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

FORM 10-K
(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 1-7615

KIRBY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



NEVADA 74-1884980
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1775 ST. JAMES PLACE, SUITE 200 77056-3453
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 629-9370

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



NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------

Common Stock -- $.10 Par New York Stock Exchange
Value Per Share


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

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

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

As of March 5, 1997, 24,265,036 shares of common stock were outstanding.
The aggregate market value of common stock held by nonaffiliates of the
registrant, based on the closing sales price of such stock on the New York Stock
Exchange on March 4, 1997 was $383,856,046. For purposes of this computation,
all executive officers, directors and 10% beneficial owners of registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such executive officers, directors and 10% beneficial owners are
affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of the Stockholders to be held April 15, 1997, to be filed with the
Commission pursuant to Regulation 14A, is incorporated by reference into Part
III of this report.
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PART I

ITEM 1. BUSINESS

THE COMPANY

Kirby Corporation (the "Company") was incorporated January 31, 1969 in
Nevada as a subsidiary of Kirby Petroleum Co. In 1975, pursuant to the plan of
liquidation of Kirby Industries, Inc. ("Industries"), Kirby Petroleum Co., which
was then a wholly owned subsidiary of Industries, transferred to the Company in
1975 substantially all of its nonproducing oil and gas acreage, royalty
interests and interests in oil and gas limited partnerships. The Company became
publicly owned on September 30, 1976, when its common stock was distributed pro
rata to the stockholders of Industries in connection with the liquidation of
Industries. In September 1984, the Company changed its name from "Kirby
Exploration Company" to "Kirby Exploration Company, Inc." and in April 1990, the
name was changed from "Kirby Exploration Company, Inc." to "Kirby Corporation."

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

On October 15, 1996, the Company's common stock began trading on the New
York Stock Exchange ("NYSE") under the same trading symbol "KEX". The Company
and its predecessor company, Industries, had traded on the American Stock
Exchange ("AMEX") since 1957.

The Company's principal executive office is located at 1775 St. James
Place, Suite 200, Houston, Texas 77056, and its telephone number is (713)
629-9370. The Company's mailing address is P.O. Box 1745, Houston, Texas
77251-1745.

BUSINESS AND PROPERTY

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

The Company's marine transportation segment is operated through two
divisions, organized around the markets each serves: the Inland Division,
engaged in the inland transportation of industrial chemicals, petrochemical
feedstocks, agricultural chemicals and refined petroleum products by tank barge;
and the Offshore Division, engaged in the offshore transportation of refined
petroleum products by tanker and tank barge, and dry-bulk, container and
palletized cargoes by barge and break-bulk ship. The Company's marine
transportation divisions are strictly providers of transportation services and
do not assume ownership of any of the products they transport. All of the
Company's vessels operate under the U.S. flag and are qualified for domestic
trade under the Jones Act.

The Company's diesel repair segment is engaged in the sale, overhaul and
repair of diesel engines and related parts sales in three distinct markets: the
marine market, providing aftermarket service for vessels powered by large,
medium speed diesel engines utilized in the various inland and offshore marine
industries; the locomotive market, providing aftermarket service for the
shortline and the industrial railroad markets; and the stationary market,
providing aftermarket service for small power generation applications and
standby generation components of the nuclear industry.

The Company has a 47% voting common stock investment in a property and
casualty insurance company operating exclusively in the Commonwealth of Puerto
Rico. Such investment is accounted for under the equity method of accounting
effective July 1, 1995.

The Company and its transportation and diesel repair subsidiaries have
approximately 1,925 employees, all of which are in the United States.

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



YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- ------- -------

Revenues from unaffiliated customers:
Transportation......................................... $311,076 335,913 316,367
Diesel repair.......................................... 45,269 50,538 70,422
Insurance.............................................. 65,812 45,239(*) --
Other.................................................. 10,980 8,460 3,849
-------- ------- -------
Consolidated revenues.......................... $433,137 440,150 390,638
======== ======= =======
Operating profits:
Transportation......................................... $ 30,890 40,148 47,245
Diesel repair.......................................... 3,090 3,400 5,376
Insurance.............................................. 5,035 3,971(*) --
Impairment of long-lived assets........................ -- (17,500) --
-------- ------- -------
39,015 30,019 52,621
Equity in earnings of insurance affiliate.............. -- 1,599(*) 2,171
Equity in earnings of marine affiliates................ -- 2,638 3,912
Other income........................................... 1,051 1,732 3,849
General corporate expenses............................. (4,386) (5,284) (5,786)
Interest expense....................................... (8,835) (12,511) (13,349)
-------- ------- -------
Earnings before taxes on income................ $ 26,845 18,193 43,418
======== ======= =======
Identifiable assets:
Transportation......................................... $397,112 384,363 380,181
Diesel repair.......................................... 21,304 22,401 48,012
Insurance.............................................. 216,666 --(*) --
-------- ------- -------
635,082 406,764 428,193
Investment in insurance affiliate...................... -- 44,785(*) 44,554
Investments in marine affiliates....................... 181 11,985 12,697
General corporate assets............................... 32,209 34,550 39,086
-------- ------- -------
Consolidated assets............................ $667,472 498,084 524,530
======== ======= =======


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

(*) The Company changed its method of reporting its investment in Universal from
a consolidated basis to the equity method of accounting effective July 1,
1995.

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MARINE TRANSPORTATION

The Company is engaged in marine transportation as a provider of service
for both the inland and offshore markets. As of March 5, 1997, the equipment
owned or operated by the Company's inland and offshore transportation divisions
was composed of 513 tank barges, 124 inland towboats, six inland bowboats, seven
offshore tankers, two offshore tank barges, six offshore dry cargo barges, two
offshore break-bulk ships, nine offshore tugboats and seven harbor tugboats,
with the following specifications and capacities:



NUMBER AVERAGE AGE BARREL
CLASS OF EQUIPMENT IN CLASS (IN YEARS) CAPACITIES
------------------ -------- ----------- ----------

Inland Fleet:
Inland tank barges:
Regular double skin:
20,000 barrels and under........................... 245 21.6 2,816,000
Over 20,000 barrels................................ 150 15.1 4,080,000
Specialty double skin................................. 28 22.2 451,000
Single skin:
20,000 barrels and under........................... 32 27.0 537,000
Over 20,000 barrels................................ 58 24.9 1,486,000
--- ---- ---------
Total inland tank barges...................... 513 22.2 9,370,000
=== ==== =========
Inland towing vessels:
Inland towboats:
2,000 horsepower and under......................... 93 22.2
Over 2,000 horsepower.............................. 31 22.9
--- ----
Total inland towboats......................... 124 22.5
=== ====
Inland bowboats....................................... 6 20.9
=== ====




DEADWEIGHT
TONNAGE
----------

Offshore Fleet:
Tankers................................................. 7 30.6 244,400
=== ==== =========
Tank barges............................................. 2 22.5 38,300
=== ==== =========
Offshore break-bulk ships............................... 2 18.5 31,000
=== ==== =========
Offshore dry cargo barges(*)............................ 6 20.3 106,000
=== ==== =========
Offshore tugboats(*).................................... 9 21.3
=== ====
Harbor tugboats......................................... 7 21.6
=== ====


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

(*) Includes four barges and five tugboats owned by Dixie Fuels Limited and one
barge and tugboat owned by Dixie Fuels II, Limited, partnerships in which a
subsidiary of the Company owns a 35% and 50% interest, respectively.

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The following table sets forth the marine transportation revenues and
percentage of such revenues derived from the two divisions for the periods
indicated (dollars in thousands):



YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
REVENUES BY PRODUCT OR OPERATION AMOUNTS % AMOUNTS % AMOUNTS %
-------------------------------- -------- --- -------- --- -------- ---

Inland Division:
Chemicals................................ $141,390 46% $173,407 52% $176,235 56%
Refined products......................... 67,251 22 68,952 20 66,341 21
-------- --- -------- --- -------- ---
Total inland revenues............ 208,641 68 242,359 72 242,576 77
-------- --- -------- --- -------- ---
Offshore Division:
Liquid petroleum products................ 56,612 18 49,421 15 64,031 20
Dry-bulk................................. 10,112 3 20,702 6 3,059 1
Break-bulk............................... 40,474 13 26,658 8 9,661 3
-------- --- -------- --- -------- ---
Total offshore revenues.......... 107,198 34 96,781 29 76,751 24
-------- --- -------- --- -------- ---
Intercompany transactions.................. (4,763) (2) (3,227) (1) (2,960) (1)
-------- --- -------- --- -------- ---
Total transportation............. $311,076 100% $335,913 100% $316,367 100%
======== === ======== === ======== ===


MARINE TRANSPORTATION INDUSTRY FUNDAMENTALS

The United States possesses a long coastline providing numerous ports and
harbors, complemented by a network of interconnected rivers and canals that
serve the nation as water highways. Recognizing the advantages to commerce, over
the past decades the United States expanded and improved on its inherent natural
waterways for commerce and growth. The waterway system extends into numerous
states, with over 90% of the United States population served by domestic
shipping.

Today, the nation's waterways serve as the backbone of the United States
distribution system with over 1.1 billion short tons of cargo moved annually by
domestic shipping. The inland water system extends approximately 26,000 miles,
11,000 miles of which are generally considered significant for domestic
commerce. Marine transportation is an efficient means of transportation of bulk
products. An average inland tank barge carries the equivalent cargo of 15 rail
cars or 60 tractor trailer trucks. A typical Mississippi River tow of 30 barges
carries as much cargo as 450 rail cars or 1,800 trucks.

Based on cost, marine transportation is the most efficient means of
transportation of bulk products compared with rail and trucks. Inland water
transportation carries approximately 15% of domestic intercity freight at less
than 2% of domestic intercity freight costs. Inland barge transportation is also
the safest mode of transportation per ton mile in the United States. The United
States inland tank barge industry is diverse and independent with a mixture of
small operators, integrated transportation companies and captive fleets owned by
United States refining and petrochemical companies.

INLAND TANK BARGE INDUSTRY

The Company's Inland Division operates within the United States inland tank
barge industry, which provides marine transportation of liquid bulk cargoes for
customers along the United States inland waterway system. Among the most
significant segments of this industry are the transporters of industrial
chemicals, petrochemical feedstocks, agricultural chemicals and refined
petroleum products. The Company operates in each of these segments. The use of
marine transportation by the petroleum and petrochemical industry is a major
reason for the location of domestic refineries and petrochemical facilities on
navigable inland waterways and along the Gulf Coast. Much of the United States
farm belt is likewise situated within access to the inland waterway system,
relying on marine transportation of farm products, including agricultural
chemicals. The Company's principal distribution system encompasses the Gulf
Intracoastal Waterway, from Brownsville, Texas to St. Marks, Florida, the
Mississippi River System and the Houston Ship Channel. The Mississippi

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River System includes the Arkansas, Illinois, Missouri, Ohio and Tennessee
Rivers and the Tombigbee Waterway.

The Company believes that the total number of tank barges that operate in
the inland waters of the United States has declined from an estimate of
approximately 4,200 in 1981 to approximately 2,900 in 1996. The Company believes
this decrease primarily resulted from: increasing age of the domestic tank barge
fleet resulting in scrapping; rates inadequate to justify new construction;
reduction in financial and tax incentives which previously encouraged
speculative construction of new equipment; stringent operating standards to
adequately cope with safety and environmental risk; and an increase in
environmental regulations that mandate expensive equipment modification which
some owners are unwilling or unable to undertake given current rate levels and
the age of their fleet.

Although well maintained tank barges can be efficiently operated for more
than 30 years, the cost of hull work for required annual Coast Guard
certifications, as well as general safety and environmental concerns, force
operators to periodically reassess their ability to recover maintenance costs.
Previously, tax and financing incentives to operators and investors to construct
tank barges, including short life tax depreciation, investment tax credits and
government guaranteed financing, led to growth in the supply of domestic tank
barges to a peak of approximately 4,200 in 1981. These tax incentives have since
been eliminated, although the government guaranteed financing programs, dormant
since the mid eighties, have recently been more active. The supply of tank
barges resulting from the earlier programs has slowly aligned with demand for
tank barge services, primarily through attrition, as discussed above.

While the United States tank barge fleet has decreased in size, domestic
production of petrochemicals, a major component of the industry's revenues, has
continued to increase annually. Growth in the economy, continued growth of the
United States population and the continued substitution of plastics and
synthetics in a wide variety of products have been major factors behind the
increase of capacity in the petrochemical industry. Texas and Louisiana, which
are within the Company's area of operations, currently account for approximately
80% of the total United States production of petrochemicals.

The Company believes that the supply and demand for inland tank barges is
approaching balance, with temporary shortages of equipment seen as recently as
the 1994 petrochemical boom. As stated above, a well maintained tank barge will
be serviceable for more than 30 years. The average age of the nation's tank
barge fleet is 25 years, with only 14% of the fleet built in the last 10 years.
Single skin barges comprise approximately 20% of the nation's tank barge fleet,
with an average age of 27 years. These single skin barges are being driven from
the nation's fleet by market forces, environmental concerns and rising
maintenance costs.

The Company also believes that the current consolidating industry will be
less prone to overbuilding of the nation's tank barge fleet. Of the approximate
400 tank barges built since 1989, 70 or 18% were built by the Company. The
balance was primarily special purpose barges or barges constructed for specific
contracts. Currently, the only significant building is by a major oil company to
replace its aging captive fleet.

COMPETITION IN THE INLAND TANK BARGE INDUSTRY

The Company operates in the highly competitive marine transportation market
for commodities transported on the Mississippi River System, the Gulf
Intracoastal Waterway and the Houston Ship Channel. The industry has become
increasingly concentrated within recent years as smaller and/or economically
weaker companies have gone out of business or have been acquired by larger or
stronger companies. Since 1989, the Company's competition has historically been
based primarily on price; however, shipping customers, through increased
emphasis on safety, the environment, quality and a greater reliance on a "single
source" supply of services, are more frequently requiring that their supplier of
inland tank barge services have the capability to handle a variety of tank barge
requirements, operate on a majority of the nation's waterways, and offer
flexibility, safety, environmental responsibility, financial responsibility,
adequate insurance and quality of service consistent with the customer's own
operations.

The Company's direct competitors are primarily noncaptive marine
transportation companies. "Captive" companies are those companies that are owned
by major oil and/or petrochemical companies which, although

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competing in the inland barge market to varying extents, primarily transport
cargoes for their own account. The Company is the number one ranked inland tank
barge carrier, based on its 513 barges and 9.4 million barrels of available
capacity. It has approximately 25% of the independent tank barge capacity and
20% of the total domestic tank barge capacity.

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

INLAND DIVISION

The Company's Inland Division provides transportation services for four
distinct markets: industrial chemicals, agricultural chemicals, refined
petroleum products and barge fleeting services. Collectively, the Division
operates a fleet of 513 inland tank barges, 124 inland towboats and six
bowboats.

From 1992 through July 1996, the Company's inland transportation segment
was operated through two divisions, organized around the markets each served:
the Inland Chemical Division, engaged in the transportation of industrial
chemicals, petrochemical feedstocks, and agricultural chemicals and barge
fleeting services, and the Inland Refined Products Division, engaged in the
transportation of refined petroleum products. In July 1996, the operations of
the two inland divisions were consolidated into one Inland Division. The
restructuring of the inland operations reduced administrative staff, eliminated
redundant operations and is anticipated to gain significant operating
efficiencies. The sales, traffic, maintenance and accounting functions of the
two divisions were consolidated in Houston.

Today, the Inland Division is comprised of four operating groups: Dixie
Canal Group, Dixie Linehaul Group, Dixie River Group and Western Towing Company
("Western"). The Company subsidiaries comprising the Canal, Linehaul and River
Groups are Dixie Carriers, Inc. ("Dixie") and its subsidiaries, Dixie Marine,
Inc., TPT Transportation Company, Brent Transportation Corporation and OMR
Transportation Company, and subsidiaries of the Company, Chotin Carriers, Inc.
and Sabine Transportation Company ("Sabine"). The Dixie Canal Group serves the
Gulf Intracoastal Waterway and the Houston Ship Channel and currently operates
138 tank barges and 50 towboats. The Dixie Linehaul Group, currently operating
201 tank barges and nine towboats, provides linehaul services along the Gulf
Intracoastal Waterway, on the Mississippi River from Baton Rouge, Louisiana,
north to the Illinois River and along the Ohio River. The Dixie River Group,
currently operating 174 tank barges and 51 towboats, operates unit tows along
the Mississippi River System. Western provides barge fleeting services in the
ports of Houston, Galveston and Freeport, Texas. All four operating groups
provide service to the industrial chemical and refining industries through
movements of petrochemical feedstocks, generic intermediates, industrial
processed chemicals, lube oils and clean petroleum products to interplant,
industry users and distribution terminals. The River Group moves agricultural
chemicals, anhydrous ammonia and refined products along the Mississippi River
System.

The business is conducted under long-term contracts with customers with
whom the Company has long-standing relationships, as well as under short-term
and spot contracts. Currently, approximately 80% of the revenues are derived
from term contracts and 20% are derived from spot market movements.

For increased environmental protection, all of the inland tank barges used
in the transportation of industrial chemicals are of double skin construction
and, where applicable, are capable of controlling vapor emissions to meet
occupational health and safety regulations and air quality concerns.

The Company, over the past five years, through consolidation within the
inland tank barge market, has become one of the most capable inland tank barge
operators with the ability of servicing the needs of its customers throughout
the Mississippi River System and the Gulf Intracoastal Waterway. Such
consolidation,

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and the formation of the four groups of operations described above, offer
economies of scale to better match barges, towboats, products and destinations,
etc.

The barge fleeting services operation, through Western, a subsidiary of
Dixie, operates what the Company believes to be the largest commercial barge
fleeting service (provision of temporary barge storage facilities) in the ports
of Houston and Freeport, Texas. Western's 14 inland towboats are engaged
primarily in shifting services (distribution and gathering of barges) in the
Houston, Galveston and Freeport areas.

OFFSHORE TRANSPORTATION INDUSTRY

The Company's Offshore Division is engaged in U.S. flag offshore tanker and
tank barge operations, offshore dry-bulk cargo barge operations, offshore
break-bulk and container cargo barge and ship operations, and harbor docking
services. The Division provides transportation of petroleum products, dry-bulk
cargoes, containers and palletized cargoes, including United States Government
preference agricultural commodities, worldwide with particular emphasis in the
Gulf of Mexico, along the Northeast Seaboard, Caribbean Basin ports and to South
American, West African and European ports. The Division also provides harbor
service operations in ports in Louisiana and Texas.

The United States Northeast refining capacity of gasoline and heating oil
falls substantially short of demand for such products in the area, thereby
creating a demand for substantial amounts of imported products. The majority of
this demand is satisfied by pipeline systems which connect the Gulf Coast
refineries with the Northeast. The balance of demand is imported into the region
either from the Gulf Coast by U.S. flag tankers, or from Canada, the Caribbean
or Northern Europe by foreign flag tankers. The balance between domestic
water-borne imports and imports from foreign refineries hinges on relative
price, including tariffs and transportation costs from Jones Act tankers from
the Gulf Coast.

With the domestic pipeline system nearing full capacity, water-borne
imports to the Northeast must accommodate current and future growth in demand
within the region. Although the future demand for heating oil is expected to
remain flat due to the availability of natural gas through a new Canadian
pipeline, the demand for gasoline and gasoline additives for reformulated
gasoline in the Northeast is anticipated to continue to grow annually. In
addition, the demand for gasoline and gasoline additives, as well as other
petroleum products in Florida is expected to grow along with the population
growth of Florida, where essentially all consumption is served by water-borne
imports from the Gulf Coast or from foreign sources.

COMPETITION IN THE OFFSHORE TRANSPORTATION INDUSTRY

The offshore marine transportation market, like the inland transportation
market, is highly competitive. The Company operates predominantly in the United
States domestic trade, which is subject to the Jones Act, a federal law that
limits participation between domestic ports within the United States and its
territories to U.S. flag vessels. For a discussion of the Jones Act, see
"Governmental Regulations" below. The Company's direct competitors in this
market are primarily captive and noncaptive operators of U.S. flag ocean-going
barges, container and break-bulk ships and tankers. Competition is based upon
price, service and equipment availability.

OFFSHORE DIVISION

Offshore Tanker and Tank Barge Operations. Sabine and Kirby Tankships, Inc.
("Kirby Tankships") operate a fleet of seven owned U.S. flag single skin tankers
that transport clean petroleum products, gasoline, heating oil and gasoline
additives for reformulated gasoline, primarily from Gulf Coast refineries to
Florida and the Northeast United States. Certain additional trades exist
carrying gasoline additives from Gulf Coast refineries to the West Coast and
refined products to the Caribbean. As of March 5, 1997, three of the Company's
tankers were chartered to various oil companies for the transportation of their
products and four operate in the spot market, transporting petroleum products as
cargo offers. Classified as "handi size," the tankers have deadweight capacities
ranging between 28,000 and 49,000 tons with a total capacity of 1,725,000
barrels.

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As discussed under "Environment Regulations -- Water Pollution Regulations"
below, the Oil Pollution Act of 1990 ("OPA") has placed a number of stringent
requirements on tanker and offshore tank barge owners and operators, including
the mandated phasing out of all single hull vessels beginning in 1995, depending
on vessel size and age. In compliance with the OPA, one of the Company's tankers
was retired effective January 1, 1995 and one effective January 1, 1996. Another
tanker, which was mandated to be retired on October 1, 1996, was scrapped in
March 1996. The balance of the Company's tankers are scheduled to be retired
from service as follows: one -- January 1, 1999; two -- January 1, 2000;
one -- October 30, 2000; one -- November 4, 2004; one -- January 1, 2005; and
one -- August 23, 2008. In order to stay in service beyond the retirement date,
these tankers would have to be either retrofitted with a double hull cargo
section or used exclusively in foreign trade.

In addition to the tankers, the Company, through Dixie, owns and operates
two ocean-going tank barge and tugboat units, one of which is single skin and
one double skin. The single skin 157,000 barrel barge and tugboat unit and the
double skin 165,000 barrel barge and tugboat unit provide service in the
transportation of refined petroleum products in domestic service. The single
skin tank barge is scheduled to be removed from service in compliance with the
OPA on January 1, 2005. The double skin tank barge meets all OPA construction
requirements. Currently, both tank barge and tugboat units are employed under
term charters.

