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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 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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 74-1191271
(State or other jurisdiction IRS Employer Identification No.)
of incorporation or organization)
2435 North Central Expressway
Richardson, Texas 75080
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (972) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------------- -----------------------
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: $167,854,753. This figure is estimated as of March 16, 1998, at
which date the closing price of the Registrant's Common Stock on the New York
Stock Exchange was $5.50 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 16, 1998: 32,212,164.
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.
PART I
ITEM 1. BUSINESS
GENERAL
Kaneb Services, Inc. ("KSI" or the "Company") conducts its principal
businesses in two industry segments, specialized industrial field services, and
pipeline transportation and storage of refined petroleum products. The Company
operates its specialized industrial field services business through a
wholly-owned subsidiary of the Company, Furmanite Worldwide, Inc., and its
domestic and international subsidiaries and affiliates (collectively,
"Furmanite"). The Furmanite group of companies 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, Latin
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, among other entities, 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 (972) 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 11 to the 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 1920s as a manufacturer of leak
sealing kits, Furmanite has evolved into an international service company. In
the 1960s, 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,
1997, Furmanite's sales and operating income were approximately $108,223,000 and
$7,438,000, 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. These
services tend to complement 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. The Company performs
diagnostic services on valves and motors by, among other methods, utilizing its
patented Trevitest(R) system and employing proprietary diagnostic equipment
under an exclusive license from Framatome Technologies. In performing these
services, Furmanite technicians generally work at the customer's location,
frequently responding on an emergency basis. Over its history, Furmanite has
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, 1997, 1996, and 1995, underpressure services
represented approximately 35%, 37% and 34%, respectively, of Furmanite's
revenues, while turnaround services accounted for approximately 45%, 41% and
42%, respectively, and product sales and other industrial services represented
approximately 20%, 22% and 24%, 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/or patented 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 25 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 maintains 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 Australia, Austria, Belgium, China, France, Germany, Hong Kong,
Malaysia, the Netherlands, New Zealand, Norway, Singapore, South Africa and the
United Kingdom (14 locations) and by licensee, agency and/or minority ownership
interest arrangements in Argentina, Brazil, Chile, Croatia, Cyprus, Czech
Republic, Egypt, Finland, Hungary, India, Indonesia, Italy, Japan, Kuwait,
Macedonia, Poland, Portugal, Puerto Rico, Saudi Arabia, Slovak Republic, South
Africa, South Korea, Sweden, Thailand, Trinidad, Ukraine, and the United Arab
Emirates. Sales by geographic region for 1997 were 31.1% for the Americas, 61.4%
for Europe and 7.5% for Asia-Pacific. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 11 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 material 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 currently has an advantage
over in-house maintenance departments because of the ability of its
multi-disciplined technicians to use Furmanite's proprietary and patented
techniques to perform quality repairs on a timely basis while customer equipment
remains in service.
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
In July 1997, Furmanite acquired certain assets and business operations
from its licensee in Australia and New Zealand for $4.9 million, including
transaction costs. The acquisition, which was financed with a note due in 2001,
represented the first major geographical expansion by Furmanite since it was
acquired by the Company in 1991.
PIPELINE AND TERMINALING SERVICES
Through its KPL subsidiary, the Company, among other activities,
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. 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 17,200,000 barrels. Including those
situated along its refined petroleum products pipeline systems, the
Partnership's terminal storage operations comprise the third largest independent
liquids terminaling company 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 other publicly filed documents of Kaneb Pipe Line Partners, L.P. (NYSE:
KPP, KPU).
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 two Kansas refineries and has direct access by third-party
pipelines to four other refineries in Kansas, Oklahoma and Texas. The East
Pipeline also provides access to Gulf Coast suppliers of refined petroleum
products through connecting pipelines which receive products from a pipeline
originating on the Gulf Coast and receives propane through five connecting
pipelines from gas processing plants in Kansas, New Mexico, Oklahoma and Texas.
The East Pipeline's operation also includes 15 public truck loading terminals
located in five states, comprised of a total of 224 tanks having storage
capacity of approximately 3,100,000 barrels of product, and 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, acquired by the Partnership from Wyco Pipe Line
Company in February 1995, consists of approximately 550 miles of six to eight
inch diameter pipeline that transports refined petroleum products received
directly and by other interconnecting pipelines from refineries located in
Colorado, Montana, South Dakota and Wyoming to terminals in Colorado, South
Dakota and Wyoming. The West Pipeline's operations include four public truck
loading terminals, also located in Colorado, South Dakota and Wyoming, having
storage capacity of approximately 1,600,000 barrels of product. Through these
facilities and operations, the West Pipeline serves the growing Denver and
northeastern Colorado markets and supplies 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, and 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 refineries, common carrier
pipelines, proprietary pipelines owned and operated by major integrated and
large independent oil companies and other companies in the areas where the
Partnership'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. However, as trucking costs 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 by the pipelines 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. The
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, ST and its predecessors have a
proven track record of more than 40 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
5,403,000 barrels, comprised of two to 124 tanks per facility. As of December
31, 1997, ST's five largest facilities were located at Piney Point, Maryland
(5,403,000 Bbls capacity; 28 tanks); Jacksonville, Florida (2,066,000 Bbls
capacity; 30 tanks); Texas City, Texas (2,002,000 Bbls capacity; 124 tanks);
Westwego, Louisiana (858,000 Bbls capacity; 54 tanks); and, Baltimore, Maryland
(821,000 Bbls capacity; 49 tanks). In addition to the foregoing, the other ST
facilities are located 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. These
terminals provide 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. Additionally, an increasingly important
aspect of the versatility and service capabilities of an operator is that
operator's ability to offer product handling and storage which 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, herbicides, 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. Eleven of ST's terminal sites are
involved in the terminaling or transport (via pipeline) of jet fuel for the
Defense Department. Seven of the eleven locations are utilized solely by the
Defense Department and six of these locations include pipelines that deliver jet
fuel directly to nearby military bases. 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. Presently, two of ST's
terminals are unproductive due to loss of military business. However, KPL, in
its capacity as General Partner of the Partnership, does not believe that, in
the aggregate, the Partnership 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
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 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 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 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. 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.
ENVIRONMENTAL CONTROLS
The Company is subject to Federal, state and local laws and regulations
relating to protection of the environment. Although the Company 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 the Company. 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 the Company could result in substantial costs
and liabilities.
EMPLOYEES
At December 31, 1997, the Company and its subsidiaries employed 1,798
persons, of which a total of 1,254 persons were employed by the Furmanite group
of companies, collectively, and a total of 427 persons were employed by KPL and
subsidiaries of the Partnership. 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, 1997, approximately 565 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, 1997,
approximately 151 of the persons employed by KPL were subject to representation
by unions for collective bargaining purposes; however, except for approximately
53 employees of KPL 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 in effect at
that date. The union contracts with the OCAW regarding conditions of employment
for 38 and 15 of such persons, are in effect through June 28, 1999 and November
1, 2000, respectively. Both agreements are subject to automatic renewal for
successive one year periods unless either party 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 lease agreement which
expires in 2002, with an option to renew for an additional five year period. In
addition to properties owned or leased by its industrial field services,
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 10 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
A subsidiary of the Company that is no longer actively conducting any
operations was notified in 1989 that it is a "potentially responsible party" in
connection with a governmental investigation relating to a waste disposal
facility which has been subject to remedial action as a location listed on the
Environmental Protection Agency's ("EPA") Superfund National Priority List
("Superfund"). 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. This proceeding
involves actions allegedly taken by a former operating subsidiary of the Company
at a time prior to the acquisition of such subsidiary by the Company. The
Company's subsidiary has 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 are ongoing. The Company
has reviewed its potential exposure, if any, in connection with this matter,
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 matter 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 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 1997.
PART II
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 16, 1998, there were approximately
4,250 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
--------------------------------
CALENDAR YEAR HIGH LOW
-------------------------- -------- --------
1996:
First Quarter 3 1/4 2 1/4
Second Quarter 3 3/4 2 3/8
Third Quarter 3 3/8 2 1/2
Fourth Quarter 3 3/4 3
1997:
First Quarter 4 1/2 3 1/8
Second Quarter 4 1/8 3 1/2
Third Quarter 5 3/8 3 5/8
Fourth Quarter 6 5/16 4 1/2
1998:
First Quarter 6 4 13/16
(through 3/16/98)
The Company currently intends to retain future earnings for the
development of its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company's future dividend policy
will be determined by its Board of Directors on the basis of various factors,
including the Company's results of operation, financial condition, capital
requirements and investment opportunities. Additionally, the credit facilities
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.
ITEM 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 the Company
and should be read in conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this report. The Company has not
declared a dividend on its Common Stock for any of the periods presented.
