<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
For the Quarterly Period Commission File
Ended September 30, 1995 Number 1-5083
KANEB SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-1191271
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
2435 NORTH CENTRAL EXPRESSWAY
RICHARDSON, TEXAS 75080
(Address of principle executive offices, including zip code)
(214) 699-4000
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at
no par value October 31, 1995
33,668,865 shares
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KANEB SERVICES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page No.
--------
Part I. Financial Information
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
--Three and Nine Months Ended September 30, 1995 and 1994 1
Condensed Consolidated Balance Sheets
-- September 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
-- Nine Months Ended September 30, 1995 and 1994 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Signature 8
</TABLE>
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KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 56,956 $ 54,233 $156,613 $156,460
-------- -------- -------- --------
Costs and expenses:
Operating costs 40,713 41,116 112,388 119,549
Depreciation and amortization 3,283 3,026 9,821 9,352
General and administrative 1,243 989 3,444 3,061
-------- -------- -------- --------
Total costs and expenses 45,239 45,131 125,653 131,962
-------- -------- -------- --------
Operating income 11,717 9,102 30,960 24,498
Gain on sale of partnership interests 54,157 - 54,157 -
Interest income and other income (expense) (264) (101) (433) 78
Interest expense (4,387) (3,430) (12,893) (10,033)
Amortization of excess of cost over fair value
of net assets of acquired business (462) (462) (1,387) (1,386)
-------- -------- -------- --------
Income before minority interest and
income taxes 60,761 5,109 70,404 13,157
Minority interest in net income (4,237) (3,159) (10,573) (9,400)
Income tax expense (745) (720) (1,880) (1,835)
-------- -------- -------- --------
Net income 55,779 1,230 57,951 1,922
Dividends applicable to preferred stock 373 380 1,158 1,102
-------- -------- -------- --------
Net income applicable to common stock $ 55,406 $ 850 $ 56,793 $ 820
======== ======== ======== ========
Income per common share $ 1.65 $ .03 $ 1.70 $ .03
======== ======== ======== ========
Weighted average number of common shares
outstanding 33,604 32,747 33,374 32,555
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
1
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KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,217 $ 9,506
Short-term investments - 1,020
Accounts receivable, trade 33,903 25,851
Inventories 6,229 6,110
Prepaid expenses and
other current assets 5,496 5,497
-------- --------
Total current assets 73,845 47,984
-------- --------
Property and equipment 286,699 255,032
Less accumulated depreciation and amortization 95,648 91,490
-------- --------
Net property and equipment 191,051 163,542
-------- --------
Excess of cost over fair value of net assets of
acquired business 65,490 66,876
-------- --------
Other assets 3,311 5,811
-------- --------
$333,697 $284,213
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 3,997 $ 60,101
Accounts payable 10,657 10,262
Accrued expenses 27,603 16,397
Accrued distributions payable 4,067 4,021
-------- --------
Total current liabilities 46,324 90,781
-------- --------
Long-term debt, less current portion 125,719 103,376
-------- --------
Net liabilities of discontinued operations 3,051 3,914
-------- --------
Deferred income taxes and other liabilities 6,742 5,565
-------- --------
Minority interest 74,636 61,733
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value 14,181 14,085
Common stock, without par value 4,230 4,224
Additional paid-in capital 196,138 198,736
Accumulated deficit (118,979) (175,772)
Treasury stock, at cost (19,810) (23,435)
Cumulative foreign currency
translation adjustment 1,465 1,006
-------- --------
Total stockholders' equity 77,225 18,844
-------- --------
$333,697 $284,213
======== ========
</TABLE>
See notes to consolidated financial statements.
