UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2020
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 1-7615
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
(713 ) 435-1000
(Registrant’s telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ |
Accelerated filer |
☐ |
||
Non-accelerated filer |
☐ |
Smaller reporting company |
||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
As of May 7, 2020, 60,038,000 shares of the Registrant’s $0.10 par value per share common stock were outstanding.
EXPLANATORY NOTE
Kirby Corporation (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A to amend and restate in their entirety the following items of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 as originally filed with the Securities and Exchange Commission on May 8, 2020 (the “Original Form 10-Q”): (i) Item 1 of Part I “Financial Statements,” (ii) Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (iii) Item 4 of Part I, “Controls and Procedures,” and (iv) Item 6 of Part II, “Exhibits”, and the Company has also updated the signature page, the certifications of the Chief Executive Officer and Chief Financial Officer in Exhibits 31.1, 31.2, and 32, and the financial statements formatted in Inline Extensible Business Reporting Language (“Inline XBRL”) in Exhibits 101 and 104. No other sections were affected, but for the convenience of the reader, this report on Form 10-Q/A restates in its entirety, as amended, the Company’s Original Form 10-Q. This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, or modify or update disclosures in any way other than as required to reflect the restatement described below.
After the Company filed the original Form 10-Q, the Company determined that its results reported for the quarter ended March 31, 2020 in the Original Form 10-Q included a goodwill impairment expense that was understated as a result of not applying a specific provision of the Accounting Standards Update 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) which was adopted by the Company on January 1, 2020. ASU 2017-04 requires goodwill impairment be measured as the excess of the carrying value of the reporting unit over the estimated fair value. Pursuant to paragraph 350-20-55-23A, the recognition of an impairment of goodwill loss creates a cycle of impairment because the decrease in book value of goodwill increases the deferred tax assets (or decreases the deferred tax liabilities), when tax-deductible goodwill is involved, such that the carrying amount of the reporting unit immediately exceeds its fair value upon recognition of the loss. As a result, a simultaneous equation prescribed by the accounting literature should be applied, which the Company did not apply.
The condensed financial statements for the quarter ended March 31, 2020 included in this Form 10-Q/A have been restated to apply this equation of the new guidance in ASU 2017-04, and the Company increased its goodwill impairment charge in the three months ending March 31, 2020 by $127,933,000 before taxes, $98,773,000 after taxes or $1.65 per share resulting in total impairments and other charges of $561,274,000 before taxes, $433,341,000 after taxes or $7.24 per share. This adjustment does not affect previously reported cash flows or revenues, nor does it affect segment profit of the marine transportation or distribution and services segments reported for the quarter ended March 31, 2020. A detail of all adjustments recorded is included in Note 1, Basis for Preparation of the Condensed Financial Statements. The Company has made necessary conforming changes in Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” resulting from the correction of this error.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, 2020 (Restated) |
December 31, 2019 |
|||||||
($ in thousands) |
||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
$ |
||||||
Accounts receivable: |
||||||||
Trade – less allowance for doubtful accounts |
||||||||
Other |
||||||||
Inventories – net |
||||||||
Prepaid expenses and other current assets |
||||||||
Total current assets |
||||||||
Property and equipment |
||||||||
Accumulated depreciation |
( |
) |
( |
) |
||||
Property and equipment – net |
||||||||
Operating lease right-of-use assets |
||||||||
Goodwill |
||||||||
Other intangibles, net |
||||||||
Other assets |
||||||||
Total assets |
$ |
$ |
||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Bank notes payable |
$ |
$ |
||||||
Income taxes payable |
||||||||
Accounts payable |
||||||||
Accrued liabilities |
||||||||
Current portion of operating lease liabilities |
||||||||
Deferred revenues |
||||||||
Total current liabilities |
||||||||
Long-term debt, net – less current portion |
||||||||
Deferred income taxes |
||||||||
Operating lease liabilities – less current portion |
||||||||
Other long-term liabilities |
||||||||
Total long-term liabilities |
||||||||
Contingencies and commitments |
||||||||
Equity: |
||||||||
Kirby stockholders’ equity: |
||||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Accumulated other comprehensive income – net |
( |
) |
( |
) |
||||
Retained earnings |
||||||||
Treasury stock – at cost, |
( |
) |
( |
) |
||||
Total Kirby stockholders’ equity |
||||||||
Noncontrolling interests |
||||||||
Total equity |
||||||||
Total liabilities and equity |
$ |
$ |
||||||
See accompanying notes to condensed financial statements.
