Kirby Corp (KEX) 2004 Q2 法說會逐字稿

Good morning. My name is Casey and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Kirby Corporation's Second Quarter Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

I would now like to turn the conference over to Mr. Steve Holcomb, VP Investor Relations of Kirby Corporation. Sir you may begin.

Thank you for joining us this morning. 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 website at www.kirbycorp.com in the Investor Relations section under the 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 risks 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, 2003 filed with the SEC.

I will now turn the call over to Joe.

Thank you Steve.

In our press release yesterday, we reported our 2004 second quarter results of 55 cents a share, earning $13.8m on revenues of $171m. We're very pleased with our results, which were record quarterly earnings for Kirby. The results compare with net earnings of 48 cents a share for the 2003 second quarter.

During the 2004 second quarter, petrochemicals lines continued to be strong. Our black oil volumes also remained strong. I believe this is mostly a reflection of refineries running at high utilization rates and making greater quantities of heavy refinery by-products. With the high crude oil price, the refineries want to squeeze as much out of the barrel of crude oil as possible.

Refined products volumes were also about as expected.

With respect to our liquid fertilizer business, it was very weak, but we expected it to be weak. We do believe our fertilizer business will be much improved this fall, and we're beginning to see some of that improvement now.

Concerning pricing, as we stated in our 2004 first quarter conference call, we expected volumes to increase first, and volumes have increased. Spot market rates will rise based on these improved volumes. They are rising, followed by contract increases when the market believes spot rates are sustainable.

During the second quarter, volumes did continue to improve, and we successfully negotiated contract rate increases in the range of 2% to 4%.

Spot market rates are generally above contract rates now, and we expect this trend to continue really through the balance of this year.

Turning to the diesel engine part of our business, this segment's second quarter benefited from a continued rebound in our Midwest river dry cargo market, or at least as this business services that market. This business was also helped by the addition of Walker Paducah, the diesel engine operation purchased in April from Ingram Barge Company.

The segment's rail market also benefited during the quarter from several large orders from transit customers. Offsetting these favorable markets was a continued weak Gulf Coast oil service markets, and some weakness in our East Coast and West Coast markets, which we believe was principally caused by the deferral of maintenance. We believe that we'll get some of this back at the end of the year.

In April of this year, we purchased for $4.2m, a third interest in Osprey Line, a provider of container-on-barge feeder service. Osprey is the leader in the container-on-barge business. The container-on-barge business is very complementary with Kirby's existing inland marine transportation distribution system, as well as our existing customer base.

For the first 6 months of this year, Osprey's revenues were $7.2m, a 30% increase compared to the $5.5m we reported for the first 6 months of '03. For comparative purposes, Osprey's revenues for the '03 year were $11.7m. For competitive reasons, we are not disclosing the operating results of Osprey, but I will tell you that Osprey is profitable despite incurring increased costs associated with starting new service routes. While it's certainly too early to tell what the ultimate outcome of Osprey will be, we are of the opinion that the container-on-barge service could be a rapidly-growing market, as shippers see the advantages of moving containers by water compared with rails and highways.

I'll comment later on the outlook for the third quarter and the full year, and Berdon will brief you on our ongoing tank barge construction program, but firstly, I want to turn the call over to Norman to discuss the financial highlights for the quarter.

Thanks Joe.

Kirby's cash flow remained strong in the second quarter, with EBITDA of $39.1m, a 9% increase over the second quarter of 2003. For the first 6 months of 2004, EBITDA increased to $70.8m, a 13% increase over 2003.

Capital spending was $56m for the first 6 months of 2004, which included $23.6m for new tank barges, $32.4m for upgrading our existing fleet. Also during the first 6 months, we spent $11.1m on acquisitions, which include $4.2m for the one-third interest in Osprey that Joe mentioned, $5.8m for the Walker purchase, the diesel engine service operation in Paducah, and $1.1m for 2 pre-owned ammonia tank barges.

Our projected total capital spending for 2004, excluding acquisitions, remains in the $85m to $90m range, and includes 16 new petrochemical barges and 10 black oil barges at a cost of $41m.

After reducing our debt by a net $3.8m, we ended the second quarter with no bank debt on our balance sheet. Plus, we added cash and investments totaling $13.3m. Our debt-to-capitalization ratio was lowered to 38.4% at June 30 compared to 46.2% a year ago, further strengthening our strong financial position.

