<PAGE> 1
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, 2000 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: (661) 286-1582
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) 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 .
----- -----
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of November 11, 2000, was 15,004,771.
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QUARTERLY REPORT ON FORM 10-Q
HUNTWAY REFINING COMPANY
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Part I. Financial Information Page
----
Condensed Consolidated Balance Sheets as
of September 30, 2000 and December 31, 1999...................... 3
Condensed Consolidated Statements of
Operations for the Three and Nine Months
Ended September 30, 2000 and 1999................................ 4
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 2000 and 1999...................................... 5
Condensed Consolidated Statement of
Capital for the Nine Months
Ended September 30, 2000.......................................... 6
Notes to Condensed Consolidated
Financial Statements............................................. 7
Management's Discussion and Analysis
of Results of Operations and
Financial Condition.............................................. 9
Quantitative and Qualitative Disclosures
About Market Risk...............................................14
Part II. Other Information.............................................15
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HUNTWAY REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
Unaudited Audited
------------- ------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 9,135,000 $ 10,445,000
Accounts Receivable - Net 17,445,000 8,444,000
Inventories 12,908,000 2,754,000
Prepaid Expenses 1,062,000 1,309,000
------------- ------------
Total Current Assets 40,550,000 22,952,000
PROPERTY - NET 66,055,000 64,398,000
OTHER ASSETS - NET 2,087,000 2,059,000
GOODWILL - NET 1,544,000 1,587,000
------------- ------------
TOTAL ASSETS $ 110,236,000 $ 90,996,000
============= ============
CURRENT LIABILITIES:
Accounts Payable $ 17,247,000 $ 8,528,000
Current Portion of Long-Term Debt 2,054,000 1,548,000
Accrued Interest 1,104,000 608,000
Other Accrued Liabilities 2,976,000 975,000
------------- ------------
Total Current Liabilities 23,381,000 11,659,000
Long-Term Debt 35,889,000 34,905,000
Deferred Income Taxes and
Other Long-Term Obligations 4,086,000 2,783,000
CAPITAL:
Preferred Stock (1,000,000 shares
authorized, none issued) - -
Common Stock (75,000,000 shares
authorized, 15,004,771 outstanding) 150,000 150,000
Additional Paid-In Capital 34,878,000 34,698,000
Retained Earnings 11,852,000 6,801,000
------------- ------------
Total Capital 46,880,000 41,649,000
------------- ------------
TOTAL LIABILITIES AND CAPITAL $ 110,236,000 $ 90,996,000
============= ============
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HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
SALES $67,217,000 $41,527,000 $ 137,310,000 $76,781,000
----------- ----------- ------------- -----------
COSTS AND EXPENSES:
Material and Processing Costs 57,411,000 34,518,000 118,986,000 63,123,000
Selling and Administration Expenses 2,464,000 1,901,000 5,141,000 4,429,000
Interest Expense 904,000 879,000 2,595,000 2,576,000
Depreciation and Amortization 793,000 721,000 2,027,000 1,980,000
----------- ----------- ------------- -----------
Total Costs and Expenses 61,572,000 38,019,000 128,749,000 72,108,000
----------- ----------- ------------- -----------
INCOME BEFORE INCOME TAXES 5,645,000 3,508,000 8,561,000 4,673,000
----------- ----------- ------------- -----------
Provision for Income Taxes 2,314,000 1,438,000 3,510,000 1,916,000
----------- ----------- ------------- -----------
NET INCOME $ 3,331,000 $ 2,070,000 $ 5,051,000 $ 2,757,000
=========== =========== ============= ===========
Net Income per Basic Share $ 0.22 $ 0.14 $ 0.34 $ 0.18
=========== =========== ============= ===========
Net Income per Diluted Share $ 0.12 $ 0.08 $ 0.19 $ 0.12
=========== =========== ============= ===========
Weighted Average Basic
Common Shares Outstanding 15,005,000 14,995,000 15,005,000 14,960,000
=========== =========== ============= ===========
Weighted Average Diluted
Common Shares Outstanding 30,784,000 31,419,000 31,019,000 31,399,000
=========== =========== ============= ===========
</TABLE>
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HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,051,000 $ 2,757,000
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Interest Expense Paid by the Issuance of Notes 285,000 278,000
Depreciation and Amortization 2,027,000 1,980,000
Deferred Income Taxes 1,303,000 1,250,000
Changes in Operating Assets and Liabilities:
Increase in Accounts Receivable (9,001,000) (7,938,000)
Increase in Inventories (10,008,000) (1,552,000)
Decrease (Increase) in Prepaid Expenses 274,000 (1,214,000)
Increase in Accounts Payable 8,719,000 11,068,000
Increase in Accrued Liabilities 2,597,000 825,000
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,247,000 7,454,000
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property (3,370,000) (5,894,000)
Other Assets (290,000) (880,000)
