Kirby Corp (KEX) 2003 Q4 法說會逐字稿

Good morning and welcome to today's Kirby Corporation 2003 fourth quarter and year end earnings conference call. All lines will be in a listen-only mode during the presentation. (Operator Instructions). Today's conference call is being recorded. If you have any objections you may disconnect at this time. Now I would like to turn the conference over to your host for today, Mr. Steve Holcomb, Vice President of Investor Relations.

Thank you for joining us. With me today is Berdon Lawrence, Kirby's Chairman; Joe Pyne, the President and Chief Executive Officer of Kirby and Norman Nolen, our Executive Vice President and 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 web site at www.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, 2002 filed with the Securities and Exchange Commission. I will now turn the call over to Joe Pyne.

Thank you, Steve. Let me add my welcome to those participating in today's conference call. In our press release this morning, we reported our 2003 fourth quarter results of 45 cents per share, earning 11.1 million on revenues of 152 million. The results were in-line with our published earnings guidance of 44-48 cents per share. The results compare with the 2004 fourth quarter loss of 9 cents per share, which included a 52 cent per share non-cash impairment charge primarily from the write-down of single-hulled tank barges for a net non-GAAP earnings of 43 cents per share if you compare the two quarters minus the write-off.

During the fourth quarter, our petrochemical volumes improved modestly, continuing the gradual improvement that we've seen since the beginning of 2002, early in 2002, we began to see this improvement. We continue to experience a strong demand for chemicals used in the gasoline blending pool during the quarter. Black oil volumes on the other hand weakened during the quarter as residual oil movements to power plants and other industrial users slowed. Up-river refined products were about as expected. Fertilizer volumes were much better this quarter and much better, frankly, than the previous three quarters, reflecting what we are seeing as a very strong farm belt (ph) economy. The U.S. fertilizer industry is also importing nitrogen-based fertilizers due to the high cost of natural gas in the US.

During the fourth quarter, we were able to modestly raise several of our contracts on renewal. For the first nine months of 2003, we had been reporting contract renewals as generally flat with only minor inflationary increases reflected in renewals. Spot market rates during the first quarter were generally consistent with those we saw in the third quarter. Marine transportation operating margins during the fourth quarter were 15.7 percent, which were in-line with the third quarter of 2003, but followed the trend of being lower than the corresponding period of 2002. For the 2003 year, operating margins declined to 14.6 percent from 16.6 percent in 2002. Our contract rentals over the past three years have not kept up with increases in our transportation costs, including the labor component and other expenses. Also affecting operating margins is the way that we account for our coastal joint venture, which lowers our margins approximately 1 percent. Norman talk about this later in the call.

As I said in the press release this morning, the consensus from our petrochemical customers is that volumes will improve throughout 2004. We did see some marginal improvement during the fourth quarter.

With respect to our diesel engine services segment, during the quarter, it continued to be impacted by the slow Gulf Coast offshore oil service business and a slower business in our East Coast market, slower really during the latter half of the year. The midwest part of this business, which services the dry cargo barge market, a market that frankly has been under pressure since the beginning of 2002, began to show some improvement in the quarter, which I think again reflects a much stronger farm belt economy. We will come back and talk about the 2004 first quarter and give you our view on the full year for 2004, and Berdon will talk about our ongoing barge construction projects. But what I would like to do now turn the call over to Norman, who is going to talk about the financial highlights of the quarter and the year.

Thinks Joe. Joe commented that price increases have not kept pace with our transportation cost in 2003, which has resulted in lower margins throughout the year. Several factors negatively impacted operating cost, such as the severe weather conditions and higher fuel prices in the first quarter. Also, the average number of boats operated in 2003 increased from 201 to 225 due to the additional sea river and coastal volume requirements and the poor weather conditions. Voyage (ph) related expenses for cleaning, tankering (ph) and fleeting were also slightly higher in 2003 as we integrated the sea river equipment into Kirby's operations.

