Kirby Corporation (KEX) Q3 2008 Earnings Report, Transcript and Summary

Good morning. My name is Rihanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kirby Corporation Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Holcomb, you may begin your conference.

Thank you for joining us this morning. With me today is Joe Pyne, the President and Chief Executive Officer of Kirby; and Norman Nolen, our Executive Vice President and Chief Financial Officer. Joining us by phone is Berdon Lawrence, Kirby's Chairman, who is attending the Waterways Council Meeting in St. Louis. During this conference call, we may refer to certain non- GAAP or adjusted financial measures. A reconciliation to 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 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 third quarter was the 19th consecutive quarter that our earnings exceeded the same quarter the previous year. That's quite a record. Late yesterday, we reported third quarter earnings of $0.77 per share, a 20% increase compared to the $0.64 reported same period last year. This $0.77 per share result is the highest earnings per share ever reported by Kirby and reflects two issues; an estimated $0.09-per-share negative impact from Hurricanes Gustav and Ike, and an estimated $0.04-per-share positive impact from the timings of falling diesel fuel prices, which declined from a high average price of $4.33 per gallon in mid July to an average price of $3.11 per gallon by the end of the quarter. As for the hurricanes, Hurricane Gustav made landfall on the first of September between Houma and Morgan City, disrupting our Gulf Coast diesel engine service operations, our four Gulf Coast-based offshore tug barge units that run between New Orleans and Florida, and our Baton Rouge Inland Marine transportation operations. Hurricane Ike made landfall on the 13th of September in the Houston/Galveston area as a strong Category 2 hurricane, but with the power of a Category 4 hurricane because of its size, with the eye of the storm essentially walking up the Houston ship channel with storm surges in the range of 15 to 20 feet. Because of Ike's size and its unpredictable course, much of the Gulf Coast petrochemical and refining capacity was shutdown prior to landfall. Ike's wind field and storm surge significantly affected Houston, but even more significantly affected the Port Arthur/Beaumont petrochemical and refining complex, some of which is just now getting back to pre-Ike operating levels, and the rest of it won't be back there until late this year, early next year. On top of this, an eight-mile section of the Gulf Intracoastal Waterway, essentially behind Bolivar Island between Houston and Port Arthur, was closed for 11 days after Ike made landfall due to obstructions in the waterway and completely stopped all movements through this section, which is just East of Houston. The hurricane caused no material damage to our active tank barge and towing fleet. Much of it was, in fact, in Houston at that period. But some of our marine transportation and diesel engine service facilities did incur some damage in both the storms, and we estimate that the impact of the hurricanes on the third quarter results is an estimated $0.09 per share. Volumes, this is again during the quarter, volumes for most of our term contract petrochemical and black oil contracts continued to hold up during July and August until the hurricanes affected them. Upriver refined products movements remained just soft. However, Gulf Coast refined products movements were strong. During the quarter and prior to the hurricanes, we did experience some softness in selected chemical products, but overall, barge utilization remained high as we were able to deploy equipment into markets that were stronger. Again, during the third quarter, we reported 1,429 delay days, which were in line with the third quarter of last year, but did not include the effects of the two hurricanes. We define delay days as lost time incurred by a tow; a tow consisting of a towboat at the barges; due to weather, lock congestion and kind of other navigating delays. The 1,429 delay days reported does not include lost time incurred during the hurricanes, because a large part of Kirby's inland tank barge fleet was secured in fleets as the hurricanes arrived, and then waited for the petrochemical refining facilities to open after the hurricane passed and was also affected by the closure of the Gulf Intracoastal Waterway for 11 days after the storm passed. All those delays could not get in our reported delay days that we report. We reported 3.5 billion ton miles for the third quarter, and that's 21% less than the same period the year before. But I wouldn't read too much into that because a lot of that's hurricane-related. Revenues for the quarter were increased, in part by higher fuel prices, which were passed on through our fuel escalation clauses in our term contracts, and also some fuel embedded in our spot rates. The recovery of some high water charges billed in the third quarter for unusual costs incurred during the high water period, most of which was in the second quarter. These revenue additions, coupled with lower ton miles, increased revenue per ton to 7.9%. But again, I wouldn't read… I think you have to put that in the context of what I just explained. It was just an unusual quarter because of a lot of anomalies. Contracts renewed during the third quarter, year-over-year in the mid to high single digit percentage range, in some cases, low double digits, but on average in that range. Spot market rates, which include price of fuel, reflected double-digit percentage increases year-over-year. You would expect them to do that. But percentages in the third quarter were… at least, the velocity of those percentages were slower. Again, you would expect that to happen because of falling diesel prices in the quarter, but they were still positive. Our marine transportation segment operating margins were 22.7% for the quarter, slightly lower than the 22.9% reported same period last year. Our estimated margins, without the impact of the hurricanes and factoring out the impact of lower fuel, are in excess of 23%. A strong demand, favorable rate increases, increased efficiencies from an improvement in crewing and horsepower all contributed to better margins. Turning to the diesel engine service segment of our business, third quarter results were driven by strong demand for service and parts, principally in our medium-speed engine business and in the power generation business, partially offset by some softness in our Gulf Coast high-speed oil service market. However, as we expected, the high-speed market is stronger as we speak and was stronger in the third quarter than it was during the first half of 2008. Our diesel engine service third quarter operating margins were 15.7% compared to 15.5% last year same quarter. Margins reflect really, again, good markets, strong labor utilization in the medium-speed business and some pricing with respect to service and parts. If you take out the impact of the hurricane, margins in this business were 16.2% I'll come back at the end of this call and talk about the fourth quarter and the full year outlook, but I'm going to now turn the call over to Norman.

