SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
Commission File Number 1-10091
HUNTWAY PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3601653
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25129 The Old Road, Suite 322
Newhall, California 91381
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number Including Area Code:
(805) 286-1582
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(b) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
QUARTERLY REPORT ON FORM 10-Q
HUNTWAY PARTNERS, L.P.
For the Quarter Ended March 31, 1998
INDEX
Part I. Financial Information Page
Condensed Consolidated Balance Sheets as
of March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations for the Three Months
Ended March 31, 1998 and 1997 4
Condensed Consolidated Statement of
Partners' Capital for the Three Months
Ended March 31, 1998 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1998 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8
Part II. Other Information 14
<TABLE>
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $4,928,000 $9,406,000
Accounts Receivable 3,088,000 4,066,000
Inventories 6,990,000 4,112,000
Prepaid Expenses 617,000 587,000
Total Current Assets 15,623,000 18,171,000
PROPERTY - Net 59,680,000 59,346,000
OTHER ASSETS 1,162,000 1,025,000
GOODWILL 1,687,000 1,701,000
TOTAL ASSETS $78,152,000 $80,243,000
CURRENT LIABILITIES:
Accounts Payable $5,056,000 $6,730,000
Current Portion of
Long-Term Obligations 1,157,000 1,449,000
Accrued Interest 930,000 571,000
Other Accrued Liabilities 852,000 1,046,000
Total Current Liabilities 7,995,000 9,796,000
LONG-TERM OBLIGATIONS 36,916,000 36,668,000
PARTNERS' CAPITAL:
General Partners 332,000 338,000
Limited Partners 32,909,000 33,441,000
Total Partners' Capital 33,241,000 33,779,000
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $78,152,000 $80,243,000
</TABLE>
<TABLE>
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
SALES $12,553,000 $19,065,000
COSTS AND EXPENSES:
Material and Processing Costs 10,804,000 16,137,000
Selling and Administration Expenses 976,000 1,189,000
Interest Expense 832,000 873,000
Depreciation and Amortization 607,000 520,000
Total Costs and Expenses 13,219,000 18,719,000
NET INCOME (LOSS) $(666,000) $346,000
NET INCOME (LOSS) PER BASIC UNIT $(0.05) $0.01
NET INCOME (LOSS) PER DILUTED UNIT $(0.05) $0.01
BASIC LIMITED PARTNER
EQUIVALENT UNITS OUTSTANDING 14,731,000 25,599,000
DILUTED LIMITED PARTNER
EQUIVALENT UNITS OUTSTANDING 14,731,000 28,073,000
</TABLE>
<TABLE>
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
<CAPTION>
General Limited
Partners Partners Totals
<S> <C> <C> <C>
Balance at January 1, 1998 $338,000 $33,441,000 $33,779,000
Earned Portion of
Option Awards 1,000 127,000 128,000
Net Income for the Three
Months Ended March 31, 1998 (7,000) (659,000) (666,000)
Balance at March 31, 1998 $332,000 $32,909,000 $33,241,000
</TABLE>
<TABLE>
HUNTWAY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $(666,000) $346,000
Adjustments to Reconcile Net Income
(Loss)to Net Cash Provided by
Operating Activities:
Interest Expense Paid by the Issuance
of Notes 248,000 -
Depreciation and Amortization 607,000 520,000
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable 978,000 243,000
Increase in Inventories (2,804,000) (4,999,000)
Increase in Prepaid Expenses (30,000) (181,000)
Increase (decrease) in Accounts Payable (1,674,000) 1,889,000
Increase in Accrued Liabilities 165,000 626,000
NET CASH USED BY OPERATING ACTIVITIES (3,176,000) (1,556,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property (844,000) (549,000)
Additions to Other Assets (166,000) 10,000
NET CASH USED BY INVESTING ACTIVITIES (1,010,000) (539,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Long-term Obligations (292,000) (100,000)
NET CASH USED BY FINANCING ACTIVITIES (292,000) (100,000)
NET (DECREASE) IN CASH (4,478,000) (2,195,000)
CASH BALANCE - BEGINNING OF PERIOD 9,406,000 5,287,000
CASH BALANCE - END OF PERIOD $4,928,000 $3,092,000
INTEREST PAID IN CASH DURING THE PERIOD $473,000 $554,000
</TABLE>
HUNTWAY PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements
of Huntway Partners, L.P. and subsidiary as of March 31, 1998 and
for the three month periods ended March 31, 1998 and 1997 are
unaudited, but in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments)
necessary for fair presentation of such financial statements in
accordance with generally accepted accounting principles. The
results of operations for an interim period are not necessarily
indicative of results for a full year. The condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto
contained in the Partnerships annual report for the year ended
December 31, 1997.
