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, 2002
[ ] 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, $.10 par
value per share, on November 6, 2002 was 24,007,000.
1
Part I Financial Information
Item 1. Financial Statements
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<Table>
<Caption>
September 30, December 31,
2002 2001
------------- -------------
($ in thousands)
Current assets:
Cash and cash equivalents $ 3,897 $ 1,850
Accounts receivable:
Trade - less allowance for doubtful accounts 77,495 78,677
Insurance claims and other 4,807 5,420
Inventory - finished goods 16,330 15,105
Prepaid expenses 12,028 9,082
Deferred income taxes 3,167 3,113
------------- -------------
Total current assets 117,724 113,247
------------- -------------
Property and equipment 802,820 776,157
Less accumulated depreciation 332,532 309,918
------------- -------------
470,288 466,239
------------- -------------
Investment in marine affiliates 13,420 13,439
Goodwill - net 156,726 156,726
Other assets 3,465 4,820
------------- -------------
$ 761,623 $ 754,471
============= =============
</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,
2002 2001
------------- -------------
($ in thousands, except
per share and share amounts)
Current liabilities:
Current portion of long-term debt $ 336 $ 335
Income taxes payable 3,062 2,997
Accounts payable 36,212 35,378
Accrued liabilities 46,799 54,097
Deferred revenues 2,903 4,250
------------- -------------
Total current liabilities 89,312 97,057
------------- -------------
Long-term debt - less current portion 232,849 249,402
Deferred income taxes 89,424 89,542
Minority interests 2,602 2,819
Other long-term liabilities 22,910 14,629
------------- -------------
347,785 356,392
------------- -------------
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 176,304 176,074
Accumulated other comprehensive income (8,119) (3,364)
Retained earnings 271,732 242,211
------------- -------------
443,008 418,012
Less cost of 6,914,000 shares in treasury (6,892,000 at
December 31, 2001) 118,482 116,990
------------- -------------
324,526 301,022
------------- -------------
$ 761,623 $ 754,471
============= =============
</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,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $ 113,343 $ 122,156 $ 329,679 $ 359,000
Diesel engine services 21,264 19,641 65,843 63,547
------------ ------------ ------------ ------------
134,607 141,797 395,522 422,547
------------ ------------ ------------ ------------
Costs and expenses:
Costs of sales and operating expenses 81,652 86,563 247,868 264,379
Selling, general and administrative 16,748 16,607 49,436 51,324
Taxes, other than on income 2,627 2,789 7,185 8,538
Depreciation and other amortization 10,826 10,900 33,845 32,235
Amortization of goodwill -- 1,521 -- 4,571
Gain on disposition of assets (425) (153) (593) (268)
------------ ------------ ------------ ------------
111,428 118,227 337,741 360,779
------------ ------------ ------------ ------------
Operating income 23,179 23,570 57,781 61,768
Equity in earnings (loss) of marine affiliates (68) 487 872 2,302
Other expense (447) (387) (788) (1,052)
Interest expense (3,378) (4,365) (10,251) (14,019)
------------ ------------ ------------ ------------
Earnings before taxes on income 19,286 19,305 47,614 48,999
Provision for taxes on income (7,329) (7,916) (18,093) (20,091)
------------ ------------ ------------ ------------
Net earnings $ 11,957 $ 11,389 $ 29,521 $ 28,908
============ ============ ============ ============
Net earnings per share of common stock:
Basic $ .50 $ .47 $ 1.23 $ 1.20
============ ============ ============ ============
Diluted $ .49 $ .47 $ 1.21 $ 1.19
============ ============ ============ ============
</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,
-------------------------------
2002 2001
------------- -------------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 29,521 $ 28,908
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization 33,845 36,806
Deferred income taxes 2,387 915
Equity in earnings of marine affiliates, net of distributions and
contributions 90 222
Gain on disposition of assets (593) (268)
Other 772 1,294
Increase (decrease) in cash flows resulting from changes in operating
working capital (6,608) 10,898
------------- -------------
Net cash provided by operating activities 59,414 78,775
------------- -------------
Cash flows from investing activities:
Capital expenditures (39,198) (43,558)
Acquisition of marine equipment (4,600) --
Proceeds from disposition of assets 5,868 1,246
Other (236) 10
------------- -------------
Net cash used in investing activities (38,166) (42,302)
------------- -------------
Cash flows from financing activities:
Borrowings (payments) on bank credit facilities, net 33,700 (35,800)
Payments on long-term debt (50,252) (5,251)
Purchase of treasury stock (3,931) (2,459)
Proceeds from exercise of stock options 2,186 3,283
Other (904) (852)
------------- -------------
Net cash used in financing activities (19,201) (41,079)
------------- -------------
Increase (decrease) in cash and cash equivalents 2,047 (4,606)
Cash and cash equivalents, beginning of year 1,850 4,658
------------- -------------
Cash and cash equivalents, end of period $ 3,897 $ 52
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 11,254 $ 13,046
Income taxes $ 15,640 $ 18,072
Non-cash investing and financing activity:
Disposition of assets for notes receivable $ 1,100 --
</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,
2002 and December 31, 2001, and the results of operations for the three months
and nine months ended September 30, 2002 and 2001.
(1) BASIS FOR PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the Company believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including significant accounting
policies normally included in annual financial statements, have been condensed
or omitted pursuant to such rules and regulations. It is suggested that these
condensed financial statements be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
(2) ACQUISITION
In March 2002, the Company purchased the Cargo Carriers fleet of 21
inland tank barges for $2,800,000 in cash from Cargill Corporation ("Cargill"),
and resold six of the tank barges for $530,000 in April 2002. Financing of the
equipment acquisition was through the Company's revolving credit facility.
(3) CHANGES IN ACCOUNTING METHODS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 142, issued in July 2001, requires that amortization of goodwill
will cease and 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 did not incur any transitional impairment losses or gains as a result of
adopting SFAS No. 142.
