Kirby Corp (KEX) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen. At this time I would like to welcome everyone to the Kirby Corporation 2005 third-quarter earnings conference call. (OPERATOR INSTRUCTIONS). Thank you. It is now my pleasure to turn the conference over to Mr. Steve Holcomb, the Vice President of Investor Relations.

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 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, 2004 filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Okay. Thank you, Steve. In our press release yesterday, we reported third-quarter results of $0.67 per share, earnings of 17.3 million on revenues of 198.7 million. The results were negatively impacted by both Hurricanes Katrina and Rita, which we estimate reduced our third-quarter results by $0.10 a share. The $0.67 per share compares with earnings same period 2004 of $0.53 per share. And for the -- that is for the 2004 quarter. And $0.72 for the second quarter of 2005. Norman will get deeper in the numbers later in this conference call.

With respect to Marine Transportation, our volumes remain strong throughout the third quarter with no real weakness noted in any of the markets we serve. Operating conditions, of course, except for the hurricanes were okay for the third quarter. We did experience slow water conditions in the up river systems during late July and August, but the impact was not significant.

Hurricane Katrina made landfall east of New Orleans, missing the major part of our Gulf Coast operations area. Rita, however, was a different kind of storm. It essentially started with an estimated landfall just north of Corpus Christi, and then worked its way up the coast making landfall finally on September the 25th around the Texas/Louisiana border.

Due to Rita's strength and forecasted changes, Kirby, as well as our petrochemical and refining customers in the path of Rita's forecasted position, had to curtail their operations in advance of anticipated landfall. The waterways in the hurricane affected area were closed, and Kirby's equipment was moved out of the protected path of the storm.

Now fortunately neither hurricane caused any notable damage to Kirby's tug and barge fleet or our shore facilities. We did see some major disruptions in our Baton Rouge and Bell Chase offices, and many of our employees in those affected areas were affected by the storm.

Today all waterways are open for inland and offshore barge traffic and are operating essentially normally. A vast majority of the petrochemical and refinery plants are also back in full production; however, there are several facilities south of New Orleans which remain closed.

The full impact of the two hurricanes was mitigated somewhat by some risksharing provisions in many of our contracts which does enable Kirby to recover some of the costs related to navigation delays, which are beyond our control. In addition, some of our customers elected to place equipment on a time charter basis prior to the storms, and this equipment remained on charter through the storms.

With respect to pricing during the quarter, pricing continued to improve. Contracts during the third quarter continued to be renewed at higher rates in the 4 to 5% range, similar to rate increases in the second quarter.

During the third quarter, spot rates continued to rise, and spot rates remained again above contract prices. Spot rates are up on a year-over-year basis about 20%. Of course, fuel is also higher.

Moving to the Diesel Engine Services, the third-quarter results saw improved service activity in direct part sales in the majority of the markets that this sector services, but particularly on the Coast, the East Coast, the Gulf Coast and the West Coast.

We also increased our pricing throughout the year for service and parts, and when you combine those with better labor utilization, it positively impacts operating margins in this sector.

I will now turn the call over to Norman to talk about the financial performance of the quarter.

Thanks, Joe. As Joe said, our results for the 2005 third quarter were negatively impacted by an estimated $0.10 per share from Hurricanes Katrina and Rita. This would imply a third-quarter earnings per share of $0.77 without the impact of the storms. And I'm going to try to give you some color on the third-quarter earnings in our guidance for the fourth quarter.

Our Diesel Engine Services group had a very strong third quarter and completed several large seasonal overhaul jobs. Activity will likely be slower during the fourth quarter. We also had a strong performance from our offshore joint venture operation, which did not experience any maintenance downtime during the third quarter. One of the four offshore units will be in the shipyard for routine maintenance during the fourth quarter.

Lower projected volume in the combined diesel and offshore operations will reduce earnings by approximately $0.03 per share in the fourth quarter. In addition, we had better than expected medical claims experience through the first nine months of 2005, which added $0.02 a share to the third quarter. Our fourth-quarter guidance of $0.68 to $0.73 a share is based on these factors and also assumes continued strength in the Marine Transportation business in the fourth quarter, which typically has higher weather-related navigational delays.

