1
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, 2001
[ ] 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
- --------------------------------------------------------------------------------
(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 [ ]
The number of shares outstanding of the registrant's Common Stock, $.10 par
value per share, on August 9, 2001 was 24,084,000.
2
PART I - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<Table>
<Caption>
June 30, December 31,
2001 2000
-------- -----------
($ in thousands)
Current assets:
Cash and cash equivalents $ 884 $ 4,658
Accounts receivable:
Trade - less allowance for doubtful accounts 75,141 80,493
Insurance claims and other 4,923 6,910
Inventory - finished goods 13,476 15,650
Prepaid expenses 7,381 7,034
Deferred income taxes 3,348 3,721
-------- --------
Total current assets 105,153 118,466
-------- --------
Property and equipment 752,611 724,176
Less accumulated depreciation 290,975 270,369
-------- --------
461,636 453,807
-------- --------
Investment in marine affiliates 12,121 12,784
Goodwill - less accumulated amortization 159,591 162,604
Other assets 2,315 1,607
-------- --------
$740,816 $749,268
======== ========
</Table>
See accompanying notes to condensed financial statements.
2
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
June 30, December 31,
2001 2000
--------- -----------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 5,335 $ 5,335
Income taxes payable 2,793 3,393
Accounts payable 38,762 35,877
Accrued liabilities 48,089 49,119
Deferred revenues 2,489 3,313
--------- ---------
Total current liabilities 97,468 97,037
--------- ---------
Long-term debt - less current portion 258,769 288,037
Deferred income taxes 88,463 89,138
Minority interests 3,084 3,308
Other long-term liabilities 9,745 9,099
--------- ---------
360,061 389,582
--------- ---------
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 175,569 175,575
Accumulated other comprehensive income (46) --
Retained earnings 220,127 202,608
--------- ---------
398,741 381,274
Less cost of 6,837,000 shares in treasury (7,025,000 at
December 31, 2000) 115,454 118,625
--------- ---------
283,287 262,649
--------- ---------
$ 740,816 $ 749,268
========= =========
</Table>
See accompanying notes to condensed financial statements.
3
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $ 124,893 $ 111,940 $ 236,844 $ 219,442
Diesel engine services 22,729 18,268 43,906 37,222
--------- --------- --------- ---------
147,622 130,208 280,750 256,664
--------- --------- --------- ---------
Costs and expenses:
Costs of sales and operating expenses 92,925 79,833 177,816 161,366
Selling, general and administrative 17,615 14,726 34,717 29,897
Taxes, other than on income 3,045 2,437 5,749 5,012
Depreciation and other amortization 10,772 10,324 21,335 20,731
Amortization of goodwill 1,520 1,430 3,050 2,784
Merger related charge -- 482 -- 482
Gain on disposition of assets (102) (1,019) (115) (1,068)
--------- --------- --------- ---------
125,775 108,213 242,552 219,204
--------- --------- --------- ---------
Operating income 21,847 21,995 38,198 37,460
Equity in earnings of marine affiliates 1,099 804 1,815 1,641
Other expense (192) (95) (665) (251)
Interest expense (4,510) (5,964) (9,654) (11,827)
--------- --------- --------- ---------
Earnings before taxes on income 18,244 16,740 29,694 27,023
Provision for taxes on income (7,480) (6,860) (12,175) (11,076)
--------- --------- --------- ---------
Net earnings $ 10,764 $ 9,880 $ 17,519 $ 15,947
========= ========= ========= =========
Net earnings per share of common stock:
Basic $ .45 $ .40 $ .73 $ .65
========= ========= ========= =========
Diluted $ .44 $ .40 $ .72 $ .65
========= ========= ========= =========
</Table>
See accompanying notes to condensed financial statements.
4
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Six months ended June 30,
-------------------------
2001 2000
-------- --------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 17,519 $ 15,947
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization 24,385 23,515
Provision (credit) for deferred income taxes (173) 574
Equity in earnings of marine affiliates, net of distributions and
contributions 662 1,744
Gain on disposition of assets (115) (1,068)
Merger related charge, net of cash expenditures -- 482
Other 790 740
Increase (decrease) in cash flows resulting from changes in operating
working capital 8,964 (14,545)
-------- --------
Net cash provided by operating activities 52,032 27,389
-------- --------
Cash flows from investing activities:
Proceeds from sale and maturities of investments -- 3,510
Capital expenditures (29,857) (28,102)
Proceeds from disposition of assets 849 2,994
Other 10 (40)
-------- --------
Net cash used in investing activities (28,998) (21,638)
-------- --------
Cash flows from financing activities:
Borrowing (payments) on bank revolving credit agreements, net (24,100) 47,500
Payments on long-term debt (5,168) (50,168)
Purchase of treasury stock -- (2,715)
Other 2,460 167
-------- --------
Net cash used in financing activities (26,808) (5,216)
-------- --------
Increase (decrease) in cash and cash equivalents (3,774) 535
Cash and cash equivalents, beginning of year 4,658 3,571
-------- --------
Cash and cash equivalents, end of period $ 884 $ 4,106
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 9,809 $ 12,291
Income taxes $ 13,119 $ 13,208
</Table>
See accompanying notes to condensed financial statements.
5
6
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, 2001
and December 31, 2000, and the results of operations for the three months and
six months ended June 30, 2001 and 2000.
