UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED AUGUST 31, 2013

¨	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

LOGO

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.)

See Table of Additional Subsidiary Guarantor Registrants


15 Bradley Street, Warren, PA		16365-3299
(Address of principal executive offices)		(Zip Code)

(814) 723-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

None

Securities registered pursuant to Section 12 (g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 website, if any, every Interactive Date 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definition of “large accelerated filer” “accelerated filer” and “small 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)		Small 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 November 26, 2013, 100 shares of the Registrant’s common stock, $0.10 par value per share, were outstanding. All shares of common stock of the Registrant’s are held by an affiliate. Therefore, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant is zero.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF ADDITIONAL REGISTRANTS


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

FORM 10-K CONTENTS



		PAGE(S)

Item 1.	Business		4

Item 1A.	Risk Factors		12

Item 1B.	Unresolved Staff Comments		19

Item 2.	Properties		19

Item 3.	Legal Proceedings		19

Item 4.	Mine Safety Disclosures		19

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19

Item 6.	Selected Financial Data		19

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		33

Item 8.	Financial Statements and Supplementary Data		35
	Report of Independent Registered Public Accounting Firm		36
	Consolidated Financial Statements:
	Balance Sheets		37
	Statements of Operations		38
	Statements of Comprehensive Income (Loss)		39
	Statements of Stockholder’s Equity		40
	Statements of Cash Flows		41
	Notes to Consolidated Financial Statements		42

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		72

Item 9A.	Controls and Procedures		72

Item 9B.	Other Information		73

Item 10.	Directors, Executive Officers and Corporate Governance		74

Item 11.	Executive Compensation		77

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		81

Item 13.	Certain Relationships and Related Transactions, Director Independence		81

Item 14.	Principal Accounting Fees and Services		82

Item 15.	Exhibits, Financial Statement Schedules		83

	Signatures		87

ITEM 1.

BUSINESS.

Introduction

United Refining Company is a Pennsylvania corporation that began business operations in 1902. We are the leading integrated refiner and marketer of petroleum products in western New York and northwestern Pennsylvania, which is located within the Petroleum Administration for Defense Districts I (“PADD I”). We own and operate a medium complexity 70,000 barrel per day (“bpd”) petroleum refinery in Warren, Pennsylvania where we refine crude oil into a variety of finished products, including various grades of gasoline, ultra low sulfur diesel fuel, kerosene, No. 2 heating oil and asphalt. We have a long history of service within our market area. Our first retail service station was established in 1927 near the Warren, Pennsylvania refinery, and we have steadily expanded our distribution network over the years.

Our operations are organized into two major business segments: refining/wholesale and retail. The refining division operates the refinery in Warren and offsite terminals. The wholesale division sells finished products produced at the Warren refinery, primarily in western New York and northwestern Pennsylvania, to both our retail network and to third-party customers. The retail business segment sells petroleum products under the Kwik Fill^®, Citgo^®, Keystone^® and Country Fair^® brand names at a network of Company operated retail units and convenience and grocery items through convenience stores under the Red Apple Food Mart^® and Country Fair^® brand names.

For fiscal 2013, we had total net sales of $3.7 billion. Of total sales, petroleum based sales were approximately 54% gasoline, 21% distillate, 16% asphalt and the remaining 9% were from sales of merchandise and other revenue.

Our Operations

Refining Operations

Our refinery, located on a 107-acre site in Warren, Pennsylvania, has a nominal capacity of 70,000 bpd of crude oil processing and averaged saleable production of approximately 63,100 bpd during fiscal 2013. We believe our location in the product-short PADD I, in an area that is geographically distant from the majority of PADD I refining capacity, is a significant marketing advantage. The nearest fuels refinery is over 160 miles from Warren, Pennsylvania and we believe that no significant production from such refinery is currently shipped into our primary market area.

During April 2013, an electrical outage resulted in the Fluid Catalytic Cracking (“FCC”) unit being shut down for eight days due to mechanical problems. Refinery crude throughput was reduced to 52,240 bpd during April to manage intermediate product inventories. In July 2013, a scheduled eight day Reformer catalyst regeneration was performed. Management of intermediate product inventories during July resulted in refinery crude throughput being reduced to 51,600 bpd.

Our Products

We produce three primary petroleum products: gasoline, middle distillates and asphalt. We presently produce two grades of unleaded gasoline, 87-octane regular and 93-octane premium, and also blend these to produce a mid-grade 89-octane. Middle distillates include kerosene, ultra low sulfur diesel fuel and No. 2 heating oil. We optimize our bottom-of-the-barrel processing by producing asphalt, a higher value alternative to residual fuel oil. Our refining configuration allows the processing of a wide variety of crude oil inputs and our ability to market asphalt on a year-round basis enables us to purchase selected heavier crude oils at higher differentials and lower costs.

Refining Process

Our production of petroleum products from crude oil involves many complex steps, which are briefly summarized below.

We seek to maximize refinery profitability by selecting crude oil and other feedstocks taking into account factors including product demand and pricing in our market areas as well as price, quality and availability of various grades of crude oil. We also consider product inventory levels and any planned turnarounds of refinery units for maintenance. The combination of these factors is optimized by a sophisticated proprietary linear programming computer model, which selects the most profitable feedstock and product mix. The linear programming model is continuously updated and improved to reflect changes in the product marketplace and in the refinery’s processing capability.

Blended crude is stored in a tank farm near the refinery, which has a capacity of approximately 200,000 barrels. The blended crude is then brought into the refinery where it is first distilled at low pressure into its component streams in the crude and preflash unit. This yields the following intermediate products: light products consisting of fuel gas components (methane and ethane) and LPG (propane and butane), naphtha or gasoline, kerosene, diesel or heating oil, heavy atmospheric distillate, and crude tower bottoms which are further distilled under vacuum conditions to yield light and heavy vacuum distillates and asphalt.

The intermediate products are then processed in downstream units and blended to produce finished products. A naphtha hydrotreater treats naphtha and FCC light catalytic naphtha with hydrogen across a fixed bed catalyst to remove sulfur before further treatment. The treated naphtha is then distilled into light and heavy naphtha at a prefractionator. Light naphtha is then sent to an isomerization unit and heavy naphtha is sent to a reformer, in each case for octane enhancement. The isomerization unit converts the light naphtha catalytically into a gasoline component with 83 octane. The reformer unit converts the heavy naphtha into another gasoline component with up to 94 octane depending upon the desired octane requirement for the grade of gasoline to be produced. The reformer also produces as a co-product, hydrogen needed to operate hydrotreating units in the refinery.

Raw kerosene is treated with hydrogen at a distillate hydrotreater to remove sulfur to make finished kerosene. A distillate hydrotreater built in 1993 and modified in 2012 with the addition of a second reactor also treats raw distillates to produce ultra low sulfur diesel fuel.

The long molecular chains of the heavy atmospheric and vacuum distillates are broken or “cracked” in the FCC unit and separated and recovered in the gas concentration unit to produce fuel gas, propylene, butylene, LPG, light and heavy catalytic naphtha gasoline, light cycle oil and clarified oil. Fuel gas is burned within the refinery, propylene is fed to a polymerization unit which polymerizes its molecules into a larger chain to produce an 87 octane gasoline component, butylene is fed into an alkylation unit to produce a gasoline component and LPG is treated to remove trace quantities of water and then sold. Clarified oil is burned in the refinery or sold. Various refinery gasoline components are blended together in refinery tankage to produce 87 octane and 93 octane finished gasoline. Likewise, light cycle oil is blended with other distillates to produce No. 2 heating oil. FCC light and heavy catalytic naphtha is hydrotreated in order to meet new more stringent legally mandated limits on gasoline sulfur content which took effect January 1, 2008, and a portion of the light cycle oil is hydrotreated in order to meet new more stringent legally mandated limits on diesel fuel sulfur content which took effect June 1, 2006.

Our refining configuration allows the processing of a wide variety of crude oil inputs. During the past five years our inputs have been of Canadian origin and range from light low sulfur (38 degrees API, 0.5% sulfur) to high sulfur heavy asphaltic (21 degrees API, 3.5% sulfur). Our ability to market asphalt on a year round basis enables us to purchase selected heavier crude oils at higher differentials and thus at a lower cost.

Supply of Crude Oil

Substantially all of our crude supply is sourced from Canada and the northern plain states through the Enbridge Pipeline. We are however, not dependent on this source alone. We could within 90 days shift up to 70% of our crude oil requirements to some combination of domestic and offshore crude. With additional time, 100%

of our crude requirements could be obtained from non-Canadian sources. This change in crude supply could result in a different crude slate and alter product yields and product mix and could affect refinery profitability. Sixty-seven percent of our term contracts with our crude suppliers are on a month-to-month evergreen basis, with 60-to-90 day cancellation provisions; 33% of our term crude contracts are on an annual basis (with month to month pricing provisions). As of August 31, 2013, we had supply contracts with 13 major suppliers for an aggregate of 61,400 bpd of crude oil. We have contracts with four suppliers amounting to approximately 60% of daily crude oil supply. None of the remaining suppliers accounted for more than 10% of our crude oil supply.

We access crude through the Kiantone Pipeline, which connects with the Enbridge pipeline system in West Seneca, New York, which is near Buffalo. The Enbridge pipeline system provides access to most North American and foreign crude oils through four primary routes: (i) Canadian and US domestic crude from both Western Canada and North Dakota (Bakken) are transported eastward through the Enbridge mainline system (ii) foreign crude oils unloaded at the Louisiana Offshore Oil Port can be transported north via the Capline and Chicap pipelines and into the Enbridge (Lakehead) mainline system at Mokena, near Chicago, IL (iii) US domestic crude grades can be transported north via the Capline System and/or the Enbridge Mid-Continent (Ozark/Woodpat ) system to Patoka, Illinois where they can be moved via the Chicap Pipeline into the Enbridge (Lakehead) Mainline system at Mokena, near Chicago, Illinois and (iv) foreign crudes unloaded at Portland, Maine are shipped to Montreal then shipped on Enbridge’s line 9 to Westover, Ontario. We have also begun to receive US domestic crude (Bakken) via rail deliveries into Hamburg, NY where these volumes are trans-loaded and moved by truck to West Seneca, NY and into the Kiantone Pipeline.

The Kiantone Pipeline, a 78-mile Company-owned and operated pipeline, connects our West Seneca, New York terminal at the pipeline’s northern terminus to the refinery’s tank farm at its southern terminus. We completed construction of the Kiantone Pipeline in 1971 and have operated it continuously since then. We are the sole shipper on the Kiantone Pipeline, and can currently transport up to 70,000 bpd along the pipeline. Our right to maintain the pipeline is derived from approximately 265 separate easements, right-of-way agreements, licenses, permits, leases and similar agreements.

The pipeline operation is monitored by operators using a recently upgraded Supervisory Control and Data Acquisition (“SCADA”) system. Shipments of crude arriving at the West Seneca terminal are separated and stored in one of the terminal’s three storage tanks, which have an aggregate storage capacity of 413,000 barrels. The refinery tank farm has two additional crude storage tanks with a total capacity of 200,000 barrels. In the spring of 2014, construction of two new tanks should be completed, adding 300,000 barrels of storage at the refinery tank farm. An additional 35,000 barrels of crude can be stored at the refinery.

Refinery Turnarounds

Turnaround cycles vary for different refinery units. A planned turnaround of each of the two major refinery units (the crude unit and the FCC) is conducted approximately every three to five years, during which time such units are shut down for internal inspection and repair. Turnarounds occurred in October and November 2010 at our FCC unit and its related processing equipment, and in March and April 2011 at our crude unit and its related processing equipment. A major turnaround generally takes three to four weeks to complete and in the case of the two major refinery units, consists of moderate to extensive maintenance. The next major turnaround is scheduled for March 2014 and will include a complete plant shutdown.

We defer the cost of turnarounds when incurred and amortize them on a straight-line basis over the period of benefit, which ranges from 3 to 10 years (for tank turnarounds). Thus, we charge costs to production over the period most clearly benefited by the turnarounds.

The scheduled maintenance turnarounds result in an inventory build of petroleum products to meet minimum sales demand during the maintenance shutdown period.

Wholesale Marketing and Distribution

On a wholesale basis, our wholesale division sells gasoline, distillate and asphalt products to distributor, commercial and government accounts and we sell propane to liquefied petroleum gas marketers. Our wholesale gasoline customer base includes branded dealer/distributor units operating under our proprietary Keystone^® and Kwik Fill^® brand names and units operating under the Citgo^® brand pursuant to a license agreement granting us the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification. Approximately 20% of the gasoline stations within this network are branded Citgo^®.

In fiscal 2013, we sold on a wholesale basis approximately 45,000 bpd of gasoline, distillate and asphalt products to distributor, commercial, and government accounts. In addition, we sell approximately 1,000 bpd of propane to liquefied petroleum gas marketers. In fiscal year 2013, our production of gasoline, distillate, and asphalt sold at wholesale was 34%, 82%, and 100%, respectively. We sell approximately 98% of our wholesale gasoline and distillate products from our refinery in Warren, Pennsylvania, and our Company-owned and operated product terminals. The remaining 2% are sold through third-party exchange terminals.

We use a network of six terminals to store and distribute refined products. This network provides distillate and asphalt storage capacities of approximately 1,225,000 barrels as of August 31, 2013. During fiscal 2013, approximately 81% of our refined products were transported from the refinery via truck transports, with the remaining 19% transported by rail. All gasoline product is stored at the refinery. The majority of our wholesale and retail gasoline distribution is handled by common carrier trucking companies at competitive rates. We also operate a fleet of eight tank trucks that supply approximately 25% of our Kwik Fill^® retail stations.

In fiscal 2013, our retail network sold approximately 66% of our gasoline production and approximately 18% of our distillate production. The remaining 34% of gasoline production and 82% of distillate production was sold to wholesale customers.

Long-term dealer/distributor contracts accounted for approximately 16% of our wholesale gasoline sales in fiscal 2013. Supply contracts generally range from three to five years in length, with branded prices based on our prevailing wholesale rack price in Warren. Our wholesale gasoline customer base includes 48 branded dealer/distributor units operating under our proprietary “Keystone^®” and “Kwik Fill^®” brand names.

We distribute asphalt from the refinery by railcar or truck transport to end user contractors, in addition to re-supplying our asphalt terminals. We own or lease terminals in Springdale and Dravosburg, Pennsylvania; Tonawanda and Oswego, New York; and Cordova, Alabama.

We believe that the location of our refinery provides us with a transportation cost advantage over our competitors, which is significant within an approximately 100-mile radius of our refinery. For example, in Buffalo, New York over our last five fiscal years, including fiscal 2013, we have experienced an approximately 2.75 cents per gallon transportation cost advantage over those competitors who are required to ship gasoline by pipeline and truck from New York Harbor sources to Buffalo.