Offshore Dry-Bulk Cargo Operations. The Company's offshore dry-bulk cargo
operations are conducted through Dixie's equipment and through two general
partnerships, Dixie Fuels Limited ("Dixie Fuels") and Dixie Fuels II, Limited
("Dixie Fuels II"), in which a subsidiary of Dixie owns a 35% and 50% interest,
respectively.

Dixie, Dixie Fuels and Dixie Fuels II transport dry-bulk cargoes, such as
coal, limestone, cement, fertilizer, flour, raw sugar and grain, as well as
containers, between domestic ports along the Gulf of Mexico, the East Coast and
West Coast, and to ports in the Caribbean Basin with occasional movements to
West African ports, and other international ports as cargo offers. Management
believes that Dixie, including the operations of Dixie Fuels and Dixie Fuels II,
is the second largest domestic offshore dry-bulk barge carrier in terms of
deadweight capacity.

Dixie owns one ocean-going dry-bulk barge and tugboat unit that is engaged
in the transportation of dry-bulk commodities primarily between domestic ports
along the Gulf of Mexico and along the Atlantic Seaboard.

Dixie, as general partner, also manages the operations of Dixie Fuels,
which operates a fleet of four ocean-going dry-bulk barges, four ocean-going
tugboats and one shifting tugboat. The remaining 65% of Dixie Fuels is owned by
Electric Fuels Corporation ("EFC"), an affiliate of Florida Power Corporation
("Florida Power"). Dixie Fuels operates primarily under long-term contracts of
affreightment, including a contract that expires in the year 2002 with EFC to
transport coal across the Gulf of Mexico to Florida Power's facility at Crystal
River, Florida.

Dixie Fuels also has a 12-year contract, which commenced in 1989, with
Holnam, Inc. ("Holnam") to transport Holnam's limestone requirements from a
facility adjacent to the Florida Power facility at Crystal River to Holnam's
plant in Theodore, Alabama. The Holnam contract provides cargo for a portion of
the return voyage for the vessels that carry coal to Florida Power's Crystal
River facility. Dixie Fuels is also engaged in the transportation of coal,
fertilizer and other bulk cargoes on a short-term basis between domestic ports
and transportation of grain from domestic ports to points primarily in the
Caribbean Basin.

Dixie, as general partner, also manages the operations of Dixie Fuels II,
which operates an ocean-going dry-bulk and container barge and tugboat unit. The
remaining 50% of Dixie Fuels II is owned by EFC. Dixie Fuels II is engaged in
the transportation of dry-bulk cargo and containers between domestic ports,
ports in the Caribbean Basin and international ports as cargo offers.

Offshore Break-Bulk and Container Cargo Operations. AFRAM Carriers, Inc.
("AFRAM") is engaged in the worldwide transportation of dry-bulk, container and
palletized cargoes, primarily for departments and agencies of the United States
Government. AFRAM's two U.S. flag break-bulk freighters with container
capabilities, specialize in the transportation of United States Government
military and preference food aid

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cargoes. In September 1996, upon completion of a food aid voyage to North Korea,
the freighter TAMPA BAY was scrapped, taking advantage of its location and
higher foreign scrap steel prices. The scrappage of the freighter reduced the
Company's remaining freighters to two, the CORPUS CHRISTI and the GALVESTON BAY.

During 1996, the AFRAM freighters were laid-up at various times due to
excess equipment capacity in the market in which AFRAM competes. Such excess
capacity and lack of available cargo resulted in rates that were inadequate to
achieve operating profitability. With the Company's adoption in September 1995
of Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"),
the Company reduced the carrying value of the AFRAM freighters and related
intangibles to fair market value in the 1995 third quarter. See "Note 1" to the
notes to financial statements included under Item 8 elsewhere herein for further
disclosures on the reduction of the freighters to fair market value. As of March
5, 1997, one freighter was engaged on a voyage and one freighter was idle. The
Company is prepared to exit the preference food aid and military cargo markets
by selling or scrapping the freighters if suitable term fixtures are not found.

In March 1994, the Company, through its subsidiary, Americas Marine
Express, Inc. ("Americas Marine"), began all-water marine transportation
services between Memphis, Tennessee and Mexico, Guatemala, Honduras and El
Salvador. The transportation containership service utilized a chartered
river/ocean vessel that offered direct sailing between the locations. The
service provided exporters and importers in the north, central and mid-south
states with a direct shipping alternative between Memphis and Mexico and Central
America on a fourteen day round trip basis. In August 1994, the Company
discontinued the service as aggressive pricing from competitors resulted in
slower than anticipated acceptance of the service. Volumes were increasing with
each voyage; however, operating losses and the negative prospects for future
profitability did not warrant continuation of the service.

Harbor Docking Services. Sabine provides towing, docking and shifting
services for vessels calling at the ports of Beaumont, Port Arthur and Orange,
Texas and the port of Lake Charles, Louisiana. Operating seven harbor tugboats,
the Company believes that this fleet holds a combined market share of
approximately 50% in ports which it serves. In addition, Sabine provides
offshore ship assistance and drill-rig movements off the Texas and Louisiana
coasts.

CONTRACTS AND CUSTOMERS

The majority of the marine transportation contracts are for terms of one to
ten years. Currently, the Inland and Offshore Divisions of the Company operate
under longer term contracts with The Dow Chemical Company ("Dow"), Chevron
Chemical Company, EFC, Holnam, Monsanto Chemical Company and Baytank (Houston)
Inc., among others. While these companies have generally been customers of the
Company's marine transportation divisions for several years and management
anticipates a continuing relationship, there is no assurance that any individual
contract will be renewed. Dow, with which the Company has a contract through
2004, accounted for 10% of the Company's revenues in 1996. No single customer of
the Company's marine transportation divisions accounted for more than 10% of the
Company's revenue in 1995 and 1994.

EMPLOYEES

The Company's Inland and Offshore Divisions have approximately 1,600
employees, of which approximately 1,325 are vessel crew members. Approximately
27% of the 1,325 vessel crew members are subject to various collective
bargaining agreements with various labor organizations. No one collective
bargaining agreement covers more than 8% of the 1,325 vessel crew members.

PROPERTIES

The principal office of the Inland Division is located in Houston, Texas,
in facilities under a lease that expires in August 2003. The Inland Division
operating locations are on the Mississippi River at Baton Rouge,

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Louisiana, in Greenville, Mississippi and in Houston, Texas near the Houston
Ship Channel. The Baton Rouge and Houston facilities are owned and the
Greenville facility is leased. Western's facilities are located on a 10.24-acre
tract of land owned by Dixie lying between the San Jacinto River and Old River
Lake near Houston, Texas. The principal offices of the Offshore Division are
located in Port Arthur, Texas, on 30 acres of Company owned waterfront property
along the Sabine-Neches Waterway and in Belle Chasse, Louisiana in owned
facilities.

GOVERNMENTAL REGULATIONS

General. The Company's transportation operations are subject to regulation
by the United States Coast Guard, federal laws, state laws and certain
international conventions. The transportation of cargoes in bulk are exempt from
economic regulations under the Interstate Commerce Act. Therefore, with the
exception of AFRAM, the rates charged by the Company for the transportation of
such bulk cargoes are negotiated between the Company and its customers and are
not set by tariff. AFRAM generally operates under published tariffs. AFRAM also
bids for United States Government cargo.

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

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

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

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

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

The requirements that the Company's vessels be United States built and
manned by United States citizens, the crewing requirements and material
requirements of the Coast Guard, and the application of United States labor and
tax laws, significantly increase the costs of U.S. flag vessels when compared
with foreign flag vessels. The Company's business would be adversely affected if
the Jones Act were to be modified so as to permit foreign competition that is
not subject to the same United States Government imposed burdens.

During the past several years, the Jones Act cabotage and cargo preference
laws, see "Preference Cargo" below, have come under attack by interests seeking
to facilitate foreign flag competition for trades and cargoes

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reserved for U.S. flag vessels under the Jones Act and cargo preference laws.
These efforts have been consistently defeated by large margins in the United
States Congress. The Company believes that continued efforts will be made to
modify or eliminate the cabotage provisions of the Jones Act and the cargo
preference laws. If such efforts are successful, it could have an adverse effect
on the Company.

Title XI Government Guaranteed Ship Financing. Title XI of the Merchant
Marine Act of 1936 ("MMA"), as amended, authorizes the Secretary of
Transportation to provide federal loan guarantees on terms generally unavailable
in the commercial capital markets for the construction of vessels in United
States shipyards. Although there exist statutory and regulatory requirements
which are intended to preclude approval of speculative projects, the Title XI
program's low equity requirements and long amortization periods in conjunction
with the federal guarantee can create an artificial stimulus which transcends
market demand for construction of vessels.

The Company believes that Title XI loan guarantees for speculative projects
is a clear violation of the statutory and regulatory authority of the Maritime
Administration, an agency of the Department of Transportation charged with
administration of the Title XI program. Use of the Title XI program to stimulate
and support speculative construction of vessels for the trades in which the
Company operates could have an adverse effect on the Company due to creation of
excess capacity in those trades. In March 1996, the Company filed a lawsuit
against the Maritime Administration concerning administration of the Title XI
program. See "Note 12" to the notes to the financial statements included under
Item 8 elsewhere herein for further disclosures on the lawsuit.

Preference Cargo. The MMA requires that preference be given to U.S. flag
vessels in the transportation of certain United States Government impelled
cargoes (cargoes shipped either by the United States Government or by a foreign
nation, with the aid or guarantee of the United States Government). Markets
subject to cargo preference in which the Company participates include foreign
food aid, military and Eximbank cargoes. Currently, 75% of the Government's
directed foreign aid and agricultural assistance programs, which include grains
and other food concessions, are required to be transported in U.S. flag vessels.
Such programs currently benefit the Company's offshore break-bulk ships and
dry-bulk barge and tug units, some of which work in this trade. The
transportation of such cargo accounted for approximately 4% of the Company's
transportation revenues in 1996, 7% in 1995 and 10% in 1994. The Company's AFRAM
break-bulk ships have from time to time been chartered by the Military Sealift
Command ("MSC"). Charters to MSC accounted for approximately 1% of the Company's
transportation revenues in 1996, 2% in 1995 and 4% in 1994. The chartering of
vessels by the MSC depends upon the requirements of the United States military
for marine transportation of cargoes, and, therefore, depends in part on world
conditions and United States foreign policy.

The preference cargo law is often opposed by interests which perceive they
would benefit from the ability to transport preference cargoes aboard foreign
flag vessels. Like the cabotage provision of the Jones Act, the Company is of
the opinion that continued efforts will be made to significantly reduce, or
remove completely, the requirement that 75% of such cargoes be transported in
U.S. flag vessels. Any reduction in this percentage could have an adverse effect
on the Company's operations and therefore, the Company will continue to
participate in efforts to preserve the present preference cargo requirements.
Further, the agricultural aid cargoes represent a material United States
Government budget line item. The amount of United States Government spending in
this area has declined steadily since 1993 and is expected to continue to
decline, resulting in increased competition for the reduced number of shipments
at lower transportation rates.

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

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The Company presently pays a federal fuel tax of 24.3 cents per gallon,
reflecting a 4.3 cents per gallon transportation fuel tax imposed in October
1993 and a 20 cents per gallon waterway use tax. There can be no assurance that
additional user fees, above the present amount, may not be imposed in the
future.

ENVIRONMENTAL REGULATIONS

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

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

The OPA and various state laws of similar intent, substantially increased
over historic levels statutory liability of owners and operators of vessels for
oil spills, both in terms of limit of liability and scope of damages. The
Company considers its most significant pollution liability exposure to be the
carriage of persistent oils (crude oil, #5 oil, #6 oil, lube oil and other black
oil). The Company restricts the carriage of persistent oils in inland tank
barges to double hull barges only. Currently, the Company does not carry
persistent oils in its offshore tank vessels.

One of the most important requirements under the OPA is that all newly
constructed tankers or tank barges engaged in the transportation of oil and
petroleum in the United States must be double hulled and all existing single
hull tankers or tank barges be retrofitted with double hulls or phased out of
domestic service between January 1, 1995 and 2015. See "Offshore
Division -- Offshore Tanker and Tank Barge Operations" for a discussion of the
effects of OPA on the Company's offshore equipment.

As a result of several highly publicized oil spills, federal or state
legislators could impose additional licensing, certification or equipment
requirements on marine vessel operations. Generally, the Company believes that
it is in a good position to accommodate any reasonably foreseeable regulatory
changes and that it will not incur significant additional costs. The Company
manages its exposure to losses from potential discharges of pollutants through
the use of well maintained and equipped vessels, the safety, training and
environmental programs of the Company and the Company's insurance program. In
addition, the Company uses double skin barges in the transportation of more
hazardous substances. There can be no assurance, however, that any new
regulations or requirements or any discharge of pollutants by the Company will
not have an adverse effect on the Company.

Financial Responsibility Requirement. Commencing with the Federal Water
Pollution Control Act of 1972, as amended, vessels over three hundred gross tons
operating in the Exclusive Economic Zone of the United States have been required
to maintain evidence of financial ability to satisfy statutory liabilities for
oil and hazardous substance water pollution. This evidence is in the form of a
Certificate of Financial Responsibility ("COFR") issued by the United States
Coast Guard. The majority of the Company's tank barges and all the ships are
subject to this COFR requirement and the Company has fully complied with this
requirement since its inception.

The OPA amended the COFR requirements principally by significantly
increasing the financial ability requirements. Effective December 8, 1994, the
United States Coast Guard under OPA implemented new financial responsibility
requirements for tankers. The new requirements became effective as to tank
barges in July 1995 and to ships other than tankers as their current COFR
expires. The new rules severely limited the ability of marine transportation
companies to utilize insurance as a means of satisfying the financial ability
requirement under OPA. The principal alternative to the use of insurance under
the new rule requires marine transportation companies to demonstrate net worth
and working capital equal to the maximum statutory limit

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of liability under the OPA and the Comprehensive Environmental Response,
Compensation and Liability Act of 1981.

Each of the subsidiaries of the Company has obtained COFRs pursuant to the
OPA amendments for all vessels requiring COFRs. The Company does not foresee any
current or future difficulty in maintaining the COFR certificates under current
rules.

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

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

Occupational Health Regulations. The Company's vessel operations are
primarily regulated by the United States Coast Guard for occupational health
standards. The Company's shore personnel are subject to the United States
Occupational Safety and Health Administration regulations. The Coast Guard has
promulgated regulations that address the exposure to benzene vapors, which
require the Company, as well as other operators, to perform extensive
monitoring, medical testing and record keeping of seamen engaged in the handling
of benzene and benzene containing cargo transported aboard vessels. It is
expected that these regulations may serve as a prototype for similar health
regulations relating to the carriage of other hazardous liquid cargoes. The
Company believes that it is in compliance with the provisions of the regulations
that have been adopted and does not believe that the adoption of any further
regulations will impose additional material requirements on the Company. There
can be no assurance, however, that claims will not be made against the Company
for work related illness or injury, or that the further adoption of health
regulations will not adversely affect the Company.

Insurance. The Company's marine transportation operations are subject to
the hazards associated with operating heavy equipment carrying large volumes of
cargo in a marine environment. These hazards include the risk of loss of or
damage to the Company's vessels, damage to third parties from impact, fire or
explosion as a result of collision, loss or contamination of cargo, personal
injury of employees, pollution and other environmental damages. The Company
maintains insurance coverage against these hazards. Risk of loss of, or damage
to, the Company's vessels is insured through hull insurance policies currently
insuring approximately $480 million in hull values. Vessel operating liabilities
such as collision, cargo, environmental and personal injury, are insured
primarily through the Company's participation in mutual insurance associations
and other reinsurance arrangements under which the protection against such
hazards is in excess of $2 billion for each incident except in the case of oil
pollution, which, in conjunction with the other excess liability coverage
maintained by the Company, is limited to $700 million for each incident for
inland vessels and ocean-going dry cargo vessels and $900 million for each
incident in the case of the Company's tankers and ocean-going tank barges.
However, because it is mutual insurance, the Company is exposed to funding
requirements and

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coverage shortfalls in the event claims by the Company or other members exceed
available funds and reinsurance.

Environmental Protection. The Company has a number of programs that were
implemented to further its commitment to environmental responsibility in its
operations. One such program is environmental audits of barge cleaning vendors
principally directed at management of cargo residues and barge cleaning wastes.
Another program is the participation by the Company in the Chemical
Manufacturer's Association Responsible Care program and the American Petroleum
Institute STEP program, both of which are oriented to continuously reducing the
chemical and petroleum industries' impact on the environment, including the
distribution services area.

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

The Company was honored by the Department of Transportation and the U.S.
Coast Guard in September 1995 as the recipient of the William M. Benkert Award,
the premier national award which recognizes excellence in all aspects of marine
safety and environmental protection. The Company was the first recipient of this
new award for the large vessel operator category. Given the national concern
over the transportation of hazardous material and oil products, this award is
independent affirmation of the Company's policies and achievements in the area
of marine safety and environmental protection.

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

The Company recognizes that each operating entity shares common ground with
respect to its training needs. In this regard, the Company established a
corporate training function in June 1994. The Kirby Marine Transportation
Corporation Training Department is charged with developing, conducting and
maintaining training programs for the benefit of all the Company's operating
entities. It is also responsible for ensuring that training programs are both
consistent and effective. The Company's training facility includes state of the
art equipment and instruction aids, including a working towboat, tank barge and
shore tank facilities. During 1996, approximately 1,000 students completed
courses at the training facility.

Quality. In 1996, the Company's commitment to quality performance was
implemented through a major business process redesign project, and the continued
maintenance and improvement of our Quality Assurance Systems.

The business process redesign project focused on three functional areas:
customer billing, purchasing and maintenance, and resulted in significant
changes in processes and structures. Projected outcomes include faster billing
preparation and collection cycles, reduced costs for purchased products and
services as a result of leveraged buying, and more efficient maintenance of our
vessels and associated equipment.

Throughout the 1990's, the Company made a substantial commitment to the
implementation, maintenance and improvement of Quality Assurance Systems in
compliance with the International Quality Standard, ISO 9002. Currently, all of
the Company's marine transportation units serving the liquid and dry cargo
markets have been certified, many of them earning "firsts" among their peers.
These Quality Assurance Systems have enabled both shore and vessel personnel to
effectively manage the changes which occur in the working environment. In
addition, such Quality Assurance Systems have enhanced the Company's already
excellent safety and environmental performance.

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DIESEL REPAIR

The Company is presently engaged in the sale, overhaul and repair of large
medium-speed diesel engines and related parts sales through three operating
subsidiaries, Marine Systems, Inc. ("Marine Systems"), Engine Systems, Inc.
("Engine Systems") and Rail Systems, Inc. ("Rail Systems"). Through each of its
three operating subsidiaries, the Company sells genuine replacement parts,
provides service mechanics to overhaul and repair engines and maintains
facilities to rebuild component parts or entire engines. As a nonexclusive
service center, the Company serves the entire domestic power marine and
industrial markets while as an exclusive distributor, the Company serves the
marine industry and stand-by power generation market in 17 Eastern states and
the Caribbean, the shortline and industrial railroad markets nationally, and
components of the nuclear industry worldwide.

The following table sets forth the revenues for the diesel repair division
for the periods indicated (dollars in thousands):



YEARS ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996
------------- ------------- -------------
AMOUNTS % AMOUNTS % AMOUNTS %
------- --- ------- --- ------- ---

Overhaul and repairs...................... $22,692 50% $26,371 52% $41,642 59%
Direct parts sales........................ 22,577 50 24,167 48 28,780 41
------- --- ------- --- ------- ---
$45,269 100% $50,538 100% $70,422 100%
======= === ======= === ======= ===


MARINE SYSTEMS OPERATIONS

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

Marine Systems operates through three divisions providing in-house and
in-field repair capabilities. These three divisions are: Gulf Coast (based in
Houma, Louisiana); Midwest (based in Paducah, Kentucky); and West Coast (based
in Seattle, Washington). All three of Marine Systems' divisions are nonexclusive
authorized service centers for the Electro-Motive Division of General Motors
Corporation ("EMD") selling parts and service. Marine Systems' Gulf Coast and
Midwest divisions concentrate on larger diesel engines, primarily those
manufactured by EMD, that are more commonly used in the inland and offshore
barge and oil service industries. The West Coast division concentrates on large
EMD engines used by the offshore commercial fishing industry, the military,
commercial business in the Pacific Northwest and customers in Alaska. Marine
Systems' emphasis is on service to its customers and can send its crews from any
of its locations to service customers' equipment anywhere in the world.

In May 1995, Marine Systems expanded its Gulf Coast division with the
acquisition of Percle's E.M.D. Services Inc., a diesel repair facility located
in Morgan City, Louisiana.

MARINE SYSTEMS CUSTOMERS

Major customers of Marine Systems include inland and offshore dry-bulk and
tank barge operators, oil service companies, petrochemical companies, offshore
fishing companies, other marine transportation entities and the United States
Coast Guard, Navy and Army. Marine Systems also provides services to the
Company's fleet, which accounted for approximately 2% of Marine Systems' total
1996 revenues; however, such revenues are eliminated in consolidation and not
included in the table above. No single customer of Marine Systems accounted for
more than 10% of the Company's revenues in 1996, 1995 or 1994.

Since Marine Systems' business can be cyclical and is linked to the
relative health of the diesel power tugboat and towboat industry, the offshore
supply boat industry, the military and the offshore commercial

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fishing industry, there is no assurance that its present gross revenues can be
maintained in the future. The results of the diesel repair service industry are
largely tied to the industries it serves, and, therefore, have been somewhat
influenced by the cycles of such industries.

MARINE SYSTEMS COMPETITIVE CONDITIONS

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

Many of the parts sold by Marine Systems are generally available from other
distributors; however, Marine Systems is one of a limited number of authorized
resellers of EMD parts. Although the Company believes it is unlikely,
termination of Marine Systems' relationship with suppliers could adversely
affect its business.

ENGINE SYSTEMS OPERATIONS

Through Engine Systems, the Company is engaged in the sale, overhaul and
repair of diesel engines for power generation, marine and industrial
applications. In July 1996, the Company purchased the operating assets of MKW
Power Systems, Inc., a subsidiary of Wartsila Diesel, N.A. ("MKW"). The
acquisition expanded the diesel repair segment's relationship with EMD to an
authorized distributorship for 17 Eastern states and the Caribbean. As the
exclusive East Coast distributor, the Company gains a better pricing structure
for parts purchased and has the right to sell and install new engines in marine
and power generation applications.