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES (3,660,000) (6,774,000)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock - 116,000
Proceeds of Notes Payable 2,500,000 13,390,000
Repayment of Long-Term Obligations (1,397,000) (13,732,000)
------------ -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,103,000 (226,000)
------------ -------------
NET INCREASE (DECREASE) IN CASH (1,310,000) 454,000
CASH BALANCE - BEGINNING OF PERIOD 10,445,000 10,910,000
------------ -------------
CASH BALANCE - END OF PERIOD $ 9,135,000 $ 11,364,000
============ =============
Supplemental Disclosures:
Interest Paid in Cash During the Period $ 1,814,000 $ 1,850,000
============ =============
Income Taxes Paid in Cash During the Period $ 1,100,000 $ 165,000
============ =============
</TABLE>\
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HUNTWAY REFINING COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
<TABLE>
<CAPTION>
Common Additional Treasury
Shares Common Paid In Retained Stock Total
Outstanding Stock Capital Earnings (at cost) Capital
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 15,004,771 $ 158,000 $ 34,699,000 $ 6,801,000 $ (9,000) $ 41,649,000
Earned Portion of Option Awards 180,000 180,000
Net Income for the Nine Months
Ended September 30, 2000 5,051,000 5,051,000
---------- --------- ------------ ------------ -------- ------------
Balance at September 30, 2000 15,004,771 $ 158,000 $ 34,879,000 $ 11,852,000 $ (9,000) $ 46,880,000
========== ========= ============ ============ ======== ============
</TABLE>
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HUNTWAY REFINING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements of Huntway
Refining Company and subsidiary as of September 30, 2000 and for the three and
nine month periods ended September 30, 2000 and 1999 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 Company's annual report for the year ended December 31,
1999.
Crude oil and finished product inventories are stated at cost
determined by the last-in, first-out method (LIFO), which is not in excess of
market. For the nine months of 2000 and 1999, the effect of LIFO was to decrease
net income by approximately $1,938,000 and approximately $1,847,000,
respectively. For the quarter ended September 30, 2000 and 1999 the effect of
LIFO was to decrease net income by $818,000 and $985,000, respectively.
Inventories at September 30, 2000 and December 31, 1999 were as
follows:
2000 1999
------------ -----------
Finished Products $ 11,711,000 $ 2,264,000
Crude Oil and Supplies 6,574,000 2,583,000
------------ -----------
18,285,000 4,847,000
Less LIFO Reserve (5,377,000) (2,093,000)
------------ -----------
Total $ 12,908,000 $ 2,754,000
============ ===========
2. CONTINGENCIES
The Company's business is the refining of crude oil into liquid asphalt
and other light-end products, which is subject to various environmental laws and
regulations. Adherence to these 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
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
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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.
3. FINANCING ARRANGEMENTS
On April 12, 2000 the Company entered into a new $2,500,000 senior
secured note with Boeing Capital Corporation. The note bears interest at 10.705%
and is due over the next three years. $1,250,000 will be repaid ratably over the
period with the remaining $1,250,000 paid at maturity. Along with the existing
senior secured note, also with Boeing Capital Corporation, the new note is
primarily collateralized by the Company's non-current assets.
On August 2, 2000 the Company amended its existing revolving credit
facility with Bank of America, N.A. The facility was increased from $20,000,000
to $30,000,000 during May through November and to $25,000,000 during December
through April. Up to $10,000,000 of the facility, which is collateralized by the
Company's current assets and is subject to a borrowing base limitation, may be
borrowed for working capital purposes but it is used primarily for the issuance
of standby letters of credit supporting the purchase of crude oil. The facility
was also extended through June 1, 2002.
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedge Activities." SFAS No. 133 establishes the accounting and
reporting standard for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 is effective for financial statements for periods beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, which amends certain
provisions of SFAS 133 to clarify certain areas causing difficulties in
implementation, including expanding the normal purchase and sale exemption for
supply contracts. We are in the process of implementing a SFAS 133 compliant
risk management valuation and information system and educating both financial
and non-financial personnel about SFAS 133 related issues. We are currently
evaluating the impact SFAS 133 will have on our consolidated financial
statements at the date of implementation, but due to the type and limited number
of derivative instruments we enter into, we are unable to definitively determine
what impact it will have on any future income statement or balance sheet.
