- Filing of certain prospectuses and communications in connection with business combination transactions (425)
May 23 2011 - 1:44PM
Edgar (US Regulatory)
Filed by Kirby Corporation pursuant to Rule 425 of the
Securities Act of 1933 and deemed filed pursuant to
Rule 14a-12 of the Securities Exchange Act of 1934
Subject Company: K-Sea Transportation Partners L.P.
Commission File No.: 1-31920
Forward Looking Statements
Statements in these materials that are forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties. Actual results could
differ materially due to factors such as:
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the ability of Kirby Corporation (Kirby) to achieve the synergies, efficiencies
and value creation contemplated by the proposed transaction;
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Kirbys ability to promptly and effectively integrate the businesses of Kirby and
K-Sea Transportation Partners L.P. (K-Sea);
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the time required to consummate the proposed transaction and any necessary actions
to obtain required regulatory approvals;
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the diversion of management time on transaction-related issues;
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competition in the markets served by K-Sea or Kirby;
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unanticipated tax consequences of the transaction; and
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the possibility that the transaction will not close because of the failure to
satisfy the closing conditions or other reasons.
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A discussion of additional risk factors that may cause results to differ materially from those
described in the forward-looking statements or that may otherwise affect Kirbys businesses is
included under Item 1A. Risk Factors in Kirbys Annual Report on Form 10-K for the year ended
December 31, 2010, filed with the SEC on February 25, 2011, and in subsequent reports on Forms 10-Q
and 8-K and other filings made with the SEC by Kirby.
Forward-looking statements are based on currently available information and Kirby does not
undertake any duty to update any forward-looking statement to reflect actual results or changes in
Kirbys expectations.
Important Information about the Merger and Additional Information
This communication does not constitute an offer to sell or the solicitation of an offer to buy
any securities or a solicitation of any vote or approval. The proposed merger transaction
involving Kirby and K-Sea will be submitted to the unitholders of K-Sea for their consideration.
In connection with the proposed merger, Kirby has filed with the Securities and Exchange Commission
a registration statement on Form S-4 that includes a proxy statement of K-Sea and a prospectus of
Kirby. The definitive proxy statement/prospectus will be mailed to the unitholders
of K-Sea.
INVESTORS AND SECURITY HOLDERS OF K-SEA ARE URGED TO READ THE REGISTRATION STATEMENT AND
THE PROXY STATEMENT/PROSPECTUS AND OTHER MATERIALS REGARDING THE PROPOSED MERGER CAREFULLY AND IN
THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
KIRBY, K-SEA AND THE PROPOSED MERGER.
Investors and security holders may obtain a free copy of the registration statement and the
proxy statement/prospectus when they become available and other documents filed with the SEC by
Kirby and K-Sea through the SECs website at
www.sec.gov
. Free copies of the registration
statement and the proxy statement/prospectus (when available) and other documents filed with the
SEC can also be obtained from Kirbys website at
www.kirbycorp.com
.
Kirby and its directors and executive officers and certain other persons may be deemed to be
participants in the solicitation of proxies with respect to the proposed merger.
Information
regarding Kirbys directors and executive officers is available in its Annual Report on Form 10-K
for the year ended December 31, 2010, which was filed with the SEC on February 25, 2011, and its
proxy statement for its 2010 annual meeting of shareholders, which was filed with the SEC on March
10, 2010.
Other information regarding the participants in the proxy solicitation, and a
description of their direct and indirect interests, will be contained in the proxy
statement/prospectus and other relevant materials to be filed with the SEC when they become
available.
The following is a transcript of a presentation on May 20, 2011 by senior executives of Kirby
Corporation at the Bank of America Merrill Lynch Global Transportation Conference.
Kirby Corporation
May 20, 2011
Speakers
:
Joseph H. Pyne
Chairman of the Board
and Chief Executive Officer,
Kirby Corporation
David W. Grzebinski
Executive Vice President
and Chief Financial Officer,
Kirby Corporation
Presentation:
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Scott:
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Today we have Joe Pyne with us from Kirby Corp. Joe has served as
President and CEO since 2002 and has been Chairman since 2010. Hes
been with the company for 33 years. Kirbys a $2.8 billion market
cap company with over $1 billion in sales in 2010. It provides
inland tank barging for industrial chemicals, petroleum products,
and agricultural chemicals and provides diesel engine services to
the marine power generation and natural gas drilling sectors. It
also recently announced that it would purchase K-Sea Partners,
which is an oceangoing tank barge company.
