter of 2012 which was $98.69/bbl.

The lagged 3-2-1 crackspread, as measured by the difference between the price of crude oil contracts traded on the NYMEX for the preceding month to the prices of NYMEX gasoline and heating oil contracts in the current trading month, benefited from the rising petroleum market. The Company uses a lagged crackspread as a margin indicator as it reflects the time period between the purchase of crude oil and its delivery to the refinery for processing. The lagged crackspread for the third quarter of fiscal year 2012 based on values as of April 5, 2012, was $33.71/bbl or a 50.2% increase from the lagged crackspread for the second quarter of fiscal year 2012 which was $22.45/bbl.

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 operates a network of Company operated retail units under the Red Apple Food Mart^® and Country Fair^® brand names selling petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names, as well as convenience and grocery items.

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.

18

Retail Operations:

	Three Months Ended						Six Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
	(dollars in thousands)
Net Sales
Petroleum	$	336,383		$	305,221		$	688,247		$	591,702
Merchandise and other		63,455			59,560			131,910			124,298
Total Net Sales	$	399,838		$	364,781		$	820,157		$	716,000
Costs of goods sold	$	373,427		$	340,102		$	752,908		$	659,727
Selling, general and administrative expenses		33,050			32,344			66,267			63,798
Depreciation and amortization expenses		1,397			1,414			2,798			2,827
Segment Operating (Loss) Income	$	(8,036	)	$	(9,079	)	$	(1,816	)	$	(10,352	)
Retail Operating Data:
Petroleum sales (thousands of gallons)		94,371			94,390			191,870			193,502
Petroleum margin (a)	$	10,478		$	9,670		$	34,018		$	24,775
Petroleum margin ($/gallon) (b)		.1110			.1024			.1773			.1280
Merchandise and other margins	$	15,935		$	15,009		$	33,233		$	31,498
Merchandise margin (percent of sales)		25.1	%		25.2	%		25.2	%		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 February 29, 2012 and February 28, 2011

Net Sales

Retail sales increased during the fiscal quarter ended February 29, 2012 by $35.0 million or 9.6% from the comparable period in fiscal 2011 from $364.8 million to $399.8 million. The increase was due to $31.1 million in petroleum sales and $3.9 million in merchandise sales. The petroleum sales increase resulted from a 10.2% increase in retail selling prices per gallon. The merchandise sales increase is primarily due to increased prepared food, beverages and cigarette sales due to promotional campaigns and increased selling prices.

Costs of Goods Sold

Retail costs of goods sold increased during the fiscal quarter ended February 29, 2012 by $33.3 million or 9.8% from the comparable period in fiscal 2011 from $340.1 million to $373.4 million. The increase was due to $28.9 million in petroleum cost, merchandise cost of $3.0 million, freight cost of $.8 million and fuel tax of $.6 million.

Selling, General and Administrative Expenses

Retail Selling, General and Administrative (“SG&A”) expenses increased during the fiscal quarter ended February 29, 2012 by $.7 million or 2.2% from the comparable period in fiscal 2011 from $32.3 million to $33.0 million. The increase was primarily due to payroll costs of $.6 million and credit/customer service costs of $.1 million.

19

Comparison of Six Months Ended February 29, 2012 and February 28, 2011

Net Sales

Retail sales increased during the six months ended February 29, 2012 by $104.1 million or 14.5% for the comparable period in fiscal 2011 from $716.0 million to $820.1 million. The increase was primarily due to $96.5 million in petroleum sales, and $7.6 million in merchandise sales. The petroleum sales increase resulted from a 17.3% increase in retail selling prices per gallon offset by a 1.6 million gallon or .8% decrease in sales volume. The merchandise sales increase is primarily due to increased prepared food, beverages and cigarette sales due to promotional campaigns and increased selling prices.

Costs of Goods Sold

Retail costs of goods sold increased during the six months ended February 29, 2012 by $93.2 million or 14.1% for the comparable period in fiscal 2011 from $659.7 million to $752.9 million. The increase was primarily due to $84.2 million in petroleum purchase prices, merchandise costs of $5.9 million, fuel taxes of $.9 million and freight costs of $2.2 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 six months ended February 29, 2012 by $2.5 million or 3.9% for the comparable period in fiscal 2011 from $63.8 million to $66.3 million. The increase was due to payroll costs of $.9 million, credit/customer service costs of $.8 million, advertising costs of $.2 million, supplies cost of $.2 million, maintenance costs of $.2 million and other costs of $.2 million.

