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: May 13, 1998
-----------------
Commission File Number 0-12058
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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 March 13, 1998, 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 Petro-Chemical Transport,
Inc. ("PCT") (the business acquired):
Report of Independent Certified Public Accountants
Balance Sheets - December 31, 1997 and 1996
Statements of Income - Years ended December 31,
1997, 1996 and 1995
Statement of Shareholders' Equity - Years ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements - Years ended
December 31, 1997, 1996 and 1995
(b) Kenan Transport Company and Petro-Chemical Transport,
Inc. ("PCT") Pro Forma Combined Financial Statements
(Unaudited):
Pro Forma Condensed Consolidated Balance Sheet -
December 31, 1997
Pro Forma Condensed Consolidated Statement of
Income - Year Ended December 31, 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
- -----------------------------------------------------------------------
PETRO-CHEMICAL TRANSPORT, INC.
A Wholly-Owned Subsidiary of
CITGO Petroleum Corporation)
Financial Statements as of December 31, 1997
and 1996, and for each of the Three Years in the
Period Ended December 31, 1997 and
Independent Auditors' Report
Page 2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Petro-Chemical Transport, Inc.:
We have audited the accompanying balance sheets of Petro-Chemical
Transport, Inc. (a wholly-owned subsidiary of CITGO Petroleum
Corporation) as of December 31, 1997 and 1996 and the related statements
of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. 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
audits.
We conducted our audits 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 that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Petro-Chemical Transport, Inc. at
December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective February
28, 1998 the stock of Petro-Chemical Transport, Inc. was sold to Kenan
Transport Company.
Deloitte & Touche LLP
Tulsa, Oklahoma
March 31, 1998
Page 3
PETRO-CHEMICAL TRANSPORT, INC.
(A Wholly-Owned Subsidiary of CITGO Petroleum Corporation)
BALANCE SHEETS
(Dollars in Thousands, except share amounts)
- --------------------------------------------------------------------------------
December 31,
------------------------
1997 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 65 $ 374
Accounts receivable 898 1,016
Due from affiliate 712 6,115
Prepaid expenses and other 154 299
Deferred income taxes 163 99
--------- ---------
Total current assets 1,992 7,903
OPERATING PROPERTY:
Buildings 24 24
Machinery and equipment 1,822 473
Vehicles 10,356 11,890
--------- ---------
12,202 12,387
Accumulated depreciation (5,968) (4,413)
--------- ---------
Net operating property 6,234 7,974
OTHER ASSETS 26 197
--------- ---------
$ 8,252 $16,074
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 873 $ 353
Wages and employee benefits payable 1,265 1,180
Income taxes currently payable -- 419
--------- ---------
Total current liabilities 2,138 1,952
DEFERRED INCOME TAXES 1,364 1,560
OTHER LIABILITIES -- 709
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY
Common stock - $1.00 par value, 17,000 shares
authorized, issued and outstanding 17 17
Additional capital 1 1
Retained earnings 4,732 11,835
--------- ---------
Total shareholder's equity 4,750 11,853
--------- ---------
$ 8,252 $16,074
========= =========
See notes to financial statements.
Page 4
PETRO-CHEMICAL TRANSPORT, INC.
(A Wholly-Owned Subsidiary of CITGO Petroleum Corporation)
STATEMENTS OF INCOME
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
REVENUES:
Net sales $35,463 $35,482 $31,896
Sales to affiliates 3,281 5,075 4,691
--------- --------- ---------
38,744 40,557 36,587
EXPENSES:
Operating expenses 30,918 31,029 29,707
Selling, general and administrative expenses 3,266 3,490 3,166
Taxes other than income taxes 317 287 296
Depreciation and amortization 1,333 1,560 1,293
--------- --------- ---------
35,834 36,366 34,462
OPERATING INCOME 2,910 4,191 2,125
Other income (expense) - net 30 206 (425)
--------- --------- ---------
INCOME BEFORE INCOME TAXES 2,940 4,397 1,700
INCOME TAXES 1,133 1,728 638
--------- --------- ---------
NET INCOME $ 1,807 $ 2,669 $ 1,062
========= ========= =========
See notes to financial statements.
Page 5
PETRO-CHEMICAL TRANSPORT, INC.
