Kirby Annual Report 2010

Plain-text annual report

Kirby Corporation 2010 Annual Report 2010 QUARTERLY REVIEW (In thousands, except per share amounts) (Unaudited) FIRST QUARTER Revenues* Net earnings** $ 268,253 $ 277,661 $ 24,674 $ 28,006 Earnings per share** $ .46 $ .52 EBITDA $ 66,158 $ 70,553 2010 ___________________________________ 2009 __________________________________ Change __________________________ (cid:115) Marine transportation demand improved, driven by higher volumes from (3)% (12)% (12)% (6)% petrochemical customers and plant outages (cid:115) Term contracts renewed on average 10% lower and spot contracts up 3% to 6% compared with 2009 fourth quarter (cid:115) Diesel engine services marine markets remained weak as customers continued to defer major maintenance projects (cid:115) Charge for early retirements and staff reductions of $.05 per share included in both 2010 and 2009 quarter SECOND QUARTER 2010 ___________________________________ 2009 __________________________________ Change __________________________ (cid:115) Marine transportation demand stable, above all 2009 quarters, with barge Revenues* Net earnings** $ 273,669 $ 272,743 $ 29,268 $ 33,719 Earnings per share** $ .54 $ .63 EBITDA $ 73,141 $ 80,051 – % (13)% (14)% (9)% utilization in mid to high 80% range (cid:115) Term contract renewals stable and spot contracts up 2% to 3% compared with 2010 ﬁrst quarter (cid:115) Diesel engine services marine markets remained weak, particularly the Gulf Coast oil services market THIRD QUARTER 2010 ___________________________________ 2009 __________________________________ Change __________________________ Revenues* Net earnings** $ 281,317 $ 272,166 $ 30,687 $ 35,014 Earnings per share** $ .57 $ .65 EBITDA $ 76,783 $ 84,550 3 % (12)% (12)% (9)% (cid:115) Marine transportation demand for petrochemical and black oil products improved modestly, with barge utilization in the mid to high 80% range (cid:115) Term contract renewals stable and spot contracts ﬂat compared with 2010 second quarter (cid:115) Diesel engine services power generation market stronger, offset by weak marine markets, particularly the Gulf Coast oil services market FOURTH QUARTER Revenues* Net earnings** 2010 ___________________________________ 2009 __________________________________ Change __________________________ $ 286,318 $ 259,588 10 % $ 31,620 $ 29,202 Earnings per share** $ .59 $ .54 EBITDA $ 78,681 $ 73,855 8 % 9 % 7 % (cid:115) Marine transportation demand for petrochemical and black oil products continued to modestly improve, with barge utilization in the high 80% range (cid:115) Term contract renewals in some cases modestly higher and spot contracts ﬂat to slightly positive compared with 2010 third quarter (cid:115) Diesel engine services power generation market strong, offset by continued weak Gulf Coast oil services market (cid:115) 2009 quarter included a charge of $.05 per share, primarily for shore staff reductions * Higher diesel fuel prices resulted in higher 2010 marine transportation revenues associated with the pass through of diesel fuel to customers through fuel escalation and de-escalation clauses in term contracts when compared with 2009. ** Net earnings represent net earnings attributable to Kirby and earnings per share represent diluted earnings per share attributable to Kirby common stockholders. Statements made in this Annual Report with respect to the future are forward-looking statements. These statements reﬂect Management’s reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors. Forward-looking statements are based on currently available information and Kirby assumes no obligation to update any such statements. A list of these factors can be found in Kirby’s Annual Report on Form 10-K for the year ended December 31, 2010, included in this Annual Report and ﬁled with the Securities and Exchange Commission. Cover: The crew of the M/V Daytona, a Kirby Inland Marine 4600 horsepower towboat, prepares a tow of nine loaded tank barges for a trip up the Mississippi River with multiple destinations. On the back cover is the M/V Delos Case, a Kirby Inland Marine 1200 horsepower chartered towboat. FINANCIAL HIGHLIGHTS (In thousands, except per share amounts) Revenues: Marine transportation Diesel engine services Net earnings attributable to Kirby Net earnings per share attributable to Kirby common stockholders (diluted) EBITDA–Earnings before interest, taxes, depreciation and amortization:* Net earnings attributable to Kirby Interest expense Provision for taxes on income Depreciation and amortization EBITDA* Property and equipment, net Total assets Long-term debt, including current portion Total equity For the years ended December 31, 2010 _________ 2009 _________ 2008 _________ 2007 _________ 2006 _________ $ 915,046 $ 881,298 $ 1,095,475 $ 928,834 $ 807,216 194,511 _________ $ 1,109,557 _________ _________ $ 116,249 _________ _________ 200,860 _________ $ 1,082,158 _________ _________ $ 125,941 _________ _________ 264,679 _________ $ 1,360,154 _________ _________ $ 157,168 _________ _________ 243,791 _________ $ 1,172,625 _________ _________ $ 123,341 _________ _________ 177,002 _________ $ 984,218 _________ _________ $ 95,451 _________ _________ $ 2.15 _________ _________ $ 2.34 _________ _________ $ 2.91 _________ _________ $ 2.29 _________ _________ $ 1.79 _________ _________ $ 116,249 $ 125,941 $ 157,168 $ 123,341 $ 95,451 10,960 72,258 11,080 78,020 14,064 97,444 20,284 76,491 15,201 58,751 95,296 _________ $ 294,763 _________ _________ 93,968 _________ $ 309,009 _________ _________ 91,199 _________ $ 359,875 _________ _________ 80,916 _________ $ 301,032 _________ _________ 64,396 _________ $ 233,799 _________ _________ $ 1,118,161 $ 1,085,057 $ 990,932 $ 906,098 $ 766,606 $ 1,794,937 $ 1,635,963 $ 1,526,098 $1,430,475 $ 1,271,119 $ 200,134 $ 200,239 $ 1,159,139 $ 1,056,095 $ $ 247,307 893,555 $ $ 297,383 772,807 $ $ 310,362 635,013 REVENUES (In millions) $1,360 $1,173 $984 $1,082 $1,110 EARNINGS PER SHARE EBITDA* (In millions) $2.91 $2.29 $2.34 $2.15 $360 $301 $309 $295 $1.79 $234 RETURN ON INVESTED CAPITAL** 14.8% 13.2% 12.2% 11.2% 10.6%*** 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 * EBITDA, deﬁned as net earnings attributable to Kirby before interest expense, taxes on income, depreciation and amortization, is a non-GAAP ﬁnancial measure used by Kirby because of its wide acceptance as a measure of oper- ating proﬁtability before nonoperating expenses (interest and taxes) and noncash charges (depreciation and amortization). ** Return on invested capital is deﬁned as net earnings attributable to Kirby plus interest expense (net of taxes) divided by total average invested capital (average equity plus average debt). *** Adjusted to reﬂect average debt levels net of cash and cash equivalents for 2010. 