We generated third-quarter EBITDA of 44.6 million, which is a 15% increase over the third quarter of 2004. EBITDA for the first nine months was 131 million at a 20% increase over the same period last year. Capital spending was 93.1 million for the first nine months which included 50.3 million for new tank barges and 42.8 million, primarily for upgrading our existing fleet.

In addition, in the second quarter, we purchased the Black Oil Products Fleet of American Commercial Lines, consisting of 10 black oil barges for $7 million. We still expect to spend about $65 million for new tank barges this year. Approximately 28 million will be for 230,000 barrels of additional capacity with $37 million for replacement capacity. Our 2005 capital spending guidance has been tightened to 115 million to 120 million.

Debt as of September 30 was 205.7 million, $13 million less than at December 31st, 2004. Our debt to capitalization ratio was 29.3%, down from the 33.4% ratio at the end of the last year. Our average cost of debt was 5.9% for the first nine months of 2005. About 73% of our outstanding debt is hedged against the interest rate fluctuations with interest rate swaps.

I will now turn the call over to Berdon for an update on our new barge construction program for 2005 and 2006.

Thanks, Norman. Our 2005 replacement construction program consists of 10 30,000 barrel capacity tank barges for use in the petrochemical and refined products markets, and seven black oil tank barges for use in the black oil products market. The total construction price is approximately 37 million subject to steel price fluctuations. We have taken delivery of the seven black oil barges and eight of the 10 clean barges. Delivery of the remaining two clean barges will be in the 2005 fourth quarter and 2006 first quarter.

Our 2005 construction program also includes 20 10,000 barrel capacity barges and one 30,000 barrel specialty barge, adding 230,000 barrels of additional capacity. The total construction price for these is approximately 28 million subject to steel price fluctuations. We took delivery of eight of the 10,000 barrel barges in the third quarter, four in October, and the remaining eight barges are scheduled for delivery in November and December. We took delivery of the 30,000 barrel specialty barge in September.

In July we signed contracts for the construction of 23 30,000 barrel capacity barges for use in the petrochemical and refined products markets. These will be a combination of replacement barges and expansion barges with a total construction price of approximately 45 million subject again to steel price fluctuations. Delivery of the 23 barges are scheduled throughout 2006 with the final barge scheduled for delivery in January of 2007.

I will now turn the call back over to Joe.

Okay. Thank you. Yesterday afternoon we announced our 2005 fourth-quarter guidance of $0.68 to $0.73 per share, a significant improvement over our 2004 quarter earnings of $0.53 per share. Our guidance anticipates continued strong markets, as well as some deterioration in operating conditions caused by weather.

For the 2005 year, we are also increasing our earnings guidance to 2.59 to 2.64 per share, which is 31 to 34% above the 197 earned in 2004. Operator, we are now ready to open the conference call up for questions.

(OPERATOR INSTRUCTIONS). David Smith, Aperion Group.

Good quarter, guys. The first question, and Joe, looking at the fourth quarter, are you able to indicate how different you think your guidance might be had the hurricanes not occurred? In other words, will there be some catch-up work on the part of some of the customers who were not able to get shipments during the third quarter?

Well, we think the quarter is going to be strong. You know, some of that will, of course, be restocking of inventories that were drawn down during the third quarter. But, frankly, we think that that is going to continue into '06 also.

It is hard to say how much you are going to catch up when, frankly, you went into the third quarter very busy, you had the hurricanes and you're going -- and as soon as they were over, you are busy again, and you anticipate that you're going to be busy going forward.

Good. You indicated I think on the last conference call at the end of the second quarter that you all were entering a small nascent container shipping partnership on it that was going to be primarily conducting its activities on the East Coast. Did you learn anything in the hurricanes and the aftermath of the hurricanes that would indicate that you might move that a little bit faster and do it in the Gulf?

Well, we do have a small ship that was working in the Gulf. It is a little different market. The Gulf is served by a very efficient inland waterway system. So we think that opportunities to expand the inland transportation of containers are really excellent along the Gulf Coast.

The East Coast operation is -- where that is we are still assessing the market, and it is going to be another at least quarter before we are through doing that. And then we will sit down and make a decision with respect to investment that we might make.

Thank you very much.

Ben Noland, Jefferies & Co.

This is Magnus Fyhr. Congratulations to a good quarter. You fight all the hurricanes here in the Gulf.

