UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996 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, #322
Newhall, California 91381
(Address of Principal Executive Offices) (Zip Code)
Registrants Telephone Number Including Area Code: (805) 286-1582
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Units New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be considered, to the best of registrants knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
At March 4, 1997, the aggregate market value of the Partnership
Units held by non-affiliates of the registrant was approximately
$30,156,000 based upon the closing price of its units on the New
York Stock Exchange Composite tape. At March 4, 1997, there were
25,342,654 Units outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Part
Specified portions of Registrants
Registration Statement on Form S-1 as amended by
Amendment No. 3, filed November 9, 1988 Part II
PART I
Item 1. Business of the Partnership
INTRODUCTION
Huntway Partners, L.P., a Delaware limited partnership (the
"Partnership"), owns three crude oil refineries located in
California and Arizona. The Partnership is currently operating
the two California refineries while the Arizona refinery has been
shutdown since August 1993 due to adverse market conditions.
The managing general partner of the Partnership is Huntway
Managing Partner, L.P. (the "Managing General Partner"), a
Delaware limited partnership. See "Cash Distribution Policy" and
"Management". The Managing General Partner and Huntway Holdings,
L.P. ("Huntway Holdings"), the special general partner of the
Partnership (the "Special General Partner"), are collectively
referred to herein as the "General Partners". The General
Partners are under common ownership.
In 1996 the Partnership completed a debt restructuring with its
existing senior and junior lenders. As a result of the
restructuring, debt and accrued interest declined $71,748,000 to
$27,924,000 from $99,672,000 as measured at November 30, 1996.
In exchange for this reduction in debt and accrued interest,
13,786,404 units were issued to the Partnerships senior and
junior lenders raising total units outstanding to 25,342,654
units.
The principal executive offices of the Partnership and General
Partners are located at 25129 The Old Road, Suite 322, Newhall,
California 91381 and their telephone number is (805) 286-1582.
General:
The three refineries owned by Huntway are located in Wilmington,
California, near Los Angeles Harbor, in Benicia, California, near
San Francisco Bay and in Coolidge, Arizona, which is midway
between Phoenix and Tucson. The Wilmington, Benicia and Coolidge
refineries have refining capacities of 6,000 barrels per day
("bpd"), 9,000 bpd and 8,500 bpd, respectively.
The two California refineries produce liquid asphalt products and
light-end products such as gas oil, diesel fuel, naphtha and
kerosene distillate, from crude oil obtained from onshore and
offshore California production sources. The Arizona refinery,
which was shut down in August 1993, also produced jet fuel and
diesel fuel. The California refineries supply liquid asphalt to
hot mix asphalt producers, material supply companies, contractors
and government agencies principally for use in road paving in
California, and to a lesser extent Nevada, Arizona, Utah, Oregon
and Mexico. The Arizona refinery is owned by a subsidiary of the
Partnership, Sunbelt Refining Company, L.P. ("Sunbelt"). The
refining business conducted by the Partnership, its subsidiary
and its predecessors since 1979 is referred to herein as
"Huntway".
Most competing refineries typically produce liquid asphalt as a
residual by-product from the refining of higher cost and higher
quality, light crude oil into products such as gasoline. In
contrast, Huntways California refineries were designed
specifically for the production of liquid asphalt from lower
cost, lower quality, heavy crude oil produced in California.
Products and Markets:
Market Area
Huntway markets liquid asphalt primarily in California and, to a
lesser extent, in Nevada, Arizona, Utah and Oregon. The market
area served by the Wilmington refinery includes the southern
portion of California from Bakersfield to San Diego, into Baja,
California in Mexico, and east into southern Nevada and Arizona
(the "Southern Market"). The market area covered by the Benicia
refinery includes most of northern California from Monterey and
Modesto north to southern Oregon and east to northern Nevada and
Utah (the "Northern Market"). The Arizona refinery market area
is no longer serviced through its Sunbelt refinery, as the
refinery was shut down in August 1993.
Liquid Asphalt
Liquid asphalt is one of Huntways two principal products and
accounted for approximately 48% of its revenues in 1996 and 54%
of its revenues in 1995. As discussed below under Light-end
Products, the prices for Huntways other principal product,
light-ends rose in price in 1996 as these products are tied to
finished gasoline and diesel prices in California which increased
in price in 1996. The principal uses of liquid asphalt are in
road paving and, to a lesser extent, in the manufacture of
roofing products. About 89% of Huntways liquid asphalt sales
consist of paving grade liquid asphalt. The remaining 11% of
Huntways liquid asphalt is sold for use in the production of
roofing products such as tar paper and roofing shingles, as a
component of fuel oil sales and other specialty products.
Paving grade liquid asphalt is sold by Huntway to hot mix asphalt
producers, material supply companies, contractors and government
agencies. These customers, in turn, mix liquid asphalt with sand
and gravel to produce "hot mix asphalt" which is used for road
paving. In addition to conventional paving grade asphalt,
Huntway also produces modified and cutback asphalt products.
Modified asphalt blends recycled plastic and polymer materials
with liquid asphalt to produce a more durable product that can
withstand greater changes in temperature while cutback asphalt is
a blend of liquid asphalt and lighter petroleum products that is
used primarily to repair asphalt road surfaces.
Demand for liquid asphalt is generally lowest in the first
quarter of the calendar year, slightly higher in the second and
fourth quarters and significantly higher in the third calendar
quarter. In particular, liquid asphalt sales in the Northern
Market are somewhat more seasonal than sales in the Southern
Market (including Arizona) due to the rain and cold weather
usually experienced in the Northern Market during the winter
months, which affects road paving activities.
Light-End Products
In addition to liquid asphalt, Huntways two California refineries
produce certain light-end products. These products, as described
below, constitute approximately one-half of total production (as
measured by barrels produced), with liquid asphalt comprising the
other half. Huntways light-end product revenues are tied to the
prices of finished gasoline and diesel fuel in California, which
increased in 1996. Finished gasoline and diesel prices increased
in 1996 as California required all finished gasoline and diesel
products meet new, stricter environmental standards. This
restricted the volume of gasoline and diesel products made in
other areas of the country from being sold in California, thereby
reducing available supply and correspondingly raising prices.
Additionally, California transportation fuel refineries had
signficiant, unscheduled down time in 1996. Liquid asphalt
customers primarily take delivery via trucks, which enter the
refineries, light-end customers primarily take delivery of the
product via pipelines or barges.
Gas Oil
Gas oil accounted for about 29% of Huntways revenues during 1996
and 27% during 1995. This product is used either as a blending
stock to make marine diesel fuel or bunker fuel or by other
refiners as a feedstock for the production of gasoline and other
light petroleum products.
Kerosene Distillate and Naphtha
Kerosene distillate is primarily sold to customers to be used as
a refinery feedstock or diesel blendstock.
Huntway also produces a gasoline range naphtha which is sold to
other refiners for further processing to finished gasoline
products. Sales of kerosene distillate and naphtha accounted for
approximately 23% and 18% of revenues in 1996 and 1995,
respectively.
Bunker Fuel Blend Stock
This product is blended with lower viscosity blend stock to make
finished marine fuels used as a fuel by ocean going ships and
barges and is sold primarily to ship bunkering companies. Huntway
did not sell bunker fuel in 1994 but sold a record amount in 1995
due to extensive rain in the first half of the year, accounting
for 4% of revenues. Wet weather curtailed asphalt sales more than
usual in early 1995 and, accordingly, Huntway sold more bunker
fuel. Bunker fuel sales accounted for less than 1% of revenues in
1996.
Major Customers
One customer accounted for 15% of revenues in 1996 and 17% of
revenues in 1995. In the event that one or more customers
significantly reduces the level of their purchases from Huntway,
Huntways management believes that it could find alternative
purchasers for the affected output and that such reduction would
not have a long-term material adverse effect upon the results of
Huntways operations.
Factors Affecting Demand for Liquid Asphalt
General
Demand for liquid paving asphalt products is primarily affected
by federal, state and local highway spending, as well as the
general state of the California economy, which drives commercial
construction. Another factor is weather, as asphalt paving
projects are usually shutdown in cold, wet weather conditions.
All of these demand factors are beyond the control of the
Partnership. Government highway spending provides a source of
demand which is relatively unaffected by normal business cycles
but is dependent upon appropriations. During 1996, approximately
80% of liquid asphalt sales were ultimately funded by the public
sector.
On March 26, 1996, the California electorate approved the $2.0
billion Seismic Retrofit Proposition. Passage of Proposition
will result in a net increase in, construction of new and repair
of existing asphalt road projects in the state over that which
would have occurred in Proposition 192 had not been approved as
the Proposition raises $2 billion of new money to be used to
seismic retrofit Californias bridges, highways and overpasses.
Results in 1994 and, to some extent, 1995 results were adversely
impacted by the January 17, 1994 earthquake which diverted
substantial public funds designated for road transportation to
freeway and bridge repair. This repair effort primarily utilized
concrete and steel, and thereby depressed 1994 and 1995 public
funding of conventional asphalt paving.
Historically, approximately 70% of Huntways liquid asphalt sales
have been made to purchasers whose business is directly tied to
these various governmental expenditures. Over the long term the
demand for liquid asphalt will also tend to be influenced by
changes in population, the level of commercial construction, and
housing activity.
The California economy improved in 1996 fueled by growth in
foreign trade as well as growth in high technology and tourism
and entertainment. This growth in business activity resulted in
increases in road construction and repair activity in both the
private and public sector. Further expansion is being forecast
for California in 1997 and 1998 as growth rates as measured by
growth in jobs, personal income, consumer spending and
construction are expected to exceed the national averages. This
growth in the California economy generally bodes well for the
Partnership as increased business activity generally results in
increased construction activity including increased new road
construction and increased repair efforts on existing roads in
both the public and private sectors. In 1995, however, public
sector work was delayed in the first half of the year due to the
heavy rainfall while, in 1994, and to some extent in 1995, public
funding was diverted to freeway and bridge repair resulting from
the January 1994 earthquake. Private asphalt demand rebounded
slightly in 1996 due to the beginning improvement in the
California economy.
Government Funding
General. With the closure of the Sunbelt refinery in 1993,
Huntways two remaining refineries are in California, therefore
the following discussion focuses on government highway funds
available in California.
Federal Funding. Federal funding of highway projects is
accomplished through the Federal Aid Highway Program. The
Federal Aid Highway Program is a federally assisted, state
administered program that distributes federal funds to the states
to construct and improve urban and rural highway systems. The
program is administered by the Federal Highway Administration
("FHWA"), an agency of the Department of Transportation.
Substantially all federal highway funds are derived from gasoline
user taxes assessed at the pump.
State and Local Funding. In addition to federal funding for
highway projects, states individually fund transportation
improvements with the proceeds of a variety of gasoline and other
taxes. In California, the California Department of
Transportation ("CALTRANS") administers state expenditures for
highway projects.
In June, 1990 voters in the state of California passed a measure
which increased state gasoline taxes from 9 cents per gallon to
14 cents per gallon effective August 1, 1990, and by an
additional 1 cent per gallon on each January 1 thereafter through
1994. The additional revenues available to the state are now
estimated to be about $14 billion over the decade. However, in
June 1994, voters in the State of California rejected a measure
that would have provided an additional $2.0 billion to pay for
damage to freeways and bridges resulting from the January 17,
1994 earthquake. Accordingly, State funding for earthquake
repair projects was achieved by utilizing funds from the existing
California transportation budget.
However, on March 26, 1996, the California electorate approved
Proposition 192, the Seismic Retrofit Bond Act of 1996. This
bond measure raised $2 billion to finance a seismic retrofit
program for state bridges, highway overpasses and interchanges
and will have the indirect effect of increasing expenditures for
conventional road repair and construction over that which would
have been spent had Proposition 192 not been approved.
Local governmental units (such as cities, counties and townships)
provide additional funding for road and highway projects through
various taxes and bond issues.
However, it should be noted that these past increases in
governmental funding and expenditures to date have not been
sufficient to entirely offset the decline in private sector
demand as previously outlined.
Crude Oil Supply
Huntways California refineries require approximately 15,000 bpd
of crude oil when operating at their full capacities. Total
refinery crude oil processing capacity in California is
approximately 1.9 million bpd according to the 1996 Refining
Survey published by the Oil & Gas Journal. Refinery capacity for
the Western United States, including Hawaii (PADD5), is 2.9
million bpd. These refineries generally run an average of 90% of
their capacity. California refineries are supplied primarily by
onshore and offshore California production and by crude oil
transported from Alaska with some imports from South America,
Mexico, the Far East and Persian Gulf. Current production of
crude oil in California and Alaska alone totals approximately 2.5
million bpd. Legislation was passed to allow for the export of
Alaskan North Slope Crude oil. Management does not believe that
this will significantly affect Huntways ability to obtain crude
oil nor will it have a material effect on Huntways cost of crude
oil.
Huntways California refineries are located near substantial crude
oil reserves. A significant portion of this crude oil is heavy,
high sulfur crude oil, which is well-suited for liquid asphalt
production due to the higher percentage yield of liquid asphalt
per barrel.
The Arizona refinery is located adjacent to the All-American
Pipeline, a common carrier pipeline which transports crude oil
from California to Texas.
Huntway coordinates its purchases of crude oil to meet the supply
needs of all of its existing refineries. Huntway purchases a
substantial portion of its crude oil requirements under contracts
with a variety of crude oil producers for terms typically varying
from 30 days to 90 days. In addition, Huntway supplements its
contract purchases with purchases of crude oil on the "spot"
market.
Competition
The markets for refined petroleum products are highly competitive
and pricing is a primary competitive factor. With respect to
liquid asphalt, Huntways management believes that Huntways
reputation for consistently high product quality, its ability to
provide high levels of service and its long-standing
relationships with its major customers are important to its
continued success.
Huntways five-state market area is served by numerous refineries,
including refineries operated by major integrated oil companies
and by other independent refiners. All of Huntways primary
competitors are located in California and many have larger
refining capacity and greater financial resources than does
Huntway. In 1996, Huntways management believes that Shell Oil
Company accounted for a majority of the volume of liquid asphalt
sales in the Northern Market and that Huntway accounted for 20%
to 25% of liquid asphalt sales in this market area. The
remaining 10% to 20% estimated market share is apportioned
amongst several other competitors located outside of the Northern
California area. Chevron ceased producing asphalt in Northern
California effective January 1, 1994. Huntways management
believes that Paramount Petroleum Company accounts for
approximately 50% of the liquid asphalt sales in the Southern
market and that Huntway and two other competing refineries
account for the majority of the remainder of liquid asphalt
sales.
Employees
Huntway currently has 71 full-time and 10 part-time employees.
None of Huntways employees is represented by a union, and
management believes that labor relations have been excellent.
Environmental Matters
Huntways refinery activities involve the transportation, storage,
handling and processing of crude oil and petroleum products which
contain substances regulated under various federal and state
environmental laws and regulations. Huntway is also subject to
federal, state and local laws and regulations relating to air
emissions and disposal of wastewater and hazardous waste, as well
as other environmental laws and regulations, including those
governing the handling, treatment, release and cleanup of
hazardous materials and wastes.
Huntway has from time to time expended significant resources,
both financial and management, to comply with environmental
regulations and permitting requirements and anticipates that it
will continue to be required to expend financial and management
resources for this purpose in the future. Stringent new
environmental regulations have been adopted recently which will
require most refiners in Huntways market area to expend
substantial sums in order to comply. However, these regulations
principally impact refiners which produce motor vehicle fuels
which Huntway does not produce. Compliance with such regulations
and requirements has not had a material adverse effect on the
assets, financial position or results of operations of Huntway.