1 TO OUR SHAREHOLDERS Kirby performed well during 2010, a year that was character- ized by continued economic uncertainty across the United States and globally. The favorable performance was driven by the positive impact of removing signiﬁcant costs out of our businesses through cost reduction initiatives we implemented in 2009 and 2010, and the improvement in petrochemical and black oil products volumes for both domestic consump- tion and export as the year progressed. For 2010, Kirby reported revenues of $1.1 billion, net earnings of $116.2 million and earnings per share of $2.15. The results include a ﬁrst quarter charge of $4.1 million be- fore taxes, or $.05 per share, for early retirements and staff reductions. Since our peak headcount in October 2008, we have reduced the size of our shore staff by 24% through early retirements, staff reductions and employee attrition. We believe these reductions are sustainable, assuming our tank barge ﬂeet size remains the same. Cash ﬂow remained strong throughout 2010, with net cash provided by operating activities of $245.2 million, sig- niﬁcantly exceeding our capital needs. This strong cash ﬂow was used for capital expenditures of $136.8 million and the repurchase of 618,000 shares of Kirby stock for $23.8 mil- lion at an average price of $38.48 per share. We continued to build cash and cash equivalents on our balance sheet, totaling $195.6 million at the end of 2010. As a result of our strong balance sheet, our debt is rated investment grade by Moody’s, Standard & Poor’s and Fitch. Our outstanding debt at the end of 2010 was predominately the $200 million in senior notes that matures in 2013. Our debt-to-capitalization ratio was 14.7% at December 31, 2010. However, the debt-to-capitalization ratio net of cash was close to zero, at 0.4% Our marine transportation’s petrochemical market improved steadily during 2010. Low-priced natural gas, a basic feedstock for the U.S. petrochemical industry, signiﬁcantly improved the competitiveness of the U.S. petrochemical industry. As a result, U.S. petrochemical volumes, volumes that we transport between processing plants and domestic waterfront terminals for domestic use or for foreign destinations, improved as the year progressed. This improvement in volumes resulted in an increase in our petrochemical ﬂeet tank barge utilization to the high 80% level during the second half of 2010. The black oil products market also improved as the year progressed, driven by shipments of reﬁnery feedstock and intermediates between domestic reﬁneries and plants supporting both normal and turnaround operations, and by U.S. exports of diesel fuel and heavy fuel oil during the second half of 2010. The marine transportation operating margin was 21.1% in 2010 compared with 23.6% for 2009. The lower mar- gin reﬂects the continued impact of lower term and spot contract rate renewals that rolled through in 2009 and the ﬁrst half of 2010, as well as a 29% increase in fuel costs. These were partially offset by the beneﬁts of our ongoing cost reductions and efﬁciency initiatives. In fact, our ability to maintain operating margins of 20% plus in this economic environment reﬂects our success in reducing costs while continuing to operate safely and efﬁciently and remaining focused on our customers’ needs. Our diesel engine services business continued to be nega- tively impacted by U.S. economic weakness during 2010 with revenues, operating income and operating margin consistent with 2009. The power generation market performed well with engine-generator set upgrade projects, direct parts sales and new engine sales above 2009 levels. The majority of our Gulf Coast oil services market remained weak all year as custom- ers continued to defer major maintenance projects. With 20% to 25% of our diesel engine services revenues historically associated with the Gulf Coast oil services industry, the Gulf Coast drilling moratorium, new safety regulations on Gulf Coast drilling operators and delays in issuing offshore drill- ing permits placed additional pressure on an already weak market. The segment’s operating margin for 2010 was 10.6% compared with 10.5% for 2009. Our ability to maintain a 10% plus operating margin, despite the large percentage of the business tied to the Gulf Coast oil services market, reﬂects the emphasis placed in 2009 and 2010 on reducing costs and focusing on the stronger diesel engine services markets. As noted earlier, capital expenditures during 2010 were $136.8 million. We took delivery of 53 new 10,000 barrel tank barges, four 30,000 barrel tank barges and three new 1800 horsepower towboats for $74.3 million. These new tank barges, plus six chartered tank barges, added 800,000 barrels of capacity to our barge ﬂeet. However, during 2010 we retired 89 older tank barges and returned 12 chartered barges, reducing our ﬂeet capacity by 1.6 million barrels. As a result, our net tank barge capacity declined 800,000 barrels during 2010 to 15.9 million barrels compared with 16.7 million barrels at the beginning of 2010. In addition to builiding new equipment, we also expended $62.5 million primarily on upgrades to our existing marine transportation ﬂeet. Due to our tank barge construction program and the acceleration of older tank barge retirements, we were able to reduce the average age of our