Kirby Corp (KEX) 2008 Q4 法說會逐字稿

Good morning. My name is Kyrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kirby Corporation 2008 fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions.)

Thank you. Mr. Steve Holcomb, you may begin your conference.

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 made 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, 2007 filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Thank you, Steve.

The 2008 fourth quarter was the 20th consecutive quarter that our earnings exceeded the same quarter of the previous year, and 2008 was the fifth year in a row that we reported record financial results.

Late yesterday, we reported a 13% increase in our fourth quarter earnings, reporting $0.72 per share, compared with the $0.64 per share reported for the 2007 fourth quarter, and a 27% increase over our 2008 year earnings, reporting $2.91 per share, compared to the $2.29 per share for 2007.

Also included in our fourth-quarter results was a $6 million before tax, or a $0.07 per share after tax increase in our allowance for doubtful accounts due to the deteriorating economic environment that we're facing.

On the Marine Transportation side, petrochemical companies responded very aggressively to the worsening economic environment during the fourth quarter, announced a number of a plant closures and reduced volumes within our market area in order to reduce their inventories. Our volumes held up well in the third quarter because companies were in a catch-up mode following Hurricanes Gustav and Ike. However, our volumes were significantly weaker in the fourth quarter, 22% under last year, especially in our upriver markets. That's the part of our business that's closer to the end user.

Throughout most of our fourth quarter, we were able to utilize excess river equipment, principally the barges that work on the river in the canal, where demand was stronger.

We do anticipate that overall demand will stabilize, but will stabilize at levels below the first half of 2008 levels once our customers have completed their inventory adjustments and begin to get confidence with respect to what sustainable demand is.

Kirby has historically used charter boats to satisfy approximately one-third of its horsepower requirements, which gives us the flexibility to balance horsepower needs with current demand. To date, and over the high in the fourth quarter, we've released about 23 -- well, have released 23 charter boats in the last several months, which has helped us reduce the margin erosion caused by falling demand. We're currently operating today 242 towboats, and we continue to downsize our towboat fleet when warranted by market changes.

We will also address lower demand through cost reductions, which include an early retirement program and a reduction of shore staff in the first quarter, also deferring some capital projects when appropriate for them and idling some equipment and deferring maintenance on that equipment.

Our fourth quarter included a $0.06 after-tax per share timing benefit from lower diesel fuel costs, which fell from $3.99 per gallon in the third quarter to $2.59 per gallon in the fourth quarter. We do anticipate a reversal of this trend in the current quarter, and I'll address that later in the call when we discuss our first quarter guidance.

Our fourth quarter term and spot revenue mix remained at 80% term and 20% spot. Time charter or day-rate contracts, which reduce revenue volatility caused by weather, navigation delays and market declines, ended the year at a high at 60% of total contracts, but we do expect that percentage to decrease as barge availability increases. This isn't necessarily negative to Kirby because we've always been able to leverage our flexibility, our power, our infrastructure, trade lanes and size to use our equipment more efficiently under our freightment contracts.

Contracts renewed during the fourth quarter increased 8% to 10% over the same period of 2007. Spot rates, which are impacted by falling fuel prices, declined 5% to 6% over the quarter compared to the third quarter but remained 8% to 10% higher than the fourth quarter of 2007.

Our fourth-quarter results also included a $6 million before tax, or $0.07 per share, increase in our reserve for doubtful accounts. We think this is a prudent precaution based on the impact of the recession on several of our customers in the petrochemical industry.

In our Diesel Engine Service segment, which has experienced strong medium-speed market performance over the first nine months, saw service levels and direct part sales weaken in the fourth quarter as its customers' activity slowed, particularly in the power generation and rail markets and from some seasonal fluctuations in the marine transportation market.

The high-speed market, which has not been as strong, did see some modest improvement in the fourth quarter, we think principally driven by repairs that our customers were doing to their equipment affected by Hurricanes Gustav and Ike.

We're also pleased to report that our 2008 return on capital significantly exceeded our stated objective or target objective of a 12% return on invested capital. In 2008, we earned almost 15%, compared to 13.2% in 2007 and 12.2% in 2006.

I'm going to come back at the end of the call and talk about 2009 first quarter and our full-year outlook, but I'll now turn the call over to Norman for his comments.

Good morning.

Our Marine Transportation fourth quarter operating margin improved to 23.4% compared to 21.8% for the fourth quarter of 2007. Improved margins were driven primarily by higher term and contract pricing, lower fuel costs and fewer boats operated, and partially offset by the $6 million increase in the allowance for doubtful accounts.

