KIRBY CORPORATION 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, 2020 . 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 (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 were as follows (in thousands):
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
Weighted average number of common
stock - diluted 60,274 59,937 60,220 59,898
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. Through its
distribution and services segment, the Company provides after-market service and
parts for engines, transmissions, reduction gears and related equipment used in
oilfield services, marine, power generation, on-highway, and other industrial
applications. The Company also rents equipment including generators, industrial
compressors, railcar movers, and high capacity lift trucks for use in a variety
of industrial markets, and manufactures and remanufactures oilfield service
equipment, including pressure pumping units, for land-based oilfield service
customers.
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,
2021 2020 2021 2020
Total revenues $ 559,624 $ 541,159 $ 1,056,474 $ 1,185,085
Net earnings (loss) attributable
to Kirby $ 10,190 $ 25,002 $ 6,815 $ (322,239 )
Net earnings (loss) per share
attributable to Kirby common
stockholders - diluted $ 0.17 $ 0.42 $ 0.11 $ (5.38 )
Net cash provided by operating
activities $ 197,818 $ 242,144
Capital expenditures $ 38,369 $ 92,830
The 2020 first quarter included $561,274,000 before taxes, $433,341,000 after
taxes, or $7.24 per share, non-cash charges related to inventory write-downs,
impairment of long-lived assets, including intangible assets and property and
equipment, and impairment of goodwill in the distribution and services segment.
See Note 7, Impairments and Other Charges in the financial statements for
additional information. In addition, the 2020 first quarter was favorably
impacted by an income tax benefit of $50,824,000 , or $0.85 per share related to
net operating losses generated in 2018 and 2019 used to offset taxable income
generated between 2013 and 2017. See Note 9, Taxes on Income in the financial
statements for additional information.
Cash provided by operating activities for the 2021 first six months decreased
primarily due to lower revenues and operating income in the marine
transportation segment, partially offset by the receipt of a tax refund of
$119,493,000 , including accrued interest, for the Company's 2019 federal tax
return. For the 2021 first six months, capital expenditures of $38,369,000
included $31,118,000 in the marine transportation segment and $7,251,000 in the
distribution and services segment and corporate, more fully described under cash
flow and capital expenditures below.
16
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The Company projects that capital expenditures for 2021 will be in the
$125,000,000 to $145,000,000 range. The 2021 construction program will consist
of approximately $15,000,000 for the construction of new inland towboats,
$95,000,000 to $110,000,000 primarily for capital upgrades and improvements to
existing marine equipment and facilities, and $15,000,000 to $20,000,000 for new
machinery and equipment, facilities improvements, and information technology
projects in the distribution and services segment and corporate.
The Company's debt-to-capitalization ratio decreased to 29.1% at June 30, 2021
from 32.2% at December 31, 2020 , primarily due to repayments under the Revolving
Credit Facility in the 2021 first six months and an increase in total equity,
primarily due to the amortization of unearned share-based compensation for the
2021 first six months of $9,148,000 and net earnings attributable to Kirby of
$6,815,000 , partially offset by tax withholdings of $2,853,000 on restricted
stock and RSU vestings. The Company's debt outstanding as of June 30, 2021 and
December 31, 2020 is detailed in Long-Term Financing below.
Marine Transportation
For the 2021 second quarter and first six months, the Company's marine transportation segment generated 59% and 60%, respectively, 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, the Company's marine transportation business 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,
2021 2020
Inland tank barges:
Owned 1,002 1,079
Leased 44 52
Total 1,046 1,131
Barrel capacity (in millions) 23.4 25.6
Active inland towboats (quarter average): Owned 218 265 Chartered 42 59 Total 260 324 Coastal tank barges: Owned 42 45 Leased 1 2 Total 43 47 Barrel capacity (in millions) 4.0 4.5 Coastal tugboats: Owned 38 40 Chartered 3 4 Total 41 44 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 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.
During the 2021 first six months, the Company retired 17 inland tank barges and
returned three leased barges. The net result was a decrease of 20 inland tank
barges and approximately 644,000 barrels of capacity.
