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, 1996
[ ] 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
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(Address of principal executive offices) (Zip Code)
(713) 629-9370
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(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, $.10 par
value per share, on November 1, 1996 was 24,722,986.
2
PART 1 - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
------------- ------------
($ in thousands)
Current assets:
Cash and invested cash $ 1,126 1,457
Available-for-sale securities 16,616 15,692
Accounts and notes receivable, net of allowance for doubtful accounts 65,275 65,755
Inventory - finished goods, at lower of average cost or market 14,457 9,555
Prepaid expenses and other 12,931 11,968
Deferred taxes 1,132 677
---------- -------
Total current assets 111,537 105,104
---------- -------
Property and equipment, at cost 518,598 500,454
Less allowance for depreciation 193,662 178,119
---------- -------
324,936 322,335
---------- -------
Investments in affiliates:
Insurance affiliate 43,613 44,785
Marine affiliates 10,957 11,985
---------- -------
54,570 56,770
---------- -------
Excess cost of consolidated subsidiaries 8,501 3,605
Noncompete agreements, net of accumulated amortization 627 1,438
Sundry 7,226 8,832
---------- -------
$ 507,397 498,084
---------- -------
See accompanying notes to condensed financial statements.
2
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
------------- ------------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 5,333 5,676
Accounts payable 22,086 21,691
Accrued liabilities 47,315 36,112
Deferred revenues 3,466 5,947
----------- -----------
Total current liabilities 78,200 69,426
----------- -----------
Long-term debt, less current portion 177,100 173,550
Deferred taxes 47,855 43,615
Other long-term liabilities 6,733 6,160
----------- -----------
309,888 292,751
----------- -----------
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 30,907,000 shares 3,091 3,091
Additional paid-in capital 158,360 158,383
Unrealized net gains (losses) in value of investments (538) 1,978
Retained earnings 108,606 88,034
----------- -----------
269,519 251,486
Less cost of 6,192,000 shares in treasury (4,653,000 at
December 31, 1995) 72,010 46,153
----------- -----------
197,509 205,333
----------- -----------
$ 507,397 498,084
----------- -----------
See accompanying notes to condensed financial statements.
3
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------
1996 1995 1996 1995
------------- ----------- ----------- ----------
($ in thousands, except per share amounts)
Revenues:
Transportation $ 80,830 91,058 239,620 253,344
Diesel repair 19,271 12,492 48,836 39,207
Net premiums earned -- -- -- 43,191
Commissions earned on reinsurance -- -- -- 2,048
Investment income 216 663 917 7,433
Gain (loss) on disposition of assets 19 98 1,767 (138)
Realized gain on investments -- -- -- 868
--------- ------- ------- -------
100,336 104,311 291,140 345,953
--------- ------- ------- -------
Costs and expenses:
Costs of sales and operating expenses (except as
shown below) 65,778 70,034 189,805 198,410
Losses, claims and settlement expenses -- -- -- 30,189
Policy acquisition costs -- -- -- 9,365
Selling, general and administrative 11,073 10,525 31,856 35,670
Taxes, other than on income 1,683 2,450 5,512 7,765
Depreciation and amortization 8,615 10,042 26,270 29,776
Minority interest expense -- -- -- 2,463
Impairment of long-lived assets -- 17,500 -- 17,500
--------- ------- ------- -------
87,149 110,551 253,443 331,138
--------- ------- ------- -------
Operating income (loss) 13,187 (6,240) 37,697 14,815
Equity in earnings of insurance affiliate 404 1,210 1,755 1,210
Equity in earnings of marine affiliates 1,141 884 3,055 1,469
Interest expense (3,437) (3,252) (9,913) (9,208)
--------- ------- ------- -------
Earnings (loss) before taxes on income 11,295 (7,398) 32,594 8,286
Provision (benefit) for taxes on income 4,189 (800) 12,022 4,999
--------- ------- ------- -------
Net earnings (loss) $ 7,106 (6,598) 20,572 3,287
========= ======= ======= =======
Earnings (loss) per share of common stock $ .28 (.24) .79 .12
========= ======= ======= =======
See accompanying notes to condensed financial statements.