ﬂeet. In December 2007, the average age of a tank barge in our ﬂeet was 24.0 years. Today, the average age is 20.3 years. Our younger ﬂeet improves our reliability and ﬂexibility, and reduces the main- tenance costs of the ﬂeet. 2 For 2011, we plan to continue our barge replacement program as shipyard prices are attractive. Capital expendi- tures for 2011 are projected to be in the $185 to $195 million range, including $100 million for the construction of 40 new tank barges, or 1.1 million barrels of capacity, and three new 1800 horsepower towboats. Based on current economic conditions, we are forecasting that by the end of 2011 our tank barge capacity will have increased only slightly, as we will continue to remove older barges from our ﬂeet. We are also projecting expending $85 to $95 million in 2011, primarily on upgrades to our marine transportation ﬂeet. Kirby has been ﬁnancially disciplined over the past several years and enters 2011 with a very strong balance sheet that can be used to take advantage of acquisition opportunities in both our core businesses. In February 2011, we completed the acquisition of the ship bunkering operations of Enterprise Marine Services LLC for approximately $53.2 million in cash. The asset purchase consisted of 21 tank barges and 15 tow- ing vessels. The ship bunkering operation provides transpor- tation and delivery services for ship bunkers (engine fuel) to cruise ships, container ships and freighters, primarily in Miami, Port Everglades, Cape Canaveral and Tampa, Florida, Mobile, Alabama, and Houston, Texas. We also completed in Febru- ary the purchase of a 51% interest in a Houston Ship Channel barge shifting and barge ﬂeeting facility for $4.1 million. These two completed acquisitions are discussed in more detail on page 8. Also in February 2011, we announced the signing of an agreement to purchase United Holdings LLC, a distribu- tor and service provider of engine and transmission related products for the oil and gas services, power generation and transportation industries, and a manufacturer of oilﬁeld service equipment. The base purchase price is $270 million in cash, before post-closing adjustments, plus a provisional three-year earnout for up to an additional $50 million pay- able in 2014. This pending acquisition is discussed in more detail on page 14. In March 2011, we announced the signing of an agree- ment to acquire K-Sea Transportation Partners L.P., an operator of tank barges and towing vessels participating in the transportation of reﬁned petroleum products in the U.S. coastwise trade. The total value of the consideration is approximately $600 million, before post-closing adjustments and fees, and will consist of cash and Kirby common stock. K-Sea’s ﬂeet, consisting of 58 offshore tank barges with 3.8 million barrels of capacity and 63 tugboats, transports reﬁned petroleum products along the U.S. East, West and Gulf Coasts, and in Alaska and Hawaii. This pending acqui- sition is discussed in more detail on page 8. industry-wide disci- pline with respect to tank barge capacity, the environment for higher industry-wide pricing during 2011 is positive. Low natu- ral gas prices, a key feedstock for the U.S. petrochemical industry, signiﬁcantly enhances the global competitiveness of the U.S. petrochemi- cal industry and may ultimately lead to higher petrochemical production, as well as petrochemical plant expansions, both of which would lead to increased volumes for the inland tank barge industry. Additionally, our 2011 out- look for the diesel engine services market is also favorable, driven by a strong power generation market and an im- proved marine market, including a projected slow recovery of the Gulf Coast oil services market as 2011 progresses. Finally, we believe that our sustained success is due to the efforts of our marine transportation and diesel engine services employees, and I wish to thank each and every Kirby employee who contributes on a daily basis to our suc- cess. I also want to thank our Board of Directors and our shareholders for their continued direction and support, and add a special note of thanks to Rod Clark, a Board member since 2008, for his service to Kirby. Rod will retire from the Kirby Board in April. We believe that with the continued sup- port of our employees, Board members and shareholders, combined with Kirby’s strong ﬁnancial condition, we will continue to prosper and create value for our shareholders. Joe Pyne Chairman, President and Chief Executive Ofﬁcer Respectfully submitted, Joseph H. Pyne Chairman, President and Chief Executive Ofﬁcer Based on the current strength of the U.S. petrochemical industry, higher industry-wide utilization levels and continued Houston, Texas March 15, 2011 3 MARINE TRANSPORTATION AT A GLANCE S E R V I C E S O F F E R E D (cid:115) Kirby Inland Marine is the leading United States transporter of bulk liquid products by tank barge throughout the Mississippi River System, Gulf Intracoastal Waterway and Houston Ship Channel. (cid:115) Kirby transports petrochemicals, black oil products, reﬁned petroleum products and agricultural chemicals for the United States’ largest petrochemical and reﬁning companies. S T R E N G T H S (cid:115) Kirby’s ﬂeet consists of 846 inland tank barges, comprising 16.4 million barrels of cargo capacity, and 238 inland towboats, representing approximately 27% of the United States inland tank barge ﬂeet. (cid:115) A “One-Stop Shop” for customers, Kirby provides a critical link in customers’ supply chains, transporting and transferring bulk liquid products that keep plants and reﬁneries operating efﬁciently. (cid:115) Kirby’s ﬂeet size, distribution system and communication systems allow for lower costs through economies of scale by matching tank barges, towboats, products and destinations more efﬁciently, resulting in backhaul opportunities, faster turnarounds, more efﬁcient use of horsepower and barges positioned closer to cargoes. (cid:115) Approximately 75% of Kirby’s business is under term contracts, of which approximately 50% are under time