SEC Filing | Kirby Corporation

1 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 quarter ended June 30, 2000 [ ] 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 (IRS Employer Identification No.) incorporation or organization) 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 [X] No [ ] The number of shares outstanding of the registrant's Common Stock, $.10 par value per share, on August 7, 2000 was 24,506,370.

2 PART 1 - FINANCIAL INFORMATION KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED BALANCE SHEETS (Unaudited) ASSETS June 30, December 31, 2000 1999 -------- ------------ ($ in thousands) Current assets: Cash and cash equivalents $ 4,106 $ 3,571 Available-for-sale securities 9,850 13,091 Accounts receivable: Trade - less allowance for doubtful accounts 90,850 71,755 Insurance claims and other 9,586 6,637 Inventory - finished goods 11,758 13,127 Prepaid expenses 7,874 9,684 Deferred income taxes 3,360 4,958 -------- -------- Total current assets 137,384 122,823 -------- -------- Property and equipment 706,539 688,555 Less accumulated depreciation 249,452 236,704 -------- -------- 457,087 451,851 -------- -------- Investment in marine affiliates 13,237 14,941 Goodwill - less accumulated amortization 159,146 161,095 Other assets 1,801 2,687 -------- -------- $768,655 $753,397 ======== ======== See accompanying notes to condensed financial statements. 2

3 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 2000 1999 --------- ------------ ($ in thousands) Current liabilities: Current portion of long-term debt $ 5,335 $ 5,335 Income taxes payable 83 517 Accounts payable 40,140 29,909 Accrued liabilities 46,291 51,731 Deferred revenues 3,469 4,073 --------- --------- Total current liabilities 95,318 91,565 --------- --------- Long-term debt - less current portion 313,604 316,272 Deferred income taxes 90,580 92,794 Other long-term liabilities 13,308 12,730 --------- --------- 417,492 421,796 --------- --------- Contingencies and commitments -- -- Stockholders' equity: Preferred stock, $1.00 par value per share. Authorized 20,000,000 shares -- -- Common stock, $.10 par value per share. Authorized 60,000,000 shares, issued 30,907,000 shares 3,091 3,091 Additional paid-in capital 175,553 175,231 Accumulated other comprehensive income (123) (317) Retained earnings 184,442 168,495 --------- --------- 362,963 346,500 Less cost of 6,402,000 shares in treasury (6,383,000 at December 31, 1999) 107,118 106,464 --------- --------- 255,845 240,036 --------- --------- $ 768,655 $ 753,397 ========= ========= See accompanying notes to condensed financial statements. 3

4 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED STATEMENTS OF EARNINGS (Unaudited) Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- ($ in thousands, except per share amounts) Revenues: Marine transportation $ 111,940 $ 63,672 $ 219,442 $ 121,401 Diesel engine services 18,268 20,383 37,222 41,135 --------- --------- --------- --------- 130,208 84,055 256,664 162,536 --------- --------- --------- --------- Costs and expenses: Costs of sales and operating expenses 79,833 54,157 161,366 107,095 Selling, general and administrative 14,726 8,661 29,897 17,900 Taxes, other than on income 2,437 1,964 5,012 3,689 Depreciation and amortization 11,754 6,829 23,515 13,509 Merger related charge 482 -- 482 -- --------- --------- --------- --------- 109,232 71,611 220,272 142,193 --------- --------- --------- --------- Operating income 20,976 12,444 36,392 20,343 Equity in earnings of marine affiliates 804 609 1,641 1,490 Gain on disposition of assets 1,019 3 1,068 35 Other (expense) income (95) 191 (251) 346 Interest expense (5,964) (2,569) (11,827) (5,114) --------- --------- --------- --------- Earnings before taxes on income 16,740 10,678 27,023 17,100 Provision for taxes on income (6,860) (4,076) (11,076) (6,497) --------- --------- --------- --------- Net earnings $ 9,880 $ 6,602 $ 15,947 $ 10,603 ========= ========= ========= ========= Net earnings per share of common stock: Basic $ .40 $ .33 $ .65 $ .52 ========= ========= ========= ========= Diluted $ .40 $ .33 $ .65 $ .52 ========= ========= ========= ========= See accompanying notes to condensed financial statements. 4

