Washington, D.C. 20549
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “Large Accelerated Filer,“large accelerated filer,” “Accelerated Filer,“accelerated filer,” “Smaller Reporting Company,“smaller reporting company,” and “Emerging Growth Company”“emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
See accompanying notes to condensed financial statements.
See accompanying notes to condensed financial statements.
See accompanying notes to condensed financial statements.
See accompanying notes to condensed financial statements.
See accompanying notes to condensed financial statements.
See accompanying notes to condensed financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) which simplifies the subsequent measurement of goodwill by eliminating Step 2 in the goodwill impairment test that required an entity to perform procedures to determine the fair value of its assets and liabilities at the testing date. An entity instead willshall perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.value, incorporating all tax impacts caused by the recognition of the impairment loss. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted ASU 2017-04 on January 1, 2020 on a prospective basis. See Note 8, Impairments and Other Charges for further details.
In addition, the Company is involved in various legal and other proceedings which are incidental to the conduct of its business, none of which in the opinion of management will have a material effect on the Company’s financial condition, results of operations, or cash flows. Management believes that it has recorded adequate reserves and believes that it has adequate insurance coverage or has meritorious defenses for these other claims and contingencies.
The Company has issued guaranties or obtained standby letters of credit and performance bonds and guarantees 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 $21,220,00023,169,000 at SeptemberJune 30, 2019,2020, including $11,240,00011,345,000 in letters of credit and $9,980,00011,824,000 in performance bonds and guarantees.bonds. All of these instruments have an expiration date in 2021 or earlier.within two years. The Company does not believe demand for payment under these instruments is likely and expects no material cash outlays to occur regarding these instruments.
(15) SUBSEQUENT EVENT
On October 31, 2019, the Company signed an agreement to acquire substantially all the assets of Convoy Servicing Company and Agility Fleet Services, LLC (collectively “Convoy”) for approximately $40,000,000 in cash, before post-closing adjustments. Convoy is an authorized dealer for Thermo King refrigeration systems for trucks, railroad cars and other land transportation markets for North and East Texas as well as in Colorado. This acquisition is expected to close in the first quarter of 2020 and is subject to customary closing conditions.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Statements contained in this Form 10-Q that are not historical facts, including, but not limited to, any projections contained herein, are forward-looking statements. These statements andreflect management’s reasonable judgment with respect to future events. Forward-looking statements 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 actualActual results of the future events described in such forward-looking statements in this Form 10-Q could differ materially from those statedanticipated as a result of various factors including cyclical or other downturns in such forward-looking statements. Amongdemand, significant pricing competition, unanticipated additions to industry capacity, changes in the factors that could cause actual results to differ materially are: adverse economic conditions, industry competitionJones Act or in United States maritime policy and other competitive factors, adverse weather conditions such as high water, low water, tropical storms, hurricanes, tsunamis, fog and ice, tornados, marine accidents, lock delays,practice, fuel costs, interest rates, construction of new equipment by competitors, governmentweather conditions and environmental laws and regulations, and the timing, magnitude and number of acquisitions made by the Company. For a more detailed discussionCompany, and the impact of the COVID-19 pandemic and the related response of governments on global and regional market conditions. Forward-looking statements are based on currently available information and Kirby assumes no obligation to update any such statements. A list of additional risk factors that could cause actual results to differ from those presented in forward-looking statements, see Item 1A — Risk Factorscan be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Forward-looking statements are based on currently available information2019 and the Company assumes no obligation to update any such statements.Item 1A — Risk Factors below.
For purposes of the Management’s Discussion, all net earnings (loss) per share attributable to Kirby common stockholders are “diluted earnings (loss) per share.” The weighted average number of common shares applicable to diluted earnings (loss) per share for the three months and nine months ended September 30, 2019 and 2018 were as follows (in thousands):
| | Three months ended September 30, | | | Nine months ended September 30, | |
| | 2019 | | | 2018 | | | 2019 | | | 2018 | |
Weighted average common stock outstanding — diluted | | | 59,906 | | | | 59,784 | | | | 59,879 | | | | 59,668 | |
| Three months ended June 30, | | Six months ended June 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | |
Weighted average number of common stock - diluted | | | 59,937 | | | | 59,907 | | | | 59,898 | | | | 59,865 | |
The increase in the weighted average number of common shares for the 2019 third2020 second quarter and first ninesix months compared with the 2018 third2019 second quarter and first ninesix months primarily reflectsreflected the issuance of restricted stock, andthe issuance of common stock for the vesting of RSUs and the exercise of stock options.options, partially offset by the exclusion of antidilutive stock options and RSUs outstanding during the 2020 first six months.
Overview
The Company is the nation’s largest domestic tank barge operator, transporting bulk liquid products throughout the Mississippi River System, on the Gulf Intracoastal Waterway, 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 SeptemberJune 30, 2019,2020, the Company operated a fleet of 1,0651,131 inland tank barges with 23.725.6 million barrels of capacity, and operated an average of 304324 inland towboats. The Company’s coastal fleet consisted of 4947 tank barges with 4.74.5 million barrels of capacity and 48an average of 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 in United 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, mining, power generation, on-highway, and other industrial applications. The Company also rents equipment including generators, fork lifts, pumpsindustrial compressors, railcar movers, and compressorshigh capacity lift trucks for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, for theland-based oilfield service and oil and gas operator and producer markets.
For the 2019 third2020 second quarter, net earnings attributable to Kirby were $47,987,000,$25,002,000, or $0.80$0.42 per share, on revenues of $666,809,000,$541,159,000, compared with 2018 third2019 second quarter net earnings attributable to Kirby of $41,816,000,$47,287,000, or $0.70$0.79 per share, on revenues of $704,845,000.$771,042,000. For the 20192020 first ninesix months, net earningsloss attributable to Kirby were $139,570,000,was $322,239,000, or $2.32$5.38 per share, on revenues of $2,182,472,000,$1,185,085,000, compared with 20182019 first ninesix months net earnings attributable to Kirby of $102,889,000,$91,583,000, or $1.72$1.53 per share, on revenues of $2,249,204,000.$1,515,663,000. The 2018 third2020 second quarter and first nine months reflected the integration of Targa Resources Corp's ("Targa") pressure barge fleet, acquired on May 10, 2018, and the integration of Higman, acquired on February 14, 2018. The 2018 first nine months results also 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, and included $3,261,000$3,339,000 before taxes, $2,674,000 after taxes, or $0.04 per share of one-time transaction costs associated with the Higman acquisition, as well as $2,912,000bad debt expense and $1,354,000 before taxes, $1,085,000 after taxes, or $0.04$0.02 per share of severance and retirement expenses, primarilyexpenses. 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 cost reduction initiativesinventory write-downs, impairment of long-lived assets, including intangible assets and property and equipment, and impairment of goodwill in the coastal marine transportation marketdistribution and services segment. See Note 8, Impairments and Other Charges for additional information. In addition, the integration2020 first quarter was favorably impacted by an income tax benefit of Higman.$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 10, Taxes on Income for additional information.
Marine Transportation
For the 2019 third2020 second quarter and first ninesix months, the Company’s marine transportation segment generated 62%70% and 54%66%, respectively, of the Company’s revenue. The segment’s customers include many of the major petrochemical and refining companies that operate in the United States. Products transported include intermediate materials used to produce many of the end products used widely by businesses and consumers — plastics, fiber, paints, detergents, oil additives and paper, among others, as well as residual fuel oil, ship bunkers, asphalt, gasoline, diesel fuel, heating oil, crude oil, natural gas condensate, and agricultural chemicals. Consequently, the Company’s marine transportation business is directly affected by the volumes produced by the Company’s petroleum, petrochemical and refining customer base.
The Company’s marine transportation segment’s revenues for both the 2019 third2020 second quarter and first ninesix months decreased 6% and increased 8%2%, respectively, and operating income decreased 4% and increased 50% and 57%15%, respectively, compared with the 2018 third2019 second quarter and first ninesix months revenues and operating income. The decreases during the second quarter were primarily due to reduced utilization in the inland and coastal markets as a result of a reduction in demand due to the COVID-19 pandemic, lower fuel rebills, retirements of two large coastal barges, and planned shipyard activity in coastal. These reductions were partially offset by the acquisition of the Savage fleet acquired on April 1, 2020. The increases werefor the six months are primarily due to the addition of the HigmanSavage fleet acquired on February 14, 2018, the acquisition of the Targa pressure barge fleet on May 10, 2018, the CGBM 100, LLC (“CGBM”) inland tank barges acquired on December 14, 2018, and the Cenac Marine Services, LLC (“Cenac”) fleet acquired on March 14, 2019, as well as improved barge utilization inpartially offset by the coastal marketeffects of the COVID-19 pandemic on the Company’s operations during the 2020 second quarter. The 2020 first quarter and spot and term contract pricing in the inland and coastal markets. Partially offsetting these increases during 2019 first six months were unusuallyimpacted by poor operating conditions and high delay days due to heavy fog and wind along the Gulf Coast, prolonged periods of ice on the Illinois River, high water on the Mississippi River System, and closures of key waterways as a result of lock maintenance projects, extended delays in the Houston Ship Channel, andas well as increased shipyard days on several large capacity coastal vessels during thevessels. The 2019 first quarter. The 2018 first ninesix months werewas also impacted by prolonged periods of ice on the Higman transaction costs,Illinois River and severance and retirement costs which were each incurred ina fire at a chemical storage facility on the 2018 firstHouston Ship Channel. For the 2020 second quarter and are discussed above. For the 2019 and 2018 third quarters,first six months, the inland tank barge fleet contributed 77%80% and 76%79%, respectively, and the coastal fleet contributed 23%20% and 24%21%, respectively, of marine transportation revenues. For both the 2019 second quarter and 2018 first ninesix months, the inland tank barge fleet contributed 77% and 75%, respectively, and the coastal fleet contributed 23% and 25%, respectively, of marine transportation revenues.
TankInland tank barge utilization levels in the Company’s inland marine transportation markets averaged in the low 90% range during the 2019 third quarter compared with the mid-90% range during the 2019 second quarter and the low to mid-90% range during the 2018 third quarter. Better weather2020 first quarter and the mid-80% range during the 2020 second quarter. In 2019, thirdinland tank barge utilization levels averaged in the mid-90% range during both the 2019 first and second quarters. The 2020 first quarter and receding flood waters on2019 first six months 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 Mississippi River System resulted in fewer delay days2020 first quarter and 2019 first six months slowed the transport of customer cargoes and contributed to modestlystrong utilization during those periods. Reduced demand as a result of the COVID-19 pandemic and resulting economic slowdown contributed to lower utilization during the 2019 third quarter compared to the 2018 third2020 second quarter.
Coastal tank barge utilization levels averaged in the low to mid-80% range during the 2020 first quarter and the mid-70% range during the 2020 second quarter. In 2019, coastal tank barge utilization levels averaged in the low 80% range during the 2019 first quarter and the mid-80% range during the 2019 second and third quarters compared with the 80% range in the 2018 third quarter. The improvement in utilization in 2019 primarily reflected improved customer demand resulting in higher utilization of spot market capacity. Utilization in the coastal marine fleet continued to be impacted by the oversupply of smaller tank barges in the coastal industry.industry during each of the 2020 and 2019 first six months.
