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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 2003
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-7615
Kirby Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 74-1884980
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
55 Waugh Drive, Suite 1000, Houston, TX 77007
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 435-1000
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(Registrant's telephone number, including area code)
No Change
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ x ] No [ ]
The number of shares outstanding of the registrant's Common Stock, $.10 par
value per share, on August 12, 2003 was 24,134,000.
Part I Financial Information
Item 1. Financial Statements
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2003 2002
---------- ----------
($ in thousands)
Current assets:
Cash and cash equivalents $ 2,310 $ 1,432
Accounts receivable:
Trade - less allowance for doubtful accounts 86,856 79,829
Insurance claims and other 5,519 6,129
Inventory - finished goods 15,105 15,549
Prepaid expenses and other current assets 12,990 12,777
Deferred income taxes 3,050 3,752
---------- ----------
Total current assets 125,830 119,468
---------- ----------
Property and equipment 868,363 797,937
Less accumulated depreciation 332,881 311,085
---------- ----------
535,482 486,852
---------- ----------
Investment in marine affiliates 9,284 10,238
Goodwill - net 156,726 156,726
Other assets 18,390 18,474
---------- ----------
$ 845,712 $ 791,758
========== ==========
See accompanying notes to condensed financial statements.
2
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2003 2002
---------- ---------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 280 $ 336
Income taxes payable 1,204 1,443
Accounts payable 38,934 37,509
Accrued liabilities 53,337 47,392
Deferred revenues 3,670 4,565
---------- ---------
Total current liabilities 97,425 91,245
---------- ---------
Long-term debt - less current portion 294,853 265,665
Deferred income taxes 85,882 85,768
Minority interests 2,960 2,691
Other long-term liabilities 21,566 23,078
---------- ---------
405,261 377,202
---------- ---------
Contingencies and commitments -- --
Stockholders' equity:
Preferred stock, $1.00 par value per share. Authorized
20,000,000 shares -- --
Common stock, $.10 par value per share. Authorized
60,000,000 shares, issued 30,907,000 shares 3,091 3,091
Additional paid-in capital 177,102 176,867
Accumulated other comprehensive income (7,859) (8,062)
Deferred compensation (1,137) --
Retained earnings 288,314 269,657
---------- ---------
459,511 441,553
Less cost of 6,782,000 shares in treasury (6,900,000 at
December 31, 2002) 116,485 118,242
---------- ---------
343,026 323,311
---------- ---------
$ 845,712 $ 791,758
========== =========
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
---------- --------- ---------- ---------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $ 137,156 $ 107,346 $ 262,221 $ 216,336
Diesel engine services 21,583 22,132 44,718 44,579
---------- --------- ---------- ---------
158,739 129,478 306,939 260,915
---------- --------- ---------- ---------
Costs and expenses:
Costs of sales and operating expenses 101,153 82,746 202,004 166,216
Selling, general and administrative 18,751 15,488 36,312 32,688
Taxes, other than on income 3,485 2,209 6,536 4,558
Depreciation and other amortization 12,894 11,497 25,126 23,019
Loss (gain) on disposition of assets 126 (27) 133 (168)
---------- --------- ---------- ---------
136,409 111,913 270,111 226,313
---------- --------- ---------- ---------
Operating income 22,330 17,565 36,828 34,602
Equity in earnings of marine affiliates 751 137 1,187 940
Other expense (199) (214) (602) (341)
Interest expense (3,867) (3,366) (7,321) (6,873)
---------- --------- ---------- ---------
Earnings before taxes on income 19,015 14,122 30,092 28,328
Provision for taxes on income (7,226) (5,366) (11,435) (10,764)
---------- --------- ---------- ---------
Net earnings $ 11,789 $ 8,756 $ 18,657 $ 17,564
========== ========= ========== =========
Net earnings per share of common stock:
Basic $ .49 $ .36 $ .77 $ .73
========== ========= ========== =========
Diluted $ .48 $ .36 $ .77 $ .72
========== ========= ========== =========
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
-------------------------------
2003 2002
----------- ---------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 18,657 $ 17,564
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and other amortization 25,126 23,019
Deferred income taxes 706 (915)
Equity in earnings of marine affiliates, net of distributions and
contributions 954 168
Other 1,454 168
Decrease in cash flows resulting from changes in operating
working capital (1,607) (12,900)
----------- ---------
Net cash provided by operating activities 45,290 27,104
----------- ---------
Cash flows from investing activities:
Capital expenditures (37,723) (28,234)
Acquisition of businesses and marine equipment (37,816) (2,800)
Proceeds from disposition of assets 1,050 5,442
----------- ---------
Net cash used in investing activities (74,489) (25,592)
----------- ---------
Cash flows from financing activities:
Borrowings (payments) on bank credit facilities, net (220,700) 48,200
Borrowings (payments) on long-term debt, net 249,832 (50,168)
Proceeds from exercise of stock options 1,228 2,186
Other (283) (656)
----------- ----------
Net cash provided by (used in) financing activities 30,077 (438)
----------- ---------
Increase in cash and cash equivalents 878 1,074
Cash and cash equivalents, beginning of year 1,432 1,850
----------- ---------
Cash and cash equivalents, end of period $ 2,310 $ 2,924
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 6,532 $ 7,880
Income taxes $ 11,195 $ 13,533
See accompanying notes to condensed financial statements.
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, the accompanying unaudited condensed
financial statements of Kirby Corporation and consolidated subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
2003 and December 31, 2002, and the results of operations for the three months
and six months ended June 30, 2003 and 2002.
(1) BASIS FOR PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the Company believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including significant accounting
policies normally included in annual financial statements, have been condensed
or omitted pursuant to such rules and regulations. It is suggested that these
condensed financial statements be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
(2) ACQUISITIONS
On January 15, 2003, the Company purchased from SeaRiver Maritime,
Inc. ("SeaRiver"), the U.S. transportation affiliate of Exxon Mobil
Corporation, 45 double hull inland tank barges and seven inland towboats for
$32,113,000 in cash, and assumed from SeaRiver the leases of 16 double hull
inland tank barges. On February 28, 2003, the Company purchased three double
hull inland tank barges leased by SeaRiver from Banc of America Leasing &
Capital, LLC ("Banc of America Leasing") for $3,453,000 in cash. The Company
entered into a contract to provide inland marine transportation services to
SeaRiver, transporting petrochemicals, refined petroleum products and black oil
products throughout the Gulf Intracoastal Waterway and the Mississippi River
System. Financing of the equipment acquisitions was through the Company's
revolving credit facility.
In March 2002, the Company purchased the Cargo Carriers fleet of 21
inland tank barges for $2,800,000 in cash from Cargill Corporation ("Cargill"),
and resold six of the tank barges for $530,000 in April 2002. Financing of the
equipment acquisition was through the Company's revolving credit facility.
