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 Quarterly Period Ended June 30, 1998
Commission File Number 333-45093
HUNTWAY REFINING COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4680045
(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 .
As of August 14, 1998 Huntway Refining Company had 14,881,271
common shares outstanding.
QUARTERLY REPORT ON FORM 10-Q
HUNTWAY REFINING COMPANY
For the Quarterly Period Ended June 30, 1998
INDEX
Part I. Financial Information Page
Condensed Consolidated Balance Sheets as
of June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations for the Three and Six Months
Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1998 and 1997 5
Condensed Consolidated Statement of
Capital for the Six Months
Ended June 30, 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9
Part II. Other Information 15
<TABLE>
HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,288,000 $ 9,406,000
Accounts Receivable 7,904,000 4,066 000
Inventories 5,015,000 4,112,000
Prepaid Expenses 637,000 587,000
Total Current Assets 16,844,000 18,171,000
PROPERTY - Net 59,849,000 59,346,000
OTHER ASSETS 1,309,000 1,025,000
GOODWILL 1,673,000 1,701,000
TOTAL ASSETS 79,675,000 80,243,000
CURRENT LIABILITIES:
Accounts Payable 5,413,000 6,730,000
Current Portion of Long-Term
Obligations 657,000 1,449,000
Accrued Interest 554,000 571,000
Other Accrued Liabilities 1,182,000 1,046,000
Total Current Liabilities 7,806,000 9,796,000
LONG-TERM OBLIGATIONS 37,171,000 36,668,000
CAPITAL:
Partners Capital - 33,779,000
Common Stock (14,881,000 shares -
issued, 75,000,000 authorized) 157,000
Other Stockholders Capital 34,541,000
Total Capital 34,698,000 33,779,000
TOTAL LIABILITIES AND CAPITAL 79,675,000 80,243,000
</TABLE>
<TABLE>
HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $20,277,000 $23,669,000 $32,830,000 $42,734,000
COSTS AND EXPENSES:
Material and
Processing Costs 15,970,000 21,132,000 26,774,000 37,269,000
Selling and
Administration
Expenses 1,396,000 980,000 2,372,000 2,169,000
Interest Expense 871,000 896,000 1,703,000 1,769,000
Depreciation and
Amortization 702,000 602,000 1,309,000 1,122,000
Total Costs and
Expenses 18,939,000 23,610,000 32,158,000 42,329,000
INCOME BEFORE
INCOME TAXES 1,338,000 59,000 672,000 405,000
Provision for
Income Taxes 254,000 - 254,000 -
NET INCOME $1,084,000 $59,000 $418,000 $405,000
NET INCOME PER
BASIC UNIT OR SHARE $0.07 $- $0.03 $0.01
NET INCOME PER
DILUTED UNIT OR SHARE $0.05 $- $0.02 $0.01
BASIC COMMON SHARES OR
EQUIVALENT UNITS
OUTSTANDING 14,781,000 28,107,000 14,756,000 28,096,000
DILUTED COMMON SHARES
OR EQUIVALENT UNITS
OUTSTANDING 32,281,000 28,107,000 17,851,000 28,096,000
Pro Forma (See Note 1 to Condensed Consolidated Financial Statements)
NET INCOME BEFORE TAXES $1,338,000 $59,000 $672,000 $405,000
Pro Forma Income
Tax Provision 535,000 24,000 269,000 162,000
PRO FORMA NET INCOME $803,000 $35,000 $403,000 $243,000
PRO FORMA BASIC INCOME
PER SHARE $0.06 $- $0.03 $0.01
PRO FOMA DILUTED INCOME
PER SHARE $0.03 $- $0.02 $0.01
</TABLE>
<TABLE>
HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Six
Months Ended Months Ended
June 30, June 30,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net Income $ 418,000 $ 405,000
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activites:
Interest Expense Paid by the
Issuance of Notes 248,000 -
Depreciation and Amortization 1,309,000 1,122,000
Deferred Income Taxes 254,000 -
Changes in Operating Assets
and Liabilities:
Increase in Accounts Receivable (3,838,000) (478,000)
Increase in Inventories (843,000) (4,907,000)
Increase in Prepaid Expenses (50,000) (130,000)
Increase (decrease) in
Accounts Payable (1,317,000) 949,000
Increase in Accrued Liabilities 307,000 1,073,000
NET CASH USED BY OPERATING ACTIVITIES (3,512,000) (1,966,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property (1,531,000) (922,000)
Additions to Other Assets (529,000) (36,000)
NET CASH USED BY INVESTING ACTIVITIES (2,060,000) (958,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 262,000 -
