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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-7615
KIRBY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEVADA 74-1884980
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1775 ST. JAMES PLACE, SUITE 300
HOUSTON, TEXAS 77056-3453
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 629-9370
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock -- $.10 Par American Stock Exchange
Value Per Share
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
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 / /
As of March 14, 1995, 28,314,336 shares of common stock were outstanding.
The aggregate market value of common stock held by nonaffiliates of the
registrant, based on the closing sales price of such stock on the American Stock
Exchange on March 14, 1995 was $469,486,739. For purposes of this computation,
all executive officers, directors and 10% beneficial owners of registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such executive officers, directors and 10% beneficial owners are
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement in connection with the Annual
Meeting of the Stockholders to be held April 18, 1995, to be filed with the
Commission pursuant to Regulation 14A, is incorporated by reference into Part
III of this report.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Kirby Corporation (the "Company") was incorporated January 31, 1969 in
Nevada as a subsidiary of Kirby Petroleum Co. Pursuant to the plan of
liquidation of Kirby Industries, Inc. ("Industries"), Kirby Petroleum Co., which
was then a wholly owned subsidiary of Industries, transferred to the Company in
1975 substantially all of its nonproducing oil and gas acreage, royalty
interests and interests in oil and gas limited partnerships. The Company became
publicly owned on September 30, 1976, when its common stock was distributed pro
rata to the stockholders of Industries in connection with the liquidation of
Industries. In September, 1984, the Company changed its name from "Kirby
Exploration Company" to "Kirby Exploration Company, Inc." and in April, 1990,
the name was changed from "Kirby Exploration Company, Inc." to "Kirby
Corporation."
Unless the context otherwise requires, all references herein to the Company
include the Company and its subsidiaries.
The Company's principal executive office is located at 1775 St. James
Place, Suite 300, Houston, Texas 77056, and its telephone number is (713)
629-9370. The Company's mailing address is P.O. Box 1745, Houston, Texas
77251-1745.
BUSINESS AND PROPERTY
The Company and its subsidiaries conduct operations in three business
segments: marine transportation, diesel repair and property and casualty
insurance.
The Company's marine transportation segment is operated through three
divisions, organized around the markets they serve: the Inland Chemical
Division, engaged in the inland transportation of industrial chemicals and
agricultural chemicals by tank barge; the Inland Refined Products Division,
engaged in the inland transportation of refined petroleum products by tank
barge; and the Offshore Division, engaged in the offshore transportation of
petroleum products by tank barge and tanker and dry-bulk, container and
palletized cargos by barge and break-bulk ship. The Company's marine
transportation divisions are strictly providers of transportation services and
do not assume ownership of any of the products they transport.
The Company's diesel repair segment is engaged in the overhaul and repair
of diesel engines and related parts sales in two distinct markets: the marine
market, serving vessels powered by large diesel engines utilized in the various
inland and offshore marine industries; and the locomotive market, serving the
shortline and the industrial railroad markets.
The Company's insurance segment is engaged primarily in the writing of
property and casualty insurance in the Commonwealth of Puerto Rico through a 58%
interest in the voting common stock of the subsidiary.
The Company and its subsidiaries have approximately 2,300 employees with
approximately 200 in the Commonwealth of Puerto Rico and the balance in the
United States.
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The following table sets forth by industry segment the revenues, operating
profits (before general corporate expenses, interest expense and income taxes)
and identifiable assets (including goodwill) attributable to the continuing
principal activities of the Company for the periods indicated (in thousands):
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YEARS ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
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Revenues from unaffiliated customers:
Transportation............................................. $190,214 283,747 311,076
Diesel repair.............................................. 35,753 31,952 45,269
Insurance.................................................. 34,661 52,875 65,812
Other...................................................... 8,788 9,823 10,593
-------- ------- -------
269,416 378,397 432,750
General corporate revenues................................. 87 7 387
-------- ------- -------
Consolidated revenues................................. $269,503 378,404 433,137
======== ======= =======
Operating profits:
Transportation............................................. $ 28,034 42,208 31,397
Diesel repair.............................................. 2,561 1,904 3,163
Insurance.................................................. 1,108 4,539 5,119
-------- ------- -------
31,703 48,651 39,679
General corporate expenses, net............................ (3,563) (4,911) (3,999)
Interest expense........................................... (9,411) (8,416) (8,835)
-------- ------- -------
Earnings before taxes on income....................... $ 18,729 35,324 26,845
======== ======= =======
Identifiable assets:
Transportation............................................. $275,616 344,488 397,112
Diesel repair.............................................. 18,897 20,260 21,304
Insurance.................................................. 145,246 184,868 216,666
-------- ------- -------
439,759 549,616 635,082
Investment in unconsolidated affiliate..................... 146 177 181
General corporate assets................................... 6,515 13,460 32,209
-------- ------- -------
Consolidated assets................................... $446,420 563,253 667,472
======== ======= =======
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MARINE TRANSPORTATION
The Company is engaged in marine transportation as a provider of service
for both the inland and offshore markets. As of March 14, 1995, the equipment
owned or operated by the Company's three marine transportation divisions was
composed of 505 tank barges, 130 inland towing vessels, nine offshore tankers,
two offshore tank barges, six offshore dry cargo barges, three offshore
break-bulk ships and nine offshore tugboats with the following specifications
and capacities:
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NUMBER
IN AVERAGE AGE BARREL
CLASS OF EQUIPMENT CLASS (IN YEARS) CAPACITIES
- --------------------------------------------------- ------- ------------ -----------
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Inland Fleet
Inland tank barges:
Regular double skin:
20,000 barrels and under...................... 246 22.1 2,791,000
Over 20,000 barrels........................... 127 15.1 3,361,000
Specialty double skin............................ 28 14.8 446,000
Single skin:
20,000 barrels and under...................... 40 23.8 672,000
Over 20,000 barrels........................... 64 23.2 1,627,000
--- ---- ---------
Total inland tank barges................. 505 20.2 8,897,000
=== ==== =========
Inland towing vessels:
Inland towboats:
2,000 horsepower and under.................... 88 20.8
Over 2,000 horsepower......................... 29 18.3
--- ----
Total inland towboats.................... 117 20.1
Inland bowboats.................................. 6 12.7
Harbor tugboats.................................. 7 6.5
--- ----
130 19.0
=== ====
BARREL
CAPACITIES
-----------
Offshore Fleet
Tankers............................................ 9 27.8 2,228,000
=== ==== =========
Tank barges........................................ 2 20.5 322,000
=== ==== =========
DEADWEIGHT
TONNAGE
-----------
Offshore break-bulk ships.......................... 3 18.0 44,600
=== ==== =========
Offshore dry cargo barges(*)....................... 6 18.3 106,000
=== ==== =========
Offshore tugboats(*)............................... 9 19.3
=== ====
</TABLE>
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(*) Includes four barges and five tugboats owned by Dixie Fuels Limited and one
barge and tugboat owned by Dixie Fuels II, Limited, partnerships in which a
subsidiary of the Company owns a 35% and 50% interest, respectively.
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The following table sets forth the marine transportation revenues and
percentage of such revenues derived from the three divisions for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1992 1993 1994
---------------- ---------------- ----------------
REVENUE BY PRODUCT OR OPERATION AMOUNTS % AMOUNTS % AMOUNTS %
- -------------------------------------- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Inland Chemical Division.............. $115,448 61% $134,578 48% $141,390 46%
Inland Refined Products Division...... 29,578 15 45,940 16 67,251 22
-------- --- -------- --- -------- ---
Total inland revenues....... 145,026 76 180,518 64 208,641 68
-------- --- -------- --- -------- ---
Offshore Division:
Liquid petroleum products........... 37,716 20 47,799 17 56,612 18
Dry bulk............................ 12,708 7 12,735 4 10,112 3
Break-bulk.......................... -- -- 47,842 17 40,474 13
-------- --- -------- --- -------- ---
Total offshore revenues..... 50,424 27 108,376 38 107,198 34
-------- --- -------- --- -------- ---
Intercompany transactions............. (5,236) (3) (5,147) (2) (4,763) (2)
-------- --- -------- --- -------- ---
Total transportation
revenues.................. $190,214 100% $283,747 100% $311,076 100%
======== === ======== === ======== ===
</TABLE>
MARINE TRANSPORTATION INDUSTRY
The United States possesses a long coastline providing numerous ports and
harbors, complemented by a network of interconnected rivers and canals that
serve the nation as water highways. Recognizing the advantages to commerce, over
the past decades the United States expanded and improved on its inherent natural
waterways for commerce and growth. Over 90% of the United States population is
served by domestic shipping.
Today, the nation's waterways serve as the backbone of the United States
distribution system with over 1.1 billion short tons of cargo moved annually by
domestic shipping. The inland water system extends approximately 26,000 miles,
11,000 miles of which are generally considered significant for domestic
commerce. Marine transportation is the most efficient means of transportation of
bulk products. An average inland tank barge carries the equivalent cargo of 15
rail cars and 60 tractor trailer trucks. A typical Mississippi River tow of 30
barges carries as much cargo as 450 rail cars and 1,800 trucks.
Based on cost, marine transportation is the most efficient means of
transportation of bulk products compared with rail and trucks. Inland water
transportation carries approximately 13% of United States inter-city freight at
less than 2% of United States transportation costs. The United States marine
transportation industry is diverse and independent with a mixture of one-man
operators, integrated transportation companies and captive fleets owned by
United States refining and petrochemical companies.
INLAND TANK BARGE INDUSTRY
The Company's Inland Chemical Division and Inland Refined Products Division
operate within the United States inland tank barge industry, which provides
marine transportation of liquid bulk cargos for customers along the United
States inland waterway system. Among the most significant segments of this
industry are the transportation of industrial and agricultural chemicals and
refined petroleum products. The Company operates in each of these segments. The
use of marine transportation by the petroleum and petrochemical industry is a
major reason for the location of domestic refineries and petrochemical
facilities on navigable inland waterways and along the Gulf Coast. Much of the
United States farm belt is likewise situated within access to the inland
waterway system, relying on marine transportation of farm products, including
agricultural chemicals.
Although no official industry statistics are maintained, the Company
believes that the total number of tank barges that operate in the inland waters
of the United States has declined from an estimate of approximately 4,200 in
1981 to approximately 2,850 in 1994. The Company believes this decrease is
primarily
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attributable to the following reasons: increasing age of the domestic tank barge
fleet resulting in scrapping; rates inadequate to justify new construction;
reduction in financial and tax incentives to construct new equipment; and an
increase in compliance regulations that mandate expensive equipment modification
which some owners are unwilling or unable to undertake given current rate levels
and the age of the fleet.
Although well maintained tank barges can be efficiently operated for more
than 30 years, the cost of hull work for required annual Coast Guard
certifications, as well as general safety and environmental concerns, force
operators to periodically reassess their ability to recover maintenance costs.
Previously, tax and financing incentives to operators and investors to construct
tank barges, including short life tax depreciation, investment tax credits and
government guaranteed financing, led to growth in the supply of domestic tank
barges to a peak of approximately 4,200 in 1981. These tax incentives have since
been eliminated and government financing programs have since been curtailed. The
supply of tank barges resulting from the earlier programs is slowly aligning
with demand for tank barge services, primarily through attrition, as discussed
above.
While the United States tank barge fleet has decreased in size, domestic
production of petrochemicals, a major component of the industry's revenues, has
continued to increase annually. Growth in the economy and the continued
substitution of plastics and synthetics in a wide variety of products have been
major factors behind the increase of capacity in the petrochemical industry.
Texas and Louisiana, which are within the Company's area of operations,
currently account for approximately 80% of the total United States production of
petrochemicals.
COMPETITION IN THE INLAND TANK BARGE INDUSTRY
The Company operates in the highly competitive marine transportation market
for commodities transported on the major inland rivers and tributaries and the
Gulf Intracoastal Waterway. The industry has become increasingly concentrated
within recent years as smaller and/or economically weaker companies have gone
out of business or have been acquired by larger or stronger companies.
Competition has historically been based primarily on price; however, shipping
customers, through increased emphasis on safety, the environment, quality and a
greater reliance on a "single source" supply of services, are more frequently
requiring that their supplier of inland tank barge services have the capability
to handle a variety of tank barge requirements, operate on a majority of the
nation's waterways, and offer flexibility, safety, environmental responsibility,
financial responsibility, adequate insurance and quality of service consistent
with the customer's own operations.
The Company's direct competitors are primarily noncaptive marine
transportation companies. "Captive" companies are those companies that are owned
by major oil and/or petrochemical companies which although competing in the
inland barge market to varying extents, primarily transport cargos for their own
account. The Company is the largest inland tank barge carrier based on its 505
barges and 8,897,000 barrels of available capacity.
While the Company competes primarily with other barge companies, it also
competes with companies owning crude oil and refined products pipelines, and, to
a lesser extent, rail tank cars and tank trucks in some areas and markets. The
Company believes that inland marine transportation of bulk liquid products
enjoys a substantial cost advantage over rail and truck transportation. The
Company also believes that crude oil and refined products pipelines, although
often a less expensive form of transportation than barges and offshore tankers,
are not as adaptable to diverse products and are generally limited to fixed
point-to-point distribution of commodities in high volumes over extended periods
of time.
INLAND CHEMICAL DIVISION
The Company's Inland Chemical Division provides transportation services for
three distinct markets: industrial chemicals, agricultural chemicals and barge
fleeting services. Collectively, the Division operates a fleet of 386 inland
tank barges, 77 inland towboats, 12 fleeting inland towboats and two bowboats.
Industrial Chemicals. Dixie Carriers, Inc. ("Dixie"), a subsidiary of the
Company, and its subsidiaries, Dixie Marine, Inc. ("Dixie Marine") and TPT
Transportation Company ("TPT Transportation"), and
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Chotin Carriers, Inc. ("Chotin"), a subsidiary of the Company, provide service
to the industrial chemical industry through movements of petrochemical
feedstocks, generic intermediates, industrial processed chemicals and lube oils
both interplant and to industry users. Operating a fleet of 310 inland tank
barges, 54 inland towboats and two bowboats, the fleet operates primarily along
the Gulf Intracoastal Waterway, the Mississippi River and its tributaries and
the Houston Ship Channel. The business is conducted under contracts with
customers with whom the Company has long-term relationships, as well as under
short-term and spot contracts. Currently, approximately 80% of the industrial
chemical revenues are derived from term contracts and 20% from the spot market.
All of the inland tank barges used in the transportation of industrial chemicals
are of double hull construction for increased environmental protection and,
where applicable, are capable of controlling vapor emissions to meet
occupational health and safety regulations and air quality concerns.
Dixie Marine's assets were acquired effective April 10, 1989 in connection
with the purchase of certain assets of Alamo Inland Marine Co. Chotin was
acquired on June 1, 1992 by means of a merger of Scott Chotin, Inc. ("Scott
Chotin") with and into Chotin. TPT Transportation acquired the assets of TPT, a
marine transportation division of Ashland Oil, Inc. ("TPT") on March 3, 1993. On
November 16, 1994, TPT Transportation acquired the captive marine fleet of The
Dow Chemical Company ("Dow"), consisting of 65 inland tank barges and three
inland towboats and the assumption of the leases of an additional 31 inland tank
barges and two inland towboats. See "Note 2" to the financial statements
included under Item 8 elsewhere herein for further disclosure on the TPT
Transportation asset purchases. Dixie's and Dixie Marine's headquarters are
located in Houston, Texas and Chotin's and TPT Transportation's headquarters are
in Baton Rouge, Louisiana.
Agricultural Chemicals. Brent Transportation Corporation ("Brent
Transportation"), a subsidiary of Dixie, operates 76 inland tank barges,
including 11 cryogenic anhydrous ammonia barges, and 23 inland towboats, engaged
primarily in the transportation of agricultural chemicals, including anhydrous
ammonia, to points along the Mississippi River and its tributaries and the Gulf
Intracoastal Waterway. Brent Transportation's assets were acquired effective
April 1, 1989, in connection with the purchase of certain assets of Brent Towing
Company, Inc., and related affiliates ("Brent"), which had been engaged in the
transportation of agricultural chemicals and other liquid cargos since 1961.
Brent Transportation conducts its business with customers with whom it has
long-term relationships and, to a lesser extent, under short-term contracts.
Brent Transportation's headquarters are in Greenville, Mississippi. The Company
believes that Brent Transportation has the largest inland tank barge fleet that
primarily transports agricultural chemicals.
Barge Fleeting Services. Western Towing Company ("Western"), a subsidiary
of Dixie, owns 12 inland towboats and operates what the Company believes to be
the largest commercial barge fleeting service (provision of temporary barge
storage facilities) in the Ports of Houston, Galveston and Freeport, Texas.
Western's towboats are engaged primarily in shifting (distribution and gathering
of barges) in the Houston-Galveston area.
INLAND REFINED PRODUCTS DIVISION
The Company's Inland Refined Products Division provides transportation
services for the refined products and harbor services markets. Collectively, the
Division operates a fleet of 119 inland tank barges, 28 inland towboats, seven
harbor tugboats and four bowboats.
Refined Products. Sabine Transportation Company ("Sabine Transportation"),
a subsidiary of the Company, and OMR Transportation Company ("OMR
Transportation"), a subsidiary of Dixie, provide service from Gulf Coast
refineries through movements of primarily gasoline, diesel fuel and jet fuel to
waterfront terminals on the Gulf Intracoastal Waterway and the Mississippi River
and its tributaries. Many of Sabine Transportation's barges are split-product
barges which maximize shipping alternatives for customers by allowing for the
efficient transportation of smaller individual volumes of petroleum products and
providing a means to carry up to four grades of product in the same barge. In
addition, by consolidating the product requirements of several customers in
split-product equipment, the Refined Products Division is able to offer quantity
discounted rates to customers who are carrying small quantities of product.
Currently, approximately
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35% of the Inland Refined Products Division's revenues are derived from
long-term contracts and 65% from the spot market.
The Inland Refined Products Division was formed with the acquisition by
Sabine Transportation of certain assets of Sabine Towing & Transportation, Inc.
("Sabine") on March 13, 1992 and the acquisition by OMR Transportation of
certain of the assets of Ole Man River Towing, Inc. and related entities ("Ole
Man River") on April 2, 1992. The Inland Refined Products Division was expanded
on December 21, 1993 with the acquisition by OMR Transportation of 53 inland
tank barges from Midland Enterprises Inc. and its wholly owned subsidiary,
Chotin Transportation, Inc. ("Chotin Transportation"). See "Note 2" to the
financial statements included under Item 8 elsewhere herein for further
disclosure on the Chotin Transportation asset purchase. Sabine Transportation's
headquarters are in Port Arthur, Texas and OMR Transportation's headquarters are
located in Vicksburg, Mississippi.
Harbor Services. Sabine Transportation provides towing, docking and
shifting services for vessels calling at the ports of Beaumont, Port Arthur and
Orange, Texas and the port of Lake Charles, Louisiana. Operating seven harbor
tugboats, the Company believes that this fleet holds a combined market share of
approximately 51% in ports which it serves. In addition, Sabine Transportation
provides offshore ship assistance and drill-rig movements off the Texas and
Louisiana coasts.
OFFSHORE TRANSPORTATION INDUSTRY
The Company's Offshore Division is engaged in U.S. flag offshore tanker and
tank barge operations, offshore dry-bulk cargo barge operations and offshore
break-bulk and container cargo barge and ship operations. The Division provides
transportation of petroleum products, dry-bulk, containers and palletized
cargos, including United States Government preference agricultural commodities,
worldwide with particular emphasis on the Gulf of Mexico, along the Atlantic
Seaboard, Caribbean Basin ports and to South American, West African and Northern
European ports.
COMPETITION IN THE OFFSHORE TRANSPORTATION INDUSTRY
The offshore marine transportation market, like the inland transportation
market, is highly competitive. The Company operates predominantly in United
States domestic trade which is subject to the Jones Act, a federal law that
limits participation between domestic ports within the United States and its
territories to U.S. flag vessels. For a discussion of the Jones Act, see
"Governmental Regulations" below. The Company's direct competitors in this
market are primarily captive and noncaptive operators of U.S. flag ocean-going
barges, container and break-bulk ships and tankers. Competition is based upon
price, service and equipment availability. There is a limited number of vessels
meeting the requirements of the Jones Act which are currently eligible to engage
in domestic United States marine transportation.
OFFSHORE DIVISION
Offshore Tankers and Tank Barge Operations. Sabine Transportation and
Kirby Tankships, Inc. ("Kirby Tankships") operate a fleet of nine owned U.S.
flag single skin tankers, that transport clean petroleum products primarily
domestically in the Gulf of Mexico, along the East Coast and internationally to
ports in the Caribbean Basin. As of March 14, 1995, seven of Sabine
Transportation's and Kirby Tankships' tankers are chartered to various oil
companies for the transportation of their products and two operate in the spot
market, transporting petroleum products as cargo offers. Classified as "handy
size," the tankers have deadweight capacities ranging between 28,000 and 39,000
tons with a total capacity of 2,228,000 barrels. In July, 1994, the Company
expanded its tanker capacity from six to ten tankers with the acquisition of
four U.S. flag tankers, one from Tosco Refining Company ("Tosco") and three from
OMI Corp. ("OMI"). See "Note 2" to the financial statements included under Item
8 elsewhere herein for further disclosures on the Tosco and OMI U.S. flag tanker
acquisitions.
As discussed under "Environment Regulations -- Water Pollution Regulations"
below, the Oil Pollution Act of 1990 ("OPA") has placed a number of stringent
requirements on tanker and offshore tank barge owners and operators, including
the mandated phasing out of all single hull vessels beginning in 1995,
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depending on vessel size and age. In compliance with the OPA, one of the
Company's tankers was retired effective January 1, 1995 and the balance of the
Company's tankers are scheduled to be retired from service as follows:
one -- January 1, 1996; one -- October 1, 1996; one -- January 1, 1999;
three -- January 1, 2000; one -- October 30, 2000; one -- November 4, 2004; and
one -- January 1, 2005. In order to stay in service beyond the retirement date,
these tankers would have to be either retrofitted with a double hull cargo
section or used exclusively in foreign trade.
In addition to the tankers, the Company, through Dixie, owns and operates
two ocean-going tank barge and tugboat units, one of which is single skin and
one double skin. The single skin 157,000 barrel barge and tug unit and the
double skin 165,000 barrel barge and tug unit provide service in the
transportation of refined petroleum products between domestic ports along the
Gulf of Mexico and along the Atlantic Seaboard. The single skin tank barge is
scheduled to be removed from service in compliance with the OPA on January 1,
2005. The double skin tank barge is believed to meet all of the OPA construction
requirements.
Offshore Dry-Bulk Cargo Operations. The Company's offshore dry-bulk cargo
operations are conducted through Dixie's wholly owned equipment and through two
general partnerships, Dixie Fuels Limited ("Dixie Fuels") and Dixie Fuels II,
Limited ("Dixie Fuels II"), in which a subsidiary of Dixie owns a 35% and 50%
interest, respectively.
Dixie, Dixie Fuels and Dixie Fuels II transport dry-bulk cargos, such as
coal, limestone, cement, fertilizer, flour, raw sugar and grain, as well as
containers between domestic ports along the Gulf of Mexico, the East Coast and
West Coast, and to ports in the Caribbean Basin with occasional movements to
West African ports and other international ports as cargo offers. Management
believes that Dixie, including the operations of Dixie Fuels and Dixie Fuels II,
is the second largest domestic offshore dry-bulk barge carrier in terms of
deadweight capacity.
Dixie owns one ocean-going dry-bulk barge and tugboat unit that is engaged
in the transportation of dry-bulk commodities primarily between domestic ports
along the Gulf of Mexico and along the Atlantic Seaboard.
Dixie, as general partner, also manages the operations of Dixie Fuels,
which operates a fleet of four ocean-going dry-bulk barges, four ocean-going
tugboats and one shifting tugboat. The remaining 65% of Dixie Fuels is owned by
Electric Fuels Corporation ("EFC"), an affiliate of Florida Power Corporation
("Florida Power"). Dixie Fuels operates primarily under long-term contracts of
affreightment, including a contract that expires in the year 2002 with EFC to
transport coal across the Gulf of Mexico to Florida Power's facility at Crystal
River, Florida.
Dixie Fuels also has a 12-year contract, which commenced in 1989, with
Holnam, Inc. ("Holnam") to transport Holnam's limestone requirements from a
facility adjacent to the Florida Power facility at Crystal River to Holnam's
plant in Theodore, Alabama. The Holnam contract provides cargo for a portion of
the return voyage for the vessels that carry coal to Florida Power's Crystal
River facility. Dixie Fuels is also engaged in the transportation of coal,
fertilizer and other bulk cargos on a short-term basis between domestic ports
and transportation of grain from domestic ports to points primarily in the
Caribbean Basin.
Dixie also manages the operations of Dixie Fuels II, which operates an
ocean-going dry-bulk and container barge and tug unit. The remaining 50% of
Dixie Fuels II is owned by EFC. Dixie Fuels II is engaged in the transportation
of dry-bulk cargo and containers between domestic ports, ports in the Caribbean
Basin and international ports as cargo offers. Since May, 1993, Dixie Fuels II's
barge and tug unit has been engaged in the international transportation of
preference agricultural aid cargos for the United States Government.
Offshore Break-Bulk and Container Cargo Operations. AFRAM Carriers, Inc.
("AFRAM") is engaged in the worldwide transportation of dry-bulk, container and
palletized cargos, primarily for departments and agencies of the United States
Government. AFRAM's fleet of three U.S. flag break-bulk ships, with container
capabilities, specialize in the transportation of United States Government
military and preference aid cargos. AFRAM was acquired on May 14, 1993, by means
of a merger of AFRAM Lines (USA), Co., Ltd. ("AFRAM Lines")with and into AFRAM.
See "Note 2" to the financial statements
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included under Item 8 elsewhere herein for further disclosures on the AFRAM
merger. In addition, for a discussion of preference aid cargos, see
"Governmental Regulations" below.
In March, 1994, the Company, through its subsidiary, Americas Marine
Express, Inc. ("Americas Marine"), began all-water marine transportation
services between Memphis, Tennessee and Mexico, Guatemala, Honduras and El
Salvador. The transportation containership service utilized a chartered
river/ocean vessel that offered direct sailing between the locations. The
service provided exporters and importers in the north, central and mid-south
states with a direct shipping alternative between Memphis and Mexico and Central
America on a fourteen day round trip basis. In August, 1994, the Company
discontinued the service as aggressive pricing from competitors resulted in
slower than anticipated acceptance of the service. Volumes were increasing with
each voyage; however, operating losses and the negative prospects for future
profitability did not warrant continuation of the service.
CONTRACTS AND CUSTOMERS
The majority of the marine transportation contracts are for terms of one to
five years. Currently, the three marine transportation divisions of the Company
operate under longer term contracts with Dow, Chevron Chemical Company, EFC,
Holnam, Monsanto Chemical Company and Odfjell Tank Ships (USA) Inc., among many
others. While these companies have generally been customers of the Company's
marine transportation divisions for several years and management anticipates a
continuing relationship, there is no assurance that any individual contract will
be renewed. No single customer of the Company's marine transportation segment
accounted for more than 10% of the Company's revenue in 1994, 1993 or 1992.
EMPLOYEES
The Company's three marine transportation divisions have approximately
1,950 employees, of which approximately 1,600 are vessel crew members.
Approximately 30% of the 1,600 vessel crew members are subject to various
collective bargaining agreements with various labor organizations. No one
collective bargaining agreement covers more than 10% of the 1,600 vessel crew
members.
PROPERTIES
The principal office of Dixie is located in Houston, Texas, in facilities
under a lease that expires in 1996. The marine transportation operating
divisions are located on the Gulf Intracoastal Canal at Belle Chasse, Louisiana,
a suburb of New Orleans; in Houston, Texas, near the Houston Ship Channel; in
Greenville, Mississippi and in Vicksburg, Mississippi. The Greenville location
is leased and the Belle Chasse, Houston and Vicksburg locations are owned.
Western's facilities are located on a 10.24-acre tract of land owned by Dixie
lying between the San Jacinto River and Old River Lake near Houston, Texas. The
principal office of Chotin and TPT Transportation is located in Baton Rouge,
Louisiana in owned facilities. The principal office and operating units of
Sabine Transportation are located in Port Arthur, Texas, on 30 acres of owned
waterfront property along the Sabine-Neches Waterway. The principal office of
AFRAM is located in Houston, Texas in leased facilities.
GOVERNMENTAL REGULATIONS
General. The Company's transportation operations are subject to regulation
by the United States Coast Guard, federal laws, state laws and certain
international conventions. The transportation of cargos in bulk are exempt from
economic regulations under the Interstate Commerce Act. Therefore, with the
exception of AFRAM, the rates charged by the Company for the transportation of
such bulk cargos are negotiated between the Company and its customers and are
not set by tariff. AFRAM generally operates under published tariffs. AFRAM also
bids for United States Government cargo.
The majority of the Company's tank barges, all offshore barges and all
ships are inspected by the United States Coast Guard and carry certificates of
inspection. The Company's inland and offshore towing vessels are not subject to
United States Coast Guard inspection requirements; however, the Company's
offshore tugboats and offshore dry-bulk and tank barges are built to American
Bureau of Shipping ("ABS") classification
9
<PAGE> 11
standards. These offshore vessels are inspected periodically by the ABS to
maintain the vessels in class. The crew employed by the Company aboard vessels,
including captains, pilots, engineers, able-bodied seamen and tankermen, are
licensed by the United States Coast Guard.
The Company is required by various governmental agencies to obtain
licenses, certificates and permits for its vessels depending upon such factors
as the cargo transported, the waters in which the vessels operate, the age of
the vessels and other factors. The Company is of the opinion that the Company's
vessels have obtained and can maintain all required licenses, certificates and
permits required by such governmental agencies.
The Company believes that safety concerns highlighted by the highly
publicized barge collision with a railroad bridge near Mobile, Alabama in
September, 1993 will result in additional regulations being imposed on the barge
industry in the form of personnel licensing and navigation equipment
requirements. Generally, the Company endorses the anticipated additional
regulations and believes it is currently operating to standards at least the
equal of such anticipated additional regulations.
Jones Act. The Jones Act is a federal law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States. Furthermore, the Jones Act requires that the vessels be manned by
United States citizens and owned by United States citizens. For corporations,
75% of the corporations' beneficial stockholders must be United States citizens.
The Company presently meets all of the requirements of the Jones Act for its
owned vessels.
Compliance with the United States ownership requirements of the Jones Act
is very important to the operations of the Company and the loss of the Jones Act
status could have a significant negative effect for the Company. The Company
monitors the citizenship requirements under the Jones Act of its employees and
beneficial stockholders and will take any remedial action necessary to insure
compliance with the Jones Act requirements.
The requirements that the Company's vessels be United States built and
manned by United States citizens, the crewing requirements and material
requirements of the Coast Guard, and the application of United States labor and
tax laws significantly increase the costs of U.S. flag vessels when compared
with foreign flag vessels. The Company's business would be adversely affected if
the Jones Act was to be modified so as to permit foreign competition that is not
subject to the same United States Government imposed burdens.
During the past several years, the Jones Act and cargo preference laws, see
"Preference Cargo" below, have come under attack by interests seeking to
facilitate foreign flag competition for cargos reserved for U.S. flag vessels
under the Jones Act and cargo preference laws. These efforts have been
consistently defeated by large margins in the United States Congress. The
Company believes that continued efforts will be made to gain access to such
trade and if such access is successful, it could have an adverse effect on the
Company.
Construction and Operating Differential Subsidies. The Merchant Marine Act
of 1970 permits deferral of taxes on earnings deposited into capital
construction funds. Such funds and interest earned from such funds can be used
for the construction of or acquisition of U.S. flag vessels. In addition, to
encourage U.S. flag vessels to engage in foreign trade, the Merchant Marine Act
provides for direct subsidies to equalize the disparity between costs of U.S.
flag operations and construction and the costs of foreign operations and
construction. The Company does not receive either of these subsidies on any of
its vessels.
Preference Cargo. The Merchant Marine Act of 1936, as amended, requires
that preference be given to U.S. flag vessels in the transportation of certain
United States Government impelled cargos (cargos shipped either by the United
States Government or by a foreign nation, with the aid or guarantee of the
United States Government). Currently, 75% of the Government's directed foreign
aid and agricultural assistance programs, which includes grains and other food
concessions, are required to be transported in U.S. flag vessels. Such programs
currently benefit the Company's offshore break-bulk ships and dry-bulk barge and
tug units, some of which work primarily in this trade. The transportation of
such cargo accounted for approximately 10% of the Company's transportation
revenues in 1994, 10% in 1993 and 1% in 1992.
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<PAGE> 12
The preference cargo law is often opposed by agricultural interests which
perceive they would benefit from the ability to transport preference cargos
aboard foreign flag vessels. Like the Jones Act, the Company is of the opinion
that continued efforts will be made to significantly reduce, or remove
completely, the requirement that 75% of such cargos be transported in U.S. flag
vessels. Any reduction in this percentage could have an adverse effect on the
Company's operations and therefore, the Company will continue to participate in
efforts to preserve the present preference cargo requirements. Further, the
agricultural aid cargos represent a material United States Government budget
line item. The amount of United States Government spending in this area has
declined steadily since 1993 and is expected to continue to decline, resulting
in increased competition for the reduced number of shipments at lower
transportation rates.
The transportation of United States military cargo is also classified as a
preference cargo, which requires the use of U.S. flag vessels, if available. The
Company's AFRAM break-bulk ships have from time to time been chartered by the
Military Sealift Command ("MSC"). Charters to MSC accounted for 4% of the
Company's 1994 transportation revenues and 2% of the Company's 1993
transportation revenues. The chartering of vessels by the MSC depends upon the
requirements of the United States military for marine transportation of cargos,
and, therefore, depends in part on world conditions and United States foreign
policy.
User Fees. Federal legislation requires that inland marine transportation
companies pay a user fee in the form of a tax based on propulsion fuel used by
vessels engaged in trade along the inland waterways that are maintained by the
United States Corps of Engineers. Such user fees are designed to help defray the
cost associated with replacing major components of the inland waterway system
such as locks and dams, and to build new waterway projects. A significant
portion of the inland waterways in which the Company's vessels operate are
maintained by the Corps of Engineers.
The Company presently pays a federal fuel tax of 25.3 cents per gallon,
reflecting a 4.3 cents per gallon transportation fuel tax imposed in October,
1993 and a 21 cents per gallon waterway use tax. There can be no assurance that
additional user fees, above the present amount, may not be imposed in the
future.
ENVIRONMENTAL REGULATIONS
The Company's operations are affected by various regulations and
legislation enacted for protection of the environment by the United States
Government, as well as many coastal and inland waterway states.
