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, $.10 par value per share, on November 4, 1997 was 24,330,636.
2 PART 1 - FINANCIAL INFORMATION KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED BALANCE SHEETS (Unaudited) ASSETS <TABLE> <CAPTION> September 30, December 31, 1997 1996 -------- -------- ($ in thousands) <S> <C> <C> 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 -------- -------- $524,433 524,530 ======== ======== </TABLE> See accompanying notes to condensed financial statements. 2
3 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> September 30, December 31, 1997 1996 -------- -------- ($ in thousands) <S> <C> <C> 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 ========= ========= </TABLE> See accompanying notes to condensed financial statements. 3
4 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED STATEMENTS OF EARNINGS (Unaudited) <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, --------------------------- ------------------------- 1997 1996 1997 1996 --------- -------- -------- -------- ($ in thousands, except per share amounts) <S> <C> <C> <C> <C> 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 ========= ======== ======== ======== </TABLE> See accompanying notes to condensed financial statements. 4
5 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Nine months ended September 30, ---------------------- 1997 1996 --------- ------- <S> <C> <C> 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 </TABLE> 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 <TABLE> <CAPTION> Three months ended Nine months ended September 30, September 30, --------------------- -------------------- 1997 1996 1997 1996 ------- ------ ------ ------ <S> <C> <C> <C> <C> 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 ======= ====== ====== ====== </TABLE> (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 <TABLE> <CAPTION> Three months ended September 30, ---------------------------------------------- 1997 1996 Increase (decrease) ------------------- -------------------- ---------------------- Amounts % Amounts % Amounts % ------- ---- -------- ---- -------- ---- <S> <C> <C> <C> <C> <C> <C> 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)% ======= ==== ======== ==== ======== ==== </TABLE> <TABLE> <CAPTION> Nine months ended September 30, ---------------------------------------------- 1997 1996 Increase (decrease) ------------------- -------------------- ---------------------- Amounts % Amounts % Amounts % ------- ---- -------- ---- -------- ---- <S> <C> <C> <C> <C> <C> <C> 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 % ======= ==== ======== ==== ======== ==== </TABLE> 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): <TABLE> <CAPTION> Three months ended September 30, ---------------------------------------------------- 1997 1996 Increase (decrease) ----------------------- -------------------- ------------------- Amounts % Amounts % Amounts % ------- ------- ------- ---- ------ ---- <S> <C> <C> <C> <C> <C> <C> 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% ======= ======= ======= ==== ===== ==== </TABLE> <TABLE> <CAPTION> Nine months ended September 30, ---------------------------------------------------- 1997 1996 Increase (decrease) ----------------------- -------------------- ------------------- Amounts % Amounts % Amounts % ------- ------- ------- ---- ------ ---- <S> <C> <C> <C> <C> <C> <C> 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% ======== ===== ======== ===== ======== ==== </TABLE> 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): <TABLE> <CAPTION> Three months ended September 30, ----------------------------------------------------------- 1997 1996 Increase (decrease) -------------------------- --------------------------- -------------------- Operating Operating income Operating income Operating (loss) margin (loss) margin Amounts % -------- ----------- -------- --------- ------- ------ <S> <C> <C> <C> <C> <C> <C> 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)% ======== ======== ======= ==== </TABLE> <TABLE> <CAPTION> Nine months ended September 30, ----------------------------------------------------------- 1997 1996 Increase (decrease) -------------------------- --------------------------- -------------------- Operating Operating income Operating income Operating (loss) margin (loss) margin Amounts % -------- ----------- -------- --------- ------- ------ <S> <C> <C> <C> <C> <C> <C> 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)% ======== ======== ======= ==== </TABLE> 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 <TABLE> <CAPTION> Three months ended September 30, Increase (decrease) ----------------------- ----------------- 1997 1996 Amount % ------- ------- ----- --- <S> <C> <C> <C> <C> 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) </TABLE> <TABLE> <CAPTION> Nine months ended September 30, Increase (decrease) ------------------------ ------------------- 1997 1996 Amounts % -------- ------- ------- --- <S> <C> <C> <C> <C> 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 </TABLE> 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): <TABLE> <CAPTION> Increase (decrease) September 30, December 31, --------------------- 1997 1996 Amount % --------- ---------- --------- ----- <S> <C> <C> <C> <C> 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) --% ======== ========= ======== --- </TABLE> 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