4
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
-------------------------------
1996 1995
--------- -----------
($ in thousands)
Net earnings $ 20,572 3,287
Adjustments to reconcile net earnings to net cash provided by operating
activities:
(Gain) loss on disposition of assets (1,767) 138
Realized gain on investments -- (868)
Depreciation and amortization 26,270 29,776
Increase (decrease) in provision for deferred taxes 4,805 (696)
Deferred scheduled maintenance costs 3,213 5,409
Equity in earnings of insurance affiliate, net of redemption and
minority interest (1,755) 6,269
Equity in earnings of marine affiliates, net of distributions 1,028 (602)
Impairment of long-lived assets -- 17,500
Other noncash adjustments to earnings 127 34
Increase in cash from other changes in operating working capital for:
Marine transportation, diesel repair and other 9,656 (7,427)
Insurance -- 14,101
--------- ---------
Net cash provided by operating activities 62,149 66,921
--------- ---------
Cash flow from investing activities:
Proceeds from sale and maturities of investments 1,885 50,178
Purchase of investments (3,423) (69,650)
Increase in short-term investments -- (13,645)
Capital expenditures (30,150) (33,653)
Purchase of assets of diesel repair company (14,211) --
Proceeds from disposition of assets 6,091 1,190
--------- ---------
Net cash used in investing activities (39,808) (65,580)
--------- ---------
Cash flow from financing activities:
Increase (decrease) on bank revolving credit agreements, net 8,800 (46,700)
Increase in long-term debt -- 82,891
Payments on long-term debt (5,593) (26,534)
Purchase of treasury stock (26,331) (22,039)
Proceeds from exercise of stock options 452 88
--------- ---------
Net cash used in financing activities (22,672) (12,294)
--------- ---------
Decrease in cash and invested cash (331) (10,953)
Cash and invested cash, beginning of year 1,457 11,840
--------- ---------
Cash and invested cash, end of period $ 1,126 887
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,194 6,145
Income taxes 7,448 4,000
Noncash investing and financing activity:
Assumption of liabilities in connection with purchase of assets of
diesel repair company $ 2,623 --
See accompanying notes to condensed financial statements.
5
6
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, 1996 and December 31, 1995, and the results of operations for the three
months and nine months ended September 30, 1996 and 1995.
(1) BASIS FOR PREPARATION OF THE CONDENSED 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) CHANGE IN ACCOUNTING ESTIMATES
Results for the 1996 first nine months include a change in the
estimated depreciable lives of the Company's inland tank barges and the
Company's inland towboats, which was changed in the 1996 second quarter. The
change in the estimated lives provides a better matching of revenues and
depreciation expense over the inland barges' and towboats' economic useful
lives. The depreciable lives of inland barges were changed from an average of
20 years to 30 years and the depreciable lives of inland towboats were changed
from an average of 22 years to 35 years. Inland single skin barges were
evaluated on a barge by barge basis, with shorter depreciable lives recorded in
anticipation of early retirements. Salvage values were also assigned to certain
inland vessels where it was reasonable to expect that vessels have a residual
value at the end of its depreciable life. The change in estimate, effective
January 1, 1996, decreased depreciation expense for the 1996 first nine months
by $1,891,000 ($1,229,000 after taxes, or $.05 per share) and $630,000 ($410,000
after taxes, or $.02 per share) for the 1996 third quarter.
(3) COMPARABILITY OF FINANCIAL STATEMENTS
In July 1995, the Company's ownership of Universal Insurance Company
("Universal") was reduced from 58% to 47% as a result of a redemption of a
portion of Universal's common stock owned by the Company. Accordingly,
effective July 1, 1995, the Company began accounting for its investment in
Universal under the equity method of accounting. Prior period financial
statements have not been restated.
