SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1995
Commission File Number 1-10091
HUNTWAY PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
Delaware
36-3601653
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
25129 The Old Road, Suite 322
Newhall, California
(Address of Principal Executive Offices)
91381
(Zip Code)
Registrant's Telephone Number Including Area Code: (805) 286-
1582
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(b) 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 .
QUARTERLY REPORT ON FORM 10-Q
HUNTWAY PARTNERS, L.P.
For the Quarter Ended June 30, 1995
INDEX
Part I. Financial Information
Page
Condensed Consolidated Balance Sheets as
of June 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of
Operations for the Three and Six Months
Ended June 30, 1995 and 1994 4
Condensed Consolidated Statement of
Partners' Capital (Deficiency) for the Six Months
Ended June 30, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1995 and 1994 5
Notes to Condensed Consolidated
Financial Statements 6
Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8
Part II. Other Information 13
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30 Dec. 31,
1995 1994
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 2,568 $ 5,984
Accounts receivable 5,068 2,510
Inventories 5,082 4,019
Prepaid expenses 797 749
Total current assets 13,515 13,262
PROPERTY - net 68,937 69,857
OTHER ASSETS 855 805
GOODWILL 1,844 1,872
TOTAL ASSETS $ 85,151 $ 85,796
CURRENT LIABILITIES:
Accounts payable $ 9,402 $ 5,984
Current portion of long-term
obligations 4,346 2,418
Reserve for plant closure 214 242
Accrued interest 217 241
Other accrued liabilities 1,866 1,652
Total current liabilities 16,045 10,537
LONG-TERM OBLIGATIONS 90,833 91,312
PARTNERS' CAPITAL (DEFICIT) (21,727) (16,053)
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 85,151 $ 85,796
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 June 30,1995 June 30, 1994
Unaudited Unaudited Unaudited Unaudited
SALES $ 21,061 $ 20,195 $ 33,339 $ 33,947
COSTS AND EXPENSES:
Material and processing costs
20,527 18,317 33,366 29,985
Selling and administration expenses
915 1,106 1,924 2,354
Interest expense
1,300 1,265 2,555 2,495
Depreciation and amortization
605 591 1,168 1,146
Total costs and expenses
23,347 21,279 39,013 35,980
NET LOSS
$ 2,286 $ 1,084 $ 5,674 $ 2,033
NET LOSS PER EQUIVALENT
LIMITED PARTNER UNIT $ 0.20 $ 0.09 $ 0.49 $ 0.17
EQUIVALENT LIMITED PARTNER
UNITS OUTSTANDING 11,673 11,673 11,673 11,673
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(in thousands)
General Limited
Partners Partners Totals
Balance at January 1, 1995 $ (160) $ (15,893) $ (16,053)
Net loss for the six months
ended June 30, 1995 (57) (5,617) (5,674)
Balance at June 30, 1995 $ (217) $ (21,510) $ (21,727)
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,674) $ (2,033)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 1,168 1,146
Interest expense paid by the
issuance of notes 1,692 2,115
Changes in operating assets and
liabilities:
Decrease (Increase) in accounts
receivable (2,558) (1,293)
Decrease (Increase) in inventories (1,037) (515)
Decrease (Increase) in prepaid
expenses (48) (533)
Increase (Decrease) in reserve for
plant closure (28) (607)
Increase (Decrease) in accounts
payable 3,418 2,828
Increase (Decrease) in accrued
liabilities 190 (658)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,877) 450
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (150) (533)
Additions to other assets (147) (55)
NET CASH (USED) BY INVESTING ACTIVITIES (297) (588)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations (242) (2,297)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (242) (2,297)
NET INCREASE (DECREASE) IN CASH (3,416) (2,435)
CASH BALANCE - BEGINNING OF PERIOD 5,984 7,745
CASH BALANCE - END OF PERIOD $ 2,568 $ 5,310
INTEREST PAID DURING THE PERIOD $ 887 $ 461
HUNTWAY PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements
of Huntway Partners, L.P. and subsidiary as of June 30, 1995 and
for the three and six month periods ended June 30, 1995 and 1994
are unaudited, but in the opinion of management, reflect all
adjustments necessary for a fair presentation of such financial
statements in accordance with generally accepted accounting
principles. The results of operations for an interim period are
not necessarily indicative of results for a full year. The
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto contained in the Partnerships annual report for the year
ended December 31, 1994.
Crude oil and finished product inventories are stated at
cost determined by the last-in, first-out method, which is not in
excess of market. The effect of LIFO on first half 1995 and 1994
results was to increase the net loss by $618,000 and $1,313,000,
respectively. For the second quarter of 1995 and 1994, the
effect of LIFO was to increase the net loss by $304,000 and
$1,284,000, respectively.