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(3) CHANGES IN ACCOUNTING METHODS - (Continued)
Amortization of goodwill for the 2001 third quarter and first nine
months was $1,557,000 and $4,678,000, respectively. The following table sets
forth the reported and adjusted net earnings, and basic and diluted earnings per
share, for the three months and nine months ended September 30, 2001 (in
thousands, except per share amounts):
<Table>
<Caption>
Three months ended Nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
Reported net earnings $ 11,389 $ 28,908
Amortization of goodwill - marine transportation 1,403 4,208
Amortization of goodwill - diesel engine services 118 363
Amortization of goodwill - equity in earnings of marine affiliates 36 107
-------------- --------------
Adjusted net earnings $ 12,946 $ 33,586
============== ==============
Reported basic earnings per share $ .47 $ 1.20
Amortization of goodwill .07 .20
-------------- --------------
Adjusted basic earnings per share $ .54 $ 1.40
============== ==============
Reported diluted earnings per share $ .47 $ 1.19
Amortization of goodwill .06 .20
-------------- --------------
Adjusted diluted earnings per share $ .53 $ 1.39
============== ==============
</Table>
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144, issued in August 2001,
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 to resolve
implementation issues related to SFAS No. 121, while retaining many of the
fundamental provisions of SFAS No. 121. The adoption of SFAS No. 144 had no
effect on the Company's financial position or results of operations.
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(4) COMPREHENSIVE INCOME
The Company's total comprehensive income for the three months and nine
months ended September 30, 2002 and 2001 were as follows (in thousands):
<Table>
<Caption>
Three months Nine months
ended September 30, ended September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net earnings $ 11,957 $ 11,389 $ 29,521 $ 28,908
Change in fair value of derivative financial instruments,
net of tax (3,345) (4,726) (4,755) (4,772)
------------ ------------ ------------ ------------
Total comprehensive income $ 8,612 $ 6,663 $ 24,766 $ 24,136
============ ============ ============ ============
</Table>
(5) SEGMENT INFORMATION
The following table sets forth the Company's revenues and income (loss)
by reportable segment for the three months and nine months ended September 30,
2002 and 2001 and total assets as of September 30, 2002 and December 31, 2001
(in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Marine transportation $ 113,343 $ 122,156 $ 329,679 $ 359,000
Diesel engine services 21,264 19,641 65,843 63,547
------------ ------------ ------------ ------------
$ 134,607 $ 141,797 $ 395,522 $ 422,547
============ ============ ============ ============
Segment income (loss):
Marine transportation $ 22,158 $ 23,265 $ 54,302 $ 60,657
Diesel engine services 2,042 1,759 7,022 6,164
Other (4,914) (5,719) (13,710) (17,822)
------------ ------------ ------------ ------------
$ 19,286 $ 19,305 $ 47,614 $ 48,999
============ ============ ============ ============
</Table>
<Table>
<Caption>
September 30, December 31,
2002 2001
------------- ------------
Total assets:
Marine transportation $ 685,153 $ 681,976
Diesel engine services 50,792 48,288
Other 25,678 24,207
------------ ------------
$ 761,623 $ 754,471
============ ============
</Table>
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(5) SEGMENT INFORMATION - (Continued)
The following table presents the details of "Other" segment income
(loss) for the three months and nine months ended September 30, 2002 and 2001
(in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
General corporate expenses $ (1,446) $ (1,607) $ (4,136) $ (5,321)
Gain on disposition of assets 425 153 593 268
Interest expense (3,378) (4,365) (10,251) (14,019)
Equity in earnings (loss) of marine affiliates (68) 487 872 2,302
Other expense (447) (387) (788) (1,052)
------------ ------------ ------------ ------------
$ (4,914) $ (5,719) $ (13,710) $ (17,822)
============ ============ ============ ============
</Table>
The following table presents the details of "Other" total assets as of
September 30, 2002 and December 31, 2001 (in thousands):
<Table>
<Caption>
September 30, December 31,
2002 2001
------------- -------------
General corporate assets $ 12,258 $ 10,768
Investment in marine affiliates 13,420 13,439
------------- -------------
$ 25,678 $ 24,207
============= =============
</Table>
(6) TAXES ON INCOME
Details of the provision for taxes on income for the three months and
nine months ended September 30, 2002 and 2001 were as follows (in thousands):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Provision for taxes on income:
Current $ 3,536 $ 6,868 $ 14,503 $ 18,205
Deferred 3,202 1,113 2,187 990
State and local 591 (65) 1,403 896
------------ ------------ ------------ ------------
$ 7,329 $ 7,916 $ 18,093 $ 20,091
============ ============ ============ ============
</Table>
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(7) EARNINGS PER SHARE
The following table presents the components of basic and diluted
earnings per share for the three months and nine months ended September 30, 2002
and 2001 (in thousands, except per share amounts):
<Table>
<Caption>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net earnings $ 11,957 $ 11,389 $ 29,521 $ 28,908
============ ============ ============ ============
Basic earnings per share:
Weighted average number of common shares outstanding 24,016 24,077 24,080 24,039
============ ============ ============ ============
Basic earnings per share $ .50 $ .47 $ 1.23 $ 1.20
============ ============ ============ ============
Diluted earnings per share:
Weighted average number of common shares outstanding 24,016 24,077 24,080 24,039
Dilutive shares applicable to stock options 201 284 358 204
------------ ------------ ------------ ------------
Shares applicable to diluted earnings 24,217 24,361 24,438 24,243
============ ============ ============ ============
Diluted earnings per share $ .49 $ .47 $ 1.21 $ 1.19
============ ============ ============ ============
</Table>
Certain outstanding options to purchase approximately 405,000 and 6,000
shares of common stock were excluded in the computation of diluted earnings per
share as of September 30, 2002 and 2001, as such stock options would have been
antidilutive.
(8) CONTINGENCIES
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 division of the Company. The Company cooperated fully with the
authorities in the investigation. Western plead guilty to one violation of the
Clean Water Act for discharging washwater from the facility in violation of the
facility's permit and was fined $30,000 for the violation.
The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under The
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8) CONTINGENCIES - (Continued)
with the EPA to perform a remedial investigation and feasibility study. Based on
information currently available, the Company is unable to ascertain the extent
of its exposure, if any, in this matter.
In addition, there are various other suits and claims against the
Company, none of which in the opinion of management will have a material effect
on the Company's financial condition, results of operations or cash flows.
Management has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
(9) SUBSEQUENT EVENT
On October 31, 2002, the Company completed the acquisition of seven
inland black oil tank barges and 13 inland towboats from Coastal Towing, Inc.
