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, 1999
[ ] 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
incorporation or organization) Identification No.)
1775 St. James Place, Suite 200, Houston, TX 77056-3453
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 435-1000
- -------------------------------------------------------------------------------
(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, $.10 par
value per share, on August 11, 1999 was 20,119,489.
2
PART I - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1999 1998
-------- ------------
($ in thousands)
Current assets:
Cash and cash equivalents $ 882 $ 861
Available-for-sale securities 17,378 20,795
Accounts receivable:
Trade - less allowance for doubtful accounts 48,827 53,586
Insurance claims and other 18,243 16,919
Inventory - finished goods 13,323 14,181
Prepaid expenses 6,672 4,829
Deferred income taxes 809 1,187
------- -------
Total current assets 106,134 112,358
------- -------
Property and equipment, at cost 474,488 466,443
Less accumulated depreciation 221,739 209,544
------- -------
252,749 256,899
------- -------
Investments in marine affiliates 13,094 12,795
Goodwill - less accumulated amortization 5,111 5,368
Sundry 2,382 2,879
------- -------
$379,470 $390,299
======= =======
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
--------- ------------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 5,333 $ 5,333
Income taxes payable 80 504
Accounts payable 20,182 12,918
Accrued liabilities 41,113 43,305
Deferred revenues 3,665 3,880
------- -------
Total current liabilities 70,373 65,940
------- -------
Long-term debt - less current portion 122,969 137,552
Deferred income taxes 40,605 40,045
Other long-term liabilities 6,165 5,722
------- -------
169,739 183,319
------- -------
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 158,892 159,122
Accumulated other comprehensive income (241) 338
Retained earnings 157,657 147,054
------- -------
319,399 309,605
Less cost of 10,797,000 shares in treasury
(10,137,000 at December 31, 1998) 180,041 168,565
------- -------
139,358 141,040
------- -------
$379,470 $390,299
======= =======
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- -------- --------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $63,672 $62,858 $121,401 $122,255
Diesel engine services 20,383 21,466 41,135 44,324
Investment income and other 191 352 346 809
Gain on disposition of assets 3 208 35 244
------ ------ ------- -------
84,249 84,884 162,917 167,632
------ ------ ------- -------
Costs and expenses:
Costs of sales and operating expenses 54,157 53,963 107,095 108,675
Selling, general and administrative 8,661 9,730 17,900 19,306
Taxes, other than on income 1,964 1,978 3,689 3,959
Depreciation and amortization 6,829 6,829 13,509 13,659
------ ------ ------- -------
71,611 72,500 142,193 145,599
------ ------ ------- -------
Operating income 12,638 12,384 20,724 22,033
Equity in earnings of insurance affiliate - 413 - 907
Equity in earnings of marine affiliates 609 1,149 1,490 1,865
Interest expense (2,569) (3,232) (5,114) (5,999)
------ ------ ------- -------
Earnings before taxes on income 10,678 10,714 17,100 18,806
Provision for taxes on income (4,076) (4,039) (6,497) (7,091)
------ ------ ------- -------
Net earnings $ 6,602 $ 6,675 $ 10,603 $ 11,715
====== ====== ======= =======
Net earnings per share of common stock:
Basic $ .33 $ .31 $ .52 $ .52
====== ====== ======= =======
Diluted $ .33 $ .31 $ .52 $ .51
====== ====== ======= =======
See accompanying notes to condensed financial statements.
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
--------------------------
1999 1998
-------- ---------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 10,603 $ 11,715
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation and amortization 13,509 13,659
Provision for deferred income taxes 1,249 3,988
Gain on disposition of assets (35) (244)
Deferred scheduled maintenance costs (1,047) (72)
Equity in earnings of insurance affiliate - (907)
Equity in earnings of marine affiliates, net of
distributions and contributions (299) 855
Other (89) 47
Increase in cash flows resulting from changes in
operating working capital 8,628 1,632
------- -------
Net cash provided by operating activities of
continuing operations 32,519 30,673
Net cash provided by operating activities of
discontinued operations - 108
------- -------
Net cash provided by operating activities 32,519 30,781
------- -------
TABLE CONTINUED ON NEXT PAGE
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
Six months ended June 30,
--------------------------
1999 1998
-------- ---------
($ in thousands)
Cash flows from investing activities:
Proceeds from sale and maturities of investments 2,528 1,034
Purchase of investments - (1,876)
Capital expenditures (9,382) (16,542)
Proceeds from disposition of assets 645 1,259
Proceeds from disposition of business - 38,600
Investing activities of discontinued operations - (275)
------- -------
Net cash provided by (used in) investing
activities (6,209) 22,200
------- -------
Cash flows from financing activities:
Borrowings (payments) on bank revolving credit
agreements, net (9,500) 25,400
Payments on long-term debt (5,083) (5,167)
Purchase of treasury stock (11,838) (75,706)
Proceeds from exercise of stock options 132 1,528
------- -------
Net cash used in financing activities (26,289) (53,945)
------- -------
Increase (decrease) in cash and cash equivalents 21 (964)
Cash and cash equivalents, beginning of year 861 2,043
------- -------
Cash and cash equivalents, end of period $ 882 $ 1,079
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 4,886 $ 5,919
Income taxes $ 6,043 $ 3,374
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,
1999 and December 31, 1998, and the results of operations for the three months
and six months ended June 30, 1999 and 1998.
