KIRBY CORPORATION Statements contained in this Form 10-K that are not historical facts, including, but not limited to, any projections contained herein, are forward-looking statements and involve a number of risks and uncertainties. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," or "continue," or the negative thereof or other variations thereon or comparable terminology. The actual results of the future events described in such forward-looking statements in this Form 10-K 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. 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." The weighted average number of common shares outstanding applicable to diluted earnings per share for 2020, 2019 and 2018 were 59,912,000, 59,909,000 and 59,689,000, respectively.
Overview
The Company is the nation's largest domestic tank barge operator, transporting bulk liquid products throughout the Mississippi River System, on theGulf Intracoastal Waterway , coastwise along all threeUnited States coasts, and inAlaska andHawaii . The Company transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge. As ofDecember 31, 2020 , the Company operated a fleet of 1,066 inland tank barges with 24.1 million barrels of capacity, and operated an average of 248 inland towboats during the 2020 fourth quarter. The Company's coastal fleet consisted of 44 tank barges with 4.2 million barrels of capacity and 44 coastal tugboats. The Company also owns and operates four offshore dry-bulk cargo barges, four offshore tugboats and one docking tugboat transporting dry-bulk commodities inUnited States coastal trade. Through its distribution and services segment, 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, railcar movers, and high capacity lift trucks for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, for land-based oilfield service customers. For 2020, net loss attributable to Kirby was$272,546,000 , or$4.55 per share, on revenues of$2,171,408,000 , compared to 2019 net earnings attributable to Kirby of$142,347,000 , or$2.37 per share, on revenues of$2,838,399,000 . The 2020 first quarter included$561,274,000 before taxes,$433,341,000 after taxes, or$7.24 per share, non-cash charges related to inventory write-downs, impairment of long-lived assets, including intangible assets and property and equipment, and impairment of goodwill in the distribution and services segment. See Note 7, Impairments and Other Charges for additional information. In addition, the 2020 first quarter was favorably impacted by an income tax benefit of$50,824,000 , or$0.85 per share related to net operating losses generated in 2018 and 2019 used to offset taxable income generated between 2013 and 2017. See Note 9, Taxes on Income for additional information. The 2019 fourth quarter included$35,525,000 before taxes,$27,978,000 after taxes, or$0.47 per share, non-cash inventory write-downs and$4,757,000 before taxes,$3,747,000 after taxes, or$0.06 per share, severance and early retirement expense.
Marine Transportation
For 2020, 65% of the Company's revenues were generated by its marine transportation segment. The segment's customers include many of the major petrochemical and refining companies that operate inthe United States . Products transported include intermediate materials used to produce many of the end products used widely by businesses and consumers - plastics, fibers, 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, the Company's marine transportation business is directly affected by the volumes produced by the Company's petroleum, petrochemical and refining customer base. 36 -------------------------------------------------------------------------------- Table of Contents The Company's marine transportation segment's revenues for 2020 decreased 12% compared to 2019 and operating income decreased 24%, compared to 2019. The decreases were primarily due to reduced barge utilization in the inland and coastal markets and decreased term and spot contract pricing in the inland market, each as a result of a reduction in demand due to the COVID-19 pandemic, lower fuel rebills, retirements of three large coastal barges, and planned shipyard activity in the coastal market. These reductions were partially offset by the acquisition of theSavage Inland Marine, LLC ("Savage") fleet acquired onApril 1, 2020 and theCenac Marine Services, LLC ("Cenac") fleet acquired onMarch 14, 2019 . The 2020 third quarter was impacted by hurricanes and tropical storms along the East and Gulf Coasts and the closure of the Illinois river. The 2020 first quarter and 2019 first six months were each impacted by poor operating conditions and high delay days due to heavy fog and wind along theGulf Coast , high water on the Mississippi River System, and closures of key waterways as a result of lock maintenance projects, as well as increased shipyard days on large capacity coastal vessels. The 2019 first six months was also impacted by prolonged periods of ice on theIllinois River and a fire at a chemical storage facility on the Houston Ship Channel. For 2020 and 2019, the inland tank barge fleet contributed 78% and 77%, respectively, and the coastal fleet contributed 22% and 23%, respectively, of marine transportation revenues. During 2020, reduced demand as a result of the COVID-19 pandemic and the resulting economic slowdown contributed to lower barge utilization. Inland tank barge utilization levels averaged in the low to mid-90% range during the 2020 first quarter, the mid-80% range during the 2020 second quarter, the low 70% range during the 2020 third quarter, and the high 60% range during the 2020 fourth quarter. For 2019, barge utilization averaged in the mid-90% range during both the first and second quarters and the low 90% range during both the third and fourth quarters. The 2020 first quarter and full year 2019 each experienced strong demand from petrochemicals, black oil, and refined petroleum products customers. Extensive delay days due to poor operating conditions and lock maintenance projects in the 2020 first quarter and 2019 first six months slowed the transport of customer cargoes and contributed to strong barge utilization during those periods. Coastal tank barge utilization levels averaged in the low to mid-80% range during the 2020 first quarter and the mid-70% range during each of the 2020 second, third, and fourth quarters. In 2019, barge utilization averaged in the low 80% range during the first quarter and the mid-80% range during each of the second, third, and fourth quarters. Barge utilization in the coastal marine fleet continued to be impacted by the oversupply of smaller tank barges in the coastal industry during 2020 and 2019. During both 2020 and 2019, approximately 65% of the inland marine transportation revenues were under term contracts and 35% were spot contract revenues. These allocations provide the operations with a reasonably predictable revenue stream. Inland time charters, which insulate the Company from revenue fluctuations caused by weather and navigational delays and temporary market declines, represented 66% of the inland revenues under term contracts during 2020 compared to 62% during 2019. Rates on inland term contracts renewed in the 2020 first quarter increased in the 1% to 3% average range compared to term contracts renewed in the 2019 first quarter. Rates on inland term contracts renewed in the 2020 second quarter were flat compared to term contracts renewed in the 2019 second quarter. Rates on inland term contracts renewed in the 2020 third quarter decreased in the 1% to 3% average range compared to term contracts renewed in the 2019 third quarter. Rates on inland term contracts renewed in the 2020 fourth quarter decreased in the 10% to 12% average range compared to term contracts renewed in the 2019 fourth quarter. Spot contract rates in the 2020 first quarter increased in the 4% to 6% average range compared to the 2019 first quarter. Spot contract rates in the 2020 second quarter decreased in the 5% to 10% average range compared to the 2019 second quarter. Spot contract rates in the 2020 third quarter decreased approximately 10% compared to the 2019 third quarter. Spot contract rates in the 2020 fourth quarter decreased approximately 25% compared to the 2019 fourth quarter. There was no material rate increase onJanuary 1, 2020 , related to annual escalators for labor and the producer price index on a number of inland multi-year contracts. During 2020 and 2019, approximately 85% and 80%, respectively, of the coastal revenues were under term contracts and 15% and 20%, respectively, were spot contract revenues. Coastal time charters represented approximately 90% of coastal revenues under term contracts during 2020 compared to 85% during 2019. Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type and product serviced. Rates on coastal term contracts renewed in the 2020 first quarter increased in the 10% to 15% average range compared to term contracts renewed in the 2019 first quarter. Rates on coastal term contracts renewed in the 2020 second quarter were flat compared to term contracts renewed in the 2019 second quarter. Rates on coastal term contracts renewed in both the 2020 third and fourth quarters decreased in the 4% to 6% average range compared to term contracts renewed in the 2019 third and fourth quarters. Spot market rates in the 2020 first quarter increased in the 10% to 15% average range compared to the 2019 first quarter. Spot market rates in each of the 2020 second, third, and fourth quarters were flat compared to the 2019 second, third, and fourth quarters. 37 -------------------------------------------------------------------------------- Table of Contents The 2020 marine transportation operating margin was 11.7% compared to 13.6% for 2019. Distribution and Services During 2020, the distribution and services segment generated 35% of the Company's revenues, of which 93% was generated from service and parts and 7% from manufacturing. The results of the distribution and services segment are largely influenced by cycles of the land-based oilfield service and oil and gas operator and producer markets, marine, power generation, on-highway and other industrial markets. Distribution and services revenues for 2020 decreased 39% compared to 2019 and operating income decreased 118% compared to 2019. The decreases were primarily attributable to reduced activity in the oilfield as a result of oil price volatility throughout 2019 and 2020, the extensive downturn in oil and gas exploration due to low oil prices, caused in part by the COVID-19 pandemic, an oversupply of pressure pumping equipment inNorth America , and reduced spending and enhanced cash flow discipline for the Company's major oilfield customers. As a result, customer demand and incremental orders for new and remanufactured pressure pumping equipment and sales of new and overhauled transmissions and related parts and service declined during 2020. For 2020, the oil and gas market represented approximately 26% of distribution and services revenues. The 2020 commercial and industrial market revenues decreased compared to 2019, primarily due to reductions in on-highway and power generation service demand as a result of the COVID19 pandemic and the resulting economic slowdown and nationwide, state, and local stay-at-home orders, partially offset by contributions from theConvoy Servicing Company andAgility Fleet Services, LLC (collectively "Convoy") acquisition onJanuary 3, 2020 . Demand in the marine business was also down due to reduced major overhaul activity. For 2020, the commercial and industrial market contributed 74% of the distribution and services revenues.
The distribution and services operating margin for 2020 was (1.6)% compared to 5.4% for 2019.
