Kirby Annual Report 2014

Plain-text annual report

Kirby Corporation 2014 Annual Report 2014 Quarterly Review (In thousands, except per share amounts) (Unaudited) First Quarter Revenues Net earnings* Earnings per share* EBITDA 2014 ________ $ 589,246 $ 62,246 1.09 $ $ 146,889 Change ________ ______ 2013 • Marine transportation inland and coastal ﬂeets demand strong with utilization $ 558,785 $ 56,578 $ 1.00 $ 139,946 5% 10% 9% 5% in the 90% to 95% range and favorable pricing trends • Diesel engine services land-based demand reﬂected modest improvement, while marine and power generation demand stable • Included a $.03 per share severance charge and an estimated $.03 per share combined impact from winter weather and expenses related to an incident in the Houston Ship Channel • 2013 included a $.05 per share credit to the fair value of United’s contingent earnout liability Second Quarter Revenues Net earnings* Earnings per share* EBITDA Third Quarter Revenues Net earnings* Earnings per share* EBITDA 2014 ________ $ 628,054 $ 74,992 1.31 $ $ 167,636 2014 ________ $ 680,721 $ 76,717 1.34 $ $ 170,090 Change ________ ______ 2013 • Marine transportation inland and coastal ﬂeets demand strong with utilization $ 563,908 $ 63,093 $ 1.11 $ 148,925 11% 19% 18% 13% in the 90% to 95% range and favorable pricing trends • Diesel engine services land-based demand strengthened as industry fundamentals improved, while marine and power generation demand reﬂected a modest improvement • 2013 included a $.07 per share credit to the fair value of United’s contingent earnout liability Change ________ ______ 2013 • Marine transportation inland and coastal ﬂeets demand strong with utilization $ 551,105 $ 69,123 $ 1.21 $ 159,464 24% 11% 11% 7% in the 90% to 95% range and favorable pricing trends • Diesel engine services land-based demand strengthened as industry fundamentals continued to improve, while marine and power generation demand stable • 2013 included a $.08 per share credit eliminating United’s contingent earnout liability Fourth Quarter Revenues Net earnings* Earnings per share* EBITDA 2014 ________ $ 668,297 $ 68,051 1.19 $ $ 157,946 Change ________ ______ 2013 $ 568,397 18% $ 64,267 $ 1.13 $ 149,414 6% 5% 6% • Marine transportation inland and coastal ﬂeets demand strong with utilization in the 90% to 95% range and pricing trends moderating for inland • Diesel engine services land-based demand strong; however, results negatively impacted by fourth quarter decline in crude oil prices that resulted in customers deferring deliveries and cancelling orders, coupled with production inefﬁciencies • Marine and power generation demand stable * Net earnings represent net earnings attributable to Kirby and earnings per share represents 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, 2014, included in this Annual Report and ﬁled with the Securities and Exchange Commission. On the Cover: A Kirby Inland Marine tow, consisting of a towboat and two pressure barges, follows a Kirby tow along the Gulf Intracoastal Waterway. Photo taken by James Bates, a Pilot for Kirby Inland Marine. 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, 2014 _________ 2013 _________ 2012 2011 _________ _________ 2010 _________ $ 1,770,684 795,634 _________ $ 2,566,318 _________ _________ $ 282,006 _________ _________ $ 1,713,167 529,028 _________ $ 2,242,195 _________ _________ $ 253,061 _________ _________ $ 1,408,893 $ 1,194,607 $ 915,046 703,765 655,810 _________ _________ $ 1,850,417 $ 2,112,658 _________ _________ _________ _________ $ 209,438 $ 183,026 _________ _________ _________ _________ 194,511 _________ $ 1,109,557 _________ _________ $ 116,249 _________ _________ $ 4.93 _________ _________ $ 4.44 _________ _________ $ 3.33 $ 3.73 _________ _________ _________ _________ $ 2.15 _________ _________ $ 282,006 21,461 169,782 169,312 _________ $ 642,561 _________ _________ $ 2,589,498 $ 4,141,909 $ 716,700 $ 2,264,913 $ 253,061 27,872 152,379 164,437 _________ $ 597,749 _________ _________ $ 2,370,803 $ 3,682,517 $ 749,150 $ 2,022,153 $ 209,438 24,385 127,907 145,147 $ 183,026 $ 116,249 17,902 109,255 10,960 72,258 126,029 _________ _________ $ 506,877 $ 436,212 _________ _________ _________ _________ 95,296 _________ $ 294,763 _________ _________ $ 2,315,165 $ 1,822,173 $ 1,118,161 $ 3,653,128 $ 2,960,411 $ 1,794,937 $ 1,135,110 $ 802,005 $ 200,134 $ 1,707,054 $ 1,454,158 $ 1,159,139 Revenues (In millions) Earnings Per Share EBITDA* (In millions) Return on Invested Capital** $2,566 $2,242 $2,113 $1,850 $4.93 $4.44 $3.73 $3.33 $643 $598 11.1% 10.6% 10.4% 9.3% 9.6% $507 $436 $1,110 $2.15 $295 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 * 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 operating 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). For 2010, adjusted to reﬂect average debt levels net of cash and cash equivalents. To Our Shareholders The 2014 year was our fourth consecutive year of record- pricing, as well as an unprecedented level of United States setting operating results. Our 2014 results reﬂected con- petrochemical plant construction and expansion of existing tinued strong inland and coastal marine transportation plants, should add signiﬁcant volumes to our future marine markets throughout the year, stable marine and power transportation markets. generation diesel engine service markets, and a brief The operating performance of our inland marine trans- but unsustained improvement in our land-based diesel portation operations remained strong throughout 2014, engine services market before crude oil prices fell during with