INDEPENDENT GASOLINE & OIL CO OF ROCHESTER - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE PERIOD ENDED NOVEMBER 30, 2003

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 ¨

Number of shares outstanding of Registrant’s Common Stock as of January 14, 2004: 100.

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

TABLE OF ADDITIONAL REGISTRANTS

Name	State of Other Jurisdiction of Incorporation	Primary Standard Industrial Classification Number	IRS Employer Identification Number	Commission File Number
Kiantone Pipeline Corporation	New York	4612	25-1211902	333-35083-01
Kiantone Pipeline Company	Pennsylvania	4600	25-1416278	333-35083-03
United Refining Company of Pennsylvania	Pennsylvania	5541	25-0850960	333-35083-02
United Jet Center, Inc.	Delaware	4500	52-1623169	333-35083-06
Kwik-Fill Corporation	Pennsylvania	5541	25-1525543	333-35083-05
Independent Gas and Oil Company of Rochester, Inc.	New York	5170	06-1217388	333-35083-11
Bell Oil Corp.	Michigan	5541	38-1884781	333-35083-07
PPC, Inc.	Ohio	5541	31-0821706	333-35083-08
Super Test Petroleum, Inc.	Michigan	5541	38-1901439	333-35083-09
Kwik-Fil, Inc.	New York	5541	25-1525615	333-35083-04
Vulcan Asphalt Refining Corporation	Delaware	2911	23-2486891	333-35083-10

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

Item 1.	Financial Statements

	Consolidated Balance Sheets – November 30, 2003 (unaudited) and August 31, 2003			4

	Consolidated Statements of Operations – Three Months Ended November 30, 2003 and 2002 (unaudited)			5

	Consolidated Statements of Cash Flows – Three Months Ended November 30, 2003 and 2002 (unaudited)			6

	Notes to Consolidated Financial Statements (unaudited)			7-14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			15-21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk			22

Item 4.	Controls and Procedures			22

*PART II.*	*OTHER INFORMATION*			23

Item 6.	Exhibits and Reports on Form 8-K			23

		Signatures		24-35

	(a)	Exhibit Index

		Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302

		Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302

		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

		Exhibit 99.1	Press release announcing first fiscal quarter operating results

	(b)	No reports on Forms 8-K have been filed for the quarter for which this report is being filed.

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	November 30, 2003 (Unaudited)			August 31, 2003
Assets
Current:
Cash and cash equivalents	$	11,811		$	13,819
Accounts receivable, net		37,278			42,732
Inventories		89,543			76,123
Prepaid expenses and other assets		16,423			10,336
Amounts due from affiliated companies, net		—			639

Total current assets		155,055			143,649
Property, plant and equipment, net		185,947			186,879
Investment in affiliated company		640			574
Deferred financing costs, net		2,739			2,963
Goodwill		1,349			1,349
Tradename		10,500			10,500
Amortizable intangible assets, net		3,561			3,588
Deferred turnaround costs and other assets, net		8,088			8,217
Deferred income taxes		—			3,709

	$	367,879		$	361,428

Liabilities and Stockholder’s Equity
Current:
Revolving credit facility	$	30,500		$	31,500
Current installments of long-term debt		649			683
Accounts payable		34,852			35,111
Accrued liabilities		20,590			15,707
Sales, use and fuel taxes payable		16,250			17,853
Deferred income taxes		4,168			5,157
Amounts due to affiliated companies, net		426			—

Total current liabilities		107,435			106,011
Long term debt: less current installments		182,062			182,227
Deferred income taxes		161			—
Deferred gain on settlement of pension plan obligations		1,076			1,130
Deferred retirement benefits		28,680			28,398
Other noncurrent liabilities		2,033			1,687

Total liabilities		321,447			319,453

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		30,824			26,367
Accumulated other comprehensive loss		(1,040	)		(1,040	)

Total stockholder’s equity		46,432			41,975

	$	367,879		$	361,428

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS—(Unaudited)

(in thousands)

