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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, 2004
[ ] 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
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(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, $.10 par
value per share, on May 7, 2004 was 24,525,000.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
2004 2003
---------- ----------
($ IN THOUSANDS)
Current assets:
Cash and cash equivalents $ 190 $ 4,064
Accounts receivable:
Trade - less allowance for doubtful accounts 84,143 80,585
Other 15,722 17,347
Inventory - finished goods 14,437 13,991
Prepaid expenses and other current assets 11,627 13,173
Deferred income taxes 2,487 2,619
---------- ----------
Total current assets 128,606 131,779
---------- ----------
Property and equipment 914,565 890,923
Less accumulated depreciation 367,277 354,411
---------- ----------
547,288 536,512
---------- ----------
Investment in marine affiliates 9,482 9,162
Goodwill - net 156,726 156,726
Other assets 19,652 20,782
---------- ----------
$ 861,754 $ 854,961
========== ==========
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,
2004 2003
---------- ----------
($ IN THOUSANDS)
Current liabilities:
Current portion of long-term debt $ 170 $ 225
Income taxes payable 951 897
Accounts payable 41,714 41,577
Accrued liabilities 46,702 50,725
Deferred revenues 4,676 5,444
---------- ----------
Total current liabilities 94,213 98,868
---------- ----------
Long-term debt - less current portion 250,239 255,040
Deferred income taxes 108,540 106,134
Minority interests 3,045 2,933
Other long-term liabilities 24,043 19,854
---------- ----------
385,867 383,961
---------- ----------
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 180,577 178,720
Accumulated other comprehensive income (8,062) (5,950)
Deferred compensation (2,697) (1,003)
Retained earnings 319,595 310,575
---------- ----------
492,504 485,433
Less cost of 6,441,000 shares in treasury (6,590,000 at
December 31, 2003) 110,830 113,301
---------- ----------
381,674 372,132
---------- ----------
$ 861,754 $ 854,961
========== ==========
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2004 2003
---------- ---------
($ IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues:
Marine transportation $ 135,493 $ 125,065
Diesel engine services 21,822 23,135
---------- ---------
157,315 148,200
---------- ---------
Costs and expenses:
Costs of sales and operating expenses 102,927 100,851
Selling, general and administrative 19,965 17,561
Taxes, other than on income 3,252 3,051
Depreciation and other amortization 13,797 12,232
Loss on disposition of assets 2 7
---------- ---------
139,943 133,702
---------- ---------
Operating income 17,372 14,498
Equity in earnings of marine affiliates 822 436
Other expense (271) (403)
Interest expense (3,374) (3,454)
---------- ---------
Earnings before taxes on income 14,549 11,077
Provision for taxes on income (5,529) (4,209)
---------- ---------
Net earnings $ 9,020 $ 6,868
========== =========
Net earnings per share of common stock:
Basic $ .37 $ .29
========== =========
Diluted $ .36 $ .28
========== =========
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2004 2003
----------- ----------
($ IN THOUSANDS)
Cash flows from operating activities:
Net earnings $ 9,020 $ 6,868
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and other amortization 13,797 12,232
Deferred income taxes 3,675 (85)
Equity in earnings of marine affiliates, net of distributions (321) 314
Other 483 802
Increase (decrease) in cash flows resulting from changes in operating
assets and liabilities, net (3,313) 5,235
----------- ----------
Net cash provided by operating activities 23,341 25,366
----------- ----------
Cash flows from investing activities:
Capital expenditures (24,047) (18,752)
Acquisition of marine equipment (1,110) (36,316)
Proceeds from disposition of assets 688 261
----------- ----------
Net cash used in investing activities (24,469) (54,807)
----------- ----------
Cash flows from financing activities:
Payments on bank credit facilities, net (4,800) (220,400)
Proceeds from senior notes -- 250,000
Payments on long-term debt (56) (84)
Proceeds from exercise of stock options 2,179 626
Other (69) (169)
----------- -----------
Net cash provided by (used in) financing activities (2,746) 29,973
----------- ----------
Increase (decrease) in cash and cash equivalents (3,874) 532
Cash and cash equivalents, beginning of year 4,064 1,432
----------- ----------
Cash and cash equivalents, end of period $ 190 $ 1,964
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 3,330 $ 2,918
Income taxes $ 184 $ 41
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,
2004 and December 31, 2003, and the results of operations for the three months
ended March 31, 2004 and 2003.
(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, 2003.
(2) ACQUISITION
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.
(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.
6
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 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 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, 2004 are described in Note 9, 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 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.
7
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 ended March 31, 2004 and 2003 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,
2004 2003
------------ -----------
Net earnings, as reported $ 9,020 $ 6,868
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (750) (846)
------------ -----------
Pro forma net earnings $ 8,270 $ 6,022
============ ===========
Earnings per share:
Basic - as reported $ .37 $ .29
Basic - pro forma $ .34 $ .25
Diluted - as reported $ .36 $ .28
Diluted - pro forma $ .33 $ .25
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 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.
8
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 ended
March 31, 2004 and 2003 were as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
------------------------------
2004 2003
------------- -----------
Net earnings $ 9,020 $ 6,868
Change in fair value of derivative financial instruments,
net of tax (2,112) 217
------------- -----------
Total comprehensive income $ 6,908 $ 7,085
============= ===========
(5) SEGMENT DATA
The Company's operations are classified into two reportable business
segments as follows:
Marine Transportation - Marine transportation by United States flag
vessels on the United States inland waterway system. The principal products
transported on the United States inland waterway system include petrochemicals,
black oil products, refined petroleum products and agricultural chemicals.
Diesel Engine Services - Overhaul and repair of large medium-speed
diesel engines, reduction gear repair, and sale of related parts and
accessories for customers in the marine, power generation and industrial, and
railroad industries.
