Business Context and Reporting Period
Kirby Corporation’s Form 10-K covers the fiscal year ended December 31, 2012; the filing does not present a standalone fourth-quarter filing, although quarterly results are included. Kirby operates two segments: marine transportation and diesel engine services. It is the largest domestic tank-barge operator, transporting petrochemicals, refined petroleum products, black oil products and agricultural chemicals, and also provides diesel-engine services, equipment distribution and oilfield-service equipment manufacturing.
Key Financial Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Revenue | $2.113 billion | $1.850 billion | +14% |
| Operating income | $364.8 million | $312.3 million | +17% |
| Net earnings attributable to Kirby | $209.4 million | $183.0 million | +14% |
| Diluted EPS | $3.73 | $3.33 | +12% |
| Net cash from operations | $325.7 million | $312.0 million | +4% |
| Capital expenditures | $312.2 million | $226.2 million | +38% |
| Total debt | $1.135 billion | $802.0 million | +42% |
| Total assets | $3.653 billion | $2.960 billion | +23% |
Consolidated operating margin was approximately 17.3%, compared with approximately 16.9% in 2011. Net margin attributable to Kirby was approximately 9.9%, compared with approximately 9.9% in 2011. Marine transportation generated $1.409 billion of revenue and $311.8 million of operating income, with a 22.1% operating margin versus 21.9% in 2011. Diesel engine services generated $703.8 million of revenue and $66.4 million of operating income, with a 9.4% margin versus 10.4% in 2011.
Cash and cash equivalents were $11.1 million at year-end, compared with $16.2 million in 2011. Current assets were $596.3 million versus current liabilities of $355.0 million. The company reported $140.0 million of unused capacity under its revolving credit facility at December 31, 2012 and approximately $149.5 million available as of February 22, 2013. Pension assets were $217.8 million, and the pension plan was funded at 101% of accumulated benefit obligations.
Material Changes Versus the Prior Comparable Period
- Marine transportation revenue increased 18% and operating income increased 19%, supported by strong petrochemical and black-oil demand, higher utilization, improved contract rates and acquisitions.
- Inland petrochemical and black-oil barge utilization remained approximately 90% to 95%. Inland term-contract renewals increased approximately 4% to 6%; coastal fourth-quarter renewals increased approximately 7% to 9%.
- Diesel engine services revenue increased 7%, but operating income declined 3% and margin fell from 10.4% to 9.4%, primarily because low natural-gas prices reduced pressure-pumping equipment manufacturing and related service demand.
- Kirby acquired Allied’s coastal and dry-bulk assets for $107.0 million and acquired Penn for a transaction value of $300.2 million, including cash, stock and retirement of Penn debt. It also acquired Flag Service & Maintenance for $5.1 million.
- Debt increased primarily to finance acquisitions. The debt-to-capitalization ratio rose to 39.9% from 35.5%.
- Net cash from operations increased modestly, but investing cash outflows remained substantial at $673.4 million, including $312.2 million of capital expenditures and $380.9 million for acquisitions and marine equipment.
Guidance, Outlook, Risks and Unusual Items
Management projected 2013 capital expenditures of approximately $190 million to $200 million, including construction of 55 inland tank barges and three inland towboats. Funding is expected from operating cash flow and available revolving-credit capacity.
Management expected strong inland petrochemical and black-oil demand to continue, supported by low-cost domestic natural gas and stable refinery production. Coastal utilization improved during the second half of 2012, reaching approximately 85% to 90% in the fourth quarter. The land-based diesel-services market remained weak; management did not expect significant improvement until late 2013 or early 2014 and planned to emphasize remanufacturing and service of existing pressure-pumping equipment.
- Low water on the Mississippi River, Hurricane Isaac and Hurricane Sandy reduced 2012 earnings by an estimated $0.06 to $0.07 per share in aggregate.
- A $4.3 million pretax credit from reducing the United acquisition earnout liability benefited 2012 results; 2011 included a $6.3 million pretax charge.
- 2012 included a $2.9 million pretax severance charge related to Kirby Offshore Marine integration.
- A $200 million floating-rate senior-note maturity was due February 28, 2013 and was intended to be refinanced with the remaining Series A and Series B senior notes issued under the December 2012 note purchase agreement.
- Principal risks include inland-waterway outages, adverse weather, marine accidents and spills, fuel-price volatility, regulatory and environmental costs, Jones Act changes or waivers, crew availability, tank-barge oversupply, customer concentration, cyclical oilfield demand and hydraulic-fracturing regulation.
- Contingencies include CERCLA Superfund matters, a collective-action overtime lawsuit involving vessel tankermen for which loss could not be estimated, and a putative class action related to the former K-Sea business. Management did not expect the disclosed litigation to materially affect consolidated results, but outcomes remain uncertain.
Investor Verification Checklist
- Verify completion of the February 2013 refinancing of the $200 million senior notes and the resulting debt, interest expense and liquidity profile.
- Assess whether inland utilization and contract-rate increases remained strong while new industry barge capacity entered service.
- Monitor the coastal integration and performance of the Allied and Penn acquisitions, including the potential $10 million Allied contingent payment.
- Evaluate the recovery timing of the diesel engine services and pressure-pumping markets.
- Reconcile operating cash flow with the company’s elevated capital-expenditure and acquisition program.
- Review exposure to waterway disruptions, environmental liabilities, pending litigation, fuel-cost recovery delays and debt-covenant requirements.