1
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 September 30, 1994
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Commission File
Number 1-7615
Kirby Corporation
__________________________________________________________________________
(Exact name of registrant as specified in its charter)
Nevada 74-1884980
_______________________________ ________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1775 St. James Place, Suite 300, Houston, TX 77056-3453
___________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(713) 629-9370
___________________________________________________________________________
(Registrant's telephone number, including area code)
No Change
___________________________________________________________________________
(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, $.10 par
value per share, on November 9, 1994 was 28,313,587.
2
PART 1 - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1994 1993
------------- ------------
($ in thousands)
Marine Transportation, Diesel Repair and Other
Current assets:
Cash and invested cash $ 6,419 1,999
Accounts and notes receivable, net of
allowance for doubtful accounts 51,857 50,722
Inventory - finished goods, at lower of average
cost or market 8,686 7,531
Prepaid expenses 7,661 7,393
Federal income taxes receivable 7,207 --
Deferred taxes 1,542 2,768
------- -------
Total current assets 83,372 70,413
------- -------
Property and equipment, at cost 451,569 406,675
Less allowance for depreciation 145,188 125,459
------- -------
306,381 281,216
------- -------
Excess cost of consolidated subsidiaries 9,546 7,429
Noncompete agreements, net of accumulated amortization
of $8,766,000 ($7,298,000 at December 31, 1993) 4,284 5,752
Other assets 18,947 13,575
------- -------
Total assets - Marine Transportation, Diesel Repair
and Other 422,530 378,385
------- -------
Insurance
Investments:
Available-for-sale securities 134,773 102,175
Short-term investments 29,790 25,128
------- -------
164,563 127,303
Cash and invested cash 880 12,937
Accrued investment income 2,884 1,998
Accounts and notes receivable, net of allowance for
for doubtful accounts 20,110 12,195
Reinsurance receivable on paid losses 11,610 15,186
Prepaid reinsurance premiums 7,847 5,773
Deferred policy acquisition costs 11,776 7,279
Property and equipment, at cost, net of allowance
for depreciation 2,538 2,197
------- -------
Total assets - Insurance 222,208 184,868
------- -------
$ 644,738 563,253
======= =======
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 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 12,032 11,767
Accrued liabilities 30,541 27,898
Deferred revenues 4,947 5,637
------- -------
Total current liabilities 58,482 56,264
------- -------
Long-term debt, less current portion 135,373 109,597
Deferred taxes 43,460 39,735
Other long-term liabilities 8,504 8,913
------- -------
Total liabilities - Marine
Transportation, Diesel Repair and Other 245,819 214,509
------- -------
Insurance
Losses, claims and settlement expenses 61,748 49,930
Unearned premiums 90,729 61,558
Reinsurance premiums payable 4,851 5,377
Deferred Puerto Rico taxes 921 3,549
Other liabilities 8,181 4,576
Minority interest in consolidated insurance sub. 17,146 12,005
------- -------
Total liabilities - Insurance 183,576 136,995
------- -------
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 156,434 156,340
Unrealized net gains (losses) in value of
long-term investments (2,114) 4,440
Retained earnings 71,035 61,339
------- -------
228,431 225,195
Less cost of 2,468,000 shares in treasury
(2,555,000 at December 31, 1993) 13,088 13,446
------- -------
215,343 211,749
------- -------
$ 644,738 563,253
======= =======
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
1994 1993 1994 1993
--------- ------- ------- -------
($ in thousands, except per share
amounts)
Revenues:
Transportation $ 77,338 75,422 224,750 197,645
Diesel repair 11,755 6,921 33,572 24,656
Net premiums earned 14,561 11,250 43,977 33,855
Commissions earned on reinsurance 1,103 1,626 3,557 3,247
Investment income 2,541 2,069 6,929 5,867
Gain on disposition of assets 316 142 552 610
Realized gain on investments 483 509 1,331 789
------- ------ ------- -------
108,097 97,939 314,668 266,669
------- ------ ------- -------
Costs and expenses:
Costs of sales and operating expenses
(except as shown below) 60,646 54,241 172,075 141,343
Losses, claims and settlement expenses 12,770 8,350 38,678 25,435
Policy acquisition costs 3,641 3,214 10,919 8,602
Selling, general and administrative 10,567 9,801 34,299 29,406
Taxes, other than on income 3,751 2,758 11,573 8,708
Depreciation and amortization 8,345 7,476 24,026 20,801
Minority interest expense 451 671 1,630 787
------- ------ ------- -------
100,171 86,511 293,200 235,082
------- ------ ------- -------
Operating income 7,926 11,428 21,468 31,587
Interest expense 2,355 1,871 6,121 6,621
------- ------ ------- -------
Earnings before taxes on income 5,571 9,557 15,347 24,966
Provision for taxes on income 1,965 4,511 5,651 9,575
------- ------ ------- -------
Net earnings $ 3,606 5,046 9,696 15,391
======= ====== ======= =======
Earnings per share of common stock $ .13 .18 .34 .60
======= ====== ======= =======
See accompanying notes to condensed financial statements.