utilization of our petrochemical, black oil and reﬁned the fourth quarter. products ﬂeets in the 90% to 95% range. The United Our 2014 revenues were $2.6 billion, a 14% increase States petrochemical industry continued to contribute compared with $2.2 billion in 2013. Net earnings were strong volumes from Gulf Coast plants for domestic $282 million, an 11% increase compared with $253 mil- consumption and to terminals for export destinations. lion in 2013. Earnings per share were $4.93, an 11% Favorable black oil demand continued to be driven by increase over $4.44 in 2013. EBITDA was $643 million, stable reﬁnery output and the movement of crude oil and an 8% increase compared with $598 million in 2013. natural gas condensate from United States shale forma- Our marine transportation segment carries a diversiﬁed tions. Reﬁned products demand also remained positive array of products for our many customers. This year, as throughout 2014, as exports of diesel fuel and heavy fuel part of our annual report, we have included a simpliﬁed oils remained brisk. chart that illustrates the variety of feedstocks, includ- Our coastal marine transportation operations reﬂected ing crude oil, natural gas condensate and natural gas, continued strong demand for the transportation of that go through the petrochemical and reﬁning process reﬁned products, black oil, including crude oil and natural to become ﬁnished products, as well as coal, salt and gas condensate, and petrochemicals. Fleet utilization ore as they impact the petroleum, chemical and reﬁning remained in the 90% to 95% range throughout 2014. The process. The chart highlights the importance of marine coastal market remained supply constrained throughout transportation to the United States petrochemical and 2014 and we continued to beneﬁt from price increases reﬁning industries, as numerous feedstocks, intermedi- on contract renewals. ates and end products are transported on a daily basis. We put capital to work in 2014 with both ﬂeet expan- Kirby Corporation provides a vital link in moving raw and sion and share repurchases. We spent $355 million on intermediate materials to facilities where they will ulti- capital additions and upgrades during 2014. We spent mately become ﬁnished products. $126 million for new inland tank barges and towboats, and For both our inland and coastal markets, today’s lower $138 million primarily for upgrading our existing marine energy prices are a net positive. In a consumer-driven transportation ﬂeet and ﬁnal payment on two offshore dry- economy, lower energy prices mean more money in the bulk barge and tugboat units completed in 2013. We also consumers’ hands, which is good for the economy and, spent $91 million on progress payments for two 185,000 therefore, positive for the volumes we transport. The long- barrel and two 155,000 barrel coastal articulated tank term fundamental drivers of our marine transportation barge and tugboat units scheduled for completion from markets are positive. With an abundant supply of United late 2015 through 2017. The four coastal units are more States shale formation natural gas and condensate, which fully described on page 13 of this annual report. are basic petrochemical feedstocks, the United States pet- During 2014, we took delivery of 61 new inland tank rochemical plants have a competitive advantage globally. barges. Net of inland tank barge retirements, we added Even at today’s lower crude oil price levels, natural gas approximately 500,000 barrels of inland ﬂeet capac- feedstock remains a signiﬁcantly lower priced feedstock ity during 2014. With these new inland tank barges, we option as compared with crude oil. Favorable natural gas continued to decrease the average age of our inland ﬂeet, 2 Kirby 2014 Annual Report from 23.9 years old in 2008 to 15.3 years old today. The Our Board of newer inland tank barge ﬂeet improves reliability and reduces Directors brings a maintenance costs. A table on page 11 of this annual report wealth of exper- shows the decline in the average age of our inland tank tise to Kirby and barge ﬂeet. In our diesel engine services segment, business we want to thank them for their sup- improved during 2014, but there were headwinds gather- port, guidance ing late in the year due to the collapse of crude oil pricing. and direction. We Through the third quarter of 2014, our land-based diesel are also pleased engine services market saw improving demand across its to note the nomi- entire oil services portfolio, including orders for the manu- nation of a new facture of new pressure pumping units and oil service director, Barry equipment, and increased demand for the remanufacture Davis, President of pressure pumping units, as well as increased service and CEO of and sale of engines and parts. With the signiﬁcant drop EnLink Midstream in crude oil prices in the fourth quarter, we experienced Partners, LP and some customer deferrals of new equipment deliveries until EnLink Midstream, 2015, cancellations of new equipment orders and requests LLC, who has David Grzebinski President and Chief Executive Ofﬁcer Joe Pyne Chairman for price reductions on new equipment. We continue to been nominated for election to our Board at our 2015 emphasize growth in the remanufacturing portion of this Annual Meeting of Stockholders on April 28, 2015. business and operating expense discipline to dampen the We also want to extend a special thank you to Bob earnings volatility in future oil and gas cycles. Gower, a Kirby Board member since 1998. Bob will retire Our marine diesel engine services market beneﬁted from from