Good morning. During the third quarter, Kirby generated $93.5 million of EBITDA, a 15% increase over the third quarter of 2007, and the EBITDA margin was 26.4% compared to 26.9% in 2007. Capital spending for the 2008 third quarter was $35 million, including $10.9 million for new barge and towboat construction and $24.1 million, primarily for upgrades to our existing fleet. For the 2008 first nine months, capital spending totaled $141.5 million, including $74.3 million for new barge and towboat construction and $67.2 million for upgrades to our existing fleet. Our 2008 capital spending guidance range is unchanged at $165 million to $175 million, and new construction of barges and boats will total approximately $90 million for the 2008 year. During the third quarter, in early October, we purchased 756,900 shares of our common stock at a total purchase price of $30.2 million for an average price of $39.90 per share. We currently have 1.4 million shares remaining under our current Board of Directors' authorization. Our debt to capitalization ratio continued to drop during the quarter to 23.3% at September 30 compared with 25.7% in June 30 and 27.9% at the end of last year, and our average cost of debt for the 2008 third quarter was 5.0%. During the first nine months, we took delivery of 21 barges with a total combined capacity of 495,000 barrels and three 1,800 horsepower towboats. During the same period, we retired 19 barges and returned two chartered barges with a combined total capacity of 409,000 barrels. As of September 30, we owned or operated 915 tank barges with a fleet capacity of 17.5 million barrels. For the remainder of 2008, we anticipate the delivery of four barges with a capacity of 77,000 barrels and two 1,800 horsepower towboats. Last quarter, we announced the signing of an agreement to charter 12 new constructed tank barges with a total capacity of approximately 180,000 barrels. During the third quarter, we placed two of the chartered barges in service and anticipate four more will be placed in service in the fourth quarter. The remaining six will be placed into service in 2009 and will add approximately 120,000 barrels in 2008 and 60,000 barrels in 2009. Also, as we stated in last quarter's conference call, we will be assuming 15 additional new barge construction slots with a total capacity of approximately 420,000 barrels from a shipper for delivery in 2009. I'll now turn the call back over to Joe.

