Kirby Corp (KEX) 2007 Q4 法說會逐字稿

Good morning and welcome to the Kirby Corporation 2007 fourth-quarter and year-end earnings conference call. My name is Amber and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. (OPERATOR INSTRUCTIONS). At this time, I would look to turn the show over to Mr. Holcomb.

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 kirbycorp.com in the Investor Relations section under Non-GAAP Financial Data. Statements contained in this press release with respect -- 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, 2006 filed with the Securities and Exchange Commission. I will now turn the call over to Joe Pyne.

Thank you, Steve and good morning. The 2007 fourth quarter was the 16th consecutive quarter that our earnings exceeded the same quarter of the previous year and the fourth here in a row that we've reported record financial results. Late yesterday, we reported fourth-quarter earnings of 64% -- $0.64 a share, a 45% increase compared to the $0.44 per share reported for the 2006 fourth quarter. And for the year, our 2007 earnings were $2.29 a share. That is a 28% increase compared to the $1.79 per share number for 2006.

During the fourth quarter, the 2007 fourth quarter, Marine Transportation demand remained strong in all of our four transportation markets. Our tank barge capacity remained essentially fully utilized and we continued to experience a favorable pricing environment. We did experience more weather delays compared to the third quarter. Weather delays in the fourth quarter were 60% more than the third quarter of '07 as weather conditions deteriorated sharply along the Gulf Coast, as well as the Midwest.

Contracts renewed during the fourth quarter with increases in the 8% to 10% range over the same period of '06 and spot rates were 12% to 13% over the 2006 fourth-quarter rates and remain above contract rates. Rates in 2007 essentially did what we thought they would do as we forecasted at the beginning of 2007.

Volumes with our -- from our -- term contract customers continued to remain strong. During the last half of 2007, 80% of our Marine Transportation revenues were from term contract customers and 20% from customers in the spot market. This compares to 75/25 -- 75% term contract, 25% spot -- during the first six months of 2007 and for 2006, it was 70% contract, 30% spot.

During the fourth quarter, we operated an average of 258 boats, three more than the third quarter and 15 more than the fourth quarter of '06. During 2007, we took delivery of four new towboats, purchased three used towboats and chartered the balance. Charter horsepower availability continues to improve. Growing our towboats still is a challenge, but we have made some significant progress in the crewing area during 2007, adding 44 pilots to our system. Our goal in 2008 is to add another 70 to 75 pilots and during the month of January, we are on track to achieve that.

Our Marine Transportation segment operating margins improved to 21.8% for the fourth quarter, up from the 19% margin same period last year, but slightly lower than the 22.9% experienced in the third quarter. That can be explained by weather delays, the lower margins fourth quarter versus third quarter.

Continued strong demand, including strong demand in the fertilizer business, which is very incremental to our business, favorable contract and spot rate increases and operating efficiencies from the additional horsepower all contributed to the higher margins when you compare the fourth quarter this year to the fourth quarter last year.

In our Diesel Engine Service segment, fourth-quarter results reflected again strong demand for services and parts in the majority of the markets that we service. Some seasonal and expected softness related to our high-speed engine business. The fourth-quarter results do reflect the accretive acquisition of Saunders Engine and Equipment Company that we bought in July of '07.

Our Diesel Engine Service fourth-quarter operating margins were up a little bit, 15.6% compared with the 13.4% for the fourth quarter of '06 and they are also slightly above the 15.5% margins that we experienced in the third quarter. The higher margins reflect continued strong markets, strong labor utilization, service rate and parts -- pricing increases and of course, the acquisitions that we completed in 2006 and 2007.

Now before turning the call over to Norman, I do want to comment on some of the recent volatility in Kirby's stock price. Sometimes we see the market -- the equity markets not particularly caring how they group Kirby with other parts of the transportation industry. Recently, we observed that our stock appeared to be trading on negative news about the ocean shipping markets of both the liquid and dry bulk market. Our stock appeared to be caught up in some general concerns about overcapacity in these markets and of course, concerns about the US economy.