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Nine months ended
September 30,
____________________
1994 1993
__________ ________
($ in thousands)
Net earnings $ 9,696 15,391
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on disposition of assets (552) (520)
Realized gain on investments (1,331) (789)
Depreciation and amortization 24,026 20,801
Increase in deferred taxes 4,951 5,915
Deferred scheduled maintenance costs 2,076 1,496
Earnings of minority stockholder and unconsolidated
subsidiary 1,605 787
Other noncash adjustments to earnings 161 37
Decrease (increase) in cash from other changes in
operating working capital for:
Marine transportation, diesel repair and other (17,478) (9,788)
Insurance 32,273 1,562
------- ------
Net cash provided by operating activities 55,427 34,892
------- ------
Cash flow from investing activities:
Proceeds from sale and maturities of investments 37,417 28,651
Purchase of investments (91,149) (32,444)
Net decrease in short-term investments 5,132 2,179
Capital expenditures (24,613) (15,922)
Purchase of assets of marine transportation companies:
Property, equipment and other assets, net of assumed
liabilities (25,650) (24,308)
Intangible assets -- (2,001)
Proceeds from disposition of assets 2,571 1,268
Other -- 397
------- ------
Net cash used in investing activities (96,292) (42,180)
------- ------
Cash flow from financing activities:
Borrowings on bank revolving credit loan 181,000 97,264
Payments on bank revolving credit loan (145,500) (80,464)
Payments under long-term debt (9,724) (9,724)
Sale of Universal stock to minority stockholder 7,000 --
Proceeds from exercise of stock options 452 252
------- ------
Net cash provided by financing activities 33,228 7,328
------- ------
Increase (decrease) in cash and invested cash (7,637) 40
Cash and invested cash, beginning of year 14,936 7,300
------- ------
Cash and invested cash, end of period $ 7,299 7,340
======= ======
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOW, Continued
(Unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,436 6,822
Income taxes $ 5,450 3,300
Noncash investing and financing activity:
Assumption of liabilities in connection with merger
with marine transportation company $ -- 11,445
Issuance of stock in connection with purchase of
marine transportation company $ -- 14,725
Issuance of stock in connection with conversion of
7 1/4% convertible debentures $ -- 50,000
See accompanying notes to condensed financial statements.
7
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 September
30, 1994 and December 31, 1993, and the results of operations for the three
months and nine months ended September 30, 1994 and 1993.
(1) BASIS FOR PREPARATION OF THE NINE 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, 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 purchase, assume
with owner's consent or sublease up to 31 additional 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 Dow's inland bulk liquid marine transportation requirements
for a period of ten 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 mid-November, 1994, is subject to 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 established bank revolving credit agreement and will be accounted for
in accordance with the purchase method of accounting.
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 was placed in service in late August, 1994, after undergoing
capitalized restorations and modifications. The tanker will be utilized in the
carriage of refined petroleum products in United States coastwise trade and is
operating 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 90") 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.