Cash Flow and Capital Expenditures
The Company generated favorable operating cash flow during 2020 with net cash provided by operating activities of$444,940,000 compared to$511,813,000 of net cash provided by operating activities for 2019, a 13% decrease. The decline was driven by decreased revenues and operating income in both the marine transportation and distribution and services segments. The decrease in the marine transportation segment was driven by decreased barge utilization in the inland and coastal markets and decreased term and spot contract pricing in the inland market, each as a result of a reduction in demand due to the COVID-19 pandemic, partially offset by the Savage acquisition inApril 2020 and the Cenac acquisition inMarch 2019 and reduced costs. The decrease in the distribution and services segment was primarily attributable to reduced activity in the oilfield as a result of oil price volatility throughout 2019 and 2020, the extensive downturn in oil and gas exploration due to low oil prices, caused in part by the COVID-19 pandemic, an oversupply of pressure pumping equipment inNorth America , and reduced spending and enhanced cash flow discipline for the Company's major oilfield customers. The decline was also partially offset by changes in certain operating assets and liabilities primarily related to reduced incentive compensation payouts in the 2020 first quarter and a larger decrease in trade accounts receivable compared to an increase during 2019, driven by reduced business activity levels in both the marine transportation and distribution and services segments. In addition, during 2020, the Company received a tax refund of$30,606,000 for its 2018 tax return related to net operating losses being carried back to offset taxable income generated during 2013. During 2020 and 2019, the Company generated cash of$17,310,000 and$57,657,000 , respectively, from proceeds from the disposition of assets, and$353,000 and$5,743,000 , respectively, from proceeds from the exercise of stock options. For 2020, cash generated and borrowings under the Company's Revolving Credit Facility were used for capital expenditures of$148,185,000 , (including a decrease in accrued capital expenditures of$13,280,000 ) including$7,506,000 for inland towboat construction and$140,679,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities. The Company also used$354,972,000 for acquisitions of businesses and marine equipment, more fully described under Acquisitions below. 38 -------------------------------------------------------------------------------- Table of Contents For 2019, cash generated and borrowings under the Company's Revolving Credit Facility were used for capital expenditures of$248,164,000 (including a decrease in accrued capital expenditures of$13,875,000 ), including$22,008,000 for inland towboat construction,$18,433,000 for progress payments on three 5000 horsepower coastal ATB tugboats,$2,294,000 for final costs on a 155,000 barrel coastal ATB under construction purchased from another operator that was delivered to the Company in the 2018 fourth quarter, and$205,429,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities. The Company also used$262,491,000 for acquisitions of businesses and marine equipment, more fully described under Acquisitions below. The Company's debt-to-capitalization ratio increased to 32.2% atDecember 31, 2020 from 28.9% atDecember 31, 2019 , primarily due to borrowings under the Revolving Credit Facility to acquire the Savage fleet in the 2020 second quarter and the Convoy acquisition in the 2020 first quarter as well as the decrease in total equity, primarily from the net loss attributable to Kirby for 2020 of$272,546,000 . The Company's debt outstanding as ofDecember 31, 2020 andDecember 31, 2019 is detailed in Long-Term Financing below. During 2020, the Company acquired 92 inland tank barges from Savage with a total capacity of approximately 2.5 million barrels, purchased six newly constructed inland pressure barges, retired 94 inland tank barges, transferred one tank barge to coastal, returned two leased inland tank barges, and brought back into service 12 inland tank barges. The net result was an increase of 13 inland tank barges and approximately 0.7 million barrels of capacity during 2020. The Company projects that capital expenditures for 2021 will be in the$125,000,000 to$145,000,000 range. The 2021 construction program will consist of approximately$15,000,000 for the construction of new inland towboats,$95,000,000 to$110,000,000 primarily for capital upgrades and improvements to existing marine equipment and facilities, and$15,000,000 to$20,000,000 for new machinery and equipment, facilities improvements, and information technology projects in the distribution and services segment and corporate.
Outlook
While there remains significant uncertainty around the full impact of the COVID-19 pandemic, the Company expects improved business activity and utilization levels in the second half of 2021. The first half of 2021 is expected to remain challenging until the pandemic eases and refinery utilization materially recovers and theU.S. economy rebounds. In the first quarter, the Company expects weak market conditions in marine transportation to continue with pricing pressure on contract renewals. Additionally, surging cases of COVID-19 acrossthe United States have impacted the Company's ability to crew its vessels, resulting in delays and in some cases, lost revenue primarily impacting the Company's offshore vessels. As a result, first quarter 2021 earnings are expected to decline sequentially with improving results thereafter as the effects of the pandemic moderate and demand for the Company's products and services increases. In the inland marine transportation market, conditions are expected to remain challenging in the coming months, with gradual improvement in the second quarter and a more meaningful recovery in the second half of 2021. Barge utilization is projected to start the year in the low to mid-70% range and improve into the high 80% to low 90% range by the end of the year. Pricing, which typically improves with barge utilization, is expected to remain under pressure in the near-term. First quarter revenues and operating margin are expected to be the lowest of the year, sequentially down from the 2020 fourth quarter due to the impact of lower pricing on term contract renewals and increased delays from seasonal winter weather. Anticipated improvements in the spot market later in 2021 should contribute to increased barge utilization and better operating margins as the year progresses. However, the full year impact of lower term contract pricing is expected to result in full year operating margins lower than the mid-teens margins realized in 2020. As ofDecember 31, 2020 , the Company estimated there were approximately 4,000 inland tank barges in the industry fleet, of which approximately 350 were over 30 years old and approximately 260 of those over 40 years old. The Company estimates that approximately 35 new tank barges have been ordered for delivery in 2021 and many older tank barges, including an expected 26 by the Company, will be retired, dependent on 2021 market conditions. Historically, 75 to 150 older inland tank barges are retired from service each year industry-wide. The extent of the retirements is dependent on petrochemical and refinery production levels, and crude oil and natural gas condensate movements, both of which can have a direct effect on industry-wide tank barge utilization, as well as term and spot contract rates. 39 -------------------------------------------------------------------------------- Table of Contents In the coastal marine transportation market, with limited spot demand and the return of some term equipment, lower term contract pricing, crewing difficulties due to the COVID-19 pandemic, the retirement of three older large capacity coastal vessels during 2020, and the retirement of an additional vessel in mid-2021, financial results are expected to be lower in 2021 than 2020. In the 2021 first quarter, the Company expects coastal revenues and operating margin to decline compared to the 2020 fourth quarter, primarily due to the impact of lower term contract pricing and challenges crewing vessels due to the COVID-19 pandemic. For the full year, coastal revenues are expected to decline compared to 2020 with negative operating margins, the magnitude of which will be dependent on the timing of a material improvement in refined products and black oil demand later in 2021.
As of
The results of the distribution and services segment are largely influenced by the cycles of the land-based oilfield service and oil and gas operator and producer markets, marine, power generation, on-highway and other industrial markets. Improving economic activity and growth in the oilfield are expected to boost activity levels and contribute to meaningful year-over-year improvement in revenue and operating income. In commercial and industrial, revenues are expected to benefit from improving economic conditions as well as from growth in the on-highway market, due in part to the Company's new online parts sales platform which was launched in 2020. However, these gains are expected to be partially offset by lower sales of new marine engines which remained strong throughout 2020. In the distribution and services oil and gas market, higher commodity prices and increasing well completions activity are expected to contribute to improved demand for new transmission, service, and parts, as well as higher pressure pumping remanufacturing activity. Additionally, a heightened focus on sustainability across the energy sector and industrial complex is expected to result in continued growth in new orders for Kirby's portfolio of environmentally friendly equipment during the year. Overall, operating margins in distribution and services are expected to be positive in the low to mid-single digits for the full year with the first quarter being the lowest and the third quarter being the highest prior to normal seasonal declines in the fourth quarter.
