Kirby Corp (KEX) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Kirby Corporation Fourth Quarter and Year Earnings Results Conference Call. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Steve Holcomb. Mr. Holcomb, you may begin.

Thank you for joining us this morning. With me today is Berdon Lawrence, Kirby's Chairman; Joe Pyne, the President and Chief Executive Officer of Kirby, and Norman Nolen, our Executive Vice President and Chief Financial Officer.

During this conference call we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at kirbycorp.com in the Investor Relations section under non-GAAP financial data.

Statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve 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, 2008 filed with the SEC.

I will now turn the call over to Joe.

Thank you, Steve. Yesterday afternoon we reported net earnings for the [2009] fourth quarter of $0.54 per share compared to $0.72 per share reported for the same period the year before. Included in our fourth quarter results was a $0.05 per share charge for our shore staff reductions, a $0.02 per share charge for a partial goodwill impairment of Osprey Lines -- that's our container on barge operation -- and positive $0.02 per share net reduction in our allowance for doubtful accounts. Norman will discuss each of these in more detail in a few minutes.

Our announced earnings guidance for the fourth quarter was $0.57 to $0.62 per share. For the year we earned $2.34 per share, which compares to $2.91 for 2008. During the fourth quarter our marine transportation volumes were slightly lower than the third quarter volumes and remained well below prior year levels. Our barge utilization for the fourth quarter, which was impacted by weather, bounced in a range of 80% to 85%.

During the fourth quarter term contract portion of our revenue mix declined to approximately 75% from 80% reported for most of last year. Time charters declined to approximately 50% of total term contracts. This was anticipated, as customers in some cases switched to lower spot-rate contract opportunities, as their term contracts expired.

Barging rates remained under pressure throughout the year. In the 2009 first quarter, first quarter of last year, we said that we were generally able to renew our contracts at flat rates and in the cases that we reduced rates we traded rate for term. The second quarter that was over; term contracts were just down, best case flat to 8% lower. Spot rates during that quarter declined in a range of 10% to 15% on a year-over-year basis. Now, spot rates include fuel.

In the third quarter contract rates renewed 7% to 15% lower and spot rates continued to deteriorate in the 10% to 20% range on a year-over-year basis. In the last quarter, the fourth quarter, term contracts renewed again in this 7% to 15% range but spot rates continued to decline and are 20% to 30% below where they were the prior year. We do sense that we're close to the bottom of pricing in our markets but there is some further risk of erosion and we are likely to experience continued rate pressure on term contract renewals, at least for the first half of this year.

While our marine transportation revenues declined $49 million during the fourth quarter and $214 million for the year when compared to 2008, approximately $16 million, or 33% of the fourth quarter revenue decline, and $79 million, or 37% of the year revenue decline, can be explained by lower fuel prices, which are passed through to the customer using fuel escalation and de-escalation clauses in the term contracts. And at least, with respect to the 2009 year, those contracts de-escalated.

Delay days during the quarter increased over 160% compared to the third quarter but we're in line with delay days recorded in the same period the year before. 2009, with the exception of last quarter, was really a very good year for weather delays. Typically we see more weather delays during the year.

During 2009 we took delivery of 43 new Kirby owned tank barges and in addition to seven chartered barges. With the industry excess barge capacity and utilization issue, utilization in the range of 80% to 85% with respect to Kirby, we retired 101 of our tank barges, which resulted in approximately 5.5% reduction in our barge fleet.

As of the end of 2009, we were operating 863 tank barges and that compares to the beginning of the year when we had 914 barges operating. The tank barge industry still has excess capacity. We've noted that throughout last year. The strong demand experienced in the previous years encouraged the industry to build new equipment but also to keep older equipment in service to meet higher demand levels.

In early 2008 the industry was fully utilized and shipyards were fully booked through 2008 and 2009. Approximately 180 to 200 tank barges were delivered last year in an environment of falling demand. These were barges that were ordered in the 2007, early 2008 time frame. These new barges have further increased industry capacity and have contributed to the pressure of term and spot contract rates.

However, as we've indicated before, the industry's over capacity problem in our view should be a short-lived problem because over 500 barges in the industry fleet are over 35 years old and approximately 250 of those are actually over 40 years old. All inland tank barges must pass Coast Guard inspections and older barges typically cost more to maintain and are likely to be retired at an accelerated pace in a weak market. That's what Kirby did last year and will continue to do this year unless the market improves appreciably.