Inventories at June 30, 1995 and December 31, 1994 were as
follows:
1995 1994
Finished Products $ 2,690 $ 2,792
Crude Oil and Supplies 4,213 2,430
6,903 5,222
Less LIFO Reserve (1,821) (1,203)
Total $ 5,082 $ 4,019
2. FINANCIAL ARRANGEMENTS
As of June 30, 1995, the Partnership was not in compliance
with cash flow covenants of its primary borrowings which require
the partnership to maintain cash flow before debt service of at
least $3,000,000 during the most recent four quarter period.
Huntway has obtained a waiver of compliance from its lenders
regarding this covenant. Additionally, the Partnership and its
lenders have agreed to reschedule the $1,000,000 minimum payment
required on its 8% Senior Secured Notes from June 30, 1995 to
November 30, 1995.
3. CONTINGENCIES
On May 19, 1995, during testing pursuant to the closure of a
waste water treatment pond, the Partnership discovered that
several drums of hazardous materials had been improperly disposed
of at the site of the Wilmington refinery. Subsequent
geophysical testing to date indicates that approximately 20 to 30
of such drums had been improperly disposed of at the site. The
materials had been stored in drums and disposed of under the
waste water treatment pond apparently at the time of its
construction. Although the Partnership believes that it has
claims against the former owners and operators of the site, as
well as the entities involved in the construction of the pond and
various insurance carriers which should substantially mitigate
the ultimate costs, the Partnership has accrued $300,000 as of
June 30, 1995 for remediation of the contamination. Management
does not believe, based upon the information known at this time,
that the remediation effort will have a material adverse effect
on the Partnerships results of operations or financial position.
The Partnership is party to a number of lawsuits and other
proceedings arising out of the ordinary course of its business.
While the results of such lawsuits and proceedings cannot be
predicted with certainty, management does not expect that the
ultimate liability, if any, will have a material adverse effect
on the consolidated financial position or results of operations
of the Partnership.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with
the financial statements included elsewhere in this report.
Results of Operations
Huntway is principally engaged in the processing and sale of
liquid asphalt products, as well as the production of other
refined petroleum products such as gas oil, naphtha, kerosene
distillate, diesel fuel, jet fuel and bunker fuel.
Huntway's ability to generate income depends principally
upon the margins between the prices for its refined petroleum
products and the cost of crude oil, as well as upon demand for
liquid asphalt, which affects both price and sales volume.
Historically, refined petroleum product prices (including
prices for liquid asphalt, although to a lesser degree than
Huntways other refined petroleum products) generally fluctuate
with crude oil price levels. Accordingly, there has not been a
relationship between total revenues and income due to the
volatile commodity character of crude oil prices.
Accordingly, income before interest and depreciation
provides the most meaningful basis for comparing historical
results of operations discussed below.
A number of uncertainties exist that may affect Huntways
future operations including the possibility of further increases
in crude costs that may not be able to be passed on to customers
in the form of higher prices. Additionally, crude costs could
rise to such an extent that Huntway may not have sufficient
letter of credit availability to purchase all the crude it needs
to sustain operations to capacity, especially during the summer
season. If this occurred, Huntway would be forced to reduce
crude purchases which could adversely impact results of
operations. The Partnerships primary product is liquid asphalt.
Most of Huntways competitors produce liquid asphalt as a by-
product and are of much greater size and have much larger
financial resources than the Partnership. Accordingly, the
Partnership has in the past, and may in the future, have
difficulty raising prices in the face of increasing crude costs.
Six Months Ended June 30, 1995 Compared with the Six Months Ended
June 30, 1994
The 1995 first half net loss was $5,674,000, or 49 cents per
unit, compared with a 1994 first half net loss of 2,033,000, or
17 cents per unit. First half results are normally expected to
be worse than second half results because asphalt road repair
work slows down as a result of cold, wet weather in the winter
and spring and begins to pick up again in the late spring.
However, as explained below, current period results were much
worse than usual due to a combination of heavy rains, rising
crude costs and generally weak refinery margins.
The $3,641,000 increase in the net loss is principally
attributable to unseasonably high rainfall in California during
the first four months of 1995 versus the prior year. As asphalt
cannot be laid in rainy weather, barrels of paving asphalt sold
fell 19% from the level achieved in the comparable period of
1994. Additionally, crude prices rose between periods an average
of $3.33 a barrel, or 29%. Crude costs rose in response to
rising world crude prices and increased demand for California
heavy crude as refineries are increasingly using this crude in
their refinery processes. Due to reduced demand, asphalt prices
could not be raised in response to rising crude costs. In
addition, West Coast refinery margins continued weak reaching
near ten-year lows. This results from a combination of rising
crude costs and excess light-end inventory. Accordingly, margins
for the Partnerships other refined petroleum products fell.