the Board at our April Annual Meeting, having served modest improvements in service activity and direct parts on our Board for 17 years. Bob’s wealth of petrochemical sales from its inland and offshore customers, as well as off- and ﬁnancial expertise, leadership and support contributed shore oil service and drilling customers. Our power genera- greatly to the growth of Kirby during his tenure on the Board. tion market remained stable as a result of engine generator While the 2015 year is beginning with some uncer- set upgrades and parts sales for both domestic and inter- tainty related to lower crude oil prices, we are very well national customers. positioned to continue to prosper and create value for our During the 2014 fourth quarter and early 2015, we took shareholders. The long-term fundamentals of both our advantage of a signiﬁcant reduction in the price of our marine transportation and diesel engine services segments common stock and initiated a share repurchase program. remain intact. Our balance sheet is very strong with a debt- From mid-December 2014 through February 2015, we to-capital ratio of 24.0% at year-end 2014. We will continue have repurchased approximately 1.4 million shares of our to be disciplined in our approach as we evaluate compet- common stock for $113 million, at an average price of ing alternatives for our allocation of capital. $78.72 per share. Our remaining repurchase authorization is currently 3.5 million shares. Respectfully submitted, We wish to thank each and every Kirby employee who contributed to making 2014 a record-setting year. We truly believe our marine transportation and diesel engines ser- vices employees are the best in the business. Joseph H. Pyne Chairman of the Board David W. Grzebinski President and Chief Executive Ofﬁcer Houston, Texas March 9, 2015 Marine Transportation The United States tank barge industry serves the inland waterways, consisting of the Mississippi River System and the Gulf Intracoastal Waterway, and coastal ports along all three coasts and in Alaska and Hawaii. The nation’s inland tank barge ﬂeet is comprised of approximately 3,650 liquid tank barges. We operate 890 inland tank barges, or 24% of the nation’s inland ﬂeet. The nation’s coastal tank barge ﬂeet, in the 195,000 barrels or less category, is comprised of approximately 260 liquid tank barges. We operate 69 coastal tank barges, or 27% of the nation’s coastal ﬂeet. We also operate six offshore dry-bulk cargo barges. Kirby Inland Marine is the United States’ largest inland tank barge operator, transporting petrochemicals, black oil, reﬁned petroleum products and agricultural chemicals throughout the Mississippi River System, Gulf Intracoastal Waterway and Houston Ship Channel. Kirby Offshore Marine is the United States’ largest coastal tank barge operator in the 195,000 barrels or less category, transporting petrochemicals, black oil and reﬁned petroleum products along all three coasts and in Alaska and Hawaii, as well as dry bulk cargoes along the Gulf Coast and East Coast. Our inland and coastal tank barge customers consist of the large petrochemical and reﬁning companies that operate in the United States, providing a critical link in customers’ supply chains, transporting and transferring bulk liquid products that keep plants and reﬁneries operating efﬁciently. The coastal dry-bulk ﬂeet’s customers primarily consist of a Florida utility, sugar producers and a concrete manufacturer. Revenues (In millions) Operating Income (In millions) Operating Margin $1,713 $1,771 $1,409 $1,195 $915 $312 $262 $193 $430 $408 23.8% 22.1% 24.3% 21.9% 21.1% 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 4 Kirby 2014 Annual Report A Kirby Inland Marine tow, the M/V Jeff Montgomery, an 1800 horsepower towboat, with two loaded 30,000 barrel tank barges, transits the Houston Ship Channel. Results of Operations for 2014 • Operating income of $430 million on revenues of $1.8 billion compared with operating income of $408 million on revenues of $1.7 billion for 2013. • Operating margin of 24.3% compared with 23.8% for 2013. • 68% of marine transportation revenues from inland • Fundamental drivers of inland and coastal marine transportation markets remained intact throughout 2014, the result of low-priced natural gas, which gives petrochemical producers a competitive advantage globally, and production of crude oil and natural gas condensate from United States shale formations. operations and 32% from coastal operations. • Inland transportation markets reﬂected consistent • 47% of revenues from transportation of petrochemicals, 25% black oil, 25% reﬁned petroleum products and 3% agricultural chemicals. • Higher revenues and operating income reﬂected consistent demand across all inland transportation markets with 90% to 95% equipment utilization levels and favorable pricing trends for majority of year. Coastal transportation markets reﬂected strong demand across all markets with 90% to 95% utilization and favorable pricing trends. volumes from United States petrochemical customers for both domestic and foreign destinations, steady reﬁnery production levels with strong volumes of reﬁned products and heavy fuel oils for export destinations, along with steady movements of crude oil and natural gas condensate along the Gulf Intracoastal Waterway and Mississippi River System. • Coastal transportation markets reﬂected consistent volumes of reﬁned products, crude oil and natural gas condensate, and petrochemicals, along with continued success in expanding the coastal customer base to inland customers with coastal