UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2022
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-7615
KIRBY CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
74-1884980
(I.R.S. Employer Identification No.)
(State or other jurisdiction of 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
KEX
New York Stock Exchange
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of August 5, 2022, 59.9 million shares of the Registrant’s $0.10 par value per share common stock were outstanding.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
June 30,2022
December 31,2021
($ in thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
25,104
34,813
Accounts receivable:
Trade – less allowance for doubtful accounts
445,425
417,958
Other
127,181
149,964
Inventories – net
370,385
331,350
Prepaid expenses and other current assets
84,160
69,780
Total current assets
1,052,255
1,003,865
Property and equipment
5,416,559
5,392,851
Accumulated depreciation
(1,763,907
)
(1,714,336
Property and equipment – net
3,652,652
3,678,515
Operating lease right-of-use assets
159,968
167,730
Goodwill
438,748
Other intangibles, net
55,770
60,070
Other assets
45,763
50,135
Total assets
5,405,156
5,399,063
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank notes payable
4,206
1,934
Accounts payable
234,640
199,088
Accrued liabilities
198,191
236,078
Current portion of operating lease liabilities
34,667
33,902
Deferred revenues
69,668
72,770
Total current liabilities
541,372
543,772
Long-term debt, net – less current portion
1,131,849
1,161,433
Deferred income taxes
590,876
574,152
Operating lease liabilities – less current portion
150,355
159,672
Other long-term liabilities
60,960
71,252
Total long-term liabilities
1,934,040
1,966,509
Contingencies and commitments
—
Equity:
Kirby stockholders’ equity:
Common stock, $0.10 par value per share. Authorized 120 million shares, issued 65.5 million shares
6,547
Additional paid-in capital
854,781
854,512
Accumulated other comprehensive income – net
(21,957
(25,966
Retained earnings
2,392,330
2,346,439
Treasury stock – at cost, 5.5 million shares at June 30, 2022 and 5.4 million at December 31, 2021
(304,314
(295,208
Total Kirby stockholders’ equity
2,927,387
2,886,324
Noncontrolling interests
2,357
2,458
Total equity
2,929,744
2,888,782
Total liabilities and equity
See accompanying notes to condensed financial statements.
2
CONDENSED STATEMENTS OF EARNINGS
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
($ in thousands, except per share amounts)
Revenues:
Marine transportation
405,655
332,887
761,191
633,838
Distribution and services
292,309
226,737
547,555
422,636
Total revenues
697,964
559,624
1,308,746
1,056,474
Costs and expenses:
Costs of sales and operating expenses
523,862
409,479
974,480
772,519
Selling, general and administrative
70,575
62,740
146,340
132,369
Taxes, other than on income
9,621
10,364
19,211
18,624
Depreciation and amortization
50,115
55,132
100,079
110,022
Gain on disposition of assets
(2,745
(2,119
(7,594
(4,252
Total costs and expenses
651,428
535,596
1,232,516
1,029,282
Operating income
46,536
24,028
76,230
27,192
Other income
3,740
2,523
8,048
6,314
Interest expense
(10,640
(10,706
(20,843
(21,672
Earnings before taxes on income
39,636
15,845
63,435
11,834
Provision for taxes on income
(11,030
(5,493
(17,243
(4,602
Net earnings
28,606
10,352
46,192
7,232
Net earnings attributable to noncontrolling interests
(149
(162
(301
(417
Net earnings attributable to Kirby
28,457
10,190
45,891
6,815
Net earnings per share attributable to Kirby common stockholders:
Basic
0.47
0.17
0.76
0.11
Diluted
3
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income, net of taxes:
Pension and postretirement benefits
4,131
3,607
4,144
4,352
Foreign currency translation adjustments
(611
(86
(135
(583
Total other comprehensive income, net of taxes
3,520
3,521
4,009
3,769
Total comprehensive income, net of taxes
32,126
13,873
50,201
11,001
Comprehensive income attributable to Kirby
31,977
13,711
49,900
10,584
4
CONDENSED STATEMENTS OF CASH FLOWS(Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net earnings to net cash provided by operations:
Provision for deferred income taxes
15,335
4,380
Amortization of share-based compensation
8,555
9,148
Amortization of major maintenance costs
14,405
17,082
(6,412
(4,309
Increase (decrease) in cash flows resulting from changes in operating assets and liabilities, net
(82,510
54,263
Net cash provided by operating activities
95,644
197,818
Cash flows from investing activities:
Capital expenditures
(79,059
(38,369
Acquisitions of businesses and marine equipment
(3,900
(7,470
Proceeds from disposition of assets
23,311
16,731
Net cash used in investing activities
(59,648
(29,108
Cash flows from financing activities:
Borrowings (payments) on bank credit facilities, net
2,272
(193,623
Payments on long-term debt
(30,000
Proceeds from exercise of stock options
3,885
505
Payments related to tax withholding for share-based compensation
(3,192
(2,853
Treasury stock purchases
(18,085
Return of investment to noncontrolling interest and other
(585
(25
Net cash used in financing activities
(45,705
(195,996
Decrease in cash and cash equivalents
(9,709
(27,286
Cash and cash equivalents, beginning of year
80,338
Cash and cash equivalents, end of period
53,052
Supplemental disclosures of cash flow information:
Cash paid (received) during the period:
Interest paid
20,161
20,913
Income taxes paid (refunded), net
1,190
(116,451
Operating cash outflow from operating leases
22,287
21,996
Non-cash investing activity:
Capital expenditures included in accounts payable
(3,655
(18,401
Right-of-use assets obtained in exchange for lease obligations
10,290
7,413
5
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional
Paid-in-
Comprehensive
Retained
Treasury Stock
Noncontrolling
Shares
Amount
Capital
Income, Net
Earnings
Interests
Total
(in thousands)
Balance at March 31, 2022
65,472
853,610
(25,477
2,363,873
(5,243
(289,098
2,410
2,911,865
Stock option exercises
253
24
1,296
1,549
Issuance of stock for equity awards, net of forfeitures
(1,672
29
1,672
Tax withholdings on equity award vesting
(1
(99
Amortization of unearned share-based compensation
2,590
(310
149
Return of investment to noncontrolling interests
(202
Balance at June 30, 2022
(5,501
Balance at March 31, 2021
846,259
(61,204
2,590,018
(5,384
(296,353
3,477
3,088,744
11
83
94
(1,615
1,615
(13
(808
3,426
162
Balance at June 30, 2021
848,081
(57,683
2,600,208
(5,366
(295,463
3,639
3,105,329
6
Balance at December 31, 2021
(5,361
691
58
3,194
(8,977
8,977
(50
301
(402
Balance at December 31, 2020
844,979
(61,452
2,593,393
(5,434
(299,161
3,247
3,087,553
30
10
475
(6,076
110
6,076
(52
417
7
NOTES TO CONDENSED FINANCIAL STATEMENTS(Unaudited)
(1) Basis for Preparation of the Condensed Financial Statements
The condensed financial statements included herein have been prepared by Kirby Corporation and its consolidated subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including significant accounting policies normally included in annual financial statements, have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Certain reclassifications have been made to reflect the current presentation of financial information.
