Kirby Corp (KEX) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Brian and I will be your conference operator today. At this time, I would like to welcome everyone to the Kirby Corporation 2005 fourth-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 session. (OPERATOR INSTRUCTIONS)

At this time, I would like to turn the conference over to Mr. Steve Holcomb, 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 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, www.kirbycorp.com in the Investor Relations sector under non-GAAP financial data.

Statements contained in this conference call with respect to the future are forward-looking statements. The 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.

Thank you, Steve. By almost every measure, Kirby had a remarkable year last year. The right fundamentals produced the right results and the fundamentals of our business are the best that we've seen in many, many years.

Frankly, the strength of 2005 even surprised us. We would not have, for example, predicted spot rates to continue to rise another 20% from where they were at the fourth quarter of 2004. And we certainly would not have predicted a $0.76 fourth quarter this year a year ago. Having lived through periods of unpleasant surprises in this business, it is nice to have some pleasant ones for change. Our business is reasonably predictable, but it is not always exact.

I thought I would start with the fourth quarter first. Our marine transportation demand remained strong throughout the quarter; no real weaknesses were noted in any of the markets that we serve. Operating conditions were favorable during the quarter. In fact, they were unusually good, which is part of the reason we had such a strong quarter.

Water levels through the system were generally at normal levels. We did experience some ice in the northern part of the system on the Illinois and Ohio Rivers during December, but the impact was minimal. Pricing continued to improve during the quarter. Contract renewals during the fourth quarter continued to renew at higher rates, in the 4 to 6% range.

During the fourth quarter, spot rates also continued to rise and spot prices remained above contract rates in most contracts. As I noted earlier, spot rates for the quarter were up about 20% year-over-year. Of course, fuel was also higher. The average price of fuel consumed during the quarter was $2.03, compared to $1.40 same period last year, increase of about 45%.

The Diesel Engine Service segment saw results continue to improve, strong service activity, good direct parts sales. We also increased our pricing last year -- or 2005 -- for both service and parts, and when combined with better labor utilization, positively impacted the operating margins in this business. We are very pleased with a progress of the Diesel Engine group in increasing their margins.

In January of 2006, Kirby did increase its ownership of Osprey Lines from 33% to 66%, when we exercised our option to purchase from Rick Couch his interest of 33%. Cooper/T. Smith retained their 1/3 ownership position.

We continue to be optimistic with respect to the long-term prospects of Osprey. As I have said before, this is a long-term play which will provide critically needed alternative transportation to rail and truck. I caution you, however, not to look at this to have a material impact on Kirby for at least three to five years.

We have also discontinued our Osprey offshore service in the Gulf of Mexico, which serviced the ports of New Orleans, Houston, and Tampa. We continue to believe that container transportation along the coast will work, but the equipment we were using to provide this service did not fit well with the demand. And service into Florida is principally a one-way service without a consistent backhaul, which makes it more challenging.

I will now turn the call over to Norman to talk more specifically about the financial results.

Thanks, Joe. As Joe said, fourth quarter earnings reflected continued strong transportation in Diesel Engine Services markets and favorable weather conditions. The strong fourth quarter transportation market was evidenced by a 5% increase in ton-mile volume, following the disruptions caused by the two hurricanes in the third quarter.

For the year, ton miles were down 1% from 2004 due to strong demand in the Intracoast Canal, which is associated with shorter and more frequent trips than in the river. The lower volumes were also impacted by the use of Kirby barges for storing customer products from time to time and also by the two hurricanes.

General corporate expenses for the fourth quarter were substantially higher than 2004, primarily due to higher incentive compensation expense resulting from record fourth-quarter and year earnings.

Fourth quarter interest expense was higher than the fourth quarter of 2004, as well as the previous quarter. During the 2005 fourth quarter, we incurred approximately $500,000 of interest expense associated with IRS audit adjustments on our 2002, 2003, and 2004 returns.

Kirby generated fourth-quarter EBITDA of $50.3 million, a 30% increase over the fourth quarter of last year. EBITDA for the full year was $181 million, a 22% increase.

Capital spending totaled $122 million for 2005, which included 65.8 million for new tank barges and towboats and 56.5 million primarily for upgrading our existing fleet. The capital spending total of 122.3 million exceeded our guidance, which 115 to 120, because of a $3.2 million progress payment on a construction contract for four new 2100-horsepower towboats which will be delivered in 2006 and 2007. Berdon will update you on our ongoing fleet capital construction programs.