(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) PENDING ACQUISITION
On July 29, 1999, the Company announced the signing of an Agreement and
Plan of Merger with Hollywood Marine, Inc. ("Hollywood") providing for the
merger of Hollywood, a privately held, inland tank barge company based in
Houston, Texas, into Kirby Inland Marine, Inc., a wholly-owned subsidiary of
the Company. The Company will purchase Hollywood for an aggregate
consideration of approximately $325,000,000, consisting of approximately
$90,000,000 in Kirby common stock, approximately $135,000,000 in cash and the
assumption or refinancing of all or part of Hollywood's existing debt of
approximately $100,000,000. The number of shares of Kirby common stock to be
issued in the merger will be determined based on the average trading price of
the common stock on the New York Stock Exchange during a twenty day period
shortly before the closing, with the price used to be not less than $17.50 per
share and not more than $21.50 per share.
Financing for the cash portion of the transaction will be through the
Company's existing $100,000,000 bank revolving credit agreement with Chase Bank
of Texas, N.A. as agent bank and through the Company's existing medium term
note program or new bond financing issued through the private and/or public
markets. As of August 11, 1999, the Company had $94,000,000 available under
the bank revolving credit agreement and $121,000,000 available under the medium
term note program.
Hollywood is engaged in the inland tank barge transportation of chemicals
and petrochemicals, refined petroleum products, black oil and pressurized
products primarily along the Gulf Intracoastal Waterway, the Houston Ship
Channel and the lower Mississippi River. Hollywood operates a fleet of 256
inland tank barges, with 4.6 million barrels of capacity, and 104 inland
towboats.
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(2) PENDING ACQUISITION - (Continued)
Hollywood recorded total revenues of approximately $168,000,000 for the
year ended December 31, 1998 and approximately $81,700,000 for the six months
ended June 30, 1999. The closing of the transaction is subject to the
inspection of Hollywood's inland tank barges and towboats, satisfactory
completion of an environmental audit, review of material contracts and the
resolution of certain other issues, including a statutory filing under the Hart-
Scott-Rodino Antitrust Improvements Act. Consummation of the transaction is
expected in October 1999. The transaction will be accounted for using the
purchase method of accounting.
(3) ADOPTION OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," ("SFAS No. 133") issued in
June 1998, establishes accounting and reporting standards for derivative
instruments and hedging activities. This statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Based on the
May 1999 announcement by the Financial Accounting Standards Board to delay the
implementation date by one year, SFAS No. 133 is now effective for all quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is effective for
the Company's year ending December 31, 2001 and is not expected to have a
material effect on the Company's financial position or results of operations.