(A Wholly-Owned Subsidiary of CITGO Petroleum Corporation)
STATEMENTS OF SHAREHOLDER'S EQUITY
(Amounts in Thousands)
- ---------------------------------------------------------------------
Common Stock Total
-------------------- Additional Retained Shareholder's
Shares Amount Capital Earnings Equity
------- ------- ---------- ---------- -----------
BALANCE, JANUARY 1, 1995 17 $ 17 $ 1 $ 8,104 $ 8,122
Net income - - - 1,062 1,062
------- ------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1995 17 17 1 9,166 9,184
Net income - - - 2,669 2,669
------- ------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1996 17 17 1 11,835 11,853
Net income - - - 1,807 1,807
Dividend to Parent (Note 2) - - - (8,910) (8,910)
------- ------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1997 17 $ 17 $ 1 $ 4,732 $ 4,750
======= ======= ========== ========== ===========
See notes to financial statements.
Page 6
PETRO-CHEMICAL TRANSPORT, INC.
(A Wholly-Owned Subsidiary of CITGO Petroleum Corporation)
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,807 $ 2,669 $ 1,062
Adjustments to reconcile net income to net cash
provided by operating activities, net of December
31, 1997 transfers and noncash dividend (Note 2):
Depreciation and amortization 1,333 1,560 1,293
Provision for losses on accounts receivable - 30 24
Deferred income taxes 101 792 (226)
Gain on sale of operating property (45) (287) (34)
Changes in operating assets and liabilities:
Accounts receivable and due from affiliate (3,871) (4,337) 2,544
Prepaid expenses and other current assets 58 (23) 37
Accounts payable and other current liabilities 417 412 (145)
Other assets (97) (46) 258
Other liabilities (309) (324) 670
--------- --------- ---------
Total adjustments (2,413) (2,223) 4,421
--------- --------- ---------
Net cash provided by (used in)
operating activities (606) 446 5,483
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (47) (651) (5,784)
Proceeds from sales of operating property 344 459 284
--------- --------- ---------
Net cash provided by (used in)
investing activities 297 (192) (5,500)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (309) 254 (17)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 374 120 137
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 65 $ 374 $ 120
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for income taxes $ 1,193 $ 670 $ 1,276
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES -
Noncash dividend to Parent (Note 2) $ 8,910 $ - $ -
========= ========= =========
See notes to financial statements.
Page 7
PETRO-CHEMICAL TRANSPORT, INC.
(A Wholly-Owned Subsidiary of CITGO Petroleum Corporation)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Petro-Chemical Transport, Inc. ("PCT") is a
wholly-owned subsidiary of CITGO Petroleum Corporation ("CITGO").
CITGO is a wholly-owned subsidiary of PDV America, Inc. ("PDV
America"), an indirect wholly-owned subsidiary of Petroleos de
Venezuela, S.A. ("PDVSA"), the national oil company of the Republic
of Venezuela. PCT is engaged in the transportation (primarily short-
haul) of commodities in bulk for the petroleum and chemical
industries in Arizona, California, Colorado, Florida, Illinois,
Indiana, Louisiana, Maryland, Massachusetts, Missouri, Nevada,
Oklahoma, Pennsylvania, Texas, Utah, Virginia, and Wisconsin. One
major unaffiliated customer accounted for 51% of PCT's revenue in
1997, 48% in 1996, and 46% in 1995. Concentration of credit risks to
PCT consists primarily of trade receivables from companies in the
convenience store and downstream petroleum industries.
Basis of Presentation - The accompanying financial statements include
the historical basis financial statements of PCT. PCT has been
operated as a business unit of CITGO, sharing corporate services
(audit, legal and group administrative functions) with other CITGO
business units. The financial statements are presented as if PCT
existed as a stand-alone entity separate from CITGO for the periods
presented and include the historical assets, liabilities, revenues
and expenses related to the PCT business unit. For the periods
presented, selling, general and administrative expenses include
allocations of certain corporate employees' salary costs and benefits
which were determined based on estimates of actual time worked on PCT
matters.
Management believes that the allocation methods are reasonable;
however, they do not necessarily reflect the costs which would have
been incurred had PCT operated on a stand-alone basis.
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 and 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.
Significant estimates have been made by management in the
accompanying financial statements with respect to liabilities for
workers' compensation and automobile accident claims. Actual results
could differ from those estimates.
Revenue Recognition - Revenue is recognized upon delivery of
transported products to their final destination point.
Cash and Cash Equivalents - PCT considers highly liquid short-term
investments with original maturities of three months or less to be
cash equivalents.