A question I had is on the supply, you know, of your orderbook versus the industry and what you think the capacity is on an annual basis. I think in the past you talked about about 80 to 100 new builds per year. Maybe you can talk a little bit about what you see here in '06 as far as what is on order now for '06 and '07?

Yes, well '06 the capacity we think is about 100 barges, and that is what is on the books for shipyards that are building tank barges. And 100 barges we would suggest is about what the industry needs given retirements and expansion.

With the industry building both dry-cargo barges and tank barges, there are some limitations with respect to the number of tank barges that you can build.

Now '07, is still early, too early to tell if the dry-cargo barge building program continues, and that is not a market we are in, so I'm not sure I want to comment on it. But assuming it does, you are again looking at probably around 100 barges being built.

Okay. And what of the barges that you're building for '06, can you comment on how many of the competitors are building what you're seeing right now?

We are -- there are competitors that are building. They are building for a combination of replacement and capacity. I can just generally comment what we have seen over the last four or five years with respect to capacity leaving the system. It has been around 80 barges a year. Of course, 2005 was a very good year for the inland tank barge business. And, as you know, in the tanker trade, when you have a really good year, somehow those tankers that you are convinced should not be out there figure out a way to stay out there.

So I think there may be a little less capacity that went out in '05. They will survey that. In fact, I think they are beginning to survey that now, and we will know early spring where it all is. But again we are not worried about over capacity at this point. We think that there is -- there is about 2800 tank barges, and 800 of those 28 are over 30 years or older.

Yes, my point was more that there is not much capacity being added, and you guys probably have the best balance sheet out there to add capacity, and you're very cautiously adding capacity. CapEx declining for '06 to 45 million, do you see -- I mean is that a firm number, or do you see any reason to step that up?

Well, there will be some maintenance CapEx in there. The 45 million number is the new construction amount. So it is going to be less than '05, but it will be more than 45 million. We have not commented on what our forecast is yet.

Natasha Boyden, Cantor Fitzgerald.

I just wanted to talk a little bit about your contract to Falkmex (ph). I think you have said in the past that when spots rates were higher than contract, you would perhaps want to have higher exposure. Are you're moving more towards having higher spot exposure, or are you still at about 70/30?

We are still about there. Yes, you would prefer to be a little higher in the spot market, but it is not as easy as you would think to get there. You have commitments to contracted customers. Those customers in a brisk market are very busy. They, in fact, absorb some of the capacity that you could have in the spot market because the volumes of the contracts were higher. But it is still about 70% contract, 30% spot market market.

Okay. I guess what I'm trying to get at is, you would not be adverse to moving more towards spot, or are you pretty much happy where you are even though the spot rate is higher?

Well, let me put it this way. We are not unhappy with the current mix. There is certainly periods in this brisk spot market pricing environment that it would -- it would be nice to have more equipment there.

But our view on this business is long-term. We have some great customers that have requirements that we are going to take care of because we want to be working for them when the prices go the other way 20 years from now.

Right. Okay. And then just moving on to fuel costs, you do have pass-through provisions, is that correct?

We do on the contracts.

Okay.

And spot market pricing is reflecting the higher cost of fuel.

And then on the high price of natural gas, how is that impacting the fertilizer business? I would imagine it is.

Yes, I think they are having a rough time. We are seeing more fertilizer imported. For Kirby, other than the impact of some good customers, we still handle a lot of that. And because it is further away from the market that it ultimately serves, we actually get a few more ton miles.

Okay and then just one last question and I will turn it over. In terms of the acquisition landscape, obviously you are doing some additional new builds as well. Are you seeing anything interesting out there in terms of potential acquisitions, or are you focused more on just looking at the new build market right now?

Well, we are always looking. We never comment on a specific acquisition. Our profile is to be patient. We don't want to make a capital mistake.

We were very happy in 2005 to add capacity. In 2006 we are going to do the same. This is great for the barge business. The barge business has gone through a very long period where additional capacity was not appropriate. On the acquisition front, you know we think there is opportunities out there, and as they come forward, we will look at them. And if they are -- if they make sense, we will pursue them.

(OPERATOR INSTRUCTIONS). David Yuschak.

Congratulations, gentlemen, on a great quarter. The question I have got for you, are you guys -- because we take a look at some of the chemical data out of real industry. Are you guys finding that competitively you're just stacking up better and maybe taking market share is reason for some of the success you have had in chemical movements compared to -- because (inaudible) at some industrial production numbers out of chemicals. It is not looking all that robust.

