Kirby Corporation (KEX) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the Kirby Corporation 2013 third quarter earnings conference call. My name is Sherry, and I'll be your operator for this call. (Operator Instructions) I would now like to turn the call over to Steve Holcomb. Steve, please go ahead.

Thank you for joining us this morning. With me today are Joe Pyne, Kirby's Chairman, President and Chief Executive Officer; David Grzebinski, Kirby's Executive Vice President and Chief Financial Officer; and Greg Binion, President of Kirby's Marine Transportation Group. 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 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 Form 10-K for the year ended December 31, 2012, filed with Securities and Exchange Commission. I will now turn the call over to Joe.

Thank you, Steve, and good morning. Earlier this morning we announced third quarter earnings of $1.21 per share, which included a $0.08 per share credit to the contingent earn-out liability, thereby eliminating all the remaining earn-out liability associated with our acquisition of United Holdings in April 2011. Our inland and coastal tank barge fleets continue to remain high equipment utilization levels and favorable pricing trends during the quarter. We continue to benefit from strong petrochemical production, stable refinery production levels, export refined products and fuel oils, which remain strong, and of course the movement of crude oil and gas condensate from shale formations in United States. Our land-based diesel engine business remains challenging, and we do think that this business will be stronger next year. In our marine diesel engine business, the medium-speed engine business was busy during the quarter, servicing both inland and coastal customers. The high-speed market was softer during the quarter as well for the year. As a result of this continued softness, we incurred a $500,000 charge for the temporary reduction of force during the third quarter. And with respect to the power generation market, it continues to be stable. I'll now turn the call over to Greg, who will discuss our marine transportation markets, and then David will give you a financial update. Following those remarks, I'll conclude with some comments about our 2013 fourth quarter and year guidance and outlook.

Thank you, Joe, and good morning, to all. I will address the inland business and then the coastal business. Our inland marine transportation business continued its overall strong performance with equipment utilization in the 90% to 95% range in favorable terms and spot contract pricing. The 2013 third quarter saw improved operating conditions compared with the high water conditions on the Mississippi and Illinois River that persisted throughout the second quarter. Additionally, the Algiers Locks was closed from late March until mid-July, creating heavy congestion and multi-day delays in the New Orleans area and along the alternate route to the Mississippi River, the Bayou Sorrels and Port Allen Locks. The congestion in delays were cleared by late July. We also experienced seasonably typical low water on upper Mississippi and Illinois River during September, which resulted in the light loading of barges transiting those areas. For the 2013 third quarter, inland transportation revenues from our long-term contracts, that is one year or longer in duration, were 75% total revenue, with 59% from time charters and 41% from the freight contracts. Moving to inland marine transportation pricing. Term contracts renewed during the third quarter continued to renew at the mid-single digit levels, when compared with the 2012 third quarter. Spot contact pricing levels on average remain 5% to 8% higher than term contract pricing. Moving to new inland tank barge and towboat construction. During the 2013 first nine months, we took delivery of 55 new tank barges totaling $1.2 million barrels of capacity and three towboats. We retired 37 tank barges and returned four leased tank barges, removing approximately 630,000 barrels of capacity. So net-net our 2013 first nine months, we added 14 tank barges to our fleet, increasing our inland capacity by approximately 570,000 barrels. As of September 30, we operated…

Thank you, Greg, and good morning to those on the call. As Joe noted, our 2013 third quarter earnings of $1.21 per share included an $0.08 per share credit from decreasing the fair value of the contingent earn-out liability associated with United. As of September 30, the contingent earn-out liability is zero. We have reversed $0.20 per share during 2013 making the liability zero and we certainly don't expect to make any more adjustments to the liability. For those of you running models, this $0.20 per share addition to our 2013 earnings will not be repeated in 2014. Marine transportation revenues grew 25% and operating income grew 39% over the third quarter of 2012. The inland sector contributed approximately 70% of the third quarter marine transportation revenue, with the coastal sector contributing approximately 30%. Despite the lock issues in July and the low water issues in September that Greg had discussed, our inland sector earned a third quarter operating margin in the upper 20% range. The coastal sector operating margin improved to the upper teens compared with high-single digit margin from the third quarter last year. The overall marine transportation segment's third quarter operating margin was 26.1% compared with 23.4% for the 2012 third quarter. Our diesel engine services revenue for the 2013 third quarter declined 33% and operating income was down 38% compared with the third quarter of last year. However, without the $7.9 million earn-out credit, the operating income would have declined around 90% compared with the third quarter of 2012. This segment's operating margin was 7.9% compared with 8.5% from a year ago. The decline in revenue and operating income was primarily due to the lower results in our land-based operations at United. Our land-based operations contributed approximately 60% of the diesel engine services revenue, the segment…