("Coastal") for $17.1 million in cash. In addition, the Company and Coastal
entered into a barge management agreement whereby the Company will serve as
manager of the combined black oil fleet for a period of seven years. The
combined black oil fleet consists of Coastal's 54 remaining barges and the
Company's 66 barges. Coastal is engaged in the inland tank barge transportation
of black oil products along the Gulf Intracoastal Waterway and the Mississippi
River and its tributaries. In a related transaction, on September 25, 2002, the
Company purchased from Coastal three black oil tank barges for $1.8 million in
cash. Financing of the equipment acquisitions was through the Company's
revolving credit facility.
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Form 10-Q that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, adverse weather conditions such as high water, low water,
tropical storms, hurricanes, fog and ice, marine accidents, lock delays,
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 inland marine transportation services with a fleet of 939 inland tank barges,
consisting of 17.1 million barrels of capacity, and 219 inland towboats,
transporting industrial petrochemicals, refined petroleum products, black oil
and agricultural chemicals along the United States inland waterways. The marine
transportation segment also 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.
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, standby power generation,
industrial and railroad markets.
ACQUISITION
In March 2002, the Company purchased the Cargo Carriers fleet of 21
inland tank barges for $2,800,000 in cash from Cargill, and resold six of the
tank barges for $530,000 in April 2002. Financing of the equipment acquisition
was through the Company's revolving credit facility.
RESULTS OF OPERATIONS
The Company reported third quarter 2002 net earnings of $11,957,000, or
$.49 per share, on revenues of $134,607,000, compared with 2001 third quarter
net earnings of $11,389,000, or $.47 per share, on revenues of $141,797,000. Net
earnings for the nine months ended September 30, 2002 were $29,521,000, or $1.21
per share, on revenues of $395,522,000, compared with net earnings of
$28,908,000, or $1.19 per share, on revenues of $422,547,000 for the 2001 first
nine months.
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
For purposes of this Management's Discussion, all earnings per share
are "Diluted earnings per share." The weighted number of common shares
applicable to diluted earnings for the 2002 and 2001 third quarter were
24,217,000 and 24,361,000, respectively, and for the 2002 and 2001 first nine
months were 24,438,000 and 24,243,000, respectively. The decrease in the
weighted average number of common shares for the 2002 third quarter compared
with the 2001 third quarter primarily reflect open market stock repurchases
during the 2002 third quarter. The increase in the weighted average number of
common shares for the 2002 first nine months compared with the 2001
corresponding period reflected shares issued under the Company's employee stock
option plans, partially offset by open market stock repurchases during the third
quarters of 2002 and 2001.
The following tables set forth the Company's marine transportation
segment's revenues, costs and expenses, operating income and operating margins
for the three months and nine months ended September 30, 2002 compared with the
three months and nine months ended September 30, 2001 (dollars in thousands):
<Table>
<Caption>
Three months ended September 30,
--------------------------------------------------------
Increase (decrease)
-------------------------
2002 2001 Amount %
---------- ---------- ---------- ----------
Marine transportation revenues $ 113,343 $ 122,156 $ (8,813) (7)%
---------- ---------- ---------- ----------
Costs and expenses:
Costs of sales and operating expenses 65,530 71,863 (6,333) (9)
Selling, general and administrative 13,155 12,934 221 2
Taxes, other than an income 2,517 2,638 (121) (5)
Depreciation and other amortization 9,983 10,053 (70) (1)
Amortization of goodwill -- 1,403 (1,403) --
---------- ---------- ---------- ----------
91,185 98,891 (7,706) (8)
---------- ---------- ---------- ----------
Operating income $ 22,158 $ 23,265 $ (1,107) (5)%
========== ========== ========== ==========
Operating margins 19.5% 19.0%
========== ==========
</Table>
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
<Table>
<Caption>
Nine months ended September 30,
--------------------------------------------------------
Increase (decrease)
-------------------------
2002 2001 Amount %
---------- ---------- ---------- ----------
Marine transportation revenues $ 329,679 $ 359,000 $ (29,321) (8)%
---------- ---------- ---------- ----------
Costs and expenses:
Costs of sales and operating expenses 198,179 216,453 (18,274) (8)
Selling, general and administrative 38,931 39,727 (796) (2)
Taxes, other than an income 6,820 8,199 (1,379) (17)
Depreciation and other amortization 31,447 29,756 1,691 6
Amortization of goodwill -- 4,208 (4,208) --
---------- ---------- ---------- ----------
275,377 298,343 (22,966) (8)
---------- ---------- ---------- ----------
Operating income $ 54,302 $ 60,657 $ (6,355) (10)%
========== ========== ========== ==========
Operating margins 16.5% 16.9%
========== ==========
</Table>
Revenues for the marine transportation segment decreased $8,813,000, or
7%, for the 2002 third quarter compared with the 2001 third quarter, and
$29,321,000, or 8%, for the 2002 first nine months compared with the first nine
months of 2001. The decrease for the 2002 third quarter compared with the 2001
third quarter reflected continued weak petrochemical volumes along the Gulf
Coast and lower refined products volumes into the Midwest, partially offset by
improved third quarter 2002 petrochemical volumes into the Midwest. The decrease
for the first nine months of 2002 compared with the 2001 corresponding period
reflected weak petrochemical volumes along the Gulf Coast, lower refined
products volumes into the Midwest and lower liquid fertilizer volumes, partially
offset by higher petrochemical volumes into the Midwest.
Historically, approximately 60% of marine transportation revenues have
been from petrochemical volumes. During the 2002 first half and extending
through the third quarter, petrochemical volumes into the Midwest improved;
however, petrochemical volumes along the Gulf Coast have remained depressed all
year. Refined products volumes, historically representing 20% of marine
transportation revenues, began the 2002 year strong, declined during the first
quarter, remained weak the entire second quarter, and improved during the third
quarter, the result of seasonal demand, Midwest refinery outages for maintenance
and Midwest inventory imbalances. During the 2002 first six months, high Midwest
refined products inventories and a new refined products pipeline from the Gulf
Coast to the Midwest that went online April 1, 2002, negatively impacted the
volumes moved by inland tank barges. During the first nine months of 2002, the
movement of refined products into the Midwest returned to more traditional
levels, or pre-2000 levels, driven by seasonal demand variables based on
inventory requirements and refinery outages for maintenance. Liquid fertilizer
volumes, historically
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
representing approximately 10% of marine transportation revenues, returned to
normal seasonal levels during the 2002 third quarter, a significant improvement
from the weak levels in the 2002 first half. During the 2002 first half,
significant rainfall amounts in the Midwest kept farmers out of their fields,
reducing the demand for fertilizer usage, thereby reducing the demand for the
movement of liquid fertilizer by tank barge. Black oil volumes, historically
representing approximately 10% of marine transportation revenues, remained
consistent with the volume levels for 2002 first and second quarters.
