-----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, BP/R4v9kDS7f8Mx0OT1diUe+qWAel+doWyfcoAr+j+mJlv9RXF1YmOEe1iI+vyVt ah+ahmRCfO5sLPdbVBylvQ== 0000745379-98-000003.txt : 19980217 0000745379-98-000003.hdr.sgml : 19980217 ACCESSION NUMBER: 0000745379-98-000003 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980212 ITEM INFORMATION: FILED AS OF DATE: 19980212 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-12058 FILM NUMBER: 98535544 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 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report: February 12, 1998 ----------------- 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 incorporation or organization) Identification No.) University Square - West, 143 W. Franklin Street Chapel Hill, North Carolina, 27516-3910 ----------------------------------------------------------- (Address of principal executive offices, including Zip Code) (919) 967-8221 ----------------------------------------------------------- (Registrant's telephone number, including Area Code) AMENDMENT NO.1 The Registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K, filed December 12, 1997, as set forth in the pages attached hereto: Item 7(a) Financial statements of business acquired; Item 7(b) Pro forma financial information. Item 7(c) Exhibits Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements. Audited financial statements of Transport South, Inc. (the business acquired): Report of Independent Certified Public Accountants Balance Sheets - December 31, 1996 and September 30, 1997 (unaudited) Statements of Income - Year ended December 31, 1996 and nine months ended September 30 1997 (unaudited) Statement of Stockholders' Equity - Year ended December 31, 1996 and nine months ended September 30 1997 (unaudited) Statements of Cash Flows - Year ended December 31, 1996 and nine months ended September 30 1997 (unaudited) Notes to Financial Statements for the year ended December 31, 1996 (b) Kenan Transport Company and Transport South, Inc. Pro Forma Combined Financial Statements (Unaudited): Pro Forma Combined Condensed Balance Sheet - September 30, 1997 Pro Forma Combined Condensed Statements of Income - Year Ended December 31, 1996 Pro Forma Combined Condensed Statements of Income - Nine Months Ended September 30, 1997 (c) Exhibits. The Exhibits to this Report are listed in the Index to Exhibits set forth elsewhere herein. Page 1 Item 7(a) Financial Statements - ----------------------------------------------------------------------- FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TRANSPORT SOUTH, INC. December 31, 1996 Page 2 Report of Independent Certified Public Accountants Board of Directors Transport South, Inc. We have audited the accompanying balance sheet of Transport South, Inc. as of December 31, 1996, and the related statements of income, stockholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe our audit provides 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 Transport South, Inc. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Grant Thornton LLP Atlanta, Georgia April 9, 1997 Page 3 Transport South, Inc. BALANCE SHEETS ASSETS December 31, September 30, 1996 1997 ------------ ------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents $1,754,035 $ 250,542 Accounts receivable: Trade, less allowance for doubtful accounts of $236,000 in 1996 2,040,650 3,232,417 Affiliates 1,629,875 6,703,642 Other current assets 246,885 308,299 ------------ ------------ Total current assets 5,671,445 10,494,900 PROPERTY AND EQUIPMENT, AT COST 28,297,304 26,217,271 Less accumulated depreciation (13,394,721) (14,442,291) ------------ ------------ Net property and equipment 14,902,583 11,774,980 ------------ ------------ OTHER ASSETS 599,125 404,185 ------------ ------------ $21,173,153 $22,674,065 ============ ============ The accompanying notes are an integral part of these statements. Page 4 Transport South, Inc. BALANCE SHEETS - continued LIABILITIES AND STOCKHOLDERS EQUITY December 31, September 30, 1996 1997 ------------ ------------ (Unaudited) CURRENT LIABILITIES Current portion of long-term debt $ 50,007 $ 51,914 Current portion of capital lease obligations 1,293,606 1,147,305 Accounts payable: Trade 2,528,994 1,877,447 Affiliates 706,489 2,355,642 Accrued claims 1,924,121 3,028,013 Accrued payroll and benefits 716,610 938,360 Other accrued liabilities 461,635 201,213 ------------ ------------ Total current liabilities 7,681,462 9,599,894 OTHER LIABILITIES Long-term debt 52,565 13,388 Capital lease obligations 3,921,212 2,769,775 Other liabilities 162,916 86,251 ------------ ------------ Total other liabilities 4,136,693 2,869,414 STOCKHOLDERS' EQUITY Common stock, $.01 par value, authorized 10,000,000, issued and outstanding 943,664 shares 9,437 9,433 Additional paid-in capital 4,320,626 4,332,496 Retained earnings 5,024,935 5,862,828 ------------ ------------ Total stockholders' equity 9,354,998 10,204,757 ------------ ------------ $21,173,153 $22,674,065 ============ ============ Page 5 Transport South, Inc. STATEMENTS OF INCOME Nine months Year ended ended December 31, September 30, 1996 1997 ------------ ------------ (Unaudited) Operating revenue $43,941,655 $32,115,326 Operating expenses Wages and employee benefits 21,831,945 15,397,859 Fuel, parts, tires and other 13,894,641 9,125,515 Taxes and licenses 641,312 459,629 Claims and insurance 1,238,753 1,929,013 Communications, utilities and rent 2,078,899 1,506,384 Depreciation and amortization 4,295,044 2,951,502 ------------ ------------ 43,980,594 31,369,902 ------------ ------------ Income (loss) from operations (38,939) 745,424 Other income (expense) Gain on sale of property and equipment 431,341 171,411 Interest expense (404,486) (229,339) Interest income - affiliate 99,431 176,130 Other, net 51,514 31,676 ------------ ------------ 177,800 149,878 ------------ ------------ Income before income taxes 138,861 895,302 Income tax expense 25,034 36,090 ------------ ------------ Net income $ 113,827 $ 859,212 ============ ============ PRO FORMA INFORMATION (UNAUDITED) Historical net income before income taxes $ 138,861 $ 895,302 Pro forma income tax expense $ 116,000 $ 430,000 Pro forma net income $ 22,861 $ 465,302 Pro forma net income per common share $ .03 $ .49 Weighted average shares 888,637 944,312 The accompanying notes are an integral part of these statements. Page 6 Transport South, Inc. STATEMENT OF STOCKHOLDERS' EQUITY
Common stock Additional Total -------------------- paid-in Retained stockholders' Shares Amount capital earnings equity ------- ------- ---------- ---------- ----------- Balance, December 31, 1995 883,506 $8,835 $3,695,298 $6,079,352 $ 9,783,485 Purchase and retirement of stock (5,131) (51) (583) (49,738) (50,372) Sale of stock 65,289 653 625,911 - 626,564 Cash dividends - - - (1,118,507) (1,118,507) Net income - - - 113,828 113,828 ------- ------- ---------- ---------- ----------- Balance, December 31, 1996 943,664 9,437 4,320,626 5,024,935 9,354,998 Purchase and retirement of stock (unaudited) (3,808) (38) (20,828) (21,319) (42,185) Sale of stock (unaudited) 3,460 34 34,792 - 34,826 Purchase and sale of stock for note receivable (unaudited) - - (2,094) - (2,094) Net income - - - 859,212 859,212 ------- ------- ---------- ---------- ----------- Balance, September 30, 1997 (unaudited) 943,316 $9,433 $4,332,496 $5,862,828 $10,204,757 ======= ======= ========== ========== ===========
The accompanying notes are an integral part of this statement. Page 7 Transport South, Inc. STATEMENTS OF CASH FLOWS Nine months Year ended ended December 31, September 30, 1996 1997 ------------ ----------- (Unaudited) Cash flows from operating activities: Net income $ 113,828 $ 859,212 Non-cash items included in income: Depreciation and amortization 4,295,044 2,951,504 Provision for losses on accounts receivable 110,925 66,015 Gain on disposal of assets (431,341) (171,411) Cash effects of changes in: Accounts receivable 64,543 (1,257,782) Other current assets 29,908 (61,414) Accounts payable (271,249) (651,547) Accrued claims 315,560 1,103,892 Accrued payroll and benefits (434,942) 221,750 Other accrued liabilities (28,601) (260,422) Other liabilities (115,000) (76,665) Net receivable from affiliate 165,653 797,885 ----------- ----------- Net cash provided by operating activities 3,814,328 3,521,017 ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (6,177,857) (97,899) Cash proceeds from sale of assets 558,511 640,349 Net decrease (increase) in loans to affiliate 5,616,500 (4,222,499) ----------- ----------- Net cash used by investing activities (2,846) (3,680,049) Cash flows from financing activities: Payments on notes payable (114,171) (37,270) Repayments on capital lease obligations (1,426,050) (1,297,738) Cash dividends (1,118,507) - Proceeds from issuance of stock 626,564 34,826 Repurchase of stock (50,372) (44,279) ----------- ----------- Net cash used by financing activities (2,082,536) (1,344,461) ----------- ----------- Net increase (decrease) in cash 1,728,946 (1,503,493) Cash and cash equivalents, at beginning of period 25,089 1,754,035 ----------- ----------- Cash and cash equivalents, at end of period $1,754,035 $ 250,542 =========== =========== The accompanying notes are an integral part of these statements. Page 8 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE 1 - NATURE OF OPERATIONS Transport South, Inc. is a common carrier of petroleum products throughout the southern United States and its customers include gasoline and other petroleum product retailers. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property and Equipment - Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Income Taxes - Taxable income, losses and credits flow through to the stockholders pursuant to the Company's election of "S" Corporation income tax status. Accordingly, income tax expense includes only those income taxes payable to states which do not recognize "S" Corporation status. The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when it is more likely than not that the asset will not be realized. Deferred income taxes were not significant at December 31, 1996. Income tax payments for the years ended December 31, 1996 totalled $50,450. Cash - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Pro Forma Net Income Per Common Share (Unaudited) - Pro forma net income per common share is based on the weighted average number of common shares and common equivalent shares outstanding during the period. 