9
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SEGMENT DATA - (CONTINUED)
The following table sets forth the Company's revenues and profit
(loss) by reportable segment for the three months ended March 31, 2004 and 2003
and total assets as of March 31, 2004 and December 31, 2003 (in thousands):
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2004 2003
------------- --------------
Revenues:
Marine transportation $ 135,493 $ 125,065
Diesel engine services 21,822 23,135
------------- --------------
$ 157,315 $ 148,200
============= ==============
Segment profit (loss):
Marine transportation $ 16,874 $ 13,704
Diesel engine services 2,439 2,417
Other (4,764) (5,044)
------------- --------------
$ 14,549 $ 11,077
============= ==============
MARCH 31, DECEMBER 31,
2004 2003
------------- --------------
Total assets:
Marine transportation $ 788,767 $ 779,121
Diesel engine services 42,218 40,152
Other 30,769 35,688
------------- --------------
$ 861,754 $ 854,961
============= ==============
The following table presents the details of "Other" segment profit
(loss) for the three months ended March 31, 2004 and 2003 (in thousands):
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2004 2003
------------- --------------
General corporate expenses $ (1,939) $ (1,616)
Loss on disposition of assets (2) (7)
Interest expense (3,374) (3,454)
Equity in earnings of marine affiliates 822 436
Other expense (271) (403)
------------- --------------
$ (4,764) $ (5,044)
============= ==============
10
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SEGMENT DATA - (CONTINUED)
The following table presents the details of "Other" total assets as of
March 31, 2004 and December 31, 2003 (in thousands):
MARCH 31, DECEMBER 31,
2004 2003
------------ -----------
General corporate assets $ 21,287 $ 26,526
Investment in marine affiliates 9,482 9,162
------------ -----------
$ 30,769 $ 35,688
============ ===========
(6) TAXES ON INCOME
Earnings before taxes on income and details of the provision for taxes
on income for the three months ended March 31, 2004 and 2003 were as follows
(in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------------
2004 2003
----------- ----------
Earnings before taxes on income - United States $ 14,549 $ 11,077
========== ==========
Provision for taxes on income:
Current $ 1,616 $ 4,110
Deferred 3,375 (260)
State and local 538 359
----------- ----------
$ 5,529 $ 4,209
=========== ==========
11
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(7) EARNINGS PER SHARE OF COMMON STOCK
The following table presents the components of basic and diluted
earnings per share of common stock for the three months ended March 31, 2004
and 2003 (in thousands, except per share amounts):
THREE MONTHS ENDED
MARCH 31,
--------------------------
2004 2003
--------- ---------
Net earnings $ 9,020 $ 6,868
========= =========
Shares outstanding:
Weighted average common stock outstanding 24,345 24,062
Effect of dilutive securities:
Employee and director common stock options 568 265
--------- ---------
24,913 24,327
========= =========
Basic earnings per share of common stock $ .37 $ .29
========= =========
Diluted earnings per share of common stock $ .36 $ .28
========= =========
Certain outstanding options to purchase approximately 300,000 and
762,000 shares of common stock were excluded in the computation of diluted
earnings per share as of March 31, 2004 and 2003, respectively, as such stock
options would have been antidilutive.
(8) RETIREMENT PLANS
The Company sponsors a defined benefit plan for vessel personnel. The
plan benefits are based on an employee's years of service and compensation. The
plan assets primarily consist of fixed income securities and corporate stocks.
Funding of the plan is based on actuarial projections that are designed to
satisfy minimum ERISA funding requirements to achieve adequate funding of
accumulated benefit obligations.
The Company sponsors an unfunded defined benefit health care plan that
provides limited postretirement medical benefits to employees who meet minimum
age and service requirements, and to eligible dependents. The plan is
contributory, with retiree contributions adjusted annually.
The Medicare Prescription Drug, Improvement and Modernization Act of
2003 (the Act) was signed December 8, 2003 to make additional voluntary
benefits available through Medicare. The Company has elected not to recognize
the effects of the Act in these financial statements. The Company will be
evaluating the implications of the Act during 2004 and recognize expected
financial effects as prescribed by accounting standards in effect for
subsequent reporting periods.
12
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(8) RETIREMENT PLANS - (CONTINUED)
The following table presents the components of net periodic benefit
cost for the three months ended March 31, 2004 and 2003 (in thousands):
POSTRETIREMENT BENEFITS OTHER
PENSION BENEFITS THAN PENSIONS
---------------------------- ----------------------------
THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------- ----------- ---------- -----------
Net periodic benefit cost
Service cost $ 912 $ 718 $ 92 $ 145
Interest cost 1,148 1,025 140 256
Expected return on assets (1,454) (1,180) -- --
Amortization of prior service cost (22) (21) 10 18
Amortization of actuarial (gain) loss 493 418 (5) (36)
Less partnerships' allocation (34) (38) -- --
------------- ----------- ----------- ------------
Net periodic benefit cost $ 1,043 $ 922 $ 237 $ 383
============= =========== =========== ============
The Company expects to contribute $200,000 to its pension plan in
November 2004 to fund its 2004 pension plan obligations. As of March 31, 2004,
no contributions have been made.
(9) 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 incurred in the
ordinary course of business. The aggregate notional value of these instruments
is $2,945,000 at March 31, 2004, including $2,025,000 in letters of credit and
$920,000 in performance bonds, of which $683,000 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.
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 Environmental Protection
Agency ("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.
13
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(9) CONTINGENCIES - (CONTINUED)
The Company and certain subsidiaries have received a Request For
Information ("RFI") from the EPA under the Comprehensive Environmental
Response, Compensation and Liability Act with respect to a potential Superfund
site, the Gulfco site, located in Freeport, Texas. In prior years, a company
unrelated to Gulfco operated at the site and provided tank barge cleaning
services to various subsidiaries of the Company. An RFI is not a determination
that a party is responsible or potentially responsible for contamination at a
site, it is only a request seeking any information a party may have with
respect to a site as part of an EPA investigation into such site. Based on
information currently available, the Company is unable to ascertain the extent
of its exposure, if any, in this matter.
In addition, there are various other suits and claims against the
Company, none of which in the opinion of management will have a material effect
on the Company's financial condition, results of operations or cash flows.
