<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-12058
-------
KENAN TRANSPORT COMPANY
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0516485
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
University Square - West, 143 W. Franklin Street
Chapel Hill, North Carolina, 27516-3910
------------------------------------------------------------
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including Area Code: (919) 967-8221
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based on the closing sales price of March 28, 2000, the aggregate market value
of the voting stock held by persons other than those who may be deemed
affiliates of the registrant was $18,951,949.
-----------
The number of shares outstanding of the registrant's common stock was 2,421,562
at March 28, 2000.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
- --------------------- ---------------------
Part III
Items 10, 11, 12 and 13 Portions of the Company's Proxy
Statement dated March 30, 2000 in
connection with its Annual Meeting
to be held on May 1, 2000.
Page 2
<PAGE> 3
PART I
- --------------------------------------------------------------------------------
Item 1 Business
GENERAL DEVELOPMENT OF BUSINESS
Kenan Transport Company (Kenan) and its wholly owned subsidiary,
Petro-Chemical Transport, Inc. (PCT) (together referred to as the Company or
Registrant) are engaged in the transportation of petroleum, propane gas and
chemicals in intrastate and interstate commerce.
Kenan incorporated under the laws of the State of North Carolina on
April 8, 1949. Entering 1998, it had grown to become one of the twenty largest
tank truck carriers in the nation, with its operations concentrated in the
Southeast. On February 28, 1998, it acquired all of the outstanding stock of PCT
from CITGO Petroleum Corporation. PCT greatly expanded the Company's national
presence and service area. It also brought to the Company a remote inventory
control and logistics system that it operates from its headquarters in Dallas,
Texas. The system enables PCT to monitor product inventories electronically for
current and prospective customer retail locations and dispatch delivery of
product to them on an as-need basis.
With the acquisition of PCT, the Company has now grown to be among the
ten largest tank truck carriers in the nation, with PCT accounting for 33% of
the Company's 1999 consolidated revenues.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For financial reporting purposes, the Company is deemed to engage in
one industry segment, the transportation of petroleum, propane gas and chemicals
in the tank truck industry. The Company has no geographical presence outside the
United States.
NARRATIVE DESCRIPTION OF BUSINESS
At December 31, 1999, the Company operated a network of terminals and a
fleet of 785 tractors and 1,031 specialized trailers. The Company had 1,674
full-time employees at year-end. One customer accounted for 24% of the Company's
revenue in 1999.
The Company transports product throughout most of the continental
United States. Petroleum and propane gas are typically transported short
distances from bulk storage facilities to retail stores, while chemicals are
typically transported much longer distances from and to manufacturing
facilities.
The Company has a large number of competitors with no single competitor
being dominant in the industry. The competitors are other independent carriers
and the trucking operations of major oil and chemical companies. Competition is
based on price and customer service.
The Company's business is somewhat seasonal with the winter heating
season providing the highest demand.
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The Company stores fuel in aboveground and underground storage tanks at
certain of its terminal facilities for use in its operations. Management is
committed to the protection of the environment and has procedures in place to
ensure compliance with federal and state regulations and to provide appropriate
response to spills and leaks that occur. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company is involved in various claims and legal actions arising in
the normal course of business. It is the opinion of management that these
matters will have no significant impact on the future results of operations or
financial condition of the Company.
Item 2 Properties
- --------------------------------------------------------------------------------
The Company owns 19 real properties located in five states: Florida,
Georgia, North Carolina, South Carolina and Virginia. At December 31, 1999,
these properties had a net book value of $11,985,000. The Company leases 29 real
properties located in the Southeast and Texas under lease terms ranging from
monthly to five years. An additional 36 facilities are used under equipment
rental contracts.
The Company transports freight using over-the-road tractors and
trailers. At December 31, 1999, the net book value of the Company's owned
revenue equipment, consisting of 547 tractors and 972 trailers, was $42,364,000.
In addition, the Company has 64 tractors and 39 trailers under capital lease
agreements with a net book value of $3,886,000. The balance of the Company's
fleet of 174 tractors and 16 trailers represents operating lease agreements with
terms ranging from one to six years.
Item 3 Legal Proceedings
- --------------------------------------------------------------------------------
There is no material pending legal proceeding.
Item 4 Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
No matters were submitted during the fourth quarter of 1999 to a vote
of security holders, through the solicitation of proxies or otherwise.
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Item 4(a) Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Information concerning the executive officers of the Company follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Lee P. Shaffer 61 Director, Chief Executive Officer of the Company
beginning in 1996; President of the Company since 1975;
Chief Operating Officer of the Company (1975-1996)
William L. Boone 60 Vice President-Finance and Secretary of the Company since
1974; Treasurer of the Company beginning in 1996;
Assistant Treasurer of the Company (1981-1996)
L. Avery Corning 42 Vice President-Operations of the Company beginning in
1999; Vice President-Operations and Sales of the Company
(1994-1998); President (1990-1994), Redwing Carriers,
Inc., Tampa, Florida
Gary J. Knutson 49 Vice President-Pricing and Business Analysis of the
Company beginning in 1999; Vice President-Marketing of
the Company (1994-1998); Vice President-Sales of the
Company (1990-1993)
John E. Krovic 44 Vice President-Human Resources and Safety of the Company
since 1993
William P. Prevost 44 Vice President-Marketing beginning in 1999; Vice
President of the Company (1998); President and Chief
Operating Officer (1986-1997), Transport South, Inc.,
Smyrna, Georgia
James H. Reid 52 Vice President of the Company beginning in 1998.
President of Petro-Chemical Transport, Inc. beginning in
1997; President (1993-1998), CITGO Pipeline & Products,
Tulsa, Oklahoma
Lee P. Shaffer, III (1) 40 Vice President-Operations Services of the Company
beginning in 1994; Director of Operations Services of the
Company (1992-1993); Director of Operations of the
Company (1988-1992)
</TABLE>
(1) Lee P. Shaffer, III is the son of Lee P. Shaffer, President and
Chief Executive Officer of the Company.
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PART II
Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters
- --------------------------------------------------------------------------------
On October 21, 1986, the Registrant's stock began trading on the NASDAQ
stock market under the symbol KTCO. The Company had approximately 632
shareholders, including holders whose shares are held in street names, on
December 31, 1999.