Finally, we recognized 100 percent of the revenues of the Kirby managed black oil fleet, which is jointly owned by Kirby and Coastal Towing, but we only recognized Kirby's portion of the profits. This accounting treatment reduced Kirby's margins in 2003 by about 1 percent. Kirby continued to generate strong cash flows in the fourth quarter and for the full year. After our debt increased to right at 297 million following the acquisition of the Sea River equipment in early 2003, we reduced debt by 42 million, down to 255 million at year end. During the fourth quarter, we reduced debt by 15 million and our debt to capitalization ratio decreased from 45.1 percent to 40.7 percent during the year after spending $36 million for the Sea River equipment and $71 million in capital expenditures. We took delivery of five new petrochemical barges and eight black oil barges during 2003 and we are projecting total capital spending of between $85 and $90 million in 2004, which will include 16 new petrochemical barges and 10 black oil barges. The cost of these 26 new tank barges is $41 million.

In 2003, our all-in average cost of debt was 5.2 percent and 5.4 percent in the fourth quarter. In December, we extended the maturity of our $150 million revolving credit facility by three years and pushed out the maturity to December 2007. An accordion feature was also added to the loan agreement which will allow the maximum amount of the facility to increase to increase to 225 million without amendment. As of the end of the year, only $5 million was outstanding under the credit facility. I would now like to turn the call over to Berdon.

Thank you, Norman. I would like update you on our ongoing tank barge construction program, a program that is designed to replace older petrochemical and refined product barges, as well as older black oil barges that will be retired. For the petrochemical and refined products market during 2003, we placed into service five 30,000 barrel capacity tank barges with one additional tank barge scheduled for delivery next month. The purchase price of these six barges is approximately 9.1 million. We also have a contract to build six more 30,000 barrel tank barges for use in the clean market in 2004. Delivery of the six barges is scheduled over a six-month period starting in May of 2004 at a cost of approximately 8.1 million, of which approximately 800,000 was paid during 2003.

Also, we placed two 30,000 barrel capacity black oil tank barges into service during the first quarter of 2003 at a cost of approximately 3.6 million. In May of 2003, we announced a plan to construct 16 30,000 barrel black oil tank barges. We placed one of the barges into service in September and five in the fourth quarter. The cost of the six black oil barges paid in 2003 was approximately 10.8 million.

In December with the black gold market weak and the near-term outlook not as promising as the petrochemical outlook, we changed four of the 10 remaining black oil barges to petrochemical or clean barges. We anticipate the six black gold barges to be delivered over the 2004 first quarter with the four clean tank barges delivered in the second quarter of 2004. The total purchase price of the six black oil barges and four clean barges will be approximately 18 million.

We have also signed a contract for the construction of nine 30,000 tank barges for delivery throughout the second half of 2004. Of the nine barges, five will be clean barges and four will be black oil barges. Total purchase price of the nine barges will be approximately 16 million. I'll now turn the call back over to Joe, who will talk about Kirby's 2004 first quarter and the full year outlook.

Thank you, Berdon. This morning, we announced our 2004 first-quarter earnings guidance of 30-36 cents per share. Our first quarter earnings guidance anticipates a continued improvement in our petrochemical market, our black oil market improving and normal or seasonal first quarter refined products and liquid fertilizer markets. The season for these two products typically begins in the spring. As you are aware, if you have been following Kirby over the years, weather plays a significant role in the makeup of our first quarter results. Therefore, we have expanded the range of our earnings guidance to a little larger range than normal, a 6-cent range. With respect to the 2003 first quarter, our earnings were 28 cents per share.

I know that you would like to hear and I would like to be able to tell you that our business currently is booming. Barging rates are increasing equipment and is tight. What we're actually experiencing is a continued you gradual improvement in petrochemical volumes, which is approximately 70 percent of what we move. The refined products and fertilizer markets are seasonal while the black oil market is affected by the spread of natural gas over six oil (ph), asphalt for road construction and refinery outages for maintenance.

