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Kirby Corporation (NYSE:KEX)

Acquisition of Allied Transportation Conference Call

September 05, 2012 4:00 pm ET

Executives

G. Stephen Holcomb – Vice President-Investor Relations

Joseph H. Pyne – Chairman and Chief Executive Officer of Kirby Corp

David W. Grzebinski – Executive Vice President and Chief Financial Officer

Greg R. Binion – President and Chief Operating Officer

James F. Farley – President, Kirby Offshore Marine, LLC

Analysts

Jonathan B. Chappell – Evercore Partners

Connor Hustava – Stephens Inc.

Kevin Sterling – BB&T Capital Markets

Jimmy Gibert – IBERIA Capital Partners

Ken Hoexter – Bank of America Merrill Lynch

John L. Barnes – RBC Capital Markets

David Beard – IBERIA Capital Partners

Stephen O'Hara – Sidoti and Company, LLC

William Baldwin – Baldwin Anthony Securities

Chaz G. Jones – Wunderlich Securities, Inc.

Matthew Young – Morningstar Research

Operator

Welcome to the Kirby Corporation Acquisition of Allied Transportation Conference Call. My name is Trish and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Please note that this conference is being recorded. I would now like to turn the call over to Stephen Holcomb. Sir, you may begin.

G. Stephen Holcomb

Thank you for joining us this afternoon. With me today is Joe Pyne, Kirby’s Chief Executive Officer; David Grzebinski, our Chief Financial Officer; Greg Binion, our President and Chief Operating Officer; and Jim Farley, our President of Kirby Offshore Marine.

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-Q for the year ended December 31, 2011, filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Joseph H. Pyne

Thank you, Steve. I’m going to do the prepared remarks. David, Greg and Jim will be available to help us with questions. We are pleased to announce our agreement with Allied Transportation Company. The Allied fleet is comprised of 10 coastwise tank barges, three offshore dry cargo bulk barges and tugboats. The total value of the transaction is approximately $116 million and this includes $10 million that will be paid contingent on developments with the U.S. Farm Bill.

The purchase of Allied’s costal barge and tugboat fleet adds product diversification to our Kirby Offshore Marine segment. 90% of Allied’s tank barges are under term contracts with petrochemical customers. Kirby has existing relationships with most of these customers in our Inland Marine segment. Allied’s offshore tank barge operations will position Kirby to strengthen and to grow and to continue to grow the coastwise petrochemical business.

This is an attractive acquisition for several reasons. Allied is a great platform from which to grow our petrochemical business. We have thoroughly vetted this equipment, which we are buying and are comfortable with it well-maintain. Their synergies from cross selling opportunities which will help us service our inland petrochemical customers as well.

Allied’s revenue and adjusted EBITDA for the last trailing four quarters were approximately $78 million in revenue and $16.1 million in EBITDA. 80% of Allied’s 2011 revenue was driven by the transportation of petrochemicals predominantly under multi-year contracts. The remaining 20% of the 2011 revenue was derived from employing Allied’s three dry cargo barges and the transportation of sugar and other dry products between Florida and East Coast ports.

As many of you know, we already have a position in the coastwise dry bulk business owning four tugboat units with two additional units currently under construction. We expect to close the acquisition in late third quarter or early fourth quarter of this year with a positive earnings impact or with the positive earnings impact on our [2000] results most offset by one-time transaction related expenses.

For 2013, we expect the purchase to be accretive $0.06 to $0.08 to our earnings per share. In addition, we believe that over time, we can achieve additional synergies that will allow Allied to be even more accretive to our bottom line.

I’d like to use this opportunity also to talk about another small acquisition, which is that Kirby has acquired 17 inland tank barges from Lyondell Chemical Company earlier this month. 17 barges consist of eight owned and nine charted or leased barges. Because we were already managing the fleet of barges and telling them the transaction is not expected to have a material impact on our earnings.

I also want to comment on the effect of the recent hurricane and the low water conditions on the Mississippi River System. As you are aware, we have been operating with low water conditions on the Mississippi starting with some issues on the Ohio River since mid-May and extending to the upper Mississippi River as well as the main stem lower Mississippi river during this quarter.

