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 March 31, 2003
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-7615
Kirby Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 74-1884980
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
55 Waugh Drive, Suite 1000, Houston, TX 77007
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(713) 435-1000
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock, $.10 par
value per share, on May 9, 2003 was 24,096,000.
Part I Financial Information
Item 1. Financial Statements
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2003 2002
---------- ------------
($ in thousands)
Current assets:
Cash and cash equivalents $ 1,964 $ 1,432
Accounts receivable:
Trade - less allowance for doubtful accounts 86,029 79,829
Insurance claims and other 5,484 6,129
Inventory - finished goods 15,514 15,549
Prepaid expenses and other current assets 13,224 12,777
Deferred income taxes 3,435 3,752
---------- ----------
Total current assets 125,650 119,468
---------- ----------
Property and equipment 852,126 797,937
Less accumulated depreciation 323,226 311,085
---------- ----------
528,900 486,852
---------- ----------
Investment in marine affiliates 9,924 10,238
Goodwill - net 156,726 156,726
Other assets 19,254 18,474
---------- ----------
$ 840,454 $ 791,758
========== ==========
See accompanying notes to condensed financial statements.
2
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2003 2002
--------- ------------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 336 $ 336
Income taxes payable 5,355 1,443
Accounts payable 45,001 37,509
Accrued liabilities 48,854 47,392
Deferred revenues 3,826 4,565
--------- ---------
Total current liabilities 103,372 91,245
--------- ---------
Long-term debt - less current portion 295,181 265,665
Deferred income taxes 85,483 85,768
Minority interests 2,915 2,691
Other long-term liabilities 22,921 23,078
--------- ---------
406,500 377,202
--------- ---------
Contingencies and commitments -- --
Stockholders' equity:
Preferred stock, $1.00 par value per share. Authorized
20,000,000 shares -- --
Common stock, $.10 par value per share. Authorized
60,000,000 shares, issued 30,907,000 shares 3,091 3,091
Additional paid-in capital 177,058 176,867
Accumulated other comprehensive income (7,845) (8,062)
Deferred compensation (1,204) --
Retained earnings 276,525 269,657
--------- ---------
447,625 441,553
Less cost of 6,815,000 shares in treasury (6,900,000 at
December 31, 2002) 117,043 118,242
--------- ---------
330,582 323,311
--------- ---------
$ 840,454 $ 791,758
========= =========
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended
March 31,
----------------------
2003 2002
---- ----
($ in thousands, except
per share amounts)
Revenues:
Marine transportation $ 125,065 $108,990
Diesel engine services 23,135 22,447
--------- --------
148,200 131,437
--------- --------
Costs and expenses:
Costs of sales and operating expenses 100,851 83,470
Selling, general and administrative 17,561 17,200
Taxes, other than on income 3,051 2,349
Depreciation and other amortization 12,232 11,522
Loss (gain) on disposition of assets 7 (141)
--------- --------
133,702 114,400
--------- --------
Operating income 14,498 17,037
Equity in earnings of marine affiliates 436 803
Other expense (403) (127)
Interest expense (3,454) (3,507)
--------- --------
Earnings before taxes on income 11,077 14,206
Provision for taxes on income (4,209) (5,398)
--------- --------
Net earnings $ 6,868 $ 8,808
========= ========
Net earnings per share of common stock:
Basic $ .29 $ .37
========= ========
Diluted $ .28 $ .36
========= ========
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
----------------------------
2003 2002
---- ----
($ in thousands)
Cash flows from operating activities:
Net earnings $ 6,868 $ 8,808
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization 12,232 11,522
Deferred income taxes (85) (1,047)
Equity in earnings of marine affiliates, net of distributions and
contributions 314 (139)
Other 802 61
Increase in cash flows resulting from changes in operating
working capital 5,235 3,976
---------- ----------
Net cash provided by operating activities 25,366 23,181
---------- ----------
Cash flows from investing activities:
Capital expenditures (18,752) (17,320)
Acquisition of marine equipment (36,316) (2,800)
Proceeds from disposition of assets 261 1,256
---------- ----------
Net cash used in investing activities (54,807) (18,864)
---------- ----------
Cash flows from financing activities:
Borrowings (payments) on bank credit facilities, net (220,400) 42,500
Borrowings (payments) on long-term debt, net 249,916 (50,084)
Proceeds from exercise of stock options 626 2,022
Other (169) (363)
---------- ----------
Net cash provided by (used in) financing activities 29,973 (5,925)
---------- ----------
Increase (decrease) in cash and cash equivalents 532 (1,608)
Cash and cash equivalents, beginning of year 1,432 1,850
---------- ----------
Cash and cash equivalents, end of period $ 1,964 $ 242
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 2,918 $ 4,569
Income taxes $ 41 $ 1,478
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 March 31,
2003 and December 31, 2002, and the results of operations for the three months
ended March 31, 2003 and 2002.
(1) BASIS FOR PREPARATION OF THE CONDENSED FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the Company believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including significant accounting
policies normally included in annual financial statements, have been condensed
or omitted pursuant to such rules and regulations. It is suggested that these
condensed financial statements be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
(2) ACQUISITIONS
On January 15, 2003, the Company purchased from SeaRiver Maritime, Inc.
("SeaRiver"), the U.S. transportation affiliate of Exxon Mobil Corporation, 45
double hull inland tank barges and seven inland towboats for $32,113,000 in
cash, and assumed from SeaRiver the leases of 16 double hull inland tank barges.