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 accrual experience could cause these estimates to change. In the accompanying Statement of Income, workers' compensation costs are included in wages and employee benefits expenses and other claims costs are included in claims and insurance expenses. Page 9 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1996 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Fair Value of Financial Instruments - The Company's financial instruments include cash, cash equivalents and long-term obligations. The carrying value of cash and cash equivalents approximates fair value due to the relatively short period to maturity of the instruments. The carrying value of the Company's long-term obligations approximates fair value based upon borrowing rates currently available to the Company for borrowings with comparable terms. Interim Financial Information - The accompanying balance sheet as of September 30, 1997 and accompanying statements of income and cash flows for the nine months ended September 30, 1997, included herein have been prepared by the Company and are unaudited. The information furnished in the unaudited financial statements referred to above includes all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. These adjustments are all of a normal recurring nature. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Page 10 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1996 NOTE 3 - PROPERTY AND EQUIPMENT The components and estimated lives of property and equipment are as follows at December 31, 1996: Estimated useful lives (years) ----------- Transportation equipment: Tractors $13,834,336 5 Trailers 13,230,194 7 ----------- 27,064,530 Furniture, Fixtures and equipment 1,037,724 3-5 Land 84,050 Land improvements 20,974 15 Buildings and improvements 90,026 13 ----------- $28,297,304 =========== NOTE 4 - LONG-TERM DEBT Long-term debt consists of the following at December 31, 1996: Installment notes payable, requiring monthly repayments of $4,500, including interest at 5% $102,572 Less current maturities 50,007 ----------- $ 52,565 =========== Future maturities of the installment note payable are approximately $50,000 for 1997 and $50,000 for 1998. Interest payments on long-term debt and capital lease obligations for the year ended December 31, 1996 totalled $399,854. Page 11 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1996 NOTE 5 - CAPITAL LEASE OBLIGATIONS The Company has a master lease agreement with a bank which provides for lease financing of tractors and trailers. Assets under capital leases are capitalized using interest rates appropriate at the inception of each lease. The lease terms range from 60 - 84 months and require the Company to fund a guaranteed residual value at the end of the lease term. The cost and related accumulated amortization of tractors and trailers under capital leases were as follows at December 31, 1996: Capital lease equipment $ 8,671,684 Accumulated amortization (3,713,007) ----------- $ 4,958,677 =========== The following is a schedule by years of future minimum payments under capital leases as of December 31, 1996: Year ending December 31, 1997 $ 1,597,209 1998 1,838,536 1999 1,419,324 2000 533,425 2001 500,802 ----------- Total 5,889,296 Less: amounts representing interest 674,478 Present value of capital lease ----------- obligations 5,214,818 Less: current portion 1,293,606 ----------- Long-term portion of capital lease obligations $ 3,921,212 =========== Page 12 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1996 NOTE 6 - TRANSACTIONS WITH AFFILIATE Various transactions with an affiliated company are summarized as follows for the year ended December 31, 1996: Revenues from transportation services $14,000,000 Fuel, insurance and administrative services expenses $2,200,000 At December 31, 1996, approximately $200,000 of accounts receivable from affiliates represents short-term cash investments managed by an affiliate. Interest income from these receivables from affiliates was $99,431 in 1996, and is included in other income. NOTE 7 - COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Company has acquired certain assets of petroleum carriers and entered into compensation and non-compete agreements with the sellers. The agreements require fixed annual payments as well as variable payments based on sales through 1999. Fixed annual payments on these compensation and non-compete agreements are as follows: Year ending December 31, 1997 $ 115,000 1998 115,000 1999 48,000 ---------- $ 278,000 ========== The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position. Page 13 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1996 NOTE 8 - LEASES The Company leases certain terminal locations and transportation equipment under both cancelable and non-cancelable operating leases. Total lease expense was approximately $1,125,000 in 1996. Future commitments on non-cancelable leases are as follows at December 31, 1996: Lease Year ending December 31, Obligation ---------- 1997 $ 924,000 1998 882,000 1999 435,000 2000 222,000 2001 113,000 ---------- $2,576,000 ========== NOTE 9 - INCOME TAXES (Unaudited) A pro forma adjustment for income taxes is shown on the statement of income, as if the Company was taxed as a "C" corporation. The 1996 pro forma provision for income taxes differs from the amount of income tax determined by applying the applicable federal rates due to the following: Tax at applicable federal rate of 34% $ 47,000 State tax, net 6,000 Non-deductible items, primarily meals and entertainment 44,000 Other 19,000 -------- $116,000 ======== Page 14 Transport South, Inc. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1996 NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) has issued the following Statements of Financial Accounting Standards (SFAS): SFAS 128, Earnings Per Share, which is effective for financial statements for periods ending after December 15, 1997. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. SFAS 129, Disclosure of Information about Capital Structure, which is effective for financial statements for periods ending after December 15, 1997. SFAS 129 requires disclosure of certain information about a Company's securities. Management does not expect the adoption of these new standards to have a material impact on the Company's results of operations or financial condition. Page 15 Item 7(b) Kenan Transport Company and Transport South, Inc. Unaudited Pro Forma Condensed Financial Statements - ------------------------------------------------------------------------ The following sets forth unaudited pro forma information for the Company as of September 30, 1997, and for the nine months ending September 30, 1997, and the year ended December 31, 1996 after giving effect to the Transaction described in Note 1 hereto. The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as if the Transaction occurred on September 30, 1997. The unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended September 30, 1997, and the year ended December 31, 1996, are presented as if the Transaction occurred as of the beginning of the period presented. In management's opinion, all material adjustments necessary to reflect the transaction are presented in the pro forma adjustments column, which are described below. The unaudited Pro Forma Condensed Consolidated Balance Sheet and the unaudited Pro Forma Condensed Consolidated Statements of Income should be read in conjunction with the Consolidated Financial Statements of Kenan Transport Company and the notes thereto. The unaudited Pro Forma Condensed Consolidated Balance Sheet is not necessarily indicative of what the actual financial position of the Company would have been at September 30, 1997, nor does it purport to represent the future financial position of the Company. The unaudited Pro Forma Condensed Consolidated Statements of Income are not necessarily indicative of what the actual results of operations of the Company would have been assuming the transaction had been consummated as of the beginning of the respective periods, nor does it purport to represent the results of operations for future periods. Page 16 Kenan Transport Company UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1997 (Dollars in thousands) (Unaudited) Historical -------------------- Transport Pro Forma Pro Forma Kenan South Adjustments Total --------- --------- ------------ -------- Current Assets $21,692 $10,495 (10,495) (a) $13,763 (10,903) (b) 474 (c) 2,500 (d) Operating Property, Net 45,058 11,775 (11,775) (a) 52,058 7,000 (c) Other Assets 1,151 404 (404) (a) 8,742 7,591 (c)(e) -------- -------- -------- $67,901 $22,674 $74,563 ======== ======== ======== Current Liabilities $10,716 $ 9,600 (8,126) (a) $13,233 500 (d) 543 (e) Deferred Income Taxes 9,119 9,119 Long-term Debt and Lease Obligations 2,869 (724) (a) 4,145 2,000 (d) Stockholders' Equity 48,066 10,205 (10,205) (a) 48,066 -------- -------- -------- $67,901 $22,674 $74,563 ======== ======== ======== Adjustments: (a) Reflects the elimination of assets and liabilities and equity not acquired in the transaction. (b) Reflects the cash used to consummate the acquisition. (c) Reflects the allocation of purchase price. (d) Reflects the borrowing under the Company's line of credit to maintain certain working capital needs as a result of the acquisition. (e) Reflects the estimate of transaction costs. The accompanying notes are an integral part of these condensed consolidating pro forma financial statements. Page 17 Kenan Transport Company UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME Nine-Month Period Ending September 30, 1997 (Dollars in Thousands) (Unaudited) Historical -------------------- Transport Pro Forma Pro Forma Kenan South Adjustments Total --------- --------- ------------ -------- Operating Revenues $52,429 $32,115 (11,115) (a) $73,429 Operating Expenses 48,344 31,370 (9,800) (b) 68,374 (1,540) (c) -------- -------- -------- Operating Income 4,085 745 5,055 Interest expense (229) (160) (d) (389) Interest income and other 168 379 547 -------- -------- -------- Income before taxes 4,253 895 5,213 Provision for income