In late September 2002, Tropical Storm Isidore made landfall in central
Louisiana, creating delays and diversions of marine equipment away from the path
of the storm, and thereby lowering revenue. The impact of Tropical Storm Isidore
on the 2002 third quarter earnings was an estimated $1,200,000, or $.03 per
share after taxes.
For the 2001 third quarter and first nine months, the Company benefited
from strong refined products volumes into the Midwest and favorable black oil
volumes. The Company's liquid fertilizer volumes were at normal levels during
the 2001 third quarter and stronger than expected for the 2001 first nine
months. Petrochemical volumes were depressed for the entire first nine months of
2001, the result of a continued slow U.S. economy.
In mid-August 2001, a Chicago, Illinois area refinery fire closed the
facility for approximately six months, creating inventory imbalances in the
Midwest and increasing barge demand. The strong 2001 first half liquid
fertilizer demand was driven by high natural gas prices, which caused U.S.
manufacturers of liquid fertilizer to curtail production, which was replaced by
foreign production. The increased importation of fertilizer resulted in a
disruption of the traditional U.S. rail and barge distribution patterns and
created additional barging opportunities for the marine transportation segment.
The unseasonably strong black oil demand was driven by high natural gas prices,
creating a better market for residual fuel as a substitute for boiler fuel.
During the 2002 third quarter and first nine months, contract renewal
rates have remained relatively flat. Spot market rates during the 2002 first
quarter compared with the 2001 fourth quarter declined approximately 10% to 15%.
During the second quarter, certain spot market rated declined as much as 15% to
20% when compared with the 2001 fourth quarter, as weak petrochemical and
refined products volumes created lower utilization and excess tank barge
capacity industry wide. During the 2002 third quarter, spot market rates
remained depressed, even though petrochemical and refined products volumes into
the Midwest improved. During the 2002 third quarter and first nine months,
approximately 70% of movements were under term contract and approximately 30%
were spot market movements.
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
Total costs and expenses for the marine transportation segment for the
2002 third quarter and first nine months decreased $7,706,000, or 8%, and
$22,966,000, or 8%, respectively, compared with the 2001 third quarter and first
nine months. Costs of sales and operating expenses for the 2002 third quarter
decreased $6,333,000, or 9%, compared with the 2002 third quarter, and
$18,274,000, or 8%, for the 2002 first nine months compared with the 2001 first
nine months, primarily reflecting the decrease in marine transportation activity
and corresponding lower voyage related expenses. Costs of sales and operating
expense for the 2002 third quarter and first nine months was reduced by a
$2,200,000 adjustment to accrued liabilities for casualty losses, primarily the
result of favorable loss trends reported in the Company's latest annual
actuarial claims review. Depending on the amount of volumes moved, the segment
adjusts the number of towboats operated and crews required on a daily basis. The
Company operated 217 towboats at December 31, 2001, 203 at March 31, 198 at June
30 and 206 at September 30, 2002. Partially offsetting the operating cost
savings was the negative impact of inclement weather conditions, which decreased
revenues and increased operating expenses. Ice conditions, frontal systems, and
high water during the 2002 first half of the year required additional horsepower
to complete movements, additional fuel and other variable expenses associated
with longer transit times.
Selling, general and administrative expenses for the 2002 third quarter
increased $221,000, or 2%, compared with the 2001 third quarter, and declined
$796,000, or 2%, in the 2002 first nine months compared with the first nine
months of 2001. The 2% increase in the 2002 third quarter primarily reflected
higher employee compensation due to annual salary increases effective January
2002. The 2% decrease for the 2002 first nine months reflected lower incentive
compensation accruals and professional fees, partially offset by annual salary
increases effective January 2002.
Taxes, other than on income for the 2002 third quarter and first nine
months decreased $121,000, or 5%, and $1,379,000, or 17%, respectively, compared
with the corresponding periods of 2001. The decreases reflect lower waterway use
taxes, the result of decreased marine transportation volumes, and lower
franchise taxes attributable to legal restructuring.
Depreciation and other amortization expense for the 2002 third quarter
and first nine months decreased $70,000, or 1%, and increased $1,691,000, or 6%,
respectively, compared with the corresponding 2001 periods. The 6% increase for
the 2002 first nine months reflected new inland tank barge additions during 2001
and 2002, the acquisition of the 15 barge fleet in the 2002 first quarter and a
decrease of the remaining useful lives of certain older barges to correspond
with the anticipated retirement dates of such barges.
Operating income for the marine transportation segment for the 2002
third quarter was $22,158,000, or $1,107,000, or 5%, lower than the 2001 third
quarter operating income of $23,265,000. The 2001 third quarter's operating
income included $1,403,000 of goodwill amortization. For the 2002 first nine
months, operating income totaled $54,302,000, or $6,355,000, or 10%, lower than
the 2001 first nine months operating income of $60,657,000. The 2001 first nine
months operating income included
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
$4,208,000 of goodwill amortization. Amortization of goodwill ceased January 1,
2002 as a result of adoption of SFAS No. 142. Goodwill will be evaluated
annually for impairment.
The operating margin for the marine transportation segment for the 2002
third quarter was 19.5% compared with 19.0% for the 2001 third quarter, or 20.2%
when adjusted for goodwill amortization expense. For the 2002 first nine months,
the marine transportation operating margin was 16.5% compared with 16.9% for the
corresponding 2001 period, or 18.1% when adjusted for goodwill amortization
expense.
In September 2002, the U.S. Coast Guard issued new regulations that
require the installation of tank level monitoring devices on all single hull
tank barges by October 17, 2007. The new regulations, coupled with a market bias
against single hull tank barges, may result in a reduced life for single
hull tank barges. An analysis will be performed in the 2002 fourth quarter,
which may indicate an impairment of the affected barge classes. As of September
30, 2002, the Company owned 116 single hull tank barges with a book value of
approximately $21 million.