To maintain cash flow, the Partnership sold low-margin fuel
oil in the period which contributed to the negative operating
margins incurred by the Partnership in the first half. Fuel oil
is a blend of asphalt and gas oil.
The following table sets forth the effects of changes in
price and volume on sales and crude and processing costs on the
six month period ended June 30, 1995 as compared to the six month
period ended June 30, 1994:
Material & Barrels
Sales Processing Net Sold
(In Thousands)
Six months ended June 30, 1994 $ 33,947 $ 29,985 $ 3,962 2,084
Effect of changes in price 2,601 6,215 (3,614)
Effect of changes in volume (3,209) (2,834) (375) (197)
Six months ended June 30, 1995 $ 33,339 $ 33,366 $ (27) 1,887
As reflected in the table, the net margin between sales and crude
and processing costs declined from $1.90 per barrel for the first
half of 1994 to a negative one cent per barrel for the first half
of 1995. This decline in net margin of $3,935,000 is primarily
attributable to significantly increased crude costs which the
Partnership was unable to pass on to its customers. Volume
increased slightly in Southern California although heavy rains in
the period forced the sale of fuel oil in order to reduce excess
asphalt inventory. Sales in Northern California declined as a
result of the inclement weather. Sales prices averaged $17.67
per barrel for the first half of 1995 as compared to $16.29 per
barrel for the comparable period of 1994, an increase of $1.38 or
8%. This modest increase in pricing was more than offset by
increases in material and processing costs which averaged $17.68
and $14.39 for the six months ended June 30, 1995 and 1994,
respectively, an increase of $3.29 or 23%.
Selling, general and administrative costs decreased $430,000
compared to the first half of 1994 primarily as a result of lower
professional and investor relations fees as well as elimination
of management bonus accruals.
Interest expense and depreciation and amortization expense
were consistent with the prior year.
Three Months Ended June 30, 1995 Compared with the Three Months
Ended June 30, 1994
The 1995 second quarter net loss was $2,286,000, or 20 cents
per unit, versus a 1994 second quarter net loss of $1,084,000, or
9 cents per unit. As explained below, current quarter results
were worse than usual due to the combination of heavy rains,
rising crude costs and weak refinery margins.
The $1,202,000 increase in the net loss is principally
attributable to lower asphalt gross margin due to unseasonably
high rainfall in California during the second quarter of 1995
versus the prior year. As asphalt cannot be laid in rainy
weather, barrels of paving asphalt sold fell 12% between
quarters. Additionally, crude prices rose between quarters an
average of $2.55 a barrel, or 20%. Crude costs rose in the
quarter in response to rising world crude prices and increased
demand for California heavy crude as refineries are increasingly
using this crude in their refinery processes. Due to reduced
demand, asphalt prices could not be raised in response to rising
crude costs. In addition, West Coast refinery margins continued
weak and near ten-year lows. This results from a combination of
rising crude costs and excess light-end inventory. Accordingly,
prices for the Partnerships other refined petroleum products
fell relative to the increase in crude costs. To maintain cash
flow, the Partnership continued to sell low-margin fuel oil in
the quarter which contributed to the negative operating margins
incurred by the Partnership in the second quarter. Fuel oil is a
blend of asphalt and gas oil.
The following table sets forth the effects of changes in
price and volume on sales and crude and processing costs on the
quarter ended June 30, 1995 as compared to the quarter ended June
30, 1994:
Material & Barrels
Sales Processing Net Sold
(In Thousands)
Quarter ended June 30, 1994 $ 20,195 $ 18,317 $ 1,878 1,186
Effect of changes in price 1,700 2,967 (1,267)
Effect of changes in volume (834) (757) (77) (49)
Quarter ended June 30, 1995 $ 21,061 $ 20,527 $ 534 1,137
As reflected in the table, the net margin between sales and crude
and processing costs declined from $1.58 per barrel for the
second quarter of 1994 to $0.47 per barrel for the second quarter
of 1995. This decline in net margin of $1,344,000 is primarily
attributable to significantly increased crude cost which the
Partnership was unable to pass on to its customers. Volume
increased slightly in Southern California but continuing heavy
rains early in the quarter forced the sale of additional fuel oil
in order to reduce excess asphalt inventory. Sales in Northern
California declined significantly as a result of inclement
weather early in the quarter. Sales prices averaged $18.52 per
barrel for the second quarter of 1995 as compared to $17.03 per
barrel for the comparable quarter of 1994, an increase of $1.49
or 9%. This increase in pricing was more than offset by
increased material and processing costs which averaged $18.05 and
$15.44 for the quarter ended June 30, 1995 and 1994,
respectively, an increase of $2.61 or 17%.