	Three Months Ended November 30,
	2003			2002
Net sales	$	330,815		$	293,305
Costs of goods sold		287,004			265,319

Gross profit		43,811			27,986

Expenses:
Selling, general and administrative expenses		27,503			26,328
Depreciation and amortization expenses		3,204			3,303

Total operating expenses		30,707			29,631

Operating income (loss)		13,104			(1,645	)

Other income (expense):
Interest expense, net		(5,170	)		(5,201	)
Other, net		(532	)		(68	)
Equity in net earnings of affiliate		66			51

		(5,636	)		(5,218	)

Income (loss) before income tax expense (benefit)		7,468			(6,863	)
Income tax expense (benefit)		3,011			(2,645	)

Net income (loss)	$	4,457		$	(4,218	)

UNITED REFINING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Unaudited)

(in thousands)

	Three Months Ended November 30,
	2003			2002
Cash flows from operating activities:
Net income (loss)	$	4,457		$	(4,218	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		4,146			4,214
Equity in net earnings of affiliate		(66	)		(51	)
Deferred income taxes		2,881			(3,110	)
Loss on asset dispositions		94			33
Cash used in working capital items		(9,967	)		(1,789	)
Change in operating assets and liabilities:
Deferred retirement benefits		282			(609	)
Other noncurrent liabilities		224			(316	)

Total adjustments		(2,406	)		(1,628	)

Net cash provided by (used in) operating activities		2,051			(5,846	)

Cash flows from investing activities:
Additions to property, plant and equipment		(2,217	)		(2,048	)
Additions to turnaround costs		(643	)		(1,930	)

Net cash used in investing activities		(2,860	)		(3,978	)

Cash flows from financing activities:
Net (reductions) borrowings on revolving credit facility		(1,000	)		5,686
Principal reductions of long-term debt		(199	)		(49	)

Net cash (used in) provided by financing activities		(1,199	)		5,637

Net decrease in cash and cash equivalents		(2,008	)		(4,187	)
Cash and cash equivalents, beginning of year		13,819			13,515

Cash and cash equivalents, end of year	$	11,811		$	9,328

Cash used in working capital items:
Accounts receivable, net	$	5,454		$	(1,258	)
Inventories		(13,420	)		12,881
Prepaid expenses and other assets		(6,087	)		(1,861	)
Refundable income taxes		—			—
Accounts payable		(259	)		(20,074	)
Accrued liabilities		4,883			9,486
Amounts due to affiliated companies, net		1,065			1,037
Income taxes payable		—			—
Sales, use and fuel taxes payable		(1,603	)		(2,000	)

Total change	$	(9,967	)	$	(1,789	)

Cash paid (received) during the period for:
Interest	$	515		$	595
Income taxes	$	(14	)	$	145

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 at a network of Company-operated retail units and convenience and grocery items through Company-owned gasoline stations and convenience stores under the Red Apple Food Mart^® and Country Fair^® brand names.

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

2. Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”). Interpretation 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Interpretation 46 is applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, the provisions of Interpretation 46 are applicable no later than the end of the first reporting period ending after December 15, 2003.

If any entity is determined to be a variable interest entity, it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses if they occur, receives a majority of the entity’s expected residual returns if they occur, or both. Where it is reasonably possible that the enterprise will consolidate or disclose information about a variable interest entity, the enterprise must disclose the nature, purpose, size and activity of the variable interest entity and the enterprise’s maximum exposure to loss as a result of its involvement with the variable interest entity in all financial statements issued after January 31, 2003. On October 9, 2003, the FASB issued FASB Staff Position No. FIN 46-6 “Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities,” which defers the implementation date for public entities that hold an interest in a variable interest entity or potential variable interest entity from the first fiscal year or interim period beginning after June 15, 2003 to the end of the first interim period or annual period ending after December 15, 2003. This deferral applies only if (1) the variable interest entity was created before February 1, 2003 and (2) the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46, other than disclosures required by paragraph 26 of FIN 46.