Engine Systems also serves as a central distributor for Woodward Governor
Company's Turbo and Engine Divisions ("Woodward"), a leader in the production of
power control components, for 14 Midwest and Southeast states and the Caribbean,
and for Paxman Diesel Ltd., a British manufacturer of diesel engines used in
U.S. Coast Guard applications.

ENGINE SYSTEMS CUSTOMERS

The major customers of Engine Systems are East Coast inland and offshore
dry-bulk, tank barge and harbor docking operators, U.S. Coast Guard and aircraft
carriers of the U.S. Navy. In addition, Engine Systems provides service to the
power generation industry (Disney World, Dade County, Florida and Bahamas
Electricity Corporation), and the U.S. nuclear power industry, through parts for
standby generators.

ENGINE SYSTEMS COMPETITIVE CONDITIONS

Engine Systems is currently the major source of genuine EMD parts and
authorized service for customers in power generation, marine and industrial
applications in 17 Eastern states and the Caribbean, its distributorship
territory. Generic parts, remanufactured parts and non-authorized services
supporting existing applications of EMD engines are available to existing
applications in Engine Systems distributorship territory; however, many
customers will give preference to Engine Systems due to its access to preferred
genuine EMD replacement parts. Engine Systems sales and service of Woodward
parts is on an exclusive basis in Woodward's Southeast district and on a
non-exclusive basis in Woodward's Midwest district.

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

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RAIL SYSTEMS OPERATIONS

Through Rail Systems, the Company is engaged in the overhaul and repair of
locomotive diesel engines and sale of replacement parts for locomotives serving
the shortline and the industrial railroads within the continental United States.
In October 1993, EMD awarded an exclusive United States distributorship to Rail
Systems to provide replacement parts, service and support to these important and
expanding markets. EMD is the world's largest manufacturer of diesel-electric
locomotives, a position it has held for over 70 years. The operation of Rail
Systems commenced in January 1994.

Rail Systems has an office and service facility in Nashville, Tennessee.
The service facility is primarily a parts warehouse. Service to the actual
locomotives is completed at sites convenient for the customer by Rail Systems'
service crews.

RAIL SYSTEMS CUSTOMERS

Shortline railroads have been a growing component of the United States
railroad industry since deregulation of the railroads in the 1970's. Generally,
shortline railroads have been created through the divestiture of branch routes
from the major railroad systems. These short routes provide switching and short
haul of freight, with an emphasis on responsive and reliable service. Currently,
about 500 shortline railroads in the United States operate approximately 2,400
EMD engines. Approximately 280 United States industrial users operate
approximately 1,300 EMD engines. Generally, the EMD engines operated by the
shortline and industrial users are older and, therefore, may require more
maintenance.

RAIL SYSTEMS COMPETITIVE CONDITIONS

As an exclusive United States distributor for EMD parts, Rail Systems
provides all EMD parts sales to these markets, as well as providing rebuild and
service work. Currently, other than Rail Systems, there are three primary
companies providing service for the shortline and industrial locomotives. In
addition, the industrial companies in some cases, provide their own service.

EMPLOYEES

Marine Systems, Engine Systems and Rail Systems have approximately 255
employees.

PROPERTIES

The principal office of Marine Systems is located in Houma, Louisiana.
Parts and service facilities are located in Houma, Louisiana, in Morgan City,
Louisiana, in Paducah, Kentucky and in Seattle, Washington. The Morgan City,
Louisiana, Paducah, Kentucky and Seattle, Washington locations are on leased
property and the Houma location is situated on approximately four acres of
Company owned land. The principal office of Engine Systems is located in
Chesapeake, Virginia, with service facilities in Rocky Mount, North Carolina, in
Medley, Florida and in South Bend, Indiana. All locations of Engine Systems are
leased. The principal office and service facility of Rail Systems is located in
leased facilities in Nashville, Tennessee.

INSURANCE

The Company is engaged in the writing of property and casualty insurance
primarily through a 47% voting common stock ownership of Universal Insurance
Company ("Universal"), a corporation located in the Commonwealth of Puerto Rico.
Since its formation in 1972, Universal has evolved primarily from an automobile
physical damage insurer to a full service property and casualty insurer, with
emphasis on the property insurance lines. Universal is ranked second among
Puerto Rican insurance companies in terms of policyholders' surplus and admitted
assets, and was assigned an A (Excellent) rating by A. M. Best Company, a
leading insurance rating agency, effective April 29, 1996.

On September 25, 1992, Universal merged with Eastern America Insurance
Company ("Eastern America"), a property and casualty insurance company in Puerto
Rico, with Universal being the surviving

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entity. The Company owns 47% of the voting common stock of Universal and 100% of
the non-voting preferred stock of Universal. Eastern America Financial Group,
Inc. ("Eastern America Group"), the former parent of Eastern America, owns 53%
of the voting common stock of Universal.

In accordance with a shareholder agreement among Universal, the Company and
Eastern America Group, through options and redemption rights, Universal has the
right to purchase the Company's interest in Universal over a period of up to 12
years from September 1992. The result of such redemptions would be Eastern
America Group becoming the owner of 100% of Universal's stock. Since December
1992, the date of the first redemption, Universal has redeemed from the Company
a total of 79,572 shares of Class B voting common stock and 40,600 shares of
non-voting Class C common stock for a total redemption price of $20,016,000. In
August 1994 and July 1995, Eastern America Group purchased from Universal 40,572
shares and 28,139 shares of Class A voting common stock for $7,000,000 and
$5,000,000, respectively. No redemptions were made during the 1996 year.

The Company's investment in Universal is accounted for under the equity
method of accounting for the 1996 year and the second half of 1995. Effective
July 1, 1995, the Company's investment in Universal's voting common stock was
reduced to 47%. Prior period financial statements have not been restated.

INSURANCE OPERATION

Universal writes a broad range of property and casualty insurance.
Universal, however, is primarily a property insurer. Universal's principal
property insurance line is automobile physical damage, specifically the vehicle
single-interest and double-interest risks. Vehicle single-interest insures
lending institutions against the risk of loss of the unpaid balance of their
automobile loans with respect to financed vehicles and vehicle double-interest
also insures the policyholders against risk of loss to their automobiles.

Universal's insurance business is generated primarily through Eastern
America Insurance Agency, an affiliate of Eastern America Group, and through
independent agents and brokers in Puerto Rico. While no one agent other than the
Eastern America Insurance Agency accounted for more than 5% of premiums written
in 1996, Universal could be adversely affected if it were to lose several of its
higher producing agents.

Universal maintains an extensive program of reinsurance of the risks that
it insures, primarily under arrangements with reinsurers in London and the
United States. Because Universal's business is written in Puerto Rico,
Universal's insurance risk is not as diversified as the risk of a carrier that
covers a broader geographical area. A natural catastrophe could cause property
damage to a large number of Universal's policyholders, which would result in
significantly increased losses to Universal. However, the Company believes that
Universal's reinsurance program will limit its net exposure in any such
catastrophe. Property damage from Hurricane Hugo in September 1989 attributable
to Universal was approximately $34,000,000; however, the net impact was
$1,450,000 after deducting the reinsurance recoverables.

Universal's insurance business is governed by the Insurance Code of the
Commonwealth of Puerto Rico and in accordance with the regulations issued by the
Commissioner of Insurance of the Commonwealth of Puerto Rico.

REINSURANCE OPERATION

Prior to 1991, the Company participated in the international reinsurance
market through Mariner Reinsurance Company Limited ("Mariner"), a wholly owned
subsidiary of the Company domiciled in Bermuda. From 1991 to present, Mariner
has been in run-off, paying claims on business written prior to 1991 and not
underwriting any new business.

Effective May 31, 1995, Mariner entered into Commutation Agreements with
parties representing the majority of its outstanding underwriting liabilities
("Commuting Parties") and simultaneously executed documents granting the
Commuting Parties absolute interest in any assets of Mariner which remain upon
liquidation of Mariner. Since May 31, 1995, Mariner has continued in run-off, as
a solvent insurance company under Bermuda law and regulation, paying claims of
parties other than the Commuting Parties, while seeking to consummate further
commutations as well. The effect of the May 31, 1995 transaction between Mariner

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20

and the Commuting Parties was to transfer to the Commuting Parties all of
Mariner's interest in the equity and surplus assets of Mariner, if any,
remaining at the time of the ultimate liquidation of Mariner. Loss of the
Company's equity in Mariner was fully reserved in 1994 and the transaction was
charged against that reserve in 1995.

CAPTIVE INSURANCE OPERATION

The Company utilizes a Bermuda domiciled wholly owned insurance subsidiary,
Oceanic Insurance Limited ("Oceanic"), to insure risks of the Company and its
transportation and diesel repair subsidiaries and affiliated entities. Oceanic
procures reinsurance in international markets to limit its exposure to losses.

ITEM 2. PROPERTIES

The information appearing in Item 1 is incorporated herein by reference.
The Company and Dixie currently occupy leased office space at 1775 St. James
Place, Suite 200, Houston, Texas under a lease that expires in August 2003. The
Company believes that its facilities are adequate for its needs and additional
facilities would be readily available.

ITEM 3. LEGAL PROCEEDINGS

See "Note 12" to the financial statements included under Item 8 elsewhere
herein for a discussion of legal proceedings.

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

During the fourth quarter of the fiscal year ended December 31, 1996, no
matter was submitted to a vote of security holders through solicitation of
proxies or otherwise.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:



NAME AGE POSITIONS AND OFFICES
---- --- ---------------------

George A. Peterkin, Jr.................... 69 Chairman of the Board of Directors
J. H. Pyne................................ 49 President, Director and Chief Executive Officer
Brian K. Harrington....................... 50 Senior Vice President, Treasurer, Assistant
Secretary and Chief Financial Officer
G. Stephen Holcomb........................ 51 Vice President, Controller, Assistant Treasurer
and Assistant Secretary
Ronald C. Dansby.......................... 57 President -- Inland Division
Dorman L. Strahan......................... 40 President -- Diesel Repair Division


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

George A. Peterkin, Jr. holds a degree in business administration from the
University of Texas and has served the Company as Chairman of the Board since
April 1995. He has served as a Director of the Company since 1973 and served as
President of the Company from 1976 to April 1995. He had served as a Director of
Industries from 1969 to 1976 and as President of Industries from 1973 to 1976.
Prior to that, he was President of Dixie from 1953 through 1972.

J. H. Pyne holds a degree from the University of North Carolina and has
served as President of the Company since April 1995. He has served as a Director
of the Company since 1988 and President of Dixie since 1984. He had served as
Executive Vice President of the Company from 1992 to April 1995. He also served
in various operating and administrative capacities with Dixie from 1978 to 1984,
including Executive

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Vice President from January to June 1984. Prior to joining Dixie, he was
employed by Northrop Services, Inc. and served as an officer in the United
States Navy.

Brian K. Harrington is a Certified Public Accountant and holds an M.B.A.
degree from the University of Oregon. He has served as Treasurer and Principal
Financial Officer of the Company since May 1989, Vice President since September
1989 and Senior Vice President since 1993. Prior to joining the Company, he was
engaged as a financial consultant with emphasis in the petrochemical
distributing industry, providing services to Dixie and other companies. Prior to
1979, he was Vice President of Planning, Marketing and Development for Paktank
Corporation.

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

Ronald C. Dansby holds a degree in business administration from the
University of Houston and has served the Company as President -- Inland Division
since 1994. He also serves as President of Dixie Marine, having joined the
Company in connection with the acquisition of Alamo Inland Marine Co. ("Alamo")
in 1989. He had served as President of Alamo since 1974. Prior to that, he was
employed by Alamo Barge Lines and Monsanto Chemical from 1962 to 1973.

Dorman L. Strahan attended Nicholls State University and has served the
Company as President -- Diesel Repair Division since 1994. He has served as
President of Marine Systems since 1986, President of Rail Systems since 1993 and
President of Engine Systems since July 1996. After joining the Company in 1982
in connection with the acquisition of Marine Systems, he served as Vice
President of Marine Systems until 1985.

PART II

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

The Company's common stock is traded on the NYSE under the symbol KEX.
Prior to listing and trading on the NYSE effective October 15, 1996, the
Company's common stock was traded on the AMEX. The following table sets forth
the high and low sales prices for the common stock for the periods indicated as
reported by The Wall Street Journal.



SALES PRICES
----------------
HIGH LOW
----- -----

1995
First Quarter........................................... $19 3/4 $15 1/2
Second Quarter.......................................... 18 1/8 13
Third Quarter........................................... 17 1/4 14 7/8
Fourth Quarter.......................................... 18 13 7/8
1996
First Quarter........................................... 18 7/8 16
Second Quarter.......................................... 18 3/4 16 3/4
Third Quarter........................................... 18 15 3/8
Fourth Quarter.......................................... 20 1/2 17 3/8
1997
First Quarter (through March 4, 1997)................... 19 3/4 18 1/4


As of March 5, 1997, the Company had 24,265,036 outstanding shares held by
approximately 1,900 stockholders of record.

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

ITEM 6. SELECTED FINANCIAL DATA

The comparative selected financial data of the Company and consolidated
subsidiaries is presented for the five years ended December 31, 1996. The
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company and the
Financial Statements and Schedules included under Item 8 elsewhere herein (in
thousands, except per share amounts):



FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996(1)
-------- ------- ------- ------- -------

Revenues:
Transportation............................ $190,214 283,747 311,076 335,913 316,367
Diesel repair............................. 35,753 31,952 45,269 50,538 70,422
Insurance(2).............................. 34,661 52,875 65,812 45,239 --
Investment income......................... 6,795 7,910 9,211 7,304 1,179
Gain (loss) on disposition of assets...... 427 355 415 (249) 2,670
Other..................................... 1,653 1,565 1,354 1,405 --
-------- ------- ------- ------- -------
$269,503 378,404 433,137 440,150 390,638
======== ======= ======= ======= =======
Earnings before cumulative effect of
accounting changes........................ $ 13,598 22,829 16,653 9,383 27,229
Cumulative effect on prior years of
accounting changes(3)..................... (12,917) -- -- -- --
-------- ------- ------- ------- -------
Net earnings...................... $ 681 22,829 16,653 9,383 27,229
======== ======= ======= ======= =======
Earnings per share of common stock:
Earnings before cumulative effect of
accounting changes..................... $ .60 .86 .58 .34 1.05
Cumulative effect on prior years of
accounting changes(3).................. (.57) -- -- -- --
-------- ------- ------- ------- -------
Net earnings...................... $ .03 .86 .58 .34 1.05
======== ======= ======= ======= =======
Weighted average shares outstanding......... 22,607 26,527 28,790 27,921 25,869
Net cash provided before changes in assets
and liabilities........................... $ 35,387 58,998 60,802 78,231 63,885
Capital expenditures........................ $132,537 90,542 79,464 50,197 51,369




DECEMBER 31,
------------------------------------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996(1)
-------- ------- ------- ------- -------

Property and equipment, net................. $237,596 283,413 330,762 322,335 318,724
Total assets................................ $446,420 563,253 667,472 498,084 524,530
Long-term debt.............................. $158,922 120,559 159,497 179,226 181,950
Stockholders' equity........................ $122,825 211,749 222,976 205,333 205,754


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

(1) Comparability with prior periods is affected by the following: The
acquisition of Sabine Towing & Transportation, Inc. in the first quarter of
1992; the acquisition of Ole Man River Towing, Inc. and the merger with
Scott Chotin, Inc. in the second quarter of 1992; the merger with Eastern
America in the third quarter of 1992; the acquisition of TPT, a marine
transportation division of Ashland Oil, Inc., in the first quarter of 1993;
the merger with AFRAM Lines (USA), Co., Ltd. in the second quarter of 1993;
the acquisition of Chotin Transportation, Inc. in the fourth quarter of
1993; the acquisition of offshore tankers from Tosco Refining Company and
OMI Corp. in the third quarter of 1994; the acquisition of the marine

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23

assets of Dow in the fourth quarter of 1994; the Company's ownership of the
voting stock of Universal declining to 47% on July 18, 1995 and the
recording of the Company's investment in Universal on the equity method of
accounting effective July 1, 1995; and the purchase of the assets of MKW in
July 1996.

(2) The Company changed its method of reporting its investment in Universal
from a consolidated basis to the equity method of accounting effective
July 1, 1995.

(3) Cumulative effect on prior years from the adoption of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
net of equivalent income taxes and SFAS No. 109, "Accounting for Income
Taxes."

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

Statements contained in this Form 10-K that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-K could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, adverse weather conditions such as high water, low water,
fog and ice, marine accidents, construction of new equipment by competitors,
including construction with government assisted financing, government and
environmental laws and regulations, and the timing, magnitude and number of
acquisitions made by the Company.

RESULTS OF OPERATIONS

The Company reported net earnings for the 1996 year of $27,229,000, or
$1.05 per share, on revenues of $390,638,000, compared with net earnings of
$9,383,000, or $.34 per share, on revenues of $440,150,000 for the 1995 year,
and net earnings of $16,653,000, or $.58 per share, on revenues of $433,137,000
for the 1994 year.

The Company's marine transportation segment's transportation revenues
totaled $316,367,000, or 81% of total revenues for 1996, compared with
$335,913,000, or 76% of total revenues for 1995, and $311,076,000, or 72% of
total revenues for 1994. Diesel repair revenues for 1996 totaled $70,422,000, or
18% of total revenues, compared with $50,538,000, or 11% of total 1995 revenues,
and $45,269,000, or 10% of total 1994 revenues. Insurance revenues totaled
$45,239,000, or 10% of total 1995 revenues and $65,812,000, or 15% of total
revenues for 1994. Investment income, earned primarily from investments by the
insurance segment for the 1995 and 1994 years, totaled $1,179,000 for 1996
compared with $7,304,000 for 1995 and $9,211,000 for 1994.

The Company reported a gain from the disposition of assets of $2,670,000 in
1996 compared with a loss of $249,000 in 1995 and a gain of $415,000 in 1994.
The amounts reported for each year were predominately from the sale of marine
equipment. For the 1996 year, the gain was primarily the result of the sale of
two inland towboats and six inland asphalt barges.

Effective July 1, 1995, the Company began accounting for its investment in
Universal, its property and casualty insurance subsidiary, under the equity
method of accounting as a result of a July 1995 redemption of Universal's common
stock, reducing the Company's ownership to 47%. Prior period financial
statements have not been restated. For the 1995 first six months and prior
years, results for Universal were consolidated, with a minority interest expense
recorded for Universal's minority shareholder.

The 1995 results included a $17,500,000 pre-tax charge in the 1995 third
quarter. The after-tax effect of the charge was $13,000,000, or $.47 per share.
Such charge was the result of adoption of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The charge is more fully described below.

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24

In October 1995, the FASB approved the issuance of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 allows a company to adopt a fair value based
method of accounting for an employee stock-based compensation plan or to
continue to use the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", the Company's current accounting method. The Company has elected
to continue to follow APB Opinion No. 25; however, if the Company had adopted
SFAS No. 123, the Company net earnings and earnings per share for the 1996 and
1995 year would have been reduced by $957,000, or $.03 per share, and $387,000,
or $.02 per share, respectively.

The Company conducts operations in marine transportation and diesel repair
business segments. In addition, the Company owns a 47% voting interest in a
property and casualty insurance company.

Marine Transportation

The Company's marine transportation segment reported transportation
revenues of $316,367,000, a decrease of 6% when compared with $335,913,000
reported for the 1995 year, and a 2% increase when compared with $311,076,000
reported for the 1994 year.

Operating income for the marine transportation segment for the 1996 year
totaled $47,245,000, an increase of 18% compared with $40,148,000 of operating
income for 1995 and 53% over 1994 operating income of $30,890,000.

For comparative purposes, the transportation revenues for the 1995 and 1994
years included acquired assets during 1994 which contributed to the majority of
the increase in revenues for 1995 and 1994. In July 1994, the Company acquired
four offshore tankers and in November 1994, the Company acquired the
transportation assets of Dow. The acquisitions were accounted for under the
purchase method of accounting. Collectively, the 1994 acquisitions generated
revenues for the 1994 year of approximately $16,435,000 from their dates of
acquisition.

As provider of service for both the inland and offshore United States
markets, the marine transportation segment is divided into two divisions
organized around the markets they serve: the Inland Division, serving the inland
industrial chemical, petrochemical, agricultural chemical and refined products
markets; and the Offshore Division, which serves the offshore refined petroleum
products, dry-bulk, container and palletized cargo markets. A division analysis
by years of marine transportation revenues follows:

1996 Marine Transportation Revenues

The Inland Division's transportation revenues for 1996 totaled
$239,702,000, or 76% of total transportation revenues. The Division's revenues
represent a 1% increase compared with $239,132,000 reported in 1995. The Inland
Division operated under long-term contracts, short-term contracts and spot
movements of products. As of December 31, 1996 and 1995, approximately 80% and
70%, respectively, of inland barge movements were under term contracts and
approximately 20% and 30%, respectively, were spot market movements.

Contract volumes for the movement of chemicals were stable and rates flat
during 1996; however, spot market volumes remained soft, with week to week
variations in demand, and certain spot market pricing pressure. The contract and
spot market movements of refined products in the Mississippi River declined to
some degree. Such reduction in volumes resulted in lower rates for spot market
river movements. The Gulf Intracoastal Waterway movements of refined products
remained weak for the entire 1996 year, resulting in lower rates for such
movements. Additional Midwest refinery capacity and some improved pipeline
efficiencies through debottle-necking were the primary reasons for the decline
in refined products volumes and rates.

The movements of liquid fertilizer and anhydrous ammonia by the Inland
Division are normally seasonal, coinciding with the spring and fall fertilizer
seasons. The fall fertilizer season, normally scheduled for late August and
September, did not strengthen until mid-October, delayed by relatively large
remaining spring

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25

inventories, fertilizer plant production problems and terminal conversions,
which resulted from environmental regulation requirements.

The Offshore Division's transportation revenues for 1996 totaled
$76,665,000, or 24% of total transportation revenues. The Division's revenues
represent a 21% decrease compared with $96,781,000 reported in 1995. The
Offshore Division participates in the movement of both refined petroleum
products and dry products and continued to experience periodic weaknesses in
both markets, the result of excess equipment capacity and reduced demand for the
movements of such products.