Huntways environmentally-related remediation expenditures in 1996
totaled approximately $150,000 and primarily related to
expenditures made to remove 20 drums improperly buried at the
Wilmington refinery site prior to its construction. Of the
$150,000 expenditure, approximately $80,000 was recovered from
the former owners and operators of the site, as well as entities
involved in the construction of the refinery. Management does not
believe, based upon information presently known, that any
additional costs will be incurred. Environmentally-related
remediation expenditures totaled $65,000 in 1995 and $60,000 in
1994. Such related remediation expenditures in 1994 and 1995
were less than anticipated due to permitting delays resulting
from regulatory agencies. In 1997, the Partnership anticipates
that it will spend $30,000 on environmentally-related remediation
expenditures.
Item 2. Properties of the Partnership
Wilmington Refinery
The Wilmington refinery and its related facilities are located on
a seven-acre site under a lease expiring on December 31, 2003.
This ground lease covers three contiguous parcels: (a) land owned
by and leased directly from Industrial Asphalt on which Huntways
tank farm is located; (b) land owned by the Southern Pacific
Railroad leased to Industrial Asphalt for a term ending June 1,
2032 on which the processing facility is located; and (c) two
strip parcels bordering the facility owned by Southern Pacific
and leased to Industrial Asphalt under a lease cancelable upon 30
days notice which are used for access to the refinery. In
addition, the ground lease grants Huntway a non-exclusive license
in Industrial Asphalts rights of access to the properties under
an agreement with Southern Pacific. The Partnership has the
right to (i) purchase from Industrial Asphalt an undivided
interest in the land under the tank farm at fair market value and
(ii) assume the two Southern Pacific leases from Industrial
Asphalt. Wilmington has 108,000 barrels of crude oil storage on
site. Huntway also owns refined product tankage for storage of
liquid asphalt and other refined products which Huntways
management believes is adequate for its needs.
Benicia Refinery
The Benicia refinery is located adjacent to the Carquinez Strait,
near the San Francisco Bay. The refinery and related facilities
are located on nineteen acres of land owned by Huntway. Crude
oil tankage at Benicia totals 216,000 barrels, while refined
product tankage for storage of liquid asphalt and light oils
totals 326,000 barrels. To enhance Benicias ability to receive
crude oil by water and to ship finished products by ship and
barge, in 1984 Huntway leased dock and loading facilities for a
term expiring February 2031. The dock facilities are connected
to the refinery by two two-mile pipelines.
Huntway has seen an increase in the demand for performance-based
asphalt products in recent years by both the public and private
sectors. This increased demand for better performing, more
durable paving, roofing and other specialty products has caused
the Partnership to expand its production capabilities in this
area.
Accordingly, in 1996, Huntway expended approximately $2,000,000
to expand its modified plant to allow the Partnership to utilize
recycled modifiers, which previously were not being efficiently
processed with existing equipment. Huntway believes this
facilitys larger production and storage capacity will improve the
economics of production and produce a more consistent product for
the Partnerships customers.
Arizona Refinery
The Arizona refinery and its related facilities are located on a
thirty-seven acre parcel leased from the City of Mesa under a
lease expiring on April 12, 2008 (with options to renew for up to
an additional twenty years until 2028). The Arizona refinery has
100,000 barrels of crude oil storage capacity, and 195,000
barrels of storage capacity for liquid asphalt and other refined
products. The Arizona refinery was closed in 1993.
Item 3. Legal Proceedings
In 1992, the Partnership and its subsidiary, Sunbelt Refining
Company, L.P., were charged by the State of Arizona with
violations of certain environmental regulations and provisions of
the Arizona refinerys installation permit. Sunbelt acknowledged
that it had certain environmental compliance problems in the
past, but believed that none of these resulted in any harm to
public health or to the environment. While Huntway and Sunbelt
have consistently denied that any criminal activity occurred, the
parties agreed on December 21, 1993 to settle both the States
civil and criminal charges. As part of the settlement, Sunbelt
agreed to pay a penalty of $700,000 over a period of seven years
without interest and to undertake certain environmental
improvements at the Arizona refinery. Huntway has made payments
against this obligation of $350,000, with the next payment of
$100,000 due January 7, 1998. The settlement, which consists of
a civil consent judgment and a plea agreement, has been reviewed
and approved by the court, the U.S. Attorneys Office and the U.S.
Environmental Protection Agency. Under the terms of the
settlement, Huntway is released from any further liability for
the alleged violations and considers the matter closed. Huntway
has instituted new programs and procedures to ensure that it is
operating in compliance with all environmental laws and
regulations.
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.
Item 4. Submission of Matters to a Vote of Unitholders
In October 1996, the Partnership submitted a prepackaged plan of
reorganization to a vote of its unitholders. Approval for a
consensual restructuring with substantially similar terms as the
prepackaged plans and adoption of the Huntway Incentive Option
Plan was also submitted at the same time. The vote was taken by
mail and no meeting of unitholders was held. The results of the
vote was as follows:
<TABLE>
<CAPTION>
Votes to
Votes to Withhold Votes
Consent Consent Abstained
<S> <C> <C> <C>
Acceptance of Huntways Prepackaged 9,618,022 110,500 22,900
Plan of Reorganization Pursuant
to Chapter 11 of the Bankruptcy Code
Approval of the Issuance of Common
Units 9,302,432 99,602 26,280
Upon Consummation of an Out-of-Court
Restructuring on Terms Substantially
Similar to the Consensual Restructuring
Agreement
Adoption of the Huntway Incentive
Option 8,910,837 456,072 61,405
Plan
</TABLE>
PART II
Item 5. Market for Registrants Units
and Related Unitholder Matters
Market
As of March 25, 1997 there were approximately 2,000 holders of
record of Huntway Partners, L.P. Units. The Units are traded on
the New York Stock Exchange under the ticker symbol "HWY". The
following table indicates the high and low sale prices of the
Huntway Partners, L.P. Preference Units as reported by the
Composite Transactions listing in the Wall Street Journal for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended Distribution
1996 High Low Close Paid
<S> <C> <C> <C> <C>
1st Quarter 1/2 5/16 13/32 --
2nd Quarter 7/8 13/32 3/4 --
3rd Quarter 7/8 5/8 11/16 --
4th Quarter 13/16 9/16 13/16 --
Year Ended Distribution
1995 High Low Close Paid
1st Quarter 1 1/2 5/8 --
2nd Quarter 1 1/8 5/8 5/8 --
3rd Quarter 7/8 1/2 1/2 --
4th Quarter 3/4 3/8 7/16 --
</TABLE>
Cash Distribution Policy
No cash distributions were paid to holders of Preference Units or
Common Units during 1996.
Cash distributions to holders of Preference Units were suspended
effective November, 1990 due to Huntways operating and working
capital needs, coupled with its bank principal and capital
expenditure requirements.
Under the Partnerships restructuring agreement with its principal
lenders, cash distributions to unitholders are prohibited until
the payment in full on all obligations to its senior lenders.
"Cash Distribution Policy" is incorporated by reference herein to
pages 17 through 20 of the Partnerships Registration Statement on
Form S-1 dated November 9, 1988, Registration No. 33-24445.
Item 6. Selected Financial Data
(In thousands except per unit and per barrel data)
The following historical selected financial data as of and for
each of the years in the five-year period ended December 31,
1996, are derived from the financial statements of Huntway
Partners, L.P., which have been audited by Deloitte & Touche
LLP, independent auditors, which financial statements and reports
thereon (except for 1992 and 1993 and as to the balance sheet,
1994) are included elsewhere herein. All of the selected
information should be read in conjunction with the financial
statements and notes thereto.
<TABLE>
Huntway Partners, L.P. Historical
<CAPTION>
Year Ended
December 31,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $105,463 $102,678 $79,139 $83,069 $99,021
Materials, Processing,
Selling and Administrative
Costs and Expenses 106,577 94,249(d) 74,803 80,462 91,980
Interest Expense 8,632 7,280 4,984 5,177 4,916
Plant Closure and
Write Down -- 16,013(c) -- 9,492(f) -
Depreciation and
Amortization 4,567 3,806(e) 2,356 2,399 2,219
Net Income (Loss)
From Operations $(14,313) $(18,670)(cde $(3,004) $(14,461) $(94)
Extraordinary Gain
on Refinancing -- -- -- -- 58,668
Related Costs of
Refinancing -- -- -- -- 2,180
Net Income (Loss) $(14,313) $(18,670) $(3,004) $(14,461) $56,394
Net Income (Loss)
Per Unit From
Operations (a) $(1.24) $(1.60) $(0.26) $(1.24) $(0.01)
Net Income (Loss)
Per Unit (a) $(1.24) $(1.60) $(0.26) $(1.24) $4.36
Barrels Sold 5,825 5,466 4,584 4,400 4,566
Revenues Per Barrel $18.11 $18.78 $17.26 $18.88 $21.69
BALANCE SHEET DATA
Working Capital $(83,482)(b) $2,289(b) $2,725(b)$(91,437)(b)$5,798(g)
Total Assets 107,232 (b) 90,745(b) 85,796(b) 74,393(b) 75,891
Long-term Obligations 742 89,570 91,312 350 28,174(g)
Partners' Capital/
(Deficiency) 5,621(b) (13,049)(bcde) (16,053)(b)(30,514)(b)39,041(g)
</TABLE>
a) Assumes that 11,556,250 units were outstanding in 1991 through
1995 and an average 12,915,000 units were outstanding in 1996.
The allocation to the general partners of their interest in net
income (loss) has been deducted before computing net income
(loss) per unit.
b) After the cumulative LIFO reserve of $641, $1,220, $36,
$1,203 and $1,170 in 1991, 1992, 1993, 1994 and 1995,
respectively - see Note 2.
c) Non-recurring charges recorded in June 1993 relating to the
Sunbelt refinery which was shut down in August 1993.
d) Includes $2,078 of non-recurring charges relating to
professional fees incurred relating to the restructuring of
indebtedness completed in 1993.
e) Includes $778 of non-recurring charges relating to
amortization of loan acquisition costs.
f) Write down of Sunbelt refinery assets to reflect expected
operation as a crude or product terminal in the future rather
than as a petroleum refinery.
g) Reflects impact of 1996 debt restructuring decreasing debt
and accrued interest by $71,748 as measured at November 30,
1996.
Item 7. Managements Discussion and Analysis of Results of
Operations and Financial Condition
Throughout the following discussion, the business operated by
Huntway Partners, L.P. is referred to as "Huntway".
The following should be read in conjunction with the foregoing
"Selected Financial Data" and the historical financial statements
and notes included elsewhere in this report.
This Form 10-K 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.
Huntways ability to generate income depends principally upon the
margins between the prices for its refined petroleum products and
the cost of crude oil, as well as upon demand for liquid asphalt,
which affects both price and sales volume.
Historically, refined petroleum product prices (including prices
for liquid asphalt, although to a lesser degree than Huntways
other refined petroleum products) generally fluctuate with crude
oil price levels. 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 increases in crude costs
that Huntway may be unable to pass 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 curtail refining
operations, which could adversely impact results of operations.
The Companys 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 Company. Accordingly, the Company has in the past, and may
have in the future, difficulty raising prices in the face of
increasing crude costs.
The average interest rate and weighted average debt amount
outstanding during each period discussed below is as follows:
<TABLE>
<S> <C> <C>
Average
Interest Weighted Average
Rate Debt Outstanding
1993 7.12% $89,176,813
1994 5.07% 93,786,797
1995 5.04% 94,636,007
1996 5.62% 80,514,941
</TABLE>
1996 COMPARED TO 1995
In 1996, Huntway undertook a restructuring of its debt through a
prepackaged plan of reorganization confirmed by the U.S.
Bankruptcy Court on December 12, 1996 and consummated on December
30, 1996. As a result of this restructuring, debt and accrued
interest declined $71,748,000 to $27,924,000 from $99,672,000, as
measured at November 30, 1996. The effect of this transaction
was to record a $58,668,000 extraordinary gain, or $4.53 per
unit, partially offset by transaction costs of $2,180,000, or
$.17 per unit. Accordingly, for the year ended December 31,
1996, Huntway recorded net income of $56,394,000, or $4.36 per
unit, inclusive of the extraordinary gain and related costs.
In 1995, Huntway reported a loss of $14,461,000, or $1.24 per
unit, which included a $9,492,000, or $.82 per unit, write down
of the Sunbelt Refinery.
Accordingly, absent the extraordinary gain in 1996 and the
refinery write down in 1995, earnings improved $4,875,000 between
periods to a loss of $94,000, or $.01 per unit, in 1996 from a
loss of $4,969,000, or $.43 per unit, in 1995.
The significant reduction in the operating loss reflects the
improvement in light-end margins caused by increased finished
gasoline and diesel prices in California in 1996. Finished
gasoline and diesel prices increased in 1996 in response to the
beginning of Phase II gasoline and CARB (California Air Resources
Board) diesel requirements unique to the State of California and
significant operating problems of major transportation fuel
refineries. Accordingly, as refineries in other states regularly
produce little of these specific California-grade fuels, margins
on Phase II gasoline and CARB diesel remained relatively high
throughout 1996.
Meanwhile, asphalt margins remained consistent with the prior
year at Benicia as asphalt prices in 1996 rose commensurate with
the increase in crude oil cost. However, in Southern California,
asphalt margins declined, as Huntways major competitor did not
increase asphalt prices to reflect the increase in crude oil
costs. Accordingly, Southern California asphalt gross profit in
1996 was lower than 1995.
Crude oil costs on a per-barrel basis rose in 1996 by nearly 15%
as world crude oil prices increased with rising demand. Cold
weather experienced in the first half of 1996 in the United
States and Northern Europe increased demand for heating oil,
thereby causing upward pressure on crude oil costs. Crude oil
prices, however, declined in late 1996 and early 1997 due to
increased supply as Iraq began selling barrels in the fourth
quarter of 1996. In addition, the United States experienced a
relatively mild winter, thereby reducing demand for crude oil,
which resulted in lowering crude oil prices in late 1996 and
early 1997.
Cash processing costs in 1996, which include utility costs,
operating salaries, wages and benefits, repair and maintenance
costs, property taxes and environmental compliance costs, were
comparable to 1995 on an aggregate and per-barrel basis.
The following table sets forth the effects of changes in price
and volume on sales and materials (mostly crude) and processing
costs for the year ended December 31, 1996 as compared to the
year ended December 31, 1995:
<TABLE>
Materials & Net Barrels
Sales Processing Margin Sold
<S> <C> <C> <C> <C>
Year Ended
December 31, 1995 $ 83,069,000 $ 76,643,000 $ 6,426,000 4,400,000
Effect of Changes
in Price 12,819,000 8,149,000 4,670,000
Effect of Changes
in Volume 3,133,000 2,891,000 242,000 166,000
Year Ended
December 31, 1996 $ 99,021,000 $ 87,683,000 $ 11,338,000 4,566,000
</TABLE>
As reflected above, net margin increased 76%, or $4,912,000, as
the growth in sales of $15,952,000 exceeded the increase in
material and processing costs of $11,273,000. Sales increased in
part due to a 4% increase in volume, but more importantly, as a
result of higher light-end prices which increased due to higher
finished gasoline and diesel prices in California in 1996.
Asphalt prices also increased in 1996 but did not increase in
aggregate terms to the same degree as material and processing
costs due to weak asphalt prices in Southern California.
On a per-barrel basis, sales averaged $21.69 a barrel in 1996
versus $18.88 a year ago. Material and processing costs averaged
$19.20 in 1996 and $17.42 in 1995. Accordingly, net operating
margin per barrel was $2.49 in 1996 and $1.46 a year ago.
Selling, general and administrative expenses totaled $4,297,000
in 1996 versus $3,819,000 in 1995. This $478,000 increase
reflects bonus expense of $718,000 in 1996, of which $406,100 was
paid in cash in 1996. The balance of the 1996 bonus award of
$311,900 has been deferred and will be paid based on future cash
flow and cash on hand. The increase in bonus expense was
partially offset by lower bad debt expense due to favorable
collection efforts between years. Finally, professional fee
expenses declined between years primarily due to lower legal and
consulting engineering fees.
