KIRBY CORP - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 1-7615

KIRBY CORPORATION
(Exact name of registrant as specified in its charter)

NEVADA 74-1884980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

55 WAUGH DRIVE, SUITE 1000 77007
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(713) 435-1000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

As of March 5, 2003, 24,065,789 shares of common stock were outstanding.
The aggregate market value of common stock held by nonaffiliates of the
registrant, based on the closing sales price of such stock on the New York Stock
Exchange on March 4, 2003 was $440,238,000. For purposes of this computation,
all executive officers, directors and 10% beneficial owners of the registrant
are deemed to be affiliates. Such determination should not be deemed an
admission that such executive officers, directors and 10% beneficial owners are
affiliates.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of the Stockholders to be held April 22, 2003, to be filed with the
Commission pursuant to Regulation 14A, is incorporated by reference into Part
III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART I

ITEM 1. BUSINESS

THE COMPANY

Kirby Corporation (the "Company") was incorporated in Nevada on January 31,
1969 as a subsidiary of Kirby Industries, Inc. ("Industries"). The Company
became publicly owned on September 30, 1976 when its common stock was
distributed pro rata to the stockholders of Industries in connection with the
liquidation of Industries. At that time, the Company was engaged in oil and gas
exploration and production, marine transportation and property and casualty
insurance. Since then, through a series of acquisitions and divestitures, the
Company has become primarily a marine transportation company and is no longer
engaged in the oil and gas or the property and casualty insurance businesses. In
1990, the name of the Company was changed from "Kirby Exploration Company, Inc."
to "Kirby Corporation" because of the changing emphasis of its business.

Unless the context otherwise requires, all references herein to the Company
include the Company and its subsidiaries.

The Company's principal executive office is located at 55 Waugh Drive,
Suite 1000, Houston, Texas 77007, and its telephone number is (713) 435-1000.
The Company's mailing address is P.O. Box 1745, Houston, Texas 77251-1745.

WEBSITE ACCESS TO SEC REPORTS

The Internet address of the Company's website is www.kirbycorp.com. The
Company makes available free of charge through its website, all of its filings
with the Securities and Exchange Commission ("SEC"), including its annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC.

BUSINESS AND PROPERTY

The Company, through its subsidiaries, conducts operations in two business
segments: marine transportation and diesel engine services.

The Company's marine transportation segment is engaged in the inland
transportation of petrochemicals, refined petroleum products, black oil products
and agricultural chemicals by tank barges, and, to a lesser extent, the offshore
transportation of dry-bulk cargoes by barge. The segment is strictly a provider
of transportation services for its customers and does not assume ownership of
any of the products that it transports. All of the segment's vessels operate
under the United States flag and are qualified for domestic trade under the
Jones Act.

The Company's diesel engine services segment is engaged in the overhaul and
repair of diesel engines and reduction gears, and related parts sales in three
distinct markets: the marine market, providing aftermarket service for vessels
powered by large medium-speed diesel engines utilized in the various inland and
offshore marine industries; the railroad market, providing aftermarket service
and parts for shortline, industrial, and certain transit and Class II railroads;
and the power generation and industrial markets, providing aftermarket service
for diesel engines that provide standby, peak and base load power generation,
users of industrial reduction gears and stand-by generation components of the
nuclear industry.

The Company and its marine transportation and diesel engine services
segments have approximately 2,300 employees, all of whom are in the United
States.

1

The following table sets forth by segment the revenues, operating profits
and identifiable assets attributable to the principal activities of the Company
for the years indicated (in thousands):

2

MARINE TRANSPORTATION

The marine transportation segment is primarily a provider of transportation
services by barge for the inland and offshore markets. As of March 5, 2003, the
equipment owned or operated by the marine transportation segment comprised 967
inland tank barges, 230 inland towboats, four offshore dry-cargo barges, four
offshore tugboats and one shifting tugboat with the following specifications and
capacities:

- ---------------

* The four barges and five tugboats are owned by Dixie Fuels Limited, a
partnership in which the Company owns a 35% interest.

The 215 active inland towboats and five offshore tugboats provide the power
source and the 911 active inland tank barges and four offshore dry-cargo barges
provide the freight capacity. When the power source and freight capacity are
combined, the unit is called a tow. The Company's inland tows generally consist
of one towboat and from one to 25 tank barges, depending upon the horsepower of
the towboat, the river or canal

3

capacity and conditions, and customer requirements. The Company's offshore tows
consist of one tugboat and one dry-cargo barge.

MARINE TRANSPORTATION INDUSTRY FUNDAMENTALS

The United States inland waterway system, composed of a network of
interconnected rivers and canals that serve the nation as water highways, is one
of the world's most efficient transportation systems. The nation's waterways are
vital to the United States distribution system, with over 1.1 billion short tons
of cargo moved annually on United States shallow draft waterways. The inland
waterway system extends approximately 26,000 miles, 12,000 miles of which are
generally considered significant for domestic commerce, through 40 states, with
635 shallow draft ports. These navigable inland waterways link the United States
heartland to the world.

Based on cost and safety, inland barge transportation is often the most
efficient and safest means of transporting bulk commodities compared with
railroads and trucks. The cargo capacity of a 30,000 barrel inland tank barge is
the equivalent of 40 rail tank cars or 150 tractor-trailer tank trucks. A
typical Company lower Mississippi River linehaul tow of 15 barges has the
carrying capacity of approximately 225 rail tank cars or approximately 870
tractor-trailer tank trucks. The 225 rail cars would require a freight train
approximately 2 3/4 miles long and the 870 tractor-trailer tank trucks would
stretch approximately 35 miles, assuming a safety margin of 150 feet between the
trucks. The Company's active tank barge fleet capacity of 16.6 million barrels
equates to approximately 22,000 rail cars or approximately 82,700
tractor-trailer tank trucks. In addition, in studies comparing inland water
transportation to railroads and trucks, shallow draft water transportation has
been proven to be the most energy efficient and environmentally friendly method
of moving bulk raw materials. One ton of bulk product can be carried 522 miles
by inland barge on one gallon of fuel, compared with 386 miles by rail or 59
miles by truck.

Inland barge transportation is also the safest mode of transportation in
the United States. It generally involves less urban exposure than rail or truck.
It operates on a system with few crossing junctures and in areas relatively
remote from population centers. These factors generally reduce both the number
and impact of waterway incidents. For the amount of tonnage carried, barge
spills generally occur quite infrequently.

INLAND TANK BARGE INDUSTRY

The Company's marine transportation segment operates within the United
States inland tank barge industry, a diverse and independent mixture of large
integrated transportation companies and small operators, as well as captive
fleets owned by United States refining and petrochemical companies. The inland
tank barge industry provides marine transportation of bulk liquid cargoes for
customers and, in the case of captives, for their own account, along the
Mississippi River and its tributaries and the Gulf Intracoastal Waterway. The
most significant segments of this industry include the transportation of
petrochemicals, refined petroleum products, black oil products and agricultural
chemicals. The Company operates in each of these segments. The use of marine
transportation by the petroleum and petrochemical industry is a major reason for
the location of United States refineries and petrochemical facilities on
navigable inland waterways. Texas and Louisiana currently account for
approximately 80% of the United States production of petrochemicals. Much of the
United States farm belt is likewise situated with access to the inland waterway
system, relying on marine transportation of farm products, including
agricultural chemicals. The Company's principal distribution system encompasses
the Gulf Intracoastal Waterway from Brownsville, Texas, to St. Marks, Florida,
the Mississippi River System and the Houston Ship Channel. The Mississippi River
System includes the Arkansas, Illinois, Missouri, Ohio, Red, Tennessee, Yazoo,
Ouachita and Black Warrior rivers and the Tennessee-Tombigbee Waterway.

The total number of tank barges that operate in the inland waters of the
United States declined from approximately 4,200 in 1982 to approximately 2,900
in 1993, and remained relatively constant at 2,900 until 2002, when the number
declined slightly to 2,800. The Company believes this decrease primarily
resulted from: the increasing age of the domestic tank barge fleet, resulting in
scrapping; rates inadequate to justify new construction; a reduction in tax
incentives, which previously encouraged speculative construction of new

4

equipment; stringent operating standards to adequately cope with safety and
environmental risk; the elimination of government programs supporting small
refineries which created a demand for tank barge services; and an increase in
environmental regulations that mandate expensive equipment modification, which
some owners were unwilling or unable to undertake given capital constraints and
the age of their fleets.

The cost of hull work for required annual Coast Guard certifications, as
well as general safety and environmental concerns, force operators to
periodically reassess their ability to recover maintenance costs. The
proliferation of small refineries due to government regulations, along with tax
and financing incentives to operators and investors to construct tank barges,
including short-life tax depreciation, investment tax credits and government
guaranteed financing, led to growth in the supply of domestic tank barges to its
peak of approximately 4,200 in 1982. The tax incentives have since been
eliminated; however, the government guaranteed financing programs, dormant since
the mid-eighties, have been more actively used since 1993 to finance the
construction of some tank barges. The supply of tank barges resulting from the
earlier programs has slowly aligned with demand for tank barge services,
primarily through attrition, as discussed above.

Improved technology in steel coating and paint has added to the life
expectancy of inland tank barges. The average age of the nation's tank barge
fleet is over 22 years old, with 22% of the fleet built in the last 10 years.
Single hull barges comprise approximately 13% of the nation's tank barge fleet,
with an average age of 29 years. Single hull barges are being driven from the
nation's tank barge fleet by market forces, stringent environmental regulations
and rising maintenance costs. Single hull tank barges are required by current
federal law to be retrofitted with double hulls or phased out of domestic
service by 2015.

In September 2002, the U.S. Coast Guard issued new regulations that require
the installation of tank level monitoring devices on all single hull tank barges
by October 17, 2007. With the new regulations, coupled with a market bias
against single hull tank barges, the Company plans to retire all of its single
hull tank barges by October 17, 2007, and may result in reduced lives for single
hull tank barges industry wide. In December 2002, the Company recorded pre-tax
non-cash impairment charges totaling $17,712,000, of which single hull tank
barges accounted for $11,559,000 of the charges, the result of reduced estimated
cash flows resulting from reduced estimated useful lives. As of March 5, 2003,
the Company owned 98 single hull tank barges, of which approximately 74 were
active and 24 inactive.

During the 1970's and early 1980's, the industry overbuilt tank barge
capacity. However, the Company believes that the current more consolidated
industry will be less prone to overbuilding of the nation's tank barge fleet. Of
the approximately 745 tank barges built since 1989, 126, or 17%, were built by
the Company and by Hollywood Marine, Inc. ("Hollywood Marine") prior to its
merger with the Company effective October 12, 1999. The balance was primarily
replacement barges for single hull barges removed from service, special purpose
barges or barges constructed for specific contracts.

The Company's marine transportation segment, though a partnership in which
the Company owns a 35% interest, is also engaged in ocean-going dry-cargo barge
operations transporting dry-bulk cargoes. Such cargoes are transported primarily
between domestic ports along the Gulf of Mexico.

COMPETITION IN THE INLAND TANK BARGE INDUSTRY

The inland tank barge industry remains very competitive despite some
consolidation. The Company's inland tank barge fleet has grown from 71 tank
barges in 1988 to 911 active tank barges as of March 5, 2003. Competition in
this business has historically been based primarily on price; however, the
industry's customers, through an increased emphasis on safety, the environment,
quality and a greater reliance on a "single source" supply of services, are more
frequently requiring that their supplier of inland tank barge services have the
capability to handle a variety of tank barge requirements, offer distribution
capability throughout the inland waterway system, and offer flexibility, safety,
environmental responsibility, financial responsibility, adequate insurance and
quality of service consistent with the customer's own operational standards.

The Company's direct competitors are primarily noncaptive inland tank barge
operators. "Captive" companies are those companies that are owned by major oil
and/or petrochemical companies which occasionally compete in the inland tank
barge market, but primarily transport cargoes for their own account.

5

The Company is the largest inland tank barge carrier, both in terms of number of
barges and total fleet barrel capacity. It currently operates approximately 33%
of the total domestic inland tank barge capacity.

While the Company competes primarily with other tank barge companies, it
also competes with companies owning refined product and chemical pipelines, rail
tank cars and tractor-trailer tank trucks. As noted above, the Company believes
that inland marine transportation of bulk liquid products enjoys a substantial
cost advantage over rail and truck transportation. The Company believes that
refined products and petrochemical pipelines, although often a less expensive
form of transportation than inland tank barges, are not as adaptable to diverse
products and are generally limited to fixed point-to-point distribution of
commodities in high volumes over extended periods of time.

MARINE TRANSPORTATION ACQUISITIONS

In March 2002, the Company purchased the Cargo Carriers fleet of 21 inland
tank barges for $2,800,000 in cash from Cargill Corporation ("Cargill"), and
resold six of the tank barges for $530,000 in April 2002.

On October 31, 2002, the Company purchased seven inland black oil tank
barges and 13 inland towboats from Coastal Towing, Inc. ("Coastal") for
$17,053,000 in cash. In addition, the Company and Coastal entered into a barge
management agreement whereby the Company serves as manager of the combined black
oil fleet for a period of seven years. The combined black oil fleet consists of
Coastal's 54 remaining barges and the Company's 66 black oil barges. In a
related transaction, on September 25, 2002, the Company purchased from Coastal
three black oil tank barges for $1,800,000 in cash.

On December 15, 2002, the Company purchased from Union Carbide Finance
Corporation ("Union Carbide"), 94 double hull inland tank barges for
$23,000,000. Nine of the 94 tank barges were out-of-service and will be sold.
The Company had operated the tank barges since February 2001 under a long-term
lease agreement between the Company and Union Carbide, following the February 5,
2001 merger between Union Carbide and the Dow Chemical Company ("Dow"). The
Company has a long-term contract with Dow to provide for Dow's bulk liquid
inland marine transportation requirements.

On January 15, 2003, the Company purchased from SeaRiver Maritime, Inc.,
("SeaRiver"), the U.S. transportation affiliate of Exxon Mobil Corporation
("ExxonMobil"), 45 double hull inland tank barges and seven inland towboats for
$32,113,000 in cash, and assumed from SeaRiver the leases of 16 double hull
inland tank barges. On February 28, 2003, the Company purchased three double
hull inland tank barges, leased by SeaRiver from Banc of America Leasing &
Capital, LLC ("Banc of America Leasing") for $3,453,000 in cash. In addition,
the Company entered into a contract to provide inland marine transportation
services to SeaRiver.

PRODUCTS TRANSPORTED

During 2002, the Company's marine transportation segment moved over 50
million tons of liquid cargo on the United States inland waterway system.
Products transported for its customers comprised the following: petrochemicals,
refined petroleum products, black oil products and agricultural chemicals.

Petrochemicals. Bulk liquid petrochemicals transported include such
products as benzene, styrene, methanol, acrylonitrile, xylene and caustic soda,
all consumed in the production of paper, fibers and plastics. Pressurized
products, including butadiene, isobutane, propylene, butane and propane, all
requiring pressurized conditions to remain in stable liquid form, are
transported in pressure barges. The transportation of petrochemical products
represented approximately 70% of the segment's 2002 revenues. Customers shipping
these products are petrochemical companies in the United States.

Refined Petroleum Products. Refined petroleum products transported include
the various blends of gasoline, jet fuel, naphtha and diesel fuel, and
represented approximately 13% of the segment's 2002 revenues. Customers are oil
and refining companies in the United States.

Black Oil Products. Black oil products transported include such products
as asphalt, No. 6 fuel oil, coker feed, vacuum gas oil, crude oil and ship
bunkers (ship engine fuel). Such products represented

6

approximately 12% of the segment's 2002 revenues. Black oil customers are United
States refining companies, marketers and end users that require the
transportation of black oil products between refineries and storage terminals.
Ship bunkers customers are oil companies and oil traders in the bunkering
business.

Agricultural Chemicals. Agricultural chemicals transported represented
approximately 5% of the segment's 2002 revenues. They include anhydrous ammonia
and nitrogen-based liquid fertilizer, as well as industrial ammonia.
Agricultural chemical customers consist mainly of United States and foreign
producers of such products.

DEMAND DRIVERS IN THE INLAND TANK BARGE INDUSTRY

Demand for inland tank barge transportation services is driven by the
production volumes of the bulk liquid commodities transported by barge. Demand
for inland marine transportation of the segment's four primary commodity groups,
petrochemicals, refined petroleum products, black oil products and agricultural
chemicals, is based on differing circumstances. While the demand drivers of each
commodity are different, the Company has the flexibility in many cases of
re-allocating equipment to stronger markets as needed.

Bulk petrochemical volumes generally track the general domestic economy and
correlate to the United States Gross Domestic Product. These products are used
in housing, automobiles, clothing and consumer goods. The other significant
component of petrochemical production consists of gasoline additives, the demand
for which closely parallels the United States gasoline consumption.

Refined product volumes are driven by United States gasoline consumption,
principally vehicle usage, air travel and weather conditions. Volumes also
relate to inventory balances within the United States Midwest. Generally,
gasoline, No. 2 oil and heating oil are exported from the Gulf Coast where
refining capacity exceeds demand. The Midwest is a net importer of such
products. Demand for tank barge transportation from the Gulf Coast to the
Midwest region reflects the relative price differentials of Gulf Coast
production and gasoline produced in the Midwest.

The demand for black oil products, including ship bunkers, varies with the
type of product transported. Asphalt shipments are generally seasonal, with
higher volumes shipped during April through November, months when weather allows
for efficient road construction. Other black oil shipments are more constant and
service the United States oil refineries.

Demand for marine transportation of agricultural fertilizer is directly
related to domestic nitrogen based fertilizer consumption, driven by the
production of corn, cotton and wheat. The nitrogen based liquid fertilizers
carried by the Company are distributed from United States manufacturing
facilities, generally located in the southern United States where natural gas
feedstocks are plentiful, and from imported sources. Such products are delivered
to the numerous small terminals and distributors throughout the United States
farm belt.

MARINE TRANSPORTATION OPERATIONS

The marine transportation segment operates a fleet of 911 active inland
tank barges and 215 active inland towboats. Through a partnership, the segment
operates four offshore dry-cargo barges, four offshore tugboats and one shifting
tugboat. The Company also owns 50% interests in two bulk liquid terminals
through two partnerships.

Inland Operations. The segment's inland operations are conducted through a
wholly owned subsidiary, Kirby Inland Marine, LP ("Kirby Inland Marine"). Kirby
Inland Marine's operations consist of the Canal, Linehaul and River fleets, as
well as barge fleeting services performed by Western Towing Company ("Western"),
a division of Kirby Inland Marine.

The Canal fleet transports petrochemical feedstocks, processed chemicals,
pressurized products, refined petroleum products and black oil products along
the Gulf Intracoastal Waterway, the Mississippi River below Baton Rouge,
Louisiana, and the Houston Ship Channel. Petrochemical feedstocks and certain
pressurized products are transported from one refinery to another refinery for
further processing. Processed chemicals and certain pressurized products are
moved to waterfront terminals and chemical plants. Refined petroleum

7

products are transported to waterfront terminals along the Gulf Intracoastal
Waterway for distribution. Certain black oil products are transported to
waterfront terminals and products such as No. 6 fuel oil are transported
directly to the end users.