During the fourth quarter, this is turning to our diesel engine business, our diesel engine service segment demand levels for service and direct parts remained under stress, as both our medium-speed and high-speed off shore service customers as well as our marine transportation customers and rail customers deferred maintenance and idled equipment in response to lower utilization. We were able to partially offset these weak markets by continuing to take operating costs out of the business. Medium-speed power generation market was stable for most of the year. We think that again we're close to the bottom, if not on the bottom, in this business and anticipate some improvement latter part of 2010.

On January 23rd this year Kirby was involved in an incident in the Port Arthur area, which resulted in a spill that closed the Gulf Intracoastal Waterway. This was a collision between a ship and one of our tows. We do not believe that we're at fault here. This event, however, stopped movement of a number of tows as well as ships. Over 40 tows that Kirby operates were affected and about 30 ships were also affected. These tows and ships are beginning to move again.

The cost to Kirby at this point is unknown and will depend on when the waterway is returned to full operation. The mix of tows that we had involved with respect to time chargers versus freightment and the effect of any pent up demand, which is really unclear at this point. We do think that over the next couple of weeks it will be clearer.

I'll come back when I'm at the end of this call and talk about 2010, but let me now turn the call over to Norman.

Good morning. As we discussed in our Press Release, we had three adjustments, two of which had a negative impact and one a positive impact on our 2009 fourth quarter and year end. The first negative adjustment was a $4.8 million free tax charge for reductions in our marine transportation diesel engine services in corporate shore side personnel. These actions were taken to enable us to remain competitive in the marine transportation and diesel engine services markets and to better position the Company to weather this continuing economic down turn.

The second negative adjustment was a $1.9 million charge for the partial impairment of Osprey line's goodwill. Osprey is our two-thirds owned cargo container and project cargo inland water ways operator. The impairment of Osprey's goodwill reflected current market conditions, not the abandonment of this market. We continue to believe that the water transportation of containers is part of the answer to highway and railroad congestion and positive to the environment, but the recent focus has been on the more profitable project cargo business.

The positive adjustment for the fourth quarter was a $2 million net reduction in our allowance for doubtful accounts. Last year in the fourth quarter we increased our allowance by $6 million a result of the deteriorating U.S. and global economic environment and the impact the recession was having on several of our customers in the petrochemical industries. The $2 million reduction in the allowance this year reflects the improvement in the financial health and credit worthiness of these same customers as they weather the economic downturn.

Although the Kirby's marine transportation operating income was 18% below the 2008 fourth quarter, the operating margin of 23.6% was in line with the 2008 fourth quarter of 23.4%. And, if you adjust for the staff reduction charge and the positive impact of the reduction in the allowance for doubtful accounts, our 2009 fourth quarter margin was 24%. The higher margin resulted from the impact of lower fuel prices, the first quarter staff reductions, fewer charter boats, reduced maintenance on laid up equipment, ongoing cost reduction and efficiency initiatives and more efficient operations.

The diesel engine services operating income and operating margin was lower than last year and the corresponding quarter. Adjusted for the staff reduction charge and a $500,000 increase in diesel's allowance for doubtful accounts, the fourth quarter margin was 12.2%. Continued customer deferral of their diesel engine maintenance projects resulted in lower labor utilization in most areas but especially in the domestic off shore oil services market.

We had another very strong cash flow quarter with EBITDA of $74 million. At December 31st we had $98 million of cash and cash equivalents. As of yesterday our cash balance was $114 million and we had no outstanding balance on our $250 million revolving credit facility.

Our capital spending for 2009 totaled $193 million, which included $142 million for new tank barges and tow boats. Our capital spending guidance for 2010 is a range of $125 million to $135 million, which includes approximately $60 million for new tank barge and tow boat construction, which Berdon will discuss.

I'll now turn the call over to Berdon.

Thank you, Norman. During 2009 we took delivery of 43 new barges and seven new chartered barges with a total capacity of 1.1 million barrels. We also took delivery in 2009 of four 1800 horsepower tow boats. Three 10,000 barrel barges, three 30,000 barrel barges and three 1800 horsepower tow boats have been pushed into early 2010 for delivery.

Based on current market conditions and fleet utilization, as Joe stated earlier, we have accelerated the retirement schedule of some of our older, active tank barges. As of December 31 we owned or operated 863 active tank barges with a capacity of 16.7 million barrels. This compares with 914 tank barges owned and operated as of December 31st, 2008 with a capacity of 17.5 million barrels.