On October 31, 2002, the Company completed the acquisition of seven
inland tank barges and 13 inland towboats from Coastal Towing, Inc. ("Coastal")
for $17,053,000 in cash. In addition, the Company and Coastal entered into a
barge management agreement whereby the Company will serve as manager of the two
companies' combined black oil fleet for a period of seven years. The combined
black oil fleet consists of 56 barges owned by Coastal, of which 40 are
currently active, and the Company's 66 black oil barges. Coastal is engaged in
the inland tank barge transportation of black oil products along the Gulf
Intracoastal Waterway and the Mississippi River and its tributaries. In a
related transaction, on September 25, 2002, the Company purchased from Coastal
three black oil tank barges for $1,800,000 in cash. Financing of the equipment
acquisitions was through the Company's revolving credit facility.
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(2) ACQUISITIONS - (Continued)
On December 15, 2002, the Company completed the acquisition of 94
inland tank barges from Union Carbide Finance Corporation ("Union Carbide") for
$23,000,000. The Company had operated the tank barges since February 2001 under
a long-term lease agreement between the Company and Union Carbide. The Dow
Chemical Company ("Dow") acquired the inland tank barges as part of the
February 2001 merger between Union Carbide Corporation and Dow. The Company has
a long-term contract with Dow to provide for Dow's bulk liquid inland marine
transportation requirements throughout the United States inland waterway
system. With the merger between Union Carbide and Dow, the Company's long-term
contract with Dow was amended to provide for Union Carbide's liquid inland
marine transportation requirements. Financing of the equipment acquisition was
through the Company's revolving credit facility.
(3) ACCOUNTING STANDARDS
In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability
associated with an asset retirement be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be determined. The
associated retirement costs are capitalized as part of the carrying amount of
the long-lived asset and depreciated over the life of the asset. The Company
adopted SFAS No. 143 effective January 1, 2003 with no effect on the Company's
financial position or results of operations.
In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company adopted SFAS No. 145
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.
In July 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company adopted SFAS No. 146 for all exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 did not have an impact on the
2003 first six months, as there were no applicable exit or disposal activities.
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others, an interpretation of FASB Statements No. 5, 57, and 197 and a
rescission of FASB Interpretation No. 34." This Interpretation elaborates on
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements were effective for the Company's
financial statements for interim and annual periods ended after December 15,
2002. The Company adopted the recognition provisions of the Interpretation
effective January 1, 2003 for guarantees issued or modified after December 31,
2002. The adoption of the Interpretation did not have a material effect on the
Company's financial position or results of operations. The Company's guarantees
as of June 30, 2003 are described in Note 8, Contingencies.
In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS
No. 148") was issued. SFAS No. 148 amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123")
and provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.
The Company accounts for stock-based compensation utilizing the
intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
The intrinsic value method of accounting is used for stock-based employee
compensation whereby no compensation expense is recorded when the stock option
exercise price is equal to, or greater than, the market price of the Company's
common stock on the date of the grant.
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
The following table summarizes pro forma net earnings and earnings per
share for the three months and six months ended June 30, 2003 and 2002 assuming
the Company had used the fair value method of accounting for its stock option
plans (in thousands, except per share amounts):
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------
2003 2002 2003 2002
-------------- ------------ ----------- ----------
Net earnings, as reported $ 11,789 $ 8,756 $ 18,657 $ 17,564
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (884) (887) (1,730) (1,549)
-------------- ------------ ----------- ----------
Pro forma net earnings $ 10,905 $ 7,869 $ 16,927 $ 16,015
============== ============ =========== ===========
Earnings per share:
Basic - as reported $ .49 $ .36 $ .77 $ .73
Basic - pro forma $ .45 $ .33 $ .70 $ .66
Diluted - as reported $ .48 $ .36 $ .77 $ .72
Diluted - pro forma $ .45 $ .32 $ .69 $ .65
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interest entities created after January 31, 2003, and
to variable interest entities where an interest is obtained after January 31,
2003. The application of this Interpretation is not expected to have a material
effect on the Company's financial position or results of operations.
In April 2003, Statement of Financial Accounting Standards No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS No. 149") was issued. SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities
under SFAS No. 133. SFAS No. 149 amends SFAS No. 133 for decisions made: (1) as
part of the Derivatives Implementation Group process that require amendments to
SFAS No. 133; (2) in connection with other Financial Accounting Standards Board
projects dealing with financial instruments; and (3) in connection with the
implementation issues raised related to the application of the definition of a
derivative. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. SFAS No. 149 will be applied prospectively. The adoption of SFAS No. 149
is not expected to have a material effect on the Company's financial position
or results of operations.
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
In May 2003, Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150") was issued. SFAS No. 150 establishes
standards for classification and measurement in the statement of financial
position of certain financial instruments with characteristics of both
liabilities and equity. It requires classification of a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is
not expected to have a material effect on the Company's financial position or
results of operations.