Total debt as of December 31 was 200 million, down 18.7 million from December 31, 2004, and our debt-to-capitalization ratio was 27.1% at year end, down from 33.4 at the end of last year. Our average cost of debt during 2005 was 5.9%, and as I've mentioned before, 75% of our outstanding debt remains hedged against interest rate fluctuations with interest rate swaps.

As of December 31, we had $15.7 million of cash invested in short-term investments and we had no debt outstanding under our $150 million bank revolving credit facility.

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

Good morning. Our 2005 replacement construction program consisted of 10 30,000-barrel capacity tank barges for use in the petrochemical and refined products markets and 7 black oil tank barges for use in the black oil products market. The total construction price was 37 million. We have taken delivery of the 7 black oil barges and 9 of the 10 clean barges. Delivery of the final clean barge will be in the 2006 first quarter.

Our 2005 construction program also included 20 10,000-barrel capacity barges and 1 30,000-barrel specialty barge, adding 230,000 barrels of additional capacity. The total construction price for these was 28 million. We took delivery of 8 of the 10,000-barrel barges in the third quarter of last year and 12 in the fourth quarter. 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 to steel price fluctuations. Deliveries of the 23 barges are scheduled throughout 2006, with the final barge scheduled for delivery in January 2007.

In December, we signed a contract for the construction of four 2100-horsepower towboats, primarily for use on the Mississippi River at a total cost of approximately 13 million, of which 3.2 million was paid in December, and included in our 2005 capital expenditures. One towboat is scheduled to be placed in service in September 2006, one in November 2006, and the remaining two in the 2007 first quarter. This is the first time in many years that Kirby has constructed new towboats.

In June 2005, we purchased from American Commercial Lines their 10 black-oil barges for $7 million. Five of the barges were placed into service. The remaining five have been out of service since the acquisition, and we now anticipate major refurbishment of these five barges during 2006.

I will now turn the call back to Joe.

Thank you, Berdon. Yesterday afternoon, we announced our 2006 first-quarter guidance of $0.64 to $0.70 per share, forecasting a 23 to 35% improvement over our 2005 first-quarter earnings, depending on where you are in the range. The earnings in the first quarter of 2005 were $0.52 a share.

First quarter is historically the most difficult quarter because of weather. January weather conditions along the Gulf Coast, as well in the Midwest, were unusually mild and water levels, at least at this time on the river system, are fine. However, we still have two months to go and weather conditions can deteriorate very quickly.

For the 2006 year, our earnings per share guidance is $2.95 to $2.15 per share, a 10 to 18% improvement, again depending on where you are in the range or where we will be in the range. This is compared to the $2.67 we earned for 2005.

Our 2006 guidance range includes an estimated $0.05 per share of expense from the adoption effective January 1 this year of the fair value method of accounting for stock-based compensation, for stock options awarded to employees and directors.

Today, the business fundamentals in the liquid barge industry remain very strong. Capacity additions to the tank barge industry are limited and the economy remains robust. The industry tank barge fleet continues to get older -- almost one-third of it is 30 years or older -- and significant replacement building will need to occur in the future.

Bottom line, this is a good time to be in this business. We think our future continues to look very good, and we are excited about the long-term prospects of our business.

Operator, we are now ready to go ahead and open the call up for questions.

(OPERATOR INSTRUCTIONS) John Barnes, BB&T Capital Markets.

Let's see. On the parts business, the Marine Services, you got much better margins there than I was looking for. I know you had been steadily improving them, I guess. And I'm talking Diesel Engine Services -- I'm sorry.

Can you just talk a little bit about where you think the margins can go, or are we beginning to top out getting into this 10% range? Or do you think you can get significantly higher than that as we look out to '06?

John, we think that this should be a mid-teens margin business, and we have been saying that for a while. The markets that we serve are all strong. There are labor constraints. We think utilization and some price increases will get us there. Now, will we get there in 2006? I don't know. But we are up -- how many basis points? Almost -- well, 200 basis points year-over-year, and the average margin is 11.7%.

Can we get another 200 basis points? Hard to say, but I think the margins will continue to move up.

Okay. That was a great rundown of your CapEx and your fleet construction program. Is there anything else pending that you're getting ready to sign or you gave a little bit of CapEx guidance in here. What else should we be looking for outside of what you've got left to take delivery of? Is there another big slug of 20 barges you're looking at in the back half of this year ordering, and are you starting to think about '07 and '08 deliveries?