The Linehaul fleet transports petrochemical feedstocks, processed
chemicals, agricultural chemicals and lube oils along the Gulf Intracoastal
Waterway, Mississippi River and the Illinois and Ohio Rivers. Loaded tank barges
are staged in the Baton Rouge area from Gulf Coast refineries and chemical
plants, and are transported from Baton Rouge to waterfront terminals and plants
on the Mississippi, Illinois and Ohio Rivers, and along the Gulf Intracoastal
Waterway, on regularly scheduled linehaul tows. Barges are dropped off and
picked up going up and down river.

The River fleet transports petrochemical feedstocks, processed chemicals,
refined petroleum products, agricultural chemicals and black oil products along
the Mississippi River System above Baton Rouge. Petrochemical feedstocks and
processed chemicals are transported to waterfront petrochemical and chemical
plants, while refined petroleum products and agricultural chemicals are
transported to waterfront terminals. The River fleet operates unit tows, where a
towboat and generally a dedicated group of barges operate on consecutive voyages
between a loading point and a discharge point.

The transportation of petrochemical feedstocks, processed chemicals and
pressurized products is generally consistent throughout the year. Transportation
of refined petroleum products, certain black oil products and agricultural
chemicals is generally more seasonal. Movements of refined petroleum products,
such as gasoline blends, generally increase during the summer driving season,
while heating oil movements generally increase during the winter months.
Movements of black oil products, such as asphalt, generally increase in the
spring through fall months. Movements of agricultural chemicals generally
increase during the spring and fall planting seasons.

The marine transportation segment moves and handles a broad range of
sophisticated cargoes. To meet the specific requirements of the cargoes
transported, the tank barges may be equipped with self-contained heating
systems, high-capacity pumps, pressurized tanks, refrigeration units, stainless
steel tanks, aluminum tanks or specialty coated tanks. Of the 911 active tank
barges currently operated, 713 are petrochemical and refined products barges,
120 are black oil barges, 60 are pressure barges, 11 are anhydrous ammonia
barges and seven are specialty barges.

The fleet of 215 active inland towboats ranges from 600 to 6000 horsepower.
Towboats in the 600 to 1900 horsepower classes provide power for barges used by
the Canal and Linehaul fleets on the Gulf Intracoastal Waterway and the Houston
Ship Channel. Towboats in the 1400 to 6000 horsepower classes provide power for
both the River and Linehaul fleets on the Gulf Intracoastal Waterway and the
Mississippi River System. Towboats above 3600 horsepower are typically used in
the Mississippi River System to move River fleet unit tows and provide Linehaul
fleet towing. Based on the capabilities of the individual towboats used in the
Mississippi River System, the tows range in size from 10,000 tons to 30,000
tons.

Marine transportation services are conducted under long-term contracts,
ranging from one to five years with renewal options, with customers with whom
the Company has long-standing relationships, as well as under short-term and
spot contracts. Currently, approximately 70% of the revenues are derived from
term contracts and 30% are derived from spot market movements.

Inland tank barges used in the transportation of petrochemicals are of
double hull construction and, where applicable, are capable of controlling vapor
emissions during loading and discharging operations in compliance with
occupational health and safety regulations and air quality concerns.

The marine transportation segment is one of a few inland tank barge
operators with the ability to offer to its customers distribution capabilities
throughout the Mississippi River System and the Gulf Intracoastal Waterway. Such
distribution capabilities offer economies of scale resulting from the ability to
match tank barges, towboats, products and destinations more efficiently.

Through the Company's proprietary vessel management computer system, the
fleet of barges and towboats is dispatched from centralized dispatch at the
corporate office. The towboats are equipped with

8

satellite positioning and communication systems that automatically transmit the
location of the towboat to the Company's traffic department located in its
corporate office. Electronic orders are communicated to the vessel personnel,
with reports of towing activities communicated electronically back to the
traffic department. The electronic interface between the traffic department and
the vessel personnel enables more effective matching of customer needs to barge
capabilities, thereby maximizing utilization of the tank barge and towboat
fleet. The Company's customers are able to access information concerning the
movement of their cargoes, including barge locations, through the Company's
website.

Western operates the largest commercial tank barge fleeting service
(temporary barge storage facilities) in the ports of Houston, Corpus Christi and
Freeport, Texas, and on the Mississippi River at Baton Rouge and New Orleans,
Louisiana. Western provides service for Kirby Inland Marine's barges, as well as
outside customers, transferring barges within the areas noted, as well as
fleeting barges.

Kirby Terminals, Inc. ("Kirby Terminals"), a wholly owned subsidiary of the
Company, manages the operations of Matagorda Terminal Ltd. and Red River
Terminals, LLC, a Texas limited partnership and Louisiana limited liability
company, respectively, in each of which Kirby Terminals owns a 50% interest.
Both operations are bulk liquid terminals.

Kirby Inland Marine's Logistics Management division offers barge tankerman
services and related distribution services primarily to the Company and to some
third parties.

Offshore Operations. The segment's offshore operations are conducted
through a wholly owned subsidiary, Dixie Offshore Transportation Company ("Dixie
Offshore"), and its subsidiary. The offshore fleet consists of equipment owned
through a limited partnership, Dixie Fuels Limited ("Dixie Fuels"), in which a
subsidiary of Dixie Offshore, Dixie Bulk Transport, Inc. ("Dixie Bulk"), owns a
35% interest.

Dixie Bulk, as general partner, manages the operations of Dixie Fuels,
which operates a fleet of four ocean-going dry-bulk barges, four ocean-going
tugboats and one shifting tugboat. The remaining 65% interest in Dixie Fuels is
owned by Progress Fuels Corporation ("PFC"), a wholly owned subsidiary of
Progress Energy, Inc. ("Progress Energy"). Dixie Fuels operates primarily under
term contracts of affreightment, including a contract that expires in the year
2005 with PFC to transport coal across the Gulf of Mexico to Progress Energy's
power generation facility at Crystal River, Florida.

Dixie Fuels also has a long-term contract with Holcim (US) Inc. ("Holcim")
to transport Holcim's limestone requirements from a facility adjacent to the
Progress Energy facility at Crystal River to Holcim's plant in Theodore,
Alabama. The Holcim contract, which expires in 2010, provides cargo for a
portion of the return voyage for the vessels that carry coal to Progress
Energy's Crystal River facility. Dixie Fuels is also engaged in the
transportation of coal, fertilizer and other bulk cargoes on a short-term basis
between domestic ports and the transportation of grain from domestic ports to
ports primarily in the Caribbean Basin.

CONTRACTS AND CUSTOMERS

The majority of the marine transportation contracts with its customers are
for terms of one year. The Company also operates under longer term contracts
with certain other customers. These companies have generally been customers of
the Company's marine transportation segment for several years and management
anticipates a continuing relationship, however, there is no assurance that any
individual contract will be renewed. Dow, with which the Company has a contract
through 2016, including renewal options, accounted for 13% of the Company's
revenues in 2002, 12% in 2001 and 10% in 2000.

EMPLOYEES

The Company's marine transportation segment has approximately 1,950
employees, of which approximately 1,375 are vessel crew members. None of the
segment's operations are subject to collective bargaining agreements.

9

PROPERTIES

The principal office of Kirby Inland Marine is located in Houston, Texas,
in the Company's facilities under a lease that expires in April 2006. Kirby
Inland Marine's operating locations are on the Mississippi River at Baton Rouge,
Louisiana, New Orleans, Louisiana, and Greenville, Mississippi, two locations in
Houston, Texas, on and near the Houston Ship Channel, and in Corpus Christi,
Texas. The Baton Rouge, New Orleans and Houston facilities are owned, and the
Greenville and Corpus Christi facilities are leased. The Western and Kirby
Logistics Management divisions' principal offices are located in facilities
owned by Kirby Inland Marine in Houston, Texas, near the Houston Ship Channel.
The principal office of Dixie Offshore is in Belle Chasse, Louisiana, in owned
facilities.

GOVERNMENTAL REGULATIONS

General. The Company's marine transportation operations are subject to
regulation by the United States Coast Guard, federal laws, state laws and
certain international conventions.

Most of the Company's inland tank barges are inspected by the United States
Coast Guard and carry certificates of inspection. The Company's inland and
offshore towing vessels and offshore dry-bulk barges are not subject to United
States Coast Guard inspection requirements. The Company's offshore towing
vessels and offshore dry-bulk barges are built to American Bureau of Shipping
("ABS") classification standards and are inspected periodically by ABS to
maintain the vessels in class. The crews employed by the Company aboard vessels,
including captains, pilots, engineers, tankermen and ordinary seamen, are
licensed by the United States Coast Guard.

The Company is required by various governmental agencies to obtain
licenses, certificates and permits for its vessels depending upon such factors
as the cargo transported, the waters in which the vessels operate and other
factors. The Company is of the opinion that the Company's vessels have obtained
and can maintain all required licenses, certificates and permits required by
such governmental agencies for the foreseeable future.

The Company believes that additional security and environmental related
regulations may be imposed on the marine industry in the form of contingency
planning requirements. Generally, the Company endorses the anticipated
additional regulations and believes it is currently operating to standards at
least the equal of such anticipated additional regulations.

Jones Act. The Jones Act is a federal cabotage law that restricts domestic
marine transportation in the United States to vessels built and registered in
the United States, manned by United States citizens, and owned and operated by
United States citizens. For corporations to qualify as United States citizens
for the purpose of domestic trade, 75% of the corporations' beneficial
stockholders must be United States citizens. The Company presently meets all of
the requirements of the Jones Act for its owned vessels.

Compliance with United States ownership requirements of the Jones Act is
important to the operations of the Company, and the loss of Jones Act status
could have a significant negative effect for the Company. The Company monitors
the citizenship requirements under the Jones Act of its employees and beneficial
stockholders, and will take action as necessary to ensure compliance with the
Jones Act requirements.

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 Coast Guard, and the application of United States labor and
tax laws significantly increase the cost of U.S. flag vessels when compared with
comparable foreign flag vessels. The Company's business could be adversely
affected if the Jones Act was to be modified so as to permit foreign competition
that is not subject to the same United States government imposed burdens.

User Taxes. Federal legislation requires that inland marine transportation
companies pay a user tax based on propulsion fuel used by vessels engaged in
trade along the inland waterways that are maintained by the United States Army
Corps of Engineers. Such user taxes are designed to help defray the costs
associated with replacing major components of the inland waterway system, such
as locks and dams. A significant portion of the inland waterways on which the
Company's vessels operate is maintained by the Corps of Engineers.

10

The Company presently pays a federal fuel tax of 24.4 cents per gallon,
reflecting a 4.3 cents per gallon transportation fuel tax for deficit reduction
imposed in October 1993, a .1 cent per gallon leaking underground storage tank
tax and a 20 cents per gallon waterway use tax. There can be no assurance that
additional user taxes may not be imposed in the future.

ENVIRONMENTAL REGULATIONS

The Company's operations are affected by various regulations and
legislation enacted for protection of the environment by the United States
government, as well as many coastal and inland waterway states.

Water Pollution Regulations. The Federal Water Pollution Control Act of
1972, as amended by the Clean Water Act of 1977, the Comprehensive Environmental
Response, Compensation and Liability Act of 1981 and the Oil Pollution Act of
1990 ("OPA") impose strict prohibitions against the discharge of oil and its
derivatives or hazardous substances into the navigable waters of the United
States. These acts impose civil and criminal penalties for any prohibited
discharges and impose substantial strict liability for cleanup of these
discharges and any associated damages. Certain states also have water pollution
laws that prohibit discharges into waters that traverse the state or adjoin the
state, and impose civil and criminal penalties and liabilities similar in nature
to those imposed under federal laws.

The OPA and various state laws of similar intent substantially increased
over historic levels the statutory liability of owners and operators of vessels
for oil spills, both in terms of limit of liability and scope of damages.

One of the most important requirements under the OPA is that all newly
constructed tank barges engaged in the transportation of oil and petroleum in
the United States be double hulled, and all existing single hull tank barges be
retrofitted with double hulls or phased out of domestic service by 2015. In
September 2002, the U.S. Coast Guard issued new regulations that require the
installation of tank level monitoring devices on all single hull tank barges by
October 17, 2007.

The Company manages its exposure to losses from potential discharges of
pollutants through the use of well maintained and equipped vessels, the safety,
training and environmental programs of the Company, and the Company's insurance
program. In addition, the Company uses double hull barges in the transportation
of more hazardous chemical substances. There can be no assurance, however, that
any new regulations or requirements or any discharge of pollutants by the
Company will not have an adverse effect on the Company.

Financial Responsibility Requirement. Commencing with the Federal Water
Pollution Control Act of 1972, as amended, vessels over 300 gross tons operating
in the Exclusive Economic Zone of the United States have been required to
maintain evidence of financial ability to satisfy statutory liabilities for oil
and hazardous substance water pollution. This evidence is in the form of a
Certificate of Financial Responsibility ("COFR") issued by the United States
Coast Guard. The majority of the Company's tank barges are subject to this COFR
requirement, and the Company has fully complied with this requirement since its
inception. The Company does not foresee any current or future difficulty in
maintaining the COFR certificates under current rules.

Clean Air Regulations. The Federal Clean Air Act of 1979 ("Clean Air Act")
requires states to draft State Implementation Plans ("SIPs") designed to reduce
atmospheric pollution to levels mandated by this act. Several SIPs provide for
the regulation of barge loading and degassing emissions. The implementation of
these regulations requires a reduction of hydrocarbon emissions released into
the atmosphere during the loading of most petroleum products and the degassing
and cleaning of barges for maintenance or change of cargo. These regulations
require operators who operate in these states to install vapor control equipment
on their barges. The Company expects that future toxic emission regulations will
be developed and will apply this same technology to many chemicals that are
handled by barge. Most of the Company's barges engaged in the transportation of
petrochemicals, chemicals and refined products are already equipped with vapor
control systems. Additionally, in Texas, a SIP calling for voluntary reductions
in towboat diesel engine exhaust emissions for the Houston-Galveston area has
been approved. Although a risk exists that new regulations could require
significant capital expenditures by the Company and otherwise increase the
Company's costs, the Company believes that, based upon the regulations that have
been proposed thus far, no material capital

11

expenditures beyond those currently contemplated by the Company and no material
increase in costs are likely to be required.

Contingency Plan Requirement. The OPA and several state statutes of
similar intent require the majority of the vessels and terminals operated by the
Company to maintain approved oil spill contingency plans as a condition of
operation. The Company has approved plans that comply with these requirements.
The OPA also requires development of regulations for hazardous substance spill
contingency plans. The United States Coast Guard has not yet promulgated these
regulations; however, the Company anticipates that they will not be
significantly more difficult to comply with than the oil spill plans.

Occupational Health Regulations. The Company's inspected vessel operations
are primarily regulated by the United States Coast Guard for occupational health
standards and uninspected vessel operations and the Company's shore personnel
are subject to the United States Occupational Safety and Health Administration
regulations. The Company believes that it is in compliance with the provisions
of the regulations that have been adopted and does not believe that the adoption
of any further regulations will impose additional material requirements on the
Company. There can be no assurance, however, that claims will not be made
against the Company for work related illness or injury, or that the further
adoption of health regulations will not adversely affect the Company.

Insurance. The Company's marine transportation operations are subject to
the hazards associated with operating vessels carrying large volumes of bulk
cargo in a marine environment. These hazards include the risk of loss of or
damage to the Company's vessels, damage to third parties as a result of
collision, fire or explosion, loss or contamination of cargo, personal injury of
employees and third parties, and pollution and other environmental damages. The
Company maintains insurance coverage against these hazards. Risk of loss of or
damage to the Company's vessels is insured through hull insurance currently
insuring approximately $810 million in hull values. Liabilities such as
collision, cargo, environmental, personal injury and general liability are
insured up to $500 million per occurrence.

Environmental Protection. The Company has a number of programs that were
implemented to further its commitment to environmental responsibility in its
operations. In addition to internal environmental audits, one such program is
environmental audits of barge cleaning vendors principally directed at
management of cargo residues and barge cleaning wastes. Others are the
participation by the Company in the American Waterways Operators Responsible
Carrier program and the American Chemistry Council Responsible Care program,
both of which are oriented towards continuously reducing the barge industry's
and chemical and petroleum industries' impact on the environment, including the
distribution services area.

Safety. The Company manages its exposure to the hazards associated with
its business through safety, training and preventive maintenance efforts. The
Company places considerable emphasis on safety through a program oriented toward
extensive monitoring of safety performance for the purpose of identifying trends
and initiating corrective action, and for the purpose of rewarding personnel
achieving superior safety performance. The Company believes that its safety
performance consistently places it among the industry leaders as evidenced by
what it believes are lower injury frequency and pollution incident levels than
many of its competitors.

Training. The Company believes that among the major elements of a
successful and productive work force are effective training programs. The
Company also believes that training in the proper performance of a job enhances
both the safety and quality of the service provided. New technology, regulatory
compliance, personnel safety, quality and environmental concerns create
additional demands for training. The Company fully endorses the development and
institution of effective training programs.

Centralized training is provided through the training department, which is
charged with developing, conducting and maintaining training programs for the
benefit of all of the Company's operating entities. It is also responsible for
ensuring that training programs are both consistent and effective. The Company's
owned and operated facility includes state-of-the-art equipment and instruction
aids, including a working towboat, three tank barges and a tank barge simulator
for tankerman training. During 2002, approximately 1,900 certificates were
issued for the completion of courses at the training facility.

12

Quality. The Company has made a substantial commitment to the
implementation, maintenance and improvement of Quality Assurance Systems in
compliance with the International Quality Standard, ISO 9002. Currently, all of
the Company's marine transportation units have been certified. These Quality
Assurance Systems have enabled both shore and vessel personnel to effectively
manage the changes which occur in the working environment. In addition, such
Quality Assurance Systems have enhanced the Company's already excellent safety
and environmental performance.

DIESEL ENGINE SERVICES

The Company is engaged in the overhaul and repair of large medium-speed
diesel engines and reduction gears, and related parts sales through Kirby Engine
Systems, Inc. ("Kirby Engine Systems"), a wholly owned subsidiary of the
Company, and its three wholly owned operating subsidiaries, Marine Systems, Inc.
("Marine Systems"), Engine Systems, Inc. ("Engine Systems") and Rail Systems,
Inc. ("Rail Systems"). Through these three operating subsidiaries, the Company
sells OEM replacement parts, provides service mechanics to overhaul and repair
engines and reduction gears, and maintains facilities to rebuild component parts
or entire engines and entire reduction gears. The Company serves the marine
market and stand-by power generation market throughout the United States,
Pacific Rim and Caribbean, the shortline, industrial, and certain transit and
Class II railroad markets throughout the United States, other industrial markets
such as cement, paper and mining in the Midwest, and components of the nuclear
industry worldwide. No single customer of the diesel engine services segment
accounted for more than 10% of the Company's revenues in 2002, 2001, or 2000.
The diesel engine services segment also provides service to the Company's marine
transportation segment, which accounted for approximately 2% of the diesel
engine services segment's total 2002 revenues and approximately 3% of its
revenues for 2001 and 2000. Such revenues are eliminated in consolidation and
not included in the table below.

