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, 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
------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
55 Waugh Drive, Suite 1000, Houston, TX 77007
--------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(713) 435-1000
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(Registrant's telephone number, including area code)
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock, $.10 par
value per share, on November 11, 2003 was 24,254,000.
Part I Financial Information
Item 1. Financial Statements
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
2003 2002
------------ ------------
($ in thousands)
Current assets:
Cash and cash equivalents $ 1,749 $ 1,432
Accounts receivable:
Trade - less allowance for doubtful accounts 81,765 79,829
Insurance claims and other 4,439 6,129
Inventory - finished goods 13,989 15,549
Prepaid expenses and other current assets 16,205 12,777
Deferred income taxes 3,036 3,752
-------- --------
Total current assets 121,183 119,468
-------- --------
Property and equipment 876,437 797,937
Less accumulated depreciation 342,828 311,085
-------- --------
533,609 486,852
-------- --------
Investment in marine affiliates 9,536 10,238
Goodwill - net 156,726 156,726
Other assets 17,039 18,474
-------- --------
$838,093 $791,758
======== ========
See accompanying notes to condensed financial statements.
2
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2003 2002
------------- ------------
($ in thousands)
Current liabilities:
Current portion of long-term debt $ 253 $ 336
Income taxes payable 2,463 1,443
Accounts payable 35,999 37,509
Accrued liabilities 58,482 47,392
Deferred revenues 3,549 4,565
--------- ---------
Total current liabilities 100,746 91,245
--------- ---------
Long-term debt - less current portion 269,796 265,665
Deferred income taxes 86,216 85,768
Minority interests 2,947 2,691
Other long-term liabilities 21,798 23,078
--------- ---------
380,757 377,202
--------- ---------
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 177,272 176,867
Accumulated other comprehensive income (7,734) (8,062)
Deferred compensation (1,070) --
Retained earnings 299,525 269,657
--------- ---------
471,084 441,553
Less cost of 6,667,000 shares in treasury (6,900,000 at
December 31, 2002) 114,494 118,242
--------- ---------
356,590 323,311
--------- ---------
$ 838,093 $ 791,758
========= =========
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
($ in thousands, except per share amounts)
Revenues:
Marine transportation $ 134,396 $ 113,343 $ 396,617 $ 329,679
Diesel engine services 20,111 21,264 64,829 65,843
--------- --------- --------- ---------
154,507 134,607 461,446 395,522
--------- --------- --------- ---------
Costs and expenses:
Costs of sales and operating expenses 98,800 81,652 300,804 247,868
Selling, general and administrative 18,069 16,748 54,381 49,436
Taxes, other than on income 3,385 2,627 9,921 7,185
Depreciation and other amortization 13,369 10,826 38,495 33,845
Loss (gain) on disposition of assets (71) (425) 62 (593)
--------- --------- --------- ---------
133,552 111,428 403,663 337,741
--------- --------- --------- ---------
Operating income 20,955 23,179 57,783 57,781
Equity in earnings (loss) of marine affiliates 1,022 (68) 2,209 872
Other expense (134) (447) (736) (788)
Interest expense (3,761) (3,378) (11,082) (10,251)
--------- --------- --------- ---------
Earnings before taxes on income 18,082 19,286 48,174 47,614
Provision for taxes on income (6,871) (7,329) (18,306) (18,093)
--------- --------- --------- ---------
Net earnings $ 11,211 $ 11,957 $ 29,868 $ 29,521
========= ========= ========= =========
Net earnings per share of common stock:
Basic $ .46 $ .50 $ 1.24 $ 1.23
========= ========= ========= =========
Diluted $ .46 $ .49 $ 1.22 $ 1.21
========= ========= ========= =========
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
-------------------------------
2003 2002
----------- -----------
($ in thousands)
Cash flows from operating activities:
Net earnings $ 29,868 $ 29,521
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and other amortization 38,495 33,845
Deferred income taxes 986 2,387
Equity in earnings of marine affiliates, net of distributions and
contributions 702 90
Loss (gain) on disposition of assets 62 (593)
Other 1,555 772
Increase (decrease) in cash flows resulting from changes in
operating assets and liabilities, net 8,058 (6,608)
--------- ---------
Net cash provided by operating activities 79,726 59,414
--------- ---------
Cash flows from investing activities:
Capital expenditures (52,187) (39,198)
Acquisition of businesses and marine equipment (37,816) (4,600)
Proceeds from disposition of assets 3,622 5,868
Other -- (236)
--------- ---------
Net cash used in investing activities (86,381) (38,166)
--------- ---------
Cash flows from financing activities:
Borrowings (payments) on bank credit facilities, net (245,700) 33,700
Borrowings (payments) on long-term debt, net 249,748 (50,252)
Proceeds from exercise of stock options 3,388 2,186
Purchase of treasury stock -- (3,931)
Other (464) (904)
--------- ---------
Net cash provided by (used in) financing activities 6,972 (19,201)
--------- ---------
Increase in cash and cash equivalents 317 2,047
Cash and cash equivalents, beginning of year 1,432 1,850
--------- ---------
Cash and cash equivalents, end of period $ 1,749 $ 3,897
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 10,048 $ 11,254
Income taxes $ 15,958 $ 15,640
Non-cash investing and financing activity:
Disposition of assets for notes receivable $ 900 $ 1,100
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,
2003 and December 31, 2002, and the results of operations for the three months
and nine months ended September 30, 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
("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 &
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 56 barges owned by Coastal, of which 38 are
currently active, 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. 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 obligation 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 No. 146 did not have an impact on the
2003 first nine months, as there were no applicable exit or disposal activities.