Net interest expense totaled $4,916,000 in 1996 versus $5,177,000
in 1995. The difference reflects increased interest income. The
1996 debt restructuring, which was confirmed on December 12, 1996
and consummated on December 30, 1996, was effective retroactive
to January 1, 1996. However, under generally accepted accounting
principles, previously reported interest expense for the first
three quarter of 1996 is not restated. Had the restructuring
been in place on January 1, 1996, interest expense in 1996 would
have been reduced $1,592,000 to $3,324,000.
Depreciation and amortization in 1996 of $2,219,000 was $180,000
lower than the prior year due to the write down of Sunbelt
refinery assets at December 31, 1995, as discussed below.
1995 COMPARED WITH 1994
Net loss for the year ended December 31, 1995 was $14,461,000, or
$1.24 per unit, compared with a net loss of $3,004,000, or $.26
per unit in 1994.
The increase in the net loss of $11,457,000 was due to a
$9,492,000, or $.77 per unit write down of the Partnerships
Sunbelt refinery in Arizona. As the Partnership has determined
that it was unlikely that Sunbelt will be operated as a refinery
in the future it reduced the carrying value of the refinery in
accordance with FASB 121, Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to be disposed of.
Excluding the Sunbelt write down the increase in the loss of
$1,965,000 is reflective of the impact of rising crude prices,
increased competition and unusually heavy rainfall in the first
half of the year. Through the first six months of 1995, the net
loss exceeded 1994 by $3,641,000.
In effect, Huntway experienced two completely distinct six month
periods in 1995. The first half of 1995 was very depressed
characterized by unusually high levels of rainfall, which
curtailed asphalt sales, rising crude prices and increased
competition. In the second half of 1995, crude prices fell as
demand for crude declined as major refineries on the West Coast
conducted major repair efforts. In addition, in the last six
months of the year, the weather in California was dry which is
conducive to asphalt sales, competition declined and, as
expected, demand for asphalt was strong due in part to the
backlog which had developed in the first half of the year as a
result of the wet weather.
Asphalt is not usually laid in rainy weather. Accordingly,
through the first half of 1995 sales of paving asphalt was down
19% versus the same period a year ago. During this same period,
crude prices rose an average of 29% in response to rising crude
prices and increased demand for California heavy crude as
refineries have begun to use more of this crude in their refinery
process. This increased demand for heavy California crudes has
been driven by the lower price of California crudes. Refiners
have begun to realize that these crudes can be used in their
refinery processes resulting in better margins between crude and
finished product prices.
The high levels of rainfall reduced asphalt demand which meant
that asphalt prices could not be raised in response to rising
crude costs. Moreover, West Coast refinery margins continued
weak reaching near ten-year lows in the first half of the year
due to rising crude costs and excess light-end inventories.
This, in turn, caused margins for Huntways light-end products to
decline.
In the second half of 1995, Huntways operating performance
improved. During this period, several large California
refineries reduced production due to refinery problems. This
decreased crude demand lowering crude prices and increased light-
end prices due to a reduced level of finished product being
produced.
This increase in finished light-end prices due to reduced supply
caused Huntways light-end prices to increase. In addition, in
the second half of 1995 world crude prices fell due to increased
production throughout the world and relatively flat demand.
Meanwhile, asphalt prices and margins increased in California in
the second half of 1995 due to the combination of reduced
competition coupled with dry, warm weather throughout California
during the last six months of the year. Also, crude prices
declined as discussed above and demand for asphalt increased due
to the backlog created from the heavy rainfall in the first half
of the year.
The following table sets forth the effects of change in price and
volume on sales and crude and processing costs on the year ended
December 31, 1995 as compared to the year ended December 31,
1994:
<TABLE>
Materials & Net Barrels
Sales Processing Margin Sold
<S> <C> <C> <C> <C>
Year Ended
December 31, 1994 $ 79,139,000 $ 70,621,000 $ 8,518,000 4,584,000
Effect of Changes
in Price 7,107,000 8,856,000 (1,749,000)
Effect of Changes
in Volume (3,177,000) (2,834,000) (343,000) (184,000)
Year Ended
December 31, 1995 $ 83,069,000 $ 76,643,000 $ 6,426,000 4,400,000
</TABLE>
As reflected in the table above, the net margin fell $2,092,000,
or 25%, between periods. Volume in terms of barrels sold fell 4%
versus 1994 while material and processing costs rose 9% between
periods. In 1995, average product prices were $18.88 a barrel
versus $17.26 in 1994. Materials and processing costs averaged
$15.41 a barrel in 1994 and $17.42 a barrel in 1995.
The decrease in Huntways net margin was caused by the poor first
half performance as discussed earlier. Overall, for the year,
revenues increased $3,930,000, or 5%, reflective of higher
product prices, however, material and processing costs rose at an
even higher 9%. This increase was due to increased crude oil
prices on the world market due to a myriad of market factors
coupled with increased demand for California heavy crude as
refineries are increasingly using this crude in their refinery
process.
As discussed earlier, based on the Partnerships review of
refinery assets it was determined that it is unlikely that the
Sunbelt refinery will be operated in the future as a refinery.
Accordingly, the company has determined that in accordance with
FASB 121 an impairment loss should be recognized and has recorded
a $9,492,000 loss in the current results of operations for the
year ended December 31, 1995.
Processing costs in 1995 approximated 1994 on a per-barrel basis
but was below prior year on an aggregate basis due to the 4%
decline in barrels sold primarily due to the unusually wet
weather experienced in the first half of the year which reduced
sales levels.
Selling, general and administrative expenses fell $363,000 in
1995 to $3,819,000 from 4,182,000 in 1994, or a decline of 9%.
This decline resulted from significantly lower bonus expense and
lower insurance expense. No management bonuses were paid in 1994
or 1995. Insurance expense continued to decline in 1995 due to
efforts to contain costs.
Interest expense increased $193,000, or 4%, from $4,984,000 in
1994 to $5,177,000 in 1995 due to higher debt levels.
Depreciation and amortization approximated the prior year
totaling $2,399,000 in 1995 versus $2,356,000 in 1994.
OUTLOOK AND FACTORS THAT AFFECT FUTURE RESULTS
A number of uncertainties exist that may affect Huntways future
operations including the possibility of further increases in
crude oil costs that Huntway may be unable to pass on to
customers in the form of higher prices. Additionally, crude oil
costs could rise to such an extent that Huntway may not have
sufficient letter of credit availability to purchase all the
crude oil it needs to sustain operations to capacity, especially
during the summer season. If this occurred, Huntway would be
forced to prepay for crude oil or certain refining operations,
either of which could adversely impact results of operations.
The Partnerships primary product is liquid asphalt. Several of
Huntways competitors produce liquid asphalt as a by-product and
are of much greater size and have much larger financial resources
than the Partnership. Accordingly, the Partnership has in the
past, and may in the future, have difficulty raising prices in
the face of increasing crude oil costs. As for several of
Huntways competitors, the margins they receive on asphalt is not
as important to their operations as asphalt margins are to
Huntway.
Huntways crude oil costs per barrel increased 15% in 1996 versus
1995 in response to rising world crude prices. As measured by
W.T.I. (West Texas Intermediate), world crude prices increased
20% in 1996 due to increased demand as economic activity
generally expanded in 1996 versus 1995 in most areas of the
world, particularly in Asia. Meanwhile, the world supply of
crude in 1996 remained generally flat and consistent with the
prior year.
California average crude oil postings increased approximately 16%
in 1996 over 1995, or slightly less than world crude prices as
measured by W.T.I., as several major refineries in California
were shut down in the summer of 1996 due to refinery problems.
These shutdowns caused a reduction in demand for California heavy
crude oil which, in turn, contributed to downward pressure on the
price of this crude oil. Finally, Huntways net cost of crude oil
in 1996 was reduced from what it might otherwise had been due to
the benefits of hedge arrangements with independent producers of
California crude oil.
In 1995, crude oil costs per barrel increased 6% versus the prior
year due to increased demand for heavy crude oil as refineries
increasingly used these crude oils in their refinery operations
due to their lower cost. In addition, in 1995, Huntway purchased
more expensive grades of crude oil than in the prior year in
order to produce certain specialty asphalt products.
Crude oil costs per barrel increased 3% in 1994 versus 1993
partly due to the effect of the January 17, 1994 Northridge
earthquake and the curtailment of permits to tanker offshore
California production to market. The Northridge earthquake
destroyed one of two pipelines bringing crude to the Wilmington
refinery and had an effect of reducing by 50,000 barrels a day
the amount of crude bound for the Los Angeles basin. In July
1995, the remaining pipeline, which was not destroyed in the
earthquake was expanded to allow an additional 30,000 barrels per
day of capacity through put.
Accordingly, both of Huntways California refineries are
vulnerable to disruption in operations and reduced operating
results due to the possibility of additional earthquakes in
California. For example, in 1994 and early 1995, substantial
public funds originally designated for road transportation were
deviated to freeway and bridge repair. This type of repair work
uses primarily concrete and steel and comparatively little liquid
asphalt.
The expiration of certain crude oil tankering permits to Southern
California resulted in a reduction in locally produced off-shore
crude oil supplies which are cheaper and better suited to the
Companys production needs. Accordingly, the expiration of
tankering permits resulted in higher overall prices for crude oil
and presently there are no indications if or when crude tankering
will resume.
Huntways export business is primarily with Mexican customers and
is vulnerable to fluctuations in the Mexican peso. Huntways
export sales declined in 1995 from 1994 primarily due to the
devaluation of the Mexican peso in December 1994. This
devaluation had the effect of making Huntways asphalt in Mexico
comparatively more expensive. Export sales to Mexico in 1996
increased 11% versus 1995 as the peso and dollar exchange rate
has traded in a comparatively narrow range during that timeframe.
Demand for liquid paving asphalt products is primarily affected
by federal, state and local highway spending, commercial
construction and the level of housing starts, all of which are
beyond the control of the Company. Government highway spending
provides a source of demand which is relatively unaffected by
normal business cycles but is dependent upon appropriations.
Historically, approximately 70% of Huntways liquid asphalt sales
have been made to purchasers whose business is directly tied to
these various governmental expenditures. Over the long-term, the
demand for liquid asphalt will also tend to be influenced by
changes in population, the level of commercial construction, and
housing activity.
Federal funding of highway projects is accomplished through the
Federal Aid Highway Program. The Federal Aid Highway Program is
a Federally assisted, state administered program that distributes
federal funds to the states to construct and improve urban and
rural highway systems. Substantially all federal highway funds
are derived from gasoline user taxes assessed at the pump. In
addition to federal funding for highway projects, states
individually fund transportation improvements with the proceeds
of a variety of gasoline and other taxes. In California,
CALTRANS administers state expenditures for highway projects.
In June 1990, voters in the state of California passed a measure
which increased state gasoline taxes from 9 cents per gallon to
14 cents per gallon effective August 1, 1990 and by an additional
1 cent per gallon on approximately $14 billion over the decade.
In June 1994, California voters rejected a measure that would
have provided an additional $2 billion to pay for damage to
freeways and bridges resulting from the January 17, 1994
earthquake. Accordingly, state funding for earthquake repair
projects was achieved by utilizing funds from the existing
California transportation budget. Local governmental units, such
as cities, counties and townships, provide additional funding for
road and highway projects through various taxes and bond issues.
On March 26, 1996, the California electorate approved the $2.0
billion Seismic Retrofit Proposition. Passage of Proposition 192
will result in a net increase in construction of new, and repair
of existing, asphalt road projects in the State over that which
would have occurred if Proposition 192 had not been approved, as
the Proposition raises $2 billion of new money to be used to
Seismic retrofit California bridges, highways and overpasses.
Accordingly, Huntways asphalt sales are very dependent on public
funding primarily at the state level. Long-term disruptions or
declines in the level of public funding would adversely impact
operating results. The strength of the California economy also
influences demand for Huntways asphalt and light-end products.
Beginning in 1995 and for all of 1996, Huntway experienced an
increase in demand for its products commensurate with the
expansion of the California economy. In 1994, private demand was
depressed as it had been since the beginning of the decade as
California recovered from a prolonged recession. Huntway
presently is optimistic about the outlook for future growth in
California based on the expansion that has been underway for the
past 18 to 24 months and forecasts by several prominent economic
studies. This expected growth in the California economy should
lead to continued growth in the demand for Huntways products.
There can be no assurance, however, that the California economy
will continue to grow as it has recently.
Generally cold, wet weather is not conducive to asphalt road
construction and repair. Accordingly, results in certain years,
such as 1995, were adversely impacted by unseasonably wet weather
in California.
Barriers to entry in the asphalt market are limited. The
sophistication level of the required facilities is low indicating
that refineries could enter the market if they chose to do so.
The capital needed to undertake asphalt manufacturing at an
existing refinery operation is small by refinery standards.
Permit issues for these existing refineries, while they exist,
are not of such a nature that they are likely to be a significant
deterrent to new entrants. However, construction of new asphalt
refineries is very unlikely due to the inability to obtain
required permits. Greenfield refineries would have high barriers
to entry due to environmental regulations and the limited size of
the market.
The Company is subject to federal, state and local laws,
regulations and ordinances that govern activities or operations
that might have adverse environmental effects, and that impose
liability for the costs of cleaning up, and certain damages
resulting from sites of past spills, disposals or other releases
of hazardous substances. Although Management believes that the
Companys operations procedures and safety precautions are
enforced stringently, there can be no assurance that
environmental problems will not occur in the future.
As a result of the factors described above, the outlook for 1997
is uncertain, as results will depend to a large extent on crude
oil prices and public funding availability. The Partnership
remains optimistic about export growth potential and growth in
the sale of higher margin polymer based asphalt products.
However, growth in these areas are also influenced by funding
uncertainties. Heavy rainfall in 1996 and 1995 in California has
damaged asphalt roads throughout the State which will eventually
lead to increased repair activity. Additionally, projected
population growth in California and an improving economy bodes
well for future public and private road construction activity.
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 pricing factors that affect the Partnerships 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 Partnerships cash requirements and
liquidity positions. In addition, capital expenditure
requirements, including costs to maintain compliance with
environmental regulations as well as debt service requirements,
impact the Partnerships cash needs.
Huntways 1996 results (exclusive of the 1995 provision for plant
closure and write down of $9,492,000) improved $4,875,000 versus
the prior year due to improved light-end margins primarily caused
by increased finished gasoline and diesel prices in California.
Finished gasoline and diesel prices increased in California due
to the combination of the beginning of Phase II gasoline and CARB
(California Air Resources Board) diesel requirements and
transportation fuels refinery operating problem in California.
The requirements for these cleaner burning fuels restricted the
volume of imports of fuels made in other states and foreign
countries. Accordingly, a perception of shortages in fuel
availability arose which was exacerbated when several California
refineries were shutdown in 1996 due to refinery problems. As a
result, finished fuel prices increased and, accordingly, Huntways
light-end prices increased.
Meanwhile, asphalt gross profit in 1996 at Huntways Benicia
refinery remained consistent with the prior year on both an
aggregate and a per barrel basis despite the increase in crude
costs. This occurred because asphalt prices increased
commensurate with the increase in crude. However, at Huntways
Wilmington refinery, asphalt gross profit declined on both an
aggregate and per-barrel basis as asphalt prices did not increase
with the increase in crude costs. This occurred because Huntways
primary Southern California competitor, which is the largest
asphalt manufacturer in Southern California, did not increase
asphalt prices despite the increase in crude costs. Accordingly,
asphalt gross profit in the Southern California market declined
in 1996 versus the prior year.
However, this competitor has raised asphalt prices in January
1997 in response to rising crude oil costs. Accordingly, Huntway
presently believes asphalt gross profit in 1997 will exceed 1996
at the Wilmington refinery assuming asphalt is priced in the
Southern California market to reflect increases in production
costs.
In 1996, Huntway completed a restructuring of its debt through a
prepackaged plan of reorganization which was filed with the U.S.