5 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, ------------------------- 2000 1999 -------- -------- ($ in thousands) Cash flows from operating activities: Net earnings $ 15,947 $ 10,603 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 23,515 13,509 Provision for deferred income taxes 574 1,249 Equity in earnings of marine affiliates, net of distributions and contributions 1,744 (299) Gain on disposition of assets (1,068) (35) Merger related charge, net of cash expenditures 482 -- Other 740 26 Increase (decrease) in cash flows resulting from changes in operating working capital (14,545) 7,466 -------- -------- Net cash provided by operating activities 27,389 32,519 -------- -------- Cash flows from investing activities: Proceeds from sale and maturities of investments 3,510 2,528 Capital expenditures (28,102) (9,382) Proceeds from disposition of assets 2,994 645 Other (40) -- -------- -------- Net cash used in investing activities (21,638) (6,209) -------- -------- Cash flows from financing activities: Borrowing (payments) on bank revolving credit agreements, net 47,500 (9,500) Payments on long-term debt (50,168) (5,083) Purchase of treasury stock (2,715) (11,838) Other 167 132 -------- -------- Net cash used in financing activities (5,216) (26,289) -------- -------- Increase in cash and cash equivalents 535 21 Cash and cash equivalents, beginning of year 3,571 861 -------- -------- Cash and cash equivalents, end of period $ 4,106 $ 882 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period: Interest $ 12,291 $ 4,886 Income taxes $ 13,208 $ 6,043 See accompanying notes to condensed financial statements. 5

6 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) In the opinion of management, the accompanying unaudited condensed financial statements of Kirby Corporation and consolidated subsidiaries (the "Company") contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 2000 and December 31, 1999, and the results of operations for the three months and six months ended June 30, 2000 and 1999. (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 latest Annual Report on Form 10-K. (2) ACQUISITION On October 12, 1999, the Company completed the acquisition of Hollywood Marine, Inc. ("Hollywood"), by means of a merger of Hollywood into Kirby Inland Marine, Inc., a wholly owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger, the Company acquired Hollywood for an aggregate consideration (before post-closing adjustments) of $320,788,000, consisting of $89,586,000 in common stock (4,384,000 shares at $20.44 per share), $128,658,000 in cash, the assumption and refinancing of $99,185,000 of Hollywood's existing debt and $3,359,000 of merger costs. A final post-closing working capital adjustment was completed on February 29, 2000 for an additional $1,802,000 in common stock (88,178 shares at $20.44 per share). The final total purchase consideration for the Hollywood acquisition was $322,590,000. C. Berdon Lawrence was the principal shareholder of Hollywood. Hollywood's operations were included as part of the Company's operations effective October 12, 1999 in accordance with the purchase method of accounting. Goodwill is amortized over 30 years. Hollywood, located in Houston, Texas, was engaged in the inland tank barge transportation of chemicals and petrochemicals, refined petroleum products, pressurized products and black oil products primarily along the Gulf Intracoastal Waterway, the Houston Ship Channel and the lower Mississippi River. Hollywood operated a fleet of 270 inland tank barges, with 4.8 million barrels of capacity, and 104 inland towboats. Financing for the cash portion of the transaction and the repayment of Hollywood's existing debt was through the Company's existing $100,000,000 undrawn bank revolving credit agreement with Chase Bank of Texas, N.A. ("Chase") as agent bank and through a new $200,000,000 credit facility with Bank of America, N.A. as syndication agent bank; Chase as administrative agent; and Bank One, Texas, N.A. as documentation agent. 6

7 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued) (2) ACQUISITION - (Continued) The following unaudited pro forma combined financial information for the three months and six months ended June 30, 1999 is based on historical financial information of the Company and Hollywood. The financial information assumes the merger was completed as of the beginning of the year indicated. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the merger been consummated at the beginning of the year indicated, nor is the information indicative of the future results of operations (in thousands, except per share amounts): Three months Six months ended June 30, 1999 ended June 30, 1999 ------------------- ------------------- Revenues $125,013 $243,925 Earnings before taxes on income $ 12,103 $ 19,736 Net earnings $ 7,064 $ 11,404 Net earnings per share of common stock -- diluted $ .29 $ .46 (3) ADOPTION OF ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") issued in June 1998, establishes accounting and reporting standards for derivative instruments and hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. With the issuance of SFAS No. 137, SFAS No. 133 is now effective for all quarters of fiscal years beginning after June 15, 2000. The Company plans to adopt SFAS No. 133, as amended, in the first quarter of 2001 and does not expect it to have a material effect on the Company's financial position or results of operations. (4) COMPREHENSIVE INCOME The Company's total comprehensive income for the three months and six months ended June 30, 2000 and 1999 were as follows (in thousands): Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Net earnings $ 9,880 $ 6,602 $ 15,947 $ 10,603 Other comprehensive income (loss), net of tax 93 (241) 194 (579) -------- -------- -------- -------- Total comprehensive income $ 9,973 $ 6,361 $ 16,141 $ 10,024 ======== ======== ======== ======== 7