On February 28, 2003, the Company purchased three double hull inland tank barges
leased by SeaRiver from Banc of America Leasing & Capital, LLC ("Banc of America
Leasing") for $3,453,000 in cash. The Company entered into a contract to provide
inland marine transportation services to SeaRiver, transporting petrochemicals,
refined petroleum products and black oil products throughout the Gulf
Intracoastal Waterway and the Mississippi River System. Financing of the
equipment acquisitions was through the Company's revolving credit facility.
In March 2002, the Company purchased the Cargo Carriers fleet of 21
inland tank barges for $2,800,000 in cash from Cargill Corporation ("Cargill"),
and resold six of the tank barges for $530,000 in April 2002. Financing of the
equipment acquisition was through the Company's revolving credit facility.
On October 31, 2002, the Company completed the acquisition of seven
inland tank barges and 13 inland towboats from Coastal Towing, Inc. ("Coastal")
for $17,053,000 in cash. In addition, the Company and Coastal entered into a
barge management agreement whereby the Company will serve as manager of the two
companies' combined black oil fleet for a period of seven years. The combined
black oil fleet consists of 54 barges owned by Coastal and the Company's 66
black oil barges. Coastal is engaged in the inland tank barge transportation of
black oil products along the Gulf Intracoastal Waterway and the Mississippi
River and its tributaries. In a related transaction, on September 25, 2002, the
Company purchased from Coastal three black oil tank barges for $1,800,000 in
cash. Financing of the equipment acquisitions was through the Company's
revolving credit facility.
6
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(2) ACQUISITIONS - (Continued)
On December 15, 2002, the Company completed the acquisition of 94
inland tank barges from Union Carbide Finance Corporation ("Union Carbide") for
$23,000,000. Nine of the 94 tank barges were out-of-service and will be sold.
The Company had operated the tank barges since February 2001 under a long-term
lease agreement between the Company and Union Carbide. The Dow Chemical Company
("Dow") acquired the inland tank barges as part of the February 2001 merger
between Union Carbide Corporation and Dow. The Company has a long-term contract
with Dow to provide for Dow's bulk liquid inland marine transportation
requirements throughout the United States inland waterway system. With the
merger between Union Carbide and Dow, the Company's long-term contract with Dow
was amended to provide for Union Carbide's liquid inland marine transportation
requirements. Financing of the equipment acquisition was through the Company's
revolving credit facility.
(3) ACCOUNTING STANDARDS
In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability associated
with an asset retirement be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be determined. The associated retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. The Company adopted SFAS No. 143
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.
In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company adopted SFAS No. 145
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.
In July 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company adopted SFAS No. 146 for all exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS 146 did not have an impact in the
quarter, as there were no applicable exit or disposal activities.
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others, an interpretation of FASB Statements No. 5, 57, and 197 and a rescission
of FASB Interpretation No. 34." This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
of a guarantee, a liability for the fair value of the obligation undertaken. The
disclosure requirements are effective for the Company's financial statements for
interim and annual periods ending after December 15, 2002. The Company adopted
the recognition provisions of the Interpretation effective January 1, 2003 for
guarantees issued or modified after December 31, 2002. The adoption of the
Interpretation did not have a material effect on the Company's financial
position or results of operations. The Company's guarantees as of March 31, 2003
are described in Note 8, Contingencies.
In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No.
148") was issued. SFAS No. 148 amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123")
and provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.
The Company accounts for stock-based compensation utilizing the
intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
intrinsic value method of accounting is used for stock-based employee
compensation whereby no compensation expense is recorded when the stock option
exercise price is equal to, or greater than, the market price of the Company's
common stock on the date of the grant.
The following table summarizes pro forma net earnings and earnings per
share for the three months ended March 31, 2003 and 2002 assuming the Company
had used the fair value method of accounting for its stock option plans (in
thousands, except per share amounts):
Three months ended
March 31,
------------------
2003 2002
---- ----
Net earnings, as reported $ 6,868 $ 8,808
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (846) (662)
---------- ---------
Pro forma net earnings $ 6,022 $ 8,146
========== =========
Earnings per share:
Basic - as reported $ .29 $ .37
Basic - pro forma $ .25 $ .34
Diluted - as reported $ .28 $ .36
Diluted - pro forma $ .25 $ .33
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
The weighted average fair value of options granted during the 2003 and
2002 first quarters were $14.26 and $14.55, respectively. The fair value was
determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were as follows: no dividend yield for any
period; average risk-free interest rate based on five- and 10-year Treasury
bonds - 1.3% for 2003 first quarter and 1.9% for 2002 first quarter; stock price
volatility - 68% for 2003 first quarter and 67% for 2002 first quarter; and
estimated option term - four or nine years.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interest in variable interest entities created after
January 31, 2003, and to variable interests in variable entities obtained after
January 31, 2003. The application of this Interpretation is not expected to have
a material effect on the Company's financial position or results of operations.