taxes 1,633 36 530 (e) 2,199 -------- -------- -------- Net income $ 2,620 $ 859 $ 3,014 ======== ======== ======== Basic and diluted earnings per share $ 1.10 $ 1.26 ======== ======== Adjustments: (a) Reflects the elimination of customers which are not expected to be retained by the Company. (b) Reflects the elimination of operating expenses which are not expected to be incurred by the Company due to the reduced operating revenue. (c) Reflects the elimination of depreciation and amortization of the Seller and the recognition of depreciation and amortization of $1,412 related to acquired assets. (d) Reflects the interest expense on the draw down on the Company's line of credit of $2,500. (e) Reflects the income taxes related to the pro forma net income of the Seller. The accompanying notes are an integral part of these condensed consolidating pro forma financial statements. Page 18 Kenan Transport Company UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME Year Ending December 31, 1996 (Dollars in Thousands) (Unaudited) Historical -------------------- Transport Pro Forma Pro Forma Kenan South Adjustments Total --------- --------- ------------ -------- Operating Revenues $68,795 $43,942 (15,942) (a) $96,795 Operating Expenses 62,551 43,981 (14,500) (b) 89,617 (2,415) (c) -------- -------- -------- Operating Income 6,244 (39) 7,178 Interest expense (404) (210) (d) (614) Interest income and other 10 582 592 -------- -------- -------- Income before taxes 6,254 139 7,156 Provision for income taxes 2,449 25 350 (e) 2,824 -------- -------- -------- Net income $ 3,805 $ 114 $ 4,332 ======== ======== ======== Basic and diluted earnings per share $ 1.59 $ 1.81 ======== ======== Adjustments: (a) Reflects the elimination of customers which are not expected to be retained by the Company. (b) Reflects the elimination of operating expenses which are not expected to be incurred by the Company due to the reduced operating revenue. (c) Reflects the elimination of depreciation and amortization of the Seller and the recognition of depreciation and amortization of $1,880 related to acquired assets. (d) Reflects the interest expense on the draw down on the Company's line of credit of $2,500. (e) Reflects the income taxes related to the pro forma net income of the Seller The accompanying notes are an integral part of these condensed consolidating pro forma financial statements. Page 19 Kenan Transport Company NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands) 1. The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as if the Transaction occurred on September 30, 1997. The unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended September 30, 1997, and the year ended December 31, 1996, are presented as if the Transaction occurred as of the beginning of the period presented. The Company purchased a majority of the transportation assets of Transport South Inc. on December 1, 1997. The purchase price for the acquired assets consisted of $10,903 that was paid from the Company's existing cash balances and $3,619 in assumed liabilities. The excess of cost over the fair value of net assets acquired resulting from the preliminary price allocation is $7,591. The Transaction will be accounted for by the Company as a purchase whereby the basis for accounting for Transport South, Inc.'s assets and liabilities will be based upon their fair market values at the date of the acquisition. Pro forma adjustments, including the preliminary purchase price allocation and estimated cost savings resulting from the Transaction represent the Company's preliminary determination of these adjustments and are based upon preliminary information, assumptions and operating decisions which the Company considers reasonable under the circumstances. Final amounts may differ significantly from those set forth herein. 2. Basis of Presentation The accompanying Unaudited Condensed Consolidated Pro Forma Financial Statements of Kenan Transport Company (the Company) have been prepared in accordance with the instructions to Form 8-K and do no include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 1996, included in the Company's Form 10-K dated March 14, 1997. Page 20 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. KENAN TRANSPORT COMPANY (Registrant) DATE: February 12, 1998 BY: /s/ William L. Boone -------------------------- Vice President-Finance and Chief Financial Officer Page 21 INDEX TO EXHIBITS The exhibits filed as part of this report are listed below: Exhibit Number Description - --------- --------------------------------------------------------- 23 Consent of Independent Certified Public Accountants Page 22 EX-23 2 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We have issued our report dated April 9, 1997, accompanying the financial statements of Transport South, Inc. included in the Form 8-K/A, dated February 12, 1998, of Kenan Transport Company. We hereby consent to the incorporation by reference of said report in the Registration Statement of Kenan Transport Company on Form S-8 (File No. 33-2494, dated January 23, 1986). Grant Thornton LLP Atlanta, Georgia February 12, 1998 -----END PRIVACY-ENHANCED MESSAGE-----