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 June 30, 2006
¨
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
Commission
File Number |
1-7615
|
KIRBY
CORPORATION
(Exact
name of registrant as specified in its charter)
|
Nevada
|
|
74-1884980
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
|
|
|
|
|
|
|
55
Waugh Drive, Suite 1000, Houston, TX
|
|
77007
|
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
(713)
435-1000
(Registrant’s
telephone number, including area code)
No
Change
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
þ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer þ
Accelerated filer ¨
Non-accelerated
filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No
þ
The
number of shares outstanding of the registrant’s Common Stock, $.10 par value
per share, on August 7, 2006 was 53,000,000.
Part
I Financial Information
Item
1. Financial Statements
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
ASSETS
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
($
in thousands)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,278
|
|
$
|
17,838
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
Trade
- less allowance for doubtful accounts
|
|
|
151,787
|
|
|
118,259
|
|
Other
|
|
|
21,043
|
|
|
8,440
|
|
Inventory
- finished goods
|
|
|
38,321
|
|
|
18,967
|
|
Prepaid
expenses and other current assets
|
|
|
20,642
|
|
|
19,002
|
|
Deferred
income taxes
|
|
|
3,864
|
|
|
3,770
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
236,935
|
|
|
186,276
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,188,356
|
|
|
1,101,159
|
|
Less
accumulated depreciation
|
|
|
484,576
|
|
|
458,778
|
|
|
|
|
|
|
|
|
|
|
|
|
703,780
|
|
|
642,381
|
|
|
|
|
|
|
|
|
|
Investment
in marine affiliates
|
|
|
2,076
|
|
|
11,866
|
|
Goodwill
- net
|
|
|
221,226
|
|
|
160,641
|
|
Other
assets
|
|
|
43,736
|
|
|
24,384
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,207,753
|
|
$
|
1,025,548
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
BALANCE SHEETS
(Unaudited)
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
($
in thousands)
|
|
Current
liabilities:
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
844
|
|
$
|
4
|
|
Income
taxes payable
|
|
|
307
|
|
|
2,669
|
|
Accounts
payable
|
|
|
81,213
|
|
|
68,895
|
|
Accrued
liabilities
|
|
|
66,548
|
|
|
61,664
|
|
Deferred
revenues
|
|
|
7,025
|
|
|
6,589
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
155,937
|
|
|
139,821
|
|
|
|
|
|
|
|
|
|
Long-term
debt - less current portion
|
|
|
284,590
|
|
|
200,032
|
|
Deferred
income taxes
|
|
|
141,963
|
|
|
126,755
|
|
Minority
interests
|
|
|
2,946
|
|
|
3,088
|
|
Other
long-term liabilities
|
|
|
16,270
|
|
|
18,310
|
|
|
|
|
|
|
|
|
|
|
|
|
445,769
|
|
|
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 as of June 30, 2006,
120,000,000 shares, issued 57,337,000 shares; Authorized as of
December
31, 2005, 60,000,000 shares, issued 30,907,000 shares
|
|
|
5,734
|
|
|
3,091
|
|
Additional
paid-in capital
|
|
|
205,235
|
|
|
204,453
|
|
Accumulated
other comprehensive income - net
|
|
|
1,241
|
|
|
(2,028
|
)
|
Unearned
compensation
|
|
|
—
|
|
|
(5,060
|
)
|
Retained
earnings
|
|
|
474,813
|
|
|
428,900
|
|
|
|
|
687,023
|
|
|
629,356
|
|
|
|
|
|
|
|
|
|
Less
cost of 4,334,000 shares in treasury (4,936,000 at December
31, 2005)
|
|
|
80,976
|
|
|
91,814
|
|
|
|
|
|
|
|
|
|
|
|
|
606,047
|
|
|
537,542
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,207,753
|
|
$
|
1,025,548
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENT OF EARNINGS
(Unaudited)
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
($
in thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
204,088
|
|
$
|
170,742
|
|
$
|
393,471
|
|
$
|
327,952
|
|
Diesel
engine services
|
|
|
39,204
|
|
|
28,534
|
|
|
74,724
|
|
|
55,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,292
|
|
|
199,276
|
|
|
468,195
|
|
|
383,720
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
157,595
|
|
|
128,267
|
|
|
301,973
|
|
|
248,194
|
|
Selling,
general and administrative
|
|
|
26,518
|
|
|
22,228
|
|
|
50,279
|
|
|
43,187
|
|
Taxes,
other than on income
|
|
|
3,403
|
|
|
2,909
|
|
|
6,590
|
|
|
6,095
|
|
Depreciation
and amortization
|
|
|
15,515
|
|
|
13,964
|
|
|
30,605
|
|
|
28,945
|
|
Gain
on disposition of assets
|
|
|
(785
|
)
|
|
(1,795
|
)
|
|
(942
|
)
|
|
(1,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,246
|
|
|
165,573
|
|
|
388,505
|
|
|
324,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
41,046
|
|
|
33,703
|
|
|
79,690
|
|
|
59,286
|
|
Equity
in earnings of marine affiliates
|
|
|
87
|
|
|
707
|
|
|
553
|
|
|
4
|
|
Loss
on debt retirement
|
|
|
—
|
|
|
(1,144
|
)
|
|
—
|
|
|
(1,144
|
)
|
Other
expense
|
|
|
(134
|
)
|
|
(400
|
)
|
|
(68
|
)
|
|
(716
|
)
|
Interest
expense
|
|
|
(3,304
|
)
|
|
(3,113
|
)
|
|
(6,002
|
)
|
|
(6,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before taxes on income
|
|
|
37,695
|
|
|
29,753
|
|
|
74,173
|
|
|
51,171
|
|
Provision
for taxes on income
|
|
|
(14,362
|
)
|
|
(11,306
|
)
|
|
(28,260
|
)
|
|
(19,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
23,333
|
|
$
|
18,447
|
|
$
|
45,913
|
|
$
|
31,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.44
|
|
$
|
.37
|
|
$
|
.88
|
|
$
|
.64
|
|
Diluted
|
|
$
|
.44
|
|
$
|
.36
|
|
$
|
.86
|
|
$
|
.62
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED
STATEMENT OF CASH FLOWS
(Unaudited)
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
($
in thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
earnings
|
|
$
|
45,913
|
|
$
|
31,726
|
|
Adjustments
to reconcile net earnings to net cash provided by
operations:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
30,605
|
|
|
28,945
|
|
Deferred
income taxes
|
|
|
(44
|
)
|
|
(716
|
)
|
Loss
on debt retirement
|
|
|
—
|
|
|
1,144
|
|
Gain
on disposition of assets
|
|
|
(942
|
)
|
|
(1,987
|
)
|
Equity
in (earnings) loss of marine affiliates, net of
distributions
|
|
|
(553
|
)
|
|
1,466
|
|
Amortization
of unearned compensation
|
|
|
3,330
|
|
|
740
|
|
Other
|
|
|
198
|
|
|
481
|
|
Increase
(decrease) in cash flows resulting from changes in operating assets
and
liabilities, net
|
|
|
(15,973
|
)
|
|
2,275
|
|
Net
cash provided by operating activities
|
|
|
62,534
|
|
|
64,074
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(64,386
|
)
|
|
(63,563
|
)
|
Acquisitions
of business and marine equipment, net of cash acquired
|
|
|
(116,773
|
)
|
|
(7,000
|
)
|
Proceeds
from disposition of assets
|
|
|
2,020
|
|
|
5,512
|
|
Other
|
|
|
231
|
|
|
162
|
|
Net
cash used in investing activities
|
|
|
(178,908
|
)
|
|
(64,889
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from bank credit facilities, net
|
|
|
82,500
|
|
|
200
|
|
Proceeds
from senior notes
|
|
|
—
|
|
|
200,000
|
|
Payments
on senior notes
|
|
|
—
|
|
|
(200,000
|
)
|
Payments
on long-term debt
|
|
|
(47
|
)
|
|
(1,302
|
)
|
Proceeds
from exercise of stock options
|
|
|
10,999
|
|
|
3,332
|
|
Tax
benefit from equity compensation plans
|
|
|
5,550
|
|
|
—
|
|
Other
|
|
|
812
|
|
|
(259
|
)
|
Net
cash provided by financing activities
|
|
|
99,814
|
|
|
1,971
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(16,560
|
)
|
|
1,156
|
|
Cash
and cash equivalents, beginning of year
|
|
|
17,838
|
|
|
629
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,278
|
|
$
|
1,785
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,109
|
|
$
|
6,228
|
|
Income
taxes
|
|
$
|
26,162
|
|
$
|
18,125
|
|
Non-cash
investing activity:
|
|
|
|
|
|
|
|
Accrued
payable for working capital adjustment related to
acquisitions
|
|
$
|
81
|
|
$
|
—
|
|
Disposition
of assets for note receivables
|
|
$
|
1,310
|
|
$
|
363
|
|
Cash
acquired in acquisitions
|
|
$
|
2,867
|
|
$
|
—
|
|
Debt
assumed in acquisition
|
|
$
|
2,625
|
|
$
|
—
|
|
See
accompanying notes to condensed financial statements.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(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 June 30, 2006 and December 31, 2005,
and the
results of operations for the three months and six months ended June 30,
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
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 received one
additional share of common stock for each share of common stock held on that
day, with a distribution date of May 31, 2006. All references to number of
shares and per share information in the accompanying unaudited condensed
financial statements have been adjusted to reflect the stock split.