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Revenues........................ $ 236,936 $ 228,861 $ 212,062 $ 208,722 $ 198,549
========= ========= ========= ========= =========
Operating income................ $ 58,660 $ 53,815 $ 43,465 $ 31,964 $ 29,530
========= ========= ========= ========= =========
Income before gains on
sale or issuance of KPP units.. $ 10,643 $ 7,024 $ 5,024 $ 2,035 $ 1,032
Gains on sale or issuance of
KPP units.................... -- -- 54,157 -- 15,122
--------- --------- --------- --------- ---------
Net income................. $ 10,643 $ 7,024 $ 59,181 $ 2,035 $ 16,154
========= ========= ========= ========= =========
PER SHARE DATA:
Earnings per common share:
Basic........................ $ .31 $ .19 $ 1.72 $ .02 $ .46
========= ========= ========= ========= =========
Diluted...................... $ .30 $ .19 $ 1.59 $ .02 $ .46
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Net cash provided by operating
activities................... $ 55,120 $ 48,628 $ 39,964 $ 25,890 $ 30,880
Cash and cash equivalents....... 23,025 23,693 30,389 9,506 24,327
Working capital................. 20,423 20,033 16,302 (42,797) 15,842
Total assets.................... 402,273 404,691 409,827 284,213 287,472
Long-term debt.................. 181,052 186,544 191,846 103,376 152,678
Stockholders' equity (1)........ 78,447 75,366 69,022 18,844 14,861
(1) See Note 8 to the Company's Consolidated Financial Statements for a
discussion of the Company's Preferred Stock.
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 the Company and notes thereto included elsewhere in this
report.
CONSOLIDATED RESULTS OF OPERATIONS
(in millions)
---------------------------------
1997 1996 1995
--------- --------- --------
Consolidated revenues..................... $ 236.9 $ 228.9 $ 212.1
Consolidated operating income............. $ 58.7 $ 53.8 $ 43.5
Consolidated operating income before
depreciation and amortization.......... $ 75.4 $ 69.2 $ 56.5
Consolidated net income before gains
on sale of pipeline partnership units.. $ 10.6 $ 7.0 $ 5.0
Consolidated capital expenditures,
excluding acquisitions................. $ 13.0 $ 10.7 $ 13.4
Consolidated revenues increased $8.0 million, or 3%, in 1997, primarily
as a result of improvements in the industrial field services operations and
improvements in operations of the terminaling assets that were acquired by Kaneb
Pipe Line Partners, L.P. ("KPP") in December 1995 and in 1996. Consolidated
operating income increased $4.9 million, or 9%, from 1996 to 1997 with
substantial improvements in the industrial field services operations.
Consolidated revenues increased $16.8 million in 1996, primarily as a result of
the acquisition of terminaling assets that were acquired by KPP in December
1995. Pipeline and terminaling services operating income increased $8.8 million
in 1996 largely due to the terminaling assets acquired by KPP in December 1995.
Industrial Field Services
The Company's industrial field services business is conducted through
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)
----------------------------------------
1997 1996 1995
-------- ------- --------
Revenues:
Americas........................ $ 33.7 $ 32.7 $ 32.8
Europe.......................... 66.4 65.9 67.4
Asia-Pacific.................... 8.1 4.7 4.3
------- ------- -------
$ 108.2 $ 103.3 $ 104.5
======= ======= =======
Operating income:
Americas........................ $ 1.8 $ 1.5 $ 1.9
Europe.......................... 6.1 4.0 2.4
Asia-Pacific.................... 1.1 .9 .4
Headquarters.................... (1.6) (1.3) (.8)
-------- ------- -------
$ 7.4 $ 5.1 $ 3.9
======= ======= =======
Operating income before
depreciation and amortization...... $ 12.0 $ 9.3 $ 8.0
======= ======= =======
Capital expenditures,
excluding acquisitions............. $ 2.0 $ 3.5 $ 4.3
======= ======= =======
Furmanite's revenues increased $4.9 million, or 5%, in 1997 primarily
as a result of improvements in turnaround services in Europe and the Americas
and the acquisition of a former licensee in Australia in July 1997, in spite of
a large non-recurring engineering contract that was completed in Germany in
1996. Revenues decreased $1.2 million in 1996 primarily as a result of
non-recurring passive fire protection work completed in Europe in 1995 that was
only partially offset by increases in revenues in other countries. Revenues from
traditional underpressure services improved primarily in the Americas in 1996
while revenues from turnaround services in 1995 included some large projects
that typically do not recur on an annual basis.
Operating income increased $2.3 million, or 45%, in 1997 with
substantial improvements in the core businesses in Europe and the Americas in
addition to the Asia-Pacific business acquired in mid-1997. Operating income
increased $1.2 million, or 31%, in 1996 as a result of improvements,
particularly in Europe and in Asia-Pacific, in spite of non-recurring passive
fire protection work completed in Europe in 1995 and from large turnaround
projects that were completed in the Americas in 1995.
Capital expenditures are primarily related to field services equipment
and the implementation of new services. Capital expenditures for 1998 are
currently estimated to be $3 million to $5 million, depending on the economic
environment and the needs of the business.
Pipeline and Terminaling Services
The Company's pipeline and terminaling services business includes the
operations of 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.
(in millions)
-----------------------------------------
1997 1996 1995
------- ------- --------
Revenues .......................... $ 121.2 $ 117.6 $ 96.9
======= ======= ========
Operating income .................. $ 53.4 $ 51.3 $ 42.5
======= ======= ========
Operating income before
depreciation and amortization.... $ 65.1 $ 62.2 $ 50.8
======= ======= ========
Capital expenditures,
excluding acquisitions........... $ 10.6 $ 7.1 $ 9.0
======= ======= ========
Revenues increased $3.6 million, or 3%, in 1997 and operating income
increased $2.1 million, or 4%, primarily due to improvements in tankage utilized
at terminals acquired by KPP in December 1995, terminaling assets acquired in
1996 and increases in prices charged for storage. Revenues increased $20.7
million, or 21%, and operating income increased $8.8 million, or 21%, in 1996
primarily due to the acquisition of terminaling assets in December 1995 by KPP,
combined with continued improvements at the West Pipeline.
The interest of outside non-controlling partners in KPP's net income
was $27.7 million, $27.0 million and $18.0 million in 1997, 1996 and 1995,
respectively. The increase in 1996 is attributable to the sale by the Company in
September 1995 of 3.5 million of the preference units that it had owned since
1989. Proceeds from the 1995 sale were used to permanently retire debt and
redeem a preferred stock issue. Distributions paid to the outside
non-controlling unitholders of KPP aggregated approximately $26.9 million, $24.7
million and $16.3 million in 1997, 1996 and 1995, respectively.
Capital expenditures relate to the maintenance of existing operations.
Routine capital expenditures for 1998 are currently estimated to be between $7
million and $10 million.
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. KPP financed the acquisition 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. KPP initially financed the
acquisition by a bank bridge loan, which was later refinanced with first
mortgage notes due in varying amounts in June 2001, 2003, 2006 and 2016 bearing
interest at rates ranging from 7.08% to 7.98% per annum.
Other Operations
The Company had operating income of $2.7 million, $2.2 million and $1.7
million in 1997, 1996 and 1995, respectively, on revenues of $7.6 million, $8.0
million, and $10.6 million for the same periods, primarily related to
subsidiaries that provide information processing, payment and collection
services primarily to financial institutions.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per
Share," which requires a dual presentation of earnings per share, computed by
(1) dividing the net income applicable to common stock by the weighted average
number of common shares outstanding for the period ("Basic" earnings per share),
and (2) dividing the net income applicable to common stock by the weighted
average number of common shares outstanding plus the number of additional common
shares that would have been outstanding if dilutive potential common shares had
been issued ("Diluted" earnings per share). The Company adopted SFAS 128 at
December 31, 1997 and has applied its provisions retroactively to all periods
presented.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The provisions of SFAS 130 must be adopted in fiscal year
1998. The Company expects to comply with the provisions of SFAS 130 in the
Consolidated Statements of Stockholders' Equity, when adopted.
Also, in June 1997, the FASB issued SFAS 131, "Disclosure About
Segments of an Enterprise and Other Information," which requires segment
information to be reported on a basis consistent with that used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The provisions of SFAS 131 must be adopted in fiscal year 1998. The
Company is evaluating the impact of adopting SFAS 131 on the way it currently
reports segment information.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by consolidated operating activities was $55.1 million,
$48.6 million and $40.0 million during the years 1997, 1996 and 1995,
respectively. The increase in 1997 resulted from an overall improvement in
revenues and operating income in both the industrial field services and the
pipeline and terminaling businesses. A substantial portion of the increases in
1996 related to pipeline and terminaling services, primarily as a result of the
acquisitions by KPP of the Steuart terminals in December 1995 and the West
Pipeline in February 1995.