transportation requirements. Kirby Provides a Vital Link in Converting Natural Resources to Finished Products On the adjacent page and foldout page is a simpliﬁed chart reﬂecting the movement of crude oil and natural gas condensate, natural gas, coal, salt and ore from their original composition, through the petrochemical and reﬁning process, to ﬁnished products. The chart reﬂects the numerous feedstocks, intermediates and end products that we transport on a daily basis throughout the Mississippi River System, the Gulf Intracoastal Waterway, coastwise along all three United States coasts and in Alaska and Hawaii. Crude oil and natural gas are the most important natural resources of the industrialized world. Crude oil is the primary source of fuel for vehicles, vessels, machinery and airplanes. It is used to generate heat, pave roads and provide fuel for utilities. Crude oil and natural gas components are used to manufacture almost all petrochemical products, such as plastics, polyester ﬁbers, textiles, paints and even pharmaceuticals. Petrochemical plants’ primary feedstocks are components of natural gas such as ethane, propane and butane, as well as by-products of the reﬁning process. These feedstocks are then processed through an operation known as cracking, the breaking down of heavy molecules into lighter, more valuable fractions. Once these operations are concluded, the building blocks of the petrochemical industry, oleﬁns and aromatics, are obtained. From these products, intermediate products such as cumene, styrene, propylene oxide and acrylonitrile are produced, leading to end products such as polyester, nylon, polyurethanes and polystyrene, products used in the manufacture of plastic products, clothing, adhesives, carpets and packaging products, just to name a few. Reﬁneries produce physical and chemical changes in crude oil and natural gas condensate through a distillation process, the separation of crude oil into lighter groups of hydrocarbons, producing gasoline blends, heating oil, diesel fuel and many other products, as well as feedstock for petrochemical plants. We provide a vital link in the production of petrochemicals, ensuring transportation of raw material feedstocks into the plants, movement of petrochemical products from one petrochemical plant to another for further processing, and movement of more ﬁnished products to manufacturing companies and to waterfront terminals for both domestic and foreign destinations. We transport gasoline blends and additives, diesel fuel and jet fuel from reﬁneries to waterfront terminals for both domestic and foreign destinations. Black oil, including crude oil and natural gas condensate, is transported to reﬁneries and waterfront terminals, residual fuel to utilities and asphalt to waterfront terminals. Agricultural chemicals are transported primarily to waterfront terminals in the Midwest. Kirby Corporation–Providing a Vital Link in Converting Natural Resources to Finished Products Kirby Corporation Fertilizer, Fungicides, Pesticides Sulfur This Would be a Subhead Explaining What This Is Sulfur Recovery Fuel Gas for Refinery Use REFINERY PROCESS NATURAL RESOURCES PETROCHEMICAL PROCESS Phosphoric Acid and Sulfuric Acid Products moved by Kirby Products not moved by Kirby Refinery process Home Heating, Cooking, Petrochemical Feedstock Propane Petrochemical Feedstock Benzene Aromatics Ethanol Chemical & Gasoline Reforming Naphtha Ore Salt (Brine) Coal Ammonia Electricity Caustic Soda Chlorine Methanol Olefins Petrochemical Feedstock p-Xylene (Paraxylene) Automobile Fuel Gasoline Blends Aviation Fuel, Home Heating, Lighting, Cooking Kerosene and Aviation Fuel Home Heating Heating Oil Fuel for Trucks, Automobiles, and Railroad, Marine and Farming Equipment Diesel Fuel Ship Fuel Bunker (Ship) Fuel Fuel for Manufacturing and Utilities Petroleum Coke Fuel for Utilities Residual Fuel Lube Oil, Motor Oil, Grease Road Construction, Roofing Fuel Oils Asphalt Tires Carbon Black Oil 6 Kirby 2014 Annual Report Alkylation Distillation Column Catalytic Cracking Natural Gas Vacuum Gas Distillates Vacuum Gas Oil (VGO) VAM - Vinyl Acetate Monomer EVA - Ethylene Vinyl Acetate PVC - Polyvinyl Chloride ABS - Acrylonitrile Butadiene Styrene DMT - Dimethyl Terephthalate PTA - Purified Terephthatic Acid Crude Oil and Natural Gas Condensate LPG Butane LPG Propane LPG Ethane Ethylene Propylene Butadiene Aromatics Benzene Xylene Titanium Dioxide Paint, Plastics, Paper Fertilizer Agriculture Use PVC, Aluminum, Paper, Soap, Detergent Industrial Use, Cleaning Solutions, Paper Sanitation, Disinfectant, PVC Resins MTBE Gasoline Blending (Export) EVA PVC Polyethylene Adhesives, Resins PVC Pipe, Electric Cable, Vinyl Siding, Furniture, Medical Supplies Packaging, Plastic Bags, Plastic Consumer Goods Ethylene Glycol Polyester Fibers, Plastics, Antifreeze Polystyrene ABS Packaging, Insulation, Plastic Consumer Goods, Food Service Ware Synthetic Rubber Appliances, Automotive Use, Medical Supplies, Pharmaceuticals Polyethylene Packaging, Bottles, Plastic Consumer Goods Acrylic Fibers Clothing, Carpet, Home Furnishings, Fabric VAM Acetic Acid Ethylene Dichloride Vinyl Chloride Alpha Olefins Ethylene Oxide Styrene Acrylonitrile Acrylic Acid Propylene Oxide Polyurethanes Furniture, Automotive Use, Insulation, Adhesives, Hard Plastic Parts Cumene Cyclohexane Phenol and Acetone Polycabonates, Epoxies, Adhesives, Pharmaceuticals Nylon Automotive Use, Carpet, Hosiery, Cords Ethylene Glycol DMT/PTA Polyester Polyester Fibers, Containers, Bottles, Textiles, Packaging, Resins Strengths Kirby Inland Marine has a signiﬁcant