The Company does not expect Interpretation 46 to have a material impact on its consolidated financial position or results of operations.

3. Subsidiary Guarantors

Certain of United Refining Company’s (the “issuer”) subsidiaries function as guarantors under the terms of the $200,000,000 Senior Unsecured Note Indenture due June 9, 2007. Financial information for the issuer and its wholly owned subsidiary guarantors is as follows:

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

	November 30, 2003
	Issuer			Guarantors		Eliminations			Consolidated
Assets
Current:
Cash and cash equivalents	$	2,859		$	8,952	$	—		$	11,811
Accounts receivable, net		27,175			10,103		—			37,278
Inventories		69,875			19,668		—			89,543
Prepaid expenses and other assets		12,956			3,467		—			16,423
Amounts due from affiliated companies, net		—			—		—			—
Intercompany		86,284			19,249		(105,533	)		—

Total current assets		199,149			61,439		(105,533	)		155,055

Property, plant and equipment, net		116,430			69,517		—			185,947
Investment in affiliated company		640			—		—			640
Deferred financing costs, net		2,739			—		—			2,739
Goodwill and other non-amortizable assets		—			11,849		—			11,849
Amortizable intangible assets, net		—			3,561		—			3,561
Deferred turnaround costs & other assets, net		7,606			1,653		(1,171	)		8,088
Deferred income taxes		—			—		—			—

	$	326,564		$	148,019	$	(106,704	)	$	367,879

Liabilities and Stockholder’s Equity
Current:
Revolving credit facility	$	30,500		$	—	$	—		$	30,500
Current installments of long-term debt		91			558		—			649
Accounts payable		22,015			12,837		—			34,852
Accrued liabilities		15,993			4,597		—			20,590
Sales, use and fuel taxes payable		13,830			2,420		—			16,250
Deferred income taxes		4,134			34		—			4,168
Amounts due to affiliated companies, net		10			416		—			426
Intercompany		—			105,533		(105,533	)		—

Total current liabilities		86,573			126,395		(105,533	)		107,435

Long term debt: less current installments		180,352			1,710		—			182,062
Deferred income taxes		(3,373	)		3,534		—			161
Deferred gain on settlement of pension plan obligations		1,076			—		—			1,076
Deferred retirement benefits		27,659			1,021		—			28,680
Other noncurrent liabilities		—			2,033		—			2,033

Total liabilities		292,287			134,693		(105,533	)		321,447

Commitment and contingencies
Stockholder’s equity
Common stock, $.10 par value per share—shares authorized 100; issued and outstanding 100		—			18		(18	)		—
Additional paid-in capital		7,150			10,651		(1,153	)		16,648
Retained earnings		28,167			2,657		—			30,824
Accumulated other comprehensive loss		(1,040	)		—		—			(1,040	)

Total stockholder’s equity		34,277			13,326		(1,171	)		46,432

	$	326,564		$	148,019	$	(106,704	)	$	367,879

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	August 31, 2003
	Issuer			Guarantors			Eliminations			Consolidated
Assets
Current:
Cash and cash equivalents	$	3,383		$	10,436		$	—		$	13,819
Accounts receivable, net		31,780			10,952			—			42,732
Inventories		55,435			20,688			—			76,123
Prepaid expenses and other assets		9,453			883			—			10,336
Amounts due from affiliated companies, net		1,186			(547	)		—			639
Intercompany		88,123			19,467			(107,590	)		—

Total current assets		189,360			61,879			(107,590	)		143,649

Property, plant and equipment, net		117,149			69,730			—			186,879
Investment in affiliated company		574			—			—			574
Deferred financing costs, net		2,963			—			—			2,963
Goodwill and other non-amortizable assets		—			11,849			—			11,849
Amortizable intangible assets, net		—			3,588			—			3,588
Deferred turnaround costs & other assets, net		8,204			1,184			(1,171	)		8,217
Deferred income taxes		7,455			(3,746	)		—			3,709

