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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, 2004
[ ] 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, $.10 par
value per share, on August 5, 2004 was 24,569,000.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, DECEMBER 31,
2004 2003
--------------- -----------
($ IN THOUSANDS)
Current assets:
Cash and cash equivalents $14,334 $4,064
Accounts receivable:
Trade - less allowance for doubtful accounts 85,549 80,585
Other 6,111 17,347
Inventory - finished goods 16,331 13,991
Prepaid expenses and other current assets 10,909 13,173
Deferred income taxes 2,553 2,619
---------- ----------
Total current assets 135,787 131,779
---------- ----------
Property and equipment 943,340 890,923
Less accumulated depreciation 379,053 354,411
----------- ----------
564,287 536,512
---------- ----------
Investment in marine affiliates 13,469 9,162
Goodwill - net 160,641 156,726
Other assets 17,621 20,782
---------- ----------
$ 891,805 $ 854,961
========== ==========
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,
2004 2003
------------ -----------
($ IN THOUSANDS)
Current liabilities:
Current portion of long-term debt $ 1,414 $ 225
Income taxes payable 2,106 897
Accounts payable 50,139 41,577
Accrued liabilities 46,899 50,725
Deferred revenues 4,561 5,444
---------- ---------
Total current liabilities 105,119 98,868
---------- ---------
Long-term debt - less current portion 250,039 255,040
Deferred income taxes 114,420 106,134
Minority interests 2,783 2,933
Other long-term liabilities 16,822 19,854
---------- ---------
384,064 383,961
---------- ---------
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 181,404 178,720
Accumulated other comprehensive income (3,223) (5,950)
Deferred compensation (2,592) (1,003)
Retained earnings 333,373 310,575
---------- ---------
512,053 485,433
Less cost of 6,360,000 shares in treasury (6,590,000 at
December 31, 2003) 109,431 113,301
---------- ---------
402,622 372,132
---------- ---------
$ 891,805 $ 854,961
========== =========
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,
----------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ----------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Marine transportation $ 149,065 $ 137,156 $ 284,558 $ 262,221
Diesel engine services 21,811 21,583 43,633 44,718
--------- ---------- --------- ----------
170,876 158,739 328,191 306,939
--------- ---------- --------- ----------
Costs and expenses:
Costs of sales and operating expenses 108,391 101,153 211,318 202,004
Selling, general and administrative 19,479 18,751 39,444 36,312
Taxes, other than on income 4,150 3,485 7,402 6,536
Depreciation and other amortization 13,591 12,894 27,388 25,126
Loss on disposition of assets 196 126 198 133
--------- ---------- --------- ----------
145,807 136,409 285,750 270,111
--------- ---------- --------- ----------
Operating income 25,069 22,330 42,441 36,828
Equity in earnings of marine affiliates 494 751 1,316 1,187
Other expense (51) (199) (322) (602)
Interest expense (3,290) (3,867) (6,664) (7,321)
--------- ---------- --------- ----------
Earnings before taxes on income 22,222 19,015 36,771 30,092
Provision for taxes on income (8,444) (7,226) (13,973) (11,435)
--------- ---------- --------- ----------
Net earnings $ 13,778 $ 11,789 $ 22,798 $ 18,657
========= ========== ========= ==========
Net earnings per share of common stock:
Basic $ .56 $ .49 $ .93 $ .77
========= ========== ========= ==========
Diluted $ .55 $ .48 $ .91 $ .77
========= ========== ========= ==========
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2004 2003
----------- ----------
($ IN THOUSANDS)
Cash flows from operating activities:
Net earnings $ 22,798 $ 18,657
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and other amortization 27,388 25,126
Deferred income taxes 6,883 706
Equity in earnings of marine affiliates, net of distributions (86) 954
Other 936 1,454
Increase (decrease) in cash flows resulting from changes in operating
assets and liabilities, net 17,381 (1,607)
----------- ----------
Net cash provided by operating activities 75,300 45,290
----------- ----------
Cash flows from investing activities:
Capital expenditures (56,060) (37,723)
Acquisitions of businesses and marine equipment (9,785) (37,816)
Proceeds from disposition of assets 2,298 1,050
----------- ----------
Net cash used in investing activities (63,547) (74,489)
----------- ----------
Cash flows from financing activities:
Payments on bank credit facilities, net (5,000) (220,700)
Proceeds from senior notes -- 250,000
Payments on long-term debt (112) (168)
Proceeds from exercise of stock options 3,956 1,228
Other (327) (283)
----------- -----------
Net cash provided by (used in) financing activities (1,483) 30,077
----------- ----------
Increase in cash and cash equivalents 10,270 878
Cash and cash equivalents, beginning of year 4,064 1,432
----------- ----------
Cash and cash equivalents, end of period $ 14,334 $ 2,310
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 6,374 $ 6,532
Income taxes $ 1,717 $ 11,195
Noncash investing activity:
Notes payable issued in acquisition $ 1,300 $ --
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,
2004 and December 31, 2003, and the results of operations for the three months
and six months ended June 30, 2004 and 2003.
(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, 2003.
(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.
On April 7, 2004, the Company purchased from Walker Paducah Corp.
("Walker"), a subsidiary of Ingram Barge Company ("Ingram"), Walker's diesel
engine service operation and parts inventory located in Paducah, Kentucky for
$5,755,000 in cash. In addition, the Company entered into a contract to provide
diesel engine services to Ingram. Financing of the acquisition was through the
Company's bank revolving credit facility.
On April 16, 2004, the Company purchased a one-third interest in
Osprey Line, LLC ("Osprey") for $4,220,000. The purchase price consisted of
cash of $2,920,000 and notes payable totaling $1,300,000 due in April 2005. The
remaining two-thirds interest is owned by Cooper/T. Smith Corporation and
Richard L. Couch. Osprey, formed in 2000, operates a barge feeder service for
cargo containers between Houston, New Orleans and Baton Rouge, as well as
several ports located above Baton Rouge on the Mississippi River. Revenues for
Osprey for 2003 were approximately $11,700,000. The purchase will be accounted
for under the equity method of accounting and the cash portion of the purchase
price was financed through the Company's revolving credit facility.
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(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 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 are effective for the Company's
financial statements for interim and annual periods ending 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, 2004 are described in Note 9, 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."
Under the intrinsic value method of accounting for stock-based employee
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) ACCOUNTING STANDARDS - (CONTINUED)
compensation, since the exercise price of the Company's stock options is at the
fair market value on the date of grant, no compensation expense is recorded.
The Company is required under SFAS No. 123 to disclose pro forma information
relating to option grants as if the Company used the fair value method of
accounting, which requires the recording of estimated compensation expenses.
