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, 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 June 30, 1997
INDEX
Part I. Financial Information
Page
Condensed Consolidated Balance Sheets as
of June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations for the Three Months and Six
Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statement of
Partners' Capital (Deficiency) for the Six Months
Ended June 30, 1997 4
Condensed Consolidated Statements of Cash
Flows for the Three Months and Six Months
Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated
Financial Statements 6
Management's Discussion and Analysis
of Results of Operations and
Financial Condition 7
Part II. Other Information 12
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $2,263,000 $5,287,000
Accounts Receivable 5,626,000 5,148,000
Inventories 8,396,000 3,399,000
Prepaid Expenses 770,000 640,000
Total Current Assets 17,055,000 14,474,000
PROPERTY - Net 59,244,000 59,339,000
OTHER ASSETS 323,000 319,000
GOODWILL 1,730,000 1,759,000
TOTAL ASSETS $78,352,000 $75,891,000
CURRENT LIABILITIES:
Accounts Payable $7,862,000 $6,913,000
Current Portion of
Long-Term Obligations - 100,000
Accrued Interest 957,000 316,000
Other Accrued Liabilities 1,779,000 1,347,000
Total Current Liabilities 10,598,000 8,676,000
LONG-TERM OBLIGATIONS 28,174,000 28,174,000
PARTNERS' CAPITAL:
General Partners 395,000 390,000
Limited Partners 39,185,000 38,651,000
Total Partners' Capital 39,580,000 39,041,000
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $78,352,000 $75,891,000
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SALES $23,669,000 $26,099,000 $42,734,000 $43,308,000
COSTS AND
EXPENSES:
Material and
Processing
Costs 21,132,000 22,077,000 37,269,000 38,835,000
Selling and
Administration
Expenses 980,000 924,000 2,169,000 1,790,000
Interest Expense 896,000 1,315,000 1,769,000 2,604,000
Depreciation and
Amortization 602,000 532,000 1,122,000 1,047,000
Total Costs and
Expenses 23,610,000 24,848,000 42,329,000 44,276,000
NET INCOME(LOSS) $59,000 $1,251,000 $405,000 $(968,000)
NET INCOME(LOSS)
PER UNIT $0.00 $0.11 $0.01 $(0.08)
LIMITED PARTNER
EQUIVALENT UNITS
OUTSTANDING 28,107,000 11,673,000 28,096,000 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 1,000 133,000 134,000
Net Income for the
Six Months Ended
June 30, 1997 4,000 401,000 405,000
Balance at June 30, 1997 $395,000 $39,185,000 $39,580,000
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ 405,000 $ (968,000)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 1,122,000 1,047,000
Changes in Operating Assets
and Liabilities:
Increase in Accounts Receivable (478,000) (1,259,000)
Increase in Inventories (4,907,000) (2,783,000)
Increase in Prepaid Expenses (130,000) (253,000)
Increase in Accounts Payable 949,000 2,233,000
Increase in Accrued Liabilities 1,073,000 2,479,000
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (1,966,000) 496,000
CASH USED IN INVESTING ACTIVITIES:
Additions to Property (922,000) (1,570,000)
Additions to Other Assets (36,000) (395,000)
NET CASH USED BY INVESTING ACTIVITIES (958,000) (1,965,000)
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 (3,024,000) (1,569,000)
CASH BALANCE - BEGINNING OF PERIOD 5,287,000 4,304,000
CASH BALANCE - END OF PERIOD $ 2,263,000 $ 2,735,000
INTEREST PAID IN CASH DURING
THE PERIOD $ 1,128,000 $353,000
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 June 30, 1997 and
for the three and six month periods ended June 30, 1997 and 1996 are
unaudited but, in the opinion of management, reflect all
adjustments (consisting only of normal recurring 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, 1996.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards 128, Earnings per Share, which is
effective for annual and interim periods ending after December 15,
1997. The Partnership does not believe that adoption of this
standard will have an effect on the results of operations.
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 three months ended June 30, 1997 and
1996, the effect of LIFO was to increase net income by $765,000
and $161,000, respectively. For the six months ended June 30,
1997 and 1996, the effect of LIFO was to increase net income by
$1,919,000 and $490,000, respectively.
