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<PAGE> 1
================================================================================
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 March 31, 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
--------------------- May 12, 1995
no par value --------------
33,311,425 shares
================================================================================
<PAGE> 2
KANEB SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three Months Ended March 31, 1995 and 1994 1
Condensed Consolidated Balance Sheets
- March 31, 1995 and December 31, 1994 2
Consolidated Statements of Cash Flows
- Three Months Ended March 31, 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
March 31,
--------------------------
1995 1994
----------- -----------
<S> <C>
Revenues $ 46,652 $ 50,687
----------- -----------
Costs and expenses:
Operating costs 33,792 39,581
Depreciation and amortization 3,187 3,047
General and administrative expenses 978 1,055
----------- -----------
Total costs and expenses 37,957 43,683
----------- -----------
Operating income 8,695 7,004
Interest and other income 20 39
Interest expense (4,147) (3,312)
Amortization of excess of cost over fair value
of net assets of acquired business (462) (462)
----------- -----------
Income from continuing operations
before minority interest and income tax expense 4,106 3,269
Minority interest in net income (3,168) (3,121)
Income tax expense (315) (547)
----------- -----------
Net income (loss) 623 (399)
Dividends applicable to preferred stock 395 354
----------- -----------
Net income (loss) applicable to common stock $ 228 $ (753)
=========== ===========
Income (loss) per common share $ .01 $ (.02)
=========== ===========
Weighted average number of common
shares outstanding 33,156 32,322
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
March 31, December 31,
ASSETS 1995 1994
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,718 $ 9,506
Short-term investments 1,020 1,020
Accounts receivable, trade 27,412 25,851
Inventories 6,872 6,110
Prepaid expenses and other current assets 4,203 5,497
------------ -----------
Total current assets 50,225 47,984
------------ -----------
Property and equipment 283,922 255,032
Less accumulated depreciation and amortization 93,041 91,490
------------ -----------
Net property and equipment 190,881 163,542
------------ -----------
Excess of cost over fair value of net assets
of acquired business 66,415 66,876
------------ -----------
Other assets 5,017 5,811
------------ -----------
$ 312,538 $ 284,213
============ ===========
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 58,296 $ 60,101
Accounts payable 9,826 10,262
Accrued expenses 21,404 16,397
Accrued distribution payable 4,022 4,021
------------ -----------
Total current liabilities 93,548 90,781
------------ -----------
Long-term debt, less current portion 130,220 103,376
------------ -----------
Net liabilities of discontinued operations 3,653 3,914
------------ -----------
Deferred income taxes and other liabilities 4,687 5,565
------------ -----------
Minority interest 60,833 61,733
------------ -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, without par value 14,423 14,085
Common stock, without par value 4,224 4,224
Additional paid-in capital 197,684 198,736
Accumulated deficit (175,544) (175,772)
Treasury stock, at cost (22,081) (23,435)
Cumulative foreign currency translation adjustment 891 1,006
------------ -----------
Total shareholders' equity 19,597 18,844
------------ -----------
$ 312,538 $ 284,213
============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 623 $ (399)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,187 3,047
Minority interest in net income 3,168 3,121
Amortization of excess of cost over fair
value of net assets acquired 462 462
Deferred taxes 123 244
Changes in current assets and liabilities 3,290 (1,541)
----------- -----------
Net cash provided by operating activities 10,853 4,934
----------- -----------
Investing activities:
Capital expenditures (2,894) (4,450)
Acquisition of West Pipeline (27,100) -
Other - 152
----------- -----------
Net cash used in investing activities (29,994) (4,298)
----------- -----------
Financing activities:
Issuance of long-term debt 32,469 1,000
Payments on long-term debt (7,645) (5,660)
Preferred stock dividends paid (142) (116)
Minority interest distributions (4,068) (4,021)
----------- -----------
Net cash provided by (used in) financing activities 20,614 (8,797)
----------- -----------
Cash provided by (used in) discontinued operations (261) 449
----------- -----------
Increase (decrease) in cash and cash equivalents 1,212 (7,712)
Cash and cash equivalents at beginning of period 9,506 24,327
----------- -----------
Cash and cash equivalents at end of period $ 10,718 $ 16,615
=========== ===========
Supplemental information on cash paid during the period for:
Interest $ 2,343 $ 2,577
=========== ===========
Income taxes $ 390 $ 354
=========== ===========
</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 March 31, 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.
