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 September 30, 2001
[Q] 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
incorporation or organization) Identification No.)
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 [ ]
The number of shares outstanding of the registrant's Common Stock, $.10 par
value per share, on November 13, 2001 was 23,991,000.
PART 1 - FINANCIAL INFORMATION
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
ASSETS
September 30, December 31,
2001 2000
------------ ------------
($ in thousands)
Current assets:
Cash and cash equivalents $ 52 $ 4,658
Accounts receivable:
Trade - less allowance for doubtful accounts 74,298 80,493
Insurance claims and other 6,310 6,910
Inventory - finished goods 15,422 15,650
Prepaid expenses 6,348 7,034
Deferred income taxes 3,359 3,721
------------ ------------
Total current assets 105,789 118,466
------------ ------------
Property and equipment 765,803 724,176
Less accumulated depreciation 301,590 270,369
------------ ------------
464,213 453,807
------------ ------------
Investment in marine affiliates 12,562 12,784
Goodwill - less accumulated amortization 158,071 162,604
Other assets 1,914 1,607
------------ ------------
$ 742,549 $ 749,268
============ ============
</Table>
See accompanying notes to condensed financial statements.
2
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- -------------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 5,335 $ 5,335
Income taxes payable 4,668 3,393
Accounts payable 35,471 35,877
Accrued liabilities 52,009 49,119
Deferred revenues 2,900 3,313
------------- -------------
Total current liabilities 100,383 97,037
------------- -------------
Long-term debt - less current portion 246,986 288,037
Deferred income taxes 87,018 89,138
Minority interests 3,078 3,308
Other long-term liabilities 17,303 9,099
------------- -------------
354,385 389,582
------------- -------------
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 175,521 175,575
Accumulated other comprehensive income (4,772) --
Retained earnings 231,516 202,608
------------- -------------
405,356 381,274
Less cost of 6,932,000 shares in treasury (7,025,000 at
December 31, 2000) 117,575 118,625
------------- -------------
287,781 262,649
------------- -------------
$ 742,549 $ 749,268
============= =============
</Table>
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------- ----------- ----------- -----------
2001 2000 2001 2000
----------- ----------- ----------- -----------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $ 122,156 $ 113,348 $ 359,000 $ 332,790
Diesel engine services 19,641 15,760 63,547 52,982
----------- ----------- ----------- -----------
141,797 129,108 422,547 385,772
----------- ----------- ----------- -----------
Costs and expenses:
Costs of sales and operating expenses 86,563 78,426 264,379 239,792
Selling, general and administrative 16,607 15,223 51,324 45,120
Taxes, other than on income 2,789 2,500 8,538 7,512
Depreciation and other amortization 10,900 10,656 32,235 31,387
Amortization of goodwill 1,521 1,538 4,571 4,322
Merger related charge -- -- -- 482
Gain on disposition of assets (153) (96) (268) (1,164)
----------- ----------- ----------- -----------
118,227 108,247 360,779 327,451
----------- ----------- ----------- -----------
Operating income 23,570 20,861 61,768 58,321
Equity in earnings of marine affiliates 487 821 2,302 2,462
Other expense (387) (206) (1,052) (457)
Interest expense (4,365) (6,089) (14,019) (17,916)
----------- ----------- ----------- -----------
Earnings before taxes on income 19,305 15,387 48,999 42,410
Provision for taxes on income (7,916) (6,309) (20,091) (17,385)
----------- ----------- ----------- -----------
Net earnings $ 11,389 $ 9,078 $ 28,908 $ 25,025
=========== =========== =========== ===========
Net earnings per share of common stock:
Basic $ .47 $ .37 $ 1.20 $ 1.02
=========== =========== =========== ===========
Diluted $ .47 $ .37 $ 1.19 $ 1.01
=========== =========== =========== ===========
</Table>
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Nine months ended
September 30,
-----------------------------
2001 2000
----------- -----------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 28,908 $ 25,025
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation and amortization 36,806 35,709
Provision for deferred income taxes 915 202
Equity in earnings of marine affiliates, net of distributions and
contributions 222 2,648
Gain on disposition of assets (268) (1,164)
Merger related charge, net of cash expenditures -- 482
Other 1,294 1,144
Increase (decrease) in cash flows resulting from changes in operating
working capital 10,898 (4,883)
----------- -----------
Net cash provided by operating activities 78,775 59,163
----------- -----------
Cash flows from investing activities:
Proceeds from sale and maturities of investments -- 3,633
Capital expenditures (43,558) (37,732)
Proceeds from disposition of assets 1,246 3,337
Other 10 (40)
----------- -----------
Net cash used in investing activities (42,302) (30,802)
----------- -----------
Cash flows from financing activities:
Borrowing (payments) on bank credit facilities, net (35,800) 26,200
Payments on long-term debt (5,251) (50,251)
Purchase of treasury stock (2,459) (3,350)
Other 2,431 599
----------- -----------
Net cash used in financing activities (41,079) (26,802)
----------- -----------
Increase (decrease) in cash and cash equivalents (4,606) 1,559
Cash and cash equivalents, beginning of year 4,658 3,571
----------- -----------
Cash and cash equivalents, end of period $ 52 $ 5,130
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 13,046 $ 17,460
Income taxes $ 18,072 $ 13,727
</Table>
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 September 30,
2001 and December 31, 2000, and the results of operations for the three months
and nine months ended September 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 bank revolving credit facility.