As a result of low water levels, during the third quarter, we have been loading our tank barges for upriver destinations to nine foot droughts versus what we typically load in the summer, which is somewhere between 9.5 feet and 10 feet. Water levels along the Gulf Intracoastal Waterway have remained at normal levels and have not been impacted by the low water levels on the Mississippi River System.

In spite of challenging conditions, we continue to safely move products throughout the Mississippi River System in addition to light loading of our tank barges, transit times have been extended to a number of industry groundings occasionally closer to the sections of the river for short periods of time and for dredging operations throughout the system.

Now, having said all this, it’s important to note that approximately two-thirds of our inland transportation revenues come from movements along the Gulf Intracoastal Waterway and a third from the movements on the Mississippi River System, which is the system that’s affected by low water.

With approximately 75% of our inland revenues under term contract and 55% of our revenues under time charters where we’re paid a daily rate, our exposure to low water is somewhat mitigated.

I also want to comment on Hurricane Isaac, made landfall in Southern Louisiana near Houma last Tuesday evening August 28. As a Category 1 storm, the winds were not intense, but there was significant rain throughout Southern Louisiana and as the storm worked its way north, it also dumped a lot of rain into river system. As with all hurricanes rain movements for this storm particular as it came into Southern Louisiana stopped the movement of equipment in this area to Florida and in the Gulf of Mexico as it applied to our offshore operations, which delayed movements in the Gulf of Mexico for several days.

Now the good part of it is rain from Isaac has offered some relief to the low water situation on the Ohio and Mississippi Rivers, but we do expect that once this water works its way down the river system, we will still be in a low water situation. Although it’s too early to preciously predict the full extend of the financial impact of Hurricane Isaac on our marine transportation business as well as our engine business and the effect on our earnings due to the impact of low water situation, we are in a position to project an impact in a range of cents from both these situations, the low water situation and the hurricane.

We think with respect to the third quarter that with respect to low water, the impacts are going to be between $0.01 and $0.03 on earnings with about half of this already in our third quarter projections. Remember that we went into the third quarter with the thought that we were going to have some challenging conditions on the Mississippi River, so we put some of this already into projection. And the impact from the hurricane to be somewhere in the $0.01 to $0.02 range.

Even given this negative impact on our range for the quarter of $0.87 to $0.97, this estimate remains intact and we think that we are positioned well to fall somewhere into this range probably closer to the bottom end than the top end.

We also confirmed in our press release today that the full-year guidance remained the same and that that guidance is $3.50 a share to $3.70 per share.

Operator, we will now go ahead and open the call up for questions.

Question-and-Answer Session

Operator

Thank you. We will now being the question-and-answer session. (Operator Instructions) And our first question comes from Jon Chappell from Evercore Partners. Please go ahead.

Jonathan B. Chappell – Evercore Partners

Thank you. Good afternoon, guys.

David W. Grzebinski

Hi, good afternoon.

Joseph H. Pyne

Hi, Jon.

Jonathan B. Chappell – Evercore Partners

Hey, guys. A quick question on the estimated accretion for 2013, you mentioned in the release and in your comments that there is some complementary opportunities for the inland barge business here. So that initial $0.06 to $0.08 accretion number for 2013 is that just what you are assuming for the addition of the equipment kind of as is and does that exclude any potential kind of cross selling opportunities for your current customers in the inland barge business?

David W. Grzebinski

Yeah, Jon, this is David. It includes some synergies and what we think the equipment will earn next year. The amount of synergies is on order of $1 million to $2 million. There could be more synergies there or less, but we think it’s in that range. The synergies take a form of potentially some insurance savings, maybe some accounting type savings and back office type savings, but as you know the inland business is about two-thirds petrochemical and Allied’s liquid fleet is 100% petrochemical.

So we’ll have the ability to extend our service offering to our existing petrochemical customers, which overlap with Allied’s customers. So we are not projecting any pricing synergies or anything like that.

