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 March 31, 1997 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 March 31, 1997
INDEX
Part I. Financial Information
Page
Condensed Consolidated Balance Sheets as
of March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations for the Three Months
Ended March 31, 1997 and 1996 4
Condensed Consolidated Statement of
Partners' Capital (Deficiency) for the Three Months
Ended March 31, 1997 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1997 and 1996 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 14
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $3,092,000 $5,287,000
Accounts Receivable 4,905,000 5,148,000
Inventories 8,490,000 3,399,000
Prepaid Expenses 820,000 640,000
Total Current Assets 17,307,000 14,474,000
PROPERTY - Net 59,380,000 59,339,000
OTHER ASSETS 288,000 319,000
GOODWILL 1,744,000 1,759,000
TOTAL ASSETS $78,719,000 $75,891,000
CURRENT LIABILITIES:
Accounts Payable $8,802,000 $6,913,000
Current Portion of Long-Term Obligations - 100,000
Accrued Interest 635,000 316,000
Other Accrued Liabilities 1,654,000 1,347,000
Total Current Liabilities 11,091,000 8,676,000
LONG-TERM OBLIGATIONS 28,174,000 28,174,000
PARTNERS' CAPITAL:
General Partners 394,000 390,000
Limited Partners 39,060,000 38,651,000
Total Partners' Capital 39,454,000 39,041,000
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $78,719,000 $75,891,000
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
(Unaudited) (Unaudited)
SALES $19,065,000 $17,209,000
COSTS AND EXPENSES:
Material and Processing Costs 16,137,000 16,758,000
Selling and Administration Expenses 1,189,000 866,000
Interest Expense 873,000 1,289,000
Depreciation and Amortization 520,000 515,000
Costs and Expenses 18,719,000 19,428,000
NET INCOME (LOSS) $346,000 $(2,219,000)
NET INCOME (LOSS) PER UNIT $0.01 $(0.19)
LIMITED PARTNER EQUIVALENT
UNITS OUTSTANDING 27,055,000 11,673,000
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
General Limited
Partners Partners Totals
Balance at January 1, 1997 $390,000 $38,651,000 $39,041,000
Earned Portion of Option Awards 1,000 66,000 67,000
Net Income for the Three Months
Ended March 31, 1997 3,000 343,000 346,000
Balance at March 31, 1997 $394,000 $39,060,000 $39,454,000
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Three
Months Ended Months Ended
March 31, March 31,
1997 1996
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $346,000 $(2,219,000)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 520,000 515,000
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Accounts Receivable 243,000 (280,000)
(Increase) in Inventories (4,999,000) (1,747,000)
(Increase) in Prepaid Expenses (181,000) (239,000)
Increase in Accounts Payable 1,889,000 2,060,000
Increase in Accrued Liabilities 626,000 1,196,000
NET CASH (USED) BY OPERATING ACTIVITIES (1,556,000) (714,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property (549,000) (492,000)
Additions to Other Assets 10,000 (172,000)
NET CASH USED BY INVESTING ACTIVITIES (539,000) (664,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Long-term Obligations (100,000) (100,000)
NET CASH USED BY FINANCING ACTIVITIES (100,000) (100,000)
NET (DECREASE) IN CASH (2,195,000) (1,478,000)
CASH BALANCE - BEGINNING OF PERIOD 5,287,000 4,304,000
CASH BALANCE - END OF PERIOD $3,092,000 $2,826,000
INTEREST PAID IN CASH DURING THE PERIOD $554,000 $187,000
HUNTWAY PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements
of Huntway Partners, L.P. and subsidiary as of March 31, 1997 and
for the three month periods ended March 31, 1997 and 1996 are
unaudited, but in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments)
necessary for 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, 1996.
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. For the first three months of 1997 and 1996,
the effect of LIFO was to increase net income by $1,154,000 and
increase the net loss by $653,000, respectively.
Inventories at March 31, 1997 and December 31, 1996 were as
follows:
1997 1996
Finished Products $5,798,000 $2,533,000
Crude Oil and Supplies 3,730,000 3,058,000
9,528,000 5,591,000
Less LIFO Reserve (1,038,000) (2,192,000)
Total $8,490,000 $3,399,000
2. CONTINGENCIES
As the Partnership business is the refining of crude oil into
liquid asphalt and other light-end products, it is subject to
certain environmental laws and regulations. Accordingly,
adherence to environmental laws and regulations creates the
opportunity for unknown costs and loss contingencies to arise in
the future. Unknown costs and loss contingencies could also
occur due to the nature of the Partnerships business. The
Partnership is not aware of any costs or loss contingencies
relating to environmental laws and regulations that have not been
recorded in its financial statements. However, future
environmental costs cannot be reasonably estimated due to unknown
factors. Although environmental costs may have a significant
impact on results of operations for any single period, the
partnership believes that such costs will not have a material
adverse effect on the Partnerships financial position.
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.
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 feedstocks and products such as gas oil,
naphtha, kerosene distillate and heavy (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, 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 have in the future, difficulty raising prices in
the face of increasing crude costs.
Three Months Ended March 31, 1997 Compared with the Three
Months Ended March 31, 1996
First quarter 1997 net income was $346,000, or $.01 per
unit, versus 1996 first quarter net loss of $2,219,000, or
$.19 cents per unit.
The improvement in results between quarters of $2,565,000
is principally attributable to significantly higher product
margins. Prices for Huntway's light-end products rose in the
quarter commensurate with increases in wholesale gasoline and
diesel prices in California which reflected the impact of
refinery turnarounds and outages as well as seasonal increases
in middle distillates caused by winter heating oil demand.