17
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The Company's marine transportation segment's revenues for the 2021 second
quarter and first six months decreased 13% and 19%, respectively, and operating
income decreased 64% and 80%, respectively, compared with the 2020 second
quarter and first six months revenues and operating income. The decreases were
primarily due to reduced barge utilization in the inland and coastal markets as
well as reduced term and spot pricing in the inland market when compared to
2020, however, the year over year spot contract price decrease for the 2021
second quarter was partially offset by spot contract prices improving
approximately 10% from the 2021 first quarter to the 2021 second quarter. The
decreases were partially offset by the addition of the Savage Inland Marine, LLC
("Savage") fleet acquired on April 1, 2020 . The 2021 first six months was also
heavily impacted by Winter Storm Uri during the first quarter which shut down
many Gulf Coast refineries and chemical plants for an extended period of time
starting in mid-February. These emergency shutdowns resulted in significantly
reduced liquids production and lower volumes for the Company's inland marine
transportation market during the 2021 first quarter. The 2021 and 2020 first
quarters were also impacted by poor operating conditions including seasonal wind
and fog along the Gulf Coast , flooding on the Mississippi River , and various
lock closures along the Gulf Intracoastal Waterway , in addition to ice on the
Illinois River during the 2021 first quarter and increased shipyard days on
large capacity coastal vessels during the 2020 first quarter. 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 marine transportation revenues. For the 2020 second quarter and
first six months, the inland tank barge fleet contributed 80% and 79%,
respectively, and the coastal fleet contributed 20% and 21%, respectively, of
marine transportation revenues.
Inland tank barge utilization levels averaged in the mid-70% range during the
2021 first quarter and the low to mid-80% range during the 2021 second quarter.
In 2020, inland tank barge utilization levels averaged in the low to mid-90%
range during the 2020 first quarter and the mid-80% range during the 2020 second
quarter. The 2021 first six months and the 2020 second quarter were impacted by
reduced demand as a result of the COVID-19 pandemic and the resulting economic
slowdown. The 2021 second quarter was favorably impacted by the Colonial
Pipeline outage in May. The 2021 first six months was also impacted by reduced
volumes as a result of Winter Storm Uri during the first quarter. The 2020 first
quarter experienced strong demand from petrochemicals, black oil, and refined
petroleum products customers. In addition, extensive delay days due to poor
operating conditions and lock maintenance projects in the 2020 first quarter
slowed the transport of customer cargoes and contributed to strong utilization.
Coastal tank barge utilization levels averaged in the mid-70% range during the
2021 first quarter and the low to mid-70% range during the 2021 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. The 2021 first six months and the 2020 second quarter were impacted by
reduced demand as a result of the COVID-19 pandemic and the resulting economic
slowdown. Barge utilization in the coastal marine fleet continued to be
impacted by the oversupply of smaller tank barges in the coastal industry in
2021 and 2020.
During both the 2021 second quarter and first six months, approximately 65% of
marine transportation's inland revenues were under term contracts and 35% were
spot contract revenues. During the 2020 second quarter and first six months,
approximately 65% and 60%, respectively, of marine transportation's inland
revenues were under term contracts and 35% and 40%, respectively, were spot
contract revenues. Inland time charters during the 2021 second quarter and first
six months represented 57% and 59%, respectively, of the inland revenues under
term contracts compared with 68% and 67% in the 2020 second quarter and first
six months, respectively. During both the 2021 second quarter and first six
months, approximately 80% of the coastal revenues were under term contracts and
20% were spot contract revenues. 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. Coastal time charters represented
approximately 85% of coastal revenues under term contracts during both the 2021
second quarter and first six months compared with approximately 90% during both
the 2020 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.
18
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The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2021 compared to contracts renewed during the corresponding quarter of 2020:
Three months ended
March 31, 2021 June 30, 2021
Inland market:
Term decrease (7)% - (9)% (6)% - (8)%
Spot decrease (25)% - (30)% (10)% - (15)%
Coastal market (a):
Term increase (decrease) No change No change
Spot increase (decrease) No change No change
(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.
Effective January 1, 2021 , 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 3%, excluding fuel.
The marine transportation segment operating margin was 5.6% for the 2021 second
quarter compared with 13.5% for the 2020 second quarter and 3.2% for the 2021
first six months compared to 13.0% for the 2020 first six months.