8 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued) (5) SEGMENT INFORMATION The following tables set forth the Company's revenues and profit (loss) by reportable segment for the three months and six months ended June 30, 2000 and 1999 and total assets as of June 30, 2000 and December 31, 1999 (in thousands): Three months ended Six months ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: Marine transportation $ 111,940 $ 63,672 $ 219,442 $ 121,401 Diesel engine services 18,268 20,383 37,222 41,135 --------- --------- --------- --------- $ 130,208 $ 84,055 $ 256,664 $ 162,536 ========= ========= ========= ========= Segment profit (loss): Marine transportation $ 21,350 $ 11,415 $ 36,380 $ 18,318 Diesel engine services 1,945 2,164 3,982 4,281 Other (6,555) (2,901) (13,339) (5,499) --------- --------- --------- --------- $ 16,740 $ 10,678 $ 27,023 $ 17,100 ========= ========= ========= ========= June 30, December 31, 2000 1999 -------- ------------ Total assets: Marine transportation $692,841 $673,882 Diesel engine services 34,140 32,890 Other 41,674 46,625 -------- -------- $768,655 $753,397 ======== ======== The following table presents the details of "Other" segment profit (loss) for the three months and six months ended June 30, 2000 and 1999 (in thousands): Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- General corporate expenses $ (1,837) $ (1,135) $ (3,488) $ (2,256) Interest expense (5,964) (2,569) (11,827) (5,114) Equity in earnings of affiliates 804 609 1,641 1,490 Gain on disposition of assets 1,019 3 1,068 35 Merger related charge (482) -- (482) -- Other (95) 191 (251) 346 -------- -------- -------- -------- $ (6,555) $ (2,901) $(13,339) $ (5,499) ======== ======== ======== ======== 8

9 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued) (5) SEGMENT INFORMATION - (Continued) The following table presents the details of "Other" total assets as of June 30, 2000 and December 31, 1999 (in thousands): June 30, December 31, 2000 1999 ------- ------------ General corporate assets $28,437 $31,684 Investment in marine affiliates 13,237 14,941 ------- ------- $41,674 $46,625 ======= ======= (6) TAXES ON INCOME Details of the provision for taxes on income for the three months and six months ended June 30, 2000 and 1999 were as follows (in thousands): Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Provision for taxes on income: Current $ 6,226 $ 3,341 $ 9,729 $ 4,747 Deferred 201 495 624 1,249 State and local 433 240 723 501 ------- ------- ------- ------- $ 6,860 $ 4,076 $11,076 $ 6,497 ======= ======= ======= ======= 9

10 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued) (7) EARNINGS PER SHARE The following table presents the components of basic and diluted earnings per share for the three months and six months ended June 30, 2000 and 1999 (in thousands, except per share amounts): Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net earnings $ 9,880 $ 6,602 $15,947 $10,603 ======= ======= ======= ======= Basic earnings per share: Weighted average number of common shares outstanding 24,524 20,103 24,509 20,230 ======= ======= ======= ======= Basic earnings per share $ .40 $ .33 $ .65 $ .52 ======= ======= ======= ======= Diluted earnings per share: Weighted average number of common shares outstanding 24,524 20,103 24,509 20,230 Dilutive shares applicable to stock options 227 117 164 111 ------- ------- ------- ------- Shares applicable to diluted earnings 24,751 20,220 24,673 20,341 ======= ======= ======= ======= Diluted earnings per share $ .40 $ .33 $ .65 $ .52 ======= ======= ======= ======= Certain outstanding options to purchase approximately 77,000 and 970,000 shares of common stock were excluded in the computation of diluted earnings per share as of June 30, 2000 and June 30, 1999, respectively, as such options would have been antidilutive. 10