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Joe:
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Thank you, Scott, and good morning. Normally I dont go through our
forward-looking statement, but I do want to acknowledge that we do
have an S-4 out with respect to the merger with K-Sea and just
invite you to refer to that with respect to that transaction, and
thats a publicly-filed document.
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With respect to Kirby, were in two businesses, marine
transportation and diesel engine services. Ill come back and talk
about each of these businesses in a minute. We have a market cap of
a little less than $2.9 billion and an enterprise value of about
$3.2 billion.
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Just some facts about Kirby. Kirby is the largest inland tank barge
operator, have about 28 percent of the capacity in this market.
Size matters. We enjoy some competitive advantages that smaller
operators dont enjoy. About 75 percent of our business is under
contract, a year or longer. Fifty percent of that contract business
is time charters where the shipper will take the operating risk of
the tow. Thats particularly important in this environment, where
high river conditions have made us a lot less efficient. Were a
nationwide diesel engine service parts
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provider for both medium-speed and high-speed engines. We also have a manufacturing
component in the oil service and power generation business in our diesel engine
business. And we have been the consolidator in both our businesses, the aggregation
of 27 separate marine acquisitions and 15 diesel engine acquisitions.
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This looks at the acquisitions in the marine transportation space. Youll note that
the last one is K-Sea. K-Seas not closed. We anticipate closing K-Sea in July.
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On the diesel engine side, these are the acquisitions listed, the last one being
United Engine. Im going to come back and talk a little bit about United Engine
later in the presentation. That closed April the 15th.
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With respect to revenue growth, 14.6 percent annualized revenue growth since 1988.
That includes the decline in revenue in 2009. And then with respect to earnings
growth, a little less than 13 percent. With respect to the 2011 outlook, were
projecting earnings in the $2.70 to $2.90 range.
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Going into the barge business, our highway system is the river system of the United
States as well as the Gulf Intracoastal Canal. About two-thirds of the petrochemical
business is located in two states, Texas and Louisiana, so about two-thirds of our
operations are going to be along this red strip, which is the Gulf Intracoastal
Canal, which really connects the chemical manufacturing capacity to itself. This is
a system of 12,000 miles of navigable waterways, a very extensive system.
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Some facts about the barge business in general. Kirby is focused on the liquid
sector. Theres a larger dry cargo sector, at least on the inland side. K-Sea is a
coastal operator that operates on the three coasts as well as in Alaska and Hawaii.
With respect to the coastwise service, there are about 230 tank barges that
participate in this business, K-Sea being one of the operators. K-Sea is the largest
operator, at least in the tank barge sector. Were principally a liquid transporter
of liquid cargoes both inland and offshore. Were protected by the Jones Act, so
theres no foreign competition. No real economic obsolescence here other than the
single skin barge issue. Of course, you can move barges around to service different
markets. Its not like a fixed asset anchored to ground. A very important part of
the US economy, the transportation system, and an environmentally friendly way of
moving cargoes around.
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This looks at the inland tank barge sector. Theres about 3,100 tank barges in this
business. Its a mature fleet. A number of barges are in excess of 30 years old.
About a third of the fleet, in fact, is 30 years or older. I think theres going to
be a lot of replacement building in this sector.
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With respect to the markets that we serve, about 66 percent this is based on our
last quarters results about 66 percent chemicals, 20 percent black oil, and then
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followed by refined products and agricultural chemicals. You can see the kind of
products that we move in each of those markets.
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I indicated that size matters. Size allows you to capture more backhaul
opportunities to better utilize your assets. The more power you have in your system,
the more efficiently you can move barges, the better you can match the tonnage that
the boat moves with the maximum amount of tonnage that vessel can move, the closer
you are to the cargoes, and theres less cleaning. Particularly in the chemical
business, chemicals arent compatible with one another, so if you have bottoms with
the right cargoes, you can just use those bottoms and not pay for cleaning. On the
power side of the business, were able to adjust the power we need very efficiently
to demand, because about a third of our fleet is chartered power and two-thirds of
it is owned. Charter power can be turned off pretty quickly and, with it, all the
cost of that power as well as the capital cost of that power.
