UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
S
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
|
|
For
the quarterly period ended September 30, 2008
|
|
|
£
|
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
R
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
R
|
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
R
The
number of shares outstanding of the registrant’s Common Stock, $.10 par value
per share, on November 6, 2008 was 53,449,000.
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
ASSETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($
in thousands)
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
1,936
|
|
|
$
|
5,117
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
|
Trade – less allowance for
doubtful accounts
|
|
|
199,980
|
|
|
|
175,876
|
|
Other
|
|
|
19,924
|
|
|
|
7,713
|
|
Inventory – finished
goods
|
|
|
50,656
|
|
|
|
53,377
|
|
Prepaid expenses and other current
assets
|
|
|
22,285
|
|
|
|
18,731
|
|
Deferred income
taxes
|
|
|
7,241
|
|
|
|
6,529
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
302,022
|
|
|
|
267,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,628,793
|
|
|
|
1,489,930
|
|
Less accumulated
depreciation
|
|
|
644,387
|
|
|
|
583,832
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
984,406
|
|
|
|
906,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
– net
|
|
|
230,730
|
|
|
|
229,292
|
|
Other
assets
|
|
|
25,505
|
|
|
|
27,742
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,542,663
|
|
|
$
|
1,430,475
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
September 30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($
in thousands)
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
1,247
|
|
|
$
|
1,368
|
|
Income
taxes payable
|
|
|
6,139
|
|
|
|
9,182
|
|
Accounts
payable
|
|
|
102,929
|
|
|
|
100,908
|
|
Accrued
liabilities
|
|
|
77,384
|
|
|
|
73,191
|
|
Deferred
revenues
|
|
|
5,743
|
|
|
|
6,771
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
193,442
|
|
|
|
191,420
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt – less current portion
|
|
|
267,923
|
|
|
|
296,015
|
|
Deferred
income taxes
|
|
|
148,755
|
|
|
|
130,899
|
|
Minority
interests
|
|
|
3,073
|
|
|
|
2,977
|
|
Other
long-term liabilities
|
|
|
43,354
|
|
|
|
39,334
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
463,105
|
|
|
|
469,225
|
|
|
|
|
|
|
|
|
|
|
Contingencies
and commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value per share. Authorized 20,000,000
shares
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $.10 par value per share. Authorized 120,000,000 shares,
issued 57,337,000 shares
|
|
|
5,734
|
|
|
|
5,734
|
|
Additional
paid-in capital
|
|
|
223,606
|
|
|
|
211,983
|
|
Accumulated
other comprehensive income – net
|
|
|
(21,347
|
)
|
|
|
(22,522
|
)
|
Retained
earnings
|
|
|
766,451
|
|
|
|
647,692
|
|
|
|
|
974,444
|
|
|
|
842,887
|
|
|
|
|
|
|
|
|
|
|
Less
cost of 3,866,000 shares in treasury (3,806,000 at December 31,
2007)
|
|
|
88,328
|
|
|
|
73,057
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
886,116
|
|
|
|
769,830
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,542,663
|
|
|
$
|
1,430,475
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENTS OF EARNINGS
(Unaudited)
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
($
in thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
286,880
|
|
|
$
|
241,329
|
|
|
$
|
830,014
|
|
|
$
|
680,139
|
|
Diesel
engine services
|
|
|
67,767
|
|
|
|
61,227
|
|
|
|
203,463
|
|
|
|
184,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
354,647
|
|
|
|
302,556
|
|
|
|
1,033,477
|
|
|
|
864,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
220,875
|
|
|
|
186,338
|
|
|
|
649,480
|
|
|
|
542,545
|
|
Selling,
general and administrative
|
|
|
36,026
|
|
|
|
31,313
|
|
|
|
102,349
|
|
|
|
91,287
|
|
Taxes,
other than on income
|
|
|
3,560
|
|
|
|
3,237
|
|
|
|
10,548
|
|
|
|
9,626
|
|
Depreciation
and amortization
|
|
|
22,420
|
|
|
|
20,407
|
|
|
|
67,132
|
|
|
|
60,274
|
|
Loss
(gain) on disposition of assets
|
|
|
166
|
|
|
|
(30
|
)
|
|
|
(276
|
)
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
283,047
|
|
|
|
241,265
|
|
|
|
829,233
|
|
|
|
704,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
71,600
|
|
|
|
61,291
|
|
|
|
204,244
|
|
|
|
160,512
|
|
Other
expense
|
|
|
(515
|
)
|
|
|
(252
|
)
|
|
|
(1,101
|
)
|
|
|
(457
|
)
|
Interest
expense
|
|
|
(3,375
|
)
|
|
|
(5,236
|
)
|
|
|
(10,665
|
)
|
|
|
(15,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before taxes on income
|
|
|
67,710
|
|
|
|
55,803
|
|
|
|
192,478
|
|
|
|
144,229
|
|
Provision
for taxes on income
|
|
|
(25,932
|
)
|
|
|
(21,373
|
)
|
|
|
(73,719
|
)
|
|
|
(55,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
41,778
|
|
|
$
|
34,430
|
|
|
$
|
118,759
|
|
|
$
|
88,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.78
|
|
|
$
|
.65
|
|
|
$
|
2.22
|
|
|
$
|
1.68
|
|
Diluted
|
|
$
|
.77
|
|
|
$
|
.64
|
|
|
$
|
2.19
|
|
|
$
|
1.66
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
months ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($
in thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
118,759
|
|
|
$
|
88,989
|
|
Adjustments
to reconcile net earnings to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
67,132
|
|
|
|
60,274
|
|
Provision
for deferred income taxes
|
|
|
19,226
|
|
|
|
690
|
|
Amortization
of unearned compensation
|
|
|
7,233
|
|
|
|
4,823
|
|
Other
|
|
|
1,960
|
|
|
|
1,709
|
|
Decrease
in cash flows resulting from changes in operating assets and liabilities,
net
|
|
|
(30,862
|
)
|
|
|
(647
|
)
|
Net
cash provided by operating activities
|
|
|
183,448
|
|
|
|
155,838
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(141,525
|
)
|
|
|
(123,027
|
)
|
Acquisitions
of business and marine equipment, net of cash acquired
|
|
|
(5,436
|
)
|
|
|
(61,766
|
)
|
Proceeds
from disposition of assets
|
|
|
1,346
|
|
|
|
813
|
|
Other
|
|
|
—
|
|
|
|
(51
|
)
|
Net
cash used in investing activities
|
|
|
(145,615
|
)
|
|
|
(184,031
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings
(payments ) on bank credit facilities, net
|
|
|
(27,210
|
)
|
|
|
23,250
|
|
Payments
on long-term debt, net
|
|
|
(1,055
|
)
|
|
|
(212
|
)
|
Proceeds
from exercise of stock options
|
|
|
8,687
|
|
|
|
4,706
|
|
Purchase
of treasury stock
|
|
|
(25,901
|
)
|
|
|
—
|
|
Excess
tax benefit from equity compensation plans
|
|
|
5,199
|
|
|
|
2,422
|
|
Other
|
|
|
(734
|
)
|
|
|
(696
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(41,014
|
)
|
|
|
29,470
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(3,181
|
)
|
|
|
1,277
|
|
Cash
and cash equivalents, beginning of year
|
|
|
5,117
|
|
|
|
2,653
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,936
|
|
|
$
|
3,930
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,621
|
|
|
$
|
15,614
|
|
Income
taxes
|
|
$
|
62,901
|
|
|
$
|
42,892
|
|
Noncash
investing activity:
|
|
|
|
|
|
|
|
|
Cash
acquired in acquisition
|
|
$
|
—
|
|
|
$
|
10
|
|
Debt
assumed in acquisition
|
|
$
|
—
|
|
|
$
|
245
|
|
Accrued
payable for working capital adjustment related to
acquisition
|
|
$
|
—
|
|
|
$
|
869
|
|
See
accompanying notes to condensed financial statements.
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, 2008 and December 31, 2007, and the results of
operations for the three months and nine months ended September 30, 2008 and
2007.
(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, 2007.
(2) ACCOUNTING
ADOPTIONS
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 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. SFAS No. 157 applies under other
accounting pronouncements that require or permit fair value measurements but
does not require any new fair value measurements. In February 2008, the FASB
issued a FASB Staff Position (“FSP”) on SFAS No. 157 that delays the effective
date of SFAS No. 157 by one year for 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). The Company
adopted SFAS No. 157 effective January 1, 2008, with the exceptions allowed
under the FSP described above, with no effect on the Company’s financial
position or results of operations. The Company is currently evaluating the
impact of the adoption of SFAS No. 157 related to the nonfinancial assets and
nonfinancial liabilities exceptions allowed under the FSP described above on its
consolidated financial statements, which the Company is required to adopt
beginning in the first quarter of 2009.
In
February 2007, the FASB issued FASB No. 159, “The Fair Value Option of Financial
Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits
entities to choose to measure eligible financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. The Company adopted SFAS No. 159
effective January 1, 2008 with no effect on the Company’s financial position or
results of operations as the Company has currently chosen not to elect the fair
value option for any eligible items that are not already required to be measured
at fair value in accordance with generally accepted accounting
principles.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(2) ACCOUNTING
ADOPTIONS – (Continued)
The
following table summarizes the assets and liabilities measured at fair value on
a recurring basis at September 30, 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
|
|
$
|
—
|
|
|
$
|
418
|
|
|
$
|
—
|
|
|
$
|
418
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
—
|
|
|
$
|
7,026
|
|
|
$
|
—
|
|
|
$
|
7,026
|
|
In
December 2007, the FASB issued FASB No. 141R, “Business Combinations”
(“SFAS No. 141R”). SFAS No. 141R 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. SFAS No. 141R
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. SFAS No. 141R is
effective for acquisitions beginning in the Company’s fiscal year ending
December 31, 2009 and earlier application is prohibited.
In
December 2007, the FASB issued FASB No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No.
160”). SFAS No. 160 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. The Company is currently evaluating the impact
of the adoption of SFAS No. 160 on its consolidated financial statements, which
the Company is required to adopt beginning in the first quarter of
2009.
In March
2008, the FASB issued FASB No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No.
161”). SFAS No. 161 amends and expands the disclosure requirements of
FASB Statement No. 133 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 FASB Statement No. 133 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 is currently evaluating the impact of the adoption of SFAS No. 161 on
its consolidated financial statements, which the Company is required to adopt
beginning in the first quarter of 2009.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACQUISITIONS
On June
30, 2008, the Company purchased substantially all of the assets of Lake Charles
Diesel, Inc. (“Lake Charles Diesel”) for $3,636,000 in cash. Lake
Charles Diesel is 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 OFS Marine One, Inc.
(“ORIX”) for $1,800,000 in cash. The Company had been leasing the
barges from ORIX prior to their purchase.