(3) ACCOUNTING STANDARDS
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 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 adopted SFAS No. 141 immediately and will adopt SFAS No. 142 on January
1, 2002.
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(3) ACCOUNTING STANDARDS - (Continued)
Amortization expense related to goodwill was $4,571,000 and
$5,702,000 for the nine months ended September 30, 2001 and the year ended
December 31, 2000, respectively. Amortization expense related to equity-method
goodwill was $107,000 and $142,000 for the nine months ended September 30, 2001
and the year ended December 31, 2000, respectively. Because of the extensive
effort needed to comply with adopting SFAS No. 142, it is not practicable to
reasonably estimate the impact of the adoption 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
nine months ended September 30, 2001 and 2000 were as follows (in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net earnings $ 11,389 $ 9,078 $ 28,908 $ 25,025
Change in fair value of derivative financial instruments,
net of tax (4,726) -- (4,772) --
Unrealized gain on available-for-sale investments,
net of tax -- 35 -- 229
---------- ---------- ---------- ----------
Total comprehensive income $ 6,663 $ 9,113 $ 24,136 $ 25,254
========== ========== ========== ==========
</Table>
(5) LONG-TERM DEBT
The Company has a revolving credit facility (the "Revolving Credit
Facility") with The Chase Manhattan Bank ("Chase") as agent bank. On November 5,
2001, the Company amended the Revolving Credit Facility to increase the
revolving credit amount from $100,000,000 to $150,000,000 and to extend the
maturity date to October 9, 2004. The amended Revolving Credit Facility also
included modifications to certain financial covenants, including a minimum net
worth requirement, as defined, of at least $225,000,000. Per the amendment, the
revised syndicate of banks includes Chase as administrative agent, Bank of
America, N.A. ("Bank of America") as syndication agent, and First Union National
Bank, Fleet National Bank and Wells Fargo Bank (Texas), N.A. as documentation
agents. Proceeds under the Revolving Credit Facility may be used for general
corporate purposes, the purchase of existing or new equipment, the purchase of
the Company's common stock, or for possible business acquisitions. The Company
was in compliance with all Revolving Credit Facility covenants as of September
30, 2001. As of September 30, 2001, $9,500,000 was outstanding under the
Revolving Credit Facility and the average interest rate was 5.4%. The average
borrowing under the Revolving Credit Facility during the first nine months of
2001 was $11,978,000, computed by using the daily
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(5) LONG-TERM DEBT - (Continued)
balance, and the weighted average interest rate was 6.3%, computed by dividing
the interest expense under the Revolving Credit Facility by the average
Revolving Credit Facility borrowing.
The Company has a term loan credit facility (the "Term Loan"), dated
October 12, 1999, with Bank of America as syndication agent bank, Chase as
administrative agent and Bank One, Texas, N.A. as documentation agent. On
November 5, 2001, the Term Loan was amended to conform existing financial
covenants to the amended Revolving Credit Facility. The Company was in
compliance with all Term Loan financial covenants as of September 30, 2001. At
September 30, 2001, the amount borrowed under the Term Loan totaled $184,000,000
and the average interest rate was 3.7%. The average borrowing under the Term
Loan during the first nine months of 2001 was $198,380,000, computed by using
the daily balance, and the weighted average interest rate was 5.8%, computed by
dividing the interest expense under the Term Loan by the average Term Loan
borrowing.
In November 2000, the Company entered into a $10,000,000 credit line
(the "Credit Line") with Bank of America whereby the Company may request, and
Bank of America will consider, short-term advances and the issuance of letters
of credit. On November 6, 2001, the Credit Line was amended to extend the
maturity date to November 5, 2002. As of September 30, 2001, the amount borrowed
under the Credit Line was $2,800,000.
(6) DERIVATIVE INSTRUMENTS
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 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.
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(6) DERIVATIVE INSTRUMENTS - (Continued)
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 bank 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 its variable rate bank 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 liability of $7,341,000 at September 30, 2001. The
Company has recorded, in interest expense, losses related to the interest rate
swaps of $669,000 and $1,022,000 for the three months and nine months ended
September 30, 2001, respectively. Amounts were determined as of September 30,
2001 based on quoted market values, the Company's portfolio of derivative
instruments, and the Company's measurement of hedge effectiveness.
