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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-5083
KANEB SERVICES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 75-1191271
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2435 North Central Expressway
Richardson, Texas 75080
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (214) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, Without Par Value New York Stock Exchange
Adjustable Rate Cumulative Class A New York Stock Exchange
Preferred Stock
8 3/4% Convertible Subordinated New York Stock Exchange
Debentures due 2008
Securities registered pursuant to Section 12(g) of the Act: None
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 (Subsection 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of 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.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant: $79,862,563. This figure is estimated as of March 15, 1996, at
which date the closing price of the Registrant's Common Stock on the New York
Stock Exchange was $2.50 per share, and assumes that only the Registrant's
officers and directors were affiliates of the Registrant.
Number of shares of Common Stock, without par value, of the Registrant
outstanding at March 15, 1996: 33,652,151.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) of Form
10-K is incorporated by reference from portions of the Registrant's definitive
proxy statement to be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year covered by this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Kaneb Services, Inc. ("KSI" or the "Company") conducts its principal
businesses in two industry segments: i) specialized industrial field services;
and, ii) pipeline transportation and storage of refined petroleum products.
The Company operates its specialized industrial field services business through
its Furmanite group of wholly-owned subsidiaries (collectively, "Furmanite"),
which provide underpressure leak sealing, on-site machining, valve testing and
repair and other engineering products and services, primarily to electric power
generating plants, petroleum refineries and other process industries in Western
Europe, North America and the Pacific Rim (See: "Industrial Field Services").
The Company's wholly-owned subsidiary, Kaneb Pipe Line Company ("KPL"),
operates and manages refined petroleum products pipeline transportation systems
and petroleum products and specialty liquids terminal storage and pipeline
facilities for the benefit of Kaneb Pipe Line Partners, L.P. ("KPP" or the
"Partnership"), which owns such systems and facilities, through its
subsidiaries (See: "Pipeline and Terminaling Services"). The Company is also
engaged in the information management services industry through its
wholly-owned subsidiary, Fields Financial Services, Inc. ("Fields"), which
offers products and services that enable financial institutions to monitor the
continual insurance coverage of their loan collateral and provides other
information management services to financial institutions and other customers.
Kaneb Services, Inc. was incorporated in Delaware on January 23, 1953.
The Company is a holding company that conducts its business through the
subsidiaries identified above, among others. The Company's principal operating
office is located at 2435 North Central Expressway, Richardson, Texas 75080 and
its telephone number is (214) 699-4000.
INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments and
foreign operations is presented under the caption "Business Segment Data" in
Note 10 to Company's consolidated financial statements. Such information is
hereby incorporated by reference into this Item 1.
INDUSTRIAL FIELD SERVICES
The Company, through Furmanite, offers a variety of specialized industrial
field services to an international base of process industry clients. Founded
in Virginia Beach, Virginia in the 1920's as a manufacturer of leak sealing
kits, Furmanite has evolved into an international service company. In the
1960's, Furmanite expanded within the United Kingdom, primarily through its
leak sealing products and services; and, during the 1970's and 1980's, grew
through geographic expansion and the addition of new techniques, processes and
services to become the largest leak sealing company, and one of the largest
on-site machining companies, in the world. In 1991, the Company acquired
Furmanite to diversify the Company's operations and take advantage of
anticipated international growth opportunities. For the year ended December
31, 1995, Furmanite's sales and operating income were approximately
$104,500,000 and $3,900,000, respectively (See: "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
PRODUCTS AND SERVICES
Furmanite is an industry leader in providing on-line repairs of leaks in
valves, pipes and other components of piping systems and related equipment
("leak sealing") typically used in process industries (See: "Customers and
Markets"). Other services provided by Furmanite include on-site machining,
bolting and valve testing and repair on such systems and equipment, which tend
to compliment Furmanite's leak sealing service, since these "turnaround
services" are usually performed while a plant or piping system is off-line. In
addition, Furmanite provides a variety of services, such as hot tapping,
fugitive emissions monitoring, passive fire protection, concrete repair, heat
exchanger repair and pipeline engineering, on a regional basis in response to
the needs of a particular regional customer base. In performing these
services, Furmanite technicians generally work at the customer's location,
frequently responding on an emergency basis. Over its history, Furmanite has
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established a reputation for delivering quality service and helping its
customers avoid or delay costly plant or equipment shutdowns. For each of the
years ended December 31, 1995, 1994, and 1993, on-line, underpressure leak
sealing services represented approximately 31%, 26% and 26%, respectively, of
Furmanite's revenues, while on-site machining accounted for approximately 23%,
16% and 13%, respectively, and valve repair represented approximately 13%, 9%
and 10%, respectively, of Furmanite's revenues for each of such years.
Furmanite's on-line, underpressure leak sealing services are performed on
a variety of process industry machinery, often in difficult situations. Many
of Furmanite's techniques and materials are proprietary and, the Company
believes, provide Furmanite with a competitive advantage over other
organizations that provide similar services. The Company's skilled technicians
work with equipment in a manner designed to enhance safety and efficiency in
temperature environments ranging from cryogenic to 1,400 degrees Fahrenheit and
pressure environments ranging from vacuum to 5,000 pounds per square inch. In
many circumstances, Furmanite personnel are called upon to custom-design tools,
equipment or other materials in order to effect the necessary repairs. These
efforts are supported by an internal quality control group that works together
with the on-site technicians in crafting these materials.
CUSTOMERS AND MARKETS
Furmanite's customer base spans a broad industry spectrum, which includes
petroleum refineries, chemical plants, offshore energy production platforms,
steel mills, power generation and other process industries in more than 20
countries. Over 80% of Furmanite's revenues are derived from fossil and nuclear
fuel power generation companies, petroleum refiners and chemical producers;
while other significant markets include offshore oil producers and steel
manufacturers. As the worldwide industrial infrastructure continues to age,
additional repair and maintenance expenditures are expected to be required for
the specialized services provided by Furmanite and similarly situated
organizations. Other factors that may influence the markets served by
Furmanite include regulations governing construction of industrial plants;
safety and environmental compliance requirements; and fulfillment of
specialized services through the increased use of outsourcing, rather than an
organization's in-house staff.
Furmanite serves its customers from its Richardson, Texas worldwide
headquarters and continues to maintain a strong presence in England and
continental Europe. Furmanite currently operates North American offices in the
United States in Baton Rouge, Beaumont, Charlotte, Chicago, Houston, Los
Angeles, Philadelphia, Salt Lake City and San Francisco; and in Edmonton,
Alberta and Sarnia, Ontario, Canada. Furmanite's worldwide strength is further
supported by offices currently located in Austria, Belgium, France, Germany,
Holland, Hong Kong, Norway, Singapore and the United Kingdom (10 locations) and
by licensee and minority ownership interest arrangements in Argentina,
Australia, China, the Czech Republic, Finland, India, Indonesia, Italy, Japan,
Kuwait, Malaysia, Mexico, Portugal, Puerto Rico, Saudi Arabia, Slovenia, South
Africa, South Korea, Sweden, Taiwan, Thailand, Trinidad and the United Arab
Emirates. Sales by geographic region for 1995 were 31% for North America, 36%
for the U.K. and 29% for continental Europe (See: "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 10 to the
Company's consolidated financial statements).
Furmanite's underpressure leak sealing and other specialty field services
are marketed primarily through direct sales calls on customers by salesmen
based at Furmanite's various operating locations, which are situated to
facilitate timely customer response, 24 hours a day, seven days a week.
Customers are usually billed on a time and materials basis for services
typically performed pursuant to either job quotation sheets or purchase orders
issued under written customer agreements. Customer agreements are generally
short-term in duration and specify the range of and rates for the services to
be performed. Furmanite typically provides various limited warranties,
depending upon the services furnished, and, to date, has had no significant
warranty claims. Furmanite competes on the basis of service, product
performance and price, generally on a localized basis with smaller companies
and the in-house maintenance departments of its customers. In addition to
staff reductions and the trend toward outsourcing, Furmanite believes it
presently has an advantage over in-house maintenance departments because of the
ability of its multi-disciplined technicians to use Furmanite's proprietary
techniques to perform quality repairs on a timely basis while customer
equipment remains in service.
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SAFETY, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Many aspects of Furmanite's operations are subject to governmental
regulation. National, state and local authorities of the U.S. and various
foreign countries have each adopted safety, environmental and other regulations
relating to the use of certain methods, practices and materials in connection
with the performance of Furmanite's services and which otherwise affect its
operations. Additionally, Furmanite participates, from time to time, with
various regulatory authorities in certain studies, reviews and inquiries of its
projects and/or operations. Further, because of its international presence,
Furmanite is subject to a number of political and economic uncertainties,
including expropriation of equipment, taxation policies, labor practices,
import and export limitations, foreign exchange restrictions, currency exchange
rate fluctuations and local political conditions. Except in certain developing
countries, where payment in a specified currency is required by contract,
Furmanite's services are paid, and its operations are typically funded, in the
currency of the particular country in which its business activities are
conducted.
Underpressure leak sealing and other Furmanite services are often
performed in emergency situations under dangerous circumstances, involving
exposure to high temperatures and pressures, potential contact with caustic or
toxic materials, fire and explosion hazards and environmental contamination,
any of which can cause serious personal injury or property damage. Furmanite
manages its operating risks by providing its technicians with extensive
classroom and field training and supervision, maintaining a system of technical
support through its staff of professionally qualified specialists, establishing
and enforcing strict safety and competency requirements, standardizing
procedures and evaluating new materials and techniques for use in connection
with its lines of service. Furmanite also maintains insurance coverage for
certain risks, although there is no assurance that insurance coverage will
continue to be available at rates considered reasonable or that the insurance
will be adequate to protect the Company against liability and loss of revenues
resulting from the consequences of a significant accident.
RECENT DEVELOPMENTS
On December 28, 1995, the Company notified the holders of its 12%
Convertible Class A Preferred Stock, Series D, which was originally issued in
connection with the Company's acquisition of Furmanite, that it would redeem
all outstanding shares of such Series on January 26, 1996. The Company
effected such redemption as noticed, utilizing a portion of the proceeds that
it received from a public offering of 3,500,000 Preference Units in Kaneb Pipe
Line Partners, L.P. by Kaneb Pipe Line Company, a wholly-owned subsidiary of
the Company and the General Partner of the Partnership (See: "Pipeline and
Terminaling Services - Recent Developments" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
In February 1995, the Company completed the sale of certain unprofitable
general maintenance projects in eastern Germany. These projects were acquired
in 1991, 1992 and 1993, during the privatization of the former East Germany by
the German government. As economic conditions in eastern Germany worsened
considerably in 1994, the Company elected to close one project and sell the
remaining projects (See: "Item 3. Legal Proceedings").
PIPELINE AND TERMINALING SERVICES
Through its KPL subsidiary, the Company manages and operates refined
petroleum products pipeline transportation system and petroleum products and
specialty liquids terminal storage businesses, and their associated properties,
for the benefit of KPP, which owns such systems and facilities through its
subsidiaries. The pipeline business consists primarily of the transportation,
as a common carrier, of refined petroleum products in Colorado, Iowa, Kansas,
Nebraska, North Dakota, South Dakota and Wyoming, as well as related
terminaling activities; while, through its Support Terminal Services, Inc.
subsidiary, among others (collectively, "ST"), the Company operates 31 terminal
storage facilities in 16 states and the District of Columbia, with a total
storage capacity of approximately 16,800,000 barrels. Including those situated
along its refined petroleum products pipeline systems, the Company's terminal
storage operations comprise the third largest independent petroleum products
and specialty liquids terminaling companies in the United States. For a more
detailed discussion of the business, activities and results of operations of
the Partnership than that which is contained herein, reference is made to the
Annual Report on Form 10-K and the other publicly filed documents of Kaneb Pipe
Line Partners, L.P. (NYSE: KPP, KPU).
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PIPELINE TRANSPORTATION SYSTEMS
MARKETS SERVED
Initially built in 1953, the KPP pipeline transportation operations
currently consist of two pipeline systems: the East and West Pipelines (the
"Pipelines"), with its operational headquarters located in Wichita, Kansas.
The East Pipeline is a 2,075 mile integrated pipeline, ranging between six and
sixteen inches in diameter, that transports refined petroleum products received
from refineries in southeast Kansas or other interconnecting pipelines to
terminals in Iowa, Kansas, Nebraska, North Dakota and South Dakota and to
receiving pipeline connections in Kansas. The East Pipeline has direct
connections to three Kansas refineries; has direct access by third-party
pipelines to four other refineries in Kansas, Oklahoma and Texas; provides
access to Gulf (of Mexico) Coast suppliers of refined petroleum products
through a connecting pipeline which receives products from a pipeline
originating on the Gulf Coast; and, through five connecting pipelines, receives
propane from gas processing plants in Kansas, New Mexico, Oklahoma and Texas
for shipment through the East Pipeline. The East Pipeline's operation also
includes 16 public truck loading terminals located in five states, comprised of
a total of 240 tanks having storage capacity of approximately 3,500,000 barrels
of product. In addition, the East Pipeline has intermediate storage facilities
in McPherson and El Dorado, Kansas, consisting of 23 tanks having an aggregate
storage capacity of approximately 922,000 barrels.
The West Pipeline was acquired by the Partnership in February 1995 from
Wyco Pipe Line Company (See: "Recent Developments") and consists of
approximately 550 miles of pipeline, ranging from six to eight inches in
diameter, that transports refined petroleum products received by direct
terminals and other interconnecting pipelines from refineries located in
Colorado, Montana, South Dakota and Wyoming to terminals in Colorado, South
Dakota and Wyoming. Additionally, the West Pipeline's operations include four
public truck loading terminals, also located in Colorado, South Dakota and
Wyoming, having storage capacity of approximately 1,801,000 barrels of product.
Through these facilities and operations, the West Pipeline serves the growing
Denver and northeastern Colorado markets and supplies the jet fuel for
Ellsworth Air Force Base, Rapid City, South Dakota.