Issuance Costs and Expenses (16,000) -
Repayment of Long-Term Obligations (792,000) (100,000)
NET CASH USED BY FINANCING ACTIVITIES (546,000) (100,000)
NET (DECREASE) IN CASH (6,118,000) (3,024,000)
CASH BALANCE - BEGINNING OF PERIOD 9,406,000 5,287,000
CASH BALANCE - END OF PERIOD 3,288,000 2,263,000
INTEREST PAID IN CASH DURING THE PERIOD 1,472,000 1,128,000
</TABLE>
<TABLE>
HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
<CAPTION>
Additional Treasury
Partners Common Paid In Retained Stock Total
Capital Stock Capital Earnings (at cost) Capital
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1998 $33,779,000 $33,779,000
Earned Portion of
Option Awards 212,000 $43,000 255,000
Net Income for the
Six Months
Ended June 30,
1998 37,000 $381,000 418,000
Issuance of
14,731,271 shares
in exchange
for partnership
interest (34,028,000)$147,000 33,881,000 -
Sale and Issuance
of 150,000
shares 2,000 260,000 262,000
Issuance Costs (16,000) (16,000)
Sale and Issuance
of 850,000
shares to
Huntway Partners
L.P. and
reclassified
to Treasury Stock
upon Merger 8,000 1,000 $(9,000) -
Balance at
June 30, 1998 $ - $157,000 $34,169,000 $381,000$(9,000)$34,698,000
</TABLE>
HUNTWAY REFINING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Huntway Refining Company, (the Company) was formed for the
purpose of effecting the conversion of Huntway Partners, L.P.
(the Partnership) from a publicly traded limited partnership to a
publicly traded corporation on June 1, 1998 through the merger of
the Partnership into the Company (the Conversion). The Company
issued 14,583,958 shares of $0.01 par value common stock to the
Partnerships limited partners in a one for one exchange for
their limited partner units. The Company also issued 147,313
shares of common stock to the Partnership's general partners in
exchange for their 1% general partner interest. As a result of
the merger, the Company succeeded to the Partnership's assets,
liabilities and operations.
The transaction has been accounted for as a reorganization
of affiliated entities with the assets and liabilities of the
Partnership recorded at their historical cost basis. The
financial statements through the date of the Conversion reflect
the operations of the Partnership. Pro forma information is
presented to assist in comparing the results of operations as if
the Conversion had occurred at the beginning of each period for
which financial statements are presented. The pro forma
provision for income taxes has been calculated at an estimated
combined Federal and State rate of 40%.
The accompanying condensed consolidated financial statements
of Huntway Refining Company and subsidiary as of June 30, 1998
and for the three and six month periods ended June 30, 1998 and
1997 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 1997 on Form 10-
K.
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 half of 1998 and 1997, the effect
of LIFO was to increase net income by $1,028,000 and $1,919,000,
respectively. LIFO did not have an effect on income for the
second quarter of 1998 and increased net income by $765,000 in
the comparable quarter of 1997.
Inventories at June 30, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Finished Products $ 2,938,000 $ 2,480,000
Crude Oil and Supplies 2,077,000 2,660,000
5,015,000 5,140,000
Less LIFO Reserve - (1,028,000)
Total $ 5,015,000 $ 4,112,000
</TABLE>
2. CONTINGENCIES
The Company's business is the refining of crude oil into
liquid asphalt and other products, which is subject to various
environmental laws and regulations. Adherence to these
environmental laws and regulations creates the possibility of
unknown costs and loss contingencies in the future. Unknown
costs and loss contingencies could also occur due to the nature
of the Company's business. The Company 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 Company believes that such
costs will not have a material adverse effect on the consolidated
financial position, results of operations or cash flows of the
Company.