During the first nine months of 1996, four of the Company's seven product
tankers operated under long-term contracts and three operated in the spot
market. In October, one long-term contract expired and that tanker began
operating in the spot market. From January through May 1996, the tankers
operated at close to full utilization with spot market rates increasing,
reflecting the seasonal demands for the transportation of heating fuels and
refined products to the Northeast. Between the months of June and November,
demand for the spot market tankers was soft, idling certain spot tankers for
short durations of time. During December, the demand for movements of heating
fuels to the Northeast resulted in full equipment utilization. Spot market rates
during 1996 improved when compared with 1995 rates, reflecting a significant
improvement during periods of high demand for product movements. Full recovery
of the offshore tanker market is anticipated to be gradual, over the next few
years, as offshore tankers are removed from service under the OPA 90. The
Company has no further mandated retirements until 1999.

Movements for the transportation of food aid and related products under the
United States Governments' preference aid programs and military cargo movements
continued to be sporadic for 1996. Excess equipment capacity and a reduction in
available movements continued to plague this offshore segment and have resulted
in overall rates, if accepted, that may be inadequate to achieve profitability.
During 1996, the Company averaged only one of its break-bulk freighters being
employed. In late September 1996, upon completion of a food aid voyage to North
Korea, the freighter TAMPA BAY was scrapped, taking advantage of its location to
receive higher foreign scrap metal prices.

Offshore barge/tug unit operations during 1996 were strong, as the
Company's two tank barges and one dry-bulk barge operated at close to full
employment, except for scheduled shipyards. The two tank barges are currently
operating under term contracts, while the dry-bulk barge has remained fully
utilized in sugar, grain or scrap-iron trades.

1995 Marine Transportation Revenues

The Inland Division's transportation revenues for 1995 totaled
$239,132,000, or 71% of total transportation revenues. Such amount represented a
17% increase compared with $203,879,000 reported in 1994. The Inland Division
operated under long-term contracts, short-term contracts and spot movements of
products. As of December 31, 1995 and 1994, approximately 70% of such movements
were under contracts and approximately 30% were spot movements. The acquisition
from Dow of 65 inland tank barges and the assumption of the lease of 31 inland
tank barges from Dow along with a ten-year contract with Dow to provide inland
bulk liquid marine transportation services, contributed to the majority of the
17% increase in 1995 over 1994.

The demand for movements of industrial chemicals remained strong during
1995. The second half of 1995 benefited from the full integration of the Dow
fleet into the Division's fleet and the achievement of operating efficiencies
from such integration.

The movements of liquid fertilizer and anhydrous ammonia is normally
seasonal, coinciding with the spring and fall fertilizer season. The upper
Mississippi River flooding, more fully described below, extended both the spring
and fall season as demand was enhanced from the flooding of the Midwest
farmlands.

Refined product movements were strong during 1995; however, when compared
with 1994, movements were down slightly, as additional refinery capacity was
added in the Midwest United States and pipeline efficiencies to the Midwest
improved.

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26

Revenues from the Offshore Division for 1995 decreased 10% to $96,781,000,
representing 29% of total transportation revenues for 1995, from $107,197,000
reported in 1994. The Offshore Division, which participates in movements of both
refined petroleum products and dry products, continued to experience weaknesses
in certain of its offshore markets during 1995, due primarily to excess
equipment capacity and reduced demand for movements of certain products.

The offshore movements of refined petroleum products continued to
experience weaknesses; however, the offshore operations improved during 1995
when compared with 1994 from both a utilization and rate standpoint. The
requirements for the use of reformulated gasoline under the Clean Air Act in
non-attainment areas, effective January 1, 1995, was beneficial in placing eight
of the Company's eleven offshore vessels operating at that time under term
charters that became effective during the 1994 fourth quarter. Such charters
ranged from six months to three years at favorable rates. During the 1995 first
quarter, spot market rates of the three vessels operating in such market
declined significantly, as the unusually mild winter in the Northeast and
imports of gasoline from Europe decreased the normal movement of heating oil and
refined products from the Gulf Coast to the Northeast. Due to the lack of demand
during the 1995 second quarter, three customers did not exercise renewal options
for charters and the vessels were placed in the spot market. During the 1995
third quarter, one spot market tanker was laid-up, as rates did not justify an
anticipated expenditure of approximately $1,000,000 to maintain the vessel's
operating certificate. The laid-up tanker had an OPA expiration date of October
1996. In anticipation of the idle tanker not returning to service, effective
September 30, 1995, the tanker was written down by approximately $700,000 to
scrap steel value upon the adoption of SFAS No. 121, and subsequently scrapped
in March 1996. Certain spot market tank vessels were laid-up for various periods
of time during 1995 due to weak demand for equipment and resulting low rates.
However, in December 1995, the demand for tank vessels increased significantly
due to the cold weather in the Northeast and resulting low heating oil inventory
levels. Such demand resulted in higher rates, although both demand and rates
subsequently abated.

Movements for the transportation of food aid and related products under the
United States Government's preference aid cargo programs and military cargo
movements were sporadic during the 1995 year. During portions of 1995, all three
freighters operated in this market were laid-up at various times due to the
market's excess capacity. Such excess capacity and lack of available cargoes
resulted in rates that were inadequate to achieve profitability.

1994 Marine Transportation Revenues

The Inland Division's revenues for 1994 totaled $203,879,000, or 66% of
total transportation revenues, an increase of 14% compared with $178,266,000
reported in 1993. The Inland Division operated under long-term contracts,
short-term contracts and spot movements of products. As of December 31, 1994,
approximately 70% of such movements were under contracts and approximately 30%
under spot movements. Effective March 1994, the Division experienced spot rate
increases, and the higher spot rates were conducive to increases in contract
rates as contracts were renewed.

The Inland Division benefited from positive improvements in equipment
utilization and rates, generated primarily from a hike in the 1994 business
levels of the chemical manufacturers. During the majority of the year, the
Division's river operation continued to experience pricing pressure in movements
of chemicals in the Ohio River market. However, during the latter part of the
year, the river operation did begin to strengthen as business levels tightened
capacity.

The demand for movements of liquid fertilizers and anhydrous ammonia
remained strong during all of 1994. Acreage planting in the Midwest farm belt
increased, partially due to the low levels of grain commodities resulting from
the 1993 upper Mississippi River flooding.

Rates for spot market movements of refined petroleum products remained
higher than the majority of movements performed under contracts; however, as
contracts were renewed, higher rates were received due to the continued
improvement in spot market rates. The Division benefited substantially from the
addition of 53 inland tank barges acquired in December 1993, along with a
transportation contract through the year 2000.

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27

The asset acquisition and resulting contract substantially increased the
Division's market presence in the contract and spot movements of refined
petroleum products on the Mississippi River System.

Revenues from the Offshore Division for 1994 increased 2% to $107,197,000,
representing 34% of total transportation revenues for 1994, compared with
$105,481,000 reported in 1993. The Offshore Division, which participates in
movements of both refined products and dry products, experienced weaknesses in
all of its markets during the 1994 year, due primarily to excess equipment
capacity and reduced demand for movements of products from each of the markets.

The offshore movements of refined products remained extremely weak during
the 1994 year, with the exception of the first quarter and the latter portion of
the fourth quarter. During the 1994 first quarter, certain vessels were engaged
in spot market trade delivering heating oil to the Northeast due to the harsh
1994 winter season. Profitability of such spot market movements was adversely
affected by the winter weather conditions, which hampered operating
efficiencies. During the 1994 second quarter, three of the Division's offshore
liquid vessels were idle and during the 1994 third quarter and early fourth
quarter, as many as six of the Division's offshore liquid vessels were idle,
including the three tankers acquired in July 1994. Spot market rates during the
1994 second, third and a portion of the fourth quarter were extremely low.

During the 1994 fourth quarter, the market for the Offshore Division's
liquid equipment reflected significant improvements in both utilization and
rates. The requirements for the use of reformulated gasoline under the Clean Air
Act in nine non-attainment areas, effective January 1, 1995, was beneficial in
placing nine of the Company's twelve offshore liquid vessels operating at that
time under term contracts that became effective during the 1994 fourth quarter.
Of the remaining three vessels, two were engaged in shorter term movements at
satisfactory rates and one was out of service pending scrapping effective
January 1, 1995, in compliance with the OPA. In addition, further temporary
tightening of the offshore liquid market occurred in mid-October 1994, when the
Houston area San Jacinto River flooding caused certain refined products
pipelines serving the United States Northeast to break, suspending service for
varying periods of days.

Movements for the transportation of food commodities and related products
under the United States Government's preference aid cargo programs and military
household goods movements also remained weak. Excess equipment capacity and a
reduction in available movements led to rates that were significantly lower than
1993 rates for the market. Such weakness in the market resulted in one of the
Division's freighters being idle for three weeks during the 1994 third quarter
and one freighter was idle for the latter part of December. The softness in the
overall preference aid cargo market also negatively affected the Division's
other offshore dry cargo barge and tug units that primarily work under a
long-term contract with an electric utility company, but periodically operate in
the preference aid market as a supplement to their long-term contract movements.

Marine Transportation Costs and Expenses

Costs and expenses, excluding interest expense, for the marine
transportation segment for the 1996 year totaled $269,122,000, a decrease of 9%
when compared with 1995 costs and expenses of $295,765,000, which excludes the
$17,500,000 write-down discussed below, and 4% lower than the 1994 costs and
expenses of $280,186,000. Each of the comparable years were affected by the
costs and expenses, including depreciation of the 1994 asset acquisitions, the
24 inland tank barges placed in service since 1994, and various existing
equipment placed in service since 1994, all of which is more fully described in
Business Acquisitions and Developments below. In addition, each year reflected
higher equipment costs, health and welfare costs, and inflationary increases in
costs and expenses. Specific events which affected the costs and expenses for
each of the last three years are more fully described below.

1996 Marine Transportation Costs and Expenses

Effective January 1, 1996, the Inland Division changed the estimated
depreciable lives of its inland tank barges and towboats. Vessel upgrades and
enhanced maintenance standards have resulted in useful lives beyond the original
estimated lives. The change in the estimated lives provided a more consistent
matching of revenues and depreciation expense over the economic useful lives of
the inland barges and towboats. The depreciable lives of inland double skin
barges were changed from an average of 20 years to 30 years and inland

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towboats were changed from an average of 22 years to 35 years. Changes were made
on single skin barges on a barge by barge basis, with shorter lives recorded in
anticipation of early retirements when appropriate. Salvage values were also
assigned to certain inland vessels where it was reasonable to expect that the
vessel would have a residual value at the end of its depreciable life. The
result of the change in depreciable lives was to reduce 1996 depreciation
expense by approximately $2,500,000 ($1,625,000 after taxes, or $.06 per share).

Over the past eighteen months, the Company has focused its efforts on
decreasing costs and expenses and improving operating efficiencies. In the
Inland Division, reorganizational changes were made in 1996. Offices have been
closed and the Division's sales, traffic, maintenance and accounting functions
were consolidated to Houston, Texas. The Division is also implementing
management information systems which is anticipated to improve operating
efficiencies. The Company incurred reorganization expenses in 1996 of
approximately $2,700,000 ($1,755,000 after taxes, or $.07 per share). Of the
total reorganization expenses, $1,500,000 were associated with the Inland
Division and $1,200,000 were associated with the management group. Management
anticipates that annualized costs savings, estimated at $.30 to $.40 per share,
should be obtainable, phased in over a 2 to 3 year period.

As noted above, during 1996, the Offshore Division operated seven offshore
tankers versus nine for the majority of the 1995 year and twelve for the
majority of the 1994 year. Also as noted above, the Company's break-bulk
freighters, reduced from three to two in September 1996 with the scrapping of
the TAMPA BAY, experienced significant idle time during 1996 as the demand for
such freighters has remained very sporadic. In addition, the write-down of the
Division's freighters in September 1995, in accordance with SFAS No. 121,
substantially reduced 1996 depreciation and amortization expense applicable to
such freighters.

1995 Marine Transportation Costs and Expenses

As stated above, in September 1995, the Company adopted SFAS No. 121, which
establishes standards for the impairment of long-lived assets, certain
identifiable intangibles related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of. The
Company reduced the carrying value of certain marine transportation equipment
and related intangibles by taking a $17,500,000 pre-tax charge in the 1995 third
quarter. The after-tax effect of the charge was $13,000,000, or $.47 per share.
The Company reviewed long-term assets and certain identifiable intangibles for
impairment by division, and by vessel class within each division. For purposes
of determining fair value, the Company estimated future net cash expected to be
generated, assuming the above asset groups. Approximately $16,700,000 of the
$17,500,000 charge reduced the carrying value of the three freighters and
related intangibles engaged in preference food aid cargo and military cargo
movements. Freight rates, which have been depressed since 1994, were not
expected to recover to levels which would allow the freighters to make
consistent contributions to earnings. The freighters were reduced to a fair
market value of $4,600,000, which was based upon estimated scrap steel prices if
the freighters were scrapped. In addition to the charge, the Company also
reduced administrative overhead associated with the freighters through employee
reductions, office closure and internal merging of the shoreside support
functions of the freighter operations with the tanker operations.

The Inland Division was negatively affected by the upper Mississippi River
System closure for all marine transportation movements from May 19 through June
9, 1995 and, to a lesser extent, flooding in the Arkansas River. The closure of
the upper River, the result of severe flooding, resulted in idle, delayed or
diverted equipment equal to approximately 10% of the Inland Division's tank
barge fleet. When the upper River opened, operations were impeded by channel
silting which restricted drafts, and in some cases, briefly closed the upper
River in certain areas. The closure marked the second time in three years the
upper River has closed due to flooding. In the previous 25 years, the upper
River has closed only four times as a result of flooding. The Company estimated
that operating income was reduced by approximately $1,250,000 ($800,000 after
taxes, or $.03 per share) from the effects of the upper River and Arkansas River
flooding. Additionally, in the third quarter, the Illinois River was closed for
lock repairs for almost the entire quarter and numerous hurricanes during 1995
affected the operating results of the Inland Division.

In 1994, the Company formed a captive insurance operation, Oceanic, to
insure the majority of risks previously self-insured by the Company and to
access the reinsurance market directly. During 1995, the effect

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of insuring casualty losses, previously expensed on an incurred basis, was to
increase insurance expense charged to the Company's subsidiaries by
approximately $2,000,000 ($1,300,000 after taxes, or $.05 per share).

1994 Marine Transportation Costs and Expenses

During the 1994 first quarter, one of the Offshore Division's dry cargo
barge and tug units experienced difficulties with collection of its empty
containers from several voyages carrying preference food aid cargo to Haiti,
which, during that time, was politically unstable. Collectively, the voyages to
Haiti reduced the Company's 1994 first quarter earnings before taxes by an
estimated $1,750,000 ($1,150,000 after taxes, or $.04 per share).

In February 1994, the Offshore Division initiated a foreign flag container
service which provided a direct all-water transportation from Memphis, Tennessee
to Mexico and Central America. Aggressive pricing from competitors resulted in
slower than anticipated acceptance of the service. Volumes were increasing with
each voyage; however, operating losses and the negative prospect for future
profitability did not warrant continuation of the service. The Company
discontinued the service in August 1994. The operation suffered operating losses
during 1994 of approximately $1,925,000 ($1,250,000 after taxes, or $.04 per
share). Additionally, shut-down expenses totaled approximately $525,000
($350,000 after taxes, or $.01 per share).

Marine Transportation Operating Income

The Inland Division's operating income for the 1996 year totaled
$38,282,000, substantially equal to the 1995 operating income of $38,301,000 and
20% over 1994 operating income of $31,827,000. Operating margins for 1996 were
16.0% compared with 16.0% for 1995 and 15.6% for 1994.

For 1996, the Offshore Division's operating income totaled $8,963,000, a
significant improvement over the 1995 reported operating income of $1,847,000
and the operating loss of $937,000 recorded in 1994. Operating margins for 1996
were 11.7% compared with 1.9% for 1995 and a negative 0.9% for 1994.

The Company's investment in two offshore marine partnerships, accounted for
under the equity method of accounting for 1995 and 1996, reported earnings for
the 1996 year of $3,912,000, a 48% increase compared with $2,638,000 for 1995.
The improvement in earnings reflects the partnership's enhanced coal and
limestone rock contract movements, as the 1995 year was negatively affected by
scheduled maintenance of certain partnership vessels and lower coal volume
requirements.

DIESEL REPAIR

The diesel repair segment is divided into three divisions organized around
the markets they serve. The Marine Diesel Repair Division operates on the Gulf
Coast and West Coast and in the Midwest through three facilities that repair and
overhaul marine diesel engines and reduction gears, and sells parts and
accessories. The Rail Diesel Repair Division is the exclusive distributor of
aftermarket parts to shortline and industrial railroads for EMD. The Division
provides replacement parts, service and support nationwide to shortline
railroads and industrial companies that operate locomotives. The Engine
Division, organized in July 1996 with the purchase of the assets of MKW,
expanded the Company's relationship with EMD to an authorized distributorship
for 17 Eastern states and the Caribbean. In addition, the Engine Division serves
as a central distributor for Woodward in Southeast and Midwest states, and as
the exclusive worldwide distributor of EMD products to the nuclear industry.

Diesel Repair Revenue

The Company's diesel repair segment reported diesel repair revenues for the
1996 year of $70,422,000, reflecting a 39% increase compared with $50,538,000 in
1995 and a 55% increase compared with $45,269,000 for 1994.

For comparative purposes, the diesel repair revenues for the 1996 year
include the revenues from the acquisition in July 1996 of the assets of MKW.
Such acquisition generated $12,600,000 in revenues during

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1996. In addition, for 1996 and 1995 the Marine Diesel Repair Division, which
operates in very competitive markets, benefited from the enhanced drilling
activities and related oil service industries, and continued health of the
inland tank barge and dry cargo industry in its Gulf Coast and Midwest markets.
The East Coast markets for 1996 and 1995 remained stable from military
customers; however, the West Coast market continued to reflect a decline as the
Division continued to shift its focus from the South Pacific fishing fleet to
the North Pacific fishing fleet.

Revenues for the 1994 year include the Rail Diesel Repair Division which
commenced operations in January, 1994, generating revenue for 1994 of
$8,529,000. In addition, the Marine Diesel Repair Division benefited during 1994
from the inland marine carriers rebound from the 1993 upper Mississippi River
flooding, which caused such carriers to curtail or postpone repairs and
maintenance during 1993.

Diesel Repair Costs and Expenses

Costs and expenses, excluding interest expense, for the diesel repair
segment for 1996 totaled $65,046,000, compared with $47,138,000 for 1995 and
$42,179,000 for 1994. The increase of 38% for 1996 compared with 1995 reflected
the costs and expenses associated with the commencement of the Engine Division
and also reflected the overall continued growth in revenues from the Marine and
Rail Divisions. The 12% increase in 1995 over 1994 and 40% increase from 1994
compared with 1993 also reflected the growth in revenues from both the Marine
and Rail Divisions, with 1994 being the commencement year for the Rail Division.

Diesel Repair Operating Income

The Diesel Repair Division's operating income for 1996 was $5,376,000, an
increase of 58% compared with 1995 operating income of $3,400,000 and 74% over
1994 operating income of $3,090,000. Operating margins for 1996 were 7.6%
compared with 6.7% for 1995 and 6.8% for 1994.

PROPERTY AND CASUALTY INSURANCE

1996 and 1995 Equity in Earnings of Unconsolidated Insurance Affiliate

The Company currently has a 47% voting common stock ownership of Universal,
a full service property and casualty insurance company, which operates
exclusively in the Commonwealth of Puerto Rico. On July 18, 1995, Universal
redeemed $5,000,000 of its common stock from the Company and sold $5,000,000 of
its common stock to Eastern America Group, thereby reducing the Company's voting
ownership from 58%, prior to such redemption and sale, to the current 47%. Such
redemption and sale increased Eastern America Group's voting ownership from 42%
to the present 53%. No redemptions were made in 1996.

Effective July 1, 1995, the Company began accounting for its investment in
Universal under the equity method of accounting. Prior period financial
statements were not restated. For the 1995 first six months, results for
Universal were consolidated with a minority interest expense recorded for
Eastern America's interest. For the last six months of 1995 and for 1996, the
Company's investment in Universal was recorded under the equity method of
accounting.

The amount recorded by the Company as equity in earnings for the Company's
investment in Universal is influenced to the extent that anticipated future
redemptions by Universal of its common stock exceeds the Company's investment in
Universal's stock. The Company also has an investment in Universal's nonvoting
preferred stock (100%). Because the preferred stock controls a separate
portfolio of U.S. Treasury Securities, the Company accounts for this preferred
stock under SFAS 115. Therefore, the interest earned, as well as the realized
gains from the sale of U.S. Treasury Securities collateralizing the preferred
stock, are included as part of equity in earnings of the insurance affiliate.
During 1996 and 1995, the Company recorded $980,000 and $649,000, respectively,
of interest earned from its investment in U.S. Treasury Securities and
recognized $592,000 and $650,000, respectively, of realized gains from the sale
of such U.S. Treasury Securities, which are included in equity in earnings of
insurance affiliate.

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For the 1996 year, the Company recorded equity in earnings from Universal
of $2,171,000 compared with equity in earnings for the second half of 1995 of
$1,599,000.

1995 and 1994 Property and Casualty Insurance Revenues

For the first six months of 1995, and for the 1994 and 1993 years, the
Company reported the results of Universal on a consolidated basis, with a
minority interest expense reported for Eastern America Group's voting ownership.
For the first six months of 1995 and the last six months of 1994, Eastern
America Group's ownership was 42% compared with 33% for the first six months of
1994 and 30% for the 1993 year.

The Company's property and casualty insurance subsidiary reported premiums
written of $78,979,000 for the first six months of 1995 compared with premiums
written of $111,415,000 for 1994 and $80,993,000 for 1993. Net premiums earned
for the 1995 first six months totaled $43,191,000 compared with $61,477,000 for
1994 and $48,243,000 for 1993.

During 1993, 1994 and for the first six months of 1995, Universal expanded
its property and casualty insurance portfolio, with particular emphasis in the
vehicle single-interest and double-interest lines of business. Such expansion
was the result of new financial institution customers, portfolio transfers and a
significant improvement in automobile sales in Puerto Rico. In 1994, the Puerto
Rico excise tax rate on new United States manufactured automobiles sold in
Puerto Rico was reduced, which resulted in a brisk improvement in automobiles
sold and resulting improved premiums written under Universal's automobile lines
of business.

Net premiums earned reflect the amortization of net premiums written over
the life of a policy. The substantial increase in net premiums earned for the
1995 first six months and the 1994 year was the result of the significant
increase in premiums written in each year since 1993. The increase for each
reporting period was negatively affected by higher reinsurance costs for the
commercial multiple-peril lines, associated with the ceding of a portion of the
gross premiums written under the segment's reinsurance program.