	$	325,705		$	144,484		$	(108,761	)	$	361,428

Liabilities and Stockholder’s Equity
Current:
Revolving credit facility	$	31,500		$	—		$	—		$	31,500
Current installments of long-term debt		89			594			—			683
Accounts payable		19,906			15,205			—			35,111
Accrued liabilities		11,708			3,999			—			15,707
Sales, use and fuel taxes payable		14,891			2,962			—			17,853
Deferred income taxes		5,123			34			—			5,157
Amounts due to affiliated companies, net		—			—			—			—
Intercompany		—			107,590			(107,590	)		—

Total current liabilities		83,217			130,384			(107,590	)		106,011

Long term debt: less current installments		180,375			1,852			—			182,227
Deferred income taxes		1,037			(1,037	)		—			—
Deferred gain on settlement of pension plan obligations		1,130			—			—			1,130
Deferred retirement benefits		27,174			1,224			—			28,398
Other noncurrent liabilities		—			1,687			—			1,687

Total liabilities		292,933			134,110			(107,590	)		319,453

Commitment and contingencies
Stockholder’s equity
Common stock, $.10 par value per share—shares authorized 100; issued and outstanding 100		—			18			(18	)		—
Additional paid-in capital		7,150			10,651			(1,153	)		16,648
Retained earnings		26,662			(295	)		—			26,367
Accumulated other comprehensive loss		(1,040	)		—			—			(1,040	)

Total stockholder’s equity		32,772			10,374			(1,171	)		41,975

	$	325,705		$	144,484		$	(108,761	)	$	361,428

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

	Three Months Ended November 30, 2003
	Issuer			Guarantors			Eliminations			Consolidated
Net sales	$	205,274		$	183,089		$	(57,548	)	$	330,815
Costs of goods sold		191,224			153,328			(57,548	)		287,004

Gross profit		14,050			29,761			—			43,811

Expenses:
Selling, general and administrative expenses		4,698			22,805			—			27,503
Depreciation and amortization expenses		2,144			1,060			—			3,204

Total operating expenses		6,842			23,865			—			30,707

Operating income (loss)		7,208			5,896			—			13,104

Other income (expense):
Interest expense, net		(4,231	)		(939	)		—			(5,170	)
Other, net		(572	)		40			—			(532	)
Equity in net earnings of affiliate		66			—			—			66

		(4,737	)		(899	)		—			(5,636	)

Income (loss) before income tax expense (benefit)		2,471			4,997			—			7,468
Income tax expense (benefit)		966			2,045			—			3,011

Net income (loss)	$	1,505		$	2,952		$	—		$	4,457

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	Three Months Ended November 30, 2002
	Issuer			Guarantors			Eliminations			Consolidated
Net sales	$	173,260		$	176,557		$	(56,512	)	$	293,305
Costs of goods sold		170,769			151,062			(56,512	)		265,319

Gross profit		2,491			25,495			—			27,986

Expenses:
Selling, general and administrative expenses		4,035			22,293			—			26,328
Depreciation and amortization expenses		2,170			1,133			—			3,303

Total operating expenses		6,205			23,426			—			29,631

Operating income (loss)		(3,714	)		2,069			—			(1,645	)

Other income (expense):
Interest expense, net		(4,125	)		(1,076	)		—			(5,201	)
Other, net		(270	)		202			—			(68	)
Equity in net earnings of affiliate		51			—			—			51

		(4,344	)		(874	)		—			(5,218	)

Income (loss) before income tax expense (benefit)		(8,058	)		1,195			—			(6,863	)
Income tax expense (benefit)		(3,189	)		544			—			(2,645	)

Net income (loss)	$	(4,869	)	$	651		$	—		$	(4,218	)

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended November 30, 2003
	Issuer			Guarantors			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	2,071		$	(20	)	$	—	$	2,051

Cash flows from investing activities:
Additions to property, plant and equipment		(1,425	)		(792	)		—		(2,217	)
Additions to deferred turnaround costs		(149	)		(494	)		—		(643	)