Yes. Well, I think rails got impacted by, of course, the two storms also. Understand that the UP, which is the principal carrier along the Gulf Coast, is suggesting that the fourth quarter is going to be stronger for them, and 2006 is going to be a good chemical volume year for them.

Now are we taking cargoes away from rail? I think that the shippers are trying to figure out how they can either leverage rail and barge against each other, or if they have a movement that is on rail, how they can get enough of it so that it can be put into a barge movement.

Generally barging is going to be a more efficient way, and depending on where it is going, a significantly more efficient way of moving cargoes around. The two issues that play into that is that you are putting 15 railcars of cargo into our smallest barge, and our transportation system is limited by the boundaries of the inland waterways system.

But you would think that as you mentioned earlier, the shippers pitting the rails against the barge is, the shippers at this point would have to be leaning more favorably to barge traffic (multiple speakers)

Well, I think -- (multiple speakers)

Regardless of what has happened with the rails and the rates and everything else.

Yes, you know -- I think that you can extend that question further as you look at transportation volumes projected into the future and you look at the constraints that railroads are having and highway systems are having, and look at a relatively unconstrained inland waterway system. We can put a lot more cargo on the inland waterway system.

Yes, there are some infrastructure improvements, but they are not that significant as shippers, and frankly, as the U.S. develops a transportation policy, it is going to have to include a lot more water because the existing system just cannot handle it.

Let's go back and talk a little bit about the rates and everything. Because you know, as you guys know, I've been working with you guys for a long time when we believe the supply/demand relationship would come into balance and maybe even move a little more positively in your direction. And you know from time to time in the past we have seen spikes in spot market market rates and some temporary relief on contracts of 4 to 5%.

How do you view the current environment today as you see things unfolding in the course of the next 12 months or so compared to the times in the past when you have seen some of these kind of temporary blips whether there has been refined product issues or whatever that has created the activity? How do you view this today compared to when you have had these experiences in the past?

Well, certainly the supply/demand balance is tight -- tight in favor of barging. There is a number of reasons for this, and I would suggest to you that this began in the late '90s and then ran into a serious recession in 2000, paused and began again in 2003.

If you look at it from a 10,000 foot level, the economy is okay. We are not adding too much capacity. There are some other things that I think will help us there.

When you look at our customer base infrastructure, that is docks and tankage, that kind of thing and the fact that the plants are running at high utilization rates and that they are tweaking them to actually squeeze more volumes out, they are doing that with the same infrastructure. So that in itself makes the system a little inefficient. And when we talk about more delays at docks, we are really talking about that.

We don't really see that changing for awhile. The infrastructure investments that some have to make are significant and adding maybe an extra barge or two is tolerable given that capital investment. So, as you project where the economy is going and you project the ability of shipyards to manufacture barges, I think that we are in a period where the kind of rate increases, which I would suggest to you are modest, 4 to 5% should continue. And we are -- we run this business with a very long view, working with our customers, very much an integral part of their supply chain. We are not looking for homeruns, and therefore, you don't see the kind of volatility that you see in the offshore tanker business. We are just looking for -- we are kind of the long -- we have a long game approach.

Are you going to have periods in the economy that are a little sloppy and things are going to tick down? Sure you are. Does the -- is there a potential of overbuilding? Well, sure there is. We don't think that we are facing that now.

There is a lot of comfort on the barge capacity side given the age of the fleet. I mentioned earlier that of the 2800 barges out there, there are 800 of them that are 30 years or older.

So there's just going to be a lot of replacement building. We are seeing some volume growth. The environment, frankly, is very good for us right now.

Just thinking back when you just made the comment, if you are sustaining spot rates at, say, 15 to 20%, certainly you would have to argue that 4 to 5% contract renewals is a modest.

Yes, I caution you, though, on spot rates. Just think, you know, there is a lot of things that go into spot rates, David. Dislocations. Remember we have two storms that tied up the infrastructure, made the whole system less efficient, less barges available. You will see spot rates peak there. Fuel also is a component of spot prices. Fuel is up significantly from where it was a year ago. (multiple speakers).