On
October 1, 2007, the Company purchased nine inland tank barges from Siemens
Financial, Inc. (“Siemens”) for $4,500,000 in cash. The Company had
been leasing the barges since 1994 when the leases were assigned to the Company
as part of the Company’s purchase of the tank barge fleet of The Dow Chemical
Company (“Dow”).
On July
20, 2007, the Company purchased substantially all of the assets of Saunders
Engine and Equipment Company, Inc. (“Saunders”) for $13,288,000 in cash and the
assumption of $245,000 of debt. Saunders was a Gulf Coast high-speed
diesel engine services provider operating factory-authorized full service marine
dealerships for Cummins, Detroit Diesel and John Deere engines, as well as an
authorized marine dealer for Caterpillar engines in Alabama.
On February 23, 2007, the Company
purchased the assets of P&S Diesel Service, Inc. (“P&S”) for $1,622,000
in cash. P&S was a Gulf Coast high-speed diesel engine services
provider operating as a factory-authorized marine dealer for Caterpillar in
Louisiana.
On February 13, 2007, the Company
purchased from NAK Engineering, Inc. (“NAK”) for a net $3,540,000 in cash, the
assets and technology to support the Nordberg medium-speed diesel engines used
in
nuclear applications. As part of the transaction, Progress Energy
Carolinas, Inc. (“Progress Energy”) and Duke Energy Carolinas, LLC (“Duke
Energy”) made payments to the Company for non-exclusive rights to the technology
and entered into ten-year exclusive parts and service agreements with the
Company. Nordberg engines are used to power emergency diesel
generators used in nuclear power plants owned by Progress Energy and Duke
Energy.
On January 3, 2007, the Company
purchased the stock of Coastal Towing, Inc. (“Coastal”), the owner of 37 inland
tank barges, for $19,474,000 in cash. The Company had been operating
the Coastal tank barges since October 2002 under a barge management
agreement.
On January 2, 2007, the Company
purchased 21 inland tank barges from Cypress Barge Leasing, LLC (“Cypress”) for
$14,965,000 in cash. The Company had been leasing the barges since
1994 when the leases were assigned to the Company as part of the Company’s
purchase of the tank barge fleet of Dow.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3) ACQUISITIONS
– (Continued)
On
October 4, 2006, the Company signed agreements to purchase 11 inland tank
barges from Midland Marine Corporation (“Midland”) and Shipyard Marketing, Inc.
(“Shipyard”) for $10,600,000 in cash. The Company purchased four of
the barges during 2006 for $3,300,000 and the remaining seven barges on
February 15, 2007 for $7,300,000. The Company had been leasing
the barges from Midland and Shipyard prior to their purchase.
On July 24, 2006, the Company
signed an agreement to purchase the assets of Capital Towing Company
(“Capital”), consisting of 11 towboats, for $15,000,000 in cash. The
Company purchased nine of the towboats during 2006 for $13,299,000 and the
remaining two towboats on May 21, 2007 for $1,701,000. The
Company and Capital entered into a vessel operating agreement whereby Capital
will continue to crew and operate the towboats for the
Company
.
Pro forma
results of the acquisitions made in the 2008 first nine months and the 2007 year
have not been presented, as the pro forma revenues, earnings before taxes on
income, net earnings and net earnings per share would not be materially
different from the Company’s actual results.
(4) 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, 2008 and 2007 were as follows (in thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Compensation
cost
|
|
$
|
2,434
|
|
|
$
|
1,838
|
|
|
$
|
7,233
|
|
|
$
|
4,823
|
|
Income
tax benefit
|
|
|
932
|
|
|
|
704
|
|
|
|
2,770
|
|
|
|
1,847
|
|
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.
No additional options or restricted stock can be granted under two of the plans.
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 granted prior to February 10, 2000 are ten years and the options
vest ratably over four years. Options granted on and after February 10, 2000
have terms of five years and vest ratably over three years. At September 30,
2008, 2,175,147 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(4) STOCK
AWARD PLANS – (Continued)
The
following is a summary of the stock award activity under the employee plans
described above for the nine months ended September 30, 2008:
|
|
Outstanding
Non-Qualified
or
Nonincentive
Stock Awards
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
December 31, 2007
|
|
|
930,450
|
|
|
$
|
23.48
|
|
Granted
|
|
|
321,927
|
|
|
$
|
48.18
|
|
Exercised
|
|
|
(553,614
|
)
|
|
$
|
20.06
|
|
Outstanding
September 30, 2008
|
|
|
698,763
|
|
|
$
|
30.99
|
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the employee plans at September 30,
2008:
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range of
Exercise
Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life in
Years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregated
Intrinsic
Value
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregated
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$16.96
- $20.89
|
|
|
166,256
|
|
|
|
.44
|
|
|
$
|
17.41
|
|
|
|
|
|
|
|
166,256
|
|
|
$
|
17.41
|
|
|
|
|
|
$22.05
- $27.60
|
|
|
219,874
|
|
|
|
2.06
|
|
|
$
|
25.57
|
|
|
|
|
|
|
|
148,734
|
|
|
$
|
24.77
|
|
|
|
|
|
$35.66
- $36.94
|
|
|
154,138
|
|
|
|
3.32
|
|
|
$
|
35.69
|
|
|
|
|
|
|
|
38,290
|
|
|
$
|
35.70
|
|
|
|
|
|
$48.00
- $48.65
|
|
|
158,495
|
|
|
|
4.34
|
|
|
$
|
48.18
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
$16.96
- $48.65
|
|
|
698,763
|
|
|
|
2.47
|
|
|
$
|
30.99
|
|
|
$
|
4,856,000
|
|
|
|
353,280
|
|
|
$
|
22.49
|
|
|
$
|
5,458,000
|
|
On
March 6, 2008, the Board of Directors approved amendments to the Company’s
2005 Employee Stock and Incentive Plan (“2005 Plan”) to (1) increase the number
of shares that may be issued under the plan from 2,000,000 to
3,000,000 shares and (2) increase the maximum amount of cash that may be
paid to any participant pursuant to any performance award under the 2005 Plan
during any calendar year from $2,000,000 to $3,000,000, subject to stockholder
approval. The amendments were approved by the stockholders at the
Annual Meeting of Stockholders held on April 22, 2008.
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 or restricted stock can be granted under one of the plans.
The 2000 Director Plan provides for the 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 provides for the issuance of stock options or restricted stock in
lieu of cash for all or part of the annual director fee. 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 as 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,
2008, 442,707 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(4) STOCK
AWARD PLANS – (Continued)
The
following is a summary of the stock award activity under the director plans
described above for the nine months ended September 30, 2008:
|
|
Outstanding
Non-Qualified
or
Nonincentive
Stock Awards
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
December 31, 2007
|
|
|
304,342
|
|
|
$
|
21.66
|
|
Granted
|
|
|
78,855
|
|
|
$
|
55.49
|
|
Exercised
|
|
|
(73,625
|
)
|
|
$
|
13.43
|
|
Outstanding
September 30, 2008
|
|
|
309,572
|
|
|
$
|
30.94
|
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the director plans at September 30,
2008:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
in
Years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregated
Intrinsic
Value
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregated
Intrinsic
Value
|
|
$ 9.69
- $ 9.86
|
|
|
10,564
|
|
|
|
1.18
|
|
|
$
|
9.76
|
|
|
|
|
|
|
|
10,564
|
|
|
$
|
9.76
|
|
|
|
|
|
$10.06
- $12.69
|
|
|
60,046
|
|
|
|
3.18
|
|
|
$
|
11.14
|
|
|
|
|
|
|
|
60,046
|
|
|
$
|
11.14
|
|
|
|
|
|
$15.74
- $20.28
|
|
|
61,628
|
|
|
|
5.00
|
|
|
$
|
17.69
|
|
|
|
|
|
|
|
61,628
|
|
|
$
|
17.69
|
|
|
|
|
|
$35.17
- $55.49
|
|
|
177,334
|
|
|
|
8.56
|
|
|
$
|
43.51
|
|
|
|
|
|
|
|
128,684
|
|
|
$
|
38.98
|
|
|
|
|
|
$ 9.69
- $55.49
|
|
|
309,572
|
|
|
|
6.56
|
|
|
$
|
30.94
|
|
|
$
|
2,167,000
|
|
|
|
260,922
|
|
|
$
|
26.36
|
|
|
$
|
3,021,000
|
|
On
March 6, 2008, the Board of Directors approved an amendment to the
Company’s 2000 Director Plan to increase the number of shares that may be issued
under the plan from 600,000 to 1,000,000 shares, subject to stockholder
approval. The amendment was approved by the stockholders at the
Annual Meeting of Stockholders held on April 22, 2008.
The total
intrinsic value of all options exercised and restricted stock vesting under all
of the Company’s plans was $22,101,000 and $11,742,000 for the nine months ended
September 30, 2008 and 2007, respectively. The actual tax benefit realized for
tax deductions from stock award plans was $8,465,000 and $4,497,000 for the nine
months ended September 30, 2008 and 2007, respectively.
As of
September 30, 2008, there was $2,748,000 of unrecognized compensation cost
related to unvested stock options and $13,797,000 related to unvested restricted
stock. The stock options are expected to be recognized over a weighted average
period of approximately 1.1 years and restricted stock over approximately 2.1
years. The total fair value of shares vested was $9,078,000 and $6,427,000
during the nine months ended September 30, 2008 and 2007,
respectively.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(4) STOCK
AWARD PLANS – (Continued)
The
weighted average fair value of options granted during the nine months ended
September 30, 2008 and 2007 was $15.42 and $11.85 per share,
respectively. The fair value of the options granted during the nine
months ended September 30, 2008 and 2007 was $3,513,000 and $2,604,000,
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 granted
during the nine months ended September 30, 2008 and 2007 were as
follows:
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Dividend
yield
|
|
None
|
|
|
None
|
|
Average
risk-free interest rate
|
|
|
3.3%
|
|
|
|
4.6%
|
|
Stock
price volatility
|
|
|
26%
|
|
|
|
25%
|
|
Estimated
option term
|
|
Four
or eight
years
|
|
|
Four
or nine years
|
|
(5) COMPREHENSIVE
INCOME
The
Company’s total comprehensive income for the three months and nine months ended
September 30, 2008 and 2007 was as follows (in thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
41,778
|
|
|
$
|
34,430
|
|
|
$
|
118,759
|
|
|
$
|
88,989
|
|
Pension
and postretirement benefit adjustments, net of taxes
|
|
|
715
|
|
|
|
375
|
|
|
|
1,253
|
|
|
|
1,420
|
|
Change
in fair value of derivative financial instruments, net of
taxes
|
|
|
(623
|
)
|
|
|
(2,350
|
)
|
|
|
(78
|
)
|
|
|
(987
|
)
|
Total
comprehensive income
|
|
$
|
41,870
|
|
|
$
|
32,455
|
|
|
$
|
119,934
|
|
|
$
|
89,422
|
|
(6) 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(6) SEGMENT
DATA – (Continued)
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.