As 2004 progress, what should we look for as Kirby shareholders which signals better earnings for Kirby? As the economy continues to improve, we should hear petrochemical customers talk about improve volumes and price increases as they report their earnings. Our ton miles, which we now report quarterly, should also improve, reflecting better volumes. A measure which many people who follow the chemical business use is railcar loadings. Although not a perfect measure for Kirby, the trend is indicative of chemical volume improvements or deterioration. Since early 2002, railcar loadings have generally improved on a year-to-year basis. However, when you look at the railcar loadings in 2003 compared to the last cyclical high in early 2000, volumes are still lower by an average of over 4 percent. Four percent represents a significant amount of volume and we need to get that volume back to see real improvements in the volumes of petrochemicals that we move. It is encouraging that chemical companies are reporting higher volumes, although we have not seen any significant increase in chemical ton miles during the fourth quarter. Much of the recent chemical volume increases have been driven by exports to principally China and Asia. We still need growth in the U.S. economy to see domestic chemical volumes rise.

Also encouraging is the fact that the barge industry is smaller today than in early 2000. This should allow for better industry utilization and some improvement in pricing as our year progresses. The U.S. petroleum business is improving but raw materials are expensive. Mostly believe by midyear, raw material costs will be lower. The U.S. and certain of the global economic outlook is good and the worldwide demand for chemicals is improving, in some cases, dramatically. Petrochemical customers continue to be optimistic, but their volumes will improve throughout the year. This is not going to translate to immediate, significantly improved results but a gradual and hopefully sustainable improvement in profitability and returns on investment for Kirby. The wild card will be the price of energy and how it plays out for petrochemical customers and frankly for the U.S. domestic economy as a whole. Kirby has gone through this downcycle well and we do believe that we are where we need to be to benefit from any improvement in domestic petrochemical volumes, particularly as this business returns to profitability.

For the 2004 year, our earnings guidance is $1.85-$1.95, compared to the $1.67 earned for 2003. To achieve this guidance, we anticipate the U.S. economy will continue to improve and we will see corresponding improvements in our core petrochemical volumes. Our guidance includes only really minimal price increases as we renew our contracts. We get greater price increases, we should do better. Operator, we're now ready to open the call to questions.

(Operator Instructions). Chaz Jones, Stephens Inc.

Morning guys. I just wanted to circle back around the pricing and maybe get a sense for utilization levels tying into pricing from the standpoint of -- we're seeing some increased utilization in the fleet. So maybe if you could comment on how far utilization still has to come up before we start to see some better price trends?

I'm going to do it generally, because utilization in our business is a number that can be confusing because of the weather impact on the fleet. You can be fully utilized and not moving, given that most of our business is under afreightment (ph) contracts, where you are paid when you deliver. A lot of the operating risk is on us. But generally in the second and third quarter, which are the better weather quarters, utilization in the high 80s gives you some pricing power. As it falls into the low 80s, you lose it pretty quickly. We were beginning to see in the third quarter, our utilization approaching the upper 80s, which was encouraging because it means that we do have some ability to lift rates. Now of course in the fourth quarter, utilization is pretty high, but that can be affected by weather and you have to discount that a little bit. For 2004, if we can get utilization on an industrywide basis, up into that high 80s or even over 90, then I think the business will be in good shape.

Does that imply that volumes have to move up significantly or are we just talking about just marginal increases here?

I don't think -- you need continued improvement in petrochemical volumes and a normal gasoline season in the spring into the summer and early fall. If you get that, I think that you will see utilization in the high 80s. Petrochemical volumes, domestic volumes are going to need to improve.

Two other quick ones here. The diesel engine services division, you guys did not touch on that much. It is a smaller piece of your business, but margins and revenues were down in '03. My question is -- do you see those end markets improving in '04 to reverse that trend, or should we kind of expect a flattish trend in that division?