Water Pollution Regulations. The Federal Water Pollution Act of 1972, as
amended by the Clean Water Act of 1977, the Comprehensive Environmental
Response, Compensation and Liability Act of 1981 and the OPA impose strict
prohibitions against the discharge of oil and its derivatives or hazardous
substances into the navigable waters of the United States. These acts impose
civil and criminal penalties for any prohibited discharges and impose
substantial liability for cleanup of these discharges and any associated
damages. Certain states also have water pollution laws that prohibit discharges
into waters that traverse the state or adjoin the state and impose civil and
criminal penalties and liabilities similar in nature to those imposed under
federal laws.
The OPA and various state laws of similar intent, substantially increased
over historic levels statutory strict liability of owners and operators of
vessels for oil spills, both in terms of limit of liability and scope of
damages. The Company considers its most significant pollution liability exposure
to be the carriage of persistent oils (crude oil, asphalt, #5 oil, #6 oil, lube
oil and other black oil). The Company restricts the carriage of persistent oils
in inland equipment to double skin barges only. Currently, the Company does not
carry persistent oils in its offshore operations.
One of the most important requirements under the OPA is the requirement
that all newly constructed tankers or tank barges engaged in the transportation
of oil and petroleum in the United States must be double hulled and all existing
single hull tankers or tank barges be retrofitted with double hulls or phased
out of domestic service between January 1, 1995 and 2015, in order to comply
with the new standards. See "Offshore Division -- Offshore Tankers and Tank
Barge Operations" for a discussion of the effects of OPA on the Company's
offshore equipment.
11
<PAGE> 13
As a result of several highly publicized oil spills, federal or state
legislators could impose additional licensing, certification or equipment
requirements on marine vessel operations. Generally, the Company believes that
it is in a good position to accommodate any reasonably foreseeable regulatory
changes and that it will not incur significant additional costs. The Company
manages its exposure to losses from potential discharges of pollutants through
the use of well maintained and equipped vessels, the safety, training and
environmental programs of the Company and the Company's insurance program. In
addition, the Company uses double skin barges in the transportation of more
hazardous substances. There can be no assurance, however, that any new
regulations or requirements or any discharge of pollutants by the Company will
not have an adverse effect on the Company.
Financial Responsibility Requirement. Commencing with the Federal Water
Pollution Control Act of 1972, as amended, vessels over three hundred gross tons
operating in the Exclusive Economic Zone of the United States waters have been
required to maintain evidence of financial ability to satisfy statutory
liabilities for water pollution. This evidence is in the form of a Certificate
of Financial Responsibility ("CFR") issued by the United States Coast Guard. The
majority of the Company's tank barges and all the ships are subject to this CFR
requirement and the Company has fully complied since inception of the
requirement.
The OPA amended the CFR requirements principally by expanding the scope of
liability subject to the requirements and by significantly increasing the
financial ability requirements. Effective December 28, 1994, the United States
Coast Guard implemented new financial responsibility requirements under OPA for
tankers. The new requirements become effective as to tank barges in July, 1995
and to ships other than tankers as their current CFR expires. The new rule
severely limited the ability of the marine transportation companies to utilize
their insurance as a means of satisfying the financial ability requirement under
OPA. The principle alternative to the use of insurance under the new rule
requires marine transportation companies to demonstrate net worth and working
capital equal to the maximum statutory limit of liability under the OPA and the
Comprehensive Environmental Response, Compensation and Liability Act of 1981.
In November, 1994, in advance of the effective date, each of the
subsidiaries of the Company obtained CFRs granted by the United States Coast
Guard for all vessels requiring CFRs. The Company does not foresee any current
or future difficulty in maintaining the CFR certificates under current rules.
Clean Air Regulations. The Federal Clean Air Act of 1979 ("Clean Air Act")
requires states to draft State Implementation Plans ("SIPs") designed to reduce
atmospheric pollution to levels mandated by this act. Several SIPs provide for
the regulation of barge loading and degassing emissions. The implementation of
these regulations will require a reduction of hydrocarbon emissions released in
the atmosphere during the loading of most petroleum products and the degassing
and cleaning of barges for maintenance or change of cargo. These new regulations
will require operators who operate in these states to install vapor control
equipment on their barges. The Company expects that future toxic emission
regulations will be developed and will apply this same technology to many
chemicals that are handled by barge. Most of the Company's barges engaged in the
transportation of petrochemicals, chemicals and refined products are already
equipped with vapor control systems. Although a risk exists that new regulations
could require significant capital expenditures by the Company and otherwise
increase the Company's costs, the Company believes that, based upon the
regulations that have been proposed thus far, no material capital expenditures
beyond those currently contemplated by the Company or increase in costs are
likely to be required.
Reformulated Gasoline. Effective January 1, 1995, the Clean Air Act
requires the use of reformulated gasoline in nine major non-attainment areas of
the United States, as a means of reduction of hydrocarbon emissions into the
atmosphere. Reformulated gasoline is a cleaner burning gasoline than the
unleaded gasoline sold for use in the United States prior to 1995. The Company
believes that the non-attainment areas on the East Coast will create a need for
marine transportation movements of reformulated gasoline from the Gulf Coast to
the East Coast. Historically, the East Coast has been a net importer of gasoline
because it uses more gasoline than can be produced at East Coast refineries. The
additional gasoline requirements have been met historically through pipeline
movements from the Gulf Coast to the East Coast and through imports principally
from the Caribbean and Europe. It is the Company's opinion that reformulated
gasoline should make the pipelines slightly less efficient and will make imports
more expensive. The Company believes that
12
<PAGE> 14
the incremental supply over what the pipelines can transport will tend to move
in marine tank vessels from Gulf Coast refineries.
Contingency Plan Requirement. Commencing in August, 1993, the OPA and
several state statutes of similar intent require the majority of the vessels
operated by the Company to maintain approved oil spill contingency plans as a
condition of operation. The Company has submitted plans that comply with these
requirements, and approval has been granted. The OPA also requires development
of regulations for hazardous substance spill contingency plans. The United
States Coast Guard has not yet promulgated these regulations, however, the
Company anticipates that they will not be significantly more difficult than the
oil spill plans.
Occupational Health Regulations. The Company's vessel operations are
primarily regulated by the United States Coast Guard for occupational health
standards. The Company's shore personnel are subject to the United States
Occupational Safety and Health Administration regulations. The Coast Guard has
promulgated regulations that address the exposure to benzene vapors, which
require the Company, as well as other operators, to perform extensive
monitoring, medical testing and record keeping of seamen engaged in the handling
of benzene and benzene containing cargo transported aboard vessels. It is
expected that these regulations may serve as a prototype for similar health
regulations relating to the carriage of other hazardous liquid cargos. The
Company believes that it is in compliance with the provisions of the regulations
that have been adopted and does not believe that the adoption of any further
regulations will impose additional material requirements on the Company. There
can be no assurance, however, that claims will not be made against the Company
for work related illness or injury or that the further adoption of health
regulations will not adversely affect the Company.
Insurance. The Company's marine transportation operations are subject to
the hazards associated with operating heavy equipment carrying large volumes of
cargo in a marine environment. These hazards include the risk of loss of or
damage to the Company's vessels, damage to third parties from impact, fire or
explosion as a result of collision, loss or contamination of cargo, personal
injury of employees, pollution and other environmental damages. The Company
maintains insurance coverage against these hazards. Risk of loss of or damage to
the Company's vessels is insured through hull insurance policies currently
insuring approximately $550 million in hull values. Vessel operating liabilities
such as collision, cargo, environmental and personal injury, are insured
primarily through the Company's participation in protection and indemnity mutual
insurance associations under which the protection against such hazards is in
excess of $1.5 billion for each incident except in the case of oil pollution,
which, in conjunction with the other excess liability coverage maintained by the
Company, is limited to $600 million for each incident, but is limited to $800
million for each incident in the case of the Company's tankers and ocean-going
tank barges. However, because it is mutual insurance, the Company is exposed to
funding requirements and coverage shortfalls in the event claims by the Company
or other members exceed available funds and reinsurance.
Environmental Protection. The Company has a number of programs that were
implemented to further its commitment to environmental responsibility in its
operations. One such program is environmental audits of barge cleaning vendors
principally directed at management of cargo residues and barge cleaning wastes.
Another program is the participation by the Company in the Chemical
Manufacturer's Association Responsible Care program and the American Petroleum
Institute STEP program, both of which are oriented to continuously reducing the
chemical and petroleum industries' impact on the environment, including the
distribution services area.
Safety. The Company manages its exposure to the hazards incident to its
business through safety, training and preventive maintenance efforts. The
Company places considerable emphasis on safety through a program oriented
towards extensive monitoring of safety performance for the purpose of
identifying trends and initiating corrective action, and for the purpose of
rewarding personnel achieving superior safety performance. The Company believes
that its safety performance consistently places it among the industry leaders,
which is evidenced by what it believes are lower insurance costs (as a
percentage of revenue) and a lower injury frequency level than many of its
competitors.
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<PAGE> 15
Training. The Company believes that among the major elements of a
successful and productive work force is effective training programs. Effective
training programs influence behavior in a positive way. The Company believes
that training in the proper performance of a job enhances both the safety and
quality of the service provided. The cost of such training is money well spent
and is regarded as an investment rather than an expense. The Company fully
endorses the development and institution of effective training programs.
The Company believes that training must be justified by hazard analysis,
cost benefit and/or legal requirements, and must be approved by management. If
training is deemed to be justified, a retraining schedule must be identified.
Post-training evaluation is necessary in order to measure the effectiveness of
the training.
The Company recognizes that each operating entity shares common ground with
respect to its training needs. In this regard, the Company established a
corporate training function in June, 1994. The Kirby Marine Transportation
Corporation Training Department is charged with developing, conducting and
maintaining training programs for the benefit of all operation entities. It is
also responsible for ensuring that training programs are both consistent and
effective.
Quality. The Company is committed to the concept of quality in its
business philosophy. Through Quality Project Teams and Quality Steering
Committees, the Company's quality commitment is carried throughout the marine
transportation organization. Such committees are dedicated to directing
attention to the continuous improvement of the business processes, focusing
efforts on achieving customer satisfaction the first time, every time and
carefully monitoring statistical measures of the Company's progress in meeting
its quality objectives.
The Company's commitment to quality has been expanded recently to include
the installation and maintenance of Quality Assurance Systems in compliance with
the International Quality Standard, ISO 9002 ("ISO"). As of March 14, 1995, five
of the Company's operations have been awarded ISO certification. Certified
operations were as follows: Dixie's offshore operation, the first U.S. flag
offshore operation to be certified; Dixie's canal operation, the second canal
marine transportation company to be recognized; Brent Transportation, the first
river operator to be certified; Western Towing, the first fleet operation and
first marine carrier to be certified under the 1994 version of the ISO standard;
and Sabine Transportation's harbor services operator, the first harbor tug
operation to be certified. In 1995, an additional four of the Company's
operations are preparing to be certified under the ISO standard.
The benefits of implementing these Quality Assurance Systems are
significant for the Company's marine transportation operations since such
Quality Assurance Systems provide additional internal controls that improve
operating efficiency. Through documentation, problems are easier to identify and
correct, training is streamlined and favorable operational practices are easier
to identify and install company-wide. In addition, the Company's commitment to
safety and environmental protection is further enhanced.
DIESEL REPAIR
The Company is presently engaged in the overhaul and repair of diesel
engines and related parts sales through two operating subsidiaries, Marine
Systems, Inc. ("Marine Systems") and Rail Systems, Inc. ("Rail Systems"). As a
provider of diesel repair services for customers in the marine and rail
industries, the Company's diesel repair segment is divided into the marine and
locomotive markets.
MARINE DIESEL REPAIR
Through Marine Systems, the Company is engaged in the overhaul and repair
of marine diesel engines, reduction gear repair, line boring, block welding
services and related parts sales for customers in the marine industry. The
marine diesel repair industry services tugboats and towboats powered by large
diesel engines utilized in the inland and offshore barge industries. It also
services marine equipment in the offshore petroleum exploration and well service
industry, the offshore commercial fishing industry and vessels owned by the
United States Government.
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<PAGE> 16
Marine Systems operates through four divisions providing in-house and
in-field repair capabilities. These four divisions are: Gulf Coast (based in
Houma, Louisiana); East Coast (based in Chesapeake, Virginia); Midwest (based in
East Alton, Illinois); and West Coast (based in National City, California, with
service facilities in Seattle, Washington). All four of Marine Systems'
divisions are nonexclusive authorized service centers for the Electromotive
Division of General Motors Corporation ("EMD") selling parts and service. Marine
Systems is positioned through the location of its divisions to serve all of the
marine industry of the United States. Marine Systems' Gulf Coast and Midwest
divisions concentrate on larger diesel engines, including those manufactured by
EMD, that are more commonly used in the inland and offshore barge and oil
service industries. The East Coast division overhauls and repairs the larger EMD
engines used by the military and commercial customers from Connecticut to Miami.
The West Coast division concentrates on large EMD engines used by the offshore
commercial fishing industry, the military, commercial business in the Pacific
Northwest and customers in Alaska. Marine Systems' emphasis is on service to its
customers and can send its crews from any of its locations to service customers'
equipment anywhere in the world. An additional East Coast service center is
planned for New Jersey and should be open for business by the end of the 1995
first quarter.
In addition to EMD, Marine Systems has long-term distributorship agreements
with Paxman Diesel, Ltd. ("Paxman") and Falk Corporation ("Falk"). Under the
agreement with Paxman, an English manufacturer of diesel engines, Marine Systems
sells engine parts and performs authorized repair services. Paxman engines are
used primarily by the United States Coast Guard in its patrol boats. Under the
agreement with Falk, a marine reduction gear manufacturer, Marine Systems sells
parts and performs authorized repair services.
The following table sets forth the diesel repair revenues of Marine Systems
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994
------------- ------------- -------------
ACTIVITY AMOUNTS % AMOUNTS % AMOUNTS %
- ------------------------------------------- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Overhaul and repair........................ $21,288 60% $19,954 62% $22,446 61%
Direct parts sales......................... 14,465 40 11,998 38 14,294 39
------- --- ------- --- ------- ---
Total............................ $35,753 100% $31,952 100% $36,740 100%
======= === ======= === ======= ===
</TABLE>
MARINE CUSTOMERS
Major customers of Marine Systems include inland and offshore dry-bulk and
tank barge operators, oil service companies, petrochemical companies, offshore
fishing companies, other marine transportation entities and the United States
Coast Guard, Navy and Army. Marine Systems also provides services to the
Company's fleet, which accounted for approximately 4% of Marine Systems' total
1994 revenues; however, such revenues are eliminated in consolidation and not
included in the table above. No single customer of Marine Systems accounted for
more than 10% of the Company's revenues in 1994, 1993 or 1992.
Since Marine Systems' business can be cyclical and is linked to the
relative health of the diesel power tugboat and towboat industry, the offshore
supply boat industry, the military and the offshore commercial fishing industry,
there is no assurance that its present gross revenues can be maintained in the
future. The results of the diesel repair service industry are largely tied to
the industries it serves, and, therefore, have been somewhat influenced by the
cycles of such industries.
MARINE COMPETITIVE CONDITIONS
Marine Systems' primary competitors are 10 to 15 independent diesel repair
companies. Certain operators of diesel powered marine equipment elect to
maintain in-house service capabilities. While price is a major determinant in
the competitive process, reputation, consistent quality, expeditious service,
experienced personnel, access to parts inventories and market presence are
significant factors. A substantial portion of Marine Systems' business is
obtained by competitive bids.
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<PAGE> 17
Many of the parts sold by Marine Systems are generally available from other
distributors, however, Marine Systems is one of a limited number of distributors
of EMD parts. Although the Company believes it is unlikely, termination of
Marine Systems' relationship with suppliers could adversely affect its business.
LOCOMOTIVE DIESEL REPAIR
Through Rail Systems, the Company is engaged in the overhaul and repair of
locomotive diesel engines and sale of replacement parts for locomotives serving
the shortline and the industrial railroads within the continental United States.
In October, 1993, EMD awarded an exclusive United States distributorship to Rail
Systems to provide replacement parts, service and support to these important and
expanding markets. EMD is the world's largest manufacturer of diesel-electric
locomotives, a position it has held for over 70 years. The operation of Rail
Systems commenced in January, 1994.
Rail Systems has an office and service facility in Nashville, Tennessee.
The service facility is primarily a parts warehouse. Service to the actual
locomotives are completed at sites convenient for the customer by Rail Systems'
service crews.
The following table sets forth the diesel repair revenues of Rail Systems
for the 1994 year (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
---------------------
ACTIVITY AMOUNTS %
----------------------------------------------------------------- -------- --------
<S> <C> <C>
Overhaul and repair.............................................. $ 246 3%
Direct parts sales............................................... 8,283 97%
------ ---
Total.................................................. $8,529 100%
====== ===
</TABLE>
LOCOMOTIVE CUSTOMERS
Shortline railroads have been a growing component of the United States
railroad industry since deregulation of the railroads in the 1970's. Generally,
shortline railroads have been created through the divestiture of branch routes
from the major railroad systems. These short routes provide switching and short
haul of freight, with an emphasized need for responsive and reliable service.
Currently, about 500 shortline railroads in the United States operate
approximately 2,400 EMD engines. Approximately 280 United States industrial
users operate approximately 1,300 EMD engines. Generally, the EMD engines
operated by the shortline and industrial users are older and, therefore, may
require more maintenance.
LOCOMOTIVE COMPETITIVE CONDITIONS
As an exclusive United States distributor for EMD parts, Rail Systems
provides all EMD parts sales to these markets, as well as providing rebuild and
service work. Currently, other than Rail Systems, there are three primary
companies providing service for the shortline and industrial locomotives. In
addition, the industrial companies in some cases, provide their own service.
EMPLOYEES
Marine Systems and Rail Systems have approximately 135 employees.
PROPERTIES
The principal office of Marine Systems is located in Houma, Louisiana.
Parts and service facilities are located in Houma, Louisiana; in Chesapeake,
Virginia; in East Alton, Illinois; in National City, California; and in Seattle,
Washington. The Chesapeake, East Alton, National City and Seattle locations are
on leased property and the Houma location is situated on approximately four
acres of owned land. The principal office and service facility of Rail Systems
is located in leased facilities in Nashville, Tennessee.
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<PAGE> 18
INSURANCE
The Company is engaged in the writing of property and casualty insurance
primarily through Universal Insurance Company ("Universal"), a corporation
located in the Commonwealth of Puerto Rico. Since its formation in 1972,
Universal has evolved primarily from an automobile physical damage insurer to a
full service property and casualty insurer, with emphasis on the property
insurance lines. Universal is ranked third among Puerto Rican insurance
companies in terms of policyholders' surplus and admitted assets, and has
achieved an A+ (Superior) rating from A. M. Best Company, a leading insurance
rating agency, for eleven consecutive years.
On September 25, 1992, Universal merged with Eastern America Insurance
Company ("Eastern America"), a property and casualty insurance company in Puerto
Rico, with Universal being the surviving entity. As of December 31, 1994, the
Company owned 58% of Universal's voting common stock with the remaining 42%
owned by Eastern America Insurance Group, Inc. ("Eastern America Group"), the
former parent of Eastern America. The Company owns 100% of the non-voting common
and preferred stocks of Universal. In accordance with a shareholder agreement
among Universal, the Company and Eastern America Group, through options and
redemption rights, Universal has the right to purchase the Company's interest in
Universal over a period of up to 12 years from September, 1992. The result of
such redemptions would be Eastern America Group becoming the owner of 100% of
Universal's stock. Since December, 1992, the date of the first redemption,
Universal has redeemed from the Company a total of 65,357 shares of Class B
voting common stock and 24,360 shares of non-voting Class C common stock for a
total redemption price of $15,000,000. In August, 1994, Eastern America Group
purchased from Universal 30,410 shares of Class A voting common stock for
$7,000,000.
INSURANCE OPERATION
Universal writes a broad range of property and casualty insurance.
Universal, however, is primarily a property insurer, generating approximately
70% of its 1994 premiums written from property insurance lines. Universal's
principal property insurance line is automobile physical damage, specifically
the vehicle single-interest and double-interest risks. Vehicle single-interest
insures lending institutions against the risk of loss of the unpaid balance of
their automobile loans with respect to financed vehicles and vehicle
double-interest also insures the policyholders against damage to their
automobiles. Vehicle single-interest and double-interest premiums accounted for
43% of Universal's consolidated premiums written in 1994.
Universal's insurance business is generated primarily through Eastern
America Insurance Agency, an affiliate of Eastern America Group, and through
independent agents and brokers in Puerto Rico. While no one agent other than the
Eastern America Insurance Agency accounted for more than 5% of premiums written
in 1994, Universal could be adversely affected if it were to lose several of its
higher producing agents.
Universal maintains an extensive program of reinsurance of the risks that
it insures, primarily under arrangements with reinsurers in London and the
United States. Property lines are reinsured under surplus share agreements up to
$10,000,000. Casualty claims above $500,000 are reinsured up to $4,000,000.
Ocean marine and surety lines are reinsured under various pro rata and excess
treaties up to $500,000 and $2,000,000, respectively. Catastrophe automobile
physical damage, fire and allied lines and marine coverage affords recovery of
losses over $500,000, $2,000,000 and $250,000 up to $14,000,000, $92,000,000 and
$4,000,000, respectively.
Because Universal's business is written in Puerto Rico, Universal's
insurance risk is not as diversified as the risk of a carrier that covers a
broader geographical area. A natural catastrophe could cause property damage to
a large number of Universal's policyholders, which would result in significantly
increased losses to Universal. However, the Company believes that Universal's
reinsurance program will limit its net exposure in any such catastrophe.
Property damage from Hurricane Hugo in September, 1989 attributable to Universal
was approximately $34,000,000; however, the net impact was $1,450,000 after
deducting the reinsurance recoverables.
17
<PAGE> 19
At December 31, 1994, Universal had investments of $165,031,000, consisting
of available-for-sale securities. At such date, approximately 90% of that
portfolio was invested in United States Government instruments due to their
safety and to the favorable Puerto Rican tax treatment of such securities.
Universal's insurance business is governed by the Insurance Code of the
Commonwealth of Puerto Rico and in accordance with the regulations issued by the
Commissioner of Insurance of the Commonwealth of Puerto Rico.
REINSURANCE OPERATION
Prior to 1991, the Company participated in the international reinsurance
market through Mariner Reinsurance Company Limited ("Mariner"), a wholly owned
subsidiary of the Company located in Bermuda, and through Universal. From 1970
through 1990, Mariner was engaged in the quota share and excess of loss
reinsurance business dealing principally with brokers in London. This
reinsurance consisted of certain property and casualty reinsurance lines whereby
Mariner participated in the reinsurance of certain Lloyd's underwriters, British
insurance companies, and other foreign insurance companies. In addition, Mariner
reinsured certain treaties of Universal. Effective January 1, 1987, Mariner
ceased writing any new or renewal reinsurance and Mariner's business portfolio
was assumed by Universal; however, in 1989, two reinsurance contracts were
transferred back to Mariner. Effective January 1, 1991, Universal ceased
accepting new participation in the international reinsurance market and the
entire reinsurance business portfolio was assumed by Mariner. During the 1992
year, Mariner, based on certain delayed and certain timely loss advices,
increased its loss reserves by $2.5 million. In the first quarter of 1994, based
on additional loss notifications, the Company recorded an additional $2 million
of reserves for potential, but as yet, unreported losses. See "Note 5" to the
financial statements included under Item 8 elsewhere herein for further
disclosures on the increases in the Mariner reserve.
With the 1990 year being the final year for participation in the
reinsurance market, neither Mariner nor Universal was involved in any subsequent
catastrophes. Neither Universal nor Mariner does business with any of the
Company's other subsidiaries, nor is there any connection, other than common
ownership.
The Company is currently pursuing strategies to withdraw from the runoff of
Mariner's reinsurance business at the earliest possible date. Such strategies
include the possible commutation of Mariner's open book of reinsurance business
in exchange for a portion of, or all of, Mariner's assets.
CAPTIVE INSURANCE OPERATION
Effective January 1, 1994, the Company established a Bermuda based wholly
owned captive insurance subsidiary, Oceanic Insurance Limited ("Oceanic"), to
insure risks of the Company and its transportation and diesel repair
subsidiaries. Oceanic procures reinsurance to limit its individual and aggregate
exposure to losses.
EMPLOYEES
Universal has approximately 200 employees, all in the Commonwealth of
Puerto Rico. Mariner's and Oceanic's activities are handled by the Company's
employees and by agents in Bermuda.
PROPERTIES
Universal's office is located in San Juan, Puerto Rico. The office is
leased with an expiration date of January 31, 1998.
ITEM 2. PROPERTIES
The information appearing in Item 1 is incorporated herein by reference.
The Company and Dixie currently occupy leased office space at 1775 St. James
Place, Suite 300, Houston, Texas under a lease that expires in August, 1996. The
Company believes that its facilities are adequate for its needs and additional
facilities would be readily available.
18
<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS
See "Note 13" to the financial statements included under Item 8 elsewhere
herein for a discussion of legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year December 31, 1994, no matter
was submitted to a vote of security holders through solicitation of proxies or
otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
George A. Peterkin, Jr............... 67 President, Director and Chief Executive Officer
J. H. Pyne........................... 47 President of Dixie and Executive Vice President
and Director of Kirby
Brian K. Harrington.................. 48 Senior Vice President, Treasurer and Assistant
Secretary
G. Stephen Holcomb................... 49 Vice President, Controller, Assistant Treasurer
and Assistant Secretary
Ronald C. Dansby..................... 55 President -- Inland Chemical Division
Steven M. Bradshaw................... 46 President -- Inland Refined Products Division
Patrick L. Johnsen................... 49 President -- Offshore Division
Dorman L. Strahan.................... 38 President -- Diesel Repair Division
Mark R. Buese........................ 38 Vice President -- Administration
Jack M. Sims......................... 52 Vice President -- Human Resources
</TABLE>
No family relationship exists between the executive officers or between the
executive officers and the directors. Officers are elected to hold office until
the annual meeting of directors, which immediately follows the annual meeting of
stockholders, or until their respective successors are elected and have
qualified.
George A. Peterkin, Jr. holds a degree in business administration from the
University of Texas, was elected a Director of the Company in 1973 and was
employed as its President on October 1, 1976. He had served as a Director of
Industries since 1969 and as President of Industries since January, 1973. Prior
to that, he was President of Dixie from 1953 through 1972.
J. H. Pyne holds a degree in liberal arts from the University of North
Carolina and has served as President of Dixie since July, 1984, was elected a
Director of the Company in July, 1988, and was elected Executive Vice President
of the Company in 1992. He also served in various operating and administrative
capacities with Dixie from 1978 to 1984, including Executive Vice President from
January to June, 1984. Prior to joining Dixie, he was employed by Northrop
Services, Inc. and served as an officer in the United States Navy.
Brian K. Harrington is a Certified Public Accountant and holds a M.B.A.
degree from the University of Oregon. He has served as Treasurer and Principal
Financial Officer of the Company and Dixie since May, 1989, Vice President since
September, 1989 and Senior Vice President since 1993. Prior to joining the
Company, he was engaged as a financial consultant with emphasis in the
petrochemical distributing industry, providing services to Dixie and other
companies. Prior to 1979, he was Vice President of Planning, Marketing and
Development for Paktank Corporation.
G. Stephen Holcomb holds a degree in business administration from Stephen
F. Austin State University and has served the Company as Vice President,
Controller, Assistant Treasurer and Assistant Secretary since January, 1989. He
also served as Controller from January, 1987 to January, 1989, and as Assistant
Controller and Assistant Secretary from 1976 through 1986. Prior to that, he was
Assistant Controller of Industries from 1973 to 1976. Prior to joining the
Company, he was employed by Cooper Industries, Inc.
19
<PAGE> 21
Ronald C. Dansby holds a degree in business administration from the
University of Houston and has served the Company as President -- Inland Chemical
Division since 1994. He also serves as President of Dixie Marine, having joined
the Company in connection with the acquisition of Alamo Inland Marine Co.
("Alamo") in 1989. He had served as President of Alamo since 1974. Prior to
that, he was employed by Alamo Barge Lines and Monsanto Chemical from 1962 to
1973.
Steven M. Bradshaw holds a M.B.A. degree from Harvard Business School and
has served the Company as President -- Inland Refined Products Division since
1994. He also serves as Executive Vice President -- Marketing of Dixie since
1990 and served in various operating and administrative capacities with Dixie
from 1981 to 1990, including Vice President -- Sales from 1985 to 1990. Prior to
joining Dixie, he was employed by the Ohio River Company and served as an
officer in the United States Navy.
Patrick L. Johnsen holds a degree in nautical science from California
Maritime Academy and has served as President -- Offshore Division since 1994.
Prior to joining the Company in August, 1993, he served in senior seagoing and
shoreside capacities with Mobil Shipping and Transportation, including
Chartering and United States Fleet Manager. Prior to joining Mobil in 1978, he
was employed at sea by various shipping companies, including Sabine.
Dorman L. Strahan attended Nicholls State University and has served the
Company as President -- Diesel Repair Division since 1994. He also serves as
President of Marine Systems since 1986 and President of Rail Systems since 1993.
After joining the Company in 1982 in connection with the acquisition of Marine
Systems, he served as Vice President of Marine Systems until 1985.
Mark R. Buese holds a degree in business administration from Loyola
University and has served the Company as Vice President -- Administration since
1993. He also serves as Vice President of Dixie since 1985 and served in various
sales, operating and administrative capacities with Dixie from 1978 through
1985, including President of Western.
Jack M. Sims holds a degree in business administration from the University
of Miami and has served the Company as Vice President -- Human Resources since
1993. Prior to joining the Company in March, 1993, he served as Vice
President -- Human Resources for Virginia Indonesia Company from 1982 through
1992, Manager -- Employee Relations for Houston Oil and Minerals Corporation
from 1977 through 1981 and in various professional and managerial positions with
Shell Oil Company from 1967 through 1977.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the American Stock Exchange under
the symbol KEX. The following table sets forth the high and low sales prices for
the common stock for the periods indicated as reported by The Wall Street
Journal.
<TABLE>
<CAPTION>
SALES PRICES
--------------
HIGH LOW
---- ---
<S> <C> <C>
1993
First Quarter........................................... $14 3/8 $11 3/8
Second Quarter.......................................... 19 1/8 13 5/8
Third Quarter........................................... 22 17
Fourth Quarter.......................................... 21 3/4 17 5/8
1994
First Quarter........................................... 23 3/8 20
Second Quarter.......................................... 23 16
Third Quarter........................................... 19 1/4 15 1/2
Fourth Quarter.......................................... 19 3/4 15 3/4
1995
First Quarter (through March 14, 1995).................. 19 3/4 15 1/2
</TABLE>
20
<PAGE> 22
As of March 14, 1995, the Company had 28,314,336 outstanding shares held by
approximately 2,300 stockholders of record.
On September 5, 1989, the Company paid a cash dividend of $.10 per share of
common stock to stockholders of record as of August 14, 1989. A similar dividend
was paid in 1988. The Company does not have an established dividend policy.
Decisions regarding the payment of future dividends will be made by the Board of
Directors based on the facts and circumstances that exist at that time. Prior to
1988, the Company had not paid any cash dividends on its common stock since it
became a publicly held company in 1976.
ITEM 6. SELECTED FINANCIAL DATA
The comparative selected financial data of the Company and consolidated
subsidiaries is presented for the five years ended December 31, 1994. The
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company and the
Financial Statements and Schedules included under Item 8 elsewhere herein (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1990 1991 1992(1) 1993(1) 1994(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Transportation............................ $109,366 117,003 190,214 283,747 311,076
Diesel repair............................. 24,894 34,288 35,753 31,952 45,269
Insurance................................. 31,412 27,947 34,661 52,875 65,812
Investment income......................... 7,885 6,875 6,795 7,910 9,211
Gain on disposition of assets............. 393 1,412 427 355 415
Other..................................... 1,834 1,508 1,653 1,565 1,354
-------- -------- -------- -------- --------
$175,784 189,033 269,503 378,404 433,137
======== ======== ======== ======== ========
Earnings before extraordinary item and
cumulative effect of accounting changes... $ 13,500 13,298 13,598 22,829 16,653
Extraordinary item(2)....................... 1,900 -- -- -- --
-------- -------- -------- -------- --------
Earnings before cumulative effect of
accounting changes..................... 15,400 13,298 13,598 22,829 16,653
Cumulative effect on prior years of
accounting changes(3)..................... -- -- (12,917) -- --
-------- -------- -------- -------- --------
Net earnings......................... $ 15,400 13,298 681 22,829 16,653
======== ======== ======== ======== ========
Earnings (loss) per share of common stock:
Primary:
Earnings before extraordinary item and
cumulative effect of accounting
changes.............................. $ .60 .61 .60 .86 .58
Extraordinary item(2).................. .08 -- -- -- --
-------- -------- -------- -------- --------
Earnings before cumulative effect of
accounting changes................... .68 .61 .60 .86 .58
Cumulative effect on prior years of
accounting changes(3)................ -- -- (.57) -- --
-------- -------- -------- -------- --------
Net earnings......................... $ .68 .61 .03 .86 .58
======== ======== ======== ======== ========
Fully diluted net earnings -- 1991 only... $ .59
========
Weighted average shares outstanding......... 22,700 21,952 22,607 26,527 28,790
Net cash provided by operations before
extraordinary item and changes in assets
and liabilities........................... $ 30,032 28,620 35,387 58,998 60,802
Capital expenditures........................ $ 18,104 38,215 132,537 90,542 79,464
</TABLE>
(Table continues on following page)
21
<PAGE> 23
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1990 1991 1992(1) 1993(1) 1994(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investments................................. $ 88,687 94,747 115,838 127,303 173,275
Property and equipment, net................. $106,437 129,617 237,596 283,413 330,762
Total assets................................ $253,716 286,002 446,420 563,253 667,472
Insurance reserves and claims............... $ 55,049 53,587 81,559 116,865 148,891
Long-term debt.............................. $ 68,428 80,702 158,922 120,559 159,497
Stockholders' equity........................ $ 97,112 111,625 122,825 211,749 222,976
</TABLE>
- ---------------
(1) Comparability with prior periods is affected by the acquisition of Sabine in
the first quarter of 1992, the acquisition of Ole Man River and merger with
Scott Chotin in the second quarter of 1992, the merger with Eastern America
in the third quarter of 1992, the acquisition of TPT in the first quarter of
1993, the merger with AFRAM Lines in the second quarter of 1993, the
acquisition of Chotin Transportation in the fourth quarter of 1993, the
acquisition of the tankers from Tosco and OMI in the third quarter of 1994
and the acquisition of the marine assets of Dow in the fourth quarter of
1994.
(2) The extraordinary item for the year ended December 31, 1990 represents the
reduction in equivalent income taxes from utilization of financial net
operating loss carryforwards.
