<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1998
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)
<TABLE>
<S> <C>
NEVADA 74-1884980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1775 ST. JAMES PLACE, SUITE 200 77056-3453
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (713) 435-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ---------------------------------------------- ----------------------------------------------
<S> <C>
COMMON STOCK -- $.10 NEW YORK STOCK
PAR VALUE PER SHARE EXCHANGE
</TABLE>
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 the 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 February 25, 1999, 20,295,894 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 New York
Stock Exchange on February 24, 1999 was $286,761,742. For purposes of this
computation, all executive officers, directors and 10% beneficial owners of the
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 20, 1999, to be filed with the
Commission pursuant to Regulation 14A, is incorporated by reference into Part
III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
Kirby Corporation (the "Company") was incorporated in Nevada on January 31,
1969 as a subsidiary of Kirby Industries, Inc. ("Industries"). 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. At that time, the Company was engaged in oil and gas
exploration and production, marine transportation and property and casualty
insurance. Since then, through a series of acquisitions and divestitures, the
Company has become primarily a marine transportation company and is no longer
engaged in the oil and gas or the property and casualty insurance businesses. In
1990, the name of the Company was changed from "Kirby Exploration Company, Inc."
to "Kirby Corporation" because of the changing emphasis of its business.
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 200, Houston, Texas 77056, and its telephone number is (713)
435-1000. The Company's mailing address is P.O. Box 1745, Houston, Texas
77251-1745.
BUSINESS AND PROPERTY
The Company, through its subsidiaries, conducts operations in two business
segments: marine transportation and diesel repair.
The Company's marine transportation segment is engaged in the inland
transportation of industrial chemicals, petrochemical feedstocks, agricultural
chemicals and refined petroleum products by tank barges, and the offshore
transportation of dry-bulk, container and palletized cargoes by barge. The
Company's marine transportation segment is strictly a provider of transportation
services and does not assume ownership of any of the products that it
transports. All of the Company's vessels operate under the U.S. flag and are
qualified for domestic trade under the Jones Act.
The Company's diesel repair segment is engaged in the overhaul and repair
of diesel engines and related parts sales in three distinct markets: the marine
market, providing aftermarket service for vessels powered by large, medium-speed
diesel engines utilized in the various inland and offshore marine industries;
the locomotive market, providing aftermarket service for the shortline and the
industrial railroad markets; and the stationary market, providing aftermarket
service for small power generation applications and stand-by generation
components of the nuclear industry.
The Company was engaged through subsidiaries in the offshore transportation
of refined petroleum products by tankers and harbor service operations. On March
16, 1998, all of the tankers and harbor service operations were sold and the
tanker and harbor service operations for the 1997 year were reflected as
discontinued operations and previously reported financial statements were
restated. See "Discontinued Operations" on page 16 of Item 1 and Note 2 to the
notes to financial statements included under Item 8 elsewhere herein for further
disclosures on the sale of the tanker and harbor service operations.
Effective September 30, 1998, the Company sold its remaining 45% voting
common stock interest in a property and casualty insurance company operating
exclusively in the Commonwealth of Puerto Rico. See "Insurance" on page 15 of
Item 1 and Note 3 to the notes to financial statements included under Item 8
elsewhere herein for further disclosure.
The Company and its transportation and diesel repair subsidiaries have
approximately 1,570 employees, all of which are in the United States.
1
<PAGE> 3
The following table sets forth by segment the revenues, operating profits
and identifiable assets attributable to the continuing principal activities of
the Company for the periods indicated (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
Marine transportation..................................... $249,594 $256,108 $244,839
Diesel repair............................................. 70,422 79,136 82,241
Other..................................................... 3,568 1,290 5,175
-------- -------- --------
Consolidated revenues............................. $323,584 $336,534 $332,255
======== ======== ========
Operating profits:
Marine transportation..................................... $ 38,172 $ 39,542 $ 37,661
Diesel repair............................................. 5,376 6,189 8,050
Impairment of long-lived assets........................... -- -- (8,333)
-------- -------- --------
43,548 45,731 37,378
Equity in earnings of insurance affiliate................. 2,171 4,609 1,325
Loss on sale of insurance affiliate....................... -- -- (10,536)
Equity in earnings of marine affiliates................... 3,912 3,084 946
Other income.............................................. 3,568 1,290 5,175
General corporate expenses................................ (5,786) (4,864) (5,375)
Interest expense.......................................... (13,349) (13,378) (11,898)
-------- -------- --------
Earnings from continuing operations before taxes
on income....................................... $ 34,064 $ 36,472 $ 17,015
======== ======== ========
Identifiable assets:
Marine transportation..................................... $320,816 $321,158 $301,020
Diesel repair............................................. 48,012 47,290 38,588
-------- -------- --------
368,828 368,448 339,608
Investment in insurance affiliate......................... 44,554 45,320 --
Investments in marine affiliates.......................... 12,697 16,256 12,795
Discontinued operations................................... 59,365 49,036 --
General corporate assets.................................. 39,086 38,899 37,896
-------- -------- --------
Consolidated assets............................... $524,530 $517,959 $390,299
======== ======== ========
</TABLE>
2
<PAGE> 4
MARINE TRANSPORTATION
The Company is engaged in marine transportation as a provider of services
by barge for both the inland and offshore markets. As of February 25, 1999, the
equipment owned or operated by the Company's marine transportation segment was
comprised of 523 inland tank barges, 128 inland towboats, three inland bowboats,
six offshore dry-cargo barges and seven offshore tugboats with the following
specifications and capacities:
<TABLE>
<CAPTION>
NUMBER AVERAGE AGE BARREL
CLASS OF EQUIPMENT IN CLASS (IN YEARS) CAPACITIES
- ------------------ -------- ----------- ----------
<S> <C> <C> <C>
Inland tank barges:
Regular double skin:
20,000 barrels and under......................... 236 23.7 2,772,000
Over 20,000 barrels.............................. 163 18.4 4,392,000
Specialty double skin............................... 38 28.3 599,000
Single skin:
20,000 barrels and under......................... 32 31.3 539,000
Over 20,000 barrels.............................. 54 30.5 1,378,000
--- ---- ---------
Total inland tank barges.................... 523 23.6 9,680,000
=== ==== =========
Inland towing vessels:
Inland towboats:
2,000 horsepower and under....................... 100 24.0
Over 2,000 horsepower............................ 28 25.3
--- ----
Total inland towboats....................... 128 24.3
=== ====
Inland bowboats..................................... 3 24.8
=== ====
DEADWEIGHT
TONNAGE
---------
Offshore dry-cargo barges(*).......................... 6 22.3 106,000
=== ==== =========
Offshore tugboats(*).................................. 7 22.4
=== ====
</TABLE>
- ---------------
(*) 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.
The following table sets forth the marine transportation revenues and
percentage of such revenues for the marine transportation segment for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
REVENUES BY PRODUCT OR OPERATION AMOUNTS % AMOUNTS % AMOUNTS %
- -------------------------------- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Marine transportation -- Inland:
Liquid petroleum products........ $231,747 93% $237,828 93% $238,170 97%
-------- --- -------- --- -------- ---
Marine transportation -- Offshore:
Liquid petroleum products........ 5,285 2 7,952 3 4,509 2
Dry-bulk......................... 3,059 1 2,807 1 2,160 1
Break-bulk....................... 9,661 4 7,529 3 -- --
-------- --- -------- --- -------- ---
18,005 7 18,288 7 6,669 3
-------- --- -------- --- -------- ---
Intercompany transactions.......... (158) -- (8) -- -- --
-------- --- -------- --- -------- ---
$249,594 100% $256,108 100% $244,839 100%
======== === ======== === ======== ===
</TABLE>
3
<PAGE> 5
MARINE TRANSPORTATION INDUSTRY FUNDAMENTALS
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. The waterway system extends into numerous
states, with over 90% of the United States population 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 waterway system extends approximately 26,000
miles, 11,000 miles of which are generally considered significant for domestic
commerce. The navigable waterways link the United States heartland to the world.
Marine transportation is an efficient means of transportation of bulk products.
A standard 10,000 barrel inland tank barge carries the equivalent cargo of 15
rail cars or 60 tractor-trailer trucks. A typical lower Mississippi River tow of
30 barges carries as much cargo as 450 rail cars or 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 15% of domestic intercity freight at less
than 2% of domestic intercity freight costs. Inland barge transportation is also
the safest mode of transportation per ton mile in the United States. The United
States inland tank barge industry is diverse and independent with a mixture of
integrated transportation companies, small operators and captive fleets owned by
United States refining and petrochemical companies.
INLAND TANK BARGE INDUSTRY
The Company operates within the United States inland tank barge industry,
which provides marine transportation of bulk liquid cargoes for customers along
the United States inland waterway system. Among the most significant segments of
this industry are the transporters of industrial chemicals, petrochemical
feedstocks, 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. The Company's
principal distribution system encompasses the Gulf Intracoastal Waterway from
Brownsville, Texas to St. Marks, Florida, the Mississippi River System and the
Houston Ship Channel. The Mississippi River System includes the Arkansas,
Illinois, Missouri, Ohio and Tennessee Rivers and the Tombigbee Waterway.
The Company believes that the total number of tank barges that operate in
the inland waters of the United States has declined from approximately 4,200 in
1981 to approximately 2,800 in 1998. The Company believes this decrease
primarily resulted from: increasing age of the domestic tank barge fleet
resulting in scrapping; rates inadequate to justify new construction; reduction
in financial and tax incentives which previously encouraged speculative
construction of new equipment; stringent operating standards to adequately cope
with safety and environmental risk; and an increase in environmental regulations
that mandate expensive equipment modification which some owners are unwilling or
unable to undertake given current rate levels and the age of their fleets.
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, although the government guaranteed financing programs, dormant
since the mid-eighties, have been more active since 1993. The supply of tank
barges resulting from the earlier programs has slowly aligned with demand for
tank barge services, primarily through attrition, as discussed above.
4
<PAGE> 6
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, continued growth of the
United States population 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.
A well maintained tank barge will be serviceable for more than 30 years.
The average age of the nation's tank barge fleet is over 22 years old, with only
16% of the fleet built in the last 10 years. Single skin barges comprise
approximately 18% of the nation's tank barge fleet, with an average age of 29
years. These single skin barges are being driven from the nation's tank barge
fleet by market forces, environmental concerns and rising maintenance costs to
keep such fleets afloat and in service.
The Company also believes that the current consolidating industry will be
less prone to overbuilding of the nation's tank barge fleet. Of the approximate
450 tank barges built since 1989, 74, or 16%, were built by the Company. The
balance was primarily special purpose barges or barges constructed for specific
contracts. Currently, the only significant building is by an oil company to
replace its aging captive fleet.
The Company is also engaged in dry-cargo barge operations, providing
transportation of dry-bulk cargoes, and containerized and palletized cargoes,
including United States Government preference agricultural commodities. Such
products and cargoes are transported primarily between domestic ports along the
Gulf of Mexico and along the Atlantic Seaboard, with occasional trips to
Caribbean and South American ports.
COMPETITION IN THE INLAND TANK BARGE INDUSTRY
The Company operates in the highly competitive marine transportation market
for commodities transported on the Mississippi River System, the Gulf
Intracoastal Waterway and the Houston Ship Channel. The industry has become
increasingly concentrated in recent years as smaller and/or economically weaker
companies have gone out of business or have been acquired by larger or stronger
companies. The Company's 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,
offer distribution capability throughout the inland waterway system, 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 cargoes for their
own account. The Company is the largest inland tank barge carrier, based on its
523 barges and 9,680,000 barrels of available capacity. It has approximately 25%
of the independent tank barge capacity and 19% of the total domestic tank barge
capacity.
While the Company competes primarily with other barge companies, it also
competes with companies owning refined product and chemical pipelines, and, to a
much 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 refined products and chemical pipelines, although
often a less expensive form of transportation than tank barges, 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.
MARINE TRANSPORTATION OPERATIONS
The Company provides marine transportation services for the following
markets: industrial chemicals, agricultural chemicals, refined petroleum
products and barge fleeting services. The Company's marine transportation
segment operates a fleet of 523 inland tank barges, 128 inland towboats and
three inland
5
<PAGE> 7
bowboats, one offshore dry-cargo barge and one offshore tugboat. Through
partnerships, the marine transportation segment operates five offshore dry-cargo
barges and six offshore tugboats.
Inland Operations. The Company's inland marine transportation operations
are conducted through a wholly-owned subsidiary, Kirby Inland Marine, Inc.
("Kirby Inland Marine"), and its subsidiaries. Inland operations consist of the
Canal, Linehaul and River fleets, as well as barge fleeting services performed
by Western Towing Company ("Western").
The Canal fleet transports petrochemical feedstocks, processed chemicals
and refined petroleum products along the Gulf Intracoastal Waterway, the
Mississippi River below Baton Rouge and in the Houston Ship Channel.
Petrochemical feedstocks are transported from one refinery to another refinery
for further processing. Processed chemicals are moved to waterfront terminals
and chemical plants, while refined products are transported to waterfront
terminals in Florida for distribution.
The Linehaul fleet transports petrochemical feedstocks, processed
chemicals, agricultural chemicals and lube oils along the Gulf Intracoastal
Waterway, Mississippi River and the Illinois and Ohio Rivers. Loaded barges are
collected at Baton Rouge from Gulf Coast refineries and chemical plants, and are
transported from Baton Rouge upriver to waterfront terminals and plants on the
Mississippi, Illinois and Ohio Rivers on regularly scheduled Linehaul tows.
Barges are dropped off and picked up going up and down river.
The River fleet transports petrochemical feedstocks, processed chemicals,
agricultural chemicals and refined petroleum products along the Mississippi,
Illinois, Ohio and Arkansas Rivers. Petrochemical feedstocks and processed
chemicals are transported to waterfront petrochemical and chemical plants, while
agricultural chemicals and refined petroleum products are transported to
waterfront terminals. The River fleet operates unit tows, where a towboat and
generally a static group of barges operate on consecutive voyages between a
loading point and a discharge point.
The transportation of petrochemical feedstocks and processed chemicals is
generally consistent throughout the year. Transportation of refined petroleum
products and agricultural chemicals are generally more seasonal. Movements of
refined petroleum products generally increase during the summer driving season,
and movements of agricultural chemicals generally increase during the spring and
fall planting seasons.
Marine transportation services are conducted under long-term contracts with
customers with whom the Company has long-standing relationships, as well as
under short-term and spot contracts. Currently, approximately 80% of the
revenues are derived from term contracts and 20% are derived from spot market
movements.
For increased environmental protection, all of the inland tank barges used
in the transportation of industrial chemicals are of double skin construction
and, where applicable, are capable of controlling vapor emissions to meet
occupational health and safety regulations and air quality concerns.
The Company, over the last several years, through consolidation within the
inland tank barge market, has become one of the most capable inland tank barge
operators, and one with the ability to offer to its customers distribution
capabilities throughout the Mississippi River System and the Gulf Intracoastal
Waterway. Such consolidation offers economies of scale to better match barges,
towboats, products and destinations.
Through the Company's proprietary vessel management computer system, the
Company's fleet of 523 barges and 128 towboats is dispatched from centralized
dispatch at the Company's corporate office. Electronic orders are communicated
to the vessel personnel, with reports of towing activities communicated
electronically back to the corporate office. The electronic interface between
the corporate office and the vessel personnel enables the Company to more
effectively match customer needs to barge capabilities, thereby maximizing
utilization of the Company's barge and towboat fleet.
Western operates what the Company believes is the largest commercial barge
fleeting service (temporary barge storage facilities) in the ports of Houston,
Galveston and Freeport, Texas, and on the Mississippi River at Baton Rouge,
Louisiana. Western provides service for Kirby Inland Marine's barges, as well as
outside customers, transferring barges within the areas noted, as well as
fleeting barges.
6
<PAGE> 8
Kirby Logistics Management, a division of Kirby Inland Marine, offers barge
tankerman services and related distribution services to the Company and to third
parties.
Offshore Operations. The Company's offshore fleet is comprised of one
offshore dry-cargo barge and tugboat unit, and equipment owned through two
limited partnerships, Dixie Fuels Limited ("Dixie Fuels") and Dixie Fuels II,
Limited ("Dixie Fuels II") in which a subsidiary of the Company owns a 35% and
50% interest, respectively.
The ocean-going dry-bulk barge and tugboat unit is engaged in the
transportation of dry-bulk commodities including sugar, limestone rock, grain
and scrap steel, primarily between domestic ports along the Gulf of Mexico and
along the Atlantic Seaboard, with occasional trips to Caribbean and South
American ports.
Dixie Bulk Transport, Inc. ("Dixie Bulk"), a subsidiary of the Company, as
general partner, 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% interest in Dixie Fuels is owned by Electric Fuels
Corporation ("EFC"), an affiliate of Florida Power Corporation ("Florida
Power"). Dixie Fuels operates primarily under 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 cargoes on a short-term basis between domestic ports
and transportation of grain from domestic ports to ports primarily in the
Caribbean Basin.
Dixie Bulk, as general partner, also manages the operations of Dixie Fuels
II, which operates an ocean-going dry-bulk and container barge and tugboat unit.
The remaining 50% interest in 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.
During 1998, the Company sold its two offshore tank barge and tug units.
The two units, one of which was a 157,000 barrel single skin barge and one a
165,000 barrel double skin barge, provided service in the transportation of
refined petroleum products and chemicals primarily in domestic coastwise
service.
The Company, through its subsidiary AFRAM Carriers, Inc. ("AFRAM"), was
engaged in the worldwide transportation by freighters of dry-bulk, container and
palletized cargoes, primarily for departments and agencies of the United States
Government. In 1996, the Company scrapped one freighter, and in 1997, the
Company scrapped the remaining two freighters, concluding the Company's exit
from the transportation of such cargoes by freighters; however, the Company may
occasionally transport such cargoes by ocean-going dry-bulk barges.
CONTRACTS AND CUSTOMERS
The majority of the marine transportation contracts are for terms of one to
ten years. Currently, the Company operates under longer term contracts with The
Dow Chemical Company ("Dow"), Chevron Chemical Company, EFC, Holnam, and Baytank
(Houston) Inc., among others. While these companies have generally been
customers of the Company's marine transportation segment for several years and
management anticipates a continuing relationship, there is no assurance that any
individual contract will be renewed. Dow, with which the Company has a contract
through 2004, accounted for 13% of the Company's revenues in 1998 and 1997 and
12% in 1996.
EMPLOYEES
The Company's marine transportation operations have approximately 1,250
employees, of which approximately 1,000 are vessel crew members. Of the 1,000
vessel crew members only a small bargaining unit
7
<PAGE> 9
of approximately 40 employees in the Company's offshore operation are subject to
a collective bargaining agreement with a labor organization.
During 1997 and 1998, a maritime union representing primarily deepsea
officers sought to organize inland towing industry employees. In April 1998,
that organization called for an inland towing industry wide work stoppage in an
attempt to gain voluntary recognition from inland towing industry employers. The
work stoppage was generally ineffective industry wide and had minimal impact on
the Company. The union continues to seek recognition throughout the inland
towing industry through petitioning for certification elections. The Company has
not been presented with any petitions.