The key is that spot rates are above contract rates. That is the dynamic that you have to worry about. The fact that on any given day a spot rate could be 40% higher than it was a year ago probably in the long-term is not that material.

Give us a real quick reminder, how many of those 800 barges over 30 years do you own?

Not sure. Well, we probably own our share of them, which is around 30%.

So you think it is about 30% of that total?

Yes.

So you are in line with basically the industry?

Yes, I would say that is right. Which is why we have a fairly aggressive replacement program.

With that number of barges, plus what we are seeing in single skins, this demand -- supply/demand relationship could be with us for us a sustained period of time?

Well, let's hope so. The environment is excellent.

Well, I remember a couple of years ago, Joe, we talked about how we would get the margins up. It is kind of nice to see we are here, and it looks like it could be sustained.

Yes.

John Barnes, BB&T Markets.

Now that the hurricanes have kind of passed as long as Beta will go elsewhere, and I think you're pretty much done with drought conditions that you kind of faced in the summer. Are there any river issues you're dealing with right now other than lock and dam work and that kind of thing?

There is a little low water in the lower Mississippi. Now they are training in the Midwest, and we hope that that rain is going to find its way down into the main stem of the Mississippi. And that is going to go away. But there are some spots on the river that are a little lower than we would like them to be.

Is it impacting the loadout of your vessels?

Not significantly. I mean we move from loading a vessel to 9 feet to 9.6 on a fairly regular basis during the summer. And we have limited perhaps I think to 9 feet up on the Ohio River, but we are still loading to 9.6 on the lower. We would like to see it higher, of course, but these things happen on a fairly frequent basis, and they are in the historical numbers.

Okay. I believe last quarter you mentioned that your utilization suffered just a little bit because of kind of customer issues, them holding onto the barges a little bit longer, taking longer to unload and that type of thing. Are you still seeing that issue, or have some of your initiatives on charging detention and that kind of thing helped with that?

Right. Well, we do charge to merge, and they pay for a barge if there is a dock to lay, and we have presented the barge to discharge a load.

During the second quarter, there were some barges used for storage. That is alleviated itself for the most part. So there is a little more capacity out there to handle the requirements that need to be met. But from a financial point of view, whether they are waiting to load or discharge or in storage, we're still getting paid for it.

That affects the ton miles more than necessarily revenue and earnings.

Okay. Very good. And then lastly, could you just give us an idea in terms of your total book of business, and I would imagine your spot rates incorporate current fuel prices. But on your contract business, what percentage of fuel over whatever your set benchmark is, are you recouping in terms of the higher fuel costs?

Well, we always lag a little bit. But the way it is supposed to work is that we eventually get it back. But the risk of fuel is a risk that our customer bears. Where it impacts us is that it is lagging. So as fuel rises, we're a little behind. As fuel falls, then we should get it back.

Okay. All right. And then lastly, if you could please excuse my ignorance on the subject, is there any predictable seasonality to the engine business? You said that fourth quarter could be a little bit lighter because you got -- you know, a couple of projects have rolled out, and you've got something that is going to be in maintenance. But is there any predictable seasonality to that business?

Yes, the fourth quarter is always a little slower. You are getting out of a holiday season, and companies just don't want to present their equipment for human resource issues really. Shipyards get a little less efficient also.

So the fourth quarter is usually the slower quarter. The first half of the year is typically a little stronger than the second half. So there is some seasonality.

Okay, very good. Guys, nice quarter and thanks for your time.

Chaz Jones, Morgan Keegan.

I echo those comments of nice quarter despite the challenges that you guys face. Maybe if I could just tack on a little bit to Magnus' capacity question, Joe, and I guess you mentioned that the dry-cargo side is maybe limiting the number of tank barges that could be built. But are there any yards that were along the Gulf Coast that may temporarily be impacted due to the storm or the relocation of waiver and if you are not able to build barges?

You know, the truth is we don't really know. The reason we say we really don't know is that there is going to be an enormous amount of rebuilding on the Gulf Coast, which is going to drain the labor pool. So will that affect the ability to build barges on the Gulf Coast? It is hard to say. I think it is just too early.

With respect to the barges we are building, a very small part of them are actually built on the Gulf Coast. Most of them are built further up river.

