Statements contained in this Form 10-Q that are not historical facts, including, but not limited to, any projections contained herein, are forward-looking statements and involve a number of risks and uncertainties. Such statements involve risks and uncertainties. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," or "continue," or the negative thereof or other variations thereon or comparable terminology. The actual results of the future events described in such forward-looking statements in this Form 10-Q could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: adverse economic conditions, industry competition and other competitive factors, adverse weather conditions such as high water, low water, tropical storms, hurricanes, tsunamis, fog and ice, tornados, COVID-19 or other pandemics, marine accidents, lock delays, fuel costs, interest rates, construction of new equipment by competitors, government and environmental laws and regulations, and the timing, magnitude and number of acquisitions made by the Company. For a more detailed discussion of factors that could cause actual results to differ from those presented in forward-looking statements, see Item 1A-Risk Factors found in the Company's Annual Report on Form 10K for the year endedDecember 31, 2021 . Forward-looking statements are based on currently available information and the Company assumes no obligation to update any such statements. For purposes of Management's Discussion, all net earnings per share attributable to Kirby common stockholders are "diluted earnings per share."
Overview
The Company is the nation's largest domestic tank barge operator, transporting bulk liquid products throughout the Mississippi River System, on theGulf Intracoastal Waterway , and coastwise along all threeUnited States coasts. The Company transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge. Through KDS, the Company provides after-market service and parts for engines, transmissions, reduction gears and related equipment used in oilfield services, marine, power generation, on-highway, and other industrial applications. The Company also rents equipment including generators, industrial compressors, high capacity lift trucks, and refrigeration trailers for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, manufactures cementing and pumping equipment as well as coil tubing and well intervention equipment, electric power generation equipment, specialized electrical distribution and control equipment, and high capacity energy storage/battery systems for oilfield service and railroad customers.
The following table summarizes key operating results of the Company (in thousands, except per share amounts):
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Total revenues$ 697,964 $ 559,624 $ 1,308,746 $ 1,056,474 Net earnings attributable to Kirby$ 28,457 $ 10,190 $ 45,891 $ 6,815 Net earnings per share attributable to Kirby common stockholders - diluted $ 0.47 $ 0.17 $ 0.76$ 0.11 Net cash provided by operating activities$ 95,644 $ 197,818 Capital expenditures$ 79,059 $ 38,369
The 2022 second quarter included
Cash provided by operating activities for the 2022 first six months decreased primarily due to the receipt of a tax refund of$119.5 million , including accrued interest, for the Company's 2019 federal tax return during the 2021 first quarter. For the 2022 first six months, capital expenditures of$79.1 million included$66.3 million in KMT and$12.8 million in KDS and corporate, more fully described under cash flow and capital expenditures below. The Company projects that capital expenditures for 2022 will be in the$170 million to$190 million range. The 2022 construction program will consist of approximately$5 million for the construction of new inland towboats,$145 million to$155 million primarily for maintenance capital and improvements to existing marine equipment and facilities, and$20 million to$30 million for new machinery and equipment, facilities improvements, and information technology projects in KDS and corporate. The Company's debt-to-capitalization ratio decreased to 27.9% atJune 30, 2022 from 28.7% atDecember 31, 2021 , primarily due to repayments under the 2024 Term Loan in the 2022 first six months, and an increase in total equity, primarily due to the net earnings attributable to Kirby of$45.9 million , partially offset by treasury stock purchases of$18.1 million . The Company's debt outstanding as ofJune 30, 2022 andDecember 31, 2021 is detailed in Long-Term Financing below. 16 --------------------------------------------------------------------------------
Marine Transportation
For both the 2022 second quarter and first six months, KMT generated 58% of the Company's revenues. The segment's customers include many of the major petrochemical and refining companies that operate inthe United States . Products transported include intermediate materials used to produce many of the end products used widely by businesses and consumers - plastics, fiber, paints, detergents, oil additives and paper, among others, as well as residual fuel oil, ship bunkers, asphalt, gasoline, diesel fuel, heating oil, crude oil, natural gas condensate, and agricultural chemicals. Consequently, KMT is directly affected by the volumes produced by the Company's petroleum, petrochemical, and refining customer base.