The high and low sale prices and the cash dividends paid per share for
each quarter in the last two fiscal years are shown below:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- ------------------------------------------
Quarter High Low Dividend High Low Dividend
- --------------- ------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
First $34.00 $31.00 $.0725 $39.75 $28.50 $.0700
Second 32.75 30.50 .0725 35.38 32.00 .0700
Third 32.50 30.13 .0750 34.00 29.50 .0725
Fourth 34.13 30.43 .0750 33.25 29.00 .0725
</TABLE>
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Item 6 Selected Financial Data
- --------------------------------------------------------------------------------
Selected financial data for the past five years is presented below:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations (in thousands)
- ---------------------------------
Operating revenue $ 141,552 $ 130,046 $ 73,308 $ 68,795 $ 61,717
Operating income 7,627 9,130 6,462 6,244 5,124
Net income 4,662 5,159 4,090 3,805 3,323
Per Share Data
- ---------------------------------
Basic and diluted earnings (1) $ 1.93 $ 2.14 $ 1.71 $ 1.59 $ 1.39
Dividends declared .2975 .2875 .2775 .2675 .2575
Book value 24.10 22.37 20.61 19.19 17.86
Market value 32.175 32.00 36.63 19.00 20.75
Financial Position (in thousands)
- ---------------------------------
Cash, cash equivalents and
short-term investments $ 7,466 $ 8,023 $ 3,422 $ 11,181 $ 10,106
Working capital 6,465 7,239 1,753 10,034 9,568
Net operating property 61,082 57,625 52,239 44,133 41,265
Total assets 98,291 94,644 77,115 65,044 61,188
Total debt, including
capital lease obligations 10,128 13,164 5,570 -- --
Shareholders' equity 58,351 54,180 49,368 45,843 42,677
Ratios and Statistics
- ---------------------------------
Operating ratio 94.6% 93.0% 91.2% 90.9% 91.7%
Return on equity 8% 10% 9% 9% 8%
Current ratio 1.35 1.42 1.12 2.00 1.98
Debt equity ratio .17 .24 .11 -- --
Shares outstanding (in thousands) 2,422 2,422 2,395 2,389 2,389
</TABLE>
(1) All periods restated in accordance with SFAS No. 128.
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Item 7 Management's Discussion and Analysis of Financial Condition and Result
of Operations
- -------------------------------------------------------------------------------
GENERAL
The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Percentage of Operating Revenue
------------------------------------------
Years Ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses
Wages and employee benefits 51.8 50.6 50.2
Fuel and other operating expenses 21.7 21.0 20.8
Depreciation and amortization 7.7 8.0 9.5
Taxes and licenses 5.3 5.4 6.1
Insurance and claims 4.2 3.9 3.7
Equipment rents 3.9 4.1 .9
------------------------------------------
Total operating expenses 94.6 93.0 91.2
------------------------------------------
Operating income 5.4 7.0 8.8
Interest expense (.6) (.5) --
Other income and expenses, net .6 .2 .2
Income tax expense (2.1) (2.7) (3.4)
------------------------------------------
Net income 3.3 4.0 5.6
==========================================
</TABLE>
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
Operating revenue increased $11,506,000 (9%) in 1999 to $141,552,000
primarily due to the inclusion of PCT for a full year in 1999 compared to ten
months in 1998 and volume growth with new and existing customers. Operating
revenue attributable to PCT was $46,797,000 in 1999 compared to $34,193,000 in
1998, an increase of $12,604,000. The Company's average revenue per mile
increased 5% to $1.79 from $1.71 in 1998. Miles operated increased 4% to
78,935,000 in 1999.
Operating expenses increased $13,009,000 (11%) in 1999 to $133,925,000.
The increase was due largely to the inclusion of PCT for a full year in 1999
compared to ten months in 1998. PCT's operating expenses were $44,945,000
compared to $32,682,000 in 1998, an increase of $12,263,000. In addition,
operating expenses increased due to the significant increases in driver wages
and benefits and diesel fuel prices that affected the operating results of the
entire trucking industry in 1999. Consequently, the operating ratio, which
represents operating expenses as a percentage of operating revenues, increased
to 94.6% in 1999 from 93.0% in 1998.
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Wages and employee benefits increased $7,506,000 (11%) in 1999 to
$73,351,000 and as a percentage of revenue to 51.8% from 50.6% in 1998. Driver
wage expense is the Company's largest operating expense and was affected by the
higher cost of driver wages associated with PCT, which was included in the
Company's operations for a full year compared to ten months in 1998. In
addition, the Company increased driver wages and enhanced their benefits in
order to continue attracting and retaining professional drivers in a very
competitive labor market.
Fuel and other operating expenses increased $3,442,000 (13%) in 1999 to
$30,728,000 and as a percentage of revenues to 21.7% from 21.0% in 1998. Fuel
expense increased $1,482,000 to $7,476,000 due to a 15% increase in the average
price of diesel fuel and the increase in miles operated. Outside maintenance
increased $680,000 and communications expense increased $234,000 in 1999 due
primarily to the inclusion of PCT for a full year compared to ten months in
1998.
Depreciation and amortization expenses increased $439,000 (4%) to
$10,841,000 but decreased as a percentage of revenue to 7.7% from 8.0% in 1998.
Depreciation decreased slightly as a percentage of revenue due to more fully
depreciated equipment being in use.
Insurance and claims cost increased $887,000 (17%) to $5,962,000 and as
a percentage of revenue to 4.2% from 3.9% in 1998, due to an increase in claims.
Other interest income and expenses increased $524,000 (174%) to
$825,000 in 1999 and as a percentage of revenue to 0.6% from 0.2% in 1998. The
increase was due to an increase of approximately $4,000,000 in the Company's
average cash balance in 1999. The Company's excess cash is invested on a daily
basis primarily in commercial paper.
Taxes and licenses expense and equipment rents were virtually unchanged
as a percentage of revenue in 1999 compared to 1998.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Operating revenue increased $56,738,000 (77%) in 1998 to $130,046,000
primarily as a result of Kenan's acquisitions of Transport South, Inc. (TSI) on
December 1, 1997 and PCT in 1998. Operating revenues in 1998 attributable to TSI
and PCT were $22,093,000 and $34,193,000, respectively. Revenue from TSI was
$2,300,000 in 1997. The Company's average revenue per mile increased 10% to
$1.71 from $1.55 in 1997. Miles operated increased 61% to 76,232,000 in 1998.
Operating expenses increased $54,070,000 (81%) in 1998 to $120,916,000.
The increase was due largely to the acquisitions of TSI and PCT and the
resulting increase in miles operated. Increases occurred in driver wages,
outside vendor maintenance and equipment rents in 1998. As a result, the
Company's operating ratio increased to 93.0% in 1998 from 91.2% in 1997.
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Wages and employee benefits increased $29,041,000 (79%) in 1998 to
$65,845,000 and as a percentage of revenue to 50.6% from 50.2% in 1997. Volume
and the higher cost of driver wages associated with PCT affected driver wages
and benefits, which increased 88% over the prior year.
Fuel and other operating expenses increased $12,038,000 (79%) in 1998
to $27,286,000 and as a percentage of revenue to 21.0% from 20.8% in 1997.
Outside maintenance accounted for a $4,485,000 increase in operating expenses.
This increase resulted from the inclusion of PCT, which outsources maintenance
of its tractors and trailers. Although up $1,427,000 due to the increase in
miles operated, the Company's fuel cost as a percentage of revenue decreased to
4.6% from 6.2% in 1997 due to a 26% reduction in average fuel prices.