The operating margin in our Diesel Engine Services segment decreased 12.3% in the fourth quarter from 15.6% in the fourth quarter of 2007 and was impacted by lower labor utilization, lower power generation revenues and a higher percentage of lower margin engine and equipment sales. During the 2008 fourth quarter, we generated $89.6 million of EBITDA, an 11% increase over the fourth quarter of 2007. And the EBITDA margin was 27.4% compared 26.2% in the fourth quarter of 2007.

Strong cash flow in the fourth quarter was sufficient to fund a larger-than-normal annual defined-benefit pension contribution of $32 million and still allow for a $22 million reduction of debt. Our total debt reduction was $50 million for the year, and our debt-to-capitalization ratio declined to 21.7% at December 31st, down from 27.9% at the end of 2007. Our average cost of debt for the 2008 fourth quarter was 5.0%.

Capital spending for the 2008 fourth quarter was $31.5 million, including $14.8 million for new barge and towboats and $16.7 million primarily for upgrades to the existing fleet. Our capital spending totaled $173 million for 2008, which included $89 million for new barges and towboats and $84 million primarily for upgrades to our existing fleet.

Our 2009 capital spending guidance range is $185 million to $195 million and includes $140 million for new barges and towboats. For 2009, we anticipate positive cash flow and a continued reduction in our debt-to-capitalization ratio.

I'll now turn the call over to Berdon.

Thank you, Norman, and good morning.

During 2008, we took delivery of 26 new barges with a total capacity of 586,000 barrels and four 1,800-horsepower towboats. We also added 5 new chartered barges with a total capacity of 110,000 barrels during 2008, purchased 6 barges previously chartered, and sold, scrapped, moved to the inactive status or returned to the lesson 30 barges with a capacity of 549,000 barrels. As of December 31, we owned or operated 914 tank barges with a capacity of 17.5 million barrels.

For 2009, we expect delivery of 48 barges with a capacity of 1,132,000 barrels and five 1,800-horsepower towboats. The cost of the new equipment is approximately $140 million. We will also place in service 7 new barges under a seven-year charter with a capacity of 74,000 barrels and anticipate the retirement of 41 barges with a total capacity of 757,000 barrels. We expect the new capacity additions and chartered barges, net of anticipated retirements, to increase our total fleet capacity in the 2% to 3% range. Three 10,000-barrel barges and two 1,800-horsepower towboats, all of which are from 2009 orders, are now scheduled for delivery in early 2010. At the present time, we have signed no further 2010 equipment commitments. I'll now turn the call back to Joe.

Thank you, Berdon.

As we stated in our press release yesterday, our visibility for 2009 is certainly not very clear. Some of our customers have announced plant closures and layoffs as they have adjusted to changing economic conditions. Until they found an ongoing, sustainable level of production, our ability to accurately forecast our business will be challenging.

For the month of January, we continued to see weakness in upriver movements of the more finished petrochemical products. These are the products that are closer to the end user. Although it's harder to fine-tune river tows, which normally consist of multiple barges, we are using fewer boats, and in some cases to maintain greater efficiency. We have a little more flexibility in the Gulf Intracoastal Waterway, and as volumes weaken, we can take boats out more easily to match the tonnage requirements. Most tows on the Gulf Coast are one- to three-barge tows.

Kirby's term contracts, which represent 80% of our transportation revenues, will help provide stability to our earnings in 2009. Approximately 50% of the contract revenue will renew, however, in 2009. Most of our term contracts have been enforced for many years and contain fuel adjustment clauses that were written when fuel price volatility was a fraction of what it was in 2008. Although fuel adjustment formulas are reasonably efficient over an entire cycle of fuel price movements, they have in the aggregate adjusted less accurately during periods of high volatility. We're estimating that between $0.03 and $0.06 per share during the first quarter will be a negative impact of the timing of fuel versus the 2008 fourth quarter.

Now, as contract -- and we have mentioned this before. As contracts come up for renewal, we've been improving the fuel adjustment mechanism which works both for us and our customers better and takes some of the volatility out of this.

Our first quarter guidance also included an estimated $0.05 per share charge for early retirements and staff reductions to correspond with the downturn in our operations. We've also implemented a hiring freeze, offered early retirement incentives to certain employees who will be 60 years old or older during 2009 in certain designated departments and job classifications. We have frozen management's salaries, and we also intend to reduce shore staff in the first quarter in total by about 5%.

With all this in mind, we announced our 2009 first quarter guidance of $0.45 to $0.55 per share, compared with the $0.68 per share earned first quarter of last year. For the year, our guidance is $2.40 to $2.65 per share, compared with the $2.90 per share achieved in 2008. Both the quarterly and annual guidance range is wider than we historically give; however, we feel it's prudent given the uncertainty and lack of visibility in regards to final 2009 volumes.