1
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended March 31, |
||||||||
2020 (Restated) |
2019 |
|||||||
($ in thousands, except per share amounts) |
||||||||
Revenues: |
||||||||
Marine transportation |
$ |
$ |
||||||
Distribution and services |
||||||||
Total revenues |
||||||||
Costs and expenses: |
||||||||
Costs of sales and operating expenses |
||||||||
Selling, general and administrative |
||||||||
Taxes, other than on income |
||||||||
Depreciation and amortization |
||||||||
Impairments and other charges |
||||||||
Gain on disposition of assets |
( |
) |
( |
) |
||||
Total costs and expenses |
||||||||
Operating income (loss) |
( |
) |
||||||
Other income (expense) |
( |
) |
||||||
Interest expense |
( |
) |
( |
) |
||||
Earnings (loss) before taxes on income |
( |
) |
||||||
(Provision) benefit for taxes on income |
( |
) |
||||||
Net earnings (loss) |
( |
) |
||||||
Less: Net earnings attributable to noncontrolling interests |
( |
) |
( |
) |
||||
Net earnings (loss) attributable to Kirby |
$ |
( |
) |
$ |
||||
Net earnings (loss) per share attributable to Kirby common stockholders: |
||||||||
Basic |
$ |
( |
) |
$ |
||||
Diluted |
$ |
( |
) |
$ |
||||
See accompanying notes to condensed financial statements.
2
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended March 31, |
||||||||
2020 (Restated) |
2019 |
|||||||
($ in thousands) |
||||||||
Net earnings (loss) |
$ |
( |
) |
$ |
||||
Other comprehensive income (loss), net of taxes: |
||||||||
Pension and postretirement benefits |
||||||||
Foreign currency translation adjustments |
( |
) |
||||||
Total other comprehensive income (loss), net of taxes |
( |
) |
||||||
Total comprehensive income (loss), net of taxes |
( |
) |
||||||
Net earnings attributable to noncontrolling interests |
( |
) |
( |
) |
||||
Comprehensive income (loss) attributable to Kirby |
$ |
( |
) |
$ |
||||
See accompanying notes to condensed financial statements.
3
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31, |
||||||||
2020 (Restated) |
2019 |
|||||||
($ in thousands) |
||||||||
Cash flows from operating activities: |
||||||||
Net earnings (loss) |
$ |
( |
) |
$ |
||||
Adjustments to reconcile net earnings (loss) to net cash provided by operations: |
||||||||
Depreciation and amortization |
||||||||
Provision (benefit) for deferred income taxes |
( |
) |
||||||
Impairments and other charges |
||||||||
Amortization of unearned share-based compensation |
||||||||
Amortization of major maintenance costs |
||||||||
Other |
( |
) |
||||||
Decrease in cash flows resulting from changes in operating assets and liabilities, net |
( |
) |
( |
) |
||||
Net cash provided by operating activities |
||||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
( |
) |
( |
) |
||||
Acquisitions of businesses and marine equipment |
( |
) |
( |
) |
||||
Proceeds from disposition of assets |
||||||||
Net cash used in investing activities |
( |
) |
( |
) |
||||
Cash flows from financing activities: |
||||||||
Borrowings (payments) on bank credit facilities, net |
( |
) |
||||||
Borrowings on long-term debt |
||||||||
Payments on long-term debt |
( |
) |
||||||
Payments of debt issue costs |
( |
) |
||||||
Proceeds from exercise of stock options |
||||||||
Payments related to tax withholding for share-based compensation |
( |
) |
( |
) |
||||
Other |
( |
) |
( |
) |
||||
Net cash provided by financing activities |
||||||||
Increase (decrease) in cash and cash equivalents |
( |
) |
||||||
Cash and cash equivalents, beginning of year |
||||||||
Cash and cash equivalents, end of period |
$ |
$ |
||||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid (received) during the period: |
||||||||
Interest paid |
$ |
$ |
||||||
Income taxes refunded |
$ |
( |
) |
$ |
( |
) |
||
Operating cash outflow from operating leases |
$ |
$ |
||||||
Non-cash investing activity: |
||||||||
Capital expenditures included in accounts payable |
$ |
( |
) |
$ |
( |
) |
||
Right-of-use assets obtained in exchange for lease obligations |
$ |
$ |
||||||
See accompanying notes to condensed financial statements.