Management believes that it has recorded adequate reserves and believes that it
has adequate insurance coverage or has meritorious defenses for these other
claims and contingencies.
(10) SUBSEQUENT EVENTS
On April 7, 2004, the Company purchased from Walker Paducah Corp.
("Walker"), a subsidiary of Ingram Barge Company ("Ingram"), Walker's diesel
engine service operation and parts inventory located in Paducah, Kentucky for
$5,755,000 in cash. In addition, the Company entered into a contract to provide
diesel engine services to Ingram. Financing of the acquisition was through the
Company's bank revolving credit facility.
On April 16, 2004, the Company purchased a one-third interest in
Osprey Line, LLC ("Osprey") for $4,220,000. The purchase price consisted of
cash of $2,920,000 and notes payable totaling $1,300,000 due in April 2005. The
remaining two-thirds interest is owned by Cooper/T. Smith Corporation and
Richard L. Couch. Osprey, formed in 2000, operates a barge feeder service for
cargo containers between Houston, New Orleans and Baton Rouge, as well as
several ports located above Baton Rouge on the Mississippi River. Revenues for
Osprey for 2003 were approximately $11,700,000. The purchase will be accounted
for under the equity method of accounting and the cash portion was financed
through the Company's revolving credit facility.
On April 29, 2004, the Company extended a hedge on part of its
exposure to fluctuations in short-term interest rates by entering into a
five-year interest rate swap agreement with a notional amount of $50,000,000 to
replace a $50,000,000 interest rate swap that expired in April 2004. Under the
agreement, the Company will pay a fixed rate of 4.00% for five years and will
receive floating rate interest payments based on LIBOR for United States dollar
deposits. The interest rate swap was designated as a cash flow hedge for the
Company's Senior Notes. As of April 29, 2004, the Company had a total notional
amount of $150,000,000 of interest rate swaps with terms ranging from five to
seven years designated as cash flow hedges for its Senior Notes.
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.
OVERVIEW
The Company is the nation's largest domestic inland tank barge
operator with a fleet of 874 active tank barges as of March 31, 2004 and
operated an average of 233 towing vessels during the 2004 first quarter. The
Company uses the inland waterway system of the U.S. to transport bulk liquids
including petrochemicals, black oil products, refined petroleum products and
agricultural chemicals. Through its diesel engine services segment, the Company
provides after-market services for large medium-speed diesel engines used in
marine, power generation and industrial, and rail applications.
During the 2004 first quarter, approximately 86% of the Company's
revenue was generated by its marine transportation segment. The segment's
customers include many of the major petrochemical and refining companies in the
U.S. Products transported include raw materials for many of the end products
used widely by businesses and consumers every day - plastics, fiber, paints,
detergents, oil additives and paper, among others. Consequently, the Company's
business tends to mirror the general performance of the U.S. economy and the
performance of the Company's customer base. The following table shows the
products transported by the Company, the revenue distribution for the first
quarter of 2004, the uses of these products and the factors that drive the
demand for the products the Company transports:
END USES OF PRODUCTS TRANSPORTED
2004
FIRST QTR.
REVENUE
PRODUCTS TRANSPORTED DISTRIBUTION USES OF PRODUCTS TRANSPORTED DRIVERS
- ------------------------ ------------ ----------------------------------- ----------------------------------
Petrochemicals 69% Plastics, Fibers, Paper, Housing, Consumer Goods,
Gasoline Additives Autos, Clothing, Vehicle Usages
Black Oil Products 17% Asphalt, Boiler Fuel, No. 6 Fuel Road Construction, Feedstock
Oil, Coker Feedstocks, Residual for Refineries, Fuel for Power
Fuel, Crude Oil, Ship Bunkers Plants and Ships
(Table continued on next page)
15
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
OVERVIEW - (CONTINUED)
2004
FIRST QTR.
REVENUE
PRODUCTS TRANSPORTED DISTRIBUTION USES OF PRODUCTS TRANSPORTED DRIVERS
- ------------------------ ------------ ----------------------------------- ----------------------------------
Refined Petroleum 10% Gasoline Blends, No. 2 Oil, Vehicle Usage, Air Travel,
Products Jet Fuel, Heating Oil Weather Conditions
Agricultural 4% Liquid Fertilizers, Chemical Corn, Cotton, Wheat Production
Chemicals Feedstocks
For the 2004 first quarter, the Company reported net earnings of
$9,020,000, or $.36 per share, on revenues of $157,315,000. The results reflect
an improvement in the overall United States economy, as well as the full 2004
first quarter impact of the January 15, 2003 acquisition of the SeaRiver inland
marine transportation equipment. The purchase of the SeaRiver fleet, the U.S.
marine transportation affiliate of ExxonMobil, included 48 double hull tank
barges and seven towboats, and assumption of the leases on 16 double hull tank
barges.
The Company's 2004 first quarter marine transportation segment's
revenues and operating income increased 8% and 23%, respectively. The segment's
largest market is the petrochemical market. During the 2004 first quarter,
aided by the strengthening United States economy, petrochemical volumes
continued to improve. The black oil products market for the 2004 first quarter
was also strong. The segment's refined products market for the 2004 first
quarter reflected stronger Midwest volumes than the first quarter of 2003,
primarily due to low Midwest distillate and gasoline inventory levels. The
agricultural chemical market was weak during the 2004 first quarter,
principally the result of high Midwest inventory levels.
The marine transportation segment was successful in modestly raising
rates during the 2004 first quarter on several contract renewals, a trend that
started in the 2003 fourth quarter. In addition, effective January 1, 2004, the
segment's escalators for labor, consumer price index and fuel on numerous
multi-year contracts did result in a rate increase for those contracts of
approximately 2%. Spot market rates during the 2004 first quarter were
generally higher for most marine transportation markets and above contract
rates. Currently, approximately 70% of the Company's marine transportation
business is under term contracts with the remaining 30% participating in the
spot market, giving the Company a more stable revenue stream with a smaller
amount of exposure to day-to-day pricing fluctuations.
