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 involve 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, tsunamis, fog and ice, tornados, COVID-19 or other pandemics, 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, 2021. Forward-looking statements are based on currently available information and the Company assumes no obligation to update any such statements. For purposes of Management’s Discussion, all net earnings (loss) per share attributable to Kirby common stockholders are “diluted earnings (loss) per share.”
Overview
The Company is the nation’s largest domestic tank barge operator, transporting bulk liquid products throughout the Mississippi River System, on the Gulf Intracoastal Waterway, and coastwise along all three United States coasts. The Company transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge. Through KDS, the Company provides after-market service and parts for engines, transmissions, reduction gears and related equipment used in oilfield services, marine, power generation, on-highway, and other industrial applications. The Company also rents equipment including generators, industrial compressors, high capacity lift trucks, and refrigeration trailers for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, manufactures cementing and pumping equipment as well as coil tubing and well intervention equipment, electric power generation equipment, specialized electrical distribution and control equipment, and high capacity energy storage/battery systems for oilfield service and railroad customers.
The following table summarizes key operating results of the Company (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
Total revenues |
|
$ |
610,782 |
|
|
$ |
496,850 |
|
Net earnings (loss) attributable to Kirby |
|
$ |
17,434 |
|
|
$ |
(3,375 |
) |
Net earnings (loss) per share attributable to Kirby common stockholders – diluted |
|
$ |
0.29 |
|
|
$ |
(0.06 |
) |
Net cash provided by operating activities |
|
$ |
32,222 |
|
|
$ |
102,558 |
|
Capital expenditures |
|
$ |
35,075 |
|
|
$ |
14,052 |
|
Cash provided by operating activities for the 2022 first quarter decreased primarily due to the receipt of a tax refund of $119.5 million, including accrued interest, for the Company’s 2019 federal tax return during the 2021 first quarter. For the 2022 first quarter, capital expenditures of $35.1 million included $30.1 million in KMT and $5.0 million in KDS and corporate, more fully described under cash flow and capital expenditures below.
The Company projects that capital expenditures for 2022 will be in the $170 million to $190 million range. The 2022 construction program will consist of approximately $5 million for the construction of new inland towboats, $145 million to $155 million primarily for maintenance capital and improvements to existing marine equipment and facilities, and $20 million to $30 million for new machinery and equipment, facilities improvements, and information technology projects in KDS and corporate.
The Company’s debt-to-capitalization ratio decreased to 28.4% at March 31, 2022 from 28.7% at December 31, 2021, primarily due to repayments under the Term Loan in the 2022 first quarter, and an increase in total equity, primarily due to the net earnings attributable to Kirby of $17.4 million. The Company’s debt outstanding as of March 31, 2022 and December 31, 2021 is detailed in Long-Term Financing below.
14
Marine Transportation
For the 2022 first quarter, KMT generated 58% of the Company’s revenues. The segment’s customers include many of the major petrochemical and refining companies that operate in the United States. Products transported include intermediate materials used to produce many of the end products used widely by businesses and consumers — plastics, fiber, paints, detergents, oil additives and paper, among others, as well as residual fuel oil, ship bunkers, asphalt, gasoline, diesel fuel, heating oil, crude oil, natural gas condensate, and agricultural chemicals. Consequently, KMT is directly affected by the volumes produced by the Company’s petroleum, petrochemical and refining customer base.
The following table summarizes the Company’s marine transportation fleet:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Inland tank barges: |
|
|
|
|
|
|
Owned |
|
|
983 |
|
|
|
1,008 |
|
Leased |
|
|
42 |
|
|
|
49 |
|
Total |
|
|
1,025 |
|
|
|
1,057 |
|
Barrel capacity (in millions) |
|
|
22.9 |
|
|
|
23.7 |
|
|
|
|
|
|
|
|
Active inland towboats (quarter average): |
|
|
|
|
|
|
Owned |
|
|
207 |
|
|
|
216 |
|
Chartered |
|
|
56 |
|
|
|
25 |
|
Total |
|
|
263 |
|
|
|
241 |
|
|
|
|
|
|
|
|
Coastal tank barges: |
|
|
|
|
|
|
Owned |
|
|
29 |
|
|
|
43 |
|
Leased |
|
|
1 |
|
|
|
1 |
|
Total |
|
|
30 |
|
|
|
44 |
|
Barrel capacity (in millions) |
|
|
3.1 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
Coastal tugboats: |
|
|
|
|
|
|
Owned |
|
|
26 |
|
|
|
39 |
|
Chartered |
|
|
3 |
|
|
|
3 |
|
Total |
|
|
29 |
|
|
|
42 |
|
|
|
|
|
|
|
|
Offshore dry-bulk cargo barges (owned) |
|
|
4 |
|
|
|
4 |
|
Offshore tugboats and docking tugboat (owned and chartered) |
|
|
5 |
|
|
|
5 |
|
The Company also owns shifting operations and fleeting facilities for dry cargo barges and tank barges on the Houston Ship Channel and in Freeport and Port Arthur, Texas, and Lake Charles, Louisiana, and a shipyard for building towboats and performing routine maintenance near the Houston Ship Channel, as well as a two-thirds interest in Osprey Line, L.L.C., which transports project cargoes and cargo containers by barge.
