-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S34CNstqNto7B/dVR6uuwSIe3uq/TAEMPbIfbsOp8B0dYOPdHEocVrjLBXOgZkkc 7MCRe/u7tocEG+LwRT22ag== 0000745379-97-000003.txt : 19970328 0000745379-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000745379-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENAN TRANSPORT CO CENTRAL INDEX KEY: 0000745379 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 560516485 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12058 FILM NUMBER: 97564815 BUSINESS ADDRESS: STREET 1: 143 W FRANKLIN ST STREET 2: UNIVERSITY SQ WEST POST OFFICE BOX 2729 CITY: CHAPEL HILL STATE: NC ZIP: 27516-3910 BUSINESS PHONE: 9199678221 MAIL ADDRESS: STREET 1: UNIVERSITY SQUARE WEST STREET 2: 143 W FRANKLIN ST P O BOX 2729 CITY: CHAPEL HILL STATE: NC ZIP: 27515-2729 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number 0-12058 ------- KENAN TRANSPORT COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) North Carolina 56-0516485 - ------------------------------------ --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) University Square - West, 143 W. Franklin Street Chapel Hill, North Carolina, 27516-3910 ------------------------------------------------------------ (Address of principal executive offices, including Zip Code) Registrant's telephone number, including Area Code: (919) 967-8221 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value -------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the closing sales price of March 3, 1997, the aggregate market value of the voting stock held by persons other than those who may be deemed affiliates of the registrant was $19,657,280. ------------ The number of shares outstanding of the registrant's common stock was 2,389,497 at March 3, 1997. DOCUMENTS INCORPORATED BY REFERENCE Location in Form 10-K Incorporated Document - --------------------------- ------------------------------------- Part III Items 10, 11, 12 and 13 Portions of the Company's Proxy Statement dated March 27, 1997 in connection with its Annual Meeting to be held on May 5, 1997. Page 2 PART I Item 1. Business - ------------------------------------------------------------------------- Kenan Transport Company (the Company), a North Carolina corporation, was incorporated in 1949. It ranks among the twenty largest tank truck carriers in the country. One customer accounted for 11% of the Company's revenue in 1996. The Company is engaged in the transportation of bulk commodities in intrastate and interstate commerce. The Company primarily serves the petroleum, propane gas and chemical industries. Operations are concentrated in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia. Interstate operations between these states and points throughout the United States are served. The Company provides transportation services to meet its customers' daily requirements through a network of terminals and a fleet of 428 tractors and 645 specialized trailers. The Company's terminals are strategically located in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia, near the major pipeline terminals, chemical production centers and major ports serving the Southeast. The Company's terminals operate as "profit centers" staffed with experienced terminal managers, trained dispatchers, maintenance personnel and professional drivers. The Company has 820 employees. The Company has a large number of competitors with no single competitor being dominant in the industry. The Company competes with the trucking operations of the major oil and chemical companies as well as with independent carriers. Competition is primarily based on price and customer service. The Company considers its business to be somewhat seasonal with the winter heating season providing the highest demand levels. In addition to transportation of petroleum and chemical products, Company operations include storage of fuel in underground storage tanks for use in its operations. Management is committed to the protection of the environment and has procedures in place to ensure compliance with federal and state regulations and to provide appropriate response to spills and leaks that occur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company is involved in various claims and legal actions arising in the normal course of business. It is the opinion of management that these matters will have no significant impact on the financial statements of the Company. Item 2. Properties - ------------------------------------------------------------------------- The Company owns twenty-one real properties located in five states. At December 31, 1996, these properties had a net book value of $10,724,000. Additionally, the Company leases thirteen real properties under leases generally for terms of one to five years. The properties are used for offices, terminals and vehicle maintenance facilities in the operations of the Company. The Company transports freight using over-the-road tractors and trailers which it owns. At December 31, 1996, revenue equipment owned by the Company, less accumulated depreciation, totaled $31,440,000. Page 