Well, we are thinking about '07 and '08 because you can't build another barge in '06. The shipyards are booked. Maybe you can find somewhere in the country to build one or two, but certainly, the traditional shipyards can't build any more barges.

Okay. Do you foresee any more purchases of smaller fleets, whether it be industrial fleets or maybe people who just don't have the capital to redeploy in this business as their fleets age?

We continue to think that the outlook for acquisition is positive. We are cautious with respect to what we're going to pay. You do want to make capital mistakes. But we think there are opportunities out there which we are pursuing and hopefully in 2006 we will see some of them.

Okay, and last question. I have never asked you guys this much and I don't know why. But in looking at your business, I'm as bullish on barges going into '06 and '07 as anybody. I think you guys are set up perfectly and things still look very strong to me.

Is there anything -- what worries you, and most importantly, every other industry I follow is suffering from some form of labor shortage. Are you in a similar situation? Are you worried at all about labor shortages going forward? Are you worried about attrition taking its toll on your ability to grow the top line?

Well, the labor issue is a concern. Our recruiting and training capabilities, we think, position us well to address the labor issue. But clearly, the industry is challenged both from a shipyard capacity constraint as well as labor constraints. And the labor constraints not only are afloat labor constraints, but they are also shipyard labor constraints. That type of labor is very challenging at this point.

Now, we are addressing it through our recruiting and training effort, but we are also making sure that we are maintaining compensation that is competitive. And I think that you will see -- again, we have said this for the last couple years -- afloat labor certainly increase at rates that are above the inflation rate going forward.

(multiple speakers) wages for them? Wages for them increasing above inflation?

Right.

All right.

The other concern is the economy. We are going to be a reflection in some degree of the economy. But right now it looks pretty good and our customers are pretty bullish on 2006. Dow Chemical just came out with their earnings and talked a little bit about 2006. Dow is a pretty good indicator of the U.S. chemical business because they are both in the commodity and specialty chemical business. And they are also a significant customer of ours, so we feel pretty good about '06 and '07.

Great quarter. Thanks for your time.

Jeff Fidacaro, Merrill Lynch.

I was wondering if you could just touch on the strength and the volumes in this quarter, and if you could give us any color on what was attributable to carryovers from the hurricanes in the third quarter, and then just break down the composition of your product mix going into 2006 -- sort of what is your outlook per product that is built into your forecast.

Okay. Well, we went into the Hurricane at very high utilization rates and really exited the Hurricane once the Gulf Intracoastal Canal opened up, again at high utilization rates. So it is hard to see what effect those storms had on our volumes. I think that it just continued to put pressure on the tank barge industry and continued to allow for rate pressure, particularly in the spot area.

As we look at 2006, the markets we are in are chemical, black oil, refined products, and fertilizer. We think that all those markets, with the possible exception of fertilizer, will be as strong if not stronger in '06 than '05.

The reason I am hesitant with respect to fertilizer is there was a lot of fertilizer imported at the end of '05 and inventories are pretty high. So depending on how aggressively the farmers use it will dictate how that business will go.

Now having said that, what I am talking about is the nitrogen liquid fertilizer, which is only 2 to 3% of what we do, so it is a fairly de minimis part of what we do.

So I think 2006 is going to be a strong year. There are chemical companies that are suggesting that it is going to be stronger than 2005. Does that answer your full question, Jeff?

It does. The question I think after this to Joe is how does this translate into the price increases? We saw the spot market up 20%. You're saying the contracts are up 4 to 6%. Also, could you remind us, is the split at 70% contract, 30% spot still and what rolls over into 2006?

I think it will roll over at that level. It is possible that the business from our contract customers is going to be so strong that you may see them absorb slightly more spot capacity than they did in 2005. We'll see that -- we are watching that pretty closely. But as we go into 2006, it's about 30% spot, 70% contract.

Do you see into your first quarter '06, you said the contract pricing of 04 to 6%. Can we see some upside to that or is it typically one-third rolls off each year?

We're looking in that range. The wild card is going to be spot pricing. At the beginning of 2005, we were asked about spot pricing and said that I didn't expect it to maintain the same levels of increases in 2005 that it did in 2004. In fact, it did. It was up a little over 20% 2004; it was up about the same in 2005.