During the 2020 second quarter and first six months, approximately 65% and 60%, respectively, of marine transportation’s inland revenues were under term contracts, which have contract terms of 12 months or longer, and 35% and 40%, respectively, were spot contract revenues, which have contract terms of less than 12 months. During both the 2019 thirdsecond quarter and first nine months and the 2018 third quarter and first ninesix months, approximately 65% of marine transportation’s inland revenues were under term contracts, and 35% were spot contract revenues. Inland time charters during the 2019 third2020 second quarter and first ninesix months represented 61%68% and 62%67%, respectively, of the inland revenues under term contracts compared with 58%63% and 59%62%, respectively, in the 2018 third2019 second quarter and first ninesix months. Rates on inland term contracts renewed in the 2020 first quarter increased in the 1% to 3% average range compared with term contracts renewed in the 2019 first quarter. Rates on inland term contracts renewed in the 2020 second quarter were flat compared with term contracts renewed in the 2019 second quarter. Spot contract rates in the 2020 first quarter increased in the 4% to 6% average range compared with term contracts renewed in the first quarter of 2018. Rates on inland term contracts renewed into the 2019 second quarter increased in the 5% to 8% average range compared with 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 with term contracts renewed in the 2018 thirdfirst quarter. Spot contract rates in the 2019 third2020 second quarter increased approximately 15%decreased in the 5% to 10% average range compared to the 2018 third quarter and were generally unchanged from the 2019 second quarter. EffectiveThere was no material rate increase on January 1, 2019,2020 related to 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.contracts.
During both the 2020 second quarter and first six months, approximately 85% of coastal revenues were under term contracts, and 15% were under spot contract revenues. During both the 2019 and 2018 third quarterssecond quarter and first ninesix months, approximately 80%, respectively, of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters during both the 2020 second quarter and first six months each represented approximately 85%90%, of coastal revenues under term contracts compared with 85% during both the 2019 and 2018 third quarterssecond quarter and first ninesix months. Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type, and product serviced. Term contract pricingRates on coastal term contracts renewed in the 2020 first quarter increased in the 10% to 15% average range compared with term contracts renewed in the 2019 first second and third quarters was higherquarter. Rates on coastal term contracts renewed in the 4%2020 second quarter were flat compared with term contracts renewed in the 2019 second quarter. Spot market rates in the 2020 first quarter improved in the 10% to 6%15% average range compared to the 20182019 first second and third quarters.quarter. Spot market rates in the 2019 third2020 second quarter improved in the 20% average rangewere flat compared to the 2018 third2019 second quarter.
The marine transportation segment operating margin was 17.6%13.5% for the 2020 second quarter compared with 13.2% for the 2019 thirdsecond quarter compared with 12.7%and 13.0% for the 2018 third quarter and 13.6%2020 first six months compared to 11.5% for the 2019 first nine months compared to 9.4% for the 2018 first ninesix months.
Distribution and Services
For the 2019 third2020 second quarter and first ninesix months, the distribution and services segment generated 38%30% and 46%34%, respectively, of the Company’s revenue, of which 85%99% and 73%94%, respectively, was generated from service and parts and 15%1% and 27%6%, respectively, from manufacturing. The results of the distribution and services segment are largely influenced by the economic cycles of the oilfield service and oil and gas operator and producer markets, marine, mining, power generation, on-highway, and other industrial markets.
Distribution and services revenues for the 2019 third2020 second quarter and first ninesix months decreased 21%56% and 13%46%, respectively, and operating income decreased 161% and 117%, respectively, compared with the 2018 third2019 second quarter and first nine months. Operating income for the distributionsix months, revenue and services segment for the 2019 third quarter and first nine months decreased 62% and 31%, respectively, compared with the 2018 third quarter and first nine months.operating income. The decreases were primarily attributable to reduced activity in the oilfield which resultedas a result of oil price volatility throughout 2019 and the 2020 first six months, the extensive downturn in further declinesoil and gas exploration due to low oil prices, caused in part by the COVID-19 pandemic, an oversupply of pressure pumping equipment in North 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 limited sales of new and overhauled transmissions and related parts and service partially offset by improved demand indeclined during the commercial and industrial market. For the 2019 third2020 second quarter and first ninesix months. For the 2020 second quarter and first six months, the oil and gas market contributed 46%19% and 54%27%, respectively, of the distribution and services revenues.
The commercial and industrial market revenues, which contributed 54%81% and 46%73%, respectively, of the distribution and services revenues for the 2019 third2020 second quarter and first ninesix months, respectively, saw increaseddecreased compared to the 2019 second quarter and first six months, primarily due to reductions in on-highway and power generation service levelsdemand as a result of the COVID-19 pandemic and resulting economic slowdown and nationwide, state, and local stay-at-home orders, partially offset by contributions from the Convoy acquisition. Demand in the marine repair business as well as increased demand for back-upand nuclear power generation equipmentbusinesses remained solid in the 2020 second quarter and 2020 first six months, but were down modestly compared to the 2018 third2019 second quarter first six months due to reduced engine overhauls and first nine months.
The distribution and services segment operating margin for the 2020 second quarter was 3.6%(8.8)% compared with 6.3% for the 2019 thirdsecond quarter compared with 7.4%and (2.6)% for the 2018 third quarter and 7.0%2020 first six months compared to 8.2% for the 2019 first nine months compared to 8.8% forsix months. The 2020 second quarter results were adversely impacted by the 2018 first nine months.bankruptcy of a large oil and gas customer, resulting in a $3,339,000 bad debt expense charge and severance expenses of $1,354,000 as a result of continued workforce reductions.
Cash FlowFlows and Capital Expenditures
The Company continued to generate favorable operating cash flowflows during the 20192020 first ninesix months with net cash provided by operating activities of $387,599,000$242,144,000 compared with $272,304,000$188,197,000 for the 20182019 first ninesix months, a 42%29% increase. The improvement was driven by increased revenues and operating income in the marine transportation segment driven by the HigmanSavage acquisition in February 2018, the Targa acquisition in May 2018, the CGBM acquisition in December 2018, andApril 2020, the Cenac acquisition in March 2019, as well as improvedand increased coastal barge utilizationpricing and improved inland and coastalterm pricing, partially offset by decreased inland spot pricing. The improvement was also due to a net increasechanges in cash flows from the change incertain operating assets and liabilities of $85,685,000 dueprimarily related to reduced incentive compensation payouts in the 2020 first quarter and a decrease in inventories in the distribution and services segment in the 2019 first nine monthstrade accounts receivable compared to an increase in the 2018 first nine months. The inventory decrease in the 2019 first ninesix months, was primarily due todriven by reduced business activity levels in the oildistribution and gas market as compared to higher inventory levels in the 2018 first nine months required to support higher business activity levels.services segment. In addition, during the six months ended June 30, 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 the 2020 and 2019 and 2018 first ninesix months, the Company generated cash of $34,490,000$4,918,000 and $27,806,000,$23,364,000, respectively, from proceeds from the disposition of assets, and $3,563,000$353,000 and $13,264,000,$1,903,000, respectively, from proceeds from the exercise of stock options.
For the 20192020 first ninesix months, cash generated and borrowings under the Company’s Revolving Credit Facility were used for capital expenditures of $184,068,000,$92,830,000 (including a decrease in accrued capital expenditures of $4,936,000), including $19,746,000$5,120,000 for inland towboat construction $16,240,000 for progress payments on three 5000 horsepower coastal ATB tugboats, $2,178,000 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 $145,904,000$87,710,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities. The Company also used $257,540,000$342,247,000 for acquisitions of businesses and marine equipment.equipment, more fully described under Acquisitions below.
The Company’s debt-to-capitalization ratio decreasedincreased to 29.8%35.0% at SeptemberJune 30, 20192020 from 30.5%28.9% at December 31, 2018,2019, primarily due to the increase in total equity from net earnings attributable to Kirby for the 2019 first nine months of $139,570,000 and the exercise of stock options and the amortization of unearned equity compensation partially offset by borrowings under the Revolving Credit Facility and the Term Loan to purchase the CenacSavage fleet, which was completed on April 1, 2020, and the Convoy acquisition in the 20192020 first quarter. As of September 30, 2019,quarter and the Company had no borrowings outstanding under its Revolving Credit Facility, $440,000,000 outstanding underdecrease in total equity, primarily from the Term Loan, $500,000,000 of unsecured senior notes (“Senior Notes Series A” and “Senior Notes Series B”) outstanding and $500,000,000 of 4.2% senior unsecured notes due March 1, 2028 (the “2028 Notes”) outstanding, offset by $8,389,000 in unamortized debt discount and issuance costs (of which $2,806,000net loss attributable to Kirby for the Revolving Credit Facility2020 first six months of $322,239,000. The Company’s debt outstanding as of June 30, 2020 and December 31, 2019 is currently includeddetailed in other assets on the balance sheet).Long-Term Financing below.
During the 20192020 first ninesix months, the Company acquired 6392 inland tank barges from CenacSavage with a total capacity of approximately 1,833,0002.5 million barrels, purchased four newly constructed inland pressure barges, retired nine27 inland tank barges, returned one leased inland tank barge, and brought back into service six10 inland tank barges, and chartered two inland tank barges, increasing its capacity by approximately 54,000 barrels.barges. The net result was an increase of 62 78 inland tank barges and approximately 1,887,0002.2 million barrels of capacity during the 20192020 first ninesix months.
TheGiven the current uncertainty surrounding the impact of the COVID-19 pandemic, the Company projects that capital expenditures for 20192020 will be in the $225,000,000 to $245,000,000 range.approximately $150,000,000. The 2019current 2020 construction program will consistconsists of $5,000,000 in progress payments on the construction of 13one inland towboats, seven of which have beentowboat placed in service in 2019during the 2020 second quarter and the remaining six are scheduledfive inland towboats to be placed in service in 2020 and 2021, and progress payments on the construction of three 5000 horsepower coastal ATB tugboats to be placed in service in 2019, two of which were placed in service during the 2019 first nine months. Based on current commitments, steel prices and projected delivery schedules, the Company’s 2019 progress payments on the new inland towboats will be approximately $20,000,000 to $25,000,000 and 2019 progress payments on the construction of the three 5000 horsepower coastal ATB tugboats will be approximately $20,000,000.2021. Approximately $155,000,000 to $165,000,000$130,000,000 is primarily capital upgrades and improvements to existing marine equipment and facilities. The balance of $30,000,000 to $35,000,000$15,000,000 will be for rental fleet growth, new machinery and equipment, facilities improvements andprimarily related to information technology projects.projects in the distribution and services segment and corporate. Funding for future capital expenditures is expected to be provided through operating cash flows and borrowings under the Company’s Revolving Credit Facility.
Outlook
InWhile there remains significant uncertainty around the full impact of the COVID-19 pandemic, in the inland marine transportation market, the Company anticipates favorable market dynamics with continued growth in customer demand during 2019, driven by continued growth in U.S. GDP and growth in petrochemicals as new plants come on-line. These factors, combined with only modest inland barge additions, are expected to result in inlandexpects a slow recovery until economic activity rebounds more significantly. With barge utilization rates starting the 2020 third quarter in the low-90%mid-70% range, during the fourth quarter. Together with a full yearCompany anticipates lower average barge utilization sequentially. This is expected to have an adverse impact on revenues, however, management of contribution from 2018 acquisitions, including Higman, Targa’s pressure barge business and CGBM’s tank barges, as well as the acquisition in March 2019cost structure will help offset some of Cenac’s fleet,the weakness. Overall, the Company expects inland revenues and operating income are expected to increase during 2019. In the 2019 fourth quarter, the onset of winter weather and lock closures on the Gulf Intracoastal Waterway and the Illinois River will have an adverse impact on operating efficiencies. Additionally, operating expenses are expected to increase as a significant number of barges, which were acquired in recent acquisitions, are scheduled for regulatory maintenance. Overall, inland revenuedecline in the 2019 fourth2020 third quarter is expected to be stablewhen compared to the 2019 thirdsecond quarter. Operating income is expected to decrease compared to the 2019 third quarter as a result of reduced operating efficiencies and higher operating expenses.