For 2010 to take advantage of attractive barge constructive prices and to continue to upgrade our fleet and to provide our customers new equipment to move their cargos, we contracted for the construction of 50 10,000-barrel and five 30,000-barrel tank barges all for delivery in 2010. Based on current economic conditions, we are forecasting that at the end of 2010 our barge count and capacity will decline slightly as we continue to remove older barges from the fleet.

I will now turn the call back over to Joe.

Thank you, Berdon. Our 2010 first quarter guidance is $0.42 to $0.47 per share compared with $0.52 per share earned in the 2009 first quarter. This guidance also includes an estimated $0.04 per share first quarter 2010 charge for further staff reductions, which were implemented in early January this year. Since our peak head count in October of 2008, which was about the beginning of this recession, through early retirements, staff reductions, attrition we've reduced our Company wide shore staff by 21%.

We've also taken a number of other costs out of our business, including a significant reduction in the number of charter boats we're operating from a high of 2004 -- excuse me, the high of 104 beginning in 2008 to where it is today, 61, the number of boats have come out of our business model. We've also laid up the Company owned boats. We've reduced maintenance on laid-up equipment as well as our other ongoing cost reduction initiatives. We've also reduced our barge fleet by 51 barges.

Our 2010 guidance of $1.85 to $2.20 per share is what we published yesterday. Frankly, this is based on our best information as of today. As we know more we'll continue to confirm or update our estimates. We've debated whether it's prudent even to give guidance and concluded that we're closer to our business than our investors and we think that there is some benefit of sharing with you what we think as of today.

Our marine transportation and diesel engine service markets remain under pressure. However, we do believe that we're close to the bottom, as I said earlier, in the engine business and in the marine transportation business. The question is when are the markets going to recover? Barging rates were under pressure throughout last year and we do believe that they will remain under pressure until at least mid 2010.

To achieve pricing power barge capacity will need to be removed from the industry fleet or volumes will need to improve to absorb the existing capacity. I suspect that we'll see some of both later this year.

So, here we are in 2010. Although we'd like to be forecasting better earnings, it is what it is. Kirby is in excellent shape, however. We've taken a significant amount of cost out of our business. We have a strong balance sheet, low debt levels at favorable interest rates and cash on our balance sheet, which will continue to build throughout the year. Norman told you as of yesterday, we have a $114 million of cash on our balance sheet.

Industry stress and the current economic environment aren't necessarily bad for Kirby long term. Our businesses will recover. Stress creates opportunities to grow either through acquisition or through internal growth opportunities. It allows us to take advantage of favorable shipyard pricing and should encourage the industry to reduce barge capacity.

Earlier this month we filed an 8-K announcing Norman's retirement at the end of the first quarter. Norman has been Kirby's CFO since February of 1999 and has helped guide the Company through a number of acquisitions as well as Sarbanes Oxley. We noted in our Press Release that we've hired David Grzebrinski to replace Norman as Kirby's CFO. David brings with him a lot of experience and I'll look forward to working with David as we continue to manage Kirby and create value for shareholders.

Now, we're going to miss Norman. Norman has been a friend and a partner. He's been a superb CFO. He has agreed to continue to be involved with Kirby on a consulting basis available to the management team at Kirby's Board, at least through April of 2011. We also announced yesterday the appointment of Renato Castro as the Treasurer for Kirby.

Now, operator, I think we'll now open the call up for questions.

(Operator Instructions). Our first question comes from Natasha Boyden from Cantor Fitzgerald. Please go ahead.

With only $130 million in anticipated CapEx, deferred 10 and you've obviously got relatively low leverage levels, how do you look east of cash flow going forward and where do you see the most fastest growth, either in the marine transportation sector or your diesel engine services?

Well, we're going to be patient with the use of our cash looking for opportunities both acquisition, may consider building some additional equipment, stock repurchases. In terms of where we think the best growth opportunity is, it's hard to say but it's probably now in the marine transportation area.

Okay and would you be looking at more on an M&A basis buying fleets or would you be looking to grow more organically there?

Both, but we think that this is a good environment for consolidation and I think that consolidation, regardless of whether we do it or somebody else does it, is going to be healthy for the business long term.

Great and just a quick follow up on your diesel engine services segment has obviously been impacted as customers defer maintenance. Generally how long can that maintenance be deferred and could we expect a [re-eval] later in 2010?

Yes we think that, in fact, that's likely to happen.

Okay so the maintenance can't be deferred?

Yes there's a limit to -- yes what happens, Natasha, is that utilization declines, the customer will tie up equipment. They tie the equipment up that is the most expensive to operate, equipment that needs maintenance typically. At some point you run out of equipment to tie up and then you have to do the maintenance and we think that we're certainly closer to that today than we were at the beginning of last year.

