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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-34586

 

 

Westway Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-4755936

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

365 Canal Street, Suite 2900,

New Orleans, LA

  70130
(Address of principal executive offices)   (Zip Code)

(504) 525-9741

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of August 5, 2011, 14,041,423 shares of our Class A common stock, par value $0.0001 per share, and 12,624,003 shares of our Class B common stock, par value $0.0001, were outstanding. The number of shares of our Class A common stock outstanding stated above includes 1,000,000 shares issued to Shermen WSC Holding LLC and held in escrow to be released upon achievement of earnings or share price targets.

 

 

 


Table of Contents

Westway Group, Inc. Index to Form 10-Q

TABLE OF CONTENTS

PART I. – FINANCIAL INFORMATION

 

Item 1. – Financial Statements (unaudited)

     2   

Consolidated Balance Sheets

     2   

Consolidated Statements of Operations

     3   

Consolidated Statements of Stockholders’ Equity

     4   

Consolidated Statements of Cash Flows

     6   

Notes to Unaudited Quarterly Consolidated Financial Statements

     7   

Item  2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations

     11   

Item 3. – Quantitative and Qualitative Disclosures About Market Risk

     24   

Item 4. – Controls and Procedures

     25   

PART II. – OTHER INFORMATION

 

Item 1. – Legal Proceedings

     25   

Item 1A. – Risk Factors

     25   

Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds

     27   

Item 3. – Defaults Upon Senior Securities

     28   

Item 6. – Exhibits

     28   

SIGNATURES

     28   

EXHIBIT INDEX

     29   


Table of Contents

Certain Defined Terms

Unless the context otherwise requires, when used in this quarterly report on Form 10-Q:

 

   

the “Company” or “we” or “us” means the public company now named Westway Group, Inc. together with its wholly-owned subsidiaries;

 

   

“ED&F Man” means ED&F Man Holdings Limited, on an unconsolidated basis;

 

   

“ED&F Man group” means ED&F Man and its direct and indirect subsidiaries;

 

   

“Agman” means Agman Louisiana, Inc, a subsidiary of ED&F Man and member of the ED&F Man group which was named Westway Holdings Corporation before June 17, 2010;

 

   

“Class A common stock” means our Class A Common Stock, par value $0.0001 per share (this class is listed on NASDAQ; generally, shares of this class automatically convert into shares of Class B common stock at any time they become owned by a member of the ED&F Man group);

 

   

“Class B common stock” means our Class B Common Stock, par value $0.0001 per share (this class is not listed on NASDAQ; generally, shares of this class automatically convert into shares of Class A common stock at any time they cease to be owned by a member of the ED&F Man group); and

 

   

“Series A Convertible Preferred Stock” means our Series A Perpetual Convertible Preferred Stock, par value $0.0001 per share (this class is not listed on NASDAQ).

 

1


Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).

WESTWAY GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data)

 

     As of  
     June 30,
2011
    December 31,
2010
 
     (Unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 10,432      $ 12,652   

Trade accounts receivable from third parties, net

     32,005        37,297   

Trade accounts receivable from related parties

     1,650        2,769   

Inventories

     17,720        15,463   

Other current assets

     10,836        8,493   
  

 

 

   

 

 

 

Total current assets

     72,643        76,674   

Investment in unconsolidated subsidiary

     4,037        4,277   

Property, plant and equipment, net

     324,081        313,491   

Goodwill

     90,380        89,217   

Other intangibles, net

     8,213        8,221   

Other non-current assets

     3,171        3,341   
  

 

 

   

 

 

 

Total assets

   $ 502,525      $ 495,221   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Trade accounts payable to third parties

   $ 5,874      $ 8,009   

Trade accounts payable to related parties

     5,946        8,909   

Accrued expenses and other current liabilities

     23,381        32,276   
  

 

 

   

 

 

 

Total current liabilities

     35,201        49,194   

Borrowings under credit facilities

     90,551        88,534   

Deferred income taxes

     66,928        64,624   

Other long-term liabilities

     681        660   
  

 

 

   

 

 

 

Total liabilities

     193,361        203,012   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Preferred stock; $0.0001 par value; 7,000,000 shares authorized; none outstanding at June 30, 2011 and December 31, 2010

     —          —     

Series A Convertible Preferred stock; $0.0001 par value; 33,000,000 authorized; 32,387,261 outstanding at June 30, 2011. (December 31, 2010: $0.0001 par value; 33,000,000 authorized; 30,886,830 outstanding)

     185,530        177,291   

Common Stock; $0.0001 par value; 235,000,000 shares authorized; 26,705,546 outstanding at June 30, 2011 represented by 14,081,543 convertible Class A and 12,624,003 convertible Class B shares. (December 31, 2010: $.0001 par value; 235,000,000 shares authorized; 26,841,580 shares outstanding represented by 14,217,577 convertible Class A and 12,624,003 convertible Class B shares)

     3        3   

Additional paid-in capital

     130,520        131,039   

Accumulated other comprehensive income

     7,832        231   

Retained earnings (accumulated deficit)

     (1,484     (3,082

Treasury stock at cost – 2,335,569 shares (December 31, 2010: 2,335,569 shares)

     (14,013     (14,013
  

 

 

   

 

 

 

Total Westway Group, Inc. stockholders’ equity

     308,388        291,469   

Non-controlling interest

     776        740   
  

 

 

   

 

 

 

Total stockholders’ equity

     309,164        292,209   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 502,525      $ 495,221   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

2


Table of Contents

WESTWAY GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share data)

(unaudited)

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2011     2010     2011     2010  

Net revenue

        

Bulk liquid storage

   $ 18,382      $ 19,172      $ 37,465      $ 38,442   

Liquid feed supplements

     70,978        54,009        142,166        124,210   

Related parties

     3,693        2,462        7,513        6,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenue

     93,053        75,643        187,144        169,085   

Costs of sales – liquid feed supplements

        

Third parties

     40,009        28,907        80,951        66,422   

Related parties

     20,245        15,801        38,249        35,293   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs of sales – liquid feed supplements

     60,254        44,708        119,200        101,715   

Other operating costs and expenses

     14,216        14,101        29,320        28,849   

Depreciation and amortization

     6,400        7,676        12,644        13,278   

Selling, general and administrative expenses

     8,569        8,243        16,699        16,870   

Founder warrant expense

     —          1,381        —          1,381   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     89,439        76,109        177,863        162,093   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     3,614        (466     9,281        6,992   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

        

Interest, net

     (1,239     (1,252     (2,567     (2,531

Loss on disposal of property, plant & equipment

     (63     —          (729     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (1,302     (1,252     (3,296     (2,531

Income (loss) before income tax benefit (provision) and equity in loss of unconsolidated subsidiary

     2,312        (1,718     5,985        4,461   

Income tax benefit (provision)

     (452     495        (1,808     (1,369

Equity in loss of unconsolidated subsidiary, net

     (116     (52     (325     (210
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,744        (1,275     3,852        2,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to non-controlling interest

     6        15        (36     12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Westway Group, Inc.

     1,750        (1,260     3,816        2,894   

Preferred dividends accrued

     (1,113     (1,063     (2,218     (2,125
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) applicable to common stockholders

   $ 637      $ (2,323   $ 1,598      $ 769   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares equivalent outstanding:

        

Basic

     58,848,451        26,578,484        58,777,578        57,461,693   

Diluted

     59,305,312        26,578,484        59,177,070        58,114,465   

Net income per share of common stock:

        

Basic

   $ 0.01      $ (0.09   $ 0.03      $ 0.01   

Diluted

   $ 0.01      $ (0.09   $ 0.03      $ 0.01   

Basic and diluted earnings per share attributable to Series A Convertible Preferred Stock

   $ 0.01      $ —        $ 0.03      $ 0.01   

Basic and diluted earnings per share attributable to common shares

   $ 0.01      $ —        $ 0.03      $ 0.01   

Series A Convertible Preferred Stock weighted average shares outstanding, basic and diluted

     32,364,308        —          32,240,535        30,886,830   

Common share weighted average shares outstanding, basic

     26,484,143        —          26,537,043        26,574,863   

Common share weighted average shares outstanding, diluted

     26,941,004        —          26,936,535        27,227,635   

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3


Table of Contents

WESTWAY GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands, except per share data)

 

    Westway Group, Inc. Stockholders’ Equity                    

(in thousands,
except per
share data)

  Series A
Convertible
Preferred
Stock
    Common Stock
Class A
    Common Stock
Class B
    Additional
Paid-In
Capital
    Retained
Earnings
(Accumulated
Deficit)
    Accumulated
Other
Comprehensive
Income
    Common Stock
Held  in
Treasury
    Total
Westway
Group, Inc.
stockholders’
equity
    Non-
controlling
Interest
    Total
Stockholders’
Equity
 
  Number
of Shares
    Value     Number
of Shares
    At Par
Value
    Number
of Shares
    At Par
Value
          Number
of Shares
    At Cost        

Balance, December 31, 2009

    30,887      $ 177,291        13,941      $ 2        12,624      $ 1      $ 133,456      $ (4,284 )   $ 2,397        2,352      $ (14,115 )   $ 294,748      $ 613      $ 295,361   

Issuance of class A common shares from treasury

        17                (31 )       (17 )     102        71          71   

Reclassification of Additional Paid in Capital to Retained Earnings relating to Treasury stock

                195        (195 )           —            —     

Restricted stock activity

                184                184          184   

Founder warrant extension

                1,381                1,381          1,381   

Convertible preferred dividend accrued

                  (2,125 )           (2,125 )       (2,125 )

Non-controlling interest adjustment

                            129        129   

Comprehensive income

                           

Net income

                  2,894              2,894        (12 )     2,882   

Other comprehensive income:

                           

Foreign currency translation

                    (10,447 )         (10,447 )       (10,447 )
                 

 

 

       

 

 

     

 

 

 

Other comprehensive income

                    (10,447 )         (10,447 )       (10,447 )
                 

 

 

       

 

 

     

 

 

 

Total comprehensive income

                          (7,553     (12 )     (7,565 )
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2010 (Unaudited)

    30,887      $ 177,291        13,958      $ 2        12,624      $ 1      $ 135,216      $ (3,741 )   $ (8,050     2,335      $ (14,013 )   $ 286,706      $ 730      $ 287,436   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4


Table of Contents
    Westway Group, Inc. Stockholders’ Equity                    

(in thousands,
except per
share data)