(3) Cumulative effect on prior years from the adoption of Statement of Financial
Accounting Standards ("Accounting Standards") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," net of
equivalent income taxes and Accounting Standards No. 109, "Accounting for
Income Taxes."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
The Company reported net earnings for the 1994 year of $16,653,000, or $.58
per share, compared with net earnings for the 1993 year of $22,829,000, or $.86
per share, and net earnings before the cumulative effect of changes in
accounting principles for the 1992 year of $13,598,000, or $.60 per share. Net
earnings for the 1992 year were $681,000, or $.03 per share.
The Company adopted, effective January 1, 1992, Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions" and
Accounting Standards No. 109, "Accounting for Income Taxes." Collectively, the
recognition of the cumulative effect of the adoption of the Accounting Standards
for all prior years reduced the Company's 1992 net earnings by $12,917,000, or
$.57 per share. The adoption of both Accounting Standards also reduced the
Company's 1992 operating earnings after applicable income taxes by $1,271,000,
or $.06 per share.
Accounting Standards No. 106 established a new accounting principle for the
cost of retiree health care benefits. The cumulative effect on prior years for
the change in accounting principle resulted in an expense after applicable
income taxes of $2,258,000, or $.10 per share. In addition to the impact of the
cumulative effect on prior years, the effect of adoption of Accounting Standards
No. 106 reduced the Company's 1992 operating earnings after applicable income
taxes by $355,000, or $.02 per share.
Accounting Standards No. 109 required a change from the deferred method to
the asset and liability method of accounting for income taxes. The cumulative
effect on prior years for the change in accounting principle resulted in an
expense of $10,659,000, or $.47 per share. The effect of the adoption of
Accounting Standards No. 109 reduced the Company's 1992 operating earnings after
applicable income taxes by $916,000, or $.04 per share.
The adoption of the Accounting Standards had no effect on the Company's
cash flow.
22
<PAGE> 24
The Company conducts operations in three business segments: marine
transportation, diesel repair and property and casualty insurance. A discussion
of each segment follows:
MARINE TRANSPORTATION
The Company's marine transportation segment reported transportation
revenues for the 1994 year of $311,076,000, reflecting a 10% increase when
compared with $283,747,000 reported for the 1993 year and a 64% increase when
compared with $190,214,000 reported for the 1992 year.
Revenues for 1994 reflect the operations during the 1994 year of three
marine transportation companies acquired during the 1993 year and four offshore
tankers and an inland asset acquisition during the 1994 year. In March, 1993,
the Company acquired the assets of TPT, in May, 1993, the assets of AFRAM Lines
and in December, 1993 the assets of Chotin Transportation. The four offshore
tankers were acquired in July, 1994 and the transportation assets of Dow were
acquired in November, 1994. All of the above noted acquisitions were accounted
for under the purchase method of accounting. Collectively, the above noted 1993
acquisitions generated revenues for the 1993 year of approximately $61,400,000
since their dates of acquisition and the above noted 1994 acquisitions generated
revenues for the 1994 year of approximately $16,435,000 since their dates of
acquisition.
As a provider of service for both the inland and offshore United States
markets, the marine transportation segment is divided into three divisions
organized around the markets they serve: the Inland Chemical Division, serving
the inland industrial and agricultural chemical markets; the Inland Refined
Products Division, serving the inland refined products market; and the Offshore
Division, which serves the offshore petroleum products, container, dry-bulk and
palletized cargo markets. A division analysis by years of marine transportation
revenues follows:
1994 Marine Transportation Revenues
The Inland Chemical Division's revenues for 1994 totaled $141,390,000, or
46% of total transportation revenues, an increase of 5% compared with
$134,578,000 reported in 1993. The Inland Chemical Division operates under
long-term contracts, short-term contracts and spot movements of products. As of
December 31, 1994, approximately 80% of such movements were under contracts and
approximately 20% under spot movements. Since March, 1994, the Division
experienced spot rate increases, and the higher spot rates were conducive to
increases in contract rates as contracts were renewed.
The Inland Chemical Division benefited from positive improvements in
equipment utilization and rates, generated primarily from a hike in the 1994
business levels of the division's customers, the chemical manufacturers. During
the majority of the year, the Company's river operation continued to experience
pricing pressure in movements of chemicals in the Ohio River market. However,
during the latter part of the year, the river operation did begin to strengthen
as business levels tightened capacity.
The demand for movements of liquid fertilizer and anhydrous ammonia by the
Inland Chemical Division remained strong during all of 1994. Acreage planting in
the Midwest farm belt increased, partially due to the low levels of grain
commodities resulting from the 1993 upper Mississippi River flooding.
Revenues from the Inland Refined Products Division for 1994 improved to
$67,251,000, representing 22% of total transportation revenues, an increase of
46% compared with $45,940,000 reported in 1993. The Inland Refined Products
Division, like the Inland Chemical Division, operates under long-term contracts,
short-term contracts and spot market movements. Approximately 35% of such
movements were under term contracts and the remaining 65% under spot market
movements. During 1994, rates for spot market movements of refined petroleum
products remained higher than the majority of movements performed under
contracts; however, as contracts were renewed, higher rates were received due to
the continued improvements in spot market rates.
The Inland Refined Products Division experienced high utilization of its
fleet during all of 1994. The division benefited substantially from the addition
of 53 inland tank barges acquired from Chotin Transportation in December, 1993,
along with a transportation contract through the year 2000. The asset
acquisition and
23
<PAGE> 25
resulting contract substantially increased the division's market presence in the
contract and spot movements of refined petroleum products on the Mississippi
River System.
Revenues from the Offshore Division for 1994 declined 1% to $107,198,000,
representing 34% of total transportation revenues for 1994, from the
$108,376,000 reported in 1993. The Offshore Division, which participates in
movements of both refined products and dry products, experienced weaknesses in
all of its markets during the 1994 year, due primarily to excess equipment
capacity and reduced demand for movements of products from each of the markets.
The offshore movements of refined products remained extremely weak during
the 1994 year, with the exception of the first quarter and the latter portion of
the fourth quarter. During the 1994 first quarter, certain vessels were engaged
in spot market trade delivering heating oil to the Northeast due to the harsh
1994 winter season. Profitability of such spot market movements was adversely
affected by the winter weather conditions, which hampered operating
efficiencies. During the 1994 second quarter, three of the Company's offshore
liquid vessels were idle and during the 1994 third quarter and early fourth
quarter, as many as six of the Company's offshore vessels were idle, including
the three tankers acquired from OMI in July, 1994. Spot market rates during the
1994 second, third and a portion of the fourth quarter were extremely low.
During the 1994 fourth quarter, the market for the Company's offshore
liquid equipment reflected significant improvement in both utilization and
rates. The requirements for the use of reformulated gasoline under the Clean Air
Act in nine non-attainment areas, effective January 1, 1995, was beneficial in
placing nine of the Company's twelve offshore liquid vessels under term
contracts that became effective during the 1994 fourth quarter. Of the remaining
three vessels, two were engaged in shorter term movements at satisfactory rates
and one was out of service pending scrapping effective January 1, 1995, in
compliance with the OPA. In addition, further temporary tightening of the
offshore liquid market occurred in mid-October, 1994, when the Houston area San
Jacinto River flooding caused certain refined products pipelines serving the
United States Northeast to break, suspending service for varying periods of
days.
Movements for the transportation of food commodities and related products
under the United States Government's preference aid cargo programs and military
household goods movements, have also remained weak. Excess equipment capacity
and a reduction in available movements led to rates that were significantly
lower than 1993 rates for the market. Such weakness in the market resulted in
one of the Company's ships being idle for three weeks during the 1994 third
quarter and one ship was idle for the latter part of December. The softness in
the overall preference aid cargo market also negatively affected the Company's
other offshore dry cargo barge and tug units that primarily work under a
long-term contract with an electric utility company, but periodically operate in
the preference aid market as a supplement to their long-term contract movements.
During the 1994 first quarter, one of the Company's offshore barge and tug
units experienced difficulties with collection of its empty containers from
several voyages carrying preference aid cargo to Haiti which, during that time,
was politically unstable. Collectively, the voyages to Haiti reduced the
Company's 1994 first quarter earnings before taxes by an estimated $1,750,000
($1,150,000 after taxes or $.04 per share).
The Company's foreign flag container service, which provided a direct
all-water transportation service from Memphis to Mexico and Central America, was
discontinued effective August 24, 1994. Aggressive pricing from competitors
resulted in slower than anticipated acceptance of the service. Volumes were
increasing with each voyage; however, operating losses and the negative prospect
for future profitability did not warrant continuation of the service. Since
inception in February, 1994, the operation suffered operating losses through
August 24 of approximately $1,925,000 ($1,250,000 after taxes or $.04 per
share). Shut-down expenses totaled approximately $525,000 ($350,000 after taxes
or $.01 per share).
1993 Marine Transportation Revenues
The transportation segment's inland operations were curtailed to some
degree during the 1993 third quarter by flooding in the upper Mississippi River
and the closing of the Algiers Lock at New Orleans. Collectively, the pretax
effect of the two events reduced the 1993 results by an estimated $2.4 million.
24
<PAGE> 26
Flooding in the upper Mississippi River closed the upper River to marine
transportation movements from June 24 through August 22 and continued to disrupt
deliveries even after that date. Movements north of Cairo, Illinois were
curtailed substantially; several of the inland river towing units were stranded
by the flood; and the segment's lower Mississippi River marine operations were
rescheduled. The closing of the Algiers Lock for repair from July 1 through
September 10 required the inland towing vessels to use alternate routes, which
resulted in time delays. The Algiers Lock is situated along the main artery of
the Intracoastal Waterway near New Orleans.
Revenues from the Inland Chemical Division increased 17% from the previous
year totaling $134,578,000, or 48% of total 1993 transportation revenues.
Movements of industrial chemicals were intermittently weak during the 1993 year,
as recessionary pressures negatively influenced the market during the first
quarter of 1993 and budgetary constraints by petrochemical manufacturers
negatively affected the market during the second half of 1993.
Movements of liquid fertilizer and anhydrous ammonia remained at a high
level during 1993 due to continued heavy usage of fertilizer products and
consistent exports. For the 1993 year, the movements of liquid fertilizer were
conducted well past the normal fertilizer season, the result of enhanced demand
due to the flooding of the Mississippi River farmlands.
The Inland Refined Products Division's revenues increased 55% to
$45,940,000, contributing 16% to the Company's overall 1993 transportation
revenues. The demand for the movement of gasoline, diesel fuel and jet fuel
escalated during the 1993 year and such demand benefited equipment utilization
and enabled modest rate increases. A full year of operation of Sabine
Transportation and OMR Transportation also contributed to the increase.
Revenues for the Offshore Division increased 115% to $108,376,000,
contributing 38% of the Company's total transportation revenues. The acquisition
of AFRAM in May, 1993 accounted for a significant portion of the year-to-year
gain. Throughout 1993, the division's break-bulk vessels remained in heavy
demand, being removed from service only for scheduled maintenance. The Offshore
Division's liquid market, however, reflected price and demand weakness due to
excess capacity in the offshore liquid market, particularly affecting spot
market rates. During 1993, certain offshore liquid vessels were idle due to lack
of business.
1992 Marine Transportation Revenues
The Inland Chemical Division's revenues increased to $115,448,000,
contributing 61% of the Company's total transportation revenues. The inclusion
of Scott Chotin in June, 1992 accounted for a portion of the increase. During
all of 1992, the division's equipment utilization and rates were negatively
influenced from recessionary pressures. However, agricultural chemical movements
were strong due to heavy usage of fertilizer products and increased export
sales.
Revenues from the Inland Refined Products Division were $29,578,000,
contributing 15% of the total transportation revenues. The division was formed
in 1992 with the acquisition of the marine assets by Sabine Transportation and
OMR Transportation. Overall, the market for the movement of refined products was
weak, as the peak driving season fell below expectations.
The Offshore Division's revenues increased to $50,424,000, contributing 27%
of the Company's total transportation revenues. The addition of Sabine
Transportation's six tankers during 1992 significantly impacted the 1992
offshore revenues, as all six of the tankers were fully utilized, except for
periods of scheduled maintenance.
Marine Transportation Costs and Expenses
Costs and expenses, excluding interest expense, for the marine
transportation segment for the 1994 year increased to $280,187,000, an increase
of 16% over the comparable 1993 costs and expenses of $242,553,000 and 72% over
1992 costs and expenses of $162,973,000. The majority of the increases for both
comparable periods reflect the costs and expenses, including depreciation,
associated with the acquisitions, mergers and asset purchases consummated during
the 1994, 1993 and 1992 years. In addition, the increases reflect higher
25
<PAGE> 27
equipment costs, health and welfare costs, general and administrative costs and
inflationary increases in costs and expenses.
Marine Transportation Pretax Earnings
The marine transportation pretax earnings for 1994 were $23,458,000, a
decrease of 34% compared with 1993 pretax earnings of $35,668,000 and 7% over
1992 pretax earnings of $21,836,000.
DIESEL REPAIR
The Company's diesel repair segment reported diesel repair revenues for the
1994 year of $45,269,000, reflecting a 42% increase compared with revenues of
$31,952,000 for 1993 and a 27% increase compared with $35,753,000 for 1992.
Revenues for the 1994 year reflect the formation, effective January 1, of a new
diesel repair operation, which provides parts and service to shortline railroads
and industrial companies that operate locomotives. The new segment reported
revenues for the 1994 year of $8,529,000.
The diesel repair segment is divided into two divisions organized around
the markets they serve. The Marine Diesel Repair Division operates on all three
coasts and in the Midwest through five facilities that repair and overhaul
marine diesel engines and reduction gears, and sell related parts and
accessories. The Rail Diesel Repair Division, which commenced operations in
January, 1994, provides replacement parts, service and support nationwide to
shortline railroads and industrial companies that operate locomotives.
1994 Diesel Repair Revenues
The Marine Diesel Repair Division's revenues increased to $36,740,000,
contributing 81% of the diesel repair segment's total revenues during 1994, an
increase of 15% compared with the $31,952,000 reported in 1993. Operating in a
very competitive market, the Marine Diesel Repair Division reflected significant
improvements in its Midwest and Gulf Coast markets, particularly during the
second half of 1994. Inland dry-bulk cargo carriers have slowly rebounded from
the effects on their business from the upper Mississippi River flooding during
the 1993 third quarter. As a result of the flooding, which caused depressed coal
and grain markets, the Division's customers either curtailed or postponed
scheduled repairs and maintenance and significantly curtailed parts purchases.
The East Coast markets also reflected improvements during the second half of
1994 as military customers enhanced their repair and maintenance activities.
Also, the West Coast market improved, as a hike in tuna prices enabled the
offshore fishing customers to slowly rebound from depressed 1993 and 1992
fishing markets.
The Rail Diesel Repair Division, which commenced operations in January,
1994, reported revenues for 1994 of $8,529,000, contributing 19% of the diesel
repair segment's 1994 total revenues. The division serves as the exclusive
shortline and industrial rail distributor of aftermarket parts and service for
EMD, the world's largest manufacturer of locomotives. Substantially all of the
revenues were generated from direct parts sales. The Rail Diesel Repair Division
reported a modest profit from its first year of operations.
1993 Diesel Repair Revenues
Revenues for the Marine Diesel Repair Division fell 11% to $31,952,000 from
the $35,753,000 reported in 1992. Flooding in the upper Mississippi River during
the 1993 third quarter resulted in a significant reduction in revenues from the
Midwest market, which catered to the inland barge industry. Customers either
curtailed or postponed scheduled maintenance and parts purchases. The East Coast
market, catering to the military, was negatively affected by United States
military reductions and governmental budget restraints. The West Coast market,
catering to the offshore tuna fishing industry, was hindered by deferred
maintenance to their commercial customer's fleets due to the low worldwide price
of tuna. In the Gulf Coast market, business remained relatively constant.
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1992 Diesel Repair Revenues
The Marine Diesel Repair Division's revenues increased 4% in 1992 to
$35,753,000. The West Coast facility, acquired in July, 1991, generated
approximately $6,000,000 in revenues during 1992. Recessionary pressures in each
market area, influenced by different economic conditions, curtailed growth.
Military reductions hampered growth in the East Coast markets while the West
Coast was negatively affected by deferred maintenance of equipment by their
commercial fishing customers due to the worldwide low price of tuna.
Diesel Repair Costs and Expenses
Costs and expenses, excluding interest expense, for the diesel repair
segment for 1994 totaled $42,179,000, compared with $30,121,000 for 1993 and
$33,328,000 for 1992. The increase of 40% for 1994 when compared with 1993
reflected the overall growth in revenues for the Marine Diesel Repair Division,
as well as the costs and expenses associated with the commencement of the Rail
Diesel Repair Division. The 1993 reduction of 10% reflected the overall decline
in revenues and its negative effect on the segment's profit margins. Costs and
expenses for 1992 increased 4%, primarily due to the opening of the Seattle
facility and the acquisition of the West Coast facility in July, 1991.
Diesel Repair Pretax Earnings
The diesel repair's pretax earnings for 1994 were $2,789,000, an increase
of 77% compared with 1993 pretax earnings of $1,577,000 and 23% over 1992 pretax
earnings of $2,263,000.
PROPERTY AND CASUALTY INSURANCE
The Company's property and casualty insurance segment, which is conducted
primarily through Universal, reported premiums written of $111,415,000 for 1994,
an increase of 38% compared with premiums written of $80,993,000 for 1993 and
111% over premiums written of $52,830,000 for 1992. Net premiums earned for 1994
totaled $61,477,000, an increase of 27% compared with net premiums earned of
$48,243,000 for 1993 and 108% over 1992 net premiums earned of $29,552,000.
1994 Property and Casualty Insurance Revenues
The 38% increase in premiums written for 1994 over 1993 reflected continued
emphasis on the automobile lines of insurance, particularly the vehicle
single-interest and double-interest lines. New financial institution customers,
portfolio transfers and significant improvement in automobile sales in Puerto
Rico have all led to improved premiums written under the automobile lines. The
improvement in automobile sales was generated partially from an improved Puerto
Rico economy and from lower automobile prices on United States manufactured
automobiles, the result of a 1994 reduction in Puerto Rico's excise tax rates.
The 27% increase in net premiums earned for 1994 over 1993 reflected the
amortization of net premiums written over the life of a policy. The substantial
increase reflected the result of the 38% increase in premiums written during
1994, as well as the significant increase in premiums written during 1993. Net
premiums earned reflects the amortization of net premiums written over the life
of the policy. Net premiums earned continued to be negatively affected by higher
reinsurance costs for the commercial multiple-peril line associated with the
ceding of a portion of the gross premiums written under the segment's
reinsurance program. During 1994, some stabilization has occurred, however,
reinsurance rates remained high.
1993 Property and Casualty Insurance Revenues
Premiums written for 1993 reflected a 53% increase compared with 1992.
Business generated from Eastern America's portfolio, brought in with the merger
of Eastern America with and into Universal in September, 1992, was the primary
reason for the increase. A new government policy, two vehicle single-interest
portfolio transfers and the addition of vehicle single-interest business from
two financial
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institutions, which was the result of an improvement in automobile sales in
1993, also contributed to the significant improvement in premiums written.
Net premiums earned for 1993 increased 63% compared with the prior year,
reflecting the hike in the business volume from the merger with Eastern America,
as well as a significant increase in the single-interest line of business during
1993. As in 1994, net premiums earned for 1993 were negatively reflected by the
hike in reinsurance cost, primarily the result of the number of worldwide
catastrophic events within the past few years.
1992 Property and Casualty Insurance Revenues
For 1992, premiums written reflected a 45% increase compared with 1991.
During 1992, increased emphasis was placed on participation in the commercial
multiple-peril and vehicle double-interest lines of business, as premium volumes
in the vehicle single-interest line remained low due to a slow Puerto Rico
economy and resulting depressed new automobile sales in Puerto Rico. In
addition, the results reflected the merger of Eastern America with and into
Universal.
Net premiums earned for 1992 reflected a 25% increase compared with 1991,
primarily due to the 45% increase in premiums written. The increase in the
commercial multiple-peril lines of business resulted in higher reinsurance cost
associated with commercial multiple-peril business due to the higher risk of
loss exposure.
Property and Casualty Insurance Investment Income
Investment income is generated primarily from the segment's investment in
United States Treasury securities, due to their investment safety and favorable
Puerto Rico tax treatment. Investment income totaled $8,706,000 for 1994
compared with $7,741,000 for 1993 and $6,454,000 for 1992. The hike in interest
rates during 1994 contributed to the 12% increase for 1994; however, prior to
the decline in interest rates, the segment procured a constant yield on a large
portion of its United States Treasury securities with fixed rates. Even though
interest rates remained low during 1993 and 1992, the insurance segment's
investment income increased 20% in 1993 and 8% in 1992. The 1993 and 1992
investment income also benefited from the merger with Eastern America in 1992.
Property and Casualty Insurance Costs and Expenses
Losses, claims and settlement expenses for 1994 totaled $44,634,000
compared with $37,496,000 for 1993 and $26,289,000 for 1992. The 19% increase
for 1994 reflected a significant increase in business volume, particularly the
vehicle double-interest line and a favorable year for actual loss events. For
1993, the 43% increase reflected the merger with Eastern America as well as an
increase in all lines of insurance, with the emphasis on the vehicle
single-interest line. The 45% increase for 1992 reflected the merger with
Eastern America in addition to an abnormal year for losses from the commercial
multiple-peril line, which experienced high losses from specific events.
Losses, claims and settlement expenses for the 1994 year and 1992 year also
included a reserve of $2,000,000 and $2,500,000, respectively, for potential,
but as yet unreported, losses related to Mariner. During 1970 through 1990,
Mariner participated in the writing of property and casualty reinsurance.
Mariner received certain delayed large loss advices, which resulted in the
increases in the loss reserves. The 1990 year was the last year for
participation in the reinsurance market. Management continues to review the
runoff of the reinsurance business previously written by Mariner with the intent
of seeking a withdrawal from this business and closure of Mariner's activities,
including consideration of commutation of Mariner's book of business. A
commutation would entail the transfer of liability from known and incurred but
not reported losses to a second party in exchange for a portion of, or all of,
Mariner's assets.
As of December 31, 1994, 1993 and 1992, the Company owned 58%, 70% and 75%,
respectively, of the voting common stock of Universal, with the balance owned by
Eastern America Group. The Company owned
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100% of the non-voting outstanding common and preferred stocks. Minority
interest expense for 1994 and 1993 totaled $3,424,000 and $1,623,000,
respectively.
Property and Casualty Insurance Pretax Earnings
The Company's portion of the property and casualty insurance segment's
pretax earnings totaled $5,119,000 for 1994, an increase of 13% compared with
net earnings of $4,539,000 for 1993 and 362% over 1992 pretax earnings of
$1,108,000.
FINANCIAL CONDITIONS, CAPITAL REVENUES AND LIQUIDITY
Stock Repurchase
On August 1, 1994, the Board of Directors authorized the Company to
purchase up to 2,000,000 shares of its own common stock. Prior authorization in
October, 1990 for the repurchase of 2,000,000 shares of the Company's common
stock was superseded by this authorization. The Company is authorized to
purchase the common stock on the American Stock Exchange and in privately
negotiated transactions. When purchasing common stock, the Company is subject to
price, trading volume and other market considerations. Shares repurchased may be
used for reissuance upon the exercise of stock options, in future acquisitions
for stock or for other appropriate corporate purposes. To date, the Company has
not repurchased any of its common stock under the current authorization.
Long-Term Financing
The Company and Dixie have separate revolving credit agreements with an
established line of credit of $50,000,000 each. The credit agreements provide
the Company options on interest rates based on prime, Eurodollar or CD rates.
Proceeds under the credit agreements can be used for general corporate purposes,
the purchase of new or existing equipment or for business acquisitions. As of
March 14, 1995, the Company and Dixie had $15,000,000 and $27,900,000,
respectively, available for takedown under the credit agreements. The Company
and Dixie entered into the separate credit agreements in April, 1993 providing
for aggregate borrowings of up to $30,000,000 and $50,000,000, respectively. In
August, 1993, the Company's line of credit was increased to $50,000,000 and in
May, 1994, the credit agreements were renewed and the agreements extended to
June, 1997.
In March, 1992, Dixie entered into a $20,000,000 acquisition credit
facility with Texas Commerce Bank National Association that provided the
transportation segment with in-place financing for possible future acquisitions.
On June 1, 1992, the acquisition credit facility was activated with the merger
of Scott Chotin into a subsidiary of the Company and in August, 1992, the
acquisition credit facility was retired.
In August, 1992, Dixie sold $50,000,000 of 8.22% notes, due June 30, 2002,
in a private placement. Proceeds from these notes were used to retire the
$20,000,000 acquisition credit facility with Texas Commerce Bank National
Association and the retirement of two $5,000,000, 10% subordinated promissory
notes originally issued as part of the purchase in 1989 of the assets of Brent,
with the balance of the proceeds used to reduce the amount outstanding under
Dixie's $50,000,000 revolving credit agreement.
In June, 1993, the Company redeemed the entire $50,000,000 aggregate
principal amount of its 7 1/4% Convertible Subordinated Debentures due 2014
("Debentures") issued in October, 1989 at a redemption price of 105.075% of the
principal amount of the Debentures, plus accrued interest on the principal of
the Debentures from April 1, 1993 to the date fixed for redemption. The holders
of the entire $50,000,000 of Debentures elected to convert such Debentures into
common stock of the Company at a conversion price of $11.125 per share. The
conversion of the Debentures increased the issued and outstanding common stock
of the Company by 4,494,382 shares.
In November, 1994, Dixie entered into a $10,000,000 acquisition credit
facility with Texas Commerce Bank National Association that provided the
transportation segment with in-place additional financing for the Dow
transportation asset acquisition completed in November, 1994. The acquisition
credit facility was never activated and is scheduled to expire on May 4, 1995.
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In December, 1994, the Company established a $250,000,000 medium term note
program providing for the issuance of fixed rate or floating rate notes with
maturities of nine months or longer. The shelf registration program, registered
with the Securities and Exchange Commission, was activated in March, 1995 with
the issuance of $34,000,000 of the authorized notes. The issued medium term
notes bear interest at an average fixed rate of 7.77% with a maturity of March
10, 1997. Proceeds from sale of the notes were used to retire the Company's
outstanding bank term loan in the amount of $10,286,000 due June 1, 1997 and to
reduce the Company's outstanding revolving credit loans by $23,714,000. The
remaining $216,000,000 available under the medium term note program will provide
financing for future business and equipment acquisitions and working capital
requirements. The Company's outstanding bank term loan in the amount of
$10,666,000, due March 6, 1997, is anticipated to be retired by March 20, 1995
with proceeds borrowed under the Company's revolving credit agreements.
Business Acquisitions and Developments
Following the Company's stated strategy of acquiring businesses to
complement its existing operations, the Company has been actively engaged in the
acquisition of, or merger with, companies during the 1992, 1993 and 1994 years.
On March 13, 1992, the Company completed the purchase of Sabine for
$36,950,000 in cash. Sabine, located in Port Arthur, Texas, was engaged in
coastal and inland marine transportation of petroleum products and in harbor tug
services. The purchased properties included six U.S. flag tankers, 33 owned and
five leased inland tank barges, 11 owned and four leased inland towboats, three
owned bowboats, eight owned harbor tugboats, land and buildings. The Company has
continued to use the assets of Sabine in the same business that Sabine conducted
prior to the purchase. The purchase was financed through $9,950,000 of existing
cash balances, borrowings of $9,000,000 under the transportation segment's bank
revolving credit agreement, as well as an $18,000,000 bank term loan with a
negative pledge of the assets acquired from Sabine. Based on audited
information, assets acquired from Sabine had total revenues for the years ended
December 31, 1990 and 1991 of $62,886,000 and $62,986,000, respectively.
Operations of the assets acquired from Sabine are included as part of the
Company's operations effective March 13, 1992, in accordance with the purchase
method of accounting.
On April 2, 1992, the Company completed the purchase of Ole Man River for
$25,575,000 in cash. Ole Man River, located in Vicksburg, Mississippi, was
engaged in inland marine tank barge transportation of petroleum products along
the Mississippi River System and the Gulf Intracoastal Waterway. The purchased
properties included 24 owned and two leased inland tank barges, eight owned
inland towboats, land and buildings. The Company has continued to use the assets
of Ole Man River in the same business that Ole Man River conducted prior to the
purchase. The asset purchase was funded by borrowings under the transportation
segment's bank revolving credit agreement. Based on audited information, Ole Man
River had total revenues for the years ended December 31, 1990 and 1991 of
$14,676,000 and $15,500,000, respectively. Operations of the assets acquired
from Ole Man River are included as part of the Company's operations effective
April 2, 1992, in accordance with the purchase method of accounting.
On June 1, 1992, the Company completed the acquisition of Scott Chotin by
means of a merger of Scott Chotin with and into a wholly owned subsidiary of the
Company for an aggregate consideration of approximately $34,900,000. Pursuant to
the Agreement and Plan of Merger, the Company issued 870,892 shares of common
stock, valued at $12.625 per share, to certain Scott Chotin shareholders and
paid the shareholders of Scott Chotin approximately $9,700,000 in cash in
exchange for the working capital and all of the outstanding common stock of
Scott Chotin, discharged existing debt of Scott Chotin of approximately
$7,400,000 and paid to certain executives and shareholders of Scott Chotin
$5,000,000 for agreements not to compete. In addition, the Company recorded a
liability reserve for the issuance, over a three-year period after the closing,
of up to 170,000 additional shares of the Company's common stock contingent upon
the resolution of certain potential liabilities resulting from operations of
Scott Chotin prior to the merger. In June, 1993, the Company issued 22,500
shares of common stock and in June, 1994, the Company issued an additional
22,500 shares of common stock under the contingent stock agreement. Scott
Chotin, located in Mandeville, Louisiana, was engaged in inland marine tank
barge transportation of industrial chemicals and asphalt along
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the Mississippi River System and the Gulf Intracoastal Waterway. Scott Chotin's
inland fleet consisted of 29 owned tank barges, six of which operate in the
asphalt trade, 10 owned dry cargo barges, eight owned towboats, land and
buildings. The Company has continued to use the assets of Scott Chotin in the
same business that Scott Chotin conducted prior to the merger. The cash portion
of the merger was financed through existing cash balances, borrowings under a
subsidiary of the Company's $20,000,000 acquisition line of credit, as well as a
$16,000,000 bank term loan with a negative pledge of the assets of Scott Chotin.
Based on audited information, Scott Chotin recorded total revenues for the years
ended May 31, 1991 and 1992 of $20,894,000 and $18,817,000, respectively. Scott
Chotin's operations are included as part of the Company's operations effective
June 1, 1992, in accordance with the purchase method of accounting.
On September 25, 1992, the Company completed the acquisition of Eastern
America, a property and casualty insurance company in Puerto Rico, by means of a
merger of Eastern America with and into the Company's insurance subsidiary,
Universal, with Universal being the surviving entity. Presently, the Company
owns approximately 58% of the voting common stock of Universal, with the
remaining approximately 42% owned by Eastern America Group, the former parent of
Eastern America. Through options and redemption rights included in the merger
transaction, Eastern America Group could become the owner of up to 100% of
Universal's stock over a period of up to 12 years from September, 1992. Based on
audited information, Eastern America reported total revenues of $11,951,000 and
$13,544,000 for the years ended December 31, 1990 and 1991, respectively.
Eastern America's operations are included as part of the Company's operations
effective September 25, 1992, in accordance with the purchase method of
accounting. To date, Universal has redeemed a total of 65,357 shares of voting
Class B common stock and 24,360 shares of non-voting Class C common stock from
the Company at a total redemption price of $15,000,000. In August, 1994, Eastern
America Group purchased an additional 30,410 shares of voting Class A common
stock from Universal for $7,000,000.
On March 3, 1993, the Company completed the purchase of TPT for $24,400,000
in cash. TPT was engaged in the inland marine transportation of industrial
chemicals and lube oil primarily from the Gulf Intracoastal Waterway to
customers primarily on the upper Ohio River. TPT's inland fleet consisted of 61
owned and six leased double skin tank barges, four owned and one leased single
skin tank barges and five owned towboats. Of the 72 barges, 32 are equipped with
vapor control systems while 30 barges are dedicated to the transportation of
lube oil, where vapor control equipment is not required. The Company has
continued to use the assets of TPT in the same business that TPT conducted prior
to the purchase. The asset purchase was financed under the transportation
segment's bank revolving credit agreement. Based on unaudited information, TPT
had total revenues for the fiscal year ended September 30, 1992, of $17,000,000.
Operations of the assets acquired from TPT are included as part of the Company's
operations effective March 3, 1993, in accordance with the purchase method of
accounting.
On May 14, 1993, the Company completed the acquisition of AFRAM Lines by
means of a merger with and into a wholly owned subsidiary of the Company, for an
aggregate consideration of $16,725,000. In addition, the merger provided for an
earnout provision not to exceed $3,000,000 in any one year and not to exceed a
maximum of $10,000,000 over a four-year period. The earnout provision will be
recorded as incurred as an adjustment to the purchase price. An earnout of
$3,000,000 was paid in April, 1994 for the period from April 1, 1993 to March
31, 1994. As of December, 31, 1994, an $884,000 earnout provision had been
recorded for the period April 1, 1994 to December 31, 1994. Under the terms of
the merger, the Company issued 1,000,000 shares of its common stock in exchange
for all of AFRAM Lines' outstanding stock and paid certain executives and
shareholders of AFRAM Lines agreements not to compete totaling $2,000,000. AFRAM
Lines, located in Houston, Texas, was engaged in the worldwide transportation of
dry-bulk, container and palletized cargos, primarily for departments and
agencies of the United States Government. The Company has continued to use the
assets of AFRAM Lines in the same business that AFRAM Lines conducted prior to
the merger. AFRAM Lines' fleet consisted of three U.S. flag container and
break-bulk ships which specialize in the transportation of United States
Government military and aid cargos. Based on audited information, AFRAM Lines
recorded transportation revenues for the years ended June 30, 1992 and 1991 of
$38,758,000 and $29,817,000, respectively. Unaudited historical transportation
revenues for the year ended December 31, 1992 were $46,268,000. The merger,
effective as of April 1, 1993, was accounted for in accordance with the purchase
method of accounting. The financial results for the 1993 year include the net
earnings from the
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operations from May 14, 1993, as the net earnings from April 1, 1993 to May 14,
1993 were recorded as a reduction of the purchase price.
In May, 1993, Marine Systems enhanced its long-term opportunities with the
addition of two distributorship agreements. Under a long-term agreement with
Paxman, an English manufacturer of diesel engines, Marine Systems will sell
engine parts and provide authorized repair services. In addition, in May, 1993,
Marine Systems signed a long-term agreement with Falk, a marine reduction gear
manufacturer, whereby Marine Systems will sell parts and provide authorized
repair services.
