Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. KIRBY CORP (56047) 10-Q published on May 09, 2019 at 11:23 am
Reporting Period: Mar 30, 2019
The Company currently leases various facilities and equipment under cancelable and noncancelable operating leases. The accounting for the Company’s leases may require judgments, which include determining whether a contract contains a lease, allocated between lease and non-lease components, and determining the incremental borrowing rates. Leases with an initial noncancelable term of 12 months or less are not recorded on the balance sheet and related lease expense is recognized on a straight-line basis over the lease term. The Company has also elected to combine lease and non-lease components on all classes of leased assets, except for leased towing vessels for which the Company estimates approximately 75% of the costs relate to service costs and other non-lease components. Variable lease costs relate primarily to real estate executory costs (i.e. taxes, insurance and maintenance).
On March 27, 2019, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank, that extends the term of the Company’s existing $850,000,000 revolving credit facility (“Revolving Credit Facility”) to March 27, 2024 and adds a five-year term loan (“Term Loan”) facility in an amount of $500,000,000. The Credit Agreement provides for a variable interest rate based on the London interbank offered rate (“LIBOR”) or a base rate calculated with reference to the agent bank’s prime rate, among other factors (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. The Term Loan is repayable in quarterly installments commencing June 30, 2020, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance payable of 65% of the initial amount due on March 27, 2024. The Credit Agreement contains certain restricted 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 changes 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 principal 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 March 31, 2019, the Company was in compliance with all Credit Agreement covenants and had outstanding borrowings under the Revolving Credit Facility of $176,574,000 and $500,000,000 outstanding under the Term Loan. 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 $6,400,000 as of March 31, 2019.
The Company’s marine transportation segment’s revenues for the 2019 first quarter increased 8% and operating income increased 119% compared with the 2018 first quarter revenues and operating income. The increases were primarily due to the addition of the Higman fleet acquired on February 14, 2018, the Targa Resources Corp’s (“Targa”) pressure barges acquired on May 10, 2018 and the CGBM 100, LLC (“CGBM”) inland tank barges acquired on December 14, 2018, and improved barge utilization and spot and term contract pricing in the inland and coastal markets. Operating income was also favorably impacted by cost reductions in the coastal market implemented during 2018. Partially offsetting these increases were unusually poor operating conditions due to heavy fog along the Gulf Coast, prolonged periods of ice on the Illinois River, high water on the Mississippi River, closures of key waterways as a result of lock maintenance projects and a fire at a chemical storage facility on the Houston Ship Channel, and increased shipyard days on several large capacity coastal vessels. The 2018 first quarter was impacted by the Higman transaction costs, severance and retirement costs, and the amendment to the employee stock award plan discussed above. For the 2019 and 2018 first quarters, the inland tank barge fleet contributed 77% and 74%, respectively, and the coastal fleet contributed 23% and 26%, respectively, of marine transportation revenues.
Distribution and services revenues for the 2019 first quarter decreased 6% when compared with the 2018 first quarter. The decreased revenues were primarily attributable to reduced activity in the oilfield which resulted in lower customer demand for new and overhauled transmissions and related parts and service and reduced demand for new pressure pumping equipment, partially offset by increased service for pressure pumping unit remanufacturing, and improved demand in the commercial and industrial market for the marine diesel engine repair business and power generation sector. Operating income for the distribution and services segment for the 2019 first quarter increased 2% compared with the 2018 first quarter. The increase primarily reflected increased deliveries of oilfield equipment at favorable margins and improved demand in the marine diesel engine repair business and the power generation sector. For the 2019 first quarter, the oil and gas market contributed 59% of the distribution and services revenues. In the commercial and industrial market, which contributed 41% of the distribution and services revenues for the 2019 first quarter, the marine market experienced continued improved demand for diesel engines, parts and service in the Gulf Coast, Midwest and Florida. The power generation market saw increased demand from commercial customers for back-up power systems in the 2019 first quarter. Demand in the nuclear power generation market was stable compared to the 2018 first quarter.
Recent oilfield activity declines and crude oil price volatility in the 2018 fourth quarter have created some uncertainty for the Company’s oil and gas businesses which could extend for the duration of 2019. These market dynamics have resulted in lower sales of new engines, transmissions and associated parts thus far in 2019 and will likely continue until oilfield activity improves. In manufacturing, the orders for new and remanufactured pressure pumping units and equipment also slowed during the 2019 first quarter. Additionally, a number of new pressure pumping units which were expected to be delivered in the 2019 second quarter are likely to be delayed into the 2019 third quarter. As a result, revenues and operating income are expected to decline in the 2019 second quarter compared to the 2019 first quarter. The manufacturing outlook for the second half of 2019 will be dependent on additional orders for new and remanufactured pressure pumping equipment and oilfield equipment for international markets.