Attached files
file | filename |
---|---|
EX-32 - EXHIBIT 32 - KIRBY CORP | ex32.htm |
EX-31.1 - EXHIBIT 31.1 - KIRBY CORP | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - KIRBY CORP | ex31_2.htm |
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 quarterly period ended September 30, 2009
|
||
¨
|
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 incorporation or organization)
|
(IRS
Employer Identification No.)
|
|
55
Waugh Drive, Suite 1000, Houston, TX
|
77007
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(713)
435-1000
|
(Registrant’s
telephone number, including area code)
|
No
Change
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer þ Accelerated
filer ¨ Non-accelerated
filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No þ
The
number of shares outstanding of the registrant’s Common Stock, $.10 par value
per share, on November 6, 2009 was 53,813,000.
1
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
ASSETS
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
($
in thousands)
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 39,762 | $ | 8,647 | ||||
Accounts
receivable:
|
||||||||
Trade
– less allowance for doubtful accounts
|
133,895 | 187,210 | ||||||
Other
|
11,163 | 12,976 | ||||||
Inventory
– finished goods
|
40,065 | 48,518 | ||||||
Prepaid
expenses and other current assets
|
13,789 | 12,163 | ||||||
Deferred
income taxes
|
7,630 | 9,997 | ||||||
Total
current assets
|
246,304 | 279,511 | ||||||
Property
and equipment
|
1,778,470 | 1,655,575 | ||||||
Less
accumulated depreciation
|
(694,768 | ) | (664,643 | ) | ||||
Property
and equipment - net
|
1,083,702 | 990,932 | ||||||
Goodwill
– net
|
230,774 | 230,774 | ||||||
Other
assets
|
22,758 | 24,881 | ||||||
Total
assets
|
$ | 1,583,538 | $ | 1,526,098 |
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,
|
|||||||
2009
|
2008
|
|||||||
($
in thousands)
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 362 | $ | 1,243 | ||||
Income
taxes payable
|
7,375 | 4,755 | ||||||
Accounts
payable
|
52,793 | 78,020 | ||||||
Accrued
liabilities
|
63,962 | 82,042 | ||||||
Deferred
revenues
|
8,013 | 7,006 | ||||||
Total
current liabilities
|
132,505 | 173,066 | ||||||
Long-term
debt – less current portion
|
200,036 | 246,064 | ||||||
Deferred
income taxes
|
177,516 | 145,568 | ||||||
Other
long-term liabilities
|
69,361 | 67,845 | ||||||
Total
long-term liabilities
|
446,913 | 459,477 | ||||||
Contingencies
and commitments
|
— | — | ||||||
Equity:
|
||||||||
Kirby
stockholders’ equity:
|
||||||||
Preferred
stock, $1.00 par value per share. Authorized 20,000,000
shares
|
— | — | ||||||
Common
stock, $.10 par value per share. Authorized 120,000,000 shares,
issued 57,337,000 shares
|
5,734 | 5,734 | ||||||
Additional
paid-in capital
|
225,925 | 225,718 | ||||||
Accumulated
other comprehensive income – net
|
(49,350 | ) | (55,047 | ) | ||||
Retained
earnings
|
901,164 | 804,425 | ||||||
Treasury
stock – at cost, 3,504,000 at September 30, 2009 and 3,848,000 at December
31, 2008
|
(82,645 | ) | (90,777 | ) | ||||
Total
Kirby stockholders’ equity
|
1,000,828 | 890,053 | ||||||
Noncontrolling
interests
|
3,292 | 3,502 | ||||||
Total
equity
|
1,004,120 | 893,555 | ||||||
Total
liabilities and equity
|
$ | 1,583,538 | $ | 1,526,098 |
See
accompanying notes to condensed financial statements.
3
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENTS OF EARNINGS
(Unaudited)
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
($
in thousands, except per share amounts)
|
||||||||||||||||
Revenues:
|
||||||||||||||||
Marine
transportation
|
$ | 227,467 | $ | 286,880 | $ | 664,394 | $ | 830,014 | ||||||||
Diesel
engine services
|
44,699 | 67,767 | 158,176 | 203,463 | ||||||||||||
Total
revenues
|
272,166 | 354,647 | 822,570 | 1,033,477 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||
Costs
of sales and operating expenses
|
157,186 | 220,875 | 486,990 | 649,480 | ||||||||||||
Selling,
general and administrative
|
27,949 | 36,026 | 91,493 | 102,349 | ||||||||||||
Taxes,
other than on income
|
2,989 | 3,560 | 9,267 | 10,548 | ||||||||||||
Depreciation
and amortization
|
24,929 | 22,420 | 69,724 | 67,132 | ||||||||||||
Loss
(gain) on disposition of assets
|
(753 | ) | 166 | (1,117 | ) | (276 | ) | |||||||||
Total
costs and expenses
|
212,300 | 283,047 | 656,357 | 829,233 | ||||||||||||
Operating
income
|
59,866 | 71,600 | 166,213 | 204,244 | ||||||||||||
Other
income (expense)
|
189 | (164 | ) | 375 | (272 | ) | ||||||||||
Interest
expense
|
(2,781 | ) | (3,375 | ) | (8,387 | ) | (10,665 | ) | ||||||||
Earnings
before taxes on income
|
57,274 | 68,061 | 158,201 | 193,307 | ||||||||||||
Provision
for taxes on income
|
(21,826 | ) | (25,932 | ) | (60,304 | ) | (73,719 | ) | ||||||||
Net
earnings
|
35,448 | 42,129 | 97,897 | 119,588 | ||||||||||||
Less: Net
earnings attributable to noncontrolling interests
|
(434 | ) | (351 | ) | (1,158 | ) | (829 | ) | ||||||||
Net
earnings attributable to Kirby
|
$ | 35,014 | $ | 41,778 | $ | 96,739 | $ | 118,759 | ||||||||
Net
earnings per share attributable to Kirby common
stockholders:
|
||||||||||||||||
Basic
|
$ | .65 | $ | .77 | $ | 1.80 | $ | 2.21 | ||||||||
Diluted
|
$ | .65 | $ | .77 | $ | 1.79 | $ | 2.19 |
See
accompanying notes to condensed financial statements.
4
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
months ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
($
in thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
earnings
|
$ | 97,897 | $ | 119,588 | ||||
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
69,724 | 67,132 | ||||||
Provision
for deferred income taxes
|
31,907 | 19,226 | ||||||
Amortization
of unearned compensation
|
6,425 | 7,233 | ||||||
Other
|
(816 | ) | 1,131 | |||||
Increase
(decrease) in cash flows resulting from changes in operating assets and
liabilities:
|
||||||||
Accounts
receivable
|
54,723 | (27,252 | ) | |||||
Other,
net
|
(22,759 | ) | (3,610 | ) | ||||
Net
cash provided by operating activities
|
237,101 | 183,448 | ||||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(162,972 | ) | (141,525 | ) | ||||
Acquisition
of business and marine equipment
|
― | (5,436 | ) | |||||
Proceeds
from disposition of assets
|
3,619 | 1,346 | ||||||
Net
cash used in investing activities
|
(159,353 | ) | (145,615 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
on bank credit facilities, net
|
(46,000 | ) | (27,210 | ) | ||||
Payments
on long-term debt, net
|
(928 | ) | (1,055 | ) | ||||
Proceeds
from exercise of stock options
|
2,056 | 8,687 | ||||||
Purchase
of treasury stock
|
— | (25,901 | ) | |||||
Excess
tax benefit (expense) from equity compensation plans
|
(393 | ) | 5,199 | |||||
Other
|
(1,368 | ) | (734 | ) | ||||
Net
cash used in financing activities
|
(46,633 | ) | (41,014 | ) | ||||
Increase
(decrease) in cash and cash equivalents
|
31,115 | (3,181 | ) | |||||
Cash
and cash equivalents, beginning of year
|
8,647 | 5,117 | ||||||
Cash
and cash equivalents, end of period
|
$ | 39,762 | $ | 1,936 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the period:
|
||||||||
Interest
|
$ | 8,212 | $ | 10,621 | ||||
Income
taxes
|
$ | 26,690 | $ | 62,901 |
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, 2009 and December 31, 2008,
and the results of operations for the three months and nine months ended
September 30, 2009 and 2008.
(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, 2008.
(2)
|
ACCOUNTING
ADOPTIONS
|
In June
2009, the Financial Accounting Standards Board (“FASB”) issued FASB No. 168,
“The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS
No. 168”). SFAS No. 168 was effective for interim and annual periods
ending after September 15, 2009. Under SFAS No. 168, the FASB
Accounting Standards Codification (the “Codification” or “ASC”) became the
source of authoritative U.S. generally accepted accounting principles (“GAAP”)
recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The Codification
superseded all existing non-SEC accounting and reporting standards at September
15, 2009. All other nongrandfathered non-SEC accounting literature
not included in the Codification has become nonauthoritative. SFAS
No. 168 has been incorporated in ASC 105, “Generally Accepted Accounting
Principles”. The Company adopted SFAS No. 168 in the third
quarter of 2009 with no effect on the Company’s consolidated financial
statements but did change the referencing of financial accounting
standards.
6
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(2)
|
ACCOUNTING
ADOPTIONS – (CONTINUED)
|
The
Company adopted a new accounting standard included in ASC 805, “Business
Combinations” (formerly SFAS No. 141(R), “Business Combinations”) for business
combinations beginning in the Company’s fiscal year ending December 31,
2009. This standard provides guidance to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. This standard also establishes principles and
requirements for how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, goodwill
acquired and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. As the Company completed no business
acquisitions in the first nine months of 2009, the adoption as of January 1,
2009 had no effect on the Company’s consolidated financial
statements.
The
Company adopted ASC 810-10-65, “Noncontrolling Interests in Consolidated
Financial Statements — an amendment of ARB No. 51 (formerly SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements — an amendment of
ARB No. 51”) effective January 1, 2009. This standard establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary to improve the relevance,
comparability and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. Beginning
January 1, 2009, the Company has applied the provisions of this standard to its
accounting for noncontrolling interests and its financial statement disclosures.
The presentation and disclosure provisions of this standard have been applied to
all periods presented in the consolidated financial statements.
The
Company adopted the provisions of ASC 820-10, “Fair Value Measurements and
Disclosures” (formerly SFAS No. 157, “Fair Value Measurements”) with respect to
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), effective January 1, 2009. The adoption of
ASC 820-10 in the first quarter of 2009 did not have an impact on the Company’s
consolidated financial statements except the Company has applied these
provisions to its financial statement disclosures.
The
Company adopted a new accounting standard included in ASC 815, “Derivatives and
Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities — an amendment of FASB Statement No. 133”) effective January
1, 2009. This standard amends and expands derivatives and hedging
disclosure requirements with the intent to provide users of financial statements
with an enhanced understanding of: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under GAAP and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. The Company applied the
provisions of this standard to its financial statement disclosures beginning in
the first quarter of 2009.
The
Company adopted a new accounting standard included in ASC 855, “Subsequent
Events” (formerly SFAS No. 165, “Subsequent Events”) which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. This standard also requires disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. The Company adopted this standard in the second quarter of 2009
and has evaluated subsequent events through November 6, 2009, the time of filing
of these financial statements with the SEC.
(3)
|
ACQUISITIONS
|
On June
30, 2008, the Company purchased substantially all of the assets of Lake Charles
Diesel, Inc. (“Lake Charles Diesel”) for $3,680,000 in cash. Lake
Charles Diesel was a Gulf Coast high-speed diesel engine services provider
operating factory-authorized full service marine dealerships for Cummings,
Detroit Diesel and Volvo engines, as well as an authorized marine dealer for
Caterpillar engines in Louisiana.
On March
18, 2008, the Company purchased six inland tank barges from OFS Marine One, Inc.
(“ORIX”) for $1,800,000 in cash. The Company had been leasing the
barges from ORIX prior to their purchase.
7
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(3)
|
ACQUISITIONS
– (CONTINUED)
|
Pro forma
results of the acquisitions made in the 2008 year have not been presented as the
pro forma revenues, earnings before taxes on income, net earnings attributable
to Kirby and net earnings per share attributable to Kirby common stockholders
would not be materially different from the Company’s actual
results.
(4)
|
FAIR
VALUE MEASUREMENTS
|
ASC
820-10 provides guidance for using fair value to measure assets and liabilities
by defining fair value, establishing a framework for measuring fair value and
expanding disclosures about fair value measurements. ASC 820-10
establishes a three tier value hierarchy, which prioritizes the inputs to
valuation techniques used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as quoted in active markets
for identical assets or liabilities; Level 2, defined as inputs other than
quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little, if any,
market data exists, therefore requiring an entity to develop its own assumptions
about the assumptions that market participants would use in pricing the asset or
liability.
The
following table summarizes the assets and liabilities measured at fair value on
a recurring basis at September 30, 2009 (in thousands):
Quoted
Prices in Active Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
Fair
Value
Measurements
|
|||||||||||||
Assets:
|
||||||||||||||||
Derivatives
|
$ | — | $ | 153 | $ | — | $ | 153 | ||||||||
Liabilities:
|
||||||||||||||||
Derivatives
|
$ | — | $ | 16,961 | $ | — | $ | 16,961 |
The
following table summarizes the assets and liabilities measured at fair value on
a recurring basis at December 31, 2008 (in thousands):
Quoted
Prices in Active Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
Fair
Value
Measurements
|
|||||||||||||
Assets:
|
||||||||||||||||
Derivatives
|
$ | — | $ | 188 | $ | — | $ | 188 | ||||||||
Liabilities:
|
||||||||||||||||
Derivatives
|
$ | — | $ | 21,002 | $ | — | $ | 21,002 |
Cash,
accounts receivable, accounts payable and accrued liabilities have carrying
values that approximate fair value due to the short-term maturity of these
financial instruments. The Company is of the opinion that amounts
included in the consolidated financial statements for outstanding debt
materially represent the fair value of such debt due to their variable interest
rates. The fair value of the Company’s derivative instruments is more
fully described below in Note 5, Derivative Instruments.