While the COVID-19 pandemic has adversely impacted the Company's business, to date, it has not materially adversely impacted its ability to conduct its operations in either business segment. The Company has maintained business continuity and expects to continue to do so.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity withUnited States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates its estimates and assumptions on an ongoing basis based on a combination of historical information and various other assumptions that are believed to be reasonable under the particular circumstances. Actual results may differ from these estimates based on different assumptions or conditions. The Company believes the critical accounting policies that most impact the consolidated financial statements are described below. It is also suggested that the Company's significant accounting policies, as described in the Company's financial statements in Note 1, Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations. Accounts Receivable. The Company extends credit to its customers in the normal course of business. The Company regularly reviews its accounts and estimates the amount of uncollectible receivables each period and establishes an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts, information about the current financial strength of customers, and other relevant information. Estimates of uncollectible amounts are revised each period, and changes are recorded in the period they become known. Historically, credit risk with respect to these trade receivables has generally been considered minimal because of the financial strength of the Company's customers; however, aUnited States or global recession or other adverse economic condition could impact the collectability of certain customers' trade receivables which could have a material effect on the Company's results of operations. 40 -------------------------------------------------------------------------------- Table of Contents Property, Maintenance and Repairs. Property is recorded at cost; improvements and betterments are capitalized as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the individual assets. When property items are retired, sold, or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts with any gain or loss on the disposition included in the statement of earnings. Maintenance and repairs on vessels built for use on the inland waterways are charged to operating expense as incurred and includes the costs incurred in USCG inspections unless the shipyard extends the life or improves the operating capacity of the vessel which results in the costs being capitalized. The Company's ocean-going vessels are subject to regulatory drydocking requirements after certain periods of time to be inspected, have planned major maintenance performed and be recertified by the ABS. These recertifications generally occur twice in a five-year period. The Company defers the drydocking expenditures incurred on its ocean-going vessels due to regulatory marine inspections by the ABS and amortizes the costs of the shipyard over the period between drydockings, generally 30 or 60 months, depending on the type of major maintenance performed. Drydocking expenditures that extend the life or improve the operating capability of the vessel result in the costs being capitalized. Routine repairs and maintenance on ocean-going vessels are expensed as incurred. Interest is capitalized on the construction of new ocean-going vessels. The Company performs an impairment assessment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. If a triggering event is identified, the Company compares the carrying amount of the asset group to the estimated undiscounted future cash flows expected to result from the use of the asset group. If the carrying amount of the asset group exceeds the estimated undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset group to its estimated fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There are many assumptions and estimates underlying the determination of an impairment event or loss, if any. The assumptions and estimates include, but are not limited to, estimated fair market value of the assets and estimated future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used, and estimated salvage values. Although the Company believes its assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.Goodwill . The excess of the purchase price over the fair value of identifiable net assets acquired in transactions accounted for as a purchase is included in goodwill. Management monitors the recoverability of goodwill on an annual basis, or whenever events or circumstances indicate that interim impairment testing is necessary. The amount of goodwill impairment, if any, is typically measured based on projected discounted future operating cash flows using an appropriate discount rate and valued based on the excess of a reporting unit's carrying amount over its fair value, incorporating all tax impacts caused by the recognition of the impairment loss. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. There are many assumptions and estimates underlying the determination of an impairment event or loss, if any. Although the Company believes its assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.Accrued Insurance . The Company is subject to property damage and casualty risks associated with operating vessels carrying large volumes of bulk liquid and dry cargo in a marine environment. The Company maintains insurance coverage against these risks subject to a deductible, below which the Company is liable. In addition to expensing claims below the deductible amount as incurred, the Company also maintains a reserve for losses that may have occurred but have not been reported to the Company, or are not yet fully developed. The Company uses historic experience and actuarial analysis by outside consultants to estimate an appropriate level of accrued liabilities. If the actual number of claims and magnitude were substantially greater than assumed, the required level of accrued liabilities for claims incurred but not reported or fully developed could be materially understated. The Company records receivables from its insurers for incurred claims above the Company's deductible. If the solvency of the insurers became impaired, there could be an adverse impact on the accrued receivables and the availability of insurance. 41 -------------------------------------------------------------------------------- Table of Contents Acquisitions
During 2020, the Company purchased six newly constructed inland pressure barges
for
OnApril 1, 2020 , the Company completed the acquisition of the inland tank barge fleet of Savage for$278,999,000 in cash. Savage's tank barge fleet consisted of 92 inland tank barges with approximately 2.5 million barrels of capacity and 45 inland towboats. The Savage assets that were acquired primarily move petrochemicals, refined products, and crude oil on theMississippi River , its tributaries, and theGulf Intracoastal Waterway . The Company also acquired Savage's ship bunkering business and barge fleeting business along theGulf Coast . Financing of the acquisition was through borrowings under the Company's Revolving Credit Facility. OnJanuary 3, 2020 , the Company completed the acquisition of substantially all the assets of Convoy for$37,180,000 in cash. Convoy is an authorized dealer forThermo King refrigeration systems for trucks, railroad cars and other land transportation markets for North andEast Texas andColorado . Financing of the acquisition was through borrowings under the Company's Revolving Credit Facility. During the year endedDecember 31, 2019 , the Company purchased, from various counterparties, a barge fleeting operation inLake Charles, Louisiana and nine inland tank barges from leasing companies for an aggregate of$17,991,000 in cash. The Company had been leasing the barges prior to the purchases. Financing of these acquisitions was through borrowings under the Company's Revolving Credit Facility. OnMarch 14, 2019 , the Company completed the acquisition of the marine transportation fleet of Cenac for$244,500,000 in cash. Cenac's fleet consisted of 63 inland 30,000 barrel tank barges with approximately 1,833,000 barrels of capacity, 34 inland towboats and two offshore tugboats. Cenac transported petrochemicals, refined products and black oil, including crude oil, residual fuels, feedstocks and lubricants on the lowerMississippi River , its tributaries, and theGulf Intracoastal Waterway for major oil companies and refiners. The average age of the inland tank barges was approximately five years and the inland towboats had an average age of approximately seven years. Financing of the acquisition was through borrowings under the Company's Revolving Credit Facility.
On
OnDecember 14, 2018 , the Company purchased 27 inland tank barges with a barrel capacity of 306,000 barrels from CGBM 100, LLC ("CGBM") for$28,500,000 in cash. The 27 tank barges transport petrochemicals and refined products on the Mississippi River System and theGulf Intracoastal Waterway . The average age of the barges was eight years. Financing of the equipment acquisition was through borrowings under the Company's Revolving Credit Facility. OnNovember 30, 2018 , the Company purchased an inland towboat from a leasing company for$3,050,000 in cash. The Company had been leasing the towboat prior to the purchase. Financing of the equipment acquisition was through borrowings under the Company's Revolving Credit Facility. OnMay 10, 2018 , the Company completed the purchase of Targa Resources Corp.'s ("Targa") inland tank barge business from a subsidiary of Targa for$69,250,000 in cash. Targa's inland tank barge fleet consisted of 16 pressure barges with a total capacity of 258,000 barrels, many of which were under multi-year contracts that the Company assumed from Targa. The 16 tank barges transport petrochemicals on the Mississippi River System and theGulf Intracoastal Waterway . Financing of the business acquisition was through borrowings under the Company's Revolving Credit Facility. OnMarch 15, 2018 , the Company purchased two inland pressure tank barges from a competitor for$10,400,000 in cash. The average age of the two tank barges was five years. Financing of the equipment acquisition was through borrowings under the Company's Revolving Credit Facility. OnFebruary 14, 2018 , the Company completed the acquisition of Higman for$421,922,000 in cash. Higman's fleet consisted of 163 inland tank barges with 4.8 million barrels of capacity, and 75 inland towboats, transporting petrochemicals, black oil, including crude oil and natural gas condensate, and refined petroleum products on the Mississippi River System and theGulf Intracoastal Waterway . The average age of the inland tank barges was approximately seven years and the inland towboats had an average age of approximately eight years. Financing of the acquisition was through the issuance of the 2028 Notes (as defined in Note 5, Long-Term Debt to the Company's financial statements). The 2028 Notes were issued onFebruary 12, 2018 in preparation for closing of the acquisition. 42 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following tables set forth the Company's net earnings (loss) attributable to Kirby, along with per share amounts, and marine transportation and distribution and services revenues and the percentage of each to total revenues for the comparable periods (dollars in thousands): Year Ended
2020 2019 2018
Net earnings (loss) attributable to Kirby$ (272,546 ) $ 142,347 $ 78,452 Net earnings (loss) attributable to Kirby per share - diluted$ (4.55 ) $ 2.37 $ 1.31 Year Ended December 31, 2020 % 2019 % 2018 %
Marine transportation
1,487,554 50
$ 2,171,408 100 % $ 2,838,399 100 % $ 2,970,697 100 %
The 2020 first quarter included $561,274,000 before taxes, $433,341,000 after
taxes, or $7.24 per share, non-cash charges related to inventory write-downs,
impairment of long-lived assets, including intangible assets and property and
equipment, and impairment of goodwill in the distribution and services segment.
See Note 7, Impairments and Other Charges to the Company's financial statements
for additional information. In addition, the 2020 first quarter was favorably
impacted by an income tax benefit of $50,824,000 , or $0.85 per share related to
net operating losses generated in 2018 and 2019 used to offset taxable income
generated between 2013 and 2017. See Note 9, Taxes on Income to the Company's
financial statements for additional information.
The 2019 fourth quarter included $35,525,000 before taxes, $27,978,000 after
taxes, or $0.47 per share, non-cash inventory write-downs and $4,757,000 before
taxes, $3,747,000 after taxes, or $0.06 per share, severance and early
retirement expense.
The 2018 fourth quarter included $85,108,000 before taxes, $67,235,000 after
taxes, or $1.12 per share, non-cash impairment of long-lived assets and lease
cancellation costs and $2,702,000 before taxes, $2,135,000 after taxes, or $0.04
per share, non-cash impairment of goodwill. The 2018 second quarter included a
one-time non-deductible expense of $18,057,000 , or $0.30 per share, related to
the retirement of Joseph H. Pyne as executive Chairman of the Board of
Directors, effective April 30, 2018 . The 2018 first quarter included $3,261,000
before taxes, or $0.04 per share, of one-time transaction costs associated with
the Higman acquisition, as well as $2,912,000 before taxes, or $0.04 per share,
of severance and retirement expenses, primarily related to cost reduction
initiatives in the coastal marine transportation market and the integration of
Higman.
Marine Transportation
The Company, through its marine transportation segment, provides marine
transportation services, operating tank barges and towing vessels transporting
bulk liquid products throughout the Mississippi River System, on the Gulf
Intracoastal Waterway , coastwise along all three United States coasts, and in
Alaska and Hawaii . The Company transports petrochemicals, black oil, refined
petroleum products and agricultural chemicals by tank barge. As of December 31,
2020 , the Company operated 1,066 inland tank barges, including 37 leased barges,
with a total capacity of 24.1 million barrels and an average of 248 inland
towboats during the 2020 fourth quarter, of which 38 were chartered. This
compares with 1,053 inland tank barges operated as of December 31, 2019 ,
including 24 leased barges, with a total capacity of 23.4 million barrels and an
average of 299 inland towboats during the 2019 fourth quarter, of which 75 were
chartered.
The Company's coastal tank barge fleet as of December 31, 2020 consisted of 44
tank barges, of which one was leased, with 4.2 million barrels of capacity, and
44 coastal tugboats, of which four were chartered. This compares with 49 coastal
tank barges operated as of December 31, 2019 , of which two were leased, with 4.7
million barrels of capacity, and 47 coastal tugboats, of which five were
chartered. As of December 31, 2020 and 2019, the Company owned four offshore
dry-bulk cargo barge and tugboat units engaged in the offshore transportation of
dry-bulk cargoes. The Company also owns shifting operations and fleeting
facilities for dry cargo barges and tank barges on the Houston Ship Channel, in
Freeport and Port Arthur, Texas , and Lakes 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, which transports project
cargoes and cargo containers by barge.