(2) Acquisitions
On March 31, 2022, the Company paid $3.9 million in cash to purchase assets of a gearbox repair company in the distribution and services segment. Assets acquired consisted primarily of property and equipment. During the six months ended June 30, 2021, the Company purchased four inland tank barges from a leasing company for $7.5 million in cash. The Company had been leasing the barges prior to the purchase.
(3) Revenues
The following table sets forth the Company’s revenues by major source (in thousands):
Marine transportation segment:
Inland transportation
316,948
253,588
594,858
478,039
Coastal transportation
88,707
79,299
166,333
155,799
Distribution and services segment:
Commercial and industrial
161,621
140,966
309,154
273,874
Oil and gas
130,688
85,771
238,401
148,762
Contract liabilities represent advance consideration received from customers, and are recognized as revenue over time as the related performance obligation is satisfied. Revenues recognized during the six months ended June 30, 2022 and 2021 that were included in the opening contract liability balances were $46.7 million and $39.2 million, respectively. The Company presents all contract liabilities within the deferred revenues financial statement caption on the balance sheets. The Company did not have any contract assets at June 30, 2022 or December 31, 2021. The Company applies the practical expedient that allows non-disclosure of information about remaining performance obligations that have original expected durations of one year or less.
(4) Segment Data
The Company’s operations are aggregated into two reportable business segments as follows:
Marine Transportation Segment (“KMT”) — Provides marine transportation by United States flagged vessels principally of liquid cargoes throughout the United States inland waterway system, along all three United States coasts, and, to a lesser extent, in United States coastal transportation of dry-bulk cargoes. The principal products transported include petrochemicals, black oil, refined petroleum products, and agricultural chemicals.
Distribution and Services Segment (“KDS”) — Provides after-market services and genuine replacement 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, electric power generation equipment, specialized electrical distribution and control equipment, and high capacity energy storage/battery systems for oilfield service and railroad customers.
8
The Company’s two reportable business segments are managed separately based on fundamental differences in their operations. The Company evaluates the performance of its segments based on the contributions to operating income of the respective segments, before income taxes, interest, gains or losses on disposition of assets, other nonoperating income, noncontrolling interests, accounting changes, and nonrecurring items. Intersegment revenues, based on market-based pricing, of KDS from KMT of $6.3 million and $13.9 million for the three months and six months ended June 30, 2022, respectively, and $7.3 million and $12.2 million for the three months and six months ended June 30, 2021, respectively, as well as the related intersegment profit of $0.6 million and $1.4 million for the three months and six months ended June 30, 2022 and $0.7 million and $1.2 million for the three months and six months ended June 30, 2021, respectively, have been eliminated from the tables below.
The following tables set forth the Company’s revenues and profit or loss by reportable segment and total assets (in thousands):
Segment profit:
30,817
18,478
47,752
20,418
16,737
6,156
27,708
9,067
(7,918
(8,789
(12,025
(17,651
Total assets:
4,304,291
4,319,080
927,141
892,603
173,724
187,380
The following table presents the details of “Other” segment loss (in thousands):
General corporate expenses
(3,763
(2,725
(6,824
(6,545
2,745
2,119
7,594
4,252
The following table presents the details of “Other” total assets (in thousands):
General corporate assets
171,996
185,246
Investment in affiliates
1,728
2,134
9
(5) Long-Term Debt
The following table presents the carrying value and fair value (determined using inputs characteristic of a Level 2 fair value measurement) of debt outstanding (in thousands):
June 30, 2022
December 31, 2021
Carrying Value
Fair Value
Revolving Credit Facility due March 27, 2024 (a)
Term Loan due March 27, 2024 (a)
285,000
315,000
3.29% senior notes due February 27, 2023
350,000
351,828
358,390
4.2% senior notes due March 1, 2028
500,000
500,480
549,239
Credit line due June 30, 2024
1,139,206
1,141,514
1,166,934
1,224,563
Unamortized debt discounts and issuance costs (b)
(3,151
(3,567
1,136,055
1,163,367
The following table presents borrowings and payments under the bank credit facilities (in thousands):
Borrowings on bank credit facilities
120,634
2,365
Payments on bank credit facilities
(118,362
(195,988
At June 30, 2022, the Company had an amended and restated credit agreement (the “2024 Credit Agreement”) with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank, that allowed for an $850 million unsecured revolving credit facility (the “2024 Revolving Credit Facility”) and an unsecured term loan (the “2024 Term Loan”) with a maturity date of March 27, 2024. The 2024 Term Loan was prepayable, in whole or in part, without penalty. During the six months ended June 30, 2022, the Company repaid $30.0 million under the 2024 Term Loan. Outstanding letters of credit under the 2024 Revolving Credit Facility were $5.1 million and available borrowing capacity was $844.9 million as of June 30, 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 June 30, 2022.