Thank you, Norman. In our press release, I commented on how we saw the fourth quarter. I think most of you will agree that we're in unchartered waters. We don't have a crystal ball. And frankly, I'm not sure our customers' visibility is much better than ours. I'm going to focus my remarks on how Kirby is positioned for what could be a more difficult environment and share with you some historical volume information that we use to adjust our thinking as we enter more difficult periods. I also want to note that the fear du jour of the past year tank barge over capacity is likely behind us. We do not think most prudent operators will continue to build into this market. Financing new construction for many operators will also be difficult. We do think that the operators with strong balance sheets will complete their committed 2009 building schedules. Operators with options for 2009 construction will most likely not exercise those options. As we enter these uncertain times, Kirby has 80% of its inland transportation business under term contract. We work for many solid companies with strong balance sheets. Our two largest customers are Dow and Exxon. Unlike the recession of 2000, inventories, as we go into this period, are relatively low. Also crude oil and natural gas costs, our customers' feedstocks are significantly lower than they were six months ago. Typically, in recessions, Kirby's barge volumes declined in the 6% to 8% area. In the 2000 recession, we saw volumes decline in the 8% to 10% range. The 2000 recession is recognized by the petrochemical industry as the worst recession for that industry in recent memory. Currently, as we speak, our volumes are frankly mostly holding up. We are very aware that the petrochemical industry in the Gulf Coast was shut in by the two hurricanes, and it is just now returning to normal, with the exception of the Beaumont and Port Arthur facilities, which will not return to normal until late this year, and in some cases, next spring. It will be difficult to accurately measure underlying demand in the barge business until the hurricane recovery period is over. Besides our strong contract to spot mix, approximately one-third of our power towing vessels that we use to push our barges are chartered. Chartered power allows us to lower costs by releasing power. We're able to successfully do this in 2000 by reducing the variable cost associated with this power. We've also been working hard for the past year targeting costs that we believe we can take out of the business. Bottom-line, we're positioned well for a more challenging operating environment. For this quarter, the 2008 fourth quarter, our earnings range is projected to be $0.77 to $0.82 per share, which is compared to $0.64 per share earned in the 2007 fourth quarter. For the year, our guidance is $2.96 to $3.01, and that compares to the $2.29 earned during 2007. For the reasons I've given you earlier, strong balance sheet, strong customer base, our contract to spot market mix, I think we're in an excellent position to take advantage of opportunities that may come our way. Much of Kirby's historical growth has been accomplished, frankly, during more difficult economic periods. Operator, we're now ready to open the call up for questions. Operator? Question and Answer

[Operator Instructions]. Your first question comes from Jimmy Gilbert [ph].

Hi, guys.

Good morning.

Joe, you talked about weakness at the Midwest refiners in the press release and on the call so far. Can you talk a little bit about what… my impression is that your exposure is more in the Houston/Beaumont/Baton Rouge area than it would be up further north. Can you talk about that for a second?

Sure. My reference to the Midwest market is more talking about refined products movements upriver, which, frankly, have been reduced for the last six months because driving is down and refined products demand as a result of that is down. So we've seen less demand for upriver movements of refined products than we typically have. Now, having said that, I think third quarter actually saw some improvement in that area, and I think it's as much the result of lower gasoline prices, which may encourage a little more driving. As to the Gulf Coast petrochemical complex, when I talk about Port Arthur and Beaumont, they got more of the storm surge from Ike than Houston did. And in fact, the storm surge was worse in Ike than it was in Rita. So a lot of those facilities got water up into the facility and they're down as they fix the problems that that water caused. Does that answer your question, Jimmy?

Yeah, it does.

Okay.

And then, also, I got the numbers on barges operated at 915, but do you give a number on how many power vessels you operate?

Yeah, we do. It's --

255.

255 for the third quarter.

Yeah.

And how many are owned and how many leased?

About a third are leased and two thirds are owned.

Okay, great. And then, if you just could… we know that scrapping prices had gone through the roof pretty much in the second and third quarter. Now with steel prices coming in, can you give us a picture on what you might be able to scrap a 10,000-barrel tank barge for these days?

Well, it's significantly down, but we typically don't scrap them. We typically sell them into an alternative service. We get more value out of that. Scrapping is more important for the dry cargo guys. I think I know that number. It moved from about $80,000 a barge down to around $13,000. So it's down significantly. But that's not a component really that's important to us.

Okay.

Jimmy, just so others can ask questions, I think what we want to do is limit the questions for, at least… as you get into the queue for one question and a follow-up just so we get everybody in.

Okay. That's great. Thanks, fellows.

Yes.

Your next question comes from Chaz Jones.

Hi. Good morning, guys.

Good morning.

Nice quarter. Joe, you talked a little about the contract and spot mix and that really hasn't, I guess, changed here over the last couple of quarters. But could you kind of remind us as we kind of move, I guess, closer into 2009, how much of that contract business, that 80% that you're referring to, is going to potentially rollover the next 12 months and potentially be repriced?

Yeah. About half of it will, Chaz.