We are -- we're all looking for some good news in the midst of this gloomy period. I do believe that we'll see some improvement in the upriver part of our business within the next couple of months as customers restart plants to meet what they believe is sustainable demand. Demand will return this year, but we believe it will be at lower levels than the 2007 and the first half of 2008. Now, some of that is dependent on your view of the economy, and our current view is that the economy is not going to see a growth in 2009.

Kirby does enter this period of uncertainty with strong customer relationships, a very strong balance sheet, sustainable cash flows which will exceed our capital expenditures this year, no real commitment to capital in 2010 and the ability to continue to fine tune our fleet up or down as necessary.

As I indicated earlier, our visibility is poor as to what the economy is ultimately going to do. Frankly, there isn't much we can do about the economy anyway. What we can do is focus on what we can control, which is to manage our customer service levels, be safe and control our costs and look for and take advantage of opportunities which will present themselves during this period. That was our game plan in every down period since I've been with Kirby, which is 31 years this year, and that will be our game plan now. We will see opportunities during this period, and fortunately we have been disciplined over the last several years and enter this period with a very strong balance sheet that we can use to take advantage of opportunities to grow our business, opportunities that make financial sense to us and our shareholders.

Operator, we'll now open the call up to questions.

(Operator Instructions).

Your first question comes from the line of Jon Chappell of JPMorgan.

Thank you. Good morning, everybody. Joe, I can understand the wide range of the guidance and the volumes being the wildcard. I was hoping maybe you can give us a little insight as to the pricing expectations you've included in that guidance range, both on the spot and the contract renewal front.

Yes. Jonathan, we think that contract pricing will for the most part roll over as expiring, and spot pricing will be flat to slightly down.

Okay. That helps. And then on the cost/margin side, as you look -- as you compare 2009 as we see it right now compared to some of the other downturns, do you think that the margins on the Marine side could hold in there a little bit better? Do you think you're more flexible on the cost side? And then the same thing on the Diesel Engine Services side. It seems that the margin got hit a lot harder in the fourth quarter. Is it just harder to remove costs quickly in that part of the business as activity slows?

Yes, let me address the Diesel Engine business first. There were some anomalies in the fourth quarter, principally with the timing of projects, that we think will continue into the first quarter, but for the rest of the year will really come back to more normal levels. So as you look at first and fourth quarter, you are going to see some margin compression, but we should get a lot of that back in the next three quarters in 2009.

Okay.

Concerning Barge Line margins, we hope so. It has a lot to do with your view of how long is this going to last and is it going to get worse. But if we're at the bottom now, I would expect that margins would hold up certainly better than the 2000 to 2003 downturn. If this is going to get worse and it's going to be several years, I think margins will come under a little more pressure, frankly. We put guidance out there, and I think you're going to find that a lot of people didn't -- won't. We did it really because we thought that it would help everybody to understand our view of the world. But that's our view, and there are many different views, frankly. So we'll just have to see.

A snapshot in time, we think that those forecasts are pretty good. But each day, as you know well, we wake up to new and different news.

Oh, yes.

See how that news trends.

Right. Well, that was very helpful, Joe. I appreciate it.

Sure.

Thanks a lot.

Your next question comes from the line of Alex Brand of Stephens.

Hi, good morning, guys.

Good morning.

I guess I want to follow up on that to make sure -- just sort of understand the process, Joe. So if you're assuming spot prices are relatively flattish, can you talk about, then, as you go into customer discussions for contract renewals, kind of what the implication is for pricing on those and how we should think about contract pricing?

Well, if spot pricing is flattish, then I think a reasonable scenario is rollover as expiring.

Okay.

And that's the assumption. So, now -- Alex, I know you know this, but just for the benefit of others. Spot pricing is going to be driven by utilization, and right now utilization in the canal is still pretty good. If utilization declines, then it's going to put more pressure on spot pricing. But even in the 2000 to 2003 recession, we were able to, for the most part, roll contracts over as expiring.

Okay, fair enough. I think I missed what Berdon said about deferring some deliveries for this year, but can you just broadly talk about what you may have deferred into 2010 and I guess I'm kind of surprised that you're still thinking to add 2% to 3% capacity, but perhaps you were not able to defer -- because I think you had discussed before that you were going to try to maybe push some of that stuff off.

Yes, and we're still working on -- with shipyards to move some of that equipment into 2010. These are commitments, as again you know, that were made in early 2008, mid 2008, and they're firm commitments. We have -- again, working with shipyards -- moved several barges into 2010, and I think one or two boats -- two boats. And it's -- it's our hope that we could actually move some more equipment into 2010, but we're not assuming that in our forecast.

