Kirby Corporation (KEX)
Agreement to Acquire Penn Maritime Conference Call
November 28, 2012 8:30 am ET
G. Stephen Holcomb – Vice President-Investor Relations
Joseph H. Pyne – Chairman and Chief Executive Officer
David W. Grzebinski – Executive Vice President and Chief Financial Officer
Greg R. Binion – President and Chief Operating Officer
Jonathan B. Chappell – Evercore Partners
Jack Atkins – Stephens Inc.
Kevin Sterling – BB&T Capital Markets
Ken Hoexter – Bank of America/Merrill Lynch
Jimmy Gibert – Iberia Capital Partners
Stephen O’Hara – Sidoti and Company, LLC
David Beard – Iberia Capital Partners
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I will now turn the call over to Steve Holcomb. Sir, you may begin.
G. Stephen Holcomb
Thank you for joining us this morning. with me today is Joe Pyne, Kirby’s Chairman and Chief Executive Officer and David Grzebinski, our Chief Financial Officer.
During this conference call, we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at kirbycorp.com in the Investor Relations section under non-GAAP financial data.
Statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management’s reasonable judgment with respect to future events. Forward-looking statements involve risk and uncertainties. Our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission.
I will now turn the call over to Joe.
Joseph H. Pyne
Thank you, Steve and good morning. we’re very pleased to announce our agreement with Penn Maritime. the Penn has excellent reputation in the coastal tank barge industry and operates fleet that well maintained offshore tank barges and trucks. Most of Penn’s revenue is earned from long-term contracts with approximately 80% of Penn’s barges under term contracts, 95% of those contracts were time charters.
The Penn’s term contracts are with the major oil companies and refining customers. The quality of Penn’s customer base is a reflection of Penn’s owner, Bill Waterman, strong leadership of his family company, which has consistently produced a strong track record for customer service and safety and is highly respected in our industry. Because its fleet primarily operates in the black oil markets, Penn will add product diversity to Kirby’s coastal operation and is in markets that have attractive growth opportunities.
The acquisition will also allow us to expand many of our customer relationships, as Kirby already services nearly all of Penn’s customers through our inland business. The total value of this transaction is approximately $295 million before post-closing adjustments and transaction fees, and will consist of approximately $152 million of cash, 500,000 shares of Kirby common stock and $115 million for the retirement of Penn’s debt.
The cash portion of the acquisition, which is approximately $267 million, would be financed through a combination of borrowings under Kirby’s revolving credit facility and the private placement of senior unsecured fixed notes. We priced the new senior notes in mid-November and what we consider attractive prices, 2.79% for the seven-year note and 3.34% for the 10-year maturities and will take the funds and two drawings, the first drawing of $300 million will be used from the Penn acquisition. The second drawing of $200 million will be used to replace our existing $200 million of senior notes that will expire February of next year.
In addition to facilitating our acquisition of Penn, the new notes will also improve our capital structure by extending our weighted average maturity with low fixed rate debt. Penn’s fleet is comprised of 18 heated double-hulled tank barges and 16 tugboats. volumes across most of Penn’s product markets have been growing in 2012, and utilization is currently in the mid-80% range.
This fleet produced revenues an EBITDA for the last 12 months ending September 30, 2012 of approximately $122 million and $38 million respectively, approximately 60% of Penn’s trailing 12-month revenues came from the transportation of 6 oil refinery feedstocks and liquid asphalt and crude oil.
We think that we will continue to see improved demand in these markets as the economy improves. as the movement of refinery feedstocks and 6 oil typically mirrors refinery utilization. As the development of North American shale formation continues, it will provide increased supply of crude oil, which will need to be transported to refineries. and therefore, refinery feedstocks will also improve.
Penn has the largest U.S. fleet asphalt barges. majority of the asphalt is used in highway and housing construction and maintenance. These infrastructure markets have seen investment declines over the past years with the overall decline in the economy. Our U.S. asphalt demand is now projected to grow in the mid-to-high single digits over the next 10 years. The Penn units also transport crude in condensate from emerging shale plays principally along the Gulf Coast to refineries for further processing.
We expect to close this acquisition in mid-to-late December with essentially no benefit to our 2012 earnings. However, we will incur some one-time transaction fees that will be reflected in our 2012 fourth quarter financial statement. For 2013, we expect to purchase to be approximately $0.12 to $0.18 accretive to our earnings per share. Additionally, we believe that over time we can achieve some additional synergies, which will allow Penn to be even more accretive to our bottom line results.