The Company is party to a number of lawsuits and other
proceedings arising in 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, results of operations or
cash flows of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In the following discussion, "Huntway" or the "Company"
refers to Huntway Partners, L.P. prior to June 1, 1998 and to
Huntway Refining Company thereafter. The following discussion
should be read in conjunction with the financial statements
included elsewhere in this report and the financial statements
and Management's Discussion and Analysis of the Results of
Operations and Financial Condition included in Huntway's
annual report for 1997 on Form 10-K. All per share amounts
are diluted and should be read as per unit amounts for periods
prior to June 1, 1998.
This Form 10-Q includes statements of a forward-looking
nature relating to future events or the future financial
performance of the Company. The Companys actual results may
differ materially from the results discussed in these forward-
looking statements.
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
Huntway's other refined petroleum products) generally
fluctuate with crude oil price levels. There has not been a
relationship between total revenues and income due to the
volatile commodity character of crude oil prices.
Accordingly, management believes earnings before
interest, depreciation and amortization provides the most
meaningful basis for comparing historical results of
operations discussed below. Earnings before interest,
depreciation and amortization is not a measuring criteria
under generally accepted accounting principles and should not
be viewed as superior to or in isolation from net income.
Three Months Ended June 30, 1998 Compared with the Three
Months Ended June 30, 1997
Second quarter 1998 net income was $1,084,000, or $.05
per share, versus 1997 second quarter net income of $59,000,
or less than $.01 per share.
Margins on paving and roofing asphalt products were
substantially higher in the current quarter, and combined with
higher margins on other products resulted in a positive
increase in net income between quarters of $1,025,000. This
improvement in results occurred despite Huntway selling some
low priced residual fuel oil during the quarter in order to
optimize refinery production levels and support paving and
roofing product pricing early in the quarter. Continuation of
the heavy rains which characterized the first quarter of 1998
into the early part of the second quarter reduced paving and
roofing asphalt demand. Better weather in the second quarter
of 1997 led to an earlier start to the paving season and as a
result this product was not sold in 1997.
In addition, net income for the 1998 quarter was
negatively impacted by a provision for Federal and State taxes
on income of $254,000 versus no such provision in 1997.
During 1997 the operations of Huntway were carried on under
the partnership form of organization, which is not subject to
taxes on income and passes its taxable income or loss on to
its partners. Effective June 1, 1998 Huntway began to operate
as a corporation and accordingly is subject to Federal and
State taxes on income subsequent to that date.
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, 1998 as compared to the quarter
ended June 30, 1997:
<TABLE>
<CAPTION>
Material & Barrels
Sales Processing Net Sold
<S> <C> <C> <C> <C>
Three Months ended
June 30, 1997 $23,669,000 $21,132,000 $2,537,000 1,154,000
Effect of changes
in price (3,084,000) (4,887,000) 1,803,000
Effect of changes
in volume (308,000) (275,000) (33,000) (15,000)
Three Months ended
June 30, 1998 $20,277,000 $15,970,000 $4,307,000 1,139,000
</TABLE>
As reflected in the table, sales fell by 14% or $3,392,000 in
the second quarter of 1998 versus the comparable quarter of
1997. This decline was primarily due to lower product prices,
across the board, due to lower crude prices. A 1% decline in
unit volume also contributed. Most of the decline was the
result of significantly lower prices for Huntway's light
refinery feed stocks as compared to 1997 primarily due to
lower crude prices and to a lesser extent as a result of lower
demand for and higher inventory levels of gasoline and diesel
fuel on the West Coast. The early part of the second quarter
of 1998 was also marked by a continuation of a wet winter in
California and mild winter weather in the balance of the
country, which also worked to reduce demand for these products
as compared to the comparable quarter of 1997. Despite the
inclement weather early in the quarter, sales of asphalt
paving and roofing products actually exceeded the 1997 quarter
by a small amount due to a very strong June and pent-up
demand.
Material and processing costs were reduced by 24% or
$5,162,000 for the quarter as compared to the comparable
quarter of 1997 primarily as a result of much lower crude
prices due to a perceived world wide oversupply due to over
production by a number of oil producing countries.