Distribution and Services
The Company, through its distribution and services segment, sells genuine
replacement parts, provides service mechanics to overhaul and repair engines,
transmissions, reduction gears and related oilfield services equipment, rebuilds
component parts or entire diesel engines, transmissions and reduction gears and
related equipment used in oilfield services, marine, power generation,
on-highway and other industrial applications. The Company also rents equipment
including generators, industrial compressors, railcar movers, and high capacity
lift trucks for use in a variety of industrial markets, and manufactures and
remanufactures oilfield service equipment, including pressure pumping units, for
land-based oilfield service customers.
For the 2021 second quarter and first six months, the distribution and services
segment generated 41% and 40%, respectively, of the Company's revenues, of which
83% and 86%, respectively, was generated from service and parts and 17% and 14%,
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, power generation,
on-highway, and other industrial markets.
Distribution and services revenues for the 2021 second quarter and first six
months increased 42% and 5%, respectively, and operating income increased 144%
and 187%, respectively, compared with the 2020 second quarter and first six
months revenues and operating income. In the commercial and industrial market,
the increases in the 2021 second quarter compared to the 2020 second quarter
were primarily attributable to improved economic activity across the U.S. which
resulted in higher business levels in the on-highway and power generation
businesses. The marine repair business was down slightly compared to the 2020
second quarter and first six months due to reduced service activity. The
commercial and industrial market 2021 first six months was impacted by Winter
Storm Uri with reduced activity levels at many locations across the Southern
U.S. during the first quarter. For the 2021 second quarter and first six
months, the commercial and industrial market contributed 62% and 65%,
respectively, of the distribution and services revenues.
In the oil and gas market, revenues increased compared to the 2020 second
quarter and first six months due to higher oilfield activity which resulted in
increased demand for new and overhauled engines, transmissions, parts, and
service. The manufacturing business also experienced increases in orders and
deliveries of new and remanufactured pressure pumping equipment. The oil and
gas market 2021 first six months was impacted by Winter Storm Uri with reduced
activity levels at many locations across Texas and Oklahoma during the first
quarter. For the 2021 second quarter and first six months, the oil and gas
market contributed 38% and 35%, respectively, of the distribution and services
revenues.
The distribution and services segment operating margin for the 2021 second
quarter was 2.7% compared with (8.8)% for the 2020 second quarter and 2.1% for
the 2021 first six months compared to (2.6)% for the 2020 first six months. The
2020 second quarter results were adversely impacted by the 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 workforce reductions.
19
--------------------------------------------------------------------------------Outlook Although the recent spike in COVID-19 cases in pockets of theU.S. and around the world has created some uncertainty which could slow the pace of the economic recovery, the Company expects further growth in both marine transportation and distribution and services during the second half of 2021 as theU.S. and international economies reopen. Increasing supply chain and labor constraints and delays of key components, particularly in distribution and services, could defer some product sales and manufacturing deliveries in the second half of the year. In the inland marine transportation market, barge utilization in July improved into the mid-80% range and is expected to gradually increase into the high 80% to 90% range during the second half of 2021. This increase in activity should yield further improvements in the spot market, which currently represents approximately 35% of inland revenue, and contribute favorably to revenues and operating margins. During the balance of 2021 and into 2022, term contracts that renewed lower during the last several quarters should gradually reset to reflect the improved market conditions. Overall, inland revenues are expected to increase in the second half of the year with inland operating margins in the low double digits for the third quarter and further operating margin improvement expected in the fourth quarter subject to seasonal weather disruptions and potential COVID-19 issues slowing the economic recovery. As ofJune 30, 2021 , the Company estimated there were approximately 4,000 inland tank barges in the industry fleet, of which approximately 350 were over 30 years old and approximately 260 of those over 40 years old. The Company estimates that approximately 60 to 75 new tank barges have been ordered for delivery in 2021 and many older tank barges, including an expected 26 by the Company, will be retired, dependent on 2021 market conditions. Historically, 75 to 150 older inland tank barges are retired from service each year industry-wide. The extent of the retirements is dependent on petrochemical and