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 June 30, 1998
[ ] 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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1775 St. James Place, Suite 200, Houston, TX 77056-3453
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 435-1000
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(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, $.10 par
value per share, on August 6, 1998 was 21,132,744.
2
PART I - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1998 1997
-------- ------------
($ in thousands)
Current assets:
Cash and cash equivalents $ 1,079 $ 2,043
Available-for-sale securities 22,765 21,773
Receivables:
Trade, net of allowance for doubtful accounts 51,434 70,137
Insurance claims and other 15,318 14,458
Inventories 17,539 14,875
Prepaid expenses and other current assets 4,049 7,359
Deferred income taxes 1,219 1,468
Current assets of discontinued operations -- 3,684
------- -------
Total current assets 113,403 135,797
------- -------
Property and equipment, at cost 485,242 471,019
Less accumulated depreciation 210,249 198,635
------- -------
274,993 272,384
------- -------
Investments in affiliates:
Insurance affiliate 46,473 45,320
Marine affiliates 15,401 16,256
------- -------
61,874 61,576
------- -------
Excess cost of consolidated subsidiaries, net
of accumulated amortization 6,338 6,652
Sundry 4,118 4,562
Long-term assets of discontinued operations -- 36,988
------- -------
$460,726 $517,959
======= =======
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1998 1997
-------- ------------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 5,333 $ 5,333
Income taxes payable 4,985 4,319
Accounts payable 17,996 26,712
Accrued liabilities 46,429 54,193
Deferred revenues 2,559 5,046
------- -------
Total current liabilities 77,302 95,603
------- -------
Long-term debt, less current portion 169,718 149,485
Deferred income taxes 51,222 48,409
Other long-term liabilities 6,422 6,193
------- -------
227,362 204,087
------- -------
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 158,394 159,016
Accumulated other comprehensive income 828 572
Retained earnings 148,660 136,945
------- -------
310,973 299,624
Less cost of 9,513,000 shares in treasury (6,619,000 at
December 31, 1997) 154,911 81,355
------- -------
156,062 218,269
------- -------
$460,726 $517,959
======= =======
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- -------- --------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $62,858 $68,272 $122,255 $127,615
Diesel repair 21,466 20,406 44,324 40,951
Investment income and other 352 116 809 509
Gain on disposition of assets 208 174 244 157
------ ------ ------- -------
84,884 88,968 167,632 169,232
------ ------ ------- -------
Costs and expenses:
Costs of sales and operating expenses 53,963 57,634 108,675 112,421
Selling, general and administrative 9,730 10,033 19,306 20,086
Taxes, other than on income 1,978 1,972 3,959 3,720
Depreciation and amortization 6,829 7,104 13,659 14,268
------ ------ ------- -------
72,500 76,743 145,599 150,495
------ ------ ------- -------
Operating income 12,384 12,225 22,033 18,737
Equity in earnings of insurance affiliate 413 2,911 907 3,312
Equity in earnings of marine affiliates 1,149 531 1,865 1,394
Interest expense (3,232) (3,450) (5,999) (6,824)
------ ------ ------- -------
Earnings from continuing operations before taxes on income 10,714 12,217 18,806 16,619
Provision for taxes on income (4,039) (4,526) (7,091) (6,306)
------ ------ ------- -------
Net earnings from continuing operations 6,675 7,691 11,715 10,313
Earnings from discontinued operations, net of taxes on income -- 414 -- 2,531
------ ------ ------- -------
Net earnings $ 6,675 $ 8,105 $ 11,715 $ 12,844
====== ====== ======= =======
Net earnings per share of common stock:
Basic:
Continuing operations $ .31 $ .31 $ .52 $ .42
Discontinued operations -- .02 -- .11
------ ------ ------- -------
Net earnings $ .31 $ .33 $ .52 $ .53
====== ====== ======= =======
Diluted:
Continuing operations $ .31 $ .31 $ .51 $ .42
Discontinued operations -- .02 -- .10
------ ------ ------- -------
Net earnings $ .31 $ .33 $ .51 $ .52
====== ====== ======= =======
See accompanying notes to condensed financial statements.