(4) COMPREHENSIVE INCOME
The Company's total comprehensive income for the three months and six
months ended June 30, 1999 and 1998 were as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1999 1998 1999 1998
------- ------ -------- -------
Net earnings $6,602 $6,675 $10,603 $11,715
Other comprehensive income (loss), net of tax (241) 356 (579) 256
----- ----- ------ ------
Total comprehensive income $6,361 $7,031 $10,024 $11,971
===== ===== ====== ======
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(5) SEGMENT INFORMATION
The following table sets forth the Company's summarized financial
information by reportable segment for the three months and six months ended
June 30, 1999 and 1998 (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- ---------
Revenues:
Marine transportation $63,672 $62,858 $121,401 $122,255
Diesel engine services 20,383 21,466 41,135 44,324
Other 194 560 381 1,053
------ ------ ------- -------
$84,249 $84,884 $162,917 $167,632
====== ====== ======= =======
Segment profit (loss):
Marine transportation $11,415 $10,675 $ 18,318 $ 18,819
Diesel engine services 2,164 2,355 4,281 4,528
Other (2,901) (2,316) (5,499) (4,541)
------ ------ ------- -------
$10,678 $10,714 $ 17,100 $ 18,806
====== ====== ======= =======
Total assets:
Marine transportation $295,149 $314,370
Diesel engine services 37,399 47,614
Other 46,922 98,742
------- -------
$379,470 $460,726
======= =======
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(5) SEGMENT INFORMATION - (Continued)
The following table presents the details of "Other" segment profit (loss)
for the three months and six months ended June 30, 1999 and 1998 (in
thousands):
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
-------- -------- -------- --------
General corporate expenses $(1,135) $(1,206) $(2,256) $(2,367)
Interest expense (2,569) (3,232) (5,114) (5,999)
Equity in earnings of affiliates 609 1,562 1,490 2,772
Gain on sale of assets 3 208 35 244
Other 191 352 346 809
------ ------ ------ ------
$(2,901) $(2,316) $(5,499) $(4,541)
====== ====== ====== ======
The following table presents the details of "Other" total assets as of
June 30, 1999 and 1998 (in thousands):
June 30,
---------------------
1999 1998
------- -------
General corporate assets $33,828 $36,868
Investments in affiliates 13,094 61,874
------ ------
$46,922 $98,742
====== ======
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(6) TAXES ON INCOME
Earnings before taxes on income and details of the provision for taxes on
income for the three months and six months ended June 30, 1999 and 1998 were as
follows (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- -------- --------
Earnings before taxes on income:
United States $10,678 $10,301 $17,100 $17,899
Puerto Rico - 413 - 907
------ ------ ------ ------
$10,678 $10,714 $17,100 $18,806
====== ====== ====== ======
Provision for taxes on income:
United States:
Current $ 3,341 $ 2,120 $ 4,747 $ 2,625
Deferred 495 1,700 1,249 3,988
State and local 240 219 501 478
------ ------ ------ ------
4,076 4,039 6,497 7,091
Puerto Rico - current - - - -
------ ------ ------ ------
$ 4,076 $ 4,039 $ 6,497 $ 7,091
====== ====== ====== ======
12
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.
The Company is a provider of marine transportation services, operating a
fleet of 511 inland tank barges and 126 inland towing vessels, transporting
industrial chemicals and petrochemicals, refined petroleum products and
agricultural chemicals along the United States inland waterways. 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 engine services segment in the
overhaul and servicing of large medium-speed diesel engines employed in marine,
power generation and railroad applications.
RESULTS OF OPERATIONS
The Company reported net earnings of $6,602,000, or $.33 per share, on
revenues of $84,249,000 for the 1999 second quarter, compared with net earnings
of $6,675,000, or $.31 per share, on revenues of $84,884,000 for the 1998
second quarter. Net earnings for the six months ended June 30, 1999 were
$10,603,000, or $.52 per share, on revenues of $162,917,000, compared with net
earnings of $11,715,000, or $.51 per share, on revenues of $167,632,000 for the
1998 first six months. 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 1999 and 1998 were 20,220,000 and 21,738,000, respectively,
and for the 1999 and 1998 first half were 20,341,000 and 23,021,000,
respectively. The reduction in common shares for the 1999 periods compared
with the applicable 1998 periods primarily reflected the acquisition of
treasury stock under the Company's Dutch Auction self-tender offer completed on
March 23, 1998 and through open market repurchases during 1998 and the first
six months of 1999, 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 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, 1999 compared
with the three months and six months ended June 30, 1998 (dollars in
thousands):
Three months ended June 30,
------------------------------------
1999 1998 Increase (decrease)
---------------- ---------------- -------------------
Amounts % Amounts % Amounts %
------- ---- ------- ---- -------- -----
Revenues:
Marine transportation $63,672 76% $62,858 74% $ 814 1 %
Diesel engine services 20,383 24 21,466 25 (1,083) (5)
Other income 194 - 560 1 (366) (65)
------ --- ------ --- ----- ---
$84,249 100% $84,884 100% $ (635) (1)%
====== === ====== === ====== ===
Six months ended June 30,
------------------------------------
1999 1998 Increase (decrease)
---------------- ---------------- -------------------
Amounts % Amounts % Amounts %
-------- ---- -------- ---- -------- -----
Revenues:
Marine transportation $121,401 75% $122,255 73% $ (854) (1)%
Diesel engine services 41,135 25 44,324 26 (3,189) (7)
Other income 381 - 1,053 1 (672) (64)
------- --- ------- --- ------ ---
$162,917 100% $167,632 100% $(4,715) (3)%
======= === ======= === ====== ===
Revenues for the marine transportation segment increased 1% for the 1999
second quarter and decreased 1% for the 1999 first six months compared with the
1998 corresponding periods. The 1998 second quarter and first six months
results included approximately $1,800,000 and $3,600,000, respectively, of
revenues from two offshore tank barge and tug units which were sold in October
1998.