4
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Common Stock |
Additional Paid-in- |
Accumulated Other Comprehensive |
Retained |
Treasury Stock |
Noncontrolling |
|||||||||||||||||||||||||||||||
Shares |
Amount |
Capital |
Income, Net |
Earnings |
Shares |
Amount |
Interests |
Total |
||||||||||||||||||||||||||||
(in thousands) |
||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||||
Stock option exercises |
||||||||||||||||||||||||||||||||||||
Issuance of stock for equity awards, net of forfeitures |
( |
) |
||||||||||||||||||||||||||||||||||
Tax withholdings on equity award vesting |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||
Amortization of unearned share-based compensation |
||||||||||||||||||||||||||||||||||||
Total comprehensive loss, net of taxes |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||
Return of investment to noncontrolling interests |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||
Balance at March 31, 2020 (Restated) |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||||
Common Stock |
Additional Paid-in- |
Accumulated Other Comprehensive |
Retained |
Treasury Stock |
Noncontrolling |
|||||||||||||||||||||||||||||||
Shares |
Amount |
Capital |
Income, Net |
Earnings |
Shares |
Amount |
Interests |
Total |
||||||||||||||||||||||||||||
(in thousands) |
||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||||
Stock option exercises |
||||||||||||||||||||||||||||||||||||
Issuance of stock for equity awards, net of forfeitures |
( |
) |
||||||||||||||||||||||||||||||||||
Tax withholdings on equity award vesting |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||
Amortization of unearned share-based compensation |
— |
— |
||||||||||||||||||||||||||||||||||
Total comprehensive income, net of taxes |
— |
— |
||||||||||||||||||||||||||||||||||
Return of investment to noncontrolling interests |
— |
— |
( |
) |
( |
) |
||||||||||||||||||||||||||||||
Balance at March 31, 2019 |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
|||||||||||||||||||||||
See accompanying notes to condensed financial statements.
5
KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
| (1) | Basis for Preparation of the Condensed Financial Statements |
The condensed financial statements included herein have been prepared by Kirby Corporation and its consolidated subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including significant accounting policies normally included in annual financial statements, have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Certain reclassifications have been made to reflect the current presentation of financial information.
The condensed financial statements for the quarter ended March 31, 2020 have been restated to apply a simultaneous equation to the calculated goodwill impairment, as prescribed by the accounting literature, to adjust for the cycle of goodwill impairment created by the decrease in deferred tax liabilities due to the impairment of tax deductible goodwill as described by paragraph 350-20-55-23A of Accounting Standards Update 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 was adopted by the Company on January 1, 2020, as discussed in Note 2, Accounting Standards Adoptions. The following table summarizes the effects of the restatement resulting from the correction of this error (in thousands):
Previously Reported |
Adjustment |
Restated |
||||||||||
Condensed Balance Sheet: |
||||||||||||
Goodwill |
$ |
$ |
( |
) |
$ |
|||||||
Total assets |
( |
) |
||||||||||
Deferred income taxes |
( |
) |
||||||||||
Total long-term liabilities |
( |
) |
||||||||||
Retained earnings |
( |
) |
||||||||||
Total Kirby stockholders’ equity |
( |
) |
||||||||||
Total equity |
( |
) |
||||||||||
Total liabilities and equity |
( |
) |
||||||||||
Condensed Statement of Earnings: |
||||||||||||
Impairments and other charges |
||||||||||||
Total costs and expenses |
||||||||||||
Operating income (loss) |
( |
) |
( |
) |
( |
) |
||||||
Earnings (loss) before taxes on income |
( |
) |
( |
) |
( |
) |
||||||
(Provision) benefit for taxes on income |
||||||||||||
Net earnings (loss) |
( |
) |
( |
) |
( |
) |
||||||
Net earnings (loss) attributable to Kirby |
( |
) |
( |
) |
( |
) |
||||||
Net earnings (loss) per common share – basic and diluted |
( |
) |
( |
) |
( |
) |
||||||
Condensed Statement of Comprehensive Income: |
||||||||||||
Net earnings (loss) |
( |
) |
( |
) |
( |
) |
||||||
Total comprehensive income (loss), net of taxes |
( |
) |
( |
) |
( |
) |
||||||
Comprehensive income (loss) attributable to Kirby |
( |
) |
( |
) |
( |
) |
||||||
Condensed Statement of Cash Flows: |
||||||||||||
Net earnings (loss) |
( |
) |
( |
) |
( |
) |
||||||
Provision (benefit) for deferred income taxes |
( |
) |
( |
) |
( |
) |
||||||
Impairments and other charges |
||||||||||||
Condensed Statement of Stockholders’ Equity: |
||||||||||||
Total comprehensive loss, net of taxes |
( |
) |
( |
) |
( |
) |
||||||
Retained earnings |
( |
) |
||||||||||
Total equity |
( |
) |
||||||||||
6
| (2) | Accounting Standards Adoptions |
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits - Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans” which amends the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing certain requirements, providing clarification on existing requirements and adding new requirements including adding an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The amendments in this update are required to be applied on a retrospective basis to all periods presented. The Company is currently evaluating this guidance to determine the impact on its disclosures.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” which simplifies the subsequent measurement of goodwill by eliminating Step 2 in the goodwill impairment test that required an entity to perform procedures to determine the fair value of its assets and liabilities at the testing date. An entity instead shall perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, incorporating all tax impacts caused by the recognition of the impairment loss. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted ASU 2017-04 on January 1, 2020 on a prospective basis. See Note 1, Basis for Preparation of the Condensed Financial Statements and Note 8, Impairments and Other Charges for further details.
