What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-08-07 · 234 added, 213 removed, 636 unchanged (41% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

September 30,

($ in thousands)

36 unchanged sentences

Treasury stock –

at cost, 5.9 million shares at June 30, 2023 and 5.6 million at December 31, 2022

at cost, 6.2 million shares at September 30, 2023 and 5.6 million at December 31, 2022

Total Kirby stockholders’

4 unchanged sentences

CONDENSED STATEMENTS OF EARNINGS

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands, except per share amounts)

19 unchanged sentences

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

9 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

9 unchanged sentences

Capital expenditures

Acquisitions of businesses

Acquisitions of businesses and marine equipment

Proceeds from disposition of assets

10 unchanged sentences

Net cash used in financing activities

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

15 unchanged sentences

(in thousands)

Balance at March 31, 2023

Balance at June 30, 2023

Stock option exercises

Issuance of stock for equity awards, net of forfeitures

4 unchanged sentences

Total comprehensive income, net of taxes

Balance at June 30, 2023

Return of investment to noncontrolling interests

Balance at September 30, 2023

Comprehensive

2 unchanged sentences

(in thousands)

Balance at March 31, 2022

Stock option exercises

Issuance of stock for equity awards, net of forfeitures

Tax withholdings on equity award vesting

Balance at June 30, 2022

Amortization of unearned share-based compensation

2 unchanged sentences

Return of investment to noncontrolling interests

Balance at June 30, 2022

Balance at September 30, 2022

See accompanying notes to condensed financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF STOCKHOLDERS’

Accumulated Other

Comprehensive

10 unchanged sentences

Total comprehensive income, net of taxes

Balance at June 30, 2023

Return of investment to noncontrolling interests

Balance at September 30, 2023

Accumulated Other

Comprehensive

10 unchanged sentences

Return of investment to noncontrolling interests

Balance at June 30, 2022

Balance at September 30, 2022

See accompanying notes to condensed financial statements.

7 unchanged sentences

Certain reclassifications have been made to reflect the current presentation of financial information.

(2) Acquisition

(2) Acquisitions

On July 14, 2023, the Company purchased 23 inland tank barges with a total capacity of 265,000 barrels from an undisclosed seller for $ 37 million in cash.

The 23 tank barges transport petrochemicals and refined products on the Mississippi River System and the Gulf Intracoastal Waterway.

The average age of the 23 barges was 14 years.

The Company purchased four inland tank barges from a leasing company for $ 0.5 million in cash during the 2023 third quarter.

The Company had been leasing the barges prior to the purchase.

On March 31, 2022, the Company paid $ 3.9 million in cash to purchase assets of a gearbox repair company in the distribution and services segment.

1 unchanged sentence

The following table sets forth the Company’s revenues by major source (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Marine transportation segment:

4 unchanged sentences

Contract liabilities represent advance consideration received from customers, and are recognized as revenue over time as the related performance obligation is satisfied.

Revenues recognized during the six months ended June 30, 2023 and 2022 that were included in the opening contract liability balances were $ 60.3 million and $ 46.7 million , respectively.

Revenues recognized during the nine months ended September 30, 2023 and 2022 that were included in the opening contract liability balances were $ 76.8 million and $ 54.6 million , respectively.

The Company presents all contract liabilities within the deferred revenues financial statement caption on the balance sheets.

The Company did no t have any contract assets at June 30, 2023 or December 31, 2022 .

The Company did no t have any contract assets at September 30, 2023 or December 31, 2022 .

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.

9 unchanged sentences

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 KDS from KMT of $ 10.3 million and $ 19.7 million for the three months and six months ended June 30, 2023, respectively, and $ 6.3 million and $ 13.9 million for the three and six months ended June 30, 2022, respectively, as well as the related intersegment profit of $ 1.0 million and $ 2.0 million for the three months and six months ended June 30, 2023, respectively, and $ 0.6 million and $ 1.4 million for the three and six months ended June 30, 2022, respectively, have been eliminated from the tables below.

Intersegment revenues, based on market-based pricing, of KDS from KMT of $ 9.9 million and $ 29.6 million for the three months and nine months ended September 30, 2023, respectively, and $ 8.0 million and $ 21.9 million for the three and nine months ended September 30, 2022, respectively, as well as the related intersegment profit of $ 1.0 million and $ 3.0 million for the three months and nine months ended September 30, 2023, respectively, and $ 0.8 million and $ 2.2 million for the three and nine months ended September 30, 2022, respectively, have been eliminated from the tables below.

The following tables set forth the Company’s revenues and profit or loss by reportable segment and total assets (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Marine transportation

3 unchanged sentences

Distribution and services

September 30,

Total assets:

3 unchanged sentences

segment loss (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

General corporate expenses

3 unchanged sentences

total assets (in thousands):

September 30,

General corporate assets

2 unchanged sentences

The following table presents the carrying value and fair value (determined using inputs characteristic of a Level 2 fair value measurement) of debt outstanding (in thousands):

June 30, 2023

September 30, 2023

December 31, 2022

10 unchanged sentences

Unamortized debt discounts and issuance costs (b)

(a) Variable interest rate o f 6.6 % at June 30, 2023.

(a) Variable interest rate o f 6.8 % at September 30, 2023.

(b) Excludes $ 1.8 million attributable to the 2027 Revolving Credit Facility included in other assets at December 31, 2022 .

The following table presents borrowings and payments under the bank credit facilities (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Borrowings on bank credit facilities

9 unchanged sentences

As a result, no repayments are required until June 30, 2025.

Outstanding letters of credit under the 2027 Revolving Credit Facility were $ 0.1 million and available borrowing capacity was $ 472.9 million as of June 30, 2023.

Outstanding letters of credit under the 2027 Revolving Credit Facility were $ 0.1 million and available borrowing capacity was $ 405.9 million as of September 30, 2023.

The 2027 Term Loan is repayable in quarterly installments, with no repayments until June 30, 2025, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance of approximately $ 43.8 million payable upon maturity, assuming no prepayment.

17 unchanged sentences

(“Bank of America”) for short-term liquidity needs and letters of credit, with a maturity date of June 30, 2024 .

Outstanding letters of credit under the $ 10 million credit line were $ 3.6 million and available borrowing capacity was $ 6.4 million as of June 30, 2023 .

Outstanding letters of credit under the $ 10 million credit line were $ 7.3 million and available borrowing capacity was $ 2.7 million as of September 30, 2023 .

The Company currently leases various facilities and equipment under cancelable and noncancelable operating leases.

5 unchanged sentences

Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year were as follows (in thousands):

September 30,

Total lease payments

2 unchanged sentences

The following table summarizes lease costs (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease cost

3 unchanged sentences

The following table summarizes other supplemental information about the Company’s operating leases:

September 30,

Weighted average discount rate

2 unchanged sentences

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Compensation cost

Income tax benefit

During the six months ended June 30, 2023, the Company grant ed 182,395 restricted stock units (“RSUs”) to selected officers and other key employees under the employee stock award plan, the majority of which vest ratably over five years and 31,526 shares of restricted stock to nonemployees directors of the Company under the director stock plan, the majority of which vest six months after the date of grant.