Wholesale Operations:

	Three Months Ended				Six Months Ended
	February 29, 2012		February 28, 2011		February 29, 2012			February 28, 2011
	(dollars in thousands)
Net Sales (a)	$	449,006	$	327,498	$	972,718		$	595,426
Costs of goods sold (exclusive of depreciation and amortization and losses /(gain) on derivative contracts)		409,113		299,739		862,344			560,951
Losses / (gain) on derivative contracts		11,839		—		(39,452	)		—
Selling, general and administrative expenses		4,890		4,475		12,320			8,807
Depreciation and amortization expenses		4,567		3,937		9,139			8,160
Segment Operating Income	$	18,597	$	19,347	$	128,367		$	17,508

20

Key Wholesale Operating Statistics:

	Three Months Ended						Six Months Ended
	February 29, 2012			February 28, 2011			February 29, 2012			February 28, 2011
Refinery Product Yield (thousands of barrels)
Gasoline and gasoline blendstock		2,648			2,321			5,275			3,950
Distillates		1,468			1,216			2,917			2,347
Asphalt		1,787			1,488			3,724			2,120
Butane, propane, residual products, internally produced fuel and other (“Other”)		468			538			947			1,307
Total Product Yield		6,371			5,563			12,863			9,724
% Heavy Crude Oil of Total Refinery Throughput (b)		59	%		60	%		59	%		44	%
Crude throughput (thousand barrels per day)		64.9			55.9			66.2			48.2
Product Sales (thousand of barrels) (a)
Gasoline and gasoline blendstock		1,470			1,342			3,172			2,434
Distillates		1,131			984			2,234			1,892
Asphalt		1,501			995			3,622			2,070
Other		144			193			371			317
Total Product Sales Volume		4,246			3,514			9,399			6,713
Product Sales (dollars in thousands) (a)
Gasoline and gasoline blendstock	$	169,560		$	139,992		$	365,789		$	238,384
Distillates		146,022			113,587			289,118			202,551
Asphalt		124,512			63,073			295,111			137,435
Other		8,912			10,846			22,700			17,056
Total Product Sales	$	449,006		$	327,498		$	972,718		$	595,426

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

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

Comparison of Fiscal Quarters Ended February 29, 2012 and February 28, 2011

Net Sales

Wholesale sales increased during the three months ended February 29, 2012 by $121.5 million or 37.1% from the comparable period in fiscal 2011 from $327.5 million to $449.0 million. This was due to a 20.8% increase in wholesale volume and a 13.5% increase in wholesale prices.

Costs of Goods Sold (exclusive of depreciation and amortization and gains on derivative contracts)

Wholesale costs of goods sold increased during the three months ended February 29, 2012 by $109.4 million or 36.5% from the comparable period in fiscal 2011 from $299.7 million to $409.1 million. The increase in wholesale costs of goods sold during this period was primarily due to an increase in cost of raw materials and volume.

Losses / (Gain) on Derivative Contracts

During the three months ended February 29, 2012, the Company recognized $(814,000) and $(11,025,000) of realized and unrealized losses in its Consolidated Statement of Operations.

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Selling, General and Administrative Expenses

Wholesale SG&A expenses increased during the three months ended February 29, 2012 by $.4 million or 9.3% from the comparable period in fiscal 2011 from $4.5 million or 1.4% of net wholesale sales to $4.9 million or 1.1% of net wholesale sales. The increase was due primarily to additional payroll costs of $.2 million, charitable contributions of $.1 million and professional fees of $.1 million.

Comparison of Six Months Ended February 29, 2012 and February 28, 2011

Net Sales

Wholesale sales increased during the six months ended February 29, 2012 by $377.3 million or 63.4% from the comparable period in fiscal 2011 from $595.4 million to $972.7 million. The increase was due to a 16.7% increase in wholesale prices and a 40.0% increase in wholesale volume.

Costs of Goods Sold (exclusive of depreciation and amortization)

Wholesale costs of goods sold increased during the six months ended February 29, 2012 by $301.4 million or 53.7% for the comparable period in fiscal 2011 from $560.9 million to $862.3 million. The increase in wholesale costs of goods sold was primarily due to an increase in the cost of raw materials and volumes.

Losses / (Gain) on Derivative Contracts

For the six months ended February 29, 2012, the Company recognized $(9,160,000) of realized losses and $48,612,000 of unrealized gains in its Consolidated Statement of Operations.

Selling, General and Administrative Expenses

Wholesale SG&A expenses increased during the six months ended February 29, 2012 by $3.5 million or 39.9% for the comparable period in fiscal 2011 from $8.8 million or 1.5% of net wholesale sales to $12.3 million or 1.3% of net wholesale sales. The increase was primarily due to additional payroll costs and professional services.

Consolidated Expenses:

Interest Expense, net

Net interest expense (interest expense less interest income) for the three months ended February 29, 2012 increased $1.3 million or 15.6% from the comparable period in fiscal 2011 from $8.9 million to $10.3 million.

