1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarter ended September 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
Commission File Number 1-7615
Kirby Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 74-1884980
- ----------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1775 St. James Place, Suite 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, $.10 par
value per share, on November 4, 1997 was 24,330,636.
2
PART 1 - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1997 1996
-------- --------
($ in thousands)
Current assets:
Cash and invested cash $ 3,105 1,544
Available-for-sale securities - short-term investments 21,006 18,199
Accounts and notes receivable, net of allowance for doubtful
accounts 80,286 79,866
Inventory - finished goods, at lower of average cost or market 17,398 16,361
Prepaid expenses and other 15,803 13,315
Deferred taxes 1,417 600
-------- --------
Total current assets 139,015 129,885
-------- --------
Property and equipment, at cost 531,342 518,773
Less allowance for depreciation 220,699 200,049
-------- --------
310,643 318,724
-------- --------
Investments in affiliates:
Insurance affiliate 44,302 44,554
Marine affiliates 15,404 12,697
-------- --------
59,706 57,251
-------- --------
Excess cost of consolidated subsidiaries, net of accumulated
amortization 6,809 8,316
Sundry 8,260 10,354
-------- --------
$524,433 524,530
======== ========
See accompanying notes to condensed financial statements.
2
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
-------- --------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 5,333 5,333
Income taxes payable 3,692 4,027
Accounts payable 20,477 30,518
Accrued liabilities 54,430 44,511
Deferred revenues 4,033 5,302
--------- ---------
Total current liabilities 87,965 89,691
--------- ---------
Long-term debt, less current portion 164,968 176,617
Deferred taxes 48,624 45,901
Other long-term liabilities 7,418 6,567
--------- ---------
221,010 229,085
--------- ---------
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 158,569 158,712
Unrealized net gains (losses) in value of available-for-sale
securities 343 (32)
Retained earnings 134,056 115,263
--------- ---------
296,059 277,034
Less cost of 6,579,000 shares in treasury (6,129,000 at
December 31, 1996) (80,601) (71,280)
--------- ---------
215,458 205,754
--------- ---------
$ 524,433 524,530
========= =========
See accompanying notes to condensed financial statements.
3
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------- -------------------------
1997 1996 1997 1996
--------- -------- -------- --------
($ in thousands, except per share amounts)
Revenues:
Transportation $ 80,103 80,830 242,011 239,620
Diesel repair 18,877 19,271 59,827 48,836
Investment income and other 342 216 960 917
Gain on disposition of assets 13 19 170 1,767
--------- -------- -------- --------
99,335 100,336 302,968 291,140
--------- -------- -------- --------
Costs and expenses:
Costs of sales and operating expenses (except as
shown below) 65,950 65,778 202,807 189,805
Selling, general and administrative 11,188 11,073 33,898 31,856
Taxes, other than on income 2,006 1,683 5,884 5,512
Depreciation and amortization 8,607 8,615 26,141 26,270
--------- -------- -------- --------
87,751 87,149 268,730 253,443
--------- -------- -------- --------
Operating income 11,584 13,187 34,238 37,697
Equity in earnings of insurance affiliate 422 404 3,734 1,755
Equity in earnings of marine affiliates 778 1,141 2,172 3,055
Interest expense (3,293) (3,437) (10,117) (9,913)
--------- -------- -------- --------
Earnings before taxes on income 9,491 11,295 30,027 32,594
Provision for taxes on income (3,542) (4,189) (11,234) (12,022)
--------- -------- -------- --------
Net earnings $ 5,949 7,106 18,793 20,572
========= ======== ======== ========
Net earnings per share of common stock $ .24 .28 .76 .79
========= ======== ======== ========
See accompanying notes to condensed financial statements.