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, 2008
and 2007 and total assets as of September 30, 2008 and December 31, 2007 (in
thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
286,880
|
|
|
$
|
241,329
|
|
|
$
|
830,014
|
|
|
$
|
680,139
|
|
Diesel
engine services
|
|
|
67,767
|
|
|
|
61,227
|
|
|
|
203,463
|
|
|
|
184,636
|
|
|
|
$
|
354,647
|
|
|
$
|
302,556
|
|
|
$
|
1,033,477
|
|
|
$
|
864,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
65,025
|
|
|
$
|
55,213
|
|
|
$
|
182,695
|
|
|
$
|
141,943
|
|
Diesel
engine services
|
|
|
10,627
|
|
|
|
9,475
|
|
|
|
32,088
|
|
|
|
28,696
|
|
Other
|
|
|
(7,942
|
)
|
|
|
(8,885
|
)
|
|
|
(22,305
|
)
|
|
|
(26,410
|
)
|
|
|
$
|
67,710
|
|
|
$
|
55,803
|
|
|
$
|
192,478
|
|
|
$
|
144,229
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Total
assets:
|
|
|
|
|
|
Marine
transportation
|
|
$
|
1,293,939
|
|
|
$
|
1,199,869
|
|
Diesel
engine services
|
|
|
220,572
|
|
|
|
213,062
|
|
Other
|
|
|
28,152
|
|
|
|
17,544
|
|
|
|
$
|
1,542,663
|
|
|
$
|
1,430,475
|
|
The
following table presents the details of “Other” segment loss for the three
months and nine months ended September 30, 2008 and 2007 (in
thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
corporate expenses
|
|
$
|
(3,886
|
)
|
|
$
|
(3,427
|
)
|
|
$
|
(10,815
|
)
|
|
$
|
(9,596
|
)
|
Gain
(loss) on disposition of assets
|
|
|
(166
|
)
|
|
|
30
|
|
|
|
276
|
|
|
|
(531
|
)
|
Interest
expense
|
|
|
(3,375
|
)
|
|
|
(5,236
|
)
|
|
|
(10,665
|
)
|
|
|
(15,826
|
)
|
Other
expense
|
|
|
(515
|
)
|
|
|
(252
|
)
|
|
|
(1,101
|
)
|
|
|
(457
|
)
|
|
|
$
|
(7,942
|
)
|
|
$
|
(8,885
|
)
|
|
$
|
(22,305
|
)
|
|
$
|
(26,410
|
)
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(6) SEGMENT
DATA – (Continued)
The
following table presents the details of “Other” total assets as of September 30,
2008 and December 31, 2007 (in thousands):
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
General
corporate assets
|
|
$
|
26,084
|
|
|
$
|
15,623
|
|
Investment
in affiliates
|
|
|
2,068
|
|
|
|
1,921
|
|
|
|
$
|
28,152
|
|
|
$
|
17,544
|
|
(7) TAXES
ON INCOME
Earnings before taxes on income and
details of the provision (credit) for taxes on income for the three months and
nine months ended September 30, 2008 and 2007 were as follows (in
thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before taxes on income – United States
|
|
$
|
67,710
|
|
|
$
|
55,803
|
|
|
$
|
192,478
|
|
|
$
|
144,229
|
|
Provision
(credit) for taxes on income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
14,291
|
|
|
$
|
20,652
|
|
|
$
|
46,602
|
|
|
$
|
48,636
|
|
Deferred
|
|
|
8,866
|
|
|
|
(1,567
|
)
|
|
|
19,226
|
|
|
|
690
|
|
State
and local
|
|
|
2,775
|
|
|
|
2,288
|
|
|
|
7,891
|
|
|
|
5,914
|
|
|
|
$
|
25,932
|
|
|
$
|
21,373
|
|
|
$
|
73,719
|
|
|
$
|
55,240
|
|
(8) EARNINGS
PER SHARE OF COMMON STOCK
The
following table presents the components of basic and diluted earnings per share
of common stock for the three months and nine months ended September 30, 2008
and 2007 (in thousands, except per share amounts):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
41,778
|
|
|
$
|
34,430
|
|
|
$
|
118,759
|
|
|
$
|
88,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common stock outstanding
|
|
|
53,549
|
|
|
|
52,983
|
|
|
|
53,464
|
|
|
|
52,892
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
and director common stock plans
|
|
|
648
|
|
|
|
819
|
|
|
|
715
|
|
|
|
817
|
|
|
|
|
54,197
|
|
|
|
53,802
|
|
|
|
54,179
|
|
|
|
53,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share of common stock
|
|
$
|
.78
|
|
|
$
|
.65
|
|
|
$
|
2.22
|
|
|
$
|
1.68
|
|
Diluted
earnings per share of common stock
|
|
$
|
.77
|
|
|
$
|
.64
|
|
|
$
|
2.19
|
|
|
$
|
1.66
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8) EARNINGS
PER SHARE OF COMMON STOCK – (Continued)
Certain
outstanding options to purchase approximately 208,000 and 178,000 shares of
common stock were excluded in the computation of diluted earnings per share as
of September 30, 2008 and 2007, respectively, as such stock options would have
been antidilutive.
(9) 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 is 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 ABO 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 the prediction of
the pension plan contribution difficult. Based on current pension
plan assets and market conditions, the Company expects to contribute between
$20,000,000 and $35,000,000 to its pension plan in December 2008 to fund its
2008 pension plan obligations. As of September 30, 2008, no 2008 year
contributions have been made.
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, 2008 and 2007 were as
follows (in thousands):
|
|
Pension Benefits
|
|
|
|
Pension Plan
|
|
|
SERP
|
|
|
|
Three
months ended
September 30,
|
|
|
Three
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,508
|
|
|
$
|
1,498
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest
cost
|
|
|
1,841
|
|
|
|
1,701
|
|
|
|
17
|
|
|
|
22
|
|
Expected
return on plan assets
|
|
|
(2,084
|
)
|
|
|
(1,923
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
loss
|
|
|
247
|
|
|
|
646
|
|
|
|
—
|
|
|
|
3
|
|
Prior
service credit
|
|
|
(23
|
)
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
—
|
|
Net
periodic benefit cost
|
|
$
|
1,489
|
|
|
$
|
1,900
|
|
|
$
|
17
|
|
|
$
|
25
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(9) RETIREMENT
PLANS – (Continued)
|
|
Pension Benefits
|
|
|
|
Pension Plan
|
|
|
SERP
|
|
|
|
Nine
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
4,773
|
|
|
$
|
4,495
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest
cost
|
|
|
5,804
|
|
|
|
5,104
|
|
|
|
65
|
|
|
|
70
|
|
Expected
return on plan assets
|
|
|
(6,127
|
)
|
|
|
(5,770
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
loss
|
|
|
1,357
|
|
|
|
1,938
|
|
|
|
5
|
|
|
|
10
|
|
Prior
service credit
|
|
|
(67
|
)
|
|
|
(67
|
)
|
|
|
—
|
|
|
|
—
|
|
Net
periodic benefit cost
|
|
$
|
5,740
|
|
|
$
|
5,700
|
|
|
$
|
70
|
|
|
$
|
80
|
|
The
components of net periodic benefit cost for the Company’s postretirement benefit
plan for the three months and nine months ended September 30, 2008 and 2007 were
as follows (in thousands):
|
|
Other Postretirement
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
Postretirement Welfare Plan
|
|
|
Postretirement Welfare Plan
|
|
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
135
|
|
|
$
|
126
|
|
|
$
|
380
|
|
|
$
|
379
|
|
Interest
cost
|
|
|
132
|
|
|
|
105
|
|
|
|
373
|
|
|
|
318
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
gain
|
|
|
(12
|
)
|
|
|
(28
|
)
|
|
|
(74
|
)
|
|
|
(86
|
)
|
Prior
service credit
|
|
|
10
|
|
|
|
10
|
|
|
|
30
|
|
|
|
30
|
|
Net
periodic benefit cost
|
|
$
|
265
|
|
|
$
|
213
|
|
|
$
|
709
|
|
|
$
|
641
|
|
(10) CONTINGENCIES
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 was $8,669,000 at September 30, 2008, including
$5,481,000 in letters of credit and debt guarantees, and $3,188,000 in
performance bonds. All of these instruments have an expiration date
within three 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
(10) CONTINGENCIES
– (Continued)
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 with respect to a
Superfund site, the Palmer Barge Line Site (“Palmer”), located in Port Arthur,
Texas. In prior years, Palmer had provided tank barge cleaning
services to various subsidiaries of the Company. The Company and
three other PRPs 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 PRPs 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 participated in a preliminary meeting with the EPA and the United States
Department of Justice to discuss the nature of the costs. Based on
these initial discussions, the Company is unable to estimate its potential
liability, if any, for any portion of such costs.
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.
(11) SUBSEQUENT
EVENT
On
November 4, 2008, the Company entered into two interest rate swap
agreements in a total notional amount of $50,000,000 with a fixed rate of 3.5%
for the purpose of extending an existing hedge of its exposure to interest rate
fluctuations on floating rate interest payments on the Company’s variable rate
senior notes. The term of the two new swap agreements starts on
November 28, 2008, which is the maturity date of an interest rate collar with
the same total notional amount of $50,000,000, and ends on February 28,
2013, the maturity date of the Company’s variable rate senior
notes. 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. The swap agreements are designated as cash flow hedges for
the Company’s variable rate senior notes.
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, 2007. 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 earnings per share 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, 2008 and 2007 were as follows (in thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted
average number of common stock - diluted
|
|
|
54,197
|
|
|
|
53,802
|
|
|
|
54,179
|
|
|
|
53,709
|
|
The
increase in the weighted average number of common shares for both 2008 periods
compared with the 2007 periods primarily reflected the issuance of restricted
stock and the exercise of stock options, partially offset by common stock
repurchases in the first and third quarters of 2008.
Overview
The Company is the nation’s largest
domestic inland tank barge operator with a fleet of 915 active tank barges, of
which 43 are leased, and 255 towing vessels, of which 80 are
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
2008 third quarter, the Company reported net earnings of $41,778,000, or $.77
per share, on revenues of $354,647,000, compared with 2007 third quarter net
earnings of $34,430,000, or $.64 per share, on revenues of
$302,556,000. For the 2008 first nine months, the Company reported
net earnings of $118,759,000, or $2.19 per share, on revenues of $1,033,477,000,
compared with 2007 first nine months net earnings of $88,989,000, or $1.66 per
share, on revenues of $864,775,000. The 2008 third quarter and first
nine months results included an estimated $.09 per share negative impact from
Hurricanes Gustav and Ike.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Hurricane
Gustav made landfall between Houma and Morgan City, Louisiana on September 1,
creating disruptions to the Company’s Gulf Coast diesel engine services
operations, the Company’s four Gulf Coast based offshore barge and tug units,
and the inland marine transportation operations in
Louisiana. Hurricane Ike made landfall on September 13 in the
Houston/Galveston area as a strong Category 2 hurricane. Because of
Ike’s size and its unpredictable course, much of the Gulf Coast petrochemical
and refining capacity was shut down prior to landfall. Strong winds
and a 15 to 20 foot storm surge significantly affected petrochemical and
refining plants in the Houston and Port Arthur/Beaumont area, some of which are
still not back in operation or are operating at reduced
levels. Additionally, an eight mile stretch of the Gulf
Intracoastal Waterway just east of Houston was closed due to obstructions for 11
days after Ike’s landfall, completely stopping movements to and from the Houston
area. Hurricanes Ike and Gustav caused no material damage to the
Company’s active tank barge and towboat fleet, but the marine transportation and
diesel engine services facilities did incur some damage.