Net interest expense (interest expense less interest income) for the six months ended February 29, 2012 increased $2.7 million or 15.0% from the comparable period in fiscal 2011 from $17.8 million to $20.5 million. In March 2011, the Company refinanced its outstanding Senior Note principal balance of $324.0 million due 2012 with Senior Notes due 2018 with a principal amount of $365.0 million. The increased interest expense incurred between first fiscal quarter 2011 and 2012 is due to the increased principal amount of the notes outstanding.

Income Tax Expense / (Benefit)

The Company’s effective tax rate for both three months and six months ended February 29, 2012 and February 28, 2011 were approximately 41% and 36% respectively. The lower effective tax rate in the prior period was due to the Company recording a valuation allowance for Pennsylvania Net Operating tax losses.

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

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

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

	February 29, 2012
Cash and cash equivalents	$	17,462
Working capital	$	264,727
Current ratio		4.1
Debt	$	424,204

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

Our cash and cash equivalents consist of bank balances and investments in money market funds.

	Six Months Ended February 29, 2012
	(in millions)
Significant uses of cash
Investing activities:
Additions to deferred turnaround costs	$	(1.3	)
Property, plant and equipment
Other general capital items (tank repairs, refinery piping, etc)		(3.7	)
DHT2 second reactor		(2.5	)
Retail petroleum upgrade		(1.7	)
Retail maintenance (blacktop, roof, HVAC, rehab, piping)		(1.4	)
Environmental		(.2	)
State and federal mandates:
Renewable fuels		(.4	)
Total property, plant and equipment	$	(9.9	)
Net cash used in investing activities	$	(11.2	)
Financing activities:
Dividend to stockholder	$	(31.0	)
Principal reductions of long term debt		(.6	)
Net borrowings on revolving credit facility		42.0
Net cash provided by financing activities	$	10.4
Working capital items:
Accounts payable decrease	$	(35.9	)
Increase in inventory		(22.6	)
Accrued liabilities decrease		(2.9	)
Income taxes payable decrease		(2.6	)
Derivative asset/liability		(1.8	)
Accounts receivable increase		(1.8	)
Prepaid expense decrease		17.8
Sales, use and fuel taxes payable increase		1.7
Amounts due from affiliated companies, net decrease		.7
Cash used in working capital items	$	(47.4	)

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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 retail operations. Management does not foresee any increase in these maintenance and non-discretionary capital expenditures during fiscal year 2012.

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 $175,000,000 Amended and Restated Revolving Credit Facility. 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 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 February 29, 2012 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 $6.5 million as of February 29, 2012 and there were $66.0 million outstanding borrowings under the Amended and Restated Revolving Credit Facility resulting in net availability of $102.5 million. As of April 11, 2012, there were no outstanding borrowings on the $175 million Amended and Restated Revolving Credit Facility and standby letters of credit in the amount of $6.5 million, resulting in a net availability of $168.5 million. The Company’s working capital ratio was 4.1 as of February 29, 2012.

Although we are not aware of any pending circumstances which would change our expectation, changes in the tax laws, the imposition of and changes in federal and state clean air and clean fuel requirements and other changes in environmental laws and regulations may also increase future capital expenditure levels. Future capital expenditures are also subject to business conditions affecting the industry. We continue to investigate strategic acquisitions and capital improvements to our existing facilities.

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

Seasonal Factors

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

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

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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. 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. As of April 11, 2012, there were no outstanding borrowings under the Amended and Restated Revolving Credit Facility.

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 February 29, 2012, the Company had 2,130,000 barrels of heating oil and gasoline crackspread swaps outstanding as part of its risk management strategy. The crackspread swaps expire sequentially beginning March 2012 through December 2012. These derivative instruments are being used by the Company to lock in margins on future sales by the Company of heating oil and gasoline. See also Footnote 3 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 February 29, 2012. 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 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 February 29, 2012, 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 February 29, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

25

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, 2011.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

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
Exhibit 101	Interactive XBRL Data

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:April 16, 2012

UNITED REFINING COMPANY

(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:April 16, 2012

KIANTONE PIPELINE CORPORATION

(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:April 16, 2012

UNITED REFINING COMPANY OF

PENNSYLVANIA

(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:April 16, 2012

KIANTONE PIPELINE COMPANY

(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:April 16, 2012

UNITED JET CENTER, INC.

(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:April 16, 2012

KWIK-FILL CORPORATION

(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:April 16, 2012

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

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:April 16, 2012

BELL OIL CORP.

(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:April 16, 2012

PPC, 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:April 16, 2012

SUPER TEST PETROLEUM, 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:April 16, 2012

KWIK-FIL, INC.

(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:April 16, 2012

VULCAN ASPHALT REFINING CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

38

SIGNATURES

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

Date:April 16, 2012

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

39