During the nine months ended September 30, 2023, the Company grant ed 184,375 restricted stock units (“RSUs”) to selected officers and other key employees under the employee stock award plan, the majority of which vest ratably over five years and 31,526 shares of restricted stock to nonemployees directors of the Company under the director stock plan, the majority of which vest six months after the date of grant.

(8) Taxes on Income

3 unchanged sentences

In April 2023, the Company received its tax refund of $ 70.4 million plus accrued interest .

Earnings before taxes on income and details of the provision (benefit) for taxes on income were as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Earnings before taxes on income:

Earnings (loss) before taxes on income and details of the provision (benefit) for taxes on income were as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Earnings (loss) before taxes on income:

United States

4 unchanged sentences

The following table presents the components of basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net earnings attributable to Kirby

11 unchanged sentences

Net earnings per share attributable to Kirby common stockholders:

Certain outstanding options to purchase approximately 0.3 million and 0.4 million shares of common stock were excluded in the computation of diluted earnings per share as of June 30, 2023 and 2022 , respectively, as such stock options would have been antidilutive.

Certain outstanding RSUs to convert to 12,000 shares of common stock were also excluded in the computation of diluted earnings per share as of June 30, 2022 as such RSUs would have been antidilutive.

There were no antidilutive RSUs as of June 30, 2023 .

Certain outstanding options to purchase approximately 33,000 and 396,000 shares of common stock were excluded in the computation of diluted earnings per share as of September 30, 2023 and 2022 , respectively, as such stock options would have been antidilutive.

Certain outstanding RSUs to convert to 11,000 shares of common stock were also excluded in the computation of diluted earnings per share as of September 30, 2022 as such RSUs would have been antidilutive.

There were no antidilutive RSUs as of September 30, 2023 .

(10) Inventories

1 unchanged sentence

net (in thousands):

September 30,

Finished goods

14 unchanged sentences

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 contributions of $ 7.7 million to the Higman pension plan during the six months ended June 30, 2023 .

The Company made contributions of $ 8.0 million to the Higman pension plan during the nine months ended September 30, 2023 .

The Company expects to make additional contributions of $ 0.2 million during the remainder of 2023.

7 unchanged sentences

Pension Plans

Three Months Ended June 30,

Three Months Ended September 30,

Components of net periodic benefit cost:

5 unchanged sentences

Pension Plans

Six Months Ended June 30,

Nine Months Ended September 30,

Components of net periodic benefit cost:

6 unchanged sentences

Postretirement Welfare Plan

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Components of net periodic benefit cost:

4 unchanged sentences

The Company’s changes in other comprehensive income were as follows (in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Income Tax Benefit

Income Tax (Provision) Benefit

Income Tax Provision

Pension and postretirement benefits (a):

Amortization of net actuarial (gain) loss

Amortization of net actuarial gain

Actuarial gains

Foreign currency translation

Six Months Ended June 30,

Nine Months Ended September 30,

Income Tax (Provision) Benefit

Income Tax Provision

Income Tax (Provision) Benefit

Pension and postretirement benefits (a):

Amortization of net actuarial (gain) loss

Amortization of net actuarial gain

Actuarial gains

18 unchanged sentences

The Company has issued guaranties or obtained standby letters of credit and performance bonds supporting performance by the Company and its subsidiaries of contractual or contingent legal obligations of the Company and its subsidiaries incurred in the ordinary course of business.

The aggregate notional value of these instruments is $ 24.0 million at June 30, 2023, including $ 9.4 million in letters of credit and $ 14.6 million in performance bonds.

The aggregate notional value of these instruments is $ 27.6 million at September 30, 2023, including $ 13.0 million in letters of credit and $ 14.6 million in performance bonds.

All of these instruments have an expiration date within two years .

The Company does not believe demand for payment under these instruments is likely and expects no material cash outlays to occur regarding these instruments.

(14) Subsequent Event

On July 14, 2023, the Company purchased 23 inland tank barges with a total capacity of 265,000 barrels from an undisclosed seller for $ 37 million in cash.

The 23 tank barges transport petrochemicals and refined products on the Mississippi River System and the Gulf Intracoastal Waterway.

The average age of the 23 barges was 14 years.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 unchanged sentences

The following table summarizes key operating results of the Company (in thousands, except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenues

5 unchanged sentences

The 2022 second quarter included $1.5 million before taxes, $1.3 million after taxes, or $0.02 per share of severance expense.

Cash provided by operating activities for the 2023 first six months increased in comparison to the 2022 first six months primarily due to higher business activity levels and the receipt of the IRS refund.

For the 2023 first six months, capital expenditures of $171.2 million included $128.2 million in KMT and $43.0 million in KDS and corporate, each more fully described under Cash Flow and Capital Expenditures below.

Cash provided by operating activities for the 2023 first nine months increased in comparison to the 2022 first nine months primarily due to higher business activity levels and the receipt of the IRS refund.

For the 2023 first nine months, capital expenditures of $275.0 million included $193.0 million in KMT and $82.0 million in KDS and corporate, each more fully described under Cash Flow and Capital Expenditures below.

The Company projects that capital expenditures for 2023 will be in the $330 million to $380 million range.

1 unchanged sentence

The 2023 construction program also consists of growth capital of up to approximately $40 million for the construction of specialized inland equipment, and of up to approximately $100 million for new electric fracturing equipment.

The Company’s debt-to-capitalization ratio decreased to 24.3% at June 30, 2023 from 26.2% at December 31, 2022, primarily due an increase in total equity, primarily from net earnings attributable to Kirby of $98.1 million, and a reduction of debt outstanding of $81.2 million, partially offset by treasury stock purchases of $37.6 million.

The Company’s debt outstanding as of June 30, 2023 and December 31, 2022 is detailed in Long-Term Financing below.

The Company’s debt-to-capitalization ratio decreased to 25.3% at September 30, 2023 from 26.2% at December 31, 2022, primarily due an increase in total equity, primarily from net earnings attributable to Kirby of $161.0 million, and a reduction of debt outstanding of $11.8 million, partially offset by treasury stock purchases of $60.9 million.

The Company’s debt outstanding as of September 30, 2023 and December 31, 2022 is detailed in Long-Term Financing below.

Marine Transportation

For both the 2023 second quarter and first six months, KMT generated 55% of the Company’s revenues compared to 58% for both the 2022 second quarter and first six months.

For the 2023 third quarter and first nine months, KMT generated 56% and 55%, respectively, of the Company’s revenues compared to 58% for both the 2022 third quarter and first nine months.

The segment’s customers include many of the major petrochemical and refining companies that operate in the United States.

3 unchanged sentences

The following table summarizes the Company’s marine transportation fleet:

September 30,

Inland tank barges:

8 unchanged sentences

Further, the Company owns a two-thirds interest in Osprey Line, L.L.C., which transports project cargoes and cargo containers by barge.

During the 2023 first six months, the Company brought back into service 18 inland tank barges, purchased a newly constructed inland specialty tank barge, and retired 11 inland tank barges.

