Kirby Corp 10-Q 03-31-2006
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
|
x
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
For
the
quarterly period ended March 31, 2006
|
o
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
Commission
File Number
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1-7615
|
KIRBY
CORPORATION
|
(Exact
name of registrant as specified in its
charter)
|
|
Nevada
|
|
74-1884980
|
|
|
(State
or other jurisdiction ofincorporation or organization)
|
|
(IRS
Employer Identification No.)
|
|
|
|
|
|
|
|
55
Waugh Drive, Suite 1000, Houston, TX
|
|
77007
|
|
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(Address
of principal executive offices)
|
|
(Zip
Code)
|
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(713)
435-1000
|
(Registrant’s
telephone number, including area code)
|
|
No
Change
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
þ No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer þ Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o No
þ
The
number of shares outstanding of the registrant’s Common Stock, $.10 par value
per share, on May 9, 2006 was 26,352,000.
Part
I Financial Information
Item
1. Financial Statements
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
ASSETS
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
($
in thousands)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
23,171
|
|
$
|
17,838
|
|
Accounts
receivable:
|
|
|
|
|
|
|
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Trade
- less allowance for doubtful accounts
|
|
|
131,543
|
|
|
118,259
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|
Other
|
|
|
5,820
|
|
|
8,440
|
|
Inventory
- finished goods
|
|
|
22,519
|
|
|
18,967
|
|
Prepaid
expenses and other current assets
|
|
|
19,046
|
|
|
19,002
|
|
Deferred
income taxes
|
|
|
3,898
|
|
|
3,770
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
205,997
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|
|
186,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Property
and equipment
|
|
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1,139,766
|
|
|
1,101,159
|
|
Less
accumulated depreciation
|
|
|
471,920
|
|
|
458,778
|
|
|
|
|
|
|
|
|
|
|
|
|
667,846
|
|
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642,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Investment
in marine affiliates
|
|
|
1,962
|
|
|
11,866
|
|
Goodwill
- net
|
|
|
165,244
|
|
|
160,641
|
|
Other
assets
|
|
|
26,996
|
|
|
24,384
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,068,045
|
|
$
|
1,025,548
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
March
31, 2006
|
|
December
31, 2005
|
|
|
|
($
in thousands)
|
|
Current
liabilities:
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
96
|
|
$
|
4
|
|
Income
taxes payable
|
|
|
10,237
|
|
|
2,669
|
|
Accounts
payable
|
|
|
79,804
|
|
|
68,895
|
|
Accrued
liabilities
|
|
|
51,342
|
|
|
61,664
|
|
Deferred
revenues
|
|
|
6,401
|
|
|
6,589
|
|
|
|
|
|
|
|
|
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Total
current liabilities
|
|
|
147,880
|
|
|
139,821
|
|
|
|
|
|
|
|
|
|
Long-term
debt - less current portion
|
|
|
200,506
|
|
|
200,032
|
|
Deferred
income taxes
|
|
|
127,900
|
|
|
126,755
|
|
Minority
interests
|
|
|
3,205
|
|
|
3,088
|
|
Other
long-term liabilities
|
|
|
15,160
|
|
|
18,310
|
|
|
|
|
|
|
|
|
|
|
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|
346,771
|
|
|
348,185
|
|
|
|
|
|
|
|
|
|
Contingencies
and commitments
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value per share. Authorized 20,000,000
shares
|
|
|
—
|
|
|
—
|
|
Common
stock, $.10 par value per share. Authorized 60,000,000 shares, issued
30,907,000 shares
|
|
|
3,091
|
|
|
3,091
|
|
Additional
paid-in capital
|
|
|
204,199
|
|
|
204,453
|
|
Accumulated
other comprehensive income - net
|
|
|
(177
|
)
|
|
(2,028
|
)
|
Unearned
compensation
|
|
|
—
|
|
|
(5,060
|
)
|
Retained
earnings
|
|
|
451,480
|
|
|
428,900
|
|
|
|
|
658,593
|
|
|
629,356
|
|
Less
cost of 4,560,000 shares in treasury (4,936,000 at December 31,
2005)
|
|
|
85,199
|
|
|
91,814
|
|
|
|
|
|
|
|
|
|
|
|
|
573,394
|
|
|
537,542
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,068,045
|
|
$
|
1,025,548
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENT OF EARNINGS
(Unaudited)
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
($
in thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
Marine
transportation
|
|
$
|
189,383
|
|
$
|
157,210
|
|
Diesel
engine services
|
|
|
35,520
|
|
|
27,234
|
|
|
|
|
|
|
|
|
|
|
|
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224,903
|
|
|
184,444
|
|
Costs
and expenses:
|
|
|
|
|
|
|
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Costs
of sales and operating expenses
|
|
|
144,378
|
|
|
119,927
|
|
Selling,
general and administrative
|
|
|
23,761
|
|
|
20,959
|
|
Taxes,
other than on income
|
|
|
3,187
|
|
|
3,186
|
|
Depreciation
and amortization
|
|
|
15,090
|
|
|
14,981
|
|
Gain
on disposition of assets
|
|
|
(157
|
)
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
186,259
|
|
|
158,861
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
38,644
|
|
|
25,583
|
|
Equity
in earnings (loss) of marine affiliates
|
|
|
466
|
|
|
(703
|
)
|
Other
income (expense)
|
|
|
66
|
|
|
(316
|
)
|
Interest
expense
|
|
|
(2,698
|
)
|
|
(3,146
|
)
|
|
|
|
|
|
|
|
|
Earnings
before taxes on income
|
|
|
36,478
|
|
|
21,418
|
|
Provision
for taxes on income
|
|
|
(13,898
|
)
|
|
(8,139
|
)
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
22,580
|
|
$
|
13,279
|
|
|
|
|
|
|
|
|
|
Net
earnings per share of common stock:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.87
|
|
$
|
.53
|
|
Diluted
|
|
$
|
.85
|
|
$
|
.52
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENT OF CASH FLOWS
(Unaudited)
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
($
in thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
earnings
|
|
$
|
22,580
|
|
$
|
13,279
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net earnings to net cash provided by
operations:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
15,090
|
|
|
14,981
|
|
Deferred
income taxes
|
|
|
20
|
|
|
(364
|
)
|
Equity
in earnings (loss) of marine affiliates, net of
distributions
|
|
|
(466
|
)
|
|
1,193
|
|
Amortization
of unearned compensation
|
|
|
1,430
|
|
|
288
|
|
Other
|
|
|
(82
|
)
|
|
21
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash flows resulting from changes in operating assets
and
liabilities, net
|
|
|
(7,266
|
)
|
|
6,904
|
|
Net
cash provided by operating activities
|
|
|
31,306
|
|
|
36,302
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(21,626
|
)
|
|
(24,023
|
)
|
Acquisitions
of business and marine equipment, net of cash acquired
|
|
|
(15,505
|
)
|
|
—
|
|
Proceeds
from disposition of assets
|
|
|
463
|
|
|
280
|
|
Other
|
|
|
(1,001
|
)
|
|
162
|
|
Net
cash used in investing activities
|
|
|
(37,669
|
)
|
|
(23,581
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Payments
on bank credit facilities, net
|
|
|
—
|
|
|
(13,600
|
)
|
Payments
on long-term debt
|
|
|
(23
|
)
|
|
(1
|
)
|
Proceeds
from exercise of stock options
|
|
|
7,169
|
|
|
2,627
|
|
Tax
benefit from equity compensation plans
|
|
|
3,377
|
|
|
—
|
|
Other
|
|
|
1,173
|
|
|
(95
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
11,696
|
|
|
(11,069
|
)
|
Increase
in cash and cash equivalents
|
|
|
5,333
|
|
|
1,652
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
17,838
|
|
|
629
|
|
Cash
and cash equivalents, end of period
|
|
$
|
23,171
|
|
$
|
2,281
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,225
|
|
$
|
2,999
|
|
Income
taxes
|
|
$
|
2,933
|
|
$
|
166
|
|
Non-cash
investing activity:
|
|
|
|
|
|
|
|
Accrued
payable for working capital adjustment related to
acquisition
|
|
$
|
735
|
|
$
|
—
|
|
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 March 31, 2006 and December 31, 2005, and
the results of operations for the three months ended March 31, 2006 and
2005.
(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, 2005.
On
March
1, 2006, the Company purchased from Progress Fuels Corporation (“PFC”) the
remaining 65% interest in Dixie Fuels Limited (“Dixie Fuels”) for $15,590,000,
subject to post-closing working capital adjustments and drydocking expenditures.
The Dixie Fuels partnership, formed in 1977, was 65% owned by PFC and 35% owned
by the Company. As part of the transaction, the Company extended the expiration
date of its marine transportation contract with PFC from 2008 to 2010. Revenues
for Dixie Fuels for 2005 were approximately $26,200,000. Financing of the
acquisition was through the Company’s operating cash flows.
Effective
January 1, 2006, the Company acquired an additional one-third interest in Osprey
Line, L.L.C. (“Osprey”) from Richard L. Couch, increasing the Company’s
ownership to a two-thirds interest. The remaining one-third interest is owned
by
Cooper/T. Smith Stevedoring Company, Inc. (“Cooper/T. Smith”). Osprey, formed in
2000, operates a barge feeder service for cargo containers between Houston,
New
Orleans and Baton Rouge, as well as several ports located above Baton Rouge
on
the Mississippi River. Revenues for Osprey for 2005 were approximately
$28,700,000.
On
December 13, 2005, the Company purchased the diesel engine services division
of
TECO Barge Lines, Inc. (“TECO”) for $500,000 in cash. In addition, the Company
entered into a contract to provide diesel engine services to TECO. Financing
of
the acquisition was through the Company’s operating cash flows.