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(7) SEGMENT INFORMATION
The following table sets forth the Company's revenues and profit (loss)
by reportable segment for the three months and nine months ended September 30,
2001 and 2000 and total assets as of September 30, 2001 and December 31, 2000
(in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------- ----------- ----------- -----------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Marine transportation $ 122,156 $ 113,348 $ 359,000 $ 332,790
Diesel engine services 19,641 15,760 63,547 52,982
----------- ----------- ----------- -----------
$ 141,797 $ 129,108 $ 422,547 $ 385,772
=========== =========== =========== ===========
Segment profit (loss):
Marine transportation $ 23,265 $ 21,038 $ 60,657 $ 57,418
Diesel engine services 1,759 1,517 6,164 5,499
Other (5,719) (7,168) (17,822) (20,507)
----------- ----------- ----------- -----------
$ 19,305 $ 15,387 $ 48,999 $ 42,410
=========== =========== =========== ===========
</Table>
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- ------------
Total assets:
Marine transportation $ 673,448 $ 673,999
Diesel engine services 47,482 45,344
Other 21,619 29,925
------------- ------------
$ 742,549 $ 749,268
============= ============
</Table>
The following table presents the details of "Other" segment profit
(loss) for the three months and nine months ended September 30, 2001 and 2000
(in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------- ----------- ----------- -----------
2001 2000 2001 2000
----------- ----------- ----------- -----------
General corporate expenses $ (1,607) $ (1,790) $ (5,321) $ (5,278)
Gain on disposition of assets 153 96 268 1,164
Interest expense (4,365) (6,089) (14,019) (17,916)
Equity in earnings of marine affiliates 487 821 2,302 2,462
Merger related charge -- -- -- (482)
Other expense (387) (206) (1,052) (457)
----------- ----------- ----------- -----------
$ (5,719) $ (7,168) $ (17,822) $ (20,507)
=========== =========== =========== ===========
</Table>
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(7) SEGMENT INFORMATION - (Continued)
The following table presents the details of "Other" total assets as of
September 30, 2001 and December 31, 2000 (in thousands):
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- -------------
General corporate assets $ 9,057 $ 17,141
Investment in marine affiliates 12,562 12,784
------------- -------------
$ 21,619 $ 29,925
============= =============
</Table>
(8) TAXES ON INCOME
Details of the provision for taxes on income for the three months and
nine months ended September 30, 2001 and 2000 were as follows (in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Provision for taxes on income:
Current $ 6,868 $ 6,353 $ 18,205 $ 16,082
Deferred 1,113 (347) 990 277
State and local (65) 303 896 1,026
----------- ----------- ----------- -----------
$ 7,916 $ 6,309 $ 20,091 $ 17,385
=========== =========== =========== ===========
</Table>
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(9) EARNINGS PER SHARE
The following table presents the components of basic and diluted
earnings per share for the three months and nine months ended September 30, 2001
and 2000 (in thousands, except per share amounts):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
---------- ---------- ---------- ----------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net earnings $ 11,389 $ 9,078 $ 28,908 $ 25,025
========== ========== ========== ==========
Basic earnings per share:
Weighted average number of common shares outstanding 24,077 24,511 24,039 24,510
========== ========== ========== ==========
Basic earnings per share $ .47 $ .37 $ 1.20 $ 1.02
========== ========== ========== ==========
Diluted earnings per share:
Weighted average number of common shares outstanding 24,077 24,511 24,039 24,510
Dilutive shares applicable to stock options 284 280 204 202
---------- ---------- ---------- ----------
Shares applicable to diluted earnings 24,361 24,791 24,243 24,712
========== ========== ========== ==========
Diluted earnings per share $ .47 $ .37 $ 1.19 $ 1.01
========== ========== ========== ==========
</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 September 30, 2001 and 2000, respectively, as such stock options
would have been antidilutive.
(10) CONTINGENCIES
As reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, in January 2001, the Environmental Protection Agency
("EPA"), in conjunction with other federal and state law enforcement agencies,
initiated an investigation into possible violations of the Clean Water Act at a
dry cargo barge cleaning facility in Houston operated by Western Towing Company
("Western"), a subsidiary of the Company. The Company has cooperated fully with
the authorities in the investigation. The U. S. Attorney for the Southern
District of Texas has extended an offer to settle the matter under a plea
agreement in which Western would plead to one violation of the Clean Water Act
for discharging washwater from the facility in violation of the facility's
permit. The maximum fine for such a violation is $500,000. The Company is
discussing terms of such a plea agreement with the U. S. Attorney and has made
an accrual for this matter which management believes is appropriate under
present circumstances.
As reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, in August 2000, the Company and four subsidiaries were
among a group of approximately 50 companies that received a request for
information from the EPA concerning a potential Superfund site,
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(10) CONTINGENCIES - (Continued)
the Palmer Barge Line Site, located in Port Arthur, Texas. In prior years,
Palmer had provided tank barge cleaning services to various subsidiaries of the
Company. In October 2000, the Company submitted its response to the EPA. In late
September 2001, the EPA notified the Company and the majority of the others
which received the initial request for information that they may be Potentially
Responsible Parties under Comprehensive Environmental Response, Compensation and
Liability Act with respect to the 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 has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
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 February 5, 2001 merger between Union Carbide Corporation ("Union Carbide")
and Dow. At the inception of the lease, the Dow Union Carbide barges were 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 was
completed around September 15, 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 railroad markets.