Bankruptcy Court in Wilmington, Delaware, on November 12, 1996,
confirmed by the Court on December 12, 1996 and consummated on
December 30, 1996. As a result of that transaction, Huntway
reduced debt and accrued interest by $71,718,000 as measured at
November 30, 1996. Huntway recorded a $58,668,000 extraordinary
gain on the transaction excluding $2,180,000 in related
transaction costs. The Partnership also recorded a $13,080,000
capital contribution on the transaction represented by a decrease
in debt and an increase in partners capital.
The effect of this transaction lead to Huntway recording net
income in 1996 of $56,394,000 versus a loss of $14,461,000 in
1995 inclusive of a $9,492,000 write down of Huntways Sunbelt
refinery in Arizona. Operating results in 1995 were negatively
impacted by excessive rainfall in the first half of the year.
Cash increased $983,000 in 1996 to $5,287,000 at December 31,
1996 from $4,304,000 at December 31, 1995. Capital expenditures
totaled $2,620,000 in 1996 and primarily related to construction
of a new modified asphalt facility at the partnerships Benicia
refinery. Capital expenditures in 1995 were $447,000. Principal
payments plus cash interest payments totaled $838,000 in 1996
versus $2,936,000 in 1995. Over the three year period 1993 to
1996, cash and cash equivalents decreased by $2,458,000.
Net cash provided by operating activities in 1996 totaled
$3,485,000. Net income of $56,394,000 plus depreciation and
amortization of $2,219,000 and interest paid by the issuance of
PIK notes (payment in kind) of $2,354,000 was partially offset by
the net gain on restructuring of $56,488,000. Accounts
receivable increased and used $327,000 in cash despite the fact
that fourth quarter 1996 revenues exceeded fourth quarter 1995
revenues by $2,499,000 as increased sales were derived from
higher light-end revenues which are usually collected within ten
days of sale. Accounts payable increased and provided $331,000
in cash due to higher crude costs in 1996 versus 1995. Accrued
liabilities decreased and used $875,000 in cash in 1996 due
primarily to the payment of accrued property taxes. Inventory
increased slightly and used $89,000 in cash due to the impact of
higher crude costs. Prepaid expenses decreased and provided
$24,000 in cash due to lower insurance costs while the reserve
for plan closure decreased and used $58,000 to provide for
maintenance costs during the shut-down period of the Sunbelt
refinery.
Net cash used by operating activities in 1995 totaled $435,000.
The net loss in 1995 of $14,461,000 was partially offset by the
write down of the refinery assets at Sunbelt of $9,492,000 as
discussed earlier and by depreciation and amortization of
$2,399,000. Cash flow was generated in 1995 from accrued but
unpaid interest on existing debt of $1,177,000 and accrued, but
unpaid interest recorded as PIK (payment in kind) notes in 1995
of $1,693,000. Increased accounts receivable used cash flow of
$2,335,000 as improved demand and excellent weather contributed
to fourth quarter 1995 revenues exceeding the prior year by
$3,303,000. Cash flow of $711,000 was generated from decreases
in inventory as increased sales levels in the fourth quarter of
1995 reduced inventory. In addition, cash flow of $73,000 was
generated from reductions in prepaid expenses due to lower
insurance costs and reduced turnaround expenses as less repair
work was conducted on the refineries in 1995 versus prior years
due to timing. Cash flow of $598,000 was also generated from
increases in accounts payable due to increased crude costs
relative to the prior year. Other accrued liabilities increased,
providing cash of $296,000 due to accrual of potential cleanup
expenses relating to the buried drums discovered in May 1995 at
the Wilmington refinery. Finally, cash flow of $78,000 was used
due to reductions in the Sunbelt closure reserve which provided
for maintenance costs during the shut-down period.
Investing activities used $2,402,000 in cash in 1996. The
majority of this expenditure related to construction of a new
modified asphalt facility at Benicia. In addition, expenditures
were made in 1996 to double bottom an asphalt tank at the Benicia
refinery and to purchase certain burners as well as several other
minor projects. Costs to construct a new waste water treatment
facility were postponed until 1997 due to the problem surrounding
the discovery of several buried drums at the Wilmington refinery.
Accordingly, in 1997, capital expenditures are anticipated to
total approximately $2,700,000. In 1995 and 1994, $447,000 and
$745,000, respectively, were spent on property additions and
related to compliance with environmental regulations. In 1996,
the collection of deposits recorded in other assets provided cash
of $218,000. In 1995, $170,000 in professional fees were
capitalized relating to restructuring efforts. In 1994, other
assets declined and provided $76,000 in cash relating to the
collection of deposits.
Cash flow from financing activities used $100,000 in cash in 1996
and related to a scheduled payment on the 1993 Sunbelt
environmental compliance agreement.
Cash flow from financing activities used $628,000 in cash in
1995. These payments represented payments made on March 31, 1995
and September 30, 1995 under the debt agreement with its lenders
as well as capital lease payments made in 1995, on refinery
equipment. This lease obligation was paid in full in 1995. Cash
flow from financing activities used $4,478,000 in cash in 1994 as
the Partnership paid its scheduled indebtedness under its
restructuring agreement with its lenders.
On December 30, 1996, Huntways prepackaged plan of reorganization
was consummated after being filed on November 12, 1996 and
confirmed on December 12, 1996. The prepackaged plan reduced the
Partnerships debt and accrued interest by $71,748,000 to
$27,924,000 from $99,672,000 as measured at November 30, 1996.
In exchange for this reduction in debt and accrued interest,
13,786,404 units were issued to the Partnerships senior and
junior lenders raising total units outstanding to 25,341,654
units.
To that end, in August through October 1996, the Partnership
prepared a Consent Solicitation Disclosure Statement and related
consent materials for distribution to its unitholders and other
affected parties. On October 11, 1996, the Partnership announced
that the Consent Solicitation Disclosure Statement and related
consent materials had been declared effective by the Securities
and Exchange Commission and that it had begun seeking Unitholder
and lender approval of the restructuring on such forms. On
November 12, 1996, the Partnerships announced that, having
obtained the requisite approval of its lenders,, warrant and
equity holders, it had filed the prepackaged plan in U.S.
Bankruptcy Court in Wilmington, Delaware. During the
solicitation period, which expired on November 7, 1996, ballots
representing approximately 86 percent of senior debt, 100 percent
of junior debt, 100 percent of warrant holders and 98.6 percent
of the unitholders who cast votes, voted in favor of the plan.
Slightly over 84 percent of total units outstanding cast votes on
the plan.
Huntway filed the prepackaged plan because one senior lender,
representing 14% of outstanding senior indebtedness, would not
agree to the terms of the reorganization plan that had originally
been agreed to by four of five of the Partnerships senior
lenders, representing 86% of senior debt. This remaining senior
lender subsequently did agree to the reorganization plan prior to
the December 12, 1996 confirmation date.
The restructuring plan also reduced the Partnerships junior
indebtedness to $2,070,000, effective January 1, 1996. Under the
agreement, interest on the junior debt accrues at 12% but is not
paid in cash but rather in units under a defined formula.
Additionally, under the terms of the agreement, any units issued
under the formula are not dilutive to the senior lenders or to
stock options held by management.
Previously, on December 4, 1995, the Partnership announced that
it did not make its scheduled $1,000,000 debt payment due
November 30, 1995 and was in default under its current indenture.
At that time, the Partnership also stated that it would not be
making any further payments under the then current indenture
which also provided for a $1,250,000 payment on December 31, 1995
and a $5,000,000 payment in 1996 paid quarterly under a defined
formula. As a result, at December 31, 1995, substantially all of
the Partnerships outstanding indebtedness was classified as
current. The Partnership previously made a $1,250,000 payment on
October 3, 1995 and at that time was verbally informed by
substantially all of the Partnerships current lenders that they
did not intend to pursue their remedies under the then-current
indenture due to nonpayment while discussions regarding the
potential restructuring of the Partnerships indebtedness were
continuing. Such discussions culminated in the restructuring
agreement, the terms of which were disclosed on April 15, 1996.
Under the terms of the prepackaged plan, senior debt was reduced
to $23,500,000 effective January 1, 1996 with an interest rate of
12%. No cash interest was paid on senior debt in 1996. In 1997,
cash interest will be paid on the senior debt on a quarterly
basis with approximately $440,000 due on each quarter ended March
31 and June 30, 1997 and approximately $880,000 due on each
quarter ended September 30, and December 31, 1997. In addition,
in 1997, the Partnership is obligated to pay to its senior
lenders any excess cash based on 50% of excess cash flow as
defined.
Annual interest requirements in 1998 on the senior debt is
scheduled to be paid on the same ratio as described above for
1997, that is, 16.67% of the annual obligation at March 31 and
June 30 and 33.33% at September 30 and December 31. Also, in
1998, the Partnership is obligated to begin amortizing the senior
debt under a sinking fund arrangement that currently obligates
Huntway to make payments of $1,293,000 at September 30 and
$1,939,000 at December 31 of each year 1998 through 2005.
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.
Regardless of whether Huntway is successful in refinancing its
two largest senior lenders, the Partnership currently believes it
will be able to meet its liquidity obligations for the next 12
months through a combination of cash on hand and anticipated
future cash flows.
The prepackaged plan provided for a new $17,500,000 letter of
credit facility through December 31, 1997. The facility provides
for crude purchases, hedging and other activities. Fees for this
facility are 2% on the face amount of any letter of credit issued
up to an aggregate of $14,500,000 and 3% on the face amount of
any letter of credit issued above that amount.
The Partnership is currently in negotiations with another bank to
replace its existing letter of credit agreement.
Management continues to address all areas of the Partnerships
operations in an effort to reduce costs, improve profitability
and to provide a sound basis for future operations. This
evaluation resulted in the decision in 1993 to temporarily
suspend operations at its Sunbelt refinery located in Coolidge,
Arizona, until such time as there is a sustained improvement in
market conditions. The primary factors involved in the
Partnerships decision were poor margins at the facility, a
limitation on working capital availability and, to a lesser
extent, the impact of an environmental lawsuit and investigations
filed by the State of Arizona which was settled in 1993. The
Partnership currently intends to eventually reopen the refinery
as a terminal when market conditions improve.
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 will be adequate in the future. If crude
oil prices continued to increase beyond the level of the
Partnerships letter of credit facilities, it would be required to
reduce its crude oil purchases, which would adversely impact
profitability.
INDEPENDENT AUDITORS REPORT
Operating Committee and Partners
Huntway Partners, L.P.
(A Limited Partnership)
We have audited the accompanying consolidated balance sheets of
Huntway Partners, L.P. (a limited partnership) and subsidiary as
of December 31, 1996 and 1995 and the related consolidated
statements of operations, partners capital (deficiency) and cash
flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of
the management of the Partnership. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Huntway Partners, L.P. and its subsidiary as of
December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Los Angeles, California
February 6, 1997
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(in thousands)
<CAPTION>
<S> <C> <C> <C>
ASSETS
Notes 1996 1995
Current Assets:
Cash $ 5,287 $ 4,304
Accounts Receivable 2, 3 5,148 4,820
Inventories 2, 3 3,399 3,320
Prepaid Expenses 640 676
Total Current Assets 14,474 13,120
Property - Net 2, 3 59,339 58,677
Other Assets -- Net 2 319 780
Goodwill 2 1,759 1,816
Total $ 75,891 $ 74,393
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current Liabilities:
Accounts Payable 2 $ 6,913 $ 6,582
Current Portion of Long-term
Obligations 1, 3, 4 100 94,445
Reserve for Plant Closure 4 106 164
Accrued Interest 316 1,417
Other Accrued Liabilities 2 1,241 1,949
Total Current Liabilities 8,676 104,557
Long-term Debt 1, 3 27,924
Other Long-term Obligations 4 250 350
Commitments & Contingencies 6, 8
Partners' Capital
(Deficiency): 2, 3, 5, 9
General Partners 390 (305)
Limited Partners 38,651 (30,209)
Total Partners' Capital (Deficiency) 39,041 (30,514)
Total $ 75,891 $ 74,393
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per unit data)
<CAPTION)
Notes 1996 1995 1994
<S> <C> <C> <C> <C>
Sales 10 $ 99,021 $ 83,069 $ 79,139
Costs & Expenses:
Material & Processing Costs 2 87,683 76,643 70,621
Selling and Administration
Expenses 4,297 3,819 4,182
Plant Closure and Write Down 4 - 9,492 --
Interest Expense 3 4,916 5,177 4,984
Depreciation and Amortization 2 2,219 2,399 2,356
Total Costs and Expenses 99,115 97,530 82,143
Net Income (Loss) from Operations (94) (14,461) (3,004)
Extraordinary Gain on
Refinancing 3 58,668 - -
Related Costs of Refinancing 3 2,180 - -
Net Income (Loss) $ 56,394 $ (14,461) $ (3,004)
Net (Loss) Per Unit from
Operations 2, 5 $ (0.01) $ (1.24) $ (0.26)
Net Income (Loss) Per Unit 2, 5 $ 4.36 $ (1.24) $ (0.26)
</TABLE>
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
General Limited
Notes Partners Partners Totals
<S> <C> <S> <S> <S>
Balance at December 31, 1993 $(130) $(12,919) $(13,049)
Net Loss for the Year Ended
December 31, 1994 5 (30) (2,974) (3,004)
Balance at December 31, 1994 (160) (15,893) (16,053)
Net Loss for the Year Ended
December 31, 1995 5 (145) (14,316) (14,461)
Balance at December 31, 1995 (305) (30,209) (30,514)
Net Income for the Year Ended
December 31, 1996 5 695 55,699 56,394
Capital Contribution 1,3 - 13,161 13,161
Balance at December 31, 1996 $390 $38,651 $39,041
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
HUNTWAY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 56,394 $ (14,461) $ (3,004)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by Operations:
Depreciation and Amortization 2,219 2,399 2,356
Interest Expense Paid by the
Issuance of 2,354 1,693 3,899
Notes
Plant Closure and Write Down -- 9,492 --
Extraordinary Gain on Refinancing (58,668) -- --
Related Costs of Refinancing 2,180 -- --
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Accts.
Receivable (327) (2,335) 1,644
Decrease (Increase) in Inventories (89) 711 132
Decrease (Increase) in Prepaid Expenses 24 73 (275)
Decrease in Reserve for Plant Closure (58) (78) (1,032)
Increase in Accounts Payable 331 598 927
Increase (Decrease) in Accrued
Liabilities (875) 1,473 (1,261)
Net Cash Provided By (Used By)
Operating Activities 3,485 (435) 3,386
Cash Flows From Investing Activities:
Additions to Property (2,620) (447) (745)
Additions to Other Assets 218 (170) 76
Net Cash Used By Investing Activities (2,402) (617) (669)
Cash Flows From Financing Activities:
Repayments of Long-term Obligations (100) (628) (4,478)
Net Cash Used by Financing Activities (100) (628) (4,478)
Net Increase (Decrease) In Cash 983 (1,680) (1,761)
Cash Balance Beginning of Year 4,304 5,984 7,745
Cash Balance End of Year $ 5,287 $ 4,304 $ 5,984
Supplemental Disclosures:
Interest Paid During the Period $ 738 $ 2,308 $ 1,074
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
On December 30, 1996, Huntway Partners, L.P. emerged from
bankruptcy following consummation of its prepackaged plan of
reorganization (reorganization plan). Huntway filed its
reorganization plan in U.S. Bankruptcy Court in Wilmington,
Delaware, on November 12, 1996. The reorganization plan was
confirmed by the Court on December 12, 1996.
Under the terms of the reorganization plan (as more fully
explained under Note 3 Financing Arrangements) total debt,
including accrued interest, declined $71,748,000 to $27,924,000
from $99,672,000 as measured at November 30, 1996. In exchange
for this reduction in debt and accrued interest, 13,786,404 units
(valued at $13,080,000 based on a 30 day average unit price) were
issued to the partnerships senior and junior lenders raising
total units outstanding to 25,342,654. At December 31, 1996,
total debt and accrued interest on all senior and junior debt
totaled $28,172,000.