PROPERTIES
The principal office of Kirby Inland Marine is located in Houston, Texas,
in facilities under a lease that expires in August 2003. Kirby Inland Marine's
operating locations are on the Mississippi River at Baton Rouge, Louisiana, and
Greenville, Mississippi, and in Houston, Texas near the Houston Ship Channel.
The Baton Rouge and Houston facilities are owned and the Greenville facility is
leased. Western's facilities are located on a 10.24 acre tract of land owned by
Kirby Inland Marine lying between the San Jacinto River and Old River Lake near
Houston, Texas. The principal office of the Company's offshore operations is in
Belle Chasse, Louisiana in owned facilities.
GOVERNMENTAL REGULATIONS
General. The Company's marine transportation operations are subject to
regulation by the United States Coast Guard, federal laws, state laws and
certain international conventions.
The majority of the Company's inland tank barges are inspected by the
United States Coast Guard and carry certificates of inspection. The Company's
inland and offshore towing vessels and offshore dry-bulk barges are not subject
to United States Coast Guard inspection requirements. The Company's offshore
towing vessels and offshore dry-bulk barges are built to American Bureau of
Shipping ("ABS") classification standards and are inspected periodically by ABS
to maintain the vessels in class. The crew employed by the Company aboard
vessels, including captains, pilots, engineers, tankermen and ordinary seamen,
is 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 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 for the foreseeable future.
The Company believes that additional safety and environmental related
regulations may be imposed on the marine industry in the form of personnel
licensing, navigation equipment and contingency planning 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 cabotage law that restricts domestic
marine transportation in the United States to vessels built and registered in
the United States, manned by United States citizens and owned and operated by
United States citizens. For corporations to qualify as United States citizens
for the purpose of domestic trade, 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 United States ownership requirements of the Jones Act is
very important to the operations of the Company and the loss of 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 action as necessary to ensure 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
8
<PAGE> 10
United States labor and tax laws, significantly increases the cost of U.S. flag
vessels when compared with comparable foreign flag vessels. The Company's
business would be adversely affected if the Jones Act were 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 cabotage and cargo preference
laws, see "Preference Cargo" below, have come under attack by interests seeking
to facilitate foreign flag competition for trades and cargoes 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 modify or eliminate the
cabotage provisions of the Jones Act and the cargo preference laws. If such
efforts are successful, it could have an adverse effect on the Company.
Preference Cargo. Federal law requires that preference be given to U.S.
flag vessels in the transportation of certain United States Government impelled
cargoes (cargoes shipped either by the United States Government or by a foreign
nation with the aid or guarantee of the United States Government). Markets
subject to cargo preference in which the Company participates include foreign
food aid and Eximbank cargoes. Currently, 75% of the United States Government's
directed foreign aid and agricultural assistance programs, which include grains
and other food concessions, are required to be transported in U.S. flag vessels.
Such programs benefited the Company's offshore break-bulk ships prior to their
scrappage and currently benefit dry-bulk barge and tug units, some of which
occasionally work in this trade. The transportation of such cargo accounted for
approximately 6% of the Company's revenue in 1997 and in 1996, but produced
minimal revenue in 1998.
The preference cargo law is often opposed by interests which perceive they
would benefit from the ability to transport preference cargoes aboard foreign
flag vessels. Like the cabotage provision of 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 cargoes be transported in
U.S. flag vessels. Further, the agricultural aid cargoes represent a material
United States Government budget line item. The amount of United States
Government spending in this area has declined since 1993, resulting in increased
competition for the reduced number of shipments at lower transportation rates.
Given current operations of the Company, any further reduction in Government
spending on preference cargoes would not have a significant adverse effect on
the Company's operations.
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 Army Corps of Engineers. Such user fees are designed to help
defray the costs 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 on which the Company's vessels
operate is maintained by the Corps of Engineers.
The Company presently pays a federal fuel tax of 24.3 cents per gallon,
reflecting a 4.3 cents per gallon transportation fuel tax imposed in October
1993 and a 20 cents per gallon waterway use tax. There can be no assurance that
additional user fees, either for inland waterways infrastructure, or such things
as aids to navigation infrastructure, 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 Control Act of
1972, as amended by the Clean Water Act of 1977, the Comprehensive Environmental
Response, Compensation and Liability Act of 1981 and the Oil Pollution Act of
1990 ("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 strict liability for cleanup of these
discharges and any associated damages. Certain states also have water pollution
laws that prohibit discharges
9
<PAGE> 11
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 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, such as lube oils. The Company restricts the
carriage of persistent oils in inland tank barges to double hull barges only.
One of the most important requirements under the OPA is that all newly
constructed tank barges engaged in the transportation of oil and petroleum in
the United States must be double hulled and all existing single hull tank barges
be retrofitted with double hulls or phased out of domestic service between
January 1, 1995 and 2015.
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 have been required
to maintain evidence of financial ability to satisfy statutory liabilities for
oil and hazardous substance water pollution. This evidence is in the form of a
Certificate of Financial Responsibility ("COFR") issued by the United States
Coast Guard. The majority of the Company's tank barges are subject to this COFR
requirement and the Company has fully complied with this requirement since its
inception.
The OPA amended the COFR requirements principally by significantly
increasing the financial ability requirements. The new rules severely limited
the ability of marine transportation companies to utilize insurance as a means
of satisfying the financial ability requirement under OPA. The principal
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.
Each of the marine transportation subsidiaries of the Company has obtained
COFRs pursuant to the OPA amendments for all vessels requiring COFRs. The
Company does not foresee any current or future difficulty in maintaining the
COFR 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 requires a reduction of hydrocarbon emissions released into
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 and no increase in costs are
likely to be required.
Contingency Plan Requirement. 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 approved plans that comply with these requirements. The OPA also requires
development of regulations for hazardous substance spill contingency plans. The
United States Coast
10
<PAGE> 12
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 cargoes. 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 vessels carrying large volumes of bulk
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 and third parties, 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 $480 million in hull values. Vessel
operating liabilities such as collision, cargo, environmental and personal
injury, are insured primarily through the Company's participation in mutual
insurance associations and other reinsurance arrangements under which protection
against such hazards is in excess of $2 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 $700 million for each
incident. 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 American Waterways
Operators Responsible Carrier program, the Chemical Manufacturer's Association
Responsible Care program and the American Petroleum Institute STEP program, all
of which are oriented to continuously reducing the barge industry's and chemical
and petroleum industries' impact on the environment, including the distribution
services area.
Safety. The Company manages its exposure to the hazards associated with its
business through safety, training and preventive maintenance efforts. The
Company places considerable emphasis on safety through a program oriented toward
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 as evidenced by
what it believes are lower injury frequency and pollution incident levels than
many of its competitors.
The Company was honored by the Department of Transportation and the United
States Coast Guard in September 1995 as the recipient of the William M. Benkert
Award, the premier national award which recognizes excellence in all aspects of
marine safety and environmental protection. The Company was the first recipient
of this award for the large vessel operator category. Given the national concern
over the transportation of hazardous material and oil products, this award is
independent affirmation of the Company's policies and achievements in the area
of marine safety and environmental protection.
Training. The Company believes that among the major elements of a
successful and productive work force are effective training programs. The
Company also believes that training in the proper performance of a job enhances
both the safety and quality of the service provided. New technology, regulatory
compliance,
11
<PAGE> 13
personnel safety, quality and environmental concerns create additional demands
for training. The Company fully endorses the development and institution of
effective training programs.
Centralized training is provided through the training department which is
charged with developing, conducting and maintaining training programs for the
benefit of all of the Company's operating entities. It is also responsible for
ensuring that training programs are both consistent and effective. The Company's
training facility includes state of the art equipment and instruction aids,
including a working towboat, tank barge and shore tank facilities. During 1998,
approximately 1,100 students completed courses at the training facility.
Quality. In 1996, the Company's commitment to quality performance was
implemented through a major business process redesign project, and the continued
maintenance and improvement of our Quality Assurance Systems.
The business process redesign project focused on three functional areas,
customer billing, purchasing and maintenance, and resulted in significant
changes in processes and structures. Projected outcomes include faster billing
preparation and collection cycles, reduced costs for purchased products and
services as a result of leveraged buying and more efficient maintenance of our
vessels and associated equipment.
Throughout the 1990s, the Company made a substantial commitment to the
implementation, maintenance and improvement of Quality Assurance Systems in
compliance with the International Quality Standard, ISO 9002. Currently, all of
the Company's marine transportation units serving the liquid and dry-cargo
markets have been certified, many of them earning "firsts" among their peers.
These Quality Assurance Systems have enabled both shore and vessel personnel to
effectively manage the changes which occur in the working environment. In
addition, such Quality Assurance Systems have enhanced the Company's already
excellent safety and environmental performance.
DIESEL REPAIR
The Company is presently engaged in the overhaul and repair of large
medium-speed diesel engines and related parts sales through three operating
subsidiaries, Marine Systems, Inc. ("Marine Systems"), Engine Systems, Inc.
("Engine Systems") and Rail Systems, Inc. ("Rail Systems"). Through each of its
three operating subsidiaries, the Company sells genuine replacement parts,
provides service mechanics to overhaul and repair engines and maintains
facilities to rebuild component parts or entire engines. The Company serves the
marine market and stand-by power generation market, the shortline and industrial
railroad markets, and components of the nuclear industry. No single customer of
the diesel repair segment accounted for more than 10% of the Company's revenues
in 1998, 1997 or 1996. The diesel repair segment also provides services to the
Company's marine transportation segment, which accounted for approximately 4% of
the diesel repair segment's total 1998 revenues and approximately 2% of its
revenues for 1997 and 1996. Such revenues are eliminated in consolidation and
not included in the table below.
The following table sets forth the revenues for the diesel repair division
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
AMOUNTS % AMOUNTS % AMOUNTS %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Overhaul and repairs.................. $41,642 59% $46,911 59% $43,107 52%
Direct parts sales.................... 28,780 41 32,225 41 39,134 48
------- --- ------- --- ------- ---
$70,422 100% $79,136 100% $82,241 100%
======= === ======= === ======= ===
</TABLE>
MARINE SYSTEMS OPERATIONS
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
12
<PAGE> 14
utilized in the inland and offshore barge industries. It also services marine
equipment and offshore drilling equipment used in the offshore petroleum
exploration and oil service industry, marine equipment used in the offshore
commercial fishing industry and vessels owned by the United States Government.
Marine Systems operates through three divisions providing in-house and
in-field repair capabilities. These three divisions are: Gulf Coast (based in
Houma, Louisiana); Midwest (based in Paducah, Kentucky); and West Coast (based
in Seattle, Washington). All three of Marine Systems' divisions are nonexclusive
authorized service centers for the Electro-Motive Division of General Motors
Corporation ("EMD") selling parts and service. Marine Systems' Gulf Coast and
Midwest divisions concentrate on larger medium-speed diesel engines, primarily
those manufactured by EMD, that are more commonly used in the inland and
offshore barge and oil service industries. The West Coast division concentrates
on the large EMD engines used by the offshore commercial fishing industry, the
military and commercial businesses on the West Coast, and customers in Alaska.
Marine Systems' emphasis is on service to its customers and can send its crews
from any of its divisions to service customers' equipment anywhere in the world.
MARINE SYSTEMS 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.
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 oil and gas drilling 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 SYSTEMS COMPETITIVE CONDITIONS
Marine Systems' primary competitors are approximately 10 independent diesel
repair companies and authorized EMD distributors in each of its three divisions.
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. Marine Systems has entered into preferential service
agreements with certain large operators of diesel powered marine equipment,
providing such operations with one source of support and service for all of
their requirements at pre-negotiated prices.
Many of the parts sold by Marine Systems are generally available from other
distributors; however, Marine Systems is one of a limited number of authorized
resellers of EMD parts. Although the Company believes it is unlikely,
termination of Marine Systems' relationship with its suppliers could adversely
affect its business.
ENGINE SYSTEMS OPERATIONS
Through Engine Systems, the Company is engaged in the overhaul and repair
of diesel engines for power generation, marine and nuclear applications. In July
1996, a subsidiary of the Company purchased the operating assets of MKW Power
Systems, Inc., a subsidiary of Wartsila Diesel, N.A. ("MKW"). The acquisition
expanded the diesel repair segment's relationship with EMD to an authorized
distributorship for 17 eastern states and the Caribbean, and as the exclusive
worldwide distributor of EMD products to the nuclear industry. As the exclusive
East Coast distributor, the Company gains a better pricing structure for parts
purchased.
Effective July 1997, Engine Systems entered into an agreement with Stewart
& Stevenson Services, Inc., allowing Stewart & Stevenson to sell EMD engines
within Engine Systems' distributorship territory. Engine Systems will receive an
annual fee based on sales within the distributorship territory. Engine Systems,
as well
13
<PAGE> 15
as Marine Systems, also serves as United States marine parts distributors for
Falk Corporation, a marine reduction gear manufacturer.
ENGINE SYSTEMS CUSTOMERS
The major customers of Engine Systems are East Coast inland and offshore
dry-bulk, tank barge and harbor docking operators, the United States Coast Guard
and aircraft carriers of the United States Navy. In addition, Engine Systems
provides service to the power generation industry (Disney World, Dade County,
Florida and Bahamas Electricity Corporation), and the worldwide nuclear power
industry, through parts for standby generators.
ENGINE SYSTEMS COMPETITIVE CONDITIONS
Engine Systems is currently the major source of genuine EMD parts and
authorized service for customers in power generation, marine and industrial
applications in 17 eastern states and the Caribbean, its distributorship
territory. Generic parts, remanufactured parts and non-authorized services
supporting existing applications of EMD engines are available to existing
applications in Engine Systems' distributorship territory; however, many
customers will give preference to Engine Systems due to its access to preferred
genuine EMD replacement parts.
Engine Systems is also the exclusive distributor of EMD parts for the
nuclear industry worldwide. Specific regulations relating to equipment used in
nuclear power generation require extensive testing and certification of
replacement parts. Non-genuine parts and parts not properly tested and certified
cannot be used in the nuclear applications.
RAIL SYSTEMS OPERATIONS
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.
Rail Systems serves as an exclusive distributor for EMD providing replacement
parts, service and support to these markets. EMD is the world's largest
manufacturer of diesel-electric locomotives, a position it has held for over 70
years.
RAIL SYSTEMS CUSTOMERS
Shortline railroads have been a growing component of the United States
railroad industry since deregulation of the railroads in the 1970s. 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 emphasis on 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.
RAIL SYSTEMS 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 several 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, Engine Systems and Rail Systems together have approximately
230 employees.
14
<PAGE> 16
PROPERTIES
The principal offices of Marine Systems and Rail Systems are located in
Houma, Louisiana. Rail Systems relocated to Houma from Nashville, Tennessee in
late 1998. Parts and service facilities are located in Houma, Louisiana; in
Paducah, Kentucky and in Seattle, Washington. The Paducah, Kentucky and Seattle,
Washington locations are on leased property and the Houma location is situated
on approximately seven acres of Company owned land. The principal office of
Engine Systems is located in Rocky Mount, North Carolina with service facilities
in Chesapeake, Virginia and Medley, Florida. Each of Engine Systems' locations
is on leased property.
INSURANCE
Effective September 30, 1998, the Company sold its remaining 45% voting
common stock interest and its non-voting preferred stock interest in Universal
Insurance Company ("Universal") for $36,000,000 in cash. Universal, a property
and casualty insurance company in the Commonwealth of Puerto Rico, was formed by
the Company in 1972. In September 1992, the Company merged Universal with
Eastern America Insurance Company ("Eastern America"), a subsidiary of Eastern
America Insurance Group, Inc. ("Eastern America Group"). In accordance with a
shareholders agreement among the Company, Universal and Eastern America Group,
through redemption rights, Universal had the obligation to purchase the
Company's entire interest in Universal gradually, over a 15 year period. The
Company closed the sale on October 7, 1998 and the cash proceeds were used to
reduce the Company's revolving line of credit.
Under an anticipated redemption schedule, the Company would have received a
stream of cash payments between now and the year 2008 totaling $62,000,000. The
$36,000,000 received represented the present value of the payment stream.
Including prior redemptions and the final sale, the Company received total
payments of $58,000,000 for its interest in Universal.
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 domiciled in Bermuda. From 1991 to present, Mariner
has been in run-off, paying claims on business written prior to 1991 and not
underwriting any new business.
Effective May 31, 1995, Mariner entered into Commutation Agreements with
parties representing the majority of its outstanding underwriting liabilities
("Commuting Parties") and simultaneously executed documents granting the
Commuting Parties absolute interest in any assets of Mariner which remain upon
liquidation of Mariner. Since May 31, 1995, Mariner has continued in run-off, as
a solvent insurance company under Bermuda law and regulation, paying claims of
parties other than the Commuting Parties, while seeking to consummate further
commutations as well. The effect of the May 31, 1995 transaction between Mariner
and the Commuting Parties was to transfer to the Commuting Parties all of
Mariner's interest in the equity and surplus assets of Mariner, if any,
remaining at the time of the ultimate liquidation of Mariner. Loss of the
Company's equity in Mariner was fully reserved in 1994 and the transaction was
charged against that reserve in 1995.
CAPTIVE INSURANCE OPERATION
The Company utilizes a Bermuda domiciled wholly-owned insurance subsidiary,
Oceanic Insurance Limited ("Oceanic"), to insure risks of the Company and its
marine transportation and diesel repair subsidiaries and affiliated entities.
Oceanic procures reinsurance in international markets to limit its exposure to
losses.
15
<PAGE> 17
DISCONTINUED OPERATIONS
On March 16, 1998, the Company announced the completion of the sale of its
U.S. flag product tanker and harbor service operations for $38,600,000 in cash.
Under the terms of a purchase agreement dated January 28, 1998, Kirby sold two
offshore tankers and its harbor service operations to Hvide Marine Incorporated
and five offshore tankers were sold to August Trading Company, Inc.
The offshore tanker and harbor service operations' financial results were
accounted for as discontinued operations as of December 31, 1997, and previously
reported financial statements were restated to reflect the discontinuation of
the operations. See "Note 2" to the financial statements included under Item 8
elsewhere herein for further disclosures on the sale of the tanker and harbor
service operations.
ITEM 2. PROPERTIES
The information appearing in Item 1 is incorporated herein by reference.
The Company and Kirby Inland Marine currently occupy leased office space at 1775
St. James Place, Suite 200, Houston, Texas under a lease that expires in August
2003. The Company believes that its facilities are adequate for its needs and
additional facilities would be readily available.
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 ended December 31, 1998, 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................ 71 Chairman of the Board of Directors
J.H. Pyne............................. 51 President, Director and Chief
Executive Officer
Norman W. Nolen....................... 56 Senior Vice President, Treasurer,
Assistant Secretary and Chief
Financial Officer
G. Stephen Holcomb.................... 53 Vice President, Controller and
Assistant Secretary
Ronald C. Dansby...................... 59 President -- Inland Division, Kirby
Inland Marine
Dorman L. Strahan..................... 42 President -- Marine Systems
Mark R. Buese......................... 42 Vice President -- Administration
Jack M. Sims.......................... 56 Vice President -- Human Resources
</TABLE>
No family relationship exists among the executive officers or among 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 and has served the Company as Chairman of the Board since
April 1995. He has served as a Director of the Company since 1973 and served as
President of the Company from 1976 to April 1995. He had served as a Director of
Industries from 1969 to 1976 and as President of Industries from 1973 to 1976.