4
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months
ended September 30,
----------------------
1997 1996
--------- -------
Cash flows from operating activities:
Net earnings $ 18,793 20,572
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 26,141 26,270
Provision for deferred income taxes 1,705 4,805
Gain on disposition of assets (170) (1,767)
Deferred scheduled maintenance costs 5,823 3,213
Equity in earnings of insurance affiliate, net of redemption 766 (1,755)
Equity in earnings of marine affiliates, net of distributions (2,708) 1,028
Other 3 127
Increase (decrease) in cash flows resulting from changes in operating working capital (8,740) 9,656
-------- --------
Net cash provided by operating activities 41,613 62,149
-------- --------
Cash flows from investing activities:
Proceeds from sale and maturities of investments 1,935 1,885
Purchase of investments (4,678) (3,423)
Capital expenditures (18,480) (30,150)
Purchase of assets of diesel repair company -- (14,211)
Proceeds from disposition of assets 2,284 6,091
-------- --------
Net cash used in investing activities (18,939) (39,808)
-------- --------
Cash flows from financing activities:
Borrowings (payments) on bank revolving credit agreements, net (22,400) 8,800
Increase in long-term debt 50,000 --
Payments on long-term debt (39,249) (5,593)
Purchase of treasury stock (10,887) (26,331)
Proceeds from exercise of stock options 1,423 452
-------- --------
Net cash used in financing activities (21,113) (22,672)
-------- --------
Increase (decrease) in cash and invested cash 1,561 (331)
Cash and invested cash, beginning of year 1,544 1,457
-------- --------
Cash and invested cash, end of period $ 3,105 1,126
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,203 7,194
Income taxes $ 8,311 7,448
Noncash investing and financing activity:
Assumption of liabilities in connection with purchase of assets of diesel
repair company $ -- 2,623
See accompanying notes to condensed financial statements.
5
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
financial statements of Kirby Corporation and consolidated subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1997 and December 31, 1996, and the results of operations for the three months
and nine months ended September 30, 1997 and 1996.
(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. In addition, certain
reclassifications have been made to reflect current presentation of financial
information. 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
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" ("SFAS No. 128"), which establishes standards for computing and
presenting earnings per share and requires, among other things, dual
presentation of basic and diluted earnings per share on the face of the
statements of earnings. In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), 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 transaction
adjustments, notes receivable from employee stock ownership plans and deferred
gains (losses) on hedging activities. Also, in June 1997, the FASB issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which 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. 128 is effective for financial statements for periods
ending after December 15, 1997 and will be adopted by the Company by December
31, 1997. SFAS No. 130 and SFAS No. 131 are effective for financial statements
for periods beginning after December 15, 1997. The adoption of SFAS No. 128 is
not expected to have a material impact on the Company's calculation of earnings
per share, and the adoption of SFAS No. 130 and SFAS No. 131 is not expected to
have a material impact on the Company's financial condition or results of
operations.
(3) TAXES ON INCOME
Earnings before taxes on income and details of the provision for
taxes on income for the three months and nine months ended September 30, 1997
and 1996 were as follows (in thousands):
6
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------------
1997 1996 1997 1996
------- ------ ------ ------
Earnings before taxes on income:
United States $ 9,069 10,891 26,293 30,839
Foreign - Puerto Rico 422 404 3,734 1,755
------- ------ ------ ------
$ 9,491 11,295 30,027 32,594
======= ====== ====== ======
Provision for taxes on income:
United States:
Current $ 3,111 1,961 7,890 6,732
Deferred 157 2,030 1,675 4,805
State and municipal 274 198 744 485
------- ------ ------ ------
3,542 4,189 10,309 12,022
Foreign - Puerto Rico - Current -- -- 925 --
------- ------ ------ ------
$ 3,542 4,189 11,234 12,022
======= ====== ====== ======
(3) LONG-TERM DEBT
On September 19, 1997, the Company agreed to new terms under its
$100,000,000 revolving credit agreement ("Credit Agreement") with Texas Commerce
Bank National Association ("TCB"), as agent bank. Under the new terms, the
Credit Agreement was extended to September 2002, reduced the margin of interest
paid on its borrowings, provided adjusted interest rates based on the Company's
senior credit rating and eliminated certain financial covenants.
