-----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, AyVmhh7uYOHOUkKgXjOqUtY/rIAi+TgAXKjYMpEA5sboTkIcD2e2OYOAAauUkTRG IXkdo8ncLqdHB/N0Rag7xA== /in/edgar/work/20000810/0000905870-00-000028/0000905870-00-000028.txt : 20000921 0000905870-00-000028.hdr.sgml : 20000921 ACCESSION NUMBER: 0000905870-00-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENAN TRANSPORT CO CENTRAL INDEX KEY: 0000745379 STANDARD INDUSTRIAL CLASSIFICATION: [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: 690463 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 0001.txt SECOND QUARTER 10-Q 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 June 30, 2000 ---------------------- 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 July 31, 2000 --------------------------- -------------------------------- Common stock, no par value 2,421,562 KENAN TRANSPORT COMPANY INDEX Page ------ Part I - Financial Information Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 1 Consolidated Statements of Income for the three and six months ended June 30, 2000 and 1999 2 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 3 Notes to Condensed Consolidated Financial Statements 4 - 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9 Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders 10 Item 5 - Exhibits and Reports on Form 8-K 10 Signatures 11 Index to Exhibits 12 PART I - FINANCIAL INFORMATION KENAN TRANSPORT COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, December 31, 2000 1999 ASSETS (Unaudited) (Note 1) - ------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 4,243 $ 7,466 Accounts receivable, net 10,152 10,966 Operating supplies and parts 680 676 Prepayments: Tires 2,543 2,257 Insurance, licenses and other 1,677 1,484 Deferred income taxes 1,511 1,861 -------------------------------- Total Current Assets 20,806 24,710 -------------------------------- Operating Property Land 3,464 3,464 Buildings and leasehold improvements 11,551 11,496 Revenue equipment 87,059 79,888 Other equipment 7,343 6,859 -------------------------------- 109,417 101,707 Accumulated depreciation (42,392) (40,625) -------------------------------- Net Operating Property 67,025 61,082 -------------------------------- Intangible Assets, net 10,080 10,368 -------------------------------- Other Assets 2,442 2,131 -------------------------------- $ 100,353 $ 98,291 =============================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------ Current Liabilities Capital lease obligations $ 846 $ 867 Accounts payable 5,689 4,214 Wages and employee benefits payable 8,500 9,008 Claims payable 3,495 4,156 -------------------------------- Total Current Liabilities 18,530 18,245 -------------------------------- Long-Term Debt 6,000 6,000 -------------------------------- Capital Lease Obligations 2,801 3,261 -------------------------------- Deferred Income Taxes 12,570 12,434 -------------------------------- Shareholders' Equity Common stock; no par; 20,000,000 shares authorized; 2,421,562 shares issued and outstanding 4,400 4,400 Retained earnings 56,665 54,678 Deferred incentive compensation (613) (727) -------------------------------- Total Shareholders' Equity 60,452 58,351 -------------------------------- $ 100,353 $ 98,291 ================================ The Notes to Condensed Consolidated Financial Statements are an integral part of these balance sheets. Page 1 KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited and in thousands except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------ Operating Revenue $ 39,327 $ 34,016 $ 77,606 $ 67,977 Operating Expenses Wages and employee benefits 20,075 17,776 40,183 35,326 Fuel and other operating expenses 8,866 7,136 17,813 14,191 Depreciation and amortization 3,086 2,678 5,957 5,347 Taxes and licenses 1,934 1,835 3,928 3,709 Claims and insurance 1,469 1,404 2,840 2,782 Equipment rents 1,462 1,359 2,844 2,764 - ------------------------------------------------------------------------------------------------------ 36,892 32,188 73,565 64,119 - ------------------------------------------------------------------------------------------------------ Operating Income 2,435 1,828 4,041 3,858 Interest Expense (162) (241) (333) (442) Interest Income and Other Expenses, Net 59 171 184 481 - ------------------------------------------------------------------------------------------------------ Income before Provision for Income Taxes 2,332 1,758 3,892 3,897 Provision for Income Taxes 920 692 1,536 1,526 - ------------------------------------------------------------------------------------------------------ Net Income $ 1,412 $ 1,066 $ 2,356 $ 2,371 ====================================================================================================== Basic and diluted earnings per share $ .58 $ .44 $ .97 $ .98 Operating ratio 93.8% 94.6% 94.8% 94.3% Dividends paid per share $ .0750 $ .0725 $ .1500 $ .1450