On
June
24, 2005, the Company purchased American Commercial Lines Inc.’s (“ACL”) black
oil products fleet of 10 inland tank barges for $7,000,000 in cash. Five of
the
barges are currently in service and the other five barges are being renovated
in
2006. Financing for the equipment acquisition was through the Company’s
revolving credit facility.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The
Company has share-based compensation plans which are described below. The
compensation cost that has been charged against income for the Company’s stock
award plans was $1,430,000 and $288,000 for the three months ended March 31,
2006 and 2005, respectively. The total income tax benefit recognized in the
income statement for stock award plans was $545,000 and $110,000 for the three
months ended March 31, 2006 and 2005, respectively. Compensation cost
capitalized as part of inventory is considered immaterial.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”
(“SFAS No. 123R”) which is a revision of Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”)
and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees” (“APB No. 25”) and its related implementation guidance.
SFAS No. 123R requires the Company to expense grants made under the stock option
plans. The cost will be recognized over the vesting period of the plans. SFAS
No. 123R is effective for the first annual period beginning after December
15,
2005. Upon adoption of SFAS No. 123R, amounts previously disclosed under SFAS
No. 123 will be recognized as expense in the consolidated statement of earnings.
The Company adopted SFAS No. 123R effective January 1, 2006 using the modified
prospective application. Accordingly, compensation expense will be recognized
for all newly granted awards and awards modified repurchased or cancelled after
January 1, 2006. Compensation expense for the unvested portion of awards that
were outstanding at January 1, 2006 will be recognized ratably over the
remaining vesting period based on the fair value at date of grant as calculated
under the Black-Scholes option pricing model.
Prior
to
2006, the Company accounted for stock-based compensation utilizing the intrinsic
value method in accordance with the provisions of APB No. 25. Under the
intrinsic value method of accounting for stock-based employee compensation,
since the exercise price of the Company’s stock options was at the fair market
value on the date of grant, no compensation expense was recorded. The Company
was required under SFAS No. 123 to disclose pro forma information relating
to
option grants as if the Company used the fair value method of accounting, which
requires the recording of estimated compensation expenses.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
The
following table summarizes pro forma net earnings and earnings per share for
the
three months ended March 31, 2005 assuming the Company had used the fair value
method of accounting for its stock award plans (in thousands, except per share
amounts):
|
|
Three
months ended March
31, 2005
|
|
Net
earnings, as reported
|
|
$
|
13,279
|
|
Add:
Total stock-based employee compensation expense included in net income,
net of related tax effects
|
|
|
178
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
|
|
(545
|
)
|
Pro
forma net earnings
|
|
$
|
12,912
|
|
Earnings
per share:
|
|
|
|
|
Basic
- as reported
|
|
$
|
.53
|
|
Basic
- pro forma
|
|
$
|
.52
|
|
Diluted
- as reported
|
|
$
|
.52
|
|
Diluted
- pro forma
|
|
$
|
.50
|
|
The
Company has six employee stock award plans for selected officers and other
key
employees which provide for the issuance of stock options and restricted stock.
For all of the plans, the exercise price for each option equals the fair market
value per share of the Company’s common stock on the date of grant. The terms of
the options granted prior to February 10, 2000 are ten years and the options
vest ratably over four years. Options granted after February 10, 2000 have
terms
of five years and vest ratably over three years. At March 31, 2006, 920,412
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)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
The
following is a summary of the stock award activity under the employee plans
described above for the three months ended March 31, 2006:
|
|
Outstanding
Non-Qualified or Nonincentive Stock Awards
|
|
Weighted
Average Exercise Price
|
|
Outstanding
December 31, 2005
|
|
|
899,106
|
|
$
|
29.11
|
|
Granted
|
|
|
212,913
|
|
$
|
54.35
|
|
Exercised
|
|
|
(373,704
|
)
|
$
|
24.90
|
|
Outstanding
March 31, 2006
|
|
|
738,315
|
|
$
|
34.48
|
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the employee plans at March 31,
2006:
|
|
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
|
|
$17.91
- $19.88
|
|
|
72,000
|
|
|
2.44
|
|
$
|
18.80
|
|
|
|
|
|
72,000
|
|
$
|
18.80
|
|
|
|
|
$25.55
- $28.18
|
|
|
222,490
|
|
|
1.66
|
|
$
|
25.85
|
|
|
|
|
|
222,490
|
|
$
|
25.85
|
|
|
|
|
$30.16
- $33.93
|
|
|
223,921
|
|
|
2.82
|
|
$
|
33.81
|
|
|
|
|
|
118,348
|
|
$
|
33.93
|
|
|
|
|
$41.78
- $44.09
|
|
|
108,200
|
|
|
3.90
|
|
$
|
43.56
|
|
|
|
|
|
36,063
|
|
$
|
43.56
|
|
|
|
|
$51.38
- $55.21
|
|
|
111,704
|
|
|
4.87
|
|
$
|
54.35
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
$17.91
- $55.21
|
|
|
738,315
|
|
|
2.90
|
|
$
|
34.48
|
|
$
|
24,827,000
|
|
|
448,901
|
|
$
|
28.27
|
|
$
|
17,885,000
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
The
Company has three director stock award plans for nonemployee directors of the
Company which provide for the issuance of stock options and restricted stock.
No
additional options can be granted under two of the plans. The third plan, 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
10 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 March 31, 2006, 124,593
shares were available for future grants under the nonemployee director plans.
The director stock award plans are intended as an incentive to attract and
retain qualified and competent independent directors.
The
following is a summary of the stock award activity under the director plans
described above for the three months ended March 31, 2006:
|
|
Outstanding
Non-Qualified or Nonincentive Stock Awards
|
|
Weighted
Average Exercise Price
|
|
Outstanding
December 31, 2005
|
|
|
177,361
|
|
$
|
28.03
|
|
Exercised
|
|
|
(12,407
|
)
|
$
|
33.07
|
|
Outstanding
March 31, 2006
|
|
|
164,954
|
|
$
|
27.65
|
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the director plans at March 31,
2006:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life in Years
|
|
Weighted
Average Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
$17.06
- $19.88
|
|
|
22,346
|
|
|
2.74
|
|
$
|
19.19
|
|
|
|
|
|
22,346
|
|
$
|
19.19
|
|
|
|
|
$20.13
- $25.50
|
|
|
73,942
|
|
|
5.48
|
|
$
|
23.00
|
|
|
|
|
|
73,942
|
|
$
|
23.00
|
|
|
|
|
$31.48
- $40.56
|
|
|
68,666
|
|
|
7.55
|
|
$
|
35.42
|
|
|
|
|
|
68,666
|
|
$
|
35.42
|
|
|
|
|
$17.06
- $40.56
|
|
|
164,954
|
|
|
5.98
|
|
$
|
27.65
|
|
$
|
6,673,000
|
|
|
164,954
|
|
$
|
27.65
|
|
$
|
6,673,000
|
|
The
total
intrinsic value of all options exercised and restricted stock vestings under
all
of the Company’s plans was $11,140,000 and $3,110,000 for the three months ended
March 31, 2006 and 2005, respectively. The actual tax benefit realized for
tax
deductions from stock award plans was $4,244,000 and $1,182,000 for the three
months ended March 31, 2006 and 2005, respectively.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
As
of
March 31, 2006, there was $3,744,000 of unrecognized compensation cost related
to nonvested stock options and $9,943,000 related to restricted stock. The
stock
options are expected to be recognized over a weighted average period of
approximately 1.6 years and restricted stock over approximately 2.4 years.
The
total fair value of shares vested was $4,607,000 and $3,440,000 during the
three
months ended March 31, 2006 and 2005, respectively.