The West Pipeline is the nearest pipeline system paralleling the East
Pipeline to the west. Consequently, there is a high level of commonality of
shippers on the Pipelines. Due to the proximity of the East and West Pipelines
to one another, they often face similar competitive issues. The Pipelines'
more significant competitors include common carrier pipelines, proprietary
pipelines owned and operated by major integrated and large independent oil
companies and other companies in the areas where the Company's pipeline systems
and operations deliver products. In particular, the Pipelines' major
competitor is an independent regulated common carrier pipeline system that
operates approximately 100 miles east of and parallel with the East Pipeline.
Competition between common carrier pipelines is based primarily on
transportation charges, quality of customer service and proximity to end users.
The Company believes that high capital costs, tariff regulation, environmental
considerations and problems in acquiring rights-of-way make it unlikely that
other competing pipeline systems comparable in size and scope to the Pipelines
will be built in the near future, provided that the Pipeline has available
capacity to satisfy demand and its tariffs remain at reasonable levels.
Further, while pipeline transportation systems are generally the lowest cost
method for intermediate and long-haul overland movement of refined petroleum
products, trucks may also competitively deliver products in some of the areas
served by the Pipelines. Trucking costs, however, render that mode of
transportation uncompetitive for longer hauls or larger volumes. The Company
does not believe that over the long term, trucks are effective competition to
the Pipelines' long-haul volumes.
PRODUCTS DELIVERED
The mix of refined petroleum products delivered varies seasonally, with
gasoline demand peaking in early summer, diesel fuel demand peaking in late
summer and propane demand higher in the fall. In addition, weather conditions
in the geographic areas served by the Pipelines affect the demand for and the
mix of the refined petroleum products delivered through the Pipelines, although
any such impact on the volumes shipped has historically been short-term. Most
of the refined petroleum products delivered through the East Pipeline are
ultimately used in agricultural operations, including fuel for farm equipment,
irrigation systems, crop drying facilities and trucks used to transport crops
to a variety of destinations; while the West Pipeline's products are generally
delivered to a more urban and commercial marketplace, including Ellsworth Air
Force Base. The
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agricultural sector served by the East Pipeline is also affected by
governmental policy and crop prices. Further, the Pipelines are dependent upon
adequate levels of production of refined petroleum products by refineries that
are connected to the Pipeline, which refineries are, in turn, dependent upon
adequate supplies of suitable grades of crude oil. KPL, in its capacity as
General Partner of the Partnership, believes that, in the event that operations
at any one refinery were discontinued (and assuming unchanged demand in the
markets served by the Pipelines), the effects thereof would be short-term in
nature, and the Company's business would not be materially adversely affected
over the long term. However, a substantial reduction of output by several
refineries as a group could affect the Pipelines' operations to the extent that
a greater percentage of the supply would have to come from refineries outside
the Pipelines' connecting access pipelines.
TARIFFS
Substantially all of the Pipelines' operations constitute common carrier
activities that are subject to federal or state tariff regulation. Such common
carrier activities are those under which transportation services through the
Pipeline are available at published tariffs, as filed with the Federal Energy
Regulatory Commission ("FERC") or the applicable state regulatory authority, to
any shipper of refined petroleum products who requests such services, provided
that each refined petroleum product for which transportation is requested
satisfies the conditions, requirements and specifications for transportation.
TERMINAL STORAGE OPERATIONS
FACILITIES
Acquired by the Partnership in 1993 (See: "Recent Developments"), ST and
its predecessors have a proven track record of more than 30 years of quality
service and experience in the operation of specialty liquids terminal storage
facilities. ST's terminal facilities provide throughput and storage on a fee
basis for a wide variety of products from petroleum products to specialty
chemicals and edible and other liquids. ST's 31 facilities offer storage
capacity ranging from 40,000 to 5,511,000 barrels, comprised of two to 124
tanks per facility. Following the acquisition of certain assets and facilities
from Steuart Petroleum Company and certain of its affiliates (collectively,
"Steuart") (See: "Recent Developments") and as of December 31, 1995, ST's five
largest facilities were located at Piney Point, Maryland (5,511,000 Bbls
capacity; 30 tanks); Jacksonville, Florida (2,061,000 Bbls capacity; 28 tanks);
Texas City, Texas (2,002,000 Bbls capacity; 124 tanks); Westwego, Louisiana
(858,000 Bbls capacity; 54 tanks); and, Baltimore, Maryland (826,000 Bbls
capacity; 50 tanks). In addition to the foregoing, the other ST facilities are
situated in Alabama (2), Arizona, California (2), the District of Columbia (2),
Florida, Georgia (6), Illinois (2), Indiana, Kansas, Maryland, Minnesota, New
Mexico, Oklahoma, Texas, Virginia (2) and Wisconsin, 27 of which are inland
facilities that receive, store and deliver primarily petroleum products for a
variety of customers, providing ST with a geographically diverse base of
customers and revenue. ST's operational headquarters is located in Dallas,
Texas.
The independent liquids terminaling industry is fragmented and includes
both large, well financed publicly-traded companies that own and/or operate
many terminal locations and small private companies that may own and/or operate
only a single terminal location. In addition to the terminals owned by
independent terminal operators, many major energy and chemical companies also
own extensive terminal facilities. Although such terminals often have the same
capabilities as those owned by independent operators, they generally do not
provide terminaling services to third parties. In many instances, major energy
and chemical companies that own storage facilities are also significant
customers of independent terminal operators, when independent terminals have
more cost effective locations near key transportation links such as deep water
ports. Major energy and chemical companies also require independent terminal
storage when their captive storage facilities are inadequate, either because of
size constraints, the nature of the stored material or specialized handling
requirements. Independent terminal owners, such as ST, compete on the basis of
location, versatility of terminals, service and price. For example, a
favorably located terminal will have access to various means of cost-effective
transportation both to and from the terminal. Terminal versatility is a
function of the operator's ability to offer safe handling for a diverse group
of products having complex handling requirements. The service function
typically provided by the terminal includes, among other things, the safe
storage of the product at specified temperature, moisture and other conditions,
as well as loading and unloading of product at the terminal. An increasingly
important aspect of the versatility and service capabilities of an operator is
that operator's ability to offer product handling and storage that
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complies with applicable environmental, safety and health regulations, among
others, especially since customers may retain the liability for certain acts of
non-compliance with such regulations.
PRODUCTS
The variety of products that can be stored at ST's terminal storage
facilities is a significant part of, what the Company believes is, its
competitive advantage among similarly-situated organizations. ST's terminals
provide storage capacity for such products as petroleum products, specialty
chemicals, asphalt, fertilizer, latex and caustic solutions, and edible
liquids, including animal and vegetable fats and oils. Further, the
terminaling and pipeline transportation of jet fuel for the U.S. Department of
Defense is an important part of ST's business. Nine of ST's 27 inland terminal
sites are involved in the terminaling or transport (via pipeline) of jet fuel
for the Defense Department. Six of the nine locations are utilized solely by
the Defense Department and five of these locations include pipelines that
deliver jet fuel directly to nearby military bases. Additionally, as part of
the Steuart transaction, the Partnership acquired the pipeline that serves
Andrews Air Force Base in Maryland (See: "Recent Developments"). Revenue
attributable to Department of Defense activities is derived from a combination
of terminal contracts and tenders for the handling and movement of jet fuel.
The terminal contracts provide a fixed monthly revenue for a period of one to
four years per contract, with additional revenues generated if specific
throughput levels are exceeded. The tenders provide for charges per barrel of
throughput and have no minimum guarantees. From time to time, military base
closings or other events have impacted the operation of certain of ST's
facilities. However, KPL, in its capacity as General Partner of the
Partnership, does not believe that, in the aggregate, the inland terminals
serving the U.S. Department of Defense will experience a significant decrease
in cash flows for the foreseeable future as a result of Department of Defense
changes in activity. KPL, in its capacity as General Partner of the
Partnership, does not believe that ST's business is dependent upon any one
customer or any small group of customers.
SAFETY, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
In addition to tariff regulation of the Partnership's Pipeline activities,
certain operations of the Partnership are subject to federal, state and local
laws and regulations relating to the construction, maintenance and management
of its facilities, the safety of its personnel and the protection of the
environment. Although KPL, in its capacity as General Partner of the
Partnership, believes that the operations of the Partnership are in general
compliance with applicable laws and regulations, risks of substantial costs and
liabilities are inherent in both pipeline and terminaling operations, and there
can be no assurance that significant costs and liabilities will not be incurred
by the Partnership. For example, contamination resulting from spills or
releases of refined petroleum products within the petroleum pipeline industry,
or refined petroleum or other products within the terminaling industry, are not
unusual in such industries. From time to time, the Partnership has experienced
limited groundwater contamination at certain of its Pipeline-related terminal
sites, resulting from spills of refined petroleum products. In each instance,
the appropriate regulatory authorities have been notified of these events and
appropriate remediation activities have either been completed or are ongoing.
In connection with the formation of the Partnership, the Company agreed to bear
the costs associated with identified environmental contamination relating to
the operations of the East Pipeline arising prior to October 3, 1989; however,
such costs have not been, and are not in the future anticipated to be,
material.
Additionally, from time to time, the Partnership has experienced limited
groundwater contamination at certain of its current and former terminal storage
facilities, as a result of operations at or around these locations. Again, in
each instance, the appropriate regulatory authorities have been notified of
these events and appropriate remediation activities have either been completed,
are ongoing, at times using extraction wells and air strippers, or are under
investigation. In certain instances where other unrelated companies may also
have responsibility for the contamination of a particular facility or area, the
Partnership, through the appropriate operating subsidiary, has entered into
agreements (or is in the process of negotiating such agreements) with such
company or companies providing for the allocation of the costs and/or
responsibilities of remediation of such facilities or areas. Further, ST has
been named as a "potentially responsible party" for a federally-designated and
EPA-supervised "Superfund" site where a small amount of material handled by the
former operator was attributed to the facility owned by ST.
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While the Company believes that the Partnership's obligations in connection
with the remediation process at this location will be de minimis, until a final
settlement agreement is signed with the EPA, there is a possibility that the
EPA could bring additional claims against ST (See: "Legal Proceedings").
RECENT DEVELOPMENTS
On December 19, 1995, the Partnership acquired the liquid terminaling
assets of Steuart Petroleum Company and certain of its affiliates
(collectively, "Steuart") for $68,000,000 plus transaction costs and the
assumption of certain environmental liabilities. Among the assets acquired by
the Partnership were eight terminal storage facilities located in the District
of Columbia, Florida, Georgia, Maryland and Virginia, consisting of 88 storage
tanks having an aggregate capacity of approximately 9,000,000 barrels of
product. The Maryland facility also includes the pipeline servicing operations
for Andrews Air Force Base. The transaction was initially funded by a bank
bridge loan, which is anticipated to be replaced during the 1996 calendar year
by the private placement of $68,000,000 of first mortgage notes. The
Partnership is currently in the process of finalizing the terms of such a
private placement and has engaged an investment banking organization to assist
with the proposed transaction. While the Company expects that the Partnership
will be successful in completing the private placement, there can be no
assurance that such will occur or, if so, it will contain the terms and
conditions currently contemplated by the Partnership. On a pro-forma basis,
giving effect to the Steuart acquisition, revenues generated by the Steuart
assets would have accounted for approximately 8.3% of the Company's revenues
for the year ended December 31, 1995.
In September 1995, the Partnership completed a public offering of
3,500,000 Preference Units (NYSE: KPU) at a price of $22.50 per unit. The
Preference Units, which had been owned by KPL since 1989, represent a separate
class of units from, and are junior to, the Partnership's Senior Preference
Units (NYSE: KPP) ("SPUs"), which SPUs have been the subject of two previous
public offerings in 1989 and 1993. The Company, through a dividend from its
KPL subsidiary, realized net proceeds of approximately $74,000,000 from the
offering of Preference Units; following which, the Company continued to retain
control of the Partnership through a 2% General Partner interest and an
aggregate 31.0% limited partner interest in the Partnership. A substantial
portion of the proceeds from the offering were used by the Company in 1995 to
retire two outstanding debt issues: $5,011,000 of Moran Energy Inc. 11.5%
Subordinated Debentures, which were redeemed by the Company on October 23,
1995, and $43,200,000 of Moran Energy International, N.V. 8% Convertible
Subordinated Debentures, which matured on November 1, 1995 and to repay a
$10,000,000 bank term loan. Additionally, on February 1, 1996, the Company
used a portion of the offering proceeds to retire a $6,000,000 bank loan and,
on January 26, 1996, the Company used approximately $8,000,000 of the offering
proceeds to redeem all of the outstanding shares of its 12% Convertible Class A
Preferred Stock, Series D, which were originally issued in connection with the
Company's acquisition of Furmanite (See: "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Industrial Field
Services - Recent Developments"). As stated, the Partnership has previously
completed two public offerings of Partnership SPUs: the original offering of
5,000,000 units for $22 per unit in September 1989, following the formation of
KPP and generating net proceeds to the Company of approximately $98,000,000 and
a gain of approximately $60,000,000; and, an offering of an additional
2,250,000 SPUs for $25.25 per unit in April 1993, which resulted in net
proceeds to KPP of approximately $53,200,000 and recognition by the Company in
1993 of a non-cash gain of approximately $15,100,000.
On February 24, 1995, the Partnership completed a transaction with Wyco
Pipe Line Company ("Wyco"), an entity jointly owned by GATX Terminals
Corporation and Amoco Pipe Line Company, pursuant to which KPP acquired certain
refined petroleum pipeline assets from Wyco for $27,100,000 plus transaction
costs and the assumption of certain environmental liabilities. The assets,
which the Company refers to as "the West Pipeline", consist of approximately
550 miles of underground pipe in Wyoming, Colorado and South Dakota, four truck
loading terminals, numerous pump stations and other related assets. KPP
financed the acquisition of the former Wyco assets by the issuance of
$27,000,000 of 8.37% first mortgage notes, due in 2002, to three insurance
companies.