refinery production levels, and crude oil and natural gas condensate movements, both of which can have a direct effect on industry-wide tank barge utilization, as well as term and spot contract rates. In the coastal marine transportation market, market conditions are expected to remain challenging for the remainder of the year, but increasing demand for refined products is expected to contribute to modest improvement in spot market activity levels. As a result, the Company expects coastal barge utilization to increase into the mid-70% range with the third and fourth quarter revenues and operating margins modestly improved compared to the 2021 second quarter. As ofJune 30, 2021 , the Company estimated there were approximately 275 tank barges operating in the 195,000 barrels or less coastal industry fleet, the sector of the market in which the Company operates, and approximately 20 of those were over 25 years old. The Company is aware of one announced small specialized coastal ATB in the 195,000 barrels or less category that was delivered in the 2021 first quarter with no further coastal barges currently under construction. The results of the distribution and services segment are largely influenced by the cycles of the land-based oilfield service and oil and gas operator and producer markets, marine, power generation, on-highway and other industrial markets. In the commercial and industrial market, continued economic improvements are expected to contribute to enhanced activity levels in the on-highway and power generation markets. Third quarter results are also expected to benefit from seasonal summer increases in demand for back-up power generation rental equipment andThermo King products and service. These gains are expected to be partially offset by modest seasonal reductions in marine repair activity. In the distribution and services oil and gas market, favorable commodity prices and increasing well completions activity are expected to drive increased demand for new transmissions, service, and parts for the duration of the year. In manufacturing, new orders for environmentally friendly pressure pumping and frac related power generation equipment, as well as remanufacturing of existing conventional equipment, is expected to boost demand in the second half of the year. Overall, compared to 2020, full year distribution and services revenues are expected to increase by 15% to 25% with positive operating margins in the low to mid-single digits.
While the COVID-19 pandemic has adversely impacted the Company's business, to date, it has not materially adversely impacted its ability to conduct its operations in either business segment. The Company has maintained business continuity and expects to continue to do so.
Acquisition During the six months endedJune 30, 2021 , the Company purchased four inland tank barges from a leasing company for$7,470,000 in cash. The Company had been leasing the barges prior to the purchase. Financing of the purchase was through cash provided by operating activities. 20 --------------------------------------------------------------------------------
Results of Operations
The following table sets forth the Company's marine transportation and distribution and services revenues and the percentage of each to total revenues for the comparable periods (dollars in thousands):
Three months ended June 30, Six months ended June 30,
2021 % 2020 % 2021 % 2020 %
Marine
transportation $ 332,887 59 % $ 380,987 70 % $ 633,838 60 % $ 784,244 66 %
Distribution
and services 226,737 41 160,172 30 422,636 40 400,841 34
$ 559,624 100 % $ 541,159 100 % $ 1,056,474 100 % $ 1,185,085 100 %
Marine Transportation
The following table sets forth the Company's marine transportation segment's
revenues, costs and expenses, operating income, and operating margin (dollars in
thousands):
Three months ended June 30,
Six months ended
2021 2020 % Change 2021 2020 % Change
Marine transportation
revenues $ 332,887 $ 380,987 (13 )% $ 633,838 $ 784,244 (19 )%
Costs and expenses:
Costs of sales and
operating expenses 229,959 244,990 (6 ) 444,084 510,885 (13 )
Selling, general and
administrative 28,272 26,816 5 58,850 58,740 -
Taxes, other than on
income 8,677 11,122 (22 ) 15,406 20,545 (25 )
Depreciation and
amortization 47,501 46,684 2 95,080 91,983 3
314,409 329,612 (5 ) 613,420 682,153 (10 )
Operating income $ 18,478 $ 51,375 (64 )% $ 20,418 $ 102,091 (80 )%
Operating margins 5.6 % 13.5 % 3.2 % 13.0 %
Marine Transportation Revenues
The following table shows the marine transportation markets serviced by the Company, the marine transportation revenue distribution, products moved and the drivers of the demand for the products the Company transports:
2021 Second 2021 Six
Quarter Months
Markets Revenue Revenue
Serviced Distribution Distribution Products Moved Drivers
Petrochemicals 50% 50% Benzene, Styrene, Consumer
Methanol, Acrylonitrile, non-durables -
Xylene, Naphtha, Caustic 70%, Consumer
Soda, Butadiene, durables - 30%
Propylene
Black Oil 26% 26% 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 4% 4% Anhydrous Ammonia, Corn, Cotton and
Chemicals Nitrogen - Based Liquid Wheat
Fertilizer, Industrial Production,
Ammonia Chemical
Feedstock Usage
21