As of SeptemberJune 30, 2019,2020, the Company estimated there were approximately 3,8504,000 inland tank barges in the industry fleet, of which approximately 350 were over 30 years old and approximately 240260 of those over 40 years old. The Company estimates that approximately 130 to 150 tank barges will be deliveredhave been ordered for delivery throughout 20192020 and many older tank barges, including anapproximately 40 expected 14 by the Company, will be retired, dependent on 2019 market conditions.retired. Historically, 75 to 150 older inland tank barges are retired from service each year industry-wide, with the extent of the retirements dependent on market conditions, petrochemical and refinery production levels, and crude oil and natural gas condensate movements, bothall of which can have a direct effect on industry-wide tank barge utilization, as well as term and spot contract rates. Given current market conditions as a result of the COVID-19 pandemic, the Company believes that industry retirements could be in the higher end of the historical range during 2020.
In the coastal marine transportation market, with approximately 85% of revenues under long-term contracts and reduced shipyard activity, the Company expects modest improvements in revenues and operating income to improve compared to 2018, with coastal tank barge utilization in the mid-80% range for2020 third quarter. During the fourth quarter. Improving market conditions are expected2020 third quarter, the Company expects to be driven by improving customer demand and expected additional industry retirements ofretire one aging barges due tocoastal ATB that would have required uneconomic ballast water management treatment systems regulations. Inat its next shipyard date. The Company also expects volumes in its coal transportation business to decline for the 2019 fourth quarter, seasonal activity declines in Alaska and scheduled shipyard maintenance on seven coastal tank barges,remainder of which six are large capacity vessels, will have an adverse impact on revenue and operating income.2020.
As of SeptemberJune 30, 2019,2020, the Company estimated there were approximately 280 tank barges operating in the 195,000 barrelbarrels or less coastal industry fleet, the sector of the market in which the Company operates, and approximately 1020 of those were over 3025 years old. The Company is aware of fourone announced coastal tank barge and tugboat unitsunit in the 195,000 barrelbarrels or less category delivered during the 2020 second quarter in addition to one under construction by competitors. Three units are for delivery in 2019, two of which were delivered in the first nine months of the year, and one is scheduleda competitor for delivery in 2021.
The results of the distribution and services segment are largely influenced by the economic cycles of the land-based oilfield service and oil and gas operator and producer markets, marine, mining, power generation, on-highway and other industrial markets.
Recent oilfield activity declines and crude oil price volatility have created some uncertainty for the Company’s Activity in oil and gas market which will extendis expected to remain challenged with all major customers curtailing spending for the duration of 2019. Firm commitments2020. This is likely to result in only minimal levels of service and the pace ofparts sales in distribution, as well as very few new orders for new pressure pumping equipment in manufacturing. The Company does not expect a material improvement in activity in the short-term as many customers have slowed considerably thus far in 2019. Additionally, maintenance on existingsignificant excess pressure pumping units, transmission overhauls, and parts sales have also declined to minimal levels. Based on current activity levels, orders and deliveries of new pressure pumping equipment are expected to remain low through the 2019 fourth quarter, and maintenance activities are expected to be minimal. Transmission overhauls and parts sales are also expected to remain at reduced levels during the 2019 fourth quarter. As a result, revenues and operating incomecapacity available for the Company’s oil and gas market are expected to decline in 2019 as compared to 2018.use.
For theThe distribution and services commercial and industrial market continues to be adversely impacted by reduced economic activity, although there have been some recent improvements in the on-highway and power generation sectors. Fleet miles in the nation’s trucking industry are growing, and power generation projects which were previously deferred are being rescheduled for the coming months. In addition, the Company anticipates revenues and operating income to beexpects seasonally higher in 2019 than 2018 with improved demand for standby power generation and specialty equipment rentals. Activity in the nuclear standby power generation market and the commercial marine markets is expected to be stable in 2019. In the 2019 fourth quarter, revenues and operating income are expected to decline compared to the 2019 third quarter as a result of seasonal utilization reductionsactivity in the power generation rental fleet asand the summer storm season alongThermo-King refrigeration businesses. As a result, the Gulf Coast ends.Company expects the segment operating margins to improve in the 2020 third quarter, but remain below breakeven levels.
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 the Company expect to continue to do so.
Acquisitions
During the ninesix months ended SeptemberJune 30, 2019,2020, the Company purchased ninefour newly constructed inland tankpressure barges from leasing companies for $13,040,000$26,625,000 in cash. The Company had been leasing the barges prior to the purchases. Financing of the equipment acquisitions was through operating cash flows and borrowings under the Company’s Revolving Credit Facility.
On March 14, 2019,April 1, 2020, the Company completed the acquisition of the marine transportationinland tank barge fleet of CenacSavage for $244,500,000$278,999,000 in cash. Cenac’sSavage’s tank barge fleet consisted of 6392 inland 30,000 barrel tank barges with approximately 1,833,0002.5 million barrels of capacity 34and 45 inland towboats and two offshore tugboats. Cenac transportedtowboats. The Savage assets that were acquired primarily move petrochemicals, refined products, and black oil, including crude oil residual fuels, feedstocks and lubricants on the lower Mississippi River, its tributaries, and the Gulf Intracoastal WaterwayWaterway. The Company also acquired Savage’s ship bunkering business and barge fleeting business along the Gulf Coast.
On January 3, 2020, the Company completed the acquisition of substantially all the assets of Convoy for major oil companies$37,180,000 in cash. Convoy is an authorized dealer for Thermo King refrigeration systems for trucks, railroad cars and refiners. The average age of the inland tank barges was approximately five yearsother land transportation markets for North and the inland towboats had an average age of approximately seven years. East Texas and Colorado.
Financing of the acquisitionacquisitions was through borrowings under the Company’s Revolving Credit Facility.
Results of Operations
The Company reportedFor the 2020 second quarter, net earnings attributable to Kirby were $25,002,000, or $0.42 per share, on revenues of $541,159,000, compared with 2019 thirdsecond quarter net earnings attributable to Kirby of $47,987,000,$47,287,000, or $0.80$0.79 per share, on revenues of $666,809,000,$771,042,000. For the 2020 first six months, net loss attributable to Kirby was $322,239,000, or $5.38 per share, on revenues of $1,185,085,000, compared with 2018 third quarter2019 first six months net earnings attributable to Kirby of $41,816,000,$91,583,000, or $0.70$1.53 per share, on revenues of $704,845,000. Net earnings attributable to Kirby for the 2019 first nine months were $139,570,000, or $2.32 per share, on revenues of $2,182,472,000, compared with $102,889,000, or $1.72 per share, on revenues of $2,249,204,000 for the 2018 first nine months.$1,515,663,000. The 2018 first nine months results2020 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, and reflected the acquisition of Higman on February 14, 2018, including $3,261,000$3,339,000 before taxes, $2,674,000 after taxes, or $0.04 per share of one-time transaction costs associated with the acquisition, as well as $2,912,000bad debt expense and $1,354,000 before taxes, $1,085,000 after taxes, or $0.04$0.02 per share of severance and retirement expenses, primarilyexpenses. 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 cost reduction initiativesinventory write-downs, impairment of long-lived assets, including intangible assets and property and equipment, and impairment of goodwill in the coastal marine transportation marketdistribution and services segment. See Note 8, Impairments and Other Charges for additional information. In addition, the integration2020 first quarter was favorably impacted by an income tax benefit of Higman.$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 10, Taxes on Income for additional information.
The following table sets forth the Company’s marine transportation and distribution and services revenues for the three months and nine months ended September 30, 2019 compared with the three months and nine months ended September 30, 2018 and the percentage of each to total revenues for the comparable periods (dollars in thousands):
| | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | Six months ended June 30, | |
| | 2019 | | | % | | | 2018 | | | % | | | 2019 | | | % | | | 2018 | | | % | | | 2020 | | % | | 2019 | | % | | 2020 | | % | | 2019 | | % | |
Marine transportation | | $ | 412,665 | | | | 62 | % | | $ | 382,040 | | | | 54 | % | | $ | 1,185,072 | | | | 54 | % | | $ | 1,100,606 | | | | 49 | % | | $ | 380,987 | | 70 | % | $ | 404,286 | | 52 | % | $ | 784,244 | | | 66 | % | $ | 772,407 | | 51 | % |
Distribution and services | | | 254,144 | | | | 38 | | | | 322,805 | | | | 46 | | | | 997,400 | | | | 46 | | | | 1,148,598 | | | | 51 | | | | 160,172 | | | 30 | | | 366,756 | | | 48 | | | 400,841 | | | 34 | | | 743,256 | | | 49 | |
| | $ | 666,809 | | | | 100 | % | | $ | 704,845 | | | | 100 | % | | $ | 2,182,472 | | | | 100 | % | | $ | 2,249,204 | | | | 100 | % | | $ | 541,159 | | | 100 | % | $ | 771,042 | | | 100 | % | $ | 1,185,085 | | | 100 | % | $ | 1,515,663 | | | 100 | % |
Marine Transportation
The Company, through its marine transportation segment, is a provider ofprovides 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 SeptemberJune 30, 2019,2020, the Company operated 1,0651,131 inland tank barges, including 24of which 38 were leased, with a total capacity of 25.6 million barrels, and an average of 324 inland towboats, of which 59 were chartered. This compares with 1,067 inland tank barges operated as of June 30, 2019, of which 26 were leased, with a total capacity of 23.7 million barrels. This compares with 981 inland tank barges operated as of September 30, 2018, including 32 leased barges, with a total capacity of 21.6 million barrels. The Company operatedbarrels, and an average of 304309 inland towboats, during the 2019 third quarter, of which an average of 73 were chartered, compared with 282 during the 2018 third quarter, of which an average of 7578 were chartered.
The Company’s coastal tank barge fleet as of SeptemberJune 30, 2020, consisted of 47 tank barges, of which two were leased, with 4.5 million barrels of capacity, and an average of 44 tugboats, of which four were chartered. This compares with 49 coastal tank barges operated as of June 30, 2019, consisted of 49 tank barges, two of which two were leased, with 4.7 million barrels of capacity, and 48an average of 47 tugboats, five of which were chartered. This compares with 54 coastal tank barges operated as of September 30, 2018, six of which were leased, with 5.1 million barrels of capacity, and 50 tugboats, four of whichfive were chartered. The Company owns and operates 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 and in Freeport, Texas, a shipyard for building towboats and performing routine maintenance near the Houston Ship Channel, as well as a two-thirds interest in Osprey Line, L.L.C., which transports project cargoes and cargo containers by barge.