2
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KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Operating activities:
Net income $ 57,951 $ 1,922
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,821 9,352
Gain on sale of partnership interests (54,157) -
Minority interest in net income 10,573 9,400
Amortization of excess of cost over fair value of net
assets acquired business 1,387 1,386
Deferred income taxes 270 623
Changes in working capital components (1,928) (37)
---------- ----------
Net cash provided by operating activities 23,917 22,646
---------- ----------
Investing activities:
Capital expenditures (10,111) (18,342)
Acquisition of the West Pipeline (27,100) -
Net proceeds from sale of partnership interests 74,812 -
Other 4,842 2,013
---------- ----------
Net cash provided by (used in) investing activities 42,443 (16,329)
---------- ----------
Financing activities:
Proceeds from issuance of long-term debt 35,259 14,253
Payments of long-term debt (69,036) (18,304)
Preferred stock dividends paid (808) (856)
Minority interest distributions (12,201) (12,001)
---------- ----------
Net cash used in financing activities (46,786) (16,908)
---------- ----------
Cash used in discontinued operations (863) (264)
---------- ----------
Increase (decrease) in cash and cash equivalents 18,711 (10,855)
Cash and cash equivalents at beginning of period 9,506 24,327
---------- ----------
Cash and cash equivalents at end of period $ 28,217 $ 13,472
========== =========
Supplemental information on cash paid during the period for:
Interest $ 12,400 $ 7,644
========== =========
Income taxes $ 830 $ 1,637
========== =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Kaneb Services, Inc., and
its subsidiaries (the "Company") for the periods ended September 30, 1995
and 1994 have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis. Significant accounting policies
followed by the Company and its subsidiaries were disclosed in the notes to
the financial statements included in the Company's Form 10-K Annual Report
for the year ended December 31, 1994. Gains and losses resulting from
foreign currency translations are accumulated as a separate component of
shareholders' equity. Gains or losses resulting from foreign currency
transactions are included in the statements of income. In the opinion of the
Company's management, the accompanying consolidated financial statements
contain the adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of the Company at September 30,
1995 and the results of its operations and cash flows for the periods ended
September 30, 1995 and 1994. Operating results for the nine months ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995.
2. SALE OF PARTNERSHIP UNITS
In September, 1995 the Company through a wholly owned subsidiary, sold in a
public offering, 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of $74.8 million related to the sale and recorded
a gain of $54.2 million, net of expenses related to the public offering.
The Company used the proceeds to retire its 8% convertible subordinated
debentures totaling $43.2 million, its 11.5% subordinated debentures
totaling $5.0 million and repaid its $10 million term loan. The Company
continues to control the pipeline and terminaling operations of KPP through
its 2% general partner interest and a 31% limited partner interest.
3. ACQUISITIONS
Effective February 24, 1995, the Company, through Kaneb Pipe Line Partners,
L.P. ("KPP"), acquired the refined petroleum product pipeline assets ("the
West Pipeline") of Wyco Pipe Line Company for $27.1 million. The acquisition
was financed by the issuance of first mortgage notes to three insurance
companies, which are due February 24, 2002 and bear interest at the rate of
8.37% per annum. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of the West Pipeline have been
included in the Company's consolidated statement of income subsequent to the
date of acquisition.
The following summarized unaudited pro forma consolidated results of
operations for the three and nine month periods ended September 30, 1995 and
1994, assume the acquisition occurred as of the beginning of the periods
presented. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which might have resulted had the combination been in effect at
the dates indicated, or which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 56,956 $ 57,507 $ 158,328 $ 165,921
========== ========== ========== ==========
Net income $ 55,779 $ 2,254 $ 57,954 $ 5,239
========== ========== ========== ==========
Net income per common share $ 1.65 $ .06 $ 1.70 $ .13
========== ========== ========== ==========
</TABLE>
4
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KANEB SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Operating Results
Industrial Services
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues:
United States $ 8.4 $ 7.5 $ 23.9 $ 26.2
United Kingdom 10.8 9.9 29.3 27.6
Germany 3.9 9.4 12.1 25.2
Other 4.8 3.8 13.0 10.4
---------- ---------- ---------- ----------
$ 27.9 $ 30.6 $ 78.3 $ 89.4
========== ========== ========== ==========
Operating income:
United States $ .4 $ .1 $ 1.7 $ 1.6
United Kingdom 1.5 .7 2.7 1.7
Germany (.3) (.8) (.8) (2.2)
Other .1 .7 -- 1.1
---------- ---------- ---------- ----------
$ 1.7 $ .7 $ 3.6 $ 2.2
========== ========== ========== ==========
Capital expenditures $ 1.5 $ .7 $ 3.0 $ 2.0
========== ========== ========== ==========
</TABLE>
This segment provides specialized industrial services to plants primarily in
the process and the power industries. The UK operations have reported major
improvements in operating income for the three and nine month periods
presented as a result of cost control measures and a strengthening economy.
