Item 1. Business - ------------------------------------------------------------------------- Kenan Transport Company (the Company), a North Carolina corporation, was incorporated in 1949. The Company is engaged in the transportation of bulk commodities in intrastate and interstate commerce. The Company primarily serves the petroleum, propane gas and chemical industries.
Two recent business acquisitions by the Company have had a significant impact on the geographic scope and size of its business operations. On December 1, 1997, Kenan purchased the majority of transportation assets of Transport South, Inc. ("TSI"), an affiliate of RaceTrac Petroleum. On February 28, 1998, the Company acquired from CITGO Petroleum Corporation, 100% of the outstanding stock of its wholly owned subsidiary, Petro-Chemical Transport, Inc. ("PCT"). The following disclosures reflect the Company as it existed in 1997.
During 1997, the Company's operations were concentrated in the Southeast in seven states; Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia. The purchase of TSI expands the Company's customer base within its existing markets and adds Kentucky, Louisiana and Texas to its core service area. The Company provides intrastate transportation services to customers within these states and interstate transportation services from these states to points throughout the United States. One customer accounted for 11% of the Company's revenue in 1997.
At December 31, 1997, the Company operated a network of terminals and a fleet of 630 tractors and 910 specialized trailers. The Company's terminals are strategically located near the major pipeline terminals, chemical production centers and major ports. The Company's terminals operate as "profit centers" staffed with experienced terminal managers, trained dispatchers, maintenance personnel and professional drivers. At December 31, 1997, the Company had 1,240 employees. Approximately 350 employees were added as a result of the Company's acquisition of TSI.
With the acquisition of PCT in 1998, the Company's operations expanded to include Arizona, California, Colorado, Illinois, Indiana, Maryland, Massachusetts, Missouri, Nevada, Oklahoma, Pennsylvania, Utah and Wisconsin. In addition, through its purchase of PCT, the Company will operate an inventory control and logistics management system that enables it to manage gasoline inventories at retail locations for current and prospective customers. The acquisition of PCT places Kenan Transport Company among the ten largest tank truck carriers in the country.
The Company has a large number of competitors with no single competitor being dominant in the industry. The Company competes with the trucking operations of the major oil and chemical companies as well as with independent carriers. Competition is primarily based on price and customer service. The Company considers its business to be somewhat seasonal with the winter heating season providing the highest demand levels.
The Company operations include storage of fuel in underground storage tanks for use in its operations. Management is committed to the protection of the environment and has procedures in place to ensure compliance with federal and state regulations and to provide appropriate response to spills and leaks that occur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company is involved in various claims and legal actions arising in the normal course of business. It is the opinion of management that these matters will have no significant impact on the financial statements of the Company.
Item 2.
Item 2. Properties - ------------------------------------------------------------------------- The Company owns twenty-one real properties located in five states; Florida, Georgia, North Carolina, South Carolina and Virginia. At December 31, 1997, these properties had a net book value of $12,186,000. Additionally, the Company leases sixteen real properties located in the Southeast and Texas, under lease terms from one to five years. The properties are used for offices, terminals and vehicle maintenance facilities in the operations of the Company.
The Company transports freight using over-the-road tractors and trailers. At December 31, 1997, the net book value of the Company's owned revenue equipment, consisting of 490 tractors and 850 trailers, was $37,614,000. The balance of the Company's fleet, 140 tractors and 60 trailers, consists of leased equipment with lease terms of one to three years.
The assets acquired from TSI on December 1, 1997 included 130 tractors and 210 tank trailers. The tractors and 40 trailers are leased.
With the acquisition of Petro-Chemical Transport, Inc. on February 28, 1998, the Company added 125 tractors and 175 tank trailers to its fleet. This equipment consists of leased tractors and owned trailers. PCT also leases its central administrative offices that are located in Dallas, Texas.
Item 3.
Item 3. Legal Proceedings - ------------------------------------------------------------------------- There are no material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------------------- No matters were submitted during the fourth quarter of 1997 to a vote of security holders, through the solicitation of proxies or otherwise.
Item 4(a). Executive Officers of the Registrant - ------------------------------------------------------------------------- Information concerning the executive officers of the Company follows:
Name Age Position - -------------------- ---- --------------------------------------- Lee P. Shaffer 59 Director, Chief Executive Officer of the Company beginning in 1996; President of the Company since 1975; Chief Operating Officer of the Company (1975-1996).