Our ability to market asphalt is critical to the performance of our refinery. Crude oil scheduling and a consistent marketing effort enables the refinery to process lower cost higher sulfur content crude oils, which in turn affords us higher refining margins. Sales of paving asphalt generally occur during the period May 1 through October 31 based on weather conditions. In order to maximize our in season asphalt sales, we increase our asphalt storage capacity through the lease of outside terminals. Partially mitigating the seasonality of the asphalt paving business is our ability to sell asphalt year-round to roofing shingle manufacturers. In fiscal year 2013, we sold 7.4 million barrels of asphalt.

We have a significant share of the asphalt market in southwestern New York and western and central Pennsylvania as well as in the greater metro areas of Pittsburgh, Pennsylvania and Rochester and Buffalo,

New York. We distribute asphalt from the refinery by railcar and truck transport to our owned and leased asphalt terminals in such cities or their suburbs. Asphalt can be purchased or exchanged in the Gulf Coast area and delivered by barge to third party or Company-owned terminals near Pittsburgh.

Product distribution costs to both retail and wholesale accounts are minimized through product exchanges. Through these exchanges, we have access to product supplies at approximately 18 sources located throughout our marketing area. We seek to minimize retail distribution costs through the use of a system wide distribution model.

Retail Operations

As of August 31, 2013, 169 of our retail units were located in New York, 177 in Pennsylvania and 12 in Ohio. The retail segment sells petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names and grocery items under the Red Apple Food Mart^® and Country Fair^® brand names. We believe that Red Apple Food Mart^®, Kwik Fill^®, Country Fair^®, Keystone^® and Citgo^® are well-recognized names in our marketing areas. Approximately 20% of the gasoline stations within this network are branded Citgo^® pursuant to a license agreement granting us the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification. In fiscal year 2013, approximately 66% of the refinery’s gasoline production was sold through our retail network. In addition to gasoline, many sell diesel fuel, all units sell convenience and grocery items through convenience stores under the Red Apple Food Mart^® and Country Fair^® brand names. As of August 31, 2013, we operated 358 units, of which 189 units are owned, 108 units are leased, and the remaining stores are operated under a management agreement. 100 are Quick Serve Restaurants (“QSRs”) including franchise operations and eight of the units are full-service truck stops. Customers may pay for purchases with credit cards including our own Kwik Fill^® credit card. In addition to this credit card, we maintain a fleet credit card catering to regional truck and automobile fleets. Sales of convenience products, which tend to have constant margins throughout the year, have served to reduce the effects of the seasonality inherent in gasoline retail margins. We maintain a 58% / 42% split between sales at our rural and urban units, balancing the higher volumes and lower gross margins in urban areas. We believe that the Company operation of our retail units provides us with a significant advantage over competitors that operate wholly or partly through dealer arrangements because we have greater control over pricing and operating expenses.

Retail Marketing and Distribution

We classify our retail stores into four categories: convenience stores, limited gasoline stations, truck stop facilities, and other stores. Convenience stores sell a wide variety of foods, snacks, cigarettes and beverages and also provide self-service gasoline. 100 of our 358 retail outlets include QSRs where food is prepared on the premises for retail sales and also distribution to our other nearby units that do not have in-store delicatessens. Limited gasoline stations sell gasoline, cigarettes, oil and related car care products and provide full service for gasoline customers. Truckstop facilities sell gasoline and diesel fuel on a self-service and full-service basis. All truckstops include either a full or mini convenience store.

Total merchandise sales for fiscal year 2013 were $275.2 million, with a gross profit of approximately $69.3 million. Gross margins on the sale of convenience merchandise averaged 25.2% for fiscal 2013 and have been relatively constant at 25.2% for the last three years.

Merchandise Supply

Tripifoods, Buffalo, New York is our primary wholesale grocery supplier for our entire chain. During fiscal year 2013, we purchased approximately 77.8% of our convenience merchandise from this vendor. Tripifoods supplies us with products including tobacco, candy, deli, grocery, health and beauty products, and sundry items. We also purchase coffee, dairy products, beer, soda, snacks, and novelty goods from direct store vendors for resale. We annually review our suppliers’ costs and services versus those of alternate suppliers. We believe that alternative sources of merchandise supply at competitive prices are readily available.

Location Performance Tracking

We maintain a store tracking mechanism to collect operating data including sales and inventory levels for our retail network. Data transmissions are made using personal computers, which are available at each location. Once verified, the data interfaces with a variety of retail accounting systems, which support daily, weekly, and monthly performance reports. These different reports are then provided to both the field management and administrative personnel. Upon completion of a capital project, management tracks “before and after” performance, to evaluate the return on investment which has resulted from the improvements.

Environmental Regulations

General

We are subject to extensive federal, state and local laws and regulations relating to fuel quality, pollution control and protection of the environment, such as those governing releases of certain materials to the air and water and the storage, treatment, transportation, disposal and clean-up of wastes located on land. As with the industry in general, compliance with existing and anticipated environmental laws and regulations increases the overall cost of business, including capital costs to construct, maintain and upgrade equipment and facilities.

Gasoline, Diesel Fuel, and Heating Oil Manufacturing Standards

Mandatory fuel regulations will continue to affect our operations including renewable fuel obligations, and future sulfur reductions.

Starting Jan. 1, 2013 the Company became an “obligated party” under the USEPA’s Renewable Fuel Standard (RFS) and is required to satisfy its Renewable Volume Obligation (“RVO”) on an annual basis. To meet the RVO, the Company’s fuels must either contain the mandated renewable fuel components, or credits must be purchased to cover any shortfall. The Company has met it’s RVO for 2013 and expects to also satisfy the requirements for 2014 without the purchase of credits, known as “RINs” (Renewable Identification Numbers). As the RFS program is currently structured, the RVO of all obligated parties will increase annually, while the ability to incorporate increasing volumes of renewable fuel components into fuel products remains limited. This phenomenon, better known as the “blend wall”, will be experienced throughout the industry and is expected to present challenges in future years. In 2013, the Company took the initial steps to address the issue of long-term RFS compliance by upgrading our rail and truck loading/unloading facilities at a cost of approximately $2.0 million. These improvements will increase our flexibility to receive deliveries of renewable fuel components from various sources. We will also continue to monitor proposals to amend the RFS to address the blend wall issue and evaluate its affect on future operations.

On July 20, 2010 the State of New York mandated that all heating oil sold in the state contain no more than 15 parts per million (ppm) sulfur beginning July 1, 2012. Pennsylvania has also lowered the sulfur content maximum starting July 1, 2016 from 5,000 ppm to 500 ppm. We are complying with the New York mandate and will comply with the Pennsylvania mandate when applicable.

The USEPA has proposed a new Tier 3 gasoline regulation which would call for a further reduction in the average sulfur content below the existing Tier 2 sulfur standard. They are considering a reduction in the refinery annual average maximum sulfur content from 30 ppm to 10 ppm. Currently in the “Proposed Rule” is a three year exemption for small refineries, which would include the Company, giving us a 2020 effective date rather than 2017. A preliminary estimate to modify the refinery process to meet this new requirement is approximately $20 million.

Over the past two years we have maintained compliance with the benzene standard that is part of the Mobile Source Air Toxics Rule No. 2 (MSAT II). We expect to purchase benzene credits for the 2013 compliance period at an estimated cost of $2.5 million.

In addition to the RFS, We are also monitoring closely all climate change and Greenhouse Gas (“GHG”) legislation, better known as Cap and Trade. We believe, however, that implementation of reasonable, incremental changes over time will not have a material adverse effect on the Company’s consolidated financial position or operations. The ultimate cost of future RFS compliance and GHG reduction mandates and their effect on our business are, however, unknown until all aspects of the programs are final and implementing regulations are available.

Retail Gasoline Stations

We currently operate gasoline stations in three states with underground petroleum product storage tanks and in the past have operated gasoline stations that are now closed. Federal and state statutes and regulations govern the installation, operation and removal from service of these underground storage tanks and associated piping and product dispensing systems. The operation of underground storage tanks and systems carries the risk of contamination to soil and groundwater with petroleum products. We manage this risk by promptly responding to actual and suspected leaks and spills and implementing remedial action plans meeting regulatory requirements. In addition to prompt response and remediation, we receive reimbursement for response costs associated with leaks and spills in the Commonwealth of Pennsylvania through the Underground Storage Tank Indemnification Fund.

Competition

Our primary market area is western New York and northwestern Pennsylvania and our core market area encompasses our Warren County base and the eight contiguous counties in New York and Pennsylvania. The principal competitive factors affecting our wholesale marketing business are the price and quality of our products, as well as the reliability and availability of supply and the location of multiple distribution points.

Petroleum refining is highly competitive. With respect to wholesale gasoline and distillate sales, we compete with Sun, Valero, Exxon-Mobil, and other refiners and marketers via the pipeline system. We primarily compete with Marathon Petroleum in the asphalt market, both in New York and Pennsylvania. Many of our principal competitors are integrated multinational oil companies that are substantially larger and better known than us. Because of their diversity, integration of operations, larger capitalization and greater resources, these major oil companies may be better able to withstand volatile market conditions, compete on the basis of price and more readily obtain crude oil in times of shortages.

The principal competitive factors affecting our refining operations are crude oil and other feedstock costs, refinery efficiency, refinery product mix and product distribution and transportation costs. Certain of our larger competitors have refineries, which are larger and more complex and, as a result, could have lower per barrel costs or higher margins per barrel of throughput. We have no crude oil reserves and are not engaged in exploration. We believe that we will continue to be able to obtain adequate crude oil and other feedstocks at generally competitive prices for the foreseeable future.

It is our view that the high construction costs and the stringent regulatory requirements inherent in petroleum refinery operations make it uneconomical for new competing refineries to be constructed in our primary market area. The nearest fuels refinery is over 160 miles from Warren, Pennsylvania and we believe that no significant production from such refinery is currently shipped into our primary market area. In addition, four refineries in PADD I were forced to shut down during the recent economic downturn. We believe this capacity rationalization should improve overall utilization by remaining refineries in PADD I, including us, and result in improved margins as demand improves.

The principal competitive factors affecting our retail marketing network are location, product price, overall appearance and cleanliness of stores and brand identification. Competition from large, integrated oil companies, supermarkets, and “big box” convenience store chains such as Wal-Mart and Sam’s Club, is expected to be ongoing. The principal competitive factors affecting our wholesale marketing business are the price and quality of our products, as well as the reliability and availability of supply and the location of multiple distribution points.

Employees

As of August 31, 2013, we had approximately 4,289 employees; 1,906 full-time and 2,383 part-time employees. Approximately 3,726 persons were employed at our retail units, 362 persons at our refinery, Kiantone Pipeline and at terminals operated by us, with the remainder at our office in Warren, Pennsylvania. We have entered into collective bargaining agreements with International Union of Operating Engineers Local No. 95, United Steel Workers of America Local No. 2122-A and General Teamsters Local Union No. 397 covering 237, 6, and 22 employees, respectively. The agreements expire on February 1, 2017, January 31, 2017 and July 31, 2014, respectively. We believe that our relationship with our employees is good.

Intellectual Property

We own various federal and state service and trademarks used by us, including Kwik Fill^®, United^®, Country Fair^®, SuperKwik^®, Keystone^®, SubFare^® and PizzaFare^®. Our subsidiary, Country Fair, and we have licensing agreements with Citgo Petroleum Corporation (“Citgo”) for the right to use Citgo’s applicable brand names, trademarks and other forms of Citgo’s identification for petroleum products purchased under a distributor franchise agreement.

We have obtained the right to use the Red Apple Food Mart^® service mark to identify our retail units under a royalty-free, nonexclusive, nontransferable license from Red Apple Supermarkets, Inc., a corporation which is indirectly wholly owned by John A. Catsimatidis, the indirect sole stockholder, Chairman of the Board and Chief Executive Officer of the Company. The license is for an indefinite term. The licensor has the right to terminate this license in the event that we fail to maintain quality acceptable to the licensor. We license the right to use the Keystone^® trademark to approximately 39 independent distributors on a non-exclusive royalty-free basis.

We currently do not own any material patents. Management believes that the Company does not infringe upon the patent rights of others, nor does our lack of patent ownership impact our business in any material manner.

Governmental Approvals

We believe we have obtained all necessary governmental approvals, licenses, and permits to operate the refinery and convenience stores.

Financing

On August 30, 2013 the Company redeemed $127,750,000 aggregate principal amount of its outstanding $365,000,000 10.500% First Priority Senior Secured Notes due 2018 (“Senior Secured Notes due 2018”). Funding for the redemption was provided by the Company’s sale of approximately $141,163,750 of 6.00% Fixed Rate Cumulative Perpetual Preferred Stock Series A (“Preferred Stock”, see Note 13) to United Refining, Inc. (“URI”), its parent (see Note 14). In accordance with the indenture governing the Senior Secured Notes due 2018, the Company obtained an opinion concerning the fairness from a financial point of view of the issuance of the Preferred Stock to URI.

The Senior Secured Notes due 2018 were redeemed at a redemption price of 110.50% of the principal amount thereof, plus accrued and unpaid interest to August 30, 2013. In connection with the redemption, a loss of $18,727,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $13,414,000, a write-off of deferred financing costs of $1,998,000 and a write-off of unamortized debt discount of $3,315,000.

fee on the unused balance of the facility was reduced to 0.25%. The maximum facility commitment remains at $175,000,000 and interest will now be calculated as follows: for base rate borrowings, at the greater of the Agent’s prime rate, federal funds open rate plus 0.5% or the daily LIBOR rate plus 1.0% plus the applicable margin of .75% to 1.75% and (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 2.25% to 3.25%. The applicable margin will vary depending on a formula calculating the Company’s unused availability under the facility. Until maturity, the Company may borrow on a borrowing base formula as set forth in the facility. The participating banks in the Amended and Restated Revolving Credit Facility are PNC Bank, National Association, Bank of America, N.A., Manufacturers and Traders Trust Company, and Bank Leumi USA. The applicable margin varies with our facility leverage ratio calculation. The Agent Bank’s prime rate at August 31, 2013 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 outstanding letters of credit of $6,533,000 as of August 31, 2013. As of August 31, 2013, we had no outstanding borrowings under the Revolving Credit Facility resulting in net availability of $168,467,000.

ITEM 1A.

RISK FACTORS.