Kirby's priorities, or excess cash generated continue to be acquisitions, debt reduction, and stock repurchases. We structured our $250m 10-year floating rate note issued in 2003 to give Kirby the flexibility to make pre-payments without penalties. And we anticipate reducing that debt in the 2004 fourth quarter.

Our average of cost of debt was 5.2% for the first half of 2004, slightly higher than the 5.1% during the first 6 months of 2003. In April of this year, we extended a maturing $50m interest rate hedge for 5 years at a fixed all-end loan rate of 5.2%. As of June 30, we had $150m of the $250m floating-rate note issue hedged against market increases.

I'll now turn the call over to Berdon.

Thank you Norman.

I want to update you on our ongoing tank barge construction program, a program designed to replace older petrochemical and refined product tank barges, as well as black oil tank barges that will be retired.

For the petrochemical and assigned products market during the first half of 2004, we placed into service seven 30,000 barrel capacity tank barges, with 4 tank barges scheduled for delivery in the 2004 third quarter, and 5 in the 2004 fourth quarter. The purchase price of these 16 tank barges is approximately $26m.

For the black oil market during the first half of 2004, we placed into service six 30,000 barrel capacity tank barges, with 4 tank barges scheduled for delivery in the 2004 fourth quarter. The cost of these ten black oil tank barges if approximately $18m.

I'll now turn the call back to Joe.

Thank you Berdon.

Yesterday afternoon, we announced our third-quarter guidance in the range of 50 to 54 cents per share. This compares with 46 cents per share earned in the third quarter of '03. This third-quarter earnings guidance anticipates continued strong petrolchemical volumes, black oil volumes remaining firm, and a stable Midwest-bound gasoline market through the summer. And we do expect a better agricultural chemical market really beginning now.

We noted in our press release that the third quarter will be impacted by the closure of McAlpine lock. That lock is located on the Ohio River above Louisville for major repairs for an estimate 2-week period in August. We're estimating that the closure of this lock will negatively impact our third-quarter operating results in the 2 to 3 cents per share range.

For the entire year, we're tightening our earnings guidance to $1.90 to $1.95 per share, which if you compare this range to the 2003 year results, which were $1.67, is a 14% to 17% improvement.

We are very encouraged by what we see in our overall tank barge market. Summer is typically a slower period for us. We typically make up for poor fleet utilization with better fleet performance. This year, we have seen strong utilization throughout the summer, and we see no indication that this is going to change.

Our customers also continue to be optimistic, and this optimism extends out at least through 2005. So all of this bodes well for our core in the tank barge business.

Operator we're now ready to open up the call for questions.

At this time, I would like to remind everyone in order to ask a question, press star then the number 1 on your telephone keypad.

We'll pause for just a moment to compile the q-and-a roster.

Your first question comes from Alex Brand with BB&T Capital Market.

Good morning, how are you doing guys?

Fine thank you.

Nice quarter. I guess Joe, you sort of gave some color about utilization with that closing statement that you made, but I guess I'm just trying to understand if pricing is getting better, utilization is basically at sort of peakish-type levels, are you surprised that 2% to 4% is all you're getting on the pricing side, or is it sort of playing out just like you would expect it to?

No, I think it's consistent with the way we saw it evolving. Contract pricing will track in many respects the spot pricing. Spot pricing is above contracts, and I would think that we're going to continue to see firmer contract pricing on renewal, depending on the contract. There are some contracts that are going to be less, some that are more. And that will be how they compare with where the market is.

I'm not surprised. We didn't forecast much contract pricing in our guidance for '04 really until the latter part of the year.

Okay, can you give some color as to what the differential is now between spot and contract pricing? Is it just in percentage terms?

Well, we really haven't quantified that Alex. I will tell you that spot pricing from the beginning of the year is up 8% to 10%. To give you the quantification, I'd have to give you a kind of a blended rate of contracts, and I'm just not prepared to do that.

Okay, and is it fair to say, then, that part of what appears to me to be conservative guidance, given everything that's going on, is it that you're in the summer months and you also have this lock closure, and it just makes sense to wait until you see more to raise your guidance? Because basically, you kept it to where it was. You just tightened it up.

Right, for the year guidance. Two things I think that will affect this quarter. One is McAlpine lock. Now, we're saying that it's 2 to 3 cents. How much of that we get back is uncertain. A lot of it is going to depend on how well the customers manage their inventories. But we're saying for the quarter it's 2 to 3 cents, and just aren't certain whether we'll get a penny of that back or 2 pennies or whatever.