The net result was an increase of eight inland tank barges and approximately 0.2 million barrels of capacity during the 2023 first six months.

KMT revenues for the 2023 second quarter and first six months increased 5% and 10%, respectively, and operating income increased 108% and 125%, respectively, compared to the 2022 second quarter and first six months.

The increases for the 2023 second quarter and first six months were primarily due to higher term and spot pricing and increased tank barge utilization in the inland and coastal markets.

During the 2023 first nine months, the Company brought back into service 20 inland tank barges, purchased 23 inland tank barges, purchased three newly constructed inland specialty tank barges, and retired 12 inland tank barges.

The net result was an increase of 34 inland tank barges and approximately 0.5 million barrels of capacity during the 2023 first nine months.

KMT revenues for the 2023 third quarter and first nine months decreased 1% and increased 6%, respectively, and operating income increased 52% and 91%, respectively, compared to the 2022 third quarter and first nine months.

The decrease in revenues for the 2023 third quarter was primarily due to lower tank barge utilization as a result of Illinois River lock closures and several refinery outages, as well as lower fuel rebills in the inland market.

The increase in revenues for the first nine months was primarily due to higher term and spot pricing and increased tank barge utilization in the inland and coastal markets.

The 2023 and 2022 first quarters were 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 resulting in higher delay days.

Also, the 2022 first quarter was impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges, lost revenue and increased operating costs.

For both the 2023 second quarter and first six months, the inland tank barge fleet contributed 82% and the coastal fleet contributed 18% of KMT revenues.

For both the 2022 second quarter and first six months, the inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of KMT revenues.

Inland tank barge utilization levels averaged in the low to mid-90% range during the 2023 first quarter and the low 90% range during the 2023 second quarter compared to the mid-80% range during the 2022 first quarter and the low 90% range during the 2022 second quarter.

The 2023 first six months reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization while the 2022 first six months were impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges.

Coastal tank barge utilization levels averaged in the mid to high-90% range during both the 2023 first and second quarters compared to the low-90% range during both the 2022 first and second quarters.

The 2022 first quarter was also impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges, lost revenue and increased operating costs.

For both the 2023 third quarter and first nine months, the inland tank barge fleet contributed 82% and the coastal fleet contributed 18% of KMT revenues.

For the 2022 third quarter and first nine months, the inland tank barge fleet contributed 80% and 79%, respectively, and the coastal fleet contributed 20% and 21%, respectively, of KMT revenues.

Inland tank barge utilization levels averaged in the low to mid-90% range during the 2023 first quarter, the low 90% range during the 2023 second quarter and the high 80% range during the 2023 third quarter compared to the mid-80% range during the 2022 first quarter and the low 90% range during both the 2022 second and third quarters.

The 2023 first nine months reflected increasing activity levels as a result of higher refinery and petrochemical plant utilization, partially offset by Illinois River lock closures and several refinery outages during the 2023 third quarter while the 2022 first nine months were impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges.

Coastal tank barge utilization levels averaged in the mid to high 90% range during both the 2023 first and second quarters and the mid-90% range during the 2023 third quarter compared to the low 90% range during both the 2022 first and second quarters and the low to mid-90% range during the 2022 third quarter.

The increase in coastal tank barge utilization during 2023 was primarily due to continued improvements in market and customer demand.

During both the 2023 second quarter and first six months, approximately 55% of KMT inland revenues were under term contracts and 45% were spot contract revenues.

During both the 2022 second quarter and first six months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues.

Inland time charters during the 2023 second quarter and first six months represented approximately 62% and 61%, respectively, of inland revenues under term contracts compared with 57% in both the 2022 second quarter and first six months.

During the 2023 second quarter and first six months, approximately 85% and 80%, respectively, of KMT coastal revenues were under term contracts.

During the 2023 second quarter and first six months, approximately 15% and 20%, respectively, of KMT coastal revenues were under spot contracts.

During both the 2022 second quarter and first six months, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues.

Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2023 and 2022 second quarters and first six months.

During both the 2023 third quarter and first nine months, approximately 55% of KMT inland revenues were under term contracts and 45% were spot contract revenues.

During both the 2022 third quarter and first nine months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues.

Inland time charters during the 2023 third quarter and first nine months represented approximately 66% and 63%, respectively, of inland revenues under term contracts compared with 56% and 57% in the 2022 third quarter and first nine months, respectively.

During the 2023 third quarter and first nine months, approximately 90% and 85%, respectively, of KMT coastal revenues were under term contracts.

During the 2023 third quarter and first nine months, approximately 10% and 15%, respectively, of KMT coastal revenues were under spot contracts.

During the 2022 third quarter and first nine months, approximately 65% and 75%, respectively, of KMT coastal revenues were under term contracts and 35% and 25%, respectively, were spot contracts.

Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2023 and 2022 third quarters and first nine months.

Term contracts have contract terms of 12 months or longer, while spot contracts have contract terms of less than 12 months.

3 unchanged sentences

June 30, 2023

September 30, 2023

Inland market:

6 unchanged sentences

Effective January 1, 2023, 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 9%, excluding fuel.

KMT operating margin was 15.0% and 12.8% for the 2023 second quarter and first six months, respectively, compared to 7.6% and 6.3% for the 2022 second quarter and first six months, respectively.

KMT operating margin was 14.8% and 13.5% for the 2023 third quarter and first nine months, respectively, compared to 9.6% and 7.5% for the 2022 third quarter and first nine months, respectively.

Distribution and Services

1 unchanged sentence

The Company also rents equipment including generators, industrial compressors, high capacity lift trucks, and refrigeration trailers for use in a variety of industrial markets, manufactures and remanufactures oilfield service equipment, including pressure pumping units, and manufactures cementing and pumping equipment as well as coil tubing and well intervention equipment, electric power generation equipment, specialized electric distribution and control equipment, and high capacity energy storage/battery systems for oilfield service and railroad customers.

For both the 2023 second quarter and first six months, KDS generated 45% of the Company’s revenues, of which 80% and 78%, respectively, were generated from service and parts and 20% and 22%, respectively, from manufacturing.

For the 2023 third quarter and first nine months, KDS generated 44% and 45%, respectively, of the Company’s revenues, of which 80% and 79%, respectively, were generated from service and parts and 20% and 21%, respectively, from manufacturing.

The results of KDS are largely influenced by the economic cycles of the oil and gas, marine, power generation, on-highway, and other related industrial markets.

KDS revenues for the 2023 second quarter and first six months increased 20% and 26%, respectively, and operating income increased 78% and 90%, respectively, compared with the 2022 second quarter and first six months.

In the commercial and industrial market, the increases for the 2023 second quarter and first six months were primarily attributable to strong economic activity across the United States which resulted in higher business levels in the marine and on-highway businesses.

Increased product sales in Thermo King also contributed favorably to the 2023 second quarter and first six months results.

KDS revenues for the 2023 third quarter and first nine months increased 7% and 19%, respectively, and operating income increased 49% and 72%, respectively, compared with the 2022 third quarter and first nine months.