(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 latest
Annual Report on Form 10-K.
(2) ACQUISITIONS
On October 12, 2000, the Company completed the acquisition of the
Powerway Division of Covington Detroit Diesel-Allison, Inc. ("Powerway") for
$1,428,000 in cash. With the acquisition of Powerway, the Company became the
sole distributor of aftermarket parts and service for Alco diesel engines
throughout the United States for marine, power generation and industrial
applications. Goodwill is amortized over 10 years. On November 1, 2000, the
Company completed the acquisition of West Kentucky Machine Shop, Inc. ("West
Kentucky") for an aggregate consideration (before post-closing adjustments) of
$6,674,000, consisting of $6,629,000 in cash, the assumption of $20,000 of West
Kentucky's existing debt and $25,000 of merger costs. The acquisition of West
Kentucky provided the Company with increased distributorship capabilities with
Falk Corporation, a reduction gear manufacturer used in marine and industrial
applications. Goodwill is amortized over 15 years. The acquisitions were
accounted for using the purchase method of accounting. Financing for the two
acquisitions was through the Company's revolving credit agreement.
(3) CHANGES IN ACCOUNTING METHODS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). This statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded at fair value
and included in the balance sheet as assets or liabilities. The accounting for
changes in the fair value of a derivative instrument depends on the intended use
of the derivative and the resulting designation, which is established at the
inception date of a derivative. Special accounting for derivatives qualifying as
fair value hedges allows a derivative's gain and losses to offset related
results on the hedged item in the statement of earnings. For derivative
instruments designated as cash flow hedges, changes in fair value, to the extent
the hedge is effective, are recognized in other comprehensive income until the
hedged item
6
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(3) CHANGES IN ACCOUNTING METHODS - (Continued)
is recognized in earnings. Hedge effectiveness is measured at least quarterly
based on the relative cumulative changes in fair value between the derivative
contract and the hedged item over time. Any change in fair value resulting from
ineffectiveness, as defined by SFAS No. 133, is recognized immediately in
earnings.
At January 1, 2001, the Company did not hold any derivative financial
instruments, therefore the adoption of SFAS No. 133 had no effect on the
Company's consolidated statement of earnings or balance sheet.
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 swaps 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 variable rate revolving credit
facilities. Through December 31, 2000, gains and losses from the Company's
interest rate derivative financial instruments have been recognized in interest
expense in the periods for which the derivative financial instruments relate.
In February and April 2001, the Company executed interest rate swap
agreements to hedge its exposure to increases in the benchmark interest rate
underlying the variable rate revolving credit facilities. The two February 2001
five-year swap agreements have a notional amount of $50 million each, and the
two April 2001 three-year swap agreements have a notional amount of $25 million
each. Under the swap agreements, the Company pays an average fixed rate of
interest of 5.64% on the $50 million swaps, and pays a fixed rate of interest of
4.96% on the $25 million swaps, and receives a floating rate based on a one
month USD LIBOR ("London Interbank Offered Rate") rate. The interest rate swaps
are designated as cash flow hedges, therefore, the changes in fair value, to the
extent the swaps are effective, are recognized in other comprehensive income
until the hedged interest expense is recognized in earnings. No gain or loss on
ineffectiveness was required to be recognized. The fair value of the interest
rate swap agreements was a net liability of $71,000 at June 30, 2001. The
Company has recorded, in interest expense, losses related to the interest rate
swaps of $353,000 for the three months and six months ended June 30, 2001. The
Company anticipates $1,423,000 of net losses included in accumulated other
comprehensive income will be transferred into earnings over the next twelve
months based on current interest rates. Amounts were determined as of June 30,
2001 based on quoted market values, the Company's portfolio of derivative
instruments, and the Company's measurement of hedge effectiveness.
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") were issued in
July 2001. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method of accounting and that
certain acquired intangible assets in a business combination be recognized and
reported as assets
7
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(3) CHANGES IN ACCOUNTING METHODS - (Continued)
apart from goodwill. SFAS No. 142 requires that amortization of goodwill be
replaced with periodic tests of the goodwill's impairment at least annually in
accordance with the provisions of SFAS No. 142 and that intangible assets other
than goodwill be amortized over their useful lives. The Company will adopt SFAS
No. 141 immediately and SFAS No. 142 on January 1, 2002.
Amortization expense related to goodwill was $5,702,000 and $3,050,000
for the year ended December 31, 2000 and the six months ended June 30, 2001,
respectively. Amortization expense related to equity-method goodwill was
$142,000 and $71,000 for the year ended December 31, 2000 and the six months
ended June 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting SFAS No. 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these standards on the Company's financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as a cumulative effect of a
change in accounting principle.
