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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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)
NEVADA 74-1884980
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1775 ST. JAMES PLACE, SUITE 300
HOUSTON, TEXAS 77056-3453
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 629-9370
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock -- $.10 Par American Stock Exchange
Value Per Share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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As of March 14, 1994, 28,275,133 shares of common stock were outstanding.
The aggregate market value of common stock held by nonaffiliates of the
registrant, based on the closing sales price of such stock on the American Stock
Exchange on March 14, 1994 was $581,184,036. For purposes of this computation,
all executive officers, directors and 10% beneficial owners of registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such executive officers, directors and 10% beneficial owners are
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement in connection with the Annual
Meeting of the Stockholders to be held April 19, 1994, to be filed with the
Commission pursuant to Regulation 14A, is incorporated by reference into Part
III of this report.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Kirby Corporation (the "Company") was incorporated January 31, 1969 in
Nevada as a subsidiary of Kirby Petroleum Co. Pursuant to the plan of
liquidation of Kirby Industries, Inc. ("Industries"), Kirby Petroleum Co., which
was then a wholly owned subsidiary of Industries, transferred to the Company in
1975 substantially all of its nonproducing oil and gas acreage, royalty
interests and interests in oil and gas limited partnerships. The Company became
publicly owned on September 30, 1976, when its common stock was distributed pro
rata to the stockholders of Industries in connection with the liquidation of
Industries. In September, 1984, the Company changed its name from "Kirby
Exploration Company" to "Kirby Exploration Company, Inc." and in April, 1990,
the name was changed from "Kirby Exploration Company, Inc." to "Kirby
Corporation."
Unless the context otherwise requires, all references herein to the Company
include the Company and its subsidiaries.
The Company's principal executive office is located at 1775 St. James
Place, Suite 300, Houston, Texas 77056, and its telephone number is (713)
629-9370. The Company's mailing address is P.O. Box 1745, Houston, Texas
77251-1745.
BUSINESS AND PROPERTY
The Company and its subsidiaries conduct operations in three business
segments: marine transportation, diesel repair and insurance.
The Company's marine transportation segment is conducted through three
divisions, organized around the markets they serve: the Inland Chemical
Division, engaged in the inland transportation of industrial chemicals and
agricultural chemicals by tank barge; the Inland Refined Products Division,
engaged in the inland transportation of refined petroleum products by tank
barge; and the Offshore Division, engaged in the offshore transportation of
petroleum products by tank barge and tank ship and dry bulk, container,
palletized cargo by barge and break-bulk and container ship. The Company's
marine transportation divisions are strictly providers of transportation
services and do not presently assume ownership of any of the products they
transport.
The Company's diesel repair segment is engaged in the overhaul and repair
of diesel engines and related parts sales in two distinct markets: the marine
market, serving vessels powered by large diesel engines utilized in the various
inland and offshore marine industries; and the locomotive market, serving the
shortline and industrial railroad markets.
The Company's insurance segment is engaged primarily in the writing of
property and casualty insurance in the Commonwealth of Puerto Rico through a 70%
owned subsidiary.
The Company and its subsidiaries have approximately 2,050 employees with
approximately 150 in the Commonwealth of Puerto Rico and the balance in the
United States.
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The following table sets forth by industry segment the combined gross
revenues, operating profits (before general corporate expenses, interest expense
and income taxes) and identifiable assets (including goodwill) attributable to
the continuing principal activities of the Company for the periods indicated (in
thousands):
YEARS ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
-------- ------- -------
Gross revenues from unaffiliated customers:
Transportation........................................... $118,573 191,007 284,761
Diesel repair............................................ 34,386 35,889 32,025
Insurance................................................ 34,713 42,520 61,611
-------- ------- -------
187,672 269,416 378,397
General corporate revenues............................... 1,361 87 7
-------- ------- -------
Consolidated revenues............................ $189,033 269,503 378,404
-------- ------- -------
-------- ------- -------
Operating profits:
Transportation........................................... $ 17,689 28,034 42,208
Diesel repair............................................ 2,482 2,561 1,904
Insurance................................................ 4,891 1,108 4,539
-------- ------- -------
25,062 31,703 48,651
General corporate expenses, net.......................... (1,249) (3,563) (4,911)
Interest expense......................................... (5,965) (9,411) (8,416)
-------- ------- -------
Earnings before taxes on income.................. $ 17,848 18,729 35,324
-------- ------- -------
-------- ------- -------
Identifiable assets:
Transportation........................................... $150,477 275,616 344,488
Diesel repair............................................ 15,353 18,897 20,260
Insurance................................................ 106,401 145,246 184,868
-------- ------- -------
272,231 439,759 549,616
Investment in unconsolidated affiliate................... 134 146 177
General corporate assets................................. 13,637 6,515 13,460
-------- ------- -------
Consolidated assets.............................. $286,002 446,420 563,253
-------- ------- -------
-------- ------- -------
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MARINE TRANSPORTATION
The Company is engaged in marine transportation as a provider of service
for both the inland and offshore markets. As of March 14, 1994, the equipment
owned or operated by the Company's three marine transportation divisions was
composed of 400 inland tank barges, 10 inland dry cargo barges, 123 inland
towing vessels, six offshore tank ships, two offshore tank barges, six offshore
dry cargo barges, four offshore break-bulk and container ships and nine offshore
tugboats with the following specifications and capacities:
AVERAGE
NUMBER AGE
IN (IN BARREL
CLASS OF EQUIPMENT CLASS YEARS) CAPACITIES
------------------ --- ------ ---------
Inland Fleet
Inland tank barges:
Regular double skin:
20,000 barrels and under.................................... 161 21.6 1,961,000
Over 20,000 barrels......................................... 114 13.9 3,010,000
Specialty double skin.......................................... 20 21.0 376,000
Single skin:
20,000 barrels and under.................................... 39 25.8 656,000
Over 20,000 barrels......................................... 66 22.3 1,678,000
--- ---- ---------
Total inland tank barges............................... 400 20.0 7,681,000
=== ==== =========
DEADWEIGHT
TONNAGE
---------
Inland dry cargo barges.......................................... 10 17.8 11,100
=== ==== =========
Inland towing vessels
Inland towboats:
2,000 horsepower and under.................................. 78 20.8
Over 2,000 horsepower....................................... 32 17.4
--- ----
Total inland towboats.................................. 110 19.8
Inland bowboats................................................ 6 14.1
Harbor tugboats................................................ 7 18.6
--- ----
123 19.5
=== ====
BARREL
CAPACITIES
---------
Offshore Fleet
Tank ships....................................................... 6 44.3 1,538,000
=== ==== =========
Tank barges...................................................... 2 19.3 322,000
=== ==== =========
DEADWEIGHT
TONNAGE
---------
Offshore break-bulk and container ships.......................... 4 22.9 49,900
=== ==== =========
Offshore dry cargo barges(*)..................................... 6 17.3 106,000
=== ==== =========
Offshore tugboats(*)............................................. 9 18.3
=== ====
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(*) Includes four barges and five tugboats owned by Dixie Fuels Limited and one
barge and tugboat owned by Dixie Fuels II, Limited, partnerships in which a
subsidiary of the Company owns a 35% and 50% interest, respectively.
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The following table sets forth the approximate marine transportation
revenue and percentage of such revenue derived from the three divisions for the
periods indicated (dollars in thousands):
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
REVENUE 1991 1992 1993
BY PRODUCT ---------------- ---------------- ----------------
OR OPERATION AMOUNTS % AMOUNTS % AMOUNTS %
------------ -------- --- -------- --- -------- ---
Inland Chemical Division............ $103,948 89% $115,448 61% $134,578 48
Inland Refined Products Division.... -- -- 29,578 15 45,940 16
-------- --- -------- --- -------- ---
Total inland revenues..... 103,948 89 145,026 76 180,518 64
-------- --- -------- --- -------- ---
Offshore Division:
Liquid petroleum products......... 3,717 3 37,716 20 47,799 17
Dry bulk.......................... 12,628 11 12,708 7 12,735 4
Break-bulk and container.......... -- -- -- -- 47,842 17
-------- --- -------- --- -------- ---
Total offshore revenues... 16,345 14 50,424 27 108,376 38
-------- --- -------- --- -------- ---
Intercompany transactions........... (3,290) (3) (5,236) (3) (5,147) (2)
-------- --- -------- --- -------- ---
Total transportation
revenues................ $117,003 100% $190,214 100% 283,747 100%
======== === ======== === ======= ===
INLAND TANK BARGE INDUSTRY
The Company's Inland Chemical Division and Inland Refined Products Division
operate in the United States inland tank barge industry, which provides marine
transportation of liquid bulk cargos for customers along the United States
inland waterway system. Among the most significant segments of this industry are
the transportation of industrial and agricultural chemicals, refined petroleum
products and crude oil. The Company operates in each of these segments. The use
of marine transportation by the petroleum and petrochemical industry is a major
reason for the location of domestic refineries and petrochemical facilities on
navigable inland waterways and along the Gulf Coast. Much of the United States
farm belt is likewise situated within access to the inland waterway system,
relying on marine transportation of farm products including agricultural
chemicals.
Although no official industry statistics are maintained, the Company
believes that the total number of tank barges that operate in the inland waters
of the United States has declined from an estimate of approximately 4,200 in
1981 to approximately 2,900 in 1993. The Company believes this decrease is
primarily attributable to the following reasons: increasing age of the domestic
tank barge fleet resulting in scraping; rates inadequate to justify new
construction; reduction in financial incentives to construct new equipment; and
an increase in regulations that mandate expensive equipment modification which
some owners are unwilling or unable to undertake given current rate levels and
the age of the fleet.
Although well maintained tank barges can be efficiently operated for more
than 30 years, the cost of hull work for required annual Coast Guard
certifications, as well as general safety and environmental concerns, force
operators to periodically reassess their ability to recover maintenance costs.
Previously, tax and financing incentives to operators and investors to construct
tank barges, including short life depreciation, investment tax credits and
government guaranteed financing, led to the growth in the supply of domestic
tank barges to a peak of approximately 4,200 in 1981. These tax incentives have
since been eliminated and government financing programs have since been
curtailed. The supply of tank barges resulting from the earlier programs is
slowly aligning with demand for tank barge services, primarily through
attrition, as discussed above.
While the United States tank barge fleet has decreased in size, domestic
production of petrochemicals, a major component of the industry's revenues, has
increased between 1982 and 1993 by approximately 48%. Growth in the economy and
the continued substitution of plastics and synthetics in a wide variety of
products have been major factors behind the increase of capacity in the
petrochemical industry. Texas and Louisiana, which are within the Company's
areas of operations, currently account for more than 78% of the total United
States production of petrochemicals.
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COMPETITION IN THE INLAND TANK BARGE INDUSTRY
The Company operates in the highly competitive marine transportation market
for commodities transported on the major inland rivers and tributaries and the
Gulf Intracoastal Waterway. The industry has become increasingly concentrated
within recent years as smaller and/or economically weaker companies have gone
out of business or have been acquired by stronger or larger companies.
Competition has historically been based primarily on price; however, shipping
customers, through increased emphasis on safety, the environment, quality and a
greater reliance on a "single source" supply of services, are more frequently
requiring that their supplier of inland tank barge services have the capability
to handle a variety of tank barge requirements, and offer flexibility, safety,
environmental responsibility and quality of service consistent with the
customer's own operations.
The Company's direct competitors are primarily noncaptive marine
transportation companies. "Captive" companies are those companies that are owned
by major oil and/or petrochemical companies which, although competing in the
inland barge market to varying extents, primarily transport cargos for their own
account. Although industry statistics are not categorized by individual firms,
the Company believes it is the largest inland tank barge carrier based on its
number of barges and barrels of available capacity.
While the Company competes primarily with other barge companies, it also
competes with companies owning crude oil and refined products pipelines, and, to
a lesser extent, rail tank cars and tank trucks in some areas and markets. The
Company believes that inland marine transportation of bulk liquid products
enjoys a substantial cost advantage over rail and truck transportation. The
Company also believes that crude oil and refined products pipelines, although
sometimes a less expensive form of transportation than 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.
INLAND CHEMICAL DIVISION
The Company's Inland Chemical Division provides transportation services for
three distinct markets: industrial chemicals, agricultural chemicals and barge
fleeting services. Collectively, the Division operates a fleet of 285 inland
tank barges, 84 towboats and two bowboats.
Industrial Chemicals. Dixie Carriers, Inc. ("Dixie"), a subsidiary of the
Company, and its subsidiaries, Dixie Marine, Inc. ("Dixie Marine") and TPT
Transportation Company ("TPT Transportation"), and Chotin Carriers, Inc.
("Chotin"), a subsidiary of the Company, provide service to the industrial
chemical industry through intraplant movements of petrochemical feedstock and
the transportation of industrial processed chemicals and lube oils to industry
users. Operating a fleet of 216 inland tank barges, 56 towboats and two
bowboats, the fleet operates primarily along the Gulf Intracoastal Waterway, the
Mississippi River and its tributaries and the Houston Ship Channel. The business
is conducted under contracts with customers with whom the Company has long-term
relationships, as well as under short-term and spot contracts. Currently,
approximately 76% of the industrial chemical revenues are derived from term
contracts and 24% from the spot market. All of the inland tank barges used in
the transportation of industrial chemicals are of double hull construction for
increased environmental protection and, where applicable, are capable of
controlling vapor emissions to meet occupational health and safety regulations
and air quality concerns.
Chotin was acquired on June 1, 1992 by means of a merger of Scott Chotin,
Inc. ("Scott Chotin") with and into Chotin. TPT Transportation acquired the
assets of TPT, a marine transportation division of Ashland Oil, Inc. on March 3,
1993. See "Note 2" to the financial statements included under Item 8 elsewhere
herein for further disclosure on the Chotin merger and the TPT Transportation
asset purchase. Dixie's and Dixie Marine's headquarters are located in Houston,
Texas and Chotin's and TPT Transportation's headquarters are in Baton Rouge,
Louisiana.
Agricultural Chemicals. Brent Transportation Corporation ("Brent
Transportation"), a subsidiary of Dixie, operates 69 inland tank barges,
including 11 cryogenic anhydrous ammonia barges, and 17 towboats primarily in
transportation of agricultural chemicals, including anhydrous ammonia, to points
along the Mississippi River and its tributaries and the Gulf Intracoastal
Waterway. Brent Transportation's assets were
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acquired effective April 1, 1989, in connection with the purchase of certain
assets of Brent Towing Company, Inc., and related affiliates ("Brent"), which
had been engaged in the transportation of agricultural chemicals and other
liquid cargos since 1961. Brent Transportation conducts its business with
customers with whom it has long-term relationships and, to a lesser extent,
under short-term contracts. Brent Transportation's headquarters are in
Greenville, Mississippi. The Company believes that Brent Transportation has the
largest inland barge fleet that primarily transports agricultural chemicals.
Barge Fleeting Services. Western Towing Company ("Western"), a subsidiary
of Dixie, owns 11 towboats and operates what the Company believes to be the
largest commercial barge fleeting service (provision of temporary barge storage
facilities) in the Port of Houston, at Bolivar Peninsula and in the Port of
Freeport, Texas. Western's towboats are engaged primarily in shifting
(distribution and gathering of barges) in the Houston-Galveston area.
INLAND REFINED PRODUCTS DIVISION
The Company's Inland Refined Products Division provides transportation
services for the refined products and harbor services markets. Collectively, the
Division operates a fleet of 115 inland tank barges, 26 towboats, seven harbor
tugboats and four bowboats.
Refined Products. Sabine Transportation Company ("Sabine Transportation"),
a subsidiary of the Company, and OMR Transportation Company ("OMR
Transportation"), a subsidiary of Dixie, provide service from Gulf Coast
refineries through movements of primarily gasoline, diesel fuel and jet fuel to
waterfront terminals on the Gulf Intracoastal Waterway and the Mississippi River
and its tributaries. Many of Sabine Transportation's barges are split-product
barges which maximize shipping alternatives for customers by allowing for the
efficient transportation of smaller individual volumes of petroleum products and
providing a means to carry up to four grades of products in the same barge. In
addition, by consolidating the product requirements of several customers in
split-product equipment, the Refined Products Division is able to offer quantity
discounted rates to customers who are carrying small quantities of product.
Currently, approximately 36% of the Inland Refined Products Division's revenues
are derived from long-term contracts and 64% from the spot market.
The Inland Refined Products Division was formed with the acquisition by
Sabine Transportation of certain assets of Sabine Towing & Transportation, Inc.
("Sabine") on March 13, 1992 and the acquisition by OMR Transportation of
certain of the assets of Ole Man River Towing, Inc. and related entities ("Ole
Man River") on April 2, 1992. The Inland Refined Products Division was expanded
on December 21, 1993 with the acquisition by OMR Transportation of 53 inland
tank barges from Midland Enterprises Inc. and its wholly owned subsidiary,
Chotin Transportation, Inc. ("Chotin Transportation"). See "Note 2" to the
financial statements included under Item 8 elsewhere herein for further
disclosures on the Sabine Transportation, OMR Transportation and Chotin
Transportation asset purchases. Sabine Transportation's headquarters are in Port
Arthur, Texas and OMR Transportation's headquarters are located in Vicksburg,
Mississippi.
Harbor Services. Sabine Transportation provides towing, docking and
shifting services for vessels calling at the ports of Beaumont, Port Arthur and
Orange, Texas and the port of Lake Charles, Louisiana. Operating seven harbor
tugboats, the Company believes that this fleet holds a combined market share of
approximately 55% in the ports which it serves. In addition, Sabine
Transportation provides offshore ship assistance and drill-rig movements off the
Texas and Louisiana coasts.
OFFSHORE TRANSPORTATION INDUSTRY
The Company's Offshore Division is engaged in U.S. flag offshore tank ship
and tank barge operations, offshore dry bulk cargo barge operations and offshore
container and break-bulk cargo barge and ship operations. The Division provides
transportation of petroleum products, dry bulk, containers and palletized
cargos, including United States Government preference agricultural commodities,
worldwide with particular emphasis in the Gulf of Mexico, along the Atlantic
Seaboard, Caribbean Basin ports and South American, West African and Northern
European ports.
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COMPETITION IN THE OFFSHORE TRANSPORTATION INDUSTRY
The offshore marine transportation market, like the inland transportation
market, is highly competitive. The Company operates predominantly in United
States domestic trade which is subject to the Jones Act, a federal law that
limits participation between domestic ports within the United States and its
territories to U.S. flag vessels. For a discussion of the Jones Act, see
"Governmental Regulations" below. The Company's direct competitors are primarily
captive and noncaptive operators of U.S. flag ocean-going barges, container and
break-bulk ships and tank ships. Competition is based upon price, service and
equipment availability. There are a limited number of vessels meeting the
requirements of the Jones Act which are currently eligible to engage in domestic
United States marine transportation.
OFFSHORE DIVISION
Offshore Tank Ship and Tank Barge Operations. Sabine Transportation
operates a fleet of six owned U.S. flag single skin tank ships, that transport
petroleum products primarily domestically in the Gulf of Mexico, along the East
Coast and internationally to ports in the Caribbean Basin. Currently, four of
Sabine Transportation's tank ships are chartered to various oil companies for
the transportation of their products and two operate in the spot market,
transporting petroleum products as cargo offers. Classified as "handy size," the
tank ships have deadweight capacities ranging between 28,000 and 35,000 tons
with a total capacity of 1,538,000 barrels.
As discussed under "Environmental Regulations" below, the Oil Pollution Act
of 1990 ("OPA") has placed a number of stringent requirements on tank ship
owners and operators, including the phasing out of all single hull vessels
beginning in 1995, depending on vessel size and age. In accordance with the OPA,
Sabine Transportation's tank ships are scheduled to be retired from service as
follows: one -- January 1, 1995; one -- January 1, 1996; one -- October 1, 1996;
one -- October 30, 2000; one -- November 4, 2004; and one -- January 1, 2005. In
order to stay in service beyond the retirement date, these tank ships would have
to be either retrofitted with a double hull cargo section or used exclusively in
foreign trade.
In addition to the tank ships, the Company, through Dixie, owns and
operates two ocean-going tank barge and tugboat units, one of which is single
skin and one double skin. The single skin 157,000 barrel barge and tug unit and
the double skin 165,000 barrel barge and tug unit provide service in the
transportation of refined petroleum products between domestic ports along the
Gulf of Mexico and along the Atlantic Seaboard. The single skin tank barge is
scheduled to be removed from service in accordance with the OPA on January 1,
2005. The double skin tank barge meets all of the OPA construction requirements.
Offshore Dry Bulk Cargo Operations. The Company's offshore dry bulk cargo
operations are conducted through Dixie's wholly owned equipment and through two
general partnerships, Dixie Fuels Limited ("Dixie Fuels") and Dixie Fuels II,
Limited ("Dixie Fuels II"), in which a subsidiary of Dixie owns a 35% and 50%
interest, respectively.
Dixie and Dixie Fuels transport dry bulk cargos, such as coal, limestone,
cement, fertilizer, flour, raw sugar and grain, as well as containers between
domestic ports along the Gulf of Mexico, the East Coast and West Coast, and to
ports in the Caribbean Basin with occasional movements to West Africa and other
international ports as cargo offers. Management believes that Dixie, including
the operations of Dixie Fuels and Dixie Fuels II, is the second largest domestic
offshore dry bulk barge carrier in terms of deadweight capacity.
Dixie owns one ocean-going dry bulk barge and tugboat unit that is engaged
in transportation of dry bulk commodities primarily between domestic ports along
the Gulf of Mexico and along the Atlantic Seaboard.
Dixie, as general partner, also manages the operations of Dixie Fuels,
which operates a fleet of four ocean-going dry bulk barges, four ocean-going
tugboats and one shifting tugboat. The remaining 65% of Dixie Fuels is owned by
Electric Fuels Corporation ("EFC"), an affiliate of Florida Power Corporation
("Florida Power"). Dixie Fuels operates primarily under long-term contracts of
affreightment, including a contract that expires in the year 2002 with EFC to
transport coal across the Gulf of Mexico to Florida Power's facility at Crystal
River, Florida.
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Dixie Fuels also has a 12-year contract, which commenced in 1989, with
Holnam, Inc. ("Holnam") to transport Holnam's limestone requirements from a
facility adjacent to the Florida Power facility at Crystal River to Holnam's
plant in Theodore, Alabama. The Holnam contract provides cargo for a portion of
the return voyage for the vessels that carry coal to Florida Power's Crystal
River facility. Dixie Fuels is also engaged in the transportation of coal,
fertilizer and other bulk cargos on a short-term basis between domestic ports
and of grain from domestic ports to points primarily in the Caribbean Basin.