William L. Boone 58 Vice President-Finance and Secretary of the Company since 1974. Treasurer of the Company beginning in 1996; Assistant Treasurer of the Company (1981-1996).
L. Avery Corning 40 Vice President-Operations and Sales beginning in 1994; President (1990- 1994), Redwing Carriers, Inc., Tampa, Florida.
Gary J. Knutson 47 Vice President-Marketing of the Company beginning in 1994. Vice President-Sales of the Company (1990-1993).
John E. Krovic 42 Vice President-Human Resources and Safety of the Company since 1993.
Lee P. Shaffer, III (1) 38 Vice President-Operations Services of the Company beginning in 1994. Director of Operations Services of the Company (1992-1993). Director of Operations of the Company (1988-1992).
(1) Lee P. Shaffer, III is the son of Lee P. Shaffer, President and Chief Executive Officer of the Company.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------- On October 21, 1986, the Registrant's stock began trading on the Nasdaq stock market under the symbol KTCO. The Company had approximately 453 shareholders, including holders whose shares are held in street names, on December 31, 1997.
The high and low sale prices and the cash dividends paid per share for each quarter in the last two fiscal years are shown below:
1997 1996 --------------------------- --------------------------- Quarter High Low Dividend High Low Dividend - -------- -------- ------- -------- -------- ------- -------- First $20.5 $18.5 $.0675 $22 $19 $.065 Second 21 19 .0675 21 18.75 .065 Third 22.75 19.75 .07 21.5 20 .0675 Fourth 41 22.25 .07 21.5 19 .0675
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------
Results of Operations - 1997 Compared to 1996 - --------------------------------------------- Revenue increased 7% in 1997 to $73,308,000. The $4,513,000 increase in revenue was generated by approximately $2,300,000 of additional business resulting from the Transport South, Inc. acquisition on December 1, 1997 and approximately $2,213,000 due to growth in demand for transportation services. Miles operated increased 7% to 47,252,000 in 1997.
Operating expenses increased 7% in 1997 to $66,846,000. The $4,295,000 increase was due in large part to the 7% increase in miles operated, an increase in driver wage expense, higher claims experience in 1997 and a 6% increase in depreciation and amortization expense. Wages and employee benefits decreased to 50.2% of revenue from 50.3% in 1996. A 10% increase in driver wages was offset by lower workers' compensation premiums and claims. Fuel, parts, tires and other operating expenses increased to 19.6% from 19.1% of revenue in 1996. Although fuel prices decreased 6% in 1997, equipment maintenance and other operating expenses increased 18%. Accident claims and insurance costs increased to 3.7% of revenue in 1997 from 3.6%. Communications, utilities and rent expense remained flat at 2.1% of revenue. Depreciation and amortization expense decreased slightly to 9.5% of revenue in 1997 compared to 9.6% in 1996.
Net interest income and other expenses increased $144,000 in 1997. Higher average cash balances and interest rates in 1997 contributed to the increase.
Results of Operations - 1996 Compared to 1995 - --------------------------------------------- Revenue increased 11% from 1995 to $68,795,000. The $7,078,000 increase in revenue reflects growth in demand for transportation services and the effect of higher prices to our customers to cover increased operating costs. The addition of transportation services to Cary Oil Company, Inc. in July of 1995 and the expansion into Alabama and Tennessee markets in 1995 also contributed to revenue growth for the year. Miles operated increased 8% to 44,177,000 in 1996.
Operating expenses increased 11% in 1996 to $62,551,000. The $5,958,000 increase was due in large part to the 8% increase in miles operated, a 23% increase in diesel fuel prices and an 18% increase in depreciation and amortization expense. Wages and employee benefits decreased to 50.3% of revenue from 50.9% in 1995. Fuel, parts, tires and other operating expenses increased from 18.7% to 19.1% of revenue in 1996 due primarily to fuel price increases that were substantially offset by fuel surcharges that are included in revenue. Accident claims and insurance costs fell to 3.6% of revenue in 1996 from 4.2% due to lower insurance premiums and claims cost control. Recently completed terminal facilities in Atlanta and Fort Lauderdale resulted in lower communications, utilities and rent expense which decreased to 2.1% of revenue from 2.5% in 1995. The depreciation and amortization expense increase to 9.6% of revenue compared to 9.0% in 1995 reflects the impact of new equipment purchased for the Alabama and Tennessee expansion markets, and new terminal facilities in Atlanta and Fort Lauderdale placed in service in 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued - -------------------------------------------------------------------------
Net interest income and other expenses decreased $413,000 from 1995. The reduction stems from lower interest rates and invested cash balances in 1996 from 1995 levels as well as losses recorded from the early retirement of high-mileage tractors.