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Table of Contents
The following table sets forth the Company's marine transportation segment's
revenues, costs and expenses, operating income and operating margins (dollars in
thousands):
Year Ended December 31,
2020 2019 % Change 2018 % Change
Marine transportation revenues $ 1,404,265 $ 1,587,082 (12 )% $ 1,483,143 7 %
Costs and expenses:
Costs of sales and operating
expenses 907,119 1,034,758 (12 ) 997,979 4
Selling, general and
administrative 111,182 122,202 (9 ) 122,421 -
Taxes, other than on income 35,528 34,538 3 33,020 5
Depreciation and amortization 186,798 179,742 4 182,307 (1 )
1,240,627 1,371,240 (10 ) 1,335,727 3
Operating income $ 163,638 $ 215,842 (24 )% $ 147,416 46 %
Operating margins 11.7 % 13.6 % 9.9 %
The following table shows the marine transportation markets serviced by the Company, the marine transportation revenue distribution, products moved and the drivers of the demand for the products the Company transports:
2020
Revenue
Markets Serviced Distribution Products Moved Drivers
Petrochemicals 52% Benzene, Styrene, Consumer non-durables -
Methanol, 70% Consumer durables -
Acrylonitrile, Xylene, 30%
Naphtha, Caustic Soda,
Butadiene, Propylene
Black Oil 26% Residual Fuel Oil, Fuel for Power Plants
Coker Feedstock, and Ships, Feedstock for
Vacuum Gas Oil, Refineries, Road
Asphalt, Carbon Black Construction
Feedstock, Crude Oil,
Natural Gas
Condensate, Ship
Bunkers
Refined Petroleum Products 19% Gasoline, No. 2 Oil, Vehicle Usage, Air
Jet Fuel, Heating Oil, Travel, Weather
Diesel Fuel, Ethanol Conditions, Refinery
Utilization
Agricultural Chemicals 3% Anhydrous Ammonia, Corn, Cotton and Wheat
Nitrogen-Based Liquid Production, Chemical
Fertilizer, Industrial Feedstock Usage
Ammonia
2020 Compared to 2019
Marine Transportation Revenues
Marine transportation revenues for 2020 decreased 12% compared to 2019. The decrease was primarily due to reduced barge utilization in the inland and coastal markets and decreased term and spot contract pricing in the inland market, each as a result of a reduction in demand due to the COVID-19 pandemic, lower fuel rebills, retirements of three large coastal barges, and planned shipyard activity in the coastal market. These reductions were partially offset by the acquisition of the Savage fleet acquired onApril 1, 2020 and the Cenac fleet acquired onMarch 14, 2019 . The 2020 third quarter was impacted by hurricanes and tropical storms along the East and Gulf Coasts and the closure of theIllinois River . The 2020 first quarter and 2019 first six months were each impacted by poor operating conditions and high delay days due to heavy fog and wind along theGulf Coast , high water on the Mississippi River System, and closures of key waterways as a result of lock maintenance projects, as well as increased shipyard days on large capacity coastal vessels. The 2019 first six months was also impacted by prolonged periods of ice on theIllinois River and a fire at a chemical storage facility on the Houston Ship Channel. For 2020 and 2019, the inland tank barge fleet contributed 78% and 77%, respectively, and the coastal fleet contributed 22% and 23%, respectively, of marine transportation revenues. The Savage fleet was quickly integrated into the Company's own fleet and the former Savage equipment began operating under Company contracts soon after the acquisition closed, with former Savage barges working with the Company's existing towboats and vice versa resulting in differences in vessel utilization and pricing among individual assets and the consolidated fleet.
Due
to this quick integration, it is not practical to provide a specific amount of revenues for the Savage fleet but the acquisition inApril 2020 was one of the factors that offset decreases in marine transportation revenues in 2020 as compared to 2019. 44 -------------------------------------------------------------------------------- Table of Contents During 2020 reduced demand as a result of the COVID-19 pandemic and the resulting economic slowdown contributed to lower barge utilization. Inland tank barge utilization levels averaged in the low to mid-90% range during the 2020 first quarter, the mid-80% range during the 2020 second quarter, the low 70% range during the 2020 third quarter, and the high 60% range during the 2020 fourth quarter. In 2019, inland tank barge utilization levels averaged in the mid-90% range during both the 2019 first and second quarters and the low 90% range during both the 2019 third and fourth quarters. The 2020 first quarter and full year 2019 each experienced strong demand from petrochemicals, black oil, and refined petroleum products customers. Extensive delay days due to poor operating conditions and lock maintenance projects in the 2020 first quarter and 2019 first six months slowed the transport of customer cargoes and contributed to strong barge utilization during those periods. Coastal tank barge utilization levels averaged in the low to mid-80% range during the 2020 first quarter and the mid-70% range during each of the 2020 second, third, and fourth quarters. In 2019, coastal tank barge utilization levels averaged in the low 80% range during the 2019 first quarter and the mid-80% range during each of the 2019 second, third, and fourth quarters. Barge utilization in the coastal marine fleet continued to be impacted by the oversupply of smaller tank barges in the coastal industry during 2020 and 2019. The petrochemical market, the Company's largest market, contributed 52% of marine transportation revenues for 2020, reflecting reduced volumes fromGulf Coast petrochemical plants for both domestic consumption and to terminals for export destinations as a result of the COVID-19 pandemic. Also, during the 2020 third quarter, the petrochemical complex along theGulf Coast was impacted by hurricanes and tropical storms, reducing barge volumes and closing critical waterways for extended periods of time. During 2020,U.S. chemical plant capacity utilization declined to an average in the low to mid-70% range. The black oil market, which contributed 26% of marine transportation revenues for 2020, reflected reduced demand as refinery production levels and the export of refined petroleum products and fuel oils declined as a result of the COVID-19 pandemic and the impact from hurricanes and tropical storms along theGulf Coast during the third and fourth quarters. During 2020,U.S. refinery utilization peaked in the low to mid-90% range early in the first quarter and troughed in the high 60% range during the second quarter. During the third and fourth quarters, refinery utilization stabilized in the low 70% to low 80% range with the low end resulting from significant hurricane and tropical storm activity along theGulf Coast during September and October and increased to the low 80% range late in the fourth quarter. During 2020, the Company continued to transport crude oil and natural gas condensate produced from thePermian Basin as well as reduced volumes from the Eagle Ford shale formation inTexas , both along theGulf Intracoastal Waterway with inland vessels and in theGulf of Mexico with coastal equipment. Additionally, the Company transported volumes of Utica natural gas condensate downriver from the Mid-Atlantic to theGulf Coast and Canadian and Bakken crude downriver from the Midwest to theGulf Coast . The refined petroleum products market, which contributed 19% of marine transportation revenues for 2020, reflected lower volumes in both the inland and coastal markets as a result of reduced demand related to the COVID-19 pandemic and the impact from hurricanes and tropical storms along theGulf Coast during the third and fourth quarters. During 2020,U.S. refinery utilization peaked in the low to mid-90% range early in the first quarter and troughed in the high 60% range during the second quarter. During the third and fourth quarters, refinery utilization stabilized in the low 70% to low 80% range with the low end resulting from significant hurricane and tropical storm activity along theGulf Coast during September and October and increased to the low 80% range late in the fourth quarter. 45 -------------------------------------------------------------------------------- Table of Contents The agricultural chemical market, which contributed 3% of marine transportation revenues for 2020, saw modest reductions in demand for transportation of both domestically produced and imported products during the quarter, primarily due to reduced demand associated with the COVID-19 pandemic. For 2020, the inland operations incurred 10,408 delay days, 22% fewer than the 13,259 delay days that occurred during 2019. 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. Reduced delay days during 2020 is primarily due to lower barge utilization, despite significant delays associated with hurricane activity along theGulf Coast during the third quarter. In addition, delay days for the 2020 first quarter and 2019 first six months reflected poor operating conditions due to heavy fog and wind along theGulf Coast , high water conditions on the Mississippi River System, and closures of key waterways as a result of lock maintenance projects. The 2019 first six months was also impacted by prolonged periods of ice on theIllinois River and a fire at a chemical storage facility on the Houston Ship Channel. During both 2020 and 2019, approximately 65% of the inland marine transportation revenues were under term contracts and 35% were spot contract revenues. These allocations provide the operations with a reasonably predictable revenue stream. Inland time charters, which insulate the Company from revenue fluctuations caused by weather and navigational delays and temporary market declines, represented 66% of the inland revenues under term contracts during 2020 compared to 62% during 2019. Rates on inland term contracts renewed in the 2020 first quarter increased in the 1% to 3% average range compared to term contracts renewed in the 2019 first quarter. Rates on inland term contracts renewed in the 2020 second quarter were flat compared to term contracts renewed in the 2019 second quarter. Rates on inland term contracts renewed in the 2020 third quarter decreased in the 1% to 3% average range compared to term contracts renewed in the 2019 third quarter. Rates on inland term contracts renewed in the 2020 fourth quarter decreased in the 10% to 12% average range compared to term contracts renewed in the 2019 fourth quarter. Spot contract rates in the 2020 first quarter increased in the 4% to 6% average range compared to the 2019 first quarter. Spot contract rates in the 2020 second quarter decreased in the 5% to 10% average range compared to the 2019 second quarter. Spot contract rates in the 2020 third quarter decreased approximately 10% compared to the 2019 third quarter. Spot contract rates in the 2020 fourth quarter decreased approximately 25% compared to the 2019 fourth quarter. There was no material rate increase onJanuary 1, 2020 , related to annual escalators for labor and the producer price index on a number of inland multi-year contracts. During 2020 and 2019, approximately 85% and 80%, respectively, of the coastal revenues were under term contracts and 15% and 20%, respectively, were spot contract revenues. Coastal time charters represented approximately 90% of coastal revenues under term contracts during 2020 compared to 85% during 2019. Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type and product serviced. Rates on coastal term contracts renewed in the 2020 first quarter increased in the 10% to 15% average range compared to term contracts renewed in the 2019 first quarter. Rates on coastal term contracts renewed in the 2020 second quarter were flat compared to term contracts renewed in the 2019 second quarter. Rates on coastal term contracts renewed in both the 2020 third and fourth quarters decreased in the 4% to 6% average range compared to term contracts renewed in the 2019 third and fourth quarters. Spot market rates in the 2020 first quarter increased in the 10% to 15% average range compared to the 2019 first quarter. Spot market rates in each of the 2020 second, third, and fourth quarters were flat compared to the 2019 second, third, and fourth quarters.