Secondly, fuel is rising rapidly, and there will be some fuel effect for the quarter, as contracts, of course, lag the escalations.

And finally, you've got the unpredictable part of weather in the third quarter, with storms in the Gulf of Mexico. Thus far, there really haven't been any hurricanes noted, but we'll see some as the summer evolves.

I think in the third quarter, when we announce third quarter earnings, we'll be in a much better position to predict the year.

I hope so. Okay, I'll just leave it at that for now.

Your next question comes from Dan Moore with Stephens.

Morning guys.

Morning Dan.

Good quarter, congratulations.

Thank you.

I wanted to touch on a couple of points. Some of these have already been kicked around a little bit, but at the risk of being repetitive, I'm going to jump in with both feet.

Outlook on rates, could you talk to me a little bit about contract renewals where you are in that process for the full year '04?

And another thing I'd love to touch on as we look across the broader gamut of transportation, a look at trucking for instance, rates are just through the roof. Rail seems to be hitting a level of increase we haven't seen in 20 years. Would it be presumptuous to assume that these trends will begin to be reflected and become more evident in your results as we look out over the next 6 to 12 months? And if not, why?

Well, we certainly hope that it's not presumptuous. I think there are some differences between our business and certainly some of the trucking companies, and maybe even the rail lines, although I think that we probably correlate better with rail than trucking as you look at the service that we provide our customers.

Certainly.

We're an extension of their supply chain.

It just seems a broad trend.

Yeah, and I think that broad trend frankly is going to be reflected throughout the transportation sector for the reason that shippers have frankly picked transportation as an area to take a lot of costs out of. And they have squeezed rates for a number of years, and because of that, and because of poor returns, there hasn't been the reinvestment in the transportation business that perhaps there should be.

There's going to be a little catching up now, and I think that you can expect if the economy hangs together and volumes continue to see some improvement, some real capacity constraints, which will then be reflected in rates. We're, for obvious reasons Dan, not comfortable predicting rates going forward. But certainly, there are some things that are happening in the transportation sector, which we're part of, that I think bode well for higher rates, and more importantly, better returns. The returns on capital in the transportation business have not been good, and the business really does need to reinvest.

Let's see, your first question was more color on contracts?

Contract renewals.

Yeah, our contracts renew somewhat on a rateable basis, maybe front-loaded a little more to the first part of the year than the last part of the year. As you look forward a year, you can expect looking at our 2003 revenue, probably a couple hundred million to roll over, and would be exposed to the ability to get some price increase. Is that what you're looking for?

Absolutely. And a couple of other questions here. I didn't catch the impact of fuel on the recent quarterly results.

Well, fuel was, let's see, I think on average was $1.01 for the quarter compared to the quarter before, which was what, $0.82, excuse me, the same period '03 was $0.82. What was it for first quarter?

I'm not sure what the first quarter was. It went from $0.81 to $1.01.

For the first quarter over second quarter?

I'm sorry, that's year-over-year.

It was higher going into the first quarter, and there would be some effect but I don't think it's that significant. The comment about fuel really was about the third quarter, where you had fuel on average for the second quarter was at $1.01. We're seeing pricing as we speak in the $1.20 range.

Wow.

So it's escalated sharply since the beginning of the quarter. The first quarter number was $0.99 per gallon.

Maybe just to shift gears a little bit, just wondering if the rail congestion problems seem to be somewhat systemic, whether or not you're seeing any modal shift there, any benefit from that, specifically as it relates to loss of your core operations.

Right. There is enormous frustration from shippers about rail congestion. And frankly, some concern even with respect to trucking. The level of interest in container-on-barge is certainly very high. And I think if that congestion continues, Osprey is going to be a beneficiary. The problem with shifting it kind of overnight is that there are some infrastructure issues and some capacity issues that just have to be worked through. But certainly, the calls that Osprey is fielding from very frustrated rail users are up quite a bit.

And just one or two others here, and I'll turn it over. Has Osprey opened any new locations that we should be aware of? That would be question one there.

And then the second question, the last question I have is could you give us an update on utilization during the second quarter on a monthly basis? How it trended through the course of the quarter.

Yeah, with respect to new locations, and we're only going to talk about established locations. I think we don't want to talk about locations that we're working on establishing.

Sure.

But they're now in place in Memphis and handling containers to and from Memphis.

With respect to utilization for the quarter, it was pretty strong all quarter frankly. You'll have a period of 2 or 3 days where it may tick down a little bit, but we saw utilization at rates that we were very pleased with pretty consistently through the quarter.