The
weighted average fair value of options granted during the three months ended
March 31, 2006 and 2005 was $16.67 and $13.05 per share, respectively. The
fair
value of the options granted during the three months ended March 31, 2006 and
2005 was $1,889,000 and $1,413,000, respectively. The fair value of each option
was determined using the Black-Scholes option pricing model. The key input
variables used in valuing the options during the three months ended March 31,
2006 and 2005 were as follows:
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
Dividend
yield
|
|
|
None
|
|
|
None
|
|
Average
risk-free interest rate
|
|
|
4.7%
|
|
|
3.9%
|
|
Stock
price volatility
|
|
|
25%
|
|
|
27%
|
|
Estimated
option term
|
|
|
Four
or nine years
|
|
|
Four
or nine years
|
|
The
Company’s total comprehensive income for the three months ended March 31, 2006
and 2005 was as follows (in thousands):
|
|
Three
months ended March
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
22,580
|
|
$
|
13,279
|
|
Change
in fair value of derivative financial instruments, net of
tax
|
|
|
1,851
|
|
|
2,712
|
|
Total
comprehensive income
|
|
$
|
24,431
|
|
$
|
15,991
|
|
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)
(5)
|
SEGMENT
DATA - (Continued)
|
Diesel
Engine Services
-
Overhaul and repair of large 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 ended March 31, 2006 and 2005 and total
assets as of March 31, 2006 and December 31, 2005 (in thousands):
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Marine
transportation
|
|
$
|
189,383
|
|
$
|
157,210
|
|
Diesel
engine services
|
|
|
35,520
|
|
|
27,234
|
|
|
|
$
|
224,903
|
|
$
|
184,444
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss):
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
34,941
|
|
$
|
23,921
|
|
Diesel
engine services
|
|
|
5,765
|
|
|
3,467
|
|
Other
|
|
|
(4,228
|
)
|
|
(5,970
|
)
|
|
|
$
|
36,478
|
|
$
|
21,418
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Total
assets:
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
965,180
|
|
$
|
928,408
|
|
Diesel
engine services
|
|
|
68,284
|
|
|
55,113
|
|
Other
|
|
|
34,581
|
|
|
42,027
|
|
|
|
$
|
1,068,045
|
|
$
|
1,025,548
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(5)
|
SEGMENT
DATA - (Continued)
|
The
following table presents the details of “Other” segment profit (loss) for the
three months ended March 31, 2006 and 2005 (in thousands):
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
General
corporate expenses
|
|
$
|
(2,219
|
)
|
$
|
(1,997
|
)
|
Gain
on disposition of assets
|
|
|
157
|
|
|
192
|
|
Interest
expense
|
|
|
(2,698
|
)
|
|
(3,146
|
)
|
Equity
in earnings (loss) of marine affiliates
|
|
|
466
|
|
|
(703
|
)
|
Other
income (expense)
|
|
|
66
|
|
|
(316
|
)
|
|
|
$
|
(4,228
|
)
|
$
|
(5,970
|
)
|
The
following table presents the details of “Other” total assets as of March 31,
2006 and December 31, 2005 (in thousands):
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
General
corporate assets
|
|
$
|
32,619
|
|
$
|
30,161
|
|
Investment
in marine affiliates
|
|
|
1,962
|
|
|
11,866
|
|
|
|
$
|
34,581
|
|
$
|
42,027
|
|
Earnings
before taxes on income and details of the provision (credit) for taxes on income
for the three months ended March 31, 2006 and 2005 were as follows (in
thousands):
|
|
Three
months ended March
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Earnings
before taxes on income - United States
|
|
$
|
36,478
|
|
$
|
21,418
|
|
|
|
|
|
|
|
|
|
Provision
(credit) for taxes on income:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
Current
|
|
$
|
12,558
|
|
$
|
7,911
|
|
Deferred
|
|
|
(46
|
)
|
|
(543
|
)
|
State
and local
|
|
|
1,386
|
|
|
771
|
|
|
|
$
|
13,898
|
|
$
|
8,139
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(7)
|
EARNINGS
PER SHARE OF COMMON STOCK
|
The
following table presents the components of basic and diluted earnings per share
of common stock for the three months ended March 31, 2006 and 2005 (in
thousands, except per share amounts):
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
22,580
|
|
$
|
13,279
|
|
|
|
|
|
|
|
|
|
Shares
outstanding:
|
|
|
|
|
|
|
|
Weighted
average common stock outstanding
|
|
|
26,025
|
|
|
24,854
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Employee
and director common stock plans
|
|
|
476
|
|
|
724
|
|
|
|
|
26,501
|
|
|
25,578
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share of common stock
|
|
$
|
.87
|
|
$
|
.53
|
|
Diluted
earnings per share of common stock
|
|
$
|
.85
|
|
$
|
.52
|
|
Certain
outstanding options to purchase approximately 112,000 and 83,000 shares of
common stock were excluded in the computation of diluted earnings per share
as
of March 31, 2006 and 2005, respectively, as such stock options would have
been
antidilutive.
The
Company sponsors a defined benefit plan for vessel personnel. The plan benefits
are based on an employee’s years of service and compensation. The plan assets
consists 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 $1,000,000
to
$5,000,000 to its pension plan in November 2006 to fund its 2006 pension plan
obligations. As of March 31, 2006, no 2006 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 is contributory,
with
retiree contributions adjusted annually.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8)
|
RETIREMENT
PLANS - (Continued)
|
The
following table presents the components of net periodic benefit cost for the
three months ended March 31, 2006 and 2005 (in thousands):
|
|
Pension
Benefits
|
|
Postretirement
Benefits Other Than Pensions
|
|
|
|
Three
months ended March 31,
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,346
|
|
$
|
1,129
|
|
$
|
98
|
|
$
|
86
|
|
Interest
cost
|
|
|
1,474
|
|
|
1,281
|
|
|
134
|
|
|
120
|
|
Expected
return on assets
|
|
|
(1,841
|
)
|
|
(1,643
|
)
|
|
—
|
|
|
—
|
|
Amortization
of prior service cost
|
|
|
(22
|
)
|
|
(22
|
)
|
|
10
|
|
|
10
|
|
Amortization
of actuarial (gain) loss
|
|
|
756
|
|
|
557
|
|
|
(6
|
)
|
|
(26
|
)
|
Net
periodic benefit cost
|
|
$
|
1,713
|
|
$
|
1,302
|
|
$
|
236
|
|
$
|
190
|
|
The
Company has issued guaranties or obtained stand-by letters of credit and
performance bonds supporting performance by the Company and its subsidiaries
of
contractual or contingent legal obligations of the Company and its subsidiaries
incurred in the ordinary course of business. The aggregate notional value of
these instruments is $11,650,000 at March 31, 2006, including $10,730,000 in
letters of credit and debt guarantees, and $920,000 in performance bonds, of
which $683,000 relates to contingent legal obligations which are covered by
the
Company’s liability insurance program in the event the obligations are incurred.
All of these instruments have an expiration date within four years. The Company
does not believe demand for payment under these instruments is likely and
expects no material cash outlays to occur in connection with these
instruments.
In
2000,
the Company and a group of approximately 45 other companies were notified that
they are Potentially Responsible Parties (“PRPs”) under the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”) with respect
to a Superfund site, the Palmer Barge Line Site (“Palmer”), located in Port
Arthur, Texas. In prior years, Palmer had provided tank barge cleaning services
to various subsidiaries of the Company. The Company and three other PRPs have
entered into an agreement with the Environmental Protection Agency (“EPA”) to
perform a remedial investigation and feasibility study. Based on information
currently available, the Company believes its exposure is limited.
In
2004,
the Company and certain subsidiaries received a Request For Information (“RFI”)
from the EPA under CERCLA with respect to a Superfund site, the State Marine
site, located in Port Arthur, Texas. An RFI is not a determination that a party
is responsible or potentially responsible for contamination at a site, but
is
only a request seeking any information a party may have with respect to a site
as part of an EPA investigation into such site. In July 2005, a subsidiary
of
the Company received a notification of potential responsibility from the EPA
and
a request for voluntary participation in funding potential remediation
activities at the SBA Shipyards, Inc., (“SBA”) property located in Jennings,
Louisiana. In prior years, SBA had provided tank barge cleaning services to
the
subsidiary. Based on information currently available, the Company is unable
to
ascertain the extent of its exposure, if any, in these matters.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(9)
|
CONTINGENCIES
- (Continued)
|
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.
On
April
25, 2006, the Board of Directors declared a two-for-one stock split of the
Company’s common stock. Stockholders of record on May 10, 2006 will receive one
additional share of common stock for each share of common stock held on that
day. The additional shares will be distributed on May 31, 2006.
On
May 3,
2006, a wholly owned subsidiary of the Company, Marine Systems, Inc., signed
an
agreement to purchase the stock of Global Power Holding Company, a privately
held company that owns all of the outstanding equity of Global Power Systems,
L.L.C. (“Global”), a Gulf Coast high-speed diesel engine services provider, for
approximately $100,000,000 in cash. Global, headquartered in Houma, Louisiana,
operates factory-authorized full service dealerships for Caterpillar, Cummins,
Detroit Diesel and John Deere engines, as well as Allison transmissions.
Global’s principal customers are Gulf Coast offshore oil services companies,
inland waterway carriers, offshore towing companies and oil and gas drilling
companies. Global generated revenues of approximately $63,000,000 in 2005.
The
acquisition will be financed using the Company’s existing cash and revolving
credit facility. The closing of the acquisition is expected to occur in early
June 2006 and is subject to certain conditions, including expiration of the
required waiting period under the Hart-Scott-Rodino Act. The final purchase
price will be determined based on post-closing working capital
adjustments.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Part
I
|
Financial
Information
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Statements
contained in this Form 10-Q that are not historical facts, including, but not
limited to, any projections contained herein, are forward-looking statements
and
involve a number of risks and uncertainties. Such statements can be identified
by the use of forward-looking terminology such as “may,” “will,” “expect,”
“anticipate,” “estimate,” or “continue” or the negative thereof or other
variations thereon or comparable terminology. The actual results of the future
events described in such forward-looking statements in this Form 10-Q could
differ materially from those stated in such forward-looking statements. Among
the factors that could cause actual results to differ materially are: adverse
economic conditions, industry competition and other competitive factors, adverse
weather conditions such as high water, low water, tropical storms, hurricanes,
fog and ice, marine accidents, lock delays, fuel costs, interest rates,
construction of new equipment by competitors, 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, 2005. 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 for the first quarter of 2006 and 2005 were as follows (in
thousands):
|
|
Three
months ended March 31,
|
|
|
|
2006
|
|
2005
|
|
Weighted
average number of common stock-diluted
|
|
|
26,501
|
|
|
25,578
|
|
The
increase in the weighted average number of common shares for the 2006 first
quarter compared with the 2005 first quarter primarily reflected the issuance
of
restricted stock, exercise of employee and director stock options, as well
as
additional dilutive shares applicable to stock option plans.
Overview
The
Company is the nation’s largest domestic inland tank barge operator with a fleet
of 893 active tank barges as of March 31, 2006 and operated an average of 239
towing vessels during the 2006 first quarter. The Company uses the inland
waterway system of the United States to transport bulk liquids including
petrochemicals, black oil products, refined petroleum products and agricultural
chemicals. Through its diesel engine services segment, the Company provides
after-market services for large medium-speed and high-speed diesel engines
used
in marine, power generation and railroad applications.