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
During the 1999 second quarter and first six months, chemical and
petrochemical volumes were solid. Refined product volumes increased in May and
June in anticipation of the summer driving season. Liquid fertilizer and
ammonia volumes, which normally represent approximately 15% of marine
transportation revenues, historically increase during the second quarter with
the spring planting season. Volumes in the 1999 second quarter fell below
normal expectations due to high inventory levels in the Midwest. Overproduction
of nitrogen in 1998 and 1999, coupled with a 30-year low corn price, which
deterred farmers from planting corn, have resulted in producers curtailing
plant output of nitrogen products. The result was decreased shipments by barge
into the Midwest in the 1999 second quarter compared with the traditional
fertilizer season. Spot market rates continued to reflect modest quarter-to-
quarter increases during 1999 and term contracts are generally being renewed at
higher levels. During the 1999 second quarter, operating conditions improved
over the 1999 first quarter when navigational delays (weather, locks and other
restrictions) lowered the quarter's revenues due to increased transit times.
For the 1998 second quarter and first half, chemical and petrochemical
volumes were firm and refined product volumes increased in May and June in
anticipation of the summer driving season. Liquid fertilizer volumes were
down, as the Company experienced a short fertilizer season due to high
inventory levels in the Midwest distribution terminals. Spot market rates and
contract renewals reflected slight increases.
The diesel engine services segment's revenues for the 1999 second quarter
and first six months decreased 5% and 7%, respectively, compared with the 1998
corresponding periods. The prior year's first quarter and first half, included
approximately $1,500,000 and $2,800,000, respectively, of revenues from a
product line that the segment sold in September 1998. During the 1999 second
quarter, continued strong Midwest and East Coast engine overhauls and parts
sales primarily offset the weak Gulf Coast market, which continued to be
negatively impacted by reduced service work in the offshore oil and gas
services sector in the Gulf of Mexico, and slower activity in the shortline and
industrial railroad market. During the 1999 second quarter and first six
months, Gulf Coast mechanics were dispatched to the Midwest and East Coast to
meet the increased demands of those markets.
The diesel engine services segment's revenues for the 1998 second quarter
and first six months reflected strong engine overhauls and parts sales in each
of the segment's markets, including the Gulf Coast market, which continued to
benefit from enhanced drilling and related oil and gas service activities in
the Gulf of Mexico. The diesel engine services segment's decline in activity
in its Gulf Coast market began in the 1998 third quarter as drilling activities
declined.
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
Other income, comprised primarily of investment income and gain on
disposition of assets, declined 65% for the 1999 second quarter and 64% for the
1999 first six months when compared with the 1998 corresponding periods. The
declines primarily reflected lower investment income from securities of the
Company's wholly-owned captive insurance subsidiary in 1999 when compared with
1998 and the recognition of gains from the sale of marine transportation
equipment during the 1998 first and second quarters.
The following table sets forth the costs and expenses and percentage of
each for the three months and six months ended June 30, 1999 compared with the
three months and six months ended June 30, 1998 (dollars in thousands):
Three months ended June 30,
------------------------------------
1999 1998 Increase (decrease)
---------------- ---------------- -------------------
Amounts % Amounts % Amounts %
------- ---- ------- ---- -------- -----
Costs and expenses:
Costs of sales and operating expenses $54,157 76% $53,963 74% $ 194 - %
Selling, general and administrative 8,661 12 9,730 13 (1,069) (11)
Taxes, other than on income 1,964 3 1,978 3 (14) (1)
Depreciation and amortization 6,829 9 6,829 10 - -
------ --- ------ --- ------ ---
$71,611 100% $72,500 100% $ (889) (1)%
====== === ====== === ====== ===
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
Six months ended June 30,
-------------------------------------
1999 1998 Increase (decrease)
---------------- ----------------- -------------------
Amounts % Amounts % Amounts %
-------- ---- -------- ---- -------- ----
Costs and expenses:
Costs of sales and operating expenses $107,095 75% $108,675 75% $(1,580) (1)%
Selling, general and administrative 17,900 13 19,306 13 (1,406) (7)
Taxes, other than on income 3,689 3 3,959 3 (270) (7)
Depreciation and amortization 13,509 9 13,659 9 (150) (1)
------- --- ------- --- ------ --
$142,193 100% $145,599 100% $(3,406) (2)%
======= === ======= === ====== ==
Costs of sales and operating expenses for the 1999 second quarter
increased less than one percent compared with the 1998 second quarter and
decreased 1% for the 1999 first six months as compared with the first six
months of 1998. The 1998 second quarter and first six months included costs
and expenses associated with the revenues generated from the two offshore tank
barge and tug units sold in October 1998 and the diesel engine services product
line sold in September 1998. The costs of sales and operating expenses
applicable to the assets sold totaled approximately $2,414,000 and $4,981,000
during the 1998 second quarter and first six months, respectively.