The Notes to Condensed Consolidated Financial Statements are an integral part of these statements. Page 2 KENAN TRANSPORT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2000 and 1999 (Unaudited and dollars in thousands) 2000 1999 - ------------------------------------------------------------------------------ Cash Provided by (Used in): Operations $ 9,239 $ 8,084 Purchases of operating property, net (11,612) (2,288) Debt and capital lease obligations, net (481) (777) Dividends (369) (357) - ------------------------------------------------------------------------------ Net (Decrease) Increase in Cash and Cash Equivalents (3,223) 4,662 Beginning Cash and Cash Equivalents 7,466 8,023 - ------------------------------------------------------------------------------ Ending Cash and Cash Equivalents $ 4,243 $ 12,685 ============================================================================== The Notes to Condensed Consolidated Financial Statements are an integral part of these statements. Page 3 KENAN TRANSPORT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation - ------------------------------ The accompanying condensed 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, Petro-Chemical Transport, Inc. All significant intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements included herein have been prepared by Kenan Transport Company (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Consolidated Balance Sheet as of December 31, 1999 has been taken from the audited financial statements as of that date. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-K for the year ended December 31, 1999. The condensed consolidated financial statements included herein reflect all adjustments (none of which are other than normal recurring accruals) that are, in the opinion of management, necessary for a fair presentation of the information included. The results of operations for the three and six months ended June 30, 2000 and 1999 are not necessarily indicative of the results to be expected for the full year. 2. Recent Accounting Pronouncements - ----------------------------------------- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires that upon adoption all derivative instruments be recognized in the balance sheet at fair value and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of certain changes in fair value are recorded in other comprehensive income pending recognition in earnings. SFAS No. 137 subsequently deferred the effective date of SFAS No. 133 for the Company to January 1, 2001. The Company will adopt SFAS No. 133 at that time. The application of Statement 133 is not expected to have a significant impact on the Company's financial position or results of operations. Page 4 KENAN TRANSPORT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Earnings Per Share - -------------------------- A reconciliation of net income and the weighted average number of shares outstanding used in calculating basic and diluted earnings per share is presented in the table below (in thousands, except per share amounts): Three Months Ended Six Months Ended June 30 June 30 ------------------- ----------------- 2000 1999 2000 1999 ----------------------------------------------- Net Income $ 1,412 $ 1,066 $ 2,356 $ 2,371 ============================================== Weighted Average Shares: Basic shares 2,422 2,422 2,422 2,422 Dilutive effect of stock options -- -- -- -- ---------------------------------------------- Diluted shares 2,422 2,422 2,422 2,422 ============================================== Basic and diluted earnings per share $ 0.58 $ 0.44 $ .97 $ .98 During the quarters ended June 30, 2000 and June 30, 1999, the weighted average stock options outstanding of 395,567 and 328,900, respectively, were antidilutive and not included in the calculation of diluted net income per share. For the six-month periods ended June 30, 2000 and June 30, 1999, the weighted average stock options outstanding of 362,233 and 328,900, respectively, were antidilutive and not included in the calculation of diluted net income per share. 4. Long-Term Debt - ---------------------- On February 13, 1998, the Company negotiated an unsecured $20,000,000 Reducing Line-of-Credit Facility (the facility) with a bank. Funds available under the line reduce $500,000 per quarter beginning July 1, 1998 to a minimum line of $10,000,000. The facility matures in March 2003. Interest on borrowings under the facility is variable based on LIBOR plus an applicable margin. The Company had $6,000,000 outstanding under the facility at June 30, 2000 and December 31, 1999. As of June 30, 2000, the Company had an unused line of $10,000,000 available under the facility. The credit agreement contains the following financial covenants: (1) Funds from Operations to Funded Debt Ratio, and (2) Funded Debt to Capitalization Ratio. The Company was in compliance with the covenants as of June 30, 2000 and December 31, 1999. The Company has entered into a simple