The Company expects these improvements to continue through the end of the
year. For the three and nine months ended September 30, 1995, the decline
in revenue and the operating income improvements in the German operations
over the comparable prior periods were primarily related to the sale of
unprofitable East German operations effective December 1994. The decline in
other operating income is a result of a nonrecurring turnaround and third
party product sales in Southeast Asia in 1994.
Pipeline and Terminaling Services
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues $ 26.5 $ 20.7 $ 70.3 $ 57.9
========== ========== ========== ==========
Operating income $ 10.9 $ 9.1 $ 29.5 $ 24.4
========== ========== ========== ==========
Capital expenditures $ 2.4 $ 2.3 $ 7.1 $ 16.3
========== ========== ========== ==========
</TABLE>
5
<PAGE> 8
KANEB SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
This segment provides transportation services of refined petroleum products
through its pipeline system that extends from Kansas to North Dakota.
Additionally, this segment provides terminaling services for petroleum
products and specialty liquids at its 23 terminals. The increases in
revenues and operating income for the three and nine months ended September
30, 1995 is primarily attributable to the acquisition of the West Pipeline
in February 1995 and the Westwego terminal acquisition in June 1994.
Other Operations
The Company recorded an increase in operating income of $.3 million for the
nine months ended September 30, 1995 over the comparable 1994 period
related to subsidiaries that provided information services to financial and
retail customers. The increase in interest expense in 1995, as compared to
1994, is primarily attributable to the increase in debt arising from the
acquisition of the West Pipeline in February 1995 and the 1994 terminal
acquisitions, and partially attributable to the increase in interest rates
on floating rate debt.
Financial Condition
In September, 1995 the Company through a wholly owned subsidiary, sold in a
public offering, 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of $74.8 million related to the sale and
recorded a gain of $54.2 million, net of expenses related to the public
offering. The Company used the proceeds to retire its 8% convertible
subordinated debentures totaling $43.2 million, its 11.5% subordinated
debentures totaling $5.0 million and repaid its $10 million term loan. The
Company continues to control the pipeline and terminaling operations of KPP
through its 2% general partnership interest and a 31% limited partner
interest.
Cash and cash equivalents was $28.2 million at September 30, 1995, an
increase of $18.7 million from $9.5 million at December 31, 1994. Net cash
provided by operations of $23.9 million, proceeds from issuance of long term
debt of $35.3 million and proceeds from the sale of partnership interests
of $74.8 million was offset by $37.2 million of capital expenditures (of
which $27.1 million related to the West Pipeline acquisition), payments of
long term debt of $69.0 million and distributions to minority interest
owners of KPP of $12.2 million.
6
<PAGE> 9
SIGNATURE
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.
KANEB SERVICES, INC.
(Registrant)
Date: November 1, 1995 /s/ TONY M. REGAN
-----------------------------------
Tony M. Regan
Controller
7
<PAGE> 10
Exhibit Index
Exhibit
Number Description
________ _____________________________________________________
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 28,217
<SECURITIES> 0
<RECEIVABLES> 34,435
<ALLOWANCES> 532
<INVENTORY> 6,229
<CURRENT-ASSETS> 73,845
<PP&E> 286,699
<DEPRECIATION> 95,648
<TOTAL-ASSETS> 333,697
<CURRENT-LIABILITIES> 46,324
<BONDS> 125,719
<COMMON> 4,230
0
14,181
<OTHER-SE> 77,159
<TOTAL-LIABILITY-AND-EQUITY> 333,697
<SALES> 0
<TOTAL-REVENUES> 156,613
<CGS> 0
<TOTAL-COSTS> 125,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,893
<INCOME-PRETAX> 70,404
<INCOME-TAX> 1,880
<INCOME-CONTINUING> 57,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,951
<EPS-PRIMARY> 1.7
<EPS-DILUTED> 1.7
</TABLE>