Liquidity and Capital Resources - --------------------------------------------- At the end of 1997, cash and cash equivalents totaled $3,422,000, a decrease of $7,759,000 from the end of 1996. Working capital of $1,753,000 was down $8,281,000 from year-end 1996 and the current ratios were 1.12 and 2.00, respectively. The decline in cash and working capital balances during 1997 was due to the Company's purchase of the majority of the transportation assets of Transport South, Inc. on December 1, 1997. This investment required a total cash outlay of $11,446,000 and the assumption of net current liabilities of $944,000 which reduced working capital by $12,390,000 in 1997.
Outstanding debt under the Company's line of credit agreement was $2,500,000 at the end of 1997, of which $500,000 was classified as current. On February 13, 1998, the Company entered into a new unsecured credit agreement that provides a $20,000,000 line of credit. The new agreement replaces the Company's existing line of credit. Amounts borrowed in excess of $10,000,000 are subject to certain repayment provisions. The agreement matures March 2003.
Capital lease obligations, assumed in the Transport South acquisition, totaled $3,070,000 at December 31, 1997. At the end of 1997, $995,000 was classified as current. The outstanding balance is payable over the next four years.
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, for $7,500,000. The Company financed the acquisition through its new line of credit.
Net capital expenditures for replacement of tractors and tank trailers are projected to be $8,300,000 in 1998. Management believes cash flows from operations and the Company's new 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.
The Company has evaluated its Year 2000 issues and has implemented a plan to address and correct all significant issues that involve the Year 2000. These issues are not expected to be material to the Company's business operations or financial condition.
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.
Item 8.
Item 8. Financial Statements and Supplementary Data - -------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Kenan Transport Company:
We have audited the accompanying consolidated balance sheets of Kenan Transport Company (a North Carolina corporation) and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income and retained earnings 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, the financial statements referred to above present fairly, in all material respects, the financial position of Kenan Transport Company and subsidiary as of December 31, 1997 and 1996, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Raleigh, North Carolina, February 19, 1998.
KENAN TRANSPORT COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
December 31 ------------------------- 1997 1996 - ------------------------------------------------------------------------- ASSETS - --------------------------------------------- Current Assets Cash and cash equivalents $ 3,422 $11,181 Accounts receivable, net 8,020 4,988 Operating supplies and parts 521 413 Prepaid tires 1,471 1,033 Prepaid insurance, licenses and other 886 698 Deferred income taxes 1,747 1,741 ----------------------- Total Current Assets 16,067 20,054
Operating Property Land 3,464 3,531 Buildings and leasehold improvements 10,968 9,279 Revenue equipment 65,974 56,015 Other equipment 4,755 3,923 ----------------------- 85,161 72,748 Accumulated depreciation and amortization (32,922) (28,615) ----------------------- Net Operating Property 52,239 44,133
Intangible Assets 7,559 -- Other Assets 1,250 857 ----------------------- $77,115 $65,044 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------------------------- Current Liabilities Current maturities of long-term debt $ 500 $ -- Capital lease obligations 995 -- Accounts payable 2,517 1,423 Wages and employee benefits payable 6,641 5,136 Claims payable 3,553 3,409 Income taxes currently payable 108 52 ----------------------- Total Current Liabilities 14,314 10,020
Long-term Debt 2,000 -- Capital Lease Obligations 2,075 -- Deferred Income Taxes 9,358 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 46,272 42,847 ----------------------- 49,368 45,843 ----------------------- $77,115 $65,044 =======================
The Notes to Consolidated Financial Statements are an integral part of these balance sheets.
KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Dollars in thousands except per share amounts)
KENAN TRANSPORT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
KENAN TRANSPORT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies - --------------------------------------------------------------- Preparation of Financial Statements The 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 which was merged into Kenan Transport Company effective December 31, 1996. All significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements 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 periods. Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments The Company classifies investments maturing within three months from the date of purchase as cash equivalents. All investments at December 31, 1997 and 1996 were cash equivalents.