Prior to that, he was President of Kirby Inland Marine from 1953 through 1972.
16
<PAGE> 18
J.H. Pyne holds a degree in liberal arts from the University of North
Carolina and has served as President and Chief Executive Officer of the Company
since April 1995. He has served as a Director of the Company since 1988 and
President of Kirby Inland Marine since 1984. He had served as Executive Vice
President of the Company from 1992 to April 1995. He also served in various
operating and administrative capacities with Kirby Inland Marine from 1978 to
1984, including Executive Vice President from January to June 1984. Prior to
joining Kirby Inland Marine, he was employed by Northrop Services, Inc. and
served as an officer in the United States Navy.
Norman W. Nolen is a Certified Public Accountant and holds an M.B.A. degree
from the University of Texas and a degree in electrical engineering from the
University of Houston. He has served as Senior Vice President, Treasurer and
Chief Financial Officer of the Company since February 15, 1999. Prior to joining
the Company, he served as Senior Vice President, Treasurer and Chief Financial
Officer for Weatherford International, Inc. from 1991 to 1998. He served as
Corporate Treasurer of Cameron Iron Works from 1980 to 1990 and as a corporate
banker with Texas Commerce Bank from 1968 to 1980.
G. Stephen Holcomb holds a degree in business administration from Stephen
F. Austin State University and has served the Company as Vice President,
Controller and Assistant Secretary since January 1989. He also served as
Controller from 1987 through 1988 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.
Ronald C. Dansby holds a degree in business administration from the
University of Houston and has served the Company as President -- Inland Division
of Kirby Inland Marine since 1994. He also serves as President of Kirby Inland
Marine, Inc. of Texas, 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.
Dorman L. Strahan attended Nicholls State University and has served the
Company as President of Marine Systems since 1986, President of Rail Systems
since 1993 and President of Engine Systems since July 1996. 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, or one of its subsidiaries, as Vice
President -- Administration since 1993. He has also served as Vice President of
Kirby Inland Marine since 1985 and served in various sales, operating and
administrative capacities with Kirby Inland Marine from 1978 through 1985.
Jack M. Sims holds a degree in business administration for the University
of Miami and has served the Company, or one of its subsidiaries, 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.
17
<PAGE> 19
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NYSE under the symbol KEX. The
following table sets forth the high and low sales prices per share for the
common stock for the periods indicated as reported by The Wall Street Journal.
<TABLE>
<CAPTION>
SALES PRICES
-----------------
HIGH LOW
----- ----
<S> <C> <C>
1997
First Quarter............................................. $19 3/4 $17
Second Quarter............................................ 19 7/8 16 3/8
Third Quarter............................................. 20 5/8 18 1/4
Fourth Quarter............................................ 21 1/8 17 7/8
1998
First Quarter............................................. 24 11/16 19 1/16
Second Quarter............................................ 25 11/16 21 1/2
Third Quarter............................................. 25 11/16 20
Fourth Quarter............................................ 21 9/16 17 1/4
1999
First Quarter (through February 24, 1999)................. 20 16 3/4
</TABLE>
As of February 25, 1999, the Company had 20,295,894 outstanding shares held
by approximately 1,350 stockholders of record.
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. Since 1989, the
Company has not paid any dividends on its common stock.
18
<PAGE> 20
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, 1998. The tanker
and harbor service operations' financial results for 1997 have been accounted
for as discontinued operations and previously issued financial statements have
been restated. 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,
----------------------------------------------------
1994(1) 1995(1) 1996(1) 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Marine transportation................. $255,462 $267,687 $249,594 $256,108 $244,839
Diesel repair......................... 45,269 50,538 70,422 79,136 82,241
Insurance(2).......................... 65,812 45,239 -- -- --
Investment income and other........... 9,554 7,800 817 883 1,658
Gain on disposition of assets......... 415 10 2,751 407 3,517
Realized gain on investments.......... 1,222 868 -- -- --
-------- -------- -------- -------- --------
$377,734 $372,142 $323,584 $336,534 $332,255
======== ======== ======== ======== ========
Net earnings from continuing
operations............................ $ 16,969 $ 6,958 $ 21,208 $ 22,705 $ 10,109
-------- -------- -------- -------- --------
Discontinued operations:
Earnings (loss) from discontinued
operations, net of income taxes.... (316) 2,425 6,021 2,943 --
Estimated loss on sale of discontinued
operations, net of income taxes.... -- -- -- (3,966) --
-------- -------- -------- -------- --------
(316) 2,425 6,021 (1,023) --
-------- -------- -------- -------- --------
Net earnings.................. $ 16,653 $ 9,383 $ 27,229 $ 21,682 $ 10,109
======== ======== ======== ======== ========
Earnings (loss) per share of common
stock:
Basic:
Continuing operations.............. $ .60 $ .25 $ .83 $ .93 $ .46
Discontinued operations............ (.01) .09 .24 (.04) --
-------- -------- -------- -------- --------
$ .59 $ .34 $ 1.07 $ .89 $ .46
======== ======== ======== ======== ========
Diluted:
Continuing operations.............. $ .59 $ .25 $ .82 $ .92 $ .46
Discontinued operations............ (.01) .09 .24 (.04) --
-------- -------- -------- -------- --------
$ .58 $ .34 $ 1.06 $ .88 $ .46
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic.............................. 28,290 27,561 25,555 24,381 21,847
Diluted............................ 28,790 27,772 25,781 24,594 22,113
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1994(1) 1995(1) 1996(1) 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Property and equipment, net............. $284,444 $275,184 $277,622 $272,384 $256,899
Total assets............................ $667,472 $498,084 $524,530 $517,959 $390,299
Long-term debt.......................... $159,497 $179,226 $181,950 $154,818 $142,885
Stockholders' equity.................... $222,976 $205,333 $205,754 $218,269 $141,040
</TABLE>
- ---------------
(1) Comparability with prior periods is affected by the following: the Company's
ownership of the voting stock of Universal declining to 47% on July 18,
1995, and the recording of the Company's investment in Universal on the
equity method of accounting effective July 1, 1995; and the purchase of the
assets of MKW in July 1996.
(2) The Company changed its method of reporting its investment in Universal from
a consolidated basis to the equity method of accounting effective July 1,
1995.
19
<PAGE> 21
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements contained in this Form 10-K that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-K could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, adverse weather conditions such as high water, low water,
fog and ice, marine accidents, construction of new equipment by competitors,
including construction with government assisted financing, government and
environmental laws and regulations, and the timing, magnitude and number of
acquisitions made by the Company.
In March 1998, the Company completed the sale of its offshore tanker and
harbor service operations. In accordance with a definitive purchase agreement
dated January 28, 1998, the Company sold two tankers and its harbor service
operations to Hvide Marine Incorporated and five tankers to August Trading
Company, Inc. for a combined purchase price of $38,600,000 in cash. The offshore
tanker and harbor service operations' financial results have been accounted for
as discontinued operations as of December 31, 1997, and previously reported
financial statements have been restated to reflect the discontinuation of the
operations. Such financial results as of December 31, 1997 included a provision
for operations during the phase-out period, January 1, 1998 through the date of
sale.
RESULTS OF OPERATIONS
The Company reported net earnings of $10,109,000, or $.46 per share, on
revenues of $332,255,000 for the 1998 year, compared with net earnings from
continuing operations of $22,705,000, or $.92 per share, on revenues of
$336,534,000 for the 1997 year, and net earnings from continuing operations of
$21,208,000, or $.82 per share, on revenues of $323,584,000 for the 1996 year.
Marine transportation revenues totaled $244,839,000, or 74% of total
revenues for 1998, compared with $256,108,000, or 76% of total revenues from
1997, and $249,594,000, or 77% of total revenues for 1996. Diesel repair
revenues for 1998 totaled $82,241,000, or 25% of total revenues for 1998,
compared with $79,136,000, or 24% of total revenues for 1997, and $70,422,000,
or 22% of total revenues for 1996. Investment income and other income, earned
primarily through the Company's captive insurance company, totaled $1,658,000
for 1998, $883,000 for 1997 and $817,000 for 1996.
The Company reported net gains from the disposition of assets in each year,
predominately from the sale of marine equipment. For the 1998 year, the Company
reported a net gain of $3,517,000, which includes a $3,900,000 net gain from the
sale of an offshore liquid tank barge and tug unit in October. During the 1998
year, the Company also recorded a loss on the scrapping of two ammonia barges
and other equipment totaling a net loss of approximately $400,000. For the 1997
year, the Company reported a net gain of $407,000, primarily from the sale of
two offshore freighters. For the 1996 year, a net gain of $2,751,000 resulted
primarily from the sale of two inland towboats and six inland asphalt barges.
The 1998 results included a third quarter financial loss totaling
$10,536,000, $6,849,000 after taxes, or $.31 per share, from the sale of the
Company's remaining 45% voting common stock interest and its non-voting
preferred stock interest in Universal for $36,000,000 in cash. The Company's
investment in Universal was accounted for under the equity method of accounting.
The sale is more fully described below.
The 1998 results also included a third quarter reduction in the carrying
value of an offshore tank barge and tug unit totaling $8,333,000, $5,416,000
after taxes, or $.24 per share. Such reduction was in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The reduction is more fully described below.
20
<PAGE> 22
MARINE TRANSPORTATION
The Company, through its subsidiaries, is a provider of marine
transportation services, operating a fleet of 523 inland tank barges and 128
inland towing vessels, transporting industrial chemicals and petrochemicals,
refined petroleum products and agricultural chemicals along the United States
inland waterways. The Company's marine transportation operation also includes
one offshore dry-bulk barge and tug unit. The Company also serves as managing
partner of a 35% owned offshore marine partnership, consisting of four dry-bulk
barge and tug units, and as managing partner of a 50% owned offshore marine
partnership, consisting of one dry-bulk barge and tug unit. The partnerships are
accounted for under the equity method of accounting.
The Company's marine transportation segment reported 1998 transportation
revenues of $244,839,000, a decrease of 4% compared with $256,108,000 reported
for the 1997 year, and a decrease of 2% compared with $249,594,000 reported for
the 1996 year.
1998 Marine Transportation Revenues
Marine transportation revenues for the 1998 year reflected a continued
upward trend in spot market rates and contract renewals were generally at higher
rates. The marine transportation segment operates under long-term contracts,
short-term contracts and spot movements of products. During 1998, approximately
80% of movements were under term contracts and 20% were spot market movements.
Chemical and petrochemical volumes increased gradually from 1997 levels, while
refined product movements and liquid fertilizer movements declined slightly.
Both refined product and liquid fertilizer movements were negatively impacted by
increased volumes produced in Midwest facilities, reducing ton miles moved
during 1998 versus 1997. The decline in the price of diesel fuel during 1998
also negatively impacted 1998 marine transportation revenues compared with the
1997 year. In certain contracts, diesel fuel consumed is passed through to the
customer, and with lower diesel fuel prices during 1998, revenues were lower.
During the 1998 year, the Company experienced numerous navigational delays,
primarily weather related. During September 1998, the Company was negatively
impacted by two hurricanes and one tropical storm along the Gulf of Mexico,
significantly reducing fleet efficiency. Loss of revenues due to the storm
events was estimated at $600,000 and additional operating expenses incurred were
estimated at $400,000. The effects of the three storm events reduced the
Company's net earnings by an estimated $.02 to $.03 per share. During the 1998
fourth quarter, navigational delays also negatively impacted revenues and
increased operating expenses. Delays were experienced in numerous areas of
operations at various times during the quarter, the result of heavy rains in
Southeast and Central Texas, flooding on the Arkansas River, and low water on
the Ohio River. The delays increased transit time, thereby reducing operating
efficiencies.
In October 1998, the Company sold its two offshore tank barge and tug
units, exiting the market for the coastwise transportation of liquid petroleum
products. One of the units was fully employed through September 1998 and the
other unit was employed only through July 1998. In 1997, the Company also
scrapped two remaining U.S. flag offshore break-bulk freighters. The 1997 year
reflected revenues of $15,481,000 from the tank barge and tug units sold in 1998
and the freighters scrapped in 1997. The 1998 year reflected revenues of
$4,509,000 from the tank barge and tug units before their sale.
1997 Marine Transportation Revenues
Marine transportation revenues for the 1997 year totaled $256,108,000, an
increase of 3% compared with $249,594,000 for the 1996 year. The 1997 revenues
reflected a modest increase in utilization and spot market rates, and the
renewal of contracts generally at higher rates. During the second half of 1996
and during 1997, the segment decreased its active inland tank barge fleet
capacity by a net 3%, removing from service older single skin barges when it was
not prudent to continue to maintain or overhaul the barges. Chemical and
petrochemical volumes held at 1996 levels, while refined product volumes
improved during 1997 over 1996. The 1997 year was negatively impacted by the
flooding on the Mississippi River System during the months of February through
April. During the majority of the 1997 first quarter, the upper Mississippi
River and Ohio River experienced high water and flooding conditions, with river
closures in selected areas and mandated regulatory operating restrictions.
During the month of March and extending into April, the lower Mississippi
21
<PAGE> 23
River, the Company's principal area of operations, experienced high water not
seen in such severity since 1983. The effects of the flooding throughout the
Mississippi River System reduced the Company's revenues and increased its
expenses, resulting in a reduction in net earnings by an estimated $.11 per
share for the 1997 year.
During 1997, the Company scrapped its last two of three U.S. flag offshore
break-bulk freighters, which were engaged in the transportation of food-aid
commodities and related products under the United States Government's preference
food-aid programs. Excess equipment capacity and lack of available cargo, which
resulted in low rates, led to the decision to scrap the Company's remaining two
freighters. One freighter was scrapped in September 1997, after a food-aid
voyage to North Korea. The last freighter was scrapped in October 1997 following
a food-aid trip to East Africa. In September 1996, after a food-aid trip to
North Korea, the Company scrapped its first freighter. The freighters were
scrapped overseas, taking advantage of higher foreign scrap metal prices.
1996 Marine Transportation Revenues
Marine transportation revenues for the 1996 year totaled $249,594,000, a
decrease of 7% compared with $267,687,000 for the 1995 year. Contract volumes
for the movement of chemicals were stable and rates flat during 1996; however,
spot market volumes remained soft, with week-to-week variations in demand, and
certain spot market pricing pressure. The contract and spot market movements of
refined products in the Mississippi River declined to some degree. Such
reduction in volumes resulted in lower rates for spot market river movements.
The Gulf Intracoastal Waterway movements of refined products remained weak for
the entire 1996 year, resulting in lower rates for such movements. Additional
Midwest refinery capacity and some improved pipeline efficiencies through
debottlenecking were the primary reasons for the decline in refined products
volumes and rates.
The principal reason for the 7% decline in marine transportation revenues
for 1996 compared with 1995 was the significant weakness in the movement of
United States Government preference food-aid cargo and military household goods.
Revenues derived from that market for 1996 fell 64% to $9,661,000 compared with
$26,658,000 in 1995. Excess equipment capacity and a reduction in available
movements resulted in inadequate rates. During 1996, the Company averaged only
one of its freighters being employed. As noted above, the Company scrapped one
freighter in September 1996 and scrapped the remaining two freighters in 1997.
Marine Transportation Costs and Expenses
Costs and expenses, excluding interest expense and the impairment of a
long-lived asset discussed below, for the marine transportation segment for the
1998 year totaled $207,178,000, down 4% compared with 1997 costs and expenses of
$216,566,000, and down 2% compared with 1996 costs and expenses of $211,422,000.
Each year reflected higher equipment costs, health and welfare costs, and
inflationary increases in costs and expenses. Specific events which affected the
costs and expenses for each of the last three years are more fully described
below.
1998 Marine Transportation Costs and Expenses
As stated above, the 1998 year included an impairment of a long-lived asset
of $8,333,000. The carrying value of an offshore tank and barge tug was written
down in the 1998 third quarter in accordance with SFAS No. 121. The unit was
sold on October 30, 1998, for a price approximating the revised carrying value
of the unit.
The 1998 year also included approximately $4,500,000 of higher vessel labor
costs when compared with the 1997 year. During the 1998 year, the Company
increased afloat labor compensation by approximately 20%. Due to a tight afloat
labor market, the 20% increase was necessary not only to retain current
employees, but also to increase compensation to levels which were competitive
with other industries so as to attract new personnel into the Company for the
future. The 20% compensation increase reflected a 6% increase effective March 1,
an 11% increase effective August 1, as well as increased longevity pay, trip
pay, travel pay and
22
<PAGE> 24
mileage reimbursement. In addition, during 1998, due to afloat labor shortages,
the Company incurred approximately $900,000 of additional costs associated with
hiring outside labor, principally tankermen.
During 1998, marine transportation costs and expenses reflected higher
maintenance costs as compared with the 1997 year. The higher maintenance costs
were due to the Company competing for shipyard space with companies
participating in the oil and gas drilling activities in the Gulf of Mexico and a
fleet which is continuing to age. During the 1998 second half, such competition
diminished due to the decline in drilling activities.
1997 Marine Transportation Costs and Expenses
As discussed under 1997 Marine Transportation Revenues, the segment
incurred additional expenses associated with the 1997 February through April
flooding in the Mississippi River, reflecting the higher costs and equipment
utilization associated with the flooding. During 1997, the marine transportation
segment achieved a sustainable reduction in costs and expenses of approximately
$3,400,000 ($2,200,000 after taxes, or $.09 per share) from its cost reduction
efforts implemented in 1996, as more fully discussed under the 1996 Marine
Transportation Costs and Expenses. Savings obtained from cost reductions during
1997 were partially offset by continued higher vessel labor and vessel
maintenance costs. The Company competed with the same labor pool and for the
same shipyard space as companies which participated in the oil and gas drilling
activities in the Gulf of Mexico, which were lucrative at that time. For
comparative purposes, the 1997 year included $7,261,000 of costs and expenses
associated with revenues generated by the Company's two remaining U.S. flag
offshore break-bulk freighters which were scrapped in September and October
1997.
1996 Marine Transportation Costs and Expenses
Effective January 1, 1996, the transportation segment changed the estimated
depreciable lives of its inland tank barges and towboats. Vessel upgrades and
enhanced maintenance standards resulted in useful lives beyond the original
estimated lives. The change in the estimated lives provided a more consistent
matching of revenues and depreciation expense over the economic useful lives of
the inland barges and towboats. The depreciable lives of inland double skin
barges were changed from an average of 22 years to 30 years and inland towboats
were changed from an average of 22 years to 35 years. Changes were made on
single skin barges on a barge-by-barge basis, with shorter lives recorded in
anticipation of early retirements when appropriate. Salvage values were also
assigned to certain inland vessels where it was reasonable to expect that the
vessel would have a residual value at the end of its depreciable life. The
result of the change in depreciable lives was to reduce 1996 depreciation
expense by approximately $2,500,000 ($1,625,000 after taxes, or $.06 per share).