presence in the Mississippi River System, Gulf Intracoastal Waterway and Houston Ship Channel, giving us the ability to service our customers’ needs throughout the inland waterway system. Our inland ﬂeet consists of 890 tank barges with 17.9 million barrels of cargo capacity and 247 towboats. Our inland tank barge ﬂeet represents approximately 24% of the estimated 3,650 inland tank barges operating in the United States. We provide a critical link in customers’ supply chain, transporting and transferring bulk liquid products that keep plants and reﬁneries operating efﬁciently. At December 31, 2014, approximately 80% of inland revenues were under term contracts, of which approxi- mately 56% were under time charters, and approximately 20% of revenues were under spot contracts. Kirby Inland Marine Kirby Inland Marine is the leading United States transporter of bulk liquid cargoes by inland tank barge, offering distribution services throughout the Mississippi River System, Gulf Intracoastal Waterway and Houston Ship Channel. The United States inland waterway system is one of the most vibrant and efﬁcient transportation systems in the world, linking the heartland and coastal states to the rest of the world. We transport petrochemicals, black oil, reﬁned petroleum products and agricultural chemicals for a customer base consisting of the United States’ largest petrochemical and reﬁning companies. Texas and Louisiana currently account for approximately 80% of the total United States production of petrochemicals. Inland Tank Barge Fleet Petrochemicals/Reﬁned products 695 119 Black oil 61 Pressure 10 Anhydrous ammonia 5 Specialty Total 890 Total Barrel Capacity 17.9 MM Inland Towboat Fleet 800–1300 HP 1400–1900 HP 2000–2400 HP 2500–3200 HP 3300–4900 HP 5000 HP and greater Spot charters Total 88 82 47 16 11 2 1 247 A Kirby Inland Marine tow, consisting of the M/V Niceville and two pressure barges, transits the Gulf Intracoastal Waterway. Pressurized products include butane, propane, butadiene, isobutane and propylene, all requiring pressur- ized conditions to remain in stable liquid form. The picture was taken by James Bates, a Pilot for Kirby Inland Marine. 10 Kirby 2014 Annual Report Typical Products Transported Inland Tank Barge Construction Petrochemicals: benzene, styrene, methanol, acrylonitrile, xylene, caustic soda, butadiene, propylene, butane and propane Black Oil: residual fuel, fuel oils, vacuum gas oil, asphalt, carbon black feedstock, crude oil, natural gas condensate and ship bunkers Reﬁned Petroleum Products: ﬁnished gasoline, gasoline blendstock, aviation fuel, heating oil, diesel fuel, naphtha and ethanol Agricultural Chemicals: anhydrous ammonia, nitrogen- based liquid fertilizer and industrial ammonia During 2014, we continued to reinvest in our inland tank barge ﬂeet, spending approximately $126 million for 61 new inland tank barges. Since 2008, through our inland tank barge construction program, we have consistently reduced the average age of our inland tank barge ﬂeet from 23.9 years in 2008 to 15.3 years today (see table below). Crude oil and natural gas condensate volumes from new shale formations, increased reﬁnery output, petrochemical expansions and new petrochemical facilities have increased the need for barges in order to meet cus- tomer requirements. Inland Tank Barge Average Age by Year Year Barges 2014 2013 2012 2011 2010 2009 2008 890 861 841 819 825 863 914 Barrel Capacity (MM) 17.9 17.3 16.7 16.2 15.9 16.7 17.5 Average Age (Years) 15.3 16.2 17.7 18.9 20.3 22.2 23.9 Strengths Kirby Offshore Marine operates in the 195,000 barrels or less category, having the ﬂexibility to access ports inaccessible to larger vessels, while still delivering large volumes of products. Our coastal ﬂeet consists of 69 tank barges with 6.0 million barrels of cargo capacity and 74 tugboats. Our coastal tank barge ﬂeet represents approximately 27% of the estimated 260 coastal tank barges operating in the United States. Our offshore dry-bulk cargo ﬂeet consists of six dry-bulk barge and tugboat units. With a large array of tank barge capabilities and capaci- ties, as well as a broad geographic presence, we are able to provide a single source of transportation services to our petrochemical and reﬁning customers’ supply chain. As of December 31, 2014, approximately 85% of the coastal revenues were under term contracts, of which approximately 90% were under time charters, and approx- imately 15% of revenues were under spot contracts. Kirby Offshore Marine Kirby Offshore Marine is the leading United States transporter of bulk liquid cargoes by tank barge in the 195,000 barrels or less category, offering safe, dependable and cost-effective distribution services on the East, Gulf and West Coasts and in Alaska and Hawaii. We offer regional distribution of reﬁned products, black oil and petrochemicals for a customer base consisting of the United States’ largest reﬁning and petrochemical companies. Kirby Offshore Marine also transports raw sugar and other products from the Gulf Coast and Florida to East Coast ports. Through Kirby Ocean Transport, we transport coal across the Gulf of Mexico to a power generation facility in Florida and limestone rock from Florida across the Gulf of Mexico to Alabama. Coastal Tank Barge Fleet Reﬁned products/Petrochemicals 44 25 Black oil Total 69 Total Barrel Capacity 6.0 MM Coastal Tugboat Fleet 1000–1900 HP 2000–2900 HP 3000–3900 HP 4000–4900 HP 5000–6900 HP Greater than 7000 HP Total 8 6 15 24 12 9 74 Offshore Dry-Bulk Cargo Fleet Dry-bulk barge and tugboat units Deadweight tonnage 6 113,000 12 Kirby 