The following table summarizes the Company's marine transportation fleet:
June 30, 2022 2021 Inland tank barges: Owned 990 1,002 Leased 44 44 Total 1,034 1,046 Barrel capacity (in millions) 23.0
23.4
Active inland towboats (quarter average): Owned 211 218 Chartered 59 42 Total 270 260 Coastal tank barges: Owned 29 42 Leased 1 1 Total 30 43 Barrel capacity (in millions) 3.1 4.0 Coastal tugboats: Owned 26 38 Chartered 3 3 Total 29 41 Offshore dry-bulk cargo barges (owned) 4
4
Offshore tugboats and docking tugboat (owned and chartered) 5
5
The Company also owns shifting operations and fleeting facilities for dry cargo barges and tank barges on the Houston Ship Channel and inFreeport andPort Arthur, Texas , andLake Charles, Louisiana , and a shipyard for building towboats and performing routine maintenance near the Houston Ship Channel, as well as a two-thirds interest inOsprey Line, L.L.C. , which transports project cargoes and cargo containers by barge. During the 2022 first six months, the Company brought back into service seven inland tank barges and leased two tank barges. The net result was an increase of nine inland tank barges and approximately 0.1 million barrels of capacity. KMT revenues for the 2022 second quarter and first six months increased 22% and 20%, respectively, and operating income increased 67% and 134%, respectively, compared to the 2021 second quarter and first six months. The increases for the 2022 second quarter and first six months were primarily due to increased tank barge utilization, higher term and spot pricing, and increased fuel rebills in the inland and coastal markets. The 2021 first six months was also heavily impacted by Winter Storm Uri which shut down manyGulf Coast refineries and chemical plants for an extended period of time starting in mid-February. These emergency shutdowns resulted in significantly reduced liquids production and lower volumes for the Company's inland marine transportation market during the 2021 first quarter. The 2022 and 2021 first quarters were impacted by poor operating conditions including seasonal wind and fog along theGulf Coast , flooding on theMississippi River , and various lock closures along theGulf Intracoastal Waterway , in addition to ice on theIllinois River . For both the 2022 second quarter and first six months, the inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of KMT revenues. For the 2021 second quarter and first six months, the inland tank barge fleet contributed 76% and 75%, respectively, and the coastal fleet contributed 24% and 25%, respectively, of KMT revenues. 17 -------------------------------------------------------------------------------- Inland tank barge utilization levels averaged in the mid-80% range during the 2022 first quarter and the low 90% range during the 2022 second quarter compared to the mid-70% range during the 2021 first quarter and the low to mid-80% range during the 2021 second quarter. The 2022 first six months reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization while the 2021 first six months was impacted by reduced demand resulting from the effects of the COVID-19 pandemic causing an economic slowdown as well as reduced volumes due to Winter Storm Uri during the 2021 first quarter partially offset by theColonial Pipeline outage which increased barge transportation activity in the 2021 second quarter. Coastal tank barge utilization levels averaged in the low 90% range during both the 2022 first and second quarters compared to the mid-70% range during the 2021 first quarter and the low to mid-70% range during the 2021 second quarter. The increase in coastal tank barge utilization during 2022 was primarily due to the retirement of underutilized barges in the 2021 third quarter and some modest improvements in customer demand. During both the 2022 second quarter and first six months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues. During both the 2021 second quarter and first six months, approximately 65% of KMT inland revenues were under term contracts and 35% were spot contract revenues. Inland time charters during both the 2022 second quarter and first six months represented 57% of the inland revenues under term contracts compared with 57% and 59% in the 2021 second quarter and first six months, respectively. During each of the 2022 and 2021 second quarters and first six months, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2022 second quarter and first six months compared to approximately 85% during both the 2021 second quarter and first six months. Term contracts have contract terms of 12 months or longer, while spot contracts have contract terms of less than 12 months.
The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2022 compared to contracts renewed during the corresponding quarter of 2021:
Three Months Ended March 31, 2022 June 30, 2022 Inland market: Term increase 7% - 9% 14% - 16% Spot increase 15% - 20% 15% - 18% Coastal market (a): Term increase 4% - 6% 10% - 12% Spot increase 4% - 6% 10% - 12% (a) Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type, and product serviced. Contract pricing in the coastal marine market continued to be impacted by the oversupply of tank barges in the coastal industry in 2022 and 2021. EffectiveJanuary 1, 2022 , annual escalators for labor and the producer price index on a number of inland multi-year contracts resulted in rate increases on those contracts of approximately 5%, excluding fuel. KMT operating margin was 7.6% and 6.3% for the 2022 second quarter and first six months, respectively, compared to 5.6% and 3.2% for the 2021 second quarter and first six months, respectively.