During the 2022 first quarter, the Company's inland tank barge count and capacity was unchanged.
KMT revenues for the 2022 first quarter increased 18% and operating income increased 773% compared to the 2021 first quarter. The increases for the 2022 first quarter were primarily due to increased tank barge utilization and term and spot pricing in the inland market and increased fuel rebills in the inland and coastal markets. The 2021 first quarter was also heavily impacted by Winter Storm Uri which shut down many Gulf Coast refineries and chemical plants for an extended period of time starting in mid-February. These emergency shutdowns resulted in significantly reduced liquids production and lower volumes for the Company’s inland marine transportation market during the 2021 first quarter. The 2022 and 2021 first quarters were also impacted by poor operating conditions including seasonal wind and fog along the Gulf Coast, flooding on the Mississippi River, and various lock closures along the Gulf Intracoastal Waterway, in addition to ice on the Illinois River. For the 2022 and 2021 first quarters the inland tank barge fleet contributed 78% and 75%, respectively, and the coastal fleet contributed 22% and 25%, respectively, of KMT revenues.
Inland tank barge utilization levels averaged in the mid-80% range during the 2022 first quarter compared to the mid-70% range during the 2021 first quarter. The 2022 first quarter reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization while the 2021 first quarter was impacted by reduced demand resulting from the effects of the COVID-19 pandemic causing an economic slowdown as well as reduced volumes due to Winter Storm Uri.
15
Coastal tank barge utilization levels averaged in the low 90% range during the 2022 first quarter compared to the mid-70% range during the 2021 first quarter. The increase in coastal tank barge utilization during 2022 was primarily due to the retirement of underutilized barges in the 2021 third quarter and some modest improvements in customer demand. Barge utilization in the coastal marine fleet continued to be impacted by the oversupply of tank barges in the coastal industry in 2022 and 2021.
During both the 2022 and 2021 first quarters approximately 65% of KMT inland revenues were under term contracts and 35% were spot contract revenues. Inland time charters during the 2022 and 2021 first quarters represented 58% and 61%, respectively, of the inland revenues under term contracts. During both the 2022 and 2021 first quarters approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters represented approximately 90% and 85% of coastal revenues under term contracts during the 2022 and 2021 first quarters, respectively. Term contracts have contract terms of 12 months or longer, while spot contracts have contract terms of less than 12 months.
The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2022 compared to contracts renewed during the corresponding quarter of 2021:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, 2022 |
Inland market: |
|
|
|
|
|
|
Term increase |
|
|
|
|
|
7% – 9% |
Spot increase |
|
|
|
|
|
15% – 20% |
Coastal market (a): |
|
|
|
|
|
|
Term increase |
|
|
|
|
|
4% – 6% |
Spot increase |
|
|
|
|
|
4% – 6% |
(a)Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type, and product serviced.
Effective January 1, 2022, annual escalators for labor and the producer price index on a number of inland multi-year contracts resulted in rate increases on those contracts of approximately 5%, excluding fuel.
KMT operating margin was 4.8% and 0.6% for the 2022 and 2021 first quarters, respectively.
Distribution and Services
KDS sells genuine replacement parts, provides service mechanics to overhaul and repair engines, transmissions, reduction gears and related oilfield services equipment, rebuilds component parts or entire diesel engines, transmissions and reduction gears, and related equipment used in oilfield services, marine, power generation, on-highway and other industrial applications. The Company also rents equipment including generators, industrial compressors, high capacity lift trucks, and refrigeration trailers for use in a variety of industrial markets, manufactures and remanufactures oilfield service equipment, including pressure pumping units, and manufactures cementing and pumping equipment as well as coil tubing and well intervention equipment, electric power generation equipment, specialized electric distribution and control equipment, and high capacity energy storage/battery systems for oilfield service and railroad customers.
For the 2022 first quarter KDS generated 42% of the Company’s revenues, of which 88% was generated from service and parts and 12%, from manufacturing. The results of KDS are largely influenced by the economic cycles of the oil and gas, marine, power generation, on-highway, and other related industrial markets.
KDS revenues for the 2022 first quarter increased 30% and operating income increased 277% compared with the 2021 first quarter. In the commercial and industrial market, the increases for the 2022 first quarter were primarily attributable to improved economic activity across the United States which resulted in higher business levels in the marine and on-highway businesses. Increased product sales in Thermo King also contributed favorably to the 2022 first quarter results. In addition, the 2021 first quarter was impacted by Winter Storm Uri which caused reduced activity, especially in the Southern United States, in the commercial and industrial market. For the 2022 first quarter, the commercial and industrial market contributed 58% of KDS revenues.
In the oil and gas market, revenues and operating income improved compared to the 2021 first quarter due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business. Although the manufacturing business was heavily impacted by supply chain delays, the business continued to experience increased orders and deliveries of new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing. For the 2022 first quarter, the oil and gas market contributed 42% of KDS revenues.