Okay great. Well thank you very much.

Our next question comes from Kevin Sterling from BB&T Capital Market, please go ahead.

Let me start, Norman, congratulations on your pending retirement. I've enjoyed working with you over the years.

Thank you, Kevin.

Joe, you talked about capacity reductions for you fleet in '09 and it sounds like in 2010. Is that the plan? Are you planning to shrink your fleet this year? If so, do you have an idea of by how much?

We're not saying how much but at least, based on current market conditions, the fleet will be smaller at the end of 2010 than it is today, but it needs to be just Kirby. I mean you need to see capacity come out of the industry in general.

Right and it sounds like we may see industry reduction, particularly maybe by the back half of this year.

Well, we hope so.

Best guess, okay

Yes.

And to follow up on Natasha's question about acquisitions, measures, some opportunities out there, particularly in marine transportation side. Are valuations still too high in your opinion or have they started to come in some?

Well, I really don't want to comment on that yet. I think that it would be premature to comment, Kevin, truthfully.

Joe, as you retire older barges, what's the average age of your fleet now?

It continues to move down if you -- it's probably down a year, year and a half and if you take the pressure in [hydrous ammonia] equipment out, those tanks will last theoretically forever and what you typically do is build new hulls around the tanks. The fleet average is under 20 years.

Okay, thank you. In some of the contracts that are rolling over this year and need to be re-priced, about how many of those are two- and three-year old contracts or are most of your contracts rolling over one year in nature?

For the most part they are one year in nature and they're going to represent this year about 25% of our revenue so then combined with the spot you're going to have about 50% of the revenue exposed to re-pricing in 2010.

Is most of that re-pricing in the first part of the year or the second part of the year or is it hard to tell?

Well, the spot, of course spot pricing is on a day-to-day basis but the contract are pretty ratable throughout the year.

And lastly, as you talk to your customers, what are they saying about the current environment? How do they feel about 2010?

Well, I think our -- it depends on the customer of course. But I think the customers are maybe a little more optimistic about their business. But remember that the barge business is a supply and demand business and you can have disconnects between where your customer is and where you are. But I think that generally they see their business continuing to strengthen in 2010. We'll have a better feel for that because they're all announcing their earnings in the next couple of weeks and they'll be talking about 2010. But in the private discussions we have had we sense they feel a little better about 2010.

Okay, thank you. Well, that's all I have and once again thanks for you time and best of luck, Norman.

Thank you very much, Kevin.

John Barnes, RBC Capital Markets.

Joe, can you talk a little bit about this potential increase in exposure to the spot market? I think you've talked a number of times about that exposure ebbing from kind of the 80/20 kind of 20% spot in 2009 to maybe more like 30% spot in 2010. Can you just talk a little bit about -- I guess I'm just trying to figure out is that a bad thing? I mean obviously you're feeling it right now, but is that a bad thing longer term?

Yes we think that we'll probably go back to the historical mix, which is 70%, 30%. We'll trend towards a higher exposure to spot business than we have now. It's good and bad. In a falling market, of course, it means that you're exposed more to spot rates, which typically you lead contract rates in a negative way. They're typically lower than contract rates. It's positive because our systems and sales team and operating team really can accommodate the flexibility and respond to spot market opportunities as well as anybody in the business.

So we're in a very good position to capture spot business and hold utilization rates maybe better than certainly some of our competitors can. We've always maintained an element of our business that's spot where some competitors are more contract based. They'll have or they'll try to have 100% of their business, particularly smaller canal operators, in contract business so they don't have to worry about booking a tow on a day-to-day basis.

Okay. All right.

The long answer is it's good and bad.

Okay, all right. Can you talk a little bit about, and I know you don't want to be too specific, but can you kind of talk about the progression of your scrapping plans and just is it more heavily weighted to the front end, to the back end? What and then what's influencing the timing of your scrappage?

Okay and let me just make one other point on your previous question, John. Where it gets favorable, of course, is when the market turns and spot prices start trending up and if you have a higher spot exposure that's a positive thing.

With respect to scrapping, it's going to be managed around maintenance decisions that we have to make on barges. So, as barges come in and maintenance needs to be extended to that barge, we'll make the decision whether to go ahead and maintain it or to get rid of it.

Okay, all right. The delayed tows you talked about, as a result of the accident, is that permanently lost business or does that commodity just back up until you can eventually haul it?