11 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES 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, fog and ice; marine accidents; construction of new equipment by competitors, including construction with government assisted financing; government and environmental laws and regulations; and the timing, magnitude and number of acquisitions made by the Company. The Company, through its subsidiaries, is a provider of marine transportation services, operating a fleet of 774 inland tank barges, with 14.0 million barrels of capacity, and 229 inland towing vessels, transporting industrial chemicals and petrochemicals, refined petroleum products, black oil and agricultural chemicals along the United States inland waterways. The Company's marine transportation operation also includes one offshore dry-bulk barge and tug unit. The Company serves as managing partner of a 35% owned offshore marine partnership, consisting of four dry-bulk barge and tug units. The Company also serves as the managing partner of a 50% owned offshore marine partnership, which consisted of one dry-bulk barge and tug unit. The barge and tug unit was sold in June 2000. The partnerships are accounted for under the equity method of accounting. The Company, through its subsidiaries, is also a provider of diesel engine services, engaged in the overhaul and servicing of large medium-speed diesel engines employed in marine, power generation and rail applications. The Company's diesel engine services operation is divided into three subsidiaries organized around the markets they serve: Marine Systems, an authorized dealer for EMD; Rail Systems, an exclusive EMD distributor of aftermarket parts to shortline and industrial railroads; and Engine Systems, an authorized EMD distributor for 17 eastern states and the Caribbean, and the exclusive worldwide distributor for EMD to the nuclear industry. On October 12, 1999, the Company completed the acquisition of Hollywood by means of a merger of Hollywood into Kirby Inland Marine, Inc., a wholly owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger, the Company acquired Hollywood for an aggregate consideration of $322,590,000, including post-closing adjustments. Hollywood's operations were included as part of the Company operations effective October 12, 1999 in accordance with the purchase method of accounting. RESULTS OF OPERATIONS The Company reported 2000 second quarter net earnings of $9,880,000, or $.40 per share, on revenues of $130,208,000, compared with 1999 second quarter net earnings of $6,602,000, or $.33 per share, on revenues of $84,055,000. Net earnings for the six months ended June 30, 2000 were $15,947,000, or $.65 per share, on revenues of $256,664,000, compared with net earnings of 11

12 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - (CONTINUED) $10,603,000, or $.52 per share, on revenues of $162,536,000 for the 1999 first six months. For purposes of this Management's Discussion, all earnings per share are "Diluted earnings per share." The weighted average number of common shares for the 2000 and 1999 second quarter were 24,751,000 and 20,220,000, respectively, and for the 2000 and 1999 first six months were 24,673,000 and 20,341,000, respectively. The increase in the weighted average number of common shares for both comparable periods primarily reflected the issuance of common stock associated with the acquisition of Hollywood in October 1999. The following table sets forth the Company's revenues and percentage of such revenues for the three months and six months ended June 30, 2000 compared with the three months and six months ended June 30, 1999 (dollars in thousands): Three months ended June 30, ----------------------------------------------------------- 2000 1999 Increase (decrease) ------------------------- ------------------------- -------------------------- Amounts % Amounts % Amounts % -------- -------- -------- -------- -------- -------- Revenues: Marine transportation $111,940 86% $ 63,672 76% $ 48,268 76% Diesel engine services 18,268 14 20,383 24 (2,115) (10) -------- -------- -------- -------- -------- -------- $130,208 100% $ 84,055 100% $ 46,153 55% ======== ======== ======== ======== ======== ======== Six months ended June 30, ----------------------------------------------------------- 2000 1999 Increase (decrease) ------------------------- ------------------------- -------------------------- Amounts % Amounts % Amounts % -------- -------- -------- -------- -------- -------- Revenues: Marine transportation $219,442 85% $121,401 75% $ 98,041 81% Diesel engine services 37,222 15 41,135 25 (3,913) (10) -------- -------- -------- -------- -------- -------- $256,664 100% $162,536 100% $ 94,128 58% ======== ======== ======== ======== ======== ======== Revenues for the marine transportation segment increased 76% for the 2000 second quarter compared with the 1999 second quarter and increased 81% for the 2000 first six months compared with the 1999 first six months, primarily due to the acquisition of Hollywood in October 1999. During the 2000 second quarter and first six months, chemical and petrochemical movements were strong. Refined product and fertilizer movements to the Midwest were strong in the 2000 first quarter and seasonably steady in the 2000 second quarter. The strong first quarter refined products movements were the result of low Midwest inventory levels and favorable price differentials between the Gulf Coast and Chicago. The strong first quarter fertilizer movements were the result of low inventory levels in the Midwest terminals. Black oil and pressure products movements were at expected levels for both the 2000 second quarter and first six months. 12