Okay. So you're potentially looking at 60% of the business being repriced if you include spot?

Yeah. 55% to 60%, right.

Okay. And then the other question, I guess, as a follow-up, I guess nobody knows really what's going to happen here, but have you seen any changes on the acquisition front? Obviously, I would expect valuations to have come in significantly here. Maybe the credit market is forcing people into a little bit more difficult situation, but just in terms of opportunities, how much has that changed in the Inland Marine side?

Well, I think it's too early to tell, but we certainly anticipate it changing. The credit markets are very different. The world is a lot more uncertain. And historically, as I mentioned in my prepared remarks, we have grown this company. I think we're 42 acquisitions that aggregate to form Kirby in more difficult periods, because the pricing is more realistic. I think that for a number of reasons, at least in the tank barge business, price expectations made assumptions that the world wouldn't see conditions as we currently see, and we all know if we're old enough that these things happen. And I think that all combines to get a more realistic view of what assets are worth.

We also will have likely less private equity competitors vying for acquisition targets.

Yeah.

Do you think we'll see more consolidation in the industry?

I think so. Yeah, I think you're going to see more consolidation regardless of the scenario.

Okay, great. Thanks, guys.

Yeah, operator?

Yeah, sir?

Okay. Any more questions?

Yeah, sir. Can you hear me?

No. We can hear you now.

Okay. Your next question comes from the line of David Yuschak.

Great quarter. You mentioned earlier, Joe, about expecting some options not to be exercised next year. That would kind of suggest too from your own point of view that you'd expect capital spending yourself to be down quite a bit from the robust level of the last couple years. Is that kind of maybe a preliminary thinking that you guys are kind of adopting yourself internally?

Well, we have some committed construction contracts that we're going to go forward with. We'll address capital expenditures in January, but I don't think they're going to be significantly less in 2009 because of the equipment that we're committed to.

Okay, so the commitments you've made, you've got more commitments than maybe somebody else who had some options on stuff is kind of what you're saying then?

There are operators that have options.

Yeah.

And those options were, in fact, negotiated years ago. They're just rolling options.

Okay.

And shipyards that gave those away, I suspect if you ask them, are regretting it because they just continued to build barges. In more recent history, shipyards have been very reluctant to give you options. They want commitments because they don't want to get in the business of having an option and having you be able to kind of sell that swap to somebody else.

So your idea probably would be… well, you maybe want to tend to take some more stuff out of service then because of some of these commitments?

It depends on the environment, David.

Okay.

I mean, there certainly is a scenario that for every barge that we bring in to service, new barge, that will remove that amount of capacity and not add capacity.

Okay.

but again, we're not… I talked earlier about what we typically see in weaker periods really is a… to give everybody a sense for where this could go, but we're not predicting that at this point.

Then one last question on that contract spot mix. You had traditionally kind of run at a 70/30 for quite a while before moving to the 80/20. What kind of conditions do you see in 2009 that potentially could maybe move that back down to maybe that 70/30 mark that you've done in the past, or you think maybe that may be a good deal, that 70/30 may be behind us just because of taking an industry that was underutilized totally to a tightness capacity that you may not go back to 70/30 again?

We have some control over that.

Right.

It's a little like an aircraft carrier. It takes a while to make it stop or go forward. But I can see environments where the lower contract to spot ratio would be the right place to be.

Okay. That's all I've got for right now. Thanks.

Operator, are you there?

Daniel, your line is open. Daniel Burke - Johnson Rice & Company LLC: Hello, I guess that's me, Daniel Burke from Johnson Rice.

Yeah. Sorry about that, Daniel. Go ahead. Daniel Burke - Johnson Rice & Company LLC: Not a problem. Joe, a question on the contract renewals. I think you'd referred to the September renewals occurring in mid, high single digit percent range, maybe a little off of where you talked about earlier in the year. But I guess my question is more along the lines of it seems like in July and August we were in a different world than we are today in October. So does that mid high single digit range still sort of reflect what you feel about the market today or does that reflect what you felt about the market in the Q3 quarter?

Well, that's what happened in the Q3 quarter. With respect to today, we haven't commented on what we think is going to happen. Daniel Burke - Johnson Rice & Company LLC: Fair enough. We'll follow the trend. And then, I guess I had two quick specific ones for Norman. Norman, you mentioned the recovery of high water charges in the third quarter.