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
As noted above, the marine transportation navigational delays incurred
during the 1999 first quarter not only negatively impacted revenues, but also
increased operating expenses. The ice and high water conditions required
additional horsepower to complete the movements, additional fuel and other
variable expenses. Costs of sales and operating expenses for the 1999 second
quarter and first six months also reflected the full impact of the overall 20%
afloat wage increases implemented during 1998, the result of a tight afloat
labor market. During 1998, the Company increased afloat compensation by 6%
effective March 1, by 11% effective August 1, as well as incurred additional
costs from expanded longevity pay, trip pay, travel pay and mileage
reimbursement. The 20% increase was necessary not only to retain current
employees, but also to increase compensation to levels that were competitive
with other industries so as to attract new afloat personnel. During the 1999
second quarter and first six months, the marine transportation segment
benefited from lower maintenance costs and diesel fuel prices compared with the
corresponding periods of 1998. Maintenance and repair expenditures for the
1999 periods are lower as the segment is not competing for shipyard space with
companies participating in the oil and gas drilling activities in the Gulf of
Mexico. The segment also continued to benefit from continued costs savings
from its ongoing cost reduction procurement program.
Selling, general and administrative expenses decreased 11% for the 1999
second quarter and 7% for the 1999 first half compared with the corresponding
periods of 1998. The decrease primarily reflects savings in administrative
expenses due to the relocation of facilities, continuing cost reduction efforts
and the elimination of offshore and diesel engine services business lines.
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF 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, 1999 compared
with the three months and six months ended June 30, 1998 (dollars in
thousands):
Three months ended June 30,
------------------------------------------
1999 1998
-------------------- --------------------
Operating Operating Increase (decrease)
income Operating income Operating -------------------
(loss) margin (loss) margin Amounts %
--------- --------- --------- --------- ------- -----
Marine transportation $11,415 17.9% $10,675 17.0% $ 740 7 %
Diesel engine services 2,164 10.6% 2,355 11.0% (191) (8)
Corporate (1,135) (1,206) 71 6
------ ------ ---- --
$12,444 $11,824 $ 620 5 %
====== ====== ==== ==
Six months ended June 30,
------------------------------------------
1999 1998
-------------------- --------------------
Operating Operating Increase (decrease)
income Operating income Operating -------------------
(loss) margin (loss) margin Amounts %
--------- --------- --------- --------- ------- -----
Marine transportation $18,318 15.1% $18,819 15.4% $(501) (3)%
Diesel engine services 4,281 10.4% 4,528 10.2% (247) (5)
Corporate (2,256) (2,367) 111 5
------ ------ ---- --
$20,343 $20,980 $(637) (3)%
====== ====== ==== ==
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF 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, 1999
compared with the three months and six months ended June 30, 1998 (dollars in
thousands):
Three months ended
----------------------
June 30, Increase (decrease)
---------------------- -------------------
1999 1998 Amount %
-------- -------- ------ ------
Equity in earnings of insurance affiliate $ - $ 413 $(413) (100)%
Equity in earnings of marine affiliates $ 609 $ 1,149 $(540) (47)%
Interest expense $(2,569) $(3,232) $(663) (21)%
Six months ended
June 30, Increase (decrease)
-------------------- --------------------
1999 1998 Amount %
-------- -------- ------ ------
Equity in earnings of insurance affiliate $ - $ 907 $(907) (100)%
Equity in earnings of marine affiliates $ 1,490 $ 1,865 $(375) (20)%
Interest expense $(5,114) $(5,999) $(885) (15)%
The 1998 second quarter and first six months included $413,000 and
$907,000, respectively, of equity in earnings from the Company's 45% voting
common stock interest and its 100% non-voting preferred stock interest in
Universal Insurance Company ("Universal"). Universal, a property and casualty
insurance company, operates exclusively in the Commonwealth of Puerto Rico.