Jonathan B. Chappell – Evercore Partners

Understood. And then also just quickly on Allied as my follow-up. Can you just speak to the financial condition of the company, you’ve mentioned that, you’ve done the due diligence and the equipment was well maintained, but just as we think about kind of K-Sea in the bob from that acquisition, obviously, in retrospect K-Sea quite didn’t have the funds to do the right maintenance, so just some commentary on Allied’s cash flow financial position and how they were maintaining their equipment?

Joseph H. Pyne

Fair question. They were in good financial shape, privately owned, owned by one family with four brothers working in the business, very carefully managed. Now with respect to looking at the equipment unlike K-Sea where you had 10 days to look at a fleet that had a very diverse footprint, here we had several months to very carefully assess the condition of the fleet. We think that they have spent money prudently and appropriately. So we are pretty comfortable with what we’ve bought.

Jonathan B. Chappell – Evercore Partners

Okay. Perfect. Thanks, Joe, thanks, David.

Operator

Our next question comes from Jack Atkins from Stephens. Please go ahead.

Connor Hustava – Stephens Inc.

Yeah, hi, guys. This is actually Connor Hustava in for Jack today.

Joseph H. Pyne

Good afternoon, Connor.

David W. Grzebinski

Hi, Connor.

Connor Hustava – Stephens Inc.

Just quickly wanted to – well, congrats on the acquisition, but wanted to touch on the contingent consideration in – I was just hoping to get some color there what that’s based on and how we should think about timing on that?

David W. Grzebinski

Yeah, this is David again, Connor. The Allied’s fleet has three dry cargo barges, which move sugar. There has been some discussion in the formation of the Farm Bill and the continuation of the Farm Bill about certain sugar support mechanism with in that bill. Given that uncertainty, what we negotiated with the owners of Allied was that we would withhold $10 million pending the resolution of those sugar provisions. If the Farm Bill is renewed for a period of years, we will pay that $10 million in consideration as soon as that Farm Bill is renewed. If the form bill doesn’t get renewed, it will over a period of three years, we will pay it out in chunks of about $5 million starting the following year.

Joseph H. Pyne

We expect to pay it.

David W. Grzebinski

Yeah. It really is its consistency, if the political rhetoric around the Farm Bill has and something gets passed in the Farm Bill that’s decremented to the – or they remove some of the sugar provisions from the Farm Bill, it protects us from a catastrophe situation on that revenue portion of that business.

Joseph H. Pyne

Yeah. And again just to add a little more color to this, even if that happens we expect that sugar will be moved. What we don’t know because we haven’t been in the sugar business in a while, we at one point actually service the same customer. What we don’t know is the effect on volumes, but I think a pretty good argument can be made that the volumes are going to remain intact.

David W. Grzebinski

Yeah, and if the volumes remain intact we would pay the contingency as well.

Connor Hustava – Stephens Inc.

Okay, that’s helpful. And then for my follow-up, I just wanted to ask about spot rates today in the marine business given some of the weather dislocation that we’ve seen whether that would be a low water levels or the hurricane, I’d assume that some of that has constrained shipments and therefore we could see some level of pent-up demand there, I just wanted to see if that’s being reflected in spot rates today currently?

Joseph H. Pyne

Well, rates are continuing to modestly trend up and some of the volume that you lost particularly for the – during the hurricane will be made up. Low water conditions, I think the volumes are being moved, I think it just takes a little more equipment to move them, you’ve got about half a foot of volume that it is not getting moved as efficiently as it normally is. So that’s made up with another barge or two for the customer over the year – over the quarter. So that helps with utilization. It helps principally with utilization of the 10,000 barrel barge fleet. The 30,000 barrel barge fleet has been really busy whole summer and that principally works on the canal. The other point I’d make Jack and it’s one that made…

Connor Hustava – Stephens Inc.

This isn’t Jack, this is Connor.

David W. Grzebinski

Connor.