We anticipate it up slightly. We do believe that margins are going to improve or are projecting margins to improve, but it is in the 1 percent range for 2004.

Okay. And finally here, just quickly on the equity and earnings of marine affiliates. In the second half, and even I guess the second quarter of '03, we saw full utilization of those for offshore dry-cargo barges that make up that interest. And I'm just curious looking out to '04, just what our expectations should be in that line item.

That is in the Dixie Fuels partnership. We own 35 percent of it and get 35 percent of the earnings. 2003 was a little unusual because there was -- there were really no planned maintenance outages for that fleet. 2004 will be more typical. We're going to have two of those units in the shipyard. What happens is that your maintenance expense goes up, and of course your revenue goes down because you're not turning revenue on cargoes moved while they're in the shipyard. So in our 2004 guidance, we are estimating lower contributions from that partnership.

I appreciate the update guys. I will turn it over to someone else.

David Yuschak, Sanders Morris Harris.

I did not change my name, guys. Going back to the contract issues and renewals and all of that, you guys have typically run like a 70/30 contract spot relationship. I wanted a get a feel from you guys. You commented earlier in your prepared statements that you were starting to get some better contract renewals after basically flat renewals for most of the year. If you are not getting the kind of desired or there's some resistance on the part of your customers to renew it, some kind of reasonable rate compared to what we've seen in the past and what you're currently getting, would it make sense for you ship some of that mix towards the spot market in anticipation of a recovery or what things might you be looking for to or maybe take a bolder approach if you can't get that kind of reasonable return on new contracts?

That is a process that you go through. You certainly have to think that through with each contract renewal. Contracts are priced differently, not uniformly, so you have some contracts that are better than others. And where you have a contract that you believe you need some help in, you are going to negotiate for higher rates. And if you lose the business, if your belief is that the business is going to be better, you don't mind working that in the spot market at all. We are certainly considering that approach on a contract to contract basis. Some will be more aggressive than others.

So it's just depending on how these contract negotiations fall out (ph) where the actual contract versus spot in the fleet would be versus that (MULTIPLE SPEAKERS)

-- relative to market.

With the recent renewals you have been getting, have you been pleased with that compared to what you have seen in the past?

Any increase we're pleased with, given the last three years where we have seen essentially no increases and continued increases in our expenses. But on average, I was going to give you -- of the contracts that renewed during the first quarter, we saw real price increases in the 2-4 percent range.

So that's real above the rate of inflation?

Yes.

And what is your depreciation assumptions for 2004 right now?

Probably a couple more million than it was in 2004 -- 53 million in 2003.

We've talked about this in the past, Joe, on ethanol. There just seems to be some refineries (indiscernible) trying to think about getting out in front of maybe needing to do some shifting in their mixes of using ethanol in their processes and regardless of the energy bill. Are you guys seeing that as well, maybe in some of the inquiries from your customers that ethanol may be some thing that you won't maybe early, may begin to see some of that happening as far as maybe potential backhaul opportunities for you?

There's certainly customers talking about it, but we've not seen anything, David. Our approach to ethanol is we will believe it when we see it. The energy bill certainly encouraged it; that bill is dead. Whether it will be resurrected or not, who knows. But we are not counting on large volumes of ethanol to make us whole.

So from talking with your customers as well as what you're looking at, you're going to need the energy bill to really get the ethanol is to cranked up?

Yes, you have to kind think that through. Some of it of course is driven by what the states do. The states continue to ban MTBE. Ethanol is the viable substitute as we speak. So some of it's going to be driven by that. But certainly, the energy bill favored ethanol and would have been a catalyst we believe to see ethanol used really more throughout the country.

Thank you.

Alex Brand, BB&T Capital Markets.

Thank you, good morning gentlemen. I guess I want to -- I am fascinated by the pricing discussion myself, but let me shift gears for a second, maybe give you a little pause on that. It looked like in the cost of sales you had done, they were lower than I thought. And it looks like most of that was in the marine segment. Is that a function of actions that you took, or is this a function of mix of business during the quarter?