6
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(3) COMPARABILITY OF FINANCIAL STATEMENTS, Continued
The following pro forma condensed statements of earnings are based on
historical information of the Company and assumes the Company was accounting
for its investment in Universal on an equity basis as of the beginning of 1995
(in thousands):
Nine months ended
September 30, 1995
------------------
Revenues $ 293,987
Costs and expenses 283,143
-------------
Operating income 10,844
Equity in earnings of insurance affiliate 5,181
Equity in earnings of marine affiliates 1,469
Interest expense (9,208)
-------------
Earnings before taxes on income 8,286
Provision for taxes on income 4,999
-------------
Net earnings $ 3,287
-------------
(4) TAXES ON INCOME
Earnings before taxes on income and details of the provision for taxes
on income for the three months and the nine months ended September 30, 1996 and
1995 are as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- --------- ---------- ---------
Earnings (loss) before taxes on income:
United States $10,891 (8,608) 30,839 7,076
Foreign 404 1,210 1,755 1,210
------- ------- ------- -------
$11,295 (7,398) 32,594 8,286
======= ======= ======= =======
Provision (benefit) for taxes on income:
United States:
Current $ 1,961 1,863 6,732 5,243
Deferred 2,030 (3,394) 4,805 (1,141)
State and municipal 198 229 485 395
------- ------- ------- -------
4,189 (1,302) 12,022 4,497
Puerto Rico - Current -- 502 -- 502
------- ------- ------- -------
$ 4,189 (800) 12,022 4,999
======= ======= ======= =======
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8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(5) LONG-TERM DEBT
At December 31, 1995, the Company had two separate revolving credit
agreements with Texas Commerce Bank National Association, as agent bank,
providing for aggregate borrowings of up to $50,000,000 by the Company and
$50,000,000 by the Company's principal marine transportation subsidiary (the
"Credit Agreements"). On March 18, 1996, the Company agreed to new terms with
the agent bank regarding the Credit Agreements. Under the new terms, the
$50,000,000 Credit Agreement with the Company and the $50,000,000 Credit
Agreement with the Company's principal marine transportation subsidiary were
combined into a single $100,000,000 Credit Agreement with the Company. The new
Credit Agreement eliminates certain negative pledges and rights to priority
liens included in the original terms of the marine transportation subsidiary's
Credit Agreement. The new terms contain covenants substantially similar to the
original terms of the Credit Agreements including the maintenance of certain
financial ratios and certain other covenants. Interest on the new Credit
Agreement, subject to an applicable margin ratio and type of loan, is floating
prime rate or, at the Company's option, rates based on Eurodollar interbank or
certificate of deposit rates. Proceeds from the new Credit Agreement may be
used for general corporate purposes, including the purchase of existing or new
equipment, or for possible business acquisitions.
8
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The Company is a marine transportation company engaged in the
operations of vessels on the inland waterway system of the United States and in
United States coastwise and foreign trade. The Company is also engaged in the
sale, overhaul and repair of large diesel engines in marine, power generation
and rail applications.
The Company reported net earnings for the first nine months of 1996 of
$20,572,000, or $.79 per share, compared with net earnings of $3,287,000, or
$.12 per share, for the first nine months of 1995. Net earnings for the 1996
third quarter totaled $7,106,000, or $.28 per share, compared with a net loss
of $6,598,000, or $.24 per share, for the third quarter of 1995.
The Company's marine transportation segment reported consolidated
transportation revenues of $239,620,000, or 82% of total Company revenues, for
the 1996 first nine months and $80,830,000, or 81% of total 1996 third quarter
Company revenues. Consolidated diesel repair revenues for the 1996 first nine
months totaled $48,836,000, or 17% of total Company revenues. Third quarter
1996 consolidated diesel repair revenues totaled $19,271,000, representing 19%
of total Company revenues for the quarter. Investment income and gain on sale
of assets totaled $2,684,000 for the first nine months of 1996 and $235,000 for
the 1996 third quarter.
Effective September 30, 1995, the Company adopted 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 No.
121"). As a result of the adoption of SFAS No. 121, the Company reduced the
carrying value of certain marine equipment and related intangibles by taking a
$17,500,000 pre-tax, non-recurring charge in the 1995 third quarter. The
after-tax effect of the change was $13,000,000, or $.47 per share.
Effective July 1, 1995, the Company began accounting for its
investment in Universal, its property and casualty insurance subsidiary, under
the equity method of accounting as a result of a redemption of a portion of the
Company's common stock in Universal, reducing the Company's ownership from 58%
to 47%. Prior period financial statements were not restated. For the 1995
first six months and prior years, results for Universal were consolidated, with
a minority interest expense recorded for Universal's minority shareholder.
MARINE TRANSPORTATION
The Company's marine transportation segment reported transportation
revenues for the 1996 first nine months of $239,620,000, a 5% decrease compared
with $253,344,000 reported for the first nine months of 1995. Transportation
revenues for the 1996 third quarter totaled $80,830,000, reflecting a 11%
decrease compared with $91,058,000 reported for the 1995 third quarter.
Operating income for the marine transportation segment totaled $35,838,000 for
the 1996 first nine months, a 30% increase compared with $27,631,000 of
operating income reported for the 1995 first nine months. Third quarter 1996
operating income totaled $13,065,000, reflecting a 17% increase compared with
operating income of $11,192,000 for the 1995 third quarter.
