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 10-K 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 loss per share attributable to Kirby common stockholders are "diluted loss per share." The weighted average number of common shares applicable to diluted loss per share for the three months endedMarch 31, 2021 and 2020 were 60,016,000 and 59,883,000, respectively. 14
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Overview
The Company is the nation's largest domestic tank barge operator, transporting bulk liquid products throughout the Mississippi River System, on theGulf Intracoastal Waterway , coastwise along all threeUnited States coasts, and inAlaska andHawaii . The Company transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge. 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 March 31,
2021 2020
Total revenues $ 496,850 $ 643,926
Net loss attributable to Kirby $
(3,375 )
$ (0.06 ) $ (5.80 ) Net cash provided by operating activities$ 102,558 $ 71,501 Capital expenditures $
14,052
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 6, 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 8, Taxes on Income in the financial statements for additional information Cash provided by operating activities increased primarily due to 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 quarter, capital expenditures of$14,052,000 included$10,990,000 in the marine transportation segment and$3,062,000 in distribution and services and corporate, more fully described under cash flow and capital expenditures below. 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 30.4% atMarch 31, 2021 from 32.2% atDecember 31, 2020 , primarily due to repayments under the Revolving Credit Facility in the 2021 first quarter and an increase in total equity, primarily due to the amortization of unearned share-based compensation for the 2021 first quarter of$5,722,000 , partially offset by net loss attributable to Kirby of$3,375,000 and tax withholdings of$2,045,000 on restricted stock and RSU vestings. The Company's debt outstanding as ofMarch 31, 2021 andDecember 31, 2020 is detailed in Long-Term Financing below.
Marine Transportation
For the 2021 first quarter, the Company's marine transportation segment generated 61% of the Company's revenue. 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. 15
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The following table summarizes the Company's marine transportation fleet:
March 31,
2021 2020
Inland tank barges:
Owned 1,008 1,041
Leased 49 24
Total 1,057 1,065
Barrel capacity (in millions) 23.7 23.7
Inland towboats (quarter average): Owned 216 234 Chartered 25 77 Total 241 311 Costal tank barges: Owned 43 47 Leased 1 2 Total 44 49 Barrel capacity (in millions) 4.2 4.7 Coastal tugboats: Owned 39 42 Chartered 3 5 Total 42 47 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, Texas , 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 2021 first quarter, the Company retired seven inland tank barges and returned two leased barges. The net result was a decrease of nine inland tank barges and approximately 354,000 barrels of capacity during the 2021 first quarter. The Company's marine transportation segment's revenues for the 2021 first quarter decreased 25% and operating income decreased 96% compared with the 2020 first quarter 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, partially offset by the addition of theSavage Inland Marine, LLC ("Savage") fleet acquired onApril 1, 2020 . The 2021 first quarter was also heavily impacted by Winter Storm Uri which shutdown 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 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 and 2020 first quarters, the inland tank barge fleet contributed 75% and 79%, respectively, and the coastal fleet contributed 25% and 21%, respectively, of marine transportation revenues. Inland tank barge utilization levels averaged in the mid-70% range during the 2021 first quarter compared with the low to mid-90% range during the 2020 first quarter. The 2021 first quarter continued to be impacted by reduced demand as a result of the COVID-19 pandemic and the resulting economic slowdown as well as the impact of reduced volumes as a result of Winter Storm Uri. 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. 16 -------------------------------------------------------------------------------- Coastal tank barge utilization levels averaged in the mid-70% range during the 2021 first quarter compared with the low to mid-80% range in the 2020 first quarter. 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 the 2021 and 2020 first quarters, 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 first quarter represented 61% of the inland revenues under term contracts compared with 65% in the 2020 first quarter. During the 2021 and 2020 first quarters, approximately 80% and 85%, respectively, of the coastal revenues were under term contracts and 20% and 15%, respectively, were spot contract revenues. Coastal time charters represented approximately 85% and 90% of coastal revenues under term contracts during the 2021 and 2020 first quarters, respectively. 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 2021 compared to contracts renewed during the corresponding quarter of 2020:
Three Months Ended
March 31, 2021
Inland market:
Term decrease (7)% - (9 )%
Spot decrease (25)% - (30 )%
Coastal market (a):
Term increase (decrease) No change
Spot increase (decrease) 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 0.6% for the 2021 first quarter compared with 12.6% for the 2020 first quarter.