I would expect that spot price is going to level off this year, that we are going to see spot prices not rise at that rate. Time will tell, but I do think that at the end of this year, we'll have spot pricing that will be better than it is now, but not at the 20% level.

Great. Thank you, gentlemen.

Magnus Fyhr, Jefferies & Company.

Congratulations to a great quarter. I had some follow-up questions on the margins, especially on the Diesel Engine. Margins have improved very nicely in 2005, but was there anything in the fourth quarter there? It looked like margins dipped a little bit from the average what they've been running in first through the third quarter.

Magnus, if you go back and look at the history of that business, the fourth quarter is always a little slower. And it is the timing of the maintenance. When you get into the holiday seasons, their customers prefer not to do maintenance. So they will postpone it typically to after the holidays. So you always see margins dip a little bit in the fourth quarter.

Then on the labor issue, you're kind of in the driver's seat in ordering new barges. How is the competition there? Do we see other competitors starting to order more of these barges or are there constraints there that would have a positive impact on new supply coming on the market?

That's a good question. We think that you can build about 100 tank barges a year with the current capacity out there, when, at the same time, you're building [black] cargo barges. So there are some capacity constraints. 100 barges is not a lot of equipment. We are going to build 23 of them.

And you don't see that changing?

I don't. We will watch that, of course. Barge prices could get to the point where new capacity will come on-stream. It's not going to be as efficient as the current capacity is, because the current capacity is, in many respects, very automated. But capitalism works, and you can force barge prices up to the point where nontraditional barge builders will look at the opportunity and they pursue it.

We are not hearing any of that right now. The only new capacity to come online is, in fact, an old shipyard, Hillman, that was closed, bought by Trinity and closed, and then I think sold. And they're coming back on-stream to build dry cargo barges.

Do you see in your inquiries the term changing much as far as pricing or delivery time on the new barges?

Well, the prices are going up and delivery times are being forced out. 2006 capacity is booked. 2007 -- this is a better question to ask ACL, but I think that [Geoff Bode] is saying that they are booked for 2007. And Trinity is partially booked for 2007. Again, those are questions that are better asked to them, when they talk about their earnings. But our sense is that shipyard capacity is booking out 18 to 24 months.

Very good. One final question, if I may. On the guidance for 2006, do you care to elaborate maybe on what kind of margin you assume there for each segment or --?

We have not done that historically, so we will let you determine what it is in.

I figured I'd try. Thanks.

David Yuschak, Sanders Morris Harris.

Congratulations, gentlemen. I'm beginning to think you're running those towboats at 14 miles an hour instead of 7 with the kind of numbers you are putting up.

First of all, I think in your guidance for the year, when you take a look at your strength in ton miles in the fourth quarter compared to your entire year, is that suggesting that we're just getting a nice rollover effect on the kind of momentum that you achieved here late in the third quarter into the fourth quarter, that there's just a continuation of that kind of trend? Because it would certainly suggest that you finished the year with ton miles on a pretty strong uptick.

David, most of that is just the geographic mix of our business. We did more river business than canal business. That is what is driving ton miles. Ton miles, as everybody has been looking at them for the last two or three years, are not as perfect an indicator as I think you would like to have them. We need to give some more thought to how we present that that's going to be a little more useful to you.

We were doing a lot of canal business in the early part of the year, and then of course the hurricanes occurred, which again dampened ton miles. Then in the fourth quarter, we had more river business that drove the ton miles up. It is hard to look at them and draw the conclusion that we had hoped you could.

Okay. So what you're kind of saying is don't put a lot of attention to that thing, because at any point in time, depending on your capacity, you'd be preferring to be in the Canal anyway compared to being in the river, just because you get a better margin there.

We are very efficient in the Canal, more efficient than the river. But the river business can be excellent also, and we are seeing some dynamics in that business that are very positive. Rates are much stronger today than they were at least two years ago.

So you're kind of suggesting that in order to get the traffic off of the Canal, where you do have a nice profit and very efficient, prices are going up for the river just to get stuff further up (multiple speakers) the country, then.

We have a customer base whose requirements will change. They will have more river business, and to accommodate them, we will put equipment out there. The unique thing about Kirby is its great flexibility. We have the ability to service customer requirements regardless of where it is very efficiently. And we can take equipment and we can move it to the river to service a requirement and we can bring back and put it in the Canal. We have the ability to have an express service put a boat on a barge or several barges, or we can put it in our line-haul service and tramp it to the destination. So there's a lot of flexibility in this system.