13 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - (CONTINUED) During the 2000 second quarter and first six months, spot market rates continued to trend upward and contract renewals were generally at modestly higher rates. The marine transportation segment operates under long-term contracts, short-term contracts and spot transactions for movements of liquid products. During the 2000 second quarter and 2000 first six months, approximately 70% of movements were under term contracts and 30% were spot transactions. This compares with the 1999 second quarter and first six months when approximately 75% of movements were under term contracts and 25% were spot transactions. During the 1999 second quarter and first six months, chemical and petrochemical volumes were solid. Refined product volumes increased in May and June in anticipation of the summer driving season. Liquid fertilizer and ammonia volumes fell below normal spring expectations due to high fertilizer inventory in the Midwest, the result of overproduction of nitrogen in 1999 and 1998, coupled with a 30-year low corn price. Spot market rates reflected modest quarter to quarter increases during the 1999 first half and term contracts were generally renewed at higher rates. The 2000 first quarter was negatively impacted by weather, but not to the degree as the 1999 first quarter. During the 2000 first quarter, low water conditions on the Mississippi, Ohio and Illinois Rivers through mid-February resulted in longer transit times and restricted drafts for upriver movements, both of which negatively impacted revenues. Water conditions during the 2000 second quarter were favorable. During the 1999 second quarter, operating conditions improved over the 1999 first quarter when navigational delays (weather, locks and other restrictions) lowered the quarter's revenues due to increased transit times. Revenues for the diesel engine services segment for the 2000 second quarter and 2000 first six months decreased 10% compared with the 1999 corresponding periods. During the 2000 second quarter and first six months, the segment experienced softness in its East Coast engine rebuild market, as well as its Midwest marine and rail markets. The segment did benefit from modest improvements in service work and parts sales to the Gulf of Mexico drilling and offshore well services sector. During the 1999 second quarter and first six months, the diesel engine services segment benefited from strong Midwest and East Coast engine overhauls and parts sales. The Gulf Coast market remained weak, the result of reduced service work in the offshore oil and gas services sector in the Gulf of Mexico. 13

14 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - (CONTINUED) The following table sets forth the costs and expenses and percentage of each for the three months and six months ended June 30, 2000 compared with the three months and six months ended June 30, 1999 (dollars in thousands): Three months ended June 30, -------------------------------------------- 2000 1999 Increase (decrease) -------------------- -------------------- -------------------- Amounts % Amounts % Amounts % -------- -------- -------- -------- -------- -------- Costs and expenses: Costs of sales and operating expenses $ 79,833 73% $ 54,157 76% $ 25,676 47% Selling, general and administrative 14,726 13 8,661 12 6,065 70 Taxes, other than on income 2,437 2 1,964 3 473 24 Depreciation and amortization 11,754 11 6,829 9 4,925 72 Merger related charge 482 1 -- -- 482 -- -------- -------- -------- -------- -------- -------- $109,232 100% $ 71,611 100% $ 37,621 53% ======== ======== ======== ======== ======== ======== Six months ended June 30, -------------------------------------------- 2000 1999 Increase (decrease) -------------------- -------------------- -------------------- Amounts % Amounts % Amounts % -------- -------- -------- -------- -------- -------- Costs and expenses: Costs of sales and operating expenses $161,366 73% $107,095 75% $ 54,271 51% Selling, general and administrative 29,897 14 17,900 13 11,997 67 Taxes, other than on income 5,012 2 3,689 3 1,323 36 Depreciation and amortization 23,515 11 13,509 9 10,006 74 Merger related charge 482 -- -- -- 482 -- -------- -------- -------- -------- -------- -------- $220,272 100% $142,193 100% $ 78,079 55% ======== ======== ======== ======== ======== ======== Total costs and expenses, excluding interest expense, for the 2000 second quarter and first six months increased 53% and 55%, respectively, when compared with the corresponding periods of 1999. The 2000 second quarter and first six months costs and expenses included the expenses of Hollywood, as well as reflecting higher equipment costs, labor, health and welfare costs. The 2000 second quarter and first six months also reflected higher fuel costs, with the average price per gallon consumed 26 cents and 33 cents, respectively, higher than the average price per gallon consumed during the 1999 corresponding periods. The marine transportation segment has long-term contracts which generally contain fuel escalation clauses which allows increases in fuel prices to be passed through to the customers. As stated above, both the 2000 and the 1999 first quarters were negatively impacted by weather conditions, which decreased revenues and increased operating expenses. Ice conditions, and low and high water conditions require additional horsepower to complete movements, additional fuel and other variable expenses associated with longer transit times. 14

