<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 June 30, 1995 Number 1-5083
KANEB SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1191271
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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
--------------------- August 9, 1995
no par value --------------
33,556,754 shares
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KANEB SERVICES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
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<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three and Six Months Ended June 30, 1995 and 1994 1
Condensed Consolidated Balance Sheets
- June 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 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>
<PAGE> 3
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 53,005 $ 51,540 $ 99,657 $ 102,227
----------- ----------- ----------- -----------
Costs and expenses:
Operating costs 37,883 38,852 71,675 78,433
Depreciation and amortization 3,351 3,279 6,538 6,326
General and administrative 1,223 1,017 2,201 2,072
----------- ----------- ----------- -----------
Total costs and expenses 42,457 43,148 80,414 86,831
----------- ----------- ----------- -----------
Operating income 10,548 8,392 19,243 15,396
Interest income and other income (expense) (189) 140 (169) 179
Interest expense (4,359) (3,291) (8,506) (6,603)
Amortization of excess of cost over fair value
of net assets of acquired business (463) (462) (925) (924)
----------- ----------- ----------- -----------
Income before minority interest
and income taxes 5,537 4,779 9,643 8,048
Minority interest in net income (3,168) (3,120) (6,336) (6,241)
Income tax expense (820) (568) (1,135) (1,115)
----------- ----------- ----------- -----------
Net income 1,549 1,091 2,172 692
Dividends applicable to preferred stock 390 368 785 722
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stock $ 1,159 $ 723 $ 1,387 $ (30)
=========== =========== =========== ===========
Income per common share $ .03 $ .02 $ .04 $ -
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 33,357 32,713 33,257 32,457
=========== =========== =========== ===========
</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>
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,052 $ 9,506
Short-term investments 1,020 1,020
Accounts receivable, trade 30,212 25,851
Inventories 6,387 6,110
Prepaid expenses and other current assets 6,848 5,497
------------ -----------
Total current assets 52,519 47,984
------------ -----------
Property and equipment 286,083 255,032
Less accumulated depreciation and amortization 95,397 91,490
------------ -----------
Net property and equipment 190,686 163,542
------------ -----------
Excess of cost over fair value of net assets of acquired
business 65,952 66,876
------------ -----------
Other assets 4,414 5,811
------------ -----------
$ 313,571 $ 284,213
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 57,043 $ 60,101
Accounts payable 9,812 10,262
Accrued expenses 23,443 16,397
Accrued distributions payable 4,020 4,021
------------ -----------
Total current liabilities 94,318 90,781
------------ -----------
Long-term debt, less current portion 129,859 103,376
------------ -----------
Net liabilities of discontinued operations 3,467 3,914
------------ -----------
Deferred income taxes and other liabilities 4,699 5,565
------------ -----------
Minority interest 59,933 61,733
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value 14,223 14,085
Common stock, without par value 4,226 4,224
Additional paid-in capital 196,558 198,736
Accumulated deficit (174,385) (175,772)
Treasury stock, at cost (20,535) (23,435)
Cumulative foreign currency translation adjustment 1,208 1,006
------------ -----------
Total stockholders' equity 21,295 18,844
------------ -----------
$ 313,571 $ 284,213
============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 2,172 $ 692
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,538 6,326
Minority interest in net income 6,336 6,241
Amortization of excess of cost over fair value of net
assets acquired business 925 924
Deferred income taxes 144 446
Changes in working capital components 1,524 351
----------- -----------
Net cash provided by operating activities 17,639 14,980
----------- -----------
Investing activities:
Capital expenditures (6,279) (15,267)
Acquisition of the West Pipeline (27,100) -
Other 1,243 639
----------- -----------
Net cash used by investing activities (32,136) (14,628)
----------- -----------
Financing activities:
Issuance of long-term debt 33,492 7,428
Payments of long-term debt (10,162) (11,092)
Preferred stock dividends paid (686) (722)
Minority interest distributions (8,134) (8,042)
----------- -----------
Net cash provided (used) by financing activities 14,510 (12,428)
----------- -----------
Cash provided by (used in) discontinued operations (447) 257
----------- -----------
Decrease in cash and cash equivalents (434) (11,819)
Cash and cash equivalents at beginning of period 9,506 24,327
=========== ===========
Cash and cash equivalents at end of period $ 9,072 $ 12,508
=========== ===========
Supplemental information on cash paid during the period for:
Interest $ 5,598 $ 4,469
=========== ===========
Income taxes $ 697 $ 875
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Kaneb Services, Inc.,
and its subsidiaries (the "Company") for the periods ended June 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 June 30, 1995 and the results of its
operations and cash flows for the periods ended June 30, 1995 and 1994.
Operating results for the six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1995.
2. 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 six month periods ended June 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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 54,720 $ 54,717 $ 106,517 $ 108,414
=========== =========== =========== ==========
Net income $ 1,552 $ 2,223 $ 2,183 $ 2,985
=========== =========== =========== ==========
Net income per common share $ .03 $ .06 $ .04 $ .07
=========== =========== =========== ==========
</TABLE>
4
<PAGE> 7
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
3. MANAGEMENT PLANS
The Company has $53.2 million of long-term debt that matures during 1995
which has been included in current liabilities as of June 30, 1995. As a
result, the Company's balance sheet shows a working capital deficiency of
$41.8 million as of June 30, 1995. After an extensive review of various
repayment and refinancing alternatives, the board of directors, on March 21,
1995, authorized the management of the Company to pursue the sale of up to
3.5 million of the Preference Units it holds in KPP. On May 16, 1995, the
Company filed a registration statement with the Securities and Exchange
Commission for the public offering of these securities and expects to raise
the funds required to repay these obligations prior to their maturity.