The following table summarizes pro forma net earnings and earnings per
share for the three months and six months ended June 30, 2004 and 2003 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,
---------------------------- ------------------------
2004 2003 2004 2003
------------ ------------- ------------ ---------
Net earnings, as reported $ 13,778 $ 11,789 $ 22,798 $ 18,657
Deduct: Total stock-based employee compen-
sation expense determined under fair value
based method for all awards, net of related tax
effects (902) (884) (1,652) (1,730)
---------- ------------ ------------ ---------
Pro forma net earnings $ 12,876 $ 10,905 $ 21,146 $ 16,927
========== ============ ============ ==========
Earnings per share:
Basic - as reported $ .56 $ .49 $ .93 $ .77
Basic - pro forma $ .53 $ .45 $ .87 $ .70
Diluted - as reported $ .55 $ .48 $ .91 $ .77
Diluted - pro forma $ .51 $ .45 $ .85 $ .69
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51" and revised
this interpretation in December 2003 (collectively, "the Interpretations"). The
Interpretations address the consolidation by business enterprises of variable
interest entities as defined in the Interpretations. The Interpretations apply
immediately to variable interest in variable interest entities created after
January 31, 2003, and to variable interests in variable entities obtained after
January 31, 2003. The application of these Interpretations has not had an
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 requires amendments
to SFAS No. 133; (2) in connection
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) ACCOUNTING STANDARDS - (CONTINUED)
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. The adoption of SFAS No.
149 had no effect on the Company's financial position or results of operations.
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 had
no 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, 2004 and 2003 were as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2004 2003 2004 2003
----------- ---------- ----------- ----------
Net earnings $ 13,778 $ 11,789 $ 22,798 $ 18,657
Change in fair value of derivative financial
instruments, net of tax 4,839 (14) 2,727 203
--------- --------- ---------- ----------
Total comprehensive income $ 18,617 $ 11,775 $ 25,525 $ 18,860
========= ========= ========== ==========
(5) SEGMENT DATA
The Company's operations are classified into two reportable business
segments as follows:
Marine Transportation - Marine transportation by United States flag
vessels on the United States inland waterway system. The principal products
transported on the United States inland waterway system include petrochemicals,
black oil products, refined petroleum products and agricultural chemicals.
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SEGMENT DATA - (CONTINUED)
Diesel Engine Services - Overhaul and repair of large medium-speed
diesel engines, reduction gear repair, and sale of related parts and
accessories for customers in the marine, power generation and industrial, and
railroad industries.
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,
2004 and 2003 and total assets as of June 30, 2004 and December 31, 2003 (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- ------------------------------------
2004 2003 2004 2003
------------- -------------- ------------- --------------
Revenues:
Marine transportation $149,065 $137,156 $284,558 $262,221
Diesel engine services 21,811 21,583 43,633 44,718
-------- -------- -------- --------
$170,876 $158,739 $328,191 $306,939
======== ======== ======== ========
Segment profit (loss):
Marine transportation $ 24,861 $ 21,782 $ 41,735 $ 35,486
Diesel engine services 2,184 2,172 4,623 4,589
Other (4,823) (4,939) (9,587) (9,983)
-------- -------- -------- --------
$ 22,222 $ 19,015 $ 36,771 $ 30,092
======== ======== ======== ========
JUNE 30, DECEMBER 31,
2004 2003
------------- ----------
Total assets:
Marine transportation $806,194 $779,121
Diesel engine services 47,640 40,152
Other 37,971 35,688
-------- --------
$891,805 $854,961
======== ========
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SEGMENT DATA - (CONTINUED)
The following table presents the details of "Other" segment profit
(loss) for the three months and six months ended June 30, 2004 and 2003 (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ -----------
General corporate expenses $ (1,780) $ (1,498) $ (3,719) $ (3,114)
Loss on disposition of assets (196) (126) (198) (133)
Interest expense (3,290) (3,867) (6,664) (7,321)
Equity in earnings of marine affiliates 494 751 1,316 1,187
Other expense (51) (199) (322) (602)
-------- --------- -------- ---------
$ (4,823) $ (4,939) $ (9,587) $ (9,983)
======== ========= ======== =========
The following table presents the details of "Other" total assets as of
June 30, 2004 and December 31, 2003 (in thousands):
JUNE 30, DECEMBER 31,
2004 2003
------------ ------------
General corporate assets $ 24,502 $ 26,526
Investment in marine affiliates 13,469 9,162
--------- ---------
$ 37,971 $ 35,688
========= =========
(6) TAXES ON INCOME
Earnings before taxes on income and details of the provision for taxes
on income for the three months and six months ended June 30, 2004 and 2003 were
as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- ----------
Earnings before taxes on income - United States $ 22,222 $ 19,015 $ 36,771 $ 30,092
========= ========== ========== ==========
Provision for taxes on income:
Current $ 4,911 $6,164 $6,527 $10,274
Deferred 2,751 566 6,126 306
State and local 782 496 1,320 855
--------- --------- ---------- ----------
$ 8,444 $ 7,226 $ 13,973 $ 11,435
========= ========= ========== ==========
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(7) EARNINGS PER SHARE OF COMMON STOCK
The following table presents the components of basic and diluted
earnings per share of common stock for the three months and six months ended
June 30, 2004 and 2003 (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net earnings $ 13,778 $ 11,789 $ 22,798 $ 18,657
========= ========= ========= =========
Shares outstanding:
Weighted average common stock outstanding 24,434 24,105 24,392 24,084
Effect of dilutive securities:
Employee and director common stock options 659 307 611 286
--------- --------- --------- ---------
25,093 24,412 25,003 24,370
========= ========= ========= =========
Basic earnings per share of common stock $ .56 $ .49 $ .93 $ .77
========= ========= ========= =========
Diluted earnings per share of common stock $ .55 $ .48 $ .91 $ .77
========= ========= ========= =========
Certain outstanding options to purchase approximately 24,000 and
386,000 shares of common stock were excluded in the computation of diluted
earnings per share as of June 30, 2004 and 2003, respectively, as such stock
options would have been antidilutive.
(8) RETIREMENT PLANS
The Company sponsors a defined benefit plan for vessel personnel. The
plan benefits are based on an employee's years of service and compensation. The
plan assets primarily consist of fixed income securities and corporate stocks.
Funding of the plan is based on actuarial projections that are designed to
satisfy minimum ERISA funding requirements to achieve adequate funding of
accumulated benefit obligations.
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(8) RETIREMENT PLANS - (CONTINUED)
The following table presents the components of net periodic benefit
cost of the defined benefit plan for the three months and six months ended June
30, 2004 and 2003 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- ----------
Net periodic benefit cost
Service cost $ 915 $ 821 $ 1,827 $ 1,539
Interest cost 1,153 1,171 2,301 2,196
Expected return on assets (1,459) (1,348) (2,913) (2,528)
Amortization of prior service cost (22) (25) (44) (46)
Amortization of actuarial loss 494 478 987 896
Less partnerships' allocation (36) (38) (70) (76)
--------- --------- --------- ---------
Net periodic benefit cost $ 1,045 $ 1,059 $ 2,088 $ 1,981
========= ========= ========= =========
The Company expects to contribute $200,000 to its pension plan in
November 2004 to fund its 2004 pension plan obligations. As of June 30, 2004,
no contributions have been made.
