<PAGE>
 
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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, 2002
                                   

                                   
                                       OR
                                   

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

                                   
             FOR THE TRANSITION PERIOD FROM           TO
 
                           COMMISSION FILE NO. 1-7615
 
                               KIRBY CORPORATION
             (Exact name of registrant as specified in its charter)
 

<Table>
<S>                                                 <C>
                      NEVADA                                            74-1884980
          (State or other jurisdiction of                            (I.R.S. Employer
          incorporation or organization)                            Identification No.)
 
            55 WAUGH DRIVE, SUITE 1000                                     77007
                  HOUSTON, TEXAS                                        (Zip Code)
     (Address of principal executive offices)
</Table>

 
              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (713) 435-1000
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 

<Table>
<Caption>
                TITLE OF EACH CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
                -------------------                      -----------------------------------------
<S>                                                 <C>
     Common Stock -- $.10 Par Value Per Share                     New York Stock Exchange
</Table>

 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      NONE
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]     No [ ]
 
     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes [X]     No [ ]
 
     As of March 5, 2003, 24,065,789 shares of common stock were outstanding.
The aggregate market value of common stock held by nonaffiliates of the
registrant, based on the closing sales price of such stock on the New York Stock
Exchange on March 4, 2003 was $440,238,000. For purposes of this computation,
all executive officers, directors and 10% beneficial owners of the registrant
are deemed to be affiliates. Such determination should not be deemed an
admission that such executive officers, directors and 10% beneficial owners are
affiliates.
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     The Company's definitive proxy statement in connection with the Annual
Meeting of the Stockholders to be held April 22, 2003, to be filed with the
Commission pursuant to Regulation 14A, is incorporated by reference into Part
III of this report.
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--------------------------------------------------------------------------------

<PAGE>
 

                                     PART I
 

ITEM 1.  BUSINESS
 
                                  THE COMPANY
 
     Kirby Corporation (the "Company") was incorporated in Nevada on January 31,
1969 as a subsidiary of Kirby Industries, Inc. ("Industries"). The Company
became publicly owned on September 30, 1976 when its common stock was
distributed pro rata to the stockholders of Industries in connection with the
liquidation of Industries. At that time, the Company was engaged in oil and gas
exploration and production, marine transportation and property and casualty
insurance. Since then, through a series of acquisitions and divestitures, the
Company has become primarily a marine transportation company and is no longer
engaged in the oil and gas or the property and casualty insurance businesses. In
1990, the name of the Company was changed from "Kirby Exploration Company, Inc."
to "Kirby Corporation" because of the changing emphasis of its business.
 
     Unless the context otherwise requires, all references herein to the Company
include the Company and its subsidiaries.
 
     The Company's principal executive office is located at 55 Waugh Drive,
Suite 1000, Houston, Texas 77007, and its telephone number is (713) 435-1000.
The Company's mailing address is P.O. Box 1745, Houston, Texas 77251-1745.
 
WEBSITE ACCESS TO SEC REPORTS
 
     The Internet address of the Company's website is www.kirbycorp.com. The
Company makes available free of charge through its website, all of its filings
with the Securities and Exchange Commission ("SEC"), including its annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC.
 
                             BUSINESS AND PROPERTY
 
     The Company, through its subsidiaries, conducts operations in two business
segments: marine transportation and diesel engine services.
 
     The Company's marine transportation segment is engaged in the inland
transportation of petrochemicals, refined petroleum products, black oil products
and agricultural chemicals by tank barges, and, to a lesser extent, the offshore
transportation of dry-bulk cargoes by barge. The segment is strictly a provider
of transportation services for its customers and does not assume ownership of
any of the products that it transports. All of the segment's vessels operate
under the United States flag and are qualified for domestic trade under the
Jones Act.
 
     The Company's diesel engine services segment is engaged in the overhaul and
repair of diesel engines and reduction gears, and related parts sales in three
distinct markets: the marine market, providing aftermarket service for vessels
powered by large medium-speed diesel engines utilized in the various inland and
offshore marine industries; the railroad market, providing aftermarket service
and parts for shortline, industrial, and certain transit and Class II railroads;
and the power generation and industrial markets, providing aftermarket service
for diesel engines that provide standby, peak and base load power generation,
users of industrial reduction gears and stand-by generation components of the
nuclear industry.
 
     The Company and its marine transportation and diesel engine services
segments have approximately 2,300 employees, all of whom are in the United
States.
 