7
9
ENVIRONMENTAL CONTROLS
The Company believes that it is in substantial compliance with applicable
state, federal and local legislation and regulations relating to environmental
controls, and the existence of such laws and regulations has not had, nor at
this time is expected to have, any materially restrictive effect on the
Company. To date, the Company has not accounted for costs or capital
expenditures incurred for environmental control facilities separately from
other costs incurred in the operation of its businesses. The Company does not,
however, believe that any such costs or expenditures have been material, and
the Company does not expect that under present conditions such costs or
expenditures will become material in the foreseeable future.
EMPLOYEES
At December 31, 1995, the Company and its subsidiaries employed 1,657
persons, of which an aggregate total of 1,154 persons were employed by the
Company's Furmanite subsidiaries, collectively, and an aggregate total of 347
persons were employed by KPL, collectively with its subsidiaries. The
Partnership has no employees, as the business and operations of the Partnership
are conducted by KPL, the General Partner of the Partnership and a wholly-owned
subsidiary of the Company. As of December 31, 1995, approximately 550 of the
persons employed by Furmanite were subject to representation by unions or other
similar associations for collective bargaining or other similar purposes;
however, there were no significant collective bargaining or other similar
contracts covering the Furmanite employees in effect at that date.
Additionally, as of December 31, 1995, approximately 139 of the persons
employed by KPL (or its subsidiaries) were subject to representation by unions
for collective bargaining purposes; however, except for approximately 30
persons employed by ST who were subject to representation by the Oil, Chemical
and Atomic Workers International Union AFL-CIO ("OCAW"), there were no
collective bargaining or other similar contracts covering employees of KPL (or
its subsidiaries) in effect at that date. ST has an agreement with the OCAW
regarding conditions of employment for such persons, which agreement is in
effect through June 28, 1996 and is subject to automatic renewal for successive
one-year periods unless ST or OCAW serves written notice to terminate or modify
such agreement in a timely manner.
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located in Richardson,
Texas, in a modern, sixteen story building pursuant to a five year lease
agreement. In addition to properties owned or leased by its industrial field
services and pipeline transportation and liquids terminaling businesses, the
Company, through its wholly-owned subsidiary, Fields Financial Services, Inc.,
also leases office space in Bryan, Texas.
Descriptions of other properties owned or utilized by the Company (or its
subsidiaries) are contained in Item 1 of this report and such descriptions are
hereby incorporated by reference into this Item 2. Under the caption
"Commitments and Contingencies" in Note 9 to the Company's consolidated
financial statements, additional information is presented concerning
obligations of the Company (or its subsidiaries) for lease and rental
commitments. Such additional information is also incorporated by reference
into this Item 2.
ITEM 3. LEGAL PROCEEDINGS
On February 2, 1996 a lawsuit was filed in Germany on behalf of
Gesellschaft fur Industrieanlagen und Maschineninstandhaltung GmbH or G.I.M.
Engineering ("GIM") against one of the Company's German subsidiaries, Furmanite
Technische Dienstleistungen GmbH ("FTD"), concerning the consideration received
in a December 30, 1994 German contract that was part of a series of
transactions relating to the sale of one of the Company's domestic
subsidiaries. On February 5, 1996, the Court ruled in the Furmanite German
subsidiary's favor in a separate but related injunctive proceeding involving
the same consideration issue in the same contract. The December 30, 1994
contract was an integral part of the ultimate sale of the Company's domestic
subsidiary and was consummated after a thorough review by, and based upon the
advice of, the Company's German legal counsel and tax advisors. The Company
intends to vigorously defend this action, which has not yet been set for
hearing.
8
10
In March 1995, the Company completed a settlement agreement and release of
claims among all parties relating to a lawsuit filed in September 1987 in
Mobile County, Alabama, against the Company and certain of its affiliates and
other unrelated parties by Stephen R. Herbel and others doing business as
Pinnacle Petroleum Company ("Pinnacle"). The Company's portion of the
settlement agreement was adequately reserved in its financial statements.
Two of the Company's subsidiaries, which subsidiaries are no longer
actively conducting any operations, have been notified that they are
"potentially responsible parties" in connection with two separate governmental
investigations relating to two separate waste disposal facilities which may
each be subject to remedial action as locations listed on the Environmental
Protection Agency's ("EPA") Superfund National Priority List ("Superfund").
Such proceedings arising under Superfund typically involve numerous waste
generators and other waste transportation and disposal companies for each
identified facility and seek to allocate or recover costs associated with site
investigation and cleanup, which costs could be substantial. These particular
proceedings are based upon allegations that the Company's former operating
subsidiaries disposed of hazardous substances at the facilities in question.
One proceeding involves actions allegedly taken by the Company's former
operating subsidiary at a time prior to the acquisition of such subsidiary by
the Company. The Company's subsidiaries have been included within a de minimis
group of waste generators that are involved in this proceeding, who have been
negotiating a collective settlement of their liabilities with the EPA.
However, the Company has joined with others within this de minimis group who
are each contesting their respective liability. Proceedings in this matter
have been ongoing since 1989 and there was no significant activity relating to
this matter that occurred during 1995. The second proceeding involves alleged
activity by a corporation in which a former operating subsidiary of the Company
held a 50% interest, which interest is no longer owned by the Company's
subsidiary or any affiliate of the Company. Accordingly, the Company believes
that its liability in this proceeding is governed by the provisions of the
agreement pursuant to which the Company's interest in such corporation was
disposed. The Company has reviewed its potential exposure, if any, in
connection with each location, giving consideration to the nature, accuracy and
strength of evidence relating to the Company's alleged relationship to the
location, the amount and nature of waste taken to the location, and the number,
relationship and financial ability of other named and unnamed "potentially
responsible parties" at the location. While the Company does not anticipate
that the amount of expenditures from its involvement in the above matters will
have a material adverse effect on the Company's operations or financial
condition, the possibility remains that technological, regulatory, enforcement
or legal developments, the results of environmental studies or other factors
could materially alter this expectation at any time.
In addition, from time to time, the Company and certain of its
subsidiaries are involved in various litigation and other legal proceedings in
the ordinary course of business. However, the Company believes that a
resolution of these matters will not have a material adverse affect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold a meeting of stockholders or otherwise submit any
matter to a vote of stockholders in the fourth quarter of 1995.
PART II
9
11
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's Common Stock are listed and traded principally on
the New York Stock Exchange. At March 15, 1996, there were approximately 4,870
holders of Common Stock of record. The following table sets forth, for the
fiscal periods indicated, the quoted high and low sales prices of the shares on
the New York Stock Exchange.
QUOTED STOCK PRICES
-------------------------
HIGH LOW
---- ---
FISCAL YEAR
1994:
First Quarter 4 1/8 3
Second Quarter 3 1/2 2 3/4
Third Quarter 3 1/8 2 1/4
Fourth Quarter 2 1/2 1 7/8
1995:
First Quarter 2 1/4 1 1/2
Second Quarter 2 3/4 1 3/4
Third Quarter 2 5/8 2
Fourth Quarter 2 5/8 1 7/8
1996:
First Quarter 3 1/4 2 1/4
(through March 15,
1996)
Regular dividends on the Company's Adjustable Rate Cumulative Class A
Preferred Stock have been regularly paid since the third quarter of 1990, in
accordance with the provisions of the Certificates of Designation filed with
the Delaware Secretary of State for such Preferred Stock. In connection with
its 1991 acquisition of Furmanite, the Company issued a total of 1,098,373
shares of 12% Convertible Class A Preferred Stock, Series D, stated value of
5.34 Pounds Sterling. On December 28, 1995, the Company notified the holders
of the Series D shares that it would redeem all outstanding shares of such
Series on January 26, 1996. The Company used approximately $8,000,000 of the
proceeds from the public offering of 3,500,000 Preference Units of KPP to
effect the redemption as noticed. Also, the Company has issued 600 restricted
shares of its Adjustable Rate Cumulative Class A Preferred Stock, Series C, to
three senior officers of the Company, in connection with an executive
compensation program established by the Company. In 1994, the holders of these
shares were paid an aggregate dividend of $28,422, which had been previously
accrued in 1991. Among other restrictions on payment of dividends on this
Series of Preferred Stock, dividends on the Series C Preferred Stock that are
otherwise payable for a year in which the Company has a net loss are not paid
until completion of a year in which the Company has a net profit. Additionally,
the credit facilities used to acquire Furmanite and for the working capital of
each of Furmanite and KPL each contain restrictions on the respective
subsidiary's ability to pay dividends or distributions to the Company, if an
event of default exists.
10
12
TEM 6. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following selected financial data (in thousands, except per share
amounts) is derived from the consolidated financial statements of Kaneb
Services, Inc. and should be read in conjunction with the consolidated
financial statements and related notes included herein. The Company has not
declared a dividend on its common stock for any of the periods presented.
Year Ended December 31,
----------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
INCOME STATEMENT DATA:
Revenue ........................... $212,062 $208,722 $198,549 $176,703 $134,965
Operating income .................. 43,465 31,964 29,530 14,611 13,247
Net income (loss):
Income (loss) from continuing
operations before gains on
sale or issuance of
partnership units .......... 5,024 2,035 1,032 (5,532) (8,055)
Gains on sale or issuance of
pipeline partnership units 54,157 - 15,122 - -
-------- -------- -------- -------- --------
Continuing operations ......... 59,181 2,035 16,154 (5,532) (8,055)
Discontinued operations ....... - - - 996 (13,011)
Extraordinary gain on debt
extinguishment ............. - - - - 405
Cumulative effect of accounting
charges(a) ................ - - - 742 -
-------- -------- -------- -------- --------
Net income (loss) ............. $ 59,181 $ 2,035 $ 16,154 $ (3,794) $(20,661)
======== ======== ======== ======== ========
PER SHARE DATA:
Earnings (loss) per common share:
Continuing operations ......... $ 1.72 $ .02 $ .46 $ (.22) $ (.30)
Discontinued operations ....... - - - .03 (.41)
Extraordinary gain on debt
extinguishment ............... - - - - .01
Cumulative effect of
accounting changes ...... - - - .02 -
------- -------- -------- -------- --------
Total ..................... $ 1.72 $ .02 $ .46 $ (.17) $ (.70)
======= ======== ======== ======== ========
BALANCE SHEET DATA:
Cash flow provided by operating
activities ................ $ 39,964 $ 25,890 $ 30,880 $ 19,183 $ 6,159
Cash and cash equivalents ..... 30,389 9,506 24,327 10,596 17,501
Working capital ............... 16,302 (42,797) 15,842 12,555 22,339
Total assets .................. 409,827 284,213 287,472 215,848 237,173
Long-term debt ................ 191,846 103,376 152,678 141,430 144,222
Stockholders' equity .......... 69,022 18,844 14,861 (1,519) 7,239
(a) Represents the cumulative effect of accounting changes from the adoption of
new financial accounting standards relating to taxes.
11
13
ITEM 7. 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. (the "Company") and notes thereto
included elsewhere in this report.
RESULTS OF OPERATIONS
(in millions)
-----------------------------
1995 1994 1993
------ ----------- --------
Consolidated revenues .............. $212.1 $208.7 $198.5
Consolidated operating income ...... $ 43.5 $ 32.0 $ 29.5
Consolidated operating income before
depreciation and amortization .... $ 56.5 $ 44.8 $ 41.2
Consolidated net income before gains
on sale or issuance of pipeline
partnership units ................ $ 5.0 $ 2.0 $ 1.0
Consolidated capital expenditures,
excluding acquisitions ........... $ 13.4 $ 10.2 $ 11.0
Consolidated revenues increased $3.4 million in 1995. Pipeline and
terminaling services revenues increased $18.2 million, primarily as a result of
the acquisition of the West Pipeline by the pipeline partnership in February
1995. Near the end of 1994, unprofitable operations in eastern Germany, which
generated approximately $18.9 million in revenues in 1994, were sold. Revenues
from the remaining core business in industrial field services increased $5.2
million in 1995. Consolidated operating income increased $11.5 million in
1995. Improvements in industrial field services totaled $2.3 million while
pipeline and terminaling services were up $9.5 million, primarily as a result
of the acquisition of the West Pipeline. Consolidated capital expenditures,
excluding acquisitions, increased $3.2 million from 1994 to 1995, principally
as a result of increased industrial field services equipment purchases and
increased pipeline and terminaling capital maintenance projects.
Consolidated revenues increased $10.2 million in 1994, primarily as a
result of the inclusion for the entire year of a petroleum products and
specialty liquids terminaling company that was acquired by the pipeline
partnership in March 1993. Consolidated operating income increased $2.5
million from 1993 to 1994 as increases in pipeline and terminaling services
profits of $3.7 million, largely due to improvements at the terminaling company
acquired by the pipeline partnership in 1993, were partially offset by declines
in industrial field services profits attributable to the unprofitable
operations in eastern Germany that were not sold until near the end of 1994.
12
14
Industrial Field Services
The Company's industrial field services segment is comprised of the
operations of Furmanite, which was acquired in March 1991. Furmanite provides
specialized industrial field services to plants in the process and power
industries and to refineries and chemical plants.