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 to eligible dependents. The plan is
contributory, with retiree contributions adjusted annually.
The following table presents the components of net periodic benefit
cost of the unfunded defined benefit healthcare plan for the three months and
six months ended June 30, 2004 and 2003 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net periodic benefit cost
Service cost $ 94 $ 145 $ 186 $ 290
Interest cost 142 256 282 512
Amortization of prior service cost 10 18 20 36
Amortization of actuarial gain (5) (36) (10) (72)
--------- --------- --------- ---------
Net periodic benefit cost $ 241 $ 383 $ 478 $ 766
========= ========= ========= =========
The Medicare Prescription Drug, Improvement and Modernization Act of
2003 ("the Act") was signed December 8, 2003 to make additional voluntary
benefits available through Medicare. The Company deferred recognition of the
effects of the Act in these financial statements in accordance with FASB Staff
Position Nos. 106-1 and 106-2 ("FSPs"), which prescribed accounting under the
Act. The
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(8) RETIREMENT PLANS - (CONTINUED)
Company will be evaluating the implications of the Act during 2004 and
recognize expected financial effects as prescribed by the FSPs beginning in the
third quarter of 2004.
(9) CONTINGENCIES
The Company has issued guaranties or obtained stand-by letters of
credit and performance bonds supporting performance by the Company and its
subsidiaries of contractual or contingent legal obligations incurred in the
ordinary course of business. The aggregate notional value of these instruments
is $1,789,000 at June 30, 2004, including $869,000 in letters of credit and
$920,000 in performance bonds, of which $683,000 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 three 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.
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 Environmental Protection
Agency ("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.
The Company and certain subsidiaries have received a Request For
Information ("RFI") from the EPA under the Comprehensive Environmental
Response, Compensation and Liability Act with respect to a potential Superfund
site, the Gulfco site, located in Freeport, Texas. In prior years, a company
unrelated to Gulfco operated at the site and provided tank barge cleaning
services to various subsidiaries of the Company. An RFI is not a determination
that a party is responsible or potentially responsible for contamination at a
site, it is only a request seeking any information a party may have with
respect to a site as part of an EPA investigation into such site. 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 believes that it has recorded adequate 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
PART I FINANCIAL INFORMATION
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.
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 quarter of 2004 and 2003, and for
the first six months of 2004 and 2003 were as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
2004 2003 2004 2003
---------- ---------- --------- ---------
Weighted average number of
common stock-diluted 25,093 24,412 25,003 24,370
========== ========== ========= =========
The increase in the weighted average number of common shares for both
2004 periods compared with the 2003 periods primarily reflected the exercise of
employee and director stock options, as well as additional dilutive shares
applicable to stock options plans.
OVERVIEW
The Company is the nation's largest domestic inland tank barge
operator with a fleet as of June 30, 2004 of 887 active tank barges, with a
total capacity of 16.3 million barrels, and operated an average of 237 inland
towboats during the 2004 second quarter and 234 inland towboats during the 2004
first six months. The Company uses the inland waterway system of the United
States to transport bulk liquids including petrochemicals, black oil products,
refined petroleum products and agricultural chemicals. Through its diesel
engine services segment, the Company provides after-market services for large
medium-speed diesel engines used in marine, power generation and industrial,
and rail applications.
During the 2004 first six months, approximately 87% of the Company's
revenue was generated by its marine transportation segment. The segment's
customers include many of the major United States petrochemical and refining
companies. Products transported include raw materials for many of the end
products used widely by businesses and consumers every day - plastics, fiber,
paints, detergents, oil additives and paper, among others. Consequently, the
Company's business tends to mirror the general performance of the United States
economy and the performance of the Company's customer base. The
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
OVERVIEW - (CONTINUED)
following table shows the products transported by the Company, the revenue
distribution for the first half of 2004, the uses of these products and the
factors that drive the demand for the products the Company transports:
END USES OF PRODUCTS TRANSPORTED
2004 FIRST
SIX MONTHS
REVENUE
PRODUCTS TRANSPORTED DISTRIBUTION USES OF PRODUCTS TRANSPORTED DRIVERS
- ------------------------ ------------ ----------------------------------- -----------------------
Petrochemicals 68% Plastics, Fibers, Paper, Housing, Consumer Goods,
Gasoline Additives Autos, Clothing, Vehicle Usages
Black Oil Products 18% Asphalt, Boiler Fuel, No. 6 Fuel Road Construction, Feedstock
Oil, Coker Feedstocks, Residual for Refineries, Fuel for Power
Fuel, Crude Oil, Ship Bunkers Plants and Ships
Refined Petroleum 10% Gasoline Blends, No. 2 Oil, Vehicle Usage, Air Travel,
Products Jet Fuel, Heating Oil Weather Conditions
Agricultural 4% Liquid Fertilizers, Chemical Corn, Cotton, Wheat Production
Chemicals Feedstocks
For the 2004 second quarter, the Company reported net earnings of
$13,778,000, or $.55 per share, on revenues of $170,876,000. For the 2004 first
six months, the Company's net earnings were $22,798,000, or $.91 per share, on
revenues of $328,191,000. The results for both 2004 periods reflect the
continued improvement in the United States and global economies. The 2004 first
six months results also reflect the full impact of the January 15, 2003
acquisition of the SeaRiver inland marine transportation equipment. The
purchase of the SeaRiver fleet, the United States marine transportation
affiliate of ExxonMobil, included 48 double hull inland tank barges and seven
towboats, and assumption of the leases on 16 double hull inland tank barges.
The Company's 2004 second quarter marine transportation segment's
revenues and operating income increased 9% and 14%, respectively, when compared
with the 2003 second quarter. The segment's revenues and operating income for
the first six months of 2004 increased 9% and 18%, respectively, when compared
with the corresponding period of 2003. During both 2004 periods, the segment's
largest market, the petrochemical market, continued to experience an
improvement in volumes, primarily the result of the strengthening United States
economy. The black oil market for both 2004 periods also remained strong, due
primarily to increased refinery production generating demand for the waterborne
transportation of heavier residual oil by-products. The segment's refined
products market experienced the normal seasonal Gulf Coast to Midwest volumes
during both 2004 periods. The agricultural chemical market was weak in the 2004
first quarter and very weak during the 2004 second quarter due primarily to
high Midwest inventory levels and the high price of the product.