3 Item 3. Legal Proceedings - ------------------------------------------------------------------------- There are no material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------------------- No matters were submitted during the fourth quarter of 1996 to a vote of security holders, through the solicitation of proxies or otherwise. Item 4(a). Executive Officers of the Registrant - ------------------------------------------------------------------------- Information concerning the executive officers of the Company follows: Name Age Position - -------------------- ---- --------------------------------------- Lee P. Shaffer 58 Director, Chief Executive Officer of the Company beginning in 1996; President of the Company since 1975; Chief Operating Officer of the Company (1975-1996). William L. Boone 57 Vice President-Finance and Secretary of the Company since 1974. Treasurer of the Company beginning in 1996; Assistant Treasurer of the Company (1981-1996). L. Avery Corning 39 Vice President-Operations and Sales beginning in 1994; President (1990- 1994), Redwing Carriers, Inc., Tampa, Florida. Gary J. Knutson 46 Vice President-Marketing of the Company beginning in 1994. Vice President-Sales of the Company (1990-1993). John E. Krovic 41 Vice President-Human Resources and Safety of the Company since 1993. General Manager, Safety Management Incorporated (1992-1993), Norfolk, VA. Vice President-Human Resources (1988- 1992), Southland Industries, Inc. Norfolk, VA. Lee P. Shaffer, III (1) 37 Vice President-Operations Services of the Company beginning in 1994. Director of Operations Services of the Company (1992-1993). Director of Operations of the Company (1988-1992). (1) Lee P. Shaffer, III is the son of Lee P. Shaffer, President and Chief Executive Officer of the Company. Page 4 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------- On October 21, 1986, the Registrant's stock began trading on the NASDAQ Stock Market under the symbol KTCO. The Company had approximately 591 shareholders, including holders whose shares are held in street names, on December 31, 1996. The high and low sale prices and the cash dividends paid per share for each quarter in the last two fiscal years are shown below: 1996 1995 --------------------------- --------------------------- Quarter High Low Dividend High Low Dividend - -------- -------- ------- -------- -------- ------- -------- First $22 $19 $.0650 $20 $17.50 $.0625 Second 21 18.75 .0650 21 19.25 .0625 Third 21.50 20 .0675 22 20 .0650 Fourth 21.50 19 .0675 22.25 20.25 .0650 Page 5 Item 6. Selected Financial Data - ------------------------------------------------------------------------- Selected financial data for the past five years is presented below:
1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------ Operations (in thousands) - --------------------------------- Operating revenue $68,795 $61,717 $59,100 $57,063 $53,750 Operating income 6,244 5,124 5,787 5,421 4,702 Net income (1) 3,805 3,323 3,682 3,435 3,054 Per Share - --------------------------------- Earnings (1) $ 1.59 $ 1.39 $ 1.55 $ 1.45 $ 1.29 Dividends declared .2675 .2575 .2475 .2375 .2275 Book value 19.19 17.86 16.72 15.76 14.56 Market value 19.00 20.75 17.50 17.38 14.00 Financial Position (in thousands) - --------------------------------- Cash, cash equivalents and short-term investments $11,181 $10,106 $13,759 $11,996 $10,816 Working capital 10,034 9,568 12,260 10,766 9,044 Net operating property 44,133 41,265 35,015 32,747 29,577 Total assets 65,044 61,188 57,625 54,727 48,568 Total debt -- -- -- -- -- Stockholders' equity 45,843 42,677 39,771 37,363 34,348 Ratios and Statistics - --------------------------------- Operating ratio 90.9% 91.7% 90.2% 90.5% 91.3% Return on equity (1) 9% 8% 9% 10% 9% Current ratio 2.00 1.98 2.24 2.07 2.02 Debt equity ratio -- -- -- -- -- Average shares outstanding (in thousands) 2,389 2,387 2,377 2,368 2,359 (1) Before the effect of an extraordinary charge in 1994 of $823,000 ($.35 per share).
Page 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------- Results of Operations - 1996 Compared to 1995 - --------------------------------------------- Revenue increased 11% from 1995 to $68,795,000. The $7,078,000 increase in revenue reflects growth in demand for transportation services and the effect of higher prices to our customers to cover increased operating costs. The addition of transportation services to Cary Oil Company, Inc. in July of 1995 and the expansion into Alabama and Tennessee markets in 1995 also contributed to revenue growth for the year. Miles operated increased 8% to 44,177,000 in 1996. Operating expenses increased 11% in 1996 to $62,551,000. The $5,958,000 increase was due in large part to the 8% increase in miles operated, a 23% increase in diesel fuel prices and an 18% increase in depreciation expense. Wages and employee benefits decreased to 50.3% of revenue from 50.9% in 1995. Fuel, parts, tires and other operating expenses increased from 18.7% to 19.1% of revenue in 1996 due primarily to fuel price increases that were substantially offset by fuel surcharges