Net cash used in investing activities		(1,574	)		(1,286	)		—		(2,860	)

Cash flows from financing activities:
Net (reductions) borrowings on revolving credit facility		(1,000	)		—			—		(1,000	)
Principal reductions of long-term debt		(21	)		(178	)		—		(199	)

Net cash (used in) provided by financing activities		(1,021	)		(178	)		—		(1,199	)

Net decrease in cash and cash equivalents		(524	)		(1,484	)		—		(2,008	)
Cash and cash equivalents, beginning of year		3,383			10,436			—		13,819

Cash and cash equivalents, end of period	$	2,859		$	8,952		$	—	$	11,811

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	Three Months Ended November 30, 2002
	Issuer			Guarantors			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(4,863	)	$	(983	)	$	—	$	(5,846	)

Cash flows from investing activities:
Additions to property, plant and equipment		(1,709	)		(339	)		—		(2,048	)
Additions to deferred turnaround costs		(1,907	)		(23	)		—		(1,930	)

Net cash used in investing activities		(3,616	)		(362	)		—		(3,978	)

Cash flows from financing activities:
Net (reductions) borrowings on revolving credit facility		5,686			—			—		5,686
Principal reductions of long-term debt		(11	)		(38	)		—		(49	)

Net cash (used in) provided by financing activities		5,675			(38	)		—		5,637

Net decrease in cash and cash equivalents		(2,804	)		(1,383	)		—		(4,187	)
Cash and cash equivalents, beginning of year		4,254			9,261			—		13,515

Cash and cash equivalents, end of period	$	1,450		$	7,878		$	—	$	9,328

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. 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 November 30,
	2003		2002
Net Sales
Retail	$	181,863	$	175,659
Wholesale		148,952		117,646

	$	330,815	$	293,305

Intersegment Sales
Wholesale	$	56,322	$	55,614

Operating Income (Loss)
Retail	$	5,789	$	2,154
Wholesale		7,315		(3,799	)

	$	13,104	$	(1,645	)

Depreciation and Amortization
Retail	$	1,012	$	1,071
Wholesale		2,192		2,232

	$	3,204	$	3,303

	November 30, 2003		August 31, 2003
Total Assets
Retail	$	122,165	$	119,709
Wholesale		245,714		241,719

	$	367,879	$	361,428

Capital Expenditures (including non-cash)
Retail	$	762	$	2,456
Wholesale		1,455		6,768

	$	2,217	$	9,224

5. Secured Credit Facility

The Company’s secured credit facility currently provides for revolving credit loans and letters of credit in the amount of $50,000,000. The Company is currently negotiating with the Agent Bank to increase the facility commitment to $75,000,000 on a permanent basis; however, there are no assurances that such increase will be granted.

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 10Q includes statements that constitute “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. By their nature, all forward looking statements involve risk and uncertainties. Actual results may differ materially from those contemplated by the forward looking statements for a number of reasons.

Although the Company believes that its 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 from those expressed in any such forward-looking statements. In addition to the factors discussed elsewhere in this report, 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, 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 the Company’s markets, 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, the possibility of inefficiencies or shutdowns in refinery operations or pipelines, the availability and cost of financing to the Company, 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 .

Recent Developments

Fiscal first quarter 2004 worldwide crude oil prices, as indicated by prices of crude oil contracts on the New York Mercantile Exchange (NYMEX), averaged $30.09/BBL and remained volatile. NYMEX crude oil prices for the second fiscal quarter of 2004 have continued to be volatile as seen by the current high price for February delivered crude oil, which has averaged almost $34/BBL for the first nine days of January. NYMEX average crude oil price for calendar 2003 was $30.81/BBL, $5.56/BBL above the prior year, and the highest average price in 20 years – reflecting a year of geopolitical tensions, especially in the Middle East, supply disruptions from producers such as Venezuela, Nigeria and Iraq, increased speculation and lean crude oil stocks in the US.