At December 31, 1997, $23.4 million was outstanding under a credit
facility, as amended, that was originally 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, a wholly-owned subsidiary of KPP entered into a Restated
Credit Agreement with a group of banks that, as amended, provides a $25 million
revolving credit facility through January 31, 2001. The credit facility bears
interest at variable interest rates and has a commitment fee of 0.15% per annum
of the unused credit facility. No amounts were drawn under the credit facility
at December 31, 1997. In 1995, KPP financed the acquisition of the West Pipeline
with the issuance of $27 million of notes due February 24, 2002 ("Notes"), which
bear interest at the rate of 8.37% per annum. The Notes and credit facility are
secured by a mortgage on the East Pipeline and contain certain financial and
operational covenants. The acquisition by KPP of the Steuart terminaling assets
in December 1995 was initially financed by a $68 million bridge loan from a
bank. KPP refinanced this bridge loan in June 1996 with a series of first
mortgage notes (the "Steuart Notes") bearing interest at rates ranging from
7.08% to 7.98% and maturing in varying amounts in June 2001, 2003, 2006 and
2016. The Steuart Notes are secured, pari passu with the Notes and credit
facility, by a mortgage on the East Pipeline.
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, a $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.
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 a variable rate 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,
1997, 1996 or 1995.
Most of the software systems used by the Company are licensed from
third party vendors and are Year 2000 compliant or will be upgraded to Year 2000
compliant releases over the next year. The Company does not anticipate that the
incremental costs to become fully Year 2000 compliant will be material.
Consolidated capital expenditures for 1998 have been budgeted at $10
million to $15 million, depending on the economic environment and the needs of
the business. Consolidated debt maturities are $5.4 million, $6.8 million, $2.1
million, $88.5 million (including $68 million of KPP debt) and $27.0 million for
each of the five years ending December 31, 2002. Capital expenditures in 1998
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.
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.
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,
1997, 1996 and 1995..................................... F - 3
Consolidated Balance Sheets - December 31, 1997 and 1996.. F - 4
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995............ F - 5
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1997, 1996 and 1995.... F - 6
Notes to Consolidated Financial Statements................. F - 7
(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, 1997,
1996 and 1995............................................ F - 23
Balance Sheets - December 31, 1997 and 1996................ F - 24
Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995......................... F - 25
Schedule II - Kaneb Services, Inc. Valuation and Qualifying Accounts
Years Ended December 31, 1997, 1996 and 1995............... F - 26
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.
(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, 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 herewith.
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 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.
4.4 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series F, dated June 12, 1997,
filed herewith.
4.5 Indenture between Moran Energy Inc. ("Moran") and First City National
Bank of Houston ("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.
4.6 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 4.7 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1983, which exhibit is hereby incorporated by
reference.
10.1 Kaneb Services, Inc. Savings Investment Plan, as amended, filed as
Exhibit 4.10 of the exhibits to the Registrant's Registration Statement
on Form S-8 ("Form S-8") (S.E.C. File No. 33-41295) and as Exhibit 4.1
to the exhibits of Registrant's Form S-8 (S.E.C. File No. 333-14067),
which exhibits are hereby incorporated by reference.
10.2 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 to the exhibits of the Registrant's Form S-8 (S.E.C. File
No. 2-90929), which exhibit is hereby incorporated by reference.
10.3 Kaneb Services, Inc. 1994 Stock Incentive Plan, filed as Exhibit 4.12
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-54027), which exhibit is hereby incorporated by reference.
10.4 Kaneb Services, Inc. Deferred Stock Unit Plan, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-08725),
which exhibit is hereby incorporated by reference.
10.5 Kaneb Services, Inc. 1996 Supplemental Deferred Compensation Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08727), which exhibit is hereby incorporated by
reference.
10.6 Kaneb Services, Inc. $1.63 Director Stock Options, filed as Exhibit 4.1
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-58981), which exhibit is hereby incorporated by reference.
10.7 Kaneb Services, Inc. Directors Stock Options I, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-14069),
which exhibit is hereby incorporated by reference.
10.8 Kaneb Services, Inc. 1996 Directors Stock Incentive Plan, as amended,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-14071) and as Exhibit 4.1 to the exhibits of
Registrant's Form S-8 (S.E.C. File No. 333-22109), which exhibits are
hereby incorporated by reference.
10.9 Kaneb Services, Inc. Non-Employee Directors Deferred Stock Unit Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08723), which exhibit is hereby incorporated by
reference.
10.10 Form of Termination Agreement, filed as Exhibit 10.10 to the exhibits
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, which exhibit is hereby incorporated by reference.
10.11 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, as amended (the
"Furmanite Loan Agreement"), filed as Exhibit 10.8 of the exhibits to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994 and Exhibit 10.11 of the exhibits to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, which
exhibits are hereby incorporated by reference.
10.12 Amendments to the Furmanite Loan Agreement, filed herewith.
10.13 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed as Exhibit 10.10 of the exhibits to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, which exhibit is hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants Price Waterhouse LLP 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.
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 15 present fairly, in all material
respects, the financial position of Kaneb Services, Inc. and its subsidiaries
("the Company") at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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
February 19, 1998
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
Revenues................................................... $ 236,936,000 $ 228,861,000 $ 212,062,000
-------------- -------------- ---------------
Costs and expenses:
Operating costs........................................ 156,654,000 154,935,000 151,014,000
Depreciation and amortization.......................... 16,715,000 15,434,000 13,055,000
General and administrative............................. 4,907,000 4,677,000 4,528,000
-------------- -------------- ---------------
Total costs and expenses............................. 178,276,000 175,046,000 168,597,000
-------------- -------------- ---------------
Operating income........................................... 58,660,000 53,815,000 43,465,000
Interest income............................................ 533,000 859,000 858,000
Other expense.............................................. (696,000) (832,000) (1,037,000)
Interest expense........................................... (15,531,000) (15,420,000) (15,927,000)
Amortization of excess of cost over fair
value of net assets of acquired business............... (1,879,000) (1,848,000) (1,847,000)
--------------- -------------- ---------------
Income before interest of outside non-controlling
partners in KPP's net income, income taxes
and gain on sale of KPP units.......................... 41,087,000 36,574,000 25,512,000
Interest of outside non-controlling partners
in KPP's net income.................................... (27,655,000) (26,969,000) (17,953,000)
Gain on sale of KPP units.................................. - - 54,157,000
Income tax expense......................................... (2,789,000) (2,581,000) (2,535,000)
--------------- -------------- ---------------
Net income................................................. 10,643,000 7,024,000 59,181,000
Dividends applicable to preferred stock.................... 538,000 502,000 1,527,000
-------------- -------------- ---------------
Net income applicable to common stock...................... $ 10,105,000 $ 6,522,000 $ 57,654,000
============== ============== ===============
Earnings per common share:
Basic.................................................. $ .31 $ .19 $ 1.72
============== ============== ==============
Diluted................................................ $ .30 $ .19 $ 1.59
============== ============== ==============
See notes to consolidated financial statements.
F-2
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------------------
1997 1996
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 23,025,000 $ 23,693,000
Accounts receivable, trade (net of allowance for doubtful
accounts of $570,000 in 1997 and $666,000 in 1996).......... 35,268,000 33,157,000
Inventories.................................................... 7,079,000 6,706,000
Prepaid expenses and other current assets...................... 5,693,000 6,367,000
-------------- --------------
Total current assets......................................... 71,065,000 69,923,000
-------------- --------------
Property and equipment............................................ 383,078,000 373,087,000
Less accumulated depreciation and amortization.................... 121,717,000 106,449,000
-------------- --------------
Net property and equipment..................................... 261,361,000 266,638,000
-------------- --------------
Excess of cost over fair value of net assets of acquired business 62,719,000 63,183,000
Other assets...................................................... 7,128,000 4,947,000
-------------- --------------
$ 402,273,000 $ 404,691,000
============== ==============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt:
Industrial field services.................................... $ 3,059,000 $ 2,558,000
Pipeline and terminaling services............................ 2,335,000 2,036,000
-------------- --------------
Total current portion of long-term debt.................... 5,394,000 4,594,000
Accounts payable............................................... 9,569,000 9,015,000
Accrued expenses............................................... 35,679,000 36,281,000
-------------- --------------
Total current liabilities.................................... 50,642,000 49,890,000
-------------- --------------
Long-term debt, less current portion:
Industrial field services..................................... 25,268,000 23,425,000
Pipeline and terminaling services.............................. 132,118,000 139,453,000
Parent company................................................. 23,666,000 23,666,000
-------------- --------------
Total long-term debt, less current portion................... 181,052,000 186,544,000
-------------- --------------
Deferred income taxes and other liabilities....................... 15,903,000 16,906,000
Interest of outside non-controlling partners in KPP............... 76,229,000 75,985,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value............................. 5,792,000 5,792,000
Common stock, without par value. Authorized
60,000,000 shares; issued 36,527,283 shares
in 1997 and 36,491,027 shares in 1996 4,234,000 4,230,000
Additional paid-in capital..................................... 197,242,000 197,213,000
Accumulated deficit............................................ (101,491,000) (111,596,000)
Treasury stock, at cost........................................ (25,216,000) (20,631,000)
Cumulative foreign currency translation adjustment............. (2,114,000) 358,000
--------------- --------------
Total stockholders' equity................................... 78,447,000 75,366,000
$ 402,273,000 $ 404,691,000
============== ==============
See notes to consolidated financial statements.