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
-------------------------
1998 1997
-------- ---------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 11,715 $ 12,844
Adjustments to reconcile net earnings to net cash provided by continuing operations:
Earnings from discontinued operations -- (2,531)
Depreciation and amortization 13,659 14,268
Provision for deferred income taxes 3,988 1,675
Gain on disposition of assets (244) (157)
Deferred scheduled maintenance costs (72) 2,471
Equity in earnings of insurance affiliate, net of redemption (907) 1,188
Equity in earnings of marine affiliates, net of distributions and contributions 855 (919)
Other 47 2
Increase (decrease) in cash flows resulting from changes in operating working capital 1,632 (13,446)
------- -------
Net cash provided by operating activities of continuing operations 30,673 15,395
Net cash provided by operating activities of discontinued operations 108 7,871
------- --------
Net cash provided by operating activities 30,781 23,266
------- -------
Cash flows from investing activities:
Proceeds from sale and maturities of investments 1,034 1,935
Purchase of investments (1,876) (3,987)
Capital expenditures (16,542) (11,157)
Proceeds from disposition of assets 1,259 1,940
Proceeds from disposition of business 38,600 --
Investing activities of discontinued operations (275) (194)
------- -------
Net cash provided by (used in) investing activities 22,200 (11,463)
------- -------
Cash flows from financing activities:
Borrowings (payments) on bank revolving credit agreements, net 25,400 (10,200)
Increase in long-term debt -- 50,000
Payments on long-term debt (5,167) (39,166)
Purchase of treasury stock (75,706) (10,887)
Proceeds from exercise of stock options 1,528 1,119
------- -------
Net cash used in financing activities (53,945) (9,134)
------- -------
Increase (decrease) in cash and cash equivalents (964) 2,669
Cash and cash equivalents, beginning of year 2,043 1,544
------- -------
Cash and cash equivalents, end of period $ 1,079 $ 4,213
======= =======
Table continued on next page
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Six months ended June 30,
-------------------------
1998 1997
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 5,919 $ 6,155
Income taxes $ 3,374 $ 6,314
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 June 30,
1998 and December 31, 1997, and the results of operations for the three
months and six months ended June 30, 1998 and 1997.
(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) ADOPTION OF ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of financial statements. Comprehensive
income includes all changes in a company's equity, including, among other
things, foreign currency translation adjustments, notes receivable from
employee stock ownership plans, deferred gains (losses) on hedging
activities, and unrealized gains (losses) on marketable securities classified
as available-for-sale. The Company's total comprehensive earnings for the
three months and six months ended June 30, 1998 and 1997 were as follows (in
thousands):
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------- --------
Net earnings from continuing operations $6,675 $7,691 $11,715 $10,313
Net earnings from discontinued operations -- 414 -- 2,531
----- ----- ------ ------
Net earnings 6,675 8,105 11,715 12,844
Unrealized gain (loss) on marketable securities 356 592 256 (227)
----- ----- ------ ------
Total comprehensive earnings $7,031 $8,697 $11,971 $12,617
===== ===== ====== ======
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(2) ADOPTION OF ACCOUNTING STANDARDS, Continued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), issued in June 1997, establishes standards for
reporting information about operating segments in annual financial statements
and requires that enterprises report selected information about operating
segments in interim reports issued to shareholders. SFAS No. 131 will be
adopted by the Company in 1998. The adoption of SFAS No. 131 is not expected
to have a material impact on the Company's financial condition or results of
operations.
SFAS No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits" ("SFAS No. 132"), issued in February 1998, revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. The
statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures. Restatement of disclosures for earlier periods is required.
SFAS No. 132 will be adopted by the Company in 1998.
(3) DISCONTINUED OPERATIONS
On March 16, 1998, the Company announced the completion of the sale of
its U.S. flag product tanker and harbor service operations for $38,600,000 in
cash. Under the terms of a purchase agreement dated January 28, 1998, Kirby
sold two offshore tankers and its harbor service operations to Hvide Marine
Incorporated and five offshore tankers were sold to August Trading Company,
Inc.