(4) COMPREHENSIVE INCOME
The Company's total comprehensive income for the three months and six
months ended June 30, 2003 and 2002 was as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
---------------------------- -----------------------
2003 2002 2003 2002
----------- ----------- --------- ---------
Net earnings $ 11,789 $ 8,756 $ 18,657 $ 17,564
Change in fair value of derivative financial
instruments, net of tax (14) (2,588) 203 (1,410)
----------- ----------- --------- ---------
Total comprehensive income $ 11,775 $ 6,168 $ 18,860 $ 16,154
=========== =========== ========= =========
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(5) SEGMENT INFORMATION
The following table sets forth the Company's revenues and profit
(loss) by reportable segment for the three months and six months ended June 30,
2003 and 2002 and total assets as of June 30, 2003 and December 31, 2002 (in
thousands):
Three months ended Six months ended
June 30, June 30,
--------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ -----------
Revenues:
Marine transportation $ 137,156 $ 107,346 $ 262,221 $ 216,336
Diesel engine services 21,583 22,132 44,718 44,579
------------ ------------ ------------ -----------
$ 158,739 $ 129,478 $ 306,939 $ 260,915
============ ============ ============ ===========
Segment profit (loss):
Marine transportation $ 21,782 $ 16,183 $ 35,486 $ 32,144
Diesel engine services 2,172 2,609 4,589 4,980
Other (4,939) (4,670) (9,983) (8,796)
------------ ------------ ------------ -----------
$ 19,015 $ 14,122 $ 30,092 $ 28,328
============ ============ ============ ===========
June 30, December 31,
2003 2002
------------ -----------
Total assets:
Marine transportation $ 780,786 $ 726,353
Diesel engine services 43,240 45,531
Other 21,686 19,874
---------- ----------
$ 845,712 $ 791,758
========== ==========
The following table presents the details of "Other" segment profit
(loss) for the three months and six months ended June 30, 2003 and 2002 (in
thousands):
Three months ended Six months ended
June 30, June 30,
--------------------------- ------------------------
2003 2002 2003 2002
------------ ----------- ---------- ----------
General corporate expenses $ (1,498) $ (1,254) $ (3,114) $ (2,690)
Gain (loss) on disposition of assets (126) 27 (133) 168
Interest expense (3,867) (3,366) (7,321) (6,873)
Equity in earnings of marine affiliates 751 137 1,187 940
Other expense (199) (214) (602) (341)
------------ ----------- ---------- ----------
$ (4,939) $ (4,670) $ (9,983) $ (8,796)
============ =========== ========== ==========
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(5) SEGMENT INFORMATION - (Continued)
The following table presents the details of "Other" total assets as of
June 30, 2003 and December 31, 2002 (in thousands):
June 30, December 31,
2003 2002
----------- -----------
General corporate assets $ 12,402 $ 9,636
Investment in marine affiliates 9,284 10,238
----------- -----------
$ 21,686 $ 19,874
=========== ===========
(6) TAXES ON INCOME
Details of the provision for taxes on income for the three months and
six months ended June 30, 2003 and 2002 were as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Provision for taxes on income:
Current $ 6,164 $ 4,837 $ 10,274 $ 10,967
Deferred 566 32 306 (1,015)
State and local 496 497 855 812
----------- ----------- ----------- -----------
$ 7,226 $ 5,366 $ 11,435 $ 10,764
=========== =========== =========== ===========
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(7) EARNINGS PER SHARE
The following table presents the components of basic and diluted
earnings per share for the three months and six months ended June 30, 2003 and
2002 (in thousands, except per share amounts):
Three months ended Six months ended
June 30, June 30,
-------------------------- -----------------------
2003 2002 2003 2002
----------- ----------- ---------- ----------
Net earnings $ 11,789 $ 8,756 $ 18,657 $ 17,564
=========== =========== ========== ==========
Basic earnings per share:
Weighted average number of common shares
outstanding 24,105 24,146 24,084 24,113
=========== =========== ========== ==========
Basic earnings per share $ .49 $ .36 $ .77 $ .73
=========== =========== ========== ==========
Diluted earnings per share:
Weighted average number of common shares
outstanding 24,105 24,146 24,084 24,113
Dilutive shares applicable to stock options 307 405 286 436
----------- ----------- ---------- ----------
Shares applicable to diluted earnings 24,412 24,551 24,370 24,549
=========== =========== ========== ==========
Diluted earnings per share $ .48 $ .36 $ .77 $ .72
=========== =========== ========== ==========
Certain outstanding options to purchase approximately 386,000 and
124,000 shares of common stock were excluded in the computation of diluted
earnings per share as of June 30, 2003 and 2002, respectively, as such stock
options would have been antidilutive.
(8) CONTINGENCIES
The Company has issued guaranties or obtained stand-by letters of
credit and performance bonds supporting performance by the Company and its
subsidiaries for contractual or contingent legal obligations of the Company and
its subsidiaries incurred in the ordinary course of business. The aggregate
notional value of these instruments is $6,533,000 at June 30, 2003, including
$1,578,000 in letters of credit and $4,955,000 in performance bonds, of which
$4,718,000 of these financial instruments relates to contingent legal
obligations, which are covered by the Company's liability insurance program in
the event the obligations are incurred. All of these instruments have an
expiration date within two years. The Company does not believe demand for
payment under these instruments is likely and expects no material cash outlays
to occur in connection with these instruments.
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8) CONTINGENCIES - (Continued)
The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.
In addition, 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's financial condition, results of operations or cash flows.
Management has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Form 10-Q that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties.
Such statements can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
actual results of the future events described in such forward-looking
statements in this Form 10-Q could differ materially from those stated in such
forward-looking statements. Among the factors that could cause actual results
to differ materially are: adverse economic conditions, industry competition and
other competitive factors, adverse weather conditions such as high water, low
water, tropical storms, hurricanes, fog and ice, marine accidents, lock delays,
fuel costs, interest rates, construction of new equipment by competitors,
including construction with government assisted financing, government and
environmental laws and regulations, and the timing, magnitude and number of
acquisitions made by the Company.
ACQUISITIONS
In March 2002, the Company purchased the Cargo Carriers fleet of 21
inland tank barges for $2,800,000 in cash from Cargill, and resold six of the
tank barges for $530,000 in April 2002.
On October 31, 2002, the Company completed the acquisition of seven
inland black oil tank barges and 13 inland towboats from Coastal for
$17,053,000 in cash. In addition, the Company and Coastal entered into a barge
management agreement whereby the Company will serve as manager of the two
companies' combined black oil fleet for a period of seven years. The combined
black oil fleet consists of 56 barges owned by Coastal, of which 40 are
currently active, and the Company's 66 black oil barges. In a related
transaction, on September 25, 2002, the Company purchased from Coastal three
black oil tank barges for $1,800,000 in cash.
On December 15, 2002, the Company purchased from Union Carbide 94
double hull inland tank barges for $23,000,000. The Company had operated the
tank barges since February 2001 under a long-term lease agreement between the
Company and Union Carbide, following the February 2001 merger between Union
Carbide and Dow. The Company has a long-term contract with Dow to provide for
Dow's bulk liquid inland marine transportation requirements.
On January 15, 2003, the Company purchased from SeaRiver, the U.S.
transportation affiliate of ExxonMobil, 45 double hull inland tank barges and
seven inland towboats for $32,113,000 in cash, and assumed from SeaRiver the
leases of 16 double hull inland tank barges. On February 28, 2003, the Company
purchased three double hull inland tank barges leased by SeaRiver from Banc of
America Leasing for $3,453,000 in cash. In addition, the Company entered into a
contract to provide inland marine transportation services to SeaRiver.
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS
The Company reported second quarter 2003 net earnings of $11,789,000,
or $.48 per share, on revenues of $158,739,000, compared with second quarter
2002 net earnings of $8,756,000, or $.36 per share, on revenues of
$129,478,000. Net earnings for the six months ended June 30, 2003 were
$18,657,000, or $.77 per share, on revenues of $306,939,000, compared with net
earnings of $17,564,000, or $.72 per share, on revenues of $260,915,000 for the
first six months of 2002.