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 first quarter, the distribution and services segment generated 39%
of the Company's revenue, of which 89% was generated from service and parts and
11% 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.
17
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Distribution and services revenues for the 2021 first quarter decreased 19% and
operating income decreased 22% compared with the 2020 first quarter revenue and
operating income. In the commercial and industrial market, the decreases were
primarily attributable to reduced economic activity as a result of the COVID-19
pandemic resulting in lower business levels in the on-highway and power
generation businesses. The marine repair business was also down compared to the
2020 first quarter due to reduced major engine overhaul activity. The
commercial and industrial market was also impacted by Winter Storm Uri with
reduced activity levels at many locations across the Southern U.S. For the 2021
first quarter, the commercial and industrial market contributed 68% of the
distribution and services revenues.
In the oil and gas market, revenues and operating income decreased compared to
the 2020 first quarter due to reduced oilfield activity which resulted in lower
customer demand for new and overhauled engines, transmissions, parts, and
service. The manufacturing business also experienced reduced deliveries of new
and remanufactured pressure pumping equipment. The oil and gas market was also
impacted by Winter Storm Uri with reduced activity levels at many locations
across Texas and Oklahoma . For the 2021 first quarter, the oil and gas market
contributed 32% of the distribution and services revenues.
The distribution and services segment operating margin for both the 2021 and 2020 first quarters was 1.5%.
Outlook
While there remains uncertainty around the full impact of the COVID-19 pandemic, the Company expects a modest improvement during the 2021 second quarter as activity continues to build with more meaningful improvements in utilization levels in the second half of 2021. In the 2021 second quarter, the Company expects market conditions and barge utilization in the inland market to improve which should help boost spot market pricing in the coming months as pricing typically improves with barge utilization. In distribution and services, the Company anticipates increased activity across much of the segment, yielding higher revenues and improved operating margins. Overall, the Company anticipates a return to profitability during the 2021 second quarter. In the inland marine transportation market, barge utilization in April has improved to over 80% and is expected to increase further as the economy recovers and refineries and chemical plants return to full operations following Winter Storm Uri. In the second half of 2021, the Company anticipates barge utilization to improve into the high 80% to low 90% range which should lead to a more positive pricing environment in the coming months. In the 2021 second quarter, inland revenues and operating margin are expected to sequentially improve primarily due to increasing barge utilization and more favorable weather conditions. However, certain costs, including maintenance, horsepower, and labor are expected to increase in the second quarter as operations ramp up to meet demand. During the balance of 2021 and into 2022, term contracts that renewed lower during 2020 and the 2021 first quarter will gradually reset. Anticipated improvements in the spot market, which currently represents approximately 35% of inland revenue, will contribute to more meaningful increases in revenues and operating margins in the second half of the year. As ofMarch 31, 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 35 to 40 new tank barges have been ordered for delivery in 2021 and many older tank barges, including an expected 25 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, weak market conditions and limited spot demand are expected to continue in the second quarter. The Company expects coastal barge utilization to remain in the mid-70% range with revenues and operating margins similar to the 2021 first quarter. In the second half of 2021, coastal barge utilization and operating results are expected to improve as demand for refined products grows and potential infrastructure spending increases demand for asphalt. 18 -------------------------------------------------------------------------------- As ofMarch 31, 2021 , the Company estimated there were approximately 280 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. An improving economy and increased activity in the oilfield are expected to contribute to sequential improvement in revenue and operating income in the 2021 second quarter and full year. In the commercial and industrial market, revenues are expected to benefit from improving economic conditions as well as from growth in the on-highway market, due in part to the Company's new online parts sales platform which was launched in 2020. However, these gains are expected to be partially offset by lower sales of new marine engines which remained strong throughout 2020. In the distribution and services oil and gas market, higher commodity prices and increasing well completions activity are expected to contribute to improved demand for new transmissions, service, and parts. Additionally, a heightened focus on sustainability across the energy sector and industrial complex is expected to result in additional deliveries of environmentally friendly equipment throughout the remainder of the year. Overall, full year distribution and services revenues are expected to significantly increase with positive operating margins in the low to mid-single digits for the full year.