8
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(5)
|
DERIVATIVE
INSTRUMENTS
|
ASC 815
(formerly SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”) established accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded in
other contracts) be recorded at fair value and included in the balance sheet as
assets or liabilities. The accounting for changes in the fair value of a
derivative instrument depends on the intended use of the derivative and the
resulting designation, which is established at the inception date of a
derivative. Special accounting for derivatives qualifying as fair value hedges
allows a derivative’s gains and losses to offset related results on the hedged
item in the statement of earnings. For derivative instruments designated as cash
flow hedges, changes in fair value, to the extent the hedge is effective, are
recognized in other comprehensive income until the hedged item is recognized in
earnings. Hedge effectiveness is measured at least quarterly based on the
cumulative difference between the fair value of the derivative contract and the
hedged item over time. Any change in fair value resulting from ineffectiveness,
as defined by ASC 815, is recognized immediately in earnings.
Interest
Rate Risk Management
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 collar and swap
agreements and are entered into with large multinational banks. 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 floating rate senior notes and variable rate bank
credit facility.
From time
to time, the Company hedges its exposure to fluctuations in short-term interest
rates under its variable rate bank credit facility and floating rate senior
notes by entering into interest rate collar and swap agreements. The interest
rate collar and swap agreements are designated as cash flow hedges, therefore,
the changes in fair value, to the extent the collar and swap agreements are
effective, are recognized in other comprehensive income until the hedged
interest expense is recognized in earnings. The swap agreements effectively
convert the Company’s interest rate obligation on a portion of the Company’s
variable rate senior notes from quarterly floating rate payments based on the
London Interbank Offered Rate (“LIBOR”) to quarterly fixed rate payments. As of
September 30, 2009, the Company had a total notional amount of $200,000,000 of
interest rate swaps designated as cash flow hedges for its variable rate senior
notes as follows (dollars in thousands):
Notional
Amount
|
Effective date
|
Termination
date
|
Fixed
pay rate
|
Receive rate
|
||||
$
100,000
|
March
2006
|
February
2013
|
5.45% |
Three-month
LIBOR
|
||||
$
50,000
|
November
2008
|
February
2013
|
3.50% |
Three-month
LIBOR
|
||||
$
50,000
|
May
2009
|
February
2013
|
3.795% |
Three-month
LIBOR
|
9
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(5)
|
DERIVATIVE
INSTRUMENTS – (CONTINUED)
|
Foreign
Currency Risk Management
From time
to time, the Company has utilized and expects to continue to utilize derivative
financial instruments with respect to its forecasted foreign currency
transactions to attempt to reduce the risk of its exposure to foreign currency
rate fluctuations in its future diesel engine services inventory purchase
commitments. These transactions, which relate to foreign currency obligations
for the purchase of equipment from foreign suppliers, generally are purchased
call options and are entered into with large multinational banks.
As of
September 30, 2009, the Company has purchased Euro call options with a 1.28
strike price in the amount of 264,090 Euros maturing on March 1, 2010 and
528,180 Euros maturing on December 1, 2010. The purchased call options are
designated as cash flow hedges, therefore, the changes in fair value, to the
extent the purchased call options agreements are effective, are recognized in
other comprehensive income until the purchased call option expires and is
recognized in cost of sales and operating expenses.
Fair
Value of Derivative Instruments
The
following table sets forth the fair value of the Company’s derivative
instruments recorded as assets located on the consolidated balance sheet (in
thousands):
Asset Derivatives
|
Balance Sheet Location
|
September
30,
2009
|
December
31,
2008
|
|||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||
Foreign
exchange contracts
|
Prepaid
expenses and other current assets
|
$ | 49 | $ | — | |||||||
Foreign
exchange contracts
|
Other
assets
|
104 | 188 | |||||||||
Total
derivatives designated as hedging instruments under ASC
815
|
$ | 153 | $ | 188 | ||||||||
Total
asset derivatives
|
$ | 153 | $ | 188 |
The
following table sets forth the fair value of the Company’s derivative
instruments recorded as liabilities located on the consolidated balance sheet
(in thousands):
Liability Derivatives
|
Balance Sheet Location
|
September
30,
2009
|
December
31,
2008
|
|||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||
Interest
rate contracts
|
Accrued
liabilities
|
$ | — | $ | 502 | |||||||
Interest
rate contracts
|
Other
long-term liabilities
|
16,961 | 20,500 | |||||||||
Total
derivatives designated as hedging instruments under ASC
815
|
$ | 16,961 | $ | 21,002 | ||||||||
Total
liability derivatives
|
$ | 16,961 | $ | 21,002 |
10
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(5)
|
DERIVATIVE
INSTRUMENTS – (CONTINUED)
|
Fair
value amounts were derived as of September 30, 2009 and December 31, 2008
utilizing fair value models of the Company and its counterparties on the
Company’s portfolio of derivative instruments. The fair value of the Company’s
derivative instruments is described above in Note 4, Fair Value
Measurements.
Cash
Flow Hedges
For
derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income (“OCI”) and reclassified into earnings
in the same period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings. Any ineffectiveness related to
the Company’s hedges was not material for any of the periods
presented.
The
following table sets forth the location and amount of gains and losses on the
Company’s derivative instruments (in thousands):
Derivatives in ASC 815 Cash Flow Hedging Relationships: | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Amount
of Gain (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Amount
of Loss Reclassified from Accumulated OCI into Income
(Effective
Portion)
|
|||||||||||||||||
Three
months ended
September 30,
|
Three
months ended
September 30,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | (1,710 | ) | $ | (958 | ) | $ | (2,039 | ) | $ | (1,074 | ) | |||||||
Foreign
exchange contracts
|
Cost
of sales and operating expenses
|
30 | — | — | — | |||||||||||||||
Total
|
$ | (1,680 | ) | $ | (958 | ) | $ | (2,039 | ) | $ | (1,074 | ) |
Derivatives in ASC 815 Cash Flow Hedging Relationships: | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Amount
of Gain (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Amount
of Loss Reclassified from Accumulated OCI into Income
(Effective
Portion)
|
|||||||||||||||||
Nine
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | 4,041 | $ | (120 | ) | $ | (5,201 | ) | $ | (2,307 | ) | ||||||||
Foreign
exchange contracts
|
Cost
of sales and operating expenses
|
(35 | ) | — | — | — | ||||||||||||||
Total
|
$ | 4,006 | $ | (120 | ) | $ | (5,201 | ) | $ | (2,307 | ) |
The
Company anticipates $5,127,000 of net losses on interest rate swap agreements
included in accumulated other comprehensive income will be transferred into
earnings over the next year based on current interest rates. Gains or losses on
interest rate swap agreements offset increases or decreases in rates of the
underlying debt, which results in a fixed rate for the underlying debt. The
Company also expects $9,000 of net gains on foreign currency contracts included
in accumulated other comprehensive income will be transferred into earnings over
the next year based on the maturity date being less than twelve months on one of
the two purchased call options.
11
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(6)
|
STOCK
AWARD PLANS
|
The
Company has share-based compensation plans which are described
below. The compensation cost that has been charged against earnings
for the Company’s stock award plans and the income tax benefit recognized in the
statement of earnings for stock awards for the three months and nine months
ended September 30, 2009 and 2008 were as follows (in thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Compensation
cost
|
$ | 2,406 | $ | 2,434 | $ | 6,425 | $ | 7,233 | ||||||||
Income
tax benefit
|
924 | 932 | 2,467 | 2,770 |
The
Company has four employee stock award plans for selected officers and other key
employees which provide for the issuance of stock options and restricted
stock. For all of the plans, the exercise price for each option
equals the fair market value per share of the Company’s common stock on the date
of grant. The terms of the options are five years and vest ratably
over three years. At September 30, 2009, 1,669,878 shares were
available for future grants under the employee plans and no outstanding stock
options under the employee plans were issued with stock appreciation
rights.
The
following is a summary of the stock option activity under the employee plans
described above for the nine months ended September 30, 2009:
Outstanding
Non-Qualified
or
Nonincentive
Stock Awards
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
December 31, 2008
|
514,181 | $ | 35.28 | |||||
Granted
|
228,246 | $ | 23.98 | |||||
Exercised
|
(85,342 | ) | $ | 21.10 | ||||
Outstanding
September 30, 2009
|
657,085 | $ | 33.20 |
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the employee plans at September 30,
2009:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||
Range
of Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
in
Years
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||
$20.89
- $22.05
|
16,734 | .37 | $ | 21.56 | 16,734 | $ | 21.56 | |||||||||||||||||
$23.98
- $27.60
|
307,718 | 3.57 | $ | 24.79 | 79,472 | $ | 27.11 | |||||||||||||||||
$34.40
- $36.94
|
174,138 | 2.52 | $ | 35.54 | 96,213 | $ | 35.70 | |||||||||||||||||
$48.00
- $48.65
|
158,495 | 3.36 | $ | 48.18 | 52,828 | $ | 48.18 | |||||||||||||||||
$20.89
- $48.65
|
657,085 | 3.15 | $ | 33.20 | $ |
2,379,000
|
245,247 | $ | 34.64 | $ |
535,000
|
12
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(6)
|
STOCK
AWARD PLANS – (CONTINUED)
|
The
following is a summary of the restricted stock award activity under the employee
plans described above for the nine months ended September 30, 2009:
Unvested
Restricted
Stock
Award Shares
|
Weighted
Average
Grant
Date
Fair
Value
Per Share
|
|||||||
Nonvested
balance at December 31, 2008
|
502,818 | $ | 33.64 | |||||
Granted
|
263,579 | $ | 24.70 | |||||
Vested
|
(160,698 | ) | $ | 30.29 | ||||
Forfeited
|
(14,980 | ) | $ | 32.88 | ||||
Nonvested
balance at September 30, 2009
|
590,719 | $ | 30.73 |
The
Company has two director stock award plans for nonemployee directors of the
Company which provide for the issuance of stock options and restricted stock. No
additional options can be granted under one of the plans. The 2000 Director Plan
provides for automatic grants of stock options and restricted stock to
nonemployee directors on the date of first election as a director and after each
annual meeting of stockholders. In addition, the 2000 Director Plan allows for
the issuance of stock options or restricted stock in lieu of cash for all or
part of the annual director fee at the option of the director. The exercise
prices for all options granted under the plans are equal to the fair market
value per share of the Company’s common stock on the date of grant. The terms of
the options are ten years. The options granted when first elected a director
vest immediately. The options granted and restricted stock issued after each
annual meeting of stockholders vest six months after the date of grant. Options
granted and restricted stock issued in lieu of cash director fees vest in equal
quarterly increments during the year to which they relate. At September 30,
2009, 393,355 shares were available for future grants under the 2000 Director
Plan. The director stock award plans are intended as an incentive to attract and
retain qualified and competent independent directors.
The
following is a summary of the stock option activity under the director plans
described above for the nine months ended September 30, 2009:
Outstanding
Non-Qualified
or
Nonincentive
Stock Awards
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
December 31, 2008
|
309,572 | $ | 30.94 | |||||
Granted
|
50,433 | $ | 29.60 | |||||
Exercised
|
(25,526 | ) | $ | 10.01 | ||||
Forfeited
|
(12,000 | ) | $ | 35.99 | ||||
Outstanding
September 30, 2009
|
322,479 | $ | 32.20 |
13
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(6)
|
STOCK
AWARD PLANS – (CONTINUED)
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the director plans at September 30,
2009:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||
Range
of Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
in
Years
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||
$10.06
- $12.69
|
45,084 | 2.50 | $ | 11.45 | 45,084 | $ | 11.45 | |||||||||||||||||
$15.74
- $29.60
|
112,061 | 6.52 | $ | 23.05 | 62,844 | $ | 17.92 | |||||||||||||||||
$35.17
- $55.49
|
165,334 | 7.63 | $ | 44.06 | 165,334 | $ | 44.06 | |||||||||||||||||
$10.06
- $55.49
|
322,479 | 6.54 | $ | 32.20 | $ |
1,490,000
|
273,262 | $ | 32.67 | $ |
1,135,000
|
The
following is a summary of the restricted stock award activity under the director
plan described above for the nine months ended September 30, 2009:
Unvested
Restricted
Stock
Award Shares
|
Weighted
Average
Grant
Date
Fair
Value
Per Share
|
|||||||
Nonvested
balance at December 31, 2008
|
390 | $ | 56.00 | |||||
Granted
|
10,919 | $ | 29.77 | |||||
Vested
|
(1,848 | ) | $ | 35.31 | ||||
Nonvested
balance at September 30, 2009
|
9,461 | $ | 29.77 |
The total
intrinsic value of all stock options exercised under all of the Company’s plans
was $1,324,000 and $15,288,000 for the nine months ended September 30, 2009 and
2008, respectively. The actual tax benefit realized for tax deductions from
stock option exercises was $508,000 and $5,855,000 for the nine months ended
September 30, 2009 and 2008, respectively.