(4) COMPREHENSIVE INCOME
The Company's total comprehensive income for the three months and six
months ended June 30, 2001 and 2000 were as follows (in thousands):
<Table>
<Caption>
Three months Six months
ended June 30, ended June 30,
----------------------- ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net earnings $ 10,764 $ 9,880 $ 17,519 $ 15,947
Change in fair value of derivative financial instruments,
net of tax 1,042 -- (46) --
Unrealized gain on available-for-sale investments,
net of tax -- 93 -- 194
-------- -------- -------- --------
Total comprehensive income $ 11,806 $ 9,973 $ 17,473 $ 16,141
======== ======== ======== ========
</Table>
8
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(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, 2001
and 2000 and total assets as of June 30, 2001 and December 31, 2000 (in
thousands):
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Marine transportation $ 124,893 $ 111,940 $ 236,844 $ 219,442
Diesel engine services 22,729 18,268 43,906 37,222
--------- --------- --------- ---------
$ 147,622 $ 130,208 $ 280,750 $ 256,664
========= ========= ========= =========
Segment profit (loss):
Marine transportation $ 21,642 $ 21,350 $ 37,392 $ 36,380
Diesel engine services 2,176 1,945 4,405 3,982
Other (5,574) (6,555) (12,103) (13,339)
--------- --------- --------- ---------
$ 18,244 $ 16,740 $ 29,694 $ 27,023
========= ========= ========= =========
</Table>
<Table>
<Caption>
June 30, December 31,
2001 2000
--------- ------------
Total assets:
Marine transportation $ 671,083 $ 673,999
Diesel engine services 46,601 45,344
Other 23,132 29,925
--------- ---------
$ 740,816 $ 749,268
========= =========
</Table>
The following table presents the details of "Other" segment profit
(loss) for the three months and six months ended June 30, 2001 and 2000 (in
thousands):
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
General corporate expenses $ (2,073) $ (1,837) $ (3,714) $ (3,488)
Gain on disposition of assets 102 1,019 115 1,068
Interest expense (4,510) (5,964) (9,654) (11,827)
Equity in earnings of marine affiliates 1,099 804 1,815 1,641
Merger related charge -- (482) -- (482)
Other expense (192) (95) (665) (251)
-------- -------- -------- --------
$ (5,574) $ (6,555) $(12,103) $(13,339)
======== ======== ======== ========
</Table>
9
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(5) SEGMENT INFORMATION - (Continued)
The following table presents the details of "Other" total assets as of
June 30, 2001 and December 31, 2000 (in thousands):
<Table>
<Caption>
June 30, December 31,
2001 2000
-------- ------------
General corporate assets $11,011 $17,141
Investment in marine affiliates 12,121 12,784
------- -------
$23,132 $29,925
======= =======
</Table>
(6) TAXES ON INCOME
Details of the provision for taxes on income for the three months and
six months ended June 30, 2001 and 2000 were as follows (in thousands):
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Provision for taxes on income:
Current $ 7,044 $ 6,226 $ 11,337 $ 9,729
Deferred (11) 201 (123) 624
State and local 447 433 961 723
-------- -------- -------- --------
$ 7,480 $ 6,860 $ 12,175 $ 11,076
======== ======== ======== ========
</Table>
10
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(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, 2001 and
2000 (in thousands, except per share amounts):
<Table>
<Caption>
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
------- ------- ------- -------
Net earnings $10,764 $ 9,880 $17,519 $15,947
======= ======= ======= =======
Basic earnings per share:
Weighted average number of common shares outstanding 24,054 24,524 24,021 24,509
======= ======= ======= =======
Basic earnings per share $ .45 $ .40 $ .73 $ .65
======= ======= ======= =======
Diluted earnings per share:
Weighted average number of common shares outstanding 24,054 24,524 24,021 24,509
Dilutive shares applicable to stock options 219 227 163 164
------- ------- ------- -------
Shares applicable to diluted earnings 24,273 24,751 24,184 24,673
======= ======= ======= =======
Diluted earnings per share $ .44 $ .40 $ .72 $ .65
======= ======= ======= =======
</Table>
Certain outstanding options to purchase approximately 6,000 and 77,000
shares of common stock were excluded in the computation of diluted earnings per
share as of June 30, 2001 and 2000, respectively, as such stock options would
have been antidilutive.
(8) CONTINGENCIES
On January 9, 2001, the U.S. Environmental Protection Agency ("EPA"),
in conjunction with other federal and state law enforcement officials, executed
a warrant to seize records pertaining to the dry cargo barge cleaning operations
of a subsidiary of the Company located in Highlands, Texas. The dry-cargo barges
cleaned last carried cargoes such as grain, coal, steel and other dry-bulk
commodities. Based on the information available at present to the Company, the
EPA is investigating possible violations of the Clean Water Act by the
subsidiary. The Company is cooperating with federal and state officials in the
investigation. As the investigation is in its preliminary stage, the Company is
unable to ascertain the extent of its exposure, if any, in this matter.
In August 2000, the Company and four affiliates were among a large
group of companies that received a request for information from the EPA pursuant
to Section 104 of the Comprehensive Environmental Response, Compensation and
Liability Act concerning a potential Superfund site, the Palmer Barge Line Site,
located in Port Arthur, Texas. In October 2000, the Company submitted its
response to the EPA's request. Based on the information currently available, the
Company is unable to ascertain the extent of its exposure, if any, in this
matter.
11
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(8) CONTINGENCIES - (Continued)
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.
12
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
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,
fog and ice, marine accidents, lock delays, 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.
The Company, through its marine transportation segment, is a provider
of marine transportation services, operating a fleet of 871 inland tank barges,
with 15.6 million barrels of capacity, and 215 inland towing vessels,
transporting industrial chemicals and petrochemicals, refined petroleum
products, black oil and agricultural chemicals along the United States inland
waterways. The Company's marine transportation segment also operates one
offshore dry-bulk barge and tug unit and serves as 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.
The segment is strictly a provider of transportation services for its customers
and does not assume ownership of any of the products that it transports.