In July 2001, Rail Systems expanded its distributorship agreement with the
Electro-Motive Division of General Motors ("EMD") with the addition of an
agreement to distribute EMD replacement parts to certain United States transit
and Class II railroads effective July 1, 2001.

In October 2000, Marine Systems completed the acquisition of the Powerway
Division of Covington Detroit Diesel -- Allison, Inc. ("Powerway") for
$1,428,000 in cash. In November 2000, Marine Systems completed the acquisition
of West Kentucky Machine Shop, Inc. ("West Kentucky") for an aggregate
consideration of $6,674,000, consisting of $6,629,000 in cash, the assumption of
$20,000 of West Kentucky's existing debt and $25,000 of merger costs. The
acquisitions were accounted for using the purchase method of accounting. With
the acquisition of Powerway, the Company became the sole distributor of
aftermarket parts and service for Alco engines throughout the United States for
marine, power generation and industrial applications. With the acquisition of
West Kentucky, the Company increased its distributorship capabilities to the
marine industry with Falk Corporation ("Falk"), a reduction gear manufacturer,
and also became a certified industrial renew center for Falk reduction gears for
industrial applications in the Midwest. In October 2000, Engine Systems entered
into a distributorship agreement with Cooper Energy Services, Inc. ("Cooper") to
become the exclusive worldwide distributor for Enterprise and Cooper-Bessemer
KSV engines to the nuclear industry.

The following table sets forth the revenues for the diesel engine services
segment for the periods indicated (dollars in thousands):

13

MARINE OPERATIONS

The Company is engaged in the overhaul and repair of diesel engines and
reduction gears, line boring, block welding services and related parts sales for
customers in the marine industry. The Company services tugboats and towboats
powered by large diesel engines utilized in the inland and offshore barge
industries. It also services marine equipment and offshore drilling equipment
used in the offshore petroleum exploration and oil service industry, marine
equipment used in the offshore commercial fishing industry and vessels owned by
the United States government.

The Company has marine operations throughout the United States providing
in-house and in-field repair capabilities and related parts sales. These
operations are located in Houma, Louisiana, Chesapeake, Virginia, Paducah,
Kentucky, Harvey, Louisiana and Seattle, Washington. The operation based in
Chesapeake, Virginia is an authorized distributor for 17 eastern states and the
Caribbean for EMD. The marine operations based in Houma, Louisiana, Paducah,
Kentucky and Seattle, Washington are nonexclusive authorized service centers for
EMD providing service and related parts sales. All of the marine locations are
authorized distributors for Falk reduction gears, and all of the marine
locations except for Harvey, Louisiana, are also authorized distributors for
Alco engines. The Chesapeake, Virginia operation concentrates on East Coast
inland and offshore dry-bulk, tank barge and harbor docking operators, the
United States Coast Guard and United States Navy. The Houma and Harvey,
Louisiana operations concentrate on the inland and offshore barge and oil
services industries. The Paducah, Kentucky operation concentrates on the inland
river towboat and barge operators and the Great Lakes carriers. The Seattle,
Washington operation primarily concentrates on the offshore commercial fishing
industry, tugboat and barge industry, the United States Coast Guard and United
States Navy, and other customers in Alaska, Hawaii and the Pacific Rim. The
Company's emphasis is on service to its customers, and it sends its crews from
any of its locations to service customers' equipment anywhere in the world.

MARINE CUSTOMERS

The Company's major marine customers include inland and offshore barge
operators, oil service companies, petrochemical companies, offshore fishing
companies, other marine transportation entities, and the United States Coast
Guard and Navy.

Since the marine business is linked to the relative health of the diesel
power tugboat and towboat industry, the offshore supply boat industry, the oil
and gas drilling industry, the military and the offshore commercial fishing
industry, there is no assurance that its present gross revenues can be
maintained in the future. The results of the diesel engine services industry are
largely tied to the industries it serves and, therefore, are influenced by the
cycles of such industries.

MARINE COMPETITIVE CONDITIONS

The Company's primary competitors are approximately 10 independent diesel
services companies and other EMD authorized distributors and authorized service
centers. Certain operators of diesel powered marine equipment also elect to
maintain in-house service capabilities. While price is a major determinant in
the competitive process, reputation, consistent quality, expeditious service,
experienced personnel, access to parts inventories and market presence are
significant factors. A substantial portion of the Company's business is obtained
by competitive bids. However, the Company has entered into preferential service
agreements with certain large operators of diesel powered marine equipment.
These agreements provide such operators with one source of support and service
for all of their requirements at pre-negotiated prices.

Many of the parts sold by the Company are generally available from other
service providers, but the Company is one of a limited number of authorized
resellers of EMD parts. The Company is also the only marine distributor for Falk
reduction gears and the only distributor for Alco engines throughout the United
States. Although the Company believes it is unlikely, termination of its
distributorship relationship with EMD or its authorized service center
relationships with other EMD distributors could adversely affect its business.

14

POWER GENERATION AND INDUSTRIAL OPERATIONS

The Company is engaged in the overhaul and repair of diesel engines and
reduction gears, line boring, block welding service and related parts sales for
power generation and industrial customers. The Company is also engaged in the
sale and distribution of parts for diesel engines and governors to the nuclear
industry. The Company services users of diesel engines that provide standby,
peak and base load power generation, as well as users of industrial reduction
gears such as the cement, paper and mining industries.

The Company has power generation and industrial operations providing
in-house and in-field repair capabilities and safety-related products to the
nuclear industry. These operations are located in Rocky Mount, North Carolina,
Medley, Florida, Paducah, Kentucky, Harvey, Louisiana and Seattle, Washington.
The operations based in Rocky Mount, North Carolina and Medley, Florida are EMD
authorized distributors for 17 eastern states and the Caribbean for power
generation and industrial applications, and provide in-house and in-field
service. The Rocky Mount operation is also the exclusive worldwide distributor
of EMD products to the nuclear industry, the exclusive worldwide distributor for
Woodward Governor ("Woodward") products to the nuclear industry and the
exclusive worldwide distributor of Cooper products to the nuclear industry. The
Paducah, Kentucky operation is a certified industrial renew center for Falk, and
provides in-house and in-field repair services for industrial reduction gears in
the Midwest. The Seattle, Washington operation provides in-house and in-field
repair services for Alco engines located on the West Coast and the Pacific Rim.

POWER GENERATION AND INDUSTRIAL CUSTOMERS

The Company's major power generation customers are Miami-Dade County,
Florida Water and Sewer Authority, Progress Energy and the worldwide nuclear
power industry. The Company's major industrial customers include the cement,
paper and mining industries in the Midwest and southeast United States.

POWER GENERATION AND INDUSTRIAL COMPETITIVE CONDITIONS

The Company's primary competitors are other independent diesel services
companies and industrial reduction gear repair companies and manufacturers.
While price is a major determinant in the competitive process, reputation,
consistent quality, expeditious service, experienced personnel, access to parts
inventories and market presence are significant factors. A substantial portion
of the Company's business is obtained by competitive bids. The Company has
entered into preferential service agreements with certain large operators of
diesel powered generation equipment, providing such operations with one source
of support and service for all of their requirements at pre-negotiated prices.

The Company is also the exclusive worldwide distributor of EMD, Cooper and
Woodward parts for the nuclear industry. Specific regulations relating to
equipment used in nuclear power generation require extensive testing and
certification of replacement parts. Non-genuine parts and parts not properly
tested and certified cannot be used in the nuclear applications.

ENGINE DISTRIBUTION AGREEMENT

Engine Systems has an agreement with Stewart & Stevenson Services, Inc.,
allowing Stewart & Stevenson to sell EMD engines in certain applications within
Engine Systems' distributorship territory encompassing 17 eastern states and the
Caribbean. Engine Systems receives an annual fee based on sales within the
distributorship territory.

RAIL OPERATIONS

The Company is engaged in the overhaul and repair of locomotive diesel
engines and the sale of replacement parts for locomotives serving shortline,
industrial, and certain transit and Class II railroads within the continental
United States. The Company serves as an exclusive distributor for EMD providing
replacement parts, service and support to these markets. EMD is the world's
largest manufacturer of diesel-electric locomotives, a position it has held for
over 80 years.

15

RAIL CUSTOMERS

The Company's rail customers are United States shortline, industrial,
transit and Class II operators. The shortline and industrial operators are
located throughout the United States, and are primarily branch or spur rail
lines that provide the final connection between the plants or mines and the
major railroad operators. The shortline railroads are independent operators. The
plants and mines own the industrial railroads. The transit railroads are
primarily located in larger cities in the Northeast and West Coast of the United
States. Transit railroads are operated by cities, states and Amtrak. The Class
II railroads are larger regionally operated railroads.

RAIL COMPETITIVE CONDITIONS

As an exclusive United States distributor for EMD parts, the Company
provides all EMD parts sales to these markets, as well as providing rebuild and
service work. There are several other companies providing service for shortline
and industrial locomotives. In addition, the industrial companies, in some
cases, provide their own service.

EMPLOYEES

Marine Systems, Engine Systems and Rail Systems together have approximately
260 employees.

PROPERTIES

The principal offices of the diesel engine services segment are located in
Houma, Louisiana. The Company also operates seven parts and service facilities
that are located in Houma, Louisiana, Chesapeake, Virginia, Rocky Mount, North
Carolina, Paducah, Kentucky, Medley, Florida, Harvey, Louisiana and Seattle,
Washington. All of these facilities are located on leased property except the
Houma, Louisiana facility that is situated on approximately seven acres of
Company owned land.

ITEM 2. PROPERTIES

The information appearing in Item 1 is incorporated herein by reference.
The Company and Kirby Inland Marine currently occupy leased office space at 55
Waugh Drive, Suite 1000, Houston, Texas, under a lease that expires in April
2006. The Company believes that its facilities at 55 Waugh Drive are adequate
for its needs and additional facilities would be available if required.

ITEM 3. LEGAL PROCEEDINGS

The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.

In addition, the Company is involved in various legal and other proceedings
which are incidental to the conduct of its business, none of which in the
opinion of management will have a material effect on the Company's financial
condition, results of operations or cash flows. Management has recorded
necessary reserves and believes that it has adequate insurance coverage or has
meritorious defenses for these other claims and contingencies.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year ended December 31, 2002, no
matter was submitted to a vote of security holders through solicitation of
proxies or otherwise.

16

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

No family relationship exists among the executive officers or among the
executive officers and the directors. Officers are elected to hold office until
the annual meeting of directors, which immediately follows the annual meeting of
stockholders, or until their respective successors are elected and have
qualified.

C. Berdon Lawrence holds an M.B.A. degree and a B.B.A. degree in business
administration from Tulane University. He has served the Company as Chairman of
the Board since October 1999. Prior to joining the Company in October 1999, he
served for 30 years as President of Hollywood Marine, an inland tank barge
company of which he was the founder and principal shareholder and which was
acquired by the Company in October 1999.

Joseph H. Pyne holds a degree in liberal arts from the University of North
Carolina and has served as President and Chief Executive Officer of the Company
since April 1995. He has served the Company as a Director since 1988. He served
as Executive Vice President of the Company from 1992 to April 1995 and as
President of Kirby Inland Marine from 1984 to November 1999. He also served in
various operating and administrative capacities with Kirby Inland Marine from
1978 to 1984, including Executive Vice President from January to June 1984.
Prior to joining the Company, he was employed by Northrop Services, Inc. and
served as an officer in the United States Navy.

Norman W. Nolen is a Certified Public Accountant and holds an M.B.A. degree
from the University of Texas and a degree in electrical engineering from the
University of Houston. He has served the Company as Executive Vice President,
Chief Financial Officer and Treasurer since October 1999 and served as Senior
Vice President, Chief Financial Officer and Treasurer from February 1999 to
October 1999. Prior to joining the Company, he served as Senior Vice President,
Treasurer and Chief Financial Officer of Weatherford International, Inc. from
1991 to 1998. He served as Corporate Treasurer of Cameron Iron Works from 1980
to 1990 and as a corporate banker with Texas Commerce Bank from 1968 to 1980.

Steven P. Valerius holds a J.D. degree from South Texas College of Law and
a degree in business administration from the University of Texas. He has served
the Company as President of Kirby Inland Marine since November 1999. Prior to
joining the Company in October 1999, he served as Executive Vice President of
Hollywood Marine. Prior to joining Hollywood Marine in 1979, he was employed by
KPMG LLP.

Dorman L. Strahan attended Nicholls State University and has served the
Company as President of Kirby Engine Systems since May 1999, President of Marine
Systems since 1986, President of Rail Systems since 1993 and President of Engine
Systems since 1996. After joining the Company in 1982 in connection with the
acquisition of Marine Systems, he served as Vice President of Marine Systems
until 1985.

17

Mark R. Buese holds a degree in business administration from Loyola
University and has served the Company as Senior Vice President -- Administration
since October 1999. He served the Company or one of its subsidiaries as Vice
President -- Administration from 1993 to October 1999. He also served as Vice
President of Kirby Inland Marine from 1985 to 1999 and served in various sales,
operating and administrative capacities with Kirby Inland Marine from 1978
through 1985.

Jack M. Sims holds a degree in business administration from the University
of Miami and has served the Company, or one of its subsidiaries, as Vice
President -- Human Resources since 1993. Prior to joining the Company in March
1993, he served as Vice President -- Human Resources for Virginia Indonesia
Company from 1982 through 1992, Manager -- Employee Relations for Houston Oil
and Minerals Corporation from 1977 through 1981 and in various professional and
managerial positions with Shell Oil Company from 1967 through 1977.

Howard G. Runser holds an M.B.A. degree from Xavier University and a
Bachelor of Science degree from Penn State University. He has served the Company
as Vice President -- Information Technology since January 2000. He is a
Certified Data Processor and a Certified Computer Programmer. Prior to joining
the Company in January 2000, he was Vice President of Financial Information
Systems for Petroleum Geo-Services, and previously held management positions
with Weatherford International, Inc. and Compaq Computer Corporation.

G. Stephen Holcomb holds a degree in business administration from Stephen
F. Austin State University and has served the Company as Vice
President -- Investor Relations and Assistant Secretary since November 2002. He
also served as Vice President, Controller and Assistant Secretary from 1989 to
November 2002, Controller from 1987 through 1988 and as Assistant Controller
from 1976 through 1986. Prior to that, he was Assistant Controller of Kirby
Industries from 1973 to 1976. Prior to joining the Company in 1973, he was
employed by Cooper Industries, Inc.

Ronald A. Dragg is a Certified Public Accountant and holds a Master of
Science in Accountancy degree from the University of Houston and a degree in
finance from Texas A&M University. He has served the Company as Controller since
November 2002, Controller -- Financial Reporting from January 1999 to October
2002, and Assistant Controller -- Financial Reporting from October 1996 to
December 1998. Prior to joining the Company, he was employed by Baker Hughes
Incorporated.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the New York Stock Exchange under
the symbol KEX. The following table sets forth the high and low sales prices per
share for the common stock for the periods indicated:

As of March 5, 2003, the Company had 24,065,789 outstanding shares held by
approximately 1,000 stockholders of record.

The Company does not have an established dividend policy. Decisions
regarding the payment of future dividends will be made by the Board of Directors
based on the facts and circumstances that exist at that time. Since 1989, the
Company has not paid any dividends on its common stock.

ITEM 6. SELECTED FINANCIAL DATA

The comparative selected financial data of the Company and consolidated
subsidiaries is presented for the five years ended December 31, 2002. The
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company and the
Financial Statements included under Item 8 elsewhere herein (in thousands,
except per share amounts):

- ---------------

* Comparability with prior periods is affected by the following: goodwill
amortization of $6,253, $5,844, $1,660, and $600 in 2001, 2000, 1999 and 1998,
respectively; and the purchase of the stock of Hollywood Marine effective
October 12, 1999.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Statements contained in this Form 10-K that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue," or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-K could differ materially from those stated in such forward-looking
statements. Among the factors
19

that could cause actual results to differ materially are: adverse economic
conditions, industry competition and other competitive factors, adverse weather
conditions such as high water, low water, fog and ice, marine accidents, lock
delays, construction of new equipment by competitors, including construction
with government assisted financing, government and environmental laws and
regulations, and the timing, magnitude and number of acquisitions made by the
Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company evaluates its estimates and
assumptions on an ongoing basis based on a combination of historical information
and various other assumptions that are believed to be reasonable under the
particular circumstances. Actual results may differ from these estimates based
on different assumptions or conditions. The Company believes the critical
accounting policies that most impact the consolidated financial statements are
described below. It is also suggested that the Company's significant accounting
policies, as described in the Company's financial statements in Note 1, Summary
of Significant Accounting Policies, be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

Accounts Receivable. The Company extends credit to its customers in the
normal course of business. The Company regularly reviews its accounts and
estimates the amount of uncollectable receivables each period and establishes an
allowance for uncollectable amounts. The amount of the allowance is based on the
age of unpaid amounts, information about the current financial strength of
customers, and other relevant information. Estimates of uncollectable amounts
are revised each period, and changes are recorded in the period they become
known. Historically, credit risk with respect to these trade receivables has
generally been considered minimal because of the financial strength of the
Company's customers; however, a significant change in the level of uncollectable
amounts could have a material effect on the Company's results of operations.

Property, Maintenance and Repairs. Property is recorded at cost.
Improvements and betterments are capitalized as incurred. Depreciation is
recorded on the straight-line method over the estimated useful lives of the
individual assets. When property items are retired, sold or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts
with any gain or loss on the disposition included in income. Routine maintenance
and repairs are charged to operating expense as incurred on an annual basis. The
Company reviews long-lived assets for impairment by vessel class whenever events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. Recoverability of the assets is measured by a comparison of
the carrying amount of the assets to future net cash expected to be generated by
the assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. There are
many assumptions and estimates underlying the determination of an impairment
event or loss, if any. The assumptions and estimates include, but are not
limited to, estimated fair market value of the assets and estimated future cash
flows expected to be generated by these assets, which are based on additional
assumptions such as asset utilization, length of service the asset will be used,
and estimated salvage values. Although the Company believes its assumptions and
estimates are reasonable, deviations from the assumptions and estimates could
produce a materially different result.

Goodwill. The excess of the purchase price over the fair value of
identifiable net assets acquired in transactions accounted for as a purchase are
included in goodwill. Management monitors the recoverability of goodwill on an
annual basis, or whenever events or circumstances indicate that interim
impairment testing is necessary. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average weighted cost of capital. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. There are many assumptions and
estimates underlying the determination of an impairment event or

20

loss, if any. Although the Company believes its assumptions and estimates are
reasonable, deviations from the assumptions and estimates could produce a
materially different result.