F-3
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
------------- ------------- ---------------
Operating Activities:
Net income ............................................ $ 10,643,000 $ 7,024,000 $ 59,181,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization...................... 16,715,000 15,434,000 13,055,000
Amortization of excess of cost over net assets
acquired......................................... 1,879,000 1,848,000 1,847,000
Interest of outside non-controlling partners in KPP 27,655,000 26,969,000 17,953,000
Deferred income taxes.............................. 86,000 766,000 (778,000)
Gain on sale of KPP units.......................... - - (54,157,000)
Changes in current assets and liabilities:
Short-term investments........................... - - 1,020,000
Accounts receivable.............................. (2,111,000) (449,000) (6,857,000)
Inventories...................................... (373,000) (897,000) 301,000
Prepaid expenses and other current assets........ 674,000 1,098,000 (1,968,000)
Accounts payable and accrued expenses............ (48,000) (3,165,000) 10,367,000
-------------- -------------- --------------
Net cash provided by operating activities............ 55,120,000 48,628,000 39,964,000
------------- ------------- --------------
Investing Activities:
Capital expenditures................................... (13,011,000) (10,685,000) (13,428,000)
Acquisitions........................................... (4,855,000) (8,507,000) (97,850,000)
Decrease (increase) in other assets, net............... (1,819,000) 3,320,000 3,740,000
-------------- ------------- --------------
Net cash used in investing activities................ (19,685,000) (15,872,000) (107,538,000)
-------------- ------------- ---------------
Financing Activities:
Issuance of long-term debt ............................ 8,619,000 1,735,000 6,975,000
Issuance of long-term debt by KPP...................... - 74,500,000 96,500,000
Payments on long-term debt ............................ (5,732,000) (10,138,000) (67,957,000)
Payments on long term debt by KPP...................... (7,036,000) (71,276,000) (3,047,000)
Distributions to outside non-controlling
partners in KPP...................................... (26,864,000) (24,667,000) (16,306,000)
Preferred stock dividends paid......................... (538,000) (502,000) (1,328,000)
Net proceeds from sale of KPP units.................... - - 73,620,000
Redemption of preferred stock.......................... - (8,025,000) -
Common stock issued.................................... 33,000 - -
Purchase of treasury stock............................. (4,585,000) (1,079,000) -
------------- ------------- -------------
Net cash provided by (used in) financing
activities.......................................... (36,103,000) (39,452,000) 88,457,000
------------- ------------- --------------
Increase (decrease) in cash and cash equivalents.......... (668,000) (6,696,000) 20,883,000
Cash and cash equivalents at beginning of year............ 23,693,000 30,389,000 9,506,000
------------- ------------- --------------
Cash and cash equivalents at end of year.................. $ 23,025,000 $ 23,693,000 $ 30,389,000
============= ============= ==============
See notes to consolidated financial statements.
F-4
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOREIGN
PREFERRED COMMON ADDITIONAL ACCUMULATED TREASURY CURRENCY
STOCK STOCK PAID-IN CAPITAL DEFICIT STOCK TRANSLATION
------------ ----------- --------------- ------------- ------------ -----------
BALANCE AT JANUARY 1, 1995 $ 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)
Net income for the year....... - - - 7,024,000 - -
Common stock issued........... - - 10,000 - - -
Purchase of treasury stock.... - - - - (1,079,000) -
Preferred stock dividends
declared..................... - - - (502,000) - -
Conversion of Series D
preferred stock............ - - 30,000 - - -
Series C preferred stock
redemption................. (22,000) - 22,000 - - -
Foreign currency translation
adjustment................. - - - - - 861,000
------------- -------------- ------------ ------------- ------------ -----------
BALANCE AT DECEMBER 31, 1996 5,792,000 4,230,000 197,213,000 (111,596,000) (20,631,000) 358,000
Net income for the year....... - - - 10,643,000 - -
Common stock issued........... - 4,000 29,000 - - -
Purchase of treasury stock ... - - - - (4,585,000) -
Preferred stock dividends
declared.................... - - - (538,000) - -
Foreign currency translation
adjustment ................ - - - - - (2,472,000)
------------- -------------- ------------ ------------- ------------ -----------
BALANCE AT DECEMBER 31, 1997 $ 5,792,000 $ 4,234,000 $197,242,000 $(101,491,000) $(25,216,000)$(2,114,000)
============= ============== ============ ============= ============ ===========
See notes to consolidated financial statements.
F-5
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 operations of KPP through its 2% general partner
interest and 31% limited partner interest as of December 31, 1997. 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 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. The Company does not have any derivative
financial instruments.
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 the 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.
The carrying value of property and equipment is periodically evaluated
using undiscounted future cash flows as the basis for determining if
impairment exists under the provisions of 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"). To the extent impairment is indicated to exist, an impairment loss
will be recognized under SFAS 121 based on fair value.
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
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
("SFAS 128"), in 1997. Under SFAS 128, the amount of earnings for the
period applicable to each share of common stock outstanding during the
period ("Basic" earnings per share) and the amount of earnings for the
period applicable to each share of common stock outstanding during the
period and to each share that would have been outstanding assuming the
issuance of common shares for dilutive potential common shares
outstanding during the period ("Diluted" earnings per share) have been
presented in the consolidated statements of income. The provisions of
SFAS 128 have been applied retroactively to all periods presented.
F-6
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.
Excess of Cost Over Fair Value of Net Assets of Acquired Business
The excess of the purchase price of a specialized industrial field
services 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 $12.2 million and $10.3 million at December 31, 1997 and
1996, respectively.
The Company periodically evaluates the propriety of the carrying amount
of the excess of cost over fair value of net assets of businesses
acquired, as well as the amortization period, to determine whether
current events or circumstances warrant adjustments to the carrying value
and/or revised estimates of useful lives. As this time, the Company
believes that no such impairment has occurred and that no reduction in
estimated useful lives is warranted.
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 1996 and 1995 have been
reclassified to conform with the 1997 presentation.
2. ASSET ACQUISITIONS BY PIPELINE PARTNERSHIP
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.
KPP financed the acquisition by the issuance of $27 million of first
mortgage notes.
F-7
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. KPP financed the acquisition price by the
issuance of $68 million of first mortgage notes. 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 included
provisions for the continuation of all terminaling contracts in place at
the time of the acquisition, including those contracts with Steuart.
KPP's 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.
Assuming the above acquisitions in 1995 occurred as of the beginning of
the year ended December 31, 1995, the summarized unaudited pro forma
consolidated revenues, net income, basic earnings per share and diluted
earnings per share for 1995 would be $233,004,000, $59,025,000, $1.72 and
$1.59, respectively. The unaudited pro forma financial results are 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.
3. SALE OF PIPELINE PARTNERSHIP UNITS
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 $54.2 million, net of expenses. The Company used
the proceeds to retire its 8% convertible subordinated debentures
totaling $43.2 million, its 11.5% subordinated debentures totaling $5.0
million and repay its $10 million term loan in 1995 and, in 1996, to
redeem $8 million of its Series D Preferred Stock and repay $6 million of
its long-term debt. The Company continues to control the operations of
KPP through its 2% general partner interest and 31% limited partner
interest.