During 1996, the Company focused its efforts on decreasing costs and
expenses and improving operating efficiencies. Reorganizational changes were
made during 1996, resulting in office closures and the consolidation of the
majority of sales, traffic, maintenance and accounting functions in Houston,
Texas. The Company incurred reorganization expense in 1996 of approximately
$2,700,000 ($1,755,000 after taxes, or $.07 per share).
The Company's freighters, reduced from three to two in 1996, experienced
significant idle time as demand was very sporadic. In addition, the write-down
of the freighters in 1995, in accordance with SFAS No. 121, substantially
reduced depreciation and amortization expenses applicable to the freighters.
Marine Transportation Operating Income
Operating income for the marine transportation segment for the 1998 year
totaled $37,661,000, a decrease of 5% compared with $39,542,000 for the 1997
year, and 1% lower than the $38,172,000 of operating income for the 1996 year.
Operating margins for 1998 were 15.4% compared with 15.4% for 1997 and 15.3% for
1996.
The Company's investment in two offshore marine partnerships, accounted for
under the equity method of accounting, reported earnings for the 1998 year of
$946,000, down 69% from earnings of $3,084,000 for 1997 and down 76% compared
with earnings from the partnerships of $3,912,000 for 1996. During the 1998
fourth quarter, the carrying value of the offshore dry-cargo barge and tug unit
owned through the Dixie
23
<PAGE> 25
Fuels II partnership was reduced by $5,900,000, $2,950,000 to the Company. The
impairment, in accordance with SFAS No. 121, was recorded as a reduction in
equity in earnings of marine affiliates. The 1998 year benefited from lower
scheduled maintenance on the partnership's vessels and higher coal volume
requirements. The 1997 year reflected higher maintenance and lower coal
requirements. The 1996 year reflected enhanced coal and limestone rock contract
volume movements.
DIESEL REPAIR
The Company is engaged through its diesel repair segment in the overhaul
and servicing of large medium-speed diesel engines employed in marine, power
generation and rail applications. The diesel repair segment is divided into
three subsidiaries organized around the markets they serve. Marine Systems
operates on the Gulf Coast and West Coast and in the Midwest through three
facilities that repair and overhaul marine diesel engines and reduction gears,
and sells parts and accessories. Rail Systems is the exclusive distributor of
aftermarket parts to shortline and industrial railroads for EMD and provides
replacement parts, service and support nationwide to shortline railroads and
industrial companies that operate locomotives. Engine Systems, organized in July
1996 with the purchase of the assets of MKW, expanded the Company's relationship
with EMD to an authorized distributorship for 17 eastern states and the
Caribbean. In addition, Engine Systems serves as the exclusive worldwide
distributor of EMD products to the nuclear industry.
The Company's diesel repair segment reported 1998 diesel repair revenues of
$82,241,000, an increase of 4% compared with $79,136,000 reported for the 1997
year, and an increase of 17% compared with $70,422,000 reported for the 1996
year.
1998 Diesel Repair Revenues
The 4% increase in diesel repair revenues for 1998 over 1997 was primarily
due to a strong demand nationwide for direct parts sales. For the 1998 first
half, the Gulf Coast market remained strong due to the oil and gas drilling
activities and related oil services activities in the Gulf of Mexico. During the
1998 second half, the Gulf Coast market did experience a modest decline in
activities, as the Gulf of Mexico drilling market subsided. The East Coast,
Midwest and West Coast markets remained positive, supported by the continued
strong overall economy. During the 1998 year, the Company exited the power
control business line acquired from MKW in 1996. The diesel repair segment
reported revenues from that business line of $5,100,000 during 1998 compared
with $6,600,000 for the 1997 year.
1997 Diesel Repair Revenues
Diesel repair revenues for the 1997 year totaled $79,136,000, a 12%
increase compared with $70,422,000 for the 1996 year, reflecting the inclusion
of MKW for the entire year, as the assets were acquired in July 1996. During
1997, the segment eliminated certain MKW unprofitable business lines. Diesel
repair revenues for the 1997 year were negatively impacted by deferred overhauls
from Midwest inland towing customers due to spring flooding and by Midwest
dry-cargo customers due to slow grain exports. The Gulf Coast market remained
strong due to the continued enhanced drilling activities and related oil
services activities in the Gulf of Mexico. The East Coast market was supported
by a strong overall economy, while the West Coast market remained depressed due
to a continued weak North Pacific fishing market.
1996 Diesel Repair Revenues
Diesel repair revenues for the 1996 year totaled $70,422,000, an increase
of 39% compared with $50,538,000 for the 1995 year. The 1996 year included
approximately $12,600,000 of revenues generated from the acquisition of MKW in
July 1996. In addition, the 1996 year benefited from enhanced drilling
activities and related oil services activities in the Gulf of Mexico, and
continued health of the inland tank barge and dry-cargo industry in its Gulf
Coast and Midwest markets. The West Coast market was hampered by a depressed
offshore fishing market and as a result, during 1996 the diesel repair segment
shifted its focus from the South Pacific fishing fleet to the North Pacific
fishing fleet.
24
<PAGE> 26
Diesel Repair Costs and Expenses
Costs and expenses, excluding interest expense, for the diesel repair
segment for 1998 totaled $74,191,000 compared with $72,947,000 for 1997 and
$65,046,000 for 1996. The 2% increase for 1998 over 1997 and the 14% increase
for 1998 over 1996 reflected the overall continued growth of the diesel repair
segment. The increases were net of cost reduction efforts from the consolidation
of operations and savings in general and administrative expenses.
Diesel Repair Operating Income
The diesel repair segment's operating income for 1998 was $8,050,000, an
increase of 30% compared with $6,189,000 for 1997, and 50% over 1996 operating
income of $5,376,000. Operating margins for 1998 were 9.8% compared with 7.8%
for 1997 and 7.6% for 1996.
PROPERTY AND CASUALTY INSURANCE
Effective September 30, 1998, the Company sold its remaining 45% voting
common stock interest and its non-voting preferred stock interest in Universal
for $36,000,000 in cash. Universal, a property and casualty insurance company in
the Commonwealth of Puerto Rico, was formed by Kirby in 1972. In September 1992,
the Company merged Universal with Eastern America, a subsidiary of Eastern
America Group. In accordance with a shareholders agreement among the Company,
Universal and Eastern America Group, through redemption rights, Universal had
the obligation to purchase the Company's entire interest in Universal gradually,
over a 15 year period. The Company closed the sale on October 7, 1998 and the
cash proceeds were used to reduce the Company's revolving line of credit.
Under an anticipated redemption schedule, the Company would have received a
stream of cash payments between now and the year 2008 totaling $62,000,000. The
$36,000,000 received represented the present value of the payment stream.
Including prior redemptions and the final sale, the Company received total
payments of $58,000,000 for its interest in Universal.
The Company recognized, during the 1998 third quarter, a pre-tax loss for
financial purposes of $10,536,000 on the Universal transaction. The Company's
investment in Universal, accounted for under the equity method of accounting,
was based on the estimated receipt of $62,000,000 of redemption payments to the
Company over the next eleven years, and the recording of the remaining built-in
gain on the sale.
The amount recorded by the Company as equity in earnings for the Company's
investment in Universal was influenced by anticipated future redemptions by
Universal of its common stock. The Company also had a 100% ownership in
Universal's non-voting preferred stock. Because the preferred stock was
collateralized by a separate portfolio of U.S. Treasury Securities, the Company
accounted for this preferred stock under SFAS No. 115. Therefore, the interest
earned, as well as the realized gains from the sale of U.S. Treasury Securities
collateralizing the preferred stock, were included as part of equity in earnings
of the insurance affiliate. During 1998, 1997 and 1996, the Company recorded
$790,000, $1,044,000 and $980,000, respectively, of interest earned from its
investment in U.S. Treasury Securities. In 1997 and 1996, the Company recognized
$465,000 and $592,000, respectively, of realized gains from the sale of such
U.S. Treasury Securities. In addition, during the 1997 year, the Company
recognized as equity in earnings of insurance affiliate, $2,500,000 of cash
received from Universal as the result of a resolution of a previously reserved
Universal contingency for outstanding litigation. The litigation was fully
reserved on Universal's records and was set aside as part of the merger in 1992
of Universal with Eastern America Group.
For the 1998 year, in addition to the loss on the sale of the Company's
remaining interest in Universal as noted above, the Company recorded equity in
earnings from Universal of $1,325,000 for the first nine months of 1998,
compared with $4,609,000 for the 1997 year and $2,171,000 for the 1996 year.
DISCONTINUED OPERATIONS
The Company's offshore tanker and harbor service operations were accounted
for as discontinued operations as of December 31, 1997, and previously reported
financial statements were restated. In accordance
25
<PAGE> 27
with the purchase agreement noted above, the Company's offshore tanker and
harbor service operations were sold in March 1998.
The Company reported a 1997 net loss from discontinued operations of
$1,023,000, or $.04 per share, compared with net earnings from discontinued
operations of $6,021,000, or $.24 per share, for the 1996 year. The 1997 year
included an estimated $3,966,000 net loss, or $.16 per share, from the sale of
the operations. The estimated net loss included a provision for an operating
loss of $700,000 during the phase-out period, January 1, 1998 through the date
of sale.
The Company's discontinued marine transportation operations reported 1997
marine transportation revenues of $66,434,000, relatively flat compared with
revenues of $66,773,000 reported for 1996. Costs and expenses for the
discontinued operations totaled $62,002,000 for 1997, reflecting a 7% increase
over $57,700,00 for 1996. Operating income for the discontinued operations
totaled $4,598,000 for 1997, 51% lower than operating income of $9,354,000
reported for 1996.
The offshore discontinued tanker market was very volatile during the years
1995 through 1997. Reduced demand for movements of products during certain
seasons, as well as unanticipated and unneeded increases in capacity, lead to a
very volatile offshore tanker market, and a market where periodic lay-ups of
tankers occurred with increased regularity. Such volatility contributed to the
Company's decision to exit the tanker and harbor service operations, and
concentrate on the core inland tank barge and diesel repair businesses.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Balance Sheet
Total assets as of December 31, 1998 were $390,299,000, a decrease of 25%
compared with $517,959,000 as of December 31, 1997 and 26% lower than the
December 31, 1996 total assets of $524,530,000. The December 31, 1997 and 1996
total assets included $49,036,000 and $59,365,000, respectively, of assets
attributable to the discontinued tanker and harbor service operations and
$45,320,000 and $44,554,000, respectively, of assets attributable to the
Company's investment in Universal, which were sold in October 1998. The December
31, 1997 and 1996 total assets also reflected the carrying value of the two
offshore tank barge and tug units sold in October 1998.
The available-for-sale securities of $20,795,000 as of December 31, 1998
and $21,773,000 as of December 31, 1997 were investments of Oceanic, the
Company's wholly-owned captive insurance subsidiary.
Total liabilities as of December 31, 1998 totaled $249,259,000, a decrease
of 17% compared with $299,690,000 as of December 31, 1997, and 22% lower than
the December 31, 1996 total liabilities of $318,776,000. The 52% decrease in
accounts payable and 66% decrease in other accrued liabilities from December 31,
1997 to 1998 primarily reflected the sale of the offshore tanker and harbor
service operations and the two offshore tank barge and tug units. The 8%
reduction in long-term debt from $149,485,000 in 1997 to $137,552,000 in 1998
reflected net payments on debt more fully described below. The 17% decrease in
deferred income taxes from $48,409,000 in 1997 to $40,045,000 in 1998 primarily
reflected the sale of Universal.
Stockholders' equity as of December 31, 1998 totaled $141,040,000 compared
with $218,269,000 as of December 31, 1997 and $205,754,000 as of December 31,
1996. The 1998 stockholders' equity balance reflected the Company's purchase of
its common stock under the Dutch Auction self-tender offer and open market
repurchases. The 1997 and 1996 stockholders' equity year-end balances also
reflect the Company's repurchase programs as more fully described in Treasury
Stock Purchases below.
Long-Term Financing
The Company has a $100,000,000 revolving credit agreement (the "Credit
Agreement") with Chase Bank of Texas, N.A., as agent bank. On September 19,
1997, the Company agreed to new terms with Chase regarding the Credit Agreement,
superseding the previous Credit Agreement dated March 18, 1996. Under the new
terms, the maturity date was extended to September 19, 2002 from December 31,
1998. The new
26
<PAGE> 28
Credit Agreement reduced the margin of interest paid on its borrowings, provided
adjusted interest rates based on the Company's senior credit rating and
eliminated certain financial covenants. The new Credit Agreement also contains
usual and customary events of default. The Credit Agreement was amended
effective January 30, 1998 to provide a one-time allowance for the disposition
of assets at the subsidiary level. The amendment also modified the minimum net
worth covenant and fixed charge calculation. The Credit Agreement was also
amended effective November 30, 1998 to modify the minimum net worth covenant to
allow for anticipated activity under the Company's stock repurchase program. The
Company was in compliance with all covenants as of December 31, 1998. Proceeds
under the Credit Agreement may be used for general corporate purposes, the
purchase of existing or new equipment, the purchase of the Company's common
stock, or for possible business acquisitions. As of December 31, 1998,
$26,000,000 was outstanding under the Credit Agreement.
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 bore interest at an average fixed rate of 7.77% and matured on 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
Company's outstanding bank term loan in the amount of $10,666,000, due March 6,
1997, was retired on March 20, 1995 with proceeds borrowed under the Company's
revolving credit agreements. In June 1995, the Company issued $45,000,000 of
authorized notes, bearing a fixed interest rate of 7.25%, with a maturity of
June 1, 2000. Proceeds from the sale of the notes were used to reduce the
Company's outstanding revolving credit loans. In January 1997, the Company
issued $50,000,000 of the authorized medium term notes at a fixed interest rate
of 7.05%, due January 29, 2002. Proceeds from the sale of notes were used to
retire $34,000,000 of medium term notes due March 10, 1997, with the balance
used to reduce the Company's revolving Credit Agreement noted above. The
$34,000,000 notes were classified as long-term at December 31, 1996, as the
Company had the ability and intent to refinance the notes either by selling new
medium term notes, or through the Company's revolving Credit Agreement. As of
December 31, 1998 and 1997, $121,000,000 was available under the medium term
note program to provide financing for future business and equipment acquisitions
and fund working capital requirements.
Business Acquisitions and Developments
On July 31, 1996, a subsidiary of the Company purchased the operating
assets of MKW for approximately $5,700,000 in cash plus approximately $8,500,000
for MKW's working capital. The acquisition expanded the diesel repair segment's
relationship with EMD to an authorized distributorship for 17 eastern states and
the Caribbean.
Capital Expenditures
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.
During 1995, nine of the tank barges were placed in service, 13 were placed in
service during 1996, one was placed in service in January 1997 and the last
barge was placed in service in February 1997. A third option for the
construction of 12 additional barges was not exercised. In addition, in April
1995, the Company entered into a contract for the construction of two double
skin 17,000 barrel capacity inland tank barges for use in the industrial
chemical market. One barge was placed in service in October 1995 and the second
barge in January 1996. The construction project cost approximately $1,500,000
per barge. Funds for the construction project were available through the
Company's Credit Agreement and cash provided by operating activities.
In 1998, the Company purchased 17 existing inland tank barges for use in
the linehaul fleet and four existing inland towboats were purchased for use in
the fleeting and shifting operation. During 1996, one existing inland towboat
was purchased for use in the fleeting and shifting operation. In 1995, one
existing
27
<PAGE> 29
double skin inland tank barge and four existing inland towboats were purchased
for use in the industrial chemical market, and four existing double skin inland
tank barges and three existing inland towboats were purchased for use in the
refined products market. In addition, during 1995, two existing inland towboats
were purchased for use in the fleeting and shifting operation and two existing
double skin inland tank barges were purchased for use in the agricultural
chemical market. As of December 31, 1998, the Company had no material
commitments for capital expenditures.
Treasury Stock Purchases
On March 23, 1998, the Company purchased 3,066,922 shares of its common
stock under a Dutch Auction self-tender offer at a price of $24.50 per share.
The Company announced the self-tender offer on February 17, 1998, expressing its
intentions to purchase up to 3,000,000 shares of its common stock at a purchase
price ranging from $21.00 to $24.50 per share. The tender offer expired on March
16, 1998. The Company elected to increase the size of the 3,000,000 share tender
offer and to accept all shares tendered at a price of $24.50 per share. The
3,066,922 shares purchased represented approximately 12.6% of the Company's
common stock outstanding immediately prior to the offer. Funding of the tender
offer was from the Company's Credit Agreement.
During 1998, the Company purchased in the open market 739,000 shares of its
common stock at a total price of $15,541,000, for an average price of $21.04 per
share. During 1997, the Company purchased 626,000 shares of its common stock at
a total price of $11,699,000, for an average price of $18.70 per share. During
1996, the Company purchased 1,587,000 shares of its common stock at a total
price of $26,331,000, for an average price of $16.60 per share. Since January 1,
1999, the Company has purchased 479,000 shares of its common stock at a total
purchase price of $8,309,000, for an average price of $17.35 per share. The
Company as of February 25, 1999, had 596,000 shares remaining under its Board of
Directors' 6,250,000 total open market purchase authorization. The treasury
stock purchases were financed by borrowing under the Company's Credit Agreement.
The Company is authorized to purchase its common stock on the New York Stock
Exchange and in privately negotiated transactions. When purchasing its common
stock, the Company is subject to price, trading volume and other market
considerations. Shares purchased may be used for reissuance upon the exercise of
stock options, in future acquisitions for stock or for other appropriate
corporate purposes.
Liquidity
The Company generated net cash provided by operating activities of
continuing operations of $37,029,000, $48,024,000 and $44,778,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Universal, prior to the
completion of the sale of the Company's remaining interest in October 1998, did
not contribute cash flow for 1998 and 1996, as the Company recognized cash flow
from Universal only upon receipt of actual distributions. In 1997, the Company
received a $2,000,000 cash distribution from Universal.
The Company also accounts for its ownership in 35% and 50% owned marine
partnerships under the equity method of accounting, recognizing cash flow only
upon the receipt or disbursements of cash from the partnerships. For the 1998
year, the Company received $4,407,000 of cash from the marine partnerships,
disbursed cash to the marine partnerships of $475,000 in 1997 and received
$3,200,000 of cash from the marine partnerships in 1996.
Funds generated are available for capital construction projects, treasury
stock repurchases, asset acquisitions, repayment of borrowings associated with
treasury stock acquisitions or asset acquisitions and for other operating
requirements. In addition to its net cash flow provided by operating activities,
the Company also has available as of February 25, 1999, $86,000,000 under its
revolving credit agreement and $121,000,000 available under its medium term note
program. The Company's fixed principal payments during the next 12 months are
$5,333,000.
During the last three years, inflation has had a relatively minor effect on
the financial results of the Company. The marine transportation segment has
long-term contracts which generally contain cost escalation
28
<PAGE> 30
clauses whereby certain costs, including fuel, can be passed through to its
customers. The repair portion of the diesel repair segment is based on
prevailing current market rates.