However, on an ongoing basis, it is likely that SFAS 133 will generate some
additional volatility in the Company's earnings, due to the accounting treatment
for options under SFAS 133, which are used by the Company to hedge oil price
risk. This statement should have no impact on consolidated cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides additional guidance in applying generally accepted
accounting principles to revenue recognition in the financial statements. We
have evaluated our revenue recognition policies pursuant to the adoption of SAB
101, and we believe that such adoption will not have any impact.
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<PAGE> 9
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 and the financial
statements and Management's Discussion and Analysis of Results of Operations and
Financial Condition included in Huntway's annual report for 1999 on Form 10-K.
All per share amounts are diluted.
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and we intend that such
forward-looking statements be subject to the safe harbors created thereby. Such
forward-looking statements involve risks and uncertainties and include, but are
not limited to, such statements regarding future events and our plans, goals and
objectives. Such statements are generally accompanied by words such as "intend",
"anticipate", "believe", "estimate", "expect", "looks", "probably", "should" or
similar statements. Our actual results or events may differ materially from such
statements.
Important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are set forth in Management's
Discussion and Analysis of Results of Operations and Financial Condition
(including, but not limited to, Outlook and Factors that Affect Future Results)
in Huntway's annual report on Form 10-K for the year ended December 31, 1999.
Such factors include without limitation the price and availability of crude oil,
the demand for and price of liquid asphalt, the availability of adequate outlets
for light-end products and government and private funding for road construction
and repair as well as disruptions in operations as a result of extended periods
of inclement weather or natural disaster and increased competition from other
refiners.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation by us or
any other person that the future events, plans or expectations contemplated by
us will be achieved.
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,
primarily intermediate refinery feedstocks such as gas oil, naphtha and kerosene
distillate.
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. As a result, management believes that
increases or decreases in revenues are not a meaningful basis for comparing
historical results of operations.
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<PAGE> 10
Because of the foregoing, as well as other factors affecting the
Company'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.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Third quarter 2000 net income was $3,331,000, or $.12 per share, versus
1999 third quarter net income of $2,070,000, or $.08 per share.
The following table sets forth the effects of changes in price and
volume on sales and material and processing costs on the quarter ended September
30, 2000 as compared to the quarter ended September 30, 1999:
<TABLE>
<CAPTION>
Material & Net Refining Barrels
Sales Processing Margin Sold
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three Months Ended September 30, 1999 $ 41,527,000 $ 34,518,000 $ 7,009,000 1,732,000
Effect of changes in price 20,607,000 18,668,000 1,939,000
Effect of changes in volume 5,083,000 4,225,000 858,000 212,000
------------ ------------ ----------- ---------
Three Months Ended September 30, 2000 $ 67,217,000 $ 57,411,000 $ 9,806,000 1,944,000
============ ============ =========== =========
</TABLE>
Net refining margins improved by $2,797,000 or 40% in the third quarter
of 2000 versus the third quarter of 1999. This was primarily the result of an
overall increase in selling prices in excess of rising crude and material costs
(net of hedge benefits) although increased unit volume also made a significant
contribution.
Overall product prices increased by 44% due to increased crude oil
costs. Asphalt prices rose between quarters by 37% due to the phase in of price
increases announced in the face of rising crude oil prices. Intermediate
refinery feedstock prices rose 55% also in response to increasing crude oil
prices as well as supply uncertainties caused by a perception of gasoline and
diesel fuel shortages due to reported declines in inventories and a series of
refinery production shortfalls due to equipment problems in Huntway's market
area.
The increase in unit volume between periods was primarily due to
increased production levels achieved as a result of the expansion and
modernization of the Benicia refinery in the second quarter of 1999 as well as
the completion of a new 155,000 barrel asphalt storage tank at Benicia in April
of 2000.
Material and processing costs increased by $9.60 per barrel or 48% as
the cost of Huntway's crude oil purchases increased to $26.16 a barrel in the
third quarter of 2000 from $16.72 a barrel in the third quarter of 1999. These
amounts are net of hedge benefit of $1.45 per barrel in the third quarter of
2000 versus hedge benefit of $0.62 per barrel in the comparable quarter of 1999.