The following tables set forth the Company's diesel engine services
segment's revenues, costs and expenses, operating income and operating margins
for the three months and nine months ended September 30, 2002 compared with the
three months and nine months ended September 30, 2001 (dollars in thousands):
<Table>
<Caption>
Three months ended September 30,
---------------------------------------------------------------
Increase (decrease)
-----------------------------
2002 2001 Amount %
------------ ------------ ------------ ------------
Diesel engine services revenues $ 21,264 $ 19,641 $ 1,623 8%
------------ ------------ ------------ ------------
Costs and expenses:
Costs of sales and operating expenses 16,066 14,614 1,452 10
Selling, general and administrative 2,826 2,859 (33) (1)
Taxes, other than an income 65 66 (1) --
Depreciation and other amortization 265 225 40 18
Amortization of goodwill -- 118 (118) --
------------ ------------ ------------ ------------
19,222 17,882 1,340 7
------------ ------------ ------------ ------------
Operating income $ 2,042 $ 1,759 $ 283 16%
============ ============ ============ ============
Operating margins 9.6% 9.0%
============ ============
</Table>
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
<Table>
<Caption>
Nine months ended September 30,
-------------------------------------------------------
Increase (decrease)
-------------------------
2002 2001 Amount %
---------- ---------- ---------- ----------
Diesel engine services revenues $ 65,843 $ 63,547 $ 2,296 4%
---------- ---------- ---------- ----------
Costs and expenses:
Costs of sales and operating expenses 49,498 47,679 1,819 4
Selling, general and administrative 8,424 8,466 (42) --
Taxes, other than an income 214 207 7 3
Depreciation and other amortization 685 668 17 3
Amortization of goodwill -- 363 (363) --
---------- ---------- ---------- ----------
58,821 57,383 1,438 3
---------- ---------- ---------- ----------
Operating income $ 7,022 $ 6,164 $ 858 14%
========== ========== ========== ==========
Operating margins 10.7% 9.7%
========== ==========
</Table>
The diesel engine services segment's revenues for the 2002 third
quarter increased $1,623,000, or 8%, compared with the 2001 third quarter
revenues, and increased $2,296,000, or 4%, for the 2002 first nine months
compared with the first nine months of 2001. The segment benefited from strong
power generation and railroad markets for both periods, partially offset by a
weak Gulf Coast oil drilling and supply vessel market. The power generation
market benefited from favorable service and parts sales to the nuclear industry,
while the railroad market benefited from the July 2001 agreement to distribute
replacement parts for locomotive engines used by U.S. transit and Class II
railroads, as well as a rebound in the its industrial market, particularly the
U.S. steel industry. The Gulf Coast oil drilling and offshore supply vessel
market, weak since the second half of 2001, remained weak during the 2002 third
quarter and first nine months.
During the 2001 third quarter, the Gulf Coast oil drilling and supply
vessel market, which had been strong through the first six months, began to slow
as drilling activity in the Gulf of Mexico declined. The shortline and
industrial part of the railroad market was weak for the first nine months of
2001, due primarily to the weak U.S. economy and depressed U.S. steel industry.
The periods also reflected the July 2001 agreement for U.S. transit and Class II
railroads noted above.
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
Total costs and expenses for the diesel engine services segment for the
2002 third quarter increased $1,340,000, or 7%, when compared with the 2001
third quarter, and increased $1,438,000, or 3%, for the 2002 first nine months
compared with the 2001 first nine months. Costs of sales and operating expenses
for the 2002 third quarter increased $1,452,000, or 10%, compared with the 2001
third quarter, and increased $1,819,000, or 4%, for the 2002 first nine months
compared with the 2001 first nine months. The increase in costs of sales for
both 2002 periods compared with 2001 corresponding periods reflected the
increase in overall revenues noted above.
Operating income for the diesel engine services segment for the 2002
third quarter was $2,042,000, or $283,000, or 16%, higher than the 2001 third
quarter operating income of $1,759,000 that included $118,000 of goodwill
amortization expense. For the 2002 first nine months, operating income totaled
$7,022,000, or $858,000, or 14%, higher than the 2001 first nine months
operating income of $6,164,000. The 2001 first nine months operating income
included $363,000 of goodwill amortization expense.
The operating margin for the diesel engine services segment for the
2002 third quarter was 9.6% compared with 9.0% for the 2001 third quarter, or
9.6% adjusted for goodwill amortization expense. For the 2002 first nine months,
the operating margin was 10.7% compared with 9.7% for the corresponding 2001
period, or 10.3% adjusted for goodwill amortization expense. The 2002 third
quarter and first nine months operating margin was positively influenced by
increased power generation revenue, which historically earns higher gross profit
margins, and negatively influenced by increased railroad revenue, which
historically earns lower gross profit margins.
General corporate expenses for the 2002 third quarter totaled
$1,446,000, a $161,000, or 10%, decline when compared with 2001 third quarter
expenses of $1,607,000. For the 2002 first nine months, general corporate
expenses were $4,136,000, a $1,185,000, or 22%, decrease compared with the first
nine months of 2001 expenses of $5,321,000. The general corporate expenses for
both 2002 periods compared with 2001 reflected lower employee incentive
compensation accruals and professional fees, partially offset by annual salary
increases effective January 2002.
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
The following tables set forth the gain on disposition of assets,
equity in earnings (loss) of marine affiliates, other expenses and interest
expense for the three months and nine months ended September 30, 2002 compared
with the three months and nine months ended September 30, 2001 (in thousands):
<Table>
<Caption>
Three months ended September 30,
---------------------------------------------------------------
Increase (decrease)
-----------------------------
2002 2001 Amount %
------------ ------------ ------------ ------------
Gain on disposition of assets $ 425 $ 153 $ 272 178%
Equity in earnings (loss) of marine affiliates $ (68) $ 487 $ (555) (114)%
Other expenses $ (447) $ (387) $ 60 16%
Interest expense $ (3,378) $ (4,365) $ (987) (23)%
</Table>
<Table>
<Caption>
Nine months ended September 30,
---------------------------------------------------------------
Increase (decrease)
-----------------------------
2002 2001 Amount %
------------ ------------ ------------ ------------
Gain on disposition of assets $ 593 $ 268 $ 325 121%
Equity in earnings of marine affiliates $ 872 $ 2,302 $ (1,430) (62)%
Other expenses $ (788) $ (1,052) $ 264 25%
Interest expense $ (10,251) $ (14,019) $ (3,768) (27)%
</Table>
The Company reported net gains on disposition of assets of $425,000 and
$153,000 in the 2002 and 2001 third quarters, and $593,000 and $268,000 in the
2002 and 2001 first nine months, respectively. The net gains were predominately
from the sale of marine equipment.