Tires The cost of replacement tires is included in operating supplies and parts in the accompanying Consolidated Balance Sheets. When installed on revenue equipment, tire costs are included in prepayments and amortized over their useful life based on mileage.
Operating Property Operating property, including operating property under capital leases, is recorded at cost, net of tires and is depreciated or amortized over the estimated useful life of the related assets. Maintenance and repairs are charged to operating expenses as incurred; renewals and improvements are capitalized. Depreciation is computed on the straight-line method using lives of 3 to 15 years for revenue equipment, 15 to 40 years for buildings, remaining life of leases for leasehold improvements, and 2 to 10 years for other equipment.
Claims Payable Claims payable represents the estimated cost of open claims that is retained and paid by the Company under its insurance programs for workers' compensation, group medical, bodily injury and property damage. These estimates are based on historical information along with certain assumptions about future cash flows. Changes in assumptions for such things as medical costs, environmental hazards, and legal actions, as well as changes in actual experience could cause these estimates to change. In the accompanying Consolidated Statements of Income and Retained Earnings, workers' compensation costs are included in wages and employee benefits expenses, and other claims costs are included in claims and insurance expenses.
Environmental Expenditures The Company's operations require the storage of fuel for use in its tractors in both underground and aboveground tanks. 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.
Income Taxes The provision for income taxes includes federal and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.
Note 2 - Earnings Per Share - --------------------------------------------------------------- In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share" which requires all prior years presented to be restated. A reconciliation of net income and the weighted average number of shares outstanding used in calculating basic and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995 is summarized in the table below (dollars and shares in thousands except per share amounts):
1997 1996 1995 -------------------------------- Net income $4,090 $3,805 $3,323 ================================
Beginning shares outstanding 2,389 2,389 2,378 Shares issued under executive incentive plan 6 -- 11 ------ ------ ------ Basic shares outstanding 2,395 2,389 2,389
Shares earned under executive incentive plan 1 1 -- ------ ------ ------ Diluted shares outstanding 2,396 2,390 2,389 ================================
Basic and diluted earnings per share $ 1.71 $ 1.59 $ 1.39 ================================
Note 3 - Purchase of Assets - --------------------------------------------------------------- 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.
The acquisition has been accounted for using the purchase method of accounting. Accordingly, the accompanying consolidated statements of income include results of operations from December 1, 1997. 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. Amortization expense in 1997 was $32,000 and accumulated amortization at December 31, 1997 was $32,000.
The following unaudited pro forma summary presents the consolidated results of operations of the Company for 1997 and 1996, as if the acquisition had occurred as of January 1, 1996. The pro forma information does not purport to be indicative of what would have occurred had the acquisition 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) -------------------------------------------------------------------- 1997 1996 ---------------------- Revenue $101,308 $96,795 Operating income 7,802 7,178 Net income 4,631 4,332 Basic and diluted earnings per share 1.93 1.81
Note 4 - Subsequent Events - --------------------------------------------------------------- On February 18, 1998, the Company entered into a definitive agreement to acquire 100% of the outstanding stock of Petro-Chemical Transport, Inc., a wholly owned subsidiary of CITGO Petroleum Corporation for $7,500,000. Petro-Chemical Transport is a tank truck carrier serving the petroleum industry in the Southeast, Midwest and on the West Coast. The Company will finance the acquisition through its new line of credit facility (see Note 5). The closing is expected during the first quarter of 1998.
Note 5 - Bank Line of Credit - --------------------------------------------------------------- At December 31, 1997, the Company's borrowings under a Bank Credit Agreement totaled $2,500,000 of which $500,000 was classified as currently payable based on management's intent to pay down such amount in 1998. The fair value of debt approximates carrying value at December 31, 1997.
On February 13, 1998, the Company negotiated a new unsecured $20,000,000 Reducing Line of Credit Facility with the 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.