Yes it -- we should still move it. In a tighter market it tends to be more positive because it stresses the -- well, it raises the utilization of the barge fleet and typically you see higher rates projected in the spot market. In a -- with an industry fleet that's operating at utilization levels it's currently operating, and I'm not sure we're going to see that this year but at the same time I don't think that the business is going to go away, those volumes will be moved.

Okay and then lastly, between ACLI's exiting kind of the Houston office and maybe retrenching a little bit out of the liquid market, I'm not sure what they signal to the market. That's kind of the take we took and then some of the other players maybe don't have the capital to kind of reinvest in their fleets and that type of thing. Do you think there's more of a market share opportunity for you now than there has been in the past, that maybe market shares had kind of stabilized over the last several years and now there's more market share opportunity for Kirby just from kind of from a pure organic standpoint, now without having to acquire somebody or that type of thing?

Yes as equipment exits the industry fleet, at some point as volumes come back, there should be a market share opportunity but for now I think that what you're seeing is everybody protecting their business so nobody gives their business up easily and a lot of the rate pressure is just based on people protecting the business that they have. I think long-term that may indeed be the case but I would not look for that to happen short-term.

Okay very good. Guys, thanks for your time and, Norman, congratulations on the retirement.

Jimmy Gilbert, Rice Voelker.

Thanks for taking my questions and you were asked earlier I guess on the call about acquisitions but lately I've been hearing about some very tight financial situations at some pretty sizable competitors and as that sort of progresses do you think that might loosen things up a bit? I mean, I know these guys are, you know, they're out protecting their business, as you say, but at some point it seems like they -- some of these guys might become available.

Well, yes I think it would be inappropriate for us to -- I know you understand this, Jimmy, to comment on that. You know you hear lots of rumors and it's just the environment that we're in and, having gone through this before, a lot of that is over blown and over stated and people tend to believe the worst. But having said that, we do think that the environment is good for consolidation. We certainly have a very strong balance sheet and we have an objective to continue to grow our business so we're looking for opportunities and hopefully we're going to see them.

Okay great thanks. And also, we were all hearing a couple of weeks back about some unusually icy conditions as far south as St. Louis, locks having trouble operating and if you could just talk about that. You know, I guess it's unusual in the last, you know, versus the last couple years but is it really that unusual and has that had any effect on your operations at all?

Oh no, yes it certainly in the late '70s through the '80s we saw that routinely, much worse than we're seeing it today. My guess is that we're kind of -- these things cycle and we're going to have some warm winters and we're going to have some cold winters. We're seeing at least a typically cold, well a colder winter early on this year. Last year at the same time it was a cold winter; then it warmed up. Currently the temperature is a little warmer up there and the ice is clearing and the conditions are pretty good. A couple weeks ago they were not so good.

Okay and then with regards to the Port Arthur collision, maybe you can or cannot comment but I mean I was told that the larger tanker pulled in front of your tow, so it appeared to be, if you will, the other guy's fault and also that you guys didn't lose any cargo out of your equipment at all. Is that right?

We didn't lose any cargo and we think you're right with respect to fault.

Okay well good and, Norman, congratulations on your retirement and good luck and thank you very much for taking my questions, guys.

David Yuschak, Madison, Williams and Company.

Good morning, gentlemen, and, Norm, congratulations to you too but don't do too many thing loud while you're out there. A question I've got for, Joe, though is you went from 80 to 75 in the fourth quarter on your contracts. Did you have a lot of runoff there that forced it there and what kind of time horizon, as you look at some of your contracts, do you think if you were to get to 70 you would get to 70?

Well, to answer the latter part of your question, it's going to be some time this year we think and we had indicated actually I think in the last call that we thought that as the time charters rolled off that you'd see more of that equipment in the spot market and that's pretty much what's happened. Our time charter mix is down and our spot exposure is up.

Okay so probably, if anything, maybe the first half of the year rather than latter in the second half do you think?

I -- David, I don't want to predict that. I think it's going to happen throughout the year. I say something and it happens in the first quarter and you're going to -- everybody's going to reach. I think it's going to happen. I'm just not sure that I can say when.

Now, as you look at the what's with the capital spending you're doing this year, it would kind of suggest then that 2011 your capital spending could really drop off just because of having this little comfort level to the age of the fleet that you'll have in existence at that time. Is that fair to say too?