Let's do kind of a compare and contrast, because a few years ago, your upriver business was strong while you were kind of struggling to get that Canal business work because of being inefficient there. What is happening now? Is there some further strength developing for upriver demand that maybe was not there a couple years ago when you were having some pretty strong river growth?

Well, what is going to drive the significant ton miles in the river is the movement of black oil. And some of that is more a function of refinery runs and outages in the Midwest, as well as how 6 oil compares on a BTU basis with natural gas. And I would caution you to read too much into that.

Okay. so it is just a matter of at any point in time there could be some imbalance one way or the other. It's just a matter of having, like you said, the flexibility to make the adjustments and take advantage of that.

Right.

As far as the products are concerned, is there anything that is kind of standing out as far as strength?

I don't think so.

As far as your guidance is concerned, are you seeing -- is it just kind of the same old as far as what you have seen so far, as far as the product mix -- nothing really stands out either? It is good strength across all products?

Yes, as qualified with -- as I answered the question earlier. Nitrogen- based fertilizer, particularly in liquid form, may early on not be as strong as they were in 2005. But we are really not talking about significant volume. It is 2 to 3% of what we do.

One question on Osprey then too, with the ownership up to two-thirds. Could you give us an idea of where you may be spending to build the infrastructure there to help facilitate the further adoption of cargo containers on the waterway?

We're going to focus on our inland system and building volume on the routes that we currently service. And when we're comfortable that we have the volume, then we will look to continue to expand that service. We've talked before about where it is. It is east-west on the Canal, principally between New Orleans and Houston; north-south on the river, Memphis to New Orleans and to Chicago, and occasionally we will make trips in between.

Now will you need to do anymore on land infrastructure spending in 2006 to (multiple speakers)?

We are developing a terminal at Cedar Bayou, which will service the large warehouse facilities and packaging plants on the east side of Houston. And we will look at enhancing some of our other operations, but probably the most significant thing that we're doing now is that Cedar Bayou facility.

As far as the previous owner being out of there, does that mean that you brought some newer management in there, since he was one of the founders of it?

Yes, when Kirby decided to go ahead and step up its ownership position, Rick is very much an entrepreneur and a visionary. He sees things that are way out there in the future. He wanted to go ahead and pursue his other visions. And we thought that the best strategy for Osprey was to focus on developing the inland infrastructure.

At the same time, we explored these other opportunities. We are continuing to work on marine highways, which is principally an East Coast opportunity. But we parted as friends and we think that Osprey is in great shape. The management team that we have down there is competent, eager, and aggressive. So I think we're in a great spot.

Well, just judging from what you have done with your business from the Marine Transportation, I'm sure you have that in good hands and it's going to be in good shape a couple years from now. Take care.

Natasha Boyden, Cantor Fitzgerald.

Joe, I just wanted to follow up on the fertilizer issue. I know it's a fairly small part of your business. But we have been -- or I have been hearing a lot out of the dry dock sector that grain exports may go down because of the bird flu fears in Asia. Obviously, one would think that that might have an impact of fertilizers in the Midwest. Are you seeing that at all, or does it not have an impact at all? Has it been an issue for you?

Yes, the truth is I don't know. It might. I had not heard the grain concern.

It kind of makes sense because of all the culling going on with the poultry. And who knows if it is actually going to be as serious as the media seems to make it out to be.

I don't think that a lot of that grain goes to feed, though. I think it is human consumption. So I would not think that that would have a significant impact on the farm economy. I think what we are hearing generally is that they think that 2006 is going to be pretty good.

Could be a good year, okay. Just moving onto shipyard capacity, just a follow-up question. It seems that a lot of the shipyards are also full with repairs. And I have heard that there was a potential for some new build delays. Is that a potential for you or you've not heard anything about that?

Generally speaking, the shipyards that build new barges and boats are different than the ones that do repair. The repair business is brisk, but I don't think that that is going to be the constraint on new capacity. It is going to be that the shipyards are full, and there are more orders that they can accommodate.

Okay, great. Just one last question. We've been seeing a fair amount of insider sales over the last couple of months. I know a lot of them have been from Berdon and we know about his program, but there have been some others. I was wondering if you could just comment on those.