charters, while 25% of business is in spot contracts. (cid:115) Kirby places a strong emphasis on safety, with a motto of “Safety Is Our Franchise to Operate.” M A R K E T S (cid:115) Petrochemicals: Contributed 69% of 2010 marine transportation revenue. Bulk liquid products transported include benzene, styrene, methanol, acrylonitrile, xylene, caustic soda, butadiene and propylene, products used in the manufacture of both consumer nondurable goods (70%) and consumer durable goods (30%). (cid:115) Black Oil Products: Contributed 18% of 2010 marine transportation revenue. Bulk liquids transported include residual fuel oil, coker feedstock, vacuum gas oil, asphalt, carbon black feedstock, crude oil and ship bunkers. Drivers of the products include fuel for power plants and ships, feedstock for reﬁneries, certain durable goods and road construction. The M/V Daytona pushes a nine barge tow of loaded tank barges up the Mississippi River near Baton Rouge, Louisiana. Loaded tank barges are staged in the Baton Rouge area from Gulf Coast petrochemical plants and reﬁneries and are transported from Baton Rouge to waterfront terminals and plants on the Mississippi, Illinois and Ohio Rivers. 4 (cid:115) Reﬁned Petroleum Products: Contributed 8% of 2010 marine transportation revenue. Products transported include gasoline, No. 2 oil, jet fuel, heating oil, diesel fuel and naphtha. Drivers of the products are vehicle usage, air travel, weather conditions and reﬁnery utilization. (cid:115) Agricultural Chemicals: Contributed 5% of 2010 marine transportation revenue. Products transported include anhydrous ammonia, nitrogen-based liquid fertilizer and industrial ammonia. Drivers of the products are the agricultural economy, including the production of corn, cotton and wheat, and chemical feedstock usage. R E S U L T S O F O P E R A T I O N S F O R 2010 (cid:115) Operating income of $192.8 million on revenue of $915.0 million compared with operating income of $208.1 million on revenue of $881.3 million for 2009. (cid:115) Operating margin of 21.1% compared with 23.6% for 2009. (cid:115) Higher revenue for 2010 was a reﬂection of improved tank barge demand and utilization, primarily the result of higher petrochemical production volumes throughout 2010, and a 29% increase in diesel fuel prices for 2010 compared with 2009. (cid:115) Lower operating income and operating margin for 2010 were primarily a reﬂection of lower contract rates negotiated throughout 2009 and early 2010, partially offset by modestly higher tank barge utilization and cost reduction initiatives implemented throughout 2009 and 2010. TANK BARGE FLEET (ACTIVE) Petrochemical/Reﬁned products Black oil products Pressure Anhydrous ammonia Specialty Total 635 133 62 11 5 846 Total Barrel Capacity 16.4 MM TOWBOAT FLEET (ACTIVE) Less than 800 hp 800–1300 hp 1400–1900 hp 2000–2400 hp 2500–3200 hp 3300–4900 hp 5000 hp and greater Spot charters Total 1 103 84 21 16 10 2 1 238 REVENUES (In millions) $1,095 $929 $915 $881 $807 OPERATING INCOME (In millions) $245 $196 $208 $193 $153 OPERATING MARGIN 23.6% 22.4% 21.1% 21.1% 19.0% 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 5 DIESEL ENGINE SERVICES AT A GLANCE S E R V I C E S O F F E R E D (cid:115) Kirby Engine Systems is the leading United States service remanufacturer and replacement parts provider, as well as an ancillary products provider for gears, transmissions, starters, governors and marine clutches, for medium- speed and high-speed diesel engines and reduction gears. (cid:115) Services three distinct markets: marine, power generation and railroad applications. S T R E N G T H S (cid:115) Largest service area of any United States diesel engine services provider with 15 strategically located service and parts facilities. (cid:115) Provides an essential service to support the day-to-day operations of its marine, power generation and railroad customers. (cid:115) Has long-term distributorships, dealerships and contract service center relationships with major manufacturers of diesel engines, reduction gears, transmissions, starters, governors and marine clutches. (cid:115) Employs over 235 factory-trained and authorized project engineers, mechanics and machinists, providing both in- house and worldwide in-ﬁeld service. M A R K E T S (cid:115) Marine: Contributed 65% of 2010 diesel engine services revenue. Market includes engines, gears and transmissions on inland and offshore towing vessels, harbor docking tugs, offshore oilﬁeld service vessels, onshore and offshore oil and gas drilling rigs, commercial ﬁshing ﬂeets, dredging vessels, commercial ferries and Great Lakes ore carriers. (cid:115) Power Generation: Contributed 27% of 2010 diesel engine services revenue. Market includes engines used in standby, peak and base load power generation and pumping stations. 6 (cid:115) Railroad: Contributed 8% of 2010 diesel engine services revenue. Market includes engines and non-engine locomotive components for shoreline, industrial, Class II and certain transit (passenger) railroads. R E S U L T S O F O P E R A T I O N S F O R 2 010 (cid:115) Operating income of $20.6 million on revenue of $194.5 million compared with operating income of $21.0 million on revenue of $200.9 million for 2009. (cid:115) Operating margin of 10.6% compared with 10.5% for 2009. (cid:115) Continued weak Gulf Coast oil services market resulted in lower labor utilization as customers continue to defer major maintenance projects, exacerbated by the new safety regulations in Gulf Coast drilling operations and the delays in issuing offshore drilling permits. (cid:115) Power generation service levels increased with higher engine-generator set upgrades in the second half of 2010. (cid:115) Beneﬁted from cost reduction initiatives implemented throughout 2009 and 2010. SERVICE LOCATIONS MANUFACTURER RELATIONSHIPS Medium-Speed Diesel Engines Houma, LA (2 locations) Chesapeake, VA Paducah, KY Rocky Mount, NC Seattle, WA Tampa, FL High-Speed Diesel Engines Houma, LA Baton Rouge, LA Belle Chasse, LA Houston, TX Lake Charles, LA Mobile, AL Morgan City, LA