On
June
7, 2006, a wholly owned subsidiary of the Company, Marine Systems, Inc.,
purchased 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”). The Company purchased Global for an aggregate consideration (before
post-closing adjustments) of $101,678,000, consisting of $98,816,000 in cash,
the assumption of $2,625,000 of debt and $237,000 of merger costs. Global
is a
Gulf Coast high-speed diesel engine services provider, operating
factory-authorized full service marine market dealerships for Cummins, Detroit
Diesel and John Deere high-speed diesel engines, and Allison transmissions,
as
well as an authorized marine dealer for Caterpillar in Louisiana. As a result
of
the acquisition, the Company recorded $55,982,000 of goodwill and $16,292,000
of
intangibles. The intangibles have a weighted average amortization period
of
approximately 16 years. Revenues for Global were approximately $63,000,000
in
2005. Financing of the cash portion of the acquisition was through a combination
of existing cash and the Company’s revolving credit facility.
On
April
5, 2006, the Company purchased Gulf Coast Fire & Safety Service Company
(“Gulf Coast Fire & Safety”) for $1,008,000 in cash. Gulf Coast Fire &
Safety provides sales and rental of equipment and various technical services
related to fire suppression and protection, and will be part of the Logistics
Management division, the Company’s shore tankering operations and in-plant
operations group. Financing of the acquisition was through the Company’s
operating cash flows.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(2)
|
ACQUISITIONS
- (Continued)
|
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 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.
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 and the income tax benefit recognized in the income statement
for
stock awards were as follows:
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Compensation
cost
|
|
$
|
1,900
|
|
$
|
452
|
|
$
|
3,330
|
|
$
|
740
|
|
Income
tax benefit
|
|
$
|
724
|
|
$
|
172
|
|
$
|
1,269
|
|
$
|
282
|
|
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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
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.
The
following table summarizes pro forma net earnings and earnings per share
for the
three months and six months ended June 30, 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
June
30, 2005
|
|
Six
months ended
June
30, 2005
|
|
Net
earnings, as reported
|
|
$
|
18,447
|
|
$
|
31,726
|
|
Add:
Total stock-based employee compensation expense included in net
income,
net of related tax effects
|
|
|
280
|
|
|
458
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
|
|
(703
|
)
|
|
(1,248
|
)
|
Pro
forma net earnings
|
|
$
|
18,024
|
|
$
|
30,936
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
$
|
.37
|
|
$
|
.64
|
|
Basic
- pro forma
|
|
$
|
.36
|
|
$
|
.62
|
|
Diluted
- as reported
|
|
$
|
.36
|
|
$
|
.62
|
|
Diluted
- pro forma
|
|
$
|
.35
|
|
$
|
.60
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
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 on and after February 10, 2000
have terms of five years and vest ratably over three years. At June 30, 2006,
1,842,212 shares were available for future grants under the employee plans
and
no outstanding stock options under the employee plans were issued with stock
appreciation rights.
The
following is a summary of the stock award activity under the employee plans
described above for the six months ended June 30, 2006:
|
|
Outstanding
Non-Qualified or Nonincentive Stock
Awards
|
|
Weighted
Average Exercise Price
|
|
Outstanding
December 31, 2005
|
|
|
1,798,212
|
|
$
|
14.56
|
|
Granted
|
|
|
426,546
|
|
$
|
27.17
|
|
Exercised
|
|
|
(996,050
|
)
|
$
|
12.40
|
|
Canceled
or expired
|
|
|
(1,388
|
)
|
$
|
16.96
|
|
Outstanding
June 30, 2006
|
|
|
1,227,320
|
|
$
|
18.24
|
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the employee plans at June 30,
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
|
|
$8.95
- $9.94
|
|
|
86,000
|
|
|
1.9
|
|
$
|
9.35
|
|
|
|
|
|
86,000
|
|
$
|
9.35
|
|
|
|
|
$12.78
- $14.09
|
|
|
268,668
|
|
|
1.34
|
|
$
|
12.98
|
|
|
|
|
|
268,668
|
|
$
|
12.98
|
|
|
|
|
$15.08
- $16.96
|
|
|
432,844
|
|
|
2.57
|
|
$
|
16.90
|
|
|
|
|
|
222,366
|
|
$
|
16.96
|
|
|
|
|
$20.89
- $22.05
|
|
|
216,400
|
|
|
3.66
|
|
$
|
21.78
|
|
|
|
|
|
72,126
|
|
$
|
21.78
|
|
|
|
|
$25.69
- $27.60
|
|
|
223,408
|
|
|
4.62
|
|
$
|
27.17
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
$8.95
- $27.60
|
|
|
1,227,320
|
|
|
2.83
|
|
$
|
18.24
|
|
$
|
26,088,000
|
|
|
649,160
|
|
$
|
14.84
|
|
$
|
16,009,000
|
|
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 June 30, 2006, 173,690
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.
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 director plans
described above for the six months ended June 30, 2006:
|
|
Outstanding
Non-Qualified or Nonincentive Stock
Awards
|
|
Weighted
Average Exercise Price
|
|
Outstanding
December 31, 2005
|
|
|
354,722
|
|
$
|
14.02
|
|
Granted
|
|
|
75,496
|
|
$
|
35.20
|
|
Exercised
|
|
|
(86,902
|
)
|
$
|
14.92
|
|
Outstanding
June 30, 2006
|
|
|
343,316
|
|
$
|
17.81
|
|
The
following table summarizes information about the Company’s outstanding and
exercisable stock options under the director plans at June 30,
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
|
|
$8.53
- $9.94
|
|
|
41,692
|
|
|
2.69
|
|
$
|
9.64
|
|
|
|
|
|
41,692
|
|
$
|
9.64
|
|
|
|
|
$10.07
- $12.75
|
|
|
123,426
|
|
|
5.13
|
|
$
|
11.33
|
|
|
|
|
|
123,426
|
|
$
|
11.33
|
|
|
|
|
$15.74
- $20.28
|
|
|
112,162
|
|
|
7.31
|
|
$
|
17.73
|
|
|
|
|
|
112,162
|
|
$
|
17.73
|
|
|
|
|
$35.17
- $36.22
|
|
|
66,036
|
|
|
9.83
|
|
$
|
35.20
|
|
|
|
|
|
21,008
|
|
$
|
35.19
|
|
|
|
|
$8.53
- $36.22
|
|
|
343,316
|
|
|
6.44
|
|
$
|
17.81
|
|
$
|
7,447,000
|
|
|
298,288
|
|
$
|
15.18
|
|
$
|
7,254,000
|
|
The
total
intrinsic value of all options exercised and restricted stock vestings under
all
of the Company’s plans was $19,189,000 and $5,780,000 for the six months ended
June 30, 2006 and 2005, respectively. The actual tax benefit realized for
tax
deductions from stock award plans was $7,311,000 and $2,202,000 for the six
months ended June 30, 2006 and 2005, respectively.
As
of
June 30, 2006, there was $3,634,000 of unrecognized compensation cost related
to
nonvested stock options and $9,452,000 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 3.1 years.