Joseph H. Pyne

Connor is – it want to made before is that in the summary you typically see utilization trend down, and you see a trend down because the weather is better and it performance is better and it actually takes less equipment to move the same amount of cargo. And because of low water conditions, the equipment has stayed – pretty fully utilized; I mean you are in the low-to-mid 90% utilization rates.

It’s hard to predict as kind of we think through the summer, if the lack of or the absence of a utilization decline is system related given the inefficiencies of the system because of low water or demand related intuitively I think its both, I think that we’ve got very strong demand and we actually saw utilization maybe tick up a little in the summer, which was the result of demand and some inefficiency.

Connor Hustava – Stephens Inc.

That's helpful. Thanks a lot of the time.

Operator

Our next question comes from Kevin Sterling from BB&T Capital. Please go ahead.

Kevin Sterling – BB&T Capital Markets

Thank you. Very good afternoon gentleman.

Joseph H. Pyne

Thank you, Kevin.

Kevin Sterling – BB&T Capital Markets

Gentleman, looking at this acquisition, you acquired with the deal acquired three offshore dry bulk barges. Is this a sign that you may want to being playing in the dry market or these barges just part of the deal and down the road you eventually plan to sell them?

Joseph H. Pyne

Well, remember that we’re – Kevin, we’re in the dry bulk market through what used to be Dixie Fuels Limited.

Kevin Sterling – BB&T Capital Markets

Right.

Joseph H. Pyne

It owned four costal dry bulk barges that worked in the coal trade and the aggregate trade, across the Gulf of Mexico and then back to a cement company in the mobile areas. So we’re already there. And we’re building some replacement equipment for part of that fleet. As we speak currently, it will be delivered towards the end of the year. So we’ve already been in it. We were in it more significantly, probably 10, 15 years ago, servicing customers that had other requirements such as the part of the sugar movement that Allied services now. So we know the business, we like it; we think that it’s a business that works well for us. How much growth is there is debatable, but I think that as it applies to utility coal and aggregate in sugar, you’ve got a business that you can make some money in and who knows, maybe there is some growth there.

Kevin Sterling – BB&T Capital Markets

Okay. Just a follow up on that, Allied has got the service business, Dixie has got some aggregate and coal, so have you saw maybe just an all dry bulk deal, it sounds like you’d consider looking at it in the future?

David W. Grzebinski

Yeah, of course, we would.

Joseph H. Pyne

Yes, I mean the answer is yes. And there is some out there, but we see the coastal market both dry and wet as markets that we are interested in. We are probably less interested in the inland dry bulk market.

Kevin Sterling – BB&T Capital Markets

Right. So the inland, really strictly say tank and in the coastal market you will look at both dry and wet, is that fair to say?

Joseph H. Pyne

I think that’s fair.

Kevin Sterling – BB&T Capital Markets

All right. Thanks so much for your time today. Congratulations on the deal.

Joseph H. Pyne

Thanks.

Operator

Our next question comes from Jimmy Gibert from IBERIA. Please go ahead.

Jimmy GibertIBERIA Capital Partners

Hi, fellas, thanks for taking my call and thanks for doing this call, I appreciate it. I just wanted to sort of revisit the current outlook on the inland liquid cargo fleet. I know you guys sometimes talk about where you think the year might end up, how many barges you think will be retired and so on. Could you run through that, Joe, if you don’t mind?

Joseph H. Pyne

Yeah, sure. Jimmy, you are talking about the industry fleet and what we think…

Jimmy GibertIBERIA Capital Partners

Yes.

Joseph H. Pyne

The capacity additions are going to. As we count barges, we think it’s somewhere in the 260 area, plus or minus some barges. It’s hard to say what is going to retired, but typically you see somewhere between 100 and 150 barges retire given the age profile of the fleet. We are confident that the barges are going to be built, are going to be absorbed just given the utilization levels at we are looking at. And I think that the volumes that are out there need the capacity frankly. So we’re not particularly worried about it.

Jimmy Gibert – IBERIA Capital Partners

Thank you. That’s very helpful. And also I know you’ve talked about the EPS impact from Hurricane Isaac, could you just talk for a second about refineries obviously your customers and others you may know about closing and opening as a result for the hurricane?