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This looks at whos in the business. Were the largest, then it breaks down to a
number of medium-size companies, then over on the right some relatively small
companies. Theres still some shippers in this business. Marathon Oil Corporation is
the largest. The shippers are indicated in red. I think this business is going to
continue to consolidate, and we will continue to play a consolidation role.
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Looking at the drivers, two-thirds of what we do is in the chemical area. The
drivers in the chemical business are, broadly speaking, consumer non-durables and
consumer durables. Seventy percent of the domestic chemical business is the
non-durable piece, which gives you some comfort because those are the staples that
we use on an everyday basis and, for the most part, are recession-proof.
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Safety, of course, matters in this business because of what we carry and who we work
for, and Kirby is the leader in this area.
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The diesel engine side of our business, the markets are marine, land-based
principally oil and gas business opportunities and power generation and nuclear
and industrial markets. We service medium and high-speed engines and the
transmission and reduction gears that are part of the propulsion chain that the
engines are used for.
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With respect to United Holdings, which is our most recent acquisition, it, broadly
speaking, is in the distribution and service business, servicing land-based engines,
pumps, and transmissions. It manufactures land-based oil service equipment, mainly
the hydraulic fracking pumps that are used to fracture shale deposits, and then it
manufactures some more specialized equipment for the gas compression business.
Twenty-one locations over 13 states. Purchase price was $270 million, but it does
have an earnout component based on a cumulative EBITDA. We think that this is a
great time to get into this business. It extends our marine service business to
land-based equipment. A very experienced management team. This is
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a company thats been in business since the 1930s, strong customer relationships.
Were projecting revenue in the $285 to $335 million for this year, full year $375
to $450, the earnings contribution this year 20 to 25 percent on an annualized
basis, 25 to 30 cents.
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The shale gas play is a game-changer, an enormous energy resource. United really has
the capability of servicing and manufacturing equipment in all the major plays, with
the exception of the Marcellus. They can sell equipment to the Marcellus but they
dont have a distributorship in the Marcellus. And shale gas production is going to
continue to grow. Its a great energy resource.
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How does this all work? This is a nice schematic that demonstrates kind of how
fracking works. Its really based on horizontal drilling where the hole is
perforated and then hydraulically fractured using high-pressure pumps with a lot of
water, sand, and some chemicals which force fluid into the shale deposit, then once
the fluids removed, allows gas to come back to the hole and be recovered.
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K-Sea, this is an acquisition that we havent closed. We expect to close this in
July. It operates tank barges but in coastal service. It consists of 58 tank barges,
3.8 million barrels of capacity. It services the three coasts as well as Alaska and
Hawaii. Approximate consideration is in the $600 million range. It does include a
small stock component. We think that were buying into this market at the right
time. Volumes are off their lows in 2009. We think that supply and demand is coming
into balance. Theres a single skin component. About 10 percent of the total coastal
fleet is single skin. That all has to be out by the end of 2014. Rates are
improving, and as I said, we think that were going to close in the third quarter.
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If you look at Kirby based on its 2010 business and this is actually before the
acquisition we were a $1.1 billion in revenue company, approximately 20 percent
diesel engine, 80 percent marine transportation. If you look at 2012,
annualizingwell, actually seeing the actual revenue well see in 2012, revenue
will be about $1.8 to $2 billion, and about 35 percent of our revenue will be diesel
engine service and about 65 percent marine transportation.
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Im now going to turn it over to David for the outlook and the financial
presentation.
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David:
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Thank you, Joe. Let me just run through this real quick. Second
quarter guidance, we at our earnings call gave a guidance range of
67 cents to 77 cents, which included 2 to 7 cents per share for the
high water issues that are happening in the Mississippi River
system. Just a week or so ago, we sent out another press release
saying that it might have a greater impact than that. Were still
evaluating that. Joe will make some more comments just before Q&A
on that. With the river being very high, our fleet cant move as
easily as it normally does and it impacts
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efficiency and utilization, and obviously revenue. Were monitoring
that, and its developing daily. And as I said, Joe will talk a
little more about that.
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For the full year, as Joe said, were guiding $2.70 to $2.90 based
on higher utilization and higher petrochemical demand and black oil
demand. It also assumes some accretion from the two acquisitions
Joe just spoke about, 20 to 25 cents from the United acquisition.
K-Sea has some accretion but its offset by one-time fees, legal
fees and banking fees and what not, so its kind of neutral to 2011
earnings.