Overall net margins improved by 70% or $1,770,000 between
quarters as declines in crude prices exceeded the declines in
product prices particularly on asphalt paving and roofing
products. This was offset to some extent as some 21,000
barrels of residual fuel oil was sold below cost in the
current quarter in order to optimize refinery production
levels and support paving and roofing product pricing.
Selling, general and administrative costs increased by
$416,000 as compared to the second quarter of 1997 primarily
as a result of higher labor costs, including incentive plan
accruals.
Interest expense was reduced in the quarter by $25,000
due to lower interest rates offsetting higher debt levels. On
October 31, 1997 Huntway issued $21,750,000 in 9.25 % Senior
Subordinated Secured Convertible Debt due 2007, retired
$11,707,000 in 12% senior debt, and redeemed 10,758,696 units
or 42% of its total units outstanding. The transaction also
reduced the effective interest rate on Huntway's $8,600,000
Industrial Development Bond from 12% to approximately 6% and
provided Huntway with $2,500,000 in additional working
capital. As a result of this transaction, Huntway's debt
increased from $27,924,000 to $37,967,000 effective October
31, 1997. Net interest expense however remained essentially
unchanged due to the lower net interest rate on the new
convertible debt and the buydown of the approximate 6%
interest spread on the Industrial Development Bond.
Due to the conversion from a partnership to a
corporation, as described in Note 1 to the financial
statements included in this report, the operations of the
Company became subject to Federal and State income taxes
beginning June 1, 1998. As a result, a provision for such
taxes of $254,000 has been recorded.
Because of the foregoing, as well as other factors
affecting Huntway's 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.
Six Months Ended June 30, 1998 Compared with the Six Months
Ended June 30, 1997
First half 1998 net income was $418,000, or $.02 per
share, versus 1997 first half net income of $405,000, or $.01
per share.
The improvement in results between periods of $13,000 is
principally attributable to significantly higher paving and
roofing asphalt margins offset by lower margins on other
products and the provision for Federal and State income taxes
of $254,000. Margins on paving and roofing asphalt products
improved 61% as prices generally held up in the face of
significant decreases in crude prices. Margins on Huntway's
light refinery feedstocks fell 26% in the period as the
improved light product margins of the second quarter failed to
offset the poor first quarter results. First quarter margins
on Huntway's light refinery feed stocks reflected the impact
of lower demand for and higher inventory levels of gasoline
and diesel fuel on the West Coast. Contrary to 1997, Huntway
also sold residual fuel oil during the 1998 period at a
negative margin in order to optimize refinery production
levels and support paving and roofing product pricing.
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, 1998 as compared to the period ended
June 30, 1997:
<TABLE>
<CAPTION>
Material & Barrels
Sales Processing Net Sold
<S> <C> <C> <C> <C>
Six Months ended
June 30, 1997 $42,734,000 $37,269,000 $5,465,000 1,963,000
Effect of changes
in price (8,358,000) (9,147,000) 789,000
Effect of changes
in volume (1,546,000) (1,348,000) (198,000) (71,000)
Six Months ended
June 30, 1998 $32,830,000 $26,774,000 $6,056,000 1,892,000
</TABLE>
The net margin between sales and material and processing costs
improved from $2.78 per barrel for the first half of 1997 to
$3.20 per barrel for the first half of 1998. This improvement
in net margin of $591,000 is attributable to the Company's
improved margin on paving and roofing asphalt products in the
period offset by lower margins on other products. Asphalt
prices declined by only 10% compared to the first half of 1997
in the face of crude costs which fell by 32%. Asphalt paving
and roofing product pricing was sustained by an overall market
expectation of a shortage for 1998. Light refinery feedstock
prices, on the other hand, declined by 28% due to an
oversupply of gasoline and diesel fuel in the period.
Overall, sales prices averaged $17.35 per barrel for the first
half of 1998 as compared to $21.76 per barrel for the
comparable period of 1997, a decrease of $4.41, or 22%.
Material and processing costs averaged $14.15 and $18.99 for
the periods ended June 30, 1998 and 1997, respectively, a
decrease of $4.84 or 25%.