4. INCOME TAXES
Income before income tax expense is comprised of the following
components:
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------ ------------ -------------
Domestic operations.. $ 11,769,000 $ 12,580,000 $ 63,607,000
Foreign operations... 1,663,000 (2,975,000) (1,891,000)
------------ ------------ -------------
$ 13,432,000 $ 9,605,000 $ 61,716,000
============ ============ =============
Income tax expense is comprised of the following components:
YEAR ENDED
DECEMBER 31, FEDERAL FOREIGN STATE TOTAL
------------------------ -------------- ------------- -------------- ---------------
1997:
Current............... $ 577,000 $ 925,000 $ 1,201,000 $ 2,703,000
Deferred.............. 74,000 12,000 -_ 86,000
-------------- ------------ ------------ ------------
$ 651,000 $ 937,000 $ 1,201,000 $ 2,789,000
============== ============ ============ ============
F-8
YEAR ENDED
DECEMBER 31, FEDERAL FOREIGN STATE TOTAL
------------------------ -------------- ------------- -------------- ---------------
1996:
Current............... $ 435,000 $ 423,000 $ 957,000 $ 1,815,000
Deferred.............. 500,000 266,000 - 766,000
-------------- ------------ ------------ ------------
$ 935,000 $ 689,000 $ 957,000 $ 2,581,000
============== ============ ============ ============
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
============== ============ ============ ============
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 $58 million
and $88 million as of December 31, 1997 and 1996, respectively, primarily
relating to the Company's domestic net operating loss carryforwards and
investment tax credit carryforwards, partially offset by a valuation
reserve of approximately $56 million and $86 million, respectively. The
Company has recorded a deferred tax liability of $3.4 million and $2.3
million as of December 31, 1997 and 1996, which is associated with
certain domestic subsidiaries not included in the Company's consolidated
Federal income tax return.
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 1997, 1996 and 1995 are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995
--------------------- ------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
------------- ---- ------------ ----- -------------- ------
Tax expense at
statutory rates................ $ 4,701,000 35.0 $ 3,360,000 35.0 $ 21,601,000 35.0
Increase (decrease) in taxes
resulting from:
Domestic loss carryforward
adjustments.................. (3,048,000) (22.7) (3,215,000) (33.5) (21,089,000) (34.2)
State income taxes, net........ 781,000 5.8 622,000 6.5 1,021,000 1.7
Foreign losses not
benefited and foreign
income taxes................. 355,000 2.7 1,814,000 18.9 1,002,000 1.6
------------- ----- ------------ ----- -------------- -----
$ 2,789,000 20.8 $ 2,581,000 26.9 $ 2,535,000 4.1
============= ===== ============ ===== ============== =====
At December 31, 1997, the Company had available domestic tax net
operating loss carryforwards ("NOLs"), which will expire, if unused, as
follows: $21,004,000 in 2001, $73,015,000 in 2002, $12,626,000 in 2003,
$16,866,000 in 2005, $17,508,000 in 2006 and $3,033,000 in 2007.
Additionally, at December 31, 1997, the Company had investment tax
credits aggregating $8,276,000, which will expire, if unused, in varying
amounts through 2000, that could be used to offset current domestic
income taxes, but only after the Company utilized all available NOLs.
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.
F-9
5. RETIREMENT PLANS
The Company has a defined contribution plan which covers substantially
all domestic employees and provides for varying levels of employer
matching. Company contributions to this plan were $1.1 million, $1.0
million and $.9 million for 1997, 1996 and 1995, 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 most recent valuation of the U.K.
Plan was performed as of November 1, 1997.
Net pension cost for the U.K. Plan included the following components:
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
Service cost for benefits earned
during the period........................... $ 1,254,000 $ 1,269,000 $ 1,107,000
Interest cost on projected benefit
obligations................................. 2,021,000 1,617,000 1,416,000
Less actual return on plan assets............. (3,829,000) (2,884,000) (2,126,000)
Net amortization and deferral................. 1,015,000 620,000 243,000
-------------- ------------- -------------
Net pension cost.............................. $ 461,000 $ 622,000 $ 640,000
============== ============= =============
Actuarial assumptions used in the accounting for the U.K. Plan were a
weighted average discount rate of 7.5% for 1997, 8.5% for 1996 and 9% for
1995, an expected long-term rate of return on assets of 9.0% for 1997,
1996 and 1995 and a rate of increase in compensation levels of 5.5% for
1997 and 6% for 1996 and 1995. The funded status of the U.K. Plan is as
follows:
DECEMBER 31,
--------------------------------
1997 1996
-------------- --------------
Actuarial present value of accumulated benefit
obligations (all vested)...................................... $ 29,564,000 $ 23,648,000
============== ==============
Actuarial present value of projected benefit
obligations................................................... $ (30,564,000) $ (24,449,000)
Plan assets at fair value....................................... 33,138,000 29,557,000
Unrecognized net gain........................................... (3,213,000) (6,451,000)
Unrecognized prior service cost................................. 322,000 363,000
-------------- --------------
Net pension liability recorded in other liabilities............. $ (317,000) $ (980,000)
=============== ==============
6. PROPERTY AND EQUIPMENT
The cost of property and equipment is as follows:
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
Industrial field services............. $ 30,388,000 $ 31,292,000
Pipeline and terminaling services..... 345,802,000 337,202,000
General corporate..................... 3,848,000 3,819,000
Other ............................... 3,040,000 774,000
-------------- -------------
Total property and equipment.......... 383,078,000 373,087,000
Accumulated depreciation and
amortization........................ (121,717,000) (106,449,000)
-------------- -------------
Net property and equipment............ $ 261,361,000 $ 266,638,000
============== =============
F-10
Equipment acquired under capital leases and included in the cost of
property and equipment is as follows:
DECEMBER 31,
------------------------------
1997 1996
-------------- ------------
Industrial field services equipment... $ 5,530,000 $ 6,638,000
Pipeline and terminaling services
equipment (a)...................... 22,513,000 22,271,000
-------------- ------------
Total equipment acquired under
capital leases.................... 28,043,000 28,909,000
Accumulated depreciation............. (13,570,000) (12,977,000)
-------------- ------------
Net equipment acquired under
capital leases.................... $ 14,473,000 $ 15,932,000
============== ============
(a) Secured by certain pipeline equipment. KPP has recorded its option
to purchase this equipment for approximately $4.1 million at the
termination of the lease.
7. DEBT
Debt is summarized as follows:
DECEMBER 31,
--------------------------------
1997 1996
-------------- --------------
Industrial field services:
Credit facility due through 2001..................... $ 23,408,000 $ 23,003,000
Various notes of foreign subsidiaries ranging
from 6.75% to 8.0% due through 2001................ 3,278,000 231,000
Capital leases....................................... 1,641,000 2,749,000
-------------- --------------
Total debt...................................... 28,327,000 25,983,000
Less current portion................................. 3,059,000 2,558,000
-------------- --------------
$ 25,268,000 $ 23,425,000
============== ==============
Pipeline and terminaling services:
Mortgage notes due 2001 and 2002..................... $ 60,000,000 $ 60,000,000
Mortgage notes due 2001 through 2016................. 68,000,000 68,000,000
Capital lease........................................ 6,453,000 8,489,000
Revolving credit facility.......................... - 5,000,000
-------------- --------------
Total debt...................................... 134,453,000 141,489,000
Less current portion................................. 2,335,000 2,036,000
-------------- --------------
$ 132,118,000 $ 139,453,000
============== ==============
Parent company:
8.75% convertible subordinated debentures
due through 2008................................... $ 23,666,000 $ 23,666,000
Revolving credit facility............................ - -
-------------- --------------
Total debt...................................... 23,666,000 23,666,000
Less current portion................................. - -
-------------- --------------
$ 23,666,000 $ 23,666,000
============== ==============
Total consolidated long-term debt...................... $ 186,446,000 $ 191,138,000
Current portion........................................ 5,394,000 4,594,000
-------------- --------------
Total consolidated long-term debt,
less current portion................................. $ 181,052,000 $ 186,544,000
============== ==============
F-11
Industrial Field Services
At December 31, 1997, $23.4 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. This credit facility is secured by all of
the tangible assets of the industrial field services group, excluding
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, KPP, through a wholly-owned subsidiary,
entered into a Restated Credit Agreement with a group of banks that, as
amended, provides a $25 million revolving credit facility through January
31, 2001. The credit facility bears interest at variable interest rates
and has a commitment fee of .15% per annum of the unused credit facility.
At December 31, 1997, no amounts were drawn under the credit facility. 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 the East Pipeline and contain certain financial and
operational covenants.
The acquisition of Steuart by KPP was initially financed by a $68 million
bridge loan from a bank. In June 1996, KPP refinanced this obligation
with $68.0 million of new first mortgage notes (the "Steuart notes")
bearing interest at rates ranging from 7.08% to 7.98%. $35.0 million of
the Steuart notes is due June 2001, $8.0 million is due June 2003, $10.0
million is due June 2006 and $15.0 million is due June 2016. The loan is
secured, pari passu with the existing Notes and credit facility, by a
mortgage on the East Pipeline.
Parent Company
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 these subordinated
debentures through 2000.
On February 1, 1996, the Company retired a 8.85% senior note, which was
convertible into shares of the Company's common stock at a conversion
price of $6.00 per share.
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 a variable rate
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 KPP.
No amounts were drawn under the credit facility at December 31, 1997 or
1996.