                                        1

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

<Table>
<Caption>
                                                         2002       2001       2000
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Revenues from unaffiliated customers:
  Marine transportation..............................  $450,280   $481,283   $443,203
  Diesel engine services.............................    85,123     85,601     69,441
                                                       --------   --------   --------
     Consolidated revenues...........................  $535,403   $566,884   $512,644
                                                       ========   ========   ========
Operating profits:
  Marine transportation..............................  $ 74,595   $ 83,074   $ 78,100
  Diesel engine services.............................     8,841      8,111      6,955
  General corporate expenses.........................    (5,677)    (7,088)    (7,053)
  Impairment of long-lived assets....................   (17,712)        --         --
  Merger related charges.............................        --         --       (199)
  Gain on disposition of assets......................       624        363      1,161
                                                       --------   --------   --------
                                                         60,671     84,460     78,964
  Equity in earnings of marine affiliates............       700      2,950      3,394
  Impairment of equity investment....................    (1,221)        --         --
  Other income (expense).............................      (155)      (540)       337
  Minority interests.................................      (962)      (706)      (966)
  Interest expense...................................   (13,540)   (19,038)   (23,917)
                                                       --------   --------   --------
     Earnings before taxes on income.................  $ 45,493   $ 67,126   $ 57,812
                                                       ========   ========   ========
Identifiable assets:
  Marine transportation..............................  $726,353   $681,976   $673,999
  Diesel engine services.............................    45,531     48,288     45,344
                                                       --------   --------   --------
                                                        771,884    730,264    719,343
  Investment in marine affiliates....................    10,238     10,659     10,004
  General corporate assets...........................     9,636     11,512     17,194
                                                       --------   --------   --------
     Consolidated assets.............................  $791,758   $752,435   $746,541
                                                       ========   ========   ========
</Table>

 
                                        2

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

<Table>
<Caption>
                                                        NUMBER     AVERAGE AGE     BARREL
CLASS OF EQUIPMENT                                     IN CLASS    (IN YEARS)    CAPACITIES
------------------                                     ---------   -----------   ----------
<S>                                                    <C>         <C>           <C>
Inland tank barges:
  Active:
  Regular double hull:
     20,000 barrels and under........................     433         24.9        5,063,000
     Over 20,000 barrels.............................     325         19.5        8,755,000
  Specialty double hull..............................      79         27.5        1,168,000
  Double side, single bottom.........................      20         27.1          411,000
  Single hull:
     20,000 barrels and under........................      19         35.1          333,000
     Over 20,000 barrels.............................      35         28.6          888,000
                                                         ----         ----       ----------
          Total active inland tank barges............     911         23.6       16,618,000
  Inactive...........................................      56         31.7          997,000
                                                         ----         ----       ----------
          Total inland tank barges...................     967         24.1       17,615,000
                                                         ====         ====       ==========
Inland towing vessels:
  Inland towboats:
  Active:
     Less than 800 horsepower........................       3         23.5
     800 to 1300 horsepower..........................     114         25.6
     1400 to 1900 horsepower.........................      72         26.1
     2000 to 2400 horsepower.........................       4         31.6
     2500 to 3200 horsepower.........................      11         29.9
     3300 to 4900 horsepower.........................       7         25.8
     Greater than 5200 horsepower....................       4         31.9
                                                         ----         ----
          Total active inland towboats...............     215         26.2
  Inactive...........................................      15         26.6
                                                         ----         ----
          Total inland towboats......................     230         26.2
                                                         ====         ====
 
<Caption>
                                                                                 DEADWEIGHT
                                                                                  TONNAGE
                                                                                 ----------
<S>                                                    <C>         <C>           <C>
Offshore dry-cargo barges*...........................       4         22.9           70,000
                                                         ====         ====       ==========
Offshore tugboats*...................................       5         25.7
                                                         ====         ====
</Table>

 
---------------
 
* The four barges and five tugboats are owned by Dixie Fuels Limited, a
  partnership in which the Company owns a 35% interest.
 
     The 215 active inland towboats and five offshore tugboats provide the power
source and the 911 active inland tank barges and four offshore dry-cargo barges
provide the freight capacity. When the power source and freight capacity are
combined, the unit is called a tow. The Company's inland tows generally consist
of one towboat and from one to 25 tank barges, depending upon the horsepower of
the towboat, the river or canal
 
                                        3

<PAGE>
 
capacity and conditions, and customer requirements. The Company's offshore tows
consist of one tugboat and one dry-cargo barge.
 
MARINE TRANSPORTATION INDUSTRY FUNDAMENTALS
 
     The United States inland waterway system, composed of a network of
interconnected rivers and canals that serve the nation as water highways, is one
of the world's most efficient transportation systems. The nation's waterways are
vital to the United States distribution system, with over 1.1 billion short tons
of cargo moved annually on United States shallow draft waterways. The inland
waterway system extends approximately 26,000 miles, 12,000 miles of which are
generally considered significant for domestic commerce, through 40 states, with
635 shallow draft ports. These navigable inland waterways link the United States
heartland to the world.
 