(in millions)
----------------------------
1995 1994 1993
------ ------ ------
Revenues:
United States.................. $ 32.8 $ 34.2 $ 32.8
United Kingdom................. 37.6 36.3 30.5
Germany........................ 16.2 33.0 40.0
Rest of World.................. 17.9 14.7 13.1
------ ------ ------
$104.5 $118.2 $116.4
====== ====== ======
Operating income:
United States.................. $ 1.9 $1.7 $ 1.1
United Kingdom................. 3.3 2.4 1.2
Germany........................ (1.2) (3.6) 1.3
Rest of World.................. .8 1.3 .2
Headquarters................... (.9) (.2) -
------ ------ ------
$ 3.9 $ 1.6 $ 3.8
====== ====== ======
Operating income before
depreciation and amortization.. $ 8.0 $ 6.6 $ 8.7
====== ====== ======
Capital expenditures............. $ 4.3 $ 2.8 $ 2.6
====== ====== ======
Furmanite's revenues increased $5.2 million or 5% in 1995 and $8.9 million
or 10% in 1994, excluding unprofitable general maintenance projects in eastern
Germany that had revenues of approximately $18.9 million in 1994 and $26.0
million in 1993 and were sold near the end of 1994. Revenues from traditional
underpressure services steadily improved in both years, especially in the
United Kingdom and other western European countries where economic conditions
have been sluggish over the last several years.
Operating income increased $2.3 million or 144% in 1995 as a result of
improvements in Furmanite's operations around the world, particularly in the
United Kingdom and in Germany. Declines in the Rest of World in 1995 primarily
resulted from non-recurring product sales with high margins in the Far East in
1994. The overall decline in Furmanite's operating income in 1994 was the
result of the losses from the general maintenance projects in eastern Germany
that were sold in late 1994 that were only partially offset by the improvements
in the rest of Furmanite's operations.
Capital expenditures are primarily related to field services equipment and
the implementation of new services. Capital expenditures for 1996 are
currently estimated to be $2 million to $4 million, depending on the economic
environment and the needs of the business.
Pipeline and Terminaling Services
The Company's pipeline and terminaling services segment includes the
operations of Kaneb Pipe Line Partners, L.P. ("KPP") which owns refined
petroleum products pipeline assets and, since 1993, petroleum products and
specialty liquids storage and terminaling assets. 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.
13
15
(in millions)
---------------------------
1995 1994 1993
----- ----- -----
Revenues....................... $96.9 $78.7 $69.2
===== ===== =====
Operating income............... $42.5 $33.0 $29.3
===== ===== =====
Operating income before
depreciation and amortization. $50.8 $40.2 $35.4
===== ===== =====
Capital expenditures, excluding
acquisitions.................. $ 9.0 $ 7.2 $ 8.1
===== ===== =====
Revenues increased $18.2 million or 23%, while operating income increased
$9.5 million or 29% in 1995. The increase in revenues and operating income is
primarily attributable to the acquisition of the West Pipeline by the pipeline
partnership in 1995. Revenues increased $9.5 million or 14%, while operating
income increased $3.7 million or 13% in 1994, primarily as a result of the
inclusion of the operations of ST for the full year in 1994 versus a 10-month
period in 1993 as well as an approximate 5.5% pipeline tariff increase
implemented in April 1994, which was partially offset by an increase in
property taxes and unusually high repair and maintenance expenditures.
The interest of outside non-controlling partners in the KPP's net income
was $18.0 million, $12.6 million and $11.0 million in 1995, 1994 and 1993,
respectively. Distributions paid to the outside non-controlling unitholders of
KPP aggregated approximately $16.3 million, $16.2 million and $13.7 million in
1995, 1994 and 1993, respectively. The increase in the interest of outside
non-controlling partners in KPP's net income in 1995 is attributable to the
sale by the Company in 1995 of 3.5 million of the preference units that it had
owned since 1989. The 1994 increase in both the interest of outside
non-controlling partners in KPP's net income and in the distributions paid to
the outside non-controlling unitholders is a result of the issuance of 2.25
million Senior Preference Units in 1993 by KPP.
Capital expenditures relate to the maintenance of existing operations.
Routine capital expenditures for 1996 are currently estimated to be $7.5
million.
Effective March 1, 1993, KPP acquired Support Terminal Services, Inc.
("ST"), a petroleum products and specialty liquids storage and terminaling
company, for approximately $65 million. In April 1993 KPP completed a
secondary public offering of 2.25 million Senior Preference Units at $25.25 per
unit and used $50.8 million of the proceeds from the offering to repay a
portion of the ST acquisition bank debt. The Company recognized a non-cash
accounting basis gain in the amount of $22.4 million resulting from the change
in its ownership interest of KPP as a result of this public offering.
Consistent with the treatment in 1989 of the initial offering of Senior
Preference Units, the Company deferred $7.3 million of this gain and recorded
$15.1 million in the statement of income as a gain on the issuance of units by
the Partnership.
In February 1995 KPP, through a wholly-owned subsidiary, acquired the
pipeline assets of WYCO Pipe Line Company (the "West Pipeline"), a company
jointly owned by GATX Terminals Corporation and Amoco Pipeline Company, for
$27.1 million plus transaction costs and the assumption of certain
environmental liabilities. The acquisition was financed by the sale of first
mortgage notes due February 24, 2002, which bear interest at the rate of 8.37%
per annum. In December 1995 KPP, through a wholly-owned subsidiary, 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, which was financed with a
bridge loan from a bank.
14
16
Other Operations
The Company had revenues of $10.6 million, $11.8 million, and $12.9
million in 1995, 1994 and 1993, respectively, and operating income of $1.7
million, $1.5 million and $.6 million for the same periods related to
subsidiaries that provide payment, collection and information services to
retail merchants and financial institutions.
New Accounting Pronouncement
In March 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121). SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995 and requires the write-down to market of
certain long-lived assets. The Company will adopt SFAS 121 in the first
quarter of 1996 and such adoption will not have a material effect on the
Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by consolidated operating activities was $40.0 million,
$25.9 million and $30.9 million during the years 1995, 1994 and 1993,
respectively. Almost two-thirds of the increase in 1995 related to pipeline
and terminaling services, primarily as a result of the acquisition of the West
Pipeline by the pipeline partnership in February 1995.
At December 31, 1995, $24.8 million was outstanding under a credit
facility, as amended, that was obtained by a wholly-owned subsidiary in
conjunction with the acquisition of Furmanite. The credit facility, which is
without recourse to the Parent Company, is due 2001, bears interest at the
option of the borrower at variable rates based on either the LIBOR rate or the
prime rate plus a differential of up to 150 basis points, and contains certain
financial and operational covenants with respect to the specialized industrial
field services group of companies.
In 1994 KPP, through a wholly-owned subsidiary, issued $33 million of
first mortgage notes ("Notes") to a group of insurance companies. The Notes
bear interest at the rate of 8.05% per annum and are due on December 22, 2001.
In 1994, another wholly-owned subsidiary of KPP entered into a Restated Credit
Agreement with a group of banks that provides a $15 million revolving credit
facility through November 30, 1997. The credit facility bears interest at
variable interest rates and has a commitment fee of .2% per annum of the unused
credit facility. No amounts were drawn under the credit facility at December
31, 1995 or 1994. In 1995 KPP financed the acquisition of the West Pipeline
with the issuance of $27 million of Notes due February 24, 2002, which bear
interest at the rate of 8.37% per annum. The Notes and credit facility are
secured by a mortgage on substantially all of the pipeline assets of KPP and
contain certain financial and operational covenants. The acquisition of the
Steuart terminaling assets in December 1995 was initially financed by a $68
million bridge loan from a bank. The bridge loan maturity has been extended
until March 17, 1997, and bears interest at variable rates based on the LIBOR
rate plus 50 to 100 basis points. KPP expects to refinance this obligation
under terms similar to the Notes discussed above.
In September 1995 the Company, through a wholly-owned subsidiary, sold in
a public offering 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of approximately $74 million related to the sale and
recorded a gain of $54.2 million. The Company used the proceeds from the sale
to retire its 8% convertible subordinated debentures totaling $43.2 million,
retire its 11.5% subordinated debentures totaling $5.0 million, repay its $10
million term loan, redeem, in 1996, its Series D Preferred Stock for
approximately $8.0 million and retire, in 1996, its $6.0 million 8.85% senior
note. The Company continues to control the pipeline and terminaling operations
of KPP through its 2% general partner interest and a 31% limited partner
interest.
15
17
In December 1995 the Company entered into an agreement with an
international bank that provides for a $15 million revolving credit facility
through December 1, 2000, that bears interest at variable rates at the
Company's option based on the LIBOR rate plus 100 basis points or at the prime
rate in effect from time to time with a commitment fee of .5% per annum of the
unused credit facility. No amounts were drawn under the credit facility at
December 31, 1995.
Consolidated capital expenditures for 1996 have been budgeted at $9.5
million to $11.5 million, depending on the economic environment and the needs
of the business. Consolidated debt maturities are $4.1 million, $4.5 million,
$8.7 million, $1.8 million and $1.5 million for each of the five years ending
December 31, 2000. Capital expenditures in 1996 are expected to be funded from
existing cash and anticipated cash flows from operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the
Company begins on page F-1 of this report. Such information is hereby
incorporated by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
18
PART III
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K is
incorporated by reference from portions of the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission not later
than 120 days after the close of the fiscal year covered by this Report.
17
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS PAGE
----
Set forth below are financial statements appearing in this report.
Report of Independent Accountants ............................ F-1
Financial Statements of Kaneb Services, Inc, and Subsidiaries:
Consolidated Statements of Income - Years Ended December 31,
1994 and 1993 .......................................... F-2
Consolidated Balance Sheets - December 31, 1995 and 1994...... F-3
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 ........... F-4
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1995, 1994 and 1993 .. F-5
Notes to Consolidated Financial Statements ................... F-6
(a)(2) FINANCIAL STATEMENT SCHEDULES
Set forth are the financial statement schedules appearing in this
report.
Schedule I - Kaneb Services, Inc. (Parent Company)
Condensed Financial Statements:
Statements of Income - Years Ended December 31, 1995,
1994 and 1993 ............................................ F-18
Balance Sheets - December 31, 1995 and 1994 .................... F-19
Statements of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993 ......................... F-20
Schedule II - Kaneb Services, Inc. Valuation and
Qualifying Accounts -
Years Ended December 31, 1995, 1994 and 1993 ............. F-21
Schedules, other than those listed above, have been omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or related
notes thereto presented in the Annual Report to Stockholders.
18
20
(A) (3) LIST OF EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant, dated September
26, 1979, filed as Exhibit 3.1 of the exhibits to the Registrant's
Registration Statement on Form S-16, which exhibit is hereby incorporated
by reference.
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated April 30, 1981, filed as Exhibit 3.2 of the exhibits
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1981 ("1981 Form 10-K"), which exhibit is hereby incorporated by
reference.
3.3 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated May 28, 1985, filed as Exhibit 4.1 of the exhibits
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1985, which exhibit is hereby incorporated by reference.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated September 17, 1985, filed as Exhibit 4.1 of the
exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1985, which exhibit is hereby incorporated by
reference.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated July 10, 1990, filed as Exhibit 3.5 of the exhibits
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990 ("1990 Form 10-K"), which exhibit is hereby incorporated by
reference.
3.6 Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant, dated September 21, 1990, filed as Exhibit 3.5 of the
exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990, which exhibit is hereby incorporated by
reference.
3.7 By-laws of the Registrant, filed as Exhibit 3.5 of the exhibits to the
Registrant's Annual Report on Form 10-K for year ended December 31, 1985,
which exhibit is hereby incorporated by reference.
4.1 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits to
the Registrant's Quarterly Report of Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights related to the
Registrant's Series B Junior Participating Preferred Stock, filed as
Exhibit 1 of the exhibits to the Registrant's Current Report on Form 8-K
and Registration Statement on Form 8-A, dated April 5, 1988, which exhibit
is hereby incorporated by reference.
4.3 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series D, dated February 11, 1991,
filed as Exhibit 4.3 of the exhibits to the Registrant's 1990 Form 10-K,
which exhibit is hereby incorporated by reference.
4.4 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series C, dated April 23, 1991, filed
as Exhibit 4.4 of the exhibits to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, which exhibit is hereby incorporated
by reference.
4.5 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series E, filed as Exhibit 10.2 of the
exhibits to the Registrant's Current Report on Form 8-K, dated January 23,
1993, which exhibit is hereby incorporated by reference.
4.6 Indenture between Moran Energy Inc. ("Moran") and First City National
Bank of Houston ("First City"), dated as of January 1, 1978, under which
Moran issued the 11 1/2% Subordinated Debentures due 1998, filed as
Exhibit 2(g) to Moran's Registration Statement on Form S-7 (SEC File No.
2-61216), which exhibit is hereby incorporated by reference.
19
21
4.7 First Supplemental Indenture between the Registrant and First City, dated
as of March 20, 1984, under which the Registrant assumed obligations under
the Indenture listed as Exhibit 4.5 above, filed as Exhibit 4.4 to the
exhibits of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1983 ("1983 Form 10-K"), which exhibit is hereby incorporated
by reference.
4.8 Indenture between Moran Energy International N.V. ("Moran
International"), Moran and First City, dated as of November 1, 1980, under
which Moran International issued the 8% Convertible Subordinated
Debentures due 1995, guaranteed on a subordinated basis by Moran, filed as
Exhibit 4(b) to Moran's Annual Report on Form 10-K for the year ended
December 1, 1980, which exhibit is hereby incorporated by reference.
4.9 First Supplemental Indenture between Moran International, the Registrant
and First City, dated as of March 20, 1984, under which the Registrant
assumed obligations under the Indenture listed as Exhibit 4.8 above, filed
as Exhibit 4.7 of the 1983 Form 10-K, which exhibit is hereby incorporated
by reference.
4.10 Indenture between Moran and First City, dated January 15, 1984, under
which Moran issued the 8 3/4% Convertible Subordinated Debentures due
2008, filed as Exhibit 4.1 to Moran's Registration Statement on Form S-3
(SEC File No. 2-81227), which exhibit is hereby incorporated by reference.
4.11 First Supplemental Indenture between the Registrant and First City, dated
as of March 20, 1984, under which the Registrant assumed obligations under
the Indenture listed as Exhibit 4.10 above, filed as Exhibit 4.7 of the
1983 Form 10-K, which exhibit is hereby incorporated by reference.
10.1 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 of the exhibits to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1984, which exhibit is hereby
incorporated by reference.