Communications expense was up $817,000 to support PCT's on-board computer
systems.
Depreciation and amortization expenses increased $3,440,000 (49%) to
$10,402,000 but decreased as a percentage of revenue to 8.0% from 9.5% in 1997.
This decrease as a percentage of revenue was due to the acquisition of PCT,
which operates the majority of its tractors under lease contracts. Consequently,
equipment rents increased $4,611,000 in 1998 to $5,269,000 and as a percentage
of revenue to 4.1% from 0.9% in 1997.
Taxes and licenses increased $2,557,000 (57%) in 1998 to $7,039,000. As
a percentage of revenue, taxes and licenses decreased to 5.4% from 6.1% in 1997.
The cost increase was primarily due to the increase in fleet size. The reduction
in costs as a percentage of revenue is due to improved utilization and the
impact of leasing as rent expense includes the cost of taxes and licenses on the
leased equipment.
Insurance and claims cost increased $2,383,000 (89%) to $5,075,000 and
as a percentage of revenue to 3.9% from 3.7% in 1997, due primarily to an
increase in insurance premiums.
Interest expense increased $722,000 due to the average monthly debt and
capital lease obligations of $10,124,000 in 1998 compared to $352,000 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At the end of 1999, cash and cash equivalents totaled $7,466,000, a
decrease of $557,000 from the end of 1998. Working capital of $6,465,000 was
down $774,000 from December 31, 1998, and the current ratios were 1.35 and 1.42,
respectively. The decline in cash and working capital balances during 1999 was
primarily due to the Company paying down $4,000,000 of outstanding borrowings
under its line-of-credit agreement, reducing the outstanding line to $6,000,000
at the end of 1999. The Company negotiated the agreement in 1998 for an
unsecured $20,000,000 line-of-credit with the line available reducing by
$500,000 per quarter beginning July 1, 1998 to a minimum line of $10,000,000.
The agreement matures in March 2003. All debt under this agreement as of
December 31, 1999 is classified as long-term.
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The continued growth of the Company's business has and will continue to
require significant investments in revenue equipment. The Company has financed
revenue equipment purchases with cash flows from operations and through capital
lease obligations.
Tractor and tank trailer replacements and other capital expenditures are
projected to be $22,100,000 in 2000. At December 31, 1999, the Company was
committed to spend $10,100,000 for revenue equipment in 2000. Management
believes that cash flows from operations, the Company's line-of-credit and
capital lease financing will be sufficient to fund these planned expenditures as
well as 2000 working capital requirements, expansion opportunities and other
corporate needs.
INFLATION
The Company's consolidated financial statements are prepared based on
historical dollars and are not intended to show the impact of inflation or
changing prices. With the exception of driver wages and fuel prices, inflation
and changing prices have not had a material effect on the Company's financial
position and results of operations.
ENVIRONMENTAL MATTERS
The Company stores fuel in underground and aboveground tanks for use in
certain of its terminal facilities. The Company has a program to maintain its
fuel storage facilities in compliance with environmental regulation. Under the
program, the Company incurs costs to replace tanks, remediate soil contamination
resulting from overfills, spills and leaks and monitor facilities on an ongoing
basis. The Company records these costs when it is probable that it has incurred
a liability and the related amount can be reasonably estimated. Such costs have
not been and are not expected to be material to the Company's operations or
liquidity.
YEAR 2000
The Company's Year 2000 program successfully prepared its critical
internal systems for Y2K. In addition, the Y2K preparation programs of the
Company's major customers and suppliers appear to have been successful as the
Company has not experienced any significant disruption in its operations as of
the date of this report.
The total cost incurred during 1999 to remediate the Year 2000 issue was
approximately $250,000. The Company has not incurred since December 31, 1999 nor
does it expect to incur any further significant expenditure related to Year
2000.
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MARKET RISK
Market risk is the potential loss arising from adverse changes in market
rates and prices, interest rates and foreign currency exchange rates. In the
ordinary course of business, the Company is exposed to interest rate risks that
it regularly evaluates. The Company does not hold or issue derivative
instruments for trading purposes.
At December 31, 1999, the Company had debt totaling $6,000,000 and an
interest rate swap agreement with a notional value of $5,000,000. The swap
agreement effectively converts $5,000,000 of the Company's outstanding floating
rate debt to a fixed interest rate debt. For fixed rate debt, interest rate
changes affect the fair market value but do not affect earnings or cash flows.
For floating rate debt, interest rate changes generally do not affect fair
market values but do affect the future earnings and cash flows, assuming other
factors are held constant.
The fair value of the swap agreement represents the estimated receipts
or payments that would be made to terminate the agreement. At December 31, 1999,
the Company would have received $95,000 to terminate the agreement. Assuming a
100 basis point reduction in the LIBOR interest rate curve, the fair value of
the swap agreement would decrease by $143,000.
FORWARD-LOOKING STATEMENTS
Statements in this document that are not historical facts are hereby
identified as forward-looking statements for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A
of the Securities Act of 1933. The Company cautions readers that such
forward-looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs and income, wherever they occur in this document
or in other statements attributable to the Company, are estimates reflecting the
best judgement of the Company's senior management and involve a number of risks
and uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements.
The Company's future operating results may be affected by a number of
factors that include but are not limited to: general economic conditions such as
inflation and interest rates; competitive conditions within the Company's
markets, including adverse changes in demand for trucking services, pricing
pressure, availability of drivers and fuel prices; the Company's ability to sell
its services profitably, increase market share and manage expenses relative to
revenue growth; changes in governmental regulation; changes in the trucking
transportation and logistic industries; and changes in the Company's labor
relations or other unforeseeable circumstances.
Disclosures concerning Year 2000 issues also contain forward-looking
statements that include assessments and cost estimates. There exists the
possibility that factors outside of management's control may have a material
impact on the Company's operations.
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Item 8 Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Kenan Transport Company:
We have audited the accompanying consolidated balance sheets of Kenan
Transport Company (a North Carolina corporation) and subsidiary as of December
31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kenan Transport
Company and subsidiary as of December 31, 1999 and 1998, and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Raleigh, North Carolina,
February 11, 2000.