In the commercial and industrial market, the increases for the 2023 third quarter and first nine months were primarily attributable to strong economic activity across the United States which resulted in higher business levels in the marine and on-highway businesses.

Increased product sales in Thermo King also contributed favorably to the 2023 third quarter and first nine months results.

These increases were partially offset by continuing supply chain constraints and delays.

For the 2023 second quarter and first six months, the commercial and industrial market contributed 52% and 54%, respectively, of KDS revenues.

In the oil and gas market, revenues and operating income improved compared to the 2022 second quarter and first six months due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business.

For the 2023 third quarter and first nine months, the commercial and industrial market contributed 63% and 57%, respectively, of KDS revenues.

In the oil and gas market, revenues and operating income improved compared to the 2022 third quarter and first nine months due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business.

Although the manufacturing business was impacted by ongoing supply chain delays, the business continued to experience increased orders and deliveries of new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing.

For the 2023 second quarter and first six months, the oil and gas market contributed 48% and 46%, respectively, of KDS revenues.

KDS operating margin was 8.5% and 7.6%, respectively, for the 2023 second quarter and first six months compared to 5.7% and 5.1%, respectively, for the 2022 second quarter and first six months.

Refinery and petrochemical utilization levels remain at high levels.

This is favorable for the Company’s barge utilization, which is strong in both inland and coastal markets, and for pricing, which continues to increase.

Demand for the Company’s products and services continues to grow despite ongoing supply chain constraints and delays which could impact the Company’s KDS product deliveries.

Overall, the Company expects both KMT and KDS to deliver improved financial results in the coming quarters.

The Company continues to closely monitor the ever-changing economic landscape related to the impact of higher interest rates, and possible recessionary headwinds as it continues to move through 2023.

In the inland marine transportation market, the Company anticipates continued gradual upward movement in pricing and margins in the second half of 2023 as steady demand and a limited availability of equipment is expected to keep the market tight.

For the 2023 third quarter and first nine months, the oil and gas market contributed 37% and 43%, respectively, of KDS revenues.

KDS operating margin was 9.9% and 8.4% for the 2023 third quarter and first nine months, respectively, compared to 7.1% and 5.8% for the 2022 third quarter and first nine months, respectively.

Overall, the Company expects both KMT and KDS to deliver improved financial results in 2023 and going into 2024.

In KMT, refinery and petrochemical activity levels remain high.

This is favorable for pricing, which continues to increase, and for the Company’s barge utilization, which is strong in both inland and coastal markets.

In KDS, demand for the Company’s products and services continues to grow despite ongoing supply chain constraints and delays which could impact the Company’s product deliveries.

The Company remains mindful of the ever-changing economic landscape related to the impact of higher interest rates, and possible recessionary headwinds as it moves into 2024.

In the inland marine transportation market, the Company anticipates continued gradual upward movement in pricing for the remainder of 2023 and into 2024 as favorable conditions are expected to continue, driven by the combination of high refinery and petrochemical plant utilization and minimal new barge construction across the industry.

As a result, the Company expects further pricing improvements in the spot market, which currently represents approximately 45% of inland revenues.

Term contracts are also expected to continue to reset higher to reflect improved market conditions.

Term contracts are also expected to continue to reset higher as a result of improved market conditions.

These price increases are also critical in helping address the impact of persistent inflationary pressures in some areas of the Company’s business.

In coastal marine, revenues and operating margins are being impacted this year by an approximate doubling of planned shipyard maintenance days with ballast water treatment installations on certain vessels.

The Company expects modestly improved customer demand through the balance of the year with barge utilization in the low to mid-90% range.

Rates are expected to continue slowly improving as the industry is approaching supply and demand balance across the fleet.

The Company expects these strengths to be partially offset in the 2023 fourth quarter by increasing delay days due to normal seasonal weather conditions, lock delays, and low water conditions on the Mississippi River.

In coastal marine, revenues and operating margins are impacted this year by an approximate doubling of planned shipyard maintenance days including ballast water treatment installations on certain vessels.

The Company expects steady customer demand through the balance of the year with barge utilization in the low to mid-90% range.

Rates are expected to continue improving as the availability of equipment is reduced across the industry due to improved economic conditions and a heavier than normal maintenance cycle.

For the fourth quarter, coastal revenues are expected to increase modestly compared to 2023 third quarter as the Company continues to progress through major shipyards with the timing of some possibly shifting into early 2024.

KDS results are largely influenced by the cycles of the oil and gas, marine, power generation, on-highway and other related industrial markets.

Favorable oilfield fundamentals and steady demand in commercial and industrial are expected to continue throughout 2023 and into 2024.

In the oil and gas market, despite the near-term headwinds of lower commodity prices and flat to declining rig counts, the Company expects strong demand for manufacturing as well as for OEM products, parts, and services.

Within manufacturing, the Company expects demand for environmentally friendly pressure pumping and electric fracturing power generation equipment to remain strong, with new orders and increased deliveries of new equipment during the year.

Supply chain issues and long lead times are expected to persist in the near-term, contributing to some volatility as deliveries of new products shift between quarters and into 2024.

In commercial and industrial, steady markets are expected to help drive full year revenue growth, with increased activity in power generation, marine repair, and on-highway.

Stable demand in commercial and industrial and favorable oilfield fundamentals are expected to continue throughout the remainder of 2023 and into 2024.

In commercial and industrial, steady markets are expected to remain in the fourth quarter with incremental activity in power generation, marine repair, and on-highway.

This activity is expected to be partially offset by lower rental equipment activity as the hurricane season winds down.

In the oil and gas market, despite the near-term volatility in commodity prices and rig counts, the Company expects continued demand for manufacturing as well as for OEM products, parts, and services.

Supply chain issues and long lead times are expected to persist in the near-term, contributing to some volatility with the potential for deliveries of some products to shift into 2024.

On July 14, 2023, the Company purchased 23 inland tank barges with a total capacity of 265,000 barrels from an undisclosed seller for $37 million in cash.

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Financing of the equipment acquisition was through borrowings under the Company’s revolving credit facility.

The Company purchased four inland tank barges from a leasing company for $0.5 million in cash during the 2023 third quarter.

The Company had been leasing the barges prior to the purchase.

Financing of the equipment acquisition was through borrowings under the Company’s revolving credit facility.

On March 31, 2022, the Company paid $3.9 million in cash to purchase assets of a gearbox repair company in KDS.

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The following table sets forth the Company’s KMT and KDS revenues and the percentage of each to total revenues (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Marine transportation

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The following table sets forth KMT revenues, costs and expenses, operating income, and operating margin (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Marine transportation revenues

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The following table shows the marine transportation markets serviced by the Company, KMT revenue distribution, products moved and the drivers of the demand for the products the Company transports:

2023 Second Quarter

2023 Six Months

2023 Third Quarter

2023 Nine Months

Products Moved

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Corn, Cotton and Wheat Production, Chemical Feedstock Usage

The increases for the 2023 second quarter and first six months were primarily due to higher term and spot pricing and increased tank barge utilization in the inland and coastal markets.