Effective September 30, 1998, the Company sold its remaining 45% voting common
stock interest and its 100% non-voting preferred stock interest in Universal
for $36,000,000 in cash.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
Equity in earnings of marine affiliates reflected a 47% decrease for the
1999 second quarter compared with the second quarter of 1998, and a 20%
decrease for the 1999 first six months compared with the first six months of
1998. During the 1999 second quarter, a higher percentage of the partnership's
offshore dry-cargo barge and tug units were operating in the spot market at
lower rates, as compared with the 1998 second quarter, when the majority of the
units were employed under the partnership's coal and rock contracts at higher
rates.
Interest expense reflected a 21% decrease for the 1999 second quarter
compared with the second quarter of 1998, and a 15% decrease for the 1999 first
half compared with the 1998 first half. The average debt and average interest
rate for the 1999 second quarter was $132,100,000 and 7.27%, compared with
$177,400,000 and 7.08% for the second quarter of 1998, respectively. For the
1999 first six months, the average debt was $134,000,000 and average interest
rate was 7.25%. This compared favorably with average debt of $162,300,000 and
average interest rate of 7.17% for the 1998 first six months. The higher
average interest rate for the 1999 second quarter and first six months when
compared with the average interest rate for the corresponding periods reflects
the significant reduction in the Company's revolving credit agreement which
carries a lower variable interest rate.
21
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, 1999 were $379,470,000, a decrease of 3%
compared with $390,299,000 as of December 31, 1998. The following table sets
forth the significant components of the balance sheet as of June 30, 1999
compared with December 31, 1998 (dollars in thousands):
Increase (decrease)
June 30, December 31, -------------------
1999 1998 Amount %
-------- ------------ --------- -----
Assets:
Current assets $106,134 $112,358 $ (6,224) (6)%
Property and equipment, net 252,749 256,899 (4,150) (2)
Investments in marine affiliates 13,094 12,795 299 2
Other assets 7,493 8,247 (754) (9)
------- ------- ------- ---
$379,470 $390,299 $(10,829) (3)%
======= ======= ======= ===
Liabilities and stockholders' equity:
Current liabilities $ 70,373 $ 65,940 $ 4,433 7 %
Long-term debt 122,969 137,552 (14,583) (11)
Deferred taxes 40,605 40,045 560 1
Other long-term liabilities 6,165 5,722 443 8
Stockholders' equity 139,358 141,040 (1,682) (1)
------- ------- ------- ---
$379,470 $390,299 $(10,829) (3)%
======= ======= ======= ===
Working capital as of June 30, 1999 totaled $35,761,000, a 23% decrease
compared with $46,418,000 at December 31, 1998. Available-for-sale securities
decreased 16% due to the Company's use of its captive insurance subsidiary
during 1999 for only the procurement of reinsurance in international markets.
Trade accounts receivable decreased 9%, reflecting the Company's continuing
emphasis on reducing collection time on trade accounts receivable. Diesel
engine services inventories decreased 6%, reflecting the Company's emphasis on
inventory management. Trade accounts payable increased 56%, principally the
result of accruals for reinsurance premiums and marine transportation shipyard
invoices.
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)
Long-term debt, less current portion, decreased 11%, the result of
favorable net cash provided by operating activities during the 1999 first half
of $32,519,000. During the 1999 first half, the Company incurred $9,382,000 of
capital expenditures. In addition, the Company purchased $11,838,000 of
treasury stock through open market common stock repurchases, more fully
described below.
Stockholders' equity as of June 30, 1999 decreased 1% during the 1999
first half, reflecting the $11,838,000 of treasury stock purchases, more fully
described below, net of $10,603,000 of net earnings.
TREASURY STOCK PURCHASES
During the 1999 first half, the Company purchased in the open market
683,000 shares of its common stock at a total price of $11,838,000, for an
average price of $17.33 per share. During the 1999 second quarter, the Company
purchased 22,000 shares of its common stock at a total purchase price of
$409,000, for an average price of $18.56 per share. The treasury stock
purchases were financed by borrowing under the Company's revolving credit
agreement.