15 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - (CONTINUED) The 2000 second quarter and first six months included an additional $482,000 pre-tax merger related charge associated with the acquisition of Hollywood. In 1999, the Company's results included $4,502,000 of pre-tax merger related charges, consisting of severance and related pay for Kirby employees whose positions were eliminated, an abandonment charge for Kirby's leased corporate headquarter's facility and a charge to exit an insurance mutual. The additional 2000 second quarter charge resulted from the early termination of the lease of Kirby's former corporate headquarters. The following table sets forth the operating income and operating margins by segment for the three months and six months ended June 30, 2000 compared with the three months and six months ended June 30, 1999 (dollars in thousands): Three months ended June 30, -------------------------------------------------- 2000 1999 ---------------------- ----------------------- Operating Operating Increase (decrease) income Operating income Operating ---------------------- (loss) margin (loss) margin Amounts % --------- --------- --------- --------- -------- --------- Marine transportation $ 21,350 19.1% $ 11,415 17.9% $ 9,935 87% Diesel engine services 1,945 10.6% 2,164 10.6% (219) (10) Corporate expenses (1,837) (1,135) (702) (62) Merger related charge (482) -- (482) -- --------- --------- --------- --------- $ 20,976 $ 12,444 $ 8,532 69% ========= ========= ========= ========= Six months ended June 30, Three months ended June 30, -------------------------------------------------- 2000 1999 ---------------------- ----------------------- Operating Operating Increase (decrease) income Operating income Operating ---------------------- (loss) margin (loss) margin Amounts % --------- --------- --------- --------- --------- --------- Marine transportation $ 36,380 16.6% $ 18,318 15.1% $ 18,062 99% Diesel engine services 3,982 10.7% 4,281 10.4% (299) (7) Corporate expenses (3,488) (2,256) (1,232) (55) Merger related charge (482) -- (482) -- --------- --------- --------- --------- $ 36,392 $ 20,343 $ 16,049 79% ========= ========= ========= ========= 15

16 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - (CONTINUED) The following table sets forth the equity in earnings of marine affiliates, gain on disposition of assets, other (expense) income and interest expense for the three months and six months ended June 30, 2000 compared with the three months and six months ended June 30, 1999 (dollars in thousands): Three months ended June 30, Increase (decrease) --------------------------- -------------------- 2000 1999 Amount % ----------- ------------ -------- -------- Equity in earnings of marine affiliates $ 804 $ 609 $ 195 32 % Gain on disposition of assets $ 1,019 $ 3 $ 1,016 -- % Other (expense) income $ (95) $ 191 $ (286) (150)% Interest expense $ (5,964) $ (2,569) $ 3,395 132 % Six months ended June 30, Increase (decrease) ------------------------- -------------------- 2000 1999 Amount % ---------- ----------- -------- -------- Equity in earnings of marine affiliates $ 1,641 $ 1,490 $ 151 10 % Gain on disposition of assets $ 1,068 $ 35 $ 1,033 2951 % Other (expense) income $ (251) $ 346 $ (597) (173)% Interest expense $(11,827) $ (5,114) $ 6,713 131 % Equity in earnings of marine affiliates reflected a 32% increase for the 2000 second quarter and a 10% increase for the 2000 first six months compared with the corresponding 1999 periods. During both 2000 periods, the partnership's offshore dry-cargo barge and tug units were primarily employed under the partnership's coal and rock contract with a public utility at higher rates when compared with the 1999 second quarter and first six months, when a higher percentage of the units were operating in the spot market at lower rates. The gain on disposition of assets of $1,019,000 for the 2000 second quarter and $1,068,000 for the 2000 first six months reflected the gain on the sale of an inland towboat in the 2000 second quarter and the sale during the 2000 first quarter of three inland towboats and six single-skin tank barges. The sale of the towboats was part of the Company's ongoing efforts to optimize horsepower requirements. The six single-skin barges were scrapped. Other expense for the 2000 second quarter and first six months reflected the recording of minority interest from approximately 25 inland tank barges in partnerships acquired with the Hollywood acquisition, partially offset by investment income. For the 1999 second quarter and first six months, other income was primarily from investment income. 16