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KENAN TRANSPORT COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31
--------------------------------
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- --------------------------------------------
Current Assets
Cash and cash equivalents $ 7,466 $ 8,023
Accounts receivable, net 10,966 10,441
Operating supplies and parts 676 572
Prepaid tires 2,257 1,851
Prepaid insurance, licenses and other 1,484 1,353
Deferred income taxes 1,861 2,164
--------------------------------
Total Current Assets 24,710 24,404
--------------------------------
Operating Property
Land 3,464 3,464
Buildings and leasehold improvements 11,496 11,412
Revenue equipment 79,888 72,703
Other equipment 6,859 6,490
--------------------------------
101,707 94,069
Accumulated depreciation and amortization (40,625) (36,444)
--------------------------------
Net Operating Property 61,082 57,625
--------------------------------
Intangible Assets, net 10,368 10,944
--------------------------------
Other Assets 2,131 1,671
--------------------------------
$ 98,291 $ 94,644
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------
Current Liabilities
Capital lease obligations $ 867 $ 1,108
Accounts payable 4,214 2,784
Wages and employee benefits payable 9,008 9,331
Claims payable 4,156 3,942
--------------------------------
Total Current Liabilities 18,245 17,165
--------------------------------
Long-term Debt 6,000 10,000
--------------------------------
Capital Lease Obligations 3,261 2,056
--------------------------------
Deferred Income Taxes 12,434 11,243
--------------------------------
Commitments and Contingencies (Note 7)
Shareholders' Equity
Common stock; no par; 20,000,000 shares
authorized; 2,421,562 shares
issued and outstanding 4,400 4,400
Retained earnings 54,678 50,736
Deferred incentive compensation (727) (956)
--------------------------------
58,351 54,180
--------------------------------
$ 98,291 $ 94,644
================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
balance sheets.
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KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $ 141,552 $ 130,046 $ 73,308
----------------------------------------------
Operating Expenses
Wages and employee benefits 73,351 65,845 36,804
Fuel and other operating expenses 30,728 27,286 15,248
Depreciation and amortization 10,841 10,402 6,962
Taxes and licenses 7,516 7,039 4,482
Insurance and claims 5,962 5,075 2,692
Equipment rents 5,527 5,269 658
----------------------------------------------
133,925 120,916 66,846
----------------------------------------------
Operating Income 7,627 9,130 6,462
Interest expense (852) (762) (40)
Interest income and other expenses, net 825 301 174
----------------------------------------------
Income before Provision for Income Taxes 7,600 8,669 6,596
Provision for income taxes 2,938 3,510 2,506
----------------------------------------------
Net Income $ 4,662 $ 5,159 $ 4,090
==============================================
Basic and Diluted Earnings Per Share $ 1.93 $ 2.14 $ 1.71
==============================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
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KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF Shareholders' equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Total
-------------------- Retained Deferred Shareholders'
Shares Amount Earnings Compensation Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,389 $ 2,996 $ 42,847 $ -- $ 45,843
Dividends (665) (665)
Stock bonus award 6 100 100
Net income 4,090 4,090
-----------------------------------------------------------------------------
Balance, December 31, 1997 2,395 3,096 46,272 -- 49,368
Dividends (695) (695)
Stock bonus award 6 197 197
Issuance of restricted stock 21 696 (696) --
Nonqualified stock option
award 411 (411) --
Recognition of deferred
compensation 151 151
Net income 5,159 5,159
-----------------------------------------------------------------------------
Balance, December 31, 1998 2,422 4,400 50,736 (956) 54,180
Dividends (720) (720)
Recognition of deferred
compensation 229 229
Net income 4,662 4,662
-----------------------------------------------------------------------------
Balance, December 31, 1999 2,422 $ 4,400 $ 54,678 $ (727) $ 58,351
=============================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
Page 16
<PAGE> 17
KENAN TRANSPORT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 4,662 $ 5,159 $ 4,090
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,841 10,402 6,962
Deferred income taxes 1,494 390 171
Common stock issued under incentive plan -- 197 100
Amortization of deferred compensation 229 151 --
Other, net (460) (401) (393)
Changes in operating assets and liabilities
net of effects from business acquisitions:
Accounts receivable (525) (478) (3,032)
Operating supplies and parts (104) (51) (108)
Prepayments (428) (259) (152)
Accounts payable 1,430 (867) 852
Wages and employee benefits payable (323) 1,225 1,380
Claims payable 214 389 144
--------------------------------------------
Net cash provided by operating activities 17,030 15,857 10,014
--------------------------------------------
Cash Flows from Investing Activities:
Purchases of operating property, net (11,544) (8,267) (8,037)
Business acquisitions -- (7,880) (11,446)
--------------------------------------------
Net cash used in investing activities (11,544) (16,147) (19,483)
--------------------------------------------
Cash Flows from Financing Activities:
Borrowings under line-of-credit agreement -- 7,500 2,500
Payments on line-of-credit (4,000) -- --
Payments on note obligations -- (375) --
Principal payments on capital lease obligations (1,323) (1,539) (125)
Dividends (720) (695) (665)
--------------------------------------------
Net cash (used in) provided by financing activities (6,043) 4,891 1,710
--------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (557) 4,601 (7,759)
Cash and Cash Equivalents at Beginning of Year 8,023 3,422 11,181
--------------------------------------------
Cash and Cash Equivalents at End of Year $ 7,466 $ 8,023 $ 3,422
============================================
Noncash Investing and Financing Activities:
Liabilities assumed in business acquisitions $ -- $ 4,048 $ 3,619
Equipment acquired through capital leases 2,287 1,633 --
Supplemental Cash Flow Disclosures:
Interest paid $ 993 $ 597 $ 38
Income taxes paid 1,900 3,228 2,279
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
Page 17
<PAGE> 18
KENAN TRANSPORT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Significant Accounting Policies
- --------------------------------------------------------------------------------
PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles and include the accounts of Kenan Transport
Company (Kenan) and its wholly-owned subsidiary, Petro-Chemical Transport, Inc.
(PCT) (together referred to as the Company). All significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company classifies investments maturing within three months from the date of
purchase as cash equivalents. All investments at December 31, 1999 and 1998 were
cash equivalents.
TIRES
The cost of replacement tires is included in operating supplies and parts in the
accompanying consolidated balance sheets. When installed on revenue equipment,
tire costs are included in prepayments and amortized over their useful life
based on mileage.
OPERATING PROPERTY
Operating property, including operating property under capital leases, is
recorded at cost, net of tires and is depreciated or amortized over the
estimated useful life of the related assets. Maintenance and repairs are charged
to operating expenses as incurred; renewals and improvements are capitalized.
Depreciation is computed on the straight-line method using lives of 3 to 15
years for revenue equipment, 15 to 40 years for buildings, remaining life of
leases for leasehold improvements, and 2 to 10 years for other equipment.
CLAIMS PAYABLE
Claims payable represents the estimated cost of open claims that is retained and
paid by the Company under its insurance programs for workers' compensation,
bodily injury and property damage. These estimates are based on historical
information along with certain assumptions about future cash flows. Changes in
assumptions for such things as medical costs, environmental hazards, and legal
actions, as well as changes in actual experience could cause these estimates to
change. In the accompanying consolidated statements of income, workers'
compensation costs and group medical are included in wages and employee benefits
expenses, and other claims costs are included in claims and insurance expenses.