Sure. They are mostly around stock options. As employees exercise stock options, they sell stock to pay for the option to pay the taxes. That has included me. I have had some sales. But my position in Kirby continues to grow and you'll from the proxy statement that the amount of ownership continues to grow.

Berdon's sales are program sales that he has been very upfront with respect to his strategy, and he is going to sell down to 5%, and I think he is very comfortable there. But at one point he owned up to 18%, which was most of his net worth, and he is trying to diversify. But he is still a very, very significant shareholder of Kirby.

Okay, great. That's very helpful. Thank you very much.

[Bill Stewart], [Kittiwake] Investing.

congratulations on a very, very strong quarter. In view of your marine highway comments it implies that you plan to expand your traditional geographical operating area. With labor constraints and barge building constraints, would that be done through acquisition?

Well, marine highways is a concept that we have talked about only because we wanted to put it in the right perspective. It is a very, very small investment that we're making to explore the opportunity of moving containers along the East Coast to relieve the congestion that is seen both in the rail system and in the highway system.

What we are doing is continuing to test the market. If we get comfortable that there is a market there, then we will invest some money in a design. And if the capital that we're going to have to invest we think can be invested and recovered at returns that are acceptable to us, then we will go forward with it. But we're still a ways away from that.

Thanks. Great job.

Chaz Jones, Morgan Keegan.

One of the questions I had was in regards to the towboats. I assume those are additions to the fleet, but I was not clear. And given that we've spent so much time the last several years talking about tank barge capacity, I was just curious if there are any shortages of towboats out there across the industry and is that making it more difficult for you guys to charter towboat capacity?

That's a good question and also perceptive, because the towboat utilization is at very high levels and it is more difficult to not only charter vessels, but also to build them. We're going to build four this year, but if we wanted to build more, I'm not sure we could do that. So there are constraints in power, constraints that, frankly, we have not seen in a very long time.

It's just another area that there is capacity constraint across the industry, regardless of if you could get a barge built, you may still have problems with power.

Yes, power and then crewing. I don't want to underestimate the challenges of crewing it. So there are a number of constraints -- constraint on building barges, constraints on building power and finding power and constraints on labor.

Then Joe, could you maybe talk a little bit about Kirby's initiatives to push farther, I think as you term it, up the dock with its customer base? What type of services are you performing and is it a large percentage of your customers?

Well, it is getting bigger, and we are very happy with the progress of that effort. Our customers are continuing to find what they do well and what they can have others do for them. And one of the areas that they all have looked at is the management of the dock, terminals and the services that docks and terminals perform, such as loading trucks and railcars.

And we've identified that as an opportunity not only to make money, but also an opportunity to continue to integrate with our customers, provide a service that is more integrated and complementary to what we do.

We've recently invested some money building a sophisticated rail and truck simulation training facility, where we are able to train operators outside the customers' facilities on how to safely and efficiently load and discharge truck and railcars. We also think that our customers will use that facility, because I am not sure there is another one like it, frankly, on the Gulf Coast.

So that is an area that we are expanding. How much it is going to grow -- let's see -- how many people do we have in it now? 100 in the facility part of the business, and that is up probably 100% from 2004; so it is an area that continues to grow.

Now the other thing that is nice about that is that you have a number of shore-based tankermen in that business. So as we train tankermen and they go out into the fleet, what has happened before is that they say, gosh, I like the business but I don't like being away from home. We now have a place to put them that we can accommodate them in our shore-based service.

And it also helps that we have a ready supply of labor if we do have a tankermen issue on any given boat, that we can go ahead and redeploy a shore-based tankerman to take care of a loading or a discharge.

Okay. I apologize if I missed this. Norman, did you give comments on the corporate expense line as to why that was up?

Primarily incentive compensation. We had record earnings in 2005. That was the primary driver.

Okay, great. I appreciate the time, guys.

Bob fetch, Lord Abbett.

In regards to the lead times for barges, when was the last time in your memory that we saw them out 18 to 24 months?

It was in the late '70s, early '80s.

How long did they remain that way?

Well, there were some market forces that were artificial that were driving that back then, and that are not in existence today.

Were they tax related?

They were tax related and they were also -- there was a regulation that was put in under the Carter administration to encourage the proliferation of refineries. And you had a small refinery bias that mandated that these refineries get a discount on crude oil. There were a lot of refineries that were built -- small refineries that were built along the water that took crude oil in by barge and products out by barge. They were not on pipelines.