RESULTS OF OPERATIONS
The Company reported 2001 third quarter net earnings of $11,389,000,
or $ .47 per share, on revenues of $141,797,000, compared with 2000 third
quarter net earnings of $9,078,000, or $.37 per share, on revenues of
$129,108,000. Net earnings for the nine months ended September 30, 2001 were
$28,908,000, or $1.19 per share, on revenues of $422,547,000, compared with net
earnings of $25,025,000, or $1.01 per share, on revenues of $385,772,000 for the
2000 first nine months.
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 diluted earnings per share for the 2001 and 2000 third quarter was
24,361,000 and 24,791,000, respectively, and for the 2001 and 2000 first nine
months was 24,243,000 and 24,712,000, respectively. The decrease in the weighted
average number of common shares for the 2001 third quarter and first nine months
compared with the 2000 third quarter and first nine months primarily reflected
the purchase of 860,000 shares of treasury stock by the Company during 2000 and
115,000 shares purchased during the 2001 third quarter, 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 nine months ended September 30, 2001
compared with the three months and nine months ended September 30, 2000 (dollars
in thousands):
<Table>
<Caption>
Three months ended September 30,
---------------------------------------------------
2001 2000 Increase
------------------------- -------------------- -------------------
Amounts % Amounts % Amounts %
---------- ---------- ---------- ------ ---------- ------
Revenues:
Marine transportation $ 122,156 86% $ 113,348 88% $ 8,808 8%
Diesel engine services 19,641 14 15,760 12 3,881 25
---------- ---------- ---------- ------ ---------- ------
$ 141,797 100% $ 129,108 100% $ 12,689 10%
========== ========== ========== ====== ========== ======
</Table>
<Table>
<Caption>
Nine months ended September 30,
----------------------------------------------------
2001 2000 Increase
-------------------------- -------------------- -------------------
Amounts % Amounts % Amounts %
---------- ---------- ---------- ------ ---------- ------
Revenues:
Marine transportation $ 359,000 85% $ 332,790 86% $ 26,210 8%
Diesel engine services 63,547 15 52,982 14 10,565 20
---------- ---------- ---------- ------ ---------- ------
$ 422,547 100% $ 385,772 100% $ 36,775 10%
========== ========== ========== ====== ========== ======
</Table>
Marine transportation revenues for the 2001 third quarter
increased 8% compared with the third quarter of 2000, and increased 8% for the
2001 first nine months compared with the first nine months of 2000. The increase
for both periods reflected the revenues generated from the leasing of 94 inland
tank barges from Dow in February 2001. The Company generated revenues of
approximately $6,600,000 for the third quarter of 2001 and approximately
$15,300,000 for the first nine months of 2001 from such service. From the date
of the lease until late in the 2001 third quarter, the leased barges were
employed exclusively in Dow's Union Carbide service. Late in the 2001 third
quarter, the Company completed the integration of the leased tank barges into
the Company's inland tank barge fleet under the terms of the long-term contract
with Dow. The integration will allow the Company to achieve additional operating
synergies, including backhaul opportunities and the Company's extensive
distribution system.
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
The 2001 third quarter increase in revenues also reflected a
strong upriver refined products market, a strong black oil market and favorable
operating conditions, offset in part by a depressed chemical and petrochemical
market, the result of a continued slow economy.
The upriver refined products market was strong for the entire
first nine months of 2001, accelerating in mid-August by a Chicago, Illinois
area refinery fire which closed the facility for an estimated six month period.
The facility closure created an anomaly in the normal distribution patterns of
refined petroleum products into the U. S. Midwest.
Black oil demand for the 2001 third quarter and first nine months
was primarily driven by continued high demand for asphalt for use in the active
rebuilding of the U. S. highway infrastructure. During the first half of 2001,
black oil demand was also driven by high crude oil and natural gas prices, thus
creating a better market for residual fuel as boiler fuel. With the decline in
crude oil and natural gas prices by the end of the 2001 third quarter, the
market for black oil curtailed to some degree.
During the 2001 first quarter, and into April and May, high
natural gas prices caused the U.S. manufacturers of nitrogen based fertilizer to
significantly decrease 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
in the traditional U. S. rail and inland tank barge distribution patterns and
created additional barging opportunities for the marine transportation segment.
Movements of liquid fertilizer in the 2001 third quarter were at expected
levels, with the peak seasons being early spring and late fall.
Contract renewals during the 2001 third quarter were generally at
modestly higher prices. Spot market rates, after the mid-August refinery fire,
were generally higher than the 2001 second quarter, the result of increased
utilization to meet the demand for refined product movements into the U. S.
Midwest. During the 2001 first nine months and third quarter, approximately 70%
of movements were under term contracts and approximately 30% were spot market
transactions.