Risks Relating to the Business

Our ability to pay interest and principal on the Senior Secured Notes due 2018 and to satisfy our other debt obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, most of which are beyond our control. We anticipate that our operating cash flow, together with borrowings under the Revolving Credit Facility, will be sufficient to meet our operating expenses and capital expenditures, to sustain operations and to service our interest requirements as they become due.

The Company’s 10.5% Senior Secured Notes mature in 2018, at which time the Company will either have to pay the principal amount in full or refinance the Notes.

If we are unable to generate sufficient cash flow to service our indebtedness and fund our capital expenditures, we will be forced to adopt an alternative strategy that may include reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness (including the notes) or seeking additional equity capital. There can be no assurance that any of these strategies could be affected on satisfactory terms, if at all. Our ability to meet our debt service obligations will be dependent upon our future performance which, in turn, is subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

The price volatility of crude oil, other feedstocks, refined petroleum products and fuel and utility services may have a material adverse effect on our earnings, cash flows and liquidity.

Our refining earnings, cash flows and liquidity from operations depend primarily on the margin above operating expenses (including the cost of refinery feedstocks, such as crude oil and natural gas liquids that are processed and blended into refined products) at which we are able to sell refined products. Refining is primarily a margin-based business and, to increase earnings, it is important to maximize the yields of high value finished products while minimizing the costs of feedstock and operating expenses. When the margin between refined product prices and crude oil and other feedstock costs contracts, our earnings, and cash flows are negatively affected. Refining margins historically have been volatile, and are likely to continue to be volatile, as a result of a variety of factors, including fluctuations in the prices of crude oil, other feedstocks, refined products and fuel and

utility services. While an increase or decrease in the price of crude oil may result in a similar increase or decrease in prices for refined products, there may be a time lag in the realization of the similar increase or decrease in prices for refined products. The effect of changes in crude oil prices on our refining margins therefore depends in part on how quickly and how fully refined product prices adjust to reflect these changes.

In addition, the nature of our business requires us to maintain substantial refined product inventories. Because refined products are commodities, we have no control over the changing market value of these inventories. Our refined product inventory is valued at the lower of cost or market value under the last-in, first-out (“LIFO”), inventory valuation methodology. If the market value of our refined product inventory were to decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of sales.

Prices of crude oil, other feedstocks and refined products depend on numerous factors beyond our control, including the supply of and demand for crude oil, other feedstocks, gasoline, diesel, asphalt and other refined products. Such supply and demand are affected by, among other things:

•

changes in global and local economic conditions;

•

domestic and foreign demand for fuel products, especially in the United States, China and India;

•

worldwide political conditions, particularly in significant oil producing regions such as the Middle East, West Africa and Latin America;

•

the level of foreign and domestic production of crude oil and refined products and the volume of crude oil, feedstock and refined products imported into the United States;

•

availability of and access to transportation infrastructure;

•

utilization rates of U.S. refineries;

•

the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to affect oil prices and maintain production controls;

•

development and marketing of alternative and competing fuels;

•

commodities speculation;

•

natural disasters (such as hurricanes and tornadoes), accidents, interruptions in transportation, inclement weather or other events that can cause unscheduled shutdowns or otherwise adversely affect our refinery;

•

federal and state government regulations and taxes; and

•

local factors, including market conditions, weather conditions and the level of operations of other refineries and pipelines in our markets.

Our direct operating expense structure also impacts our earnings. Our major direct operating expenses include employee and contract labor, maintenance and energy costs. Our predominant variable direct operating cost is energy, which is comprised primarily of fuel and other utility services. The volatility in costs of fuel, principally natural gas, and other utility services, principally electricity, used by our refinery and other operations affect our operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets. Natural gas prices have historically been volatile and, typically, electricity prices fluctuate with natural gas prices. Future increases in fuel and utility prices may have a negative effect on our earnings and cash flows.

Volatility in refined product prices also affects our borrowing base under our revolving credit facility. A decline in prices of our refined products reduces the value of our refined product inventory collateral, which, in turn, may reduce the amount available for us to borrow under our revolving credit facility.

Our results of operations are affected by crude oil differentials, which may fluctuate substantially.

Our results of operations are affected by crude oil differentials, which may fluctuate substantially. Since 2010, refined product prices have been more correlated to prices of Brent crude oil (“Brent”) than to NYMEX WTI, the traditional U.S. crude oil benchmark, as the discount to which a barrel of NYMEX WTI traded relative to a barrel of Brent has widened significantly relative to historical levels. This differential has also been very volatile as a result of various continuing geopolitical events.

We are subject to interruptions of supply and distribution as a result of our reliance on pipelines for our supply of crude oil. Prolonged disruption to the Enbridge Pipeline or the Kiantone Pipeline may have a material adverse effect on our business, results of operations or financial condition.

Our refinery receives substantially all of its crude oil through pipelines. We could experience an interruption of supply, or an increased cost of receiving crude oil, if the ability of these pipelines to transport crude oil or blendstocks is disrupted because of accidents, weather interruptions, governmental regulation, terrorism, other third party action or any of the types of events described in the preceding risk factor.

We obtain substantially all of our crude oil supply through pipelines owned and operated by Enbridge Energy Partners (“Enbridge Pipeline”), and the Kiantone Pipeline, which we own and operate. Any prolonged disruption to the operations of our refinery, the Enbridge Pipeline or the Kiantone Pipeline, whether due to labor difficulties, destruction of or damage to such facilities, severe weather conditions, interruption of utilities service or other reasons, would have a material adverse effect on our business, results of operations or financial condition. Further, our property and business interruption insurance may not compensate us adequately for any losses that occur.

In addition, due to the common carrier regulatory obligation applicable to interstate oil pipelines, capacity must be prorated among shippers in an equitable manner in accordance with the tariff then in effect in the event there are nominations in excess of capacity. Therefore, nominations by new shippers or increased nominations by existing shippers may reduce the capacity available to us with respect to the Enbridge pipeline system. Any prolonged interruption in the operation or curtailment of available capacity of the pipelines that we rely upon for transportation of crude oil could have a material adverse effect on our business, financial condition, results of operations and cash flows and, as a result, our ability to make distributions.

The dangers inherent in our operations could cause disruptions and could expose us to potentially significant losses, costs or liabilities and reduce our liquidity. We are particularly vulnerable to disruptions in our operations because all of our refining operations are conducted at a single facility.

Our operations are subject to significant hazards and risks inherent in refining operations and in transporting and storing crude oil, intermediate products and refined products. These hazards and risks include, but are not limited to, natural disasters, fires, explosions, pipeline ruptures and spills, third party interference and mechanical failure of equipment at our facilities, any of which could result in production and distribution difficulties and disruptions, pollution (such as oil spills, etc.), personal injury or wrongful death claims and other damage to our properties and the property of others.

There is also risk of mechanical failure and equipment shutdowns both in the normal course of operations and following unforeseen events. In such situations, undamaged refinery processing units may be dependent on, or interact with, damaged process units and, accordingly, are also subject to being shut down.

Because all of our refining operations are conducted at a single refinery, any of such events at our refinery could significantly disrupt our production and distribution of refined products. Any sustained disruption would have a material adverse effect on our business, financial condition, results of operations and cash flows and, as a result, our ability to make distributions.

Our suppliers source substantially all of our crude oil from Canada and the northern plain states and may experience interruptions of supply from those regions.

Our suppliers source substantially all of our crude oil from Canada and the northern plain states. As a result, we may be disproportionately exposed to the impact of delays or interruptions of supply from those regions caused by transportation capacity constraints, curtailment of production, unavailability of equipment, facilities, personnel or services, significant governmental regulation, natural disasters, adverse weather conditions, plant closures for scheduled maintenance or interruption of transportation of oil or natural gas produced from the wells in those areas.

Competition from companies having greater financial and other resources than we do could materially and adversely affect our business and results of operations.

Our refining operations compete with domestic refiners and marketers in the PADD I region of the United States, as well as with domestic refiners in other PADD regions and foreign refiners that import products into the United States. In addition, we compete with producers and marketers in other industries that supply alternative forms of energy and fuels to satisfy the requirements of our industrial, commercial and individual customers. Certain of our competitors have larger, more complex refineries, and may be able to realize lower per-barrel costs or higher margins per barrel of throughput. Several of our principal competitors are integrated national or international oil companies that are larger and have substantially greater resources than we do and have access to proprietary sources of controlled crude oil production. Unlike these competitors, we obtain substantially all of our feedstocks from unaffiliated sources. Because of their integrated operations and larger capitalization, these companies may be more flexible in responding to volatile industry or market conditions, such as shortages of crude oil supply and other feedstocks or intense price fluctuations.

Newer or upgraded refineries will often be more efficient than our refinery, which may put us at a competitive disadvantage. While we have taken significant measures to maintain and upgrade units in our refinery by installing new equipment and repairing equipment to improve our operations, these actions involve significant uncertainties, since upgraded equipment may not perform at expected throughput levels, the yield and product quality of new equipment may differ from design specifications and modifications may be needed to correct equipment that does not perform as expected. Any of these risks associated with new equipment, redesigned older equipment or repaired equipment could lead to lower revenues or higher costs or otherwise have an adverse effect on future results of operations and financial condition and our ability to make distributions. Over time, our refinery may become obsolete, or be unable to compete, because of the construction of new, more efficient facilities by our competitors.

We may incur significant liability under, or costs and capital expenditures to comply with, environmental, health and safety regulations, which are complex and change frequently.

Our refinery and pipelines operations are subject to federal, state and local laws regulating, among other things, the generation, storage, handling, use, treatment and transportation of petroleum and hazardous substances, the emission and discharge of materials into the environment, waste management, characteristics and composition of gasoline and diesel and other matters otherwise relating to the protection of the environment. Our operations are also subject to various laws and regulations relating to occupational health and safety. Compliance with the complex array of federal, state and local laws relating to the protection of the environment, health and safety is difficult and likely will require us to make significant expenditures. Moreover, our business is inherently subject to accidental spills, discharges or other releases of petroleum or hazardous substances into the environment including at neighboring areas or third party storage, treatment or disposal facilities. Certain environmental laws impose joint and several liability without regard to fault or the legality of the original conduct in connection with the investigation and cleanup of such spills, discharges or releases. As such, we may be required to pay more than our fair share of such investigation or cleanup. We may not be able to operate in compliance with all applicable environmental, health and safety laws, regulations and permits at all times.

Violations of applicable legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations, injunctions and/or facility shutdowns. We may also be required to make significant capital expenditures or incur increased operating costs or change operations to achieve compliance with applicable standards.

We cannot predict what additional environmental, health and safety 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 our operations. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. For example, on June 1, 2012, the U.S. Environmental Protection Agency (“EPA”) issued final amendments to the New Source Performance Standards (“NSPS”) for petroleum refineries, including standards for emissions of nitrogen oxides from process heaters and work practice standards and monitoring requirements for flares. We are evaluating the regulation and amended standards, as may be applicable to the flare, process heaters and operations at our refinery. We cannot currently predict the costs that we may have to incur, if any, to comply with the amended NSPS, but costs could be material. In addition, the EPA has announced that it plans to propose new “Tier 3” motor vehicle emission and fuel standards sometime in the first half of 2014. It has been reported that these new Tier 3 regulations may, among other things, lower the maximum average sulfur content of gasoline from 30 parts per million to 10 parts per million. If the Tier 3 regulations are eventually implemented and lower the maximum allowable content of sulfur or other constituents in fuels that we produce, we may at some point in the future be required to make significant capital expenditures and/or incur materially increased operating costs to comply with the new standards. Expenditures or costs for environmental, health and safety compliance could have a material adverse effect on our results of operations, financial condition and profitability and, as a result, our ability to make distributions.

Compliance with and changes in tax laws could adversely affect our performance.

We are subject to extensive tax liabilities, including federal, state and transactional taxes such as excise, sales/use, payroll, franchise, withholding and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. There can be no certainty of the effect that increases in taxes, or imposition of new taxes, could have on us, or whether such taxes would be passed on to our customers. Certain of these liabilities are subject to periodic audits by the respective taxing authority, which could increase our tax liabilities. Subsequent changes to our tax liabilities as a result of these audits may also subject us to interest and penalties.

A decrease in government funding for paving activity could lead to a decrease in demand for asphalt, which could materially adversely affect refining margins.

In fiscal 2013, asphalt sales represented 16% of our total revenues. Over the same period, approximately 89% of our asphalt was produced for use in paving or repaving roads and highways. The level of paving activity is, in turn, dependent upon funding available from federal, state and local governments. Funding for paving has been affected in the past, and may be affected in the future, by budget difficulties at the federal, state or local levels. A decrease in demand for asphalt could cause us to sell asphalt at significantly lower prices or to curtail production of asphalt by processing more costly lower sulfur content crude oil which would adversely affect refining margins.

We have an Indirect controlling stockholder.

John A. Catsimatidis indirectly owns all of our outstanding voting stock. By virtue of such stock ownership, Mr. Catsimatidis has the power to control all matters submitted to our stockholder and to elect all of our directors.

Our pension plans are currently underfunded.

Substantially all of our employees are covered by three noncontributory defined benefit pension plans. As of August 31, 2013, as measured under ASC 715 (which is not the same as the measure used for purposes of calculating required contributions and potential liability to the Pension Benefit Guaranty Corporation, or PBGC), the aggregate accumulated benefit obligation under our pension plans was approximately $107.1 million and the value of the assets of the plans was approximately $80.2 million. In fiscal 2013, we contributed $5.2 million to the three plans, and we have made additional contributions to our pension plans of $2.4 million in fiscal year 2014. If the performance of the assets in our pension plans does not meet our expectations or if other actuarial assumptions are modified, our contributions for future years could be higher than we expect.

In June 2010, the Company announced changes to the healthcare and pension plans provided to salaried employees. Effective September 1, 2010, postretirement medical benefits for new hires and active salaried employees retiring after September 1, 2010 were eliminated. Additionally, effective January 1, 2011, deductibles and co-payments were added to the medical benefits plan for all active and retired employees. For salaried employees meeting certain age and service requirements, the Company will contribute a defined dollar amount towards the cost of retiree healthcare based upon the employee’s length of service. Similarly, effective August 31, 2010, benefits under the Company’s defined benefit pension plan were frozen for all salaried employees, including the Company’s Chief Executive Officer and Chief Financial Officer. The Company will provide an enhanced contribution under its defined contribution 401(k) plan as well as a transition contribution for older employees. The changes made for the salary group described above were also incorporated into the collective bargaining agreement reached with the International Union of Operating Engineers, Local No. 95 effective February 1, 2012.