Fair enough. Thanks guys.

Your next question comes from John Chappell with J.P. Morgan.

Morning guys.

Morning John.

I want to talk to the assigned product business. In the last couple of press releases, you said normal seasonal assigned products. It doesn't seem that there's anything too spectacular there. But that the refineries are running at kind of full-bore here, some of these inventory issues, are you kind of disappointed in the performance of assigned products?

And what do you see for the second half of the year as the refineries shift to heating oil? Do you think there's some potential there for maybe non-seasonal take-up I guess for the fourth quarter?

Well, the heating oil story is more a tanker story, because most of the heating oil is used kind of Baltimore more to New England. The Midwest, which is the market we serve is principally a gas-heated market. Where 2-oil plays out is as the trucking and farming industries improve, you see more demand for 2-oil, and we are certainly seeing that in the Midwest.

Now, with respect to any disappointment in the gasoline market. Frankly, if the volumes are stronger, I don't know if we could handle them. And I think that what's happened in that market is that the pipelines now have been finished. Explorer is online. Centennial has been online for a while. And the business is changing I think short term from longer moves with more ton miles to really more shorter moves as they distribute gasoline into the Midwest from pipelines. And the longer moves are more the blending components and the anomalies that you see, for example in 2-oil, where there are some 2-oil shortages.

I think that's about how we thought it would play out. Now, as you project on going forward, with pipelines on allocation and as demand improves, barging is going to play a greater role in the longer haul, more ton miles market as Gulf Coast refineries supply the Midwest requirements.

And the other thing that I think that we all should be mindful of, while we wish nobody bad luck, is that the U.S. refinery industry is running full-out, and when you do that, you do risk some maintenance outages if they were to occur could have a significant effect on any given market.

Just to get that straight, in the near term there may be some gain given to ship on shorter haul moves, but you think you're well positioned longer term for more longer hauls.

Yes, and supporting that earlier is that if the demand was greater, I'm just not sure we could handle it.

Okay, that kind of leads to my next question. Volumes seem to be pretty strong for most of your segments there. And you kind of backed out the active barge fleet for the second quarter. It appears to have come in much higher than the first quarter. Have you delayed any scrappings or removal of older barges because you want to keep things in the active fleet to earn the better rates that you are starting to see now and keep the utilization up?

We look at that on a barge-by-barge basis, but the simple answer is we haven't delayed a lot. The capacity is about what we projected it to be. We have added some additional barges. If you look at the barge count, I think in the end of '03, December 31, 2003, we reported 886 barges, and we're reporting today 887. And the capacity is about the same year-over-year. Maybe a little higher from the beginning of the year, but on a year-to-year basis, it's about the same.

Now, we will look at, as barges come up for maintenance, we are certainly going to look at whether you can squeeze a little more time out of them. But it hasn't happened to any significant degree yet.

If I can ask just one more quick one. This topic has been covered before, but Norman kind of laid out your priorities for uses of cash. But we've seen some non-traditional income firms, like oil tanker companies that have much less than the [inaudible] streams, just some nominal dividend paths. Has the Board looked at dividend as a possibility, especially in the improving marketing environment that we see?

I'll give you the answer, and then I think Berdon needs to weigh in on this also. But the Board on a continuing basis looks at the uses of cash. And at least at this point has concluded that we think that the opportunities to continue to invest in our core businesses allow for the consumption of the cash that we are currently generating. If that changes, then of course, the Board will review kind of where they are on it.

I agree. We're going to stay focused, and there are still a number of opportunities out there. And as I've said before, I'm a big believer in getting your powder dry, and right now we're paying down debt, and our balance sheet is very strong. And that's the way I like to see it, so when we make our next acquisition it will be very easy.

Okay, thanks Joe and Berdon.

Your next question comes from Helene Becker with Benchmark Corporation.

Thank you very much operator. Hi gentlemen.

Good morning.

Most of my questions have already been answered. But I just have one on headcount. For a long time, you guys had trouble kind of keeping people, and then you went to a whole program where you were able to identify the best candidates for the job. And I was just kind of wondering if you could kind of address the employee situation, the context that if you were to expand the operation?

And the barges that you're taking later this year, are they replacement or are they additive? And will you have trouble manning them?

I think that's a good question because in a very strong market, the limitation for growth can be more people-driven than certainly capital-driven in Kirby's case. We know that and have an intensive recruiting training program in place. Our owned shore-based training facility is a very important part of that strategy.