(4) COMPREHENSIVE INCOME
The Company's total comprehensive income for the three months ended
March 31, 2003 and 2002 were as follows (in thousands):
Three months ended March 31,
----------------------------
2003 2002
---- ----
Net earnings $ 6,868 $ 8,808
Change in fair value of derivative financial instruments,
net of tax 217 1,178
---------- --------
Total comprehensive income $ 7,085 $ 9,986
========== =========
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(5) SEGMENT INFORMATION
The following table sets forth the Company's revenues and profit (loss)
by reportable segment for the three months ended March 31, 2003 and 2002 and
total assets as of March 31, 2003 and December 31, 2002 (in thousands):
Three months ended March 31,
----------------------------
2003 2002
---- ----
Revenues:
Marine transportation $ 125,065 $ 108,990
Diesel engine services 23,135 22,447
---------- ---------
$ 148,200 $ 131,437
========== =========
Segment profit (loss):
Marine transportation $ 13,704 $ 15,961
Diesel engine services 2,417 2,371
Other (5,044) (4,126)
---------- ---------
$ 11,077 $ 14,206
========== =========
March 31, December 31,
2003 2002
---------- ------------
Total assets:
Marine transportation $ 772,965 $ 726,353
Diesel engine services 46,494 45,531
Other 20,995 19,874
---------- ---------
$ 840,454 $ 791,758
========== =========
The following table presents the details of "Other" segment profit
(loss) for the three months ended March 31, 2003 and 2002 (in thousands):
Three months ended March 31,
----------------------------
2003 2002
---- ----
General corporate expenses $ (1,616) $ (1,436)
Gain (loss) on disposition of assets (7) 141
Interest expense (3,454) (3,507)
Equity in earnings of marine affiliates 436 803
Other expense (403) (127)
---------- ---------
$ (5,044) $ (4,126)
========== =========
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(5) SEGMENT INFORMATION - (Continued)
The following table presents the details of "Other" total assets as of
March 31, 2003 and December 31, 2002 (in thousands):
March 31, December 31,
2003 2002
--------- ------------
General corporate assets $ 11,071 $ 9,636
Investment in marine affiliates 9,924 10,238
--------- ------------
$ 20,995 $ 19,874
========= ============
(6) TAXES ON INCOME
Details of the provision for taxes on income for the three months ended
March 31, 2003 and 2002 were as follows (in thousands):
Three months ended
March 31,
------------------
2003 2002
----- -----
Provision for taxes on income:
Current $ 4,110 $ 6,130
Deferred (260) (1,047)
State and local 359 315
------- -------
$ 4,209 $ 5,398
======= =======
11
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 ended March 31, 2003 and 2002 (in
thousands, except per share amounts):
Three months ended
March 31,
------------------
2003 2002
---- ----
Net earnings $ 6,868 $ 8,808
======== =======
Basic earnings per share:
Weighted average number of common shares outstanding 24,062 24,079
======== =======
Basic earnings per share $ .29 $ .37
======== =======
Diluted earnings per share:
Weighted average number of common shares outstanding 24,062 24,079
Dilutive shares applicable to stock options 265 466
-------- -------
Shares applicable to diluted earnings 24,327 24,545
======== =======
Diluted earnings per share $ .28 $ .36
======== =======
Certain outstanding options to purchase approximately 762,000 shares of
common stock were excluded in the computation of diluted earnings per share as
of March 31, 2003, as such stock options would have been antidilutive. No
options were excluded in the computation of diluted earnings per share as of
March 31, 2002.
(8) CONTINGENCIES
The Company has issued guaranties or obtained stand-by letters of
credit and performance bonds supporting performance by the Company and its
subsidiaries of contractual or contingent legal obligations of the Company and
its subsidiaries incurred in the ordinary course of business. The aggregate
notional value of these instruments is $6,555,000 at March 31, 2003, including
$1,600,000 in letters of credit and $4,955,000 in performance bonds, of which
$4,718,000 of these financial instruments relates to contingent legal
obligations, which are covered by the Company's liability insurance program in
the event the obligations are incurred. All of these instruments have an
expiration date within two years. The Company does not believe demand for
payment under these instruments is likely and expects no material cash outlays
to occur in connection with these instruments.
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8) CONTINGENCIES - (Continued)
The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.
In addition, there are various other suits and claims against the
Company, none of which in the opinion of management will have a material effect
on the Company's financial condition, results of operations or cash flows.
Management has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Form 10-Q that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, adverse weather conditions such as high water, low water,
tropical storms, hurricanes, fog and ice, marine accidents, lock delays, fuel
costs, interest rates, construction of new equipment by competitors, including
construction with government assisted financing, government and environmental
laws and regulations, and the timing, magnitude and number of acquisitions made
by the Company.
ACQUISITIONS
In March 2002, the Company purchased the Cargo Carriers fleet of 21
inland tank barges for $2,800,000 in cash from Cargill, and resold six of the
tank barges for $530,000 in April 2002.
On October 31, 2002, the Company completed the acquisition of seven
inland black oil tank barges and 13 inland towboats from Coastal for $17,053,000
in cash. In addition, the Company and Coastal entered into a barge management
agreement whereby the Company will serve as manager of the two companies'
combined black oil fleet for a period of seven years. The combined black oil
fleet consists of 54 barges owned by Coastal and the Company's 66 black oil
barges. In a related transaction, on September 25, 2002, the Company purchased
from Coastal three black oil tank barges for $1,800,000 in cash.
On December 15, 2002, the Company purchased from Union Carbide 94
double hull inland tank barges for $23,000,000. Nine of the 94 tank barges were
out-of-service and will be sold. The Company had operated the tank barges since
February 2001 under a long-term lease agreement between the Company and Union
Carbide, following the February 2001 merger between Union Carbide and Dow. The
Company has a long-term contract with Dow to provide for Dow's bulk liquid
inland marine transportation requirements.