The Partnership was forced to file its prepackaged plan of
reorganization because it was unable to secure unanimous approval
of all of its senior lenders to its restructuring agreement. In
April 1996, four of five (or 80%) of its senior lenders
representing 86% of its senior debt agreed to the restructuring
plan. Unanimous approval of the prepackaged plan of
reorganization was obtained just prior to the December 12, 1996
confirmation of the plan when Huntways one remaining senior
lender, representing 14% of senior debt, agreed to join the other
senior lenders in agreeing to a consensual restructuring.
In addition to Huntways senior lenders, the reorganization plan
was approved by 100% of warrant holders, 100% of junior
noteholders and 98.6% of voting unitholders. The approval of
these impaired parties to the reorganization plan was obtained
during the solicitation time period of October 11, 1996 through
November 7, 1996.
Accordingly, for the year ended December 31, 1996, the
Partnership reported an extraordinary gain of $58,668,000
determined as follows:
<TABLE>
<S> <C>
Pre-existing debt and accrued interest $99,672,000
Less:
New Senior Debt 23,500,000
New Junior Debt 2,070,000
Accrued Interest on New Debt 2,354,000
Total Book Value of New Debt (27,924,000)
Capital Contribution of New Units Exchanged (13,080,000)
Extraordinary Gain on Refinancing $58,668,000
</TABLE>
On October 3, 1995, Huntway Partners, L.P. made a $1,250,000
payment to its existing lenders. On December 4, 1995, the
Partnership announced that it did not make its scheduled
$1,000,000 debt payment due November 30, 1995 and was, therefore,
in default under its indenture. At that time, the Partnership
was verbally informed by substantially all of its senior lenders
that they did not intend to pursue their remedies under the
current indenture due to nonpayment while discussions regarding
the potential restructuring of the Partnerships indebtedness was
continuing. The Partnership also stated that it would not be
making any further payments under the current indenture which
also provided for a $1,250,000 payment on December 31, 1995 and
for a $5,000,000 payment in 1996 paid quarterly under a defined
formula. As a result, at December 31, 1995, substantially all of
the Partnerships outstanding indebtedness was classified as
current while at December 31, 1996, following consummation of its
reorganization plan, all of the Partnerships outstanding
indebtedness was classified as long-term.
NOTE 2. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. Huntway Partners is engaged primarily in the operation
of a 6,000 barrel-per-day oil refinery located in Southern
California and a 9,000 barrel-per-day oil refinery located in
Northern California, which produce and sell refined petroleum
products. Also owned by the Partnership was an 8,500 barrel-per-
day refinery in Arizona, closed in 1993 (see Note 5, Plant
Closure). Huntway Partners has adopted a calendar year fiscal
period.
The Partnership is subject to various environmental laws and
regulations of the United States and the states of California and
Arizona. As is the case with other companies engaged in similar
industries, the Partnership faces exposure from potential claims
and lawsuits involving environmental matters. These matters may
involve alleged soil and water contamination and air pollution.
The Partnerships policy is to accrue environmental and clean-up
costs when it is probable that a liability has been incurred and
the amount of the liability is reasonably estimable.
Total limited partnership units outstanding at December 31, 1996,
was 25,342,654 while at December 31, 1995 and 1994 limited
partnership units totaled 11,556,250. As discussed in Note 1
Basis of Presentation, as part of the 1996 restructuring,
13,786,404 new units were issued effective December 30, 1996.
Principles of Consolidation. The consolidated financial
statements include the accounts of Huntway Partners and its
subsidiary, Sunbelt Refining Company, L.P. ("Sunbelt"). All
significant inter-company items have been eliminated in
consolidation.
Exchange Transactions. In connection with its refinery
activities, the Partnership engages from time to time in exchange
transactions common to the industry where crude oil or refined
product is exchanged with other unrelated entities for similar
commodities. The accounting of such exchanges is based on the
recorded value of the commodities relinquished. There were no
material exchange balances at December 31, 1996 or 1995.
Environmental Costs. The Partnership expenses or capitalizes
costs associated with environmental clean-up and other repairs
and maintenance at its refineries in accordance with Emerging
Issues Task Force Topic 90-8 and exhibits thereto.
Turnaround Costs. Cost of turnarounds, which consist of complete
shutdown and inspection of a refinery unit for repair and
maintenance, are deferred and amortized over the estimated period
of benefit which generally ranges from 18 to 60 months.
Income Taxes. No provision has been made for income taxes in the
accompanying consolidated financial statements. The taxable
income or loss of the Partnership is allocated to each partner in
accordance with the provisions of the Partnership agreement.
The taxable income or loss allocated to the partners in any one
year may vary from the amount of income or loss reported for
financial statement purposes, due to differences between the time
that certain income and expense items are recognized and the time
when they are reported for financial statement purposes.
The partnership agreement provides generally that income, loss
and cash distributions be allocated 1 percent to the general
partner and 99 percent to the limited partners. In turn, each
partners tax status will determine the appropriate income tax for
that partners allocated share of Huntway Partners taxable income
or loss.
Inventories. 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.
Management believes the LIFO method of accounting for inventories
is preferable because it more closely matches revenues and
expenses and reflects the prevailing practice in the petroleum
industry.
The effect of LIFO in 1996 was to increase the net loss from
operations by $1,022,000 and net loss per limited partners unit
by approximately $.08 and in 1995 was to decrease the net loss
and net loss per limited partner unit by approximately $33,000
and less than 1/2 cent. In 1994, the effect of LIFO was to
increase the net loss and net loss per limited partner unit by
approximately $1,184,000 and 10 cents.
Inventories at December 31, 1996 and 1995 were as follows:
<TABLE>
<S> <C> <C>
1996 1995
Finished Products $ 2,533,000 $2,295,000
Crude Oil and Supplies 3,058,000 2,195,000
5,591,000 4,490,000
Less LIFO Reserve (2,192,000 ) (1,170,000 )
Total $ 3,399,000 $3,320,000
</TABLE>
Property and Depreciation. Property is stated at cost and
depreciated using the straight-line method over the estimated
useful lives of the assets. Facilities which are temporarily
closed are retained in the property accounts as idle facilities
and are depreciated.
Fair value of Financial Instruments. The recorded values of
accounts receivable, accounts payable and accrued expenses
approximate their fair value based on their short-term nature.
The recorded value of long-term debt approximates fair values as
interest is tied to or approximates market rates.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results would differ from
these estimates. As discussed in Note 4, the Partnership has
written down its investment in the Sunbelt Refinery based upon
the best estimate of the outlook for the asphalt and light-end
market in Arizona.
Property at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
Depreciable
Life 1996 1995
<S> <C> <C> <C>
Land $ 2,176,000 $ 2,176,000
Buildings 40 yrs. 887,000 887,000
Refineries and
Related Equipment 40 yrs. 69,370,000 66,730,000
Other 5 - 10 yrs. 1,130,000 999,000
Construction in Progress 293,000 444,000
Idle Facilities (see Note 4) 1,227,000 1,227,000
75,083,000 72,463,000
Less Accumulated Depreciation
and Amortization (15,744,000) (13,786,000)
Property - Net $ 59,339,000 $ 58,677,000
</TABLE>
Other Assets. Other assets are stated at cost and amortized,
where appropriate, using various methods over the useful lives of
the assets.
Other assets at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Computer Software $ 604,000 $ 604,000
Deposits 189,000 442,000
Other 348,000 483,000
1,141,000 1,529,000
Less Accumulated Amortization (822,000) (749,000)
Other Assets - Net $ 319,000 $ 780,000
</TABLE>
Goodwill. Goodwill is stated at cost and amortized using the
straight-line method over a period of 40 years and relates to the
Partnerships California refineries. Huntway Partners refineries
are designed to produce asphalt and unfinished light-end
products, and accordingly, are not prone to obsolescence to the
same degree as more sophisticated refineries. The Partnership
continually evaluates the existence of goodwill impairment on the
basis of whether the goodwill is fully recoverable from
projected, undiscounted net cash flows of the two refineries.
The related accumulated amortization at December 31, 1996 and
1995 was $528,000 and $471,000, respectively.
Interest Capitalization. Huntway Partners and Sunbelt capitalize
interest incurred in connection with the construction of refinery
facilities. No interest was capitalized in 1996, 1995, or 1994.
Other Accrued Liabilities. Included in other accrued liabilities
at December 31, 1995, were accrued property taxes of $611,000 and
at December 31, 1996, outstanding property taxes were not
material.
Other Long-Term Obligations. Included in other long-term
obligations are amounts due to the state of Arizona under an
agreement reached in 1993 relating to the Sunbelt Refinery.
Included in current portion of long-term debt and other
obligations is $100,000 at December 31, 1996 and 1995 relating to
this settlement.
Reclassifications. Certain items in the prior years financial
statements have been reclassified to conform to the 1996
presentation.
NOTE 3. FINANCING ARRANGEMENTS
On December 30, 1996, the Partnership completed it restructuring
of its indebtedness with its senior and junior lenders. The
restructuring was completed pursuant to the consummation of a
prepackaged plan of reorganization.
As part of the restructuring warrants exercisable to purchase, an
aggregate of 3,340,757 units and options held by management to
acquire 1,022,000 units were cancelled. The restructuring
provided that new options to purchase 3,415,850 units at $.50 a
unit were issued (2,815,850 issued to Huntway employees and
management) while an option to purchase 546,059 units remained
outstanding. An option for 600,000 units was issued to a
unitholder and consultant at $.50 a unit with the value of such
option included in Related Costs of Refinancing. Accordingly,
as a result of the restructuring and assuming all outstanding
options were exercised, total units outstanding increased from
16,465,066 to 29,304,563.
The agreement provides that interest on the new debt will be 12%
per annum which represents the current market rate for debt with
similar terms and credit rating. Interest on the senior debt is
payable in cash payable 1/6 in the first and second fiscal
quarters and 1/3 in the third and fourth fiscal quarter.
Accordingly, minimum quarterly cash interest payments on the
senior debt will be approximately $440,000 at March 31 and June
30, 1997 and $880,000 at September 30 and December 31, 1997. In
1996, no cash interest was paid on the senior debt, however,
$2,354,000 in 1996 accrued interest was converted to long-term
debt effective December 31, 1996.
The agreement also provides that in 1997, quarterly interest
payments will be made against long-term debt based on a formula
of 50% of excess cash flow as defined. In 1998 through 2005, the
agreement provides for annual sinking fund requirements to fully
amortize all senior debt by December 31, 2005.
The 12% junior subordinated debentures also mature on December
31, 2005. Under the agreement, no principal payments or
prepayments will be made on the junior subordinated debenture
until the senior secured notes are paid in full. Interest on the
junior subordinated debt at 12% is paid only in units based on a
valuation of the unit price as determined on December 1 of each
year. Such payments in units shall not be anti-dilutive to the
senior lender or the options held by management.
The agreement provides for a letter of credit facility of
$17,500,000 through December 31, 1997. This facility provides
for crude purchase, hedging and other activities. Fees for this
facility are 2% on the face amount of any letter of credit issued
up to an aggregate of $14,500,000 and 3% on any letter of credit
issued above that amount. The agreement also provides that all
current assets of the Partnership, including cash will be made
available to collateralize a replacement letter of credit
facility subsequent to 1997.
The Partnerships debt as of December 31, 1996 and December 31,
1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
12% Senior Secured Notes due December 31, 2005 $17,254,000 $ -
Including 12% on Industrial Development Bond
Less 1.75% Related Letter of Credit Fee and
Annual Interest on IDB (3.5725% in 1996)
12% Junior Subordinated Debentures due 2,070,000 -
December 31, 2005
Series 1988 Variable Rate Demand Industrial 8,600,000 8,600,000
Development Bonds (IDB) due September 1, 2008,
Interest on the IDB is Payable Monthly at Rates
Determined Weekly Based on Market Rates for
Comparable Interest (4.3% and 5.75% at
December 31, 1996 and 1995, Respectively) and
Collateralized by a Standby Letter of Credit
Issued by a Bank.
8% Senior Secured Notes due December 31, 2000 - 24,904,000
Subordinated Secured Notes due December 31, 2008 - 53,254,000
Bearing Interest at 4% Per Annum Until the
Earliest of December 31, 2000 or the Retirement
of the 8% Senior Secured Notes and Thereafter
at 121/2% Per Annum
Junior Subordinated Secured Debentures due - 7,587,000
December 31, 2020 and Bearing Interest at 4%
Per Annum until the Retirement of the Senior
Secured Notes and Thereafter at 12% Per Annum ___________ ___________
Total 27,924,000 94,345,000
Less Amount Classified as Current - (94,345,000 )
Net Long-Term Debt $27,924,000 $ -
</TABLE>
All of the Partnerships assets serve as collateral for these
issues.
Minimum required principal payments, as of December 31, 1996,
under the Partnerships debt agreements are as follows:
<TABLE>
<S> <C>
1997 $ -
1998 3,232,000
1999 3,232,000
2000 3,232,000
2001 and Thereafter 18,228,000
$27,924,000
</TABLE>
NOTE 4. PLANT CLOSURE
In August 1993, the Partnership suspended operations at its
Sunbelt refinery located in Coolidge, Arizona. The primary
factors involved in this decision were poor margins at the
facility, limited working capital availability and, to a lesser
extent, the impact of an environmental lawsuit and investigation
filed by the State of Arizona, which was settled in 1993.
Accordingly, at June 30, 1993, the Partnership wrote down the
carrying value of the refinery and related assets by $13,413,000
to their then estimated fair values as well as providing
$2,600,000 for closure and maintenance costs during the shutdown
period.
At December 31, 1995, pursuant to an evaluation of the operating
potential of the facility, the plant was further written down by
$9,492,000 to $1,227,000. This write down considered, among
other things, the outlook for the asphalt market in Arizona, the
regulatory environment impacting both the plant operations as
well as the formulation requirements of diesel and jet fuel in
the markets the plant would serve, as well as the ability of the
Partnership to market those products. This evaluation indicated
and it is the opinion of management that the likelihood of
operation as a petroleum refinery in the future is remote, but
that the facility may be operated effectively as a crude or
products terminal and storage facility at some time in the
future.
Through December 31, 1996, approximately $2,494,000 of closure
and maintenance costs have been charged against the reserve.
NOTE 5. PRIMARY AND EQUIVALENT UNITS OUTSTANDING, EARNINGS PER
UNIT AND ALLOCATION OF INCOME AND LOSS
The 1996 debt restructuring increased limited partnership units
outstanding by 13,786,404 to 25,342,654 from 11,556,250 effective
December 30, 1996. Additionally, as part of the restructuring
warrants exercisable to purchase 3,340,757 units and options held
by management to acquire 1,022,000 units were cancelled. The
debt restructuring provided that new options to purchase
3,415,850 units at $.50 a unit were issued (2,815,450 issued to
Huntway employees and management) while an option to purchase
546,059 units remained outstanding.
Earnings per unit is calculated based upon the weighted average
number of limited partner equivalent units outstanding. Limited
partner equivalent units is calculated by adding to actual
limited partnership units outstanding a general partnership
interest representing an overall 1% interest.
For purposes of earnings per unit computation for the twelve
months ended December 31, 1996 equivalent units outstanding
totaled 12,944,000 versus 11,672,979 in 1995 and 1994. Had the
newly-issued units and stock options been outstanding for all of
1996, equivalent units outstanding would total 26,474,062.
Accordingly, net income per unit for the year would have declined
from $4.36 a unit to $2.13 a unit.
Generally, partnership income and loss are allocated 1% to the
general partners and 99% to the limited partners.
NOTE 6. LEASE COMMITMENTS
The Partnership has entered into certain ground leases for its
refinery facilities. Such leases range from five to 41 years in
duration. All such leases are classified as operating leases.