Marine transportation revenues for the 2003 second quarter totaled
$137,156,000, or 86% of total revenues, compared with $107,346,000, or 83% of
total revenues for the 2002 second quarter. For the first six months of 2003,
marine transportation revenues totaled $262,221,000, or 85% of total revenues,
compared with $216,336,000, or 83% of total revenues for the first six months
of 2002. Diesel engine services revenue for the 2003 second quarter totaled
$21,583,000, or 14% of total revenues, compared with $22,132,000, or 17% of
total revenues for the 2002 second quarter. For the first six months of 2003,
diesel engine services revenues totaled $44,718,000, or 15% of total revenues,
compared with $44,579,000, or 17% of total revenues for the first six months of
2002.
For purposes of the Management's Discussion, all earnings per share
are "Diluted earnings per share." The weighted average number of common shares
applicable to diluted earnings for the second quarters of 2003 and 2002 were
24,412,000 and 24,551,000, respectively, and for the first six months of 2003
and 2002 were 24,370,000 and 24,549,000, respectively. The decrease in the
weighted average number of common shares for both comparable 2003 and 2002
periods primarily reflected fewer dilutive shares applicable to stock option
plans due to the exclusion of certain outstanding options to purchase shares of
common stock in the computation of diluted earnings per share.
MARINE TRANSPORTATION
The Company, through its marine transportation segment, is a provider
of marine transportation services, operating inland tank barges and towing
vessels, transporting petrochemicals, black oil products, refined petroleum
products and agricultural chemicals along the United States inland waterways.
As of June 30, 2003, the marine transportation segment operated 897 active
inland tank barges, with a total capacity of 16.3 million barrels, compared
with 811 active inland tank barges at June 30, 2002, with a total capacity of
14.4 million barrels. At December 31, 2002, the segment operated 909 active
inland tank barges with a capacity of 16.6 million barrels. The segment also
operated an average of 226 inland towboats during the 2003 second quarter and
an average of 228 towboats for the six months ended June 30, 2003. This
compared with an average of 199 towboats operated during the second quarter of
2002 and 202 during the first six months of 2002. The marine transportation
segment is also the managing partner of a 35% owned offshore marine
partnership, consisting of four dry-bulk barge and tug units. The partnership
is accounted for under the equity method of accounting.
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION - (CONTINUED)
The following table sets forth the Company's marine transportation
segment's revenues, costs and expenses, operating income and operating margins
for the three months and six months ended June 30, 2003 compared with the three
months and six months ended June 30, 2002 (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------------------- -----------------------------------
% %
2003 2002 Change 2003 2002 Change
----------- ----------- ---------- ----------- ----------- ---------
Marine transportation revenues $ 137,156 $ 107,346 28% $ 262,221 $ 216,336 21%
----------- ----------- ---------- ----------- ----------- ---------
Costs and expenses:
Costs of sales and operating expenses 85,050 66,202 28 168,221 132,649 27
Selling, general and administrative 14,837 12,141 22 28,620 25,776 11
Taxes, other than on income 3,342 2,104 59 6,244 4,303 45
Depreciation and other amortization 12,145 10,716 13 23,650 21,464 10
----------- ----------- ---------- ----------- ----------- ---------
115,374 91,163 27 226,735 184,192 23
----------- ----------- ---------- ----------- ----------- ---------
Operating income $ 21,782 $ 16,183 35% $ 35,486 $ 32,144 10%
=========== =========== ========== =========== =========== =========
Operating margins 15.9% 15.1% 13.5% 14.9%
=========== =========== =========== ===========
MARINE TRANSPORTATION REVENUES
Revenues for the marine transportation segment for the 2003 second
quarter were 28% over the 2002 second quarter and the 2003 first six months
were 21% over the 2002 first half. The increase for both comparable periods
included revenues generated from the October 2002 acquisition of 10 inland
black oil tank barges and seven towboats from Coastal and the signing of a
barge management agreement to manage Coastal's remaining 56 black oil tank
barges. The increases also included revenues generated from the purchase of 48
inland tank barges and seven towboats, and the assumption of 16 leased inland
tank barges, from SeaRiver in January 2003.
Petrochemical volumes transported into the Midwest for the 2003 second
quarter improved compared with the second quarter of 2002. Volumes transported
into the Midwest have shown a gradual improvement since the second quarter of
2002, as Midwest manufacturers replenished low inventory levels of
petrochemicals. Black oil volumes were strong during the 2003 second quarter,
as residual fuel continued to serve as a substitute for natural gas and cat
cracker feedstock for the production of refined products. Movements of refined
products into the Midwest improved during the 2003 second quarter, as low
Midwest gasoline inventory levels and the Gulf Coast versus Chicago gasoline
price differentials encouraged the movement of Gulf Coast manufactured refined
products into the Midwest. Refined products volumes were weak during the first
quarter of 2003, showing some improvement in late March. For the second quarter
and first half of 2002, refined products volumes were weak due to high Midwest
inventories that reduced the demand for waterborne movements. With natural gas
prices being high the
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION REVENUES - (CONTINUED)
entire first half of 2003, U.S. production of nitrogen-based fertilizer was
curtailed, and volumes of liquid fertilizer moved were significantly reduced.
Liquid fertilizer movements in the second quarter and first half of 2002 were
also weak, as significant rainfall in the Midwest kept farmers out of their
fields, reducing the demand for fertilizer usage and creating high inventory
levels.
During the 2003 second quarter and first six months, approximately 70%
of marine transportation revenues were under term contracts and 30% were spot
market volumes. Contract rates on renewals remained relatively flat for the
2003 first six months, while spot market rates for the first six months of 2003
increased modestly over 2002 levels.
MARINE TRANSPORTATION COSTS AND EXPENSES
Total costs and expenses for the 2003 second quarter and first six
months were 27% and 23%, respectively, above the second quarter of 2002 and
first half of 2002. The increase for both comparable periods reflected the
additional costs and expenses associated with operating additional tank barges
and towboats purchased from Coastal in October 2002 and the related barge
management agreement signed with Coastal, and the SeaRiver fleet acquisition in
January 2003.
Costs of sales and operating expenses for the 2003 second quarter were
28% higher and the 2003 first half were 27% higher, respectively, than the
comparable periods for 2002, reflecting additional vessel personnel and higher
operating expenses from the acquisitions noted above. In addition, the 2003
first quarter costs and expenses were higher due to navigational delays caused
by periods of both high and low water levels on the Mississippi River System,
and fog and high winds along the Gulf Intracoastal Waterway. Navigational
delays also resulted from repairs to a major lock located on the Gulf
Intracoastal Waterway. The navigational delays necessitated the use of
additional chartered towboats to meet service requirements and schedules. In
addition, the segment incurred significantly higher fuel costs during the first
quarter of 2003. The average price per gallon of diesel fuel consumed in the
2003 first quarter was $1.03, up 78% from the 2002 first quarter average price
of 58 cents. For the 2003 second quarter, the average price per gallon of
diesel fuel consumed dropped to 81 cents compared with 72 cents for the 2002
second quarter. Term contracts contain fuel escalation clauses that allow the
Company to recover increases in the cost of fuel; however, there is generally a
30 to 90 day delay before contracts are adjusted. It is estimated that the
higher fuel prices reduced the Company's 2003 first quarter earnings by
approximately $.05 per share, of which approximately $.03 per share was
recovered in the 2003 second quarter.
