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 September 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)
Registrants 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 September 30, 1995
INDEX
Part I. Financial Information
Page
Condensed Consolidated Balance Sheets as
of September 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements of
Operations for the Three and Nine months
Ended September 30, 1995 and 1994 4
Condensed Consolidated Statement of
Partners Capital (Deficiency) for the Nine months
Ended September 30, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Nine months Ended
September 30, 1995 and 1994 5
Notes to Condensed Consolidated
Financial Statements 6
Managements 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)
Sept. 30, Dec. 31,
1995 1994
(Audited)
CURRENT ASSETS:
Cash $ 1,721 $ 5,984
Accounts receivable 8,340 2,510
Inventories 3,553 4,019
Prepaid expenses 655 749
Total current assets 14,269 13,262
PROPERTY - net 68,439 69,857
OTHER ASSETS 768 805
GOODWILL 1,830 1,872
TOTAL ASSETS $ 85,306 $ 85,796
CURRENT LIABILITIES:
Accounts payable $ 8,530 $ 5,984
Current portion of long-term
obligations 4,224 2,418
Reserve for plant closure 214 242
Accrued interest 1,317 241
Other accrued liabilities 1,754 1,652
Total current liabilities 16,039 10,537
LONG-TERM OBLIGATIONS 90,834 91,312
PARTNERS CAPITAL (DEFICIT) (21,567) (16,053)
TOTAL LIABILITIES AND
PARTNERS CAPITAL $ 85,306 $ 85,796
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
SALES $27,345 $26,110 $ 60,684 $ 60,057
COSTS AND EXPENSES:
Material and Processing
Costs 24,301 23,159 57,667 53,143
Selling and Administration
Expenses 895 851 2,818 3,205
Interest Expense 1,328 1,248 3,884 3,743
Depreciation and
Amortization 661 649 1,829 1,795
Total Costs and Expenses 27,185 25,907 66,198 61,886
NET INCOME (Loss) $ 160 $ 203 $ (5,514) $ (1,829)
NET INCOME/(LOSS) PER
EQUIVALENT LIMITED PARTNER
UNIT $ 0.01 $ 0.02 $ (0.47) $ (0.16)
EQUIVALENT LIMITED PARTNER
UNITS OUTSTANDING 11,673 13,359 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 (Audited) $ (160) $(15,893) $(16,053)
Net Loss for the Nine Months
Ended September 30, 1995 (55) (5,459) (5,514)
Balance at September 30, 1995 $ (215) $(21,352) $(21,567)
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Nine Months
Ended Ended
Sept. 30, 1995 Sept. 30, 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (5,514) $ (1,829)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 1,829 1,795
Interest Expense Paid by the Issuance
of Notes 1,692 3,180
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Accounts
Receivable (5,830) (2,341)
Decrease (Increase) in Inventories 428 902
Decrease (Increase) in Prepaid Expenses 94 (394)
Increase (Decrease) in Reserve for Plant
Closure (28) (854)
Increase (Decrease) in Accounts Payable 2,546 2,730
Increase (Decrease) in Accrued Liabilities 1,179 (783)
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (3,604) 2,406
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property (186) (654)
Additions to Other Assets (108) (76)
NET CASH (USED) BY INVESTING ACTIVITIES (294) (730)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Long-Term Obligations (365) (4,137)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (365) (4,137)
NET INCREASE (DECREASE) IN CASH (4,263) (2,461)
CASH BALANCE - BEGINNING OF PERIOD 5,984 7,745
CASH BALANCE - END OF PERIOD $ 1,721 $ 5,284
INTEREST PAID DURING THE PERIOD $ 1,114 $ 606
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 September 30, 1995
and for the three and nine month periods ended September 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 nine months 1995 and
1994 results was to increase the net loss by $2,000 and
$1,020,000, respectively. For the third quarter of 1995 and
1994, the effect of LIFO was to increase net income by $616,000
and $293,000, respectively.
Inventories at September 30, 1995 and December 31, 1994 were
as follows:
1995 1994
Finished Products $1,492 $2,792
Crude Oil and Supplies 3,266 2,430
4,758 5,222
Less LIFO Reserve (1,205) (1,203)
Total $3,553 $4,019
2. FINANCIAL ARRANGEMENTS
As of September 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. The Partnerships lenders have agreed to issue a
waiver of compliance regarding this covenant.
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 $325,000 as of
September 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.
MANAGEMENTS 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.
Huntways 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, depreciation and
amortization 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.
Three Months Ended September 30, 1995 Compared with the Three
Months Ended September 30, 1994
The 1995 third quarter net income was $160,000, or 1 cent
per unit, versus 1994 third quarter net income of $203,000, or 2
cents per unit.
The nominal decrease of $43,000 in net income between
quarters is principally attributable to costs associated with the
Arizona refinery which was charged against the closure reserve in
1994.
The following table sets forth the effects of changes in
price and volume on sales and crude and processing costs on the
quarter ended September 30, 1995 as compared to the quarter ended
September 30, 1994:
Materials & Barrels
Sales Processing Net Sold
(In Thousands)
Period ended Sept. 30, 1994 $ 60,057 $ 53,143 $ 6,914 3,500
Effect of changes in price 4,556 8,001 (3,445)
Effect of changes in volume (3,929) (3,477) (452) (229)
Period ended Sept. 30, 1995 $ 60,684 $ 57,667 $ 3,017 3,271
As reflected in the table, the net margin between sales and crude
and processing costs improved from $2.08 per barrel for the third
quarter of 1994 to $2.20 per barrel for the third quarter of
1995. This improvement in net margin of $93,000 is primarily
attributable to the Partnership being able to pass on to its
customers crude cost increases due to heavy late summer demand
and to improved margins. Sales prices averaged $19.76 per barrel
for the third quarter of 1995 as compared to $18.44 per barrel
for the comparable quarter of 1994, an increase of $1.32, or 7%.