7
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
In November 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others, an interpretation of FASB Statements No. 5, 57, and 197 and a rescission
of FASB Interpretation No. 34." This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements were effective for the Company's
financial statements for interim and annual periods ended 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 September 30, 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."
Under the intrinsic value method of accounting for stock-based employee
compensation, since the exercise price of the Company's stock options is set at
the fair market value on the date of grant, no compensation expense is recorded.
The Company is required under SFAS No. 123 to disclose pro forma information
relating to option grants as if the Company used the fair value method of
accounting, which requires the recording of estimated compensation expenses.
8
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
The following table summarizes pro forma net earnings and earnings per
share for the three months and nine months ended September 30, 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 Nine months ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net earnings, as reported $ 11,211 $ 11,957 $ 29,868 $ 29,521
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (935) (950) (2,665) (2,499)
-------- -------- -------- --------
Pro forma net earnings $ 10,276 $ 11,007 $ 27,203 $ 27,022
======== ======== ======== ========
Earnings per share:
Basic - as reported $ .46 $ .50 $ 1.24 $ 1.23
Basic - pro forma $ .43 $ .46 $ 1.13 $ 1.12
Diluted - as reported $ .46 $ .49 $ 1.22 $ 1.21
Diluted - pro forma $ .42 $ .45 $ 1.11 $ 1.11
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 entities created after January 31, 2003, and to
variable interest entities where an interest is obtained after January 31, 2003.
The application of this Interpretation has not had an effect on the Company's
financial position or results of operations.
In April 2003, Statement of Financial Accounting Standards No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS No. 149") was issued. SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities under
SFAS No. 133. SFAS No. 149 amends SFAS No. 133 for decisions made: (1) as part
of the Derivatives Implementation Group process that requires amendments to SFAS
No. 133; (2) in connection with other Financial Accounting Standards Board
projects dealing with financial instruments; and (3) in connection with the
implementation issues raised related to the application of the definition of a
derivative. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of SFAS No. 149 had no effect on the Company's financial
position or results of operations.
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACCOUNTING STANDARDS - (Continued)
In May 2003, Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150") was issued. SFAS No. 150 establishes
standards for classification and measurement in the statement of financial
position of certain financial instruments with characteristics of both
liabilities and equity. It requires classification of a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 had
no effect on the Company's financial position or results of operations.
(4) COMPREHENSIVE INCOME
The Company's total comprehensive income for the three months and nine
months ended September 30, 2003 and 2002 was as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net earnings $ 11,211 $ 11,957 $ 29,868 $ 29,521
Change in fair value of derivative financial
instruments, net of tax 125 (3,345) 328 (4,755)
---------- --------- -------- --------
Total comprehensive income $ 11,336 $ 8,612 $ 30,196 $ 24,766
========== ========= ========== ========
10
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 and nine months ended September 30,
2003 and 2002 and total assets as of September 30, 2003 and December 31, 2002
(in thousands):
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenues:
Marine transportation $ 134,396 $ 113,343 $ 396,617 $ 329,679
Diesel engine services 20,111 21,264 64,829 65,843
---------- ---------- ---------- ----------
$ 154,507 $ 134,607 $ 461,446 $ 395,522
========== ========== ========== ==========
Segment profit (loss):
Marine transportation $ 20,828 $ 22,158 $ 56,314 $ 54,302
Diesel engine services 1,653 2,042 6,242 7,022
Other (4,399) (4,914) (14,382) (13,710)
---------- ---------- ---------- ----------
$ 18,082 $ 19,286 $ 48,174 $ 47,614
========== ========== ========== ==========
September 30, December 31,
2003 2002
------------- ------------
Total assets:
Marine transportation $ 779,266 $ 726,353
Diesel engine services 38,379 45,531
Other 20,448 19,874
---------- ----------
$ 838,093 $ 791,758
========== ==========
The following table presents the details of "Other" segment profit
(loss) for the three months and nine months ended September 30, 2003 and 2002
(in thousands):
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
General corporate expenses $ (1,597) $ (1,446) $ (4,711) $ (4,136)
Gain (loss) on disposition of assets 71 425 (62) 593
Interest expense (3,761) (3,378) (11,082) (10,251)
Equity in earnings (loss) of marine affiliates 1,022 (68) 2,209 872
Other expense (134) (447) (736) (788)
-------- -------- -------- --------
$ (4,399) $ (4,914) $(14,382) $(13,710)
======== ======== ======== ========
11
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
September 30, 2003 and December 31, 2002 (in thousands):
September 30, December 31,
2003 2002
------------ ------------
General corporate assets $10,912 $ 9,636
Investment in marine affiliates 9,536 10,238
------- -------
$20,448 $19,874
======= =======
(6) TAXES ON INCOME
Details of the provision for taxes on income for the three months and
nine months ended September 30, 2003 and 2002 were as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Provision for taxes on income:
Current $ 6,343 $3,536 $16,617 $14,503
Deferred 55 3,202 361 2,187
State and local 473 591 1,328 1,403
------- ------ ------- -------
$ 6,871 $7,329 $18,306 $18,093
======= ====== ======= =======
12
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, 2003
and 2002 (in thousands, except per share amounts):
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
Net earnings $11,211 $11,957 $29,868 $29,521
======= ======= ======= =======
Basic earnings per share:
Weighted average number of common shares
outstanding 24,166 24,016 24,112 24,080
======= ======= ======= =======
Basic earnings per share $ .46 $ .50 $ 1.24 $ 1.23
======= ======= ======= =======
Diluted earnings per share:
Weighted average number of common shares
outstanding 24,166 24,016 24,112 24,080
Dilutive shares applicable to stock options 379 201 317 358
------- ------- ------- -------
Shares applicable to diluted earnings 24,545 24,217 24,429 24,438
======= ======= ======= =======
Diluted earnings per share $ .46 $ .49 $ 1.22 $ 1.21
======= ======= ======= =======
Certain outstanding options to purchase approximately 32,000 and
405,000 shares of common stock were excluded in the computation of diluted
earnings per share as of September 30, 2003 and 2002, respectively, as such
stock options would have been antidilutive.