For
the
2006 first quarter, the Company reported net earnings of $22,580,000, or $.85
per share, on revenues of $224,903,000, a significant improvement over 2005
first quarter net earnings of $13,279,000, or $.52 per share, on revenues of
$184,444,000. The 2006 first quarter performance reflected continued strong
petrochemical and black oil products demand in its marine transportation
segment, coupled with higher contract rate renewals, higher spot market pricing,
a favorable fuel pricing trend and unusually favorable 2006 first quarter
weather conditions, resulting in significantly lower delay
days.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
The
diesel engine services segment also performed at strong levels in the 2006
first
quarter, the result of continued strong service and parts sales across the
majority of its markets, combined with higher service rates and parts
pricing.
Marine
Transportation
For
the
2006 first quarter, approximately 84% of the Company’s revenue was generated by
its marine transportation segment. The segment’s customers include many of the
major petrochemical and refining companies in the 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 the performance
of the Company’s customer base. The following table shows the markets serviced
by the Company, the revenue distribution for the first quarter of 2006, products
moved and the drivers of the demand for the products the Company
transports:
End
Uses of Products Transported
Markets
Serviced
|
|
2006
First Qtr. Revenue Distribution
|
|
Products
Moved
|
|
Drivers
|
Petrochemicals
|
|
68%
|
|
Benzene,
Styrene, Methanol, Acrylonitrile, Xylene, Caustic Soda, Butadiene,
Propylene
|
|
Housing,
Consumer Goods, Autos, Clothing, Vehicle Usage
|
|
|
|
|
|
|
|
Black
Oil Products
|
|
20%
|
|
Residual
Oil, No. 6 Fuel Oil, Coker Feedstocks, Vacuum Gas, Asphalt, Boiler
Fuel,
Crude Oil, Ship Bunkers
|
|
Road
Construction, Feedstock for Refineries, Fuel for Power Plants and
Ships
|
|
|
|
|
|
|
|
Refined
Petroleum Products
|
|
9%
|
|
Gasoline
Blends, No. 2 Oil, Jet Fuel, Heating Oil
|
|
Vehicle
Usage, Air Travel, Weather Conditions
|
|
|
|
|
|
|
|
Agricultural
Chemicals
|
|
3%
|
|
Liquid
Fertilizers, Chemical Feedstocks
|
|
Corn,
Cotton, Wheat Production
|
The
Company’s marine transportation segment’s revenue and operating income for the
2006 first quarter increased 20% and 46%, respectively, when compared with
the
first quarter of 2005. The petrochemical market is the Company’s largest market,
contributing 68% of the marine transportation revenue for the 2006 first
quarter. During the first quarter, the demand for the movement of petrochemicals
remained strong, with term contract customers continuing to operate their plants
and facilities at high utilization rates, resulting in high tank barge
utilization. The black oil products market contributed 20% of first quarter
2006
marine transportation revenue. This market also remained strong as refineries
continued to operate at close to full capacity, generating high demand for
the
transportation of heavier residual oil by-products. Refined petroleum products
contributed 9% of 2006 first quarter marine transportation revenue, experiencing
higher than normal first quarter demand for the movement of products from the
Gulf Coast to the Midwest; however, the Company’s refined products volumes were
lower as tank barges were diverted to the stronger Gulf Intracoastal Waterway
petrochemical market to meet term contract requirements. In addition, the
Company has continued to retire its single hull tank barges which have been
used
primarily to transport refined products. The agricultural chemical market,
which
contributed 3% of 2006 first quarter marine transportation revenue, was
seasonally weak during the quarter due primarily to high inventory levels in
the
Midwest.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
During
the 2006 first quarter, approximately 70% of the marine transportation revenues
were under term contracts and 30% were spot market revenues. Rates under term
contracts renewed during the 2006 first quarter increased in the 4% to 6%
average range, with some contracts increasing by a higher percentage and some
by
a lower percentage. Effective January 1, 2006, escalators for labor and the
producer price index on numerous multi-year contracts resulted in rate increases
for those contracts by 2.5% to 3%. Spot market rates for the 2006 first quarter
for most marine transportation markets increased in the 5% to 10% average range
compared with the 2005 fourth quarter. The Company adjusts contract rates for
fuel on either a monthly or quarterly basis, depending on the specific contract.
Spot market contracts do not have escalators for fuel. During the 2006 first
quarter, the average cost of fuel consumed was $1.84 per gallon, 39% higher
than
the $1.32 per gallon average cost of fuel consumed during the 2005 first
quarter.
Navigational
delays for the 2006 first quarter were 2,471, down 25% compared with 3,289
delay
days recorded in the 2005 first quarter. Delay days measure the lost time
incurred by a tow (towboat and barge) during transit. The measure includes
transit delays caused by weather, lock congestion or closure and other
navigational factors. The 25% reduction was primarily the result of unusually
favorable winter weather conditions during the 2006 first quarter.
The
marine transportation operating margin for the 2006 first quarter improved
to
18.4% compared with 15.2% for the 2005 first quarter. Continued strong demand,
contract and spot market rate increases, the January 1, 2006 escalators on
long-term contracts, a favorable fuel pricing trend and unusually favorable
winter weather conditions all contributed to the higher operating
margin.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
Diesel
Engine Services
For
the
2006 first quarter, approximately 16% of the Company’s revenue was generated by
its diesel engine services segment of which 59% was generated through service
and 41% from parts sales. The results of the diesel engine services segment
are
largely tied to the industries it serves and, therefore, are influenced by
the
cycles of such industries. The following table shows the markets serviced by
the
Company, the revenue distribution for the first quarter of 2006 and the
customers for each market:
Markets
Serviced
|
|
2006
First Qtr. Revenue Distribution
|
|
Customers
|
Marine
|
|
64%
|
|
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
|
|
23%
|
|
Standby
Power Generation, Pumping Stations
|
|
|
|
|
|
Railroad
|
|
13%
|
|
Passenger
(Transit Systems), Class II Shortline,
Industrial
|
The
Company’s diesel engine services segment’s 2006 first quarter revenue and
operating income increased 30% and 66%, respectively, compared with the first
quarter of 2005. The results reflected continued strong in-house and in-field
service activity and direct parts sales in the majority of its markets. In
addition, the Company benefited from higher service rates and parts pricing
implemented during 2005 and in the 2006 first quarter.
The
diesel engine services segment’s operating margin for the 2006 first quarter
improved to 16.2% compared with 12.7% for the first quarter of 2005, reflecting
the strong markets, higher service activities, which generally earn a higher
operating margin than parts sales, increased pricing for service and parts,
and
higher labor utilization.
Cash
Flow and Capital Expenditures
The
Company continued to generate strong operating cash flow during the 2006 first
quarter, with net cash provided from operations of $31,306,000. Net cash
provided from operations for the 2005 first quarter was $36,302,000. In
addition, the Company generated cash of $7,169,000 from the exercise of stock
options. The cash was used for capital expenditures of $21,626,000, primarily
for fleet replacement, enhancement and expansion, and $15,505,000 for the
acquisition of the remaining 65% interest in Dixie Fuels and the purchase of
two
towboats. The Company reduced its debt-to-capitalization ratio from 27.1% at
December 31, 2005 to 25.9% at March 31, 2006.
Capital
expenditures were $21,626,000 for the 2006 first quarter and included $5,056,000
for new tank barge and towboat construction, and $16,570,000 primarily for
upgrading the existing marine transportation fleet. During the 2006 first
quarter, the Company took delivery and placed into service the final 30,000
barrel capacity tank barge under the 2005 program for the construction of
seventeen 30,000 barrel capacity barges.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
The
Company projects that capital expenditures for 2006 will be in the $120,000,000
to $130,000,000 range, including approximately $51,000,000 for new tank barge
and towboat construction, with the remainder primarily for upgrading the
existing marine transportation fleet. The 2006 program includes the construction
of twenty-three 30,000 barrel capacity tank barges at a cost of $45,000,000,
subject to adjustment for the price of steel, 15 of which will be additional
capacity and eight of which will be replacement barges for older barges removed
from service. Delivery of the barges will be throughout 2006, with the final
barge scheduled for delivery in March 2007. The 2006 program also includes
the
construction of four inland towboats at a cost of $13,000,000, $3,200,000 of
which was paid in December 2005 and included in the 2005 capital expenditures.
Two towboats are scheduled to be placed into service in the second half of
2006
and two in the 2007 first quarter.
In
March
2006, the Company entered into a contract for the construction of twelve 30,000
barrel capacity tank barges at a cost of approximately $28,000,000, subject
to
adjustment for the price of steel. In April 2006, the Company entered into
a
contract for the construction of eight 30,000 barrel capacity tank barges at
a
cost of approximately $15,000,000, subject to adjustment for the price of steel.
Of the 20 new barges under the two contracts, 14 barges will be additional
capacity and 6 barges will be replacement barges for older barges removed from
service. Delivery of 17 of the 20 barges is scheduled throughout the 2007 year
with the remaining three in the 2008 first quarter.
The
Company remains in excellent financial position to take advantage of internal
and external growth opportunities in its marine transportation and diesel engine
services segments. For the marine transportation segment, external growth
opportunities include potential acquisitions of independent inland tank barge
operators and fleet owners seeking to single source tank barge requirements.