We think that we have appropriately planned for that. Manning is always going to be a challenge in this business because of the lifestyle issues that a float organization has to accommodate. But we're blessed with a really outstanding group of vessel employees that work hard for us every day and are supporting the continued training efforts and recruiting efforts that we have in place. So we think we're okay.

Now, with respect to the barges that are being built this year, that's replacement tonnage. We're still not in mode of adding capacity, although we will evaluate that given the strength of the market. But right now, we're looking at just replacing the capacity that is coming out of service principally due to aging conditions.

Okay, and then I just want to follow-up. Thank you very much. That's a great explanation on employees. But I just want to follow up on someone's question with respect to the frustration that shippers are feeling with the rail situation, especially in the Southeast, or the southern tier of the U.S. I heard your answer, but is it translating into business that you can actually quantify?

Yeah, in the barge line, the liquid barge line the infrastructure issues moving liquids from fail to barging are significant because they're driven by where it's going, the quantity that's being moved, the type of chemical it is.

Now, with respect to Osprey, the interest of shippers looking for alternatives certainly is being driven partly by the problems that the railroads have incurred. Now, with respect to liquids in smaller quantities of liquids moved, there may be a place, and we're certainly seeing a little of this already at Osprey, where you can move iso-tanks, which are tanks that are filled with liquids by barge and in doing that, take some of that liquid business off of railroads.

The truth Helene is that the railroads are having such a difficult time with scheduling that we can often beat their schedules by barge.

Right, well that's what I would think. It's just a question of convincing the shippers that you can handle it.

That's right, and that takes time, that take infrastructure, and you want to do it right. You don't want to agree to do something and then fail to do it.

Okay, all right. Thank you very much.

Your next question comes from David Yuschak with Sanders Morris Harris

Congratulations gentlemen on a good quarter. But Joe your statement almost sounds as fully hedged as Norman's debt facilities on his interest rates.

Well, what would you like to hear me say David?

No, but anyway, the question I've got for you on this cargo container business. The Houston ship channel right now is in the process of doing a major expansion to accommodate cargo imports. I think, as I recall it's 2006 when they expect to have a major facility open down there.

Yeah, right.

So that would kind of fit into with the potential prospect for cargo coming into this country through the Houston ship channel, right?

I think that's going to be very complementary to what we're doing at Osprey.

Okay, so with that in mind, wouldn't that suggest that some things have to be thought about in the way of Osprey in a reasonable period of time?

I'm sorry.

Wouldn't it be reasonable to expect some kind of decision by you guys as to the extent that Osprey becomes more important to you as far as an investment has to be made here to potentially accommodate that 2006 expansion?

Well, we're going to be looking at it and we're kind of feeling our way right now David on Osprey, and we're spending a lot of time on it.

Okay, well I think that's just an interesting opportunity, particularly given the fact that the ship channels have a major expansion down there.

Wanted to just make sure, the Missouri River is supposed to close I think in mid-October. You guys don't do much in that space at this point in time either, do you?

No, and it typically closes then. It's not open for navigation all year. It has periods that it's opened and periods that it's closed.

I thought maybe they were closing it prematurely though this year.

Maybe a little early.

Okay. I just wanted to make sure you don't do much up in that area.

We don't. The only business that Kirby handles -- we used to handle a little asphalt, but we don't do that any more. There's some fertilizer business that will go up to Missouri.

As far as the delay days were about 50% over year. Was a lot of that just because of just kind of general mucky weather and rainy weather throughout the system, and nothing really kind of standing out as far as weather?

No, they were principally navigating delays caused by the closure of the Port Allen lock.

Okay. And I think that's about it for me.

Thank you David.

Your next question comes from [Sandor Toft] with Krypton.

Yes, hello Mr. Pyne: How are you?

Fine thanks Sandor.

I have 2 quick questions for you. First, with respect to the new construction market of tank barges, as you probably well know fuel prices are through the roof and so are dry cargo barge construction prices, which have essentially brought that market to a halt. Are there similar effects taking effect on the liquid tank side? Are tank barge prices also rising fairly rapidly to the point where the interest in new construction may be waning?

Well, it certainly steel is up, and where it's going is unknown. I mean, you have all kinds of theories about that. With a company like Kirby that needs replacement tonnage, we certainly watch that, but I'm not sure that we're going to try to time the construction of a very small part of our fleet with where steel is going. It's kind of analogous to try to time the stock market.