As is normal for the first quarter, the marine transportation
segment's 2004 first quarter results were negatively impacted by navigational
delays, both weather and lock related. Navigational delays totaled 2,359 days,
only 9% less than the record 2,583 days recorded in the 2003 first quarter,
which included delays caused from the repair of a key lock located on the Gulf
Intracoastal Waterway. Navigational delays require the use of additional
chartered towboats to meet customer delivery schedules and result in increased
transit times that have a negative effect on the marine transportation
segment's operating margins. For the 2004 first quarter, the marine
transportation operating margin was 12.5%, compared with 11.0% earned in the
first quarter of 2003.
16
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
OVERVIEW - (CONTINUED)
The Company's 2004 first quarter diesel engine services segment's
revenues fell 6% and operating income was slightly higher when compared with
the 2003 first quarter. The results reflected a continued weak Gulf Coast
offshore oil service market and weak East Coast and power generation markets,
partially offset by a stronger Midwest market, driven by Great Lakes and inland
dry cargo operators' maintenance requirements. The operating margin in the
diesel engine services segment improved to 11.2% for the 2004 first quarter
compared with 10.4% for the 2003 first quarter.
The Company continued to generate strong cash flow provided by
operating activities during the 2004 first quarter and reduced its outstanding
debt by $4,856,000 to $250,409,000 as of March 31, 2004. The Company's
debt-to-capitalization ratio was reduced from 40.7% to 39.6% during the 2004
first quarter. Also during the 2004 first quarter, capital expenditures totaled
$24,047,000, of which $9,511,000 was for the construction of new tank barges,
with the remaining $14,536,000 principally for upgrades of the existing marine
transportation fleet. In addition, the Company purchased two pre-owned ammonia
tank barges for $1,110,000 during the 2004 first quarter.
In April 2004, the Company completed two small acquisitions, one in
the marine transportation segment and one in the diesel engine services
segment. On April 7, the Company purchased from Walker, a subsidiary of Ingram,
Walker's diesel engine service operation and parts inventory located in
Paducah, Kentucky for $5,755,000 in cash. On April 16, the Company purchased a
one-third interest in Osprey for $4,220,000. Osprey operates a feeder service
for cargo containers on barges along the Gulf Coast and inland waterways.
The Company anticipates that during the balance of the 2004 year, the
United States and global economies will continue to improve, which should lead
to a quarter over quarter increase in petrochemical volumes transported by the
Company's marine transportation segment. During the 2004 first quarter,
feedstock and energy costs were high and the Company expects such costs to
remain high and volatile at least through the 2004 first half. Such high costs
and volatility could slow down or delay the improvement in petrochemical
volumes that the Company has experienced during 2003 and the 2004 first
quarter. Industry-wide, tank barge capacity has declined since 2000. This
decline should assist the tank barge industry to come into balance between the
number of tank barges needed to carry its customers' cargoes and the actual
volumes moved, which should help the Company's earnings and investment returns.
ACQUISITIONS
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.
17
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
ACQUISITIONS - (CONTINUED)
On April 7, 2004, the Company purchased from Walker, a subsidiary of
Ingram, Walker's diesel engine service operation and parts inventory located in
Paducah, Kentucky for $5,755,000 in cash. In addition, the Company entered into
a contract to provide diesel engine services to Ingram.
On April 16, 2004, the Company purchased a one-third interest in
Osprey for $4,220,000. The purchase price consisted of cash of $2,920,000 and
notes payable totaling $1,300,000 due in April 2005. The remaining two-thirds
interest is owned by Cooper/T. Smith Corporation and Richard L. Couch. Osprey,
formed in 2000, operates a feeder service for cargo containers on barges
between Houston, New Orleans and Baton Rouge, as well as several ports located
above Baton Rouge on the Mississippi River.
RESULTS OF OPERATIONS
The Company reported first quarter 2004 net earnings of $9,020,000, or
$.36 per share, on revenues of $157,315,000, compared with 2003 first quarter
net earnings of $6,868,000, or $.28 per share, on revenues of $148,200,000.
Marine transportation revenues for the 2004 first quarter totaled
$135,493,000, or 86% of total revenues, compared with $125,065,000, or 84% of
total revenues for the 2003 first quarter. Diesel engine services revenues for
the 2004 first quarter was $21,822,000, or 14% of total revenues, compared with
$23,135,000, or 16% of total revenues for the first quarter of 2003.
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 2004 and 2003 first quarters were
24,913,000 and 24,327,000, respectively.
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 March 31, 2004, the marine transportation segment operated 874 active
inland tank barges, with a total capacity of 16.0 million barrels, compared
with 905 active inland tank barges at March 31, 2003, with a total capacity of
16.5 million barrels. The segment also operated an average of 233 inland
towboats during the 2004 first quarter compared with an average of 229 inland
towboats during the first quarter of 2003. 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.
18
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 ended March 31, 2004 compared with the three months ended
March 31, 2003 (dollars in thousands):
THREE MONTHS ENDED
MARCH 31,
------------------------------
2004 2003 % CHANGE
------------ ------------ ----------
Marine transportation revenues $ 135,493 $ 125,065 8%
------------ ------------ -----
Costs and expenses:
Costs of sales and operating expenses 86,966 83,171 5
Selling, general and administrative 15,504 13,783 12
Taxes, other than on income 3,133 2,902 8
Depreciation and other amortization 13,016 11,505 13
------------ ------------ -----
118,619 111,361 7
------------ ------------ -----
Operating income $ 16,874 $ 13,704 23%
============ ============ =====
Operating margins 12.5% 11.0%
MARINE TRANSPORTATION REVENUES
Revenues for the 2004 first quarter increased 8% compared with the
2003 first quarter, reflecting the full 2004 first quarter impact of the
January 15, 2003 purchase of the inland tank barge fleet of SeaRiver. In
addition, the 2004 first quarter revenues reflected stronger petrochemical,
black oil and refined products volumes, as well as fuel, labor and consumer
price index escalators on numerous multi-year contracts effective January 1,
2004.
