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, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12058
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KENAN TRANSPORT COMPANY
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(Exact name of registrant as specified in its charter)
North Carolina 56-0516485
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(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
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(Address of principal executive offices, including Zip Code)
(919) 967-8221
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(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
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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, 1997
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Common stock, no par value 2,394,780
KENAN TRANSPORT COMPANY
INDEX
Page
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Part I - Financial Information
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 1
Consolidated Statements of Income for the three
and six months ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders 6
Item 6 - Exhibits and Reports on Form 8-K 6
Signatures 7
Index to Exhibits 8
PART I - FINANCIAL INFORMATION
KENAN TRANSPORT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1997 1996
ASSETS (Unaudited) (Note 1)
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Current Assets
Cash and cash equivalents $11,185 $11,181
Short-term investments - -
Accounts receivable 4,723 4,988
Operating supplies and parts 475 413
Prepayments -
Tires 982 1,033
Insurance, licenses and other 908 698
Deferred income taxes 1,856 1,741
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Total Current Assets 20,129 20,054
Operating Property
Land 3,531 3,531
Buildings and leasehold improvements 10,545 9,279
Revenue equipment 56,428 56,015
Other equipment 4,236 3,923
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74,740 72,748
Accumulated depreciation (29,719) (28,615)
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Net Operating Property 45,021 44,133
Other Assets 1,051 857
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$66,201 $65,044
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Accounts payable $ 1,194 $ 1,257
Wages and employee benefits payable 4,674 5,136
Claims payable 3,483 3,409
Other accrued expenses 184 166
Income taxes payable -- 52
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Total Current Liabilities 9,535 10,020
Deferred Income Taxes 9,266 9,181
Stockholders' Equity
Common stock; no par; 20,000,000 shares
authorized; 2,394,780 and 2,389,497
shares issued and outstanding 3,096 2,996
Retained earnings 44,304 42,847
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47,400 45,843
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$66,201 $65,044
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The Notes to Consolidated Financial Statements are an integral part of
these balance sheets.
Page 1
KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
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1997 1996 1997 1996
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Operating Revenue $17,233 $16,637 $34,979 $34,224
Operating Expenses
Wages and employee benefits 8,806 8,606 17,756 17,532
Fuel, parts, tires and other 3,477 3,122 6,976 6,420
Taxes and licenses 1,062 1,046 2,156 2,170
Claims and insurance 663 596 1,307 1,197
Communications, utilities and rent 348 357 711 786
Depreciation 1,647 1,689 3,302 3,250
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16,003 15,416 32,208 31,355
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Operating Income 1,230 1,221 2,771 2,869
Interest income and other expenses, net 71 33 117 103
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Income before Provision for Income Taxes 1,301 1,254 2,888 2,972
Provision for income taxes 491 491 1,102 1,169
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Net Income $ 810 $ 763 $ 1,786 $ 1,803
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Weighted average number of shares
outstanding (in thousands) 2,395 2,389 2,393 2,389
Earnings per share $ .34 $ .32 $ .75 $ .76
Operating ratio 92.9% 92.7% 92.1% 91.6%
Dividends paid per share $ .0675 $ .0650 $ .1350 $ .1300
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 Six Months Ended June 30, 1997 and 1996
(Unaudited and dollars in thousands)
1997 1996
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Cash Provided by (Applied to):
Operations $ 4,523 $ 4,856
Purchases of operating property, net (4,190) (7,244)
Short-term investments, net - 6,076
Dividends (329) (317)
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Net Increase in Cash and Cash Equivalents 4 3,371
Beginning Cash and Cash Equivalents 11,181 3,220
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Ending Cash and Cash Equivalents $11,185 $ 6,591
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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, 1996 has been taken from the
audited financial statements at that date.
The results of operations for the three and six months ended
June 30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Effects of Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share",
in February 1997. The Company is required to adopt SFAS No. 128 for
the year ended December 31, 1997. This statement establishes
standards for computing and presenting earnings per share (EPS) and
makes them comparable to international EPS standards. The statement
requires dual presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation of the numerator
and denominator of the basic EPS calculation to the numerator and
denominator of the diluted EPS calculation. Basic and diluted EPS
will not be materially different from previously reported EPS.
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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
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Revenue for the second quarter of 1997 was $17,233,000, an increase
of $596,000 and 4% over the second quarter of 1996. We experienced modest
growth in demand for transportation of gasoline and chemical products,
while propane gas and heating fuels were flat as a result of a warmer
heating season. Net income was $810,000, an increase of $47,000 and 6%
over the second quarter of 1996. Earnings per share were $.34 compared to
$.32 in 1996. Miles operated increased 3% in comparison to the second
quarter of 1996.
Revenue for the first half of 1997 was $34,979,000, an increase of
$755,000 and 2% over the first six months of 1996. Net income was
$1,786,000 compared to $1,803,000 for the first half of 1996. Earnings
per share were $.75 compared to $.76 in 1996. Miles operated increased 1%
in comparison to the first half of 1996.
Operating expenses for the second quarter of 1997 totaled
$16,003,000, an increase of $587,000 and 4% over the second quarter of
1996. During the second quarter, we increased driver pay to our more
experienced drivers. We expect this change to result in lower turnover,
improved customer service and safety performance. Fuel prices continued
to decline during the quarter to levels slightly lower than those in the
second quarter of 1996. Accordingly, we have adjusted our fuel surcharge
program to reduce prices to our customers. The operating ratio for the
quarter was 92.9% compared to 92.7% in 1996.
Operating expenses for the first half of 1997 totaled $32,208,000, an
increase of $853,000 and 3% over the first six months of 1996. The
operating ratio increased to 92.1% from 91.6% in 1996.
Liquidity and Capital Resources
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The Company's liquidity and capital resources are adequate. At June
30, 1997, working capital was $10,594,000 compared to $10,034,000 at
December 31, 1996, and the current ratios were 2.11 and 2.00,
respectively. Cash and cash equivalents totaled $11,185,000 at June 30,
1997, and the Company had no debt outstanding under its $7,000,000 bank
line of credit. Management believes that cash flows from operations and
access to capital from the Company's bank line of credit will be
sufficient to fund 1997 capital expenditures, 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.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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The Registrant's Annual Meeting of Stockholders was held on May
5, 1997 for the purpose of electing a board of directors and to
transact other business as 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:
(1) Nominees for directors as listed in the proxy statement
were elected for a one year term with the following vote:
Votes Votes Broker
For Withheld Non-votes
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Thomas S. Kenan, III 2,146,520 100 145,853
Owen G. Kenan 2,146,520 100 145,853
Lee P. Shaffer 2,146,520 100 145,853
William C. Friday 2,146,520 100 145,853
William O. McCoy 2,145,070 1,550 145,853
Paul J. Rizzo 2,145,070 1,550 145,853
Braxton Schell 2,146,420 200 145,853
Paul Wright, Jr. 2,146,520 100 145,853
Kenneth G. Younger 2,145,070 1,550 145,853
Item 6. Exhibits and Reports on Form 8-K
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(a) The Exhibits to this Form 10-Q are listed on the accompanying
Index to Exhibits.
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1997.
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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 6, 1997 BY: /s/ William L. Boone
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Vice President-Finance and
Chief Financial Officer
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INDEX TO EXHIBITS
The exhibits filed as part of this report are listed below:
Exhibit
Number Description
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10.A Senior Managers' Life Insurance Plan
10.B Senior Management Severance Plan
27 Financial Data Schedule for the 2nd Quarter 10-Q.
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