Future minimum annual rental payments required under operating
leases, which have non-cancelable lease terms in excess of one
year, as of December 31, 1996 are:
<TABLE>
<S> <C>
1997 $ 740,000
1998 347,000
1999 349,000
2000 352,000
2001 and Beyond 834,000
Total $2,622,000
</TABLE>
The Partnership also leases a deep water terminal facility in
Benicia, California. Under terms of the lease agreement, the
Partnership pays minimum annual lease payments of approximately
$539,000 through the year 2031, subject to an escalation clause.
This lease is cancelable upon one years notice and is accounted
for as an operating lease.
Rental expense for all operating leases (some of which have terms
of less than a year) was $1,046,000, $1,022,000 and $1,259,000
for the years ended December 31, 1996, 1995 and 1994,
respectively.
NOTE 7. PROFIT SHARING AND TAX DEFERRED SAVINGS (401K) PLAN AND
PENSION PLAN
The Partnership has a profit sharing and tax deferred savings
(401K) plan and a defined contribution pension plan. The
Partnership contributions to the plans generally vest to
participants on the basis of length of employment. Beginning in
1994, the Partnership matches up to 2% of participants base
compensation to the tax deferred savings (401K) plan.
Profit sharing contributions by the Partnership will be made from
profits in an amount up to 10 percent of the aggregate base
compensation of all participants in the plan, not to exceed the
Partnership current net income. No contributions were made to the
plan during the last three years.
The Partnership also makes a minimum pension contribution equal
to 4% (5% prior to December 31, 1994) of participants base
compensation which is made each year regardless of current
profits or losses.
The amount of the Partnership contributions to the plans charged
to income for the years ended December 31, 1996, 1995 and 1994
were $275,000, $218,000, and $205,000, respectively.
NOTE 8. 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.
NOTE 9. UNIT OPTIONS
In 1996, pursuant to the reorganization plan, the Partnership
created a new option plan for its employees and management
entitled the 1996 Huntway Employee Incentive Option Plan (the
Plan). The plan is administered by the Operating Committee or
by a committee comprised of persons appointed by the Operating
Committee. The 1996 plan terminates on June 30, 2006. No person
serving on the Operating Committee or the plan committee, who is
not an employee of Huntway, is eligible to participate in the
plan.
The new plan was approved by the unitholders, senior lenders and
junior lenders, among others, as well as by the U.S. Bankruptcy
Court pursuant to the confirmation of the Partnerships
prepackaged reorganization plan.
The new plan limits the number of common units which could be
purchased under the plan to 4,000,000 common units and authorized
out of this amount 2,815,850 units be issued commensurate with
the confirmation of the Partnerships prepackaged plan of
reorganization. Accordingly, 2,815,850 units were granted on
December 18, 1996 at an exercise price of $.50 per unit. All
full-time employees of the Partnership at December 18, 1996
received options under the plan.
Also, as part of this plan, 1,022,000 previously-issued options
at exercise prices of $.625 and $1.00 per unit were cancelled,
however, vesting rights under these prior options were retained
as part of the new grant. In addition, restructuring warrants
exercisable to purchase an aggregate of 3,340,757 units held by
the senior lenders were cancelled while an option to purchase
546,059 units held by a unitholder and consultant remained
outstanding.
Of the 2,815,850 units granted on December 18, 1996, 439,600
units were fully vested at the date of grant with 2,376,250 units
vesting on August 22, 1998. In addition, an option for 600,000
units was issued to a unitholder and consultant at $.50 a unit.
Options granted on December 18, 1996 at $.50 a unit pursuant to
the reorganization plan were originally contemplated as part of
the January 8, 1996 debt restructuring term sheet that had been
approved by holders of 86% of senior debt and by all the
Partnerships junior noteholders. The market price of the
Partnerships units at January 8, 1996 was $.375. However, on
December 18, 1996, the unit price was $.6875. Accordingly, in
accordance with Accounting Principles Board Opinion No. 25,
$447,000 in deferred compensation expense will be charged against
Partners capital through 1998 represented by the difference
between the value of the units at the date of grant and the
option price times the number of units vested under the plan. In
1996, $81,000 of such compensation expense was recorded.
The Partnership accounts for its plan in accordance with
Accounting Principles Board Opinion No. 25. Had compensation
cost for the plan been determined consistent with Statement of
Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, pro forma net income and net income per unit
would have been $56,262,000 and $4.35, respectively.
The weighted average fair value of stock options granted during
1996 was $1,380,000. The fair value of stock options was
estimated on the grant date using the Black Scholes option
pricing model with the following weighted average assumptions:
Risk free interest rate of 7%; expected life of five years; and
expected volatility of 73%.
NOTE 10. SIGNIFICANT CUSTOMERS
One customer accounted for approximately 15% of revenues in 1996,
17% in 1995, and 16% in 1994.
PART III
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Huntway Operating Committee
The Partnerships business and affairs are managed by Huntway
Managing Partner, L.P. (the "Managing General Partner") rather
than a board of directors. Similarly, the Managing General
Partner is itself a partnership and its business and affairs are
managed by its general partner, Reprise Holdings, rather than a
board of directors. However, Reprise Holdings, as sole general
partner of the Managing General Partner, has established an
operating committee (the "Operating Committee") to consult with
Reprise Holdings with respect to the management of the Managing
General Partner and the Partnership, and has elected the
following individuals as members of the Operating Committee:
Juan Y. Forster, age 60, has been principally employed as the
President and Chief Executive Officer of Huntway for the past
eight years.
Samuel M. Mencoff, age 40, has been principally employed as a
Vice President of Madison Dearborn Partners, Inc. since January,
1993. Prior to January, 1993, Mr. Mencoff served as Vice
President of First Capital Corporation of Chicago (FCCC). Mr.
Mencoff is sole director, President and Treasurer of Reprise
Holdings and is a general partner of Madison Dearborn Partners
III.
Justin S. Huscher, age 43, has been principally employed as a
Vice President of Madison Dearborn Partners, Inc. since January,
1993. Prior to January, 1993, Mr. Huscher served as a Senior
Investment Manager of First Chicago Investment Corporation, an
affiliate of FCCC. Mr. Huscher is Vice President and Secretary
of Reprise Holdings and is a general partner of Madison Dearborn
Partners III.
Raymond M. OKeefe, age 71, has been principally employed for the
last six years as President and Chief Executive Officer of
Rokmanage, Inc., a management services firm. For that period and
more than the last five years, Mr. OKeefe has served as President
and Chief Executive Officer of A. J. Land Company and Harvard
Gold Mining Company.
Members of the Operating Committee currently receive no
compensation from the Partnership or the Managing General Partner
for their services as members of the Operating Committee. The
Partnership reimburses the Operating Committee members for
expenses incurred in connection with such services.
Section 16 of the Securities and Exchange Act of 1934, as
amended, requires the Partnerships executive officers, members of
the Operating Committee and persons who beneficially own greater
than 10% of the Units to file reports of ownership and changes in
ownership with the SEC. Based solely upon its review of copies
of the Section 16 reports the Partnership has received, the
Partnership believes that during its fiscal year ended December
31, 1994, all of its executive officers, members of the Operating
Committee and greater than 10% beneficial owners were in
compliance with their filing requirements
Partnership Officers
The following list sets forth: (i) the name and age of each
officer of the Partnership; (ii) the year in which each such
person first joined the Partnership; and (iii) all positions with
the Partnership presently held by each person named.
<TABLE>
<CAPTION>
Year Joined
Name Age Huntway Office
<S> <C> <C> <C>
Juan Y. Forster 60 1979 President & Chief Executive Officer
Lucian A. Nawrocki 51 1982 Executive Vice President,
Asphalt Sales
Warren J. Nelson 46 1993 Executive Vice President
& Chief Financial Officer
Terrance L. Stringer 55 1992 Executive Vice President
Charles R. Bassett 61 1982 Manager of Operations/Benicia
William G. Darnell 60 1982 Vice President & General
Manager/Benicia
Earl G. Fleisher 46 1991 Controller and Tax Manager
Michael W. Miller 38 1979 Manager of Operations/Wilmington
</TABLE>
Each of the persons named above has had the position with Huntway
set forth above for the past five years, except as follows:
Lucian A. Nawrocki has been employed as the Executive Vice
President of Asphalt Marketing since 1993. From 1982 to 1993, he
served as Manager of Asphalt Sales at the Wilmington refinery.
Warren J. Nelson served as Executive Vice President and Chief
Financial Officer of Everest and Jennings International, Ltd,
from 1990 to 1992, as Acting Chief Financial Officer, Controller
and Chief Accounting Officer of Smith International, Inc. in
1990, and as Controller and Chief Accounting Officer of Smith
International, Inc. from 1988 through 1989.
Terrance L. Stringer served for three years as Vice President,
Supply and Marketing with Golden West Refining prior to joining
Huntway in early 1992. Prior to that he served in a variety of
management positions with TOSCO Corporation.
Earl G. Fleisher joined Huntway as Tax Manager in May of 1991 and
was appointed Controller in 1993. Prior to joining Huntway, Mr.
Fleisher was employed by Deloitte & Touche, LLP from 1979 to
1991.
Item 11. EXECUTIVE COMPENSATION
Operating Committee Compensation
The Company does not pay any salaried employee of the Company
additional compensation for service on the Operating Committee,
and does not pay any fee for participation on, or as a result of,
attending Operating Committee meetings for those members of the
Operating Committee who are not salaried employees of the
Company. The Committee does reimburse Operating Committee
members for out-of-pocket costs associated with attending
Operating Committee meetings (such as travel costs, food and
lodging).
Compensation Committee Interlocks and Insider Participation
Messrs. Mencoff, OKeefe and Forster are members of the
Compensation and Benefits Committee. During 1995, neither Mr.
Mencoff or Mr. OKeefe were officers or employees of the Company,
or any of its subsidiaries, nor did any of them have any
relationship with the Company requiring disclosure by the Company
under Item 404 of Regulation S-K. From 1987 through the present,
Mr. Forster has been President and Chief Executive Officer of the
Company.
Executive Compensation
Cash Compensation
The following summary compensation table shows certain
compensation information for the Chief Executive Officer and the
four other most-highly compensated officers. The information
includes the dollar value of base salaries, bonus awards and
long-term incentive plan payments, the number of stock options
granted and certain other compensation paid during the fiscal
years ended December 31, 1996, 1995 and 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
Salary Bonus(1) Other Annual Option
Name and Principal Position Year $ $ Compensation(2)
Grants(3)
<S> <C> <C> <C> <C> <C>
J. Y. Forster 1996 $280,659 $111,000 $18,500 560,250
President and Chief
Executive Officer 1995 260,474 - 18,500 -
1994 256,000 - - -
L. A. Nawrocki 1996 150,614 56,000 - 272,500
Executive Vice President
Asphalt 1995 135,000 - - -
Marketing 1994 129,000 - - -
W. J. Nelson 1996 205,284(4) 76,000 18,500 615,000
Executive Vice President
and 1995 155,000 - 18,500 -
Chief Financial Officer 1994 155,000 - - -
T. L. Stringer 1996 179,898 70,000 18,500 295,000
Executive Vice President
Supply and 1995 162,000 - 18,500 -
Planning 1994 159,000 - - -
W. G. Darnell 1996 117,987 50,000 - 192,500
Vice President and General
Manager -- 1995 110,000 - - -
Benicia 1994 104,000 - - -
</TABLE>
(1) Bonus paid in cash totaled $35,000 for Mr. Forster, $25,000
for Mr. Nawrocki, $35,000 for Mr. Nelson, $43,000 for Mr.
Stringer and $22,000 for Mr. Darnell. The balance of 1996
bonus award of $76,000 for Mr. Forster, $31,000 for Mr.
Nawrocki, $41,000 for Mr. Nelson and $28,000 for Mr. Darnell
will be paid in cash based on an evaluation of Partnership
cash flow but no later than December 31, 1998.
(2) All amounts shown represent increased monthly compensation
of $1,850 beginning March 1995 for Mr. Forster, Mr. Nelson
and Mr. Stringer in lieu of receiving Company-paid
automobiles. Company-paid automobiles were provided for
Forster, Nelson and Stringer in 1994 and through February
1995 and are still currently being provided to Mr. Nawrocki
and Mr. Darnell as they were in 1994 and 1995.
(3) 1995 and 1996 grants vest on August 22, 1998.
(4) Includes $16,667 in retroactive salary adjustment earned in
1995 but paid in 1996.
The following table sets forth the option grants made to the
named executive officers of Huntway during the last fiscal year.
There were no other long-term incentive plan grants made during
1996.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
% of Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Annual Rates of Stoc
Underlying EmployeesExercise Appreciation for Opt
Name and Options in FiscalPrice ExpirationTerm (2)
Principal Position Granted(1) Year $ per Unit Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
J. Y. Forster 560,250 20% $0.500 12/18/06 $173,678 $448,200
President and
Chief Executive Officer
L. A. Nawrocki 272,500 10% 0.500 12/18/06 84,475 218,000
Executive Vice President
Asphalt Marketing
W. J. Nelson 615,000 22% 0.500 12/18/06 190,650 492,000
Executive Vice President and
Chief Financial Officer
T. L. Stringer 295,000 10.5% 0.500 12/18/06 91,450 236,000
Executive Vice President
Supply and Planning
W. G. Darnell 192,500 7% 0.500 12/18/06 59,675 154,000
Vice President and
General Manager -- Benicia
Total 2,815,850 69.5% $599,928 $1,548,200
</TABLE>
(1) Non-qualified options were granted at $.50 a unit on December
18, 1996 when unit price on that date was $.6875. Options
vest on August 22, 1998. In the event of any change of
control of the Partnership, as defined, then each option will
immediately become fully exercisable as of the date of the
change of control.
(2) 5% compounded growth results in final unit price of $.81 and
10% compounded growth results in final units price of $1.30.
The following table sets forth the aggregate options exercised in
the last fiscal year and fiscal year end option values for the
named executive officers.
<TABLE>
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
Shares Number of Securities Value of Unexer In-
Acquired Underlying Unexercised The-Money Opts at
Name and on Value Options at Fiscal Year End Fiscal Year End(1)
Position Exercise Exercised Exercisable Unexercisable Exercis Unexe
<S> <C> <C> <C> <C> <C> <C>
J. Y. Forster - - 78,750 481,500 $24,570 $150,228
President and
Chief Executive Officer
L. A. Nawrocki - - 27,500 245,000 8,580 76,440
Executive Vice President
Asphalt Marketing
W. J. Nelson - - 125,000 490,000 39,000 152,880
Executive Vice President and
Chief Financial Officer
T. L. Stringer - - 50,000 245,000 15,600 76,440
Executive Vice President
Supply and Planning
W. G. Darnell - - 20,000 170,000 6,240 53,040
Vice President and
General Manager -- Benicia
Total - - 301,250 1,631,500 $93,99 $509,028
</TABLE>
(1) Based on the closing price of $.812 of the common units on
the New York Stock Exchange on December 31, 1996.
Compensation Pursuant to Plans
Pension Plan. The Partnership currently has in effect a defined
contribution pension plan as well as a 401-K deferred savings and
profit sharing plan. Pursuant to the terms of the pension plan,
each year Huntway contributes to the plan an amount equal to 4%
of each employees annual base compensation which includes base
salary and overtime, but excludes any cash bonuses. Each full-
time employee of Huntway participates in the pension plan.
Contributions made to the pension plan vest in equal increments
over a period beginning upon completion of two years of service
and ending upon completion of seven years of service. The terms
of the 401-K deferred savings plan provide that the Partnership
match the employees contributions up to 2% of qualifying
compensation. For the year ended December 31, 1995, Huntway paid
or accrued $60,000 to these plans on behalf of its officers as a
group.
Item 12. Principal Unitholders
The following tables set forth information regarding the number
of Limited Partnership Units owned as of March 4, 1997 by each
person known by the Partnership to be the beneficial owner of
more than five percent of all Limited Partnership Units
outstanding. Except as indicated below, each of the persons
named in the table has sole voting and investment power with
respect to the Units set forth opposite his or its name.