Accrued Insurance. The Company is subject to property damage and casualty
risks associated with operating vessels carrying large volumes of bulk cargo in
a marine environment. The Company maintains insurance coverage against these
risks subject to a deductible, below which the Company is liable. In addition to
expensing claims below the deductible amount as incurred, the Company also
maintains a reserve for losses that may have occurred but have not been reported
to the Company. The Company uses historic experience and actuarial analysis by
outside consultants to estimate an appropriate level of reserves. If the actual
number of claims and magnitude were substantially greater than assumed, the
required level of reserves for claims incurred but not reported could be
materially understated. The Company records receivables from its insurers for
incurred claims above the Company's deductible. If the solvency of the insurers
became impaired, there could be an adverse impact on the accrued receivables and
the availability of insurance.

ACQUISITIONS AND LEASES

On October 12, 2000, the Company's subsidiary, Marine Systems, completed
the acquisition of Powerway for $1,428,000 in cash. On November 1, 2000, Marine
Systems completed the acquisition of West Kentucky for an aggregate
consideration of $6,674,000, consisting of $6,629,000 in cash, the assumption of
$20,000 of West Kentucky's existing debt and $25,000 in merger costs.

In February 2001, the Company, through its marine transportation segment,
entered into a long-term lease with Union Carbide for 94 inland tank barges. The
94 inland tank barges, all double hull, have a total capacity of 1,335,000
barrels. The inland tank barges were acquired by Dow as part of the February 5,
2001 merger between Union Carbide and Dow. The Company has a long-term contract
with Dow to provide for Dow's bulk liquid inland marine transportation
requirements throughout the United States inland waterway system. With the
merger between Union Carbide and Dow, the Company's long-term contract with Dow
was amended to provide for Union Carbide's bulk liquid inland marine
transportation requirements. At the inception of the lease, the Union Carbide
barges were used exclusively in Union Carbide service. Partial transition of the
tank barges into the Company's marine transportation fleet began in the 2001
third quarter and was completed during September 2001.

In March 2002, the Company purchased the Cargo Carriers fleet of 21 inland
tank barges for $2,800,000 in cash from Cargill, and resold six of the tank
barges for $530,000 in April 2002.

On October 31, 2002, the Company completed the acquisition of seven inland
tank barges and 13 inland towboats from Coastal for $17,053,000 in cash. In
addition, the Company and Coastal entered into a barge management agreement
whereby the Company will serve as manager of the two companies' combined black
oil fleet for a period of seven years. The combined black oil fleet consists of
54 barges owned by Coastal and the Company's 66 black oil barges. In a related
transaction, on September 25, 2002, the Company purchased from Coastal three
black oil tank barges for $1,800,000 in cash.

On December 15, 2002, the Company purchased the 94 inland tank barges
leased in February 2001, as noted above, from Union Carbide for $23,000,000.
Nine of the 94 tank barges were out-of-service and will be sold.

On January 15, 2003, the Company purchased from SeaRiver, the U.S.
transportation affiliate of ExxonMobil, 45 double hull inland tank barges and
seven inland towboats for $32,113,000 in cash, and assumed from SeaRiver the
leases of 16 double hull inland tank barges. On February 28, 2003, the Company
purchased three double hull inland tank barges leased by SeaRiver from Banc of
America Leasing for $3,453,000 in cash. In addition, the Company entered into a
contract to provide inland marine transportation services to SeaRiver.

RESULTS OF OPERATIONS

The Company reported 2002 net earnings of $27,446,000, or $1.13 per share,
on revenues of $535,403,000, compared with net earnings of $39,603,000, or $1.63
per share, on revenues of $566,884,000 for

21

2001, and net earnings of $34,113,000, or $1.39 per share, on revenues of
$512,644,000 for 2000. The 2002 year included a $18,933,000, before taxes,
$12,498,000 after taxes, or $.51 per share, non-cash impairment of long-lived
assets and an equity investment. For the 2001 and 2000 years, net earnings and
earnings per share included $6,253,000, or $.26 per share, and $5,844,000, or
$.24 per share, respectively, of goodwill amortization expense. Amortization of
goodwill ceased January 1, 2002 as a result of adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142").

Marine transportation revenues for 2002 totaled $450,280,000, or 84% of
total revenues, compared with $481,283,000, or 85% of total revenues for 2001
and $443,203,000, or 86% of total revenues for 2000. Diesel engine services
revenues for 2002 totaled $85,123,000, or 16% of total revenues, compared with
$85,601,000, or 15% of total revenues for 2001 and $69,441,000, or 14% of total
revenues for 2000.

For purposes of the Management's Discussion, all earnings per share are
"Diluted earnings per share". The weighted average number of common shares
applicable to diluted earnings for 2002, 2001 and 2000 were 24,394,000,
24,270,000 and 24,566,000, respectively.

MARINE TRANSPORTATION

The Company, through its marine transportation segment, is a provider of
marine transportation services, operating a current fleet of 911 active inland
tank barges and 215 active inland towing vessels, transporting petrochemicals,
refined petroleum products, black oil products and agricultural chemicals along
the United States inland waterways. The marine transportation segment is also
the managing partner of a 35% owned offshore marine partnership, consisting of
four dry-bulk barge and tug units. The partnership is accounted for under the
equity method of accounting.

The following table sets forth the Company's marine transportation
segment's revenues, costs and expenses, operating income and operating margins
for the three years ended December 31, 2002 (dollars in thousands):

2002 COMPARED WITH 2001

MARINE TRANSPORTATION REVENUES

Revenues for 2002 compared with 2001 declined 6%, reflecting a overall
continued weakness in petrochemical volumes, lower refined products volumes into
the Midwest and lower liquid fertilizer volumes. During 2002, petrochemical
volumes along the Gulf Coast remained depressed, the continued impact of the
sluggish U.S. economy; however, petrochemical volumes into the Midwest improved
in the second half of

22

2002 with the gradual replenishment of low inventory levels by Midwest
manufacturers. Late in the fourth quarter, petrochemical volumes along the Gulf
Coast reflected some improvement.

Refined products volumes began the 2002 year strong, declined during the
first quarter, remained weak the entire second quarter, and improved during the
second half. During the 2002 first half, high Midwest refined products
inventories and a new refined products pipeline from the Gulf Coast to the
Midwest that went online April 1, 2002, negatively impacted the volumes moved by
inland tank barge. During the 2002 second half, the movement of refined products
into the Midwest returned to more traditional levels, or pre-2000 levels, driven
by seasonal demand variables based on inventory requirements and Midwest
refinery outages for maintenance.

Black oil volumes were below 2001 volume levels for the first nine months
of 2002. In November and December 2002, volumes increased with the addition of
the black oil tank barges and towboats purchased from Coastal and the barge
management agreement signed with Coastal for the management of Coastal's
remaining black oil barges.

Liquid fertilizer volumes were weak in the 2002 first half, the result of
significant rainfall amounts in the Midwest that kept farmers out of their
fields, reducing the demand for fertilizer usage, thereby reducing the demand
for upriver volumes of liquid fertilizer by tank barge. During the 2002 third
quarter, volumes returned to normal seasonal levels, but declined in the fourth
quarter as a major customer significantly curtailed its fertilizer output due to
production problems at its facility.

In late September 2002, Tropical Storm Isidore, and in early October 2002,
Hurricane Lili, both made landfall in central Louisiana, creating delays and
diversions of marine equipment away from the path of the storms, and thereby
lowering the Company's third and fourth quarter revenues. The impact of Tropical
Storm Isidore and Hurricane Lili on the 2002 results was an estimated $.05 per
share after taxes.

During the 2002 year, approximately 70% of marine transportation volumes
were under term contracts and 30% were spot market volumes. During 2002,
contract renewals remained relatively flat. Spot market rates declined
approximately 10% to 15% during the 2002 first quarter and certain spot market
rates declined an additional 15% to 20% during the second quarter. Weak
petrochemical and refined products volumes during the 2002 first half created
lower utilization and excess tank barge capacity industry wide. During the 2002
third quarter, spot market rates remained depressed, even though petrochemical
and refined products volumes into the Midwest improved. During the fourth
quarter, spot market rates moved higher as petrochemical and refined products
volumes improved, however, spot market rates for 2002 remained below 2001 fourth
quarter levels.

MARINE TRANSPORTATION COSTS AND EXPENSES

Total costs and expenses for 2002 were 6% lower than 2001, primarily
reflecting the 6% reduction in revenues for 2002 compared with 2001 and
corresponding lower expenses. The 2001 year included $5,610,000 of amortization
of goodwill, which the Company ceased amortizing in 2002 under SFAS No. 142.

Costs of sales and operating expenses for 2002 decreased 6% compared with
the 2001 year, primarily reflecting the decrease in marine transportation
activity and corresponding lower voyage related expenses. Depending on the
amount of volumes moved, the segment adjusts the number of towboats operated and
crews required on a daily basis. The segment operated 217 towboats at December
31, 2001, 203 at March 31, 2002, 198 at June 30, 2002, 206 at September 30, 2002
and 215 at December 31, 2002. The increase in the number of towboats operated
from September 30 to December 31, reflected the fourth quarter acquisition of
the Coastal vessels and the management of Coastal's remaining 54 black oil barge
fleet. Partially offsetting the operating cost savings was the negative impact
of inclement weather conditions, which decreased revenues and increased
operating expenses. Ice conditions, frontal systems and high water during the
2002 first half and fourth quarter, and the tropical storm and hurricane noted
above in the third and fourth quarters, required additional horsepower to
complete movements, additional fuel and other variable expenses associated with
longer transit times.

23

Selling, general and administrative expenses for 2002 decreased 2% compared
with 2001, reflecting lower incentive compensation accruals and professional
fees, partially offset by annual salary increases effective January 2002.

Taxes, other than on income for 2002 decreased 6% compared with 2001. The
decrease reflected lower waterway use taxes, the result of decreased marine
transportation volumes, and lower franchise taxes attributable to legal
restructuring.

Depreciation and other amortization expense for 2002 increased 4% compared
with 2001. The increase reflected new inland tank barge additions in 2001 and
2002, the acquisition of the Cargill 15 barge fleet in March 2002, the
acquisition of the 10 black oil barges and 13 towboats from Coastal in late
October 2002, and the acquisition of 94 tank barges from Union Carbide in
December 2002. In addition, the segment decreased the remaining useful lives of
certain older tank barges to correspond with the anticipated retirement dates of
such barges.

MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS

Operating income for 2002 was 10% lower than 2001. The 2001 operating
income included $5,610,000 of goodwill amortization expense. Amortization of
goodwill ceased January 1, 2002 with the adoption of SFAS No. 142. Goodwill will
be evaluated annually for impairment, or whenever events or circumstances
indicate that interim impairment testing is necessary. The operating margin for
2002 was 16.6% compared with 17.3% for 2001, or 18.4% when adjusted for goodwill
amortization expense. The decline in the 2002 operating margin primarily
reflected lower 2002 spot market rates and relatively flat contract renewals
compared with 2001, as well as reduced volumes.

2001 COMPARED WITH 2000

MARINE TRANSPORTATION REVENUES

Revenues for 2001 were 9% over 2000 revenues. The increase included
revenues generated from the leasing in February 2001 of 94 inland tank barges
from Union Carbide. The marine transportation segment generated approximately
$24,000,000 of revenues during 2001 from such service. From the date of the
lease until late in the 2001 third quarter, the leased barges were employed
exclusively in Union Carbide service. Late in the 2001 third quarter, the
partial integration of the leased tank barges was completed into the segment's
inland tank barge fleet under the terms of the long-term contract with Dow. The
completed partial integration allowed for the achievement of additional
operating synergies and total use of the distribution system.

For the 2001 year, the Company benefited from strong upriver refined
products volumes and favorable black oil volumes. The Company's liquid
fertilizer volumes were higher than expected for the 2001 first half.
Petrochemical volumes were depressed for the entire year, the result of the slow
U.S. economy.

The strong Midwest refined products volumes were accelerated in mid-August
by a Chicago, Illinois area refinery fire, which closed the facility for an
estimated six-month period. The facility closure created an anomaly in the
normal distribution patterns of refined petroleum products into the Midwest.
Midwest volumes of refined products remained strong for the remainder of 2001.

The favorable 2001 black oil volumes were primarily driven by the high
demand for asphalt for use in rebuilding of the U.S. highway infrastructure. In
addition, in the 2001 first half, high natural gas prices aided black oil
volumes by creating additional demand for residual fuel as a natural gas
substitute for boiler fuel for utility customers.

During the 2001 first quarter, and into April and May, high natural gas
prices caused the U.S. manufacturers of nitrogen based fertilizer to
significantly curtail production. The agricultural demand for nitrogen based
fertilizer was strong, and foreign producers made up the shortfall of domestic
production. The significant importing of liquid fertilizer disrupted the
traditional rail and inland tank barge distribution pattern

24

and created additional barging volumes. Liquid fertilizer volumes in the 2001
third quarter were at normal levels while the fourth quarter volumes were weak,
the result of high Midwest inventory levels.

During 2001, approximately 70% of volumes were under term contracts, with
30% spot market volumes. Contract renewals during 2001 were generally at
modestly higher prices. Spot market rates, after the mid-August 2001 refinery
fire, were generally higher than the 2001 first half, the result of increased
utilization to meet the demand for refined products volumes into the Midwest.

During the 2001 first half, and particularly the first quarter, operations
were hampered by adverse weather conditions. Along the Gulf Coast, heavy fog and
strong winds caused delays, thereby increasing transit times. Operations on the
Illinois River ceased for the majority of January 2001 due to ice. In February,
March, April and early May, high water caused navigational delays on the
Mississippi River. During the second half of 2001, and particularly the third
quarter, the segment benefited from favorable weather and water conditions.

MARINE TRANSPORTATION COSTS AND EXPENSES

Total costs and expenses for 2001 were 9% higher than 2000, in proportion
to the higher revenues recorded in 2001. The 2001 and 2000 years included
$5,610,000 and $5,616,000, respectively, of amortization of goodwill, which the
Company ceased amortizing in 2002.

Costs of sales and operating expenses were 9% higher in 2001 compared with
2000. The increase was in proportion to the higher revenues recorded in 2001.
The 2001 year included lease costs, as well as operating expenses, associated
with the February 2001 leasing of 94 inland tank barges from Union Carbide.

Selling, general and administrative expenses for 2001 were 15% higher than
2000. The increase primarily reflected higher salaries, bonus and profit-sharing
accruals, and the hiring of additional personnel as a result of the leasing of
inland tank barges from Dow.

Taxes, other than on income was 13% higher in 2001 than 2000, primarily
reflecting increased waterway use taxes associated with higher business activity
levels, including the additional Dow business.

Depreciation and other amortization increased 2% for 2002 compared with
2001. The increase primarily resulted from the addition of eleven new tank
barges placed into service during 2000 and 2001.

MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS

Operating income for 2001 increased 6% compared with 2000 and the operating
margin was 17.3% in 2001 and 17.6% for 2000. Excluding amortization of goodwill,
the operating margin for 2001 was 18.4% compared with 18.9% for 2000. The slight
decline in the operating margin for 2001 compared with 2000 reflected reduced
petrochemical volumes during 2001, as petrochemical volumes typically earn a
higher operating margin than refined products and liquid fertilizer volumes.

DIESEL ENGINE SERVICES

The Company, through its diesel engine services segment, sells genuine
replacement parts, provides service mechanics to overhaul and repair large
medium-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire large medium-speed diesel engines or entire
reduction gears. The segment services the marine, power generation and
industrial, and railroad markets.

25

The following table sets forth the Company's diesel engine services
segment's revenues, costs and expenses, operating income and operating margins
for the three years ended December 31, 2002 (dollars in thousands):

2002 COMPARED WITH 2001

DIESEL ENGINE SERVICES REVENUES

Revenues for 2002 compared with 2001 were relatively flat, benefiting from
a strong 2002 power generation, industrial and railroad markets, thereby
offsetting a weak 2002 Gulf Coast oil and gas services market, a market weak
since the second half of 2001. The power generation market benefited from
favorable service and parts sales to the nuclear industry. Sales to the railroad
market benefited from the July 2001 agreement with EMD to distribute replacement
parts for locomotive engines used by certain U.S. transit and Class II
railroads, and improved service and parts sales to a slightly improved U.S.
steel industry.

DIESEL ENGINE SERVICES COSTS AND EXPENSES

Costs and expenses for 2002 compared with 2001 were in line with 2002
revenues, remaining relatively flat. The 2001 year included $501,000 of
amortization of goodwill, which the Company ceased amortizing in 2002, in
accordance with SFAS No. 142.

DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS

Operating income for the diesel engine services segment for 2002 was 9%
higher than 2001, primarily the result of the $501,000 of goodwill amortization
recorded in 2001. The operating margin for 2002 was 10.4% compared with 9.5% for
2001, or 10.1% adjusted for amortization of goodwill. The operating margin for
2002 was positively influenced by increased power generation revenues, which
historically earn a higher gross profit margin, and negatively influenced by
increased railroad revenues, which historically earn a lower gross profit
margin.

2001 COMPARED WITH 2000

DIESEL ENGINE SERVICES REVENUES

Revenues for 2001 reflected a 23% increase when compared with 2000. The
2001 year included a full year of revenues from two service company
acquisitions, Powerway, acquired in October 2000 and West Kentucky in November
2000, as well as from an agreement signed in July 2001 with EMD as noted above.
During 2001, the power generation market was strong, reflecting favorable
nuclear parts sales, and the Gulf Coast oil and gas services market was strong
in the 2001 first half, however, weakened in the second half of the year. The
shortline and industrial railroad market remained weak for the entire year.

26

DIESEL ENGINE SERVICES COSTS AND EXPENSES

Costs and expenses for 2001 generally increased in proportion to the higher
revenues in 2001 over 2000, reflecting the full year impact of the two
acquisitions, Powerway in October and West Kentucky in November of 2000 and the
impact of the July 2001 agreement with EMD.

DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS

Operating income for the diesel engine services segment for 2001 was 17%
higher than 2000, however, the operating margin declined to 9.5% for 2001
compared with 10.0% for 2000. The decline in the operating margin for 2001 was
primarily attributable to increased lower margin replacement parts sales to the
transit and Class II railroads.

GENERAL CORPORATE EXPENSES

General corporate expenses for 2002, 2001 and 2000 were $5,677,000,
$7,088,000 and $7,053,000, respectively. The 20% decline in 2002 compared with
2001 reflected lower employee incentive compensation accruals and professional
fees, partially offset by annual salary increases effective January 2002.

OTHER INCOME AND EXPENSES

The following table sets forth the impairment of long-lived assets, merger
related charges, gain on disposition of assets, equity in earnings of marine
affiliates, impairment of equity investment, other income (expense), minority
interests and interest expense for the three years ended December 31, 2002
(dollars in thousands):

ASSET IMPAIRMENTS

During the fourth quarter of 2002, the Company recorded $18,933,000 of
non-cash pre-tax impairment charges. The after-tax effect of the charges was
$12,498,000 or $.51 per share. Of the total pre-tax charges, $17,241,000 was due
to reduced estimated cash flows resulting from reduced lives on the Company's
single hull fleet and its commitment to sell certain vessels during 2003. The
reduced estimated useful lives on 114 single hull tank barges is due to market
bias against single hull tank barges and the assessment of the impact of new
regulations issued in September 2002 by the U.S. Coast Guard that require the
installation of tank level monitoring devices on all single hull tank barges by
October 2007. The Company plans to retire all of its single hull tank barges by
October 17, 2007. The Company has committed to sell 21 inactive or out-of-
service double hull tank barges and five inactive towboats during 2003 and has
reduced the carrying value of these vessels by $5,682,000 to fair value of
$2,621,000. The charges also included a $1,221,000 write-down of an investment
in a non-consolidated affiliate to its estimated fair value and a $471,000
write-down of surplus diesel shop equipment.