Thank you, David. In our press release, this morning we announced our 2013 fourth quarter guidance of $1.05 to $1.15 per share and this compares to $1.03 per share earned in the 2012 fourth quarter, which included a $0.09 per share credit to the United earn-out contingent liability. For the 2013 year, we raised and narrowed our guidance range to $4.37 to an upper-end of $4.47 per share compared to the $3.73 per share for 2012. This 2013 annual guidance range includes an accumulative $0.20 per share credit to the United contingent liability earn-out, which David talked about. Our fourth quarter guidance range does not have any additional adjustment to this contingent earn-out liability as we have eliminated this liability from our balance sheet with the action in third quarter. Our fourth quarter guidance assumes a modest improvement over 2012 fourth quarter pricing for our inland marine transportation markets. Markets are continuing to operate at close to full utilization, also assumes a continued strong coastal market with higher term in contract pricing. However, we're also assuming normal seasonality associated with poor operating conditions that are typical for the quarter. We feel that we're at the bottom of the cycle with respect to our land-based market, that's the United business, and we should begin to see improvement in 2014. Our fourth quarter guidance assume that our diesel engine service, marine and power generation markets will continue to be stable and our land-based market will continue to struggle. Operator, this concludes our prepared remarks. Now, we're ready to take questions.

(Operator Instructions) And then our first question comes from Jon Chappell of Evercore Partners.

David or Joe, my first question revolves around the cyclicality of the core marine businesses. They've obviously been carrying the flag for you guys and posting significant strong utilization pricing gains, while the diesel engine services business continues to be somewhat of a drag. So as you kind of think about the cycles on both of those businesses, and I know they're a little bit different, what innings would you assess, the current strength of the cycle for both inland and coastal? And then I'll give you my follow-up right away, which is as you think about earnings growth in 2014, how much of that would be the continued strength of those two businesses versus the bounce off the bottom in diesel engine versus potential non-organic growth in terms of M&A?

This is Joe. The marine business is a cyclical business. I've been in it over 35 years and I am seeing not a number of cycles, but several cycles. What we're seeing today is different and it's different because, for about 30 of those years, we were essentially in a very slow growth business, business that would grow at about [ph] at-dash GDP and maybe a little less GDP. With the energy renaissance in the U.S. and the need to move crude oil, gas condensate and the significant improved compatibility of the chemical business on a global basis, you have demand that frankly I don't think that we've seen in this business, the 30 plus years. So your typical cyclicality trends are going to be different here because you've got volumes that are actually growing. Now, with respect to which inning you're in, I think that you could make a pretty good argument that you're at the beginning innings in the coastal business. And maybe a little further along on the inland business, the only qualifier I'd put there is that on the coastal side, you're really not building much equipment, on the inland side you are adding capacity, and that capacity is being absorbed, is being absorbed as we speak. But you just have to look at what's coming in balanced by are the volumes that are out there, not particularly concerned about it at this point, but we certainly watch it. Do we have the ability to maybe add a little too much capacity, we probably do, but hopefully the industry is watching it like we are and we'll reduce the construction quickly if they see utilization begin to taper off. Now, as for the 2014 earnings, I think that with respect to our earnings, the biggest driver is always going to be the marine side. You've got more revenue, a significantly higher margins, a lot of power in those earnings. United can produce some nice earnings growth, but those earnings are going to be a really a fraction of the total of marine earnings and we do expect that the land-based business is going to improve. We expect that marine business is going to improve too in 2014, but I think that your real earnings driver is going to continue to be marine transportation. And depending on how quickly United is lifted off the bottom, that's going to help. But it's not going to help the way that continued pressure on rates and high utilization levels are going to help on the marine side. David, do you have anything to add to that.

No. I think that's a great summary.

And then our next question comes from Greg Lewis of Credit Suisse.

David, could you provide a little bit more color around marine transportations EBIT margins. It looks like they hit a record point, north of 26%. Was there anything specific in terms of timing that that drove that margin uplift? And is this something that we think is potentially sustainable or it's more of a mid-20s margins as opposed to a low-20s margins?