The increase in revenues for the first nine months was primarily due to higher term and spot pricing and increased tank barge utilization in the inland and coastal markets.

Also, the 2022 first quarter was impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges, lost revenue and increased operating costs.

For both the 2023 second quarter and first six months,

the inland tank barge fleet contributed 82% and the coastal fleet contributed 18% of KMT revenues.

For both the 2022 second quarter and first six months, the inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of KMT revenues.

The 2022 first quarter was also impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges, lost revenue and increased operating costs.

For both the 2023 third quarter and first nine months, the inland tank barge fleet contributed 82% and the coastal fleet contributed 18% of KMT revenues.

For the 2022 third quarter and first nine months, the inland tank barge fleet contributed 80% and 79%, respectively, and the coastal fleet contributed 20% and 21%, respectively, of KMT revenues.

The increase in coastal tank barge utilization during 2023 was primarily due to continued improvements in market and customer demand.

The petrochemical market, which is the Company’s largest market, contributed 51% of KMT revenues for both the 2023 second quarter and first six months, reflecting increased rates, volumes and utilization from Gulf Coast petrochemical plants as a result of improved economic conditions as compared to the 2022 first six months.

The black oil market, which contributed 26% of KMT revenues for both the 2023 second quarter and first six months, reflected improved demand as refinery utilization and production levels of refined petroleum products and fuel oils increased.

During the 2023 first six months, the Company transported crude oil and natural gas condensate produced from the Permian Basin and 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.

The petrochemical market, which is the Company’s largest market, contributed 51% of KMT revenues for both the 2023 third quarter and first nine months, reflecting increased rates, volumes and utilization from Gulf Coast petrochemical plants as a result of improved economic conditions and a reduced supply of barges across the industry due to a heavier than normal maintenance cycle as compared to the 2022 first nine months.

The black oil market, which contributed 26% of KMT revenues for both the 2023 third quarter and first nine months, reflected improved demand as refinery utilization and production levels of refined petroleum products and fuel oils increased.

During the 2023 first nine months, the Company transported crude oil and natural gas condensate produced from the Permian Basin and 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 KMT revenues for both the 2023 second quarter and first six months, reflected increased volumes in the inland market with improved refinery utilization and product levels.

The agricultural chemical market, which contributed 3% of KMT revenues for both the 2023 second quarter and first six months, reflected improved demand for transportation of both domestically produced and imported products.

For the 2023 second quarter, inland operations incurred 2,317 delay days, 16% fewer than the 2,762 delay days that occurred during the 2022 second quarter.

For the 2023 first six months, inland operations incurred 6,442 delay days, 9% more than the 5,899 delays days that occurred during the 2022 first six months.

The refined petroleum products market, which contributed 20% of KMT revenues for both the 2023 third quarter and first nine months, reflected increased volumes in the inland market with improved refinery utilization and product levels.

The agricultural chemical market, which contributed 3% of KMT revenues for both the 2023 third quarter and first nine months, reflected improved demand for transportation of both domestically produced and imported products.

For the 2023 third quarter, inland operations incurred 1,548 delay days, 24% more than the 1,253 delay days that occurred during the 2022 third quarter.

For the 2023 first nine months, inland operations incurred 7,990 delay days, 12% more than the 7,152 delays days that occurred during the 2022 first nine months.

Delay days measure the lost time incurred by a tow (towboat and one or more tank barges) during transit when the tow is stopped due to weather, lock conditions, or other navigational factors.

Delay days reflected poor operating conditions due to heavy wind and fog along the Gulf Coast and lock delays on the Mississippi and Illinois rivers during the 2023 and 2022 first quarters.

During both the 2023 second quarter and first six months, approximately 55% of KMT inland revenues were under term contracts and 45% were spot contract revenues.

During both the 2022 second quarter and first six months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues.

During the 2023 second quarter and first six months, approximately 85% and 80%, respectively, of KMT coastal revenues were under term contracts.

During the 2023 second quarter and first six months, approximately 15% and 20%, respectively, of KMT coastal revenues were under spot contracts.

During both the 2022 second quarter and first six months, approximately 80% of the coastal revenues were under term contracts and 20% were spot contract revenues.

Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2023 and 2022 second quarters and first six months.

Delay days reflected Illinois River lock closures during the 2023 third quarter and poor operating conditions due to heavy wind and fog along the Gulf Coast and lock delays on the Mississippi and Illinois rivers during the 2023 and 2022 first quarters.

During both the 2023 third quarter and first nine months, approximately 55% of KMT inland revenues were under term contracts and 45% were spot contract revenues.

During both the 2022 third quarter and first nine months, approximately 60% of KMT inland revenues were under term contracts and 40% were spot contract revenues.

During the 2023 third quarter and first nine months, approximately 90% and 85%, respectively, of KMT coastal revenues were under term contracts.

During the 2023 third quarter and first nine months, approximately 10% and 15%, respectively, of KMT coastal revenues were under spot contracts.

During the 2022 third quarter and first nine months, approximately 65% and 75%, respectively, of KMT coastal revenues were under term contracts and 35% and 25%, respectively, were spot contracts.

Coastal time charters represented approximately 90% of coastal revenues under term contracts during both the 2023 and 2022 third quarters and first nine months.

Term contracts have contract terms of 12 months or longer, while spot contracts have contract terms of less than 12 months.

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June 30, 2023

September 30, 2023

Inland market:

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Marine Transportation Costs and Expenses

Costs and expenses for the 2023 second quarter and first six months decreased 3% and increased 3%, respectively, compared to the 2022 second quarter and first six months.

Costs of sales and operating expenses for the 2023 second quarter and first six months decreased 6% and increased 2%, respectively, compared with the 2022 second quarter and first six months.

The decrease during the 2023 second quarter primarily reflected lower fuel costs, while the increase during the 2023 first six months primarily reflected improved business activity levels and inflationary cost pressures.

Costs and expenses for the 2023 third quarter and first nine months decreased 6% and 1%, respectively, compared to the 2022 third quarter and first nine months.

Costs of sales and operating expenses for the 2023 third quarter and first nine months decreased 9% and 2%, respectively, compared with the 2022 third quarter and first nine months.

The decrease during the 2023 third quarter and first nine months reflected lower fuel costs, partially offset by improved business activity levels and inflationary cost pressures.

The 2022 first quarter was negatively impacted by incremental costs associated with the COVID-19 Omicron variant.

The inland marine transportation fleet operated an average of 281 towboats during the 2023 second quarter, of which an average of 66 were chartered, compared to 270 during the 2022 second quarter, of which an average of 59 were chartered.

The increase was primarily due to increasing business activity levels during the 2023 second quarter.

The inland marine transportation fleet operated an average of 274 towboats during the 2023 third quarter, of which an average of 55 were chartered, compared to 274 during the 2022 third quarter, of which an average of 59 were chartered.

The Company charters in or releases chartered towboats in an effort to balance horsepower needs with current requirements, taking into account variability in demand or anticipated demand, addition or removal of tank barges from the fleet, chartered towboat availability, and weather or water conditions.