Joseph H. Pyne

Yeah, well, they are coming back online now and the majority of them closed that there was – along the Mississippi River Corridor up to the (inaudible), and when you close a refinery, there is some risk in bringing back, I think operators are very good at mitigating that, but what we can say, and what we are hearing from our customers is that they’re starting them up, they’re bring them back slowly, and that they will be in full operation in several days.

Jimmy Gibert – IBERIA Capital Partners

Okay. Well, that's great. Thank you for answering my questions and congratulations on a great acquisition. Thank you.

Joseph H. Pyne

Thank you.

David W. Grzebinski

Thank you.

Operator

Our next question comes from Ken Hoexter from Bank of America. Please go ahead.

Ken Hoexter – Bank of America Merrill Lynch

Hi, good afternoon.

Joseph H. Pyne

Yeah.

Ken Hoexter – Bank of America Merrill Lynch

Joe, when you talk – I guess when you acquired K-Sea, you kind of talked about plans to may be further aggregate the market on the coastal side and eventually some of that capacity will be shut down. Just on that last commentary and I’m retiring is there as you look at the Allied and K-Sea fleets together, is it a fleet you can merge into and operate together, can you, do you see vessels, coming out of that market, can you kind of give a little bit of insight on to that?

Joseph H. Pyne

Yeah, I’ll let David and Bruce respond to that.

David W. Grzebinski

Yeah hi Ken. You know we absolutely we’re going to merge this operationally directly together with the K-Sea or the Kirby Offshore Marine fleet. We will run it together we’ll get that’s part of the synergies we are talking about and thinking about. It’s complimentary to what we do is what we do every day. The Allied fleet runs Gulf Coast and East Coast, which is complementary to a big part of Kirby Offshore Marine fleet. So we’re working together, as equipment gets closer to its retirement age, we’ll have more flexibility because we’ll have a larger fleet to make sure that we utilize the fleet more effectively as well as make sure we cover our customers business.

Joseph H. Pyne

And as for equipment going out Ken, about 8% of the coastal fleet is single skin, so that’s going to go out. And three barges in the K-Sea fleet are towing fleet are single skin, so they’ll go out in the next year or two. There’ll also be some retirements of older vessels and I think it’s really too early to tell, if we’re going to do any of that we did retire a unit earlier this year.

Ken Hoexter – Bank of America Merrill Lynch

So on that Joe, I presume K-Sea not yet returning their cost of capital, if they are, I just wondering how do you determine or Dave, how do you determine where to put the incremental capital, so when do you say at now is the point where we want to start reinvesting and ordering some of the newer vessels for that division versus your inland barge sector?

Joseph H. Pyne

Ken, we’re ways away from that because you’re buying assets at a discount to new construction and pricing has not risen to levels that justify new equipment, so you are not going to do that until, so you see rate levels higher than they are today.

Ken Hoexter – Bank of America Merrill Lynch

Okay, I appreciate that.

David W. Grzebinski

Thanks Ken.

Operator

Our next question comes from John Barnes from RBC Capital Markets. Please go ahead.

John L. Barnes – RBC Capital Markets

Hey good afternoon guys. Joe, just in terms of the 10 new vessels I guess outside of the dry ones, the ones that are dedicated to the liquid business, you had to move some stuff around last quarter, you indicated the New England market gotten kind of clarity, do you foresee haven’t to relocate any of these vessels or are you pretty comfortable with where they are and what the volumes look like where they are positioned at this moment?

Joseph H. Pyne

Yeah, they are comfortable and they are on contract, so you really have a fleet that’s essentially fully utilized, do you have anything to add on that?

David W. Grzebinski

Right now, the Allied liquid fleet is 90% contracted, so it’s in pretty good shape, but they are running some normal trade routes, that we probably put them and they are not, it’s not like the New York Harbor specific equipment that we had to move it because basically there was just way too much supply in the New York Harbor. It’s a little different situation.