Distribution and Services
KDS sells genuine replacement parts, provides service mechanics to overhaul and repair engines, transmissions, reduction gears and related oilfield services equipment, rebuilds component parts or entire diesel engines, transmissions and reduction gears, and related equipment used in oilfield services, marine, power generation, on-highway and other industrial applications. The Company also rents equipment including generators, industrial compressors, high capacity lift trucks, and refrigeration trailers for use in a variety of industrial markets, manufactures and remanufactures oilfield service equipment, including pressure pumping units, and manufactures cementing and pumping equipment as well as coil tubing and well intervention equipment, electric power generation equipment, specialized electric distribution and control equipment, and high capacity energy storage/battery systems for oilfield service and railroad customers. For both the 2022 second quarter and first six months, KDS generated 42% of the Company's revenues, of which 82% and 85%, respectively, were generated from service and parts and 18% and 15%, respectively, from manufacturing. The results of KDS are largely influenced by the economic cycles of the oil and gas, marine, power generation, on-highway, and other related industrial markets. 18 -------------------------------------------------------------------------------- KDS revenues for the 2022 second quarter and first six months increased 29% and 30%, respectively, and operating income increased 172% and 206%, respectively, compared with the 2021 second quarter and first six months. In the commercial and industrial market, the increases for the 2022 second quarter and first six months were primarily attributable to strong economic activity acrossthe United States which resulted in higher business levels in the marine and on-highway businesses. Increased product sales inThermo King also contributed favorably to the 2022 second quarter and first six months results. These increases were partially offset by continuing supply chain constraints and delays. The 2021 first six months was impacted by Winter Storm Uri which caused reduced activity, especially in theSouthern United States , in the commercial and industrial market. For the 2022 second quarter and first six months, the commercial and industrial market contributed 55% and 56%, respectively, of KDS revenues. In the oil and gas market, revenues and operating income improved compared to the 2021 second quarter and first six months due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business. Although the manufacturing business was heavily impacted by supply chain delays, the business continued to experience increased orders and deliveries of new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing. For the 2022 second quarter and first six months, the oil and gas market contributed 45% and 44%, respectively, of KDS revenues. KDS operating margin was 5.7% and 5.1% for the 2022 second quarter and first six months, respectively, compared to 2.7% and 2.1% for the 2021 second quarter and first six months, respectively.
Outlook
Refinery and petrochemical utilization levels are near historic highs. This is favorable for the Company's barge utilization which is strong in both inland and coastal markets with steadily increasing rates. In KDS, despite persistent supply chain constraints and delays, demand for the Company's products and services continues to grow. Overall, the Company expects both KMT and KDS to deliver improved financial results in 2022. The inland marine transportation market, revenues and operating income are expected to continue to improve, driven by increased barge utilization, improvements in the spot market, and renewals of expiring term contracts at higher rates. The impacts of rising costs from inflationary pressures, including significantly higher fuel prices, are expected to be recovered as term contracts renew and contract escalators reprice over the coming quarters and into 2023. In coastal marine, modest improvements in demand and pricing are anticipated in 2022, but revenues and operating income are expected to be impacted by planned shipyard maintenance and ballast water treatment installations on certain vessels for the duration of the year. KDS results are largely influenced by the cycles of the oil and gas, marine, power generation, on-highway and other related industrial markets. In the oil and gas market, high commodity prices, increasing rig counts, and growing well completions activity are expected to result in increased demand for original equipment manufacturer products, parts, and services as well as for new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing. In commercial and industrial, favorable economic activity is expected to result in increased demand in power generation, marine repair, and on-highway. Overall, despite ongoing supply chain issues and long lead times, favorable oilfield fundamentals and increased demand in commercial and industrial are expected to result in improved financial results in 2022. Acquisitions OnMarch 31, 2022 , the Company paid$3.9 million in cash to purchase assets of a gearbox repair company in KDS. During the six months endedJune 30, 2021 , the Company purchased four inland tank barges from a leasing company for$7.5 million in cash. The Company had been leasing the barges prior to the purchase. Financing of the purchases was through cash provided by operating activities.