27

GAIN ON DISPOSITION OF ASSETS

The Company reported net gains on disposition of assets of $624,000 in
2002, $363,000 in 2001 and $1,161,000 in 2000. The net gains were predominantly
from the sale of marine equipment.

EQUITY IN EARNINGS OF MARINE AFFILIATES

Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, declined to $700,000, a 76% decrease for 2002
compared with 2001, and declined $444,000, or 13% for 2001 compared with 2000.
During the 2002, 2001 and 2000 years, the four offshore dry-cargo barge and
tugboats units owned through the 35% owned partnership with a public utility
were generally employed under the partnership's contract to transport coal
across the Gulf of Mexico, with a separate contract for the backhaul of
limestone rock. The lower results for 2002 primarily reflected reduced rates on
the recently renewed coal transportation contract, and the timing of maintenance
on three of the four units in the partnership. The results for 2001 reflected
major maintenance at the customer's docking facility which closed the facility
for a portion of the 2001 third quarter, and the Company's decision to conduct
maintenance on two of the offshore barge and tugboat units while the facility
was closed. For the 2000 year, the four units were primarily fully employed in
the partnership's coal and rock trade.

INTEREST EXPENSE

The 29% reduction in interest expense for 2002 compared with 2001 and 20%
reduction for 2001 compared with 2000 was attributable to lower debt levels
during 2002 and lower interest rates on the Company's variable rate debt. In
January 2002, the Company retired the remaining $50,000,000 of 7.05% medium term
notes, refinancing the notes through the Company's bank revolving credit
facility. During 2002, 2001 and 2000, the average interest rate under the
Company's revolving credit facility was 3.0%, 6.0% and 7.7%, respectively.
Interest rate swap agreements totaling $150,000,000, executed in February and
April 2001 to hedge a portion of its exposure to fluctuations in short-term
interest rates and more fully discussed in Long-Term Financing below, resulted
in additional interest expense of $5,476,000 in 2002 and $2,210,000 in 2001. The
average debt and average interest rates for 2002, including the effect of
interest rate swaps, were $240,954,000 and 5.6%, compared with $264,568,000 and
7.2% for 2001 and $320,955,000 and 7.5% for 2000, respectively.

28

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

BALANCE SHEET

Total assets as of December 31, 2002 were $791,758,000 compared with
$752,435,000 as of December 31, 2001 and $746,541,000 as of December 31, 2000.
The following table sets forth the significant components of the balance sheet
as of December 31, 2002 compared with 2001 and 2001 compared with 2000 (dollars
in thousands):

2002 COMPARED WITH 2001

Current assets as of December 31, 2002 increased 5% compared with December
31, 2001. Prepaid expenses and other current assets increased 41%, partially
from the recording as a current asset $1,550,000 of a $17,500,000 November 2002
contribution to the Company's defined benefit plan for vessel personnel. The
increased contribution was the result of lower interest rates and lower
investment returns from the plan's assets, which consist primarily of fixed
income securities and corporate stocks. Funding of the plan is based on
actuarial projections that are designed to satisfy minimum ERISA funding
requirements to achieve adequate funding of accumulated benefit obligations.
Additionally, vessels with a fair value of $2,621,000, and committed to be sold
in 2003, have been reclassified from property and equipment to prepaid expenses
and other current assets. The Company also wrote-off $738,000 of trade accounts
receivables against the allowance for doubtful accounts primarily recorded in
2001.

Property and equipment, net of accumulated depreciation, as of December 31,
2002 increased 4% compared with December 31, 2001. The increase reflected
$47,709,000 of capital expenditures and the acquisition of tank barges and
towboats totaling $44,653,000, more fully described under Capital Expenditures
below, net of $45,401,000 of depreciation for the 2002 year and $6,015,000 of
dispositions of marine equipment during the 2002 year. In addition, during the
2002 year the Company took impairment charges of $17,712,000, more fully
described under Asset Impairments above, and reclassified $2,621,000 of property
as assets held for sale included in prepaid expenses and other current assets.

29

Other assets as of December 31, 2002 increased 283% during 2002 compared
with December 31, 2001, primarily from the $17,500,000 contribution to the
Company's defined benefit plan for vessel personnel, of which $1,550,000 was
classified as a current asset.

Current liabilities as of December 31, 2002 declined 4% compared with
December 31, 2001, primarily due to a decrease in accrued liabilities, the
result of lower employee compensation accruals, the timing of such compensation
payments, and lower accrued interest expense the result of lower average
interest rates and lower average debt levels, partially offset by higher
accruals for casualty losses.

Long-term debt, less current portion, as of December 31, 2002 increased 7%
compared with December 31, 2001. The increase was impacted by borrowings to
finance the 2002 first quarter Cargo Carriers acquisition, 2002 fourth quarter
Coastal and Union Carbide marine equipment acquisitions, the November 2002
$17,500,000 defined benefit plan contribution, the 2002 capital expenditures and
common stock repurchases.

Minority interests and other long-term liabilities as of December 31, 2002
increased 48% compared with December 31, 2001, primarily due to the recording of
a $7,228,000 increase in the fair value of the interest rate swap agreements for
2002, more fully described under Long-Term Financing below.

Stockholders' equity as of December 31, 2002 increased 7% compared with
December 31, 2001. The increase for 2002 primarily reflected net earnings of
$27,446,000, a net increase in treasury stock of $1,252,000, and a $4,698,000
decrease in accumulated other comprehensive income. The increase in treasury
stock reflected $3,931,000 of open market treasury stock purchases less
$2,679,000 associated with the exercise of employee stock options. The
$4,698,000 decrease in accumulated other comprehensive income resulted from the
net changes in fair value of interest rate swap agreements, net of taxes, more
fully described under Long-Term Financing below.

2001 COMPARED WITH 2000

In December 2000, Oceanic, the Company's wholly owned captive insurance
subsidiary, liquidated its remaining available-for-sale securities, which
totaled $9,781,000 as of September 30, 2000. Prior to 1999, Oceanic was used to
insure risks of the Company and its subsidiaries, which required Oceanic to be
more fully capitalized.

Total current assets as of December 31, 2001 decreased 4% compared with
December 31, 2000. The 4% decrease reflected a $2,808,000 reduction in cash and
cash equivalents and a $1,816,000, or 2% reduction in trade accounts
receivables, even though marine transportation and diesel engine services
revenues increased during 2001 by a combined 11% over 2000. The reduction in
trade accounts receivable reflected the Company's emphasis on the collection of
such receivables during 2001. The Company also recorded a $500,000 allowance for
doubtful accounts in the 2001 fourth quarter when a large Houston based trading
company filed for bankruptcy.

Property and equipment, net of accumulated depreciation, remained
relatively constant with December 31, 2000. The 2000 balance reflected two
diesel engine services acquisitions in the 2000 fourth quarter and a final
purchase price adjustment to the Hollywood Marine acquisition totaling
approximately $4,600,000 to reflect the fair value of the property and equipment
acquired in the transaction.

Goodwill as of December 31, 2001 decreased 4% compared with December 31,
2000. Goodwill totaling $157,352,000 was recorded in 1999, and adjusted in 2000
by an additional $3,900,000, for the Hollywood Marine acquisition, representing
the excess of the purchase price over the amount allocated to identifiable
assets and liabilities. In 2000, the Company also recorded goodwill totaling
approximately $3,300,000 from two diesel engine services acquisitions. Effective
January 1, 2002, the Company ceased the amortization of goodwill in accordance
with SFAS No. 142.

Total current liabilities as of December 31, 2001 and December 31, 2000
were relatively constant. In December 2001, the current portion of long-term
debt decreased $5,000,000 from the prepayment of a private

30

placement note, more fully described under Long-Term Financing below. The debt
prepayment was offset by higher bonus, pension and profit sharing accruals and
deferred revenues as of December 31, 2001.

Long-term debt, less current portion, as of December 31, 2001 declined 13%
compared with December 31, 2000. The reduction primarily resulted from the pay
down of long-term debt from the free cash flow generated by the Company in 2001,
less capital expenditures and treasury stock repurchases.

Minority interests and other long-term liabilities as of December 31, 2001
increased 41% compared with December 31, 2000. During 2001, the Company recorded
$5,176,000 representing the fair value of the interest rate swap agreements for
2001.

Stockholders' equity as of December 31, 2001 increased 15% compared with
December 31, 2000. The increase for the 2001 year primarily reflected net
earnings of $39,603,000, a net decrease in treasury stock of $1,635,000, an
increase of $499,000 in additional paid-in capital, and a $3,364,000 decrease in
accumulated other comprehensive income. The reduction in treasury stock
reflected $4,385,000 associated with the exercise of employee stock options,
less $2,750,000 of open market treasury stock purchases. The $3,364,000 decrease
in accumulated other comprehensive income resulted from the net change in the
fair value of interest rate swap agreements, net of taxes, more fully described
under Long-Term Financing below.

LONG-TERM FINANCING

The Company has an unsecured revolving credit facility (the "Revolving
Credit Facility") with a syndicate of banks, with JPMorgan Chase as the agent
bank. On November 5, 2001, the Company amended the Revolving Credit Facility to
increase the revolving credit amount from $100,000,000 to $150,000,000 and to
extend the maturity date to October 9, 2004. Borrowing options under the amended
Revolving Credit Facility allow the Company to borrow at an interest rate equal
to either the London Interbank Offered Rate ("LIBOR") plus a margin ranging from
..75% to 1.50%, depending on the Company's senior debt rating; or an adjusted
Certificate of Deposit ("CD") rate plus a margin ranging from .875% to 1.625%,
also depending on the Company's senior debt rating; or the greater of prime
rate, Federal Funds rate plus .50%, or the secondary market rate for three-month
CD rate plus 1%. A commitment fee is charged on the unused portion of the
Revolving Credit Facility at rates ranging from .20% to .40%, depending on the
Company's senior debt rating, multiplied by the average unused portion of the
Revolving Credit Facility, and is paid quarterly. A utilization fee equal to
..125% to .25%, also depending on the Company's senior debt rating, of the
average outstanding borrowings during periods in which the total borrowings
exceed 33% of the total $150,000,000 commitment, is also paid quarterly. At
March 5, 2003, the applicable interest rate spread over LIBOR was .875% and the
commitment fee and utilization fee were .25% and .125%, respectively. The
amended Revolving Credit Facility also included modifications to certain
financial covenants, including an increase in the minimum net worth requirement,
as defined, to $225,000,000. In addition to financial covenants, the Revolving
Credit Facility contains covenants that, subject to exceptions, restrict debt
incurrence, mergers and acquisitions, sales of assets, dividends and
investments, liquidations and dissolutions, capital leases, transactions with
affiliates and changes in lines of business. Borrowings under the Revolving
Credit Facility may be used for general corporate purposes, the purchase of
existing or new equipment, the purchase of the Company's common stock, or for
business acquisitions. The Company was in compliance with all Revolving Credit
Facility covenants at December 31, 2002. As of December 31, 2002, $88,000,000
was outstanding under the Revolving Credit Facility. The Revolving Credit
Facility includes a $10,000,000 commitment which may be used for standby letters
of credit. Outstanding letters of credit under the Revolving Credit Facility
totaled $741,000 as of December 31, 2002.

The Company has an unsecured term loan credit facility (the "Term Loan")
with a syndicate of banks, with Bank of America, N.A. ("Bank of America") as the
agent bank. Interest rate options under the Term Loan include interest rates
equal to either LIBOR plus a margin ranging from .75% to 1.50%, depending on the
Company's senior debt rating; or an adjusted CD rate plus a margin ranging from
..875% to 1.625%, also depending on the Company's senior debt rating; or the
greater of prime rate, Federal Funds rate plus .50%, or the secondary market
rate for three-month CD rate plus 1%. A utilization fee equal to .125% to .25%,
depending on the Company's senior debt rating, of the average outstanding
borrowings during periods in which

31

the total borrowings exceed 33% of the original $200,000,000 commitment, is paid
quarterly. At March 5, 2003, the applicable interest rate spread over LIBOR was
..875% and the utilization fee was .25%. On November 5, 2001, the Term Loan was
amended to conform existing financial covenants to the amended Revolving Credit
Facility. In addition to financial covenants, the Term Loan contains covenants
that, subject to exceptions, restrict debt incurrence, mergers and acquisitions,
sales of assets, dividends and investments, liquidations and dissolutions,
capital leases, transactions with affiliates and changes in lines of business.
The Term Loan quarterly principal payments of $12,500,000, plus interest, began
on October 9, 2002, with the remaining principal due on October 9, 2004, the
maturity date of the Term Loan. The principal payments of $50,000,000 due in
2003 were classified as long-term debt at December 31, 2002, as the Company has
the ability and intent through the Revolving Credit Facility to refinance the
payments on a long-term basis. The Company was in compliance with all Term Loan
covenants at December 31, 2002. As of December 31, 2002, the amount borrowed
under the Term Loan was $171,500,000.

The Company has an uncommitted and unsecured $10,000,000 line of credit
("Credit Line") with Bank of America whereby Bank of America will provide
short-term advances and the issuance of letters of credit on an uncommitted
basis. The Credit Line, which matured on November 15, 2002, was extended to
November 4, 2003. Borrowings under the Credit Line allow the Company to borrow
at an interest rate equal to either LIBOR plus a margin of 1%; or the higher of
prime rate or the Federal Funds rate plus .50%. As of December 31, 2002,
$5,900,000 was borrowed under the Credit Line and outstanding letters of credit
totaled $560,000. Amounts borrowed on the Credit Line were classified as
long-term debt at December 31, 2002, as the Company has the ability and the
intent to refinance the amount due under the Credit Line on a long-term basis
through the Revolving Credit Facility.

In September 2002, the Company entered into a $10,000,000 uncommitted and
unsecured revolving credit note ("Credit Note") with BNP Paribas ("BNP") whereby
BNP will consider short-term advances through the maturity date of May 31, 2003.
The Credit Note allows the Company to borrow at an interest rate equal to BNP's
current day cost of funds plus .35%. Also, in September 2002, the Company
entered into a $5,000,000 uncommitted letter of credit line with BNP whereby BNP
will consider letters of credit for periods no longer than 15 months from
issuance through the maturity date of May 31, 2003. The Company did not have any
borrowings or letters of credit outstanding under the Credit Note or uncommitted
letters of credit line as of December 31, 2002. On February 27, 2003, the
available limit of the Credit Note was reduced from $10,000,000 to $5,000,000 by
mutual agreement between BNP and the Company. The $5,000,000 uncommitted letter
of credit line was cancelled due to a lack of need.

The Company has on file with the Securities and Exchange Commission a shelf
registration for the issuance of up to $250,000,000 of debt securities,
including medium term notes providing for the issuance of fixed rate or floating
rate debt with maturities of nine months or longer. As of December 31, 2002,
2001 and 2000, $121,000,000 was available under the shelf registration, subject
to mutual agreement to terms, to provide financing for future business or
equipment acquisitions, and to fund working capital requirements. On January 29,
2002, the Company used proceeds from the Revolving Credit Facility to retire the
$50,000,000 of medium term notes due on that date. As of December 31, 2002,
there were no outstanding debt securities under the shelf registration.

On December 31, 2001, the Company prepaid the remaining $5,000,000 of
principal outstanding on a $50,000,000 private placement 8.22% senior note with
a maturity date of June 30, 2002. Principal payments of $5,000,000, plus
interest, were due annually through June 30, 2002.

In February and April 2001 the Company hedged a portion of its exposure to
fluctuations in short-term interest rates by entering into interest rate swap
agreements. Five-year swap agreements with notional amounts totaling $100
million were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50 million were executed in April 2001. Under the
swap agreements, the Company will pay a fixed rate of 4.96% on a notional amount
of $50 million for three years, an average fixed rate of 5.64% on a notional
amount of $100 million for five years, and will receive floating rate interest
payments based on LIBOR for United States dollar deposits. The interest rate
swap agreements are designated as cash flow hedges, therefore, the changes in
fair value, to the extent the swap agreements are effective, are recognized in

32

other comprehensive income until the hedged interest expense is recognized in
earnings. No gain or loss on ineffectiveness was required to be recognized in
2002 or 2001. The fair value of the interest rate swap agreements was recorded
as an other long-term liability of $12,404,000 and $5,176,000 at December 31,
2002 and 2001, respectively. The Company has recorded, in interest expense,
losses related to the interest rate swap agreements of $5,476,000 and $2,210,000
for the years ended December 31, 2002 and 2001, respectively. The Company
anticipates $3,922,000 of net losses included in accumulated other comprehensive
income will be transferred into earnings over the next year based on current
interest rates. Fair value amounts were determined as of December 31, 2002 and
2001 based on quoted market values of the Company's portfolio of derivative
instruments.

On February 28, 2003, the Company issued $250,000,000 of floating rate
senior notes ("Senior Notes") due February 28, 2013. The unsecured notes pay
interest quarterly at an interest rate equal to LIBOR plus a margin of 1.2% and
are not callable for the first year. Thereafter, the Senior Notes may be prepaid
without penalty. The proceeds were used to repay $121,500,000 of the Term Loan
due October 9, 2004 and $128,500,000 of the Revolving Credit Facility due
October 9, 2004. The terms of the Senior Notes include certain covenants that,
subject to exceptions, restrict debt incurrence, mergers and acquisitions, sales
of assets, dividends and investments, liquidations and dissolutions, capital
leases, transactions with affiliates, and changes in lines of business.
Additionally, the Company must comply with certain financial covenants based on
the results of its operations.

In connection with the issuing of the Senior Notes, the Company hedged a
further portion of its exposure to fluctuations in short-term interest rates by
entering into a one-year interest rate swap agreement on February 28, 2003 with
a notional amount of $100,000,000. Under the agreement, the Company will pay a
fixed rate of 1.39% for one year and will receive floating rate interest
payments based on LIBOR for United States dollar deposits. The interest rate
swap was designated as a cash flow hedge. Existing swap agreements totaling
$150,000,000 which had been used as cash flow hedges for floating rate bank debt
were re-designated as cash flow hedges for the Senior Notes. As of February 28,
2003, the Company had a total notional amount of $250,000,000 of interest rate
swaps with terms ranging from one to three years designated as cash flow hedges
for its Senior Notes. The Senior Notes' effective average rate on that date,
including the effect of interest rate swaps, was 5.0%.

CAPITAL EXPENDITURES

Capital expenditures for the 2002 year totaled $47,709,000, of which
$11,348,000 were for fleet and project construction, and $36,361,000 were
primarily for upgrading of the existing marine transportation fleet. Capital
expenditures for the 2001 year totaled $59,159,000, of which $20,305,000 were
for fleet and project construction, and $38,854,000 were primarily for upgrading
of the existing marine transportation fleet. For the 2000 year, capital
expenditures totaled $47,683,000, of which $5,635,000 were for fleet and project
construction and $42,048,000 were primarily for upgrading of the existing marine
transportation fleet.