On April 20, 1999, the Board of Directors increased the Company's common
stock repurchase authorization to 6,250,000 shares, an increase of 2,000,000
shares over the 2,250,000 shares authorized in October 1995 and 2,000,000
shares authorized in August 1994. The Company, as of August 11, 1999, had
2,392,000 shares available under the repurchase authorization. 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
$32,519,000 and $30,781,000 for the six months ended June 30, 1999 and 1998,
respectively. The 1999 first half was positively impacted by an $8,628,000
increase in cash flow, resulting from changes in working capital, compared with
a $1,632,000 increase in the 1998 first six months. For the 1999 and 1998
first six months, the Company received net cash from the marine partnerships of
$1,191,000 and $2,720,000, respectively.
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)
Funds generated are available for capital construction projects, treasury
stock repurchases, acquisitions, repayment of borrowings associated with each
of the above and for other operating requirements. In addition to its net cash
flow provided by operating activities, the Company also has available as of
August 11, 1999, $94,000,000 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 $50,333,000. On June 1, 2000,
$45,000,000 of the Company's medium term notes mature. These notes were
classified as long-term at June 30, 1999 as the Company has the ability and
intent to refinance the notes through available credit facilities.
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. The
repair portion of the diesel engine services segment is based on prevailing
current market rates.
The Company has no present plan to pay dividends on its common stock.
YEAR 2000
Certain computer systems, software programs and semiconductors are not
capable of recognizing certain dates in 1999 and after December 31, 1999, and
will read dates in the year 2000 and thereafter as if those dates represent the
year 1900 or thereafter, or will fail to process those dates. This "Year 2000
Issue" could result in the failure of certain systems or other errors that
could disrupt normal business activities.
The Company has designed and implemented an action plan to determine the
likely exposures of the Company and its subsidiaries to the Year 2000 Issue and
to take the necessary action to minimize the impact of those exposures. The
Company's Year 2000 action plan addresses both internal and external exposures
to the Year 2000 Issue.
With respect to the Company's internal Year 2000 Issue exposures, the
action plan addresses both land-based and vessel-based systems. The land-based
systems include all of the Company's network components, core corporate
software applications, personal computers, telephone systems, building
management control systems and critical office equipment. The vessel-based
systems include electronic navigation equipment, diesel engine controlling
systems, and fire and other emergency monitors and alarms.
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)
The Company's external exposures to the Year 2000 Issue include vendors
and suppliers of critical services including communications, fuel and supplies,
barge cleaning and repair, and government waterways maintenance and management.
The Company's external exposures also include general business support systems
such as electric power, telephone and banking services, as well as customers'
accounts payable systems. The Company may experience Year 2000 problems as a
result of these external exposures. The Company is attempting to address all
Year 2000 exposures in advance; however, the Company could potentially
experience temporary disruptions to certain aspects of activities or operations
as a result of the external exposures noted above. It is not possible to
determine whether, or to what extent, any or all of these exposures are likely
to occur or the costs involved in any of the exposures. However, the costs to
the Company could be material.
The Company's Year 2000 action plan divides the Company's actions with
respect to its internal and external exposures to the Year 2000 Issue into
three sequential stages:
* INVESTIGATION. This stage, substantially completed in the 1999 first
quarter, included a complete physical inventorying of all computer
systems, software applications, and equipment relying on computer
software or embedded semiconductors. The Company has completed the
process of mailing requests for Year 2000 Issues to the manufacturers
and distributors of the systems and equipment. Responses have been
positive, as most manufacturers and distributors have indicated the
Year 2000 status of their equipment or systems as Year 2000 compliant.
* REMEDIATION. This stage involves the repair or replacement of the
Company's equipment and systems which have been identified as not being
Year 2000 compliant in the investigation stage and the validation of
the compliance of the equipment and systems which have been repaired or
replaced. This stage has been substantially completed. The Company
continues to be proactive in additional communication with key systems'
manufacturers and distributors to ensure awareness of any unanticipated
problems that have not been previously addressed.
* CONTINGENCY PLANNING. Based on the findings of the investigation
stage, the Company's actions in this stage include the development of
business scenarios likely to result from Year 2000 compliance failures
by external suppliers or their equipment, systems or services, and the
development of remedies to minimize the consequences of such failures
on the Company's business. Those remedies may include preventative
measures and "work around" solutions. This stage is expected to be
complete by October 1999.