Petrochemical volumes transported continued to strengthen during the
2004 first quarter, primarily due to the improving United States economy. Black
oil volumes during the 2004 first quarter increased when compared with the 2003
first quarter due to a number of refinery maintenance turnarounds, the high
price of crude oil, and the refining industry's objective of recapturing as
much value from a barrel of crude oil as possible, thereby creating a higher
level of demand for the transportation of black oil products. Refined products
volumes transported into the Midwest during the 2004 first quarter were
generally at traditional seasonal levels, however, stronger than the 2003 first
quarter, primarily the result of low Midwest distillate and gasoline inventory
levels. Liquid fertilizer volumes were seasonally weak during the 2004 first
quarter, caused by high Midwest inventory levels.
During the 2004 first quarter, approximately 70% of marine
transportation volumes were under term contracts and 30% were spot market
volumes. Contract rate renewals reflected modest increases during the 2004
first quarter. Effective January 1, 2004, escalators for labor, consumer price
index and fuel on numerous multi-year contracts did result in a rate increase
for those contracts of approximately 2%. Spot market rates during the 2004
first quarter were generally higher for most product lines and above contract
rates, with black oil and petrochemical Gulf Intracoastal Waterway volumes
reflecting the largest spot market increases.
19
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
MARINE TRANSPORTATION COSTS AND EXPENSES
Cost of sales and operating expenses for the 2004 first quarter
increased 5% compared with the 2003 first quarter, reflecting labor increases
and related expenses, effective January 1, 2004, as well as additional
operating expenses associated with increased business levels and poor
navigating conditions, principally weather related. The segment operated an
average of 233 inland towboats during the 2004 first quarter compared with 229
operated during the 2003 first quarter. The number of towboats operated is
adjusted daily, depending on the amount of volumes moved, weather conditions
and voyage times. The segment consumed 13.5 million gallons of diesel fuel in
the 2004 first quarter compared with 12.9 million gallon consumed in the first
quarter of 2003.
Selling, general and administrative expenses were 12% higher in the
2004 first quarter than the first quarter of 2003, primarily reflecting salary
increases and related expenses effective January 1, 2004, higher incentive
compensation accruals, higher medical costs and increased professional and
legal fees.
Taxes, other than on income for the 2004 first quarter increased 8%
compared with the 2003 first quarter, primarily reflecting increased waterway
use taxes from increased business activity levels and higher property taxes on
new and existing equipment.
Depreciation and other amortization for the 2004 first quarter
increased 13% over the 2003 first quarter. The increase reflected depreciation
on new tank barge additions and capital expenditures in the first quarter of
2004 and during the 2003 year.
MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
Operating income for the 2004 first quarter increased 23% compared
with the 2003 first quarter. The 2004 first quarter operating margin increased
to 12.5% compared with 11.0% in the 2003 first quarter. Historically, first
quarter operating margins are typically the lowest margins earned for the year,
as navigational delays caused by winter weather conditions results in delays,
diversions and necessitate the use of additional chartered towboats to meet
customer service requirements and schedules. The improved 2004 first quarter
operating margin reflected the January 1, 2004 fuel, labor and consumer price
index escalators on numerous multi-year contracts, and 9% less navigational
delays than the 2003 first quarter. In addition, during the 2004 first quarter,
the segment did not experience the rapidly escalating fuel prices that
occurring during the 2003 first quarter. Term contracts contain fuel escalation
clauses that allow the Company to recover increases in the cost of fuel;
however, there is generally a 30 to 90 day delay before contracts are adjusted.
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.
20
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
DIESEL ENGINE SERVICES - (CONTINUED)
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, 2004 compared with the three months ended
March 31, 2003 (dollars in thousands):
THREE MONTHS ENDED
MARCH 31,
---------------------------
2004 2003 % CHANGE
----------- ------------ -----------
Diesel engine services revenues $ 21,822 $ 23,135 (6)%
---------- ---------- ------
Costs and expenses:
Costs of sales and operating expenses 15,934 17,629 (10)
Selling, general and administrative 3,034 2,754 10
Taxes, other than on income 82 83 (1)
Depreciation and other amortization 333 252 32
---------- ---------- ------
19,383 20,718 (6)
---------- ---------- ------
Operating income $ 2,439 $ 2,417 1%
========== ========== ======
Operating margins 11.2% 10.4%
DIESEL ENGINE SERVICES REVENUES
Revenues for the 2004 first quarter reflected a 6% decrease compared
with the first quarter of 2003. The segment's Gulf Coast oil and gas well
service market remained weak and the East Coast marine market and power
generation markets were weak during the 2004 first quarter. These weak markets
negatively impacted revenues and were partially offset by favorable Great Lakes
and West Coast marine markets, an improved Midwest dry cargo market and a firm
nuclear market.
DIESEL ENGINE SERVICES COSTS AND EXPENSES
Costs of sales and operating expense for the 2004 first quarter
decreased 10%, reflecting the lower service and parts sales activity, and were
partially offset by increases in salaries and related expenses effective
January 1, 2004. Selling, general and administrative expenses increased 10%,
also reflecting increases in salaries and related expenses, and an increase in
the provision for doubtful accounts.
DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
Operating income for the diesel engines services segment for the 2004
first quarter increased 1% compared with the 2003 first quarter and the
operating margin for the 2004 first quarter increased to 11.2% compared with
10.4% for the 2003 first quarter. The higher operating margin was primarily due
to the product mix of parts and services sold during the first quarter of 2004
compared to the first quarter of 2003.
21
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
GENERAL CORPORATE EXPENSES
General corporate expenses for the 2004 first quarter were $1,939,000
compared with $1,616,000 for the first quarter of 2003. The 20% increase
primarily reflected increases in salaries and related expenses effective
January 1, 2004, higher employee incentive compensations accruals, higher
employee medical costs, increased legal and professional fees, including the
costs of evaluating and implementing new governmental and securities
regulations.