KDS operating margin was 4.3% and 1.5% for the 2022 and 2021 first quarters, respectively.
16
Outlook
Although the 2022 first quarter was heavily impacted by the COVID-19 Omicron variant in KMT, activity levels improved considerably in March. KDS also experienced supply chain challenges that impacted the 2022 first quarter but expects overall demand for its products and services to continue to improve as the year progresses. As such, the Company expects both KMT and KDS to deliver continued improved financial results in 2022.
The inland marine transportation market, revenues and operating income are expected to continue to improve, driven by increased barge utilization, improvements in the spot market, and renewals of expiring term contracts at higher rates. Rising costs from inflation, including significantly higher fuel prices, are expected to be headwinds but are anticipated to be largely mitigated when escalations in contracts occur during the second half of the year. In coastal marine, modest improvements in demand and pricing are anticipated in 2022, but revenues and operating income are expected to be impacted by planned shipyard maintenance and ballast water treatment installations on certain vessels for the duration of the year.
KDS results are largely influenced by the cycles of the oil and gas, marine, power generation, on-highway and other related industrial markets. In the oil and gas market, high commodity prices, increasing rig counts, and growing well completions activity are expected to result in increased demand for original equipment manufacturer products, parts, and services as well as for new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing. In commercial and industrial, favorable economic activity is expected to result in increased demand in power generation, marine repair, and on-highway. Overall, despite ongoing supply chain issues and long lead times, favorable oilfield fundamentals and increased demand in commercial and industrial are expected to result in improved financial results in 2022.
Acquisition
On March 31, 2022, the Company paid $3.9 million in cash to purchase assets of a gearbox repair company in KDS. Financing of the purchase was through cash provided by operating activities.
Results of Operations
The following table sets forth the Company’s KMT and KDS revenues and the percentage of each to total revenues for the comparable periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
% |
|
|
2021 |
|
|
% |
|
Marine transportation |
|
$ |
355,536 |
|
|
|
58 |
% |
|
$ |
300,951 |
|
|
|
61 |
% |
Distribution and services |
|
|
255,246 |
|
|
|
42 |
|
|
|
195,899 |
|
|
|
39 |
|
|
|
$ |
610,782 |
|
|
|
100 |
% |
|
$ |
496,850 |
|
|
|
100 |
% |
Marine Transportation
The following table sets forth KMT revenues, costs and expenses, operating income, and operating margin (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
Marine transportation revenues |
|
$ |
355,536 |
|
|
$ |
300,951 |
|
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
Costs of sales and operating expenses |
|
|
254,359 |
|
|
|
214,125 |
|
|
|
19 |
|
Selling, general and administrative |
|
|
32,336 |
|
|
|
30,578 |
|
|
|
6 |
|
Taxes, other than on income |
|
|
7,820 |
|
|
|
6,729 |
|
|
|
16 |
|
Depreciation and amortization |
|
|
44,086 |
|
|
|
47,579 |
|
|
|
(7 |
) |
|
|
|
338,601 |
|
|
|
299,011 |
|
|
|
13 |
|
Operating income |
|
$ |
16,935 |
|
|
$ |
1,940 |
|
|
|
773 |
% |
Operating margins |
|
|
4.8 |
% |
|
|
0.6 |
% |
|
|
|
17
Marine Transportation Revenues
The following table shows the marine transportation markets serviced by the Company, KMT revenue distribution, products moved and the drivers of the demand for the products the Company transports:
|
|
|
|
|
|
|
Markets Serviced |
|
2022 First Quarter Revenue Distribution |
|
Products Moved |
|
Drivers |
Petrochemicals |
|
50% |
|
Benzene, Styrene, Methanol, Acrylonitrile, Xylene, Naphtha, Caustic Soda, Butadiene, Propylene |
|
Consumer non-durables – 70%, Consumer durables – 30% |
Black Oil |
|
26% |
|
Residual Fuel Oil, Coker Feedstock, Vacuum Gas Oil, Asphalt, Carbon Black Feedstock, Crude Oil, Natural Gas Condensate, Ship Bunkers |
|
Fuel for Power Plants and Ships, Feedstock for Refineries, Road Construction |
Refined Petroleum Products |
|
20% |
|
Gasoline, No. 2 Oil, Jet Fuel, Heating Oil, Diesel Fuel, Ethanol |
|
Vehicle Usage, Air Travel, Weather Conditions, Refinery Utilization |
Agricultural Chemicals |
|
4% |
|
Anhydrous Ammonia, Nitrogen – Based Liquid Fertilizer, Industrial Ammonia |
|
Corn, Cotton and Wheat Production, Chemical Feedstock Usage |
KMT revenues for the 2022 first quarter increased 18% compared to the 2021 first quarter revenues. The increase for the 2022 first quarter was primarily due to increased tank barge utilization and term and spot pricing in the inland market and increased fuel rebills in the inland and coastal markets. The 2021 first quarter was also heavily impacted by Winter Storm Uri which shut down many Gulf Coast refineries and chemical plants for an extended period of time starting in mid-February. These emergency shutdowns resulted in significantly reduced liquids production and lower volumes for the Company’s inland marine transportation market during the 2021 first quarter. The 2022 and 2021 first quarters were also impacted by poor operating conditions including seasonal wind and fog along the Gulf Coast, flooding on the Mississippi River, and various lock closures along the Gulf Intracoastal Waterway, in addition to ice on the Illinois River. For the 2022 and 2021 first quarters the inland tank barge fleet contributed 78% and 75%, respectively, and the coastal fleet contributed 22% and 25%, respectively, of KMT revenues.