The recent crude oil price is uncharacteristically high and is due partially to the current cold weather, which fosters expectations that the already lean crude oil stocks may decrease further and that the cold Northeast may significantly reduce the current product stock inventories.

For first quarter fiscal 2004 compared to the prior year quarter, the Company’s average crude run cost per barrel increased 3.0% reflecting the 4.1% market trend mentioned above. The higher crude prices are keeping gasoline and diesel prices high, despite a comfortable supply.

Compared to the prior year quarter, retail gasoline margins per gallon increased 39.6% and retail distillate margins per gallon increased 41.8%, which contributed to increased gross profit. Additionally, when comparing the first quarter fiscal 2004 to the fourth quarter fiscal 2003, the Company realized a 33.1% increase in retail gasoline margins per gallon and a 14.6% increase in retail distillate margins per gallon.

Positive results were also seen in the wholesale sector as price increases were realized for wholesale gasoline (11.0%) and distillate (3.5%) while asphalt prices remained essentially unchanged. This profit improvement is due to a combination of market factors including the August 2003 electrical power blackout in the Northeast and Midwest, certain unplanned and scheduled refinery maintenance in regional refineries, higher

light-heavy crude differential, and a more optimistic outlook for the U.S. economy. The pace of the economic recovery will be an important factor in determining future refinery margins.

The Company’s results continued to be influenced by the price discounts on heavy, sour crude oils. Since the refinery crude supply is comprised of approximately equal proportions of sour and sweet crude, the difference between their prices (“sweet-sour differential”) impacts the costs of goods sold and hence gross profit. For the recent quarter compared to the prior year quarter, the Company realized a favorable 25% increase in the light/heavy crude price differential. For the second fiscal quarter of 2004, this differential is expected to remain essentially the same or slightly better than the average for the first fiscal quarter.

Results of Operations

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

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 November 30,
	2003			2002
	(dollars in thousands)
Net Sales
Petroleum	$	137,268		$	130,231
Merchandise and other		44,595			45,428

Total Net Sales	$	181,863		$	175,659

Costs of Goods Sold	$	152,365		$	150,237

Gross Profit	$	29,498		$	25,422

Operating Expenses	$	23,709		$	23,268

Segment Operating Income	$	5,789		$	2,154

Petroleum Sales (thousands of gallons)		86,013			89,770

Gross Profit
Petroleum(a)	$	16,668		$	12,438
Merchandise and other		12,830			12,984

	$	29,498		$	25,422

Petroleum margin ($/gallon)(b)		.1938			.1386

Merchandise margin (percent of sales)		28.8	%		28.6	%

(a)

Includes the effect of intersegment purchases from our 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 November 30, 2003 and November 30, 2002

Net Sales

Retail sales increased during 2003 by $6.2 million, or 3.5% from $175.7 million to $181.9 million. The retail sales increase was primarily due to a $7.0 million increase in petroleum sales, offset by a $.8 million decrease in merchandise sales. The petroleum sales increase results from a 10% increase in retail selling prices per gallon, offset by a 3.8 million gallon or 4% decrease in retail petroleum volume.

Costs of Goods Sold

Retail costs of goods sold increased during the fiscal quarter ended November 30, 2003 by $2.2 million or 1.4% from $150.2 million to $152.4 million. The cost of gasoline increased 11.6%, on a per gallon basis, over fiscal quarter ended November 30, 2002. The cost of distillates increased 3.3%, on a per gallon basis, over the prior fiscal quarter. As a result costs of goods sold for petroleum purchases increased $4.2 million. Another increase to costs of goods sold was increased freight costs of $.1 million. Offsetting these increases were decreased fuel taxes of $1.5 million and decreased merchandise purchases of $.6 million.

Gross Profit/(Loss)

Retail gross profit increased during 2003 by $4.0 million or 16%. The Company increased its petroleum margins by $4.2 million offset by a merchandise margin decrease of $.2 million. These margin increases were a result of a 34% increase in petroleum margins.