Now, with respect to actually growing capacity, we'll look at that very carefully as capacity comes on, and we may well idle some additional capacity so that we're staying capacity neutral. But again, I don't want to commit to that because I don't have any clarity on what our actual demand is going to be yet.

Fair enough. Thanks for your time, Joe.

Sure.

Your next question comes from the line of Ken [Holkster] of Merrill Lynch.

Hi. Good morning, Joe, Norman.

Good morning.

On the -- one rail had noted that there was some chemical plants that had some extended downtime, and they were starting to see some of those plants reopen. Just wanted to see what you were seeing from your perspective on the demand side.

Ken, that's what I was alluding to when I said that we thought that our upriver business would get a little stronger as plants reopened. What you don't know -- and I don't -- I frankly -- I certainly don't know -- maybe there's somebody out there --- maybe you know -- what the sustainable level is. These are very different times than early 2008, and there is demand out there, but you don't know quite where it is. Two-thirds of the chemicals that are made go into nondurable goods, so -- or, excuse me. Yes, nondurable goods, the consumer kind of goods. So there is a base-level demand that keeps the chemical business going, just don't know exactly where it is.

Okay. And then you said utilization was still good, particularly in the rivers.

No, in the canal. In the canal.

I'm sorry, in the canal. You did say canal, yes. I just want to clarify -- I guess if ton-miles were down over 20% in the quarter, I would have thought we would have seen some of that bounce back. I guess I thought that was greatly impacted by the hurricanes in the third quarter. Expect those to be down. But how can you -- I guess your ton miles were down over 20%, so how can that utilization still be good if you're seeing that level of volume decline?

Well, the ton-miles on the river were down significantly. What -- this is what happened. I think that the first two quarters of 2008 were strong quarters, positive GDP growth, and the U.S. chemical business was -- around the edges was being affected but for the most part was okay. We go into the third quarter, and we get into a hurricane season that dramatically affected the chemical business. I think maybe 30% or 40% of it was actually down on the Gulf Coast. It -- and volumes, of course, are significantly curtailed. Chemical business comes back up, and our volumes get -- or demand gets distorted based on really the collapse of capacity caused by the hurricane.

So you really go into late September/October with lower overall demand but some inventory adjustments that really keep us pretty busy. Then the full impact of what I would call a consumer strike was seen first at the retail basis and worked itself back up through the supply chain, and you saw chemical companies, particularly major chemical companies radically go into a destocking phase where chemical companies close plants to a degree that I don't think either Berdon or I have seen in the time that we've worked in this business.

Remember that chemical inventories were built at very high crude costs -- crude in some cases $140 a barrel -- and high natural gas costs. So they just destocked, and you saw probably the most violent destocking maybe in the history of the chemical business. And we're going to -- that's going to affect us. When you're getting rid of volume, you're not going to move volume to replace it.

Now we're kind of, I think, for the most part, through that and you're going to begin to get restocking -- I think that's what the railroads are alluding to, and that's what I'm alluding to, that is going to cause transportation levels to increase. But at some point they're going to level off. And it's at that point where they level off that you're uncertain about. So I do think that you're going to get some improvement, but what I don't know is the long-term sustainable level yet.

Right. That's helpful. Can I just get two number clarifications from Norman? On the nine single-hull vessels, did you move those to inactive?

No.

Okay. And then the -- have you ever broken out the percentage of high-speed versus medium-speed?

No, we haven't.

Okay. Great. Thanks for the time, guys.

Yes. And Ken, with respect to the single-hull vessels, five of them will be -- at least five will be out this year.

Okay, great.

Your next question comes from the line of Noah Parquette of Cantor Fitzgerald.

Hi, good morning. Most of my questions have been answered. I just had about -- on the cost side -- with your staff reduction that you're implementing, what do you think the G&A run rate will be in 2009, or how much lower do you think -- expect that to be?

The cost is about going offset the run rate decline. They're offsetting.

Oh, the one-time costs?

Yes.

Okay. Will that be mostly in the first quarter?

Well, the cost is going to be in the first quarter. The run rate is going to be in the next three quarters.

Okay. And then -- on the share repurchase side, can you remind me how much you have remaining under your authorization?

We have over a million shares.

Would it be fair to say that you've focused on retiring debt this year, given the situation.

It'd be better to say that we're going to focus on opportunities.

Okay. All right, thank you.

Your next question comes from the line of John Barnes of BB&T Capital Market.

Hi, good morning, guys.

Hi, John.