Yeah. Daniel Burke - Johnson Rice & Company LLC: Can you maybe quantify what that could look like? And then, I know that you'll be reluctant to do so, but with regard to the continued decline in diesel fuel, does that point to a favorable fuel impact if we were to finish out the quarter with diesel and, I guess, crude prices where they are today?

On the first question, high water charges in the third quarter impact about $3 million pre-tax. And as rates go down, yeah, you're right, you would expect a favorable impact from fuel in the fourth quarter. Daniel Burke - Johnson Rice & Company LLC: But I mean it shouldn't be any larger just to finish out than anything you saw in Q3?

It just depends on what… see, we don't know what our costs are going to be till the end of the quarter, so it's still kind of early to really say one way or the other. Daniel Burke - Johnson Rice & Company LLC: I understand. Thanks for the help, guys.

Sure.

Your next question comes from the line of Michael [inaudible]. Michael, your line is open. That question has been withdrawn. Your next question comes from the line of John Larkin.

Good morning, gentlemen.

Good morning.

I had a question. I think, Joe, you mentioned that you've been working all year on a number of cost reduction initiatives. Wonder if you could give us a little more detail on that and what the magnitude of those might be? And maybe to use a baseball analogy here, what inning you may be in, in terms of that overall initiative?

Yeah. That's a good question. Let me kind of describe the process. We have always worked on costs at Kirby. We have, at any given time, probably 15 or 20 teams… natural teams, working on ways to do something better, take costs out of the business. At the beginning of 2008, we went a step further and actually pulled some of our key people out of their jobs and put them on a cost team that just focused on the cost area. And that team has been working hard for the last year and they've identified a number of opportunities that we think will translate into real savings. Not really ready to put a number on the table yet, because once I give you that number, you're going to count on it. So we have a little more vetting to do, but it's not immaterial. The inning that we're in, I think at least with that team, we're probably in the sixth or seventh inning. Now, having said all that, that team worked on costs that you would extract from the business in the environment that we had in the first half of the year, which was a positive GDP environment. When you get into an environment, and I don't want to make a forecast because I just don't know where this is going, but when you get into an environment where you actually have negative GDP and declining volumes, you can take even more costs out of the business. But what we were looking at is efficiencies that we could achieve, that we could get comfortable in quantifying, purchasing strategies, redeployment of power, that kind of thing, John.

That's very helpful. I guess you'd be implementing those plans in 2009 or at least starting to?

Yeah, we will. Yeah.

Okay. And then maybe just one follow-on. We're getting close here to the presidential election with a change in administration and maybe a change in the party in control of the White House. Do you see anything on the horizon that may change the regulatory landscape for your industry?

Well, I think that the regulatory landscape is going to get more difficult for the industry for a number of reasons. I think that the current Congress believes that regulation's a good thing that the lack of regulation has been responsible for some of the problems. We are in the process of developing an inspected towboat program. The Coast Guard is getting ready to implement rules in that regard. I think that we're going to see more stringent rules. Now, having said that, we don't think that that necessarily is a bad thing for Kirby. Kirby has always operated above any Coast Guard standard. And we think that our owned, and frankly, even our chartered fleet is better positioned to accommodate those increased regulations than maybe others in the business. But I think you're going to see more regulation of the business, not less.

That's very helpful. Thanks a lot.

Your next question comes from the line of Ken Hoexter.

Hi. Good morning.

Good morning.

Can you discuss what you think… I guess, another second quarter with ton miles down 21%, I'm just trying to figure out if you kind of exclude the hurricane impacts, what the environment was looking like as far as ton mile demand goes? And maybe what it looked like, maybe in the last couple weeks of October as, firstly, the economy slowed, but you're recovering on some of those volumes, just so we can get a concept of what's going on and go forward.

Yeah, Ken. I think July, August ton miles were kind of consistent with where they had been. Last half of October, we're still getting a little distortion in ton miles because the fleet's still not completely balanced. And it's really hard to carve out what might be storm-related versus what, if anything, is demand-related. So I would say we're going to have a much better idea of that at the end of this quarter. Now, having said all that, utilization is still pretty strong, but because ton miles are achieved more in the river, the leverage for ton miles is greater in the river than in the canal. It's just very hard for me to tell you with any accuracy if we're actually seeing some demand destruction.