Operating Expenses

Retail operating expenses increased during 2003 by $.4 million or 2%. Primarily contributing to the increases to operating expenses were increased environmental costs of $.1 million, increased credit/customer service costs of $.1 million, increased rent expense of $.1 million and other costs of $.1 million.

Wholesale Operations:

	Three Months Ended November 30,
	2003		2002
	(dollars in thousands)
Net Sales(a)	$	148,952	$	117,646
Costs of Goods Sold		134,639		115,082

Gross Profit	$	14,313	$	2,564

Operating Expenses		6,998		6,363

Segment Operating Income / (Loss)	$	7,315	$	(3,799	)

Crude throughput (thousand barrels per day)		64.3		47.5

Refinery Product Yield

(thousands of barrels)

	Three Months Ended November 30,
	2003		2002
Gasoline and gasoline blendstock	2,668		2,231
Distillates	1,458		951
Asphalt	1,586		1,168
Butane, propane, residual products, internally produced fuel and other	630		559

Total Product Yield	6,342		4,909

% Heavy Crude Oil of Total Refinery Throughput(b)	53	%	54	%

Product Sales

(dollars in thousands) (a)

	Three Months Ended November 30,
	2003		2002
Gasoline and gasoline blendstock	$	56,618	$	43,879
Distillates		39,645		31,521
Asphalt		49,678		39,516
Other		3,011		2,730

	$	148,952	$	117,646

Product Sales

(thousand of barrels) (a)

	Three Months Ended November 30,
	2003	2002
Gasoline and gasoline blendstock	1,435	1,235
Distillates	1,084	892
Asphalt	2,010	1,598
Other	145	144

	4,674	3,869

Average Prices ($ / gallon)

	Three Months Ended November 30,
	2003	2002
Gasoline and gasoline blendstock	.9391	.8459
Distillates	.8710	.8419
Asphalt	.5884	.5889
Other	.4959	.4513

(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 November 30, 2003 and November 30, 2002

Net Sales

Wholesale sales increased during 2003 by $31.3 million or 26.6% from $117.6 million to $148.9 million. The wholesale sales increase was due to a 4.8% increase in wholesale prices and a 20.8% increase in wholesale volume. Contributing to the increased sales volume was a 35.3% increase in crude runs for the three months ended November 30, 2003 as compared to the prior year period.

Costs of Goods Sold

Wholesale costs of goods sold increased during 2003 by $19.6 million or 17.0% from $115.0 million to $134.6 million. The increase in wholesale costs of goods was primarily due to a 35.3% increase in crude throughput volume and a 2.2% increase in the Company’s average crude oil purchase price for the fiscal quarter ended November 30, 2003 as compared to the prior year period. The refinery throughput volume increase for the first fiscal quarter of 2004 resulted from the fact that the Company had a 21 day shutdown of units at the refinery during the prior year period ending November 30, 2002. Worldwide crude oil prices, as indicated by NYMEX crude oil contract prices, increased 4.1% as compared to the prior year period.

Gross Profit/(Loss)

Wholesale gross profit increased $11.7 million from $2.6 million for fiscal quarter ended November 30, 2002 to $14.3 million for the fiscal quarter ended November 30, 2003. This increase was primarily due to the increase in wholesale sales volume, increased wholesale selling prices and to 25.3% higher discounts on heavy high-sulfur crude oil grades processed by the Company.

Operating Expenses

Operating expenses increased during 2003 by $.6 million over such expenses for 2002. For 2003 operating expenses were $7.0 million, or 4.7% of net wholesale sales, compared to $6.4 million, or 5.4% of net wholesale sales for 2002. Operating expenses declined as a percentage of net sales from 5.4% to 4.7%.

Interest Expense

Net interest expense (interest expense less interest income) remained relatively consistent between fiscal quarter ended November 30, 2003 and fiscal quarter ended November 30, 2002. The Company did reduce the amount of interest expense for borrowings on its revolving credit facility; however, offsetting this decrease was a reduction in interest income earned.