The Company has on file a shelf registration on Form S-3 with the
Securities and Exchange Commission providing for the issue of up to $250,000,000
of medium term notes ("Medium Term Notes") at fixed or floating interest rates
with maturities of nine months or longer. In January 1997, the Company issued
$50,000,000 of the authorized Medium Term Notes at a fixed interest rate of
7.05%, due January 29, 2002. Proceeds from the issuance were used to retire
$34,000,000 of Medium Term Notes due March 10, 1997, with the balance used to
reduce the Company's revolving Credit Agreement. As of September 30, 1997,
$121,000,000 was available under the Medium Term Notes program and $52,000,000
was available for takedown under the Credit Agreement. Both issues are available
to provide financing for future business and equipment acquisitions and working
capital requirements.
(4) INSURANCE DISCLOSURE
The Company's investment in Universal Insurance Company
("Universal"), a property and casualty insurance company operating exclusively
in the Commonwealth of Puerto Rico, is accounted for under the equity method of
accounting. Currently, the Company owns 45% of Universal's voting common stock
and 55% is owned by Eastern America Financial Group, Inc. In March 1997,
Universal redeemed $2,000,000 of Universal's voting common stock, reducing the
Company's voting common stock investment in Universal from 47% to 45%.
7
8
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 for both
the inland and offshore marine markets. The marine transportation segment is
divided into two divisions, organized around the markets they serve. The Inland
Division serves the inland industrial chemical, petrochemical, agricultural
chemical and refined products markets. The Offshore Division serves the offshore
refined products, dry-bulk, container and palletized cargo markets. The Offshore
Division also serves as managing partner of two offshore marine partnerships, of
which the Company owns a 35% and 50% interest, respectively. The partnerships
are accounted for under the equity method of accounting.
The Company is engaged through its Diesel Repair Division in the
sale, overhaul and repair of large medium-speed diesel engines in marine, power
generation and rail applications. The Company's 45% voting common stock
investment in Universal is accounted for under the equity method of accounting.
RESULTS OF OPERATIONS
The Company reported net earnings for the 1997 third quarter of
$5,949,000 or $.24 per share, on revenues of $99,335,000, compared with net
earnings of $7,106,000, or $.28 per share, on revenues of $100,336,000 for the
third quarter of 1996. Net earnings for the 1997 first nine months totaled
$18,793,000, or $.76 per share, on revenues of $302,968,000. Net earnings for
the 1996 first nine months totaled $20,572,000, or $.79 per share, on revenues
of $291,140,000.
The following tables set forth the Company's revenues from its
principal operating divisions and percentage of such revenues for the three
months and nine months ended September 30, 1997 compared with the three months
and nine months ended September 30, 1996 (dollars in thousands):
8
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three months ended September 30,
----------------------------------------------
1997 1996 Increase (decrease)
------------------- -------------------- ----------------------
Amounts % Amounts % Amounts %
------- ---- -------- ---- -------- ----
Revenues:
Inland Division $59,701 60% $58,991 59% $ 710 1 %
Offshore Division 20,402 21 21,839 22 (1,437) (7)
Diesel Repair Division 18,877 19 19,271 19 (394) (2)
Other income 355 -- 235 -- 120 51
------- ---- -------- ---- -------- ----
$99,335 100% $100,336 100% $ (1,001) (1)%
======= ==== ======== ==== ======== ====
Nine months ended September 30,
----------------------------------------------
1997 1996 Increase (decrease)
------------------- -------------------- ----------------------
Amounts % Amounts % Amounts %
------- ---- -------- ---- -------- ----
Revenues:
Inland Division $177,460 59% $173,857 60% $ 3,603 2 %
Offshore Division 64,551 21 65,763 22 (1,212) (2)
Diesel Repair Division 59,827 20 48,836 17 10,991 23
Other income 1,130 -- 2,684 1 (1,554) (58)
------- ---- -------- ---- -------- ----
$302,968 100% $291,140 100% $ 11,828 4 %
======= ==== ======== ==== ======== ====
Inland Division revenue for the 1997 third quarter reflected a 1%
increase when compared with the 1996 third quarter. During the 1997 third
quarter, spot market rates reflected a modest increase and term contracts were
generally being renewed at higher rates. Chemical and petrochemical volumes were
positive, however, refined product movements softened in September. The
movements of liquid fertilizer and anhydrous ammonia by the Inland Division are
normally seasonal, coinciding with the spring and fall fertilizer season. The
1997 fall fertilizer season, normally starting in late August or early
September, did not strengthen until early October, resulting in an estimated
$1,000,000 reduction in 1997 third quarter and nine months revenue.