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(2) ACQUISITIONS (Continued)
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 $23,750,000. The
single-hull tankers will transport refined petroleum products primarily between
the United States Gulf Coast, Florida and the mid-Atlantic states. The three
tankers operated in the spot market, however, during the majority of July,
August and part of September, the tankers were idle due to the extreme weakness
in the tanker market. Effective October, 1994, one tanker went under a six-
months' charter and effective November, 1994, one tanker was chartered for a
one year period. Both of the charters have extension options. Each of the
tankers has a total capacity of 266,000 barrels and a deadweight tonnage of
37,853. In accordance with the OPA 90, the three tankers will be retired from
service on January 1, 2000. Funding for the transaction was provided through
the Company's established bank revolving credit agreement. The operations of
the three tankers are included as part of the Company's operations effective
July 21, 1994, in accordance with the purchase method of accounting.
(3) TAXES ON INCOME
Earnings before taxes on income and details of the provision for taxes on
income for United States and Puerto Rico operations for the three months and
nine months ended September 30, 1994 and 1993 are as follows:
Three months Nine months
ended ended
September 30, September 30,
---------------- ---------------
1994 1993 1994 1993
------ ------ ------ ------
($ in thousands)
Earnings before taxes on income:
United States $ 4,281 7,652 10,969 21,353
Puerto Rico 1,290 1,905 4,378 3,613
------ ----- ----- ------
$ 5,571 9,557 15,347 24,966
====== ===== ====== ======
Provision (credit) for taxes on income:
United States:
Current $(1,747) 1,332 (1,298) 3,660
Deferred 3,616 1,004 4,951 3,940
State and municipal 96 -- 248 --
------ ----- ------ ------
$ 1,965 2,336 3,901 7,600
====== ===== ====== ======
Puerto Rico:
Current $ -- 1,750 1,750 1,750
Deferred -- 425 -- 225
------ ----- ------ ------
$ -- 2,175 1,750 1,975
====== ===== ====== ======
9
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 Puerto Rican 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. Since December, 1992, the date of the first
redemption, 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. In August, 1994, Eastern
America Financial Group, Inc. ("Eastern America Group") purchased from
Universal 30,410 shares of Class A voting common stock for $7,000,000. The
March redemption from the Company and the August Eastern America Group purchase
from Universal reduced the Company's ownership of Universal's voting common
stock to 58% from 70% prior to the transactions.
Under previously announced options and redemption rights included in the
merger between Eastern America Insurance Company ("Eastern America") and
Universal, 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 from September, 1992. Eastern America Group owns the remaining 42% of
Universal's voting common stock.
10
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 $9,696,000, or $.34 per share, for
the first nine months of 1994, compared with net earnings of $15,391,000, or
$.60 per share, reported for the first nine months of 1993. Net earnings for
the 1994 third quarter totaled $3,606,000, or $.13 per share, compared with net
earnings of $5,046,000, or $.18 per share, reported for the 1993 third quarter.
The Company conducts operations in three business segments: marine
transportation, diesel repair and property and casualty insurance. The sum of
the three business segments' earnings before taxes on income exceeds the
Company's consolidated earnings before taxes on income 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 nine months of 1994 of $224,750,000, reflecting a 14%
increase when compared with $197,645,000 reported for the first nine months of
1993. Third quarter 1994 transportation revenues totaled $77,338,000, an
increase of 3% when compared with $75,422,000 reported for the 1993 third
quarter.
Revenues for the 1994 first nine months 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.
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 each services: 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.
The Inland Chemical Division operates under long-term contracts, short-
term contracts and spot movements of products. Currently, approximately 75% of
such movements are under term contracts, which, may be at a lower rate than
current spot market rates. Since March, 1994, the Division has experienced
spot rate increases; however, such increases cannot be negotiated into contract
movements until such time as the contracts are renewed.
During the first nine months and third quarter of 1994, the Inland
Chemical Division continued to benefit from positive improvements in equipment
utilization and rates, generated primarily from a hike in the 1994 performance
levels of the chemical manufacturers. The Division's river operation however,
continues to experience pricing pressure in movements of chemicals in the Ohio
River market.