Over the past several weeks, we also have received several calls from investors about the potential of new manufacturing capacity coming on for the building of domestic US tank barges. While the ocean shipping liquid and dry bulk markets appear to be facing some substantial increases in worldwide capacity, the domestic tank barge industry has enjoyed a relative stable supply with only modest capacity additions, which have been easily absorbed.

Now having made this point, prices to build new tank barges have risen substantially over the past several years and several small shipyards have announced that they intend to build tank barges. Several Kirby competitors have also announced that they intend to increase the size of their tank barge fleets.

Short to medium term, we believe the market will absorb the capacity, which the industry is adding. Long term, we must always be concerned about excess barge capacity and watch for signs of overbuilding. Offsetting this risk of overbuilding is the simple fact that the tank barge industry has an old fleet as one third of it is 30 years or older and much replacement building will need to occur in the future.

Kirby has always tried to run its business prudently with a significant portion of our equipment committed to contract. Today, approximately 80% of our business is under contract for a year or longer. I will come back at the end of the prepared remarks and talk about our projections or forecast for 2008 for both first quarter and the full year, but let me turn the call now over to Norman to talk about the financial results.

Thanks, Joe. Our fourth-quarter numbers continued to reflect strong Marine Transportation and Diesel Engine Services markets. Marine Transportation revenues increased 23% over the fourth quarter of 2006 on higher volumes and pricing and we reported a 21.8% operating margin in that segment.

Ton miles in the fourth quarter were 13% higher than the fourth quarter of 2006, primarily due to continued strong, refined products and agricultural chemicals movement on the Mississippi River, which involved longer distances and movements on the Intracoastal Canal. Our barrel capacity increased 1.7% above last year and remained essentially fully utilized during the fourth quarter. We also operated 15 more towboats than we did in the fourth quarter of last year. We experienced typical winter weather conditions in the fourth quarter with delay days increasing 60% over the previous quarter, but 5% less than the fourth quarter of 2006.

On the Diesel Engine Services side, the high-speed business represented $24 million out of the total $59 million of Diesel Engine Services revenues in the fourth quarter. The high-speed group, which was formed with four 2006 and 2007 acquisitions, which were Global Power Systems, Marine Engine Specialists, P&S Diesel Services and Saunders Engine and Equipment Company, with each acquisition immediately accretive to earnings.

Kirby generated $81 million of EBITDA in the fourth quarter, which was 35% over the fourth quarter of 2006. EBITDA margin was 26.2% compared to 23.7% in the 2006 fourth quarter. The Marine Transportation EBITDA margin was 29.5%, up from 26.9% a year ago and the Diesel Engine Services EBITDA margin was 17.6%, up from 15.1% in the 2006 fourth quarter.

Capital spending for the 2007 year totaled $164 million, including $68 million for new barge and towboat construction and $96 million, primarily for upgrades to our existing fleet. During 2007, we spent $67 million on acquisitions, including $13.3 million for the acquisition of Saunders in July. The other acquisitions were primarily for the purchase of tank barges that were previously leased or managed by Kirby with a goal of higher financial rewards from ownership versus leasing.

We lowered our debt to capitalization ratio from 32.9% at the end of last year to 27.9% at December 31, 2007. And our average cost of debt during the fourth quarter was 5.8% and for the 2007 year, 5.9%. Interest rate swaps and interest rate collar hedges approximately, 67% of our $297 million of outstanding debt as of the end of the year 2007.

And finally, this month, we purchased 80,500 shares of Kirby common stock at an average price of $39.45. I'll now turn the call over to Berdon.

Thank you, Norman. During 2007, we took delivery of 26 barges with a total capacity of 630,000 barrels, three 2100 horsepower and one 1800 horsepower towboat. The capital spending for the new equipment in 2007 was $68 million. The new tank barges were a combination of replacement barges for older barges retired from service, as well as new capacity.