-------------------------------------------------------------------------------- The Company's marine transportation segment's revenues for the 2021 second quarter and first six months decreased 13% and 19%, respectively, compared with the 2020 second quarter and first six months revenues. The decrease was primarily due to reduced barge utilization in the inland and coastal markets as well as reduced term and spot pricing in the inland market when compared to 2020, however, the year over year spot contract price decrease for the 2021 second quarter was partially offset by spot contract prices improving approximately 10% from the 2021 first quarter to the 2021 second quarter. The decrease was partially offset by the addition of the Savage fleet acquired onApril 1, 2020 . The 2021 first six months was also heavily impacted by Winter Storm Uri during the first quarter 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 2021 and 2020 first quarters were also 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 during the 2021 first quarter and increased shipyard days on large capacity coastal vessels during the 2020 first quarter. 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 marine transportation revenues. For the 2020 second quarter and first six months, the inland tank barge fleet contributed 80% and 79%, respectively, and the coastal fleet contributed 20% and 21%, respectively, of marine transportation revenues. Inland tank barge utilization levels averaged in the mid-70% range during the 2021 first quarter and the low to mid-80% range during the 2021 second quarter. In 2020, inland tank barge utilization levels averaged in the low to mid-90% range during the 2020 first quarter and the mid-80% range during the 2020 second quarter. The 2021 first six months and the 2020 second quarter were impacted by reduced demand as a result of the COVID-19 pandemic and the resulting economic slowdown. The 2021 second quarter was favorably impacted by theColonial Pipeline outage in May. The 2021 first six months was also impacted by reduced volumes as a result of Winter Storm Uri during the first quarter. The 2020 first quarter experienced strong demand from petrochemicals, black oil, and refined petroleum products customers. In addition, extensive delay days due to poor operating conditions and lock maintenance projects in the 2020 first quarter slowed the transport of customer cargoes and contributed to strong utilization. Coastal tank barge utilization levels averaged in the mid-70% range during the 2021 first quarter and the low to mid-70% range during the 2021 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. The 2021 first six months and the 2020 second quarter were impacted by reduced demand as a result of the COVID-19 pandemic and the resulting economic slowdown. Barge utilization in the coastal marine fleet continued to be impacted by the oversupply of smaller tank barges in the coastal industry in 2021 and 2020. The petrochemical market, the Company's largest market, contributed 50% of marine transportation revenues for both the 2021 second quarter and first six months reflecting reduced volumes fromGulf Coast petrochemical plants for both domestic consumption and to terminals for export destinations as a result of the COVID-19 pandemic. During the 2021 first quarter, as much as 80% ofU.S. chemical plant capacity was offline at the peak of Winter Storm Uri, contributing to significantly reduced volumes and revenues; however, volumes and revenues sequentially improved in the 2021 second quarter as chemical plants resumed full operations by May. The black oil market, which contributed 26% of marine transportation revenues for both the 2021 second quarter and first six months, reflected reduced demand as refinery production levels and the export of refined petroleum products and fuel oils declined as a result of the COVID-19 pandemic. During the 2021 first quarter,U.S. refinery utilization dropped to near 40% during the peak of Winter Storm Uri, contributing to significantly reduced volumes and revenues; however, refinery utilization increased back to near 90% in the 2021 second quarter contributing to sequentially increased volumes and revenues. During the 2021 second quarter and first six months, the Company continued to transport crude oil and natural gas condensate produced from thePermian Basin as well as reduced volumes from the Eagle Ford shale formation inTexas , both along theGulf Intracoastal Waterway with inland vessels and in theGulf of Mexico with coastal equipment. Additionally, the Company transported volumes of Utica natural gas condensate downriver from the Mid-Atlantic to theGulf Coast and Canadian and Bakken crude downriver from the Midwest to theGulf Coast . The refined petroleum products market, which contributed 20% of marine transportation revenues for both the 2021 second quarter and first six months, reflected lower volumes in both the inland and coastal markets as a result of reduced demand related to the COVID-19 pandemic. In addition, during the 2021 first quarter,U.S. refinery utilization dropped to near 40% during the peak of Winter Storm Uri, contributing to significantly reduced volumes and revenues; however, refinery utilization increased back to near 90% in the 2021 second quarter contributing to sequentially increased volumes and revenues. The agricultural chemical market, which contributed 4% of marine transportation revenues for both the 2021 second quarter and first six months, saw modest reductions in demand for transportation of both domestically produced and imported products, primarily due to reduced demand associated with the COVID-19 pandemic. 22