Did you give an updated percentage on the 80% contract as to what is take or pay?

I didn't, but it's in the mid 50s.

So no significant change.

No, no significant change.

All right. And then, Norman, can you give out a split of what your… I'm just trying to understand, did you get rid of the single hull barrel… I'm sorry, single hull tank barge during the rest of your six during the quarter? Can you give a breakdown of the less than 20,000 barrels, greater than 20, the specialty, and then what's single hull left?

Well, there's hardly any single hull left. We're trying to get that. Just a sec. Nine single hulls. What else do you need, Ken?

Usually at yearend, you give less than 20,000 barrels, greater than 20,000.

Yeah, we'll do that in the 10-K. We don't have that with us, but we'll do it. We'll do it. We don't think it's changed appreciably.

Basically, you still have the nine single hulls. That's what I was trying to get at.

We do, but they are close to being gone.

Okay. And then just, lastly, your debt level at the end of the quarter?

$269 million. We've generated close to $25 million since the end of the quarter.

So no significant change there. Was it just cash flow that you used to buy the stock?

Yeah, right.

Cash on the balance sheet. Would you comment on that?

Yeah, we've had as much as $30 million on the balance sheet this quarter. Our capital spending was really weighted towards the first half of the year and we've generated a lot of money in the second half of the year. We normally keep really no cash on the balance sheet. We've let it build up a little bit in the recent times just because of the uncertainty in the credit markets, but we're kind of letting that go down again now that the government is back stopping the banks.

I think we did comment on debt to total cap.

Yeah, you did. No, I got that. I just wanted to see where the actual levels were. Thanks a lot for the time, guys. Appreciate it.

Sure.

Your next question comes from the line of Alex Brand.

Thanks. Good morning, guys.

Good morning.

Housekeeping item. Norman, can you give us the share count at the end of the quarter?

Yeah. Hold on just a second.

Alex, here it is.

54.197 million shares diluted.

Okay. Thanks.

Now is that an actual end of the quarter or is that an average?

That's outstanding. This is the shares outstanding.

53.549.

Before dilution.

Before dilution.

Okay. Yeah, I was trying to figure out. Looked like you guys probably bought the stock in September, so the weighted average would've been off. And, Joe, with respect to the capacity, it sounds like you had no damage. Are you aware of competitors that may be had damaged capacity that may be helping spot pricing stay a little stronger?

I'm not aware of any appreciable damage. It wasn't like Katrina where you had barges kind of all over the place. I think most operators came through the storms pretty well.

Okay. That's what I thought. And just one more thing. With respect to your visibility, which you're pretty plainly saying you don't have a lot, can you just characterize that sort of against historically with a lot of contract business, would you normally say we have good visibility out six to nine months, but right now it feels different because our customers don't even know? Is that a fair characterization?

I think it is, Alex. I think that's kind of how we see it. Normally, you do have six to nine months of clarity, but these are just very unusual times.

Right. Fair enough. Thanks for the time, guys.

Okay.

[Operator Instructions]. Your next question comes from the line of Natasha Boyden.

Good morning, gentlemen.

Good morning.

Good morning. Just wondering sort of right now how you think about use of capital. I mean you've been buying back shares also been paying down debt. You do have a sort of capital expenditure program. Do you lean more towards one than the other right now, do you have a preference?

Well, Kirby's stock is a great value.

Yeah.

There may be opportunities that we want to take advantage of. So we're going to have to balance opportunities versus value in your share price.

Now, what I'm asking is, I mean are there any sort of, I suppose, S&P market opportunities given recent financial turmoil? I mean are you seeing anything like that?

S&P?

So sorry, it's sale and purchase.

Well, yeah. Natasha, I think it's too early to talk specifically about that. We just say generally it's periods like this that the companies with strong balance sheets, good relationships with their bank; you know, Kirby's an investment grade rated company, there's no other company in our business that is investment grade rated; have an advantage in being able to take advantage of maybe some distressed opportunity that others are not going to be able to do. I think I'd leave it that way. Are we seeing any opportunities? Really not any specific ones, but we're just getting into this. Got to go, probably a ways to go.

Question comes from the line of Alan Mitrani, Sylvan Lake Management.