The Company has historically used chartered towboats for approximately one-fourth of its horsepower requirements.

During the 2023 second quarter, inland operations consumed 12.2 million gallons of diesel fuel compared to 12.6 million gallons consumed during the 2022 second quarter.

The average price per gallon of diesel fuel consumed during the 2023 second quarter was $2.87 per gallon compared with $3.98 per gallon for the 2022 second quarter.

During the 2023 first six months, inland operations consumed 24.4 million gallons of diesel fuel compared to 24.2 million gallons consumed during the 2022 first six months.

The average price per gallon of diesel fuel consumed during the 2023 first six months was $3.09 per gallon compared with $3.27 per gallon for the 2022 first six months.

During the 2023 third quarter, inland operations consumed 11.6 million gallons of diesel fuel compared to 12.5 million gallons consumed during the 2022 third quarter.

The average price per gallon of diesel fuel consumed during the 2023 third quarter was $2.71 per gallon compared with $4.24 per gallon for the 2022 third quarter.

During the 2023 first nine months, inland operations consumed 35.9 million gallons of diesel fuel compared to 36.7 million gallons consumed during the 2022 first nine months.

The average price per gallon of diesel fuel consumed during the 2023 first nine months was $2.97 per gallon compared with $3.60 per gallon for the 2022 first nine months.

Fuel escalation and de-escalation clauses are typically included in term contracts and are designed to rebate fuel costs when prices decline and recover additional fuel costs when fuel prices rise;

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Spot contracts do not have escalators for fuel.

Selling, general and administrative expenses for the 2023 second quarter and first six months increased 19% and 13%, respectively, compared to the 2022 second quarter and first six months due to higher business activity levels and inflationary cost pressures.

The increase for the 2023 second quarter and first six months was also due to salary and wage increases which went into effect July 1, 2022 and increased incentive compensation accruals.

Selling, general and administrative expenses for the 2023 third quarter and first nine months increased 1% and 9%, respectively, compared to the 2022 third quarter and first nine months due to higher business activity levels and inflationary cost pressures.

The increase for the 2023 third quarter and first nine months was also due to compensation increases, partially offset by lower legal costs as compared to the 2022 third quarter.

Marine Transportation Operating Income and Operating Margin

KMT operating income for the 2023 second quarter and first six months increased 108% and 125%, respectively, compared with the 2022 second quarter and first six months.

The 2023 second quarter operating margin was 15.0% compared with 7.6% for the 2022 second quarter.

The 2023 first six months operating margin was 12.8% compared with 6.3% for the 2022 first six months.

The increases in operating income and operating margin were primarily due to higher term and spot contract pricing and increased barge utilization in the inland and coastal markets, each as a result of improving business activity levels.

KMT operating income for the 2023 third quarter and first nine months increased 52% and 91%, respectively, compared with the 2022 third quarter and first nine months.

The 2023 third quarter operating margin was 14.8% compared with 9.6% for the 2022 third quarter.

The 2023 first nine months operating margin was 13.5% compared with 7.5% for the 2022 first nine months.

The increases in operating income and operating margin were primarily due to higher term and spot contract pricing in the inland and coastal markets as a result of improving business activity levels, high utilization and a reduced supply of barges across the industry due to a heavier than normal maintenance cycle.

The 2022 first quarter was negatively impacted by the COVID-19 Omicron variant as increased cases among the Company’s mariners led to crewing challenges, lost revenue and increased operating costs.

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The following table sets forth KDS revenues, costs and expenses, operating income, and operating margin (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Distribution and services revenues

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Markets Serviced

2023 Second Quarter

2023 Six Months

2023 Third Quarter

2023 Nine Months

Commercial and Industrial

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Oilfield Services, Oil and Gas Operators and Producers

KDS revenues for the 2023 second quarter and first six months increased 20% and 26%, respectively, compared to the 2022 second quarter and first six months.

In the commercial and industrial market, the increase for the 2023 second quarter and first six months was primarily attributable to strong economic activity across the United States which resulted in higher business levels in the marine and on-highway businesses.

Increased product sales in Thermo King also contributed favorably to the 2023 second quarter and first six months results.

KDS revenues for the 2023 third quarter and first nine months increased 7% and 19%, respectively, compared to the 2022 third quarter and first nine months.

In the commercial and industrial market, the increase for the 2023 third quarter and first nine months was primarily attributable to strong economic activity across the United States which resulted in higher business levels in the marine and on-highway businesses.

Increased product sales in Thermo King also contributed favorably to the 2023 third quarter and first nine months results.

These increases were partially offset by continuing supply chain constraints and delays.

For the 2023 second quarter and first six months, the commercial and industrial market contributed 52% and 54%, respectively, of KDS revenues.

In the oil and gas market, revenues improved compared to the 2022 second quarter and first six months due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business.

For the 2023 third quarter and first nine months, the commercial and industrial market contributed 63% and 57%, respectively, of KDS revenues.

In the oil and gas market, revenues improved compared to the 2022 third quarter and first nine months due to higher oilfield activity which resulted in increased demand for new transmissions and parts in the distribution business.

For the 2023 second quarter and first six months, the oil and gas market contributed 48% and 46%, respectively, of KDS revenues.

For the 2023 third quarter and first nine months, the oil and gas market contributed 37% and 43%, respectively, of KDS revenues.

Distribution and Services Costs and Expenses

Costs and expenses for the 2023 second quarter and first six months increased 16% and 22%, respectively, compared with the 2022 second quarter and first six months.

Costs of sales and operating expenses for the 2023 second quarter and first six months increased 17% and 24%, respectively, compared with the 2022 second quarter and first six months, reflecting higher demand in the marine and on-highway businesses in commercial and industrial markets as well as increased demand in the oil and gas market as a result of higher oilfield activity levels.

Selling, general and administrative expenses for the 2023 second quarter and first six months increased 12% and 15%, respectively, compared to the 2022 second quarter and first six months, primarily due to continued inflationary cost pressures, higher business activity and annual compensation increases which went into effect July 1, 2022.

Costs and expenses for the 2023 third quarter and first nine months increased 4% and 16%, respectively, compared with the 2022 third quarter and first nine months.

Costs of sales and operating expenses for the 2023 third quarter and first nine months increased 2% and 16%, respectively, compared with the 2022 third quarter and first nine months, reflecting continued inflationary cost pressures, higher demand in the marine and on-highway businesses in commercial and industrial markets, and increased demand in the oil and gas market as a result of higher oilfield activity levels.

Selling, general and administrative expenses for the 2023 third quarter and first nine months increased 11% and 14%, respectively, compared to the 2022 third quarter and first nine months, primarily due to continued inflationary cost pressures, higher business activity and compensation increases.

Distribution and Services Operating Income and Operating Margin

KDS operating income for the 2023 second quarter and first six months increased 78% and 90%, respectively, compared with the 2022 second quarter and first six months.

The 2023 second quarter operating margin was 8.5% compared to 5.7% for the 2022 second quarter.

The 2023 first six months operating margin was 7.6% compared to 5.1% for the 2022 first six months.