Selling, general and administrative costs increased by
$203,000 as compared to the first half of 1997 primarily as a
result of higher labor costs, including incentive plan
accruals, and conversion costs.
Interest expense was reduced in the period by $66,000 due
to lower interest rates offsetting higher debt levels. On
October 31, 1997 Huntway issued $21,750,000 in 9.25% Senior
Subordinated Secured Convertible Debt due 2007, retired
$11,707,000 in 12% senior debt, and redeemed 10,758,696 units
or 42% of its total units outstanding. The transaction also
reduced the effective interest rate on Huntway's $8,600,000
Industrial Development Bond from 12% to approximately 6% and
provided Huntway with $2,500,000 in additional working
capital. As a result of this transaction, the Huntway's debt
increased from $27,924,000 to $37,967,000 effective October
31, 1997. Net interest expense however remained essentially
unchanged due to the lower net interest rate on the new
convertible debt and the buydown of the approximate 6%
interest spread on the Industrial Development Bond.
Additionally, principal payments of $792,000 were made in the
first half of 1998 further reducing Huntway's outstanding
indebtedness.
Due to the conversion from a partnership to a
corporation, as described in Note 1 to the financial
statements included in this report, the operations of the
Company became subject to Federal and State taxes beginning
June 1, 1998. As a result, a provision for such taxes of
$254,000 has been recorded.
Due to the volatility inherent in Huntway'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.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the
applicable year. Any computer programs that have time-
sensitive software may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in
similar normal business activities.
Management has determined that the year 2000 issue will
not pose significant operational problems for either its
computer systems (IT systems) or its process controls (Non-IT
systems), and believes any remediation costs are not material.
Any such remediation costs will be charged to operations as
incurred,.
The Company has begun to initiate formal communications
with its significant suppliers and customers to determine the
extent to which the Company's interface systems are vulnerable
to those third parties failure to remediate their own Year
2000 Issue. However, the Company does not utilize any
electronic data interchange directly with its customers and
believes its exposure is limited to systems associated with
the Federal Wire system, common carrier pipelines and
utilities. While there can be no guarantee that the systems
of other companies on which the Company relies will be timely
converted and would not have an adverse effect on its
operations, management does not currently anticipate
significant problems with these systems and has not yet done
any contingency planning pending the results of its
communications with its suppliers and custormers. However,
should the Company be denied access to crude supplies, natural
gas or other vital materials and services due to the failure
of its suppliers' delivery systems due to year 2000 compliance
problems, it could be forced to either curtail operations or
shut down until such materials can again be delivered.
Additionally, should its customers be unable to make payements
for their purchases, the Company could be faced with a
liquidity shortfall.
Capital Resources And Liquidity
The primary factors that affect the Companys cash
requirements and liquidity position are fluctuations in the
selling prices for its refined products caused by local market
supply and demand factors including public and private demand
for road construction and improvement. Secondly, 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, influence the Companys cash
requirements and liquidity position. In addition, capital
expenditure requirements, including costs to maintain
compliance with environmental regulations as well as debt
service requirements, impact the Companys cash needs.
In the first half of 1998, operating activities used
$3,512,000 in cash. The periods net income of $418,000 along
with depreciation and amortization of $1,309,000; the payment
of interest by the issuance of notes of $248,000 and the
provision for deferred income taxes provided $2,229,000 in
cash. Seasonal increases in inventories and accounts
receivable of $4,681,000 were financed with cash. Accounts
payable decreased by $1,317,000 due to falling crude prices.
Accrued liabilities increased by $307,000 because of incentive
accruals and as only two thirds of the interest accrued under
the senior debt agreements for the six month period was due
and paid in the period. Prepaid expenses used a nominal
$50,000.
In comparison, during the half 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 accounts
receivable and inventory of $5,385,000 was partially financed
by an increase in accounts payable of $949,000 due to rising
crude oil prices. Accrued liabilities increased by $1,073,000
as only one half of the interest accrued under the Senior note
agreements was scheduled for payment in the quarter, as well
as increases in accruals for property taxes and incentive
compensation. Prepaid expenses consumed $130,000 primarily due
to turnaround costs.