Crude oil and finished product inventories are stated at
cost determined by the last-in, first-out method, which is not in
excess of market. For the first three months of 1998 and 1997,
the effect of LIFO was to decrease the net loss by $1,028,000 and
increase net income by $1,154,000, respectively.
Inventories at March 31, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Finished Products $3,963,000 $2,480,000
Crude Oil and Supplies 3,027,000 2,660,000
6,990,000 5,140,000
Less LIFO Reserve - (1,028,000)
Total $6,990,000 $4,112,000
</TABLE>
2. CONTINGENCIES
The Partnership's business is the refining of crude oil into
liquid asphalt and other light-end products which is subject to
various environmental laws and regulations. Adherence to these
environmental laws and regulations creates the opportunity for
unknown costs and loss contingencies to arise in the future.
Unknown costs and loss contingencies could also occur due to the
nature of the 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
consolidated financial position, results of operations or cash
flows of the Partnership.
The Partnership is party to a number of lawsuits and other
proceedings arising out of the ordinary course of its business.
While the results of such lawsuits and proceedings cannot be
predicted with certainty, management does not expect that the
ultimate liability, if any, will have a material adverse effect
on the consolidated financial position, results of operations or
cash flows of the Partnership.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction
with the financial statements included elsewhere in this
report. All per unit amounts are diluted.
Results of Operations
Huntway is principally engaged in the processing and sale
of liquid paving and roofing asphalt products, as well as the
production of other refined petroleum feedstocks and products
such as gas oil, naphtha, kerosene distillate and heavy reside
(bunker) fuel.
Huntway's ability to generate income depends principally
upon the margins between the prices for its refined petroleum
products and the cost of crude oil, as well as upon demand for
liquid asphalt, which affects both price and sales volume.
Historically, refined petroleum product prices (including
prices for liquid paving and roofing asphalt products,
although to a lesser degree than Huntways other refined
petroleum products) generally fluctuate with crude oil price
levels. Accordingly, there has not been a relationship
between total revenues and income due to the volatile
commodity character of crude oil prices.
Accordingly, management believes that income before
interest, depreciation and amortization provides the most
meaningful basis for comparing historical results of
operations discussed below. Earnings before interest,
depreciation and amortization is not a measuring criteria
under generally accepted accounting principles and should not
be viewed as superior to or an isolation from net income.
A number of uncertainties exist that may affect Huntways
future operations including the possibility of increases in
crude costs that may not be able to be passed on to customers
in the form of higher prices. Additionally, crude costs could
rise to such an extent that Huntway may not have sufficient
letter of credit availability to purchase all the crude it
needs to sustain operations to capacity, especially during the
summer season. If this occurred, Huntway would be forced to
reduce crude purchases, which could adversely impact results
of operations. The Partnerships primary product is liquid
asphalt. Most of Huntways competitors produce products using
liquid asphalt (including residual bunker fuel) as a by-
product and are of much greater size and have much larger
financial resources than the Partnership. Accordingly, the
Partnership has in the past, and may have in the future,
difficulty raising prices in the face of increasing crude
costs.
Three Months Ended March 31, 1998 Compared with the Three
Months Ended March 31, 1997
First quarter 1998 net loss was $666,000, or $.05 per
unit, versus 1997 first quarter net income of $346,000, or
$.01 cents per unit.
While margins on paving and roofing asphalt products were
substantially higher in the current quarter, significantly
lower margins on other products resulted in a negative swing
in results between quarters of $1,012,000. Huntway also sold
low priced residual fuel oil during the quarter in order to
optimize refinery production levels and support paving and
roofing product pricing. This product was not sold in 1997
due to higher roofing and paving product asphalt demand.