9
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS, Continued
As a provider of service for both the inland and offshore United
States markets and foreign trade, the marine transportation segment is divided
into two divisions, organized around the markets each serves: the Inland Barge
Division, serving the inland industrial and agricultural chemical markets and
the inland refined products market; and the Offshore Division, which serves the
offshore petroleum products, container, dry-bulk and palletized cargo markets.
Marine Transportation Revenues
The Inland Barge Division reported transportation revenues for the
1996 first nine months of $180,024,000, or 75% of total transportation
revenues. The Division's revenues represent a 1% increase compared with
$178,453,000 reported in the 1995 first nine months. Third quarter 1996 Inland
Barge Division's transportation revenues totaled $61,041,000, or 76% of total
transportation revenues, a 4% decrease compared with $63,402,000 reported for
the 1995 third quarter. The Inland Barge Division operated under long-term
contracts, short-term contracts and spot movements of products. As of
September 30, 1996 and 1995, approximately 70% of inland barge movements were
under term contracts and approximately 30% were spot movements.
Contract volumes for the movement of chemicals remained stable during
the 1996 first nine months and third quarter, however, spot market volumes for
chemical movements have remained soft, with week to week variations in demand,
and some spot market pricing pressure. The contract and spot market movements
of refined products in the Mississippi River decreased to some degree,
resulting in lower rates for spot market movements. The Intercoastal Waterway
movements of refined products have been weak for the entire 1996 nine months,
resulting in softer rates. Additional Midwest refinery capacity and some
improved pipeline efficiencies through debottle-necking were the principal
reasons for the decline in refined products volumes and rates.
The movements of liquid fertilizer and anhydrous ammonia by the Inland
Barge Division are normally seasonal, coinciding with the spring and fall
fertilizer seasons. The fall fertilizer season, normally scheduled for late
August and September, did not strengthen until mid-October, resulting in lower
revenues for such movements in the 1996 first nine months and third quarter as
compared with comparable prior year periods. The fall fertilizer season was
delayed by relatively large remaining spring inventories, fertilizer plant
production problems and terminal conversions which resulted from environmental
regulation requirements.
Transportation revenues for the Offshore Division for the 1996 first
nine months totaled $59,596,000, or 25% of total transportation revenues. The
Division's revenues represent a 20% decrease compared with $74,891,000 reported
for the 1995 first nine months. The Offshore Division's transportation
revenues for the 1996 third quarter equaled $19,789,000, or 24% of total marine
transportation revenues, a 28% decrease compared with $27,656,000 reported for
the 1995 third quarter.
10
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS, Continued
The Offshore Division participates in the offshore movements of both
refined petroleum products and dry cargo. During the first nine months of
1996, four of the Company's seven product tankers operated under long-term
contracts and three operated in the spot market. From January through May
1996, the tankers operated at close to full utilization with spot market rates
increasing, reflecting the seasonal demands for the transportation of heating
fuels and refined products to the U.S. East Coast. During the month of June
and the third quarter, demand for the three spot market tankers was soft,
idling certain spot tankers for short durations of time. However, spot market
rates have improved compared with rates for the 1995 first nine months. Full
recovery of the offshore tanker market is anticipated to be gradual, over the
next few years, as offshore tankers are removed from service under the Oil
Pollution Act of 1990. During the first nine months and third quarter of 1995,
the Company operated nine tankers, two of which were removed from service
effective January 1, 1996, in accordance with the Oil Pollution Act of 1990.
The Company has no further mandated retirements until 1999.
Movements for the transportation of food aid and related products
under the United States Governments' preference aid programs and military cargo
movements continued to be sporadic for the 1996 first nine months and third
quarter. Excess equipment capacity and a reduction in available movements
continued to plague this offshore segment. On average, during the 1996 first
nine months and third quarter the Company has averaged only one of its
break-bulk freighters being employed. In late September 1996, upon completion
of a food aid voyage to North Korea, the break-bulk freighter TAMPA BAY was
scrapped, taking advantage of its location and higher foreign steel prices.
The Company has two remaining break-bulk freighters, both of which are
currently idle.
Offshore tug/barge unit operations during the first nine months of
1996 and the 1996 third quarter were strong as the Company's two tank barges
and one dry bulk barge operated close to full employment, except for a
scheduled shipyard for one tank barge in the third quarter. The two tank
barges are currently operating under term contracts, while the dry bulk barge
has remained fully utilized in sugar, grain or scrap-iron trades.