Note 6 - Income Taxes - --------------------------------------------------------------- Deferred income taxes reflect the net tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and assets at December 31, 1997 and 1996 were as follows (dollars in thousands):
1997 1996 --------------------- Liabilities Depreciation $10,012 $8,715 Prepaid tires 558 392 Other 429 525 --------------------- Deferred tax liabilities 10,999 9,632
Assets Claims payable 1,349 1,294 Capital lease obligations 1,165 -- Employee benefits 701 610 Other 173 288 --------------------- Deferred tax assets 3,388 2,192 --------------------- Net deferred tax liability $ 7,611 $7,440 =====================
The provisions for income taxes consist of the following (dollars in thousands):
1997 1996 1995 -------------------------------- Currently payable Federal $1,949 $1,568 $1,387 State 386 330 255 -------------------------------- 2,335 1,898 1,642 Deferred 171 551 574 -------------------------------- $2,506 $2,449 $2,216 ================================
The statutory federal income tax rates differ from the effective income tax rates as follows:
1997 1996 1995 ------------------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% Increase in tax rate resulting from: State income taxes, net of federal tax benefit 4.1 4.0 4.0 Other items, net (.1) 1.2 2.0 ------------------------------- Effective income tax rate 38.0% 39.2% 40.0% ===============================
Note 7 - Lease and Other Commitments - --------------------------------------------------------------- Certain terminal facilities, office space and equipment, and revenue equipment are rented under operating leases expiring at various dates through 2002. Rent expense charged against income for years ended December 31, 1997, 1996 and 1995 was $439,000, $440,000 and $604,000, respectively. At December 31, 1997, total future minimum rental payments required under leases having initial or remaining noncancellable lease terms in excess of one year are (dollars in thousands):
1998 $1,246 1999 1,010 2000 177 2001 47 2002 16
The Company acquired capital leases in connection with its purchase of Transport South, Inc. on December 1, 1997. Capital leases included in operating property at December 31, 1997 were $2,576,000. Future minimum lease payments for capitalized lease obligations at December 31, 1997 are as follows (dollars in thousands):
1998 $1,162 1999 1,514 2000 360 2001 318 ------ Total minimum lease payments 3,354 Less amount representing interest at 5% to 7% and taxes 284 ------ Present value of net minimum lease payments 3,070 Less current portion 995 ------ Long-term obligations $2,075 ======
A bank letter of credit of $2,666,000 is outstanding on the Company's behalf in connection with its insurance program.
The Company is involved in various claims and legal actions arising in the normal course of business. It is the opinion of management that these matters will have no significant impact on the financial statements of the Company.
Note 8 - Retirement Plans - --------------------------------------------------------------- The Company has a Profit-Sharing Retirement Plan covering all employees. Contributions are determined annually by the Board of Directors. The Plan is funded currently and contributions expensed were $1,349,000 (1997), $1,173,000 (1996) and $980,000 (1995).
The Company has a Supplemental Executive Retirement Plan (SERP) to replace retirement benefits lost by certain officers under the Tax Reform Act of 1986. The SERP is an unfunded deferred compensation plan with benefits payable upon retirement, death or other termination of employment under provisions similar to those of the Profit-Sharing Retirement Plan. Net amounts expensed under the SERP were $143,000 (1997), $127,000 (1996) and $109,000 (1995).
Note 9 - Incentive Plans - --------------------------------------------------------------- The Company has a stock incentive plan for key employees that became effective January 1, 1994. The Plan enables the Company to provide long-term incentives for key employees while encouraging optimum growth in Company profits. Over a ten-year period, up to 56,600 shares of common stock may be earned if targeted increases in net income are attained. Employees may elect to receive up to half of the value of their incentive bonuses in cash. No shares were earned in 1995. There were 5,283 shares of stock earned in 1996 and issued in March of 1997 increasing common stock by $100,000 in 1997. Approximately 5,400 shares of stock were earned in 1997 that will be issued in 1998. The actual number of shares will be based upon the market value of a share on the day preceding issuance. There would be no impact on reported net income from applying the disclosure requirements of SFAS 123 "Accounting for Stock-Based Compensation." Compensation expense related to the Plan is recognized in the year earned.
Note 10 - Nature of Business - --------------------------------------------------------------- The Company transports commodities in bulk for the petroleum and chemical industries in the southeastern United States and Texas, and its customers include international corporations in these industries. One customer accounted for 11% of the Company's revenue in 1997 and 1996, and 12% in 1995. Concentration of credit risks to the Company consists primarily of trade receivables from petroleum and chemical companies. The Company maintains an allowance for doubtful accounts which totaled $313,000 and $290,000 at December 31, 1997 and 1996, respectively, to cover estimated credit losses.