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.
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 March 31,
2021 % 2020 %
Marine transportation
$ 496,850 100 %$ 643,926 100 % 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 March 31, 2021 2020 % Change Marine transportation revenues$ 300,951 $ 403,257 (25 )% Costs and expenses: Costs of sales and operating expenses 214,125 265,895 (19 ) Selling, general and administrative 30,578 31,924 (4 ) Taxes, other than on income 6,729 9,423 (29 ) Depreciation and amortization 47,579 45,299 5 299,011 352,541 (15 ) Operating income$ 1,940 $ 50,716 (96 )% Operating margin 0.6 % 12.6 % 19
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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 First
Quarter
Revenue
Markets Serviced Distribution Products Moved Drivers
Petrochemicals 50% Benzene, Styrene, Consumer non-durables
Methanol, Acrylonitrile, - 70%,
Xylene, Naphtha, Caustic Consumer durables -
Soda, Butadiene, Propylene 30%
Black Oil 26% Residual Fuel Oil, Coker Fuel for Power Plants
Feedstock, Vacuum Gas Oil, and Ships, Feedstock
Asphalt, Carbon Black for Refineries, Road
Feedstock, Crude Oil, Construction
Natural Gas Condensate,
Ship Bunkers
Refined Petroleum Products 20% Gasoline, No. 2 Oil, Jet Vehicle Usage, Air
Fuel, Heating Oil, Diesel Travel, Weather
Fuel, Ethanol Conditions, Refinery
Utilization
Agricultural Chemicals 4% Anhydrous Ammonia, Corn, Cotton and Wheat
Nitrogen-Based Liquid Production, Chemical
Fertilizer, Industrial Feedstock Usage
Ammonia
The Company's marine transportation segment's revenues for the 2021 first
quarter decreased 25% and operating income decreased 96% compared with the 2020
first quarter 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, partially offset by the addition of
the Savage fleet acquired on April 1, 2020 . The 2021 first quarter was also
heavily impacted by Winter Storm Uri which shutdown 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 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 and 2020 first quarters, the inland
tank barge fleet contributed 75% and 79%, respectively, and the coastal fleet
contributed 25% and 21%, respectively, of marine transportation revenues.
Inland tank barge utilization levels averaged in the mid-70% range during the
2021 first quarter compared with the low to mid-90% range during the 2020 first
quarter. The 2021 first quarter continued to be impacted by reduced demand as a
result of the COVID-19 pandemic and the resulting economic slowdown as well as
the impact of reduced volumes as a result of Winter Storm Uri. 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 compared with the low to mid-80% range in the 2020 first
quarter. 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 the 2021 first quarter, reflecting reduced
volumes from Gulf 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% of U.S. chemical plant capacity
was offline at the peak of Winter Storm Uri, contributing to significantly
reduced volumes and revenues.
20
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The black oil market, which contributed 26% of marine transportation revenues
for the 2021 first quarter, 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. During the 2021
first quarter, the Company continued to transport crude oil and natural gas
condensate produced from the Permian Basin as well as reduced volumes from the
Eagle Ford shale formation in Texas , both along the Gulf Intracoastal Waterway
with inland vessels and in the Gulf of Mexico with coastal equipment.
Additionally, the Company transported volumes of Utica natural gas condensate
downriver from the Mid-Atlantic to the Gulf Coast and Canadian and Bakken crude
downriver from the Midwest to the Gulf Coast .
The refined petroleum products market, which contributed 20% of marine
transportation revenues for the 2021 first quarter 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.