Chemical and petrochemical movements for the 2000 first half were
strong. During the 2000 third quarter, the chemical and petrochemical industry
experienced some decrease in demand in their markets caused by a slower economy
and inventory adjustments, which resulted in some softness in movements of such
products. Refined product movements to the Midwest were strong in the 2000 first
quarter, seasonably steady in the second quarter and unseasonably soft in the
third quarter. During the 2000 third quarter, refined product movements declined
earlier than the typical slowdown after the Labor Day holiday. Fertilizer
movements were unseasonably strong in the 2000 first quarter, the result of low
inventory levels in Midwest terminals, and at expected levels for the 2000
second and third quarters. Black oil movements were at expected levels for the
2000 first nine months. Navigational delays during the 2000 first and third
quarters due to low water conditions on the Mississippi River lowered the
quarters' revenues due to increased transit times and restricted drafts for
upriver movements.
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
Revenues for the diesel engine services segment for the 2001
third quarter and first nine months increased 25% and 20%, 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. The increases also reflect the July 2001 agreement signed with
the Electro-Motive Division of General Motors to sell replacement parts for
locomotive engines to U. S. passenger and Class II railroads. Diesel engine
services 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.
During the 2000 third quarter and first nine 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
during 2000 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 nine months ended September 30, 2001
compared with the three months and nine months ended September 30, 2000 (dollars
in thousands):
<Table>
<Caption>
Three months ended September 30,
------------------------------------------------
2001 2000 Increase (decrease)
------------------------ -------------------- --------------------
Amounts % Amounts % Amounts %
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Costs of sales and operating expenses $ 86,563 73% $ 78,426 73% $ 8,137 10%
Selling, general and administrative 16,607 14 15,223 14 1,384 9
Taxes, other than on income 2,789 3 2,500 2 289 12
Depreciation and other amortization 10,900 9 10,656 10 244 2
Amortization of goodwill 1,521 1 1,538 1 (17) (1)
Gain on disposition of assets (153) -- (96) -- (57) (59)
--------- --------- --------- --------- --------- ---------
$ 118,227 100% $ 108,247 100% $ 9,980 9%
========= ========= ========= ========= ========= =========
</Table>
<Table>
<Caption>
Nine months ended September 30,
------------------------------------------------
2001 2000 Increase (decrease)
------------------------ -------------------- --------------------
Amounts % Amounts % Amounts %
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Costs of sales and operating expenses $ 264,379 73% $ 239,792 73% $ 24,587 10%
Selling, general and administrative 51,324 14 45,120 14 6,204 14
Taxes, other than on income 8,538 3 7,512 2 1,026 14
Depreciation and other amortization 32,235 9 31,387 10 848 3
Amortization of goodwill 4,571 1 4,322 1 249 6
Merger related charge -- -- 482 -- (482) --
Gain on disposition of assets (268) -- (1,164) -- 896 77
--------- --------- --------- --------- --------- ---------
$ 360,779 100% $ 327,451 100% $ 33,328 10%
========= ========= ========= ========= ========= =========
</Table>
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
Total costs and expenses for the 2001 third quarter and first
nine months increased 9% and 10%, respectively, compared with the 2000 third
quarter and 2000 first nine months. The 2001 periods 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.
The 2000 first nine months included a second quarter $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 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 first
nine months included a gain on the sale of an inland towboat and a single hull
inland tank barge in the 2000 third quarter, a gain on the sale of an inland
towboat in the 2000 second quarter, and a 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 nine months ended September 30, 2001 compared with the three months
and nine months ended September 30, 2000 (dollars in thousands):
<Table>
<Caption>
Three months ended September 30,
--------------------------------------------------------------
2001 2000
----------------------------- ----------------------------
Operating Operating Increase
income Operating income Operating ---------------------------
(loss) margin (loss) margin Amounts %
---------- --------- ---------- --------- ---------- ----------
Marine transportation $ 23,265 19.0% $ 21,038 18.6% $ 2,227 11%
Diesel engine services 1,759 9.0% 1,517 9.6% 242 16%
Corporate (1,607) (1,790) 183 10%
---------- ---------- ---------- ----------
$ 23,417 $ 20,765 $ 2,652 13%
========== ========== ========== ==========
</Table>
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
<Table>
<Caption>
Nine months ended September 30,
------------------------------------------------------------
2001 2000
--------------------------- ---------------------------
Operating Operating Increase (decrease)
income Operating income Operating ----------------------------
(loss) margin (loss) margin Amounts %
---------- ---------- ---------- ---------- ---------- ----------
Marine transportation $ 60,657 16.9% $ 57,418 17.3% $ 3,239 6%
Diesel engine services 6,164 9.7% 5,499 10.4% 665 12%
Corporate (5,321) (5,278) (43) (1)%
Merger related charge -- (482) 482 --%
---------- ---------- ---------- ----------
$ 61,500 $ 57,157 $ 4,343 8%
========== ========== ========== ==========
</Table>
The marine transportation segment earned a 19.0% operating margin
for the 2001 third quarter compared with 18.6% for the 2000 third quarter. For
the 2001 first nine months, the operating margin was 16.9% compared with 17.3%
for the 2000 first nine months. The improved margin for the 2001 third quarter
reflected a strong river refined products market and resulting higher spot
market rates, and the completion of the integration during the 2001 third
quarter of the leased tank barges from Dow into the Company's inland tank barge
fleet under the terms of the long-term contract with Dow. The decline in the
segment's operating margin for the 2001 first nine months compared with the 2000
corresponding period reflected reduced chemical and petrochemical volumes during
the 2001 period, 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 9.0% operating margin
for the 2001 third quarter compared with 9.6% earned in the 2000 third quarter.