Hi, a couple of questions real quick. First, with the chemical companies that you do business with, can you talk a little bit about what kind of inventory levels you're seeing? I'm getting a read for -- I don't care when they start back up, necessarily. I know you don't have any control over that, but what I'm trying to gauge is if there's some kind of material demand change, how quickly -- would it be a fairly explosive demand solely because inventory levels have been drawn down so lean. Is that a fair assumption?

We sense that inventories are different in different areas. So you may get some significant demand in one area that you don't see in another. I don't -- that's a good question, John, and I'm not -- I hesitate to give you an answer because I don't know.

Okay. All right.

It's going to -- it's probably going to be all over the board, frankly.

Okay. All right, very good. Given the struggles that some of your customer base has had -- the chemical industry, it seems like an announcement a day almost with some of these guys and some of their issues. I'm curious. Has the market to buy private fleets from these companies become a little more attractive? Have they -- are they actually looking to now shed assets to generate cash and that type of thing? And do you think there's an opportunity to maybe delve back in there where that market's been shut off for a while?

Yes, there are not that many left, of course, owned by chemical companies. The largest fleet is owned by an oil company, a refiner. But I think that that's probably fair, that they're certainly going to look at a number of things that will raise cash at -- my guess is that we'll have an opportunity to look at some fleets.

Okay, very good. And then, lastly, is it -- to your comment about you may add -- idle some additional capacity just to manage your capacity a little bit better, will you idle that -- is that just basically putting it in storage now? It's very easy to pull back into service, and could you give us a magnitude estimate as to what you think might be necessary to offset what you're taken in given the current demand environment?

Well, the magnitude would be an equal amount of tonnage that is coming in.

So it would be vessel-for-vessel?

Yes, I think so. Based on what we're seeing now. But this is -- as you know, it's a very fluid environment, and you're making adjustments based on what you think is going to happen going forward, but at least this snapshot in time, I think that would be what you'd do.

Okay. And in terms of your guidance, could you just give us a little color on the difference between $2.40 and $2.65? I'm just trying to gauge - is the $2.40 just an absolute depressing kind of outlook and the $2.65 is a continuation of what you see now, or --? Just a little color on that.

Yes. We hope what you said is right.

Okay. Okay. Very good.

I think that's a fair analysis of where we are.

Okay, very good. Thank you for your time, guys.

Thank you.

Your next question comes from the line of [Jimmy Gilbert] of Rice Voelker.

Hi, Joe. Thanks for taking my call.

Yes.

Are you guys -- you guys talked about changing your contracts to improve the fuel escalation provisions to deal with the increased volatility and fuel costs. How are those changes going to be made? Is it going to go from -- I think right now they're month-to-month adjustments. Would you go to quarter-to-quarter? Or how would that work?

No, no, I -- we're not so much talking about the monthly or quarterly adjustment. It's just -- these contracts are pegged off of fuel prices that -- some of them are really quite low -- that aren't realistic going forward, that impose volatility when you have a peg of, let's say, $0.80 and fuel is $4.00, [inaudible]. You really don't -- it's not to the best interest of either party. I don't think that when they were designed, it was ever contemplated that fuel would move as much as $2.00 -- actually more than that, $2.50, in a given year.

Okay. And I might have missed this, but you talked a little bit about the ton-miles. But do you guys place a rough number on your capacity utilization, like what it was in Q4 this year versus -- or Q4 '08 versus what it was in '07?

Yes, we're happy to talk about that. I just -- I think you know this, that utilization is a weather-impacted number, meaning that you could be fully employed but not moving in the afreightment contracts. That's painful.

Our utilization on the canal is still in the low 90% range, which is good. Our utilization on the river, which is the most impacted area -- and again, that's where the product that we move is closest to the end user -- is down, I think, year-over-year -- is it 30%? 30%. Now, we think that that's going to improve, but that's a substantial drop.

All right. Well, thank you very much, Joe.

Yes, thank you, Jimmy.

Your next question comes from the line of David Yuschak of SMH Capital.

Yes, good morning, guys.

Good morning.

The -- last year you guys had the foresight to move your contracts from 70% to 80%. As you look into this year, what's the potential of that fading back, and how much could it fade back as customers say, "Look, I really don't know what my needs are right now. I might come back to another contract six months from now because I just don't know what my needs are." What do you think that could have -- how low could that go if in fact they just got customers out there that says, "We'll do a contract, but not right now," that you kind of force -- they kind of force you back into the spot market?

Yes. I'd be speculating, David, to give you a number, but we have a very good success rate of maintaining the contracts that we want.

I think that most of the customers that we work for and who we contract with contract with us to get surety that the service is going to be there. There's some strategic reasons why they contract that go beyond just taking advantage of an opportunity in the market. There are exceptions to that, of course. But -- I think I'd be surprised to see our contracts slip too much.