The
total fair value of shares vested was $4,655,000 and $3,486,000 during the
six
months ended June 30, 2006 and 2005, respectively.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(3)
|
STOCK
AWARD PLANS - (Continued)
|
The
weighted average fair value of options granted during the six months ended
June
30, 2006 and 2005 was $10.18 and $6.89 per share, respectively. The fair
value
of the options granted during the six months ended June 30, 2006 and 2005
was
$2,294,000 and $1,443,000, 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 six months ended June 30, 2006 and
2005
were as follows:
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
Dividend
yield
|
|
None
|
|
None
|
|
Average
risk-free interest rate
|
|
4.9%
|
|
3.9%
|
|
Stock
price volatility
|
|
25%
|
|
27%
|
|
Estimated
option term
|
|
Four
or nine years
|
|
Four
or nine years
|
|
The
Company has an unsecured revolving credit facility (the “Revolving Credit
Facility”) with a syndicate of banks with JP Morgan Chase Bank as the agent
bank. On June 14, 2006, the Company increased the Revolving Credit Facility
to
$250,000,000 from a previous $150,000,000 facility, and extended the maturity
date to June 14, 2011 from the previous maturity date of December 9, 2007.
The
Revolving Credit Facility allows for an increase in the commitments of the
banks
from $250,000,000 up to a maximum of $325,000,000, subject to the consent
of
each bank that elects to participate in the increased commitment. The unsecured
Revolving Credit Facility has a variable interest rate spread based on the
London Interbank Offered Rate (”LIBOR”) that varies with the Company’s senior
debt rating and the level of debt outstanding. As of June 30, 2006, the Company
has $82,500,000 of borrowings outstanding under the Revolving Credit Facility.
The Revolving Credit Facility includes a $25,000,000 commitment which may
be
used for standby letters of credit of which $7,612,000 was outstanding as
of
June 30, 2006. The Company was in compliance with all Revolving Credit Facility
covenants as of June 30, 2006.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The
Company’s total comprehensive income for the three months and six months ended
June 30, 2006 and 2005 was as follows (in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
23,333
|
|
$
|
18,447
|
|
$
|
45,913
|
|
$
|
31,726
|
|
Change
in fair value of derivative financial instruments, net of
tax
|
|
|
1,418
|
|
|
(2,826
|
)
|
|
3,269
|
|
|
(114
|
)
|
Total
comprehensive income
|
|
$
|
24,751
|
|
$
|
15,621
|
|
$
|
49,182
|
|
$
|
31,612
|
|
The
Company’s operations are classified into two reportable business segments as
follows:
Marine
Transportation
- Marine
transportation by United States flag vessels on the United States inland
waterway system and, to a lesser extent, offshore transportation of dry-bulk
cargoes. The principal products transported on the United States inland waterway
system include petrochemicals, black oil products, refined petroleum products
and agricultural chemicals.
Diesel
Engine Services
-
Overhaul and repair of 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(6)
|
SEGMENT
DATA - (Continued)
|
The
following table sets forth the Company’s revenues and profit or loss by
reportable segment for the three months and six months ended June 30, 2006
and
2005 and total assets as of June 30, 2006 and December 31, 2005 (in
thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
204,088
|
|
$
|
170,742
|
|
$
|
393,471
|
|
$
|
327,952
|
|
Diesel
engine services
|
|
|
39,204
|
|
|
28,534
|
|
|
74,724
|
|
|
55,768
|
|
|
|
$
|
243,292
|
|
$
|
199,276
|
|
$
|
468,195
|
|
$
|
383,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
transportation
|
|
$
|
37,998
|
|
$
|
30,683
|
|
$
|
72,939
|
|
$
|
54,604
|
|
Diesel
engine services
|
|
|
5,875
|
|
|
3,443
|
|
|
11,640
|
|
|
6,910
|
|
Other
|
|
|
(6,178
|
)
|
|
(4,373
|
)
|
|
(10,406
|
)
|
|
(10,343
|
)
|
|
|
$
|
37,695
|
|
$
|
29,753
|
|
$
|
74,173
|
|
$
|
51,171
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Total
assets:
|
|
|
|
|
|
Marine
transportation
|
|
$
|
993,331
|
|
$
|
928,408
|
|
Diesel
engine services
|
|
|
197,556
|
|
|
55,113
|
|
Other
|
|
|
16,866
|
|
|
42,027
|
|
|
|
$
|
1,207,753
|
|
$
|
1,025,548
|
|
The
following table presents the details of “Other” segment profit (loss) for the
three months and six months ended June 30, 2006 and 2005 (in
thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
General
corporate expenses
|
|
$
|
(3,612
|
)
|
$
|
(2,218
|
)
|
$
|
(5,831
|
)
|
$
|
(4,215
|
)
|
Gain
on disposition of assets
|
|
|
785
|
|
|
1,795
|
|
|
942
|
|
|
1,987
|
|
Interest
expense
|
|
|
(3,304
|
)
|
|
(3,113
|
)
|
|
(6,002
|
)
|
|
(6,259
|
)
|
Equity
in earnings of marine affiliates
|
|
|
87
|
|
|
707
|
|
|
553
|
|
|
4
|
|
Loss
on debt retirement
|
|
|
—
|
|
|
(1,144
|
)
|
|
—
|
|
|
(1,144
|
)
|
Other
expense
|
|
|
(134
|
)
|
|
(400
|
)
|
|
(68
|
)
|
|
(716
|
)
|
|
|
$
|
(6,178
|
)
|
$
|
(4,373
|
)
|
$
|
(10,406
|
)
|
$
|
(10,343
|
)
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(6)
|
SEGMENT
DATA - (Continued)
|
The
following table presents the details of “Other” total assets as of June 30, 2006
and December 31, 2005 (in thousands):
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
General
corporate assets
|
|
$
|
14,790
|
|
$
|
30,161
|
|
Investment
in marine affiliates
|
|
|
2,076
|
|
|
11,866
|
|
|
|
$
|
16,866
|
|
$
|
42,027
|
|
Earnings
before taxes on income and details of the provision (credit) for taxes on
income
for the three months and six months ended June 30, 2006 and 2005 were as
follows
(in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before taxes on income - United States
|
|
$
|
37,695
|
|
$
|
29,753
|
|
$
|
74,173
|
|
$
|
51,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(credit) for taxes on income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
13,070
|
|
$
|
10,790
|
|
$
|
25,628
|
|
$
|
18,701
|
|
Deferred
|
|
|
(138
|
)
|
|
(555
|
)
|
|
(184
|
)
|
|
(1,098
|
)
|
State
and local
|
|
|
1,430
|
|
|
1,071
|
|
|
2,816
|
|
|
1,842
|
|
|
|
$
|
14,362
|
|
$
|
11,306
|
|
$
|
28,260
|
|
$
|
19,445
|
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8)
|
EARNINGS
PER SHARE OF COMMON STOCK
|
The
following table presents the components of basic and diluted earnings per
share
of common stock for the three months and six months ended June 30, 2006 and
2005
(in thousands, except per share amounts):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
23,333
|
|
$
|
18,447
|
|
$
|
45,913
|
|
$
|
31,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common stock outstanding
|
|
|
52,450
|
|
|
49,890
|
|
|
52,268
|
|
|
49,814
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
and director common stock plans
|
|
|
961
|
|
|
1,394
|
|
|
940
|
|
|
1,410
|
|
|
|
|
53,411
|
|
|
51,284
|
|
|
53,208
|
|
|
51,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share of common stock
|
|
$
|
.44
|
|
$
|
.37
|
|
$
|
.88
|
|
$
|
.64
|
|
Diluted
earnings per share of common stock
|
|
$
|
.44
|
|
$
|
.36
|
|
$
|
.86
|
|
$
|
.62
|
|
Certain
outstanding options to purchase approximately 22,000 and 166,000 shares of
common stock were excluded in the computation of diluted earnings per share
as
of June 30, 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 June 30, 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)
(9)
|
RETIREMENT
PLANS - (Continued)
|
The
following table presents the components of net periodic benefit cost for
the
three months and six months ended June 30, 2006 and 2005 (in
thousands):
|
|
Pension
Benefits
|
|
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,349
|
|
$
|
1,174
|
|
$
|
2,695
|
|
$
|
2,303
|
|
Interest
cost
|
|
|
1,476
|
|
|
1,295
|
|
|
2,950
|
|
|
2,576
|
|
Expected
return on assets
|
|
|
(1,845
|
)
|
|
(1,554
|
)
|
|
(3,686
|
)
|
|
(3,197
|
)
|
Amortization
of prior service cost
|
|
|
(23
|
)
|
|
(23
|
)
|
|
(45
|
)
|
|
(45
|
)
|
Amortization
of actuarial loss
|
|
|
759
|
|
|
596
|
|
|
1,515
|
|
|
1,153
|
|
Net
periodic benefit cost
|
|
$
|
1,716
|
|
$
|
1,488
|
|
$
|
3,429
|
|
$
|
2,790
|
|
|
|
Postretirement
Benefits Other Than Pensions
|
|
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
99
|
|
$
|
91
|
|
$
|
197
|
|
$
|
177
|
|
Interest
cost
|
|
|
135
|
|
|
66
|
|
|
269
|
|
|
186
|
|
Amortization
of prior service cost
|
|
|
10
|
|
|
10
|
|
|
20
|
|
|
20
|
|
Amortization
of actuarial loss
|
|
|
(6
|
)
|
|
(46
|
)
|
|
(12
|
)
|
|
(72
|
)
|
Net
periodic benefit cost
|
|
$
|
238
|
|
$
|
121
|
|
$
|
474
|
|
$
|
311
|
|
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 June 30, 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES
TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(10)
|
CONTINGENCIES
- (Continued)
|
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.