The results reflect increased business levels in both the commercial and industrial and oil and gas markets.

KDS operating income for the 2023 third quarter and first nine months increased 49% and 72%, respectively, compared with the 2022 third quarter and first nine months.

The 2023 third quarter operating margin was 9.9% compared to 7.1% for the 2022 third quarter.

The 2023 first nine months operating margin was 8.4% compared to 5.8% for the 2022 first nine months.

The results reflect increased business levels in both the commercial and industrial and oil and gas markets, as well as cost management initiatives.

General Corporate Expenses

General corporate expenses for the 2023 second quarter and first six months increased compared to the 2022 second quarter and first six months primarily due to higher legal and insurance costs.

General corporate expenses for the 2023 first nine months increased compared to the 2022 first nine months primarily due to higher legal and insurance costs.

The 2023 first quarter also included costs related to strategic review and shareholder engagement.

Gain on Disposition of Assets

The Company reported a net gain on disposition of assets of $0.5 million for the 2023 second quarter and $2.7 million for the 2022 second quarter.

The Company reported a net gain on disposition of assets of $2.7 million for the 2023 first six months and $7.6 million for the 2022 first six months.

The Company reported a net gain on disposition of assets of $1.5 million for the 2023 third quarter and $0.4 million for the 2022 third quarter.

The Company reported a net gain on disposition of assets of $4.2 million for the 2023 first nine months and $8.0 million for the 2022 first nine months.

The net gains were primarily from sales of marine transportation equipment.

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The following table sets forth other income, noncontrolling interests, and interest expense (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Noncontrolling interests

Interest expense

Other income for the 2023 and 2022 second quarters include income of $1.2 million and $3.5 million, respectively, and the 2023 and 2022 first six months includes income of $2.4 million and $6.9 million, 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 2023 and 2022 third quarters includes income of $1.2 million and $3.5 million, respectively, and the 2023 and 2022 first nine months includes income of $3.6 million and $10.3 million, respectively, for all components of net benefit costs except the service cost component related to the Company’s defined benefit plans.

The 2023 first quarter also includes interest income associated with the IRS refund.

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The following table sets forth average debt and average interest rate (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Average interest rate

Interest expense for the 2023 second quarter and first six months increased 15% and 22%, respectively, compared with the 2022 second quarter and first six months, primarily due to a higher average interest rate.

There was no capitalized interest excluded from interest expense during the 2023 or 2022 first six months.

Interest expense for the 2023 third quarter and first nine months increased 14% and 19%, respectively, compared with the 2022 third quarter and first nine months, primarily due to a higher average interest rate partially offset by lower average debt.

There was no capitalized interest excluded from interest expense during the 2023 or 2022 first nine months.

Financial Condition, Capital Resources and Liquidity

1 unchanged sentence

The following table sets forth the significant components of the balance sheets (dollars in thousands):

September 30,

Current assets

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Other long-term liabilities

Current assets as of June 30, 2023 decreased 4% compared with December 31, 2022.

Current assets as of September 30, 2023 decreased 1% compared with December 31, 2022.

Trade accounts receivable increased 6%, primarily due to increased business activity levels in both KMT and KDS.

1 unchanged sentence

Inventories increased by 9% due to higher activity and the impact of ongoing supply chain delays in KDS resulting in buildup for projects that will be delivered later in 2023 and into 2024.

Prepaid expenses and other current assets decreased 5% primarily due to amortization of insurance premiums and the sale of assets held for sale.

Property and equipment, net of accumulated depreciation, at June 30, 2023 increased 2% compared with December 31, 2022.

The increase reflected $176.3 million of capital additions (including an increase in accrued capital expenditures of $5.1 million), partially offset by $99.1 million of depreciation expense and $12.8 million of property disposals more fully described under Cash Flows and Capital Expenditures below.

Other intangibles, net, as of June 30, 2023 decreased 8% compared with December 31, 2022, primarily due to amortization during the 2023 first six months.

Other assets as of June 30, 2023 increased 7% compared with December 31, 2022, primarily due to additional deferred major maintenance drydock expenditures incurred during the 2023 first six months partially offset by amortization of drydock expenditures.

Current liabilities as of June 30, 2023 increased 2% compared with December 31, 2022.

Deferred revenue increased 10% primarily due to deposits on equipment expected to be shipped later in 2023 in KDS.

Prepaid expenses and other current assets increased 11% primarily due to the increase in the price of diesel fuel purchased in September 2023 and the timing of payments of insurance premiums.

Property and equipment, net of accumulated depreciation, at September 30, 2023 increased 4% compared with December 31, 2022.

The increase reflected $277.3 million of capital additions (including an increase in accrued capital expenditures of $2.3 million), and $37.5 million of acquisitions of barge equipment, partially offset by $150.4 million of depreciation expense and $15.8 million of property disposals more fully described under Cash Flow and Capital Expenditures below.

Other intangibles, net, as of September 30, 2023 decreased 12% compared with December 31, 2022, primarily due to amortization during the 2023 first nine months.

Current liabilities as of September 30, 2023 decreased 1% compared with December 31, 2022.

Accounts payable decreased 7% primarily due to timing of inventory purchases, partially offset by higher business activity levels.

Deferred revenue increased 13% primarily due to deposits on equipment expected to be shipped later in 2023 and 2024 in KDS.

Long-term debt, net –

less current portion, as of June 30, 2023 decreased 8% compared with December 31, 2022, primarily reflecting the maturity of the 3.29% senior notes due February 27, 2023, offset by borrowings under the 3.46% and 3.51% senior notes due January 19, 2033 and the 2027 Revolving Credit Facility.

Deferred income taxes as of June 30, 2023 increased 5% compared with December 31, 2022, primarily reflecting the deferred tax provision of $30.2 million.

Other long-term liabilities as of June 30, 2023 decreased 33% compared with December 31, 2022, primarily due to a decrease in pension liabilities as a result of pension contributions of $7.7 million during the 2023 first six months and amortization of intangible liabilities.

Total equity as of June 30, 2023 increased 2% compared with December 31, 2022.

less current portion, as of September 30, 2023 decreased 2% compared with December 31, 2022, primarily reflecting the maturity of the 3.29% senior notes due February 27, 2023, offset by borrowings under the 3.46% and 3.51% senior notes due January 19, 2033 and the 2027 Revolving Credit Facility.

Deferred income taxes as of September 30, 2023 increased 7% compared with December 31, 2022, primarily reflecting the deferred tax provision of $46.4 million.

Other long-term liabilities as of September 30, 2023 decreased 32% compared with December 31, 2022, primarily due to a decrease in pension liabilities as a result of pension contributions of $7.6 million during the 2023 first nine months and amortization of intangible liabilities.

Total equity as of September 30, 2023 increased 4% compared with December 31, 2022.

The increase was primarily due to the net earnings attributable to Kirby of $161.0 million, amortization of share-based compensation of $12.3 million, and stock option exercises of $3.4 million, partially offset by treasury stock purchases of $60.9 million and tax withholdings of $3.6 million on RSU vestings.