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Just a quick comment on capital expenditures. Were planning $220
to $230 million in capital expenditures this year. About $100
million of that is for new barge equipment that will be delivered
throughout the year, about 40 new 30,000-barrel barges and three
new tow boats. Weve also started construction on a new offshore
unit to replace one of our older offshore units. Well make
progress payments on that this year. And then the new acquisition
also has some capital that we need to deploy.
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Im going to run through some very quick financial highlights. This
is our first quarter earnings, first quarter 2010 versus 2011. Ill
just point you to the percent change column, if you would, just
real quick. Marine transportation revenues were up about 10
percent. Operating income was up about 25 percent. Thats been
based primarily on higher utilization. Weve been a lot busier than
we were last year. Weve also gotten some pricing which has helped
the operating income leverage. But also you should know in the
first quarter of 2010, there were some severance charges, so apples
to apples, it would have been a little less than 25 percent. But
still, were getting some leverage in the business as utilization
has picked up.
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On the diesel engine services side, revenue was up 18 percent and
operating income up 32 percent. That is related in part to project
timing, and the margins for the quarter were about 11.5 percent.
But we like to think about that business as a 10 percent margin
business that fluctuates throughout the year based on project
volume, so suffice it to say, the first quarter in diesel engine
services had some positive pick-up from project-related volume.
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Here are the margins that I mentioned. The yellow line are the
margins for the marine transportation business, the red line the
diesel engine services business. Just a quick point on the marine
transportation margins. You can see back in 2003 we troughed right
around 15 percent operating margins. We peaked in 09 at around 24
percent. 2010 looks to beif you think this cycle is over, the
trough of this cycle, we were actually just below 20 percent for
one quarter. But if the cycle is over, the point of this chart is
that the trough in this cycle is quite a bit higher than the trough
in the last cycle. Thats because weve taken out a lot of cost and
gotten a lot more efficient. We would expect the next up cycle to
get us into that mid-20, maybe even to the upper 20 percent range.
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One caveat there: As we roll in the K-Sea acquisition, their
margins are a little lower, so that will bring the overall segment
margins down a couple percent, but over time we hope to get that
back up as well.
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On diesel engine services, as I said, its about a 10 percent
margin business. You can see back in the 06/07/08 range it was
mid-teens, and thats when the offshore oil service business was
doing quite well. We do expect, if the offshore oil service
business comes back, that well get back into that mid-teen range.
But again, I would caution you on a quarter-to-quarter basis
looking at diesel, because it does move around with project
deliveries.
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The other comment on diesel is United, as we roll that in, they
have a significant manufacturing component which is at a lower
margin, so when United comes in, you will see perhaps up to a 2
percent impact to the overall segment margins here as well. But
over time, as the service component for United grows, the margin
will increase.
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This is just to give you a feel of the cash flow generation
capability of the company. This is EBITDA per share. You can see
its pretty healthy. And just to drive the point home on cash flow,
the green bar here on this chart, cash flow from operations, the
yellow bar is our capital expenditures. The point of the slide is
the green bar is always greater than the yellow bar, so were a
pretty strong free cash flow-generating company.
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This is debt to total cap. This is before the effect of the
acquisitions, because we just closed the two bigwe closed United
in the second quarter and well close K-Sea in the third quarter,
so this chart doesnt reflect that yet. Debt to total cap is about
14.3 percent. After the transactions, well be up to about 38
percent, and by year end, back down to about 35 percent. We expect
to be able to de-lever in about three years and be back to much
lower debt levels, based on the strong cash flow that the
acquisitions and the base business generate.
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We are investment grade by all three rating agencies. Inclusive of
these transactions, theyve affirmed all of our ratings. We do have
a revolving credit facility. It was undrawn, and the blanks there
Im going to update right now. Weve got about $310 million in
total outstanding debt, which is about $110 million from the
revolver, and thats as of yesterday. We do have a private
placement thats due in 2013, $200 million, but for the
acquisitions we are putting a five-year bank term loan, floating
rate term loan, in place. We wanted that so we could prepay it
quickly as the cash flow comes in.
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And thats my summary. Ill turn it back over to Joe.