In February 2001, the Company, through its marine transportation
segment, leased 94 double hull inland tank barges from a subsidiary of the Dow
Chemical Company ("Dow"). The inland tank barges were acquired by Dow as part of
the recent merger between Union Carbide Corporation ("Union Carbide") and Dow.
Since the inception of the lease, the Dow Union Carbide barges have been used
exclusively in Dow's Union Carbide service. Transition of the barges into the
Company's marine transportation fleet began in the 2001 third quarter and it is
anticipated that the transition will be complete by year-end 2001.
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 shortline and industrial railroad markets.
RESULTS OF OPERATIONS
The Company reported 2001 second quarter net earnings of $10,764,000,
or $ .44 per share, on revenues of $147,622,000, compared with 2000 second
quarter net earnings of $9,880,000, or $ .40 per share, on revenues of
$130,208,000. Net earnings for the six months ended June 30, 2001 were
$17,519,000, or $ .72 per share, on revenues of $280,750,000, compared with net
earnings of $15,947,000, or $ .65 per share, on revenues of $256,664,000 for the
2000 first six months.
13
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
For purposes of this Management's Discussion, all earnings per share
are "Diluted earnings per share". The weighted average number of common shares
for the 2001 and 2000 second quarter was 24,273,000 and 24,751,000,
respectively, and for the 2001 and 2000 first six months was 24,184,000 and
24,673,000, respectively. The decrease in the weighted average number of common
shares for the 2001 second quarter and first six months compared with the 2000
second quarter and first six months primarily reflected the purchase of 757,000
shares of treasury stock by the Company during the second, third and fourth
quarters of 2000, partially offset by shares issued under the Company's employee
stock option plans.
The following tables set forth the Company's revenues and percentage of
such revenues for the three months and six months ended June 30, 2001 compared
with the three months and six months ended June 30, 2000 (dollars in thousands):
<Table>
<Caption>
Three months ended June 30,
------------------------------------------------------
2001 2000 Increase
----------------------- ------------------------ -----------------------
Amounts % Amounts % Amounts %
-------- -------- -------- -------- -------- --------
Revenues:
Marine transportation $124,893 85% $111,940 86% $ 12,953 12%
Diesel engine services 22,729 15 18,268 14 4,461 24
-------- -------- -------- -------- -------- --------
$147,622 100% $130,208 100% $ 17,414 13%
======== ======== ======== ======== ======== ========
</Table>
<Table>
<Caption>
Six months ended June 30,
------------------------------------------------------
2001 2000 Increase
----------------------- ------------------------ -----------------------
Amounts % Amounts % Amounts %
-------- -------- -------- -------- -------- --------
Revenues:
Marine transportation $236,844 84% $219,442 85% $ 17,402 8%
Diesel engine services 43,906 16 37,222 15 6,684 18
-------- -------- -------- -------- -------- --------
$280,750 100% $256,664 100% $ 24,086 9%
======== ======== ======== ======== ======== ========
</Table>
Revenues for the marine transportation segment increased 12% for the
2001 second quarter compared with the prior year second quarter, and increased
8% for the 2001 first six months compared with the 2000 first six months. The
increase for both 2001 periods reflects the revenues generated from the leasing
of 94 inland tank barges from Dow in February 2001. The Company generated
revenues of approximately $6,400,000 for the 2001 second quarter and
approximately $8,700,000 for the 2001 first six months from such service. Such
revenues generated a nominal amount of operating earnings, as the leased barges
were employed exclusively in Dow's Union Carbide service.
14
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
The increase for the 2001 second quarter also reflected seasonably
strong refined products, black oil and liquid fertilizer markets, offset in part
by a soft chemical and petrochemical market, the result of a continued slow
economy. The 2001 first six months benefited from unseasonably strong refined
products, black oil and liquid fertilizer markets during the 2001 first quarter,
offset in part by the continued soft chemical and petrochemical market and more
severe winter weather and high water conditions than experienced in 2000.
The strong refined products market during the 2001 first half was the
result of low Midwest inventory levels. The black oil demand was driven by high
crude and natural gas prices, thus creating a better market for residual fuel as
boiler fuel, as well as the continued high demand for asphalt for use in the
active rebuilding of the U.S. highway infrastructure. During the 2001 first
quarter, and into April and May, high natural gas prices caused the U.S.
manufacturers of nitrogen based fertilizer to curtail production, therefore, the
strong U.S. demand for liquid fertilizer, the result of low Midwest inventory
levels, was met by foreign manufacturers. The significant importing of
fertilizer resulted in a disruption of traditional U.S. rail and inland tank
barge distribution patterns and created additional barging opportunities for the
marine transportation segment.
During the 2001 second quarter, contract renewals were generally at
modestly higher rates and spot market rates were generally flat with the 2001
first quarter. During the 2001 first quarter, spot market prices reflect a
modest upward trend. During the 2001 first half, as well as the 2000 second
quarter, approximately 70% of movements were under term contracts and 30% were
spot market transactions.
For the 2000 second quarter and first six months, chemical and
petrochemical volumes were strong as the U.S. economy did not reflect signs of a
slowdown until the second half of 2000. Refined products and liquid fertilizer
volumes to the Midwest were strong in the 2000 first quarter and seasonably
steady in the 2000 second quarter. The strong 2000 first quarter refined
products movements were the result of low Midwest inventory levels and favorable
price differentials between the Gulf Coast and Chicago. The strong first quarter
2000 liquid fertilizer movements were the result of low inventory levels in the
Midwest terminals.