Consolidated Maturities
Annual sinking fund requirements and debt maturities on consolidated long
term debt, including capital leases, are $5.4 million, $6.8 million, $2.1
million, $88.5 million (including $68 million of KPP debt) and $27.0
million for each of the five years ending December 31, 2002.
F-12
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, 1995................. 1,558,374 36,428,823 3,357,615 33,071,208
Series D preferred stock redemption........ (990,424) - - -
Common shares issued....................... - 51,131 (524,739) 575,870
------------- ------------- --------------- --------------
BALANCE AT DECEMBER 31, 1995............... 567,950 36,479,954 2,832,876 33,647,078
Common shares issued or purchased.......... - 11,073 323,200 (312,127)
------------- -------------- -------------- -----------------
BALANCE AT DECEMBER 31, 1996............... 567,950 36,491,027 3,156,076 33,334,951
------------- -------------- -------------- ----------------
Series F preferred stock issued............ 1,000 - - -
Common shares issued or purchased.......... - 36,256 1,190,900 (1,154,644)
------------- -------------- -------------- -----------------
BALANCE AT DECEMBER 31, 1997............... 568,950 36,527,283 4,346,976 32,180,307
============= ============== ============== ================
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, 1997. 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,
1997, 1996 and 1995. 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, 1997, 1996 and 1995 there were no Series B Preferred shares
outstanding.
F-13
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 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 and redeemed 100 shares in July 1996.
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 pounds sterling 5.34
($8.36) per share. The Series D Preferred was 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, 10,880
shares of Series D Preferred stock were converted into 18,398 shares 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 for $8.0
million.
Series F Preferred Stock
In June 1997, the Company authorized and issued 1,000 shares of
Adjustable Rate Cumulative Class A Preferred Stock, Series F ("Series F
Preferred"), with a stated value of $1.00 per share to an officer of the
Company. The annual dividend for the entire class of Series F Preferred,
which is payable on April 1 of each year, is calculated by multiplying
(i) 1% of the annual improvement (but not including amounts related to
any gains or losses on the sale of any KPP units and not including
amounts related to any other gains or losses in excess of $1 million on
the sale of other capital assets) in the Company's diluted earnings per
share of common stock ("Common EPS"), by (ii) the amount of issued and
outstanding shares of the Company's common stock on January 1, 1997.
F-14
If the Common EPS increase for the five-year period ending December 31,
2001 has not exceeded 20% compounded annually, the series will be
redeemed for $1.00 per share on April 1, 2002. Otherwise, the series will
be redeemed on April 1, 2002 at a "Redemption Price" for the entire class
of the series equal to the average percentage increase in excess of 20%
in Common EPS for such period multiplied by (i) three-fourths of 1% of
the cumulative Common EPS for each calendar year ended for which the
series is outstanding, and (ii) the amount of issued and outstanding
shares of the Company's Common stock on January 1, 1997.
Redemption of the series may be deferred at the Company's option until no
later than April 1, 2003 if the Common EPS increase for the 2001 calendar
year is less than 15%. The Series F Preferred may be redeemed at the
option of the holder at 120% of the Redemption Price if the Company fails
to pay an annual dividend within 10 days of the due date or in the event
of a change of control, or at the Redemption Price in the event of
certain corporate reorganizations or the authorization of a class of
preferred stock ranking higher in priority to the Series F Preferred.
Upon liquidation, holders of the Series F Preferred are entitled to
receive $1.00 per share plus accrued and unpaid dividends.
Stock Compensation Plans
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
or repricing. At December 31, 1997, options on 1,578,515 shares at prices
ranging from $1.63 to $5.00 were outstanding, of which 427,429 were
exercisable at prices ranging from $1.63 to $3.50.
The changes in stock options outstanding for the Company's plans for 1996
and 1997 were as follows:
Average Price
Shares per Share
------------ -------------
Outstanding at January 1, 1996...... 1,431,436 $ 4.76
Granted and repriced ............... 1,277,678 $ 2.67
Exercised........................... (6,000) $ 1.67
Forfeited and repriced.............. (1,082,936) $ 5.56
-------------
Outstanding at December 31, 1996.... 1,620,178 $ 2.60
Granted............................. 138,872 $ 3.74
Exercised........................... (64,535) $ 2.29
Forfeited........................... (116,000) $ 2.63
-------------
Outstanding at December 31, 1997.... 1,578,515 $ 2.70
============
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company applies APB Opinion
25 and related interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS 123. The
Black-Scholes option pricing model has been used to estimate the value of
stock options issued and the assumptions in the calculations under such
model include stock price variance or volatility ranging from 11.51% to
12.03% based on weekly average variances of the stock for the five year
period preceding issuance, a risk-free rate of return ranging from 5.71%
to 6.56% based on the 30-year U.S. Treasury bill rate for the five-year
expected life of the options, and no dividend yield. Using estimates
calculated by such option pricing model, pro forma net income, basic
earnings per share and diluted earnings per share would have been
$10,327,000, $0.30 and $0.30, respectively for the year ended December
31, 1997 as compared to the reported amounts of $10,643,000, $0.31 and
$0.30, respectively. For the year ended December 31, 1996, pro forma net
income, basic earnings per share and diluted earnings per share would
have been $6,750,000, $0.19 and $0.19, respectively, as compared to the
reported amounts of $7,024,000, $0.19 and $0.19, respectively. For the
year ended December 31, 1995, pro forma net income, basic earnings per
share and diluted earnings per share would have been $59,134,000, $1.72
and $1.59, respectively, as compared to the reported amounts of
$59,181,000, $1.72 and $1.59, respectively.
F-15
Deferred Stock Unit Plan
In 1996, the Company initiated its Deferred Stock Unit Plan (the "DSU
Plan"), pursuant to which key employees of the Company have, from time to
time, been given the opportunity to defer a portion of their
compensation, for a specified period toward the purchase of deferred
stock units ("DSUs") at a value equal to the closing price of the
Company's common stock on the day following the last day by which the
employee must elect (if he so desires) to participate in the DSU Plan; as
established by the Compensation Committee, from time to time (the
"Election Date"). During a vesting period following the Election Date
(generally, one or two years), a participant's DSUs vest only in an
amount equal to the lesser of the compensation actually deferred to date
or the value (based upon the then-current closing price of the Company's
common stock) of the pro-rata portion (as of such date) of the number of
DSUs acquired. After the expiration of the vesting period, the DSUs
become fully vested, but may only be distributed through the issuance of
a like number of shares of the Company's common stock on a pre-selected
date, which is irrevocably selected by the participant on the Election
Date and which is typically no earlier than the expiration of the vesting
period and no later than ten years after the Election Date. DSU accounts
are unfunded by the Company and do not bear interest. Each person that
elects to participate in the DSU Plan is awarded, under the Company's
1994 Stock Incentive Plan, an option to purchase a number of shares of
the Company's common stock equal to the number of DSUs agreed to be
purchased by such person at 100% of the closing price of the Company's
common stock on the day following the date of election to participate in
the DSU Plan, which options become exercisable over a specified period
after the grant, according to a schedule determined by the Compensation
Committee.
9. EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per
share:
Net Common Per-Share
Income Shares Amount
---------------- ---------------- ---------------
YEAR ENDED DECEMBER 31, 1997
Net income................................ $ 10,643,000
Dividend applicable to preferred stock.... (538,000)
----------------
Basic EPS:
Income available to common stock....... 10,105,000 32,547,371 $ 0.31
==============
Effect of dilutive securities:
Common stock options................... - 585,926
--------------- --------------
Diluted EPS:
Income available to common stock
and assumed options exercised......... $ 10,105,000 33,133,297 $ 0.30
=============== ============== ==============
YEAR ENDED DECEMBER 31, 1996
Net income................................ $ 7,024,000
Dividend applicable to preferred stock.... (502,000)
----------------
Basic EPS:
Income available to common stock....... 6,522,000 33,630,723 $ 0.19
==============
Effect of dilutive securities:
Common stock options................... - 242,600
--------------- --------------
Diluted EPS:
Income available to common stock
and assumed options exercised.......... $ 6,522,000 33,873,323 $ 0.19
=============== ============== ==============
YEAR ENDED DECEMBER 31, 1995
Net income................................ $ 59,181,000
Dividend applicable to preferred stock.... (1,527,000)
----------------
Basic EPS:
Income available to common stock....... 57,654,000 33,449,900 $ 1.72
==============
Effect of dilutive securities:
Common stock options................... - 41,578
Convertible debt....................... 3,937,000 4,201,146
Series D convertible preferred stock... 1,005,000 1,658,462
--------------- --------------
Diluted EPS:
Income available to common stock
and assumed conversions and options
exercised.............................. $ 62,596,000 39,351,086 $ 1.59
=============== ============== ==============
F-16
Options to purchase 15,000, 80,308 and 1,208,936 shares of common stock
at weighted average prices of $5.00, $3.73 and $5.31, were outstanding at
December 31, 1997, 1996 and 1995, respectively, but were not included in
the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common stock.