Marine Transportation Costs and Expenses
Costs and expenses for 2020 decreased 10% compared to 2019. Costs of sales and operating expenses for 2020 decreased 12% compared to 2019 primarily due to cost reductions across the segment, including a reduction in towboats during the second and third quarters and a reduction in maintenance expenses, partially offset by the addition of the Savage fleet inApril 2020 and the Cenac fleet inMarch 2019 . The inland marine transportation fleet operated an average of 287 towboats during 2020, of which an average of 52 were chartered, compared to 299 during 2019, of which an average of 75 were chartered. The decrease was primarily due to the chartered towboats released during the 2020 second and third quarters, partially offset by the addition of inland towboats with the Savage acquisition inApril 2020 . Generally, as demand or anticipated demand increases or decreases, as tank barges are added to 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. 46 -------------------------------------------------------------------------------- Table of Contents During 2020, the inland operations consumed 47.5 million gallons of diesel fuel compared to 50.0 million gallons consumed during 2019. The average price per gallon of diesel fuel consumed during 2020 was$1.41 per gallon compared to$2.06 per gallon for 2019. Fuel escalation and de-escalation clauses on term contracts 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 2020 decreased 9% compared to 2019. The decrease is primarily due to cost reduction initiatives throughout the organization as a result of reduced business activity levels due to the COVID-19 pandemic.
Taxes, other than on income, for 2020 increased 3% compared to 2019. The increase is primarily due to higher property taxes on marine transportation equipment, including the Savage and Cenac fleets.
Depreciation and amortization for 2020 increased 4% compared to 2019. The increase is primarily due to the acquisition of the including the Savage fleet in 2020 and Cenac fleet in 2019.
Marine Transportation Operating Income and Operating Margins
Marine transportation operating income for 2020 decreased 24% compared to 2019. The operating margin was 11.7% for 2020 compared to 13.6% for 2019. The decreases in operating income and operating margin were primarily due to reduced barge utilization in the inland and coastal markets and reduced term and spot contract pricing in the inland market, each as a result of a reduction in demand due to the COVID-19 pandemic, partially offset by cost reductions throughout the organization, including chartered towboats released during the 2020 second and third quarters. 2019 Compared to 2018
Marine Transportation Revenues
Marine transportation revenues for 2019 increased 7% compared to 2018. The increase was primarily due to the addition of the Higman fleet acquired onFebruary 14, 2018 , the Targa pressure barge fleet acquired onMay 10, 2018 , the CGBM inland tank barges acquired onDecember 14, 2018 , and the Cenac fleet acquired onMarch 14, 2019 , as well as improved barge utilization in the coastal market and higher spot and term contract pricing in the inland and coastal markets. Partially offsetting the increase were unusually poor operating conditions due to heavy fog along theGulf Coast , prolonged periods of ice on theIllinois River , high water on the Mississippi River System, closures of key waterways as a result of lock maintenance projects, extended delays in the Houston Ship Channel, and increased shipyard days on several large capacity coastal vessels during the 2019 first and fourth quarters. For 2019 and 2018, the inland tank barge fleet contributed 77% and 76%, respectively, and the coastal fleet 23% and 24%, respectively, of marine transportation revenues. The Cenac fleet was quickly integrated into the Company's own fleet and the Cenac equipment began to operate on the Company's contracts soon after the acquisition and Cenac barges worked with the Company's towboats and vice versa resulting in differences in vessel utilization and pricing among individual assets and the consolidated fleet. Due to this quick integration, it is not practical to provide a specific amount of revenues for Cenac but the acquisition inMarch 2019 was one of the factors that drove increases in marine transportation revenues in 2019 as compared to 2018. Tank barge utilization levels in the Company's inland marine transportation markets averaged the mid-90% range during both the 2019 first and second quarters and low 90% range during both the 2019 third and fourth quarters. Strong demand from petrochemicals, black oil, refined petroleum products and agricultural chemicals customers, along with extensive delay days due to poor operating conditions which slowed the transport of customer cargoes, contributed to increased barge utilization during the 2019 first and second quarters. Better weather during the 2019 third quarter and receding flood waters on the Mississippi River System resulted in fewer delay days and contributed to modestly lower barge utilization during the 2019 third quarter. In the 2019 fourth quarter, weather conditions seasonally deteriorated, however, reduced refinery and chemical plant utilization for many of the Company's major customers resulted in tank barge utilization remaining in the low 90% range for the quarter. 47 -------------------------------------------------------------------------------- Table of Contents Coastal tank barge utilization levels averaged in the low 80% range during the 2019 first quarter and mid-80% range during each of the 2019 second, third and fourth quarters. The improvement in barge utilization in 2019 primarily reflected improved customer demand resulting in higher barge utilization in the spot market. Barge utilization in the coastal marine fleet continued to be impacted by the oversupply of smaller tank barges in the coastal industry. The petrochemical market, the Company's largest market, contributed 54% of marine transportation revenues for 2019, reflecting continued stable volumes fromGulf Coast petrochemical plants for both domestic consumption and to terminals for export destinations, and the addition of the Targa pressure barge fleet inMay 2018 . Low priced domestic natural gas, a basic feedstock forthe United States petrochemical industry, provides the industry with a competitive advantage relative to naphtha-based foreign petrochemical producers. In addition, favorable commodity prices and the addition of new petrochemical industry capacity in 2018 and 2019 benefited the market. The black oil market, which contributed 23% of marine transportation revenues for 2019, reflected strong demand from steady refinery production levels and the export of refined petroleum products and fuel oils. The Company continued to transport crude oil and natural gas condensate produced from the Eagle Ford andPermian Basin shale formations inTexas , both along theGulf Intracoastal Waterway with inland vessels and in theGulf of Mexico with coastal vessels. Additionally, the Company transported increased volumes of Utica natural gas condensate downriver from the Mid-Atlantic to theGulf Coast and Canadian and Bakken crude downriver from the Midwest to theGulf Coast .
The refined petroleum products market, which contributed 19% of marine transportation revenues for 2019, reflected increased volumes in the inland market, due in part to the acquisition of Cenac, and stable volumes in coastal.
The agricultural chemical market, which contributed 4% of marine transportation revenues for 2019, saw typical seasonal demand for transportation of both domestically produced and imported products during 2019.
For 2019, the inland operations incurred 13,259 delay days, 32% more than the 10,046 delay days that occurred during 2018. The increase in delay days reflected unusually poor operating conditions during 2019 due to heavy fog along theGulf Coast , extended periods of ice on theIllinois River , near record high water conditions on the Mississippi River System, closures of key waterways as a result of lock maintenance projects and extended delays in the Houston Ship Channel. Flood waters on the Mississippi River System receded in the beginning ofAugust 2019 . During both 2019 and 2018, approximately 65% of marine transportation inland revenues were under term contracts and 35% were spot contract revenues. Inland time charters, which insulate the Company from revenue fluctuations caused by weather and navigational delays and temporary market declines, represented 62% of inland revenues under term contracts during 2019 compared to 59% during 2018. Rates on inland term contracts renewed in the 2019 first quarter increased in the 4% to 6% average range compared to term contracts renewed in the 2018 first quarter. Rates on inland term contracts renewed in the 2019 second quarter increased in the 5% to 8% average range compared to term contracts renewed in the 2018 second quarter. Rates on inland term contracts renewed in the 2019 third quarter increased in the 3% to 4% average range compared to term contracts renewed in the 2018 third quarter. Rates on inland term contracts renewed in the 2019 fourth quarter increased in the 2% to 4% average range compared to term contracts renewed in the 2018 fourth quarter. Spot contract rates in the 2019 first quarter increased approximately 20% compared to the 2018 first quarter. Spot contracts rates in both the 2019 second and third quarters increased approximately 15% compared to the 2018 second and third quarters. Spot contract rates in the 2019 fourth quarter increased approximately 5% compared to the 2018 fourth quarter. EffectiveJanuary 1, 2019 , 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 1.7%, excluding fuel. 48 -------------------------------------------------------------------------------- Table of Contents During both 2019 and 2018, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters which insulate the Company from revenue fluctuations caused by weather and navigational delays and temporary market declines, represented approximately 85% of coastal revenues under term contracts during both 2019 and 2018. Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type and product serviced. Rates on coastal term contracts renewed in each of the 2019 first, second, and third quarters increased in the 4% to 6% average range compared to term contracts renewed in the 2018 first, second, and third quarters. Rates on coastal term contracts renewed in the 2019 fourth quarter increased in the 5% to 15% average range compared to term contracts renewed in the 2018 fourth quarter. Spot contract rates in both the 2019 first and second quarters increased in the 10% to 15% average range compared to the 2018 first and second quarters. Spot contract rates in the 2019 third quarter increased approximately 20% compared to the 2018 third quarter. Spot contract rates in the 2019 fourth quarter increased approximately 10% compared to the 2018 fourth quarter.