| (3) | Acquisitions |
During the three months ended March 31, 2020, the Company purchased three newly constructed inland pressure barges for $20,100,000 in cash.
On January 3, 2020, the Company completed the acquisition of substantially all the assets of Convoy Servicing Company and Agility Fleet Services, LLC (collectively “Convoy”) for $40,322,000 in cash, reduced by a receivable due from Convoy of $3,142,000 recorded for post-closing adjustments that was settled in April 2020. Convoy is an authorized dealer for Thermo King refrigeration systems for trucks, railroad cars and other land transportation markets for North and East Texas and Colorado.
The fair values of the assets acquired and liabilities assumed from Convoy recorded at the acquisition date were as follows (in thousands):
Assets: |
||||
Accounts receivable |
$ |
|||
Inventories |
||||
Prepaid expenses |
||||
Property and equipment |
||||
Operating lease right-of-use assets |
||||
Goodwill |
||||
Other intangibles |
||||
Total assets |
||||
Liabilities: |
||||
Accounts payable and accrued liabilities |
||||
Current portion of operating lease liabilities |
||||
Other long-term liabilities |
||||
Total liabilities |
||||
Net assets acquired |
$ |
|||
7
The Company acquired intangible assets with a weighted average amortization period of 11 years, consisting of $9,000,000 for customer relationships with an amortization period of 10 years, $8,000,000 for distributorships with an amortization period of 12 years and $170,000 for non-compete agreements with an amortization period of three years .
Pro forma results of the acquisitions made in the 2020 first quarter have not been presented as the pro forma revenues and net earnings attributable to Kirby would not be materially different from the Company’s actual results.
| (4) | Revenues |
The following table sets forth the Company’s revenues by major source (in thousands):
Three months ended March 31, |
||||||||
2020 |
2019 |
|||||||
Marine transportation segment: |
||||||||
Inland transportation |
$ |
$ |
||||||
Coastal transportation |
||||||||
$ |
$ |
|||||||
Distribution and services segment: |
||||||||
Oil and gas |
$ |
$ |
||||||
Commercial and industrial |
||||||||
$ |
$ |
|||||||
Contract Assets and Liabilities. Contract liabilities represent advance consideration received from customers, and are recognized as revenue over time as the related performance obligation is satisfied. Revenues recognized in the 2020 and 2019 first quarters that were included in the opening contract liability balances were $32,386,000 and $50,921,000 , respectively. The Company presents all contract liabilities within the deferred revenues financial statement caption on the balance sheets. The Company did no
The Company applies the practical expedient that allows non-disclosure of information about remaining performance obligations that have original expected durations of one year or less.
| (5) | Segment Data |
The Company’s operations are aggregated into two reportable business segments as follows:
Marine Transportation — Provides marine transportation principally by United States flag vessels of liquid cargoes throughout the United States inland waterway system, along all three United States coasts, in Alaska and Hawaii and, to a lesser extent, in United States coastal transportation of dry-bulk cargoes. The principal products transported include petrochemicals, black oil, refined petroleum products and agricultural chemicals.
Distribution and Services — Provides after-market services and parts for engines, transmissions, reduction gears and related equipment used in oilfield service, 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 Company’s two reportable business segments are managed separately based on fundamental differences in their operations. The Company evaluates the performance of its segments based on the contributions to operating income of the respective segments, before income taxes, interest, gains or losses on disposition of assets, other nonoperating income, noncontrolling interests, accounting changes, and nonrecurring items. Intersegment revenues, based on market-based pricing, of the distribution and services segment from the marine transportation segment of $10,286,000 and $7,535,000 for the three months ended March 31, 2020 and 2019, respectively, as well as the related intersegment profit of $1,029,000 and $754,000 for the three months ending March 31, 2020 and 2019, respectively, have been eliminated from the tables below.