Dixie also manages the operations of Dixie Fuels II, which operates an
ocean-going dry bulk barge and tug unit. The remaining 50% of Dixie Fuels II is
owned by EFC. Dixie Fuels II is engaged in the transportation of dry bulk cargo
and containers between domestic ports, ports in the Caribbean Basin and
international ports as cargo offers. Since May, 1993, Dixie Fuels II's barge and
tug unit has been engaged in the international transportation of preference
agricultural aid cargos for the United States Government.
Offshore Break-bulk and Container Cargo Operations. In May, 1993, the
Company completed the acquisition of AFRAM Lines (USA) Co., Ltd. ("AFRAM Lines")
by means of a merger of AFRAM Lines with and into AFRAM Carriers, Inc.
("AFRAM"). AFRAM is engaged in the worldwide transportation of dry bulk,
container and palletized cargos, primarily for departments and agencies of the
United States Government. AFRAM's fleet of three U.S. flag break-bulk and
container ships specialize in the transportation of United States Government
military and preference aid cargos. See "Note 2" to the financial statements
included under Item 8 elsewhere herein for further disclosures on the AFRAM
merger. In addition, for a discussion of preference aid cargos, see
"Governmental Regulations" below. AFRAM's headquarters are located in Houston,
Texas.
In early March, 1994, the Company, through its subsidiary, Americas Marine
Express, Inc. ("Americas Marine"), began all-water marine transportation
services between Memphis, Tennessee and Mexico, Guatemala, Honduras and El
Salvador. The new transportation service utilizes a chartered river/ocean vessel
that offers direct sailing between the locations. The new service provides
exporters and importers in the north, central and mid-south states with a direct
shipping alternative between Memphis and Mexico and Central America on a
fourteen day round trip basis. The direct all-water liner service accepts 20
foot and 40 foot containers, including refrigerated and tank containers, as well
as other cargo on a space available basis. The Company is of the opinion that
the liner service offers container shippers to the interior of the United States
a lower transportation cost alternative, predictable delivery time, a consistent
product flow to their customers and other benefits inherent in a direct
all-water liner service.
CONTRACTS AND CUSTOMERS
The majority of the marine transportation contracts are for terms of one to
five years. Currently, the three marine transportation divisions of the Company
operate under long-term contracts with Agricultural Minerals Corporation,
Chevron Chemical Company, EFC, Holnam, Monsanto Chemical Company, Odfjell Tank
Ships (USA) Inc. and Shell Oil Company, among many others. While these companies
have generally been customers of the Company's marine transportation divisions
for several years and management anticipates a continuing relationship, there is
no assurance that any individual contract will be renewed. No single customer of
the Company's marine transportation segment accounted for more than 10% of the
Company's revenue in 1993, 1992 or 1991.
EMPLOYEES
The Company's three marine transportation divisions have approximately
1,725 employees, of which approximately 1,425 are vessel crew members.
Approximately 39% of the 1,425 vessel crew members are subject to various
collective bargaining agreements with various labor organizations. No one
collective bargaining agreement covers more than 10% of the 1,425 vessel crew
members.
PROPERTIES
The principal office of Dixie is located in Houston, Texas, in facilities
under a lease that expires in 1996. The marine transportation operating
divisions are located on the Gulf Intracoastal Canal at Belle Chasse,
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Louisiana, a suburb of New Orleans; in Houston, Texas, near the Houston Ship
Channel; in Greenville, Mississippi and in Vicksburg, Mississippi. The
Greenville location is leased and the Belle Chasse, Houston and Vicksburg
locations are owned. Western's facilities are located on a 10.24-acre tract of
land owned by Dixie lying between the San Jacinto River and Old River Lake near
Houston, Texas. The principal office of Chotin and TPT Transportation is located
in Baton Rouge, Louisiana in owned facilities. The principal office and
operating units of Sabine Transportation are located in Port Arthur, Texas on 30
acres of owned waterfront property along the Sabine-Neches Waterway. The
principal office of AFRAM is located in Houston, Texas in leased facilities. The
principal office of Americas Marine is located in Memphis, Tennessee in leased
facilities.
GOVERNMENTAL REGULATIONS
General. The Company's transportation operations are subject to regulation
by the United States Coast Guard, federal laws, state laws and certain
international conventions. The transportation of cargos in bulk are exempt from
economic regulations under the Interstate Commerce Act. Therefore, with the
exception of AFRAM and Americas Marine, the rates charged by the Company for the
transportation of such bulk cargos are negotiated between the Company and its
customers and are not set by tariff. AFRAM and Americas Marine generally operate
under published tariffs. AFRAM also bids for United States Government cargo.
The majority of the Company's tank barges, all offshore barges and all
ships are inspected by the United States Coast Guard and carry certificates of
inspection. The Company's inland and offshore towing vessels are not subject to
United States Coast Guard inspection requirements; however, the Company's
offshore tugboats and offshore dry bulk and tank barges are built to American
Bureau of Shipping ("ABS") classification standards. These offshore vessels are
inspected periodically by the ABS to maintain the vessels in class. The crew
employed by the Company aboard vessels, including captains, pilots, engineers,
able-bodied seamen and tankermen, are licensed by the United States Coast Guard.
The Company is required by various governmental agencies to obtain
licenses, certificates and permits for its vessels depending upon such factors
as the cargo transported, the waters in which the vessel operates, the age of
the vessels and other factors. The Company is of the opinion that the Company's
vessels have obtained and can maintain all required licenses, certificates and
permits required by such governmental agencies.
The Company believes that safety concerns highlighted by the highly
publicized barge collision with the railroad bridge near Mobile, Alabama in
September, 1993 will result in additional regulations being imposed on the barge
industry in the form of personnel licensing and navigation equipment
requirements. Generally, the Company endorses the anticipated additional
regulations and believes it is currently operating to standards at least the
equal of such anticipated additional regulations.
Jones Act. The Jones Act is a federal law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States. Furthermore, the Jones Act requires that the vessels be manned by
United States citizens and owned by United States citizens. For corporations,
75% of the corporations' beneficial stockholders must be United States citizens.
The Company presently meets all of the requirements of the Jones Act for its
owned vessels.
Compliance with the United States ownership requirements of the Jones Act
is very important to the operations of the Company and the loss of the Jones Act
status could have a significant negative effect to the Company. The Company
monitors the citizenship requirements under the Jones Act of its employees and
beneficial stockholders and will take any remedial action necessary to insure
compliance with the Jones Act requirements.
The requirements that the Company's vessels be United States built, manned
by United States citizens and the crewing requirements of the Coast Guard
significantly increase the capital and labor costs of U.S. flag vessels when
compared with 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.
During the past several years, the Jones Act and cargo preference laws, see
"Preference Cargo" below, have come under attack by interests seeking to
facilitate foreign flag competition for cargos reserved for U.S.
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flag vessels under the Jones Act and cargo preference laws. These efforts have
been consistently defeated by large margins in the United States Congress. The
Company believes that continued efforts will be made to gain access to such
trade and if such access is successful, it could have an adverse effect on the
Company.
Construction and Operating Differential Subsidies. The Merchant Marine Act
of 1970 permits deferral of taxes on earnings deposited into capital
construction funds. Such funds and interest earned from such funds can be used
for the construction of or acquisition of U.S. flag vessels. In addition, to
encourage U.S. flag vessels to engage in foreign trade, the Merchant Marine Act
provides for direct subsidies to equalize the disparity between costs of U.S.
flag operations and construction and the costs of foreign operations and
construction. The Company does not receive either of these subsidies on any of
its vessels.
Preference Cargo. The Merchant Marine Act of 1936, as amended, requires
that preference be given to U.S. flag vessels in the transportation of certain
United States Government impelled cargos (cargos shipped either by the United
States Government or by a foreign nation, with the aid or guarantee of the
United States Government). Currently, 75% of the Government directed foreign aid
and agricultural assistance programs, which includes grains and other food
concessions, are required to be transported in U.S. flag vessels. Such programs
currently benefit the Company's offshore break-bulk ships and dry bulk barge and
tug units, some of which work primarily in this trade. The transportation of
such cargo accounted for approximately 10% of the Company's transportation
revenues in 1993, 1% in 1992 and 2% in 1991.
The transportation of United States military cargo is also classified as a
preference cargo, which requires the use of U.S. flag vessels, if available. The
Company's AFRAM break-bulk ships have from time to time been chartered by the
Military Sealift Command ("MSC"). Charters to MSC accounted for 2% of the
Company's 1993 transportation revenues. The chartering by the MSC depends upon
the requirements of the United States military for marine transportation of
cargos, and, therefore, depends in part on world conditions and United States
foreign policy. Currently, none of the Company's vessels are chartered to the
MSC.
The preference cargo law is often opposed by agricultural interests which
perceive they would benefit from the ability to transport preference cargos
aboard foreign flag vessels. Like the Jones Act, the Company is of the opinion
that continued efforts will be made to significantly reduce, or remove
completely, the requirement that 75% of such cargos be transported in U.S. flag
vessels. Any reduction in this percentage could have an adverse effect on the
Company's operations and, therefore, the Company will continue to participate in
efforts to preserve the present preference cargo requirements.
User Fees. Federal legislation requires that inland marine transportation
companies pay a waterway user fee in the form of a tax based on propulsion fuel
used by vessels engaged in trade along the inland waterways that are maintained
by the United States Corps of Engineers. Such user fees are designed to help
defray the cost associated with replacing major components of the inland
waterway system such as locks, dams and to build new waterway projects. A
significant portion of the inland waterways on which the Company's vessels
operate are maintained by the Corps of Engineers.
The Company presently pays a waterway tax of 23.4 cents per gallon,
reflecting a 4.3 cents per gallon increase imposed during October, 1993 and a 2
cents per gallon increase imposed in January, 1994. In mid-February, 1993,
President Clinton announced his economic plan which included a proposal to raise
the user tax by an additional $1.00 per gallon, such user tax to be phased in
until taking full effect in 1997. The Company and marine transportation and
shipping groups vigorously protested the user tax proposal, stating that such a
rate increase could significantly reduce the ability of the Company's customers
to be internationally competitive and would place the inland river
transportation system at a competitive disadvantage to other modes of
transportation. These efforts were successful in defeating the $1.00 per gallon
proposal as, in October, 1993, President Clinton signed into law the 1993 budget
which included a 4.3 cents per gallon increase in the waterway user tax,
increasing the total tax to 21.4 cents per gallon. In January, 1994, an
additional 2 cents per gallon was phased in, the result of prior legislation.
Currently, an additional 2 cents per gallon is scheduled to be phased in
effective January 1, 1995, with the user tax rate reaching an ultimate rate of
25.4 cents per gallon.
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There can be no assurance that additional user fees, above the presently
planned amounts, may not be imposed in the future.
ENVIRONMENTAL REGULATIONS
The Company's operations are affected by various regulations and
legislation enacted for protection of the environment by the United States
Government, as well as many coastal and inland waterway states.
Water Pollution Regulations. The Federal Water Pollution Act of 1972, as
amended by the Clean Water Act of 1977, the OPA, and the Comprehensive
Environmental Response, Compensation and Liability Act of 1981 impose strict
prohibitions against the discharge of oil and its derivatives or hazardous
substances into the navigable waters of the United States. These acts impose
civil and criminal penalties for any prohibited discharges and impose
substantial liability for cleanup of these discharges and any associated
damages. Certain states also have water pollution laws that prohibit discharges
into waters that traverse the state or adjoin the state and impose civil and
criminal penalties and liabilities similar in nature to those imposed under
federal laws.
The OPA and various state laws of similar intent, substantially increased
over historic levels statutory strict exposure of owners and operators of
vessels for oil spills, both in terms of limit of liability and scope of
damages. The Company considers its most significant pollution liability exposure
to be the carriage of persistent oils (crude oil, asphalt, # 5 oil, # 6 oil,
lube oil and other black oil). The Company restricts the carriage of persistent
oil in inland equipment to double skin barges only. Currently, the only
persistent oil carried in the Company's offshore fleet is in a Sabine
Transportation single skin tank ship which ceases operation at year-end 1994.
One of the most important requirements under OPA is the requirement that
all newly constructed tank ships or tank barges engaged in the transportation of
oil and petroleum products in the United States must be double hulled and all
existing single hull tank ships or tank barges be retrofitted with double hulls
or phased out of domestic service between January 1, 1995 and 2015, in order to
comply with the new standards. See "Offshore Division -- Offshore Tank Ships and
Tank Barge Operations" for a discussion of the effects of OPA on the Company's
offshore equipment.
As a result of several recent highly publicized oil spills, federal or
state legislators could impose additional licensing, certification or equipment
requirements on marine vessel operations. Generally, the Company believes that
it is in a good position to accommodate any reasonably foreseeable regulatory
changes and that it will not incur significant additional costs. The Company
manages its exposure to losses from potential discharges of pollutants through
the use of well maintained and equipped vessels, the safety 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 United States waters have been required to maintain evidence of
financial ability to satisfy statutory liabilities for water pollution. This
evidence is in the form of a Certificate of Financial Responsibility ("CFR")
issued by the United States Coast Guard. The majority of the Company's tank
barges and all the tank ships are subject to this CFR requirement and the
Company has fully complied since inception of the requirement.
The OPA amended the CFR requirements principally by expanding the scope of
liability subject to the requirements and by significantly increasing the
financial ability requirements. The United States Coast Guard promulgated a
Notice of Proposed Rulemaking on September 26, 1991 that would implement the new
financial responsibility requirements of OPA. The proposed rule, if implemented
in present form, would eliminate the ability of the Company to utilize its
insurance, which greatly exceeds the financial responsibility requirements, as a
means of satisfying the financial ability requirement under OPA. Under the
proposed rule the Company would be required to demonstrate net worth and working
capital equal to the maximum
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statutory limit of liability under OPA and the Comprehensive Environmental
Response, Compensation and Liability Act of 1981.
The Company believes it will be able to satisfy the more stringent CFR
requirements currently proposed. The Company is also of the opinion that such
proposed regulations are unnecessarily stringent and that a majority of domestic
and foreign vessel operators subject to the proposed regulation will be unable
to comply.
Clean Air Regulations. The Federal Clean Air Act of 1979 requires states to
draft State Implementation Plans ("SIPs") designed to reduce atmospheric
pollution to levels mandated by this act. Several SIPs provide for the
regulation of barge loading and degassing emissions. The implementation of these
regulations will require a reduction of hydrocarbon emissions released in the
atmosphere during the loading of most petroleum products and the degassing and
cleaning of barges for maintenance or change of cargo. These new regulations
will require operators who operate in these states to install vapor control
equipment on their barges. The Company expects that future toxic emission
regulations will be developed and will apply this same technology to many
chemicals that are handled by barge. Most of the Company's barges engaged in the
transportation of petrochemicals, chemicals and refined products are already
equipped with vapor control systems. Although a risk exists that new regulations
could require significant capital expenditures by the Company and otherwise
increase the Company's costs, the Company believes that, based upon the
regulations that have been proposed thus far, no material capital expenditures
beyond those currently contemplated by the Company or increase in costs are
likely to be required.
Contingency Plan Requirement. Commencing August 8, 1993, OPA and several
state statutes of similar intent require the majority of the vessels operated by
the Company to maintain approved oil spill contingency plans as a condition of
operation. The Company has submitted plans that it believes comply with
requirements, but approval has not yet been granted.
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 transported aboard vessels. It is expected that these regulations may
serve as a prototype for similar health regulations relating to the carriage of
other hazardous liquid cargos. The Company believes that it is in compliance
with the provisions of the regulations that have been adopted and does not
believe that the adoption of any further regulations will impose additional
material requirements on the Company. There can be no assurance, however, that
claims will not be made against the Company for work related illness or injury
or that the further adoption of health regulations will not adversely affect the
Company.
Insurance. The Company's marine transportation operations are subject to
the hazards associated with operating heavy equipment carrying large volumes of
cargo in a marine environment. These hazards include the risk of loss of or
damage to the Company's vessels, damage to third parties from impact, fire or
explosion as a result of collision, loss or contamination of cargo, personal
injury of employees, pollution and other environmental damages. The Company
maintains insurance coverage against these hazards. Risk of loss of or damage to
the Company's vessels is insured through hull insurance policies currently
insuring approximately $500 million in hull values. Vessel operating
liabilities, such as collision, cargo, environmental and personal injury, are
insured primarily through the Company's participation in protection and
indemnity mutual insurance associations under which the protection against such
hazards is in excess of $1 billion for each incident, except in the case of oil
pollution, which is limited to $500 million for each incident, but is limited to
$700 million for each incident in the case of the Company's tank ships and
ocean-going tank barges. However, because it is mutual insurance, the Company is
exposed to funding requirements and coverage shortfalls in the event claims by
the Company or other members exceed available funds and reinsurance.
Environmental Protection. The Company has a number of programs that were
implemented to further its commitment to environmental responsibility in its
operations. One such program is environmental audits of barge cleaning vendors,
principally directed at management of cargo residues and barge cleaning wastes.
Another program is the participation by the Company in the Chemical
Manufacturer's Association Responsi-
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ble Care program and the American Petroleum Institute STEP program, both of
which are oriented to continuously reducing the chemical and petroleum
industries' impact on the environment, including the distribution services area.
Safety. The Company manages its exposure to the hazards incident to its
business through safety, training and preventive maintenance efforts. The
Company places considerable emphasis on safety through a program oriented
towards extensive monitoring of safety performance for the purpose of
identifying trends and initiating corrective action, and for the purpose of
rewarding personnel achieving superior safety performance. The Company believes
that its safety performance consistently places it among the industry leaders,
which is evidenced by what it believes are lower insurance costs (as a
percentage of revenue) and a lower injury level than many of its competitors.
Quality. The Company is totally committed to the concept of quality in its
business philosophy. Through Quality Project Teams and Quality Steering
Committees, the Company's quality commitment is carried throughout the marine
transportation organization. Such committees are dedicated to directing
attention to the continuous improvement of the business processes, focusing
efforts on achieving customer satisfaction the first time, every time and
carefully monitoring statistical measures of the Company's progress in meeting
its quality objectives.
The Company's commitment to quality has been expanded in recent years to
include the installation and maintenance of Quality Assurance Systems in
compliance with the International Quality Standard, ISO 9002 ("ISO"). During
1993, Dixie's offshore operations and Dixie's inland operations were awarded ISO
certifications by ABS Quality Evaluations, a leading registrar of quality
systems. Dixie's offshore operation was the first U.S. flag offshore vessel
operator to achieve this distinction, while Dixie's inland operation was the
second inland marine transportation company to be recognized in the United
States. At present, the balance of the Company's marine transportation
operations are working toward certification during 1994 and 1995. Achieving ISO
certification demonstrates the Company's total commitment to quality throughout
the organization.
The benefits of implementing these Quality Assurance Systems are
significant for the Company's marine transportation operations since such
Quality Assurance Systems provide additional internal controls that improve
operating efficiency. Through documentation, problems are easier to identify and
correct, training is streamlined and favorable operational practices are easier
to identify and install company-wide. In addition, the Company's commitment to
safety and environmental protection is further enhanced.
DIESEL REPAIR
The Company is presently engaged in the overhaul and repair of diesel
engines and related parts sales through two operating subsidiaries: Marine
Systems, Inc. ("Marine Systems") and Rail Systems, Inc. ("Rail Systems"). As a
provider of diesel repair services for customers in the marine and rail
industries, the Company's diesel repair segment is divided into the marine and
locomotive markets.
MARINE DIESEL REPAIR
Through Marine Systems, the Company is engaged in the overhaul and repair
of marine diesel engines, reduction gear repair, line boring, block welding
services and related parts sales for customers in the marine industry. The
marine diesel repair industry services tugs and towboats powered by large diesel
engines utilized in the inland and offshore barge industries. It also services
marine equipment in the offshore petroleum exploration and well service
industry, the offshore commercial fishing industry and vessels owned by the
United States Government.
Marine Systems operates through four divisions providing in-house and
in-field repair capabilities. These four divisions are: Gulf Coast (based in
Houma, Louisiana); East Coast (based in Chesapeake, Virginia); Midwest (based in
East Alton, Illinois); and West Coast (based in National City, California, with
service facilities in Seattle, Washington and the Pacific Basin). All four of
Marine Systems' divisions are nonexclusive authorized service centers for the
Electromotive Division of General Motors Corporation ("EMD") selling
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parts and service. Marine Systems is positioned through the location of its
divisions to serve all of the marine industry of the United States. Marine
Systems' Gulf Coast and Midwest divisions concentrate on larger diesel engines,
including those manufactured by EMD, that are more commonly used in the inland
and offshore barge and oil service industries. The East Coast division overhauls
and repairs the larger EMD engines used by the military and commercial customers
from Connecticut to Miami. The West Coast division concentrates on large EMD
engines used by the offshore commercial fishing industry, the military,
commercial business in the Pacific Northwest and customers in Alaska. Marine
Systems' emphasis is on service to its customers and can send its crews from any
of its locations to service customers' equipment anywhere in the world.
During 1993, Marine Systems enhanced its long-term opportunities with the
addition of two distributorship agreements. Under a long-term agreement with
Paxman Diesels, Ltd. of Colchester, England, a manufacturer of diesel engines,
Marine Systems will sell engine parts and other authorized repair services.
Paxman engines are used primarily by the United States Coast Guard in its patrol
boats. In addition, during 1993, Marine Systems signed a long-term agreement
with Falk Corporation, a marine reduction gear manufacturer, whereby Marine
Systems will sell parts and offer authorized repair services.
The following table sets forth the revenues of Marine Systems for the
periods indicated (dollars in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1991 1992 1993
--------------- --------------- ---------------
ACTIVITY AMOUNTS % AMOUNTS % AMOUNTS %
-------- ------- --- ------- --- ------- ---
Overhaul and repair............ $19,168 56% $21,288 60% $19,954 62%
Direct parts sales............. 15,120 44 14,465 40 11,998 38
------- --- ------- --- ------- ---
Total................ $34,288 100% $35,753 100% $31,952 100%
======= === ======= === ======= ===
MARINE CUSTOMERS
Major customers of Marine Systems include inland and offshore dry bulk and
tank barge operators, oil service companies, petrochemical companies, offshore
fishing companies, other marine transportation entities and the United States
Coast Guard, Navy and Army. Marine Systems also provides services to the
Company's fleet, which accounted for approximately 6% of Marine Systems' total
1993 revenues; however, such revenues are eliminated in consolidation, and not
included in the table above. No single customer of Marine Systems accounted for
more than 10% of the Company's revenues in 1993, 1992 or 1991.
Since Marine Systems' business can be cyclical and is linked to the
relative health of the diesel power tug and towboat industry, the offshore
supply boat industry, the military and the offshore commercial fishing industry,
there is no assurance that its present gross revenues can be maintained in the
future. The results of the diesel repair service industry are largely tied to
the industries it serves, and, therefore, have been somewhat influenced by the
cycles of such industries.
MARINE COMPETITIVE CONDITIONS
Marine Systems' primary competitors are 10 to 15 independent diesel repair
companies. While price is a major determinant in the competitive process,
reputation, consistent quality and 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.