Right. Maybe if I could just tack on there, Joe, talk about demand being stronger here over the near-term due to inventory restocking. But clearly if there is a major rebuilding effort along the Gulf Coast, call it the next 12 to 18 months, one has to assume that Kirby stands to benefit that given the petrochemicals are kind of the major building blocks in construction and manufacturing those materials.

Right. There are a number of people that are saying that the chemical business should benefit from that. We as an extension of that, of course, will to.

Sure. And then just kind of, does that alter what your customers are saying? I know I think earlier this year you talked about customer base in regards to the chemical cycle being strong through 2006. Is the hurricanes or where the economy is or energy prices, have any of those factors altered that outlook?

Well, energy prices certainly put some resistance there as the crude oil and natural gas is their feedstock.

Having said that, for the most part they have been able to pass it through. Their visibility on 2007, we will begin to hear that now. But they remain optimistic about 2006. I mean some of them are talking about it. Some believe that this cycle is going to go well beyond 2006. We just like to listen carefully before we get enthusiastic about it.

Sure. Understood. Maybe if I could get some commentary on Osprey. Maybe you're not going to comment specifically about volumes or profitability, but maybe if you could directionally. I recently saw a small article that said that you guys had a 15 barge total that I think carried 750 TUs in one voyage down from Memphis to New Orleans and Houston.

Right. That was a -- I think that is the largest tow that was consisted of containers ever on the inland system, so that was exciting.

Yes, we still believe that Osprey is a great opportunity. We think that it is three to five years out as we have said before. The infrastructure challenges, surface infrastructure challenges that this country is facing are very significant. Water is a terrific alternative to other modes of surface transportation.

Our focus is going to be on the inland system, although we do have initiatives that are looking at the coastal transportation of containers. With respect to the Gulf Coast initiative, that has struggled, and we have again I think on these calls said that that part of Osprey has not been making money.

We recently made the decision to go ahead and discontinue that service and focus both on the inland river and Gulf Coast container business.

But you know I think we're pleased with the progress it is making. We're fine-tuning it all the time, but we still believe that there is great potential there.

Are there any ports that you have added along the river?

No, we're really focusing on the ports that we have been servicing. Now there has been some opportunities on the inland sight of the business given the destruction of Katrina and Rita. Because particularly in the port of New Orleans, it has had a major effect on their ability to move containers around. So there have been some opportunities there.

Alex Brand, Stephens.

I just wanted to ask on the contract spot market mix, do I recall that you guys -- I know you did not want to shift your mix per se -- but that you did have some interest in perhaps shortening some of your three-year contracts so that you could at least recapture a little bit faster some of the price increases on an annual basis. Do I remember that correctly, and is there any sort of approach to your contract business like that?

Well, I think what we said is that in a rising spot market you would prefer to have shorter durations on your contracts because you get to reprice them on an annual basis instead of, for example, over three years. Some of that depends on the contract, who the customer is with, and even on some of the three-year contracts, we will put provisions where they get priced with real increases kind of in the middle of the contract.

Yes, you know, obviously in a very strong spot market environment you would be better offer with more equipment in the spot market market. But as I said earlier, we are in this business for the long-haul, and we have got customers that we have literally worked for for 50 years. We're very much part of their supply chain. We're going to service them because when spot rates go down, we still want to be there servicing them, and it's the contract business weaker environment that kind of carries you through. In a stronger environment, spot prices sure do help the bottom line.

Right and I certainly understand that. But does that imply then that I think historically you have had about a third renew annually. So would it actually cause that mix to be more like half annually or something like that?

It -- we're still -- there's about 60% of our revenue that is going to be exposed to rate increases on an annual basis. Now 30 of that is spot market. So we're still in that 30% range. Then there is 25% of our revenue, which is with essentially two customers on long-term agreements.

Okay.

Yes, you know, everybody -- you know, as I said earlier, you would like to have more out there in a more dynamic market, but the truth is that is not easy to do when you want to do it.

No, I understand. The only reason everybody wants that is because ACL is out there with their -- they have all that pop to their dry business, and that is different from the dynamic in your business.

Yes, that is a different game, because that's a much more volatile, more seasonal market. And when things are working right, they will do very well. When things are working a little less right, then they will get punished more than we will.

Absolutely. Now I apologize if I missed this at the beginning, but with respect to your volumes, I know the press release talks about a decline in ton miles, and I assume some of that was weather-related. But sort of just from how it looks and feels right now, do you feel like your overall volume is declining, or is that just weather and some mix shift or something that has caused that to look more down in Q3?