As an expansion of the diesel repair segment, the Company is engaged
through Rail Systems in the overhaul and repair of locomotive diesel engines and
sale of replacement parts for locomotives, serving shortline and industrial
railroads within the continental United States. In October, 1993, EMD, the
world's largest manufacturer of locomotives, awarded an exclusive shortline and
industrial rail distributorship to Rail Systems to provide replacement parts,
service and support to these important and expanding markets. The operations of
Rail Systems commenced in January, 1994.
On December 21, 1993, OMR Transportation completed the cash purchase of
certain assets of Chotin Transportation for $14,950,000 in cash. Chotin
Transportation, located in Cincinnati, Ohio, was engaged in the inland marine
transportation of refined products by tank barge primarily from the lower
Mississippi River to the Ohio River under a long-term contract with a major oil
company. The Company has continued to use the assets of Chotin Transportation in
the same business that Chotin Transportation conducted prior to the purchase.
The purchased properties included 50 single skin and three double skin inland
tank barges and a transportation contract, which expires in the year 2000. The
asset purchase was funded by borrowings under the transportation segment's bank
revolving credit agreement. Operations of the assets acquired from Chotin
Transportation are included as part of the Company's operations effective
December 21, 1993, in accordance with the purchase method of accounting.
In March, 1994, the Company through its subsidiary, Americas Marine, began
all-water marine transportation services between Memphis, Tennessee and Mexico,
Guatemala, Honduras and El Salvador. The transportation containership service
utilized a chartered foreign flag river/ocean vessel which offered direct
sailing between these locations. The service provided exporters and importers in
the north, central and mid-south states with a direct shipping alternative
between the locations on a fourteen day round trip basis. In August, 1994, the
Company discontinued the service as aggressive pricing from competitors resulted
in slower than anticipated acceptance of the service. Volumes were increasing
with each voyage; however, operating losses and the negative prospects for
future profitability did not warrant continuation of the service.
On July 1, 1994, a subsidiary of the Company completed the purchase of a
U.S. flag tanker from Tosco. The single hull tanker was placed in service in
late August, 1994, after undergoing capitalized restorations and modifications.
The tanker will be utilized in the carriage of refined petroleum products in
United States coastwise trade and is currently operating under a three year
charter. The tanker has a capacity of 266,000 barrels and a deadweight tonnage
of 37,750. The tanker will be retired from service in compliance with the OPA on
January 1, 1999. Funding for the transaction was provided through the Company's
bank revolving credit agreement. Operations of the asset acquired from Tosco are
included as part of the Company's operations effective July 1, 1994, in
accordance with the purchase method of accounting.
On July 21, 1994, a subsidiary of the Company completed the purchase of
three U.S. flag tankers from OMI for $23,750,000. The single hull tankers will
transport refined petroleum products primarily between the United States Gulf
Coast, Florida and the mid-Atlantic states. The three tankers initially operated
in the spot market, however, during the majority of July, August and part of
September, the tankers were idle due to the extreme weakness in the tanker
market. Effective October, 1994, one tanker went under a six-month charter and
effective November, 1994, one tanker was chartered for a one year period. Both
of the charters have extension options. Each of the tankers has a total capacity
of 266,000 barrels and a deadweight tonnage of 37,853. In compliance with the
OPA, the three tankers will be retired from service on January 1, 2000. Funding
for the transaction was provided through the Company's bank revolving credit
agreement. Operations of the three tankers acquired from OMI are included as
part of the Company's operations effective July 21, 1994, in accordance with the
purchase method of accounting.
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On November 16, 1994, a subsidiary of the Company completed the purchase of
certain marine assets of Dow for $24,031,000 in cash. The purchased assets
consisted of 65 inland tank barges, one river towboat and two shifting boats.
The Company also assumed from Dow the leases on an additional 31 inland tank
barges and two towboats. In addition, the Company entered into a contract with
Dow to provide for Dow's inland bulk liquid marine transportation requirements
for a period of ten years. Dow is a major manufacturer of petrochemicals,
industrial chemicals and related bulk liquid products and historically has used
its own barges and outside towing resources to service its inland marine
transportation requirements. Dow produces its products at its Freeport, Texas
manufacturing complex, other plants in Louisiana and at various other United
States locations. A number of the Dow plants, as well as their suppliers and
customers, rely extensively on water transportation for moving products between
Dow's manufacturing facilities, for shipment to the ultimate users and to move
certain raw materials purchased by Dow. The asset purchase was funded by
borrowings under the Company's and transportation segment's bank revolving
credit agreements. Operations of the assets acquired from Dow are included as
part of the Company's operations effective November 16, 1994, in accordance with
the purchase method of accounting.
Capital Expenditures
The Company continued to enhance its existing operations through the
acquisitions of existing equipment during the 1992, 1993 and 1994 years and the
construction of new equipment during the 1992 and 1994 years.
In July, 1992, a 165,000 barrel double skin ocean-going tank barge and tug
unit was purchased for approximately $9,200,000. The unit is currently working
in the offshore refined products trade.
In July, 1992, four existing inland towboats were purchased for a total
purchase price of $1,650,000. The towboats are being used in the industrial
chemical market.
In July, 1992, the diesel repair segment expanded its market to the Pacific
Northwest with the opening of a service facility in Seattle, Washington, serving
both the inland and offshore marine industries. Emphasis is focused on the
repair of diesel engines in the marine transportation industry and various
governmental agencies.
In August, 1992, a 17,000 barrel capacity pressure barge, which was
constructed under a contract entered into in September, 1991, was placed into
service in the industrial chemical market. Cost of the barge was approximately
$2,700,000.
In October, 1993, three inland towboats were purchased for approximately
$895,000. The towboats are being used in the refined products market.
In May, 1994, the Company entered into a contract for the construction of
12 double skin 29,000 barrel capacity inland tank barges for use in the movement
of industrial chemicals and refined products. In February, 1995, the Company
exercised the option under the contract to construct 12 additional barges. The
first barge was delivered in January, 1995 and the second barge was delivered in
February, 1995. The remaining 22 barges are scheduled to be delivered one each
month thereafter. The new construction program is consistent with the Company's
long-term strategy of upgrading its equipment to service the needs of its
customers and to enhance its market position.
In addition to the new and existing transportation equipment noted above,
during 1992, 1993 and 1994, the Company's transportation subsidiaries continued
to add to their fleet through separate purchases of sound existing equipment. In
1992, four inland tank barges were purchased and renovated for use in the
agricultural chemical market and an inland towboat was purchased for use in the
refined products market. In 1993, three existing double skin inland tank barges
were purchased and renovated for use in the agricultural chemical market and one
inland towboat was purchased for use in the fleeting and shifting operation. In
1994, two existing double skin inland tank barges were purchased for use in the
agricultural chemical market, one existing inland towboat was purchased and
renovated for use in the industrial chemical market and two existing inland
towboats were purchased and renovated for use in the refined products market.
33
<PAGE> 35
Liquidity
Within the past three years, the Company has generated significant cash
flow from its operating segments to fund its capital expenditures, asset
acquisitions, debt service and other operating requirements. During 1994, 1993
and 1992, the Company generated net cash provided by operating activities of
$85,400,000, $61,614,000 and $38,372,000, respectively.
During each year, 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
segment's short-term, or spot business, is based principally on current prices.
In addition, the marine 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. For the property and casualty insurance segment, 100% of its investments
were classified as available-for-sale securities, which consist primarily of
United States Government instruments.
Universal is subject to dividend restrictions under the stockholders
agreement between the Company, Universal and Eastern America Group. In addition,
Universal is subject to industry guidelines and regulations with respect to the
payment of dividends.
The Company has no present plan to pay dividends on common stock in the
near future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
(see Item 14, page 64).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no disagreements with its independent accountants as
contemplated in Item 304 of Regulation S-K.
PART III
ITEMS 10 THROUGH 13.
The information for these items has been omitted inasmuch as the registrant
will file a definitive proxy statement with the Commission pursuant to the
Regulation 14A within 120 days of the close of the fiscal year ended December
31, 1994, except for the information regarding executive officers which is
provided in a separate item caption, "Executive Officers of the Registrant," and
is included as an unnumbered item following Item 4 in Part I of this Form 10-K.
34
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Kirby Corporation:
We have audited the accompanying consolidated balance sheets of Kirby
Corporation and consolidated subsidiaries as of December 31, 1994 and 1993 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1994. In
connection with our audits of the consolidated financial statements, we have
also audited the related financial statement schedules. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of Universal Insurance Company and its
subsidiaries, a 58 percent owned subsidiary, which statements reflect total
assets constituting 32 percent and 33 percent in 1994 and 1993, respectively,
and total revenues constituting 15 percent, 14 percent and 16 percent in 1994,
1993 and 1992; respectively, of the related consolidated totals. Those
statements and the amounts included in the related 1994, 1993 and 1992 financial
statement schedules were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Universal Insurance Company and its subsidiaries is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kirby Corporation and subsidiaries
as of December 31, 1994 and 1993 and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, based on our audits and the report of the other auditors, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects the information set forth therein.
As discussed in note 3 to the consolidated financial statements, the
Company changed its method of accounting for investments in equity securities in
1993 to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115. "Accounting for Certain
Investments in Debt and Equity Securities." As discussed in note 5 to the
consolidated financial statements, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts" in 1993. As discussed in note 7 to the consolidated
financial statements, the Company changed its method of accounting for income
taxes in 1992 to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." As discussed in note 10 to the consolidated financial statements,
the Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" in 1992.
KPMG PEAT MARWICK LLP
Houston, Texas
February 21, 1995
35
<PAGE> 37
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
ASSETS
<TABLE>
<CAPTION>
1993 1994
-------- -------
($ IN THOUSANDS)
<S> <C> <C>
Marine Transportation, Diesel Repair and Other
Current assets:
Cash and invested cash............................................. $ 1,999 7,355
Available-for-sale securities -- short-term investments............ -- 2,875
Accounts and notes receivable, net of allowance for doubtful
accounts.......................................................... 50,722 63,300
Inventory -- finished goods, at lower of average cost or market.... 7,531 8,270
Prepaid expenses................................................... 7,393 13,661
Deferred taxes..................................................... 2,768 1,324
-------- -------
Total current assets.......................................... 70,413 96,785
-------- -------
Property and equipment, at cost....................................... 406,675 481,612
Less allowance for depreciation.................................... 125,459 153,672
-------- -------
281,216 327,940
-------- -------
Excess cost of consolidated subsidiaries.............................. 7,429 9,280
Noncompete agreements, net of accumulated amortization of $9,161,000
($7,298,000 in 1993)............................................... 5,752 3,889
Sundry................................................................ 13,575 12,912
-------- -------
Total assets -- marine transportation, diesel repair and
other........................................................ 378,385 450,806
-------- -------
Insurance
Investments:
Available-for-sale securities:
Fixed maturities................................................. 102,175 149,173
Short-term investments........................................... 25,128 21,227
-------- -------
127,303 170,400
Cash and invested cash................................................ 12,937 4,485
Accrued investment income............................................. 1,998 2,638
Accounts and notes receivable, net of allowance for doubtful
accounts........................................................... 12,195 9,613
Reinsurance receivable on paid losses................................. 15,186 9,871
Prepaid reinsurance premiums.......................................... 5,773 5,147
Deferred policy acquisition costs..................................... 7,279 11,690
Property and equipment, at cost, net of allowance for depreciation.... 2,197 2,822
-------- -------
Total assets -- insurance..................................... 184,868 216,666
-------- -------
$563,253 667,472
======== =======
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 38
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1993 1994
-------- -------
($ IN THOUSANDS)
<S> <C> <C>
Marine Transportation, Diesel Repair and Other
Current liabilities:
Current portion of long-term debt.................................. $ 10,962 10,962
Accounts payable................................................... 11,767 15,771
Accrued liabilities:
Interest......................................................... 166 136
Insurance premiums and claims.................................... 6,181 16,874
Bonus, pension and profit-sharing plans.......................... 10,491 8,261
Taxes, other than on income...................................... 3,052 3,205
Other............................................................ 8,008 4,083
Deferred revenues.................................................. 5,637 8,294
-------- -------
Total current liabilities..................................... 56,264 67,586
-------- -------
Long-term debt, less current portion.................................. 109,597 148,535
Deferred taxes........................................................ 39,735 42,587
Other long-term liabilities........................................... 8,913 7,998
-------- -------
Total liabilities -- marine transportation, diesel repair and
other........................................................ 214,509 266,706
-------- -------
Insurance
Losses, claims and settlement expenses................................ 49,930 56,433
Unearned premiums..................................................... 61,558 89,801
Reinsurance premiums payable.......................................... 5,377 2,657
Other liabilities..................................................... 8,125 11,473
Minority interest in consolidated insurance subsidiary................ 12,005 17,426
-------- -------
Total liabilities -- insurance................................ 136,995 177,790
-------- -------
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 30,782,000 shares (30,759,000 in 1993)...................... 3,076 3,078
Additional paid-in capital............................................ 156,340 157,021
Unrealized net gains (losses) in value of investments................. 4,440 (2,686)
Retained earnings..................................................... 61,339 78,651
-------- -------
225,195 236,064
Less cost of 2,468,000 shares in treasury (2,555,000 in 1993)......... 13,446 13,088
-------- -------
211,749 222,976
-------- -------
$563,253 667,472
======== =======
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 39
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
($ IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Transportation............................................. $190,214 283,747 311,076
Diesel repair.............................................. 35,753 31,952 45,269
Net premiums earned........................................ 29,552 48,243 61,477
Commissions earned on reinsurance.......................... 5,108 4,632 4,335
Investment income.......................................... 6,795 7,910 9,211
Gain on disposition of assets.............................. 427 355 415
Realized gain on investments............................... 1,478 1,164 1,222
Other...................................................... 176 401 132
-------- ------- -------
269,503 378,404 433,137
-------- ------- -------
Costs and expenses:
Costs of sales and operating expenses (except as shown
below).................................................. 143,330 204,721 238,980
Losses, claims and settlement expenses..................... 26,289 37,496 44,634
Policy acquisition costs................................... 8,649 11,085 13,538
Selling, general and administrative........................ 32,805 40,162 48,048
Taxes, other than on income................................ 8,867 11,475 14,999
Depreciation and amortization.............................. 21,423 28,102 33,834
Minority interest expense.................................. -- 1,623 3,424
-------- ------- -------
241,363 334,664 397,457
-------- ------- -------
Operating income...................................... 28,140 43,740 35,680
Interest expense............................................. 9,411 8,416 8,835
-------- ------- -------
Earnings before taxes on income....................... 18,729 35,324 26,845
-------- ------- -------
Provision (benefit) for taxes on income:
United States.............................................. 5,151 11,136 8,442
Puerto Rico................................................ (20) 1,359 1,750
-------- ------- -------
5,131 12,495 10,192
-------- ------- -------
Earnings before cumulative effect of accounting
changes............................................ 13,598 22,829 16,653
Cumulative effect on prior years of accounting changes:
Postretirement health care benefits, net of applicable
income taxes of $1,163,000.............................. (2,258) -- --
Income taxes............................................... (10,659) -- --
-------- ------- -------
Net earnings.......................................... $ 681 22,829 16,653
======== ======= =======
Earnings (loss) per share of common stock:
Primary:
Earnings before cumulative effect of accounting
changes............................................... $ .60 .86 .58
Cumulative effect on prior years of accounting
changes............................................... (.57) -- --
-------- ------- -------
Net earnings.......................................... $ .03 .86 .58
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
38
<PAGE> 40
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
($ IN THOUSANDS)
----------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning of year................................... $ 2,437 2,524 3,076
Par value of common stock issued in acquisition of marine
transportation companies.................................... 87 102 2
Par value of common stock issued in conversion of 7 1/4%
Subordinated Convertible Debentures......................... -- 450 --
-------- ------- -------
Balance at end of year......................................... $ 2,524 3,076 3,078
======== ======= =======
Additional paid-in capital:
Balance at beginning of year................................... $ 82,762 93,670 156,340
Excess of par value of cost of common stock issued in
acquisition of marine transportation companies.............. 10,908 14,859 234
Excess of par value of cost of common stock issued in
conversion of 7 1/4% Subordinated Convertible Debentures and
related cost of conversion.................................. -- 47,624 --
Excess of cost of treasury stock sold over proceeds received
upon exercise of employees' stock options................... -- (27) 95
Tax benefit of exercise of employee stock options.............. -- 214 352
-------- ------- -------
Balance at end of year......................................... $ 93,670 156,340 157,021
======== ======= =======
Unrealized net gains (losses) in value of investments:
Balance at beginning of year................................... $ 1,830 1,211 4,440
Net increase (decrease) in valuation of investments during the
year, net of minority interest for 1993 and 1994............ (619) 3,229 (7,126)
-------- ------- -------
Balance at end of year......................................... $ 1,211 4,440 (2,686)
======== ======= =======
Retained earnings:
Balance at beginning of year................................... $ 38,489 39,170 61,339
Net earnings for the year...................................... 681 22,829 16,653
Unfunded pension obligation.................................... -- (660) 659
-------- ------- -------
Balance at end of year......................................... $ 39,170 61,339 78,651
======== ======= =======
Treasury stock:
Balance at beginning of year................................... $(13,892) (13,749) (13,446)
Cost of treasury stock sold upon exercise of employees'
stock options............................................... 143 303 358
-------- ------- -------
Balance at end of year......................................... $(13,749) (13,446) (13,088)
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
39
<PAGE> 41
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
--------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings before cumulative effect of accounting changes........................ $ 13,598 22,829 16,653
Adjustments to reconcile earnings to net cash provided by operating activities:
Depreciation and amortization................................................ 21,423 28,102 33,834
Provision for doubtful accounts.............................................. 414 271 1,173
Realized gain on investments................................................. (1,478) (1,164) (1,222)
Increase in deferred taxes................................................... 1,895 5,207 4,532
Gain on disposition of assets................................................ (427) (355) (415)
Deferred scheduled maintenance costs......................................... -- 2,516 2,861
Minority interest and earnings of unconsolidated subsidiary.................. (38) 1,592 3,386
Increase (decrease) in cash flows resulting from changes in:
Marine Transportation, Diesel Repair and Other assets and liabilities:
Accounts and notes receivable................................................ (6,803) (12,833) (13,512)
Inventory.................................................................... (2,288) 158 (738)
Other assets................................................................. (3,454) (3,046) (12,874)
Accounts payable............................................................. 1,195 (2,624) 4,004
Accrued and other liabilities ............................................... 3,745 6,255 6,465
Insurance assets and liabilities:
Reinsurance receivable on paid losses........................................ 1,346 (18,154) 5,941
Deferred policy acquisition costs............................................ (1,106) (1,368) (4,411)
Losses, claims and settlement expenses....................................... 4,692 14,342 6,502
Unearned premiums............................................................ 7,322 19,349 28,243
Reinsurance premiums payable................................................. (1,156) 1,616 (2,720)
Receivables and accrued income............................................... 739 (873) 1,942
Other liabilities............................................................ (1,247) (206) 5,756
--------- -------- --------
Net cash provided by operating activities................................ 38,372 61,614 85,400
--------- -------- --------
Cash flow from investing activities:
Proceeds from sale and maturities of investments............................... 8,730 12,097 43,488
Purchase of investments........................................................ (21,544) (5,772) (103,419)
Net decrease (increase) in short-term investments.............................. 13,589 (10,683) 645
Capital expenditures........................................................... (32,747) (22,320) (30,933)
Purchase of assets of marine companies:
Property and equipment, net of assumed liabilities........................... (76,279) (34,617) (48,531)
Intangible assets............................................................ (8,668) (7,138) --
Proceeds from disposition of assets............................................ 839 1,275 2,853
Cash received upon mergers..................................................... 3,110 1,733 --
Other.......................................................................... (13) (468) 1,011
--------- -------- --------
Net cash used in investing activities.................................... (112,983) (65,893) (134,886)
--------- -------- --------
Cash flow from financing activities:
Borrowings on bank revolving credit loan....................................... 99,025 124,164 220,800
Payments on bank revolving credit loan......................................... (90,125) (101,564) (170,900)
Increase in long-term debt..................................................... 84,000 -- --
Payments under long-term debt.................................................. (14,680) (10,962) (10,963)
Sale of insurance subsidiary stock to minority stockholder..................... -- -- 7,000
Proceeds from exercise of stock options........................................ 143 277 453
--------- -------- --------
Net cash provided by financing activities................................ 78,363 11,915 46,390
--------- -------- --------
Increase (decrease) in cash and invested cash............................ 3,752 7,636 (3,096)
Cash and invested cash, beginning of year........................................ 3,548 7,300 14,936
--------- -------- --------
Cash and invested cash, end of year.............................................. $ 7,300 14,936 11,840
========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest..................................................................... $ 10,192 9,442 8,865
Income taxes................................................................. $ 2,750 5,500 5,824
Noncash investing and financing activity:
Assumption of liabilities in connection with mergers and purchase of assets of
marine and diesel repair companies........................................... $ 38,225 11,743 --
Issuance of stock in connection with purchase of marine transportation
companies.................................................................... $ 10,995 14,725 --
Noncash changes in assets and liabilities...................................... $ -- (2,136) 1,247
Issuance of stock in connection with conversion of 7 1/4% convertible
debentures................................................................... $ -- 50,000 --
</TABLE>
See accompanying notes to financial statements
40
<PAGE> 42
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
Principles of Consolidation. The consolidated financial statements include
the accounts of Kirby Corporation and its subsidiaries ("the Company"). The
assets and liabilities for the insurance operations have not been classified as
current or noncurrent, in accordance with insurance practice. The Company's
equity in certain partnerships is reflected in the accounts at its pro rata
share of the assets, liabilities, revenues and expenses of the partnerships. The
purchase price of certain subsidiaries exceeded the equity in net assets of the
respective companies at dates of acquisition. The excess is being amortized over
9 to 14 year periods.
All material intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to reflect current
presentation of financial information.
Operations. The Company is engaged in three industry segments as follows:
Marine Transportation -- Marine transportation by U.S. flag vessels on
the inland waterway system and in United States coastwise and foreign
trade. The principal products transported include petrochemical feedstocks,
processed chemicals, agricultural chemicals, refined petroleum products,
coal, limestone, grain and sugar. Container and palletized cargos are also
transported for United States Government aid programs and military.
Diesel Repair -- Repair of diesel engines, reduction gear repair and
sale of related parts and accessories for customers in the marine industry
and the shortline and the industrial railroad industry.
Insurance -- Writing of property and casualty insurance in Puerto
Rico. The insurance subsidiary operates under the provisions of the
Insurance Code of the Commonwealth of Puerto Rico and is subject to
regulations issued by the Commissioner of Insurance of the Commonwealth of
Puerto Rico.
General Accounting Policies:
Accounting Principles. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles.
Cash Equivalents. Cash equivalents consist of short-term, highly liquid
investments with maturities of three months or less at date of purchase.
Depreciation. Property and equipment is depreciated on the straight-line
method over the estimated useful lives of the assets as follows: marine
transportation equipment, 6-22 years; buildings, 10-25 years; other equipment,
2-10 years; leasehold improvements, term of lease.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily trade
accounts receivables. The Company's marine transportation customers include the
major oil refineries. The diesel repair customers are offshore well service
companies, inland and offshore marine transportation companies and the United
States Government. The insurance segment customers include agents and customers
who reside in Puerto Rico. In addition, credit risk exists through the placement
of certificates of deposits with local financial institutions by the insurance
segment.
Marine Transportation, Diesel Repair and Other Accounting Policies:
Property, Maintenance and Repairs. Property is recorded at cost.
Improvements and betterments are capitalized as incurred. When property items
are retired, sold, or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts with any gain or loss on the
disposition included in operating income. Maintenance and repairs are charged to
operating expense as incurred on an annual basis. Scheduled maintenance on
ocean-going vessels is recognized as prepaid maintenance costs when incurred and
charged to operating expense over the period between such scheduled maintenance,
generally 24 months.
41
<PAGE> 43
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
Taxes on Income. The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company files a consolidated federal income tax return with its
domestic subsidiaries, Oceanic Insurance Limited ("Oceanic") and Mariner
Reinsurance Company Limited ("Mariner").
Insurance Accounting Policies:
Investments. Fixed maturity investments are classified as
available-for-sale securities and are reported at fair market value, with
unrealized gains and losses reported in the accompanying balance sheet as
unrealized net gains (losses) in value of investments.
Short-term investments consisting of certificates of deposit, United States
Treasury bills and United States Treasury notes maturing within one year from
acquisition date, are recorded at amortized cost, which approximates market
value.
Reinsurance. By reinsuring certain levels of risk in various areas with
reinsurers, the exposure of losses which may arise from catastrophes or other
events which may cause unfavorable underwriting results are reduced. Amounts
recoverable from reinsurance are estimated in a manner consistent with the claim
liability associated with the reinsured policy.
Deferred Policy Acquisition Costs. Deferred policy acquisition costs
representing commissions paid to agents are deferred and amortized following the
daily pro rata method over the terms of the policies for 1994 and 1993 (monthly
pro rata method for 1992), except for automobile physical damage single-interest
policies, which are amortized following the sum-of-the-years method. Deferred
policy acquisition costs are written off when it is determined that future
policy revenues are not adequate to cover related future losses and loss
adjustment expenses. Earnings on investments are taken into account in
determining whether this condition exists. No deficiencies have been determined
in the periods presented.
Accrued Losses, Claims and Settlement Expenses. Accrued losses, claims and
settlement expenses include estimates based on individual claims outstanding and
an estimated amount for losses incurred but not reported (IBNR) based on past
experience.
Unearned Premiums. Unearned premiums are deferred and amortized following
the daily pro rata method over the terms of the policies for 1994 and 1993
(monthly pro rata method for 1992) except for automobile physical damage
single-interest policies, which are amortized to income following the
sum-of-the-years method. Effective January 1, 1994, Universal Insurance Company
("Universal"), the Company's 58% owned Puerto Rican property and casualty
insurance subsidiary, changed its method of amortization of double-interest
automobile physical damage policies from the daily pro rata method, the method
the Company follows, to a declining value method, which the Company did not
adopt. A reconciliation for the effect of this change is more fully described in
Note 5, Insurance Disclosure.
Guarantee Fund Assessments. The Company's Puerto Rican property and
casualty insurance subsidiary is a member of the Puerto Rico Insurance Guaranty
Association and is required to participate in losses payable to policyholders
under risks underwritten by insolvent associated members. Losses are estimated
based on its share and accrued on a current basis.
42
<PAGE> 44
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
Changes In Accounting Principles:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS No. 113"),
which changes the accounting and disclosure requirements for reinsurance
contracts entered into by ceding insurance companies. Effective December 31,
1993, the Company adopted SFAS No. 113, the effects of which are more fully
described in Note 5, Insurance Disclosure.
The FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS No. 115"), which establishes standards of
financial accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. Effective December 31, 1993, the Company adopted SFAS No. 115, the
effects of which are more fully described in Note 3, Investments.
The FASB issued SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", which requires that fair values be disclosed for financial
instruments. Effective January 1, 1994, the Company adopted SFAS No. 107. Cash,
accounts receivable, accounts payable and accrued liabilities are reflected in
the financial statements at fair value because of the short-term maturity of
these financial instruments. The fair value of the Company's investments are
more fully described in Note 3, Investments, and the fair value of the Company's
debt instruments are more fully described in Note 6, Long-Term Debt. The Company
does not hold or issue derivative financial instruments in the normal course of
business.
(2) ACQUISITIONS
1992 YEAR:
On March 13, 1992, a subsidiary of the Company completed the purchase of
certain assets of Sabine Towing & Transportation Co., Inc. ("Sabine"), a wholly
owned subsidiary of Sequa Corporation, for $36,950,000 in cash. Sabine, located
in Port Arthur, Texas, was engaged in coastal and inland marine transportation
of petroleum products and in harbor tug services. The purchased properties
included six U.S. flag tankers, 33 owned and five leased inland tank barges, 11
owned and four leased inland towboats, three owned bowboats, eight owned harbor
tugboats, land and buildings. The Company has continued to use the assets of
Sabine in the same business that Sabine conducted prior to the purchase. The
purchase was financed through $9,950,000 of existing cash balances, borrowings
of $9,000,000 under the transportation segment's bank revolving credit
agreement, as well as an $18,000,000 bank term loan with a negative pledge of
the assets acquired from Sabine. Operations of the assets acquired from Sabine
are included as part of the Company's operations effective March 13, 1992, in
accordance with the purchase method of accounting.
On April 2, 1992, a subsidiary of the Company completed the purchase of
substantially all of the operating assets of Ole Man River Towing, Inc. and
related entities ("Ole Man River") for $25,575,000 in cash. Ole Man River,
located in Vicksburg, Mississippi, was engaged in inland marine tank barge
transportation of petroleum products along the Mississippi River System and the
Gulf Intracoastal Waterway. The purchased properties included 24 owned and two
leased inland tank barges, eight owned inland towboats, land and buildings. The
Company has continued to use the assets of Ole Man River in the same business
that Ole Man River conducted prior to the purchase. The asset purchase was
funded by borrowings under the transportation segment's bank revolving credit
agreement. Operations of the assets acquired from Ole Man River are included as
part of the Company's operations effective April 2, 1992, in accordance with the
purchase method of accounting.
43
<PAGE> 45
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS -- (CONTINUED)
On June 1, 1992, the Company completed the acquisition of Scott Chotin,
Inc. ("Scott Chotin") by means of a merger of Scott Chotin with and into a
subsidiary of the Company for an aggregate consideration of approximately
$34,900,000. Pursuant to the Agreement and Plan of Merger, the Company issued
870,892 shares of common stock, valued at $12.625 per share, to certain Scott
Chotin shareholders and paid the shareholders of Scott Chotin approximately
$9,700,000 in cash in exchange for the working capital and all of the
outstanding common stock of Scott Chotin, discharged existing debt of Scott
Chotin of approximately $7,400,000 and paid to certain executives and
shareholders of Scott Chotin $5,000,000 for agreements not to compete. In
addition, the Company recorded a liability reserve for the issuance, over a
three-year period after the closing, of up to 170,000 additional shares of the
Company's common stock contingent upon the resolution of certain potential
liabilities resulting from operations of Scott Chotin prior to the merger. In
June, 1993 and June, 1994, the Company issued 22,500 shares, respectively, of
common stock under the contingent stock agreement. Scott Chotin, located in
Mandeville, Louisiana was engaged in inland marine tank barge transportation of
industrial chemicals and asphalt along the Mississippi River System and the Gulf
Intracoastal Waterway. Scott Chotin's inland fleet consisted of 29 owned tank
barges, six of which operated in the asphalt trade, 10 owned dry cargo barges,
eight owned towboats, land and buildings. The Company has continued to use the
assets of Scott Chotin in the same business that Scott Chotin conducted prior to
the merger, except for the six barges engaged in the asphalt trade, which were
subsequently sold. The cash portion of the merger was financed through existing
cash balances, borrowings under the transportation segment's $20,000,000
acquisition line of credit, as well as a $16,000,000 bank term loan with a
negative pledge of the assets of Scott Chotin. Scott Chotin's operations are
included as part of the Company's operations effective June 1, 1992, in
accordance with the purchase method of accounting.
On September 25, 1992, the Company completed the acquisition of Eastern
America Insurance Company ("Eastern America") by means of a merger of Eastern
America with and into Universal, with Universal being the surviving entity.
Eastern America was engaged in the writing of property and casualty insurance in
Puerto Rico. Presently, the Company owns approximately 58% of the voting common
stock of Universal, with the remaining approximately 42% owned by Eastern
America Financial Group, Inc. ("Eastern America Group"), the former parent of
Eastern America. Through options and redemption rights included in the merger
transaction, Eastern America Group could become the owner of up to 100% of
Universal's stock over a period of up to 12 years from September, 1992. To date,
Universal has redeemed a total of 65,357 shares of voting Class B common stock
and 24,360 shares of non-voting Class C common stock for a total redemption
price of $15,000,000 as follows (in thousands, except share amounts):
<TABLE>
<CAPTION>
1992 1993 1994
----------------- ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Class A Voting Common Stock............... 5,805 $1,000 39,128 $7,000 20,424 $4,000
Class B Voting Common Stock............... -- -- -- -- 24,360 3,000
------ ------ ------ ------ ------ ------
5,805 $1,000 39,128 $7,000 44,784 $7,000
===== ====== ====== ====== ====== ======
</TABLE>
In addition, in August, 1994, Eastern America Group purchased from
Universal 30,410 shares of Class A voting common stock for $7,000,000. Eastern
America's operations are included as part of the Company's operations effective
September 25, 1992, in accordance with the purchase method of accounting.
1993 YEAR:
On March 3, 1993, a subsidiary of the Company completed the purchase of
certain assets of TPT, a marine transportation division of Ashland Oil, Inc.
("TPT"), for $24,400,000 in cash. TPT, located in Freedom, Pennsylvania, was
engaged in the inland marine transportation of industrial chemicals and lube
oils
44
<PAGE> 46
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS -- (CONTINUED)
by tank barge predominately from the Gulf Intracoastal Waterway to customers
primarily on the upper Ohio River. The purchased properties included 61 owned
and six leased double skin inland tank barges, four owned and one leased single
skin inland tank barges and five owned inland towboats. The Company has
continued to use the assets of TPT in the same business that TPT conducted prior
to the purchase. The asset purchase was funded by borrowings under the
transportation segment's bank revolving credit agreement. Operations of the
assets acquired from TPT are included as part of the Company's operations
effective March 3, 1993, in accordance with the purchase method of accounting.
On May 14, 1993, the Company completed the acquisition of AFRAM Lines (USA)
Co., Ltd. ("AFRAM Lines") by means of a merger of AFRAM Lines with a subsidiary
of the Company for an aggregate consideration of $16,725,000. Additionally, the
merger provided for an earnout provision not to exceed $3,000,000 in any one
year and not to exceed a maximum of $10,000,000 over a four-year period. The
earnout provision will be recorded as incurred as an adjustment to the purchase
price. As of December 31, 1993, a $2,250,000 earnout provision, which accrues
from April 1 to March 31 of the following year, had been recorded. From January
1 to March 31, 1994, a $750,000 earnout provision was accrued with a $3,000,000
payment recorded April 1, 1994. As of December 31, 1994, an $884,000 earnout
provision had been recorded for the period April 1 to December 31, 1994.