10.2 Kaneb Services, Inc. 1994 Stock Incentive Plan, filed as Exhibit 4.12 to
the exhibits of the Registrant's Form S-8 Registration Statement (S.E.C.
File No. 33-54027), which exhibit is hereby incorporated by reference.
10.3 Kaneb Services, Inc. Savings Investment Plan, filed as Exhibit 4.10 of
the exhibits to the Registrant's Form S-8 Registration Statement (S.E.C.
File No. 33-41295), which exhibit is hereby incorporated by reference.
10.4 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, filed as Exhibit
10.8 of the exhibits to the Registrant's Annual Report on Form 10-K ("1994
Form 10-K"), which exhibit is hereby incorporated by reference.
10.5 Amended and Restated Senior Secured Increasing Rate Promissory Note
between the Registrant and the Bank of Scotland, dated July 2, 1993, filed
as Exhibit 10.9 of the exhibits to the Registrant's 1994 Form 10-K, which
exhibit is hereby incorporated by reference.
10.6 Pledge and Proxy Agreement between the Registrant and Texas Commerce
Bank, National Association, ("TCB"), dated October 11, 1993, filed as
Exhibit 10.9 of the exhibits to the Registrant's 1993 Form 10-K, which
exhibit is hereby incorporated by reference.
10.7 Pledge and Security Agreement between Kaneb Pipe Line Company ("KPL") and
TCB, dated October 11, 1993, filed as Exhibit 10.10 of the exhibits to the
Registrant's 1993 Form 10-K, which exhibit is hereby incorporated by
reference.
10.8 Restated Credit Agreement between KPOP, TCB, and certain other Lenders,
dated December 22, 1994, filed as Exhibit 10.13 of the exhibits to the
Registrant's 1994 Form 10-K, which exhibit is hereby incorporated by
reference.
20
22
10.9 Note Purchase Agreement, dated December 22, 1994, filed as Exhibit 10.2
of the exhibits to Registrant's Current Report on Form 8-K, dated March
13, 1995, which exhibit is hereby incorporated by reference.
10.10 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed herewith.
10.11 Bridge Financing Agreement between KPOP and TCB, dated December 18,
1995, filed herewith.
10.12 Agreement for Sale and Purchase of Assets between Wyco Pipe Line Company
and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the exhibits
to the Registrant's Current Report on Form 8-K, dated March 13, 1995,
which exhibit is hereby incorporated by reference
10.13 Asset Purchase Agreements between and among Steuart Petroleum Company,
SPC Terminals, Inc., Piney Point Industries, Inc., Steuart Investment
Company, Support Terminals Operating Partnership, L.P. and KPOP, as
amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and
10.4 of the exhibits to Registrant's Current Report on Form 8-K/A, dated
January 3, 1996, which exhibits are hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants: Price Waterhouse LLP, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule, filed herewith.
Certain instruments respecting long-term debt of the Registrant have been
omitted pursuant to instructions as to Exhibits. The Registrant agrees to
furnish copies of any of such instruments to the Commission upon request.
(B) REPORTS ON FORM 8-K - NONE.
21
23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Kaneb Services, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 18 present fairly, in all material
respects, the financial position of Kaneb Services, Inc. and its subsidiaries
(the "Company") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 5, 1996
F - 1
24
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
------------ ------------ ------------
Revenues ....................................... $212,062,000 $208,722,000 $198,549,000
------------ ------------ ------------
Costs and expenses:
Operating costs .............................. 151,014,000 159,913,000 153,231,000
Depreciation and amortization ................ 13,055,000 12,807,000 11,655,000
General and administrative ................... 4,528,000 4,038,000 4,133,000
------------ ------------ ------------
Total costs and expenses ................. 168,597,000 176,758,000 169,019,000
------------ ------------ ------------
Operating income ............................... 43,465,000 31,964,000 29,530,000
Interest income ................................ 858,000 446,000 307,000
Other expense .................................. (1,037,000) (251,000) (514,000)
Interest expense ............................... (15,927,000) (13,752,000) (13,559,000)
Amortization of excess of cost over
fair value of net assets of acquired
business ..................................... (1,847,000) (1,846,000) (1,845,000)
------------ ------------ ------------
Income before interest of outside non-
controlling partners in pipeline
partnership's net income, income taxes and
gains on sale or issuance of pipeline
partnership units ............................ 25,512,000 16,561,000 13,919,000
Interest of outside non-controlling partners
in pipeline partnership's net income ......... (17,953,000) (12,567,000) (10,989,000)
Gain on sale of pipeline partnership interest .. 54,157,000 - -
Gain on issuance of units by
pipeline partnership ......................... - - 15,122,000
Income tax expense ............................. (2,535,000) (1,959,000) (1,898,000)
------------ ------------ ------------
Net income ..................................... 59,181,000 2,035,000 16,154,000
Dividends applicable to preferred stock ........ 1,527,000 1,489,000 1,451,000
------------ ------------ ------------
Net income applicable to common stock .......... $ 57,654,000 $ 546,000 $ 14,703,000
============ ============ ============
Earnings per common share - primary
and fully diluted ............................ $ 1.72 $ .02 $ .46
============ ============ ============
Weighted average number of common shares
outstanding .................................... 33,450,000 32,664,000 31,866,000
============ ============ ============
See notes to consolidated financial statements.
F - 2
25
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---------- ----------
Current assets:
Cash and cash equivalents ...................... $ 30,389,000 $ 9,506,000
Short-term investments ......................... - 1,020,000
Accounts receivable, trade (net of allowance for
doubtful accounts of $1,133,000 in 1995 and
$854,000 in 1994) ............................ 32,708,000 25,851,000
Inventories .................................... 5,809,000 6,110,000
Prepaid expenses and other current assets....... 7,465,000 5,497,000
------------ ------------
Total current assets ......................... 76,371,000 47,984,000
------------ ------------
Property and equipment .......................... 363,545,000 255,032,000
Less accumulated depreciation and amortization .. 99,698,000 91,490,000
------------ ------------
Net property and equipment .................... 263,847,000 163,542,000
------------ ------------
Excess of cost over fair value of net assets of
acquired business ............................... 65,031,000 66,876,000
------------ ------------
Other assets .................................... 4,578,000 5,811,000
------------ ------------
$409,827,000 $284,213,000
============ ============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt:
Industrial field services .................... $ 2,357,000 $ 2,252,000
Pipeline and terminaling services ............ 1,777,000 1,548,000
Parent company ............................... - 56,246,000
------------- ------------
Total current portion of long-term debt .... 4,134,000 60,046,000
------------- ------------
Accounts payable ............................... 11,947,000 10,262,000
Accrued expenses ............................... 35,787,000 20,473,000
Accrued redemption of preferred stock .......... 8,201,000 -
------------- ------------
Total current liabilities .................... 60,069,000 90,781,000
------------- ------------
Long-term debt, less current portion:
Industrial field services ..................... 25,691,000 25,434,000
Pipeline and terminaling services .............. 136,489,000 43,265,000
Parent company ................................. 29,666,000 34,677,000
------------- ------------
Total long-term debt, less current portion ... 191,846,000 103,376,000
------------- ------------
Net liabilities of discontinued operations ....... 3,320,000 3,914,000
------------- ------------
Deferred income taxes and other liabilities ...... 11,235,000 5,565,000
------------- ------------
Interest of outside non-controlling partners
in pipeline partnership .......................... 74,335,000 61,733,000
------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value ............. 5,814,000 14,085,000
Common stock, without par value. Authorized
60,000,000 shares; issued 36,479,954 shares
in 1995 and 36,428,823 in 1994 ............... 4,230,000 4,224,000
Additional paid-in capital ..................... 197,151,000 198,736,000
Accumulated deficit ............................ (118,118,000) (175,772,000)
Treasury stock, at cost ........................ (19,552,000) (23,435,000)
Cumulative foreign currency translation
adjustmement ................................. (503,000) 1,006,000
------------- -------------
Total stockholders' equity ................... 69,022,000 18,844,000
------------- -------------
$409,827,000 $284,213,000
============= =============
See notes to consolidated financial statements.
F - 3
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
------------- ------------ ------------
Operating Activities:
Net income ............................................. $59,181,000 $2,035,000 $16,154,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ...................... 13,055,000 12,807,000 11,655,000
Gain on sale of pipeline partnership interest ...... (54,157,000) - -
Amortization of excess of cost over net assets
acquired ......................................... 1,847,000 1,846,000 1,845,000
Interest of outside non-controlling partners
in pipeline partnership .......................... 17,953,000 12,567,000 10,989,000
Deferred income taxes .............................. (778,000) 457,000 357,000
Gain on issuance of units by pipeline partnership .. - - (15,122,000)
Changes in current assets and liabilities:
Short-term investments ........................... 1,020,000 (1,020,000) -
Accounts receivable, net ......................... (6,857,000) 1,449,000 3,931,000
Inventories ...................................... 301,000 79,000 1,196,000
Prepaid expenses and other current assets ........ (1,968,000) (2,288,000) (1,127,000)
Accounts payable and accrued expenses ............ 10,367,000 (2,042,000) 1,002,000
------------- ------------ ------------
Net cash provided by operating activities .......... 39,964,000 25,890,000 30,880,000
------------- ------------ ------------
Investing Activities:
Capital expenditures ................................... (13,428,000) (10,185,000) (11,028,000)
Acquisitions made by pipeline partnership .............. (97,850,000) (12,320,000) (62,677,000)
Decrease in other assets, net .......................... 4,739,000 1,975,000 3,185,000
------------- ------------ ------------
Net cash used in investing activities ................ (106,539,000) (20,530,000) (70,520,000)
------------- ------------ ------------
Financing Activities:
Issuance of long-term debt ............................. 6,975,000 14,319,000 23,961,000
Issuance of long-term debt by pipeline partnership ..... 96,500,000 41,350,000 86,300,000
Payments on long-term debt ............................. (67,957,000) (15,387,000) (31,217,000)
Payments on long term debt by pipeline partnership ..... (3,047,000) (42,201,000) (62,677,000)
Distributions to outside non-controlling
partners in pipeline partnership ..................... (16,306,000) (16,168,000) (13,682,000)
Preferred stock dividends paid ......................... (1,328,000) (1,402,000) (1,451,000)
Net proceeds from sale of partnership interest ......... 73,620,000 - -
Net proceeds from issuance of units by partnership ..... - - 53,159,000
------------- ------------ ------------
Net cash provided by (used in) financing
activities ......................................... 88,457,000 (19,489,000) 54,393,000
------------- ------------ ------------
Cash used in discontinued operations .................... (999,000) (692,000) (1,022,000)
------------- ------------ ------------
Increase (decrease) in cash and cash equivalents ........ 20,883,000 (14,821,000) 13,731,000
Cash and cash equivalents at beginning of year .......... 9,506,000 24,327,000 10,596,000
------------- ------------ ------------
Cash and cash equivalents at end of year ................ $30,389,000 $9,506,000 $24,327,000
============= ============ ============
See notes to consolidated financial statements.
F-4
27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
FOREIGN
PREFERRED COMMON ADDITIONAL ACCUMULATED TREASURY CURRENCY
STOCK STOCK PAID-IN CAPITAL DEFICIT STOCK TRANSLATION
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT JANUARY 1, 1993 .............. $14,117,000 $4,210,000 $203,349,000 $(191,021,000) $(31,677,000) $(497,000)
Net income for the year ............. - - - 16,154,000 - -
Common stock issued ................. - 7,000 (1,575,000) - 2,922,000 -
Preferred stock dividends declared .. - - - (1,451,000) - -
Conversion of Series D
preferred stock ................... (207,000) 5,000 202,000 - - -
Foreign currency translation
adjustment ........................ (203,000) - - - - 526,000
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT DECEMBER 31, 1993 ............ 13,707,000 4,222,000 201,976,000 (176,318,000) (28,755,000) 29,000
Net income for the year ............. - - - 2,035,000 - -
Common stock issued ................. - - (3,325,000) - 5,320,000 -
Preferred stock dividends declared .. - - - (1,489,000) - -
Conversion of Series D
preferred stock ................... (87,000) 2,000 85,000 - - -
Foreign currency translation
adjustment ........................ 465,000 - - - - 977,000
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT DECEMBER 31, 1994 ............ 14,085,000 4,224,000 198,736,000 (175,772,000) (23,435,000) 1,006,000
Net income for the year ............. - - - 59,181,000 - -
Common stock issued ................. - 6,000 (2,764,000) - 3,883,000 -
Preferred stock dividends declared .. - - - (1,527,000) - -
Series D preferred stock redemption.. (8,201,000) - 1,179,000 - - (1,179,000)
Foreign currency translation
adjustment ........................ (70,000) - - - - (330,000)
----------- ---------- --------------- -------------- ------------- -----------
BALANCE AT DECEMBER 31, 1995 ............ $5,814,000 $4,230,000 $197,151,000 $(118,118,000) $(19,552,000) $(503,000)
=========== ========== =============== ============== ============= ===========
See notes to consolidated financial statements.
F-5
28
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by Kaneb
Services, Inc. (the "Company") and its subsidiaries in the preparation of
financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries and Kaneb Pipe Line Partners, L.P. ("KPP"). The
Company controls the pipeline operations of KPP through its two percent
general partner interest and a 31% limited partner interest as of December
31, 1995. All significant intercompany transactions and balances are
eliminated in consolidation.
Segment Information
The Company provides specialized industrial field services to an
international client base that includes oil refineries, chemical plants,
pipelines, offshore drilling and production platforms, steel mills, food
and drink processing facilities, power generation, and other process
industries. The Company, as general partner, also manages and operates the
pipeline and terminaling business of KPP.