Investment income is generated primarily from the property and casualty
insurance segment's investment in United States Treasury securities, due to
their investment safety and favorable Puerto Rico tax treatment. Investment
income earned from the insurance segment totaled $5,859,000 for the 1995 first
six months compared with $8,706,000 for 1994 and $7,741,000 for 1993. The growth
in investment income for each period reflected the overall growth in the
insurance segment and resulting increase in United States investment securities.

1995 and 1994 Property and Casualty Insurance Costs and Expenses

Property and casualty insurance costs and expenses for the 1995 first six
months totaled $47,995,000 compared with $70,705,000 for 1994 and $57,072,000
for 1993. The increase for each period resulted from the significant increase in
business volumes, particularly the vehicle double-interest line, and favorable
years for actual loss events. The 1994 year included a reserve of $2,000,000 for
potential, but as yet unreported, losses related to Mariner. During 1970 through
1990, Mariner participated in the writing of property and casualty reinsurance.
Mariner received certain delayed large loss advices which resulted in the
increase in the insurance loss revenues. The 1990 year was the last year for
participation in the reinsurance market.

1995 and 1994 Property Casualty Pretax Earnings

The Company's portion of the property and casualty insurance segment's
pretax earnings totaled $3,971,000 for the 1995 first six months compared with
pretax earnings of $5,119,000 for 1994 and net earnings of $4,930,000 for 1993.

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FINANCIAL CONDITIONS, CAPITAL RESOURCES AND LIQUIDITY

Balance Sheet

Total assets as of December 31, 1996 were $524,530,000, an increase of 5%
compared with $498,084,000 as of December 31, 1995 and 21% lower than the
December 31, 1994 total assets of $667,472,000. The significant reduction in
total assets for 1996 and 1995 compared with 1994 was primarily due to the
change in the method of accounting for the Company's investment in Universal to
the equity method of accounting effective July 1, 1995, as well as the adoption
of SFAS No. 121 and subsequent reduction of certain equipment and related
intangibles by $17,500,000. The insurance assets, $216,666,000 as of December
31, 1994, were eliminated in the change in accounting method while investment in
insurance affiliate, representing the Company's investment in Universal, of
$44,554,000 as of December 31, 1996 and $44,785,000 as of December 31, 1995,
were included as assets for each year.

The available-for-sale securities of $18,199,000 as of December 31, 1996
and $15,692,000 as of December 31, 1995 were investments of Oceanic, the
Company's wholly owned captive insurance subsidiary. Accounts and notes
receivable, net of allowance for doubtful accounts, equaled $79,866,000 at
December 31, 1996 compared with $65,755,000 as of December 31, 1995. The 21%
increase reflects accounts receivable from the acquisition of MKW, as well as an
increase in insurance claims receivable. Inventory increased 71% to $16,361,000
as of December 31, 1996 compared with $9,555,000 as of December 31, 1995. The
significant increase primarily represents the inventory acquired from MKW.

Total liabilities as of December 31, 1996 equaled $318,776,000, an increase
of 9% when compared with $292,751,000 as of December 31, 1995, and 28% lower
than the December 31, 1994 total liabilities of $444,496,000. The significant
decrease in 1996 and 1995 compared with 1994 was the result of the change in the
method of accounting for the Company's investment in Universal to the equity
method of accounting, effective July 1, 1995. The insurance liability as of
December 31, 1994 totaled $177,790,000. Accounts payable as of December 31, 1996
equalled $30,518,000, a 41% increase compared with $21,691,000 as of December
31, 1995. The increase was the result of the MKW acquisition and an overall
increase in trade payables.

Stockholders' equity as of December 31, 1996 totaled $205,754,000 compared
with $205,333,000 as of December 31, 1995 and $222,976,000 as of December 31,
1994. The 1996 and 1995 totals reflect the Company's repurchase of 1,587,000
shares of its common stock at a total price of $26,331,000 during 1996 and a
repurchase of 2,224,000 shares at a total price of $33,386,000 during 1995, more
fully described in Treasury Stock Purchases below. Unrealized net gains (losses)
in value of available-for-sale securities, net of taxes, reflected a decrease in
the Company's stockholders' equity of $2,010,000 in 1996, an increase of
$4,664,000 in 1995 and a decrease of $7,126,000 in 1994. With the
deconsolidation of Universal in July 1995, securities representing such
unrealized gains (losses) are from the Company's preferred stock investment in
Universal, which controls a separate portfolio of U.S. Treasury Securities, and
from securities invested by Oceanic. The fair value of such securities
generating unrealized gains (losses) at December 31, 1996, 1995 and 1994 were
$18,199,000, $15,692,000 and $173,275,000, respectively.

Long-Term Financing

On March 18, 1996, the Company and Texas Commerce Bank National
Association, as agent bank, agreed to new terms regarding the Company's and the
Company's principal marine transportation subsidiary's separate $50,000,000
revolving Credit Agreements. Under the new terms, the existing $50,000,000
Credit Agreement with the Company and the existing $50,000,000 Credit Agreement
with the Company's principal marine transportation subsidiary were combined into
a single $100,000,000 Credit Agreement with the Company. The new Credit
Agreement eliminated certain negative pledges and rights to priority liens which
were included in the marine transportation subsidiary's existing Credit
Agreement. Interest on the new Credit Agreement, subject to an applicable margin
ratio and type of loan, is floating prime rate or, at the Company's option,
rates based on a Eurodollar interbank or certificate of deposit rates. Proceeds
under the new Credit Agreement may be used for general corporate purposes, the
purchase of existing or new equipment or for possible business acquisitions. The
new Credit Agreement contains covenants substantially similar to the

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original terms, including the maintenance of certain financial ratios and
certain other covenants. As of March 5, 1997, the Company had $80,800,000
available for take down under the Credit Agreement.

In December 1994, the Company established a $250,000,000 medium term note
program providing for the issuance of fixed rate or floating rate notes with the
maturities of nine months or longer. The shelf registration program, registered
with the Securities and Exchange Commission, was activated in March 1995 with
the issuance of $34,000,000 of the authorized notes. The issued medium term
notes bear interest at an average fixed rate of 7.77% with a maturity of March
10, 1997. Proceeds from sale of the notes were used to retire the Company's
outstanding bank term loan in the amount of $10,286,000, due June 1, 1997, and
to reduce the Company's outstanding revolving credit loans by $23,714,000. The
Company's outstanding bank term loan in the amount of $10,666,000, due March 6,
1997, was retired on March 20, 1995 with proceeds borrowed under the Company's
revolving credit agreements. In June 1995, the Company issued $45,000,000 of
authorized notes, bearing a fixed interest rate of 7.25%, with a maturity of
June 1, 2000. Proceeds from the sale of the notes were used to reduce the
Company's outstanding revolving credit loans. As of December 31, 1996,
$171,000,000 was available under the medium term note program to provide
financing for future business and equipment acquisitions and working capital
requirements.

In January 1997, the Company issued $50,000,000 of the authorized medium
term notes at a fixed interest rate of 7.05%, due January 29, 2002. Proceeds
from the sale of notes will be used to retire the $34,000,000 of medium term
notes due March 10, 1997, with the balance used to reduce the Company's
revolving Credit Agreement noted above. The $34,000,000 notes were classified as
long-term at December 31, 1996, as the Company had the ability and intent to
refinance the notes either by selling new medium term notes, or through the
Company's revolving Credit Agreement.

Business Acquisitions and Developments

In March 1994, the Company, through its subsidiary, Americas Marine, began
all-water marine transportation service between Memphis, Tennessee and Mexico,
Guatemala, Honduras and El Salvador. The transportation containership service
utilized a chartered foreign flag river/ocean vessel which offered direct
sailing between these locations. The service provided exporters and importers in
the north, central and mid-south states with a direct shipping alternative
between the locations on a fourteen day round trip basis. In August 1994 the
Company discontinued the service as aggressive pricing from competitors resulted
in slower than anticipated acceptance of the service. Volumes were increasing
with each voyage; however, operating losses and the negative prospects for
future profitability did not warrant continuation of the service.

On July 1, 1994, a subsidiary of the Company completed the purchase of a
U.S. flag tanker from Tosco Refining Company ("Tosco"). The single hull tanker
was placed in service in late August 1994, after undergoing capitalized
restorations and modifications. The tanker is utilized in the carriage of
refined petroleum products in United States coastwise trade and is currently
operating under a three year charter. The tanker has a capacity of 266,000
barrels and a deadweight tonnage of 37,750. The tanker will be retired from
service in compliance with the OPA on January 1, 1999. Funding for the
transaction was provided through the Company's bank revolving credit agreement.
Operations of the asset acquired from Tosco were included as part of the
Company's operations effective July 1, 1994, in accordance with the purchase
method of accounting.

On July 21, 1994, a subsidiary of the Company completed the purchase of
three U.S. flag tankers from OMI Corp. ("OMI") for $23,750,000. The single hull
tankers transport refined petroleum products primarily between the United States
Gulf Coast, Florida and the mid-Atlantic states. Each of the tankers has a total
capacity of 266,000 barrels and a deadweight tonnage of 37,853. In compliance
with the OPA, two of the three tankers will be retired from service on January
1, 2000 and the third tanker retired August 23, 2008. Funding for the
transaction was provided through the Company's bank revolving credit agreement.
Operations of the three tankers acquired from OMI were included as part of the
Company's operations effective July 21, 1994, in accordance with the purchase
method of accounting.

On November 16, 1994, a subsidiary of the Company completed the purchase of
certain marine assets of Dow for $24,031,000 in cash. The purchased assets
consisted of 65 inland tank barges, one river towboat and

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two shifting boats. The Company also assumed from Dow the leases on an
additional 31 inland tank barges and two towboats. In addition, the Company
entered into a contract with Dow to provide for Dow's inland bulk liquid marine
transportation requirements for a period of ten years. The asset purchase was
funded by borrowings under the Company's and transportation segment's bank
revolving credit agreements. Operations of the assets acquired from Dow were
included as part of the Company's operations effective November 16, 1994, in
accordance with the purchase method of accounting.

On July 31, 1996, a subsidiary of the Company purchased the operating
assets of MKW for approximately $5,700,000 in cash plus approximately $8,500,000
in working capital. The acquisition expanded the diesel repair segment's
relationship with EMD to an authorized distributorship for 17 Eastern states and
the Caribbean. In addition, the subsidiary will serve as a central distributor
for Woodward, a leader in the production of power control components.

Capital Expenditures

The Company continued to enhance its existing operations through the
acquisitions of existing equipment and the construction of new equipment during
the 1994, 1995 and 1996 years.

In May 1994, the Company entered into a contract for the construction of 12
double skin 29,000 barrel capacity inland tank barges for use in the movement of
industrial chemicals and refined products. In February 1995, the Company
exercised the option under the contract to construct 12 additional barges.
During 1995, nine of the tank barges were placed in service, 13 were placed in
service during 1996, one was placed in service in January 1997 and the last
barge was placed in service in February 1997. A third option for the
construction of 12 additional barges was not exercised. In addition, in April
1995, the Company entered into a contract for the construction of two double
skin 17,000 barrel capacity inland tank barges for use in the industrial
chemical market. One barge was placed in service in October 1995 and the second
barge in January 1996. The construction project cost approximately $1,500,000
per barge. Funds for the construction project were available through the
Company's credit agreement and cash provided by operating activities.

During 1996, one existing inland towboat was purchased for use in the
fleeting and shifting operation. In 1995, one existing double skin inland tank
barge and four existing inland towboats were purchased for use in the industrial
chemical market, and four existing double skin inland tank barges and three
existing inland towboats were purchased for use in the refined products market.
In addition, during 1995 two existing inland towboats were purchased for use in
the fleeting and shifting operation and two existing double skin inland tank
barges were purchased for use in the agricultural chemical market. In 1994, two
existing double skin inland tank barges were purchased for use in the
agricultural chemical market, one existing inland towboat was purchased and
renovated for use in the industrial chemical market and two existing inland
towboats were purchased and renovated for use in the refined products market.

Treasury Stock Purchases

During 1996, the Company purchased 1,587,000 shares of its own common stock
at a total price of $26,331,000, for an average price of $16.60 per share.
During 1995, the Company purchased 2,224,000 shares of its common stock at a
total price of $33,386,000, for an average price of $15.01. Since January 1,
1997, the Company has purchased 564,500 shares of its common stock at a total
price of $10,609,000, for an average price of $18.80. In August 1994, the Board
of Directors authorized the repurchase of 2,000,000 shares, increased the
authorization by 2,250,000 shares in October 1995, and in July 1996, increased
the authorization by an additional 2,000,000 shares. As of March 5, 1997, the
Company had 1,875,000 shares available under the 6,250,000 total repurchase
authorization. The treasury stock purchases were financed by borrowing under the
Company's Credit Agreement. The Company is authorized to purchase its common
stock on the New York Stock Exchange and in privately negotiated transactions.
When purchasing its common stock, the Company is subject to price, trading
volume and other market considerations. Shares purchased may be used for
reissuance upon the exercise of stock options, in future acquisitions for stock
or for other appropriate corporate purposes.

33
35

Liquidity

The Company generated net cash provided by operating activities of
$64,068,000, $81,679,000 and $85,400,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Universal, accounted for under the equity method of
accounting for 1996 year and second half of 1995, did not contribute cash flow
from earnings for either reporting period. Under the equity method of
accounting, the Company recognizes cash flow from Universal only upon receipt of
actual distributions or redemptions, none of which were recorded during 1996.
For the 1995 first half, the results for Universal were consolidated and
included in operating income, resulting in $5,901,000 of net cash provided by
operating activities. For the 1995 second half, the results for Universal were
accounted for under the equity method of accounting and not included in cash
flow. However, during the 1995 third quarter, the Company received $5,016,000 of
redemptions of Universal's common stocks, which was included in net cash
provided by operating activities. During 1996, the Company received no
distributions or redemptions from Universal which would have contributed to the
Company's net cash flow.

Funds generated are available for capital construction projects, treasury
stock repurchases, asset acquisitions, repayment of borrowings associated with
treasury stock acquisitions or asset acquisitions and for other operating
requirements. In addition to its net cash flow provided by operating activities,
the Company also has available as of March 5, 1997, $80,800,000 under its
revolving credit agreement and $121,000,000 available under its medium term note
program. The Company's fixed principal payments during the next 12 months are
$5,333,000, in addition to the $34,000,000 of medium term notes due March 10,
1997 discussed under Long-Term Financing above.

During the last three years, inflation has had a relatively minor effect on
the financial results of the Company. The marine transportation segment has
long-term contracts which generally contain cost escalation clauses whereby
certain costs, including fuel, can be passed through to its customers, while the
transportation assets acquired and accounted for using the purchase method of
accounting were adjusted to a fair market value and, therefore, the cumulative
long-term effect on inflation was reduced. The repair portion of the diesel
repair segment is based on prevailing current market rates. The Company does not
presently use financial derivatives, but uses a mix of floating and fixed rate
debt. The Company has no foreign exchange risks.

The Company has no present plan to pay dividends on its common stock.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this report
(see Item 14, page 62).

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

The Company has had no disagreements with its independent accountants as
contemplated in Item 304 of regulation S-K.

PART III

ITEMS 10 THROUGH 13.

The information for these items has been omitted inasmuch as the registrant
will file a definitive proxy statement with the Commission pursuant to the
Regulation 14A within 120 days of the close of the fiscal year ended December
31, 1996, except for the information regarding executive officers which is
provided in a separate item caption, "Executive Officers of the Registrant," and
is included as an unnumbered item following Item 4 in Part I of this Form 10-K.

34
36

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Kirby Corporation:

We have audited the accompanying consolidated balance sheets of Kirby
Corporation and consolidated subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996. In
connection with our audits of the consolidated financial statements, we have
also audited the related financial statement schedules. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion of these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of Universal Insurance Company and its
subsidiaries, a 47 percent owned unconsolidated subsidiary. The Company's
investment in this company at December 31, 1996 and 1995 was $44,554,000 and
$44,785,000, respectively, and its equity in earnings for the years ended
December 31, 1996 and 1995 was $2,171,000 and $5,570,000, respectively. As of
December 31, 1994, Universal Insurance Company was a 58 percent owned
consolidated subsidiary, which statements reflect total assets constituting 32
percent in 1994, and total revenues constituting 15 percent in 1994 of the
related consolidated total. Those statements and the amounts included in the
related 1994 financial statement schedules were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Universal Insurance Company and its subsidiaries is based
solely on the report of the other auditors.

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

In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly in all
material respects, the financial position of Kirby Corporation and consolidated
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, based on our audits and the report of the
other auditors, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects the information set forth therein.

KPMG PEAT MARWICK LLP

Houston, Texas
February 18, 1997

35
37

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

BALANCE SHEETS
DECEMBER 31, 1995 AND 1996

ASSETS



1995 1996
-------- --------
($ IN THOUSANDS)

Current assets:
Cash and invested cash.................................... $ 1,457 1,544
Available-for-sale securities -- short-term investments... 15,692 18,199
Accounts and notes receivable, net of allowance for
doubtful accounts...................................... 65,755 79,866
Inventory -- finished goods, at lower of average cost or
market................................................. 9,555 16,361
Prepaid expenses and other................................ 11,968 13,315
Deferred taxes............................................ 677 600
-------- --------
Total current assets.............................. 105,104 129,885
-------- --------
Property and equipment, at cost:
Marine transportation equipment........................... 470,649 486,389
Land, buildings and equipment............................. 29,805 32,384
-------- --------
500,454 518,773
Less allowance for depreciation........................... 178,119 200,049
-------- --------
322,335 318,724
-------- --------
Investments in affiliates:
Insurance affiliate....................................... 44,785 44,554
Marine affiliates......................................... 11,985 12,697
-------- --------
56,770 57,251
-------- --------
Excess cost of consolidated subsidiaries, net of accumulated
amortization of $1,500,000 ($1,004,000 in 1995)........... 3,605 8,316
Sundry...................................................... 10,270 10,354
-------- --------
$498,084 524,530
======== ========


See accompanying notes to financial statements.

36
38

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

BALANCE SHEETS
DECEMBER 31, 1995 AND 1996

LIABILITIES AND STOCKHOLDERS' EQUITY



1995 1996
-------- -------
($ IN THOUSANDS)

Current liabilities:
Current portion of long-term debt......................... $ 5,676 5,333
Income taxes payable...................................... 763 4,027
Accounts payable.......................................... 21,691 30,518
Accrued liabilities:
Interest............................................... 1,264 1,230
Insurance premiums and claims.......................... 16,886 23,998
Bonus, pension and profit-sharing plans................ 10,229 9,466
Taxes, other than on income............................ 4,314 2,840
Other.................................................. 2,656 6,977
Deferred revenues......................................... 5,947 5,302
-------- -------
Total current liabilities......................... 69,426 89,691
-------- -------
Long-term debt, less current portion........................ 173,550 176,617
Deferred taxes.............................................. 43,615 45,901
Other long-term liabilities................................. 6,160 6,567
-------- -------
223,325 229,085
-------- -------
Contingencies and commitments............................... -- --
Stockholders' equity:
Preferred stock, $1.00 par value per share. Authorized
20,000,000 shares...................................... -- --
Common stock, $.10 par value per share. Authorized
60,000,000 shares, issued 30,907,000 shares............ 3,091 3,091
Additional paid-in capital................................ 158,383 158,712
Unrealized net gains (losses) in value of
available-for-sale securities.......................... 1,978 (32)
Retained earnings......................................... 88,034 115,263
-------- -------
251,486 277,034
Less cost of 6,129,000 shares in treasury (4,653,000 in
1995).................................................. 46,153 71,280
-------- -------
205,333 205,754
-------- -------
$498,084 524,530
======== =======


See accompanying notes to financial statements.

37
39

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996



1994 1995 1996
-------- ------- -------
($ IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Revenues:
Transportation............................................ $311,076 335,913 316,367
Diesel repair............................................. 45,269 50,538 70,422
Net premiums earned....................................... 61,477 43,191 --
Commissions earned on reinsurance......................... 4,335 2,048 --
Investment income......................................... 9,211 7,304 1,179
Gain (loss) on disposition of assets...................... 415 (249) 2,670
Realized gain on investments.............................. 1,222 868 --
Other..................................................... 132 537 --
-------- ------- -------
433,137 440,150 390,638
-------- ------- -------
Costs and expenses:
Costs of sales and operating expenses (except as shown
below)................................................. 243,673 259,142 252,488
Losses, claims and settlement expenses.................... 44,634 30,189 --
Policy acquisition costs.................................. 13,538 9,365 --
Selling, general and administrative....................... 49,843 46,616 45,419
Taxes, other than on income............................... 8,511 9,422 7,242
Depreciation and amortization............................. 33,834 38,986 34,805
Minority interest......................................... 3,424 2,463 --
Impairment of long-lived assets........................... -- 17,500 --
-------- ------- -------
397,457 413,683 339,954
-------- ------- -------
Operating income.................................. 35,680 26,467 50,684
Equity in earnings of insurance affiliate................... -- 1,599 2,171
Equity in earnings of marine affiliates..................... -- 2,638 3,912
Interest expense............................................ (8,835) (12,511) (13,349)
-------- ------- -------
Earnings before taxes on income................... 26,845 18,193 43,418
-------- ------- -------
Provision for taxes on income:
United States............................................. 8,442 8,308 16,189
Puerto Rico............................................... 1,750 502 --
-------- ------- -------
10,192 8,810 16,189
-------- ------- -------
Net earnings...................................... $ 16,653 9,383 27,229
======== ======= =======
Net earnings per share of common stock...................... $ .58 .34 1.05
======== ======= =======


See accompanying notes to financial statements.