that are included in revenue. Accident claims and insurance costs fell to 3.6% of revenue in 1996 from 4.2% due to lower insurance premiums and claims cost control. Recently completed terminal facilities in Atlanta and Fort Lauderdale resulted in lower communication, utilities and rent expense which decreased to 2.1% of revenue from 2.5% in 1995. The depreciation expense increase to 9.6% of revenue compared to 9.0% in 1995 reflects the impact of new equipment purchased for the Alabama and Tennessee expansion markets, and new terminal facilities in Atlanta and Fort Lauderdale placed in service in 1996. Net interest income and expenses decreased $405,000 from 1995. The reduction stems from lower interest rates and invested cash balances in 1996 from 1995 levels as well as losses recorded from the early retirement of high-mileage tractors. Results of Operations - 1995 Compared to 1994 - --------------------------------------------- Revenue increased 4% from 1994 to $61,717,000. The $2,617,000 increase in revenue reflects implementation of transportation services under a long-term contract with Cary Oil Company, Inc. in July and the expansion into Tennessee and Alabama during the year. Miles operated increased 3% to 40,972,000 in 1995. Operating expenses increased 6% in 1995 to $56,593,000. The $3,280,000 increase was due primarily to the 3% increase in miles operated, added fixed costs incurred in connection with the expansion into the Tennessee and Alabama markets, start-up costs associated with new business and enhanced driver pay and benefit programs. Wages and employee benefits increased to 50.9% of revenue from 50.1% in 1994, largely as a result of the enhancements to driver pay and benefits. The increase in fuel, parts, tires and other operating expenses from 18.3% to 18.7% of revenue in 1995, was due to a 2% increase in average fuel prices and added costs incurred to place operating personnel and equipment in the Tennessee and Alabama expansion areas. Continued control over accident claims and insurance costs resulted in a reduction from 4.3% of revenue to 4.2% in 1995. The increase in communication, utilities and rent expense to 2.5% of revenue from 2.0% in 1994 resulted from an increase in equipment and facilities rent and additional communication costs to operate our new on-line dispatch system. Depreciation expense remained unchanged at 9.0% of revenue. Federal legislation was enacted during 1994 which generally preempted state regulation of intrastate trucking rates, routes and entry. Accordingly, intrastate operating rights of $823,000 (net of tax) were written off as an extraordinary item in 1994. Page 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued - ------------------------------------------------------------------------- Liquidity and Capital Resources - --------------------------------------------- The Company's liquidity and capital resources are adequate. At December 31, 1996, working capital was $10,034,000 compared to $9,568,000 at December 31, 1995 and the current ratios were 2.00 and 1.98, respectively. Cash and cash equivalents totaled $11,181,000 at December 31, 1996 and the Company had no debt outstanding under its $7,000,000 bank line of credit. Net capital expenditures for replacement of tractors and tank trailers and the construction of terminal facilities are projected to be $9,200,000 in 1997. Management believes cash flows from operations and the Company's bank line of credit will be sufficient to fund these planned expenditures as well as 1997 working capital requirements, expansion opportunities and other corporate needs. The Company's operations require the storage of fuel for use in its tractors in both underground and aboveground tanks. The Company has a program to maintain its fuel storage facilities in compliance with environmental regulation. Under the program, the Company incurs costs to replace tanks, remediate soil contamination resulting from overfills, spills and leaks and monitor facilities on an ongoing basis. These costs are recorded when it is probable that a liability has been incurred and the related amount can be reasonably estimated. Such costs have not been and are not expected to be material to the Company's operations or liquidity. Page 8 Item 8. Financial Statements and Supplementary Data - ------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Kenan Transport Company: We have audited the accompanying consolidated balance sheets of Kenan Transport Company (a North Carolina corporation) and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kenan Transport Company and subsidiary as of December 31, 1996 and 1995, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Raleigh, North Carolina, February 7, 1997. Page 9 KENAN TRANSPORT COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, ------------------------- 1996 1995 - ------------------------------------------------------------------------- ASSETS - --------------------------------------------- Current Assets Cash and cash equivalents $11,181 $ 3,220 Short-term investments -- 6,886 Accounts