The marine transportation segment was successful in modestly raising
rates on several contract renewals during the 2004 first six months, a
continuation of a trend that started during the 2003 fourth quarter. In
addition, effective January 1, 2004, contract escalators for labor, consumer
price index and fuel on numerous multiyear contracts resulted in a rate
increase for those contracts of approximately 2%. Spot market rates during the
2004 first six months were generally higher for most marine transportation
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
OVERVIEW - (CONTINUED)
markets and above contract rates. Currently, approximately 70% of the Company's
marine transportation revenue is under term contracts with the remaining 30% in
the spot market. The 70% contract and 30% spot market mix provides the Company
with a stable revenue stream with less exposure to day-to-day pricing
fluctuations.
As is expected, the marine transportation segment's first quarter
results were negatively impacted by navigational delays, both weather and lock
related. Navigational delays for the 2004 first quarter totaled 2,359 days,
only 9% less than the record 2,583 days recorded in the 2003 first quarter. The
delays for the 2004 first quarter were both weather and lock related, while the
2003 first quarter delays were primarily from the repair of a key lock located
on the Gulf Intracoastal Waterway. Navigational delays for the 2004 second
quarter totaled 1,822 days compared with 1,268 delay days recorded for the 2003
second quarter. The 44% increase was primarily due to the closure for repair
during May of a major lock on the Gulf Intracoastal Waterway. Navigational
delays require the use of additional chartered towboats to meet customer
delivery schedules and result in increased transit times, negatively impacting
the marine transportation segment's operating margins. For the 2004 second
quarter, the marine transportation segment's operating margin was 16.7%
compared with 15.9% for the 2003 second quarter. For the 2004 first six months,
the segment's margin was 14.7% compared with 13.5% for the 2003 first six
months. The Company's 2004 third quarter performance will be negatively
impacted by the closure of the McAlpine Lock on the Ohio River for major
repairs for approximately two weeks in August. The lock closure will stop all
waterborne traffic on the Ohio River with a destination upriver of Louisville,
Kentucky, including Cincinnati and Pittsburgh. The Company has estimated in
conjunction with its public disclosure of projected earnings for the third
quarter that the impact will be approximately $.02 to $.03 per share.
The Company's diesel engine services segment's 2004 second quarter
revenues and operating income each increased 1% when compared with the 2003
second quarter. The segment's revenues for the 2004 first six months decreased
2% and operating income increased 1%, when compared with the corresponding
period of 2003. The results for both 2004 periods reflect a stronger Midwest
dry cargo river market, and the April 2004 acquisition of Walker. The segment's
rail market strengthened in the 2004 second quarter. Continued weakness in the
Gulf Coast offshore oil service market, the East Coast and West Coast marine
markets, and the power generation market negatively affected both 2004 periods.
The Company continued to generate strong cash flow provided by
operating activities during the 2004 second quarter and first six months. The
Company's outstanding debt as of June 30, 2004 was $251,453,000, a reduction of
$3,812,000 when compared with $255,265,000 as of December 31, 2003. During the
2004 first half, the Company's debt-to-capitalization ratio was reduced from
40.7% as of December 31, 2003 to 38.4% as of June 30, 2004. Also during the
2004 first half, capital expenditures totaled $56,060,000, of which $23,623,000
was for construction of new tank barges, with the remaining $32,437,000
principally for upgrades of the existing marine transportation fleet.
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
OVERVIEW - (CONTINUED)
In the 2004 first quarter, the Company purchased two pre-owned ammonia
tank barges for $1,110,000. On April 7, 2004, the Company purchased from
Walker, a subsidiary of Ingram, Walker's diesel engine service operation and
parts inventory located in Paducah, Kentucky for $5,755,000 in cash. On April
16, 2004, the Company purchased a one-third interest in Osprey for $4,220,000,
consisting of $2,920,000 in cash and notes payable totaling $1,300,000 due in
April 2005. Osprey operates a feeder service for cargo containers on barges
along the United States Gulf Coast and inland waterway system.
The Company anticipates that during the second half of 2004, the
United States and global economies will be stable to modestly improving, which
may lead to a quarter over quarter increase in petrochemical volumes
transported by the Company's marine transportation segment. During the 2004
first half, feedstock and energy costs were high and the Company expects such
costs to remain high and volatile at least through the remainder of 2004. High
feedstock and energy costs could slow down or delay the improvement in
petrochemical volumes that the Company has experienced during 2003 and the 2004
first half.
Industry-wide, tank barge capacity declined during 2001 and 2002 and
remained relatively constant in 2003. This smaller industry-wide tank barge
capacity supports higher industry utilization and the improved pricing
environment.
ACQUISITIONS
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.
On April 7, 2004, the Company purchased from Walker, a subsidiary of
Ingram, Walker's diesel engine service operation and parts inventory located in
Paducah, Kentucky for $5,755,000 in cash. In addition, the Company entered into
a contract to provide diesel engine services to Ingram.
On April 16, 2004, the Company purchased a one-third interest in
Osprey for $4,220,000. The purchase price consisted of cash of $2,920,000 and
notes payable totaling $1,300,000 due in April 2005. The remaining two-thirds
interest is owned by Cooper/T. Smith Corporation and Richard L. Couch. Osprey,
formed in 2000, operates a feeder service for cargo containers on barges
between Houston, New Orleans and Baton Rouge, as well as several ports located
above Baton Rouge on the Mississippi River.
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS
The Company reported second quarter 2004 net earnings of $13,778,000,
or $.55 per share, on revenues of $170,876,000, compared with second quarter
2003 net earnings of $11,789,000, or $.48 per share, on revenues of
$158,739,000. Net earnings for the 2004 first six months were $22,798,000, or
$.91 per share, on revenues of $328,191,000, compared with net earnings of
$18,657,000, or $.77 per share, on revenues of $306,939,000 for the first six
months of 2003.
The following table sets forth the Company's marine transportation and
diesel engine services revenues for the 2004 second quarter compared with the
second quarter of 2003, the first six months of 2004 compared with the first
six months of 2003 and the percentage of each to total revenues for the
comparable periods (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------- ----------------------------------------
2004 % 2003 % 2004 % 2003 %
------------- ----- ------------- ---- ------------ ------ ----------- -----
Marine transportation $ 149,065 87% $ 137,156 86% $ 284,558 87% $ 262,221 85%
Diesel engine services 21,811 13 21,583 14 43,633 13 44,718 15
------------- ----- ------------- ---- ------------ ------ ----------- -----
$ 170,876 100% $ 158,739 100% $ 328,191 100% $ 306,939 100%
============ ===== ============= ==== ============ ====== =========== =====
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, 2004, the marine transportation segment operated 887 active
inland tank barges, with a total capacity of 16.3 million barrels, compared
with 897 active inland tank barges at June 30, 2003, with a total capacity of
16.3 million barrels. The segment also operated an average of 237 inland
towboats during the 2004 second quarter and 234 inland towboats during the
first six months of 2004. This compared with an average of 226 inland towboats
operated during the second quarter of 2003 and 228 during the first six months
of 2003. 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.