The segment consumed 14.5 million gallons of diesel fuel in the 2003
second quarter compared with 11.3 million gallons consumed in the second
quarter of 2002. For the first six months of 2003, the segment consumed 27.4
million gallons of diesel fuel compared with 22.0 million gallons consumed in
the first six months of 2002. The increase for both comparable periods
reflected the acquisitions noted above.
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION COSTS AND EXPENSES - (CONTINUED)
Selling, general and administrative expenses for the 2003 second
quarter increased 22% compared with the 2002 second quarter, and increased 11%
in the 2003 first six months compared with the first six months of 2002. The
increase for both comparable periods reflected higher incentive compensation
accruals and additional administrative personnel to support the acquisitions
noted above.
Taxes, other than on income, for the 2003 second quarter and first six
months increased 59% and 45%, respectively, compared with the corresponding
periods of 2002, primarily reflecting increased waterway use taxes and property
taxes resulting from the fourth quarter 2002 and first quarter 2003
acquisitions noted above.
Depreciation and other amortization expense for the 2003 second
quarter and first six months increased 13% and 10%, respectively, compared with
the corresponding 2002 periods. The increases for both 2003 periods reflected
new tank barge additions in 2002 and 2003, as well as the acquisitions noted
above.
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
The marine transportation operating income for the 2003 second quarter
increased 35% compared with the second quarter of 2002. For the first six
months of 2003, the operating income for the marine transportation segment
increased 10% compared with the first six months of 2002. The operating margin
for the 2003 second quarter was 15.9% compared with 15.1% for the 2002 second
quarter. The operating margin for the first six months of 2003 was 13.5%
compared with 14.9% for the first six months of 2002.
The higher operating margin for the 2003 second quarter reflected
improved volumes in all marine transportation products when compared with the
2002 second quarter, excluding liquid fertilizer volumes, and the two
acquisitions noted above. The lower operating margin in the 2003 first six
months reflected more severe winter weather conditions in the first quarter of
2003 compared with the 2002 first quarter, major repairs to a critical lock on
the Gulf Intracoastal Waterway and rapidly escalating fuel prices during the
2003 first quarter that were only partially recovered under contractual fuel
escalation clauses in the 2003 second quarter. The 2003 second quarter and
first six months also included revenues from the barge management agreement
between the Company and Coastal. The Company earns a lower operating margin
from the management of the Coastal fleet, thereby reducing the overall marine
transportation operating margins.
DIESEL ENGINE SERVICES
The Company, through its diesel engine services segment, sells genuine
replacement parts, provides service mechanics to overhaul and repair large
medium-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire large medium-speed diesel engines or entire
reduction gears. The segment services the marine, power generation and
industrial, and railroad markets.
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
DIESEL ENGINE SERVICES - (CONTINUED)
The following table sets forth the Company's diesel engine services
segment's revenues, costs and expenses, operating income and operating margins
for the three months and six months ended June 30, 2003 compared with the three
months and six months ended June 30, 2002 (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------------------- -----------------------------------
% %
2003 2002 Change 2003 2002 Change
----------- ----------- ---------- ----------- ----------- ---------
Diesel engine services revenues $ 21,583 $ 22,132 (2)% $ 44,718 $ 44,579 -%
----------- ----------- ---------- ----------- ----------- ---------
Costs and expenses:
Costs of sales and operating expenses 16,076 16,473 (2) 33,705 33,432 1
Selling, general and administrative 2,994 2,780 8 5,748 5,598 3
Taxes, other than on income 77 62 24 160 149 7
Depreciation and other amortization 264 208 27 516 420 23
----------- ----------- ---------- ----------- ----------- ---------
19,411 19,523 (1) 40,129 39,599 1
----------- ----------- ---------- ----------- ----------- ---------
Operating income $ 2,172 $ 2,609 (17)% $ 4,589 $ 4,980 (8)%
=========== =========== ========== =========== =========== =========
Operating margins 10.1% 11.8% 10.3% 11.2%
=========== =========== =========== ===========
DIESEL ENGINE SERVICES REVENUES
The diesel engine services segment's revenues for the 2003 second
quarter decreased 2% compared with the 2002 second quarter. For the 2003 first
half, revenues were slightly higher than the corresponding period of 2002.
During both 2003 periods, the segment benefited from a strong power generation
market, particularly parts shipments to nuclear customers, several large parts
sales for international oilfield customers in the Gulf Coast and a strong East
Coast marine market in the 2003 first quarter. A very poor Midwest dry cargo
barge market essentially offset these favorable markets. For both 2002 periods,
the segment reported a strong power generation market, East Coast marine market
and railroad market, partially offset by a weak Gulf Coast oil drilling and
supply vessel market.
DIESEL ENGINE SERVICES COSTS AND EXPENSES
Costs of sales and operating expenses for the 2003 second quarter
decreased 2% compared with the second quarter of 2002, while costs of sales and
operating expenses for the 2003 first half increased 1% compared with the
corresponding 2002 period. Selling, general and administrative expenses were
higher in both 2003 periods versus 2002 primarily due to higher incentive
compensation accruals and employee medical costs.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
Operating income for the 2003 second quarter decreased 17% compared
with the second quarter of 2002, while the operating income for the 2003 first
six months fell 8% compared with the first six months of 2002. The operating
margin for the second quarter of 2003 was 10.1% compared with 11.8% for the
second quarter of 2002. The operating margin for the 2003 first six months was
10.3%, down from the 11.2% earned in the first half of 2002.
GENERAL CORPORATE EXPENSES
General corporate expenses for the 2003 second quarter totaled
$1,498,000, or 19% higher than the second quarter of 2002. General corporate
expenses for the 2003 first six months were $3,114,000, a 16% increase compared
with the 2002 first six months. The increases for both comparable periods
primarily reflected higher incentive compensation accruals and legal and
professional fees.