Year 2000
Certain computer systems, software programs, and semiconductors are not
capable of recognizing certain dates in 1999 and after December 31, 1999, and
will read dates in the year 2000 and thereafter as if those dates represent the
year 1900 or thereafter, or will fail to process those dates. This "Year 2000
Issue" could result in the failure of certain systems or other errors that could
disrupt normal business activities.
The Company has designed and implemented an action plan to determine the
likely exposures of the Company and its subsidiaries to the Year 2000 Issue and
to take the necessary action to minimize the impact of those exposures. The
Company's Year 2000 action plan addresses both internal and external exposures
to the Year 2000 Issue.
With respect to the Company's internal Year 2000 exposures, the action plan
addresses both land-based and vessel-based systems. The land-based systems
include all of the Company's network components, core corporate software
applications, personal computers, telephone systems, building management control
systems and critical office equipment. The vessel-based systems include
electronic navigation equipment, diesel engine controlling systems, and fire and
other emergency monitors and alarms.
The Company's external exposures to the Year 2000 Issue include vendors and
suppliers of critical services including communications, fuel and supplies,
barge cleaning and repair, and government waterways maintenance and management.
The Company's external exposures also include general business support services
such as electric power, telephone, and banking services, as well as customers'
accounts payable systems. The Company may experience Year 2000 problems as a
result of these external exposures. The Company is attempting to address all
Year 2000 exposures in advance; however, the Company could potentially
experience temporary disruptions to certain aspects of activities or operations
as a result of the external exposures noted above. It is not possible to
determine whether or to what extent any or all of these exposures are likely to
occur or the costs involved in any of the exposures. However, the costs to the
Company could be material.
The Company's Year 2000 action plan divides the Company's actions with
respect to its internal and external exposures to the Year 2000 Issue into three
sequential stages:
- Investigation. This stage includes the physical inventorying of all
computer systems, software applications, and equipment relying on computer
software or embedded semiconductors, communicating with the manufacturers
and distributors regarding, and establishing procedures to evaluate and
test, Year 2000 compliance, and the completion of that evaluation and
testing. This stage has been substantially completed with respect to the
Company's network components, core corporate software applications,
personal computers, and telephone systems. The Company is in the process
of communicating with manufacturers and distributors of other critical
equipment, systems, and services. Those efforts are expected to be
completed by the end of the first quarter of 1999.
- Remediation. This stage involves the repair or replacement of the
Company's equipment and systems which have been identified as not being
Year 2000 compliant in the investigation stage and the validation of the
compliance of the equipment and systems which have been repaired or
replaced. This stage has been substantially completed with respect to the
Company's network components, core corporate software applications,
personal computers, and telephone systems. The remainder of the Company's
efforts in this stage are expected to be completed by mid-1999.
- Contingency Planning. Dependent on the findings of the investigation
stage, the Company's actions in this stage may include the development of
business scenarios likely to result from Year 2000 compliance failures by
external suppliers or their equipment, systems or services, and the
development of remedies to minimize the consequences of such failures on
the Company's business. Those remedies may include preventative measures
and "work around" solutions. This stage is expected to be complete by the
end of the third quarter of 1999.
29
<PAGE> 31
While the Company expects that the stages of its Year 2000 action plan will
be completed as indicated above, the Company must rely on third parties,
including government agencies, manufacturers, distributors, vendors and
suppliers, to provide information and to take actions which are beyond the
Company's control. In addition, it is not possible for the Company to predict
either the timeliness or the substance of the information and actions provided
by third parties. Accordingly, the Company can also not predict whether or to
what extent the information provided by third parties will affect the timely
completion of each stage of the Year 2000 action plan, as the information
provided by third parties may require additional investigation, remediation,
and/or contingency planning. Further, the Company's ability to timely complete
its Year 2000 action plan is dependent upon the ability of third party
manufacturers and distributors to provide necessary replacement equipment during
the remediation stage.
The total amount expended on the Year 2000 action plan through December 31,
1998 is less than $100,000. Remaining costs related to the Year 2000 action plan
are not expected to be material. The Company will continue to utilize internal
resources to assist in the implementation of the Year 2000 action plan. The
costs expended in 1998 and the costs anticipated to be expended in 1999 do not
include the Company's internal costs, as the Company does not track such costs
separately. The costs also do not include software upgrades that, while Year
2000 compliant, were not specifically upgraded for the Year 2000 issue. The
completion of the Year 2000 action plan is expected to significantly reduce both
the level of uncertainty related to the Company's reliance on third parties for
Year 2000 compliance and the possibility of significant interruptions of normal
business operations. The forward-looking statements contained in this discussion
should be read in conjunction with the Company's disclosure in the opening
paragraph of this Management's Discussion and Analysis.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in the interest rates on
certain of its outstanding debt and changes in fuel prices. The outstanding loan
balance under the Company's revolving credit agreement bears interest at a
variable rate based on prevailing short-term interest rates in the United States
and Europe. Notes issued under the Company's medium term note program may bear
fixed or variable interest rates, although the notes issued to date have all
been fixed rate notes. The potential impact on the Company of fuel price
increases is limited because most of its term contracts contain escalation
clauses under which increases in fuel costs, among others, can be passed on to
the customers, while its spot contract rates are set based on prevailing fuel
prices. The Company does not presently use financial or commodity derivative
instruments to manage its interest or fuel costs. The Company has no foreign
exchange risks.
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 59).
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.
30
<PAGE> 32
PART III
ITEMS 10 THROUGH 13.
The information for these items is incorporated by reference to the
definitive proxy statement to be filed by the Company with the Commission
pursuant to the Regulation 14A within 120 days of the close of the fiscal year
ended December 31, 1998, 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.
31
<PAGE> 33
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, 1998 and 1997 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, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion of these consolidated
financial statements based on our audits. We did not audit the consolidated
financial statements of Universal Insurance Company and its subsidiaries, an
equity-owned unconsolidated subsidiary sold effective September 30, 1998 (Note
3). The Company's investment in this company at December 31, 1997 was
$45,320,290, and its equity in earnings for the years ended December 31, 1997
and 1996 was $4,609,000 and $2,171,000, respectively. Those financial statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Universal Insurance
Company and its subsidiaries, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kirby Corporation and consolidated
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
February 4, 1999
32
<PAGE> 34
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,043 $ 861
Available-for-sale securities............................. 21,773 20,795
Accounts receivable:
Trade -- less allowance for doubtful accounts........... 70,137 53,586
Insurance claims and other.............................. 14,458 16,919
Inventory -- finished goods, at lower of average cost or
market.................................................. 14,875 14,181
Prepaid expenses and other................................ 7,359 4,829
Deferred income taxes..................................... 1,468 1,187
Current assets of discontinued operations................. 3,684 --
-------- --------
Total current assets................................ 135,797 112,358
-------- --------
Property and equipment, at cost:
Marine transportation equipment........................... 433,383 428,676
Land, buildings and equipment............................. 37,636 37,767
-------- --------
471,019 466,443
Accumulated depreciation.................................. 198,635 209,544
-------- --------
272,384 256,899
-------- --------
Investments in affiliates:
Insurance affiliate....................................... 45,320 --
Marine affiliates......................................... 16,256 12,795
-------- --------
61,576 12,795
-------- --------
Goodwill -- less accumulated amortization of $2,128,000
($2,164,000 in 1997)...................................... 6,652 5,368
Sundry...................................................... 4,562 2,879
Long-term assets of discontinued operations................. 36,988 --
-------- --------
$517,959 $390,299
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 5,333 $ 5,333
Income taxes payable...................................... 4,319 504
Accounts payable.......................................... 26,712 12,918
Accrued liabilities:
Interest................................................ 1,515 1,414
Insurance premiums and claims........................... 27,287 25,664
Bonus, pension and profit-sharing plans................. 9,979 8,981
Taxes -- other than on income........................... 2,797 2,920
Other................................................... 12,615 4,326
Deferred revenues......................................... 5,046 3,880
-------- --------
Total current liabilities........................... 95,603 65,940
-------- --------
Long-term debt -- less current portion...................... 149,485 137,552
Deferred income taxes....................................... 48,409 40,045
Other long-term liabilities................................. 6,193 5,722
-------- --------
204,087 183,319
-------- --------
Contingencies and commitments............................... -- --
Stockholders' equity:
Preferred stock, $1.00 par value per share. Authorized
20,000,000 shares....................................... -- --
Common stock, $.10 par value per share. Authorized
60,000,000 shares, issued 30,907,000 shares............. 3,091 3,091
Additional paid-in capital................................ 159,016 159,122
Accumulated other comprehensive income.................... 572 338
Retained earnings......................................... 136,945 147,054
-------- --------
299,624 309,605
Less cost of 10,137,000 shares in treasury (6,619,000 in
1997)................................................... 81,355 168,565
-------- --------
218,269 141,040
-------- --------
$517,959 $390,299
======== ========
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 35
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
($ IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Marine transportation..................................... $249,594 $256,108 $244,839
Diesel repair............................................. 70,422 79,136 82,241
Investment income and other............................... 817 883 1,658
Gain on disposition of assets............................. 2,751 407 3,517
-------- -------- --------
323,584 336,534 332,255
-------- -------- --------
Costs and expenses:
Costs of sales and operating expenses..................... 206,465 218,123 212,242
Selling, general and administrative....................... 40,411 40,345 39,473
Taxes, other than on income............................... 6,992 7,796 7,646
Depreciation and amortization............................. 28,386 28,113 27,383
Impairment of long-lived assets........................... -- -- 8,333
-------- -------- --------
282,254 294,377 295,077
-------- -------- --------
Operating income.................................. 41,330 42,157 37,178
Equity in earnings of insurance affiliate................... 2,171 4,609 1,325
Loss on sale of insurance affiliate......................... -- -- (10,536)
Equity in earnings of marine affiliates..................... 3,912 3,084 946
Interest expense............................................ (13,349) (13,378) (11,898)
-------- -------- --------
Earnings from continuing operations before taxes
on income....................................... 34,064 36,472 17,015
-------- -------- --------
Provision for taxes on income:
United States............................................. 12,856 12,842 6,906
Puerto Rico............................................... -- 925 --
-------- -------- --------
12,856 13,767 6,906
-------- -------- --------
Net earnings from continuing operations........... 21,208 22,705 10,109
Discontinued operations:
Earnings from discontinued operations, net of taxes on
income................................................. 6,021 2,943 --
Estimated loss on sale of discontinued operations,
including provision of $700,000 for operating losses
during the phase-out period, net of taxes on income.... -- (3,966) --
-------- -------- --------
Net earnings (loss) from discontinued
operations...................................... 6,021 (1,023) --
-------- -------- --------
Net earnings...................................... $ 27,229 $ 21,682 $ 10,109
======== ======== ========
Net earnings (loss) per share of common stock:
Basic:
Continuing operations.................................. $ .83 $ .93 $ .46
Discontinued operations................................ .24 (.04) --
-------- -------- --------
Net earnings...................................... $ 1.07 $ .89 $ .46
======== ======== ========
Diluted:
Continuing operations.................................. $ .82 $ .92 $ .46
Discontinued operations................................ .24 (.04) --
-------- -------- --------
Net earnings...................................... $ 1.06 $ .88 $ .46
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 36
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year...................... $ 3,091 $ 3,091 $ 3,091
======== ======== =========
Additional paid-in capital:
Balance at beginning of year.............................. $158,383 $158,712 $ 159,016
Excess (deficit) of cost of treasury stock sold over
proceeds received upon exercise of stock options....... 148 (135) (982)
Tax benefit realized from stock option plans.............. 181 439 1,088
-------- -------- ---------
Balance at end of year.................................... $158,712 $159,016 $ 159,122
======== ======== =========
Accumulated other comprehensive income:
Balance at beginning of year.............................. $ 1,978 $ (32) $ 572
Unrealized net gain (loss) in value of available-for-sale
securities, net of tax................................. (2,010) 604 (234)
-------- -------- ---------
Balance at end of year.................................... $ (32) $ 572 $ 338
======== ======== =========
Retained earnings:
Balance at beginning of year.............................. $ 88,034 $115,263 $ 136,945
Net earnings for the year................................. 27,229 21,682 10,109
-------- -------- ---------
Balance at end of year.................................... $115,263 $136,945 $ 147,054
======== ======== =========
Treasury stock:
Balance at beginning of year.............................. $(46,153) $(71,280) $ (81,355)
Purchase of treasury stock................................ (26,331) (11,699) (91,247)
Cost of treasury stock sold upon exercise of stock
options................................................ 1,204 1,624 4,037
-------- -------- ---------
Balance at end of year.................................... $(71,280) $(81,355) $(168,565)
======== ======== =========
Comprehensive income:
Net earnings for year..................................... $ 27,229 $ 21,682 $ 10,109
Other comprehensive income (loss), net of tax............. (2,010) 604 (234)
-------- -------- ---------
Total comprehensive income................................ $ 25,219 $ 22,286 $ 9,875
======== ======== =========
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 37
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 27,229 $ 21,682 $ 10,109
Adjustments to reconcile net earnings to net cash provided
by continuing operations:
Income from discontinued operations..................... (6,021) (2,943) --
Estimated loss on sale of discontinued operations....... -- 3,966 --
Depreciation and amortization........................... 28,386 28,113 27,383
Provision for doubtful accounts......................... 282 394 133
Provision (credit) for deferred income taxes............ 795 2,790 (4,967)
Gain on disposition of assets........................... (2,751) (407) (3,517)
Deferred scheduled maintenance costs.................... (446) 328 923
Loss on sale of insurance affiliate..................... -- -- 10,536
Equity in earnings of insurance affiliate, net of
redemptions........................................... (2,171) (109) (1,325)
Equity in earnings of marine affiliates, net of
distributions and
contributions......................................... (712) (3,559) 3,461
Impairment of long-lived assets......................... -- -- 8,333
Other................................................... 4 -- --
Increase (decrease) in cash flows resulting from changes
in:
Accounts receivable..................................... (8,079) (5,171) 13,821
Inventory............................................... (2,176) 1,486 32
Other assets............................................ (7,101) (2,534) 3,729
Income taxes payable.................................... 3,264 731 (3,815)
Accounts payable........................................ 6,472 (3,806) (13,994)
Accrued and other liabilities........................... 7,803 7,063 (13,813)
-------- -------- ---------
Net cash provided by operating activities of
continuing operations............................ 44,778 48,024 37,029
Net cash provided by (used in) operating activities of
discontinued operations............................... 19,290 15,476 (1,583)
-------- -------- ---------
Net cash provided by operating activities.......... 64,068 63,500 35,446
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sale and maturities of investments.......... 6,861 1,935 1,950
Purchase of investments................................... (9,583) (5,237) (789)
Capital expenditures...................................... (36,413) (24,506) (27,445)
Purchase of assets of diesel repair company, net of
assumed liabilities..................................... (14,211) -- --
Proceeds from disposition of assets....................... 11,975 4,044 14,066
Proceeds from disposition of businesses................... -- -- 39,989
Proceeds from sale of insurance affiliate................. -- -- 36,000
Investing activities of discontinued operations........... (355) (1,893) (275)
-------- -------- ---------
Net cash provided by (used in) investing
activities....................................... (41,726) (25,657) 63,496
-------- -------- ---------
Cash flows from financing activities:
Borrowings (payments) on bank revolving credit agreements,
net..................................................... 8,400 (37,800) (6,600)
Increase in long-term debt................................ -- 50,000 --
Payments on long-term debt................................ (5,676) (39,333) (5,333)
Purchase of treasury stock................................ (26,331) (11,700) (91,247)
Proceeds from exercise of stock options................... 1,352 1,489 3,056
-------- -------- ---------
Net cash used in financing activities.............. (22,255) (37,344) (100,124)
-------- -------- ---------
Increase (decrease) in cash and invested cash...... 87 499 (1,182)
Cash and invested cash, beginning of year................... 1,457 1,544 2,043
-------- -------- ---------
Cash and invested cash, end of year......................... $ 1,544 $ 2,043 $ 861
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest................................................ $ 12,915 $ 12,640 $ 11,635
Income taxes............................................ $ 9,569 $ 9,762 $ 18,998
Noncash investing and financing activity:
Assumption of liabilities in connection with purchase of
assets of diesel repair company......................... $ 2,623 $ -- $ --
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 38
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(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"). 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 currently engaged in two segments as follows:
Marine Transportation -- Marine transportation by U.S. flag vessels on
the United States inland waterway system and in United States coastwise
trade. The principal products transported include petrochemical feedstocks,
processed chemicals, agricultural chemicals, refined petroleum products,
coal, limestone, grain and sugar.
Diesel Repair -- Overhaul and repair of large, medium-speed diesel
engines, reduction gear repair and sale of related parts and accessories
for customers in the marine industry, power generation industry, and the
shortline and industrial railroad industry.
Accounting Policies:
Cash Equivalents. Cash equivalents consist of short-term, highly liquid
investments with maturities of three months or less at date of purchase.
Available-for-Sale Securities. The Company's wholly-owned captive insurance
subsidiary has available-for-sale investments reported at fair value with the
net unrealized gain or loss on such investments recorded as a separate component
of shareholders' equity, net of deferred tax. Investments are recorded on a
trade date basis with balances pending settlement accrued in the balance sheet.
Realized gains and losses on sales of investments are determined on the basis of
average cost. Investment income is recognized when earned and includes the
amortization of premiums or discount on investments.
Accounts Receivable. In the normal course of business, the Company extends
credit to its customers. The Company regularly reviews the accounts and makes
adequate provisions for potentially uncollectable balances. It is the Company's
opinion that the accounts have no impairment, other than that for which
provisions have been made. Included in accounts receivable as of December 31,
1997 and 1998 are $11,440,000 and $6,129,000, respectively, of accruals for
diesel repair work in process which have not been invoiced as of the end of each
year.
The Company's marine transportation and diesel repair operations are
subject to hazards associated with such businesses. The Company maintains
insurance coverage against these hazards with mutual insurance and reinsurance
companies. As of December 31, 1997 and 1998, the Company had receivables of
$13,040,000 and $12,478,000, respectively, from the mutual insurance and
reinsurance companies to cover anticipated claims over the Company's deductible.
Depreciation. Property and equipment is depreciated on the straight-line
method over the estimated useful lives of the assets as follows: marine
transportation equipment, 6-35 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 refiners and petrochemical companies. The diesel repair customers are
offshore well service companies, inland and offshore marine transportation
companies, commercial fishing companies, electric utilities and the United
States Government. Credit risk with respect to these trade
37
<PAGE> 39
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
receivables is generally considered minimal because of the credit history of
such companies as well as the Company having procedures in effect to monitor the
credit worthiness of customers.
Fair Value of Financial Instruments. Cash, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short-term
maturity of these financial instruments. The fair value of the Company's
investments are more fully described in Note 5, 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.
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 income. Routine maintenance and repairs are charged to
operating expense as incurred on an annual basis. Scheduled major 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 ranging from 23 to 34 months.
Environmental Liabilities. The Company expenses costs related to
environmental events as they incur or when a loss is considered probable.
Goodwill. The excess of the purchase price over the fair value of
identifiable net assets acquired in transactions accounted for as a purchase are
included in goodwill. The goodwill is amortized over the period of the lives of
the underlying marine transportation or diesel repair assets acquired in the
transaction, which generally approximates 15 years. Management monitors the
recoverability of the goodwill on an ongoing basis based on projections of the
future cash flows, excluding interest expense, of acquired assets.