As of December 31, 2007, our fleet capacity totaled 17.3 million barrels, an increase of 300,000 barrels or a 1.7% increase compared with the 17 million barrels we operated at the end of 2006. For 2008, we anticipate delivery of 26 barges with a capacity of 570,000 barrels and five 1800 horsepower towboats. The cost of the new equipment is $70 million. We expect the new capacity additions to increase our total fleet capacity in the 1% to 2% range after consideration of anticipated requirements. I will now turn the call back to Joe.

Thank you, Berdon. Kirby's business remains strong. We read the papers of course and are very aware of the negative news about the economy. We continue not to see any real weakness in the volumes we carry nor do we hear concerns expressed by our customers about their 2008 volumes. Certainly, some of the chemicals we carry are used by the housing and automobile industries. However, housing and automobiles represent much less of the total chemical volumes used in the United States than they did 20 to 30 years ago. It appears to us that any weakness in housing and automobiles is currently being offset by a strong export market. Today, all we know is what we see and what we are seeing is continued strong volumes and strong demand for tank barging services.

With this in mind, yesterday afternoon, we announced our 2008 first-quarter guidance of 57% to 62% -- excuse me -- $0.57 to $0.62 per share, a 24% to 35% improvement when compared with the $0.46 per share earned in the first quarter of 2007. Part of the improvement in the 2008 first-quarter outlook over last year is due to the increased availability of charter and owned towboats and the easing of crewing shortages.

The first quarter is historically our most difficult quarter because of weather. January 2008 has been a difficult month with more weather delays than we experienced last January. As for the weather impact for the quarter, we will have to wait and see what February and March have in store for us. But we have factored normal weather delays into our guidance.

For the 2008 year, our guidance is in a range of $2.55 to $2.70 per share, an 11% to 18% improvement when compared to our $2.29 per share results this year. For 2008, we are looking for continued demand for our services in both our business segments throughout the year. We think given the softness occurring in the US economy, it is prudent to forecast more modest rate increases and we are forecasting in the numbers that we just gave you mid-single-digit both contract and spot rate increases. We are also assuming lower GDP growth for 2008 than we experienced in 2007, but not a recession.

Operator, we will now open the conference call up for questions.

(OPERATOR INSTRUCTIONS). Lisa Dong, Westwood Management.

Lisa, your line is open.

Alex Brand, Stephens.

Thanks. Good morning, guys. Joe, I guess I want to follow up on some of the sort of macro issues you were talking about. I guess the first part of my question would be is some of your confidence in the growth, in spite of the economy, is that at all related to how you are seeing contract terms emerge? In other words, is capacity still tight enough that you are able to lock in some good contracts for maybe more than a year, so that is giving you some increased visibility?

Yes, yes it is. The supply and demand equation in the business is still strong. Note that our spot to contract mix has moved more towards contracts -- 80% now contracts a year or longer. The average length of our contracts are also stretched out a little bit. So we are really in pretty good shape going into this year.

Having said that, we are still forecasting, based on the conversations that we have had with our customer base, a positive rate environment.

Okay. Sounds like we're supposed to minimize our questions, so let me just follow up with one other if I could. You said that you felt like housing and autos was being offset by exports. Do you have any way to quantify sort of how much of your business is related to exports because I guess I wouldn't have thought that would have been too big of a part of your business in the past?

Well, the US chemical business historically exported 10% to 12% of their volume. Over the past several years, that has shrunk. I don't have the numbers in front of me, but due to the low dollar and strong global demand, that number has crept up a little bit. What is also happening, Alex, is the US industrial business is doing better and that is driven by exports. We are exporting things that we haven't exported in years just because the relative weakness of the dollar makes things that we make in the United States a lot more competitive on a worldwide basis.

That's helpful color. Thanks a lot, Joe.

Jonathan Chappell, JPMorgan.

Thank you. Good morning. First question is on the spending plans. You gave us guidance on the '08 of $150 million to $160 million. And I know it is probably too early to think about '09 already since we just got the '08 outlook, but that would be four years straight of $100 million plus in spending. Is this primarily fleet renewal? Is this trying to take advantage of what you see as capacity tightness in the industry and how can we look at the go-forward as far as maintaining these levels of spending? Because actually, from our estimates, if you don't keep spending $100 million plus, you could potentially be debt-free by the end of next year.