Page 18
<PAGE> 19
ENVIRONMENTAL EXPENDITURES
The Company's operations require the storage of fuel for use in its tractors in
both underground and aboveground tanks. The Company incurs costs to replace
tanks, remediate soil contamination resulting from overfills, spills and leaks
and monitor facilities on an ongoing basis. These costs are recorded when it is
probable that a liability has been incurred and the related amount can be
reasonably estimated.
INCOME TAXES
The provision for income taxes includes federal and state income taxes currently
payable and those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
that upon adoption all derivative instruments be recognized in the balance sheet
at fair value and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged items; effects of certain changes in fair value are recorded in
other comprehensive income pending recognition in earnings. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," subsequently deferred the effective
date of SFAS No. 133 for the Company to January 1, 2001. The Company will adopt
SFAS No. 133 at that time. The application of Statement 133 is not expected to
have a significant impact on the Company's financial position or results of
operations.
Note 2 Earnings Per Share
- --------------------------------------------------------------------------------
A reconciliation of net income and the weighted average number of shares
outstanding used in calculating basic and diluted earnings per share for the
years ended December 31 is presented below (in thousands except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Net income $ 4,662 $ 5,159 $ 4,090
============================================
Beginning shares outstanding 2,422 2,395 2,389
Shares issued under executive
incentive plan -- 19 6
--------------------------------------------
Basic shares outstanding 2,422 2,414 2,395
Shares earned under executive
incentive plan -- -- 1
Dilutive effect of stock options -- 1 --
--------------------------------------------
Diluted shares outstanding 2,422 2,415 2,396
============================================
Basic and diluted earnings per share $ 1.93 $ 2.14 $ 1.71
============================================
</TABLE>
Page 19
<PAGE> 20
Note 3 Business Acquisitions
- --------------------------------------------------------------------------------
On December 1, 1997, Kenan purchased the majority of the transportation assets
of Transport South, Inc. (TSI) for $11,446,000 in cash and entered into a
long-term contract to provide transportation services to its parent, RaceTrac
Petroleum, Inc., in the southeastern United States and Texas.
On February 28, 1998, the Company acquired 100% of the outstanding stock of
Petro-Chemical Transport, Inc. (PCT), a wholly-owned subsidiary of CITGO
Petroleum Corporation. PCT is a tank truck carrier serving the petroleum
industry in the Southeast, Midwest and on the West Coast. The acquisition, net
of cash acquired, required a cash investment totaling $7,880,000. The Company
financed the acquisition through its line-of-credit facility.
The acquisitions have been accounted for using the purchase method of
accounting. The accompanying consolidated statements of income include results
of operations of TSI and PCT from the time of their acquisitions. The purchased
assets and liabilities assumed have been recorded in the Company's financial
statements at their estimated fair market values. The excess of the purchase
cost over the fair value of net assets acquired in the acquisitions (goodwill)
is included in intangible assets in the accompanying consolidated balance sheets
and is being amortized over an average of 20 years on a straight-line basis.
Goodwill at December 31, 1999 and 1998 was $11,519,000. Amortization expense was
$576,000 in 1999, $543,000 in 1998, and $32,000 in 1997. Accumulated
amortization at December 31, 1999 and 1998 was $1,151,000 and $575,000,
respectively. The carrying amount of goodwill is reviewed annually using
estimated undiscounted cash flows for the businesses acquired over the remaining
amortization periods.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company, as if the acquisitions had occurred as of January 1,
1997. The pro forma information does not purport to be indicative of what would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future (in thousands except per share amounts).
Pro Forma Information (unaudited)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Revenue $141,552 $136,884 $137,719
Net income 4,662 5,338 6,124
Basic and diluted earnings per share 1.93 2.21 2.56
</TABLE>
Page 20
<PAGE> 21
Note 4 Line-of-Credit
- --------------------------------------------------------------------------------
On February 13, 1998, the Company negotiated an unsecured $20,000,000 Reducing
Line-of-Credit Facility with a bank. The facility replaces the Company's
previous $7,000,000 line-of-credit. Funds available under the line reduce
$500,000 per quarter beginning July 1, 1998 to a minimum line of $10,000,000.
The facility matures in March 2003. Interest under the facility is variable
based on LIBOR plus an applicable margin. At December 31, 1999 and 1998, the
Company had $6,000,000 and $10,000,000, respectively, outstanding under the
credit facility. The credit agreement contains the following financial
covenants: (1) Funds from Operations to Funded Debt Ratio, and (2) Funded Debt
to Capitalization. The Company was in compliance with the covenants as of
December 31, 1999 and 1998.
The Company has entered into a simple interest rate swap agreement to manage
costs and risks associated with changing interest rates. Under the agreement,
the Company exchanges at specific intervals the difference between the fixed and
variable rate interest amounts calculated by reference to the notional amount
with any differential recorded as an adjustment to interest expense. The
agreement effectively changes a portion of the Company's interest rate exposure
on the line-of-credit from a floating rate to a fixed rate. At December 31,
1999, the notional principal amount of this agreement totaled $5,000,000. The
agreement matures in March 2003. The average variable rates during 1999 and 1998
were 5.5% and 5.9%, respectively, compared to a fixed rate of 6.5% for these
periods.
The Company does not hold or issue derivative instruments for trading purposes.
Note 5 Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, SHORT-TERM BORROWINGS AND CURRENT
PORTION OF CAPITAL LEASE OBLIGATIONS
The carrying values approximate fair values.
LONG-TERM DEBT
The fair values approximate carrying value based on quoted market prices for the
same or similar issues or on the current rates offered to the Company for debt
of the same remaining maturities.
INTEREST RATE SWAP
The fair market value of the interest rate swap was obtained from the financial
institution that is the counterparty to the agreement, and it represents the
estimated receipts or payments that would be made to terminate the agreement. At
December 31, 1999, the Company would have received $95,000 to terminate the
agreement. Assuming a 100 basis point reduction in the LIBOR interest rate
curve, the fair value of the swap agreement would decrease by $143,000.
LETTERS-OF-CREDIT
The Company uses third party letters-of-credit to guarantee certain casualty
insurance activities. The letters reflect fair value as a condition of their
purpose and are subject to fees competitively determined in the marketplace. The
contract/fair values of the letters-of-credit at December 31, 1999 and 1998 were
$3,138,000 and $3,554,000, respectively.