Increasing the fleet size will allow the Company to improve asset utilization
through more backhaul opportunities, faster barge turnarounds, more efficient
use of horsepower, barges positioned closer to cargos, lower incremental costs
due to enhanced purchasing power, minimal incremental administrative staff
and
less cleaning due to operating more barges with compatible prior cargos. In
addition to the Global acquisition, 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 during 2006, the United States and global economies
will remain stable with continued strong demand for the transportation services
of the marine transportation segment, as well as continued strong service
activity and direct parts sales for the diesel engine services
segment.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Acquisitions
On
May 3,
2006, a wholly owned subsidiary of the Company signed an agreement to acquire
Global, a privately held Gulf Coast high-speed diesel engine services provider,
for approximately $100,000,000 in cash. Global, headquartered in Houma,
Louisiana, operates factory-authorized full service dealerships for Caterpillar,
Cummins, Detroit Diesel and John Deere engines, as well as Allison
transmissions. Global’s principal customers are Gulf Coast offshore oil services
companies, inland waterway carriers, offshore towing companies and oil and
gas
drilling companies. Global generated revenues of approximately $63,000,000
in
2005. The acquisition will be financed using the Company’s existing cash and
revolving credit facility. The closing of the acquisition is expected to occur
in early June 2006 and is subject to certain conditions, including expiration
of
the required waiting period under the Hart-Scott-Rodino Act. The final purchase
price will be determined based on post-closing working capital
adjustments.
On
March
1, 2006, the Company purchased from PFC the remaining 65% interest in Dixie
Fuels for $15,590,000, subject to post-closing working capital adjustments
and
drydocking expenditures. The Dixie Fuels partnership, formed in 1977, was 65%
owned by PFC and 35% owned by the Company. As part of the transaction, the
Company extended the expiration date of its marine transportation contract
with
PFC from 2008 to 2010. Revenues for Dixie Fuels for 2005 were approximately
$26,200,000.
Effective
January 1, 2006, the Company acquired an additional one-third interest in Osprey
from Richard L. Couch, increasing the Company’s ownership to a two-thirds
interest. The remaining one-third interest is owned by Cooper/T. Smith. Osprey,
formed in 2000, operates a barge feeder service for cargo containers between
Houston, New Orleans, Baton Rouge, as well as several ports located above Baton
Rouge on the Mississippi River. Revenues for Osprey for 2005 were approximately
$28,700,000.
On
December 13, 2005, the Company purchased the diesel engine services division
of
TECO for $500,000 in cash. In addition, the Company entered into a contract
to
provide diesel engine services to TECO.
On
June
24, 2005, the Company purchased ACL’s black oil products fleet of 10 inland tank
barges for $7,000,000 in cash. Five of the barges are currently in service
and
the other five barges are being renovated in 2006.
Results
of Operations
The
Company reported first quarter 2006 net earnings of $22,580,000, or $.85 per
share, on revenues of $224,903,000, compared with 2005 first quarter net
earnings of $13,279,000, or $.52 per share, on revenues of
$184,444,000.
Marine
transportation revenues for the 2006 first quarter were $189,383,000, or 84%
of
total revenues, compared with $157,210,000, or 85% of total revenues for the
2005 first quarter. Diesel engine services revenues for the 2006 first quarter
were $35,520,000, or 16% of total revenues, compared with $27,234,000, or 15%
of
total revenues for the 2005 first quarter.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Results
of Operations - (Continued)
For
purposes of the Management’s Discussion, all earnings per share are “diluted
earnings per share.” The weighted average number of common shares applicable to
diluted earnings for the 2006 and 2005 first quarter were 26,501,000 and
25,578,000, respectively.
Marine
Transportation
The
Company, through its marine transportation segment, is a provider of marine
transportation services, operating inland tank barges and towing vessels,
transporting petrochemicals, black oil products, refined petroleum products
and
agricultural chemicals along the United States inland waterways. As of March
31,
2006, the marine transportation segment operated 893 active inland tank barges,
with a total capacity of 16.6 million barrels, compared with 878 active inland
tank barges at March 31, 2005, with a total capacity of 16.3 million barrels.
The segment operated an average of 239 active inland towing vessels during
the
2006 first quarter and the first quarter of 2005. The marine transportation
segment also owns and operates four dry-bulk barge and tug units.
The
following table sets forth the Company’s marine transportation segment’s
revenues, costs and expenses, operating income and operating margins for the
three months ended March 31, 2006 compared with the three months ended March
31,
2005 (dollars in thousands):
|
|
Three
months ended March
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
Marine
transportation revenues
|
|
$
|
189,383
|
|
$
|
157,210
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
118,971
|
|
|
99,652
|
|
|
19
|
|
Selling,
general and administrative
|
|
|
18,162
|
|
|
16,312
|
|
|
11
|
|
Taxes,
other than on income
|
|
|
3,011
|
|
|
3,050
|
|
|
(1
|
)
|
Depreciation
and amortization
|
|
|
14,298
|
|
|
14,275
|
|
|
—
|
|
|
|
|
154,442
|
|
|
133,289
|
|
|
16
|
|
Operating
income
|
|
$
|
34,941
|
|
$
|
23,921
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margins
|
|
|
18.4
|
%
|
|
15.2
|
%
|
|
|
|
Marine
Transportation Revenues
Marine
transportation revenues for the 2006 first quarter increased 20% compared with
the 2005 first quarter, reflecting continued strong petrochemical and black
oil
products demand, and unusually favorable 2006 first quarter winter weather
conditions. In addition, the segment benefited from 2005 year and 2006 first
quarter contract and spot market increases, and labor and producer price index
escalators effective January 1, 2006 on numerous multi-year contracts, as well
as a favorable fuel pricing trend on term contracts.
Petrochemical
transportation demand for the 2006 first quarter remained strong, benefiting
from a continued strong United States economy. Term customers continued to
operate their plants and facilities at high utilization rates, resulting in
continued high barge utilization for most products and trade lanes.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Marine
Transportation Revenues - (Continued)
Black
oil
products demand during the 2006 first quarter remained strong as refineries
operated at close to full capacity, which generated heavy demand for waterborne
transportation of heavier refinery residual oil by-products.
Refined
petroleum products demand for transportation into the Midwest during the 2006
first quarter was stronger than normal; however, barge availability remained
constrained due to the diversion of barges to the stronger Gulf Intracoastal
Waterway petrochemical market to meet term contract requirements and the
Company’s continued retirement of single hull barges.
Agricultural
chemical demand was weak during the 2006 first quarter, primarily due to high
Midwest liquid fertilizer inventory levels which reduced demand for movements
of
imported liquid fertilizer into the Midwest.
As
described under Acquisitions above, the Company acquired an additional one-third
interest in Osprey in January 2006, increasing the Company’s ownership to 67%,
and purchased in March 2006 the remaining 65% of the Dixie Fuels partnership,
bringing the Company’s ownership to 100%. As a result of the acquisitions, the
Company began consolidating the results of both entities in the marine
transportation segment beginning on their acquisition dates. During the 2006
first quarter, the entities contributed a combined $5,096,000 of marine
transportation revenues.
For
the
first quarter of 2006, the marine transportation segment incurred 2,471 delay
days, a 25% improvement over the 2005 first quarter delay days of 3,289,
primarily reflecting unusually favorable first quarter weather conditions.
Delay
days measure the lost time incurred by a tow (towboat and one or more barges)
during transit. The measure includes transit delays caused by weather, lock
congestion or closure and other adverse navigating conditions.
During
the 2006 first quarter, approximately 70% of marine transportation revenues
were
under term contracts and 30% were spot market revenues. The 70% contract and
30%
spot market mix provides the Company with a stable revenue stream with less
exposure to day-to-day pricing fluctuations. Rates under term contracts renewed
in the 2006 first quarter increased in the 4% to 6% average range, primarily
the
result of continued strong industry demand and high utilization of tank barges.
Spot market rates for the 2006 first quarter, including fuel, for most product
lines were generally higher than contract rates and were approximately 5% to
10%
higher on average than 2005 fourth quarter spot market rates. Effective January
1, 2006, escalators for labor and the producer price index on numerous
multi-year contracts increased rates on such contracts by 2.5% to
3%.
Marine
Transportation Costs and Expenses
Costs
and
expenses for the 2006 first quarter increased 16% compared with the 2005 first
quarter, reflecting the higher costs and expenses associated with increased
marine transportation demand noted above.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Marine
Transportation Costs and Expenses - (Continued)
Costs
of
sales and operating expenses for the 2006 first quarter increased 19% compared
with the first three months of 2005, reflecting increased salaries and related
expenses, additional expenses associated with the increased demand, higher
towboat and tank barge maintenance expenditures, and increased rates for
chartered towboats. In addition, the higher price of diesel fuel consumed,
as
noted below, resulted in higher fuel costs. During the 2006 and 2005 first
quarters, the Company operated an average of 239 towboats. During the 2006
first
quarter, the Company consumed 13.3 million gallons of diesel fuel, slightly
higher than the 13.2 million consumed in the 2005 first quarter.
The
average price per gallon of diesel fuel consumed during the 2006 first quarter
was $1.84 compared with $1.32 per gallon for the first quarter of 2005. Term
contracts contain fuel escalation clauses that allow the Company to recover
increases in the cost of fuel; however, there is generally a 30 to 90 day delay
before the contracts are adjusted.
Selling,
general and administrative expenses for the 2006 first quarter increased 11%
compared with the 2005 first quarter, primarily reflecting January 1, 2006
salary increases and related expenses, higher incentive compensation accruals,
the impact of expensing stock options effective January 1, 2006 in accordance
with SFAS No. 123R and the consolidation of Dixie Fuels and Osprey in 2006.
Marine
Transportation Operating Income and Operating Margins
The
marine transportation operating income for the 2006 first quarter increased
46%
compared with the 2005 first quarter. The operating margin increased to 18.4%
compared with 15.2% for the first quarter of 2005. Continued strong demand,
favorable first quarter 2006 weather conditions, higher contract and spot market
pricing, a favorable fuel pricing trend and the January 1, 2006 escalators
on
numerous multi-year contracts positively impacted the operating income and
operating margin.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Diesel
Engine Services
The
Company, through its diesel engine services segment, sells genuine replacement
parts, provides service mechanics to overhaul and repair large medium-speed
and
high-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire large medium-speed and high-speed diesel
engines, and entire reduction gears. The segment services the marine, power
generation and railroad markets.