Because you always historically ran of that 70% level no matter what.

We did, and --

So I would think at the worst case it could be no more than 70%, I would think. That's become a long-term norm.

Yes. We saw things changing in the market well over a year ago, but certainly didn't anticipate anything to the magnitude of what occurred. But we knew things were going to be a little different. So we let contracts slip up a little bit. And in a normal market, I think that we're very comfortable with that 70/30 split.

And you always did well at that anyway, so -- as far as your capital spending for 2009, how much of that $185, $195 do you think you could slip into next year by just pushing stuff out?

We don't know because these are commitments -- $140 of it is commitments to build equipment where we have signed contracts, and we're working with the shipyards to see if it's beneficial to both of us to slide some of it into 2010. We don't know what we'll be able to do yet.

Does the decline in steel prices have any impact on those as far as --?

We have favorable steel pricing in the barges that we're building. So we'll --

Okay, so that's not an issue at this point.

Well, it may be in future years, but at least to the barges that we're building, it's not really an issue.

Okay. As far as your volumes in the canal, could you give us a sense of how they did in the fourth quarter?

They were strong in the fourth quarter.

Okay. Now, one last question here. With the weakness in the -- your end markets in upriver, what's the potential that that back feeds into your canal because that's basically where you got intermediaries as a demand, isn't it? Potentially that begins to back up there just because of the economy being as weak as it is?

Well, the chemical trade on the river is a principally a 10,000-barrel trade. Where you get back up into the canal is in the refined products area, which is a 30,000-barrel trade, and when you see weaknesses in the refined products market, that equipment typically bleeds over in the canal, and you've followed us long enough to have heard us talk about that. And we really didn't see that in the fourth quarter. And --

So if anything, as long as we can get refined products doing all right, the canal will not be a problem in this down cycle. Is that fair to say?

Well, I wouldn't say that because I don't know that. That's certainly what we hope, and it all goes to your view of how long is this going to last and is it going to get worse. I think what we're comfortable saying is at least to this point that the canal is still pretty strong.

Okay. That's all I need for now. Thanks, guys.

Your next question comes from the line of Daniel Burke of Johnson Rice.

Good morning, guys.

Hi.

I'd like to return to just one specific one on the full-year '09 guidance. If you look at the low end, the $2.40 -- I know you suggested earlier that from Q2 to Q4 of this year, the diesel services business should show some improvement, due almost to timing issues. But what I'm wondering is is the low end of that guidance predicated on improvement in the barge business from current levels or from the Q1 level you're seeing right now?

No, not the low end.

Okay. So that sort of assumes status quo versus the activity level you all are witnessing right now.

Well, the range does. The range -- I think a previous caller gave his perspective on the range, that the range was on the high end, what you're seeing now on the low end, a more pessimistic view. And I think that is about what it is.

Okay, and then a second question would be on secondhand barge pricing. Can you share any details on where barge pricing has trended in the secondhand market here over the last six months? And while you're shedding horsepower -- can you be active in that market? And are you interested in being active in that market if you were looking at contract-free barges?

When you say secondhand, you're talking about the sale of equipment?

Yes.

Yes. There really hasn't been much equipment sold over the last six months, and it -- this is a little different business than you'll see in the blue water business, where secondhand prices are a good indicator of the market. Here, you have a more stable market. As you look at some of your blue water companies, the earnings volatility is significantly higher than the kind of volatility that we're talking about here. So you're going to get a -- unless you get gross over capacity, you're going to get more stability in the sale of equipment then you would get offshore.

Thanks, Joe.

Did that answer your question, Dan?

Yes, I think so.

Your next question comes from the line of DeForest Hinman of Walthausen & Co.

Hi, I had a few questions. I got on the call a little bit late, so I apologize if they've been asked. Did you disclose the operating cash flow number for the fourth quarter?

We -- let's see. Is it in the table?

Yes.

It'll be in the --

It'll be in the Q, 10-K.

It'll be in the Q.

10-K.

All right. And then --

And only EBITDA at this time.

Okay. And on the bad debt charge we took in the fourth quarter, was that related to a specific company, or is that just our thoughts entering a weaker environment in terms of customers paying us --?

The latter. Yes, the latter. The latter.

All right.

And there are, of course, companies that make up that, but it's more a view of weakness in the chemical area and the credit challenges that some chemical companies are going to have.

Now, are we adjusting our bad debt reserve methodology going into '09 relative to '08?

No, I don't think so. There's a process that you go through determining what the reserve's going to be, and that process, I think, was consistent -- has been consistent over [bad] years.