Page 21
<PAGE> 22
Note 6 Income Taxes
- --------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities. The tax
effects of temporary differences that give rise to significant portions of the
deferred tax liabilities and assets at December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------------
<S> <C> <C>
Liabilities:
Depreciation $ 12,529 $ 11,944
Prepaid tires 857 703
Other 267 557
---------------------------
Deferred tax liabilities 13,653 13,204
---------------------------
Assets:
Claims payable 1,578 1,497
Capital lease obligations 254 1,201
Employee benefits 925 1,101
Other 323 326
---------------------------
Deferred tax assets 3,080 4,125
---------------------------
Net deferred tax liability $ 10,573 $ 9,079
===========================
</TABLE>
The provisions for income taxes for the years ended December 31 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $ 1,216 $ 2,650 $ 1,949
State 228 470 386
----------------------------------------
1,444 3,120 2,335
Deferred 1,494 390 171
----------------------------------------
$ 2,938 $ 3,510 $ 2,506
========================================
</TABLE>
The statutory federal income tax rates for the years ended December 31 differ
from the effective income tax rates as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease)in tax rate resulting from:
State income taxes, net of federal tax benefit 4.3 4.2 4.1
Other items, net .4 2.3 (.1)
---------------------------------------
Effective income tax rate 38.7% 40.5% 38.0%
=======================================
</TABLE>
Page 22
<PAGE> 23
Note 7 Leases, Other Commitments and Contingencies
- --------------------------------------------------------------------------------
Certain terminal facilities, offices, office equipment and revenue equipment are
rented under operating leases expiring at various dates through 2006. Rent
expense charged against income for the years ended December 31 was $5,527,000
(1999), $5,269,000 (1998) and $658,000 (1997).
Revenue equipment financed by capital leases at December 31 is included in
operating property as follows (in thousands):
1999 1998
---------------------------
Revenue equipment $ 4,870 $ 3,396
Less accumulated amortization 984 458
---------------------------
Net capital lease assets $ 3,886 $ 2,938
===========================
Future minimum lease payments by year at December 31, 1999 are as follows (in
thousands):
Capital Operating
Leases Leases
---------------------------
2000 $ 1,054 $ 1,520
2001 1,005 860
2002 725 465
2003 1,440 42
2004 581 37
Thereafter -- 38
---------------------------
Total minimum lease payments 4,805 $ 2,962
=========
Less amount representing
interest at 5% to 7% and taxes 677
---------
Present value of net minimum
lease payments 4,128
Less current portion 867
---------
Long-term obligations $ 3,261
=========
Kenan is committed to spend $10,100,000 for revenue equipment in 2000.
The Company is involved in various claims and legal actions arising in the
normal course of business. It is the opinion of management that these matters
will have no significant impact on the future results of operations or financial
condition of the Company.
Page 23
<PAGE> 24
Note 8 Retirement Plans
- --------------------------------------------------------------------------------
In the fourth quarter of 1999, the Company supplemented its Profit-Sharing
Retirement Plan with a 401(k) Plan (together referred to as the Plan) that
covers all employees. Company contributions to the Plan are determined annually
by the Board of Directors. The Plan is funded currently and contributions
expensed were $2,262,000 (1999), $2,004,000 (1998) and $1,349,000 (1997).
The Company has a Supplemental Executive Retirement Plan (SERP) to replace
retirement benefits lost by certain officers under the Tax Reform Act of 1986.
The SERP is an unfunded deferred compensation plan with benefits payable upon
retirement, death or other termination of employment under provisions similar to
those of the Profit-Sharing Retirement Plan. Net amounts expensed under the SERP
were $205,200 (1999), $179,000 (1998) and $143,000 (1997).
Note 9 Incentive Plans
- --------------------------------------------------------------------------------
1994 STOCK BONUS PLAN
In 1994, the Company implemented the 1994 Stock Bonus Plan that provided key
employees with an opportunity to earn up to 56,600 shares of common stock over a
ten-year period if targeted increases in net income were attained. On August 3,
1998, the plan was terminated. Under the plan, 5,283 shares of stock were earned
in 1996 and issued in March of 1997 increasing common stock by $100,000 in 1997.
There were 5,682 shares of stock earned in 1997 and issued in 1998, which
increased common stock by $197,000. In total, 22,123 shares were issued under
the plan. Compensation expense related to the plan was recognized in the year
earned. Applying the disclosure requirements of SFAS 123 "Accounting for
Stock-Based Compensation" would have no impact on reported net income.
1998 LONG-TERM INCENTIVE PLAN
On May 4, 1998, the shareholders approved the Company's 1998 Long-Term Incentive
Plan, which is intended to provide long-term incentives for key employees while
encouraging optimum growth in Company profits. The plan provides for grant
awards in the form of stock options, stock appreciation rights, restricted stock
and performance shares of up to 450,000 shares of common stock.
Stock Options
Under the Long-Term Incentive Plan, options to purchase shares of common stock
may be granted at not less than 100% of the fair market value at the date of
grant, or 110% of fair market value in the case of any employee who holds more
than 10% of the combined voting power of the Company's common stock as of the
date of grant if the option is designated as an incentive option. Options have a
ten-year term with vesting periods of one to five years from the date of the
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees."
Page 24
<PAGE> 25
During the first quarter of 1998, 328,900 nonqualified stock options were
awarded to key employees. Between the date of the grant and approval of the
Long-Term Incentive Plan at the May 4, 1998 Annual Meeting of Shareholders, the
price of the Company's stock increased $1.25 per share. In accordance with APB
Opinion No. 25, the Company recognizes compensation expense for any difference
between fair market value and exercise price at the date of grant over the
five-year vesting period. The unearned compensation is shown as a reduction of
shareholders' equity in the accompanying consolidated balance sheet.
Compensation expense relating to the stock options totaled $82,000 and $55,000
in 1999 and 1998, respectively.
A summary of the Company's stock option activity and related information is
presented below:
Options Weighted-Average
(000's) Exercise Price
-----------------------------------------
Outstanding, January 1, 1998 -- $--
Granted 329 32
Exercised -- --
Forfeited -- --
-----------------------------------------
Outstanding, December 31, 1998 329 32
Granted -- --
Exercised -- --
Forfeited -- --
-----------------------------------------
Outstanding, December 31, 1999 329 $32
=========================================
As of December 31, 1999, the 329,000 options outstanding had an exercise price
range of $31.75 to $32 and a remaining life of 9 years.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123 and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: volatility factor of 24%; weighted-average expected life of options
of 3.5 years; risk-free interest rate of 5.4% - 5.6%; dividend yield of 1%.
Using these assumptions, the fair value of the stock options is $2,706,000
($8.23 per share), which is being amortized as compensation over the five-year
vesting period. Had compensation cost relating to options awarded under the Plan
been determined based upon the fair market value at the grant date consistent
with the method described in SFAS 123, the Company's pro forma net income and
earnings per share for the years ended December 31 would have been as follows:
1999 1998
--------------------------
Pro forma net income (in thousands) $ 4,201 $ 4,698
Pro forma basic and diluted earnings per share 1.73 1.95
The option valuation models require the input of highly subjective assumptions.
In management's opinion, the models do not necessarily provide a reliable single
measure of the fair value of stock options.
Page 25
<PAGE> 26
Restricted Stock
During the first quarter of 1998, the Company awarded 21,100 shares of
restricted stock to executive officers under the 1998 Plan. Plan participants
are entitled to dividends and voting their respective shares. The sale or
transfer of the shares is limited during the restricted period. The value of
such stock was established by the market price on the date of grant.