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
The demand for movements of liquid fertilizer and anhydrous ammonia by the
Inland Chemical Division during the 1994 first nine months and third quarter
remain strong when compared with the 1993 corresponding periods. Acreage
planting in the Midwest farm belt has increased, partially due to the low
levels of grain commodities generated during the 1993 year, the result of the
1993 upper Mississippi River flooding.
The Company's Inland Refined Products Division, which moves refined
petroleum products (gasoline, diesel fuel and jet fuel) on the inland waterway
system, continues to experience full utilization of its fleet during the 1994
first nine months and 1994 third quarter. With the addition of 53 inland tank
barges acquired from Chotin in December, 1993, and a transportation agreement
through the year 2000, the Inland Refined Products Division substantially
increased its market presence in the contract and spot movements of refined
petroleum products on the Mississippi River System.
The Inland Refined Products Division, like the Inland Chemical Division,
operates under long-term contracts, short-term contracts and spot market
movements. Approximately 40% of the Division's movements for the 1994 first
nine months were under term contracts and the remaining 60% under spot market
movements. Currently, spot market movements are higher than the majority of
movements performed under contracts; therefore, the Division has benefited from
its higher spot to contract percentage.
The Offshore Division, which participates in the movements of both liquid
and dry products, experienced weaknesses in all of its markets during the 1994
first nine months and 1994 third quarter, due primarily to excess equipment
capacity and reduced demand for movements of products from each of the markets.
The offshore movement of refined products has remained weak during the
1994 first nine months, with the exception of the first quarter. During the
first quarter, certain vessels were engaged in spot market trade delivering
heating oil to the Northeast due to the harsh 1994 winter season. Profitability
of such spot market movements was adversely affected by the winter weather
conditions, which hampered operating efficiencies. During the 1994 second
quarter, three of the Company's offshore liquid vessels were idle and during
the 1994 third quarter, as many as six of the Company's offshore vessels were
idle, including the three tankers acquired from OMI Corp. in July, 1994. During
the 1994 second and third quarters, spot market rates were extremely low.
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
Even though the offshore liquid market was extremely weak during the
second and third quarters of 1994, the prospects for the 1994 fourth quarter
and future years have improved. The requirement for the use of reformulated
gasoline under the Clean Air Act in nine major metropolitan areas effective
January 1, 1995, has been helpful in placing ten of the Company's twelve
offshore liquid vessels under term charters which become effective during the
1994 fourth quarter. Such charters range from six months with options to three
years with options and should lead to improved utilization, rates and operating
profits. The remaining two vessels are engaged in shorter term movements at
satisfactory rates. In addition, further tightening of the offshore liquid
market occurred in mid-October, 1994 when the Houston area San Jacinto River
flooding caused certain refined products pipelines serving the United States
Northeast to break, suspending service for varying periods of days.
Movements for the transportation of food commodities and related products
under the United States Government's preference aid cargo programs and military
household good movements, have also remained weak. Excess equipment capacity
and a reduction in available movements have led to rates that were
significantly lower than 1993 rates for the market. Such weakness in the
market resulted in one of the Company's ships being idle for three weeks during
the 1994 third quarter. The softness in the overall preference aid cargo
market has also continued to negatively affect the Company's other offshore dry
cargo barge and tug units that primarily work under a long-term contract with
an electric utility company, but periodically operate in the preference aid
market as a supplement to their long-term contract movements.
During the 1994 first quarter, one of the Company's offshore barge and tug
units experienced difficulties with collection of its empty containers from
several voyages carrying preference aid cargo to Haiti which, during that time,
was politically unstable. Collectively, the voyages to Haiti reduced the
Company's 1994 first quarter earnings before taxes by an estimated $1,750,000.
The Company's foreign flag container service, which provided a direct all-
water transportation service from Memphis to Mexico and Central America, was
discontinued effective August 24, 1994. Aggressive pricing from competitors
resulted in slower than anticipated acceptance of the service. Volumes were
increasing with each voyage; however, operating losses and the negative
prospect for future profitability did not warrant continuation of the service.
Since inception in February, 1994, the operation suffered operating losses
through August 24 of approximately $1,925,000 ($1,250,000 after taxes or $.04
per share). Shut-down expenses are estimated to total approximately $450,000
($300,000 after taxes or $.01 per share).