The total
intrinsic value of all the restricted stock vestings under all of the Company’s
plans was $3,980,000 and $6,813,000 for the nine months ended September 30, 2009
and 2008, respectively. The actual tax benefit realized for tax deductions from
restricted stock vestings was $1,528,000 and $2,610,000 for the nine months
ended September 30, 2009 and 2008, respectively.
As of
September 30, 2009, there was $2,577,000 of unrecognized compensation cost
related to nonvested stock options and $14,555,000 related to nonvested
restricted stock. The stock options are expected to be recognized over a
weighted average period of approximately 1.2 years and restricted stock over
approximately 2.0 years. The total fair value of stock options vested was
$1,910,000 and $2,265,000 during the nine months ended September 30, 2009 and
2008, respectively. The fair value of the restricted stock vested was $3,980,000
and $6,813,000 for the nine months ended September 30, 2009 and 2008,
respectively.
The
weighted average per share fair value of options granted during the nine months
ended September 30, 2009 and 2008 was $8.15 and $15.42, respectively. The fair
value of the options granted during the nine months ended September 30, 2009 and
2008 was $2,271,000 and $3,513,000, respectively.
The fair
value of each option was determined using the Black-Scholes option pricing
model. The key input variables used in valuing the options during the nine
months ended September 30, 2009 and 2008 were as follows:
14
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(6)
|
STOCK
AWARD PLANS – (CONTINUED)
|
Nine
months ended
September 30,
|
||||||
2009
|
2008
|
|||||
Dividend
yield
|
None
|
None
|
||||
Average
risk-free interest rate
|
1.9% | 3.1% | ||||
Stock
price volatility
|
33% | 26% | ||||
Estimated
option term
|
Four
years or eight years
|
Four
years or eight years
|
(7)
|
COMPREHENSIVE
INCOME
|
The
Company’s total comprehensive income for the three months and nine months ended
September 30, 2009 and 2008 was as follows (in thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
earnings
|
$ | 35,448 | $ | 42,129 | $ | 97,897 | $ | 119,588 | ||||||||
Other
comprehensive income, net of taxes:
|
||||||||||||||||
Pension
and postretirement benefits
|
817 | 715 | 3,091 | 1,253 | ||||||||||||
Change
in fair value of derivative financial instruments
|
(1,094 | ) | (623 | ) | 2,606 | (78 | ) | |||||||||
Total
other comprehensive income, net of taxes
|
(277 | ) | 92 | 5,697 | 1,175 | |||||||||||
Total
comprehensive income, net of taxes
|
35,171 | 42,221 | 103,594 | 120,763 | ||||||||||||
Net
earnings attributable to noncontrolling interests
|
(434 | ) | (351 | ) | (1,158 | ) | (829 | ) | ||||||||
Comprehensive
income attributable to Kirby
|
$ | 34,737 | $ | 41,870 | $ | 102,436 | $ | 119,934 |
(8)
|
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 and, to a lesser extent, offshore transportation of dry-bulk
cargoes. 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 medium-speed and high-speed diesel engines, reduction
gear repair, and sale of related parts and accessories for customers in the
marine, power generation and railroad industries.
15
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(8)
|
SEGMENT
DATA - (CONTINUED)
|
The
following table sets forth the Company’s revenues and profit or loss by
reportable segment for the three months and nine months ended September 30, 2009
and 2008 and total assets as of September 30, 2009 and December 31, 2008 (in
thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues:
|
||||||||||||||||
Marine
transportation
|
$ | 227,467 | $ | 286,880 | $ | 664,394 | $ | 830,014 | ||||||||
Diesel
engine services
|
44,699 | 67,767 | 158,176 | 203,463 | ||||||||||||
$ | 272,166 | $ | 354,647 | $ | 822,570 | $ | 1,033,477 | |||||||||
Segment
profit (loss):
|
||||||||||||||||
Marine
transportation
|
$ | 57,595 | $ | 65,025 | $ | 156,950 | $ | 182,695 | ||||||||
Diesel
engine services
|
4,647 | 10,627 | 17,191 | 32,088 | ||||||||||||
Other
|
(4,968 | ) | (7,591 | ) | (15,940 | ) | (21,476 | ) | ||||||||
$ | 57,274 | $ | 68,061 | $ | 158,201 | $ | 193,307 |
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Total
assets:
|
||||||||
Marine
transportation
|
$ | 1,338,254 | $ | 1,289,689 | ||||
Diesel
engine services
|
185,440 | 208,993 | ||||||
Other
|
59,844 | 27,416 | ||||||
$ | 1,583,538 | $ | 1,526,098 |
The
following table presents the details of “Other” segment loss for the three
months and nine ended September 30, 2009 and 2008 (in thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
General
corporate expenses
|
$ | (3,129 | ) | $ | (3,886 | ) | $ | (9,045 | ) | $ | (10,815 | ) | ||||
Gain
(loss) on disposition of assets
|
753 | (166 | ) | 1,117 | 276 | |||||||||||
Interest
expense
|
(2,781 | ) | (3,375 | ) | (8,387 | ) | (10,665 | ) | ||||||||
Other
income (expense)
|
189 | (164 | ) | 375 | (272 | ) | ||||||||||
$ | (4,968 | ) | $ | (7,591 | ) | $ | (15,940 | ) | $ | (21,476 | ) |
The
following table presents the details of “Other” total assets as of September 30,
2009 and December 31, 2008 (in thousands):
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
General
corporate assets
|
$ | 57,144 | $ | 25,360 | ||||
Investment
in affiliates
|
2,700 | 2,056 | ||||||
$ | 59,844 | $ | 27,416 |
16
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(9)
|
TAXES
ON INCOME
|
Earnings
before taxes on income and details of the provision for taxes on income for the
three months and nine months ended September 30, 2009 and 2008 were as follows
(in thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Earnings
before taxes on income – United States
|
$ | 57,274 | $ | 68,061 | $ | 158,201 | $ | 193,307 | ||||||||
Provision
for taxes on income:
|
||||||||||||||||
Federal:
|
||||||||||||||||
Current
|
$ | 6,319 | $ | 14,291 | $ | 21,487 | $ | 46,602 | ||||||||
Deferred
|
13,006 | 8,866 | 31,907 | 19,226 | ||||||||||||
State
and local
|
2,501 | 2,775 | 6,910 | 7,891 | ||||||||||||
$ | 21,826 | $ | 25,932 | $ | 60,304 | $ | 73,719 |
(10)
|
EARNINGS
PER SHARE OF COMMON STOCK
|
The
Company adopted a new accounting standard included in ASC 260, “Earnings Per
Share” which requires unvested share-based payment awards with non-forfeitable
rights to receive dividends or dividend equivalents (whether paid or unpaid) to
be considered participating securities for the purposes of applying the
two-class method of calculating earnings per share. Accordingly,
restricted stock granted under the Company’s stock-based compensation plans are
treated as participating securities under the two-class method of
determining earnings per share and earnings per share for prior
periods have been restated to conform to this standard. The adoption
of this standard lowered basic earnings per common share for both the three and
the nine months ended September 30, 2008 by $.01.
17
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(10)
|
EARNINGS
PER SHARE OF COMMON STOCK -
(CONTINUED)
|
The
following table presents the components of basic and diluted earnings per share
of common stock for the three months and nine months ended September 30, 2009
and 2008 (in thousands, except per share amounts):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
earnings attributable to Kirby
|
$ | 35,014 | $ | 41,778 | $ | 96,739 | $ | 118,759 | ||||||||
Undistributed
earnings allocated to restricted shares
|
(393 | ) | (394 | ) | (1,077 | ) | (1,119 | ) | ||||||||
Income
available to Kirby common stockholders - basic
|
34,621 | 41,384 | 95,662 | 117,640 | ||||||||||||
Undistributed
earnings allocated to restricted shares
|
393 | 394 | 1,077 | 1,119 | ||||||||||||
Undistributed
earnings reallocated to restricted shares
|
(392 | ) | (392 | ) | (1,074 | ) | (1,113 | ) | ||||||||
Income
available to Kirby common stockholders - diluted
|
$ | 34,622 | $ | 41,386 | $ | 95,665 | $ | 117,646 | ||||||||
Shares
outstanding:
|
||||||||||||||||
Weighted
average common stock issued and outstanding
|
53,819 | 53,957 | 53,773 | 53,850 | ||||||||||||
Weighted
average unvested restricted stock
|
(604 | ) | (509 | ) | (598 | ) | (508 | ) | ||||||||
Weighted
average common stock outstanding - basic
|
53,215 | 53,448 | 53,175 | 53,342 | ||||||||||||
Dilutive
effect of stock options
|
122 | 240 | 121 | 330 | ||||||||||||
Weighted
average common stock outstanding - diluted
|
53,337 | 53,688 | 53,296 | 53,672 | ||||||||||||
Net
earnings per share attributable to Kirby common
stockholders:
|
||||||||||||||||
Basic
|
$ | .65 | $ | .77 | $ | 1.80 | $ | 2.21 | ||||||||
Diluted
|
$ | .65 | $ | .77 | $ | 1.79 | $ | 2.19 |
Certain
outstanding options to purchase approximately 248,000 and 208,000 shares of
common stock were excluded in the computation of diluted earnings per share as
of September 30, 2009 and 2008, respectively, as such stock options would have
been antidilutive.
(11)
|
RETIREMENT
PLANS
|
The
Company sponsors a defined benefit plan for vessel personnel and shore based
tankermen. The plan benefits are based on an employee’s years of
service and compensation. The plan assets consist primarily of equity
and fixed income securities.
The
Company’s pension plan funding strategy has historically been to contribute an
amount equal to the greater of the minimum required contribution under ERISA or
the amount necessary to fully fund the plan on an accumulated benefit obligation
(“ABO”) basis at the end of the fiscal year. The Company elected to fund its
2008 pension contribution in accordance with the Pension Protection Act of 2006
(“PPA”) to be approximately 94% funded on a PPA basis instead of the higher
amount as determined by the ABO due to uncertainty in the economic and credit
market environment in December 2008. The PPA funding target is based on a
variety of demographic and economic assumptions, and the pension plan assets’
returns are subject to various risks, including market and interest rate risk,
making an accurate prediction of the pension plan contribution difficult. Based
on current pension plan assets and market conditions, the Company expects to
contribute between $5,000,000 and $10,000,000 to its pension plan in December
2009 to fund its 2009 pension plan obligations so as to be approximately 96%
funded on a PPA basis. As of September 30, 2009, no 2009 year contributions have
been made.
18
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(11)
|
RETIREMENT
PLANS - (CONTINUED)
|
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 limits cost increases
in the Company’s contribution to 4% per year. The plan is contributory, with
retiree contributions adjusted annually. The Company also has an unfunded
defined benefit supplemental executive retirement plan (“SERP”) that was assumed
in an acquisition in 1999. That plan ceased to accrue additional benefits
effective January 1, 2000.
The
components of net periodic benefit cost for the Company’s defined benefit plans
for the three months and nine months ended September 30, 2009 and 2008 were as
follows (in thousands):
Pension Benefits
|
||||||||||||||||
Pension Plan
|
SERP
|
|||||||||||||||
Three months ended September
30,
|
Three months ended September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Components
of net periodic benefit cost:
|
||||||||||||||||
Service
cost
|
$ | 1,631 | $ | 1,508 | $ | ― | $ | — | ||||||||
Interest
cost
|
2,121 | 1,841 | 21 | 17 | ||||||||||||
Expected
return on plan assets
|
(1,832 | ) | (2,084 | ) | ― | — | ||||||||||
Amortization:
|
||||||||||||||||
Actuarial
loss
|
1,416 | 247 | ― | — | ||||||||||||
Prior
service credit
|
(22 | ) | (23 | ) | ― | — | ||||||||||
Net
periodic benefit cost
|
$ | 3,314 | $ | 1,489 | $ | 21 | $ | 17 |
Pension Benefits
|
||||||||||||||||
Pension Plan
|
SERP
|
|||||||||||||||
Nine months ended September
30,
|
Nine months ended September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Components
of net periodic benefit cost:
|
||||||||||||||||
Service
cost
|
$ | 4,893 | $ | 4,773 | $ | ― | $ | — | ||||||||
Interest
cost
|
6,364 | 5,804 | 63 | 65 | ||||||||||||
Expected
return on plan assets
|
(5,499 | ) | (6,127 | ) | ― | — | ||||||||||
Amortization:
|
||||||||||||||||
Actuarial
loss
|
4,249 | 1,357 | 1 | 5 | ||||||||||||
Prior
service credit
|
(67 | ) | (67 | ) | ― | — | ||||||||||
Net
periodic benefit cost
|
$ | 9,940 | $ | 5,740 | $ | 64 | $ | 70 |
19
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(11)
|
RETIREMENT
PLANS - (CONTINUED)
|
The
components of net periodic benefit cost for the Company’s postretirement benefit
plan for the three months and nine months ended September 30, 2009 and 2008 were
as follows (in thousands):
Other Postretirement Benefits
Postretirement Welfare Plan
|
Other Postretirement Benefits
Postretirement Welfare Plan
|
|||||||||||||||
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Components
of net periodic benefit cost:
|
||||||||||||||||
Service
cost
|
$ | 62 | $ | 135 | $ | 186 | $ | 380 | ||||||||
Interest
cost
|
80 | 132 | 243 | 373 | ||||||||||||
Amortization:
|
||||||||||||||||
Actuarial
gain
|
(82 | ) | (12 | ) | (246 | ) | (74 | ) | ||||||||
Prior
service credit
|
10 | 10 | 30 | 30 | ||||||||||||
Net
periodic benefit cost
|
$ | 70 | $ | 265 | $ | 213 | $ | 709 |
(12)
|
CONTINGENCIES
|
In 2000,
the Company and a group of approximately 45 other companies were notified that
they are Potentially Responsible Parties (“PRPs”) under the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”) with respect
to a Superfund site, the Palmer Barge Line (“Palmer”) site, 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 entered
into an agreement with the United States Environmental Protection Agency (“EPA”)
to perform a remedial investigation and feasibility study and, subsequently, a
limited remediation was performed and is now complete. During the 2007 third
quarter, five new PRP’s entered into an agreement with the EPA in regard to the
Palmer site. In July 2008, the EPA sent a letter to approximately 30 PRPs for
the Palmer site, including the Company, indicating that it intends to pursue
recovery of $2,949,000 of costs it incurred in relation to the site. The Company
and the other PRPs have participated in meetings with the EPA and the United
States Department of Justice to discuss the nature of the costs. Based on these
discussions, the Company is unable to estimate its potential liability, if any,
for any portion of such costs.