I think that's fair. You know, some of it will depend on whether shipyard prices remain as attractive as they are now and I'm not saying that, even if they do, that we'll necessarily build but that certainly will be a factor. This year we're also going to build a gas [firing] facility in the Houston area, which we think will help us control costs and assure that we're -- the emissions that come out of our barges are handled appropriately, so some of that capital expenditure is building that facility, which we'll be through with in 2010. But I mean we have the ability to really short-term, and short-term I mean one or two years, turn off almost all of the capital spending and just produce an enormous amount of cash.

Well, that's kind of what--

We've chosen not to do that because long-term you have to invest, reinvest, in your business and, at least with respect to the current building, we think that the replacement barges that we're building are being built at attractive prices and will position us very well in the future.

As you think about your balance sheet today -- and this will be my last question -- you know, it's as strong as it's been in by a decade I guess by now, so you've ample capacity. As you look at opportunities down there, whether they're in diesel or in consolidating the industry, is it possible that that kind of capacity could take you back to maybe some of the more historic ranges of debt to cap of 40%, 45% compared to your 15% today? Do you think you can use that much capital to pursue some of the opportunities you think that are out there in both segments say over the course of next 18 to 24 months to get you there or would you end up in fact maybe being even below that kind of a range?

Yes hard to say, David, it depends on the opportunity of course. We hope so.

But that's kind of where you ultimately that target is that say a 45% debt to cap ratio, is it?

Yes we think that--

And kind of ultimately leveraged?

Around 40%, 45% is the optimum leverage for this business, given the cash flow characteristics of the business.

All right thanks, appreciate it.

Chaz Jones, Morgan Keegan.

Joe, I don't know if you or Berdon made the comment but you mentioned about pushing delivery of some of the building that's going on. Was that your decision? Obviously it was your decision but are manufacturers coming to you and specifically asking you to push out delivery of equipment?

No that decision was made in the -- in kind of the middle of the financial crisis and frankly, as we got more comfortable with our position, we encouraged the shipyards to deliver on schedule but because we had delayed some of the barges that did push some into 2010.

In terms of contract negotiations I know you've talked a lot about pricing on the call but one thing I was curious about are shippers or customers trying to negotiations longer-term contracts at the bottom of the market?

We're not seeing a lot of that.

Okay and then last one, some talk I guess in the just the industry pubs about raising the diesel tax to help subsidize the waterway improvement, just curious in terms of if that were to happen is that an added cost you can push on to the customer base?

Yes all our contracts have had the ability to pass that on.

Okay great. Guys, best of luck in 2010.

Steve O'Hara, Sidoti & Company.

I was hoping if you could give a little commentary on in terms of your market share in the industry. You've seen capacity come out kind of at the same rate as what you guys are taking out and if that's affecting your position going forward?

Yes we don't -- we actually don't know. There is an industry survey that is done by Informa that should come out next month that will give us a better indication of what was taken out. The challenge in 2009, of course, is that you added somewhere between 180 to 200 new barges and did that many old barges go out? I don't know. We know that 101 came out because 101 were ours but we don't know what other people have done, at least at this point.

Okay I mean I know you adjust those numbers. That's why I thought maybe you'd have -- you'd know.

Yes we'll have a better feel in another month.

Great and then in terms of the various categories that you guys carry, I mean are you seeing any strength or weakness in any of those? You know, is one better than the other or are they just kind of -- is just capacity the issue really?

Well, capacity is certainly an issue and the major issue. I would say that fertilizer in 2009, and that's a relatively small part of what we do, was down and that we anticipate that it's going to be better in 2010. With respect to black oil and chemical volumes, chemical volumes have been stable pretty much so for the last six months. They were down a little bit in the fourth quarter and we think that that was more fine tuning the inventories that our customers maintain.

And that was also reflected in rail car loadings of chemicals. They were down quarter-over-quarter slightly. As we go into 2010, we just sense that maybe the market is a little stronger but you have to be careful because, if you measure it by utilization, utilization is always weather impacted so we'll just have to see. And we've said that our customers are generally a little more optimistic about their performance in 2010 than we are.

Okay. And then I guess just one last question, in terms of the type of environment that you're in and what I guess you'd hope for, I mean would you rather have a weaker environment in the near term to flush out some of that capacity that may be just kind of hanging around? I mean, given your balance sheet and your cash flow, or do you think that if you had a quick rebound, not that you're expecting that, but if you did maybe that some of that capacity might hang around longer than it should?

Yes, no I think that's an excellent question and having a difficult 2010 isn't all bad. I think you do encourage a fleet reduction, older equipment coming out. I think you encourage consolidation. Kirby is in great shape. Our earnings are down but it's still, even at $1.85 is still a pretty good year, and we will produce a lot of cash and we will continue to add cash to the balance sheet and a more difficult year should spring loose some opportunities.