<TABLE>
Beneficial Ownership
<CAPTION>
Beneficial Owner Units Interest
Common Units:
<S> <C> <C>
First Capital Corporation 5,238,534 (1) 20.67%
of Chicago
One First National Plaza
Chicago, IL 60670
Bankers Trust Company 6,928,417 (2) 27.34%
280 Park Avenue
New York, New York 10017
Massachusetts Mutual Life 3,830,279 (2) 15.11%
Insurance Company
1295 State Street
Springfield, MA 01111
Mr. Andre Danesh 2,060,059 (3) 7.80%
Allied Financial Corp.
1583 Beacon Street
Brookline, MA 02146
All Officers and Operating 4,603,028 (2)(4) 16.35%
Committee Members as a Group
(12 persons)
</TABLE>
1) Includes 653,286 units held by Reprise Holdings, Inc. First
Capital Corporation of Chicago and Madison Dearborn Partners
III own all of the outstanding common stock of Reprise
Holdings, Inc.
2) Includes 62,500 and 446,973 Units held by Madison Dearborn
Partners VI and Madison Dearborn Partners III, respectively.
Samuel M. Mencoff and Justin S. Huscher, members of the
Operating Committee, serve as general partners of such
entities but disclaim beneficial ownership of Units held by
such entities. Also includes 653,286 Units held by Reprise
Holdings, Inc. Mr. Mencoff is the President and sole director
of Reprise Holdings, Inc. See also Note 1 above. Mr. Mencoff
disclaims beneficial ownership of the Units held by Reprise
Holding, Inc.
3) Includes options to acquire 1,146,059 units exercisable at
$.50 a unit.
4) Includes options to acquire 2,815,850 Units exercisable at
$.50 a unit.
Item 13. Certain Transactions
None.
Exhibit
Number Description of Exhibit
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
The financial statement schedules and exhibits listed below are filed as a
part of this annual report.
(a)(2) Financial Statements Schedules
None
The financial statements schedules of the Partnership are omitted because of
the absence of the conditions under which they are required or because the
required information is included in the financial statements or notes thereto.
(a)(3) Exhibits
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Agreement of Limited Partnership of Huntway
Partners, L.P. (incorporated by reference herein to Exhibit A to
the Prospectus included in the Registration Statement on Form S-1,
filed September 26, 1988, Registration
No. 33-24445).
3.2 Huntway Partners, L.P. Bylaws (incorporated by reference
herein to Exhibit 3.2 of the Registration Statement on
Form S-1, as amended by Amendment No. 2, filed November 2,
1988, Registration No. 33-24445).
3.3 Amendment of Agreement of Limited Partnership of Huntway
Partners, L.P. dated as of December 20, 1989 (incorporated
by reference herein to Exhibit 3.3 of the Annual Report on
Form 10-K, filed March 30, 1990, Commission file No. 1-10091)
3.4 Amendment of Agreement of Limited Partnership of Huntway
Partners, L.P. dated as of December 12, 1996 (incorporated
by reference herein to Appendix E of the Consent Solicitation and
Disclosure Statement on Schedule 14A, filed October 15, 1996,
Commission
file No. 1-10091)
4 Deposit Agreement by and among Huntway Partners, L.P.,
Bankers Trust Company and Huntway Managing Partner, L.P.
(incorporated by reference herein to Exhibit 4 of the Annual
Report on Form 10-K, filed March 29, 1989, Commission file
No. 1-10091)
Exhibit
Number Description of Exhibit
10.1 Amended and Restated Agreement of Limited Partnership of
Huntway Managing Partner, L.P. dated as of December 22,
1989 (incorporated by reference herein to Exhibit 10.1 of
the Annual Report on Form 10-K, filed March 30, 1990,
Commission file No. 1-10091)
10.2 Amended and Restated Agreement of Limited Partnership of
Huntway Holdings, L.P. dated as of December 22, 1989
(incorporated by reference herein to Exhibit 10.12 of
the Annual Report on Form 10-K, filed March 30, 1990,
Commission file No. 1-10091)
10.3 Second Amended and Restated Agreement of Limited Partnership
of Sunbelt Refining Company, L.P. (incorporated by reference
herein to Exhibit 10.8 of the Annual Report on Form 10-K,
filed March 30, 1990, Commission file No. 1-10091)
10.4 Amended and Restated Ground Lease dated as of July 31,
1987 by and between Industrial Asphalt and Huntway Refining
Company (incorporated by reference herein to Exhibit 10.7
of the Registration Statement on Form S-1, filed September 26,
1988, Registration No. 33-24445).
10.5 Huntway Partners, L.P. Amended and Restated Profit Sharing
and Tax Deferred Savings Plan (incorporated by reference
herein to Exhibit 10.2 of the Annual Report on Form 10-K,
filed March 29, 1989, Commission file No. 1-10091)
10.6 Huntway Partners, L.P. Money Purchase Pension Plan
(incorporated by reference herein to Exhibit 10.4 of the
Registration Statement on Form S-1, filed September 26,
1988, Registration No. 33-24445).
10.7 Indenture dated as of December 12, 1996 between the Registrant and
Fleet National Bank, relating to the 12% Senior Secured Notes Due
2005, including related security documents, guaranties and forms
of securities (Incorporated by reference herein to Exhibit 4.1 of
the report on Form 8-K filed December 27, 1996, Commission File
No. 1-0091)
10.8 Indenture dated as of December 12, 1996 between the Registrant and
IBJ Schroder Bank & Trust Company, relating to the Junior
Subordinated Notes Due 2005, including the forms of security.
(Incorporated by reference herein to Exhibit 4.2 of the report on
Form 8-K filed December 27, 1996, Commission File No. 1-0091)
10.9 Registration Rights Agreement dated as of December 12, 1996 by and
among Huntway Partners, L.P. and certain of its security holders
named therein. (Incorporated by reference herein to Exhibit 4.4 of
the report on Form 8-K filed December 27, 1996, Commission File
No. 1-0091)
Exhibit
Number Description of Exhibit
10.10 Unitholders Agreement dated as of December 12, 1996 by and among
Huntway Partners, L.P. and certain of its Unitholders named
therein. (Incorporated by reference herein to Exhibit 4.3 of the
report on Form 8-K filed December 27, 1996, Commission File No. 1-
0091)
10.11 Letter of Credit and Reimbursement Agreement Dated as of
June 22, 1993 between Huntway Partners, L.P., Sunbelt
Refining Company, L.P. and Bankers Trust Company
(incorporated by reference herein to Exhibit 10.31 of the
Current Report on Form 8-K, filed July 13, 1993, Commission
file No. 1-10091)
10.12 First Amendment to Letter of Credit and Reimbursement Agreement Dated as
of December 12, 1996 between Huntway Partners, L.P., Sunbelt Refining
Company, L.P. and Bankers Trust Company 52
10.13 Huntway Partners, L.P. 1996 Employee Incentive Option Plan dated as of
December 12, 1996 (incorporated by
reference herein to Appendix C of the Consent Solicitation and Disclosure
Statement on Schedule 14A filed
October 15, 1996. Commission file No. 1-10091).
10.14 Indemnification Agreement dated as of November 9, 1988
(incorporated by reference herein to Exhibit 10.12 of the
Annual Report on Form 10-K, filed March 29, 1989,
Commission file No. 1-10091)
10.15 Definitive Agreement between Huntway Partners, L.P. and
Reprise Holdings, L.P. dated as of May 3, 1990
(incorporated by reference herein to Exhibit 10.14 of
the Quarterly Report on Form 10-Q, filed May 15, 1990,
Commission file No. 1-10091)
10.16 Termination Agreement (incorporated by reference herein to
Exhibit 10.41 of the Current Report on Form 8-K, filed
July 13, 1993, Commission file No. 1-10091)
21 Schedule of Subsidiaries (incorporated by reference herein to
Exhibit 22 of the Registration Statement on Form S-1, as
amended by Amendment No. 2, filed November 2, 1988,
Registration No. 33-24445).
99.1 Complaint in Neal v. Forster, et al., No. 92-7264 SVW
(C.D. Cal.) (incorporated by reference herein to Exhibit
28.5 of the Current Report on Form 8-K, filed March 1, 1993,
Commission file No. 1-10091)
Exhibit
Number Description of Exhibit
99.2 Complaint in Van Elgort et al. v. Huntway Partners, L.P.,
et al., No. 92-7314R (C.D. Cal.) (incorporated by
reference herein to Exhibit \28.6 of the Current Report
on Form 8-K, filed March 1, 1993, Commission file No. 1-10091)
(b) Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Huntway Partners, L.P. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 31st day of March, 1997.
HUNTWAY PARTNERS, L.P.
By: /s/ Juan Y. Forster
Juan Y. Forster
Chairman of the Operating Committee
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated on March 31, 1997.
Signature Title
/s/ Juan Y. Forster
Juan Y. Forster Member of Operating Committee
and
Chief Executive Officer
/s/ Warren J. Nelson
Warren J. Nelson Executive Vice President and
Chief Financial and Accounting
Officer
/s/ Justin S. Huscher
Justin S. Huscher Member of Operating Committee
/s/ Samuel M. Mencoff
Samuel M. Mencoff Member of Operating Committee
/s/ Raymond M. OKeefe
Raymond M. OKeefe Member of Operating Committee
- 68 -
- - 1 -
- - 55 -
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 5148
<ALLOWANCES> 0
<INVENTORY> 3399
<CURRENT-ASSETS> 14474
<PP&E> 75083
<DEPRECIATION> 15744
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0
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<OTHER-EXPENSES> 4297
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</TABLE>
FIRST AMENDMENT TO
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
This FIRST AMENDMENT TO LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT (this "First Amendment") is dated as
of December 12, 1996, and entered into by and among HUNTWAY
PARTNERS, L.P., a Delaware limited partnership ("Huntway"),
SUNBELT REFINING COMPANY, L.P., a Delaware limited
partnership ("Sunbelt"), and BANKERS TRUST COMPANY
("Bankers"), and is made with reference to that certain
Letter of Credit and Reimbursement Agreement dated as of
June 22, 1993 (the "Letter of Credit Agreement"), by and
among the Huntway, Sunbelt and Bankers. Capitalized terms
used herein without definition shall have the same meanings
herein as set forth in the Letter of Credit Agreement or in
the Intercreditor Agreement referred to below.
RECITALS
WHEREAS, Huntway is a debtor and debtor in
possession under chapter 11 of Title 11 of the United States
Code, having commenced a bankruptcy case on November 12,
1996;
WHEREAS, on November 12, 1996, Huntway submitted
to the United States Bankruptcy Court for the District of
Delaware (the "Court") a Plan of Reorganization dated
November 12, 1996 (the "Plan'), and on December 12, 1996,
the Court confirmed the Plan;
WHEREAS, the parties hereto desire to amend the
Letter of Credit Agreement for the purpose of (i) providing
that the commitment of Bankers to issue Letters of Credit
under the Letter of Credit Agreement shall expire on
December 31, 1997, (ii) providing that all letters of credit
issued under the Postpetition DIP LC Agreement dated as of
November 12, 1996 between Huntway, as debtor and debtor in
possession, and Bankers Trust Company that remain
outstanding on the Plan Effective Date shall be deemed to be
letters of credit hereunder, (iii) revising certain
definitions, covenants and events of default in the Letter
of Credit Agreement to reflect the transactions under the
Plan and (iv) making other revisions as set forth herein;
WHEREAS, it is a condition precedent to the
effectiveness of the Plan that the parties hereto have
entered into this Amendment;
NOW, THEREFORE, in consideration of the premises
and the agreements, provisions and covenants herein
contained, the parties hereto agree as follows:
I. Section AMENDMENTS TO THE LETTER OF CREDIT
AGREEMENT
A. Amendments to Article I: Definitions
1. Section 1.01 of the Letter of Credit
Agreement is hereby amended by deleting the definitions of
"Collateral," "Collateral Account Agreement,"
"Collateralized Note Indenture," "Commitment Termination
Date," "Intercreditor Agreement," "Restructuring Agreement,"
"Security Documents," and "Senior Notes" therefrom in their
entirety and substituting the following therefor:
"Collateral" means all real and personal property
of Huntway and Sunbelt on which a lien exists for the
benefit of Bankers in its capacity as letter of credit
issuer under this Agreement and the holders of the
Senior Notes, subject to the terms of the Intercreditor
Agreement.
"Collateral Account Agreement" means that certain
Collateral Accounts Security Agreement dated as of
December 12, 1996 by and among Huntway, Sunbelt and
Collateral Agent, as the same may be amended from time
to time.
"Collateralized Note Indenture" means that certain
Amended and Restated Collateralized Note Indenture
dated as of December 12, 1996, by and between the
Company and the Collateralized Note Indenture Trustee,
pursuant to which the Senior Notes are issued, as it
may be amended, amended and restated, supplemented or
modified from time to time.
"Commitment Termination Date" means (i) with
respect to the IDB Letter of Credit, requests to extend
or renew the IDB Letter of Credit and fees payable with
respect thereto, December 31, 2005 and (ii) with
respect to Letters of Credit, requests to issue, extend
or renew Letters of Credit and fees payable with
respect thereto, December 31, 1997.
"Intercreditor Agreement" means that certain
Intercreditor and Collateral Trust Agreement dated as
of December 12, 1996, by and among Bankers (in its
capacity as issuer of Letters of Credit hereunder), the
financial institutions named therein in their capacity
as holders of Senior Notes, Fleet National Bank, as
trustee under the Collateralized Note Indenture and
Collateral Agent, as it may be amended, supplemented or
modified from time to time.
"Security Documents" means the Collateral
Documents (as such term is defined in the Intercreditor
Agreement), which create or perfect security interests
for obligations under this Agreement and under the
Collateralized Note Indenture.
"Senior Notes" means the Senior Notes (Other) and
the Senior Notes (Sunbelt IDB).
1. Section 1.01 of the Letter of Credit
Agreement is hereby further amended by adding the following
definitions thereto, which shall be inserted in proper
alphabetical order:
"DIP Letter of Credit Agreement" means that
certain Debtor-in-Possession Letter of Credit and
Reimbursement Agreement between Huntway Partners, L.P.,
as debtor and debtor in possession, and Bankers Trust
Company.
"DIP Letters of Credit" means all letters of
credit issued under the DIP Letter of Credit Agreement.
"Interest Drawing" means any drawing under the IDB
Letter of Credit for the purpose of paying interest
coming due on the IDB Bonds. If any drawing under the
IDB Letter of Credit is applied to the payment of both
interest on the IDB Bonds and principal, premium and
other amounts other than interest, it shall be deemed a
Principal Drawing to the extent that such drawing is
applied to the payment of principal, premium and
amounts other than interest and an Interest Drawing to
the extent proceeds of such drawing are applied to pay
interest on the IDB Bonds.
"Plan Effective Date" means the date that the Plan
of Reorganization of Huntway, dated November 12, 1996,
confirmed by the United States Bankruptcy Court for the
District of Delaware on December 12, 1996, becomes
effective.
"Principal Drawing" means any drawing under the
IDB Letter of Credit for the purpose of paying the
principal, premium, if any or other amounts coming due
and payable on the IDB Bonds, other than interest. If
any drawing under the IDB Letter of Credit is applied
to the payment of both interest on the IDB Bonds and
principal, premium and other amounts other than
interest, it shall be deemed a Principal Drawing to the
extent that such drawing is applied to the payment of
principal, premium and amounts other than interest and
an Interest Drawing to the extent proceeds of such
drawing are applied to pay interest on the IDB Bonds.
"Senior Notes (Other)" means those certain 12%
Senior Secured Notes (Other) due 2006 issued by Huntway
pursuant to the Collateralized Note Indenture
(including any secondary securities (as defined in the
Collateralized Note Indenture) but excluding the Senior
Notes (Sunbelt IDB)) in the original aggregate
principal amount of $14,400,000.00.