In September 2000, the Company entered into a contract for the construction
of six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemicals and refined petroleum products. The six barges
were placed into service during 2001. The total purchase price of the six barges
was approximately $8,700,000. Financing of the construction of the six barges
was through operating cash flows and available credit under the Company's
Revolving Credit Facility.

In January 2001, the Company entered into a contract for the construction
of five double hull, 30,000 barrel capacity, inland tank barges which will be
used for transporting asphalt. The five barges were placed into service during
the second half of 2001. The total purchase price of the five barges was
approximately $8,900,000. Financing of the construction of the five barges was
through operating cash flows and available credit under the Company's Revolving
Credit Facility.

In June 2001, the Company entered into a contract for the construction of
six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemicals and refined petroleum products. During the 2002
first quarter, one tank barge was placed into service, three tank barges were
placed into service in the second quarter, one in the third quarter and the last
tank barge was placed into service in

33

October 2002. The total purchase price of the six barges was approximately
$8,900,000. Financing of the construction of the six barges was through
operating cash flows and available credit under the Company's Revolving Credit
Facility.

In February 2002, the Company entered in a contract for the construction of
two double hull, 30,000 barrel capacity, inland tank barges which will be used
for transporting asphalt. The two tank barges were placed into service during
the 2003 first quarter. The total purchase price of the two barges was
approximately $3,600,000 of which $164,000 was expended in 2002. Financing of
the construction of the two barges was through operating cash flows and
available credit under the Company's Revolving Credit Facility.

In February 2002, the Company also entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over a six-month period starting in March 2003. The
total purchase price of the six barges is approximately $8,900,000, of which
$780,000 was expended in 2002. Financing of the construction of the six barges
will be through operating cash flows and available credit under the Company's
Revolving Credit Facility.

In October 2002, the Company entered into a contract for the construction
for six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemical and refined products. Delivery of the six barges
is scheduled over a six-month period starting in March 2004. The total purchase
price of the six barges is approximately $8,900,000, of which no payments were
made in 2002. Financing of the construction of the six barges will be through
operating cash flows and available credit under the Company's Revolving Credit
Facility.

TREASURY STOCK PURCHASES

During 2002, the Company purchased 165,000 shares of its common stock at a
total purchase price of $3,931,000, for an average price of $23.76 per share.
During 2001, the Company purchased 126,000 shares of its common stock at a total
purchase price of $2,750,000, for an average price of $21.77 per share. During
2000, the Company purchased 860,000 shares of its common stock at a total
purchase price of $15,791,000, for an average price of $18.37 per share.

On April 20, 1999, the Board of Directors increased the Company's common
stock repurchase authorization by an additional 2,000,000 shares. As of March 5,
2003, the Company had 1,210,000 shares available under the repurchase
authorization. Historically, treasury stock purchases have been financed through
operating cash flows and borrowings under the Company's Revolving Credit
Facility. The Company is authorized to purchase its common stock on the New York
Stock Exchange and in privately negotiated transactions. When purchasing its
common stock, the Company is subject to price, trading volume and other market
considerations. Shares purchased may be used for reissuance upon the exercise of
stock options or the granting of other forms of incentive compensation, in
future acquisitions for stock or for other appropriate corporate purposes.

LIQUIDITY

The Company generated net cash provided by operating activities of
$72,554,000, $96,940,000 and $83,303,000 for the years ended December 31, 2002,
2001 and 2000, respectively. Uses of cash for the 2002 year included a
$17,500,000 contribution to the Company's defined benefit plan for vessel
personnel, higher trade accounts receivable primarily attributable to the
Coastal acquisition in late October 2002, the timing of employee incentive
compensation plan payments in 2002 that were accrued in 2001, as well as lower
employee incentive compensation plan accruals for the 2002 year. Higher
operating income and a $3,106,000 decrease in working capital influenced the
increase in 2001 compared with 2000.

The Company accounts for its ownership in its four marine partnerships
under the equity method of accounting, recognizing cash flow upon the receipt or
distribution of cash from the partnerships and joint venture. For the year ended
December 31, 2002, the Company made a net cash payment of $30,000 to the

34

partnerships and joint ventures and received cash totaling $2,295,000 and
$5,592,000 from the partnerships and joint ventures during the years ended
December 31, 2001 and 2000, respectively.

Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayment of borrowing associated with
each of the above and other operating requirements. In addition to net cash flow
provide by operating activities, the Company also had available as of March 5,
2003, $149,222,000 under its Revolving Credit Facility and $121,000,000 under
its shelf registration program, subject to mutual agreement and terms. As of
March 4, 2003, the Company had $4,629,000 available under its Bank of America
Credit Line and $2,000,000 under the BNP Credit Note.

Neither the Company, nor any of its subsidiaries, is obligated on any debt
instrument, swap agreement, or any other financial instrument or commercial
contract which has a rating trigger, except for pricing grids on its Term Loan,
Revolving Credit Facility, Credit Line or Credit Note. The pricing grids on the
Company's long-term debt are discussed in Note 5, Long-Term Debt in the
financial statements.

The Company expects to continue to fund expenditures for acquisitions,
capital construction projects, treasury stock repurchases, repayment of
borrowings, and for other operating requirements from a combination of funds
generated from operating activities and available financing arrangements.

There are numerous factors that may negatively impact the Company's cash
flow in 2003. For a list of significant risks and uncertainties that could
impact cash flows, see Note 12, Contingencies and Commitments in the financial
statements. Amounts available under the Company's existing financial
arrangements are subject to the Company continuing to meet the covenants of the
credit facilities as also described in Note 5, Long-Term Debt in the financial
statements.

The Company has a 50% interest in a joint venture bulk liquid terminal
business which has a $5,888,000 term loan outstanding at December 31, 2002. The
loan is non-recourse to the Company and the Company has no guarantee obligation.
The Company uses the equity method of accounting to reflect its investment in
the joint venture.

The contractual obligations of the Company and its subsidiaries at December
31, 2002, after consideration of the long-term financing subsequent to year-end
as discussed in Note 15, Subsequent Events, consisted of the following (in
thousands):

The Company has issued guaranties or obtained stand-by letters of credit
and performance bonds supporting performance by the Company and its subsidiaries
of contractual or contingent legal obligations of the Company and its
subsidiaries incurred in the ordinary course of business. The aggregate notional
value of these instruments is $6,468,000 at December 31, 2002, including
$1,552,000 in letters of credit and $4,916,000 in performance bonds at December
31, 2002, of which $4,679,000 of these financial instruments relates to
contingent legal obligations which are covered by the Company's liability
insurance program in the event the obligations are incurred. All of these
instruments have an expiration date within two years. The Company does not
believe demand for payment under these instruments is likely and expects no
material cash outlays to occur in connection with these instruments.

During the last three years, inflation has had a relatively minor effect on
the financial results of the Company. The marine transportation segment has
long-term contracts which generally contain cost escalation clauses whereby
certain costs, including fuel, can be passed through to its customers; however,
there is

35

typically a 30 to 90 day delay before contracts are adjusted for fuel prices.
The repair portion of the diesel engine services segment is based on prevailing
current market rates.

ACCOUNTING STANDARDS

In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability associated
with an asset retirement be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be determined. The associated retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. SFAS No. 143 is effective for the
Company at the beginning of fiscal 2003. The Company will adopt SFAS No. 143
effective January 1, 2003 and expects there will be no effect on the Company's
financial position or results of operations.

In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company adopted SFAS No. 145
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.

In July 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company adopted SFAS No. 146 for all exit or disposal activities initiated after
December 31, 2002.

In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57, and 197 and a rescission of FASB
Interpretation No. 34." This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees issued. The Interpretation also clarifies
that a guarantor is required to recognize, at inception of a guarantee, a
liability for the fair value of the obligation undertaken. The initial
recognition and initial measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial position or
results of operations. The disclosure requirements are effective for the
Company's financial statements for interim and annual periods ending after
December 15, 2002.

In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure" ("SFAS
No. 148") was issued. SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation" and provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Certain of the disclosure modifications are required for fiscal years ending
after December 15, 2002 and are included in the notes to these consolidated
financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interest in variable interest entities created after
January 31, 2003, and to variable interests in variable entities obtained after
January 31, 2003. The application of this Interpretation is not expected to have
a material effect on the Company's financial position or results of operations.

36

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates on
certain of its outstanding debt and changes in fuel prices. The outstanding loan
balances under the Company's bank credit facilities bear interest at variable
rates based on prevailing short-term interest rates in the United States and
Europe. A 10% change in variable interest rates would impact the 2003 interest
expense by approximately $428,000, based on balances outstanding at December 31,
2002, and change the fair value of the Company's debt by less than 1%. The
potential impact on the Company of fuel price increases is limited because most
of its term contracts contain escalation clauses under which increases in fuel
costs, among other, can be passed on to the customers, while its spot contract
rates are set based on prevailing fuel prices. The Company does not presently
use commodity derivative instruments to manage its fuel costs. The Company has
no foreign exchange risk.

From time to time, the Company has utilized and expects to continue to
utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions involve interest rate
swap agreements which are entered into with major financial institutions.
Derivative financial instruments related to the Company's interest rate risks
are intended to reduce the Company's exposure to increases in the benchmark
interest rates underlying the Company's variable rate bank credit facilities.
The Company does not enter into derivative financial instrument transactions for
speculative purposes.

In February and April 2001 the Company hedged a portion of its exposure to
fluctuations in short-term interest rates by entering into interest rate swap
agreements. Five-year swap agreements with notional amounts totaling $100
million were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50 million were executed in April 2001. Under the
swap agreements, the Company will pay a fixed rate of 4.96% on a notional amount
of $50 million for three years, an average fixed rate of 5.64% on a notional
amount of $100 million for five years, and will receive floating rate interest
payments based on the LIBOR for United States dollar deposits. The interest rate
swap agreements are designated as cash flow hedges, therefore, the changes in
fair value, to the extent the swap agreements are effective, are recognized in
other comprehensive income until the hedged interest expense is recognized in
earnings. No gain or loss on ineffectiveness was required to be recognized in
2002 or 2001. The fair value of the interest rate swap agreements was recorded
as an other long-term liability of $12,404,000 and $5,176,000 at December 31,
2002 and 2001, respectively. The Company has recorded, in interest expense,
losses related to the interest rate swap agreements of $5,476,000 and $2,210,000
for the years ended December 31, 2002 and 2001, respectively. Fair value amounts
were determined as of December 31, 2002 and 2001 based on quoted market values
of the Company's portfolio of derivative instruments.

37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this report
(see Item 15, page 68).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEMS 10 THROUGH 13.

The information for these items is incorporated by reference to the
definitive proxy statement filed by the Company with the Commission pursuant to
the Regulation 14A within 120 days of the close of the fiscal year ended
December 31, 2002, except for the information regarding executive officers which
is provided in a separate item, captioned "Executive Officers of the
Registrant," and is included as an unnumbered item following Item 4 in Part I of
this Form 10-K.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"))
as of a date within ninety days of the filing date of this annual report, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that the disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.

(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation. There were no
significant deficiencies or material weaknesses in the internal controls.

38

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Kirby Corporation:

We have audited the accompanying consolidated balance sheets of Kirby
Corporation and consolidated subsidiaries as of December 31, 2002 and 2001 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kirby
Corporation and consolidated subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."

KPMG LLP

Houston, Texas
January 30, 2003,
except as to notes 5 and 15,
which are as of March 4, 2003.

39

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

See accompanying notes to consolidated financial statements.

40

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

41

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

42

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

43

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include
the accounts of Kirby Corporation and all majority-owned subsidiaries ("the
Company"). One affiliated limited partnership in which the Company owns a 50%
interest, is the general partner and has effective control, and whose activities
are an integral part of the operations of the Company is consolidated. All other
investments in which the Company owns 20% to 50% and exercises significant
influence over operating and financial policies are accounted for using the
equity method. All material intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to reflect
the current presentation of financial information.

ACCOUNTING POLICIES

Cash Equivalents. Cash equivalents consist of all short-term, highly
liquid investments with maturities of three months or less at date of purchase.

Accounts Receivable. In the normal course of business, the Company extends
credit to its customers. The Company regularly reviews the accounts and makes
adequate provisions for probable uncollectible balances. It is the Company's
opinion that the accounts have no impairment, other than that for which
provisions have been made. Included in accounts receivable as of December 31,
2002 and 2001 were $3,377,000 and $7,066,000, respectively, of accruals for
diesel engine services work in process which have not been invoiced as of the
end of each year.

The Company's marine transportation and diesel engine services operations
are subject to hazards associated with such businesses. The Company maintains
insurance coverage against these hazards with mutual insurance and reinsurance
companies. As of December 31, 2002 and 2001, the Company had receivables of
$1,494,000 and $1,550,000, respectively, from the mutual insurance and
reinsurance companies to cover claims over the Company's deductible.

Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily trade
accounts receivables. The Company's marine transportation customers include the
major oil refining and petrochemical companies. The diesel engine services
customers are offshore oil and gas service companies, inland and offshore marine
transportation companies, commercial fishing companies, power generation
companies, shortline, industrial, and certain transit and Class II railroads,
and the United States government. Credit risk with respect to these trade
receivables is generally considered minimal because of the financial strength of
such companies as well as the Company having procedures in effect to monitor the
creditworthiness of customers.

Fair Value of Financial Instruments. Cash, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short-term
maturity of these financial instruments. The fair value of the Company's debt
instruments is more fully described in Note 5, Long-Term Debt.

Property, Maintenance and Repairs. Property is recorded at cost.
Improvements and betterments are capitalized as incurred. Depreciation is
recorded on the straight-line method over the estimated useful lives of the
individual assets as follows: marine transportation equipment, 6-37 years;
buildings, 10-40 years; other equipment, 2-10 years; and leasehold improvements,
term of lease. When property items are retired, sold or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts with
any gain or loss on the disposition included in income. Maintenance and repairs
are charged to operating expense as incurred on an annual basis.

Environmental Liabilities. The Company expenses costs related to
environmental events as they are incurred or when a loss is considered probable
and estimable.

44

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Goodwill. The excess of the purchase price over the fair value of
identifiable net assets acquired in transactions accounted for as a purchase is
included in goodwill. Through the end of 2001, goodwill was amortized on the
straight-line method over the lesser of its expected useful life or forty years.
Effective January 1, 2002, the Company ceased the amortization of goodwill with
the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 also requires
periodic tests of the goodwill's impairment at least annually in accordance with
the provisions of SFAS No. 142 and that intangible assets other than goodwill be
amortized over their useful lives. The Company did not incur any transitional
impairment losses or gains as a result of adopting SFAS No. 142. The Company
conducted its annual impairment test as required by SFAS No. 142 at November 30,
2002, noting no impairment of goodwill. The Company will continue to conduct
goodwill impairment tests as required under SFAS No. 142 effective November 30
of subsequent years, or whenever events or circumstances indicate that interim
impairment testing is necessary.

Amortization of goodwill for 2001 and 2000 was $6,253,000 and $5,844,000,
respectively. The following table sets forth the reported and adjusted net
earnings, and basic and diluted earnings per share for 2001 and 2000 (in
thousands, except earnings per share amounts):

Revenue Recognition. The majority of marine transportation revenue is
derived from term contracts, ranging from one to five years, with renewal
options, and the remainder is from spot market movements. The majority of the
term contracts are for terms of one year. The Company is strictly a provider of
marine transportation services for its customers and does not assume ownership
of any of the products it transports. A term contract is an agreement with a
specific customer to transport cargo from a designated origin to a designated
destination at a set rate. The rate may or may not escalate during the term of
the contract, however, the base rate generally remains constant and contracts
often include escalation provisions to recover changes in specific costs such as
fuel. Term contracts typically only set agreement as to rates and do not have
volume requirements. A spot contract is an agreement with a customer to move
cargo from a specific origin to a designated destination for a rate negotiated
at the time the cargo movement takes place. Spot contract rates are at the
current "market" rate. The Company uses a voyage accounting method of revenue
recognition for its marine transportation revenues which allocates voyage
revenue and expenses based on the percent of the voyage completed during the
period. There is no difference in the recognition of revenue between a term
contract and a spot contract.

45

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Diesel engine service products and services are generally sold based upon
purchase orders or preferential service agreements with the customer that
include fixed or determinable prices and that do not include right of return or
significant post delivery performance obligations. Diesel engine parts sales are
recognized when title passes upon shipment to customers. Diesel overhauls and
repairs revenue are reported on the percentage of completion method of
accounting using measurements of progress towards completion appropriate for the
work performed.

Stock-Based Compensation. The intrinsic value method of accounting is used
for stock-based employee compensation whereby no compensation expense is
recorded when the stock option exercise price is equal to, or greater than, the
market price of the Company's common stock on the date of the grant. Income tax
benefits attributable to stock options exercised are credited to additional
paid-in capital.

In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure" ("SFAS
No. 148") was issued. SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Certain of the disclosure modifications are required for fiscal years
ending after December 15, 2002 and are included in the notes to these
consolidated financial statements.

The following table summarizes pro forma net earnings and earnings per
share for the years ended December 31, 2002, 2001 and 2000 assuming the Company
had used the fair value method of accounting for its stock option plans (in
thousands, except per share amounts):

The weighted average fair value of options granted during 2002, 2001 and
2000 was $15.30, $12.88 and $10.27, respectively. The fair value of each option
was determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were as follows: no dividend yield for any
year; average risk-free interest rate based on five- and 10-year Treasury
bonds -- 2.6% for 2002, 4.2% for 2001 and 4.8% for 2000; stock price
volatility -- 67% for 2002, 71% for 2001 and 70% for 2000; and estimated option
term -- four or nine years.

Taxes on Income. The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Deferred tax assets
46

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

The Company files a consolidated federal income tax return with its
domestic subsidiaries and its Bermudan subsidiary, Oceanic Insurance Limited.

Accrued Insurance. Accrued insurance liabilities include estimates based
on individual incurred claims outstanding and an estimated amount for losses
incurred but not reported (IBNR) based on past experience. Insurance premiums,
IBNR losses and incurred claims losses, up to the Company's deductible, for
2002, 2001 and 2000 were $10,366,000, $14,109,000 and $12,198,000 respectively.

Minority Interests. The Company has a majority interest in and is the
general partner for the affiliated entities. In situations where losses
applicable to the minority interest in the affiliated entities exceed the
limited partners' equity capital, such excess and any further loss attributable
to the minority interest is charged against the Company's interest in the
affiliated entities. If future earnings materialize in the respective affiliated
entities, the Company's interest would be credited to the extent of any losses
previously absorbed.

Treasury Stock. The Company follows the average cost method of accounting
for treasury stock transactions.

Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. The Company reviews long-lived assets and certain identifiable intangibles
for impairment by vessel class whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.