Many of the parts sold by Marine Systems are generally available from other
distributors, however, Marine Systems is one of a limited number of distributors
of EMD parts. Although the Company believes it is unlikely, termination of
Marine Systems' relationship with the supplier could adversely affect its
business.
LOCOMOTIVE DIESEL REPAIR
Through Rail Systems, the Company is engaged in the overhaul and repair of
locomotive diesel engines and sale of replacement parts for locomotives serving
the shortline and industrial railroads within the
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continental United States. In October, 1993, EMD, the world's largest
manufacturer of diesel-electric locomotives, awarded an exclusive United States
rail distributorship to Rail Systems to provide replacement parts, service and
support to these important and expanding markets. The operations of Rail Systems
commenced in January, 1994.
Rail Systems has an office and service facility in Nashville, Tennessee.
The service facility is primarily a parts warehouse. Service to the actual
locomotives are completed at sites convenient for the customer by Rail Systems'
service crews.
LOCOMOTIVE CUSTOMERS
Shortline railroads have been a growing component of the United States
railroad industry since deregulation of the railroads in the 1970's. Generally
shortline railroads have been created through the divestiture of branch routes
from the major railroad systems. These short routes provide switching and short
haul of freight, with an emphasized need for responsive and reliable service.
Currently, about 500 shortline railroads in the United States operate
approximately 2,400 EMD engines. Approximately 280 United States industrial
users operate approximately 1,300 EMD engines. Generally, the EMD engines
operated by the shortline and industrial users are older and, therefore, require
more maintenance.
LOCOMOTIVE COMPETITIVE CONDITIONS
As an exclusive United States distributor for EMD parts, Rail Systems will
provide all EMD parts sales to these markets, as well as provide rebuilt and
service work. Currently, other than Rail Systems, there are three primary
companies providing service for the shortline and industrial locomotives. In
addition, the industrial companies in some cases, provide their own service.
EMPLOYEES
Marine Systems and Rail Systems have approximately 120 employees.
PROPERTIES
The principal office of Marine Systems is located in Houma, Louisiana.
Parts and service facilities are located in Houma, Louisiana; in Chesapeake,
Virginia; in East Alton, Illinois; in National City, California; and in Seattle,
Washington. The Chesapeake, East Alton, National City and Seattle locations are
on leased property and the Houma location is situated on approximately four
acres of owned land. The principal office and service facility of Rail Systems
is located in leased facilities in Nashville, Tennessee.
INSURANCE
The Company is engaged in the writing of property and casualty insurance
primarily through Universal Insurance Company ("Universal"), a corporation
located in the Commonwealth of Puerto Rico. Since its formation in 1972,
Universal has evolved primarily from an automobile physical damage insurer to a
full service property and casualty insurer, with emphasis on the property
insurance lines. Universal is ranked third among Puerto Rican insurance
companies in terms of policyholders' surplus and admitted assets, and has
achieved an A+ (Superior) rating from A. M. Best Company, a leading insurance
rating agency, for ten consecutive years.
On September 25, 1992, Universal merged with Eastern America Insurance
Company ("Eastern America"), a property and casualty insurance company in Puerto
Rico, with Universal being the surviving entity. As of December 31, 1993, the
Company owned approximately 70% of Universal's voting common stock with the
remaining approximately 30% owned by Eastern America Financial Group, Inc.
("Eastern America Group"), the former parent of Eastern America. The Company
owns 100% of the non-voting common and preferred stocks of Universal. In
accordance with a shareholder agreement among Universal, the Company and Eastern
America Group, through options and redemption rights, Universal has the right to
purchase the Company's interest in Universal over a period of up to 12 years,
the result of which would be Eastern America
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Group becoming the owner of 100% of Universal's stock. To date, Universal has
redeemed from the Company 44,933 shares of Class B common stock for a total
redemption price of $8,000,000. Of the total redemptions to date, $7,000,000, or
39,128 shares, were redeemed in July, 1993 and $1,000,000, or 5,805 shares, were
redeemed in December, 1992.
INSURANCE OPERATION
Universal writes a broad range of property and casualty insurance.
Universal, however, is primarily a property insurer, generating approximately
66% of its 1993 premiums written from property lines. Universal's principal
property insurance line is automobile physical damage, specifically the vehicle
single-interest risk line, which insures lending institutions against the risk
of loss of the unpaid balance of their automobile loans with respect to financed
vehicles. Vehicle single-interest premiums accounted for 25% of Universal's
consolidated premiums written in 1993.
Universal's insurance business is generated primarily through independent
agents and brokers in Puerto Rico. While no one agent, other than the Eastern
America Insurance Agency, an affiliate of Eastern America Group, accounted for
more than 5% of premiums written in 1993, Universal could be adversely affected
if it were to lose several of its higher producing agents.
Universal maintains an extensive program of reinsurance of the risks that
it insures, primarily under arrangements with reinsurers in London and the
United States. Property lines are reinsured under quota share agreements up to
$5,000,000. Casualty claims above $500,000 are reinsured up to $4,000,000. Ocean
marine and surety lines are reinsured under various pro rata and excess treaties
up to $500,000 and $4,000,000, respectively. Catastrophe automobile physical
damage, fire and allied lines and marine coverage affords recovery of losses
over $500,000, $1,500,000 and $250,000 up to $15,000,000, $64,000,000 and
$3,000,000, respectively.
Because Universal's business is written in Puerto Rico, Universal's
insurance risk is not as diversified as the risk of a carrier that covers a
broader geographical area. A natural catastrophe could cause property damage to
a large number of Universal's policyholders, which would result in significantly
increased losses to Universal. However, the Company believes that Universal's
reinsurance program will limit its net exposure in any such catastrophe.
Property damage from Hurricane Hugo in September, 1989 attributable to Universal
was approximately $34,000,000; however, the net impact was $1,450,000 after
deducting the reinsurance recoverables.
At December 31, 1993, Universal had investments of $122,412,000, consisting
primarily of short-term and available-for-sale securities. At such date,
approximately 97% of that portfolio was invested in United States Government
instruments due to their safety and to the favorable Puerto Rican tax treatment
of such securities.
Universal's insurance business is governed by the Insurance Code of the
Commonwealth of Puerto Rico and in accordance with the regulations issued by the
Commissioner of Insurance of the Commonwealth of Puerto Rico.
REINSURANCE OPERATION
Prior to 1991, the Company participated in the international reinsurance
market through Mariner Reinsurance Company Limited ("Mariner"), a wholly owned
subsidiary of the Company, and through Universal. From 1972 through 1990,
Mariner was engaged in the pro rata and excess of loss reinsurance business
dealing principally with brokers in London. This reinsurance consisted of
certain property and casualty reinsurance lines whereby Mariner participated in
the reinsurance of certain Lloyd's underwriters, British insurance companies,
and other foreign insurance companies. In addition, Mariner reinsured certain
treaties of Universal. Effective January 1, 1987, Mariner ceased writing any new
or renewal reinsurance and Mariner's business portfolio was assumed by
Universal; however, in 1989, two reinsurance contracts were transferred back to
Mariner. Effective January 1, 1991, Universal ceased accepting new participation
in the international reinsurance market and the entire reinsurance business
portfolio was assumed by Mariner.
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During the 1992 year, Mariner, based on certain delayed and certain timely loss
advices, increased its loss reserves. See "Note 5" to the financial statements
included under Item 8 elsewhere herein for further disclosures on the increase
in the Mariner reserves.
With the 1990 year being the final year for participation in the
reinsurance market, neither Mariner nor Universal was involved in any subsequent
catastrophes such as Hurricane Andrew. Neither Universal nor Mariner does
business with any of the Company's other subsidiaries, nor is there any
connection, other than common ownership.
The Company is currently pursuing strategies to withdraw from the runoff of
Mariner's reinsurance business at the earliest possible date. Such strategies
include the possible commutation of Mariner's open book of reinsurance business
in exchange for a portion of, or all of, Mariner's assets. As of December 31,
1993, the Company had net equity in Mariner of approximately $1,500,000.
CAPTIVE INSURANCE OPERATION
Effective January 1, 1994, the Company established a captive insurance
company, Oceanic Insurance Limited ("Oceanic"). The captive will insure only
risks of the Company and its domestic subsidiaries.
EMPLOYEES
Universal has approximately 150 employees, all in the Commonwealth of
Puerto Rico. Mariner's and Oceanic's activities are handled by the Company's
employees and by agents in Bermuda.
PROPERTIES
Universal's office is located in San Juan, Puerto Rico. The office is
leased with an expiration date of January 31, 1998.
ITEM 2. PROPERTIES
The information appearing in Item 1 is incorporated herein by reference.
The Company and Dixie currently occupy leased office space at 1775 St. James
Place, Suite 300, Houston, Texas under a lease that expires in 1996. 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 December 31, 1993, no matter
was submitted to a vote of security holders through solicitation of proxies or
otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES
---- --- ---------------------
George A. Peterkin, Jr..................... 66 President, Director and Chief Executive
Officer
J. H. Pyne................................. 46 President of Dixie and Executive Vice
President and Director of Kirby
Brian K. Harrington........................ 47 Senior Vice President, Treasurer and
Assistant Secretary
G. Stephen Holcomb......................... 48 Vice President, Controller, Assistant
Treasurer and Assistant Secretary
Ronald C. Dansby........................... 54 Vice President -- Inland Chemical Division
Steven M. Bradshaw......................... 45 Vice President -- Inland Refined Products
Division
Patrick L. Johnsen......................... 48 Vice President -- Offshore Division
Dorman L. Strahan.......................... 37 Vice President -- Diesel Repair Division
Mark R. Buese.............................. 37 Vice President -- Administration
Jack M. Sims............................... 51 Vice President -- Human Resources
No family relationship exists between the executive officers or between the
executive officers and the directors. Officers are elected to hold office until
the annual meeting of directors, which immediately follows the annual meeting of
stockholders, or until their respective successors are elected and have
qualified.
George A. Peterkin, Jr. holds a degree in business administration, was
elected a Director of the Company in 1973 and was employed as its President on
October 1, 1976. He had served as a Director of Kirby Industries, Inc. since
1969 and as President of Industries since January, 1973. Prior to that, he was
President of Dixie from 1953 through 1972.
J. H. Pyne holds a degree in liberal arts from the University of North
Carolina and has served as President of Dixie since July, 1984, was elected a
Director of the Company in July, 1988, and was elected Executive Vice President
of the Company in 1992. He also served in various operating and administrative
capacities with Dixie from 1978 to 1984, including Executive Vice President from
January to June, 1984. Prior to joining Dixie, he was employed by Northrop
Services, Inc. and served as an officer in the United States Navy.
Brian K. Harrington is a Certified Public Accountant and holds an M.B.A.
degree from the University of Oregon. He has served as Treasurer and Principal
Financial Officer of the Company and Dixie since May, 1989, Vice President since
September, 1989 and Senior Vice President since 1993. Prior to joining the
Company, he was engaged as a financial consultant with emphasis in the
petrochemical distributing industry, providing services to Dixie and other
companies. Prior to 1979, he was Vice President of Planning, Marketing and
Development for Paktank Corporation.
G. Stephen Holcomb holds a degree in business administration from Stephen
F. Austin State University and has served the Company as Vice President,
Controller, Assistant Treasurer and Assistant Secretary since January, 1989. He
also served as Controller from January, 1987 to January, 1989, and as Assistant
Controller and Assistant Secretary from 1976 through 1986. Prior to that, he was
Assistant Controller of Kirby Industries, Inc. 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 Vice President -- Inland
Chemical Division since 1993. He also serves as President of Dixie Marine,
joining 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 Company from
1962 to 1973.
Steven M. Bradshaw holds a M.B.A. degree from Harvard Business School and
has served the Company as Vice President -- Inland Refined Products Division
since 1993. He also serves as Executive Vice President -- Marketing of Dixie
since 1990 and served in various operating and administrative capacities with
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Dixie from 1981 to 1990, including Vice President -- Sales from 1985 to 1990.
Prior to joining Dixie, he was employed by the Ohio River Company and served as
an officer in the United States Navy.
Patrick L. Johnsen holds a degree in nautical science from California
Maritime Academy and has served as Vice President -- Offshore since 1993. Prior
to joining the Company in August, 1993, he served in senior seagoing and
shoreside capacities with Mobil Shipping and Transportation, including
Chartering and United States Fleet Manager. Prior to joining Mobil in 1978, he
was employed at sea by various shipping companies, including Sabine.
Dorman L. Strahan attended Nicholls State University and has served the
Company as Vice President -- Diesel Repair since 1993. He also serves as
President of Marine Systems since 1986 and President of Rail Systems since 1993.
After joining the Company in 1982 in connection with the acquisition of Marine
Systems, he served as Vice President of Marine Systems until 1985.
Mark R. Buese holds a degree in business administration from Loyola
University and has served the Company as Vice President -- Administration since
1993. He also serves as Vice President of Dixie since 1985 and served in various
sales, operating and administrative capacities with Dixie from 1978 through
1985, including President of Western.
Jack M. Sims holds a degree in business administration from the University
of Miami and has served the Company as Vice President -- Human Resources since
1993. Prior to joining the Company in March, 1993, he served as Vice President
- -- Human Resources for Virginia Indonesia Company from 1982 through 1992,
Manager -- Employee Relations for Houston Oil and Minerals Corporation from 1977
through 1981 and in various professional and managerial positions with Shell Oil
Company from 1967 through 1977.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the American Stock Exchange under
the symbol KEX. The following table sets forth the high and low sales prices for
the common stock for the periods indicated as reported by The Wall Street
Journal.
SALES PRICES
-----------------
HIGH LOW
----- -----
1992
First Quarter................................................... $15 3/8 11
Second Quarter.................................................. $15 1/2 11 1/8
Third Quarter................................................... $14 11 1/2
Fourth Quarter.................................................. $13 1/4 10
1993
First Quarter................................................... $14 3/8 11 3/8
Second Quarter.................................................. $19 1/8 13 5/8
Third Quarter................................................... $22 17
Fourth Quarter.................................................. $21 3/4 17 5/8
1994
First Quarter (through March 14, 1994).......................... $23 3/8 20 1/8
As of March 14, 1994, the Company had 28,275,133 outstanding shares held by
approximately 2,300 stockholders of record.
On September 5, 1989, the Company paid a cash dividend of $.10 per share of
common stock to stockholders of record as of August 14, 1989. A similar dividend
was paid in 1988. The Company does not have an established dividend policy.
Decisions regarding the payment of future dividends will be made by the Board of
Directors based on the facts and circumstances that exist at that time. Prior to
1988, the Company had not paid any cash dividends on its common stock since it
became a publicly held company in 1976.
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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, 1993. 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):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1989(1) 1990 1991 1992(1) 1993(1)
-------- ------- ------- ------- -------
Revenues:
Transportation.............................. $ 83,450 109,366 117,003 190,214 283,747
Diesel repair............................... 18,990 24,894 34,288 35,753 31,952
Insurance................................... 30,668 31,412 27,947 34,661 52,875
Investment income........................... 7,045 7,885 6,875 6,795 7,910
Gain on disposition of assets............... 487 393 1,412 427 355
Other....................................... 696 1,834 1,508 1,653 1,565
-------- ------- ------- ------- -------
$141,336 175,784 189,033 269,503 378,404
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Earnings before extraordinary item and
cumulative effect of accounting changes..... $ 8,913 13,500 13,298 13,598 22,829
Extraordinary item(2)......................... 2,600 1,900 -- -- --
-------- ------- ------- ------- -------
Earnings before cumulative effect of
accounting changes....................... 11,513 15,400 13,298 13,598 22,829
Cumulative effect on prior years of
accounting changes(3).................... -- -- -- (12,917) --
-------- ------- ------- ------- -------
Net earnings................... $ 11,513 15,400 13,298 681 22,829
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Earnings (loss) per share of common stock:
Primary:
Earnings before extraordinary item and
cumulative effect of accounting
changes................................ $ .39 .60 .61 .60 .86
Extraordinary item(2).................... .11 .08 -- -- --
-------- ------- ------- ------- -------
Earnings before cumulative effect of
accounting changes..................... .50 .68 .61 .60 .86
Cumulative effect on prior years of
accounting changes (3)................. -- -- -- (.57) --
-------- ------- ------- ------- -------
Net earnings................... $ .50 .68 .61 .03 .86
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Fully diluted net earnings -- 1991 only..... $ .59
-------
-------
Weighted average shares outstanding........... 22,952 22,700 21,952 22,607 26,527
Net cash provided by continuing operations
before extraordinary item and changes in
assets and liabilities...................... $ 19,467 30,032 28,620 35,387 58,998
Capital expenditures.......................... $ 78,926 18,104 38,215 132,537 90,542
Dividend ($.10) per common share.............. $ 2,272 -- -- -- --
DECEMBER 31,
----------------------------------------------------
1989(1) 1990 1991 1992(1) 1993(1)
-------- ------- ------- ------- -------
Investments................................... $ 92,112 88,687 94,747 115,838 127,303
Property and equipment, net................... $100,335 106,437 129,617 237,596 283,413
Total assets.................................. $246,976 253,716 286,002 446,420 563,253
Insurance reserves and claims................. $ 54,217 55,049 53,587 81,559 116,865
Long-term debt................................ $ 77,025 68,428 80,702 158,922 120,559
Stockholders' equity.......................... $ 87,929 97,112 111,625 122,825 211,749
(Footnotes on following page)
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- ---------------
(1) Comparability with prior periods is affected by the acquisitions of Alamo
and Brent in the second quarter of 1989, the acquisition of Sabine in the
first quarter of 1992, the acquisition of Ole Man River and merger with
Scott Chotin in the second quarter of 1992, the merger with Eastern America
in the third quarter of 1992, the acquisition of TPT in the first quarter of
1993, the merger with AFRAM Lines in the second quarter of 1993 and the
acquisition of Chotin Transportation in the fourth quarter of 1993.
(2) The extraordinary item for the years ended December 31, 1989 and 1990
represents the reduction in equivalent income taxes from utilization of
financial net operating loss carryforwards.
(3) Cumulative effect on prior years from the adoption of Statement of Financial
Accounting Standards ("Accounting Standards") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," net of
equivalent income taxes and Accounting Standards No. 109, "Accounting for
Income Taxes."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
The Company reported net earnings for the 1993 year of $22,829,000, or $.86
per share, compared with net earnings before the cumulative effect of changes in
accounting principles for the 1992 year of $13,598,000, or $.60 per share, and
net earnings of $13,298,000, or $.61 per share, for 1991. Net earnings for 1992
were $681,000, or $.03 per share.
The Company adopted, effective January 1, 1992, Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions" and
Accounting Standards No. 109, "Accounting for Income Taxes." Collectively, the
recognition of the cumulative effect of the adoption of the Accounting Standards
for all prior years reduced the Company's 1992 net earnings by $12,917,000, or
$.57 per share. The adoption of both Accounting Standards also reduced the
Company's 1992 operating earnings after taxes by $1,271,000, or $.06 per share.
Accounting Standards No. 106 established a new accounting principle for the
cost of retiree health care benefits. The cumulative effect on prior years for
the change in accounting principle resulted in an expense after applicable
income taxes of $2,258,000, or $.10 per share. In addition to the impact of the
cumulative effect on prior years, the effect of adoption of Accounting Standards
No. 106 reduced the Company's 1992 operating earnings after applicable income
taxes by $355,000, or $.02 per share.
Accounting Standards No. 109 required a change from the deferred method to
the asset and liability method of accounting for income taxes. The cumulative
effect on prior years for the change in accounting principle resulted in an
expense of $10,659,000, or $.47 per share. The effect of the adoption of
Accounting Standards No. 109 reduced the Company's 1992 operating earnings after
taxes by $916,000, or $.04 per share.
In 1993, the corporate federal income tax rate was increased from 34% to
35%. In accordance with Accounting Standards No. 109, the effect of the increase
in the corporate federal income tax rate resulted in additional federal taxes of
$1,131,000, or $.04 per share, for 1993.
The adoption of the Accounting Standards had no effect on the Company's
cash flow.
The Company conducts operations in three business segments: marine
transportation, diesel repair and property and casualty insurance. A discussion
of each segment follows:
MARINE TRANSPORTATION
The Company's marine transportation revenues for the 1993 year totaled
$283,747,000, reflecting a 49% increase when compared with $190,214,000 reported
in 1992 and a 143% increase when compared with $117,003,000 reported in 1991.
The 49% increase for the 1993 year reflects the operations of three marine
transportation companies acquired during the 1992 year, one in March, one in
April and one in June, and the operations of three marine transportation
companies acquired during the 1993 year, TPT Transportation on
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March 3, AFRAM on May 14 and Chotin Transportation on December 21, all of which
were accounted for under the purchase method of accounting. Collectively, the
operations of TPT Transportation, AFRAM and Chotin Transportation generated
revenues during 1993 of approximately $61,400,000 since their dates of
acquisition. In addition, the revenues for each year reflect the new and
existing equipment additions to both the inland and offshore fleets made during
the years.
The transportation segment's inland operations were curtailed to some
degree during the 1993 third quarter by flooding in the upper Mississippi River
and the closing of the Algiers Lock at New Orleans. Collectively, the pretax
effect of the two events reduced the 1993 results by an estimated $2.4 million.
Flooding in the upper Mississippi River closed the upper River to marine
transportation movements from June 24 through August 22 and continued to disrupt
deliveries even after that date. Movements north of Cairo, Illinois were
curtailed substantially; several of the inland river towing units were stranded
by the flood; and the segment's lower Mississippi River marine operations were
rescheduled. The closing of the Algiers Lock for repair from July 1 through
September 10 required the inland towing vessels to use alternate routes, which
resulted in time delays. The Algiers Lock is situated along the main artery of
the Intracoastal Waterway near New Orleans.
As a provider of service for both the inland and offshore United States
markets, the marine transportation segment is divided into three divisions
organized around the markets they serve: the Inland Chemical Division, serving
the inland industrial and agricultural chemical markets; the Inland Refined
Products Division, serving the inland refined products market; and the Offshore
Division, which serves the offshore petroleum products, container, dry bulk and
palletized cargo markets.
Movements of inland industrial chemicals for the petrochemical processing
industry, handled by the segment's Inland Chemical Division, were intermittently
weak during the 1993 year. In the latter part of the 1993 first quarter, the
Inland Chemical Division's equipment utilization and rates reflected signs of
improvement from the recessionary pressures which negatively influenced the
market during all of 1992 as well as the second half of 1991. While the
improvement continued through the 1993 second quarter, equipment utilization was
somewhat lower during the 1993 third quarter and remained static during the
balance of 1993. Budgetary constraints by petrochemical manufacturers have held
back needed rate increases.