Pursuant to the Agreement and Plan of Merger, the Company issued 1,000,000
shares of common stock, valued at $14.725 per share, in exchange for all of
AFRAM Lines' outstanding stock and paid to certain executives and shareholders
of AFRAM Lines $2,000,000 for agreements not to compete. AFRAM Lines, located in
Houston, Texas, was engaged in the worldwide transportation of dry-bulk,
container and palletized cargos, primarily for departments and agencies of the
United States Government. The Company has continued to use the assets of AFRAM
Lines in the same business that AFRAM Lines conducted prior to the merger. AFRAM
Lines' fleet consisted of three U.S. flag container and break-bulk ships which
specialize in the transportation of United States Government aid and military
cargos. The cash portion of the merger was financed through borrowings under the
Company's bank revolving credit agreement. Pursuant to the Agreement and Plan of
Merger, the effective date of the merger was April 1, 1993, and the merger was
accounted for in accordance with the purchase method of accounting. The
financial results for the 1993 year include the net earnings from the operations
of AFRAM Lines from May 14, 1993, as the net earnings from April 1, 1993 to May
14, 1993 were recorded as a reduction of the purchase price.
On December 21, 1993, a subsidiary of the Company completed the purchase of
certain assets of Midland Enterprises Inc. and its wholly owned subsidiary,
Chotin Transportation Company ("Chotin Transportation") for $14,950,000 in cash.
Chotin Transportation, located in Cincinnati, Ohio, was engaged in the inland
marine transportation of refined products by tank barge primarily from the lower
Mississippi River to the Ohio River under a long-term contract with a major oil
company. The Company has continued to use the assets of Chotin Transportation in
the same business that Chotin Transportation conducted prior to the purchase.
The purchased properties included 50 single skin and three double skin inland
tank barges and the transportation contract, which expires in the year 2000. The
asset purchase was funded by borrowings under the transportation segment's bank
revolving credit agreement. Operations of the assets acquired from Chotin
Transportation are included as part of the Company's operations effective
December 21, 1993, in accordance with the purchase method of accounting.
1994 YEAR:
On July 1, 1994, a subsidiary of the Company completed the purchase of a
U.S. flag tanker from Tosco Refining Company ("Tosco"). The single hull tanker
was placed in service in late August, 1994, after undergoing capitalized
restorations and modifications. The tanker is utilized in the carriage of
refined petroleum products in United States coastwise trade and is operating
under a three year charter. The tanker
45
<PAGE> 47
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS -- (CONTINUED)
has a capacity of 266,000 barrels and a deadweight tonnage of 37,750. The tanker
will be retired from service in accordance with the Oil Pollution Act of 1990
("OPA") on January 1, 1999. The asset purchase was funded by borrowings under
the Company's bank revolving credit agreement. Operations of the asset acquired
from Tosco are included as part of the Company's operations effective July 1,
1994, in accordance with the purchase method of accounting.
On July 21, 1994, a subsidiary of the Company completed the purchase of
three U.S. flag tankers from OMI Corp. ("OMI") for $23,750,000. The single hull
tanker transports refined petroleum products primarily between the United States
Gulf Coast, Florida and the mid-Atlantic states. The three tankers were offered
in the spot market, however, during the majority of July, August and part of
September, the tankers were idle due to the extreme weakness in the tanker
market. Effective October, 1994, one tanker went under a six-months' charter and
effective November, 1994, one tanker was chartered for a one year period. Both
of the charters have extension options. Each of the tankers has a total capacity
of 266,000 barrels and a deadweight tonnage of 37,853. In compliance with the
OPA, the three tankers will be retired from service on January 1, 2000. Funding
for the transaction was provided through the Company's bank revolving credit
agreement. Operations of the three tankers acquired from OMI are included as
part of the Company's operations effective July 21, 1994, in accordance with the
purchase method of accounting.
On November 16, 1994, a subsidiary of the Company completed the purchase of
certain marine assets of The Dow Chemical Company ("Dow") for $24,031,000 in
cash. The purchased assets consisted of 65 inland tank barges, one river towboat
and two shifting boats. The Company also assumed from Dow the leases on an
additional 31 inland tank barges and two inland towboats. In addition, the
Company entered into a contract with Dow to provide for Dow's inland bulk liquid
marine transportation requirements for a period of ten years. Dow is a major
manufacturer of petrochemicals, industrial chemicals and related bulk liquid
products and historically has used its own barges and outside towing resources
to service its inland marine transportation requirements. Dow produces its
products at its Freeport, Texas manufacturing complex, other plants in Louisiana
and at various other United States locations. A number of the Dow plants, as
well as their suppliers and customers, rely extensively on water transportation
for moving products between Dow's manufacturing facilities, for shipment to the
ultimate users and to move certain raw materials purchased by Dow. The asset
purchase was funded by borrowings under the Company's and transportation
segment's bank revolving credit agreements. Operations of the assets acquired
from Dow are included as part of the Company's operations effective November 16,
1994, in accordance with the purchase method of accounting.
(3) INVESTMENTS
Debt and equity securities as of December 31, 1993 and 1994 qualify as
available-for-sale securities in accordance with SFAS 115. SFAS No. 115, adopted
effective December 31, 1993, established new criteria for the accounting and
reporting of investments in debt and equity securities that have readily
determinable fair value. The adoption of SFAS No. 115 increased the carrying
value of investment account securities by approximately $4,100,000 and
stockholders' equity by $3,075,000, net of applicable deferred income taxes.
SFAS No. 115 precludes restatement of prior year financial statements.
46
<PAGE> 48
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
A summary of the Company's investments as of December 31, 1993 is as
follows (in thousands):
<TABLE>
<CAPTION>
FAIR
VALUE AS
GROSS GROSS SHOWN IN THE
AMORTIZED UNREALIZED UNREALIZED BALANCE
TYPE OF INVESTMENT COST LOSSES GAINS SHEET
- ----------------------------------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Insurance:
Available-for-sale securities:
Bonds and notes:
United States Government and government
agencies and authorities................... $ 91,761 362 7,849 99,248
States, municipalities and political
subdivisions............................... 1,035 -- 27 1,062
All other..................................... 1,816 -- 49 1,865
--------- ----- ----- -------
94,612 362 7,925 102,175
Short-term investments.......................... 25,128 -- -- 25,128
--------- ----- ----- -------
$ 119,740 362 7,925 127,303
========= ===== ===== =======
</TABLE>
A summary of the Company's investments as of December 31, 1994 is as
follows (in thousands):
<TABLE>
<CAPTION>
FAIR
VALUE AS
GROSS GROSS SHOWN IN THE
AMORTIZED UNREALIZED UNREALIZED BALANCE
TYPE OF INVESTMENT COST LOSSES GAINS SHEET
- ----------------------------------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Marine Transportation, Diesel Repair and Other:
Available-for-sale securities -- short-term
investments..................................... $ 2,875 -- -- 2,875
--------- ----- ------ -------
Insurance:
Available-for-sale securities:
Bonds and notes:
United States Government and government
agencies and authorities................... 150,687 7,027 121 143,781
States, municipalities and political
subdivisions............................... 2,969 -- 29 2,998
All other..................................... 2,402 9 1 2,394
--------- ----- ----- -------
156,058 7,036 151 149,173
Short-term investments.......................... 21,227 -- -- 21,227
--------- ----- ----- -------
Total investments -- Insurance............. 177,285 7,036 151 170,400
--------- ----- ----- -------
$ 180,160 7,036 151 173,275
========= ===== ===== =======
</TABLE>
47
<PAGE> 49
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
A summary of the available-for-sale securities by maturities as of December
31, 1993 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994
----------------------------- -----------------------------
INVESTMENTS MATURING WITHIN AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
- --------------------------------------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
One year..................................... $ 3,295 3,320 -- --
One to five years............................ 36,807 39,489 100,037 96,745
Five to ten years............................ 16,451 17,712 17,011 16,509
Ten years and over........................... 38,059 41,654 39,010 35,919
-------- ------- ------- -------
$ 94,612 102,175 156,058 149,173
======== ======= ======= =======
</TABLE>
Short-term and all other investments primarily consist of United States
Treasury obligations and certificates of deposits. The Company does not invest
in high-yield securities judged to be below investment grade.
Investment income for the years ended December 31, 1992, 1993 and 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ----- -----
<S> <C> <C> <C>
Available-for-sale securities............................ $ -- 7,910 9,211
Trading account securities............................... 2,602 -- --
Investment account securities............................ 3,272 -- --
Short-term investments................................... 921 -- --
------ ----- -----
$6,795 7,910 9,211
====== ===== =====
</TABLE>
Realized net gains on investments for the year ended December 31, 1992,
1993 and 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ----- -----
<S> <C> <C> <C>
Available-for-sale securities............................ $ -- 1,164 1,222
Trading account securities............................... 437 -- --
Investment account securities............................ 1,041 -- --
------ ----- -----
$1,478 1,164 1,222
====== ===== =====
</TABLE>
Changes in unrealized net gains (losses) in value of investments for the
years ended December 31, 1992, 1993 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1992 1993 1994
----- ----- -------
<S> <C> <C> <C>
Available-for-sale securities............................. $ -- 5,948 (14,537)
Trading account securities................................ (775) -- --
----- ----- -------
(775) 5,948 (14,537)
Less deferred income taxes................................ (156) 1,487 (3,632)
----- ----- -------
(619) 4,461 (10,905)
Minority interest portion................................. -- 1,232 3,779
----- ----- -------
$(619) 3,229 (7,126)
===== ===== =======
</TABLE>
48
<PAGE> 50
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment and the related
allowance for depreciation at December 31, 1993 and 1994 (in thousands):
<TABLE>
<CAPTION>
1993 1994
-------- -------
<S> <C> <C>
Property and equipment:
Marine Transportation, Diesel Repair and Other:
Marine transportation equipment............................ $387,494 452,762
Land, buildings and equipment.............................. 19,181 28,850
-------- -------
406,675 481,612
Insurance:
Land, buildings and equipment.............................. 3,320 4,280
-------- -------
$409,995 485,892
======== =======
Allowance for depreciation:
Marine Transportation, Diesel Repair and Other:
Marine transportation equipment............................ $119,832 145,967
Land, buildings and equipment.............................. 5,627 7,705
-------- -------
125,459 153,672
Insurance:
Land, buildings and equipment.............................. 1,123 1,458
-------- -------
$126,582 155,130
======== =======
</TABLE>
(5) INSURANCE DISCLOSURE
The financial results of the Company's insurance subsidiaries, Universal, a
property and casualty insurance subsidiary located in Puerto Rico, and Mariner,
a wholly owned reinsurance subsidiary located in Bermuda, are consolidated as
the Company's property and casualty segment. The financial results of Oceanic,
the Company's captive insurance subsidiary engaged in the insuring of risks for
the marine transportation and diesel repair subsidiaries, are consolidated with
the Company's marine, diesel repair and other operations.
As of December 31, 1993 and 1994, the Company owned 70% and 58%,
respectively, of Universal's voting common stock and 100% of Universal's
non-voting common and preferred stocks (see Note 2). Condensed combined
statements of earnings of the insurance subsidiaries for the years ended
December 31, 1992, 1993 and 1994, which are reflected in the consolidated
financial statements, are as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ -------
<S> <C> <C> <C>
Revenues:
Premiums written............................................. $52,830 80,993 111,415
======= ====== =======
Reinsurance assumed.......................................... $ 327 27 108
======= ====== =======
Net premiums earned.......................................... $29,552 48,243 61,477
Investment income............................................ 6,454 7,741 8,706
Commissions earned on reinsurance............................ 5,108 4,632 4,335
Realized gain on investments................................. 1,478 1,164 1,222
Other........................................................ (72) (169) 84
------- ------ -------
42,520 61,611 75,824
------- ------ -------
</TABLE>
(Table continued on following page)
49
<PAGE> 51
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ -------
<S> <C> <C> <C>
</TABLE>
(5) INSURANCE DISCLOSURE -- (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Costs and expenses:
Losses, claims and settlement expenses....................... 26,289 37,496 44,634
Policy acquisition costs..................................... 8,649 11,085 13,538
General and administrative and other expenses................ 6,474 6,868 9,109
Minority interest expense.................................... -- 1,623 3,424
------- ------ -------
41,412 57,072 70,705
------- ------ -------
Earnings before taxes on income......................... 1,108 4,539 5,119
Benefit for taxes on income.................................... 1,034 391 --
------- ------ -------
Earnings before cumulative effect of accounting
change............................................... 2,142 4,930 5,119
Cumulative effect on prior years of accounting change
for income taxes............................................. (157) -- --
------- ------ -------
Net earnings............................................ $ 1,985 4,930 5,119
======= ====== =======
</TABLE>
Policy acquisition costs deferred and amortized against earnings during the
years ended December 31, 1992, 1993 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year.................................... $ 3,485 5,912 7,279
Amount deferred during year................................... 9,756 12,452 17,949
Amount acquired upon merger................................... 1,320 -- --
Amount amortized against earnings during year................. (8,649) (11,085) (13,538)
------- ------- -------
Balance, end of year.......................................... $ 5,912 7,279 11,690
======= ======= =======
</TABLE>
In 1993, Universal adopted SFAS No. 113, which specifies the accounting by
insurance enterprises for the reinsurance of insurance contracts and eliminates
the practice by insurance enterprises of reporting assets and liabilities
relating to reinsured contracts net of the effects of reinsurance. The adoption
of SFAS No. 113 increased the assets and liabilities by approximately
$15,510,000 as of December 31, 1992. The transfer of risk provisions of SFAS No.
113 did not affect the accounting for reinsurance contracts presently in place.
Mariner participated in the international reinsurance market by assuming
participation in risks originally undertaken by other underwriters. Effective
January 1, 1991, Mariner ceased accepting participations in the international
reinsurance market. During 1992, Mariner received certain delayed and certain
timely large loss advises, the receipt of which caused the Company to increase
Mariner's loss reserves by $2,500,000 to cover both known and unknown losses. In
March, 1994, based on information concerning the potential losses of Mariner,
the Company recorded an additional reserve of $2,000,000 for potential, but as
yet unreported losses.
The Company is currently pursuing strategies to withdraw from the runoff of
Mariner's reinsurance business at the earliest possible date. Such strategies
include the possible commutation of Mariner's open book of reinsurance business
in exchange for a portion of, or all of, Mariner's assets. As of December 31,
1994, the Company had net equity in Mariner of approximately $1,500,000.
50
<PAGE> 52
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INSURANCE DISCLOSURE -- (CONTINUED)
Net earnings and stockholders' equity of Universal as determined in
accordance with Puerto Rican statutory accounting practices and generally
accepted accounting principles for the years ended December 31, 1992, 1993 and
1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Statutory accounting practice:
Net earnings........................................ $ 4,809 7,099 7,465
Stockholders' equity................................ $46,943 47,011 56,520
Generally accepted accounting principles:
Net earnings........................................ $ 3,958 6,553 10,849
Stockholders' equity................................ $54,341 58,354 58,309
</TABLE>
A reconciliation of Universal's net earnings for the year ended December
31, 1994 as presented in their separate financial statements and the net
earnings from the Company's insurance subsidiaries as presented on page 50 is as
follows (in thousands):
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Universal's net earnings as presented above................................ $10,849
Change in the method of amortization of unearned premiums.................. (3,548)
Nonapplicable Puerto Rico deferred taxes................................... 3,242
Minority interest expense.................................................. (3,424)
Reserve for reinsurance commutation........................................ (2,000)
-------
Net earnings from insurance subsidiaries......................... $ 5,119
=======
</TABLE>
The net assets of Universal available for transfer to the Company are
limited to the amount that its stockholders' equity, as determined in accordance
with statutory accounting practices, exceeds minimum statutory capital
requirements.
(6) LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1994 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1993 1994
-------- -------
<S> <C> <C>
Long-term debt:
Revolving credit loans, due June 30, 1997..................... $ 44,100 94,000
Bank term loan, $667,000 due quarterly through December 31,
1996, remaining balance of $5,333,000 due March 6, 1997.... 13,333 10,666
Bank term loan, $571,000 due quarterly through March 31, 1997,
remaining balance of $5,144,000 due June 1, 1997........... 12,571 10,286
8.22% senior notes, $5,000,000 due annually through June 30,
2002....................................................... 45,000 40,000
7.18% nonrecourse debt, $505,000 due semiannually through
February 1, 1999........................................... 5,555 4,545
-------- -------
$120,559 159,497
======== =======
</TABLE>
51
<PAGE> 53
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT -- (CONTINUED)
The aggregate payments due on the long-term debt in each of the next five
years are as follows (in thousands):
<TABLE>
<S> <C>
1995...................................................... $ 10,962
1996...................................................... 10,962
1997...................................................... 111,058
1998...................................................... 6,010
1999...................................................... 5,505
</TABLE>
In December, 1994, the Company established a $250,000,000 medium term note
program providing for the issuance of fixed rate or floating rate notes with the
maturities of nine months or longer. The shelf registration program, registered
with the Securities and Exchange Commission, was activated in March, 1995 with
the issuance of $34,000,000 of the authorized notes. The issued medium term
notes bear interest at an average fixed rate of 7.77% with a maturity of March
10, 1997. Proceeds from sale of the notes were used to retire the Company's
outstanding bank term loan in the amount of $10,286,000 due June 1, 1997 and to
reduce the Company's outstanding revolving credit loans by $23,714,000. The
remaining $216,000,000 available under the medium term note program will provide
financing for future business and equipment acquisitions and working capital
requirements. The Company's outstanding bank term loan in the amount of
$10,666,000, due March 6, 1997, is anticipated to be retired on March 20, 1995
with proceeds borrowed under the Company's revolving credit agreements.
On May 4, 1993, the Company called for redemption on June 4, 1993, the
entire $50,000,000 aggregate principal amount of its 7 1/4% Convertible
Subordinated Debentures due 2014 ("Debentures") issued in October, 1989 at the
redemption price of 105.075% of the principal amount of the Debentures, plus
accrued interest on the principal of the Debentures from April 1, 1993 to the
date fixed for redemption. Prior to, or on May 27, 1993, the fifth business day
prior to the date set for redemption, under the terms of the October, 1989
offering, the holders of the entire $50,000,000 of Debentures elected to convert
such Debentures into common stock of the Company at a conversion price of
$11.125 per share. The conversion of the Debentures increased the issued and
outstanding common stock of the Company by 4,494,382 shares. The carrying amount
and unamortized premium on the Debentures were accounted for as a decrease in
stockholders' equity.
On April 23, 1993, the Company and the Company's principal marine
transportation subsidiary, entered into two separate revolving credit agreements
(the "Credit Agreements") with Texas Commerce Bank National Association ("TCB"),
as agent bank, providing for aggregate borrowings of up to $30,000,000 and
$50,000,000, respectively, maturing on June 30, 1996. On August 12, 1993, the
Company amended its Credit Agreement with TCB and increased the Company's
provision for aggregate borrowings from $30,000,000 to $50,000,000. On May 26,
1994, the Credit Agreements were extended to mature on June 30, 1997. The Credit
Agreements are unsecured; however, the Company's Credit Agreement contains a
negative pledge with respect to the capital stock of certain subsidiaries of the
Company and the marine transportation subsidiary's Credit Agreement contains a
negative pledge with respect to certain scheduled assets. In addition, the
Credit Agreements provide for the grant to TCB of a first priority lien on the
capital stock or assets, as applicable, subject to the negative pledge,
generally in the event of the occurrence and continuation of a default. Interest
on the Credit Agreements, subject to an applicable margin ratio and type of
loan, is floating prime rate or, at the Company's and the marine transportation
subsidiary's option, rates based on an Eurodollar interbank rate or certificate
of deposit rate. Proceeds under the Credit Agreements may be used for general
corporate purposes, the purchase of existing or new equipment or for possible
business acquisitions. The Credit Agreements contain covenants that require the
maintenance of certain financial ratios and certain other covenants that are
substantially similar to the covenants contained in the marine transportation
subsidiary's prior $60,000,000 revolving credit agreement, which was terminated
in connection with the new Credit
52
<PAGE> 54
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT -- (CONTINUED)
Agreements. These covenants cover, among other things, the disposal of capital
stock of subsidiaries and assets outside the ordinary course of business. The
Credit Agreements also contain usual and customary events of default. The
Company and the marine transportation subsidiary were in compliance with the
matters as of December 31, 1994. At December 31, 1994, the marine transportation
subsidiary had $6,000,000 available for takedown under the Credit Agreements.
On March 6, 1992, the Company entered into a $18,000,000 credit agreement
with TCB which matures on March 6, 1997. The purchase of Sabine, on March 13,
1992, was financed with the $18,000,000 credit agreement, existing cash
balances, and borrowings under the marine transportation subsidiary's credit
agreement. The $18,000,000 credit agreement has a negative pledge of the assets
acquired from Sabine. Principal payments of $667,000 are due quarterly up
through December 31, 1996. Interest on the credit agreement, subject to an
applicable margin ratio and type of loan, is floating prime rate, or at the
Company's option, rates based on a Eurodollar interbank rate or certificate of
deposit rates. The remaining principal balance of $5,333,000 is fully due and
payable on March 6, 1997, together with any unpaid interest accrued thereon. At
December 31, 1994, $10,666,000 was outstanding under the loan agreement and the
weighted average interest rate was 7.13%. The credit agreement is anticipated to
be retired by March 20, 1995.
On May 28, 1992, the Company entered into a $16,000,000 credit agreement
with TCB which matures on June 1, 1997. The purchase of Scott Chotin, on June 1,
1992, was financed with the $16,000,000 credit agreement, existing cash
balances, and borrowings under a $20,000,000 acquisition credit facility with
TCB. The credit agreement has a negative pledge of the assets acquired from
Scott Chotin. Principal payments of $571,000 are due quarterly up through March
31, 1997. Interest on the credit agreement, subject to an applicable margin
ratio and type of loan, is floating prime rate, or at the Company's option,
rates based on an Eurodollar interbank rate or certificate of deposit rates. The
remaining principal balance of $5,143,000 is fully due and payable on June 1,
1997, together with any unpaid interest accrued thereon. At December 31, 1994,
$10,286,000 was outstanding under the loan agreement and the weighted average
interest rate was 7.07%. On March 10, 1995, the credit agreement was retired.
On August 13, 1992, the Company's transportation segment sold $50,000,000
of 8.22% senior notes due June 30, 2002, in a private placement. Proceeds from
these notes were used to retire a $20,000,000 acquisition credit facility with
TCB and the retirement of two $5,000,000, 10% subordinated promissory notes
originally issued as part of the purchase of the assets of a marine
transportation company on May 23, 1989, with the balance of the proceeds used to
reduce the amount outstanding under the marine transportation subsidiary's
credit agreement with TCB. Principal payments of $5,000,000, plus interest, are
due annually through June 30, 2002. At December 31, 1994, $40,000,000 was
outstanding under the senior notes.
The Company is of the opinion that the terms of the outstanding debt
represent the fair value of such debt as of December 31, 1994.
53
<PAGE> 55
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME
Earnings before taxes on income and details of the provision (benefit) for
taxes on income for United States and Puerto Rico operations for the years ended
December 31, 1992, 1993 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Earnings before taxes on income:
United States................................................. $14,635 30,785 19,726
Foreign....................................................... 4,094 4,539 7,119
------- ------ ------
$18,729 35,324 26,845
======= ====== ======
Provision for taxes on income
United States:
Current.................................................... $ 3,236 6,216 3,558
Deferred................................................... 1,915 4,387 4,297
State and local............................................ -- 533 587
------- ------ ------
5,151 11,136 8,442
------- ------ ------
Puerto Rico:
Current.................................................... -- 1,754 1,750
Deferred................................................... (20) (395) --
------- ------ ------
(20) 1,359 1,750
------- ------ ------
$ 5,131 12,495 10,192
======= ====== ======
</TABLE>
Taxes on income are accounted for under the asset and liability method
required by SFAS No. 109. The cumulative effect on prior years of the adoption
of SFAS No. 109 decreased net earnings by $10,659,000, or $.47 per share, and is
reported separately in the statement of earnings for the year ended December 31,
1992. In addition to the impact of the cumulative effect on prior years, the
effect of the adoption of SFAS No. 109 decreased the net earnings for the 1992
year by $916,000, or $.04 per share.
Under SFAS No. 109, a change in tax rates is required to be recognized in
income in the period that includes the enactment date. The 1993 Revenue
Reconciliation Act included an increase in the corporate federal income tax rate
from 34% to 35%, thereby requiring an increase in the Company's tax expense for
the 1993 year of $1,131,000. Of the total tax adjustment, $779,000 applied to a
one-time, non-cash, federal deferred tax charge for prior years and $352,000
reflects the 1% tax rate increase on earnings for the 1993 year.
The Company's provision for taxes on income varied from the statutory
federal income tax rate for the years ended December 31, 1992, 1993 and 1994 due
to the following:
<TABLE>
<CAPTION>
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
United States income tax statutory rate................... 34.0% 35.0% 35.0%
Puerto Rico taxes......................................... 0.1 3.8 6.5
State and local taxes..................................... -- 1.7 2.2
Utilization of investment tax credits..................... (5.8) -- --
Foreign tax credits....................................... -- (5.0) (6.5)
Other..................................................... (0.9) (0.1) 0.8
----- ----- -----
27.4% 35.4% 38.0%
===== ===== =====
</TABLE>
54
<PAGE> 56
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME -- (CONTINUED)
The significant components of deferred United States taxes on income
attributable to earnings from operations for the years ended December 31, 1992,
1993 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Tax depreciation over financial depreciation.......... $ 2,677 5,616 4,917
Tax leases............................................ 541 -- --
Financial gain on disposals different from tax........ (887) (41) 92
Utilization of tax net operating loss carryforwards... 1,265 (1,044) --
Utilization of tax credits............................ 1,076 1,841 (694)
Alternative minimum taxes............................. (2,897) (200) (4,118)
Self-insurance accruals............................... -- (1,221) 1,848
Marine insurance claims reserves...................... -- -- (447)
Scheduled vessel maintenance costs.................... -- -- 2,800
Other................................................. 140 (564) (101)
------- ------ ------
$ 1,915 4,387 4,297
======= ====== ======
</TABLE>
Deferred Puerto Rico income taxes arise from the recognition of certain
income and expense items in different periods for income tax and for financial
reporting purposes. Such items consist principally of deferred acquisition
costs, salvage and subrogation recoveries, provision for doubtful accounts and
accrual for guarantee fund assessments.
The tax effects of temporary differences that give rise to significant
portions of the current deferred tax assets and non-current deferred tax
liabilities at December 31, 1992, 1993, and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
<S> <C> <C> <C>
Current deferred tax assets:
Compensated absences, principally due to accrual
for financial reporting purposes................ $ 440 410 721
Self-insurance accruals............................ -- 1,983 135
Allowance for doubtful account reserves............ 59 125 580
Other.............................................. 6 250 (112)
-------- ------- -------
$ 505 2,768 1,324
======== ======= =======
Non-current deferred tax liabilities:
Deferred tax assets:
Tax credit carryforwards........................ $ 2,206 365 1,059
Alternative minimum tax credit carryforwards.... 7,197 7,397 11,515
Postretirement health care benefits............. 1,410 1,590 1,659
Dual consolidated net operating loss............ -- 1,044 1,044
Marine insurance claims reserves................ -- -- 447
Other........................................... 482 767 438
-------- ------- -------
11,295 11,163 16,162
Less valuation allowance...................... 488 -- --
-------- ------- -------
10,807 11,163 16,162
-------- ------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation and bases........... (22,571) (35,577) (40,587)
Undistributed earnings from foreign subsidiaries... (15,241) (15,321) (15,362)
Scheduled vessel maintenance costs................. -- -- (2,800)
-------- ------- -------
(37,812) (50,898) (58,749)
-------- ------- -------
$(27,005) (39,735) (42,587)
======== ======= =======
</TABLE>
55
<PAGE> 57
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME -- (CONTINUED)
As of December 31, 1994, there was no valuation allowance.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1992 were allocated as follows (in
thousands):
<TABLE>
<CAPTION>
1992
----
<S> <C>
Income tax benefits that would be reported in the statement of
earnings............................................................ $441
Other................................................................. 47
----
$488
====
</TABLE>
At December 31, 1994, the Company has alternative minimum tax credit
carryforwards of approximately $11,515,000 which are available to reduce future
federal regular income taxes, if any, over an indefinite period.
(8) LEASES
The Company and its subsidiaries currently lease various facilities and
equipment under a number of cancelable and noncancelable operating leases. Total
rental expense for the years ended December 31, 1992, 1993 and 1994 follows (in
thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ----- -----
<S> <C> <C> <C>
Rental expense........................................... $3,014 3,519 1,893
Sublease rental.......................................... 93 90 10
------ ----- -----
Net rental expense.................................. $2,921 3,429 1,883
====== ===== =====
</TABLE>
Rental commitments under noncancelable leases are as follows (in
thousands):
<TABLE>
<CAPTION>
LAND BUILDINGS AND EQUIPMENT
----------------------------
<S> <C>
1995................................................. $2,914
1996................................................. 1,898
1997................................................. 1,583
1998................................................. 1,042
1999................................................. 863
Thereafter........................................... 207
------
$8,507
======
</TABLE>
(9) STOCK OPTION PLANS
The Company has four employee stock option plans, which were adopted in
1976, 1982, 1989 and 1994 for selected officers and other key employees. The
1976 Employee Plan, as amended, provided for the issuance until 1986 of
incentive and non-qualified stock options to purchase up to 1,000,000 shares of
common stock. The 1982 Employee Plan provided for the issuance until 1992 of
incentive and non-qualified stock options to purchase up to 600,000 shares of
common stock. The 1989 Employee Plan provides for the issuance of incentive and
nonincentive stock options to purchase up to 600,000 shares of common stock. The
1994 Employee Plan provides for the issuance of incentive and non-qualified
stock options to purchase up to 1,000,000 shares of common stock. The 1976, 1982
and 1989 stock option plans authorize the granting of limited stock appreciation
rights.
56
<PAGE> 58
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK OPTION PLANS -- (CONTINUED)
Changes in options outstanding under the employee plans described above for
the 1992, 1993 and 1994 years are summarized as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED OR
NONINCENTIVE
INCENTIVE STOCK OPTIONS STOCK OPTIONS
--------------------------- --------------------------- OPTION PRICE
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE RANGE PER SHARE
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Outstanding December 31,
1991...................... 38,181 38,181 538,594 321,094 $ 2.88 - $14.95
Granted................... -- 151,000 -- $12.94 - $13.88
Became exercisable........ -- -- 106,500 $ 3.69 - $ 8.19
Exercised................. -- -- (33,404) (33,404) $ 2.88 - $ 9.29
Canceled or expired....... -- -- (17,821) (4,071) $ 6.56 - $14.95
------- ------- ------- -------
Outstanding December 31,
1992...................... 38,181 38,181 638,369 390,119 $ 2.88 - $13.88
Granted................... -- -- 368,000 -- $12.84 - $18.19
Became exercisable........ -- -- -- 106,500 $ 5.68 - $13.88
Exercised................. (10,000) (10,000) (47,750) (47,750) $ 2.89 - $13.88
Canceled or expired....... -- -- (14,750) (2,000) $ 8.19 - $12.94
------- ------- ------- -------
Outstanding December 31,
1993...................... 28,181 28,181 943,869 446,869 $ 2.88 - $18.19
Granted................... -- -- 65,000 -- $21.38
Became exercisable........ -- -- -- 159,750 $ 6.56 - $18.19
Exercised................. (28,181) (28,181) (56,319) (56,319) $ 5.50 - $13.88
Canceled or expired....... -- -- (3,750) (750) $ 6.56 - $13.88
------- ------- ------- -------
Outstanding December 31,
1994...................... -- -- 948,800 549,550 $ 2.88 - $21.38
======= ======= ======= =======
</TABLE>
At December 31, 1994, 1,027,964 shares were available for future grants
under the employee plans and 396,264 shares of the outstanding stock options
under the employee plans were issued with limited stock appreciation rights.
The Company has two director stock option plans, which were adopted in 1989
and 1994 for nonemployee Directors of the Company. The 1989 Director Plan
provides for the issuance of nonincentive options to purchase up to 150,000
shares of common stock. The 1994 Director Plan provides for the issuance of
non-qualified options to Directors of the Company, including Advisory Directors,
to purchase up to 100,000 shares of common stock. The director plans are
intended as an incentive to attract and retain qualified, independent directors.
57
<PAGE> 59
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK OPTION PLANS -- (CONTINUED)
Changes in options outstanding under the director plans described above for
the 1992, 1993 and 1994 years are summarized as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED OR
NONINCENTIVE
STOCK OPTIONS
-------------------------- OPTION PRICE
OUTSTANDING EXERCISABLE RANGE PER SHARE
----------- ------------ ----------------
<S> <C> <C> <C>
Outstanding December 31, 1991 and 1992...... 60,000 60,000 $ 7.56
Granted................................... 10,000 10,000 $18.63
------- -------
Outstanding December 31, 1993............... 70,000 70,000
Granted................................... 22,500 -- $21.06 - $21.38
Became exercisable........................ -- 22,500 $21.06 - $21.38
Exercised................................. (10,000) (10,000) $7.56
------- -------
Outstanding December 31, 1994............... 82,500 82,500 $7.56 - $21.38
======= =======
</TABLE>
The Company has a 1993 nonqualified stock option for 25,000 shares granted
to Robert G. Stone, Jr. at an exercise price of $18.625. The stock option was
approved by the Company's stockholders in 1994. Currently, 10,000 shares of the
stock option are exercisable. The grant serves as an incentive to retain the
optionee as Chairman of the Board of the Company or as a member of the Board of
Directors of the Company.
(10) RETIREMENT PLANS
The transportation subsidiaries sponsor defined benefit plans for certain
ocean-going personnel. The plan benefits are based on an employee's years of
service. The plans' assets primarily consist of fixed income securities and
corporate stocks. Funding of the plans is based on actuarial computations that
are designed to satisfy minimum funding requirements of applicable regulations
and to achieve adequate funding of projected benefit obligations.