receivable 4,988 4,945 Operating supplies and parts 413 506 Prepayments Tires 1,033 1,238 Insurance, licenses and other 698 639 Deferred income taxes 1,741 1,878 ----------------------- Total Current Assets 20,054 19,312 Operating Property Land 3,531 3,398 Buildings and leasehold improvements 9,279 7,159 Revenue equipment 56,015 54,379 Other equipment 3,923 3,492 ----------------------- 72,748 68,428 Accumulated depreciation (28,615) (27,163) ----------------------- Net Operating Property 44,133 41,265 Other Assets 857 611 ----------------------- $65,044 $61,188 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------------------------- Current Liabilities Accounts payable $ 1,257 $ 975 Wages and employee benefits payable 5,136 4,148 Claims payable 3,409 4,153 Other accrued expenses 166 160 Income taxes currently payable 52 308 ----------------------- Total Current Liabilities 10,020 9,744 Deferred Income Taxes 9,181 8,767 Stockholders' Equity Common stock; no par; 20,000,000 shares authorized; 2,389,497 shares issued and outstanding 2,996 2,996 Retained earnings 42,847 39,681 ----------------------- 45,843 42,677 ----------------------- $65,044 $61,188 ======================= The Notes to Consolidated Financial Statements are an integral part of these balance sheets. Page 10 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Dollars in thousands except per share amounts)
Years Ended December 31, --------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------ Operating Revenue $68,795 $61,717 $59,100 Operating Expenses Wages and employee benefits 34,580 31,412 29,588 Fuel, parts, tires and other 13,138 11,566 10,834 Taxes and licenses 4,261 3,926 3,852 Claims and insurance 2,502 2,567 2,521 Communications, utilities and rent 1,472 1,544 1,205 Depreciation 6,598 5,578 5,313 --------------------------------- 62,551 56,593 53,313 --------------------------------- Operating Income 6,244 5,124 5,787 Interest income and other expenses, net 10 415 334 --------------------------------- Income before Provision for Income Taxes and Extraordinary Item 6,254 5,539 6,121 Provision for income taxes 2,449 2,216 2,439 --------------------------------- Income before Extraordinary Item 3,805 3,323 3,682 Extraordinary Item - write off intrastate operating rights, net of tax -- -- (823) --------------------------------- Net Income 3,805 3,323 2,859 Retained earnings, beginning of the year 39,681 36,973 34,703 Cash dividends (639) (615) (589) --------------------------------- Retained earnings, end of the year $42,847 $39,681 $36,973 ================================= Earnings Per Share Before extraordinary item $ 1.59 $ 1.39 $ 1.55 Extraordinary item -- -- (.35) --------------------------------- $ 1.59 $ 1.39 $ 1.20 ================================= The Notes to Consolidated Financial Statements are an integral part of these statements.
Page 11 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Years Ended December 31, --------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $3,805 $ 3,323 $ 2,859 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item -- -- 823 Depreciation 6,598 5,578 5,313 Deferred income taxes 551 574 747 Changes in current assets and current liabilities 472 (743) 229 Common stock issued under incentive plan -- 198 138 Other (246) (140) (176) --------------------------------- Net cash provided by operating activities 11,180 8,790 9,933 Cash Flows From Investing Activities: Purchases of operating property, net (9,466) (11,828) (7,581) Sales (purchases) of short-term investments, net 6,886 (5,886) 1,950 --------------------------------- Net cash used by investing activities (2,580) (17,714) (5,631) Cash Flows From Financing Activities: Dividends (639) (615) (589) --------------------------------- Net Increase (Decrease) In Cash And Cash Equivalents 7,961 (9,539) 3,713 Cash and Cash Equivalents at Beginning of Year 3,220 12,759 9,046 --------------------------------- Cash and Cash Equivalents at End of Year $11,181 $ 3,220 $12,759 ================================= Supplemental Schedule Of Changes In Current Assets And Current Liabilities: (Increase) decrease in: Accounts receivable $ (43) (696) $ (93) Operating supplies and parts 93 68 114 Prepayments 146 20 394 Increase (decrease) in: Accounts payable 282 (282) 216 Wages and employee benefits payable 988 (455) 494 Claims payable (744) 287 (676) Other accrued expenses 6 7 22 Income taxes currently payable (256) 308 (242) --------------------------------- $ 472 $ (743) $ 229 ================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for income taxes $ 2,154 $ 1,334 $ 1,934 ================================= The Notes to Consolidated Financial Statements are an integral part of these statements.