Marine Transportation Costs and Expenses
Costs and expenses, excluding interest expense, for the marine
transportation segment for the 1996 first nine months totaled $203,782,000,
reflecting a 10% decrease compared with $225,912,000 reported for the 1995
first nine months. Third quarter 1996 costs and expenses totaled $67,764,000,
a decrease of 15% compared with $80,028,000 reported for the 1995 third
quarter. As noted above, during the 1996 first nine months and third quarter,
the Company operated seven offshore tankers versus nine for the comparable 1995
periods. The Company's three break-bulk freighters, as noted above, have
experienced idle time for both the 1996 first nine months and third quarter as
demand for the equipment has remained very sporadic. In addition, the
write-down of the Company's three break-bulk freighters in September 1995, in
accordance with SFAS No. 121, substantially reduced depreciation expense
applicable to the Company's three break-bulk freighters. The shift in
employment of the offshore fleet from spot voyages to contract services
generally reduces voyage related costs.
11
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS, Continued
Effective January 1, 1996, the Company changed the estimated
depreciable lives of its inland tank barges and towboats. Vessel upgrades and
enhanced maintenance standards have resulted in useful lives beyond the
original estimated lives. The change in the estimated lives provides a more
consistent matching of revenues and depreciation expense over the economic
useful lives of the Company's inland barges and towboats. The depreciable
lives of inland double skin barges were changed from an average of 20 years to
30 years and inland towboats were changed from an average of 22 years to 35
years. Changes were made on single skin barges on a barge by barge basis, with
shorter lives recorded in anticipation of early retirements when appropriate.
Salvage values were also assigned to certain inland vessels where it was
reasonable to expect that the vessel would have a residual value at the end of
its depreciable life. The result of the change in depreciable lives was to
reduce depreciation expense by $1,891,000 for the 1996 first nine months and
$630,000 for the 1996 third quarter.
Over the past eighteen months, the Company has focused its efforts on
decreasing costs and expenses and improving operating efficiencies. In the
Company's Inland Barge Division, organizational changes are currently underway.
Offices are being closed and the Division's sales, traffic, maintenance and
accounting functions are being consolidated. The Division is also implementing
management information systems which are anticipated to improve operating
efficiencies. The Company has incurred approximately $1,000,000 in expenses to
date and anticipates additional expenses in the 1996 fourth quarter, estimated
at $.02 to $.03 per share. Management anticipates that annualized cost
savings, estimated at $.30 to $.40 per share, should be obtainable over a 2 to
3 year period.
Marine Transportation Operating Income
The Company's Inland Barge Division's operating income for the 1996
first nine months totaled $29,754,000, reflecting an increase of 8% compared
with $27,471,000 reported for the 1995 first nine months. Operating income for
the 1996 third quarter totaled $11,022,000, a decrease of 7% compared with
$11,852,000 for the 1996 third quarter. The operating margin for the 1996
first nine months improved to 16.5% compared with 15.4% for the 1995 first nine
months. The Division reported an operating margin of 18.1% for the 1996 third
quarter compared with 18.7% for the 1995 third quarter.
The Offshore Division's operating income totaled $6,084,000 for the
1996 first nine months compared with $160,000 for the comparable 1995 period.
Third quarter 1996 operating income equaled $2,043,000 compared with an
operating loss of $660,000 for the 1995 third quarter. The operating margin
for the 1996 first nine months for the Offshore Division equaled 10.2% compared
with a .2% operating margin for the 1995 first nine months. The Division
reported a 10.3% operating margin for the 1996 third quarter compared with an
operating margin of a negative 2.4% for the 1995 third quarter.
12
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS, Continued
The Company's investment in two offshore marine partnerships, accounted
for under the equity method of accounting, reported earnings for the 1996 first
nine months of $3,055,000, a 108% increase when compared with $1,469,000
reported for the 1995 first nine months. Third quarter 1996 earnings from the
partnerships totaled $1,141,000 compared with $884,000 for the third quarter of
1995, an increase of 29% quarter to quarter. The increase in earnings for both
comparable periods reflect the partnerships' enhanced coal and limestone rock
contract movements, as the 1995 comparable periods were negatively affected by
scheduled maintenance of certain partnership vessels and lower coal volume
requirements.
DIESEL REPAIR
The Company's diesel repair segment reported diesel repair revenues for
the 1996 first nine months of $48,836,000, reflecting a 25% increase compared
with $39,207,000 for the 1995 first nine months. Third quarter 1996 revenues
totaled $19,271,000, an increase of 54% compared with $12,492,000 reported for
the 1995 third quarter.