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 and its consolidated subsidiaries at March 31, 1995 and
December 31, 1994 and the results of their operations and their cash
flows for the periods ended March 31, 1995 and 1994. Operating results
for the three-month period ended March 31, 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 of Wyco Pipe Line Company ("the West Pipeline") 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 months ended March 31, 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>
1995 1994
------------- -------------
<S> <C> <C>
Revenues $ 48,367 $ 53,697
============= =============
Net income $ 626 $ 762
============= =============
Net income per common share $ .01 $ .01
============= =============
</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 March 31, 1995. As
a result, the Company's balance sheet shows a working capital deficiency
of $43.3 million as of March 31, 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.
Management is in discussions with underwriters regarding a 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 form 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
- --------------------------------------------------------------------------------
This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Services, Inc. and notes thereto included
elsewhere in this report.
ANALYSIS OF SEGMENT OPERATIONS:
INDUSTRIAL SERVICES
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
------------------------------------
1995 1994
---------------- ----------------
(In millions)
<S> <C> <C>
Revenues
United States $ 7.5 $ 10.1
United Kingdom 8.9 8.1
Germany 3.7 7.3
Other 3.5 3.4
---------------- ----------------
Total revenues $ 23.6 $ 28.9
================ ================
Operating income (loss):
United States $ .8 $ .9
United Kingdom .2 .2
Germany (.1) (.6)
Other (.2) -
---------------- ----------------
Total operating income $ .7 $ .5
================ ================
Capital expenditures $ .7 $ .6
================ ================
</TABLE>
This segment provides specialized industrial services to plants primarily
in the process and power industry. The decline in revenues and
improvement in operating income is attributable to the sale of the
unprofitable east German operations effective December 1994. The decline
in other is the result of a non recurring turnaround and third party
product sales in Southeast Asia in the first quarter of 1994.
PIPELINE AND TERMINALING SERVICES
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
------------------------------------
1995 1994
---------------- ----------------
(In millions)
<S> <C> <C>
Revenues $ 20.4 $ 18.4
================ ================
Operating income $ 8.6 $ 7.2
================ ================
Capital expenditures $ 29.3 $ 3.9
================ ================
</TABLE>
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
terminaling operation was acquired effective March 1, 1993.
6
<PAGE> 9
KANEB SERVICES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
The increases in revenues and operating income for the quarter ended
March 31, 1995 is primarily attributable to the acquisitions of the West
Pipeline pipeline in February 1995 and the Westwego terminal acquisition
in June 1994.
OTHER OPERATIONS
The Company recorded operating income of $.4 million in the first three
months of 1995 compared to $.3 million for the same period in 1994
related to subsidiaries that provide information services to financial
and retail customers. The increase in interest expense in 1995 as
compared to 1994 is attributable to the increase in debt arising from the
acquisition of the West Pipeline and the 1994 Terminal acquisitions.
FINANCIAL CONDITION
Cash and cash equivalents was $10.7 million at March 31, 1995, an
increase of $1.2 million from $9.5 million at December 31, 1994. Net
cash provided by operations of $10.9 million was offset by $30.0 million
of capital expenditures, of which $27.1 million related to the West
Pipeline acquisition, net proceeds of long-term debt of $24.8 million and
distributions to minority interest owners of KPP of $4.1 million.
The Company has $53.2 million of long-term debt that matures during 1995
which has been included in current liabilities as of March 31, 1995. As
a result, the Company's balance sheet shows a working capital deficiency
of $43.3 million as of March 31, 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"). Management is in discussions with
underwriters regarding a 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 form 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: May 15, 1995 /s/ Tony M. Regan
---------------------------------
Tony M. Regan
Controller
8
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Descritpion
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,718
<SECURITIES> 0
<RECEIVABLES> 28,085
<ALLOWANCES> 673
<INVENTORY> 6,872
<CURRENT-ASSETS> 50,225
<PP&E> 283,922
<DEPRECIATION> 93,041
<TOTAL-ASSETS> 312,538
<CURRENT-LIABILITIES> 93,548
<BONDS> 130,220
<COMMON> 4,224
0
14,423
<OTHER-SE> 22,140
<TOTAL-LIABILITY-AND-EQUITY> 312,538
<SALES> 0
<TOTAL-REVENUES> 46,652
<CGS> 0
<TOTAL-COSTS> 37,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,147
<INCOME-PRETAX> 4,106
<INCOME-TAX> 315
<INCOME-CONTINUING> 623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 623
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
|
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