Our pension plans are subject to the Employee Retirement Income Security Act of 1974, or ERISA. Under ERISA, the PBGC generally has the authority to terminate an underfunded pension plan if the possible long-run loss of the PBGC with respect to the plan may reasonably be expected to increase unreasonably if the plan is not terminated. In the event our pension plans are terminated for any reason while the plans are underfunded, we will incur a liability to the PBGC that may be equal to the entire amount of the underfunding.

Risks Relating to Senior Secured Notes due 2018 and Revolving Credit Facility.

The indenture governing our Senior Secured Notes due 2018 and our revolving credit facility contain certain covenants that may inhibit our ability to make certain investments, incur certain additional indebtedness and engage in certain other transactions, which could adversely affect our ability to pursue our business strategies.

The indenture governing our senior secured notes and our revolving credit facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability, among other things, to:

•

incur, assume or guarantee additional debt or issue redeemable stock or preferred stock;

•

make distributions or prepay, redeem, or repurchase certain debt;

•

enter into agreements that restrict distributions from restricted subsidiaries;

•

incur liens;

•

sell or otherwise dispose of assets, including capital stock of subsidiaries;

•

enter into new lines of business;

•

enter into transactions with affiliates; and

•

merge, consolidate or sell substantially all of our assets.

A breach of the covenants under the indenture governing the senior secured notes or under the credit agreement governing the revolving credit facility could result in an event of default under the applicable indebtedness. Such default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under our revolving credit facility would permit the lenders under our revolving credit facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our revolving credit facility or indenture, those creditors could proceed against the collateral granted to them to secure that indebtedness.

In the event our lenders or noteholders accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be:

•

limited in how we conduct our business;

•

unable to raise additional debt or equity financing to operate during general economic or business downturns; or

•

unable to compete effectively or to take advantage of new business opportunities.

The Senior Secured Notes due 2018 are secured by certain assets of the Company and a foreclosure on such liens could adversely affect our business.

The Senior Secured Notes due 2018 are secured by a pledge of the stock of our subsidiary Kiantone Pipeline Corporation and, subject to certain exceptions, by a mortgage lien on and a security interest in the assets comprising the refinery. In case of a continuing event of default by the Company, the collateral agent may exercise all rights of a mortgagee and/or secured party under applicable law, including, without limitation, transferring to itself or a nominee title to such collateral, which could adversely affect our business.

We may issue additional notes and enter into hedging activities that would be secured by the same collateral securing the Senior Secured Notes due 2018.

Subject to the covenants and conditions contained in the indenture, we are permitted to issue additional notes and enter into hedging obligations secured by a lien that ranks equally with the Senior Secured Notes due 2018. In addition, the estimated net book value of the collateral is substantially less than the outstanding principal amount of the Senior Secured Notes due 2018 and the mortgage on the refinery is limited to a stated maximum principal amount of $450 million. To the extent that the Senior Secured Notes due 2018, any obligations in respect of hedging arrangements and any other obligations secured by the mortgage exceed $450 million, the principal amount of such obligations in excess of such capped amount is not secured by the mortgage. Moreover, by its nature, some or all of the collateral may be illiquid and may have no readily ascertainable market value. Any additional obligations, and the limited net book value and potential illiquidity of the collateral, may limit the recovery from the realization of the value of such collateral available to satisfy the holders of the Senior Secured Notes due 2018.

Our ability to repurchase the Senior Secured Notes due 2018 upon a change of control may be limited.

Upon the occurrence of specified change of control events, we are required to offer to repurchase all outstanding Senior Secured Notes due 2018 at 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase. The lenders under the Amended and Restated Revolving Credit Facility have the right to accelerate the indebtedness thereunder upon a change of control. Any of our future debt agreements may contain similar provisions. However, we may not have sufficient funds at the time of the change of control to make the required repurchase of Senior Secured Notes due 2018 or repayment of our other indebtedness. The terms of the Amended and Restated Revolving Credit Facility also limit our ability to purchase the Senior Secured Notes due 2018 until all debt under the Amended and Restated Revolving Credit Facility is paid in full. Any of our future debt agreements may contain similar restrictions. If we fail to repurchase any Senior Secured Notes due 2018 submitted in a change of control offer, it would constitute an event of default under the indenture governing the Senior Secured Notes due 2018 which could, in turn, constitute an event of default under our other indebtedness, even if the change of control itself would not cause a default.

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

Not Applicable.

ITEM 2.

PROPERTIES.

We own a 107-acre site in Warren, Pennsylvania upon which we operate our refinery. The site also contains an office building housing our principal executive office.

We own various real property in the states of Pennsylvania, New York, Ohio, and Alabama, upon which, as of August 31, 2013, we operated 189 retail units and two crude oil and six refined product storage terminals. We also own the 78-mile long Kiantone Pipeline, a pipeline which connects our crude oil storage terminal to the refinery’s tank farm. Our right to maintain the pipeline is derived from approximately 265 separate easements, right-of-way agreements, leases, permits, and similar agreements. We also have easements, right-of-way agreements, leases, permits, and similar agreements that would enable us to build a second pipeline on property contiguous to the Kiantone Pipeline. We also own a partially completed 50 million gallon per year biodiesel facility in Brooklyn, New York.

As of August 31, 2013, we also lease an aggregate of 167 sites in Pennsylvania, New York, and Ohio upon which we operate retail units.

ITEM 3.

LEGAL PROCEEDINGS.

The Company and its subsidiaries are from time to time parties to various legal proceedings that arise in the ordinary course of their respective business operations. These proceedings include various administrative actions relating to federal, state and local environmental laws and regulations as well as civil matters before various courts seeking money damages. The Company believes that if the legal proceedings in which it is currently involved were determined against the Company, there would be no material adverse effect on the Company’s operations or its consolidated financial condition. In the opinion of management, all such matters are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involve such amounts that an unfavorable disposition would not have a material adverse effect on the consolidated operations or financial position of the Company.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

On July 26, 2013, the Company issued and sold to URI in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, 14,116.375 shares of the Series A Preferred Stock for an aggregate purchase price of $141,163,750 in accordance with the terms and provisions of a Subscription Agreement by and between the Company and URI.

ITEM 6.

SELECTED FINANCIAL DATA.

The following table sets forth certain historical financial and operating data (the “Selected Information”) as of the end of and for each of the years in the five-year period ended August 31, 2013. The selected income statement, balance sheet, financial and ratio data as of and for each of the five-years ended August 31, 2013 has been derived from our audited consolidated financial statements. The operating information for all periods presented has been derived from our accounting and financial records. The Selected Information set forth below

should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and Notes thereto in Item 8 and other financial information included elsewhere herein.


	Year Ended August 31,
	2013			2012			2011			2010			2009
	(in thousands)
Income Statement Data:
Net sales	$	3,681,253		$	3,730,925		$	3,166,876		$	2,654,401		$	2,387,171
Refining operating expenses (1)		119,549			103,001			106,715			111,078			123,171
Selling, general and administrative expenses		163,874			157,581			149,456			150,825			144,943
Operating income (loss)		328,608			358,350			33,332			(78,091	)		91,468
Interest expense		39,530			40,913			40,567			35,177			(36,006	)
Interest income		495			44			17			6			134
Other, net		(3,819	)		(4,711	)		(2,564	)		(1,518	)		(1,471	)
Equity in net earnings of affiliate		—			—			—			—			41
(Loss) / gain on early extinguishment of debt		(18,727	)		—			(1,245	)		—			10,096
Income (Loss) before income tax expense (benefit)		267,027			312,770			(11,027	)		(114,780	)		64,262
Income tax expense (benefit)		98,344			121,954			(3,619	)		(38,646	)		26,235
Net income (loss)		168,683			190,816			(7,408	)		(76,134	)		38,027
Less net income attributable to non-controlling interest		—			—			711			—			—
Net income (loss) attributable to United Refining Company’s stockholder		168,683			190,816			(8,119	)		(76,134	)		38,027

Balance Sheet Data (at end of period):
Total assets		796,295			728,330			670,611			637,103			670,854
Total debt		238,706			359,996			381,087			413,053			331,576
Total stockholder’s equity		357,203			141,276			20,753			26,237			70,814

(1)	Refinery operating expenses include refinery fuel produced and consumed in refinery operations.

ITEM 7.

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

Forward Looking Statements

This Annual Report on Form 10-K 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 Annual Report on Form 10-K.

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, current reports on Form 8-K, etc. In addition to the factors discussed elsewhere in this Annual Report 10-K, 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;

•

repayment of debt;

•

the effect of the current banking and credit crisis on the Company and our customers and suppliers;

•

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

•

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 Annual Report on Form 10-K.

Business Strategy and Overview

Our primary business objective is to strengthen our position as a leading producer and marketer of high quality refined petroleum products within our market area. We plan to accomplish this strategy through

continued attention to optimizing our operations, resulting in the lowest possible operating costs, and continuing to improve and enhance our retail and wholesale positions. More specifically, we intend to:

•

Maximize the favorable economic impact of our transportation cost advantage by increasing our retail and wholesale market shares within our market area.

•

Optimize profitability by managing feedstock costs, product yields, and inventories through our refinery feedstock management program and our system-wide distribution model. We seek to maximize refinery profitability by selecting crude oil and other feedstocks taking into account product demand and pricing in our market areas, price, quality and availability of various grades of crude oil, product inventory levels and planned turnarounds of refinery units for maintenance. The combination of these factors is optimized by a sophisticated proprietary linear programming computer model, which selects the most profitable feedstock and product mix. The linear programming model is continuously updated and improved to reflect changes in the product market place and in our refinery’s processing capability

•

Continue to investigate strategic acquisitions.

•

Develop high payback discretionary capital improvements to our existing facilities.

Critical Accounting Policies

The accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements, Item 8. Inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities. As such, materially different financial results can occur as circumstances change and additional information becomes known. The policies with the greatest potential effect on our results of operation and financial position include:

Revenue Recognition

Revenues for products sold by the retail segment are recognized immediately upon sale to the customer. Revenue derived from other sources including freight charges are recognized when the related product revenue is recognized.

Collectability of Accounts Receivable

For accounts receivable we estimate the net collectability considering both historical and anticipated trends relating to our customers and the possibility of non-collection due to their financial position. While such non-collections have been historically within our expectations and the allowances the Company has established, the Company cannot guarantee that it will continue to experience non-collection rates that it has experienced in the past. A significant change in the financial position of our customers could have a material impact on the quality of our accounts receivable and our future operating results.

Goodwill and Other Non-Amortizable Assets

In accordance with ACS 350, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. We assess the impairment of goodwill and other indefinite-lived intangible assets annually.

The Company performed separate impairment tests on June 1, 2013 for its tradename and other intangible assets using discounted and undiscounted cash flow methods, respectively. The fair value of the tradename and other intangible assets exceeded their respective carrying values. The Company has noted no subsequent indication that would require testing the tradename and intangible assets for impairment.

There were no material changes in the gross carrying amounts of goodwill, tradename, or other intangible assets for fiscal 2012.

Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying value of any of these assets may not be recoverable, the Company will assess the recoverability of such assets based upon estimated undiscounted cash flow forecasts. When any such impairment exists, the related assets will be written down to fair value.

Value of Pension Assets

The Company maintains three noncontributory defined benefit retirement plans for substantially all its employees. The assets of the plans are invested with a financial institution that follows an investment policy drafted by the Company. The investment guidelines provide a percentage range for each class of assets to be managed by the financial institution. The historic performance of these asset classes supports the Company’s expected return on the assets. The asset classes are rebalanced periodically should they fall outside the range allocations.

The percentage of total asset allocation range is as follows:


Asset Class	Minimum			Maximum
Equity		55	%		75	%
Fixed Income		20	%		30	%
Alternative Investments		0	%		12	%
Cash or Cash Equivalents		0	%		10	%

The discount rate utilized in valuing the benefit obligations of the plans was derived from the rate of return on high quality bonds as of August 31, 2013. Similarly, the rate of compensation utilizes historic increases granted by the Company and the industry as well as future compensation policies. See Note 10 to “Consolidated Financial Statements, Item 8”.

Environmental Remediation and Litigation Reserve Estimations

Management also makes judgments and estimates in recording liabilities for environmental cleanup and litigation. Liabilities for environmental remediation are subject to change because of matters such as changes in laws, regulations and their interpretation; the effect of additional information on the extent and nature of site contamination; and improvements in technology. Likewise, actual litigation costs can vary from estimates based on the facts and circumstance and application of laws in individual cases.

The above assessment of critical accounting policies is not meant to be an all-inclusive discussion of the uncertainties to financial results that occur from the application of the full range of the Company’s accounting policies. Materially different financial results could occur in the application of other accounting policies as well. Likewise, materially different results can occur upon the adoption of new accounting standards promulgated by the various rule-making bodies.

General

The Company is engaged in the refining and marketing of petroleum products. In fiscal 2013, approximately 66% and 18% of the Company’s gasoline and distillate production, respectively, was sold through the Company’s network of service stations and truck stops. The balances of the Company’s refined products were

sold to wholesale customers. In addition to transportation and heating fuels, primarily gasoline and distillate, the Company is a major regional wholesale marketer of asphalt. The Company also sells convenience merchandise at convenience stores located at most of its service stations. The Company’s profitability is influenced by fluctuations in the market prices of crude oils and refined products. Although the Company’s product sales mix helps to reduce the impact of large short-term variations in crude oil price, net sales and costs of goods sold can fluctuate widely based upon fluctuations in crude oil prices. Specifically, the margins on wholesale gasoline and distillate tend to decline in periods of rapidly declining crude oil prices, while margins on asphalt, retail gasoline and distillate tend to improve. During periods of rapidly rising crude oil prices, margins on wholesale gasoline and distillate tend to improve, while margins on asphalt and retail gasoline and distillate tend to decline. Gross margins on the sale of convenience merchandise averaged 25.2% for fiscal 2013 and have been between 25.2% and 25.8% for the last five years and are essentially unaffected by variations in crude oil and petroleum products prices.

The Company includes in costs of goods sold operating expenses incurred in the refining process. Therefore, operating expenses reflect only selling, general and administrative expenses, including all expenses of the retail network, and depreciation and amortization.

Recent Developments

On July 26, 2013, the Board of Directors of the Company and the Company’s sole stockholder, URI, approved, and the Company filed with the Secretary of State of the Commonwealth of Pennsylvania, an Amended and Restated Articles of Incorporation of the Company (the “Amendment”). Pursuant to the Amendment:

•

The capital stock of the Company was increased from 100 to 50,100, of which 50,000 were designated as preferred stock;

•

The personal liability of directors for monetary damages for any action taken, or the failure to take any action, as a director after January 27, 1987, was eliminated to the fullest extent of the law;

•

The Company added an indemnification provision enabling the Company to indemnify directors, officers, employees or agents of the Company in claims related to such service; and

•

Shareholders may take action by written consent without a meeting.