The Inland Division's revenue was derived from long-term contracts,
short-term contracts and spot movements of products for customers in the
chemical, petrochemical, agricultural chemical and refined products markets. As
of September 30, 1997 and 1996, approximately 80% of inland movements were under
term contracts and 20% were spot movements of products.
The Company's harbor tug operation for the 1997 third quarter and
1997 first nine months were reported within the Offshore Division. For
comparative purposes, the 1996 third quarter and 1996 first nine months results
for the harbor tug operation have been reclassified from the Inland Division to
the Offshore Division. Revenue for the harbor tug operation for the 1997 third
quarter and 1997 first nine months were $2,600,000 and $7,300,000, respectively,
compared with revenue for the 1996 third quarter and 1996 first nine months of
$2,300,000 and $6,200,000, respectively.
9
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenue for the Inland Division for the 1997 first nine months
increased 2% compared with the first nine months of 1996. Since early 1997, the
Inland Division has experienced a modest hike in utilization and spot market
rates, and contracts have generally been renewed at higher rates. Within the
past year, the Company has removed from service 25 single skin barges and have
placed into service six new double skin barges, for a net 3% reduction in inland
fleet capacity. Older vessels have historically been removed from service when
it is not prudent to continue to maintain or overhaul the vessel. In addition,
the 1997 first nine months revenue was negatively impacted by the flooding on
the Mississippi River System during the months of February through April. During
the majority of the 1997 first quarter, the upper Mississippi River and Ohio
River experienced high water and flooding conditions, with river closures in
selected areas and mandated regulatory operating restrictions. During the month
of March, and extending into April, the lower Mississippi River, the Company's
principal area of operation, experienced high water not seen in such severity
since 1983. The loss of revenue, estimated at approximately $3,450,000 for the
months of February through April, was the result of delays, diversions and
limitations on night passages, horsepower requirements and size of tows. The
effects of the flooding throughout the Mississippi River System reduced the
Company's revenues and increased its expenses, resulting in a reduction in net
earnings by an estimated $.10 per share for the 1997 first nine months.
The Offshore Division experienced a 7% reduction in revenue during
the 1997 third quarter compared with the 1996 third quarter, and a 2% reduction
for the 1997 first nine months compared with the first nine months of 1996.
Since early April, the Company's Jones Act product tanker fleet have experienced
a soft demand for their services, resulting in lower rates and the lay-up of
spot market tankers for extended periods of time. The Jones Act tanker market is
currently suffering from an overcapacity of vessels. Such additional capacity
competing for spot market movements, expanded production by Northeast and West
Coast refineries, and the movement of lower volumes of gasoline blending
components, have all contributed to the continued soft demand for offshore
refined product movements. In addition, two tankers were out of service for part
of the 1997 third quarter for scheduled overhauls.
The Company is currently reviewing alternative strategies concerning
its Jones Act product tanker fleet. Such strategies range from a direct sale of
the fleet, to alternative marketing arrangements designed to better insulate the
Company from fluctuations in the market, to continuing to operate the fleet, but
at reduced levels.