New Iberia, LA Medium-Speed Diesel Engines Electro-Motive Diesel, Inc. Alco Cooper-Bessemer Nordberg High-Speed Diesel Engines Caterpillar Detroit Diesel MTU Cummins John Deere Ancillary Products Allison Transmission (transmissions) Twin Disc (transmissions) Falk Corporation (reduction gears) Ingersoll-Rand (starters) Woodward Governor (governors) Oil States Industries (marine clutches) REVENUES (In millions) $265 $244 $177 OPERATING INCOME (In millions) $39.6 $37.9 OPERATING MARGIN 14.9% 15.6% 15.0% $201 $195 $26.4 10.5% 10.6% $21.0 $20.6 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 Jerry Boudreaux, a Kirby Engine Systems medium- speed mechanic, rebuilds a 1000 horsepower Electro- Motive 8-645E propulsion engine for a locomotive customer. In-house service is provided through 15 service and parts facilities, consisting of the refurbishment or rebuilding of engines, gears and transmissions, and the direct sales of OEM replacement parts. 7 MARINE TRANSPORTATION In early 2011, we completed two service enhancing acquisitions, the purchase of a ship bun- kering operation on February 24 and the purchase of a 51% interest in a shifting and ﬂeeting facility on February 9. In addition, on March 13 we announced the signing of an agreement to purchase a major operator of tank barges and towing vessels participating in the transporta- tion of reﬁned petroleum products in U.S. coastwise trade. 20 11 M A R I N E T R A N S P O R T A T I O N A C Q U I S I T I O N S On February 24, 2011, we completed the acquisition of the ship bunkering operations of Enterprise Marine Services LLC for approximately $53.2 million in cash. The assets pur- chased consist of 21 inland and offshore tank barges and 15 towboats and tugboats that provide transportation and delivery services for ship bunkers (engine fuel) to cruise ships, container ships and freighters primarily in the Miami, Port Everglades and Cape Canaveral, Florida, area, the three largest cruise ship ports in the United States, as well as Tampa, Florida, Mobile, Alabama, and Houston, Texas. The acquired vessels and operations, imme- diately accretive to Kirby’s earnings, expanded our marine transportation footprint in Florida, as well as expanded our existing Houston Ship Channel ship bunkering operation. The ac- quired tank barges are relatively new, with an average age of seven years, and the large ma- jority of the vessels are under time charter agreements ranging from two to three years. We also purchased on February 9, 2011, a 51% interest in a shifting operation and ﬂeeting facility for dry cargo barges and tank barges on the Houston Ship Channel for $4.1 million in cash. This acquisition is complementary to Kirby’s existing Houston Ship Channel ﬂeeting assets and shifting services, providing barge storage capabilities closer to certain customers’ docks. A G R E E M E N T T O A C Q U I R E K- S E A T R A N S P O R T A T I O N P A R T N E R S L. P. On March 13, 2011, we announced the signing of an agreement to acquire K-Sea Trans- portation Partners L.P., an operator of tank barges and tugboats participating in the coast- wise transportation primarily of reﬁned petroleum products in the U.S. The total value of the transaction is approximately $600 million, before post-closing adjustments and fees, and will consist of cash, Kirby common stock and the reﬁnancing of K-Sea debt. K-Sea’s ﬂeet, consisting of 58 tank barges with a capacity of 3.8 million barrels and 63 tugboats, oper- ates along the East Coast, West Coast and Gulf Coast of the U.S., as well as in Alaska and Hawaii. K-Sea’s tank barge ﬂeet, 54 of which are doubled hulled, has an average age of ap- proximately nine years and is one of the youngest ﬂeets in the coastwise trade. K-Sea’s cus- tomers include major oil companies and reﬁners, many of which are current Kirby customers for inland tank barge services. Headquartered in East Brunswick, New Jersey, K-Sea has major operating facilities in New York, Philadelphia, Norfolk, Seattle and Honolulu. The acqui- sition of K-Sea is a great foundation from which to expand our liquid transportation business into the U.S. Jones Act coastwise trade by extending Kirby’s tank barge service to our cus- tomers with U.S. coastwise transportation requirements. Under the terms of the agreement, the total value of the transaction is approximately $600 million, consisting of $335 million for K-Sea’s equity and the reﬁnancing of $265 million of K-Sea debt. K-Sea’s common and preferred unitholders will receive $8.15 per unit in consider- ation in the form of cash and Kirby common stock. K-Sea’s common unitholders will have the election to receive for each common unit either $8.15 in cash or $4.075 in cash and 0.0734 of a share of Kirby common stock. K-Sea’s preferred unitholders will receive for each preferred unit $4.075 in cash and 0.0734 of a share of Kirby common stock. K-Sea’s general partner will receive $8.15 in cash for each general partner unit and $18 million in cash for its incentive dis- tribution rights. The closing of the transaction is expected to occur in June or July 2011. 8 During 2010, Kirby Inland Marine moved over 51 million tons of liquid cargoes on the Mississippi River System and the Gulf Intracoastal Waterway. Inland barge transporta- tion is one of the safest modes of transportation in the United States. It generally involves less urban exposure than railroads or trucks and operates on a system with relatively fewer crossing junctions and in areas relatively remote from population centers. 