Net periodic pension cost of the defined benefit plans as determined by
using the projected unit credit actuarial method was $908,000, $1,080,000 and
$1,803,000 in 1992, 1993 and 1994, respectively. The components of net periodic
pension cost are as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
----- ------ ------
<S> <C> <C> <C>
Service cost -- benefits earned during the year........... $ 707 794 1,418
Interest cost............................................. 528 638 818
Actual return on plan assets.............................. (179) (343) (84)
Net amortization and deferrals............................ (39) 29 (312)
Less partnerships' allocation............................. (39) (38) (37)
Less amount allocated to prior employer................... (70) -- --
----- ----- -----
Net periodic pension cost................................. $ 908 1,080 1,803
===== ===== =====
</TABLE>
58
<PAGE> 60
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS -- (CONTINUED)
The funding status of the plans as of December 31, 1993 and 1994 was as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1994
------- ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested....................................................... $ 7,529 8,725
Non-vested................................................... 787 813
------- ------
Accumulated benefit obligation.................................... 8,316 9,538
Impact of future salary increases................................. 1,047 1,260
------- ------
Projected benefit obligation...................................... 9,363 10,798
Plan assets at fair value......................................... 6,172 9,758
Plan assets in excess of (less than) projected benefit
obligation...................................................... (3,191) (1,040)
Unrecognized transition obligation................................ 142 125
Unrecognized prior service cost................................... 1,407 1,569
Unrecognized net loss............................................. 1,630 1,251
Additional minimum liability...................................... (2,132) --
------- ------
Prepaid (accrued) pension cost.................................... $(2,144) 1,905
======= ======
Actuarial assumptions:
Discount rate................................................... 7.25% 8.00%
Return on assets................................................ 9.25% 9.25%
Salary increase rate............................................ 4% 4%
</TABLE>
The Company, transportation subsidiaries and the diesel repair subsidiary
sponsor defined contribution plans for all shore-based employees and certain
ocean-going personnel. Maximum contributions to these plans equal the lesser of
15% of the aggregate compensation paid to all participating employees, or up to
20% of each subsidiary's earnings before federal income tax after certain
adjustments for each fiscal year. The aggregate contributions to the plans were
approximately $2,124,000, $1,484,000 and $3,756,000 in 1992, 1993 and 1994,
respectively.
The insurance subsidiary sponsors a qualified, non-contributory
profit-sharing plan which provides retirement benefits to eligible employees.
Voluntary contributions to the plan equal no less than 1% of the annual
participant's compensation, as defined, plus a portion of the administration
expenses of the plan during the first 10 years. The insurance subsidiary's
contributions to the plan were approximately $231,000, $269,000 and $263,000 in
1992, 1993 and 1994, respectively.
In addition to the Company's defined benefit pension plans, the Company
sponsors an unfunded defined benefit health care plan that provides limited
postretirement medical benefits to employees, who meet minimum age and service
requirements, and eligible dependents. The plan is contributory, with retiree
contributions adjusted annually.
The Company adopted SFAS No. 106 effective January 1, 1992. The cumulative
effect on prior years of the adoption of SFAS No. 106 decreased net earnings by
$2,258,000, net of applicable income taxes of $1,163,000, or $.10 per share, and
is reported separately in the statement of earnings for the year ended December
31, 1992. In addition to the impact of the cumulative effect on prior years, the
effect of the adoption of SFAS No. 106 decreased the net earnings for the 1992
year by $355,000, net of applicable income taxes of $183,000 or $.02 per share.
59
<PAGE> 61
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS -- (CONTINUED)
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheet at December 31,
1994 (in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................. $1,484
Fully eligible active plan participants................................... 757
Other active plan participants............................................ 2,448
Partnership's allocation.................................................. (128)
Unrecognized gains........................................................ 196
------
Accrued postretirement benefit cost included in other long-term
liabilities............................................................ $4,757
======
Net periodic postretirement benefit cost for 1994 includes the following
components:
Service cost.............................................................. $ 354
Interest cost............................................................. 377
Less partnerships' allocation............................................. (22)
------
Net periodic postretirement benefit cost.................................. $ 709
======
</TABLE>
The Company's unfunded defined benefit health care plan, which provides
limited postretirement medical benefits, limits cost increases in the Company's
contribution to 4% per year. For measurement purposes, a 4% annual rate of
increase in the per capita cost of covered benefits (i.e., health care cost
trend rate) was assumed for future periods. Accordingly, a 1% increase in the
health care cost trend rate assumption would have no effect on the amounts
reported.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% at December 31, 1994.
(11) EARNINGS PER SHARE OF COMMON STOCK
Primary earnings per share of common stock for the years ended December 31,
1992, 1993 and 1994 were based on the weighted average number of common stock
and common stock equivalent shares outstanding of 22,607,000, 26,527,000 and
28,790,000, respectively.
60
<PAGE> 62
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) QUARTERLY RESULTS (UNAUDITED)
The unaudited quarterly results for the year ended December 31, 1993 are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... $ 74,383 94,347 97,939 111,735
Costs and expenses........................... 65,804 82,767 86,511 99,582
-------- ------- ------- -------
Operating income........................... 8,579 11,580 11,428 12,153
Interest expense............................. 2,740 2,011 1,871 1,794
-------- ------- ------- -------
Earnings before taxes on income............ 5,839 9,569 9,557 10,359
Provision for taxes on income................ 1,994 3,070 4,511 2,920
------- -------- ------- -------
Net earnings............................ $ 3,845 6,499 5,046 7,439
======= ======= ======= =======
Earnings per share of common stock........... $ .17 .26 .18 .26
======= ======= ======= =======
</TABLE>
The unaudited quarterly results for the year ended December 31, 1994 are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... $101,830 104,741 108,097 118,468
Costs and expenses........................... 95,139 97,890 100,171 104,257
-------- ------- ------- -------
Operating income........................... 6,691 6,851 7,926 14,211
Interest expense............................. 1,809 1,957 2,355 2,714
-------- ------- ------- ------
Earnings before taxes on income............ 4,882 4,894 5,571 11,497
Provision for taxes on income................ 1,985 1,701 1,965 4,540
-------- ------- ------- -------
Net earnings............................ $ 2,897 3,193 3,606 6,957
======== ======= ======= =======
Earnings per share of common stock........... $ .10 .11 .13 .24
======== ======= ======= =======
</TABLE>
(13) CONTINGENCIES AND COMMITMENTS
In May, 1994, the Company entered into a contract for the construction of
12 double skin 29,000 barrel capacity inland tank barges for use in the movement
of industrial chemicals and refined products. In February, 1995, the Company
exercised an option under the contract for the construction of 12 additional
barges. The first barge was placed in service in January, 1995 and the second in
February, 1995, with the remaining 22 barges due one each month thereafter.
The Company's Puerto Rican insurance subsidiary has appealed to the Supreme
Court of Puerto Rico a July 5, 1989 Superior Court judgment of approximately
$1,100,000, plus interest of approximately $1,914,000 as of December 31, 1994,
resulting from a civil suit claiming damages. The Supreme Court of Puerto Rico
decided during 1992 to review the case. Management is of the opinion, based on
consultation with its legal counsel, that the judgment will be reversed or at
least substantially reduced, however, reserves have been established for the
entire amount of the judgment plus accrued interest.
61
<PAGE> 63
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
There are various other suits and claims against the Company, none of which
in the opinion of management will have a material effect on the Company.
Management has recorded necessary reserves and believes that it has
adequate insurance coverage or has meritorious defenses for the foregoing claims
and contingencies.
(14) INDUSTRY SEGMENT DATA
The Company conducts operations in three industry segments as follows:
Marine Transportation -- Marine transportation by U.S. flag vessels on
the inland waterway system and in United States coastwise and foreign
trade. The principal products transported include petrochemical feedstocks,
processed chemicals, agricultural chemicals, refined petroleum products,
coal, limestone, grain and sugar. Container and palletized cargo are also
transported for United States Government aid programs and military.
Diesel Repair -- Repair of diesel engines, reduction gear repair and
sale of related parts and accessories, primarily for customers in the
marine industry and the shortline and industrial railroad industry.
Insurance -- Writing of property and casualty insurance in Puerto
Rico.
62
<PAGE> 64
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) INDUSTRY SEGMENT DATA -- (CONTINUED)
The following table sets forth by industry segment the combined revenues,
operating profits (before general corporate expenses, interest expense and
income taxes), identifiable assets (including goodwill), depreciation and
amortization and capital expenditures attributable to the continuing principle
activities of the Company for the years ended December 31, 1992, 1993 and 1994
(in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
Transportation................................... $190,214 283,747 311,076
Diesel repair.................................... 35,753 31,952 45,269
Insurance........................................ 34,661 52,875 65,812
Other............................................ 8,788 9,823 10,593
-------- ------- -------
269,416 378,397 432,750
General corporate revenues....................... 87 7 387
-------- ------- -------
Consolidated revenues......................... $269,503 378,404 433,137
======== ======= =======
Operating profits:
Transportation................................... $ 28,034 42,208 31,397
Diesel repair.................................... 2,561 1,904 3,163
Insurance........................................ 1,108 4,539 5,119
-------- ------- -------
31,703 48,651 39,679
General corporate expenses, net.................. (3,563) (4,911) (3,999)
Interest expense................................. (9,411) (8,416) (8,835)
-------- ------- -------
Earnings before taxes on income............... $ 18,729 35,324 26,845
======== ======= =======
Identifiable assets:
Transportation................................... $275,616 344,488 397,112
Diesel repair.................................... 18,897 20,259 21,304
Insurance........................................ 145,246 184,868 216,666
-------- ------- -------
439,759 549,615 635,082
Investment in unconsolidated affiliate........... 146 177 181
General corporate assets......................... 6,515 13,461 32,209
-------- ------- -------
Consolidated assets........................... $446,420 563,253 667,472
======== ======= =======
Depreciation and amortization:
Transportation................................... $ 20,332 26,331 31,138
Diesel repair.................................... 565 658 674
Insurance........................................ 277 395 491
-------- ------- -------
$ 21,174 27,384 32,303
======== ======= =======
Capital expenditures and business acquisitions:
Transportation................................... $123,700 71,236 71,714
Diesel repair.................................... 944 1,229 512
Insurance........................................ 630 1,086 1,251
-------- ------- -------
$125,274 73,551 73,477
======== ======= =======
</TABLE>
Identifiable assets are those assets that are used in the operation of each
segment. General corporate assets are principally cash, short-term investments,
accounts receivable, furniture and equipment.
63
<PAGE> 65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Included in Part III of this report:
Report of KPMG Peat Marwick LLP, Independent Public Accountants, on the
financial statements of Kirby Corporation and Consolidated
Subsidiaries for the years ended December 31, 1992, 1993 and 1994.
Balance Sheets, December 31, 1993 and 1994.
Statements of Earnings, for the years ended December 31, 1992, 1993
and 1994.
Statements of Stockholders' Equity, for the years ended December 31,
1992, 1993 and 1994.
Statements of Cash Flows, for the years ended December 31, 1992, 1993
and 1994.
Notes to Financial Statements, for the years ended December 31, 1992,
1993 and 1994.
(a) 2. Financial Statement Schedules:
Included in Part IV of this report:
V -- Supplemental Insurance Information, for the years ended December
31, 1992, 1993 and 1994.
VI -- Reinsurance, for the years ended December 31, 1992, 1993 and
1994.
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
(a) 3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Restated Articles of Incorporation of Kirby Exploration Company, Inc. (the
"Company"), as amended (incorporated by reference to Exhibit 3.1 of the
Registrant's 1989 Registration Statement on Form S-3 (Reg. No. 33-30832)).
3.2 -- Certificate of Amendment of Restated Articles of Incorporation of the Company
filed with the Secretary of State of Nevada April 30, 1990 (incorporated by
reference to Exhibit 3.2 of the Registrant's Annual report on Form 10-K for
the year ended December 31, 1990).
3.3 -- Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 of
the Registrant's 1989 Registration Statement on Form S-3 (Reg. No. 33-30832)).
3.4 -- Amendment to Bylaws of the Company effective April 24, 1990 (incorporated by
reference to exhibit 3.4 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990).
4.1 -- Indenture, dated as of December 2, 1994, between the Company and Texas
Commerce Bank National Association, Trustee, (incorporated by reference to
Exhibit 4.3 of the Registrant's 1994 Registration Statement on Form S-3 (Reg.
No. 33-56195)).
10.1+ -- 1976 Stock Option Plan of Kirby Exploration Company, as amended, and forms of
option agreements provided for thereunder and related documents (incorporated
by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1981).
10.2+ -- 1982 Stock Option Plan for Kirby Exploration Company, and forms of option
agreements provided for thereunder and related documents (incorporated by
reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1982).
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------
<S> <C> <C>
10.3+ -- Amendment to 1982 Stock Option Plan for Kirby Exploration Company
(incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1986).
10.4 -- Indemnification Agreement, dated April 29, 1986, between the Company and each
of its Directors and certain key employees (incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
10.5+ -- 1989 Employee Stock Option Plan for the Company, as amended (incorporated by
reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989).
10.6+ -- 1989 Director Stock Option Plan for the Company, as amended (incorporated by
reference to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989).
10.7 -- Loan Agreement, dated as of July 31, 1990, by and between Dixie Carriers Inc.
and Texas Commerce Bank National Association (incorporated by reference to
Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.8 -- Loan Agreement between Dixie Fuels Limited and NCNB Leasing Corporation, dated
as of February 4, 1992 (incorporated by reference to Exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991).
10.9 -- Agreement of Purchase and Sale, dated January 24, 1992, by and among Sabine
Transportation Company, Kirby Corporation, Sabine Towing & Transportation Co.,
Inc. and Sequa Corporation, as amended (incorporated by reference to Exhibit
10.11 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.10 -- Credit Agreement, dated as of March 6, 1992, among Sabine Transportation
Company, Kirby Corporation, Texas Commerce Bank National Association and The
First National Bank of Boston (incorporated by reference to Exhibit 10.12 of
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1991).
10.11 -- Agreement of Purchase and Sale, dated March 12, 1992, by and between Ole Man
River Towing, Inc. and related entities, OMR Transportation Company and Dixie
Carriers, Inc. (incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K dated as of April 10, 1992).
10.12 -- Credit Agreement, dated as of March 18, 1992, among Dixie Carrier, Inc., Kirby
Corporation and Texas Commerce Bank National Association (incorporated by
reference to Exhibit 10.13 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.13 -- Agreement and Plan of Merger, dated April 15, 1992, among Kirby Corporation,
Chotin Carriers, Inc., Scott Chotin, Inc. and Certain Shareholders of Scott
Chotin, Inc. (incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K dated as of June 11, 1992).
10.14 -- Credit Agreement, dated as of May 28, 1992, among Chotin Carriers, Inc., Kirby
Corporation, Texas Commerce Bank National Association and The First National
Bank of Boston (incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8K dated as of June 11, 1992).
10.15 -- Note Purchase Agreement, dated as of August 12, 1992, among Dixie Carriers,
Inc., The Variable Annuity Life Insurance Company, Provident Mutual Life and
Annuity Company of America, among other (incorporated by reference to Exhibit
10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992).
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------
<S> <C> <C>
10.16 -- Asset Sale and Purchase Agreement, dated January 22, 1993, by and among
Ashland Oil, Inc., TPT Transportation Company and Dixie Carriers, Inc.
(incorporated by reference to Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.17 -- Deferred Compensation Agreement dated August 12, 1985 between Dixie Carriers,
Inc., and J.H. Pyne (incorporated by reference to Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
10.18 -- Agreement and Plan of Merger, dated April 1, 1993, among Kirby Corporation,
AFRAM Carriers, Inc. and AFRAM Lines (USA) Co., Ltd. and the shareholders of
AFRAM Lines (USA) Co., Ltd. (incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated May 3, 1993).
10.19 -- Credit Agreement, dated April 23, 1993, among Kirby Corporation, the Banks
named therein, and Texas Commerce Bank National Association as Agent and Fund
Administrator (incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.20 -- Credit Agreement, dated April 23, 1993, among Dixie Carriers, Inc., the Banks
named therein, and Texas Commerce Bank National Association, as Agent and Fund
Administrator (incorporated by reference to Exhibit 10.02 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.21+ -- 1994 Employee Stock Option Plan for Kirby Corporation (incorporated by
reference to Exhibit 10.21 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.22+ -- 1994 Nonemployee Director Stock Option Plan for Kirby Corporation
(incorporated by reference to Exhibit 10.22 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.23+ -- 1993 Stock Option Plan of Kirby Corporation for Robert G. Stone, Jr.
(incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.24+ -- Amendment to 1989 Director Stock Option Plan for Kirby Exploration Company,
Inc. (incorporated by reference to Exhibit 10-K for the year ended December
31, 1993).
10.25* -- Purchase Agreement, dated November 16, 1994, by and between The Dow Chemical
Company and Dow Hydrocarbons and Resources, Inc. and Dixie Marine, Inc.
10.26 -- Distribution Agreement, dated December 2, 1994, by and among Kirby Corporation
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc.
and Wertheim Schroder & Co. Incorporated (incorporated by reference to Exhibit
1.1 of the Registrant's Current Report on Form 8-K dated December 9, 1994).
21.1* -- Principal Subsidiaries of the Registrant.
23.1* -- Consent of KPMG Peat Marwick LLP.
27.1* -- Financial Data Schedule.
28.1* -- Independent Auditors' Report of Deloitte & Touche LLP.
</TABLE>
- ---------------
* Filed herewith
+ Management contract, compensatory plan or arrangement.
66
<PAGE> 68
SCHEDULE V
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
FUTURE
POLICY
DEFERRED BENEFITS,
POLICY LOSSES, OTHER POLICY NET
ACQUISITION CLAIMS AND UNEARNED CLAIMS AND PREMIUM INVESTMENT
SEGMENT COSTS LOSS EXPENSE PREMIUMS BENEFITS REVENUES INCOME(1)
- --------------------------------------------- ----------- ------------ -------- ------------ ------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Insurance:
December 31, 1992.......................... $ 5,912 $ 35,588 $42,209 $ -- $29,552 $6,454
======= ======== ======= ========= ======= ======
December 31, 1993.......................... $ 7,279 $ 49,930 $61,558 $ -- $48,243 $7,741
======= ======== ======= ========= ======= ======
December 31, 1994.......................... $11,690 $ 56,433 $89,801 $ -- $61,477 $8,706
======= ======== ======= ========= ======= ======
</TABLE>
<TABLE>
<CAPTION>
BENEFITS, AMORTIZATION
CLAIMS, OF DEFERRED
LOSSES AND POLICY OTHER
SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES COSTS EXPENSES(2) WRITTEN
- --------------------------------------------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Insurance:
December 31, 1992.......................... $ 26,289 $ 8,649 $ 6,474 $36,875
======== ======== ======= =======
December 31, 1993.......................... $ 37,496 $ 11,085 $ 6,868 $61,819
======== ======== ======= =======
December 31, 1994.......................... $ 44,634 $ 13,538 $ 9,109 $90,345
======== ======== ======= =======
</TABLE>
- ---------------
(1) Reconciliation of net investment income to investment income amount
reflected in the statements of earnings is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-------------------------
1992 1993 1994
------ ------ ------
($ IN THOUSANDS)
<S> <C>
Net investment income as stated above -- Insurance segment............................................ $6,454 $7,741 $8,706
Investment income -- Marine transportation segment, diesel repair segment and parent company...... 341 169 505
------ ------ ------
$6,795 $7,910 $9,211
====== ====== ======
</TABLE>
(2) Included as part of selling, general and administrative expenses, taxes,
other than on income, and depreciation and amortization in the statements of
earnings.
67
<PAGE> 69
SCHEDULE VI
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED
AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
-------- --------- ---------- ---------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1992:
Life insurance in force.................. $ -- $ -- $ -- $ -- --
======== ======= ===== ======== ===
Premiums:
Life insurance........................ $ $ $ $
Accident and health insurance.........
Property and liability insurance...... 52,830 16,282 327 36,875 .89%
-------- ------- ---- -------- ---
Total premiums...................... $ 52,830 $16,282 $327 $ 36,875* .89%
======== ======= ===== ======== ===
December 31, 1993:
Life insurance in force.................. $ -- $ -- $ -- $ -- --
======== ======= ==== ======== ===
Premiums:
Life insurance........................ $ $ $ $
Accident and health insurance.........
Property and liability insurance...... 80,993 19,201 27 61,819 .04%
-------- ------- ---- -------- ---
Total premiums...................... $ 80,993 $19,201 $ 27 $ 61,819* .04%
======== ======= ==== ======== ===
December 31, 1994:
Life insurance in force.................. $ -- $ -- $ -- $ -- --
======== ======= ==== ======== ====
Premiums:
Life insurance........................ $ $ $ $
Accident and health insurance.........
Property and liability insurance...... 111,415 21,178 108 90,345 .12%
-------- ------- ---- -------- ---
Total premiums...................... $111,415 $21,178 $108 $ 90,345* .12%
======== ======= ==== ======== ===
</TABLE>
- ---------------
* Reconciliation of total premiums to net premiums earned, the amount reflected
in the statements of earnings, is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Total premiums.............................................. $36,875 61,819 90,345
Increase in unearned premiums............................... (7,323) (13,576) (28,868)
------- ------- -------
Net premiums earned.................................. $29,552 48,243 61,477
======= ======= =======
</TABLE>
68
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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: BRIAN K. HARRINGTON
------------------------------------
BRIAN K. HARRINGTON
SENIOR VICE PRESIDENT
Dated: March , 1995
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------- ------------------------------------- --------------
<S> <C> <C>
ROBERT G. STONE, JR. Chairman of the Board and March , 1995
- ----------------------------------- Director of the Company
Robert G. Stone, Jr.
GEORGE A. PETERKIN, JR. President, Director of the Company March , 1995
- ----------------------------------- and Principal Executive Officer
George A. Peterkin, Jr.
J.H. PYNE Executive Vice President and Director March , 1995
- ----------------------------------- of the Company
J.H. Pyne
BRIAN K. HARRINGTON Senior Vice President, Treasurer, March , 1995
- ----------------------------------- Assistant Secretary of the Company
Brian K. Harrington and Principal Financial Officer
G. STEPHEN HOLCOMB Vice President, Controller, Assistant March , 1995
- ----------------------------------- Treasurer, Assistant Secretary of
G. Stephen Holcomb the Company and Principal
Accounting Officer
GEORGE F. CLEMENTS, JR. Director of the Company March , 1995
- -----------------------------------
George F. Clements, Jr.
J. PETER KLEIFGEN Director of the Company March , 1995
- -----------------------------------
J. Peter Kleifgen
WILLIAM M. LAMONT, JR. Director of the Company March , 1995
- -----------------------------------
William M. Lamont, Jr.
C.W. MURCHISON, III Director of the Company March , 1995
- -----------------------------------
C.W. Murchison, III
J. VIRGIL WAGGONER Director of the Company March , 1995
- -----------------------------------
J. Virgil Waggoner
</TABLE>
69
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Restated Articles of Incorporation of Kirby Exploration Company, Inc. (the
"Company"), as amended (incorporated by reference to Exhibit 3.1 of the
Registrant's 1989 Registration Statement on Form S-3 (Reg. No. 33-30832)).
3.2 -- Certificate of Amendment of Restated Articles of Incorporation of the Company
filed with the Secretary of State of Nevada April 30, 1990 (incorporated by
reference to Exhibit 3.2 of the Registrant's Annual report on Form 10-K for
the year ended December 31, 1990).
3.3 -- Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 of
the Registrant's 1989 Registration Statement on Form S-3 (Reg. No. 33-30832)).
3.4 -- Amendment to Bylaws of the Company effective April 24, 1990 (incorporated by
reference to exhibit 3.4 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990).
4.1 -- Indenture, dated as of December 2, 1994, between the Company and Texas
Commerce Bank National Association, Trustee, (incorporated by reference to
Exhibit 4.3 of the Registrant's 1994 Registration Statement on Form S-3 (Reg.
No. 33-56195)).
10.1+ -- 1976 Stock Option Plan of Kirby Exploration Company, as amended, and forms of
option agreements provided for thereunder and related documents (incorporated
by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1981).
10.2+ -- 1982 Stock Option Plan for Kirby Exploration Company, and forms of option
agreements provided for thereunder and related documents (incorporated by
reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1982).
10.3+ -- Amendment to 1982 Stock Option Plan for Kirby Exploration Company
(incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1986).
10.4 -- Indemnification Agreement, dated April 29, 1986, between the Company and each
of its Directors and certain key employees (incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
10.5+ -- 1989 Employee Stock Option Plan for the Company, as amended (incorporated by
reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989).
10.6+ -- 1989 Director Stock Option Plan for the Company, as amended (incorporated by
reference to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989).
10.7 -- Loan Agreement, dated as of July 31, 1990, by and between Dixie Carriers Inc.
and Texas Commerce Bank National Association (incorporated by reference to
Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.8 -- Loan Agreement between Dixie Fuels Limited and NCNB Leasing Corporation, dated
as of February 4, 1992 (incorporated by reference to Exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991).
10.9 -- Agreement of Purchase and Sale, dated January 24, 1992, by and among Sabine
Transportation Company, Kirby Corporation, Sabine Towing & Transportation Co.,
Inc. and Sequa Corporation, as amended (incorporated by reference to Exhibit
10.11 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991).
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------
<S> <C> <C>
10.10 -- Credit Agreement, dated as of March 6, 1992, among Sabine Transportation
Company, Kirby Corporation, Texas Commerce Bank National Association and The
First National Bank of Boston (incorporated by reference to Exhibit 10.12 of
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1991).
10.11 -- Agreement of Purchase and Sale, dated March 12, 1992, by and between Ole Man
River Towing, Inc. and related entities, OMR Transportation Company and Dixie
Carriers, Inc. (incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K dated as of April 10, 1992).
10.12 -- Credit Agreement, dated as of March 18, 1992, among Dixie Carrier, Inc., Kirby
Corporation and Texas Commerce Bank National Association (incorporated by
reference to Exhibit 10.13 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.13 -- Agreement and Plan of Merger, dated April 15, 1992, among Kirby Corporation,
Chotin Carriers, Inc., Scott Chotin, Inc. and Certain Shareholders of Scott
Chotin, Inc. (incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K dated as of June 11, 1992).
10.14 -- Credit Agreement, dated as of May 28, 1992, among Chotin Carriers, Inc., Kirby
Corporation, Texas Commerce Bank National Association and The First National
Bank of Boston (incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8K dated as of June 11, 1992).
10.15 -- Note Purchase Agreement, dated as of August 12, 1992, among Dixie Carriers,
Inc., The Variable Annuity Life Insurance Company, Provident Mutual Life and
Annuity Company of America, among other (incorporated by reference to Exhibit
10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992).
10.16 -- Asset Sale and Purchase Agreement, dated January 22, 1993, by and among
Ashland Oil, Inc., TPT Transportation Company and Dixie Carriers, Inc.
(incorporated by reference to Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.17 -- Deferred Compensation Agreement dated August 12, 1985 between Dixie Carriers,
Inc., and J.H. Pyne (incorporated by reference to Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
10.18 -- Agreement and Plan of Merger, dated April 1, 1993, among Kirby Corporation,
AFRAM Carriers, Inc. and AFRAM Lines (USA) Co., Ltd. and the shareholders of
AFRAM Lines (USA) Co., Ltd. (incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated May 3, 1993).
10.19 -- Credit Agreement, dated April 23, 1993, among Kirby Corporation, the Banks
named therein, and Texas Commerce Bank National Association as Agent and Fund
Administrator (incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.20 -- Credit Agreement, dated April 23, 1993, among Dixie Carriers, Inc., the Banks
named therein, and Texas Commerce Bank National Association, as Agent and Fund
Administrator (incorporated by reference to Exhibit 10.02 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.21+ -- 1994 Employee Stock Option Plan for Kirby Corporation (incorporated by
reference to Exhibit 10.21 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993).
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------
<S> <C> <C>
10.22+ -- 1994 Nonemployee Director Stock Option Plan for Kirby Corporation
(incorporated by reference to Exhibit 10.22 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.23+ -- 1993 Stock Option Plan of Kirby Corporation for Robert G. Stone, Jr.
(incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.24+ -- Amendment to 1989 Director Stock Option Plan for Kirby Exploration Company,
Inc. (incorporated by reference to Exhibit 10-K for the year ended December
31, 1993).
10.25* -- Purchase Agreement, dated November 16, 1994, by and between The Dow Chemical
Company and Dow Hydrocarbons and Resources, Inc. and Dixie Marine, Inc.
10.26 -- Distribution Agreement, dated December 2, 1994, by and among Kirby Corporation
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc.
and Wertheim Schroder & Co. Incorporated (incorporated by reference to Exhibit
1.1 of the Registrant's Current Report on Form 8-K dated December 9, 1994).
21.1* -- Principal Subsidiaries of the Registrant.
23.1* -- Consent of KPMG Peat Marwick LLP.
27.1* -- Financial Data Schedule.
28.1* -- Independent Auditors' Report of Deloitte & Touche LLP.
</TABLE>
- ---------------
* Filed herewith
+ Management contract, compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.25
PURCHASE AGREEMENT
BY AND BETWEEN
THE DOW CHEMICAL COMPANY
AND
DOW HYDROCARBONS AND RESOURCES INC.
(SELLERS)
AND
DIXIE MARINE, INC.
(BUYER)
DATED NOVEMBER 16, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3. Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5. Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6. Transportation Services Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.9. Trips in Progress Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10. Inspection of Vessels - Cost of Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11. Inspection of Additional Dow Chartered Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.12. Disclaimer Regarding Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II Representations and Warranties of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1. Due Organization of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2. Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3. Authority for Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4. Title to Dow Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5. Charters and Dow Chartered Vessels; Additional Dow Charters and Additional Dow Chartered Vessels . . . 10
2.6. Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.8. Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.9. Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10. Litigation and Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11. Information Furnished . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12. Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1. Due Organization of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2. Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3. Authority for Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4. Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6. Independent Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<TABLE>
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ARTICLE IV Covenants of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1. Discharge of Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2. Operations Prior to Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3. Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4. Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5. Termination of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6. Update of Sellers' Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1. Termination of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2. Update of Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI Conditions To Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1. Compliance with Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5. Governmental Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6. Approval of Kirby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.7. Dow Chartered Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.8. Termination of Existing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.9. Approval of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII Conditions To Obligations of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2. Compliance with Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4. Governmental Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.5. Approval of Dow Chemical and DHRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.6. Termination of Existing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.7. Approval of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2. Time, Date and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3. Transfer of Title; Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4. Buyer's Obligation at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5. Sellers' Obligation at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<TABLE>
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ARTICLE IX Actions After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.1. Additional Dow Chartered Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.2. Further Conveyances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.3. Further Consents to Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.4. Books and Records; Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.5. Redocumentation of Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.6. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.7. Employees of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.8. Purchase of Dow Chartered Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1. Indemnification by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.2. Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.3. Indemnity Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.4. Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XI Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.3. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.1. Proration of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.2. Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.3. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.5. Assignment and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.6. Interpretation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.8. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.9. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.12. Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.13. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.14. Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
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1.1(a) Charters and Dow Chartered Vessels
1.1(b) Dow Vessels
1.1(g) Additional Charters and Additional Dow Chartered Vessels
1.2(a) Spare Parts
1.3(a) Form of Sublease (Charters)
1.3(b) Form of Assignment (Charters)
1.3(c) Form of Additional Assignment (Charters)
1.6 Transportation Services Contract
1.9(c) Example of Trips in Progress Payable Calculation
8.4(a) Buyer's Closing Certificate
8.5(a) Sellers' Closing Certificates
8.5(b) Form of Bill of Sale
</TABLE>
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is entered into as of the 16th day of
November, 1994, by THE DOW CHEMICAL COMPANY, a Delaware corporation, and DOW
HYDROCARBONS AND RESOURCES INC., a Delaware corporation (collectively the
"SELLERS," individually a "SELLER" and respectively, "DOW CHEMICAL" and
"DHRI"), and DIXIE MARINE, INC., a Delaware corporation (the "BUYER" or "DIXIE
MARINE").
WITNESSETH:
WHEREAS, Sellers are engaged in the business of manufacturing and
processing industrial chemicals and in connection therewith own and charter or
lease certain inland marine transportation equipment which is used to transport
raw material and finished products; and
WHEREAS, Buyer is engaged in the marine transportation business
including the transportation of bulk liquid industrial chemicals along the
inland waterways of the United States; and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to
purchase in accordance with the terms hereof, substantially all of the inland
marine transportation equipment owned by Sellers; and
WHEREAS, with respect to the inland marine transportation equipment
chartered or leased by Sellers, Sellers and Buyer have agreed that either (i)
the inland marine transportation equipment will (with the consent, if
necessary, of the owner of such vessels) be assigned and assumed by Buyer or
subleased to Buyer, or (ii) Buyer will, with agreement of the Sellers and the
owner of such vessels, purchase such vessels and terminate the existing charter
or lease with Sellers; and
WHEREAS, Buyer agrees to pay to Sellers the Purchase Price hereinafter
provided for; and
WHEREAS, in conjunction with the sale and assignment or sublease, Dow
Chemical and Dixie Marine will enter into a Transportation Services Contract
whereby Dixie Marine and certain of its affiliates will provide inland marine
transportation services to Dow Chemical and certain of its affiliates.
NOW THEREFORE:
In consideration of the mutual covenants herein contained, the Sellers
and the Buyer agree as follows:
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ARTICLE I
PURCHASE AND SALE
1.1. TRANSACTION. On and subject to the terms and conditions of
this Agreement, prior to the Closing Date:
(a) Sellers and Buyer and the respective owners of the 31
inland tank barges and two tow boats, which are chartered or leased to
Sellers and listed in EXHIBIT 1.1(A) (hereinafter referred to as the
"DOW CHARTERED VESSELS") will negotiate the possible purchase of the
Dow Chartered Vessels by Buyer; and, if any of the Dow Chartered
Vessels are to be purchased, will enter into an Amendment to this
Agreement specifying which Dow Chartered Vessels will be purchased and
the terms thereof;
on the Closing Date:
(b) Buyer will purchase from the Sellers, and the Sellers
will sell and deliver to Buyer, all of the 65 inland tank barges, one
river tow boat and two shifting boats listed in EXHIBIT 1.1(B)
(hereafter referred to as the "DOW VESSELS") free and clear of any
liens, claims or encumbrances;
(c) Sellers will, subject to the consent, if necessary,
of the owners, (i) sublease to Buyers such of the Dow Chartered
Vessels as Sellers and Buyer agree to sublease, and (ii) assign and
transfer to Buyer such of the Charters and the interest in the Dow
Chartered Vessels as Buyer and Sellers agree to assign, in either
case, except such, if any, as shall be purchased and acquired by Buyer
pursuant to SECTION 1.1(D); provided, however, all of the Dow
Chartered Vessels in EXHIBIT 1.1(A) shall be either sold to Buyer
pursuant to SECTION 1.1(D) or assigned or subleased to Buyer pursuant
to this SECTION 1.1(C);
(d) Buyer will purchase from (i) Sellers, or (ii) the
owners thereof, in either case subject to the consent of such owners,
such of the Dow Chartered Vessels as Sellers and Buyer shall have
agreed will be purchased by Buyer;
(e) Buyer will pay to Sellers the Purchase Price;
(f) Dixie Marine and Dow Chemical will enter into the
Transportation Services Contract (hereinafter defined); and
on or after the Closing Date:
(g) subject to the provisions of SECTION 1.11, Sellers
will, subject to the consent, if necessary, of the owners assign and
transfer to Buyer such of the Additional Dow Charters (hereinafter
defined) with respect to the seven barges
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<PAGE> 8
and two boats listed in EXHIBIT 1.1(G) (hereinafter referred to as the
"ADDITIONAL DOW CHARTERED VESSELS") as Buyer shall accept following
the inspection referred to in SECTION 1.11.