Cash, Cash Equivalents and Short-term Investments
The Company's policy is to invest cash in highly liquid investments with
maturities of three months or less, upon acquisition. Accordingly,
uninvested cash balances are kept at minimum levels. Such investments are
valued at cost, which approximates market, and are classified as cash
equivalents. Similar investments with original maturities beyond three
months are considered short-term investments and are carried at cost, which
approximates market value.
Inventories
Inventories consist primarily of finished goods of the industrial services
segment and are valued at the lower of average cost or market. Cost is
determined using the weighted average cost method.
Property and Equipment
Property and equipment are carried at original cost. Certain leases have
been capitalized and the leased assets have been included in property and
equipment. Additions of new equipment and major renewals and replacements
of existing equipment are capitalized. Repairs and minor replacements that
do not materially increase values or extend useful lives are expensed.
Depreciation of property and equipment is provided on the straight-line
basis at rates based upon expected useful lives of the various classes of
assets. The rates used for pipeline and certain storage facilities, which
are subject to regulation, are the same as those promulgated by the Federal
Energy Regulatory Commission.
Revenue Recognition
Substantially all revenues are recognized when services to unaffiliated
customers have been rendered. Pipeline transportation revenues are
recognized upon receipt of the products into the pipeline system.
Earnings Per Share
Earnings per common share data have been computed by dividing income
applicable to common stock by the weighted average number of shares
outstanding during each period. The effect of common stock equivalents and
other potentially dilutive securities on such computation was anti-dilutive
for each period presented.
Foreign Currency Translation
The Company translates the balance sheets of its foreign subsidiaries using
year-end exchange rates and translates income statement amounts using the
average exchange rates in effect during the year. The gains and losses
resulting from the change in exchange rates from year to year have been
reported separately as a component of stockholders' equity. Gains and
losses resulting from foreign currency transactions are included in the
statements of income.
F-6
29
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excess of Cost Over Fair Value of Net Assets of Acquired Business
The excess of the purchase price of an industrial field service company
over the fair value of the net assets acquired is being amortized on a
straight-line basis over a period of 40 years. Accumulated amortization
was $8.4 million and $6.6 million at December 31, 1995 and 1994,
respectively.
Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Change in Presentation
Certain financial statement items for 1994 and 1993 have been reclassified
to conform with the 1995 presentation.
2. ACQUISITIONS
In February 1995, 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 West Pipeline was owned 60% by a subsidiary of GATX
Terminals Corporation and 40% by a subsidiary of Amoco Pipe Line Company.
The acquisition was financed by the issuance of $27 million of first
mortgage notes. The assets acquired from Wyco Pipe Line Company did not
include certain assets that were leased to Amoco Pipe Line Company and the
purchase agreement did not provide for either (i) the continuation of an
arrangement with Amoco Pipe Line Company for the monitoring and control of
pipeline flows or (ii) the extension or assumption of certain credit
agreements that Wyco Pipe Line company had with its shareholders.
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 asset purchase agreement includes a provision for an
earn-out payment based upon revenues of one of the terminals exceeding a
specified amount for a seven-year period beginning in January 1996. The
contracts also include a provision for the continuation of all terminaling
contracts in place at the time of the acquisition, including those
contracts with Steuart.
The acquisitions have been accounted for using the purchase method of
accounting. The total purchase price of each acquisition has been
allocated to the assets and liabilities based on their respective fair
values based on valuations and other studies. 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 years ended December 31, 1995 and 1994, assume the
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 obtained in the future.
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994
-------------- -------------
(UNAUDITED)
Revenues ..................... $233,004,000 $248,044,000
============== =============
Net Income ................... $ 59,025,000 $ 5,925,000
============== =============
Net income per common share .. $ 1.72 $ .14
============== =============
3. SALE OF PARTNERSHIP INTEREST
In September 1995, the Company through a wholly-owned subsidiary, sold in a
public offering, 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of $73.6 million related to the sale and
recorded a gain of
F-7
30
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$54.2 million, net of expenses. The Company used the proceeds to retire
its 8% convertible subordinated debentures totaling $43.2 million, retire
its 11.5% subordinated debentures totaling $5.0 million and repay its $10
million term loan in 1995 and, in 1996, redeem $8 million of its Series D
Preferred Stock and repay $6 million of its long-term debt. The Company
continues to control the pipeline and terminaling operations of KPP through
its 2% general partner interest and a 31% limited partner interest.
4. INCOME TAXES
Income (loss) before income tax expense is comprised of the following
components:
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------- ------------- ------------
Income from domestic operations.... $ 63,607,000 $ 8,686,000 $ 21,324,000
Loss from foreign operations....... (1,891,000) (4,692,000) (3,272,000)
------------- ------------- -------------
$ 61,716,000 $ 3,994,000 $ 18,052,000
============= ============= =============
Income tax expense is comprised of the following components:
YEAR ENDED
DECEMBER 31, FEDERAL FOREIGN STATE TOTAL
---------- ---------- ----------- -----------
1995:
Current ..................... $1,415,000 $ 328,000 $ 1,570,000 $ 3,313,000
Deferred .................... (791,000) 13,000 - (778,000)
---------- ---------- ----------- -----------
$ 624,000 $ 341,000 $ 1,570,000 $ 2,535,000
========== ========== =========== ===========
1994:
Current ..................... $ 326,000 $ 488,000 $ 688,000 $ 1,502,000
Deferred .................... 313,000 (1,000) 145,000 457,000
---------- ---------- ----------- -----------
$ 639,000 $ 487,000 $ 833,000 $ 1,959,000
========== ========== =========== ===========
1993:
Current ..................... $ 137,000 $ 354,000 $ 1,050,000 $ 1,541,000
Deferred .................... 313,000 44,000 - 357,000
---------- ---------- ----------- -----------
$ 450,000 $ 398,000 $ 1,050,000 $ 1,898,000
========== ========== =========== ===========
Deferred income tax provisions or benefits result from temporary differences
between the tax basis of assets (principally fixed assets) and liabilities
of foreign subsidiaries and certain domestic subsidiaries not included in
the Company's consolidated federal tax return, and their reported amounts in
the financial statements that will result in differences between income for
tax purposes and income for financial statement purposes in future years.
The Company has recorded deferred tax assets of approximately $86 million
and $108 million as of December 31, 1995 and 1994, respectively, primarily
relating to the Company's domestic net operating loss carryforwards and
investment tax credit carryforwards, offset by a valuation reserve of $84
million and $108 million, respectively. In 1995 and 1994, the Company
reduced its valuation allowance by $24 million and $5 million, respectively,
primarily due to the utilization of domestic net operating loss carryforwards
and the expiration of investment tax credit carryforwards. The Company has
recorded a deferred tax liability of $1.7 million and $1.1 million as of
December 31, 1995 and 1994, which is associated with certain domestic
subsidiaries not included in the Company's consolidated federal tax return.
F-8
31
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reasons for the differences between the amount of tax expense
provided and the amount of tax expense computed by applying the statutory
Federal income tax rate to income from continuing operations before income
taxes for the years 1995, 1994 and 1993 were as follows:
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
1995 1994 1993
------------------------ ---------------------- -------------------------
AMOUNT % AMOUNT % AMOUNT %
------------ ----- -------------- ------ ------------------ ----
Tax expense at
statutory rates............... $21,601,000 35.0 $1,398,000 35.0 $6,318,000 35.0
Increase (decrease) in taxes
resulting from:
Domestic loss carry
forward adjustments........... (21,089,000) (34.2) (2,110,000) (52.8) (1,353,000) (7.5)
State income taxes, net........ 1,021,000 1.7 541,000 13.5 683,000 3.8
Foreign losses not
benefited and foreign
income taxes.................. 1,002,000 1.6 2,130,000 53.3 1,543,000 8.5
Non-taxable gain from
issuance of pipeline
partnership units............. - - - - (5,293,000) (29.3)
---------- ---- ---------- ----- ---------- -----
$2,535,000 4.1 $1,959,000 49.0 $1,898,000 10.5
========== ==== ========== ===== ========== =====
At December 31, 1995, the Company had the following domestic tax attribute
carryforwards expiring in the years indicated:
YEAR OF NET OPERATING INVESTMENT
EXPIRATION LOSSES TAX CREDITS
------------- --------------- -------------
1996 .............................. $ - $ 1,813,000
1997 .............................. 35,662,000 2,483,000
1998 .............................. 3,971,000 4,319,000
1999 .............................. 7,820,000 2,171,000
2000 .............................. - 1,786,000
2001 .............................. 33,422,000 -
2002 .............................. 64,553,000 -
2003 .............................. 22,049,000 -
2005 .............................. 16,866,000 -
2006 .............................. 17,508,000 -
2007 .............................. 3,038,000 -
------------ -----------
$204,889,000 $12,572,000
============ ===========
The amounts shown above that expire in the years 1996 through 1999
represent the operating losses and investment tax credits acquired in the
acquisition of Moran Energy, Inc. and its subsidiaries and it is unlikely
that the Company will be able to utilize these tax carryforwards in the
future. If certain substantial changes in the Company's ownership should
occur, there would be an annual limitation on the amount of the tax
carryforwards which could be utilized.
5. RETIREMENT PLANS
The Company has a defined contribution benefit plan which covers
substantially all domestic employees and provides for varying levels of
employer matching. Company contributions to this plan were $.9 million,
$.9 million and $.6 million for 1995, 1994 and 1993, respectively.
One of the Company's foreign subsidiaries has a defined benefit pension
plan covering substantially all of its United Kingdom employees (the "U.K.
Plan"). The benefit is based on the average of the employee's salary for
the last three years of employment. Generally, the employee contributes 5%
and the employer contributes up to 12% of pay. Plan assets are
primarily invested in unitized pension funds managed by United Kingdom
registered funds managers. The valuation of the U.K. Plan was performed as
of November 1, 1995. Net pension cost for the U.K. Plan included the
following components:
F-9
32
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Service cost for benefits earned during
during the period ....................... $1,107,000 $1,290,000 $1,232,000
Interest cost on projected benefit
obligations ............................ 1,416,000 1,267,000 1,253,000
Less actual return on plan
assets ................................. (2,126,000) (180,000) (3,785,000)
Net amortization and deferral ............. 243,000 (1,663,000) 2,530,000
---------- ---------- ----------
Net pension cost .......................... $ 640,000 $ 714,000 $1,230,000
========== ========== ==========
Actuarial assumptions used in the accounting for the U.K. Plan were a
weighted average discount rate of 9% for 1995 and 1994 and 7.5% for 1993,
an expected long-term rate of return on assets of 9% for 1995, 1994 and
1993 and a rate of increase in compensation levels of 6% for 1995 and 1994
and 5.5% for 1993.
The funded status of the U.K. Plan is as follows:
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
Actuarial present value of accumulated benefit
obligations (all vested) ........................ $ 18,325,000 $ 14,988,000
============ ============
Actuarial present value of projected benefit
obligations ..................................... $(18,946,000) $(15,550,000)
Plan assets at fair value ........................ 22,705,000 18,869,000
Unrecognized net gain ............................ (5,544,000) (6,212,000)
Unrecognized prior service cost .................. 354,000 382,000
------------ ------------
Net pension liability recorded in other
liabilities ...................................... $ (1,431,000) $ (2,511,000)
============ ============
6. PROPERTY AND EQUIPMENT
The cost of property and equipment is as follows:
December 31,
--------------------------------
1995 1994
------------ ------------
Industrial field services ................. $ 30,222,000 $ 30,758,000
Pipeline and terminaling services ......... 323,671,000 214,556,000
General corporate ......................... 3,794,000 3,762,000
Other ..................................... 5,858,000 5,956,000
------------ ------------
$363,545,000 $255,032,000
============ ============
Equipment acquired under capital leases and included in the cost of
property and equipment is as follows:
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
Industrial field services equipment .............. $ 6,199,000 $ 5,864,000
Pipeline and terminaling services equipment (a) .. 21,972,000 21,901,000
Less accumulated depreciation .................... (11,775,000) (11,327,000)
------------ ------------
Net equipment acquired under capital lease ....... $ 16,396,000 $ 16,438,000
============ ============
- --------------
(a) The capital lease is secured by certain pipeline equipment and
the pipeline partnership has recorded its option to purchase this
equipment for approximately $4.1 million at the termination of the
lease.
F-10
33
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEBT
Debt is summarized as follows:
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
Industrial field services:
Credit facility due through 2001 ............ $24,803,000 $25,159,000
Various notes of foreign subsidiaries ranging
from 6.75% to 8.0% due through 2000 ....... 320,000 331,000
Capital leases .............................. 2,925,000 2,196,000
------------ ------------
Total debt .............................. 28,048,000 27,686,000
Less current portion ........................ 2,357,000 2,252,000
------------ ------------
$25,691,000 $25,434,000
============ ============
Pipeline and terminaling services:
Mortgage notes due 2001 and 2002 ............ $60,000,000 $33,000,000
Bank bridge loan due in 1997 ................ 68,000,000 -
Capital leases .............................. 10,266,000 11,813,000
------------ ------------
Total debt .............................. 138,266,000 44,813,000
Less current portion ........................ 1,777,000 1,548,000
------------ ------------
$136,489,000 $43,265,000
============ ============
Parent company:
8.75% convertible subordinated debentures
due through 2008 .......................... $23,666,000 $23,666,000
8.85% convertible notes retired in 1996 ..... 6,000,000 6,000,000
8% convertible subordinated debentures
retired in 1995 ........................... - 43,186,000
Term loan retired in 1995 ................... - 10,000,000
11.5% subordinated debentures retired in
1995 ...................................... - 5,011,000
Line of credit .............................. 3,060,000
------------ ------------
Total debt .............................. 29,666,000 90,923,000
Less current portion ........................ - 56,246,000
------------ ------------
$29,666,000 $34,677,000
============ ============
Total consolidated long-term debt ............. $195,980,000 $163,422,000
Current portion ............................... 4,134,000 60,046,000
------------ ------------
Total consolidated long-term debt,
less current portion ...................... $191,846,000 $103,376,000
============ ============
Industrial Field Services
At December 31, 1995, $24.8 million was outstanding under a credit
facility, as amended, that was obtained by a wholly-owned subsidiary in
conjunction with the acquisition of Furmanite. The credit facility, which
is without recourse to the Parent Company, is due 2001, bears interest at
the option of the borrower at variable rates based on either the LIBOR rate
or the prime rate plus a differential of up to 150 basis points, has a
commitment fee equal to one-half of one-percent per annum on unutilized
amounts, contains certain financial and operational covenants with respect
to the specialized industrial field services group of companies and
restricts the subsidiary from paying dividends to the parent company under
certain circumstances. The credit facility is secured by all of the
tangible assets of the industrial field services group (except those assets
in Germany).