2014 Annual Report Typical Products Transported New Construction Reﬁned Petroleum Products: ﬁnished gasoline, gasoline blendstock, aviation fuel, heating oil, diesel fuel, naphtha and ethanol Black Oil: residual fuel, fuel oils, vacuum gas oil, asphalt, carbon black feedstock, crude oil, natural gas condensate and ship bunkers Petrochemicals: cumene, phenol, acetone, cyclohexane and caustic soda Dry Products: sugar, coal, limestone rock and fertilizer With coastal tank barge utilization in the 90% to 95% range and increasing demand for the movement of crude oil and natural gas condensate, new capacity is needed to meet demand and also to replace older coastal tank barges and tugboats that will be removed from service in the coming years. During 2014, we announced the signing of contracts for the construction of four coastal articulated tank barge and tugboat units. Two of the units have been chartered to major customers for multiple years with extension options. The coastal tank barges have the capacity of moving crude oil, natural gas condensate, petrochemicals and reﬁned products. Speciﬁcs of the four coastal articulated tank barge and tugboat units currently under construction are as follows: Two 185,000 barrel coastal articulated tank barge and 10000 horsepower tugboat units, one for delivery in mid- to-late 2015 and one in the 2016 ﬁrst half. Cost of each unit is approximately $75 to $80 million. Two 155,000 barrel coastal articulated tank barge and 6000 horsepower tugboat units, one for delivery in the 2016 second half and one in the 2017 ﬁrst half. Cost of each unit is approximately $65 to $70 million. A Kirby Offshore Marine articulated coastal tank barge and tug- boat unit, the M/V Java Sea, a 4800 horsepower tugboat, and the DBL 78, an 80,000 barrel tank barge, transits the coastal waters of Alaska. Kirby Offshore Marine operates on the East, Gulf and West Coasts and in Alaska and Hawaii. Diesel Engine Services The marine transportation industry depends on diesel engines for propulsion of its vessels. The power generation industry depends on diesel engines for standby, peak and base load power generation. The oil and gas industry depends on diesel engines to power its oilﬁeld service equipment. We offer our customers a single source for the service and distribution of diesel engines and ancillary products, and the manufacture and remanufacture of oilﬁeld service equipment, including pressure pumping units. Kirby Engine Systems serves the marine and power generation industries, providing aftermarket service and OEM replacement parts for medium-speed and high-speed diesel engines, and ancillary products including reduction gears, transmissions, starters, governors and marine clutches, as well as the sale of new engines. United Holdings serves the land-based oil and gas industry, providing aftermarket service, OEM replacement parts and distribution of high-speed diesel engines, transmissions, pumps and compression products, and the manufacture and remanufacture of customized oilﬁeld service equipment. There is approximately 19.5 million horsepower, or 9,000 pressure pumping units, operating in the North America oilﬁeld service industry, and the heavy-duty cycle associated with hydraulic fracturing is creating an annuity for remanufacturing and servicing of pressure pumping units. Revenues (In millions) Operating Income (In millions) Operating Margin $704 $656 $529 $796 $68 $66 10.6% 10.4% 9.4% $60 $43 8.1% 7.5% $195 $21 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 14 Kirby 2014 Annual Report Results of Operations for 2014 • Operating income of $60 million on revenues of $796 million compared with operating income of $43 million on revenues of $529 million for 2013. • Operating margin of 7.5% compared with 8.1% for 2013. • 2013 results included an $18.3 million credit before taxes, or $.20 per share, reducing the fair value of the contingent earning liability associated with the acquisition of United Holdings in April 2011. The United Holdings earnout liability was eliminated as of September 30, 2013. • 72% of revenues from land-based operations and 28% from marine and power generation. • The land-based market saw improvement in the sale and service of land-based diesel engines and transmissions, and an increase in the manufacture of oilﬁeld service equipment, including pressure pumping units. However, the sharp decline in crude oil prices in late 2014 led to some customer deferrals and cancellations. Demand for the remanufacture of pressure pumping units remained relatively steady, increasing to some degree in the 2014 second half. Results were also negatively impacted by production inefﬁciencies related to supply chain issues and difﬁculties hiring qualiﬁed labor to meet demand. • The marine market saw modest improvement, beneﬁting from major service projects for inland and coastal marine customers, as well as Gulf of Mexico and foreign offshore oilﬁeld service vessels and drilling operators. The power generation market was stable, beneﬁting from major generator set upgrades and parts sales for both domestic and international power generation customers. Charles Billiot rebuilds high-speed diesel engine cylinder heads. Kirby Engine Systems provides service and parts through 13 locations along the Gulf Coast, East Coast, West Coast and in the Midwest. Kirby Engine Systems Kirby Engine Systems is a nationwide marine and power generation diesel engine services remanufacturer and OEM replacement parts provider for medium-speed and high-speed diesel engines. We service ancillary products including reduction