On
November 2, 2009, the Company received a request for information from the EPA
pursuant to Section 104 of the CERCLA with respect to a reported vapor release
from a tank barge that occurred on August 27, 2009. The Company will submit its
response within the deadline imposed by EPA. Based on the information currently
available, the Company is unable to ascertain the extent of its exposure, if
any, in this matter.
In
addition, the Company is involved in various legal and other proceedings which
are incidental to the conduct of its business, 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.
20
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(12)
|
CONTINGENCIES
- (CONTINUED)
|
The
Company has issued guaranties or obtained standby 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 $27,202,000 at September 30, 2009, including
$3,880,000 in letters of credit and debt guarantees, and $23,322,000 in
performance bonds. All of these instruments have an expiration date
within four 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.
21
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Statements
contained in this Form 10-Q that are not historical facts, including, but not
limited to, any projections contained herein, are forward-looking statements and
involve a number of risks and uncertainties. Such statements can be
identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “anticipate,” “estimate,” or “continue” or the negative thereof or
other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, adverse weather conditions such as high water, low water,
tropical storms, hurricanes, fog and ice, marine accidents, lock delays, fuel
costs, interest rates, construction of new equipment by competitors, government
and environmental laws and regulations, and the timing, magnitude and number of
acquisitions made by the Company. For a more detailed discussion of
factors that could cause actual results to differ from those presented in
forward-looking statements, see Item 1A-Risk Factors found in the Company’s
annual report on Form 10-K for the year ended December 31,
2008. Forward-looking statements are based on currently available
information and the Company assumes no obligation to update any such
statements.
For
purposes of the Management’s Discussion, all net earnings per share attributable
to Kirby common stockholders are “diluted earnings per share.” The
weighted average number of common shares applicable to diluted earnings per
share for the three months and nine months ended September 30, 2009 and 2008
were as follows:
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Weighted
average number of common stock - diluted
|
53,337 | 53,688 | 53,296 | 53,672 |
The
decrease in the weighted average number of common shares for both 2009 periods
compared with the 2008 periods primarily reflected common stock repurchases
during the 2008 third and fourth quarters, partially offset by the issuance of
restricted stock and the exercise of stock options.
Overview
The
Company is the nation’s largest domestic inland tank barge operator with a fleet
of 874 active tank barges, including 49 leased barges, and 16.8 million barrels
of capacity as of September 30, 2009. The Company operated an average of 215
towing vessels during the 2009 third quarter, of which 54 were
chartered. The Company uses the United States inland waterway system
to transport bulk liquids including petrochemicals, black oil products, refined
petroleum products and agricultural chemicals. The Company also owns
and operates four ocean-going barge and tug units transporting dry-bulk
commodities in United States coastwise trade. Through its diesel
engine services segment, the Company provides after-market services for
medium-speed and high-speed diesel engines used in marine, power generation and
railroad applications.
For the
2009 third quarter, net earnings attributable to Kirby were $35,014,000, or $.65
per share, on revenues of $272,166,000, compared with 2008 third quarter net
earnings attributable to Kirby of $41,778,000, or $.77 per share, on revenues of
$354,647,000. For the 2009 first nine months, net earnings
attributable to Kirby were $96,739,000, or $1.79 per share, on revenues of
$822,570,000, compared with the 2008 first nine months net earnings attributable
to Kirby of $118,759,000, or $2.19 per share, on revenues of $1,033,477,000. The
2009 third quarter and first nine months performance reflected lower demand in
both its marine transportation and diesel engine services segments, driven by
the global economic recession.
22
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Results
for the 2008 third quarter and first nine months were negatively impacted by two
major Gulf Coast hurricanes, Gustav on September 1 and Ike on September 13.
Hurricane Gustav disrupted marine transportation and diesel engine services
operations in Louisiana for several days. Hurricane Ike struck
Houston/Galveston, significantly affecting the petrochemical and refining
facilities in the path of the storm. The 2008 third quarter and first nine
months results included an estimated $.09 per share negative impact from
Hurricanes Gustav and Ike.
As a
result of the lower demand in both the marine transportation and diesel engine
services segments, the Company took specific steps to reduce overhead and lower
expenditures during the 2009 first quarter. The shore staffs of the
marine transportation and diesel engine services segments were reduced by
approximately 6% through early retirement incentives and staff
reductions. A charge of $3,953,000 before taxes, or $.05 per share,
was taken in the 2009 first quarter, consisting of $2,527,000 for marine
transportation and $1,426,000 for diesel engine services. The Company
estimates that the 2009 first quarter early retirements and staff reductions
resulted in a savings of $.02 per share for both the 2009 second and third
quarters, will result in a savings of $.02 per share for 2009, net of the $.05
per share 2009 first quarter charge, and will result in a savings of $.08 per
share for 2010. As of September 30, 2009, the shore staff of the
marine transportation segment, including shore tankering services, and the
diesel engine services segment was down 14% compared with September 30,
2008.
The
marine transportation segment operated an average of 215 towboats during the
2009 third quarter compared with an average of 255 during the 2008 third
quarter. For the 2009 first nine months, the segment operated an
average of 222 towboats compared with an average of 258 during the 2008 first
nine months. As demand softened during the 2008 fourth quarter and
the 2009 first nine months, the Company released chartered towboats and laid-up
Company owned towboats in an effort to balance horsepower needs with current
requirements. Going forward, the Company will continue to monitor
towboat requirements and downsize or increase the towboat fleet as market
changes warrant.
Marine
Transportation
For the
2009 third quarter and first nine months, approximately 84% and 81%,
respectively, 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 that operate in the United
States. Products transported include raw materials for many of the
end products used widely by businesses and consumers – plastics, fiber, paints,
detergents, oil additives and paper, among others. Consequently, the
Company’s business tends to mirror the general performance of the United States
economy and volumes produced by the Company’s customer base, enhanced by the
inherent efficiencies of barge transportation which is generally the lowest cost
mode of surface transportation.
The
Company’s marine transportation segment’s revenue and operating income for the
2009 third quarter decreased 21% and 11%, respectively, when compared with the
third quarter of 2008. For the 2009 first nine months, revenue and
operating income decreased 20% and 14%, respectively, compared with the first
nine months of 2008. During the 2009 third quarter and first nine months, all
four transportation markets, petrochemicals, black oil products, refined
products and agricultural chemicals, saw demand for the movement of products
soften, driven by the current economic recession. Pricing declined during the
2009 third quarter and first nine months as overall industry demand softened. In
addition, lower diesel fuel prices resulted in lower 2009 third quarter and
first nine months revenues associated with the pass through of diesel fuel to
customers through fuel escalation and de-escalation clauses in term contracts
when compared with the 2008 third quarter and first nine months. During the 2009
second and third quarters, petrochemical demand of more finished products into
the Midwest continued to improve modestly and demand along the Gulf Coast
stabilized when compared with the 2009 first quarter. Black oil
products and refined products demand stabilized during the 2009 third quarter,
but remained well below prior year levels. Agricultural chemical
demand was weak during the 2009 third quarter and first nine months due to high
Midwest inventory levels. Favorable operating conditions during the 2009 third
quarter and first nine months offset to some degree the impact of the lower
demand, but also drove down barge utilization.
23
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
During
the 2009 third quarter and first nine months, approximately 80% of the marine
transportation revenues were under term contracts and 20% were spot market
revenues. With the decline in industry-wide demand, excess equipment
throughout the industry was moved into the spot market, placing downward
pressure on spot market pricing, as well as on contract renewals. Time charters,
which insulate the Company from revenue fluctuations caused by weather and
navigational delays and temporary market declines, represented approximately 54%
of marine transportation revenues under term contracts during the 2009 third
quarter compared to an average of 56% during 2008 and the first six months of
2009. Rates on term contracts, net of fuel, renewed during the 2009
first quarter were generally renewed at existing rates and in some cases rates
were traded for longer terms, while 2009 second and third quarter contract
renewals declined in the zero to 8% and 7% to 15% range, respectively, when
compared with the corresponding quarters of 2008. Spot market rates
for 2009, which include the cost of fuel, decreased an average of 3% to 4% in
the first quarter, 10% to 15% in second quarter and 10% to 20% in the third
quarter when compared with the corresponding quarters of 2008. In
each of the 2009 first three quarters, the Company estimates that approximately
40% to 50% of the spot market rate decreases were fuel related. Effective
January 1, 2009, annual escalators for labor and the producer price index on a
number of multi-year contracts resulted in rate increases on those contracts by
4% to 5%, excluding fuel.
The
marine transportation operating margin for the 2009 third quarter was 25.3%
compared with 22.7% for the 2008 third quarter and 23.6% for the 2009 first nine
months compared with 22.0% for the 2008 first nine months, reflecting lower fuel
costs, lower shoreside headcount, the reduction of towboats operated, frozen
officer and management salaries, reduced maintenance on laid-up equipment,
ongoing cost reduction initiatives, more efficient operations at lower
utilization levels and more favorable operating conditions compared with the
2008 corresponding periods that included the loss of revenue and additional
operating expenses associated with Hurricanes Gustav and Ike.
Diesel
Engine Services
For the
2009 third quarter and nine months, approximately 16% and 19%, respectively, of
the Company’s revenue was generated by the diesel engine services segment, of
which 56% and 61% were generated through service and 44% and 39% from direct
parts sales, respectively. The results of the diesel engine services
segment are largely influenced by the economic cycles of the marine, power
generation and railroad industries it serves.
The
Company’s diesel engine services segment’s 2009 third quarter revenue and
operating income decreased 34% and 56%, respectively, compared with the third
quarter of 2008. For the first nine months of 2009, revenue and
operating income decreased 22% and 46%, respectively, compared with the 2008
first nine months. Demand levels for service and direct parts sales
across all segments of the inland and offshore marine markets and offshore oil
services markets remained weak as customers deferred maintenance on equipment in
response to the economic slowdown. The medium-speed railroad parts
and service market was also weak as industrial and shortline railroad customers
deferred maintenance in response to lower railroad traffic. The
medium-speed power generation market benefited from favorable service and parts
sales in the 2009 first half but revenues declined in the 2009 third quarter.
The 2008 third quarter and first nine months results were negatively impacted by
Hurricane Gustav, as noted above, which resulted in the closure of the segment’s
facilities for several days, as well as customers’ facilities and
operations.
24
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
The
diesel engine services segment’s operating margin for the 2009 third quarter was
10.4% compared with 15.7% for the third quarter of 2008. For the 2009
first nine months, the operating margin was 10.9% compared with 15.8% for the
2008 first nine months. The lower operating margin for the 2009 third
quarter and first nine months reflected lower service levels and direct parts
sales and resulting lower labor utilization, and the charge for early
retirements and staff reductions in the 2009 first quarter.
Cash
Flow and Capital Expenditures
The
Company continued to generate strong operating cash flow during the 2009 first
nine months, with net cash provided by operating activities of $237,101,000
compared with net cash provided by operating activities for the 2008 first nine
months of $183,448,000. The 29% increase was aided by a decline in
accounts receivable caused by lower business activity levels during the 2009
first nine months. In addition, during the 2009 and 2008 first nine
months, the Company generated cash of $2,056,000 and $8,687,000, respectively,
from the exercise of stock options and $3,619,000 and $1,346,000, respectively,
from proceeds from the disposition of assets. For the 2009 first nine
months, cash and borrowings under the Company’s revolving credit facility were
used for capital expenditures of $162,972,000, including $121,742,000 for new
tank barge and towboat construction and $41,230,000 primarily for upgrading the
existing marine transportation fleet. The Company’s
debt-to-capitalization ratio decreased to 16.6% at September 30, 2009 from 21.7%
at December 31, 2008, primarily due to the increase in equity from net earnings
attributable to Kirby for the 2009 first nine months of $96,739,000, the
exercise of stock options and lower debt. As of September 30, 2009,
the Company had no outstanding balance under its $250,000,000 revolving credit
facility and had $39,762,000 of cash and cash equivalents.