The Company controls the pipeline and terminaling operations of KPP through
its two percent general partner interest and it currently owns a 52% limited
partner interest. The sale of 3.5 million Preference Units would reduce the
Company's limited partner interest to 31%, but it would not affect the
Company's control of the operations of KPP. The excess of the net proceeds
from the sale of these Preference Units over their nominal book basis of
$4.37 per Preference Unit will be recorded as a gain in the Company's 1995
statement of income.
5
<PAGE> 8
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 Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Revenues:
United States $ 8.0 $ 8.6 $ 15.5 $ 18.7
United Kingdom 9.6 9.6 18.5 17.7
Germany 4.5 8.4 8.2 15.8
Other 4.7 3.3 8.2 6.6
----------- ----------- ---------- ----------
$ 26.8 $ 29.9 $ 50.4 $ 58.8
=========== =========== ========== ==========
Operating income:
United States $ .5 $ .6 $ 1.3 $ 1.5
United Kingdom 1.0 1.0 1.2 1.0
Germany (.4) (.8) (.5) (1.4)
Other .1 .2 (.1) .4
----------- ----------- ---------- ----------
$ 1.2 $ 1.0 $ 1.9 $ 1.5
=========== =========== ========== ==========
Capital expenditures $ .8 $ .6 $ 1.5 $ 1.2
=========== =========== ========== ==========
</TABLE>
This segment provides specialized industrial services to plants primarily in
the process and the power industry. For the three and six months ended June
30, 1995, the decline in revenue and the operating income improvements over
the comparable prior periods were primarily related to the sale of
unprofitable East German operations effective December 1994. The decline in
other is a result of a nonrecurring turnaround and third party product sales
in Southeast Asia in the first half of 1994.
PIPELINE AND TERMINALING SERVICES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
Revenues $ 23.3 $ 18.8 $ 43.7 $ 37.2
=========== =========== ========== ==========
Operating income $ 10.1 $ 8.1 $ 18.6 $ 15,3
=========== =========== ========== ==========
Capital expenditures $ 2.5 $ 10.0 $ 4.7 $ 13.9
=========== =========== ========== ==========
</TABLE>
6
<PAGE> 9
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 21 terminals.
The increases in revenues and operating income for the three and six months
ended June 30, 1995 is primarily attributable to the acquisitions 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 $.2 million and $.3
million for the three and six months ended June 30, 1995 over the comparable
1994 periods related to subsidiaries that provide information services to
financial and retail customers. The increase in interest expense in 1995,
as compared to 1994, is partially 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
Cash and cash equivalents was $9.1 million at June 30, 1995, a decrease of
$.4 million from $9.5 million at December 31, 1994. Net cash provided by
operations of $17.6 million was offset by $33.4 million of capital
expenditures (of which $27.1 million related to the West Pipeline
acquisition), net proceeds of long-term debt of $34.3 million (also includig
$27.1 million related to the West Pipeline) and distributions to minority
interest owners of KPP of $8.1 million.
The Company has $53.2 million of long-term debt that matures during 1995
which has been included in current liabilities as of June 30, 1995. As a
result, the Company's balance sheet shows a working capital deficiency of
$41.8 million as of June 30, 1995. After an extensive review of various
repayment and refinancing alternatives, the board of directors, on March 21,
1995, authorized the management of the Company to pursue the sale of up to
3.5 million of the Preference Units it holds in Kaneb Pipe Line Partners,
L.P. ("KPP"). On May 16, 1995, the Company filed a registration statement
with the Securities and Exchange Commission for the public offering of these
securities and expects to raise the funds required to repay these
obligations prior to their maturity. The Company controls the pipeline and
terminaling operations of KPP through its two percent general partner
interests and it currently owns a 52% limited partner interest. The sale of
3.5 million Preference Units would reduce the Company's limited partner
interest to 31%, but it would not affect the Company's control of the
operations of KPP. The excess of the net proceeds from the sale of these
Preference Units over their nominal book basis of $4.37 per Preference Unit
will be recorded as a gain in the Company's 1995 statement of income.
7
<PAGE> 10
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: August 11, 1995 /s/ Tony M. Regan
---------------------------------
Tony M. Regan
Controller
8
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 9,072
<SECURITIES> 0
<RECEIVABLES> 30,934
<ALLOWANCES> 722
<INVENTORY> 6,387
<CURRENT-ASSETS> 52,519
<PP&E> 286,083
<DEPRECIATION> 95,397
<TOTAL-ASSETS> 313,571
<CURRENT-LIABILITIES> 94,318
<BONDS> 129,859
<COMMON> 4,226
0
14,223
<OTHER-SE> 22,173
<TOTAL-LIABILITY-AND-EQUITY> 313,571
<SALES> 0
<TOTAL-REVENUES> 99,657
<CGS> 0
<TOTAL-COSTS> 80,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,506
<INCOME-PRETAX> 9,643
<INCOME-TAX> 1,135
<INCOME-CONTINUING> 2,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,172
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