The offshore tanker and harbor service operations' financial results
were accounted for as discontinued operations as of December 31, 1997, and
previously reported financial statements were restated to reflect the
discontinuation of the operations. The Company recorded an estimated net
loss of $3,966,000 as of December 31, 1997 from the sale of the tanker and
harbor service operations, and such results included a provision for
operations during the phase-out period, January 1, 1998 through the date of
sale.
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(4) TAXES ON INCOME
Earnings from continuing operations before taxes on income and details
of the provision for taxes on income from continuing operations for United
States and Puerto Rico operations for the three and six months ended June 30,
1998 and 1997 were as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------- ----------------
1998 1997 1998 1997
------- ------- ------- -------
Earnings before taxes on income:
United States $10,301 $ 9,306 $17,899 $13,307
Puerto Rico 413 2,911 907 3,312
------ ------ ------ ------
$10,714 $12,217 $18,806 $16,619
====== ====== ====== ======
Provision for taxes on income:
United States:
Current $ 2,120 $ 2,721 $ 2,625 $ 3,257
Deferred 1,700 780 3,988 1,645
State and local 219 300 478 479
------ ------ ------ ------
4,039 3,801 7,091 5,381
Puerto Rico - Current -- 725 -- 925
------ ------ ------ ------
$ 4,039 $ 4,526 $ 7,091 $ 6,306
====== ====== ====== ======
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(4) TAXES ON INCOME, Continued
Earnings from discontinued operations before taxes on income and details
of the provision for taxes on income from United States discontinued
operations for the three and six months ended June 30, 1997 were as follows
(in thousands):
Three months ended Six months ended
June 30, 1997 June 30, 1997
------------------ ----------------
Earnings before taxes on income $656 $3,917
=== =====
Provision (credit) for taxes on income:
United States:
Current $331 $1,522
Deferred (89) (127)
State and local -- (9)
--- -----
$242 $1,386
=== =====
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Statements contained in this Form 10-Q that are not historical facts,
including, but not limited to, any projections contained herein, are forward-
looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such
as "may," "will," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
actual results of the future events described in such forward-looking
statements in this Form 10-Q could differ materially from those stated in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are: adverse economic conditions, industry
competition and other competitive factors, adverse weather conditions such as
high water, low water, fog and ice, marine accidents, construction of new
equipment by competitors, including construction with government assisted
financing, government and environmental laws and regulations, and the timing,
magnitude and number of acquisitions made by the Company.
In March 1998, the Company completed the sale of its offshore tanker and
harbor service operations. In accordance with a definitive purchase
agreement dated January 28, 1998, the Company sold two tankers and its harbor
service operation to Hvide Marine Incorporated and five tankers to August
Trading Company, Inc., for a combined purchase price of $38,600,000 in cash.
The offshore tanker and harbor service operations' financial results have
been accounted for as discontinued operations as of December 31, 1997, and
previously reported financial statements have been restated to reflect the
discontinuation of the operations. Such financial results as of December 31,
1997 included a provision for operations during the phase-out period, January
1, 1998 through the date of sale.
The Company is a provider of marine transportation services, operating a
fleet of 532 inland tank barges and 127 inland towing vessels, transporting
industrial chemicals and petrochemicals, refined petroleum products and
agricultural chemicals along the United States inland waterways. The
Company's marine transportation operation also includes a United States
coastwise barge operation, with two liquid and one dry bulk barge and tug
units. The Company also serves as managing partner of a 35% owned offshore
marine partnership, consisting of four dry bulk barge and tug units, and as
managing partner of a 50% owned offshore marine partnership, consisting of
one dry bulk barge and tug unit. The partnerships are accounted for under
the equity method of accounting.
The Company is engaged through its diesel repair segment in the overhaul
and servicing of large medium-speed diesel engines employed in marine, power
generation and rail applications. The Company also has a 45% voting common
stock investment in Universal Insurance Company ("Universal"), accounted for
under the equity method of accounting.