Equity in earnings of marine affiliates declined $555,000, or 114%, for
the 2002 third quarter compared with the 2001 third quarter, and declined
$1,430,000, or 62%, for the 2002 first nine months compared with the 2001 first
nine months. Equity in earnings of marine affiliates consisted primarily of a
35% owned offshore marine partnership with a public utility consisting of four
offshore dry-cargo barge and tug units primarily transporting coal across the
Gulf of Mexico with a backhaul of limestone rock. The lower results for the 2002
third quarter and first nine months reflected reduced rates on the recently
renewed coal transportation contract, the closure for repair of the customer's
coal dock facility for two weeks during the 2002 second quarter, the timing of
maintenance on two of the four units in the partnership, and weather delays in
the 2002 third quarter from Tropical Storm Isidore.
The $987,000, or 23%, reduction in interest expense for the 2002 third
quarter compared with the 2001 third quarter, and $3,768,000, or 27%, decrease
for the 2002 first nine months compared with the 2001 first nine months, was
attributable to lower debt levels and lower interest rates. In addition, in
January 2002, the Company retired the remaining $50.0 million of 7.05% medium
term notes, refinancing the notes through the Company's bank revolving credit
facility. During the third quarter and
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
first nine months of 2002, the average interest rate under the Company's
revolving credit facility was 3.0% and 3.1%, respectively. The overall average
debt and average interest rate for the 2002 third quarter was $239,700,000 and
5.6%, compared with $256,100,000 and 6.8% for the 2001 third quarter,
respectively. For the 2002 first nine months, the average debt was $240,700,000
and the average interest rate was 5.7%, compared with average debt of
$270,100,000 and an average interest rate of 6.9% for the 2001 first nine
months.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Balance Sheet
Total assets as of September 30, 2002 were $761,623,000 compared with
$754,471,000 as of December 31, 2001. The following table sets forth the
significant components of the balance sheet as of September 30, 2002 compared
with December 31, 2001 (dollars in thousands):
<Table>
<Caption>
Increase (decrease)
September 30, December 31, --------------------------------
2002 2001 Amount %
------------- ------------- ------------- -------------
Assets:
Current assets $ 117,724 $ 113,247 $ 4,477 4%
Property and equipment, net 470,288 466,239 4,049 1
Investment in marine affiliates 13,420 13,439 (19) --
Goodwill - net 156,726 156,726 -- --
Other assets 3,465 4,820 (1,355) (28)
------------- ------------- ------------- -------------
$ 761,623 $ 754,471 $ 7,152 1%
============= ============= ============= =============
Liabilities and stockholders' equity:
Current liabilities $ 89,312 $ 97,057 $ (7,745) (8)%
Long-term debt - less current portion 232,849 249,402 (16,553) (7)
Deferred income taxes 89,424 89,542 (118) --
Minority interest and other
long-term liabilities 25,512 17,448 8,064 46
Stockholders' equity 324,526 301,022 23,504 8
------------- ------------- ------------- -------------
$ 761,623 $ 754,471 $ 7,152 1%
============= ============= ============= =============
</Table>
Current assets as of September 30, 2002 increased $4,477,000, or 4%,
compared with December 31, 2001. Cash and cash equivalents increased $2,047,000
and trade accounts receivable decreased $1,182,000, or 2%, primarily from lower
revenues. Finished goods inventory increased $1,225,000, or 8%, in support of
increased parts sales to the railroad markets and scheduled fourth quarter 2002
diesel engine services overhauls. Prepaid expenses increased $2,946,000, or 32%,
primarily due to accumulated rebillable maintenance costs on a customer's tank
barges that are leased to the Company.
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Balance Sheet - (Continued)
Property and equipment as of September 30, 2002 increased 1% when
compared with December 31, 2001. The increase reflected $39,198,000 of capital
expenditures and the purchase of $4,600,000 of existing inland tank barges, more
fully described under Capital Expenditures below, net of depreciation expense
and the disposition of marine equipment during the 2002 first nine months.
Current liabilities as of September 30, 2002 decreased $7,745,000, or
8%, compared with December 31, 2001. Accrued liabilities decreased $7,298,000,
or 13%, primarily due to lower employee incentive compensation accruals, the
timing of such compensation payments and lower accrued interest due to retired
medium term notes, offset by higher accruals for casualty losses. Deferred
revenue decreased $1,347,000, or 32%, primarily the result of several large
diesel engine services' jobs billed in December 2001 for work completed in 2002.
Long-term debt, less current portion, as of September 30, 2002 declined
$16,553,000, or 7%, primarily reflecting excess free cash flow generated by the
Company, above capital expenditures and treasury stock repurchases.
Other long-term liabilities as of September 30, 2002 increased
$8,281,000, or 57%, compared with December 30, 2001, primarily reflecting
accruals for the fair value of interest rate swaps, more fully described under
Item 3. Quantitative and Qualitative Disclosures about Market Risk below.
Stockholders' equity as of September 30, 2002 increased $23,504,000, or
8%, compared with December 31, 2001. The increase primarily reflected net
earnings of $29,521,000 for the first nine months of 2002, a net increase in
treasury stock of $1,492,000, and a $4,755,000 decrease in accumulated other
comprehensive income. The increase in treasury stock reflected $3,931,000 of
open market treasury stock purchases less a $2,439,000 associated with the
exercise of employee stock options. The $4,755,000 decrease in accumulated other
comprehensive income resulted from the net changes in the fair value of interest
rate swap agreements, net of taxes, more fully described under Item 3.
Quantitative and Qualitative Disclosures about Market Risk below.
Long-Term Financing
The Company has an unsecured $150,000,000 bank revolving credit
facility (the "Revolving Credit Facility") agented by JPMorgan Chase, with a
maturity date of October 9, 2004. The Company was in compliance with Revolving
Credit Facility covenants at September 30, 2002. As of September 30, 2002,
$47,500,000 was outstanding under the Revolving Credit Facility.