  Series A
Convertible
Preferred
Stock
    Common Stock
Class A
    Common Stock
Class B
    Additional
Paid-In
Capital
    Retained
Earnings
(Accumulated
Deficit)
    Accumulated
Other
Comprehensive
Income
    Common Stock
Held  in
Treasury
    Total
Westway
Group, Inc.
stockholders’
equity
    Non-
controlling
Interest
    Total
Stockholders’
Equity
 
  Number
of Shares
    Value     Number
of Shares
    At Par
Value
    Number
of Shares
    At Par
Value
          Number
of Shares
    At Cost        

Balance, December 31, 2010

    30,887      $ 177,291        14,218      $ 2        12,624      $ 1      $ 131,039      $ (3,082   $ 231        2,335      $ (14,013   $ 291,469      $ 740      $ 292,209   

Convertible preferred shares issued

    1,500        8,239                          8,239          8,239   

Convertible preferred dividend accrued

                  (2,218           (2,218       (2,218

Restricted stock activity, net of shares forfeited

        81              433                433          433   

Purchase and retirement of common stock

        (217           (952             (952       (952

Comprehensive income

                           

Net income

                  3,816              3,816        36        3,852   

Other Comprehensive Income:

                           

Foreign currency translation

                    7,601            7,601          7,601   
                 

 

 

       

 

 

   

 

 

   

 

 

 

Other comprehensive income

                    7,601            7,601          7,601   

Total comprehensive income

                          11,417        36        11,453   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011 (Unaudited)

    32,387      $ 185,530        14,082      $ 2        12,624      $ 1      $ 130,520      $ (1,484   $ 7,832        2,335      $ (14,013   $ 308,388      $ 776      $ 309,164   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

5


Table of Contents

WESTWAY GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Six months ended
June 30,
 
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 3,852      $ 2,882   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Deferred income taxes

     1,242        1,053   

Provision for doubtful accounts receivable

     304        11   

Depreciation and amortization

     12,644        13,278   

Amortization of deferred financing costs

     698        540   

Equity in loss in unconsolidated investments

     325        300   

Loss on disposal of property, plant & equipment

     729        —     

Founder warrant expense

     —          1,381   

Stock compensation

     629        184   

Changes in operating assets and liabilities, net of effects of acquisitions:

    

Accounts receivable

     6,107        11,283   

Inventory

     (2,257     1,469   

Other current assets

     (1,098     (638

Accounts payable

     (5,519     (6,982

Accrued expenses and other current liabilities

     (4,110     (7,350
  

 

 

   

 

 

 

Net cash provided by operating activities

     13,546        17,411   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures for property, plant and equipment, net of sales proceeds

     (17,498     (10,511
  

 

 

   

 

 

 

Net cash used in investing activities

     (17,498     (10,511
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from credit facility

     33,636        23,506   

Payments on credit facility

     (31,619     (21,605

Purchase and cancellation of Class A common stock

     (952     —     

Payment of deferred financing costs

     (15     (162
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,050        1,739   
  

 

 

   

 

 

 

Effects of exchange rate changes on cash and cash equivalents

     682        (1,440
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2,220     7,199   

Cash and cash equivalents, beginning of period

     12,652        9,710   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 10,432      $ 16,909   
  

 

 

   

 

 

 

Non-cash financing and investing activities:

    

Preferred dividends accrued

   $ 2,218      $ 2,125   

Series A Convertible Preferred stock issued to ED&F Man

   $ 8,239      $ —     

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

6


Table of Contents

WESTWAY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. DESCRIPTION OF BUSINESS

Westway Group, Inc., together with its wholly-owned subsidiaries (the “Company” or “we” or “us”), is a leading provider of bulk liquid storage and related value-added services, and a leading manufacturer and distributor of liquid animal feed supplements. The Company owns and operates an extensive global network of operating facilities providing bulk liquid storage and producing liquid feed supplements. The bulk liquid storage business is a global business with terminal locations at key port and terminal sites throughout North America and in Western Europe and Asia, offering storage to manufacturers and consumers of agricultural and industrial liquids. The liquid feed supplements business produces liquid animal feed supplements through blending liquid by-products and essential nutrients to form feed rations that help to maximize the genetic potential of livestock, and are sold directly to end users, primarily supplying the beef and dairy livestock industries.

2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with US generally accepted accounting principles (“U.S. GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”) for interim financial information. As permitted under those rules, certain footnotes and other financial information required by U.S. GAAP for complete financial statements have been condensed or omitted. These interim financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of our financial position and operating results for the interim periods reported, including the elimination of all significant intercompany accounts and transactions in consolidation. With the exception of certain adjustments associated with acquisitions, all such adjustments are, in the opinion of management, of a normal recurring nature. The preparation of the consolidated financial statements involves the use of estimates and accruals. Actual results may vary from those estimates. Quarterly results are not necessarily indicative of results that may be expected for the full year. The Company adheres to the same accounting policies in preparing interim financial statements as it does for the preparation of annual statements. Certain reclassifications have been made to previously issued financial statements to conform to the current period presentation. These reclassifications had no impact on net income or net cash flows.

The Company has evaluated subsequent events for potential disclosure through the date the financial statements were issued.

3. EARNINGS (LOSS) PER SHARE

The Company calculated earnings (loss) per share in accordance with U.S. GAAP. The Series A Convertible Preferred Stock is a participating security because it participates in dividends with common stock. Accordingly, net income is allocated to each security based on the ratio of the number of shares, if converted, to the total number of shares. The Company has included these shares within the computation of earnings per share under the two-class method for the three and six months ended June 30, 2011 and for the six months ended June 30, 2010 but not for the three months ended June 30, 2010 because the effect of converting all outstanding convertible preferred shares into common shares would have an antidilutive impact as a result of the Company’s net loss during that period. The Company has included the effect of the preferred dividends in the numerator for the three and six months ended June 30, 2011 and 2010 as it is deemed a contractual obligation.

In calculating its diluted weighted average number of shares for the six months ended June 30, 2010, the Company added an additional 650,383 shares to its weighted average shares outstanding to account for the deemed conversion of the accrued, but unpaid, preferred dividends on the shares of outstanding Series A Convertible Preferred Stock. For the three and six months ended June 30, 2011, there were no accrued and unpaid preferred dividends on shares of outstanding Series A Convertible Preferred Stock at the beginning of the period due to the Company issuing an additional 1,229,932 shares of Series A Convertible Preferred Stock in satisfaction of all outstanding accrued but unpaid dividends through December 31, 2010, as well as issuing an additional 200,876 shares of Series A Convertible Preferred Stock in satisfaction of all outstanding accrued but unpaid dividends through March 31, 2011. The Company also added 456,861 and 399,492 shares, respectively, to its diluted weighted average share number for the three and six months ended June 30, 2011 and added 2,389 shares for the six months ended June 30, 2010, in each case relating to unvested restricted stock granted to certain employees. There were no dilutive shares for the three months ended June 30, 2010 because the Company had a net loss for that period. As the Company’s founder warrants were issued with an exercise price of $5.00, they have not been added to the diluted weighted average number of shares for the three and six months ended June 30, 2011 and 2010 since the average price of our common stock was below this price.

 

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The calculation of basic and diluted earnings per share is as follows (in thousands except share amounts):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Numerator

        

Net income (loss) attributable to Westway Group, Inc.

   $ 1,750      $ (1,260   $ 3,816      $ 2,894   

Preferred dividends

     (1,113     (1,063     (2,218     (2,125
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) applicable to common stockholders – basic

     637        (2,323     1,598        769   

Plus income impact of assumed conversion of:

        

Series A Convertible Preferred Stock

     1,113        1,063        2,218        2,125   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) applicable to common stockholders – diluted

   $ 1,750      $ (1,260   $ 3,816      $ 2,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator

        

Weighted average number of common shares outstanding

     26,484,143        26,578,484        26,537,043        26,574,863   

Weighted average number of participating Series A Convertible Preferred shares

     32,364,308        —          32,240,535        30,886,830   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares for purposes of calculating basic earnings per share

     58,848,451        26,578,484        58,777,578        57,461,693   

Add common stock issuable upon conversion of:

        

Series A Convertible Preferred Stock accrued dividends

     —          —          —          650,383   

Unvested restricted stock

     456,861        —          399,492        2,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares for purposes of calculating diluted earnings per share

     59,305,312        26,578,484        59,177,070        58,114,465   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and Diluted Earnings Per Common Share

        

Net income (loss) available to common stockholders – basic

   $ 0.01      $ (0.09   $ 0.03      $ 0.01   

Net income (loss) available to common stockholders – diluted

   $ 0.01      $ (0.09   $ 0.03      $ 0.01   

Basic and diluted earnings per share attributable to Series A convertible preferred stock

   $ 0.01      $ —        $ 0.03      $ 0.01   

Basic and diluted earnings per share attributable to common shares

   $ 0.01      $ —        $ 0.03      $ 0.01   

Series A convertible preferred stock weighted average shares outstanding, basic and diluted

     32,364,308        —          32,240,535        30,886,830   

Common share weighted average shares outstanding, basic

     26,484,143        —          26,537,043        26,574,863   

Common share weighted average shares outstanding, diluted

     26,941,004        —          26,936,535        27,227,635   

The number of additional shares that could potentially dilute earnings per share in the future that were not included in the computation of diluted earnings per share due to the average price of our common stock during the three and six months ended June 30, 2011 is summarized as follows:

 

     Six months
ending
June  30,
2011
 

Founder warrants (1)

     5,214,286   
  

 

 

 

 

(1) Founder warrants have a potentially less dilutive effect because they have a cashless exercise provision.

4. EQUITY

        In January 2011, the Company issued an additional 1,229,932 shares of the Company’s Series A Convertible Preferred Stock to Agman in satisfaction of any and all outstanding accrued but unpaid dividends on Agman’s shares of Series A Convertible Preferred Stock through December 31, 2010 totaling $6.8 million. The Company has also issued an additional 270,499 shares of Series A Convertible Preferred Stock to Agman in the second quarter of 2011, constituting payment in full for any and all outstanding accrued but unpaid dividends on Agman’s shares of Series A Convertible Preferred Stock for the period January 1, 2011 through May 1, 2011 totaling $1.5 million. The shares have been issued in private placements not involving a public offering under the Securities Act of 1933. The Company has not engaged in general solicitation or advertising with regard to the described issuances of its shares of Series A Convertible Preferred Stock and has not offered securities to the public in connection with the issuances.

Under the Company’s stock repurchase program, the Company has repurchased and retired 216,671 shares of Class A common stock in the first six months of 2011, at a cost of $952,000. No Class A common stock was repurchased and retired for the same period of 2010.