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS
The Company reported net earnings of $6,675,000, or $.31 per share, on
revenues of $84,884,000 for the 1998 second quarter, compared with net
earnings from continuing operations of $7,691,000, or $.31 per share, on
revenues of $88,968,000 for the 1997 second quarter. Net earnings for the
six months ended June 30, 1998 were $11,715,000, or $.51 per share, on
revenues of $167,632,000, compared with net earnings from continuing
operations of $10,313,000, or $.42 per share, on revenues of $169,232,000 for
the 1997 first six months. For comparative purposes, net earnings for the
1997 second quarter were $8,105,000, or $.33 per share, including net
earnings from discontinued operations of $414,000, or $.02 per share, on
revenues of $15,750,000. Net earnings for the 1997 first six months were
$12,844,000, or $.52 per share, including net earnings from discontinued
operations of $2,531,000, or $.10 per share, on revenues of $34,401,000. For
purposes of this Management's Discussion, all earnings per share amounts
presented are "Diluted Earnings Per Share." The weighted average number of
common shares applicable to diluted earnings for the second quarter of 1998
and 1997 were 21,738,000 and 24,502,000, respectively, and for the 1998 and
1997 first half were 23,021,000 and 24,657,000, respectively. The reduction
in common shares for the 1998 periods compared with the applicable 1997
periods primarily reflects the acquisition of treasury stock under the
Company's Dutch Auction self-tender offer, more fully discussed below.
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
The following table sets forth the Company's revenues and percentage of
such revenues for the three months and six months ended June 30, 1998
compared with the three months and six months ended June 30, 1997 (dollars in
thousands):
Three months ended June 30,
------------------------------
1998 1997 Increase (decrease)
-------------- -------------- -------------------
Amounts % Amounts % Amounts %
------- ---- ------- ---- ------- ----
Revenues:
Marine transportation $62,858 74% $68,272 77% $(5,414) (8)%
Diesel repair 21,466 25 20,406 23 1,060 5
Other income 560 1 290 -- 270 93
------ --- ------ --- ------ --
$84,884 100% $88,968 100% $(4,084) (5)%
====== === ====== === ====== ==
Six months ended June 30,
------------------------------
1998 1997 Increase (decrease)
-------------- -------------- -------------------
Amounts % Amounts % Amounts %
-------- ---- -------- ---- -------- ----
Revenues:
Marine transportation $122,255 73% $127,615 76% $(5,360) (4)%
Diesel repair 44,324 26 40,951 24 3,373 8
Other income 1,053 1 666 -- 387 58
------- --- ------- --- ------ --
$167,632 100% $169,232 100% $(1,600) (1)%
======= === ======= === ====== ==
Revenues from the marine transportation segment declined 8% for the 1998
second quarter and 4% for the 1998 first half compared with the 1997
corresponding periods. The 1997 second quarter and first half included
$2,279,000 and $4,757,000, respectively, of revenues from AFRAM Carriers,
Inc. ("AFRAM"), the Company's U.S. flag offshore break-bulk freighter
subsidiary, which ceased operations in September and October 1997 with the
scrappage of AFRAM's last two freighters.
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
The Company's 1997 second quarter and first half were also negatively
impacted by high water and flooding conditions on the upper and lower
Mississippi River and the Ohio River. The flooding resulted in river
closures in selected areas for numerous days and mandated regulatory
operating restrictions. The Company estimated its 1997 second quarter and
first half revenue loss at $750,000 and $3,450,000, respectively, from the
impact of the flooding. For the 1998 second quarter and first half, flooding
conditions were relatively modest when compared with the 1997 corresponding
periods.
During the 1998 second quarter and first half, chemical and
petrochemical volumes held firm. Refined product volumes, more seasonal in
nature, were strong in May and June in anticipation of the summer driving
season. However, the Company experienced a short fertilizer season during
the 1998 second quarter, the result of high inventory levels in distribution
terminals at the beginning of the fertilizer season and depleted inventory
levels at the end of the season in June. Spot market rates continued to
reflect modest increases quarter to quarter, with contracts generally renewed
at higher levels. Marine transportation volumes for the months of May and
June 1997 were enhanced, reflecting the movement of volumes backlogged during
the February through April 1997 flooding on the Mississippi River System.