8
The following tables set forth the Company’s revenues and profit or loss by reportable segment and total assets (in thousands):
Three months ended March 31, |
||||||||
2020 |
2019 |
|||||||
Revenues: |
||||||||
Marine transportation |
$ |
$ |
||||||
Distribution and services |
||||||||
$ |
$ |
|||||||
Segment profit (loss): |
||||||||
Marine transportation |
$ |
$ |
||||||
Distribution and services |
||||||||
Other (Restated) |
( |
) |
( |
) |
||||
$ |
( |
) |
$ |
|||||
March 31, 2020 |
December 31, 2019 |
|||||||
Total assets: |
||||||||
Marine transportation |
$ |
$ |
||||||
Distribution and services (Restated) |
||||||||
Other |
||||||||
$ |
$ |
|||||||
The following table presents the details of “Other” segment loss (in thousands):
Three months ended March 31, |
||||||||
2020 |
2019 |
|||||||
General corporate expenses |
$ |
( |
) |
$ |
( |
) |
||
Interest expense |
( |
) |
( |
) |
||||
Impairments and other charges (Restated) |
( |
) |
||||||
Gain on disposition of assets |
||||||||
Other income (expense) |
( |
) |
||||||
$ |
( |
) |
$ |
( |
) |
|||
The following table presents the details of “Other” total assets (in thousands):
March 31, 2020 |
December 31, 2019 |
|||||||
General corporate assets |
$ |
$ |
||||||
Investment in affiliates |
||||||||
$ |
$ |
|||||||
| (6) | Long-Term Debt |
The Company has an amended and restated credit agreement (the “Credit Agreement”) with a group of commercial banks, with JPMorgan Chase Bank, N.A. as the administrative agent bank, allowing for an $850,000,000 unsecured revolving credit facility (“Revolving Credit Facility”) and an unsecured term loan (“Term Loan”) with a maturity date of March 27, 2024 . The Term Loan is repayable in quarterly installments currently scheduled to commence September 30, 2023, with $343,750,000 due on March 27, 2024. The Term Loan is prepayable, in whole or in part, without penalty. As of March 31, 2020, the Company had outstanding borrowings of $485,000,000 and availability of $359,637,000 under the Revolving Credit Facility and borrowings of $375,000,000 under the Term Loan. The interest rates under the Revolving Credit Facility and Term Loan were 1.9 % and 2.1 %, respectively, at March 31, 2020.
On February 27, 2020 , upon maturity, the Company repaid in full $150,000,000 of 2.72 % unsecured senior notes.
9
The estimated fair value of total debt outstanding at March 31, 2020 and December 31, 2019 was $1,810,159,000 and $1,421,325,000 , respectively, which differs from the carrying amount of $1,702,493,000 and $1,369,767,000 , respectively, included in the consolidated financial statements. The fair value of debt outstanding was determined using inputs characteristic of a Level 2 fair value measurement.
| (7) | Leases |
The Company currently leases various facilities and equipment under cancelable and noncancelable operating leases. The accounting for the Company’s leases may require judgments, which include determining whether a contract contains a lease, allocated between lease and non-lease components, and determining the incremental borrowing rates. Leases with an initial noncancelable term of 12 months or less are not recorded on the balance sheet and related lease expense is recognized on a straight-line basis over the lease term. The Company has also elected to combine lease and non-lease components on all classes of leased assets, except for leased towing vessels for which the Company estimates approximately 75 % of the costs relate to service costs and other non-lease components. Variable lease costs relate primarily to real estate executory costs (i.e. taxes, insurance and maintenance).
Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year were as follows (in thousands):
March 31, |
December 31, |
|||||||
2020 |
2019 |
|||||||
2020 |
$ |
$ |
||||||
2021 |
||||||||
2022 |
||||||||
2023 |
||||||||
2024 |
||||||||
Thereafter |
||||||||
Total lease payments |
||||||||
Less: imputed interest |
( |
) |
( |
) |
||||
Operating lease liabilities |
$ |
$ |
||||||
The following table sets forth lease costs (in thousands):
Three months ended March 31, |
||||||||
2020 |
2019 |
|||||||
Operating lease cost |
$ |
$ |
||||||
Variable lease cost |
||||||||
Short-term lease cost |
||||||||
Sublease income |
( |
) |
( |
) |
||||
Total lease cost |
$ |
$ |
||||||
The following table summarizes other supplemental information about the Company’s operating leases:
March 31, |
December 31, |
|||||||
2020 |
2019 |
|||||||
Weighted average discount rate |
% |
% |
||||||
Weighted average remaining lease term |
||||||||
10
| (8) | Impairments and Other Charges |
During the 2020 first quarter, Kirby’s market capitalization declined significantly compared to the 2019 fourth quarter. Over the same period, the overall United States stock market also declined significantly amid market volatility. In addition, as a result of uncertainty surrounding the outbreak of COVID-19 and a sharp decline in oil prices during the 2020 first quarter, many of the Company’s oil and gas customers responded by quickly cutting 2020 capital spending budgets and activity levels quickly declined. Lower activity levels have resulted in a decline in drilling activity, resulting in lower demand for new and remanufactured oilfield equipment and related parts and service in the distribution and services segment. As a result, the Company concluded that a triggering event had occurred and performed interim quantitative impairment tests as of March 31, 2020 for certain of the distribution and services segment’s long-lived assets and goodwill.
The Company determined the estimated fair value of such long-lived assets and reporting units using a discounted cash flow analysis and a market approach for comparable companies. This analysis included management’s judgment regarding short-term and long-term internal forecasts, updated for recent events, appropriate discount rates, and capital expenditures using inputs characteristic of a Level 3 fair value measurement.
In performing the impairment test of long-lived assets within the distribution and services segment, the Company determined that the carrying value of certain long-lived assets, including property and equipment as well as intangible assets associated with customer relationships, tradenames, and distributorships, were no longer recoverable, resulting in an impairment charge of $165,304,000 to reduce such long-lived assets to fair value.
Based upon the results of the goodwill impairment test, the Company concluded that the carrying value of one reporting unit in the distribution and services segment exceeded its estimated fair value. The goodwill impairment charge of $387,970,000 was calculated as the amount that the carrying value of the reporting unit, including goodwill, and after recording impairments of long-lived assets identified above, exceeded its estimated fair value, incorporating all tax impacts caused by the recognition of the impairment loss.
In addition, the Company determined cost exceeded net realizable value for certain oilfield and pressure pumping related inventory, resulting in an $8,000,000 non-cash write-down.
The following table summarizes the changes in goodwill (in thousands):
Marine Transportation |
Distribution and Services (Restated) |
Total (Restated) |
||||||||||
Balance at December 31, 2019 (gross) |
$ |
$ |
$ |
|||||||||
Accumulated impairment and amortization |
( |
) |
( |
) |
( |
) |
||||||
Balance at December 31, 2019 |
||||||||||||
Impairment |
( |
) |
( |
) |
||||||||
Convoy acquisition |
||||||||||||
Balance at March 31, 2020 (gross) |
||||||||||||
Accumulated impairment and amortization |
( |
) |
( |
) |
( |
) |
||||||
Balance at March 31, 2020 |
$ |
$ |
$ |
|||||||||
| (9) | Stock Award Plans |
During the three months ended March 31, 2020, the Company granted 151,845 restricted stock units (“RSUs”) and 114,600 stock options to selected officers and other key employees under its employee stock award plan. The RSUs vest ratably over five years and the stock options become exercisable ratably over three years and expire after seven years .
During May 2020, the Company granted 39,913 shares of restricted stock to nonemployee directors of the Company under the director stock award plan. The restricted stock vests six months after the date of grant except that restricted stock granted in lieu of cash director fees vests in equal quarterly increments through March 31, 2021.
11
The compensation cost that has been charged against earnings for the Company’s stock award plans and the income tax benefit recognized in the statement of earnings for stock awards were as follows (in thousands):
Three months ended March 31, |
||||||||
2020 |
2019 |
|||||||
Compensation cost |
$ |
$ |
||||||
Income tax benefit |
$ |
$ |
||||||
| (10) | Taxes on Income |
On March 27, 2020, the United States Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law to address the COVID-19 pandemic. One provision of the CARES Act allows net operating losses generated in 2018 through 2020 to be carried back up to five years . Pursuant to this provision of the CARES Act, the Company recorded a federal current benefit for taxes on income for the three months ended March 31, 2020 due to carrying back net operating losses generated between 2018 and 2020 used to offset taxable income generated between 2013 and 2017. This caused a reduction in the effective tax rate during the three months ended March 31, 2020 as net operating losses carried back to tax years 2013 through 2017 are applied at a federal tax rate of 35 % applicable to those tax years, compared to a 21 % tax rate effective at March 31, 2020. Net operating losses generated in 2018 and 2019 were used to offset taxable income generated between 2013 and 2017 taxed at 35 % resulting in a tax benefit of $50,284,000 . As a result, during the three months ended March 31, 2020, the Company’s deferred tax asset related to federal net operating losses decreased by $77,262,000 .