9 NAVIGATION SAFETY – “BETWEEN THE STICKS” Navigation safety is a critical element in Kirby’s transportation service, ensuring that our customers’ liquid cargos are transported along the waterways efﬁciently and without inci- dent. Continuous improvement of navigation safety is also a core Kirby objective and a key requirement of our customers. Kirby’s wheelmen, our Captains and Pilots, understand navigation safety is a condition of standing watch on a Kirby vessel. A ﬂawless watch is a 24/7 expectation. To achieve a ﬂawless watch requires a high degree of leadership, as well as talent, skill and the study and mastery of the challenges of inland waterway navigation. Our process for selecting and training wheelhouse personnel, and continuously working to improve their perfor- mance, ensures that Kirby’s wheelmen deliver as well as set the standard for navigation safety. B E T W E E N T H E S T I C K S Navigation safety occurs in an environment that we call “Between the Sticks,” when the wheelman standing watch maneuvers a tow, consisting of a towboat and one or more tank barges, on a waterway. First and foremost, a wheelman must continuously monitor his environment, consciously focusing on maintaining an “effective lookout” around the tow at all times. The Kirby wheel- man must understand and respond to ever-changing navigation conditions, while ensuring that the tow properly and safely advances and maneuvers within the conﬁnes of the inland waterways and restrictive channels. To meet these navigational challenges, the wheelman must utilize modern wheelhouse instrumentation to fully understand the effects of the “invisibles,” the state of the wind, water and currents, and how those detected “invisibles” are affecting the tow. While near other ves- sels and locks, the wheelman must also be alert to issues of vessel-to-vessel hydrodynamic interaction, collision avoidance and overall risk management. A P P R E N T I C E S T E E R S M A N T R A I N I N G P R O G R A M New wheelmen are developed through Kirby’s apprentice steersmen training program. This program selects outstanding employees rising in the Kirby ranks as well as qualiﬁed gradu- ates from maritime academies. The apprentice steersmen training program requires a mini- mum of 30 months to fully complete and ensures the mastery of three essential skill sets: watchkeeping, maneuvering and vessel signaling. Our apprentice steersmen program in- cludes classroom study, augmented with wheelhouse simulator-based assessments and real time wheelhouse training on Kirby’s towboats, supervised by Kirby’s experienced Captains. U S I N G T H E S I M U L A T O R F O R S T E E R S M E N T R A I N I N G While it is essential that a steersman have as much time as possible to learn on a vessel, the addition of the Vessel Training Simulator to our Training Center has allowed us to provide fo- cused, repetitive practice of challenging and difﬁcult-to-schedule tasks in a managed setting. The Vessel Training Simulator features four large screen monitors to provide a real wheel- house feel in a land-based controlled environment. Entering the simulator, one has the feel of stepping into a wheelhouse, complete with the rumbling noise of the engines and the slight vibration in the ﬂoor. A steersman might have few opportunities to practice narrow channel maneuvering on a towboat; however, using the simulator, a steersman can learn through repe- tition and improvement while under the supervision and guidance of an experienced wheelman how to handle even the most difﬁcult of situations. Our apprentice steersmen training program is producing skilled wheelmen capable of commanding a Kirby towboat. Kirby’s training programs have received United States Coast Guard approval and are the most advanced and effective in the promotion of navigation safety in the inland maritime industry. 10 Pushing multiple barges safely along the United States inland waterways requires skills, knowledge and a commitment to navigation safety. William Battise, the Relief Captain on the M/V Daytona, maneuvers a tow consisting of nine loaded tank barges on the Mississippi River near Baton Rouge, Louisiana. 11 TANK BARGE AND TOWBOAT CONSTRUCTION, MEETING THE DEMANDS OF OUR CUSTOMERS One of the keys to successfully serving the inland marine transportation needs of our custom- ers is a well maintained and ﬂexible tank barge and towboat ﬂeet. Investments we make in our existing ﬂeet, coupled with our ﬂeet construction program, position Kirby well for the future, en- suring a safe and well-maintained ﬂeet to meet the volume demands of our customers. For many years, Kirby has closely monitored the industry’s tank barge ﬂeet age and capac- ity compared with industry demand. In order to maintain our customer service levels, we imple- mented a formal, future focused, pro-active tank barge ﬂeet management and replacement program in 1999. The intent of the program was to position the ﬂeet to respond to increases and reduction in demands. The program’s ﬂexibility was demonstrated from 2004 to 2008, as Kirby responded to increased customer demand using a combination of new construction and reinvestment of capital in existing equipment to meet increasing customer volumes. With the United States and global economic recession starting in 2008 and a corresponding decline in industry-wide tank barge utilization during 2009 and 2010, we retired older tank barges that required higher maintenance expenditures, thereby reducing the annual cost of maintaining our ﬂeet. Our cash ﬂow was used for the construction of new tank barges rather than for mainte- nance of older tank barges. Also during 2009 and 2010, reduced prices for steel on the supply side, combined with excess shipyard capacity, signiﬁcantly reduced the cost of new tank barge construction. Kirby used this time to renew our ﬂeet. T A N K B A R G E C O N S T R U C T I O N During 2009 and 2010, we took delivery of 100 new tank barges and retired 189, many of which were smaller capacity, non-standard size barges, reducing our overall capacity by 1.6 million barrels. For 2011, we expect the delivery of 40 new tank barges and we will retire an estimated 48 tank barges, resulting in a net addition of approximately .3 million barrels of capacity. For 2012 and forward, based on the current economic environment, our plan is to match tank barge retirements with new construction. The result of our tank barge construction program and the retirement of older tank barges is a reduction in the average age of our ﬂeet. As of December 31, 2007, the average age of a tank barge in our ﬂeet was 24.0 years. Today, the