(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 $6,533,000 at September 30, 2003,
including $1,578,000 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.
13
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.
14
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Part I Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements contained in this Form 10-Q that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, adverse weather conditions such as high water, low water,
tropical storms, hurricanes, fog and ice, marine accidents, lock delays, fuel
costs, interest rates, construction of new equipment by competitors, including
construction with government assisted financing, government and environmental
laws and regulations, and the timing, magnitude and number of acquisitions made
by the Company.
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 56 barges owned by Coastal, of which 38 are currently active,
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. 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.
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
RESULTS OF OPERATIONS
The Company reported third quarter 2003 net earnings of $11,211,000, or
$.46 per share, on revenues of $154,507,000, compared with third quarter 2002
net earnings of $11,957,000, or $.49 per share, on revenues of $134,607,000. Net
earnings for the nine months ended September 30, 2003 were $29,868,000, or $1.22
per share, on revenues of $461,446,000, compared with net earnings of
$29,521,000, or $1.21 per share, on revenues of $395,522,000 for the first nine
months of 2002.
Marine transportation revenues for the 2003 third quarter totaled
$134,396,000, or 87% of total revenues, compared with $113,343,000, or 84% of
total revenues for the 2002 third quarter. For the first nine months of 2003,
marine transportation revenues totaled $396,617,000, or 86% of total revenues,
compared with $329,679,000 or 83% of total revenues for the first nine months of
2002. Diesel engine services revenues for the 2003 third quarter totaled
$20,111,000, or 13% of total revenues, compared with $21,264,000, or 16% of
total revenues for the 2002 third quarter. For the first nine months of 2003,
diesel engine services revenues totaled $64,829,000, or 14% of total revenues,
compared with $65,843,000, or 17% of total revenues for the first nine months 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 third quarters of 2003 and 2002 were
24,545,000 and 24,217,000, respectively, and for the first nine months of 2003
and 2002 were 24,429,000 and 24,438,000, respectively. The increase in the
weighted average number of common shares for the 2003 third quarter when
compared with the corresponding 2002 quarter primarily reflected more dilutive
shares applicable to stock option plans due to the inclusion of certain
outstanding options to purchase shares of common stock in the computation of
diluted earnings per share.
MARINE TRANSPORTATION
The Company, through its marine transportation segment, is a provider
of marine transportation services, operating inland tank barges and towing
vessels, transporting petrochemicals, black oil products, refined petroleum
products and agricultural chemicals along the United States inland waterways. As
of September 30, 2003, the marine transportation segment operated 882 active
inland tank barges, with a total capacity of 16.0 million barrels, compared with
809 active inland tank barges at September 30, 2002, with a total capacity of
14.5 million barrels. At December 31, 2002, the segment operated 848 active
inland tank barges with a capacity of 15.5 million barrels. The segment also
operated an average of 222 inland towboats during the 2003 third quarter and an
average of 226 towboats for the nine months ended September 30, 2003. This
compared with an average of 196 towboats operated during the third quarter of
2002 and 200 towboats operated during the first nine months of 2002. 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.