The first part of your question is yes. We don't forecast the 2009 CapEx, but we do -- we will talk about barges and towboats contracted for in 2009. Now that doesn't include some options that we haven't exercised yet and we are not going to comment whether we are going to exercise or not, but we are contracted to build 14 barges and six towboats in 2009.

Now with respect to being debt-free, it is kind of -- it is a good and bad problem, our strong cash flow. I think our cash flow in 2007 was --

We reduced debt by $15 million.

$15 million and what was total cash flow?

From operations?

But it -- we will get that number, but it is very strong. What we do with cash, our priorities are acquisitions, stock repurchases, paying down debt. We haven't considered a dividend and we are hopeful that the acquisition environment is, in fact, going to improve now that some of the -- I don't want to offend anybody -- but some of the faster money appears to have diminished, but your observation that the cash flow is very, very strong and that the debt continues to go down. Hopefully, we will be in a position to continue to grow the business through acquisition and where appropriate add capacity. We certainly intend to replace capacity that is retiring, but having too little debt won't be a problem.

Our cash flow from operations in 2007 was right around $235 million.

What was the actual cash at the end of the year? Can you give us that?

We don't keep the cash on our balance sheet. We --

De minimis.

Yes.

All right. Since I squeezed six questions into my first one, I'll stop at that.

Natasha Boyden, Cantor.

Thank you, operator. Good morning, gentlemen. [Just wondering if we could get] an idea on your operating margins on the Marine Transportation side was about 21.1% in '07. You have done a great job in bringing those up year-over-year. Can you give us an idea of whether or not we can expect those margins to continue to improve? I know you said that you think maybe things will slow down a little bit. What do you think you can -- can you keep them in that range given a slowdown over the next year or so?

We are certainly not forecasting any decline, Natasha. It is going to depend on what the economy does. Gosh, there are views all over the map on that, but we are not forecasting based on the rate assumptions that we have in our model a decline in margins.

Okay. So as you say, you can keep them there, but you think it will be a little tough to maybe improve them a little bit given where things stand at the moment or do you think you may be able to squeeze some more out of what you have got right now?

Well, you always hope you can squeeze some more. We'll just see.

Okay. And seeing as Jonathan, I think, hit on probably the most important question there. Just very briefly, can you give us maybe some update on some of the labor issues you have been facing in the past? I know you have talked about some crewing costs [issues] given some shortage in labor personnel has been a problem. Are you still seeing that?

Well, we think that starting midpoint last year, the crewing issues began to moderate. We think that they will continue to moderate in 2008. Now a lot of that has to do with our aggressive training program, but we don't expect to have the crew shortages this year that we had last year and hopefully, that will translate into some moderation with respect to crew costs too.

Okay, great. Well, thank you very much, gentlemen.

John Barnes, BB&T Capital Markets.

Hey, good morning, guys. Joe, a lot has been made about some of the investment tax credit legislation that is kind of working its way through the Congress as part of the stimulus package. As you look at some options like that, last time when they did bonus depreciation, did any of those type of incentives cause you to change your capital spending at all? Would you accelerate the purchase of maybe some of that '09 equipment into '08 or was it just too long a leadtime to really take advantage of?

John, I don't think there is capacity to move anything up '09 to '08. I think that the available capacity is pretty much booked. So I'm not -- I don't think it is going to be -- we will certainly get advantage -- get some tax advantages from the equipment that we are building, but I don't think it is going to cause much to be moved from one year to another.

Okay. All right. And then going and looking at the breakdown between the spot and the contract business, if I am not mistaken, I recall you saying a couple of quarters ago that you all wouldn't mind a little bit more spot business just to take advantage of the current rate environment. What do you see as the optimal split between contract and spot?

I think that depends on kind of your view of business levels. At this point, just given all the concerns that are out there, we are comfortable with a higher contract mix. If you asked us that question a year ago, we probably would have said that maybe a little more equipment in the spot market would allow us to take advantage of some additional things, but a lot has happened in the last year and being more prudent, having a little more prudent business model I think is appropriate.