Page 8
Operating Property - Operating property is reported at cost, less
accumulated depreciation. Depreciation is based upon the estimated
useful lives of the related assets using the straight-line method.
Depreciable lives are generally as follows: buildings - 25 years;
machinery and equipment 5 to 10 years; and vehicles - 5 to 12 years.
Upon disposal or retirement of operating property, the cost and
related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in income.
Income Taxes - PCT accounts for income taxes using an asset and
liability approach, in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." PCT is
included in the consolidated U.S. Federal income tax return filed by
PDV America. PCT's current and deferred income tax expense has been
computed on a stand-alone basis.
Employee Benefits - The employees of PCT may, upon meeting certain
requirements, participate in a qualified defined contribution
retirement and savings plan sponsored by CITGO. Participants make
voluntary contributions to the plan and PCT makes matching
contributions based on plan provisions. PCT charged $208 thousand,
$199 thousand and $196 thousand to operations related to its
contributions to this plan for the years 1997, 1996 and 1995,
respectively.
2. SALE OF COMPANY
Effective February 28, 1998, the stock of PCT was sold to Kenan
Transport Company ("Kenan") under the terms of a Stock Purchase and
Sale Agreement (the "Agreement"). Under the terms of the Agreement
certain assets, primarily vehicles, were transferred between CITGO
and PCT; CITGO retained all liabilities for income taxes and
responsibility for all environmental matters, litigation, and
workers' compensation and automobile liability losses existing as of
the effective date; and PCT forgave certain amounts due from CITGO.
The accompanying financial statements reflect the transfer of the
December 31, 1997 balances of such assets and liabilities and a
dividend to CITGO of certain amounts accumulated in due from
affiliate through December 31, 1997, as follows:
(000's
omitted)
---------
Citgo assets transferred to PCT (net book value) $1,043
PCT assets transferred to CITGO (net book value) 1,552
Income tax liabilities assumed by CITGO 250
Net deferred tax liability assumed by CITGO 361
Automobile liability losses assumed by CITGO 400
Other miscellaneous assets transferred to CITGO 90
Other miscellaneous liabilities assumed by CITGO 11
Dividend to CITGO (non-cash) 8,910
In addition, CITGO and Kenan entered into a services agreement
whereby PCT or Kenan will continue to provide certain support
services to CITGO that were previously provided by PCT.
Page 9
The financial information included herein does not reflect any
adjustments that may be made by the buyer to record the allocation of
purchase price to the assets purchased and liabilities assumed in
preparing an opening balance sheet nor does it reflect what the
results of operations are expected to be in the future or what the
financial position and results of operations would have been had PCT
operated as a separate stand-alone entity during the periods
presented.
3. RELATED PARTY TRANSACTIONS
PCT provides various transportation services to CITGO. Revenues from
such services are presented as sales to affiliates in the
accompanying statements of income.
Under the terms of an operating agreement, CITGO provides all
operating personnel (except drivers) and all financial and
administrative services to PCT. PCT reimburses CITGO for payroll
expenses, including benefit costs, incurred on behalf of PCT. These
payroll and related costs totaled $21.4 million, $21.5 million and
$18.1 million for 1997, 1996 and 1995, respectively.
CITGO also administers workers' compensation claims and payments on
behalf of PCT and allocates estimated annual costs to PCT; charges
from CITGO related to workers' compensation totaled approximately
$590 thousand, $540 thousand and $760 thousand for the years 1997,
1996 and 1995, respectively. Costs for automobile liability are
borne directly by PCT. As discussed in Note 2, liabilities for
workers' compensation and automobile losses as of December 31, 1997
were assumed by CITGO.
CITGO provides cash management services to PCT including collections
of customer receivables and disbursements for acquisitions of
operating property and operating expenses, in addition to payroll and
benefits. The due from affiliate in the accompanying balance sheets
results from these cash management activities as well as billings for
transportation services provided to CITGO, and as of December 31,
1997 reflects a dividend of certain amounts to CITGO (Note 2).
During 1997 and 1995, CITGO transferred certain assets to PCT with a
carrying value of approximately $233 thousand and $2.2 million,
respectively, exclusive of the December 31, 1997 transfers described
in Note 2.