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION - (CONTINUED)
The following table sets forth the Company's marine transportation
segment's revenues, costs and expenses, operating income and operating margins
for the three months and nine months ended September 30, 2003 compared with the
three months and nine months ended September 30, 2002 (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
% %
2003 2002 Change 2003 2002 Change
-------- -------- ------ -------- -------- ------
Marine transportation revenues $134,396 $113,343 19% $396,617 $329,679 20%
-------- -------- ---- -------- -------- ----
Costs and expenses:
Costs of sales and operating expenses 83,492 65,530 27 251,713 198,179 27
Selling, general and administrative 14,216 13,155 8 42,836 38,931 10
Taxes, other than on income 3,206 2,517 27 9,450 6,820 39
Depreciation and other amortization 12,654 9,983 27 36,304 31,447 15
-------- -------- ---- -------- -------- ----
113,568 91,185 25 340,303 275,377 24
-------- -------- ---- -------- -------- ----
Operating income $ 20,828 $ 22,158 (6)% $ 56,314 $ 54,302 4%
======== ======== ==== ======== ======== ====
Operating margins 15.5% 19.5% 14.2% 16.5%
======== ======== ======== ========
MARINE TRANSPORTATION REVENUES
Revenues for the marine transportation segment for the 2003 third
quarter were 19% over the 2002 third quarter and revenues for the 2003 first
nine months were 20% over the 2002 first nine months. The increase for both
comparable periods included revenues generated from the October 2002 acquisition
of 10 inland black oil tank barges and seven towboats from Coastal and the
signing of a barge management agreement to manage Coastal's remaining 56 black
oil tank barges. The increases 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 transported into the Midwest for the 2003 third
quarter, excluding the SeaRiver volumes noted above, reflected a continued
gradual improvement when compared with the third quarter of 2002, driven by
higher volumes from several of the Company's significant customers and strong
volumes for petrochemicals used in the production of gasoline blending
components. Black oil volumes during the 2003 third quarter remained consistent
with the volume levels for the 2003 first and second quarters, and excluding the
Coastal volumes noted above, were higher than the 2002 third quarter volumes.
During the 2003 first nine months, volumes of residual fuel, a black oil
product, increased as residual fuel served as a substitute for natural gas and
cat cracker feedstock for the production of refined products, and offset a
decline in asphalt volumes, which have declined due to a reduction in state and
federal funding for road construction. Refined products volumes during the 2003
third quarter were similar to the 2003 second quarter and higher than 2002 third
quarter volumes, as low Midwest gasoline inventory levels and Gulf Coast
versus Midwest gasoline price differentials encouraged the movement of Gulf
Coast manufactured refined products into the Midwest. Refined products volumes
were weak
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION REVENUES - (CONTINUED)
during the first quarter of 2003, showing some improvement in late March. During
2002, refined products volumes improved during the third quarter, the result of
seasonal demand, from the weak volumes experienced during the first six months
that were negatively impacted by high inventory levels and a new refined
products pipeline from the Gulf Coast to the Midwest that went online April 1,
2002. Liquid fertilizer volumes, which are generally slow in the third quarter,
remained very weak in the 2003 third quarter when compared with the 2002 third
quarter. High natural gas prices throughout 2003 have significantly curtailed
the U.S. production and application of nitrogen-based fertilizer. During the
2002 third quarter, liquid fertilizer volumes returned to seasonal levels, an
improvement from the weak levels experienced in the 2002 first half when
significant rainfall in the Midwest kept farmers out of their fields, reducing
the demand for fertilizer usage.
During the 2003 third quarter and first nine months, approximately 70%
of marine transportation revenues were under term contracts and 30% were spot
market volumes. Contract rates on renewals remained relatively flat for the 2003
third quarter and first nine months. Spot market rates for the 2003 third
quarter declined modestly, reflecting the pass-through of lower fuel costs and
good navigational conditions which allowed the industry to be more efficient,
thereby resulting in additional available industry capacity. For the first nine
months of 2003, spot market rates were modestly higher when compared with 2002
comparable period levels.
MARINE TRANSPORTATION COSTS AND EXPENSES
Total costs and expenses for the 2003 third quarter and first nine
months were 25% and 24%, respectively, above the third quarter of 2002 and first
nine months of 2002. The increase for both comparable periods reflected the
additional costs and expenses associated with operating additional tank barges
and towboats purchased from Coastal in October 2002 and the related barge
management agreement signed with Coastal, and the SeaRiver fleet acquisition in
January 2003.
Costs of sales and operating expenses for the 2003 third quarter and
first nine months were 27% higher than the comparable periods for 2002,
reflecting additional vessel personnel and higher operating expenses from the
acquisitions noted above. The 2003 first quarter costs and expenses were higher
due to navigational delays caused by periods of both high and low water levels
on the Mississippi River System, and 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.
Costs of sales and operating expenses for the first three quarters of
2003 included significantly higher fuel costs when compared with the first three
quarters of 2002. 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. For the 2003 second quarter, the average price per gallon of diesel
fuel consumed dropped to 81 cents, 13% above the 2002 second quarter average
price of 72 cents. For the 2003 third quarter, the average price per gallon of
diesel fuel consumed was 86 cents compared with 73 cents for the 2002 third
quarter, an increase of 18%. Term contracts contain fuel escalation clauses that
allow the
18
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION COSTS AND EXPENSES - (CONTINUED)
Company to recover increases in the cost of fuel; 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, of which approximately $.03 per share was
recovered in the 2003 second quarter. For the 2003 third quarter, the negative
impact of the higher fuel costs was marginal.
The segment consumed 14.2 million gallons of diesel fuel in the 2003
third quarter compared with 12.1 million gallons consumed in the third quarter
of 2002. For the first nine months of 2003, the segment consumed 41.6 million
gallons of diesel fuel compared with 34.1 million gallons consumed in the first
nine months of 2002. The increase for both comparable periods primarily
reflected the acquisitions noted above.