On January 15, 2003, the Company purchased from SeaRiver, the U.S.
transportation affiliate of ExxonMobil, 45 double hull inland tank barges and
seven inland towboats for $32,113,000 in cash, and assumed from SeaRiver the
leases of 16 double hull inland tank barges. On February 28, 2003, the Company
purchased three double hull inland tank barges leased by SeaRiver from Banc of
America Leasing for $3,453,000 in cash. In addition, the Company entered into a
contract to provide inland marine transportation services to SeaRiver.
RESULTS OF OPERATIONS
The Company reported first quarter 2003 net earnings of $6,868,000, or
$.28 per share, on revenues of $148,200,000, compared with 2002 first quarter
net earnings of $8,808,000, or $.36 per share, on revenues of $131,437,000.
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS - (CONTINUED)
Marine transportation revenues for the 2003 first quarter totaled
$125,065,000, or 84% of total revenues, compared with $108,990,000, or 83% of
total revenues for the 2002 first quarter. Diesel engine services revenues for
the 2003 first quarter was $23,135,000, or 16% of total revenues, compared with
$22,447,000, or 17% of total revenues for the first quarter of 2002.
For purposes of the Management's Discussion, all earnings per share are
"Diluted earnings per share." The weighted average number of common shares
applicable to diluted earnings for the 2003 and 2002 first quarters were
24,327,000 and 24,545,000, respectively. The decrease in the weighted average
number of common shares for the 2003 first quarter compared with the 2002 first
quarter primarily reflected fewer dilutive shares applicable to stock option
plans due to the exclusion of certain outstanding options to purchase
approximately 762,000 shares of common stock in the computation of diluted
earnings per share as of March 31, 2003, as such stock options would have been
antidilutive. No options were excluded in the computation of diluted earnings
per share as of March 31, 2002.
MARINE TRANSPORTATION
The Company, through its marine transportation segment, is a provider
of marine transportation services, operating a current fleet of 905 active
inland tank barges and 226 active inland towing vessels, transporting
petrochemicals, black oil products, refined petroleum products and agricultural
chemicals along the United States inland waterways. The marine transportation
segment is also the managing partner of a 35% owned offshore marine partnership,
consisting of four dry-bulk barge and tug units. The partnership is accounted
for under the equity method of accounting.
The following table sets forth the Company's marine transportation
segment's revenues, costs and expenses, operating income and operating margins
for the three months ended March 31, 2003 compared with the three months ended
March 31, 2002 (dollars in thousands):
Three months ended
March 31,
-------------------
2003 2002 % Change
-------- -------- --------
Marine transportation revenues $125,065 $108,990 15%
-------- -------- ------
Costs and expenses:
Costs of sales and operating expenses 83,171 66,447 25
Selling, general and administrative 13,783 13,635 1
Taxes, other than on income 2,902 2,199 32
Depreciation and other amortization 11,505 10,748 7
-------- -------- ------
111,361 93,029 20
-------- -------- ------
Operating income $ 13,704 $ 15,961 (14)%
======== ======== ======
Operating margins 11.0% 14.6%
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION REVENUES
Revenues for the 2003 first quarter were 15% over the 2002 first
quarter. The increase included revenues generated from the October 2002
acquisition of 10 inland tank barges and seven towboats from Coastal and the
signing of a barge management agreement to manage Coastal's remaining 54 tank
barges. The increase also included revenues generated from the purchase of 48
inland tank barges and seven towboats, and the assumption of 16 leased inland
tank barges, from SeaRiver in January 2003.
Petrochemical volumes into the Midwest continued to gradually improve
in the 2003 first quarter, a trend since mid-2002, as Midwest manufacturers
replenished low inventory levels of petrochemicals. Black oil volumes also
increased due to greater demand for residual oil as a substitute for boiler fuel
and cat cracker feedstock for the production of mostly refined products. Refined
products volumes were soft at the beginning of the first quarter, but
strengthened in March. Liquid fertilizer volumes were weak the entire first
quarter, as the U.S. production of agricultural chemicals was significantly
curtailed due to high feedstock cost, principally natural gas.
During the 2003 first quarter, approximately 70% of marine
transportation volumes were under term contracts and 30% were spot market
volumes. Contract renewals remained relatively flat during the 2003 first
quarter. Spot market rates for the first quarter of 2003 increased about 10%
when compared with 2002 lows experienced in the third quarter of 2002, as
transportation volumes, excluding agricultural chemicals, gradually improved and
navigational delays during the quarter increased tank barge utilization.
MARINE TRANSPORTATION COSTS AND EXPENSES
Total costs and expenses for the 2003 first quarter were 20% above the
first quarter of 2002, partially reflecting the additional costs and expenses
associated with operating additional tank barges and towboats from the March
2002 purchase of the Cargill fleet, the tank barges and towboats purchased from
Coastal in October 2002 and related barge management agreement signed with
Coastal, and the SeaRiver fleet acquisition in January 2003.
Costs of sales and operating expenses for the 2003 first quarter were
25% higher than the 2002 first quarter, reflecting additional vessel personnel
and higher operating expenses from the acquisitions noted above. The 2003 first
quarter costs and expenses were also higher due to navigational delays caused by
periods of both high and low water levels on the Mississippi River System, and
numerous instances of fog and high winds along the Gulf Intracoastal Waterway.