10. 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
1997, $4.0 million for 1996 and $3.5 million for 1995.
At December 31, 1997, minimum rental commitments under all capital
leases and operating leases for future years are as follows:
CAPITAL OPERATING
LEASES LEASES
-------------- --------------
1998..................... $ 4,106,000 $ 3,909,000
1999..................... 4,750,000 2,759,000
2000..................... 54,000 2,160,000
2001..................... 11,000 1,574,000
2002..................... - 1,072,000
2003 and thereafter...... - 3,947,000
-------------- --------------
Total minimum lease payments.. 8,921,000 $ 15,421,000
==============
Less amounts representing
interest.................... 827,000
--------------
Present value of net minimum
lease payments.............. $ 8,094,000
==============
In March 1995, the Company settled a 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 an interest in coalbed gas
produced from a property that a subsidiary of the Company previously
owned. The settlement of this lawsuit was adequately reserved.
In August 1996, the Company settled a lawsuit filed in Germany in
February 1996 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 German contract that was
part of a series of transactions relating to the sale of one of the
Company's domestic subsidiaries. The settlement of this lawsuit was
adequately reserved.
KPP makes quarterly distributions of 100% of its Available Cash (as
defined in the Partnership Agreement) to holders of limited partnership
units and the general partner. 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 (the "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 of KPP, 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
recorded an undiscounted reserve in other liabilities for environmental
claims of $3.1 million, including $2.2 million relating to the
acquisitions of the West Pipeline and Steuart, as of December 31, 1997.
F-17
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.
11. BUSINESS SEGMENT DATA
Selected financial data pertaining to the operations of the Company's
business segments is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
Revenues:
Industrial field services................... $ 108,223,000 $ 103,252,000 $ 104,500,000
Pipeline and terminaling services........... 121,156,000 117,554,000 96,928,000
Other....................................... 7,557,000 8,055,000 10,634,000
--------------- -------------- --------------
$ 236,936,000 $ 228,861,000 $ 212,062,000
=============== ============== ==============
Operating income:
Industrial field services .................. $ 7,438,000 $ 5,073,000 $ 3,855,000
Pipeline and terminaling services........... 53,420,000 51,285,000 42,488,000
General corporate........................... (4,907,000) (4,741,000) (4,593,000)
Other....................................... 2,709,000 2,198,000 1,715,000
--------------- -------------- --------------
$ 58,660,000 $ 53,815,000 $ 43,465,000
=============== ============== ==============
Depreciation and amortization:
Industrial field services................... $ 4,563,000 $ 4,227,000 $ 4,152,000
Pipeline and terminaling services........... 11,711,000 10,907,000 8,274,000
General corporate........................... 290,000 66,000 65,000
Other....................................... 151,000 234,000 564,000
--------------- -------------- --------------
$ 16,715,000 $ 15,434,000 $ 13,055,000
=============== ============== ==============
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
Capital expenditures (including capitalized
leases and excluding acquisitions):
Industrial field services................... $ 2,013,000 $ 3,504,000 $ 4,323,000
Pipeline and terminaling services........... 10,641,000 7,075,000 8,975,000
General corporate........................... 30,000 23,000 32,000
Other....................................... 327,000 83,000 98,000
--------------- -------------- --------------
$ 13,011,000 $ 10,685,000 $ 13,428,000
=============== ============== ==============
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
Identifiable assets:
Industrial field services................ $ 116,503,000 $ 114,354,000 $ 117,438,000
Pipeline and terminaling services........ 270,055,000 273,927,000 264,510,000
General corporate........................ 10,286,000 12,422,000 23,718,000
Other.................................... 5,429,000 3,988,000 4,161,000
--------------- -------------- --------------
$ 402,273,000 $ 404,691,000 $ 409,827,000
=============== ============== ==============
F-18
Selected financial data pertaining to the operations of the Company in
geographical areas is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
Revenues:
United States............................ $ 162,367,000 $ 158,274,000 $ 140,387,000
Europe................................... 66,431,000 65,949,000 67,385,000
Asia-Pacific............................. 8,138,000 4,638,000 4,290,000
--------------- -------------- --------------
$ 236,936,000 $ 228,861,000 $ 212,062,000
=============== ============== ==============
Operating income:
United States............................ $ 51,384,000 $ 48,884,000 $ 40,649,000
Europe................................... 6,139,000 4,001,000 2,399,000
Asia-Pacific............................. 1,137,000 930,000 417,000
--------------- -------------- --------------
$ 58,660,000 $ 53,815,000 $ 43,465,000
=============== ============== ==============
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
Identifiable assets:
United States............................ $ 299,535,000 $ 302,424,000 $ 304,227,000
Europe................................... 95,998,000 100,329,000 103,559,000
Asia-Pacific............................. 6,740,000 1,938,000 2,041,000
--------------- -------------- --------------
$ 402,273,000 $ 404,691,000 $ 409,827,000
=============== ============== ==============
12. ACCRUED EXPENSES
Accrued expenses is comprised of the following components at December 31,
1997 and 1996:
DECEMBER 31,
---------------------------------
1997 1996
-------------- --------------
Accrued distribution payable.................................... $ 7,177,000 $ 6,588,000
Accrued income taxes............................................ 3,079,000 2,245,000
Accrued compensation and benefits............................... 2,002,000 2,650,000
Accrued interest................................................ 970,000 1,058,000
Other accrued expenses.......................................... 22,451,000 23,740,000
-------------- --------------
$ 35,679,000 $ 36,281,000
============== ==============
F-19
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued 5,073 and 1,113 shares of its common stock upon
conversion of 3,000 and 658 shares of its Series D Preferred Stock in
1996 and 1995, respectively. The Company contributed 394,739 shares of
its common stock to its 401(k) Savings Plan and 160,000 shares of its
common stock to its subsidiary's defined benefit pension plan in 1995, in
satisfaction of required pension payments. During 1996, $5,099,000 in
property and equipment was netted against accumulated depreciation and
amortization.
Supplemental information on cash paid during the period for:
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- -------------
Interest.................................. $ 15,373,000 $ 14,502,000 $ 15,675,000
=============== ============== =============
Income taxes.............................. $ 1,535,000 $ 1,340,000 $ 2,293,000
=============== ============== =============
14. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash, cash equivalents, short-term
investments and accounts receivable 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, 1997 was approximately $183 million as compared to the
carrying value of $178 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 has no derivative
financial instruments.