Selling, general and administrative expenses for the 2003 third quarter
increased 8% compared with the 2002 third quarter, and increased 10% in the 2003
first nine months compared with the first nine months of 2002. The increase for
both comparable periods reflected higher incentive compensation accruals,
professional fees, and additional administrative personnel to support the
acquisitions noted above.
Taxes, other than on income, for the 2003 third quarter and first nine
months increased 27% and 39%, respectively, compared with the corresponding
periods of 2002, primarily reflecting increased waterway use taxes and property
taxes resulting from the fourth quarter 2002 and first quarter 2003 acquisitions
noted above.
Depreciation and other amortization expense for the 2003 third quarter
and first nine months increased 27% and 15%, respectively, compared with the
corresponding 2002 periods. The increases for both 2003 periods reflected new
tank barge additions in 2002 and 2003, as well as the acquisitions noted above.
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
The marine transportation operating income for the 2003 third quarter
decreased 6% compared with the third quarter of 2002. For the 2003 first nine
months, the operating income for the marine transportation segment increased 4%
compared with the first nine months of 2002. The operating margin for the 2003
third quarter was 15.5% compared with 19.5% for the 2002 third quarter. The
operating margin for the first nine months of 2003 was 14.2% compared with 16.5%
for the first nine months of 2002.
The operating margins for the 2003 third quarter and first nine months
reflected higher revenues, and costs and expenses, primarily from the two
acquisitions noted above; however, the segment's inability to raise marine
transportation rates sufficiently to offset increases in costs and expenses have
resulted in a lower operating margins compared with corresponding prior periods.
The lower operating margin in the 2003 first nine months reflected more severe
winter weather conditions in the first quarter of 2003 compared with the 2002
first quarter, major repairs to a critical lock on the Gulf Intracoastal
Waterway and rapidly escalating fuel prices during the 2003 first quarter that
were only partially recovered under contractual fuel escalation clauses in the
2003 second quarter. The 2003 third quarter
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS - (CONTINUED)
and first nine months also included revenues from the barge management agreement
between the Company and Coastal. The Company earns a lower operating margin from
the management of the Coastal fleet, thereby reducing the overall marine
transportation operating margin.
DIESEL ENGINE SERVICES
The Company, through its diesel engine services segment, sells genuine
replacement parts, provides service mechanics to overhaul and repair large
medium-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire large medium-speed diesel engines or entire
reduction gears. The segment services the marine, power generation and
industrial, and railroad markets.
The following table sets forth the Company's diesel engine services
segment's revenues, costs and expenses, operating income and operating margins
for the three months and nine months ended September 30, 2003 compared with the
three months and nine months ended September 30, 2002 (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
--------------------------------- -------------------------------
% %
2003 2002 Change 2003 2002 Change
-------- -------- ------ -------- -------- ------
Diesel engine services revenues $ 20,111 $ 21,264 (5)% $ 64,829 $ 65,843 (2)%
-------- -------- --- -------- -------- ----
Costs and expenses:
Costs of sales and operating expenses 15,246 16,066 (5) 48,951 49,498 (1)
Selling, general and administrative 2,859 2,826 1 8,607 8,424 2
Taxes, other than on income 81 65 25 241 214 13
Depreciation and other amortization 272 265 3 788 685 15
-------- -------- --- -------- -------- ---
18,458 19,222 (4) 58,587 58,821 --
-------- -------- --- -------- -------- ---
Operating income $ 1,653 $ 2,042 (19)% $ 6,242 $ 7,022 (11)%
======== ======== === ======== ======== ===
Operating margins 8.2% 9.6% 9.6% 10.7%
======== ======== ======== ========
DIESEL ENGINE SERVICES REVENUES
The diesel engine services segment's revenues for the 2003 third
quarter decreased 5% compared with the 2002 third quarter. The segment was
negatively impacted by a continued poor Midwest dry cargo barge market, the
timing of engine overhauls in the East and West Coast marine markets, and a
continued weak rail market. The negative results were partially offset by a
favorable power generation market, the result of several overhaul projects for
an international customer, and an improved Gulf Coast market, the result of
several large parts sales for international oilfield customers. For the 2002
third quarter, the segment benefited from strong power generation and railroad
markets, partially offset by a weak Gulf Coast drilling and supply vessel
market.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
DIESEL ENGINE SERVICES REVENUES - (CONTINUED)
For the 2003 first nine months, revenues decreased 2% compared with the
corresponding period of 2002. A very weak Midwest dry cargo barge market and
rail market was partially offset by an improved Gulf Coast drilling and supply
vessel market, East and West Coast marine markets, except for the 2003 third
quarter as noted above, and a strong power generation market, servicing stand-by
power generators. For the 2002 first nine months, the segment benefited from a
strong power generation market and railroad markets, partially offset by a weak
Gulf Coast drilling and supply vessel market.