Results of Operations
The following table sets forth the Company's KMT and KDS revenues and the percentage of each to total revenues (dollars in thousands):
Three Months EndedJune 30 ,
Six Months Ended
2022 % 2021 % 2022 % 2021 % Marine transportation$ 405,655 58 %$ 332,887 59 %$ 761,191 58 %$ 633,838 60 % Distribution and services 292,309 42 226,737 41 547,555 42 422,636 40$ 697,964 100 %$ 559,624 100 %$ 1,308,746 100 %$ 1,056,474 100 % 19
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Marine Transportation
The following table sets forth KMT revenues, costs and expenses, operating income, and operating margin (dollars in thousands):
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 % Change 2022 2021 % Change Marine transportation revenues$ 405,655 $ 332,887 22 %$ 761,191 $ 633,838 20 % Costs and expenses: Costs of sales and operating expenses 294,343 229,959 28 548,702 444,084 24 Selling, general and administrative 28,294 28,272 - 60,630 58,850 3 Taxes, other than on income 7,990 8,677 (8 ) 15,810 15,406 3 Depreciation and amortization 44,211 47,501 (7 ) 88,297 95,080 (7 ) 374,838 314,409 19 713,439 613,420 16 Operating income$ 30,817 $ 18,478 67 %$ 47,752 $ 20,418 134 % Operating margins 7.6 % 5.6 %
6.3 % 3.2 %
Marine Transportation Revenues
The following table shows the marine transportation markets serviced by the Company, KMT revenue distribution, products moved and the drivers of the demand for the products the Company transports:
2022 Second Quarter 2022 Six Months Markets Revenue Revenue Serviced Distribution Distribution Products Moved Drivers Petrochemicals 49% 49% Benzene, Styrene, Consumer Methanol, Acrylonitrile, non-durables - Xylene, Naphtha, Caustic 70%, Consumer Soda, Butadiene, durables - 30% Propylene Black Oil 28% 28% Residual Fuel Oil, Coker Fuel for Power Feedstock, Vacuum Gas Plants and Oil, Asphalt, Carbon Ships, Feedstock Black Feedstock, Crude for Refineries, Oil, Natural Gas Road Condensate, Ship Bunkers Construction Refined 20% 20% Gasoline, No. 2 Oil, Jet Vehicle Usage, Petroleum Fuel, Heating Oil, Diesel Air Travel, Products Fuel, Ethanol Weather Conditions, Refinery Utilization Agricultural 3% 3% Anhydrous Ammonia, Corn, Cotton and Chemicals Nitrogen - Based Liquid Wheat Fertilizer, Industrial Production, Ammonia Chemical Feedstock Usage KMT revenues for the 2022 second quarter and first six months increased 22% and 20%, respectively, compared to the 2021 second quarter and first six months revenues. The increase for the 2022 second quarter and first six months was primarily due to increased tank barge utilization, higher term and spot pricing, and increased fuel rebills in the inland and coastal markets. The 2021 first six months was also heavily impacted by Winter Storm Uri which shut down manyGulf Coast refineries and chemical plants for an extended period of time starting in mid-February. These emergency shutdowns resulted in significantly reduced liquids production and lower volumes for the Company's inland marine transportation market during the 2021 first quarter. The 2022 and 2021 first quarters were impacted by poor operating conditions including seasonal wind and fog along theGulf Coast , flooding on theMississippi River , and various lock closures along theGulf Intracoastal Waterway , in addition to ice on theIllinois River . For both the 2022 second quarter and first six months, the inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of KMT revenues. For the 2021 second quarter and first six months, the inland tank barge fleet contributed 76% and 75%, respectively, and the coastal fleet contributed 24% and 25%, respectively, of KMT revenues. Inland tank barge utilization levels averaged in the mid-80% range during the 2022 first quarter and the low 90% range during the 2022 second quarter compared to the mid-70% range during the 2021 first quarter and the low to mid-80% range during the 2021 second quarter. The 2022 first six months reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization while the 2021 first six months was impacted by reduced demand resulting from the effects of the COVID-19 pandemic causing an economic slowdown as well as reduced volumes due to Winter Storm Uri during the 2021 first quarter partially offset by theColonial Pipeline outage which increased barge transportation activity in the 2021 second quarter. 20 -------------------------------------------------------------------------------- Coastal tank barge utilization levels averaged in the low 90% range during both the 2022 first and second quarters compared to the mid-70% range during the 2021 first quarter and the low to mid-70% range during the 2021 second quarter. The increase in coastal tank barge utilization during 2022 was primarily due to the retirement of underutilized barges in the 2021 third quarter and some modest improvements in customer demand. The petrochemical market, which is the Company's largest market, contributed 49% of KMT revenues for both the 2022 second quarter and first six months, reflecting increased volumes and utilization fromGulf Coast petrochemical plants as a result of improved economic conditions following the height of the COVID-19 pandemic. The black oil market, which contributed 28% of KMT revenues for both the 2022 second quarter and first six months, reflected improved demand as refinery utilization and production levels of refined petroleum products and fuel