OTHER INCOME AND EXPENSES
The following table sets forth the gain (loss) on disposition of
assets, equity in earnings of marine affiliates, other expense and interest
expense for the three months and six months ended June 30, 2003 compared with
the three months and six months ended June 30, 2002 (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------------------- -----------------------------------
% %
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- ---------
Gain (loss) on disposition of assets $ (126) $ 27 (567)% $ (133) $ 168 (179)%
Equity in earnings of marine affiliates $ 751 $ 137 448 % $ 1,187 $ 940 26 %
Other expense $ (199) $ (214) (7)% $ (602) $ (341) 77 %
Interest expense $ (3,867) $ (3,366) 15 % $ (7,321) $ (6,873) 7 %
EQUITY IN EARNINGS OF MARINE AFFILIATES
Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, increased $614,000, or 448%, for the 2003
second quarter compared with the 2002 second quarter, and increased $247,000,
or 26%, in the 2003 first six months compared with the 2002 first six months.
The favorable results reflected higher utilization of the four offshore
dry-cargo barge and tug units in the partnership compared with the prior
comparable periods of 2002, when one of the units was in the shipyard for the
entire second quarter and the major customer's coal dock facility was closed
for repair for two weeks during the 2002 second quarter.
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
INTEREST EXPENSE
Interest expense for the 2003 second quarter increased 15% compared
with the 2002 second quarter. For the 2003 first six months, interest expense
increased 7% compared with the 2002 first six months. The increase for both
comparable periods reflected higher average debt, offset to some degree by
lower average interest rates. The average debt and average interest rate for
the second quarters of 2003 and 2002, including the effect of interest rate
swaps, were $293,814,000 and 5.3%, and $240,500,000 and 5.6%, respectively. For
the first six months of 2003 and 2002, the average debt and average interest
rate, including the effect of interest rate swaps, were $292,408,000 and 5.1%,
and $241,200,000 and 5.7%, respectively.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of June 30, 2003 were $845,712,000 a 7% increase
compared with $791,758,000 as of December 31, 2002. The following table sets
forth the significant components of the balance sheet as of June 30, 2003
compared with December 31, 2002 (dollars in thousands):
June 30, December 31, %
2003 2002 Change
------------- ---------------- ----------
Assets:
Current assets $ 125,830 $ 119,468 5 %
Property and equipment, net 535,482 486,852 10
Investment in marine affiliates 9,284 10,238 (9)
Goodwill - net 156,726 156,726 --
Other assets 18,390 18,474 --
-------- --------- ----
$ 845,712 $ 791,758 7 %
======== ========= ====
Liabilities and stockholders' equity:
Current liabilities $ 97,425 $ 91,245 7 %
Long-term debt - less current portion 294,853 265,665 11
Deferred income taxes 85,882 85,768 --
Minority interest and other
long-term liabilities 24,526 25,769 (5)
Stockholders' equity 343,026 323,311 6
-------- --------- ----
$ 845,712 $ 791,758 7 %
======== ========= ====
Current assets as of June 30, 2003 increased 5% compared with December
31, 2002. Trade accounts receivable increased 9%, primarily reflecting the
acquisition of the SeaRiver fleet in January 2003 and corresponding increase in
marine transportation business with SeaRiver. Insurance claims and other
receivables decreased 10%, primarily due to the collection of claims
receivables and the downward adjustment of certain claims.
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET - (CONTINUED)
Property and equipment, net of accumulated depreciation, at June 30,
2003 increased 10% compared with December 31, 2002. The increase reflected
$37,723,000 of capital expenditures, the acquisition of the SeaRiver fleet and
the purchase of two existing tank barges for a total of $36,466,000, less
$24,966,000 of depreciation expense for the 2003 first six months.
Current liabilities as of June 30, 2003 increased 7% compared with
December 31, 2002. The increase was primarily due to higher casualty loss
accruals, shipyard maintenance accruals, accrued interest for the new senior
term loan, and the classification $1,726,000 of fair value of interest rate
swap agreements as short-term instead of long-term as they mature in the next
twelve months. In addition, accounts payable, waterway use taxes, and property
taxes increased due to higher business activity levels and the acquisition of
the SeaRiver fleet. Offsetting these increases were lower employee incentive
compensation accruals as a result of the timing of such compensation payments.
Long-term debt, less current portion, as of June 30, 2003 increased
11% compared with December 31, 2002. The increase was primarily attributable to
borrowing to finance the 2003 first quarter SeaRiver marine equipment
acquisition and the 2003 first half capital expenditures, less the paydown of
long-term debt from cash flow generated by the Company in the 2003 first half.
Stockholders' equity as of June 30, 2003 increased 6% compared with
December 31, 2002. The increase primarily reflected 2003 first six months net
earnings of $18,657,000, a decrease in treasury stock of $1,757,000 and the
recording of $1,137,000 of deferred compensation related to restricted stock
grants.
LONG-TERM FINANCING
The Company has an unsecured $150,000,000 revolving credit facility
("Revolving Credit Facility") agented by JPMorgan Chase, with a maturity date
of October 9, 2004. As of June 30, 2003, $17,000,000 was outstanding under the
Revolving Credit Facility and outstanding letters of credit totaled $782,000.
The Company was in compliance with all Revolving Credit Facility covenants at
June 30, 2003.
The Company has an unsecured term loan ("Term Loan") provided by a
syndicate of banks, with Bank of America, N.A. as agent bank. As of June 30,
2003, $25,000,000 was outstanding under the Term Loan. The principal amounts
due within one year were classified as long-term debt, as the Company has the
ability and intent through the Revolving Credit Facility to refinance the
payments on a long-term basis. The Term Loan requires quarterly principal
payments of $12,500,000, plus interest. The Company was in compliance with all
Term Loan covenants at June 30, 2003.
On February 28, 2003, the Company issued $250,000,000 of floating rate
senior notes ("Senior Notes") due February 28, 2013. The unsecured Senior Notes
pay interest quarterly at a rate equal to the London Interbank Offered Rate
("LIBOR") plus a margin of 1.2%. The notes are callable at par after one year
without penalty and no principal payments are required until maturity in 2013.
The proceeds of the
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
Senior Notes were used to repay $121,500,000 of the outstanding balance on the
Term Loan and $128,500,000 of the outstanding balance on the Revolving Credit
Facility. As of June 30, 2003, $250,000,000 was outstanding under the Senior
Notes. The Company was in compliance with all Senior Notes covenants at June
30, 2003.
The Company has an uncommitted $10,000,000 line of credit ("Credit
Line") with Bank of America, N.A. for short-term liquidity needs and letters of
credit. The Credit Line matures on November 4, 2003. As of June 30, 2003,
$2,700,000 was borrowed under the Credit Line and outstanding letters of credit
totaled $546,000. Amounts borrowed on the Credit Line were classified as
long-term debt at June 30, 2003, as the Company has the ability and intent
through the Revolving Credit Facility to refinance the short-term notes on a
long-term basis.