19
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, 2004 compared with the three
months and six months ended June 30, 2003 (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- % ------------------------- %
2004 2003 CHANGE 2004 2003 CHANGE
----------- ------------ ------- ----------- ------------ ------
Marine transportation revenues $ 149,065 $ 137,156 9% $ 284,558 $ 262,221 9%
----------- ------------ ------- ----------- ------------ ------
Costs and expenses:
Costs of sales and operating
expenses 92,081 85,050 8 179,047 168,221 6
Selling, general and administrative 15,228 14,837 3 30,732 28,620 7
Taxes, other than on income 4,049 3,342 21 7,182 6,244 15
Depreciation and other amortization 12,846 12,145 6 25,862 23,650 9
----------- ------------ ------- ----------- ------------ ------
124,204 115,374 8 242,823 226,735 7
----------- ------------ ------- ----------- ------------ ------
Operating income $ 24,861 $ 21,782 14% $ 41,735 $ 35,486 18%
=========== ============ ======= =========== ============ ======
Operating margins 16.7% 15.9% 14.7% 13.5%
MARINE TRANSPORTATION REVENUES
Revenues for the 2004 second quarter increased 9% compared with the
2003 second quarter, reflecting stronger petrochemical and black oil products
volumes, modest contract rate increases, and fuel, labor and consumer price
index escalators effective January 1, 2004 on numerous multi-year contracts.
Revenues for the 2004 first six months also increased 9% compared with the
first six months of 2003, reflecting the reasons noted above, as well as
reflecting the full 2004 first quarter impact of the January 15, 2003 purchase
of the inland tank barge fleet of SeaRiver.
Petrochemical volumes transported during the 2004 second quarter and
first six months remained strong, primarily due to the improvement in the
United States and global economies. Black oil volumes during the 2004 second
quarter and first six months were higher than the comparable 2003 periods,
reflecting increased refinery production generating demand for waterborne
transportation of heavier residual oil by-products. With the high price of
crude oil, the refining industries objective is to recapture as much value from
each barrel of crude oil as possible. Refined products volumes transported into
the Midwest during the 2004 second quarter and first six months were generally
at normal seasonal levels. Liquid fertilizer volumes, seasonally weak during
the 2004 first quarter, were unseasonally weak during the 2004 second quarter,
caused primarily by high Midwest inventory levels and product prices.
During the 2004 second quarter and first six months, approximately 70%
of marine transportation revenues were under term contracts and 30% were spot
market revenues. Contract rate renewals reflected the continuation of modest
increases during the second quarter and first six months of
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION REVENUES - (CONTINUED)
2004, primarily the result of increased volumes industry wide and overall
higher utilization of tank barges. Effective January 1, 2004, escalators for
labor, consumer price index and fuel on numerous multi-year contracts did
result in a rate increase for those contracts of approximately 2%. Spot market
rates during the 2004 second quarter and first six months were generally higher
for most product lines and above contract rates, with black oil and
petrochemical Gulf Intracoastal Waterway volumes reflecting the largest spot
market increases.
MARINE TRANSPORTATION COSTS AND EXPENSES
Costs of sales and operating expenses for the 2004 second quarter and
first six months were 8% and 6% higher, respectively, than the comparable
periods of 2003, reflecting wage increases and related expenses effective
January 1, 2004, as well as additional operating expenses associated with the
increased volumes transported. During the 2004 second quarter, the segment
operated an average of 237 inland towboats compared with an average of 226
operated during the 2003 second quarter. For the 2004 first six months, the
segment operated an average of 234 inland towboats compared with an average of
228 during the 2003 first six months. The number of towboats operated is
adjusted daily, depending on the amount of volumes transported, weather
conditions and voyage times. The segment consumed 14.7 million gallons of
diesel fuel during the 2004 second quarter compared with 14.5 million during
the 2003 second quarter. For the 2004 first six months, the segment consumed
28.2 million gallons of diesel fuel compared with 27.4 million during the 2003
first six months. The increase for both comparable periods primarily reflected
the improved business levels.
Selling, general and administrative expenses for the 2004 second
quarter increased 3% compared with the 2003 second quarter, and increased 7% in
the 2004 first six months compared with the first six months of 2003. The
increases for both comparable periods reflect salary increases and related
expenses effective January 1, 2004, higher incentive compensation accruals,
higher medical costs and increased professional and legal fees.
Taxes, other than on income, for the 2004 second quarter and first six
months increased 21% and 15%, respectively, compared with the corresponding
periods of 2003, primarily reflecting increased waterway use taxes from
increased business activity levels and higher property taxes on new and
existing inland tank barges and towboats.
Depreciation and other amortization expenses for the 2004 second
quarter and first six months increased 6% and 9%, respectively, compared with
the corresponding 2003 periods. The increases reflected depreciation on new
tank barge additions and capital expenditures in the 2004 first half and during
the 2003 year.
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
Marine transportation operating income for the 2004 second quarter
increased 14% compared with the second quarter of 2003. For the first six
months of 2004, the operating income for the segment increased 18% compared
with the first six months of 2003. The 2004 second quarter operating margin
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS - (CONTINUED)
increased to 16.7% compared with 15.9% for the 2003 second quarter. The
operating margin for the first six months of 2004 was 14.7% compared with 13.5%
for the first six months of 2003.
The higher operating margins for both 2004 periods over the comparable
2003 periods reflected the improved marine transportation volumes, the January
1, 2004 fuel, labor and consumer price index escalators on numerous multi-year
contracts and the renewal of contracts with rate increases in the 2% to 4%
range during the first six months of 2004.
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.
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, 2004 compared with the three
months and six months ended June 30, 2003 (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, % JUNE 30, %
----------------------- ----------------------
2004 2003 CHANGE 2004 2003 CHANGE
---------- ---------- -------- ---------- ---------- --------
Diesel engine services revenues $ 21,811 $ 21,583 1% $ 43,633 $ 44,718 (2)%
--------- --------- ---- -------- --------- ----
Costs and expenses:
Costs of sales and operating
expenses 16,233 16,076 1 32,167 33,705 (5)
Selling, general and administrative 3,017 2,994 1 6,051 5,748 5
Taxes, other than on income 91 77 18 173 160 8
Depreciation and other amortization 286 264 8 619 516 20
--------- --------- ---- -------- --------- ----
19,627 19,411 1 39,010 40,129 (3)
--------- --------- ---- -------- --------- ----
Operating income $ 2,184 $ 2,172 1% $ 4,623 $ 4,589 1%
======== ======== ==== ======== ========= ====
Operating margins 10.0% 10.1% 10.6% 10.3%
DIESEL ENGINE SERVICES REVENUES
Revenues for the 2004 second quarter increased 1% compared with the
2003 second quarter. For the 2003 first half, revenues decreased 2% when
compared with the corresponding period of 2003. During both 2004 periods, the
segment was positively impacted by an improved Midwest dry cargo market, the
April 2004 purchase of the diesel engine services operations of Walker, and an
improved railroad market, which benefited from several large orders from
passenger railroad customers during the
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
DIESEL ENGINE SERVICES REVENUES - (CONTINUED)
2004 second quarter. The Gulf Coast offshore oil service market remained weak,
as well as the power generation market. The East Coast marine market, weak in
the 2004 first quarter, did reflect signs of improvement during the 2004 second
quarter. The West Coast marine market, strong in the 2004 first quarter, slowed
in the 2004 second quarter from the deferral by several customers of overhaul
projects and direct parts orders.