Inland tank barge utilization levels averaged in the mid-80% range during the 2022 first quarter compared to the mid-70% range during the 2021 first quarter. The 2022 first quarter reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization while the 2021 first quarter was impacted by reduced demand resulting from the effects of the COVID-19 pandemic causing an economic slowdown as well as reduced volumes due to Winter Storm Uri.
Coastal tank barge utilization levels averaged in the low 90% range during the 2022 first quarter compared to the mid-70% range during the 2021 first quarter. The increase in coastal tank barge utilization during 2022 was primarily due to the retirement of underutilized barges in the 2021 third quarter and some modest improvements in customer demand. Barge utilization in the coastal marine fleet continued to be impacted by the oversupply of tank barges in the coastal industry in 2022 and 2021.
The petrochemical market, the Company’s largest market, contributed 50% of KMT revenues for the 2022 first quarter, reflecting increased volumes and utilization from Gulf Coast petrochemical plants as a result of improved economic conditions following the height of the COVID-19 pandemic.
The black oil market, which contributed 26% of KMT revenues for the 2022 first quarter, reflected improved demand as refinery utilization and production levels of refined petroleum products and fuel oils increased following the height of the COVID-19 pandemic. During the 2022 first quarter, the Company transported crude oil and natural gas condensate produced from the Permian Basin and the Eagle Ford shale formation in Texas, both along the Gulf Intracoastal Waterway with inland vessels and in the Gulf of Mexico with coastal equipment. Additionally, the Company transported volumes of Utica natural gas condensate downriver from the Mid-Atlantic to the Gulf Coast and Canadian and Bakken crude downriver from the Midwest to the Gulf Coast.
The refined petroleum products market, which contributed 20% of KMT revenues for the 2022 first quarter, reflected increased volumes in the inland market as refinery utilization and product levels improved following the height of the COVID-19 pandemic.
The agricultural chemical market, which contributed 4% of KMT revenues for the 2022 first quarter, reflected improved demand for transportation of both domestically produced and imported products, primarily due to improved economic conditions following the height of the COVID-19 pandemic.
18
For the 2022 first quarter, the inland operations incurred 3,137 delay days, 10% more than the 2,854 delay days that occurred during the 2021 first quarter. Delay days measure the lost time incurred by a tow (towboat and one or more tank barges) during transit when the tow is stopped due to weather, lock conditions, or other navigational factors. Delay days reflected poor operating conditions due to heavy wind and fog along the Gulf Coast and high water conditions on the Mississippi River System during the 2022 and 2021 first quarters. The 2022 first quarter was also impacted by ice on the Illinois River while the 2021 first quarter was impacted by closures of key waterways as a result of lock maintenance projects. The increase in delay days in the 2022 first quarter reflects increased volumes and barge utilization compared to the 2021 first quarter.
During both the 2022 and 2021 first quarters approximately 65% of KMT inland revenues were under term contracts and 35% were spot contract revenues. Inland time charters during the 2022 and 2021 first quarters represented 58% and 61%, respectively, of the inland revenues under term contracts. During both the 2022 and 2021 first quarters approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters represented approximately 90% and 85% of coastal revenues under term contracts during the 2022 and 2021 first quarters, respectively. Term contracts have contract terms of 12 months or longer, while spot contracts have contract terms of less than 12 months.
The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2022 compared to contracts renewed during the corresponding quarter of 2021:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, 2022 |
Inland market: |
|
|
|
|
|
|
Term increase |
|
|
|
|
|
7% – 9% |
Spot increase |
|
|
|
|
|
15% – 20% |
Coastal market (a): |
|
|
|
|
|
|
Term increase |
|
|
|
|
|
4% – 6% |
Spot increase |
|
|
|
|
|
4% – 6% |
(a)Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type, and product serviced.
Effective January 1, 2022, annual escalators for labor and the producer price index on a number of inland multi-year contracts resulted in rate increases on those contracts of approximately 5%, excluding fuel.
Marine Transportation Costs and Expenses
Costs and expenses for the 2022 first quarter increased 13% compared to the 2021 first quarter. Costs of sales and operating expenses for the 2022 first quarter increased 19% compared with the 2021 first quarter. The increases during the 2022 first quarter primarily reflect improved business activity levels and increased fuel costs as well as incremental costs associated with the COVID-19 Omicron variant.