John L. Barnes – RBC Capital Markets

Okay. All right. Well, that’s a good segue into my next question, you provided really good color on the – your inland fleet and where are the contracts for that, now that you’ve got these two businesses in the coastwise between K-Sea and Allied. Can you give us that same kind of specifics around how much of the business is contract and are those contracts similar to the inland ones where you got a division between kind of a day rate contract versus just a contract that have a guaranteed rate per troop?

Joseph H. Pyne

No, without the Allied acquisition, we are – Kirby Offshore Marine was about 60%, contracted with the bulk of those about 90% being timer charter, not contracted [preferment]. Allied as we said is about 90% contracted, so it’s just a different spot. And what you should see with the combined fleet and where we are headed with comp is to get it more contracted. Our goal would be to get above 80% contracted for the coastwise fleets, its bigger equipment, longer voyages, more conducive to securing that with longer term contracts.

John L. Barnes – RBC Capital Markets

All right. Nice acquisition guys. Thanks for your time.

Joseph H. Pyne

Yeah, thanks.

Operator

Our next question comes from David Beard from IBERIA. Please go ahead.

David Beard – IBERIA Capital Partners

Good morning, gentlemen.

Joseph H. Pyne

Hi, David.

David W. Grzebinski

Hi, Dave.

David Beard – IBERIA Capital Partners

Good afternoon. As it relates to the synergies with Allied, would you expect to contract up the remaining 10% or to some of these contracts roll off, which then you could renegotiate.

Joseph H. Pyne

Yeah, well, ideally we’d like to have it more of a contracted up. There is a various number of contracts with different customers all have different terms and different times when they need to be renegotiated. So it’s not something like a – it’s not something you can generalize with an average day. I don’t know, if that answered your question. David?

David W. Grzebinski

David did that answer your question?

Joseph H. Pyne

Anybody hear us?

Operator

I can hear you.

Joseph H. Pyne

Okay.

Operator

David’s line is still open, but he is not respond. Can I move to the next question?

Joseph H. Pyne

Okay. Please.

Operator

Our next question comes from Steve O'Hara from Sidoti. Please go ahead.

Stephen O'Hara – Sidoti and Company, LLC

Hi, good afternoon.

Joseph H. Pyne

Good afternoon.

Stephen O'Hara – Sidoti and Company, LLC

Can you just in terms of the Allied fleet, my assumption is that it’s no single skin barges in that fleet, I guess from your comments, is that correct?

Joseph H. Pyne

That is correct.

Stephen O'Hara – Sidoti and Company, LLC

Okay. And then it sounds like you have contracts that are in place now, the demand trends and so forth should we be more focused on the inland type demand trends because of the high petrochemical or the petrochemical influence on that business, or is it more along K-Sea’s business line?

Joseph H. Pyne

No, in general the petrochemical business in the United States is globally competitive and the products that a Allied fleet moves are benefiting from that, it’s (inaudible), acetone, phenol and those type of products are benefiting from the feedstock advantage in the caustic is fairly energy intensive in terms of manufacturing caustic so, it’s benefiting from low natural gas prices too, so the general trends of the health of the petrochemical industry are positive for Allied fleet.

David W. Grzebinski

I think it’s part of the coastwide sector that this going to grow, last optimistic that refine product are going to grow, I think that some of the lost demand is going to come back, but I think that you’re looking at once that happens fairly flat demand for I think you will some growth in chemicals.

Stephen O'Hara – Sidoti and Company, LLC

Okay, and then lastly in terms of the dry bulk barges that Allied on, are these similar the ones you’re building as well and can you give me the average age of those as well.

Joseph H. Pyne

Yeah, the answer is no, these are smaller units and the ones that we’re building. We’re building 20,000 ton units. The Allied dry cargo fleet ranges from a little less than the 15,000 dead weight tons up to [18.2], the fleet age is on average the dry cargo age on average is 34 years, which one barge is particularly old, it was built in 1966, and probably will be retired, and one of them the benefits of putting this together with Kirby is that we have equipment that we can replace it with.

Stephen O'Hara – Sidoti and Company, LLC

All right, thank you very much.