The diesel repair segment is divided into three 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 sells parts and
accessories. The Rail Diesel Repair Division is the exclusive distributor of
aftermarket parts to shortline and industrial railroads for the Electro-Motive
Division of General Motors. The Division provides replacement parts, service
and support nationwide to shortline railroads and industrial companies that
operate locomotives. The Engine Division, organized in July 1996 with the
purchase of the assets of MKW Power Systems, Inc., expanded the Company's
relationship with the Electro-Motive Division of General Motors to an
authorized distributorship for 17 Eastern states and the Caribbean. In
addition, the Engine Division serves as a central distributor-authorized dealer
for Woodward Governor Company's Truck and Engine Division in East Coast and
Midwest states, and as the exclusive worldwide distributor of Electro-Motive
Division products to the nuclear industry.
Diesel Repair Revenues
The diesel repair segment's revenues totaled $48,836,000 for the first
nine months of 1996, a 25% increase compared with $39,207,000 for the 1995
first nine months. Third quarter 1996 revenues totaled $19,271,000, a 54%
increase over $12,492,000 reported for the 1995 third quarter. The 25%
increase for the 1996 first nine months and 54% increase for the 1996 third
quarter primarily reflect the $5,200,000 of revenues from the Engine Division
since the July 31, 1996 date of acquisition. In addition, the Marine Diesel
Repair Division, which operates in very competitive markets, benefited from the
enhanced offshore drilling activities and related oil service industries, and
continued health of the inland tank barge and dry cargo industry.
13
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS, Continued
Diesel Repair Costs and Expenses
Costs and expenses, excluding interest expense, for the diesel repair
segment for the 1996 first nine months totaled $44,923,000, an increase of 23%
compared with first nine months of 1995 costs and expenses of $36,494,000.
Third quarter 1996 costs and expenses, excluding interest expense, equaled
$17,854,000, an increase of 53% over the comparable 1995 third quarter total of
$11,657,000. The increase for both comparable periods reflects the costs and
expense associated with the Engine Division and also reflects the overall
continued growth in revenues from the Marine and Rail Divisions.
Diesel Repair Operating Income
The diesel repair segment's operating income for the 1996 first nine
months totaled $3,913,000, an increase of 40% compared with operating income
for the 1995 first nine months of $2,793,000. Third quarter 1996 operating
income increased 66% to $1,417,000 compared with $853,000 reported for the 1995
third quarter. The operating margin for the 1996 first nine months equaled 8.0%
compared with 7.1% for the 1995 first nine months. The third quarter 1996
operating margin totaled 7.4% compared with 6.8% for the 1995 third quarter.
PROPERTY AND CASUALTY INSURANCE
The Company currently owns 47% of the voting common stock of Universal, a
full service property and casualty insurance company, which operates
exclusively in the Commonwealth of Puerto Rico. Eastern America Financial
Group, Inc. owns 53% of the voting common stock of Universal.
Effective July 1, 1995, upon the reduction of the Company's voting
ownership from 58% to 47%, the Company began accounting for its investment in
Universal under the equity in earnings method of accounting. Prior period
financial statements were not restated. For the 1995 first six months, results
for Universal were consolidated with a minority interest expense recorded for
Eastern America's minority interest. For the last six months of 1995 and the
first nine months of 1996, the Company's investment in Universal was recorded
on the equity in earnings method of accounting.
Comparability of net premiums earned, commissions earned on reinsurance,
investment income, losses, claims and settlement expenses, policy acquisition
costs, minority interest expense and, to a lesser extent, selling, general and
administrative expenses, taxes, other than on income and depreciation and
amortization were affected by the change in the method of accounting for the
Company's investment in Universal effective July 1, 1995. Universal has
continued to expand its vehicle single-interest and double-interest lines of
business, primarily the result of strong automobile sales in Puerto Rico and
from Universal's expanded market share.
14
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS, Continued
The amount recorded by the Company as equity in earnings for the Company's
investment in Universal is influenced to the extent that anticipated future
redemptions by Universal of its common stock may exceed the Company's
investment in Universal's stock. The Company also has a 100% investment in
Universal's nonvoting preferred stock. Because the preferred stock controls a
separate portfolio of U.S. Treasury Securities, the Company accounts for this
preferred stock under Statement of Financial Accounting Standards No. 115.
Therefore, the interest earned, as well as the realized gains from the sale of
U.S. Treasury Securities collateralizing the preferred stock, are included as
part of equity in earnings of insurance affiliate. During the 1996 first nine
months, the Company recorded $723,000 of interest earned from its investment in
U. S. Treasury Securities and recognized $582,000 of realized gains from the
sale of such U.S. Treasury Securities, both of which are included in equity in
earnings of insurance affiliate.
The Company's portion of Universal's pretax earnings, recorded as equity
in earnings of insurance affiliates, for the 1996 first nine months and third
quarter totaled $1,755,000 and $404,000 respectively. The Company reported
consolidated operating income from Universal of $3,971,000 for the 1995 first
six months and recorded $1,210,000 as equity in earnings of insurance
affiliates for the 1995 third quarter, which included a realized gain of
$650,000 from the sale of certain U.S. Treasury Securities.
FINANCIAL CONDITIONS, CAPITAL RESOURCES AND LIQUIDITY
Balance Sheet
Total assets as of September 30, 1996 were $507,397,000 compared with
$498,084,000 as of December 31, 1995. The available-for-sale securities of
$16,616,000 as of September 30, 1996 and $15,692,000 as of December 31, 1995
are investments of the Company's wholly owned captive insurance subsidiary,
Oceanic Insurance Limited ("Oceanic"). Oceanic insures risks of the Company
and its marine transportation and diesel repair subsidiaries. To limit its
exposure, Oceanic purchases reinsurance in international markets.
Total liabilities as of September 30, 1996 totaled $309,888,000 compared
with $292,751,000 as of December 31, 1995. Stockholder's equity as of September
30, 1996 totaled $197,509,000 compared with $205,333,000 as of December 31,
1995. The decrease reflects the Company's repurchase during the 1996 third
quarter of 1,586,400 shares of its common stock at a total price of
$26,328,000, more fully described in Treasury Stock Purchases below. Unrealized
net gains (losses) in value of investments declined by $2,516,000, as the
market value of certain investments of Universal, of which the Company has a
100% ownership through its preferred stock holdings, declined in value.
Long-Term Debt
On March 18, 1996, the Company and Texas Commerce Bank National
Association, as agent bank, agreed to new terms regarding the Company's and the
Company's principal marine transportation subsidiary's separate $50,000,000
revolving Credit Agreements. Under the new terms, the existing $50,000,000
Credit Agreement with
15
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITIONS, CAPITAL RESOURCES AND LIQUIDITY, Continued
the Company and the existing $50,000,000 Credit Agreement with the Company's
principal marine transportation subsidiary were combined into a single
$100,000,000 Credit Agreement with the Company. The new Credit Agreement
eliminates certain negative pledges and rights to priority liens which were
included in the marine transportation subsidiary's existing Credit Agreement.
Interest on the new Credit Agreement, subject to an applicable margin ratio and
type of loan, is floating prime rate or, at the Company's option, rates based
on a Eurodollar interbank or certificate of deposit rates. Proceeds under the
new Credit Agreement may be used for general corporate purposes, the purchase
of existing or new equipment or for possible business acquisitions. The new
Credit Agreement contains covenants substantially similar to the original terms
of the credit agreements including the maintenance of certain financial ratios
and certain other covenants.
The Company has on file a shelf registration on Form S-3 with the
Securities and Exchange Commission providing for the issue of up to
$250,000,000 of medium term notes ("Medium Term Notes") at fixed or floating
interest rates with maturities of nine months or longer. The Company activated
the program in March 1995 with the issuance of $34,000,000 of Medium Term Notes
at an average fixed interest rate of 7.77%, with a maturity of March 10, 1997.
In June 1995, the Company issued $45,000,000 of Medium Term Notes, bearing a
fixed interest rate of 7.25%, with a maturity of June 1, 2000.
Business Acquisitions
On July 31, 1996, a subsidiary of the Company purchased the operating
assets of MKW Power Systems, Inc., a subsidiary of Wartsila Diesel, N.A., for
$5.7 million in cash plus working capital. The acquisition expands the diesel
repair segment's relationship with the Electro-Motive Division of General
Motors to an authorized distributorship for 17 Eastern states and the
Caribbean. In addition, the subsidiary will serve as a central
distributor-authorized dealer for Woodward Governor Company's Turbo and Engine
Divisions in East Coast and Midwest states. Woodward is a leader in the
production of power control components.