In May 2011, 11.1 million of the Company’s publicly traded warrants expired in accordance with their terms. At that time, the Company’s publicly traded units also expired and separated. As a result, one share per unit of our Class A common began trading under our Class A common stock symbol.

 

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5. BUSINESS SEGMENTS

The Company operates its business in two reportable operating segments: bulk liquid storage and liquid feed supplements. These businesses represent distinct operations that are managed separately because of differing products and services. Each of these businesses has distinct operating, marketing and sales strategies, and our chief operating decision maker reviews the performance of these businesses based on these segments. The Company also has one non-operating segment – corporate.

These segments follow the accounting principles described in Note 3 of the Company’s audited financial statements for the year ended December 31, 2010 in the Company’s 2010 Annual Report on Form 10-K. Intersegment revenues are accounted for at prices which approximate market.

Bulk Liquid Storage

The Company’s bulk liquid storage segment generates revenue through contracts by providing three primary types of services: fixed income, volume or throughput income, and income from ancillary services. Each of these sources of income is recorded net of any discounts, volume rebates, and sales taxes. These sources of income reflect the individual nature of the Company’s relationships with its global, regional or local customer bases, which typically comprise contracts spanning one or more years. Contracts vary according to the provision of services, ranging from the simple transloading of products from delivery into storage, but more typically extend into more complex product management and storage services.

Fixed income services generate revenue from storage services at each of our terminals and are based on a fixed fee per month for tank rental, input/output from storage tanks or combination of both. The Company recognizes revenue from fixed income services in the period the service is rendered.

Volume services generate revenue based on the volume of liquid entering or exiting at each terminal location and are based on tonnage. The Company recognizes revenue for volume services as the volumes are entered into or withdrawn from its storage facilities.

Ancillary income services generate revenue from customer-specific storage requirements including energy, overtime, and other infrastructure costs. Revenue relating to ancillary income services is recognized based on terms stipulated in the customer contract and is recorded at the time the service is provided. Provisions for ancillary services may be included in fixed price storage service contracts or in volume or throughput income service contracts.

Bulk liquid storage services are provided through a number of domestic and international locations, but are currently managed as one business from the Company’s headquarters in New Orleans, Louisiana.

Liquid Feed Supplements

The liquid feed supplements segment generates income from making and selling liquid feed products, with a small proportion of income arising from making and selling dried or block animal feeds. The business is focused on the processing of animal feeds from their raw liquid constituents into a blended product that varies according to customer and livestock requirements. Revenue is recorded net of any discounts, volume rebates, and sales taxes. Shipping and handling costs are included within cost of sales in the consolidated statements of income.

Our liquid feed supplements segment incorporates a research and development program focused on delivering product that is distinct, based on customer, livestock and geographical requirements, and is capable of being varied to reflect commodity prices or other factors.

The liquid feed supplements segment is organized around a series of broad regional territories in the United States that reflect the characteristics of beef cattle, dairy and feedlot markets. The liquid feed supplements segment is currently managed from, and headquartered in, Tomball, TX.

Corporate

Corporate operating expenses are not allocated to the Company’s reportable segments. The corporate segment includes interest expenses related to corporate debt and unallocated general and administrative expenses including primarily executive, legal, finance, information technology, human resource, and health, safety, environmental, and quality expenses.

 

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Results of Operations by Business Segment

The Company’s operations by business segment are as follows (in thousands):

Three Months Ended June 30, 2011

 

     Bulk Liquid Storage      Liquid Feed
Supplements
     Corporate     Total  

Total net revenue

   $ 22,006       $ 71,047       $ —        $ 93,053   

Income (loss) before taxes and equity in loss of unconsolidated subsidiary, net

   $ 5,765       $ 1,722       $ (5,175   $ 2,312   

Total assets

   $ 363,900       $ 125,652       $ 12,973      $ 502,525   

Three Months Ended June 30, 2010

 

     Bulk Liquid Storage      Liquid Feed
Supplements
     Corporate     Total  

Total net revenue

   $ 21,386       $ 54,257       $ —        $ 75,643   

Income (loss) before taxes and equity in loss of unconsolidated subsidiary, net

   $ 5,027       $ 385       $ (7,130   $ (1,718

Total assets

   $ 340,218       $ 117,025       $ 36,285      $ 493,528   

Six Months Ended June 30, 2011

 

     Bulk Liquid Storage      Liquid Feed
Supplements
     Corporate     Total  

Total net revenue

   $ 44,810       $ 142,334       $ —        $ 187,144   

Income (loss) before taxes and equity in loss of unconsolidated subsidiary, net

   $ 11,943       $ 4,681       $ (10,639   $ 5,985   

Total assets

   $ 363,900       $ 125,652       $ 12,973      $ 502,525   

Six Months Ended June 30, 2010

 

     Bulk Liquid Storage      Liquid Feed
Supplements
     Corporate     Total  

Total net revenue

   $ 44,287       $ 124,798       $ —        $ 169,085   

Income (loss) before taxes and equity in loss of unconsolidated subsidiary, net

   $ 12,836       $ 4,124       $ (12,499   $ 4,461   

Total assets

   $ 340,218       $ 117,025       $ 36,285      $ 493,528   

6. INCOME TAXES

For the three months ended June 30, 2011, the Company recorded a tax provision against its pretax income based on an increase in overall earnings coupled with a disproportional decrease in U.S. tax on foreign earnings compared to the three months ended June 30, 2010. The effective tax rate is lower than the federal statutory rate of 34% due to lower international income tax rates used for foreign earnings.

 

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For the six months ended June 30, 2011, the Company recorded a tax provision at an effective rate of 30% which is consistent with the rate for the six months ended June 30, 2010. The effective tax rates are consistent from 2010 to 2011 due to increased U.S. earnings in 2011 compared to 2010, offset by a decrease during 2011 of foreign earnings subject to further U.S. tax at the higher rate.

7. SUBSEQUENT EVENTS

On July 6, 2011, the Company and its bank syndicate extended the maturity date and amended certain key terms of the Company’s existing $200 million credit facility. The modifications included, among other items, the extension of the maturity date to July 6, 2015, the reduction of the interest rate and commitment fees payable, the relaxation of certain key financial covenants, and the provision of an additional $50 million accordion feature to the current facility.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The purpose of this discussion and analysis is to focus on significant changes in the financial condition and results of operations of the Company during the three and six months ended June 30, 2011. This discussion and analysis highlights and supplements information contained elsewhere in this Quarterly Report on Form 10-Q, particularly the preceding consolidated financial statements and notes. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Form 10-K”).

Forward-Looking Statements

This discussion and analysis includes statements regarding our future performance, liquidity, and capital resources, our plans and objectives for future operations, and assumptions relating to any of the foregoing. Such statements, along with any other non-historical statements in the discussion, are forward-looking. Our use of words such as “believe,” “expect,” “anticipate,” “intend,” “aim,” “will,” “shall,” “may,” “should,” “could,” “would,” “plan,” “estimate,” “continue,” “foresee,” or the negative of such terms, or other similar expressions often further identify a statement as a forward-looking statement (although not all forward-looking statements necessarily include one of these words). Forward-looking statements involve risks and uncertainties. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Important factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Part II, Item 1A. Risk Factors” of this Form 10-Q and in “Item 1A. Risk Factors” of our 2010 Form 10-K. We do not assume an obligation to update any forward-looking statement.

Company Overview

Westway Group, Inc., together with its wholly-owned subsidiaries (the “Company” or “we” or “us”) is a global provider of bulk liquid storage and related value-added services and the largest manufacturer and distributor of liquid feed supplements for the livestock industry in North America. We currently operate a global network of 25 operating storage facilities providing approximately 350 million gallons of total bulk liquid storage capacity and 35 operating liquid feed supplement facilities selling approximately 1.6 million tons of liquid feed supplements annually. Our Class A common stock is currently traded on the NASDAQ stock market under the symbol (WWAY). As of August 5, 2011, we had 493 employees.

Highlights of the Second Quarter of 2011

 

   

Consolidated Net Revenue increased $17.4 million, or 23% to $93.1 million as compared to $75.6 million in the second quarter of 2010.

 

   

Tonnage sold in our feed business totaled 411,000 tons, an increase of 16% compared to the same period in 2010. Gross profit increased $1.2 million, or 13%, during the second quarter of 2011 compared to the same period in 2010.

 

   

Our Terminal Company signed a Lease Conditions Agreement with Valero Refining Texas, L.P. in June 2011 that gives us the right, subject to certain conditions outlined in the agreement, to lease approximately 5.68 acres of land adjacent to our Houston 1 terminal for up to 30 years and to purchase three tanks totaling 3.2 million gallons of capacity as well as certain associated dock lines and dock assets. This additional acreage would provide the Terminal Company with the opportunity to construct up to 20 million gallons of additional storage capacity.

 

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As part of our terminal business strategy to increase capacity and service offerings in key markets, we began several construction projects in 2010 and the first half of 2011 which will add 10.5 million gallons of capacity to our Houston terminals and 4.2 million gallons of capacity at our Amsterdam, Netherlands terminal. All of these projects are currently on budget and scheduled for completion in the latter half of 2011.

 

   

In July 2011, the Company and its bank syndicate amended certain key terms of the Company’s existing $200 million credit facility. The modifications included, among other items, the extension of the maturity date to July 6, 2015, the reduction of the interest rate and commitment fee payable, the relaxation of certain key financial covenants, the ability to pay dividends, and the addition of a $50 million accordion feature to the current facility.

 

   

In May 2011, 11.1 million of our publicly traded warrants expired in accordance with their terms. The combination of this expiration and the successful warrant tender offer completed in 2010 has simplified and improved our capital structure.

 

   

Cost control measures implemented in 2011 have resulted in a decrease of 5% in corporate-related general and administrative expenses compared to the same period in 2010.

 

   

Our Terminal Company received the Safety Improvement Award from the International Liquid Terminals Association (ILTA) in June 2011. This award is reflective of the commitment, dedication, and collaborative effort of our employees to the continual improvement of our health, safety, environmental and security performance.

 

   

Mr. Anthony J. Andrukaitis was elected to the Board of Directors of the Company in June 2011. He brings extensive knowledge and experience including skills in finance, marketing, and operations as well as experience in terminal operations both domestically and internationally.

 

   

Robert H. Lewis was appointed Senior Vice President of our newly created Corporate Business Development team. In this new role, Mr. Lewis will be responsible for the identification, evaluation and execution of strategic growth opportunities for our liquid feed and liquid storage subsidiaries as well as growth in other strategic areas.