Out of the preferred stock, the Board of Directors created the 6% Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) and the Amendment included the designations of the rights and preferences of such series. Among other things, the Series A Preferred Stock, of which the Company is authorized to issue a maximum of 25,000, carry the following rights:

•

The Series A Preferred Stock rank: (i) senior to the Company’s common stock; (ii) senior to all other classes of equity securities other than preferred stock which by their terms do not rank senior to the Series A Preferred Stock; and (iii) on parity with any other series of the Company’s preferred stock that does not provide it ranks junior to the Series A Preferred Stock;

•

The Series A Preferred Stock shall receive dividends at a rate of 6.00% of the Stated Value, which is $10,000, per annum;

•

The Series A Preferred Stock shall have no voting rights unless otherwise required by law;

•

In the event dividends have not been paid in the aggregate amount payable for six or more Dividends Periods, holders of the Series A Preferred Stock shall be entitled to elect two directors to the Board of Directors, who shall remain directors until all accumulated and unpaid dividends on the Series A Preferred Stock have been paid in full or set aside for payment. Upon the payment or set aside of such dividends, the term of office of the directors appointed by the holders of the Series A Preferred Stock shall terminate and the size of the Board of Directors shall automatically decrease by two; and

•

The Series A Preferred Stock are perpetual and have no maturity date. However, the Company may, at its option, redeem shares of the Series A Preferred Stock, in whole or in part, on any Dividend Repayment Date on or after July 26, 2023 at a price of $10,000 per share plus accrued and unpaid dividends.

On July 26, 2013, the Company issued and sold to URI 14,116.375 shares of the Series A Preferred Stock for an aggregate purchase price of $141,163,750 in accordance with the terms and provisions of a Subscription Agreement by and between the Company and URI (the “Subscription Agreement”). The Subscription Agreement contained customary representations and warranties concerning the acquisition of the Series A Preferred Stock by URI and restrictions on the transfer of the Series A Preferred Stock.

On July 29, 2013, the Company announced it initiated the redemption of $127,750,000 aggregate principal amount of its outstanding $365,000,000 Senior Secured Notes due in 2018. The redemption represented 35% of the initial aggregate principal amount of the Senior Secured Notes due 2018. Funding for the redemption came from the sale of the Series A Preferred Stock. In accordance with the Indenture governing the Senior Secured Notes due 2018, the Company obtained an opinion concerning the fairness from a financial point of view of the issuance of the Series A Preferred Stock to URI upon the terms of the Subscription Agreement. Senior Secured Notes due 2018 in the aggregate principal amount of $127,750,000 were redeemed on August 30, 2013 at a redemption price of 110.500% of the principal amount thereof, plus accrued and unpaid interest to August 30, 2013.

The Company continues to be impacted by the volatility in petroleum markets in fiscal year 2013. 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, have been negatively affected through October. 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 in September, the first month of fiscal 2014 averaged $12.73 as compared to an average of $21.34, for August, 2013, a decrease of $8.61 or 40%. The lagged crackspread in October weakened to $9.38 as compared to September, a decrease of $3.37 or 26%. The lagged crackspread for the month of November, calculated on November 15, 2013 was $15.01.

Through November 15, 2013 the indicated lagged crackspread for the first quarter of fiscal 2014 was $12.38, a $13.04 or 51% decrease from the average for the fourth quarter of fiscal 2013. The indicated lagged crackspread for our second quarter ending February 28, 2014, calculated as of November 15, 2013 was $20.91.

Results of Operations

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

The wholesale segment is responsible for the acquisition of crude oil, petroleum refining, supplying petroleum products to the retail segment and the marketing of petroleum products to wholesale and industrial customers. The retail segment sells petroleum products under the Kwik Fill^®, Citgo^® and Keystone^® brand names 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 (See Item 8), 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


	Fiscal Year Ended August 31,
	2013			2012			2011
	(in thousands)
Net Sales
Petroleum	$	1,446,453		$	1,448,009		$	1,360,106
Merchandise and other		275,172			278,038			263,662

Total Net Sales	$	1,721,625		$	1,726,047		$	1,623,768
Costs of Goods Sold	$	1,569,040		$	1,574,474		$	1,485,264
Selling, general and administrative expenses		138,912			132,408			132,475
Depreciation and amortization expenses		6,153			5,691			5,340

Segment Operating Income	$	7,520		$	13,474		$	689

Retail Operating Data:
Petroleum Sales (thousands of gallons)		388,903			393,157			396,273
Petroleum margin (a)	$	83,298		$	81,406		$	71,843
Petroleum margin ($/gallon) (b)		.2142			.2071			.1813
Merchandise and other margins	$	69,261		$	70,168		$	66,661
Merchandise margin (percent of sales)		25.2	%		25.2	%		25.3	%

(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 profit 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.

Net Sales

2013 vs. 2012

Retail sales decreased during fiscal 2013 by $4.4 million or .3% for the comparable period in fiscal 2012 from $1,726.0 million to $1,721.6 million. The decrease was primarily due to a decrease of $1.6 million in petroleum sales and $2.8 million in merchandise sales. The petroleum sales decrease resulted from a 4.3 million gallon or 1.8% decrease in retail petroleum volume offset by a 1.0% increase in retail selling prices per gallon.

2012 vs. 2011

Retail sales increased during fiscal 2012 by $102.3 million or 6.3% for the comparable period in fiscal 2011 from $1,623.8 million to $1,726.1 million. The increase was primarily due to an increase of $87.9 million in petroleum sales and $14.4 million in merchandise sales. The petroleum sales increase resulted from a 7.3% increase in retail selling prices per gallon, offset by a 3.1 million gallon or .8% decrease in retail petroleum volume. The merchandise sales increase is primarily due to increased prepared food and beverages due to promotional campaigns and increased selling prices.

Costs of Goods Sold

2013 vs. 2012

Retail costs of goods sold decreased during fiscal 2013 by $5.4 million or .3% for the comparable period in fiscal 2012 from $1,574.4 million to $1,569.0 million. The decrease was primarily due to, freight cost of $9.7 million, merchandise cost of $2.0 million and fuel tax of $.4 million offset by an increase of $6.7 million in petroleum purchase prices.

2012 vs. 2011

Retail costs of goods sold increased during fiscal 2012 by $89.2 million or 6.0% for the comparable period in fiscal 2011 from $1,485.2 million to $1,574.4 million. The increase was primarily due to $73.6 million in petroleum purchase prices, merchandise cost of $10.9 million, fuel tax of $1.0 million, and freight cost of $3.7 million.

Selling, General and Administrative Expenses

2013 vs. 2012

Retail Selling, General and Administrative (“SG&A”) expenses increased during fiscal 2013 by $6.5 million or 4.9% for the comparable period in fiscal 2012 from $132.4 million to $138.9 million. The increase was due to maintenance expenses of $1.0 million, payroll costs of $.8 million, pension and post-retirement costs of $.6 million, environmental costs of $.5 million, advertising costs of $.3 million, supplies of $.3 million, retail fixed asset retirements of $.9 million and a gain on the sale of fixed assets in fiscal 2012 that reduced SG&A during that period.

2012 vs. 2011

Retail Selling, General and Administrative (“SG&A”) expenses remained relatively constant during fiscal 2012 to the comparable period in fiscal 2011.

Wholesale Operations


	Fiscal Year Ended August 31,
	2013		2012			2011
	(in thousands)
Net Sales (a)	$	1,959,628	$	2,004,878		$	1,543,108
Costs of Goods Sold (exclusive of depreciation, amortization and (gains) losses on derivative contracts)		1,590,535		1,623,551			1,417,994
(Gains) losses on derivative contracts		2,319		(28,848	)		58,733
Selling, general and administrative expenses		24,962		25,173			16,981
Depreciation, amortization and asset impairments		20,724		40,126			16,757

Segment Operating Income	$	321,088	$	344,876		$	32,643

Key Wholesale Operating Statistics


	Fiscal Year Ended August 31,
	2013			2012			2011
Refinery Product Yield (thousands of barrels)
Gasoline and gasoline blendstock		9,748			10,055			8,241
Distillates		5,451			5,635			4,765
Asphalt		7,138			7,299			5,243
Butane, propane, residual products, internally produced fuel and other		1,212			2,414			2,361

Total Product Yield		23,549			25,403			20,610

% Heavy Crude Oil of Total Refinery Throughput (b)		60	%		60	%		51	%
Crude throughput (thousand barrels per day)		63.1			64.8			52.4


Product Sales (thousands of barrels) (a)
Gasoline and gasoline blendstock		6,152			6,142			5,425
Distillates		4,390			4,475			3,804
Asphalt		7,418			7,500			5,508
Other		844			836			758

Total Product Sales Volume		18,804			18,953			15,495

Product Sales (dollars in thousands) (a)
Gasoline and gasoline blendstock	$	740,233		$	726,001		$	613,499
Distillates		576,570			573,965			458,099
Asphalt		595,267			657,158			425,046
Other		47,558			47,754			46,464

Total Product Sales	$	1,959,628		$	2,004,878		$	1,543,108

(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.

Net Sales

2013 vs. 2012

Wholesale sales decreased during fiscal 2013 by $45.3 million or 2.3% for the comparable period in fiscal 2012 from $2,004.9 million to $1,959.6 million. The decrease was due to a 2.3% decrease in wholesale prices and a .8% decrease in wholesale volume.

2012 vs. 2011

Wholesale sales increased during fiscal 2012 by $461.8 million or 29.9% for the comparable period in fiscal 2011 from $1,543.1 million to $2,004.9 million. The increase was due to a 6.2% increase in wholesale prices and a 22.3% increase in wholesale volume.

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

2013 vs. 2012

Wholesale costs of goods sold decreased during fiscal 2013 by $33.0 million or 2.0% for the comparable period in fiscal 2012 from $1,623.5 million to $1,590.5 million. The decrease in wholesale costs of goods sold during this period was primarily due to a decrease in cost of raw materials.

2012 vs. 2011

Wholesale costs of goods sold increased during fiscal 2012 by $205.5 million or 14.5% for the comparable period in fiscal 2011 from $1,418.0 million to $1,623.5 million. The increase in wholesale costs of goods sold during this period was primarily due to an increase in cost of raw materials.

(Gains)Losses on Derivative Contracts

2013

During fiscal year 2013, the Company recognized a $2.3 million loss in costs and expenses in its Consolidated Statements of Operations.

2012

During fiscal year 2012, the Company recognized a $28.8 million gain in costs and expenses in its Consolidated Statements of Operations. This was attributed to net gains resulting from fair value changes of the Company’s derivative instruments. Of the $28.8 million gain, $15.0 million was realized losses and $43.8 million unrealized (gains). See also Item 7A “Quantitative and Qualitative Disclosures about Market Risk”.

Selling, General and Administrative Expenses

2013 vs. 2012

Wholesale SG&A expenses remained relatively constant during fiscal 2013 to the comparable period in fiscal 2012.

2012 vs. 2011

Wholesale SG&A expenses increased during fiscal 2012 by $8.2 million or 48.2% for the comparable period in fiscal 2011 from $17.0 million or 1.1% of net wholesale sales to $25.2 million or 1.3% of net wholesale sales. The increase was primarily due to additional payroll costs and professional services.

Depreciation, Amortization and Asset Impairments

2013 vs. 2012

Depreciation, amortization and asset impairments decreased during fiscal 2013 by $19.4 million for the comparable period for fiscal 2012 from $40.1 million to $20.7 million. This decrease was due primarily to a charge of $20.1 million resulting from the write-off of certain design costs associated with the Company’s coker facility project in fiscal 2012. See Note 4 to the “Company’s Consolidated Financial Statements, Item 8”.

2012 vs. 2011

Depreciation, amortization and asset impairments increased during fiscal 2012 by $23.4 million for the comparable period for fiscal 2011 from $16.8 million to $40.1 million. This increase was due primarily to a charge of $20.1 million resulting from the write-off of certain design costs associated with the Company’s coker facility project. See Note 4 to the “Company’s Consolidated Financial Statements”.

Interest Expense, Net

2013 vs. 2012

Net interest expense (interest expense less interest income) decreased during fiscal 2013 by $1.8 million for the comparable period for fiscal 2012 from $40.9 million to $39.1 million. The decrease was due to the discount on new Senior Notes and by reduced borrowing activity.

2012 vs. 2011

Net interest expense (interest expense less interest income) increased during fiscal 2012 by $.3 million for the comparable period for fiscal 2011 from $40.6 million to $40.9 million. The increase was due to the principal amount of Senior Notes outstanding offset by reduced borrowing activity.

Income Tax Expense / (Benefit)

Our fiscal 2013 and 2012 effective tax rates of approximately 37% and 39%, respectively.

Liquidity and Capital Resources

We operate in an environment where our liquidity and capital resources are impacted by changes in the price of crude oil and refined petroleum products, availability of credit, market uncertainty and a variety of additional factors beyond our control. Included in such factors are, among others, the level of customer product demand, weather conditions, governmental regulations, worldwide political conditions and overall market and economic conditions.

The following table summarizes selected measures of liquidity and capital sources:


	August 31, 2013		August 31, 2012
	(in thousands)
Cash and cash equivalents	$	158,537	$	137,540
Working capital	$	374,572	$	314,951
Current ratio		4.6		3.6
Debt	$	238,706	$	359,996

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. We continuously evaluate our capital budget; however, management does not foresee any significant increase in maintenance and non-discretionary capital expenditures during fiscal 2014 that would impact future liquidity or capital resources. Maintenance and non-discretionary capital expenditures have averaged approximately $6 million annually over the last three years for the refining and marketing operations and management currently projects this capital expenditure to be approximately $8 - $10 million for fiscal 2014.

On August 30, 2013 the Company redeemed $127,750,000 aggregate principal amount of its outstanding $365,000,000 Senior Secured Notes due 2018. Funding for the redemption was provided by the Company’s sale of approximately $141,163,750 of 6.00% Fixed Rate Cumulative Perpetual Preferred Stock Series A (“Preferred Stock”, see Note 13) to URI, its parent (see Note 14). In accordance with the indenture governing the Senior Secured Notes due 2018, the Company obtained an opinion concerning the fairness from a financial point of view of the issuance of the Preferred Stock to URI.