-------------------------------------------------------------------------------- For the 2021 second quarter, the inland operations incurred 2,922 delay days, 4% more than the 2,815 delay days that occurred during the 2020 second quarter. For the first six months of 2021, the inland operations incurred 5,776 delay days, 21% fewer than the 7,305 delay days that occurred during the 2020 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 for the 2021 and 2020 first six months reflected poor operating conditions due to heavy wind and fog along theGulf Coast , high water conditions on the Mississippi River System, and closures of key waterways as a result of lock maintenance projects during the 2021 and 2020 first quarters. The decrease in delay days in the 2021 first six months reflects reduced volumes and barge utilization compared to the 2020 first six months while the increase in delay days in the 2021 second quarter reflects significant lock closures along theGulf Intracoastal Waterway compared to the 2020 second quarter. During both the 2021 second quarter and first six months, approximately 65% of marine transportation's inland revenues were under term contracts and 35% were spot contract revenues. During the 2020 second quarter and first six months, approximately 65% and 60%, respectively, of marine transportation's inland revenues were under term contracts and 35% and 40%, respectively, were spot contract revenues. Inland time charters during the 2021 second quarter and first six months represented 57% and 59%, respectively, of the inland revenues under term contracts compared with 68% and 67% in the 2020 second quarter and first six months, respectively. During both the 2021 second quarter and first six months, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues. 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. Coastal time charters represented approximately 85% of coastal revenues under term contracts during both the 2021 second quarter and first six months compared with approximately 90% during both the 2020 second quarter and first six months.
The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2021 compared to contracts renewed during the corresponding quarter of 2020:
Three months ended
March 31, 2021 June 30, 2021
Inland market:
Term decrease (7)% - (9)% (6)% - (8)%
Spot decrease (25)% - (30)% (10)% - (15)%
Coastal market (a):
Term increase (decrease) No change No change
Spot increase (decrease) No change No change
(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.
Effective January 1, 2021 , 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 3%, excluding fuel.
Marine Transportation Costs and Expenses
Costs and expenses for the 2021 second quarter and first six months decreased 5% and 10%, respectively, compared with the 2020 second quarter and first six months. Costs of sales and operating expenses for the 2021 second quarter and first six months decreased 6% and 13%, respectively, compared with the 2020 second quarter and first six months, respectively, primarily due to cost reductions across the segment, including a reduction in towboats during the 2020 last nine months and the 2021 first quarter and a reduction in maintenance expenses, partially offset by the addition of the Savage fleet inApril 2020 . The inland marine transportation fleet operated an average of 260 towboats during the 2021 second quarter, of which an average of 42 were chartered, compared with 324 during the 2020 second quarter, of which an average of 59 were chartered. The decrease was primarily due to chartered towboats released during the 2020 last six months and the 2021 first quarter. Generally, as demand or anticipated demand increases or decreases, as new tank barges are added to or removed from the fleet, as chartered towboat availability changes, or as weather or water conditions dictate, the Company charters in or releases chartered towboats in an effort to balance horsepower needs with current requirements. The Company has historically used chartered towboats for approximately one-fourth of its horsepower requirements. 23 -------------------------------------------------------------------------------- During the 2021 second quarter, the inland operations consumed 11.8 million gallons of diesel fuel compared to 13.5 million gallons consumed during the 2020 second quarter. The average price per gallon of diesel fuel consumed during the 2021 second quarter was$2.06 per gallon compared with$1.12 per gallon for the 2020 second quarter. During the 2021 first six months, the inland operations consumed 22.6 million gallons of diesel fuel compared to 26.1 million gallons consumed during the 2020 first six months. The average price per gallon of diesel fuel consumed during the 2021 first six months was$1.86 per gallon compared with$1.55 per gallon for the 2020 first six 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 contracts are adjusted. Spot contracts do not have escalators for fuel.
Selling, general and administrative expenses for the 2021 second quarter increased 5% and was flat for the first six months compared with the 2020 second quarter and first six months. The increase in the 2021 second quarter was primarily due to higher incentive compensation accruals.