oils increased following the height of the COVID-19 pandemic. During the 2022 first six months, the Company transported crude oil and natural gas condensate produced from thePermian Basin and the Eagle Ford shale formation inTexas , both along theGulf Intracoastal Waterway with inland vessels and in theGulf of Mexico with coastal equipment. Additionally, the Company transported volumes of Utica natural gas condensate downriver from the Mid-Atlantic to theGulf Coast and Canadian and Bakken crude downriver from the Midwest to theGulf Coast . The refined petroleum products market, which contributed 20% of KMT revenues for both the 2022 second quarter and first six months, reflected increased volumes in the inland market as refinery utilization and product levels improved following the height of the COVID-19 pandemic. The agricultural chemical market, which contributed 3% of KMT revenues for both the 2022 second quarter and first six months, reflected improved demand for transportation of both domestically produced and imported products, primarily due to improved economic conditions following the height of the COVID-19 pandemic. For the 2022 second quarter, the inland operations incurred 2,762 delay days, 5% fewer than the 2,922 delay days that occurred during the 2021 second quarter. For the 2022 first six months, the inland operations incurred 5,899 delay days, 2% more than the 5,776 delay days that occurred during the 2021 first six months. Delay days measure the lost time incurred by a tow (towboat and one or more tank barges) during transit when the tow is stopped due to weather, lock conditions, or other navigational factors. Delay days reflected poor operating conditions due to heavy wind and fog along theGulf Coast and high water conditions on the Mississippi River System during the 2022 and 2021 first quarters. The 2022 first quarter was also impacted by ice on theIllinois River while the 2021 first quarter was impacted by closures of key waterways as a result of lock maintenance projects. During both the 2022 second quarter and first six months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues. During both the 2021 second quarter and first six months, approximately 65% of KMT inland revenues were under term contracts and 35% were spot contract revenues. Inland time charters during both the 2022 second quarter and first six months represented 57% of the inland revenues under term contracts compared with 57% and 59% in the 2021 second quarter and first six months, respectively. During each of the 2022 and 2021 second quarters and first six months, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2022 second quarter and first six months compared to approximately 85% during both the 2021 second quarter and first six months. Term contracts have contract terms of 12 months or longer, while spot contracts have contract terms of less than 12 months.
The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2022 compared to contracts renewed during the corresponding quarter of 2021:
Three Months Ended March 31, 2022 June 30, 2022 Inland market: Term increase 7% - 9% 14% - 16% Spot increase 15% - 20% 15% - 18% Coastal market (a): Term increase 4% - 6% 10% - 12% Spot increase 4% - 6% 10% - 12% (a) Spot and term contract pricing in the coastal market are contingent on various factors including geographic location, vessel capacity, vessel type, and product serviced. Contract pricing in the coastal marine market continued to be impacted by the oversupply of tank barges in the coastal industry in 2022 and 2021. EffectiveJanuary 1, 2022 , annual escalators for labor and the producer price index on a number of inland multi-year contracts resulted in rate increases on those contracts of approximately 5%, excluding fuel. 21 --------------------------------------------------------------------------------
Marine Transportation Costs and Expenses
Costs and expenses for the 2022 second quarter and first six months increased 19% and 16%, respectively, compared to the 2021 second quarter and first six months. Costs of sales and operating expenses for the 2022 second quarter and first six months increased 28% and 24%, respectively, compared with the 2021 second quarter and first six months. The increases during the 2022 second quarter and first six months primarily reflect improved business activity levels and increased fuel costs as well as incremental costs associated with the COVID-19 Omicron variant during the first quarter. The inland marine transportation fleet operated an average of 270 towboats during the 2022 second quarter, of which an average of 59 were chartered, compared to 260 during the 2021 second quarter, of which an average of 42 were chartered. The increase was primarily due to increasing business activity levels during the 2022 second quarter. Generally, variability in demand or anticipated demand, as tank barges are added or removed from the fleet, as chartered towboat availability changes, or as weather or water conditions dictate, the Company charters in or releases chartered towboats in an effort to balance horsepower needs with current requirements. The Company has historically used chartered towboats for approximately one-fourth of its horsepower requirements. During the 2022 second quarter, the inland operations consumed 12.6 million gallons of diesel fuel compared to 11.8 million gallons consumed during the 2021 second