The following table sets forth the Company’s marine transportation segmentsegment’s revenues, costs and expenses, operating income and operating margins for the three months and nine months ended September 30, 2019 compared with the three months and nine months ended September 30, 2018 (dollars in thousands):
| | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2019 | | | 2018 | | | % Change | | | 2019 | | | 2018 | | | % Change | | | 2020 | | | 2019 | | | % Change | | | 2020 | | | 2019 | | | % Change | |
Marine transportation revenues | | $ | 412,665 | | | $ | 382,040 | | | | 8 | % | | $ | 1,185,072 | | | $ | 1,100,606 | | | | 8 | % | | $ | 380,987 | | | $ | 404,286 | | | | (6 | )% | | $ | 784,244 | | | $ | 772,407 | | | | 2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs of sales and operating expenses | | | 257,869 | | | | 248,347 | | | | 4 | % | | | 771,596 | | | | 744,154 | | | | 4 | % | | | 244,990 | | | | 267,537 | | | | (8 | ) | | | 510,885 | | | | 513,727 | | | | (1 | ) |
Selling, general and administrative | | | 28,424 | | | | 29,408 | | | | (3 | )% | | | 90,896 | | | | 94,456 | | | | (4 | )% | | | 26,816 | | | | 29,255 | | | | (8 | ) | | | 58,740 | | | | 62,472 | | | | (6 | ) |
Taxes, other than on income | | | 9,230 | | | | 8,624 | | | | 7 | % | | | 26,355 | | | | 23,805 | | | | 11 | % | | | 11,122 | | | | 9,159 | | | | 21 | | | | 20,545 | | | | 17,125 | | | | 20 | |
Depreciation and amortization | | | 44,445 | | | | 47,144 | | | | (6 | )% | | | 134,861 | | | | 135,266 | | | | — | % | | | 46,684 | | | | 45,092 | | | | 4 | | | | 91,983 | | | | 90,416 | | | | 2 | |
| | | 339,968 | | | | 333,523 | | | | 2 | % | | | 1,023,708 | | | | 997,681 | | | | 3 | % | | | 329,612 | | | | 351,043 | | | | (6 | ) | | | 682,153 | | | | 683,740 | | | | — | |
Operating income | | $ | 72,697 | | | $ | 48,517 | | | | 50 | % | | $ | 161,364 | | | $ | 102,925 | | | | 57 | % | | $ | 51,375 | | | $ | 53,243 | | | | (4 | )% | | $ | 102,091 | | | $ | 88,667 | | | | 15 | % |
Operating margins | | | 17.6 | % | | | 12.7 | % | | | | | | | 13.6 | % | | | 9.4 | % | | | | | | | 13.5 | % | | | 13.2 | % | | | | | | | 13.0 | % | | | 11.5 | % | | | | |
Marine Transportation Revenues
The following table shows the marine transportation markets serviced by the Company, the marine transportation revenue distribution, for the 2019 third quarter and first nine months, products moved and the drivers of the demand for the products the Company transports:
Markets Serviced | | 2019 Third Quarter Revenue Distribution | | 2019 Nine Months Revenue Distribution | | Products Moved | | Drivers | | 2020 Second Quarter Revenue Distribution | | 2020 Six Months Revenue Distribution | | Products Moved | | Drivers |
Petrochemicals | | 53% | | 54% | | Benzene, Styrene, Methanol, Acrylonitrile, Xylene, Naphtha, Caustic Soda, Butadiene, Propylene | | Consumer non-durables – 70%, Consumer durables – 30% | | 51% | | 51% | | Benzene, Styrene, Methanol, Acrylonitrile, Xylene, Naphtha, Caustic Soda, Butadiene, Propylene | | Consumer non-durables – 70%, Consumer durables – 30% |
| | | | | | | | | | | | | | | | |
Black Oil | | 24% | | 23% | | Residual Fuel Oil, Coker Feedstock, Vacuum Gas Oil, Asphalt, Carbon Black Feedstock, Crude Oil, Natural Gas Condensate, Ship Bunkers | | Fuel for Power Plants and Ships, Feedstock for Refineries, Road Construction | | 26% | | 26% | | Residual Fuel Oil, Coker Feedstock, Vacuum Gas Oil, Asphalt, Carbon Black Feedstock, Crude Oil, Natural Gas Condensate, Ship Bunkers | | Fuel for Power Plants and Ships, Feedstock for Refineries, Road Construction |
| | | | | | | | | | | | | | | | |
Refined Petroleum Products | | 19% | | 19% | | Gasoline, No. 2 Oil, Jet Fuel, Heating Oil, Diesel Fuel, Ethanol | | Vehicle Usage, Air Travel, Weather Conditions, Refinery Utilization | | 19% | | 20% | | Gasoline, No. 2 Oil, Jet Fuel, Heating Oil, Diesel Fuel, Ethanol | | Vehicle Usage, Air Travel, Weather Conditions, Refinery Utilization |
| | | | | | | | | | | | | | | | |
Agricultural Chemicals | | 4% | | 4% | | Anhydrous Ammonia, Nitrogen – Based Liquid Fertilizer, Industrial Ammonia | | Corn, Cotton and Wheat Production, Chemical Feedstock Usage | | 4% | | 3% | | Anhydrous Ammonia, Nitrogen – Based Liquid Fertilizer, Industrial Ammonia | | Corn, Cotton and Wheat Production, Chemical Feedstock Usage |
Marine transportation revenues for both the 2019 third2020 second quarter and first ninesix months decreased 6% and increased 8%2%, respectively, compared with the 2018 third2019 second quarter and first ninesix months. The decrease during the second quarter was primarily due to reduced utilization in the inland and coastal markets as a result of a reduction in demand due to the COVID-19 pandemic, lower fuel rebills, retirements of two large coastal barges, and planned shipyard activity in coastal. These reductions were partially offset by the acquisition of the Savage fleet acquired on April 1, 2020. The increase for the six months was primarily due to the addition of the HigmanSavage fleet acquired on February 14, 2018, the Targa pressure barges acquired on May 10, 2018, the CGBM inland tank barges acquired on December 14, 2018, and the Cenac fleet acquired on March 14, 2019, as well as improved barge utilization inpartially offset by the coastal marketeffects of the COVID-19 pandemic on the Company’s operations during the 2020 second quarter. The 2020 first quarter and spot and term contract pricing in the inland and coastal markets. Partially offsetting the increase2019 first six months were unusuallyimpacted by poor operating conditions and high delay days due to heavy fog and wind along the Gulf Coast, prolonged periods of ice on the Illinois River, high water on the Mississippi River System, and closures of key waterways as a result of lock maintenance projects, extended delays in the Houston Ship Channel, andas well as increased shipyard days on several large capacity coastal vessels during thevessels. The 2019 first quarter.six months was also impacted by prolonged periods of ice on the Illinois River and a fire at a chemical storage facility on the Houston Ship Channel. For the 20192020 second quarter and 2018 third quarters,first six months, the inland tank barge fleet contributed 77%80% and 76%79%, respectively, and the coastal fleet contributed 20% and 21%, respectively, of marine transportation revenues. For both the 2019 second quarter and first six months, the inland tank barge fleet contributed 77%, respectively, and the coastal fleet contributed 23% and 24%, respectively, of marine transportation revenues. For the 2019 and 2018 first nine months, the inland tank barge fleet contributed 77% and 75%, respectively, and the coastal fleet contributed 23% and 25%, respectively, of marine transportation revenues. The CenacSavage fleet was quickly integrated into the Company’s own fleet. The Cenacfleet and the former Savage equipment began to operate on the Company’soperating under Company contracts soon after the acquisition and Cenacclosed, with former Savage barges workedworking 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 Cenacthe Savage fleet but the acquisition in March 2019April 2020 was one of the factors that drove increases in marine transportation revenues in 2019the 2020 first six months as compared to 2018.2019.
Inland tank barge utilization levels in the Company’s inland marine transportation markets averaged in the low 90% range during the 2019 third quarter compared with the mid-90% range during the 2019 second quarter and the low to mid-90% range during the 2018 third quarter. Better weather2020 first quarter and the mid-80% range during the 2020 second quarter. In 2019, thirdinland tank barge utilization levels averaged in the mid-90% range during both the 2019 first and second quarters. The 2020 first quarter and receding flood waters on2019 first six months 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 Mississippi River System resulted in fewer delay days2020 first quarter and 2019 first six months slowed the transport of customer cargoes and contributed to modestlystrong utilization during those periods. Reduced demand as a result of the COVID-19 pandemic and resulting economic slowdown contributed to lower utilization during the 2019 third quarter compared to the 2018 third2020 second quarter.
Coastal tank barge utilization levels averaged in the low to mid-80% range during the 2020 first quarter and the mid-70% range during the 2020 second quarter. In 2019, coastal tank barge utilization levels averaged in the low 80% range during the 2019 first quarter and the mid-80% range during the 2019 second and third quarters compared with the 80% range in the 2018 third quarter. The improvement in utilization in 2019 primarily reflected improved customer demand resulting in higher utilization of spot market capacity. Utilization in the coastal marine fleet continued to be impacted by the oversupply of smaller tank barges in the coastal industry.industry during each of the 2020 and 2019 first six months.
The petrochemical market, the Company’s largest market, contributed
53% and 54%51% of marine transportation revenues for
both the
2019 third2020 second quarter and first
ninesix months, respectively, reflecting
continued stablereduced volumes from Gulf Coast petrochemical plants for both domestic consumption and to terminals for export destinations
plus the additionas a result of the
Targa pressure bargesCOVID-19 pandemic. During the quarter, U.S. chemical plant capacity utilization declined from 75% in
May 2018. Low priced domestic natural gas, a basic feedstock for the United States petrochemical industry, provides the industry with a competitive advantage relativeMarch to
naphtha-based foreign petrochemical producers. In addition, favorable commodity prices and the addition of new petrochemical industry capacity during 2018 and the 2019 first nine months benefited the market.71% in April before improving to 73% in June.
The black oil market, which contributed 24% and 23%26% of marine transportation revenues for both the 2019 third2020 second quarter and first ninesix months, respectively, reflected strongreduced demand from steadyas refinery production levels and the export of refined petroleum products and fuel oils. Theoils declined as a result of the COVID-19 pandemic. During the quarter, U.S. refinery utilization declined from 82% in early April to a low of 68% in May before rebounding to 75% at the end of June. During the quarter, the Company continued to transport crude oil and natural gas condensate produced from the Eagle Ford and Permian Basin shale formations in Texas, both along the Gulf Intracoastal Waterway with inland vessels and in the Gulf of Mexico with coastal vessels.equipment. Additionally, the Company transported increased volumes of Utica natural gas condensate downriver from the Mid-Atlantic to the Gulf Coast and Canadian and Bakken crude downriver from the Midwest to the Gulf Coast.
The refined petroleum products market, which contributed 19% and 20% of marine transportation revenues for both the 2019 third2020 second quarter and first ninesix months, respectively, reflected stablelower volumes in both the inland market, partially offset by reduced volumes inand coastal markets as a result of one barge retirement andreduced demand related to the returnCOVID-19 pandemic. During the quarter, U.S. refinery utilization declined from 82% in early April to a low of three leased barges which transported refined products.68% in May before rebounding to 75% at the end of June.
The agricultural chemical market, which contributed 4% and 3% of marine transportation revenues for both the 2019 third2020 second quarter and first ninesix months, respectively, saw typical seasonalmodest reductions in demand for transportation of both domestically produced and imported products during the first nine months.quarter, primarily due to reduced demand associated with the COVID-19 pandemic.
