| KIRBY CORP Item 1A Risk Factors The following risk factors should be considered carefully when evaluating the Company, as its businesses, results of operations, or financial condition could be materially adversely affected by any of these risks |
| The 16 _________________________________________________________________ [54]Table of Contents following discussion does not attempt to cover factors, such as trends in the national economy or the level of interest rates among others, that are likely to affect most businesses |
| The Inland Waterway infrastructure is aging and may result in increased costs and disruptions to the Company’s marine transportation segment |
| Maintenance of the United States inland waterway system is vital to the Company’s operations |
| The system is composed of over 12cmam000 miles of commercially navigable waterway, supported by over 170 locks and dams designed to provide flood control, maintain pool levels of water in certain areas of the country and facilitate navigation on the inland river system |
| The United States inland waterway infrastructure is aging, with more than half of the locks over 50 years old |
| As a result, due to the age of the locks, scheduled and unscheduled maintenance outages may be more frequent in nature, resulting in delays and additional operating expenses |
| One-half of the cost of new construction and major rehabilitation of locks and dams is paid by marine transportation companies through a 20 cent per gallon diesel fuel tax and the remaining 50prca is paid from general federal tax revenue |
| Failure of the federal government to adequately fund infrastructure maintenance and improvements in the future would have a negative impact on the Company’s ability to deliver products for its customers on a timely basis |
| In addition, any additional user taxes that may be imposed in the future to fund infrastructure improvements would increase the Company’s operating expenses |
| The Company is subject to adverse weather conditions in its marine transportation business |
| The Company’s marine transportation segment is subject to weather conditions on a daily basis |
| Adverse weather conditions such as high water, low water, fog and ice, tropical storms and hurricanes can impair the operating efficiencies of the marine fleet |
| Such adverse weather conditions can cause a delay, diversion or postponement of shipments of products and are totally beyond the control of the Company |
| In addition, adverse water conditions can negatively affect towboat speed, tow size, loading drafts, fleet efficiency, place limitations on night passages and dictate horsepower requirements |
| For example, high water conditions on the Ohio and Illinois Rivers in January resulted in high water conditions on the lower Mississippi River in February |
| During January and February, fog conditions existed along the Gulf Coast |
| These conditions negatively affected the Company’s first quarter |
| Hurricanes Katrina and Rita negatively impacted the 2005 third quarter by an estimated $ |
| 10 per share, as petrochemical and refinery facilities located in the paths or projected paths of the hurricanes shut down operations in advance of the storms, waterways in the affected areas were closed and the Company moved its equipment out of the path of the hurricanes |
| The Company could be adversely impacted by a marine accident or spill event |
| A marine accident or spill event could close a portion of the inland waterway system for a period of time |
| Although statistically marine transportation is the safest means of transporting bulk commodities, accidents do occur, both involving Company equipment and equipment owned by other inland marine carriers |
| For example, in the 2005 first quarter, an accident involving several dry cargo barges and towboat owned by another company at the Belleville Lock, located on the upper Ohio River, resulted in the closure of the lock for approximately two weeks, preventing any movements of marine equipment into or out of the upper Ohio River |
| The Company transports a wide variety of petrochemicals, black oil products, refined petroleum products and agricultural chemicals throughout the Mississippi River system and along the Gulf Intracoastal Waterway |
| The Company manages its exposure to losses from potential discharges of pollutants through the use of well maintained and equipped vessels, through safety, training and environmental programs, and the Company’s insurance program, but a discharge of pollutants by the Company could have an adverse effect on the Company |
| The Company’s marine transportation segment is dependent on its ability to adequately crew its towboats |
| The Company’s towboats are crewed with employees who are licensed by the USCG, including its captains, pilots, engineers and tankerman |
| The success of the Company’s marine transportation segment is dependent on the Company’s ability to adequately crew its towboats |
| As a result, the Company expends significant dollars in training its crews and providing each crewmember an opportunity to advance from a deckhand to the captain of a Company towboat |
| Lifestyle issues are a deterrent for employment as crew members are required to work a 20 days on, 10 days off rotation, or a 30 days on, 15 days off rotation |
| The success of the Company’s marine transportation segment will depend on its ability to adequately crew its towboats |
| 17 _________________________________________________________________ [55]Table of Contents Reduction in the number of acquisitions made by the Company may curtail future growth |
| Since 1987, the Company has been successful in the integration of 24 acquisitions in its marine transportation segment and eight acquisitions in its diesel engine services segment |
| These acquisitions have played a significant part in the growth of the Company |
| The Company’s marine transportation revenue in 1987 was dlra40dtta2 million compared with dlra686dtta0 million in 2005 |
| Diesel engine services revenue in 1987 was dlra7dtta1 million compared with dlra109dtta7 million in 2005 |
| While the Company is of the opinion that future acquisition opportunities exist in both its marine transportation and diesel engine services segments, the Company may not be able to continue to grow through acquisitions to the extent that it has in the past |
| The Company’s marine transportation segment is subject to the Jones Act |
| The Company’s marine transportation segment competes principally in markets subject to the Jones Act, a federal cabotage law that restricts domestic marine transportation in the United States to vessels built and registered in the United States, and manned and owned by United States citizens |
| The Company presently meets all of the requirements of the Jones Act for its owned vessels |
| The loss of Jones Act status could have a significant negative effect on the Company |