quarter. The average price per gallon of diesel fuel consumed during the 2022 second quarter was$3.98 per gallon compared with$2.06 per gallon for the 2021 second quarter. During the 2022 first six months, the inland operations consumed 24.2 million gallons of diesel fuel compared to 22.6 million gallons consumed during the 2021 first six months. The average price per gallon of diesel fuel consumed during the 2022 first six months was$3.27 per gallon compared with$1.86 per gallon for the 2021 first six months. Fuel escalation and de-escalation clauses are typically included in term contracts and are designed to rebate fuel costs when prices decline and recover additional fuel costs when fuel prices rise; however, there is generally a 30 to 90 day delay before contracts are adjusted. Spot contracts do not have escalators for fuel. Selling, general and administrative expenses for the 2022 second quarter were flat compared to the 2021 second quarter and increased 3% for the 2022 first six months compared to the 2021 first six months. The increase for the 2022 first six months was primarily due to increased incentive compensation accruals and higher business activity levels. Business activity levels in the 2021 first six months were impacted by COVID-19 and the resulting economic slowdown as well as Winter Storm Uri during the 2021 first quarter. Depreciation and amortization for the both the 2022 second quarter and first six months decreased 7% compared to the 2021 second quarter and first six months, primarily reflecting retirements, sales, and impairment of marine equipment during 2021 and 2022.
Marine Transportation Operating Income and Operating Margin
KMT operating income for the 2022 second quarter and first six months increased 67% and 134%, respectively, compared with the 2021 second quarter and first six months. The 2022 second quarter operating margin was 7.6% compared with 5.6% for the 2021 second quarter. The 2022 first six months operating margin was 6.3% compared with 3.2% for the 2021 first six months. The increases in operating income and operating margin were primarily due to increased barge utilization and higher term and spot contract pricing in the inland and coastal markets, each as a result of improving business activity levels, partially offset by increasing fuel prices as well as the impacts of the COVID-19 Omicron variant during the 2022 first quarter. The 2021 first six months activity levels were also impacted by Winter Storm Uri.
Distribution and Services
The following table sets forth KDS revenues, costs and expenses, operating income, and operating margin (dollars in thousands):
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 % Change 2022 2021 % Change Distribution and services revenues$ 292,309 $ 226,737 29 %$ 547,555 $ 422,636 30 % Costs and expenses: Costs of sales and operating expenses 229,196 180,096 27 425,715 329,223 29 Selling, general and administrative 40,653 32,987 23 82,575 69,475 19 Taxes, other than on income 1,590 1,658 (4 ) 3,318 3,150 5 Depreciation and amortization 4,133 5,840 (29 ) 8,239 11,721 (30 ) 275,572 220,581 25 519,847 413,569 26 Operating income$ 16,737 $ 6,156 172 %$ 27,708 $ 9,067 206 % Operating margins 5.7 % 2.7 % 5.1 % 2.1 % 22
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Distribution and Services Revenues
The following table shows the markets serviced by KDS, the revenue distribution, and the customers for each market:
2022 Second Quarter 2022 Six Months Revenue Revenue Markets Serviced Distribution Distribution Customers Commercial and Industrial 55% 56% Inland River Carriers - Dry and Liquid, Offshore Towing - Dry and Liquid, Offshore Oilfield Services - Drilling Rigs & Supply Boats, Harbor Towing, Dredging, Great Lakes Ore Carriers, Pleasure Crafts, On and Off-Highway Transportation, Power Generation, Standby Power Generation, Pumping Stations, Mining Oil and Gas 45% 44% Oilfield Services, Oil and Gas Operators and Producers KDS revenues for the 2022 second quarter and first six months increased 29% and 30%, respectively, compared to the 2021 second quarter and first six months. In the commercial and industrial market, the increase for the 2022 second quarter and first six months was primarily attributable to strong economic activity acrossthe United States which resulted in higher business levels in the marine and on-highway businesses. Increased product sales inThermo King also contributed favorably to the 2022 second quarter and first six months results. These increases were partially offset by continuing supply chain constraints and delays. The 2021 first six months was impacted by Winter Storm Uri which caused reduced activity, especially in theSouthern United States , in the commercial and industrial market. For the 2022 second quarter and first six months, the commercial and industrial market contributed 55% and 56%, respectively, of KDS revenues. In the oil and gas market, revenues improved compared to the 2021 second quarter and first six months due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business. Although the manufacturing business was heavily impacted by supply chain delays, the business continued to experience increased orders and deliveries of new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing. For the 2022 second quarter and first six months, the oil and gas market contributed 45% and 44%, respectively, of KDS revenues.