All right. And then lastly, could you just talk a little bit about the current competitive environment? You have had a large competitor talk about moving more aggressively into your business. Given where rates are in the liquid market right now, that always tends to be an attractive -- attract it into the industry, maybe bring somebody that hasn't normally been there. Have you seen much in the way of new entrants or planned new entrants into the liquid market or do you feel like we are still several years away from anybody being a bigger player there?

Yes, certainly one company has said that they want to increase their tank barge market capacity. But there have been others that have been building all along and the business, thus far, has absorbed all that and we think short to medium term, it will continue to absorb it.

As I said in my opening remarks, you want to watch capacity. You are always concerned about it. Anybody that has been in this business certainly as long as Berdon and I have and have lived through the '80s remember the pain. Now the scenario that was in place to produce the overcapacity situation in the '80s does not exist today. There was artificial demand. There was artificial building. There was a much newer fleet. It was a much more difficult time than anything that we are seeing today.

Yes, I don't -- Kirby is coming off its fourth consecutive year of record earnings and I think that human nature has people kind of looking over the fence and saying, gosh, I would like to have some of that too. So you do hear talk about people entering the business. What I have said about that in previous calls is that you have got to do more than just talk and you have got to also do more than just show up with a bunch of barges. There is some infrastructure, power, people issues that are all part of the business and all need to be addressed.

Truthfully, there is, even with the new shipyards, there is only so much -- there are only so many barges you can build in a given year. That gives you a little comfort that there isn't going to be the kind of supply overhang that is developing in the ocean tank shipment and dry bulk ship markets.

Just along those lines, the manufacturing capacity that has come on appears to be in the smaller tank barges. Am I correct there? And so it is not really butting up on what you guys do? It tends to be a little bit smaller? Is that correct or --?

It's both, but there is more smaller barges being talked about being built than larger barges. Let me just kind of editorialize it a little bit. When you push the price of a tank barge up to where it is today, you enable people that couldn't build it at the lower prices to build. So you are seeing people or companies that would not be -- could not efficiently or profitably build a tank barge at price X now that it is price X plus some more can suddenly enter the market. And I think that is what is happening. Kind of joke around here, we say capitalism works. When there is profits to be made, people look to make them.

Very good.

I also think, John, that if the prices of barges go down, a lot of that capacity will disappear.

Okay. Very good. Thanks for your time, guys.

Ken Hoexter, Merrill Lynch.

Great, good morning. I just want to understand something you had said earlier, Joe. On the tows, you had said that the charter availability has increased nicely despite the strong demand. Can you kind of maybe delve into that a little bit about how that is possible that you are seeing increased capacity?

Yes, it is the towboats that we charter. We charter about a third of the power we use to move our barges. And really from 2000 -- well, the summer of 2005 through probably early 2007, the towboat market was very tight. We believe that the tightness was caused by rebuilding efforts that occurred along the Gulf Coast as a result of Katrina and Rita, both with respect to the infrastructure, as well as the oil service business. And some of that has -- some of that pressure has come off, as well as additional towboats have been added and beginning kind of mid-2007, we saw some of the pressure come off that market and where we were saying we were 10 boats, 8 to 10, 8 to 12 boats short the beginning of 2007 to 2006, today, we are pretty much in balance. So the availability of power is much better today than it was a year ago and that makes us more efficient because we had some delays that were caused by the fact that we had barges to move and no towboat to move them.

That's helpful. And then just coming back to the margin side, as you get into the low 20s, can you talk about what you see? Do you see yourself getting near peak margins on the Marine side if you get back into that mid 20s that you've hit before? Do you think any structural changes keep you limited there or can you surpass those levels? Can you kind of give your thoughts on that?

Help me think this through, but I think that what happened structurally is that another mode of transportation would begin to compete with you and we don't see that happening. I think what potentially will happen is either volumes will drop and you will create some excess capacity that will limit rate increases or new capacity will come on and do the same thing because pricing has everything to do with utilization. Spot pricing at least has everything to do with utilization and it is going to correlate very closely with the overall industry utilization rate.