No. I mean, as we said in our prepared remarks, the inland business was in the kind of high-20% range and in the coast-wise business in the high teens. Clearly very high and that gave the segment 26.1% margins. You will recall this, Greg, that third quarter is almost always our best quarter, that's when the weather is the best. Things tend to go really well in the third quarter. We've been making progress on the coast-wise business. That margin continues to expand as rates go up, the utilization is steady. In the second quarter, you will recall we had pretty high shipyard days in the coast-wise business. That's come down a little bit and we'll continue to work on that overtime. But hopefully margin stay in this range for a while, but you know that our fourth and first quarters are impacted by weather. That's when things slow down. Even as we speak, we're pulling equipment out of the Alaska market, because it shuts down about this time of the year. So you get impacted by weather. On the inland space, we can start to get fog in the winter time here and you can get ice in the upper, so you have to be careful with the seasonality, so to speak.

I guess what I was wondering is that the sale of the assets in New York Harbor, I guess it doesn't sound like those were much of a drag on margins?

Well, I mean we were essentially losing money on the New York Harbor with those assets, and we kind of stemmed the bleeding a bit there, so that that was certainly helpful, but that should continue.

And then just, I guess as a follow-up. When we think about where the existing fleet is, are there any potential assets either on the coastal side of the business that we potentially could see some going forward? Or at this point where the fleet is sort of sized in terms of the equipment, the management team is comfortable with all the assets in the fleet right now?

No, I'd say, we're comfortable with the fleet now. I don't see any sales coming up that make sense. So we're pretty pleased with the composition of fleet right now.

And then our next question comes from Michael Webber of Wells Fargo.

I just wanted to first kind of maybe dig in a little bit more specifically around the coastal business. Earlier this year, both in kind of off and online and we've kind of talked about the fact that, kind of new build prices for larger sales coastal assets kind of moved in advance a bit of rate and returns weren't quite there yet to kind of justify some of the new build prices. So I'm curious as to just, your general thoughts around that market around, first of all, whether returns have kind of caught up and either charter prints or indication from charters have kind of caught up with where new build prices are? Your thought process around adding larger scale be it, ATBs or other assets around the coastal business in 2014? And then, shipyard capacity in that space and whether or not we'll see any new entrants?

Let me kind of take that one at a time, several questions embedded in there. Coastal pricing, as you know, essentially the third quarter of last year, fourth quarter of 2012 pricing started to increase. We've had basically high-single digits in some cases, double-digit price increases on term contracts, each quarter since then. So pricing has moved up significantly, but it still has some room to run, particularly if you view that any new builds probably wouldn't hit the market till 2015. So there should be some room. Pricing isn't where it needs to be to justify new builds and get a good return or our required return on new builds, but we're making progress towards that. We continue to speak with our customers about their needs. We're positioned well in that. We'll continue to monitor it. In terms of announced construction, we know we talked about one competitor that's building some very large equipment. We've heard rumor that one person is going to build, 100,000 or 200,000 barrel units, but this is kind of swirling around out there. But the competitor we've heard is, he owns his own shipyard, so there maybe a little self-serving going on there. But it's still early days, as Joe indicated in his comments, in the coastwise market. Even, if we were to start tomorrow, you're talking almost two years, before you get delivery of a unit. So we've got some legs yet to go on this.

And then, I guess just the likelihood that we see additional shipyard capacity really open up, granted it would be delivering in the '15 and '16. Do you think that that's likely at this point, granted just an opinion, but in you view do you think that's likely?

I don't think additional shipyard capacity. There is plenty of coastwise shipyard capacity out there now. It's not being used. That's different in the inland shipyard capacity. So I don't think you'd see any new coastwise shipyard capacity. They're all looking for business now. So I think we're okay there.

And just as a follow-up around actually diesel engine services and you guys have talked. I think this is a second quarter in a row, you've kind of referenced that a turn potentially in 2014. And I'm just curious, maybe if you can kind of walk us through the mechanics of what would drive that turn? And then if we think about a recovery in that market relative to the previous peak in that cycle that was really driven by a lot of a new equipment, how that recovery in that business might look relative to the last peak? And how it would kind of get phased into your results?