It's probably both, Alex. Cost of sales in the quarter comparing to the previous year quarter, you had the additional cost of the Sea River equipment and the coastal equipment. We had -- in this year, you had higher pension cost, medical cost, a lot of bits and pieces. You had some -- and I mentioned a few minutes ago -- we had some voyage costs that were higher generally than they were in 2003. But there is a lot -- there was a lot of focus on reducing costs during the year.

If I can interrupt for a second, I guess what I'm saying is I understand why they were going up, but sequentially marine transportation revenue did not go down much, and yet you had a $4.6 million reduction in cost of sales overall, which most of that was marine. And so I'm actually speaking positively about that trend. Is there something there that I should be aware of? And I guess I'm trying to get a feel for sustainability of that improvement.

In the fourth quarter, we had an insurance accrual reversal which we incurred on an annual basis. What we do, we actuarially look at our claims costs and make adjustments at the end of the year. But you have several different items at the end of the year. I would say that is probably the largest item that would have impacted the inland cost at the end of the year.

How big was that number, Norman?

That number by itself was about $6 million. But again, I would not look at that as a number in kind of isolation, because there's always a lot of moving parts in the fourth quarter where you true up your accruals. For instance, we had medical accrual, we had several different things at the end of the year which some went positive, some went negative. That was probably the largest single.

It was offset by other accruals.

(indiscernible) go both ways. But in terms of absolute dollars, that probably was the largest single shift. Now that was unusual and it just happened -- you will see that. We happened to do that -- that accrual was trued up in the third quarter last year. It has to do with timing of our actuarial reports. But as far as the things that happened in the fourth quarter, that was probably the largest single accrual adjustment that impacted the quarter.

As far as the acquisition environment, I guess we know that you still want to be an acquisitive company. Is there -- in terms of the discussions that you have from time to time, do you think that the opportunities are still out there? In particular, do you think that there is a mindset that prices can be reasonable if the appropriate opportunities come up? Do you think people are thinking about those things the right way?

Alex, I think the way to answer that, because we don't -- you're not asking about specific acquisitions, nor can we comment on them. But we think the environment still is pretty good for acquisitions. How reasonable will a particular seller be remains to be seen. We continue to think that shippers will consider outsourcing their fleets. That trend began about ten years ago and it is continuing. And in some markets, this business is still under some duress and consolidation makes sense and we think it will continue. So I would say that as we really started to say in 2002 that the environment was pretty good for continued consolidation, that that environment still remains good.

I have one final question. Black oil business wasn't good in the fourth quarter, and I am wondering -- I thought that that was a substitute (indiscernible) fuel option when natural gas prices were high. Was there not any benefit there?

That's a good question. What happened -- is a good way to look at that is look at the -- on a BTU basis, natural gas versus (indiscernible) oil or residual oil, and you will see that on a BTU basis, they were on top of each other because crude oil rose as natural gas rose. Now many think that crude oil is just unusually high and it shouldn't be that high. If crude oil drops and natural gas remains at current levels or even drops a little bit, there should be an incentive to use residual oil or fixed (ph) oil. There was not that incentive in the fourth quarter as much as there was, frankly, in the third quarter. That was the principal reason for that business weakening. On top of that, you also have the seasonal asphalt trade that typically heightens that business up kind of in the spring and the summer and it gets a little sloppy, particularly if you don't have residual oil to move in the fourth quarter.

Thank you very much.

Natasha Boyden, Sidoti & Company.

Good morning, gentlemen. I just wanted to follow up on the previous acquisition question, take it into another direction. Are you going to be continuing with any more new build in '05, or are the ones coming in in '04 the end of your current new build schedule? What I'm asking -- are you leaning more towards new builds or acquisitions at this point?