The Company has an uncommitted $5,000,000 revolving credit note
("Credit Note") with BNP Paribus ("BNP") for short-term liquidity needs. The
Credit Note originally had a $10,000,000 borrowing limit but was reduced to
$5,000,000 on February 27, 2003 by mutual agreement between BNP and the
Company. In September 2002, the Company entered into a $5,000,000 uncommitted
letter of credit line with BNP. On February 27, 2003, the $5,000,000
uncommitted letter of credit line was cancelled due to a lack of need. The
Company did not have any borrowings outstanding under the Credit Note as of
June 30, 2003.
The Company has on file with the Securities and Exchange Commission a
shelf registration for the issuance of up to $250,000,000 of debt securities,
including medium term notes, providing for the issuance of fixed rate or
floating rate notes with a maturity of nine months or longer. As of June 30,
2003, $121,000,000 was available under the shelf registration, subject to
mutual agreement to terms, to provide financing for future business or
equipment acquisitions, and to fund working capital requirements. As of June
30, 2003, there were no outstanding debt securities under the shelf
registration.
In February and April 2001, the Company hedged a portion of its
exposure to fluctuations in short-term interest rates under its Revolving
Credit Facility and Term Loan by entering into interest rate swap agreements.
Five-year interest rate swaps with notional amounts totaling $100,000,000 were
executed in February 2001 and three-year interest rate swaps with notional
amounts totaling $50,000,000 were executed in April 2001. On February 28, 2003,
in connection with the issuing of the Senior Notes, the Company hedged a
further portion of its exposure to fluctuations in short-term interest rates
with a one-year interest rate swap with a notional amount of $100,000,000. The
February and April 2001 interest rate swaps totaling $150,000,000 were
re-designated as cash flow hedges for the Senior Notes. Under the swap
agreements, the Company will pay a fixed rate of 4.96% on a notional amount of
$50,000,000 for three years, an average fixed rate of 5.64% on a notional
amount of $100,000,000 for five years, and a fixed rate of 1.39% on a notional
amount of $100,000,000 for one year, and will receive floating rate interest
payments based on LIBOR. The interest rate swaps are designated as cash flow
hedges and the changes in fair value, to the extent the swap agreements are
effective, are recognized in other comprehensive income until the hedged
interest expense is recognized in earnings. As of June 30, 2003, the Company
had a total notional amount of $250,000,000 of interest rate swaps designated
as
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
cash flow hedges for its Senior Notes. These interest rate swaps hedge a
significant portion of the Company's long-term debt and only an immaterial loss
on ineffectiveness was recognized in the 2003 first six months. At June 30,
2003, the total fair value of the interest rate swap agreements was
$12,091,000, of which $1,726,000 was recorded as accrued liabilities for swap
maturities within the next twelve months, and $10,365,000 was recorded as
long-term liabilities for swap maturities greater than twelve months. The
Company has recorded, in interest expense, losses related to the interest rate
swap agreements of $1,650,000 and $1,361,000 for the three months ended June
30, 2003 and 2002, respectively, and $3,125,000 and $2,646,000 for the six
months ended June 30, 2003 and 2002, respectively. The Company anticipates
$4,053,000 of net losses included in accumulated other comprehensive income
will be transferred into earnings over the next year based on current interest
rates. Fair value amounts were determined as of June 30, 2003 and 2002 based on
quoted market values of the Company's portfolio of derivative instruments.
CAPITAL EXPENDITURES
Capital expenditures for the 2003 first six months totaled
$37,723,000, of which $8,141,000 was for construction of new tank barges and
$29,582,000 was primarily for upgrading of the existing marine transportation
fleet.
In February 2002, the Company entered into a contract for the
construction of two double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of asphalt. The two barges were placed into service
during the 2003 first quarter. The total purchase price of the two barges was
$3,600,000, of which $164,000 was funded in 2002, with the balance expended in
the 2003 first six months.
In February 2002, the Company entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over 2003, with two barges delivered in the 2003
second quarter. The total purchase price of the six barges is approximately
$8,900,000, of which $780,000 was funded in 2002, $3,945,000 in the 2003 first
six months, with the balance to be expended in the 2003 second half.
In October 2002, the Company entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over a six-month period starting in March 2004. The
total purchase price of the six barges is approximately $8,900,000, of which
$784,000 was funded in the 2003 first six months.
In May 2003, the Company entered into a contract for the construction
of 16 double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of black oil products. Delivery of the 16 barges is scheduled
over 2003 and 2004, with eight anticipated to be delivered in the 2003 second
half
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CAPITAL EXPENDITURES - (CONTINUED)
and eight in the first half of 2004. The total purchase price of the 16 barges
is approximately $29,000,000, of which no payments have been made to date.
Under the terms of the contract, the Company has an option for the construction
of 16 additional double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of black oil products.
Over the next three years, a number of barges in the combined
Company/Coastal black oil fleet will be retired and replaced with new barges.
Under the barge management agreement with Coastal, Coastal has the right to
maintain its same capacity share of the combined fleet by building replacement
barges as older barges are retired. Coastal elected not to exercise its right
to purchase its share of the 16 barges currently under construction; therefore,
the Company will purchase all 16 of the barges.
Funding for future capital expenditures and new barge construction is
expected to be provided by borrowings on the Company's Revolving Credit
Facility.
TREASURY STOCK PURCHASES
During the 2003 first six months, the Company did not purchase any
treasury stock. As of August 12, 2003, the Company had 1,210,000 shares
available under its common stock repurchase authorization. Historically,
treasury stock purchases have been financed through operating cash flows and
borrowing under the Company's Revolving Credit Facility. The Company is
authorized to purchase its common stock on the New York Stock Exchange and in
privately negotiated transactions. When purchasing its common stock, the
Company is subject to price, trading volume and other market considerations.
Shares purchased may be used for reissuance upon the exercise of stock options
or the granting of other forms of incentive compensation, in future
acquisitions for stock or for other appropriate corporate purposes.
LIQUIDITY
The Company generated net cash provided by operating activities of
$45,290,000 during the first six months of 2003, 67% higher than the
$27,104,000 generated during the first six months of 2002. The 2003 and 2002
first six months were negatively influenced by unfavorable cash flow from
working capital of $1,607,000 and $12,900,000, respectively.
The Company accounts for its ownership in its four marine partnerships
under the equity method of accounting, recognizing cash flow upon the receipt
or distribution of cash from the partnerships and joint venture. For the six
months ended June 30, 2003 and 2002, the Company received net cash totaling
$2,141,000 and $1,108,000, respectively, from the marine partnerships.
Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayments of borrowings, new barge
construction and for other operating requirements. In addition to net cash flow
provided by operating activities, the Company also had available as of August
12, 2003, $136,218,000 under its Revolving Credit Facility and $121,000,000
under its shelf registration program, subject to mutual agreement to terms. As
of August 11, 2003, the Company had $9,154,000 available under its Credit Line
and $3,000,000 available under its Credit Note.
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KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LIQUIDITY - (CONTINUED)
Net cash provided by operating activities for the fourth quarter of
2003 may be negatively impacted by a contribution of up to $10,000,000, based
on current market conditions, to the Company's defined benefit plan for vessel
personnel. The plan assets primarily consist of fixed income securities and
corporate stocks and any contribution would be the result of continued low
interest rates and low investment returns. Funding of the plan is based on
actuarial projections that are designed to satisfy minimum ERISA funding
requirements and achieve adequate funding of accumulated benefit obligations.
In 2002, the Company made a contribution of $17,500,000 to its defined benefit
plan for vessel personnel.
Neither the Company, nor any of its subsidiaries, is obligated on any
debt instruments, swap agreement, or any other financial instrument or
commercial contract which has a rating trigger, except for the pricing grids on
its Senior Notes, Term Loan, Revolving Credit Facility, Credit Line and Credit
Note.
The Company expects to continue to fund expenditures for acquisitions,
capital expenditure projects, new barge construction, treasury stock
repurchases, repayment of borrowings, and for other operating requirements from
a combination of funds generated from operating activities and available
financing arrangements.
The Company has a 50% interest in a joint venture bulk liquid terminal
business that has a $5,434,000 term loan outstanding at June 30, 2003. The loan
is non-recourse to the Company and the Company has no guarantee obligation. The
Company uses the equity method of accounting to reflect its investment in the
joint venture.
The Company has issued guaranties or obtained stand-by letters of
credit and performance bonds supporting performance by the Company and its
subsidiaries for contractual or contingent legal obligations of the Company and
its subsidiaries incurred in the ordinary course of business. The aggregate
notional value of these instruments is $6,533,000 at June 30, 2003, including
$1,578,000 in letters of credit and $4,955,000 in performance bonds, of which
$4,718,000 of these financial instruments relates to contingent legal
obligations, which are covered by the Company's liability insurance program in
the event the obligations are incurred. All of these instruments have an
expiration date within two years. The Company does not believe demand for
payment under these instruments is likely and expects no material cash outlays
to occur in connection with these instruments.
During the last three years, inflation has had a relatively minor
effect on the financial results of the Company. The marine transportation
segment has long-term contracts that generally contain cost escalation clauses
whereby certain costs, including fuel, can be passed through to its customers;
however, there is typically a 30 to 90 day delay before contracts are adjusted
for fuel prices. The repair portion of the diesel engine services segment is
based on prevailing current market rates.
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KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates
on certain of its outstanding debt and changes in fuel prices. The outstanding
loan balances under the Company's bank credit facilities bear interest at
variable rates based on prevailing short-term interest rates in the United
States and Europe. A 10% change in variable interest rates would impact the
2003 interest expense by approximately $428,000, based on balances outstanding
at December 31, 2002, and change the fair value of the Company's debt by less
than 1%. The potential impact on the Company of fuel price increases is limited
because most of its term contracts contain escalation clauses under which
increases in fuel costs, among others, can be passed on to the customers, while
its spot contract rates are set based on prevailing fuel prices. The Company
does not presently use commodity derivative instruments to manage its fuel
costs. The Company has no foreign exchange risk.
From time to time, the Company has utilized and expects to continue to
utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions generally are
interest rate swap agreements and are entered into with major financial
institutions. Derivative financial instruments related to the Company's
interest rate risks are intended to reduce the Company's exposure to increases
in the benchmark interest rates underlying the Company's Senior Notes and
variable rate bank credit facilities. The Company does not enter into
derivative financial instrument transactions for speculative purposes.
In February and April 2001, the Company hedged a portion of its
exposure to fluctuations in short-term interest rates by entering into interest
rate swap agreements. Five-year swap agreements with notional amounts totaling
$100,000,000 were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50,000,000 were executed in April 2001. On February
28, 2003, in connection with the issuing of the Senior Notes, the Company
hedged a further portion of its exposure to fluctuations in short-term interest
rates when it entered into a one-year interest rate swap agreement with a
notional amount of $100,000,000. The February and April 2001 interest rate swap
agreements totaling $150,000,000 were re-designated as cash flow hedges for the
Senior Notes. Under the swap agreements, the Company will pay a fixed rate of
4.96% on a notional amount of $50,000,000 for three years, an average fixed
rate of 5.64% on a notional amount of $100,000,000 for five years, and a fixed
rate of 1.39% on a notional amount of $100,000,000 for one year, and will
receive floating rate interest payments based on LIBOR. The interest rate swap
agreements are designated as cash flow hedges, therefore, the changes in fair
value, to the extent the swap agreements are effective, are recognized in other
comprehensive income until the hedged interest expense is recognized in
earnings. As of June 30, 2003, the Company had a total notional amount of
$250,000,000 of interest rate swaps designated as cash flow hedges for its
Senior Notes. These interest rate swaps hedge a significant portion of the
Company's long-term debt and only an immaterial loss on ineffectiveness was
recognized in the 2003 second quarter and first six months. At June 30, 2003,
the total fair value of the interest rate swap agreements was $12,091,000, of
which $1,726,000 was recorded as accrued liabilities for swap maturities within
the next twelve months, and $10,365,000 was recorded as long-term liabilities
for swap maturities greater than twelve months. The Company has recorded, in
interest expense, losses related to the interest rate swap agreements of
$1,650,000 and $1,361,000 for the three months ended June 30, 2003 and 2002,
respectively and $3,125,000 and $2,646,000 for the six months ended June 30,
2003 and 2002, respectively. Fair value amounts were determined as of June 30,
2003 and 2002 based on quoted market values of the Company's portfolio of
derivative instruments.
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KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 4. Controls and Procedures
Based on their evaluation of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")) as of the end of the period covered by this
quarterly report, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. There was no changes in
the Company's internal control over financial reporting that occurred during
the Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
29
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.
In addition, 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's financial condition, results of operations or cash flows.
Management has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 - Certification of Chief Executive Officer Pursuant to Rule
13a-14(a).
31.2 - Certification of Chief Financial Officer Pursuant to Rule
13a-14(a).
32 - Certification Pursuant to Rule 13a-14(b) and Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
The Company's report on Form 8-K dated April 24, 2003 stated that the
Company issued a press release announcing the Company's first quarter 2003
results of operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIRBY CORPORATION
(Registrant)
By: /s/ NORMAN W. NOLEN
-----------------------------------
Norman W. Nolen
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: August 12, 2003
30