Okay. And then -- you said -- you mentioned the strength of chemicals. Is there anything that is kind of leading the charge as far as what is showing the fastest or highest increase in demand?

No, I think chemicals generally are still strong. Where you see -- maybe a better way to come at your question is that where you see any weakness at all -- it is typically around chemicals that go into the housing business, but the market is strong enough to absorb any capacity that might be affected there to other areas.

So no one commodity is stronger then?

I don't think so. Your chemical analyst may be able to find one better than wee can, but we are not seeing it.

My last one is just a quick number question. Your length of haul, is that something you can talk to? It sounds like it increased because of the movement up the Mississippi. Is there a number you have on that?

Yes, you see the ton miles and we -- the river business is longer voyages, less port time and produces more ton miles, but we don't publish anything that goes further than that, Ken.

Great. Thanks for the time.

Chaz Jones, Morgan Keegan.

Yes, hey, good morning, guys. I know you have commented in the past about you prefer to keep your debt-to-cap levels in that kind of 40% range and certainly, Joe, I think you made the comment that perhaps valuations are becoming a little more attractive on the acquisition front as maybe some fast money has left the space. Is there one market that maybe you could comment on that perhaps is more conducive to acquisitions here, whether it is Marine Transportation or the Diesel Engine Services segment?

I am not sure we can answer that question because -- Chaz, we have always been kind of an opportunistic buyer of assets. It is hard to predict how they come at you because of the host of reasons that drive people to sell. But I think that certainly a little less -- let me -- how do I say this -- a little less velocity is helpful to getting the acquisition market back to levels that you can actually have a discussion with somebody about buying. 2007 was a tough year to talk to an operator about selling their fleet.

And then the follow-up I had, maybe just at [DFL] as we look to 2008, any significant changes in what you guys are expecting in terms of the utilization of those vessels there or is there any abnormality in maintenance in 2008?

Yes, that's a good question. We probably should've addressed that in our text. We are not forecasting any maintenance, any real maintenance in 2008, so we should have stronger earnings in Dixie Fuels than in 2007. It gets buried in the transportation numbers because we don't separate it.

Okay, great. That's all I had, guys.

[Jimmy Gibert], Weiss Fogle LLC.

It is Jimmy Gibert.

We figured that was you.

You gathered that much. Guys, I wanted to ask you -- we keep hearing here about expansion of domestic petrochemical refineries in the US and how does this new capacity coming on affect you? When do you think some of that will hit? Do you have any numbers on it? Have you all done any internal projections on that?

Yes, well, probably the more publicized expansions are the refined products expansion where you have Marathon, Motiva, Valero and others talking about expanding. I know that the Marathon expansion is underway and we know from just discussions with -- in another part of our business that the others are talking about how they stage the equipment to do the expansions. But I don't know if the others have been formally started yet.

I think that we forecasted slightly less than two million barrels a day of additional capacity that was projected to come online and it's certainly -- a lot of that will go by pipeline, but a lot of it will go by barging. It is too early to suggest to you how much additional barging demand that will create. I think it would be more of a guess today than a process that would deliver a number that you could use.

Concerning a chemical expansion segment, expansions are happening all the time. They are just not happening at new sites. They are happening within the fence line so to speak. There has been some new chemical capacity added over in the Baton Rouge area. There is some other capacity being talked about in the Houston area. But all totaled, I think it is positive. It says that the manufacturers continue to believe the domestic market is going to grow and it needs additional products to support that growth.

Right. And also Joe, if you could talk a little bit about the relationship between inland tank barge and the rail. We hear about rail margins increasing. With the higher fuel costs, doesn't that make the barge relatively more efficient and has that opened up some new opportunities for you guys?

Yes, we have always been less expensive than rails with almost all the movements that we look at when the movement has great enough volume to be put in a barge and graphically goes to places where barges service. Now as rail margins increase, as rail prices increase, I think -- I think shippers are always looking for opportunities to reduce their costs and when they get volume, they will try to put it on barge.