The Company does not believe that it has a significant concentration of
credit risk at December 31, 1997, as approximately 65% of the Company's
accounts receivable are generated from its industrial field services
customers located throughout the United States, Europe and Asia-Pacific.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1997 and 1996 are summarized as follows:
QUARTER ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- --------------- -------------- --------------
1997:
Revenues................ $ 53,154,000 $ 58,388,000 $ 62,074,000 $ 63,320,000
============== =============== ============== ==============
Operating income........ $ 12,444,000 $ 14,245,000 $ 15,695,000 $ 16,276,000
============== =============== ============== ==============
Net income ............. $ 1,529,000 $ 2,707,000 $ 3,276,000 $ 3,131,000
============== =============== ============== ==============
Earnings per
common share:
Basic................ $ .04 $ .08 $ .10 $ .09
============== =============== ============== ==============
Diluted.............. $ .04 $ .08 $ .10 $ .09
============== =============== ============== ==============
1996:
Revenues................ $ 54,839,000 $ 57,215,000 $ 57,010,000 $ 59,797,000
============== =============== ============== ==============
Operating income........ $ 11,683,000 $ 13,469,000 $ 13,984,000 $ 14,679,000
============== =============== ============== ==============
Net income ............. $ 831,000 $ 1,700,000 $ 2,313,000 $ 2,180,000
============== =============== ============== ==============
Earnings per
common share:
Basic................ $ .02 $ .05 $ .06 $ .06
============== =============== ============== ==============
Diluted.............. $ .02 $ .05 $ .06 $ .06
============== =============== ============== ==============
F-20
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
------------- ------------- --------------
General and administrative expenses..................... $ (4,617,000) $ (4,677,000) $ (4,528,000)
Depreciation and amortization........................... (290,000) (64,000) (65,000)
Interest expense........................................ (2,239,000) (2,377,000) (4,343,000)
Intercompany fees and expenses.......................... 2,266,000 3,997,000 1,104,000
Interest income......................................... 372,000 247,000 261,000
Other income (expense).................................. (1,024,000) (332,000) (307,000)
Equity in income of subsidiaries and KPP................ 16,175,000 10,230,000 67,059,000
------------- ------------- --------------
Net income.............................................. 10,643,000 7,024,000 59,181,000
Dividends applicable to preferred stock................. 538,000 502,000 1,527,000
------------- ------------- --------------
Net income applicable to common stock.................. $ 10,105,000 $ 6,522,000 $ 57,654,000
============= ============= ==============
Earnings per common share:
Basic................................................ $ .31 $ .19 $ 1.72
============= ============= ==============
Diluted.............................................. $ .30 $ .19 $ 1.59
============= ============= ==============
F-21
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
SCHEDULE I
(CONTINUED)
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
DECEMBER 31,
--------------------------------------
1997 1996
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 8,043,000 $ 8,931,000
Accounts receivable.................................................. - 102,000
Prepaid expenses and other current assets............................ - 818,000
--------------- ---------------
Total current assets.................................................... 8,043,000 9,851,000
--------------- ---------------
Property and equipment.................................................. 3,848,000 3,819,000
Less accumulated depreciation........................................... 3,848,000 3,559,000
--------------- ---------------
Net property and equipment......................................... - 260,000
--------------- ---------------
Investments in, advances to and notes receivable
from subsidiaries and KPP............................................. 104,135,000 104,035,000
Other assets............................................................ 2,243,000 2,311,000
--------------- ---------------
$ 114,421,000 $ 116,457,000
=============== ===============
LIABILITIES AND EQUITY
Current liabilities - accounts payable and accrued expenses............. $ 3,987,000 $ 8,426,000
Long-term debt.......................................................... 23,666,000 23,666,000
Deferred credits and other liabilities.................................. 8,321,000 8,999,000
Stockholders' equity:
Preferred stock, without par value................................... 5,792,000 5,792,000
Common stock, without par value...................................... 4,234,000 4,230,000
Additional paid-in capital........................................... 197,242,000 197,213,000
Accumulated deficit.................................................. (101,491,000) (111,596,000)
Treasury stock, at cost.............................................. (25,216,000) (20,631,000)
Cumulative foreign currency translation adjustment................... (2,114,000) 358,000
---------------- ---------------
Total stockholders' equity......................................... 78,447,000 75,366,000
--------------- ---------------
$ 114,421,000 $ 116,457,000
=============== ===============
F-22
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
SCHEDULE I
(CONTINUED)
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ---------------- ------------------
Operating Activities:
Net income ....................................... $ 10,643,000 $ 7,024,000 $ 59,181,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization................... 290,000 64,000 65,000
Equity in net income of subsidiaries and KPP.... (16,175,000) (10,230,000) (67,059,000)
Changes in current assets and liabilities:
Short-term investments........................ - - 1,020,000
Accounts receivable........................... 102,000 99,000 (107,000)
Prepaid expenses.............................. 818,000 979,000 (1,797,000)
Accrued expenses ............................. (4,439,000) (1,245,000) 2,401,000
------------------ ----------------- ------------------
Net cash used in operating activities......... (8,761,000) (3,309,000) (6,296,000)
------------------ ---------------- ------------------
Investing Activities:
Capital expenditures.............................. (30,000) (25,000) (32,000)
Decrease in other assets, net..................... (3,082,000) (129,000) (459,000)
------------------ ----------------- -------------------
Net cash used in investing activities......... (3,112,000) (154,000) (491,000)
------------------ ----------------- -------------------
Financing Activities:
Payments on long-term debt........................ - (6,000,000) (15,011,000)
Payment of subsidiary note........................ - - (50,000,000)
Preferred stock dividends paid.................... (538,000) (502,000) (1,328,000)
Decrease in investments in, advances to and notes
receivable from subsidiaries and KPP............ 16,075,000 1,369,000 91,102,000
Common stock issued............................... 33,000 - -
Purchase of treasury stock, net................... (4,585,000) (1,079,000) -
----------------- ----------------- ------------------
Net cash provided by (used in) financing
activities................................. 10,985,000 (6,212,000) 24,763,000
----------------- ----------------- ------------------
Increase (decrease) in cash and cash equivalents..... (888,000) (9,675,000) 17,976,000
Cash and cash equivalents at beginning of year....... 8,931,000 18,606,000 630,000
----------------- ---------------- ------------------
Cash and cash equivalents at end of year............. $ 8,043,000 $ 8,931,000 $ 18,606,000
================= ================ ==================
F-23
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
SCHEDULE II
KANEB SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------ ------------- ------------- -------------- ------------- -------------
ALLOWANCE DEDUCTED FROM
ASSETS TO WHICH THEY APPLY
YEAR ENDED DECEMBER 31, 1997:
For doubtful receivables
classified as current assets... $ 666 $ 246 $ (19)(a) $ (323)(b) $ 570
============= =========== ============== ============ =============
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 86,698 $ - $ - $ (31,014) $ 55,684
============= =========== ============= ============ =============
YEAR ENDED DECEMBER 31, 1996:
For doubtful receivables
classified as current assets... $ 1,133 $ 333 $ (23)(a) $ (777)(b) $ 666
============= =========== ============== ============ =============
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 84,284 $ - $ 6,598 $ (4,184) $ 86,698
============= =========== ============= ============ =============
YEAR ENDED DECEMBER 31, 1995:
For doubtful receivables
classified as current assets... $ 854 $ 598 $ 41(a) $ (360)(b) $ 1,133
============= =========== ============= ============ =============
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 108,441 $ - $ - $ (24,157) $ 84,284
============= =========== ============= ============ =============
Notes:
(a) Foreign currency translation adjustments.
(b) Receivable write-offs and reclassifications, net of recoveries.
F-24
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
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
President and Chief Executive Officer
Date: March 23, 1998
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 President, Chief Executive March 23, 1998
Officer and Director
Principal Accounting Officer
HOWARD C. WADSWORTH Vice President, Treasurer March 23, 1998
and Secretary
Directors
SANGWOO AHN Director March 23, 1998
JOHN R. BARNES Director March 23, 1998
FRANK M. BURKE, JR. Director March 23, 1998
CHARLES R. COX Director March 23, 1998
HANS KESSLER Director March 23, 1998
JAMES R. WHATLEY Director March 23, 1998
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
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, 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 herewith.
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 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.
4.4 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series F, dated June 12, 1997,
filed herewith.
4.5 Indenture between Moran Energy Inc. ("Moran") and First City National
Bank of Houston ("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.
4.6 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 4.7 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1983, which exhibit is hereby incorporated by
reference.
10.1 Kaneb Services, Inc. Savings Investment Plan, as amended, filed as
Exhibit 4.10 of the exhibits to the Registrant's Registration Statement
on Form S-8 ("Form S-8") (S.E.C. File No. 33-41295) and as Exhibit 4.1
to the exhibits of Registrant's Form S-8 (S.E.C. File No. 333-14067),
which exhibits are hereby incorporated by reference.
10.2 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 to the exhibits of the Registrant's Form S-8 (S.E.C. File
No. 2-90929), which exhibit is hereby incorporated by reference.
10.3 Kaneb Services, Inc. 1994 Stock Incentive Plan, filed as Exhibit 4.12
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-54027), which exhibit is hereby incorporated by reference.
10.4 Kaneb Services, Inc. Deferred Stock Unit Plan, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-08725),
which exhibit is hereby incorporated by reference.
10.5 Kaneb Services, Inc. 1996 Supplemental Deferred Compensation Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08727), which exhibit is hereby incorporated by
reference.
10.6 Kaneb Services, Inc. $1.63 Director Stock Options, filed as Exhibit 4.1
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-58981), which exhibit is hereby incorporated by reference.
10.7 Kaneb Services, Inc. Directors Stock Options I, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-14069),
which exhibit is hereby incorporated by reference.
10.8 Kaneb Services, Inc. 1996 Directors Stock Incentive Plan, as amended,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-14071) and as Exhibit 4.1 to the exhibits of
Registrant's Form S-8 (S.E.C. File No. 333-22109), which exhibits are
hereby incorporated by reference.
10.9 Kaneb Services, Inc. Non-Employee Directors Deferred Stock Unit Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08723), which exhibit is hereby incorporated by
reference.
10.10 Form of Termination Agreement, filed as Exhibit 10.10 to the exhibits
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, which exhibit is hereby incorporated by reference.
10.11 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, as amended (the
"Furmanite Loan Agreement"), filed as Exhibit 10.8 of the exhibits to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994 and Exhibit 10.11 of the exhibits to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, which
exhibits are hereby incorporated by reference.
10.12 Amendments to the Furmanite Loan Agreement, filed herewith.
10.13 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed as Exhibit 10.10 of the exhibits to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, which exhibit is hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants Price Waterhouse LLP filed herewith
27 Financial Data Schedule, filed herewith.