Page 12 KENAN TRANSPORT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Significant Accounting Policies - --------------------------------------------------------------- Preparation of Financial Statements The consolidated financial statements are prepared in conformity with generally accepted accounting principles and include the accounts of Kenan Transport Company and its wholly-owned subsidiary which was merged into Kenan Transport Company effective December 31, 1996. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash Equivalents and Short-Term Investments The Company classifies investments maturing within three months from the date of purchase as cash equivalents. Investments maturing within twelve months of the balance sheet date are classified as short-term investments. All investments at December 31, 1996 were cash equivalents. At December 31, 1995 the Company had short-term investments in municipal bonds totaling $6,886,000. The bonds were classified as held-to-maturity investments and recorded at cost. These investments matured in 1996 and were sold at market value, which approximated cost. Tires The cost of replacement tires is included in operating supplies and parts in the accompanying Consolidated Balance Sheets. When installed on revenue equipment, tire costs are included in prepayments and amortized over their useful life based on mileage. Operating Property Operating property is recorded at cost, net of tires. Maintenance and repairs are charged to operating expenses as incurred; renewals and improvements are capitalized. Depreciation is computed on the straight-line method using lives of 5 to 15 years for revenue equipment, 15 to 40 years for buildings, remaining life of leases for leasehold improvements, and 2 to 10 years for other equipment. Claims Payable Claims payable represents the estimated cost of open claims that is retained and paid by the Company under its insurance programs for workers' compensation, bodily injury and property damage. These estimates are based on historical information along with certain assumptions about future cash flows. Changes in assumptions for such things as medical costs, environmental hazards, and legal actions, as well as changes in actual experience could cause these estimates to change. In the accompanying Consolidated Statements of Income and Retained Earnings, workers' compensation costs are included in wages and employee benefits expenses, and other claims costs are included in claims and insurance expenses. Page 13 Environmental Expenditures The Company's operations require the storage of fuel for use in its tractors in both underground and aboveground tanks. The Company incurs costs to replace tanks, remediate soil contamination resulting from overfills, spills and leaks and monitor facilities on an ongoing basis. These costs are recorded when it is probable that a liability has been incurred and the related amount can be reasonably estimated. Income Taxes The provision for income taxes includes federal and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Earnings Per Share Earnings per share are based upon the weighted average number of shares outstanding. The weighted average number of shares outstanding was 2,389,497 (1996), 2,387,265 (1995) and 2,376,765 (1994). Note 2 - Purchase of Assets - --------------------------------------------------------------- On June 29, 1995, the Company purchased the transportation assets of Cary Oil Company, Inc. for cash and entered into a long-term contract to provide transportation services to Cary Oil. Note 3 - Extraordinary Item - --------------------------------------------------------------- On August 23, 1994, the Federal Aviation Authorization Act of 1994 was enacted. Among other matters, the Act generally prohibits states from regulating rates, routes and entry of motor carriers beginning January 1, 1995. As a result of this legislation, the Company wrote off the recorded value of intrastate operating rights as an extraordinary charge of $823,000 (net of $31,000 in deferred income tax benefits) during the third quarter of 1994. Note 4 - Bank Line of Credit - --------------------------------------------------------------- A Bank Credit Agreement provides a $7,000,000 line of credit at the prime interest rate. The agreement is subject to renewal annually on May 1, and in the event it is not renewed, the outstanding balance at termination is payable over 60 months. The agreement has been renewed through May 1998. Restrictive covenants related to current ratio, net worth and funded debt, among others, were met at December 31, 1996. There have been no amounts outstanding under the agreement since 1988. Page 14 Note 5 - Income Taxes - --------------------------------------------------------------- Deferred income taxes reflect the net tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and assets at December 31, 1996 and 1995 were as follows (dollars in thousands): 1996 1995 --------------------- Liabilities Depreciation $8,715 $8,384 Prepaid tires 392 470 Other 525 405 --------------------- Deferred tax liabilities 9,632 9,259 Assets Claims payable 1,294 1,577 Employee benefits 610 569 Other 288 224 --------------------- Deferred tax assets 2,192 2,370 --------------------- Net deferred tax liability $7,440 $6,889 ===================== The provisions for income taxes consist of the following (dollars in thousands): 1996 1995 1994 -------------------------------- Currently payable Federal $1,568 $1,387 $1,428 State 330 255 264 -------------------------------- 1,898 1,642 1,692 Deferred 551 574 747 -------------------------------- $2,449 $2,216 $2,439 ================================ The statutory federal income tax rates differ from the effective income tax rates as follows: 1996 1995 1994 ------------------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% Increase in tax rate resulting from: State income taxes, net of federal tax benefit 4.0 4.0 4.0 Other items, net 1.2 2.0 1.8 ------------------------------- Effective income tax rate 39.2% 40.0% 39.8% =============================== Page 15 Note 6 - Incentive Plans - --------------------------------------------------------------- The Company has a stock incentive plan for key employees that became effective January 1, 1994. The Plan enables the Company to provide long-term incentives for key employees while encouraging optimum growth in Company profits. Over a ten-year period, up to 56,600 shares of common stock may be earned if targeted increases in net income are attained. Employees may elect to receive up to half of the value of their incentive bonuses in cash. There were 11,158 shares of stock earned in 1994 and issued in March 1995, increasing common stock by $198,000 in 1995. No shares were earned in 1995. Approximately 5,300 shares of stock were earned in 1996 that will be issued in 1997. The actual number of shares will be based upon the market value of a share on the day preceding issuance. There would be no impact on reported net income from applying the disclosure requirements of SFAS 123 "Accounting for Stock-Based Compensation." Compensation expense related to the Plan is recognized in the year earned. Note 7 - Retirement Plans - --------------------------------------------------------------- The Company has a Profit-Sharing Retirement Plan covering all employees. Contributions are determined annually by the Board of Directors. The Plan is funded currently and contributions expensed were $1,173,000 (1996), $980,000 (1995) and $1,285,000 (1994). The Company has a Supplemental Executive Retirement Plan (SERP) to replace retirement benefits lost by certain officers under the Tax Reform Act of 1986. The SERP is an unfunded, deferred compensation plan with benefits payable upon retirement, death or other termination of employment under provisions similar to those of the Profit-Sharing Retirement Plan. Net amounts expensed under the SERP were $127,000 (1996), $109,000 (1995) and $56,000 (1994). Note 8 - Lease and Other Commitments - --------------------------------------------------------------- Certain terminal facilities, office space and equipment, and revenue equipment are rented under operating leases expiring at various dates through 1999. At December 31, 1996, total future minimum rental payments required under leases having initial or remaining noncancellable lease terms in excess of one year are: 1997 $435,000 1998 346,000 1999 306,000 A bank letter of credit of $3,160,000 is outstanding on the Company's behalf in connection with its insurance program. The Company is involved in various claims and legal actions arising in the normal course of business. It is the opinion of management that these matters will have no significant impact on the financial statements of the Company. Page 16 Note 9 - Nature of Business - --------------------------------------------------------------- The Company transports commodities in bulk for the petroleum and chemical industries in the southeastern United States, and its customers include international corporations in these industries. One customer accounted for 11% of the Company's revenue in 1996, 12% in 1995 and 11% in 1994. Concentration of credit risks to the Company consists primarily of trade receivables from petroleum and chemical companies. The Company maintains an allowance for doubtful accounts which totaled $290,000 and $261,000 at December 31, 1996 and 1995, respectively, to cover estimated credit losses. Note 10 - Summary of Quarterly Financial Information (Unaudited) - --------------------------------------------------------------- (Dollars in thousands) --------------------------------- Operating Operating Net Earnings Quarter Revenue Income Income Per Share - ------------------------------------------------------------------------- 1996 First $17,587 $1,648 $1,040 $.44 Second 16,637 1,221 763 .32 Third 16,638 1,271 716 .30 Fourth 17,933 2,104 1,286 .54 1995 First $15,397 $1,536 $1,024 $.43 Second 14,490 1,032 707 .30 Third 15,128 924 583 .24 Fourth 16,702 1,632 1,009 .42 Page 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures - ------------------------------------------------------------------------- None Page 18 PART III Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------------------- Information with respect to directors required by Item 401 of Regulation S-K, appearing under the heading "Election of Directors" in the Registrant's proxy statement dated March 27, 1997 for the Annual Meeting of Shareholders to be held May 5, 