The
Company projects that capital expenditures for 2009 will be in the $185,000,000
to $195,000,000 range, including approximately $140,000,000 for new tank barge
and towboat construction. The 2009 new construction presently consists of 46
barges with a total capacity of 1,114,000 barrels and four 1800 horsepower
towboats. Delivery is anticipated to be throughout 2009 and the Company
anticipates that 2009 new capacity will be less than capacity to be
retired. During the 2009 first nine months, the Company took delivery
of 37 new barges and seven new chartered barges with a total capacity of 974,000
barrels, and three 1800 horsepower towboats. For 2010, new
construction commitments include three barges with a total capacity of 49,000
barrels and three 1800 horsepower towboats, all of which are from 2007 and 2008
orders. The Company has also announced it intends to build 55 new tank barges
with a total capacity of 665,000 barrels in 2010. New construction
costs for 2010 are anticipated to total approximately $60,000,000.
The
Company’s strong cash flow and unutilized loan facilities position the Company
to take advantage of internal and external growth opportunities in its marine
transportation and diesel engine services segments. The marine
transportation segment’s external growth opportunities include potential
acquisitions of independent inland tank barge operators and captive fleet owners
seeking to outsource tank barge requirements. Increasing the fleet
size through external growth opportunities would allow the Company to improve
asset utilization through more backhaul opportunities, faster barge turnarounds,
more efficient use of horsepower, barges positioned closer to cargoes, less
cleaning due to operating more barges with compatible prior cargoes, lower
incremental costs due to enhanced purchasing power and minimal incremental
administrative staff. The diesel engine services segment’s external
growth opportunities include further consolidation of strategically located
diesel service providers, and expanded service capability for other engine and
marine gear related products.
25
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
As a
result of the continuing global recession, petrochemical and refining production
is below and is anticipated to remain below 2008 levels for the remainder of
2009. Petrochemical demand of more finished products into the Midwest
continued to modestly improve and demand along the Gulf Coast stabilized when
compared with the 2009 first half; however, the United States economy will have
to start expanding before the Company sees any significant improvement in
demand. During 2008 and the 2009 first nine months, 80% of marine
transportation revenues were under term contracts, of which approximately 50%
are up for renewals throughout 2009, including contracts renewed in the 2009
first nine months. Rates on term contracts, net of fuel, renewed
during the 2009 first quarter were generally renewed at existing rates and in
some cases rates were traded for longer terms, while 2009 second and third
quarter contract renewals declined in the zero to 8% and 7% to 15% range,
respectively, when compared with the corresponding quarters of
2008. Spot market rates for 2009, which include the cost of fuel,
decreased an average of 3% to 4% in the first quarter, 10% to 15% in second
quarter and 10% to 20% in the third quarter when compared with the corresponding
quarters of 2008. In each of the 2009 first three quarters, the
Company estimates that approximately 40% to 50% of the spot market rate
decreases were fuel related. During 2008 and the 2009 first nine months, some
incremental capacity was added to the industry fleet and the Company anticipates
some additional capacity will be added during the 2009 fourth quarter, based on
current orders; however, the current reduction of petrochemical and refining
production has resulted in excess barge capacity, lower utilization and the
acceleration of the retirement of older barges. Weaker market
conditions may constrain industry wide new barge orders for 2010 and the
retirement of older barges may be accelerated. The Company also
anticipates that the diesel engine services segment will continue to perform
below 2008 levels with no notable improvement forecasted for the 2009 fourth
quarter as customers continue to defer maintenance due to reduced utilization of
their equipment.
Acquisitions
On June
30, 2008, the Company purchased substantially all of the assets of Lake Charles
Diesel for $3,680,000 in cash. Lake Charles Diesel was a Gulf Coast
high-speed diesel engine services provider operating factory-authorized full
service marine dealerships for Cummins, Detroit Diesel and Volvo engines, as
well as an authorized marine dealer for Caterpillar engines in
Louisiana.
On March
18, 2008, the Company purchased six inland tank barges from ORIX for $1,800,000
in cash. The Company had been leasing the barges from ORIX prior to
their purchase.
Results
of Operations
The
Company reported 2009 third quarter net earnings attributable to Kirby of
$35,014,000, or $.65 per share, on revenues of $272,166,000, compared with 2008
third quarter net earnings attributable to Kirby of $41,778,000, or $.77 per
share, on revenues of $354,647,000. Net earnings attributable to
Kirby for the 2009 first nine months were $96,739,000, or $1.79 per share, on
revenues of $822,570,000, compared with net earnings attributable to Kirby for
the 2008 first nine months of $118,759,000, or $2.19 per share, on revenues of
$1,033,477,000.
26
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
The
following table sets forth the Company’s marine transportation and diesel engine
services revenues for the 2009 third quarter compared with the third quarter of
2008, the first nine months of 2009 compared with the first nine months of 2008
and the percentage of each to total revenues for the comparable periods (dollars
in thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||||||||||||||
2009
|
%
|
2008
|
%
|
2009
|
%
|
2008
|
%
|
|||||||||||||||||||||||||
Marine
transportation
|
$ | 227,467 | 84 | % | $ | 286,880 | 81 | % | $ | 664,394 | 81 | % | $ | 830,014 | 80 | % | ||||||||||||||||
Diesel
engine services
|
44,699 | 16 | 67,767 | 19 | 158,176 | 19 | 203,463 | 20 | ||||||||||||||||||||||||
$ | 272,166 | 100 | % | $ | 354,647 | 100 | % | $ | 822,570 | 100 | % | $ | 1,033,477 | 100 | % |
As a
result of the lower demand in both the marine transportation and diesel engine
services segments, the Company took specific steps to reduce overhead and lower
expenditures during the 2009 first quarter. The shore staffs of the
marine transportation and diesel engine services segments were reduced by
approximately 6% through early retirement incentives and staff
reductions. A charge of $3,953,000, or $.05 per share, was taken in
the 2009 first quarter before taxes, consisting of $2,527,000 for marine
transportation and $1,426,000 for diesel engine services. The Company
estimates that the 2009 first quarter early retirements and staff reductions
resulted in a savings of $.02 per share for both the 2009 second and third
quarters, will result in a savings of $.02 per share for 2009, net of the $.05
per share 2009 first quarter charge, and will result in a savings of $.08 per
share for 2010. As of September 30, 2009, the shore staff of the
marine transportation segment, including shore tankering services, and the
diesel engine services segment was down 14% compared with September 30,
2008.
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, 2009, the Company operated 874 active inland tank barges, with
a total capacity of 16.8 million barrels, compared with 915 active inland tank
barges at September 30, 2008, with a total capacity of 17.5 million
barrels. The Company operated an average of 215 active inland towing
vessels during the 2009 third quarter and 222 during the 2009 first nine months
compared with 255 during the 2008 third quarter and 258 during the first nine
months of 2008. The Company owns and operates four offshore dry-bulk
barge and tug units engaged in the offshore transportation of dry-bulk
cargoes. The Company also owns a two-thirds interest in Osprey Line,
L.L.C., operator of a barge feeder service for cargo containers on the Gulf
Intracoastal Waterway, as well as several ports located above Baton Rouge on the
Mississippi River.
27
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
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, 2009 compared with the three
months and nine months ended September 30, 2008 (dollars in
thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||||||
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
|||||||||||||||||||
Marine
transportation revenues
|
$ | 227,467 | $ | 286,880 | (21 | )% | $ | 664,394 | $ | 830,014 | (20 | )% | ||||||||||||
Costs
and expenses:
|
||||||||||||||||||||||||
Costs
of sales and operating expenses
|
125,160 | 173,249 | (28 | ) | 373,177 | 507,083 | (26 | ) | ||||||||||||||||
Selling,
general and administrative
|
18,623 | 24,477 | (24 | ) | 61,047 | 68,382 | (11 | ) | ||||||||||||||||
Taxes,
other than on income
|
2,752 | 3,318 | (17 | ) | 8,256 | 9,741 | (15 | ) | ||||||||||||||||
Depreciation
and amortization
|
23,337 | 20,811 | 12 | 64,964 | 62,113 | 5 | ||||||||||||||||||
169,872 | 221,855 | (23 | ) | 507,444 | 647,319 | (22 | ) | |||||||||||||||||
Operating
income
|
$ | 57,595 | $ | 65,025 | (11 | )% | $ | 156,950 | $ | 182,695 | (14 | )% | ||||||||||||
Operating
margins
|
25.3 | % | 22.7 | % | 23.6 | % | 22.0 | % |
Marine
Transportation Revenues
The
following table shows the marine transportation markets serviced by the Company,
the marine transportation revenue distribution for the first nine months of
2009, products moved and the drivers of the demand for the products the Company
transports:
Markets Serviced
|
2009
Nine
Months
Revenue
Distribution
|
Products Moved
|
Drivers
|
|||
Petrochemicals
|
68%
|
Benzene,
Styrene, Methanol,
Acrylonitrile,
Xylene, Caustic
Soda,
Butadiene, Propylene
|
Consumer
non-durables – 70%, Consumer durables – 30%
|
|||
Black
Oil Products
|
19%
|
Residual
Fuel Oil, Coker Feedstock, Vacuum Gas Oil, Asphalt, Carbon Black
Feedstock, Crude Oil, Ship Bunkers
|
Fuel
for Power Plants and Ships, Feedstock for Refineries, Road
Construction
|
|||
Refined
Petroleum
Products
|
9%
|
Gasoline,
No. 2 Oil, Jet Fuel, Heating Oil, Naphtha, Diesel Fuel
|
Vehicle
Usage, Air Travel,
Weather
Conditions, Refinery
Utilization
|
|||
Agricultural
Chemicals
|
4%
|
Anhydrous
Ammonia, Nitrogen- Based Liquid Fertilizer, Industrial
Ammonia
|
Corn,
Cotton and Wheat Production, Chemical Feedstock
Usage
|
28
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Marine
transportation revenues for the 2009 third quarter and first nine months
decreased 21% and 20%, respectively, compared with the 2008 third quarter and
first nine months, reflecting lower petrochemical, black oil products, refined
petroleum products and agricultural chemical demand, driven by the current
global economic recession, and lower pricing. In addition, lower
diesel fuel costs resulted in lower revenues associated with the pass through of
diesel fuel to customers through fuel escalation and de-escalation clauses in
term contracts.
The
petrochemical market, the Company’s largest market, contributed 68% of the
marine transportation revenue for the 2009 first nine months. During
the 2009 third quarter and first nine months, petrochemical transportation
demand was soft, driven by the deteriorating economic
environment. Movements of more finished petrochemical products to the
Midwest continued to modestly improve compared with the 2009 first and 2008
fourth quarters, when significant destocking of inventories
occurred. The Gulf Intracoastal Waterway petrochemical demand for the
2009 second and third quarters stabilized when compared with the 2009 first
quarter. The black oil products market, which contributed 19% of 2009
first nine months marine transportation revenue, and the refined products
market, which contributed 9% of marine transportation revenue for the 2009 first
nine months, also stabilized during the 2009 third quarter, but remained well
below prior year levels. The agricultural chemical market, which
contributed 4% of 2009 first nine months marine transportation revenue, was
weaker during the 2009 third quarter and first nine months due to high Midwest
inventory levels.
For the
third quarter of 2009, the marine transportation segment incurred 688 delay
days, 52% less than the 2008 third quarter delay days of 1,429. For
the 2009 first nine months, 3,393 delay days occurred, 46% less than the 6,341
delay days that occurred in the 2008 first nine months. Delay days
measure the lost time incurred by a tow (towboat and one or more tank barges)
during transit when the tow is stopped due to weather, lock conditions and other
navigational factors. The 2009 third quarter and first nine months
delay days reflected milder winter weather conditions and more normal water
levels compared with the 2008 third quarter and first nine months that
encountered ice and high water conditions in the Midwest throughout the 2008
first quarter, high water conditions throughout the Mississippi River System
during the majority of 2008 second quarter and Hurricanes Gustav and Ike during
the 2008 third quarter. The lower 2009 third quarter and first nine
months delay days led to reduced operating expenses compared with the third
quarter and first nine months of 2008 and helped offset some of the financial
impact of the lower demand levels, but also drove down barge
utilization.
During
the 2009 and 2008 third quarters and first nine months, approximately 80% of
marine transportation revenues were under term contracts and 20% were spot
market revenues. Time charters, which insulate the Company from revenue
fluctuations caused by winter weather and navigational delays and temporary
market declines, averaged approximately 54% of the revenues under term contracts
during the 2009 third quarter compared to an average of 56% during 2008 and the
first six months of 2009. The 80% contract and 20% spot market mix provides the
Company with a predictable revenue stream. Rates on term contracts,
net of fuel, renewed during the 2009 first quarter were generally renewed at
existing rates and in some cases rates were traded for longer terms, while 2009
second and third quarter contract renewals declined in the zero to 8% and 7% to
15% range, respectively, when compared with the corresponding quarters of
2008. Spot market rates for 2009, which include the cost of fuel,
decreased an average of 3% to 4% in the first quarter, 10% to 15% in second
quarter and 10% to 20% in the third quarter when compared with the corresponding
quarters of 2008. In each of the 2009 first three quarters, the
Company estimates that approximately 40% to 50% of the spot market rate
decreases were fuel related. Effective January 1, 2009, escalators for labor and
the producer price index on a number of multi-year contracts increased rates on
those contracts by 4% to 5%. All marine transportation term contracts contain
fuel escalation clauses. Fuel escalation clauses are designed to
recover additional fuel costs when fuel prices rise and rebate fuel costs when
prices decline; however, there is generally a 30 to 90 day delay before
contracts are adjusted. Spot market contracts do not have escalators
for fuel.