Operator

Our next question comes from Bill Baldwin from Baldwin Anthony. Please go ahead.

William Baldwin – Baldwin Anthony Securities

Good afternoon.

Joseph H. Pyne

Good afternoon, Bill.

William Baldwin – Baldwin Anthony Securities

What’s the average age of the barges there at Allied and then average age of the boats.

David W. Grzebinski

Yeah. Let me give you a couple of statistics on the age of the liquid fleet, Allied liquid fleet. The average age just on a simple average it’s about 32 years now, if you barrow weight the average is about 25 years old. But then there is number of barges that have been rebuilt and so if we use the rebuilt date in the barrow weight, it’s about 12.5 years. A number of different numbers there but, that give you a feel for…

Joseph H. Pyne

We’ll have to get to the boat, do you have that?

David W. Grzebinski

Yeah, I do have. The boat is about 29 years old.

William Baldwin – Baldwin Anthony Securities

Yeah. What kind of maintenance CapEx would you expect on the fleet than just looking at the – measuring the age and so forth both the boats and the barges?

Joseph H. Pyne

Yeah I don’t want to get into too many specifics about these lines, but it’s going to be on the order of about I would say about, hang on, let me give you a relative number.

William Baldwin – Baldwin Anthony Securities

(Inaudible) range.

Joseph H. Pyne

Yeah it could be – it’s depending on the year and when the shipyard is coming to be $5 million to $7 million a year. In a year where the shipyard cycles are low it could go down in the $2 million range. It just depends on the cycle.

William Baldwin – Baldwin Anthony Securities

And with the K-Sea fleet and your expected growth in the petrochemical business, are some of the K-Sea barges capable of moving into the petrochemical, part of the business have been used for.

David W. Grzebinski

Yeah, Bill, they are, there are some modifications that need to be made, but they can be made relatively easily.

William Baldwin – Baldwin Anthony Securities

That really would be a very good end to remove those out of the refined products and the chemical.

David W. Grzebinski

Yeah, and having a better base to do it – I mean I think the inland base has the relationships with Allied as you can imagine you have a credible fleet fully engaged in petrochemicals and a platform there to, not to couldn’t use your inland platform, but I think the Allied platform is even more credible.

William Baldwin – Baldwin Anthony Securities

Yeah, like it help overtime to improve the utilization of the overall coastwise fleet then.

Joseph H. Pyne

That’s right, I think that one of the opportunities and we’re talking to people about it, as to move part of the K-Sea fleet into petrochemical markets, but there are other opportunities too that were non-traditional to the fleet, for example we think that some of the crude oil condensate coming out of the South Texas is going to be moved by offshore vessel that’s a better way to move it, the volumes meet the customer demand, demand better, it’s a better way to move it if you are moving it let’s say from Corpus Christi to the Lower River.

And we are optimistic that you’re going to come part of the way with respect to K-Sea utilization with alternative cargoes like petrochemicals and crude oil condensate, and you’ll get the rest of the way when the economy gets a little better and the gasoline demand returns. But even if that doesn’t happen as the single skins phase out, you tighten the market. So we are – we feel pretty good, that over the next couple of years that you’re going to move to balance, and as you move to balance then you can get better utilization and better pricing.

William Baldwin – Baldwin Anthony Securities

Absolutely, absolutely. I think it was Allied being heavily petrochemical not a single skin barge to the Allied?

Joseph H. Pyne

No, well that’s – you’re right.

William Baldwin – Baldwin Anthony Securities

Very, good. Thank you.

Operator

Our next question comes from Chaz Jones from Wunderlich. Please go ahead.

Chaz G. Jones – Wunderlich Securities, Inc.

Hey, good afternoon, guys.

Joseph H. Pyne

Hi, Chaz.

Chaz G. Jones – Wunderlich Securities, Inc.

Could you touch on at all just maybe operating margins for the petrochem coastwise business, if you don’t want to get specific today maybe how they appear over the cycle?

Joseph H. Pyne

Yeah, I don’t want to get specific about that just for customer and competitive reasons.