On July 29, 2022, the 2024 Credit Agreement was replaced with a new credit agreement (the “2027 Credit Agreement”) with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank that allows for a $500 million unsecured revolving credit facility (the “2027 Revolving Credit Facility”) and a $250 million unsecured term loan (the “2027 Term Loan”) with a maturity date of July 29, 2027. In conjunction with entering into the 2027 Credit Agreement, on July 29, 2022, the Company borrowed $35 million under the 2027 Revolving Credit Facility and $250 million under the 2027 Term Loan to repay borrowings under the 2024 Term Loan. The 2027 Term Loan is repayable in quarterly installments, scheduled to commence December 31, 2022, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance of approximately $43.8 million payable upon maturity, assuming no prepayment. The 2027 Term Loan is prepayable, in whole or in part, without penalty. The 2027 Credit Agreement provides for a variable interest rate based on the Secured Overnight Financing Rate (“SOFR”) or a base rate calculated with reference to the prime rate quoted by The Wall Street Journal, the Federal Reserve Bank of New York Rate plus 0.5%, or the adjusted SOFR rate for a one month interest period plus 1.0%, among other factors (the “Alternate Base Rate”). The interest rate varies with the Company's credit rating and is currently 137.5 basis points over SOFR or 37.5 basis points over the Alternate Base Rate. The 2027 Credit Agreement contains certain financial covenants including an interest coverage ratio and debt-to-capitalization ratio. In addition to financial covenants, the 2027 Credit Agreement contains covenants that, subject to exceptions, restrict debt incurrence, mergers and acquisitions, sales of assets, dividends and investments, liquidations and dissolutions, capital leases, transactions with affiliates, and changes in lines of business. The 2027 Credit Agreement specifies certain events of default, upon the occurrence of which the maturity of the outstanding loans may be accelerated, including the failure to pay principal or interest, violation of covenants and default on other indebtedness, among other events. Borrowings under the 2027 Credit Agreement may be used for general corporate purposes including acquisitions. The 2027 Revolving Credit Facility includes a $25 million commitment which may be used for standby letters of credit.
On February 3, 2022, the Company entered into a note purchase agreement for the issuance of $300 million of unsecured senior notes with a group of institutional investors, consisting of $60 million of 3.46% series A notes (“Series A Notes”) and $240 million of 3.51% series B notes (“Series B Notes”), each due January 19, 2033 (collectively, the “2033 Notes”). 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 3.29% unsecured senior notes due February 27, 2023 (the “2023 Notes”) are excluded from short term liabilities because the Company intends to use a combination of the proceeds from the issuance of the 2033 Notes and availability under the 2027 Revolving Credit Facility to repay the 2023 Notes upon maturity.
(6) Leases
The Company currently leases various facilities and equipment under cancelable and noncancelable operating leases. The accounting for the Company’s leases may require judgments, which include determining whether a contract contains a lease, allocating the consideration between lease and non-lease components, and determining the incremental borrowing rates. Leases with an initial noncancelable term of 12 months or less are not recorded on the balance sheet and related lease expense is recognized on a straight-line basis over the lease term. The Company has also elected to combine lease and non-lease components on all classes of leased assets, except for leased towing vessels, for which the Company estimates approximately 70% of the costs relate to service costs and other non-lease components. Variable lease costs relate primarily to real estate executory costs (i.e. taxes, insurance and maintenance).
Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year were as follows (in thousands):
20,467
41,685
2023
37,110
35,833
2024
30,002
28,837
2025
24,864
23,794
2026
19,502
18,361
Thereafter
91,785
91,237
Total lease payments
223,730
239,747
Less: imputed interest
(38,708
(46,173
Operating lease liabilities
185,022
193,574
The following table summarizes lease costs (in thousands):
Operating lease cost
10,604
10,680
21,454
21,072
Variable lease cost
446
206
865
915
Short-term lease cost
5,248
4,015
10,729
7,068
Sublease income
(68
(306
(137
(580
16,230
14,595
32,911
28,475
The following table summarizes other supplemental information about the Company’s operating leases:
Weighted average discount rate
3.9
%
3.8
Weighted average remaining lease term
9 years
(7) Stock Award Plans
The compensation cost that has been charged against earnings for the Company’s stock award plans and the income tax benefit recognized in the statement of earnings for stock awards were as follows (in thousands):
Compensation cost
Income tax benefit
743
1,320
2,300
2,592
During the six months ended June 30, 2022, the Company granted 207,916 restricted stock units (“RSUs”) to selected officers and other key employees under the employee stock award plan which vest ratably over five years and 27,696 shares of restricted stock to nonemployee directors of the Company under the director stock plan, the majority of which vest six months after the date of grant.
(8) Taxes on Income
At June 30, 2022 and December 31, 2021, the Company had a federal income tax receivable of $70.5 million and $71.0 million, respectively, included in Accounts Receivable – Other on the balance sheets. During the three months ended March 31, 2021, the Company received a tax refund of $119.5 million, including accrued interest, for its 2019 federal tax return related to net operating losses being carried back to offset taxable income generated between 2014 and 2017.