The Company has an unsecured term loan credit facility (the "Term
Loan") with a syndicate of banks, with Bank of America, N.A. as agent bank. The
Term Loan quarterly principal payments of $12,500,000, plus interest, began on
October 9, 2002, with the remaining principal due on October 9,
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Long-Term Financing - (Continued)
2004, the maturity date of the Term Loan. The principal payments of $50,000,000
due in the next twelve months were classified as long-term debt at September 30,
2002, as the Company has the ability and intent through the Revolving Credit
Facility to refinance the payments on a long-term basis. The Company was in
compliance with all Term Loan covenants at September 30, 2002. As of September
30, 2002, $184,000,000 was outstanding under the Term Loan.
The Company has an unsecured $10,000,000 line of credit ("Credit Line")
with Bank of America whereby Bank of America will provide short-term advances
and the issuance of letters of credit on an uncommitted basis. The Credit Line,
which matured on November 5, 2002, was extended to November 4, 2003. As of
September 30, 2002, $1,000,000 was outstanding under the Credit Line.
In September 2002, the Company entered into a $10,000,000 uncommitted
and unsecured revolving credit note ("Credit Note") with BNP PARIBAS whereby the
Company may request, and BNP will consider, short-term advances through the
maturity date of May 31, 2003. The Credit Note allows the Company to borrow at
an interest rate equal to BNP's current day cost of funds plus .35%. Also, in
September 2002, the Company entered into a $5,000,000 uncommitted letter of
credit line with BNP whereby the Company may request and BNP will consider,
letters of credit for periods no longer than 15 months from issuance through the
maturity date of May 31, 2003. As of September 30, 2002, neither the Credit Note
nor the letter of credit had been utilized.
The Company has on file with the Securities and Exchange Commission a
shelf registration for the issuance of up to $250,000,000 of medium term notes
("Medium Term Notes") providing for the issuance of fixed rate or floating rate
notes with a maturity of nine months or longer. As of September 30, 2002,
$121,000,000 was available under the Medium Term Notes program, subject to
mutual agreement to terms, to provide financing for future business or equipment
acquisitions, and to fund working capital requirements. On January 29, 2002, the
Company used proceeds from its Revolving Credit Facility to retire $50,000,000
of Medium Term Notes due on that date. As of September 30, 2002, there were no
outstanding Medium Term Notes.
Capital Expenditures
Capital expenditures for the 2002 first nine months totaled
$39,198,000, of which $8,875,000 was used for fleet and project construction and
$30,323,000 was used primarily for upgrading of the existing marine
transportation fleet. In addition, in March 2002, the Company purchased the
Cargo Carriers fleet of 21 inland tank barges for $2,800,000 from Cargill, and
resold six of the barges for $530,000 in April 2002. In September 2002, the
Company purchased three inland black oil tank barges from Coastal for $1,800,000
in a transaction related to the Coastal equipment purchase more fully described
under Subsequent Event.
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Capital Expenditures - (Continued)
In June 2001, the Company entered into a contract for the construction
of six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemicals and refined products. During the 2002 first
quarter, one tank barge was placed into service, two tank barges were placed
into service in the second quarter, two in the third quarter and the remaining
tank barge was placed into service in early October 2002. The total purchase
price is approximately $8,700,000, of which $6,100,000 has been expended during
2002. Financing of the remaining construction cost of the tank barges will be
through operating cash flows and borrowings under the Company's Revolving Credit
Facility.
In February 2002, the Company entered into a contract for the
construction of two double hull, 30,000 barrel capacity, inland tank barges that
will be used for transporting asphalt. Delivery of the tank barges is expected
in the first quarter of 2003. The total purchase price of the two barges is
approximately $3,600,000, of which $164,000 has been expended in 2002. Financing
of the construction of the two tank barges will be through operating cash flows
and borrowings under the Company's Revolving Credit Facility.
In February 2002, the Company also entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over a six-month period starting in March 2003. The
total purchase price of the six barges is approximately $8,700,000, of which
$780,000 has been expended in 2002. Financing of the construction of the six
barges will be through operating cash flows and borrowings under the Company's
Revolving Credit Facility.
Treasury Stock
During the 2002 third quarter, the Company purchased 165,000 shares of
its common stock at a total purchase price of $3,930,000, for an average price
of $23.76. As of November 5, 2002, the Company has 1,210,000 shares available
under its common stock repurchase authorization. Historically, treasury stock
purchases have been financed through operating cash flows and borrowings under
the Company's Revolving Credit Facility. The Company is authorized to purchase
its common stock on the New York Stock Exchange and in privately negotiated
transactions. When purchasing its common stock, the Company is subject to price,
trading volume and other market considerations. Shares purchased may be used for
reissuance upon the exercise of stock options or the granting of other forms of
incentive compensation, in future acquisitions for stock or for other
appropriate corporate purposes.
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Liquidity
For the first nine months of 2002, the Company generated net cash
provided by operating activities of $59,414,000, 25% lower than $78,775,000
generated during the nine months of 2001. Uses of cash during the 2002 first
nine months included a $6,608,000 increase in working capital, primarily due to
the timing of employee incentive compensation plan payments, as well as lower
employee incentive compensation plan accruals during the 2002 first nine months.
For the 2001 first nine months, cash provided by operating activities was
positively influenced by a $5,746,000 decrease in trade accounts receivable, the
result of an enhanced billing and collections process.
The Company accounts for its ownership in its 35% owned marine
transportation partnership, other marine partnerships and a 50% owned joint
venture under the equity method of accounting, recognizing cash flow only upon
the receipt or distribution of cash from the partnerships and joint venture. For
the 2002 and 2001 first nine months, the Company received cash totaling $962,000
and $2,524,000, respectively, from the partnerships and joint venture.
Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayment of borrowing associated with
each of the above and other operating requirements. In addition to net cash flow
provided by operating activities, the Company also had available as of November
5, 2002, $86,259,000 under its Revolving Credit Facility and $121,000,000 under
its Medium Term Notes program, subject to mutual agreement and terms. As of
November 4, 2002, the Company had $5,040,000 available under its Bank of America
Credit Line and $10,000,000 under the BNP Credit Note.
Net cash flow for the 2002 fourth quarter will be impacted by a
projected $15,000,000 to $20,000,000 contribution to the Company's defined
benefit plan for vessel personnel. The plan assets primarily consist of fixed
income securities and corporate stocks. The increased contribution will be the
result of lower interest rates and lower investment returns. Funding of the plan
is based on actuarial projections that are designed to satisfy minimum ERISA
funding requirements to achieve adequate funding of accumulated benefit
obligations. In 2001, the Company made a contribution of $6,500,000 to its
defined benefit plan for vessel personnel.