This increase in pricing was partially offset by increased
material and processing costs which averaged $17.56 and $16.36
for the quarter ended September 30, 1995 and 1994, respectively,
an increase of $1.20, or 7%.
Selling, general and administrative costs increased $44,000
compared to the third quarter of 1994 as 1994 received the
benefit of the recovery of a previously written-off receivable of
$110,000 offset by the elimination of bonus accruals in 1995.
Interest expense and depreciation and amortization expense
were generally consistent with the prior year.
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.
Nine months Ended September 30, 1995 Compared with the Nine
months Ended September 30, 1994
The net loss was $5,514,000, or 47 cents per unit, compared
with the comparable 1994 period net loss of $1,829,000, or 16
cents per unit. 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 in the first half
of 1995.
The $3,685,000 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 7% from the level achieved in the comparable period of 1994.
Additionally, crude prices rose between periods an average of
$2.37 a barrel, or 19%. 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 in the first half of
the year, asphalt prices could not be raised in response to
rising crude costs. In addition, West Coast refinery margins
continued weak throughout much of the first nine months of the
year. These comparatively weak refinery margins result 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 first half of 1995 which contributed to
the negative operating margins incurred by the Partnership in the
period. 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
nine month period ended September 30, 1995 as compared to the
nine month period ended September 30, 1994:
Materials & Barrels
Sales Processing Net Sold
(In Thousands)
Three months ended Sept. 30, 1994 $ 26,110 $ 23,159 $ 2,951 1,416
Effect of changes in price 1,825 1,665 160
Effect of changes in volume (590) (523) (67) (32)
Three months ended Sept. 30, 1995 $ 27,345 $ 24,301 $ 3,044 1,384
As reflected in the table, the net margin between sales and crude
and processing costs declined from $1.98 per barrel for the first
nine months of 1994 to $0.92 per barrel for the first nine months
of 1995. This decline in net margin of $3,897,000 is primarily
attributable to significantly increased crude costs which the
Partnership was unable to pass on to its customers. Volume
declined slightly in Southern California and 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 $18.55
per barrel for the first nine months of 1995 as compared to
$17.16 per barrel for the comparable period of 1994, an increase
of $1.39, or 8%. This modest increase in pricing was more than
offset by increases in material and processing costs which
averaged $17.63 and $15.18 for the nine months ended September
30, 1995 and 1994, respectively, an increase of $2.45 or 16%.
Selling, general and administrative costs decreased $387,000
compared to the comparable period 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.
Capital Resources And Liquidity
The primary factors that affect the Partnerships 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 nine months of 1995, operating activities
consumed $3,604,000 in cash primarily resulting from the periods
net loss of $5,514,000 offset by non-cash items of $3,521,000.
Seasonal increases in accounts receivable of $5,830,000 were
financed by similar seasonal increases in accounts payable which
increased by $2,546,000 and by a decrease in inventories of
$428,000. Accrued liabilities increased by $1,179,000 due to
increased accrued interest which was substantially paid down on
October 3, 1995 commensurate with a $1,250,000 payment to the
Partnerships senior lenders.
Investing activities consumed $294,000 during the first nine
months of 1995 primarily for refinery equipment and deposits.
Financing activities consumed $365,000 in the first nine
months of 1995 primarily for reduction in the capital lease
obligation.
In comparison, through the first nine months of 1994,
operating activities provided $2,406,000 in cash primarily
resulting from the periods net loss of $1,829,000 offset by non-
cash items of $4,975,000. Prepaid expenses increased $394,000
primarily due to turnaround costs incurred at each of the two
California refineries. The expenditure of $854,000 relating to
closure, maintenance and other costs was charged against the
Sunbelt refinery closure reserve. Inventory decreased $902,000
through the first nine months of the year while accounts
receivable increased by $2,341,000 due to higher seasonal sales
levels. Accrued liabilities declined $783,000 primarily due to
property tax payments. These factors were offset by increased
accounts payable of $2,730,000 due to higher crude purchases.
Investing activities consumed $730,000 during the first half
of 1994 primarily for refinery equipment.
Financing activities consumed an additional $4,137,000 in
the first half of 1994 consisting primarily of principal payments
on the priority secured notes.
The Partnership is negotiating with its lenders a
restructuring or refinancing of its indebtedness and has been
assisted in this process by an outside advisor. It is
contemplated that such restructuring or refinancing would reduce
the aggregate principal amount of debt outstanding as well as
aggregate interest expense and would result in substantial
dilution to existing unitholders through the issuance of new
equity securities.
On October 3, 1995, the Partnership made the scheduled third
quarter payment of $1,250,000. The Partnership has informed its
lenders that it will not make any additional payments under the
current indenture. The current indenture, as amended, provides
for a $1,000,000 payment due November 30, 1995 and a $1,250,000
payment due December 31, 1995. In addition, the current
indenture provides for a $5,000,000 payment in 1996 paid
quarterly under a defined formula.
Substantially all of the Partnerships current senior lenders
have verbally informed the Partnership that they do not intend to
pursue their remedies under the current indenture due to
nonpayment while discussions regarding the potential
restructuring or refinancing of the Partnerships indebtedness are
continuing.
Management currently believes, based on discussion it has
had with its current senior lenders, that a successful
restructuring or refinancing of its current indebtedness is
possible but cannot be assured.
The Partnership currently believes it will be able to meet
its operating obligations through 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.
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
November 13, 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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