25
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)
While the Company expects that the remediation and contingency planning
stages of its Year 2000 action plan will be completed as indicated above, the
Company must rely on third parties including government agencies,
manufacturers, distributors, vendors and suppliers, to provide information and
to take actions which are beyond the Company's control. While the responses to
the investigation stage have been positive, it is not possible for the Company
to predict either the timeliness of the manufacturers or distributors who have
not responded to the Company's requests, or the substance of the information
and actions provided by third parties. Accordingly, the Company can not
predict whether or to what extent the information provided by third parties
will affect the timely completion of each stage of the Year 2000 action plan,
as the information provided by third parties may require additional
investigation, remediation, and/or contingency planning. Further, the
Company's ability to timely complete its Year 2000 action plan is dependent
upon the ability of third party manufacturers and distributors to provide
necessary replacement equipment during the remediation stage.
The total amount expended on the Year 2000 action plan through June 30,
1999 is approximately $100,000. Remaining costs related to the Year 2000
action plan are not expected to be material. The Company will continue to
utilize internal resources to assist in the implementation of the Year 2000
action plan. The costs expended to date, and the costs anticipated to be
expended in the second half of 1999, do not include the Company's internal
costs, as the Company does not track such costs separately. The costs also do
not include software upgrades that, while Year 2000 compliant, were not
specifically upgraded for the Year 2000 Issue. The completion of the Year 2000
action plan is expected to significantly reduce both the level of uncertainty
related to the Company's reliance on third parties for Year 2000 compliance and
the possibility of significant interruptions of normal business operations. The
forward-looking statements contained in this discussion should be read in
conjunction with the Company's disclosure in the opening paragraph of this
Management's Discussion and Analysis.
ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," issued in June 1998, establishes accounting and reporting
standards for derivative instruments and hedging activities. This statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Based on the May 1999 announcement by the Financial
Accounting Standards Board to delay the implementation date by one year, SFAS
No. 133 is now effective for all quarters of fiscal years beginning after June
15, 2000. SFAS No. 133 is effective for the Company's year ending December 31,
2001 and is not expected to have a material effect on the Company's financial
position or results of operations.
26
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)
SUBSEQUENT EVENT
On July 29, 1999, the Company announced the signing of an Agreement and
Plan of Merger with Hollywood providing for the merger of Hollywood, a
privately held, inland tank barge company based in Houston, Texas, into Kirby
Inland Marine, Inc., a wholly-owned subsidiary of the Company. The Company
will purchase Hollywood for an aggregate consideration of approximately
$325,000,000, consisting of approximately $90,000,000 in Kirby common stock,
approximately $135,000,000 in cash and the assumption or refinancing of all or
part of Hollywood's existing debt of approximately $100,000,000. The number of
shares of Kirby common stock to be issued in the merger will be determined
based on the average trading price of the common stock on the New York Stock
Exchange during a twenty day period shortly before the closing, with the price
used to be not less than $17.50 per share and not more than $21.50 per share.
Financing for the cash portion of the transaction will be through the
Company's existing $100,000,000 bank revolving credit agreement with Chase Bank
of Texas, N.A. as agent bank and through the Company's existing medium term
note program or new bond financing issued through the private and/or public
markets. As of August 11, 1999, the Company had $94,000,000 available under
the bank revolving credit agreement and $121,000,000 available under the medium
term note program.
Hollywood is engaged in the inland tank barge transportation of chemicals
and petrochemicals, refined petroleum products, black oil and pressurized
products primarily along the Gulf Intracoastal Waterway, the Houston Ship
Channel and the lower Mississippi River. Hollywood operates a fleet of 256
inland tank barges, with 4.6 million barrels of capacity, and 104 inland
towboats.
Hollywood recorded total revenues of approximately $168,000,000 for the
year ended December 31, 1998 and approximately $81,700,000 for the six months
ended June 30, 1999. The closing of the transaction is subject to the
inspection of Hollywood's inland tank barges and towboats, satisfactory
completion of an environmental audit, review of material contracts and the
resolution of certain other issues, including a statutory filing under the Hart-
Scott-Rodino Antitrust Improvements Act. Consummation of the transaction is
expected in October 1999. The transaction will be accounted for using the
purchase method of accounting.
27
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, 1998.
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, 1999. On July 30, 1999, the Company filed a report on
Form 8-K reporting the signing of an Agreement and Plan of Merger
with Hollywood Marine, Inc. for the merger of Hollywood into Kirby
Inland Marine, Inc., a wholly-owned subsidiary of Kirby.
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 11, 1999