Taxes, other than on income, for the 2021 second quarter and first six months decreased 22% and 25%, respectively, compared with the 2020 second quarter and first six months, primarily due to lower property taxes on marine transportation equipment and lower waterway use taxes. Depreciation and amortization for the 2021 second quarter and first six months increased 2% and 3%, respectively, compared to the 2020 second quarter and first six months. The increase in the 2021 first six months reflects the acquisition of the Savage fleet inApril 2020 .
Marine Transportation Operating Income and Operating Margin
Marine transportation operating income for the 2021 second quarter and first six months decreased 64% and 80%, respectively, compared with the 2020 second quarter and first six months. The 2021 second quarter operating margin was 5.6% compared with 13.5% for the 2020 second quarter. The 2021 first six months operating margin was 3.2% compared with 13.0% for the 2020 first six months. The decreases in operating income and operating margin were primarily due to reduced barge utilization in the inland and coastal markets as well as decreased term and spot contract pricing in the inland market, each as a result of a reduction in demand due to the COVID-19 pandemic as well as the impact of reduced volumes as a result of Winter Storm Uri, partially offset by cost reductions throughout the organization, including chartered towboats released during the 2020 last nine months and the 2021 first quarter. Distribution and Services
The following table sets forth the Company's distribution and services segment's revenues, costs and expenses, operating income (loss), and operating margin (dollars in thousands):
Three months ended June 30 ,
Six months ended
2021 2020 % Change 2021 2020 % Change
Distribution and
services revenues $ 226,737 $ 160,172 42 % $ 422,636 $ 400,841 5 %
Costs and expenses:
Costs of sales and
operating expenses 180,096 128,549 40 329,223 316,222 4
Selling, general and
administrative 32,987 37,225 (11 ) 69,475 75,197 (8 )
Taxes, other than on
income 1,658 1,912 (13 ) 3,150 3,882 (19 )
Depreciation and
amortization 5,840 6,633 (12 ) 11,721 15,969 (27 )
220,581 174,319 27 413,569 411,270 1
Operating income
(loss) $ 6,156 $ (14,147 ) 144 % $ 9,067 $ (10,429 ) 187 %
Operating margins 2.7 % (8.8 )% 2.1 % (2.6 )%
24
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Distribution and Services Revenues
The following table shows the markets serviced by the Company's distribution and
services segment, the revenue distribution, and the customers for each market:
2021 Second 2021 Six
Quarter Months
Revenue Revenue
Markets Serviced Distribution Distribution Customers
Commercial and Industrial 62% 65% 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 38% 35% Oilfield Services, Oil and Gas
Operators and Producers
Distribution and services revenues for the 2021 second quarter and first six
months increased 42% and 5%, respectively compared with the 2020 second quarter
and first six months revenues. In the commercial and industrial market, the
increase in the 2021 second quarter compared to the 2020 second quarter was
primarily attributable to improved economic activity across the U.S. which
resulted in higher business levels in the on-highway and power generation
businesses. The marine repair business was down slightly compared to the 2020
second quarter and first six months due to reduced service activity. The
commercial and industrial market 2021 first six months was impacted by Winter
Storm Uri with reduced activity levels at many locations across the Southern
U.S. during the first quarter. For the 2021 second quarter and first six
months, the commercial and industrial market contributed 62% and 65%,
respectively, of the distribution and services revenues.
In the oil and gas market, revenues increased compared to the 2020 second
quarter and first six months due to higher oilfield activity which resulted in
increased demand for new and overhauled engines, transmissions, parts, and
service. The manufacturing business also experienced increases in orders and
deliveries of new and remanufactured pressure pumping equipment. The oil and
gas market 2021 first six months was impacted by Winter Storm Uri with reduced
activity levels at many locations across Texas and Oklahoma during the first
quarter. For the 2021 second quarter and first six months, the oil and gas
market contributed 38% and 35%, respectively, of the distribution and services
revenues.