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
July
21, 2006, the Company purchased the assets of Marine Engine Specialists,
Inc.
(“MES”) for $3,600,000 in cash, subject to post-closing inventory adjustments.
MES is a Gulf Coast high-speed diesel engine services provider, operating
a
factory-authorized full service dealership for John Deere, as well as a service
provider for Detroit Diesel. Financing of the acquisition was through the
Company’s Revolving Credit Facility.
On
July
24, 2006, the Company signed an agreement to purchase the assets of Capital
Towing Company (“Capital”) for approximately $15,000,000 in cash. Capital owns
11 towboats, six of which are currently on charter to the Company. One towboat
is currently under charter to another company and that charter expires within
30
days. The remaining four are under charters with other companies with terms
expiring within the next ten months. The six towboats currently chartered
to the
Company were purchased for $9,721,000 on August 4, 2006 and were financed
through the Company’s Revolving Credit Facility. The remaining five towboats
will be purchased upon expiration of their present charters and will also
be
financed through the Company’s Revolving Credit Facility. The Company and
Capital have entered into a charter agreement whereby Capital will continue
to
operate the towboats. The vessel crew will remain employees of Capital.
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.
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 received one
additional share of common stock for each share of common stock held on that
day, with a distribution date of May 31, 2006. All references to number of
shares and per share information in the accompanying unaudited condensed
financial statements have been adjusted to reflect the stock split.
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 three months and six months ended June 30, 2006
and
2005 were as follows (in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Weighted
average number of common stock-diluted
|
|
|
53,411
|
|
|
51,284
|
|
|
53,208
|
|
|
51,224
|
|
The
increase in the weighted average number of common shares for both 2006 periods
compared with the 2005 periods primarily reflected the issuance of restricted
stock and the exercise of employee and director stock options.
Overview
The
Company is the nation’s largest domestic inland tank barge operator with a fleet
of 897 active tank barges as of June 30, 2006 and operated an average of
241
towing vessels during the 2006 second quarter and 240 during the 2006 first
six
months. 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. The Company also owns and
operates four ocean-going barge and tug units transporting dry-bulk commodities
in United States coastwise trade. Through its diesel engine services segment,
the Company provides after-market services for large medium-speed and high-speed
diesel engines and reduction gears used in marine, power generation and railroad
applications.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
For
the
2006 second quarter, the Company reported net earnings of $23,333,000, or
$.44
per share, on revenues of $243,292,000, a significant improvement over 2005
second quarter net earnings of $18,447,000, or $.36 per share, on revenues
of
$199,276,000. For the first six months of 2006, the Company reported net
earnings of $45,913,000, or $.86 per share, on revenues of $468,195,000,
compared with 2005 first six months net earnings of $31,726,000, or $.62
per
share, on revenues of $383,720,000. The 2006 second quarter and first half
performance reflected continued strong petrochemical and black oil products
demand in its marine transportation segment, coupled with higher contract
rate
renewals and higher spot market pricing. The diesel engine services segment
also
performed at strong levels in the 2006 second quarter and first half, 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 second quarter and first six months, 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 six months of 2006, products moved and the drivers of the demand for
the
products the Company transports:
Markets
Serviced
|
|
2006
First Six Months Revenue Distribution
|
|
Products
Moved
|
|
Drivers
|
Petrochemicals
|
|
68%
|
|
Benzene,
Styrene, Methanol, Acrylonitrile, Xylene, Caustic Soda, Butadiene,
Propylene
|
|
Housing,
Consumer Goods, Clothing, Automobiles
|
|
|
|
|
|
|
|
Black
Oil Products
|
|
20%
|
|
Residual
Fuel, No. 6 Fuel Oil, Coker Feedstocks, Vacuum Gas, Asphalt, Boiler
Fuel,
Crude Oil, Ship Bunkers
|
|
Road
Construction, Refinery Utilization, 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, Refinery Utilization
|
|
|
|
|
|
|
|
Agricultural
Chemicals
|
|
3%
|
|
Anhydrous
Ammonia, Nitrogen Based Liquid Fertilizer, Industrial
Ammonia
|
|
Agricultural
Economy, Chemical Feedstock Usage
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
The
Company’s marine transportation segment’s revenue and operating income for the
2006 second quarter increased 20% and 24%, respectively, when compared with
the
second quarter of 2005. For the 2006 first six months, revenue and operating
income increased 20% and 34%, respectively, compared with the first six months
of 2005. The petrochemical market is the Company’s largest market, contributing
68% of the marine transportation revenue for the 2006 first six months. During
the second quarter and first six months, 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
2006
first six months 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 six months marine transportation
revenue, experiencing higher than normal demand for the movement of products
from the Gulf Coast to the Midwest; however, the Company’s refined products
volumes for the majority of the first five months of 2006 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 six months marine transportation revenue, was
seasonally weak due primarily to high inventory levels in the
Midwest.
The
2006
second quarter was negatively impacted by an estimated $.03 to $.04 per share
from diesel fuel cost recovery clauses in certain marine transportation
long-term contracts. The 2006 first quarter earnings were positively impacted
by
an estimated $.03 to $.04 per share from fuel cost recovery under the same
long-term contracts. For the first six months of 2006, the estimated impact
of
the diesel fuel cost recovery clauses was neutral. The results for both 2006
periods were also negatively impacted by a shortage of towboats which resulted
in delays and a tight labor market which resulted in wage increases for vessel
personnel.
During
the 2006 second quarter and first six months, 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 second quarter
and
first six months increased in the 4% to 7% 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 second quarter and first six months for
most
marine transportation markets increased over 25% compared with the 2005
corresponding periods. The Company adjusts contract rates for fuel on either
a
monthly or quarterly basis, depending on the specific contract. Spot market
contracts are at current market rates and include the cost of fuel. During
the
2006 second quarter, the average cost of fuel consumed was $1.99 per gallon,
28%
higher than the $1.55 per gallon average cost of fuel consumed during the
2005
second quarter. During the 2006 first six months, the average cost of fuel
consumed was $1.92, 33% higher than the $1.44 per gallon for the 2005 first
six
months.
Navigational
delays for the 2006 second quarter were 1,378, down 23% compared with 1,790
delay days recorded in the 2005 second quarter. For the 2006 first six months,
navigational delays were 3,849, down 24% compared with 5,079 delay days recorded
in the 2005 first half. 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 navigational
factors. The reduction for both 2006 periods was primarily the result of
favorable weather conditions and water levels during the 2006 second quarter
and
unusually favorable winter weather conditions and water levels during the
2006
first quarter.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
The
marine transportation operating margin for the 2006 second quarter and first
six
months were 18.6% and 18.5%, respectively, an improvement when compared with
operating margins of 18.0% for the 2005 second quarter and 16.7% for the
2005
first six months. Continued strong demand, contract and spot market rate
increases, the January 1, 2006 escalators on long-term contracts and favorable
weather conditions and water levels all contributed to the higher 2006 operating
margin for both comparable periods.
Diesel
Engine Services
For
the
2006 second quarter and first six months, approximately 16% of the Company’s
revenue was generated by its diesel engine services segment of which 62%
and 61%
was generated through service and 38% and 39% from parts sales, respectively.
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 six months of 2006 and the customers for
each
market:
Markets
Serviced
|
|
2006
First Six Months Revenue Distribution
|
|
Customers
|
Marine
|
|
66%
|
|
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
|
|
20%
|
|
Standby
Power Generation, Pumping Stations
|
|
|
|
|
|
Railroad
|
|
14%
|
|
Passenger
(Transit Systems), Class II Shortline,
Industrial
|
The
Company’s diesel engine services segment’s 2006 second quarter revenue and
operating income increased 37% and 71%, respectively, compared with the second
quarter of 2005. For the first half of 2006, revenue and operating income
increased 34% and 68%, respectively, compared with the first half 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 the June 7, 2006 acquisition of Global, as well as from higher
service rates and parts pricing implemented during 2005 and during the 2006
second quarter and first half.