Operating
results for the 2008 third quarter also reflected a positive timing impact from
falling diesel fuel prices, which declined from an average high of $4.33 per
gallon on July 14 to an average of $3.11 per gallon on September
30. Fuel escalation clauses on all term contracts allow the Company
to recover increases in the cost of fuel; however, there is generally a 30 to 90
day delay before contracts are adjusted. The Company benefited from
falling diesel fuel prices as it purchased diesel fuel at a lower price than the
higher escalated diesel fuel prices under the terms of the
contracts.
Marine
Transportation
For the
2008 third quarter and nine months, approximately 81% and 80%, 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 every day – plastics,
fiber, paints, detergents, oil additives and paper, among
others. Consequently, the Company’s business tends to mirror the
general performance of the 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
transportation.
Marine transportation revenue and
operating income for the 2008 third quarter increased 19% and 18%, respectively,
compared with the 2007 third quarter. For the 2008 first nine months,
marine transportation revenue and operating income increased 22% and 29%,
respectively, compared with the 2007 first nine months. The
significantly higher results for both comparable periods reflected continued
strong demand for the movement of petrochemical products as term contract
customers continued to operate their plants and facilities at high utilization
rates until the September hurricanes, thereby resulting in high tank barge
utilization. The black oil market also remained strong, despite some
lower refinery utilization. The refined products market experienced
continued softness in the movement of products from the Gulf Coast to the
Midwest as a result of lower gasoline demand due to higher gasoline
prices. The agricultural chemical market was strong during the first
quarter and a portion of the second quarter until upper Mississippi River
flooding in June and July curtailed the traditional spring planting
season. High inventory levels also negatively impacted the third
quarter.
Marine
transportation revenues for the 2008 third quarter and first nine months
benefited from the recovery of higher diesel fuel costs through contract fuel
escalation clauses on all term affreightment contracts and time charter
contracts. Fuel escalation clauses recover the cost of fuel when fuel
prices rise and give back the cost of fuel when prices decline; however, there
is generally a 30 to 90 day delay before contracts are adjusted.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
During the 2008 third quarter 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 weather and navigational delays and
temporary market declines, averaged 56% of the revenues under term contracts
during the 2008 third quarter and first nine months. Rates on term
contract renewals, net of fuel, increased during the 2008 third quarter in the
8% to 10% average range and for the first nine months in the 8% to 11% average
range, with some contracts increasing by a higher percentage and some by a lower
percentage, compared with the same 2007 periods. Effective January 1,
2008, annual escalators for labor and the producer price index on a number of
multi-year contracts resulted in rate increases on those contracts by 5% to 6%,
excluding fuel. For the 2008 third quarter, spot market rates, which
include the cost of fuel, increased in the 11% to 13% average range and for the
2008 first nine months in the 11% to 15% average range when compared with the
corresponding 2007 periods.
The marine transportation operating
margins for the 2008 third quarter and first nine months were 22.7% and 22.0%,
respectively, compared with operating margins of 22.9% for the 2007 third
quarter and 20.9% for the 2007 first nine months. Continued strong
demand in the petrochemical sector, contract and spot market rate increases, the
January 1, 2008 annual escalators on multi-year contracts, increased equipment
on time charters which are insulated from revenue fluctuations caused by weather
and navigational delays and temporary market declines, and improved operating
efficiencies from continued improvement in vessel crewing and operating
additional towboats contributed to the higher operating margins for the first
nine months of 2008. The operating margin for the 2008 third quarter
was negatively impacted by the two hurricanes and positively impacted by the
timing impact from falling diesel fuel prices, both of which are discussed
above.
Diesel
Engine Services
For the 2008 third quarter and first
nine months, approximately 19% and 20%, respectively, of the Company’s revenue
was generated by its diesel engine services segment, of which 62% and 63% was
generated through service and 38% and 37% 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
diesel engine services segment’s 2008 third quarter revenue and operating income
increased 11% and 12%, respectively, compared with the third quarter of
2007. For the first nine months of 2008, revenue and operating income
increased 10% and 12%, respectively, compared with the first nine months of
2007. The results were positively impacted from strong engine
overhaul and field repair activity and direct parts sales in its medium-speed
market, benefiting from a seasonally higher first quarter volume of work for
Midwest and Great Lakes marine customers, strong demand from Gulf Coast and
Midwest marine customers in the second and third quarters and several large
power generation modification projects during the third quarter and first nine
months. The high-speed market, including the acquisition of Saunders
in July 2007, experienced continued softness in the Gulf Coast oil services
market during the 2008 first nine months, but showed signs of strengthening in
the third quarter. The diesel engine services segment benefited from
continued high labor utilization in its medium-speed market, and higher service
rates and parts pricing implemented during 2007 and in the 2008 first nine
months.
The diesel engine services segment’s
operating margin for the 2008 third quarter was 15.7%, a slight increase when
compared with 15.5% for the third quarter of 2007. For the 2008 first
nine months, the operating margin was 15.8%, a slight increase when compared
with 15.5% for the first nine months of 2007. The 2008 third quarter
and first nine months reflected higher operating margins in the medium-speed
markets, the result of strong demand, high labor utilization and stronger
pricing, partially offset by lower operating margins in the high-speed markets,
the result of softness in the oil service market and lower labor
utilization.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Cash
Flow and Capital Expenditures
The Company continued to generate
strong operating cash flow during the 2008 first nine months, with net cash
provided from operations of $183,448,000, an 18% increase compared to net cash
provided from operations for the 2007 first nine months of
$155,838,000. In addition, during the 2008 and 2007 first nine
months, the Company generated cash of $8,687,000 and $4,706,000, respectively,
from the exercise of stock options. Cash and borrowings under the
revolving credit facility were used for capital expenditures of $141,525,000,
including $74,340,000 for new tank barge and towboat construction and
$67,185,000 primarily for upgrading the existing marine transportation fleet,
$5,436,000 for the acquisitions of ORIX and Lake Charles Diesel, and for
purchases of the Company’s common stock totaling $25,901,000. The
Company’s debt-to-capitalization ratio decreased to 23.3% at September 30, 2008
from 27.9% at December 31, 2007, primarily due to the increase in stockholders’
equity attributable to net earnings for the 2008 first nine months of
$118,759,000, the exercise of stock options and the issuance of restricted
stock, and lower outstanding debt.
The Company projects that capital
expenditures for 2008 will be in the $165,000,000 to $175,000,000 range,
including approximately $90,000,000 for new tank barge and towboat
construction. The 2008 new construction will consist of 25
barges with a total capacity of 572,000 barrels and five 1800 horsepower
towboats. During the 2008 first nine months, the Company took
delivery of 21 new barges with a total capacity of 495,000 barrels and three
1800 horsepower towboats.
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 would allow the Company to
improve asset utilization through more backhaul opportunities, faster barge
turnarounds, more efficient use of horsepower, barges positioned closer to
cargos, less cleaning due to operating more barges with compatible prior cargos,
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.
The Company anticipates that its marine
transportation business levels in the 2008 fourth quarter will remain similar to
the 2008 third quarter levels prior to Hurricane Ike, assuming that the majority
of the petrochemical and refining facilities damaged by Hurricane Ike return to
normal operating levels. Operating conditions are anticipated to
deteriorate with the winter weather. Business levels in the diesel
engine services markets are also anticipated to remain favorable, with some
improvement in the Gulf Coast oil services market.
Acquisitions
On June
30, 2008, the Company purchased substantially all of the assets of Lake Charles
Diesel for $3,636,000 in cash. Lake Charles Diesel is 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.
Financing of the acquisition was through the Company’s revolving credit
facility.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
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. Financing of the equipment acquisition was through
the Company’s revolving credit facility.
On
October 1, 2007, the Company purchased nine inland tank barges from Siemens
for $4,500,000 in cash. The Company had been leasing the barges since
1994 when the leases were assigned to the Company as part of the Company’s
purchase of the tank barge fleet of Dow. Financing of the equipment
acquisition was through the Company’s revolving credit facility.
On
July 20, 2007, the Company purchased substantially all of the assets of
Saunders for $13,288,000 in cash and the assumption of $245,000 of
debt. Saunders was a Gulf Coast high-speed diesel engine services
provider operating factory-authorized full service marine dealerships for
Cummins, Detroit Diesel and John Deere engines, as well as an authorized marine
dealer for Caterpillar engines in Alabama. Financing of the cash
portion of the acquisition was through the Company’s revolving credit
facility.
On
February 23, 2007, the Company purchased the assets of P&S for
$1,622,000 in cash. P&S was a Gulf Coast high-speed diesel engine services
provider operating as a factory-authorized marine dealer for Caterpillar in
Louisiana. Financing of the acquisition was through the Company’s
revolving credit facility.
On
February 13, 2007, the Company purchased from NAK Engineering for a net
$3,540,000 in cash, the assets and technology necessary to support the Nordberg
medium-speed diesel engines used in nuclear applications. As part of
the transaction, Progress Energy and Duke Energy made payments to the Company
for non-exclusive rights to the technology and entered into ten-year exclusive
parts and service agreements with the Company. Nordberg engines are
used to power emergency diesel generators used in nuclear power plants owned by
Progress Energy and Duke Energy. Financing of the acquisition was
through the Company’s revolving credit facility.
On
January 3, 2007, the Company purchased the stock of Coastal, the owner of
37 inland tank barges, for $19,474,000 in cash. The Company had been
operating the Coastal tank barges since October 2002 under a barge management
agreement. Financing of the acquisition was through the Company’s
revolving credit facility.
On
January 2, 2007, the Company purchased 21 inland tank barges from Cypress
for $14,965,000 in cash. The Company had been leasing the barges since 1994 when
the leases were assigned to the Company as part of the Company’s purchase of the
tank barge fleet of Dow. Financing of the equipment acquisition
was through the Company’s revolving credit facility.