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 basis 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 and its Bermudian subsidiary, Oceanic Insurance Limited
("Oceanic").
Treasury Stock. The Company follows the average cost method of accounting
for treasury stock transactions.
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. The Company reviews long-lived assets and certain identifiable intangibles
for impairment by vessel class. For purposes of determining fair value, the
Company estimates future cash flows expected to be generated, assuming the above
asset groups, less the future cash outflows expected to be necessary to obtain
the inflows.
In September 1998, the Company reduced the carrying value of an offshore
liquid tank barge and tug unit by taking an $8,333,000 pre-tax impairment
charge. The after-tax effect of the charge was $5,416,000 or $.24 per share. The
unit was sold in October 1998 for a price approximating the revised carrying
value of the unit. No gain or loss was recognized from the sale of the unit.
In December 1998, a marine partnership in which the Company owns a 50%
interest, reduced the carrying value of an offshore dry-cargo barge and tug unit
by taking a $5,900,000 pre-tax impairment charge in
38
<PAGE> 40
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
accordance with SFAS No. 121. The Company's portion of the charge was $2,950,000
and the after-tax effect of the charge to the Company was $1,918,000 or $.09 per
share. The Company's portion of the charge is reflected in equity in earnings of
marine affiliates on the statement of earnings.
Adoption of New Accounting Standards. As more fully described in Note 9,
Stock Option Plans, the Company has five employee stock option plans for
selected officers and other key employees, two Director stock option plans for
nonemployee Directors of the Company, and a 25,000 share nonqualified stock
option granted to Robert G. Stone, Jr., former Chairman of the Board and current
Director of the Company. SFAS "Accounting for Stock-Based Compensation" ("SFAS
No. 123") provides for a company to either apply a fair value based method of
accounting for its stock-based compensation plans, or to continue to follow the
intrinsic value method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25 "Accounting for Stock Issued to Employees."
The Company follows APB Opinion No. 25; however, under the fair value based
method of SFAS No. 123, the Company's net earnings and earnings per share for
the years ended December 31, 1996, 1997 and 1998 would have been reduced as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net earnings from continuing
operations...................... $21,208 $20,251 $22,705 $20,527 $10,109 $7,598
Net earnings per share from
continuing operations:
Basic........................... $ .83 $ .79 $ .93 $ .84 $ .46 $ .35
Diluted......................... $ .82 $ .79 $ .92 $ .83 $ .46 $ .34
Net earnings (loss) from
discontinued operations......... $ 6,021 $ 6,021 $(1,023) $(1,023) $ -- $ --
Net earnings (loss) per share from
discontinued operations:
Basic........................... $ .24 $ .24 $ (.04) $ (.04) $ -- $ --
Diluted......................... $ .24 $ .23 $ (.04) $ (.04) $ -- $ --
Net earnings...................... $27,229 $26,272 $21,682 $19,504 $10,109 $7,598
Net earnings per share:
Basic........................... $ 1.07 $ 1.03 $ .89 $ .80 $ .46 $ .35
Diluted......................... $ 1.06 $ 1.02 $ .88 $ .79 $ .46 $ .34
</TABLE>
The weighted average fair value of options granted during 1996, 1997 and
1998 was $12.12, $11.44 and $15.71, respectively. The fair value of each option
was determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were as follows: average risk-free
interest rate based on 10-year Treasury bonds -- 6.2% for 1996, 6.6% for 1997
and 5.6% for 1998; stock price volatility -- 48% for 1996, 51% for 1997 and 59%
for 1998; and estimated option term -- 9 years. Under the provisions of SFAS No.
123, the pro forma disclosures above include only the effects of stock options
granted by the Company subsequent to December 31, 1994. During this initial
phase-in period, the pro forma disclosures as required by SFAS No. 123 are not
representative of the effects on reported net income for future years as options
vest over several years and additional awards are generally made each year.
The FASB issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No.
130") in June 1997, which establishes standards for reporting and display of
comprehensive income and its components
39
<PAGE> 41
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
in a full set of financial statements. Comprehensive income includes all changes
in a company's equity, except those resulting from investments by owners and
distributions to owners, including among other things, foreign currency
transaction adjustments and unrealized gains and losses on available-for-sale
securities. Effective January 1, 1998, the Company adopted SFAS No. 130.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS No. 131"), in June 1997 which establishes
standards for reporting information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim reports issued to shareholders. Effective December
31, 1998, the Company adopted SFAS No. 131.
The Company's reportable segments are strategic business units that offer
different services. Each segment has a separate management team, as the segments
require different technology and marketing strategies. The Company's reportable
segments are marine transportation and diesel repair, as set forth under
Operations above, and described in Note 14, Segment Data.
The FASB issued SFAS No. 132, "Employees' Disclosures about Pension and
Other Postretirement Benefits" ("SFAS No. 132") in February 1998, which revised
employer's disclosures about pension and other postretirement benefit plans.
SFAS No. 132 did not change the measurement of recognition of those plans. The
statement standardized the disclosure requirements for pension and other
postretirement benefits to the extent practicable, requiring additional
information on changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis and eliminate certain disclosures.
Effective December 31, 1998, the Company adopted SFAS No. 132, restating all
previously reported benefit plan disclosures to conform with the new disclosure
requirements, the effects of which are more fully described in Note 10,
Retirement Plans.
(2) DISCONTINUED OPERATIONS
During the 1997 fourth quarter, the Company announced its intention to
review alternative strategies concerning certain offshore assets. In this
regard, the Company entered into a definitive purchase agreement, dated January
28, 1998, to sell its U.S. flag offshore product tanker operation and its harbor
service operation. In accordance with the purchase agreement, on March 16, 1998,
Hvide Marine Incorporated acquired the Company's harbor service operation and
two tankers, and August Trading, Inc. acquired five tankers, for a combined
purchase price of $38,600,000 in cash, subject to certain adjustments. The U.S.
flag offshore product tankers transported refined products from the U.S. Gulf
Coast to Florida and the East Coast, with occasional voyages to the U.S. West
Coast. The Company's harbor service operation primarily provided 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.
The offshore tanker and harbor service operations' financial results were
accounted for as discontinued operations as of December 31, 1997, and previously
reported financial statements were restated to reflect the discontinuation of
the operations. The Company recorded a financial net loss of $3,966,000 as of
December 31, 1997 for the sale of the tanker and harbor service operations.
40
<PAGE> 42
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) DISCONTINUED OPERATIONS -- (CONTINUED)
A summary of the financial position of the discontinued operations as of
December 31, 1997 included in the accompanying balance sheets follows (in
thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
ASSETS
Current assets.............................................. $11,742
Property and equipment, net................................. 36,481
Sundry...................................................... 813
-------
$49,036
=======
LIABILITIES
Current liabilities......................................... $ 8,449
Deferred taxes.............................................. 1,299
Other long-term liabilities................................. 1,379
-------
$11,127
=======
</TABLE>
A summary of the results of the discontinued operations included in the
accompanying statements of earnings for the years ended December 31, 1996 and
1997 follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revenues:
Marine transportation..................................... $66,773 $66,434
Loss on disposition of assets............................. (81) --
Other..................................................... 362 166
------- -------
67,054 66,600
------- -------
Costs and expenses:
Costs of sales and operating expenses..................... 46,023 49,819
Selling, general and administrative....................... 5,008 5,236
Taxes, other than income.................................. 250 322
Depreciation and amortization............................. 6,419 6,625
------- -------
57,700 62,002
------- -------
Operating income....................................... 9,354 4,598
Interest expense............................................ -- --
------- -------
Earnings before taxes on income........................ 9,354 4,598
Provision for taxes on income............................... (3,333) (1,655)
------- -------
Net earnings...................................... $ 6,021 $ 2,943
======= =======
Estimated loss on sale of discontinued operations, including
provision for net operating losses of $700,000 during the
phase-out period (less applicable income tax benefit of
$2,135,000)............................................... $ -- $(3,966)
======= =======
</TABLE>
(3) SALE OF REMAINING INTEREST IN UNIVERSAL INSURANCE COMPANY
Effective September 30, 1998, the Company sold its remaining 45% voting
common stock interest and its non-voting preferred stock interest in Universal
Insurance Company ("Universal") for $36,000,000 in cash. Universal, a property
and casualty insurance company in the Commonwealth of Puerto Rico, was formed by
the Company in 1972. In September 1992, the Company merged Universal with
Eastern America Insurance
41
<PAGE> 43
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SALE OF REMAINING INTEREST IN UNIVERSAL INSURANCE COMPANY -- (CONTINUED)
Company ("Eastern America"), a subsidiary of Eastern America Insurance Group,
Inc. ("Eastern America Group"). In accordance with a shareholders agreement
among the Company, Universal and Eastern America Group, through redemption
rights, Universal had the obligation to purchase the Company's entire interest
in Universal gradually, over a 15 year period. The Company closed the sale on
October 7, 1998 and the cash proceeds were used to reduce the Company's
revolving line of credit.
Under an anticipated redemption schedule, the Company would have received a
stream of cash payments between now and the year 2008 totaling $62,000,000. The
$36,000,000 received represented the present value of the payment stream.
Including prior redemptions and the final sale, the Company received total
payments of $58,000,000 for its interest in Universal.
The Company recognized, during the 1998 third quarter, a pre-tax loss for
financial purposes of $10,536,000 on the Universal transaction. The Company's
investment in Universal, accounted for under the equity method of accounting,
was based on the estimated receipt of $62,000,000 of redemption payments to the
Company over the next eleven years, and the recording of the remaining built-in
gain on the sale.
(4) ACQUISITION
On July 31, 1996, a subsidiary of the Company purchased the operating
assets of MKW Power Systems, Inc., a subsidiary of Wartsila Diesel, N.A.
("MKW"), for approximately $5,700,000 in cash plus approximately $8,500,000 for
MKW's working capital. The acquisition expanded the diesel repair segment's
relationship with the Electro-Motive Division of General Motors ("EMD") to an
authorized distributorship for 17 eastern states and the Caribbean. Funding for
the transaction was provided through the Company's bank revolving credit
agreement. Operations of the assets acquired from MKW were included as part of
the Company's operations effective July 31, 1996, in accordance with the
purchase method of accounting.
(5) INVESTMENTS
The Company's wholly-owned captive insurance subsidiary accounts for
investments in debt and equity securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"), which establishes certain criteria for the accounting and reporting of
investments in debt and equity securities that have readily determinable fair
values. Investments in debt and equity securities as of December 31, 1997 and
1998 qualify as available-for-sale securities in accordance with SFAS No. 115.
Realized gains and losses on the sale of the securities in the statements of
earnings are computed by using the specific cost of the security when originally
purchased and include net unrealized holding gains and losses as a separate
component of accumulated other comprehensive income and in the reconciliation of
comprehensive income included in the statement of stockholders' equity, net of
tax liability (benefit) of $(17,000), $308,000 and $182,000 at December 31,
1996, 1997 and 1998, respectively.
42
<PAGE> 44
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INVESTMENTS -- (CONTINUED)
A summary of the investments as of December 31, 1997 and 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
GROSS GROSS FAIR VALUE AS
AMORTIZED UNREALIZED UNREALIZED SHOWN IN THE
TYPE OF INVESTMENT COST LOSSES GAINS BALANCE SHEET
- ------------------ --------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
December 31, 1997:
Short-term investments.......................... $ 367 $ -- $ -- $ 367
Bonds and notes:
United States corporate bonds................. 5,439 (40) 60 5,459
United States Government bonds and issues..... 6,078 -- 173 6,251
Mortgage backed securities...................... 5,978 -- 59 6,037
Foreign corporate securities.................... 3,489 -- 170 3,659
------- ----- ---- -------
$21,351 $ (40) $462 $21,773
======= ===== ==== =======
December 31, 1998:
Short-term investments.......................... $ 347 $ -- $ -- $ 347
Bonds and notes:
United States corporate bonds................. 4,652 (110) 263 4,805
United States Government bonds and issues..... 5,191 (2) 227 5,416
Foreign government bonds...................... 1,382 -- 24 1,406
Mortgage backed securities...................... 7,652 (3) 96 7,745
Foreign corporate securities.................... 1,057 (7) 26 1,076
------- ----- ---- -------
$20,281 $(122) $636 $20,795
======= ===== ==== =======
</TABLE>
A summary of the available-for-sale securities by maturities as of December
31, 1997 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Investment maturing within:
One to five years................................... $ 5,464 $ 5,485 $ 2,994 $ 3,035
Five to ten years................................... 5,079 5,292 8,451 8,839
Greater than ten years.............................. 10,808 10,996 8,836 8,921
------- ------- ------- -------
$21,351 $21,773 $20,281 $20,795
======= ======= ======= =======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Long-term debt, including current portion:
Revolving credit loans due September 19, 2002............. $ 32,600 $ 26,000
Medium term notes due June 1, 2000........................ 45,000 45,000
Medium term notes due January 29, 2002.................... 50,000 50,000
8.22% senior notes, $5,000,000 due annually through June
30, 2002............................................... 25,000 20,000
Other long-term debt...................................... 2,218 1,885
-------- --------
$154,818 $142,885
======== ========
</TABLE>
43
<PAGE> 45
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>
1999........................................................ $ 5,333
2000........................................................ 50,333
2001........................................................ 5,333
2002........................................................ 81,333
2003........................................................ 333
Thereafter.................................................. 220
--------
$142,885
========
</TABLE>
The Company has a $100,000,000 revolving credit agreement (the "Credit
Agreement") with Chase Bank of Texas, N.A. ("Chase") as agent bank. On September
19, 1997 the Company agreed to new terms with Chase regarding the Credit
Agreement, superseding the previous Credit Agreement dated March 18, 1996. Under
the new term, the maturity date was extended to September 19, 2002 from December
31, 1998. The new Credit Agreement reduced the margin of interest paid on its
borrowings, provided adjusted interest rates based on the Company's senior
credit rating and eliminated certain financial covenants. The new Credit
Agreement also contains usual and customary events of default. The Credit
Agreement was amended effective January 30, 1998, to provide a one-time
allowance for the disposition of assets at the subsidiary level. The amendment
also modified the minimum net worth covenant and fixed charge calculation. The
Credit Agreement was also amended effective November 30, 1998 to modify the
minimum net worth covenant to allow for anticipated activity under the Company's
stock repurchase program. The Company was in compliance with all covenants as of
December 31, 1998. Proceeds under the Credit Agreement may be used for general
corporate purposes, the purchase of existing or new equipment, the purchase of
the Company's common stock, or for possible business acquisitions. At December
31, 1998, the amount outstanding under the Credit Agreement totaled $26,000,000
and the average interest rate was 6.14%. The average borrowing under the Credit
Agreement during 1998 was $46,570,000, computed by using the daily balance, and
the weighted average interest rate was 6.18% computed by dividing the interest
expense under the Credit Agreement by the average Credit Agreement borrowings.
The maximum Credit Agreement borrowings outstanding at any month end during 1998
totaled $62,800,000. At December 31, 1998, the Company had $74,000,000 available
for takedown under the Credit Agreement.
The Company has on file a shelf registration on Form S-3 with the
Securities and Exchange Commission providing for the issue of up to $250,000,000
of medium term notes ("Medium Term Notes") at fixed or floating interest rates
with maturities of nine months or longer. Activities under the Medium Term Notes
program have been as follows (in thousands):
<TABLE>
<CAPTION>
OUTSTANDING INTEREST AVAILABLE
BALANCE RATE BALANCE
----------- -------- ---------
<S> <C> <C> <C>
Medium Term Notes program................................... $ -- $250,000
Issuance March 1995 (Maturity March 10, 1997)............... 34,000 7.77% 216,000
Issuance June 1995 (Maturity June 1, 2000).................. 45,000 7.25% 171,000
--------
Outstanding December 31, 1995 and 1996...................... 79,000 171,000
Issuance January 1997 (Maturity January 29, 2002)........... 50,000 7.05% 121,000
Payment March 1997.......................................... (34,000) 121,000
--------
Outstanding December 31, 1997 and 1998...................... $ 95,000 $121,000
========
</TABLE>
44
<PAGE> 46
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT -- (CONTINUED)
Proceeds from the issuance of Medium Term Notes have been used to retire
certain bank credit agreements, reduce the Company's Credit Agreement and retire
the $34,000,000 of Medium Term Notes due March 10, 1997. The $121,000,000
available balance as of December 31, 1998 may be used for future business and
equipment acquisitions, working capital requirements and reductions of the
Company's Credit Agreement.
In August 1992, the Company's principal marine transportation subsidiary
entered into a $50,000,000 private placement of 8.22% senior notes due June 30,
2002. Principal payments of $5,000,000, plus interest, are due annually through
June 30, 2002. At December 31, 1998, $20,000,000 was outstanding under the
senior notes.
The Company is of the opinion that the amounts included in the consolidated
financial statements for outstanding debt materially represent the fair value of
such debt at December 31, 1997 and 1998.
(7) TAXES ON INCOME
Earnings from continuing operations before taxes on income and details of
the provision for taxes on income from continuing operations for United States
and Puerto Rico operations for the years ended December 31, 1996, 1997 and 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Earnings before taxes on income:
United States......................................... $31,893 $31,863 $15,690
Puerto Rico........................................... 2,171 4,609 1,325
------- ------- -------
$34,064 $36,472 $17,015
======= ======= =======
Provision (credit) for taxes on income:
United States:
Current............................................ $11,586 $ 9,265 $11,016
Deferred........................................... 385 2,741 (5,017)
State and local.................................... 885 836 907
------- ------- -------
12,856 12,842 6,906
Puerto Rico........................................... -- 925 --
------- ------- -------
$12,856 $13,767 $ 6,906
======= ======= =======
</TABLE>
Earnings from discontinued operations before taxes on income and details of
the provision for taxes on income from United States discontinued operations for
the years ended December 31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Earnings before taxes on income............................. $9,354 $4,598
====== ======
Provision for taxes on income:
Current................................................... $ 710 $ 977
Deferred.................................................. 2,586 661
State and local........................................... 37 17
------ ------
$3,333 $1,655
====== ======
</TABLE>
45
<PAGE> 47
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME -- (CONTINUED)
During the three years ended December 31, 1996, 1997 and 1998, tax benefits
related to the exercise of stock options that were allocated directly to
additional paid-in capital totaled $181,000, $439,000 and $1,088,000,
respectively.