Earnings (loss) before taxes on income and details of the provision (benefit) for taxes on income were as follows (in thousands):
Earnings (loss) before taxes on income:
United States
39,607
15,811
63,261
12,192
Foreign
34
174
(358
Provision (benefit) for taxes on income:
Federal:
Current
519
Deferred
8,464
3,407
13,721
2,804
State and local:
1,035
573
1,298
215
1,015
1,506
1,614
1,576
Foreign - current
(3
91
11,030
5,493
17,243
4,602
(9) Earnings Per Share
The following table presents the components of basic and diluted earnings per share (in thousands, except per share amounts):
Undistributed earnings allocated to restricted shares
(10
(8
(11
(6
Earnings available to Kirby common stockholders – basic
28,447
10,182
45,880
6,809
Undistributed earnings reallocated to restricted shares
Earnings available to Kirby common stockholders – diluted
Shares outstanding:
Weighted average common stock issued and outstanding
60,222
60,101
60,202
60,088
Weighted average unvested restricted stock
(20
(48
(14
(53
Weighted average common stock outstanding – basic
60,053
60,188
60,035
Dilutive effect of stock options and restricted stock units
265
221
277
185
Weighted average common stock outstanding – diluted
60,467
60,274
60,465
60,220
12
Certain outstanding options to purchase approximately 0.4 million and 0.6 million shares of common stock were excluded in the computation of diluted earnings per share as of June 30, 2022 and 2021, respectively, as such stock options would have been antidilutive. Certain outstanding RSUs to convert to 12,000 and 5,000 shares of common stock were also excluded in the computation of diluted earnings per share as of June 30, 2022 and 2021, respectively, as such RSUs would have been antidilutive.
(10) Inventories
The following table presents the details of inventories – net (in thousands):
Finished goods
288,763
260,707
Work in process
81,622
70,643
(11) Retirement Plans
The Company sponsors a defined benefit plan for certain of its inland vessel personnel and shore based tankermen. The plan benefits are based on an employee’s years of service and compensation. The plan assets consist primarily of equity and fixed income securities.
On April 12, 2017, the Company amended its pension plan to cease all benefit accruals for periods after May 31, 2017 for certain participants. Participants grandfathered and not impacted were those, as of the close of business on May 31, 2017, who either (a) had completed 15 years of pension service or (b) had attained age 50 and completed 10 years of pension service. Participants non-grandfathered are eligible to receive discretionary 401(k) plan contributions.
The Company’s pension plan funding strategy is to make annual contributions in amounts equal to or greater than amounts necessary to meet minimum government funding requirements. The plan’s benefit obligations are based on a variety of demographic and economic assumptions, and the pension plan assets’ returns are subject to various risks, including market and interest rate risk, making an accurate prediction of the pension plan contribution difficult. Based on current pension plan assets and market conditions, the Company does not expect to make a contribution to the Kirby pension plan during 2022.
On February 14, 2018, with the acquisition of Higman Marine, Inc. and its affiliated companies (“Higman”), the Company assumed Higman’s pension plan for its inland vessel personnel and office staff. On March 27, 2018, the Company amended the Higman pension plan to close it to all new entrants and cease all benefit accruals for periods after May 15, 2018 for all participants. The Company made a contribution of $0.5 million to the Higman pension plan during the six months ended June 30, 2022 and a contribution of $0.2 million during July 2022. The Company expects to make additional contributions of $0.2 million during the remainder of 2022.
The Company sponsors an unfunded defined benefit health care plan that provides limited postretirement medical benefits to employees who meet minimum age and service requirements, and to eligible dependents. The plan limits cost increases in the Company’s contribution to 4% per year. The plan is contributory, with retiree contributions adjusted annually. The plan eliminated coverage for future retirees as of December 31, 2011. The Company also has an unfunded defined benefit supplemental executive retirement plan (“SERP”) that was assumed in an acquisition in 1999. That plan ceased to accrue additional benefits effective January 1, 2000.
13
The components of net periodic benefit cost for the Company’s defined benefit plans were as follows (in thousands):
Pension Benefits
Pension Plans
SERP
Components of net periodic benefit cost:
Service cost
1,658
2,053
Interest cost
3,640
3,535
Expected return on plan assets
(7,154
(6,559
Amortization of actuarial loss
132
790
Net periodic benefit cost
(1,724
(181
16
17
3,269
3,980
7,362
7,119
15
(14,296
(13,133
242
1,888
20
(3,423
(146
35
The components of net periodic benefit cost for the Company’s postretirement benefit plan were as follows (in thousands):
Other Postretirement Benefits
Postretirement Welfare Plan
Amortization of actuarial gain
(112
(197
(225
(95
(108
(189
(217
(12) Other Comprehensive Income
The Company’s changes in other comprehensive income were as follows (in thousands):
GrossAmount
Income Tax Provision
Net Amount
NetAmount
Pension and postretirement benefits (a):
Amortization of net actuarial loss
41
688
(174
514
Actuarial gains
5,472
(1,371
4,101
4,128
(1,035
3,093
Foreign currency translation
4,902
(1,382
4,730
(1,209
60
(17
43
1,683
(424
1,259
5,397
(1,388
5,228
(1,459
(a)Actuarial gains are amortized into other income (expense). (See Note 11, Retirement Plans)
14
(13) Contingencies and Commitments
On October 13, 2016, the tug Nathan E. Stewart and barge DBL 55, an articulated tank barge and tugboat unit (“ATB”) owned and operated by Kirby Offshore Marine, LLC, a wholly owned subsidiary of the Company, ran aground at the entrance to Seaforth Channel on Atholone Island, British Columbia. The grounding resulted in a breach of a portion of the Nathan E. Stewart’s fuel tanks causing a discharge of diesel fuel into the water. The USCG and the NTSB designated the Company as a party of interest in their investigation as to the cause of the incident. The Canadian authorities including Transport Canada and the Canadian Transportation Safety Board investigated the cause of the incident. On October 10, 2018, the Heiltsuk First Nation filed a civil action in the British Columbia Supreme Court against a subsidiary of the Company, the master and pilot of the tug, the vessels and the Canadian government seeking unquantified damages as a result of the incident. On May 1, 2019, the Company filed a limitation action in the Federal Court of Canada seeking limitation of liability relating to the incident as provided under admiralty law. The Heiltsuk First Nation’s civil claim has been consolidated into the Federal Court limitation action as of July 26, 2019 and it is expected that the Federal Court of Canada will decide all claims against the Company. The Company is unable to estimate the potential exposure in the civil proceeding. The Company has various insurance policies covering liabilities including pollution, property, marine and general liability and believes that it has satisfactory insurance coverage for the cost of cleanup and salvage operations as well as other potential liabilities arising from the incident. The Company believes its accrual of such estimated liability is adequate for the incident and does not expect the incident to have a material adverse effect on its business or financial condition.