For the first nine months of 2001, the operating margin was 9.7% compared with
10.4% for the 2000 first nine months. The decline for both comparable periods
was primarily attributable to increased replacement parts sales to the passenger
and Class II railroads, as such parts sales typically carry a lower margin than
service revenues.
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - (CONTINUED)
The following tables set forth the equity in earnings of marine
affiliates, other expense and interest expense for the three months and nine
months ended September 30, 2001 compared with the three months and nine months
ended September 30, 2000 (dollars in thousands):
<Table>
<Caption>
Three months ended September 30, Increase (decrease)
--------------------------------- ---------------------------
2001 2000 Amount %
---------- ---------- ---------- ----------
Equity in earnings of marine affiliates $ 487 $ 821 $ (334) (41)%
Other expense $ (387) $ (206) $ 181 88%
Interest expense $ (4,365) $ (6,089) $ (1,724) (28)%
</Table>
<Table>
<Caption>
Nine months ended September 30, Increase (decrease)
--------------------------------- ---------------------------
2001 2000 Amount %
---------- ---------- ---------- ----------
Equity in earnings of marine affiliates $ 2,302 $ 2,462 $ (160) (6)%
Other expense $ (1,052) $ (457) $ 595 130%
Interest expense $ (14,019) $ (17,916) $ (3,897) (22)%
</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 third quarter, equity in earnings of
marine affiliates reflected a 41% decrease compared with the 2000 third quarter,
and a 6% decrease for the 2001 first nine months compared with the first nine
months of 2000. The decrease for both comparable 2001 periods was attributable
to major maintenance at the public utility's docking facility, closing the
facility for a portion of the 2001 third quarter, and the Company's decision to
conduct early vessel maintenance on two of the offshore barge and tug units
while the facility was closed.
The 28% decrease in interest expense for the 2001 third quarter
over the 2000 third quarter, and 22% decrease for the 2001 first nine months
over the 2000 first nine months, primarily reflected lower interest rates and
lower debt levels. The average debt and average interest rate for the 2001 third
quarter were $256,065,000 and 6.8%, compared with $306,199,000 and 7.8% for the
third quarter of 2000, respectively. For the 2001 first nine months, the average
debt was $270,130,000 and average interest rate was 6.9%, compared with average
debt of $312,210,000 and average interest rate of 7.5% for the 2000 first nine
months.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Balance Sheet
Total assets as of September 30, 2001 were $742,549,000 compared
with $749,268,000 as of December 31, 2000. The following table sets forth the
significant components of the balance sheet as of September 30, 2001 compared
with December 31, 2000 (dollars in thousands):
<Table>
<Caption>
Increase (decrease)
September 30, December 31, --------------------------------
2001 2000 Amount %
------------ ------------ ------------ ------------
Assets:
Current assets $ 105,789 $ 118,466 $ (12,677) (11)%
Property and equipment, net 464,213 453,807 10,406 2
Investments in marine affiliates 12,562 12,784 (222) (2)
Goodwill, net 158,071 162,604 (4,533) (3)
Other assets 1,914 1,607 307 19
------------ ------------ ------------ ------------
$ 742,549 $ 749,268 $ (6,719) (1)%
============ ============ ============ ============
Liabilities and stockholders' equity:
Current liabilities $ 100,383 $ 97,037 $ 3,346 3%
Long-term debt 246,986 288,037 (41,051) (14)
Deferred taxes 87,018 89,138 (2,120) (2)
Other long-term liabilities 20,381 12,407 7,974 64
Stockholders' equity 287,781 262,649 25,132 10
------------ ------------ ------------ ------------
$ 742,549 $ 749,268 $ (6,719) (1)%
============ ============ ============ ============
</Table>
As of September 30, 2001, working capital totaled $5,406,000, down
significantly from the $21,429,000 as of December 31, 2000. The decrease was
primarily attributable to a $4,606,000 reduction in cash and cash equivalents, a
$6,195,000, or 8% decrease in trade accounts receivable, and a $2,890,000, or 6%
increase in accrued liabilities. The Company placed significant emphasis in the
collection of accounts receivable during 2001, and that emphasis is reflected in
the 8% decrease.
Long-term debt, less current portion, decreased 14% during the 2001
first nine months, reflecting the net payments of $41,051,000, the result of
favorable cash flows provided by operating activities during the 2001 first nine
months.
