-----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, LbRoWmMKD60hkZztcZXJGVzKM5TjUVX8kPwg+WNh4tESW+Kn/LVtHETLYPaozH3S ggYvp/l1xqE8kNxsFwBP0Q== 0000745379-98-000012.txt : 19980515 0000745379-98-000012.hdr.sgml : 19980515 ACCESSION NUMBER: 0000745379-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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-Q SEC ACT: SEC FILE NUMBER: 000-12058 FILM NUMBER: 98619567 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 ------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1998 -------------------------- ----------------------------- Common stock, no par value 2,400,462 KENAN TRANSPORT COMPANY INDEX Page ---- Part I - Financial Information Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 1 Consolidated Statements of Income for the three months ended March 31, 1998 and 1997 2 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 3 Notes to Consolidated Financial Statements 4 - 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 7 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K 8 Signatures 9 Index to Exhibits 10 PART I - FINANCIAL INFORMATION KENAN TRANSPORT COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands) March 31, December 31, 1998 1997 ASSETS (Unaudited) (Note 1) - ------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 4,604 $ 3,422 Accounts receivable 11,230 8,020 Operating supplies and parts 515 521 Prepayments Tires 1,583 1,471 Insurance, licenses and other 2,130 886 Deferred income taxes 1,851 1,747 ------------------------ Total Current Assets 21,913 16,067 Operating Property Land 3,464 3,464 Buildings and leasehold improvements 10,985 10,968 Revenue equipment 71,301 65,974 Other equipment 5,579 4,755 ------------------------ 91,329 85,161 Accumulated depreciation (35,255) (32,922) ------------------------ Net Operating Property 56,074 52,239 Intangible Assets 11,359 7,559 Other Assets 1,571 1,250 ------------------------ $90,917 $77,115 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------- Current Liabilities Current maturities of long-term debt $ 875 $ 500 Capital lease obligations 1,416 995 Accounts payable 3 872 2,517 Wages and employee benefits payable 8,532 6,641 Claims payable 3,570 3,553 Income taxes payable 654 108 ------------------------ Total Current Liabilities 18,919 14,314 Long-Term Debt 9,500 2,000 Capital Lease Obligations 1,386 2,075 Deferred Income Taxes 10,540 9,358 Stockholders' Equity Common stock; no par; 20,000,000 shares authorized; 2,400,462 and 2,394,780 shares issued and outstanding 3,293 3,096 Retained earnings 47,279 46,272 ------------------------ 50,572 49,368 ------------------------ $90,917 $77,115 ======================== The Notes to Consolidated Financial Statements are an integral part of these balance sheets. Page 1 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended March 31, 1998 and 1997 (Unaudited and dollars in thousands except per share amounts) 1998 1997 - ------------------------------------------------------------------------ Operating Revenue $28,481 $17,746 Operating Expenses Wages and employee benefits 14,277 8,950 Fuel and other operating expenses 6,079 3,732 Depreciation 2,507 1,655 Taxes and licenses 1,653 1,094 Claims and insurance 1,011 644 Equipment rents 923 130 ------------------------ 26,450 16,205 ------------------------ Operating Income 2,031 1,541 Interest expense (138) (5) Interest income and other expenses, net 33 51 ------------------------ Income before Provision for Income Taxes 1,926 1,587 Provision for income taxes 751 611 ------------------------ Net Income $ 1,175 $ 976 ======================== Weighted average number of shares outstanding (in thousands) 2,400 2,395 Basic and diluted earnings per share $ .49 $ .41 Operating ratio 92.9% 91.3% Dividends paid per share $ .0700 $ .0675 The Notes to Consolidated Financial Statements are an integral part of these statements. Page 2 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 and 1997 (Unaudited and dollars in thousands) 1998 1997 - ------------------------------------------------------------------------ Cash Provided by (Applied to): Operations $ 2,990 $ 2,022 Purchases of operating property, net (1,009) (203) Business acquisition (7,863) -- Debt and lease obligations 7,232 -- Dividends (168) (162) ------------------------ Net Increase in Cash and Cash Equivalents 1,182 1,657 Beginning Cash and Cash Equivalents 3,422 11,181 ------------------------ Ending Cash and Cash Equivalents $ 4,604 $12,838 ======================== The Notes to Consolidated Financial Statements are an integral part of these statements. Page 3 KENAN TRANSPORT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation - --------------------------- The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods. The balance sheet at December 31, 1997 has been taken from the audited financial statements at that date. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. 2. Business Acquisitions - --------------------------- On December 1, 1997, the Company purchased the majority of the transportation assets of Transport South, Inc. for cash and entered into a long-term contract to provide transportation services to its parent, RaceTrac Petroleum, Inc. in the southeastern United States and Texas. On February 28, 1998, the Company acquired 100% of the outstanding stock of Petro-Chemical Transport, Inc., a wholly owned subsidiary of CITGO Petroleum Corporation. Petro-Chemical Transport is a tank truck carrier serving the petroleum industry in the Southeast, Midwest and on the West Coast. The acquisition, net of cash acquired, required a cash investment totaling $7,863,000. The Company financed the acquisition through its line of credit facility. The acquisitions have been accounted for using the purchase method of accounting. The accompanying consolidated statements of income include results of operations of Transport South during the first quarter of 1998 and results of operations of Petro-Chemical Transport, Inc. beginning March 1, 1998. The purchased assets and liabilities assumed have been recorded in the Company's financial statements at their estimated fair market values. The excess of the purchase cost over the fair value of net assets acquired in the acquisitions (goodwill) is included in intangible