Costs and expenses, excluding interest expense, for the marine
transportation segment for the first nine months of 1994 totaled $206,025,000,
an increase of 22% over the corresponding 1993 first nine months when costs and
expenses totaled $168,905,000. Costs and expenses for the 1994 third quarter,
excluding interest expense, increased to $71,357,000, an increase of 9% over
second quarter 1993 totals of $65,437,000. The increase for both corresponding
periods reflects the costs and expenses associated with the acquisitions and
merger consummated in 1993 and the tankers acquired in July, 1994. Higher
equipment costs, welfare costs, general and administrative expenses and
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
inflationary increases also contributed to the increase in the 1994 periods.
The marine transportation earnings before taxes on income for the 1994
first nine months totaled $14,026,000 compared with $24,417,000 for the first
nine months of 1993. Third quarter 1994 pretax earnings totaled $4,205,000
compared with $8,498,000 reported for the 1993 third quarter.
The Company did not incur any physical damage to its equipment during the
October, 1994 flooding in the Houston area and fires in the San Jacinto River,
the result of breaks in crude and refined products pipelines caused by the
flooding. Marine traffic in the Houston Ship Channel, which was at a
standstill for several days, returned to normal and the Company does not
anticipate any significant operating losses as a result of the events.
Diesel Repair
The Company's diesel repair segment reported diesel repair and parts sales
revenues of $33,572,000 for the first nine months of 1994, reflecting a 36%
increase compared with $24,656,000 for the 1993 first nine months. Third
quarter 1994 revenues totaled $11,755,000, an increase of 70% when compared
with 1993 third quarter revenues of $6,921,000.
The diesel repair segment is divided into two divisions organized around
the markets they serve. The Marine Diesel Repair Division operates on all three
coasts and in the Midwest 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 nationwide to shortline railroads and industrial companies
that operate diesel-electric locomotives.
The Marine Diesel Repair Division operates in a competitive market that
continues to press operating margins. The Midwest facility's inland marine dry
bulk customers have rebounded from the effects of the 1993 upper Mississippi
River flood that resulted in depressed coal and grain markets. Such recovery
in the Midwest and Gulf Coast markets during the 1994 third quarter enhanced
the Marine Diesel Repair Division's operating results. The West Coast facility
continues to be negatively affected by the United States military cutbacks and
delayed vessel maintenance from the Pacific commercial fishing fleet
operations.
The Rail Diesel Repair Division, which commenced operations in January,
1994, reported revenues for the first nine months of 1994 of $6,284,000 and
$2,239,000 for the 1994 third quarter. Substantially all of the revenues were
generated from direct parts sales. The Division reported a modest profit for
its first nine months of operations. The Division serves as the exclusive
shortline and industrial rail distributor of aftermarket parts and service for
the Electro-Motive Division of General Motors ("EMD"), the world's largest
manufacturer of diesel-electric locomotives.
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations, Continued
The diesel repair segment reported costs and expenses, excluding interest
expense of $31,331,000 for the 1994 first nine months, a 36% increase compared
with $23,042,000 reported for the first nine months of 1993. Third quarter
costs and expenses totaled $10,845,000 compared with $6,518,000 for the like
1993 quarter, reflecting a 66% increase. The addition of the Rail Diesel
Repair Division during the 1994 periods was the primary source of the
increases.
Earnings before taxes on income for the diesel repair segment totaled
$2,013,000 for the first nine months of 1994 compared with $1,435,000 for the
corresponding 1993 period. Third quarter 1994 earnings before taxes on income
were $831,000 compared with $340,000 reported for the 1993 third quarter.
Property and Casualty Insurance
The Company's Puerto Rican property and casualty insurance segment
reported net premiums written for the 1994 first nine months of $90,064,000, an
increase of 55% compared with $58,032,000 reported for the corresponding 1993
period. Premiums written for the 1994 third quarter totaled $33,477,000, an
increase of 11% compared with $30,061,000 for the 1993 third quarter. Since
the merger with Eastern America in September, 1992, the segment continues to
place emphasis on automobile lines, particularly the single-interest line. New
financial institution customers, portfolio transfers and an improvement in
automobile sales in Puerto Rico have all led to the increase in net premiums
written. Lower prices on United States manufactured automobiles in Puerto
Rico, resulting from a 1994 change in Puerto Rican export tax laws, have
resulted in improved automobile sales.