I don't think that you're going to see for a number of years the ramp up of new orders that you saw kind of in the 2010 through early 2012 years, where you're adding really millions of horsepower into the pressure pumping market. What you'll see going forward will be some replacement building, some additional capacity, where some domestic capacity gets exported, you'll begin to see pressure pumping in other parts of the world and you're going to see a lot of reman. And as I think you know, we have focused on the reman. We think that that's a steady or more predictable business. We think that the service business should provide higher, more consistent operating margins than the manufacturing side. Manufacturing for two to four quarters can be terrific. And then for the next two to four quarters that could be very painful, where we think that servicing that equipment is going to be a requirement that will be much more consistent and it's also harder to do. So we spend a lot of time building the organization, building the processes that we think position us well for that reman activity, which as we frankly listen to our customers, listen to some of the analyst that follow the pressure pumping business, it looks pretty good for 2014. There should be a lot of maintenance that needs to be done. As for new construction, one of the things that it is comforting is we are seeing a level of inquiries increase. There is significantly more customers asking for availability and pricing on business, not so much for pressure pumpers, it's more for the auxiliary equipment that is used in that business. So we just sense that 2014 is going to be a better year for our business. I think the pressure pumping business in general I think it's going to be a better year. Will pricing come back to the 2010, 2011 levels, who knows. But there should be more demand there.

And then our next question comes from Jack Atkins of Stephens.

So I guess my first question here is on diesel engine services, just kind of going back to that for a moment. Just sort of curious, if you could maybe walk us through on the land-based side? What sort of drove the significant step-down there sequentially in profitability, because by my math, I think you lost between $3 million and $3.5 million on the land-based side? So just if you could kind of walk us through the quarter there, I think that'd be helpful to understand?

There is a couple of things going on. One, just business fundamentals, Jack. We've been working off backlog and there is a fixed cost spread that doesn't get absorbed, as your volume goes down. But again, we don't want to cut cost per se, because we're preparing for next year. We are on the margin taking some cost out. But we also had some, as I mentioned in my prepared remarks, some I don't want to call them one-time, but kind of issues that generally don't reoccur, we replaced the President of United and hired a new one. So the gentleman that was there before retired. And as you know, with transitions there is always cost related to that. I mean we had a warranty issue in particular that was rather significant. But that's in the number and those items contributed to the lower results.

I guess could you quantify those costs for us, just so we can understand sort of the underlying profitability there? And then would you expect that the land-based side of diesel engine services to be profitable in the fourth quarter? I guess does your guidance assume profitability there in the 4Q?

Well, let me quantify it and then you'll get the kind of those one-time issues if you will. They're around $2 million. So that shouldn't repeat in the fourth quarter. But we don't see the base business. We don't see much change in the base business between kind of sequentially from the third to fourth quarter, other than those issues not reoccurring.

And then our next question comes from Kevin Sterling of BB&T Capital Markets. William Horner - BB&T Capital Markets: This is actually William Horner on for Kevin. Joe, following-up on your comments earlier regarding industry capacity on the inland side, I know you've noted that that all of the new builds are getting absorbed. Could you talk a little bit about how the order book is shaping up from next year and what's your confidence level that the industry is going to stay pretty well balanced between supply and demand in the next year?

The order book for 2014 is, it does not absorb all of the shipyard capacity, so it is now we're projecting less barges build in 2014 and 2013, but there is still time. If I had to guess I would suspect that about the same amount of barges are going to build in '14 and in '13, if the demand continues at these levels. What's my expectation? Well, my expectation is that the equipment is going to continue to be absorbed. You have new volume that needs to be serviced both the liquids out of shale formations and chemical plants that will begin to come on stream late 2014, '15, '16 and '17. So I do expect that at some point you will see the backlog decline a bit, because you can't build at these levels forever, but I'm not ready to define what forever means yet. William Horner - BB&T Capital Markets: And then going back to coastal pricing for a second, I believe you had mention that it was in the high-single digit range during the quarter, and I may have miss this and I apologize if I did, did you mentioned what spot pricing was on the coastal side relative to contract?

No, we didn't. As you've noted, William, we have kind of increased our contract level and even the stuff that's we consider spot, which is contracts less than a year, they're all kind of longer in nature, they are not like day-to-day spot. These are kind of six month type deals. And then what's happening in the spot market, there is just less and less equipment in the spot market and it's so different from different geographies, you could have a different piece of equipment in the west coast versus the east coast, so we didn't generalize it this quarter, but spot pricing is about contract pricing and that's part of the healthy market. It was just the amount of spot equipment in the market now is less, so it was something we didn't want to quantify.

And then our next question comes from Ken Hoexter of Merrill Lynch.

David, following through on those thoughts there on pricing on the coast-wise, should we continue to see that accelerate now that you've gotten over that 90%, do you see it stabilizing? You noted you're still not at investor return levels. How much farther do you think we need to get and how fast in order to get to reinvestable levels?