29
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Marine
Transportation Costs and Expenses
Costs and
expenses for the 2009 third quarter and first nine months decreased 23% and 22%,
respectively, compared with the 2008 third quarter and first nine months,
primarily reflecting the lower costs and expenses associated with decreased
marine transportation demand, resulting lower towboat requirements and lower
diesel fuel prices. The 2009 first nine months included a $2,527,000
charge for early retirements and staff reductions applicable to the marine
transportation segment. More favorable weather and operating
conditions during the 2009 first nine months compared with the 2008 first nine
months also reduced operating expenses.
Costs of
sales and operating expenses for the 2009 third quarter and first nine months
decreased 28% and 26%, respectively, compared with the third quarter and first
nine months of 2008, reflecting lower expenses associated with the decreased
demand and more favorable weather operating conditions, fewer towboats operated,
as noted below, lower insurance claims losses and the positive impact of
enhanced cost saving and efficiency initiatives. The significantly
lower price of diesel fuel and less consumption, as noted below, resulted in
lower fuel costs during the 2009 third quarter and first nine
months.
The
marine transportation segment operated an average of 215 towboats during the
2009 third quarter compared with 255 during the 2008 third quarter. During the
2009 first nine months, the segment operated an average of 222 towboats compared
with 258 towboats operated during the 2008 first nine months. Since
the fourth quarter of 2008 and continuing during the 2009 first nine months, as
demand weakened the Company released chartered towboats and laid-up Company
owned towboats in an effort to balance horsepower needs with volume
demand. The Company has historically used chartered towboats for
approximately one-third of its horsepower requirements.
During
the 2009 third quarter, the Company consumed 11.0 million gallons of diesel fuel
compared to 11.6 million gallons consumed during the 2008 third
quarter. For the 2009 first nine months, the Company consumed 31.2
million gallons of diesel fuel compared with 37.0 million during the 2008 first
nine months. The average price per gallon of diesel fuel consumed during the
2009 third quarter was $1.89, a decrease of 53% compared with $3.99 per gallon
for the third quarter of 2008, and $1.63 per gallon for the 2009 first nine
months, a 52% decrease compared with $3.40 per gallon for the 2008 first nine
months. The lower gallons consumed during the 2009 third quarter and
first nine months reflected the weaker demand in all four of the segment’s
markets.
Selling,
general and administrative expenses for the 2009 third quarter and first nine
months decreased 24% and 11%, respectively, compared with the 2008 third quarter
and first nine months. The 2009 third quarter decrease of 24% primarily
reflected the cost savings from the 2009 first quarter early retirements and
staff reductions, lower employee incentive compensation accruals and the
freezing of all officer and management salaries at 2008 levels. The 11% decrease
for the 2009 first nine months also reflected the marine transportation portion
of the charge for early retirements and staff reductions taken in the 2009 first
quarter.
Taxes,
other than on income, for the 2009 third quarter and first nine months decreased
17% and 15%, respectively, compared with the third quarter and first nine months
of 2008, primarily the reflection of lower waterway user taxes from reduced
mileage associated with the weaker demand on taxable waterways and lower
property taxes.
30
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Depreciation
and amortization for the 2009 third quarter and first nine months increased 12%
and 5%, respectively, compared with the 2008 third quarter and first nine
months. The increases were primarily attributable to increased
capital expenditures, including new tank barges and towboats, the alignment of
asset lives on certain equipment with revised accelerated tank barge retirement
schedules and the acquisition in 2008 of marine equipment that was previously
leased.
Marine
Transportation Operating Income and Operating Margins
The
marine transportation operating income for the 2009 third quarter decreased 11%
compared with the 2008 third quarter. For the 2009 first nine months, the
segment’s operating income decreased 14% compared with the 2008 first nine
months. The decreases primarily reflected the lower demand in all four of the
segment’s markets and the first nine months decrease reflected the charge for
early retirements and staff reductions in the 2009 first quarter. In addition,
the 2008 third quarter included the loss of revenue and additional operating
expenses associated with Hurricanes Gustav and Ike. Despite the lower
demand, the operating margin was 25.3% for the 2009 third quarter compared with
22.7% for the 2008 third quarter and 23.6% for the 2009 first nine months, which
included the 2009 first quarter charge, compared with 22.0% for the 2008 first
nine months. The higher margin for both 2009 periods reflected the lower fuel
costs, lower shoreside headcount, reduction of towboats operated, frozen officer
and management salaries, reduced maintenance on laid-up equipment, lower
insurance claims losses, more efficient operations at lower utilization rates,
ongoing cost reduction and efficiency initiatives and favorable 2009 third
quarter and first nine months operating conditions.
Diesel
Engine Services
The
Company, through its diesel engine services segment, sells genuine replacement
parts, provides service mechanics to overhaul and repair medium-speed and
high-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire medium-speed and high-speed diesel engines,
and entire reduction gears. The Company services the marine, power
generation 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, 2009 compared with the three
months and nine months ended September 30, 2008 (dollars in
thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||||||
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
|||||||||||||||||||
Diesel
engine revenues
|
$ | 44,699 | $ | 67,767 | (34 | )% | $ | 158,176 | $ | 203,463 | (22 | )% | ||||||||||||
Costs
and expenses:
|
||||||||||||||||||||||||
Costs
of sales and operating expenses
|
32,026 | 47,626 | (33 | ) | 113,813 | 142,397 | (20 | ) | ||||||||||||||||
Selling,
general and administrative
|
6,746 | 8,164 | (17 | ) | 23,002 | 24,506 | (6 | ) | ||||||||||||||||
Taxes,
other than on income
|
227 | 229 | (1 | ) | 980 | 757 | 29 | |||||||||||||||||
Depreciation
and amortization
|
1,053 | 1,121 | (6 | ) | 3,190 | 3,715 | (14 | ) | ||||||||||||||||
40,052 | 57,140 | (30 | ) | 140,985 | 171,375 | (18 | ) | |||||||||||||||||
Operating
income
|
$ | 4,647 | $ | 10,627 | (56 | )% | $ | 17,191 | $ | 32,088 | (46 | )% | ||||||||||||
Operating
margins
|
10.4 | % | 15.7 | % | 10.9 | % | 15.8 | % |
31
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Diesel
Engine Services Revenues
The
following table shows the markets serviced by the Company’s diesel engine
services segment, the revenue distribution for the first nine months of 2009 and
the customers for each market:
Markets Serviced
|
2009
Nine
Months
Revenue
Distribution
|
Customers
|
||
Marine
|
75%
|
Inland
River Carriers – Dry and Liquid, Offshore Towing – Dry and Liquid,
Offshore Oilfield Services – Drilling Rigs &
Supply
Boats, Harbor Towing, Dredging, Great Lake Ore
Carriers
|
||
Power
Generation
|
18%
|
Standby
Power Generation, Pumping Stations
|
||
Railroad
|
7%
|
Passenger
(Transit Systems), Class II, Shortline,
Industrial
|
Diesel
engine services revenues for the 2009 third quarter and first nine months
decreased 34% and 22%, respectively, compared with the 2008 corresponding
periods. Both decreases reflected the lower demand levels for service and direct
parts sales in the Gulf Coast medium-speed and high-speed markets as Gulf Coast
oil service customers and Gulf Intracoastal Waterway and Mississippi River
inland marine customers deferred maintenance in response to the economic
slowdown. The medium-speed railroad parts and service market was also
weak as industrial and shortline railroad customers deferred maintenance in
response to lower railroad traffic. The medium-speed power generation
market benefited from favorable engine-generator set upgrades and direct parts
sales in the 2009 first half but revenues decreased in the 2009 third quarter.
The East Coast marine market benefited from engine overhaul projects in the 2009
first quarter and international offshore oil services market was stronger during
the 2009 second quarter.
Diesel
Engine Services Costs and Expenses
Costs and
expenses for the 2009 third quarter decreased 30% compared with the 2008 third
quarter and decreased 18% for the 2009 first nine months compared with the 2008
first nine months. The 2009 first nine months included a $1,426,000
charge in the 2009 first quarter for early retirements and staff reductions
applicable to the diesel engine services segment. Partially offsetting the
decrease in the 2009 first nine months were the costs and expenses attributable
to Lake Charles Diesel, acquired in June 2008.
Cost of
sales and operating expenses for the 2009 third quarter and first nine months
decreased 33% and 20%, respectively, when compared with the corresponding 2008
periods, reflecting the lower service and direct parts sales activity noted
above, with the 2009 first nine months decrease including $621,000 of the 2009
first quarter early retirements and staff reduction charges.
Selling,
general and administrative expenses for the 2009 third quarter and first nine
months decreased 17% and 6%, respectively, when compared with the 2008 third
quarter and first nine months. The 2009 third quarter decrease reflected the
2009 first quarter early retirements and staff reductions, and lower employee
incentive compensation accruals. The 2009 first nine months decrease included
$805,000 of the 2009 first quarter early retirements and staff reduction
charges.
32
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Diesel
Engine Services Operating Income and Operating Margins
Operating
income for the diesel engine services segment for the 2009 third quarter and
first nine months decreased 56% and 46%, respectively, compared with the 2008
corresponding periods, primarily reflecting the soft medium-speed and high-speed
Gulf Coast oil services and inland marine markets, and for the 2009 first nine
months, the 2009 first quarter early retirements and staff reductions charge
noted above. The operating margin for the 2009 third quarter was
10.4% compared with 15.7% for the 2008 third quarter and 10.9% for the 2009
first nine months compared with 15.8% for the 2008 first nine months. Both
comparable periods reflected lower service and direct parts sales and resulting
lower labor utilization, with the 2009 first nine months including the charge
for early retirements and staff reductions.
General
Corporate Expenses
General
corporate expenses for the 2009 third quarter were $3,129,000, a 19% decrease
compared with $3,886,000 for the third quarter of 2008. For the first
nine months of 2009, general corporate expenses were $9,045,000, a 16% decrease
compared with $10,815,000 for the first nine months of 2008. The decreases for
both comparable periods primarily reflected lower employee incentive
compensations accruals.
Loss
(Gain) on Disposition of Assets
The
Company reported a net gain on disposition of assets of $753,000 for the 2009
third quarter compared with a net loss on disposition of assets of $166,000 for
the 2008 third quarter. For the 2009 first nine months, the Company
reported a net gain on disposition of assets of $1,117,000 compared with a net
gain on disposition of assets of $276,000 for the first nine months of
2008. The net gains and losses were predominantly from the sale of
retired marine equipment.
Other
Income (Expense)
The
following table sets forth other income (expense), noncontrolling interests and
interest expense for the three months and nine months ended September 30, 2009
compared with the three months and nine months ended September 30, 2008 (dollars
in thousands):
Three
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||||||
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
|||||||||||||||||||
Other
income (expense)
|
$ | 189 | $ | (164 | ) | (215 | )% | $ | 375 | $ | (272 | ) | (238 | )% | ||||||||||
Noncontrolling
interests
|
$ | (434 | ) | $ | (351 | ) | 24 | % | $ | (1,158 | ) | $ | (829 | ) | 40 | % | ||||||||
Interest
expense
|
$ | (2,781 | ) | $ | (3,375 | ) | (18 | )% | $ | (8,387 | ) | $ | (10,665 | ) | (21 | )% |
Interest
Expense
Interest
expense for the 2009 third quarter and first nine months decreased 18% and 21%,
respectively, compared with the third quarter and first nine months of 2008,
primarily the result of lower average debt levels. The average debt
and average interest rate for the 2009 and 2008 third quarters, including the
effect of interest rate swaps and collar, were $205,886,000 and 5.4%, and
$269,666,000 and 5.0%, respectively. For the first nine months of
2009 and 2008, the average debt and average interest rate, including the effect
of interest rate swaps and collar, were $220,565,000 and 5.1%, and $281,858,000
and 5.1%, respectively.
33
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Financial
Condition, Capital Resources and Liquidity
Balance
Sheet
Total
assets as of September 30, 2009 were $1,583,538,000 compared with $1,526,098,000
as of December 31, 2008. The following table sets forth the
significant components of the balance sheet as of September 30, 2009 compared
with December 31, 2008 (dollars in thousands):
September
30,
|
December
31,
|
|||||||||||
2009
|
2008
|
% Change
|
||||||||||
Assets:
|
||||||||||||
Current
assets
|
$ | 246,304 | $ | 279,511 | (12 | )% | ||||||
Property
and equipment, net
|
1,083,702 | 990,932 | 9 | |||||||||
Goodwill,
net
|
230,774 | 230,774 | ― | |||||||||
Other
assets
|
22,758 | 24,881 | (9 | ) | ||||||||
$ | 1,583,538 | $ | 1,526,098 | 4 | % | |||||||
Liabilities
and stockholders’ equity:
|
||||||||||||
Current
liabilities
|
$ | 132,505 | $ | 173,066 | (23 | )% | ||||||
Long-term
debt – less current portion
|
200,036 | 246,064 | (19 | ) | ||||||||
Deferred
income taxes
|
177,516 | 145,568 | 22 | |||||||||
Other
long-term liabilities
|
69,361 | 67,845 | 2 | |||||||||
Total
equity
|
1,004,120 | 893,555 | 12 | |||||||||
$ | 1,583,538 | $ | 1,526,098 | 4 | % |
Current
assets as of September 30, 2009 decreased 12% compared with December 31, 2008,
primarily reflecting a 28% decrease in trade accounts receivable due to lower
marine transportation and diesel engine services revenues related to lower
business activity levels. In addition, inventory-finished goods
decreased 17% from lower activities in both the medium-speed and high-speed
diesel engine services segment in the 2009 first nine months. Partially
offsetting the decrease was a $31,115,000 increase in cash and cash
equivalents.