Our cash and cash equivalents consist of bank balances and investments in money market funds. These investments have staggered maturity dates, none of which exceed three months. They have a high degree of liquidity since the securities are traded in public markets. During fiscal 2013, significant uses of cash are summarized in the following table:


	Fiscal Year Ended
	August 31, 2013
	(in millions)
Significant uses of cash
Investing activities:
Additions to refinery turnaround costs	$	(1.2	)
Property, plant and equipment
Purchase of United Biofuels assets		(10.3	)
Other general capital items (tank repairs, refinery piping, etc)		(10.3	)
Retail maintenance (blacktop, roof, HVAC, rehab)		(5.1	)
New 300-thousand barrel crude tanks		(4.0	)
Non refinery capital equipment		(3.4	)
Retail purchases		(3.1	)
Environmental		(2.3	)
Retail petroleum upgrade		(1.8	)
Natural gasoline/ethanol/truck unloading		(1.3	)

Total property, plant and equipment		(41.6	)

Net cash (used in) investing activities	$	(42.8	)

Financing activities:
Principal reductions of long-term debt	$	(129.4	)
Dividends to stockholder		(114.4	)
Proceeds from sale of preferred stock		141.2
Distributions from Parent under tax sharing agreement		2.0

Net cash (used in) financing activities	$	(100.6	)

Working capital items:
Prepaid expense increase		(22.3	)
Refundable income tax		(20.9	)
Income taxes payable decrease		(20.3	)
Derivative liability decrease		(9.1	)
Accounts receivable increase		(4.6	)
Sales use and fuel taxes payable decrease		(2.6	)
Decrease in inventory		25.2
Accounts payable increase		12.0
Amounts due to affiliated companies, net increase		.5
Accrued liabilities increase		1.8

Cash used in working capital items	$	(40.3	)

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.

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 available borrowings under our Amended and

Restated Revolving Credit Facility of $175,000,000. This provides the Company with flexibility relative to its cash flow requirements in light of market fluctuations, particularly involving crude oil prices and seasonal business cycles 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 August 31, 2013 was 3.25%.

The Revolving Credit Facility is secured primarily by certain cash accounts, accounts receivable and inventory. Until maturity, we may borrow on a borrowing base formula as set forth in the facility.

We had outstanding letters of credit of $6,533,000 as of August 31, 2013. As of August 31, 2013, we had no outstanding borrowings under the Revolving Credit Facility resulting in net availability of $168,467,000.

The Company’s 10.5% First Senior Secured Notes mature in 2018, at which time the Company will either have to pay the principal amount in full or refinance the Notes.

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of August 31, 2013 and is based on information appearing in the Notes to the Consolidated Financial Statements in Item 8:


	Payments due by period
Contractual Obligations	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 Years
	(in thousands)
Long-term debt	$	244,857	$	1,592	$	2,746	$	237,917	$	2,602
Operating leases		70,376		12,653		21,091		14,917		21,715
Interest on 10.5% Senior Notes due 8/15/2018 (a) (b) (c)		123,518		24,911		49,822		48,785		—

Total contractual cash obligations (d)	$	438,751	$	39,156	$	73,659	$	301,619	$	24,317

(a)

On March 8, 2011, the Company sold $365,000,000 of the Senior Secured Notes due 2018 for $352,020,600, resulting in original issue discount of $12,979,400, which will be amortized over the life of the Senior Secured Notes due 2018 using the interest method and is not reflected in this table. The net proceeds of the offering of $344,249,000 were used to fund the tender offer for all of its outstanding Senior Notes due 2012, pay accrued interest of $3,400,000 there on and a redemption premium related thereto. See Note 9 to “Consolidated Financial Statements, Item 8”.

(b)

On August 30, 2013 the Company redeemed $127,750,000 aggregate principal amount of its outstanding $365,000,000 Senior Secured Notes due 2018. The Senior Secured Notes due 2018 were redeemed at a redemption price of 110.50% of the principal amount thereof, plus accrued and unpaid interest to August 30, 2013. In connection with the redemption, a loss of $18,727,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $13,414,000, a write-off of deferred financing costs of $1,998,000 and a write-off of unamortized debt discount of $3,315,000.

(c)

The above does not reflect our long term Amended and Restated Revolving Credit Facility, which had a balance of $0 as of August 31, 2013. The facility’s balance remains $0 during the first quarter of the 2014 fiscal year. The applicable margin varies with our facility’s average unused availability calculation See Notes 8 and 9 to “Consolidated Financial Statements, Item 8”.

(d)	Pension obligations are not included since payments are not known.

Although we are not aware of any pending circumstances which would change our expectations, 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.

Related Party Transactions

See Item 13, Certain Relationships and Related Transactions.

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 July 2012, the FASB issued an accounting standard that gives companies testing indefinite-lived intangible assets for impairment the option of performing a qualitative assessment before calculating the fair value of the indefinite-lived intangible asset in a quantitative impairment test. If companies determine, based on qualitative factors, that the fair value of the intangible asset is more likely than not less than the carrying amount, the quantitative impairment test would be required. Otherwise, further testing would not be needed. The standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. We do not anticipate that the adoption of this accounting standard will have a material impairment on our consolidated financial statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We use our Amended and Restated Revolving Credit Facility to finance a portion of our operations. These on-balance sheet financial instruments, to the extent they provide for variable rates, expose us to interest rate risk resulting from changes in the PNC Prime rate, the Federal Funds rate or the LIBOR rate.

We have exposure to price fluctuations of crude oil and refined products. We do not manage the price risk related to all of our inventories of crude oil and refined products with a permanent formal hedging program, but we do manage our risk exposure by managing inventory levels and by selectively applying hedging activities. At August 31, 2013, the Company had no future positions hedging crude or product inventories.

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 prepaid expenses and other assets or accounts payable in its Consolidated Balance Sheet.

During the year ended August 31, 2013, the Company recognized $2,319,000 of losses in its Consolidated Statement of Operations.

At August 31, 2013, we were exposed to the risk of market price declines with respect to a substantial portion of our crude oil and refined product inventories.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm		36
Consolidated Financial Statements:
Balance Sheets		37
Statements of Operations		38
Statements of Comprehensive Income (Loss)		39
Statements of Stockholder’s Equity		40
Statements of Cash Flows		41
Notes to Consolidated Financial Statements		42

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder

United Refining Company

Warren, Pennsylvania

We have audited the accompanying consolidated balance sheets of United Refining Company and subsidiaries as of August 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss) , stockholder’s equity and cash flows for each of the three years in the period ended August 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Refining Company and subsidiaries as of August 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

New York, New York

November 26, 2013

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share amounts)


	August 31,
	2013			2012
Assets
Current:
Cash and cash equivalents	$	158,537		$	137,540
Accounts receivable, net		125,196			120,599
Refundable income taxes		20,890			—
Inventories, net		130,966			156,220
Prepaid expenses and other assets		42,093			19,813
Deferred income taxes		—			1,048
Amounts due from affiliated companies, net		—			89

Total current assets		477,682			435,309
Property, plant and equipment, net		289,132			253,387
Deferred financing costs, net		4,803			8,471
Goodwill		1,349			1,349
Tradename		10,500			10,500
Amortizable intangible assets, net		1,057			1,164
Deferred turnaround costs and other assets, net		11,772			18,150

	$	796,295		$	728,330

Liabilities and Stockholder’s Equity
Current:
Current installments of long-term debt	$	1,592		$	1,318
Accounts payable		54,170			42,203
Derivative liability		—			9,098
Accrued liabilities		18,715			16,916
Income taxes payable		8,587			28,931
Sales, use and fuel taxes payable		19,247			21,892
Deferred income taxes		365			—
Amounts due to affiliated companies, net		434			—

Total current liabilities		103,110			120,358
Long term debt: less current installments		237,114			358,678
Deferred income taxes		29,193			15,022
Deferred retirement benefits		69,675			92,996

Total liabilities		439,092			587,054

Commitments and contingencies
Stockholder’s equity:
Common stock; $.10 par value per share—shares authorized 100; issued and outstanding 100		—			—
Series A Preferred stock; $1,000 par value per share—shares authorized 25,000; issued and outstanding 14,116		14,116			—
Additional paid-in capital		159,844			24,825
Retained earnings		190,333			135,988
Accumulated other comprehensive loss		(7,090	)		(19,537	)

Total stockholder’s equity		357,203			141,276

	$	796,295		$	728,330

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)


	Year Ended August 31,
	2013			2012			2011
Net sales	$	3,681,253		$	3,730,925		$	3,166,876

Costs and expenses:
Costs of goods sold (exclusive of depreciation, amortization and losses (gains) on derivative contracts)		3,159,575			3,198,025			2,903,258
Losses (gains) on derivative contracts		2,319			(28,848	)		58,733
Selling, general and administrative expenses		163,874			157,581			149,456
Depreciation, amortization and asset impairments		26,877			45,817			22,097

		3,352,645			3,372,575			3,133,544

Operating income		328,608			358,350			33,332

Other expense:
Interest expense, net		(39,035	)		(40,869	)		(40,550	)
Other, net		(3,819	)		(4,711	)		(2,564	)
Loss on early extinguishment of debt		(18,727	)		—			(1,245	)

		(61,581	)		(45,580	)		(44,359	)

Income (loss) before income tax expense (benefit)		267,027			312,770			(11,027	)

Income tax expense (benefit):
Current		95,723			101,130			5,131
Deferred		2,621			20,824			(8,750	)

		98,344			121,954			(3,619	)

Net income (loss)		168,683			190,816			(7,408	)
Less net income attributable to non-controlling interest		—			—			711

Net income (loss) attributable to United Refining Company’s Stockholder	$	168,683		$	190,816		$	(8,119	)

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)


	Year Ended August 31,
	2013		2012			2011
Net income (loss) attributable to United Refining Company’s Stockholder	$	168,683	$	190,816		$	(8,119	)
Other comprehensive income (loss), net of taxes:
Unrecognized post-retirement income (costs), net of taxes of $8,003, $(3,745) and $241 for the years ended August 31, 2013, 2012 and 2011, respectively		12,447		(5,389	)		346

Other comprehensive income (loss)		12,447		(5,389	)		346

Total comprehensive income (loss)	$	181,130	$	185,427		$	(7,773	)

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Statements of Stockholder’s Equity

(in thousands, except share data)


	Common Stock				Preferred Stock				Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Non Controlling Interest			Total Stockholder’s Equity
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Non Controlling Interest			Total Stockholder’s Equity
Balance at August 31, 2010		100	$	—		—	$	—	$	22,500	$	18,231		$	(14,494	)	$	—		$	26,237
Other comprehensive income		—		—		—		—		—		—			346			—			346
Contribution from Parent under the Tax Sharing Agreement		—		—		—		—		2,289		—			—			—			2,289
Net loss (income)		—		—		—		—		—		(8,119	)		—			711			(7,408	)
Issuance of common stock		—		—		—		—		—		—			—			15,000			15,000
Dissolution of non-controlling interest		—		—		—		—		—		—			—			(15,711	)		(15,711	)

Balance at August 31, 2011		100		—		—		—		24,789		10,112			(14,148	)		—			20,753
Other comprehensive loss		—		—		—		—		—		—			(5,389	)		—			(5,389	)
Contribution from Parent under the Tax Sharing Agreement		—		—		—		—		36		—			—			—			36
Net income		—		—		—		—		—		190,816			—			—			190,816
Dividends		—		—		—		—		—		(64,940	)		—			—			(64,940	)

Balance at August 31, 2012		100		—		—		—		24,825		135,988			(19,537	)		—			141,276
Other comprehensive income		—		—		—		—		—		—			12,447			—			12,447
Issuance of preferred stock		—		—		14,116		14,116		127,048		—			—			—			141,164
Contribution from Parent under the Tax Sharing Agreement		—		—		—		—		1,996		—			—			—			1,996
Capital contribution related to purchase of assets		—		—		—		—		5,975		—			—			—			5,975
Net income		—		—		—		—		—		168,683			—			—			168,683
Dividends		—		—		—		—		—		(114,338	)		—			—			(114,338	)

Balance at August 31, 2013		100	$	—		14,116	$	14,116	$	159,844	$	190,333		$	(7,090	)	$	—		$	357,203

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)


	Year Ended August 31,
	2013			2012			2011
Cash flows from operating activities:
Net income (loss)	$	168,683		$	190,816		$	(7,408	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and asset impairments		29,279			49,354			23,939
Unrealized (gain) loss on derivative contracts		—			(43,826	)		51,414
Non cash portion of loss on early extinguishment of debt		5,313			—			330
Deferred income taxes		2,621			20,824			(8,750	)
Loss (gain) on asset dispositions		1,119			(1,496	)		1,484
Cash (used in) provided by working capital items		(40,311	)		22,654			30,214
Net income attributable to non-controlling interest dissolved during the year		—			—			(711	)
Change in operating assets and liabilities:
Other assets, net		538			(3,174	)		(5	)
Deferred retirement benefits		(2,871	)		(3,268	)		(3,903	)

Total adjustments		(4,312	)		41,068			94,012

Net cash provided by operating activities		164,371			231,884			86,604

Cash flows from investing activities:
Additions to property, plant and equipment		(41,597	)		(19,845	)		(27,874	)
Additions to deferred turnaround costs		(1,241	)		(3,725	)		(18,910	)
Proceeds from asset dispositions		81			2,639			729

Net cash used in investing activities		(42,757	)		(20,931	)		(46,055	)

Cash flows from financing activities:
Distribution from Parent under the Tax Sharing Agreement		1,996			36			2,289
Proceeds from issuance of common stock of non-controlling interest		—			—			15,000
Proceeds from sale of preferred stock		141,164			—			—
Dividends to stockholder		(114,338	)		(64,940	)		—
Dissolution of non-controlling interest		—			—			(15,000	)
Proceeds from issuance of long-term debt		—			—			352,021
Principal reductions of long-term debt		(129,439	)		(1,169	)		(325,076	)
Net payments on revolving credit facility		—			(24,000	)		(59,000	)
Deferred financing costs		—			—			(11,293	)

Net cash used in financing activities		(100,617	)		(90,073	)		(41,059	)

Net increase (decrease) in cash and cash equivalents		20,997			120,880			(510	)
Cash and cash equivalents, beginning of year		137,540			16,660			17,170

Cash and cash equivalents, end of year	$	158,537		$	137,540		$	16,660

Cash provided by (used in) working capital items:
Accounts receivable, net	$	(4,597	)	$	(9,173	)	$	(47,234	)
Refundable income taxes		(20,890	)		—			36,390
Inventories		25,254			15,660			34,958
Prepaid expenses and other assets		(22,280	)		20,574			(12,446	)
Amounts due from affiliated companies, net		523			3,015			(132	)
Accounts payable		11,967			(37,743	)		14,326
Derivative liability		(9,098	)		(2,796	)		4,306
Accrued liabilities		1,799			1,558			(211	)
Income taxes payable		(20,344	)		26,304			2,075
Sales, use and fuel taxes payable		(2,645	)		5,255			(1,818	)

Total Change	$	(40,311	)	$	22,654		$	30,214

Cash paid during the period for:
Interest	$	38,806		$	39,293		$	41,205
Income taxes	$	135,412		$	75,033		$	1,621

Non-cash investing and financing activities:
Property additions and capital leases	$	15,037		$	2,224		$	762

See accompanying notes to consolidated financial statements.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Description of Business and Summary of Significant Accounting Policies

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, United Biofuels, Inc., Kiantone Pipeline Corporation (collectively, the “Company”) and United Refining Asphalt, Inc. (“URA”), a variable interest entity that was created in January 2011 for which the Company was the primary beneficiary. The Company ceased to be the primary beneficiary of URA as of August 31, 2011 and URA was deconsolidated as of that date and URA was dissolved. All significant intercompany balances and transactions have been eliminated in consolidation.