Marine Transportation Costs and Expenses
Costs and expenses for 2019 increased 3% compared to 2018. Costs of sales and operating expenses for 2019 increased 4% compared to 2018, primarily due to the addition of the Higman fleet inFebruary 2018 and the Cenac fleet inMarch 2019 , partially offset by lower fuel costs. The inland marine transportation fleet operated an average of 299 towboats during 2019, of which an average of 75 were chartered, compared to 278 during 2018, of which an average of 77 were chartered. The increase was primarily due to the addition of inland towboats with the Cenac acquisition onMarch 14, 2019 . Generally, as demand, or anticipated demand, increases or decreases, as tank barges are added to 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 2019, the inland operations consumed 50.0 million gallons of diesel fuel compared to 49.3 million gallons consumed during 2018. The average price per gallon of diesel fuel consumed during 2019 was$2.06 per gallon compared to$2.20 per gallon for 2018. Fuel escalation and de-escalation clauses on term contracts 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 the contracts are adjusted. Spot contracts do not have escalators for fuel. Selling, general and administrative expenses for 2019 was consistent with 2018. The 2019 fourth quarter included$1,447,000 related to severance and early retirement expense. The 2019 year also included Cenac acquisition related costs of$442,000 as well as salaries and other related costs of personnel acquired in the Higman acquisition. In 2018, there were transaction costs of$3,261,000 , consisting primarily of legal, audit and other professional fees associated with the Higman acquisition and severance charges of$2,591,000 associated with the integration of Higman into the Company and further reduction in headcount in the coastal sector in order to manage costs, both of which were incurred in the 2018 first quarter.
Taxes, other than on income for 2019 increased 5% compared to 2018, mainly due to higher property taxes on marine transportation equipment, including the Higman, Targa, CGBM, and Cenac fleets.
Marine Transportation Operating Income and Operating Margins
Marine transportation operating income for 2019 increased 46% compared to 2018. The operating margin was 13.6% for 2019 compared to 9.9% for 2018. The operating income increase in 2019 compared to 2018 was primarily due to the acquisitions of Higman, Targa's pressure barge fleet, CGBM's inland tank barges, and Cenac's fleet as well as improved barge utilization in the coastal market and higher spot and term contract pricing in the inland and coastal markets, partially offset by significant weather and navigational challenges in 2019.
Distribution and Services
The Company, through its distribution and services segment, 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, railcar movers, and high capacity
lift trucks for use in a variety of industrial markets, and manufactures and
remanufactures oilfield service equipment, including pressure pumping units, for
land-based oilfield service customers.
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The following table sets forth the Company's distribution and services segment's
revenues, costs and expenses, operating income and operating margins (dollars in
thousands):
Year Ended December 31,
2020 2019 % Change 2018 % ChangeDistribution and services revenues$ 767,143 $ 1,251,317 (39 )%$ 1,487,554 (16 )% Costs and expenses: Costs of sales and operating expenses 604,238 995,288 (39 ) 1,162,967 (14 ) Selling, general and administrative 140,449 145,473 (3 ) 149,756 (3 ) Taxes, other than on income 6,392 7,357 (13 ) 6,177 19 Depreciation and amortization 28,255 35,998 (22 ) 39,349 (9 ) 779,334 1,184,116 (34 ) 1,358,249 (13 ) Operating income$ (12,191 ) $ 67,201 (118 )%$ 129,305 (48 )% Operating margins (1.6 )% 5.4 % 8.7 %
The following table shows the markets serviced by the Company, the revenue distribution, and the customers for each market:
2020
Revenue
Markets Serviced Distribution Customers
Commercial and Industrial 74% 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
Oil and Gas 26% Oilfield Services, Oil and Gas Operators
and Producers
2020 Compared to 2019
Distribution and Services Revenues
Distribution and services revenues for 2020 decreased 39% compared to 2019.
The
decrease was primarily attributable to reduced activity in the oilfield as a result of oil price volatility throughout 2019 and 2020, the extensive downturn in oil and gas exploration due to low oil prices, caused in part by the COVID-19 pandemic, an oversupply of pressure pumping equipment inNorth America , and reduced spending and enhanced cash flow discipline for the Company's major oilfield customers. As a result, customer demand and incremental orders for new and remanufactured pressure pumping equipment and sales of new and overhauled transmissions and related parts and service declined during 2020. For 2020 and 2019, the oil and gas market contributed 26% and 53%, respectively, of the distribution and services revenues. The commercial and industrial market revenues decreased compared to 2019 primarily due to reductions in on-highway and power generation service demand as a result of the COVID19 pandemic and the resulting economic slowdown and nationwide, state, and local stay-at-home orders, partially offset by contributions from the Convoy acquisition. Demand in the marine business was also down due to reduced major overhaul activity and new engine sales. For 2020 and 2019, the commercial and industrial market contributed 74% and 47%, respectively, of the distribution and services revenues. 50 -------------------------------------------------------------------------------- Table of Contents Distribution and Services Costs and Expenses Costs and expenses for 2020 decreased 34% compared to 2019. Costs of sales and operating expenses for 2020 decreased 39% compared to 2019, reflecting lower demand for new and overhauled transmissions and related parts and service and reduced demand for new pressure pumping equipment in the oil and gas market. Selling, general and administrative expenses for 2020 decreased 3% compared to 2019. The decrease was primarily due to cost reduction initiatives throughout the organization as a result of reduced business activity levels due to the COVID-19 pandemic, partially offset by the Convoy acquisition, a bad debt expense charge of$3,339,000 as a result of the bankruptcy of a large oil and gas customer, and$1,354,000 of severance expense as a result of continued workforce reductions, each recorded during the 2020 second quarter.
Depreciation and amortization for 2020 decreased 22% compared to 2019. The decrease was primarily due to lower amortization of intangible assets other than goodwill, which were impaired during the 2020 first quarter.
Distribution and Services Operating Income (Loss) and Operating Margins
Operating income for the distribution and services segment for 2020 decreased 118% compared to 2019. The operating margin was (1.6)% for 2020 compared to 5.4% for 2019. The results primarily reflected a decrease in margins in the commercial and industrial market and losses in the oil and gas market.
2019 Compared to 2018
Distribution and Services Revenues
Distribution and services revenues for 2019 decreased 16% compared to 2018. The decrease was primarily attributable to reduced activity in the oilfield as a result of oil price volatility in late 2018 and early 2019, an oversupply of pressure pumping equipment inNorth America , and reduced spending and enhanced cash flow discipline for the Company's major oilfield customers. During the first half of 2019, although oilfield activity levels and new orders for the Company's oilfield related products and services declined as compared to the same period in 2018, the segment benefited from a significant backlog of manufacturing orders for new and remanufactured pressure pumping equipment received in the 2018 third and fourth quarters. Most of these orders were completed in the 2019 first and second quarters as oilfield activity levels further declined for many of the Company's customers. As a result, customer demand and incremental orders for new and remanufactured pressure pumping equipment declined significantly for the duration of 2019, and sales of new and overhauled transmissions and related parts and service were minimal during the 2019 third and fourth quarters. For 2019, the oil and gas market represented approximately 53% of distribution and services revenues. The commercial and industrial market, which contributed 47% of distribution and services revenues for 2019, saw increased service levels and new engine sales in the marine repair business for much of the year, although activity levels in the inland market declined during the 2019 third quarter as many customers reduced maintenance activities following months of river flooding conditions and during the summer harvest season. The commercial and industrial market also experienced increased demand for power generation equipment compared to 2018, including the sale and installation of significant back-up power systems for major data centers in the 2019 first and second quarters. Activity levels for the Company's specialty rental units, back-up power systems, and refrigeration equipment seasonally increased in anticipation of and as a result of summer storms and warm weather conditions in the 2019 second and third quarters. Demand in the nuclear power generation market was stable compared to 2018.
Distribution and Services Costs and Expenses
Costs and expenses for 2019 decreased 13%, compared to 2018. Costs of sales and
operating expenses for 2019 decreased 14% compared to 2018, reflecting lower
demand for new and remanufactured pressure pumping equipment and reduced demand
for new and overhauled transmissions and related parts and service in the oil
and gas market.
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Selling, general and administrative expenses for 2019 decreased 3%, compared to
2018, primarily due to lower incentive compensation and professional fees,
partially offset by $3,310,000 related to severance and early retirement expense
incurred in the 2019 fourth quarter.
Depreciation and amortization expenses for 2019 decreased 9%, compared to 2018 primarily due to sales of distribution and services facilities resulting in lower depreciation.
Distribution and Services Operating Income and Operating Margins
Operating income for the distribution and services segment for 2019 decreased 48% compared to 2018. The operating margin for 2019 was 5.4% compared to 8.7% for 2018. The results primarily reflected decreased sales in higher margin oil and gas related revenue and increased sales of lower margin power generation equipment. General Corporate Expenses General corporate expenses for 2020, 2019 and 2018 were$11,050,000 ,$13,643,000 and$35,590,000 , respectively. The general corporate expenses for 2018 are higher compared to both 2020 and 2019 primarily due to a one-time non-deductible expense of$18,057,000 in the 2018 second quarter related to the retirement of the Company's executive Chairman, effectiveApril 30, 2018 , and higher incentive compensation accruals.
Gain on Disposition of Assets
The Company reported net gains on disposition of assets of$118,000 ,$8,152,000 , and$1,968,000 in 2020, 2019, and 2018, respectively. The net gains were predominantly from the sales or retirements of marine equipment and distribution and services facilities. Other Income and Expenses The following table sets forth impairments and other charges, lease cancellation costs, other income, noncontrolling interests, and interest expense (dollars in thousands): Year Ended December 31, 2020 2019 % Change 2018 % Change Impairments and other charges$ (561,274 ) $ (35,525 ) (1,480 )%$ (85,407 ) (58 )% Lease cancellation costs - - - % (2,403 ) (100 )% Other income 8,147 3,787 115 % 5,726 (34 )% Noncontrolling interests (954 ) (672 ) 42 % (626 ) 7 % Interest expense (48,739 ) (55,994 ) (13 )% (46,856 ) 20 %
Impairments and Other Charges
For 2020, impairment and other charges includes
For 2019 impairment and other charges includes a
For 2018, impairment and other charges includes
See Note 7, Impairments and Other Charges for additional information.