Navigational delays also resulted from repairs to a major lock located on the
Gulf Intracoastal Waterway. The navigational delays necessitated the use of
additional chartered towboats to meet service requirements and schedules. In
addition, the segment incurred significantly higher fuel costs during the 2003
first quarter. The average price per gallon of diesel fuel consumed in the 2003
first quarter was $1.03, up 78% from the 2002 first quarter average price of 58
cents. Term contracts contain fuel escalation clauses; however, there is
generally a 30 to 90 day delay before contracts are adjusted. It is estimated
that the higher fuel prices reduced the Company's 2003 first quarter earnings by
approximately $.05 per share.
Taxes, other than on income, were 32% higher in the 2003 first quarter
than the first quarter of 2002, primarily reflecting increased waterway use
taxes and property taxes resulting from the 2002 and first quarter 2003
acquisitions and equipment purchases noted above.
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Depreciation and other amortization increased 7% in the 2003 first
quarter compared with the corresponding quarter of 2002. The increase reflected
new tank barge additions in 2002 and 2003, as well as the acquisitions and
equipment purchases noted above.
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
Operating income for the 2003 first quarter decreased 14% compared with
the first quarter of 2002. The operating margin for the 2003 first quarter was
11.0% compared with 14.6% for the 2002 first quarter. The lower operating margin
reflected more severe winter weather conditions in the first quarter of 2003
compared with the prior year first quarter, major repairs to a critical lock on
the Gulf Intracoastal Waterway and rapidly escalating fuel prices during the
2003 first quarter.
DIESEL ENGINE SERVICES
The Company, through its diesel engine services segment, sells genuine
replacement parts, provides service mechanics to overhaul and repair large
medium-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire large medium-speed diesel engines or entire
reduction gears. The segment services the marine, power generation and
industrial, and railroad markets.
The following table sets forth the Company's diesel engine services
segment's revenues, costs and expenses, operating income and operating margins
for the three months ended March 31, 2003 compared with the three months ended
March 31, 2002 (dollars in thousands):
Three months ended
March 31,
-------------------
2003 2002 % Change
-------- -------- --------
Diesel engine services revenues $ 23,135 $ 22,447 3%
-------- -------- -----
Costs and expenses:
Costs of sales and operating expenses 17,629 16,959 4
Selling, general and administrative 2,754 2,818 (2)
Taxes, other than on income 83 87 (5)
Depreciation and other amortization 252 212 19
-------- -------- -----
20,718 20,076 3
-------- -------- -----
Operating income $ 2,417 $ 2,371 2%
======== ======== =====
Operating margins 10.4% 10.6%
DIESEL ENGINE SERVICES REVENUES
The diesel engine services segment's revenues for the 2003 first
quarter increased 3% compared with the 2002 first quarter. The segment benefited
from strong East Coast marine, power generation and industrial, and railroad
markets. These markets were partially offset by a continued weak Gulf Coast oil
and gas services market and a poor Midwest dry cargo barge market.
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
DIESEL ENGINE SERVICES COSTS AND EXPENSES
Costs and expenses for the 2003 first quarter increased 3% compared
with the first quarter of 2002, and were in line with the 3% increase in 2003
first quarter revenues.
DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
The diesel engine services segment reported an operating margin of
10.4% for the 2003 first quarter, relatively constant with the 10.6% reported
for the 2002 first quarter.
GENERAL CORPORATE EXPENSES
General corporate expenses for the 2003 first quarter were $1,616,000
compared with $1,436,000 for the first quarter of 2002. The 13% increase
primarily reflected higher legal and professional fees.
OTHER INCOME AND EXPENSES
The following table sets forth the gain (loss) on disposition of
assets, equity in earnings of marine affiliates, other expense and interest
expense for the three months ended March 31, 2003 compared with the three months
ended March 31, 2002 (dollars in thousands):
Three months ended
March 31,
-------------------
2003 2002 % Change
-------- -------- --------
Gain (loss) on disposition of assets $ (7) $ 141 (105)%
Equity in earnings of marine affiliates $ 436 $ 803 (46)%
Other expense $ (403) $ (127) 217%
Interest expense $ (3,454) $ (3,507) (2)%
EQUITY IN EARNINGS OF MARINE AFFILIATES
Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, declined 46% for the 2003 first quarter
compared with the corresponding quarter of 2002. The lower results primarily
reflected reduced rates on the April 2002 renewed coal transportation contract.
INTEREST EXPENSE
Interest expense for the 2003 first quarter decreased 2% compared with
the first quarter of 2002, as a lower average interest rate offset higher
average debt. The average debt and average interest rate for the 2003 and 2002
first quarter, including the effect of interest rate swaps, were $289,161,000
and 4.8%, and $241,978,000 and 5.9%, respectively.
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of March 31, 2003 were $840,454,000, a 6% increase
compared with $791,758,000 as of December 31, 2002. The following table sets
forth the significant components of the balance sheet as of March 31, 2003
compared with December 31, 2002 (dollars in thousands):
March 31, December 31,
2003 2002 % Change
--------- ------------ --------
Assets:
Current assets $ 125,650 $ 119,468 5%
Property and equipment, net 528,900 486,852 9
Investment in marine affiliates 9,924 10,238 (3)
Goodwill, net 156,726 156,726 --
Other assets 19,254 18,474 4
--------- ---------- ----
$ 840,454 $ 791,758 6%
========= ========== ====
Liabilities and stockholders' equity:
Current liabilities $ 103,372 $ 91,245 13%
Long-term debt - less current portion 295,181 265,665 11
Deferred income taxes 85,483 85,768 --
Minority interest and other
long-term liabilities 25,836 25,769 --
Stockholders' equity 330,582 323,311 2
--------- ---------- ----
$ 840,454 $ 791,758 6%
========= ========== ====
Current assets as of March 31, 2003 increased 5% compared with December
31, 2002. Trade accounts receivable increased 8%, primarily reflecting the
acquisition of the SeaRiver fleet in January 2003 and corresponding increase in
marine transportation business with SeaRiver. Insurance claims and other
receivables decreased 11% primarily due to collection of claims receivables and
the downward adjustment of certain claims.