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

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

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investment securities with maturities of three months or less at date of acquisition to be cash equivalents.

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 liability in its Consolidated Balance Sheet.

At August 31, 2013, the Company had no derivative instruments outstanding as part of its risk management strategy.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value and balance sheet classification of our derivative instruments as of August 31, 2013 and 2012 are as follows:


	August 31, 2013
	Notional Balance		Maturity Date	Derivative Liability
	(in thousands)
Not designated as hedges under ASC 815
Heating oil crackspread swaps		0 barrels	Not applicable	$	0

Total derivative instruments		0 barrels		$	0


	August 31, 2012
	Notional Balance		Maturity Date	Derivative Liability
	(in thousands)
Not designated as hedges under ASC 815
Heating oil crackspread swaps		780 barrels	Monthly September 2011 through December 2012	$	9,098

Total derivative instruments		780 barrels		$	9,098

For the fiscal years ended August 31, 2013, 2012 and 2011 the Company recognized $2,319,000, $(28,848,000) and $58,733,000 of losses (gains) in costs and expenses in its Consolidated Statements of Operations.

Inventories and Exchanges

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. If the cost of inventories exceeds their market value, provisions are made currently for the difference between the cost and the market value.

Property, Plant and Equipment

Property, plant and equipment is stated at cost and depreciated by the straight-line method over the respective estimated useful lives. Routine current maintenance, repairs and replacement costs are charged against income. Expenditures which materially increase values expand capacities or extend useful lives are capitalized. A summary of the principal useful lives used in computing depreciation expense is as follows:


	Estimated Useful Lives (Years)
Refining		20-30
Marketing		15-30
Transportation		20-30

Leases

The Company leases land, buildings, and equipment under long-term operating and capital leases and accounts for the leases in accordance with ASC 360-10-30-8. Lease expense for operating leases is recognized on

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

a straight-line basis over the expected lease term. The lease term begins on the date the Company has the right to control the use of the leased property pursuant to the terms of the lease.

Deferred Maintenance Turnarounds

The cost of maintenance turnarounds, which consist of complete shutdown and inspection of significant units of the refinery at intervals of two or more years for necessary repairs and replacements, are deferred when incurred and amortized on a straight-line basis over the period of benefit, which ranges from 2 to 10 years. As of August 31, 2013 and 2012, deferred turnaround costs included in Deferred Turnaround Costs and Other Assets, amounted to $8,476,000 and $14,316,000, net of accumulated amortization of $32,202,000 and $26,695,000, respectively. Amortization expense included in costs of goods sold for the fiscal years ended August 31, 2013, 2012 and 2011 amounted to $7,082,000, $7,198,000 and $4,350,000, respectively.

Amortizable Intangible Assets

The Company amortizes identifiable intangible assets such as brand names, non-compete agreements, leasehold covenants and deed restrictions on a straight line basis over their estimated useful lives which range from 5 to 25 years.

Revenue Recognition

Revenues for products sold by the wholesale segment are recorded upon delivery of the products to our customers, at which time title to those products is transferred and when payment has either been received or collection is reasonably assured. At no point do we recognize revenue from the sale of products prior to the transfer of its title. Title to product is transferred to the customer at the shipping point, under pre-determined contracts for sale at agreed upon or posted prices to customers of which collectability is reasonably assured. Revenues for products sold by the retail segment are recognized immediately upon sale to the customer. Included in Net Sales and Costs of Goods Sold are consumer excise taxes of $225,125,000, $225,605,000 and $224,551,000 for the years ended August 31, 2013, 2012 and 2011, respectively.

Cost Classifications

Our Cost of goods sold (which excludes depreciation and amortization on property, plant and equipment and (gains) or losses on derivative contracts) includes Refining Cost of Products Sold and related Refining Operating expenses.

Refining Cost of Products Sold includes cost of crude oil, other feedstocks, blendstocks, the cost of purchased finished products, amortization of turnaround costs, transportation costs and distribution costs. Retail cost of products sold includes cost for motor fuels and for merchandise. Motor fuel cost of products sold represents net cost for purchased fuel. Merchandise cost of products sold includes merchandise purchases, net of merchandise rebates and inventory shrinkage. Wholesale cost of products sold includes the cost of fuel and lubricants, transportation and distribution costs and labor.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company’s results of operations are included in the consolidated Federal Income tax return of the Parent and separately in various state jurisdictions. Income taxes are calculated on a separate return basis with consideration of the Tax Sharing Agreement between the Parent and its subsidiaries. The Company is open to examination for tax years 2002 through 2012, due to the carryback of net operating losses, and there was a federal tax audit for the tax years 2007 through 2010 which has been settled. There are currently state tax audits in process and there are unsettled income tax assessments outstanding in the amount of $45,000. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of interest expense, net and other, net, respectively. No amounts of such expenses are currently accrued.

Post-Retirement Healthcare and Pension Benefits

The Company provides post-retirement healthcare benefits to salaried and certain hourly employees that retired prior to September 1, 2010. The benefits provided are hospitalization and medical coverage for the employee and spouse until age 65. Benefits continue until the death of the retiree, which results in the termination of benefits for all dependent coverage. If an employee leaves the Company as a terminated vested member of a pension plan prior to normal retirement age, the person is not entitled to any post-retirement healthcare benefits. Benefits payable under this program are secondary to any benefits provided by Medicare or any other governmental programs.

In June 2010, the Company announced changes to the healthcare and pension plans provided to salaried employees. Effective September 1, 2010, postretirement medical benefits for new hires and active salaried employees retiring after September 1, 2010 were eliminated. Additionally, effective January 1, 2011, deductibles and co-payments were added to the medical benefits plan for all active and retired employees. For salaried employees meeting certain age and service requirements, the Company contributes a defined dollar amount towards the cost of retiree healthcare based upon the employee’s length of service. Similarly, effective August 31, 2010, benefits under the Company’s defined benefit pension plan were frozen for all salaried employees, including the Company’s Chief Executive Officer and Chief Financial Officer. The Company will provide an enhanced contribution under its defined contribution 401(k) plan as well as a transition contribution for older employees. The changes made for the salary group described above were also incorporated into the collective bargaining agreement reached with the International Union of Operating Engineers, Local No.95 effective February 1, 2012.

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

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that we believe to be uncollectible. The Company also recorded additional allowances based on historical collection experience and its assessment of the general financial conditions affecting the customer base. Senior management reviews accounts receivable on a weekly basis to determine if any receivables will potentially be uncollectible. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Concentration Risks

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments.

The Company places its temporary cash investments with quality financial institutions. At times, such investments were in excess of FDIC insurance limits. The Company has not experienced any losses in such accounts.

The Company purchased approximately 9% and 10% of its cost of goods sold from one vendor during the fiscal years ended August 31, 2013 and 2012, respectively. The Company is not obligated to purchase from this vendor, and, if necessary, there are other vendors from which the Company can purchase crude oil and other petroleum based products. The Company had approximately $0 and $1,004,000 in accounts payable for the years ended August 31, 2013 and 2012 to this respective vendor.

Environmental Matters

The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures, which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site by site basis and records a liability at the time when it is probable and can be reasonably estimated. The Company’s estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Company is not reduced for possible recoveries from insurance carriers and is recorded in accrued liabilities.

Goodwill and Other Non-Amortizable Assets

In accordance with ASC 350, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with ASC 350. Other definite lived intangible assets continue to be amortized over their estimated useful lives.

The Company performed separate impairment tests for its goodwill and tradename using the discounted cash flow method. The fair value of the goodwill and tradename exceeded their respective carrying values. The Company has noted no subsequent indication that would require testing its goodwill and tradename for impairment.

Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying value of any of these assets (other than goodwill and tradename) may not be recoverable, the Company will assess the recoverability of such assets based upon estimated undiscounted cash flow forecasts. When any such impairment exists, the related assets will be written down to fair value.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Comprehensive (Loss) Income

The Company reports comprehensive (loss) income in accordance with ASC 220-10. ASC 220-10 establishes guidelines for the reporting and display of comprehensive (loss) income and its components in financial statements. Comprehensive (loss) income includes charges and credits to equity that is not the result of transactions with the shareholder. Included in other comprehensive loss for the Company is a charge for unrecognized post-retirement costs, which is net of taxes in accordance with ASC 715. The accumulated other comprehensive loss balance is made up entirely of unrecognized post-retirement costs.

Reclassification

Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform with the presentation in the current year.

2.	Accounts Receivable, Net

As of August 31, 2013 and 2012, accounts receivable were net of allowance for doubtful accounts of $1,800,000 and $1,800,000, respectively.

3.	Inventories

Inventories consist of the following:


	August 31,
	2013		2012
	(in thousands)
Crude Oil	$	21,344	$	40,419
Petroleum Products		60,094		66,296

Total @ LIFO		81,438		106,715

Merchandise		24,002		23,707
Supplies		25,526		25,798

Total @ FIFO		49,528		49,505

Total Inventory	$	130,966	$	156,220

Included in petroleum product inventories are exchange balances either held for or due from other petroleum marketers. These balances are not significant.

The Company does not own sources of crude oil and depends on outside vendors for its needs.

As of August 31, 2013 and 2012, the replacement cost of LIFO inventories exceeded their LIFO carrying values by approximately $108,984,000 and $77,727,000, respectively. For the fiscal years ended August 31, 2013 and 2012, the Company recorded a charge to cost of sales from a LIFO layer liquidation of $6,507,000 and $4,325,000, respectively.

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.	Property, Plant and Equipment

Property, plant and equipment is summarized as follows:


	August 31,
	2013		2012
	(in thousands)
Refinery equipment	$	343,918	$	316,489
Marketing (i.e. retail outlets)		121,570		111,914
Transportation		9,883		9,665
Construction-in-progress		30,293		15,935

		505,664		454,003
Less: Accumulated depreciation		216,532		200,616

	$	289,132	$	253,387

On March 6, 2013, the Company, through its subsidiary United Biofuels, Inc. (“UBI”), acquired a partially completed 50 million gallon per year biodiesel facility in Brooklyn, New York as part of the acquisition by its parent company, United Refining, Inc., of certain assets of Metro Fuel Oil Corp, and its affiliates. UBI has initiated the project to complete and modify the biodiesel plant. The Company paid $9,800,000 for such biodiesel facility. Due to having a common owner, the Company recorded the facility based on the carrying value of its parent or $20,735,000. The difference between the carrying value and the amount paid by the Company has been recorded as a capital contribution net of the tax effect of $4,960,000. Commissioning the modified biodiesel plant is expected at the end of calendar 2014. The remaining cost of the project is expected to be about $19,000,000.

During the fiscal year ended August 31, 2012, the Company re-evaluated its efforts to construct a Coker Facility and determined that it was necessary to suspend the project indefinitely. As a result, it recorded a charge of $20,122,000 which is included in depreciation, amortization and asset impairments associated with the design of the facility. Management believes that the remainder of the material costs amounting to $6,964,000 will be utilized for other projects within the refinery and the Company will begin depreciating the assets over the estimated remaining life of approximately 20 years. The Company also placed into service $2,700,000 of coker related assets associated with a different project.

5.	Goodwill and Intangible Assets

As of August 31, 2013 and 2012, the Company’s trade name, goodwill and amortizable intangible assets, , included in the Company’s retail segment, were as follows:


	Weighted Average Remaining Life		August 31, 2013				August 31, 2012
	Weighted Average Remaining Life		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(in thousands)
Amortizable intangible assets:
Deed restrictions		13 yrs.	$	800	$	373	$	800	$	341
Leasehold covenants		10 yrs.		1,490		860		1,490		785

			$	2,290	$	1,233	$	2,290	$	1,126

Non-amortizable assets:
Tradename			$	10,500	$	—	$	10,500	$	—
Goodwill			$	1,349	$	—	$	1,349	$	—

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amortization expense for the fiscal years ended August 31, 2013, 2012 and 2011 amounted to $107,000, $106,000 and $106,000, respectively.

Amortization expense for intangible assets subject to amortization for each of the years in the five-year period ending August 31, 2018 is estimated to be $106,000 in each year.

6.	Accrued Liabilities

Accrued liabilities include the following:


	August 31,
	2013		2012
	(in thousands)
Interest	$	106	$	114
Payrolls and benefits		17,012		15,241
Other		1,597		1,561

	$	18,715	$	16,916

7.	Leases

The Company occupies premises, primarily retail gas stations and convenience stores and office facilities under long-term leases which require minimum annual rents plus, in certain instances, the payment of additional rents based upon sales. The leases generally are renewable for one to three five-year periods.

As of August 31, 2013 and 2012, capitalized lease obligations, included in long-term debt, amounted to $3,124,000 and $822,000, respectively, inclusive of current portion of $102,000 and $64,000, respectively. The related assets (retail gas stations and convenience stores) as of August 31, 2013 and 2012 amounted to $2,805,000 and $541,000, net of accumulated amortization of $684,000 and $538,000, respectively. Lease amortization amounting to $145,000, $89,000 and $139,000 for the years ended August 31, 2013, 2012 and 2011, respectively is included in depreciation and amortization expense.

Future minimum lease payments as of August 31, 2013 are summarized as follows:


Year ended August 31,	Capital Leases		Operating Leases
	(in thousands)
2014	$	534	$	12,653
2015		526		10,981
2016		513		10,110
2017		513		8,542
2018		513		6,375
Thereafter		5,733		21,715

Total minimum lease payments		8,332		70,376
Less: Minimum sublease rents		—		135

Net minimum lease payments		8,332	$	70,241

Less: Amount representing interest		5,208

Present value of net minimum lease payments	$	3,124

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net rent expense for operating leases amounted to $13,135,000, $12,502,000 and $12,137,000 for the years ended August 31, 2013, 2012 and 2011, respectively.