In addition, the Company is involved in various legal and other proceedings which are incidental to the conduct of its business, none of which in the opinion of management will have a material effect on the Company’s financial condition, results of operations, or cash flows. Management believes its accrual of such estimated liability is adequate and believes that it has adequate insurance coverage or has meritorious defenses for these other claims and contingencies.
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 $20.2 million at June 30, 2022, including $12.1 million in letters of credit and $8.1 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 regarding these instruments.
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 per share attributable to Kirby common stockholders are “diluted earnings 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):
Net earnings per share attributable to Kirby common stockholders – diluted
79,059
38,369
The 2022 second quarter included $1.5 million before taxes, $1.3 million after taxes, or $0.02 per share of severance expense.
Cash provided by operating activities for the 2022 first six months 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 six months, capital expenditures of $79.1 million included $66.3 million in KMT and $12.8 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 27.9% at June 30, 2022 from 28.7% at December 31, 2021, primarily due to repayments under the 2024 Term Loan in the 2022 first six months, and an increase in total equity, primarily due to the net earnings attributable to Kirby of $45.9 million, partially offset by treasury stock purchases of $18.1 million. The Company’s debt outstanding as of June 30, 2022 and December 31, 2021 is detailed in Long-Term Financing below.
Marine Transportation
For both the 2022 second quarter and first six months, 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:
June 30,
Inland tank barges:
Owned
990
1,002
Leased
44
1,034
1,046
Barrel capacity (in millions)
23.0
23.4
Active inland towboats (quarter average):
211
218
Chartered
59
42
270
260
Coastal tank barges:
1
3.1
4.0
Coastal tugboats:
26
38
Offshore dry-bulk cargo barges (owned)
Offshore tugboats and docking tugboat (owned and chartered)
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 six months, the Company brought back into service seven inland tank barges and leased two tank barges. The net result was an increase of nine inland tank barges and approximately 0.1 million barrels of capacity.
KMT revenues for the 2022 second quarter and first six months increased 22% and 20%, respectively, and operating income increased 67% and 134%, respectively, compared to the 2021 second quarter and first six months. The increases for the 2022 second quarter and first six months were primarily due to increased tank barge utilization, higher term and spot pricing, and increased fuel rebills in the inland and coastal markets. The 2021 first six months 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 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 both the 2022 second quarter and first six months, the inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of KMT revenues. For the 2021 second quarter and first six months, the inland tank barge fleet contributed 76% and 75%, respectively, and the coastal fleet contributed 24% and 25%, respectively, of KMT revenues.
Inland tank barge utilization levels averaged in the mid-80% range during the 2022 first quarter and the low 90% range during the 2022 second quarter compared to the mid-70% range during the 2021 first quarter and the low to mid-80% range during the 2021 second quarter. The 2022 first six months reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization while the 2021 first six months 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 during the 2021 first quarter partially offset by the Colonial Pipeline outage which increased barge transportation activity in the 2021 second quarter.
Coastal tank barge utilization levels averaged in the low 90% range during both the 2022 first and second quarters compared to the mid-70% range during the 2021 first quarter and the low to mid-70% range during the 2021 second 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.
During both the 2022 second quarter and first six months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues. During both the 2021 second quarter and first six months, approximately 65% of KMT inland revenues were under term contracts and 35% were spot contract revenues. Inland time charters during both the 2022 second quarter and first six months represented 57% of the inland revenues under term contracts compared with 57% and 59% in the 2021 second quarter and first six months, respectively. During each of the 2022 and 2021 second quarters and first six months, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2022 second quarter and first six months compared to approximately 85% during both the 2021 second quarter and first six months. 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%
14% – 16%
Spot increase
15% – 20%
15% – 18%
Coastal market (a):
4% – 6%
10% – 12%
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 7.6% and 6.3% for the 2022 second quarter and first six months, respectively, compared to 5.6% and 3.2% for the 2021 second quarter and first six months, 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 both the 2022 second quarter and first six months, KDS generated 42% of the Company’s revenues, of which 82% and 85%, respectively, were generated from service and parts and 18% and 15%, respectively, 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.
18
KDS revenues for the 2022 second quarter and first six months increased 29% and 30%, respectively, and operating income increased 172% and 206%, respectively, compared with the 2021 second quarter and first six months. In the commercial and industrial market, the increases for the 2022 second quarter and first six months were primarily attributable to strong 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 second quarter and first six months results. These increases were partially offset by continuing supply chain constraints and delays. The 2021 first six months 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 second quarter and first six months, the commercial and industrial market contributed 55% and 56%, respectively, of KDS revenues.
In the oil and gas market, revenues and operating income improved compared to the 2021 second quarter and first six months 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 second quarter and first six months, the oil and gas market contributed 45% and 44%, respectively, of KDS revenues.
KDS operating margin was 5.7% and 5.1% for the 2022 second quarter and first six months, respectively, compared to 2.7% and 2.1% for the 2021 second quarter and first six months, respectively.
Outlook
Refinery and petrochemical utilization levels are near historic highs. This is favorable for the Company's barge utilization which is strong in both inland and coastal markets with steadily increasing rates. In KDS, despite persistent supply chain constraints and delays, demand for the Company's products and services continues to grow. Overall, the Company expects both KMT and KDS to deliver 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. The impacts of rising costs from inflationary pressures, including significantly higher fuel prices, are expected to be recovered as term contracts renew and contract escalators reprice over the coming quarters and into 2023. 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.