 

   

The recent spring flooding along the Mississippi and Ohio River systems had minimal impact on our businesses and service to our customers.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which requires management to make estimates, judgments, and assumptions based upon available information that affect reported amounts and related disclosures. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances.

For a description of our critical accounting policies and critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see the “Critical Accounting Estimates” section of Item 7 of our 2010 Form 10-K. We have not changed these policies and estimates from those previously disclosed in our 2010 Form 10-K.

Results of Operations

Second Quarter of 2011 Compared to Second Quarter of 2010 Actual Results

The following is a discussion of operating results for the second quarter of 2011, compared to operating results for the second quarter of 2010.

 

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NET REVENUE

 

     Three Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Net Revenue

   $ 93,053       $ 75,643       $ 17,410   

Total net revenue increased by $17.4 million or 23%, to $93.1 million for the second quarter of 2011 when compared to $75.6 million for the second quarter of 2010. Net revenue from third parties increased $16.2 million or 22%, to $89.4 million for the second quarter of 2011 when compared to $73.2 million for the second quarter of 2010. Net revenue from related parties, which accounted for 4% of total net revenue in the second quarter of 2011 and 3% in the second quarter of 2010, increased $1.2 million or 50%, to $3.7 million for the second quarter of 2011 when compared to $2.5 million for the second quarter of 2010.

The bulk liquid storage segment represented 24% and 28% of total net revenue for the second quarter of 2011 and 2010 respectively, while the liquid feed supplement segment represented the remaining 76% and 72% of total net revenue for these periods.

Bulk Liquid Storage

In the bulk liquid storage business, net revenue increased by $620,000 to $22.0 million for the second quarter of 2011 from $21.4 million for the second quarter of 2010.

Bulk liquid storage net revenue within the U.S. increased 1% during the second quarter of 2011 compared to the same period in 2010, reflecting the expansion of our Sioux City, IA and Houston 2, TX facilities.

Bulk liquid storage net revenue from outside the U.S. increased 6% in the second quarter of 2011 compared to the second quarter of 2010. This revenue accounted for 32% of total bulk liquid storage net revenue for the second quarter of 2011. The increase in net revenue was primarily due to favorable demand in the United Kingdom, as well as a combination of fluctuating exchange rates in the Euro, Pound Sterling and Canadian Dollar in the second quarter of 2011. These fluctuating exchange rates had a combined positive impact on bulk liquid storage net revenue outside of the U.S. of approximately 4% during the second quarter of 2011 compared to these rates during the second quarter of 2010. These factors were partially offset by a softening in certain markets due to various local issues, including volatility in oil industry pricing and renewable energy subsidies. This has led to localized disruptions in the demand for storage. We believe, however, that the overall state of the storage market remains healthy and that the disruptions in demand are expected to correct as the oil markets stabilize. The Company is currently concentrating on aggressive marketing programs in Europe to develop new bulk liquid storage customers, and continuing to evaluate opportunities in markets such as the United Kingdom.

Our total global storage capacity (net of disposals and not including construction in progress) remained consistent at approximately 350 million gallons. The percentage capacity utilization of our bulk liquid storage facilities decreased to 93% at the end of the second quarter of 2011, down from 94% at the end of the second quarter of 2010. This decrease was partially attributable to 2.4 million gallons of capacity taken out of service for normal maintenance as well as timing differences in contracts turning over.

We believe that capacity and capacity utilization are key to the profitability of our bulk liquid storage business. Once the fixed cost of constructing a terminal has been incurred, the marginal cost of providing each additional increment of storage service is less than the marginal revenues received for such service. We continue to evaluate opportunities to increase our bulk liquid storage capacity, including possible projects for greenfield expansions and targeted infill development. Additionally, we may grow profitability by identifying new strategic locations and either acquire existing bulk liquid terminals from third parties or construct new bulk liquid terminals on available land.

Liquid Feed Supplements

For the second quarter of 2011, net revenue for the liquid feed supplements business totaled $71.0 million, an increase of $16.8 million or 31%, compared to net revenue of $54.3 million for the second quarter of 2010. Volume for the second quarter of 2011 increased 16% to 411,000 tons compared to 355,000 tons for the same period in 2010.

We view volume, selling price, product mix, and gross profit margin percentage as key performance indicators to the profitability of our liquid feed supplements business. Once the fixed costs of an operating facility are covered, all revenue that exceeds the variable costs contributes incrementally to the profitability of our business. Generally, revenues are considered an incomplete indicator of performance because large fluctuations can occur from period to period due to general seasonal trends, as well as the volatility in the underlying commodity ingredient prices, which affect both competitive sales pricing and the cost of sales. Gross profit margin percentage is a highly visible indicator which provides us with measurable guidelines to monitor our cost of goods, which in the liquid feed supplements business can be somewhat volatile.

 

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COST OF SALES

 

     Three Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Cost of Sales

   $ 60,254      $ 44,708      $ 15,546   

Gross Profit Margin %

     15.2     17.6     -2.4

For the second quarter of 2011, cost of sales for our liquid feed supplements business, including related party purchases from the ED&F Man group, totaled $60.3 million, an increase of $15.5 million or 35%, compared to cost of sales of $44.7 million for the second quarter of 2010. The increase in costs of sales was primarily due to the higher volume and an increase in input costs.

Gross profit (net revenue including from related parties, less cost of sales) in our liquid feed supplements business increased by $1.2 million or 13%, to $10.8 million for the second quarter of 2011 compared to $9.5 million for the second quarter of 2010 as a result of higher sales volume in the second quarter of 2011 while maintaining market share. Gross profit margin percentage (net revenues minus cost of sales, divided by net revenues) for the liquid feed supplement business decreased from 17.6% for the second quarter of 2010 to 15.2% for the second quarter of 2011 primarily due to certain other income items recognized in 2010 that had a positive impact on gross profit margin percentage in the second quarter of 2010 and were not repeated in 2011.

OTHER OPERATING COSTS AND EXPENSES

 

     Three Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Other Operating Costs and Expenses

   $ 14,216       $ 14,101       $ 115   

Other operating costs and expenses for the second quarter of 2011 were $14.2 million, an increase of $115,000 from $14.1 million for the second quarter of 2010. The slight increase in the second quarter of 2011 was primarily due to higher operating expenses in Europe during the second quarter, as well as fluctuating exchange rates in the Euro, Pound Sterling and Canadian Dollar. These rates together increased bulk liquid storage operating expenses outside of the U.S. by approximately 4% during the second quarter of 2011 compared to these rates during the second quarter of 2010. These factors were largely offset by a decrease in liquid feed supplement other operating costs and expenses resulting from facility efficiencies and product mix changes. Of the total other operating costs and expenses, the bulk liquid storage segment represented 67% and 62% for the second quarter of 2011 and 2010 respectively, and the liquid feed supplement segment represented 34% and 36%. Major components of other operating costs and expenses included payroll, repairs, utilities, and insurance.

DEPRECIATION AND AMORTIZATION

 

     Three Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Depreciation and amortization

   $ 6,400       $ 7,676       $ (1,276

Depreciation and amortization costs decreased by $1.3 million or 17%, to $6.4 million for the second quarter of 2011 from $7.7 million for the second quarter of 2010. The decrease was mainly due to a one-time expense of $1.2 million in additional depreciation recorded during the second quarter of 2010 as a result of the cumulative impact from 2009 relating to the Company finalizing the assumptions used in assigning useful lives to the property, plant, and equipment acquired in the May 28, 2009 business combination. Of the total depreciation, the bulk liquid storage segment represented 78% and 85% for the second quarter of 2011 and 2010 respectively, and the liquid feed supplement segment represented 19% and 15%. The Corporate non-operating segment represented the remaining 3% for 2011.

 

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SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

 

     Three Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Selling, General, and Administrative Expenses

   $ 8,569       $ 8,243       $ 326   

Selling, general and administrative expenses for the second quarter of 2011 increased by $326,000 to $8.6 million, compared to $8.2 million for the second quarter of 2010, primarily due to higher U.S. employee medical claim activity in the second quarter of 2011. Of the total selling, general and administrative expenses, the bulk liquid storage segment represented 21% and 17% for the second quarter of 2011 and 2010 respectively, the liquid feed supplement segment represented 35% and 35%, and the corporate segment represented the remaining 44% and 48%. Selling, general, and administrative expenses included costs associated with payroll, office, and other administrative expenses of our bulk liquid storage and liquid feed supplement operations, as well as corporate general and administrative costs.

FOUNDER WARRANT EXPENSE

 

     Three Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Founder Warrant Expense

   $ —         $ 1,381       $ (1,381

During the second quarter of 2010, our shareholders approved the Founder Warrant Amendment which extended the expiration dates of, and otherwise amended, the outstanding founder warrants. As a result, the Company recognized a non-cash expense of $1.4 million during the second quarter of 2010 which was equal to the increase in value of the founders warrants as of the date the amendment was approved. There was no such expense in the second quarter of 2011.

OPERATING INCOME (LOSS)

 

     Three Months Ended
June 30,
       

(in thousands)

   2011
Actual
     2010
Actual
    Change  

Operating Income (Loss)

   $ 3,614       $ (466   $ 4,080   

Operating income increased by $4.1 million to $3.6 million for the second quarter of 2011 from a loss of $466,000 for the second quarter of 2010. This increase was due in part to a one-time founder warrant expense of $1.4 million in the second quarter of 2010. The increase was also due in part to a decrease in depreciation of $1.3 million, an increase in liquid feed supplement gross profit of $1.2 million, and an increase in bulk liquid storage revenue of $620,000, particularly in the United Kingdom, during the second quarter of 2011 compared to the second quarter of 2010. These factors were partially offset by an increase in selling, general and administrative expenses of $326,000 during the second quarter of 2011 compared to the second quarter of 2010.

Operating income for the second quarter of 2011 resulted from operating income of $5.6 million from the bulk liquid storage segment and $1.8 million from the liquid feed supplements segment, partially offset by corporate costs of $3.8 million. Operating income for the second quarter of 2010 resulted from operating income of $4.7 million from the bulk liquid storage segment and $385,000 from the liquid feed supplements segment, partially offset by corporate costs of $4.2 million.

 

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INTEREST EXPENSE

 

     Three Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Interest Expense, net

   $ (1,239   $ (1,252   $ 13   

Interest expense remained relatively consistent at $1.2 million for the second quarter of 2011 and 2010. The higher interest rates and facility fees in the second quarter of 2011 were offset by lower borrowings in the second quarter of 2011 compared to the second quarter of 2010. The impact of the reduction in interest rates and commitment fees payable due to the amendment to our credit facility in July 2011 did not take effect until the third quarter of 2011.