The diesel repair segment's revenues for the 1998 second quarter
reflected a 5% improvement compared with the 1997 second quarter. Business
remained positive across the diesel repair segment's nationwide service area.
The Gulf Coast market continued to reflect enhanced drilling activities and
related oil service activities in the Gulf of Mexico. The Midwest market was
enhanced with activities from Great Lakes customers and engine repairs for
inland river customers. The East Coast market benefited from large engine
rebuilds currently in progress, while the West Coast market improved due to
enhanced relationships with non-fishing industry customers. The diesel
repair segment's 1997 first six months' revenues were negatively impacted by
the flooding on the Mississippi River System, as many Midwest inland towing
companies deferred engine maintenance and overhauls.
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
The following table sets forth the costs and expenses and percentage of
each for the three months and six months ended June 30, 1998 compared with
the three months and six months ended June 30, 1997 (dollars in thousands):
Three months ended June 30,
------------------------------
1998 1997 Increase (decrease)
-------------- -------------- -------------------
Amounts % Amounts % Amounts %
------- ---- ------- ---- ------- ----
Costs and expenses:
Costs of sales and operating expenses $53,963 74% $57,634 75% $(3,671) (6)%
Selling, general and administrative 9,730 13 10,033 13 (303) (3)
Taxes, other than on income 1,978 3 1,972 3 6 --
Depreciation and amortization 6,829 10 7,104 9 (275) (4)
------ --- ------ --- ------ --
$72,500 100% $76,743 100% $(4,243) (6)%
====== === ====== === ====== ==
Six months ended June 30,
------------------------------
1998 1997 Increase (decrease)
-------------- -------------- -------------------
Amounts % Amounts % Amounts %
-------- ---- -------- ---- -------- ----
Costs and expenses:
Costs of sales and operating expenses $108,675 75% $112,421 75% $(3,746) (3)%
Selling, general and administrative 19,306 13 20,086 13 (780) (4)
Taxes, other than on income 3,959 3 3,720 3 239 6
Depreciation and amortization 13,659 9 14,268 9 (609) (4)
------- --- ------- --- ------ --
$145,599 100% $150,495 100% $(4,896) (3)%
======= === ======= === ====== ==
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
Costs of sales and operating expenses for the 1998 second quarter and
the 1998 first six months reflected 6% and 3% decreases, respectively, when
compared with the corresponding periods of 1997. The 1997 second quarter and
first half included $2,050,000 and $4,467,000, respectively, of costs and
expenses associated with the revenues generated by AFRAM, whose vessels were
scrapped in September and October 1997. In addition, the 1997 second quarter
and first half included higher costs and expenses associated with the
flooding on the Mississippi River System.
The 1998 second quarter and first half marine transportation costs and
expenses reflected higher vessel labor and maintenance costs when compared
with the 1997 comparable periods. In order to retain, as well as attract,
vessel employees in a strong United States economy, the Company increased
vessel manpower compensation. Both 1998 periods also reflected higher
maintenance costs, as the Company competes for shipyard space with companies
participating in the oil and gas drilling activities in the Gulf of Mexico.
The 1998 second quarter and first half diesel repair costs and expenses also
increased, reflecting higher expenses associated with the 5% improvement in
revenues for the 1998 second quarter and 8% improvement for the 1998 first
half compared with the corresponding 1997 periods.
Selling, general and administrative expenses decreased 3% in the 1998
second quarter and 4% for the 1998 first six months compared with the
corresponding periods of 1997. The decreases reflect savings in
administrative expenses in the Company's diesel repair segment due to
reorganization efforts and the elimination of unprofitable business lines.
The decrease also reflects the savings from the Company's costs reduction
program implemented in late 1996 and is ongoing. The program was designed to
reduce administrative costs and improve operating efficiencies.