Movements of liquid fertilizer and anhydrous ammonia have remained at high
levels for the 1993, 1992 and 1991 years due to continued heavy usage of
fertilizer products and consistent export sales. For the 1993 year, the
movements of liquid fertilizer were conducted well past the normal fertilizer
season, as fertilizer terminals which could not be reached during the flooding
in the upper Mississippi River were supplied and the demand for fertilizer was
enhanced due to flooding of the River farmlands.
The Inland Refined Products Division, which moves inland refined products
(gasoline, diesel fuel and jet fuel) reflected improvements during the 1993 year
primarily due to a strong demand for gasoline and the resupplying of terminals
in the upper Mississippi River flood areas. Such growth in demand benefitted
equipment utilization and enabled modest rate increases. The Inland Refined
Products Division, formed in 1992 with the acquisitions by Sabine Transportation
and OMR Transportation, reflected weakness of demand during the 1992 year, as
the peak driving season fell below expectations.
Revenues from the Offshore Division improved significantly during the 1993
year, primarily from the merger with AFRAM Lines on May 14, 1993. Throughout
1993, the Division's dry bulk, container and palletized cargo vessels have
remained in heavy demand, being taken out of service only for scheduled
maintenance. The merger with AFRAM Lines has improved the Division's ability to
transport cargos for United States Government aid programs and military use. The
Offshore Division's liquid market, however, has shown price and demand weakness
due to excess capacity in the offshore liquid market, particularly affecting
spot prices. During 1993, certain equipment was idle due to lack of business.
For the 1992 year, revenues from the Offshore Division were significantly
enhanced with the addition of Sabine Transportation's six tank ships, all of
which were fully booked, except for periods of scheduled maintenance.
Each year includes gains from the disposition of primarily single skin
barges and other surplus or obsolete transportation assets. Such gains totaled
$525,000 for 1993, $494,000 for 1992 and $1,414,000 for 1991.
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Costs and expenses, excluding interest expense, for the marine
transportation segment for the 1993 year increased to $242,553,000, an increase
of 49% over the comparable 1992 expense of $162,973,000 and 140% over 1991 costs
and expenses of $100,884,000. Most of the increases for both comparable periods
reflect the costs and expenses, including depreciation, associated with the
acquisitions and mergers consummated during the 1993 and 1992 years. In
addition, the increases reflect higher equipment costs, employee health and
welfare costs, general and administrative costs and inflationary increases in
costs and expenses.
The marine transportation pretax earnings for 1993 were $35,668,000, an
increase of 63% over 1992 pretax earnings of $21,836,000 and 164% over 1991
pretax earnings of $13,507,000.
DIESEL REPAIR
The Company's diesel repair segment reported diesel repair revenues of
$31,952,000 for 1993 reflecting an 11% decrease compared with $35,753,000 for
1992 and a 7% decrease compared with $34,288,000 for 1991. With diesel repair
facilities in five locations nationwide that cater to specific markets, each
location has been influenced by different economic or environmental conditions
during the three comparable periods. The East Coast facility, catering to the
military, has been slowed in 1993 and 1992 by United States military reductions
and government budget restraints. The Midwest facility, which caters to the
inland barge industry, has been hampered to some degree in 1993 and 1992 by the
recession, however, the 1993 year was significantly affected by the flooding in
the upper Mississippi River during the 1993 third quarter. Revenues from the
segment's Midwest facility were reduced by an estimated $900,000, as customers
affected by the flooding either curtailed or postponed scheduled repairs and
overhauls and significantly curtailed parts purchases. The Gulf Coast facility,
tied to the inland and offshore barge and oil service industries was hampered
during 1992 by the recession, however, during 1993, business has remained
relatively constant. The West Coast facilities, whose primary emphasis is the
offshore tuna fishing industry, were negatively affected during 1993 and 1992 by
deferred maintenance of equipment by their commercial fishing customers due to
low tuna prices caused by the worldwide surplus of tuna. Diesel repair revenues
increased by $6,000,000 in 1992 and $2,000,000 in 1991 due to the West Coast
facility acquisition in July, 1991.
Costs and expenses, excluding interest expense, for the diesel repair
segment for 1993 totaled $30,121,000, compared with $33,328,000 for 1992 and
$31,904,000 for 1991. The decrease of 10% for 1993 when compared with 1992
reflects the overall decline in revenues and its effect on the segment's profit
margins. The increase for 1992 and 1991 reflects the growth of the segment's
direct parts sales and overhaul and repair revenues. In addition, for the 1992
year, the increase in costs and expenses partially reflects the opening of the
Seattle facility and the acquisition of the West Coast facility in 1991, which
also increased the 1991 costs and expenses.
The diesel repair segment's pretax earnings for 1993 were $1,577,000, a
decrease of 30% compared with 1992 pretax earnings of $2,263,000 and 29% under
1991 pretax earnings of $2,213,000.
PROPERTY AND CASUALTY INSURANCE
The Company's property and casualty insurance segment, which is conducted
primarily through Universal, reported premiums written of $80,993,000 for 1993,
compared with $52,830,000 for 1992 and $36,481,000 for 1991. The 53% increase in
premiums written during 1993 compared with 1992 reflected business generated
from Eastern America's portfolio brought in with the merger of Eastern America
with and into Universal in September, 1992, a new government policy, two vehicle
single-interest portfolio transfers and the addition of vehicle single-interest
business from two financial institutions, which was the result of an improvement
in automobile sales during 1993. The 45% increase in premiums written during
1992 compared with 1991 reflected the increased emphasis in participation in the
commercial multi-peril and double-interest lines of business, as premium volumes
in the automobile single-interest line remained low due to depressed new
automobile sales in Puerto Rico. Premiums written for the 1992 year also
included $3 million of single-interest premiums associated with a portfolio
transfer which occurred during the 1992 first quarter. In addition, the 1992
year reflected the merger of Eastern America with and into Universal. Premiums
written in
23
25
1991 reflected the reduction in the automobile single-interest line, offset to
some degree by increased participation in the commercial multiple-peril and
automobile double-interest lines of business.
Net premiums earned for 1993 totaled $48,243,000 compared with $29,552,000
for 1992 and $23,561,000 for 1991. The 63% increase in net premiums earned
during 1993 compared with 1992 reflected the business generated from the Eastern
America portfolio as well as a significant increase in the single-interest line
of business during 1993. Net premiums earned for all three years were negatively
affected by the high reinsurance costs for the commercial multiple-peril line
associated with the ceding of a portion of the gross premium under the segment's
reinsurance program. Due to the number of worldwide catastrophic events within
the past few years, the cost of the segment's reinsurance program continued to
substantially increase.
Investment income is generated primarily from the segment's investment in
United States Treasury securities, due to their investment safety and favorable
Puerto Rico tax treatment. Investment income totaled $7,741,000 for 1993
compared with $6,454,000 for 1992 and $5,994,000 for 1991. The segment, prior to
the decline in interest rates, procured a constant yield from the purchase of
United States Treasury securities with fixed rates. Even though interest rates
on investment securities have remained low since 1991, the insurance segment's
investment portfolio has reflected excellent market performance during 1992 and
1993. In addition, the 1993 investment income reflected the full year effect of
the merger with Eastern America. The investment portfolio of Eastern America at
the date of the merger totaled approximately $21 million. In addition, the
insurance segment recognized investment gains of $1,164,000 in 1993, $1,478,000
in 1992 and $853,000 in 1991.
Losses, claims and settlement expenses for 1993 totaled $37,496,000
compared with $26,289,000 for 1992 and $18,103,000 for 1991. The 43% increase
for 1993 compared with 1992 reflected the merger with Eastern America as well as
the significant increase in business volume, particularly from the
single-interest line. In addition, the 1992 year reflected an abnormal year for
losses from the commercial multiple-peril line, which experienced high losses
from specific events. The 1992 year also included a reserve of $2,500,000
recorded in Mariner, the Company's Bermuda reinsurance subsidiary, which
participated in the writing of property and casualty lines of reinsurance from
1970 through 1990. During 1992, Mariner received certain delayed large loss
advices, which resulted in the increase in its loss reserves. The 1990 year was
the last year for participation in the reinsurance market. For the 1991 year,
the insurance segment's loss experience was favorable, the result of a decrease
in losses from the commercial multiple-peril and automobile single-interest
lines.
Management continues to review the runoff of the reinsurance business
previously written by Mariner with the intent of seeking an expedient withdrawal
from this business and closure of Mariner's activities, including consideration
of commutation of Mariner's book of business. A commutation would entail the
transfer of liability from known and incurred but not reported losses to a
second party in exchange for a portion of, or all of, Mariner's assets. As of
December 31, 1993, the Company had net equity in Mariner of approximately
$1,500,000.
Policy acquisition costs for 1993 totaled $11,085,000 compared with
$8,649,000 for 1992 and $7,181,000 for 1991. Generally, policy acquisition costs
for each year increased due to the higher commission rates associated with the
property insurance lines. The results for the 1993 and 1992 year also reflected
the merger with Eastern America.
As of December 31, 1993 and 1992, the Company owned 70% and 75%,
respectively, of the voting common stock of Universal, with the balance owned by
Eastern America Group. The Company owned 100% of the non-voting common and
preferred stocks. Minority interest expense for the 1993 year totaled
$1,623,000.
The Company's portion of the property and casualty insurance segment's
pretax earnings totaled $4,539,000 for 1993, compared with $1,108,000 for 1992
and $4,891,000 for 1991.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
In October, 1990, the Board of Directors approved the authorization to
purchase 2,000,000 shares of common stock. Currently, approximately 1,700,000
shares remain under the repurchase authorization. The
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Company is authorized to purchase the common stock on the American Stock
Exchange and in private negotiated transactions. When repurchasing common
shares, the Company is subject to price, trading volume and other market
considerations. Shares repurchased may be used for reissuance upon the exercise
of stock options and other purposes. The purchase of additional shares depends
on numerous conditions, including the price of the common stock, capital
investment opportunities and other factors. From 1988 through January, 1991, the
Company purchased approximately 2,300,000 shares of common stock at an average
price of $5.71 per share.
The Company and Dixie have separate revolving credit agreements with an
established line of credit of $50,000,000 each. Proceeds under the credit
agreements, which provide for interest rates, based at the Company's option, on
the prime rate, Eurodollar rate or CD rates, can be used for general corporate
purposes, the purchase of new or existing equipment or for business
acquisitions. As of March 14, 1994, the Company and Dixie had $33,600,000 and
$33,900,000, respectively, available for takedown under the credit agreements.
The Company and Dixie entered into the separate credit agreements in April, 1993
providing for aggregate borrowings of up to $30,000,000 and $50,000,000,
respectively. In August, 1993, the Company's line of credit was increased to
$50,000,000.
In March, 1992, Dixie entered into a $20,000,000 acquisition credit
facility with Texas Commerce Bank National Association which provided the
transportation segment with in-place financing for possible future acquisitions.
On June 1, 1992, the acquisition credit facility was activated with the merger
of Scott Chotin into a subsidiary of the Company and in August, 1992, the
acquisition credit facility was retired.
In August, 1992, Dixie sold $50,000,000 of 8.22% notes, due June 30, 2002,
in a private placement. Proceeds from these notes were used to retire the
$20,000,000 acquisition credit facility with Texas Commerce Bank National
Association and the retirement of two $5,000,000, 10% subordinated promissory
notes originally issued as part of the purchase in 1989 of the assets of Brent,
with the balance of the proceeds used to reduce the amount outstanding under
Dixie's $50,000,000 revolving credit agreement.
In May, 1993, the Company called for redemption on June 4, 1993, the entire
$50,000,000 aggregate principal amount of its 7 1/4% Convertible Subordinated
Debentures due 2014 ("Debentures") issued in October, 1989 at a redemption price
of 105.075% of the principal amount of the Debentures, plus accrued interest on
the principal of the Debentures from April 1, 1993 to the date fixed for
redemption. Prior to, or on May 27, 1993, the fifth business day prior to the
date set for redemption under the Debentures, the holders of the entire
$50,000,000 of Debentures elected to convert such Debentures into common stock
of the Company at a conversion price of $11.125 per share. The conversion of the
Debentures increased the issued and outstanding common stock of the Company by
4,494,382 shares.
Business Acquisitions and Developments
Following the Company's stated strategy of acquiring businesses to
complement its existing operations, the Company has been actively engaged in the
acquisition of, or merger with, companies during the 1991, 1992 and 1993 years.
In May, 1991, Brent Transportation purchased for $2,550,000 in cash all of
the operating assets of International Barges, Inc. The assets consist of three
cryogenic inland tank barges currently operating under a term contract
transporting industrial anhydrous ammonia. The acquisition incorporates the
handling of industrial anhydrous ammonia with Brent Transportation's established
market position in the transporting of anhydrous ammonia for use in agriculture.
In July, 1991, Marine Systems purchased the operating assets of Steve
Ewing's Diesel Service, Inc., a National City, California based company engaged
in the repair and overhaul of marine diesel engines and related parts sales. The
acquired assets, consisting of inventory and fixed assets, are operated under
the name of Ewing Marine Systems, Inc. The acquisition expanded the diesel
repair segment's markets to the West Coast and the Pacific Basin and enables the
segment to offer nationwide service to its customers.
On March 13, 1992, the Company completed the purchase of Sabine for
$36,950,000 in cash. Sabine, located in Port Arthur, Texas, was engaged in
coastal and inland marine transportation of petroleum products
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and in harbor tug services. The purchased properties included six U.S. flag tank
ships, 33 owned and five leased inland tank barges, 11 owned and four leased
towboats, three owned bowboats, eight owned tugboats, land and buildings. The
Company has continued to use the assets of Sabine in the same business that
Sabine conducted prior to the purchase. The purchase was financed through
$9,950,000 of existing cash balances, borrowings of $9,000,000 under the
transportation segment's bank revolving credit agreement, as well as an
$18,000,000 bank term loan with a negative pledge of the assets acquired from
Sabine. Based on audited information, assets acquired from Sabine had total
revenues for the years ended December 31, 1990 and 1991 of $62,886,000 and
$62,986,000, respectively. Operations of the assets acquired from Sabine are
included as part of the Company's operations effective March 13, 1992, in
accordance with the purchase method of accounting.
On April 2, 1992, OMR Transportation completed the purchase of Ole Man
River for $25,575,000 in cash. Ole Man River, located in Vicksburg, Mississippi,
was engaged in inland marine tank barge transportation of petroleum products
along the Mississippi River System and the Gulf Intracoastal Waterway. The
purchased properties included 24 owned and two leased tank barges, eight owned
towboats, land and buildings. The Company has continued to use the assets of Ole
Man River in the same business that Ole Man River conducted prior to the
purchase. The asset purchase was funded by borrowings under the transportation
segment's bank revolving credit agreement. Based on audited information, Ole Man
River had total revenues for the years ended December 31, 1990 and 1991 of
$14,676,000 and $15,550,000, respectively. Operations of the assets acquired
from Ole Man River are included as part of the Company's operations effective
April 2, 1992, in accordance with the purchase method of accounting.
On June 1, 1992, the Company completed the acquisition of Scott Chotin by
means of a merger with and into a wholly owned subsidiary of the Company for an
aggregate consideration of approximately $34,900,000. Pursuant to the Agreement
and Plan of Merger, the Company issued 870,892 shares of common stock, valued at
$12.625 per share, to certain Scott Chotin shareholders and paid the
shareholders of Scott Chotin approximately $9,700,000 in cash in exchange for
the working capital and all of the outstanding common stock of Scott Chotin,
discharged existing debt of Scott Chotin of approximately $7,400,000 and paid to
certain executives and shareholders of Scott Chotin $5,000,000 for agreements
not to compete. In addition, the Company recorded a liability reserve for the
issuance, over a three-year period after the closing, of up to 170,000
additional shares of the Company's stock contingent upon the resolution of
certain potential liabilities resulting from operations of Scott Chotin prior to
the merger. In June, 1993, the Company issued 22,500 shares under the contingent
stock agreement. Scott Chotin, located in Mandeville, Louisiana, was engaged in
inland marine tank barge transportation of industrial chemicals and asphalt
along the Mississippi River System and the Gulf Intracoastal Waterway. Scott
Chotin's inland fleet consisted of 29 owned tank barges, six of which operate in
the asphalt trade, 10 owned dry cargo barges, eight owned towboats, land and
buildings. The Company has continued to use the assets of Scott Chotin in the
same business that Scott Chotin conducted prior to the merger. The cash portion
of the merger was financed through existing cash balances, borrowings under a
subsidiary of the Company's $20,000,000 acquisition line of credit, as well as a
$16,000,000 bank term loan with a negative pledge of the assets. Based on
audited information, Scott Chotin recorded total revenues for the years ended
May 31, 1991 and 1992 of $20,894,000 and $18,817,000, respectively. Scott
Chotin's operations are included as part of the Company's operations effective
June 1, 1992, in accordance with the purchase method of accounting.
On September 25, 1992, the Company completed the acquisition of Eastern
America, a property and casualty insurance company in Puerto Rico, by means of a
merger of Eastern America with and into the Company's insurance subsidiary,
Universal, with Universal being the surviving entity. Presently, the Company
owns approximately 70% of the voting common stock of Universal, with the
remaining approximately 30% owned by Eastern America Group, the former parent of
Eastern America. Through options and redemption rights included in the merger
transaction, Eastern America Group could become the owner of up to 100% of
Universal's stock over a period of up to 12 years. Based on audited information,
Eastern America reported total revenues of $11,951,000 and $13,544,000 for the
years ended December 31, 1990 and 1991, respectively. To date, Universal has
redeemed a total 44,933 shares of its common stock from the Company at a price
of $8,000,000. In July, 1993, Universal redeemed 39,128 shares for $7,000,000
and in December, 1992, Universal
26
28
redeemed 5,805 shares for $1,000,000. Eastern America's operations are included
as part of the Company's operations effective September 25, 1992, in accordance
with the purchase method of accounting.
On March 3, 1993, TPT Transportation completed the purchase of TPT, a
marine transportation division of Ashland Oil, Inc., for approximately
$24,400,000 in cash, subject to post-closing adjustments. TPT was engaged in the
inland marine transportation of industrial chemicals and lube oil primarily from
the Gulf Intracoastal Waterway to customers primarily on the upper Ohio River.
TPT's inland fleet consisted of 61 owned and six leased double skin tank barges,
four owned and one leased single skin tank barges and five owned towboats. Of
the 72 barges, 32 are equipped with vapor control systems while 30 barges are
dedicated to the transportation of lube oil, where vapor control equipment is
not required. The Company has continued to use the assets of TPT in the same
business that TPT conducted prior to the purchase. The asset purchase was
financed under the transportation segment's bank revolving credit agreement.
Based on unaudited information, TPT had total revenues for the fiscal year ended
September 30, 1992, of $17 million. The asset purchase was accounted for in
accordance with the purchase method of accounting effective March 3, 1993.
On May 14, 1993, the Company completed the acquisition of AFRAM Lines by
means of a merger with and into a wholly owned subsidiary of the Company, for an
aggregate consideration of $16,725,000. In addition, the merger provides for an
earnout provision not to exceed $3,000,000 in any one year and not to exceed a
maximum of $10,000,000 over a four year period. The earnout provision will be
recorded as incurred as an adjustment to the purchase price. As of December 31,
1993, a $2,250,000 earnout provision, which accrues from April 1 to March 31 of
the following year, had been recorded. Under the terms of the merger, the
Company issued 1,000,000 shares of its common stock in exchange for all of AFRAM
Lines outstanding stock and paid certain executives and shareholders of AFRAM
Lines agreements not to compete totaling $2,000,000. AFRAM Lines located in
Houston, Texas, was engaged in the worldwide transportation of dry bulk,
container and palletized cargos, primarily for Departments and Agencies of the
United States Government. The Company has continued to use the assets of AFRAM
Lines in the same business that AFRAM Lines conducted prior to the merger. AFRAM
Lines fleet consisted of three U.S. flag container and break-bulk ships which
specialize in the transportation of United States Government military and aid
cargos. Based on audited information, AFRAM Lines recorded transportation
revenues for the years ended June 30, 1992 and 1991 of $38,758,000 and
$29,817,000, respectively. Unaudited historical transportation revenues for the
year ended December 31, 1992 were $46,268,000. The merger, effective as of April
1, 1993, was accounted for in accordance with the purchase method of accounting.
The financial results for the 1993 year include the net earnings from the
operations from May 14, 1993, as the net earnings from April 1, 1993 to May 14,
1993, were recorded as a reduction of the purchase price.
In May, 1993, Marine Systems enhanced its long-term opportunities with the
addition of two distributorship agreements. Under a long-term agreement with
Paxman Diesels, Ltd. of Colchester, England, a manufacturer of diesel engines,
Marine Systems will sell engine parts and offer authorized repair services. In
addition, in May, 1993, Marine Systems signed a long-term agreement with Falk
Corporation, a marine reduction gear manufacturer, whereby Marine Systems will
sell parts and offer authorized repair services.
As an expansion of the diesel repair segment, the Company is engaged
through Rail Systems in the overhaul and repair of locomotive diesel engines and
sale of replacement parts for locomotives, serving shortline and industrial
railroads within the continental United States. In October, 1993, EMD, the
world's largest manufacturer of diesel-electric locomotives, awarded an
exclusive shortline and industrial rail distributorship to Rail Systems to
provide replacement parts, service and support to these important and expanding
markets. The operations of Rail Systems commenced in January, 1994.
On December 21, 1993, OMR Transportation completed the cash purchase of
certain assets of Chotin Transportation. Chotin Transportation, located in
Cincinnati, Ohio, was engaged in the inland marine transportation of refined
products by tank barge primarily from the lower Mississippi River to the Ohio
River under a long-term contract with a major oil company. The purchased
properties included 50 single skin and three double skin inland tank barges and
a transportation contract, which expires in the year 2000. The asset purchase
was funded by borrowings under the transportation segment's bank revolving
credit agreement.
27
29
Operations of the assets acquired from Chotin Transportation are included as
part of the Company's operations effective December 21, 1993, in accordance with
the purchase method of accounting.
In March, 1994, the Company through its subsidiary, Americas Marine, began
all-water marine transportation services between Memphis, Tennessee and Mexico,
Guatemala, Honduras and El Salvador. The new transportation service utilizes a
chartered foreign flag river/ocean vessel which offers direct sailing between
the locations. The new service provides exporters and importers in the north,
central and mid-south states with a direct shipping alternative between the
locations on a fourteen day round trip basis. The direct all-water liner service
accepts 20 foot and 40 foot containers, including refrigerated and tank
containers, as well as other cargo on a space available basis.
Capital Expenditures
The Company continued to enhance its existing operations through the
acquisitions of existing equipment during the 1991, 1992 and 1993 years and
construction of new equipment during the 1991 and 1992 years.