For the third2020 second quarter, of 2019, the inland operations incurred 2,2842,815 delay days, 10%16% fewer than the 2,5343,331 delay days that occurred during the 2018 third2019 second quarter. For the 2019 first ninesix months of 2020, the inland operations incurred 10,2287,305 delay days, 50% more8% fewer than the 6,7977,944 delay days that occurred during the 20182019 first ninesix months. Delay days measure the lost time incurred by a tow (towboat and one or more tank barges) during transit when the tow is stopped due to weather, lock conditions, or other navigational factors. The increase in delayDelay days for the 2020 first quarter and 2019 first ninesix months compared to the 2018 first nine months reflected unusually poor operating conditions during the 2019 first nine months due to heavy fog and wind along the Gulf Coast, extended periods of ice on the Illinois River, near record high water conditions on the Mississippi River System, and closures of key waterways as a result of lock maintenance projectsprojects. The 2019 first six months was also impacted by prolonged periods of ice on the Illinois River and extended delays ina fire at a chemical storage facility on the Houston Ship Channel. Delay days decreased for the 2019 third quarter compared to the 2018 third quarter as flood waters on the Mississippi River System receded in the beginning of August 2019.
During the 2020 second quarter and first six months, approximately 65% and 60%, respectively, of marine transportation’s inland revenues were under term contracts, which have contract terms of 12 months or longer, and 35% and 40%, respectively, were spot contract revenues, which have contract terms of less than 12 months. During both the 2019 and 2018 third quarterssecond quarter and first ninesix months, approximately 65% of marine transportation’s inland revenues were under term contracts, and 35% were spot contract revenues. Inland time charters during the 2019 third2020 second quarter and first ninesix months represented 61%68% and 62%67%, respectively, of the inland revenues under term contracts compared with 58%63% and 59%62%, respectively, in the 2018 third2019 second quarter and first ninesix months. Rates on inland term contracts renewed in the 2020 first quarter increased in the 1% to 3% average range compared with term contracts renewed in the 2019 first quarter. Rates on inland term contracts renewed in the 2020 second quarter were flat compared with term contracts renewed in the 2019 second quarter. Spot contract rates in the 2020 first quarter increased in the 4% to 6% average range compared with term contracts renewed in the first quarter of 2018. Rates on inland term contracts renewed into the 2019 second quarter increased in the 5% to 8% average range compared with 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 with term contracts renewed in the 2018 thirdfirst quarter. Spot contract rates in the 2019 third2020 second quarter increased approximately 15%decreased in the 5% to 10% average range compared to the 2018 third quarter and were generally unchanged from the 2019 second quarter. EffectiveThere was no material rate increase on January 1, 2019,2020 related to 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.contracts.
During both the 2019 and 2018 third quarters2020 second quarter and first ninesix months, approximately 85% of coastal revenues were under term contracts, and 15% were under spot contract revenues. During both the 2019 second quarter and first six months, approximately 80%, respectively, of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters during both the 2020 second quarter and first six months each represented approximately 85%90%, of coastal revenues under term contracts compared with 85% during both the 2019 and 2018 third quarterssecond quarter and first ninesix months. Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type, and product serviced. Term contract pricingRates on coastal term contracts renewed in the 2020 first quarter increased in the 10% to 15% average range compared with term contracts renewed in the 2019 first second and third quarters was higherquarter. Rates on coastal term contracts renewed in the 4%2020 second quarter were flat compared with term contracts renewed in the 2019 second quarter. Spot market rates in the 2020 first quarter improved in the 10% to 6%15% average range compared to the 20182019 first second and third quarters.quarter. Spot market rates in the 2019 third2020 second quarter improved in the 20% average rangewere flat compared to the 2018 third2019 second quarter.
Marine Transportation Costs and Expenses
Costs and expenses for the 2019 third2020 second quarter and first nine months increased 2% and 3%, respectively,decreased 6% compared with the 2018 third2019 second quarter and were flat for the 2020 first ninesix months compared to the 2019 first six months. Costs of sales and operating expenses for both the 2019 third2020 second quarter and first ninesix months increased 4%decreased 8% and 1%, respectively, compared with the 2018 third2019 second quarter and first ninesix months, primarily due tocost reductions across the segment, including a reduction in towboats during the second quarter and a reduction in maintenance expenses, partially offset by the addition of the HigmanSavage fleet in February 2018April 2020 and the Cenac fleet in March 2019, partially offset by lower fuel costs.2019.
The inland marine transportation fleet operated an average of 304 inland324 towboats during the 2019 third2020 second quarter, of which an average of 7359 were chartered, compared with 282309 during the 2018 third2019 second quarter, of which an average of 7578 were chartered. The increase was primarily due to the addition of inland towboats with the CenacSavage acquisition on March 14, 2019.April 1, 2020, partially offset by towboats released during the 2020 second quarter. Generally, as demand or anticipated demand increases or decreases, as new tank barges are added to the fleet, as chartered towboat availability changes, or as weather or water conditions dictate, the Company charters in or releases chartered towboats in an effort to balance horsepower needs with current requirements. The Company has historically used chartered towboats for approximately one-fourth of its horsepower requirements.
During the 2019 third2020 second quarter, the inland operations consumed 13.213.5 million gallons of diesel fuel compared to 12.912.6 million gallons of diesel fuel consumed during the 2018 third2019 second quarter. The average price per gallon of diesel fuel consumed during the 2019 third2020 second quarter was $2.00$1.12 per gallon compared with $2.23$2.24 per gallon for the 2018 third2019 second quarter. ForDuring the 20192020 first ninesix months, the inland operations consumed 37.226.1 million gallons of diesel fuel compared to 36.824.0 million gallons consumed during the 20182019 first ninesix months. The average price per gallon of diesel fuel consumed during the 2020 first six months was $1.55 per gallon compared with $2.09 per gallon for the 2019 first nine months was $2.06 compared with $2.13 for the 2018 first ninesix months. 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 the 2019 third2020 second quarter and first ninesix months decreased 3%8% and 4%6%, respectively, compared with the 2018 third2019 second quarter and first ninesix months. The decrease wasis primarily due to transaction costs of $3,261,000, consisting primarily of legal, audit and other professional fees associated withaggressive cost reduction initiatives throughout 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. The Company also experienced higher costs in the 2019 first nine months due to Cenac acquisition related costs of $442,000 and salariesorganization as well as related costsa result of the acquired personnel of Higman.uncertainty surrounding the COVID-19 pandemic.
Taxes, other than on income, for the 2019 third2020 second quarter and first ninesix months increased 7%21% and 11%20%, respectively, compared with the 2018 third2019 second quarter and first ninesix months, mainlyprimarily due to higher property taxes on marine transportation equipment, including the Higman, Targa, CGBM,Savage and Cenac fleets.fleets, and higher waterway use taxes due to higher business activity levels, primarily due to the Savage and Cenac acquisitions.
Marine Transportation Operating Income and Operating Margins
Marine transportation operating income for the 2019 third2020 second quarter and first ninesix months decreased 4% and increased 50% and 57%15%, respectively, compared with the 2018 third2019 second quarter and first ninesix months. The 2020 second quarter operating margin was 17.6%13.5% compared with 13.2% for the 2019 thirdsecond quarter compared with 12.7%and 13.0% for the 2018 third quarter and 13.6%2020 first six months compared to 11.5% for the 2019 first nine months compared with 9.4% for the 2018 first ninesix months. The operating income increasedecrease in the 2019 third2020 second quarter compared to the 2018 third2019 second quarter was primarily due to the acquisitions of Higman, Targa’s pressure barge fleet, CGBM’s inland tank barges,reduced utilization and Cenac’s fleet as well as improved barge utilization in the coastal market and spot and term contract pricing in the inland and coastal markets as a result of a deduction in demand due to the COVID-19 pandemic, partially offset by significant weather and navigational challengesthe Savage acquisition. The operating income increase in the 2020 first six months compared to the 2019 first nine months. Flood waters onsix months was primarily due to the Mississippi River System receded inSavage and Cenac acquisitions and increased term contract pricing, partially offset by the beginningeffects of August 2019.the COVID-19 pandemic.
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, mining, power generation, on-highway and other industrial applications. The Company also rents equipment including generators, fork lifts, pumpsindustrial compressors, railcar movers, and compressorshigh capacity lift trucks for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, for theland-based oilfield service and oil and gas operator and producer markets.customers.
The following table sets forth the Company’s distribution and services segmentsegment’s revenues, costs and expenses, operating income (loss) and operating margins for the three months and nine months ended September 30, 2019 compared with the three months and nine months ended September 30, 2018 (dollars in thousands):
| | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2019 | | | 2018 | | | % Change | | | 2019 | | | 2018 | | | % Change | | | 2020 | | | 2019 | | | % Change | | | 2020 | | | 2019 | | | % Change | |
Distribution and services revenues | | $ | 254,144 | | | $ | 322,805 | | | | (21 | )% | | $ | 997,400 | | | $ | 1,148,598 | | | | (13 | )% | | $ | 160,172 | | | $ | 366,756 | | | | (56 | )% | | $ | 400,841 | | | $ | 743,256 | | | | (46 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs of sales and operating expenses | | | 200,645 | | | | 250,074 | | | | (20 | )% | | | 787,068 | | | | 896,212 | | | | (12 | )% | | | 128,549 | | | | 295,958 | | | | (57 | ) | | | 316,222 | | | | 586,423 | | | | (46 | ) |
Selling, general and administrative | | | 33,608 | | | | 36,965 | | | | (9 | )% | | | 108,194 | | | | 115,682 | | | | (6 | )% | | | 37,225 | | | | 37,195 | | | | — | | | | 75,197 | | | | 74,586 | | | | 1 | |
Taxes, other than on income | | | 1,674 | | | | 1,888 | | | | (11 | )% | | | 5,102 | | | | 5,762 | | | | (11 | )% | | | 1,912 | | | | 1,411 | | | | 36 | | | | 3,882 | | | | 3,428 | | | | 13 | |
Depreciation and amortization | | | 9,085 | | | | 9,964 | | | | (9 | )% | | | 27,167 | | | | 29,873 | | | | (9 | )% | | | 6,633 | | | | 9,064 | | | | (27 | ) | | | 15,969 | | | | 18,082 | | | | (12 | ) |
| | | 245,012 | | | | 298,891 | | | | (18 | )% | | | 927,531 | | | | 1,047,529 | | | | (11 | )% | | | 174,319 | | | | 343,628 | | | | (49 | ) | | | 411,270 | | | | 682,519 | | | | (40 | ) |
Operating income | | $ | 9,132 | | | $ | 23,914 | | | | (62 | )% | | $ | 69,869 | | | $ | 101,069 | | | | (31 | )% | |
Operating income (loss) | | | $ | (14,147 | ) | | $ | 23,128 | | | | (161 | )% | | $ | (10,429 | ) | | $ | 60,737 | | | | (117 | )% |
Operating margins | | | 3.6 | % | | | 7.4 | % | | | | | | | 7.0 | % | | | 8.8 | % | | | | | | | (8.8 | )% | | | 6.3 | % | | | | | | | (2.6 | )% | | | 8.2 | % | | | | |
Distribution and Services Revenues
The following table shows the markets serviced by the Company’s distribution and services segment, the revenue distribution, for the 2019 third quarter and first nine months, and the customers for each market:
Markets Serviced | | 2019 Third Quarter Revenue Distribution | | 2019 Nine Months Revenue Distribution | | Customers | | 2020 Second Quarter Revenue Distribution | | 2020 Six Months Revenue Distribution | | Customers |
Oil and Gas | | 46% | | 54% | | Oilfield Services, Oil and Gas Operators and Producers | | 19% | | 27% | | Oilfield Services, Oil and Gas Operators and Producers |
| | | | | | | | | | | | |
Commercial and Industrial | | 54% | | 46% | | Inland River Carriers — Dry and Liquid, Offshore Towing — Dry and Liquid, Offshore Oilfield Services — Drilling Rigs & Supply Boats, Harbor Towing, Dredging, Great Lakes Ore Carriers, Pleasure Crafts, On and Off-Highway Transportation, Power Generation, Standby Power Generation, Pumping Stations, Mining | | 81% | | 73% | | Inland River Carriers — Dry and Liquid, Offshore Towing — Dry and Liquid, Offshore Oilfield Services — Drilling Rigs & Supply Boats, Harbor Towing, Dredging, Great Lakes Ore Carriers, Pleasure Crafts, On and Off-Highway Transportation, Power Generation, Standby Power Generation, Pumping Stations, Mining |
Distribution and services revenues for the 2019 third2020 second quarter and first ninesix months decreased 21%56% and 13%46%, respectively, compared with the 2018 third2019 second quarter and first nine months.six months, revenue. The decrease wasdecreases were primarily attributable to reduced activity in the oilfield which resultedas a result of oil price volatility throughout 2019 and the 2020 first six months, the extensive downturn in further declinesoil and gas exploration due to low oil prices, caused in part by the COVID-19 pandemic, an oversupply of pressure pumping equipment in North 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 limited sales of new and overhauled transmissions and related parts and service partially offset by improved demand indeclined during the commercial and industrial market. For the 2019 third2020 second quarter and first ninesix months. For the 2020 second quarter and first six months, the oil and gas market contributed 46%19% and 54%27%, respectively, of the distribution and services revenues.