The
following table sets forth the Company’s diesel engine services segment’s
revenues, costs and expenses, operating income and operating margins for the
three months ended March 31, 2006 compared with the three months ended March
31,
2005 (dollars in thousands):
|
|
Three
months ended March 31,
|
|
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Diesel
engine services revenues
|
|
$
|
35,520
|
|
$
|
27,234
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
25,407
|
|
|
20,269
|
|
|
25
|
|
Selling,
general and administrative
|
|
|
3,922
|
|
|
3,110
|
|
|
26
|
|
Taxes,
other than on income
|
|
|
87
|
|
|
110
|
|
|
(21
|
)
|
Depreciation
and amortization
|
|
|
339
|
|
|
278
|
|
|
22
|
|
|
|
|
29,755
|
|
|
23,767
|
|
|
25
|
|
Operating
income
|
|
$
|
5,765
|
|
$
|
3,467
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margins
|
|
|
16.2
|
%
|
|
12.7
|
%
|
|
|
|
Diesel
Engine Services Revenues
Diesel
engine services revenues for the 2006 first quarter increased 30% compared
with
the first quarter of 2005 and were positively impacted by service modification
projects and direct parts sales in the power generation market, and overall
improved service levels and parts sales in the Gulf Coast, Great Lakes and
East
Coast marine markets and offshore oil service market. Historically, the first
quarter is the diesel engine services segment’s highest revenue quarter, as the
segment provides service to upper Mississippi River and Great Lakes customers
whose business levels are typically slower during the winter months. The Company
also benefited from higher service rates and parts pricing implemented during
2005 and in the 2006 first quarter.
Diesel
Engine Services Costs and Expenses
Costs
and
expenses for the 2006 first quarter increased 25% compared with the 2005 first
quarter. Costs of sales and operating expenses increased 25%, reflecting the
higher service and direct parts activity noted above, as well as increases
in
salaries and other related benefit expenses effective January 1, 2006. Selling,
general and administrative expenses increased 26%, primarily due to a January
1,
2006 increase in salaries and related expenses, higher incentive compensation
accruals and the expensing of stock options effective January 1,
2006.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Diesel
Engine Services Operating Income and Operating
Margins
Operating
income for the diesel engine services segment for the 2006 first quarter
increased 66% compared with the 2005 first quarter, reflecting the stronger
markets noted above, increased service and parts pricing, as well as higher
service revenue versus parts revenue mix. During the 2006 first quarter, 59%
of
the segment’s revenue was from service versus 58% for the 2005 first quarter.
The higher operating margin, 16.2% for the 2006 first quarter versus 12.7%
for
the 2005 first quarter, was primarily a reflection of the higher margin service
revenue mix, increased pricing for service and parts and higher labor
utilization.
General
Corporate Expenses
General
corporate expenses for the 2006 first quarter were $2,219,000 compared with
$1,997,000 for the first quarter of 2005. The 11% increase primarily reflected
increases in salaries and related expenses effective January 1, 2006, higher
employee incentive compensations accruals and the expensing of stock options
effective January 1, 2006.
Gain
(Loss) on Disposition of Assets
The
Company reported a net gain on disposition of assets of $157,000 for the 2006
first quarter and $192,000 for the 2005 first quarter, predominantly from the
sale of marine equipment.
Other
Income and Expenses
The
following table sets forth equity in earnings (loss) of marine affiliates,
other
income (expense) and interest expense for the three months ended March 31,
2006
compared with the three months ended March 31, 2005 (dollars in
thousands):
|
|
Three
months ended March 31,
|
|
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Equity
in earnings (loss) of marine affiliates
|
|
$
|
466
|
|
$
|
(703
|
)
|
|
N/A
|
|
Other
income (expense)
|
|
$
|
66
|
|
$
|
(316
|
)
|
|
N/A
|
|
Interest
expense
|
|
$
|
(2,698
|
)
|
$
|
(3,146
|
)
|
|
(14
|
)%
|
Equity
in Earnings (Loss) of Marine Affiliates
Equity
in
earnings (loss) of marine affiliates for the 2006 first quarter were $466,000,
consisting primarily of the Company’s portion of the January and February 2006
earnings from the 35% owned offshore marine partnership operating four offshore
dry-cargo barge and tug units. On March 1, 2006, the Company purchased the
remaining 65% interest in the marine partnership and the March results were
consolidated. For the 2005 first quarter, equity in earnings (loss) of marine
affiliates consisted primarily of the 35% owned offshore partnership and a
33%
interest in Osprey, a barge feeder service for cargo containers. For the 2005
first quarter a loss of $703,000 was recorded, primarily attributable to a
heavy
maintenance shipyard schedule for the 35% owned offshore marine partnership,
as
well as start-up costs for Osprey’s coastal service along the Gulf of Mexico,
which began in late 2004 and ended in October 2005. Effective January 1, 2006,
the Company acquired an additional one-third interest in Osprey and Osprey’s
results were consolidated for the 2006 first quarter.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Interest
Expense
Interest
expense for the 2006 first quarter decreased 14% compared with the first quarter
of 2005, due to lower average debt and a favorable interest adjustment
associated with the final settlement of the audit of the Company’s 2002 through
2004 federal tax returns with the Internal Revenue Service in the first quarter
of 2006. The average debt and average interest rate for the 2006 and 2005 first
quarters, including the effect of interest rate swaps and excluding the Internal
Revenue Service interest expense, were $200,614,000 and 6.0%, and $211,717,000
and 6.0%, respectively.
Financial
Condition, Capital Resources and Liquidity
Balance
Sheet
Total
assets as of March 31, 2006 were $1,068,045,000, a 4% increase compared with
$1,025,548,000 as of December 31, 2005. The following table sets forth the
significant components of the balance sheet as of March 31, 2006 compared with
December 31, 2005 (dollars in thousands):
|
|
March
31,
|
|
December
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
Assets:
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
205,997
|
|
$
|
186,276
|
|
|
11
|
%
|
Property
and equipment, net
|
|
|
667,846
|
|
|
642,381
|
|
|
4
|
|
Investment
in marine affiliates
|
|
|
1,962
|
|
|
11,866
|
|
|
(83
|
)
|
Goodwill,
net
|
|
|
165,244
|
|
|
160,641
|
|
|
3
|
|
Other
assets
|
|
|
26,996
|
|
|
24,384
|
|
|
11
|
|
|
|
$
|
1,068,045
|
|
$
|
1,025,548
|
|
|
4
|
%
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
147,880
|
|
$
|
139,821
|
|
|
6
|
%
|
Long-term
debt - less current portion
|
|
|
200,506
|
|
|
200,032
|
|
|
—
|
|
Deferred
income taxes
|
|
|
127,900
|
|
|
126,755
|
|
|
1
|
|
Minority
interest and other long-term liabilities
|
|
|
18,365
|
|
|
21,398
|
|
|
(14
|
)
|
Stockholders’
equity
|
|
|
573,394
|
|
|
537,542
|
|
|
7
|
|
|
|
$
|
1,068,045
|
|
$
|
1,025,548
|
|
|
4
|
%
|
Current
assets as of March 31, 2006 increased 11% compared with December 31, 2005,
reflecting an 11% increase in trade accounts receivable, primarily due to a
29%
increase in diesel engine services revenues during the first quarter of 2006
over the 2005 fourth quarter, and the acquisition of the Dixie Fuels and Osprey
current assets in the 2006 first quarter. Inventory - finished goods for diesel
engine services segment increased 19%, reflecting additional inventory to
support the stronger service activity and direct parts sales during the 2006
first quarter, as well as service projects to be delivered in the 2006 second
quarter.
Property
and equipment, net of accumulated depreciation, at March 31, 2006 increased
4%
compared with December 31, 2005. The increase reflected $21,626,000 of capital
expenditures for the 2006 first quarter, more fully described under Capital
Expenditures below, the fair value of the property and equipment acquired in
the
Dixie Fuels and Osprey transactions of $18,410,000, the purchase of two towboats
for $650,000, less $14,915,000 of depreciation expense and $306,000 of property
disposals during the 2006 first quarter.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Balance
Sheet - (Continued)
Investment
in marine affiliates as of March 31, 2006 decreased 83% compared with December
31, 2005, primarily reflecting the consolidation of the Dixie Fuels and Osprey
equity investments which were previously recorded under the equity method of
accounting prior to their acquisition by the Company in the 2006 first quarter.
Both transactions are more fully described under Acquisitions above.
Goodwill
- net as of March 31, 2006 increased 3% compared with December 31, 2005,
reflecting the goodwill recorded in the January 2006 acquisition of an
additional 33% interest in Osprey, bringing the Company’s ownership to 67%.
Osprey was previously recorded under the equity method of accounting.
Other
assets as of March 31, 2006 increased 11% compared with December 31, 2005.
The
increase was primarily attributable to an increase in intangibles related to
the
value assigned to the PFC marine transportation contract in the Dixie Fuels
acquisition and the repurchase of a diesel engine distribution agreement,
partially offset by the amortization of the long-term pension
asset.
Current
liabilities as of March 31, 2006 increased 6% compared with December 31, 2005.
Income taxes payable increased 284% primarily reflecting the current federal
tax
provision for the 2006 first quarter, with the first federal quarterly tax
payment not due until April 2006, offset by a tax payment of $2,456,000 related
to an Internal Revenue Service audit of the Company’s 2002 through 2004 federal
income tax returns. Accounts payable increased 16%, attributable to higher
marine transportation and diesel engine services business levels and higher
shipyard maintenance accruals. Accrued liabilities decreased 17%, primarily
from
the payment during the 2006 first quarter of employee incentive compensation
bonuses accrued during 2005, and the payment during the 2006 first quarter
of
property taxes accrued during 2005.