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The following table summarizes the Company’s outstanding debt (in thousands):

September 30,

Long-term debt, including current portion:

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Unamortized debt discounts and issuance costs (b)

(a) Variable interest rate of 6.6% at June 30, 2023.

(a) Variable interest rate of 6.8% at September 30, 2023.

(b) Excludes $1.8 million attributable to the 2027 Revolving Credit Facility included in other assets at December 31, 2022.

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As a result, no repayments are required until June 30, 2025.

Outstanding letters of credit under the 2027 Revolving Credit Facility were $0.1 million and available borrowing capacity was $472.9 million as of June 30, 2023.

Outstanding letters of credit under the 2027 Revolving Credit Facility were $0.1 million and available borrowing capacity was $405.9 million as of September 30, 2023.

The 2027 Term Loan is repayable in quarterly installments, with no repayments until June 30, 2025, in increasing percentages of the original principal amount of the loan, with the remaining unpaid balance of approximately $43.8 million payable upon maturity, assuming no prepayment.

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The Company has a $10 million Credit Line with Bank of America for short-term liquidity needs and letters of credit, with a maturity date of June 30, 2024.

Outstanding letters of credit under the $10 million credit line were $3.6 million and available borrowing capacity was $6.4 million as of June 30, 2023.

As of June 30, 2023, the Company was in compliance with all covenants under its debt instruments.

Outstanding letters of credit under the $10 million credit line were $7.3 million and available borrowing capacity was $2.7 million as of September 30, 2023.

As of September 30, 2023, the Company was in compliance with all covenants under its debt instruments.

For additional information about the Company’s debt instruments, see Note 5, Long-Term Debt, of the Notes to Condensed Financial Statements (Unaudited) as well as Note 5, Long-Term Debt, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Cash Flow and Capital Expenditures

The Company generated positive operating cash flows during the 2023 first six months with net cash provided by operating activities of $227.9 million compared with $95.6 million for the 2022 first six months, a 138% increase.

Higher revenues and operating income in KMT and KDS during the 2023 first six months and the receipt of the IRS refund of $70.4 million plus accrued interest in April 2023 more than offset an increase in trade accounts receivable, primarily due to higher revenues and timing of collections, and increased inventory levels in KDS due to higher activity and managing supply chain challenges during the 2023 first six months.

Increases in KMT revenues and operating income were driven by higher term and spot contract pricing and increased barge utilization in the inland and coastal markets during the 2023 first six months.

During the 2023 and 2022 second quarters and first six months, the Company generated cash of $20.5 million and $23.3 million, respectively, from proceeds from the disposition of assets, and $0.1 million and $3.9 million, respectively, from proceeds from the exercise of stock options.

For the 2023 first six months, cash generated was used for capital expenditures of $171.2 million, including $23.2 million for specialized inland equipment construction and $148.0 million primarily for upgrading existing marine equipment and KMT and KDS facilities.

The Company generated positive operating cash flows during the 2023 first nine months with net cash provided by operating activities of $324.2 million compared with $161.2 million for the 2022 first nine months, a 101% increase.

Higher revenues and operating income in KMT and KDS and the receipt of the IRS refund of $70.4 million plus accrued interest in April 2023 more than offset an increase in trade accounts receivable, primarily due to higher revenues and timing of collections, and increased inventory levels in KDS due to higher activity and managing supply chain challenges during the 2023 first nine months.

Increases in KMT revenues and operating income were driven by higher term and spot contract pricing and increased barge utilization in the inland and coastal markets during the 2023 first nine months.

During the 2023 and 2022 third quarters and first nine months, the Company generated cash of $21.8 million and $32.9 million, respectively, from proceeds from the disposition of assets, and $3.4 million and $3.9 million, respectively, from proceeds from the exercise of stock options.

For the 2023 first nine months, cash generated was used for capital expenditures of $275.0 million, including $35.5 million for specialized inland equipment construction and $239.5 million primarily for upgrading existing marine equipment, new electric fracturing equipment, and KMT and KDS facilities.

In addition, as more fully described under Acquisitions above, $37.5 million was used for acquisitions of barge equipment in KMT.

Treasury Stock Purchases

During the 2023 first six months, the Company purchased 521,625 shares of its common stock for $37.6 million, at an average price of $72.08 per share.

Subsequent to June 30, 2023 and through August 4, 2023, the Company purchased an additional 60,326 shares of its common stock for $4.6 million, at an average price of $76.03 per share.

As of August 4, 2023, the Company had approximately 5.4 million shares available under its existing repurchase authorization.

During the 2023 first nine months, the Company purchased 811,880 shares of its common stock for $60.9 million, at an average price of $75.02 per share.

Subsequent to September 30, 2023 and through November 3, 2023, the Company purchased an additional 193,432 shares of its common stock for $15.3 million, at an average price of $79.01 per share.

As of November 3, 2023, the Company had approximately 5.0 million shares available under its existing repurchase authorization.

Historically, treasury stock purchases have been financed through operating cash flows and borrowings under the Company’s revolving credit facility.

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Funds generated from operations are available for acquisitions, capital expenditure projects, common stock repurchases, repayments of borrowings, and for other corporate and operating requirements.

In addition to net cash flows provided by operating activities, as of August 4, 2023 the Company also had cash and cash equivalents of $28.4 million, availability of $405.9 million under its 2027 Revolving Credit Facility, and $2.6 million available under its credit line.

In addition to net cash flows provided by operating activities, as of November 3, 2023 the Company also had cash and cash equivalents of $53.2 million, availability of $416.0 million under its 2027 Revolving Credit Facility, and $2.7 million available under its credit line.

Neither the Company, nor any of its subsidiaries, is obligated on any debt instrument, swap agreement, or any other financial instrument or commercial contract which has a rating trigger, except for the pricing grid on its 2027 Credit Agreement.

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Risk Factors and Note 14, Contingencies and Commitments, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Amounts available under the Company’s existing financial arrangements are subject to the Company continuing to meet the covenants of the credit facilities as described in Note 5, Long-Term Debt, of the Notes

to Condensed Financial Statements (Unaudited) as well as Note 5, Long-Term Debt, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Amounts available under the Company’s existing financial arrangements are

subject to the Company continuing to meet the covenants of the credit facilities as described in Note 5, Long-Term Debt, of the Notes to Condensed Financial Statements (Unaudited) as well as Note 5, Long-Term Debt, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The aggregate notional value of these instruments is $24.0 million at June 30, 2023, including $9.4 million in letters of credit and $14.6 million in performance bonds.

The aggregate notional value of these instruments is $27.6 million at September 30, 2023, including $13.0 million in letters of credit and $14.6 million in performance bonds.

All of these instruments have an expiration date within two years.

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Spot contract rates include the cost of fuel and are subject to market volatility.

In KDS, the cost of major components for large manufacturing orders is secured with suppliers at the time a customer order is finalized, which limits exposure to inflation.

In KDS, the cost of major components for large manufacturing orders is secured with suppliers at the time a customer order is finalized, which somewhat limits exposure to inflation.

The repair portion of KDS is based on prevailing current market rates.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements