UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the quarter ended June 30, 1994
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Commission File 1-7615
Number
Kirby Corporation
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(Exact name of registrant as specified in its charter)
Nevada 74-1884980
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1775 St. James Place, Suite 300,
Houston, TX 77056-3453
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(Address of principal executive offices) (Zip Code)
(713) 629-9370
----------------------------------------
(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
The number of shares outstanding of the registrant's Common Stock, $.10 par
value per share, on August 5, 1994 was 28,313,587.
PART 1 - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1994 1993
-------- ------------
($ in thousands)
Marine Transportation, Diesel Repair and Other
Current assets:
Cash and invested cash $ -- 1,999
Accounts and notes receivable, net of allowance
for doubtful accounts 51,279 50,722
Inventory - finished goods, at lower of average
cost or market 8,630 7,531
Prepaid expenses 5,953 7,393
Deferred taxes 1,520 2,768
------ -------
Total current assets 67,382 70,413
------- -------
Property and equipment, at cost 418,390 406,675
Less allowance for depreciation 138,764 125,459
------- -------
279,626 281,216
------- -------
Excess cost of consolidated subsidiaries 8,753 7,429
Noncompete agreements, net of accumulated
amortization of $8,345 ($7,298 at December 31,
1993) 4,705 5,752
Other assets 18,690 13,575
------- -------
Total assets - Marine Transportation, Diesel
Repair and Other 379,156 378,385
------- -------
Insurance
Investments:
Available-for-sale securities 130,414 102,175
Short-term investments 16,835 25,128
------- -------
147,249 127,303
Cash and invested cash 105 12,937
Accrued investment income 2,017 1,998
Accounts and notes receivable, net of allowance
for doubtful accounts 25,490 12,195
Reinsurance receivable on paid losses 12,978 15,186
Prepaid reinsurance premiums 6,671 5,773
Deferred policy acquisition costs 9,870 7,279
Property and equipment, at cost, net of
allowance for depreciation 2,384 2,197
------- -------
Total assets - Insurance 206,764 184,868
------- -------
$585,920 563,253
======= =======
See accompanying notes to condensed financial statements.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1994 1993
-------- ------------
($ in thousands)
Marine Transportation, Diesel Repair and
Other
Current liabilities:
Current portion of long-term debt $ 10,962 10,962
Accounts payable 14,571 11,767
Accrued liabilities 25,842 27,898
Deferred revenues 3,981 5,637
------- -------
Total current liabilities 55,356 56,264
------- -------
Long-term debt, less current portion 109,216 109,597
Deferred taxes 39,822 39,735
Other long-term liabilities 8,329 8,913
------- -------
Total liabilities - Marine
Transportation, Diesel Repair and
Other 212,723 214,509
------- -------
Insurance
Losses, claims and settlement expenses 57,171 49,930
Unearned premiums 77,078 61,558
Reinsurance premiums payable 6,254 5,377
Deferred Puerto Rico taxes 1,268 3,549
Other liabilities 8,172 4,576
Minority interest in consolidated 10,172 12,005
insurance subsidiary ------- -------
Total liabilities - Insurance 160,115 136,995
------- -------
Contingencies and Commitments -- --
Stockholders' Equity:
Preferred stock, $1.00 par value per
share. Authorized 20,000,000 shares -- --
Common stock, $.10 par value per share.
Authorized 60,000,000 shares, issued
30,782,000 shares (30,759,000 at
December 31, 1993) 3,076 3,076
Additional paid-in capital 156,435 156,340
Unrealized net gains (losses) in value of
long-term investments (770) 4,440
Retained earnings 67,429 61,339
------- -------
226,170 225,195
Less cost of 2,468,000 shares in treasury
(2,555,000 at December 31, 1993) 13,088 13,446
------- -------
213,082 211,749
------- -------
$585,920 563,253
======= =======
See accompanying notes to condensed financial statements.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
($ in thousands, except per share
amounts)
Revenues:
Transportation $ 74,025 69,451 147,412 122,224
Diesel repair 11,646 8,110 21,817 17,734
Net premiums earned 15,305 13,559 29,415 22,605
Commissions earned on reinsurance 1,148 916 2,455 1,622
Investment income 2,452 1,945 4,388 3,832
Gain on disposition of assets 75 198 236 434
Realized gain on investments 90 168 848 279
------- ------ ------- -------
104,741 94,347 206,571 168,730
------- ------ ------- -------
Costs and expenses:
Costs of sales and operating
expenses (except as shown below) 55,004 48,324 111,429 87,102
Losses, claims and settlement
expenses 14,784 10,569 25,908 17,085
Policy acquisition costs 3,644 2,971 7,278 5,388
Selling, general and
administrative 11,807 10,749 23,732 19,605
Taxes, other than on income 4,232 3,090 7,822 5,951
Depreciation and amortization 7,887 7,164 15,681 13,325
Minority interest expense 532 (100) 1,179 115
------- ------ ------- -------
97,890 82,767 193,029 148,571
------- ------ ------- -------
Operating income 6,851 11,580 13,542 20,159
Interest expense 1,957 2,010 3,766 4,750
------- ------ ------- -------
Earnings before taxes on income 4,894 9,570 9,776 15,409
Provision for taxes on income 1,701 3,070 3,686 5,064
------- ------ ------- -------
Net earnings $ 3,193 6,500 6,090 10,345
======= ====== ======= =======
Earnings per share of common stock $ .11 .26 .21 .43
======= ====== ======= =======
See accompanying notes to condensed financial statements.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Six months ended
June 30,
------------------
1994 1993
-------- --------
($ in thousands)
Net earnings $ 6,090 10,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Earnings of minority shareholders and
unconsolidated affiliates 1,135 --
Gain on disposition of assets (236) (434)
Realized gain on investments (849) (279)
Depreciation and amortization 15,681 13,325
Increase in deferred tax items 1,336 2,736
Increase (decrease) in deferred maintenance
expenses (1,865) 859
Other noncash adjustments to earnings 43 25
Decrease (increase) in cash from other changes
in operating working capital of:
Marine transportation, diesel repair and
other (5,314) (6,767)
Insurance 10,639 (4,899)
------ -------
Net cash provided by operating activities 26,660 14,911
------ ------
Cash flow from investing activities:
Proceeds from sale and maturities of investments 22,364 17,346
Purchase of investments (57,668) (20,128)
Net decrease in short-term investments 5,705 8
Capital expenditures (12,528) (10,640)
Purchase of assets of marine transportation
companies:
Property, equipment and other assets, net -- (24,129)
Intangible assets -- (2,001)
Proceeds from disposition of assets 564 937
Other -- 511
------ -------
Net cash used by investing activities (41,563) (38,096)
------ -------
Cash flow from financing activities:
Borrowings on bank revolving credit loan 87,900 88,864
Payment on bank revolving credit loan (80,300) (57,900)
Payments under long-term debt (7,981) (7,981)
Proceeds from exercise of stock options 453 15
------ -------
Net cash provided by financing activities 72 22,998
------ -------
Decrease in cash and invested cash (14,831) (187)
Cash and invested cash, beginning of year 14,936 7,300
------ -------
Cash and invested cash, end of period $ (105) 7,113
======= =======
Supplemented disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,813 5,786
Income taxes $ 3,400 1,100
Noncash investing and financing activity:
Assumption of liabilities in connection with
mergers with and purchase of assets of marine
and diesel repair companies $ -- 11,445
Issuance of stock in connection with purchase of
marine transportation companies $ -- 14,725
Issuance of stock in connection with conversion of
7 1/4% convertible debentures $ -- 50,000
See accompanying notes to condensed financial statements.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
financial statements of Kirby Corporation and consolidated subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
1994 and December 31, 1993, and the results of operations for the three months
and six months ended June 30, 1994 and 1993.
(1) BASIS FOR PREPARATION OF THE SIX MONTH FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the Company believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including significant accounting
policies, normally included in annual financial statements have been condensed
or omitted pursuant to such rules and regulations. It is suggested that these
condensed financial statements be read in conjunction with the Company's latest
Annual Report on Form 10-K.
(2) ACQUISITIONS
On July 1, 1994, a wholly owned subsidiary of the Company completed the
purchase of a U.S. flag tanker from Tosco Refining Company ("Tosco"). The
single hull tanker is currently undergoing capitalized restorations and
modifications and is scheduled to be placed in service in September, 1994. The
tanker will be utilized in the carriage of refined petroleum products in United
States coastwise trade and will operate under a three year charter. The tanker
has a capacity of 266,000 barrels and a deadweight tonnage of 37,750. The
tanker will be retired from service in accordance with the Oil Pollution Act of
1990 ("OPA") on January 1, 1999. The asset purchase was funded by borrowings
under the Company's established bank revolving credit agreement and is
accounted for in accordance with the purchase method of accounting.
On July 1, 1994, the Company announced the signing of a letter of intent
to purchase from The Dow Chemical Company ("Dow"), 65 inland tank barges, one
river towboat and two shifting boats. Also, the Company will assume, with the
lessors' consent, the lease or purchase of an additional 31 inland tank barges
and two towboats presently in Dow's service. Under the terms of the letter of
intent, Dow will enter into a long-term contract with a subsidiary of the
Company to provide service for all of Dow's inland bulk liquid marine
transportation requirements for a period of 10 years. Dow is a major
manufacturer of petrochemicals, industrial chemicals and related bulk liquid
products and historically has used its own barges and outside towing resources
to service its inland marine transportation requirements. Dow produces its
products at its Freeport, Texas manufacturing complex, other plants in
Louisiana and at various other United States locations. A number of the Dow
plants, as well as their suppliers and customers, rely extensively on water
transportation for moving products between Dow's manufacturing facilities, for
shipment to the ultimate users and to move certain raw materials purchased by
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(2) ACQUISITIONS (Continued)
Dow. The closing of the transaction, expected in the 1994 fourth quarter, is
subject to appropriate regulatory filings and approvals presently underway and
the negotiation of the necessary definitive agreements and approvals by the
management of the Company and Dow. The asset purchase, if consummated, will be
funded by borrowings under the Company's revolving credit agreement. On July
21, 1994, a wholly owned subsidiary of the Company completed the purchase of
three U.S. flag tankers from OMI Corp. ("OMI") for $23,750,000. The single hull
tankers will transport refined petroleum products primarily between the
United States Gulf Coast, Florida and the mid-Atlantic states. The three
tankers currently operate in the spot market, however, effective October, 1994,
one tanker goes under a six-months' charter and effective November, 1994, one
tanker is chartered for a one year period. Both of the charters have option
periods. Each of the tankers has a total capacity of 266,000 barrels and a
deadweight tonnage of 37,853. In accordance with the OPA, the three tankers
will be retired from service on January 1, 2000. Funding for the transaction
was provided through the Company's established bank revolving credit agreement.
The operations of the three tankers are included as part of the Company's
operations effective July 21, 1994, in accordance with the purchase method of
accounting.
(3) TAXES ON INCOME
Earnings before taxes on income and details of the provision for taxes on
income for United States and Puerto Rico operations for the three months and
six months ended June 30, 1994 and 1993 are as follows:
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
($ in thousands)
Earnings before taxes on income:
United States $3,856 8,728 6,688 13,701
Puerto Rico 1,038 842 3,088 1,708
----- ----- ----- ------
$4,894 9,570 9,776 15,409
===== ===== ===== ======
Provision for taxes on income:
United States:
Current $1,131 1,507 2,199 2,328
Deferred 799 1,763 1,335 2,936
State and municipal 73 -- 152 --
----- ----- ----- -----
$2,003 3,270 3,686 5,264
===== ====== ===== =====
Puerto Rico:
Deferred $ (302) (200) -- (200)
===== ====== ===== ======
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(4) INSURANCE DISCLOSURE
In March, 1994, the Company received $7,000,000 from Universal Insurance
Company ("Universal"), the Company's property and casualty insurance
subsidiary, representing the redemption of 20,424 shares of Universal's Class B
voting common stock and 24,360 shares of Universal's Class C non-voting common
stock. The March redemption reduced the Company's ownership of Universal's
voting common stock to 67% from 70%, prior to the redemption. Collectively to
date, Universal has redeemed from the Company a total of 65,387 shares of
voting Class B common stock and 24,360 shares of non-voting Class C common
stock for a total redemption price of $15,000,000. Under previously announced
options and redemption rights included in the merger between Eastern America
Insurance Company ("Eastern America") and Universal, Eastern America Financial
Group, Inc. ("Eastern America Group"), which is the parent of the former
Eastern America, could acquire 100% of Universal's stock over a period of up to
12 years. Eastern America Group owns the remaining 33% of Universal's voting
common stock.
(5) CONTINGENCIES AND COMMITMENTS
In June, 1994, the Company's wholly owned subsidiary, Dixie Carriers,
Inc., received notification from the United States Environmental Protection
Agency ("EPA") that it may be a potentially responsible party with respect to a
shipyard hazardous waste site in Slidell, Louisiana. As a result of the early
stage of this investigation and the limited information available regarding the
matter, and considering that over 250 other parties received identical
notifications, and that Management does not recall ever doing business with
this particular shipyard, it is not possible for the Company to determine
whether the Company has any liability, either contractual or statutory with
respect to the matter referenced in the notice sent by the EPA, or if such
liability exists, the amount thereof.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company reported net earnings of $6,090,000, or $.21 per share, for
the first six months of 1994, compared with net earnings of $10,345,000, or
$.43 per share, reported for the first six months of 1993. Net earnings for
the 1994 second quarter totaled $3,193,000, or $.11 per share, compared with
net earnings of $6,500,000, or $.26 per share, reported for the corresponding
1993 quarter.
The Company conducts operations in three business segments: marine
transportation, diesel repair and property and casualty insurance. The sum of
the three business segment's pretax earnings exceeds the Company's consolidated
pretax earnings due primarily to general corporate expenses. A discussion of
each segment follows:
Marine Transportation
The Company's marine transportation segment reported transportation
revenues for the first six months of 1994 of $147,412,000, reflecting a 21%
increase when compared with $122,224,000 reported for the first half of 1993.
Second quarter 1994 transportation revenues equaled $74,025,000, an increase of
7% when compared with 1993 second quarter revenues of $69,451,000.
Revenues for the 1994 first half and second quarter reflect the operations
during the 1994 periods of three marine transportation companies acquired
during the 1993 year, TPT Transportation on March 3, AFRAM Lines (USA) Co.,
Ltd. on May 14 and Chotin Transportation Company ("Chotin") on December 21. All
three of the acquisitions were accounted for under the purchase method of
accounting.
During April and part of May, high water on certain waterways curtailed
operations. However, conditions were much improved over the 1994 first quarter
when transportation operations were curtailed to varying degrees by the adverse
winter weather conditions which hampered the efficiencies of operations in
inland as well as coastal movements.
As a provider of service for both the inland and offshore United States
markets, the marine transportation segment operates through three divisions
organized around the markets it serves: the Inland Chemical Division, serving
the inland industrial and agricultural chemical markets; the Inland Refined
Products Division, serving the inland refined products market; and the Offshore
Division, which serves the offshore petroleum products, container, dry bulk and
palletized cargo markets.
Movements of inland industrial chemicals for the petrochemical industry,
handled by the segment's Inland Chemical Division, continued to reflect signs
of improvement as equipment utilization and rates continued to increase during
the 1994 first half. Such increases primarily relate to improved performance
by the chemical manufacturers.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
The Inland Chemical Division operates under long-term contracts and spot
movements of products. Currently, the majority of such movements are under
term contracts, which, may be less than current spot market rates. Since
March, 1994, the Division has experienced spot rate increases, however, such
increases are not reflected in the majority of the contract movements, until
such time as the contracts are renewed.
Liquid fertilizer and anhydrous ammonia movements during the 1994 first
half and second quarter remain strong compared with the corresponding 1993
periods. With the 1993 year resulting in reduced yields and a low level of
grain stock, partially due to the 1993 upper Mississippi flooding, acreage
planting has increased and the demand for nitrogen fertilizer has remained
strong.
The Inland Refined Products Division, which moves inland refined petroleum
products (gasoline, diesel fuel and jet fuel), continued to experience a strong
demand for gasoline movements during the 1994 first six months and second
quarter. Enhanced with the December 21, 1993 acquisition from Chotin of 53
inland tank barges and a transportation agreement that expires in the year
2000, the Inland Refined Products Division substantially increased the
Company's presence in the contract and spot movements of refined petroleum
products on the Mississippi River System.
The Inland Refined Products Division, like the Inland Industrial Chemical
Division, operates under long-term contracts as well as spot market movements.
During the first half of 1994, the majority of such movements were spot
movements which, are currently higher than the majority of movements performed
under long-term contracts. The Inland Refined Products Division has also
experienced spot market increases and has benefited from its higher spot to
contract percentage.
The Offshore Division, which participates in both the liquid and dry
markets, experienced significant weakness during the first half of 1994.
Offshore movements of refined products have been particularly weak during the
first half, even though the harsh winter season resulted in an increase in
movements during the 1994 first quarter. During such period, three tankers and
one barge and tug unit, which were engaged in the spot market trade, worked in
the northeast delivering heating oil. Profitability of such spot market
movements was adversely affected by the winter weather conditions, which
hampered operating efficiencies. During the 1994 second quarter, due to the
continued weakness, up to 33% of the Company's spot market fleet was idle at
various times. Spot market rates remain extremely competitive and current
period term charters are difficult to obtain due to excess equipment capacity
in the liquid market.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
Likewise, requirements for transportation of food commodities and related
products under the United States Government's preference aid cargo program and
military household cargo movements have also remained weak throughout the first
half of 1994. The Company was successful during the 1994 first half in
employing its three freighters and one barge and tug unit operating in this
market, however, at rates that were significantly lower than prior year rates.
For the 1994 first half, available movements have decreased, creating excess
equipment capacity in the market and thereby, resulting in reduced rates. The
softness in the overall preference aid cargo market has also negatively
affected the Company's other offshore barge and tug units, which periodically
operate in the preference aid market as a supplement to their long-term
contract movements. During the 1994 first quarter, the Company's offshore
barge and tug unit experienced difficulties with collection of its containers
from several voyages carrying preference aid cargo to politically unstable
Haiti. Collectively, the voyages to Haiti reduced the Company's earnings
before taxes by an estimated $1,750,000.
The Company's foreign flag container service, which commenced operations
in February, 1994, provides a direct water transportation service from mid-
America (Memphis) to Mexico and Central America. Such service has encountered
aggressive pricing from competitors that has resulted in a much slower than
anticipated acceptance of the service. Although volumes are increasing with
each voyage, the operation continues to suffer operating losses. Evaluations
are currently underway and a decision will be made in the near future on
whether profitability can be attained soon enough to warrant continuation of
the service.
Costs and expenses, excluding interest expense, for the marine
transportation segment for the first six months of 1994 totaled $134,668,000,
an increase of 30% over the comparable first half of 1993 when costs and
expenses totaled $103,467,000. Second quarter 1994 costs and expenses,
excluding interest expense, increased to $67,756,000, reflecting a 16% increase
over second quarter 1993 totals of $58,187,000. A major portion of the
increases reflects the costs and expenses, including depreciation, associated
with the acquisitions and merger consummated during the first half of 1993. The
initial expense of the captive subsidiary required the recording of such
$1,100,000 of anticipated losses for the Company's applicable subsidiaries. In
addition, the increases reflect higher equipment costs, welfare costs, general
and administrative costs and inflationary increases in other costs and
expenses.
The marine transportation earnings before taxes on income for the 1994
first six months totaled $9,821,000 compared with $15,919,000 for the first
half of 1993. Second quarter 1994 pretax earnings were $4,721,000 compared
with $9,726,000 reported for the 1993 second quarter.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
The Offshore Division's coastwise refined products market is expected to
continue to remain weak into the 1994 third quarter. During the 1994 third and
fourth quarters, the market is anticipated to improve substantially in both
utilization and rates as refiners and wholesalers begin building inventories of
reformulated gasolines, which are required to be ready for sale by January,
1995, to meet the requirements of the Clean Air Act. By the middle of the
fourth quarter, the Company will have at least 10 of its current 12 offshore
liquid units operating under term charters currently in place at rates that
should achieve or surpass prior years' profitability and are significantly
higher than current spot market rates.
Diesel Repair
The Company's diesel repair segment reported diesel repair and parts sales
revenues of $21,816,000 for the first half of 1994, reflecting a 23% increase
compared with $17,735,000 for the corresponding 1993 period. Second quarter
1994 revenues equaled $11,646,000, an increase of 44% when compared with 1993
second quarter revenues of $8,110,000.
The diesel repair segment is divided into two divisions organized around
the markets they serve. The Marine Diesel Repair Division operates nationwide
through five facilities that repair and overhaul marine diesel engines and
reduction gears, and sell related parts and accessories. The Rail Diesel
Repair Division provides replacement parts, service and support to shortline
railroads and industrial companies that operate diesel-electric locomotives.
The Marine Diesel Repair Division continues to operate in an extremely
competitive market that has negatively affected operating margins. The Midwest
facility's inland marine dry bulk customers continue to suffer from the effects
of the 1993 upper Mississippi River flood and current depressed coal and grain
markets. The West Coast facility continues to feel the effects of the United
States military cutback and continued slow vessel maintenance from the Pacific
commercial fishing fleet operations.
The Rail Diesel Repair Division commenced operations in January, 1994, and
generated revenues of $4,045,000 during the first six months of 1994 and
$2,395,000 during the 1994 second quarter. Substantially all of the revenues
were generated from direct parts sales. For its first six months of
operations, the Division recorded a modest profit. The Division serves as the
exclusive shortline and industrial rail distributor of aftermarket parts and
service for the Electro-Motor Division of General Motors ("EMD"), the world's
largest manufacturer of diesel-electric locomotives.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
Costs and expenses, excluding interest expense, for the diesel repair
segment for the first six months of 1994 totaled $20,486,000, reflecting a 24%
increase compared with $16,524,000 for the first half of 1993. Second quarter
costs and expenses totaled $10,849,000 compared with $7,560,000 for the like
1993 quarter, reflecting a 44% increase. The increase for both periods
primarily relates to the costs and expenses associated with the Rail Diesel
Repair Division for 1994, as well as continued competitive conditions and their
negative effect on the profit margins in the Marine Diesel Repair Division.
Earnings before taxes on income for the diesel repair segment totaled
$1,182,000 for the first half of 1994 compared with $1,095,000 for the first
half of 1993. Second quarter 1994 earnings before taxes on income were
$719,000 compared with $479,000 reported for the 1993 second quarter.
Property and Casualty Insurance
The Company's Puerto Rican property and casualty insurance segment
reported net premiums written for the first six months of 1994 of $56,587,000,
a 102% increase over the $27,971,000 reported for the like 1993 period. Second
quarter 1994 net premiums written increased 114% to $30,470,000, compared with
$14,214,000 reported for the second quarter of 1993. With particular emphasis
on the vehicle single-interest line of business, the segment has been
successful in generating single-interest business from new financial
institution customers and portfolio transfers. In addition, a change in the
Puerto Rico export tax laws during 1994 resulted in lower prices on United
States manufactured automobiles sold in Puerto Rico. Such lowering of prices
has resulted in improved automobile sales, thereby enhancing Universal's net
premiums written.
Net premiums earned for the first six months of 1994 totaled $29,415,000,
a 30% increase over the $22,605,000 reported for the 1993 first six months. Net
premiums earned for the 1994 second quarter increased 13% to $15,305,000 when
compared with $13,559,000 reported for the 1993 second quarter. Premiums earned
for amortization purposes are recognized over the life of the policies written,
therefore, the substantial increase in premiums written will be reflected in
earnings over future periods. Net premiums earned continued to be negatively
affected by the high reinsurance costs for the commercial multiple-peril line
associated with the ceding of a portion of the gross premium under the
segment's reinsurance program. Some stabilization in such rates has occurred
during the 1994 first half; however, the reinsurance rates remain high.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
Losses, claims and settlement expenses for the 1994 first six months
totaled $22,702,000 compared with $17,085,000 for the 1993 first half. Second
quarter 1994 losses, claims and settlement expenses totaled $11,077,000
compared with $10,569,000 for the 1993 second quarter. Such 33% and 5%,
respectively, increases reflect the significant improvement in business volume,
with particular emphasis in the vehicle single-interest and double-interest
business and commercial multiple peril business. The 1994 six months' total
includes $2,000,000 of additional reserves for potential losses associated with
the Company's Bermuda reinsurance subsidiary. Since ceasing participation in
the reinsurance market in 1990, the Company continues to take steps to expedite
its withdrawal from the business and recognized the additional reserve for
potential, but as yet, unreported losses.
Policy acquisition costs for the 1994 first half totaled $7,278,000, a 35%
increase over the 1993 first half costs of $5,388,000. Second quarter 1994
policy acquisition costs equaled $3,644,000, a 23% increase when compared with
$2,971,000 reported for the second quarter of 1993. The increase for both
periods reflects the growth in the commercial property lines of insurance,
which generally carry higher commission rates and the commission earned from
the substantial increase in the vehicle single-interest business.