In October, the last of the Company's three preference food-aid
freighters was sold following a food-aid voyage to East Africa. In May and
September 1997, the first and second freighters were sold following food-aid
trips to North Korea. Each of the freighters were sold for scrap. Lack of
available movements and corresponding low rates have negatively impacted this
segment of the Offshore Division for several years.
The Diesel Repair Division's revenue for the 1997 third quarter
decreased 2% compared with the 1996 third quarter, while the 1997 first nine
months revenue increased 23% compared with the first nine months of 1996. During
the 1997 third quarter, as well as the 1997 first and second quarters, the
Division's Midwest market was negatively impacted by deferred overhauls by
inland towing customers due to the spring flooding and by dry cargo customers
due to slow grain exports. The Division's Gulf Coast and East Coast markets have
remained positive. In addition to the impact on revenue noted above, the 23%
increase for the 1997 first nine months over the corresponding period of the
prior year was primarily due to the inclusion of MKW Power Systems, Inc.
("MKW"), whose operating assets were acquired on July 31, 1996.
10
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following tables set forth the costs and expenses and
percentage of each for the three months and nine months ended September 30,
1997 compared with the three months and nine months ended September 30, 1996
(dollars in thousands):
Three months ended September 30,
----------------------------------------------------
1997 1996 Increase (decrease)
----------------------- -------------------- -------------------
Amounts % Amounts % Amounts %
------- ------- ------- ---- ------ ----
Costs and expenses:
Cost of sales and operating expenses $65,950 75% $65,778 75% $ 172 --%
Selling, general and administrative 11,188 13 11,073 13 115 1
Taxes, other than on income 2,006 2 1,683 2 323 19
Depreciation and amortization 8,607 10 8,615 10 (8) --
------- ------- ------- ---- ----- ----
$87,751 100% $87,149 100% $ 602 1%
======= ======= ======= ==== ===== ====
Nine months ended September 30,
----------------------------------------------------
1997 1996 Increase (decrease)
----------------------- -------------------- -------------------
Amounts % Amounts % Amounts %
------- ------- ------- ---- ------ ----
Costs and expenses:
Costs of sales and operating expenses $202,807 75% $189,805 75% $ 13,002 7%
Selling, general and administrative 33,898 13 31,856 13 2,042 6
Taxes, other than on income 5,884 2 5,512 2 372 7
Depreciation and amortization 26,141 10 26,270 10 (129) --
-------- ----- -------- ----- -------- ----
$268,730 100% $253,443 100% $ 15,287 6%
======== ===== ======== ===== ======== ====
Costs of sales and operating expenses for the 1997 third quarter
remained constant compared with the third quarter of 1996, while costs of sales
and operating expenses for the 1997 first nine months increased 7% compared with
the first nine months of 1996. The 7% increase was largely due to the additional
expenses associated with the Diesel Repair Division's acquisition of MKW. In
addition, the Inland Division's operating expenses increased during February
through April 1997, reflecting the high costs and equipment utilization
associated with the flooding. During 1997, the Inland Division's labor costs
have also increased, requiring the use of external tankerman services. The
Company competes with the same labor pool as companies participating in the
increased drilling activities in the Gulf of Mexico.
Selling, general and administrative expenses increased 1% for the
1997 third quarter and 6% for the first nine months when compared with the
corresponding periods of 1996. The 6% increase was primarily due to the
additional expenses associated with the Diesel Repair Division's acquisition of
MKW, which was partially offset by lower corporate general and administrative
expenses, the result of the 1996 reorganization, which reduced administrative
costs.
11
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Taxes, other than on income for the 1997 third quarter increased 19%
and for the 1997 first nine months increased 7% when compared with the
corresponding 1996 periods. The increases for both periods primarily reflect
higher property taxes on new inland tank barges placed into service within the
past two years.