Recoverability on marine transportation assets is assessed based on vessel
classes, not on individual assets, because identifiable cash flows for
individual marine transportation assets are not available. Projecting customer
contract volumes allows estimation of future cash flows by projecting pricing
and utilization by vessel class but it is not practical to project which
individual marine transportation asset will be utilized for any given contract.
Because customers do not specify which particular vessel is used, prices are
quoted based on vessel classes not individual assets. Nominations of vessels for
specific jobs is determined on a day by day basis and is a function of the
equipment class required and the geographic position of vessels within that
class at that particular time as vessels within a class are interchangeable and
provide the same service. Barge vessel classes are based on similar capacities,
hull type, and type of product and towboats are based on horsepower.
Recoverability of the vessel classes is measured by a comparison of the carrying
amount of the assets to future net cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. An impairment
charge incurred by the Company in the fourth quarter of 2002 is described in
Note 3, Asset Impairments.

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144, issued in August 2001,
addresses the accounting and reporting for the impairment or disposal of
long-lived assets and supersedes Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") and APB Opinion No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The objective of SFAS No. 144 is to establish one accounting
model for long-lived assets to be disposed of by sale, as well as to resolve
implementation issues related to SFAS No. 121, while retaining many of the
fundamental provisions of SFAS No. 121. The adoption of SFAS No. 144 had no
effect on the Company's financial position or results of

47

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

operations. The impairment charges taken in 2002 were a result of certain
business events, not the adoption of SFAS No. 144.

Accounting Standards

In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability associated
with an asset retirement be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be determined. The associated retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. SFAS No. 143 is effective for the
Company at the beginning of fiscal 2003. The Company will adopt SFAS No. 143
effective January 1, 2003 and expects there will be no effect on the Company's
financial position or results of operations.

In April 2002, Statement of Financial Accounting Standards No. 145
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company adopted SFAS No. 145
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.

In July 2002, Statement of Financial Accounting Standards No. 146
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company adopted SFAS No. 146 for all exit or disposal activities initiated after
December 31, 2002.

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51." This Interpretation addresses the consolidation
by business enterprises of variable interest entities as defined in the
Interpretation. The Interpretation applies immediately to variable interest in
variable interest entities created after January 31, 2003, and to variable
interests in variable entities obtained after January 31, 2003. The application
of this Interpretation is not expected to have a material effect on the
Company's financial position or results of operations.

(2) ACQUISITIONS

In March 2002, the Company purchased the Cargo Carriers fleet of 21 inland
tank barges for $2,800,000 in cash from the Cargill Corporation, and resold six
of the tank barges for $530,000 in April 2002. Financing for the equipment
acquisition was through the Company's revolving credit facility.

On October 31, 2002, the Company completed the acquisition of seven inland
tank barges and 13 inland towboats from Coastal for $17,053,000 in cash. In
addition, the Company and Coastal entered into a barge management agreement
whereby the Company will serve as manager of the two companies' combined black
oil fleet for a period of seven years. The combined black oil fleet consists of
54 barges owned by Coastal and the Company's 66 black oil barges. Coastal is
engaged in the inland tank barge transportation of black oil products along the
Gulf Intracoastal Waterway and the Mississippi River and its tributaries. In a
related transaction, on September 25, 2002, the Company purchased from Coastal
three black oil tank barges for

48

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) ACQUISITIONS -- (CONTINUED)

$1,800,000 in cash. Financing for the equipment acquisitions was through the
Company's revolving credit facility.

On December 15, 2002, the Company completed the acquisition of 94 inland
tank barges from Union Carbide Finance Corporation ("Union Carbide") for
$23,000,000. The Company had operated the tank barges since February 2001 under
a long-term lease agreement between the Company and Union Carbide. The Dow
Chemical Company ("Dow") acquired the inland tank barges as part of the February
2001 merger between Union Carbide Corporation and Dow. The Company has a
long-term contract with Dow to provide for Dow's bulk liquid inland marine
transportation requirements throughout the United States inland waterway system.
With the merger between Union Carbide and Dow, the Company's long-term contract
with Dow was amended to provide for Union Carbide's liquid inland marine
transportation requirements. Financing for the equipment acquisition was through
the Company's revolving credit facility.

On October 12, 2000, the Company completed the acquisition of the Powerway
Division of Covington Detroit Diesel -- Allison, Inc. ("Powerway") for
$1,428,000 in cash. With the acquisition of Powerway, the Company became the
sole distributor of aftermarket parts and service for Alco diesel engines
throughout the United States for marine, power generation and industrial
applications. On November 1, 2000, the Company completed the acquisition of West
Kentucky Machine Shop, Inc. ("West Kentucky") for an aggregate consideration of
$6,674,000, consisting of $6,629,000 in cash, the assumption of $20,000 of West
Kentucky's existing debt and $25,000 of merger costs. The acquisition of West
Kentucky provided the Company with increased distributorship capabilities with
Falk Corporation, a reduction gear manufacturer used in marine and industrial
applications. The acquisitions were accounted for using the purchase method of
accounting. Financing for the two acquisitions was through the Company's
revolving credit facility.

(3) ASSET IMPAIRMENTS

During the fourth quarter of 2002, the Company recorded $18,933,000 of
non-cash pre-tax impairment charges. The after-tax effect of the charges was
$12,498,000 or $.51 per share. Of the total pre-tax charges, $17,241,000 was due
to reduced estimated cash flows resulting from reduced lives on the Company's
single hull fleet and its commitment to sell certain vessels during 2003. The
reduced estimated useful lives on 114 single hull tank barges is due to market
bias against single hull tank barges and the assessment of the impact of new
regulations issued in September 2002 by the U.S. Coast Guard that require the
installation of tank level monitoring devices on all single hull tank barges by
October 2007. The Company plans to retire all of its single hull tank barges by
October 17, 2007. The Company has committed to sell 21 inactive or
out-of-service double hull tank barges and five inactive towboats during 2003
and has reduced the carrying value of these vessels by $5,682,000 to a fair
value of $2,621,000. The charges also included a $1,221,000 write-down of an
investment in a non-consolidated affiliate to its estimated fair value and a
$471,000 write-down of surplus diesel shop equipment.

(4) DERIVATIVE INSTRUMENTS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") establishes accounting and reporting standards
requiring that derivative instruments (including certain derivative instruments
embedded in other contracts) be recorded at fair value and included in the
balance sheet as assets or liabilities. The accounting for changes in the fair
value of a derivative instrument depends on the intended use of the derivative
and the resulting designation, which is established at the inception date of a
derivative. Special accounting for derivatives qualifying as fair value hedges
allows a derivative's gain and losses to offset related results on the hedged
item in the statement of earnings. For derivative instruments designated as cash
flow hedges, changes in fair value, to the extent the hedge is effective, are
recognized in

49

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) DERIVATIVE INSTRUMENTS -- (CONTINUED)

other comprehensive income until the hedged item is recognized in earnings.
Hedge effectiveness is measured at least quarterly based on the relative
cumulative changes in fair value between the derivative contract and the hedged
item over time. Any change in fair value resulting from ineffectiveness, as
defined by SFAS No. 133, is recognized immediately in earnings.

From time to time, the Company has utilized and expects to continue to
utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions generally are
interest rate swap agreements and are entered into with major financial
institutions. Derivative financial instruments related to the Company's interest
rate risks are intended to reduce the Company's exposure to increases in the
benchmark interest rates underlying the Company's variable rate bank credit
facilities.

In February and April 2001 the Company hedged a portion of its exposure to
fluctuations in short-term interest rates by entering into interest rate swap
agreements. Five-year swap agreements with notional amounts totaling $100
million were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50 million were executed in April 2001. Under the
swap agreements, the Company will pay a fixed rate of 4.96% on a notional amount
of $50 million for three years, an average fixed rate of 5.64% on a notional
amount of $100 million for five years, and will receive floating rate interest
payments based on London Interbank Offered Rate ("LIBOR") for United States
dollar deposits. Under SFAS No. 133, the interest rate swap agreements are
designated as cash flow hedges, therefore, the changes in fair value, to the
extent the swap agreements are effective, are recognized in other comprehensive
income until the hedged interest expense is recognized in earnings. No gain or
loss on ineffectiveness was required to be recognized in 2002 or 2001. The fair
value of the interest rate swap agreements was recorded as an other long-term
liability of $12,404,000 and $5,176,000 at December 31, 2002 and 2001,
respectively. The Company has recorded, in interest expense, losses related to
the interest rate swap agreements of $5,476,000 and $2,210,000 for the years
ended December 31, 2002 and 2001, respectively. The Company anticipates
$3,922,000 of net losses included in accumulated other comprehensive income will
be transferred into earnings over the next twelve months based on current
interest rates. Fair value amounts were determined as of December 31, 2002 and
2001 based on quoted market values of the Company's portfolio of derivative
instruments.

(5) LONG-TERM DEBT

Long-term debt at December 31, 2002 and 2001 consisted of the following (in
thousands):

50

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LONG-TERM DEBT -- (CONTINUED)

The aggregate payments due on the long-term debt in each of the next five
years, after consideration of the long-term debt financing subsequent to year
end as discussed in Note 15, Subsequent Events, were as follows (in thousands):

2003........................................................ $ 56,236
2004........................................................ 225
2005........................................................ 4
2006........................................................ 4
2007........................................................ 4
Thereafter.................................................. 209,528
--------
$266,001
========

The Company has a $150,000,000 unsecured revolving credit facility (the
"Revolving Credit Facility") with a syndicate of banks, with a maturity date of
October 9, 2004. The syndicate of banks includes JPMorgan Chase as
administrative agent, Bank of America as syndication agent, and First Union
National Bank, Fleet National Bank and Wells Fargo Bank (Texas), N.A. as
documentation agents. Borrowing options under the amended Revolving Credit
Facility allow the Company to borrow at an interest rate equal to either the
LIBOR plus a margin ranging from .75% to 1.50%, depending on the Company's
senior debt rating; or an adjusted Certificate of Deposit ("CD") rate plus a
margin ranging from .875% to 1.625%, also depending on the Company's senior debt
rating; or the greater of prime rate, Federal Funds rate plus .50%, or the
secondary market rate for three-month CD rate plus 1%. A commitment fee is
charged on the unused portion of the Revolving Credit Facility at rates ranging
from .20% to .40%, depending on the Company's senior debt rating, multiplied by
the average unused portion of the Revolving Credit Facility, and is paid
quarterly. A utilization fee equal to .125% to .25%, also depending on the
Company's senior debt rating, of the average outstanding borrowings during
periods in which the total borrowings exceed 33% of the total $150,000,000
commitment, is also paid quarterly. At December 31, 2002, the applicable
interest rate spread over LIBOR was .875% and the commitment fee and utilization
fee were .25% and .125%, respectively. The Revolving Credit Facility includes
certain financial covenants, including a minimum net worth requirement, as
defined, of $225,000,000. In addition to financial covenants, the Revolving
Credit Facility contains covenants that, subject to exceptions, restrict debt
incurrence, mergers and acquisitions, sales of assets, dividends and
investments, liquidations and dissolutions, capital leases, transactions with
affiliates and changes in lines of business. Borrowings under the Revolving
Credit Facility may be used for general corporate purposes, the purchase of
existing or new equipment, the purchase of the Company's common stock, or for
business acquisitions. The Company was in compliance with all Revolving Credit
Facility covenants as of December 31, 2002. As of December 31, 2002, $88,000,000
was outstanding under the Revolving Credit Facility and the average interest
rate was 2.7%. The average borrowing under the Revolving Credit Facility during
the 2002 year was $53,417,000, computed by using the daily balance, and the
weighted average interest rate was 3.0%, computed by dividing the interest
expense under the Revolving Credit Facility by the average Revolving Credit
Facility borrowing. The Revolving Credit Facility includes a $10,000,000
commitment which may be used for standby letters of credit. Outstanding letters
of credit under the Revolving Credit Facility totaled $741,000 as of December
31, 2002.

The Company has an unsecured term loan credit facility (the "Term Loan"),
dated October 12, 1999, with Bank of America as syndication agent, JPMorgan
Chase as administrative agent and Bank One, Texas, N.A. as documentation agent.
Interest rate options under the Term Loan include interest rates equal to either
LIBOR plus a margin ranging from .75% to 1.50%, depending on the Company's
senior debt rating; or an adjusted CD rate plus a margin ranging from .875% to
1.625%, also depending on the Company's senior debt rating; or the greater of
prime rate, Federal Funds rate plus .50% or the secondary market rate for
three-month

51

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LONG-TERM DEBT -- (CONTINUED)

CD rate plus 1%. A utilization fee equal to .125% to .25%, depending on the
Company's senior debt rating, of the average outstanding borrowings during
periods in which the total borrowings exceed 33% of the original $200,000,000
commitment, is paid quarterly. At December 31, 2002, the applicable interest
rate spread over LIBOR was .875% and the utilization fee was .125%. The
financial covenants of the Term Loan conform to existing financial covenants of
the Revolving Credit Facility. In addition to financial covenants, the Term Loan
contains covenants that, subject to exceptions, restrict debt incurrence,
mergers and acquisitions, sales of assets, dividends and investments,
liquidations and dissolutions, capital leases, transactions with affiliates and
changes in lines of business. The Company was in compliance with all Term Loan
covenants as of December 31, 2002. At December 31, 2002, the amount borrowed
under the Term Loan totaled $171,500,000 and the average interest rate was 2.4%.
The average borrowing under the Term Loan during the 2002 year was $181,177,000,
computed by using the daily balance, and the weighted average interest rate was
2.9%, computed by dividing the interest expense under the Term Loan by the
average Term Loan borrowing. The Term Loan has quarterly principal payments of
$12,500,000, plus interest, which began on October 9, 2002, with the remaining
principal due on October 9, 2004, the maturity date of the Term Loan. The
principal payments of $50,000,000 due in the next twelve months were classified
as long-term debt at December 31, 2002, as the Company has the ability and
intent through the Revolving Credit Facility to refinance the payments on a
long-term basis.

The Company has on file a shelf registration on Form S-3 with the
Securities and Exchange Commission providing for the issue of up to $250,000,000
of debt securities, including medium term notes at fixed or floating interest
rates with maturities of nine months or longer. The $121,000,000 available
balance, subject to mutual agreement to terms, as of December 31, 2002 may be
used for future business and equipment acquisitions, working capital
requirements and reductions of the Company's Revolving Credit Facility and Term
Loan. Activities under the shelf registration have been as follows (dollars in
thousands):

The Company has a $10,000,000 uncommitted and unsecured line of credit
("Credit Line") with Bank of America whereby Bank of America will provide
short-term advances and the issuance of letters of credit on an uncommitted
basis. On November 5, 2002, the Credit Line was amended to extend the maturity
date to November 4, 2003. Borrowings under the Credit Line allow the Company to
borrow at an interest rate equal to either LIBOR plus a margin of 1%; or the
higher of prime rate or the Federal Funds rate plus .50%. As of December 31,
2002, $5,900,000 was borrowed under the Credit Line and the average interest
rate was 4.3%. Outstanding letters of credit under the Credit Line totaled
$560,000 as of December 31, 2002. Amounts

52

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LONG-TERM DEBT -- (CONTINUED)

borrowed on the Credit Line were classified as long-term debt at December 31,
2002, as the Company has the ability and intent to refinance the Credit Line on
a long-term basis through the Revolving Credit Facility.

In September 2002, the Company entered into a $10,000,000 uncommitted and
unsecured revolving credit note ("Credit Note") with BNP Paribas ("BNP") whereby
BNP will consider short-term advances through the maturity date of May 31, 2003.
The Credit Note allows the Company to borrow at an interest rate equal to BNP's
current day cost of funds plus .35%. Also in September 2002, the Company entered
into a $5,000,000 uncommitted letter of credit line with BNP whereby BNP will
consider letters of credit for periods no longer than 15 months from issuance
through the maturity date of May 31, 2003. The Company did not have any
borrowings or letters of credit outstanding under the Credit Note or uncommitted
letter of credit line as of December 31, 2002.

In August 1992, the Company's principal marine transportation subsidiary
entered into a $50,000,000 private placement of 8.22% senior notes due June 30,
2002. Principal payments of $5,000,000, plus interest, were due annually through
June 30, 2002. On December 31, 2001, the senior notes were prepaid, with a final
principal payment of $5,000,000, plus interest, and a make-whole interest
payment of $145,000.

The Company is of the opinion that the amounts included in the consolidated
financial statements for outstanding debt materially represent the fair value of
such debt at December 31, 2002 and 2001.

(6) TAXES ON INCOME

Earnings before taxes on income and details of the provision for taxes on
income for the years ended December 31, 2002, 2001 and 2000 were as follows (in
thousands):

During the three years ended December 31, 2002, 2001 and 2000, tax benefits
related to the exercise of stock options that were allocated directly to
additional paid-in capital totaled $545,000, $505,000 and $470,000,
respectively.

53

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) TAXES ON INCOME -- (CONTINUED)

The Company's provision for taxes on income varied from the statutory
federal income tax rate for the years ended December 31, 2002, 2001 and 2000 due
to the following:

The tax effects of temporary differences that give rise to significant
portions of the current deferred tax assets and non-current deferred tax assets
and liabilities at December 31, 2002, 2001 and 2000 were as follows (in
thousands):

As of December 31, 2002, the Company has determined that it is more likely
than not that the deferred tax assets will be realized and a valuation allowance
for such assets is not required.

54

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) LEASES

The Company and its subsidiaries currently lease various facilities and
equipment under a number of cancelable and noncancelable operating leases. Lease
agreements for tank barges have terms from two to twelve years expiring at
various dates through 2008. Total rental expense for the years ended December
31, 2002, 2001 and 2000 were as follows (in thousands):

- ---------------

* All of the Company's towboat rental agreements provide the Company with the
option to terminate the agreements with notice ranging from seven to 90 days.

Future minimum lease payments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year at December 31, 2002
were as follows (in thousands):

(8) STOCK OPTION PLANS

The Company has five employee stock option plans which were adopted in
1989, 1994, 1996, 2001 and 2002 for selected officers and other key employees.
The 1989 Employee Plan provided for the issuance until July 1999 of incentive
and nonincentive stock options to purchase up to 600,000 shares of common stock.
The 1994 Employee Plan provides for the issuance of incentive and non-qualified
stock options to purchase up to 1,000,000 shares of common stock. The 1996
Employee Plan provides for the issuance of incentive and non-qualified stock
options to purchase up to 900,000 shares of common stock. The 2002 Employee Plan
provides for the issuance of incentive and nonincentive stock options to
purchase up to 1,000,000 shares of common stock. The 2001 Employee Plan provided
for the issuance of incentive and nonincentive stock options to purchase up to
1,000,000 shares of common stock. With the approval of the 2002 Employee Plan by
stockholders at the April 2002 Annual Meeting, the 2001 Employee Plan was
terminated, except for stock options and restricted stock previously granted.
Under the above plans, the exercise price for each option equals the fair market
value per share of the Company's common stock on the date of grant. The terms of
the options granted prior to February 10, 2000 are ten years and the options
vest ratably over four years. Options granted after February 10, 2000 have terms
of five years and vest ratably over three years. At December 31,

55

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) STOCK OPTION PLANS -- (CONTINUED)

2002, 1,115,180 shares were available for future grants under the employee plans
and no outstanding stock options under the employee plans were issued with stock
appreciation rights.