On
October 4, 2006, the Company signed agreements to purchase 11 inland tank
barges from Midland and Shipyard for $10,600,000 in cash. The Company
purchased four of the barges during 2006 for $3,300,000 and the remaining seven
barges on February 15, 2007 for $7,300,000. The Company had been
leasing the barges from Midland and Shipyard prior to their
purchase. Financing of the equipment acquisition was through the
Company’s revolving credit facility.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
On
July 24, 2006, the Company signed an agreement to purchase the assets of
Capital, consisting of 11 towboats, for $15,000,000 in cash. The
Company purchased nine of the towboats during 2006 for $13,299,000 and the
remaining two towboats on May 21, 2007 for $1,701,000. The
Company and Capital entered into a vessel operating agreement whereby Capital
will continue to crew and operate the towboats for the
Company. Financing of the equipment acquisition was through the
Company’s revolving credit facility.
Results
of Operations
The Company reported third quarter 2008
net earnings of $41,778,000, or $.77 per share, on revenues of $354,647,000,
compared with 2007 third quarter net earnings of $34,430,000, or $.64 per share,
on revenues of $302,556,000. Net earnings for the 2008 first
nine months were $118,759,000, or $2.19 per share, on revenues of
$1,033,477,000, compared with 2007 first nine months net earnings of
$88,989,000, or $1.66 per share, on revenues of $864,775,000.
Two Gulf
Coast hurricanes during the 2008 third quarter negatively impacted the financial
results. Hurricane Gustav, which made landfall between Houma and
Morgan City, Louisiana on September 1, resulted in the closure for several days
of the Gulf Intracoastal Waterway in Louisiana, the closure of the Company’s
Gulf Coast diesel engine services operations for several days, as well as
disruptions to the Company’s four offshore barge and tug units that operates
under contracts transporting coal from New Orleans, Louisiana to Tampa, Florida
with the backhaul of limestone rock from Tampa to Mobile,
Alabama. Hurricane Ike made landfall on September 13 in the
Houston/Galveston area as a strong Category 2 hurricane. Because of
Ike’s size and its unpredictable course, much of the Gulf Coast petrochemical
and refining capacity was shut down prior to landfall. Strong winds
and a 15 to 20 foot storm surge significantly affected petrochemical and
refining plants in the Houston and Port Arthur/Beaumont area, some of which are
still not back in operation or are operating at reduced
levels. Additionally, an eight mile stretch of the Gulf
Intracoastal Waterway between the Houston Ship Channel and Port Arthur, Texas
was closed due to obstructions in the waterway for 11 days after Ike’s landfall,
completely stopping movements to and from the Houston
area. Hurricanes Ike and Gustav caused no material damage to the
Company’s active tank barge and towboat fleet, but the marine transportation and
diesel engine services facilities did incur some damage. The Company estimates
that the negative impact of the hurricanes on the 2008 third quarter and first
nine months results was $.09 per share.
The
following table sets forth the Company’s marine transportation and diesel engine
services revenues for the 2008 third quarter compared with the third quarter of
2007, the first nine months of 2008 compared with the first nine months of 2007
and the percentage of total revenues contributed by each segment for the
comparable periods (dollars in thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
Marine
transportation
|
|
$
|
286,880
|
|
|
|
81
|
%
|
|
$
|
241,329
|
|
|
|
80
|
%
|
|
$
|
830,014
|
|
|
|
80
|
%
|
|
$
|
680,139
|
|
|
|
79
|
%
|
Diesel
engine services
|
|
|
67,767
|
|
|
|
19
|
|
|
|
61,227
|
|
|
|
20
|
|
|
|
203,463
|
|
|
|
20
|
|
|
|
184,636
|
|
|
|
21
|
|
|
|
$
|
354,647
|
|
|
|
100
|
%
|
|
$
|
302,556
|
|
|
|
100
|
%
|
|
$
|
1,033,477
|
|
|
|
100
|
%
|
|
$
|
864,775
|
|
|
|
100
|
%
|
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
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, 2008, the Company operated 915 active inland tank barges, with
a total capacity of 17.5 million barrels, compared with 913 active inland tank
barges at September 30, 2007, with a total capacity of 17.3 million
barrels. The Company operated an average of 255 active inland
towing vessels during the 2008 third quarter and 258 during the first 2008 nine
months compared with an average of 255 during the 2007 third quarter and 252
during the 2007 first nine months. The marine transportation segment
also owns and operates four offshore dry-bulk barge and tug units engaged in the
offshore transportation of dry-bulk cargoes. The segment also owns a
two-thirds interest in Osprey Line, L.L.C., operator of a barge feeder service
for cargo containers between Houston and New Orleans, as well as several ports
located above Baton Rouge on the Mississippi River.
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, 2008 compared with the three
months and nine months ended September 30, 2007 (dollars in
thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
Marine
transportation revenues
|
|
$
|
286,880
|
|
|
$
|
241,329
|
|
|
|
19
|
%
|
|
$
|
830,014
|
|
|
$
|
680,139
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
173,249
|
|
|
|
143,232
|
|
|
|
21
|
|
|
|
507,083
|
|
|
|
411,299
|
|
|
|
23
|
|
Selling,
general and administrative
|
|
|
24,477
|
|
|
|
20,925
|
|
|
|
17
|
|
|
|
68,382
|
|
|
|
61,796
|
|
|
|
11
|
|
Taxes,
other than on income
|
|
|
3,318
|
|
|
|
3,020
|
|
|
|
10
|
|
|
|
9,741
|
|
|
|
8,901
|
|
|
|
9
|
|
Depreciation
and amortization
|
|
|
20,811
|
|
|
|
18,939
|
|
|
|
10
|
|
|
|
62,113
|
|
|
|
56,200
|
|
|
|
11
|
|
|
|
|
221,855
|
|
|
|
186,116
|
|
|
|
19
|
|
|
|
647,319
|
|
|
|
538,196
|
|
|
|
20
|
|
Operating
income
|
|
$
|
65,025
|
|
|
$
|
55,213
|
|
|
|
18
|
%
|
|
$
|
182,695
|
|
|
$
|
141,943
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margins
|
|
|
22.7
|
%
|
|
|
22.9
|
%
|
|
|
|
|
|
|
22.0
|
%
|
|
|
20.9
|
%
|
|
|
|
|
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
2008, products moved and the drivers of the demand for the products the Company
transports:
Markets Serviced
|
|
2008
Nine Months Revenue
Distribution
|
|
Products Moved
|
|
Drivers
|
Petrochemicals
|
|
66%
|
|
Benzene,
Styrene, Methanol,
Acrylonitrile,
Xylene, Caustic
Soda,
Butadiene, Propylene
|
|
Consumer
Goods, Automobiles,
Housing,
Textiles
|
|
|
|
|
|
|
|
Black
Oil Products
|
|
18%
|
|
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
|
|
10%
|
|
Gasoline,
No. 2 Oil, Jet Fuel, Heating Oil, Naphtha, Diesel Fuel
|
|
Vehicle
Usage, Air Travel,
Weather
Conditions, Refinery
Utilization
|
|
|
|
|
|
|
|
Agricultural
Chemicals
|
|
6%
|
|
Anhydrous
Ammonia, Nitrogen- Based Liquid Fertilizer, Industrial
Ammonia
|
|
Corn,
Cotton and Wheat Production, Chemical Feedstock
Usage
|
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Marine
transportation revenues for the 2008 third quarter and first nine months
increased 19% and 22%, respectively, compared with the corresponding 2007
periods, reflecting continued strong demand in the majority of its markets, the
recovery of higher diesel fuel costs, the increased equipment on time charters,
2007 year and 2008 first nine months contract and spot market rate increases,
and labor and producer price index escalators effective January 1, 2008 on
multi-year contracts. The 2008 third quarter and first nine months
were negatively impacted by Hurricanes Gustav and Ike, more fully described
above.
The
petrochemical market, the Company’s largest market, contributed 66% of the
marine transportation revenue for the 2008 first nine months. During
the 2008 third quarter and first nine months, the demand for the movement of
petrochemical products remained strong, with term contract customers continuing
to operate their plants and facilities at high utilization rates until the
September hurricanes, resulting in high tank barge utilization. The
black oil products market contributed 18% of the 2008 first nine months marine
transportation revenue reflecting strong demand in the first quarter, some
softness in the second quarter and improved demand in the third
quarter. Refined petroleum products contributed 10% of 2008 first
nine months marine transportation revenue, experiencing continued softness in
the movement of products from the Gulf Coast to the Midwest, driven by higher
gasoline prices and resulting lower gasoline demand, but benefiting from more
Gulf Intracoastal Waterway movements. The agricultural chemical
market, which contributed 6% of 2008 first nine months marine transportation
revenue, was unseasonably strong during the first quarter in advance of the
traditional spring planting season, remained strong during the first two months
of the second quarter until upper Mississippi River flooding in June and July
curtailed the traditional spring planting season. High Midwest
inventory levels negatively impacted the third quarter.
The marine transportation segment
operated an average of 255 towboats during the 2008 third quarter and 258 during
the first nine months compared with 255 during the 2007 third quarter and 252
during the 2007 first nine months. The Company continued to make
progress in the crewing of its towboats as essentially all Company owned
towboats were fully crewed during the 2008 third quarter and first nine
months.
For the
third quarter of 2008, the marine transportation segment incurred 1,429 delay
days, compared with 2007 third quarter delay days of 1,444. For the
2008 first nine months, 6,341 delay days occurred, 8% higher than the 5,846
delay days that occurred in the 2007 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 congestion and other
navigational factors. The 2008 third quarter delay days do not
reflect the lost time incurred during Hurricane Ike as the Houston and Port
Arthur/Beaumont area petrochemical and refining facilities closed in advance of
the hurricane and, due to lack of power or facility damage, did not reopen until
several days after the hurricane and in some cases still have not reopened or
are operating at reduced levels. Excluding the hurricanes, delay days
for the 2008 first nine months reflected ice and high water conditions in the
Midwest and frontal systems along the Gulf Coast in the first quarter, high
water conditions throughout the Mississippi River System during the majority of
the 2008 second quarter and favorable operating conditions during July and
August 2008 compared with the 2007 first nine months which reflected milder
winter weather conditions and more normal water levels. The delay
days recorded in the 2008 second quarter did not reflect the slower transit
times caused by weather issues and high water conditions, which in some cases,
resulted in the deployment of additional towboats in order to meet customer
delivery schedules.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
During the 2008 third quarter and first
nine months, approximately 80% of marine transportation revenues were under term
contracts and 20% were spot market revenues, compared with a 75% term contract
and 25% spot market mix for the 2007 first six months and 80% contract and 20%
spot market mix for the 2007 third quarter. Time charters, which
insulate the Company from revenue fluctuations caused by winter weather and
navigational delays and temporary market declines, averaged 56% of the revenues
under term contracts during the 2008 third quarter and first nine
months. The increase in the term contract percentage was
attributable to heavier demand for transportation services by the Company’s term
contract customers. The 80% contract and 20% spot market mix provides
the Company with a predictable revenue stream while maintaining spot market
exposure to take advantage of new business opportunities and existing customers’
peak demands. Rates on term contract renewals, net of fuel, increased
during the 2008 third quarter in the 8% to 10% average range and for the first
nine months in the 8% to 11% average range, primarily the result of continued
strong industry demand and high utilization of tank barges, when compared with
the 2007 third quarter and first nine months. Spot market rates,
which include fuel, increased in the 11% to 13% range for the 2008 third quarter
and for the first nine months increased in the 11% to 15% range when compared
with the 2007 third quarter and first nine months. Effective
January 1, 2008, escalators for labor and the producer price index on a number
of multi-year contracts increased rates on those contracts by 5% to
6%.