And in 1980, when Reagan came into office, he eliminated that. So there was some immediate excess capacity that occurred. The period leading up to that, probably '76-'77 to 1980, you were at maximum capacity, shipyard capacity. And there actually was a trade going on selling shipyard slots, where speculators would come in and buy a slot and then hold onto it and then sell it a higher price to somebody else.

None of that is happening now. It is a much more rational market. There's less shipyard capacity, frankly. I think the demand for equipment is being driven by the economy, both -- at least from the liquid side, and on the dry side, by things that are happening in the U.S. agricultural business. More predictable -- I think there's going to be less volatility in it, less risk.

Age of the fleet.

Yes, and the other thing is -- that's a good point. That the fleet, at least the tank barge fleet, is continuing to mature. Almost one-third of it 30 years or older, and there is going to have to be a lot of replacement built.

Just to get a sense for the capacity then, if we can build 100 tank barges a year right now, how many were we able to produce then?

Oh, let's see -- I think it was -- Berdon is saying 2 to 300.

There was quite a few more yards open back at that time and they were able to really crank the barges out pretty fast, and that is when we got overbuilt, as referred to those government regulations.

Okay, great. In regards to the cost of construction, how much did the 30,000 specialty barge cost?

Let's see if we have somebody here that knows the answer to that. It was about $3.5 million. It was a phenol barge, which is a specialty barge, specialty cargo.

Right. Do the surcharges on the new barges, does that work in both directions or only on the upsides from here?

We adjust for -- you're talking about the steel price surcharge?

Right.

It will adjust both ways. Although the steel industry has gotten very clever about it. Steel does not seem to be fluctuating down as much as it is fluctuating up. But it will work both ways if steel goes down.

You won't buy the steel for them, right?

No, we don't. But we will prebuy some steel. We'll look at what -- let's say we've got in the next three months four barges that are going to come out with at least one shipyard. We will go ahead and pay for that steel now.

So just kind of roughly then, it looks like you've probably seen about a 25% increase in the barges that were delivered in '05 versus those you are contracting for next year. (multiple speakers) million?

No, it's not that much. Remember, in a tank barge, there's a lot of labor involved. In a dry cargo barge, the price for a dry cargo barge is going to be driven by steel more than the price of a tank barge because a tank barge is just more complicated to build and requires more man hours.

You mentioned you are at about 30% spot right now. Where were you entering last year?

About the same.

And in regards to the waste costs, what rate do you have them budgeted to increase at this year?

Do we want to --? I think for competitive purposes, we don't want to talk about that.

Okay. In regards to post-hurricane, would that be at the margin hindering or helping the volumes that you're shipping today?

I don't think hurt. The demand was still strong for the products. Inventories were depleted, and disruption causes -- issues in the distribution system, often you have to go further to get the product to satisfy the customer requirement, so it can create some more ton miles.

As I said, going into the hurricane, we were fully utilized and coming out we were fully utilized, so there was not a lot more capacity that you could throw at it. But I do think that it may put a little more pressure on spot rates for the fourth quarter.

Okay, and what level of depreciation did you have last year and expect for '06?

We had 57 million depreciation in '05 and '06, probably 61 to 63.

Okay. With that in your cap spending plan and your income projection, what kind of free cash do you look to generate this year?

We're not going to put free cash number out.

You can do the math, Bob.

Right. Nothing on the working capital side that would be meaningful?

We don't expect, I think, any significant changes there.

How about activity in the Diesel Engine business? Is there anything we should expect that may be somewhat unusual from the low, mid single digit growth in the revenues you've been generating?

The only change that will occur mid-2006 that you didn't see in 2005 is that we will be completing a large project that we are doing for a Spanish utility. And that will affect revenue a little bit. But we think that the prospects for growth continue to be strong in that business. And really, it is he who has the labor pool that wins, and Kirby Engine Systems has a very strong labor pool. We think it is going to be a good business in '06.

Okay. You have been talking about the replacement market that is required. What percentage of your fleet would you expect that you will have to replace annually, say, for the next three to five years?

Well, in 2006, of the 23 barges that we are building, seven of them are replacement barges -- (indiscernible) have the 2007 numbers. But it is not overwhelming. It is somewhere between 7 and probably 15 barges.

Are additional or replaced?

You asked about how many barges do we have to replace. I'm just giving you kind of a range. Some years, it's going to be more, some years less.