Restrictions on the shares expire ratably over the five-year vesting period.
Unearned compensation was charged for the market value of the restricted shares
as these shares were issued. The unearned compensation is shown as a reduction
of shareholders' equity in the accompanying consolidated balance sheets and is
being amortized ratably over the restriction period. During 1999 and 1998,
$147,000 and $96,000, respectively, were charged to expense relating to the
restricted stock awards.
Note 10 Nature of Business and Concentration of Credit Risk
- --------------------------------------------------------------------------------
The Company transports commodities in bulk for the petroleum and chemical
industries throughout the United States, and its customers include international
corporations in these industries. One customer accounted for 24% and 19% of the
Company's revenue in 1999 and 1998, respectively. In 1997, one customer
accounted for 11% of the Company's revenue. Concentration of credit risks to the
Company consists primarily of trade receivables from petroleum and chemical
companies. To cover estimated credit losses, the Company maintains an allowance
for doubtful accounts, which totaled $506,000 and $425,000 at December 31, 1999
and 1998, respectively.
The Company operates in one industry segment: the transportation of petroleum,
propane gas and chemicals in the tank truck industry.
Note 11 Summary of Quarterly Financial Information (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) Basic and
----------------------------------------------- Diluted
Operating Operating Net Earnings
Quarter Revenue Income Income Per Share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
First $ 33,961 $ 2,030 $ 1,305 $ .54
Second 34,016 1,828 1,066 .44
Third 35,547 2,055 1,249 .51
Fourth 38,028 1,714 1,042 .44
1998
First $ 28,481 $ 2,031 $ 1,175 $ .49
Second 34,107 2,178 1,154 .48
Third 34,104 2,213 1,241 .51
Fourth 33,354 2,708 1,589 .66
</TABLE>
Page 26
<PAGE> 27
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
- --------------------------------------------------------------------------------
None.
PART III
Item 10 Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Information with respect to directors required by Item 401 of Regulation
S-K, appearing under the heading "Election of Directors" in the Registrant's
proxy statement dated March 30, 2000 for the Annual Meeting of Shareholders to
be held May 1, 2000, is incorporated herein by reference. Information with
respect to executive officers required by Item 401 of Regulation S-K is included
as Item 4(a) in Part I.
Information with respect to directors and executive officers required by Item
405 of Regulation S-K, appearing under the heading "Section 16(a) Beneficial
Ownership Compliance" in the Registrant's proxy statement dated March 30, 2000
for the Annual Meeting of Shareholders to be held May 1, 2000, is incorporated
herein by reference.
Item 11 Executive Compensation
- --------------------------------------------------------------------------------
Information with respect to executive compensation required by Item 402 of
Regulation S-K, appearing under the heading "Compensation and Related Matters"
in the Registrant's proxy statement dated March 30, 2000 for the Annual Meeting
of Shareholders to be held May 1, 2000, is incorporated herein by reference.
Item 12 Securities Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
Information with respect to securities ownership of certain beneficial owners
and management required by Item 403 of Regulation S-K, appearing under the
headings "Principal Shareholders" and "Security Ownership of Management" in the
Registrant's proxy statement dated March 30, 2000 for the Annual Meeting of
Shareholders to be held May 1, 2000, is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Information with respect to certain relationships and related transactions
required by Item 404 of Regulation S-K, appearing under the heading
"Compensation Committee Interlocks and Insider Participation" in the
Registrant's proxy statement dated March 30, 2000 for the Annual Meeting of
Shareholders to be held May 1, 2000, is incorporated herein by reference.
Page 27
<PAGE> 28
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a)(1) Financial Statements
--------------------
The financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Annual
Report on Consolidated Form 10-K.
(2) Schedules
---------
None.
(3) Exhibits
--------
Exhibits to this report are listed in the accompanying Index to
Exhibits.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed by the Registrant during the
last quarter of the period covered by this report.
Page 28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KENAN TRANSPORT COMPANY
-----------------------
(Registrant)
By: /s/ Lee P. Shaffer
------------------------------------------------------
Lee P. Shaffer, President and Chief Executive Officer
Date: March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
---------------------- ------------------------- --------------
Principal Financial Officer:
/s/ William L. Boone Vice President-Finance; March 22, 2000
- ----------------------- Secretary; Treasurer
William L. Boone
Controller or Principal
Accounting Officer:
/s/ J. Earl Cowan Controller March 22, 2000
- ------------------------
J. Earl Cowan
Page 29
<PAGE> 30
Signature Title Date
---------------------- ------------------------- --------------
Directors:
/S/ Thomas S. Kenan, III Chairman of the Board March 22, 2000
- ------------------------ of Directors
Thomas S. Kenan, III
/S/ Owen G. Kenan Vice Chairman of the March 22, 2000
- ------------------------ Board of Directors
Owen G. Kenan
/S/ William O. McCoy Director March 22, 2000
- ------------------------
William O. McCoy
/S/ Paul J. Rizzo Director March 22, 2000
- ------------------------
Paul J. Rizzo
/S/ William C. Friday Director March 22, 2000
- ------------------------
William C. Friday
/S/ Braxton Schell Director March 22, 2000
- ------------------------
Braxton Schell
/S/ Kenneth G. Younger Director March 22, 2000
- ------------------------
Kenneth G. Younger
Page 30
<PAGE> 31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Financial Statements in Form 10-K
- --------------------------------------------------------- ------------
Report of Independent Public Accountants relating to the
Consolidated Financial Statements and Notes thereto 13
Consolidated Balance Sheets - December 31, 1999 and 1998 14
Consolidated Statements of Income -
For the Years Ended December 31, 1999, 1998 and 1997 15
Consolidated Statements of Shareholders' Equity -
For the Years Ended December 31, 1999, 1998 and 1997 16
Consolidated Statements of Cash Flows -
For the Years Ended December 31, 1999, 1998 and 1997 17
Notes to Consolidated Financial Statements 18-26
Page 31
<PAGE> 32
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- ----------------------------------------------------------------
2(a) Asset Purchase Agreement between Transport South, Inc. and the
Registrant, dated October 31, 1997, filed as Exhibit 2 to the
Registrant's Form 10-Q Quarterly Report for the quarter ended
September 30, 1997, which is incorporated herein by reference to
such Form 10-Q.
2(b) Amendment to Asset Purchase Agreement between Transport South,
Inc. and the Registrant, dated December 1, 1997, filed as
Exhibit 2.A to the Registrant's Current Report on Form 8-K,
filed December 12, 1997, which is incorporated herein by
reference to such Form 8-K.
2(c) Stock Purchase and Sale Agreement between CITGO Petroleum
Corporation, Petro-Chemical Transport, Inc. and the Registrant,
dated February 18, 1998, filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K, filed March 13, 1998, which is
incorporated herein by reference to such Form 8-K.