38
40

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996



1994 1995 1996
-------- ------- -------
($ IN THOUSANDS)

Common stock:
Balance at beginning of year.............................. $ 3,076 3,078 3,091
Par value of common stock issued in acquisition of marine
transportation companies............................... 2 13 --
-------- ------- -------
Balance at end of year.................................... $ 3,078 3,091 3,091
======== ======= =======
Additional paid-in capital:
Balance at beginning of year.............................. $156,340 157,021 158,383
Excess of par value of cost of common stock issued in
acquisition of marine transportation companies......... 234 1,300 --
Excess (deficit) of cost of treasury stock sold over
proceeds received upon exercise of employees' stock
options................................................ 95 (89) 148
Tax benefit of exercise of employee stock options......... 352 151 181
-------- ------- -------
Balance at end of year.................................... $157,021 158,383 158,712
======== ======= =======
Unrealized net gains (losses) in value of available-for-sale
securities, net of tax:
Balance at beginning of year.............................. $ 4,440 (2,686) 1,978
Net increase (decrease) in valuation of securities during
the year, net of minority interest for 1994............ (7,126) 4,664 (2,010)
-------- ------- -------
Balance at end of year.................................... $ (2,686) 1,978 (32)
======== ======= =======
Retained earnings:
Balance at beginning of year.............................. $ 61,339 78,651 88,034
Net earnings for the year................................. 16,653 9,383 27,229
Unfunded pension obligation............................... 659 -- --
-------- ------- -------
Balance at end of year.................................... $ 78,651 88,034 115,263
======== ======= =======
Treasury stock:
Balance at beginning of year.............................. $(13,446) (13,088) (46,153)
Purchase of treasury stock................................ -- (33,386) (26,331)
Cost of treasury stock sold upon exercise of employees'
stock options.......................................... 358 321 1,204
-------- ------- -------
Balance at end of year.................................... $(13,088) (46,153) (71,280)
======== ======= =======


See accompanying notes to financial statements.

39
41

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996



1994 1995 1996
--------- ------- -------
($ IN THOUSANDS)

Cash flows from operating activities:
Net earnings.............................................. $ 16,653 9,383 27,229
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization........................... 33,834 38,986 34,805
Provision for doubtful accounts......................... 1,173 311 353
Realized gain on investments............................ (1,222) (868) --
Provision for deferred income taxes..................... 4,532 964 3,146
(Gain) loss on disposition of assets.................... (415) 249 (2,670)
Deferred scheduled maintenance costs.................... 2,861 6,299 3,901
Equity in earnings of insurance affiliate, net of
redemptions and minority interest..................... -- 5,880 (2,171)
Equity in earnings of marine affiliates, net of
distributions......................................... -- (808) (712)
Impairment of long-lived assets......................... -- 17,500 --
Other................................................... 3,386 335 4
Increase (decrease) in cash flows resulting from changes
in:
Accounts and notes receivable........................... (13,512) (3,128) (8,079)
Inventory............................................... (738) (1,286) (2,176)
Other assets............................................ (12,874) (9,475) (7,101)
Accounts payable........................................ 4,004 5,445 6,472
Income taxes payable.................................... (3,597) 4,360 3,264
Accrued and other liabilities........................... 10,062 (6,569) 7,803
Insurance assets and liabilities........................ 41,253 14,101 --
--------- ------- -------
Net cash provided by operating activities.......... 85,400 81,679 64,068
--------- ------- -------
Cash flows from investing activities:
Proceeds from sale and maturities of investments.......... 43,488 50,178 6,861
Purchase of investments................................... (103,419) (69,650) (9,583)
Net (increase) decrease in short-term investments......... 645 (11,410) --
Capital expenditures...................................... (30,933) (49,504) (37,158)
Purchase of assets of marine and diesel repair companies,
net of assumed liabilities.............................. (48,531) (693) (14,211)
Proceeds from disposition of assets....................... 2,853 1,349 12,365
Other..................................................... 1,011 (3,452) --
--------- ------- -------
Net cash used in investing activities.............. (134,886) (83,182) (41,726)
--------- ------- -------
Cash flows from financing activities:
Borrowings (payments) on bank revolving credit agreements,
net..................................................... 49,900 (32,000) 8,400
Increase in long-term debt................................ -- 82,891 --
Payments on long-term debt................................ (10,963) (26,618) (5,676)
Sale of insurance subsidiary stock to minority
stockholder............................................. 7,000 -- --
Purchase of treasury stock................................ -- (33,386) (26,331)
Proceeds from exercise of stock options................... 453 233 1,352
--------- ------- -------
Net cash provided by (used in) financing
activities....................................... 46,390 (8,880) (22,255)
--------- ------- -------
Increase (decrease) in cash and invested cash...... (3,096) (10,383) 87
Cash and invested cash, beginning of year................... 14,936 11,840 1,457
--------- ------- -------
Cash and invested cash, end of year......................... $ 11,840 1,457 1,544
========= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest................................................ $ 8,865 11,383 12,915
Income taxes............................................ $ 5,824 6,704 9,569
Noncash investing and financing activity:
Assumption of liabilities in connection with purchase of
assets of diesel repair company......................... $ -- -- 2,623


See accompanying notes to financial statements.

40
42

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS

Principles of Consolidation. The consolidated financial statements include
the accounts of Kirby Corporation and its subsidiaries ("the Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to reflect current
presentation of financial information.

Operations. The Company is currently engaged in two industry segments as
follows:

Marine Transportation -- Marine transportation by U.S. flag vessels on
the inland waterway system and in United States coastwise and foreign
trade. The principal products transported include petrochemical feedstocks,
processed chemicals, agricultural chemicals, refined petroleum products,
coal, limestone, grain and sugar. Container and palletized cargoes are also
transported for United States Government food aid programs and the
military.

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

Accounting Policies:

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

Available-for-Sale Securities. The Company's wholly owned captive insurance
subsidiary has available-for-sale investments reported at fair value with the
net unrealized gain or loss on such investments recorded as a separate component
of shareholders' equity, net of deferred tax. Investments are recorded on a
trade date basis with balances pending settlement accrued in the balance sheet.
Realized gains and losses on sales of investments are determined on the basis of
average cost. Investment income is recognized when earned and includes the
amortization of premium or discount on investments.

Depreciation. Property and equipment is depreciated on the straight-line
method over the estimated useful lives of the assets as follows: marine
transportation equipment, 6-35 years; buildings, 10-25 years; other equipment,
2-10 years; leasehold improvements, term of lease. During 1996, the Company
changed its estimated depreciable lives of its double skinned inland tank barges
and inland towboats. The change in the estimated lives provided a better
matching of revenues and depreciation expense over the inland barges' and
towboats' economic useful lives. The depreciable lives of inland barges were
changed from an average of 22 years to 35 years and the depreciable lives of
inland towboats were changed from an average of 22 years to 35 years. Inland
single skin barges were evaluated on a barge by barge basis, with shorter
depreciable lives recorded in anticipation of early retirements. Salvage values
were also assigned to certain inland vessels where it was reasonable to expect
that the vessel would have a residual value at the end of its depreciable life.
The change in estimate, effective January 1, 1996, decreased depreciation
expense for the 1996 year by approximately $2,500,000 ($1,625,000 after taxes,
or $.06 per share).

Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily trade
accounts receivables. The Company's marine transportation customers include the
major oil refiners and petrochemical companies. The diesel repair customers are
offshore well service companies, inland and offshore marine transportation
companies, commercial fishing companies and the United States Government. Credit
risk with respect to these trade receivables is generally considered minimal
because of the credit history of such companies as well as the Company having
procedures in effect to monitor the credit worthiness of customers.

41
43

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
Fair Value of Financial Instruments. Cash, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short-term
maturity of these financial instruments. The fair value of the Company's
investments are more fully described in Note 4, Investments, and the fair value
of the Company's debt instruments are more fully described in Note 5, Long-Term
Debt. The Company does not hold or issue derivative financial instruments.

Property, Maintenance and Repairs. Property is recorded at cost.
Improvements and betterments are capitalized as incurred. When property items
are retired, sold, or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts with any gain or loss on the
disposition included in income. Routine maintenance and repairs are charged to
operating expense as incurred on an annual basis. Scheduled major maintenance on
ocean-going vessels is recognized as prepaid maintenance costs when incurred and
charged to operating expense over the period between such scheduled maintenance,
generally ranging from 23 to 34 months.

Excess Cost of Consolidated Subsidiaries. The excess of purchase price over
the fair value of identifiable net assets acquired in transactions accounted for
as a purchase are included in excess cost of consolidated subsidiaries. The
excess cost is amortized over the period of the lives of the underlying assets
acquired in the transaction which generally approximates 15 years. Management
monitors the recoverability of the excess cost on an ongoing basis based on
projections of future cash flows, excluding interest expense, of acquired
assets.

Taxes on Income. The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

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

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

Adoption of Accounting Standards:

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"), which established standards for the impairment of long-lived assets,
certain identifiable intangibles related to those assets to be held and used,
and for long-lived assets and certain identifiable intangibles to be disposed
of. Effective September 30, 1995, the Company adopted SFAS No. 121.

As a result of the adoption of SFAS No. 121, the Company reduced the
carrying value of certain marine transportation equipment and related
intangibles by taking a $17,500,000 pre-tax charge in the 1995 third quarter.
The after-tax effect of the charge was $13,000,000, or $.47 per share. The
Company reviewed long-term assets and certain identifiable intangibles for
impairment by division, and by vessel class within each division. For purposes
of determining fair value, the Company estimated future cash flows expected to
be generated, assuming the above asset groups, less the future cash outflows
expected to be necessary to obtain the inflows.

42
44

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -- (CONTINUED)
An analysis of the reductions of the carrying value of certain affected
assets upon adoption of SFAS No. 121, effective September 30, 1995 follows (in
thousands):



BEFORE AFTER
ADOPTION ADOPTION ADOPTION
OF SFAS OF SFAS OF SFAS
NO. 121 NO. 121 NO. 121
-------- -------- --------

Marine transportation:
Freighters.......................................... $10,064 (6,366) 3,698
Tanker.............................................. 2,029 (693) 1,336
Inland tank barges.................................. 164 (133) 31
------- ------- -----
12,257 (7,192) 5,065
Land and equipment.................................... 1,662 (783) 879
Intangibles........................................... 9,525 (9,525) --
------- ------- -----
$23,444 (17,500) 5,944
======= ======= =====


As more fully described in Note 8, Stock Option Plans, the Company has five
employee stock option plans for selected officers and other key employees, two
director stock option plans for nonemployee directors of the Company, and a
25,000 share nonqualified stock option granted to Robert G. Stone, Jr., former
Chairman of the Board and current director of the Company. SFAS "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), issued in October 1995, allows a
company to adopt a fair value based method of accounting for its stock-based
compensation plans, or to continue to follow the intrinsic value method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees," in accounting for its stock option
plans. In accordance with APB Opinion No. 25, compensation costs are not
recognized in the Company's fixed stock option plans.

The Company has elected to continue to follow APB Opinion No. 25, however,
if the Company had adopted SFAS No. 123, the Company's net earnings and earnings
per share for the years ended December 31, 1995 and 1996 would have been reduced
as follows (in thousands, except per share amounts):



1995 1996
-------------------- --------------------
AS AS
REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- --------

Net earnings................................ $9,383 8,996 $27,229 26,272
Earnings per share.......................... $ .34 .32 $ 1.05 1.02


The weighted average fair value of options granted during 1995 and 1996 was
$11.73 and $12.12, respectively. The fair value of each option was determined
using the Black-Scholes option valuation model. The key input variables used in
valuing the options were as follows: average risk-free interest rate based on
10-year Treasury bonds -- 6.5%; stock price volatility -- 50%; and estimated
option term -- 9 years.

(2) COMPARABILITY OF FINANCIAL STATEMENTS

Effective July 1, 1995, the Company began accounting for its investment in
Universal Insurance Company ("Universal"), a property and casualty insurance
company in Puerto Rico, under the equity method of accounting as a result of a
redemption of Universal's common stock reducing the Company's ownership to 47%.
Prior period financial statements have not been restated. For the 1995 first six
months and prior years, results for Universal were consolidated, with a minority
interest expense recorded for Universal's minority shareholder. The significant
accounting policies and applicable insurance disclosure for Universal are more
fully described in Note 13, Insurance Disclosure.

43
45

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) COMPARABILITY OF FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited proforma condensed financial statements are based
on historical financial statements of the Company. The proforma condensed
statements of earnings for the years ended December 31, 1994 and 1995 assume the
Company was accounting for its investment in Universal on an equity basis as of
the beginning of the years indicated (in thousands).

PROFORMA CONDENSED STATEMENTS OF EARNINGS



1994 1995
-------- -------

Revenues.................................................... $357,313 388,183
Costs and expenses.......................................... 328,752 365,687
-------- -------
Operating income.......................................... 28,561 22,496
Equity in earnings of insurance affiliate................... 7,119 5,570
Equity in earnings of marine affiliates..................... -- 2,638
Interest expense............................................ (8,835) (12,511)
-------- -------
Earnings before taxes on income........................... 26,845 18,193
Provision for taxes on income............................... 10,192 8,810
-------- -------
Net earnings.............................................. $ 16,653 9,383
======== =======


(3) ACQUISITIONS

On July 1, 1994, a subsidiary of the Company completed the purchase of a
U.S. flag tanker from Tosco Refining Company ("Tosco"). The single hull tanker
was placed in service in late August 1994, after undergoing capitalized
restorations and modifications. The tanker is utilized in the carriage of
refined petroleum products in United States coastwise trade and is operating
under a charter through September 30, 1999. The tanker has a capacity of 266,000
barrels and a deadweight tonnage of 37,750. The tanker will be retired from
service in accordance with the Oil Pollution Act of 1990 ("OPA") on January 1,
1999. The asset purchase was funded by borrowings under the Company's bank
revolving credit agreement. Operations of the asset acquired from Tosco were
included as part of the Company's operations effective July 1, 1994, in
accordance with the purchase method of accounting.

On July 21, 1994, a subsidiary of the Company completed the purchase of
three U.S. flag tankers from OMI Corp. ("OMI") for $23,750,000. The single hull
tankers transport refined petroleum products primarily between the United States
Gulf Coast, Florida and the mid-Atlantic states. Each of the tankers has a total
capacity of 266,000 barrels and a deadweight tonnage of 37,853. In compliance
with the OPA, two of the tankers will be retired from service on January 1,
2000, and the third tanker retired on August 23, 2008. Funding for the
transaction was provided through the Company's bank revolving credit agreement.
Operations of the three tankers acquired from OMI were included as part of the
Company's operations effective July 21, 1994, in accordance with the purchase
method of accounting.

On November 16, 1994, a subsidiary of the Company completed the purchase of
certain marine assets of The Dow Chemical Company ("Dow") for $24,031,000 in
cash. The purchased assets consisted of 65 inland tank barges, one river towboat
and two shifting boats. The Company also assumed from Dow the leases on an
additional 31 inland tank barges and two inland towboats. In addition, the
Company entered into a contract with Dow to provide for Dow's inland bulk liquid
marine transportation requirements for a period of ten years. The asset purchase
was funded by borrowings under the Company's and transportation segment's bank
revolving credit agreements. Operations of the assets acquired from Dow were
included as part of the Company's operations effective November 16, 1994, in
accordance with the purchase method of accounting.

44
46

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) ACQUISITIONS -- (CONTINUED)
On July 31, 1996, a subsidiary of the Company purchased the operating
assets of MKW Power Systems, Inc., a subsidiary of Wartsila Diesel, N.A.
("MKW"), for approximately $5,700,000 in cash plus approximately $8,500,000 in
working capital. The acquisition expanded the diesel repair segment's
relationship with the Electro-Motive Division of General Motors to an authorized
distributorship for 17 Eastern states and the Caribbean. In addition, the
subsidiary will serve as a central distributor for Woodward Governor Company's
Turbo and Engine Divisions ("Woodward") in 14 Midwest and Southeast states and
the Caribbean. Woodward is a leader in the production of power control
components. Funding for the transaction was provided through the Company's bank
revolving credit agreement. Operations of the assets acquired from MKW were
included as part of the Company's operations effective July 31, 1996, in
accordance with the purchase method of accounting.

(4) INVESTMENTS

The Company's wholly owned captive insurance subsidiary accounts for
investments in debt and equity securities in accordance with SFAS No. 115 which
establishes certain criteria for the accounting and reporting of investments in
debt and equity securities that have readily determinable fair values.
Investments in debt and equity securities as of December 31, 1995 and 1996
qualify as available-for-sale securities in accordance with SFAS No. 115.
Realized gains and losses on the sales of the securities in the statements of
earnings are computed by using the specific cost of the security when originally
purchased and include net unrealized holding gains and losses as a separate
component of stockholders' equity, net of tax.

A summary of the investments as of December 31, 1995 and 1996 is as follows
(in thousands):



FAIR VALUE
AS
GROSS GROSS SHOWN IN THE
AMORTIZED UNREALIZED UNREALIZED BALANCE
TYPE OF INVESTMENT COST LOSSES GAINS SHEET
------------------ --------- ---------- ---------- ------------

December 31, 1995:
Short-term investments..................... $ 437 -- -- 437
Bonds and notes:
United States corporate bonds............ 10,472 -- 421 10,893
United States Government Bonds and
Issues................................ 2,991 -- 80 3,071
Multi-National Agencies.................... 997 -- 39 1,036
United States Treasury Notes............... 250 -- 5 255
------- --- --- -------
$15,147 -- 545 15,692
======= === === =======
December 31, 1996:
Short-term investments..................... $ 1,578 -- -- 1,578
Bonds and notes:
United States corporate bonds............ 5,988 24 61 6,025
United States Government Bonds and
Issues................................ 995 4 999
Multi-National Agencies.................... 2,003 16 8 1,995
Foreign Corporate Securities............... 7,481 32 153 7,602
------- --- --- -------
$18,045 72 226 $18,199
======= === === =======


45
47

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(4) INVESTMENTS -- (CONTINUED)
A summary of the available-for-sale securities by maturities as of December
31, 1995 and 1996 is as follows (in thousands):



1995 1996
------------------ ------------------
AMORTIZED MARKET AMORTIZED MARKET
INVESTMENTS MATURING WITHIN COST VALUE COST VALUE
--------------------------- --------- ------ --------- ------

One to five years............................... $ 8,248 8,430 6,994 7,025
Five to ten years............................... 6,462 6,825 9,473 9,596
------- ------ ------ ------
$14,710 15,255 16,467 16,621
======= ====== ====== ======


(5) LONG-TERM DEBT

Long-term debt at December 31, 1995 and 1996 consisted of the following (in
thousands):



1995 1996
-------- -------

Long-term debt:
Revolving credit loan due December 31, 1998............... $ 62,000 70,400
Medium term notes due March 10, 1997...................... 34,000 34,000
Medium term notes due June 1, 2000........................ 45,000 45,000
8.22% senior notes, $5,000,000 due annually through June
30, 2002............................................... 35,000 30,000
Other long-term debt...................................... 3,226 2,550
-------- -------
$179,226 181,950
======== =======


The aggregate payments due on the long-term debt in each of the next five
years are as follows (in thousands):



1997........................................................ $ 39,333
1998........................................................ 75,733
1999........................................................ 5,333
2000........................................................ 50,333
2001........................................................ 5,333
Thereafter.................................................. 5,885
--------
$181,950
========


At December 31, 1995, the Company had two separate $50,000,000 revolving
credit agreements (the "Credit Agreements") with Texas Commerce Bank National
Association ("TCB"), as agent bank. The Credit Agreements provided for aggregate
borrowings of up to $50,000,000 by the Company and $50,000,000 by the Company's
principal marine transportation subsidiary. The Credit Agreements had a maturity
date of June 30, 1997. On March 18, 1996, the Company agreed to new terms with
TCB regarding the Credit Agreements. Under the new terms, the $50,000,000 Credit
Agreement with the Company and the $50,000,000 Credit Agreement with the
Company's principal marine transportation subsidiary were combined into a single
unsecured $100,000,000 Credit Agreement with the Company with a maturity date of
December 31, 1998. The new Credit Agreement eliminates certain negative pledges
and rights to priority liens included in the original terms of the marine
transportation subsidiary's Credit Agreement. Interest on the new Credit
Agreement, subject to an applicable margin ratio and type of loan, is floating
prime rate, or at the Company's option, rates based on a Eurodollar interbank
rate or certificate of deposit rate. The new Credit Agreement also contains
similar covenants as the original Credit Agreements and requires the maintenance
of certain

46
48

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) LONG-TERM DEBT -- (CONTINUED)
financial ratios and certain other covenants. The new Credit Agreement also
contains usual and customary events of default. The Company was in compliance
with all covenants as of December 31, 1996. Proceeds under the new Credit
Agreement may be used for general corporate purposes, the purchase of existing
or new equipment, the purchase of the Company's common stock, or for possible
business acquisitions. At December 31, 1996, the amount outstanding under the
Credit Agreement totaled $70,400,000 and the average interest rate was 6.35%.
The average borrowing under the Credit Agreement during 1996 was $65,059,000,
computed by using the daily balance, and the weighted average interest rate was
6.10%, computed by dividing the interest expense under the Credit Agreement by
the average Credit Agreement borrowings. The maximum Credit Agreement borrowings
outstanding at any month end during 1996 totaled $85,800,000. At December 31,
1996, the Company had $29,600,000 available for takedown under the Credit
Agreement.

The Company has on file a shelf registration on Form S-3 with the
Securities and Exchange Commission providing for the issue of up to $250,000,000
of medium term notes ("Medium Term Notes") at fixed or floating interest rates
with maturities of nine months or longer. The Company activated the program in
March 1995 with the issuance of $34,000,000 of Medium Term Notes at an average
fixed interest rate of 7.77%, with a maturity of March 10, 1997. In June 1995,
the Company issued $45,000,000 of Medium Term Notes, bearing a fixed interest
rate of 7.25%, with a maturity of June 1, 2000. Proceeds from the sale of the
Medium Term Notes were used to retire certain bank credit agreements noted below
and to reduce the Company's existing Credit Agreements noted above. As of
December 31, 1996, $171,000,000 was available under the Medium Term Notes
program to provide financing for future business and equipment acquisitions and
working capital requirements.

In January 1997, the Company issued $50,000,000 of the authorized Medium
Term Notes at a fixed interest rate of 7.05% due January 29, 2002. Proceeds from
the issuance will be used to retire the $34,000,000 of Medium Term Notes due
March 10, 1997, with the balance used to reduce the Company's Credit Agreement.
The $34,000,000 of Medium Term Notes were classified as long-term at December
31, 1996, as the Company has the ability and the intent to refinance the Medium
Term Notes either by the issuance of new Medium Term Notes, or through the
Company's revolving Credit Agreement.

In August 1992, the Company's principal marine transportation subsidiary
entered into a $50,000,000 private placement of 8.22% senior notes due June 30,
2002. Principal payments of $5,000,000, plus interest, are due annually through
June 30, 2002. At December 31, 1996, $30,000,000 was outstanding under the
senior notes.