DIESEL ENGINE SERVICES COSTS AND EXPENSES
Costs of sales and operating expenses for the 2003 third quarter
decreased 5% compared with the third quarter of 2002, while costs of sales and
operating expenses for the 2003 first nine months decreased 1% compared with the
corresponding 2002 period. The decreases for both 2003 periods compared with the
prior year periods primarily reflected the lower service activity. Selling,
general and administrative expenses were slightly higher in both 2003 periods
versus 2002 primarily due to higher incentive compensation accruals and employee
medical costs.
DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
Operating income for the 2003 third quarter decreased 19% compared with
the third quarter of 2002, while the operating income for the 2003 first nine
months fell 11% compared with the first nine months of 2002. The operating
margin for the third quarter of 2003 was 8.2% compared with 9.6% for the third
quarter of 2002. The operating margin for the 2003 first nine months was 9.6%,
down from 10.7% in the first nine months of 2002.
GENERAL CORPORATE EXPENSES
General corporate expenses for the 2003 third quarter totaled
$1,597,000, or 10% higher than the third quarter of 2002. General corporate
expenses for the 2003 first nine months were $4,711,000, a 14% increase compared
with the 2002 first nine months. The increases for both comparable periods
primarily reflected higher incentive compensation accruals and 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 and nine months ended September 30, 2003 compared
with the three months and nine months ended September 30, 2002 (dollars in
thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------------------- ---------------------------------
% %
2003 2002 Change 2003 2002 Change
--------- --------- ------- --------- --------- ---------
Gain (loss) on disposition of assets $ 71 $ 425 (83)% $ (62) $ 593 (110)%
Equity in earnings (loss) of marine affiliates $ 1,022 $ (68) 1,603% $ 2,209 $ 872 153%
Other expense $ (134) $ (447) (70)% $ (736) $ (788) (7)%
Interest expense $ (3,761) $ (3,378) 11% $ (11,082) $ (10,251) 8%
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
EQUITY IN EARNINGS OF MARINE AFFILIATES
Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, for the 2003 third quarter totaled $1,022,000
compared with a loss of $68,000 for the 2002 third quarter, and totaled
$2,209,000 for the 2003 first nine months compared with $872,000 for the 2002
first nine months. The favorable results for both 2003 periods reflected higher
utilization of the four offshore dry-cargo barge and tug units in the
partnership compared with the prior comparable periods of 2002, as well as the
settlement of 2002 demurrage charges in the 2003 third quarter. The comparable
2002 periods were negatively impacted by weather delays from Tropical Storm
Isidore, maintenance on two of the four units in the partnerships during the
2002 second and third quarters, and the major customer's coal dock facility
closure for repair for two weeks during the 2002 second quarter.
INTEREST EXPENSE
Interest expense for the 2003 third quarter increased 11% compared with
the 2002 third quarter. For the 2003 first nine months, interest expense
increased 8% compared with the 2002 first nine months. The increase for both
comparable periods reflected higher average debt, offset to some degree by lower
average interest rates. The average debt and average interest rate for the third
quarters of 2003 and 2002, including the effect of interest rate swaps used to
hedge against fluctuations in floating interest rates, were $282,208,000 and
5.3%, and $239,700,000 and 5.6%, respectively. For the first nine months of 2003
and 2002, the average debt and average interest rate, including the effect of
interest rate swaps, were $289,005,000 and 5.1%, and $240,700,000 and 5.7%,
respectively.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of September 30, 2003 were $838,093,000, 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 September 30, 2003
compared with December 31, 2002 (dollars in thousands):
September 30, December 31, %
2003 2002 Change
------------ ------------ ------
Assets:
Current assets $ 121,183 $ 119,468 1 %
Property and equipment, net 533,609 486,852 10
Investment in marine affiliates 9,536 10,238 (7)
Goodwill - net 156,726 156,726 --
Other assets 17,039 18,474 (8)
------------- ------------ --
$ 838,093 $ 791,758 6 %
============= ============ ==
Liabilities and stockholders' equity:
Current liabilities $ 100,746 $ 91,245 10 %
Long-term debt - less current portion 269,796 265,665 2
Deferred income taxes 86,216 85,768 1
Minority interest and other
long-term liabilities 24,745 25,769 (4)
Stockholders' equity 356,590 323,311 10
------------- ------------ --
$ 838,093 $ 791,758 6 %
============= ============ ==
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET - (CONTINUED)
Current assets as of September 30, 2003 increased 1% compared with
December 31, 2002. Trade accounts receivable increased 2%, 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 28%, primarily due to the collection of claims receivables
and diesel engine services' engine core receivables. The 10% decrease in
inventory - finished goods reflected enhanced emphasis on inventory management
in the diesel engine services segment, while the 27% increase in prepaid
expenses and other current assets reflected the timing of the payment of
expenses that were paid and amortized over a twelve month period.
Property and equipment, net of accumulated depreciation, at September
30, 2003 increased 10% compared with December 31, 2002. The increase reflected
$52,187,000 of capital expenditures, the acquisition of the SeaRiver fleet and
the purchase of two existing tank barges for a total of $36,466,000, less
$38,208,000 of depreciation expense for the 2003 first nine months.