"Senior Notes (Sunbelt IDB)" means those certain
12% Senior Secured Notes (Sunbelt IDB) due 2006 issued
by Huntway pursuant to the Collateralized Note
Indenture in the original aggregate principal amount of
$9, 100,000.
1. Section 1.01 of the Letter of Credit
Agreement is hereby further amended by deleting the
definitions of "Priority Notes," 'Secondary Securities,"
"Subordinated Note Indenture," "Subordinated Notes,"
"Subordinated Notes (Other)," and "Subordinated Notes
(Sunbelt IDB)" therefrom in their entirety.
1. Section 1.01 of the Letter of Credit
Agreement is hereby further amended by deleting the phrase
"Section 410(f)" from clause (xii) of the definition of
"Permitted Liens' and substituting therefor the phrase
"Section 410(g)".
A. Amendments to Article II: Amount and
Terms of Letters of Credit
1. Section 2.01A of the Letter of Credit
Agreement is hereby amended by deleting the phrase
"Subordinated Note" therefrom and substituting therefor the
phrase "Senior Note".
1. Section 2.01A of the Letter of Credit
Agreement is hereby further amended by adding the following
paragraph to the end thereof:
"Huntway, Sunbelt and Bankers agree that any DIP
Letters of Credit outstanding on the Plan Effective
Date shall for all purposes be deemed to have been
issued under and pursuant to the terms of this
Agreement, and all obligations of Huntway and Sunbelt
under the DIP Letter of Credit Agreement that shall not
have been paid in full on the Plan Effective Date shall
be obligations of Huntway and Sunbelt hereunder.'
1. Section 2.01B of the Letter of Credit
Agreement is hereby amended by deleting it in its entirety
and substituting the following therefor:
"B. Letter of Credit Commitment.
(i) Bankers' commitment to issue and amend
Letters of Credit pursuant to this Section 2.01 from
the Effective Date to and excluding the Commitment
Termination Date is herein referred to as its 'Letter
of Credit Commitment'. The maximum aggregate amount of
the Letter of Credit Commitment of Bankers at any time
is $17,500,000 (the amount available pursuant to
Section 2.01D(i) at any date of determination being the
'Letter of Credit Commitment Amount') and the Letter of
Credit Commitment shall expire on the Commitment
Termination Date. If Huntway requests an increase in
the Letter of Credit Commitment Amount as a result of
increases in the price of crude oil, Bankers shall
respond promptly to such request; provided that,
subject to the following sentence, Bankers shall accept
or deny such request in its sole and absolute
discretion. To the extent Bankers agrees with such
request, no such increase shall become effective until
the consents required by Section 425 of the
Collateralized Note Indenture have been obtained
(provided that the Requisite Holders (as defined in
such indenture) may withhold such consent in their sole
and absolute discretion) and this Agreement has been
appropriately amended. The aggregate face amount of
all Letters of Credit outstanding under this Agreement
shall not exceed the Letter of Credit Commitment
Amount.
(ii) Bankers agrees to extend the Stated
Termination Date of the IDB Letter of Credit from time
to time from the Effective Date to and excluding the
Commitment Termination Date in accordance with the
terms thereof and hereof (the 'IDB Letter of Credit
Commitment'); provided that in no event shall Bankers
amend the IDB Letter of Credit in a manner that would
result in the IDB Letter of Credit having (x) a Stated
Termination Date later than the Commitment Termination
Date or (y) a Stated Termination Date more than 9
months after the date of its most recent amendment.
The IDB Letter of Credit shall not be included within
the defined term 'Letter of Credit' and the amount
available for drawing thereunder shall not be included
in determining usage or availability of the Letter of
Credit Amount. Sunbelt's obligation to reimburse
Bankers for any drawing under the IDB Letter of Credit
has been assumed by Huntway pursuant to the Huntway
Assumption Agreement and is evidenced in part by the
Senior Note (Sunbelt IDB) and in part hereby. No
commission shall be payable hereunder with respect to
the IDB Letter of Credit. Bankers agrees to surrender
the Senior Note (Sunbelt IDB) (or, if any Senior Note
(Sunbelt IDB) has been previously exchanged for or
converted into a Senior Note (Other), such Senior Note
(Other)) for cancellation or exchange for a Senior Note
(Sunbelt IDB) (or, if any Senior Note (Sunbelt IDB) has
been previously exchanged for or converted into a
Senior Note (Other), a Senior Note (Other)) of a lesser
principal amount in accordance with the provisions of
the Collateralized Note Indenture upon, in the case of
an exchange, any reduction in the maximum amount
available for drawing thereunder (other than as a
result of a drawing thereunder) or upon, in the case of
a cancellation, the expiration of the IDB Letter of
Credit without any drawing having been made
thereunder.-
1. Section 2.02(ii) of the Letter of Credit
Agreement is hereby amended by deleting it in its entirety
and substituting the following therefor:
"(ii) Huntway hereby agrees to pay to Bankers
on the date that any Interest Drawing is honored under
the IDB Letter of Credit, a sum equal to the amount of
such drawing. If Huntway shall fail to reimburse
Bankers in full following any Interest Drawing in
accordance with the immediately preceding sentence,
Bankers shall be entitled to surrender the Senior Note
(Sunbelt IDB) for exchange under the Collateralized
Note Indenture for (a) a Senior Note (Other) dated the
date of such drawing in a principal amount equal to the
amount of the unreimbursed portion of such Interest
Drawing and (b) a Senior Note (Sunbelt IDB) dated the
date of the Senior Note (Sunbelt IDB) surrendered for
exchange in a principal amount equal to the principal
amount of the Senior Note (Sunbelt IDB) surrendered for
exchange minus the principal amount of the Senior Note
(Other) received pursuant to clause (a) of this Section
2.02(ii). Promptly after any Principal Drawing under
the IDB Letter of Credit, Bankers shall surrender the
Senior Note (Sunbelt IDB) for exchange under the
Collateralized Note Indenture for (x) a Senior Note
(Other) dated the date of such Principal Drawing in a
principal amount equal to the amount of such drawing
and (y) a Senior Note (Sunbelt IDB) dated the date of
the Senior Note (Sunbelt IDB) surrendered for exchange
in a principal amount equal to the principal amount of
the Senior Note (Sunbelt IDB) surrendered for exchange
minus the principal amount of the Senior Note (Other)
received pursuant to clause (x) of this Section
2.02(ii)."
A. Amendments to Article IV:
Representations and Warranties
1. Section 4.01(h) of the Letter of Credit
Agreement is hereby amended by deleting each reference to
the phrase "December 31, 1992" therefrom and substituting
therefor the phrase "December 31, 1995".
A. Amendments to Article V: Covenants
1. Section 5.01 of the Letter of Credit
Agreement is hereby amended by adding thereto new clauses
(d) and (e) as follows:
"(d) Promptly after each payment by Huntway in
respect of the Senior Notes (Sunbelt IDB) pursuant to
Section 3.07(d) or 3.07(e) of the Collateralized Note
Indenture and each redemption (whether in whole or
part) of the Senior Notes (Sunbelt IDB) pursuant to
Article 10 of the Collateralized Note Indenture,
Sunbelt will direct the trustee under the IDB Indenture
to redeem Sunbelt Bonds in an aggregate principal
amount equal to the amount of such payment or
redemption.
(e) Without limiting the generality of Section
409 of the Collateralized Note Indenture, the Company
will not merge or be consolidated with or transfer
substantially all of its business, property and assets
to a corporation unless (i) such corporation has at the
time of such merger, consolidation or transfer no
liabilities other than those transferred to it by the
Company, (ii) on or before such merger, consolidation
or transfer, such corporation shall assume all
obligations of the Company hereunder and under the
Collateral Documents (as 'Collateral Documents' is
defined in the Intercreditor Agreement) pursuant to an
assumption agreement in form and substance satisfactory
to Bankers and (iii) on or before such merger,
consolidation or transfer, the definitions, covenants
and other provisions of this Agreement shall have been
amended in order to provide Bankers with the same scope
and degree of protections hereunder after such merger,
consolidation or transfer that would exist hereunder
had such merger, consolidation or transfer not
occurred."
1. Section 6.01(xv) of the Letter of Credit
Agreement is hereby amended deleting it in its entirety and
substituting the following therefor:
"(xv) the General Partner and the Special General
Partner shall cease to be the sole general partners of
Huntway or Huntway shall cease to be the Sunbelt
Managing General Partner; provided, that the General
Partner and the Special General Partner shall not be
required to be general partners of Huntway if Huntway
shall convert to corporate form in accordance with the
terms of that certain letter agreement dated July 22,
1996 by and among Huntway Partners, L.P., Bankers Trust
Company, Huntway Holdings, L.P., Massachusetts Mutual
Life Insurance Company, Mellon Bank, N.A., as Trustee,
Oppenheimer & Co., Inc., for itself and as agent, First
Chicago Equity Corporation and Madison Dearborn
Partners III."
A. Amendments to Article VI: Events of
Default
1. Section 6.02 of the Letter of Credit
Agreement is hereby amended by deleting it in its entirety
and substituting the following therefor:
"SECTION 6.02. Upon an Event of Default.
(a) If an Event of Default described under
Section 6.01(viii) or 6.01(ix) occurs, any and all
Obligations (i) then owing or (ii) which would become
owing upon a drawing of any amount available under any
Letter of Credit or the IDB Letter of Credit
(including, without limitation, the obligation to
exchange the Senior Note (Sunbelt IDB) for a Senior
Note (Other) in a like amount) shall automatically
become due and payable (and such exchange of Senior
Notes (Sunbelt IDB) for Senior Notes (Other) shall be
accomplished by an automatic conversion) and the
Commitment of Bankers to issue or amend any Letters of
Credit or the IDB Letter of Credit shall be
automatically terminated. Any amounts described in
clause (ii) above when received by Bankers shall be
delivered to the Collateral Agent pursuant to the
Collateral Account Agreement as cash collateral for the
Obligations and for the Senior Notes, as required by
the Intercreditor Agreement.
(b) If any Event of Default ;hall have occurred
and be continuing (including under Section 6.01(viii)
or 6.01(ix) with respect to clause (iii) below),
Bankers may, in its sole discretion, but shall not be
obligated to, (i) by notice to Huntway and Sunbelt,
declare the Commitment of Bankers to issue or amend any
Letters of Credit or the IDB Letter of Credit to be
terminated, whereupon the same shall forthwith
terminate, (ii) declare any and all Obligations (x)
then owing and (y) which would become owing upon a
drawing of any amount available under any Letter of
Credit or the IDB Letter of Credit (including, without
limitation, the obligation to exchange the Senior Note
(Sunbelt IDB) for a Senior Note (Other) in a like
amount) to be immediately due and payable, or (iii)
exercise any other remedy available to it at law, in
equity or otherwise. Any amounts described in clause
(y) above when received by Bankers shall be delivered
to the Collateral Agent pursuant to the Collateral
Account Agreement as cash collateral for the
Obligations and for the Senior Notes, as required by
the Intercreditor Agreement."
A. Amendments to Article VII:
Miscellaneous
1. Section 7.02 of the Letter of Credit
Agreement is hereby amended by deleting it in its entirety
and substituting the following therefor:
"SECTION 7.02. Notice, Etc. All notices, demands
and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing
(including telex or facsimile notice with telephonic
confirmation) and mailed, sent or delivered, if to
Huntway or Sunbelt at 25129, The Old Road, Suite 322,
Newhall, California 91381, to the attention of the
Chief Financial Officer, and in the case of telecopy to
telecopy no.: (805) 286-1588; if to Bankers, in the
case of deliveries or mailings, at its address at One
Bankers Trust Plaza, Mail Stop 2283, 130 Liberty
Street, 28th Floor New York, New York, 10006 and in the
case of telecopy, to telecopy no.: (212) 669-1575, in
each case Attention: Carl O. Roark, Managing Director,
or, as to each party, to such other Person and/or at
such other address or number as shall be designated by
such party in a written notice to each other party.
All such notices and communications shall be effective
when mailed or sent, addressed as aforesaid, except
that notices to Bankers pursuant to the provisions of
Article II shall not be effective until received by
Bankers. Notices of any Potential Event of Default
shall be sent by Huntway or Sunbelt to Bankers by telex
or telecopy (with immediate telephonic confirmation)."
I. Section CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective
only upon the satisfaction of the following condition
precedent (the date of satisfaction of such condition(s)
being referred to herein as the "First Amendment Effective
Date"):
1. On or before the First Amendment
Effective Date, each of the conditions precedent to the
effectiveness of the Plan (other than effectiveness of this
Amendment) shall have been satisfied or duly waived.
I. Section MISCELLANEOUS
1. Reference to and Effect on the Letter of
Credit Agreement and Modified Documents.
a) On and after the First Amendment Effective
Date, each reference in the Letter of Credit Agreement to
"this Agreement", 'hereunder', "hereof", "herein" or words
of like import referring to the Letter of Credit Agreement,
and each reference in the Restructured Documents to the
"Letter of Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Letter of Credit
Agreement shall mean and be a reference to the Letter of
Credit Agreement as amended by this Amendment (the "Amended
Agreement").
a) Except as specifically amended by this
Amendment, the Letter of Credit Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
1. Headings. Section and subsection
headings in this Amendment are included herein for
convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any
substantive effect.
1. Applicable Law. THIS AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK) WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
1. Waiver of Jury Trial. EACH PARTY HERETO
HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OR ACTION BASED UPON OR ARISING OUT OF
THIS AMENDMENT OR ANY DEALINGS BETWEEN OR AMONG THEM
RELATING TO THE SUBJECT MATTER OF THE TRANSACTION
CONTEMPLATED HEREBY AND THE RELATIONSHIP BEING ESTABLISHED.
The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court that
relate to the subject matter of the transactions
contemplated hereby, including, without limitation, contract
claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each party hereto
acknowledges that this waiver is a material inducement to
enter into a business relationship, that each has already
relied on the waiver in entering into this Amendment and
that each will continue to rely on the waiver in their
related future dealings. Each party hereto further warrants
and represents that each has reviewed this waiver with its
legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with
legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, AMENDMENTS
AND RESTATEMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AMENDMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO EXTENSIONS OF CREDIT PURSUANT TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
1. Counterparts. This Amendment may be
executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and
the same instrument, signature pages may be detached from
multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically
attached to the same document. This Amendment (other than
the provisions of Section I hereof, the effectiveness of
which is governed by Section 2 hereof) shall become
effective upon the execution of a counterpart hereof by each
of the parties hereto and receipt by each of the parties
hereto of written or telephonic notification of such
execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date
first written above.
BANKERS TRUST COMPANY
By:
Title:
HUNTWAY PARTNERS, L.P.
By: HUNTWAY MANAGING PARTNER, L.P.,
its Managing General Partner
By: The Huntway Division
of Reprise Holdings, Inc.,
its sole General Partner
By:
Title:
By: HUNTWAY HOLDINGS, L.P.,
its Special General Partner
By: The Huntway Division
of Reprise Holdings, Inc.,
its sole General Partner
By:
Title:
SUNBELT REFINING COMPANY, L.P.
By: HUNTWAY PARTNERS, L.P.,
its sole General partner
By: The Huntway Division
of Reprise Holdings, Inc.,
its sole General Partner
By:
Title:
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date
first written above.
BANKERS TRUST COMPANY
By:
Title:
HUNTWAY PARTNERS, L.P.
By: HUNTWAY MANAGING PARTNER, L.P.,
its Managing General Partner
By: The Huntway Division
of Reprise Holdings, Inc.,
its sole General Partner
By:
Title:
By: HUNTWAY HOLDINGS, L.P.,
its Special General Partner
By: The Huntway Division
of Reprise Holdings, Inc.,
its sole General Partner
By:
Title:
SUNBELT REFINING COMPANY, L.P.
By: HUNTWAY PARTNERS, L.P.,
its sole General partner
By: The Huntway Division
of Reprise Holdings, Inc.,
its sole General Partner
By:
Title:
ASCII.WPD
- -1-
S-2
