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 September 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 October 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 September 30, 1997 and
December 31, 1996 1
Consolidated Statements of Income for the three
and nine months ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-6
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K 7
Signatures 8
Index to Exhibits 9
PART I - FINANCIAL INFORMATION
KENAN TRANSPORT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1997 1996
ASSETS (Unaudited) (Note 1)
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Current Assets
Cash and cash equivalents $12,098 $11,181
Short-term investments 500 -
Accounts receivable 4,684 4,988
Operating supplies and parts 514 413
Prepayments -
Tires 1,018 1,033
Insurance, licenses and other 1,022 698
Deferred income taxes 1,856 1,741
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Total Current Assets 21,692 20,054
Operating Property
Land 3,464 3,531
Buildings and leasehold improvements 10,670 9,279
Revenue equipment 57,892 56,015
Other equipment 4,204 3,923
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76,230 72,748
Accumulated depreciation (31,172) (28,615)
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Net Operating Property 45,058 44,133
Other Assets 1,151 857
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$67,901 $65,044
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Accounts payable $ 1,258 $ 1,257
Wages and employee benefits payable 5,678 5,136
Claims payable 3,595 3,409
Other accrued expenses 185 166
Income taxes payable -- 52
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Total Current Liabilities 10,716 10,020
Deferred Income Taxes 9,119 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 44,970 42,847
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48,066 45,843
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$67,901 $65,044
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The Notes to Consolidated Financial Statements are an integral part of
these balance sheets.
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KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
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Operating Revenue $17,450 $16,638 $52,429 $50,862
Operating Expenses
Wages and employee benefits 8,857 8,408 26,613 25,940
Fuel, parts, tires and other 3,459 3,190 10,435 9,610
Taxes and licenses 1,063 1,020 3,219 3,190
Claims and insurance 689 699 1,996 1,896
Communications, utilities and rent 354 346 1,065 1,132
Depreciation 1,714 1,704 5,016 4,954
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16,136 15,367 48,344 46,722
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Operating Income 1,314 1,271 4,085 4,140
Interest income and other expenses, net 51 (97) 168 6
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Income before Provision for Income Taxes 1,365 1,174 4,253 4,146
Provision for income taxes 531 458 1,633 1,627
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Net Income $ 834 $ 716 $ 2,620 $ 2,519
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Weighted average number of shares
outstanding (in thousands) 2,395 2,389 2,393 2,389
Earnings per share $ .35 $ .30 $ 1.10 $ 1.05
Operating ratio 92.5% 92.4% 92.2% 91.9%
Dividends paid per share $ .0700 $ .0675 $ .2050 $ .1975
The Notes to Consolidated Financial Statements are an integral part of these statements.
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KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited and dollars in thousands)
1997 1996
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Cash Provided by (Applied to):
Operations $ 7,855 $ 8,438
Purchases of operating property, net (5,941) (8,526)
Short-term investments, net (500) 6,886
Dividends (497) (478)
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Net Increase in Cash and Cash Equivalents 917 6,320
Beginning Cash and Cash Equivalents 11,181 3,220
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Ending Cash and Cash Equivalents $12,098 $ 9,540
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The Notes to Consolidated Financial Statements are an integral part of
these statements.
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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 nine months ended
September 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.
3. Subsequent Events
On October 31, 1997, the Company entered into agreements to
purchase a majority of the transportation assets of Transport South,
Inc. of Smyrna, Georgia in a cash transaction and to provide contract
transportation services to its affiliate, RaceTrac Petroleum, Inc.
Transport South transports petroleum products in the southeastern
United States and Texas. The equipment to be purchased includes 170
tractors and 210 tank trailers. It is anticipated that annual
revenues of Kenan Transport Company will increase by approximately
$27,000,000 as a result of the transaction, which is expected to be
closed in November.
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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 third quarter of 1997 was $17,450,000, an increase of
$812,000 and 5% over the third quarter of 1996. Net income was $834,000,
an increase of $118,000 and 16% over the third quarter of 1996. Earnings
per share were $.35 compared to $.30 in 1996. Miles operated increased 8%
in comparison to the third quarter of 1996.
Revenue for the first nine months of 1997 was $52,429,000, an
increase of $1,567,000 and 3% over the first nine months of 1996. Net
income was $2,620,000, an increase of $101,000 and 4% over 1996. Earnings
per share were $1.10 compared to $1.05 in 1996. Miles operated increased
3% in comparison to 1996 levels.
Operating expenses for the third quarter of 1997 totaled $16,136,000,
an increase of $769,000 and 5% over the third quarter of 1996. Operating
expenses increased due to the increase in the volume of business and
increased driver pay to our more experienced drivers. The operating ratio
for the quarter was 92.5% compared to 92.4% in 1996.
Operating expenses for the first nine months of 1997 totaled
$48,344,000, an increase of $1,622,000 and 3% over the first nine months
of 1996. The operating ratio increased to 92.2% from 91.9% in 1996.
On October 31, 1997, the Company entered into agreements to purchase
a majority of the transportation assets of Transport South, Inc. of
Smyrna, Georgia in a cash transaction and to provide contract
transportation services to its affiliate, RaceTrac Petroleum, Inc.
Transport South transports petroleum products in the southeastern United
States and Texas. The equipment to be purchased includes 170 tractors and
210 tank trailers. It is anticipated that annual revenues of Kenan
Transport Company will increase by approximately $27,000,000 as a result
of the transaction, which is expected to be closed in November.
Liquidity and Capital Resources
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The Company's liquidity and capital resources are adequate. At
September 30, 1997, working capital was $10,976,000 compared to
$10,034,000 at December 31, 1996, and the current ratios were 2.02 and
2.00, respectively. Cash and cash equivalents totaled $12,098,000 at
September 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 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
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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 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
September 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: November 14, 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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2 Asset Purchase Agreement
27 Financial Data Schedule for the 3rd Quarter 10-Q.
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