Yes, that is the latter. That is the loss of opportunity caused by the hurricanes and some shift in the geographic areas that we are operating.

Okay. And if I could just ask Norman, one of the swing factors for us in the quarter was the equity in affiliates' income, and I hate to ask for help, but could you help us out with how we should look at modeling that going forward?

I mentioned earlier you may have missed that, Alex, that in the third quarter our joint venture operation that hauls coal in the Gulf of Mexico, we had all four units running in the fourth quarter. One of those units will be out almost all the quarter for routine maintenance, so the fourth quarter is going to be down.

In the second quarter, we had routine maintenance also. Also in the first quarter. So the second quarter was a very good quarter. The fourth quarter -- pardon me, the third quarter was and fourth quarter will be down some.

And down some means down overall or just down sequentially from Q3?

Down from Q3.

(OPERATOR INSTRUCTIONS). Greg Macosko, Lord Abbett.

Nice quarter obviously. Just to follow-up on a previous question, with regards to your expectations on the ton miles in the fourth quarter, are you expecting ton miles to be down or slide sequentially? What are your expectations there?

You know, I don't think they will be down unless they are weather impacted. But I would think probably flat compared to '04. The reason I am pausing a little bit is I just trying to think through the mix of business. You are going to get more ton miles the more river business you do. And we did -- we had more equipment in the river business in '04 than we do in '05.

When you're in the canal, there are shorter trips and more time with respect to the total trip is loading and discharging the tow. Where on the river more time is actually making ton miles.

Okay, fine. And then, with regard to the barge shipments or deliveries, I guess you said you got seven in the third quarter from Jeffboat, right?

Yes, that is correct.

And you had another 10 30,000 in petrochemical. Who did those come from?

Those are Trinity. Trinity is the manufacturer.

So Trinity on those. And then who do you expect to get the -- you're going to have two deliveries I guess in the fourth and first quarter, correct?

We have an order that is completing at Jeffboat of 10,000 barrel barges, and that will be complete by the end of the year. And then the order in 2006 is Trinity?

We have got eight barges that are scheduled for delivery in November and December, and that is really what we have left this year.

That next 23 are Trinity. No, excuse me. Part of them are Trinity and part of them are West Co. Gulf Marine (ph), which is a Galveston-based shipyard.

And those will be scattered out over next year.

Those are the 23. How do those break down roughly?

How many in each?

Yes. (multiple speakers)

30,000 barrels.

Yes, eight in the West Gulf and the balance in the Trinity. (multiple speakers). Okay, excuse me, 10 in West Gulf and 13 in Trinity.

I see. Okay. That is good. And those are all 30,000, right?

That is correct.

And there is no 10 next year?

Not at this time.

Okay. And if there is an addition to your expectations, do you have options that you could order additional barges -- deliveries in '06?

Not I don't think in '06, but we do have options '07.

Okay. So any expansion in the deliveries or orders would not come before '07?

And the truth is, I'm not sure that there is an ability to build a tank barge other than one that is on order in '06. And it is going to have to be a non-traditional yard.

Okay. All right. That is very good. Thank you.

And then with regard to the Diesel Engine business, nice growth there. You mentioned, parts and service. Roughly what was -- parts and service rates were increased. Roughly how did that break down between sort of volume and price?

Yes. I'm not sure we can answer that with the information we have in front of us. (multiple speakers). We will try to answer that and put it in the Q.

Okay, that is good. Okay. And the seasonal jobs then those were kind of one time as though we were probably had -- we were more utilized in the diesel area than would normally be the case in the third quarter.

Yes, we had brisk utilization rates, but there is also pricing creeping in, which is great, because we have not had the ability to do that in a number of years.

All right. Well, listen, Joe, great quarter and thanks very much.

Gentlemen, at this time, there are no additional questions. Do you have any closing comments?

Yes, we do. This is Steve Holcomb. We do appreciate your interest in Kirby and for participating in our call. I will be available to answer additional questions or comments, and my direct dial number is 713-435-1135, and we wish you a good day.

Ladies and gentlemen, thank you very much for your participation in today's Kirby Corporation 2005 third-quarter earnings call. This concludes today's conference. You may now disconnect.