Marine
Transportation Costs and Expenses
Costs and expenses for the 2008 third
quarter and first nine months increased 19% and 20%, respectively, compared with
the corresponding periods 2007 periods, primarily reflecting the higher costs
and expenses associated with increased marine transportation demand noted
above.
Costs of sales and operating expenses
for the 2008 third quarter and first nine months increased 21% and 23%,
respectively, compared with the third quarter and first nine months of 2007,
reflecting increased salaries and related expenses, additional expenses
associated with the increased demand, additional towboats being operated, higher
maintenance expenditures, increased rates for chartered towboats and the costs
and damages of Hurricanes Gustav and Ike. The significantly higher
price of diesel fuel consumed, as noted below, resulted in higher fuel costs
during the 2008 third quarter and first nine months.
During the 2008 third quarter, the
Company consumed 11.6 million gallons of diesel fuel compared with 13.6 million
gallons consumed during the 2007 third quarter. For the 2008 first
nine months, the Company consumed 37.0 million gallons of diesel fuel compared
with 40.0 million gallons consumed during the 2007 first nine
months. The lower fuel consumption for the 2008 third quarter and
first nine months was a reflection of less activity along the Gulf Coast in
preparation for, during and after Hurricanes Gustav and Ike, and less refined
products and agricultural chemical movements into the Midwest from the Gulf
Coast, as discussed above. The average price per gallon of diesel
fuel consumed during the 2008 third quarter was $3.99, an increase of 81%
compared with $2.21 per gallon for the third quarter of 2007, and $3.40 per
gallon for the 2008 first nine months, a 73% increase when compared with $1.96
per gallon for the 2007 first nine months. Fuel escalation clauses
that allow the Company to recover increases in the cost of fuel are included in
all term contracts; however, there is generally a 30 to 90 day delay before
contracts are adjusted.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Selling, general and administrative
expenses for the 2008 third quarter and first nine months increased 17% and 11%,
respectively, compared with the corresponding 2007 periods. The
increases primarily were a result of higher employee incentive compensation
accruals and January 1, 2008 salary increases and related
expenses. The 2008 third quarter also included an increase in the
allowance for doubtful accounts primarily for a customer who filed for
bankruptcy.
Taxes, other than on income, for the
2008 third quarter and first nine months increased 10% and 9%, respectively,
compared with the corresponding periods of 2007, primarily the reflection of
higher property taxes.
Depreciation and amortization for the
2008 third quarter and first nine months increased 10% and 11%, respectively,
compared with the corresponding periods of 2007. The increases were
primarily attributable to increased capital expenditures, including new tank
barges and towboats, and the acquisitions in 2007 and 2008 of marine equipment
that was previously leased.
Marine
Transportation Operating Income and Operating Margins
The marine transportation operating
income for the 2008 third quarter increased 18% compared with the 2007 third
quarter. For the 2008 first nine months, the segment’s operating
income increased 29% compared with the first nine months of 2007. The
marine transportation operating margin for the 2008 third quarter was 22.7%
compared with 22.9% for the third quarter of 2007 and 22.0% for the 2008 first
nine months compared with 20.9% for the 2007 first nine
months. Continued strong demand in the majority of the segment’s
markets, higher term contract and spot market pricing, the January 1, 2008
escalators on numerous multi-year contracts, operating efficiencies from
continued improvement in vessel crewing and operating additional towboats and
the increased percentage of time charters which protects revenues from
navigational and weather delays and temporary market declines, had a positive
impact on the operating income and operating margin. Partially
offsetting these positive factors was the loss of revenue and additional
operating expenses associated with Hurricanes Gustav and Ike, as noted
above.
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 segment services the marine, power generation and railroad
markets.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
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, 2008 compared with the three months and nine months ended
September 30, 2007 (dollars in thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
Diesel
engine services revenues
|
|
$
|
67,767
|
|
|
$
|
61,227
|
|
|
|
11
|
%
|
|
$
|
203,463
|
|
|
$
|
184,636
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
47,626
|
|
|
|
43,106
|
|
|
|
10
|
|
|
|
142,397
|
|
|
|
131,246
|
|
|
|
8
|
|
Selling,
general and administrative
|
|
|
8,164
|
|
|
|
7,358
|
|
|
|
11
|
|
|
|
24,506
|
|
|
|
21,080
|
|
|
|
16
|
|
Taxes,
other than on income
|
|
|
229
|
|
|
|
203
|
|
|
|
13
|
|
|
|
757
|
|
|
|
638
|
|
|
|
19
|
|
Depreciation
and amortization
|
|
|
1,121
|
|
|
|
1,085
|
|
|
|
3
|
|
|
|
3,715
|
|
|
|
2,976
|
|
|
|
25
|
|
|
|
|
57,140
|
|
|
|
51,752
|
|
|
|
10
|
|
|
|
171,375
|
|
|
|
155,940
|
|
|
|
10
|
|
Operating
income
|
|
$
|
10,627
|
|
|
$
|
9,475
|
|
|
|
12
|
%
|
|
$
|
32,088
|
|
|
$
|
28,696
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margins
|
|
|
15.7
|
%
|
|
|
15.5
|
%
|
|
|
|
|
|
|
15.8
|
%
|
|
|
15.5
|
%
|
|
|
|
|
Diesel
Engine Services Revenues
The
following table shows the markets serviced by the Company, the revenue
distribution for the first nine months of 2008 and the customers for each
market:
Markets Serviced
|
|
2008
Nine Months Revenue
Distribution
|
|
Customers
|
Marine
|
|
74%
|
|
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
|
|
8%
|
|
Passenger
(Transit Systems), Class II Shortline,
Industrial
|
Diesel engine services revenues for the
2008 third quarter and first nine months increased 11% and 10%, respectively,
compared with the corresponding periods of 2007. The results were
positively impacted by strong engine overhaul and field repair activity and
direct parts sales in its medium-speed market, benefiting from a seasonally
higher first quarter volume of work for Midwest and Great Lakes marine
customers, strong demand from Gulf Coast and Midwest marine customers in the
second and third quarters and several large power generation modification
projects during the 2008 third quarter and first nine months. The
high-speed market, including the acquisition of Saunders in July 2007,
experienced continued softness in the Gulf Coast oil services market during the
2008 first nine months, but showed signs of strengthening in the third
quarter. In addition, the segment benefited from higher service rates
and parts pricing implemented in both its medium-speed and high-speed markets
during 2007 and the first nine months of 2008. The segment was
negatively impacted by Hurricane Gustav in early September 2008, which resulted
in the closure of the segment’s Gulf Coast facilities for several days, as well
as customer facilities and operations in the path of the hurricane.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Diesel
Engine Services Costs and Expenses
Costs and expenses for the 2008 third
quarter and first nine months increased 10% compared with the corresponding
periods of 2007. The increase in costs of sales and operating
expenses reflected the higher service and parts sales activity noted above, as
well as increases in salaries and other related benefit expenses effective
January 1, 2008. Selling, general and administrative expenses also
reflected increased salaries and related benefit expenses effective January 1,
2008. The increase in each cost and expense category was also
attributable to the Saunders acquisition in July 2007.
Diesel
Engine Services Operating Income and Operating Margins
Operating income for the diesel engine
services segment for the 2008 third quarter and first nine months increased 12%
compared with the 2007 corresponding periods. The improved operating
income primarily reflected continued strong medium-speed service activity and
direct parts sales in the majority of its markets, continued high labor
utilization in its medium-speed market, and higher service rates and parts
pricing implemented during 2007 and the 2008 first nine months, partially offset
by continued softness in its Gulf Coast high-speed market, primarily the Gulf
Coast oil service market, and the negative impact of Hurricane Gustav as noted
above. The operating margin for the 2008 third quarter was 15.7%, a
slight increase when compared with 15.5% for the third quarter of 2007, and
15.8% for the 2008 first nine months, a slight increase when compared with 15.5%
for the 2007 first nine months. The 2008 third quarter and first nine
months reflected higher operating margins in the medium-speed markets, the
result of strong demand, high labor utilization and stronger pricing, partially
offset by lower operating margins in the high-speed markets, due to softness in
the oil service market and lower labor utilization.
General
Corporate Expenses
General corporate expenses for the 2008
third quarter were $3,886,000, 13% higher than the third quarter of
2007. For the first nine months of 2008, general corporate expenses
were $10,815,000, a 13% increase compared with the first nine months of
2007. The increases in both 2008 comparable periods primarily
reflected increases in salaries and related expenses effective January 1, 2008
and higher employee incentive compensation accruals.
Loss
(Gain) on Disposition of Assets
The Company reported a net loss on
disposition of assets of $166,000 for the 2008 third quarter compared with a net
gain on disposition of assets of $30,000 for the 2007 third
quarter. For the 2008 first nine months, the Company reported a net
gain on disposition of assets of $276,000 compared with a net loss on
disposition of assets of $531,000 for the first nine months of
2007. The net gain and loss were predominantly from the sale of
retired marine equipment.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Other
Expenses
The following table sets forth other
expense and interest expense for the three months and nine months ended
September 30, 2008 compared with the three months and nine months ended
September 30, 2007 (dollars in thousands):
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
$
|
(515
|
)
|
|
$
|
(252
|
)
|
|
|
104
|
%
|
|
$
|
(1,101
|
)
|
|
$
|
(457
|
)
|
|
|
141
|
%
|
Interest
expense
|
|
$
|
(3,375
|
)
|
|
$
|
(5,236
|
)
|
|
|
(36
|
)%
|
|
$
|
(10,665
|
)
|
|
$
|
(15,826
|
)
|
|
|
(33
|
)%
|
Interest
Expense
Interest expense for the 2008 third
quarter and first nine months decreased 36% and 33%, respectively, compared with
the third quarter and first nine months of 2007, primarily the result of lower
average debt levels and lower average interest rates. The average
debt and average interest rate for the 2008 and 2007 third quarters, including
the effect of interest rate collar and swaps, were $269,666,000 and 5.0%, and
$349,226,000 and 5.9%, respectively. For the first nine months of
2008 and 2007, the average debt and average interest rate, including the effect
of interest rate collar and swaps, were $281,858,000 and 5.1%, and $357,075,000
and 5.9%, respectively.