1997, is incorporated herein by reference. Information with respect to executive officers required by Item 401 of Regulation S-K is included as Item 4(a) in Part I. Information with respect to directors and executive officers required by Item 405 of Regulation S-K, appearing under the heading "Section 16(a) Beneficial Ownership Compliance" in the Registrant's proxy statement dated March 27, 1997 for the Annual Meeting of Shareholders to be held May 5, 1997, is incorporated herein by reference. Item 11. Executive Compensation - ------------------------------------------------------------------------- Information with respect to executive compensation required by Item 402 of Regulation S-K, appearing under the heading "Compensation and Related Matters" in the Registrant's proxy statement dated March 27, 1997 for the Annual Meeting of Shareholders to be held May 5, 1997, is incorporated herein by reference. Item 12. Securities Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------- Information with respect to securities ownership of certain beneficial owners and management required by Item 403 of Regulation S-K, appearing under the headings "Principal Shareholders" and "Security Ownership of Management" in the Registrant's proxy statement dated March 27, 1997 for the Annual Meeting of Shareholders to be held May 5, 1997, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------------------------- Information with respect to certain relationships and related transactions required by Item 404 of Regulation S-K, appearing under the heading "Compensation Committee Interlocks and Insider Participation" in the Registrant's proxy statement dated March 27, 1997 for the Annual Meeting of Shareholders to be held May 5, 1997, is incorporated herein by reference. Page 19 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K --------------------------------------------------------------- (a)(1) Financial Statements -------------------- The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Consolidated Form 10-K. (2) Schedules --------- None (3) Exhibits -------- Exhibits to this report are listed in the accompanying Index to Exhibits. (b) Reports on Form 8-K ------------------- No reports on Form 8-K have been filed by the Registrant during the last quarter of the period covered by this report. Page 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. KENAN TRANSPORT COMPANY ----------------------- (Registrant) By: /s/ Lee P. Shaffer ------------------------------------------------------ Lee P. Shaffer, President and Chief Executive Officer Date: March 14, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - ------------------------ --------------------------- -------------- Principal Financial Officer: /s/ William L. Boone Vice President-Finance; March 14, 1997 - ------------------------ Secretary; Treasurer William L. Boone Controller or Principal Accounting Officer: /s/ J. Earl Cowan Controller March 14, 1997 - ------------------------ J. Earl Cowan Page 21 Signature Title Date - ------------------------ -------------------------- --------------- Directors: /S/ Thomas S. Kenan, III Chairman of the Board March 14, 1997 - ------------------------ of Directors Thomas S. Kenan, III /S/ Owen G. Kenan Vice Chairman of the March 14, 1997 - ------------------------ Board of Directors Owen G. Kenan /S/ William O. McCoy Director March 14, 1997 - ------------------------ William O. McCoy /S/ Paul J. Rizzo Director March 14, 1997 - ------------------------ Paul J. Rizzo /S/ William C. Friday Director March 14, 1997 - ------------------------ William C. Friday /S/ Braxton Schell Director March 14, 1997 - ------------------------ Braxton Schell /S/ Paul Wright, Jr. Director March 14, 1997 - ------------------------ Paul Wright, Jr. /S/ Kenneth G. Younger Director March 14, 1997 - ------------------------ Kenneth G. Younger Page 22 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Financial Statements in Form 10-K - --------------------------------------------------------- ------------ Report of Independent Public Accountants relating to the Consolidated Financial Statements and Notes thereto 9 Consolidated Balance Sheets - December 31, 1996 and 1995 10 Consolidated Statements of Income and Retained Earnings - For the Years Ended December 31, 1996, 1995 and 1994 11 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1996, 1995 and 1994 12 Notes to Consolidated Financial Statements 13-17 Page 23 INDEX TO EXHIBITS Exhibit No. Description - ----------- --------------------------------------------------------- 3(a) Charter Documents filed as Exhibit 3(a) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10. 3(b) Articles of Amendment dated May 1987, filed as Exhibit 4(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1987, which is incorporated herein by reference to such Form 10-Q. 3(c) Articles of Amendment dated May 1988, filed as Exhibit 4(f) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1988, which is incorporated herein by reference to such Form 10-Q. 3(d) Bylaws filed as Exhibit 3(b) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10. 