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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 March 31, 1997 Number 1-5083
KANEB SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1191271
(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
- --------------------- April 30, 1997
no par value ------------------
32,637,651 shares
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KANEB SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
Page No.
Part I. Financial Information --------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
- Three Months Ended March 31, 1997 and 1996 1
Condensed Consolidated Balance Sheets
- March 31, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signature 8
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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
MARCH 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues $ 53,154 $ 54,839
-------- --------
Costs and expenses:
Operating costs 35,459 38,297
Depreciation and amortization 4,213 3,874
General and administrative 1,038 985
-------- --------
Total costs and expenses 40,710 43,156
-------- --------
Operating income 12,444 11,683
Interest and other income (expense) (20) (33)
Interest expense (3,862) (3,868)
Amortization of excess of cost over fair value
of net assets of acquired business (461) (462)
-------- --------
Income from continuing operations
before interest of outside non-controlling partners in
pipeline partnership's net income and income tax expense 8,101 7,320
Interest of outside non-controlling partners in pipeline
partnership's net income (6,020) (5,860)
Income tax expense (552) (629)
-------- --------
Net income 1,529 831
Dividends applicable to preferred stock 123 114
-------- --------
Net income applicable to common stock $ 1,406 $ 717
======== ========
Earnings per common share - primary and fully diluted $ .04 $ .02
======== ========
Weighted average number of common and
common equivalent shares 33,430 33,652
======== ========
</TABLE>
See notes to consolidated financial statements.
1
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KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,592 $ 23,693
Accounts receivable, trade 30,382 33,157
Inventories 6,786 6,706
Prepaid expenses and other current assets 5,798 6,367
--------- ---------
Total current assets 67,558 69,923
--------- ---------
Property and equipment 373,355 373,087
Less accumulated depreciation and amortization 109,178 106,449
--------- ---------
Net property and equipment 264,177 266,638
--------- ---------
Excess of cost over fair value of net assets
of acquired business 62,692 63,183
--------- ---------
Other assets 4,926 4,947
--------- ---------
$ 399,353 $ 404,691
========= =========
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 4,625 $ 4,594
Accounts payable 7,260 9,015
Accrued expenses 29,228 29,693
Accrued distribution payable 6,588 6,588
--------- ---------
Total current liabilities 47,701 49,890
--------- ---------
Long-term debt, less current portion:
Industrial field services 22,496 23,425
Pipeline and terminaling services 138,899 139,453
Parent company 23,666 23,666
--------- ---------
Total long-term debt, less current portion 185,061 186,544
--------- ---------
Net liabilities of discontinued operations 2,720 2,759
--------- ---------
Deferred income taxes and other liabilities 14,509 14,147
--------- ---------
Interest of outside non-controlling partners in
pipeline partnership 75,425 75,985
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, without par value 5,792 5,792
Common stock, without par value 4,230 4,230
Additional paid-in-capital 197,211 197,213
Accumulated deficit (110,188) (111,596)
Treasury stock, at cost (22,111) (20,631)
Cumulative foreign currency translation adjustment (997) 358
--------- ---------
Total shareholders' equity 73,937 75,366
--------- ---------
$ 399,353 $ 404,691
========= =========
</TABLE>
See notes to consolidated financial statements.
2
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KANEB SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 1,529 $ 831
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,213 3,874
Interest of outside non-controlling partners in
pipeline partnership 6,020 5,860
Amortization of excess of cost over fair
value of net assets acquired 461 462
Deferred income taxes 273 293
Changes in working capital components 1,044 (1,428)
-------- --------
Net cash provided by operating activities 13,540 9,892
-------- --------
Investing activities:
Capital expenditures (2,621) (2,720)
Other (524) 354
-------- --------
Net cash used in investing activities (3,145) (2,366)
-------- --------
Financing activities:
Issuance of long-term debt 101 77
Payments on long-term debt (893) (7,134)
Payments of long-term debt by pipeline partnership (483) (421)
Preferred stock dividends paid (123) (114)
Distributions to outside non-controlling partners in
pipeline partnership (6,579) (6,030)
Purchase of treasury stock (1,480) --
Redemption of preferred stock -- (8,025)
-------- --------
Net cash used in financing activities (9,457) (21,647)
-------- --------
Cash used in discontinued operations (39) (22)
-------- --------
Increase in cash and cash equivalents 899 (14,143)
Cash and cash equivalents at beginning of period 23,693 30,389
-------- --------
Cash and cash equivalents at end of period $ 24,592 $ 16,246
======== ========
Supplemental information on cash paid during the period for:
Interest $ 3,060 $ 3,770
======== ========
Income taxes $ 412 $ 450
======== ========
</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, 1997
and 1996 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 consolidated financial statements included
in the Company's Form 10-K Annual Report for the year ended December 31,
1996. 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 consolidated
financial position of the Company and its consolidated subsidiaries at
March 31, 1997 and December 31, 1996 and the consolidated results of their
operations and their cash flows for the periods ended March 31, 1997 and
1996. Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
2 NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per share"
(SFAS No. 128). This Statement establishes standards for computing and
presenting earnings per share and is effective for periods ending after
December 15, 1997. The Company will adopt SFAS No. 128 for the year ending
December 31, 1997, and based on earnings per share calculations using the
new standards for the first quarter 1997, no changes to earnings per share
data resulted when compared to current standards, and none are anticipated
in the current year.