Stockholders' equity as of September 30, 2001 increased $25,132,000,
or 10% during the 2001 first nine months, reflecting the Company's net earnings
for the 2001 first nine months of $28,908,000, a net reduction in treasury stock
of $1,050,000 and a $4,772,000 decrease in accumulated other comprehensive
income. The reduction in treasury stock reflected $3,509,000 associated with the
exercise of employee stock options, less $2,459,000 of treasury stock purchases.
The decrease in accumulated other comprehensive income reflected the net change
in the fair value of the interest rate swaps, net of taxes.
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)
Long-Term Financing
The Company has a Revolving Credit Facility with Chase as agent
bank. On November 5, 2001, the Company amended the Revolving Credit Facility to
increase the revolving credit amount from $100,000,000 to $150,000,000 and to
extend the maturity date to October 9, 2004. The amended Revolving Credit
Facility also included modifications to certain financial covenants, including a
minimum net worth requirement, as defined, of at least $225,000,000. Proceeds
under the Revolving Credit Facility may be used for general corporate purposes,
the purchase of existing or new equipment, the purchase of the Company's common
stock, or for possible business acquisitions. The Company was in compliance with
all Revolving Credit Facility covenants as of September 30, 2001. As of
September 30, 2001, $9,500,000 was outstanding under the Revolving Credit
Facility and the average interest rate was 5.4%. The average borrowing under the
Revolving Credit Facility during the first nine months of 2001 was $11,978,000,
computed by using the daily balance, and the weighted average interest rate was
6.3%, computed by dividing the interest expense under the Revolving Credit
Facility by the average Revolving Credit Facility borrowing.
The Company has a Term Loan, dated October 12, 1999, with Bank of
America as syndication agent bank. On November 5, 2001, the Term Loan was
amended to conform existing financial covenants to the amended Revolving Credit
Facility. The Company was in compliance with all Term Loan financial covenants
as of September 30, 2001. At September 30, 2001, the amount borrowed under the
Term Loan totaled $184,000,000 and the average interest rate was 3.7%. The
average borrowing under the Term Loan during the first nine months of 2001 was
$198,380,000, computed by using the daily balance, and the weighted average
interest rate was 5.8%, computed by dividing the interest expense under the Term
Loan by the average Term Loan borrowing.
In November 2000, the Company entered into a $10,000,000 Credit Line
with Bank of America whereby the Company may request, and Bank of America will
consider, short-term advances and the issuance of letters of credit. On November
6, 2001, the Credit Line was amended to extend the maturity date to November 5,
2002. As of September 30, 2001, the amount borrowed under the Credit Line was
$2,800,000.
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.
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)
Long-Term Financing - (Continued)
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):
Severance for Company employees $ 2,061
Exit of insurance mutual 870
Corporate headquarters lease abandonment 1,571
---------
$ 4,502
=========
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.
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 September 30, 2001 were as follows (in
thousands):
<Table>
<Caption>
1999 2000 ACCRUED AT
TOTAL CASH PAID IN TOTAL CASH PAID IN PAID IN SEPTEMBER 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>
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)
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. Two of the barges were placed into service during
the 2001 second quarter and three during the third quarter. The final barge is
scheduled to be placed into service 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
Revolving Credit Facility.
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. During the 2001 third quarter, two of
the asphalt barges were placed into service and the remaining three barges are
scheduled to be placed into service in the fourth quarter. 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 Revolving Credit Facility.
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
Revolving Credit Facility.
Capital expenditures in the 2001 first nine months were $43,558,000,
of which $10,901,000 were for fleet and project construction and $32,657,000
were primarily for upgrading of the existing marine transportation fleet.
Capital expenditures in the 2000 first nine months totaled $37,732,000,
primarily for upgrading of the Company's existing marine transportation fleet.
Treasury Stock
During the 2001 third quarter, the Company purchased in the open
market 115,000 shares of common stock at a total purchase price of $2,459,000,
for an average price of $21.36 per share. As of November 9, 2001, the Company
had 1,385,000 shares available under its common stock repurchase authorization.
Historically, treasury stock purchases have been financed by borrowings under
the Company's Revolving Credit Facility 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.
24
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
The Company generated net cash provided by operating activities of
$78,775,000 and $59,163,000 for the nine months ended September 30, 2001 and
2000, respectively. The 2001 first nine months was positively influenced by a
$10,898,000 decrease in working capital. For the 2000 first nine months, cash
provided by operating activities was negatively influenced by a $4,883,000
increase in working capital. The Company placed continued emphasis on the
collection of trade accounts receivable starting in the second half of 2000 and
that continued emphasis is reflected in the results for the 2001 first nine
months.
The Company accounts for its ownership in its 35% owned marine
transportation partnership and other partnerships under the equity method of
accounting, recognizing cash flow upon the receipt or distribution of cash from
the partnerships. For the 2001 and 2000 first nine months, the Company received
$2,524,000 and $5,110,000, respectively, of cash from the marine partnerships.