8.	Credit Facility

On June 18, 2013, the Company amended its Revolving Credit Facility (“Amended and Restated Revolving Credit Facility”) with PNC Bank, National Association as Administrator (the “Agent”). The expiration date of the Amended and Restated Revolving Credit Facility was extended to November 29, 2017 and the commitment fee on the unused balance of the facility was reduced to 0.25%. The maximum facility commitment remains at $175,000,000 and interest will now be calculated as follows: for base rate borrowings, at the greater of the Agent’s prime rate, federal funds open rate plus 0.5% or the daily LIBOR rate plus 1.0% plus the applicable margin of .75% to 1.75% and (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 2.25% to 3.25%. The applicable margin will vary depending on a formula calculating the Company’s unused availability under the facility.

The Amended and Restated Revolving Credit Facility continues to be secured primarily by certain cash accounts, accounts receivable and inventory which amounted to $317,207,000 as of August 31, 2013. Until maturity, the Company may borrow on a borrowing base formula as set forth in the facility. The participating banks in the Amended and Restated Revolving Credit Facility are PNC Bank, National Association, Bank of America, N.A., Manufacturers and Traders Trust Company, and Bank Leumi USA.

As of August 31, 2013 and 2012, there were no Base-Rate borrowings nor Euro-Rate borrowings outstanding under the agreement. $6,533,000 of letters of credit were outstanding under the agreement as of August 31, 2013 and 2012, respectively. The weighted average interest rate for Base-Rate borrowing for the years ended August 31, 2013 and 2012 was 0%. The weighted average interest rate for Euro-Rate borrowings for the years ended August 31, 2013 and 2012 was 0%. The Company pays a commitment fee of .25% per annum on the unused balance of the facility. All bank related charges are included in Other, net in its Consolidated Statements of Operations.

9.	Long-Term Debt

On August 30, 2013 the Company redeemed $127,750,000 aggregate principal amount of its outstanding $365,000,000 Senior Secured Notes due 2018. Funding for the redemption was provided by the Company’s sale of approximately $141,163,750 aggregate principal amount of 6.00% Fixed Rate Cumulative Perpetual Preferred Stock Series A to URI, its parent (see Note 14). In accordance with the indenture governing the Senior Secured Notes due 2018, the Company obtained an opinion concerning the fairness from a financial point of view with the issuance of the Preferred Stock to URI.

The Senior Secured Notes due 2018 were redeemed at a redemption price of 110.50% of the principal amount thereof, plus accrued and unpaid interest to August 30, 2013. In connection with the redemption, a loss of $18,727,000 on the early extinguishment of debt was recorded consisting of a redemption premium of $13,413,000, a write-off of deferred financing costs of $1,999,000 and a write-off of unamortized debt discount of $3,315,000.

On March 8, 2011, the Company sold $365,000,000 of Senior Secured Notes due 2018 for $352,020,600, resulting in original issue discount of $12,979,400, which is being amortized over the life of the Senior Secured Notes due 2018 using the interest method. The net proceeds of the offering of $344,249,000 were used to retire all of its outstanding 10¹/₂% Senior Notes due 2012, pay accrued interest of $3,400,000 and a redemption premium related thereto. A loss of $1,245,000 on the early extinguishment of debt was recorded consisting of a

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

redemption premium of $915,000, a write-off of unamortized net debt premium of $1,153,000 and a write-off of deferred financing costs of $1,483,000. The Senior Secured Notes due 2018 are guaranteed on an unsecured basis by all of the Company’s domestic subsidiaries existing at March 8, 2011. The Senior Secured Notes due 2018 are secured on a first-priority basis by the Company’s assets comprising its refinery located in Warren, Pennsylvania and the capital stock of its pipeline subsidiary, subject to permitted liens. The Senior Secured Notes due 2018 will rank equally with all of the Company’s existing and future senior indebtedness that is not subordinate in right of payment to the Senior Secured Notes due 2018.

Both the Indenture of the Senior Secured Notes and the facility (See Note 8 to “Consolidated Financial Statements”) require that the Company maintain certain financial covenants. The facility requires the Company to meet certain financial covenants, as defined in the facility, a minimum Fixed Charge Coverage Ratio and a minimum Consolidated Net Worth. In addition, the facility limits the amount the Company can distribute for capital and operating leases. Both the facility and the Indenture of the Senior Secured Notes restrict the amount of dividends payable and the incurrence of additional Indebtedness. As of August 31, 2013 the Company is in compliance with covenants under the facility and the Indenture.

A summary of long-term debt is as follows:


	August 31,
	2013		2012
	(in thousands)
Long-term debt:
10.50% Senior Secured Notes due February 28, 2018, net of unamortized discount of $6,151 and $10,198, respectively	$	231,099	$	354,802
Other long-term debt		7,607		5,194

		238,706		359,996
Less: Current installments of long-term debt		1,592		1,318

Total long-term debt, less current installments	$	237,114	$	358,678

The principal amount of long-term debt matures as follows:


	Year ended August 31,
	(in thousands)
2014	$	1,592
2015		1,180
2016		1,566
2017		478
2018		237,439
Thereafter		2,602

		244,857
Unamortized discount		6,151

Total	$	238,706

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following financing costs have been deferred and are being amortized to expense over the term of the related debt:


	August 31,
	2013		2012
	(in thousands)
Beginning balance	$	10,880	$	10,880
Current year additions		—		—

Total financing costs		10,880		10,880
Less:
Deferred financing costs associated with debt retirement		1,999		—
Accumulated amortization		4,078		2,409

	$	4,803	$	8,471

Amortization expense for the fiscal years ended August 31, 2013, 2012 and 2011 amounted to $1,669,000, $1,677,000 and $1,362,000, respectively.

10.

Employee Benefit Plans

The Company sponsors three defined benefit plans and seven defined contribution plans covering substantially all its full time employees. The benefits under the defined benefit plans are based on each employee’s years of service and compensation. Effective February 1, 2012 benefits under the Company’s defined benefit pension plan for hourly employees were frozen. Additionally, effective August 31, 2010 benefits under the Company’s defined benefit pension plan were frozen for all salaried employees, including the Company’s Chief Executive Officer and Chief Financial Officer. The Company will provide enhanced contributions under its defined contribution 401(k) plan as well as a transition contribution for older employees. The Company’s policy is to contribute the minimum amounts required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended and any additional amounts for strategic financial purposes or to meet other goals relating to plan funded status. The assets of the plans are invested in an investment trust fund and consist of interest-bearing cash, separately managed accounts and bank common/collective trust funds.

In addition to the above, the Company provides certain post-retirement healthcare benefits to salaried and certain hourly employees that retired prior to September 1, 2010. These post-retirement benefit plans are unfunded and the costs are paid by the Company from general assets.

Net periodic pension cost and post-retirement healthcare benefit cost consist of the following components for the years ended August 31, 2013, 2012 and 2011:


	Pension Benefits									Other Post-Retirement Benefits
	2013			2012			2011			2013		2012			2011
	(in thousands)
Service cost	$	652		$	993		$	1,800		$	940	$	1,114		$	1,507
Interest cost on benefit obligation		4,511			5,037			4,946			1,884		2,428			2,520
Expected return on plan assets		(5,160	)		(4,717	)		(4,521	)		—		—			—
Curtailment effect		—			126			—			—		—			—
Amortization of transition obligation		—			2			2			—		—			—
Amortization and deferrals		1,210			599			1,468			123		(662	)		(1,128	)

Net periodic benefit cost	$	1,213		$	2,040		$	3,695		$	2,947	$	2,880		$	2,899

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company adopted ASC 715-30-25 effective August 31, 2007. ASC 715-30-25 requires an employer to recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income.

Other changes in plan assets and benefit obligation recognized in Other Comprehensive Income consist of the following for the fiscal years ended August 31, 2013 and 2012 (in thousands):


	Pension Benefits						Other Post-Retirement Benefits
	2013			2012			2013			2012
Curtailment	$	—		$	(4,698	)	$	—		$	—
Current year actuarial (gain) / loss		(11,796	)		20,084			(7,322	)		7,621
Amortization of actuarial gain / (loss)		(1,209	)		(560	)		(7,056	)		(5,748	)
Current year prior service (credit) / cost		—			—			—			(13,934	)
Amortization of prior service credit / (cost)		(1	)		(39	)		6,933			6,410
Amortization of transition asset / (obligation)		—			(2	)		—			—

Total recognized in other comprehensive (income) / loss	$	(13,006	)	$	14,785		$	(7,445	)	$	(5,651	)

Total recognized in net periodic benefit cost and other comprehensive (income)/loss	$	(11,793	)	$	16,825		$	(4,498	)	$	(2,769	)

The following table summarizes the change in benefit obligations and fair values of plan assets for the years ended August 31, 2013 and 2012:


	Pension Benefits						Other Post-Retirement Benefits
	2013			2012			2013			2012
	(in thousands)
Change in benefit obligation:
Benefit obligation @ beginning of year	$	116,359		$	99,040		$	52,126		$	57,145
Service cost		652			993			940			1,114
Interest cost		4,511			5,037			1,884			2,428
Plan amendments		—			—			—			(13,934	)
Curtailment		—			(4,572	)		—			—
Medicare act subsidy effect		—			—			305			51
Actuarial (gains) / losses		(10,320	)		19,609			(7,300	)		7,635
Benefits paid		(4,061	)		(3,748	)		(2,255	)		(2,313	)

Projected benefit obligation @ end of year		107,141			116,359			45,700			52,126

Change in plan assets:
Fair values of plan assets @ beginning of year		72,408			66,166			—			—
Actual return on plan assets		6,636			4,242			—			—
Company contributions		5,241			5,748			1,950			2,262
Benefits paid		(4,061	)		(3,748	)		(2,255	)		(2,313	)
Medicare act subsidy effect		—			—			305			51

Fair values of plan assets @ end of year		80,224			72,408			—			—

Unfunded status	$	26,917		$	43,951		$	45,700		$	52,126

UNITED REFINING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Pension Benefits				Other Post-Retirement Benefits
	2013		2012		2013		2012
	(in thousands)
Amounts recognized in the balance sheet consist of:
Current liability	$	—	$	—	$	3,259	$	3,398
Noncurrent liability		26,917		43,951		42,441		48,728

Net amount recognized	$	26,917	$	43,951	$	45,700	$	52,126


Note: For plans with assets less than the accumulated benefit obligation (ABO), the aggregate ABO is $107,117,000 and $116,308,000, while the aggregate asset value is $80,224,000 and $72,408,000 for the years ended August 31, 2013 and 2012, respectively.

Amounts recognized in Accumulated Other Comprehensive Income:


	Pension Benefits						Other Post-Retirement Benefits
	2013			2012			2013			2012
	(in thousands)
Accumulated net actuarial loss	$	(25,406	)	$	(38,411	)	$	(34,376	)	$	(48,752	)
Accumulated prior service cost		—			(1	)		47,117			54,050
Accumulated transition obligation		—			—			—			—

Net amount recognized, before tax effect	$	(25,406	)	$	(38,412	)	$	12,741		$	5,298

The preceding table presents two measures of benefit obligations for the pension plans. Accumulated benefit obligation (ABO) generally measures the value of benefits earned to date. Projected benefit obligation (PBO) also includes the effect of assumed future compensation increases for plans in which benefits for prior service are affected by compensation changes. Each of the three pension plans, whose information is aggregated above, have asset values less than these measures. Plan funding amounts are calculated pursuant to ERISA and Internal Revenue Code rules. The postretirement benefits are not funded.

Weighted average assumptions used to determine year end benefit obligations:

Pension Benefits


	1% Point Increase		1% Point Decrease
	(in thousands)
Effect on total of service and interest cost components	$	118	$	(102	)
Effect on post-retirement benefit obligation		2,208		(1,973	)


Asset Category	August 31, 2013		Level 1		Level 2		Level 3
Cash Equivalents	$	4,069,000	$	4,069,000	$	—	$	—
Mutual Funds		24,646,000		24,646,000		—		—
Equities		39,699,000		39,699,000		—		—
Fixed Income		11,810,000		9,361,000		2,449,000		—

Total	$	80,224,000	$	77,775,000	$	2,449,000	$	—


Asset Category	August 31, 2012		Level 1		Level 2		Level 3
Cash Equivalents	$	3,777,000	$	3,777,000	$	—	$	—
Mutual Funds		16,454,000		16,454,000		—		—
Equities		37,755,000		37,712,000		43,000		—
Fixed Income		14,422,000		9,326,000		5,096,000		—

Total	$	72,408,000	$	67,269,000	$	5,139,000	$	—


	Pension Benefits		Other Post-Retirement Benefits
Employer Contributions	Pension Benefits		Gross		(Subsidy receipts)
	(in thousands)
FYE 8/31/2014 (expected)	$	5,888	$	3,301	$	(281	)

Expected Benefit Payments for FYE 8/31
2014	$	5,220	$	3,540	$	(281	)
2015		5,456		3,951		(318	)
2016		5,532		4,268		(358	)
2017		5,873		4,558		(399	)
2018		6,259		4,871		(446	)
2019 - 2023		35,268		30,922		(3,009	)


	Year Ended August 31,
	2013			2012		2011
	(in thousands)
Federal:
Current	$	78,569		$	83,571	$	2,568
Deferred		4,154			13,806		(5,475	)

		82,723			97,377		(2,907	)

State:
Current		17,154			17,559		2,563
Deferred		(1,533	)		7,018		(3,275	)

		15,621			24,577		(712	)

	$	98,344		$	121,954	$	(3,619	)


	Target Allocation			Plan Assets @ 8/31
Asset Category	2013			2013			2012
Equity Securities		55 - 75	%		61	%		63	%
Debt Securities		20 - 30	%		25	%		30	%
Alternative Investments		0 - 12	%		9	%		2	%
Cash/Cash Equivalents		0 - 10	%		5	%		5	%

					100	%		100	%


Estimated 2014 Amortization	Pension Benefits		Other Post-Retirement Benefits
	(in thousands)
Prior service cost (credit) amortization	$	—	$	(6,933	)
Net loss amortization		698		5,073

Total	$	698	$	(1,860	)


	August 31, 2013
	United Refining Company		Guarantors			Eliminations			United Refining Company & Subsidiaries


Assets
Current:
Cash and cash equivalents	$	141,386	$	17,151		$	—		$	158,537
Accounts receivable, net		83,800		41,396			—			125,196
Refundable income taxes		21,944		(1,054	)		—			20,890
Inventories, net		101,891		29,075			—			130,966
Prepaid expenses and other assets		37,860		4,233			—			42,093
Intercompany		133,159		6,545			(139,704	)		—

Total current assets		520,040		97,346			(139,704	)		477,682
Property, plant and equipment, net		179,326		109,806

VULCAN ASPHALT REFINING CORP 10-K