Revenues for the diesel engine services segment for the 2001 second
quarter and first six months increased 24% and 18%, respectively, compared with
the corresponding periods. The increases primarily reflected the two service
company acquisitions, one acquired in October 2000 and one in November 2000.
Diesel engine service revenue for both 2001 periods also benefited from service
work and parts sales to a stronger Gulf Coast drilling and offshore supply
vessel market, as well as other marine markets. The shortline and industrial
railroad market continued to experience weakness.
15
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
During the 2000 second quarter and first six months, the diesel engine
service segment experienced softness in its East Coast engine rebuild market, as
well as its Midwest marine and rail markets. The segment did benefit from the
market improvement to the Gulf Coast drilling and offshore well service sector.
The following tables set forth the costs and expenses and percentage of
each for the three months and six months ended June 30, 2001 compared with the
three months and six months ended June 30, 2000 (dollars in thousands):
<Table>
<Caption>
Three months ended June 30,
-------------------------------------------------
2001 2000 Increase (decrease)
----------------------- ------------------- -------------------
Amounts % Amounts % Amounts %
--------- ------- --------- ------- --------- -----
Costs and expenses:
Costs of sales and operating expenses $ 92,925 74% $ 79,833 74% $ 13,092 16%
Selling, general and administrative 17,615 14 14,726 14 2,889 20
Taxes, other than on income 3,045 2 2,437 2 608 25
Depreciation and other amortization 10,772 9 10,324 10 448 4
Amortization of goodwill 1,520 1 1,430 1 90 6
Merger related charge -- -- 482 -- (482) --
Gain on disposition of assets (102) -- (1,019) (1) 917 90
--------- ------ --------- ------ --------- -----
$ 125,775 100% $ 108,213 100% $ 17,562 16%
========= ====== ========= ====== ========= =====
</Table>
<Table>
<Caption>
Six months ended June 30,
-------------------------------------------------
2001 2000 Increase (decrease)
----------------------- ------------------- -------------------
Amounts % Amounts % Amounts %
--------- ------- --------- ------ --------- -----
Costs and expenses:
Costs of sales and operating expenses $ 177,816 74% $ 161,366 74% $ 16,450 10%
Selling, general and administrative 34,717 14 29,897 14 4,820 16
Taxes, other than on income 5,749 2 5,012 2 737 15
Depreciation and other amortization 21,335 9 20,731 9 604 3
Amortization of goodwill 3,050 1 2,784 1 266 10
Merger related charge -- -- 482 -- (482) --
Gain on disposition of assets (115) -- (1,068) -- 953 89
--------- ----- --------- ------ --------- -----
$ 242,552 100% $ 219,204 100% $ 23,348 11%
========= ===== ========= ====== ========= =====
</Table>
Total costs and expenses for the 2001 second quarter and first six
months increased 16% and 11%, respectively, compared with the 2000 second
quarter and 2000 first half. The 2001 periods reflected higher equipment costs,
health and welfare costs, and inflationary increases in costs and expenses. In
addition, the 2001 periods also included the lease and operating expenses of the
94 Dow inland tank barges leased in February 2001, as well as the full impact of
the costs and expenses of the two diesel engine service companies acquired in
the 2000 fourth quarter.
16
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
The 2000 second quarter and first six months included an additional
$482,000 pre-tax merger related charge associated with the acquisition of
Hollywood Marine, Inc. ("Hollywood Marine"). In 1999, the Company's results
included $4,502,000 of pre-tax merger related charges, consisting of severance
and related pay for Company employees whose positions were eliminated, an
abandonment charge for the Company's leased corporate headquarters' facility and
a charge to exit an insurance mutual. The additional 2000 second quarter charge
resulted from the early termination of the lease of the Company's former
corporate headquarters.
The significant gain on disposition of assets for the 2000 second
quarter and first six months reflected the gain on the sale of an inland towboat
in the 2000 second quarter, and the net gain from the sale during the 2000 first
quarter of three inland towboats and six single hull inland tank barges. The
sale of the towboats was part of the Company's efforts to optimize horsepower
requirements. The six single hull inland tank barges were scrapped.