During 1991, six new 29,000 barrel capacity double skin inland tank barges,
which were constructed under a contract entered into in May, 1990, were placed
in service. Three of the barges were placed into service in July, one in August
and two in September. The six barges cost approximately $8,000,000, including
enhancements after delivery. In March, 1991, an option was exercised to purchase
six additional 29,000 barrel capacity double skin inland tank barges at a total
purchase price including enhancements after delivery, of approximately
$8,000,000. The first barge was placed in service in November, 1991, followed by
one barge each month through March, 1992. The remaining barge was placed in
service in May, 1992.
Through a 50% partnership with EFC, one dry cargo barge and tug unit for
use in the offshore market was purchased for approximately $5,500,000, with
capitalized restorations and modifications to the barge and tug unit of
approximately $7,500,000. The equipment was placed in service in May, 1991.
In July, 1992, a 165,000 barrel double skin ocean-going tank barge and tug
unit was purchased for approximately $9,200,000. The unit is currently working
in the offshore refined products trade.
In July, 1992, four existing inland towboats were purchased for a total
purchase price of $1,650,000. The towboats are being used in the industrial
chemical market.
In July, 1992, the diesel repair segment expanded its market to the Pacific
Northwest with the opening of a service facility in Seattle, Washington, serving
both the inland and offshore marine industries. Emphasis is focused on the
repair of diesel engines in the marine transportation industry and various
governmental agencies.
In August, 1992, a 17,000 barrel capacity pressure barge which was
constructed under a contract entered into in September, 1991, was placed into
service in the industrial chemical market. Cost of the barge was approximately
$2,700,000.
In October, 1993, three inland towboats were purchased for approximately
$895,000. The towboats are being used in the refined products market.
In addition to the new and existing transportation equipment mentioned
above, during 1991, 1992 and 1993, the Company's transportation subsidiaries
continued to add to their fleet through separate purchases of existing
equipment. In 1991, two existing towboats and seven existing double skin inland
tank barges were purchased for use in the industrial and agricultural chemical
market. In 1992, four inland tank barges were purchased and renovated for use in
the agricultural market and an inland towboat was purchased for use in the
refined products market. In 1993, three existing double skin inland tank barges
were purchased and renovated for use in the agricultural market and one inland
towboat was purchased for use in the fleeting and shifting operation.
28
30
Liquidity
Within the past three years, the Company has generated significant cash
flow from its operating segments to fund its capital expenditures, asset
acquisitions, debt service and other operating requirements. During 1993, 1992
and 1991, the Company generated net cash provided by operating activities of
$61,614,000, $38,372,000 and $26,498,000, respectively.
During each year, inflation has had a relatively minor effect on the
financial results of the Company. The marine transportation segment has
long-term contracts which generally contain cost escalation clauses whereby
certain costs, including fuel can be passed through to its customers, while the
segment's short-term, or spot business, is based principally on current prices.
In addition, the marine transportation assets acquired and accounted for using
the purchase method of accounting were adjusted to a fair market value and,
therefore, the cumulative long-term effect on inflation was reduced. The repair
portion of the diesel repair segment is based on prevailing current market
rates. For the property and casualty insurance segment, 97% of its investments
were classified as available-for-sale or short-term investments, which consists
primarily of United States Governmental instruments.
Universal is subject to dividend restrictions under the stockholders'
agreement between the Company, Universal and Eastern America Group. In addition,
Universal is subject to industry guidelines and regulations with respect to the
payment of dividends.
The Company has no present plan to pay dividends on common stock in the
near future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
(see Item 14, page 60).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 20, 1992, the Company engaged the accounting firm of KPMG Peat
Marwick to serve as the principal independent public accountant. The services of
the accounting firm of Deloitte & Touche, who previously served as the Company's
independent public accountant, were terminated effective October 20, 1992,
except for the Company's subsidiary, Universal, which continues to be audited by
Deloitte & Touche. The engagement of KPMG Peat Marwick to serve as the principal
independent public accountant and the termination of Deloitte & Touche were
approved by unanimous consent of the Company's Board of Directors upon the
recommendation by the Company's Audit Committee.
With respect to the audit for the year ended December 31, 1991 and the
unaudited period to October 20, 1992, there have been no disagreements with
Deloitte & Touche on any matters of accounting principles or practices,
financial statement disclosure, or accounting scope or procedure. The report of
Deloitte & Touche on the financial statements for the year ended December 31,
1991 contained no adverse opinion or disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting principles.
PART III
ITEMS 10 THROUGH 13.
The information for these items has been omitted inasmuch as the registrant
will file a definitive proxy statement with the Commission pursuant to the
Regulation 14A within 120 days of the close of the fiscal year ended December
31, 1993, 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.
29
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Kirby Corporation
We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of Kirby Corporation and its subsidiaries
for the year ended December 31, 1991. Our audit also included the financial
statement schedules listed in Part IV, Item 14, for the year ended December 31,
1991. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on such financial statements and financial statement schedules based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations, changes in stockholders'
equity and cash flows of Kirby Corporation and its subsidiaries for the year
ended December 31, 1991 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the consolidated financial statements for the year
ended December 31, 1991, taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE
Houston, Texas
March 2, 1992, except for Note 2
as to which the date is
March 18, 1992
30
32
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, 1993 and 1992, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for the years then ended. In connection with our audits of the
consolidated financial statements, we have also audited the related financial
statement schedules. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The financial statements and financial statement
schedules of Kirby Corporation and consolidated subsidiaries as of and for the
year ended December 31, 1991 were audited by other auditors whose report thereon
dated March 2, 1992, except for Note 2 to which the date is March 18, 1992,
expressed an unqualified opinion on those statements. We did not audit the
consolidated financial statements of Universal Insurance Company and its
subsidiaries, a 70 percent owned subsidiary, which statements reflect total
assets constituting 33 percent and 32 percent and total revenues constituting 14
percent and 16 percent in 1993 and 1992, respectively, of the related
consolidated totals. Those statements and the amounts included in the related
1993 and 1992 financial statement schedules were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Universal Insurance Company and its subsidiaries, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kirby Corporation and subsidiaries
as of December 31, 1993 and 1992, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. Also, in our opinion, based on our audits and the report
of the other auditors, the related financial statement schedules, when
considered in relation to the 1993 and 1992 basic consolidated financial
statements taken as a whole, present fairly, in all material respects the
information set forth therein.
As discussed in note 3 to the consolidated financial statements, the
Company changed its method of accounting for investments in equity securities in
1993 to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As discussed in note 5 to the
consolidated financial statements, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts" in 1993.
As discussed in note 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1992 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." As discussed in
note 10 to the consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" in 1992.
KPMG PEAT MARWICK
Houston, Texas
February 21, 1994
31
33
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
ASSETS
1992 1993
-------- --------
($ IN THOUSANDS)
Marine Transportation, Diesel Repair and Other
Current assets:
Cash and invested cash............................................ $ 2,187 1,999
Accounts and notes receivable, net of allowance for doubtful
accounts......................................................... 35,104 50,722
Inventory -- finished goods, at lower of average cost or market... 7,690 7,531
Prepaid expenses.................................................. 4,245 7,393
Deferred taxes.................................................... 505 2,768
-------- --------
Total current assets......................................... 49,731 70,413
-------- --------
Property and equipment, at cost...................................... 338,594 406,675
Less allowance for depreciation................................... 102,672 125,459
-------- --------
235,922 281,216
-------- --------
Excess cost of consolidated subsidiaries............................. 4,230 7,429
Noncompete agreements, net of accumulated amortization of $7,298
($4,700 in 1992).................................................. 6,350 5,752
Sundry............................................................... 5,526 13,575
-------- --------
Total assets -- marine transportation, diesel repair and
other...................................................... 301,759 378,385
-------- --------
Insurance
Investments:
Fixed maturities:
Available-for-sale securities................................... -- 102,175
Trading account securities...................................... 45,693 --
Investment account securities................................... 57,183 --
Short-term investments............................................ 12,962 25,128
-------- --------
115,838 127,303
Cash and invested cash............................................... 5,113 12,937
Accrued investment income............................................ 2,382 1,998
Accounts and notes receivable, net of allowance for doubtful
accounts.......................................................... 10,938 12,195
Reinsurance receivable on paid losses................................ 2,805 15,186
Prepaid reinsurance premiums......................................... -- 5,773
Deferred policy acquisition costs.................................... 5,912 7,279
Property and equipment, at cost, net of allowance for depreciation... 1,673 2,197
-------- --------
Total assets -- insurance.................................... 144,661 184,868
-------- --------
$446,420 563,253
-------- --------
-------- --------
See accompanying notes to financial statements.
32
34
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
1992 1993
-------- --------
($ IN THOUSANDS)
Marine Transportation, Diesel Repair and Other
Current liabilities:
Current portion of long-term debt................................. $ 10,962 10,962
Accounts payable.................................................. 11,428 11,767
Federal income taxes payable...................................... 486 --
Accrued liabilities:
Interest........................................................ 1,192 166
Insurance premiums and claims................................... 4,709 6,181
Bonus, pension and profit-sharing plans......................... 6,846 10,491
Taxes, other than on income..................................... 1,355 3,052
Other........................................................... 3,183 8,008
Deferred revenues................................................. 3,172 5,637
-------- --------
Total current liabilities.................................... 43,333 56,264
-------- --------
Long-term debt, less current portion................................. 147,960 109,597
Deferred taxes....................................................... 27,005 39,735
Other long-term liabilities.......................................... 7,349 8,913
-------- --------
Total liabilities -- marine transportation, diesel repair and
other...................................................... 225,647 214,509
-------- --------
Insurance
Losses, claims and settlement expenses............................... 35,588 49,930
Unearned premiums.................................................... 42,209 61,558
Reinsurance premiums payable......................................... 3,762 5,377
Deferred Puerto Rico taxes........................................... 2,457 3,549
Other liabilities.................................................... 4,781 4,576
Minority interest in consolidated insurance subsidiary............... 9,150 12,005
-------- --------
Total liabilities -- insurance............................... 97,947 136,995
-------- --------
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 30,759,000 shares (25,242,000 in 1992)..................... 2,524 3,076
Additional paid-in capital........................................... 93,670 156,340
Unrealized net gains in value of long-term investments............... 1,211 4,440
Retained earnings.................................................... 39,170 61,339
-------- --------
136,575 225,195
Less cost of 2,555,000 shares in treasury (2,613,000 in 1992)........ 13,749 13,446
-------- --------
122,826 211,749
-------- --------
$446,420 563,253
-------- --------
-------- --------
See accompanying notes to financial statements.
33
35
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
1991 1992 1993
-------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues:
Transportation............................................... $117,003 190,214 283,747
Diesel repair................................................ 34,288 35,753 31,952
Net premiums earned.......................................... 23,561 29,552 48,243
Commissions earned on reinsurance............................ 4,387 5,108 4,632
Investment income............................................ 6,874 6,795 7,910
Gain on disposition of assets................................ 1,412 427 355
Realized gain on investments................................. 853 1,478 1,164
Other........................................................ 655 176 401
-------- ------- -------
189,033 269,503 378,404
-------- ------- -------
Costs and expenses:
Cost of sales and operating expenses (except as shown
below).................................................... 96,339 143,330 204,721
Losses, claims and settlement expenses....................... 18,103 26,289 37,496
Policy acquisition costs..................................... 7,181 8,649 11,085
Selling, general and administrative.......................... 23,140 32,805 40,162
Taxes, other than on income.................................. 5,498 8,867 11,475
Depreciation and amortization................................ 14,959 21,423 28,102
Minority interest expense.................................... -- -- 1,623
-------- ------- -------
165,220 241,363 334,664
-------- ------- -------
Operating income..................................... 23,813 28,140 43,740
Interest expense............................................... 5,965 9,411 8,416
-------- ------- -------
Earnings before taxes on income...................... 17,848 18,729 35,324
-------- ------- -------
Provision (benefit) for taxes on income:
United States................................................ 4,550 5,151 11,136
Puerto Rico.................................................. -- (20) 1,359
-------- ------- -------
4,550 5,131 12,495
-------- ------- -------
Earnings before cumulative effect of accounting
changes............................................ 13,298 13,598 22,829
Cumulative effect on prior years of accounting changes:
Postretirement health care benefits, net of applicable income
taxes of $1,163........................................... -- (2,258) --
Income taxes................................................. -- (10,659) --
-------- ------- -------
Net earnings......................................... $ 13,298 681 22,829
-------- ------- -------
-------- ------- -------
Earnings (loss) per share of common stock:
Primary:
Earnings before cumulative effect of accounting changes... $ .61 .60 .86
Cumulative effect on prior years of accounting changes.... -- (.57) --
-------- ------- -------
Net earnings......................................... $ .61 .03 .86
-------- ------- -------
-------- ------- -------
Fully diluted net earnings -- 1991 only...................... $ .59
--------
--------
See accompanying notes to financial statements.
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36
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
1991 1992 1993
-------- ------- -------
Common stock:
Balance at beginning of year................................. $ 2,437 2,437 2,524
Par value of common stock issued in acquisition of marine
transportation companies.................................. -- 87 102
Par value of common stock issued in conversion of 7 1/4%
Subordinated Convertible Debentures....................... -- -- 450
-------- ------- -------
Balance at end of year....................................... $ 2,437 2,524 3,076
-------- ------- -------
-------- ------- -------
Additional paid-in capital:
Balance at beginning of year................................. $ 82,755 82,762 93,670
Excess of par value of cost of common stock issued in
acquisition of marine transportation companies............ -- 10,908 14,859
Excess of par value of cost of common stock issued in
conversion of 7 1/4% Subordinated Convertible Debentures
and related cost of conversion............................ -- -- 47,624
Excess of cost of treasury stock sold over proceeds received
upon exercise of employees' stock options................. 7 -- (27)
Tax benefit of exercise of employee stock options............ -- -- 214
-------- ------- -------
Balance at end of year....................................... $ 82,762 93,670 156,340
-------- ------- -------
-------- ------- -------
Unrealized net gains (losses) in value of investments:
Balance at beginning of year................................. $ 149 1,830 1,211
Net increase (decrease) in valuation of investments during
the year, net of minority interest for 1993............... 1,681 (619) 3,229
-------- ------- -------
Balance at end of year....................................... $ 1,830 1,211 4,440
-------- ------- -------
-------- ------- -------
Retained earnings:
Balance at beginning of year................................. $ 25,191 38,489 39,170
Net earnings for the year.................................... 13,298 681 22,829
Unfunded pension obligation.................................. -- -- (660)
-------- ------- -------
Balance at end of year....................................... $ 38,489 39,170 61,339
-------- ------- -------
-------- ------- -------
Treasury stock:
Balance at beginning of year................................. $(13,419) (13,892) (13,749)
Purchase of treasury stock................................... (475) -- --
Cost of treasury stock sold upon exercise of employees' stock
options................................................... 2 143 303
-------- ------- -------
Balance at end of year....................................... $(13,892) (13,749) (13,446)
-------- ------- -------
-------- ------- -------
See accompanying notes to financial statements.
35
37
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
1991 1992 1993
-------- -------- --------
Cash flows from operating activities:
Earnings before cumulative effect of accounting changes......................... $ 13,298 13,598 22,829
Adjustments to reconcile earnings to net cash provided by operating activities:
Depreciation and amortization................................................. 14,959 21,423 28,102
Provision for doubtful accounts............................................... 62 414 271
Realized gain on investments.................................................. (853) (1,478) (1,164)
Increase in deferred taxes.................................................... 2,600 1,895 5,207
Gain on disposition of assets................................................. (1,412) (427) (355)
Deferred scheduled maintenance costs.......................................... -- -- 2,516
Minority interest and earnings of unconsolidated subsidiary................... (34) (38) 1,592
Increase (decrease) in cash flows resulting from changes in:
Marine Transportation, Diesel Repair and Other assets and liabilities:
Accounts and notes receivable............................................... (2,048) (6,803) (12,833)
Inventory................................................................... (508) (2,288) 158
Other assets................................................................ -- (3,454) (3,046)
Accounts payable............................................................ 1,510 1,195 (2,624)
Accrued and other liabilities............................................... 1,540 3,745 6,255
Insurance assets and liabilities:
Reinsurance receivable on paid losses....................................... 271 1,346 (18,154)
Deferred policy acquisition costs........................................... (446) (1,106) (1,368)
Losses, claims and settlement expenses...................................... (2,223) 4,692 14,342
Unearned premiums........................................................... 802 7,322 19,349
Reinsurance premiums payable................................................ (40) (1,156) 1,616
Receivables and accrued income.............................................. (1,730) 739 (873)
Other liabilities........................................................... 750 (1,247) (206)
-------- -------- --------
Net cash provided by operating activities................................ 26,498 38,372 61,614
-------- -------- --------
Cash flow from investing activities:
Proceeds from sale and maturities of investments................................ 27,916 8,730 12,097
Purchase of investments......................................................... (17,066) (21,544) (5,772)
Net decrease (increase) in investments.......................................... (13,817) 13,589 (10,683)
Capital expenditures............................................................ (33,607) (32,747) (22,320)
Purchase of assets of marine and diesel repair companies:
Property and equipment, net of assumed liabilities............................ (2,644) (76,279) (34,617)
Intangible assets............................................................. (1,050) (8,668) (7,138)
Proceeds from disposition of assets............................................. 2,105 839 1,275
Cash received upon mergers...................................................... -- 3,110 1,733
Other........................................................................... 9 (13) (468)
-------- -------- --------
Net cash used in investing activities.................................... (38,154) (112,983) (65,893)
-------- -------- --------
Cash flow from financing activities:
Borrowings on bank revolving credit loan........................................ 15,294 99,025 124,164
Payments on bank revolving credit loan.......................................... (2,694) (90,125) (101,564)
Increase in long-term debt...................................................... -- 84,000 --
Payments under long-term debt................................................... (1,240) (14,680) (10,962)
Proceeds from exercise of stock options......................................... -- 143 277
Purchase of treasury stock...................................................... (475) -- --
-------- -------- --------
Net cash provided by financing activities................................ 10,885 78,363 11,915
-------- -------- --------
Increase (decrease) in cash and invested cash............................ (771) 3,752 7,636
Cash and invested cash, beginning of year......................................... 4,319 3,548 7,300
-------- -------- --------
Cash and invested cash, end of year............................................... $ 3,548 7,300 14,936
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest...................................................................... $ 5,873 10,192 9,442
Income taxes.................................................................. $ 3,250 2,750 5,500
Noncash investing and financing activity:
Assumption of liabilities in connection with mergers with and purchase of assets
of marine and diesel repair companies......................................... $ 915 38,225 11,743
Issuance of stock in connection with purchase of marine transportation
companies..................................................................... $ -- 10,995 14,725
Assets and liabilities charged to equity........................................ $ -- -- (2,136)
Issuance of stock in connection with conversion of 7 1/4% convertible
debentures.................................................................... $ -- -- 50,000
See accompanying notes to financial statements.
36
38
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
Principles of Consolidation. The consolidated financial statements include
the accounts of Kirby Corporation and its subsidiaries ("the Company"). The
assets and liabilities for the insurance operations have not been classified as
current or noncurrent, in accordance with insurance practice. The Company's
equity in certain partnerships is reflected in the accounts at its pro rata
share of the assets, liabilities, revenues and expenses of the partnerships. The
purchase price of certain subsidiaries exceeded the equity in net assets of the
respective companies at dates of acquisition. The excess is being amortized over
10 to 25 year periods.
All material intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to reflect current
presentation of financial information.
Operations. The Company is engaged in three industry segments as follows:
Marine Transportation -- Marine transportation by United States flag
vessels on the inland waterway system and in United States coastwise and
foreign trade. The principal products transported include petrochemical
feedstocks, processed chemicals, agricultural chemicals, refined petroleum
products, coal, limestone, grain and sugar. Container and palletized cargo
are also transported for United States Government aid programs and
military.
Diesel Repair -- Repair of diesel engines, reduction gear repair and
sale of related parts and accessories, primarily for customers in the
marine industry and beginning in 1994, for customers in the shortline and
industrial railroad industry.
Insurance -- Writing of property and casualty insurance in Puerto
Rico. The insurance subsidiary operates under the provisions of the
Insurance Code of the Commonwealth of Puerto Rico and is subject to
regulations issued by the Commissioner of Insurance of the Commonwealth of
Puerto Rico.
General Accounting Policies:
Accounting Principles. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles.
Cash Equivalents. Cash equivalents consist of short-term, highly liquid
investments with maturities of three months or less at date of purchase.
Depreciation. Property and equipment is depreciated on the straight-line
method over the estimated useful lives of the assets as follows: marine
transportation equipment, 6-22 years; buildings, 10-25 years; other equipment,
2-10 years; leasehold improvements, term of lease.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily trade
accounts receivables. The Company's marine transportation customers include the
major oil refineries. The diesel repair customers are offshore well service
companies, inland and offshore marine transportation companies and the United
States Government. The insurance segment customers include agents and customers
who reside in Puerto Rico. In addition, credit risk exists through the placement
of certificates of deposits with local financial institutions by the insurance
segment.
Marine Transportation, Diesel Repair and Other Accounting Policies:
Property, Maintenance and Repairs. Property is recorded at cost.
Improvements and betterments are capitalized as incurred. When property items
are retired, sold, or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts with any gain or loss on the
disposition included in operating income. Maintenance and repairs are charged to
operating expenses as incurred on an annual basis.
37
39
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
Taxes on Income. The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. In
1991, the provision for deferred income taxes represents the tax effect of
differences in the timing of income and expense recognition for tax and
financial reporting purposes.
The Company files a consolidated federal income tax return with its
domestic subsidiaries and Mariner Reinsurance Company Limited ("Mariner").
Insurance Accounting Policies:
Investments. Fixed maturity investments held as of December 31, 1993 are
primarily classified as available-for-sale securities and are reported at fair
market value, with unrealized gains and losses reported in the accompanying
balance sheet as unrealized net gains in value of investments. For 1992, the
investment in fixed maturities consisted of an investment and a trading account.
Investment account securities were recorded at cost, adjusted for the
amortization of premiums and accretion of discounts and trading account
securities were recorded at market value. The difference between the market
value and the amortized cost of trading securities was presented in the
accompanying balance sheets as unrealized net gains in value of investments.
Short-term investments consisting of certificates of deposit, United States
Treasury bills and United States Treasury notes maturing within one year from
acquisition date, are recorded at amortized cost. Equity securities are recorded
at market value.
Reinsurance. By reinsuring certain levels of risk in various areas with
reinsurers, the exposure of losses which may arise from catastrophes or other
events which may cause unfavorable underwriting results are reduced. Amounts
recoverable from reinsurance are estimated in a manner consistent with the claim
liability associated with the reinsured policy.
Deferred Policy Acquisition Costs. Deferred policy acquisition costs
representing commissions paid to agents are deferred and amortized following the
daily pro rata method over the terms of the policies in 1993 (monthly pro rata
method in prior years), except for automobile physical damage single-interest
policies, which are amortized following the sum-of-the years method. Deferred
policy acquisition costs are written off when it is determined that future
policy revenues are not adequate to cover related future losses and loss
adjustments expenses. Earnings on investments are taken into account in
determining whether this condition exists. No deficiencies have been determined
in the periods presented.