Distribution and Services Costs and Expenses
Costs and expenses for the 2021 second quarter and first six months increased 27% and 1%, respectively, compared with the 2020 second quarter and first six months. Costs of sales and operating expenses for the 2021 second quarter and first six months increased 40% and 4%, respectively, compared with the 2020 second quarter and first six months, reflecting higher demand in the on-highway and power generation businesses in commercial and industrial markets in the 2021 second quarter. The increase also reflects higher demand for new and overhauled transmissions and related parts and service and increased demand for new pressure pumping equipment in the oil and gas market. Selling, general and administrative expenses for the 2021 second quarter and first six months decreased 11% and 8%, respectively, compared to the 2020 second quarter and first six months. The decrease was primarily due to a bad debt expense charge of$3,339,000 as a result of the bankruptcy of a large oil and gas customer and$1,354,000 of severance expense as a result of workforce reductions each during the 2020 second quarter. Depreciation and amortization for the 2021 second quarter and first six months decreased 12% and 27%, respectively, compared to the 2020 second quarter and first six months. The decrease during the 2021 first six months was primarily due to lower amortization of intangible assets other than goodwill, which were impaired during the 2020 first quarter. The decrease during the 2021 second quarter also reflected certain equipment and leasehold improvements acquired fromStewart & Stevenson LLC becoming fully depreciated during 2020. 25 --------------------------------------------------------------------------------
Distribution and Services Operating Income (Loss) and Operating Margin
Operating income for the distribution and services segment for the 2021 second quarter and first six months increased 144% and 187%, respectively, compared with the 2020 second quarter and first six months. The operating margin for the 2021 second quarter was 2.7% compared with (8.8)% for the 2020 second quarter and 2.1% for the 2021 first six months compared to (2.6)% for the 2020 first six months. The results reflect increased business levels in both the commercial and industrial and oil and gas markets and a return to profitability, partially offset by higher costs and expenses.
(Gain) Loss on Disposition of Assets
The Company reported a net gain on disposition of assets of$2,119,000 for the 2021 second quarter compared with a net loss of$189,000 for the 2020 second quarter. The Company reported a net gain on disposition of assets of$4,252,000 for the 2021 first six months and$303,000 for the 2020 first six months. The net gains and loss were primarily from sales of marine equipment. Other Income and Expenses
The following table sets forth impairments and other charges, other income, noncontrolling interests, and interest expense (dollars in thousands):
Three months ended June 30 ,
Six months ended
2021 2020 % Change 2021 2020 % Change
Impairments and
other charges $ - $ - - % $ - $ (561,274 ) (100 )%
Other income $ 2,523 $ 2,290 10 % $ 6,314 $ 5,013 26 %
Noncontrolling
interests $ (162 ) $ (261 ) (38 )% $ (417 ) $ (539 ) (23 )%
Interest expense $ (10,706 ) $ (12,708 ) (16 )% $ (21,672 ) $ (25,507 ) (15 )%
Impairments and Other Charges
Impairments and other charges in the 2020 first six months 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 7, Impairments and Other Charges in the financial statements for additional information. Other Income Other income for the 2021 and 2020 second quarters includes income of$2,325,000 and$1,467,000 , respectively, and the 2021 and 2020 first six months includes income of$4,308,000 and$3,639,000 , respectively, for all components of net benefit costs except the service cost component related to the Company's defined benefit plans. Other income for the 2021 first six months also includes interest income from the Company's 2019 federal income tax refund received inFebruary 2021 . Interest Expense The following table sets forth average debt and average interest rate (dollars in thousands): Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Average debt$ 1,330,618 $ 1,700,111 $ 1,373,873 $ 1,571,072 Average interest rate 3.2 % 3.0 % 3.1 % 3.2 % Interest expense for the 2021 second quarter and first six months decreased 16% and 15%, respectively, compared with the 2020 second quarter and first six months, primarily due to a lower average debt outstanding as a result of debt repayments since the 2020 first quarter. There was no capitalized interest excluded from interest expense during the 2021 or 2020 first six months. 26 --------------------------------------------------------------------------------
(Provision) Benefit for Taxes on Income
During the 2020 second quarter and first six months, pursuant to provisions of the CARES Act, net operating losses generated during 2018 through 2020 were used to offset taxable income generated between 2013 through 2017. Net operating losses carried back to tax years 2013 through 2017 were applied at the higher federal statutory tax rate of 35% compared to the statutory rate of 21% in effect atJune 30, 2020 . The Company generated an effective tax rate benefit in the 2020 second quarter and first six months as a result of such carrybacks.
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