4
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KANEB SERVICES, INC AND SUBSIDIARIES
This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Services, Inc. (the "Company") and notes
thereto included elsewhere in this report.
OPERATING RESULTS:
INDUSTRIAL FIELD SERVICES
Three Months Ended,
March 31,
-------------------
1997 1996
------ ------
(In millions)
Revenues:
United States $ 7.7 $ 8.2
United Kingdom 8.9 8.1
Germany 2.6 3.8
Rest of World 3.4 4.9
----- -----
Total revenues $22.6 $25.0
===== =====
Operating income:
United States $ .3 $ .4
United Kingdom .7 .1
Germany .1 .1
Rest of World (.1) .3
Headquarters (.1) (.2)
----- -----
Total operating income $ .9 $ .7
===== =====
Capital expenditures $ .7 $ .6
===== =====
This business segment provides specialized industrial field services,
including under-pressure leak sealing, on-site machining, safety and
relief valve testing and repair, passive fire protection and fugitive
emissions inspections, to the process and power industry worldwide. The
decrease in revenues in the three months ended March 31, 1997 for the
United States and Rest of World is primarily due to lower amounts of
under-pressure leak sealing resulting from weather conditions where cold
winter temperatures did not widely fluctuate. The decrease in revenues for
Germany is additionally due to decreases in revenue from valve and heat
exchanger repairs also as a result of weather conditions. These decreases
were partially offset by an increase in the United Kingdom revenues
primarily from third party product sales and manufacturing and turnaround
services. The increase in operating income is primarily due to increased
levels of business in the United Kingdom and a greater amount of
higher-margin work.
5
<PAGE> 8
KANEB SERVICES, INC AND SUBSIDIARIES
PIPELINE AND TERMINALING SERVICES
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
-------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
Revenues $28.6 $27.8
===== =====
Operating income $11.9 $11.6
===== =====
Capital expenditures $ 1.9 $ 2.1
===== =====
</TABLE>
This business segment includes the operations of Kaneb Pipe Line Partners,
L.P. ("KPP") which provides transportation services of refined petroleum
products through a pipeline system that extends through the Midwest and
Eastern Rocky Mountain areas. Additionally, KPP provides terminaling and
storage services for petroleum products and specialty liquids. The Company
operates, manages and controls the pipeline and terminaling operations of
KPP through its 2% general partner interest and a 31% limited partner
interest in the partnership.
The increase in revenues and operating income for the first quarter of
1997 primarily relates to the two liquids terminaling facilities acquired
in the fourth quarter of 1996 in addition to an increase in the
profitability of terminals acquired in December 1995.
Capital expenditures of $1.9 million for the first quarter of 1997 relates
to the maintenance of existing operations.
OTHER OPERATIONS
The Company recorded operating income of $.7 million and $.4 million in
the first three months of 1997 and 1996, respectively, related to
subsidiaries that provide information services to financial and retail
customers.
FINANCIAL CONDITION
Cash and cash equivalents were $24.6 million at March 31, 1997, an
increase of $.9 million from $23.7 million at December 31, 1996. Net cash
provided by operations of $13.5 million was partially offset by $2.6
million of capital expenditures, $1.4 million of long term debt payments,
distributions to outside non-controlling partners of KPP of $6.6 million
and $1.5 million used to purchase treasury stock.
6
<PAGE> 9
KANEB SERVICES, INC AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K - none
7
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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, 1997 /s/ Tony M. Regan
-----------------------
Tony M. Regan
Controller
8
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 24,592
<SECURITIES> 0
<RECEIVABLES> 31,215
<ALLOWANCES> 833
<INVENTORY> 6,786
<CURRENT-ASSETS> 67,558
<PP&E> 373,355
<DEPRECIATION> 109,178
<TOTAL-ASSETS> 399,353
<CURRENT-LIABILITIES> 47,701
<BONDS> 185,061
0
5,792
<COMMON> 4,230
<OTHER-SE> 63,915
<TOTAL-LIABILITY-AND-EQUITY> 399,353
<SALES> 0
<TOTAL-REVENUES> 53,154
<CGS> 0
<TOTAL-COSTS> 40,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,862
<INCOME-PRETAX> 8,101
<INCOME-TAX> 552
<INCOME-CONTINUING> 1,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,529
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