This increase in crude oil costs was the result of a slow down in production by
certain producing nations and an increase in worldwide demand and uncertainty
about world production levels due to political uncertainty in the middle east.
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<PAGE> 11
Selling, general and administrative costs increased by $563,000 as
compared to the third quarter of 1999, primarily as a result of increased
performance related incentive plan accruals. Higher professional fees also
contributed to the increase in selling, general and administrative costs.
Net interest expense increased in the quarter by a nominal $25,000 due
to the addition of $2,500,000 of new term debt in April, 2000. Proceeds from the
borrowing were used to fund a new 155,000 barrel asphalt tank and related
equipment at the Benicia refinery.
Depreciation and amortization increased in the quarter by $72,000 due
to the increase in depreciable property between quarters (primarily the Benicia
modernization).
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Nine month 2000 net income was $5,051,000, or $.19 per share, versus
nine month 1999 net income of $2,757,000, or $.12 per share.
The following table sets forth the effects of changes in price and
volume on sales and material and processing costs on the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
Material & Net Refining Barrels
Sales Processing Margin Sold
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1999 $ 76,781,000 $ 63,123,000 $ 13,658,000 3,627,000
Effect of changes in price 46,790,000 44,568,000 2,222,000
Effect of changes in volume 13,739,000 11,295,000 2,444,000 649,000
------------- ------------- ------------- ---------
Nine Months Ended September 30, 2000 $ 137,310,000 $ 118,986,000 $ 18,324,000 4,276,000
============= ============= ============= =========
</TABLE>
The improvement in net refining margin of $4,666,000 or 34% in the
first nine months of 2000 versus the comparable period of 1999 was the result of
increased unit volume which grew by 649,000 barrels or 18% between periods as
well as an overall increase in selling prices in excess of rising crude and
material costs (net of hedge benefits).
Overall, product prices increased by 52% to $32.11 per barrel for the
first nine months of 2000 versus $21.17 for the comparable period of 1999.
Asphalt prices rose between periods by 38% as price increases necessitated by
the impact of increasingly higher crude oil prices continued to phase in.
Intermediate refinery feedstock prices rose 69% also in response to increasing
crude oil prices. In addition, a perception of gasoline and diesel fuel
shortages due to reported declines in inventories in the western United States
(PADD 5), shortages of heating oil in New England and a series of refinery
production shortfalls due to equipment problems both in Huntway's market area
and in the rest of the country were also significant factors in the increase in
intermediate refinery feedstock prices during the period.
Material and processing costs increased by $10.43 per barrel or 60% as
the cost of Huntway's crude oil purchases increased to $24.36 a barrel in the
first nine months of 2000 from $13.52 a barrel in the first nine months of 1999.
These amounts are net of hedge benefits of $1.33 per barrel in the first nine
months of 2000 versus $0.18 per barrel in the comparable period of 1999. This
increase in crude oil costs was the result of a slow down in production by
certain producing nations, an increase
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<PAGE> 12
in worldwide demand and continuing uncertainty about world production levels.
Political uncertainty in the Middle East has also played a part in the
continuing increase in crude oil prices around the world.
Selling, general and administrative costs increased between periods by
$712,000 primarily due to increased incentive plan accruals and higher
professional fees.
Net interest expense was flat between periods increasing by only
$19,000 due to slightly higher average debt levels.
Depreciation and amortization increased between periods by $47,000 due
to the increase in depreciable property between periods (primarily the Benicia
modernization).
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash requirements and liquidity position are affected by
various factors, including the selling prices for its refined products (liquid
asphalt and light-end products) and the price of crude oil. The selling prices
for asphalt products are influenced by the price of crude oil and by local
market supply and demand factors for asphalt, including public and private
demand for road construction and improvements. The selling prices for Huntway's
light end products (naphtha, kerosene distillate and gas oil) are also strongly
impacted by the price of crude oil and by supply and demand factors for finished
gasoline and diesel products in California. Fluctuations in the cost of crude
oil are impacted by a myriad of market factors, both foreign and domestic.
The other primary factors that affect the Company's investment
requirements and liquidity position generally include the timing and funding of
capital expenditures either to improve operations and business growth or to
comply with environmental regulations, to provide for the funding of inventories
and accounts receivables during periods of increasing crude costs and to provide
for the funding of increasing inventory and accounts receivable during the
months prior to (generally December through March) and during the initial start
(generally April through June) of the annual paving season.