Ken, it's hard to predict how fast anything is going to be, but clearly rates need to continue to rise to get to levels that support new investment and we think that there is a need for renewed capacity. And let me back up a little bit, remember that in the inland business, you essentially have two standardized sized barges. You've got 10,000 barrel barges and you've got 30,000 barrel barges. In the coastal sector, you have a wider range of barges. You have 50s, 80s, 100s, 120s, 150s, 185, 250s, I mean that they are all over the place and depending on the requirement you're going to get demand differences in those capacities. So where you have demand for example for 150,000 barrel barge, you may see rates escalate quicker there than for example, an 180,000 barrel barge, so it's kind of hard to predict. Having said that this is a business where kind of all boats are lifted, so rate pressure in one area will tend to bleed over into another, but it won't be as consistent as you would like. We think that coastal rates in 2014 will continue to improve. Now, they will improve also based on where a particular contract was. If you've got a contract that's under market, it's going to adjust more significantly in one and in one that was renewed this year, that's renewing again next year or that's more at market. So when you get to kind of these levels, probably the velocity is going to slowdown a little bit, but it's still there. There is still pressure on rates and I would think that you are going to see some new construction in the next 12 to 18 months and that's going to be very positive for the long-term trend of the coastal rates.

Just if we look at, I know you've got a lot on the inland diesel engine side, the United business. But I guess I don't really see, when you talk about having gone through the cutbacks and other things, but without metrics whether its contracts and development or what have you, it's hard to see and measure the business other than what you're leading us on in terms of how it's developing. Can you give us some insight into are you seeing more customers come to you with initial contract discussion? Are you guessing in terms of that it's going to improve or bouncing off the bottom based on rig counts and what's going on in the reman business, getting more insight. Maybe if there's any more insight into how we can visibly see, since we don't have any real metrics on that business, how we see it turn.

And you're talking about the land-based diesel engine business?

I am, yes.

Unfortunately a lot of it is what you're hearing from your customers and reading in the Trade Press, because you aren't find a lot of metrics the backlog is down that it's not declining anymore, but it's not growing in any significant degree either. Backlog would be a nice metric to look at. When it's growing we'll share with it you, but it's pretty stable right now.

If I might jump in here, in terms of external market factors to look at, Ken, I think if you look at the pressure pumpers margins, they talk about the EBITDA margins, whether it's Baker or Schlumberger or Halliburton, some of the other pure-plays can also -- you can get some information from them in terms of there pressure pumping margins. And right now those margins, they are pretty low. They are kind of at bottom, if they start moving again, that should be a positive. Now, within at the bottom it's interesting, they are still all working. I don't know what the capacity utilization, maybe in the 80% range out there, so that equipment, a good portion of it is still working and it's working hard. They are working the equipment 24/7 in some cases. So the maintenance cycle that's going to happen, it's inevitable. And with margins as thin as they are, the non-barge pressure pumpers, in other words the tier below the Halliburton, Schlumberger, and Baker they are scrimping along to, there are scrimping on maintenance too. And you can't do that forever, right. So I know it's not a direct indication, but if you started to see margins moving up a little bit from the majors that would be a good indication. But as you look at the oilfield sector, frac intensity as long as it stays this high, it's inevitable that there is going to have to be a maintenance cycle. I don't know if that helps to revert, but it's kind of the way we think about it.

No, it's absolutely helpful. I mean just to understand kind of what your drivers are for that. Anything outside, here we think we're hitting a turn, right? It's going to help understand how we finally get to that bottom. Appreciate the insight.

And then our next question comes from John Barnes of RBC Capital Markets.

Dave, you've mentioned, well I think in your prepared comments, you talk about a reduction in force, I guess at the land-based business and then you commented about the change in senior management there. Was the amount of money that you talked about in terms of the incurred charges, was that a combination of those two events or was that just isolating senior management team?

John, those are two separate. Let me clarify, the reduction force was our high-speed business, which is the legacy business and that was about $500,000 in severance cost. The change in management, the retirement of the former President at United, and hiring his replacement was the other item that I quantified, that's around $2 million, but that also included the warranty issue as I mentioned. So those are two separate numbers. If you added them together, it would be $2.5 million.

I got a little confused on where that reduction in force was hitting, as well. Let's say the other thing I just wanted to ask you about, obviously 4Q tends to be a little bit of a wildcard because of the weather conditions and they like. Joe, could you give us maybe just a little bit of reminder as to where river and weather conditions were a year ago? Are you up against an easier comp or a tougher comp in terms of those issues as you look at this fourth quarter?