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Other Income
Other income for 2020, 2019 and 2018 includes income of $6,186,000 , $3,454,000
and $4,517,000 , respectively, for all components of net benefit costs except the
service cost component related to the Company's defined benefit plans.
Interest Expense
The following table sets forth average debt, average interest rate, and capitalized interest excluded from interest expense (dollars in thousands):
Year Ended December 31,
2020 2019 2018
Average debt $ 1,567,523 $ 1,502,044 $ 1,370,905
Average interest rate 3.1 % 3.7 % 3.5 %
Capitalized Interest $ - $ 1,003 $ 2,206
Interest expense for 2020 decreased 13% compared to 2019, primarily due to a
lower average interest rate, partially offset by higher average debt outstanding
as a result of borrowings to finance the Convoy acquisition in January 2020 and
the Savage acquisition in April 2020 . Interest expense for 2019 increased 20%
compared to 2018 primarily due to borrowings to finance the Higman acquisition
in February 2018 , the acquisition of Targa's pressure barge fleet in May 2018 ,
the purchase of the 155,000 barrel coastal ATB under construction in June 2018 ,
the acquisition of CGBM's tank barges in December 2018 , and the acquisition of
Cenac's fleet in March 2019 .
(Provision) Benefit for Taxes on Income
During 2020, pursuant to provisions of the CARES Act, net operating losses generated during 2018 through 2020 were used to offset taxable income generated between 2013 through 2017. Net operating losses carried back to tax years 2013 through 2017 were applied at the higher federal statutory tax rate of 35% compared to the statutory rate of 21% currently in effect atDecember 31, 2020 . The Company generated an effective tax rate benefit in 2020 as a result of such carrybacks.
Financial Condition, Capital Resources and Liquidity
Balance Sheet
The following table sets forth the significant components of the balance sheets
(dollars in thousands):
December 31,
2020 2019 % Change 2018 % Change
Assets:
Current assets $ 1,047,971 $ 917,579 14 % $ 1,096,489 (16 )%
Property and equipment, net 3,917,070 3,777,110 4 3,539,802 7
Operating lease right-of-use
assets 174,317 159,641 9 - N/A
Investment in affiliates 2,689 2,025 33 2,495 (19 )
Goodwill 657,800 953,826 (31 ) 953,826 -
Other intangibles, net 68,979 210,682 (67 ) 224,197 (6 )
Other assets 55,348 58,234 (5 ) 54,785 6
$ 5,924,174 $ 6,079,097 (3 )% $ 5,871,594 4 %
Liabilities and stockholders'
equity:
Current liabilities $ 466,032 $ 514,115 (9 )% $ 607,782 (15 )%
Long-term debt, net - less
current portion 1,468,546 1,369,751 7 1,410,169 (3 )
Deferred income taxes 606,844 588,204 3 542,785 8
Operating lease liabilities -
less current portion 163,496 139,457 17 - N/A
Other long-term liabilities 131,703 95,978 37 94,557 2
Total equity 3,087,553 3,371,592 (8 ) 3,216,301 5
$ 5,924,174 $ 6,079,097 (3 )% $ 5,871,594 4 %
53-------------------------------------------------------------------------------- Table of Contents 2020 Compared to 2019 Current assets as ofDecember 31, 2020 increased 14% compared toDecember 31, 2019 . Trade accounts receivable decreased 17% driven by decreased business activity in the distribution and services segment, primarily related to the oil and gas market and reduced barge utilization in the marine transportation segment, partially offset by trade accounts receivable acquired from Convoy. Other accounts receivable increased 173%, primarily due to federal income taxes receivable of$188,177,000 recorded for net operating losses generated during tax years 2019 and 2020 offset against taxable income during tax years 2014 through 2017 under provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). Inventories, net decreased by 12% primarily due to reduced business activity levels in the oil and gas market and write downs of oilfield and pressure pumping related inventory, partially offset by inventory acquired from Convoy. Property and equipment, net of accumulated depreciation, atDecember 31, 2020 increased 4% compared toDecember 31, 2019 . The increase reflected$134,905,000 of capital expenditures (net of a decrease in accrued capital expenditures) for 2020, more fully described under Cash Flows and Capital Expenditures above, and$250,544,000 of acquisitions, primarily including the six newly constructed inland pressure barges purchased in 2020 and the aggregate fair value of the property and equipment acquired in the Savage and Convoy acquisitions, partially offset by$210,686,000 of depreciation expense,$16,395,000 of impairment charges, and$18,408,000 of property disposals during 2020.
Operating lease right-of-use assets as of
Goodwill as ofDecember 31, 2020 decreased 31% compared toDecember 31, 2019 , primarily due to a goodwill impairment in the distribution and services segment, partially offset by goodwill recorded as part of the Savage and Convoy acquisitions. Other intangibles, net, as ofDecember 31, 2020 decreased 67% compared toDecember 31, 2019 , primarily due to impairments of customer relationship, tradename, and distributorship assets in the distribution and services segment as well as amortization of intangibles, partially offset by intangible assets recorded as part of the Convoy and Savage acquisitions. Current liabilities as ofDecember 31, 2020 decreased 9% compared toDecember 31, 2019 . Accounts payable decreased 21%, primarily due to decreased shipyard maintenance accruals on coastal equipment and reduced activity levels in both the marine transportation and distribution and services segments, partially offset by accounts payable assumed in the Convoy acquisition. Accrued liabilities decreased 5%, primarily due to lower accrued incentive compensation during 2020, partially offset by accrued payroll taxes deferred under provisions of the CARES Act. Deferred revenues increased 6%, primarily reflecting progress billings for new projects in the distribution and services oil and gas market, partially offset by reduced business activity in the marine transportation segment. Long-term debt, net - less current portion, as ofDecember 31, 2020 increased 7% compared toDecember 31, 2019 , primarily reflecting additional borrowings of$250,000,000 under the Revolving Credit Facility, partially offset by the repayment of$150,000,000 of 2.72% unsecured senior notes upon maturity. Net debt discounts and deferred issuance costs were$6,454,000 atDecember 31, 2020 and$5,249,000 (excluding$2,650,000 attributable to the Revolving Credit Facility included in other assets on the balance sheet) atDecember 31, 2019 .
Deferred income taxes as of
Operating lease liabilities - less current portion, as of
Other long-term liabilities as of
54
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Table of Contents
Total equity as of December 31, 2020 decreased 8% compared to December 31, 2019 .
The decrease was primarily the result of a net loss attributable to Kirby of
$272,546,000 for 2020 and tax withholdings of $3,193,000 on restricted stock and
RSU vestings, partially offset by an increase in additional paid-in capital due
to amortization of unearned share-based compensation of $14,722,000 .
2019 Compared to 2018
Current assets as ofDecember 31, 2019 decreased 16% compared toDecember 31, 2018 . Trade accounts receivable decreased 9% mainly due to decreased activities in the distribution and services oil and gas market, partially offset by increased activities in the inland marine transportation market. Inventories, net, decreased 31%, primarily reflecting lower inventory levels due to reduced business activity levels in the oil and gas market and write-downs of oilfield and pressure pumping related inventory of$35,525,000 . Property and equipment, net of accumulated depreciation, atDecember 31, 2019 increased 7% compared toDecember 31, 2018 . The increase reflected$234,289,000 of capital expenditures for 2019, more fully described under Cash Flows and Capital Expenditures above, the fair value of the property and equipment acquired in the Cenac acquisition of$247,122,000 , and the nine inland tank barges purchased during 2019 for$13,040,000 , less$204,592,000 of depreciation expense and$52,150,000 of property disposals during 2019. Operating lease right-of-use assets increased due to the adoption of Accounting Standard Update ("ASU") 2016-02 "Leases (Topic 842)" ("ASU 2016-02") onJanuary 1, 2019 .
Other intangibles, net, as of
Other assets at
Current liabilities as ofDecember 31, 2019 decreased 15% compared toDecember 31, 2018 . Accounts payable decreased 26%, primarily due to reduced business activity levels in the distribution and services oil and gas market. Accrued liabilities decreased 4% primarily due to lower accrued employee incentive compensation during 2019. Current portion of operating lease liabilities increased due to the adoption of ASU 2016-02 onJanuary 1, 2019 . Deferred revenues decreased 46%, primarily reflecting reduced business activity levels in the distribution and services oil and gas market. Long-term debt, net - less current portion, as ofDecember 31, 2019 decreased 3% compared toDecember 31, 2018 , primarily reflecting payments of$417,373,000 on the amended and restated Revolving Credit Facility offset by the addition of the five-year Term Loan onMarch 27, 2019 with$375,000,000 outstanding as ofDecember 31, 2019 . Net debt discount and deferred issuance costs were$7,899,000 (of which$2,650,000 attributable to the Revolving Credit Facility is included in other assets on the balance sheet) and$7,204,000 as ofDecember 31, 2019 andDecember 31, 2018 , respectively.