The following tables set forth the operating income, excluding the gain
on disposition of assets, and operating margin by segment for the three months
and six months ended June 30, 2001 compared with the three months and six months
ended June 30, 2000 (dollars in thousands):
<Table>
<Caption>
Three months ended June 30,
------------------------------------------------------------
2001 2000
-------------------------- ----------------------------
Operating Operating Increase (decrease)
income Operating income Operating -----------------------
(loss) margin (loss) margin Amounts %
-------- --------- --------- --------- -------- --------
Marine transportation $ 21,642 17.3% $ 21,350 19.1% $ 292 1%
Diesel engine services 2,176 9.6% 1,945 10.6% 231 12%
Corporate (2,073) (1,837) (236) (13)%
Merger related charge -- (482) 482 --%
-------- --------- -------- --------
$ 21,745 $ 20,976 $ 769 4%
======== ========= ======== ========
</Table>
<Table>
<Caption>
Six months ended June 30,
------------------------------------------------------------
2001 2000
-------------------------- ----------------------------
Operating Operating Increase (decrease)
income Operating income Operating -----------------------
(loss) margin (loss) margin Amounts %
-------- --------- --------- --------- -------- --------
Marine transportation $ 37,392 15.8% $ 36,380 16.6% $ 1,012 3%
Diesel engine services 4,405 10.0% 3,982 10.7% 423 11%
Corporate (3,714) (3,488) (226) (6)%
Merger related charge -- (482) 482 --%
-------- --------- ------- -------
$ 38,083 $ 36,392 $ 1,691 5%
======== ========= ======= =======
</Table>
17
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
The marine transportation segment earned a 17.3% operating margin for
the 2001 second quarter compared with a 19.1% margin for the 2000 second
quarter. For the 2001 first six months, the operating margin was 15.8% compared
with 16.6% for the 2000 first six months. The decline for both 2001 periods
reflected the lower margin earned in the exclusive service of the Dow Union
Carbide fleet. In addition, reduced chemical and petrochemical volumes for the
2001 periods resulted in a lower margin, as chemical and petrochemical volumes
typically earn a higher margin than refined products and liquid fertilizer
volumes. The Company generally manages the larger chemical and petrochemical
fleet of assets more efficiently through better positioning and compatible cargo
opportunities.
The diesel engine services segment earned a 9.6% operating margin for
the 2001 second quarter compared with 10.6% earned in the 2000 second quarter.
For the 2001 first six months, the operating margin was 10.0% compared with
10.7% for the 2000 first six months. The decline in the operating margin for
both 2001 periods was primarily due to transition costs associated with the two
acquisitions completed in the fourth quarter of 2000.
The following tables set forth the equity in earnings of marine
affiliates, other expense and interest expense for the three months and six
months ended June 30, 2001 compared with the three months and six months ended
June 30, 2000 (dollars in thousands):
<Table>
<Caption>
Three months ended June 30, Increase (decrease)
--------------------------- -----------------
2001 2000 Amount %
------- ------- ------- -----
Equity in earnings of marine affiliates $ 1,099 $ 804 $ 295 37%
Other expense $ (192) $ (95) $ 97 102%
Interest expense $(4,510) $(5,964) $(1,454) (24)%
</Table>
<Table>
<Caption>
Six months ended June 30, Increase (decrease)
--------------------------- ------------------
2001 2000 Amount %
-------- ---------- -------- ------
Equity in earnings of marine affiliates $ 1,815 $ 1,641 $ 174 11%
Other expense $ (665) $ (251) $ 414 165%
Interest expense $ (9,654) $(11,827) $ (2,173) (18)%
</Table>
Equity in earnings of marine affiliates consist primarily of four
offshore dry-cargo barge and tug units owned through a partnership with a public
utility, of which the Company has a 35% interest. The offshore units operating
under the partnership primarily transport coal across the Gulf of Mexico with a
backhaul of limestone rock. For the 2001 second quarter, equity in earnings
reflected a 37% increase compared with the 2000 second quarter, and a 11%
increase for the 2001 first half compared with the first half of 2000. The 37%
increase for the 2001 second quarter resulted from the substantially full
utilization of the four units in the coal and rock trade. The 11% increase for
the first six months reflected the full utilization during the 2001 second
quarter and several one way coal voyages during the 2001 first quarter, without
the rock backhaul.
18
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
The 24% decrease in interest expense for the 2001 second quarter over
the 2000 second quarter, and 18% decrease for the 2001 first half over the 2000
first half, primarily reflected lower interest rates and lower debt levels. The
average debt and average interest rate for the 2001 second quarter were
$269,000,000 and 6.71%, compared with $314,200,000 and 7.52% for the second
quarter of 2000, respectively. For the 2001 first half, the average debt was
$276,900,000 and average interest rate was 6.97%, compared with average debt of
$315,300,000 and average interest rate of 7.43% for the 2000 first half.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Balance Sheet
Total assets as of June 30, 2001 were $740,816,000, compared with
$749,268,000 as of December 31, 2000. The following table sets forth the
significant components of the balance sheet as of June 30, 2001 compared with
December 31, 2000 (dollars in thousands):
<Table>
<Caption>
Increase (decrease)
June 30, December 31, ---------------------------
2001 2000 Amount %
--------- --------- --------- ---------
Assets:
Current assets $ 105,153 $ 118,466 $ (13,313) (11)%
Property and equipment, net 461,636 453,807 7,829 2
Investments in marine affiliates 12,121 12,784 (663) (5)
Goodwill, net 159,591 162,604 (3,013) (2)
Other assets 2,315 1,607 708 44
--------- --------- --------- ---------
$ 740,816 $ 749,268 $ (8,452) (1)%
========= ========= ========= =========
Liabilities and stockholders' equity:
Current liabilities $ 97,468 $ 97,037 $ 431 --%
Long-term debt 258,769 288,037 (29,268) (10)
Deferred taxes 88,463 89,138 (675) (1)
Other long-term liabilities 12,829 12,407 422 3
Stockholders' equity 283,287 262,649 20,638 8
--------- --------- --------- ---------
$ 740,816 $ 749,268 $ (8,452) (1)%
========= ========= ========= =========
</Table>
Working capital as of June 30, 2001 totaled $7,685,000 compared with
$21,429,000 as of December 31, 2000. The significant decrease was primarily
attributable to a $3,774,000 decrease in cash and cash equivalents, a
$5,352,000, or 7% decrease in trade accounts receivable, a $2,174,000, or 14%
decrease in inventory, and a $2,885,000, or 8% increase in accounts payable. The
decrease in trade accounts receivable primarily reflected the continuing
emphasis placed in the collection of accounts receivable.