The commercial and industrial market revenues, which contributed 54%81% and 46%73%, respectively, of the distribution and services revenues for the 2019 third2020 second quarter and first ninesix months, respectively, saw increased demand for back-up power generation equipmentdecreased compared to the 2018 third2019 second quarter and first nine months.six months, primarily due to reductions in on-highway and power generation service demand as a result of the COVID-19 pandemic and resulting economic slowdown and nationwide, state, and local stay-at-home orders, partially offset by contributions from the Convoy acquisition. Demand in the marine repair and nuclear power generation businesses remained solid in the 2020 second quarter and 2020 first six months, but were down modestly compared to the 2019 second quarter first six months due to reduced engine overhauls and engine sales.
Distribution and Services Costs and Expenses
Costs and expenses for the 2019 third2020 second quarter and first ninesix months decreased 18%49% and 11%40%, respectively, compared with the 2018 third2019 second quarter and first ninesix months. Costs of sales and operating expenses for the 2019 third2020 second quarter and first ninesix months decreased 20%57% and 12%46%, respectively, compared with the 2018 third2019 second quarter and first ninesix months, reflecting lower demand for new and remanufactured pressure pumping equipment and reduced 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 the 2019 third2020 second quarter and first nine months decreased 9% and 6%, respectively,was flat compared with the 2018 third2019 second quarter and increased 1% for the 2020 first ninesix months compared to the 2019 first six months. The increase was primarily due to lower incentive compensationa bad debt expense charge of $3,339,000 recorded during the 2020 second quarter as a result of the bankruptcy of a large oil and professional fees.gas customer and $1,354,000 of severance expense as a result of continued workforce reductions, partially offset by aggressive cost reduction initiatives throughout the organization as a result of the uncertainty surrounding the COVID-19 pandemic.
Depreciation and amortization expenses for both the 2019 third2020 second quarter and first ninesix months decreased 9%,27% and 12% compared towith the 2018 third2019 second quarter and first nine monthssix months. The decrease was primarily due to saleslower amortization of distribution and services facilities resulting in lower depreciation.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 the 2019 third2020 second quarter and first ninesix months decreased 62%161% and 31%117%, respectively, compared with the 2018 third2019 second quarter and first ninesix months. The operating margin for the 2020 second quarter was 3.6%(8.8)% compared with 6.3% for the 2019 thirdsecond quarter compared with 7.4%and (2.6)% for the 2018 third quarter and 7.0%2020 first six months compared to 8.2% for the 2019 first nine months compared with 8.8% for the 2018 first ninesix months. The results primarily reflected decreased salesa decrease in higher marginmargins in the commercial and industrial market and losses in oil and gas related revenue and increased sales of lower margin power generation equipment.market.
General Corporate Expenses
General corporate expenses for the 2019 third quarter were $3,554,000 compared with $4,492,000 for the 2018 third quarter. For the 2019 first nine months, general corporate expenses were $10,284,000 compared with $31,822,000 for the 2018 first nine months 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, effective April 30, 2018.
Gain (Loss)(Gain) Loss on Disposition of Assets
The Company reported a net loss on disposition of assets of $374,000$189,000 for the 2019 third2020 second quarter compared towith a net gain of $18,000$3,118,000 for the 2018 third2019 second quarter. For the 2019 first nine months, theThe Company reported a net gain on disposition of assets of $4,901,000$303,000 for the 2020 first six months compared to $2,358,000$5,275,000 for the 20182019 first ninesix months. The net loss and gains were predominantlyprimarily from the sales or retirements of marine equipment andequipment. The 2019 first six months also included sales of distribution and services facilities.services’ properties.
Other Income and Expenses
The following table sets forth impairments and other charges, other income, noncontrolling interests and interest expense for the three months and nine months ended September 30, 2019 compared with the three months and nine months ended September 30, 2018 (dollars in thousands):
| | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2019 | | | 2018 | | | % Change | | | 2019 | | | 2018 | | | % Change | | | 2020 | | | 2019 | | | % Change | | | 2020 | | | 2019 | | | % Change | |
Impairments and other charges | | | $ | — | | | $ | — | | | | — | % | | $ | (561,274 | ) | | $ | — | | | | N/A | |
Other income | | $ | 864 | | | $ | 1,454 | | | | (41 | )% | | $ | 2,677 | | | $ | 4,586 | | | | (42 | )% | | $ | 2,290 | | | $ | 2,381 | | | | (4 | )% | | $ | 5,013 | | | $ | 1,813 | | | | 177 | % |
Noncontrolling interests | | $ | (163 | ) | | $ | (134 | ) | | | 22 | % | | $ | (477 | ) | | $ | (520 | ) | | | (8 | )% | | $ | (261 | ) | | $ | (153 | ) | | | 71 | % | | $ | (539 | ) | | $ | (314 | ) | | | 72 | % |
Interest expense | | $ | (14,310 | ) | | $ | (12,345 | ) | | | 16 | % | | $ | (43,026 | ) | | $ | (34,665 | ) | | | 24 | % | | $ | (12,708 | ) | | $ | (15,515 | ) | | | (18 | )% | | $ | (25,507 | ) | | $ | (28,716 | ) | | | (11 | )% |
Impairments and Other Charges
Impairments and other charges includes $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 8, Impairments and Other Charges for additional information.
Other Income
Other income for the 2020 and 2019 and 2018 thirdsecond quarters includeincludes income of $865,000$1,467,000 and $1,159,000,$1,280,000, respectively, and the 2020 and 2019 and 2018 first ninesix months includeincludes income of $2,591,000$3,639,000 and $3,375,000,$1,726,000, 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):
| Three months ended June 30, | | Six months ended June 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | |
Average debt | | $ | 1,700,111 | | | $ | 1,641,311 | | | $ | 1,571,072 | | | $ | 1,550,342 | |
Average interest rate | | | 3.0 | % | | | 3.8 | % | | | 3.2 | % | | | 3.8 | % |
Capitalized interest | | $ | — | | | $ | 182 | | | $ | — | | | $ | 825 | |
Interest expense for the 2019 third2020 second quarter and first ninesix months increased 16%decreased 18% and 24%11%, respectively, compared with the 2018 third2019 second quarter and first ninesix months, primarily due to a lower average interest rate, partially offset by higher average debt outstanding as a result of borrowings to finance the HigmanConvoy acquisition in February 2018,January 2020 and the Savage acquisition in April 2020.
(Provision) Benefit for Taxes on Income
During the first six months of Targa’s pressure barge fleet in May 2018, the purchase2020, pursuant to provisions of the 155,000 barrel coastal ATB under constructionCARES Act, net operating losses generated during 2018 through 2020 were used to offset taxable income generated between 2013 through 2017. This caused a reduction in the effective tax rate during the six months ended June 2018,30, 2020 as net operating losses carried back to tax years 2013 through 2017 were applied at the acquisitionhigher federal statutory tax rate of CGBM’s tank barges35% compared to the statutory rate of 21% currently in December 2018,effect at June 30, 2020. The 2020 second quarter generated an effective tax rate benefit as a result of such carrybacks and the acquisition of Cenac’s fleetresulted in March 2019. During the 2019 and 2018 third quarters, the average debt and average interesta lower effective tax rate (excluding capitalized interest) were $1,513,607,000 and 3.7%, and $1,421,613,000 and 3.6%, respectively. For the 2019 and 2018 first nine months, the average debt and average interest rate (excluding capitalized interest) were $1,538,097,000 and 3.8%, and $1,366,546,000 and 3.5%, respectively. Interest expense excludes capitalized interest for the 2019 and 2018 third quarters of $137,000 and $808,000, respectively, and for the 2019 and 2018 first nine months of $962,000 and $1,317,000, respectively.2020.
Financial Condition, Capital Resources and Liquidity
Balance SheetsSheet
Total assets as of September 30, 2019 were $6,127,885,000 compared with $5,871,594,000 as of December 31, 2018. The following table sets forth the significant components of the balance sheets as of September 30, 2019 compared with December 31, 2018 (dollars in thousands):
| | September 30, 2019 | | | December 31, 2018 | | | % Change | | | June 30, 2020 | | | December 31, 2019 | | | % Change | |
Assets: | | | | | | | | | | | | | | | | | | |
Current assets | | $ | 958,533 | | | $ | 1,096,489 | | | | (13 | )% | | $ | 1,078,314 | | | $ | 917,579 | | | | 18 | % |
Property and equipment, net | | | 3,793,732 | | | | 3,539,802 | | | | 7 | | | | 3,976,025 | | | | 3,777,110 | | | | 5 | |
Operating lease right-of-use assets | | | 156,798 | | | | — | | | | 100 | | | | 183,048 | | | | 159,641 | | | | 15 | |
Goodwill | | | 953,826 | | | | 953,826 | | | | — | | | | 657,832 | | | | 953,826 | | | | (31 | ) |
Other intangibles, net | | | 210,173 | | | | 224,197 | | | | (6 | ) | | | 73,556 | | | | 210,682 | | | | (65 | ) |
Other assets | | | 54,823 | | | | 57,280 | | | | (4 | ) | | | 48,236 | | | | 60,259 | | | | (20 | ) |
| | $ | 6,127,885 | | | $ | 5,871,594 | | | | 4 | % | | $ | 6,017,011 | | | $ | 6,079,097 | | | | (1 | )% |
Liabilities and stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | $ | 516,991 | | | $ | 607,782 | | | | (15 | )% | | $ | 478,696 | | | $ | 514,115 | | | | (7 | )% |
Long-term debt, net – less current portion | | | 1,434,417 | | | | 1,410,169 | | | | 2 | | | | 1,642,832 | | | | 1,369,751 | | | | 20 | |
Deferred income taxes | | | 585,507 | | | | 542,785 | | | | 8 | | | | 568,816 | | | | 588,204 | | | | (3 | ) |
Operating lease liabilities | | | 135,017 | | | | — | | | | 100 | | |
Operating lease liabilities – less current portion | | | | 171,629 | | | | 139,457 | | | | 23 | |
Other long-term liabilities | | | 81,455 | | | | 94,557 | | | | (14 | ) | | | 103,054 | | | | 95,978 | | | | 7 | |
Total equity | | | 3,374,498 | | | | 3,216,301 | | | | 5 | | | | 3,051,984 | | | | 3,371,592 | | | | (9 | ) |
| | $ | 6,127,885 | | | $ | 5,871,594 | | | | 4 | % | | $ | 6,017,011 | | | $ | 6,079,097 | | | | (1 | )% |
Current assets as of SeptemberJune 30, 2019 decreased 13%2020 increased 18% compared with December 31, 2018.2019. Trade accounts receivable decreased 8% mainlyprimarily due to decreased activities in the distribution and services segment, primarily related to the oil and gas market and reduced utilization in the marine transportation segment, partially offset by the Convoy acquisition. Other accounts receivable increased activities in119%, primarily due to federal income taxes receivable of $125,883,000 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 inland marine transportation market.CARES Act. Inventories, net decreased 19%,by 4% primarily reflecting lower inventory levels due to reduced business activity levels in the oil and gas market.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, as of Septemberat June 30, 20192020 increased 7%5% compared with December 31, 2018.2019. The increase reflected $177,658,000$87,894,000 of capital expenditures (net of a decrease in accrued capital expenditures) for the 20192020 first ninesix months, more fully described under Cash Flows and Capital Expenditures Reflected onabove, and $237,819,000 of acquisitions, primarily including the Balance Sheet below,four newly constructed inland pressure barges purchased in the 2020 first six months and the aggregate fair value of the property and equipment acquired in the Cenac acquisition of $247,122,000Savage and the nine inland tank barges purchased during the 2019 first nine months for $13,040,000, less $153,468,000Convoy acquisitions, partially offset by $104,528,000 of depreciation expense, $16,395,000 of impairment charges, and $29,855,000$5,875,000 of property disposals during the 20192020 first ninesix months.