17 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - (CONTINUED) The 132% increase in interest expense for the 2000 second quarter and 131% increase for the 2000 first half over the corresponding periods of 1999 primarily reflected interest expense on the borrowings to finance the Hollywood acquisition. The average debt and average interest rate for the 2000 second quarter was $314,200,000 and 7.52%, compared with $132,100,000 and 7.27% for the second quarter of 1999, respectively. For the 2000 first half, the average debt was $315,300,000 and average interest rate was 7.43%, compared with average debt of $134,000,000 and average interest rate of 7.25% for the 1999 first half. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Balance Sheet Total assets as of June 30, 2000 were $768,655,000 compared with $753,397,000 as of December 31, 1999. The following table sets forth the significant components of the balance sheet as of June 30, 2000 compared with December 31, 1999 (dollars in thousands): Increase (decrease) June 30, December 31, -------------------- 2000 1999 Amount % -------- ----------- -------- -------- Assets: Current assets $137,384 $122,823 $ 14,561 12 % Property and equipment, net 457,087 451,851 5,236 1 Investment in marine affiliates 13,237 14,941 (1,704) (11) Goodwill, net 159,146 161,095 (1,949) (1) Other assets 1,801 2,687 (886) (33) -------- -------- -------- -------- $768,655 $753,397 $ 15,258 2 % ======== ======== ======== ======== Liabilities and stockholders' equity: Current liabilities $ 95,318 $ 91,565 $ 3,753 4 % Long-term debt 313,604 316,272 (2,668) (1) Deferred taxes 90,580 92,794 (2,214) (2) Other long-term liabilities 13,308 12,730 578 5 Stockholders' equity 255,845 240,036 15,809 7 -------- -------- -------- -------- $768,655 $753,397 $ 15,258 2 % ======== ======== ======== ======== Working capital as of June 30, 2000 totaled $42,066,000 compared with $31,258,000 as of December 31, 1999. The increase was primarily attributable to a $19,095,000, or 27% increase in trade accounts receivable, partially offset by a $10,231,000, or 34% increase in accounts payable. The increase in trade accounts receivable was primarily due to an increase in the number of days to bill customers, the result of the integration in the 2000 second quarter of the Company's and Hollywood's 17

18 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED) billing systems under one system. The system integration is now complete, and trade accounts receivable is anticipated to decrease significantly in the third quarter. The increase in accounts payable was primarily due to increased shipyard activity during the 2000 first six months versus the 1999 fourth quarter. Long-term debt, less current portion, of $313,604,000 as of June 30, 2000 decreased 1% during the 2000 first half however, increased 3% when compared with the March 31, 2000 balance of $305,188,000. During the 2000 first quarter, the Company experienced favorable cash flow from operating activities. During the 2000 second quarter, cash flow provided by operating activities decreased significantly, primarily the result of a $14,706,000 increase in trade accounts receivable at June 30, 2000 compared with March 31, 2000. Stockholders' equity as of June 30, 2000 increased 7% during the 2000 first half, primarily reflecting the Company's net earnings of $15,947,000, the issuance of $1,802,000 of common stock as a final post-closing adjustment of the Hollywood acquisition and the repurchase of $2,715,000 of common stock by the Company. Merger Related Charge In connection with the October 1999 acquisition of Hollywood, the Company recorded $4,502,000 of pre-tax merger related charges in the fourth quarter of 1999 to combine the acquired operations with those of the Company. In June 2000, the Company recorded an additional $482,000 merger related charge associated with the signing of a definitive agreement providing for the early termination of the lease of the Company's former corporate headquarters. The additional $482,000 charge was comprised of $381,000 in cash charges and a non-cash charge of $101,000 related to the abandonment of certain equipment in the Company's former corporate headquarters. The cash portion of the merger related charges totaled $3,629,000. The components of the cash charge incurred, the actual cash payments made, and the accrued balances at June 30, 2000 were as follows (in thousands): Total cash Paid in Paid in Accrued portion 1999 2000 at 6/30/00 ---------- ---------- ---------- ---------- Severance for Company employees $ 1,555 $ 13 $ 478 $ 1,064 Exit of insurance mutual 870 -- 870 -- Corporate headquarters lease abandonment 1,204 106 241 857 ---------- ---------- ---------- ---------- $ 3,629 $ 119 $ 1,589 $ 1,921 ========== ========== ========== ========== The Company expects that the accrued severance remaining will be paid by March 2001. The remaining duplicate corporate headquarters reserve is expected to be paid by the early lease termination date of January 2001. 18