In the first nine months of 2000, operating activities provided
$1,247,000 in cash. The period's net income of $5,051,000 along with
depreciation and amortization of $2,027,000, deferred income taxes of $1,303,000
and the payment of interest by the issuance of notes of $285,000 provided
$8,666,000 in cash. Additionally, increases in accounts payable due to higher
crude costs contributed $8,719,000. Changes in prepaid expenses and accrued
liabilities also contributed another $2,871,000 in cash, primarily due to
increased incentive plan and income tax accruals. However, the necessity to fund
increases in accounts receivable and inventories of $9,001,000 and $10,008,000
respectively required cash of $19,009,000. This large increase in inventories
and accounts receivable was necessitated by increases in crude oil prices as
well as increased production and storage capacity in Benicia.
In comparison, in the first nine months of 1999, operating activities
provided $7,454,000 in cash. The period's net income of $2,757,000 along with
depreciation and amortization of $1,980,000, the payment of interest by the
issuance of notes of $278,000 and a provision for deferred income taxes of
$1,250,000 provided $6,265,000 in cash. Additionally, an increase in accounts
payable, due to significantly higher crude oil prices, provided $11,068,000 in
cash while increased accrued liabilities provided $825,000 in cash. Offsetting
these sources of cash were seasonal increases in accounts receivable and
inventories of $7,938,000 and $1,552,000 respectively.
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<PAGE> 13
Additionally, prepaid expenses consumed $1,214,000 in cash, primarily for
turnaround costs associated with the Benicia and Wilmington refineries as well
as the renewal of insurance coverage.
During the first nine months of 2000, investing activities consumed
$3,660,000 in cash. Additions to property, primarily for a new 155,000 barrel
asphalt tank and waste water system at the Benicia refinery, required cash of
$3,370,000, while additions to other assets, primarily loan costs, used $290,000
in cash. During the first nine months of 1999, investing activities consumed
$6,774,000 in cash. Additions to property, primarily for the expansion and
modernization of the Benicia refinery, required cash of $5,894,000, while
additions to other assets, primarily loan costs associated with the new term
debt and letter of credit facilities, used $880,000 in cash.
Financing activities provided $1,103,000 in cash in the first nine
months of 2000 resulting from the funding of a new $2,500,000 term loan used for
the construction of the new 155,000 barrel asphalt tank and related equipment at
Benicia offset by monthly principal payments on long-term debt. In contrast,
financing activities consumed $226,000 in the first nine months of 1999 as a
result of monthly principal payments on long-term debt offset by the exercise of
employee stock options, which provided $116,000 during that period.
The Company believes that its 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
this facility will be adequate in the future. If crude oil prices increased
beyond the level of the Company's ability to extend letters of credit, it may be
required to prepay for crude oil or reduce its crude oil purchases, either of
which would adversely impact profitability.
In the opinion of management, cash on hand, together with anticipated
future cash flows and availability under its credit facility will be sufficient
to meet Huntway's liquidity obligations for the next 12 months.
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<PAGE> 14
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As previously noted, the Company's profitability depends largely on the
spread between market prices for its refined products and its crude oil costs. A
substantial and prolonged decrease in this overall spread would have a
significant negative effect on the Company's earnings, financial position and
cash flows. Approximately half of Huntway's production consists of light
products and half of asphalt. The prices of Huntway's light products have
historically followed changes in crude oil prices over 12- to 18-month time
periods despite high short-term volatility. Management believes that
approximately 15% of Huntway's asphalt unit sales volume will be covered by
contractual escalation and de-escalation clauses with various state highway
agencies, which are based upon various crude oil cost indexes. In an effort to
mitigate the remaining risk, the Company enters into contracts intended to
partially hedge its exposure to crude oil price fluctuations. Historically, such
contracts are "zero cost collars" under which the Company receives or makes a
monthly payment if crude oil prices for the month rise above, or fall below, the
contracts' "ceiling" or "floor" levels, respectively. The Company does not enter
into such arrangements for trading or other speculative purposes.
To a lesser extent, the Company is also exposed to risks associated
with interest rate fluctuations. However, because the Company invests only in
short-term investment grade securities and has only fixed rate debt, such risks
to its cash flows are not material.
-14-
<PAGE> 15
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 the cash flows
of the Company.
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
10.1 Amendment No. 3 to business loan agreement
(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 14, 2000.
HUNTWAY REFINING COMPANY
(Registrant)
By: /s/ EARL G. FLEISHER
---------------------------------------
Earl G. Fleisher
Chief Financial Officer
(Principal Accounting Officer)
15