The following table sets forth the effects of changes in
price and volume on sales and material and processing costs on
the quarter ended March 31, 1998 as compared to the quarter
ended March 31, 1997:
<TABLE>
<CAPTION>
Material & Barrels
Sales Processing Net Sold
<S> <C> <C> <C> <C>
Quarter ended
March 31, 1997 $19,065,000 $16,137,000 $2,928,000 809,000
Effect of changes
in price (5,192,000) (4,216,000) (976,000)
Effect of changes
in volume (1,320,000) (1,117,000) (203,000) (56,000)
Quarter ended
March 31, 1998 $12,553,000 $10,804,000 $1,749,000 753,000
</TABLE>
As reflected in the table, sales fell by 34% or
$6,512,000 in the first quarter of 1998 versus the first
quarter of 1997. Prices were lower across the board, due to
lower crude prices. Most of the decline was the result of
significantly lower prices for the Partnership's light
intermediate refinery feed stocks as compared to 1997 as a
result of lower demand for and higher inventory levels of
gasoline and diesel fuel on the West Coast. The first quarter
of 1997 was marked by a number of refinery turnarounds and
other outages, which reduced the production of clean fuels on
the West Coast. In addition, first quarter of 1998 was also
marked by a wet winter in California and mild winter weather
in the balance of the country, which also worked to reduce
demand for these products as compared to the first quarter of
1997. This factor also contributed to a reduction in unit
volume of 7%.
Material and processing costs were reduced by 33% or
$5,333,000 for the quarter as compared to the comparable
quarter of 1997 primarily as a result of much lower crude
prices due to a perceived world wide oversupply due to over
production by a number of oil producing countries.
Overall net margins fell by 40% or $1,179,000 between
quarters as declines in selling prices generally exceeded
crude price declines on light intermediate refinery feed stock
products as discussed above. Additionally, low margin
residual fuel oil was sold in the current quarter,
contributing to the decline in margins. These declines were
partially offset by increased margins on paving and roofing
products of $820,000 for the current quarter or 53%.
The decline in unit volume of 7% also contributed to the
$1,179,000 decrease in net margins due to a decline in paving
and roofing products sales volume of 85,000 barrels or 24% due
to the unusually inclement weather experienced during the
first quarter of 1998 as compared to the comparatively mild
winter of 1997.
Selling, general and administrative costs decreased by
$213,000 as compared to the first quarter of 1997 primarily as
a result of lower incentive plan accruals.
Interest expense was reduced in the quarter by $41,000
due to lower interest rates offsetting higher debt levels. On
October 31, 1997 the Partnership issued $21,750,000 in 9.5%
Senior Subordinated Secured Convertible Debt due 2007, retired
$11,707,000 in 12% senior debt, and redeemed 10,758,696 units
or 42% of its total units outstanding. The transaction also
reduced the effective interest rate on the Partnerships
$8,600,000 Industrial Development Bond from 12% to
approximately 6% and provided the Partnership with $2,500,000
in additional working capital. As a result of this
transaction, the Partnerships debt increased from $27,924,000
to $37,967,000 effective October 31, 1997. Net interest
expense however remained essentially unchanged due to the
lower net interest rate on the new convertible debt and the
buydown of the approximate 6% interest spread on the
Industrial Development Bond.
Because of the foregoing, as well as other factors
affecting the Partnerships operating results, past financial
performance should not be considered to be a reliable
indicator of future performance and investors should not use
historical trends to anticipate results or trends in future
periods.
Capital Resources And Liquidity
The primary factors that affect the 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 position. In addition, capital
expenditure requirements, including costs to maintain
compliance with environmental regulations as well as debt
service requirements, impact the Partnerships cash needs.
In the first three months of 1998, operating activities
used $3,176,000 in cash. The periods net loss of $666,000
offset by depreciation and amortization of $607,000 and the
payment of interest by the issuance of notes of $248,000
provided $189,000 in cash. A seasonal increase in inventory
of $2,804,000 was partially financed by a seasonal decrease in
accounts receivable of $978,000. Accounts payable decreased by
$1,674,000 due to a seasonal decrease in crude purchases and
falling crude prices. Accrued liabilities increased by
$165,000 as only one half of the interest accrued under the
senior debt agreements was scheduled for payment in the
quarter. Prepaid expenses consumed a nominal $30,000.