Accrued Losses, Claims and Settlement Expenses. Accrued losses, claims and
settlement expenses include estimates based on individual claims outstanding and
an estimated amount for losses incurred but not reported (IBNR) based on past
experience.
Unearned Premiums. Unearned premiums are deferred and amortized following
the daily pro rata method over the terms of the policies in 1993 (monthly pro
rata method in prior years), except for automobile physical damage
single-interest policies, which are amortized to income following the
sum-of-the-years method.
Guarantee Fund Assessment. The Company's Puerto Rican property and casualty
insurance subsidiary is a member of the Puerto Rico Insurance Guaranty
Association and is required to participate in losses payable
38
40
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
to policyholders under risks underwritten by insolvent associated members.
Losses are estimated based on its share and accrued on a current basis.
Changes In Accounting Principles:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," which changes the
accounting and disclosure requirements for reinsurance contracts entered into by
ceding insurance companies. Effective December 31, 1993, the Company adopted
SFAS No. 113, the effects of which are more fully described in Note 5, Insurance
Disclosure.
The FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," which establishes standards of financial accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Effective December 31,
1993, the Company adopted SFAS No. 115, the effects of which are more fully
described in Note 3, Investments.
The FASB issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which establishes a new accounting principle for
the cost of retiree health care and other postretirement benefits. Effective
January 1, 1992, the Company adopted SFAS No. 106, the effects of which are more
fully described in Note 10, Retirement Plans.
The FASB issued SFAS No. 109, "Accounting for Income Taxes," which requires
a change from the deferred method of accounting for income taxes to the asset
and liability method of accounting for income taxes. Effective January 1, 1992,
the Company adopted SFAS No. 109, the effects of which are more fully described
in Note 7, Taxes on Income.
(2) ACQUISITIONS
1992 YEAR:
On March 13, 1992, a subsidiary of the Company completed the purchase of
certain assets of Sabine Towing & Transportation Co., Inc. ("Sabine"), a wholly
owned subsidiary of Sequa Corporation, for $36,950,000 in cash. Sabine, located
in Port Arthur, Texas was engaged in coastal and inland marine transportation of
petroleum products and harbor tug services. The purchased properties included
six United States flag tank ships, 33 owned and five leased inland tank barges,
11 owned and four leased inland towboats, three owned bowboats, eight owned
harbor tugboats, land and buildings. The Company has continued to use the assets
of Sabine in the same business that Sabine conducted prior to the purchase. The
purchase was financed through $9,950,000 of existing cash balances, borrowings
of $9,000,000 under the transportation segment's bank revolving credit
agreement, as well as an $18,000,000 bank term loan with a negative pledge of
the assets acquired from Sabine. Operations of the assets acquired from Sabine
are included as part of the Company's operations effective March 13, 1992, in
accordance with the purchase method of accounting.
On April 2, 1992, a subsidiary of the Company completed the purchase of
substantially all of the operating assets of Ole Man River Towing, Inc. and
related entities ("Ole Man River") for $25,575,000 in cash. Ole Man River,
located in Vicksburg, Mississippi, was engaged in inland marine tank barge
transportation of petroleum products along the Mississippi River System and the
Gulf Intracoastal Waterway. The purchased properties included 24 owned and two
leased inland tank barges, eight owned inland towboats, land and buildings. The
Company has continued to use the assets of Ole Man River in the same business
that Ole Man River conducted prior to the purchase. The asset purchase was
funded by borrowings under the transportation segment's bank revolving credit
agreement. Operations of the assets acquired from Ole Man
39
41
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS -- (CONTINUED)
River are included as part of the Company's operations effective April 2, 1992,
in accordance with the purchase method of accounting.
On June 1, 1992, the Company completed the acquisition of Scott Chotin,
Inc. ("Scott Chotin") by means of a merger of Scott Chotin with and into a
subsidiary of the Company for an aggregate consideration of approximately
$34,900,000. Pursuant to the Agreement and Plan of Merger, the Company issued
870,892 shares of common stock, valued at $12.625 per share to certain Scott
Chotin shareholders and paid the shareholders of Scott Chotin approximately
$9,700,000 in cash in exchange for the working capital and all of the
outstanding common stock of Scott Chotin, discharged existing debt of Scott
Chotin of approximately $7,400,000 and paid to certain executives and
shareholders of Scott Chotin $5,000,000 for agreements not to compete. In
addition, the Company recorded a liability reserve for the issuance, over a
three-year period after the closing, of up to 170,000 additional shares of the
Company's common stock contingent upon the resolution of certain potential
liabilities resulting from operations of Scott Chotin prior to the merger. In
June, 1993, the Company issued 22,500 shares of common stock under the
contingent stock agreement. Scott Chotin, located in Mandeville, Louisiana was
engaged in inland marine tank barge transportation of industrial chemicals and
asphalt along the Mississippi River System and the Gulf Intracoastal Waterway.
Scott Chotin's inland fleet consisted of 29 owned tank barges, six of which
operate in the asphalt trade, 10 owned dry cargo barges, eight owned towboats,
land and buildings. The Company has continued to use the assets of Scott Chotin
in the same business that Scott Chotin conducted prior to the purchase. The cash
portion of the merger was financed through existing cash balances, borrowings
under the transportation segment's $20,000,000 acquisition line of credit, as
well as a $16,000,000 bank term loan with a negative pledge of the assets of
Scott Chotin. Scott Chotin's operations are included as part of the Company's
operations effective June 1, 1992, in accordance with the purchase method of
accounting.
On September 25, 1992, the Company completed the acquisition of Eastern
America Insurance Company ("Eastern America"), a property and casualty insurance
company in Puerto Rico, by means of a merger of Eastern America with and into
the Company's insurance subsidiary, Universal Insurance Company ("Universal"),
with Universal being the surviving entity. Presently, the Company owns
approximately 70% of the voting common stock of Universal, with the remaining
approximately 30% owned by Eastern America Financial Group, Inc. ("Eastern
America Group"), the former parent of Eastern America. Through options and
redemption rights included in the merger transaction, Eastern America Group
could become the owner of up to 100% of Universal's stock over a period of up to
12 years. To date, Universal has redeemed a total 44,933 shares of their common
stock from the Company at a price of $8,000,000. In July, 1993, Universal
redeemed 39,128 shares for $7,000,000 and in December, 1992, Universal redeemed
5,805 shares for $1,000,000. Eastern America's operations are included as part
of the Company's operations effective September 25, 1992, in accordance with the
purchase method of accounting.
1993 YEAR:
On March 3, 1993, a subsidiary of the Company completed the purchase of
certain assets of TPT ("TPT"), a marine transportation division of Ashland Oil,
Inc., for $24,400,000 in cash. TPT, located in Freedom, Pennsylvania, was
engaged in the inland marine transportation of industrial chemicals and lube
oils by tank barges predominantly from the Gulf Intracoastal Waterway to
customers primarily on the upper Ohio River. The purchased properties included
61 owned and six leased double skin inland tank barges, four owned and one
leased single skin inland tank barges and five owned inland towboats. The
Company has continued to use the assets of TPT in the same business that TPT
conducted prior to the purchase. The asset purchase was funded by borrowings
under the transportation segment's bank revolving credit agreement. Based on
unaudited information, the acquired assets of TPT had total revenues for the
year ended September 30, 1992 of
40
42
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS -- (CONTINUED)
$17,000,000. Operations of the assets acquired from TPT are included as part of
the Company's operations effective March 3, 1993, in accordance with the
purchase method of accounting.
On May 14, 1993, the Company completed the acquisition of AFRAM Lines (USA)
Co., Ltd. ("AFRAM Lines") by means of a merger of AFRAM Lines with a subsidiary
of the Company for an aggregate consideration of $16,725,000. Additionally, the
merger provides for an earnout provision not to exceed $3,000,000 in any one
year and not to exceed a maximum of $10,000,000 over a four-year period. The
earnout provision will be recorded as incurred as an adjustment to the purchase
price. As of December 31, 1993, a $2,250,000 earnout provision, which accrues
from April 1 to March 31 of the following year, had been recorded. Pursuant to
the Agreement and Plan of Merger, the Company issued 1,000,000 shares of common
stock, valued at $14.725 per share, in exchange for all of AFRAM Lines'
outstanding stock and paid to certain executives and shareholders of AFRAM Lines
$2,000,000 for agreements not to compete. AFRAM Lines, located in Houston,
Texas, was engaged in the worldwide transportation of dry bulk, container and
palletized cargos, primarily for Departments and Agencies of the United States
Government. The Company has continued to use the assets of AFRAM Lines in the
same business that AFRAM Lines conducted prior to the merger. AFRAM Lines' fleet
consisted of three United States flag container and break-bulk ships which
specialize in the transportation of United States Government aid and military
cargos. The cash portion of the merger was financed through borrowings under the
Company's bank revolving credit agreement. Pursuant to the Agreement and Plan of
Merger, the effective date of the merger was April 1, 1993, and the merger was
accounted for in accordance with the purchase method of accounting. The
financial results for the 1993 year include the net earnings from the operations
of AFRAM Lines from May 14, 1993, as the net earnings from April 1, 1993 to May
14, 1993, were recorded as a reduction of the purchase price.
On December 21, 1993, a subsidiary of the Company completed the purchase of
certain assets of Midland Enterprises Inc. and its wholly owned subsidiary,
Chotin Transportation Company ("Chotin Transportation") for $14,950,000 in cash.
Chotin Transportation, located in Cincinnati, Ohio, was engaged in the inland
marine transportation of refined products by tank barge primarily from the lower
Mississippi River to the Ohio River under a long-term contract with a major oil
company. The Company has continued to use the assets of Chotin Transportation in
the same business that Chotin Transportation conducted prior to the purchase.
The purchased properties included 50 single skin and three double skin inland
tank barges and the transportation contract, which expires in the year 2000. The
asset purchase was funded by borrowings under the transportation segment's bank
revolving credit agreement. Operations of the assets acquired from Chotin
Transportation are included as part of the Company's operations effective
December 21, 1993, in accordance with the purchase method of accounting.
41
43
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS -- (CONTINUED)
The following unaudited pro forma financial information for the year ended
December 31, 1991 is based on adjusted historical financial statements of the
Company, Sabine, Ole Man River, Scott Chotin and Eastern America. The unaudited
pro forma financial information for the year ended December 31, 1992 is based on
adjusted historical financial statements of the Company, Sabine, Ole Man River,
Scott Chotin, Eastern America and AFRAM Lines. The unaudited pro forma financial
information for the year ended December 31, 1993 is based on adjusted historical
financial statements of the Company and AFRAM Lines. The financial information
assumes the acquisitions and mergers were completed as of the beginning of the
periods indicated. The pro forma financial information is not necessarily
indicative of the results of operations that would have been achieved had the
asset purchases and mergers been consummated as of the periods indicated. In
addition, the pro forma information is not necessarily indicative of the results
of operations that may be obtained in the future.
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Revenues........................................... $299,659 349,266 395,491
Earnings before taxes on income.................... $ 29,026 26,931 38,999
Earnings before cumulative effect of accounting
changes.......................................... $ 20,985 19,096 25,191
Earnings per common share before cumulative effect
of accounting changes:
Primary.......................................... $ .92 .81 .93
Fully diluted.................................... $ .86 .81 .93
(3) INVESTMENTS
With the adoption of SFAS No. 115 effective December 31, 1993 that
established new criteria for the accounting and reporting of investments in debt
and equity securities that have readily determinable fair value, management
revaluated its investment strategy in accordance with the new provisions. Under
the provisions of SFAS No. 115, investments are to be classified under one of
three categories.
Management determined that substantially all debt and equity securities
held at December 31, 1993 qualify as available-for-sale securities. The adoption
of SFAS No. 115 increased the carrying value of investment account securities by
approximately $4,100,000 and stockholders' equity by $3,075,000, net of
applicable deferred income taxes. SFAS No. 115 precludes restatement of prior
year financial statements.
42
44
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
A summary of the insurance subsidiaries' investments as of December 31,
1992 is as follows (in thousands):
AMOUNT
AT WHICH
SHOWN ON
QUOTED GROSS GROSS THE
AMORTIZED MARKET UNREALIZED UNREALIZED BALANCE
TYPE OF INVESTMENT COST VALUE LOSSES GAINS SHEET
------------------ --------- ------- ---------- ---------- --------
Fixed maturities:
Trading account:
United States Treasury bills.......... $ 44,078 45,693 -- 1,615 45,693
--------- ------- --- ---------- --------
Investment account:
Bonds and notes:
United States Government and
government agencies and
authorities...................... 55,594 57,789 133 2,329 55,594
States, municipalities and political
subdivisions..................... 1,285 1,359 -- 74 1,285
All other........................... 304 308 1 5 304
--------- ------- --- ---------- --------
Total investment account......... 57,183 59,456 134 2,408 57,183
--------- ------- --- ---------- --------
Short-term investments..................... 12,962 12,962 -- -- 12,962
--------- ------- --- ---------- --------
Total investments................ $ 114,223 118,111 134 4,023 115,838
--------- ------- --- ---------- --------
--------- ------- --- ---------- --------
A summary of the insurance subsidiaries' investments as of December 31,
1993 is as follows (in thousands):
FAIR VALUE AS
GROSS GROSS SHOWN IN
AMORTIZED UNREALIZED UNREALIZED THE BALANCE
TYPE OF INVESTMENT COST LOSSES GAINS SHEET
------------------- --------- ---------- ---------- -------------
Available-for-sale securities:
Bonds and notes:
United States Government and
government agencies and
authorities..................... $ 91,761 362 7,849 99,248
States, municipalities and
political subdivisions.......... 1,035 -- 27 1,062
All other......................... 1,816 -- 49 1,865
--------- --- ---------- -------------
Total available-for-sale
securities................. 94,612 362 7,925 102,175
Short-term investments................. 25,128 -- -- 25,128
--------- --- ---------- -------------
Total investments............ $ 119,740 362 7,925 127,303
--------- --- ---------- -------------
--------- --- ---------- -------------
43
45
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
A summary of the available-for-sale securities by maturities as of December
31, 1993 is as follows (in thousands):
INVESTMENTS MATURING WITHIN AMORTIZED COST MARKET VALUE
--------------------------- -------------- ------------
One year................................................. $ 3,295 3,320
One to five years........................................ 36,807 39,489
Five to ten years........................................ 16,451 17,712
Ten years and over....................................... 38,059 41,654
-------------- ------------
$ 94,612 102,175
-------------- ------------
-------------- ------------
Short-term and all other investments primarily consist of United States
Treasury obligations, certificates of deposits, commercial paper and banker's
acceptances. The Company does not invest in high-yield securities judged to be
below investment grade.
Investment income for the years ended December 31, 1991, 1992 and 1993 is
summarized as follows (in thousands):
1991 1992 1993
------ ----- -----
Available-for-sale securities.............................. $ -- -- 7,175
Trading account securities................................. 2,175 2,602 --
Investment account securities.............................. 2,972 3,272 --
Short-term investments..................................... 1,727 921 735
------ ----- -----
$6,874 6,795 7,910
------ ----- -----
------ ----- -----
Realized net gains on investments for the years ended December 31, 1991,
1992 and 1993 are summarized as follows (in thousands):
1991 1992 1993
------ ----- -----
Available-for-sale securities.............................. $ -- -- 1,164
Trading account securities................................. (82) 437 --
Investment account securities.............................. 935 1,041 --
------ ----- -----
$ 853 1,478 1,164
------ ----- -----
------ ----- -----
Changes in unrealized net gains (losses) in value of investments for the
years ended December 31, 1991, 1992 and 1993 are summarized as follows (in
thousands):
1991 1992 1993
------ ---- -----
Available-for-sale securities............................... $ -- -- 5,948
Trading account securities.................................. 1,660 (775) --
Investment account securities............................... 581 -- --
------ ---- -----
2,241 (775) 5,948
Less deferred income taxes.................................. 560 (156) 1,487
------ ---- -----
1,681 (619) 4,461
Minority interest portion................................... -- -- 1,232
------ ---- -----
$1,681 (619) 3,229
------ ---- -----
------ ---- -----
44
46
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment and the related
allowance for depreciation at December 31, 1992 and 1993 (in thousands):
1992 1993
-------- -------
Property and equipment:
Marine Transportation, Diesel Repair and Other:
Marine transportation equipment............................ $326,011 387,494
Land, buildings and equipment.............................. 12,583 19,181
-------- -------
338,594 406,675
Insurance:
Land, buildings and equipment.............................. 2,467 3,320
-------- -------
$341,061 409,995
-------- -------
-------- -------
Allowance for depreciation:
Marine Transportation, Diesel Repair and Other:
Marine transportation equipment............................ $ 98,646 119,832
Land, buildings and equipment.............................. 4,026 5,627
-------- -------
102,672 125,459
Insurance:
Land, buildings and equipment.............................. 794 1,123
-------- -------
$103,466 126,582
-------- -------
-------- -------
(5) INSURANCE DISCLOSURE
The financial results of the Company's insurance subsidiaries, Universal, a
property and casualty insurance subsidiary located in Puerto Rico, and Mariner,
a wholly owned subsidiary located in Bermuda, are consolidated with the
Company's other operations.
45
47
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INSURANCE DISCLOSURE -- (CONTINUED)
As of December 31, 1992 and 1993, the Company owned 75% and 70% of
Universal's voting common stock and 100% of Universal's non-voting common and
preferred stocks, respectively (see Note 2). Condensed combined statements of
earnings of the insurance subsidiaries which are reflected in the consolidated
financial statements are as follows (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1991 1992 1993
------- ------ ------
Revenues:
Premiums written........................................ $36,481 52,830 80,993
------- ------ ------
------- ------ ------
Reinsurance assumed..................................... $ 1,068 327 27
------- ------ ------
------- ------ ------
Net premiums earned..................................... $23,561 29,552 48,243
Investment income....................................... 5,994 6,454 7,741
Commissions earned on reinsurance....................... 4,387 5,108 4,632
Realized gains on investments........................... 853 1,478 1,164
Other................................................... (82) (72) (169)
------- ------ ------
34,713 42,520 61,611
------- ------ ------
Costs and expenses:
Losses, claims and settlement expenses.................. 18,103 26,289 37,496
Policy acquisition costs................................ 7,181 8,649 11,085
General and administrative and other expenses........... 4,538 6,474 6,868
Minority interest expense............................... -- -- 1,623
------- ------ ------
29,822 41,412 57,072
------- ------ ------
Earnings before taxes on income................. 4,891 1,108 4,539
Benefit for taxes on income............................... -- 1,034 391
------- ------ ------
Earnings before cumulative effect of
accounting change............................. 4,891 2,142 4,930
Cumulative effect on prior years of accounting change
for income taxes........................................ -- (157) --
------- ------ ------
Net earnings.................................... $ 4,891 1,985 4,930
------- ------ ------
------- ------ ------
Policy acquisition costs deferred and amortized against earnings during the
years ended December 31, 1991, 1992 and 1993 are summarized as follows (in
thousands):
1991 1992 1993
------- ------ -------
Balance, beginning of year............................... $ 3,039 3,485 5,912
Amount deferred during year.............................. 7,627 9,756 12,452
Amount acquired upon merger.............................. -- 1,320 --
Amount amortized against earnings during year............ (7,181) (8,649) (11,085)
------- ------ -------
Balance, end of year..................................... $ 3,485 5,912 7,279
------- ------ -------
------- ------ -------
In 1993, the insurance subsidiaries adopted SFAS No. 113, which specifies
the accounting by insurance enterprises for the reinsurance of insurance
contracts and eliminates the practice by insurance enterprises of reporting
assets and liabilities relating to reinsured contracts net of the effects of
reinsurance. The adoption of SFAS No. 113 increased the assets and liabilities
by approximately $15,510,000 as of December 31, 1993. The transfer of risk
provisions of SFAS No. 113 did not affect the accounting for reinsurance
contracts presently in place.
46
48
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INSURANCE DISCLOSURE -- (CONTINUED)
The insurance subsidiary participated in the international reinsurance
market by assuming participations in risks originally undertaken by other
underwriters. Effective January 1, 1991, the insurance subsidiary ceased
accepting participations in the international reinsurance market. During 1992,
the Company's Bermudian reinsurance subsidiary received certain delayed and
certain timely large loss advises, the receipt of which caused the Company to
increase the reinsurance subsidiary's loss reserves by $2,500,000 to cover both
known and unknown losses.
The Company is currently pursuing strategies to withdraw from the runoff of
Mariner's reinsurance business at the earliest possible date. Such strategies
include the possible commutation of Mariner's open book of reinsurance business
in exchange for a portion of, or all of, Mariner's assets. As of December 31,
1993, the Company had net equity in Mariner of approximately $1,500,000.
Net earnings and stockholders' equity of only the Company's Puerto Rican
property and casualty insurance subsidiary as determined in accordance with
Puerto Rican statutory accounting practices and generally accepted accounting
principles for the years ended December 31, 1991, 1992 and 1993 are as follows
(in thousands):
1991 1992 1993
------- ------ ------
Statutory accounting practice:
Net earnings............................................ $ 4,255 4,809 7,099
Stockholders' equity.................................... $35,534 46,943 47,011
Generally accepted accounting principles:
Net earnings............................................ $ 4,870 3,958 6,553
Stockholders' equity.................................... $42,838 54,341 58,354
The net assets of the insurance subsidiary available for transfer to the
parent company are limited to the amount that its stockholders' equity, as
determined in accordance with statutory accounting practices, exceeds minimum
statutory capital requirements.
(6) LONG-TERM DEBT
Long-term debt at December 31, 1992 and 1993 consisted of the following (in
thousands):
1992 1993
-------- -------
Long-term debt:
7 1/4% convertible subordinated debentures, due October 1,
2014....................................................... $ 50,000 --
Revolving credit loans, due May 1, 1994....................... 21,500 --
Revolving credit loans, due June 30, 1996..................... -- 44,100
Bank term loan, $667,000 due quarterly through December 31,
1996, remaining balance of $5,333,000 due March 6, 1997.... 16,000 13,333
Bank term loan, $571,000 due quarterly through March 31, 1997,
remaining balance of $5,144,000 due June 1, 1997........... 14,857 12,571
8.22% senior notes, $5,000,000 due annually through June 30,
2002....................................................... 50,000 45,000
7.18% nonrecourse debt, $505,000 due semiannually through
February 1, 1999........................................... 6,565 5,555
-------- -------
$158,922 120,559
-------- -------
-------- -------
47
49
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):
1994....................................................................... $10,962
1995....................................................................... 10,962
1996....................................................................... 55,062
1997....................................................................... 17,058
1998....................................................................... 6,060
On May 4, 1993, the Company called for redemption on June 4, 1993, the
entire $50,000,000 aggregate principal amount of its 7 1/4% Convertible
Subordinated Debentures due 2014 ("Debentures") issued in October, 1989 at
redemption price of 105.075% of the principal amount of the Debentures, plus
accrued interest on the principal of the Debentures from April 1, 1993 to the
date fixed for redemption. Prior to, or on May 27, 1993, the fifth business day
prior to the date set for redemption, under the terms of the October, 1989
offering, the holders of the entire $50,000,000 of Debentures elected to convert
such Debentures into common stock of the Company at a conversion price of
$11.125 per share. The conversion of the Debentures increased the issued and
outstanding Common Stock of the Company by 4,494,382 shares. The carrying amount
and unamortized premium on the Debentures were accounted for as a decrease in
stockholders' equity.