INCOME TAXES

 

     Three Months Ended
June 30,
        

(in thousands)

   2011
Actual
    2010
Actual
     Change  

Income Tax Benefit (Provision)

   $ (452   $ 495       $ (947

We had a consolidated income tax provision of $452,000 for the second quarter of 2011, compared to a $495,000 income tax benefit for the second quarter of 2010. The change was due to the impact of increased operating results during the second quarter of 2011 as compared to the second quarter ending 2010.

NET INCOME (LOSS) ATTRIBUTABLE TO WESTWAY GROUP, INC.

 

     Three Months Ended
June 30,
       

(in thousands)

   2011
Actual
     2010
Actual
    Change  

Net Income (Loss) Attributable to Westway Group, Inc.

   $ 1,750       $ (1,260   $ 3,010   

Net income attributable to Westway Group, Inc. increased by $3.0 million to $1.8 million for the second quarter of 2011 as compared to a loss of $1.3 million for the second quarter of 2010. This increase is primarily due to an increase in operating income of $4.1 million, partially offset by an increase in income tax provision of $947,000.

PREFERRED DIVIDENDS ACCRUED

 

     Three Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Preferred dividends

   $ (1,113   $ (1,063   $ (50

Accruals for preferred dividends remained relatively consistent at $1.1 million for the second quarter of 2011 and 2010. The slight increase was the result of the additional 1.5 million shares of Series A Convertible Preferred Stock issued in 2011 in satisfaction of outstanding accrued but unpaid dividends.

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

 

     Three Months Ended
June 30,
       

(in thousands)

   2011
Actual
     2010
Actual
    Change  

Net Income (Loss) Applicable to Common Stockholders

   $ 637       $ (2,323   $ 2,960   

Net income applicable to common stockholders increased by $3.0 million to $637,000 for the second quarter of 2011 as compared to a $2.3 million loss for the second quarter of 2010. This increase was due to an increase in net income attributable to Westway Group, Inc. of $3.0 million, partially offset by an increase of preferred dividends accrued of $50,000.

 

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First Six Months of 2011 Compared to First Six Months of 2010

The following is a discussion of operating results for the first six months of 2011, compared to operating results for the first six months of 2010.

NET REVENUE

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Net Revenue

   $ 187,144       $ 169,085       $ 18,059   

Total net revenue increased by $18.1 million or 11%, to $187.1 million for the first six months of 2011 when compared to $169.1 million for the first six months of 2010. Net revenue from third parties increased $17.0 million or 10%, to $179.6 million for the first six months of 2011 when compared to $162.7 million for the first six months of 2010. Net revenue from related parties, which accounted for 4% of total net revenue in the first six months of 2011 and 2010, increased $1.1 million or 17%, to $7.5 million for the first six months of 2011 when compared to $6.4 million for the first six months of 2010.

The bulk liquid storage segment represented 24% and 26% of total net revenue for the first six months of 2011 and 2010 respectively, while the liquid feed supplement segment represented the remaining 76% and 74% of total net revenue for these periods.

Bulk Liquid Storage

In the bulk liquid storage business, net revenue increased by $523,000 to $44.8 million for the first six months of 2011 from $44.3 million for the first six months of 2010.

Bulk liquid storage net revenue within the U.S. increased 2% during the first six months of 2011 compared to the same period in 2010, reflecting the expansion of our Port Allen, LA, Sioux City, IA, and Houston, TX facilities.

Bulk liquid storage net revenue from outside the U.S. remained consistent in the first six months of 2011 compared to the first six months of 2010. This revenue accounted for 31% of total bulk liquid storage net revenue for the first six months of 2011. An increase in revenue was seen due to favorable demand in the United Kingdom, as well as a combination of fluctuating exchange rates in the Euro, Pound Sterling and Canadian Dollar in the second quarter of 2011. These rates during the first six months of 2011 compared to these rates during the first six months of 2010 had a combined positive impact on bulk liquid storage net revenue outside of the U.S. of approximately 5%. These factors were offset primarily by a softening in certain markets due to various local issues, including volatility in oil industry pricing and renewable energy subsidies. This has led to localized disruptions in the demand for storage. We believe, however, that the overall state of the storage market remains healthy and that the disruptions in demand are expected to correct as the oil markets stabilize. The Company is currently concentrating on aggressive marketing programs in Europe to develop new bulk liquid storage customers, and continuing to evaluate opportunities in markets such as the United Kingdom.

Our total global storage capacity (net of disposals and not including construction in progress) remained consistent at approximately 350 million gallons. The percentage capacity utilization of our bulk liquid storage facilities decreased to 93% at the end of the second quarter of 2011, down from 94% at the end of the second quarter of 2010. This decrease was partially attributable to 2.4 million gallons of capacity taken out of service for normal maintenance as well as timing differences in contracts turning over.

Liquid Feed Supplements

For the first six months of 2011, net revenue for the liquid feed supplements business totaled $142.3 million, an increase of $17.5 million or 14%, compared to net revenue of $124.8 million for the first six months of 2010. Volume for the first six months of 2011 increased 9% to 844,000 tons compared to 771,000 tons for the same period in 2010.

 

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COST OF SALES

 

     Six Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Cost of Sales

   $ 119,200      $ 101,715      $ 17,485   

Gross Profit Margin %

     16.3     18.5     -2.2

For the first six months of 2011, cost of sales for our liquid feed supplements business, including related party purchases from the ED&F Man group, totaled $119.2 million, an increase of $17.5 million or 17%, compared to cost of sales of $101.8 million for the first six months of 2010. The increase in costs of sales was primarily due to the higher volume and an increase in input costs.

Gross profit (net revenue including from related parties, less cost of sales) in our liquid feed supplements business remained consistent at $23.1 million for the first six months of 2011 and 2010. Gross profit margin percentage (net revenues minus cost of sales, divided by net revenues) for the liquid feed supplement business decreased from 18.5% for the second quarter of 2010 to 16.3% for the second quarter of 2011 primarily due in part to certain other income items recognized in 2010 that had a positive impact on gross profit margin percentage in the first six months of 2010 and were not repeated in 2011.

OTHER OPERATING COSTS AND EXPENSES

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Other Operating Costs and Expenses

   $ 29,320       $ 28,849       $ 471   

Other operating costs and expenses for the first six months of 2011 were $29.3 million, an increase of $471,000 from $28.8 million for the first six months of 2010. The increase in the first six months of 2011 was primarily due to higher operating expenses in Europe during the first six months of 2011, as well as fluctuating exchange rates in the Euro, Pound Sterling and Canadian Dollar which rates together increased bulk liquid storage operating expenses outside of the U.S. by approximately 5% during the first six months of 2011 compared to these rates during the first six months of 2010. These factors were partially offset by a decrease in liquid feed supplement other operating costs and expenses resulting from facility efficiencies and product mix changes. Of the total other operating costs and expenses, the bulk liquid storage segment represented 66% and 61% for the first six months of 2011 and 2010 respectively, and the liquid feed supplement segment represented 34% and 38%.

DEPRECIATION AND AMORTIZATION

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Depreciation

   $ 12,644       $ 13,278       $ (634

Depreciation and amortization costs decreased by $634,000 or 5%, to $12.6 million for the first six months of 2011 from $13.3 million for the first six months of 2010. The decrease was mainly due to a one-time expense of $1.2 million in additional depreciation recorded during the second quarter of 2010 as a result of the cumulative impact from 2009 relating to the Company finalizing the assumptions used in assigning useful lives to the property, plant, and equipment acquired in the May 28, 2009 business combination. This was partially offset due to our recent completion of capital investments in the United States, including the expansion of our Port Allen, LA, Sioux City, IA, and Houston, TX facilities which were completed in the second half of 2010. Of the total depreciation, the bulk liquid storage segment represented 78% and 81% for the first six months of 2011 and 2010 respectively, and the liquid feed supplement segment represented 19% for the same periods. The Corporate non-operating segment represented the remaining 3% for 2011, relating mainly to I.T. software.

 

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Table of Contents

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Selling, General, and Administrative Expenses

   $ 16,699       $ 16,870       $ (171

Selling, general and administrative expenses for the first six months of 2011 decreased by $171,000 to $16.7 million, compared to $16.9 million for the first six months of 2010, primarily as a result of lower corporate-related fees including legal and advisory services due to one-time projects in 2010. These lower fees were partially offset by higher U.S. employee medical claim activity in the first six months of 2011. Of the total selling, general, and administrative expenses, the bulk liquid storage segment represented 21% and 20% for the first six months of 2011 and 2010 respectively, the liquid feed supplement segment represented 35% and 33%, and the corporate segment represented the remaining 44% and 47% for the periods.

FOUNDER WARRANT EXPENSE

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Founder Warrant Expense

   $ —         $ 1,381       $ (1,381

During the second quarter of 2010, our shareholders approved the Founder Warrant Amendment which extended the expiration dates of, and otherwise amended, the outstanding founder warrants. As a result, the Company recognized a non-cash expense of $1.4 million during the second quarter of 2010 which was equal to the increase in value of the founders warrants as of the date the amendment was approved. There was no such expense in first six months of 2011.

OPERATING INCOME

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Operating Income

   $ 9,281       $ 6,992       $ 2,289   

Operating income increased by $2.3 million or 33%, to $9.3 million for the first six months of 2011 from $7.0 million for the first six months of 2010. This increase was due in part to a one-time founder warrant expense of $1.4 million in the second quarter of 2010. The increase was also due in part to a decrease in depreciation of $634,000, an increase in bulk liquid storage revenue of $523,000, particularly in the United Kingdom, and a decrease in selling, general, and administrative expenses of $171,000 during the first six months of 2011 compared to the first six months of 2010. These factors were partially offset by higher other operating costs and expenses of $471,000 during the first six months of 2011 compared to the first six months of 2010.

Operating income for the first six months of 2011 resulted from operating income of $12.1 million from the bulk liquid storage segment and $4.9 million from the liquid feed supplements segment, partially offset by corporate costs of $7.7 million. Operating income for the first six months of 2010 resulted from operating income of $12.5 million from the bulk liquid storage segment and $4.1 million from the liquid feed supplements segment, partially offset by corporate costs of $9.6 million.