The Company's portion of the property and casualty insurance segment's
pretax earnings for the six months ended June 30, 1994 totaled $1,088,000
compared with $1,699,000 for the first half of 1993. Second quarter 1994
pretax earnings of the property and casualty insurance segment applicable to
the Company totaled $1,038,000 compared with $837,000 for the second quarter of
1993.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Capital Resources and Liquidity
Redemption
In March, 1994, the Company received $7,000,000 from Universal, the
Company's property and casualty insurance subsidiary, representing the
redemption of 20,424 shares of Universal's Class B voting common stock and
24,360 shares of Universal's Class C non-voting common stock. The March, 1994
redemption reduced the Company's ownership of Universal's voting common stock
to 67% from 70%, prior to the redemption. Collectively to date, Universal has
redeemed from the Company a total of 65,387 shares of voting Class B common
stock and 24,360 shares of non-voting Class C common stock for a total
redemption price of $15,000,000. Under previously announced options and
redemption rights included in the merger between Eastern America and Universal,
Eastern America Group, the parent of the former Eastern America, could acquire
100% of Universal's stock over a period of up to twelve years. Eastern America
Group owns the remaining 33% of Universal's voting common stock.
Business Development
As an expansion of the diesel repair segment, beginning in January, 1994,
the Company is engaged through Rail Systems, Inc. ("Rail Systems") in the
overhaul and repair of locomotive diesel engines and sale of replacement parts
for locomotives. Rail Systems serves shortline and industrial railroads within
the continental United States. In October, 1993, EMD, the world's largest
manufacturer of diesel-electric locomotives, awarded an exclusive shortline and
industrial rail distributorship to Rail Systems to provide replacement parts,
service and support to these important and expanding markets. Revenues for Rail
Systems for the first six months of 1994 and the 1994 second quarter were
$4,045,000 and $2,395,000, respectively. The operations of Rail Systems
reflected a nominal operating profit for both the 1994 second quarter and first
six months.
In March, 1994, the Company through its subsidiary, Americas Marine
Express, Inc., began all-water marine transportation services between Memphis,
Tennessee and Mexico, and Central America. The new transportation service
utilizes a chartered foreign flag river/ocean vessel that offers direct sailing
between the locations. The new service provides exporters and importers in the
north, central and mid-south states with a direct shipping alternative between
the locations on a fourteen day round trip basis. The direct all-water liner
service accepts 20 foot and 40 foot containers, including refrigerated and tank
containers, as well as other cargo on a space available basis. As noted in the
Discussion and Analysis of the Results of Operations, Americas Marine has
encountered aggressive pricing from competitors, slowing market acceptance of
the service. The operation continues to suffer operating losses, although
volumes are increasing with each voyage.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Capital Resources and Liquidity, Continued
In May, 1994, the Company entered into a contract for the construction of
12 double skin 29,000 barrel capacity inland tank barges for use in the
movement of industrial chemicals and refined products. Delivery of the first
barge is schedule for November, 1994, with the second barge expected in
January, 1995, and the remaining 10 barges scheduled to be delivered one each
month thereafter. The Company has the option under the contract to purchase 12
additional barges, with an expiration option date of February 1, 1995. The new
construction program is consistent with the Company's long-term strategy of
upgrading its equipment to service the needs of its customers and to enhance
its market position.
On July 1, 1994, a wholly owned subsidiary of the Company purchased a
single hull U.S. flag tanker from Tosco. The single hull tanker is currently
undergoing capitalized restorations and modifications. Scheduled to be placed
in service in September, 1994, the tanker will be utilized in the carriage of
refined petroleum products in United States coastwise trade and will operate
under a three year charter. The tanker has a capacity of 266,000 barrels and a
deadweight tonnage of 37,750 and is scheduled to be retired from service in
accordance with the OPA on January 1, 1999. The Company's established bank
revolving credit agreement provided funding for the transaction.
On July 1, 1994, the Company announced the signing of a letter of intent
to purchase from Dow, 65 inland tank barges, one river towboat and two shifting
boats. Also, the Company will assume, with the lessors' consent, the lease or
purchase of an additional 31 inland tank barges and two towboats presently in
Dow's service. Under the terms of the letter of intent, Dow will enter into a
contract with the Company's subsidiary to provide service for all of Dow's
inland bulk liquid marine transportation requirements for a period of 10 years.