The
diesel engine services segment’s operating margin for the 2006 second quarter
improved to 15.0% compared with 12.1% for the second quarter of 2005. For
the
first six months of 2006, the operating margin was 15.6% compared with 12.4%
for
the first six months of 2005. The higher margin reflected 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
Cash
Flow and Capital Expenditures
The
Company continued to generate strong operating cash flow during the 2006
first
six months, with net cash provided from operations of $62,534,000. Net cash
provided from operations for the 2005 first six months was $64,074,000. In
addition, the Company generated cash of $10,999,000 from the exercise of
stock
options. The cash, and borrowings under the Company’s Revolving Credit Facility,
were used for capital expenditures of $64,386,000, primarily for fleet
replacement, enhancement and expansion, and $116,773,000 for the acquisition
of
the remaining 65% interest in Dixie Fuels, the acquisition of Global and
Gulf
Coast Fire & Safety and the purchase of five towboats. The Company’s
debt-to-capitalization ratio increased from 27.1% at December 31, 2005 to
32.0%
at June 30, 2006 due to borrowings under the Company’s Revolving Credit Facility
to finance the acquisition of Global.
Capital
expenditures were $64,386,000 for the 2006 first six months and included
$19,316,000 for new tank barge and towboat construction, and $45,070,000
primarily for upgrading the existing marine transportation fleet.
The
Company projects that capital expenditures for 2006 will be in the $125,000,000
to $135,000,000 range, including approximately $55,000,000 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 tank barges at a cost of $45,000,000, subject
to
adjustment for the price of steel, and two 10,000 barrel tank barges for
use in
the petrochemical market at a cost of approximately $2,300,000, subject to
adjustment for the price of steel. Fifteen of the 30,000 barrel tank barges
will
be additional capacity and eight will be replacement barges for older barges
removed from service. The two 10,000 barrel will be additional capacity.
Delivery of the twenty-three 30,000 barrel barges will be throughout 2006,
with
the final four barges scheduled for delivery in the 2007 first quarter. One
of
the 10,000 barrel barges is scheduled for delivery in December 2006 and one
in
the 2007 first quarter. The 2006 program also includes the construction of
four
2100 horsepower 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 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 tank barges at a cost of approximately
$15,000,000, subject to adjustment for the price of steel. In June 2006,
the
Company entered into a contract for the construction of two 10,000 barrel
inland
tank barges at a cost of approximately $2,300,000, subject to adjustment
for the
price of steel. Of the 20 new 30,000 barrel tank barges under contract, 14
barges will be additional capacity and 6 barges will be replacement barges
for
older barges removed from service. Delivery of 18 of the 20 new 30,000 barrel
tank barges is scheduled throughout the 2007 year with the remaining two
in the
2008 first quarter. The two 10,000 barrel tank barges will be additional
capacity. One is scheduled for delivery in December 2006 and one in the 2007
first quarter. In July 2006, the Company signed a letter of intent for the
construction of two 1800 horsepower towboats at a cost of approximately
$6,600,000, subject to finalization of a contract. The two towboats are
scheduled to be placed into service in the 2007 fourth quarter.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Overview
- (Continued)
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 and MES acquisitions, 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.
For
the
remainder of 2006, the Company anticipates continued strong petrochemical,
black
oil and refined products volumes for its marine transportation segment. For
its
diesel engine services segment, the Company anticipates continued strong
service
activity and parts sales, with some seasonal summer slowdown.
Acquisitions
On
July
21, 2006, the Company purchased the assets of MES for $3,600,000 in cash,
subject to post-closing inventory adjustments. MES is a Gulf Coast high-speed
diesel engine services provider, operating a factory-authorized full service
dealership for John Deere, as well as a service provider for Detroit Diesel.
On
July
24, 2006, the Company signed an agreement to purchase the assets of Capital
for
approximately $15,000,000 in cash. Capital owns 11 towboats, six of which
are
currently on charter to the Company. One towboat is currently under charter
to
another company and that charter expires within 30 days. The remaining four
are
under charters with other companies with terms expiring within the next ten
months. The six towboats currently chartered to the Company were purchased
for
$9,721,000 on August 4, 2006. The remaining five towboats will be purchased
upon
expiration of their present charters. The Company and Capital have entered
into
a charter agreement whereby Capital will continue to operate the towboats.
The
vessel crews will remain employees of Capital.
On
June
7, 2006, the Company purchased the stock of Global for an aggregate
consideration (before post-closing adjustments) of $101,678,000, consisting
of
$98,816,000 in cash, the assumption of $2,625,000 of debt and $237,000 of
merger
costs. Global is a Gulf Coast high-speed diesel engine services provider,
operating factory-authorized full service marine market dealerships for Cummins,
Detroit Diesel and John Deere high-speed diesel engines, and Allison
transmissions, as well as an authorized marine dealer for Caterpillar in
Louisiana. Revenues for Global for 2005 were approximately $63,000,000.
On
April
5, 2006, the Company purchased Gulf Coast Fire & Safety for $1,008,000 in
cash. Gulf Coast Fire & Safety provides sales and rental of equipment and
various technical services related to fire suppression and protection, and
will
be part of the Logistics Management division, the Company’s shore tankering
operations and in-plant operations group.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Acquisitions
- (Continued)
On
March
1, 2006, the Company purchased from PFC the remaining 65% interest in Dixie
Fuels for $15,590,000, subject to post-closing 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 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 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 second quarter 2006 net earnings of $23,333,000, or $.44
per
share, on revenues of $243,292,000, compared with 2005 second quarter net
earnings of $18,447,000, or $.36 per share, on revenues of $199,276,000.
Net
earnings for the 2006 first six months were $45,913,000, or $.86 per share,
on
revenues of $468,195,000, compared with net earnings of $31,726,000, or $.62
per
share, on revenues of $383,720,000 for the first six months of
2005.
The
following table sets forth the Company’s marine transportation and diesel engine
services revenues for the 2006 second quarter compared with the second quarter
of 2005, the first six months of 2006 compared with the first six months
of 2005
and the percentage of each to total revenues for the comparable periods (dollars
in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
%
|
|
2005
|
|
%
|
|
2006
|
|
%
|
|
2005
|
|
%
|
|
Marine
transportation
|
|
$
|
204,088
|
|
|
84
|
%
|
$
|
170,742
|
|
|
86
|
%
|
$
|
393,471
|
|
|
84
|
%
|
$
|
327,952
|
|
|
85
|
%
|
Diesel
engine services
|
|
|
39,204
|
|
|
16
|
|
|
28,534
|
|
|
14
|
|
|
74,724
|
|
|
16
|
|
|
55,768
|
|
|
15
|
|
|
|
$
|
243,292
|
|
|
100
|
%
|
$
|
199,276
|
|
|
100
|
%
|
$
|
468,195
|
|
|
100
|
%
|
$
|
383,720
|
|
|
100
|
%
|
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Results
of Operations - (Continued)
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 June
30,
2006, the Company operated 897 active inland tank barges, with a total capacity
of 16.7 million barrels, compared with 887 active inland tank barges at June
30,
2005, with a total capacity of 16.6 million barrels. The Company operated
an
average of 241 active inland towing vessels during the 2006 second quarter
and
240 during the first six months compared with and average of 241 during the
second quarter and first six months of 2005. The Company 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 and six months ended June 30, 2006 compared with the three months
and six months ended June 30, 2005 (dollars in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
2006
|
|
2005
|
|
%
Change
|
|
Marine
transportation revenues
|
|
$
|
204,088
|
|
$
|
170,742
|
|
|
20
|
%
|
$
|
393,471
|
|
$
|
327,952
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
129,507
|
|
|
106,795
|
|
|
21
|
|
|
248,478
|
|
|
206,447
|
|
|
20
|
|
Selling,
general and administrative
|
|
|
18,777
|
|
|
17,260
|
|
|
9
|
|
|
36,939
|
|
|
33,572
|
|
|
10
|
|
Taxes,
other than on income
|
|
|
3,133
|
|
|
2,757
|
|
|
14
|
|
|
6,144
|
|
|
5,807
|
|
|
6
|
|
Depreciation
and amortization
|
|
|
14,673
|
|
|
13,247
|
|
|
11
|
|
|
28,971
|
|
|
27,522
|
|
|
5
|
|
|
|
|
166,090
|
|
|
140,059
|
|
|
19
|
|
|
320,532
|
|
|
273,348
|
|
|
17
|
|
Operating
income
|
|
$
|
37,998
|
|
$
|
30,683
|
|
|
24
|
%
|
$
|
72,939
|
|
$
|
54,604
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margins
|
|
|
18.6
|
%
|
|
18.0
|
%
|
|
|
|
|
18.5
|
%
|
|
16.7
|
%
|
|
|
|
Marine
Transportation Revenues
Marine
transportation revenues for the 2006 second quarter and first six months
increased 20% compared with the corresponding 2005 periods, reflecting continued
strong petrochemical and black oil products demand, unusually favorable 2006
first quarter winter weather conditions and water levels, and a slight
improvement in weather conditions and water levels for the 2006 second quarter.