The following tables set forth the operating income and operating
margin by division for the three months and nine months ended September 30, 1997
compared with the three months and nine months ended September 30, 1996 (dollars
in thousands):
Three months ended September 30,
-----------------------------------------------------------
1997 1996 Increase (decrease)
-------------------------- --------------------------- --------------------
Operating Operating
income Operating income Operating
(loss) margin (loss) margin Amounts %
-------- ----------- -------- --------- ------- ------
Inland Division $ 9,954 16.7% $ 10,431 17.7% $ (477) (5)
Offshore Division 1,011 5.0% 2,634 12.1% (1,623) (62)
Diesel Repair Division 1,500 7.9% 1,417 7.4% 83 6
Corporate, net (881) (1,295) 414 32
-------- -------- ------- ----
$ 11,584 $ 13,187 $(1,603) (12)%
======== ======== ======= ====
Nine months ended September 30,
-----------------------------------------------------------
1997 1996 Increase (decrease)
-------------------------- --------------------------- --------------------
Operating Operating
income Operating income Operating
(loss) margin (loss) margin Amounts %
-------- ----------- -------- --------- ------- ------
Inland Division $ 26,749 15.1% $ 28,272 16.3% $(1,523) (5)
Offshore Division 5,476 8.5% 7,566 11.5% (2,090) (28)
Diesel Repair Division 4,714 7.9% 3,913 8.0% 801 20
Corporate, net (2,701) (2,054) (647) (31)
-------- -------- ------- ----
$ 34,238 $ 37,697 $(3,459) (9)%
======== ======== ======= ====
The following tables set forth the equity in earnings of affiliates
and interest expense for the three months and nine months ended September 30,
1997 compared with the three months and nine months ended September 30, 1996
(dollars in thousands):
12
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three months ended
September 30, Increase (decrease)
----------------------- -----------------
1997 1996 Amount %
------- ------- ----- ---
Equity in earnings of insurance affiliate $ 422 $ 404 $ 18 4 %
Equity in earnings of marine affiliates 778 1,141 (363) (32)
Interest expense (3,293) (3,437) (144) (4)
Nine months ended
September 30, Increase (decrease)
------------------------ -------------------
1997 1996 Amounts %
-------- ------- ------- ---
Equity in earnings of insurance affiliate $ 3,734 $ 1,755 $ 1,979 113 %
Equity in earnings of marine affiliates 2,172 3,055 (883) (29)
Interest expense (10,117) (9,913) 204 2
The Company currently has a 45% voting common stock investment in
Universal. 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, as well as the
realized gains from the sale of U.S. Treasury Securities collateralizing the
preferred stock, were included as part of equity in earnings of the insurance
affiliate. For the 1997 and 1996 third quarters and first nine months, the
Company recorded $272,000 and $245,000, and $784,000 and $723,000, respectively,
of interest earned from its investment in U.S. Treasury Securities, and
recognized during the 1996 first quarter $582,000 of realized gains from the
sale of such U.S. Treasury Securities, which were included in equity in earnings
of insurance affiliate.
The Company recognized in the 1997 second quarter as equity in
earnings of insurance affiliate, $2,500,000 of cash received from Universal as
the result of a resolution of a previously reserved Universal contingency for
outstanding litigation. The litigation was fully reserved on Universal's
financial records and was set aside as part of the merger in 1992 of Universal
with Eastern America.
Equity in earnings of marine affiliates, representing the Company's
investment in two offshore marine partnerships, reflected a 32% decrease for the
1997 third quarter compared with the 1996 third quarter, and a 29% decrease for
the first nine months of 1997 compared with the first nine months of 1996.
Results for the 1997 third quarter and first nine months were negatively
impacted by additional scheduled maintenance on the partnerships' vessels and by
lower coal volume requirements than the 1996 comparable periods.