Deferred income taxes as of
Operating lease liabilities increased due to the adoption of ASU 2016-02 on
Other long-term liabilities as ofDecember 31, 2019 increased 2% compared toDecember 31, 2018 . The increase was primarily due to accrued pension liabilities, offset by a decrease due to the adoption of ASU 2016-02 onJanuary 1, 2019 and the resulting reclassification of unfavorable leases to operating lease right-of-use assets and the reclassification of deferred rent liabilities to long-term operating lease liabilities and contributions of$3,064,000 to the Higman pension plan during 2019. Total equity as ofDecember 31, 2019 increased 5% compared toDecember 31, 2018 . The increase was primarily the result of$142,347,000 of net earnings attributable to Kirby for 2019, and an increase in additional paid-in capital of$12,552,000 , primarily due to employee stock awards. 55 -------------------------------------------------------------------------------- Table of Contents Retirement Plans The Company sponsors a defined benefit plan for 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. 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. No pension contributions were made in 2020, 2019 or 2018. The fair value of plan assets was$357,801,000 and$319,176,000 atDecember 31, 2020 andDecember 31, 2019 , respectively. OnApril 12, 2017 , the Company amended its pension plan to cease all benefit accruals for periods afterMay 31, 2017 for certain participants. Participants grandfathered and not impacted were those, as of the close of business onMay 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. OnFebruary 14, 2018 , with the acquisition of Higman, the Company assumed Higman's pension plan for its inland vessel personnel and office staff. OnMarch 27, 2018 , the Company amended the Higman pension plan to close it to all new entrants and cease all benefit accruals for periods afterMay 15, 2018 for all participants. The Company did not incur any one-time charges related to this amendment but the Higman pension plan's projected benefit obligation decreased by$3,081,000 . The Company made contributions to the Higman pension plan of$797,000 in 2020 for the 2019 plan year,$1,438,000 in 2020 for the 2020 plan year,$1,615,000 in 2019 for the 2018 plan year,$1,449,000 in 2019 for the 2019 plan year,$6,717,000 in 2018 for the 2016 and 2017 plan years and$1,385,000 in 2018 for the 2018 year. The fair value of plan assets was$37,336,000 and$39,021,000 atDecember 31, 2020 andDecember 31, 2019 , respectively. The Company's investment strategy focuses on total return on invested assets (capital appreciation plus dividend and interest income). The primary objective in the investment management of assets is to achieve long-term growth of principal while avoiding excessive risk. Risk is managed through diversification of investments within and among asset classes, as well as by choosing securities that have an established trading and underlying operating history. The Company makes various assumptions when determining defined benefit plan costs including, but not limited to, the current discount rate and the expected long-term return on plan assets. Discount rates are determined annually and are based on a yield curve that consists of a hypothetical portfolio of high quality corporate bonds with maturities matching the projected benefit cash flows. The Company used discount rates of 2.8% for the Kirby pension plan and 2.9% for the Higman pension plan in 2020 and 3.5% for each plan in 2019, in determining its benefit obligations. The Company estimates that every 0.1% decrease in the discount rate results in an increase in the accumulated benefit obligation ("ABO") of approximately$8,631,000 . The Company assumed that plan assets would generate a long-term rate of return of 6.75% and 7.0% in 2020 and 2019, respectively. The Company developed its expected long-term rate of return assumption by evaluating input from investment consultants and comparing historical returns for various asset classes with its actual and targeted plan investments. The Company believes that long-term asset allocation, on average, will approximate the targeted allocation. 56 -------------------------------------------------------------------------------- Table of Contents Long-Term Financing
The following table summarizes the Company's outstanding debt (in thousands):
December 31,
2020 2019
Long-term debt, including current portion:
Revolving Credit Facility due March 27, 2024 (a) $ 250,000 $ -
Term Loan dueMarch 27, 2024 (a) 375,000
375,000
2.72% senior notes dueFebruary 27, 2020 -
150,000
3.29% senior notes dueFebruary 27, 2023 350,000
350,000
4.2% senior notes dueMarch 1, 2028 500,000
500,000
Credit line due June 30, 2021 - -
Bank notes payable 40 16
1,475,040 1,375,016
Unamortized debt discount and issuance costs (b) (6,454 ) (5,249 )
$ 1,468,586 $ 1,369,767 (a) Variable interest rate of 1.5% and 2.9% at
2019, respectively.
(b) Excludes
other assets at
The Company has an amended and restated credit agreement ("Credit Agreement")
with a group of commercial banks, with JPMorgan Chase Bank, N.A . as the
administrative agent bank, allowing for an $850,000,000 revolving credit
facility ("Revolving Credit Facility") and an unsecured term loan ("Term Loan")
with a maturity date of March 27, 2024 . The Term Loan is repayable in quarterly
installments currently scheduled to commence September 30, 2023 , with
$343,750,000 due on March 27, 2024 . The Term Loan is prepayable, in whole or in
part, without penalty. During 2019, the Company repaid $125,000,000 under the
Term Loan prior to the originally scheduled installments. The Revolving Credit
Facility includes a $25,000,000 commitment which may be used for standby letters
of credit. Outstanding letters of credit under the Revolving Credit Facility
were $5,063,000 and available borrowing capacity was $594,937,000 as of December
31, 2020 .
On
Outstanding letters of credit under the
As of
Treasury Stock Purchases
The Company did not purchase any treasury stock during 2020 or 2019. During 2018, the Company purchased 11,000 shares of its common stock for$776,000 , for an average price of$69.61 per share pursuant to a stock trading plan entered into with a brokerage firm pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934. As ofFebruary 19, 2021 , the Company had approximately 1,400,000 shares available under its existing repurchase authorizations. 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 theNew 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. 57 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources The Company generated net cash provided by operating activities of$444,940,000 ,$511,813,000 , and$346,999,000 for the years endedDecember 31, 2020 , 2019, and 2018, respectively. The decline in 2020 was driven by decreased revenues and operating income in both the marine transportation and distribution and services segments. The decrease in the marine transportation segment was driven by decreased barge utilization in the inland and coastal markets and decreased term and spot contract pricing in the inland market, each as a result of a reduction in demand due to the COVID-19 pandemic, partially offset by the Savage acquisition inApril 2020 and the Cenac acquisition inMarch 2019 . The decline was also partially offset by changes in certain operating assets and liabilities primarily related to reduced incentive compensation payouts in the 2020 first quarter and a larger decrease in trade accounts receivable compared to 2019, driven by reduced business activity levels in both the marine transportation and distribution and services segments. In addition, during 2020, the Company received a tax refund of$30,606,000 for its 2018 tax return related to net operating losses being carried back to offset taxable income generated during 2013. DuringFebruary 2021 , the Company received a tax refund of$119,493,000 , including accrued interest, for its 2019 tax return. The increase in 2019 was driven by increased revenues and operating income in the marine transportation segment driven by the acquisitions of the Higman fleet inFebruary 2018 , the Targa fleet inMay 2018 , the CGBM barges inDecember 2018 , and the Cenac fleet inMarch 2019 , as well as improved barge utilization in the coastal market and higher spot and term pricing in the inland and coastal markets. The increase was also due to a net increase in cash flows from the change in operating assets and liabilities of$153,953,000 , primarily due to a decrease in inventories reflecting reduced business activity levels in the distribution and services segment in 2019 compared to an increase in 2018. 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 flow provided by operating activities, as ofFebruary 19, 2021 , the Company had cash equivalents of$69,014,000 , availability of$704,937,000 under its Revolving Credit Facility and$8,829,000 available under its Credit Line.
Neither the Company, nor any of its subsidiaries, is obligated on any debt instrument, swap agreement, or any other financial instrument or commercial contract which has a rating trigger, except for pricing grids on its 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$850,000,000 and expiresMarch 27, 2024 . As ofDecember 31, 2020 , the Company had$594,937,000 available under the Revolving Credit Facility. The 3.29% senior unsecured notes do not mature untilFebruary 27, 2023 , and require no prepayments. The 4.2% senior unsecured notes do not mature untilMarch 1, 2028 and require no prepayments. The outstanding balance of the Term Loan is subject to quarterly installments, currently beginningSeptember 30, 2023 , with$343,750,000 due onMarch 27, 2024 . The Term Loan is prepayable, in whole or in part, without penalty. There are numerous factors that may negatively impact the Company's cash flow in 2021. For a list of significant risks and uncertainties that could impact cash flows, see Note 14, Contingencies and Commitments in the financial statements, and Item 1A - Risk Factors. Amounts available under the Company's existing financing 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 financial statements. 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$23,180,000 atDecember 31, 2020 , including$13,586,000 in letters of credit and$9,594,000 in performance bonds. All of these instruments have an expiration date within three 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. 58 -------------------------------------------------------------------------------- Table of Contents All of the Company's marine transportation term contracts 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 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. The Company's spot contract rates generally reflect current fuel prices at the time the contract is signed but do not have escalators for fuel. During the last three years, inflation has had a relatively minor effect on the financial results of the Company. The marine transportation segment has long-term contracts which generally contain cost escalation clauses whereby certain costs, including fuel as noted above, can be passed through to its customers. Spot contract rates include the cost of fuel and are subject to market volatility. The repair portion of the distribution and services segment is based on prevailing current market rates.
Contractual Obligations
The contractual obligations of the Company and its subsidiaries at
Payments Due By Period
Less Than 2-3 4-5 After
Total 1 Year Years Years 5 Years
Long-term debt $ 1,475,040 $ 40 $ 381,250 $ 593,750 $ 500,000
Non-cancelable operating leases
- barges 43,415 9,511 13,235 8,475 12,194
Non-cancelable operating leases
- towing vessels (a) 34,712 6,010 9,159 9,159 10,384
Non-cancelable operating leases
- land, buildings and equipment 164,982 24,703 39,161 27,205 73,913
$ 1,718,149 $ 40,264 $ 442,805 $ 638,589 $ 596,491 (a) Towing vessel payments are determined in accordance with Topic 842, Leases,
and exclude non-lease components. The Company estimates that non-lease
components comprise approximately 70% of charter rental costs, related to
towboat crew costs, maintenance and insurance.
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 ABO is based on a variety of demographic and economic assumptions, and the pension plan assets' returns are subject to various risks, including market and interest rate risk, making an accurate prediction of the pension plan contribution difficult resulting in the Company electing to only make an expected pension contribution forecast of one year. As ofDecember 31, 2020 , the Company's pension plan funding was 82% of the pension plans' ABO, including the Higman pension plan. The Company expects to make additional pension contributions of$2,385,000 in 2021.
Accounting Standards
For a discussion of recently issued accounting standards, see Note 1, Summary of Significant Accounting Policies.
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