assets in the accompanying consolidated balance sheets and is being amortized over 20 years on a straight-line basis. The following unaudited pro forma summary presents the consolidated results of operations of the Company for the first quarter of 1998 and 1997, as if the acquisitions had occurred as of January 1, 1998 and 1997. The pro forma information does not purport to be indicative of what would have occurred had the acquisitions been made as of those dates or of results which may occur in the future (dollars in thousands except per share amounts). Pro-Forma Information (unaudited) -------------------------------------------------------------------- 1998 1997 ---------------------- Revenue $35,241 $34,736 Net income 1,261 1,211 Basic and diluted earnings per share .53 .51 Page 4 KENAN TRANSPORT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Long-Term Debt - -------------------- On February 13, 1998, the Company negotiated an unsecured $20,000,000 Reducing Line of Credit Facility with a bank. The agreement replaces the Company's previous $7,000,000 line of credit. The line reduces $500,000 per quarter beginning July 1, 1998 and matures in March 2003. Interest under the agreement is at variable rates based, at the Company's option, on the Bank's Prime Rate or LIBOR. The credit agreement contains various covenants, none of which negatively impact the Company's liquidity or capital resources at this time. During the first quarter the Company borrowed $7,500,000 to finance its acquisition of Petro-Chemical Transport, Inc. At March 31, 1998, the Company had $10,000,000 outstanding under the new credit facility and $375,000 payable under a short-term note obligation assumed in the acquisition of Petro-Chemical. The short-term note was paid in April of 1998. There was no outstanding debt at March 31, 1997. Page 5 KENAN TRANSPORT COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected the Company's financial position and operating results during the periods included in the accompanying financial statements. Results of Operations - ------------------------------- Revenue for the first quarter of 1998 was $28,481,000 compared to $17,746,000 for the first quarter of 1997. Net income was $1,175,000 compared to $976,000 in 1997. Earnings per share were $.49 compared to $.41 during the same period last year. Miles operated increased 54% from the first quarter of 1997. First quarter revenue increased 60% as a result of the impact of two major acquisitions that were completed over the last four months. The Company purchased the transportation assets of Transport South, Inc. of Smyrna, Georgia on December 1, 1997 in a cash transaction. On February 28, 1998, the Company purchased the stock of Petro-Chemical Transport, Inc., the trucking subsidiary of CITGO Petroleum Corporation in a cash transaction. Revenue attributed to the Transport South business acquisition were approximately $6,850,000 for the first quarter. Revenues of Petro-Chemical Transport for March 1998 totaled $3,380,000. Operating expenses for the first quarter of 1998 increased $10,245,000 or 63% over 1997 levels. The increase in operating expenses was primarily the result of the Company's two recent acquisitions. Lower fuel prices in 1998 were more than offset by increases in driver pay, higher outside maintenance costs, and equipment rents. The Company's operating ratio for the quarter was 92.9% compared to 91.3% in 1997. The average balance of outstanding debt and capital lease obligations during the first quarter of 1998 was approximately $8,000,000. There was no outstanding debt during the first quarter of 1997. Interest expense was $138,000 for the first quarter of 1998 compared to $5,000 in 1997. Liquidity and Capital Resources - ------------------------------- At March 31, 1998, cash and cash equivalents totaled $4,604,000, an increase of $1,182,000 from the end of 1997. Working capital of $2,994,000 was up $1,241,000 from year-end 1997 and the current ratios were 1.16 and 1.12, respectively. At March 31, 1998, the Company had outstanding debt and capital lease obligations totaling $13,177,000 compared to $5,570,000 at December 31, 1997. Cash and cash equivalents decreased $8,234,000 from the March 31, 1997 balance as a result of the Company's acquisition of Transport South, Inc. during the fourth quarter of 1997. The Company has second quarter cash commitments of approximately $3,500,000 for tractor replacements. Management believes that cash flows from operations and the Company's bank line of credit will be sufficient to fund these planned expenditures as well as 1998 working capital requirements, expansion opportunities and other corporate needs. Page 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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 7 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) The Exhibits to this Form 10-Q are listed on the accompanying Index to Exhibits. (b) The following reports on Form 8-K have been filed during the quarter ended March 31, 1998: Financial statement schedules and pro forma financial information relating to the Registrant's purchase of the majority of transportation assets of Transport South, Inc. was filed on Form 8-K/A, February 13, 1998. A Current Report on Form 8-K was filed on March 13, 1998, announcing the Registrant's acquisition of Petro- Chemical, Inc. Financial statement schedules and pro forma financial information relating to the Registrant's acquisition of Petro-Chemical, Inc. was filed on Form 8K/A, May 13, 1998. Page 8 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: May 14, 1998 BY:/s/ William L. Boone ---------------------------- Vice President-Finance and Chief Financial Officer Page 9 INDEX TO EXHIBITS The exhibits filed as part of this report are listed below: Exhibit Number Description --------- -------------------------------------------------------- 27 Financial Data Schedule for the quarter ending March 31, 1998. Page 10 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000745379 KENAN TRANSPORT COMPANY 1,000 3-MOS DEC-31-1998 MAR-31-1998 4,604 0 11,230 0 515 21,913 91,329 35,255 90,917 18,919 0 0 0 3,293 47,572 90,917 0 28,481 0 26,450 (33) 0 138 1,926 751 1,175 0 0 0 1,175 .49 .49
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