Dow is a major manufacturer of petrochemicals, industrial chemicals and related
bulk liquid products and historically has used its own barges and outside
towing resources to service its inland marine transportation requirements. Dow
produces its products at its Freeport, Texas manufacturing complex, other
plants in Louisiana and at various other United States locations. A number of
the Dow plants, as well as their suppliers and customers, rely extensively on
water transportation for moving products between Dow's manufacturing
facilities, for shipment to the ultimate users and to move certain raw
materials purchased by Dow. The closing of the transaction, expected in
December, 1994, is subject to appropriate regulatory filings and approvals
presently underway and the negotiation of the necessary definitive agreements
and approvals by the management of the Company and Dow. The asset purchase, if
consummated, will be funded by borrowings under the Company's revolving credit
agreement.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Capital Resources and Liquidity, Continued
On July 21, 1994, a wholly owned subsidiary of the Company purchased three
U.S. flag tankers from OMI for $23,750,000. The single hull tankers will
transport refined petroleum products primarily between the United States Gulf
Coast, Florida and the mid-Atlantic states. The three tankers currently
operate in the spot market, however, one of the tankers goes under a six-month
charter effective October, 1994 and one is chartered effective November, 1994
for a one year period. Both of the charters have option periods. Each of the
tankers has a total capacity of 266,000 barrels and a deadweight tonnage of
37,853. In accordance with the OPA, the three tankers will be retired from
service on January 1, 2000. Funding for the transaction will be provided
through the Company's established bank revolving credit agreement.
Stock Repurchase
On August 1, 1994, the Board of Directors authorized the Company to
purchase up to 2,000,000 shares of its own common stock. Prior authorization
for the repurchase of the Company common stock was superseded by this
authorization. The company is authorized to purchase the common stock on the
American Stock Exchange and in privately negotiated transactions. When
purchasing common stock, the Company is subject to price, trading volume and
other market considerations. Shares repurchased may be used for reissuance
upon the exercise of stock options, in future acquisitions for stock or for
other appropriate corporate purposes.
Liquidity
The Company continued to generate significant cash flow from its operating
segments to fund its capital expenditures, asset acquisitions, debt service and
other operating requirements. Net cash from operating activities before
changes in assets and liabilities totaled $21,335,000 for the 1994 first six
months and $7,723,000 for the 1994 second quarter compared with 1993 first six
months of $26,577,000 and 1993 second quarter of $14,948,000.
During each year, inflation has had a relatively minor effect on the
financial results of the Company. The marine transportation segment has long-
term contracts that generally contain cost escalation clauses whereby certain
costs, including fuel can be passed through to its customers, while the
segment's short-term, or spot business, is based principally on current prices.
In addition, the marine transportation assets acquired and accounted for using
the purchase method of accounting were adjusted to a fair market value and,
therefore, the cumulative long-term effect on inflation was reduced. The
repair portion of the diesel repair segment is based on prevailing current
market rates. For the property and casualty insurance segment, 97% of its
investments were classified as available-for-sale or short-term investments,
which consist primarily of United States Governmental instruments.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Capital Resources and Liquidity, Continued
Universal is subject to dividend restrictions under the stockholders'
agreement between the Company, Universal and Eastern America Group. In
addition, Universal is subject to industry guidelines and regulations with
respect to the payment of dividends.
The Company has no present plan to pay dividends on common stock in the
near future.
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
For a detailed explanation of the material pending legal proceedings
against the Company, please refer to the Form 10-K for the year ended December
31, 1993.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
11.0 Computation of Earnings per Common Share.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six months ended June 30,
1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kirby Corporation
(Registrant)
By: G. Stephen Holcomb
-----------------------------
G. Stephen Holcomb
Vice President and Controller
Dated: August 5, 1994
EXHIBIT 11.0
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
($ in thousands, except per share
amounts)
Net earnings $ 3,193 6,500 6,090 10,345
====== ===== ===== ======
Shares:
Weighted average number of common
shares outstanding 28,433 24,991 28,408 23,940
Common equivalent shares for
dilutive effect of assumed
exercise of stock options 327 289 336 258
------ ------ ----- -----
28,760 25,280 28,744 24,198
====== ====== ====== ======
Earnings per share of common stock $ .11 .26 .21 .43
====== ====== ====== ======