And with the -- is there an advantage with the shipyards right now between folks like yourselves that have the larger share relative to the smaller mom and pops, in terms of either getting a delivery slot or in terms of the price that you're able to get?

No, not much.

And are the capital costs in new barges making it more likely a mom-and-pop would be willing to be consolidated?

Hard to say. The business is pretty strong now. Everybody is doing well. And I think the governing factor on acquisitions is making sure that when you make it, you're considering the future, which is very, very bright, but you don't want to overpay either.

Okay. In terms of your capital structure, are you likely to be repurchasing any shares in the next year or two?

We talk about that on a quarterly basis at the Board level, and I am not sure I can answer that. But I can tell you that it is certainly considered every quarter.

And any likely change in your dividend policy?

We continue to think that we can invest the cash that this Company generates at levels that are going to be acceptable to our investors. So at this point no, but again, the Board has a discussion about that on a quarterly basis.

Okay, great. I look forward to this year.

Alan Mitrani, [Sylvan Lake Asset Management].

I am a new shareholder, so I'm not as familiar, but thanks for all the review on the conference call. I just want to echo the sentiments of the previous caller who was asking questions regarding the capital structure. In running through your model and seeing what your expectations are, if we are not going to benefit from really the huge increase in spot market prices as significantly in the model, given that 70% is contracted, it strikes me that the Company has more cash than they need probably for the foreseeable future, unless a monstrous investment comes in capital spending or a big acquisition.

Can you just give me a little more detail as to the dividend and share repurchase history of the Company and maybe what the governing factors are as to why some of it isn't being returned?

Sure. This company bought a third of its shares in between 1995 and 2000. We like that. We've been very aggressive in doing it. The reason we have not considered it is that we continue to think that our shareholders are best served by investing in this franchise, and we think there are opportunities to do so.

Having said that, as I mentioned to Bob, we look at this on a quarter-to-quarter basis. We run the business for our shareholders and if we think that for a host of reasons, opportunities to reinvest cash aren't there, we will look at ways that we can return it to shareholders, either through dividends or share repurchases. But we have bought over 10 million shares of our shares back since I have been the CEO of Kirby.

That's very helpful. Thank you. I appreciate that. Also, is there a reason why the Chairman is executing a 10b5-1 plan rather than doing a more orderly sale through an offering where you can get around and see people on the street and put it into hands of longer-term investors rather than dribbling it out over time?

I have been told the 10b5-1 is a better way to do it. And I'm not in any hurry to do it, so that is why I'm doing it that way.

Okay, fair enough. Thanks. Great numbers.

We appreciate your interest --

Take one more question and then end the call.

Okay. One more question and then we will end the call, please.

And we are available through the day. Steve is available to answer any questions, and if he can't answer it, Norman, Berdon, and I will be available too. One more question, please.

Alex Brand, Stephens.

It's Kevin Sterling calling in for Alex. He's out traveling. Great quarter. I am going to make it real brief for you because you have had a lot of questions and most of mine have been answered -- and I may have missed this. How much did you make in the Osprey joint venture this quarter?

We didn't talk about that, IN the reason we don't is that we still have a partner in that business. But the effect on Kirby is pretty de minimis right now.

Okay. Down the road, do you anticipate full ownership of Osprey or do you anticipate maintaining the now 66% position for the next couple years?

Yes, Cooper/T. Smith adds a lot of value to Osprey. If they are not the largest stevedore in the U.S., they are close to it. I think They are the largest. They see opportunities that we don't. We think that their ownership interest, as well as their expertise, is very complementary to this business. So we're very glad to have them in and appreciative that they want to stay in.

Last question. We talked about the hurricane carryover from Q3 into Q4. Are you seeing hurricane carryover from Q4 into the first quarter so far?

It's hard to say, to be truthful about it, because utilization rates are just so strong. Is that hurricane-related or is it just general business-related? My guess is that most of it would have worked its way through. The hurricanes really were over early in the fourth quarter, and we're now towards the end of January. So I would think it would have worked itself through.

Okay, great. Thanks for your time. Great quarter.

We appreciate your interest in Kirby Corporation and participating in our call. As Joe said, I am available for additional comments or additional questions that you may have. My direct dial number is 713-435-1135, and we wish you a good day.

Ladies and gentlemen, this does conclude Kirby Corporation's 2005 fourth-quarter earnings conference call. You may now disconnect.