13
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest expense reflected a 4% decrease for the 1997 third quarter
compared with the third quarter of 1996 and a 2% increase for the 1997 first
nine months compared with the first nine months of 1996. Long-term debt was
increased to finance the purchase of treasury stock acquired primarily in the
1997 first quarter and to finance the tank barge construction project completed
during the 1997 first quarter. Both items are discussed in more detail below.
During the 1997 second quarter and third quarter, excess cash flows from
operating activities were used to pay-down the long-term debt, resulting in the
4% decrease in interest expense for the 1997 third quarter.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of September 30, 1997 were $524,433,000, relatively
unchanged compared with $524,530,000 as of December 31, 1996. The following
table sets forth the significant components of the balance sheet as of September
30, 1997 compared with December 31, 1996 (dollars in thousands):
Increase (decrease)
September 30, December 31, ---------------------
1997 1996 Amount %
--------- ---------- --------- -----
Assets:
Current assets $139,015 $ 129,885 $ 9,130 7%
Property and equipment, net 310,643 318,724 (8,081) (3)
Investments in affiliates 59,706 57,251 2,455 4
Other assets 15,069 18,670 (3,601) (19)
-------- --------- -------- ---
$524,433 $ 524,530 $ (97) -- %
======== ========= ======== ---
Liabilities and Stockholders' equity:
Current liabilities $ 87,965 $ 89,691 $ (1,726) (2) %
Long-term debt 164,968 176,617 (11,649) (7)
Deferred taxes 48,624 45,901 2,723 6
Other long-term liabilities 7,418 6,567 851 13
Stockholders' equity 215,458 205,754 9,704 5
-------- --------- -------- ---
$524,433 $ 524,530 $ (97) --%
======== ========= ======== ---
As of September 30, 1997, working capital increased to $51,050,000,
a 27% improvement when compared to $40,194,000 at December 31, 1996. Cash
increased to $3,105,000 at September 30, 1997 from $1,544,000 at December 31,
1996, primarily due to positive cash flow from operating activities.
Available-for-sale securities increased to $21,006,000 at September 30, 1997
from $18,199,000 at December 31, 1996. The increase in securities was the result
of positive cash flow from the Company's captive insurance operation. Inventory
levels increased to $17,398,000 from $16,361,000 during the first nine months of
1997. The increase resulted from higher inventory levels carried at the
Company's Gulf Coast diesel repair facilities to service the strong offshore
drilling market. Prepaid expenses increased to $15,803,000 from $13,315,000 at
December
14
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
31, 1996, primarily due to the number of offshore vessels out of service during
1997 for scheduled maintenance. Such maintenance costs are charged to operating
expense over the period between such scheduled maintenance.
Accounts payable at September 30, 1997 totaled $20,477,000, down
from $30,518,000 at December 31, 1996. The depressed Jones Act tanker market,
which has resulted in the lay-up of offshore tankers, and the decreased food-aid
freighter activity contributed significantly to the decline in accounts
payables. Accrued liabilities at September 30, 1997 totaled $54,430,000, up from
$44,511,000 at December 31, 1996. The majority of the increase was higher
accruals for scheduled repair and maintenance for inland vessels, which are
charged to operating expense based on estimated annual expenditures and higher
accrued interest.
The 3% decrease in property and equipment reflected the depreciation
for the 1997 first nine months of approximately $24,400,000, partially offset by
approximately $18,500,000 of capital additions. Other assets decreased 19%
primarily for the amortization of excess costs of consolidated subsidiaries and
other intangibles of approximately $1,700,000.
Long-term debt, more fully described below, decreased 7%, reflecting
significant pay-downs on debt from the operating cash flows generated during the
1997 first nine months. Offsetting the pay-downs were additional debt incurred
with the repurchase of the Company's common stock and the recently completed
barge construction project, both of which are more fully described below.
Stockholders' equity increased 5% during the 1997 first nine months, reflecting
net earnings of $18,793,000, which was offset by the purchase of treasury stock
of $10,887,000 during the year, and a minor increase in the unrealized value of
available-for-sale securities.