Acquisitions
On March 31, 2022, the Company paid $3.9 million in cash to purchase assets of a gearbox repair company in KDS. During the six months ended June 30, 2021, the Company purchased four inland tank barges from a leasing company for $7.5 million in cash. The Company had been leasing the barges prior to the purchase. Financing of the purchases 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 (dollars in thousands):
40
100
19
The following table sets forth KMT revenues, costs and expenses, operating income, and operating margin (dollars in thousands):
% Change
Marine transportation revenues
22
294,343
229,959
28
548,702
444,084
28,294
28,272
60,630
58,850
7,990
8,677
15,810
15,406
44,211
47,501
(7
88,297
95,080
374,838
314,409
713,439
613,420
67
134
Operating margins
7.6
5.6
6.3
3.2
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 Second Quarter Revenue Distribution
2022 Six Months Revenue Distribution
Products Moved
Drivers
Petrochemicals
49%
Benzene, Styrene, Methanol, Acrylonitrile, Xylene, Naphtha, Caustic Soda, Butadiene, Propylene
Consumer non-durables – 70%, Consumer durables – 30%
Black Oil
28%
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
3%
Anhydrous Ammonia, Nitrogen – Based Liquid Fertilizer, Industrial Ammonia
Corn, Cotton and Wheat Production, Chemical Feedstock Usage
KMT revenues for the 2022 second quarter and first six months increased 22% and 20%, respectively, compared to the 2021 second quarter and first six months revenues. The increase for the 2022 second quarter and first six months was primarily due to increased tank barge utilization, higher term and spot pricing, and increased fuel rebills in the inland and coastal markets. The 2021 first six months 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 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 both the 2022 second quarter and first six months, the inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of KMT revenues. For the 2021 second quarter and first six months, the inland tank barge fleet contributed 76% and 75%, respectively, and the coastal fleet contributed 24% and 25%, respectively, of KMT revenues.
The petrochemical market, which is the Company’s largest market, contributed 49% of KMT revenues for both the 2022 second quarter and first six months, 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 28% of KMT revenues for both the 2022 second quarter and first six months, 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 six months, 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 both the 2022 second quarter and first six months, 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 3% of KMT revenues for both the 2022 second quarter and first six months, 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.
For the 2022 second quarter, the inland operations incurred 2,762 delay days, 5% fewer than the 2,922 delay days that occurred during the 2021 second quarter. For the 2022 first six months, the inland operations incurred 5,899 delay days, 2% more than the 5,776 delay days that occurred during the 2021 first six months. 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.
21
Marine Transportation Costs and Expenses
Costs and expenses for the 2022 second quarter and first six months increased 19% and 16%, respectively, compared to the 2021 second quarter and first six months. Costs of sales and operating expenses for the 2022 second quarter and first six months increased 28% and 24%, respectively, compared with the 2021 second quarter and first six months. The increases during the 2022 second quarter and first six months primarily reflect improved business activity levels and increased fuel costs as well as incremental costs associated with the COVID-19 Omicron variant during the first quarter.
The inland marine transportation fleet operated an average of 270 towboats during the 2022 second quarter, of which an average of 59 were chartered, compared to 260 during the 2021 second quarter, of which an average of 42 were chartered. The increase was primarily due to increasing business activity levels during the 2022 second quarter. 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 second quarter, the inland operations consumed 12.6 million gallons of diesel fuel compared to 11.8 million gallons consumed during the 2021 second quarter. The average price per gallon of diesel fuel consumed during the 2022 second quarter was $3.98 per gallon compared with $2.06 per gallon for the 2021 second quarter. During the 2022 first six months, the inland operations consumed 24.2 million gallons of diesel fuel compared to 22.6 million gallons consumed during the 2021 first six months. The average price per gallon of diesel fuel consumed during the 2022 first six months was $3.27 per gallon compared with $1.86 per gallon for the 2021 first six months. 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 second quarter were flat compared to the 2021 second quarter and increased 3% for the 2022 first six months compared to the 2021 first six months. The increase for the 2022 first six months was primarily due to increased incentive compensation accruals and higher business activity levels. Business activity levels in the 2021 first six months were impacted by COVID-19 and the resulting economic slowdown as well as Winter Storm Uri during the 2021 first quarter.
Depreciation and amortization for the both the 2022 second quarter and first six months decreased 7% compared to the 2021 second quarter and first six months, primarily reflecting retirements, sales, and impairment of marine equipment during 2021 and 2022.
Marine Transportation Operating Income and Operating Margin
KMT operating income for the 2022 second quarter and first six months increased 67% and 134%, respectively, compared with the 2021 second quarter and first six months. The 2022 second quarter operating margin was 7.6% compared with 5.6% for the 2021 second quarter. The 2022 first six months operating margin was 6.3% compared with 3.2% for the 2021 first six months. The increases in operating income and operating margin were primarily due to increased barge utilization and higher term and spot contract pricing in the inland and coastal markets, each as a result of improving business activity levels, partially offset by increasing fuel prices as well as the impacts of the COVID-19 Omicron variant during the 2022 first quarter. The 2021 first six months activity levels were also impacted by Winter Storm Uri.
The following table sets forth KDS revenues, costs and expenses, operating income, and operating margin (dollars in thousands):
Distribution and services revenues
229,196
180,096
27
425,715
329,223
40,653
32,987
23
82,575
69,475
1,590
(4
3,318
3,150
4,133
5,840
(29
8,239
11,721
(30
275,572
220,581
25
519,847
413,569
172
5.7
2.7
5.1
2.1
Distribution and Services Revenues
The following table shows the markets serviced by KDS, the revenue distribution, and the customers for each market:
Customers
Commercial and Industrial
55%
56%
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
45%
44%
Oilfield Services, Oil and Gas Operators and Producers
KDS revenues for the 2022 second quarter and first six months increased 29% and 30%, respectively, compared to the 2021 second quarter and first six months. In the commercial and industrial market, the increase for the 2022 second quarter and first six months was primarily attributable to strong 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 second quarter and first six months results. These increases were partially offset by continuing supply chain constraints and delays. The 2021 first six months 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 second quarter and first six months, the commercial and industrial market contributed 55% and 56%, respectively, of KDS revenues.
In the oil and gas market, revenues improved compared to the 2021 second quarter and first six months 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 second quarter and first six months, the oil and gas market contributed 45% and 44%, respectively, of KDS revenues.