DIESEL ENGINE SERVICES COSTS AND EXPENSES
Costs and expenses for the 2004 second quarter increased 1% compared
with the 2003 second quarter, while costs and expenses for the 2004 first half
decreased 3% compared with the corresponding 2003 period. The 2004 second
quarter costs and expenses reflected the April 2004 acquisition of Walker. Cost
of sales and operating expenses increased 1% for the 2004 second quarter and
decreased 5% for the 2004 first six months, reflecting the Walker acquisition,
and lower revenue for the first quarter of 2004. Selling, general and
administrative expenses were higher for both 2004 periods versus 2003 primarily
due to increases in salaries and related expenses and higher employee medical
costs.
DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
Operating income for the diesel engine services segment for the 2004
second quarter and first six months increased 1% compared with the
corresponding periods of 2003. The 2004 second quarter operating margin
decreased slightly to 10.0% compared with 10.1% for the 2003 second quarter,
while the operating margin for the 2004 first six months improved to 10.6%
compared with 10.3% for the 2003 first six months.
GENERAL CORPORATE EXPENSES
General corporate expenses for the 2004 second quarter totaled
$1,780,000, or 19% higher than the second quarter of 2003. For the first six
months of 2004, general corporate expenses were $3,719,000, a 19% increase
compared with the 2003 first six months. The increases for both comparable
periods reflected increases in salaries and related expenses effective January
1, 2004, higher employee incentive compensation accruals, higher employee
medical costs, increased legal and professional fees, including the costs of
evaluating and implementing new accounting, disclosure and other governmental
regulations.
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
OTHER INCOME AND EXPENSES
The following table sets forth the 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, 2004 compared with the three
months and six months ended June 30, 2003 (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- % --------------------- %
2004 2003 CHANGE 2004 2003 CHANGE
---------- ----------- ------- --------- --------- ------
Loss on disposition of assets $ (196) $ (126) 56 % $ (198) $ (133) 49 %
Equity in earnings of marine
affiliates $ 494 $ 751 (34)% $ 1,316 $ 1,187 11 %
Other expense $ (51) $ (199) (74)% $ (322) $ (602) (47)%
Interest expense $ (3,290) $ (3,867) (15)% $(6,664) $ (7,321) (9)%
EQUITY IN EARNINGS OF MARINE AFFILIATES
Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, decreased 34% for the 2004 second quarter
compared with the 2003 second quarter. For the first six months of 2004, equity
in earnings of marine affiliates increased 11% compared with the 2003 first six
months. The lower results for the 2004 second quarter reflected fewer working
days, the result of major shipyard repairs for two of the four partnership
barge and tugboat units during the quarter. The favorable results for the 2004
first six months included the annual settlement of demurrage charges with a
major customer.
INTEREST EXPENSE
Interest expense for the 2004 second quarter decreased 15% compared
with the 2003 second quarter. For the 2004 first six months, interest expense
decreased 9% compared with the 2003 first six months. The decrease for both
comparable periods primarily reflected lower average debt. The average debt and
average interest rate for the second quarter of 2004 and 2003, including the
effect of interest rate swaps, were $257,679,000 and 5.1%, and $293,814,000 and
5.3%, respectively. For the first six months of 2004 and 2003, the average debt
and average interest rate, including the effect of interest rate swaps, were
$257,149,000 and 5.2%, and $292,408,000 and 5.1%, respectively.
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of June 30, 2004 were $891,805,000, a 4% increase
compared with $854,961,000 as of December 31, 2003. The following table sets
forth the significant components of the balance sheet as of June 30, 2004
compared with December 31, 2003 (dollars in thousands):
JUNE 30, DECEMBER 31,
2004 2003 % CHANGE
------------- ---------------- -----------
Assets:
Current assets $ 135,787 $ 131,779 3 %
Property and equipment, net 564,287 536,512 5
Investment in marine affiliates 13,469 9,162 47
Goodwill, net 160,641 156,726 2
Other assets 17,621 20,782 (15)
----------- ----------- ----
$ 891,805 $ 854,961 4 %
=========== =========== ====
Liabilities and stockholders' equity:
Current liabilities $ 105,119 $ 98,868 6 %
Long-term debt - less current portion 250,039 255,040 (2)
Deferred income taxes 114,420 106,134 8
Minority interest and other
long-term liabilities 19,605 22,787 (14)
Stockholders' equity 402,622 372,132 8
----------- ----------- ----
$ 891,805 $ 854,961 4 %
=========== =========== ====
Current assets as of June 30, 2004 increased 3% compared with December
31, 2003. Cash and cash equivalents as of June 30, 2004 increased $10,270,000
compared with December 31, 2003. During the 2004 second quarter, the Company
repaid all outstanding balances under its bank credit facilities. As of June
30, 2004, the Company had invested cash of $13,300,000. Trade accounts
receivable increased 6%, reflecting the improved marine transportation volumes
and resulting higher revenues in the 2004 first half. Other accounts receivable
decreased 65%, reflecting a reduction in a receivable from the IRS of
approximately $12,500,000. Inventory - finished goods increased 17%, with
$1,573,000 of the Walker acquisition in April 2004 being the purchase of
inventory, and the purchase of additional inventory in January 2004 to take
advantage of a February 1, 2004 price increase by a major inventory supplier.
Prepaid expenses and other assets decreased 17% from the sale of certain assets
held for sale and the amortization of insurance premiums.
Property and equipment, net of accumulated amortization, at June 30,
2004 increased 5% compared with December 31, 2003. The increase reflected
$56,060,000 of capital expenditures, more fully described under Capital
Expenditures below, $1,110,000 for the purchase of two pre-owned ammonia tank
barges and $278,000 of property with the Walker acquisition, less $27,178,000
of depreciation expense and property disposals of $2,495,000 for the first six
months of 2004.
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET - (CONTINUED)
Investment in marine affiliates as of June 30, 2004 increased 47%
compared with December 31, 2003. The increase reflected the purchase of a
one-third interest in Osprey in April 2004, equity in earnings of marine
affiliates of $1,316,000, less $1,230,000 of distributions received during the
first six months of 2004.
Goodwill - net as of June 30, 2004 increased 2% compared with December
31, 2003, reflecting Walker acquisition goodwill.