Inventories at June 30, 1997 and December 31, 1996 were as
follows:
1997 1996
Finished Products $5,469,000 $2,533,000
Crude Oil and Supplies 3,200,000 3,058,000
8,669,000 5,591,000
Less LIFO Reserve (273,000) (2,192,000)
Total $8,396,000 $3,399,000
2. CONTINGENCIES
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.
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.
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. The Partnerships primary product is liquid
asphalt and some 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. 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.
Three Months Ended June 30, 1997 Compared with the Three
Months Ended June 30, 1996
Second quarter 1997 net income was $59,000, or $.00 per
unit, versus 1996 second quarter net income of $1,251,000, or
$.11 cents per unit.
The decline in results between quarters of $1,192,000 is
principally attributable to significantly lower light product
margins. Prices for Huntway's light-end products fell in the
quarter commensurate with declining wholesale gasoline and
diesel prices in California which reflected the impact of
maximum production rates and increasing inventory levels of
these products on the west coast. In contrast, asphalt margins
improved as industry wide price increases early in the year
generally held.
The following table sets forth the effects of changes in
price and volume on sales and material and processing costs on
the quarter ended June 30, 1997 as compared to the quarter
ended June 30, 1996:
Material & Barrels
Sales Processing Net Sold
Three Months ended
June 30, 1996 $26,099,000 $22,077,000 $4,022,000 1,157,000
Effect of changes
in price (2,362,328) (887,756) (1,474,571)
Effect of changes
in volume (67,672) (57,244) (10,429) (3,000)
Three Months Ended
June 30, 1997 $23,669,000 $21,132,000 $2,537,000 1,154,000
The net margin between sales and material and processing
costs fell from $3.48 per barrel for the second quarter of
1996 to $2.20 per barrel for the second quarter of 1997. This
decline in net margin of $1,485,000 is primarily attributable
to the Partnership's poor light product margins in the
quarter. Over all, light product prices fell by 22% compared
to the second quarter of 1996 as wholesale gasoline and diesel
prices declined due to high refinery run rates and increasing
stocks of gasoline and diesel on the west coast. Asphalt
pricing improved by 7% as price increases put into effect
early in 1997 (after crude price increases throughout 1996)
generally held. Over all, sales prices averaged $20.51 per
barrel for the second quarter of 1997 as compared to $22.56
per barrel for the comparable quarter of 1996, a decline of
$2.05, or 9%. This decline in pricing was partially offset by
crude costs, which fell in response to generally higher world
wide production levels, by 6% as compared to the comparable
quarter of 1996. Over all, material and processing costs
averaged $18.31 and $19.08 for the quarters ended June 30,
1997 and 1996, respectively, a decline of $0.77, or 4%.
Selling, general and administrative costs increased by a
nominal $56,000 as compared to the second quarter of 1996
primarily as a result of increased payroll expense.
Interest expense was reduced in the quarter by $419,000
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.
Six Months Ended June 30, 1997 Compared with the Six Months
Ended June 30, 1996
First half 1997 net income was $405,000, or $.01 per
unit, versus 1996 first half net loss of $968,000, or $.08
cents per unit.