INTEREST EXPENSE

 

     Six Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Interest Expense, net

   $ (2,567   $ (2,531   $ (36

Interest expense increased slightly to $2.6 million for the first six months of 2011 compared to $2.5 million for the first six months of 2010. The slight increase was driven by higher interest rates, higher facility fees, and higher debt amortization costs in the first six months of 2011, offset by lower borrowings in the first six months of 2011 compared to the first six months of 2010. The impact of the reduction in interest rates and commitment fees payable due to the amendment to our credit facility in July 2011 did not take effect until the third quarter of 2011.

 

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LOSS ON DISPOSAL OF PROPERTY, PLANT & EQUIPMENT

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
    2010
Actual
     Change  

Loss on disposal of property, plant & equipment

   $ (729   $ —         $ (729

Loss on disposal of property, plant & equipment totaled $729,000 for the first six months of 2011. In the first six months of 2010, there were no losses associated with disposals. These losses represent obsolete equipment disposed during the period that no longer had a useful life.

INCOME TAXES

 

     Six Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Income Tax Provision

   $ (1,808   $ (1,369   $ (439

We had a consolidated income tax provision of $1.8 million for the first six months of 2011, compared to a $1.4 million income tax provision for the first six months of 2010. The change was due to the impact of an increase in operating results during the first six months of 2011 compared to that of 2010.

NET INCOME ATTRIBUTABLE TO WESTWAY GROUP, INC.

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Net Income attributable to Westway Group, Inc.

   $ 3,816       $ 2,894       $ 922   

Net income attributable to Westway Group, Inc. increased by $922,000 or 32%, to $3.8 million for the first six months of 2011 as compared to $2.9 million for the first six months of 2010. This increase is primarily due to an increase in operating income of $2.3 million, partially offset by a loss on disposal of property, plant, and equipment of $729,000 and an increase in income tax provision of $439,000.

PREFERRED DIVIDENDS ACCRUED

 

     Six Months Ended
June 30,
       

(in thousands)

   2011
Actual
    2010
Actual
    Change  

Preferred dividends

   $ (2,218   $ (2,125   $ (93

Accruals for preferred dividends increased slightly to $2.2 million for the first six months of 2011 compared to $2.1 million for the first six months of 2010. The slight increase was the result of the additional 1.5 million shares of Series A Convertible Preferred Stock issued in the first six months of 2011 in satisfaction of outstanding accrued but unpaid dividends.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

 

     Six Months Ended
June 30,
        

(in thousands)

   2011
Actual
     2010
Actual
     Change  

Net income applicable to common stockholders

   $ 1,598       $ 769       $ 829   

Net income applicable to common stockholders increased by $829,000 to $1.6 million for the first six months of 2011 as compared to $769,000 for the first six months of 2010. This increase was due to an increase in net income attributable to Westway Group, Inc. of $922,000, partially offset by an increase of preferred dividends accrued of $93,000.

 

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Table of Contents

Trends in Results of Operations

In our bulk liquid storage business, global demand has generally remained strong, notably in Houston and the United Kingdom. We do recognize softness in certain markets due to various local issues, including volatility in oil industry pricing and renewable energy subsidies. This has led to localized disruptions in the demand for storage. We believe, however, that the overall state of the storage market remains healthy and that the disruptions in demand are expected to correct as the oil markets stabilize.

Our liquid feed business continued to achieve higher sales volume in the second quarter of 2011 as compared to the same period in 2010 by providing our customers with products that meet their price points and business needs in a rapidly changing market environment.

This discussion regarding trends contains numerous forward-looking statements. Important factors that could cause our results to differ materially include the intensity of demand for our products and services, the cost of raw materials, the actions of our competitors in our various markets, and other risk factors described in Part II, Item 1A of this Form 10-Q.

Liquidity and Capital Resources

Cash and Working Capital

During the second quarter of 2011, our cash and cash equivalents decreased by $2.2 million from December 31, 2010 to a total of $10.4 million at June 30, 2011. This decrease was the result of cash provided by operating activities of $13.5 million, cash used in investing activities of $17.5 million, cash provided by financing activities of $1.1 million, and a positive exchange rate effect of $682,000.

Our working capital (by which we mean total current assets less total current liabilities) increased by $10.0 million from $27.5 million at December 31, 2010, to $37.4 million at June 30, 2011.

Total net trade accounts receivable, including amounts due from related parties, decreased 16% to $33.7 million at June 30, 2011 from $40.1 million at December 31, 2010, due primarily to the seasonality of the liquid feed supplement business, which is predominately driven by cattle feeding and typically stronger in the fall and winter months (feed season) because cattle are fed grasses during the spring and summer months.

Total accrued expenses and other current liabilities decreased 28% to $23.4 million at June 30, 2011 from $32.3 million at December 31, 2010, due primarily to the issuance of Series A Convertible Preferred Stock in satisfaction of all outstanding accrued dividends through May 1, 2011 that totaled $8.2 million, payments made during the first quarter of 2011 relating to employee bonuses, and a decrease in goods received and not yet invoiced as a result of the seasonality of the liquid feed business.

Sources

Our capital expenditures have been financed primarily with cash flows from operations, periodically supplemented by borrowings from our credit facilities. At June 30, 2011, we had $109.4 million of borrowing capacity available under our $200 million bank revolving credit facility.

Our internal sources of liquidity generally include our cash balances, our cash equivalents (which are readily convertible to cash), and our current cash flows from operations. Our external sources of liquidity include our bank revolving credit facility. Our available sources of liquidity include the balance still available to be drawn down under the credit facility.

Uses

We used cash to fund ongoing operations, including paying for purchases of raw materials, leases of land and equipment, and payroll; to fund capital expenditures for maintenance, expansions, and acquisitions; to pay debt service and taxes; and to repurchase shares of our Class A common stock.

Trends in Liquidity

The cash flows from operations of the bulk liquid storage and liquid feed supplements businesses have been positive for each 12 month fiscal year for the last 3 years. We expect cash flows from operations to be positive for the next twelve months. We also note that the capital expenditures of our two businesses for expansion and acquisitions are likely to increase, consistent with our growth strategy.

 

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Table of Contents

Cash Flows

Operating Activities

Our net cash provided by operating activities for the first six months of 2011 was $13.5 million, whereas in the first six months of 2010, operating activities provided net cash of $17.4 million. This decrease in operating cash flow compared to the first six months of 2010 is largely due to net changes in working capital items, including changes in accounts receivable and accounts payable resulting from the timing of payments received from customers and payments to vendors, as well as a decrease in cash from changes in inventories as a result of higher priced raw materials and higher quantities stored at the end of the first six months of 2011 compared to the end of the comparable period of 2010.

Cash provided by operating activities was generated primarily from bulk liquid storage rentals, throughput fees, and ancillary service fees and sales of liquid feed supplements. Cash was used in operating activities mainly for costs of raw materials, maintenance expenses, payroll costs, utilities, professional services, interest, and taxes.

Investing Activities

Our investing activities resulted in net cash used of $17.5 million for the first six months of 2011, compared to net cash used of $10.5 million for the comparable period in 2010. The change is due to increased capital expenditures, primarily in our bulk liquid storage segment in the United States and Amsterdam, Netherlands. Historically, cash used in our investing activities has primarily been spent on acquisitions of businesses and on expansion of our existing facilities.

Financing Activities

Our financing activities resulted in net cash provided of $1.1 million for the first six months of 2011, compared to net cash provided of $1.7 million for the comparable period in 2010. The difference between the periods is primarily due to payments we made to repurchase shares of our Class A common stock in the first six months of 2011 of $952,000.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

During the first six months of 2011, the effect of exchange rate changes increased our cash and cash equivalents by $682,000, primarily due to the weakening of the U.S. dollar against the Euro, Pound Sterling, and Canadian Dollar during this period. By contrast, during the first six months 2010, the effect of exchange rate changes decreased our cash and cash equivalents by $1.4 million primarily due to the strengthening of the U.S. dollar against the Euro and Pound Sterling.

Future Cash Flows

This section consists almost entirely of forward-looking statements. Important factors that could cause our actual results to differ materially from the statements in this section include changes in the expected profitability of one or both of our businesses, changes in the amount or timing of our expected investments, or changes in the amount or timing of our expected draws under our credit facility.

Sources

We expect our principal sources of liquidity in 2011 to be our cash from operations and our credit facility, as to which the available borrowing capacity on June 30, 2011 was $109.4 million. We expect our cash flow from operating activities to be positive for the remainder of the year and for the next twelve months. As cash flow from operations is a key source of liquidity for us, further decreases in demand for our products or services would reduce the availability of funds, especially any further decrease in demand for bulk liquid storage services by the ED&F Man group, our largest customer.

On July 6, 2011, the Company and its bank syndicate amended the Company’s $200 million credit facility to make the following changes:

 

   

extend the maturity date to July 6, 2015;

 

   

reduce the interest spread added to the two alternate interest rate indexes available under the Credit Agreement from a fixed 3.5% over the LIBOR index and a fixed 2.625% over the alternative base rate to a spread ranging from 2.25% to 3.0% over LIBOR and 1.25% to 2.00% over the alternative base rate, based on the Consolidated Total Leverage Ratio at the end of each fiscal quarter;

 

   

add a new accordion feature to the Company’s existing $200 million line of credit to permit the Company to expand the credit facility in an aggregate amount of up to an additional $50 million;

 

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Table of Contents
   

reduce the annual commitment fee payable on the average daily unused amount of the revolving credit facility from 0.625% to 0.5%;

 

   

amend the Consolidated Total Leverage Ratio covenant to require a maximum ratio of 3.75 to 1.0 until the maturity date, in replacement of a maximum ratio that declined to 3.25 to 1.0 over time;

 

   

provide the Company a limited right to pay dividends of cash, equity or any combination thereof to the holders of its common and preferred stock, subject to certain terms and conditions; and

 

   

in connection with the granting of the right to pay dividends, amend the definition of Consolidated Interest Coverage Ratio, which shows the relation between the Company’s EBITDA and its consolidated interest expense, to require the deduction from EBITDA of the amount paid by the Company as dividends, if any, before computing the ratio.

Uses

We expect to pay operating expenses, maintenance capital expenses, interest payments, and tax payments, as well as expansion and acquisition capital expenditures, discretionary debt principal payments, and payments for repurchases of Class A common stock.

As part of our operating expenses, we expect to continue to make significant purchases of raw materials for our liquid feed supplements business. We and the ED&F Man group have a long-term molasses supply agreement, pursuant to which the ED&F Man group is expected to continue to be our primary supplier of cane molasses. The initial term of the agreement runs until May 28, 2019, after which the agreement provides for automatic renewals for successive one-year periods unless either party gives notice of non-renewal. In September 2010, we entered into a one-year addendum to our molasses supply agreement with the ED&F Man group to provide us with a more favorable pricing mechanism. Following September 2011, this addendum will either be renewed or the pricing of our molasses purchased from the ED&F Man group will be determined in accordance with the original molasses supply agreement.