Distribution and Services Costs and Expenses
Costs and expenses for the 2022 second quarter and first six months increased 25% and 26%, respectively, compared with the 2021 second quarter and first six months. Costs of sales and operating expenses for the 2022 second quarter and first six months increased 27% and 29%, respectively, compared with the 2021 second quarter and first six months, 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 second quarter and first six months increased 23% and 19%, respectively, compared to the 2021 second quarter and first six months, primarily due to salaries and costs related to the acquisition of assets of an energy storage systems manufacturer in the 2021 fourth quarter, annual salary raises, severance expense, and higher warranty accruals associated with increased activity levels.
Depreciation and amortization for the 2022 second quarter and first six months decreased 29% and 30%, respectively, compared to the 2021 second quarter and first six months, 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 second quarter and first six months increased 172% and 206%, respectively, compared with the 2021 second quarter and first six months. The 2022 second quarter operating margin was 5.7% compared with 2.7% for the 2021 second quarter. The 2022 first six months operating margin was 5.1% compared to 2.1% for the 2021 first six months. 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 $2.7 million for the 2022 second quarter and $2.1 million for the 2021 second quarter. The Company reported a net gain on disposition of assets of $7.6 million for the 2022 first six months and $4.3 million for the 2021 first six months. 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):
48
)%
(28
Other Income
Other income for the 2022 and 2021 second quarters include income of $3.5 million and $2.3 million, respectively, and the 2022 and 2021 first six months include income of $6.9 million and $4.3 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 2022 first six months also reflects lower interest income related to the Company's federal income tax refunds as compared to the 2021 first six months.
Interest Expense
The following table sets forth average debt and average interest rate (dollars in thousands):
Average debt
1,149,355
1,330,618
1,163,759
1,373,873
Average interest rate
3.7
3.6
Interest expense for the 2022 second quarter and first six months decreased 1% and 4%, respectively, compared with the 2021 second quarter and first six months, primarily due to lower average debt outstanding as a result of debt repayments during 2021 and 2022, partially offset by a higher average interest rate. There was no capitalized interest excluded from interest expense during the 2022 or 2021 first six months.
Financial Condition, Capital Resources and Liquidity
Balance Sheets
The following table sets forth the significant components of the balance sheets (dollars in thousands):
Assets:
Current assets
Property and equipment, net
(5
(9
Liabilities and stockholders’ equity:
Current liabilities
Current assets as of June 30, 2022 increased 5% compared with December 31, 2021. Trade accounts receivable increased 7%, primarily due to increased business activity levels in KMT. Other accounts receivable decreased 15%, primarily due to recoveries on the settlement of insurance claims. Inventories increased by 12% due to higher activity and the impact of supply chain delays in KDS
resulting in buildup for projects that will be delivered later in 2022 and into 2023. Prepaid expenses and other current assets increased 21% primarily due to the increase in the price of diesel fuel purchased in June 2022.
Property and equipment, net of accumulated depreciation, at June 30, 2022 decreased 1% compared with December 31, 2021. The decrease reflected $96.3 million of depreciation expense and $16.1 million of property disposals, partially offset by $82.7 million of capital additions (including an increase in accrued capital expenditures of $3.7 million) and an acquisition for $3.9 million during the 2022 first six months, more fully described under Cash Flows and Capital Expenditures below.
Operating lease right-of-use assets as of June 30, 2022 decreased 5% compared to December 31, 2021, primarily due to lease amortization expense, partially offset by new leases acquired during the 2022 first six months.
Other intangibles, net, as of June 30, 2022 decreased 7% compared with December 31, 2021, primarily due to amortization during the 2022 first six months.
Other assets as of June 30, 2022 decreased 9% compared with December 31, 2021, primarily due to amortization of drydock expenditures, partially offset by additional deferred major maintenance drydock expenditures incurred during the 2022 first six months.
Current liabilities as of June 30, 2022 was flat compared with December 31, 2021. Accrued liabilities decreased 16% primarily due to the payment of employee incentive compensation bonuses as well as the settlement of insurance claims, offset by an increase in accounts payable of 18%, primarily due to increased activity levels in KMT and KDS.
Long-term debt, net – less current portion, as of June 30, 2022 decreased 3% compared with December 31, 2021, primarily reflecting repayments of $30.0 million under the 2024 Term Loan.
Deferred income taxes as of June 30, 2022 increased 3% compared with December 31, 2021, primarily reflecting the deferred tax provision of $15.3 million.
Operating lease liabilities – less current portion, as of June 30, 2022 decreased 6% compared to December 31, 2021, primarily due to lease payments made, partially offset by new leases acquired and liability accretion during the 2022 first six months.
Other long-term liabilities as of June 30, 2022 decreased 14% compared with December 31, 2021, primarily due to amortization of intangible liabilities and a decrease in pension liabilities.
Total equity as of June 30, 2022 increased 1% compared with December 31, 2021. The increase was primarily due to the net earnings attributable to Kirby of $45.9 million, amortization of share-based compensation of $8.6 million, and stock option exercises of $3.9 million, partially offset by treasury stock purchases of $18.1 million and tax withholdings of $3.2 million on restricted stock and RSU vestings.
Long-Term Financing
The following table summarizes the Company’s outstanding debt (in thousands):
Long-term debt, including current portion:
At June 30, 2022, the Company had in place the 2024 Credit Agreement with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank, that allowed for the $850 million unsecured 2024 Revolving Credit Facility and the 2024 Term Loan with a maturity date of March 27, 2024. The 2024 Term Loan was prepayable, in whole or in part, without penalty. During the six months ended June 30, 2022, the Company repaid $30.0 million under the 2024 Term Loan. Outstanding letters of credit under the 2024 Revolving Credit Facility were $5.1 million and available borrowing capacity was $844.9 million as of June 30, 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 June 30, 2022.