The improvement in results between periods of $1,373,000
is principally attributable to significantly higher product
margins. Margins on Huntway's light-end products rose
slightly in the period as the poor light product margins of
the second quarter failed to competely offset the exceptional
first quarter results. First quarter light product margins
reflected the impact of refinery turnarounds and outages as
well as seasonal increases in middle distillates caused by
winter heating oil demand while second quarter margins were
adversely impacted by rising gasoline and diesel inventories
caused by high production levels of these products. Asphalt
margins improved as industry wide price increases early in the
period generally held while crude prices fell. Asphalt
margins also benefited as improved operating results in the
first quarter, allowed the Partnership to forego the low-
margin fuel oil sales that it made in the first half 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 period ended June 30, 1997 as compared to the period ended
June 30, 1996:
Material & Barrels
Sales Processing Net Sold
Six Months ended
June 30, 1996 $43,308,000 $38,835,000 $4,473,000 2,044,000
Effect of changes
in price 1,142,217 (27,040) 1,169,257
Effect of changes
in volume (1,716,217) (1,538,960) (177,257) (81,000)
Six Months Ended
June 30, 1997 $42,734,000 $37,269,000 $5,465,000 1,963,000
The net margin between sales and material and processing
costs improved from $2.18 per barrel for the first half of
1996 to $2.78 per barrel for the first half of 1997. This
improvement in net margin of $992,000 is primarily
attributable to the Partnership's improved margin on all
products in the period. Asphalt prices improved by 12%
compared to the first half of 1996 as price increases put into
effect early in the period (after crude price increases
throughout 1996) generally held. Light product prices, on the
other hand, declined by 5% due to an oversupply of gasoline
and diesel fuel in the second quarter. Over all, sales prices
averaged $21.77 per barrel for the first half of 1997 as
compared to $21.18 per barrel for the comparable period of
1996, an increase of $0.59, or 3%. All of this increase in
pricing contributed to increased margins, as crude costs were
virtually unchanged as compared to the comparable period of
1996. Over all, material and processing costs averaged $18.99
and $19.00 for the periods ended June 30, 1997 and 1996,
respectively, a decrease of $0.01.
Selling, general and administrative costs increased by
$379,000 as compared to the first half of 1996 primarily as a
result of incentive plan accruals and an increase in bad debt
expense.
Interest expense was reduced in the period by $835,000
due to reduced debt levels. In December of 1996, the
partnership completed the restructuring of its indebtedness
with its senior and junior lenders.
Due to the volatility inherent in the Partnership's
business, 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 six months of 1997, operating activities
used $1,966,000 in cash. The periods net income of $405,000
plus depreciation and amortization of $1,122,000 provided
$1,527,000 in cash. A seasonal increase in inventory of
$4,907,000 was partially financed by a similar seasonal
increase in accounts payable of $949,000. Accrued liabilities
increased by $1,073,000 as only one half of the interest
accrued under the new debt agreements was scheduled for
payment in the period, as well as increases in accruals for
property taxes and incentive compensation. Prepaid expenses
consumed $130,000 primarily due to turnaround costs while
accounts receivable experienced a seasonal increase of
$478,000.
Investing activities consumed $958,000 during the first
six months of 1996 primarily for refinery equipment including
enhancements to the new polymer facilities and tankage for our
Benicia refinery.
Financing activities consumed $100,000 in the first six
months of 1996 pursuant to a 1993 settlement with the State of
Arizona.
In comparison, during the first six months of 1996,
operating activities provided $496,000 in cash. The periods
net loss of $968,000 was offset by depreciation and
amortization of $1,047,000. Seasonal increases in accounts
receivable and inventory of $4,042,000 were financed by a
similar seasonal increase in accounts payable of $2,233,000.
Prepaid expenses increased by $253,000 primarily due to
turnaround costs. Accrued interest increased by $2,252,000 as
interest continued to accrue under the old debt agreement
until the debt restructuring was completed in the last quarter
of 1996.
Investing activities consumed $1,965,000 during the first
six months of 1996 primarily for refinery equipment including
new polymer facilities and tankage for our Benicia refinery.
Financing activities consumed $100,000 in the first six
months of 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
refinance these debt and equity securities with a new
convertible debt instrument. The Partnership is considering
such a refinancing in order to continue to pursue its goal of
ultimately reducing indebtedness and debt service requirements.
The Partnership is also, currently in negotiations with other
banks to replace its existing letter of credit agreement.
Should the Partnership be successful in its efforts, it
anticipates that its long-term debt will increase by up to
$8,500,000 and that approximately 40% of its outstanding units
will be redeemed. Although there can be no assurance that the
Partnership will be successful in this refinance effort, if
successful it is contemplated that the refinance will not
significantly change annual interest expense but that the
current annual sinking fund requirement of $3,232,000 would
be reduced by approximately $2,500,000.
At June 30, 1997, the cash position of the Partnership
was $2,263,000. 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 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 August 12, 1997.
HUNTWAY PARTNERS, L.P.
(Registrant)
By:
Warren J. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
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