3(e) Amendments to the Bylaws of the Registrant adopted March 15, 1985, March 2, 1987 and March 1, 1990, filed as Exhibit 4(e) to the Registrant's Form 10-K for the year ended December 31, 1989, which is incorporated herein by reference to such Form 10-K. 3(f) Amended and Restated Bylaws of the Registrant adopted September 26, 1990, filed as Exhibit 4(d) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1991, which is incorporated herein by reference to such Form 10-Q. 3(g) Amendment to the Bylaws of the Registrant adopted May 6, 1991, filed as Exhibit 4(e) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1991, which is incorporated herein by reference to such Form 10-Q. 3(h) Amendment to the Bylaws of the Registrant adopted October 7, 1991, filed as Exhibit 4(f) to the Registrant's Form 10-Q Quarterly Report for the quarter ended September 30, 1991, which is incorporated herein by reference to such Form 10-Q. 3(i) Amendment to the Bylaws of the Registrant as adopted October 21, 1996 by the Registrant's Board of Directors. 4(a) Specimen Stock Certificate filed as Exhibit 4(a) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10. Page 24 INDEX TO EXHIBITS - continued Exhibit No. Description - ----------- --------------------------------------------------------- 4(b) Credit Agreement between First Union National Bank and the Registrant dated May 22, 1984, filed as Exhibit 4(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1984, which is incorporated herein by reference to such Form 10-Q. Management contracts or compensatory plans or arrangements Exhibits 10(a) - 10(d) 10(a) Employee Stock Bonus Plan effective January 1, 1985, filed as Exhibit 10(c) to the Registrant's Form 10-K for the year ended December 31, 1984, which is incorporated herein by reference to such Form 10-K. 10(b) Amendment to Employee Stock Bonus Plan dated January 6, 1987, filed as Exhibit 10(d) to the Registrant's Form 10-K for the year ended December 31, 1986, which is incorporated herein by reference to such Form 10-K. 10(c) Supplemental Executive Retirement Plan, effective January 1, 1990, filed as Exhibit 10(e) to the Registrant's Form 10-K for the year ended December 31, 1990, which is incorporated herein by reference to such Form 10-K. 10(d) 1994 Stock Bonus Plan effective January 1, 1994, filed as Exhibit 10(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1994, which is incorporated herein by reference to such Form 10-Q. 23 Consent of Independent Public Accountants. 27 Financial Data Schedule for the year ended December 31, 1996. Page 25 EX-3 2 Exhibit 3(i) KENAN TRANSPORT COMPANY Board of Directors Resolution Concerning Amendment to Bylaws October 21, 1996 RESOLVED, that the Amended and Restated Bylaws of the Corporation, as previously amended (hereafter, the "Bylaws"), be and hereby are amended by the deletion of the first sentence of Section 2 of Article IV of the Bylaws, and the substitution of a new first sentence therefor, as follows: 2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman, the President or any two directors. FURTHER RESOLVED, that the Bylaws be and hereby are amended further by the deletion of Section 5 of Article V of the Bylaws, and the substitution of a new Section 5 therefor, as follows: 5. Chairman. The Chairman shall preside at all meetings of the Board of Directors and of the shareholders, and shall perform such other duties as may be directed by the Board. FURTHER RESOLVED, that the Bylaws be and hereby are amended further by the deletion of Section 5A of Article V of the Bylaws, and the substitution of a new Section 5A therefor, as follows: 5A. Vice Chairman. In the event of the absence of the Chairman, the Vice Chairman shall preside at all meetings of the Board of Directors and of the shareholders, and shall perform such other duties as may be directed by the Board. FURTHER RESOLVED, that the Bylaws be and hereby are amended further by the deletion of the first sentence of Section 6 of article V of the Bylaws, and the substitution of a new first sentence therefor, as follows: 6. President. The President shall, unless otherwise determined by the Board of Directors, be the Chief Executive Officer of the corporation and shall have general responsibility for the business and affairs of the corporation, subject to the supervision and control of the Board of Directors. EX-23 3 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Kenan Transport Company: As Independent Public Accountants, we hereby consent to the incorporation of our report, dated February 7, 1997, included in this Form 10-K, into the Company's previously filed Registration Statement No. 33-2494 on Form S-8, dated January 23, 1986. Arthur Andersen LLP Raleigh, North Carolina, March 27, 1997. EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000745379 KENAN TRANSPORT COMPANY 1,000 YEAR DEC-31-1996 DEC-31-1996 11,181 0 4,988 0 413 20,054 72,748 28,615 65,044 10,020 0 0 0 2,996 42,847 65,044 0 68,795 0 62,551 0 0 0 6,254 2,449 3,805 0 0 0 3,805 1.59 1.59
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