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
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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 April 30, 1998
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Common stock, no par value 2,400,462
KENAN TRANSPORT COMPANY
INDEX
Page
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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)
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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
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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
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91,329 85,161
Accumulated depreciation (35,255) (32,922)
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Net Operating Property 56,074 52,239
Intangible Assets 11,359 7,559
Other Assets 1,571 1,250
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$90,917 $77,115
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LIABILITIES AND STOCKHOLDERS' EQUITY
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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
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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
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50,572 49,368
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$90,917 $77,115
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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
For the Three Months Ended March 31, 1998 and 1997
(Unaudited and dollars in thousands except per share amounts)
1998 1997
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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
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26,450 16,205
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Operating Income 2,031 1,541
Interest expense (138) (5)
Interest income and other expenses, net 33 51
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Income before Provision for Income Taxes 1,926 1,587
Provision for income taxes 751 611
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Net Income $ 1,175 $ 976
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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.
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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
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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)
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Net Increase in Cash and Cash Equivalents 1,182 1,657
Beginning Cash and Cash Equivalents 3,422 11,181
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Ending Cash and Cash Equivalents $ 4,604 $12,838
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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
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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
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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)
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1998 1997
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Revenue $35,241 $34,736
Net income 1,261 1,211
Basic and diluted earnings per share .53 .51
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KENAN TRANSPORT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Long-Term Debt
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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.
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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 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
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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.
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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.
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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) 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.
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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: May 14, 1998 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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27 Financial Data Schedule for the quarter ending March 31,
1998.
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