Kirby Corporation 2015 Form 10-K Summary
Business context and reporting period
Kirby Corporation filed its Form 10-K for the fiscal year ended December 31, 2015. The company operates two reportable segments: marine transportation and diesel engine services. Marine transportation is the core business, moving petrochemicals, black oil, refined petroleum products and agricultural chemicals through U.S. inland and coastal waterways. Diesel engine services provides engine repair, parts, power-generation services and oilfield equipment manufacturing.
Kirby operated approximately 898 inland tank barges, 70 coastal tank barges, 243 inland towboats and 73 coastal tugboats at year-end. The company had approximately 4,200 employees and its common stock traded on the New York Stock Exchange under the symbol KEX.
Financial performance and key metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $2.148 billion | $2.566 billion | Down 16% |
| Operating income | $380.7 million | $475.8 million | Down 20% |
| Net earnings attributable to Kirby | $226.7 million | $282.0 million | Down 20% |
| Diluted EPS | $4.11 | $4.93 | Down 17% |
| Operating cash flow | $521.3 million | $438.9 million | Up 19% |
| Capital expenditures | $345.5 million | $355.1 million | Down 3% |
| Long-term debt | $778.8 million | $716.7 million | Up 9% |
- Marine transportation revenue was $1.663 billion, or 77% of consolidated revenue. Segment operating income was $374.8 million, with a 22.5% operating margin versus 24.3% in 2014.
- Diesel engine services revenue was $484.4 million, or 23% of consolidated revenue. Segment operating income was $18.9 million, with a 3.9% operating margin versus 7.5% in 2014.
- Consolidated operating margin was approximately 17.7%, and net margin attributable to Kirby was approximately 10.6%.
- Cash and cash equivalents were $5.9 million at December 31, 2015, compared with $24.3 million at year-end 2014. Current assets were $640.8 million and current liabilities were $361.9 million.
- Total assets were $4.156 billion and total equity was $2.279 billion. The debt-to-capitalization ratio increased to 25.5% from 24.0%.
- At year-end, debt consisted of $278.8 million drawn on a $550 million revolving credit facility and $500 million of senior notes. The revolver matures in 2020; senior notes mature in 2020 and 2023. The company reported compliance with all debt covenants and approximately $302.7 million of revolver availability as of February 19, 2016.
- The company repurchased 3.316 million shares for $241.1 million during 2015. It has not paid common-stock dividends since 1989.
Material changes versus the prior comparable period
- Consolidated revenue declined primarily because diesel fuel prices fell 37%; marine fuel costs are largely passed through to customers. Lower marine contract rates, weaker late-year utilization and heavier coastal shipyard activity also reduced marine revenue.
- Marine operating income declined 13% as lower inland term and spot pricing, fuel adjustment timing, higher labor and pension costs, increased shipyard activity and higher depreciation more than offset stable demand in most product markets.
- Diesel engine services revenue declined 39% and operating income declined 68%. The principal causes were the collapse in demand for pressure-pumping and other oilfield equipment, reduced drilling activity and weakness in Gulf of Mexico oilfield services.
- 2015 included diesel-engine-services severance charges of $1.1 million in the first quarter and $0.7 million in the third quarter.
- Operating cash flow increased despite lower earnings, primarily due to favorable working-capital changes, including a $129.9 million reduction in accounts receivable.
- The company entered into a new $550 million revolving credit facility in April 2015, refinanced its $100 million term loan, and extended revolving-credit maturity to April 2020.
- Property and equipment, net, increased 7% to $2.779 billion, reflecting fleet investment and new construction. The company delivered 36 inland tank barges, acquired six inland pressure tank barges and retired or returned 28 inland barges during the year.
Guidance, outlook, risks and unusual items
- Management projected 2016 capital expenditures of $220 million to $240 million, funded through operating cash flow and available credit.
- Management expected inland and coastal utilization in 2016 to be in the high-80% to low-90% range, versus mostly 90% to 95% during 2015, with continued modest pressure on inland pricing.
- Management expected the land-based diesel engine services market to generate quarterly operating losses through the first half of 2016 because of depressed oilfield activity. Marine diesel service activity was expected to remain stable outside the Gulf of Mexico oilfield market, and power generation was expected to remain stable.
- Key marine risks include excess tank-barge capacity, declining crude-oil and condensate movements, new competitor construction, weather and water conditions, lock closures, aging inland-waterway infrastructure, fuel-price volatility, crew availability, vessel construction delays and environmental or marine accidents.
- Four marine customers represented approximately 30% of 2015 revenue, with contracts expiring from 2016 through 2018, although no individual customer represented 10% or more of consolidated revenue.
- The March 2014 M/V Miss Susan collision and fuel spill remained subject to litigation, environmental claims and a damages trial scheduled for the second quarter of 2016. Management stated that reserves and insurance coverage were adequate and did not expect a material adverse effect.
- The company remained involved in several CERCLA Superfund matters and an overtime collective action involving vessel tankermen. Management characterized potential exposure in certain matters as de minimis or immaterial, but some allocations and damages remained unresolved.
- The company reported no goodwill impairment in 2015. Its independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether weak oilfield activity and pressure-pumping oversupply continue to depress diesel engine services revenue and produce operating losses.
- Whether marine utilization and contract pricing remain within management’s 2016 expectations amid excess capacity and reduced crude-oil transportation.
- The timing, cost and returns associated with coastal vessel construction commitments and the $220 million to $240 million 2016 capital program.
- Revolver availability, debt covenant compliance, interest-rate exposure and the 2020 debt maturities.
- Potential liability, insurance recoveries and reserve adequacy related to the M/V Miss Susan spill and unresolved environmental proceedings.
- Renewal outcomes for the significant marine customer contracts expiring between 2016 and 2018.
- Changes in working capital and cash conversion, since 2015 operating cash flow benefited materially from collections and other operating-asset movements.