The truth is we would like to do both. The new build program is going to -- the assumption is that we're going to continue to build. But certainly during the year, we're going to assess that and it is going to be based on our perception of where the market is going. If the markets aren't as strong as we anticipate, then we may well slow down the new build program. For the most part, it is replacement tonnage. So as you do that, you are continuing to shrink the fleet. But as we sit today, we think that business is going to be stronger in 2004. And as we listen to our customers, they think that that is going to continue in 2005 and '06. If that is true, we will continue with our replacement program.

Are you confident enough that that might warrant actual new builds that are not replacements?

Well, no. We are not -- other than the coastal replacement tonnage. Remember that we have the right to replace that tonnage if they collect not to. And we are currently doing that. But the best case scenario for this business is that (indiscernible) additional capacity needs to be added, because if that indeed occurs, we believe that their rates will rise to justify the kinds of returns you need to add capacity.

Just moving over to the fertilizer business. You said for this quarter, it was kind of a mixture of the improved farm economy as well as imports. Going forward, which one of those do you think is going to be the main driver?

The farm belt economy is going to drive the fertilizer business. So where it is made is going to be driven principally by natural gas prices. So if the U.S. farm belt economy remains strong, they are going to use nitrogen-based fertilizers. If natural gas declines, more of it will be made domestically. If it stays at these levels, more of it is going to be made (indiscernible).

So if gas stays high, then we'll see more imports?

Yes.

Thank you very much.

John Chappell (ph), J.P. Morgan.

Good morning guys. Most of my questions have been answered. Let me ask a quick follow-up on the refined product market. With crude inventories at 28-year lows and gasoline inventories continuing to fall every single week, where does that lead -- what kind of trends does that speak of to your refined product business (indiscernible) the first quarter and then as we look throughout the year?

The market that we are most concerned about is the midwest market. Although the national inventories have fallen, the midwest inventories are actually a little bit higher than they were last year. Now this change is on a week-by-week basis. And I think what is happening in the midwest is the weather is so miserable up there that no one is getting out and driving. And transportation up there has been impaired on a commercial basis also. So inventories, you expect to rise a little bit. So as we speak, we are not seeing any strong demand for midwest volumes. Now as the year progresses and the weather gets better, we are forecasting a normal gasoline season, which is important to see because there is equipment that is principally dedicated to servicing that market. The long-term trend, I think you're still going to continue to see capacity in the midwest we think shrink. And as that shrinks, those volumes are going to have to be imported from the Gulf Coast and that is going to generally help barging as it is applied to moving (indiscernible) products up into the center part of the country. So long, we think it's fine. Short-term talking about the current market, it is kind of where we thought it was going to be. It's a little sloppy right now, but it should start to improve as we thaw out up there.

Thanks a lot.

(Operator Instructions) David Bold (ph), Paradigm Capital.

Good morning. I was trying to get a sense -- I know we made some acquisitions and did some things in 2003. How is that going to affect revenues in 2004?

Most of that is already in 2003. The last acquisition we made was the Sea River acquisition that was made in January. So you're not going to see -- the effect of those acquisitions are really already seen in last year's numbers.

So if we just for an assumption held volume pricing steady, we would have pretty much flat revenues?

Yes you would, so you're going to need volume and pricing increases to see better revenues.

And we're anticipating higher volumes (indiscernible) steady?

Yes. There's not a lot of pricing increase in our forecast, it's more volume driven.

And did you say low-single volumes increases?

If we got double-digit volume increases, we would be really flying. Let's pray for those.

Thanks a lot.

David Yuschak, Sanders Morris Harris.

Just another question on the pricing environment, gentlemen. With ACL out there in bankruptcy and I don't know what form or whatever they made be trying to come out of that thing, but logic would suggest that anybody who is going to want to extend them credit or put money into this rehabilitated ACL would want to see some long-term contracts in their mix. Does that suggest that maybe that is one of the reasons why the contract pricing environment may be a little bit tougher here and is it that they need to lock up some customers at some length of time to make them, make the investors feel more comfortable?