On July 29, 2022, the 2024 Credit Agreement was replaced with the 2027 Credit Agreement with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank that allows for the $500 million 2027 Revolving Credit Facility and the 2027 Term Loan with a maturity date of July 29, 2027. In conjunction with entering into the 2027 Credit Agreement, on July 29, 2022, the Company borrowed $35 million under the 2027 Revolving Credit Facility and $250 million under the 2027 Term Loan to repay borrowings under the 2024 Term Loan. The 2027 Term Loan is repayable in quarterly installments, scheduled to commence December 31, 2022, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance of approximately $43.8 million payable upon maturity, assuming no prepayment. The 2027 Term Loan is prepayable, in whole or in part, without penalty. The 2027 Revolving Credit Facility includes a $25 million commitment which may be used for standby letters of credit.
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 2023 Notes are excluded from short term liabilities because the Company intends to use a combination of the proceeds from the issuance of the 2033 Notes and availability under the 2027 Revolving Credit Facility to repay the 2023 Notes upon maturity.
As of June 30, 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 financial statements as well as 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 positive operating cash flows during the 2022 first six months with net cash provided by operating activities of $95.6 million compared with $197.8 million for the 2021 first six months, a 52% 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. In addition, increased revenues and operating income in KMT and KDS during the 2022 first six months were offset by increased inventory purchases from higher activity levels and increased employee incentive compensation bonuses paid during the 2022 first six months. Increases in KMT revenues and operating income were driven by increased barge utilization and higher term and spot contract pricing in the inland and coastal markets during the 2022 first six months. The 2021 first six months KMT revenues and operating income were also negatively impacted by the impacts of Winter Storm Uri in February 2021. During the 2022 and 2021 second quarters and first six months, the Company generated cash of $23.3 million and $16.7 million, respectively, from proceeds from the disposition of assets, and $3.9 million and $0.5 million, respectively, from proceeds from the exercise of stock options.
For the 2022 first six months, cash generated was used for capital expenditures of $79.1 million, including $4.5 million for inland towboat construction and $74.6 million primarily for upgrading existing marine equipment and KMT and KDS facilities.
Treasury Stock Purchases
During the 2022 first six months, the Company purchased 0.3 million shares of its common stock for $18.1 million, at an average price of $58.33 per share. During August 2022, the Company has purchased an additional 0.1 million shares of its common stock for $4.6 million, at an average price of $63.33 per share. As of August 5, 2022, the Company had approximately 1.0 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 then current 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 August 5, 2022 the Company also had cash equivalents of $18.0 million, availability of $459.9 million under its 2027 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 2027 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 2027 Revolving Credit Facility's commitment is in the amount of $500 million and matures July 29, 2027. The 2023 Notes do not mature until February 27, 2023 and require no prepayments. The Company intends to use a combination of the proceeds from the issuance of the 2033 Notes and availability under the 2027 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 2027 Term Loan in the amount of $250 million is subject to quarterly installments, beginning December 31, 2022, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance of approximately $43.8 million payable on July 29, 2027, assuming no prepayments. The 2027 Term Loan 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 $20.2 million at June 30, 2022, including $12.1 million in letters of credit and $8.1 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.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to risk from changes in interest rates on certain of its outstanding debt. The outstanding loan balances under the Company’s current bank credit facilities bear interest at variable rates based on prevailing short-term interest rates in the United States, while the previous bank credit facilities also included Europe. A 1% increase in variable interest rates would impact the 2022 interest expense by $3.2 million based on balances outstanding at December 31, 2021, and would change the fair value of the Company’s debt by approximately 3%.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)), as of June 30, 2022, as required by Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of June 30, 2022, the disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 13, Contingencies and Commitments, of the Notes to Condensed Financial Statements (Unaudited).
Item 1A. Risk Factors
The Company continues to be subject to the risk factors previously disclosed in its “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans
Maximum Number of Shares that May Yet be Purchased Under the Plans
April 1 — April 30, 2022
May 1 — May 31, 2022
June 1 — June 30, 2022
310,047
58.33
Purchases of the Company's common stock in June 2022 were made in the open market pursuant to a discretionary authorization by the Board of Directors.
Item 6. Exhibits
EXHIBIT INDEX
Exhibit Number
Description of Exhibits
–
Restated Articles of Incorporation of the Company with all amendments to date (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).
Bylaws of the Company, as amended to March 17, 2020 (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).
3.3
Amendment to Bylaws of Kirby Corporation dated March 18, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 19, 2020).
4.1
See Exhibits 3.1, 3.2, and 3.3 hereof for provisions of our Restated Articles of Incorporation of the Company with all amendments to date, the Bylaws of the Company, as amended to March 17, 2020, and Amendment to Bylaws of the Company dated March 18, 2020 (incorporated by reference to Exhibit 3.1 and 3.2, respectively, to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 19, 2020).
10.1†
Change of Control Agreement by and between Kirby Corporation and David W. Grzebinski dated May 16, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on May 20, 2022).
10.2†
Change of Control Agreement by and between Kirby Corporation and Raj Kumar dated May 16, 2022 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Commission on May 20, 2022).
10.3†
Change of Control Agreement by and between Kirby Corporation and Christian G. O'Neil dated May 16, 2022 (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the Commission on May 20, 2022).
10.4†
Change of Control Agreement by and between Kirby Corporation and Amy D. Husted dated May 16, 2022 (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed with the Commission on May 20, 2022).
10.5†
Letter Agreement dated June 5, 2022 between the Company and Joseph H. Reniers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A filed with the Commission on June 9, 2022).
10.6†
Enhanced Transition Assistance Agreement dated June 5, 2022 between the Company and Joseph H. Reniers (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K/A filed with the Commission on June 9, 2022).
10.7
Credit Agreement dated July 29, 2022 among Kirby Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent, and the banks named therein (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on July 29, 2022).
31.1*
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
31.2*
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
32*
Certification Pursuant to 18 U.S.C. Section 1350
101.INS*
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
† Management contract, compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
By:
/s/ Raj Kumar
Raj Kumar
Executive Vice President and
Chief Financial Officer
Dated: August 8, 2022