On April 23, 1993, the Company and the Company's principal marine
transportation subsidiary, entered into two separate revolving credit agreements
(the "Credit Agreements") with Texas Commerce Bank National Association ("TCB"),
as agent bank, providing for aggregate borrowings of up to $30,000,000 and
$50,000,000, respectively, maturing on June 30, 1996. On August 12, 1993, the
Company amended its Credit Agreement with TCB and increased the Company's
provision for aggregate borrowings from $30,000,000 to $50,000,000. The Credit
Agreements are unsecured; however, the Company's Credit Agreement contains a
negative pledge with respect to the capital stock of certain subsidiaries of the
Company and the marine transportation subsidiary's Credit Agreement contains a
negative pledge with respect to certain scheduled assets. In addition, the
Credit Agreements provide for the grant to TCB of a first priority lien on the
capital stock or assets, as applicable, subject to the negative pledge,
generally in the event of the occurrence and continuation of a default. Interest
on the Credit Agreements, subject to an applicable margin ratio and type of
loan, is floating prime rate or, at the Company and the marine transportation
subsidiary's option, rates based on an Eurodollar interbank rate or certificate
of deposit rate. Proceeds under the Credit Agreements may be used for general
corporate purposes, the purchase of existing or new equipment or for possible
business acquisitions. The Credit Agreements contain covenants that require the
maintenance of certain financial ratios and certain other covenants that are
substantially similar to the covenants contained in the marine transportation
subsidiary's prior $60,000,000 revolving credit agreement, which was terminated
in connection with the new Credit Agreements. These covenants cover, among other
things, the disposal of capital stock of subsidiaries and assets outside the
ordinary course of business. The Credit Agreements also contain usual and
customary events of default. The Company and the marine transportation
subsidiary were in compliance with the matters as of December 31, 1993. At
December 31, 1993, the Company and the marine transportation subsidiary had
$32,000,000 and $23,900,000 respectively, available for takedown under the
Credit Agreements.
On March 6, 1992, the Company entered into a $18,000,000 credit agreement
with TCB which matures on March 6, 1997. The purchase of Sabine, on March 13,
1992, was financed with the $18,000,000 credit agreement, existing cash
balances, and borrowings under the marine transportation subsidiary's credit
agreement. The $18,000,000 credit agreement has a negative pledge of the assets
acquired from Sabine. Principal payments of $667,000 are due quarterly up
through December 31, 1996. Interest on the credit agreement, subject to an
applicable margin ratio and type of loan, is floating prime rate, or at the
Company's
48
50
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT -- (CONTINUED)
option, rates based on a Eurodollar interbank rate or certificate of deposit
rates. The remaining principal balance of $5,333,000 is fully due and payable on
March 6, 1997, together with any unpaid interest accrued thereon. At December
31, 1993, $13,333,000 was outstanding under the loan agreement and the weighted
average interest rate was 4.32%.
On May 28, 1992, the Company entered into a $16,000,000 credit agreement
with TCB which matures on June 1, 1997. The purchase of Scott Chotin, on June 1,
1992, was financed with the $16,000,000 credit agreement, existing cash
balances, and borrowings under a $20,000,000 acquisition credit facility with
TCB. The credit agreement has a negative pledge of the assets acquired from
Scott Chotin. Principal payments of $571,000 are due quarterly up through March
31, 1997. Interest on the credit agreement, subject to an applicable margin
ratio and type of loan, is floating prime rate, or at the Company's option,
rates based on an Eurodollar interbank rate or certificate of deposit rates. The
remaining principal balance of $5,143,000 is fully due and payable on June 1,
1997, together with any unpaid interest accrued thereon. At December 31, 1993,
$12,571,000 was outstanding under the loan agreement and the weighted average
interest rate was 4.57%.
On August 13, 1992, the Company's transportation segment sold $50,000,000
of 8.22% senior notes due June 30, 2002, in a private placement. Proceeds from
these notes were used to retire the $20,000,000 acquisition credit facility with
TCB and the retirement of two $5,000,000, 10% subordinated promissory notes
originally issued as part of the purchase of the assets of a marine
transportation company on May 23, 1989, with the balance of the proceeds used to
reduce the amount outstanding under the marine transportation subsidiary's
credit agreement with TCB. Principal payments of $5,000,000, plus interest, are
due annually through June 30, 2002. At December 31, 1993, $45,000,000 was
outstanding under the senior notes.
The Company is of the opinion that the terms of the outstanding debt
represents the fair value of such debt as of December 31, 1993.
(7) TAXES ON INCOME
Earnings before taxes on income and details of the provision (benefit) for
taxes on income for United States and Puerto Rico operations for the years ended
December 31, 1991, 1992 and 1993 are as follows (in thousands):
1991 1992 1993
------- ------ ------
Earnings before taxes on income:
United States......................................... $12,939 14,635 30,785
Foreign............................................... 4,909 4,094 4,539
------- ------ ------
$17,848 18,729 35,324
------- ------ ------
------- ------ ------
Provision (benefit) for taxes on income:
United States:
Current............................................ $ 1,950 3,236 6,216
Deferred........................................... 2,600 1,915 4,387
State and Municipal................................ -- -- 533
------- ------ ------
4,550 5,151 11,136
------- ------ ------
Puerto Rico:
Current............................................ -- -- 1,754
Deferred........................................... -- (20) (395)
------- ------ ------
-- (20) 1,359
------- ------ ------
$ 4,550 5,131 12,495
------- ------ ------
------- ------ ------
49
51
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME -- (CONTINUED)
For the years ended December 31, 1992 and 1993, taxes on income were
accounted for under the asset and liability method required by SFAS No. 109. The
cumulative effect on prior years of the adoption of SFAS No. 109 decreased net
earnings by $10,659,000, or $.47 per share, and is reported separately in the
statement of earnings for the year ended December 31, 1992. In addition to the
impact of the cumulative effect on prior years, the effect of the adoption of
SFAS No. 109 decreased the net earnings for the 1992 year by $916,000, or $.04
per share. Prior year financial statements were not restated.
Under SFAS No. 109, a change in tax rates is required to be recognized in
income in the period that includes the enactment date. The 1993 Revenue
Reconciliation Act included an increase in the corporate federal income tax rate
from 34% to 35%, thereby requiring an increase in the Company's tax expense for
the 1993 year of $1,131,000. Of the total tax adjustment, $779,000 applied to a
one-time, non-cash, federal deferred tax charge for prior years and $352,000
reflects the 1% tax rate increase on earnings for the 1993 year.
The Company's effective income tax rate for United States federal income
taxes varied from the statutory tax rate for the years ended December 31, 1991,
1992 and 1993 due to the following:
1991 1992 1993
---- ---- ----
United States income tax statutory rate.................. 34.0% 34.0% 35.0%
Foreign earnings......................................... 1.9 -- --
Credit for foreign withholding tax paid.................. -- -- (4.9)
Other.................................................... (.7) 1.1 (.1)
---- ---- ----
35.2% 35.1% 30.0%
---- ---- ----
---- ---- ----
The Company's effective income tax rate for Puerto Rico income taxes varied
from the statutory tax rate for the years ended December 31, 1991, 1992 and 1993
due to the following:
1991 1992 1993
----- ----- -----
Puerto Rico income tax statutory rate................... 42.0% 42.0% 42.0%
Tax-exempt interest on certain investments.............. (39.0) (42.0) (48.4)%
Utilization of capital loss carryforwards............... (3.3) -- --
Other................................................... .3 (.5) 1.7
----- ----- -----
--% (.5)% (4.7)%
----- ----- -----
----- ----- -----
The significant components of deferred United States taxes on income
attributable to earnings from operations for the years ended December 31, 1992
and 1993 are as follows (in thousands):
1992 1993
------- -------
Tax depreciation over financial depreciation..................... $ 2,677 5,616
Tax leases....................................................... 541 --
Financial gain on disposals different from tax................... (887) (41)
Utilization of tax net operating loss carryforwards.............. 1,265 (1,044)
Utilization of tax credits....................................... 1,076 1,841
Alternative minimum taxes........................................ (2,897) (200)
Self insurance reserves.......................................... -- (1,221)
Other............................................................ 140 (564)
------- -------
$ 1,915 4,387
------- -------
------- -------
50
52
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME -- (CONTINUED)
For the year ended December 31, 1991, the deferred income tax provision
results from the timing differences in the recognition of income and expense for
tax and financial reporting purposes. The sources and tax effect of the timing
differences related to the United States operations for the year ended December
31, 1991 is as follows (in thousands):
Tax depreciation over financial depreciation................................ $1,762
Amortization................................................................ (129)
Tax leases.................................................................. 267
Allowance for uncollectible accounts........................................ 398
Other....................................................................... 302
------
$2,600
------
------
Deferred Puerto Rico income taxes arise from the recognition of certain
income and expense items in different periods for income tax and for financial
reporting purposes. Such items consist principally of deferred acquisition
costs, salvage and subrogation recoveries, provision for doubtful accounts and
accrual for guarantee fund assessments.
The tax effects of temporary differences that give rise to significant
portions of the current deferred tax assets and non-current deferred tax
liabilities at December 31, 1992 and 1993 are as follows (in thousands):
1992 1993
-------- -------
Current deferred tax assets:
Compensated absences, principally due to accrual for financial
reporting purposes......................................... $ 440 410
Self-insurance reserves....................................... -- 1,983
Other......................................................... 65 375
-------- -------
$ 505 2,768
-------- -------
-------- -------
Non-current deferred tax liabilities:
Deferred tax assets:
Tax credit carryforwards................................... $ 2,206 365
Alternative minimum tax credit carryforwards............... 7,197 7,397
Postretirement health care benefits........................ 1,410 1,590
Dual consolidated net operating loss....................... -- 1,044
Other...................................................... 482 767
-------- -------
11,295 11,163
Less valuation allowance................................. 488 --
-------- -------
10,807 11,163
-------- -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation and basis................................... (22,571) (35,577)
Undistributed earnings from foreign subsidiaries........... (15,241) (15,321)
-------- -------
(37,812) (50,898)
-------- -------
$(27,005) (39,735)
-------- -------
-------- -------
As of December 31, 1993, there was no valuation allowance.
51
53
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) TAXES ON INCOME -- (CONTINUED)
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1992 were allocated as follows (in
thousands):
1992
----
Income tax benefits that would be reported in the statement of earnings....... $441
Other......................................................................... 47
----
$488
----
----
At December 31, 1993, the Company has alternative minimum tax credit
carryforwards of approximately $7,397,000 which are available to reduce future
federal regular income taxes, if any, over an indefinite period.
(8) LEASES
The Company and its subsidiaries currently lease various facilities and
equipment under a number of cancelable and noncancelable operating leases. Total
rental expense for the years ended December 31, 1991, 1992 and 1993 follows (in
thousands):
1991 1992 1993
------ ----- -----
Rental expense............................................. $1,043 3,014 3,519
Sublease rental............................................ 92 93 90
------ ----- -----
Net rental expense....................................... $ 951 2,921 3,429
------ ----- -----
------ ----- -----
Rental commitments under noncancelable leases are as follows (in
thousands):
LAND
BUILDINGS
AND
EQUIPMENT
------
1994................................................ $1,298
1995................................................ 1,013
1996................................................ 833
1997................................................ 653
1998................................................ 160
Thereafter.......................................... 9
------
$3,966
------
------
(9) STOCK OPTION PLANS
The Company has three stock option plans, which were adopted in 1976, 1982
and 1989 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. All three of the
stock option plans authorize the granting of limited stock appreciation rights.
52
54
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 1991, 1992 and 1993 years are summarized as follows:
NON-QUALIFIED OR
NONINCENTIVE
INCENTIVE STOCK OPTIONS STOCK OPTIONS
--------------------------- --------------------------- OPTION PRICE
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE RANGE PER SHARE
----------- ----------- ----------- ----------- ---------------
Outstanding December 31,
1990...................... 59,362 56,862 539,744 215,744 $ 2.88 - $29.63
Granted................... -- -- -- --
Became exercisable........ -- 2,500 -- 106,500 $ 3.69 - $ 8.19
Exercised................. (18,181) (18,181) (1,150) (1,150) $ 6.56 - $ 8.19
Canceled or expired....... (3,000) (3,000) -- -- $29.63
----------- ----------- ----------- -----------
Outstanding December 31,
1991...................... 38,181 38,181 538,594 321,094 $ 2.88 - $14.95
Granted................... -- -- 151,000 -- $12.94 - $13.88
Became exercisable........ -- -- -- 106,500 $ 3.69 - $ 8.19
Exercised................. -- -- (33,404) (33,404) $ 2.88 - $ 9.29
Canceled or expired....... -- -- (17,821) (4,071) $ 6.56 - $14.95
----------- ----------- ----------- -----------
Outstanding December 31,
1992...................... 38,181 38,181 638,369 390,119 $ 2.89 - $13.88
Granted................... -- -- 368,000 -- $12.84 - $18.19
Became exercisable........ -- -- -- 106,500 $ 5.68 - $13.88
Exercised................. (10,000) (10,000) (47,750) (47,750) $ 2.89 - $13.88
Canceled or expired....... -- -- (14,750) (2,000) $ 8.19 - $12.94
----------- ----------- ----------- -----------
Outstanding December 31,
1993...................... 28,181 28,181 943,869 446,869 $ 2.88 - $18.19
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
At December 31, 1993, 94,714 shares were available for future grants under
the employee plans and 478,014 shares under the employee plans were issued with
limited stock appreciation rights.
The 1989 Director Stock Option Plan provides for the issuance of options to
purchase up to 150,000 shares of common stock to the Company's directors, who
are not employees of the Company. Stock options totaling 60,000 shares were
granted to non-employee directors during the year ended December 31, 1989, at an
option price of $7.5625 per share, and remain outstanding as of December 31,
1991, 1992 and 1993. During the year ended December 31, 1993, an additional
10,000 shares were granted at an option price of $18.625 per share and remain
outstanding as of December 31, 1993.
In July, 1993, the Board of Directors of the Company adopted, subject to
stockholder approval at the 1994 Annual Meeting of Stockholders, the granting of
25,000 shares of non-qualified stock options to Robert G. Stone, Jr. at an
option price of $18.625. Such price represents the fair market value of the
Company's common stock on the date of grant. The grant serves as an incentive to
retain the optionee as Chairman of the Board of the Company or as a member of
the Board of Directors of the Company.
In January, 1994, the Board of Directors of the Company adopted, subject to
stockholder approval at the 1994 Annual Meeting of Stockholders, the 1994
Employee Stock Option Plan, providing for the issuance of options to key
employees of the Company to purchase up to 1,000,000 shares of common stock. No
options have been granted under the 1994 Employee Plan.
In January, 1994, the Board of Directors of the Company adopted, subject to
stockholders approval at the 1994 Annual Meeting of Stockholders, the 1994
Nonemployee Director Stock Option Plan, providing for the issuance of options to
Directors of the Company, including Advisory Directors, to purchase up to
100,000 shares of common stock. The 1994 Nonemployee Director Stock Option Plan
is intended as an incentive to
53
55
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK OPTION PLANS -- (CONTINUED)
attract and retain qualified, independent Directors. To date, 12,000 shares have
been granted under the 1994 Director Plan, subject to shareholder approval at
the 1994 Annual Meeting of Stockholders.
Also, in January, 1994, the Board of Directors of the Company adopted,
subject to stockholder approval at the 1994 Annual Meeting of Stockholders, an
amendment to the 1989 Director Stock Option Plan. Such amendment would reduce
the number of stock options automatically granted to future directors from
10,000 shares of the Company's common stock to 5,000 shares of the Company's
common stock.
(10) RETIREMENT PLANS
The transportation subsidiaries sponsor defined benefit plans for certain
ocean-going personnel. The plan benefits are based on an employee's years of
service. The plans' assets primarily consist of fixed income securities and
corporate stocks. Funding of the plans is based on actuarial computations that
are designed to satisfy minimum funding requirements of applicable regulations
and to achieve adequate funding of projected benefit obligations.
Net periodic pension cost of the defined benefit plans as determined by
using the projected unit credit actuarial method was $174,000, $908,000 and
$1,080,000 in 1991, 1992 and 1993, respectively. The components of net periodic
pension cost are as follows (in thousands):
1991 1992 1993
----- ---- ------
Service cost -- benefits earned during the year............ $ 154 707 794
Interest cost.............................................. 125 528 638
Actual return on plan assets............................... (237) (179) (343)
Net amortization and deferrals............................. 149 (39) 29
Less partnerships' allocation.............................. (17) (39) (38)
Less amount allocated to prior employer.................... -- (70) --
----- ---- ------
Net periodic pension cost.................................. $ 174 908 1,080
----- ---- ------
----- ---- ------
The funding status of the plans as of December 31, 1992 and 1993 was as
follows (in thousands):
1992 1993
------- ------
Actuarial present value of benefit obligations:
Vested..................................................... $ 5,370 7,529
Non-vested................................................. 539 787
------- ------
Accumulated benefit obligation.................................. 5,909 8,316
Impact of future salary increases............................... 827 1,047
------- ------
Projected benefit obligation.................................... 6,736 9,363
Plan assets at fair value....................................... 4,566 6,172
Plan assets in excess of (less than) projected benefit
obligation.................................................... (2,170) (3,191)
Unrecognized transition obligation.............................. 136 142
Unrecognized prior service cost................................. 1,558 1,407
Unrecognized net loss........................................... 133 1,630
Additional minimum liability.................................... (1,129) (2,132)
------- ------
Prepaid (accrued) pension cost.................................. $(1,472) (2,144)
------- ------
------- ------
(Table continued on following page)
54
56
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS -- (CONTINUED)
1992 1993
----- -----
Actuarial assumptions:
Discount rate.................................................. 8.5% 7.25%
Return on assets............................................... 9.25% 9.25%
Salary increase rate........................................... 5% 4%
The Company, transportation subsidiaries and the diesel repair subsidiary
sponsor defined contribution plans for all shore-based employees and certain
ocean-going personnel. Maximum contributions to these plans equal the lesser of
15% of the aggregate compensation paid to all participating employees, or up to
20% of each subsidiary's earnings before federal income tax after certain
adjustments for each fiscal year. The aggregate contributions to the plans were
approximately $1,948,000, $2,124,000 and $1,484,000 in 1991, 1992 and 1993,
respectively.
The insurance subsidiary sponsors a qualified, non-contributory
profit-sharing plan which provides retirement benefits to eligible employees.
Voluntary contributions to the plan equal no less than 1% of the annual
participant's compensation, as defined, plus a portion of the administration
expenses of the plan during the first 10 years. The insurance subsidiary's
contributions to the plan were approximately $227,000, $231,000 and $269,000 in
1991, 1992 and 1993, respectively.
In addition to the Company's defined benefit pension plans, the Company
sponsors an unfunded defined benefit health care plan that provides limited
postretirement medical benefits to employees, who meet minimum age and service
requirements, and eligible dependents. The plan is contributory, with retiree
contributions adjusted annually.
As discussed in Note 1, the Company adopted SFAS No. 106 effective January
1, 1992. The cumulative effect on prior years of the adoption of SFAS No. 106
decreased net earnings by $2,258,000, net of applicable income taxes of
$1,163,000, or $.10 per share, and is reported separately in the statement of
earnings for the year ended December 31, 1992. In addition to the impact of the
cumulative effect on prior years, the effect of the adoption of SFAS No. 106
decreased the net earnings for the 1992 year by $355,000, net of applicable
income taxes of $183,000 or $.02 per share. Prior year financial statements were
not restated.
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheet at December 31,
1993 (in thousands):
Accumulated postretirement benefit obligation:
Retirees.................................................................. $ 788
Fully eligible active plan participants................................... 627
Other active plan participants............................................ 3,219
Partnership's allocation.................................................. (151)
Unrecognized gains........................................................ 60
------
Accrued postretirement benefit cost included in other long-term
liabilities............................................................ $4,543
------
------
Net periodic postretirement benefit cost for 1993 includes the following
components:
Service cost.............................................................. $ 289
Interest cost............................................................. 320
Less partnerships' allocation............................................. (15)
------
Net periodic postretirement benefit cost.................................. $ 594
------
------
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
55
57
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RETIREMENT PLANS -- (CONTINUED)
rate) was assumed for future periods. Accordingly, health care cost trend rate
assumption would have no effect on the amounts reported.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 1993.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," issued
in November, 1992, which is required to be applied in the first quarter of 1994,
is not expected to have a material effect on the Company's financial statements.
(11) EARNINGS PER SHARE OF COMMON STOCK
Primary earnings per share of common stock for the year ended December 31,
1991, 1992 and 1993 were based on the weighted average number of common stock
and common stock equivalent shares outstanding of 21,952,000, 22,607,000 and
26,527,000 respectively.
Fully diluted earnings per share of common stock for the year ended
December 31, 1991 assume the conversion of the 7 1/4% debentures (see Note 6)
and the exercise of stock options using the treasury stock method. Net earnings
for the computation were increased by the interest expense, net of federal
income taxes, on the debentures. The weighted average number of shares used in
the computation of fully diluted earnings per common share for 1991 was
26,454,000.