average age is 20.3 years. Our goal is to systemati- cally upgrade our tank barge ﬂeet while maintaining our leading position in the markets we serve. Beginning in 2006, the design of our petrochemical and reﬁned products ﬂeet was changed to 6 psi (six pounds). This change eliminates fugitive emissions of high vapor pressure cargoes during periods of hot weather. We worked closely with a number of our suppliers in the redesign of our tank barges, thereby improving the overall barge design and increasing the strength of the appendages. We currently operate 119 of these 6 psi tank barges, the only inland marine trans- portation company building its tank barges to that pressure rating. T O W B O A T C O N S T R U C T I O N Fleet replacement also includes towboats. In 2006, we began a towboat construction pro- gram with the delivery of four 2100 horsepower, 90 foot class towboats. Between 2007 and 2010, we took delivery of twelve 1800 horsepower, 76 foot class towboats. The new tow- boats are state-of-the-art designed to match the service requests of our customers, replac- ing older, lower horsepower towboats that required higher maintenance costs. The engines are fuel efﬁcient and environmentally friendly, and the wheelhouses are designed for im- proved visibility with full view windows and ergonomically designed consoles. These vessels were also built with a focus on safety and crew comfort. Crew habitability was signiﬁcantly improved with enhanced living spaces and reductions in noise. We will take delivery of two additional 1800 horsepower, 86 foot towboats in 2011, and one early in 2012. 12 Two Kirby Inland Marine 30,000 barrel tank barges under construction at the West Gulf Marine shipyard in Galveston, Texas. Kirby took delivery of 57 new tank barges and three new 1800 horsepower towboats during 2010, and new construction commitments for 2011 include 40 tank barges and three 1800 horsepower towboats. 13 DIESEL ENGINE SERVICES Kirby Engine Systems provides diesel engine services and remanufactured and replacement parts for medium-speed and high-speed diesel engines, gears and transmissions, a service that is essential to the day-to-day operations of marine companies, power generation facili- ties and railroads. Through three operating subsidiaries, Marine Systems, Inc., Engine Sys- tems, Inc. and Rail Systems, Inc., we provide both in-house and worldwide in-ﬁeld service and offer our customers a single source for all their engines, gears and transmissions service and parts requirements. The distributorship, dealership and contract service center relation- ships we have developed with the manufacturers of medium-speed and high-speed diesel engines and ancillary products are one of the major keys to our success. D I S T R I B U T O R S H I P S , D E A L E R S H I P S A N D C O N T R A C T S E R V I C E C E N T E R R E L A T I O N S H I P S The principal medium-speed diesel engines we service are those manufactured by Electro- Motive Diesel, Inc. (“EMD”). We have a 45-year relationship with EMD, currently serving as the authorized distributor in 17 Eastern states and the Caribbean, the worldwide distributor for parts to the nuclear industry, and the U.S. distributor to the shortline, industrial and cer- tain transit and Class II railroads. We also operate contract service centers in the Gulf Coast, Midwest and West Coast regions. In the high-speed market, we operate factory-authorized service dealerships for Cummins, Detroit Diesel, MTU and John Deere diesel engines. We also operate factory- authorized marine dealerships for Caterpillar in Alabama, Kentucky, Louisiana and Texas. The Texas dealership was awarded to Kirby in June 2010. We also have dealer and distributor relationships with gear and transmission manufacturers such as Falk, Lufkin, Allison, Twin Disc and Reintjes that complement the high-speed and medium-speed engine operations. A N N O U N C E D A C Q U I S I T I O N O F U N I T E D H O L D I N G S L LC On February 21, 2011, we announced the signing of an agreement to purchase United Hold- ings LLC, a distributor and service provider of engines and transmission related products for the oil and gas services, power generation and transportation industries. The base purchase price is $270 million in cash, before post-closing adjustments, plus a provisional three-year earnout for up to an additional $50 million payable in 2014. United, headquartered in Oklahoma City, Oklahoma, with 21 locations across 13 states, distributes and services equipment and parts for Allison Transmission, MTU Detroit Diesel Engines, Daimler Trucks North America, and other diesel and natural gas engines. United also manufactures oilﬁeld service equipment, in- cluding hydraulic fracturing equipment. United’s principal customers are oilﬁeld service compa- nies, oil and gas operators and producers, compression service companies and transportation companies. The closing of the acquisition is expected to occur in April 2011. With the expansion of the North America shale gas market due to the high amount of shale gas reserves, United is a logical extension of our diesel engine service business into the land based diesel engine and transmission services business. United manufactures hydraulic fracturing units and services their components, which include high-speed diesel engines, transmissions and pumps, many of the same components used by our marine cus- tomers. With an estimated 10 million horsepower employed in the North America hydraulic fracturing business, and with signiﬁcant additional horsepower forecast to be added in the future, United is well positioned to beneﬁt from a strong land based services market going forward, especially in the servicing and parts distribution of engines and transmissions used in the oil and gas industry. 14 Allen Ledet, a Kirby Engine Systems high-speed mechanic, rebuilds a 825 horsepower Caterpillar 3412-7BL propulsion engine for a marine customer. Kirby employs over 235 factory-trained and authorized project engineers, mechanics and machinists, providing in-house and worldwide in-ﬁeld service. 