Current liabilities as of June 30, 2004 increased 6% compared with
December 31, 2003. The increase was primarily due to a 21% increase in accounts
payable, principally from the increase in activity levels of the marine
transportation segment during the first six months of 2004. The increase was
partially offset by a 8% reduction in accrued liabilities from the payment of
employee incentive compensation earned during the 2003 year and the payment of
property taxes accrued during the 2003 year.
Long-term debt, less current portion, as of June 30, 2004 decreased 2%
compared with December 31, 2003. The reduction primarily reflected the paydown
of long-term debt using the Company's 2004 first six months net cash provided
by operating activities of $75,300,000, proceeds from the disposition of assets
totaling $2,298,000 and $3,956,000 of proceeds from the exercise of employee
and nonemployee director stock options. Borrowings totaling $56,060,000 were
used for the 2004 first six months capital expenditures and business and
equipment acquisitions of $9,785,000.
Deferred income taxes as of June 30, 2004 increased 8% compared with
December 31, 2003, primarily due to bonus tax depreciation on qualifying marine
transportation capital expenditures under federal legislation enacted in 2002
and 2003.
Minority interest and other long-term liabilities as of June 30, 2004
decreased 14% compared with December 31, 2003, primarily due to the recording
of a $3,545,000 decrease in the fair value of the interest rate swap agreements
for the 2004 first six months, more fully described under Long-Term Financing
below.
Stockholders' equity as of June 30, 2004 increased 8% compared with
December 31, 2003. The increase was primarily the result of recording
$22,798,000 of net earnings for the first six months of 2004, a $3,870,000
decrease in treasury stock, an increase of $2,684,000 in additional paid-in
capital, an increase in accumulated other comprehensive income of $2,727,000
and the recording of $1,589,000 of net deferred compensation related to
restricted stock options. The decrease in treasury stock and increase in
additional paid-in capital were attributable to the exercise of employee and
nonemployee director stock options and the issuance of restricted stock. The
increase in accumulated other comprehensive income resulted from the net
changes in fair value of interest rate swap agreements, net of taxes, more
fully described under Long-Term Financing below.
26
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING
The Company has a $150,000,000 unsecured revolving credit facility
("Revolving Credit Facility") with a syndicate of banks, with JP Morgan Chase
Bank as the agent bank, and with a maturity date of December 9, 2007. The
Revolving Credit Facility allows for an increase in bank commitments from
$150,000,000 up to a maximum of $225,000,000 without further amendments to the
Revolving Credit Facility. As of June 30, 2004, the Company had no borrowings
outstanding under the Revolving Credit Facility and had outstanding letters of
credit totaling $11,000. The Company was in compliance with all Revolving
Credit Facility covenants as of June 30, 2004.
The Company has $250,000,000 of floating rate senior notes ("Senior
Notes") due February 28, 2013. The notes are currently callable at par without
penalty and no principal payments are required until maturity in 2013. As of
June 30, 2004, $250,000,000 was outstanding under the Senior Notes. The Company
was in compliance with all Senior Notes covenants as of June 30, 2004.
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 3, 2004. As of June 30, 2004, the
Company had no borrowings outstanding under the Credit Line and had outstanding
letters of credit totaling $506,000.
The Company has an uncommitted $5,000,000 revolving credit note
("Credit Note") with BNP Paribus ("BNP") for short-term liquidity needs. The
Company did not have any borrowing outstanding under the Credit Note as of June
30, 2004.
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,
2004, $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, 2004, there were no outstanding debt securities under the shelf
registration.
From time to time, the Company hedges its exposure to fluctuations in
short-term interest rates under its Revolving Credit Facility and Senior Notes
by entering into interest rate swap agreements. 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, 2004, the Company had a total notional amount of
$150,000,000 of interest rate swaps designated as cash flow hedges for its
variable rate Senior Notes as follows (dollars in thousands):
NOTIONAL FIXED
AMOUNT TRADE DATE EFFECTIVE DATE TERMINATION DATE PAY RATE RECEIVE RATE
- ------------ ------------------ -------------- ------------------ -------- ------------------
$ 100,000 February 2001 March 2001 March 2006 5.64% One-month LIBOR
$ 100,000 September 2003 March 2006 February 2013 5.45% Three-month LIBOR
$ 50,000 April 2004 April 2004 May 2009 4.00% Three-month LIBOR
27
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
On April 29, 2004, the Company extended a hedge on part of its
exposure to fluctuations in short-term interest rates by entering into a
five-year interest rate swap agreement with a notional amount of $50,000,000 to
replace a $50,000,000 swap that expired in April 2004. Under the agreement, the
Company will pay a fixed rate of 4.00% for five years and will receive floating
rate interest payments based on LIBOR for United States dollar deposits. The
interest rate swap was designated as a cash flow hedge for the Company's Senior
Notes.
Interest rate swaps hedge a majority of the Company's long-term debt
and only an immaterial loss on ineffectiveness was recognized in the 2004
second quarter and first six months. The total fair value of the interest rate
swap agreements was recorded as an other long-term liability of $4,465,000 at
June 30, 2004. The Company has recorded in interest expense, losses related to
the interest rate swap agreements of $1,530,000 and $1,650,000 for the three
months ended June 30, 2004 and 2003, respectively and $3,194,000 and $3,125,000
for the six months ended June 30, 2004 and 2003, respectively. Gains or losses
on the interest rate swap contracts offset increases or decreases in rates of
the underlying debt, which results in a fixed rate for the underlying debt. The
Company anticipates $3,066,000 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,
2004 based on quoted market values of the Company's portfolio of derivative
instruments.
CAPITAL EXPENDITURES
Capital expenditures for the 2004 first six months totaled
$56,060,000, of which $23,623,000 was for construction of new tank barges, and
$32,437,000 was primarily for upgrading of the existing marine transportation
fleet.
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 petroleum products.
Five of the tank barges were delivered in 2003 and the sixth tank barge was
delivered in February 2004. The total purchase price of the six barges was
approximately $9,500,000, of which $780,000 was expended in 2002, $8,612,000 in
2003 and the balance in the 2004 first quarter. Financing of the construction
of the six barges was through operating cash flows and available credit under
the Company's Revolving Credit Facility.
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 petrochemical and refined petroleum products. Two
of the six barges were delivered in the 2004 second quarter, two are
anticipated in the third quarter and two in the fourth quarter. The total
purchase price of the six barges is approximately $8,900,000, of which
$1,111,000 was expended in 2003 and $4,764,000 was expended in the 2004 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 with four for use
in the transportation of petrochemical and refined petroleum products and 12
for use in the transportation of black oil products. Six of the 16 barges were
delivered in 2003, one in the 2004 first quarter and nine in the 2004 second
quarter. The total purchase
28
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CAPITAL EXPENDITURES - (CONTINUED)
price of the 16 barges was approximately $29,000,000, of which $10,806,000 was
expended in 2003 and $17,590,000 was expended in the 2004 first six months.