gears, transmissions, starters, gover- nors, marine clutches, safety-related products and heat exchangers/separators, and we sell new engines. We pro- vide in-house and worldwide in-ﬁeld service in support of our domestic and international marine and power genera- tion customers’ day-to-day operations. The principal medium-speed diesel engines we service are manufactured by Electro-Motive Diesel, Inc. (EMD). We have a 49-year relationship with EMD, serving as both an EMD distributor and a service center for select markets and locations, providing service and parts. The principal high-speed diesel engines we service are manufactured by Caterpillar, Cummins, MTU Detroit Diesel and John Deere. Strengths We have long-term distributorships, dealerships and contract service center relationships with major manufac- turers of medium-speed and high-speed diesel engines, reduction gears and ancillary products. Further, we offer preferential service agreements with operators of diesel- powered marine equipment. Our team provides factory-trained and -authorized project engineers, mechanics and machinists through 13 strategically located service and parts facilities along the Gulf Coast, East Coast, West Coast and in the Midwest. 16 Kirby 2014 Annual Report Markets Service Locations Manufacturer Relationships Marine: Medium-speed and high-speed diesel engines and ancillary products for inland, coastal and offshore barge operators, harbor docking operators, Great Lakes ore carriers, offshore commercial ﬁshing ﬂeets, dredging companies, offshore drilling companies, offshore oil ser- vice company vessels, coastal ferries and United States government vessels. Power Generation: Medium-speed diesel engines, ancil- lary products, safety-related products used in standby, peak and base load power generation, and generator set upgrades for domestic and international utilities, domestic municipalities and the worldwide nuclear power industry. Medium-Speed Diesel Engines Houma, LA Paducah, KY Rocky Mount, NC Chesapeake, VA Seattle, WA Tampa, FL High-Speed Diesel Engines Houma, LA Baton Rouge, LA Belle Chasse, LA New Iberia, LA Mobile, AL Thorofare, NJ Houston, TX Medium-Speed Diesel Engines Electro-Motive Diesel, Inc. (EMD) Cooper-Bessemer & Enterprise Engines Nordberg High-Speed Diesel Engines Caterpillar MTU Detroit Diesel John Deere Cummins Ancillary Products Allison Transmission (transmissions) Falk Corporation (reduction gears) Ingersoll-Rand (starters) Woodward (governors) Oil States Industries (marine clutches) Alfa Laval (heat exchangers/separators) Lufkin (gears) Herbie Ackman adjusts rocker arm assemblies on a Caterpillar 3512 marine propulsion engine. Kirby Engine Systems serves as a factory-authorized marine dealer for Caterpillar diesel engines in Louisiana, Alabama, Kentucky, New Jersey and Texas. United Holdings Services Offered Strengths United Holdings provides factory-trained and -authorized mechanics to overhaul and repair high-speed diesel engines and transmissions, sells new engines, trans- missions and OEM replacement parts, and provides both in-house and in-ﬁeld service capabilities. We are a key partner with our customers in the areas of remanufacturing and service for the pressure pumping market. We design, manufacture and rebuild a range of oilﬁeld service equipment, including frac pumps, blenders, hydration units, nitrogen pumpers, cementers and coil tubing support equipment. We also design and manufacture air and natural gas compression equipment to support gas production, transmission and gathering systems. With an estimated 19.5 million horsepower of pressure pumping units (approximately 9,000 units) operating in North America, we focus on the remanufacture of exist- ing pressure pumping units, as well as the manufacture of new units and other oilﬁeld service equipment. We have long-standing regional distributorships with high-speed diesel engine manufacturers and serve as a distributor for Allison Transmission. Through 20 strategic locations across seven states, we have developed well-established customer relationships with oilﬁeld service providers, oil and gas operators and producers, and compression companies. 18 Kirby 2014 Annual Report Markets Locations Manufacturer Relationships Service and Distribution: Service and distribution facilities are centered in the United States shale production regions and transportation corridors. Drivers are the engines, transmissions and existing oilﬁeld service equipment, particularly pressure pumping units, used in the development of United States shale formations, and engines used in the transportation, power generation, agriculture and construction industries. Manufacturing: We manufacture a wide range of oilﬁeld service equipment supporting the development of the North American shale oil and gas market. Equipment includes pressure pumping units and supporting equipment, as well as cementers and coil tubing support equipment. Market also includes the manufacture of customized compression systems for the production, storage and pipeline transportation of natural gas. Manufacturing Oklahoma City, OK (6 locations) Henderson, CO Distribution and Service Oklahoma City, OK Tulsa, OK Little Rock, AR Shreveport, LA Billings, MT Amarillo, TX Austin, TX Houston, TX Laredo, TX Lubbock, TX Pharr, TX San Antonio, TX Casper, WY MTU Detroit Diesel Allison Transmission Daimler Trucks NA Detroit Diesel Isuzu Heil Tymco Cameron Dresser-Rand Waukesha FS-Elliott Gardner Denver GM Powertrain Thermo King A new pressure pumping unit manufactured at United Holdings’ Oklahoma City facility. United