Operating lease right-of-use assets as of June 30, 2020 increased 15% compared with December 31, 2019, primarily due to leases acquired as part of the adoptionSavage and Convoy acquisitions.
Goodwill as of ASU 2016-02 on January 1, 2019.June 30, 2020 decreased 31% compared with December 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 of SeptemberJune 30, 20192020 decreased 6%65% compared with December 31, 2018,2019, primarily due to impairments of customer relationship, tradename, and distributorship assets in the distribution and services segment as well as amortization of intangibles, other than goodwill.partially offset by intangible assets recorded as part of the Convoy and Savage acquisitions.
Current liabilities as of SeptemberJune 30, 20192020 decreased 15%7% compared with December 31, 2018.2019. Accounts payable decreased 24%14%, primarily due to decreased shipyard maintenance accruals on coastal equipment and reduced business activity levels in the distribution and services oil and gas market.segment, partially offset by the Convoy acquisition. Accrued liabilities decreased 9%3% primarily from payment during the 20192020 first quarter of employee incentive compensation bonuses accrued during 2018 and lower accrued incentive compensation during the 2019 first nine months. Current portion of operating lease liabilities increased due to the adoption of ASU 2016-02 on January 1, 2019. Deferred revenues decreased 39%15%, primarily reflecting reduced business activity levels in the distribution and services oil and gas market.
Long-term debt, net – less current portion, as of SeptemberJune 30, 20192020 increased 2%20% compared with December 31, 2018,2019, primarily reflecting additional borrowings of $425,000,000 under the addition of the five-year Term Loan on March 27, 2019 with $440,000,000 currently outstanding,Revolving Credit Facility, partially offset by net paymentsthe repayment of $417,373,000 on the amended and restated Revolving Credit Facility.$150,000,000 of 2.72% unsecured senior notes upon maturity. Net debt discountdiscounts and deferred issuance costs were $8,389,000 (of which $2,806,000$7,168,000 at June 30, 2020 and $5,249,000 (excluding $2,650,000 attributable to the Revolving Credit Facility is currently included in other assets on the balance sheet) and $7,204,000 as of September 30, 2019 andat December 31, 2018, respectively.2019.
Deferred income taxes as of SeptemberJune 30, 2019 increased 8%2020 decreased 3% compared with December 31, 2018,2019, primarily reflecting the 20192020 first ninesix months deferred tax provisionbenefit of $40,502,000.$18,588,000.
Operating lease liabilities – less current portion, as of June 30, 2020 increased 23% compared with December 31, 2019, primarily due to leases acquired as part of the adoption of ASU 2016-02 on January 1, 2019.Savage and Convoy acquisitions.
Other long-term liabilities as of SeptemberJune 30, 2019 decreased 14%2020 increased 7% compared with December 31, 2018. The decrease was2019, primarily due to accrued payroll taxes deferred under provisions of the adoptionCARES Act and an increase in pension liabilities, partially offset by amortization of ASU 2016-02 on January 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 $2,581,000 to the Higman pension plan during the 2019 first nine months.intangible liabilities.
Total equity as of SeptemberJune 30, 2019 increased 5%2020 decreased 9% compared with December 31, 2018.2019. The increasedecrease was primarily the result of $139,570,000 ofa net earningsloss attributable to Kirby of $322,239,000 for the 20192020 first ninesix months and tax withholdings of $3,191,000 on restricted stock and RSU vestings, partially offset by an increase in additional paid-in capital due to amortization of $9,545,000 related to employee stock awards.unearned share-based compensation of $8,652,000.
Long-Term Financing
On March 27, 2019,The following table summarizes the Company’s outstanding debt (in thousands):
| | June 30, 2020 | | December 31, 2019 | |
Long-term debt, including current portion: | | | | | |
Revolving Credit Facility due March 27, 2024 (a) | | $ | 425,000 | | $ | — | |
Term Loan due March 27, 2024 (a) | | | 375,000 | | | 375,000 | |
2.72% senior notes due February 27, 2020 | | | — | | | 150,000 | |
3.29% senior notes due February 27, 2023 | | | 350,000 | | | 350,000 | |
4.2% senior notes due March 1, 2028 | | | 500,000 | | | 500,000 | |
Credit line due June 30, 2021 | | | — | | | — | |
Bank notes payable | | | 7 | | | 16 | |
| | | 1,650,007 | | | 1,375,016 | |
Unamortized debt discounts and issuance costs (b) | | | (7,168 | ) | | (5,249 | ) |
| | $ | 1,642,839 | | $ | 1,369,767 | |
| (a) | Variable interest rate of 1.6% and 2.9% at June 30, 2020 and December 31, 2019, respectively. |
| (b) | Excludes $2,650,000 attributable to the Revolving Credit Facility included in other assets at December 31, 2019. |
The Company entered into an amended and restatedhas a Credit Agreement with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank, that extended the term of the Company’s existingallowing for an $850,000,000 Revolving Credit Facility toand a Term Loan with a maturity date of March 27, 2024 and added a five-year Term Loan facility in an amount of $500,000,000. The Credit Agreement provides for a variable interest rate based on LIBOR or a base rate calculated with reference to the Alternate Base Rate. The interest rate varies with the Company’s credit rating and is currently 112.5 basis points over LIBOR or 12.5 basis points over the Alternate Base Rate.2024. The Term Loan is repayable in quarterly installments originallycurrently scheduled to commence JuneSeptember 30, 2020, in increasing percentages of the original principal amount of the loan,2023, with the remaining unpaid balance payable of 65% of the initial amount$343,750,000 due on March 27, 2024. During the 2019 third quarter, the Company repaid $60,000,000 and during October 2019, the Company repaid an additional $55,000,000 under theThe Term Loan prior to the scheduled installments. As a result, no repayments are required until June 30, 2023. The Credit Agreement contains certain financial covenants including an interest coverage ratio and a debt-to-capitalization ratio. In addition to financial covenants, the Credit Agreement contains covenants that, subject to exceptions, restrict debt incurrence, mergers and acquisitions, sales of assets, dividends and investments, liquidations and dissolutions, capital leases, transactions with affiliates and changesis prepayable, in lines of business. The Credit Agreement specifies certain events of default, upon the occurrence of which the maturity of the outstanding loans may be accelerated, including the failure to pay principalwhole or interest, violation of covenants and default on other indebtedness, among other events. Borrowings under the Credit Agreement may be used for general corporate purposes including acquisitions. As of September 30, 2019, the Company was in compliance with all Credit Agreement covenants and had no outstanding borrowings under the Revolving Credit Facility and $440,000,000 outstanding under the Term Loan.part, without penalty. 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 $5,258,000$5,363,000 and available borrowing capacity was $419,637,000 as of SeptemberJune 30, 2019.2020.
On February 12, 2018,27, 2020, upon maturity, the Company issued $500,000,000repaid in full $150,000,000 of the 2028 Notes with U.S. Bank National Association, as trustee. Interest payments of $10,500,000 are due semi-annually on March 1 and September 1 of each year. The 2028 Notes are unsecured and rank equally in right of payment with the Company’s other2.72% unsecured senior indebtedness. The 2028 Notes contain certain covenants onnotes.
Outstanding letters of credit under the part$10,000,000 credit line were $1,171,000 and available borrowing capacity was $8,829,000 as of the Company, including covenants relating to liens, sale-leasebacks, asset sales and mergers, among others. The 2028 Notes also specify certain events of default, upon the occurrence of which the maturity of the notes may be accelerated, including failure to pay principal and interest, violation of covenants or default on other indebtedness, among others. June 30, 2020.
As of SeptemberJune 30, 2019,2020, the Company was in compliance with all covenants under its debt instruments. For additional information about the 2028 Notes covenantsCompany’s debt instruments, see “Long-Term Financing” in Item 7 — Management’s Discussion and had $500,000,000 outstanding underAnalysis of Financial Condition and Results of Operations and Note 8, Long-Term Debt, in the 2028 Notes.
The Company has $500,000,000 of Senior Notes Series A and Senior Notes Series B with a group of institutional investors, consisting of $150,000,000 of 2.72% Senior Notes Series A due February 27, 2020 and $350,000,000 of 3.29% Senior Notes Series B due February 27, 2023. No principal payments are required until maturity. The Senior Notes Series A and Series B contain certain covenantsCompany’s Annual Report on Form 10-K for the part of the Company, including an interest coverage covenant, a debt-to-capitalization covenant and covenants relating to liens, asset sales and mergers, among others. The Senior Notes Series A and Series B also specify certain events of default, upon the occurrence of which the maturity of the notes may be accelerated, including failure to pay principal and interest, violation of covenants or default on other indebtedness, among others. As of September 30, 2019, the Company was in compliance with all Senior Notes Series A and Series B covenants and had $150,000,000 of Senior Notes Series A outstanding and $350,000,000 of Senior Notes Series B outstanding.
The Company has a $10,000,000 line of credit (“Credit Line”) with Bank of America, N.A. (“Bank of America”) for short-term liquidity needs and letters of credit, with a maturity date of June 30, 2021. The Credit Line allows the Company to borrow at an interest rate agreed to by Bank of America and the Company at the time each borrowing is made or continued. The Company had no borrowings outstanding under the Credit Line as of September 30, 2019. Outstanding letters of credit under the Credit Line were $1,171,000 as of September 30,year ended December 31, 2019.
Capital Expenditures Reflected on the Balance Sheet
Capital expenditures for the 2019 first nine months were $177,658,000, including $19,746,000 for inland towboat construction, $16,240,000 for progress payments on three 5000 horsepower coastal ATB tugboats, $2,178,000 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 $139,494,000 primarily for upgrading existing marine equipment and marine transportation and distribution and services facilities.