Earnings (loss) before taxes on income and details of the provision (benefit) for taxes on income were as follows (in thousands):
Three months ended March 31, |
||||||||
2020 (Restated) |
2019 |
|||||||
Earnings (loss) before taxes on income: |
||||||||
United States |
$ |
( |
) |
$ |
||||
Foreign |
( |
) |
( |
) |
||||
$ |
( |
) |
$ |
|||||
Provision (benefit) for taxes on income: |
||||||||
Federal: |
||||||||
Current |
$ |
( |
) |
$ |
||||
Deferred |
( |
) |
||||||
State and local: |
||||||||
Current |
||||||||
Deferred |
( |
) |
||||||
Foreign - current |
( |
) |
||||||
$ |
( |
) |
$ |
|||||
12
| (11) | Earnings Per Share |
The following table presents the components of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Three months ended March 31, |
||||||||
2020 (Restated) |
2019 |
|||||||
Net earnings (loss) attributable to Kirby |
$ |
( |
) |
$ |
||||
Undistributed earnings allocated to restricted shares |
( |
) |
||||||
Income (loss) available to Kirby common stockholders – basic |
( |
) |
||||||
Undistributed earnings allocated to restricted shares |
||||||||
Undistributed earnings reallocated to restricted shares |
( |
) |
||||||
Income (loss) available to Kirby common stockholders – diluted |
$ |
( |
) |
$ |
||||
Shares outstanding: |
||||||||
Weighted average common stock issued and outstanding |
||||||||
Weighted average unvested restricted stock |
( |
) |
( |
) |
||||
Weighted average common stock outstanding – basic |
||||||||
Dilutive effect of stock options and restricted stock units |
||||||||
Weighted average common stock outstanding – diluted |
||||||||
Net earnings (loss) per share attributable to Kirby common stockholders: |
||||||||
Basic |
$ |
( |
) |
$ |
||||
Diluted |
$ |
( |
) |
$ |
||||
Certain outstanding options to purchase approximately 681,000 and 479,000 shares of common stock were excluded in the computation of diluted earnings per share as of March 31, 2020 and 2019, respectively, as such stock options would have been antidilutive. Certain outstanding RSUs to convert to 344,000 and 1,000 shares of common stock were also excluded in the computation of diluted earnings per share as of March 31, 2020 and 2019, respectively, as such RSUs would have been antidilutive.
| (12) | Inventories |
The following table presents the details of inventories – net (in thousands):
March 31, 2020 |
December 31, 2019 |
|||||||
Finished goods |
$ |
$ |
||||||
Work in process |
||||||||
$ |
$ |
|||||||
| (13) | Retirement Plans |
The Company sponsors a defined benefit plan for certain of its inland vessel personnel and shore based tankermen. The plan benefits are based on an employee’s years of service and compensation. The plan assets consist primarily of equity and fixed income securities.
On April 12, 2017, the Company amended its pension plan to cease all benefit accruals for periods after May 31, 2017 for certain participants. Participants grandfathered and not impacted were those, as of the close of business on May 31, 2017, who either (a) had completed 15 years of pension service or (b) had attained age 50 and completed 10 years of pension service. Participants non-grandfathered are eligible to receive discretionary 401(k) plan contributions.
13
The Company’s pension plan funding strategy is to make annual contributions in amounts equal to or greater than amounts necessary to meet minimum government funding requirements. The plan’s benefit obligations are based on a variety of demographic and economic assumptions, and the pension plan assets’ returns are subject to various risks, including market and interest rate risk, making an accurate prediction of the pension plan contribution difficult. Based on current pension plan assets and market conditions, the Company does not expect to make a contribution to the Kirby pension plan during 2020.