Financial
Condition, Capital Resources and Liquidity
Balance
Sheet
Total
assets as of September 30, 2008 were $1,542,633,000, an 8% increase compared
with $1,430,475,000 as of December 31, 2007. The following table sets
forth the significant components of the balance sheet as of September 30, 2008
compared with December 31, 2007 (dollars in thousands):
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
302,022
|
|
|
$
|
267,343
|
|
|
|
13
|
%
|
Property
and equipment, net
|
|
|
984,406
|
|
|
|
906,098
|
|
|
|
9
|
|
Goodwill,
net
|
|
|
230,730
|
|
|
|
229,292
|
|
|
|
1
|
|
Other
assets
|
|
|
25,505
|
|
|
|
27,742
|
|
|
|
(8
|
)
|
|
|
$
|
1,542,663
|
|
|
$
|
1,430,475
|
|
|
|
8
|
%
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
193,442
|
|
|
$
|
191,420
|
|
|
|
1
|
%
|
Long-term
debt – less current portion
|
|
|
267,923
|
|
|
|
296,015
|
|
|
|
(9
|
)
|
Deferred
income taxes
|
|
|
148,755
|
|
|
|
130,899
|
|
|
|
14
|
|
Minority
interests and other long-term liabilities
|
|
|
46,427
|
|
|
|
42,311
|
|
|
|
10
|
|
Stockholders’
equity
|
|
|
886,116
|
|
|
|
769,830
|
|
|
|
15
|
|
|
|
$
|
1,542,663
|
|
|
$
|
1,430,475
|
|
|
|
8
|
%
|
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Current
assets as of September 30, 2008 increased 13% compared with December 31, 2007,
primarily reflecting a 14% increase in trade accounts receivable due to
increased marine transportation and diesel engine services revenues related to
higher business activity levels, and a 158% increase in other receivables,
primarily the result of a higher 2008 third quarter estimated federal tax
payment than necessary, based on estimates prior to the losses incurred from the
hurricanes noted above and before a larger tax deduction from a higher
anticipated pension contribution was known. These increases were
partially offset by a 5% decrease in inventory - finished goods as increased
inventory purchases in the 2007 fourth quarter were utilized in 2008 first
quarter service projects.
Property
and equipment, net of accumulated depreciation, at September 30, 2008 increased
9% compared with December 31, 2007. The increase reflected
$141,525,000 of capital expenditures for the 2008 first nine months, more fully
described under Capital Expenditures below, the fair value of the equipment and
property acquired in the Lake Charles Diesel and ORIX acquisitions of
$1,922,000, less $64,692,000 of depreciation expense for the first nine months
of 2008 and $447,000 of property disposals during the 2008 first nine
months.
Current liabilities as of September 30,
2008 increased 1% compared with December 31, 2007. Accrued
liabilities increased 6%, primarily from employee incentive compensation accrued
during the 2008 first nine months and higher marine and medical insurance
claims, partially offset by the payment during the 2008 first nine months of
employee incentive compensation accrued during 2007.
Long-term debt, less current portion,
as of September 30, 2008 decreased 9% compared with December 31,
2007. During the 2008 first nine months, the Company had net cash
provided by operating activities of $183,448,000 and proceeds from the exercise
of stock options of $8,687,000, partially offset by capital expenditures of
$141,525,000. The Company also spent $5,436,000 on the Lake Charles
Diesel and ORIX acquisitions and $25,901,000 on treasury stock
purchases.
Deferred income taxes as of September
30, 2008 increased 14% compared with December 31, 2007. The increase
was primarily due to the 2008 first nine months deferred tax provision of
$19,226,000, partially offset by the recording of a deferred tax asset related
to the Company’s equity compensation plans. The higher deferred tax
provision was primarily due to bonus tax depreciation on qualifying expenditures
due to the Economic Stimulus Act of 2008.
Stockholders’ equity as of September
30, 2008 increased 15% compared with December 31, 2007. The increase
was the result of $118,759,000 of net earnings for the first nine months of
2008, an increase in additional paid-in capital of $11,623,000, an increase of
$1,175,000 in accumulated other comprehensive income, partially offset by an
increase in treasury stock of $15,271,000. The increase in additional
paid-in capital 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 collar and swap agreements, net of taxes, more fully described
under Long-Term Financing below, and the change in unrecognized losses related
to the Company’s benefit plans. The increase in treasury stock was
attributable to the purchase during the 2008 first and third quarters of
$25,901,000 of Company common stock, partially offset by the exercise of stock
options and the issuance of restricted stock during the 2008 first nine
months.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
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 the
London Interbank Offered Rate (“LIBOR”) that varies with the Company’s senior
debt rating and the level of debt outstanding. As of September 30,
2008, the Company had $67,840,000 of borrowings outstanding under the Revolving
Credit Facility. The average borrowing under the Revolving Credit
Facility during the 2008 third quarter and first nine months was $68,336,000 and
$80,016,000, respectively, computed by averaging the daily
balance. The weighted average interest rate was 3.0% and 3.4%,
respectively, for the 2008 third quarter and first nine months, 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, of which $1,294,000 was outstanding as of September 30,
2008. The Company was in compliance with all Revolving Credit
Facility covenants as of September 30, 2008.
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
the 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, 2008,
$200,000,000 was outstanding under the 2005 Senior Notes and the average
interest rate for the 2008 third quarter and first nine months was 3.3% and
3.9%, respectively. The Company was in compliance with all 2005
Senior Notes covenants at September 30, 2008.
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, 2009. 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, 2008. Outstanding letters of credit under the Credit Line were
$527,000 as of September 30, 2008.
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. As of September 30, 2008, the Company had a
total notional amount of $150,000,000 of interest rate swaps designated as cash
flow hedges for its variable rate senior notes as follows (dollars in
thousands):
Notional
amount
|
|
Effective date
|
|
Termination date
|
|
Fixed
pay rate
|
|
Receive rate
|
$
50,000
|
|
April
2004
|
|
May
2009
|
|
4.00%
|
|
Three-month
LIBOR
|
$
100,000
|
|
March
2006
|
|
February
2013
|
|
5.45%
|
|
Three-month
LIBOR
|
On
February 1, 2008, the Company entered into an interest rate swap agreement
in a notional amount of $50,000,000 with a fixed rate of 3.795% for the purpose
of extending an existing hedge of its exposure to interest rate fluctuations on
floating rate interest payments on the Company’s variable rate senior
notes. The term of the new swap agreement starts on May 28,
2009, which is the maturity date on two existing swaps with the same total
notional amount of $50,000,000, and ends on February 28, 2013, the maturity
date of the Company’s variable rate senior notes. The swap agreement
effectively converts 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. The swap agreement is
designated as a cash flow hedge for the Company’s variable rate senior
notes.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
On
November 14, 2006, the Company entered into a $50,000,000 two-year zero-cost
interest rate collar agreement. The collar uses LIBOR as its interest
rate basis. The cap rate is set at 5.375% and the floor is set at
4.33%. When LIBOR is above the cap, the Company will receive the
difference between LIBOR and the cap. When LIBOR is below the floor,
the Company will pay the difference between LIBOR and the floor. When
LIBOR is between the cap rate and the floor, no payments are
required. The collar is designated as a cash flow hedge for the
Company’s variable rate senior notes.
On
November 4, 2008, the Company entered into two interest rate swap
agreements in a total notional amount of $50,000,000 with a fixed rate of 3.5%
for the purpose of extending an existing hedge of its exposure to interest rate
fluctuations on floating rate interest payments on the Company’s variable rate
senior notes. The term of the two new swap agreements starts on
November 28, 2008, which is the maturity date of an interest rate collar with
the same total notional amount of $50,000,000, and ends on February 28,
2013, the maturity date of the Company’s variable rate senior
notes. 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. The swap agreements are designated as cash flow hedges for
the Company’s variable rate senior notes.
The interest rate collar and swap
agreements hedge a majority of the Company’s long-term debt and only an
immaterial loss on ineffectiveness was recognized in the 2008 and 2007 first
nine months. At September 30, 2008, the fair value of the interest
rate collar and swap agreements was $6,608,000, of which $488,000 was recorded
as other accrued liabilities for the collar and swap agreements maturing within
the next twelve months and $418,000 and $6,538,000 were recorded as other assets
and other long-term liabilities, respectively, for swap maturities greater than
twelve months. At September 30, 2007, the fair value of the interest
rate collar and swap agreements was $2,624,000, of which $506,000 and $3,130,000
were recorded as other assets and other long-term liabilities respectively, for
swap maturities greater than twelve months. The Company has recorded
in interest expense, net losses related to the interest rate collar and swap
agreements of $1,074,000 and $178,000 for the three months ended September 30,
2008 and 2007, respectively, and $2,307,000 and $478,000 for the nine months
ended September 30, 2008 and 2007, respectively. Gains or losses on
the interest rate collar and swap agreements offset increases or decreases in
rates of the underlying debt, which results in a fixed rate for the underlying
debt. The Company anticipates $968,000 of net losses included in
accumulated other comprehensive income will be transferred into earnings over
the next year based on current interest rates. Fair value amounts
were derived as of September 30, 2008 and 2007 utilizing fair value models of
the Company and its counterparties on the Company’s portfolio of derivative
instruments.
Capital
Expenditures
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. Capital expenditures for the
2007 first nine months were $123,027,000, of which $57,033,000 was for
construction of new tank barges and towboats, and $65,994,000 was primarily for
upgrading of the existing marine transportation fleet. Financing of
the construction of the new tank barges and towboats was through operating cash
flows and available credit under the Company’s Revolving Credit
Facility.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
A summary of the new tank barge
construction follows:
|
|
No.
of
|
|
|
Total
|
|
|
Expended
|
|
|
|
Placed
In Service
|
|
Contract Date
|
|
Barges
|
|
|
Capacity
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Total
|
|
|
|
2006
|
|
|
2007
|
|
|
|
2008*
|
|
|
|
2009*
|
|
|
|
|
|
|
|
|
|
($
in millions)
|
|
|
|
(Barrels
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2004
|
|
|
11
|
|
|
|
311,000
|
|
|
$
|
.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24.7
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
July
2004
|
|
|
7
|
|
|
|
199,000
|
|
|
|
.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.0
|
|
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
November
2004
|
|
|
20
|
|
|
|
221,000
|
|
|
|
1.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23.3
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
July
2005
|
|
|
10
|
|
|
|
285,000
|
|
|
|
11.6
|
|
|
|
4.3
|
|
|
|
—
|
|
|
|
19.6
|
|
|
|
|
171
|
|
|
|
114
|
|
|
|
—
|
|
|
|
—
|
|
July
2005
|
|
|
13
|
|
|
|
368,000
|
|
|
|
28.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28.4
|
|
|
|
|
368
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
March
2006
|
|
|
12
|
|
|
|
347,000
|
|
|
|
2.4
|
|
|
|
28.0
|
|
|
|
—
|
|
|
|
30.4
|
|
|
|
|
—
|
|
|
|
347
|
|
|
|
—
|
|
|
|
—
|
|
April
2006
|
|
|
8
|
|
|
|
226,000
|
|
|
|
1.4
|
|
|
|
9.9
|
|
|
|
5.5
|
|
|
|
17.5
|
|
Est.