Capital Expenditures
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. In February 1995, the
Company exercised the option under the contract to construct 12 additional
barges. As of October 31, 1996, the Company had received 21 barges and the
remaining three barges are scheduled to be delivered one each month thereafter.
A third option for the construction of 12 additional barges was not exercised.
The new construction program, estimated to total approximately $18,000,000
during the 1996 year, 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. Funds for the continuing construction project are
anticipated to be available through 1996 net cash provided by operating
activities.
16
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management s Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITIONS, CAPITAL RESOURCES AND LIQUIDITY, Continued
Treasury Stock Purchases
Effective July 22, 1996, the Company's Board of Directors increased the
Company's authorization to repurchase its common stock by an additional 2
million shares, thereby increasing the total common stock repurchase
authorization to 6.25 million shares. As of October 31, 1996, the Company
had 2,440,000 available under the repurchase authorization. Since July 1,
1996, the Company repurchased 1,586,400 shares of its own common stock at a
total price of $26,328,000, for an average price of $16.60 per share. During
1995, the Company purchased 2,224,000 shares of its own common stock at a total
price of $33,386,000, for an average price of $15.01 per share. The treasury
stock purchases were financed by borrowing under the Company's Credit
Agreement. The Company is authorized to purchase its common stock on the New
York Stock Exchange and in privately negotiated transactions. When purchasing
its common stock, the Company is subject to price, trading volume and other
market considerations. Shares purchased 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 generated net cash provided by operating activities of
$62,149,000 for the 1996 first nine months. Universal, accounted for under the
equity method for the 1996 first nine months, did not contribute cash flow to
the 1996 first nine months results. Under the equity method of accounting,
the Company recognizes cash flow from Universal only upon receipt of actual
distributions or redemptions, none of which were recorded in 1996 totals. For
the 1995 first half, the results for Universal were consolidated and included
in operating income, resulting in $19,645,000 of net cash provided by operating
activities. For the 1995 third quarter, the results for Universal were
accounted for under the equity method of accounting and not included in cash
flow. However, during the 1995 third quarter the Company received $5,016,000
of redemptions of Universal's common stocks, which was included in net cash
provided by operating activities.
Funds generated are available for capital construction projects,
treasury stock repurchases, asset acquisitions, repayment of borrowings
associated with treasury stock acquisitions or asset acquisitions and for other
operating requirements. In addition to its net cash flow provided by operating
activities, the Company also has available as of October 31, 1996 $25,600,000
under its revolving credit agreement and $171,000,000 available under its
medium term note program. The Company's fixed principal payments during the
next 12 months are $5,333,000, in addition to the $34,000,000 of Medium Term
Notes due March 1997.
17
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management s Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITIONS, CAPITAL RESOURCES AND LIQUIDITY, Continued
During the last three years, inflation has had a relatively minor
effect on the financial results of the Company. The marine transportation
segment has long-term contracts which generally contain cost escalation clauses
whereby certain costs, including fuel, can be passed through to its customers
through rate adjusted formulas, while the 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. The Company does not presently use financial
derivatives, but uses a mix of floating and fixed rate debt. The Company has
no foreign exchange risks.
The Company has no present plan to pay dividends on its common stock.
18
19
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, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11.0 Computation of Earnings per Common Share.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the nine months
ended September 30, 1996.
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: /s/ G. Stephen Holcomb
----------------------
G. Stephen Holcomb
Vice President and Controller
November 1, 1996
19
1
EXHIBIT 11.0
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three months ended Nine months ended
September 30, September 30,
--------------------------------- -----------------------------------
1996 1995 1996 1995
---------------- --------------- ---------------- ----------------
($ and shares in thousands, except per share amount)
Net earnings (loss) $ 7,106 (6,598) 20,572 3,287
========= ========= ======== ========
Shares:
Weighted average number of common shares
outstanding 24,941 27,472 25,827 27,995
Common equivalent shares for dilutive effect of
assumed exercise of stock options 301 -- 315 314
--------- --------- -------- --------
25,242 27,472 26,142 28,309
========= ========= ======== ========
Earnings (loss) per share of common stock $ .28 (.24) .79 .12
========= ========= ======== ========
5
1,000
9-MOS
DEC-31-1996
SEP-30-1996
1,126
16,616
65,952
677
14,457
111,537
518,598
193,662
507,397
78,200
177,100
3,091
0
0
194,418
507,397
39,244
291,140
30,455
189,805
63,638
123
9,913
32,594
12,022
20,572
0
0
0
20,572
.79
.79