Well, I really don't know what their pricing theory is. I think that they have been more focused on cash generation, which would tend to have them hang onto contracts and not take the exposure being in the spot market with vital time, which potentially puts a cap on rate increases in that part of the market. I'm speculating here because I cannot get into their pricing strategy. I don't know what it is. But that is what typically happens when a company is focused on generating cash to meet creditors' needs.

That's why I was suggesting maybe even as an outsider that if you're trying to come out of bankruptcy, you're going to want to have as many long-term contracts in your portfolio as possible to make sure that the cash flow is going to be at least there for a reasonable period of time. That's why (indiscernible) if that kind backs into your ability to get more favorable contracts until we ultimately get this ACL resolution. Because I would think after the ACL resolution, their cost of capital is going to be a lot higher than what your cost of capital is?

You'd think so. I think maybe the best way to respond to your question where I think you're going is the current situation at ACL is one with great ambiguity and it is not helpful to the market. And as that situation is resolved, and we think it is going to be resolved sooner than later, I think the ambiguity will be gone, I think you'll kind of know what the capital structure is. The Company will have a better capital structure certainly, and hopefully will be able to appropriately assess how they're going to price the business and how they're going to run their business in the future. And as that occurs, the market generally is going to be healthier.

One last question. On the third quarter to fourth quarter basis, your ton miles is up about 2.3 percent, which is a pretty good number from that point of view. Where was chemicals? Were they above or below that number? And what was the strongest incremental contributor to this ton miles and what was the lowest contributor to the ton miles?

Chemicals were up slightly as we indicated, but the real driver was fertilizer.

On the incremental ton miles?

Yes.

(Operator Instructions). Bill Baldwin, Baldwin Anthony Securities.

A few questions. Joe, would you care to be specific as to what kind of pricing improvements you do have in your guidance for 2004?

We have minimal pricing in the 2004 guidance.

So it would be less than what we saw in terms of the contract rollovers in the fourth quarter?

Yes. If you continue to get that.

That would be above what you have in your guidance?

Yes.

Second question kind of housekeeping. Active barges, inactive barges, 885 and 60. Is that an average number for the year, or is that a year-end number?

Year-end number.

Okay, thank you very much.

Just a caution on barge count. Did we list capacity?

Yes you did. Capacity is there.

That is what the focus is on, because as we continue to replace this equipment, we're going to end up frankly with less barges, but the same capacity. It's the capacity that we're focused on maintaining.

So some of the retirement of these barges are smaller barges?

Right. And that's why we put the capacity number in there because you focus on the number of barges and say, gosh, it is declining. They must be continuing to lose capacity, when in fact the barges that we're replacing the equipment with in some cases are larger barges.

Bill, an example of that is like we were replacing some 20, 25,000 barrel barges like with 30s.

That will allow you to operate more efficiently, won't it, Berdon?

Right.

I guess the question that would be difficult for you to answer. But do you get the feeling that Kirby is probably at the forefront of what is going on here, and that is, your competitors probably, at least in some cases, are not able to have the financial wherewithal to maintain their fleets in the kind of condition and capacity that you are able to?

No, we're seeing other competitors building some barges.

It is going to depend on the creditor or on the (multiple speakers).

Wouldn't you assume over time, (indiscernible) that over time, that probably Kirby is in a position to gain some market share here, just from this strategy that you're following?

We hope so. We think over time, this business is going to continue to consolidate. And the reasons it is going to continue to consolidate is that a company like Kirby can offer more services, more efficiently than a smaller operator and can have and in fact wants more spot exposure, that the market is going to trend -- continue to trend to favor companies that are structured like we are.

Right. Thank you very much.

(Operator Instructions). At this time, I show no further questions. I would now like to turn the call over to you for any closing remarks.

Thank you very much. We appreciate your interest in Kirby Corporation and participating in our call. If you do have any additional questions or comments, you can give me a call at 713-435-1135. We wish you a good day.