The 6% increase in taxes, other than on income for the comparable 1998
and 1997 first six months was primarily attributable to higher waterway use
tax on inland operations based on ton miles moved and higher property taxes
on marine vessels.
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
The following table sets forth the operating income and operating
margins by segment for the three months and six months ended June 30, 1998
compared with the three months and six months ended June 30, 1997 (dollars in
thousands):
Three months ended June 30,
------------------------------------------
1998 1997 Increase (decrease)
-------------------- -------------------- -------------------
Operating Operating
income Operating income Operating
(loss) margin (loss) margin Amounts %
--------- --------- --------- --------- ------- ----
Marine transportation $10,675 17.0% $11,735 17.2% $(1,060) (9)%
Diesel repair 2,355 11.0% 1,667 8.2% 688 41
Corporate (1,206) (1,467) 261 18
------ ------ ------ --
$11,824 $11,935 $ (111) (1)%
====== ====== ====== ==
Six months ended June 30,
------------------------------------------
1998 1997 Increase (decrease)
-------------------- -------------------- -------------------
Operating Operating
income Operating income Operating
(loss) margin (loss) margin Amounts %
--------- --------- --------- --------- ------- ----
Marine transportation $18,819 15.4% $17,452 13.7% $1,367 8%
Diesel repair 4,528 10.2% 3,214 7.8% 1,314 41
Corporate (2,367) (2,595) 228 9
------ ------ ----- --
$20,980 $18,071 $2,909 16%
====== ====== ===== ==
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
The following table sets forth the equity in earnings of affiliates and
interest expense for the three months and six months ended June 30, 1998
compared with the three months and six months ended June 30, 1997 (dollars in
thousands):
Three months ended June 30, Increase (decrease)
--------------------------- -------------------
1998 1997 Amount %
-------- -------- -------- -----
Equity in earnings of insurance affiliate $ 413 $ 2,911 $(2,498) (86)%
Equity in earnings of marine affiliates $ 1,149 $ 531 $ 618 116 %
Interest expense $(3,232) $(3,450) $ (218) (6)%
Six months ended June 30, Increase (decrease)
------------------------- -------------------
1998 1997 Amount %
-------- -------- -------- -----
Equity in earnings of insurance affiliate $ 907 $ 3,312 $(2,405) (73)%
Equity in earnings of marine affiliates $ 1,865 $ 1,394 $ 471 34 %
Interest expense $(5,999) $(6,824) $ (825) (12)%
The Company currently has a 45% voting common stock investment in
Universal. Accounted for under the equity method of accounting, 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 exceeds 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 SFAS 115. Therefore, the interest earned is included as part of equity
in earnings of the insurance affiliate. For the 1998 and 1997 second
quarters and first six months, the Company recorded $263,000 and $261,000,
and $522,000 and $512,000, respectively, of interest earned from its
investment in U.S. Treasury Securities. In addition, during the 1997 second
quarter, the Company recognized as equity in earnings of insurance
affiliates, $2,500,000 of cash received from Universal as a result of a
resolution of a previously reserved Universal contingency for outstanding
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF CONTINUING OPERATIONS, Continued
litigation. The litigation was fully reserved on Universal's records and was
set aside as part of the merger in 1992 of Universal with Eastern America
Financial Group, Inc.
Equity in earnings of marine affiliates reflected a 116% increase for
the 1998 second quarter compared with the second quarter of 1997, and a 34%
increase for the 1998 first six months compared with the first six months of
1997. During the 1998 second quarter, the partnership's offshore five barge
and tug units were fully employed compared with the 1997 second quarter when
two of the five partnership's barge and tug units were in the shipyard for
maintenance for the majority of the quarter. During the 1998 first quarter,
one of the partnership's barge and tug units was in the shipyard for 15 days
and idle for 30 days of the quarter.