Property
and equipment, net of accumulated depreciation, at September 30, 2009 increased
9% compared with December 31, 2008. The increase reflected
$162,972,000 of capital expenditures for the 2009 first nine months, more fully
described under Capital Expenditures below, less $67,700,000 of depreciation
expense for the first nine months of 2009 and $2,502,000 of property disposals
during the 2009 first nine months.
Current
liabilities as of September 30, 2009 decreased 23% compared with December 31,
2008. Accounts payable decreased 32%, a reflection of the declining
business activity during the 2009 first nine months in both the marine
transportation and diesel engine services segments. Accrued
liabilities decreased 22%, primarily from the payment during the 2009 first nine
months of employee incentive compensation accrued during 2008, lower employee
incentive compensation bonuses accrued during the 2009 first nine months, and
lower marine insurance claims.
Long-term
debt, less current portion, as of September 30, 2009 decreased 19% compared with
December 31, 2008. During the 2009 first nine months, the Company had
net cash provided by operating activities of $237,101,000, proceeds from the
exercise of stock options of $2,056,000 and proceeds from the disposition of
assets of $3,619,000, partially offset by capital expenditures of $162,972,000.
As of September 30, 2009, the Company had no outstanding balance under its
$250,000,000 revolving credit facility and had $39,762,000 of cash and cash
equivalents.
34
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Deferred
income taxes as of September 30, 2009 increased 22% compared with December 31,
2008. The increase was primarily due to a higher 2009 first nine
months deferred tax provision of $31,907,000, which included bonus tax
depreciation on qualifying expenditures under the American Recovery and
Reinvestment Act of 2009.
Equity as
of September 30, 2009 increased 12% compared with December 31,
2008. The increase was the result of $96,739,000 of net earnings
attributable to Kirby for the first nine months of 2009, a $8,132,000 decrease
in treasury stock and an increase of $5,697,000 in accumulated other
comprehensive income. The decrease in treasury stock was attributable
to the exercise of stock options and the issuance of restricted
stock. The increase in accumulated other comprehensive income
primarily resulted from the net change in fair value of interest rate swap
agreements, net of taxes, more fully described under Fair Value of Derivative
Instruments below, and the decrease in unrecognized losses related to the
Company’s defined benefit plans.
Long-Term
Financing
The
Company has a $250,000,000 unsecured revolving credit facility (“Revolving
Credit Facility”) with a syndicate of banks, with JPMorgan Chase Bank as the
agent bank, with a maturity date of June 14, 2011. The Revolving
Credit Facility allows for an increase in the commitments of the banks from
$250,000,000 up to a maximum of $325,000,000, subject to the consent of each
bank that elects to participate in the increased commitment. The
unsecured Revolving Credit Facility has a variable interest rate based on LIBOR
that varies with the Company’s senior debt rating and the level of debt
outstanding. As of September 30, 2009, the Company was in compliance
with all Revolving Credit Facility covenants and had no borrowings outstanding
under the Revolving Credit Facility. The average borrowing under the
Revolving Credit Facility during 2009 third quarter and first nine months were
$5,484,000 and $19,718,000, respectively, computed by averaging the daily
balance. The weighted average interest rate for the 2009 third quarter and first
nine months was 0.8%, and 0.9%, respectively, computed by dividing the interest
expense under the Revolving Credit Facility by the average Revolving Credit
facility borrowing. The Revolving Credit Facility includes a $25,000,000
commitment which may be used for standby letters of
credit. Outstanding letters of credit under the Revolving Credit
Facility were $11,000 as of September 30, 2009.
The
Company has $200,000,000 of unsecured floating rate senior notes (“2005 Senior
Notes”) due February 28, 2013. The 2005 Senior Notes pay interest
quarterly at a rate equal to LIBOR plus a margin of 0.5%. The 2005
Senior Notes are callable, at the Company’s option, at par. No
principal payments are required until maturity in February 2013. As
of September 30, 2009, $200,000,000 was outstanding under the 2005 Senior Notes
and the average interest rate for the 2009 third quarter and first nine months
was 1.1% and 1.7%, respectively. The Company was in compliance with
all 2005 Senior Notes covenants at September 30, 2009.
The
Company has a $5,000,000 line of credit (“Credit Line”) with Bank of America,
N.A. (“Bank of America”) for short-term liquidity needs and letters of credit,
with a maturity date of June 30, 2010. The Credit Line allows the
Company to borrow at an interest rate agreed to by Bank of America and the
Company at the time each borrowing is made or continued. The Company
did not have any borrowings outstanding under the Credit Line as of September
30, 2009. Outstanding letters of credit under the Credit Line were
$541,000 as of September 30, 2009.
35
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Interest
Rate Risk Management
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 collar and swap
agreements and are entered into with large multinational banks. 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 floating rate senior notes and variable rate bank
credit facility.
From time
to time, the Company hedges its exposure to fluctuations in short-term interest
rates under its variable rate bank credit facility and floating rate senior
notes by entering into interest rate collar and swap agreements. The interest
rate collar and swap agreements are designated as cash flow hedges, therefore,
the changes in fair value, to the extent the collar and swap agreements are
effective, are recognized in other comprehensive income until the hedged
interest expense is recognized in earnings. The swap agreements effectively
convert the Company’s interest rate obligation on a portion of the Company’s
variable rate senior notes from quarterly floating rate payments based on LIBOR
to quarterly fixed rate payments. As of September 30, 2009, the Company had a
total notional amount of $200,000,000 of interest rate swaps designated as cash
flow hedges for its variable rate senior notes as follows (dollars in
thousands):
Notional
Amount
|
Effective date
|
Terminationdate
|
Fixed
pay rate
|
Receive rate
|
|||||
$ 100,000
|
March
2006
|
February
2013
|
5.45% |
Three-month
LIBOR
|
|||||
$
50,000
|
November
2008
|
February
2013
|
3.50% |
Three-month
LIBOR
|
|||||
$
50,000
|
May
2009
|
February
2013
|
3.795% |
Three-month
LIBOR
|
Foreign
Currency Risk Management
From time
to time, the Company has utilized and expects to continue to utilize derivative
financial instruments with respect to its forecasted foreign currency
transactions to attempt to reduce the risk of its exposure to foreign currency
rate fluctuations in its future diesel engine services inventory purchase
commitments. These transactions, which relate to foreign currency obligations
for the purchase of equipment from foreign suppliers, generally are purchased
call options and are entered into with large multinational banks.
As of
September 30, 2009, the Company has purchased Euro call options with a 1.28
strike price in the amount of 264,090 Euros maturing on March 1, 2010 and
528,180 Euros maturing on December 1, 2010. The purchased call options are
designated as cash flow hedges, therefore, the changes in fair value, to the
extent the purchased call options agreements are effective, are recognized in
other comprehensive income until the purchased call option expires and is
recognized in cost of sales and operating expenses.
36
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Fair
Value of Derivative Instruments
The
following table sets forth the fair value of the Company’s derivative
instruments recorded as assets located on the consolidated balance sheet (in
thousands):
Asset Derivatives
|
Balance Sheet Location
|
September
30,
2009
|
December
31,
2008
|
|||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||
Foreign
exchange contracts
|
Prepaid
expenses and other current assets
|
$ | 49 | $ | — | |||||||
Foreign
exchange contracts
|
Other
assets
|
104 | 188 | |||||||||
Total
derivatives designated as hedging instruments under ASC
815
|
$ | 153 | $ | 188 | ||||||||
Total
asset derivatives
|
$ | 153 | $ | 188 |
The
following table sets forth the fair value of the Company’s derivative
instruments recorded as liabilities located on the consolidated balance sheet
(in thousands):
Liability Derivatives
|
Balance Sheet Location
|
September
30,
2009
|
December
31,
2008
|
|||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||
Interest
rate contracts
|
Accrued
liabilities
|
$ | — | $ | 502 | |||||||
Interest
rate contracts
|
Other
long-term liabilities
|
16,961 | 20,500 | |||||||||
Total
derivatives designated as hedging instruments under ASC
815
|
$ | 16,961 | $ | 21,002 | ||||||||
Total
liability derivatives
|
$ | 16,961 | $ | 21,002 |
Fair
value amounts were derived as of September 30, 2009 and December 31, 2008
utilizing fair value models of the Company and its counterparties on the
Company’s portfolio of derivative instruments. The fair value of the Company’s
derivative instruments is described above in Note 4, Fair Value
Measurements.
Cash
Flow Hedges
For
derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a
component of OCI and reclassified into earnings in the same period or periods
during which the hedged transaction affects earnings. Gains and losses on the
derivative representing either hedge ineffectiveness or hedge components
excluded from the assessment of effectiveness are recognized in current
earnings. Any ineffectiveness related to the Company’s hedges was not material
for any of the periods presented.
37
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
The
following table sets forth the location and amount of gains and losses on the
Company’s derivative instruments (in thousands):
Derivatives in ASC 815 Cash Flow Hedging Relationships: | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Amount
of Gain (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Amount
of Loss Reclassified from Accumulated OCI into Income
(Effective
Portion)
|
|||||||||||||||||
Three
months ended
September 30,
|
Three
months ended
September 30,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | (1,710 | ) | $ | (958 | ) | $ | (2,039 | ) | $ | (1,074 | ) | |||||||
Foreign
exchange contracts
|
Cost
and sales of operating expenses
|
30 | — | — | — | |||||||||||||||
Total
|
$ | (1,680 | ) | $ | (958 | ) | $ | (2,039 | ) | $ | (1,074 | ) |
Derivatives in ASC 815 Cash Flow Hedging Relationships: | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Amount
of Gain (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Amount
of Loss Reclassified from Accumulated OCI into Income
(Effective
Portion)
|
|||||||||||||||||
Nine
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | 4,041 | $ | (120 | ) | $ | (5,201 | ) | $ | (2,307 | ) | ||||||||
Foreign
exchange contracts
|
Cost
of sales and operating expenses
|
(35 | ) | — | — | — | ||||||||||||||
Total
|
$ | 4,006 | $ | (120 | ) | $ | (5,201 | ) | $ | (2,307 | ) |
The
Company anticipates $5,127,000 of net losses on interest rate swap agreements
included in accumulated other comprehensive income will be transferred into
earnings over the next year based on current interest rates. Gains or losses on
interest rate swap agreements offset increases or decreases in rates of the
underlying debt, which results in a fixed rate for the underlying debt. The
Company also expects $9,000 of net gains on foreign currency contracts included
in accumulated other comprehensive income will be transferred into earnings over
the next year based on the maturity date being less than twelve months on one of
the two purchased call options.
Capital
Expenditures
Capital
expenditures for the 2009 first nine months were $162,972,000, of which
$121,742,000 was for construction of new tank barges and towboats, and
$41,230,000 was primarily for upgrading of the existing marine transportation
fleet. Capital expenditures for the 2008 first nine months were $141,525,000, of
which $74,340,000 was for construction of new tank barges and towboats, and
$67,185,000 was primarily for upgrading of the existing marine transportation
fleet. Financing of the construction of the new tank barges and
towboats was through operating cash flows and available credit under the
Company’s Revolving Credit Facility.
38
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
A summary
of the new tank barge construction follows:
Contract
|
No.
of
|
Total
|
Expended
|
Placed in Service
|
|||||||||||||||||||||||||||||||||||||
Date
|
Barges
|
Capacity
|
2007
|
2008
|
2009
|
Total
|
2007
|
2008
|
2009 | * | 2010 | * | |||||||||||||||||||||||||||||
($
in millions)
|
(Barrels
in thousands)
|
||||||||||||||||||||||||||||||||||||||||
April
2006
|
8 | 227,000 | 9.9 | 6.4 | — | 17.7 | 85 | 142 | — | — | |||||||||||||||||||||||||||||||
Oct.
2006
|
6 | 66,000 | 6.2 | .4 | — | 8.3 | 44 | 22 | — | — | |||||||||||||||||||||||||||||||
Feb.
2007
|
12 | 340,000 | — | 36.7 | — | 36.7 | — | 340 | — | — | |||||||||||||||||||||||||||||||
Aug.
2007
|
6 | 71,000 | 2.2 | 7.9 | .5 | 10.6 | — | 71 | — | — | |||||||||||||||||||||||||||||||
Dec.
2007
|
2 | 21,000 | — | 2.6 | .7 | 3.3 | — | 11 | 10 | — | |||||||||||||||||||||||||||||||
Jan.
2008
|
14 | 335,000 | — | — | 37.9 | 37.9 | — | — | 335 | — | |||||||||||||||||||||||||||||||
Mar.
2008
|
2 | 55,000 | — | — | 7.2 | 7.2 | — | — | 55 | — | |||||||||||||||||||||||||||||||
Apr.
2008
|
6 | 66,000 | — | 3.6 | 5.6 | 11.4 |
Est.
|
— | — | 45 | 21 | ||||||||||||||||||||||||||||||
May
2008
|
5 | 105,000 | — | 10.6 | 20.9 | 31.5 | — | — | 105 | — | |||||||||||||||||||||||||||||||
May
2008
|
6 | 168,000 | — | 4.9 | 7.3 | 16.4 |
Est.
|
— | — | 140 | 28 | ||||||||||||||||||||||||||||||
Aug.