Notwithstanding the consummation of such transaction, Sellers will retain the
Excluded Assets and will continue to be and will remain directly and solely
responsible for the payment, performance or discharge, as the case may be, of
all of the Excluded Liabilities. Buyer shall assume all of the Assumed
Liabilities.
It is expressly intended that the provisions of this Agreement shall
not confer any rights of a third party beneficiary on any person.
1.2. ACQUIRED ASSETS. For purposes hereof, the term "ACQUIRED
ASSETS" means all of the following Assets:
(a) The Dow Vessels together with all of their tackle,
equipment, fuel on board at the Closing Time (hereinafter defined) and
spare parts, whether related to the Dow Vessels or Dow Chartered
Vessels, listed in EXHIBIT 1.2(A) less those spare parts used for the
Vessels from the date of EXHIBIT 1.2(A) until the Closing Time.
(b) Such of the Dow Chartered Vessels as may be purchased
by Buyer from the owner thereof with the consent of Sellers or Sellers
buy from the owner with the consent of the owner and sell to Buyer (at
agreeable price and terms), together with all of their tackle,
equipment, and fuel on board at the Closing Time for the respective
Dow Chartered Vessels purchased.
(c) The interest of Sellers, and all rights appurtenant
thereto, as charterer or lessee, in those charters or leases
identified on EXHIBIT 1.1(A) (the "CHARTERS") of Dow Chartered Vessels
as may be assigned or subleased by Sellers to Buyer with the consent
of the owner, if required pursuant to the terms of the respective
Charter, subject to the terms of any such assignment or sublease,
together with all tackle, equipment and fuel on board at the Closing
Time for the respective Dow Chartered Vessels assigned or subleased.
The Dow Vessels and the Dow Chartered Vessels are herein collectively referred
to as the "VESSELS."
(d) The interest of Sellers, and all rights appurtenant
thereto, as charterer or lessee, in those charters or leases
identified on EXHIBIT 1.1(G) (the "ADDITIONAL DOW CHARTERS") of
Additional Dow Chartered Vessels as may be accepted by Buyer following
the inspection provided for in SECTION 1.11 and assigned by Sellers to
Buyer with the consent of the owner, if required pursuant to the terms
of the respective Additional Dow Charters, subject to the terms of
3
<PAGE> 9
any such assignment, together with all tackle, equipment and fuel on
board at the Closing Time for the respective Additional Dow Chartered
Vessels assigned.
1.3. ASSUMED LIABILITIES. For the purposes hereof, the term
"ASSUMED LIABILITIES" means only (i) the liabilities and obligations of Buyer
under or pursuant to this Agreement; (ii) the liabilities and obligations of
Buyer under or pursuant to the Assignments or Subleases which accrue or relate
to events or occurrences after the Closing Time and to be evidenced by either
Sublease in the form attached hereto as EXHIBIT 1.3(A) (the "SUBLEASE") or
Assignment in the form attached hereto as EXHIBIT 1.3(B) (the "ASSIGNMENT");
(iii) all the liabilities, debts and obligations regarding ownership and
operation of the Dow Vessels and such of the Dow Chartered Vessels purchased by
Buyers which accrue or relate to events or occurrences after the Closing Time;
and (iv) the liabilities and obligations of Buyer under or pursuant to the
Additional Assignment which accrue or relate to events or occurrences after the
Delivery Time (hereinafter defined) and to be evidenced by Additional
Assignment in the form attached hereto as EXHIBIT 1.3(C) (the "ADDITIONAL
ASSIGNMENT").
1.4. EXCLUDED ASSETS. For the purposes hereof, the term "EXCLUDED
ASSETS" means all property and assets of Sellers except the Acquired Assets.
1.5. EXCLUDED LIABILITIES. For the purposes hereof, the term
"EXCLUDED LIABILITIES" means all debts, liabilities and obligations to any
party and of whatsoever kind and character related to the Acquired Assets which
accrue or are related to events or occurrences (i) prior to the Closing Time
with respect to the Vessels and prior to the Delivery Time with respect to the
Additional Dow Chartered Vessels other than (a) the obligations of Buyer under
any other agreement than this Agreement or other Buyer debt or obligation
related to the Acquired Assets or otherwise which accrue or are related to
events or occurrences prior to the Closing Time, with respect to the Vessels
and prior to the Delivery Time with respect to the Additional Dow Chartered
Vessels, and/or (b) the Assumed Liabilities, and (ii) after the Closing Time,
regarding Dow Chartered Vessels not purchased by Buyer hereunder, other than
the Assumed Liabilities or the obligations of Buyer under any other agreement
than this Agreement or other Buyer debt or obligation.
The Excluded Liabilities, include, but are not limited to, all
liabilities and obligations of Sellers to their employees, including collective
bargaining agreements, plant closing laws, workmen's compensation, employee
benefits and obligations arising under Sections 162(k) or 4980(B) of the
Internal Revenue Code of 1986, as amended (the "CODE") and Sections 601 through
608 of ERISA (collectively "COBRA").
1.6. TRANSPORTATION SERVICES CONTRACT. In conjunction with the
Sale of the Dow Vessels and the assignment of the Charters for the Dow
Chartered Vessels, at the Closing Dow Chemical and Dixie Marine shall enter
into a Transportation Services Contract (the "TRANSPORTATION CONTRACT") in the
form attached hereto as EXHIBIT 1.6.
1.7. PURCHASE PRICE. The total purchase price (the "PURCHASE
PRICE") shall be $24,030,543, subject to adjustment as provided in SECTIONS
1.1(A), 1.1(D), 1.10(C), 1.10(D) and
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8.3 of this Agreement, and shall be payable by Buyer to Dow Chemical, for
itself and DHRI, in immediately available funds at Closing by wire transfer to
the following bank account:
CitiBank, N.A.
New York, New York
ABA 021000089
Account of: Dow Hydrocarbons and
Resources Inc.
#40513038
Reference: Barge Sale
1.8. ALLOCATION OF PURCHASE PRICE. The parties agree that the
$24,030,543 Purchase Price shall be allocated for tax purposes (and adhered to
by Sellers and Buyer) among the various assets and rights transferred or
granted hereunder as indicated on EXHIBIT 1.1(B). If the Buyer purchases any of
the Dow Chartered Vessels, the Purchase Price shall be allocated as provided in
the Amendment to this Agreement provided for in SECTION 1.1(A).
1.9. TRIPS IN PROGRESS PAYABLE. Sellers will pay to Buyer, by
check or wire transfer as directed, within thirty (30) days after final
determination, Trips in Progress Payable as of the Closing Time determined as
follows:
(a) Determination - For purposes of this SECTION 1.9, the
following terms will have the meanings set forth below:
(i) "VESSEL" shall mean any tankbarge included in
the Acquired Assets other than a tankbarge
operating under a daily rate effective as of
the Closing Time pursuant to the
Transportation Services Contract between the
parties hereto.
(ii) "TRIPS IN PROGRESS PAYABLE" will be the
aggregate amount of Net Revenue for all
Vessels engaged in a Trip in Progress, the
Net Revenue for each of which such Trips in
Progress shall be a positive amount or zero,
whichever is greater.
(iii) "TRIPS IN PROGRESS" shall mean all trips in
which a Vessel is engaged at the Closing Time
which began before the Closing Time and end
after the Closing Time. A trip shall be
deemed to begin when the Vessel completes
loading and deemed to end after the Vessel is
discharged and returned to the original load
port or next load port.
(iv) "GROSS REVENUE" shall be separately
determined for each Trip in Progress and is
revenue that would be earned by a Vessel if
the Trip in Progress were performed pursuant
to
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<PAGE> 11
the Transportation Services Contract, less
allowance for tankermen and free time for
Vessels engaged in a Trip in Progress where
there will be no cargo transfer after the
Closing Time but before the end of the Trip
in Progress, multiplied by a fraction, the
numerator of which is the mileage of the Trip
in Progress performed subsequent to the
Closing Time and the denominator of which is
the total mileage of the Trip in Progress.
(v) "TOWAGE IN PROGRESS EXPENSE" shall mean that
portion of expense for towage services being
provided a Vessel engaged in a Trip in
Progress which commence prior to the Closing
Time and end after the Closing Time
determined by multiplying the actual cost for
such towage services by a fraction, the
numerator of which is the mileage the Vessel
is towed subsequent to the Closing Time and
the denominator of which is the total mileage
the Vessel is towed.
(vi) "NET REVENUE" shall mean Gross Revenue
attributable to the Trip in Progress less
Towage in Progress Expense attributable to
such Trip in Progress.
(b) Buyer shall prepare and submit to Sellers a Trips In
Progress Payable Statement within thirty (30) days after the Closing
Date, setting forth the computation of the Net Revenue from Trips in
Progress. Following receipt of the Trips in Progress Payable
Statement, Sellers will be afforded a period of fifteen (15) days to
review such Statement. At or before the end of that period, the
Sellers will either: (A) accept such Trips in Progress Payable
Statement in its entirety, in which case the Trips in Progress Payable
will be deemed to be as set forth on such statement; or (B) deliver to
Buyer written notice and a detailed written explanation of those items
in such Trips in Progress Payable Statement which Sellers dispute.
Within a further period of fifteen (15) days from the end of the
aforementioned review period, the parties will attempt to resolve in
good faith any disputed items. Failing such resolution, the
unresolved disputed items will be referred for final binding
resolution to Deloitte & Touche, Houston, Texas, office. The decision
of such accounting firm shall be final and binding on the parties.
Any cost of such accounting firm engaged to arbitrate such dispute
shall be borne equally by Sellers and Buyer.
(c) Attached hereto as EXHIBIT 1.9(C) is an example of a
Trips in Progress Payable calculation.
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<PAGE> 12
1.10. INSPECTION OF VESSELS - COST OF REPAIR.
(a) Buyer shall have the right prior to the Closing Date
to conduct an inspection of any or all of the Dow Vessels, including
but not limited to a drydocking survey; provided that such inspection
shall not unduly interfere with Sellers' operations or other
commitments. Buyer and Sellers agree to cooperate with each other in
scheduling Vessels for inspection. Any drydocking survey shall be
conducted at facilities mutually acceptable to Sellers and Buyer; and
the cost of the drydocking shall be borne by Sellers if in the
ordinary course of business and by Buyer if drydocked solely at its
request.
(b) Prior to the Closing Date each Dow Chartered Vessel
shall be drydocked and inspected by a mutually acceptable independent
marine surveyor. Buyer and Sellers agree to cooperate with each other
in scheduling Dow Chartered Vessels for inspection. Such drydocking
survey shall be conducted at facilities mutually acceptable to Sellers
and Buyer; and the cost of the drydocking and inspection shall be paid
by Sellers.
(c) If Buyer's inspection of any Vessel (other than the
five (5) vessels described on EXHIBIT 1.1(B) as being without a
current Certificate of Inspection which shall be "as is, where is"),
discloses casualty-related damage, or conditions or deficiencies that
then impair the Vessel's Certificate of Inspection, or, with respect
to the Dow Chartered Vessels, any condition which requires repair or
remediation on the part of Sellers were the Charter relative to such
Vessel to be terminated at the time of such inspection, the reasonable
cost of repairing such damage, condition, or deficiency shall be the
responsibility of Sellers and shall be deducted from the purchase
price payable by Buyer at the Closing. If the Purchase Price is
reduced to pay any cost of repair, the Sellers shall have no further
responsibility for making or paying for such repairs. Sellers shall
not be responsible for a repair cost that is less than $5,000 for any
one Vessel. In the event Sellers shall complete and pay for any such
repairs prior to Closing, no deduction shall be made from the Purchase
Price. In the event of a dispute between Buyer and Sellers as to the
condition of any Vessel or its cost of repair, the parties shall
retain John Bencal Surveyors, or, if he is not available another
mutually acceptable independent marine surveyor, to resolve the
dispute and shall be bound by his determination; and the cost of such
surveyor shall be shared equally by Buyer and Sellers. If any such
dispute cannot be resolved prior to the Closing Date, the parties
shall close on the basis of the unadjusted Purchase Price; and Sellers
shall promptly repay to the Buyer the amount of any adjustment
determined by such a surveyor. With respect to the five (5) vessels
without a current Certificate of Inspection, such vessels are sold "AS
IS" "WITH ALL FAULTS," as further expressed in SECTION 1.11, and
without a Certificate of Inspection, notwithstanding anything stated
in this Agreement to the contrary.
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<PAGE> 13
(d) If any of the Vessels suffer any (i) casualty-related
damage, (ii) conditions or deficiencies that then impair the Vessel's
Certificate of Inspection, or (iii) with respect to Dow Chartered
Vessels, conditions or deficiencies which would require repair or
remediation by Seller pursuant to the Charters, manifest between the
date on which Buyer inspected such Vessel, or, if Buyer did not
inspect such Vessel, the date of this Agreement, and the Closing Time
on the Closing Date, Sellers shall be responsible for the cost of
repairing such damage to the extent that the repair cost for any one
Vessel plus any cost for the same Vessel referred to in SECTION
1.10(C) exceeds $5,000. Any dispute as to the cost of repair shall be
resolved in the manner prescribed in SECTION 1.10(C). If any such
repair costs are paid by Sellers, there shall be no reduction in the
Purchase Price, and Sellers shall have no further responsibility for
making or paying for such repairs.
1.11. INSPECTION OF ADDITIONAL DOW CHARTERED VESSELS.
(a) On or after the Closing Date each Additional Dow
Chartered Vessel shall be drydocked and inspected by a mutually
acceptable independent marine surveyor, Buyer and Sellers agree to
cooperate with each other in scheduling Additional Dow Chartered
Vessels for inspection. Such drydocking survey shall be conducted at
facilities mutually acceptable to Sellers and Buyer; and the cost of
the drydocking and inspection shall be paid by Sellers.
(b) If Buyer's inspection of any Additional Dow Chartered
Vessel discloses no casualty-related damage, or conditions or
deficiencies that then impair the vessel's Certificate of Inspection,
or any condition which requires repair or remediation on the part of
Sellers were the Additional Dow Charter relative to such vessel to be
terminated at the time of such inspection, Buyer shall accept such
Additional Dow Chartered Vessel and the Additional Dow Charter with
respect to such vessel shall be assigned to Buyer by Seller as
provided in this Agreement. The date and time of completion of such
inspection and acceptance by Buyer shall be the "Delivery Time" with
respect to such vessel so accepted.
(c) If Buyer's inspection of any Additional Dow Chartered
Vessel discloses casualty-related damage, or conditions or
deficiencies that then impair the vessel's certificate of inspection,
or any condition which requires repair or remediation on the part of
Sellers were the Additional Dow Charter relative to such vessel to be
terminated at the time of such inspection, Buyer shall not be required
to accept such Additional Dow Chartered Vessel and the Additional Dow
Charter with respect to such Vessel shall not be assigned to Buyer and
such Additional Dow Chartered Vessel and the Additional Dow Charters
shall not be a part of the Acquired Assets.
1.12. DISCLAIMER REGARDING ACQUIRED ASSETS. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN AGREEMENTS AND DOCUMENTS EXECUTED
AND DELIVERED
8
<PAGE> 14
PURSUANT TO THIS AGREEMENT, BUYER ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND
SELLERS HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF THE ACQUIRED ASSETS (AS
DEFINED HEREIN) INCLUDING, WITHOUT LIMITATION, ANY FACILITY, IMMOVABLE
PROPERTY, MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND
PERSONAL PROPERTY CONSTITUTING PART OF THE ACQUIRED ASSETS, INCLUDING, WITHOUT
LIMITATION, (A) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (B) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (C) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(D) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (E) ANY IMPLIED OR EXPRESS
WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (F) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT,
AND (G) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE
RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR
HEALTH IT BEING THE EXPRESS INTENTION OF BUYER AND SELLERS THAT (EXCEPT TO THE
EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT) THE ACQUIRED ASSETS SHALL BE
CONVEYED TO BUYER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR AND
BUYER REPRESENTS TO SELLERS THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH
INSPECTIONS WITH RESPECT TO THE ACQUIRED ASSETS (AS DEFINED HEREIN) AS BUYER
DEEMS APPROPRIATE AND BUYER WILL ACCEPT THE ACQUIRED ASSETS (AS DEFINED HEREIN)
AS IS, IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, make the following representations and
warranties to the Buyer, all of which shall survive the closing and any
investigation made by Buyer:
2.1. DUE ORGANIZATION OF SELLERS. Dow Chemical is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware; and DHRI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. DHRI is a wholly
owned subsidiary of Dow Chemical.
2.2. POWER AND AUTHORITY. Sellers have full power and authority to
own their assets and to conduct their business as now owned and conducted.
Sellers and, to Sellers' knowledge, each of the owners of the Dow Chartered
Vessels and Additional Dow Chartered Vessels are (and have been during the
period of ownership of a Vessel) citizens of the United States of America as
defined in Section 2 of the Shipping Act of 1916, as amended.
2.3. AUTHORITY FOR AGREEMENT. Sellers have full power and
authority to execute and deliver this Agreement, to enter into the
Transportation Services Contract (providing that Dixie Marine will provide
inland marine transportation services to Dow Chemical and certain of its
affiliates as provided therein), and to carry out their obligations hereunder,
including, without limitation, approval by each of Sellers' Boards of Directors
and, if necessary, DHRI's stockholders. This Agreement and all documents
required by this Agreement constitute the valid
9
<PAGE> 15
and legally binding obligations of the Sellers, enforceable against the Sellers
in accordance with their terms.
2.4. TITLE TO DOW VESSELS. The party indicated on EXHIBIT 1.1(B)
as "OWNER" (either Dow Chemical or DHRI) has good and marketable title to the
Dow Vessel indicated, free and clear of all liens and encumbrances.
2.5. CHARTERS AND DOW CHARTERED VESSELS; ADDITIONAL DOW CHARTERS
AND ADDITIONAL DOW CHARTERED VESSELS. A true and complete copy of each of the
Charters and Additional Dow Charters (including all amendments) has been
furnished to Buyer. Each such Charter and Additional Dow Charter is in full
force and effect, and neither Dow Chemical or DHRI is in default under the
Charter or the Additional Dow Charter, and Dow Chemical and/or DHRI is entitled
to possess and operate each Dow Chartered Vessel and Additional Dow Chartered
Vessels. Sellers have fully performed all of their respective obligations
under the Charters and Additional Dow Charters, and Sellers, to the best of
their knowledge, are not aware of any fact or condition that would, with notice
or lapse of time, or both, constitute a breach of any of the Charters or
Additional Dow Charters. To the knowledge of Sellers, the party designated on
EXHIBIT 1.1(A) as Owner of each of the Dow Chartered Vessels or on EXHIBIT
1.1(C) as owner of each of the Additional Dow Chartered Vessels, has good and
marketable title to the Vessel indicated, free and clear of all liens and
encumbrances.
2.6. DOCUMENTATION. Each Dow Vessel, other than (i) the five (5)
vessels which are identified in EXHIBIT 1.1(B) hereto as being without
Certificate of Inspection, and (ii) the Leviticus, Pacesetter and Old Push,
each Dow Chartered Vessel other than the Delta Diamond 9 and Delta Diamond 10,
and each Additional Dow Chartered Vessel, other than the Miss Polly and Miss
Rachael, has a valid U.S. Coast Guard Certificate of Inspection and each Dow
Vessel and, to the knowledge of Sellers, each Dow Chartered Vessel and each
Additional Dow Chartered Vessel is qualified under the laws of the United
States to engage in the coastwise trade.
2.7. APPROVALS. Except for (i) compliance with Hart-Scott-Rodino
(as herein defined), and (ii) where required by a Charter, or Additional Dow
Charter, the consent of the owner of a Dow Chartered Vessel or Additional Dow
Chartered Vessel, to the knowledge of Sellers, no further consents or approvals
of any third party or governmental authority is required in connection with the
transaction.
2.8. HART-SCOTT-RODINO. The filing made by Dow Chemical pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder ("HART-SCOTT-RODINO") is true and complete
and complies with Hart-Scott- Rodino and early termination has been granted.
2.9. LEGAL COMPLIANCE. Each of Sellers is in material compliance
with all applicable laws, regulations, orders, permits and licenses relating to
the Vessels and Additional Dow Chartered Vessels and the execution and
performance of this Agreement will not result in a material breach of or
constitute a material default or violation under any law, regulation, order,
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<PAGE> 16
permit, licenses, charter, bylaw, contract or other document to which any
Seller is a party or to which any of the Acquired Assets are subject.
2.10. LITIGATION AND ENVIRONMENTAL.
(a) There is no material litigation, governmental
investigation or other proceeding pending or, to the best information,
knowledge and belief of the Sellers threatened against Sellers or
relating to the Acquired Assets.
(b) To the knowledge of Sellers, neither of Sellers has
incurred any liability, actual or contingent, known or unknown,
arising under or as a result of any violation of any Environmental
Laws (hereinafter defined) in connection with the ownership and
operation of any of the Acquired Assets nor has any event occurred,
nor does any circumstance, condition or fact exist, which would give
rise to any claim against Buyer or the Acquired Assets after transfer
thereof to Buyer pursuant to this Agreement. The term "ENVIRONMENTAL
LAWS" shall mean, to the extent applicable, with respect to the
Acquired Assets: (a) the following federal laws as they may be cited,
referenced and amended from time to time: the Oil Pollution Act of
1990, the Clean Air Act, the Clean Water Act, the Safe Drinking Water
Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Endangered Species Act, the Resource
Conservation and Recovery Act ("RCRA"), the Occupational Safety and
Health Act, the Hazardous Materials Transportation Act, the Superfund
Control Act, the Superfund Amendment and Reauthorization Act ("SARA");
(b) any rules or regulations promulgated under or adopted pursuant to
the above federal laws; and (c) any other equivalent federal, state or
local statute or any requirement, rule, regulation, code, ordinance or
order adopted pursuant thereto, including, without limitation, those
relating to the generation, transportation, treatment, storage,
recycling, disposal, handling or release of Hazardous Materials, For
purposes of the preceding sentence, the term "HAZARDOUS MATERIALS"
shall mean any "HAZARDOUS WASTE" as defined by RCRA, as amended from
time to time, and regulations promulgated thereunder, any "HAZARDOUS
SUBSTANCE" as defined by CERCLA, as amended from time to time, and
regulations promulgated thereunder, and any substance the presence of
which on the Acquired Assets is prohibited by any rules and
regulations of legally constituted authorities from time to time in
force and effect relating to the Acquired Assets, but shall not
include any commodities, supplies, or materials transported on a
Vessel or any residues or slops containing residues of commodities or
materials previously transported on a Vessel.
2.11. INFORMATION FURNISHED. The written information furnished by
Sellers to Buyer regarding volume, types of cargo and frequency of 1992 liquid
tank barge shipments is not misleading in any material respect and similar
information regarding estimated future shipments of Sellers in 1995 is a good
faith estimate of Sellers.
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<PAGE> 17
2.12. EMPLOYEE MATTERS. Buyer shall have no obligation as to future
employment to any past or current employee of Sellers, and consummation of the
transaction will not impose on Buyer any obligation to recognize any collective
bargaining union or group representing any of Sellers' employees.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to the
Sellers, all of which shall survive the Closing and any investigation made by
Sellers as follows:
3.1. DUE ORGANIZATION OF BUYER. Dixie Marine is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2. POWER AND AUTHORITY. Buyer has full power and authority to
own the assets to be acquired and to conduct their business as now conducted;
and it is a citizen of the United States of America as defined in Section 2 of
the Shipping Act of 1916, as amended.
3.3. AUTHORITY FOR AGREEMENT. Buyer has full power and authority
to execute and deliver this Agreement and the Transportation Services Contract
and to carry out its obligations hereunder and thereunder, including, without
limitation, approval by Buyer's Board of Directors. This Agreement and all
documents to be delivered by Buyer pursuant to this Agreement constitute valid
and legally binding obligations of the Buyer, enforceable against the Buyer in
accordance with its terms.
3.4. HART-SCOTT-RODINO. The filing made by Kirby Corporation,
parent of Dixie Marine, pursuant to Hart-Scott-Rodino is true and complete and
complies with Hart-Scott-Rodino and early termination has been granted.
3.5. APPROVALS. Except for (i) compliance with Hart-Scott-Rodino
(as herein defined), and (ii) where required by a Charter or Additional Dow
Charter, the consent of the owner of a Dow Chartered Vessel or Additional Dow
Chartered Vessel, to the knowledge of Buyer, no further consents or approvals
of any third party or governmental authority is required in connection with the
transaction.
3.6. INDEPENDENT INVESTIGATION. Buyer represents and acknowledges
that it is knowledgeable of the business of operating barges and towboats in
the inland waterways of the United States and that it has had access to the
Acquired Assets, the officers and employees of Sellers and the books, records
and files of Sellers relating to the Acquired Assets and in making the decision
to enter into this Agreement and consummate the transactions contemplated
hereby, Buyer has relied on the basis of its own independent due diligence
investigation of the Acquired Assets and upon the representations and
warranties made in ARTICLE II and the covenants and agreements of Sellers
contained in this Agreement or in agreements and documents executed and
delivered pursuant to this Agreement. Accordingly, Buyer acknowledges that
Sellers have not
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<PAGE> 18
made, and Sellers hereby expressly disclaim and negate any representation or
warranty (other than those express representations and warranties made in
ARTICLE II and the covenants and agreements of Sellers contained in this
Agreement or in agreements and documents executed and delivered pursuant to
this Agreement), express, implied, at common law, by statute or otherwise,
relating to the Acquired Assets. Inasmuch as Buyer has or will perform its due
diligence, the representations and warranties of the Sellers herein are subject
to the correctness of Sellers' and Buyer's understanding and agreement that
Buyer does not have knowledge of any laws, facts or circumstances which would
make any representation and warranty of the Seller expressed herein incorrect.
ARTICLE IV
COVENANTS OF SELLERS
Sellers covenant and agree as follows:
4.1. DISCHARGE OF EXCLUDED LIABILITIES. Except for the Assumed
Liabilities, Sellers shall discharge or be responsible for all Excluded
Liabilities of Sellers relating to the Acquired Assets.
4.2. OPERATIONS PRIOR TO CLOSING.
(a) From the date hereof to the Closing Date, Sellers
will not, without the prior written consent of Buyer:
(i) enter into any discussion or negotiations or
enter into any transaction that would
interfere with the consummation of the sale
of the Acquired Assets or the entering into
of the Transportation Contract;
(ii) sell, transfer or dispose of any of the
Acquired Assets except in the ordinary course
of business;
(iii) subject any of the Acquired Assets to a lien
or other encumbrance; and
(b) From the date hereof to the Closing Date, Sellers
will:
(i) operate and maintain the Acquired Assets
prudently in accordance with industry
standards;
(ii) promptly notify Buyer of any notice or claim
of default or breach by any of them, or of
any termination or cancellation, or threat of
termination or cancellation of any
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<PAGE> 19
of the Charters or other agreement relating
to the Acquired Assets;
(iii) promptly notify Buyer of the loss of or
damage to any of the Acquired Assets owned by
them;
(iv) promptly notify Buyer of any claim or
litigation, threatened or instituted, or any
other material event or occurrence, relating
to or affecting any of the Acquired Assets
owned by them;
(v) with regard to the Acquired Assets, promptly
notify Buyer of any material act, event,
condition or circumstance that might give
rise to a claim by any governmental agency or
third party for damages or other relief
relating to pollution, spill, discharge or
any environmental occurrence; and
(VI) comply in all material respects with all
applicable laws, rules, regulations and
orders of all federal, state and local
governments or governmental agencies
affecting or relating to the Acquired Assets
owned by them.
4.3. DUE DILIGENCE. Sellers will cooperate with Buyer in Buyer's
investigation of the Acquired Assets and authorizes Buyer, when accompanied by
a representative of Sellers, to discuss the proposed transaction with Sellers'
charterers, suppliers, governmental officials, and employees.
4.4. ACCESS TO BOOKS AND RECORDS. Buyer and its authorized
representatives shall have free and full access to the Acquired Assets and all
books and records of Sellers relating to the Acquired Assets and to the
operations of Sellers relating to the Acquired Assets, and may contact Sellers'
employees for such purposes, provided that such access shall not unreasonably
interfere with the operations of Sellers and shall be subject to (i) safety and
security procedures of Sellers and (ii) information regarding third parties
which Sellers are required to keep confidential.
4.5. TERMINATION OF AGREEMENTS. Sellers agree to the termination
of the agreements referred to in SECTION 5.1 below.
4.6. UPDATE OF SELLERS' REPRESENTATIONS AND WARRANTIES. If
necessary in order to make them true and correct as of the Closing Time, prior
to the Closing, Sellers will furnish to Buyer written update to, and revisions
of, its representations and warranties contained in ARTICLE II.
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<PAGE> 20
ARTICLE V
COVENANTS OF BUYER
Buyer covenants and agrees as follows:
5.1. TERMINATION OF AGREEMENTS. Prior to the Closing Buyer will
obtain written consents and agreements from the parties named below for the
termination of the agreements referred to below between Sellers and Buyer or
such other parties, such other termination to be effective not later than the
Closing Time:
<TABLE>
<CAPTION>
DATE PARTY TYPE OF AGREEMENT
---- ----- -----------------
<S> <C> <C>
August 1, 1989 Chotin Carriers, Inc. Bareboat Charter
(Successor to (Barge SC 1904)
Scott Chotin, Inc.)
January 25, 1991 Chotin Carriers, Inc. Bareboat Charter
(Successor to (Barge SC 1905)
Scott Chotin, Inc.)
July 10, 1994 Western Towing Company Towing Contract
July 10, 1994 Western Towing Company Time Charter (M/V Aransas)
July 10, 1994 Western Towing Company Time Charter (M/V Palomino)
</TABLE>
5.2. UPDATE OF BUYER'S REPRESENTATIONS AND WARRANTIES. If
necessary in order to make them true and correct as of the Closing Time, prior
to the Closing Buyer will furnish to Sellers written update to and revisions of
its representations and warranties contained in ARTICLE III.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are, at the option of
Buyer, subject to the satisfaction of each of the following conditions at or
prior to the Closing:
6.1. COMPLIANCE WITH COVENANTS. All of the terms, covenants and
conditions of this Agreement, including sublease or assignment and transfer of
the Acquired Assets, and the execution and delivery of the Subleases or
Assignments and the Transportation Services Contract, to be complied with or
performed by Sellers at or before the Closing Date shall have been duly
complied with and performed.
6.2. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Sellers set forth in ARTICLE II hereof, as updated and revised as
provided in SECTION 4.6, shall be deemed to have been made again at and as of
the Closing Date and shall then be true and correct in all material respects.
Buyer shall have received a certificate of a duly authorized officer, or
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<PAGE> 21
other representative of Sellers, dated the Closing Date, confirming the
continuing accuracy of such representations and warranties.
6.3. NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in Acquired Assets (including loss or damage to Vessels) or
financial condition of any of the Sellers since the date of this Agreement and
there has been no occurrence that has or might in the future result in any
material change in the inland bulk liquid transportation requirements of
Sellers.
6.4. CONSENTS. All required consents or approvals of third
parties, including owners of the Dow Chartered Vessels and any regulatory
authority, necessary for the performance of this Agreement by Sellers shall
have been delivered to Buyer in substance satisfactory to Buyer and shall not
have been withdrawn or revoked.
6.5. GOVERNMENTAL ACTION. There shall be no pending or threatened
action by any regulatory authority to prevent the purchase and sale of the
assets contemplated by this Agreement.
6.6. APPROVAL OF KIRBY. The Board of Directors of Kirby
Corporation, the parent of Dixie Marine, shall have authorized and approved
this transaction and shall have authorized Dixie Marine to enter into this
Agreement.
6.7. DOW CHARTERED VESSELS. Buyer shall have reached agreements
with the owners of the Dow Chartered Vessels which Buyer is satisfied, in its
judgment, will allow Buyer to have available to it, through purchase, sublease
or assignment, all of the Dow Chartered Vessels. Buyer shall be satisfied that
the party designated as owner of any Dow Chartered Vessel does, in fact, own
such Dow Chartered Vessel free and clear of any lien, claims or encumbrances.
6.8. TERMINATION OF EXISTING AGREEMENTS. The agreements referred
to in SECTION 5.1 shall have been terminated.
6.9. APPROVAL OF CHANGES. If Sellers shall have updated and
revised its representations and warranties prior to the Closing as provided in
SECTION 4.6, Buyer, at its sole discretion, shall have approved and accepted in
writing all material changes, if any, made by Sellers in its representations
and warranties set forth in ARTICLE II.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers under this Agreement are, at the option of
Sellers, subject to the satisfaction of each of the following conditions:
7.1. PAYMENT. At Closing, Buyer shall pay and deliver to Seller
the Purchase Price in accordance with SECTION 1.7 hereof.
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7.2. COMPLIANCE WITH COVENANTS. All the terms, covenants and
conditions of this Agreement, including sublease and transfer of the Acquired
Assets, the execution and delivery of the Subleases or Assignments and
Transportation Services Contract, to be complied with or performed by Buyer at
or before the Closing Date shall have been duly complied with and performed.
7.3. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in ARTICLE III hereof, as updated and revised as
provided in SECTION 5.2, shall be deemed to have been made again at and as of
the Closing Date and shall then be true and correct in all material respects.
Sellers shall have received a certificate of the President or a Vice President
of Buyer dated the Closing Date, confirming the continuing accuracy of such
representations and warranties.
7.4. GOVERNMENTAL ACTION. There shall be no pending or threatened
action by any regulatory authority to prevent the purchase and sale of the
acquired Assets contemplated by this Agreement.
7.5. APPROVAL OF DOW CHEMICAL AND DHRI. The Board of Directors of
Dow Chemical, the parent of DHRI, and the Board of Directors of DHRI, shall
have authorized and approved this transaction and shall have authorized Dow
Chemical and DHRI to enter into this Agreement.
7.6. TERMINATION OF EXISTING AGREEMENTS. The agreements referred
to in SECTION 5.1 shall have been terminated.
7.7. APPROVAL OF CHANGES. If Buyer shall have updated and revised
its representations and warranties prior to the Closing as provided in SECTION
5.2, Sellers at its sole discretion, shall have approved and accepted in
writing all material changes, if any, made by Buyer in its representations and
warranties set forth in ARTICLE III.
ARTICLE VIII
THE CLOSING
8.1. THE CLOSING. For purposes hereof, the term "CLOSING" means
the time and place at which the transactions contemplated hereby will be
consummated after satisfaction or express waiver of the conditions set forth in
ARTICLES VI and VII of this Agreement.
8.2. TIME, DATE AND PLACE OF CLOSING. The Closing will commence at
11:00 a.m. (Houston, Texas Time) on November 16, 1994, or such other date as
may be mutually agreed upon by Sellers and Buyer (the "CLOSING DATE"). The
Closing will take place at the offices of Buyer, Suite 300, 1775 St. James
Place, Houston, Texas, and the Closing will be deemed to be effective as of
12:01 a.m., Houston, Texas Time on the Closing Date (the "CLOSING TIME").