Minority
interest and other long-term liabilities as of March 31, 2006 decreased 14%
compared with December 31, 2005, primarily due to the recording of a $2,439,000
decrease in the fair value of swap agreements, more fully described under
Long-Term Financing below, and a decrease in accruals for employee deferred
compensation.
Stockholders’
equity as of March 31, 2006 increased 7% compared with December 31, 2005. The
increase was the result of $22,580,000 of net earnings for the first three
months of 2006, $6,615,000 decrease in treasury stock, a decrease of $254,000
in
additional paid-in capital, a $1,851,000 increase in accumulated other
comprehensive income and an increase of $5,060,000 in unearned compensation.
The
decrease in treasury stock was attributable to the exercise of stock options
and
the issuance of restricted stock. The increase in accumulated other
comprehensive income resulted from the net changes in fair value of interest
rate swap agreements, net of taxes, more fully described under Long-Term
Financing below. As a result of the adoption of SFAS No. 123R, the balance
of
$5,060,000 in unearned compensation as of January 1, 2006 was reclassified
to
and reduced the balance of additional paid-in capital.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Long-Term
Financing
The
Company has a $150,000,000 unsecured revolving credit facility (“Revolving
Credit Facility”) with a syndicate of banks, with JP Morgan Chase Bank as the
agent bank, and with a maturity date of December 9, 2007. The Revolving Credit
Facility allows for an increase in bank commitments under the agreement from
$150,000,000 up to a maximum of $225,000,000 without further amendments to
the
agreement. The Company did not have any borrowings outstanding under the
Revolving Credit Facility as of March 31, 2006. The Revolving Credit Facility
includes a $10,000,000 commitment which may be used for standby letters of
credit of which $7,612,000 was outstanding as of March 31, 2006. The Company
was
in compliance with all Revolving Credit Facility covenants as of March 31,
2006.
On
May
31, 2005, the Company issued $200,000,000 of unsecured floating rate senior
notes (“2005 Senior Notes”) due February 28, 2013. The 2005 Senior Notes pay
interest quarterly at a rate equal to LIBOR plus a margin of 0.5%. The 2005
Senior Notes are callable, at the Company’s option, with a 2% prepayment premium
during the first year, 1% during the second year and at par thereafter. No
principal payments are required until maturity in February 2013. The proceeds
of
the 2005 Senior Notes were used to repay the outstanding balance of the
Company’s $200,000,000 unsecured floating rate senior notes due February 2013
with an interest rate equal to LIBOR plus a margin of 1.2%. With the early
extinguishment, the Company expensed $1,144,000 of unamortized financing costs
associated with the retired senior notes during the 2005 second quarter. As
of
March 31, 2006, $200,000,000 was outstanding under the 2005 Senior Notes and
the
Company was in compliance with all 2005 Senior Notes covenants.
The
Company has a $10,000,000 line of credit (“Credit Line”) with Bank of America,
N.A. (“Bank of America”) for short-term liquidity needs and letters of credit.
The Credit Line, which matures on July 11, 2006, 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 March 31, 2006. Outstanding letters
of
credit under the Credit Line were $630,000 as of March 31, 2006.
The
Company has an uncommitted $5,000,000 revolving credit note (“Credit Note”) with
BNP Paribas (“BNP”) for short-term liquidity needs. The Credit Note, which
matures on December 31, 2006, allows the Company to borrow at an interest rate
equal to BNP’s current day cost of funds plus .35%. The Company did not have any
borrowings outstanding under the Credit Note as of March 31, 2006.
The
Company has on file with the Securities and Exchange Commission a shelf
registration for the issuance of up to $250,000,000 of debt securities,
including medium term notes, providing for the issuance of fixed rate or
floating rate debt with a maturity of nine months or longer. As of March 31,
2006, $121,000,000 was available under the shelf registration, subject to mutual
agreement to terms, to provide financing for future business or equipment
acquisitions, working capital requirements and reductions of the Company’s
Revolving Credit Facility and 2005 Senior Notes. As of March 31, 2006, there
were no outstanding debt securities under the shelf
registration.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Long-Term
Financing - (Continued)
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 swap agreements. The interest rate swap
agreements are designated as cash flow hedges, therefore, the changes in fair
value, to the extent that the swap agreements are effective, are recognized
in
other comprehensive income until the hedged interest expense is recognized
in
earnings. As of March 31, 2006, 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
|
|
Trade
date
|
|
Effective
date
|
|
Termination
date
|
|
Fixed
pay rate
|
|
Receive
rate
|
$
|
100,000
|
|
September
2003
|
|
March
2006
|
|
February
2013
|
|
5.45%
|
|
Three-month
LIBOR
|
$
|
50,000
|
|
April
2004
|
|
April
2004
|
|
May
2009
|
|
4.00%
|
|
Three-month
LIBOR
|
These
interest rate swaps hedge a majority of the Company’s long-term debt and only an
immaterial loss on ineffectiveness was recognized in the 2006 first quarter.
At
March 31, 2006, the fair value of the interest rate swap agreements was
$408,000, of which $1,711,000 and $1,303,000 was recorded as other assets and
other long-term liability, respectively, for swap maturities greater than twelve
months. The Company has recorded in interest expense, losses related to the
interest rate swap agreements of $213,000 and $957,000 for the three months
ended March 31, 2006 and 2005, respectively. Gains or losses on the interest
rate swap contracts offset increases or decreases in rates of the underlying
debt, which results in a fixed rate for the underlying debt. The Company
anticipates $150,000 of net gains included in accumulated other comprehensive
income will be transferred into earnings over the next year based on current
interest rates. Fair value amounts were determined as of March 31, 2006 and
2005
based on quoted market values of the Company’s portfolio of derivative
instruments.
Capital
Expenditures
Capital
expenditures for the 2006 first quarter were $21,626,000, of which $5,056,000
was for construction of new tank barges and towboats, and $16,570,000 was
primarily for upgrading of the existing marine transportation fleet.
In
October 2003, the Company entered into a contract for the construction of nine
30,000 barrel capacity inland tank barges, with five for use in the
transportation of petrochemical and refined petroleum products and four for
use
in the transportation of black oil products. Four barges were delivered in
the
2004 third quarter, four in the 2004 fourth quarter and one in the first quarter
of 2005. The purchase price of the nine barges was $15,700,000, of which
$14,091,000 was expended in 2004, with the balance expended in 2005. Financing
of the construction of the nine barges was through operating cash flows and
available credit under the Company’s Revolving Credit Facility.
In
June
2004, the Company entered into a contract for the construction of eleven 30,000
barrel capacity inland tank barges with four for use in the transportation
of
petrochemicals and refined petroleum products and seven for use in the
transportation of black oil products. Three of the barges were delivered in
the
2005 first quarter and the remaining eight were delivered in the 2005 second
quarter. The purchase price of the 11 barges was $24,660,000, of which
$24,614,000 was expended in 2005, with the balance expended in 2006. Financing
of the construction of the 11 barges was through operating cash flows and
available credit under the Company’s Revolving Credit Facility.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Capital
Expenditures - (Continued)
In
July
2004, the Company entered into a contract for the construction of six 30,000
capacity inland tank barges for use in the transportation of petrochemicals
and
refined petroleum products, and one 30,000 barrel capacity specialty
petrochemical barge. One barge was delivered in the 2005 second quarter, four
in
the 2005 third quarter, one in the 2005 fourth quarter and one in the 2006
first
quarter. The purchase price of the seven barges was $14,952,000, of which
$3,874,000 was expended in 2004, $10,869,000 in 2005 and the balance expended
in
2006. Financing of the construction of the seven barges was through operating
cash flows and available credit under the Company’s Revolving Credit
Facility.
In
November 2004, the Company entered into a contract for the construction of
twenty 10,000 barrel capacity inland tank barges for use in the transportation
of petrochemicals and refined petroleum products. Eight of the barges were
delivered in the 2005 third quarter and 12 in the 2005 fourth quarter. The
purchase price of the 20 barges was approximately $22,649,000, of which
$21,857,000 was expended in 2005, with the balance expended in 2006. Financing
of the construction of the 20 barges was through operating cash flows and
available credit under the Company’s Revolving Credit Facility.
In
July
2005, the Company entered into a contract for the construction of ten 30,000
barrel capacity inland tank barges for use in the transportation of
petrochemicals and refined petroleum products. Delivery of the 10 barges is
scheduled for May 2006 through March 2007. The purchase price of the 10 barges
is approximately $18,000,000, subject to adjustment based on steel prices,
of
which $3,661,000 was expended in 2005 and $2,878,000 in the 2006 first quarter.
Financing of the construction of the 10 barges will be through operating cash
flows and available credit under the Company’s Revolving Credit
Facility.
In
July
2005, the Company entered into a contract for the construction of thirteen
30,000 barrel capacity inland tank barges for use in the transportation of
petrochemicals and refined petroleum products. Delivery of the 13 barges is
scheduled for June through November 2006. The purchase price of the 13 barges
is
approximately $27,000,000, subject to adjustments based on steel prices, of
which no expenditures were made in 2005 or the 2006 first quarter. Financing
of
the construction of the 13 barges will be through operating cash flows and
available credit under the Company’s Revolving Credit Facility.
In
December 2005, the Company entered into a contract for the construction of
four
2100 horsepower towboats for use primarily with upriver movements. Delivery
of
the four towboats is scheduled from September 2006 through the 2007 first
quarter. The purchase price of the four towboats is approximately $13,000,000,
subject to adjustments based on steel prices, of which $3,220,000 was expended
in 2005 and $1,131,000 in the 2006 first quarter. Financing of the construction
of the four towboats will be through operating cash flows and available credit
under the Company’s Revolving Credit Facility.
In
March
2006, the Company entered into a contract for the construction of twelve 30,000
barrel capacity inland tank barges for use in the transportation of
petrochemicals and refined petroleum products. Delivery of the 12 barges is
scheduled for January through June 2007. The purchase price of the 12 barges
is
approximately $28,000,000, subject to adjustment based on steel prices, of
which
no expenditures were made in the 2006 first quarter. Financing of the
construction of the 12 barges will be through operating cash flows and available
credit under the Company’s Revolving Credit Facility.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Capital
Expenditures - (Continued)
In
April
2006, the Company entered into a contract for the construction of eight 30,000
barrel capacity inland tank barges for use in the transportation of
petrochemicals and refined petroleum products. Delivery of the eight barges
is
scheduled for April 2007 through February 2008. The purchase price of the eight
barges is approximately $15,000,000, subject to adjustments based on steel
prices, of which no expenditures were made in the 2006 first quarter. Financing
of the construction of the eight barges will be through operating cash flows
and
available credit under the Company’s Revolving Credit Facility.
A
number
of barges in the combined black oil fleet of the Company and Coastal Towing,
Inc. (“Coastal”) are scheduled to be retired and replaced with new barges. Under
the Company’s barge management agreement with Coastal, Coastal has the right to
maintain its same capacity share of the combined fleet by building replacement
barges as older barges are retired.
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 2006 first quarter, the Company did not purchase any treasury stock. As
of
May 9, 2006, the Company had 1,210,000 shares available under its existing
repurchase authorization. Historically, treasury stock purchases have been
financed through operating cash flows and borrowing under the Company’s
Revolving Credit Facility. The Company is authorized to purchase its common
stock on the New York Stock Exchange and in privately negotiated transactions.
When purchasing its common stock, the Company is subject to price, trading
volume and other market considerations. Shares purchased may be used for
reissuance upon the exercise of stock options or the granting of other forms
of
incentive compensation, in future acquisitions for stock or for other
appropriate corporate purposes.
Liquidity
The
Company generated net cash provided by operating activities of $31,306,000
during the three months ended March 31, 2006, 14% lower than the $36,302,000
generated during the three months ended March 31, 2005. The decrease in the
2006
versus 2005 first quarter reflected negative cash flows resulting from changes
in operating assets and liabilities, partially offset by stronger earnings
in
the 2006 first quarter versus the 2005 first quarter. The cash flows from
changes in operating assets and liabilities were lower in the 2006 first quarter
primarily due to a larger inventory increase to accommodate increased diesel
engine services activity levels. In addition, the Company had a smaller increase
in accounts payable in the 2006 first quarter versus the 2005 first quarter.
The
Company accounts for its ownership in its two marine partnerships under the
equity method of accounting, recognizing cash flow upon the receipt or
distribution of cash from the partnerships. For the three months ended March
31,
2005, the Company received cash of $490,000 from the partnerships.
Funds
generated are available for acquisitions, capital expenditure projects, treasury
stock repurchases, repayments of borrowings associated with each of the above
and other operating requirements. In addition to net cash flow provided by
operating activities, the Company also had available as of May 9, 2006,
$142,388,000 under its Revolving Credit Facility and $121,000,000 under its
shelf registration program, subject to mutual agreement and terms. As of May
8,
2006, the Company had $9,370,000 available under its Credit Line and $5,000,000
under the Credit Note.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Liquidity
- (Continued)
Neither
the Company, nor any of its subsidiaries, is obligated on any debt instrument,
swap agreement, or any other financial instrument or commercial contract which
has a rating trigger, except for pricing grids on its Revolving Credit Facility.
The
Company expects to continue to fund expenditures for acquisitions, capital
construction projects, treasury stock repurchases, repayment of borrowings,
and
for other operating requirements from a combination of funds generated from
operating activities and available financing arrangements.
The
Company has issued guaranties or obtained stand-by letters of credit and
performance bonds supporting performance by the Company and its subsidiaries
of
contractual or contingent legal obligations of the Company and its subsidiaries
incurred in the ordinary course of business. The aggregate notional value of
these instruments is $11,650,000 at March 31, 2006, including $10,730,000 in
letters of credit and debt guarantees, and $920,000 in performance bonds, of
which $683,000 relates to contingent legal obligations which are covered by
the
Company’s liability insurance program in the event the obligations are incurred.
All of these instruments have an expiration date within four years. The Company
does not believe demand for payment under these instruments is likely and
expects no material cash outlays to occur in connection with these instruments.
During
the last three years, inflation has had a relatively minor effect on the
financial results of the Company. The marine transportation segment has
long-term contracts that generally contain cost escalation clauses whereby
certain costs, including fuel, can be passed through to its customers; however,
there is typically a 30 to 90 day delay before contracts are adjusted for fuel
prices. Spot market rates are at the current market rate, including 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
Part
I
|
Financial
Information
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
The
Company is exposed to risk from changes in interest rates on certain of its
outstanding debt. The outstanding loan balances under the Company’s bank credit
facilities bear interest at variable rates based on prevailing short-term
interest rates in the United States and Europe. A 10% change in variable
interest rates would impact the 2006 interest expense by approximately $487,000,
based on balances outstanding at December 31, 2005, and change the fair value
of
the Company’s debt by less than 1%.
From
time
to time, the Company has utilized and expects to continue to utilize derivative
financial instruments with respect to a portion of its interest rate risks
to
achieve a more predictable cash flow by reducing its exposure to interest rate
fluctuations. These transactions generally are interest rate swap agreements
which are entered into with major financial institutions. Derivative financial
instruments related to the Company’s interest rate risks are intended to reduce
the Company’s exposure to increases in the benchmark interest rates underlying
the Company’s floating rate senior notes and variable rate bank credit
facilities. The Company does not enter into derivative financial instrument
transactions for speculative purposes.
From
time
to time, the Company hedges its exposure to fluctuations in short-term interest
rates under its variable rate bank credit facility and floating rate senior
notes by entering into interest rate swap agreements. The interest rate swap
agreements are designated as cash flow hedges, therefore, the changes in fair
value, to the extent that the swap agreements are effective, are recognized
in
other comprehensive income until the hedged interest expense is recognized
in
earnings. As of March 31, 2006, 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
|
|
Trade
date
|
|
Effective
date
|
|
Termination
date
|
|
Fixed
pay
rate
|
|
Receive
rate
|
$
|
100,000
|
|
September
2003
|
|
March
2006
|
|
February
2013
|
|
5.45%
|
|
Three-month
LIBOR
|
$
|
50,000
|
|
April
2004
|
|
April
2004
|
|
May
2009
|
|
4.00%
|
|
Three-month
LIBOR
|
These
interest rate swaps hedge a majority of the Company’s long-term debt and only an
immaterial loss on ineffectiveness was recognized in the 2006 first quarter.
At
March 31, 2006, the fair value of the interest rate swap agreements was
$408,000, of which $1,711,000 and $1,303,000 was recorded as other assets and
other long-term liability, respectively, for swap maturities greater than twelve
months. The Company has recorded in interest expense, losses related to the
interest rate swap agreements of $213,000 and $957,000 for the three months
ended March 31, 2006 and 2005, respectively. Gains or losses on the interest
rate swap contracts offset increases or decreases in rates of the underlying
debt, which results in a fixed rate for the underlying debt. The Company
anticipates $150,000 of net gains included in accumulated other comprehensive
income will be transferred into earnings over the next year based on current
interest rates. Fair value amounts were determined as of March 31, 2006 and
2005
based on quoted market values of the Company’s portfolio of derivative
instruments.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Item
4.
|
Controls
and Procedures
|
Based
on
their evaluation of the Company’s disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) as of the end of the period covered by this quarterly report, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded
that the 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
4.
|
Results
of Votes of Security
Holders
|
(a)
|
The
Company held its Annual Meeting of Stockholders on April 25,
2006.
|
(b)
|
Class
II Directors elected to serve until the 2009 Annual Meeting of
Stockholders were Bob G. Gower, Monte J. Miller and Joseph H. Pyne.
Class
III Directors continuing to serve until the 2007 Annual Meeting of
Stockholders are C. Sean Day, William M. Lamont, Jr. and C. Berdon
Lawrence. Class I Directors continuing to serve until the 2008 Annual
Meeting of Stockholders are Walter E. Johnson and George A. Peterkin,
Jr.
On April 25, 2006, David L. Lemmon was elected by the Board of Directors
as a Class I Director, replacing Robert G. Stone, Jr. who passed
away on
April 18, 2006.
|
The
number of for and withheld votes with respect to the election of the Class
II
Directors was as follows:
Bob
G. Gower
|
For
|
23,930,524
|
Withheld
|
194,702
|
Monte
J. Miller
|
For
|
23,146,009
|
Withheld
|
979,217
|
Joseph
H. Pyne
|
For
|
23,325,643
|
Withheld
|
799,583
|
(c)
|
A
proposal to ratify the Audit Committee’s selection of KPMG LLP as the
Company’s independent registered public accountants for 2006. The number
of for, against and abstain votes with respect to the matter was
as
follows:
|
For
|
23,422,043
|
Against
|
694,623
|
Abstain
|
8,560
|
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.
|
KIRBY
CORPORATION
|
|
|
(Registrant)
|
|
|
|
|
|
|
By:
|
/s/
NORMAN W. NOLEN
|
|
|
|
Norman
W. Nolen
|
|
|
|
Executive
Vice President, Treasurer and Chief Financial Officer
|
|
Dated:
May 9, 2006
37