2008
|
15 | 424,000 | — | — | 32.8 | 41.7 |
Est.
|
— | — | 424 | — |
____________
* Based
on current or expected construction schedule
A summary
of the new towboat construction follows:
Contract
|
No.
of
|
Expended
|
Placed in Service
|
|||||||||||||||||||||||||||||||||||||||
Date
|
Towboats
|
Horsepower
|
Market
|
2007
|
2008
|
2009
|
Total
|
2007
|
2008
|
2009 | * | 2010 | * | |||||||||||||||||||||||||||||
($
in millions)
|
||||||||||||||||||||||||||||||||||||||||||
Aug.
2006
|
4 | 1800 |
Canal
|
7.0 | 3.3 | — | 13.1 | 1 | 3 | — | — | |||||||||||||||||||||||||||||||
Mar.
2007
|
4 | 1800 |
Canal
|
1.2 | 9.1 | 4.0 | 14.3 | — | 1 | 3 | — | |||||||||||||||||||||||||||||||
June
2007
|
2 | 1800 |
Canal
|
.3 | 2.2 | 2.5 | 6.9 |
Est.
|
— | — | 1 | 1 | ||||||||||||||||||||||||||||||
Aug.
2007
|
2 | 1800 |
Canal
|
.1 | 1.5 | 2.3 | 6.9 |
Est.
|
— | — | — | 2 |
____________
* Based
on current or expected construction schedule
Funding
for future capital expenditures and new barge and towboat construction is
expected to be provided through operating cash flows and available credit under
the Company’s Revolving Credit Facility.
Treasury
Stock Purchases
The
Company did not purchase any treasury stock during the 2009 first nine
months. During early November 2009, the Company purchased in the open
market 20,000 shares of common stock at a total purchase price of $657,000, or
$32.83 per share. As of November 6, 2009, the Company had 1,400,000 shares
available under its existing 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.
39
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Liquidity
The
Company generated net cash provided by operating activities of $237,101,000
during the nine months ended September 30, 2009 compared with $183,448,000
generated during the first nine months ended September 30, 2008. The
2009 first nine months experienced a net increase in cash flows from changes in
operating assets and liabilities versus a net decrease in the 2008 first nine
months primarily due to a decrease in receivables in the 2009 first nine months
as a result of decreased revenues versus the 2008 first nine months which
experienced an increase in receivables as revenues increased due to stronger
business activity levels. This was partially offset by decreases in accounts
payable due to lower business activity levels and larger incentive compensation
payments in 2009 versus 2008 and smaller incentive compensation accruals during
the 2009 first nine months versus the 2008 first nine months.
Funds
generated are available for acquisitions, capital expenditure projects, common
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 November 6, 2009, $249,989,000
under its Revolving Credit Facility and $4,459,000 available under its Credit
Line.
Neither
the Company, nor any of its subsidiaries, is obligated on any debt instrument,
swap agreement, or any other financial instrument or commercial contract which
has a rating trigger, except for pricing grids on its Revolving Credit
Facility.
The
Company expects to continue to fund expenditures for acquisitions, capital
construction projects, common stock repurchases, repayment of borrowings, and
for other operating requirements from a combination of available cash and cash
equivalents, funds generated from operating activities and available financing
arrangements.
The
credit markets have been undergoing significant volatility. Many
financial institutions recently experienced liquidity concerns, prompting
government intervention to mitigate pressure on the credit
markets. The Company’s material exposure to the current credit market
crisis includes its Revolving Credit Facility, 2005 Senior Notes, Credit Line
and counterparty performance risks related to its interest rate swap
agreements.
The
Revolving Credit Facility’s commitment is in the amount of $250,000,000 and
expires June 14, 2011. As of September 30, 2009, the Company had
$249,989,000 available under the Revolving Credit Facility. Future
extensions of the Revolving Credit Facility may contain terms that are less
favorable than those of the current Revolving Credit Facility should current
credit market volatility be prolonged for several years. The
Revolving Credit Facility also allows for an increase in the commitments from
the banks from the current $250,000,000 level up to a maximum of $325,000,000,
subject to the consent of each bank that elects to participate in the increased
commitment. Based on current economic conditions and credit market
volatility, there is no guarantee that the participating banks would elect to
increase the commitment, and if they did, the terms may be less favorable than
the current Revolving Credit Facility. The 2005 Senior Notes of
$200,000,000 do not mature until 2013 and require no
prepayments. Bond and private placement markets have been negatively
impacted by the worldwide credit crisis, which has resulted in more restrictive
access by issuers and higher costs. While the Company currently has
no plans to access the bond market, should the Company decide to do so in the
near term, the terms, size and cost of a new debt issue could be less
favorable.
40
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Current
market conditions also elevate the concern over counterparty risks related to
the Company’s interest rate swap agreements used to hedge the Company’s exposure
to fluctuating interest rates. The counterparties to these contracts
are large multinational banks. The Company may not realize the
benefit of some of its hedges should one of these financial counterparties not
perform.
There are
numerous factors that may negatively impact the Company’s cash flow in 2009. For
a list of significant risks and uncertainties that could impact cash flows, see
Item 1A, Risk Factors, and Note 11, Contingencies and Commitments, in the
Company’s annual report on Form 10-K for the year ended December 31,
2008. Amounts available under the Company’s existing financial
arrangements are subject to the Company continuing to meet the covenants of the
credit facilities as described in Note 4, Long-Term Debt, in the Company’s
annual report on Form 10-K for the year ended December 31, 2008.
On
November 2, 2009, the Company received a request for information from the EPA
pursuant to Section 104 of the CERCLA with respect to a reported vapor release
from a tank barge that occurred on August 27, 2009. The Company will submit its
response within the deadline imposed by EPA. Based on the information currently
available, the Company is unable to ascertain the extent of its exposure, if
any, in this matter.
The
Company has issued guaranties or obtained standby 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 $27,202,000 at September 30, 2009, including
$3,880,000 in letters of credit and debt guarantees, and $23,322,000 in
performance bonds. All of these instruments have an expiration date
within four 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.
All
marine transportation term contracts contain fuel escalation
clauses. However, there is generally a 30 to 90 day delay before
contracts are adjusted depending on the specific contract. In
general, the fuel escalation clauses are effective over the long-term in
allowing the Company to recover changes in fuel costs due to fuel price changes;
however, the short-term effectiveness of the fuel escalation clauses can be
affected by a number of factors including, but not limited to, specific terms of
the fuel escalation formulas, fuel price volatility, navigating conditions, tow
sizes, trip routing, and the location of loading and discharge ports that may
result in the Company over or under recovering its fuel costs. Spot
contract rates generally reflect current fuel prices at the time the contract is
signed but do not have escalators for fuel.
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 which generally contain cost escalation clauses whereby
certain costs, including fuel as noted above, can be passed through to its
customers. Spot market rates, which include fuel, are subject to
market volatility. The repair portion of the diesel engine services
segment is based on prevailing current market rates.
41
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
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 2009 interest expense by
approximately $42,000, based on balances outstanding at December 31, 2008, and
change the fair value of the Company’s debt by less than 1%.
Interest
Rate Risk Management
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 collar and swap
agreements and are entered into with large multinational banks. 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 floating rate senior notes and variable rate bank
credit facility.
From time
to time, the Company hedges its exposure to fluctuations in short-term interest
rates under its variable rate bank credit facility and floating rate senior
notes by entering into interest rate collar and swap agreements. The interest
rate collar and swap agreements are designated as cash flow hedges, therefore,
the changes in fair value, to the extent the collar and swap agreements are
effective, are recognized in other comprehensive income until the hedged
interest expense is recognized in earnings. The swap agreements effectively
convert the Company’s interest rate obligation on a portion of the Company’s
variable rate senior notes from quarterly floating rate payments based on LIBOR
to quarterly fixed rate payments. As of September 30, 2009, the Company had a
total notional amount of $200,000,000 of interest rate swaps designated as cash
flow hedges for its variable rate senior notes as follows (dollars in
thousands):
Notional
Amount
|
Effective date
|
Terminationdate
|
Fixed
pay rate
|
Receive rate
|
|||||
$ 100,000 |
March
2006
|
February
2013
|
5.45% |
Three-month
LIBOR
|
|||||
$ 50,000 |
November
2008
|
February
2013
|
3.50% |
Three-month
LIBOR
|
|||||
$ 50,000 |
May
2009
|
February
2013
|
3.795% |
Three-month
LIBOR
|
Foreign
Currency Risk Management
From time
to time, the Company has utilized and expects to continue to utilize derivative
financial instruments with respect to its forecasted foreign currency
transactions to attempt to reduce the risk of its exposure to foreign currency
rate fluctuations in its future diesel engine services inventory purchase
commitments. These transactions, which relate to foreign currency obligations
for the purchase of equipment from foreign suppliers, generally are purchased
call options and are entered into with large multinational banks.
As of
September 30, 2009, the Company has purchased Euro call options with a 1.28
strike price in the amount of 264,090 Euros maturing on March 1, 2010 and
528,180 Euros maturing on December 1, 2010. The purchased call options are
designated as cash flow hedges, therefore, the changes in fair value, to the
extent the purchased call options agreements are effective, are recognized in
other comprehensive income until the purchased call option expires and is
recognized in cost of sales and operating expenses.
42
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Fair
Value of Derivative Instruments
The
following table sets forth the fair value of the Company’s derivative
instruments recorded as assets located on the consolidated balance sheet (in
thousands):
Asset Derivatives
|
Balance Sheet Location
|
September
30,
2009
|
December
31,
2008
|
|||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||
Foreign
exchange contracts
|
Prepaid
expenses and other current assets
|
$ | 49 | $ | — | |||||||
Foreign
exchange contracts
|
Other
assets
|
104 | 188 | |||||||||
Total
derivatives designated as hedging instruments under ASC
815
|
$ | 153 | $ | 188 | ||||||||
Total
asset derivatives
|
$ | 153 | $ | 188 |
The
following table sets forth the fair value of the Company’s derivative
instruments recorded as liabilities located on the consolidated balance sheet
(in thousands):
Liability Derivatives
|
Balance Sheet Location
|
September
30,
2009
|
December
31,
2008
|
|||||||||
Derivatives
designated as hedging instruments under ASC 815:
|
||||||||||||
Interest
rate contracts
|
Accrued
liabilities
|
$ | ― | $ | 502 | |||||||
Interest
rate contracts
|
Other
long-term liabilities
|
16,961 | 20,500 | |||||||||
Total
derivatives designated as hedging instruments under ASC
815
|
$ | 16,961 | $ | 21,002 | ||||||||
Total
liability derivatives
|
$ | 16,961 | $ | 21,002 |
Fair
value amounts were derived as of September 30, 2009 and December 31, 2008
utilizing fair value models of the Company and its counterparties on the
Company’s portfolio of derivative instruments. The fair value of the Company’s
derivative instruments is described above in Note 4, Fair Value
Measurements.
Cash
Flow Hedges
For
derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income (“OCI”) and reclassified into earnings
in the same period or periods during which the hedged transaction affects
earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings. Any ineffectiveness related to
the Company’s hedges was not material for any of the periods
presented.
The
following table sets forth the location and amount of gains and losses on the
Company’s derivative instruments (in thousands):
43
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Derivatives in ASC 815 Cash Flow Hedging Relationships: | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Amount
of Gain (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Amount
of Loss Reclassified from Accumulated OCI into Income
(Effective
Portion)
|
|||||||||||||||||
Three
months ended
September 30,
|
Three
months ended
September 30,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | (1,710 | ) | $ | (958 | ) | $ | (2,039 | ) | $ | (1,074 | ) | |||||||
Foreign
exchange contracts
|
Cost
and sales of operating expenses
|
30 | — | — | — | |||||||||||||||
Total
|
$ | (1,680 | ) | $ | (958 | ) | $ | (2,039 | ) | $ | (1,074 | ) |
Derivatives in ASC 815 Cash Flow Hedging Relationships: | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
Amount
of Gain or (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Amount
of Loss Reclassified from Accumulated OCI into Income
(Effective
Portion)
|
|||||||||||||||||
Nine
months ended
September 30,
|
Nine
months ended
September 30,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||
Interest
rate contracts
|
Interest
expense
|
$ | 4,041 | $ | (120 | ) | $ | (5,201 | ) | $ | (2,307 | ) | ||||||||
Foreign
exchange contracts
|
Cost
and sales of operating expenses
|
(35 | ) | — | — | — | ||||||||||||||
Total
|
$ | 4,006 | $ | (120 | ) | $ | (5,201 | ) | $ | (2,307 | ) |
The
Company anticipates $5,127,000 of net losses on interest rate swap agreements
included in accumulated other comprehensive income will be transferred into
earnings over the next year based on current interest rates. Gains or losses on
interest rate swap agreements offset increases or decreases in rates of the
underlying debt, which results in a fixed rate for the underlying debt. The
Company also expects $9,000 of net gains on foreign currency contracts included
in accumulated other comprehensive income will be transferred into earnings over
the next year based on the maturity date being less than twelve months on one of
the two purchased call options.
44
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
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 Company’s 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.
45
Item
6. Exhibits
31.1 – Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a).
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31.2 – Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a).
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32 – Certification Pursuant to 18 U.S.C. Section
1350
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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
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||||
(Registrant)
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By:
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NORMAN W. NOLEN
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Norman
W. Nolen
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Executive
Vice President,
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Chief
Financial Officer and Treasurer
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Dated: November
6, 2009
46