During the last three years, inflation has had a relatively minor
effect on the financial results of the Company. The marine transportation
segment has long-term contracts that generally contain cost escalation clauses
whereby certain costs, including fuel, can be passed through to its customers;
however, there is typically a 30 to 90 day delay before contracts are adjusted
for fuel prices. The repair portion of the diesel engine services segment is
based on prevailing current market rates.
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED)
Accounting Standards
In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability associated
with an asset retirement be recognized in the period in which it is incurred if
a reasonable estimate of the fair value can be determined. The associated
retirement costs are capitalized as part of the carrying amount of the
long-lived asset and depreciated over the life of the asset. SFAS No. 143 is
effective for the Company at the beginning of fiscal 2003. The Company has not
completed its analysis of the impact, if any, of the adoption of SFAS No. 143 on
its consolidated financial statements.
In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company will adopt SFAS No. 145
at the beginning of fiscal 2003 and does not expect it to have a material effect
on the Company's financial position or results of operations.
In July 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company will adopt SFAS No. 146 for all exit or disposal activities initiated
after December 31, 2002.
Subsequent Event
On October 31, 2002, the Company completed the acquisition of seven
inland black oil barges and 13 inland towboats from Coastal for $17.1 million in
cash. In addition, the Company and Coastal entered into a barge management
agreement whereby the Company will serve as manager of the combined black oil
fleet for a period of seven years. The combined black oil fleet consists of
Coastal's 54 remaining barges and the Company's 66 barges. In a related
transaction, on September 25, 2002, the Company purchased from Coastal three
black oil barges for $1.8 million in cash. Financing of the equipment
acquisitions was through the Company's revolving credit facility.
26
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates on
certain of its outstanding debt and changes in fuel prices. The outstanding loan
balance under the Company's bank credit facilities bears 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. A 10% change in variable interest rates would impact
the 2002 interest expense by approximately $271,000, based on balances
outstanding at December 31, 2001, 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 other, can be passed on to
the customers, while its spot contract rates are set based on prevailing fuel
prices. The Company does not presently use commodity derivative instruments to
manage its fuel costs. The Company has no foreign exchange risk.
From time to time, the Company has utilized and expects to continue to
utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions generally are
interest rate swap agreements and are entered into with major financial
institutions. Derivative financial instruments related to the Company's interest
rate risks are intended to reduce the Company's exposure to increases in the
benchmark interest rates underlying the Company's variable rate bank credit
facilities. The Company does not enter into derivative financial instrument
transactions for speculative purposes.
In February and April 2001, the Company hedged a portion of its
exposure to fluctuations in short-term interest rates by entering into interest
rate swap agreements with bank counterparties. Five-year swap agreements with
notional amounts totaling $100 million were executed in February 2001 and
three-year swap agreements with notional amounts totaling $50 million were
executed in April 2001. Under the swap agreements, the Company will pay to the
bank counterparties a fixed rate of 4.96% on a notional amount of $50 million
for three years, an average fixed rate of 5.64% on a notional amount of $100
million for five years, and will receive from the bank counterparties floating
rate interest payments based on the LIBOR for United States dollar deposits. The
interest rate swap agreements are designated as cash flow hedges, therefore, the
changes in fair value, to the extent the swap agreements are effective, are
recognized in other comprehensive income until the hedged interest expense is
recognized in earnings. No gain or loss on ineffectiveness was recognized for
the three months and nine months ended September 30, 2002. The fair value of the
interest rate swap agreements was recorded as other long-term liability of
$12,491,000 at September 30, 2002. The Company has recorded, in interest
expense, losses related to the interest rate swap agreements of $1,407,000 and
$4,053,000 for the three months and first nine months ended September 30, 2002,
respectively. The Company anticipates $3,589,000 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 September 30, 2002 based on quoted market values, the Company's portfolio
of derivative instruments, and the Company's measurement of hedge effectiveness.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"))
as of a date within ninety days of the filing date of this quarterly report, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
27
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
that the disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) Changes in internal controls. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their evaluation. There were
no significant deficiencies or material weaknesses in the internal controls.
28
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 division of the Company. The Company cooperated fully with the
authorities in the investigation. Western plead guilty to one violation of the
Clean Water Act for discharging washwater from the facility in violation of the
facility's permit and was fined $30,000 for the violation.
The Company and a group of approximately 45 other companies have been notified
that they are Potentially Responsible Parties ("PRPs") under Comprehensive
Environmental Response, Compensation and Liability Act with respect to a
potential Superfund site, the Palmer Barge Line Site ("Palmer"), located in Port
Arthur, Texas. In prior years, Palmer had provided tank barge cleaning services
to various subsidiaries of the Company. The Company and three other PRPs have
entered into an agreement with the EPA to perform a remedial investigation and
feasibility study. Based on information currently available, the Company is
unable to ascertain the extent of its exposure, if any, in this matter.
In addition, there are various other suits and claims against the Company, none
of which in the opinion of management will have a material effect on the
Company's financial condition, results of operations or cash flows. Management
has recorded necessary reserves and believes that it has adequate insurance
coverage or has meritorious defenses for these other claims and contingencies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
September 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIRBY CORPORATION
(Registrant)
By: /s/ NORMAN W. NOLEN
------------------------------------
Norman W. Nolen
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: November 6, 2002
29
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
In connection with the filing of the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002 by Kirby Corporation, J.H. Pyne, President and
Chief Executive Officer, hereby certifies that:
1. I have reviewed this quarterly report on Form 10-Q of Kirby
Corporation (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the
periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the
audit committee of the Company's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
30
6. The Company's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ J. H. PYNE
-------------------------------------
J. H. Pyne
President and Chief Executive Officer
Dated: November 6, 2002
31
CERTIFICATION OF CHIEF FINANCIAL OFFICER
In connection with the filing of the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002 by Kirby Corporation, Norman W. Nolen,
Executive Vice President, Treasurer and Chief Financial Officer, hereby
certifies that:
1. I have reviewed this quarterly report on Form 10-Q of Kirby
Corporation (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the
periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the
audit committee of the Company's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
32
6. The Company's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ NORMAN W. NOLEN
----------------------------------------
Norman W. Nolen
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: November 6, 2002
33
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
99.1 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
</Table>
34