interest rate swap agreement to manage costs and risks associated with changing interest rates. Under the agreement, the Company exchanges at specific intervals the difference between the fixed and variable rate interest amounts calculated by reference to the notional amount with any differential recorded as an adjustment to interest expense. The agreement effectively changes a portion of the Company's interest rate exposure on the line-of-credit from a floating rate to a fixed rate. At June 30, 2000, the notional principal amount of this agreement totaled $5,000,000. The agreement matures in March 2003. The average variable rates during the first six months of 2000 and 1999 were 6.1% and 5.0%, respectively, compared to a fixed rate of 6.5% for these periods. The Company does not hold or issue derivative instruments for trading purposes. Page 5 KENAN TRANSPORT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Nonqualified Stock Options - ---------------------------------- On May 1, 2000, 100,000 nonqualified stock options were awarded to key employees under the Company's 1998 Long-Term Incentive Plan. The options have an exercise price of $21.00, which is equal to the fair value at the date of grant. The options have a ten-year term with vesting periods of one to three years from the date of grant. The Company applies Accounting Principles Board Opinion No. 25 (APB No.25), "Accounting for stock Issued to Employees," in accounting for stock option awards. In accordance with APB No. 25, the Company properly did not record compensation expense for the 100,000 stock options granted on May 1, 2000. Page 6 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 second quarter of 2000 was $39,327,000 compared to $34,016,000 for the second quarter of 1999, a 16% increase from year to year. Net income was $1,412,000 compared to $1,066,000 in 1999. Earnings per share were $.58 compared to $.44 during the periods for each year. Miles operated increased 10% from the second quarter of 1999. The increase in miles operated was due to adding new customers and growth within the existing, targeted customer base. Price adjustments to offset the increased costs of higher fuel prices and driver pay and benefits contributed to a 5% increase in revenue for the second quarter of 2000 compared to 1999. Operating expenses for the second quarter of 2000 increased $4,704,000 (15%) over the second quarter of 1999. The increase in operating expenses was primarily due to increases in miles operated, higher fuel prices, and increases in driver pay rates and benefit costs. Fuel expense increased $1,390,000 due to 70% higher fuel prices and the increase in miles operated. Wages and employee benefits increased $2,299,000 due to the increase in volume and the Company increasing driver wages and providing higher benefits in order to continue attracting and retaining professional drivers. The Company's second quarter operating ratio improved to 93.8% from 94.6% in 1999 due to continued growth. Interest expense was $162,000 for the second quarter of 2000 compared to $241,000 in 1999. The average balances of outstanding debt and capital lease obligations during the second quarter of 2000 and 1999 were approximately $9,800,000 and $14,800,000, respectively. Revenue for the first six months of 2000 was $77,606,000 compared to $67,977,000 for 1999, a 14% increase from year to year. Net income was $2,356,000 compared to $2,371,000 in 1999. Earnings per share were $.97 compared to $.98 during the same period last year. Miles operated increased 9% from the first six months of 1999. Operating expenses for the first six months of 2000 totaled $73,565,000, an increase of $9,446,000 (15%) due primarily to the higher volume and increases in wages and employee benefits and fuel costs. Wages and employee benefits expense increased 14% and $4,857,000, and fuel expense increased 108% and $3,135,000. Price adjustments to offset the increased costs of higher fuel prices and driver pay and benefits contributed to a 5% increase in revenue for the first six months of 2000 compared to 1999. Page 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF Financial CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources At June 30, 2000, cash and cash equivalents totaled $4,243,000, a decrease of $3,223,000 from December 31, 1999. The decrease in cash and cash equivalents was primarily due to the purchase of tractors and trailers during the first six months under a replacement program designed to maintain an efficient, highly productive fleet. The additional cash used to pay for the tractors and trailers was generated from cash provided by operations. Working capital of $2,276,000 was down $4,189,000 from year-end 1999. At June 30, 2000, the Company had outstanding debt and capital lease obligations totaling $9,647,000 compared to $10,128,000 at December 31, 1999. The Company has third quarter cash commitments of approximately $4,000,000 for tractor and trailer 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 2000 working capital requirements, expansion opportunities and other corporate needs. Inflation The Company's condensed consolidated financial statements are prepared based on historical dollars and are not intended to show the impact of inflation or changing prices. With the exception of driver wages and fuel prices, inflation and changing prices have not had a material effect on the Company's financial position and results of operations. Environmental Matters The Company stores fuel in underground and aboveground tanks for use in certain of its terminal facilities. The Company has a program to maintain its fuel storage facilities in compliance with environmental regulations. 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. Year 2000 The Company has not experienced any disruption in its operations as of the date of this report as a result of Year 2000. The total cost incurred during 1999 related to the Year 2000 issue was approximately $250,000. The Company did not incur in the first half of 2000 nor does it expect to subsequently incur significant expenditures related to Year 2000. Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF Financial CONDITION AND RESULTS OF OPERATIONS (continued) Market Risk Market risk is the potential loss arising from adverse changes in market rates and prices, such as currency exchange rates and other relevant market rates or price changes. In the ordinary course of business, the Company is exposed to interest rate risks and the Company regularly evaluates its exposure to this risk. The Company does not hold or issue derivative instruments for trading purposes. The estimated fair value of the interest rate swap agreement represents the estimated receipts or payments that would be made to terminate the agreement. At June 30, 2000, the Company would have received approximately $110,000 to terminate the agreement. Assuming a 100 basis point reduction in the LIBOR interest rate curve, the fair value of the interest rate swap agreement would have decreased by approximately $121,000. Forward-Looking Statements Statements in this document that are not historical facts are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The Company cautions readers that such forward-looking statements, including without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this document or in other statements attributable to the Company, are estimates reflecting the best judgement of the Company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. The Company's future operating results may be affected by a number of factors that include but are not limited to: general economic conditions such as inflation and interest rates; competitive conditions within the Company's markets, including adverse changes in demand for trucking services, pricing pressure, availability of drivers and fuel prices; the Company's ability to sell its services profitably, increase market share and manage expenses relative to revenue growth; changes in governmental regulation; changes in the trucking, transportation and logistic industries; and changes in the Company's labor relations or other unforeseeable circumstances. Page 9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- The Registrant's Annual Meeting of Shareholders was held on May 1, 2000 for the purpose of electing a board of directors and conducting such other business that properly came before the meeting. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Act of 1934 and there was no solicitation in opposition to management's solicitations. The proposals voted upon and the results of voting were as follows: Nominees for directors as listed in the proxy statement were elected for a one-year term with the following vote: Votes Votes For Withheld ---------- ---------- Thomas S. Kenan, III 2,066,275 3,620 Owen G. Kenan 2,066,275 3,620 Lee P. Shaffer 2,066,275 3,620 William C. Friday 2,066,175 3,720 William O. McCoy 2,062,275 7,620 Paul J. Rizzo 2,065,975 3,920 Braxton Schell 2,066,175 3,720 Kenneth G. Younger 2,062,475 7,420 Item 5. 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 June 30, 2000: None. Page 10 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: August 10, 2000 BY:/s/ William L. Boone ---------------------------- Vice President-Finance and Chief Financial Officer Page 11 INDEX TO EXHIBITS The exhibits filed as part of this report are listed below: Exhibit Number Description - -------- ------------------------------------------------------- 27 Financial Data Schedule for the six months ending June 30, 2000. Page 12 EX-27 2 0002.txt FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-2000 JUN-30-2000 4,243 0 10,152 0 680 20,806 109,417 42,392 100,353 18,530 0 0 0 4,400 56,052 100,353 0 77,606 0 73,565 (184) 0 333 3,892 1,536 2,356 0 0 0 2,356 .97 .97
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