4. ACCOUNTS RECEIVABLE
1997 1996
(000's omitted)
Trade $ 917 $ 1,012
Other 14 50
-------- --------
931 1,062
Allowance for uncollectible accounts (33) (46)
-------- --------
$ 898 $ 1,016
======== ========
Page 10
5. INCOME TAXES
The provisions for income taxes are comprised of the following:
1997 1996 1995
(000's omitted)
Current:
Federal $ 916 $ 813 $ 812
State 116 123 52
-------- -------- --------
1,032 936 864
Deferred 101 792 (226)
-------- -------- --------
$ 1,133 $ 1,728 $ 638
======== ======== ========
The Federal statutory tax rate differs from the effective tax rate
due to the following:
1997 1996 1995
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of
federal benefit 2.8% 2.9% 1.4%
Other 0.7% 1.4% 1.1%
-------- -------- --------
Effective tax rate 38.5% 39.3% 37.5%
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary
differences between the financial and tax bases of assets and
liabilities. The tax effects of significant items comprising PCT's
net deferred tax liability as of December 31, 1997 and 1996 are as
follows (000's omitted):
1997 1996
(000's omitted)
Deferred tax liabilities:
Property, plant and equipment $ 1,364 $ 1,778
Other - 75
-------- --------
1,364 1,853
Deferred tax assets:
Employee benefit accruals 143 101
Insurance reserves - 273
Other 20 18
-------- --------
163 392
-------- --------
Net deferred tax liability (of which
$163 and $99 are current assets at
December 31, 1997 and 1996,
respectively) $ 1,201 $ 1,461
======== ========
6. COMMITMENTS AND CONTINGENCIES
Litigation and Injury Claims - Various lawsuits and claims arising in
Page 11
the ordinary course of business are pending against PCT. PCT is
vigorously contesting or pursuing, as applicable, such lawsuits and
claims and believes that its positions are sustainable. PCT has
recorded accruals for losses it considers to be probable and
reasonably estimable. However, due to uncertainties involved in
litigation, there are cases in which the outcome is not reasonably
predictable and the losses, if any, are not reasonably estimable. If
such lawsuits and claims were to be determined in a manner adverse to
PCT, and in amounts in excess of PCT's accruals, it is reasonably
possible that such determinations could have a material adverse
effect on PCT's results of operations in a given year. The term
"reasonably possible" is used herein to mean that the chance of a
future transaction or event occurring is more than remote but less
than likely. However, based upon management and independent
counsel's current assessments of these lawsuits and claims,
management of PCT believes that the ultimate resolution of these
lawsuits and claims would not exceed the aggregate of the amounts
accrued and the insurance coverage available to PCT by a material
amount and, therefore, should not have a material adverse effect on
PCT's financial condition or liquidity.
Environmental Compliance and Remediation - PCT is subject to various
federal, state and local environmental laws and regulations which may
require PCT to take action to correct or improve the effects on the
environment of prior disposal or release of petroleum substances by
PCT or other parties. Management believes PCT is in compliance with
these laws and regulations in all material aspects. Based on
currently available information, management believes that no material
environmental liability exists at December 31, 1997.
Operating Property Purchase Commitments - As of December 31, 1997 PCT
has committed to future purchases of tractors and trailers
aggregating approximately $4 million.
Other Credit and Off-Balance Sheet Risk Information as of December
31, 1997 - PCT has outstanding letters of credit totaling
approximately $1.1 million related to liability insurance policies.
PCT has also acquired surety bonds totaling $96 thousand primarily
due to requirements of various government entities. PCT does not
expect liabilities to be incurred related to such surety bonds.
7. LEASES
PCT has various noncancelable operating leases, primarily for office
space and vehicles. Rent expense on all operating leases totaled
$3.2 million, $3.1 million and $2.8 million in 1997, 1996 and 1995,
respectively. Future minimum lease payments are as follows:
Year
1998 $1,349
1999 989
2000 773
2001 558
2002 202
Thereafter 34
-------
Total minimum lease payments $3,905
=======
Page 12
8. SUBSEQUENT EVENTS
On January 31, 1998, PCT borrowed $375,000 from Bank of Oklahoma,
N.A. with a maturity date of April 30, 1998 and interest at the Chase
Manhattan prime rate.
In February 1998, a PCT employee was killed in an accident while
driving a PCT truck. PCT estimates that the related workers'
compensation liability could be material, however, any liability will
be retained by CITGO under the terms of the Agreement with Kenan
Transport Company (Note 2).
* * * * * *
Page 13
Item 7(b) Kenan Transport Company and Petro-Chemical Transport, Inc.