Distribution and Services Costs and Expenses
Costs and expenses for the 2022 second quarter and first six months increased 25% and 26%, respectively, compared with the 2021 second quarter and first six months. Costs of sales and operating expenses for the 2022 second quarter and first six months increased 27% and 29%, respectively, compared with the 2021 second quarter and first six months, reflecting higher demand in the marine and on-highway businesses in commercial and industrial markets as well as increased demand in the oil and gas market as a result of higher oilfield activity levels. Selling, general and administrative expenses for the 2022 second quarter and first six months increased 23% and 19%, respectively, compared to the 2021 second quarter and first six months, primarily due to salaries and costs related to the acquisition of assets of an energy storage systems manufacturer in the 2021 fourth quarter, annual salary raises, severance expense, and higher warranty accruals associated with increased activity levels. Depreciation and amortization for the 2022 second quarter and first six months decreased 29% and 30%, respectively, compared to the 2021 second quarter and first six months, primarily due to sales of property and equipment and reduced capital spending during 2021.
Distribution and Services Operating Income and Operating Margin
KDS operating income for the 2022 second quarter and first six months increased 172% and 206%, respectively, compared with the 2021 second quarter and first six months. The 2022 second quarter operating margin was 5.7% compared with 2.7% for the 2021 second quarter. The 2022 first six months operating margin was 5.1% compared to 2.1% for the 2021 first six months. The results reflect increased business levels in both the commercial and industrial and oil and gas markets.
Gain on Disposition of Assets
The Company reported a net gain on disposition of assets of$2.7 million for the 2022 second quarter and$2.1 million for the 2021 second quarter. The Company reported a net gain on disposition of assets of$7.6 million for the 2022 first six months and$4.3 million for the 2021 first six months. The net gains were primarily from sales of marine transportation equipment. 23 --------------------------------------------------------------------------------
Other Income and Expenses
The following table sets forth other income, noncontrolling interests, and interest expense (dollars in thousands):
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 % Change 2022 2021 % Change Other income$ 3,740 $ 2,523 48 %$ 8,048 $ 6,314 27 % Noncontrolling interests$ (149 ) $ (162 ) (8 )%$ (301 ) $ (417 ) (28 )% Interest expense$ (10,640 ) $ (10,706 ) (1 )%$ (20,843 ) $ (21,672 ) (4 )% Other Income Other income for the 2022 and 2021 second quarters include income of$3.5 million and$2.3 million , respectively, and the 2022 and 2021 first six months include income of$6.9 million and$4.3 million , respectively, for all components of net benefit costs except the service cost component related to the Company's defined benefit plans. Other income for the 2022 first six months also reflects lower interest income related to the Company's federal income tax refunds as compared to the 2021 first six months.
Interest Expense
The following table sets forth average debt and average interest rate (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Average debt$ 1,149,355 $ 1,330,618 $ 1,163,759 $ 1,373,873 Average interest rate 3.7 % 3.2 % 3.6 % 3.1 % Interest expense for the 2022 second quarter and first six months decreased 1% and 4%, respectively, compared with the 2021 second quarter and first six months, primarily due to lower average debt outstanding as a result of debt repayments during 2021 and 2022, partially offset by a higher average interest rate. There was no capitalized interest excluded from interest expense during the 2022 or 2021 first six months.
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