KEX

KIRBY CORP - 10-Q Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2001, and the nine-month period ended on the same date. Kirby Corporation operates primarily in two segments: Marine Transportation (inland tank barges and towing vessels) and Diesel Engine Services (parts, repair, and overhaul). The company operates a fleet of 871 inland tank barges and 215 towing vessels along U.S. inland waterways.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 10% year-over-year for the nine months ended September 30. Marine transportation revenue rose 8%, driven by the lease of 94 inland tank barges from Dow Chemical (generating ~$15.3M in 9M revenue) and strong demand for refined products and black oil. Diesel engine services revenue increased 20%, aided by two acquisitions in late 2000 and a new agreement with GM's Electro-Motive Division.
• Profitability: Net earnings increased 25% for the quarter and 16% for the nine-month period. Operating margins for Marine Transportation improved to 19.0% in Q3 2001 from 18.6% in Q3 2000, though the 9-month margin dipped slightly to 16.9% due to lower chemical volumes.
• Debt Reduction: Long-term debt decreased by approximately $41M (14%) during the first nine months of 2001, funded by strong operating cash flows.
• Liquidity: Cash and cash equivalents dropped significantly from $4.7M to $52k, and working capital declined from $21.4M to $5.4M. This was primarily due to debt repayments, capital expenditures ($43.6M), and treasury stock purchases ($2.5M).

Guidance, Outlook, Risks, and Unusual Items

• Outlook & Market Conditions: Management notes strong demand for refined products and black oil (asphalt) driven by infrastructure rebuilding. However, the chemical and petrochemical market remains depressed due to a slow economy. Spot market rates increased following a refinery fire in Chicago in August 2001.
• Capital Expenditures: The company is actively expanding its fleet with contracts for 17 new double-hull barges (totaling ~$26M) scheduled for delivery through 2002. Financing is via operating cash flows and credit facilities.
• Accounting Changes: The company adopted SFAS No. 141 immediately and will adopt SFAS No. 142 (Goodwill) on January 1, 2002. The impact of SFAS 142 on financial statements, including potential impairment losses, cannot be reasonably estimated at this time.
• Derivatives: The company holds interest rate swaps with a fair value liability of $7.3M as of September 30, 2001, to hedge variable rate debt exposure.
• Legal Contingencies:
  • Clean Water Act: A subsidiary (Western Towing) is negotiating a plea agreement for one violation regarding washwater discharge. The maximum fine is $500,000; an accrual has been made.
  • Superfund Site: The EPA notified the company it may be a Potentially Responsible Party for the Palmer Barge Line Site. The extent of exposure is currently unknown.

Investor Verification Checklist

• Cash Position: Verify the sustainability of operations with cash reserves at only $52k, despite strong operating cash flow generation.
• Debt Covenants: Confirm continued compliance with the amended Revolving Credit Facility, which requires a minimum net worth of $225M.
• Environmental Exposure: Monitor the resolution of the EPA Clean Water Act plea agreement and the potential liability regarding the Palmer Barge Line Superfund site.
• Goodwill Impairment: Watch for the impact of SFAS No. 142 adoption in 2002, which could result in non-cash impairment charges.
• Market Volatility: Assess the impact of fluctuating fuel prices and the potential delay in passing these costs to customers under long-term contracts.