3(a) Charter Documents filed as Exhibit 3(a) to the Registrant's Form
10 Registration of Securities, filed April 27, 1984, which is
incorporated herein by reference to such Form 10.
3(b) Articles of Amendment dated May 1987, filed as Exhibit 4(b) to
the Registrant's Form 10-Q Quarterly Report for the quarter
ended June 30, 1987, which is incorporated herein by reference
to such Form 10-Q.
3(c) Articles of Amendment dated May 1988, filed as Exhibit 4(f) to
the Registrant's Form 10-Q Quarterly Report for the quarter
ended June 30, 1988, which is incorporated herein by reference
to such Form 10-Q.
3(d) Bylaws filed as Exhibit 3(b) to the Registrant's Form 10
Registration of Securities, filed April 27, 1984, which is
incorporated herein by reference to such Form 10.
3(e) Amendments to the Bylaws of the Registrant adopted March 15,
1985, March 2, 1987 and March 1, 1990, filed as Exhibit 4(e) to
the Registrant's Form 10-K for the year ended December 31, 1989,
which is incorporated herein by reference to such Form 10-K.
Page 32
<PAGE> 33
INDEX TO EXHIBITS - continued -
Exhibit No. Description
- ----------- ----------------------------------------------------------------
3(f) Amended and Restated Bylaws of the Registrant adopted September
26, 1990, filed as Exhibit 4(d) to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30, 1991, which is
incorporated herein by reference to such Form 10-Q.
3(g) Amendment to the Bylaws of the Registrant adopted May 6, 1991,
filed as Exhibit 4(e) to the Registrant's Form 10-Q Quarterly
Report for the quarter ended June 30, 1991, which is
incorporated herein by reference to such Form 10-Q.
3(h) Amendment to the Bylaws of the Registrant adopted October 7,
1991, filed as Exhibit 4(f) to the Registrant's Form 10-Q
Quarterly Report for the quarter ended September 30, 1991, which
is incorporated herein by reference to such Form 10-Q.
3(i) Amendment to the Bylaws of the Registrant as adopted October 21,
1996 by the Registrant's Board of Directors, filed as Exhibit
3(i) to the Registrant's Form 10-K for the year ended December
31, 1999, which is incorporated herein by reference to such Form
10-K.
4(a) Specimen Stock Certificate filed as Exhibit 4(a) to the
Registrant's Form 10 Registration of Securities, filed April 27,
1984, which is incorporated herein by reference to such Form 10.
Management Contracts or Compensatory Plans or Arrangements
Exhibits 10(a) - 10(h)
10(a) Supplemental Executive Retirement Plan, effective January 1,
1990, filed as Exhibit 10(e) to the Registrant's Form 10-K for
the year ended December 31, 1990, which is incorporated herein
by reference to such Form 10-K.
10(b) 1994 Stock Bonus Plan effective January 1, 1994, filed as
Exhibit 10(b) to the Registrant's Form 10-Q Quarterly Report for
the quarter ended June 30, 1994, which is incorporated herein by
reference to such Form 10-Q.
10(c) Senior Managers' Life Insurance Plan, effective April 1, 1996,
filed as Exhibit 10.A to the Registrant's Form 10-Q Quarterly
Report for the quarter ended June 30, 1997, which is
incorporated herein by reference to such Form 10-Q.
Page 33
<PAGE> 34
INDEX TO EXHIBITS - continued -
Exhibit No. Description
- ----------- ----------------------------------------------------------------
10(d) Senior Management Severance Plan, effective May 5, 1997, filed
as Exhibit 10.A to the Registrant's Form 10-Q Quarterly Report
for the quarter ended June 30, 1997, which is incorporated
herein by reference to such Form 10-Q.
10(e) 1998 Long-Term Incentive Plan, effective January 29, 1998, filed
as Exhibit 10 to the Registrant's Form 10-Q Quarterly Report for
the quarter ended June 30, 1998, which is incorporated herein by
reference to such Form 10-Q.
10(f) Amendment to the 1998 Long-Term Incentive Plan, effective
January 1, 1999. filed as Exhibit 10(f) to the Registrant's Form
10-K for the year ended December 31, 1999, which is incorporated
herein by reference to such Form 10-K.
10(g) Amendment to the Senior Managers' Life Insurance Plan, effective
January 1, 1999, filed as Exhibit 10(g) to the Registrant's Form
10-K for the year ended December 31, 1999, which is incorporated
herein by reference to such Form 10-K.
10(h) Executive Bonus Award Plan, effective January 1, 1999, filed as
Exhibit 10(h) to the Registrant's Form 10-K for the year ended
December 31, 1999, which is incorporated herein by reference to
such Form 10-K.
Material Contracts Exhibits 10(i) - 10(k)
10(i) Credit Agreement between First Union National Bank and the
Registrant dated May 22, 1984, filed as Exhibit 4(b) to the
Registrant's Form 10-Q Quarterly Report for the quarter ended
June 30, 1984, which is incorporated herein by reference to such
Form 10-Q.
10(j) Loan Agreement between First Union National Bank and the
Registrant dated February 13, 1998, filed as Exhibit 10(h) to
the Registrant's Form 10-K for the year ended December 31, 1997,
which is incorporated herein by reference to such Form 10-K.
10(k) Promissory Note between First Union National Bank and the
Registrant dated February 13, 1998, filed as Exhibit 10(i) to
the Registrant's Form 10-K for the year ended December 31, 1997,
which is incorporated herein by reference to such Form 10-K.
21 Subsidiaries of the Registrant
Page 34
<PAGE> 35
23 Consent of Independent Public Accountants.
27 Financial Data Schedule for the year ended December 31,
1999.
Page 35
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of the Registrant at December 31, 1999 include:
Petro-Chemical Transport, Inc.
Page 36
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kenan Transport Company:
As Independent Public Accountants, we hereby consent to the incorporation
of our report, dated February 11, 2000, included in this Form 10-K, into the
Company's previously filed Registration Statement No. 33-2494 on Form S-8, dated
January 23, 1986.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
March 30, 2000.
Page 37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,466
<SECURITIES> 0
<RECEIVABLES> 10,966
<ALLOWANCES> 0
<INVENTORY> 676
<CURRENT-ASSETS> 24,710
<PP&E> 101,707
<DEPRECIATION> 40,625
<TOTAL-ASSETS> 98,291
<CURRENT-LIABILITIES> 18,245
<BONDS> 0
0
0
<COMMON> 4,400
<OTHER-SE> 53,951
<TOTAL-LIABILITY-AND-EQUITY> 98,291
<SALES> 0
<TOTAL-REVENUES> 141,552
<CGS> 0
<TOTAL-COSTS> 133,925
<OTHER-EXPENSES> (825)
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<INTEREST-EXPENSE> 852
<INCOME-PRETAX> 7,600
<INCOME-TAX> 2,938
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