The Company's provision for taxes on income varied from the statutory
federal income tax rate for the years ended December 31, 1996, 1997 and 1998 due
to the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
United States income tax statutory rate..................... 35.0% 35.0% 35.0%
Puerto Rico taxes........................................... -- 2.3 --
State and local taxes....................................... 2.1 2.1 5.3
Foreign tax credit.......................................... -- (2.5) --
Other....................................................... .2 .7 .3
---- ---- ----
37.3% 37.6% 40.6%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the current deferred tax assets and non-current deferred tax assets
and liabilities at December 31, 1996, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current deferred tax assets:
Compensated absences...................................... $ 772 $ 814 $ 659
Allowance for doubtful accounts........................... 258 290 356
Other..................................................... (430) 364 172
-------- -------- --------
$ 600 $ 1,468 $ 1,187
======== ======== ========
Non-current deferred tax assets and liabilities:
Deferred tax assets:
Alternative minimum tax credit carryforwards........... $ 11,383 $ 12,561 $ --
Postretirement health care benefits.................... 2,054 2,252 1,962
Marine insurance claims reserves....................... 628 839 764
Other.................................................. 965 2,816 1,723
-------- -------- --------
15,030 18,468 4,449
-------- -------- --------
Deferred tax liabilities:
Property............................................... (40,632) (46,643) (43,703)
Undistributed earnings from foreign subsidiaries....... (15,896) (16,145) --
Deferred state taxes................................... (657) (707) (757)
Scheduled vessel maintenance costs..................... (3,746) (3,382) (34)
-------- -------- --------
(60,931) (66,877) (44,494)
-------- -------- --------
$(45,901) $(48,409) $(40,045)
======== ======== ========
</TABLE>
The Company has determined that it is more likely than not that the
deferred tax assets will be realized and a valuation allowance for such assets
is not required.
46
<PAGE> 48
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(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, 1996, 1997 and 1998 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Rental expense:
Marine equipment......................................... $1,803 $1,803 $1,803
Other buildings and equipment............................ 1,050 1,398 1,423
Sublease rental............................................ (10) (10) (10)
------ ------ ------
Net rental expense............................... $2,843 $3,191 $3,216
====== ====== ======
</TABLE>
Rental commitments under noncancelable leases are as follows (in
thousands):
<TABLE>
<CAPTION>
LAND,
BUILDINGS
AND EQUIPMENT
-------------
<S> <C>
1999........................................................ $3,088
2000........................................................ 1,200
2001........................................................ 741
2002........................................................ 571
2003........................................................ 420
Thereafter.................................................. 484
------
$6,504
======
</TABLE>
(9) STOCK OPTION PLANS
The Company has five employee stock option plans which were adopted in
1976, 1982, 1989, 1994 and 1996 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 1996
Employee Plan provides for the issuance of incentive and non-qualified stock
options to purchase up to 900,000 shares of common stock. The 1976, 1982 and
1989 stock option plans authorize the granting of limited stock appreciation
rights.
47
<PAGE> 49
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 years ended December 31, 1996, 1997 and 1998 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, 1995........................... 1,211,400 643,500 $ 3.69-$21.38
Granted............................................... 961,000 -- $16.44-$19.50
Became exercisable.................................... -- 247,162 $12.94-$21.38
Exercised............................................. (90,500) (90,500) $ 6.56-$18.31
Canceled or expired................................... (58,500) (30,000) $12.94-$18.31
--------- --------
Outstanding December 31, 1996........................... 2,023,400 770,162 $ 3.69-$21.38
Granted............................................... 42,500 -- $18.56
Became exercisable.................................... -- 161,163 $12.94-$21.38
Exercised............................................. (133,550) (133,550) $ 3.69-$18.31
Canceled or expired................................... (15,000) (3,000) $16.31-$18.56
--------- --------
Outstanding December 31, 1997........................... 1,917,350 794,775 $ 3.69-$21.38
Granted............................................... 18,000 -- $19.88
Became exercisable.................................... -- 108,537 $16.31-$21.38
Exercised............................................. (288,300) (288,300) $ 3.69-$21.38
Canceled or expired................................... (96,100) (1,050) $16.31-$19.50
--------- --------
Outstanding December 31, 1998........................... 1,550,950 613,962 $ 6.56-$21.38
========= ========
</TABLE>
At December 31, 1998, 778,914 shares were available for future grants under
the employee plans and 125,500 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 Directors of the Company to
purchase up to 150,000 shares of common stock. The 1994 Director Plan provides
for the issuance on 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.
48
<PAGE> 50
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 years ended December 31, 1996, 1997 and 1998 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, 1995........................... 91,500 91,500 $ 7.56-$21.38
Granted............................................... 20,500 -- $16.63-$17.94
Became exercisable.................................... -- 20,500 $16.63-$17.94
Exercised............................................. (20,000) (20,000) $7.56
------- -------
Outstanding December 31, 1996........................... 92,000 92,000 $ 7.56-$21.38
Granted............................................... 10,500 -- $17.06
Became exercisable.................................... -- 10,500 $17.06
Exercised............................................. (1,500) (1,500) $16.69
Canceled or expired................................... (7,500) (7,500) $16.69-$21.38
------- -------
Outstanding December 31, 1997........................... 93,500 93,500 $ 7.56-$21.38
Granted............................................... 17,000 -- $19.88-$25.50
Became exercisable.................................... -- 17,000 $19.88-$25.50
------- -------
Outstanding December 31, 1998........................... 110,500 110,500 $ 7.56-$25.50
======= =======
</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, all of which are
currently exercisable. The grant serves as an incentive to retain the optionee
as a member of the Board of Directors of the Company.
(10) RETIREMENT PLANS
The marine 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.
49
<PAGE> 51
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS -- (CONTINUED)
The following table presents the funded status and amounts recognized in
the Company's consolidated balance sheet for the Company's defined benefit plans
(in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................... $15,941 $17,609
Service cost.............................................. 1,257 1,143
Interest cost............................................. 1,205 1,402
Amendments................................................ -- 735
Actuarial (gain) loss..................................... (289) 1,581
Curtailment loss.......................................... -- 178
Benefits paid............................................. (505) (720)
------- -------
Benefit obligation at end of year......................... 17,609 21,928
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ 15,243 18,551
Actual return on plan assets.............................. 3,240 2,671
Employer contribution..................................... 573 382
Benefits paid............................................. (505) (720)
------- -------
Fair value of plan assets at end of year.................. 18,551 20,884
------- -------
Funded status............................................. 942 (1,044)
Unrecognized net actuarial gain........................... (2,526) (1,699)
Unrecognized prior service cost........................... 992 1,446
Unrecognized net transition obligation.................... 74 57
------- -------
Accrued pension liability................................. $ (518) $(1,240)
======= =======
</TABLE>
The components of pension expense are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Service cost............................................ $ 1,357 $ 1,257 $ 1,143
Interest cost........................................... 1,090 1,205 1,402
Expected return on assets............................... (1,150) (1,406) (1,691)
Amortization of transition obligation................... 17 17 17
Amortization of prior service cost...................... 192 192 258
Amortization of actuarial gain.......................... -- (12) (47)
Less partnerships' allocation........................... (32) (22) (85)
Curtailment charge...................................... -- -- 22
------- ------- -------
Net pension expense..................................... $ 1,474 $ 1,231 $ 1,019
======= ======= =======
</TABLE>
The Company sponsors 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 $3,871,000, $3,929,000 and
$3,836,000 in 1996, 1997 and 1998, 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
50
<PAGE> 52
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS -- (CONTINUED)
minimum age and service requirements, and eligible dependents. The plan is
contributory, with retiree contributions adjusted annually.
In connection with the Company's sale of its discontinued operations, the
Company recognized the reversal of previously accrued health care plan benefits
for non-vested active employees. The effect of the reversal was used to reduce
an insignificant unrecognized prior service cost obligation, with the remaining
amount of approximately $1,100,000 included as a reduction of the estimated loss
from the sale of the discontinued operations.
The following table presents the unfunded defined benefit health care
plan's funded status and amounts recognized in the Company's consolidated
balance sheet (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................... $ 6,181 $ 5,609
Service cost.............................................. 364 317
Interest cost............................................. 478 415
Actuarial loss (gain)..................................... 50 (81)
Curtailment (gain) loss................................... (1,110) 233
Benefits paid............................................. (330) (619)
Less partnerships' allocation............................. (24) (19)
------- -------
Benefit obligation at end of year......................... 5,609 5,855
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ -- --
Employer contribution..................................... 330 619
Benefits paid............................................. (330) (619)
------- -------
Fair value of plan assets at end of year.................. -- --
------- -------
Funded status............................................. (5,609) (5,855)
Unrecognized net actuarial loss........................... 277 196
Unrecognized prior service cost........................... 85 72
------- -------
Accrued postretirement benefit cost....................... $ 5,247 $ 5,587
======= =======
</TABLE>
The components of postretirement benefit expense are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $381 $364 $317
Interest cost............................................... 434 478 415
Amortization of prior service cost.......................... 8 8 5
Less partnerships' allocation............................... (21) (22) (20)
---- ---- ----
Postretirement benefit expense.............................. $802 $828 $717
==== ==== ====
</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 discount rate used in determining the accumulated postretirement
benefit obligation was 6.75% at December 31, 1998 and 7.25% at December 31, 1997
and 1996.
51
<PAGE> 53
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) EARNINGS PER SHARE OF COMMON STOCK
The following table presents basic and diluted earnings (loss) per share
calculations for the years ended December 31, 1996, 1997 and 1998 (in thousands,
except earnings per share):
<TABLE>
<CAPTION>
INCOME (LOSS) SHARES EARNINGS (LOSS)
(NUMERATOR) (DENOMINATOR) PER SHARE
------------- ------------- ---------------
<S> <C> <C> <C>
For the year ended December 31, 1996:
Basic earnings per share:
Continuing operations......................... $21,208 25,555 $ .83
Discontinued operations....................... 6,021 25,555 .24
------- ------ -----
$27,229 25,555 $1.07
======= ====== =====
Effect of dilutive securities:
Employee and director common stock options.... 226
Diluted earnings per share:
Continuing operations......................... $21,208 25,781 $ .82
Discontinued operations....................... 6,021 25,781 .24
------- ------ -----
$27,229 25,781 $1.06
======= ====== =====
For the year ended December 31, 1997:
Basic earnings (loss) per share:
Continuing operations......................... $22,705 24,381 $ .93
Discontinued operations....................... (1,023) 24,381 (.04)
------- ------ -----
$21,682 24,381 $ .89
======= ====== =====
Effect of dilutive securities:
Employee and director common stock options.... 213
Diluted earnings (loss) per share:
Continuing operations......................... $22,705 24,594 $ .92
Discontinued operations....................... (1,023) 24,594 (.04)
------- ------ -----
$21,682 24,594 $ .88
======= ====== =====
For the year ended December 31, 1998:
Basic earnings per share:
Net earnings.................................. $10,109 21,847 $ .46
======= ====== =====
Effect of dilutive securities:
Employee and director common stock options.... 266
Diluted earnings per share:
Net earnings.................................. $10,109 22,113 $ .46
======= ====== =====
</TABLE>
52
<PAGE> 54
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) QUARTERLY RESULTS (UNAUDITED)
The unaudited quarterly results for the year ended December 31, 1997 are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues........................................ $80,264 $88,968 $84,219 $83,083
Costs and expenses.............................. 73,752 76,743 72,783 71,099
------- ------- ------- -------
Operating income.............................. 6,512 12,225 11,436 11,984
Equity in earnings of insurance affiliate....... 401 2,911 422 875
Equity in earnings of marine affiliates......... 863 531 778 912
Interest expense................................ (3,374) (3,450) (3,293) (3,261)
------- ------- ------- -------
Earnings from continuing operations before
taxes on income............................ 4,402 12,217 9,343 10,510
Provision for taxes on income................... (1,780) (4,526) (3,470) (3,991)
------- ------- ------- -------
Earnings from continuing operations........... 2,622 7,691 5,873 6,519
Earnings (loss) for discontinued operations, net
of taxes on income............................ 2,117 414 76 (3,630)
------- ------- ------- -------
Net earnings.................................. $ 4,739 $ 8,105 $ 5,949 $ 2,889
======= ======= ======= =======
Net earnings (loss) per share of common stock:
Basic earnings (loss) per share:
Continuing operations...................... $ .11 $ .31 $ .24 $ .27
Discontinued operations.................... .08 .02 -- (.15)
------- ------- ------- -------
Net earnings.......................... $ .19 $ .33 $ .24 $ .12
======= ======= ======= =======
Diluted earnings (loss) per share:
Continuing operations...................... $ .11 $ .31 $ .24 $ .27
Discontinued operations.................... .08 .02 -- (.15)
------- ------- ------- -------
Net earnings.......................... $ .19 $ .33 $ .24 $ .12
======= ======= ======= =======
</TABLE>
53
<PAGE> 55
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) QUARTERLY RESULTS (UNAUDITED) -- (CONTINUED)
The unaudited quarterly results for the year ended December 31, 1998 are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues........................................ $82,748 $84,884 $82,753 $81,870
Costs and expenses.............................. 73,099 72,500 71,832 69,313
Impairment of long-lived assets................. -- -- 8,333 --
------- ------- ------- -------
Operating income.............................. 9,649 12,384 2,588 12,557
Equity in earnings of insurance affiliate....... 494 413 418 --
Loss on sale of insurance affiliate............. -- -- (10,536) --
Equity in earnings (loss) of marine
affiliates.................................... 716 1,149 1,034 (1,953)
Interest expense................................ (2,767) (3,232) (3,236) (2,663)
------- ------- ------- -------
Earnings (loss) before taxes on income........ 8,092 10,714 (9,732) 7,941
(Provision) benefit for taxes on income......... (3,052) (4,039) 3,161 (2,976)
------- ------- ------- -------
Net earnings (loss)........................... $ 5,040 $ 6,675 $(6,571) $ 4,965
======= ======= ======= =======
Net earnings (loss) per share of common stock:
Basic......................................... $ .21 $ .31 $ (.31) $ .24
------- ------- ------- -------
Diluted....................................... $ .21 $ .31 $ (.31) $ .24
======= ======= ======= =======
</TABLE>
Quarterly basic and diluted earnings (loss) per share of common stock may
not total to the full year per share amounts, as the weighted average number of
shares outstanding for each quarter fluctuates as a result of the assumed
exercise of stock options.
(13) CONTINGENCIES AND COMMITMENTS
There are various suits and claims against the Company, none of which in
the opinion of management will have a material effect on the Company's financial
condition, results of operations or cash flows.
Management has recorded necessary reserves and believes that it has
adequate insurance coverage or has meritorious defenses for the foregoing claims
and contingencies.
Certain Significant Risks and Uncertainties. The Company's marine
transportation segment is engaged in the inland marine transportation of
industrial chemicals, petrochemical feedstocks, agricultural chemicals and
refined petroleum products by tank barge along the Mississippi River System,
Gulf Intracoastal Waterway and Houston Ship Channel. In addition, the segment is
engaged in the offshore marine transportation of dry-bulk cargo, containers and
palletized cargo by barge. Such products are transported between United States
ports, with emphasis on the Gulf of Mexico and along the Northeast Seaboard and
Caribbean Basin ports, with occasional voyages to South American, West African
and European ports.
The Company's diesel repair segment is engaged in the overhaul and repair
of large diesel engines and related parts sales in the marine, locomotive and
power generator markets. The marine market serves vessels powered by large
diesel engines utilized in the various inland and offshore marine industries.
The locomotive market serves the shortline and industrial railroad markets, and
the power generator market serves the stationary industries.
54
<PAGE> 56
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
During 1998, the Company's marine transportation segment accounted for 77%
of the Company's assets and the diesel repair segment accounted for 10%. Of
total consolidated revenues, the marine transportation segment generated 74%
during 1998, and the diesel repair segment generated 25%. Operating profits,
excluding equity in earnings of affiliates and general corporate expenses,
included an 82% contribution from the marine transportation segment and 18%
contribution from the diesel repair segment.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. However, in
the opinion of management, the amounts would be immaterial.
The customer base includes the major industrial chemical and petrochemical
manufacturers, agricultural chemical manufacturers and refining companies in the
United States. Approximately 80% of the movements of such products are under
long-term contracts, ranging from one year to 10 years. While the manufacturing
and refining companies have generally been customers of the Company for numerous
years (some as long as 30 years) and management anticipates a continuing
relationship, there is no assurance that any individual contract will be
renewed. The Dow Chemical Company accounted for 13% of the Company's revenues in
1998 and 1997 and 12% in 1996.
Major customers of the diesel repair segment include the inland and
offshore dry-bulk and tank barge operators, oil service companies, petrochemical
companies, offshore fishing companies, other marine transportation entities, the
United States Coast Guard, Navy and Army, shortline railroads, industrial owners
of locomotives, and stationary applications. The marine segment operates as
non-exclusive authorized service centers for EMD and the locomotive segment
serves as the exclusive distributorship of EMD aftermarket parts sales and
services to the shortline and industrial railroad market. The acquisition of MKW
in July 1996, more fully described in Note 4, Acquisition, expanded the diesel
repair segment's relationship with EMD to an authorized distributorship for 17
eastern states and the Caribbean. The results of the diesel repair segment are
largely tied to the industries it serves and, therefore, can be influenced by
the cycles of such industries. The diesel repair segment's relationship with EMD
has been maintained for 30 years. No single customer of the diesel repair
segment accounted for more than 10% of the Company's revenues in 1996, 1997 and
1998.
Weather can be a major factor in the day-to-day operations of the marine
transportation segment. Adverse weather conditions, such as fog in the winter
and spring months, can impair the operating efficiencies of the fleet. Shipments
of products can be significantly delayed or postponed by weather conditions,
which are totally beyond the control of management. River conditions are also
factors which impair the efficiency of the fleet and can result in delays,
diversions and limitations on night passages, horsepower requirements and size
of tows. Additionally, much of the inland waterway system is controlled by a
series of locks and dams designed to provide flood control, maintain pool levels
of water in certain areas of the country and facilitate navigation on the inland
river system. Maintenance and operations of the navigable inland waterway
infrastructure is a government function handled by the Corps of Engineers with
costs shared by industry. Significant changes in governmental policies or
appropriations with respect to maintenance and operations of the infrastructure
could adversely affect the Company.
The Company's marine transportation segment is subject to regulations by
the United States Coast Guard, federal laws, state laws and certain
international conventions. The Company believes that additional safety,
environmental and occupational health regulations may be imposed on the marine
industry. The Company believes that it is currently operating to standards at
least the equal of such anticipated additional regulations. However, there can
be no assurance that any such new regulations or requirements, or any discharge
of pollutants by the Company, will not have an adverse effect on the Company.
55
<PAGE> 57
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
The Company's marine transportation segment competes principally in markets
subject to the Jones Act, a federal cabotage law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States, and manned and owned by United States citizens. During the past
several years, the Jones Act cabotage provisions have come under attack by
interests seeking to facilitate foreign flag competition in trades reserved for
domestic companies and vessels under the Jones Act. The efforts have been
consistently defeated by large margins in the United States Congress. The
Company believes that continued efforts will be made to modify or eliminate the
cabotage provisions of the Jones Act. If such efforts are successful, certain
elements could have an adverse effect on the Company.
(14) SEGMENT DATA
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998. The segment information for 1996
and 1997 has been restated from prior years' presentations in order to conform
to the 1998 presentation.
The Company evaluates the performance of its segments based on operating
income before income taxes, interest income and expense, gains or losses on sale
of assets, accounting changes, and nonrecurring items. Intersegment sales are
not significant.