19
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Balance Sheet - (Continued)
Long-term debt, less current portion, decreased 10% during the 2001
first half, reflecting the payments of $29,268,000, the result of favorable cash
flow provided by operating activities during the 2001 first six months.
Stockholders' equity as of June 30, 2001 increased 8% during the 2001
first half, primarily reflecting the Company's net earnings of $17,519,000 and
the $3,171,000 reduction in treasury stock from the exercise of employee stock
options.
Long-Term Financing
In February 2001, the Company entered into two five-year $50,000,000
interest rate swap contracts with two banks to hedge the Company's exposure to
fluctuations in interest rates. Under the terms of the contracts, the Company
pays to the banks interest at an average fixed rate of 5.64% based on a notional
$100,000,000 of debt and, in turn, the Company receives the floating rate of
LIBOR. The transaction converted $100,000,000 of the Company's variable debt to
an effective rate of 6.64% when taking the 100 basis point loan spread the
Company pays on its variable debt into account.
In April 2001, the Company entered into two three-year $25,000,000
interest rate swap contracts with two banks to hedge the Company's exposure to
fluctuations in interest rates. Under the terms of the contracts, the Company
pays to the banks interest at a fixed rate of 4.96% based on a notional
$50,000,000 of debt and, in turn, the Company receives the floating rate of
LIBOR. The transaction converted $50,000,000 of the Company's variable debt to
an effective rate of 5.96% when taking the 100 basis point loan spread the
Company pays on its variable debt into account.
Merger Related Charge
In connection with the acquisition of Hollywood Marine in October 1999,
the Company recorded $4,502,000 of pre-tax merger related charges in the fourth
quarter of 1999 to combine the acquired operations with those of the Company.
Such charges were as follows (in thousands):
<Table>
Severance for Company employees ................................... $2,061
Exit of insurance mutual .......................................... 870
Corporate headquarters lease abandonment .......................... 1,571
------
$4,502
======
</Table>
The cash portion of the merger related charges totaled $3,248,000. The
non-cash portion of the charges consisted of $748,000 for the write-off of the
Company's leasehold improvements of its former corporate headquarters and
$506,000 for severance pay for changes in stock option terms.
20
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Merger Related Charge - (Continued)
In 2000, the Company recorded additional merger related charges of
$199,000, consisting of a $482,000 charge associated with the termination of the
corporate headquarters' lease, and a $283,000 credit to reduce the estimates of
remaining expenditures.
The components of the cash charge incurred, the actual cash payments
made and the accrued balances as of June 30, 2001 were as follows (in
thousands):
<Table>
<Caption>
1999 2000 ACCRUED AT
TOTAL CASH PAID IN TOTAL CASH PAID IN PAID IN JUNE 30,
PORTION 1999 PORTION 2000 2001 2001
---------- ------- ---------- -------- -------- ----------
Severance for Company employees ... $ 1,555 $ 13 $ (268) $ 659 $ 615 $--
Exit of insurance mutual .......... 870 -- -- 870 -- --
Corporate headquarters lease
abandonment .................. 823 106 366 707 376 --
------- ------- ------- ------- ------- -------
$ 3,248 $ 119 $ 98 $ 2,236 $ 991 $--
======= ======= ======= ======= ======= =======
</Table>
Capital Expenditures
In September 2000, the marine transportation segment entered into a
contract for the construction of six double hull, 30,000 barrel capacity, inland
tank barges for use in the transportation of chemicals, petrochemicals and
refined petroleum products. During the 2001 second quarter, two of the barges
were placed into service. The third barge was placed into service in July 2001,
with the remaining three barges scheduled to be placed into service one in
August, one in September and one in November. The total purchase price of the
six barges is approximately $8,500,000. Financing of the construction of the six
barges is through operating cash flows and available credit under the Company's
Credit Agreement.
In January 2001, the marine transportation segment entered into a
contract for the construction of five double hull, 30,000 barrel capacity inland
tank barges for use in the asphalt trade. Delivery of the first barge is
expected in August 2001, and the remaining four asphalt barges are scheduled to
be delivered one every 30 days thereafter. The total purchase price of the five
barges is approximately $9,000,000. Financing of the construction of the five
barges is through operating cash flows and available credit under the Company's
Credit Agreement.
In June 2001, the marine transportation segment entered into a contract
for the construction of six double hull, 30,000 barrel capacity, inland tank
barges for use in the transportation of chemicals, petrochemicals and refined
petroleum products. Delivery of the six barges is expected one every six weeks
starting in February 2002. The total purchase price of the six barges is
approximately $8,500,000. Financing of the construction of the six barges will
be through operating cash flows and available credit under the Company's Credit
Agreement.
21
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Capital Expenditures - (Continued)
Capital expenditures in the 2001 first six months were $29,857,000, of
which $5,305,000 were for fleet and project construction and $24,552,000 were
primarily for upgrading of the existing marine transportation fleet. Capital
expenditures in the 2000 first half totaled $28,102,000, primarily for upgrading
of the Company's existing marine transportation fleet.