The agricultural chemical market, which contributed 4% of marine transportation
revenues for the 2021 first quarter, saw modest reductions in demand for
transportation of both domestically produced and imported products during the
quarter, primarily due to reduced demand associated with the COVID-19 pandemic.
For the 2021 first quarter, the inland operations incurred 2,854 delay days, 36%
fewer than the 4,490 delay days that occurred during the 2020 first quarter.
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 quarters
reflected poor operating conditions due to heavy wind and fog along the Gulf
Coast , high water conditions on the Mississippi River System, and closures of
key waterways as a result of lock maintenance projects. The decrease in delay
days in the 2021 first quarter also reflects reduced volumes and barge
utilization compared to the 2020 first quarter.
During the 2021 and 2020 first quarters, 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 first quarter represented 61% of the inland
revenues under term contracts compared with 65% in the 2020 first quarter.
During the 2021 and 2020 first quarters, approximately 80% and 85%,
respectively, of the coastal revenues were under term contracts and 20% and 15%,
respectively, were spot contract revenues. Coastal time charters represented
approximately 85% and 90% of coastal revenues under term contracts during the
2021 and 2020 first quarters, respectively.
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
Inland market:
Term decrease (7)% - (9 )%
Spot decrease (25)% - (30 )%
Coastal market (a):
Term increase (decrease) No change
Spot increase (decrease) 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.
21--------------------------------------------------------------------------------
Marine Transportation Costs and Expenses
Costs and expenses for the 2021 first quarter decreased 15% compared with the 2020 first quarter. Costs of sales and operating expenses for the 2021 first quarter decreased 19% compared with the 2020 first quarter, 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 241 towboats during the 2021 first quarter, of which an average of 25 were chartered, compared with 311 during the 2020 first quarter, of which an average of 77 were chartered. The decrease was primarily due to chartered towboats released during the 2020 last nine months and the 2021 first quarter, partially offset by the addition of inland towboats with the Savage acquisition inApril 2020 . 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. During the 2021 first quarter, the inland operations consumed 10.8 million gallons of diesel fuel compared to 12.6 million gallons consumed during the 2020 first quarter. The average price per gallon of diesel fuel consumed during the 2021 first quarter was$1.65 per gallon compared with$2.00 per gallon for the 2020 first quarter. 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 first quarter decreased 4% compared with the 2020 first quarter. The decrease is primarily due to cost reduction initiatives throughout the organization as a result of reduced business activity levels due to the COVID-19 pandemic.
Taxes, other than on income, for the 2021 first quarter decreased 29% compared with the 2020 first quarter, primarily due to lower waterway use taxes and property taxes on marine transportation equipment.
Depreciation and amortization for the 2021 first quarter increased 5% compared to the 2020 first quarter. The increase is primarily due to the acquisition of the Savage fleet inApril 2020 .
Marine Transportation Operating Income and Operating Margin
Marine transportation operating income for the 2021 first quarter decreased 96%
compared with the 2020 first quarter. The 2021 first quarter operating margin
was 0.6% compared with 12.6% for the 2020 first quarter. 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.
22--------------------------------------------------------------------------------
Distribution and Services
The following table sets forth the Company's distribution and services segment's
revenues, costs and expenses, operating income, and operating margin (dollars in
thousands):
Three Months Ended March 31,
2021 2020 % Change
Distribution and services $ 195,899 $ 240,669 (19 )%
Costs and expenses:
Costs of sales and operating expenses 149,127 187,673 (21 )
Selling, general and administrative 36,488 37,972 (4 )
Taxes, other than on income 1,492 1,970 (24 )
Depreciation and amortization 5,881 9,336 (37 )
192,988 236,951 (19 )
Operating income $ 2,911 $ 3,718 (22 )%
Operating margin 1.5 % 1.5 %
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 First
Quarter
Revenue
Markets Serviced Distribution Customers
Commercial and Industrial 68% Inland River Carriers - Dry and
Liquid, Offshore Towing - Dry and
Liquid, Offshore Oilfield Services -
Drilling Rigs & Supply Boats, Harbor
Towing, Dredging, Great Lakes Ore
Carriers, Pleasure Crafts, On and
Off-Highway Transportation, Power
Generation, Standby Power Generation,
Pumping Stations
Oil and Gas 32% Oilfield Services, Oil and Gas
Operators and Producers
Distribution and services revenues for the 2021 first quarter decreased 19% and
operating income decreased 22% compared with the 2020 first quarter revenue and
operating income. In the commercial and industrial market, the decreases were
primarily attributable to reduced economic activity as a result of the COVID-19
pandemic resulting in lower business levels in the on-highway and power
generation businesses. The marine repair business was also down compared to the
2020 first quarter due to reduced major engine overhaul activity. The
commercial and industrial market was also impacted by Winter Storm Uri with
reduced activity levels at many locations across the Southern U.S. For the 2021
first quarter, the commercial and industrial market contributed 68% of
distribution and services revenues.