Property and equipment, net of accumulated depreciation, at March 31,
2003 increased 9% compared with December 31, 2002. The increase reflected
$18,752,000 of capital expenditures, the acquisition of the SeaRiver fleet for
$35,566,000, less $12,177,000 of depreciation expense for the 2003 first
quarter.
Current liabilities as of March 31, 2003 increased 13% compared with
December 31, 2002. Income taxes payable increased 271%, as no estimated federal
income tax payment is due in the first quarter of the year. Accounts payable
reflected a 20% increase, mainly due to increased business activity levels,
primarily from the SeaRiver fleet acquisition.
Long-term debt, less current portion, as of March 31, 2003 increased
11% compared with December 31, 2002. The increase was impacted by borrowings to
finance the 2003 first quarter SeaRiver marine equipment acquisition and the
2003 first quarter capital expenditures, less the paydown of long-term debt from
cash flow generated by the Company in the 2003 first quarter.
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Stockholders' equity as of March 31, 2003 increased 2% compared with
December 31, 2002. The increase primarily reflected 2003 first quarter net
earnings of $6,868,000, a decrease in treasury stock of $1,199,000 and an
increase in additional paid-in capital of $191,000 from the exercise of employee
and director stock options, and the recording of $1,204,000 of deferred
compensation related to restricted stock grants.
LONG-TERM FINANCING
The Company has an unsecured $150,000,000 revolving credit facility
("Revolving Credit Facility"), agented by JPMorgan Chase, with a maturity date
of October 9, 2004. As of March 31, 2003, the Company had no borrowings
outstanding under the Revolving Credit Facility and had outstanding letters of
credit totaling $778,000. The Company was in compliance with all Revolving
Credit Facility covenants at March 31, 2003.
The Company has an unsecured term loan ("Term Loan") provided by a
syndicate of banks, with Bank of America, N.A. as agent bank. As of March 31,
2003, $37,500,000 was outstanding under the Term Loan. The principal amounts due
within one year were classified as long-term debt, as the Company has the
ability and intent through the Revolving Credit Facility to refinance the
payments on a long-term basis. The Term Loan requires quarterly principal
payments of $12,500,000, plus interest. The Company was in compliance with all
Term Loan covenants at March 31, 2003.
On February 28, 2003, the Company issued $250,000,000 of floating rate
senior notes ("Senior Notes") due February 28, 2013. The unsecured Senior Notes
pay interest quarterly at a rate equal to the London Interbank Offered Rate
("LIBOR") plus a margin of 1.2%. The notes are callable at par after one year
without penalty and no principal payments are required until maturity in 2013.
The proceeds of the Senior Notes were used to repay $121,500,000 of the
outstanding balance on the Term Loan and $128,500,000 of the outstanding balance
on the Revolving Credit Facility. The Company was in compliance with all Senior
Notes covenants at March 31, 2003.
The Company has an uncommitted $10,000,000 line of credit ("Credit
Line") with Bank of America, N.A. for short-term liquidity needs and letters of
credit. The Credit Line matures on November 4, 2003. As of March 31, 2003,
$2,500,000 was borrowed under the Credit Line and outstanding letters of credit
totaled $572,000. Amounts borrowed on the Credit Line were classified as
long-term debt at March 31, 2003, as the Company has the ability and intent
through the Revolving Credit Facility to refinance the short-term notes on a
long-term basis.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The Company has an uncommitted $5,000,000 revolving credit note
("Credit Note") with BNP Paribus ("BNP") for short-term liquidity needs. The
Credit Note originally had a $10,000,000 borrowing limit but was reduced to
$5,000,000 on February 27, 2003 by mutual agreement between BNP and the Company.
In September 2002, the Company entered into a $5,000,000 uncommitted letter of
credit line with BNP. On February 27, 2003, the $5,000,000 uncommitted letter of
credit line was cancelled due to a lack of need. As of March 31, 2003,
$5,000,000 was borrowed under the Credit Note and classified as long-term debt,
as the Company has the ability and intent through the Revolving Credit Facility
to refinance the short-term notes on a long-term basis.
The Company has on file with the Securities and Exchange Commission a
shelf registration for the issuance of up to $250,000,000 of debt securities,
including medium term notes, providing for the issuance of fixed rate or
floating rate notes with a maturity of nine months or longer. As of March 31,
2003, $121,000,000 was available under the shelf registration, subject to mutual
agreement to terms, to provide financing for future business or equipment
acquisitions, and to fund working capital requirements. As of March 31, 2003,
there were no outstanding debt securities under the shelf registration.