Pipeline and Terminaling Services
In 1994, KPP, through a wholly-owned subsidiary issued $33 million of first
mortgage notes ("Notes") to a group of insurance companies. The Notes bear
interest at the rate of 8.05% per annum and are due on December 22, 2001.
In 1994, a wholly-owned subsidiary entered into a Restated Credit Agreement
with a group of banks that provides a $15 million revolving credit facility
through November 30, 1997. The credit facility bears interest at variable
interest rates and has a commitment fee of .2% per annum of the unused
credit facility. No amounts were drawn under the credit
F-11
34
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
facility at December 31, 1995 or 1994. In 1995, KPP financed the
acquisition of the West Pipeline with the issuance of $27 million of Notes
due February 24, 2002 which bear interest at the rate of 8.37% per annum.
The Notes and credit facility are secured by a mortgage on substantially
all of the pipeline assets of KPP and contains certain financial and
operational covenants. The acquisition of Steuart was initially financed by
a $68 million bridge loan from a bank. The loan bears interest at a
variable rate based on the LIBOR rate plus 50 to 100 basis points and its
maturity was extended until March 1997. KPP expects to refinance this
obligation under terms similar to the Notes discussed above. The loan will
be secured, pari passu with the existing Notes and credit facility, by a
mortgage on the East Pipeline.
Parent Company
On February 1, 1996, the Company retired the 8.85% senior note. The 8.85%
senior note was convertible into shares of the Company's common stock at a
conversion price of $6.00 per share.
The 8.75% subordinated debentures are convertible into shares of the
Company's Common Stock at a conversion price of $17.54 per share. The
Company has satisfied the sinking fund requirements on its 8.75%
subordinated debentures through 2000.
In December 1995 the Company entered into an agreement with an
international bank that provides for a $15 million revolving credit
facility through December 1, 2000, that bears interest at variable rates
at the Company's option based on the LIBOR rate plus 100 basis points or at
the prime rate in effect from time to time with a commitment fee of .5% per
annum of the unused credit facility. The credit facility is secured by 1.0
million of the Company's limited partnership units in the pipeline
partnership. No amounts were drawn under the credit facility at December
31, 1995.
Annual sinking fund requirements and debt maturities, including capital
leases, are $4.1 million, $4.5 million, $8.7 million, $1.8 million and $1.5
million for each of the five years ending December 31, 2000.
8. CAPITAL STOCK
The changes in the number of issued and outstanding shares of the Company's
preferred and common stock are summarized as follows:
COMMON STOCK
----------------------------------
PREFERRED HELD IN
STOCK ISSUED ISSUED TREASURY OUTSTANDING
------------ ---------- --------- -----------
BALANCE AT JANUARY 1, 1993 ........... 1,595,522 36,303,923 4,534,990 31,768,933
Stock options exercised .............. - 61,000 - 61,000
Conversion of Series D preferred ..... (26,268) 44,413 - 44,413
Common shares issued ................. - 928 (417,433) 418,361
------------ ---------- --------- -----------
BALANCE AT DECEMBER 31, 1993 ......... 1,569,254 36,410,264 4,117,557 32,292,707
Conversion of Series D preferred ..... (10,880) 18,398 - 18,398
Common shares issued ................. - 161 (759,942) 760,103
------------ ---------- --------- -----------
BALANCE AT DECEMBER 31, 1994 ......... 1,558,374 36,428,823 3,357,615 33,071,208
Series D preferred stock redemption .. (990,424) - - -
Common shares issued ................. - 50,018 (524,739) 574,757
------------ ---------- --------- -----------
BALANCE AT DECEMBER 31, 1995 ......... 567,950 36,478,841 2,832,876 33,645,965
============ ========== ========= ===========
The Company has stock option plans and agreements for officers, directors
and key employees. The options granted under these plans and agreements
generally expire ten years from date of grant. All options were granted at
prices greater than or equal to the market price at the date of grant. At
December 31, 1995, options on 1,423,936 shares at prices ranging from $1.50
to $8.50 were outstanding, of which 1,110,936 were exercisable at prices
ranging from $1.50 to $8.50.
F-12
35
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series A Preferred Stock
The Company has 567,950 shares of its Cumulative Class A Adjustable Rate
Preferred Stock, Series A ("Series A Preferred") with a stated value of $10
per share outstanding at December 31, 1995. Dividends accrue quarterly at
the applicable U.S. Treasury rate plus 2.00 percentage points (200 basis
points) ("Applicable Rate"), but will in no event be less than 7.5% per
annum or greater than 14% per annum. If dividends are in arrears for two
or more quarters, additional dividends accrue on all dividends in arrears
at a rate equal to the Applicable Rate plus 25 basis points for each
quarter dividends are in arrears (but not more than the lesser of 14% per
annum or 300 basis points more than the Applicable Rate). If unpaid
accrued dividends exist with respect to eight or more quarters, the holders
of the Series A Preferred may elect individually to require the Company to
redeem their shares at a price of $12 per share plus dividends in arrears.
No such arrearages existed as of December 31, 1995, 1994 and 1993. The
Company, at its option, may redeem shares at any time at a price of $12 per
share (reduced ratably to $10 over 15 years unless unpaid accrued dividends
exist with respect to eight or more quarters) plus accrued and unpaid
dividends thereon.
Series B Preferred Stock
On March 26, 1988, the Board of Directors of the Company declared a
dividend distribution of one stock purchase right ("Right") for each
outstanding share of Common Stock to stockholders of record on April 19,
1988. Each Right entitles the holder, upon the occurrence of certain
events, to purchase from the Company one one-hundredth of a share of Series
B Junior Participating Preferred Stock, no par value, at a price of $10,
subject to adjustment. The Rights will not separate from the Common Stock
or become exercisable until a person or group either acquires beneficial
ownership of 20% or more of the Company's Common Stock or commences a
tender or exchange offer that would result in ownership of 30% or more,
whichever occurs earlier. The Rights, which expire on April 19, 1998, are
redeemable in whole, but not in part, at the Company's option at any time
for a price of $0.05 per Right. At December 31, 1995, 1994 and 1993 there
were no Series B Preferred shares outstanding.
Series C Preferred Stock
In April 1991, the Company authorized 1,000 shares of Adjustable Rate
Cumulative Class A Preferred Stock, Series C ("Series C Preferred") which
has a preference value of $1.00 per share and which is only entitled to a
dividend if the value of the Company's Common Stock increases. The Series
C Preferred, as an entire class, is entitled to an annual dividend
commencing January 1, 1992, equal to 1/2 of 1% (proportionately reduced for
authorized but unissued shares in the class) of the increase in the
average per share market value of the Company's Common Stock during the
year preceding payment of the dividend, over $4.79 (the average per share
market value of the Company's Common Stock during 1990) multiplied by the
average number of shares of Common Stock outstanding. The Series C
Preferred has mandatory redemption requirements in the event of certain
types of corporate reorganizations and may be redeemed at the option of the
Company during the first 60 days of each year commencing 1994. The
redemption price is the sum of (i) one divided by the average annual yield
of all issues of preferred stock listed on the New York Stock Exchange
during the calendar year preceding the date of the redemption period times
the average dividend for the two most recent years plus (ii) a pro rata
portion of the prior year's dividend based upon the number of elapsed days
in the year of redemption plus (iii) any accrued and unpaid dividends. The
Company may also repurchase the shares of a holder at such redemption price
during the first 60 days following the year in which the holder first
ceases to be an employee of the Company. A holder of the Series C
Preferred may, at his option, require the Company to redeem his shares at
120% of such redemption price if the Company elects, within 10 days after
the most recent dividend payment date, not to pay the accrued dividend.
Upon liquidation, holders of the Series C Preferred are entitled to receive
$1.00 per share plus accrued and unpaid dividends. The Company granted 600
shares of Series C Preferred to certain officers in April 1991.
Series D Preferred Stock
In conjunction with the acquisition of Furmanite, the Company issued
1,098,373 shares of its 12% Convertible Class A Preferred Stock, Series D
("Series D Preferred") with a stated value of 5.34 ($8.36) per share. The
Series D Preferred is not redeemable by the holder; however, each share was
convertible at the option of the holder into 1.691 shares of the Company's
Common Stock. During 1994 and 1993, 10,880 shares and 26,268 shares were
converted into 18,398 shares and 44,413 shares, respectively, of the
Company's Common Stock. On December 28, 1995, the Company notified the
Series D Preferred stockholders that it would redeem the Series D Preferred
Stock and it was fully redeemed on January 26, 1996. Accordingly, the
Company has reclassified its obligation to current liabilities on the
December 31, 1995 balance sheet.
F-13
36
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
The Company leases vehicles, office space, data processing equipment,
office equipment and other items of personal property under leases expiring
at various dates. Management expects that, in the normal course of
business, leases that expire will be renewed or replaced by other leases.
Total rent expense under operating leases was $3.5 million for 1995, 1994
and 1993.
At December 31, 1995, minimum rental commitments under all capital
leases and operating leases for future years are as follows:
CAPITAL OPERATING
LEASES LEASES
----------- -----------
1996 ...................................... $4,098,000 $2,402,000
1997 ...................................... 4,183,000 1,792,000
1998 ...................................... 8,055,000 1,462,000
1999 ...................................... 339,000 1,109,000
2000 ...................................... - 880,000
2001 and thereafter ....................... - 2,566,000
----------- -----------
Total minimum lease payments ................. 16,675,000 $10,211,000
===========
Less amounts representing interest ........... 3,484,000
-----------
Present value of net minimum lease payments .. $13,191,000
===========
In October 1994, the Company settled two lawsuits filed in the 1980's by
Kanland Associates and Panance Property Corporation that related to the
Company's former office building in Sugar Land, Texas. One of these suits
had alleged damages at more than $38 million plus prejudgment interest,
legal fees, court costs and punitive damages. The settlement of these
lawsuits was adequately reserved.
In March 1995, the Company settled another lawsuit filed in the late 1980's
by Stephen R. Herbel and other named individuals doing business as Pinnacle
Petroleum Company ("Pinnacle") that related to coalbed gas produced from a
property that a subsidiary of the Company previously owned an interest in.
The settlement of this lawsuit was also adequately reserved.
On February 2, 1996 a lawsuit was filed in Germany on behalf of
Gesellschaft fur Industrieanlagen und Maschineninstandhaltung GmbH or
G.I.M. Engineering against one of the Company's German subsidiaries,
Furmanite Technische Dienstleistungen GmbH, concerning the consideration
received in a December 30, 1994 German contract that was part of a series
of transactions relating to the sale of one of the Company's domestic
subsidiaries. On February 5, 1996, the Court ruled in the Furmanite German
subsidiary's favor in a separate but related injunctive proceeding
involving the same consideration issue in the same contract. The December
30, 1994 contract was an integral part of the ultimate sale of the
Company's domestic subsidiary and was consummated after a thorough review
by, and based upon the advice of, the Company's German legal counsel and
tax advisors. The Company intends to vigorously defend this action, which
has not yet been set for hearing.
KPP makes quarterly distributions of 100% of its Available Cash (as defined
in the Partnership Agreement) to holders of limited partnership units and
KPL. Available Cash consists generally of all the cash receipts of the
Partnership less all of its cash disbursements and reserves. KPP believes
it will make distributions of Available Cash for each quarter of not less
than $.55 per Unit ("Minimum Quarterly Distribution"), or $2.20 per Unit on
an annualized basis for the foreseeable future. The Minimum Quarterly
Distribution on the Senior Preference Units is cumulative and preferential
to the partnership units held by the Company. The assets, other than
Available Cash, cannot be distributed without a majority vote of the
non-affiliated unitholders.
The operations of KPP are subject to federal, state and local laws and
regulations relating to protection of the environment. Although KPP
believes that its operations are in general compliance with applicable
environmental regulation, risks of additional costs and liabilities are
inherent in its operations, and there can be no assurance that significant
costs and liabilities will not be incurred by KPP. Moreover, it is
possible that other developments, such as increasingly stringent
environmental laws, regulations, enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of
KPP, could result in substantial costs and liabilities to KPP. KPP has
F-14
37
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded a reserve in other liabilities for environmental claims of $5.2
million (including $4.4 million relating to the acquisitions of the West
Pipeline and Steuart) as of December 31, 1995.
The Company has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management believes, based on the advice of counsel, that the ultimate
resolution of such contingencies will not have a materially adverse effect
on the financial position or results of operations of the Company.