In addition, the segment benefited from 2005 year and 2006 first six months
contract and spot market rate increases, and labor and producer price index
escalators effective January 1, 2006 on numerous multi-year contracts. The
results for the 2006 second quarter were negatively impacted by an estimated
$.03 to $.04 per share from diesel fuel cost recovery clauses in certain
marine
transportation long-term contracts. The 2006 first quarter earnings were
positively impacted by an estimated $.03 to $.04 per share from fuel cost
recovery under the same long-term contracts. For the first six months of
2006,
the estimated impact of the diesel fuel cost recovery clauses was neutral.
The
results were also negatively impacted by a shortage of towboats which resulted
in delays and a tight labor market that resulted in wage increases for vessel
personnel.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Marine
Transportation Revenues
- (Continued)
Petrochemical
transportation demand for the 2006 second quarter and first six months 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.
Black
oil
products demand during the 2006 second quarter and first six months 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
second quarter and first six months 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 second quarter and first six months,
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
second quarter and first six months, the entities contributed a combined
$10,183,000 and $15,279,000, respectively, of marine transportation
revenues.
For
the
second quarter of 2006, the marine transportation segment incurred 1,378
delay
days, a 23% improvement over the 2005 second quarter delay days of 1,790.
For
the 2006 first six months, 3,849 delay days occurred, 24% lower than the
5,079
delay days incurred in the 2005 first half. The lower delay days primarily
reflected unusually favorable 2006 first quarter winter weather conditions
and
water levels and a slight improvement in 2006 second quarter weather conditions
and water levels. 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 second quarter and first six months, 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 second quarter and first six
months increased in the 4% to 7% average range, primarily the result of
continued strong industry demand and high utilization of tank barges. Spot
market rates for the 2006 second quarter and first six months, including
fuel,
increased over 25% compared with the 2005 second quarter and first six months.
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%.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Marine
Transportation Costs and Expenses
Costs
and
expenses for the 2006 second quarter and first six months increased 19% and
17%,
respectively, compared with the 2005 second quarter and first six months,
reflecting the higher costs and expenses associated with increased marine
transportation demand noted above. The increase also reflected the consolidation
of Dixie Fuels effective March 1, 2006 and Osprey effective January 1,
2006.
Costs
of
sales and operating expenses for the 2006 second quarter and first six months
increased 21% and 20%, respectively, compared with the corresponding 2005
periods, 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 second quarters, the Company operated an
average
of 241 towboats. For the first six months of 2006, the segment operated 240
towboats compared with 241 for the 2005 first half. During the 2006 second
quarter, the Company consumed 13.5 million gallons of diesel fuel, slightly
less
than the 13.9 million consumed in the 2005 second quarter. For the 2006 first
half, the segment consumed 26.8 million gallons of diesel fuel, slightly
less
than the 27.1 million gallons consumed during the 2005 first half.
The
average price per gallon of diesel fuel consumed during the 2006 second quarter
was $1.99 compared with $1.55 per gallon for the second quarter of 2005 and
$1.92 per gallon for the 2006 first six months compared with $1.44 per gallon
for the 2005 first six months. 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. Spot
market
contracts include the cost of fuel.
Selling,
general and administrative expenses for the 2006 second quarter and first
six
months increased 9% and 10%, respectively, compared with the corresponding
2005
periods. The increase primarily reflected 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.
Taxes,
other than on income, for the 2006 second quarter and first six months increased
14% and 6%, respectively, compared with the corresponding periods of 2005,
as
the 2005 periods reflected lower taxes as a result of a favorable settlement
of
a multiple year property tax issue.
Depreciation
and amortization for the 2006 second quarter increased 11% compared with
the
2005 second quarter and increased 5% for the 2006 first six months compared
with
the 2005 first six months. The increase for both 2006 periods was attributable
to increased capital expenditures, including new tank barges, as well as
the
consolidation of Dixie Fuels effective March 2006.
Marine
Transportation Operating Income and Operating Margins
The
marine transportation operating income for the 2006 second quarter increased
24%
compared with the 2005 second quarter. For the 2006 first half, the operating
income for the segment increased 34% compared with the first half of 2005.
The
operating margin for the 2006 second quarter increased to 18.6% compared
with
18.0% for the second quarter of 2005 and 18.5% for the 2006 first six months
compared with 16.7% for the 2005 first six months. Continued strong demand,
favorable 2006 second
quarter and first half weather conditions, higher contract and spot market
pricing 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 and six months ended June 30, 2006 compared with the three months
and six months ended June 30, 2005 (dollars in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
2006
|
|
2005
|
|
%
Change
|
|
Diesel
engine services revenues
|
|
$
|
39,204
|
|
$
|
28,534
|
|
|
37
|
%
|
$
|
74,724
|
|
$
|
55,768
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of sales and operating expenses
|
|
|
28,078
|
|
|
21,473
|
|
|
31
|
|
|
53,485
|
|
|
41,742
|
|
|
28
|
|
Selling,
general and administrative
|
|
|
4,640
|
|
|
3,240
|
|
|
43
|
|
|
8,562
|
|
|
6,350
|
|
|
35
|
|
Taxes,
other than on income
|
|
|
136
|
|
|
95
|
|
|
43
|
|
|
223
|
|
|
205
|
|
|
9
|
|
Depreciation
and amortization
|
|
|
475
|
|
|
283
|
|
|
68
|
|
|
814
|
|
|
561
|
|
|
45
|
|
|
|
|
33,329
|
|
|
25,091
|
|
|
33
|
|
|
63,084
|
|
|
48,858
|
|
|
29
|
|
Operating
income
|
|
$
|
5,875
|
|
$
|
3,443
|
|
|
71
|
%
|
$
|
11,640
|
|
$
|
6,910
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margins
|
|
|
15.0
|
%
|
|
12.1
|
%
|
|
|
|
|
15.6
|
%
|
|
12.4
|
%
|
|
|
|
Diesel
Engine Services Revenues
Diesel
engine services revenues for the 2006 second quarter increased 37% compared
with
the 2005 second quarter and 34% for the first six months of 2006 compared
with
the 2005 first half. During both 2006 periods, the segment was positively
impacted by increased service modification projects and parts sales in its
marine, offshore oil service, power generation and railroad markets, as well
as
emission compliance projects for Gulf Coast and West Coast customers. The
segment also benefited from increases in pricing during 2005 and in the 2006
first half, as well as the acquisition of Global, the high-speed Gulf Coast
service provider purchased on June 7, 2006.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Diesel
Engine Services Costs and Expenses
Costs
and
expenses for the 2006 second quarter and first six months increased 33% and
29%,
respectively, when compared with corresponding periods of 2005, and reflected
the acquisition of Global on June 7, 2006. Costs of sales and operating expenses
increased 31% for the 2006 second quarter and 28% for the 2006 first six
months
reflecting the higher service and parts sales activity noted above, as well
as
increases in salaries and other related benefit expenses effective January
1,
2006. Selling, general and administrative expenses increased 43% for the
2006
second quarter and 35% for the first six months of 2006, primarily reflecting
a
January 1, 2006 increase in salaries and related expenses, higher incentive
compensation accruals and the expensing of stock options effective January
1,
2006.
Diesel
Engine Services Operating Income and Operating
Margins
Operating
income for the diesel engine services segment for the 2006 second quarter
and
first six months increased 71% and 68%, respectively, compared with the
corresponding periods of 2005. The significant increase in both 2006 periods
reflected the stronger markets noted above, increased service and parts pricing,
as well as higher service revenue versus parts revenue mix. During the 2006
second quarter and first six months, 62% and 61%, respectively, of the segment’s
revenue was from service versus 58% for the corresponding periods of 2005.