David W. Grzebinski

We’ll come up with some way to communicate them, but not today.

Chaz G. Jones – Wunderlich Securities, Inc.

Is it vastly different than K-Sea?

Joseph H. Pyne

Well it – there is so many different things that affect the margins of course it – I just don’t think we are ready to comment on that.

Chaz G. Jones – Wunderlich Securities, Inc.

Okay, that's fair. And then maybe as we look at the coastal market being about 270 barges or at least the category that the offshore is targeting, how should we be thinking about that in terms of the breakdown by product is, refine products 60% of that is petrochem, 30% in crude, 10%, is there any way you can give us maybe a sense of how the products breakdown on the tank barge side?

Joseph H. Pyne

That’s a good question Chaz, we will do some work on that, but let me answer it this way that the principle driver is going to be refined products, most of the cargos are going to be refined products. With respect to petrochemical, there are really only two significant carries in the petrochemical business, you got the Allied 10 barges and then you’ve got another company that has four barges and a shipper too that are in it. And then maybe an on barge too, but it is not a significant part of the business.

Crude oil black oil, it used to be a more significant movement, driven by asphalt and other heavy rails that has declined over the past several years, but what we are seeing now is a resurgence as that equipment and even some clean equipment is being used to move that crude oil condensate principally from South Texas to refinery complexes that they can process it.

Chaz G. Jones – Wunderlich Securities, Inc.

Okay and then another quick one, and I didn't catch this, and so I apologize it’s the contract duration are they materially different than what you see on the inland side of your business.

Joseph H. Pyne

Yeah, now there is a number of them that are annual in nature, but there are a number that go out a few years, it’s a range of one to three years, let’s just say.

Chaz G. Jones – Wunderlich Securities, Inc.

Okay

Joseph H. Pyne

But it’s going to be similar to what you see in the inland phase.

Chaz G. Jones – Wunderlich Securities, Inc.

All right, that's all I’ve got. Thanks for all the time tonight, and congratulations on the acquisition.

Joseph H. Pyne

Thank you

Operator

Our next question comes from Matt Young from Morningstar. Please go ahead.

Matthew Young – Morningstar Research

Good afternoon, thanks for squeezing me in. I think you guys mentioned that you might be able to use some of K-Sea’s equipment for the Allied petrochemical movements, but is there a situation in which some of the Allied equipment could be used in the inland barging. I think you’ve said in the past that the K-Sea’s equipment wasn't – there is different specs, but I just wanted to see, if there is any synergies there?

David W. Grzebinski

Yeah, what we said about K-Sea isn’t there are fleet that 30,000 fare barges and lower were inland barges are modified for east coast principally east coast bunkering services and some refined products movements, and that equipment if you take the house off to make some other modification, some of that equipment has notches in the sterns of that then you can use it in inland service and in fact we’ve taken four barges out of New York Harbor and moved them to the Gulf and we are employing them and what would typically be considered an inland application.

As with respect to the Allied, they do have some equipment that you can work in the canal, but it’s being utilized where it is. So we don’t contemplate moving any of that equipment. It’s possible that as you replace that equipment, you’ll replace it with existing equipment. So in that instant, I think the likelihood maybe the other way around that you will take an inland piece of equipment or maybe even a K-Sea piece of equipment and work it in an Allied application.

Matthew Young – Morningstar Research

Okay, that’s helpful. And then just quickly on the mix of business now in coastal once you close this deal, I’m assuming then that you didn’t do any petrochemical movements in the coastwise business before that this is – and Allied is 100% petrochem, so what it would be about 25%, maybe 25% of the business now be petrochemical movements for the coastwise business is that about right?

Joseph H. Pyne

That’s about right.

Matthew Young – Morningstar Research

Okay.

David W. Grzebinski

We were doing the math as you’re talking.

Joseph H. Pyne

Yeah.

Matthew Young – Morningstar Research

Okay, great. That’s all I had. Thanks.

Operator

And we have no further questions in queue at this time. I’ll turn the call back over for any closing remarks.

G. Stephen Holcomb

We appreciate 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.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

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