15 BOARD OF DIRECTORS James R. Clark 4 Retired President and COO of Baker Hughes Incorporated Director since 2008 William M. Lamont, Jr. 1, 3, 4 Private Investor Director since 1979 Monte J. Miller 3 Retired Executive Vice President, Chemicals, of Flint Hills Resources, LP Director since 2006 Richard R. Stewart 2 Retired President and CEO of GE Aero Energy Director since 2008 C. Berdon Lawrence 1 Chairman Emeritus of Kirby Director since 1999 David L. Lemmon 2 Retired President and CEO of Colonial Pipeline Company Director since 2006 George A. Peterkin, Jr. 1 Chairman Emeritus of Kirby Director since 1973 Joseph H. Pyne 1 Chairman of the Board, President and Chief Executive Ofﬁcer of Kirby Director since 1988 1 Executive Committee 2 Audit Committee 3 Compensation Committee 4 Governance Committee KIRBY INLAND MARINE, LP Gregory R. Binion President James F. Farley Executive Vice President— Operations William G. Ivey Executive Vice President— Marketing James C. Guidry Senior Vice President—Vessel Operations Mel R. Jodeit Senior Vice President—Sales Patrick C. Kelly Vice President—Kirby Logistics Management C. Gene Moore Vice President—River Vessel Operations Richard C. Northcutt Vice President—Trafﬁc Christian G. O’Neil Vice President—Sales C. Linn Peterson Vice President—Florida Bunkering Operations John E. Russell Senior Vice President—Sales John W. Sansing, Jr. Vice President—Maintenance William M. Withers Senior Vice President—Sales Cliff R. Stanich Vice President—Sales Stephen C. Butts Vice President—Sales Thomas H. Whitehead Vice President—Sales Robert D. Goolsby Vice President—Facility Operations Carl R. Whitlatch Vice President and Controller KIRBY OCEAN TRANSPORT COMPANY KIRBY ENGINE SYSTEMS, INC. Joseph H. Pyne President Dorman Lynn Strahan President William M. Withers Vice President Mia C. Cradeur Vice President and Controller OSPREY LINE, L.L.C. John T. Hallmark President Charles J. Duet Vice President David H. Farrar Vice President—Procurement and Distribution John A. Manno Vice President—Business Development Engine Systems, Inc. John A. Manno Vice President P. Scott Mangan Vice President—East Coast and West Coast Marine Systems, Inc. Lynn A. Ahlemeyer Vice President—Gulf Coast Thomas W. Bottoms Vice President—Midwest and Mobile Troy A. Bourgeois Vice President—Sales Rail Systems, Inc. John A. Manno Vice President C. Sean Day 3, 4 Chairman of Teekay Corporation Director since 1996 Bob G. Gower 1, 2, 3 Retired Chairman of Lyondell Petrochemical Company Director since 1998 OFFICERS KIRBY CORPORATION Joseph H. Pyne Chairman of the Board, President and Chief Executive Ofﬁcer David W. Grzebinski Executive Vice President and Chief Financial Ofﬁcer Ronald A. Dragg Vice President and Controller G. Stephen Holcomb Vice President—Investor Relations Amy D. Husted Vice President—Legal David R. Mosley Vice President and Chief Information Ofﬁcer Joseph H. Reniers Vice President—Human Resources Renato A. Castro Treasurer Thomas G. Adler Secretary 16 COMMON STOCK MARKET PRICE 2011 First Quarter (through March 11, 2011) 2010 First Quarter Second Quarter Third Quarter Fourth Quarter 2009 First Quarter Second Quarter Third Quarter Fourth Quarter Sales Price High Low $57.43 $43.29 $38.77 $43.96 $43.33 $45.78 $31.16 $36.32 $39.16 $37.28 $30.83 $36.60 $35.78 $39.25 $19.46 $25.93 $28.71 $32.30 FINANCIAL AND INVESTOR RELATIONS Copies of Kirby’s Form 10-K (which is incorporated in this Annual Report) are available free of charge. Either contact G. Stephen Holcomb, Vice President– Investor Relations, at Kirby’s corporate headquarters, e-mail Steve.Holcomb@ kirbycorp.com, or visit Kirby’s web site at www.kirbycorp.com. SHAREHOLDER INFORMATION ANNUAL MEETING The 2011 Annual Meeting of Stockholders will be held at Kirby’s Houston ofﬁce, 55 Waugh Drive, 9th Floor, Houston, Texas 77007, at 10:00 a.m. (CDT), Tuesday, April 26, 2011. CORPORATE HEADQUARTERS Executive Ofﬁce: 55 Waugh Drive, Suite 1000 Houston, Texas 77007 Telephone: (713) 435-1000 Fax: (713) 435-1010 Web site: www.kirbycorp.com Mailing Address: P.O. Box 1745 Houston, Texas 77251-1745 INQUIRIES REGARDING STOCK HOLDINGS Registered shareholders (shares held in owner’s name) should address communica- tions concerning address changes, lost certiﬁcates and stock transfers to: Computershare Trust Company, N.A. P.O. Box 43078 Providence, Rhode Island 02940-3078 Telephone: (781) 575-2897 Web site: http://computershare.com Beneﬁcial shareholders (shares held in the name of banks or brokers) should address communications to their banks or stockbrokers. All other inquiries should be addressed to G. Stephen Holcomb, Vice President– Investor Relations, at Kirby’s corporate headquarters. WEB SITE For more investor information, as well as information about Kirby, visit Kirby’s web site at www.kirbycorp.com. INDEPENDENT REGISTERED ACCOUNTANTS KPMG LLP BG Group Place 811 Main Street, Suite 4500 Houston, Texas 77002 COMMON STOCK INFORMATION Stock trading symbol—KEX The New York Stock Exchange is the principal market for Kirby’s common stock. As of March 1, 2011, there were 53,668,000 common shares outstanding held by approximately 830 registered shareholders. The number of registered shareholders does not reﬂect the number of beneﬁcial owners of common stock. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Return on $100 invested on December 31, 2005, in stock or index, including reinvestment of dividends. Fiscal year ended December 31. 12/05 12/06 12/07 12/08 12/09 12/10 Kirby Corporation 100.00 130.84 178.19 104.89 133.53 168.87 Dow Jones US Marine Transportation 100.00 101.12 118.86 55.97 69.84 79.43 Russell 2000 100.00 118.37 116.51 77.15 98.11 124.46 $225 $150 $75 0 05 06 07 08 09 10 (cid:81) Kirby Corporation (cid:81)(cid:3)Dow Jones US Marine Transportation (cid:81) Russell 2000 Kirby Corporation Corporate Headquarters: 55 Waugh Drive, Suite 1000, Houston, Texas 77007 Mailing Address: P. O. Box 1745, Houston, Texas 77251-1745 (713) 435-1000 Fax: (713) 435-1010 Web site: www.kirbycorp.com

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