Net premiums earned for the first nine months of 1994 totaled $43,977,000,
a 30% increase over the $33,855,000 reported for the 1993 first nine months.
Net premiums earned for the 1994 third quarter increased 29% to $14,561,000
compared with $11,250,000 reported for the 1993 third quarter. Net premiums
earned reflect the amortization of net premiums written over the life of a
policy. The substantial increase in net premiums written during the 1993 and
1994 years is therefore reflected in higher net premiums earned. 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 written under the segment's reinsurance program. Reinsurance
rates remain high; however, some stabilization has occurred during the 1994
first nine months.
15
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 nine months
totaled $33,788,000, an increase of 33% compared with $25,435,000 for the first
nine months of 1993. Third quarter 1994 losses, claims and settlement expenses
totaled $11,087,000, a 33% increase when compared with $8,350,000 for the 1993
third quarter. The significant increase for both periods are reflective of the
automobile single-interest and double-interest improvements in business
volumes. In addition, the nine months' losses, claims and settlement expenses
include $2,000,000 of additional reserves for potential, but as yet, unreported
losses associated with the Company's Bermuda reinsurance subsidiary. The
losses arose from the subsidiary's participation in certain property and
casualty reinsurance lines from 1970 to 1990. Since ceasing participation in
the reinsurance market in 1990, the Company continues to take steps toward
expediting its withdrawal from the reinsurance business.
Policy acquisition costs for the 1994 first nine months totaled
$10,920,000, a 27% increase over the 1993 first nine months costs of
$8,602,000. Third quarter 1994 policy acquisition costs equaled $3,640,000, a
13% increase when compared with $3,214,000 reported for the third quarter of
1993. The increase for both periods reflects the continued growth in the
automobile single-interest and double-interest business and the continued
emphasis in the commercial property lines of insurance, which generally carry a
higher commission rate.
The Company's portion of the property and casualty insurance segment's
earnings before taxes on income for the first nine months of 1994 totaled
$2,378,000 compared with pretax earnings of $3,599,000 for the 1994 first nine
months. Third quarter 1994 earnings before taxes on income were $1,290,000
compared with $1,900,000 reported for the 1993 third quarter. The Company's
ownership of Universal's voting common stock as of September 30,1994 was 58%
compared with 70% as of September 30, 1993.
16
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. Since December,
1992, Universal has redeemed from the Company a total of 65,387 shares of Class
B common stock and 24,360 shares of Class C common stock for a total redemption
price of $15,000,000.
In August, 1994, Eastern America Group purchased an additional 30,410
shares of Class A voting common stock from Universal for $7,000,000.
The March redemption from the Company and the August purchase by Eastern
America Group reduced the Company's ownership of Universal's voting common
stocks to 58% from 70% prior to the transactions. The Company owns 100% of
Universal's non-voting Class C common stock as well as all of its preferred
stock. Under previously announced options and redemption rights included in
the merger between Eastern America and Universal, Eastern America Group could
become the owner of 100% of Universal's stock over a period of up to twelve
years from September, 1992. Eastern America Group owns the remaining 42% of
Universal's voting common stocks.
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 railroads and industrial
companies that operate diesel-electric locomotives 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 nine months of 1994 and the 1994 third quarter were $6,284,000 and
$2,239,000, respectively. The operations of Rail Systems reflected a nominal
operating profit for both the 1994 first nine months and third quarter.
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 scheduled for December, 1994 and the remaining 11 barges are 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.
17
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 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 purchase, assume with owner's consent or
sublease up to 31 additional 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 Dow's inland bulk
liquid marine transportation requirements for a period of ten 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 mid-
November, 1994, is subject to 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
established bank revolving credit agreement.