     Based on cost and safety, inland barge transportation is often the most
efficient and safest means of transporting bulk commodities compared with
railroads and trucks. The cargo capacity of a 30,000 barrel inland tank barge is
the equivalent of 40 rail tank cars or 150 tractor-trailer tank trucks. A
typical Company lower Mississippi River linehaul tow of 15 barges has the
carrying capacity of approximately 225 rail tank cars or approximately 870
tractor-trailer tank trucks. The 225 rail cars would require a freight train
approximately 2 3/4 miles long and the 870 tractor-trailer tank trucks would
stretch approximately 35 miles, assuming a safety margin of 150 feet between the
trucks. The Company's active tank barge fleet capacity of 16.6 million barrels
equates to approximately 22,000 rail cars or approximately 82,700
tractor-trailer tank trucks. In addition, in studies comparing inland water
transportation to railroads and trucks, shallow draft water transportation has
been proven to be the most energy efficient and environmentally friendly method
of moving bulk raw materials. One ton of bulk product can be carried 522 miles
by inland barge on one gallon of fuel, compared with 386 miles by rail or 59
miles by truck.
 
     Inland barge transportation is also the safest mode of transportation in
the United States. It generally involves less urban exposure than rail or truck.
It operates on a system with few crossing junctures and in areas relatively
remote from population centers. These factors generally reduce both the number
and impact of waterway incidents. For the amount of tonnage carried, barge
spills generally occur quite infrequently.
 
INLAND TANK BARGE INDUSTRY
 
     The Company's marine transportation segment operates within the United
States inland tank barge industry, a diverse and independent mixture of large
integrated transportation companies and small operators, as well as captive
fleets owned by United States refining and petrochemical companies. The inland
tank barge industry provides marine transportation of bulk liquid cargoes for
customers and, in the case of captives, for their own account, along the
Mississippi River and its tributaries and the Gulf Intracoastal Waterway. The
most significant segments of this industry include the transportation of
petrochemicals, refined petroleum products, black oil products and agricultural
chemicals. The Company operates in each of these segments. The use of marine
transportation by the petroleum and petrochemical industry is a major reason for
the location of United States refineries and petrochemical facilities on
navigable inland waterways. Texas and Louisiana currently account for
approximately 80% of the United States production of petrochemicals. Much of the
United States farm belt is likewise situated with access to the inland waterway
system, relying on marine transportation of farm products, including
agricultural chemicals. The Company's principal distribution system encompasses
the Gulf Intracoastal Waterway from Brownsville, Texas, to St. Marks, Florida,
the Mississippi River System and the Houston Ship Channel. The Mississippi River
System includes the Arkansas, Illinois, Missouri, Ohio, Red, Tennessee, Yazoo,
Ouachita and Black Warrior rivers and the Tennessee-Tombigbee Waterway.
 
     The total number of tank barges that operate in the inland waters of the
United States declined from approximately 4,200 in 1982 to approximately 2,900
in 1993, and remained relatively constant at 2,900 until 2002, when the number
declined slightly to 2,800. The Company believes this decrease primarily
resulted from: the increasing age of the domestic tank barge fleet, resulting in
scrapping; rates inadequate to justify new construction; a reduction in tax
incentives, which previously encouraged speculative construction of new
 
                                        4

<PAGE>
 
equipment; stringent operating standards to adequately cope with safety and
environmental risk; the elimination of government programs supporting small
refineries which created a demand for tank barge services; and an increase in
environmental regulations that mandate expensive equipment modification, which
some owners were unwilling or unable to undertake given capital constraints and
the age of their fleets.
 
     The cost of hull work for required annual Coast Guard certifications, as
well as general safety and environmental concerns, force operators to
periodically reassess their ability to recover maintenance costs. The
proliferation of small refineries due to government regulations, along with tax
and financing incentives to operators and investors to construct tank barges,
including short-life tax depreciation, investment tax credits and government
guaranteed financing, led to growth in the supply of domestic tank barges to its
peak of approximately 4,200 in 1982. The tax incentives have since been
eliminated; however, the government guaranteed financing programs, dormant since
the mid-eighties, have been more actively used since 1993 to finance the
construction of some tank barges. The supply of tank barges resulting from the
earlier programs has slowly aligned with demand for tank barge services,
primarily through attrition, as discussed above.
 
     Improved technology in steel coating and paint has added to the life
expectancy of inland tank barges. The average age of the nation's tank barge
fleet is over 22 years old, with 22% of the fleet built in the last 10 years.
Single hull barges comprise approximately 13% of the nation's tank barge fleet,
with an average age of 29 years. Single hull barges are being driven from the
nation's tank barge fleet by market forces, stringent environmental regulations
and rising maintenance costs. Single hull tank barges are required by current
federal law to be retrofitted with double hulls or phased out of domestic
service by 2015.
 