The
segment also benefited from accretive earnings from Global, acquired by the
Company on June 7, 2006. The higher operating margin, 15.0% for the 2006
second
quarter and 15.6% for the 2006 first six months versus 12.1% for the 2005
second
quarter and 12.4% for the 2005 first six months, 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 second quarter were $3,612,000, or 63% higher
than the second quarter of 2005. For the first six months of 2006, general
corporate expenses were $5,831,000, a 38% increase compared with the 2005
first
six months. The increase for both comparable periods reflected increases
in
salaries and related expenses effective January 1, 2006, higher employee
incentive compensation accruals, legal fees and stock listing fees associated
with the two-for-one stock split and the expensing of stock options effective
January 1, 2006.
Gain
on Disposition of Assets
The
Company reported a net gain on disposition of assets of $785,000 and $942,000
for the 2006 second quarter and first six months compared with a gain on
disposition of assets of $1,795,000 and $1,987,000 for the corresponding
periods
of 2005, respectively. The net gains for all reported periods were predominantly
from the sale of marine equipment, including the sale of four towboats during
the 2005 second quarter and first six months.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Other
Income and Expenses
The
following table sets forth equity in earnings of marine affiliates, loss
on debt
retirement, other expense and interest expense for the three months and six
months ended June 30, 2006 compared with the three months and six months
ended
June 30, 2005 (dollars in thousands):
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
2006
|
|
2005
|
|
%
Change
|
|
Equity
in earnings of marine affiliates
|
|
$
|
87
|
|
$
|
707
|
|
|
(88
|
)%
|
$
|
553
|
|
$
|
4
|
|
|
N/A
|
|
Loss
on debt retirement
|
|
$
|
—
|
|
$
|
(1,144
|
)
|
|
N/A
|
|
$
|
—
|
|
$
|
(1,144
|
)
|
|
N/A
|
|
Other
expense
|
|
$
|
(134
|
)
|
$
|
(400
|
)
|
|
(67
|
)%
|
$
|
(68
|
)
|
$
|
(716
|
)
|
|
(91
|
)%
|
Interest
expense
|
|
$
|
(3,304
|
)
|
$
|
(3,113
|
)
|
|
6
|
%
|
$
|
(6,002
|
)
|
$
|
(6,259
|
)
|
|
(4)
|
%
|
Equity
in Earnings of Marine Affiliates
Equity
in
earnings of marine affiliates for the 2006 second quarter and first six months
was $87,000 and $553,000, respectively, 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 through June 2006 results were consolidated. For
the
2005 second quarter and first six months, equity in earnings of marine
affiliates were $707,000 and $4,000, respectively, consisting 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 second quarter and first six months.
Loss
on Debt Retirement
On
May
31, 2005, the Company issued $200,000,000 of unsecured floating rate 2005
Senior
Notes, more fully described under Long-Term Financing below. The proceeds
were
used to repay $200,000,000 of 2003 Senior Notes due in February 2013. With
the
early extinguishment, the Company expensed $1,144,000 of unamortized financing
costs associated with the retired 2003 Senior Notes during the 2005 second
quarter.
Interest
Expense
Interest
expense for the 2006 second quarter increased 6% compared with the 2005 second
quarter, primarily the result of additional borrowings under the Company’s
Revolving Credit Facility to fund the June 7, 2006 acquisition of Global.
For
the 2006 first six months, interest expense decreased 4% compared with the
2005
first six months, due to lower average debt, a favorable first quarter 2006
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, partially offset by the additional borrowings to fund
the
Global acquisition. The average debt and average interest rate for the second
quarter of 2006 and 2005, including the effect of interest rate swaps, were
$220,939,000 and 6.0%, and $207,643,000 and 6.0%, respectively. For the first
six months of 2006 and 2005, the average debt and average interest rate,
including the effect of interest rate swaps and excluding the Internal Revenue
Service interest expense, were $210,776,000 and 6.0%, and $210,258,000 and
6.0%,
respectively.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Financial
Condition, Capital Resources and Liquidity
Balance
Sheet
Total
assets as of June 30, 2006 were $1,207,753,000 compared with $1,025,548,000
as
of December 31, 2005. The 18% increase primarily reflected the acquisition
of
Global in June 2006 and the consolidation of Dixie Fuels and Osprey beginning
in
the 2006 first quarter. The following table sets forth the significant
components of the balance sheet as of June 30, 2006 compared with December
31,
2005 (dollars in thousands):
|
|
June
30,
|
|
December
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
%
Change
|
|
Assets:
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
236,935
|
|
$
|
186,276
|
|
|
27
|
%
|
Property
and equipment, net
|
|
|
703,780
|
|
|
642,381
|
|
|
10
|
|
Investment
in marine affiliates
|
|
|
2,076
|
|
|
11,866
|
|
|
(83
|
)
|
Goodwill,
net
|
|
|
221,226
|
|
|
160,641
|
|
|
38
|
|
Other
assets
|
|
|
43,736
|
|
|
24,384
|
|
|
79
|
|
|
|
$
|
1,207,753
|
|
$
|
1,025,548
|
|
|
18
|
%
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
155,937
|
|
$
|
139,821
|
|
|
12
|
%
|
Long-term
debt - less current portion
|
|
|
284,590
|
|
|
200,032
|
|
|
42
|
|
Deferred
income taxes
|
|
|
141,963
|
|
|
126,755
|
|
|
12
|
|
Minority
interest and other long-term liabilities
|
|
|
19,216
|
|
|
21,398
|
|
|
(10
|
)
|
Stockholders’
equity
|
|
|
606,047
|
|
|
537,542
|
|
|
13
|
|
|
|
$
|
1,207,753
|
|
$
|
1,025,548
|
|
|
18
|
%
|
Current
assets as of June 30, 2006 increased 27% compared with December 31, 2005,
primarily reflecting the current assets of Global, Dixie Fuels and Osprey.
The
93% decrease in cash and cash equivalents reflected the use of existing cash
in
the Global acquisition. In addition to the acquisitions, the increase in
trade
accounts receivable reflected the increase in both marine transportation and
diesel engine services revenues. Other accounts receivable increased 149%,
primarily reflecting $12,000,000 escrowed in the Global acquisition to secure
the obligations of the sellers of Global under the purchase agreement. This
escrow account receivable is offset by a $12,000,000 escrow account recorded
in
accrued liabilities. The increase in inventory - finished goods for the diesel
engine services segment reflected the inventory acquired with the Global
acquisition, as well as higher inventory levels in support of stronger service
activity and parts sales during the 2006 first six months, as well as service
projects to be delivered in the 2006 third quarter.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Balance
Sheet - (Continued)
Property
and equipment, net of accumulated depreciation, at June 30, 2006 increased
10%
compared with December 31, 2005. The increase reflected $64,386,000 of capital
expenditures for the 2006
first six months, more fully described under Capital Expenditures below,
the
fair value of the property and equipment acquired in the Global, Dixie Fuels,
Gulf Coast Fire & Safety and Osprey transactions of $26,797,000, and the
purchase of five towboats for $2,685,000, less $30,019,000 of depreciation
expense and $2,450,000 of property disposals during the 2006 first six
months.
Investment
in marine affiliates as of June 30, 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.
Goodwill
- net as of June 30, 2006 increased 38% compared with December 31, 2005,
reflecting the goodwill recorded in the June 2006 acquisition of Global and
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 June 30, 2006 increased 79% compared with December 31, 2005.
The
increase was primarily attributable to an increase in intangibles related
to the
value assigned to non-compete agreements, dealerships and customer relationships
in the Global acquisition, the value assigned to the PFC marine transportation
contract in the Dixie Fuels acquisition, long term notes receivable from
the
sale of two towboats, an increase in the fair value of interest rate swaps
and
the repurchase of a diesel engine distribution agreement. The increases were
partially offset by the amortization of the long-term pension
asset.
Current
liabilities as of June 30, 2006 increased 12% compared with December 31,
2005.
Accounts payable increased 18%, attributable to higher marine transportation
and
diesel engine services business levels and higher shipyard maintenance accruals.
Accrued liabilities increased 8% primarily due to the Global acquisition,
partially offset by the payment of employee incentive compensation and property
taxes accrued during 2005. The increase due to the Global acquisition was
principally due to a $12,000,000 escrow account liability expected to be
settled
in the next twelve months. This escrow account liability is offset by a
$12,000,000 escrow account recorded in other receivables as discussed above.
Deferred
income taxes as of June 30, 2006 increased 12% compared with December 31,
2005,
primarily reflecting the recording of $13,396,000 of state and federal deferred
taxes associated with the Global acquisition. The deferred state and federal
tax
liability was recorded to reflect the tax effect of the difference in the
financial basis of the assets over the tax basis.
Minority
interest and other long-term liabilities as of June 30, 2006 decreased 10%
compared with December 31, 2005, primarily due to the recording of a $3,742,000
decrease in the fair value of swap agreements, more fully described under
Long-Term Financing below, partially offset by an increase in lease reserves
as
a result of a buildout allowance given on a new lease on the Company’s corporate
headquarters.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Balance
Sheet - (Continued)
Stockholders’
equity as of June 30, 2006 increased 13% compared with December 31, 2005.
The
increase was the result of $45,913,000 of net earnings for the first six
months
of 2006, a $10,838,000 decrease in treasury stock, an increase of $2,643,000
in
common stock due to the stock split, an increase of $782,000 in additional
paid-in capital, a $3,269,000 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.
Long-Term
Financing
The
Company has an unsecured Revolving Credit Facility with a syndicate of banks
with JP Morgan Chase Bank as the agent bank. On June 14, 2006, the Company
increased the Revolving Credit Facility from $150,000,000 to $250,000,000
and
extended the maturity date to June 14, 2011 from the previous maturity date
of
December 9, 2007. The Revolving Credit Facility allows for an increase in
the
commitments of the banks from $250,000,000 up to a maximum of $325,000,000,
subject to the consent of each bank that elects to participate in the increased
commitment. The unsecured Revolving Credit Facility has a variable interest
rate
spread based on the London Interbank Offered Rate (”LIBOR”) that varies with the
Company’s senior debt rating and the level of debt outstanding. As of June 30,
2006, the Company has $82,500,000 of borrowings outstanding under the Revolving
Credit Facility. The Revolving Credit Facility includes a $25,000,000 commitment
which may be used for standby letters of credit of which $7,612,000 was
outstanding as of June 30, 2006. The Company was in compliance with all
Revolving Credit Facility covenants as of June 30, 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
June 30, 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 $5,000,000 line of credit (“Credit Line”) with Bank of America,
N.A. (“Bank of America”) for short-term liquidity needs and letters of credit.
The Credit Line was reduced from $10,000,000 to $5,000,000 in June 2006,
with a
maturity date of June 30, 2007. The Credit Line allows the Company to borrow
at
an interest rate agreed to by Bank of America and the Company at the time
each
borrowing is made or continued. The Company did not have any borrowings
outstanding under the Credit Line as of June 30, 2006. Outstanding letters
of
credit under the Credit Line were $630,000 as of June 30, 2006.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Long-Term
Financing - (Continued)
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 June 30,
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 June 30, 2006, there
were
no outstanding debt securities under the shelf registration.
From
time
to time, the Company hedges its exposure to fluctuations in short-term interest
rates under its 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 June 30, 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 half.
At
June 30, 2006, the fair value of the interest rate swap agreements was
$2,590,000 and was recorded in other assets. The Company has recorded in
interest expense, net losses (gains) related to the interest rate swap
agreements of $(10,000) and $790,000 for the three months ended June 30,
2006
and 2005, respectively, and $203,000 and $1,747,000 for the six months ended
June 30, 2006 and 2005, respectively. The Company anticipates $588,000 of
net
gains included in accumulated other comprehensive income will be transferred
into earnings over the next year based on current interest rates. 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. Fair value amounts were determined as of June 30, 2006 and 2005 based
on
quoted market values of the Company’s portfolio of derivative
instruments.
Capital
Expenditures
Capital
expenditures for the 2006 first six months were $64,386,000, of which
$19,316,000 was for construction of new tank barges and towboats, and
$45,070,000 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 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Capital
Expenditures - (Continued)
In
June
2004, the Company entered into a contract for the construction of eleven
30,000
barrel 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.
In
July
2004, the Company entered into a contract for the construction of six 30,000
inland tank barges for use in the transportation of petrochemicals and refined
petroleum products, and one 30,000 barrel 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 $15,026,000, 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 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 $23,188,000, 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 inland tank barges for use in the transportation of petrochemicals
and
refined petroleum products. One of the barges was delivered in the 2006 second
quarter and the remaining nine are scheduled for delivery from July 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 $5,488,000 in the 2006 first six months. 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 inland tank barges for use in the transportation of petrochemicals
and refined petroleum products. Four of the barges were delivered in the
2006
second quarter and nine are scheduled for delivery throughout the 2006 second
half. The purchase price of the 13 barges is approximately $27,000,000, subject
to adjustments based on steel prices, of which $8,726,000 was expended in
the
2006 second 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 $1,996,000 in the 2006 first six months. Financing of the
construction of the four towboats 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
March
2006, the Company entered into a contract for the construction of twelve
30,000
barrel inland tank barges for use in the transportation of petrochemicals
and
refined petroleum products. Delivery of the 12 barges is scheduled for January
through April 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 six months. Financing of the
construction of the 12 barges will be through operating cash flows and available
credit under the Company’s Revolving Credit Facility.
In
April
2006, the Company entered into a contract for the construction of eight 30,000
barrel 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 $1,446,000 was expended in the 2006 second 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.
In
June
2006, the Company entered into a contract for the construction of two 10,000
barrel inland tank barges for use in the transportation of petrochemical
and
refined petroleum products. Delivery of the first barge is scheduled for
December 2006 and the second in the 2007 first quarter. The purchase price
of
the two barges is approximately $2,300,000, subject to adjustments based
on
steel prices, of which no expenditures were made in the 2006 first six months.
Financing of the construction of the two barges will be through operating
cash
flow and available credit under the Company’s Revolving Credit Facility.
In
July
2006, the Company signed a letter of intent for the construction of two 1800
horsepower towboats. Delivery of the two towboats is scheduled for the 2007
fourth quarter. The purchase price is approximately $6,600,000, subject to
finalization of a contract.
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 second quarter and first six months, the Company did not purchase
any
treasury stock. As of August 7, 2006, the Company had 2,420,000 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.
KIRBY
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Liquidity
The
Company generated net cash provided by operating activities of $62,534,000
during the six months ended June 30, 2006, 2% lower than the $64,074,000
generated during the six months ended June 30, 2005. The 2% decrease reflected
negative cash flows resulting from changes in operating assets and liabilities,
partially offset by stronger earnings in the 2006 first six months versus
the
2005 first six months. The cash flows from changes in operating assets and
liabilities were lower in the 2006 first half primarily due to a larger
inventory increase to accommodate increased diesel engine services activity
levels and larger incentive compensation payments in 2006 over 2005. In
addition, the Company had a smaller increase in accounts payable in the 2006
first half versus the 2005 first half.
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 six months ended June
30,
2005, the Company received cash of $1,470,000 from 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 August 4, 2006,
$147,488,000 under its Revolving Credit Facility and $121,000,000 under its
shelf registration program, subject to mutual agreement and terms. As of
August
4, 2006, the Company had $4,396,000 available under its Credit
Line.
Neither
the Company, nor any of its subsidiaries, is obligated on any debt instrument,
swap agreement, or any other financial instrument or commercial contract
which
has a rating trigger, except for pricing grids on its Revolving Credit Facility.
The
Company expects to continue to fund expenditures for acquisitions, capital
construction projects, 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 June 30, 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 June 30, 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 half.
At
June 30, 2006, the fair value of the interest rate swap agreements was
$2,590,000 and was recorded in other assets. The Company has recorded in
interest expense, net losses (gains) related to the interest rate swap
agreements of $(10,000) and $790,000 for the three months ended June 30,
2006
and 2005, respectively, and $203,000 and $1,747,000 for the six months ended
June 30, 2006 and 2005, respectively. The Company anticipates $588,000 of
net
gains included in accumulated other comprehensive income will be transferred
into earnings over the next year based on current interest rates. 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. Fair value amounts were determined as of June 30, 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
6. Exhibits
|
|
Restated
Articles of Incorporation filed June 18, 1976, with all amendments
to
date
|
|
|
Stock
Purchase Agreement, dated as of May 3, 2006, among Marine Systems,
Inc.,
the Stockholders of Global Power Holding Company as the Sellers
and Global
Power Holding Company
|
|
|
Nonemployee
Director Compensation Program
|
|
|
Certification
of Chief Executive Officer Pursuant to Rule
13a-14(a).
|
|
|
Certification
of Chief Financial Officer Pursuant to Rule
13a-14(a).
|
|
|
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: August
7,
2006