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 was placed in
service in late August, 1994, after undergoing capitalized restorations and
modifications. The tanker will be utilized in the carriage of refined
petroleum products in United States coastwise trade and is currently operating
under a three year charter. The tanker has a capacity of 266,000 barrels and a
deadweight tonnage of 37,750. The tanker is scheduled to be retired from
service in accordance with OPA 90 on January 1, 1999. The Company's
established bank revolving credit agreement provided funding for the
transaction.
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 operated in the
spot market; however, during the balance of July, the entire month of August
and part of September, the tankers were idle due to extreme weakness in the
tanker market. Effective October, 1994, one tanker went under a six-months'
charter and effective November, 1994, one tanker is chartered for a one-year
period. Both of the charters have extension options. Each of the tankers has a
total capacity of 266,000 barrels and a deadweight tonnage of 37,853. In
accordance with OPA 90, 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.
18
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 August, 1994, the Company discontinued its direct, all-water
containership service from Memphis, Tennessee to Mexico and Central America.
The service, provided by the Company's wholly owned subsidiary, Americas Marine
Express, Inc., utilized a chartered foreign flag river/ocean vessel that
offered direct sailing between the locations. The concept of the service was
proven operationally feasible, however, the service was met with aggressive
pricing from its competitors, and even though volumes were slowly increasing,
operating losses and the prospect for future profitability did not warrant
continuation of the service.
Certificates of Financial Responsibility
Each of the subsidiaries of the Company have obtained Certificates of
Financial Responsibility ("COFR") granted by the U.S. Coast Guard for all
vessels affected in advance of the date required pursuant to the OPA 90
requirement. The Company does not foresee any current or future difficulty in
maintaining the COFR which are required to operate vessels over 300 gross tons
in the Exclusive Economic Zone of the United States.
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's 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. To date, the Company has not repurchased
any of its common stock under the current authorization.
Long-Term Financing
The Company has recently filed a registration statement with the
Securities and Exchange Commission covering $250 million in debt securities.
The Company intends to establish a Medium Term Note Program to issue up to $250
million in Medium Term Notes under such registration statement. The proceeds
of the program will be used to refinance certain existing floating rate
debt to maintain a balance of fixed rate and floating rate debt consistent with
the Company's financing strategy. Also, the program will provide financing
for future business and equipment acquisitions and working capital requirements.
On November 4, 1994, a subsidiary of the Company entered into a
$10,000,000 acquisition credit facility with Texas Commerce Bank National
Association, which provided the transportation segment with in-place additional
financing for the Dow acquisition, scheduled to be completed in mid-November,
1994. Upon completion of the Medium Term Note Program, the $10,000,000
acquisition credit facility will be retired.
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition, Capital Resources and Liquidity, Continued
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 provided by operating activities
totaled $55,427,000 for the 1994 first nine months and $28,767,000 for the 1994
third quarter compared with 1993 first nine months of $34,892,000 and 1993
third quarter of $19,981,000.
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 contracts and spot market business, are 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.
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.
20
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 nine months ended
September 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
Vice President and Controller
Dated: November 9, 1994
EXHIBIT 11.0
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
------ ------ ------ ------
($ in thousands, except per share
amounts)
Net earnings $ 3,606 5,046 9,696 15,391
====== ====== ====== ======
Shares:
Weighted average number of common
shares outstanding 28,439 28,332 28,419 25,442
Common equivalent shares for dilutive
effect of assumed exercise of stock
options 290 281 322 244
------ ------ ------ ------
28,729 28,613 28,741 25,686
====== ====== ====== ======
Earnings per share of common stock $ .13 .18 .34 .60
====== ====== ====== ======
28,729 28,613 28,741 25,686
5
1,000
9-MOS
DEC-31-1994
SEP-30-1994
7,299
0
39,115
393
8,686
83,372
455,495
146,576
644,738
58,482
55,773
3,076
0
0
212,267
644,738
26,390
306,192
20,477
249,574
41,400
162
6,121
15,348
5,651
9,696
0
0
0
9,696
.34
.34
ALL INSURANCE ASSETS AND LIABILITIES OTHER THAN CASH ARE ASSUMED TO BE
NON-CURRENT.