OTHER INCOME AND EXPENSES
The following table sets forth the loss on disposition of assets,
equity in earnings of marine affiliates, other expense and interest expense for
the three months ended March 31, 2004 compared with the three months ended
March 31, 2003 (dollars in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------------
2004 2003 % CHANGE
----------- ----------- -----------
Loss on disposition of assets $ (2) $ (7) (71) %
Equity in earnings of marine affiliates $ 822 $ 436 89 %
Other expense $ (271) $ (403) (33) %
Interest expense $ (3,374) $ (3,454) (2) %
EQUITY IN EARNINGS OF MARINE AFFILIATES
Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, increased 89% for the 2004 first quarter
compared with the corresponding quarter of 2003. The improved results primarily
reflected lower fuel costs and the favorable settlement of 2003 demurrage
charges.
INTEREST EXPENSE
Interest expense for the 2004 first quarter decreased 2% compared with
the first quarter of 2003, as lower average debt offset a higher average
interest rate. The average debt and average interest rate for the 2004 and 2003
first quarter, including the effect of interest rate swaps, were $254,344,000
and 5.1%, and $289,161,000 and 4.8%, respectively.
22
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
BALANCE SHEET
Total assets as of March 31, 2004 were $861,754,000, a 1% increase
compared with $854,961,000 as of December 31, 2003. The following table sets
forth the significant components of the balance sheet as of March 31, 2004
compared with December 31, 2003 (dollars in thousands):
MARCH 31, DECEMBER 31,
2004 2003 % CHANGE
------------- ---------------- -----------
Assets:
Current assets $ 128,606 $ 131,779 (2)%
Property and equipment, net 547,288 536,512 2
Investment in marine affiliates 9,482 9,162 3
Goodwill, net 156,726 156,726 --
Other assets 19,652 20,782 (5)
------------ ------------ ----
$ 861,754 $ 854,961 1 %
============ ============ ====
Liabilities and stockholders' equity:
Current liabilities $ 94,213 $ 98,868 (5)%
Long-term debt - less current portion 250,239 255,040 (2)
Deferred income taxes 108,540 106,134 2
Minority interest and other
long-term liabilities 27,088 22,787 19
Stockholders' equity 381,674 372,132 3
------------ ----------- ----
$ 861,754 $ 854,961 1 %
============ =========== ====
Current assets as of March 31, 2004 decreased 2% compared with
December 31, 2003. Trade accounts receivable increased 4% reflecting higher
revenues in the first quarter of 2004 compared with the fourth quarter of 2003.
Other accounts receivable decreased 9%, reflecting a reduction in the IRS
receivable of $1,241,000 and the collection of approximately $500,000 of
insurance receivables. Inventory - finished goods increased 3%, reflecting the
purchase of additional inventory in January to take advantage of a February 1,
2004 price increase by a major inventory supplier. Prepaid expenses and other
assets decreased 12% due to the sale of certain assets held for sale and the
amortization of insurance premiums.
Property and equipment, net of accumulated amortization, at March 31,
2004 increased 2% compared with December 31, 2003. The increase reflected
$24,047,000 of capital expenditures, more fully described under Capital
Expenditures below, $1,110,000 for the purchase of two pre-owned ammonia tank
barges, less $13,692,000 of depreciation expense and property disposals of
$689,000 for the first three months of 2004.
Investment in marine affiliates as of March 31, 2004 increased 3%
compared with December 31, 2003, reflecting equity in earnings of marine
affiliates of $822,000, less $501,000 of distributions received during the 2004
first quarter.
23
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET - (CONTINUED)
Current liabilities as of March 31, 2004 decreased 5% compared with
December 31, 2003. The decrease was primarily due to an 8% reduction in accrued
liabilities, principally from the payment during the 2004 first quarter of
employee bonuses accrued during the 2003 year and the payment during the 2004
first quarter of property taxes accrued during the 2003 year, partially offset
by increased insurance reserves.
Long-term debt, less current portion, as of March 31, 2004 decreased
2% compared with December 31, 2003. The reduction primarily reflected the
paydown of long-term debt using the Company's 2004 first quarter net cash
provided by operating activities of $23,341,000, proceeds from the disposition
of assets totaling $688,000 and $2,179,000 of proceeds from the exercise of
employee and nonemployee director stock options. Borrowings totaling
$24,047,000 were used for the 2004 first quarter capital expenditures and
$1,110,000 for the acquisition of two pre-owned ammonia tank barges.
Deferred income taxes as of March 31, 2004 increased 2% compared with
December 31, 2003, primarily due to bonus tax depreciation on qualifying marine
transportation capital expenditures under federal legislation enacted in 2002
and 2003.
Minority interest and other long-term liabilities as of March 31, 2004
increased 19% compared with December 31, 2003, primarily due to the recording
of a $3,780,000 increase in the fair value of the interest rate swap agreements
for the 2004 first quarter, more fully described under Long-Term Financing
below, and the accrual of postretirement benefits.
Stockholders' equity as of March 31, 2004 increased 3% compared with
December 31, 2003. The increase was primarily the result of recording
$9,020,000 of net earnings for the first three months of 2004, a $2,471,000
decrease in treasury stock, an increase of $1,857,000 in additional paid-in
capital, a decrease in accumulated other comprehensive income of $2,112,000 and
the recording of $1,694,000 of net deferred compensation related to restricted
stock options. The decrease in treasury stock and increase in additional
paid-in capital were attributable to the exercise of employee and nonemployee
director stock options and the issuance of restricted stock. The decrease in
accumulated other comprehensive income resulted from the net changes in fair
value of interest rate swap agreements, net of taxes, more fully described
under Long-Term Financing below.
LONG-TERM FINANCING
The Company has a $150,000,000 unsecured revolving credit facility
("Revolving Credit Facility") with a syndicate of banks, with JP Morgan Chase
Bank as the agent bank, and with a maturity date of December 9, 2007. The
Revolving Credit Facility allows for an increase in bank commitments from
$150,000,000 up to a maximum of $225,000,000 without further amendments to the
Revolving Credit Facility. As of March 31, 2004, the Company had no borrowings
outstanding under the Revolving Credit Facility and had outstanding letters of
credit totaling $1,114,000. The Company was in compliance with all Revolving
Credit Facility covenants as of March 31, 2004.