Income Tax Expense/(Benefit)

The Company’s effective tax rate for the fiscal quarter ended November 30, 2003 was approximately 40.3% compared to a rate of 38.5% for fiscal quarter ended November 30, 2002. The increase is primarily due to an increase in 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.

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

	November 30, 2003		August 31, 2003
Cash and cash equivalents	$	11,811	$	13,819
Working capital		47,620		37,638
Debt	$	213,211	$	214,410

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

The Company’s 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 fiscal quarter ended November 30, 2003, significant uses of cash includes $2.2 million for purchases of property, plant and equipment, $1.2 million of reductions to debt and $.6 million for additions to refinery turnaround costs.

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 does not foresee any increase in maintenance and non-discretionary capital expenditures during fiscal 2004. The Company spent approximately $4 million as part of its Tier 2 Gasoline Sulfur Program under 40 CFR Part 80, Subpart H during fiscal year 2003, and expects to spend approximately $1 million during fiscal 2004, primarily during activities requiring a shutdown of the FCC Unit, which is scheduled for April 2004.

Working capital (current assets minus current liabilities) at November 30, 2003 was $47.6 million and at August 31, 2003 was $37.6 million. The Company’s current ratio (current assets divided by current liabilities) was 1.4:1 at November 30, 2003 and 1.4:1 at August 31, 2003.

Future liquidity, both short and long-term, will continue to be primarily dependent on realizing a refinery margin sufficient to cover fixed and variable expenses, including planned capital expenditures. The Company expects to be able to meet its working capital, capital expenditure, contractual obligations, letter of credit and debt service requirements out of cash flow from operations, cash on hand and borrowings under the Company’s secured revolving credit facility (the “facility”) with PNC Bank, N.A. as Agent Bank. This is a $50,000,000 revolving facility, which was renewed for five years on July 12, 2002 and amended on November 27, 2002 and February 19 and March 24, 2003. At November 30, 2003, there was approximately $18,885,000 unused and available on the facility.

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 and the participating banks amended the facility on March 24, 2003, allowing for a temporary increase in the facility commitment from $50,000,000 to $70,000,000. The temporary increase expired as of September 30, 2003 and the facility has reverted to the original $50,000,000. Additionally, the amendment revised select covenant calculations, including the fixed charge coverage ratio and redefined select definitions. The Company is currently negotiating with the Agent Bank to increase the facility commitment to $75,000,000 on a permanent basis; however, there are no assurances that such increase will be granted.

In addition, the Company had outstanding letters of credit of $615,000 as of November 30, 2003.

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

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

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.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”). Interpretation 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Interpretation 46 is applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, the provisions of Interpretation 46 are applicable no later than the end of the first reporting period ending after December 15, 2003.

The Company does not expect Interpretation 46 to have a material impact on its consolidated financial position or results of operations.

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 November 30, 2003, 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.

ITEM 4.

CONTROLS AND PROCEDURES

(a)

Based on an evaluation 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 November 30, 2003, 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.

(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 November 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K

	(a)	Exhibits

		Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302
		Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302
		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
		Exhibit 99.1	Press release announcing first fiscal quarter operating results

	(b)	No reports on Forms 8-K have been filed for the quarter for which this report is being filed.

SIGNATURES

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

Date: January 14, 2004

UNITED REFINING COMPANY

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

KIANTONE PIPELINE CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

UNITED REFINING COMPANY OF

PENNSYLVANIA

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

KIANTONE PIPELINE COMPANY

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

UNITED JET CENTER, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

KWIK FILL CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

INDEPENDENT GASOLINE AND OIL

COMPANY OF ROCHESTER, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

BELL OIL CORP.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

PPC, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

SUPER TEST PETROLEUM, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

KWIK-FIL, INC.

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer

SIGNATURES

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

Date: January 14, 2004

VULCAN ASPHALT REFINING CORPORATION

(Registrant)

/s/ Myron L. Turfitt

Myron L. Turfitt

President

/s/ James E. Murphy

James E. Murphy

Chief Financial Officer