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8.3. TRANSFER OF TITLE; RISK OF LOSS.
(a) Title to the Dow Vessels and the rights under the
Charters which are subleased by or assigned to Buyer shall pass to
Buyer on the Closing Date at the Closing Time. If at any time prior
to the Closing Time any of the Dow Vessels shall have been lost,
actually or constructively, Buyer shall be entitled to reduce the
purchase price by an amount equal to the value of such lost Dow
Vessel(s) listed in EXHIBIT 1.1(B) hereto. All Vessels shall be
delivered to Buyer wherever they are located at the Closing Time, and
risk of loss thereafter shall be that of Buyer.
(b) The rights under the respective Additional Dow
Charters with respect to Additional Dow Chartered Vessels which have
been inspected and accepted by Buyer pursuant to SECTION 1.11 which
are assigned by Sellers to Buyer shall pass to Buyer as of the
Delivery Time which shall be specified in the Additional Assignment
executed and delivered pursuant to SECTION 9.1.
8.4. BUYER'S OBLIGATION AT THE CLOSING. At the Closing Buyer will,
as a further condition to Closing, deliver to Sellers the following:
(a) a certificate in the form of EXHIBIT 8.4(A) attached
hereto, dated as of the Closing Date, duly executed by the President
or Vice President of Buyer certifying as to the matters set forth in
SECTIONS 7.2 AND 7.3.
(b) payment of the amount specified in SECTION 1.7 hereof
as the Purchase Price due on the Closing Date;
(c) an executed Sublease with respect to each Dow
Chartered Vessels which are to be subleased by Buyer, in substantially
the form attached hereto as EXHIBIT 1.3(A), or an executed Assignment
with respect to each Charter and Dow Chartered Vessels, pursuant to
which Buyer assumes the obligation of Dow Chemical or DHRI, as the
case may be, of the Charters as of the Closing Time on the Closing
Date, in substantially the form attached hereto as EXHIBIT 1.3(B);
(d) the Transportation Services Contract between Dixie
Marine and Dow Chemical in the form and substance attached hereto as
EXHIBIT 1.6, duly executed by Buyer; and
(e) evidence of termination of the agreements referred to
in SECTION 5.1.
(f) Assignment from DHRI to Buyer of the Charter of the
DC-515 by DHRI to Hollywood Marine, Inc., such assignment to be
substantially in the form attached hereto as EXHIBIT 1.3(C), and duly
executed by Buyer.
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8.5. SELLERS' OBLIGATION AT THE CLOSING. At the Closing, Seller
will, as a further condition to Closing, deliver to the Buyer the following:
(a) certificates in the form of EXHIBIT 8.5(A) attached
hereto, dated as of the Closing Date, duly executed by a properly
authorized Sellers' representative of each of Sellers certifying as to
the matters set forth in SECTIONS 6.1 AND 6.2.
(b) all duly executed and acknowledged duplicate Bills of
Sale (Form CG-1340) (in substantially the form attached hereto as
EXHIBIT 8.5(B)), conveyances, assignments and other documents and
instruments, all of which shall be in form and substance satisfactory
to Buyer, necessary to effectuate the transfer of ownership of the Dow
Vessels to Buyer as herein contemplated;
(c) an executed Sublease with respect to each Dow
Chartered Vessel which are to be subleased by Buyer in substantially
the form attached hereto as EXHIBIT 1.3 (A), or an executed Assignment
with respect to each Charter and Dow Chartered Vessel pursuant to
which Sellers assign their interests in such Charters to Buyer as of
the Closing Time on the Closing Date, and Buyer assumes the obligation
of Dow Chemical or DHRI, as the case may be, of the Charters as of the
Closing Time on the Closing Date, in substantially the form attached
hereto as EXHIBIT 1.3(B).
(d) possession of the Acquired Assets, except the
Additional Dow Chartered Vessels;
(e) for each Vessel other than (i) the five (5) vessels
which are identified in EXHIBIT 1.1(B) hereto as being without
Certificate of Inspection, and (ii) the Leviticus, Pacesetter, Old
Push, Delta Diamond 9 and Delta Diamond 10, a copy of the current and
unimpaired Certificate of Inspection issued by the U.S. Coast Guard,
and for each documented Dow Vessel (i) U.S. Coast Guard Certificate of
Ownership (Form CG-1330) bearing a date not more than thirty (30) days
prior to the Closing Date and showing no mortgages, liens or
encumbrances of record and (ii) the original Certificate of
Documentation (Form CG-1270);
(f) the Transportation Services Contract between Buyer
and Dow Chemical in the form attached hereto as EXHIBIT 1.6 duly
executed by Dow Chemical;
(g) Sellers shall assign to Buyer all of Sellers' rights
under any warranties or guaranties relating to any of the Acquired
Assets to the extent that such rights are assignable, and Sellers
shall use reasonable efforts to assist Buyer to realize the benefits
of such warranties or guaranties; and
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(h) authorization and agreement of Sellers for
termination of the agreements referred to in SECTION 5.1.
(i) Assignment from DHRI to Buyer of the Charter of the
DC-515 by DHRI to Hollywood Marine, Inc., such assignment to be
substantially in the form attached hereto as EXHIBIT 1.3(C), and duly
executed by DHRI.
ARTICLE IX
ACTIONS AFTER CLOSING
9.1. ADDITIONAL DOW CHARTERED VESSELS. After the Closing, upon
completion of the inspection of each Additional Dow Chartered Vessel pursuant
to SECTION 1.11 which is accepted by Buyer, Sellers and Buyer shall forthwith
execute and deliver an Additional Assignment with respect to the Additional Dow
Charter and Additional Dow Chartered Vessel pursuant to which Sellers assign
their interests in such Additional Dow Charter to Buyer as of the Delivery Time
(which shall be specified in such Additional Assignment) and Buyer assumes the
obligation of Dow Chemical or DHRI, as the case may be, of such Additional Dow
Charter as of said Delivery Time, in substantially the form attached hereto as
EXHIBIT 1.3(C). Sellers shall deliver possession of such Additional Dow
Chartered Vessel to Buyer at the Delivery Time and Sellers shall also deliver
to Buyer a copy of the current and unimpaired Certificate of Inspection issued
by the U.S. Coast Guard.
9.2. FURTHER CONVEYANCES. After the Closing, Sellers will, without
further cost or expense to, or consideration of any nature from Buyer, execute
and deliver, or cause to be executed and delivered, to Buyer, such additional
documentation and instruments of transfer and conveyance, and will take such
other and further actions, as Buyer may reasonably request as more completely
to sell, transfer and assign to and fully vest in Buyer, ownership or leasehold
interests of the Acquired Assets and otherwise consummate the transaction
contemplated by this Agreement.
9.3. FURTHER CONSENTS TO ASSIGNMENT. With respect to those
consents to or approvals of assignments of Charters or other leases or
contracts (or an effective waiver thereof) which are not obtained on or prior
to the Closing Date and as to which Buyer nevertheless (at its sole option and
election) elects to proceed with the Closing:
(a) at the written request therefor by Buyer after
Closing, the parties will make all reasonable efforts to obtain such
consent assignment or approval (or an effective waiver thereof); and
(b) if the parties are unable to obtain such consents or
approvals, or an effective waiver thereof, Sellers will cooperate with
Buyer in entering into and effecting any reasonable arrangement
designed to provide Buyer with the benefit of Sellers' rights under or
pursuant to such items, including enforcement (at Buyer's expense
which shall not include any expenses of Sellers' personnel but
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only out of pocket expenses) of any and all rights of Sellers against
any other party as Buyer may reasonably request.
Sellers will not be obligated to pay any additional
consideration in order to obtain any consent or approval, or effective
waiver thereof, pursuant to this SECTION 9.3. Sellers will cooperate
with Buyer in obtaining any required consent or approval, or an
effective waiver thereof. Buyer will pay or reimburse Sellers for all
amounts paid by Sellers with Buyer's prior approval in order to obtain
such consent or approval, or an effective waiver thereof.
9.4. BOOKS AND RECORDS; PERSONNEL. For a period of five (5) years
from the Closing Date (or such longer period as may be required by any
governmental agency or requested by Sellers or Buyer in connection with
disputes or litigation):
(a) Buyer shall neither dispose of nor destroy any books
and records relating to the Acquired Assets which were delivered by
Sellers to Buyer without first offering to turn over possession
thereof to Sellers by written notice to Sellers at least thirty days
prior to the proposed date of such disposition or destruction.
(b) Buyer shall allow Sellers and their agents access to
all books and records which were delivered by Sellers to Buyer during
normal working hours at Buyer's principal places of business or at any
location where any books and records are stored, and Sellers shall
have the right, at its own expense, to make copies of any books and
records; provided, however, that any such access or copying shall be
had or done in such a manner so as not to unreasonably interfere with
the normal conduct of Buyer's business subject to the safety and
security procedures of Buyer.
(c) Buyer shall make available to Sellers upon written
request (i) copies of any books and records received from Sellers
relating to the Acquired Assets, (ii) Buyer's personnel to assist
Sellers in locating and obtaining any such books and records, and
(iii) any of Buyer's personnel whose assistance or participation is
reasonably required by Sellers in anticipation of, or preparation for,
existing or future litigation, tax returns or other matters in which
Sellers are involved. Sellers shall reimburse Buyers for the
reasonable out-of-pocket expenses (excluding expenses of Buyer's
personnel) incurred by Buyer in performing the covenants contained in
this SECTION 9.4(C).
(d) Sellers shall allow Buyer and its agents access to
all books and records relating to the Acquired Assets during normal
working hours at Sellers' principal places of business or at any
location where any books and records are stored, and Buyer shall have
the right, at its own expense, to make copies of any books and
records; provided, however, that any such access or copying shall be
had or done in such a manner so as not to unreasonably interfere with
the normal conduct of Sellers' business and shall be (i) subject to
the safety and security
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procedures of Sellers, and (ii) information regarding third parties
which Sellers are required to keep confidential.
(e) Sellers shall make available to Buyer upon written
request (i) copies of any books and record relating to the Acquired
Assets (excluding information regarding third parties which Sellers
are required to keep confidential), (ii) Sellers' personnel to assist
Buyer in locating and obtaining any books and records, and (iii) any
of Sellers' personnel whose assistance or participation is reasonably
required by Buyer in anticipation of, or preparation for, matters in
which Sellers are involved. Buyer shall reimburse Sellers for the
reasonable out-of- pocket expenses (excluding expenses of Sellers'
personnel) incurred by Sellers in performing the covenants contained
in this SECTION 9.4(E).
(f) For purposes of this SECTION 9.4, books and records
shall mean files, journals, and the like relating to the Acquired
Assets but specifically excluding corporate minute books, tax returns,
bank statements, accounting records and invoices.
9.5. REDOCUMENTATION OF VESSELS. Immediately following the
Closing, the Buyer shall surrender to the U.S. Coast Guard the Certificates of
Documentation (Form CG-1270) for each of the documented Dow Vessels. Sellers
shall execute and deliver such documents as shall be necessary to enable Buyers
to redocument the Dow Vessels in its name with a coastwise endorsement.
9.6. FINANCIAL STATEMENTS. If Kirby Corporation, the parent of
Buyer, is required to include financial or other information of Sellers
relating to the Acquired Assets in filings pursuant to the Securities Exchange
Act of 1934, as amended (the "'34 ACT"), Sellers will assist Buyer and Sellers
will, at the cost and expense of Buyer, allow Buyer to audit the necessary
records of Sellers related to the Acquired Assets for the purpose of obtaining
financial information to enable Kirby Corporation, to make necessary filings
under the '34 Act. Sellers agree to cooperate with Buyer and its auditors in
making available such books and records. Such audited records shall be without
any representation or warranty either express or implied, by either of Sellers
to Buyer or Kirby Corporation. All such audits shall be subject to the safety
and security procedures of Sellers.
9.7. EMPLOYEES OF SELLERS. Sellers will comply with all applicable
laws, and rules and regulations thereunder, relating to Sellers' employees
whose work has been related to the Acquired Assets, including, but not limited
to, plant closings laws and applicable COBRA requirements, and shall maintain
for a reasonable period following the Closing Time one or more group health
plans in which any such employee of the Sellers who is terminated as a result
of the transaction may exercise continuation coverage rights, and shall give
the notice required by COBRA to each such employee and applicable beneficiary
of their right to exercise such continuation coverage rights with respect to
such plan(s). Additionally, Buyer shall have no responsibility or liability
with respect to benefits which have accrued or been promised to any of Sellers'
employees, either under an employee benefit plan, as defined in the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA"), of Sellers or
with respect to claims with respect to workers compensation laws, the Jones Act
or general maritime law arising out of or resulting from injuries sustained in
whole or in part on or before the Closing Time, and provided further that it is
the understanding and intention of Sellers and Buyer that, to the maximum
extent permitted under applicable law, none of the group health plans
maintained by Buyer shall constitute a successor plan(s) to Sellers' group
health plan(s), and that Buyer is not a successor employer with respect to
Sellers' group health plans, nor are Sellers a predecessor employer with
respect to Buyer's group health plan(s).
9.8. PURCHASE OF DOW CHARTERED VESSELS. With respect to the Dow
Chartered Vessels, at the Closing Buyer has either (i) taken an Assignment of
the Charters, or (ii) subleased the Dow Chartered Vessels. Sellers understand
that Buyer desires to purchase the Dow Chartered Vessels and Sellers agree to
use their best efforts to facilitate the purchase of the Dow Chartered Vessels
by Buyer from the owner thereof on terms acceptable to Buyer and Seller.
ARTICLE X
INDEMNITY
10.1. INDEMNIFICATION BY SELLERS. EXCEPT FOR ANY CONTRACTS OR
AGREEMENTS BETWEEN BUYER AND SELLERS OTHER THAN THIS AGREEMENT NOW OR HEREAFTER
ENTERED INTO, INCLUDING, BUT NOT LIMITED TO, THE TRANSPORTATION CONTRACT, OR
EVENTS OR OCCURRENCES THEREUNDER OR IN CONNECTION THEREWITH, SELLERS AGREE THAT
THEY, JOINTLY AND SEVERALLY, WILL INDEMNIFY THE BUYER AND WILL HOLD IT AND ITS
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS AND THE DOW VESSELS AND DOW CHARTERED
VESSELS "IN REM" HARMLESS FROM AND AGAINST ALL CLAIMS, LOSSES, LIABILITIES,
PENALTIES, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) CAUSED BY
OR ARISING OUT OF (1) ANY BREACH OF WARRANTY, COVENANT OR AGREEMENT OR
INCORRECT OR ERRONEOUS REPRESENTATION OF THE SELLERS OR EITHER OF THEM
CONTAINED HEREIN, IN ANY EXHIBIT HERETO, OR IN ANY DOCUMENT DELIVERED PURSUANT
HERETO, (2) OPERATION OF THE DOW VESSELS OR DOW CHARTERED VESSELS, OR
PERFORMANCE OF THE CHARTERS BY SELLERS WHICH ACCRUE OR RELATE TO AN EVENT OR
OCCURRENCE PRIOR TO THE CLOSING TIME, (3) ANY EVENT OR OCCURRENCE PRIOR TO THE
CLOSING TIME, SPECIFICALLY INCLUDING, BUT NOT LIMITED TO, VIOLATION OF ANY
ENVIRONMENTAL LAWS INVOLVING ANY DOW VESSEL OR DOW CHARTERED VESSELS, OR (4)
THE EXCLUDED LIABILITIES, WHETHER OR NOT CAUSED IN WHOLE OR IN PART BY THE
NEGLIGENCE, FAULT OR STRICT LIABILITY OF BUYER. IN THE EVENT OF CONFLICT
BETWEEN THIS AGREEMENT AND THE TRANSPORTATION CONTRACT, THE TRANSPORTATION
CONTRACT SHALL BE CONTROLLING.
10.2. INDEMNIFICATION BY BUYER. EXCEPT FOR ANY CONTRACTS OR
AGREEMENTS BETWEEN BUYER AND SELLERS OTHER THAN THIS AGREEMENT NOW OR HEREAFTER
ENTERED INTO, INCLUDING, BUT NOT LIMITED TO, THE TRANSPORTATION CONTRACT, OR
EVENTS OR OCCURRENCES THEREUNDER OR IN CONNECTION THEREWITH, BUYER AGREES THAT
IT WILL INDEMNIFY EACH OF THE SELLERS AND WILL HOLD THEM AND THEIR DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS HARMLESS FROM AND AGAINST ALL CLAIMS, LOSSES,
LIABILITIES, PENALTIES, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
FEES) CAUSED BY OR ARISING OUT OF (1) ANY BREACH OF WARRANTY, COVENANT OR
AGREEMENT OR INCORRECT
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OR ERRONEOUS REPRESENTATION OF THE BUYER CONTAINED HEREIN, IN ANY EXHIBIT
HERETO, OR IN ANY DOCUMENT DELIVERED PURSUANT HERETO, OR (2) OPERATION OF THE
DOW VESSELS OR DOW CHARTERED VESSELS, OR PERFORMANCE OF THE CHARTERS OR
SUBLEASE OF THE DOW CHARTERED VESSELS BY BUYER WHICH ACCRUE OR RELATE TO AN
EVENT OR OCCURRENCE AFTER THE CLOSING TIME, OR (3) ANY EVENT OR OCCURRENCE
AFTER THE CLOSING TIME, SPECIFICALLY INCLUDING, BUT NOT LIMITED TO, VIOLATION
OF ANY ENVIRONMENTAL LAWS, INVOLVING ANY DOW VESSEL OR DOW CHARTERED VESSEL, OR
(4) THE ASSUMED LIABILITIES, WHETHER OR NOT CAUSED IN WHOLE OR IN PART BY THE
NEGLIGENCE, FAULT OR STRICT LIABILITY OF SELLER. IN THE EVENT OF CONFLICT
BETWEEN THIS AGREEMENT AND THE TRANSPORTATION CONTRACT, THE TRANSPORTATION
CONTRACT SHALL BE CONTROLLING.
10.3. INDEMNITY PROCEDURES. Promptly after receipt by either party
hereto (the "INDEMNITEE") of notice of any demand, claim or circumstance which
would give rise to a claim or the commencement (or threatened commencement) of
any action, proceeding or investigation pursuant to the indemnity in SECTION
10.1 and SECTION 10.2 (an "ASSERTED LIABILITY") that may result in a loss, the
Indemnitee shall give notice thereof (the "CLAIMS NOTICE") to the other party
hereto (the "INDEMNIFYING PARTY"). The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary) of the loss that has been or may be suffered by the
Indemnitee.
The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability and if it does so, the
Indemnifying Party shall have the right to make all judgments and decisions in
respect of the handling of the defense of such Asserted Liability subject to
the provisions of this SECTION 10.3. If the Indemnifying Party elects to
compromise or defend such Asserted Liability, it shall within thirty (30) days
of the Claims Notice (or sooner, if the nature of the Asserted Liability so
requires) notify the Indemnitee of its intent to do so, and the Indemnitee
shall cooperate, as required by and at the expense of the Indemnifying Party,
in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise of defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability without waiving or otherwise
affecting its rights under this ARTICLE X. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise
(including any settlement or compromise involving non-monetary consideration or
equitable relief) any claim over the objection of the other; provided, however,
that consent to settlement or compromise shall not be unreasonably withheld.
In any event, the Indemnitee and the Indemnifying Party may participate, at
their own expense, in the defense of such Asserted Liability. If the
Indemnifying Party chooses to defend any claim, the Indemnitee shall make
available at the Indemnifying Party any books, records or other documents
within its control that are necessary or appropriate for such defense.
10.4. LIMITATION. The liability of an Indemnifying Party to the
Indemnitee shall be limited to actual damages, losses, liabilities, costs and
expenses and shall not include special, incidental, consequential, lost
profits, business interruption and or punitive damages of the Indemnitee.
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ARTICLE XI
TERMINATION
11.1. TERMINATION. This Agreement may be terminated and the
transaction may be abandoned at any time prior to the Closing Time:
(a) by mutual consent of Buyer and the Sellers;
(b) by Buyer, if (i) there shall have been a material
breach of any representation, warranty, covenant or agreement on the
part of the Sellers which breach shall not have been cured prior to
the earlier of (a) 10 days following notice of such breach and (b) the
Closing Date; or (ii) any permanent injunction or other order of a
court or other competent Governmental Entity preventing the
consummation of the transaction shall have become final and
nonappealable;
(c) by Sellers if (i) there shall have been a material
breach of any representation, warranty, covenant or agreement on the
part of the Buyer which breach shall not have been cured prior to the
earlier of (a) 10 days following notice of such breach and (b) the
Closing Date; or (ii) any permanent injunction or other order of a
court or other competent Governmental Entity preventing the
consummation of the transaction shall have become final and
nonappealable;
(d) by Buyer or Sellers if the transaction shall not have
been consummated by December 31, 1994; provided, that the right to
terminate this Agreement under this SECTION 11.1(D) shall not be
available to any party whose breach of its representations and
warranties in this Agreement or whose failure to perform any of its
covenants and agreements under this Agreement has been the cause of or
resulted in the failure of the transaction to occur on or before such
date;
(e) by Buyer or Sellers if there shall have been any
material adverse changes in Acquired Assets (including loss or damage
to Vessels) or financial condition of any of the Sellers or Buyer
since the date of this Agreement and if there has been any occurrence
that has or might in the future result in any material change in the
inland liquid bulk transportation requirements of Sellers.
11.2. EFFECT OF TERMINATION. In the event of a termination of this
Agreement by either Buyer or Sellers as provided in SECTION 11.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation under this Agreement on the part of Buyer or Sellers or their
respective officers, directors or stockholders, except (i) pursuant to the
covenants and agreements contained in SECTION 12.4, SECTION 12.8 and this
SECTION 11.2 and (ii) to the extent that such termination results from the
willful material breach by a party hereto of any of its representations,
warranties, covenants or agreements set forth in this Agreement, in which case
the non-breaching party shall have a right to recover its actual damages caused
thereby,
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excluding all special, incidental, consequential, lost profits, business
interruption and/or punitive damages.
11.3. EXTENSION; WAIVER. At any time prior to the Closing, the
parties hereto may, in their respective sole discretion and to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed by or on behalf of such party.
ARTICLE XII
MISCELLANEOUS
12.1. PRORATION OF TAXES. Any ad valorem taxes for the year 1994
attributable to the Acquired Assets shall be prorated between Buyer and Sellers
as of the Closing Date. If the Closing Date occurs before the tax rate on any
of the Acquired Assets is fixed for the current year, the apportionment of the
taxes shall be on the basis of the tax rate for the preceding year applied to
the latest assessed valuation. Any difference from ad valorem taxes for 1994
actually paid by Buyer shall be adjusted between Buyer and Seller upon receipt
by Seller of written evidence of payment thereof. Additionally, waterway use
taxes shall be prorated between Buyer and Seller as of the Closing Date.
12.2. SALES TAXES. Buyer and Sellers agree that the Acquired Assets
constitute an identifiable segment of the business of Sellers and that this
transaction is exempt from Texas sales or use tax as an occasional sale (Sec.
151.304 Texas Revised Civil Statutes). Buyer agrees to indemnify Sellers with
respect to any Texas sales or use tax or any other state sales or use tax that
might be applicable to the sale, but not the assignment or sublease, as the
case may be, of the Acquired Assets. Sellers agree to indemnify the Buyer with
respect to any Texas sales or use tax or any other State sales or use tax that
might be applicable to the assignment or sublease, as the case may be, but not
the sale of the Acquired Assets.
12.3. NO BROKERS. Each party represents that it has not dealt with
or engaged any broker or other parties in connection with the transactions
contemplated by this Agreement which would entitle such broker or other parties
to a commission or fee.
12.4. EXPENSES. Sellers shall bear all costs and expenses incurred
by them in connection with the negotiation, execution and performance of this
Agreement, and Buyer shall bear all costs and expenses incurred by it in
connection with the negotiation, execution and performance of this Agreement.
Buyer will pay any U.S. Coast Guard and other filing fees relating to the cost
of redocumentation, transferring or mortgaging or any other collateral
documents relating to the Vessels or Additional Dow Chartered Vessels.
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12.5. ASSIGNMENT AND BINDING EFFECT. Buyer may assign this
Agreement to any company that controls or is controlled by or under common
control with Buyer, provided that such assignee shall be a citizen of the
United States within the meaning of Section 2 of the Shipping Act of 1916, as
amended. Except as provided in the preceding sentence, this Agreement shall
not be assignable by either Sellers or Buyer without the prior written consent
of the other. In the event of any assignment of this Agreement, the assignor
shall remain fully and primarily liable for the performance of its obligations
hereunder. Subject to the foregoing provisions, this Agreement shall be
binding on and shall benefit the successors and assigns of the parties.
12.6. INTERPRETATION OF AGREEMENT. There are no agreements,
warranties, or representations, express or implied, except those expressly set
forth herein or in the Exhibits hereto. Except as otherwise provided herein,
all representations and warranties contained in this Agreement shall apply as
of the Closing Date and a breach thereof shall survive the Closing, whether or
not such representations and warranties are contained in any document delivered
pursuant to this Agreement.
12.7. NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be treated as having
been duly given if delivered by hand, or upon receipt if mailed by first class
registered or certified mail, return receipt requested, postage prepaid, and
addressed as follows:
(a) If to the Sellers, to
The Dow Chemical Company and/or
Dow Hydrocarbons and Resources Inc.
400 West Sam Houston Parkway South
Houston, Texas 77042-1299
Attention: Mr. Douglas Gallier
(b) If to the Buyer, to
Dixie Marine, Inc.
1775 St. James Place
P. O. Box 1537
Houston, Texas 77251
Attention: Mr. Brian K. Harrington
With a copy to
Henry Gilchrist, Esq.
Jenkens & Gilchrist, P.C.
Suite 3200, 1445 Ross Avenue
Dallas, Texas 75202-2799
27
<PAGE> 33
or to such other address as shall be furnished in writing by Sellers or Buyer.
12.8. CONFIDENTIALITY. Except to the extent required to disclose by
reason of applicable laws, governmental orders, rules or regulations or
applicable provisions of a stock exchange, the contents of this Agreement shall
not be disclosed to any third party without the prior written consent of the
other parties; provided that, without such consent, each party shall have the
right to disclose the contents of this Agreement for business purposes to its
parent and other affiliated companies, to counsel retained by such entities,
and to their independent public accounting firms.
12.9. ARBITRATION. Except for matters relating to condition of any
Vessel or Additional Dow Chartered Vessel or cost of repair, which shall be
resolved as provided in SECTION 1.10, and the Purchase Price Adjustment which
shall be resolved as provided in SECTION 1.7, any disputes, claims or
controversies connected with, arising out of or related to this Agreement and
the rights and obligations herein, or the breach, validity, existence or
termination thereof shall be settled by arbitration in Houston, Texas and any
award issued pursuant to such arbitration may be enforced in any court of
competent jurisdiction. Either party may commence arbitration by serving
written notice on the other party designating the issues(s) to be arbitrated
and the specific provisions of this Agreement under which such issues arose.
Representatives from Sellers and Buyer shall meet for the purpose of jointly
selecting an arbitrator within five (5) days after either party receives such
notice of arbitration. If no arbitrator has been selected within five (5) days
after receipt of such notice of arbitration, then each party shall within the
next five (5) days appoint on arbitrator. These two arbitrators shall then
select a third arbitrator who shall act as chairperson of the panel. If,
within the next five (5) days, the two arbitrators so selected have not
selected a third arbitrator, either party may request the Judicial Arbitration
& Mediation Services, Houston, Texas (or any successor or other comparable
entity) to select the third arbitrator. Failure of either party to select an
arbitrator within the prescribed five (5) day period shall constitute a waiver
of that right and arbitration shall proceed with the single arbitrator selected
by the other party. With respect to any and all disputes arising under this
Agreement the arbitrator(s) selected by Seller and Buyer shall be commercial
persons; however, the chairperson, if any, shall be a lawyer member of the
Maritime Law Association of the United States, admitted to practice in the
United States District Court for the Southern District of Texas. The decision
or award by a majority of the panel of arbitrators, or the single arbitrator if
arbitration proceeds without a panel, shall be final and binding upon both
parties. Any such arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
force. The arbitrator or panel of arbitrators shall be bound by the provisions
of this Agreement and shall have no authority to modify such provisions in any
manner. The arbitrator or panel of arbitrators, as the case may be may grant
any remedy or relief they deem just and equitable within the scope of the
Agreement, including interest on any award, EXCEPTING, however, special,
incidental or consequential damages, including, but not limited to, lost
profits, business interruption, attorneys fees and punitive damages of either
party to this Agreement. The arbitrator(s) must commence the arbitration
hearing within thirty (30) days of the selection of the arbitrator(s) and must
render an award within thirty (30) days of the close of the hearing, unless
such time is mutually extended by Sellers and Buyer.
28
<PAGE> 34
12.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
12.11. HEADINGS. Headings of the articles and sections of this
Agreement are used for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement.
12.12. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement and understanding between the parties hereto and may not be
modified or amended except in writing signed by all parties hereto.
12.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
12.14. LETTER OF INTENT. That certain Letter of Intent dated June
30, 1994, executed by Dow Chemical and Dixie Marine is superseded and replaced
in this entirety by this Agreement and shall be of no further force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in duplicate as of the date first written above.
THE DOW CHEMICAL COMPANY
By:
--------------------------------------
Its
-------------------------------
DOW HYDROCARBONS AND RESOURCES INC.
By:
--------------------------------------
Its
-------------------------------
DIXIE MARINE, INC.
By:
--------------------------------------
Its
------------------------------
29
<PAGE> 1
EXHIBIT 21.1
KIRBY CORPORATION
PRINCIPAL SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
PLACE OF
INCORPORATION
-------------
<S> <C>
KIRBY CORPORATION -- PARENT AND REGISTRANT...................................... Nevada
SUBSIDIARIES OF THE PARENT AND REGISTRANT
Dixie Carriers, Inc.(1)....................................................... Delaware
General Energy Corporation(1)................................................. Delaware
Kirby Exploration Company of Texas(1)......................................... Delaware
Kirby Terminals, Inc.(1)...................................................... Texas
Sabine Transportation Company(1).............................................. Delaware
Chotin Carriers, Inc.(1)...................................................... Delaware
Kirby Pioneer, Inc.(1)........................................................ Delaware
AFRAM Carriers, Inc.(1)....................................................... Delaware
Rail Systems, Inc.(1)......................................................... Delaware
Americas Marine Express, Inc.(1).............................................. Delaware
Kirby Tankships, Inc.(1)...................................................... Delaware
Kirby Marine Transportation Corporation(1).................................... Delaware
Sabine Marine Transportation Company(1)....................................... Delaware
Universal Insurance Company(1)................................................ Puerto Rico
Mariner Reinsurance Company Limited(1)........................................ Bermuda
Oceanic Insurance Limited(1).................................................. Bermuda
CONTROLLED CORPORATIONS
Dixie Bulk Transport, Inc. (subsidiary of Dixie Carriers, Inc.)(1)............ Delaware
Western Towing Company (subsidiary of Dixie Carriers, Inc.)(1)................ Texas
Marine Systems, Inc. (subsidiary of Dixie Carriers, Inc.)(1).................. Louisiana
Bolivar Terminal Company, Inc. (subsidiary of Dixie Carriers, Inc.)(2)........ Texas
Dixie Marine, Inc. (subsidiary of Dixie Carriers, Inc.)(1).................... Delaware
Brent Transportation Corporation (subsidiary of Dixie Carriers, Inc.)(1)...... Delaware
Dixie Security Corporation (subsidiary of Dixie Carriers, Inc.)(1)............ Texas
Dixie Offshore Transportation Company (subsidiary of Dixie Carriers,
Inc.)(1)................................................................... Delaware
OMR Transportation Company (subsidiary of Dixie Carriers, Inc.)............... Delaware
TPT Transportation Company (subsidiary of Dixie Carriers, Inc.)(1)............ Delaware
Eastern America Insurance Company (subsidiary of Universal Insurance
Company)(1)................................................................ Puerto Rico
Richport Bermuda Company, Ltd. (subsidiary of Universal Insurance
Company)(1)................................................................ Bermuda
</TABLE>
- ---------------
(1) Included in the consolidated financial statements.
(2) Financial statements are not filed since the company is not a "significant
subsidiary."
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in the Registration Statements
(No. 33-62116), (No. 33-56195) on Form S-3 and (No. 33-68140), (No. 2-67954),
(No. 2-84789), (No. 33-57621), (No. 33-57625) on Form S-8 of Kirby Corporation
and consolidated subsidiaries of our report dated February 21, 1995, relating to
the consolidated balance sheets of Kirby Corporation and consolidated
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994, which report appears in
the December 31, 1994 Annual Report on Form 10-K of Kirby Corporation and
consolidated subsidiaries.
KPMG PEAT MARWICK LLP
Houston, Texas
March 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994<F1>
<PERIOD-END> DEC-31-1994
<CASH> 7,355
<SECURITIES> 2,875
<RECEIVABLES> 64,684
<ALLOWANCES> 1,384
<INVENTORY> 8,270
<CURRENT-ASSETS> 96,785
<PP&E> 485,892
<DEPRECIATION> 153,130
<TOTAL-ASSETS> 667,472
<CURRENT-LIABILITIES> 67,586
<BONDS> 0
<COMMON> 3,078
0
0
<OTHER-SE> 219,898
<TOTAL-LIABILITY-AND-EQUITY> 667,472
<SALES> 36,698
<TOTAL-REVENUES> 433,137
<CGS> 27,725
<TOTAL-COSTS> 345,985
<OTHER-EXPENSES> 51,472
<LOSS-PROVISION> 1,173
<INTEREST-EXPENSE> 8,835
<INCOME-PRETAX> 26,845
<INCOME-TAX> 10,192
<INCOME-CONTINUING> 16,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,653
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
<FN>
<F1>All insurance assets and liabilities are assumed to be non-current.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 28.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Universal Insurance Company
San Juan, Puerto Rico
We have audited the consolidated balance sheets of Universal Insurance
Company and its subsidiaries as of December 31, 1993 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994 (not presented
separately herein). Our audits also included financial statement schedules V and
VI (supplemental insurance information and reinsurance) for the years ended
December 31, 1992, 1993 and 1994 listed in Part IV, Item 14 (not presented
separately herein). These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Universal Insurance Company and
its subsidiaries at December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements (not
presented separately herein), the Company changed its method of accounting for
income taxes effective January 1, 1992, for the carrying value of investments
effective December 31, 1993 and for the amortization of unearned premiums for
certain automobile physical damage premiums effective January 1, 1994.
DELOITTE & TOUCHE LLP
San Juan, Puerto Rico
February 27, 1995