All right. And obviously you guys have been in this business for a long time. Can you help me understand from a competitive standpoint the pricing thought process of your competitors. You yourself talked about maybe taking some capacity out of the market. Do we have competitors that are capital constrained and maybe more willing to price very aggressively in this type of environment? Can you just help me understand that? That's a lot of questions at once, I guess.

Yes. No, pricing is going to be driven by utilization, and also the financial requirements of the individual operator. So you theoretically could get a competitor that has fixed costs that he has to cover and prices to cover those fixed costs. We're not seeing that yet. And we're really not forecasting it. But certainly there's a scenario where that could happen.

Have we saw that at any point in the past? I know you talked about -- was it 2002?

Yes, you saw some pressure on spot pricing, but no, we're not seeing it yet. We'll just have to see.

All right. And then one more on the diesel price movements. Obviously a lot of volatility. We address some of it with the new contract terms. Have we looked at hedging and all in terms of our use of diesel fuel?

Well, we've looked at hedging some of the spot exposure, but the contracts have escalator/deescalators in them. So hedging them wouldn't be appropriate because the truth -- over the fuel cycle, they will float up and down, recovering your fuel. When we refer to changing the escalator, fuel escalators, it more has to do coming up with formulas that take some of the significant volatility out of that business, which we then have to explain to you that fuel represents $0.06 or $0.03 to $0.06 or $0.02 of the earnings, trying to get the earnings comparisons on an apple-to-apple basis.

All right. And try to sneak in one more. Do we have any estimate for pension contributions for '09?

It's hard to project because it depends on two big factors. One is the discount rate, which is generally a corporate discount rate -- corporate bond discount rate. And the other is the performance in the market. Our contributions in recent years have been zero, $7.5 million, $12 million, and this year was $32 million. I would certainly hope that we would start getting some of this back, which would minimize our contributions, but it generally depends on the market.

All right. Thank you.

You're welcome.

Your next question comes from the line of Chaz Jones of Morgan Keegan.

Yes, hi. Good morning, everyone.

Morning.

Morning.

Maybe in looking at this question in the, I think, perhaps it's limited to the trucking industry in the past. But I guess given your perspective on the industry -- in recessions, do you generally see any of the small operators yield to failures or bankruptcies or things of that nature, Joe? I guess what I'm getting at is are there some of the smaller players who maybe have bit off more than they could chew during the good times the last several years in the way of levering up the balance sheet to replace and grow out their fleets and with the current credit market are facing some challenges?

Yes. Well, I wouldn't have to renew a credit line in this market, and there may be some of that. There may be situations where they -- and I think this goes way beyond the barge business, where companies have committed to capital projects that are in the process of being developed. In the case of the barge business, a barge is being built, and they get to where they got to pay for them and they can't.

With respect to the financial help of some of the other operators in the business, I don't -- they're almost all private so it's very difficult to determine how they're leveraged or what financial structure they use to -- in their business model. But I actually think that business has to get worse before you see the kind of pressure on those companies that would cause a failure. You remember that our canal business is still pretty strong.

Okay, that's all I had. That's helpful, thanks.

Your next question comes from the line of [Madge Mylum] of Seneca Capital.

Yes, hi guys. I was wondering if you could talk a little bit about what new build estimates would be today if you were to purchase or place an order for a new vessel right now. In the past, we've gotten a builder's preferred estimate [of between], call it $1.5 million to $3 million for a tank barge, depending on the size and whether it's a black oil barge, I guess, being on the higher end of that range. Have these costs moved down proportionately, I guess, with the 50% drop in fuel prices?

Yes. The answer is they really haven't. We -- we're not seeing 2010 prices really significantly lower than 2009. Now, in our 2009 contracts, we do have some favorable steel pricing in them. If -- steel is down from a high of $1,100 to $1,200 a ton to, what, mid $700s. It can go lower. In the early 2000, I think it was down to about the $350 level. And I don't -- you've got estimates all over the board where steel's going to be.

I think the thing that has also increased in building barges is shipyard margins, and if you're not going to build any equipment in 2010, and you want to entice somebody to build it, then you're going to have to give some margin up. And that could have a greater effect on the cost of a barge, I think, than steel does. In a tank barge, about 40% of the cost is the steel cost.

Got it. And those numbers that I threw out before, the $1.5 million to $3 million, are those still accurate in today's --?

Yes, they are. $1.5 million would be a 10,000-barrel chemical barge. $3 million would be a clean 30,000-barrel chemical barge, in that range. Maybe a little higher for a black oil barge. Maybe $3.2 million for a black oil barge.

Got it. And what kind of return do you think you would earn at today's spot day rates and these new build costs for ordering a new vessel?

Current market, I think you'd get an adequate return.

Is there any way to quantify that?