|
|
|
—
|
|
|
|
85
|
|
|
|
141
|
|
|
|
—
|
|
June
2006
|
|
|
2
|
|
|
|
21,000
|
|
|
|
1.8
|
|
|
|
.9
|
|
|
|
—
|
|
|
|
2.7
|
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
October
2006
|
|
|
6
|
|
|
|
66,000
|
|
|
|
1.7
|
|
|
|
6.2
|
|
|
|
.4
|
|
|
|
8.3
|
|
|
|
|
—
|
|
|
|
44
|
|
|
|
22
|
|
|
|
—
|
|
February
2007
|
|
|
1
|
|
|
|
19,000
|
|
|
|
—
|
|
|
|
2.9
|
|
|
|
—
|
|
|
|
2.9
|
|
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
—
|
|
February
2007
|
|
|
12
|
|
|
|
340,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36.3
|
|
|
|
36.3
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
340
|
|
|
|
—
|
|
August
2007
|
|
|
6
|
|
|
|
69,000
|
|
|
|
—
|
|
|
|
2.2
|
|
|
|
7.0
|
|
|
|
9.5
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
69
|
|
|
|
—
|
|
December
2007
|
|
|
2
|
|
|
|
21,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.6
|
|
|
|
2.9
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
January
2008
|
|
|
14
|
|
|
|
322,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37.7
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
322
|
|
March
2008
|
|
|
2
|
|
|
|
56,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6.7
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56
|
|
April
2008
|
|
|
6
|
|
|
|
63,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.9
|
|
|
|
10.8
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63
|
|
May
2008
|
|
|
5
|
|
|
|
104,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8.6
|
|
|
|
29.0
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
May
2008
|
|
|
6
|
|
|
|
168,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.6
|
|
|
|
16.4
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
168
|
|
August
2008
|
|
|
15
|
|
|
|
420,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41.7
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
420
|
|
_________
* 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
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Total
|
|
|
|
2006
|
|
|
2007
|
|
|
|
2008
|
*
|
|
|
2009
|
*
|
|
|
|
|
|
|
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
2005
|
|
|
4
|
|
|
|
2100
|
|
River
|
|
$
|
6.8
|
|
|
$
|
4.9
|
|
|
$
|
—
|
|
|
$
|
14.9
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Aug.
2006
|
|
|
4
|
|
|
|
1800
|
|
Canal
|
|
|
2.8
|
|
|
|
7.0
|
|
|
|
3.3
|
|
|
|
13.1
|
|
|
|
|
—
|
|
|
|
1
|
|
|
|
3
|
|
|
|
—
|
|
Mar.
2007
|
|
|
4
|
|
|
|
1800
|
|
Canal
|
|
|
—
|
|
|
|
1.2
|
|
|
|
6.1
|
|
|
|
14.9
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
June
2007
|
|
|
2
|
|
|
|
1800
|
|
Canal
|
|
|
—
|
|
|
|
.3
|
|
|
|
1.1
|
|
|
|
7.4
|
|
Est.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Aug.
2007
|
|
|
2
|
|
|
|
1800
|
|
Canal
|
|
|
—
|
|
|
|
.1
|
|
|
|
.9
|
|
|
|
7.4
|
|
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
During the 2008 first and third
quarters, the Company purchased in the open market 643,000 shares of common
stock at a total purchase price of $25,901,000, for an average price of $40.28
per share. During October 2008, the Company purchased an additional
194,400 shares of common stock at a total purchase price of $7,476,000, for an
average price of $38.46 per share. As of November 6, 2008, the
Company had 1,420,000 shares remaining 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.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Liquidity
The Company generated net cash provided
by operating activities of $183,448,000 during the nine months ended September
30, 2008, 18% higher than the $155,838,000 generated during the nine months
ended September 30, 2007. The 2008 first nine months experienced a
larger net decrease in cash flows from changes in operating assets and
liabilities than the first nine months of 2007 primarily due to a larger
increase in receivables in 2008 versus 2007, the result of stronger business
activity levels, and increased revenues due to fuel cost recovery, increases in
prepaid fuel inventory due to the increase in fuel prices in the 2008 first nine
months and larger employee incentive compensation payments in the 2008 first
nine months versus the 2007 first nine months. In addition, the 2008
third quarter estimated federal tax payment was higher than necessary based on
estimates prior to the losses incurred with the hurricanes and before a larger
tax deduction from a higher anticipated pension contribution was
known.
Funds generated from operating
activities were used for acquisitions, capital expenditure projects, treasury
stock repurchases, repayments of borrowings associated with each of the above
and other operating requirements. In addition to net cash flow
provided by operating activities, the Company also had available as of November
5, 2008, $187,706,000 under its Revolving Credit Facility and $4,473,000 under
its Credit Line.
Neither the Company, nor any of its
subsidiaries, is obligated on any debt instrument, swap agreement, collar
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, treasury stock
repurchases, repayment of borrowings, and for other operating requirements from
a combination of funds generated from operating activities and available
financing arrangements.
The
credit markets are currently undergoing significant volatility. Many
financial institutions have 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
$250,000,000 Revolving Credit Facility, 2005 Senior Notes of $200,000,000 and
counterparty performance risks related to its interest rate collar and 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, 2008, the Company had
$180,866,000 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 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, 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.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
Current
market conditions also elevate the concern over counterparty risks related to
the Company’s interest rate collar and swap agreements used to hedge the
Company’s exposure to fluctuating interest rates. The counterparties
to these contracts are investment grade rated commercial banks. The
Company may not realize the benefit of some of its hedges should one of these
financial counterparties not perform.
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 was $8,669,000 at September 30, 2008, including
$5,481,000 in letters of credit and debt guarantees, and $3,188,000 in
performance bonds. All of these instruments have an expiration date
within three 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, 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 include the cost of fuel and are subject to market
volatility. The repair portion of the diesel engine services segment
is based on prevailing current market rates.
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 2008 interest expense by approximately $626,000, based on
balances outstanding at December 31, 2007, and change the fair value of the
Company’s debt by less than 1%.
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
major financial institutions. Derivative financial instruments
related to the Company’s interest rate risks are intended to reduce the
Company’s exposure to increases in the benchmark interest rates underlying the
Company’s floating rate senior notes and variable rate bank credit
facility. The Company does not enter into derivative financial
instrument transactions for speculative purposes.
From time to time, the Company hedges
its exposure to fluctuations in short-term interest rates under its 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. As of September 30, 2008, the Company had a
total notional amount of $150,000,000 of interest rate swaps designated as cash
flow hedges for its variable rate senior notes as follows (dollars in
thousands):
Notional
amount
|
|
Effective date
|
|
Termination date
|
|
Fixed
pay rate
|
|
Receive rate
|
$
50,000
|
|
April
2004
|
|
May
2009
|
|
4.00%
|
|
Three-month
LIBOR
|
$
100,000
|
|
March
2006
|
|
February
2013
|
|
5.45%
|
|
Three-month
LIBOR
|
On
February 1, 2008, the Company entered into an interest rate swap agreement
in a notional amount of $50,000,000 with a fixed rate of 3.795% for the purpose
of extending an existing hedge of its exposure to interest rate fluctuations on
floating rate interest payments on the Company’s variable rate senior notes. The
term of the new swap agreement starts on May 28, 2009, which is the
maturity date on two existing swaps with the same total notional amount of
$50,000,000, and ends on February 28, 2013, the maturity date of the
Company’s variable rate senior notes. The swap agreement effectively converts
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. The swap agreement is designated as a cash flow
hedge for the Company’s variable rate senior notes.
On
November 14, 2006, the Company entered into a $50,000,000 two-year zero-cost
interest rate collar agreement. The collar uses LIBOR as its interest
rate basis. The cap rate is set at 5.375% and the floor is set at
4.33%. When LIBOR is above the cap, the Company will receive the
difference between LIBOR and the cap. When LIBOR is below the floor,
the Company will pay the difference between LIBOR and the floor. When
LIBOR is between the cap rate and the floor, no payments are
required. The collar is designated as a cash flow hedge for the
Company’s variable rate senior notes.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
On
November 4, 2008, the Company entered into two interest rate swap
agreements in a total notional amount of $50,000,000 with a fixed rate of 3.5%
for the purpose of extending an existing hedge of its exposure to interest rate
fluctuations on floating rate interest payments on the Company’s variable rate
senior notes. The term of the two new swap agreements starts on
November 28, 2008, which is the maturity date of an interest rate collar with
the same total notional amount of $50,000,000, and ends on February 28,
2013, the maturity date of the Company’s variable rate senior
notes. 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. The swap agreements are designated as cash flow hedges for
the Company’s variable rate senior notes.
The interest rate collar and swap
agreements hedge a majority of the Company’s long-term debt and only an
immaterial loss on ineffectiveness was recognized in the 2008 and 2007 first
nine months. At September 30, 2008, the fair value of the interest
rate collar and swap agreements was $6,608,000, of which $488,000 was recorded
as other accrued liabilities for the collar and swap agreements maturing within
the next twelve months and $418,000 and $6,538,000 were recorded as other assets
and other long-term liabilities, respectively, for swap maturities greater than
twelve months. At September 30, 2007, the fair value of the interest
rate collar and swap agreements was $2,624,000, of which $506,000 and $3,130,000
were recorded as other assets and other long-term liabilities respectively, for
swap maturities greater than twelve months. The Company has recorded
in interest expense, net losses related to the interest rate collar and swap
agreements of $1,074,000 and $178,000 for the three months ended September 30,
2008 and 2007, respectively, and $2,307,000 and $478,000 for the nine months
ended September 30, 2008 and 2007, respectively. Gains or losses on
the interest rate collar and swap agreements offset increases or decreases in
rates of the underlying debt, which results in a fixed rate for the underlying
debt. The Company anticipates $968,000 of net losses included in
accumulated other comprehensive income will be transferred into earnings over
the next year based on current interest rates. Fair value amounts
were derived as of September 30, 2008 and 2007 utilizing fair value models of
the Company and its counterparties on the Company’s portfolio of derivative
instruments.
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.
KIRBY CORPORATION AND CONSOLIDATED
SUBSIDIARIES
PART II - OTHER
INFORMATION
Item
6. Exhibits
31.1
– Certification of Chief Executive Officer Pursuant
to Rule 13a-14(a).
31.2
– Certification of Chief Financial Officer Pursuant
to Rule 13a-14(a).
32
– Certification Pursuant to 13 U.S.C. Section 1350 (As
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
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KIRBY
CORPORATION
|
|
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(Registrant)
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|
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|
|
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By:
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/s/ 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, 2008
39
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