In February and April 2001, the Company hedged a portion of its
exposure to fluctuations in short-term interest rates under its Revolving Credit
Facility and Term Loan by entering into interest rate swap agreements. Five-year
interest rate swaps with notional amounts totaling $100,000,000 were executed in
February 2001 and three-year interest rate swaps with notional amounts totaling
$50,000,000 were executed in April 2001. On February 28, 2003, in connection
with the issuing of the Senior Notes, the Company hedged a further portion of
its exposure to fluctuations in short-term interest rates with a one-year
interest rate swap with a notional amount of $100,000,000. The February and
April 2001 interest rate swaps totaling $150,000,000 were re-designated as cash
flow hedges for the Senior Notes. Under the swap agreements, the Company will
pay a fixed rate of 4.96% on a notional amount of $50,000,000 for three years,
an average fixed rate of 5.64% on a notional amount of $100,000,000 for five
years, and a fixed rate of 1.39% on a notional amount of $100,000,000 for one
year, and will receive floating rate interest payments based on LIBOR. The
interest rate swaps are designated as cash flow hedges and the changes in fair
value, to the extent the swap agreements are effective, are recognized in other
comprehensive income until the hedged interest expense is recognized in
earnings. As of March 31, 2003, the Company had a total notional amount of
$250,000,000 of interest rate swaps designated as cash flow hedges for its
Senior Notes. These interest rate swaps hedge a significant portion of the
Company's long-term debt and only an immaterial loss on ineffectiveness was
recognized in the 2003 first quarter. The fair value of the interest rate swap
agreements was recorded as other long-term liability of $12,070,000 at March 31,
2003. The Company has recorded, in interest expense, losses related to the
interest rate swap agreements of $1,475,000 and $1,285,000 for the three months
ended March 31, 2003 and 2002, respectively. The Company anticipates $4,132,000
of net losses included in accumulated other comprehensive income will be
transferred into earnings over the next year based on current interest rates.
Fair value amounts were determined as of March 31, 2003 and 2002 based on quoted
market values of the Company's portfolio of derivative instruments.
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CAPITAL EXPENDITURES
Capital expenditures for the 2003 first quarter totaled $18,752,000, of
which $3,811,000 was for construction of new tank barges and $14,941,000 was
primarily for upgrading of the existing marine transportation fleet.
In February 2002, the Company entered into a contract for the
construction of two double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of asphalt. The two barges were placed into service
during the 2003 first quarter. The total purchase price of the two barges was
approximately $3,600,000, of which $164,000 was funded in 2002, $1,724,000 in
the 2003 first quarter and the balance in April 2003.
In February 2002, the Company entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over 2003, with the first barge delivered in April
2003. The total purchase price of the six barges is approximately $8,900,000, of
which $780,000 was funded in 2002, $1,320,000 in the 2003 first quarter, with
the balance to be expended during 2003.
In October 2002, the Company entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over a six-month period starting in March 2004. The
total purchase price of the six barges is approximately $8,900,000, of which
$784,000 was funded in the 2003 first quarter.
In May 2003, the Company entered into a contract for the construction
of 16 double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of black oil products. Delivery of the 16 barges is scheduled
over 2003 and 2004, with seven anticipated to be delivered in 2003 and nine in
the first half of 2004. The total purchase price of the 16 barges is
approximately $29,000,000, of which no payments have been made to date.
Under the barge management agreement with Coastal, Coastal has the
right to purchase a portion of the 16 tank barges noted above. Over the next
three years, a number of barges in the combined Company/Coastal black oil fleet
will be retired and replaced with new barges. Under the barge management
agreement, Coastal has the right to maintain its same capacity share of the
combined fleet by building replacement barges as older barges are retired. If
Coastal chooses not to exercise its right to purchase its share of the 16 barges
currently under construction, the Company will purchase the barges that Coastal
chooses not to purchase. The Company is currently in discussions with Coastal to
determine whether Coastal intends to exercise its right to replace the Coastal
capacity to be retired.
Funding for future capital expenditures and new barge construction is
expected to be provided by borrowings on the Company's $150,000,000 Revolving
Credit Facility.
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
TREASURY STOCK PURCHASES
During the 2003 first quarter, the Company did not purchase any
treasury stock. As of May 9, 2003, the Company had 1,210,000 shares available
under its common stock repurchase authorization. Historically, treasury stock
purchases have been financed through operating cash flows and borrowing under
the Company's Revolving Credit Facility. The Company is authorized to purchase
its common stock on the New York Stock Exchange and in privately negotiated
transactions. When purchasing its common stock, the Company is subject to price,
trading volume and other market considerations. Shares purchased may be used for
reissuance upon the exercise of stock options or the granting of other forms of
incentive compensation, in future acquisitions for stock or for other
appropriate corporate purposes.
LIQUIDITY
The Company generated net cash provided by operating activities of
$25,366,000 during the three months ended March 31, 2003, 9% higher than the
$23,181,000 generated during the three months ended March 31, 2002. Both
quarters were positively influenced by favorable cash flow from working capital,
$5,235,000 for the 2003 first quarter and $3,976,000 for the 2002 first quarter.
The Company accounts for its ownership in its four marine partnerships
under the equity method of accounting, recognizing cash flow upon the receipt or
distribution of cash from the partnerships and joint venture. For the three
months ended March 31, 2003 and 2002, the Company received net cash totaling
$750,000 and $525,000, respectively, from the marine partnerships.
Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayments of borrowings associated with
each of the above and other operating requirements. In addition to net cash flow
provided by operating activities, the Company also had available as of May 9,
2003, $133,218,000 under its Revolving Credit Facility and $121,000,000 under
its shelf registration program, subject to mutual agreement to terms. As of May
8, 2003, the Company had $8,454,000 available under its Credit Line and none
available under its Credit Note.