It's on the fringe.

Right. It's not a significant amount of cargo that we see on any given year. On the dry side, you probably see a little more of it frankly. Dry cargo trades between rail and barge on a consistent basis and as you pump up rail rates, barging becomes more attractive, but we are not in that business. We are in the liquid business. I think in the 30 years that I have been in the business, Berdon has been in the business longer than I, you can count the number of real movements from rail to barge on probably one hand every year if that. There just isn't much that moves around.

Right, right. And sort of just so I understand the ethanol opportunity is small, but it is occurring for you, is that right?

We are moving some ethanol. We have for years. We do think that there will be more ethanol offered to the barge business in 2008 than has been previously just because of the capacity that is coming on along the river and the mandated amount that you have got to use. How much we are going to carry, it is hard to say. We don't think it is going to be significant.

Okay. Well, gentlemen, thank you very much.

David Yuschak, SMH Capital.

Good morning, gentlemen. Just a couple things. Joe, you mentioned earlier about how expensive some of these barges have gotten. Could you give us a sense as to the kind of capital cost per barrel that you are kind of facing today versus what you did maybe a year ago and two years ago and what you think might be the outlook there on a per barrel basis?

Well, you have got to go back more than a year or two because they have been rising over a period of probably six or seven years. We can give you an idea. In 2000, what we call a 10,000 barrel barge cost about $700,000. Today, that price is $1.5 million to $1.6 million and a clean 28,000 barrel barge, 2000, we were building for about $1.3 million. Today, $2.3 million to $2.4 million. A hot oil barge with heaters, 2000, $1.8 million. Today, $3.2 million to $3.4 million, somewhere in that range. And you can do the math, David.

Sure. Appreciate that. As far as your contract mix of 80% right now, as far as I know, as far as I can remember, and you guys can correct me, I don't think I have ever seen you guys at 80%. Generally it has been around 70%, 75%-ish on a long-term basis.

Yes, that is probably right.

Could you give us a sense as to the duration as well? With it being up at these higher levels, is the duration of those contracts -- because generally it has been kind of a one-ish type of thing, but are you seeing the average duration expanding too and if so, how much?

Let me answer it this way. We will have about 35% of our contract revenue going forward this year, so that has already renewed, exposed for renewal in 2008 and in 2009, the number is a little less.

Okay. And one last question, as far as your debt-to-cap ratio, I just kind of did a back of the envelope all things -- just from what your comments were about capital spending, you can get your debt-to-cap ratio down to about 20% or so. What levels on your credit would you be faced with a potential upgrade of that credit? What kind of circumstances would you need? Because you have been getting pretty close I would think wouldn't you? And it's certainly something you don't want to do.

Our credit agreements are based on our ratings by Moody's and S&P and Fitch and so it is really a function of -- we have a pricing grid and it if the ratings go up, our pricing changes and if ratings go down, the price change is there too. So it is really not a ratio that you can look at. It is really the decision on the rating agencies that would determine that.

And with Moody's, they are going to be concerned about size and that is an issue with them.

So size as far as the size of the Company is concerned?

Yes, right.

So you get a penalty for being a small company I suppose. In there eyes anyway, a smaller company.

Yes, they probably wouldn't say penalty.

And then one last question. As far as -- there is a lot of talk now about the waterway spending with the water bill and all that. Do you see that as an important opportunity as far as making the waterways more efficient and does that bring the potential for more things to the waterway or is this still back to things have to be logistically near the water for you to be able to traffic in that product?

David, it is good news and this is Berdon. It is good news in the fact that Congress is recognizing that we need to maintain our waterways' infrastructure to keep the US industry competitive in a very competitive global market. So we are seeing improvements that need to be done to the existing system and we are delighted that we are able to do that.

I think that is all I have got. Guys, thanks.

There are no further questions at this time.

Okay. Well, thank you, operator. This is Steve Holcomb. We appreciate your interest in Kirby and for participating in our call. If you 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.

This concludes today's conference call. You may now disconnect.