Note 11 - Summary of Quarterly Financial Information (Unaudited) - ---------------------------------------------------------------
(Dollars in thousands) --------------------------------- Diluted Operating Operating Net Earnings Quarter Revenue Income Income Per Share - ------------------------------------------------------------------------- First $17,746 $1,541 $ 976 $.41 Second 17,233 1,230 810 .34 Third 17,450 1,314 834 .35 Fourth 20,879 2,377 1,470 .61
First $17,587 $1,648 $1,040 $.44 Second 16,637 1,221 763 .32 Third 16,638 1,271 716 .30 Fourth 17,933 2,104 1,286 .54
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures - ------------------------------------------------------------------------- None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------------------- Information with respect to directors required by Item 401 of Regulation S-K, appearing under the heading "Election of Directors" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference. Information with respect to executive officers required by Item 401 of Regulation S-K is included as Item 4(a) in Part I.
Information with respect to directors and executive officers required by Item 405 of Regulation S-K, appearing under the heading "Section 16(a) Beneficial Ownership Compliance" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation - ------------------------------------------------------------------------- Information with respect to executive compensation required by Item 402 of Regulation S-K, appearing under the heading "Compensation and Related Matters" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference.
Item 12.
Item 12. Securities Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------- Information with respect to securities ownership of certain beneficial owners and management required by Item 403 of Regulation S-K, appearing under the headings "Principal Shareholders" and "Security Ownership of Management" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------------------------- Information with respect to certain relationships and related transactions required by Item 404 of Regulation S-K, appearing under the heading "Compensation Committee Interlocks and Insider Participation" in the Registrant's proxy statement dated March 30, 1998 for the Annual Meeting of Shareholders to be held May 4, 1998, is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ---------------------------------------------------------------
(a)(1) Financial Statements -------------------- The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Consolidated Form 10-K.
(2) Schedules --------- None
(3) Exhibits -------- Exhibits to this report are listed in the accompanying Index to Exhibits.
(b) Reports on Form 8-K ------------------- A Current Report on Form 8-K was filed on December 12, 1997, announcing the Registrant's purchase of the majority of transportation assets of Transport South, Inc. The financial statement schedules and pro forma financial information relating to the purchase was filed on Form 8-K/A, February 13, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Lee P. Shaffer ------------------------------------------------------ Lee P. Shaffer, President and Chief Executive Officer
Date: March 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date - ------------------------ --------------------------- --------------
Principal Financial Officer:
/s/ William L. Boone Vice President-Finance; March 16, 1998 - ------------------------ Secretary; Treasurer William L. Boone
Controller or Principal Accounting Officer:
/s/ J. Earl Cowan Controller March 16, 1998 - ------------------------ J. Earl Cowan
Signature Title Date - ------------------------ -------------------------- --------------- Directors:
/S/ Thomas S. Kenan, III Chairman of the Board March 16, 1998 - ------------------------ of Directors Thomas S. Kenan, III
/S/ Owen G. Kenan Vice Chairman of the March 16, 1998 - ------------------------ Board of Directors Owen G. Kenan
/S/ William O. McCoy Director March 16, 1998 - ------------------------ William O. McCoy
/S/ Paul J. Rizzo Director March 16, 1998 - ------------------------ Paul J. Rizzo
/S/ William C. Friday Director March 16, 1998 - ------------------------ William C. Friday
/S/ Braxton Schell Director March 16, 1998 - ------------------------ Braxton Schell
/S/ Kenneth G. Younger Director March 16, 1998 - ------------------------ Kenneth G. Younger
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. Financial Statements in Form 10-K - --------------------------------------------------------- ------------
Report of Independent Public Accountants relating to the Consolidated Financial Statements and Notes thereto 10
Consolidated Balance Sheets - December 31, 1997 and 1996 11
Consolidated Statements of Income and Retained Earnings - For the Years Ended December 31, 1997, 1996 and 1995 12
Consolidated Statements of Cash Flows - For the Years Ended December 31, 1997, 1996 and 1995 13
Notes to Consolidated Financial Statements 14-20
INDEX TO EXHIBITS
Exhibit No. Description - ----------- --------------------------------------------------------- 2(a) Asset Purchase Agreement between Transport South, Inc. and the Registrant, dated October 31, 1997, filed as Exhibit 2 to the Registrant's Form 10-Q Quarterly Report for the quarter ended September 30, 1997, which is incorporated herein by reference to such Form 10-Q.