Hi. Thank you. Can you tell us what your CapEx plans are for next year?

We'll comment on that in January.

Okay. But can I assume then that, obviously, the last few years you've been overspending given the good environment and then upgrading your fleet, but can I assume that it's not going to be at the level of where it's been the last few years?

Yeah. I'd rather say that we've been appropriately spending.

I was just saying relative to depreciation, not relative to --

But we have some commitments next year to build equipment. So I wouldn't look for appreciable changes in capital for 2009.

We'll spend more money on new equipment than we've spent this year, but we're still working on for the rest of it.

Are you talking about $90 million being what you've spent this year for new equipment?

Yes.

Okay. So you think that will be up next year in '09?

Yes.

Okay. But what's your maintenance CapEx?

Well, when you say maintenance CapEx --

If you didn't add a new boat, didn't add anything new, what is your CapEx that you need to maintain your current business?

Yeah, it's between $70 million and $80 million. That's to maintain current capacity and replace equipment that needs to be replaced.

Okay. Also, in this environment, you've talked several times about seeing that you accelerate your plans and look for opportunities in terms of buying other companies or getting distressed situations. Maybe talk a bit about what the opportunity is for outsourcing in this environment from some of your customers if you're talking about possibly increased regulation, a little tighter restrictions and maybe capital constraints on customers that may have other places to put the capital. Do you think it will accelerate the outsourcing?

Well, it could. That's been ongoing for the last 10 years. I mean, for example, we bought Ashland's chemical fleet. We bought Dow Chemical, Union Carbide's fleet. We bought Exxon Mobile's inland tank barge fleet. Others have bought other shippers' fleets, so there are less of them out there, but we think that that's clearly an opportunity. Whether this will accelerate, I think it depends on the specific company but this is a good time to do it for them, and we're, of course, in a good position to buy them.

Okay. And then I know you guys are prudent in general, but clearly, with the negative GDP today and seeing that the consumer portion of that is down and I can't imagine… probably gets a lot worse and into the first quarter. I assume your planning for next year is assuming sort of a down year in terms of ton mileage or a difficult year as you go in terms of your planning and your cost cuts? Is that a fair assumption?

I'm reluctant to comment on that because, truthfully, we don't know. But having said all that, the picture does not look very good, and we tend to be conservative as we react to things, both positively and negatively. So we're going to consider a range of options that we can implement depending on where this all shakes out. And I don't truthfully know where that's going to be. Right now, utilization is still pretty strong. Where it's going to be at the end of the year is another story. So we'll be in a much better position to respond to that, I think, when we talk about the end of the year for whole year earnings in January.

And lastly, in a no-growth environment or negative growth environment, I assume your cash flows are actually better because you don't have to put capital up to grow the business?

Well, in 2009, we have some significant capital that we're committed to. But you're right, you can gear this down very quickly.

I was talking about working capital, not CapEx.

Yeah, that's right because if you have to get reduced volumes, you'll have reduced working capital environments.

Okay. Thank you.

Your next question comes from the line of Jonathan Chappell of JPMorgan.

Just one quick one for you, and then we can wrap it up. Joe, you mentioned that there are probably a fair amount of options for '09 that may not be exercised. Do you have any idea how much of the new building delivery scheduled for '09 is represented by options? And another way to put it is just your best guess, obviously, there's way to know this, how much of the '09 delivery schedule do you think may be at risk given the financing issues out there today?

I think a lot of it is at risk, frankly. There's some 180 barges, I think, that we think are out of order. Now, 50 of those are ours. Those 50 will get built and there's going to be some others that get built. But I know of really no equipment that has been committed for 2010. And you're again looking at a fleet that a third of the capacity, it's 30 years or older. So I think the concern that we're going to overbuild the business is significantly diminished today. How many actually get built in 2009, it's just hard to say. But I think that a lot of that tonnage is at risk of not getting built or getting built and having trouble getting financing.

Great. Very helpful. Thanks, Joe.

And there are no further questions at this time, sir.

Thank you for your interest in Kirby Corporation and participating in our call. If you have any additional question or comments, please give me a call. My direct dial number is 713-435-1135. And we wish you a good day.

Thank you for participating in today's Kirby Corporation third quarter earnings conference call. This concludes today's conference. You may disconnect at this time .