Okay great. Thank you very much.

Ken Hoexter, Banc of America Merrill Lynch.

It's actually Wilson Chen speaking for Ken. I had a question in regards to the eventual rebound that we might see, whether it might be later this year or early next year, in terms of the costs that you guys have taken out if you've spent at least, on my count, at least two quarters backing out expenses for reducing head count. You know, when volume does rebound how much of these costs on a percentage basis do you think are going to be permanent and what's going to be variable?

Yes that's a good question, Wilson. The boat costs will come back as volumes improve but hopefully margins will support, if they do come back, profits. With respect to the shore staff head count, we're sizing the Company for lower volumes and a smaller fleet and we should be able to handle the volumes that our fleet can handle with the shore staff that we have, so a lot of that should go away or remain gone away. If we start growing again then of course you're going to have to add shore staff to accommodate that.

Sure like, if I were to hang a number to it for like a 10% increase in volume perhaps, how much shore staff do you think you would have to bring back to accommodate that or would that just be incrementally kind of built into the structure already?

Yes I think a 5% to 10% increase could be handled with the current staff. I don't think you've have to add a lot of staff to do that. The number, with respect to shore staff head count, if you look at kind of where we were as we went into this October of 2008 through the hiring freezes and head count reductions, intended head count reductions, we've taken a little more than $27 million of cost out.

Right okay well, and I guess my final question is kind of riding on that just seeing that rebound eventually, you know, as you've made it very clear that spot rates will probably go back up along with rebound, and I am just curious as to whether you're seeing any of your legacy contractual customers not renewing in favor of the spot market because they do sense the fact that right now it's great but when the table is tilted the other way it will be a little bit harder for them, so I am just wondering if you've seen any of that type of mentality or just you know the thought process come through when you've spoken to clients.

Yes well, we've certainly seen customers release chartered equipment and go out into the spot market to get their requirements filled. What we haven't seen are customers that in the spot market time chartering and if we saw that that would be positive.

Okay well, thanks for the time, guys, and great quarter.

Daniel Burke, Johnson Rice.

I've just two questions left. First of all, with regard to the scrapping in the fleet, I was curious if you're conducting any scrapping within the afore mentioned pressure and black oil fleet and I guess I was going to ask the question to kind of inquire into the health of those two sort of more specific markets.

Yes black oil yes pressure, we've replaced a barge or two but it hasn't been significant but in the black oil business yes we've taken a number of barges out.

Okay and then two other questions and in a way they're implicit since we've got the guidance for 2010 but I was curious on the Evergreen contracts I think you typically get for the multi-year contracts sort of an annual escalator. It's a little bit PPI tied. I was wondering if you could quantify what you're in line for here in 2010? And then the second question was I thought Dixie Offshore had a couple contracts coming up this year for renewal and wanted to confirm those were expected to be extended.

Yes those contracts have been extended. With respect to multi-year contracts, did you talk about that? I'm not sure you did. The -- typically what you see is they're adjusted for PPI or CPI and last year, for example, last year being 2000-- end of 2008, beginning of 2009 okay, that time frame -- we saw adjustments on our multi-year contracts in the 4% to 5% range. This year something that isn't supposed to happen because of course all contracts should be adjusted up, the PPI was actually negative and it works both ways. If it's positive you get it; if it's negative you lose it. Now CPI, where -- which also adjusts some of the contracts that we operate under, was slightly positive. The two actually offset each other, so we got as we adjusted in January those multi-year contracts zero percent where we typically get somewhere between 3% and 5%. Does that answer your question?

Yes and I guess that's what we'd sort of suspected. Thanks for that and just to clarify, that's what about 20? That's north of 20% of the revenue base, right?

Yes we think it's close to 30%. Well, it's about 30% of the contract base and, of course, contracts are about 75% of the business so you have to do the math but it's 25% or something of the revenue.

Thanks, Joe, I appreciate the time.

John Larkin, Stifel Nicolaus.

I had a question on the accident that occurred recently and sort of the indication seems to be that the accident was caused by an error on the part of the person operating the ship and not your vessel. At the end of the day, not being familiar with these sorts of accidents, is fault really a factor of determining who is financially responsible for the cleanup?