56
<PAGE> 58
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) SEGMENT DATA -- (CONTINUED)
The following table sets forth by reportable segment the revenues, profit
or loss, identifiable assets, depreciation and amortization and capital
expenditures attributable to the continuing principal activities of the Company
for the years ended December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Marine transportation..................................... $249,594 $256,108 $244,839
Diesel repair............................................. 70,422 79,136 82,241
Other..................................................... 3,568 1,290 5,175
-------- -------- --------
$323,584 $336,534 $332,255
======== ======== ========
Segment profit (loss):
Marine transportation..................................... $ 38,172 $ 39,542 $ 37,661
Diesel repair............................................. 5,376 6,189 8,050
Other..................................................... (9,484) (9,259) (28,696)
-------- -------- --------
$ 34,064 $ 36,472 $ 17,015
======== ======== ========
Total assets:
Marine transportation..................................... $320,816 $321,158 $301,020
Diesel repair............................................. 48,012 47,290 38,588
Other..................................................... 155,702 149,511 50,691
-------- -------- --------
$524,530 $517,959 $390,299
======== ======== ========
Depreciation and amortization:
Marine transportation..................................... $ 25,818 $ 24,921 $ 23,977
Diesel repair............................................. 883 980 917
Other..................................................... 1,685 2,212 2,489
-------- -------- --------
$ 28,386 $ 28,113 $ 27,383
======== ======== ========
Capital expenditures and business acquisitions:
Marine transportation..................................... $ 33,123 $ 20,161 $ 24,521
Diesel repair............................................. 14,785 521 1,103
Other..................................................... 2,716 3,824 1,821
-------- -------- --------
$ 50,624 $ 24,506 $ 27,445
======== ======== ========
</TABLE>
The following table presents the details of "Other" segment profit (loss)
for the years ended December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
General corporate expenses........................... $ (5,786) $ (4,864) $ (5,375)
Interest expense..................................... (13,349) (13,378) (11,898)
Equity in earnings of affiliates..................... 6,083 7,693 2,271
Gain on sale of assets............................... 2,751 407 3,517
Impairment of long-lived assets...................... -- -- (8,333)
Loss on sale of equity investment.................... -- -- (10,536)
Other................................................ 817 883 1,658
-------- -------- --------
$ (9,484) $ (9,259) $(28,696)
======== ======== ========
</TABLE>
57
<PAGE> 59
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) SEGMENT DATA -- (CONTINUED)
The following table presents the details of "Other" total assets as of
December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
General corporate assets.............................. $ 39,086 $ 38,899 $37,896
Investments in affiliates............................. 57,251 61,576 12,795
Discontinued operations............................... 59,365 49,036 --
-------- -------- -------
$155,702 $149,511 $50,691
======== ======== =======
</TABLE>
58
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial Statements:
Included in Part III of this report:
Report of KPMG LLP, Independent Public Accountants, on the financial
statements of Kirby Corporation and Consolidated Subsidiaries for the years
ended December 31, 1996, 1997 and 1998.
Balance Sheets, December 31, 1997 and 1998.
Statements of Earnings, for the years ended December 31, 1996, 1997
and 1998.
Statements of Stockholders' Equity, for the years ended December 31,
1996, 1997 and 1998.
Statements of Cash Flows, for the years ended December 31, 1996, 1997
and 1998.
Notes to Financial Statements, for the years ended December 31, 1996,
1997 and 1998.
2. Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
3. Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended December
31, 1998.
4. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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).
</TABLE>
59
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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 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).
10.8 -- 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 others (incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1992).
10.9+ -- 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).
10.10 -- 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).
10.11+ -- 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).
10.12+ -- 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).
10.13+ -- 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).
10.14+ -- Amendment to 1989 Director Stock Option Plan for Kirby
Exploration Company, Inc. (incorporated by reference to
Exhibit 10.24 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.15 -- Purchase Agreement, dated November 16, 1994, by and
between The Dow Chemical Company and Dow Hydrocarbons and
Resources, Inc., and Dixie Marine, Inc. (incorporated by
reference to Exhibit 10.25 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.16 -- 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).
10.17+ -- 1996 Employee Stock Option Plan for Kirby Corporation
(incorporated by reference to Exhibit 10.24 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.18+ -- Amendment No. 1 to the 1994 Employee Stock Option Plan
for Kirby Corporation (incorporated by reference to
Exhibit 10.25 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.19 -- Credit Agreement, dated September 19, 1997, among Kirby
Corporation, the Banks named therein, and Texas Commerce
Bank National Association as Agent and Funds
Administrator (incorporated by reference to Exhibit 10.0
of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
10.20 -- First Amendment to Credit Agreement, dated January 30,
1998, among Kirby Corporation, the Banks named therein,
and Chase Bank of Texas, N.A. as Agent and Funds
Administrator (incorporated by reference to Exhibit B2 of
the Registrant's Tender Offer Statement on Schedule 13E-4
filed with the Securities and Exchange Commission on
February 17, 1998).
10.21 -- Asset Purchase Agreement, dated January 28, 1998, by and
between Hvide Marine Incorporated, Sabine Transportation
Company (an Iowa corporation), Kirby Corporation, Sabine
Transportation Company (a Delaware corporation) and Kirby
Tankships, Inc. (incorporated by reference to Exhibit 2.1
of the Registrant's Current Report on Form 8-K dated
March 25, 1998).
10.22* -- Second Amendment to Credit Agreement, dated November 30,
1998, among Kirby Corporation, the Banks named therein,
and Chase Bank of Texas, N.A. as Agent and Funds
Administrator.
21.1* -- Principal Subsidiaries of the Registrant.
23.1* -- Consent of KPMG LLP.
27.1* -- Financial Data Schedule.
28.1* -- Independent Auditors' Report of Deloitte & Touche LLP.
</TABLE>
- ---------------
* Filed herewith
+ Management contract, compensatory plan or arrangement.
61
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KIRBY CORPORATION
(Registrant)
By: /s/ NORMAN W. NOLEN
----------------------------------
Norman W. Nolen
Senior Vice President
Dated: February 25, 1999
Pursuant to the requirements of the Securities Exchange 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
--------- -------- ----
<C> <S> <C>
/s/ GEORGE A. PETERKIN, JR. Chairman of the Board and February 25, 1999
- ----------------------------------------------------- Director of the Company
George A. Peterkin, Jr.
/s/ J. H. PYNE President, Director of the February 25, 1999
- ----------------------------------------------------- Company and Principal
J. H. Pyne Executive Officer
/s/ NORMAN W. NOLEN Senior Vice President, February 25, 1999
- ----------------------------------------------------- Treasurer, Assistant
Norman W. Nolen Secretary of the Company
and Principal Financial
Officer
/s/ G. STEPHEN HOLCOMB Vice President, Controller, February 25, 1999
- ----------------------------------------------------- Assistant Secretary of the
G. Stephen Holcomb Company and Principal
Accounting Officer
/s/ GEORGE F. CLEMENTS, JR. Director of the Company February 25, 1999
- -----------------------------------------------------
George F. Clements, Jr.
/s/ C. SEAN DAY Director of the Company February 25, 1999
- -----------------------------------------------------
C. Sean Day
/s/ BOB G. GOWER Director of the Company February 25, 1999
- -----------------------------------------------------
Bob G. Gower
/s/ WILLIAM M. LAMONT, JR. Director of the Company February 25, 1999
- -----------------------------------------------------
William M. Lamont, Jr.
/s/ ROBERT G. STONE, JR. Director of the Company February 25, 1999
- -----------------------------------------------------
Robert G. Stone, Jr.
/s/ THOMAS M. TAYLOR Director of the Company February 25, 1999
- -----------------------------------------------------
Thomas M. Taylor
/s/ J. VIRGIL WAGGONER Director of the Company February 25, 1999
- -----------------------------------------------------
J. Virgil Waggoner
</TABLE>
62
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.22 -- Second Amendment to Credit Agreement, dated November 30,
1998, among Kirby Corporation, the Banks named therein,
and Chase Bank of Texas, N.A. as Agent and Funds
Administrator.
21.1 -- Principal Subsidiaries of the Registrant.
23.1 -- Consent of KPMG LLP.
27.1 -- Financial Data Schedule.
28.1 -- Independent Auditors' Report of Deloitte & Touche LLP.
</TABLE>
<PAGE> 1
EXHIBIT 10.22
SECOND AMENDMENT
TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of November 30, 1998
(this "Amendment") is among KIRBY CORPORATION, a Nevada corporation (the
"Borrower"), the banks named on the signature pages hereto, and CHASE BANK OF
TEXAS, N.A. (formerly known as Texas Commerce Bank National Association), as
Funds Administrator and Agent (the "Agent").
PRELIMINARY STATEMENT
(1) Pursuant to that certain Credit Agreement dated as of September 19,
1997, among the Borrower, the banks named therein (the "Banks"), the Agent as
the fund administrator and the Agent, the Banks have made a revolving credit
facility available to the Borrower upon the terms and conditions set forth
therein. Said Credit Agreement was amended by that certain First Amendment to
Credit Agreement dated as of January 30, 1998, among the Borrower, the Banks,
the Agent and the funds administrator. Said Credit Agreement as amended by the
First Amendment to Credit Agreement is herein referred to as the "Existing
Credit Agreement".
(2) The Borrower has requested that certain provisions of the Existing
Credit Agreement be further amended, and the Banks and the Agent have agreed to
amend such provisions to the extent and in the manner set forth herein.
Accordingly, in consideration of the foregoing and the mutual covenants set
forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. All capitalized terms defined in the Existing
Credit Agreement, and not otherwise defined herein shall have the same meanings
herein as in the Existing Credit Agreement. Upon the effectiveness of this
Amendment, each reference (a) in the Existing Credit Agreement to "this
Agreement," "hereunder," "herein" or words of like import shall mean and be a
reference to the Existing Credit Agreement, as amended hereby, (b) in the Notes
and the other Loan Documents to the Existing Credit Agreement shall mean and be
a reference to the Existing Credit Agreement, as amended hereby, and (c) in the
Loan Documents to any term defined by reference to the Existing Credit Agreement
shall mean and be a reference to such term as defined in the Existing Credit
Agreement, as amended hereby.
SECTION 1.02. REFERENCES, ETC. The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Amendment shall refer to this
Amendment as a whole and not to any particular provision of this Amendment. In
this Amendment, unless a clear contrary intention appears the word "including"
(and with correlative meaning "include") means including, without limiting the
generality of any description preceding such term. No provision of this
Amendment shall be interpreted or constructed against any Person solely because
that Person or its legal representative drafted such provision.
ARTICLE II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
SECTION 2.01. AMENDMENT TO SECTION 6.01(C). Section 6.01(c) of the Existing
Credit Agreement is amended and restated to read as follows:
"(c) Minimum Net Worth. Permit Net Worth, measured as of the last day of
any calendar quarter, to be less than the sum of (i) the Base Equity Amount (as
defined below), plus (ii) the lesser of (A) a cumulative
<PAGE> 2
amount equal to fifty percent (50%), if positive, zero percent (0%), if
negative, of Net Income for each fiscal year ending after September 19, 1997 and
(B) $75,000,000. As used herein, the term "Base Equity Amount" means the sum of
(1) $136,000,000 minus (2) an amount equal to the lesser of (x) $50,000,000 and
(y) the net reduction in Net Worth after December 31, 1997 attributable to
Borrower's sale, issuance or repurchase of its capital stock."
SECTION 2.02. AMENDMENT TO SECTION 6.11. Section 6.11 of the Existing
Credit Agreement is deleted in its entirety.
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.01. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective upon receipt by the Agent of the following, each in form and substance
reasonably satisfactory to the Agent and in such number of counterparts as may
be reasonably requested by the Agent:
(a) This Amendment duly executed by the Borrower and the Majority Banks.
(b) A certificate of the secretary or an assistant secretary of the
Borrower certifying (i) true and correct copies of resolutions adopted by the
Board of Directors of the Borrower (A) authorizing the execution, delivery and
performance by the Borrower of this Amendment, and (B) authorizing officers of
the Borrower to execute and deliver this Amendment, and (ii) the incumbency and
specimen signatures of the officers of the Borrower executing this Amendment or
any other document on behalf of the Borrower.
(c) A certificate of a Responsible Officer of the Borrower certifying that,
after giving effect to this Amendment, (i) the representations and warranties
contained in Article IV are true and correct on and as of such date, as though
made on and as of such date, and (ii) no Default has occurred and is continuing,
or would result from the execution, delivery or performance of this Amendment.
(d) Certificates of appropriate public officials as to the existence and
good standing of the Borrower in the States of Nevada and Texas.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank Group to enter into this Amendment, the
Borrower hereby represents and warrants to the Bank Group as follows:
SECTION 4.01. EXISTING CREDIT AGREEMENT. After giving effect to the
execution and delivery of this Amendment and the consummation of the
transactions contemplated hereby, and with this Amendment constituting one of
the Loan Documents, the representations and warranties set forth in Article IV
of the Existing Credit Agreement are true and correct on the date hereof as
though made on and as of such date.
SECTION 4.02. NO DEFAULT. After giving effect to the execution and delivery
of this Amendment and the consummation of the transactions contemplated hereby,
no Default or Event of Default has occurred and is continuing as of the date
hereof.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. AFFIRMATION OF LOAN DOCUMENTS. The Borrower hereby
acknowledges and agrees that all of its obligations under the Existing Credit
Agreement, as amended hereby, and the other Loan Documents shall remain in full
force and effect following the execution and delivery of this Amendment, and
such obligations are hereby affirmed, ratified and confirmed by the Borrower.
2
<PAGE> 3
SECTION 5.02. COSTS AND EXPENSES. The Borrower agrees to pay on demand all
reasonable costs and expenses incurred by the Agent and the Funds Administrator
in connection with the preparation, execution, delivery, filing, administration
and recording of this Amendment and any other agreements delivered in connection
with or pursuant to this Amendment, including, without limitation, the
reasonable fees and out-of-pocket expenses of Andrews & Kurth L.L.P., special
counsel to the Agent.
SECTION 5.03. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the Borrower and the Bank Group and their respective
successors and assigns.
SECTION 5.04. CAPTIONS. The captions in this Amendment have been inserted
for convenience only and shall be given no substantive meaning or significance
whatsoever in construing the terms and provisions of this Amendment.
SECTION 5.05. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same instrument.
SECTION 5.06. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Texas.
SECTION 5.07. FINAL AGREEMENT OF THE PARTIES. THE EXISTING CREDIT AGREEMENT
(INCLUDING THE EXHIBITS THERETO), AS AMENDED BY THIS AMENDMENT, THE NOTES AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
KIRBY CORPORATION
By: /s/ G. STEPHEN HOLCOMB
------------------------------------
Name: G. Stephen Holcomb
Title: Vice President
CHASE BANK OF TEXAS, N.A. (formerly
known as Texas Commerce Bank National
Association), as Funds Administrator,
as Agent, and individually as one of
the Banks
By: /s/ MICHAEL ONDRUCH
------------------------------------
Name: Michael Ondruch
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ DIEGO PUIGGARI
------------------------------------
Name: Diego Puiggari
Title: Group Vice President
By: /s/ GLENN SROKA
------------------------------------
Name: Glenn Sroka
Title: Credit Officer
CITIBANK, N.A.
By: /s/ JOHN F. HEUSS
------------------------------------
Name: John F. Heuss
Title: Vice President
4
<PAGE> 5
FIRST UNION NATIONAL BANK, as
successor to CoreStates Bank, N.A.
By: /s/ MICHAEL J. LABRUM
------------------------------------
Name: Michael J. Labrum
Title: Vice President
DEPOSIT GUARANTY NATIONAL BANK
By: /s/ E. ANTHONY THOMAS
------------------------------------
Name: E. Anthony Thomas
Title: Senior Vice President
WELLS FARGO BANK (TEXAS), N.A.
By: /s/ NIPUL V. PATEL
------------------------------------
Name: Nipul V. Patel
Title: Assistant Vice President
5
<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
Kirby Inland Marine, 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
Kirby Pioneer, Inc.(1).................................... Delaware
AFRAM Carriers, Inc.(1)................................... Delaware
Marine Systems, Inc.(1)................................... Louisiana
Rail Systems, Inc.(1)..................................... Delaware
Engine Systems, Inc.(1)................................... Delaware
Americas Marine Express, Inc.(1).......................... Delaware
Kirby Tankships, Inc.(1).................................. Delaware
Kirby Marine Transportation Corporation(1)................ Texas
Sabine Marine Transportation Company(1)................... Delaware
Dixie Offshore Transportation Company(1).................. Delaware
Mariner Reinsurance Company Limited(1).................... Bermuda
Oceanic Insurance Limited(1).............................. Bermuda
CONTROLLED CORPORATIONS
Dixie Bulk Transport, Inc. (subsidiary of Kirby Inland
Marine, Inc.)(1)....................................... Delaware
Western Towing Company (subsidiary of Kirby Inland Marine,
Inc.)(1)............................................... Texas
Kirby Inland Marine, Inc. of Louisiana (subsidiary of
Kirby Inland Marine, Inc.)(1).......................... Delaware
Kirby Inland Marine, Inc. of Texas (subsidiary of Kirby
Inland Marine, Inc.)(1)................................ Delaware
Kirby Inland Marine, Inc. of Mississippi (subsidiary of
Kirby Inland Marine, Inc.)(1).......................... Delaware
Dixie Carriers, Inc. (subsidiary of Kirby Inland Marine,
Inc.)(1)............................................... Texas
East Cross Sea Transport, Inc. (subsidiary of AFRAM
Carriers, Inc.)........................................ Panama
Four Fletcher Commerce, Inc. (subsidiary of AFRAM
Carriers, Inc.)........................................ Florida
</TABLE>
- ---------------
(1) Included in the consolidated financial statements.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(No. 33-62116), (No. 33-56195) on Form S-3 and (No. 33-681400), (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 4, 1999, relating to
the consolidated balance sheets of Kirby Corporation and consolidated
subsidiaries as of December 31, 1998 and 1997 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, 1998, which report appears in
the December 31, 1998 Annual Report on Form 10-K of Kirby Corporation.
KPMG LLP
Houston, Texas
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 861
<SECURITIES> 20,795
<RECEIVABLES> 71,521
<ALLOWANCES> 1,016
<INVENTORY> 14,181
<CURRENT-ASSETS> 112,358
<PP&E> 466,443
<DEPRECIATION> 209,544
<TOTAL-ASSETS> 390,299
<CURRENT-LIABILITIES> 65,940
<BONDS> 137,552
0
0
<COMMON> 3,091
<OTHER-SE> 137,949
<TOTAL-LIABILITY-AND-EQUITY> 390,299
<SALES> 63,597
<TOTAL-REVENUES> 332,255
<CGS> 45,010
<TOTAL-COSTS> 212,242
<OTHER-EXPENSES> 82,835
<LOSS-PROVISION> 269
<INTEREST-EXPENSE> 11,898
<INCOME-PRETAX> 17,015
<INCOME-TAX> 6,906
<INCOME-CONTINUING> 10,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,109
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</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 sheet of Universal Insurance
Company and its subsidiaries as of December 31, 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
years ended December 31, 1996 and 1997 (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, 1997, and the results of their operations and
their cash flows for the years ended December 31, 1996 and 1997 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
San Juan, Puerto Rico
February 18, 1998