Selling, general and administrative costs decreased $191,000
compared to the second quarter of 1994 primarily as a result of
lower professional and investor relations fees as well as
elimination of management bonus accruals.
Interest expense and depreciation and amortization expense
were consistent with the prior year.
As a result of the factors described above, the outlook for
the balance of the year is uncertain, as results will depend to a
large extent on crude prices and public funding availability.
The heavy rainfall in California has damaged asphalt roads
throughout the State which will eventually lead to increased
repair activity. However, when this work will occur is uncertain
as State funding for road construction remains a concern.
Because of the foregoing, as well as other factors affecting
the Partnerships operating results, past financial performance
should not be considered to be a reliable indicator of future
performance and investors should not use historical trends to
anticipate results or trends in future periods.
Capital Resources And Liquidity
The primary factors that affect the Partnership's cash
requirements and liquidity position are fluctuations in the
selling prices of our refined products caused by local market
supply and demand factors including public and private demand for
road construction and improvement as well as demand for diesel
fuel and gasoline, as well as fluctuations in the cost of crude
oil which is impacted by a myriad of market factors, both foreign
and domestic. In addition, capital expenditure requirements,
including costs to maintain compliance with environmental
regulations as well as debt service requirements, also impact the
Partnerships cash needs.
In the first half of 1995, operating activities consumed
$2,877,000 in cash primarily resulting from the periods net loss
of $5,674,000 offset by non-cash items of $2,860,000. Seasonal
increases in accounts receivable and inventories of $3,595,000
were financed by similar seasonal increases in accounts payable
and accrued liabilities which increased by $3,608,000.
Investing activities consumed $297,000 during the first half
of 1995 primarily for refinery equipment and deposits.
Financing activities consumed $242,000 in the first half of
1995 primarily for reduction in the capital lease obligation.
In comparison, through the first six months of 1994,
operating activities provided $450,000 in cash primarily
resulting from the periods net loss of $2,033,000 offset by non-
cash items of $3,261,000. Prepaid expenses increased $533,000
primarily due to turnaround costs incurred at each of the two
California refineries. The expenditure of $607,000 relating to
closure, maintenance and other costs was charged against the
Sunbelt refinery closure reserve. Inventory increased $515,000
through the first six months of the year as cash was expended to
build inventories in anticipation of the summer season. Accounts
receivable also increased by $1,293,000 due to higher seasonal
sales levels. Accrued liabilities declined $658,000 primarily
due to property tax payments. These factors were offset by
increased accounts payable of $2,828,000 due to rising crude
costs.
Investing activities consumed $588,000 during the first half
of 1994 primarily for refinery equipment.
Financing activities consumed an additional $2,297,000 in
the first half of 1994 consisting primarily of principal payments
of $2,117,000 on the priority secured notes.
The Partnership is pursuing a further refinancing of its
indebtedness and has been assisted in this process by an outside
advisor. It is contemplated that a refinancing would reduce the
aggregate principal amount of debt outstanding and aggregate
interest expense and would result in substantial dilution to
existing unitholders through the issuance of new equity
securities, whether for cash or in conjunction with a new debt
financing. The Partnership also continues to negotiate with its
current lenders regarding the terms on which its existing debt
might be repaid or restructured. The Partnership cannot
determine if it will be successful in refinancing or
restructuring its current indebtedness nor can it presently
determine what impact a possible refinancing or restructuring
would have on its current financial position.
The Partnership currently believes it will be able to meet
its obligations through 1995 by a combination of cash on hand and
anticipated future operating cash flows. However, due to the
volatility of the business in which the Partnership operates,
there can be no assurance that such cash flow will be adequate to
sustain operations and service indebtedness. A restructuring of
the Partnerships indebtedness will become a necessity within the
next twelve months unless operating margins materially improve.
The Partnership believes its current level of letter of
credit facilities are sufficient to guarantee expected near-term
requirements for crude oil purchases, collateralization of other
obligations and for hedging activities. However, due to the
volatility in the price of crude oil, there can be no assurance
that these facilities will be adequate.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is party to a number of additional lawsuits
and other proceedings arising out of the ordinary course of its
business. While the results of such lawsuits and proceedings
cannot be predicted with certainty, management does not expect
that the ultimate liability, if any, will have a material adverse
effect on the consolidated financial position or results of
operations of the Partnership other than as previously reported.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on
August 9, 1995.
HUNTWAY PARTNERS, L.P.
(Registrant)
By: /s/ Warren J. Nelson
Warren J. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
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