Financing of the construction of the inland towboats, coastal tugboats and the 155,000 barrel coastal ATB, plus upgrades of existing marine equipment and marine transportation and distribution and services facilities was through operating cash flows and borrowings under the Company’s Revolving Credit Facility.
During the 2019 first nine months, the Company acquired 63 inland tank barges from Cenac with a total capacity of approximately 1,833,000 barrels, retired nine inland tank barges, brought back into service six inland tank barges, and chartered two inland tank barges, increasing its capacity by approximately 54,000 barrels. The net result was an increase of 62 inland tank barges and approximately 1,887,000 barrels of capacity during the 2019 first nine months.
The Company projects that capital expenditures for 2019 will be in the $225,000,000 to $245,000,000 range. The 2019 construction program will consist of progress payments on the construction of 13 inland towboats, seven of which have been placed in service in 2019 and the remaining six are scheduled to be placed in service in 2020 and 2021, and progress payments on the construction of three 5000 horsepower coastal ATB tugboats to be placed in service in 2019, two of which were placed in service during the 2019 first nine months. Based on current commitments, steel prices and projected delivery schedules, the Company’s 2019 progress payments on the new inland towboats will be approximately $20,000,000 to $25,000,000 and 2019 progress payments on the construction of the three 5000 horsepower coastal ATB tugboats will be approximately $20,000,000. Approximately $155,000,000 to $165,000,000 is primarily capital upgrades and improvements to existing marine equipment and facilities. The balance of $30,000,000 to $35,000,000 will be for rental fleet growth, new machinery and equipment, facilities improvements and information technology projects.
Funding for future capital expenditures is expected to be provided through operating cash flows and borrowings under the Company’s Revolving Credit Facility.
Treasury Stock Purchases
The Company did not purchase any treasury stock during the 20192020 first ninesix months. As of November 6, 2019,August 5, 2020, the Company had approximately 1,400,000 shares available under its existing repurchase authorization. Historically, treasury stock purchases have been financed through operating cash flows and borrowings under the Company’s Revolving Credit Facility. The Company is authorized to purchase its common stock on the New York Stock Exchange and in privately negotiated transactions. When purchasing its common stock, the Company is subject to price, trading volume and other market considerations. Shares purchased may be used for reissuance upon the exercise of stock options or the granting of other forms of incentive compensation, in future acquisitions for stock or for other appropriate corporate purposes.
Liquidity
The Company generated net cash provided by operating activities of $387,599,000 in$242,144,000 and $188,197,000 for the 2020 and 2019 first ninesix months, compared with $272,304,000 for the 2018 first nine months.respectively. The increaseimprovement was driven by increased revenues and operating income in the marine transportation segment driven by the acquisitions of the Higman fleetSavage acquisition in February 2018, the Targa fleet in May 2018, the CGBM barges in December 2018, andApril 2020, the Cenac fleetacquisition in March 2019, as well as improvedand increased coastal barge utilizationpricing and improved inland and coastalterm pricing, partially offset by decreased inland spot pricing. The increaseimprovement was also due to a net increasechanges in cash flows from the change incertain operating assets and liabilities of $85,685,000 dueprimarily related to reduced incentive compensation payouts in the 2020 first quarter and a decrease in inventories in the distribution and services segment in the 2019 first nine monthstrade accounts receivable compared to an increase in the 2019 first six months, driven by reduced business activity levels in the distribution and services segment. In addition, during the six months ended June 30, 2020, the Company received a tax refund of $30,606,000 for its 2018 first nine months.tax return related to net operating losses being carried back to offset taxable income generated during 2013.
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 flowflows provided by operating activities, as of August 5, 2020, the Company also had available ascash equivalents of November 6, 2019, $833,317,000$104,821,000, availability of $454,637,000 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 the pricing grid on its Credit Agreement.
The Company expects to continue to fund expenditures for acquisitions, capital construction projects, common stock repurchases, repayment of borrowings, and for other operating requirements from a combination of available cash and cash equivalents, funds generated from operating activities and available financing arrangements.
The Revolving Credit Facility’s commitment is in the amount of $850,000,000 and expires March 27, 2024. As of SeptemberJune 30, 2019,2020, the Company had $844,742,000$419,637,000 available under the Revolving Credit Facility. The Senior Notes Series A and Senior Notes Series B3.29% senior unsecured notes do not mature until February 27, 2020 and February 27, 2023 respectively, and require no prepayments. The 2028 Notes4.2% senior unsecured notes do not mature until March 1, 2028 and require no prepayments. The outstanding balance of the Term Loan is subject to quarterly installments, currently beginning Junescheduled to commence September 30, 2023, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance payable of 65% of the initial amount$343,750,000 due on March 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 flowflows in 2019.2020. For a list of significant risks and uncertainties that could impact cash flows, see Item 1A — Risk Factors below and Note 14,15, Contingencies, in the financial statements, and Item 1A — Risk Factors and Note 15, Contingencies and Commitments, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. Amounts available under the Company’s existing financial arrangements are subject to the Company continuing to meet the covenants of the credit facilities as described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under Long-Term Financing above.in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The Company has issued guaranties or obtained standby letters of credit and performance bonds and guarantees 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 $21,220,000$23,169,000 at SeptemberJune 30, 2019,2020, including $11,240,000$11,345,000 in letters of credit and $9,980,000$11,824,000 in performance bonds and guarantees.bonds. All of these instruments have an expiration date in 2021 or earlier.within two years. The Company does not believe demand for payment under these instruments is likely and expects no material cash outlays to occur in connection with these instruments.
All 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. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The Company is exposed to risk from changes in interest rates on certain of its outstanding debt. The outstanding loan balances under the Company’s bank credit facilities bear interest at variable rates based on prevailing short-term interest rates in the United States and Europe. A 10% change in variable interest rates would impact the 20192020 interest expense by $507,000$206,000 based on balances outstanding at December 31, 2018,2019, and would change the fair value of the Company’s debt by less than 1%.
Item 4. Controls and Procedures
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures. The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the Company’s disclosure controls and procedures (as defined in RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (“Exchange Act”)) are designed to ensure that information, as of June 30, 2020, as required to be disclosed in the reports that are filed or submittedby Rule 13a-15(b) under the Exchange Act is recorded, processed, summarized, and reported withinAct. Based on that evaluation, the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that such information required to be disclosed is accumulated and communicated to management, including principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), with assistance from other members of management, have evaluated the effectiveness of the Company’s disclosure controls and proceduresconcluded that, as of SeptemberJune 30, 2019 and, based on their evaluation, the CEO and CFO have concluded that2020, the disclosure controls and procedures were not effective as of such date due to the material weakness in internal control over financial reporting aspreviously disclosed in the Company’s AnnualQuarterly Report on Form 10-K10-Q/A for the yearquarter ended DecemberMarch 31, 2018.2020.
Changes in Internal Control Over Financial Reporting. During the second quarter of 2020, certain distribution and services branch locations completed the preparation and implementation of a series of changes to their financial reporting systems and processes. Certain other distribution and services branch locations are expected to complete similar implementations in future periods throughout 2020. In addition, the Company has implemented the remediation plan described below. There were no other changes in the Company’s internal control over financial reporting during the quarter ended SeptemberJune 30, 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation Plan. As previously describedindicated in Part II,I, Item 9A,4, Controls and Procedures, of the Company’s AnnualQuarterly Report on Form 10-K10-Q/A for the yearquarter ended DecemberMarch 31, 2018,2020, the Company began implementing a remediation planamended its control activities to mitigate significant risks identified, including updating its policies and removedprocedures regarding the recognition of goodwill impairments, specifically to review the considerations of all inappropriate privileged access rights astax impacts caused by the recognition of March 31, 2019.such goodwill impairments. The material weakness will not be considered remediated untilCompany believes these changes and the applicable controls operate for a sufficient period of time and management has concluded, throughappropriate testing of the affected Information Technology operating systems, databases and applications, that these controls are operating effectively. The Company expects that the remediation oftheir effectiveness will remediate this material weakness will be completed during 2019.by September 30, 2020.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The discussion of the legal proceedings related to the M/V Voyager and the legal proceedings related to the tug Nathan E. Stewart and barge DBL 55 in Note 14,15, Contingencies, of the Notes to Unaudited Consolidated Financial Statements in this Quarterly Report are incorporated by reference into this Item 1.
Item 1A.
Widespread health developments and economic uncertainty resulting from the recent global COVID-19 pandemic could materially and adversely affect our business, financial condition and results of operations.
In December 2019, COVID-19 surfaced in Wuhan, China. In response to the resulting pandemic, various countries, including the United States, either mandated or recommended business closures, travel restrictions or limitations, social distancing, and/or self-quarantine, among other actions. Additionally, various state and local governments in locations where the Company operates took similar actions. The full impact and duration of the outbreak is still unknown and the situation is rapidly evolving as many governments are in various stages of removing or easing these actions. In some cases, governments have reinstated actions and they may impose new actions in an effort to reduce or manage current or anticipated levels of infection. The extent and duration of these impacts is unknown at this time, but there has been a negative impact on the global and United States economies, including the oil and gas industry, which has reduced demand for the Company’s products and services.
These impacts could place limitations on the Company’s ability to execute on its business plan and materially and adversely affect its business, financial condition and results of operations. The Company continues to be subjectmonitor the situation, actively implemented policies and procedures to address the situation, including its pandemic response plan and business continuity plan, and took steps to reduce costs. As the pandemic continues to further unfold, the Company may adjust its current policies and procedures as government mandates or recommendations change or as more information and guidance become available. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, any of which could have a material effect on the Company. This situation is changing rapidly and additional impacts may arise that the Company is not aware of currently.
There have been no other material changes that the Company is aware of from the risk factors previously disclosed in its “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019 and previously updated in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Item 6. Exhibits
EXHIBIT INDEX
Exhibit Number | | | Description of Exhibits |
| | | |
| | – | Restated Articles of Incorporation of the Company with all amendments to date (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014) |
| | – | Bylaws of the Company, as amended to March 17, 2020 (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014) |
| | – | Amendment to Bylaws of Kirby Corporation dated March 18, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 19, 2020) |
4.1 | | – | See Exhibits 3.1, 3.2, and 3.3 hereof for provisions of our Restated Articles of Incorporation of the Company with all amendments to date, the Bylaws of the Company, as amended to March 17, 2020, and Amendment to Bylaws of the Company dated March 18, 2020 (incorporated by reference to Exhibit 3.1 and 3.2, respectively, to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 19, 2020 ). |
| – | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) | – | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) |
| – | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) | – | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) |
| – | Certification Pursuant to 18 U.S.C. Section 1350 | – | Certification Pursuant to 18 U.S.C. Section 1350 |
101.INS | – | XBRL Instance Document | – | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | – | XBRL Taxonomy Extension Schema Document | – | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | – | XBRL Taxonomy Extension Calculation Linkbase Document | – | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | – | XBRL Taxonomy Extension Definition Linkbase Document | – | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | – | XBRL Taxonomy Extension Label Linkbase Document | – | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | – | XBRL Taxonomy Extension Presentation Linkbase Document | – | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | | |
104 | | – | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KIRBY CORPORATION |
| (Registrant) |
| |
| By: | /s/ WILLIAM G. HARVEY |
| | William G. Harvey |
| | Executive Vice President and |
| | Chief Financial Officer |
| | |
Dated: November 7, 2019August 6, 2020 | | |