Also as part of operating expenses, we expect to continue to make significant lease payments. We have long-term operating leases on 21 bulk liquid storage facilities and 12 liquid feed supplements processing and distribution facilities. Typically our leases extend beyond five years.

In the normal course of business, we make investments in the properties and facilities utilized by our bulk liquid storage and liquid feed supplements businesses. As a result, at any given time, we have outstanding contracts with third parties reflecting long-term commitments for capital expenditures not yet incurred. At June 30, 2011, these commitments totaled $15.4 million.

We currently have ongoing expansion projects for the construction of 8.0 million gallons of new storage capacity and associated infrastructure at our Houston 1 terminal, the construction of 2.5 million gallons of new storage capacity at our Houston 2 terminal, and the construction of 4.2 million gallons of new capacity and associated infrastructure at our Amsterdam, Netherlands terminal, with completion of all of these projects expected in the second half of 2011.

Any liquidity in excess of our operating expenses, planned capital expenditures, and payments for stock repurchases is expected to be utilized to repay part of our credit facility or to finance the implementation of our growth strategy, which at this time is focused on expanding our bulk liquid storage business.

Short-term Adequacy

We believe that our current cash and cash equivalents, credit facility, and the cash flow we anticipate to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital needs, to make our planned capital expenditures, to make our anticipated stock repurchases, and to meet our commitments for the next 12 months. We do not expect that we will be in breach of any covenants relating to our outstanding debt during this period.

We expect that our operating expenses, maintenance capital expenditures, interest payments, tax payments, and stock repurchases will generally be funded by cash from operating activities during the remainder of 2011, for the year, and for the next twelve months.

We believe cash generated from operations, combined with our availability to draw on our current credit facility, will be sufficient to fund our expansion and acquisition capital expenditures in 2011 and for the next twelve months. Our expansion and acquisition capital expenditures can generally be accelerated or scaled back depending on our liquidity.

 

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Table of Contents

Cash generated from operating activities can fluctuate depending on global economic conditions. If the availability of credit is tightened due to economic conditions, this could affect the demand of some of our customers for our products and services. Nonetheless, we expect to have sufficient access to cash to complete our committed expansion projects in 2011.

Long-term Adequacy

Beyond the next twelve months, we expect that we will have the ability to generate sufficient liquidity and capital resources to meet our future cash requirements, including our debt obligations, for the reasonably foreseeable future. We base our assessment of the sufficiency of our liquidity and capital resources on the following assumptions:

 

   

our businesses should continue to generate significant operating cash flow on an annual basis;

 

   

the ongoing maintenance capital expenditures associated with our businesses should be readily funded from their annual operating cash flow or available financing; and

 

   

we expect to be able to refinance or extend maturing debt on terms that can be supported by the performance of our businesses.

General

We believe that our financing arrangements provide us with sufficient financial flexibility to fund our operations, debt service requirements, capital expenditure plans, and stock repurchase program. Our ability to access additional debt or equity capital in the long-term depends on the availability of capital markets, our operating and financial performance, and pricing on commercially reasonable terms. From time-to-time, we review our long-term financing and capital structure. As a result of our review, we may periodically explore alternatives to our current capital structure and financing, including the issuance of additional equity or long-term debt, refinancing our credit facility, and other restructurings or financings. In addition, we may from time to time seek to repurchase a portion of our outstanding equity, including common stock and/or warrants, in open market purchases, privately negotiated transactions, or otherwise; and we may also review our corporate dividend policy. These matters, if any, will depend on prevailing market conditions, contractual restrictions, government regulations, and other factors. The amount of these matters may be material and may involve significant amounts of cash and/or financing availability.

Impact of New Accounting Standards

For a discussion of accounting standards, see Note 3 of Notes to Consolidated Financial Statements included in our 2010 Form 10-K. Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

Other Factors Affecting Our Business and Financial Results

In addition to the matters discussed above, our business, financial condition and results of operations are affected by a number of other factors. This quarterly report on Form 10-Q should be read in conjunction with the discussion in our 2010 Form 10-K regarding risk factors, including the factors described in the “Factors that Affect Financial Performance” section of Item 7 and the “Risk Factors” section, Item 1A, in our 2010 Form 10-K, as revised and updated in the “Risk Factors” section, Part II, Item 1A in this Form 10-Q.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our accumulated other comprehensive income as presented in our consolidated statements of stockholders’ equity includes unrealized gains and losses from foreign currency translation. The assets, liabilities and results of operations of certain of our foreign subsidiaries are measured using their functional currency, which is the currency of the foreign economic environment in which they operate. Upon consolidating these subsidiaries, their assets and liabilities are translated to U.S. dollars at currency exchange rates as of the balance sheet date, their revenue and expenses are translated at the weighted average currency exchange rate for the applicable reporting period, and their stockholder’s equity accounts are translated at historical exchange rates during the applicable reporting periods. Gains or losses from translation of foreign subsidiaries are included in accumulated other comprehensive income.

Translation adjustments included in accumulated other comprehensive income as of June 30, 2011 were $7.6 million of unrealized gains primarily due to the weakening of the U.S. dollar against the Euro, Pound Sterling, and Canadian Dollar. This exchange rate change positively impacted the net assets used in our foreign operations and held in local currencies, resulting in an increase in cumulative translation adjustments to a $7.8 million unrealized gain as of June 30, 2011, compared to a $231,000 unrealized gain as of December 31, 2010. We do not presently hedge against the risks of foreign currency fluctuations but are continuing to evaluate the possible future use of foreign currency hedging strategies where we deem appropriate.

 

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For more information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” Item 7A of our 2010 Form 10-K. There were no material changes to our market risk exposure during the first six months of 2011.

 

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the second quarter of 2011, no change in our internal control over financial reporting occurred that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Because of inherent limitations, disclosure controls and procedures provide only reasonable, and not absolute, assurance that their objectives are met.

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

There are no pending legal proceedings to which we are a party, or of which any of our property is the subject, or known by us to be contemplated by governmental authorities, that are material to us, our business, or our financial condition. Moreover, we are not a party to any administrative or judicial proceeding arising under environmental laws or regulations to which a governmental entity is a party.

 

ITEM 1A. RISK FACTORS.

You should carefully consider the risk factors set forth in the “Risk Factors” section, Item 1A, of our 2010 Form 10-K, which are hereby incorporated by reference, as well as the additional risk factor information appearing below in this section and elsewhere in this report. These important factors may cause our actual results to differ materially from those indicated by our forward-looking statements, including those contained in this report. Please also see the section entitled “Forward-Looking Statements” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this quarterly report on Form 10-Q.

There have been no material changes with respect to the risk factors set forth in our 2010 Form 10-K, except the risk factor beginning “An effective registration statement may not be in place.” is now deleted and the following risk factors have been revised to read as follows:

We are the borrower under a credit facility with a syndicate of banks as the lenders. The amount we borrow under this facility or its terms may restrict our operating flexibility, could adversely affect our financial health, and could prevent us from fulfilling certain financial obligations.

We are the borrower under a credit agreement dated as of November 12, 2009, with JPMorgan Chase Bank, N.A., as administrative agent, Regions Bank, as syndication agent, Capital One, N.A., Rabobank Nederland, SunTrust Bank, and Compass Bank (doing business as BBVA Compass), as documentation agents, and the lenders from time to time party thereto (initially, JPMorgan Chase Bank, N.A., Regions Bank, Capital One, N.A., Rabobank Nederland, Suntrust Bank, Compass Bank, Whitney National Bank, Societe Generale, and CoBank ACB) (the “Credit Agreement”). The Credit Agreement was delivered and became effective on November 16, 2009 and has been amended several times.

 

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This revolving credit facility, which now totals $200 million, is scheduled to mature on July 6, 2015. The facility provides for loans at variable rates of interest, and is secured by most of our assets, various pledges of equity, and various guarantees by subsidiaries in our group. For a discussion of the terms of the credit agreement and its security, see the “Liquidity and Capital Resources” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of both our 2010 Form 10-K (which discusses the terms as of March 2011) and this Form 10-Q (which discusses amendments made in July 2011).

Our borrowings under this credit facility are being used primarily for working capital and to assist us in funding of capital expenditures, including acquisitions. As of June 30, 2011, our total indebtedness under this facility was $90.6 million, leaving $109.4 million available for additional borrowing. The amount we borrow under this facility could significantly affect our operating flexibility, our financial health, and our ability to fulfill certain financial obligations. For example, the more we borrow under the facility:

 

   

the more difficult it may be for us to satisfy our current and future debt obligations;

 

   

the more dependent we may be on the credit facility and the more any default under or termination of the credit facility may adversely affect us;

 

   

the greater the portion of cash flows from operating activities we must dedicate to the payment of principal and interest on the indebtedness, thereby reducing the funds available for other purposes;

 

   

the more we may be at a competitive disadvantage to competitors who are not as leveraged; and

 

   

the more vulnerable we are to interest rate fluctuations, as the indebtedness under the facility bears interest at variable rates.

Likewise, the terms of the credit agreement may restrict our operating flexibility, financial health, or ability to fulfill certain financial obligations. For example, the terms of the credit agreement since the amendment in July 2011:

 

   

include not only first priority liens and security interests on the majority of our assets, but also a negative pledge on substantially all our non-mortgaged assets that restricts the encumbrance of such assets, subject to narrow exceptions;

 

   

require us to maintain certain financial covenants, including (a) a maximum consolidated total leverage ratio (as defined in the amended credit agreement) of no more than 3.75 to 1 at the end of each quarter; and (b) a minimum consolidated interest coverage ratio (as defined in the credit agreement) of not less than 3.0 to 1 at the end of each quarter;

 

   

put restrictions on our ability to make capital expenditures, dispose of assets, incur indebtedness, encumber assets, pay dividends, redeem securities, make investments, change the nature of our business, acquire or dispose of a subsidiary, enter into transactions with affiliates, enter into hedging agreements, or merge, consolidate, liquidate, or dissolve;

 

   

provide for the possibility of acceleration of our debt and the termination of all loan commitments under the facility upon the occurrence of an event of default; and

 

   

require the consent of each lender directly affected with respect to most time extensions or forgiveness of any amounts owed.

Our outstanding founder warrants may be exercised in the future, which would result in dilution to our stockholders and increase the number of shares of our Class A common stock eligible for future resale in the public market, which could also have an adverse effect on the market price of our Class A common stock.