Unaudited Pro Forma Condensed Financial Statements
- ------------------------------------------------------------------------
The following sets forth unaudited pro forma information for the
Company as of December 31, 1997 after giving effect to the Transaction
described in Note 1 hereto.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as of December 31, 1997. The unaudited Pro Forma Condensed
Consolidated Statement of Income for the year ended December 31, 1997 is
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 Statement 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
December 31, 1997, nor does it purport to represent the future financial
position of the Company. The unaudited Pro Forma Condensed Consolidated
Statement of Income is 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 14
PRO FORMA FINANCIAL INFORMATION
Kenan Transport Company
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1997
(Dollars in thousands)
(Unaudited)
Historical
--------------------
Pro Forma Pro Forma
Kenan PCT Adjustments Total
--------- --------- ------------ --------
Current Assets $16,067 $ 1,992 (7,500) (a) $18,059
7,500 (b)
Operating Property, Net 52,239 6,234 (817) (a) 57,656
Intangible Assets 7,559 - 3,911 (a)(c) 11,470
Other Assets 1,250 26 1,276
-------- -------- --------
$77,115 $ 8,252 $88,461
======== ======== ========
Current Liabilities $14,314 $ 2,138 524 (c) $16,976
Long-term debt 2,000 - 7,500 (b) 9,500
Capital lease obligations 2,075 - 2,075
Deferred Income Taxes 9,358 1,364 (180) (a) 10,542
Stockholders' Equity 49,368 4,750 (4,750) (a) 49,368
-------- -------- --------
$77,115 $ 8,252 $88,461
======== ======== ========
Adjustments:
(a) Reflects the allocation of purchase price and adjustment to
record acquired assets and liabilities fair market values.
(b) Reflects additional borrowings under the Company's credit
facility.
(c) Reflects the estimate of transaction costs.
The accompanying notes are an integral part of these condensed
consolidating pro forma financial statements.
Page 15
Kenan Transport Company
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ending December 31, 1997
(Dollars in Thousands)
(Unaudited)
Historical
--------------------
Pro Forma Pro Forma
Kenan PCT Adjustments Total
--------- --------- ------------ --------
Operating Revenues $73,308 $38,744 $112,052
Operating Expenses 66,846 35,834 195 (a) 102,615
(260) (b)
-------- -------- --------
Operating Income 6,462 2,910 9,437
Interest expense (40) - (490) (c) (530)
Interest income and other 174 30 204
-------- -------- --------
Income before taxes 6,596 2,940 9,111
Provision for
income taxes 2,506 1,133 (170) (d) 3,469
-------- -------- --------
Net income $ 4,090 $ 1,807 $ 5,642
======== ======== ========
Basic and diluted
earnings per share $ 1.71 $ 2.36
======== ========
Adjustments:
(a) Reflects amortization of estimated goodwill over 20 years on a
straight-line basis.
(b) Reflects the expected reduction in depreciation expense as a
result of the adjustment to record assets at their fair market
values.
(c) Reflects interest expense on additional monies borrowed under
the Company's credit facility.
(d) Reflects the income tax effect of the pro forma adjustments.
The accompanying notes are an integral part of these condensed
consolidating pro forma financial statements.
Page 16
Kenan Transport Company
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Acquisition
On February 28, 1998, Kenan Transport Company (the Company) acquired
100% of the outstanding stock of Petro-Chemical Transport, Inc., a
wholly owned subsidiary of CITGO Petroleum Corporation. The
acquisition, net of cash acquired, required a cash investment
totaling $7,863,000. Petro-Chemical Transport is a tank truck carrier
serving the petroleum industry in the Southeast, Midwest and on the
West Coast. The Company financed the acquisition through its line of
credit facility.
The acquisition has been accounted for using the purchase method of
accounting. 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 acquisition (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 unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if the Transaction occurred on December 31, 1997. The
unaudited Pro Forma Condensed Consolidated Statement of Income for
the year ended December 31, 1997 is presented as if the Transaction
occurred as of the beginning of the period presented.
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 the Company have been prepared in accordance with the
instructions to Form 8-K and do not 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, 1997, included in the Company's Form 10-K dated March 30, 1998.
Page 17
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 13, 1998 BY: /s/ William L. Boone
--------------------------
Vice President-Finance and
Chief Financial Officer
Page 18
INDEX TO EXHIBITS
The exhibits filed as part of this report are listed below:
Exhibit
Number Description
- --------- ---------------------------------------------------------
23 Independent Auditors' Consent
Page 19