I think it maybe slightly easier based on what we're seeing today. There were some river issues in fourth quarter 2012 that hopefully won't be in 2013. And in terms of the weather itself, and still really too early, mid-November through the end of the year is where you're going to see the bulkier weather. Are you looking at weather delays?

Yes, I was just looking at delays. Last year fourth quarter delay days were right around 1,500, in the fourth quarter, which is not too bad.

Not too bad, but not great either. At least at this point, we're on track for less delays, but it's still early. We still have couple of months to go.

And then just one question around the balance sheet. Debt continues to come down, you've got a very clean balance sheet at this point. Just looking at kind of the strategy from a historical basis, you've never been one to really buy at the top. You guys typically are very good acquirers, sort of we're kind of at the top of some of the markets and maybe acquisition opportunities are going to be fewer in this kind of environment. Can you just talk about prioritizing your uses of cash? Are we going to see further debt reduction and then how much lower do you think that those levels can go?

As you know, John we're very patient in terms of acquisitions. So in the absence of an acquisition, we'll probably continue to delever. Fourth quarter is a always a good quarter for cash generation, so you could see us drop another couple of percent in terms of debt-to-total cap by year-end. The first half, it's not a big cash generation half, that the back half is usually the big cash generation. But absent an acquisition, we'll probably delever. We do will get share buybacks and we've discussed dividends before, so those are always in the mix of discussions. Even though, we're moving at the higher end of the cycle on inland, you never know on the acquisitions. There is 45-plus inland operators and some time the vast majority of them are privately held and sole proprietorships, and you never know what a sole proprietor might do in terms of his estate and in terms of his personal needs. So it's hard to predict acquisitions. And the same stands on the coast-wise. So just stay disciplined. We continue to work and look at returns on capital and making sure that we don't overpay, but we're always in the hunt. There is always something that we're working on. You just never know whether you're going to get, where you need to be, to get it done.

And then our next question comes from Chaz Jones of Wunderlich.

Just curious on the New York bunkering fleet, was there any sort of material revenue associated with that?

I wouldn't call it material, but I think clearly there was revenue. We were loosing money in that fleet, but it's not material. In the quarter you didn't see a big revenue hit to our marine business, in fact revenues are still up, right. So I think in total it wasn't very material, Chaz.

And then on the land-based engine service, I know that you spend a quite a bit of time on the call talking about that, but I guess, I'm trying to get a sense when you talk about maybe recovery for next year, is that getting back to sort of mid-single digit margins or is that sort of getting back to high-single digit margins?

We would hope it would be at least the latter, Chaz, but it depends on how quickly it moves. The reman business, if that's predominantly what it's going to be, we should see low-double digit margins. Just have to see how it holds.

And then our next question comes from David Tamberrino of Stifel.

My question revolves around kind of movements of crude oil and gas condensate during the quarter. Did you see any variability in the movements by months, based on where spreads were, maybe speak to it on the inland side as well as the coastal side?

A good question, because apparently I guess the railroads did see some variability. We really didn't, but again hopefully it is essentially capacity. And I think maybe what if there was any variability, the variability was on the demand side. And given the fleet operating at capacity and barges as they come in and were absorbed, they continue to be absorbed. So we didn't see what the railroads saw.

So there wasn't a noticeable dip in maybe mid-July, when the spreads were the tightest or either the inland or coastal?

I guess if maybe we were better balanced, you would have seen it, if it was there. But nobody was really releasing equipment. They were hanging on to it and then it stayed pretty busy.

Sherry, let's take one more question, please.

Actually, I have one more question left in the queue, David Beard from Iberia.

Maybe if you would care to quantify what the industry, in terms of the inland barge industry, additions and scrapings maybe for the year? And if you care to take a shot at next year's or maybe even give us a sense of where your capital spending may go next year, that'd be appreciated?

We'll tag team that question. We don't know what scrapping is for 2013. We kind of know what we did, but we don't what the industry has done. And we won't know until they publish that industry survey. But if I had to guess, I would think it's somewhere between 100 and 130 barges were scrapped. Now with respect to the total number of barges that are going to be built in 2013, it really depends on who you're listening to. Some industry sources are predicting as many as 300. I think our number is less than that, 260, 270, something like that. Again, we'll know when that survey is done. 2014 the order book right now is a little less. We'll just have to see.

Well, we certainly appreciate your interest in Kirby Corporation and for participating in our call. And 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, ladies and gentlemen. This concludes today's call. Thank you for participating. You may now disconnect.