At August 5, 2011, there were outstanding founder warrants (i.e., warrants that were sold to a number of our current and former directors and officers through our sponsor, Shermen WSC Holding LLC) to purchase approximately 5.2 million shares of our Class A common stock at $5.00 per share, with a cashless exercise provision. One third of these warrants are schedule to expire on each of May 24, 2012, May 24, 2013, and May 24, 2014.

As of the close of business on August 5, 2011, there were approximately 14.0 million shares of our Class A common stock outstanding, at a market price of $4.75 per share.

It is likely that the warrants will be exercised only if the market price of our Class A common stock is above the warrant’s exercise price. To the extent the warrants are exercised, additional shares of our Class A common stock will be issued, which will result in dilution to our stockholders and will increase the number of shares of Class A common stock eligible for resale in the public market. Sales of such shares of Class A common stock in the public market could adversely affect the market price of our Class A common stock.

 

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Update of Certain Historical Information in Risk Factors

We note the following changes in certain of the historical information included in the risk factors set forth in our 2010 Form 10-K:

 

   

The permitting process has been completed at our Amsterdam, Netherlands terminal expansion project, which will add nine stainless steel tanks totaling approximately 4.2 million gallons of capacity in the aggregate. Completion of this project is expected in the latter half of 2011.

 

   

As of August 5, 2011, there were 32,387,261 shares of Series A Convertible Preferred Stock issued and outstanding, leaving 612,739 available to be issued.

 

   

After May 24, 2011, there were no longer outstanding publicly-traded warrants to purchase shares of our Class A common stock at $5.00 per share, nor were there any further outstanding options issued to underwriters to purchase units. There has been no change in the number of outstanding founder warrants since our 2010 Form 10-K.

 

   

Approximately 12.8 million shares of our Series A Convertible Preferred Stock issued to Agman, a subsidiary of ED&F Man, and 1 million shares of our Class A common stock issued to our sponsor Shermen WSC Holdings LLC are currently being held in escrow, to be released to their respective owners only upon our achievement of certain earnings or share price performance targets.

 

   

As of August 5, 2011, ED&F Man and its affiliates own 47.3% of our outstanding common stock (Class A and Class B common stock combined).

 

   

Mr. Moshenek was re-elected by the holders of our Class A common stock in June 2011, to serve until our 2014 annual meeting of shareholders.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

In January 2011, we issued 1,229,932 shares of Series A Convertible Preferred Stock in the name of Agman Louisiana, Inc. (“Agman”), a subsidiary of ED&F Man, constituting satisfaction in full for the $6,764,626 of outstanding accrued but unpaid dividends on Agman’s shares of Series A Convertible Preferred Stock through December 31, 2010. Of these 1,229,932 shares, 744,845 were delivered to Agman and 485,087 were delivered to the escrow agent for deposit in the escrow account under the Stock Escrow Agreement dated May 28, 2009 among the Company, Agman, Shermen WSC Holding LLC, and the escrow agent.

In April 2011, we issued an additional 200,876 shares of Series A Convertible Preferred Stock in the name of Agman, constituting satisfaction in full for the $1,104,817 of outstanding accrued but unpaid dividends on Agman’s shares of Series A Convertible Preferred Stock through March 31, 2011. Of these 200,876 shares, 121,650 were delivered to Agman and 79,226 were delivered to the escrow agent for deposit in the escrow account under the Stock Escrow Agreement dated May 28, 2009 among the Company, Agman, Shermen WSC Holding LLC, and the escrow agent.

In May 2011, we issued an additional 69,623 shares of Series A Convertible Preferred Stock in the name of Agman, constituting satisfaction in full for the $370,576 of outstanding accrued but unpaid dividends on Agman’s shares of Series A Convertible Preferred Stock through May 1, 2011. Of these 69,623 shares, 42,164 were delivered to Agman and 27,459 were delivered to the escrow agent for deposit in the escrow account under the Stock Escrow Agreement dated May 28, 2009 among the Company, Agman, Shermen WSC Holding LLC, and the escrow agent.

The foregoing 1,500,431 shares were all issued in private placements, not involving a public offering under the Securities Act of 1933, in accordance with a Waiver agreement between the Company and Agman dated December 14, 2010. We did not engage in general solicitation or advertising with regard to the foregoing issuances of shares of Series A Convertible Preferred Stock and did not offer securities to the public in connection with the issuances.

The shares of Series A Convertible Preferred Stock issued to Agman pursuant to the Waiver agreement have the same rights and privileges as the previously issued shares of Series A Convertible Preferred Stock, including the following terms of conversion. A holder of Series A Convertible Preferred Stock has the right, at any time and from time to time, to convert any or all of that holder’s shares of Series A Convertible Preferred Stock into shares of our common stock. Shares of Series A Convertible Preferred Stock owned by persons unrelated to ED&F Man are convertible into shares of Class A common stock, whereas shares of Series A Convertible Preferred Stock owned by ED&F Man or any of its affiliates are convertible into shares of Class B common stock. However, ED&F Man and its affiliates are unable to exercise such conversion rights to the extent it would result in ED&F Man and its affiliates owning more than 49.5% of our outstanding common stock. The number of shares of common stock into which one share of the Series A Convertible Preferred Stock is convertible is

 

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determined by dividing (a) $5.50 plus the amount of any dividends and distributions which have accrued before the applicable conversion date on such share, by (b) $5.50 (subject to adjustments for stock splits, subdivisions, reclassifications, combinations, other distributions, certain repurchases of common stock, and business combinations).

Repurchases of Equity Securities

The table below provides information on purchases made by the Company or any affiliated purchaser thereof during the indicated months of shares of the Company’s equity securities that were registered pursuant to section 12 of the Exchange Act.

 

Period

   (a) Total number
of shares or
other units
purchased
    (b) Average price
paid per share
or unit ($)
     (c) Total number of
shares or
units purchased
as part of publicly
announced plans or
programs
     (d) Maximum number (or
approximate dollar value)
of shares or units
that may yet be
purchased under the plans
or programs
 

4-1-11 to 4-30-11

    

 

37,266 

62,189 

(1) 

(2) 

   

 

4.31

4.19

  

  

    

 

37,266

0

  

  

    

 

366,112

0

  

  

5-1-11 to 5-31-11

     39,700  (1)      4.52         39,700         326,412   

6-1-11 to 6-30-11

     43,083  (1)      4.69         43,083         283,329   

 

(1) On December 15, 2010, we announced that our Board of Directors approved a stock repurchase program for our repurchase of up to 500,000 shares of our Class A common stock. These shares were repurchased under the program during the period indicated. The program is currently approved to continue through November 18, 2011.
(2) On April 12, 2011, we entered into a Termination of Consulting Agreement and General Release with Wayne N. Driggers, terminating his consulting agreement with us. Upon termination of the consulting agreement, these shares were forfeited by Mr. Driggers. We made a payment to Mr. Driggers in lieu of the forfeited shares in the amount of $260,572, which averages to be $4.19 per share.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

We did not suffer any defaults with respect to indebtedness.

With respect to dividend accruals, our certificate of incorporation provides that our Series A Convertible Preferred Stock ranks senior and prior to our common stock with respect to the payment of cash dividends, and that cash dividends in the amount of $0.0344 per share of Series A Convertible Preferred Stock shall accrue on such stock on a quarterly basis, cumulatively, until May 28, 2016, whether or not earned or declared, and whether or not there are any profits, surplus, or other funds legally available for the payment of dividends. On December 14, 2010, we entered into a Waiver agreement with Agman pursuant to which we issued, in three tranches earlier this year, additional shares of Series A Convertible Preferred Stock in satisfaction of all cash dividends accrued through December 31, 2010, March 31, 2011, and May 1, 2011, thus eliminating the dividend accrual as of such dates. The total accrual of such cash dividends on our Series A Convertible Preferred Stock on the date of filing this report, August 15, 2011, is $1,299,809.

 

ITEM 6. EXHIBITS.

See the Exhibit Index following the Signature page, which index is hereby incorporated by reference.

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.

 

WESTWAY GROUP, INC.

/s/ James B. Jenkins

 

Name: James B. Jenkins

Title: Chief Executive Officer

 

/s/ Thomas A. Masilla, Jr.

 

Name: Thomas A. Masilla, Jr.

Title: Chief Financial Officer

Dated: August 15, 2011

 

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EXHIBIT INDEX

The agreements and other documents that have been filed as exhibits to this Form 10-Q have been filed to provide investors with information regarding their terms, but not to provide any other factual information about the Company. The representations and warranties and other provisions of the agreements allocate risks and establish rights and obligations among the parties thereto, and should not be relied on by investors as statements of fact. Moreover, information concerning the subject matter of the representations, warranties, and other provisions may change after the date of the agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

 

Exhibit

Number

 

Exhibit Title

  3.1

  Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on May 28, 2009, as amended by that certain Certificate of Amendment of Amended and Restated Certificate of Incorporation of Westway Group, Inc., filed with the Secretary of State of the State of Delaware on July 12, 2010 (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2010)

  3.2

  Amended and Restated By-laws, dated as of November 4, 2010 (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2010)

  4.1

  Waiver, dated as of May 1, 2011 and executed on June 23, 2011, between Agman Louisiana Inc. and the Company

  4.2

  Fourth Amendment to Credit Agreement, dated as of July 6, 2011, among Westway Group, Inc., as borrower, five of its subsidiaries as guarantors, J.P.Morgan Chase Bank, N.A., as administrative agent, and the lenders from time to time parties thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2011)

10.1

  Waiver, dated as of May 1, 2011 and executed on June 23, 2011, between Agman Louisiana Inc. and the Company (incorporated by reference to Exhibit 4.1 of this Quarterly Report on Form 10-Q)

10.2

  Termination of Consulting Agreement and General Release, dated April 12, 2011, between Wayne N. Driggers and the Company

10.3

  Fourth Amendment to Credit Agreement, dated as of July 6, 2011, among Westway Group, Inc., as borrower, five of its subsidiaries as guarantors, J.P.Morgan Chase Bank, N.A., as administrative agent, and the lenders from time to time parties thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2011)

31.1

  Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

  Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

  Certification of Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

  Certification of Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

  Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) the Consolidated Statements of Operations for the three and six month periods ended June 30, 2011 and 2010, (iii) the Consolidated Statements of Stockholders’ Equity for the six month periods ended June 30, 2011 and 2010, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 and (v) the notes to the Consolidated Financial Statements, tagged as blocks of text.

 

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