There are tank barges being built. They're being built by us and others. We think some of that, frankly, is driven by some tax incentives that finish at the end of this year for deliveries in '05. And I guess if the market believes that steel is going to continue rise, you are going to see normal tank barge building. I think frankly, in the tank barge business we're kind of seeing the normal building program even despite the high steel prices, which may be driven as much by getting tax benefits as anything.

Okay. And the second question I guess also relates to Osprey, and that the Gulf Coast and the lower Mississippi dry cargo market has been experiencing a chronic shortage of equipment for the last several months. Is that affecting Osprey in any way?

We're still able to get barges.

Okay. And that was all I had. Thank you.

Okay operator. Hello operator.

The next question comes from Greg [McCosko] with Lord Abbott.

Hi Joe.

Hi Greg.

Good morning. Could you talk with regard to the barge construction we were talking about earlier, is there any, given that one of your suppliers is a railcar supplier, do you see an effect on your delay or deliveries or anything with regard to those delivery dates you gave us for the third and fourth quarters?

No, right now they are meeting their delivery dates and we haven't been informed about delays.

Okay, and the same with regard to the availability of steel. You don't anticipate that's going to have any effect on delivery dates as well?

So far it hasn't.

Well good. And then also, not to beat this issue about the pricing in contracts, but could you give us a sense of what share of the revenue in the quarter was from spot versus contract?

Yeah Greg, it was about 30% spot, 70% contract.

Should we expect that to be a little different, say now given the tightness of supply, etc. of shipping?

Yeah, if the world was perfect, you'd want everything in the spot market right now. But what happens is that as the spot prices rise, you begin to press contracts and you either renew them or you don't, and if you don't you're happy to be in the spot market. But that's kind of the driver in the contract pricing area is the alternative uses for the equipment if you don't renew the business.

I would expect it's going to stay about in that range. There are going to be periods where your contract customers' volumes may absorb a little more of the equipment that you had in the spot market than you'd like. But then again, that's the motive to continue to press contract rates.

And so then we haven't really seen any variation in the first couple of quarters of this year versus what it's always been.

Yeah, the variation is going to be in the 2% to 3% range.

And in terms of the contract renewals, the 2% to 4% you mentioned, have we actually seen that in the second quarter? I mean, how much approximately, I guess you're saying that over the course of the year it renews pretty evenly. The first half is a little more than the second half of the year.

Yeah, you're going to see it all in the third quarter, but you only see part of it in the second quarter, because it's going to renew over the quarter.

Okay, so we'll see all the pricing in the third quarter, and then in the fourth quarter there's not much at all.

Well no, then you'll have contracts that will renew in the third quarter, which you'll see part in the third quarter, and all in the fourth quarter. It's a continuing basis. We say in this business there isn't one mating season. I mean, the season is throughout the year. It's a little more front-loaded to the beginning of the year, but we've got contracts renewing throughout the year.

And this is what share of the total business?

Well, I said that going forward in the next 12 months, look at about $200m of revenue being exposed. And then you have, of course, the spot revenue, which is probably around $150m that is exposed on a trip-to-trip basis.

Okay, thanks very much.

Sure.

Your next question comes from Tim Adler with J.P. Morgan.

Good morning.

Good morning Tim.

I was just about to ask for clarification about that $200m and that $150m when you restated what you had said earlier, so now I have it straight.

Is there anything that you can tell us about certain assets that are rumored maybe to be at some time coming out of bankruptcy and what might become of them?

This is the ACL assets?

Yeah, of course.

We think they're going to re-emerge as both a dry cargo and tank barge operator. That's certainly what all the public statements say. That's their intention. They've asked for another extension. They're running out of time. I think that they would have had to have filed like today. So we think that filing is going to have them re-emerge. I think there are some terminaling assets that they have agreed to sell, and they've sold part of their Latin American operation, and I'm hearing that they've got the rest of it for sale, but we're not interested in it, so we're not looking at it.

That's kind of what I know, and that's as much kind of what you hear on the street is what you read in the documents.

Okay. Now, the contract business, these are 12-month contracts, correct?

Well, the contracts are 1, 2, 3, and in the case of our two largest customers multiple years.

Okay, all right, those are my questions. Thanks.

At this time sir, we have no further questions.

Thank you for participating in our call. If you do have any additional questions, you can give me a call. My direct dial number is 713/435-1135, and we wish you a good day.

Ladies and gentlemen this does conclude today's conference. You may disconnect at this time.