19 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED) Capital Expenditures During the 2000 first six months and the 1999 first six months, the Company purchased no new or existing marine transportation equipment. The capital expenditures for the 2000 second quarter and first six months of $14,791,000 and $28,102,000, respectively, and for the 1999 second quarter and first six months of $3,925,000 and $9,382,000, respectively, were primarily for upgrading the Company's existing marine transportation fleet. As of June 30, 2000, the Company had no material commitments for capital expenditures. Treasury Stock Purchases During the 2000 first six months, the Company purchased in the open market 143,000 shares of common stock at a total purchase price of $2,715,000, for an average price of $18.97 per share. During the 2000 second quarter, the Company purchased 40,000 shares of its common stock at a total purchase price of $836,000, for an average price of $20.84 per share. As of August 7, 2000, the Company had 2,214,000 shares available under its repurchase authorization. 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, in future acquisitions for stock or for other appropriate corporate purposes. Liquidity The Company generated net cash provided by operating activities of $27,389,000 and $32,519,000 for the six months ended June 30, 2000 and 1999, respectively. The 2000 first half was positively impacted by higher net earnings and higher depreciation and amortization, primarily the result of the merger with Hollywood, and negatively impacted by a $14,545,000 decrease in working capital as detailed above. The 1999 first half benefited from favorable cash flow from working capital of $7,466,000. Funds generated are available for acquisitions of core businesses, capital construction projects, treasury stock repurchases, repayment of borrowings associated with each of the above, and for other operating requirements. In addition to its net cash flow provided by operating activities, the Company also has available as of August 7, 2000, $48,500,000 under its revolving credit agreements and $121,000,000 under its medium term note program. The Company's scheduled principal payments during the next 12 months are $5,335,000. On June 1, 2000, $45,000,000 of the Company's medium term notes matured. These notes were paid through a draw-down under the Company's revolving credit agreements. 19

20 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY - (CONTINUED) During the last three months, inflation has had a relatively minor effect on the financial results of the Company. The marine transportation segment has long-term contracts which generally contain cost escalation clauses whereby certain costs, including fuel, can be passed through to its customers. The repair portion of the diesel engine services segment is based on prevailing current market rates. The Company does not have an established dividend policy. Decisions regarding the payment of future dividends will be made by the Board of Directors based on the facts and circumstances that exist at that time. Since 1989, the Company has not paid any dividends on its common stock. Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") issued in June 1998, establishes accounting and reporting standards for derivative instruments and hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. With the issuance of SFAS No. 137, SFAS No. 133 is now effective for all quarters of fiscal years beginning after June 15, 2000. The Company plans to adopt SFAS No. 133, as amended, in the first quarter of 2001 and does not expect it to have a material effect on the Company's financial position or results of operations. 20

21 KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings For a detailed explanation of the material pending legal proceedings against the Company, please refer to the Form 10-K for the year ended December 31, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27.0 Financial Data Schedule. (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended June 30, 2000. SIGNATURES Pursuant to the requirements of the Securities and 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/ G. STEPHEN HOLCOMB ------------------------ G. Stephen Holcomb Vice President and Controller Dated: August 7, 2000 21

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 4,106 9,850 101,110 674 11,758 137,384 706,539 249,452 768,655 95,318 313,604 0 0 3,091 252,754 768,655 28,473 256,664 22,547 161,366 58,906 4 11,827 27,023 11,076 15,947 0 0 0 15,947 .65 .65