In comparison, during the first quarter of 1997,
operating activities used $1,556,000 in cash. The periods
net income of $346,000 plus depreciation and amortization of
$520,000 provided $866,000 in cash. A seasonal increase in
inventory of $4,999,000 was partially financed by an increase
in accounts payable of $1,889,000 due to rising crude oil
prices. Accrued liabilities increased by $626,000 as only one
half of the interest accrued under the Senior note agreements
was scheduled for payment in the quarter, as well as increases
in accruals for property taxes and incentive compensation.
Prepaid expenses consumed $181,000 primarily due to turnaround
costs while accounts receivable decreased by a nominal
$243,000 due to the timing of certain product sales.
Investing activities consumed $1,010,000 in cash during
the first quarter of 1998 relating to the construction of a
new wastewater treatment facility in the Wilmington refinery.
During the first quarter of 1997, investing activities
consumed $539,000 primarily for refinery equipment.
Financing activities consumed $292,000 in the first
quarter of 1998 for principal payments on the Senior notes
while in January of 1997 $100,000 was used pursuant to a 1993
settlement with the State of Arizona.
The Partnership believes its current level of letter of
credit facilities are sufficient to guarantee requirements for
crude oil purchases, collateralization of other obligations
and for hedging activities at current crude price levels.
However, due to the volatility in the price of crude oil there
can be no assurance that these facilities will be adequate in
the future. If crude oil prices increased beyond the level of
the Partnership's letter of credit facilities, it would be
required to prepay for crude oil or reduce its crude oil
purchases, either of which would adversely impact
profitability.
At March 31, 1998, the cash position of the Partnership
was $4,928,000. In the opinion of management, cash on hand,
together with anticipated future cash flows, will be
sufficient to meet Huntway's liquidity obligations for the
next 12 months.
The Partnership has distributed proxy materials to its
unitholders for a special meeting to be held on May 29, 1998.
The proxy materials describe a proposal that, if approved by
them, will result in the conversion of the Partnership to
corporate form. It is presently anticipated that this
conversion will occur on June 1, 1998. It is also anticipated
that this conversion will not materially impact Huntways cash
flow in 1998 except for related transaction costs estimated at
$300,000 as management believes that significant amounts of
taxable income will not be earned in 1998 or 1999 due to the
effects of depreciation on existing assets. This assumes
earnings before interest, depreciation and amortization does
not materially increase from levels earned in 1996 and 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is party to a number of lawsuits and
other proceedings arising out of the ordinary course of its
business. While the results of such lawsuits and proceedings
cannot be predicted with certainty, management does not expect
that the ultimate liability, if any, will have a material
adverse effect on the consolidated financial position, results
of operations or of the cash flows of the Partnership other
than as previously reported.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K was filed on March 31, 1998 to file the
following documents:
First Supplemental Indenture dated as of October 31,
1997 between the Partnership and Fleet National Bank, relating
to the Partnership's 12% Senior Secured Notes Due 2005.
Second Supplemental Indenture dated as of October 31,
1997 between the Partnership and Fleet National Bank, relating
to the Partnership's 12% Senior Secured Notes Due 2005.
First Supplemental Indenture dated as of October 31,
1997 between the Partnership and IBJ Schroder Bank & Trust
Company, relating to the Partnership's Junior Subordinated
Notes Due 2005.
First Supplemental Indenture dated as of January 14,
1998 between the Partnership and State Street Bank & Trust
Company, as trustee, relating to the Partnership's 12% Senior
Subordinated Secured Convertible Notes Due 2007.
Third Amendment to Letter of Credit and Reimbursement
Agreement dated as of November 30, 1997 between the
Partnership, Sunbelt Refining Company, L.P. and Bankers Trust
Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized, on May 14, 1998.
HUNTWAY PARTNERS, L.P.
(Registrant)
By:
Warren J. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4928000
<SECURITIES> 0
<RECEIVABLES> 3088000
<ALLOWANCES> 0
<INVENTORY> 6990000
<CURRENT-ASSETS> 15623000
<PP&E> 77975000
<DEPRECIATION> 18295000
<TOTAL-ASSETS> 78152000
<CURRENT-LIABILITIES> 7995000
<BONDS> 36916000
0
0
<COMMON> 32909000
<OTHER-SE> 332000
<TOTAL-LIABILITY-AND-EQUITY> 78152000
<SALES> 12553000
<TOTAL-REVENUES> 12553000
<CGS> 11411000
<TOTAL-COSTS> 11411000
<OTHER-EXPENSES> 976000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 832000
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<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (666000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