Treasury Stock
During the 2001 first half, the Company did not purchase any treasury
stock. As of August 9, 2001, the Company had 1,502,000 shares available under
its common stock repurchase authorization. Historically, treasury stock
purchases have been financed by borrowings under the Company's Credit Agreement
and through its operating cash flows. The Company is authorized to purchase its
common stock on the New York Stock Exchange and in privately negotiated
transactions. When purchasing its common stock, the Company is subject to price,
trading volume and other market considerations. Shares purchased may be used for
reissuance upon the exercise of stock options, in future acquisitions for stock
or for other appropriate corporate purposes.
Liquidity
The Company generated net cash provided by operating activities of
$52,032,000 and $27,389,000 for the six months ended June 30, 2001 and 2000,
respectively. The 2001 first six months was positively influenced by $8,964,000
of positive changes in working capital. For the 2000 first half, cash flow was
negatively influenced by $14,545,000 of negative changes in working capital. The
Company placed continued emphasis on the collection of trade accounts receivable
during the 2001 first half, thereby improving its working capital.
The Company accounts for its ownership in its 35% owned marine
transportation partnership under the equity method of accounting, recognizing
cash flow upon the receipt or distribution of cash from the partnership. For the
2001 and 2000 first half, the Company received $2,310,000 and $1,855,000,
respectively, of cash from the marine partnership.
Funds generated are available for acquisitions, capital construction
projects, treasury stock repurchases, repayment of borrowings associated with
each of the above and for other operating requirements. In addition to the net
cash provided by operating activities, the Company also had available as of
August 9, 2001, $100,000,000 under its Credit Agreement and $121,000,000 under
its medium term note program. As of August 9, 2001, the Company had $10,000,000
available under its line of credit with Bank of America. The Company's scheduled
principal payments during the next 12 months are $5,335,000.
22
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Liquidity - (Continued)
During the last six months, inflation has had a relatively minor effect
on the financial results of the Company. The marine transportation segment has
long-term contracts which generally contain cost escalation clauses whereby
certain costs, including fuel, can be passed through to its customers; 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.
Accounting Standards
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets" were issued in July 2001. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method of accounting and that certain acquired intangible assets in
a business combination be recognized and reported as assets apart from goodwill.
SFAS No. 142 requires that amortization of goodwill be replaced with periodic
tests of the goodwill's impairment at least annually in accordance with the
provisions of SFAS No. 142 and that intangible assets other than goodwill be
amortized over their useful lives. The Company will adopt SFAS No. 141
immediately and SFAS No. 142 on January 1, 2002.
Amortization expense related to goodwill was $5,702,000 and $3,050,000
for the year ended December 31, 2000 and the six months ended June 30, 2001,
respectively. Amortization expense related to equity-method goodwill was
$142,000 and $71,000 for the year ended December 31, 2000 and the six months
ended June 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting SFAS No. 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these standards on the Company's financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as a cumulative effect of a
change in accounting principle.
23
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
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
balance under the Company's revolving credit agreements bears interest at
variable rates based on prevailing short-term interest rates in the United
States and Europe. At June 30, 2001, the Company had $208,000,000 of floating
rate debt outstanding. Notes issued under the Company's medium term note program
may bear fixed or variable interest rates, although the notes issued to date
have all been fixed rate notes. The potential impact on the Company of fuel
price increases is limited because most of its term contracts contain escalation
clauses under which increases in fuel costs, among others, can be passed on to
the customers, while its spot contract rates are set based on prevailing fuel
prices. The Company does not presently use 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 swaps 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 variable rate revolving credit
facilities. The Company does not enter into derivative financial instrument
transactions for speculative purposes.
In February 2001, the Company executed two five-year interest rate swap
agreements to hedge its exposure to increases in the benchmark interest rate
underlying the variable rate revolving credit facilities. The swap agreements
each have a notional amount of $50 million. Under the swap agreements, the
Company pays an average fixed rate of interest of 5.64% and receives a floating
rate based on a one month LIBOR rate. In April 2001, the Company executed two
three-year interest rate swap agreements to hedge its exposure to increases in
the benchmark interest rate underlying the variable rate credit facilities. The
swap agreements each have a notional amount of $25 million. Under the swap
agreements, the Company pays a fixed rate of interest of 4.96% and receives a
floating rate based on a one month LIBOR rate. The interest rate swaps are
designated as cash flow hedges, therefore, the changes in fair value, to the
extent the swaps are effective, are recognized in other comprehensive income
until the hedged interest expense is recognized in earnings. No gain or loss on
ineffectiveness was required to be recognized. The fair value of the interest
rate swap agreements was a net liability of $71,000 at June 30, 2001. The
Company has recorded, in interest expense, losses related to the interest rate
swaps of $353,000 for the three months and six months ended June 30, 2001. The
Company anticipates $1,423,000 of net losses included in accumulated other
comprehensive income will be transferred into earnings over the next twelve
months based on current interest rates. Amounts were determined as of June 30,
2001 based on quoted market values, the Company's portfolio of derivative
instruments, and the Company's measurement of hedge effectiveness.
24
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a detailed explanation of the material pending legal proceedings
against the Company, please refer to the Form 10-K for the year ended
December 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended June
30, 2001.
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/ G. STEPHEN HOLCOMB
-----------------------
G. Stephen Holcomb
Vice President and Controller
Dated: August 9, 2001
25