On February 14, 2018, with the acquisition of Higman Marine, Inc. and its affiliated companies (“Higman”), the Company assumed Higman’s pension plan for its inland vessel personnel and office staff. On March 27, 2018, the Company amended the Higman pension plan to close it to all new entrants and cease all benefit accruals for periods after May 15, 2018 for all participants. The Company made a contribution of $483,000 to the Higman pension plan in the 2020 first quarter for the 2019 plan year. In addition, the Company made a contribution of $479,000 to the Higman pension plan during April 2020 for the 2020 plan year. The Company expects to make an additional contribution of $314,000 to the Higman pension plan during 2020 for the 2019 plan year and contributions of $958,000 for the 2020 plan year.
The Company sponsors an unfunded defined benefit health care plan that provides limited postretirement medical benefits to employees who meet minimum age and service requirements, and to eligible dependents. The plan limits cost increases in the Company’s contribution to 4 % per year. The plan is contributory, with retiree contributions adjusted annually. The plan eliminated coverage for future retirees as of December 31, 2011. The Company also has an unfunded defined benefit supplemental executive retirement plan (“SERP”) that was assumed in an acquisition in 1999. That plan ceased to accrue additional benefits effective January 1, 2000.
The components of net periodic benefit cost for the Company’s defined benefit plans were as follows (in thousands):
Pension Benefits |
||||||||||||||||
Pension Plan |
SERP |
|||||||||||||||
Three months ended March 31, |
Three months ended March 31, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Components of net periodic benefit cost: |
||||||||||||||||
Service cost |
$ |
$ |
$ |
$ |
||||||||||||
Interest cost |
||||||||||||||||
Expected return on plan assets |
( |
) |
( |
) |
||||||||||||
Amortization of actuarial loss |
||||||||||||||||
Net periodic benefit cost |
$ |
( |
) |
$ |
$ |
$ |
||||||||||
The components of net periodic benefit cost for the Company’s postretirement benefit plan were as follows (in thousands):
Other Postretirement Benefits |
||||||||
Postretirement Welfare Plan |
||||||||
Three months ended March 31, |
||||||||
2020 |
2019 |
|||||||
Components of net periodic benefit cost: |
||||||||
Service cost |
$ |
$ |
||||||
Interest cost |
||||||||
Amortization of actuarial gain |
( |
) |
( |
) |
||||
Net periodic benefit cost |
$ |
( |
) |
$ |
( |
) |
||
14
| (14) | Other Comprehensive Income |
The Company’s changes in other comprehensive income were as follows (in thousands):
Three months ended March 31, |
||||||||||||||||||||||||
2020 |
2019 |
|||||||||||||||||||||||
Gross Amount |
Income Tax Provision |
Net Amount |
Gross Amount |
Income Tax Provision |
Net Amount |
|||||||||||||||||||
Pension and postretirement benefits (a): |
||||||||||||||||||||||||
Amortization of net actuarial loss |
$ |
$ |
( |
) |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||
Foreign currency translation |
( |
) |
( |
) |
||||||||||||||||||||
Total |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||
| (a) |
| (15) | Contingencies |
On May 10, 2019, two tank barges and a towboat, the M/V Voyager, owned and operated by Kirby Inland Marine, LP (“Kirby Inland Marine”), a wholly owned subsidiary of the Company, were struck by the LPG tanker, the Genesis River, in the Houston Ship Channel. The bow of the Genesis River penetrated the Kirby 30015T and capsized the MMI 3014. The collision penetrated the hull of the Kirby 30015T causing its cargo, reformate, to be discharged into the water. The United States Coast Guard (“USCG”) and the National Transportation Safety Board (“NTSB”) designated the owner and pilot of the Genesis River as well as the subsidiary of the Company as parties of interest in their investigation into the cause of the incident. On June 19, 2019, the Company filed a limitation action in the U.S. District Court of the Southern District of Texas - Galveston Division seeking limitation of liability and asserting that the Genesis River and her owner/manager are at fault for damages including removal costs and claims under the Oil Pollution Act of 1990 and maritime law. Multiple claimants have filed claims in the limitation seeking damages under the Oil Pollution Act of 1990. The Company has various insurance policies covering liabilities including pollution, marine and general liability and believes that it has satisfactory insurance coverage for the potential liabilities arising from the incident. The Company believes it has accrued adequate reserves for the incident and does not expect the incident to have a material adverse effect on its business or financial condition.
On October 13, 2016, the tug Nathan E. Stewart and barge DBL 55, an articulated tank barge and tugboat unit (“ATB”) owned and operated by Kirby Offshore Marine, LLC, a wholly owned subsidiary of the Company, ran aground at the entrance to Seaforth Channel on Atholone Island, British Columbia. The grounding resulted in a breach of a portion of the Nathan E. Stewart’s fuel tanks causing a discharge of di