Holdings manufactures and remanufactures oilﬁeld service equipment, including pressure pumping units, nitrogen pumpers, cementers, hydration equipment, mud pumps and blenders. Board of Directors Richard J. Alario 1, 3 Chairman, President and CEO of Key Energy Services, Inc. Director since 2011 C. Sean Day 2, 3 Chairman of Teekay Corporation Director since 1996 Bob G. Gower 1, 2 Retired Chairman of Lyondell Petrochemical Company Director since 1998 David W. Grzebinski President and Chief Executive Ofﬁcer of Kirby Director since 2014 William M. Lamont, Jr. 2 Private Investor Director since 1979 Monte J. Miller 2, 3 Retired Executive Vice President, Chemicals, of Flint Hills Resources, LP Director since 2006 Joseph H. Pyne Chairman of the Board of Kirby Director since 1988 Richard R. Stewart 1 Retired President and CEO of GE Aero Energy Director since 2008 William M. Waterman 3 Retired President and CEO of Penn Maritime Inc. Director since 2012 1 Audit Committee 2 Compensation Committee 3 Governance Committee Ofﬁcers Kirby Corporation Marine Transportation Group Diesel Engine Services Group Kirby Engine Systems, Inc. Dorman Lynn Strahan President Mia C. Cradeur Vice President and Controller John A. Manno Vice President—Business Development Engine Systems, Inc. John A. Manno Vice President P. Scott Mangan Vice President—East Coast Marine Systems, Inc. Lynn A. Ahlemeyer Vice President—Gulf Coast and West Coast Thomas W. Bottoms Vice President—Midwest Troy A. Bourgeois Vice President—Sales United Holdings LLC Michael W. Coulter President Derek C. Cofﬁe Vice President—Finance and Controller Ronnie E. Stover Vice President—Sales Kirk K. Waite Chief Accounting Ofﬁcer United Engines David L. Tonne Vice President—Aftermarket UE Manufacturing Christopher J. Rinehart Vice President—Engineered Products Gregory L. Culp Vice President UE Compression G. Keith Kern Vice President Thermo King of Houston Jason K. Robison Vice President Joseph H. Pyne Chairman of the Board David W. Grzebinski President and Chief Executive Ofﬁcer C. Andrew Smith Executive Vice President and Chief Financial Ofﬁcer William G. Ivey President— Marine Transportation Group Joseph H. Reniers Senior Vice President, Diesel Engine Services and Marine Facility Operations Ronald A. Dragg Vice President and Controller Mark K. Forbes Vice President—Human Resources Amy D. Husted Vice President—Legal David R. Mosley Vice President and Chief Information Ofﬁcer Renato A. Castro Treasurer Thomas G. Adler Secretary Kirby Inland Marine, LP William G. Ivey President James C. Guidry Executive Vice President— Vessel Operations Christian G. O’Neil Executive Vice President— Commercial Operations Mel R. Jodeit Executive Vice President— Marketing Kirby Offshore Marine, LLC James F. Farley President James C. Guidry Executive Vice President— Vessel Operations Christian G. O’Neil Executive Vice President— Commercial Operations John W. Sansing, Jr. Senior Vice President— Maintenance John E. Russell Senior Vice President—Sales William M. Withers Senior Vice President—Sales John W. Sansing, Jr. Senior Vice President— Maintenance William M. Withers Senior Vice President—Sales Stephen C. Butts Vice President—Sales Patrick C. Kelly Vice President—Sales Richard C. Northcutt Vice President—Sales and Horsepower Management Lester A. Parker Vice President—River Vessel Operations Cliff R. Stanich Vice President—Sales Thomas H. Whitehead Vice President—Sales Carl R. Whitlatch Vice President and Controller Charles R. Ferrer, Jr. Vice President—Sales John T. Hallmark Vice President—Sales William L. Oppenheimer Vice President—Maintenance C. Linn Peterson Vice President—Vessel Operations Carl R. Whitlatch Vice President and Controller Kirby Ocean Transport Company Joseph H. Pyne President William M. Withers Vice President Osprey Line, L.L.C. John T. Hallmark President Charles J. Duet Vice President 20 Kirby 2014 Annual Report Common Stock Market Price Sales Price High Low $ 82.91 $ 70.89 $106.93 $ 92.86 $117.18 $ 96.00 $124.12 $114.11 $117.78 $ 78.84 $ 78.04 $ 61.41 $ 82.84 $ 71.44 $ 89.19 $ 79.15 $ 99.41 $ 82.16 2015 First Quarter (through March 9, 2015) 2014 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter 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 Mary E. Tucker, Assistant Controller, at Kirby’s corporate headquarters, e-mail Mary.Tucker@kirbycorp.com, or visit Kirby’s web site at www.kirbycorp.com. Shareholder Information Annual Meeting The 2015 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 28, 2015. 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) 575-2879 Web site: www.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 Mary E. Tucker, Assistant Controller, 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 9, 2015, there were 55,703,000 common shares outstanding held by approximately 800 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, 2009, in stock or index, including reinvestment of dividends. Fiscal year ended December 31. 12/09 12/10 12/11 12/12 12/13 12/14 Kirby Corporation 100.00 126.47 189.03 177.69 284.96 231.81 Russell 2000 100.00 126.86 121.56 141.43 196.34 205.95 Dow Jones US Marine Transportation 100.00 114.31 119.25 131.43 195.54 155.17 $300 $200 $100 0 09 10 11 12 13 14 (cid:81) Kirby Corporation (cid:81)(cid:3)Russell 2000 (cid:81)(cid:3)Dow Jones US Marine Transportation Kirby Corporation Corporate Headquarters: 55 Waugh Drive, Suite 1000, Houston, Texas 77007 Mailing Address: P. O. Box 1745, Houston, Texas 77251-1745 Telephone: (713) 435-1000 Fax: (713) 435-1010 Web Site: www.kirbycorp.com

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