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Previous: JOURNAL COMMUNICATIONS INC, 10-Q, 1996-05-08 |
Next: KANSAS CITY POWER & LIGHT CO, DEFA14A, 1996-05-08 |
<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, 1996 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.
Outstanding at
Class of Common Stock April 30, 1996
- --------------------- --------------
no par value 33,652,151 shares
================================================================================
<PAGE> 2
KANEB SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
<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, 1996 and 1995 1
Condensed Consolidated Balance Sheets
- March 31, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
</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,
-------------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Revenues $ 54,839 $ 46,652
------------- ------------
Costs and expenses:
Operating costs 38,297 33,792
Depreciation and amortization 3,874 3,187
General and administrative 985 978
------------- ------------
Total costs and expenses 43,156 37,957
------------- ------------
Operating income 11,683 8,695
Interest and other income (expense) (33) 20
Interest expense (3,868) (4,147)
Amortization of excess of cost over fair value
of net assets of acquired business (462) (462)
------------- ------------
Income from continuing operations
before interest of outside non-controlling partners in
pipeline partnership's net income and income tax expense 7,320 4,106
Interest of outside non-controlling partners in pipeline
partnership's net income (5,860) (3,168)
Income tax expense (629) (315)
------------- ------------
Net income 831 623
Dividends applicable to preferred stock 114 395
------------- ------------
Net income applicable to common stock $ 717 $ 228
============= ============
Income per common share $ .02 $ .01
============= ============
Weighted average number of common
shares outstanding 33,652 33,156
============= ============
</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,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,246 $ 30,389
Accounts receivable, trade 33,732 32,708
Inventories 5,815 5,809
Prepaid expenses and other current assets 6,114 7,465
------------ -------------
Total current assets 61,907 76,371
------------ -------------
Property and equipment 364,623 363,545
Less accumulated depreciation and amortization 102,917 99,698
------------ -------------
Net property and equipment 261,706 263,847
------------ -------------
Excess of cost over fair value of net assets
of acquired business 64,569 65,031
------------ -------------
Other assets 4,545 4,578
------------ -------------
$ 392,727 $ 409,827
============ =============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 4,193 $ 4,134
Accounts payable 10,716 11,947
Accrued expenses 29,410 29,750
Accrued redemption of preferred stock - 8,201
Accrued distribution payable 6,035 6,037
------------ -------------
Total current liabilities 50,354 60,069
------------ -------------
Long-term debt, less current portion:
Industrial field services 24,557 25,691
Pipeline and terminaling services 136,006 136,489
Parent company 23,666 29,666
------------ -------------
Total long-term debt, less current portion 184,229 191,846
------------ -------------
Net liabilities of discounted operations 3,298 3,320
------------ -------------
Deferred income taxes and other liabilities 11,373 11,235
------------ -------------
Interest of outside non-controlling partners in
pipeline partnership 74,165 74,335
------------ -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, without par value 5,814 5,814
Common stock, without par value 4,230 4,230
Additional paid-in-capital 197,173 197,151
Accumulated deficit (117,401) (118,118)
Treasury stock, at cost (19,552) (19,552)
Cumulative foreign currency translation adjustment (956) (503)
------------ -------------
Total shareholders' equity 69,308 69,022
------------ -------------
$ 392,727 $ 409,827
============ =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Operating activities:
Net income $ 831 $ 623
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,874 3,187
Interest of outside non-controlling partners in
pipeline partnership 5,860 3,168
Amortization of excess of cost over fair
value of net assets acquired 462 462
Deferred income taxes 293 123
Changes in current assets and liabilities (1,428) 3,290
-------------- --------------
Net cash provided by operating activities 9,892 10,853
-------------- --------------
Investing activities:
Capital expenditures (2,720) (2,894)
Acquisitions made by pipeline partnership - (27,100)
Other 354 -
-------------- --------------
Net cash used in investing activities (2,366) (29,994)
-------------- --------------
Financing activities:
Issuance of long-term debt 77 1,719
Issuance of long-term debt by pipeline partnership - 30,750
Payments on long-term debt (7,134) (1,637)
Payments of long-term debt by pipeline partnership (421) (6,008)
Preferred stock dividends paid (114) (142)
Distributions to outside non-controlling partners in
pipeline partnership (6,030) (4,068)
Redemption of preferred stock (8,025) -
-------------- --------------
Net cash provided by (used in) financing activities (21,647) 20,614
-------------- --------------
Cash used in discontinued operations (22) (261)
-------------- --------------
Increase (decrease) in cash and cash equivalents (14,143) 1,212
Cash and cash equivalents at beginning of period 30,389 9,506
-------------- --------------
Cash and cash equivalents at end of period $ 16,246 $ 10,718
============== ==============
Supplemental information on cash paid during the period for:
Interest $ 3,770 $ 2,343
============== ==============
Income taxes $ 450 $ 390
============== ==============
</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, 1996 and
1995 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, 1995. 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, 1996 and December 31, 1995 and the results of
their operations and their cash flows for the periods ended March 31, 1996
and 1995. Operating results for the three-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996.
2. ACQUISITIONS
In February 1995, Kaneb Pipeline Partners, L.P. ("KPP") acquired the refined
petroleum product pipeline assets (the "West Pipeline") of Wyco Pipe Line
Company for $27.1 million, plus transaction costs and the assumption of
certain environmental liabilities. The acquisition was financed by the
issuance of $27 million of first mortgage notes.