Well, our target's 12%, and all I know is our business model. I don't know somebody else's business model, so I don't know what kind of return they're going to get.

I see. Okay. Thank you.

Your next question comes from the line of Gregory Macosko of Lord Abbett.

Yes, I'm glad I got picked up late in the call. Nice to talk -- say hello, Joe, Berd, Norm. I'm going to probably ask a few questions that are perhaps a little, uh, nave, but just help me understand the contract situation again. When you say rollover, does that mean that the pricing is going to be the same? What does that imply to pricing?

Yes, that's your objective, just extend the contract as it is.

So in other words, that would imply that the pricing would be flat.

Yes.

Okay. And then, is the 50% you mentioned, is that a normal renewal rate on an annual basis?

Yes, it's in that range, Greg.

Okay. And you're saying that most of the -- that you expect basically all -- or most of all of the contracts that are coming up to renew as -- renew with you again. Why would it -- why wouldn't they renew with fewer barges or less demand on capacity and make their spot mix more spot versus contract?

Well, you'll have some customers that will do that, Greg, but we -- well, I think that most of our contracts have equipment dedicated to them. Some of them don't. When you're talking about requirement contracts, there's no equipment dedicated to them, and there are some significant requirement contracts with our larger customers. But those that do have equipment dedicated to them I think size their demand pretty accurately to what they need from us in terms of equipment.

Okay. And then the range -- we've had a couple discussions here about that $2.40 low versus the top versus the bottom. Would -- is -- are the dire straits kind of worse than the 2000/2003 timeframe? When you say the worst period of time, would that incorporate the downside that we saw in that period of time?

No. I don't know. Can you tell me what this economy's going to do?

No, I can't. None of us can. That's why we're all asking you, Joe. We figure you probably know.

Yes. Yes, I don't want to be facetious, but the truth is that we're in a period of great uncertainty, and we debated whether to put numbers out at all, and we said -- we thought that the market would benefit from what we were seeing today. The big unknown is what are we going to see six months from now, and I just -- your visibility is just so poor that when you get into that, you're just really speculating, and I just hesitate to do that. I'd rather you do that.

All right. Well, I -- forgive me for keeping to push. But on the -- with contract renewal, they come kind of evenly throughout the year. Is it early in the year versus late, or --?

It's [pre-ratable] over the year.

Okay, And I guess that will be really what you see during this quarter and the first part of the year in terms of those renewals. You'll have a sense of really what your customers are expecting from the market, and that will give you better visibility for the rest of the year, I guess, is a fair way to look at it.

Yes, I think by mid-year you'll have -- I hope you'll have a better feel for what's happening.

Well, I know you guys are doing a good job. Thanks a lot.

Thank you.

Your next question comes from the line of Michael Harvey of Halogen.

Thanks. My question is asked and answered. Thank you.

Your final question comes from the line of Charles Rupinsky of Maxim Group.

Good afternoon, everybody.

Good afternoon.

Just had a quick question. Most of my questions have been answered, but do you have a view -- you talked about potentially pushing back some equipment that you have on schedule, but do you have a view about the overall barge capacity given the environment? I think that the number had been talked about maybe a few months ago of 200 new barges being delivered. Do you have a sense about how that might pan out as far as the delivery schedule over the next year or so and how that might affect the overall supply?

Well, there are a number of barges that we're committed to in 2008 for 2009 delivery. And what actually happens in 2009, I don't know, but I can say that somewhere in the 180-barge mark -- and that's both 10,000-barrel barges and 30,000 barrel barges as well as some specialty barges -- were on order. And I think if you talked to the shipyards, they'd at least at this point say, "We're going to build them." As you get into 2010, that really drops off. We frankly don't know of almost anything that's planned to be built in 2010, where you did know last year at this time what was going to be built in 2009. Midyear you'll have a better feel, but we think it's going to be, just based on what we see today, a relatively de minimis amount.

And retirements.

And just one follow-up question. When you talked about the utilization for the canals versus the rivers for the quarter -- and I think I remember that it was in the '90s for the canal utilization and then for the river 30% down year-over-year. Would that be correct?

Yes, period over period, fourth quarter over fourth quarter, yes.

Question on just -- question --- the 30% down, do you have like a number from and to? In other words, is that down from 90% down to 60%, something in that range, for the --?

Yes, it's in the 65%, 70% range.

Thank you very much.

There are no further questions at this time. Gentlemen, do you have any closing remarks?

We appreciate your interest in Kirby Corporation and for joining us in the call. If you have any additional questions, please give me a call. My direct-dial number is 713-435-1135, and we wish you a good day.

This concludes today's conference. Thank you for your participation. You may now disconnect.