(12) QUARTERLY RESULTS (UNAUDITED)
The unaudited quarterly results for the year ended December 31, 1992 are as
follows (in thousands, except per share amounts):
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1992 1992 1992 1992
--------- -------- ------------- ------------
Revenues.................................... $ 49,156 69,314 73,181 77,851
Costs and expenses.......................... 43,943 60,847 63,235 73,338
-------- ------ ------ ------
Operating income.......................... 5,213 8,467 9,946 4,513
Interest expense............................ 1,614 2,329 2,756 2,712
-------- ------ ------ ------
Earnings before taxes on income........... 3,599 6,138 7,190 1,801
Provisions for taxes on income.............. 662 1,781 2,225 461
-------- ------ ------ ------
Earnings before cumulative effect of
accounting changes..................... 2,937 4,357 4,965 1,340
Cumulative effect on prior years of
accounting changes........................ (12,917) -- -- --
-------- ------ ------ ------
Net earnings (loss)............... $ (9,980) 4,357 4,965 1,340
======== ====== ====== ======
Earnings (loss) per share of common stock:
Primary:
Earnings before cumulative effect of
accounting changes................... $ .13 .20 .22 .06
Cumulative effect on prior years of
accounting changes................... (.57) -- -- --
-------- ------ ------ ------
Net earnings (loss)............... $ (.44) .20 .22 .06
======== ====== ====== ======
56
58
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, 1992 have
been restated for the effect of the adoption of SFAS No. 106, more fully
described in Note 10 and the adoption of SFAS No. 109, more fully described in
Note 7. The adoption of SFAS No. 106 and SFAS No. 109,, effective January 1,
1992, reduced the net earnings (loss) before the cumulative effect of the
accounting changes for the four quarters of 1992 as follows (in thousands,
except per share amounts):
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1992 1992 1992 1992
--------- -------- ------------- ------------
SFAS No. 106:
Earnings (loss) before taxes on income......... $ (79) (148) (158) (153)
Provision for taxes on income.................. 27 50 54 52
--------- -------- ------ ------
Earnings (loss) before cumulative effect of
accounting changes........................ $ (52) (98) (104) (101)
--------- -------- ------ ------
--------- -------- ------ ------
SFAS No. 109:
Earnings (loss) before cumulative effect of
accounting changes.......................... $ 11 (15) (78) (834)
--------- -------- ------ ------
--------- -------- ------ ------
Earnings (loss) per share of common stock:
Earnings (loss) before cumulative effect of
accounting changes:
SFAS No. 106................................ $ -- -- (.01) (.01)
SFAS No. 109................................ $ -- -- -- (.04)
The unaudited quarterly results for the year ended December 31, 1993 are as
follows (in thousands, except per share amounts):
THREE MONTHS ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
Revenues........................................... $74,383 94,347 97,939 111,735
Costs and expenses................................. 65,804 82,767 86,511 99,582
--------- -------- ------------- ------------
Operating income................................. 8,579 11,580 11,428 12,153
Interest expense................................... 2,740 2,011 1,871 1,794
--------- -------- ------------- ------------
Earnings before taxes on income.................. 5,839 9,569 9,557 10,359
Provision for taxes on income...................... 1,994 3,070 4,511 2,920
--------- -------- ------------- ------------
Net earnings............................. $ 3,845 6,499 5,046 7,439
--------- -------- ------------- ------------
--------- -------- ------------- ------------
Earnings per share of common stock................. $ .17 .26 .18 .26
--------- -------- ------------- ------------
--------- -------- ------------- ------------
(13) CONTINGENCIES AND COMMITMENTS
The Company's Puerto Rican insurance subsidiary has appealed to the Supreme
Court of Puerto Rico, a July 5, 1989 Superior Court judgment of approximately
$1,100,000, plus interest of approximately $1,935,000 as of December 31, 1993,
resulting from a civil suit claiming damages. The Supreme Court of Puerto Rico
decided during 1992 to review the case. Management is of the opinion, based on
consultation with its legal counsel, that the judgment will be reversed or at
least substantially reduced, however, reserves have been established for the
entire amount of the judgment plus accrued interest.
57
59
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
There are various other suits and claims against the Company, none of which
in the opinion of management will have a material effect on the Company.
Management has recorded necessary reserves and believes that it has
adequate insurance coverage or has meritorious defenses for the foregoing claims
and contingencies.
(14) INDUSTRY SEGMENT DATA
The Company conducts operations in three industry segments as follows:
Marine Transportation -- Marine transportation by United States flag
vessels on the inland waterway system and in United States coastwise and
foreign trade. The principal products transported include petrochemical
feedstocks, processed chemicals, agricultural chemicals, refined petroleum
products, coal, limestone, grain and sugar. Container and palletized cargo
are also transported for United States Government aid programs and
military.
Diesel Repair -- Repair of diesel engines, reduction gear repair and
sale of related parts and accessories, primarily for customers in the
marine industry and beginning in 1994, for customers in the shortline and
industrial railroad industry.
Insurance -- Writing of property and casualty insurance in Puerto
Rico.
The following table sets forth by industry segment the combined gross
revenues, operating profits (before general corporate expenses, interest expense
and income taxes), identifiable assets (including goodwill),
depreciation and amortization and capital expenditures attributable to the
continuing principle activities of the Company for the years ended December 31,
1991, 1992 and 1993 (in thousands):
1991 1992 1993
-------- ------- -------
Gross revenues from unaffiliated customers:
Transportation..................................... $118,573 191,007 284,761
Diesel repair...................................... 34,386 35,889 32,025
Insurance.......................................... 34,713 42,520 61,611
-------- ------- -------
187,672 269,416 378,397
General corporate revenues......................... 1,361 87 7
-------- ------- -------
Consolidated revenues...................... $189,033 269,503 378,404
-------- ------- -------
-------- ------- -------
Operating profits:
Transportation..................................... $ 17,689 28,034 42,208
Diesel repair...................................... 2,482 2,561 1,904
Insurance.......................................... 4,891 1,108 4,539
-------- ------- -------
25,062 31,703 48,651
General corporate expenses, net.................... (1,249) (3,563) (4,911)
Interest expense................................... (5,965) (9,411) (8,416)
-------- ------- -------
Earnings before taxes on income............ $ 17,848 18,729 35,324
-------- ------- -------
-------- ------- -------
(Table continued on following page)
58
60
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) INDUSTRY SEGMENT DATA -- (CONTINUED)
1991 1992 1993
-------- ------- -------
Identifiable assets:
Transportation..................................... $150,477 275,616 344,488
Diesel repair...................................... 15,353 18,897 20,259
Insurance.......................................... 106,401 145,246 184,868
-------- ------- -------
272,231 439,759 549,615
Investment in unconsolidated affiliate............. 134 146 177
General corporate assets........................... 13,637 6,515 13,461
-------- ------- -------
Consolidated assets........................ $286,002 446,420 563,253
-------- ------- -------
-------- ------- -------
Depreciation and amortization:
Transportation..................................... $ 14,239 20,332 26,331
Diesel repair...................................... 373 565 658
Insurance.......................................... 260 277 395
-------- ------- -------
$ 14,872 21,174 27,384
-------- ------- -------
-------- ------- -------
Capital expenditures and business acquisitions:
Transportation..................................... $ 35,769 123,700 71,236
Diesel repair...................................... 1,192 944 1,229
Insurance.......................................... 202 630 1,086
-------- ------- -------
$ 37,163 125,274 73,551
-------- ------- -------
-------- ------- -------
Identifiable assets are those assets that are used in the operation of each
segment. General corporate assets are principally cash, short-term investments,
accounts receivable, furniture and equipment.
59
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Included in Part III of this report:
Report of KPMG Peat Marwick, Independent Public Accountants, on the
financial statements of Kirby Corporation and Consolidated Subsidiaries
for the years ended December 31, 1992 and 1993.
Report of Deloitte and Touche, Independent Public Accountants, on the
financial statements of Kirby Corporation and Consolidated Subsidiaries
for the year ended December 31, 1991.
Balance Sheets, December 31, 1992 and 1993.
Statements of Earnings, for the years ended December 31, 1991, 1992 and
1993
Statements of Stockholders' Equity, for the years ended December 31,
1991, 1992 and 1993
Statements of Cash Flows, for the years ended December 31, 1991, 1992
and 1993
Notes to Financial Statements, for the years ended December 31, 1991,
1992 and 1993
(a) 2. Financial Statement Schedules:
Included in Part IV of this report:
V -- Plant, Property and Equipment, for the years ended December 31, 1991, 1992 and
1993
VI -- Accumulated Depletion, Depreciation and Amortization of Plant, Property and
Equipment, for the years ended December 31, 1991, 1992 and 1993
X -- Supplementary Income Statement Information, for the years ended December 31,
1991, 1992 and 1993
V -- Supplemental Insurance Information, for the years ended December 31, 1991, 1992
and 1993
VI -- Reinsurance, for the years ended December 31, 1991, 1992 and 1993
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
(a) 3. Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
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).
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).
60
62
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------------------------------------------------------------------------------------------
10.2+ -- 1982 Stock Option Plan for Kirby Exploration Company, and forms of
option agreements provided for thereunder and related documents
(incorporated by reference to Exhibit 10.5 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1982).
10.3+ -- Amendment to 1982 Stock Option Plan for Kirby Exploration Company
(incorporated by reference to Exhibit 10.5 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1986).
10.4 -- Indemnification Agreement, dated April 29, 1986, between the Company
and each of its Directors and certain key employees (incorporated by
reference to Exhibit 10.11 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1986).
10.5+ -- 1989 Employee Stock Option Plan for the Company, as amended
(incorporated by reference to Exhibit 10.11 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.6+ -- 1989 Director Stock Option Plan for the Company, as amended
(incorporated by reference to Exhibit 10.12 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.7 -- Loan Agreement, dated as of July 31, 1990, by and between Dixie
Carriers, Inc. and Texas Commerce Bank National Association
(incorporated by reference to Exhibit 10.10 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990).
10.8 -- Loan Agreement between Dixie Fuels Limited and NCNB Leasing
Corporation, dated as of February 4, 1992 (incorporated by reference
to Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.9 -- Agreement of Purchase and Sale, dated January 24, 1992, by and among
Sabine Transportation Company, Kirby Corporation, Sabine Towing &
Transportation Co., Inc. and Sequa Corporation, as amended
(incorporated by reference to Exhibit 10.11 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).
10.10 -- Credit Agreement, dated as of March 6, 1992, among Sabine
Transportation Company, Kirby Corporation, Texas Commerce Bank
National Association and The First National Bank of Boston
(incorporated by reference to Exhibit 10.12 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).
10.11 -- Agreement of Purchase and Sale, dated March 12, 1992, by and between
Ole Man River Towing, Inc. and related entities, OMR Transportation
Company and Dixie Carriers, Inc. (incorporated by reference to
Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated as
of April 10, 1992).
10.12 -- Credit Agreement, dated as of March 18, 1992, among Dixie Carriers,
Inc., Kirby Corporation and Texas Commerce Bank National Association
(incorporated by reference to Exhibit 10.13 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).
10.13 -- Agreement and Plan of Merger, dated April 15, 1992, among Kirby
Corporation, Chotin Carriers, Inc., Scott Chotin, Inc. and Certain
Shareholders of Scott Chotin, Inc. (incorporated by reference to
Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated as
of June 11, 1992).
61
63
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.14 -- Credit Agreement, dated as of May 28, 1992, among Chotin Carriers,
Inc., Kirby Corporation, Texas Commerce Bank National Association and
The First National Bank of Boston (incorporated by reference to
Exhibit 2.2 of the Registrant's Current Report on Form 8K dated as of
June 11, 1992).
10.15 -- Note Purchase Agreement, dated as of August 12, 1992, among Dixie
Carriers, Inc., The Variable Annuity Life Insurance Company,
Provident Mutual Life and Annuity Company of America, among other
(incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992).
10.16 -- Asset Sale and Purchase Agreement, dated January 22, 1993, by and
among Ashland Oil, Inc., TPT Transportation Company and Dixie
Carriers, Inc. (incorporated by reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992).
10.17 -- Deferred Compensation Agreement dated August 12, 1985 between Dixie
Carriers, Inc., and J.H. Pyne (incorporated by reference to Exhibit
10.19 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.18 -- Agreement and Plan of Merger, dated April 1, 1993, among Kirby
Corporation, AFRAM Carriers, Inc. and AFRAM Lines (USA) Co., Ltd. and
the shareholders of AFRAM Lines (USA) Co., Ltd. (incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K dated May 3, 1993).
10.19 -- Credit Agreement, dated April 23, 1993, among Kirby Corporation, the
Banks named therein, and Texas Commerce Bank National Association as
Agent and Fund Administrator (incorporated by reference to Exhibit
10.1 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.20 -- Credit Agreement, dated April 23, 1993, among Dixie Carriers, Inc.,
the Banks named therein, and Texas Commerce Bank National
Association, as Agent and Fund Administrator (incorporated by
reference to Exhibit 10.02 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993).
10.21*+ -- 1994 Employee Stock Option Plan for Kirby Corporation.
10.22*+ -- 1994 Nonemployee Director Stock Option Plan for Kirby Corporation.
10.23*+ -- 1993 Stock Option of Kirby Corporation for Robert G. Stone, Jr.
10.24*+ -- Amendment to 1989 Director Stock Option Plan for Kirby Exploration
Company, Inc.
21.1* -- Principal Subsidiaries of the Registrant.
23.1* -- Consent of Deloitte & Touche.
23.2* -- Consent of KPMG Peat Marwick.
28.1* -- Independent Auditors' Report of Deloitte & Touche.
- ---------------
* Filed herewith
+ Management contract, compensatory plan or arrangement
62
64
SCHEDULE V
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PLANT, PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
===============================================================================================
OTHER
BALANCE AT CHANGES BALANCE
BEGINNING ADDITIONS ADD AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD
- -----------------------------------------------------------------------------------------------
For the year ended December 31,
1991:
Transportation, Diesel Repair and
Other:
Marine transportation
equipment................... $173,660,708 34,949,481 3,377,143 205,233,046
Land, buildings and
equipment................... 5,302,687 2,014,394 40,402 7,276,679
----------- ---------- -------- -------- ----------
178,963,395 36,963,875 3,417,545 -- 212,509,725
Insurance:
Equipment..................... 1,733,378 201,950 19,352 1,915,976
----------- ---------- -------- -------- ----------
$180,696,773 37,165,825 3,436,897 -- 214,425,701
----------- ---------- -------- -------- ----------
----------- ---------- -------- -------- ----------
For the year ended December 31,
1992:
Transportation, Diesel Repair and
Other:
Marine transportation
equipment................... $205,233,046 121,722,409 654,943 (289,288) 326,011,224
Land, buildings and
equipment................... 7,276,679 5,184,042 166,802 289,288 12,583,207
----------- ---------- -------- -------- ----------
212,509,725 126,906,451 821,745 -- 338,594,431
Insurance:
Equipment..................... 1,915,976 630,469 203,932 124,267 2,466,780
----------- ---------- -------- -------- ----------
$214,425,701 127,536,920 1,025,677 124,267 341,061,211
----------- ---------- -------- -------- ----------
----------- ---------- -------- -------- ----------
For the year ended December 31,
1993:
Transportation, Diesel Repair and
Other:
Marine transportation
equipment................... $326,011,224 63,357,279 2,022,649 148,438 387,494,292
Land, buildings and
equipment................... 12,583,207 6,796,068 198,559 -- 19,180,716
----------- ---------- -------- -------- ----------
338,594,431 70,153,347 2,221,208 148,438 406,675,008
Insurance:
Equipment..................... 2,466,780 1,085,855 232,913 -- 3,319,722
----------- ---------- -------- -------- ----------
$341,061,211 71,239,202 2,454,121 148,438 409,994,730
----------- ---------- -------- -------- ----------
----------- ---------- -------- -------- ----------
63
65
SCHEDULE VI
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
ACCUMULATED DEPLETION, DEPRECIATION AND AMORTIZATION OF
PLANT, PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
===================================================================================================
BALANCE ADDITIONS OTHER
AT CHARGED CHANGES BALANCE
BEGINNING TO ADD AT END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS (DEDUCT) OF PERIOD
- ---------------------------------------------------------------------------------------------------
For the year ended December 31,
1991:
Transportation, Diesel Repair and
Other:
Marine transportation
equipment.................... $71,842,254 12,308,071 2,697,005 (26,208) 81,427,112
Land, buildings and
equipment.................... 1,968,741 744,448 28,256 26,208 2,711,141
----------- --------- ----------- -------- ----------
73,810,995 13,052,519 2,725,261 -- 84,138,253
Insurance:
Equipment...................... 448,527 241,562 19,352 -- 670,737
----------- --------- ----------- -------- ----------
$74,259,522 13,294,081 2,744,613 -- 84,808,990
----------- --------- ----------- -------- ----------
----------- --------- ----------- -------- ----------
For the year ended December 31,
1992:
Transportation, Diesel Repair and
Other:
Marine transportation
equipment.................... $81,427,112 17,856,393 348,731 (289,288) 98,645,486
Land, buildings and
equipment.................... 2,711,141 1,154,346 128,294 289,288 4,026,481
----------- --------- ----------- -------- ----------
84,138,253 19,010,739 477,025 -- 102,671,967
Insurance:
Equipment...................... 670,737 258,965 136,091 -- 793,611
----------- --------- ----------- -------- ----------
$84,808,990 19,269,704 613,116 -- 103,465,578
----------- --------- ----------- -------- ----------
----------- --------- ----------- -------- ----------
For the year ended December 31,
1993:
Transportation, Diesel Repair and
Other:
Marine transportation
equipment.................... $98,645,486 22,399,327 1,300,266 148,438 119,892,985
Land, buildings and
equipment.................... 4,026,481 1,709,736 169,876 -- 5,566,341
----------- --------- ----------- -------- ----------
102,671,967 24,109,063 1,470,142 148,438 125,459,326
Insurance:
Equipment...................... 793,611 393,508 63,812 -- 1,123,307
----------- --------- ----------- -------- ----------
$103,465,578 24,502,571 1,533,954 148,438 126,582,633
----------- --------- ----------- -------- ----------
----------- --------- ----------- -------- ----------
64
66
SCHEDULE X
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
CHARGED TO COSTS AND EXPENSES
-----------------------------------------
ITEM 1991 1992 1993
---- ----------- ---------- ----------
1. Maintenance and repairs........................... $11,217,347 20,508,459 24,213,505
2. Depreciation and amortization of intangible
assets, pre-operating costs and similar
deferrals......................................... 1,564,854 2,153,642 3,599,928
3. Taxes, other than payroll and income taxes........ 2,583,771 3,949,209 5,707,662
65
67
SCHEDULE V
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
=================================================================================================================================
FUTURE
POLICY BENEFITS, AMORTI-
BENEFITS, OTHER CLAIMS, ZATION OF
DEFERRED LOSSES, POLICY LOSSES DEFERRED
POLICY CLAIMS CLAIMS NET AND POLICY OTHER
ACQUISITION AND LOSS UNEARNED AND PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSE PREMIUMS BENEFITS REVENUE INCOME(1) EXPENSES COSTS EXPENSES(2) WRITTEN
- ---------------------------------------------------------------------------------------------------------------------------------
Insurance:
December
31,
1991.... $3,484,872 21,342,796 27,935,649 -- 23,560,720 5,993,799 18,103,129 7,181,257 4,519,637 24,362,283
--------- --------- --------- --------- --------- -------- --------- --------- -------- ---------
--------- --------- --------- --------- --------- -------- --------- --------- -------- ---------
December
31,
1992.... $5,911,428 35,587,938 42,209,108 -- 29,552,387 6,453,850 26,289,141 8,648,507 6,475,497 36,874,702
--------- --------- --------- --------- --------- -------- --------- --------- -------- ---------
--------- --------- --------- --------- --------- -------- --------- --------- -------- ---------
December
31,
1993.... $7,279,291 46,740,836 61,558,357 -- 47,874,013 7,550,114 37,119,811 11,084,959 6,853,834 61,450,445
--------- --------- --------- --------- --------- -------- --------- --------- -------- ---------
--------- --------- --------- --------- --------- -------- --------- --------- -------- ---------
- ---------------
(1) Reconciliation of net investment income to investment income amount
reflected in the statements of earnings is as follows:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1991 1992 1993
--------- -------- --------
Net investment income as stated above -- Insurance segment................. $5,993,799 6,453,850 7,550,114
Investment income -- Marine transportation segment, diesel repair segment
and parent company....................................................... 880,774 341,399 360,069
---------- --------- ---------
$6,874,573 6,795,249 7,910,183
----------- --------- ---------
----------- --------- ---------
(2) Included as part of selling, general and administrative expenses, taxes,
other than on income, and depreciation and amortization in the statements of
earnings.
66
68
SCHEDULE VI
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
PERCENTAGE
CODED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED
AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
----------- ---------- ---------- ---------- ----------
December 31, 1991:
Life insurance in force.... $ -- -- -- -- --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Premiums:
Life insurance.......... $
Accident and health
insurance.............
Property and liability
insurance............. 36,480,715 13,186,223 1,067,791 24,362,283 4.38%
----------- ---------- ---------- ---------- ----------
Total premiums..... $36,480,715 13,186,223 1,067,791 24,362,283* 4.38%
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
December 31, 1992:
Life insurance in force.... $ -- -- -- -- --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Premiums:
Life insurance.......... $
Accident and health
insurance.............
Property and liability
insurance............. 52,830,321 16,282,557 326,938 36,874,702 .89%
----------- ---------- ---------- ---------- ----------
Total premiums..... $52,830,321 16,282,557 326,938 36,874,702* .89%
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
December 31, 1993:
Life insurance in force.... $ -- -- -- -- --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Premiums:
Life insurance.......... $
Accident and health
insurance.............
Property and liability
insurance............. 80,623,816 19,200,056 26,685 61,450,445 .04%
----------- ---------- ---------- ---------- ----------
Total premiums..... $80,623,816 19,200,056 26,685 61,450,445 .04%
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
- ---------------
* Reconciliation of total premiums to net premiums earned, the amount reflected
in the statements of earnings is as follows.
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993
----------- ---------- ------------
Total premiums.............................. $24,362,283 36,874,702 61,450,445
Increase in unearned premiums............... (801,563) (7,322,315) (13,576,432)
----------- ---------- ------------
Net premiums earned............... $23,560,720 29,552,387 47,874,013
----------- ---------- ------------
----------- ---------- ------------
67
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
KIRBY CORPORATION
(Registrant)
By: BRIAN K. HARRINGTON
Brian K. Harrington
Senior Vice President
Dated: March 14, 1994
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- --------------------------------------------- ---------------------------- ---------------
ROBERT G. STONE, JR. Chairman of the Board and March 14, 1994
Robert G. Stone, Jr. Director of the Company
GEORGE A. PETERKIN, JR. President, Director of the March 14, 1994
George A. Peterkin, Jr. Company and Principal
Executive Officer
J. H. PYNE Executive Vice President and March 14, 1994
J. H. Pyn Director of the Company
BRIAN K. HARRINGTON Senior Vice President, March 14, 1994
Brian K. Harrington Treasurer, Assistant
Secretary of the Company
and Principal Financial
Officer
G. STEPHEN HOLCOMB Vice President, Controller, March 14, 1994
G. Stephen Holcomb Assistant Treasurer,
Assistant Secretary of the
Company and Principal
Accounting Officer
Director of the Company March , 1994
P. T. Bee
GEORGE F. CLEMENTS, JR. Director of the Company March 14, 1994
George F. Clements, Jr.
J. PETER KLEIFGEN Director of the Company March 14, 1994
J. Peter Kleifgen
WILLIAM M. LAMONT, JR. Director of the Company March 14, 1994
William M. Lamont, Jr.
Director of the Company March , 1994
C. W. Murchison, III
J. VIRGIL WAGGONER Director of the Company March 14, 1994
J. Virgil Waggoner
68