The inland marine transportation fleet operated an average of 263 towboats during the 2022 first quarter, of which an average of 56 were chartered, compared to 241 during the 2021 first quarter, of which an average of 25 were chartered. The increase was primarily due to increasing business activity levels during the 2022 first quarter. The 2021 first quarter activity was also impacted by Winter Storm Uri. Generally, variability in demand or anticipated demand, as tank barges are added or removed from the fleet, as chartered towboat availability changes, or as weather or water conditions dictate, the Company charters in or releases chartered towboats in an effort to balance horsepower needs with current requirements. The Company has historically used chartered towboats for approximately one-fourth of its horsepower requirements.
During the 2022 first quarter, the inland operations consumed 11.5 million gallons of diesel fuel compared to 10.8 million gallons consumed during the 2021 first quarter. The average price per gallon of diesel fuel consumed during the 2022 first quarter was $2.50 per gallon compared with $1.65 per gallon for the 2021 first quarter. Fuel escalation and de-escalation clauses are typically included in term contracts and are designed to rebate fuel costs when prices decline and recover additional fuel costs when fuel prices rise; however, there is generally a 30 to 90 day delay before contracts are adjusted. Spot contracts do not have escalators for fuel.
Selling, general and administrative expenses for the 2022 first quarter increased 6% compared to the 2021 first quarter, primarily due to higher business activity levels. Business activity levels in the 2021 first quarter were impacted by COVID-19 and the resulting economic slowdown as well as Winter Storm Uri.
Taxes, other than on income, for the 2022 first quarter increased 16% compared with the 2021 first quarter, primarily reflecting higher property taxes on marine transportation equipment.
19
Depreciation and amortization for the 2022 first quarter decreased 7% compared to the 2021 first quarter, primarily reflecting retirements, sales, and impairment of marine equipment during 2021.
Marine Transportation Operating Income and Operating Margin
KMT operating income for the 2022 first quarter increased 773%, respectively, compared with the 2021 first quarter. The 2022 first quarter operating margin was 4.8% compared with 0.6% for the 2021 first quarter. The increases in operating income and operating margin were primarily due to increased barge utilization and term and spot contract pricing in the inland market, each as a result of improving business activity levels, partially offset by the impacts of the COVID-19 Omicron variant and increasing fuel prices. The 2021 first quarter was also impacted by Winter Storm Uri.
Distribution and Services
The following table sets forth KDS revenues, costs and expenses, operating income (loss), and operating margin (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
Distribution and services revenues |
|
$ |
255,246 |
|
|
$ |
195,899 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
Costs of sales and operating expenses |
|
|
196,519 |
|
|
|
149,127 |
|
|
|
32 |
|
Selling, general and administrative |
|
|
41,922 |
|
|
|
36,488 |
|
|
|
15 |
|
Taxes, other than on income |
|
|
1,728 |
|
|
|
1,492 |
|
|
|
16 |
|
Depreciation and amortization |
|
|
4,106 |
|
|
|
5,881 |
|
|
|
(30 |
) |
|
|
|
244,275 |
|
|
|
192,988 |
|
|
|
27 |
|
Operating income |
|
$ |
10,971 |
|
|
$ |
2,911 |
|
|
|
277 |
% |
Operating margins |
|
|
4.3 |
% |
|
|
1.5 |
% |
|
|
|
Distribution and Services Revenues
The following table shows the markets serviced by KDS, the revenue distribution, and the customers for each market:
|
|
|
|
|
Markets Serviced |
|
2022 First Quarter Revenue Distribution |
|
Customers |
Commercial and Industrial |
|
58% |
|
Inland River Carriers — Dry and Liquid, Offshore Towing — Dry and Liquid, Offshore Oilfield Services — Drilling Rigs & Supply Boats, Harbor Towing, Dredging, Great Lakes Ore Carriers, Pleasure Crafts, On and Off-Highway Transportation, Power Generation, Standby Power Generation, Pumping Stations, Mining |
Oil and Gas |
|
42% |
|
Oilfield Services, Oil and Gas Operators and Producers |
KDS revenues for the 2022 first quarter increased 30% compared to the 2021 first quarter. In the commercial and industrial market, the increase for the 2022 first quarter was primarily attributable to improved economic activity across the United States which resulted in higher business levels in the marine and on-highway businesses. Increased product sales in Thermo King also contributed favorably to the 2022 first quarter results. In addition, the 2021 first quarter was impacted by Winter Storm Uri which caused reduced activity, especially in the Southern United States, in the commercial and industrial market. For the 2022 first quarter, the commercial and industrial market contributed 58% of KDS revenues.
In the oil and gas market, revenues improved compared to the 2021 first quarter due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business. Although the manufacturing business was heavily impacted by supply chain delays, the business continued to experience increased orders and deliveries of new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing. For the 2022 first quarter, the oil and gas market contributed 42% of KDS revenues.
20
Distribution and Services Costs and Expenses
Costs and expenses for the 2022 first quarter increased 27% compared with the 2021 first quarter. Costs of sales and operating expenses for the 2022 first quarter increased 32%, compared with the 2021 first quarter, reflecting higher demand in the marine and on-highway businesses in commercial and industrial markets as well as increased demand in the oil and gas market as a result of higher oilfield activity levels.
Selling, general and administrative expenses for the 2022 first quarter increased 15%, compared to the 2021 first quarter, primarily due to higher salaries and higher warranty accruals associated with increased activity levels as well as salaries and costs related to the acquisition of assets of an energy storage systems manufacturer in the 2021 fourth quarter.
Depreciation and amortization for the 2022 first quarter decreased 30%, compared to the 2021 first quarter, primarily due to sales of property and equipment and reduced capital spending during 2021.
Distribution and Services Operating Income and Operating Margin
KDS operating income for the 2022 first quarter increased 277% compared with the 2021 first quarter. The 2022 first quarter operating margin was 4.3% compared to 1.5% for the 2021 first quarter. The results reflect increased business levels in both the commercial and industrial and oil and gas markets.
Gain on Disposition of Assets
The Company reported a net gain on disposition of assets of $4.8 million for the 2022 first quarter and $2.1 million for the 2021 first quarter. The net gains were primarily from sales of marine transportation equipment.
Other Income and Expenses
The following table sets forth other income, noncontrolling interests, and interest expense (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
Other income |
|
$ |
4,308 |
|
|
$ |
3,791 |
|
|
|
14 |
% |
Noncontrolling interests |
|
$ |
(152 |
) |
|
$ |
(255 |
) |
|
|
(40 |
)% |
Interest expense |
|
$ |
(10,203 |
) |
|
$ |
(10,966 |
) |
|
|
(7 |
)% |
Other Income
Other income for the 2022 and 2021 first quarters include income of $3.4 million and $2.0 million, respectively, for all components of net benefit costs except the service cost component related to the Company’s defined benefit plans. Other income for the 2021 first quarter also includes interest income from the Company’s 2019 federal income tax refund received in February 2021.
Interest Expense
The following table sets forth average debt and average interest rate (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
Average debt |
|
|
|
|
|
$ |
1,178,916 |
|
|
$ |
1,417,127 |
|
Average interest rate |
|
|
|
|
|
|
3.5 |
% |
|
|
3.1 |
% |
Interest expense for the 2022 first quarter decreased 7%, compared with the 2021 first quarter, primarily due to lower average debt outstanding as a result of debt repayments during 2021. There was no capitalized interest excluded from interest expense during the 2022 or 2021 first quarters.
21
Financial Condition, Capital Resources and Liquidity
Balance Sheets
The following table sets forth the significant components of the balance sheets (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
% Change |
|
Assets: |
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
1,015,331 |
|
|
$ |
1,003,865 |
|
|
|
1 |
% |
Property and equipment, net |
|
|
3,660,314 |
|
|
|
3,678,515 |
|
|
|
— |
|
Operating lease right-of-use assets |
|
|
164,986 |
|
|
|
167,730 |
|
|
|
(2 |
) |
Goodwill |
|
|
438,748 |
|
|
|
438,748 |
|
|
|
— |
|
Other intangibles, net |
|
|
57,934 |
|
|
|
60,070 |
|
|
|
(4 |
) |
Other assets |
|
|
45,479 |
|
|
|
50,135 |
|
|
|
(9 |
) |
|
|
$ |
5,382,792 |
|
|
$ |
5,399,063 |
|
|
|
— |
% |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
513,835 |
|
|
$ |
543,772 |
|
|
|
(6 |
)% |
Long-term debt, net – less current portion |
|
|
1,151,638 |
|
|
|
1,161,433 |
|
|
|
(1 |
) |
Deferred income taxes |
|
|
580,014 |
|
|
|
574,152 |
|
|
|
1 |
|
Operating lease liabilities – less current portion |
|
|
156,271 |
|
|
|
159,672 |
|
|
|
(2 |
) |
Other long-term liabilities |
|
|
69,169 |
|
|
|
71,252 |
|
|
|
(3 |
) |
Total equity |
|
|
2,911,865 |
|
|
|
2,888,782 |
|
|
|
1 |
|
|
|
$ |
5,382,792 |
|
|
$ |
5,399,063 |
|
|
|
— |
% |
Current assets as of March 31, 2022 increased 1% compared with December 31, 2021. Other accounts receivable decreased 16%, primarily due to recoveries on the settlement of insurance claims. Inventories increased 9%, primarily due to supply chain delays in KDS resulting in staging of inventory and buildup for projects that will be delivered later in 2022. Prepaid expenses and other current assets increased 9% primarily due to the increase in the price of diesel fuel purchased in March 2022.
Property and equipment, net of accumulated depreciation, at March 31, 2022 decreased slightly compared with December 31, 2021. The decrease reflected $48.1 million of depreciation expense and $9.6 million of property disposals, partially offset by $35.6 million of capital additions (including an increase in accrued capital expenditures of $0.5 million) and an acquisition for $3.9 million during the 2022 first quarter, more fully described under Cash Flows and Capital Expenditures below.
Operating lease right-of-use assets as of March 31, 2022 decreased 2% compared to December 31, 2021, primarily due to lease amortization expense, partially offset by new leases acquired during the 2022 first quarter.
Other intangibles, net, as of March 31, 2022 decreased 4% compared with December 31, 2021, primarily due to amortization during the 2022 first quarter.
Other assets as of March 31, 2022 decreased 9% compared with December 31, 2021, primarily due to amortization of drydock expenditures during the 2022 first quarter.
Current liabilities as of March 31, 2022 decreased 6% compared with December 31, 2021. Accounts payable increased 10%, primarily due to increased activity levels in KDS. Accrued liabilities decreased 20% primarily due to the payment of employee incentive compensation bonuses, property taxes, and interest, as well as the settlement of insurance claims.
Long-term debt, net – less current portion, as of March 31, 2022 decreased 1% compared with December 31, 2021, primarily reflecting repayments of $10.0 million under the Term Loan.
Deferred income taxes as of March 31, 2022 increased 1% compared with December 31, 2021, primarily reflecting the deferred tax provision of $5.9 million.
Operating lease liabilities – less current portion, as of March 31, 2022 decreased 2% compared to December 31, 2021, primarily due to lease payments made, partially offset by new leases acquired and liability accretion during the 2022 first quarter.
Other long-term liabilities as of March 31, 2022 decreased 3% compared with December 31, 2021, primarily due to amortization of intangible liabilities and a decrease in pension liabilities.
22
Total equity as of March 31, 2022 increased 1% compared with December 31, 2021. The increase was primarily due to the net earnings attributable to Kirby of $17.4 million, amortization of share-based compensation of $6.0 million, and stock option exercises of $2.3 million, partially offset by tax withholdings of $3.1 million on restricted stock and RSU vestings.
Long-Term Financing
The following table summarizes the Company’s outstanding debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
Long-term debt, including current portion: |
|
|
|
|
|
|
Revolving Credit Facility due March 27, 2024 (a) |
|
$ |
— |
|
|
$ |
— |
|
Term Loan due March 27, 2024 (a) |
|
|
305,000 |
|
|
|
315,000 |
|
3.29% senior notes due February 27, 2023 |
|
|
350,000 |
|
|
|
350,000 |
|
4.2% senior notes due March 1, 2028 |
|
|
500,000 |
|
|
|
500,000 |
|
Credit line due June 30, 2022 |
|
|
— |
|
|
|
— |
|
Bank notes payable |
|
|
3,097 |
|
|
|
1,934 |
|
|
|
|
1,158,097 |
|
|
|
1,166,934 |
|
Unamortized debt discounts and issuance costs (b) |
|
|
(3,362 |
) |
|
|
(3,567 |
) |
|
|
$ |
1,154,735 |
|
|
$ |
1,163,367 |
|
(a)Variable interest rate of 1.8% and 1.5% at March 31, 2022 and December 31, 2021, respectively.
(b)Excludes $1.2 million and $1.4 million attributable to the Revolving Credit Facility included in other assets at March 31, 2022 and December 31, 2021, respectively.
The Company has a Credit Agreement with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank, allowing for an $850 million Revolving Credit Facility and a Term Loan with a maturity date of March 27, 2024. The Term Loan is prepayable, in whole or in part, without penalty. During the 2022 first quarter, the Company repaid $10.0 million under the Term Loan. During April 2022, the Company repaid $5.0 million under the Term Loan. Outstanding letters of credit under the Revolving Credit Facility were $5.1 million and available borrowing capacity was $844.9 million as of March 31, 2022. Outstanding letters of credit under the $10 million credit line were $1.3 million and available borrowing capacity was $8.7 million as of March 31, 2022.
On February 3, 2022, the Company entered into a note purchase agreement for the issuance of $300 million of 2033 Notes with a group of institutional investors, consisting of $60 million of 3.46% Series A Notes and $240 million of 3.51% Series B Notes, each due January 19, 2033. The Series A Notes are scheduled to be issued on October 20, 2022, and the Series B Notes are scheduled to be issued on January 19, 2023. No principal payments will be required until maturity. Beginning in 2023, interest payments of $5.3 million will be due semi-annually on January 19 and July 19 of each year, with the exception of the first payment on January 19, 2023, which will be $0.5 million. The 2033 Notes will be unsecured and rank equally in right of payment with the Company's other unsecured senior indebtedness. The 2033 Notes contain certain covenants on the part of the Company, including an interest coverage covenant, a debt-to-capitalization covenant, and covenants relating to liens, asset sales and mergers, among others. The 2033 Notes also specify certain events of default, upon the occurrence of which the maturity of the notes may be accelerated, including failure to pay principal and interest, violation of covenants or default on other indebtedness, among others. The 2023 Notes are excluded from short term liabilities because the Company intends to use the proceeds from the issuance of the 2033 Notes and availability under the Revolving Credit Facility to repay the 2023 Notes upon maturity.