24
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
The Company has $250,000,000 of floating rate senior notes ("Senior
Notes") due February 28, 2013. The notes are currently callable at par without
penalty and no principal payments are required until maturity in 2013. As of
March 31, 2004, $250,000,000 was outstanding under the Senior Notes. The
Company was in compliance with all Senior Notes covenants as of March 31, 2004.
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 3, 2004. As of March 31, 2004,
$200,000 was outstanding under the Credit Line and outstanding letters of
credit totaled $558,000. Amounts borrowed on the Credit Line were classified as
long-term debt at March 31, 2004, 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
Company did not have any borrowing outstanding under the Credit Note as of
March 31, 2004.
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,
2004, $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, 2004, 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 Senior Notes
by entering into interest rate swap agreements. 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, 2004, the Company had a total notional amount of
$150,000,000 of interest rate swaps designated as cash flow hedges for its
variable rate Senior Notes as follows (dollars in thousands):
NOTIONAL FIXED
AMOUNT TRADE DATE EFFECTIVE DATE TERMINATION DATE PAY RATE RECEIVE RATE
------------ ------------------ --------------- ---------------- ----------- ----------------
$ 50,000 April 2001 April 2001 April 2004 4.96% One-month LIBOR
$ 100,000 February 2001 March 2001 March 2006 5.64% One-month LIBOR
$ 100,000 September 2003 March 2006 February 2013 5.45% Three-month LIBOR
These interest rate swaps hedge a majority of the Company's long-term
debt and only an immaterial loss on ineffectiveness was recognized in the 2004
first quarter. At March 31, 2004, the total fair value of the interest rate
swap agreements was $11,910,000, of which $120,000 was recorded as an other
accrued liability for swap maturities within the next twelve months, and
$11,790,000 was recorded as an other long-term liability for swap maturities
greater than twelve months. The Company has recorded in interest expense,
losses related to the interest rate swap agreements of $1,664,000 and
25
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LONG-TERM FINANCING - (CONTINUED)
$1,475,000 for the first quarter ended March 31, 2004 and 2003, respectively.
Gains or losses on the interest rate swap contracts offset increases or
decreases in rates of the underlying debt, which results in a fixed rate for
the underlying debt. The Company anticipates $2,970,000 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, 2004 and 2003 based on quoted market values of the
Company's portfolio of derivative instruments.
On April 29, 2004, the Company extended a hedge on part of its
exposure to fluctuations in short-term interest rates by entering into a
five-year interest rate swap agreement with a notional amount of $50,000,000 to
replace the $50,000,000 swap shown in the table above upon its termination in
April 2004. Under the agreement, the Company will pay a fixed rate of 4.00% for
five years and will receive floating rate interest payments based on LIBOR for
United States dollar deposits. The interest rate swap was designated as a cash
flow hedge for the Company's Senior Notes. As of April 29, 2004, the Company
had a total notional amount of $150,000,000 of interest rate swaps with terms
ranging from five to seven years designated as cash flow hedges for its Senior
Notes.
CAPITAL EXPENDITURES
Capital expenditures for the 2004 first quarter totaled $24,047,000,
of which $9,511,000 were for construction of new tank barges, and $14,536,000
were primarily for upgrading of the existing marine transportation fleet.
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 petroleum products.
Five of the tank barges were delivered in 2003 and the sixth tank barge was
delivered in February 2004. The total purchase price of the six barges was
approximately $9,500,000, of which $780,000 was expended in 2002, $8,612,000
was expended in 2003 and the balance expended in the 2004 first quarter.
Financing of the construction of the six barges was through operating cash
flows and available credit under the Company's Revolving Credit Facility.
In October 2002, the Company entered into a contract for the
construction for six double hull, 30,000 barrel capacity, inland tank barges
for use in the transportation of petrochemical and refined petroleum products.
Delivery of the six barges is scheduled over a six-month period starting in May
2004. The total purchase price of the six barges is approximately $8,900,000,
of which $1,111,000 was expended in 2003 and $1,108,000 was expended in the
2004 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 with 12 for use
in the transportation of black oil products and four for use in the
transportation of petrochemical and refined petroleum products. Six of the 16
barges were delivered in 2003, one delivered in the 2004 first quarter, and
five are anticipated to be delivered in the second quarter of 2004. The total
purchase price of the 16 barges is approximately $29,000,000, of which
$10,806,000 was expended in 2003 and $8,322,000 was expended in the 2004 first
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.
26
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CAPITAL EXPENDITURES - (CONTINUED)
In October 2003, the Company entered into a contract for the
construction of nine double hull, 30,000 barrel capacity, inland tank barges.
Of the nine barges, five barges will be for use in the transportation of
petrochemicals and refined petroleum products and four for use in the
transportation of black oil products. Delivery of the nine barges is scheduled
over a four-month period beginning in August 2004. The total purchase price of
the nine barges is approximately $16,000,000, of which none was expended in
2003 and the 2004 first quarter.
Over the next three years, a number of tank barges in the combined
Company/Coastal black oil fleet are scheduled to be retired and replaced with
new tank 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 black oil barges and the Company
anticipates building 16 barges to replace the Coastal equipment.
Funding for future capital expenditures and new tank barge
construction is expected to be provided through operating cash flows and
available credit under the Company's Revolving Credit Facility.
TREASURY STOCK PURCHASES
During the 2004 first quarter, the Company did not purchase any
treasury stock. As of May 7, 2004, 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
$23,341,000 during the three months ended March 31, 2004, 8% lower than the
$25,366,000 generated during the three months ended March 31, 2003.
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 ventures. For the three
months ended March 31, 2004 and 2003, the Company received net cash totaling
$501,000 and $750,000, respectively, from the partnerships and joint ventures.