LONG-TERM DEBT
On September 19, 1997, the Company agreed to new terms under its
$100,000,000 revolving credit agreement ("Credit Agreement") with Texas Commerce
Bank National Association ("TCB"), as agent bank. Under the new terms, the
Credit Agreement was extended to September 2002, reduced the margin of interest
paid on its borrowings, provided adjusted interest rates based on the Company's
senior credit rating and eliminated certain financial covenants. Proceeds from
the Credit Agreement may be used for general corporate purposes, including the
purchase of existing or new equipment or for possible business acquisitions.
In January 1997, the Company issued $50,000,000 of Medium Term Notes
at a fixed interest rate of 7.05% due January 29, 2002. Proceeds from the
issuance were used to retire the $34,000,000 of Medium Term Notes due March 10,
1997, with the balance used to reduce the Company's $100,000,000 revolving
Credit Agreement. As of September 30, 1997, $95,000,000 was outstanding under
the Medium Term Notes program and $48,000,000 was outstanding under the Credit
Agreement.
CAPITAL EXPENDITURES
The Company continued to enhance its existing operations through the
construction of new equipment. During the 1997 first quarter the final two new
inland tank barges were placed in service, completing the order of 24
double-skin 29,000 barrel capacity barges. The construction project cost
approximately $1,500,000 per barge. Funds for the construction project were
available through the Company's Credit Agreement and cash provided by operating
activities.
15
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
TREASURY STOCK PURCHASES
During the 1997 first quarter, the Company purchased 564,450 shares
of its own common stock at a total purchase price of $10,608,000, for an average
price of $18.80 per share. In the 1997 second quarter, the Company purchased
16,200 shares of its common stock at a total purchase price of $279,000, for an
average price of $17.20 per share. As of October 30, 1997, the Company had
1,859,000 shares available under the 6,250,000 total repurchase authorization.
The treasury stock purchases were financed by borrowings under the Company's
Credit Agreement. The Company is authorized to purchase its common stock on the
New York Stock Exchange and in privately negotiated transactions. When
purchasing its common stock, the Company is subject to price, trading volume and
other market considerations. Shares purchased may be used for reissuances upon
the exercise of stock options, in future acquisitions for stock or for other
appropriate corporate purposes.
LIQUIDITY
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 on inflation was reduced. The repair portion of the
diesel repair segment is based on prevailing current market rates or on
negotiated service contracts with its customers. 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.
ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
which establishes standards for computing and presenting earnings per share and
requires, among other things, dual presentation of basic and diluted earnings
per share on the face of the statements of earnings. In June 1997, the FASB
issued 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
transaction adjustments, notes receivable from employee stock ownership plans
and deferred gains (losses) on hedging activities. Also in June 1997, the FASB
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which 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. 128 is effective for financial statements for periods
ending after December 15, 1997 and will be adopted by the Company by December
31, 1997. SFAS No. 130 and SFAS No. 131 are effective for financial statements
for periods beginning after December 15, 1997. The adoption of SFAS No. 128 is
not expected to have a material impact on the Company's calculation of earnings
per share, and the adoption of SFAS No. 130 and SFAS No. 131 is not expected to
have a material impact on the Company's financial condition or results of
operations.
16
17
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, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.0 Credit Agreement, dated September 19, 1997,
among Kirby Corporation, the Banks named
therein, and Texas Commerce Bank National
Association as Agent and Funds
Administrator.
11.0 Computation of Earnings per Common Share.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the nine
months ended September 30, 1997.
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
Date: November 5, 1997
17
18
EXHIBIT INDEX
10.0 Credit Agreement, dated September 19, 1997,
among Kirby Corporation, the Banks named
therein, and Texas Commerce Bank National
Association as Agent and Funds
Administrator.
11.0 Computation of Earnings per Common Share.
27.0 Financial Data Schedule