As of March 31, 2022, the Company was in compliance with all covenants under its debt instruments. For additional information about the Company’s debt instruments, see Note 5, Long-Term Debt, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Cash Flow and Capital Expenditures
The Company generated favorable operating cash flows during the 2022 first quarter with net cash provided by operating activities of $32.2 million compared with $102.6 million for the 2021 first quarter, a 69% decrease. The decrease was primarily due to a tax refund of $119.5 million, including accrued interest, for the Company’s 2019 federal tax return which was received in the 2021 first quarter, increased inventory purchases, and increased employee incentive compensation bonuses paid during the 2022 first quarter, partially offset by increased revenues and operating income in KMT and KDS. Increases in KMT revenues and operating income were driven by increased barge utilization and term and spot contract pricing in the inland market during the 2022 first quarter. The 2021 first quarter KMT revenues and operating income were also negatively impacted by the impacts of Winter Storm Uri. During the 2022 and 2021 first quarters, the Company generated cash of $14.3 million and $4.8 million, respectively, from proceeds from the disposition of assets, and $2.3 million and $0.4 million, respectively, from proceeds from the exercise of stock options.
23
For the 2022 first quarter, cash generated was used for capital expenditures of $35.1 million (net of an increase in accrued capital expenditures of $0.5 million), including $1.3 million for inland towboat construction and $33.8 million primarily for upgrading existing marine equipment and KMT and KDS facilities.
Treasury Stock Purchases
The Company did not purchase any treasury stock during the 2022 first quarter. As of May 6, 2022, the Company had approximately 1.4 million shares available under its existing repurchase authorization. Historically, treasury stock purchases have been financed through operating cash flows and borrowings under the Company’s Revolving Credit Facility. The Company is authorized to purchase its common stock on the New York Stock Exchange and in privately negotiated transactions. When purchasing its common stock, the Company is subject to price, trading volume, and other market considerations. Shares purchased may be used for reissuance upon the exercise of stock options or the granting of other forms of incentive compensation, in future acquisitions for stock, or for other appropriate corporate purposes.
Liquidity
Funds generated from operations are available for acquisitions, capital expenditure projects, common stock repurchases, repayments of borrowings, and for other corporate and operating requirements. In addition to net cash flows provided by operating activities, as of May 6, 2022 the Company also had cash equivalents of $32.1 million, availability of $844.9 million under its Revolving Credit Facility, and $8.7 million 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 the pricing grid on its Credit Agreement.
The Company expects to continue to fund expenditures for acquisitions, capital construction projects, common stock repurchases, repayment of borrowings, and for other operating requirements from a combination of available cash and cash equivalents, funds generated from operating activities, and available financing arrangements.
The Revolving Credit Facility’s commitment is in the amount of $850 million and matures March 27, 2024. As of March 31, 2022, the Company had $844.9 million available under the Revolving Credit Facility. The 2023 Notes do not mature until February 27, 2023 and require no prepayments. The Company intends to use the proceeds from the issuance of the 2033 Notes in October 2022 and January 2023 and availability under the Revolving Credit Facility to repay the 2023 Notes upon maturity. The 4.2% senior unsecured notes do not mature until March 1, 2028 and require no prepayments. The Term Loan is due on March 27, 2024 and is prepayable, in whole or in part, without penalty.
There are numerous factors that may negatively impact the Company’s cash flows in 2022. For a list of significant risks and uncertainties that could impact cash flows, see Note 13, Contingencies and Commitments, in the financial statements, and Item 1A — Risk Factors and Note 14, Contingencies and Commitments, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Amounts available under the Company’s existing financial arrangements are subject to the Company continuing to meet the covenants of the credit facilities as described in Note 5, Long-Term Debt in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The Company has issued guaranties or obtained standby letters of credit and performance bonds supporting performance by the Company and its subsidiaries of contractual or contingent legal obligations of the Company and its subsidiaries incurred in the ordinary course of business. The aggregate notional value of these instruments is $19.7 million at March 31, 2022, including $12.1 million in letters of credit and $7.6 million in performance bonds. All of these instruments have an expiration date within two 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.
KMT term contracts typically contain fuel escalation clauses, or the customer pays for the fuel. However, there is generally a 30 to 90 day delay before contracts are adjusted depending on the specific terms of the contract. In general, the fuel escalation clauses are effective over the long-term in allowing the Company to recover changes in fuel costs due to fuel price changes. However, the short-term effectiveness of the fuel escalation clauses can be affected by a number of factors including, but not limited to, specific terms of the fuel escalation formulas, fuel price volatility, navigating conditions, tow sizes, trip routing, and the location of loading and discharge ports that may result in the Company over or under recovering its fuel costs. Spot contract rates generally reflect current fuel prices at the time the contract is signed but do not have escalators for fuel.
24
While inflationary pressures have increased in the second half of 2021 and into 2022, the Company has certain mechanisms designed to help mitigate the impacts of rising costs. For example, KMT has long-term contracts which generally contain cost escalation clauses whereby certain costs, including fuel as noted above, can be largely passed through to its customers. Spot contract rates include the cost of fuel and are subject to market volatility. In KDS, the cost of major components for large manufacturing orders is secured with suppliers at the time a customer order is finalized, which limits exposure to inflation. The repair portion of KDS is based on prevailing current market rates.