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Joe:
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Okay. I just want to make some comments about the Mississippi River
system. Were dealing with water levels that are historic in
nature. We havent seen water
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at these levels since 1927. The crest is working its way down the river. Its
cresting at Natchez today Natchez, Mississippi. When we commented on our first
quarter in late April, we estimated that the effect would be somewhere between 2 and
7 cents. Last week we came out and said it could be more than that. I think its
still too early to quantify the exact amount, but I can tell you that I do feel
better about the magnitude today than I did last week, principally because the parts
of the system that were closed are opening, and the other parts that we were worried
about, the lower Mississippi River and the Gulf Intracoastal Canal, remain open.
This is a very dynamic situation, historically really unparalleled, so Im not sure
we have good history on whats going to happen, but I do feel better about it.
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Efficiency is affected, slower transit times, daylight only in some parts of the
system. Well comment further on this when we close May, which will be kind of
middle of June.
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Im going to go ahead and open this up to questions and not go through the last
slide, just so we have the time. Any questions?
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Q:
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Joe, Ill start with one question. Dave mentioned that during the
last downturn, obviously youve removed a lot of cost, so margins
were higher than they had been in prior downturns and youre really
on track to likely exceed those peaks that you had in prior markets.
Is there any sense at all that the recent acquisitions will change
that business mix dramatically, or do you expect to really be able to
rationalize the new acquisitions into the current businesses and
realize those prior margins?
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Joe:
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I think ultimately, as we move United to more of a service-based
business, that those margins will get better. Manufacturing margins
are going to be lower, and as Dave indicated, theyre going to
suppress that part of our business. K-Sea is just at the beginning of
the upside of their cycle, but I dont see any reason why they cant
get margins that were equivalent to where they were at the last point
of the cycle. My guess is, just because that business is different,
that they may not achieve the inland tank barge margins, which peaked
at a little over 24 percent. And as you get rates back to where they
were, we would anticipate that the inland margins would actually be a
little higher.
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Q:
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Is K-Seadoes the oceangoing barge market have the same supply and
demand issues that the inland river market has? Is that really whats
caused some of the downturn in rates in that business over the past
few years?
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Joe:
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Yeah. What happened was they preempted the single skin phase-out with
double skin barges at about the same time that their market
collapsed, so not only did they have lower volumes but they had more
equipment. That market is a thinner market, 230 barges versus 3,100
barges, so shortages and excesses in that business are going to mean
more than in the inland tank barge business. We think
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on the positive side, about 10 percent of the fleet is single skin, which is going
to be removed, and we think that there are some fundamentals in that business that
should drive more volumes to water, so were very encouraged with the prospects of
that business.
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Q:
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[Inaudible]
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Joe:
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Who do we charter it from? We charter it from probably 10 to 15
different operators, depending on how many we need, and the
horsepower size can go from anything from about a 1,200-horsepower
vessel up to a 6,000. Were there any other questions from the
audience?
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Q:
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Joe, just another one, to follow up on the supply you mentioned in
the oceangoing fleet. On the inland fleet, have you seen any
scrapping or rationalization, or have you seen any pick-up in
orders for bonus depreciation?
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Joe:
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Yeah. The 2009 and 10 orders about equalized the equipment that
was scrapped, so youve leveled off the last couple years at that
3,100 barge level. With respect to orders for 2011, we think that
the 100 percent bonus depreciation did drive orders. It essentially
filled existing capacity but it did not expand capacity, so were
estimating that approximately 150 barges will be built in 2011,
which we would also estimate would be about the number of barges
that are going to come out, so we think capacity is going to remain
flat. The 2012 order book, we know what were building in 2012 and
we know that there is additional capacity to be sold, but its hard
to predict at this point what will be manufactured in 2012. If I
had to guess, I would expect it would be similar to the 2011
construction rates.
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Q:
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[Inaudible]
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Joe:
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No. End markets, are they the same in the last cycle? Is there a
shift? And the answer is no. But there is a difference, because the
abundance of domestic natural gas affecting the price of natural
gas, particularly as its used as a feedstock in the US
petrochemical business, is a real game-changer for that business.
And you went from a business that was mature to maybe slightly
declining, in terms of capacity, to a business thats now
expanding, and youre globally competitive on a global basis in a
market that is a lot more politically secure than other parts of
the world. So its very positive for our principal customer, and we
think that weve moved from kind of a GDP kind of growth business
to a GDP-plus growth business because of it.
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Scott:
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Terrific. Thanks a lot for the time today.
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Joe:
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Great, thank you.
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END
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