2(b) Amendment to Asset Purchase Agreement between Transport South, Inc. and the Registrant, dated December 1, 1997, filed as Exhibit 2.A to the Registrant's Current Report on Form 8-K, filed December 12, 1997, which is incorporated herein by reference to such Form 8-K.
2(c) Stock Purchase and Sale Agreement between CITGO Petroleum Corporation, Petro-Chemical Transport, Inc. and the Registrant, dated February 18, 1998, filed as Exhibit 2 to the Registrant's Current Report on Form 8-K, filed March 13, 1998, which is incorporated herein by reference to such Form 8-K.
3(a) Charter Documents filed as Exhibit 3(a) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10.
3(b) Articles of Amendment dated May 1987, filed as Exhibit 4(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1987, which is incorporated herein by reference to such Form 10-Q.
3(c) Articles of Amendment dated May 1988, filed as Exhibit 4(f) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1988, which is incorporated herein by reference to such Form 10-Q.
3(d) Bylaws filed as Exhibit 3(b) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10.
3(e) Amendments to the Bylaws of the Registrant adopted March 15, 1985, March 2, 1987 and March 1, 1990, filed as Exhibit 4(e) to the Registrant's Form 10-K for the year ended December 31, 1989, which is incorporated herein by reference to such Form 10-K.
3(f) Amended and Restated Bylaws of the Registrant adopted September 26, 1990, filed as Exhibit 4(d) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1991, which is incorporated herein by reference to such Form 10-Q.
INDEX TO EXHIBITS - continued
Exhibit No. Description - ----------- ---------------------------------------------------------
3(g) Amendment to the Bylaws of the Registrant adopted May 6, 1991, filed as Exhibit 4(e) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1991, which is incorporated herein by reference to such Form 10-Q.
3(h) Amendment to the Bylaws of the Registrant adopted October 7, 1991, filed as Exhibit 4(f) to the Registrant's Form 10-Q Quarterly Report for the quarter ended September 30, 1991, which is incorporated herein by reference to such Form 10-Q.
3(i) Amendment to the Bylaws of the Registrant as adopted October 21, 1996 by the Registrant's Board of Directors.
4(a) Specimen Stock Certificate filed as Exhibit 4(a) to the Registrant's Form 10 Registration of Securities, filed April 27, 1984, which is incorporated herein by reference to such Form 10.
Management contracts or compensatory plans or arrangements Exhibits 10(a) - 10(f)
10(a) Employee Stock Bonus Plan effective January 1, 1985, filed as Exhibit 10(c) to the Registrant's Form 10-K for the year ended December 31, 1984, which is incorporated herein by reference to such Form 10-K.
10(b) Amendment to Employee Stock Bonus Plan dated January 6, 1987, filed as Exhibit 10(d) to the Registrant's Form 10-K for the year ended December 31, 1986, which is incorporated herein by reference to such Form 10-K.
10(c) Supplemental Executive Retirement Plan, effective January 1, 1990, filed as Exhibit 10(e) to the Registrant's Form 10-K for the year ended December 31, 1990, which is incorporated herein by reference to such Form 10-K.
10(d) 1994 Stock Bonus Plan effective January 1, 1994, filed as Exhibit 10(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1994, which is incorporated herein by reference to such Form 10-Q.
10(e) Senior Managers' Life Insurance Plan, effective April 1, 1996, filed as Exhibit 10.A to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1997, which is incorporated herein by reference to such Form 10-Q.
INDEX TO EXHIBITS - continued
Exhibit No. Description - ----------- ---------------------------------------------------------
10(f) Senior Management Severance Plan, effective May 5, 1997, filed as Exhibit 10.A to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1997, which is incorporated herein by reference to such Form 10-Q.
Material contracts Exhibits 10(g) - 10(i)
10(g) Credit Agreement between First Union National Bank and the Registrant dated May 22, 1984, filed as Exhibit 4(b) to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 1984, which is incorporated herein by reference to such Form 10-Q.
10(h) Loan Agreement between First Union National Bank and the Registrant dated February 13, 1998.
10(i) Promissory Note between First Union National Bank and the Registrant dated February 13, 1998.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule for the year ended December 31, 1997.