Asphalt margins also improved as industry wide price increases
early in the quarter generally held while crude prices fell.
Asphalt margins also benefited as overall improvements in
operating results allowed the Partnership to forego low-margin
fuel oil sales such as it made in the first quarter of 1996
for liquidity purposes.
The following table sets forth the effects of changes in
price and volume on sales and material and processing costs on
the quarter ended March 31, 1997 as compared to the quarter
ended March 31, 1996:
Material & Barrels
Sales Processing Net Sold
Quarter ended March 31, 1996 $17,209,000 $16,758,000 $451,000 887,000
Effect of changes in price 3,369,306 852,646 2,516,660
Effect of changes in volume (1,513,306) (1,473,646) (39,660) (78,000)
Quarter ended March 31, 1997 $19,065,000 $16,137,000 $2,928,000 809,000
As reflected in the table, the net margin between sales and
material and processing costs improved from $0.51 per barrel
for the first quarter of 1996 to $3.62 per barrel for the
first quarter of 1997. This improvement in net margin of
$2,477,000 is primarily attributable to the Partnership's
significantly improved margin on all products in the quarter.
Over all, light product prices improved by 22% compared to the
first quarter of 1996 as wholesale gasoline and diesel prices
rose primarily due to turnarounds and refinery outages in
California as well as seasonal increases in middle distillates
caused by winter heating oil demand. Asphalt pricing improved
by 19% as price increases put into effect early in the quarter
(after crude price increases throughout 1996) generally held
despite falling crude prices. Over all, sales prices averaged
$23.57 per barrel for the first quarter of 1997 as compared to
$19.40 per barrel for the comparable quarter of 1996, an
increase of $4.17, or 21%. This increase in pricing was
partially offset by crude costs, which rose by 8% as compared
to the comparable quarter of 1996. All of this increase
occurred in 1996 as California heavy crude postings actually
fell by 17% over the course of the quarter as a result of
lower demand due to a heavy refinery turnaround schedule and
generally higher world wide production. Over all, material
and processing costs averaged $19.95 and $18.89 for the
quarters ended March 31, 1997 and 1996, respectively, an
increase of $1.06, or 6%.
Selling, general and administrative costs increased by
$323,000 as compared to the first quarter of 1996 primarily as
a result of incentive plan accruals and an increase in bad
debt expense.
Interest expense was reduced in the quarter by $416,000
due to reduced debt levels. In December of 1996, the
partnership completed the restructuring of its indebtedness
with its senior and junior lenders. This resulted in a
reduction in long-term debt and related accrued interest of
$71,748,000 and the issuance of 13,786,000 new partnership
units.
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 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 and 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 three months of 1997, operating activities
used $1,556,000 in cash. The periods net income of $346,000
plus depreciation and amortization of $520,000 provided
$866,000 in cash. A seasonal increase in inventory of
$4,999,000 was partially financed by a similar seasonal
increase in accounts payable of $1,889,000. Accrued
liabilities increased by $626,000 as only one half of the
interest accrued under the new debt agreements was scheduled
for payment in the quarter, as well as increases in accruals
for property taxes and incentive compensation. Prepaid
expenses consumed $181,000 primarily due to turnaround costs
while accounts receivable decreased by a nominal $243,000 due
to the timing of certain product sales.
In comparison, during the first quarter of 1996,
operating activities consumed $714,000 in cash primarily
resulting from the periods net loss of $2,219,000 offset by
non-cash items of $515,000. Seasonal increases in accounts
receivable and inventory of $2,027,000 were financed by
similar seasonal increases in accounts payable which increased
by $2,060,000. Prepaid expenses increased by $239,000
primarily due to turnaround costs. Accrued interest increased
by $1,102,000 as interest continued to accrue under the old
debt agreement until the completion of the restructuring,
referred to above, on December 30, 1996.
Investing activities consumed $539,000 during the first
quarter of 1997 primarily for refinery equipment. During the
first quarter of 1996, investing activities consumed $664,000
primarily for refinery equipment and deposits.
Financing activities consumed $100,000 in the first
quarter of both 1997 and 1996 pursuant to a 1993 settlement
with the State of Arizona.
The Partnership believes its current level of letter of
credit facilities are sufficient to guarantee requirements for
crude oil purchases, collateralization of other obligations
and for hedging activities at current crude price levels.
However, due to the volatility in the price of crude oil,
there can be no assurance that these facilities are adequate.
If crude oil prices were to increase, the Partnership may be
required to reduce its crude oil purchases, which would
adversely impact profitability.
Currently, the Partnership is negotiating with two of its
senior lenders to repurchase or amend their Senior Notes and
to repurchase units that were issued in December 1996. The
Partnership is currently anticipating that it will seek to
refinance these debt and equity securities with a new debt
instrument, the terms of which have not been established. The
Partnership is considering such a refinancing in order to
continue to pursue its goal of reducing indebtedness and debt
service requirements. The Partnership is also, currently in
negotiations with another bank to replace its existing letter
of credit agreement.
At March 31, 1997, the cash position of the Partnership
was $3,092,000. In the opinion of management, cash on hand,
together with anticipated future cash flows, will be
sufficient to meet Huntway's liquidity obligations for the
next 12 months, regardless of whether Huntway is successful in
refinancing its two largest senior lenders.
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
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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 May 14, 1997.
HUNTWAY PARTNERS, L.P.
(Registrant)
By:
Warren J. Nelson
Executive Vice President
and Chief Financial Office
(Principal Accounting Officer)
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