In December 1995, KPP acquired the liquids terminaling assets of Steuart
Petroleum Company and certain of its affiliates (collectively, "Steuart")
for $68 million, plus transaction costs and the assumption of certain
environmental liabilities. The acquisition price was financed by bank
borrowings.
The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations have been included in
the Company's consolidated statements of income subsequent to the date of
acquisition. The allocation of the purchase price of the Steuart
acquisition presented in the consolidated financial statements is
preliminary and subject to adjustment.
The following summarized unaudited pro forma consolidated results of
operations for the three months ended March 31, 1996 and 1995, assume both
acquisitions occurred as of the beginning of each period presented. The
unaudited pro forma financial results have been prepared for comparative
purposes only and may not be indicative of the results that would have
occurred if KPP had acquired the pipeline assets of the West Pipeline and
the liquids terminaling assets of Steuart on the dates indicated or which
will be attained in the future.
<TABLE>
<CAPTION>
Pro forma
1995 1996
------------- -------------
<S> <C> <C>
Revenues $ 54,371 $ 54,839
============ =============
Net income $ 880 $ 831
============ =============
Net income per common share $ .01 $ .02
============ =============
</TABLE>
4
<PAGE> 7
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
3. REDEMPTION OF PREFERRED STOCK AND RETIREMENT OF LONG-TERM DEBT
On December 28, 1995, the Company notified the Series D Preferred
stockholders that it would redeem its outstanding 12% Convertible Class A
Preferred Stock, Series D and the Series was fully redeemed on January 26,
1996. On February 1, 1996, the Company retired its $6.0 million 8.85%
convertible senior note.
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.
OPERATING RESULTS:
INDUSTRIAL FIELD SERVICES
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
--------------------------------
1996 1995
---------- -------------
<S> <C> <C>
Revenues:
United States $ 8.2 $ 7.5
United Kingdom 8.1 8.9
Germany 3.8 3.7
Rest of World 4.9 3.5
---------- -------------
Total revenues $ 25.0 $ 23.6
========== =============
Operating income:
United States $ .4 $ .8
United Kingdom .1 .2
Germany .1 (.1)
Rest of World .3 .0
Headquarters (.2) (.2)
---------- -------------
Total operating income $ .7 $ .7
========== =============
Capital expenditures $ .6 $ .7
========== =============
</TABLE>
This business segment provides specialized industrial field services to
plants primarily in the process and power industry. The decrease in revenues
and operating income in the United Kingdom primarily relates to a
nonrecurring passive fire protection job completed in the first quarter of
1995. The increase in revenues and decrease in operating income for the
United States primarily relates to the mix of services provided for the
first quarter 1996 compared to the first quarter 1995. The declines in the
United Kingdom and United States operations for the first quarter of 1996
were offset by an increase in other core operations around the world.
6
<PAGE> 9
KANEB SERVICES, INC. AND SUBSIDIARIES
Management s Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
PIPELINE AND TERMINALING SERVICES
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
--------------------------------
1996 1995
---------- ------------
(In millions)
<S> <C> <C>
Revenues $ 27.8 $ 20.4
========== ============
Operating income $ 11.6 $ 8.6
========== ============
Capital expenditures $ 2.1 $ 29.3
========== ============
</TABLE>
This business segment provides transportation services of refined petroleum
products through its pipeline system that extends through the Midwest.
Additionally, this business segment provides terminaling services for
petroleum products and specialty liquids.
The increase in revenues and operating income for the first quarter of 1996
primarily relates to the inclusion for three full months of operating
results of the West Pipeline and Steuart in 1996 and only one month of
operations for the West Pipeline in 1995.
Capital expenditures for the first quarter of 1995 include $28.8 million
related to the acquisition of the West Pipeline.
OTHER OPERATIONS
The Company recorded operating income of $.4 million in the first three
months of 1996 and 1995 related to subsidiaries that provide information
services to financial and retail customers.
FINANCIAL CONDITION
Cash and cash equivalents was $16.2 million at March 31, 1996, a decrease of
$14.1 million from $30.4 million at December 31, 1995. The decrease is
primarily related to the redemption of approximately $8.2 million of the
Company's 12% Convertible Class A Preferred Stock, Series D on January 26,
1996 and retirement of a $6.0 million 8.85% Convertible Senior Note on
February 1, 1996.
7
<PAGE> 10
KANEB SERVICES, INC. AND SUBSIDIARIES
Management s Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Report dated August 27, 1995, on Form 8-K/A was filed on
January 3, 1996, pursuant to Item 2 of that form. Statements
of Revenues and Direct Operating Expenses and Statements of
Net Assets to be Acquired of Steuart Petroleum Company and
affiliates and pro forma financial statements of the
Registrant were included in Item 7 of this filing.
8
<PAGE> 11
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 7, 1996 /s/ Tony M. Regan
--------------------------------
Tony M. Regan
Controller
9
<PAGE> 12
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 16,246
<SECURITIES> 0
<RECEIVABLES> 34,903
<ALLOWANCES> 1,171
<INVENTORY> 5,815
<CURRENT-ASSETS> 61,907
<PP&E> 364,623
<DEPRECIATION> 102,917
<TOTAL-ASSETS> 392,727
<CURRENT-LIABILITIES> 50,354
<BONDS> 184,229
<COMMON> 4,230
0
5,814
<OTHER-SE> 79,772
<TOTAL-LIABILITY-AND-EQUITY> 392,727
<SALES> 0
<TOTAL-REVENUES> 54,839
<CGS> 0
<TOTAL-COSTS> 43,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,868
<INCOME-PRETAX> 7,320
<INCOME-TAX> 629
<INCOME-CONTINUING> 831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
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