Current liabilities as of September 30, 2003 increased 10% compared
with December 31, 2002. The increase was primarily due to higher casualty loss
accruals, shipyard maintenance accruals, the classification of $1,205,000 of
fair value of interest rate swap agreements as short-term instead of long-term,
as they mature in the next twelve months, and income tax payable, due to the
timing of such federal tax payments. In addition, waterway use taxes and
property taxes were higher due to increased business activity levels and the
acquisition of the SeaRiver fleet. Offsetting these increases were lower
accounts payable.
Long-term debt, less current portion, as of September 30, 2003
increased 2% compared with December 31, 2002. The increase was primarily
attributable to borrowing to finance the 2003 first quarter SeaRiver marine
equipment acquisition and the 2003 first nine months capital expenditures, less
the paydown of long-term debt from net cash provided by operating activities in
the 2003 first nine months.
Stockholders' equity as of September 30, 2003 increased 10% compared
with December 31, 2002. The increase primarily reflected 2003 first nine months
net earnings of $29,868,000, a decrease in treasury stock of $3,748,000,
primarily from the exercise of employee stock options, and the recording of
$1,070,000 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 September 30, 2003, $5,000,000 was outstanding under the
Revolving Credit Facility and outstanding letters of credit totaled $782,000.
The Company was in compliance with all Revolving Credit Facility covenants at
September 30, 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 September
30, 2003, $12,500,000 was outstanding under the Term Loan. The principal amounts
due within one year were classified as long-term debt, as the Company
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
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 September 30, 2003. The final principal payment of
$12,500,000 was paid on October 9, 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. As of September 30, 2003, $250,000,000 was
outstanding under the Senior Notes. The Company was in compliance with all
Senior Notes covenants at September 30, 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 September 30, 2003,
$200,000 was borrowed under the Credit Line and outstanding letters of credit
totaled $546,000. Amounts borrowed on the Credit Line were classified as
long-term debt at September 30, 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.
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 September 30, 2003,
$2,000,000 was outstanding under the Credit Note.
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 September
30, 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 September 30,
2003, there were no outstanding debt securities under the shelf registration.
From time to time, the Company hedges its exposure to fluctuations in
short-term interest rates under its Revolving Credit Facility and Term Loan by
entering into interest rate swap agreements. Five-year interest rate swap
agreements with notional amounts totaling $100,000,000 were executed in February
2001 and three-year interest rate 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. In September 2003,
the Company entered into four seven-year interest rate swap agreements with a
notional amount totaling $100,000,000. The effective date of the September
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
2003 interest rate swap agreements is March 28, 2006, the maturity date of the
February 2001 five-year interest rate swaps, with quarterly interest payments
beginning on May 28, 2006 and ending on February 28, 2013.
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 through April 29, 2004, an
average fixed rate of 5.64% on a notional amount of $100,000,000 for five years
through March 28, 2006, a fixed rate of 1.39% on a notional amount of
$100,000,000 for one year through February 27, 2004, an average fixed rate of
5.45% on a notional amount of $100,000,000 for seven years beginning March 28,
2006, 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 September 30, 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 third quarter and first nine months.
At September 30, 2003, the total fair value of the interest rate swap agreements
was $11,898,000, of which $1,205,000 was recorded as accrued liabilities for
swap maturities within the next twelve months, and $10,693,000 was recorded as
long-term liabilities for swap maturities greater than twelve months. The
Company has recorded, in interest expense, losses related to the interest rate
swap agreements of $1,657,000 and $1,407,000 for the three months ended
September 30, 2003 and 2002, respectively, and $4,782,000 and $4,053,000 for the
nine months ended September 30, 2003 and 2002, respectively. The Company
anticipates $3,675,000 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 September 30, 2003 and
2002 based on quoted market values of the Company's portfolio of derivative
instruments.
CAPITAL EXPENDITURES
Capital expenditures for the 2003 first nine months totaled
$52,187,000, of which $12,149,000 was for construction of new tank barges and
$40,038,000 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
$3,600,000, of which $164,000 was funded in 2002, with the balance expended in
the 2003 first half.
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 two barges delivered in the 2003
second quarter, one in the third quarter and one in October 2003. The total
purchase price of the six barges is approximately $8,900,000, of which $780,000
was funded in 2002 and $6,155,000 in the 2003 first nine months, with the
balance anticipated to be expended in the 2003 fourth quarter.
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CAPITAL EXPENDITURES - (CONTINUED)
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 nine months.
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 one delivered in the 2003 third quarter, one in October
2003, with six anticipated to be delivered in the 2003 fourth quarter and eight
in the first half of 2004. The total purchase price of the 16 barges is
approximately $29,000,000, of which $1,798,000 was funded in the 2003 third
quarter. Under the terms of the contract, the Company has an option for the
construction of 16 additional double hull, 30,000 barrel capacity, inland tank
barges for use in the transportation of black oil products.
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 with Coastal, Coastal has the right to
maintain its same capacity share of the combined fleet by building replacement
barges as older barges are retired. Coastal elected not to exercise its right to
purchase its share of the 16 barges currently under construction; therefore, the
Company will purchase all 16 of the barges.
Funding for future capital expenditures and new barge construction is
expected to be provided by borrowings on the Company's Revolving Credit
Facility.