| The requirements that the Company’s vessels be United States built and manned by United States citizens, the crewing requirements and material requirements of the USCG, and the application of United States labor and tax laws significantly increase the cost of US flag vessels when compared with comparable foreign flag vessels |
| During the early 2000s, the Jones Act cabotage provisions came under attack by interests seeking to facilitate foreign flag competition in trades reserved for domestic companies and vessels under the Jones Act |
| The efforts were consistently defeated by large margins in the United States Congress, but further efforts may be made in the future to modify or eliminate the cabotage provisions of the Jones Act |
| The Company’s business could be adversely affected if the Jones Act were to be modified so as to permit foreign competition that is not subject to the same United States government imposed burdens |
| The Company’s marine transportation segment is subject to regulation by the USCG, federal laws, state laws and certain international conventions, as well as numerous environmental regulations |
| The majority of the Company’s fleet is subject to inspection by the USCG and carry certificates of inspection |
| The crews employed by the Company aboard vessels are licensed by the USCG The Company is required by various governmental agencies to obtain licenses, certificates and permits for its vessels |
| The Company’s operations are also affected by various United States and state regulations and legislation enacted for protection of the environment |
| The Company incurs significant expenses to comply with applicable laws and regulations and any significant new regulation or legislation could have an adverse effect on the Company |
| The Company’s marine transportation segment is subject to volatility in the United States production of petrochemicals |
| For 2005, 67prca of the segment’s revenues were from the movement of petrochemicals, including the movement of raw materials and feedstocks from one refinery and petrochemical plant to another, as well as the movement of finished products |
| Increased imports of petrochemicals manufactured in foreign countries could negatively impact United States domestic petrochemical production, thereby reducing the volumes of petrochemicals transported by the Company |
| The Company’s marine transportation segment could be adversely impacted by the construction of inland tank barges by its competitors |
| At the present time there are approximately 2cmam800 inland tank barges operating in the United States, of which the Company operates 897, or 32prca |
| The number of inland tank barges peaked at approximately 4cmam200 in the early 1980s, but has been relatively constant since the early 1990s, fluctuating between 2cmam750 and 2cmam900 |
| During that period of time, new barge builds have approximately equaled retirements |
| While the Company believes that shipyard capacity, the age of the domestic tank barge fleet and government regulation of the industry, among other factors, will prevent overbuilding of inland tank barges in the near future, sustained favorable market conditions could stimulate new construction and in the longer term, an oversupply of barges could exist following periods of strong demand for barge transportation |
| 18 _________________________________________________________________ [56]Table of Contents Higher fuel prices could increase operating expenses |
| The cost of fuel during 2005 was approximately 13prca of marine transportation revenue, as the Company consumed 55dtta2 million gallons of diesel fuel at an average price of dlra1dtta67 per gallon |
| The average price of diesel fuel consumed in the 2005 fourth quarter was dlra2dtta03 compared with dlra1dtta40 in the 2004 fourth quarter, an increase of 45prca |
| Marine transportation term contracts contain fuel escalation clauses that allow the Company to recover increases in the cost of fuel; however, there is generally a 30 day to 90 day delay before contracts are adjusted |
| The Company is generally able to pass along to its customers a significant portion of an increase or decrease in diesel fuel prices; however, consistently higher fuel prices could result in increased operating expenses during the period of fuel escalation |
| Loss of a large customer or other significant business relationship could adversely affect the Company |
| Two marine transportation customers, SeaRiver and Dow, account for approximately 25prca of the Company’s revenue |
| Although the Company considers its relationships with SeaRiver and Dow to be strong, the loss of either customer could have an adverse effect on the Company |
| The Company’s diesel engine services segment has a 40 year relationship with EMD, the manufacturer of medium-speed diesel engines |
| The Company serves as both an EMD distributor and service center for select markets and locations for both service and parts |
| Sales and service of EMD products account for approximately 70prca of the diesel engine services segment’s revenue |
| Although the Company considers its relationship with EMD to be strong, the loss of the EMD distribution and service rights, or a disruption of the supply of EMD parts, could have a negative impact on the Company’s ability to service its customers |
| The Company is subject to competition in both its marine transportation and diesel engine services businesses |
| The inland tank barge industry remains very competitive despite continued consolidation |
| The Company’s primary competitors are noncaptive inland tank barge operators |
| The Company also competes with companies which transport liquid products by refined product and petrochemical pipelines, railroad tank cars and tractor-trailer tank trucks |
| Increased competition from any significant expansion of or additions to facilities or equipment by the Company’s competitors could have a negative impact on the Company’s results |
| The diesel engine services industry is also very competitive |
| The segment’s marine operation’s competitors are approximately 10 independent diesel services companies and other EMD authorized service centers |
| Certain operators of diesel powered marine equipment also elect to maintain in-house service capabilities |
| In the power generation and railroad fields, the primary competitors are other independent service companies |
| Increased competition in the diesel engine services industry could result in lower rates for service and parts pricing and result in less service and repair opportunities and parts sales |
| The construction cost of inland tank barges has increased significantly over the last few years primarily due to the escalating price of steel |
| The price of steel has increased significantly over the last few years, thereby increasing the construction costs of new barges |
| The Company’s average construction price of a new 30cmam000 barrel capacity inland tank barge in 2005 was approximately 36prca higher than in 2003, primarily due to the increase in steel prices |
| If steel prices continue to increase, it may limit the Company’s ability to earn an adequate return on its investment in new tank barges |