Yes it is. Fault, it should be. This world is blessed with many lawyers with many, many points of view defending their clients vigorously but we think, as the facts roll out, it confirms what we initially thought and that is that the Kirby vessel was not at fault and, in fact, it couldn't have done anything almost in any scenario to avoid colliding with the ship. Now, having said that, we also carry $1 billion of insurance so we're well insured even if it was our fault.

What is the deductible on that?

It's $1 million, John, $1 million per incident.

Up to did I hear you say $1 billion coverage?

$1 billion, yes $1 billion in covered.

Wow, that's impressive. And then on the acquisition front I guess, not to beat a dead horse here, but I've been sort of thinking that we might have seen one by now. Certainly your balance sheet is in good enough shape to support one. What is your feeling about the type of acquisition that might be most likely here? Would it be perhaps that takeover of a customer's dedicated fleet or would it more likely be an independent operator that perhaps doesn't have the strongest balance sheet as a standalone entity?

Yes we'd take either, hard to say what's more likely. I do think that it's still a little early. If you remember, the business really didn't start coming under pressure until the first quarter of 2009 and we'll just have to see what 2010 yields. If it's going to be a difficult year, more stress is going to be put on certainly operators that are more levered than they'd like to be. The other thing to remember is that nobody likes to be acquired, even by nice people like us, so there will -- there's going to be some resistance so nobody is going to be anxious to be purchased so we just need to let time settle what's going to happen.

And then just finishing up on a topic that I think has been approached from about 40 different angles here, that being pricing, you know I guess my impression was and I guess this must have been incorrect, that Kirby had developed sufficient market share and enough what I would call strength in the marketplace that in many cases the shippers were using you because you're financially stronger, safer, more time definite in your operation and at lower risk than somebody who may come along with a lower price. Yet it seems like we're now basically in what I would call a free running supply and demand driven environment where the guy with the lowest price kind of wins when the time charters expire. Has something changed or did I not fully understand the market properly in the first place?

No I think that it depends on the customer. You have some customers that are very aggressive right now with respect to price, using our competition to lever us down in some cases. But it's a tough market and they're taking advantage of it. We do think that our utilization levels are a little above where the industry is for the most part. I don't want to comment on where we think pricing is because I think that that just wouldn't be to our advantage but we do think that utilization is a little better.

Okay that's very good color. I really appreciate the time, Joe, and all the best to you, Norman, in retirement.

Alex Brand, Stephens.

I want to follow up on that utilization question. If your time charters are down to 50% and those are effectively 100% utilization, and I assume that those are going to go down a little bit more as a percentage; how do you keep utilization in the low 80s or is there a down side to that utilization number?

Yes let me think about that. Yes because we do count time charters as fully utilized, you're right. Well, I don't think that time charters are going to get a lot worse. Most of that has rolled over. There are a few that will roll over kind of first part of this year but most of it's rolled over. I do think it's going to go down a little bit but not a lot. Yes utilization, as we speak, is probably mid 80s, so it can slide a little bit and still be in that range so hard to answer. I think net, net though that we'll see utilization probably in the 80% to 85% though this year, may lose some on the time charter area and volumes may be a little better, but I don't think that utilization is going to be above 85% and nor do I think it's going to be below 80% either.

Okay and with respect to capacity in the market, how much over capacity do you think there is? Do you still think it's in that sort of 10% range that you've mentioned before?

Yes I think it's somewhere between 300 and probably 400 barges, that that's what's going to have to come out. That's based on what I think the fleet is today. We took 100 barges out. That's a lot of barges but there's -- we'll take a little more equipment out but the rest of the industry is going to need to take some equipment out also.

So, in other words, that's your sort of best guess as to that many come out and pricing would certainly start to move up.

Yes now that's assuming, Alex, stable volumes. As you get volume increases that will absorb some of that capacity, so if you've got 5% volume that reduces the number of barges coming out. From a managing Kirby perspective we are making our management decisions assuming that volumes are essentially flat.

Right, understood. Okay one more question if I could, when you think about strategically what's going on in the market and you're opportunity to use your near record margins and your balance sheet, is this a time for you guys to think about market share and I guess what I am asking here is how do you think about your strategic pricing? Are you willing to take share because now's the time to do that and if you take some now at discounted prices there's a bigger payoff down the road?

Yes it depends on the business. I'm not saying that we're not willing to do it but we won't take share at any price but there is some business that is attractive, it fits, we'll get pretty aggressive on it.

Fair enough, good color. I appreciate the time. Good luck to you, Norman.

We have no further questions at this time.

Well, thank you for participating in our call and if you have any additional questions you can give me a call. My direct dial number is 713 435-1135. We wish you a good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.