TREASURY STOCK PURCHASES
During the 2003 first nine months, the Company did not purchase any
treasury stock. As of November 10, 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
$79,726,000 during the first nine months of 2003, 34% higher than the
$59,414,000 generated during the first nine months of 2002. The 2003 first nine
months was positively influenced by favorable cash flow from working capital of
$8,058,000 compared with the unfavorable cash flow from working capital for the
2002 first nine months of $6,608,000.
26
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LIQUIDITY - (CONTINUED)
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 nine
months ended September 30, 2003 and 2002, the Company received net cash totaling
$2,911,000 and $962,000, respectively, from the marine partnerships and joint
ventures.
Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayments of borrowings, new barge
construction and for other operating requirements. In addition to net cash flow
provided by operating activities, the Company also had available as of November
11, 2003, $139,934,000 under its Revolving Credit Facility and $121,000,000
under its shelf registration program, subject to mutual agreement to terms. As
of November 8, 2003, the Company had $8,954,000 available under its Credit Line
and $4,000,000 available under its Credit Note.
Net cash provided by operating activities for the fourth quarter of
2003 may be negatively impacted by a contribution of up to $10,000,000, based on
current market conditions, to the Company's defined benefit plan for vessel
personnel. The plan assets primarily consist of fixed income securities and
corporate stocks and any contribution would be the result of continued low
interest rates and low investment returns. Funding of the plan is based on
actuarial projections that are designed to satisfy minimum ERISA funding
requirements and achieve adequate funding of accumulated benefit obligations. In
2002, the Company made a contribution of $17,500,000 to its defined benefit plan
for vessel personnel.
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 and Credit
Note.
The Company expects to continue to fund expenditures for acquisitions,
capital expenditure 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 $5,127,000 term loan outstanding at September 30, 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.
The Company has issued guaranties or obtained stand-by letters of
credit and performance bonds supporting performance by the Company and its
subsidiaries for 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 $6,533,000 at September 30, 2003,
including $1,578,000 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.
27
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LIQUIDITY - (CONTINUED)
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.
28
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Part I Financial Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to risk from changes in interest rates on
certain of its outstanding debt. The outstanding loan balances under the
Company's bank credit facilities bear interest at variable rates based on
prevailing short-term interest rates in the United States and Europe. A 10%
change in variable interest rates would impact the 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%.
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 Senior Notes and variable rate
bank credit facilities. The Company does not enter into derivative financial
instrument transactions for speculative purposes.
From time to time, the Company hedges its exposure to fluctuations in
short-term interest rates under its Revolving Credit Facility and Term Loan 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. In September 2003, the
Company entered into four seven-year interest rate swap agreements with a
notional amount totaling $100,000,000. The effective date of the September 2003
interest rate swap agreements is March 28, 2006, the maturity date of the
February 2001 five-year interest rate swaps, with quarterly interest payments
beginning on May 28, 2006 and ending on February 28, 2013.
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 through April 29, 2004, an
average fixed rate of 5.64% on a notional amount of $100,000,000 for five years
through March 28, 2006, a fixed rate of 1.39% on a notional amount of
$100,000,000 for one year through February 27, 2004, an average fixed rate of
5.45% on a notional amount of $100,000,000 for seven years beginning March 28,
2006, 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 September 30, 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 third quarter and first nine months.
At September 30, 2003, the total fair value of the interest rate
29
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk -
(Continued)
swap agreements was $11,898,000, of which $1,205,000 was recorded as accrued
liabilities for swap maturities within the next twelve months, and $10,693,000
was recorded as long-term liabilities for swap maturities greater than twelve
months. The Company has recorded, in interest expense, losses related to the
interest rate swap agreements of $1,657,000 and $1,407,000 for the three months
ended September 30, 2003 and 2002, respectively and $4,782,000 and $4,053,000
for the nine months ended September 30, 2003 and 2002, respectively. Fair value
amounts were determined as of September 30, 2003 and 2002 based on quoted market
values of the Company's portfolio of derivative instruments.
30
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Part I Financial Information
Item 4. Controls and Procedures
Based on their evaluation of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")) as of the end of the period covered by this quarterly
report, the Company's Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. There were no changes in the Company's internal
control over financial reporting that occurred during the Company's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
31
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 - Certification of Chief Executive Officer Pursuant to Rule
13a-14(a).
31.2 - Certification of Chief Financial Officer Pursuant to Rule
13a-14(a).
32 - Certification Pursuant to Rule 13a-14(b) and Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
The Company's report on Form 8-K dated July 24, 2003 stated that the
Company issued a press release announcing the Company's second quarter 2003
results of operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIRBY CORPORATION
(Registrant)
By: /s/ NORMAN W. NOLEN
-----------------------------------
Norman W. Nolen
Executive Vice President, Treasurer
and Chief Financial Officer
Dated: November 11, 2003
32
INDEX TO EXHIBITS
Exhibits:
31.1 - Certification of Chief Executive Officer Pursuant to Rule
13a-14(a).
31.2 - Certification of Chief Financial Officer Pursuant to Rule
13a-14(a).
32 - Certification Pursuant to Rule 13a-14(b) and Section 906
of the Sarbanes-Oxley Act of 2002.