Neither the Company, nor any of its subsidiaries, is obligated on any
debt instruments, swap agreement, or any other financial instrument or
commercial contract which has a rating trigger, except for the pricing grids on
its Senior Notes, Term Loan, Revolving Credit Facility, Credit Line or Credit
Note.
The Company expects to continue to fund expenditures for acquisitions,
capital construction projects, new barge construction, treasury stock
repurchases, repayment of borrowings, and for other operating requirements from
a combination of funds generated from operating activities and available
financing arrangements.
The Company has a 50% interest in a joint venture bulk liquid terminal
business that has a $5,740,000 term loan outstanding at March 31, 2003. The loan
is non-recourse to the Company and the Company has no guarantee obligation. The
Company uses the equity method of accounting to reflect its investment in the
joint venture.
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
The Company has issued guaranties or obtained stand-by letters of
credit and performance bonds supporting performance by the Company and its
subsidiaries of contractual or contingent legal obligations of the Company and
its subsidiaries incurred in the ordinary course of business. The aggregate
notional value of these instruments is $6,555,000 at March 31, 2003, including
$1,600,000 in letters of credit and $4,955,000 in performance bonds, of which
$4,718,000 of these financial instruments relates to contingent legal
obligations, which are covered by the Company's liability insurance program in
the event the obligations are incurred. All of these instruments have an
expiration date within two years. The Company does not believe demand for
payment under these instruments is likely and expects no material cash outlays
to occur in connection with these instruments.
During the last three years, inflation has had a relatively minor
effect on the financial results of the Company. The marine transportation
segment has long-term contracts that generally contain cost escalation clauses
whereby certain costs, including fuel, can be passed through to its customers;
however, there is typically a 30 to 90 day delay before contracts are adjusted
for fuel prices. The repair portion of the diesel engine services segment is
based on prevailing current market rates.
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates on
certain of its outstanding debt and changes in fuel prices. The outstanding loan
balances under the Company's bank credit facilities bear interest at variable
rates based on prevailing short-term interest rates in the United States and
Europe. A 10% change in variable interest rates would impact the 2003 interest
expense by approximately $428,000, based on balances outstanding at December 31,
2002, and change the fair value of the Company's debt by less than 1%. The
potential impact on the Company of fuel price increases is limited because most
of its term contracts contain escalation clauses under which increases in fuel
costs, among 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. Five-year swap agreements with notional amounts totaling
$100,000,000 were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50,000,000 were executed in April 2001. On February
28, 2003, in connection with the issuing of the Senior Notes, the Company hedged
a further portion of its exposure to fluctuations in short-term interest rates
when it entered into a one-year interest rate swap agreement with a notional
amount of $100,000,000. The February and April 2001 interest rate swap
agreements totaling $150,000,000 were re-designated as cash flow hedges for the
Senior Notes. Under the swap agreements, the Company will pay a fixed rate of
4.96% on a notional amount of $50,000,000 for three years, an average fixed rate
of 5.64% on a notional amount of $100,000,000 for five years, and a fixed rate
of 1.39% on a notional amount of $100,000,000 for one year, and will receive
floating rate interest payments based on LIBOR. The interest rate swap
agreements are designated as cash flow hedges, therefore, the changes in fair
value, to the extent the swap agreements are effective, are recognized in other
comprehensive income until the hedged interest expense is recognized in
earnings. As of March 31, 2003, the Company had a total notional amount of
$250,000,000 of interest rate swaps designated as cash flow hedges for its
Senior Notes. These interest rate swaps hedge a significant portion of the
Company's long-term debt and only an immaterial loss on ineffectiveness was
recognized in the 2003 first quarter. The fair value of the interest rate swap
agreements was recorded as other long-term liability of $12,070,000 at March 31,
2003. The Company has recorded, in interest expense, losses related to the
interest rate swap agreements of $1,475,000 and $1,285,000 for the three months
ended March 31, 2003 and 2002, respectively. Fair value amounts were determined
as of March 31, 2003 and 2002 based on quoted market values of the Company's
portfolio of derivative instruments.
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
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 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.
26
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.
In addition, there are various other suits and claims against the
Company, none of which in the opinion of management will have a material effect
on the Company's financial condition, results of operations or cash flows.
Management has recorded necessary reserves and believes that it has adequate
insurance coverage or has meritorious defenses for these other claims and
contingencies.
Item 4. Results of Votes of Security Holders
(a) The Registrant held its Annual Meeting of Stockholders on April 22,
2003.
(b) Class II Directors elected to serve until the 2006 Annual Meeting of
Stockholders were Bob G. Gower, Joseph H. Pyne and Richard C. Webb.
Class III Directors continuing to serve until the 2004 Annual Meeting
of Stockholders are C. Sean Day, William M. Lamont, Jr. and C. Berdon
Lawrence. Class I Directors continuing to serve until the 2005 Annual
Meeting of Stockholders are Walter E. Johnson, George A. Peterkin, Jr.
and Robert G. Stone, Jr.
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
March 31, 2003.
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: May 9, 2003
27
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
In connection with the filing of the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003 by Kirby Corporation, Joseph 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
28
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: May 9, 2003
29
CERTIFICATION OF CHIEF FINANCIAL OFFICER
In connection with the filing of the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003 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
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/ NORMAN W. NOLEN
-------------------------------------
Norman W. Nolen
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: May 9, 2003
31
EXHIBIT INDEX
Exhibits:
99.1 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.