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
7, 2004, $143,886,000 under its Revolving Credit Facility and $121,000,000
under its shelf registration program, subject to mutual agreement on terms. As
of May 6, 2004, the
27
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
LIQUIDITY - (CONTINUED)
Company had $8,842,000 available under its Credit Line and none available under
the 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 Revolving Credit Facility.
The Company expects to continue to fund expenditures for acquisitions,
capital construction projects, 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 $4,508,000 term loan outstanding at March 31, 2004. 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 of contractual or contingent legal obligations incurred in the
ordinary course of business. The aggregate notional value of these instruments
is $2,945,000 at March 31, 2004, including $2,025,000 in letters of credit and
$920,000 in performance bonds, of which $683,000 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.
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 2004 interest expense by
approximately $146,000, based on balances outstanding at December 31, 2003, 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 which 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 Senior Notes
by entering into interest rate swap agreements. The interest rate swap
agreements are designated as cash flow hedges, therefore, the changes in fair
value, to the extent to the swap agreements are effective, are recognized in
other comprehensive income until the hedged interest expense is recognized in
earnings. As of March 31, 2004, the Company had a total notional amount of
$150,000,000 of interest rate swaps designated as cash flow hedges for its
variable rate Senior Notes as follows (dollars in thousands):
NOTIONAL FIXED
AMOUNT TRADE DATE EFFECTIVE DATE TERMINATION DATE PAY RATE RECEIVE RATE
- ------------ ------------------ --------------- ---------------- ---------- -----------------
$ 50,000 April 2001 April 2001 April 2004 4.96% One-month LIBOR
$ 100,000 February 2001 March 2001 March 2006 5.64% One-month LIBOR
$ 100,000 September 2003 March 2006 February 2013 5.45% Three-month LIBOR
These interest rate swaps hedge a majority of the Company's long-term
debt and only an immaterial loss on ineffectiveness was recognized in the 2004
first quarter. At March 31, 2004, the total fair value of the interest rate
swap agreements was $11,910,000, of which $120,000 was recorded as an other
accrued liability for swap maturities within the next twelve months, and
$11,790,000 was recorded as an other long-term liability for swap maturities
greater than twelve months. The Company has recorded in interest expense,
losses related to the interest rate swap agreements of $1,664,000 and
$1,475,000 for the first quarter ended March 31, 2004 and 2003, respectively.
Gains or losses on the interest rate swap contracts offset increases or
decreases in rates of the underlying debt, which results in a fixed rate for
the underlying debt. The Company anticipates $2,970,000 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, 2004 and 2003 based on quoted market values of the
Company's portfolio of derivative instruments.
29
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
(CONTINUED)
On April 29, 2004, the Company extended a hedge on part of its
exposure to fluctuations in short-term interest rates by entering into a
five-year interest rate swap agreement with a notional amount of $50,000,000 to
replace a $50,000,000 interest rate swap that expired in April 2004. Under the
agreement, the Company will pay a fixed rate of 4.00% for five years and will
receive floating rate interest payments based on LIBOR for United States dollar
deposits. The interest rate swap was designated as a cash flow hedge for the
Company's Senior Notes. As of April 29, 2004, the Company had a total notional
amount of $150,000,000 of interest rate swaps with terms ranging from five to
seven years designated as cash flow hedges for its Senior Notes.
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 have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
30
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.
The Company and certain subsidiaries have received a Request For
Information ("RFI") from the EPA under the Comprehensive Environmental
Response, Compensation and Liability Act with respect to a potential Superfund
site, the Gulfco site, located in Freeport, Texas. In prior years, a company
unrelated to Gulfco operated at the site and provided tank barge cleaning
services to various subsidiaries of the Company. An RFI is not a determination
that a party is responsible or potentially responsible for contamination at a
site, it is only a request seeking any information a party may have with
respect to a site as part of an EPA investigation into such site. Based on
information currently available, the Company is unable to ascertain the extent
of its exposure, if any, in this matter.
In addition, there are various other suits and claims against the
Company, none of which in the opinion of management will have a material effect
on the Company's financial condition, results of operations or cash flows.
Management believes that it has recorded adequate 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 Company held its Annual Meeting of Stockholders on April 27, 2004.
(b) Class III Directors elected to serve until the 2007 Annual Meeting of
Stockholders were 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. Class II Directors continuing to serve until
the 2006 Annual Meeting of Stockholders are Bob G. Gower, Joseph H.
Pyne and Richard C. Webb.
(c) A proposal to approve amendments to the Nonemployee Director
Compensation Program and 2000 Nonemployee Director Stock Option Plan
was also approved by the Stockholders at the Annual Meeting. The
number of affirmative, negative and abstained votes with respect to
the matter was as follows:
For 20,677,003
Against 836,230
Abstain 25,989
31
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 5. Other Information.
On January 26, 2004, the Governance Committee of the Company's Board
of Directors adopted the following policy on director candidates recommended by
stockholders:
POLICY ON DIRECTOR CANDIDATES RECOMMENDED BY STOCKHOLDERS
The Governance Committee of the Company will consider director
candidates recommended by stockholders. Recommendations may be sent to the
Chairman of the Governance Committee, Kirby Corporation, 55 Waugh Drive, Suite
1000, Houston, Texas 77007, accompanied by biographical information for
evaluation. The Board of Directors of the Company has approved Criteria for the
Selection of Directors which the Governance Committee will consider in
evaluating director candidates. A copy of the criteria is available on the
Company's website at www.kirbycorp.com in the Investor Relations section under
Corporate Governance.
When there is a vacancy on the Company's Board of Directors (i.e., in
cases other than the nomination of an existing director for re-election), the
Board and the Governance Committee have considered candidates identified by
executive search firms, candidates recommended by stockholders and candidates
recommended by other directors. The Governance Committee will continue to
consider candidates from any of those sources when future vacancies occur. The
Governance Committee does not evaluate a candidate differently based on whether
or not the candidate is recommended by a stockholder.
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 January 29, 2004 stated that
the Company issued a press release announcing the Company's 2003 fourth quarter
and full year 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: May 7, 2004
32
EXHIBIT INDEX
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.