10. BUSINESS SEGMENT DATA
Selected financial data pertaining to the operations of the Company's
business segments is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
Revenues:
Industrial field services .......... $104,500,000 $118,196,000 $116,368,000
Pipeline and terminaling services .. 96,928,000 78,745,000 69,235,000
Other .............................. 10,634,000 11,781,000 12,946,000
------------ ------------ ------------
$212,062,000 $208,722,000 $198,549,000
============ ============ ============
Operating income (loss):
Industrial field services .......... $ 3,855,000 $ 1,649,000 $ 3,847,000
Pipeline and terminaling services .. 42,488,000 32,965,000 29,256,000
General corporate .................. (4,593,000) (4,118,000) (4,212,000)
Other .............................. 1,715,000 1,468,000 639,000
------------ ------------ ------------
$ 43,465,000 $ 31,964,000 $ 29,530,000
============ ============ ============
Depreciation and amortization:
Industrial field services .......... $ 4,152,000 $ 4,938,000 $ 4,836,000
Pipeline and terminaling services .. 8,274,000 7,257,000 6,135,000
General corporate .................. 65,000 80,000 79,000
Other .............................. 564,000 532,000 605,000
------------ ------------ ------------
$ 13,055,000 $ 12,807,000 $ 11,655,000
============ ============ ============
Capital expenditures (including
capitalized leases and excluding
acquisitions):
Industrial field services .......... $ 4,323,000 $ 2,783,000 $ 2,637,000
Pipeline and terminaling services .. 8,975,000 7,147,000 8,132,000
General corporate .................. 32,000 63,000 70,000
Other .............................. 98,000 192,000 189,000
------------ ------------ ------------
$ 13,428,000 $ 10,185,000 $ 11,028,000
============ ============ ============
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------ -------------
Identifiable assets:
Industrial field services .......... $117,438,000 $117,911,000 $123,334,000
Pipeline and terminaling services .. 264,510,000 157,398,000 154,728,000
General corporate .................. 23,718,000 3,937,000 4,520,000
Other .............................. 4,161,000 4,967,000 4,890,000
------------ ------------ ------------
$409,827,000 $284,213,000 $287,472,000
============ ============ ============
F-15
38
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Selected financial data pertaining to the operations in geographical areas
is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Revenues:
United States ....... $140,387,000 $124,723,000 $114,989,000
United Kingdom ...... 37,563,000 36,291,000 30,508,000
Continental Europe .. 29,822,000 43,245,000 49,523,000
Other ............... 4,290,000 4,463,000 3,529,000
------------ ------------ ------------
$212,062,000 $208,722,000 $198,549,000
============ ============ ============
Operating income:
United States ...... $ 40,649,000 $ 31,856,000 $ 26,827,000
United Kingdom ..... 3,272,000 2,432,000 1,168,000
Continental Europe . (873,000) (3,444,000) 749,000
Other .............. 417,000 1,120,000 786,000
------------ ------------ ------------
$ 43,465,000 $ 31,964,000 $ 29,530,000
============ ============ ============
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Identifiable assets:
United States ...... $304,227,000 $178,093,000 $177,393,000
United Kingdom ..... 87,608,000 91,676,000 91,575,000
Continental Europe . 15,951,000 12,457,000 16,876,000
Other .............. 2,041,000 1,987,000 1,628,000
------------ ------------ ------------
$409,827,000 $284,213,000 $287,472,000
============ ============ ============
11. DISCONTINUED OPERATIONS
Since 1981, the Company has discontinued business segments to reduce debt,
increase cash and concentrate its activities towards ongoing operations.
The operations of the offshore and onshore drilling, exploration and
production, coal, general contracting, underground storage tank (UST)
testing operations and engineering services segments are classified as
discontinued operations in the Company's consolidated financial statements
and related footnotes. The remaining net liabilities of the discontinued
operations have been reclassified in the balance sheet from their
traditional classifications to "Net liabilities of discontinued
operations."
12. ACCRUED EXPENSES
Accrued expenses is comprised of the following components at December 31,
1995 and 1994:
DECEMBER 31,
-------------------------------
1995 1994
----------- ------------
Accrued distribution payable .............. $ 6,037,000 $ 4,021,000
Accrued compensation and benefits ......... 2,796,000 3,651,000
Accured interest .......................... 1,772,000 1,910,000
Accrued expenses - other................... 25,182,000 10,891,000
----------- ------------
$35,787,000 $ 20,473,000
=========== ============
F-16
39
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1995 and 1994 are summarized as follows:
QUARTERS ENDED
-----------------------------------------------------------
1995: MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
Revenues .......... $46,652,000 $53,005,000 $56,956,000 $55,449,000
=========== =========== =========== ===========
Operating income .. $8,695,000 $10,548,000 $11,717,000 $12,505,000
=========== =========== =========== ===========
Net income ........ $623,000 $1,549,000 $55,779,000 $1,230,000
=========== =========== =========== ===========
Earnings per
common share .... $.01 $.03 $1.65 $.02
=========== =========== =========== ===========
1994:
Revenues .......... $50,687,000 $51,540,000 $54,233,000 $52,262,000
=========== =========== =========== ===========
Operating income .. $7,004,000 $8,392,000 $9,102,000 $7,466,000
=========== =========== =========== ===========
Net income (loss) . $(399,000) $1,091,000 $1,230,000 $113,000
=========== =========== =========== ===========
Earnings (loss) per
common share .... $(.02) $.02 $.03 $(.01)
=========== =========== =========== ===========
14. SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued 18,398 and 44,413 shares of its common stock upon
conversion of 10,880 and 26,268 shares of its Series D Preferred Stock in
1994 and 1993, respectively. The Company contributed 394,739, 349,942 and
197,433 shares of its common stock to its 401(k) Savings Plan in 1995, 1994
and 1993, respectively. The Company contributed 160,000, 410,000 and
220,000 shares of its common stock to its subsidiary's defined benefit
pension plan in 1995, 1994 and 1993, respectively.
Supplemental information on cash paid during the period for:
1995 1994 1993
----------- ----------- -----------
Interest ...... $15,675,000 $13,311,000 $13,405,000
=========== =========== ===========
Income taxes .. $ 2,293,000 $ 2,105,000 $ 369,000
=========== =========== ===========
15. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash, cash equivalents, short-term investments
and accounts receivables approximate their carrying amount due to the
relatively short period to maturity of these instruments. The estimated
fair value of all long-term debt (excluding capital leases) as of December
31, 1995 was approximately $180 million as compared to the carrying value
of $183 million. These fair values were estimated using discounted cash
flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements, when quoted market prices were
not available. The Company has not determined the fair value of its
capital leases as it is not practicable. The estimates presented above are
not necessarily indicative of the amounts that would be realized in a
current market exchange.
The Company does not believe that it has a significant concentration of
credit risk at December 31, 1995, as approximately 61% of the Company's
accounts receivable are generated from its industrial field services
customers located throughout the United States, the United Kingdom and
Continental Europe.
F-17
40
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
General and administrative expenses ......... $(4,528,000) $(4,038,000) $(4,133,000)
Depreciation and amortization ............... (65,000) (80,000) (79,000)
Interest expense ............................ (4,343,000) (4,402,000) (4,030,000)
Intercompany fees and expenses .............. 1,104,000 (13,000) (528,000)
Interest income ............................. 261,000 42,000 119,000
Other income (expense) ...................... (307,000) 55,000 (343,000)
Equity in income of subsidiaries and pipeline
partnership ................................ 67,059,000 10,471,000 25,148,000
----------- ----------- -----------
Net income .................................. 59,181,000 2,035,000 16,154,000
Dividends applicable to preferred stock ..... 1,527,000 1,489,000 1,451,000
----------- ----------- -----------
Net income applicable to common
stock ...................................... $57,654,000 $ 546,000 $14,703,000
=========== ========== ===========
Earnings per common share ................... $ 1.72 $ .02 $ .46
=========== ========== ===========
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F-18
41
(CONTINUED)
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
ASSETS
1995 1994
------------ -------------
Current assets:
Cash and cash equivalents ................... $ 18,606,000 $ 630,000
Short-term investments ...................... - 1,020,000
Accounts receivable ......................... 201,000 94,000
Prepaid expenses and other current assets ... 1,797,000 -
------------ -------------
Total current assets .......................... 20,604,000 1,744,000
Property and equipment ........................ 3,794,000 3,762,000
Less accumulated depreciation ................. 3,507,000 3,442,000
------------ -------------
Net property and equipment ................ 287,000 320,000
------------ -------------
Investments in advances to and notes receivable
from subsidiaries and pipeline partnership .. 94,263,000 118,306,000
------------ -------------
Other assets .................................. 2,561,000 2,086,000
------------ -------------
$117,715,000 $ 122,456,000
============ =============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt ............ $ - $ 10,000,000
Accounts payable and accrued expenses ........ 14,973,000 4,228,000
------------ -------------
Total current liabilities ................ 14,973,000 14,228,000
------------ -------------
Long-term debt, payable to subsidiary paid
in 1995 ...................................... - 50,000,000
------------ -------------
Long-term debt, less current portion .......... 29,666,000 34,677,000
------------ -------------
Deferred credits and other liabilities ........ 734,000 793,000
------------ -------------
Net liabilities of discontinued operations .... 3,320,000 3,914,000
------------ -------------
Stockholders' equity:
Preferred stock, without par value ........... 5,814,000 14,085,000
Common stock, without par value .............. 4,230,000 4,224,000
Additional paid-in capital ................... 197,151,000 198,736,000
Accumulated deficit .......................... (118,118,000) (175,772,000)
Treasury stock, at cost ...................... (19,552,000) (23,435,000)
Cumulative foreign currency translation
adjustment .................................. (503,000) 1,006,000
------------ -------------
Total stockholders' equity ............... 69,022,000 18,844,000
------------ -------------
$117,715,000 $ 122,456,000
============ =============
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F-19
42
(CONTINUED)
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
Operating Activities:
Net income ................................... $ 59,181,000 $ 2,035,000 $ 16,154,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization .............. 65,000 80,000 79,000
Equity in net income of subsidiaries
and pipeline partnership .................. (67,059,000) (10,471,000) (25,148,000)
Changes in current assets and liabilities:
Short-term investments ................... 1,020,000 (1,020,000) -
Accounts receivable ...................... (107,000) (2,000) 1,166,000
Prepaid expense .......................... (1,797,000) - -
Accrued expenses ......................... 2,401,000 (808,000) (816,000)
------------ ------------ ------------
Net cash used in operating activities .... (6,296,000) (10,186,000) (8,565,000)
Investing Activities:
Capital expenditures ......................... (32,000) (63,000) (70,000)
Decrease in other assets, net ................ 540,000 7,729,000 1,219,000
------------ ------------ ------------
Net cash provided by investing
activities ............................. 508,000 7,666,000 1,149,000
------------ ------------ ------------
Financing Activities:
Dividends received from subsidiary ........... 88,070,000 11,548,000 17,739,000
Payments on long-term debt ................... (15,011,000) (381,000) (381,000)
Payment of subsidiary note ................... (50,000,000) - -
Preferred stock dividends paid ............... (1,328,000) (1,402,000) (1,451,000)
Decrease (increase) in investments in,
advances to and notes receivable
from subsidiaries and pipeline partnership . 2,033,000 (9,897,000) (8,897,000)
------------ ------------ ------------
Net cash provided by financing
activities .............................. 23,764,000 (132,000) 7,010,000
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents ................................. 17,976,000 (2,652,000) (406,000)
Cash and cash equivalents at beginning
of year ..................................... 630,000 3,282,000 3,688,000
------------ ------------ ------------
Cash and cash equivalents at end of year ...... $ 18,606,000 $ 630,000 $ 3,282,000
============ ============ ============
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
F-20
43
SCHEDULE II
KANEB SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
COL. C
------------------------
COL. A COL. B ADDITIONS COL. D COL. E
- ---------------------------------- ------------ ------------------------ ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS (A) DEDUCTIONS PERIOD
- ---------------------------------- ------------ ---------- ------------ ---------- ----------
ALLOWANCE DEDUCTED FROM
ASSETS TO WHICH THEY
APPLY
Year ended December 31, 1995:
For doubtful receivables
classified as current assets .. $ 854 $ 598 $ 41 $ (360)(B) $ 1,133
========== ====== ======== ========= =========
For deferred tax asset valuation
allowance classified as
noncurrent assets ............. $ 108,441 $ - $ - $ (24,157) $ 84,284
========== ====== ======== ========= =========
Year ended December 31, 1994:
For doubtful receivables
classified as current assets .. $ 769 $ 249 $ 60 $ (224)(B) $ 854
========== ====== ======== ========= =========
For deferred tax asset valuation
allowance classified as
noncurrent assets ............. $ 113,261 $ - $ - $ (4,820) $ 108,441
========== ====== ======== ========= =========
Year ended December 31, 1993:
For doubtful receivables
classified as current assets .. $ 1,389 $ 96 $ (39) $ (677)(B) $ 769
========== ====== ======== ========= =========
For deferred tax asset valuation
allowance classified as
noncurrent assets ............. $ 115,994 $ - $ - $ (2,733) $ 113,261
========== ====== ======== ========= =========
- ---------------------
Notes:
(A) Currency translation adjustment.
(B) Receivable write-offs and reclassifications, net of recoveries.
F-21
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kaneb Services, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KANEB SERVICES, INC.
By: JOHN R. BARNES
---------------------------------------
*John R. Barnes
President and Chief Executive Officer
March 28, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Kaneb
Services, Inc. and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------------------------- ----- ----
Principal Executive Officer
JOHN R. BARNES
- ---------------------------
(John R. Barnes) President, Chief Executive March 28, 1996
Officer and Director
Principal Accounting Officer
TONY M. REGAN
- ----------------------------
(Tony M. Regan) Controller March 28, 1996
Directors
SANGWOO AHN
- ----------------------------
(Sangwoo Ahn) Director March 28, 1996
JOHN R. BARNES
- ----------------------------
(John R. Barnes) Director March 28, 1996
CHARLES R. COX
- ----------------------------
(Charles R. Cox) Director March 28, 1996
PRESTON A. PEAK
- ----------------------------
(Preston A. Peak) Director March 28, 1996
RALPH A. REHM
- ----------------------------
(Ralph A. Rehm) Director March 28, 1996
JAMES R. WHATLEY
- ----------------------------
(James R. Whatley) Director March 28, 1996
45
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.10 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed herewith.
10.11 Bridge Financing Agreement between KPOP and TCB, dated December 18,
1995, filed herewith.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants: Price Waterhouse LLP, filed herewith.
24 Powers of Attorney, filed herewith.
27 Financial Data Schedule, filed herewith.