Interest expense reflected a 6% decrease for the 1998 second quarter
compared with the second quarter of 1997, and a 12% decrease for the 1998
first six months compared with the first six months of 1997. The decrease
for both 1998 periods reflects the excess cash flow from operations and
$38,600,000 in cash proceeds from the sale of the offshore tanker and harbor
service operations, both of which were used to pay down the Company's
$100,000,000 revolving credit agreement (the "Credit Agreement") with Chase
Bank of Texas N.A., as agent bank. In addition, the Company benefited from
lower interest rates on its Credit Agreement. Partially offsetting the cash
payments and lower interest rates on the Company's Credit Agreement was
interest on the Company's borrowings through the Credit Agreement to finance
the Dutch Auction self-tender offer discussed below.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
FINANCIAL CONDITIONS, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of June 30, 1998 were $460,726,000, a decrease of 11%
compared with $517,959,000 as of December 31, 1997. The following table sets
forth the significant components of the balance sheet as of June 30, 1998
compared with December 31, 1997 (dollars in thousands):
June 30, December 31, Increase (decrease)
--------------------
1998 1997 Amount %
-------- ------------ --------- ------
Assets:
Current assets $113,403 $135,797 $(22,394) (16)%
Property and equipment, net 274,993 272,384 2,609 1
Investments in affiliates 61,874 61,576 298 --
Long-term assets of discontinued operations -- 36,988 (36,988) (100)
Other assets 10,456 11,214 (758) (7)
------- ------- ------- ----
$460,726 $517,959 $(57,233) (11)%
======= ======= ======= ====
Liabilities and stockholders' equity:
Current liabilities $ 77,302 $ 95,603 $(18,301) (19)%
Long-term debt 169,718 149,485 20,233 14
Deferred taxes 51,222 48,409 2,813 6
Other long-term liabilities 6,422 6,193 229 4
Stockholders' equity 156,062 218,269 (62,207) (29)
------- ------- ------- ----
$460,726 $517,959 $(57,233) (11)%
======= ======= ======= ====
As of June 30, 1998, working capital decreased to $36,101,000, a 10%
decrease compared with $40,194,000 at December 31, 1997. The decrease was
primarily attributable to the sale of the discontinued offshore tanker and
harbor service property and equipment in March 1998. Trade accounts
receivable decreased 27%, reflecting the sale of the offshore operations and
the Company's emphasis on collection of receivables. Inventories increased
18%, the result of higher inventory levels at the Company's diesel repair
facilities to service the overall improving market. Accounts payable
decreased 33%, primarily reflecting the sale of the offshore operations.
Accrued liabilities decreased 14%, reflecting the semiannual payment of
interest on certain long-term debt, the payment of annual profit-sharing
contributions and the sale of the offshore operations.
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY, Continued
The available-for-sale securities of $22,765,000 at June 30, 1998 and
$21,773,000 at December 31, 1997 were investments of Oceanic Insurance
Limited, the Company's wholly owned captive insurance subsidiary.
Long-term debt, less current portion, increased 14% to $169,718,000 as
of June 30, 1998 compared with $149,485,000 at December 31, 1997. The
increase mainly reflects the borrowing to finance the Company's Dutch Auction
self-tender offer to purchase 3,066,922 shares of its common stock at a total
purchase price of $75,705,000, more fully described below, net of the
$38,600,000 of cash received from the sale of the offshore tanker and harbor
service operations and repayments on long-term debt from excess cash flow.
Stockholders' equity as of June 30, 1998 decreased 29% during the 1998
first six months, reflecting the Company's purchase of its common stock under
the Dutch Auction self-tender offer, more fully described below. As of June
30, 1998, the Company had 9,513,000 shares of common stock in its treasury.
LONG-TERM FINANCING
The Company has a $100,000,000 Credit Agreement with Chase Bank of
Texas, N.A., as agent bank. Effective January 30, 1998, the Credit Agreement
was amended to provide a one-time allowance for the disposition of assets at
the subsidiary level. The amendment also modified the minimum net worth
covenant and fixed charge calculation. Proceeds under the Credit Agreement
may be used for general corporate purposes, the purchase of existing or new
equipment, the purchase of the Company's common stock, or for possible
business acquisitions. As of June 30, 1998, $58,000,000 was outstanding
under the Credit Agreement.
TREASURY STOCK PURCHASES
On March 23, 1998, the Company purchased 3,066,922 shares of its common
stock under a Dutch Auction self-tender offer at a price of $24.50 per share.
The Company announced the self-tender offer on February 17, 1998, expressing
its intentions to purchase up to 3,000,000 shares of its common stock at a
purchase price ranging from $21.00 to $24.50 per share. The tender offer
expired on March 16, 1998.
The Company elected to increase the size of the 3,000,000 share tender
offer and to accept all shares tendered at a price of $24.50 per share. The
3,066,922 shares purchased represented approximately 12.6% of the Company's
common stock outstanding immediately prior to the offer. Funding of the
tender offer was from the Company's Credit Agreement.
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY, Continued
Since July 31, 1998, the Company has purchased 297,000 shares of its
common stock at a total purchase price of $6,423,161, for an average price of
$21.63 per share. The Company, as of August 6, 1998, has 1,517,000 shares
available under its Board of Directors' 6,250,000 total open market stock
repurchase authorization. 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 in the open market,
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
continuing operations of $30,673,000 and $15,395,000 for the six months ended
June 30, 1998 and 1997, respectively. The 1998 first half was positively
impacted by a $1,632,000 increase in cash flow as a result of a decrease in
operating working capital, compared with a $13,446,000 decrease in cash flow
for the first six months of 1997. The Company accounts for its ownership in
Universal and its ownership in its marine partnerships under the equity
method of accounting. It recognizes cash flow from Universal only upon
receipt of an actual distribution or redemption and cash flow from the marine
partnerships upon the receipt or disbursement of cash from the partnerships.
During the 1997 first six months, the Company received a $2,000,000
redemption of Universal's common stock and $2,500,000 as a result of the
Universal lawsuit ruling. For the 1998 and 1997 first six months, the
Company received net cash from the marine partnerships of $2,720,000 and
$475,000, respectively.
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 August 6, 1998,
$36,600,000 under its Credit Agreement and $121,000,000 available under its
medium term note program. The Company's scheduled principal payments during
the next 12 months are $5,333,000.
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
FINANCIAL CONDITION, 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, 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 of 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.
YEAR 2000
Historically, most computer systems utilized software that processed
transactions using two digits to represent the year of the transaction (i.e.
97 represents the year 1997). This software needs to be modified to properly
process dates beyond December 31, 1999 (the "Year 2000 Issue"). In the first
quarter of 1998, the Company completed its assessment of the Year 2000 Issue
and determined that no additional significant modifications or replacements
of its software were required. The Company utilizes both internally and
externally supported software and relies upon certain vendor enhancements yet
to be implemented to effect the Year 2000 Issue compliance. The Company
presently believes that these modifications to existing software and
conversions to new software will mitigate the Year 2000 Issue for its
software.
There can be no guarantee however, that the systems of other companies,
on which the Company's systems rely, will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
CONTINGENCIES
On April 3, 1998, an organization identified as Pilots Agree called for
a work stoppage by vessel captains and pilots against the inland towing
companies' operating vessels on the inland waterway system of the United
States. Pilots Agree, an organization claiming to represent vessel
wheelhouse personnel, is asking for a substantial increase in pay. The work
stoppage has had a minimal impact on the Company's inland transportation
operations.
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY, Continued
ACCOUNTING STANDARDS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
requires that enterprises report selected information about operating
segments in interim reports issued to shareholders. SFAS No. 131 will be
adopted in 1998. The adoption of SFAS No. 131 is not expected to have a
material impact on the Company's financial condition or results of
operations.
SFAS No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits," issued in February 1998, revises employers'
disclosures about pension and other postretirement benefit plans. It does
not change the measurement or recognition of those plans. The statement
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures. Restatement of disclosures for earlier periods is required.
SFAS No. 132 will be adopted by the Company in 1998.
25
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, 1997.
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 three months ended
June 30, 1998.
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
Dated: August 6, 1998