In October 2003, the Company entered into a contract for the
construction of nine double hull, 30,000 barrel capacity, inland tank barges,
five for use in the transportation of petrochemicals and refined petroleum
products and four for use in the transportation of black oil products. Two
barges are anticipated to be delivered in the 2004 third quarter and seven in
the 2004 fourth quarter. The total purchase price of the nine barges is
approximately $16,000,000, of which $1,188,000 was expended in 2004 first six
months.
In June 2004, the Company entered into a contract for the construction
of 11 double hull, 30,000-barrel capacity, inland tank barges. Four of the tank
barges will be for use in the transportation of petrochemical and refined
petroleum products and seven for use in the transportation of black oil
products. Delivery of the 11 barges is scheduled for January through May 2005.
The total purchase price of the 11 barges is approximately $23,600,000, subject
to adjustment based on steel prices and any scrap surcharges that apply at the
time the steel is shipped.
A number of tank barges in the combined black oil fleet of the Company
and Coastal Towing, Inc. ("Coastal") are scheduled to be retired and replaced
with new tank barges. Under the Company's 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 has elected not to exercise its right to purchase its share of the
black oil barges the Company is currently building to replace the Coastal
equipment.
Funding for future capital expenditures and new tank barge
construction is expected to be provided through operating cash flows and
available credit under the Company's Revolving Credit Facility.
TREASURY STOCK PURCHASES
During the 2004 first six months, the Company did not purchase any
treasury stock. As of August 5, 2004, 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.
29
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LIQUIDITY
The Company generated net cash provided by operating activities of
$75,300,000 during the six months ended June 30, 2004, 66% higher than the
$45,290,000 generated during the six months ended June 30, 2003. The 2004 first
six months were positively influenced by favorable cash flow from working
capital of $17,381,000 compared with unfavorable cash flow from working capital
of $1,607,000 for the 2003 first six months.
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 ventures. For the six
months ended June 30, 2004 and 2003, the Company received net cash totaling
$1,230,000 and $2,141,000, respectively, from the partnerships and joint
ventures.
Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayments of borrowings associated with
each of the above and other operating requirements. In addition to net cash
flow provided by operating activities, the Company also had available as of
August 5, 2004, $149,989,000 under its Revolving Credit Facility and
$121,000,000 under its shelf registration program, subject to mutual agreement
on terms. As of August 5, 2004, the Company had $9,494,000 available under its
Credit Line and $5,000,000 under the Credit Note.
Neither the Company, nor any of its subsidiaries, is obligated on any
debt instrument, swap agreement, or any other financial instrument or
commercial contract which has a rating trigger, except for the pricing grids on
its Revolving Credit Facility.
The Company expects to continue to fund expenditures for acquisitions,
capital construction projects, 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 $4,197,000 term loan outstanding at June 30, 2004. 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 of contractual or contingent legal obligations incurred in the
ordinary course of business. The aggregate notional value of these instruments
is $1,789,000 at June 30, 2004, including $869,000 in letters of credit and
$920,000 in performance bonds, of which $683,000 of these financial instruments
relates to contingent legal obligations, which are covered by the Company's
liability insurance program in the event the obligations
30
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LIQUIDITY - (CONTINUED)
are incurred. All of these instruments have an expiration date within three
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.
31
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART I FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to risk from changes in interest rates on
certain of its outstanding debt. 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 2004 interest expense by
approximately $146,000, based on balances outstanding at December 31, 2003, and
change the fair value of the Company's debt by less than 1%.
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 which 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.
From time to time, the Company hedges its exposure to fluctuations in
short-term interest rates under its Revolving Credit Facility and Senior Notes
by entering into interest rate swap agreements. The interest rate swap
agreements are designated as cash flow hedges, therefore, the changes in fair
value, to the extent to the swap agreements are effective, are recognized in
other comprehensive income until the hedged interest expense is recognized in
earnings. As of June 30, 2004, the Company had a total notional amount of
$150,000,000 of interest rate swaps designated as cash flow hedges for its
variable rate Senior Notes as follows (dollars in thousands):
NOTIONAL FIXED
AMOUNT TRADE DATE EFFECTIVE DATE TERMINATION DATE PAY RATE RECEIVE RATE
- ------------ ------------------ -------------- ------------------ -------- ------------------
$ 100,000 February 2001 March 2001 March 2006 5.64% One-month LIBOR
$ 100,000 September 2003 March 2006 February 2013 5.45% Three-month LIBOR
$ 50,000 April 2004 April 2004 May 2009 4.00% Three-month LIBOR
On April 29, 2004, the Company extended a hedge on part of its
exposure to fluctuations in short-term interest rates by entering into a
five-year interest rate swap agreement with a notional amount of $50,000,000 to
replace a $50,000,000 interest rate swap that expired in April 2004. Under the
agreement, the Company will pay a fixed rate of 4.00% for five years and will
receive floating rate interest payments based on LIBOR for United States dollar
deposits. The interest rate swap was designated as a cash flow hedge for the
Company's Senior Notes.
These interest rate swaps hedge a majority of the Company's long-term
debt and only an immaterial loss on ineffectiveness was recognized in the 2004
second quarter and first six months. The total fair value of the interest rate
swap agreements was recorded as an other long-term liability of $4,465,000 at
June 30, 2004. The Company has recorded in interest expense, losses related to
the interest rate swap agreements of $1,530,000 and $1,650,000 for the three
months ended June 30, 2004 and 2003,
32
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -(CONTINUED)
respectively and $3,194,000 and $3,125,000 for the six months ended June 30,
2004 and 2003, respectively. Gains or losses on the interest rate swap
contracts offset increases or decreases in rates of the underlying debt, which
results in a fixed rate for the underlying debt. The Company anticipates
$3,066,000 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, 2004 based on quoted
market values of the Company's portfolio of derivative instruments.
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 were no changes in
the Company's internal control over financial reporting that occurred during
the Company's most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
33
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.
The Company and certain subsidiaries have received a Request For
Information ("RFI") from the EPA under the Comprehensive Environmental
Response, Compensation and Liability Act with respect to a potential Superfund
site, the Gulfco site, located in Freeport, Texas. In prior years, a company
unrelated to Gulfco operated at the site and provided tank barge cleaning
services to various subsidiaries of the Company. An RFI is not a determination
that a party is responsible or potentially responsible for contamination at a
site, it is only a request seeking any information a party may have with
respect to a site as part of an EPA investigation into such site. 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 believes that it has recorded adequate reserves and believes that it
has adequate insurance coverage or has meritorious defenses for these other
claims and contingencies.
34
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
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 28, 2004 stated that the
Company issued a press release announcing the Company's 2004 first quarter
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 5, 2004
35