In March 1995, the Company retired the remaining $10,286,000 balance under
the Company's $16,000,000 credit agreement with TCB, which was scheduled to
mature on June 1, 1997. Proceeds from the Medium Term Notes program were used to
retire the credit agreement. The retired $16,000,000 credit agreement was
originally activated with the acquisition of Scott Chotin, Inc. in June 1992.

Also in March 1995, with proceeds from the activated Medium Term Notes
program, the Company retired the remaining $10,666,000 balance under the
Company's $18,000,000 credit agreement with TCB, which was scheduled to mature
on March 6, 1997. The retired $18,000,000 credit agreement was originally
activated with the acquisition of certain assets of Sabine Towing &
Transportation Co., Inc. in March 1992.

The Company is of the opinion that the amounts included in the consolidated
financial statements for outstanding debt materially represent the fair value of
such debt at December 31, 1996.

47
49

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) TAXES ON INCOME

Earnings before taxes on income and details of the provision for taxes on
income for United States and Puerto Rico operations for the years ended December
31, 1994, 1995 and 1996 are as follows (in thousands):



1994 1995 1996
------- ------ ------

Earnings before taxes on income:
United States......................................... $19,726 12,623 41,247
Foreign............................................... 7,119 5,570 2,171
------- ------ ------
$26,845 18,193 43,418
======= ====== ======
Provision for taxes on income:
United States:
Current............................................ $ 3,558 6,915 12,296
Deferred........................................... 4,297 817 2,971
State and local.................................... 587 576 922
------- ------ ------
8,442 8,308 16,189
Puerto Rico........................................... 1,750 502 --
------- ------ ------
$10,192 8,810 16,189
======= ====== ======


During the three years ended December 31, 1994, 1995 and 1996, tax benefits
allocated directly to additional paid-in capital totaled $352,000, $151,000 and
$181,000, respectively.

The Company's provision for taxes on income varied from the statutory
federal income tax rate for the years ended December 31, 1994, 1995 and 1996 due
to the following:



1994 1995 1996
---- ---- ----

United States income tax statutory rate..................... 35.0% 35.0% 35.0%
Puerto Rico taxes........................................... 6.5 2.8 --
State and local income taxes................................ 2.2 3.2 2.1
Foreign tax credits......................................... (6.5) (4.1) --
Impairment of intangible assets............................. -- 8.9 --
Other....................................................... 0.8 2.6 .2
---- ---- ----
38.0% 48.4% 37.3%
==== ==== ====


48
50

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) TAXES ON INCOME -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the current deferred tax assets and non-current deferred tax
liabilities at December 31, 1994, 1995 and 1996 are as follows (in thousands):



1994 1995 1996
-------- ------- -------

Current deferred tax assets:
Compensated absences, principally due to accrual
for financial reporting purposes................ $ 721 523 772
Allowance for doubtful account reserves............ 580 209 258
Other.............................................. 23 (55) (430)
-------- ------- -------
$ 1,324 677 600
======== ======= =======
Non-current deferred tax liabilities:
Deferred tax assets:
Tax credit carryforwards........................ $ 1,059 216 --
Alternative minimum tax credit carryforwards.... 11,515 12,122 11,383
Postretirement health care benefits............. 1,659 1,811 2,054
Dual consolidated net operating loss............ 1,044 -- --
Marine insurance claims reserves................ 447 945 628
Other........................................... 438 186 965
-------- ------- -------
16,162 15,280 15,030
-------- ------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation and bases......... (40,587) (40,354) (40,632)
Undistributed earnings from foreign
subsidiaries.................................. (15,362) (15,556) (15,896)
Deferred state taxes............................ (289) (482) (657)
Scheduled vessel maintenance costs.............. (2,800) (2,503) (3,746)
-------- ------- -------
(59,038) (58,895) (60,931)
-------- ------- -------
$(42,876) (43,615) (45,901)
======== ======= =======


The Company has determined that it is more likely than not that the
deferred tax assets will be realized and a valuation allowance for such assets
is not required.

(7) LEASES

The Company and its subsidiaries currently lease various facilities and
equipment under a number of cancelable and noncancelable operating leases. Total
rental expense for the years ended December 31, 1994, 1995 and 1996 follows (in
thousands):



1994 1995 1996
------ ----- ------

Rental expense:
Marine equipment........................................ $ 406 2,263 1,803
Other buildings and equipment........................... 1,487 1,503 1,050
Sublease rental........................................... (10) (10) (10)
------ ----- ------
Net rental expense.............................. $1,883 3,756 2,843
====== ===== ======


49
51

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(7) LEASES -- (CONTINUED)
Rental commitments under noncancelable leases are as follows (in
thousands):



LAND, BUILDINGS AND EQUIPMENT
-----------------------------

1997................................................ $2,751
1998................................................ 1,617
1999................................................ 1,447
2000................................................ 624
2001................................................ 353
Thereafter.......................................... 602
-------
$7,394
=======


(8) STOCK OPTION PLANS

The Company has five employee stock option plans, which were adopted in
1976, 1982, 1989, 1994 and 1996 for selected officers and other key employees.
The 1976 Plan, as amended, provided for the issuance until 1986 of incentive and
non-qualified stock options to purchase up to 1,000,000 shares of common stock.
The 1982 Employee Plan provided for the issuance until 1992 of incentive and
non-qualified stock options to purchase up to 600,000 shares of common stock.
The 1989 Employee Plan provides for the issuance of incentive and nonincentive
stock options to purchase up to 600,000 shares of common stock. The 1994
Employee Plan provides for the issuance of incentive and non-qualified stock
options to purchase up to 1,000,000 shares of common stock. The 1996 Employee
Plan, more fully described below, provides for the issuance of incentive and
non-qualified stock options to purchase up to 900,000 shares of common stock.
The 1976, 1982 and 1989 stock option plans authorize the granting of limited
stock appreciation rights.

Changes in options outstanding under the employee plans described above for
the 1994, 1995 and 1996 years are summarized as follows:



NON-QUALIFIED OR
NONINCENTIVE
INCENTIVE STOCK OPTIONS STOCK OPTIONS
------------------------- ------------------------- OPTION PRICE
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE RANGE PER SHARE
----------- ----------- ----------- ----------- ---------------

Outstanding December 31, 1993... 28,181 28,181 943,869 446,869 $ 2.88 - $18.19
Granted....................... -- -- 65,000 -- $21.38
Became exercisable............ -- -- -- 159,750 $ 6.56 - $18.19
Exercised..................... (28,181) (28,181) (56,319) (56,319) $ 5.50 - $13.88
Canceled or expired........... -- -- (3,750) (750) $ 6.56 - $13.88
------- ------- --------- -------
Outstanding December 31, 1994... 948,800 549,550 $ 2.88 - $21.38
Granted....................... -- -- 320,150 -- $16.31 - $18.31
Became exercisable............ -- -- -- 138,750 $12.94 - $20.19
Exercised..................... -- -- (39,300) (39,300) $ 2.88 - $13.88
Canceled or expired........... -- -- (18,250) (5,500) $12.94 - $18.31
------- ------- --------- -------
Outstanding December 31, 1995... -- -- 1,211,400 643,500 $ 3.69 - $21.38
Granted....................... -- -- 961,000 -- $16.44 - $19.50
Became exercisable............ -- -- -- 247,162 $12.94 - $21.38
Exercised..................... -- -- (90,500) (90,500) $ 6.56 - $18.31
Canceled or expired........... -- -- (58,500) (30,000) $12.94 - $18.31
------- ------- --------- -------
Outstanding December 31, 1996... -- -- 2,023,400 770,162 $ 3.69 - $21.38
======= ======= ========= =======


50
52

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(8) STOCK OPTION PLANS -- (CONTINUED)
At December 31, 1996, 728,314 shares were available for future grants under
the employee plans and 339,500 shares of the outstanding stock options under the
employee plans were issued with limited stock appreciation rights.

In November 1996, the Board of Directors of the Company adopted, subject to
stockholder approval at the 1997 Annual Meeting of Stockholders, the 1996
Employee Stock Option Plan, providing for the issuance of options to key
employees of the Company to purchase up to 900,000 shares of common stock.
Options for 696,000 shares have been granted under the 1996 Employee Stock
Option Plan, subject to stockholder approval at the 1997 Annual Meeting of
Stockholders.

The Company has two director stock option plans, which were adopted in 1989
and 1994 for nonemployee Directors of the Company. The 1989 Director Plan
provides for the issuance of nonincentive options to Directors of the Company to
purchase up to 150,000 shares of common stock. The 1994 Director Plan provides
for the issuance of non-qualified options to Directors of the Company, including
Advisory Directors, to purchase up to 100,000 shares of common stock. The
director plans are intended as an incentive to attract and retain qualified,
independent directors.

Changes in options outstanding under the director plans described above for
the 1994, 1995 and 1996 years are summarized as follows:



NON-QUALIFIED OR
NONINCENTIVE
STOCK OPTIONS
-------------------------- OPTION PRICE
OUTSTANDING EXERCISABLE RANGE PER SHARE
----------- ----------- ---------------

Outstanding December 31, 1993............... 70,000 70,000 $ 7.56 - $18.63
Granted................................... 22,500 -- $21.06 - $21.38
Became exercisable........................ -- 22,500 $21.06 - $21.38
Exercised................................. (10,000) (10,000) $ 7.56
------- -------
Outstanding December 31, 1994............... 82,500 82,500 $ 7.56 - $21.38
Granted................................... 10,500 -- $16.69
Became exercisable........................ -- 10,500 $16.69
Canceled or expired....................... (1,500) (1,500) $21.38
------- -------
Outstanding December 31, 1995............... 91,500 91,500 $ 7.56 - $21.38
Granted................................... 20,500 -- $16.63 - $17.94
Became exercisable........................ -- 20,500 $16.63 - $17.94
Exercised................................. (20,000) (20,000) $ 7.56
------- -------
Outstanding December 31, 1996............... 92,000 92,000 $ 7.56 - $21.38
======= =======


The Company has a 1993 nonqualified stock option for 25,000 shares granted
to Robert G. Stone, Jr. at an exercise price of $18.625. Currently, 20,000
shares of the stock option are exercisable. The grant serves as an incentive to
retain the optionee as a member of the Board of Directors of the Company.

(9) RETIREMENT PLANS

The transportation subsidiaries sponsor defined benefit plans for certain
ocean-going personnel. The plan benefits are based on an employee's years of
service. The plans' assets primarily consist of fixed income securities and
corporate stocks. Funding of the plans is based on actuarial computations that
are designed to satisfy minimum funding requirements of applicable regulations
and to achieve adequate funding of projected benefit obligations.

51
53

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(9) RETIREMENT PLANS -- (CONTINUED)
The components of net periodic pension cost determined by using the
projected unit credit actuarial method for the years ended December 31, 1994,
1995 and 1996, are as follows (in thousands):



1994 1995 1996
------ ------ ------

Service cost -- benefits earned during the year.......... $1,418 1,271 1,357
Interest cost............................................ 818 959 1,090
Actual return on plan assets............................. (84) (2,699) (2,218)
Net amortization and deferrals........................... (312) 2,065 1,277
Less partnerships' allocation............................ (37) (76) (32)
------ ------ ------
Net periodic pension cost................................ $1,803 1,520 1,474
====== ====== ======


The funding status of the plans as of December 31, 1995 and 1996 is as
follows (in thousands):



1995 1996
------- ------

Actuarial present value of benefit obligations:
Vested.................................................... $11,329 12,944
Non-vested................................................ 1,045 1,211
------- ------
Accumulated benefit obligation.............................. 12,374 14,155
Impact of future salary increases........................... 1,904 1,786
------- ------
Projected benefit obligation................................ 14,278 15,941
Plan assets at fair value................................... 12,705 15,243
Plan assets less than projected benefit obligation.......... (1,573) (698)
Unrecognized transition obligation.......................... 108 91
Unrecognized prior service cost............................. 1,377 1,185
Unrecognized net loss (gain)................................ 991 (416)
------- ------
Prepaid pension cost........................................ $ 903 162
======= ======
Actuarial assumptions:
Discount rate............................................. 7.25% 7.25%
Return on assets.......................................... 9.25% 9.25%
Salary increase rate...................................... 4.00% 4.00%


The Company sponsors defined contribution plans for all shore-based
employees and certain ocean-going personnel. Maximum contributions to these
plans equal the lesser of 15% of the aggregate compensation paid to all
participating employees, or up to 20% of each subsidiary's earnings before
federal income tax after certain adjustments for each fiscal year. The aggregate
contributions to the plans were approximately $2,065,000, $3,507,000 and
$3,804,000 in 1994, 1995 and 1996, respectively.

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

52
54

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(9) RETIREMENT PLANS -- (CONTINUED)
The following table presents the unfunded defined benefit health care
plan's funded status reconciled with amounts recognized in the Company's
consolidated balance sheet at December 31, 1995 and 1996 (in thousands):



1995 1996
------ -----

Accumulated postretirement benefit obligation:
Retirees.................................................. $1,434 1,593
Fully eligible active plan participants................... 744 741
Other active plan participants............................ 3,584 4,014
Partnership's allocation.................................. (148) (168)
Unrecognized loss......................................... (348) (320)
------ -----
Accrued postretirement benefit cost included in other
long-term liabilities.................................. $5,266 5,860
====== =====
Net periodic postretirement benefit cost for 1995 and 1996
includes the following components:
Service cost.............................................. $ 325 389
Interest cost............................................. 395 434
Less partnerships' allocation............................. (19) (21)
------ -----
Net periodic postretirement benefit cost.................. $ 701 802
====== =====


The Company's unfunded defined benefit health care plan, which provides
limited postretirement medical benefits, limits cost increases in the Company's
contribution to 4% per year. For measurement purposes, a 4% annual rate of
increase in the per capita cost of covered benefits (i.e., health care cost
trend rate) was assumed for future periods. Accordingly, a 1% increase in the
health care cost trend rate assumption would have no effect on the amounts
reported.

The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% at December 31, 1995 and 1996.

(10) EARNINGS PER SHARE OF COMMON STOCK

Primary earnings per share of common stock for the years ended December 31,
1994, 1995 and 1996 were based on the weighted average number of common stock
and common stock equivalent shares outstanding of 28,790,000, 27,921,000 and
25,869,000, respectively.

53
55

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(11) QUARTERLY RESULTS (UNAUDITED)

The unaudited quarterly results for the year ended December 31, 1995 are as
follows (in thousands, except per share amounts):



THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
--------- -------- ------------- ------------

Revenues..................................... $118,618 123,026 104,311 94,195
Costs and expenses........................... 108,238 112,350 110,551 82,544
-------- ------- ------- ------
Operating income (loss).................... 10,380 10,676 (6,240) 11,651
Equity in earnings of insurance affiliate.... -- -- 1,210 389
Equity in earnings of marine affiliates...... 159 425 884 1,170
Interest expense............................. (2,910) (3,046) (3,252) (3,303)
-------- ------- ------- ------
Earnings (loss) before taxes on income..... 7,629 8,055 (7,398) 9,907
Provision (benefit) for taxes on income...... 2,820 2,979 (800) 3,811
-------- ------- ------- ------
Net earnings (loss)........................ $ 4,809 5,076 (6,598) 6,096
======== ======= ======= ======
Earnings (loss) per share of common stock.... $ .17 .18 (.24) .23
======== ======= ======= ======


The unaudited quarterly results for the year ended December 31, 1996 are as
follows (in thousands, except per share amounts):



THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------

Revenues..................................... $ 92,903 97,901 100,336 99,498
Costs and expenses........................... 82,926 83,368 87,149 86,511
-------- ------- ------- ------
Operating income........................... 9,977 14,533 13,187 12,987
Equity in earnings of insurance affiliate.... 969 382 404 416
Equity in earnings of marine affiliates...... 748 1,166 1,141 857
Interest expense............................. (3,315) (3,161) (3,437) (3,436)
-------- ------- ------- ------
Earnings before taxes on income............ 8,379 12,920 11,295 10,824
Provision for taxes on income................ 3,139 4,694 4,189 4,167
-------- ------- ------- ------
Net earnings............................... $ 5,240 8,226 7,106 6,657
======== ======= ======= ======
Earnings per share of common stock........... $ .20 .31 .28 .27
======== ======= ======= ======


(12) CONTINGENCIES AND COMMITMENTS

The Company has sued the U.S. Maritime Administration ("Marad") seeking
judicial review of Marad's approval of certain federal loan guarantees for
vessels intended for Jones Act trade in which the Company competes. Approval of
the federal loan guarantees will exacerbate the oversupply situation which
exists in the Jones Act petroleum product tanker trade, thereby limiting the
Company's options with respect to commercial replacement of its tankers and
negatively impacting future revenues and operating margins of the Company's
existing tankers. It is the Company's strongly held belief that approval of the
federal loan guarantees constitutes a clear violation of Marad's statutory and
regulatory authority under the Title XI federal loan guarantee program.

On November 7, 1996, the Supreme Court of Puerto Rico significantly lowered
a July 5, 1989 Superior Court judgment against Universal of approximately
$1,100,000, plus interest, resulting from a civil suit

54
56

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(12) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
claiming damages. The Supreme Court awarded approximately $200,000 to the
defendant, plus interest. The case has been remanded to a lower court for
additional legal proceedings. As part of the September 1992 merger of Universal
with Eastern America Insurance Company ("Eastern America"), more fully described
in Note 13, Insurance Disclosure, the Company retained the consequences of this
claim, as well as the attribution of the reserve. Upon final resolution in the
lower court and resolution of the amount of interest due, the balance in the
reserve, less legal fees, will be paid to the Company by Universal. The Company
anticipates the receipt of approximately $3,000,000 during the first or second
quarter of 1997.

There are various other suits and claims against Universal, none of which
in the opinion of management, will have a material effect on Universal's or the
Company's financial condition, results of operations or cash flows.

There are various other suits and claims against the Company, none of which
in the opinion of management, will have a material effect on the Company's
financial condition, results of operations or cash flows.

Management has recorded necessary reserves and believes that it has
adequate insurance coverage or has meritorious defenses for the foregoing claims
and contingencies.

Certain Significant Risks and Uncertainties:

The Company's marine transportation segment is engaged in the inland marine
transportation of industrial chemicals, petrochemical feedstocks, agricultural
chemicals and refined petroleum products by tank barge along the Mississippi
River System, Gulf Intracoastal Waterway and Houston Ship Channel. In addition,
the segment is engaged in the offshore marine transportation of refined
petroleum products by tankers and tank barges, and dry-bulk cargo, containers
and palletized cargo by barge and break-bulk freighters. Such products are
transported between United States ports, with emphasis on the Gulf of Mexico and
along the Northeast Seaboard, Caribbean Basin ports and to South American, West
African and European ports.

The Company's diesel repair segment is engaged in the sale, overhaul and
repair of large diesel engines and related parts sales in the marine, locomotive
and power generator markets. The marine market serves vessels powered by large
diesel engines utilized in the various inland and offshore marine industries.
The locomotive market serves the shortline and industrial railroad markets, and
the power generator market serves the stationary industries.

During 1996, the Company's marine transportation industry segment accounted
for 72% of the Company's assets and the diesel repair segment accounted for 9%.
Of total consolidated revenues, the marine transportation segment generated 81%
during 1996, and the diesel repair segment generated 18%. Operating profits,
including equity in earnings of affiliates and before general corporate
expenses, included a 90% contribution from the marine transportation segment and
a 10% contribution from the diesel repair segment.

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

The customer base includes the major industrial chemical and petrochemical
manufacturers, agricultural chemical manufacturers and refining companies in the
United States. Over 80% of the movements of such products are under long-term
contracts, ranging from one year to 10 years. While the manufacturing and
refining companies have generally been customers of the Company for numerous
years (some as long as

55
57

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(12) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
30 years) and management anticipates a continuing relationship, there is no
assurance that any individual contract will be renewed. The Dow Chemical Company
accounted for 10% of the Company's revenues in 1996. No single customer of the
marine transportation segment accounted for more than 10% of the Company's
revenues in 1994 or 1995.

Major customers of the diesel repair segment include the inland and
offshore dry-bulk and tank barge operators, oil service companies, petrochemical
companies, offshore fishing companies, other marine transportation entities, the
United States Coast Guard, Navy and Army, shortline railroads, industrial owners
of locomotives, and stationary applications. The marine segment serves as
non-exclusive authorized service centers for the EMD and the locomotive segment
serves as the exclusive distributorship of EMD aftermarket parts sales and
service to the shortline and industrial railroad market. The acquisition of MKW
in July 1996, more fully described in Note 3, Acquisitions, expanded the diesel
repair segment's relationship with EMD to an authorized distributorship for 17
Eastern states and the Caribbean. The results of the diesel repair service
segment are largely tied to the industries it serves and, therefore, can be
influenced by the cycles of such industries. The diesel repair segment's
relationship with EMD has been maintained for 30 years. No single customer of
the diesel repair segment accounted for more than 10% of the Company's revenues
in 1994, 1995 or 1996.

Weather can be a major factor in the day to day operations of the marine
transportation segment. Adverse weather conditions, such as fog in the winter
and spring months, can impair the operating efficiencies of the fleet. Shipments
of products can be significantly delayed or postponed by weather conditions,
which are totally beyond the control of management. River conditions are also a
factor which impairs the efficiency of the fleet. During 1993 and 1995, the
upper Mississippi River was closed to marine transportation movements for
extended periods due to severe flooding, and in both years the flooding
continued to disrupt deliveries even after the upper Mississippi River was
opened. Additionally, much of the inland waterways system is controlled by a
series of locks and dams designed to provide flood control, maintain pool levels
of water in certain areas of the country and facilitate navigation on the inland
river system. During 1993 and 1995, certain locks were closed for repairs for
extended periods of time. Maintenance and operations of the navigable inland
waterway infrastructure is a government function handled by the U.S. Army Corps
of Engineers with cost sharing by industry. Significant changes in governmental
policies or appropriations with respect to maintenance and operations of the
infrastructure could adversely affect the Company.

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

The Company's marine transportation segment competes principally in markets
subject to the Jones Act, a federal cabotage law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States, and manned and owned by United States citizens. During the past
several years, the Jones Act cabotage provisions have come under attack by
interests seeking to facilitate foreign flag competition in trades reserved for
domestic companies and vessels under the Jones Act. The efforts have been
consistently defeated by large margins in the United States Congress. The
Company believes that continued efforts will be made to modify or eliminate the
cabotage provisions of the Jones Act. If such efforts are successful, certain
elements could have an adverse effect on the Company.

56
58

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(12) CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
The Company's tanker operations compete in a market where excess capacity
can materially affect rates and tankship utilization. As discussed above,
certain governmental programs can have the effect of stimulating construction of
capacity premature to market demand.