In the oil and gas market, revenues and operating income decreased compared to
the 2020 first quarter due to reduced oilfield activity which resulted in lower
customer demand for new and overhauled engines, transmissions, parts, and
service. The manufacturing business also experienced reduced deliveries of new
and remanufactured pressure pumping equipment. The oil and gas market was also
impacted by Winter Storm Uri with reduced activity levels at many locations
across Texas and Oklahoma . For the 2021 first quarter, the oil and gas market
contributed 32% of distribution and services revenues.
23--------------------------------------------------------------------------------
Distribution and Services Costs and Expenses
Costs and expenses for the 2021 first quarter decreased 19% compared with the 2020 first quarter. Costs of sales and operating expenses for the 2021 first quarter decreased 21%, compared with the 2020 first quarter, reflecting lower demand for new and overhauled transmissions and related parts and service and reduced demand for new pressure pumping equipment in the oil and gas market. Selling, general and administrative expenses for the 2021 first quarter decreased 4% compared to the 2020 first quarter. The decrease was primarily due to cost reduction initiatives throughout the organization as a result of reduced business activity levels due to the COVID-19 pandemic. Depreciation and amortization for the 2021 first quarter decreased 37% compared to the 2020 first quarter. The decrease was primarily due to lower amortization of intangible assets other than goodwill, which were impaired during the 2020 first quarter.
Distribution and Services Operating Income and Operating Margin
Operating income for the distribution and services segment for the 2021 first quarter decreased 22% compared with the 2020 first quarter. The operating margin for both the 2021 and 2020 first quarters was 1.5%. The results reflect lower business levels in both the commercial and industrial and oil and gas markets, partially offset by lower costs and expenses.
Gain on Disposition of Assets
The Company reported a net gain on disposition of assets of$2,133,000 for the 2021 first quarter compared with$492,000 for the 2020 first quarter. The net gains 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 March 31,
2021 2020 % Change
Impairments and other charges $ -$ (561,274 ) (100 )% Other income$ 3,791 $ 2,723 39 % Noncontrolling interests $ (255 ) $ (278 ) (8 )% Interest expense$ (10,966 ) $ (12,799 ) (14 )%
Impairments and Other Charges
Impairments and other charges in the 2020 first quarter 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 6, Impairments and Other Charges in the financial statements for additional information.
Other Income
Other income for the 2021 and 2020 first quarters includes income of$1,983,000 and$2,172,000 , 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 quarter also includes interest income from the Company's 2019 federal income tax refund received inFebruary 2021 . 24
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Interest Expense
The following table sets forth average debt and average interest rate (dollars
in thousands):
Three Months Ended March 31,
2021 2020
Average debt $ 1,417,127 $ 1,442,032
Average interest rate 3.1 % 3.5 %
Interest expense for the 2021 first quarter decreased 14% compared with the 2020
first quarter primarily due to a lower average interest rate and 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 quarters.
Benefit for Taxes on Income
During the 2020 first quarter, 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 at March 31, 2020 .
The Company generated an effective tax rate benefit in the 2020 first quarter as
a result of such carrybacks.
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