Investing activities consumed $2,060,000 in cash during
the first half of 1998 primarily relating to the construction
of a new wastewater treatment facility in the Wilmington
refinery and various storage related improvements in the
Benicia refinery. During the first half of 1997, investing
activities consumed $958,000 primarily for refinery equipment
including polymer plant enhancements and tankage in the
Benicia refinery.
Financing activities consumed $546,000 in the first half
of 1998 for principal payments on the Senior notes and stock
issuance costs partially offset by proceeds from the related
sale of common stock. In January of 1997 $100,000 was used
pursuant to a 1993 settlement with the State of Arizona.
The Company believes its current level of letter of
credit facilities are sufficient to guarantee requirements for
crude oil purchases, collateralizing 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 will be adequate in the
future. If crude oil prices increased beyond the level of the
Company's letter of credit facilities, it would be required to
prepay for crude oil or reduce its crude oil purchases, either
of which would adversely impact profitability.
At June 30, 1998, the cash position of the Company was
$3,288,000. 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.
On June 1, 1998, pursuant to a vote of Huntway's
unitholders at a special meeting held on May 29, 1998, the
operations of Huntway ceased to be carried on by a partnership
and began to be carried on by a corporation. As a result of
this conversion to corporate form, the operations became
subject to income taxes at the corporation level rather than
passing its taxable income or loss on to its partners as was
the case under the partnership form. Huntway is currently
unable to estimate the impact of this change on its future
cash flows; however, management believes that approximately
$2,000,000 and $5,000,000 of book income in 1998 and 1999,
respectively, will be sheltered from current taxation due to
the effects of accelerated depreciation on its assets.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to a number of lawsuits and other
proceedings arising in 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, results of
operations or of the cash flows of the Company other than as
previously reported.
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Stock Purchase Agreement dated as of March
31, 1998, immediately preceding the merger of Huntway
Partners, L.P. into Huntway Refining Company twelve
individuals purchased from Huntway Refining Company, for $1.75
per share (the closing price of the Common Units of Huntway
Partners, L.P. on the New York Stock Exchange on March 30,
1998), an aggregate of 150,000 shares of its common stock for
cash. The individuals included 6 executive officers or
directors of the Company. The shares are not registered under
the Securities Act of 1933, as amended, in reliance upon the
exemption provided by Rule 506, nor do the purchasers have any
registration rights with respect to the shares. No
underwriter was used and the net proceeds of $246,000 have
been used for working capital purposes
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 28, 1998, Huntway Partners, L.P. convened a
special meeting of its Unitholders to vote on a proposal to
merge Huntway Partners, L.P. into Huntway Refining Company in
order to effect the conversion of Huntway Partners, L.P. from
a publicly traded limited partnership to a publicly traded
corporation and to vote on the adoption of a stock incentive
plan for Huntway Refining Company. The results of the vote
were as follows:
<TABLE>
<CAPTION>
Votes to Votes to Votes
Approve Approve Abstained
<S> <C> <C> <C>
Proposal to merge Huntway
Partners, L.P. into Huntway
Refining Company 12,078,858 18,585 9,996
Adoption of the Huntway
Refining Company 1998 Incentive
Stock Plan 11,729,588 158,745 219,106
</TABLE>
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.
HUNTWAY REFINING COMPANY
(Registrant)
Date: August 14, 1998 By: Warren J. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3288000
<SECURITIES> 0
<RECEIVABLES> 7904000
<ALLOWANCES> 0
<INVENTORY> 5015000
<CURRENT-ASSETS> 16844000
<PP&E> 78661000
<DEPRECIATION> 18812000
<TOTAL-ASSETS> 79675000
<CURRENT-LIABILITIES> 7806000
<BONDS> 37171000
0
0
<COMMON> 1570000
<OTHER-SE> 34541000
<TOTAL-LIABILITY-AND-EQUITY> 79675000
<SALES> 20277000
<TOTAL-REVENUES> 20277000
<CGS> 16672000
<TOTAL-COSTS> 16672000
<OTHER-EXPENSES> 1396000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 871000
<INCOME-PRETAX> 1338000
<INCOME-TAX> 254,000
<INCOME-CONTINUING> 1084000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1084000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.05
</TABLE>