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
November 9, 2001, $142,500,000 under its Revolving Credit Facility, $121,000,000
under its medium term note program and $10,000,000 under its Credit Line. The
Company's scheduled principal payments during the next 12 months are
$55,335,000. On January 29, 2002, $50,000,000 of the Company's medium term notes
mature. These notes were classified as long-term at September 30, 2001, as the
Company has the ability and intent to refinance the notes on a long-term basis
through available bank credit facilities.
During the last nine 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 adopted SFAS No. 141 immediately
and will adopt SFAS No. 142 on January 1, 2002.
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Accounting Standards - (Continued)
Amortization expense related to goodwill was $5,702,000 and $4,571,000
for the year ended December 31, 2000 and the nine months ended September 30,
2001, respectively. Amortization expense related to equity-method goodwill was
$142,000 and $107,000 for the year ended December 31, 2000 and the nine months
ended September 30, 2001, respectively. Because of the extensive effort needed
to comply with adopting SFAS No. 142, it is not practicable to reasonably
estimate the impact of the adoption 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.
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") was issued in
October 2001. SFAS No. 144 addresses the accounting and reporting for the
impairment or disposal of long-lived assets and supersedes Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121")
and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The objective of SFAS No. 144
is to establish one accounting model for long-lived assets to be disposed of by
sale, as well as resolve implementation issues related to SFAS No. 121, while
retaining many of its fundamental provisions. The Company will adopt SFAS No.
144 on January 1, 2002 and does not expect it to have a material effect on the
Company's financial position or results of operations.
26
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 bank credit facilities bear interest at
variable rates based on prevailing short-term interest rates in the United
States and Europe. Notes issued under the Company's medium term note program may
bear fixed or variable interest rates, although the notes issued to date have
all been fixed rate notes. A 10% change in variable interest rates would impact
the 2001 interest expense by approximately $1,764,000, based on balances
outstanding at December 31, 2000, and change the fair value of the Company's
debt by less than 1%. The potential impact on the Company of fuel price
increases is limited because most of its term contracts contain escalation
clauses under which increases in fuel costs, among others, can be passed on to
the customers, while its spot contract rates are set based on prevailing fuel
prices. The Company does not presently use commodity derivative instruments to
manage its fuel costs. The Company has no foreign exchange risk.
From time to time, the Company has utilized and expects to continue
to utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions generally are
interest rate 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 bank 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 bank 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 bank 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 liability of $7,341,000 at September 30, 2001. The
Company has recorded, in interest expense, losses related to the interest rate
swaps of $669,000 and $1,022,000 for the three months and nine months ended
September 30, 2001, respectively. Amounts were determined as of September 30,
2001 based on quoted market values, the Company's portfolio of derivative
instruments, and the Company's measurement of hedge effectiveness.
27
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, in January 2001, the EPA, in conjunction with other
federal and state law enforcement agencies, initiated an investigation into
possible violations of the Clean Water Act at a dry cargo barge cleaning
facility in Houston operated by Western, a subsidiary of the Company. The
Company has cooperated fully with the authorities in the investigation. The U.
S. Attorney for the Southern District of Texas has extended an offer to settle
the matter under a plea agreement in which Western would plead to one violation
of the Clean Water Act for discharging washwater from the facility in violation
of the facility's permit. The maximum fine for such a violation is $500,000. The
Company is discussing terms of such a plea agreement with the U. S. Attorney and
has made an accrual for this matter which management believes is appropriate
under present circumstances.
As reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, in August 2000, the Company and four subsidiaries were
among a group of approximately 50 companies that received a request for
information from the EPA concerning a potential Superfund site, the Palmer Barge
Line Site, located in Port Arthur, Texas. In prior years, Palmer had provided
tank barge cleaning services to various subsidiaries of the Company. In October
2000, the Company submitted its response to the EPA. In late September 2001, the
EPA notified the Company and the majority of the others which received the
initial request for information that they may be Potentially Responsible Parties
under Comprehensive Environmental Response, Compensation and Liability Act with
respect to the 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 has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Third Amendment to Credit Agreement, dated November 5, 2001, among
Kirby Corporation, the Banks named herein, and The Chase Manhattan Bank
as Agent and Funds Administrator.
10.2 First Amendment to Credit Agreement, dated November 5, 2001, among
Kirby Corporation, the Banks named therein, The Chase Manhattan Bank as
Administrative Agent, Bank of America, N.A. as Syndication Agent, and
Bank One, Texas, N.A. as Documentation Agent.
28
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K - (Continued)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
September 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: November 13, 2001
29
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Third Amendment to Credit Agreement, dated November 5, 2001,
among Kirby Corporation, the Banks named herein, and The Chase
Manhattan Bank as Agent and Funds Administrator.
10.2 First Amendment to Credit Agreement, dated November 5, 2001,
among Kirby Corporation, the Banks named therein, The Chase
Manhattan Bank as Administrative Agent, Bank of America, N.A. as
Syndication Agent, and Bank One, Texas, N.A. as Documentation
Agent.
</Table>