The following is a summary of the stock option activity under the employee
plans described above for the years ended December 31, 2002, 2001 and 2000:

The following table summarizes information about the Company's outstanding
and exercisable stock options under the employee plans at December 31, 2002:

For the years ended December 31, 2002, 2001 and 2000, the number of options
exercisable were 678,525, 503,280 and 582,650, respectively, and the weighted
average exercise prices of those options were $18.46, $17.37 and $16.68,
respectively.

The Company has three director stock option plans for nonemployee directors
of the Company. The 1989 Director Plan, under which no additional options can be
granted, provided for the issuance until July 1999 of nonincentive options to
directors of the Company to purchase up to 150,000 shares of common stock. The
1994 Director Plan, which was superseded by the 2000 Director Plan adopted in
September 2000, provided for

56

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) STOCK OPTION PLANS -- (CONTINUED)

the issuance of non-qualified options to directors of the Company, including
advisory directors, to purchase up to 100,000 shares of common stock. The 2000
Director Plan provides for the issuance of nonincentive options to directors of
the Company to purchase up to 300,000 shares of common stock. The 2000 Director
Plan provides for the automatic grants of stock options to nonemployee directors
on the date of first election as a director and after each annual meeting of
stockholders. In addition, the 2000 Director Plan provides for the issuance of
stock options in lieu of cash for all or part of the annual director fee. The
exercise price for all options granted under the 2000 Director Plan is equal to
the fair market value per share of the Company's common stock on the date of
grant. The terms of the options under the 2000 Director Plan are 10 years. The
options granted when first elected as a director vest immediately. The options
granted after each annual meeting of stockholders vest six months after the date
of grant. Options granted in lieu of cash director fees vest in equal quarterly
increments during the year to which they relate. At December 31, 2002, 213,607
shares were available for future grants under the 2000 Director Plan. The
director stock option plans are intended as an incentive to attract and retain
qualified and competent independent directors.

The following is a summary of the stock option activity under the director
plans described above for the years ended December 31, 2002, 2001 and 2000:

57

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) STOCK OPTION PLANS -- (CONTINUED)

The following table summarizes information about the Company's outstanding
and exercisable stock options under the director plans at December 31, 2002:

For the years ended December 31, 2002, 2001 and 2000, the number of options
exercisable were 129,531, 95,600 and 83,382, respectively, and the weighted
average exercise prices of those options were $22.74, $20.13 and $19.79,
respectively.

The Company also has a 1993 nonqualified stock option for 25,000 shares
granted to Robert G. Stone, Jr., at an exercise price of $18.63, which is
currently exercisable. The grant served as an incentive to retain the optionee
as a member of the Board of Directors of the Company.

(9) RETIREMENT PLANS

The Company sponsors a defined benefit plan for vessel personnel. The plan
benefits are based on an employee's years of service and compensation. The plan
assets primarily consist of fixed income securities and corporate stocks.
Funding of the plan is based on actuarial computations that are designed to
satisfy minimum funding requirements of applicable regulations and to achieve
adequate funding of projected benefit obligations.

The Company sponsors an unfunded defined benefit health care plan that
provides limited postretirement medical benefits to employees who meet minimum
age and service requirements, and to eligible dependents. The plan is
contributory, with retiree contributions adjusted annually.

58

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) RETIREMENT PLANS -- (CONTINUED)

The following table presents the funded status and amounts recognized in
the Company's consolidated balance sheet for the Company's defined benefit plans
and postretirement benefit plans (dollars in thousands):

59

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) RETIREMENT PLANS -- (CONTINUED)

The components of net periodic benefit cost were as follows (in thousands):

The Company's unfunded defined benefit health care plan, which provides
limited postretirement medical benefits, limits cost increases in the Company's
contribution to 4% per year. For measurement purposes, the assumed health care
cost trend rate was 10.3% for 2002, declining gradually to 5% by 2006 and
remaining at that level thereafter. Accordingly, a 1% increase in the health
care cost trend rate assumption would have an immaterial effect on the amounts
reported.

In addition to the defined benefit plan and postretirement medical benefit
plan, the Company sponsors defined contribution plans for all shore-based
employees and certain vessel personnel. Maximum contributions to these plans
equal the lesser of 15% of the aggregate compensation paid to all participating
employees or up to 20% of each subsidiary's earnings before federal income tax
after certain adjustments for each fiscal year. The aggregate contributions to
the plans were $6,951,000, $6,562,000 and $6,201,000 in 2002, 2001 and 2000,
respectively.

(10) EARNINGS PER SHARE OF COMMON STOCK

The following table presents the components of basic and diluted earnings
per share for the years ended December 31, 2002, 2001 and 2000 (in thousands,
except per share amounts):

Certain outstanding options to purchase approximately 392,000 and 1,103,000
shares of common stock were excluded in the computation of diluted earnings per
share as of December 31, 2002 and 2000,

60

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) EARNINGS PER SHARE OF COMMON STOCK -- (CONTINUED)

respectively, as such stock options would have been antidilutive. No shares were
excluded in the computation of diluted earnings per share as of December 31,
2001.

(11) QUARTERLY RESULTS (UNAUDITED)

The unaudited quarterly results for the year ended December 31, 2002 were
as follows (in thousands, except per share amounts):

61

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) QUARTERLY RESULTS (UNAUDITED) -- (CONTINUED)

The unaudited quarterly results for the year ended December 31, 2001 were
as follows (in thousands, except per share amounts):

Quarterly basic and diluted earnings per share of common stock may not
total to the full year per share amounts, as the weighted average number of
shares outstanding for each quarter fluctuates as a result of shares repurchased
by the Company and the assumed exercise of stock options.

(12) CONTINGENCIES AND COMMITMENTS

The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.

In addition, there are various other suits and claims against the Company,
none of which in the opinion of management will have a material effect on the
Company's financial condition, results of operations or cash flows. Management
has recorded necessary reserves and believes that it has adequate insurance
coverage or has meritorious defenses for these other claims and contingencies.

Certain Significant Risks and Uncertainties. The Company's marine
transportation segment is engaged in the inland marine transportation of
petrochemical feedstocks, industrial chemicals, agricultural chemicals, refined
petroleum products, pressurized products and black oil products by tank barge
along the Mississippi River System, Gulf Intracoastal Waterway and Houston Ship
Channel. In addition, the segment, through a partnership in which the Company
owns a 35% interest, is engaged in the offshore marine transportation of
dry-bulk cargo by barge. Such products are transported between United States
ports, with an emphasis on the

62

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(12) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)

Gulf of Mexico and along the Atlantic Seaboard and Caribbean Basin ports, with
occasional voyages to South American ports.

The Company's diesel engine services segment is engaged in the overhaul and
repair of large medium-speed diesel engines and related parts sales in the
marine, power generation and industrial, and railroad markets. The marine market
serves vessels powered by large diesel engines utilized in the various inland
and offshore marine industries. The power generation and industrial market
serves users of diesel engines that provide standby, peak and base load power
generation, users of industrial gears such as cement, paper and mining
industries, and provides parts for the nuclear industry. The railroad market
provides parts and service for diesel-electric locomotives used by shortline,
industrial, and certain transit and Class II railroads.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. However, in
the opinion of management, the amounts would be immaterial.

The customer base includes the major industrial petrochemical and chemical
manufacturers, agricultural chemical manufacturers and refining companies in the
United States. Approximately 70% of the movements of such products are under
long-term contracts, ranging from one year to five years, with renewal options.
While the manufacturing and refining companies have generally been customers of
the Company for numerous years (some as long as 30 years) and management
anticipates a continuing relationship, there is no assurance that any individual
contract will be renewed. The Dow Chemical Company accounted for 13% of the
Company's revenues in 2002, 12% in 2001 and 10% in 2000.

Major customers of the diesel engine services segment include the inland
and offshore barge operators, oil service companies, petrochemical companies,
offshore fishing companies, other marine transportation entities, the United
States Coast Guard and Navy, shortline railroads, industrial owners of
locomotives, certain transit and Class II railroads, and power generation,
nuclear and industrial companies. The segment operates as an authorized
distributor in 17 eastern states and the Caribbean, and as non- exclusive
authorized service centers for Electro-Motive Division of General Motors ("EMD")
throughout the rest of the United States for marine power generation and
industrial applications. The railroad portion of the segment serves as the
exclusive distributorship of EMD aftermarket parts sales and services to the
shortline and industrial railroad market. The Company also serves as the
exclusive distributor of EMD parts to the nuclear industry. The results of the
diesel engine services segment are largely tied to the industries it serves and,
therefore, can be influenced by the cycles of such industries. The diesel engine
services segment's relationship with EMD has been maintained for 37 years. No
single customer of the diesel engine services segment accounted for more than
10% of the Company's revenues in 2002, 2001 and 2000.

Weather can be a major factor in the day-to-day operations of the marine
transportation segment. Adverse weather conditions, such as fog in the winter
and spring months, can impair the operating efficiencies of the fleet. Shipments
of products can be significantly delayed or postponed by weather conditions,
which are totally beyond the control of management. River conditions are also
factors which impair the efficiency of the fleet and can result in delays,
diversions and limitations on night passages, and dictate horsepower
requirements and size of tows. Additionally, much of the inland waterway system
is controlled by a series of 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. Maintenance and operation of the
navigable inland waterway infrastructure is a government function handled by the
Corps of Engineers with costs shared by industry. Significant changes in
governmental policies or appropriations with respect to maintenance and
operation of the infrastructure could adversely affect the Company.

63

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(12) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)

The Company's marine transportation segment is subject to regulation by the
United States Coast Guard, federal laws, state laws and certain international
conventions. The Company believes that additional safety, environmental and
occupational health regulations may be imposed on the marine industry. There can
be no assurance that any such new regulations or requirements, or any discharge
of pollutants by the Company, will not have an adverse effect on the Company.

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. During the past
several years, the Jones Act cabotage provisions have come under attack by
interests seeking to facilitate foreign flag competition in trades reserved for
domestic companies and vessels under the Jones Act. The efforts have been
consistently defeated by large margins in the United States Congress. The
Company believes that continued efforts will be made to modify or eliminate the
cabotage provisions of the Jones Act. If such efforts are successful, certain
elements could have an adverse effect on the Company.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57, and 197 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and initial
measurement provisions of the Interpretation are applicable to guarantees issued
or modified after December 31, 2002 and are not expected to have a material
effect on the Company's financial position or results of operations. The
disclosure requirements are effective for the Company's financial statements for
interim and annual periods ending after December 15, 2002.

The Company has issued guaranties or obtained stand-by letters of credit
and performance bonds supporting performance by the Company and its subsidiaries
of contractual or contingent legal obligations of the Company and its
subsidiaries incurred in the ordinary course of business. The aggregate notional
value of these instruments is $6,468,000 at December 31, 2002, including
$1,552,000 in letters of credit and $4,916,000 in performance bonds at December
31, 2002, of which $4,679,000 of these financial instruments relates to
contingent legal obligations which are covered by the Company's liability
insurance program in the event the obligations are incurred. All of these
instruments have an expiration date within two years. The Company does not
believe demand for payment under these instruments is likely and expects no
material cash outlays to occur in connection with these instruments.

(13) SEGMENT DATA

The Company's operations are classified into two reportable business
segments as follows:

Marine Transportation -- Marine transportation by United States flag
vessels on the United States inland waterway system. The principal products
transported on the United States inland waterway system include petrochemicals,
agricultural chemicals, refined petroleum products, pressurized products and
black oil products.

Diesel Engine Services -- Overhaul and repair of large medium-speed diesel
engines, reduction gear repair, and sale of related parts and accessories for
customers in the marine, power generation and industrial, and railroad
industries.

The Company's two reportable business segments are managed separately based
on fundamental differences in their operations. The Company's accounting
policies for the business segments are the same as

64

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) SEGMENT DATA -- (CONTINUED)

those described in Note 1, Summary of Significant Accounting Policies. The
Company evaluates the performance of its segments based on the contributions to
operating income of the respective segments, and before income taxes, interest,
gains or losses on disposition of assets, other nonoperating income, minority
interests, accounting changes, and nonrecurring items. Intersegment sales for
2002, 2001 and 2000 were not significant.

The following table sets forth by reportable segment the revenues, profit
or loss, total assets, depreciation and amortization, and capital expenditures
attributable to the principal activities of the Company for the years ended
December 31, 2002, 2001 and 2000 (in thousands):

The following table presents the details of "Other" segment profit (loss)
for the years ended December 31, 2002, 2001 and 2000 (in thousands):

65

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) SEGMENT DATA -- (CONTINUED)

The following table presents the details of "Other" total assets as of
December 31, 2002, 2001 and 2000 (in thousands):

The $17,712,000 charges for impairment of long-lived assets, consisted of
$17,241,000 related to assets in the marine transportation segment and $471,000
related to assets in the diesel engine services segment.

(14) RELATED PARTY TRANSACTIONS

During 2002, the Company and its subsidiaries paid Knollwood, L.L.C.
("Knollwood"), a company owned by C. Berdon Lawrence, the Chairman of the Board
of the Company, $197,000 for air transportation services provided by Knollwood.
Such services were in the ordinary course of business of the Company.

The Company is a 25% member of The Hollywood Camp, L.L.C. ("Hollywood
Camp"), a company that owns and operates a hunting facility used by the Company
and two other members primarily for customer entertainment. Knollwood is a 25%
member and acts as manager of the facility. The other 50% member is not
affiliated with the Company or Knollwood. During 2002, the Company was billed
$683,000 by the hunting facility for its share of the facility expenses.

Walter E. Johnson, a director of the Company, is a 25% limited partner in a
limited partnership that owns one barge operated by a subsidiary of the Company,
which owns the other 75% interest in the partnership. The partnership was
entered into on October 1, 1974. In 2002, Mr. Johnson received $82,000 in
proportionate distributions from the partnership, made in the ordinary course of
business.

Southwest Bank of Texas has a 5% participation in the Company's Term Loan.
As of December 31, 2002, the outstanding balance of the Term Loan was
$171,500,000, of which Southwest Bank of Texas' participation was $8,575,000.
Mr. Johnson is Chairman of the Board of Southwest Bank of Texas. Southwest Bank
of Texas is one of 14 lenders under the Term Loan, which was consummated in the
ordinary course of business of the Company, and before Mr. Johnson's appointment
to the Company's board of directors.

(15) SUBSEQUENT EVENTS

On January 15, 2003, the Company purchased from SeaRiver Maritime, Inc.
("SeaRiver"), the U.S. transportation affiliate of Exxon Mobil Corporation, 45
double hull inland tank barges and seven inland

66

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) SUBSEQUENT EVENTS -- (CONTINUED)

towboats for $32,113,000 in cash, and assumed from SeaRiver the leases of 16
double hull inland tank barges. On February 28, 2003, the Company purchased
three double hull inland tank barges leased by SeaRiver from Banc of America
Leasing & Capital LLC for $3,453,000 in cash. The Company entered into a
contract to provide inland marine transportation services to SeaRiver,
transporting petrochemicals, refined petroleum products and black oil products
throughout the Gulf Intracoastal Waterway and the Mississippi River System.
Financing of the equipment acquisitions was through the Company's revolving
credit facility.

On February 28, 2003, the Company issued $250,000,000 of floating rate
senior notes ("Senior Notes") due February 28, 2013. The unsecured notes pay
interest quarterly at an interest rate equal to LIBOR plus a margin of 1.2% and
are not callable for the first year. Thereafter, the Senior Notes may be prepaid
without penalty. The proceeds were used to repay $121,500,000 of the Term Loan
due October 9, 2004 and $128,500,000 of the Revolving Credit Facility due
October 9, 2004. The terms of the Senior Notes include certain covenants that,
subject to exceptions, restrict debt incurrence, mergers and acquisitions, sales
of assets, dividends and investments, liquidations and dissolutions, capital
leases, transactions with affiliates and changes in lines of business.
Additionally, the Company must comply with certain financial covenants based on
the results of its operations.

In connection with the issuing of the Senior Notes, the Company hedged a
further portion of its exposure to fluctuations in short-term interest rates by
entering into a one-year interest rate swap agreement on February 28, 2003 with
a notional amount of $100,000,000. Under the agreement, the Company will pay a
fixed rate of 1.39% for one year and will receive floating rate interest
payments based on LIBOR for United States dollar deposits. The interest rate
swap was designated as a cash flow hedge. Existing swap agreements totaling
$150,000,000 which had been used as cash flow hedges for floating rate bank debt
were re-designated as cash flow hedges for the Senior Notes. As of February 28,
2003, the Company had a total notional amount of $250,000,000 of interest rate
swaps with terms ranging from one to three years designated as cash flow hedges
for its Senior Notes. The Senior Notes' effective average rate on that date,
including the effect of interest rate swaps, was 5.0%.

On February 27, 2003, the available limit of the Credit Note was reduced
from $10,000,000 to $5,000,000 by mutual agreement between BNP and the Company.
The $5,000,000 uncommitted letter of credit line was also cancelled.

67

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

1. Financial Statements

Included in Part III of this report:

Report of KPMG LLP, Independent Accountants, on the financial statements of
Kirby Corporation and Consolidated Subsidiaries for the years ended December 31,
2002, 2001 and 2000.

Consolidated Balance Sheets, December 31, 2002 and 2001.

Consolidated Statements of Earnings, for the years ended December 31, 2002,
2001 and 2000.

Consolidated Statements of Stockholders' Equity, for the years ended
December 31, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows, for the years ended December 31,
2002, 2001 and 2000.

Notes to Consolidated Financial Statements, for the years ended December
31, 2002, 2001 and 2000.

2. Financial Statement Schedules

All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.

3. Reports on Form 8-K

There were no reports on Form 8-K filed for the three months ended December
31, 2002.

4. Exhibits

- ---------------

* Filed herewith

+ Management contract, compensatory plan or arrangement.

70

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

KIRBY CORPORATION
(Registrant)

By: /s/ NORMAN W. NOLEN
------------------------------------
Norman W. Nolen
Executive Vice President

Dated: March 5, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

71

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

In connection with the filing of the Annual Report on Form 10-K for the year
ended December 31, 2002 by Kirby Corporation, J. H. Pyne, President and Chief
Executive Officer, hereby certifies that:

1. I have reviewed this annual report on Form 10-K of Kirby Corporation
(the "Company");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report;

4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors:

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and have identified
for the Company's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and

6. The Company's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ J. H. PYNE
--------------------------------------
J. H. Pyne
President and Chief Executive Officer

Dated: March 5, 2003

72

CERTIFICATION OF CHIEF FINANCIAL OFFICER

In connection with the filing of the Annual Report on Form 10-K for the year
ended December 31, 2002 by Kirby Corporation, Norman W. Nolen, Executive Vice
President, Treasurer and Chief Financial Officer, hereby certifies that:

1. I have reviewed this annual report on Form 10-K of Kirby Corporation
(the "Company");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report;

4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors:

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and have identified
for the Company's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and

6. The Company's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ NORMAN W. NOLEN
--------------------------------------
Norman W. Nolen
Executive Vice President, Treasurer
and Chief Financial Officer

Dated: March 5, 2003

73

EXHIBIT INDEX