(13) INSURANCE DISCLOSURE

The Company's investment in Universal, a property and casualty insurance
company located in Puerto Rico, is accounted for under the equity method of
accounting effective July 1, 1995. For the 1995 first six months and prior
years, results for Universal were consolidated with a minority interest recorded
for Universal's minority shareholder. Currently, the Company owns 47% of
Universal's voting common stock and 53% is owned by Eastern America Financial
Group, Inc. ("Eastern America Group").

On September 25, 1992, the Company completed the acquisition of Eastern
America by means of a merger of Eastern America with and into Universal, with
Universal being the surviving entity. Eastern America was engaged in the writing
of property and casualty insurance in Puerto Rico. At the date of the merger,
the Company owned 75% of the voting common stock and the remaining 25% was owned
by Eastern America Group, the former parent of Eastern America. Through options
and redemption rights included in the merger transaction, Eastern America Group
could become the owner of up to 100% of Universal's stock over a period of up to
12 years from September 1992. To date, Universal has redeemed a total of 79,572
shares of voting Class B common stock and all of non-voting Class C common stock
for a total redemption of $20,016,000 as follows (in thousands, except share
amounts):



1992-1993 1994 1995
--------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------

Class B Voting Common Stock....... 44,933 $8,000 20,424 $4,000 14,215 $2,929
Class C Voting Common Stock....... -- -- 24,360 3,000 16,240 2,087
------ ------ ------ ------ ------ ------
44,933 $8,000 44,784 $7,000 30,455 $5,016
====== ====== ====== ====== ====== ======


No redemptions were made during the 1996 year.

In addition, in August 1994 and July 1995, Eastern America Group purchased
from Universal 40,572 shares and 28,139 shares, respectively, of Class A voting
common stock for $7,000,000 and $5,000,000, respectively. Eastern America Group
owns 100% of the Class A voting common stock. In 1995 and 1996, the Universal
Board of Directors declared, and Universal paid, a $3,000,000 and $4,526,000,
respectively, dividend on the Class A common stock. In accordance with the
merger agreement, Eastern America Group must use the dividends to repay the
loans and interest on such loans which Eastern America Group incurred in
purchasing the additional Class A common stock noted above.

The financial results of Universal represent the Company's property and
casualty insurance segment for 1994 and the first six months of 1995. Effective
July 1, 1995, the Company accounts for its investment in Universal under the
equity method of accounting. The financial results of Oceanic, the Company's
captive insurance subsidiary engaged in the insuring of risks for the marine
transportation and diesel repair subsidiaries, are consolidated with the
Company's operations.

A summary of the significant accounting policies and operations of the
insurance operation follows:

Insurance Operation. Writing of property and casualty insurance in Puerto
Rico through Universal. Universal operates under the provisions of the Insurance
Code of the Commonwealth of Puerto Rico and is subject to regulations issued by
the Commissioner of Insurance of the Commonwealth of Puerto Rico.

57
59

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(13) INSURANCE DISCLOSURE -- (CONTINUED)
Concentrations of Credit Risk. Financial instruments which potentially
subject Universal to concentrations of credit risk are primarily trade accounts
receivable from agents and customers who reside in Puerto Rico. In addition,
credit risk exists through the placement of certificates of deposits with Puerto
Rico financial institutions.

Investments. Fixed maturity investments are classified as
available-for-sale securities and are reported at fair market value, with
unrealized holding gains and losses reported as a separate component of
stockholders' equity, net of tax.

Short-term investments consisting of certificates of deposit, United States
Treasury bills and United States Treasury notes maturing within one year from
acquisition date, are recorded at amortized cost, which approximates fair value.
Universal does not invest in high-yield securities judged to be below investment
grade.

Reinsurance. By reinsuring certain levels of risk in various areas with
reinsurers, the exposure of losses which may arise from catastrophes or other
events which may cause unfavorable underwriting results are reduced. Amounts
recoverable from reinsurance are estimated in a manner consistent with the claim
liability associated with the reinsured policy.

Deferred Policy Acquisition Costs. Deferred policy acquisition costs
representing commissions paid to agents are deferred and amortized following the
daily pro rata method over the terms of the policies except for automobile
physical damage single-interest policies, which are amortized following the
sum-of-the-years method. Deferred policy acquisition costs are written off when
it is determined that future policy revenues are not adequate to cover related
future losses and loss adjustment expenses. Earnings on investments are taken
into account in determining whether this condition exists. No deficiencies have
been determined in the periods presented.

Accrued Losses, Claims and Settlement Expenses. Accrued losses, claims and
settlement expenses include estimates based on individual claims outstanding and
an estimated amount for losses incurred but not reported based on past
experience.

Unearned Premiums. Unearned premiums are deferred and amortized following
the daily pro rata method over the terms of the policies except for automobile
physical damage single-interest policies, which are amortized to income
following the sum-of-the-years method. Effective January 1, 1994, Universal
changed its method of amortization of double-interest automobile physical damage
policies from the daily pro rata method, the method the Company follows, to a
declining value method, which the Company did not adopt.

Guarantee Fund Assessments. Universal is a member of the Puerto Rico
Insurance Guaranty Association and is required to participate in losses payable
to policyholders under risks underwritten by insolvent associated members.
Universal estimates its share of expected loses and accrues them on a current
basis.

58
60

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(13) INSURANCE DISCLOSURE -- (CONTINUED)
The statement of earnings of Universal for the year ended December 31, 1994
and the six months ended June 30, 1995, which are reflected in the Company's
consolidated financial statements, are as follows (in thousands):



SIX MONTHS
ENDED
1994 JUNE 30, 1995
-------- -------------
(UNAUDITED)

Revenues:
Premiums written.......................................... $111,415 78,979
======== =======
Reinsurance assumed....................................... $ 108 108
======== =======
Net premiums earned....................................... $ 61,477 43,191
Investment income......................................... 8,706 5,859
Commissions earned on reinsurance......................... 4,335 2,048
Realized gain on investments.............................. 1,222 868
Other..................................................... 84 --
-------- -------
75,824 51,966
-------- -------
Costs and expenses:
Losses, claims and settlement expenses.................... 44,634 30,189
Policy acquisition costs.................................. 13,538 9,365
General and administrative and other expenses............. 9,109 5,978
Minority interest expense................................. 3,424 2,463
-------- -------
70,705 47,995
-------- -------
Net earnings........................................... $ 5,119 3,971
======== =======


Policy acquisition costs deferred and amortized against earnings during the
year ended December 31, 1994 and during the six months ended June 30, 1995 are
summarized as follows (in thousands):



SIX MONTHS
ENDED
1994 JUNE 30, 1995
-------- -------------
(UNAUDITED)

Balance, beginning of year.................................. $ 7,279 11,690
Amount deferred during year................................. 17,949 14,272
Amount amortized against earnings during year............... (13,538) (9,365)
-------- ------
Balance, end of year........................................ $ 11,690 16,597
======== ======


59
61

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(13) INSURANCE DISCLOSURE -- (CONTINUED)
As previously discussed, at December 31, 1995 and 1996, the Company had a
47% equity interest in Universal. The following represents summarized financial
information for Universal for the years ended December 31, 1995 and 1996 (in
thousands):



1995 1996
-------- -------

Balance Sheet:
Investments............................................... $210,881 213,247
Other assets.............................................. 110,926 141,718
Policy liabilities and accruals........................... 212,655 245,262
Other liabilities......................................... 23,766 19,695
Stockholders' equity...................................... 85,386 90,008
Statement of Earnings:
Premiums written.......................................... $167,069 172,313
Reinsurance assumed....................................... 152 66
Total revenues............................................ 118,711 133,386
Losses and expenses....................................... 93,516 114,734
Earnings before taxes on income........................... 25,195 18,652
Net earnings.............................................. 19,192 15,728


A reconciliation of Universal's net earnings for the years ended December
31, 1995 and 1996, as presented in their separate consolidated financial
statements, and for the 1995 proforma equity in earnings of the insurance
affiliate presented on page 44 are as follows (in thousands):



1995 1996
-------- ------

Universal's net earnings.................................... $ 19,192 15,728
Change in the method of amortization of unearned premiums... (3,151) (2,809)
Nonapplicable Puerto Rico deferred taxes.................... 6,003 2,924
Earnings attributable to majority stockholder............... (10,001) (8,397)
Valuation allowance against earnings in excess of future
redemptions............................................... (6,473) (5,275)
-------- ------
Proforma equity in earnings of insurance
affiliate....................................... $ 5,570 2,171
======== ======


60
62

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(14) INDUSTRY SEGMENT DATA

The following table sets forth by industry segment the combined revenues,
operating profits (before general corporate expenses, interest expense and
income taxes), identifiable assets (including goodwill), depreciation and
amortization and capital expenditures attributable to the continuing principal
activities of the Company for the years ended December 31, 1994, 1995 and 1996
(in thousands):



1994 1995 1996
-------- ------- -------

Revenues from unaffiliated customers:
Transportation................................... $311,076 335,913 316,367
Diesel repair.................................... 45,269 50,538 70,422
Insurance........................................ 65,812 45,239(*) --
Other............................................ 10,980 8,460 3,849
-------- ------- -------
Consolidated revenues......................... $433,137 440,150 390,638
======== ======= =======
Operating profits:
Transportation................................... $ 30,890 40,148 47,245
Diesel repair.................................... 3,090 3,400 5,376
Insurance........................................ 5,035 3,971(*) --
Impairment of long-lived assets.................. -- (17,500) --
-------- ------- -------
39,015 30,019 52,621
Equity in earnings of insurance affiliate........ -- 1,599(*) 2,171
Equity in earnings of marine affiliates.......... -- 2,638 3,912
Other income..................................... 1,051 1,732 3,849
General corporate expenses....................... (4,386) (5,284) (5,786)
Interest expense................................. (8,835) (12,511) (13,349)
-------- ------- -------
Earnings before taxes on income............... $ 26,845 18,193 43,418
======== ======= =======
Identifiable assets:
Transportation................................... $397,112 384,363 380,181
Diesel repair.................................... 21,304 22,401 48,012
Insurance........................................ 216,666 -- --
-------- ------- -------
635,082 406,764 428,193
Investment in insurance affiliate................ -- 44,785 44,554
Investment in marine affiliates.................. 181 11,985 12,697
General corporate assets......................... 32,209 34,550 39,086
-------- ------- -------
Consolidated assets........................... $667,472 498,084 524,530
======== ======= =======
Depreciation and amortization:
Transportation................................... $ 31,138 36,265 32,237
Diesel repair.................................... 674 752 883
Insurance........................................ 491 367 --
-------- ------- -------
$ 32,303 37,384 33,120
======== ======= =======
Capital expenditures and business acquisitions:
Transportation................................... $ 71,714 46,071 36,630
Diesel repair.................................... 512 630 14,785
Insurance........................................ 1,251 669 --
-------- ------- -------
$ 73,477 47,370 51,415
======== ======= =======


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

(*) The Company changed its method of reporting its investment in Universal from
a consolidated basis to the equity method of accounting in July 1995.

Identifiable assets are those assets that are used in the operation of each
segment. General corporate assets are principally cash, short-term investments,
accounts receivable, furniture and equipment.

61
63

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements:

Included in Part III of this report:

Report of KPMG Peat Marwick LLP, Independent Public Accountants, on the
financial statements of Kirby Corporation and Consolidated Subsidiaries
for the years ended December 31, 1994, 1995 and 1996.

Balance Sheets, December 31, 1995 and 1996.

Statements of Earnings, for the years ended December 31, 1994, 1995 and
1996.

Statements of Stockholders' Equity, for the years ended December 31,
1994, 1995 and 1996.

Statements of Cash Flows, for the years ended December 31, 1994, 1995
and 1996.

Notes to Financial Statements, for the years ended December 31, 1994,
1995 and 1996.

2. Financial Statement Schedules

Included in Part IV of this report:

III -- Supplemental Insurance Information, for the year ended December
31, 1994.

IV -- Reinsurance, for the year ended December 31, 1994.

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

3. Exhibits



EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------

3.1 -- Restated Articles of Incorporation of Kirby Exploration
Company, Inc. (the "Company"), as amended (incorporated
by reference to Exhibit 3.1 of the Registrant's 1989
Registration Statement on Form S-3 (Reg. No. 33-30832)).
3.2 -- Certificate of Amendment of Restated Articles of
Incorporation of the Company filed with the Secretary of
State of Nevada April 30, 1990 (incorporated by reference
to Exhibit 3.2 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990).
3.3 -- Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 of the Registrant's 1989
Registration Statement on Form S-3 (Reg. No. 33-30832)).
3.4 -- Amendment to Bylaws of the Company effective April 24,
1990 (incorporated by reference to Exhibit 3.4 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
4.1 -- Indenture, dated as of December 2, 1994, between the
Company and Texas Commerce Bank National Association,
Trustee, (incorporated by reference to Exhibit 4.3 of the
Registrant's 1994 Registration Statement on Form S-3
(Reg. No. 33-56195)).
10.1+ -- 1976 Stock Option Plan of Kirby Exploration Company, as
amended, and forms of option agreements provided for
thereunder and related documents (incorporated by
reference to Exhibit 10.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1981).


62
64


EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------

10.2+ -- 1982 Stock Option Plan for Kirby Exploration Company, and
forms of option agreements provided for thereunder and
related documents (incorporated by reference to Exhibit
10.5 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1982).
10.3+ -- Amendment to 1982 Stock Option Plan for Kirby Exploration
Company (incorporated by reference to Exhibit 10.5 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
10.4 -- Indemnification Agreement, dated April 29, 1986, between
the Company and each of its Directors and certain key
employees (incorporated by reference to Exhibit 10.11 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
10.5+ -- 1989 Employee Stock Option Plan for the Company, as
amended (incorporated by reference to Exhibit 10.11 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989).
10.6+ -- 1989 Director Stock Option Plan for the Company, as
amended (incorporated by reference to Exhibit 10.12 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989).
10.7 -- Loan Agreement, dated as of July 31, 1990, by and between
Dixie Carriers, Inc. and Texas Commerce Bank National
Association (incorporated by reference to Exhibit 10.10
of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990).
10.8 -- Loan Agreement between Dixie Fuels Limited and NCNB
Leasing Corporation, dated as of February 4, 1992
(incorporated by reference to Exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
10.9 -- Credit Agreement, dated as of March 6, 1992, among Sabine
Transportation Company, Kirby Corporation, Texas Commerce
Bank National Association and The First National Bank of
Boston (incorporated by reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
10.10 -- Credit Agreement, dated as of March 6, 1992, among Dixie
Carriers, Inc., Kirby Corporation and Texas Commerce Bank
National Association (incorporated by reference to
Exhibit 10.13 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991).
10.11 -- Credit Agreement, dated as of May 28, 1992, among Chotin
Carriers, Inc., Kirby Corporation, Texas Commerce Bank
National Association and The First National Bank of
Boston (incorporated by reference to Exhibit 2.2 of the
Registrant's Current Report on Form 8-K dated as of June
11, 1992).
10.12 -- Note Purchase Agreement, dated as of August 12, 1992,
among Dixie Carriers, Inc., The Variable Annuity Life
Insurance Company, Provident Mutual Life and Annuity
Company of America, among others (incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1992).
10.13+ -- Deferred Compensation Agreement dated August 12, 1985
between Dixie Carriers, Inc., and J. H. Pyne
(incorporated by reference to Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).


63
65


EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------

10.14 -- Agreement and Plan of Merger, dated April 1, 1993, among
Kirby Corporation, AFRAM Carriers, Inc. and AFRAM Lines
(USA) Co., Ltd. and the shareholders of AFRAM Lines (USA)
Co., Ltd. (incorporated by reference to Exhibit 2.1 of
the Registrant's Current Report on Form 8-K dated May 3,
1993).
10.15 -- Credit Agreement, dated April 23, 1993, among Kirby
Corporation, the Banks named therein, and Texas Commerce
Bank National Association as Agent and Fund Administrator
(incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.16 -- Credit Agreement, dated April 23, 1993, among Dixie
Carriers, Inc., the Banks named therein, and Texas
Commerce Bank National Association, as Agent and Fund
Administrator (incorporated by reference to Exhibit 10.02
of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.17+ -- 1994 Employee Stock Option Plan for Kirby Corporation
(incorporated by reference to Exhibit 10.21 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.18+ -- 1994 Nonemployee Director Stock Option Plan for Kirby
Corporation (incorporated by reference to Exhibit 10.22
of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.19+ -- 1993 Stock Option Plan of Kirby Corporation for Robert G.
Stone, Jr. (incorporated by reference to Exhibit 10.23 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.20+ -- Amendment to 1989 Director Stock Option Plan for Kirby
Exploration Company, Inc. (incorporated by reference to
Exhibit 10.24 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10.21 -- Purchase Agreement, dated November 16, 1994, by and
between The Dow Chemical Company and Dow Hydrocarbons and
Resources, Inc. and Dixie Marine, Inc. (incorporated by
reference to Exhibit 10.25 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.22 -- Distribution Agreement, dated December 2, 1994, by and
among Kirby Corporation and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Salomon Brothers Inc. and Wertheim
Schroder & Co. Incorporated (incorporated by reference to
Exhibit 1.1 of the Registrant's Current Report on Form
8-K dated December 9, 1994).
10.23 -- Credit Agreement, dated March 18, 1996, among Kirby
Corporation, the Banks named therein, and Texas Commerce
Bank National Association as Agent and Fund Administrator
(incorporated by reference to Exhibit 10.0 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).
10.24+* -- 1996 Employee Stock Option Plan for Kirby Corporation.
10.25+* -- Amendment No. 1 to the 1994 Employee Stock Option Plan
for Kirby Corporation.
21.1* -- Principal Subsidiaries of the Registrant.
23.1* -- Consent of KPMG Peat Marwick LLP.
27.1* -- Financial Data Schedule.
28.1* -- Independent Auditors' Report of Deloitte & Touche LLP.


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

* Filed herewith

+ Management contract, compensatory plan or arrangement.

64
66

SCHEDULE III

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTAL INSURANCE INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1994


FUTURE
POLICY BENEFITS,
DEFERRED BENEFITS, OTHER CLAIMS,
POLICY LOSSES, POLICY NET LOSSES AND
ACQUISITION CLAIMS AND UNEARNED CLAIMS AND PREMIUM INVESTMENT SETTLEMENT
SEGMENT COSTS LOSS EXPENSE PREMIUMS BENEFITS REVENUES INCOME(1) EXPENSES
------- ----------- ------------ -------- ---------- -------- ---------- ----------
($ IN THOUSANDS)

Insurance:
December 31, 1994.............. $11,690 $56,433 $89,801 $ -- $61,477 $8,706 $44,634
======= ======= ======= ======= ======= ====== =======



AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES(2) WRITTEN
------- ------------ ----------- --------
($ IN THOUSANDS)

Insurance:
December 31, 1994.............. $13,538 $9,109 $90,345
======= ====== =======


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

(1) Reconciliation of net investment income to investment income amount
reflected in the statements of earnings is as follows:



FOR THE YEAR ENDED
DECEMBER 31, 1994
-------------------
($ IN THOUSANDS)

Net investment income as stated above -- Insurance
segment................................................ $8,706
Investment income -- Marine transportation segment, diesel
repair segment and parent company...................... 505
-------
$9,211
=======


(2) Included as part of selling, general and administrative expenses, taxes,
other than on income, and depreciation and amortization in the statements of
earnings.

65
67

SCHEDULE IV

KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES

REINSURANCE
FOR THE YEAR ENDED DECEMBER 31, 1994



PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- ----------- ------- ----------
($ IN THOUSANDS)

December 31, 1994:
Life insurance in force.................... $ -- $ -- -$- $ -- --
======== ======= ==== ======= ===
Premiums:
Life insurance.......................... $ $ $ $
Accident and health insurance...........
Property and liability insurance........ 111,415 21,178 108 90,345 .12%
-------- ------- ---- ------- ---
Total premiums..................... $111,415 $21,178 $108 $90,345* .12%
======== ======= ==== ======= ===


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

* Reconciliation of total premiums to net premiums earned, the amount reflected
in the statements of earnings is as follows:



FOR THE YEAR ENDED
DECEMBER 31, 1994
-------------------
($ IN THOUSANDS)

Total premiums.............................................. $90,345
Increase in unearned premiums............................... (28,868)
-------
Net premiums earned............................... $61,477
=======


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68

SIGNATURES

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

KIRBY CORPORATION
(Registrant)

By: BRIAN K. HARRINGTON
----------------------------------
BRIAN K. HARRINGTON
SENIOR VICE PRESIDENT

Dated: March 5, 1997

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



SIGNATURE CAPACITY DATE
--------- -------- ----


GEORGE A. PETERKIN, JR. Chairman of the Board and Director of March 5, 1997
- ------------------------------------------ the Company
George A. Peterkin, Jr.

J. H. PYNE President, Director of the Company and March 5, 1997
- ------------------------------------------ Principal Executive Officer
J. H. Pyne

BRIAN K. HARRINGTON Senior Vice President, Treasurer, March 5, 1997
- ------------------------------------------ Assistant Secretary of the Company
Brian K. Harrington and Principal Financial Officer

G. STEPHEN HOLCOMB Vice President, Controller, Assistant March 5, 1997
- ------------------------------------------ Treasurer, Assistant Secretary of
G. Stephen Holcomb the Company and Principal Accounting
Officer

GEORGE F. CLEMENTS, JR. Director of the Company March 5, 1997
- ------------------------------------------
George F. Clements, Jr.

C. SEAN DAY Director of the Company March 5, 1997
- ------------------------------------------
C. Sean Day

WILLIAM M. LAMONT, JR. Director of the Company March 5, 1997
- ------------------------------------------
William M. Lamont, Jr.

ROBERT G. STONE, JR. Director of the Company March 5, 1997
- ------------------------------------------
Robert G. Stone, Jr.

THOMAS M. TAYLOR Director of the Company March 5, 1997
- ------------------------------------------
Thomas M. Taylor

J. VIRGIL WAGGONER Director of the Company March 5, 1997
- ------------------------------------------
J. Virgil Waggoner


67
69

INDEX TO EXHIBITS



10.24+ 1996 Employee Stock Option Plan for Kirby Corporation.
10.25+ Amendment No. 1 to the 1994 Employee Stock Option Plan for
Kirby Corporation.
21.1 Principal Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
28.1 Independent Auditor's Report of Deloitte & Touche LLP.