     In September 2002, the U.S. Coast Guard issued new regulations that require
the installation of tank level monitoring devices on all single hull tank barges
by October 17, 2007. With the new regulations, coupled with a market bias
against single hull tank barges, the Company plans to retire all of its single
hull tank barges by October 17, 2007, and may result in reduced lives for single
hull tank barges industry wide. In December 2002, the Company recorded pre-tax
non-cash impairment charges totaling $17,712,000, of which single hull tank
barges accounted for $11,559,000 of the charges, the result of reduced estimated
cash flows resulting from reduced estimated useful lives. As of March 5, 2003,
the Company owned 98 single hull tank barges, of which approximately 74 were
active and 24 inactive.
 
     During the 1970's and early 1980's, the industry overbuilt tank barge
capacity. However, the Company believes that the current more consolidated
industry will be less prone to overbuilding of the nation's tank barge fleet. Of
the approximately 745 tank barges built since 1989, 126, or 17%, were built by
the Company and by Hollywood Marine, Inc. ("Hollywood Marine") prior to its
merger with the Company effective October 12, 1999. The balance was primarily
replacement barges for single hull barges removed from service, special purpose
barges or barges constructed for specific contracts.
 
     The Company's marine transportation segment, though a partnership in which
the Company owns a 35% interest, is also engaged in ocean-going dry-cargo barge
operations transporting dry-bulk cargoes. Such cargoes are transported primarily
between domestic ports along the Gulf of Mexico.
 
COMPETITION IN THE INLAND TANK BARGE INDUSTRY
 
     The inland tank barge industry remains very competitive despite some
consolidation. The Company's inland tank barge fleet has grown from 71 tank
barges in 1988 to 911 active tank barges as of March 5, 2003. Competition in
this business has historically been based primarily on price; however, the
industry's customers, through an increased emphasis on safety, the environment,
quality and a greater reliance on a "single source" supply of services, are more
frequently requiring that their supplier of inland tank barge services have the
capability to handle a variety of tank barge requirements, offer distribution
capability throughout the inland waterway system, and offer flexibility, safety,
environmental responsibility, financial responsibility, adequate insurance and
quality of service consistent with the customer's own operational standards.
 
     The Company's direct competitors are primarily noncaptive inland tank barge
operators. "Captive" companies are those companies that are owned by major oil
and/or petrochemical companies which occasionally compete in the inland tank
barge market, but primarily transport cargoes for their own account.
 
                                        5

<PAGE>
 
The Company is the largest inland tank barge carrier, both in terms of number of
barges and total fleet barrel capacity. It currently operates approximately 33%
of the total domestic inland tank barge capacity.
 
     While the Company competes primarily with other tank barge companies, it
also competes with companies owning refined product and chemical pipelines, rail
tank cars and tractor-trailer tank trucks. As noted above, the Company believes
that inland marine transportation of bulk liquid products enjoys a substantial
cost advantage over rail and truck transportation. The Company believes that
refined products and petrochemical pipelines, although often a less expensive
form of transportation than inland tank barges, are not as adaptable to diverse
products and are generally limited to fixed point-to-point distribution of
commodities in high volumes over extended periods of time.
 
MARINE TRANSPORTATION ACQUISITIONS
 
     In March 2002, the Company purchased the Cargo Carriers fleet of 21 inland
tank barges for $2,800,000 in cash from Cargill Corporation ("Cargill"), and
resold six of the tank barges for $530,000 in April 2002.
 
     On October 31, 2002, the Company purchased seven inland black oil tank
barges and 13 inland towboats from Coastal Towing, Inc. ("Coastal") for
$17,053,000 in cash. In addition, the Company and Coastal entered into a barge
management agreement whereby the Company serves as manager of the combined black
oil fleet for a period of seven years. The combined black oil fleet consists of
Coastal's 54 remaining barges and the Company's 66 black oil barges. In a
related transaction, on September 25, 2002, the Company purchased from Coastal
three black oil tank barges for $1,800,000 in cash.
 
     On December 15, 2002, the Company purchased from Union Carbide Finance
Corporation ("Union Carbide"), 94 double hull inland tank barges for
$23,000,000. Nine of the 94 tank barges were out-of-service and will be sold.
The Company had operated the tank barges since February 2001 under a long-term
lease agreement between the Company and Union Carbide, following the February 5,
2001 merger between Union Carbide and the Dow Chemical Company ("Dow"). The
Company has a long-term contract with Dow to provide for Dow's bulk liquid
inland marine transportation requirements.
 
     On January 15, 2003, the Company purchased from SeaRiver Maritime, Inc.,
("SeaRiver"), the U.S. transportation affiliate of Exxon Mobil Corporation
("ExxonMobil"), 45 double hull inland tank barges and seven inland towboats for
$32,113,000 in cash, and assumed from SeaRiver the leases of 16 double hull
inland tank barges. On February 28, 2003, the Company purchased three double
hull inland tank barges, leased by SeaRiver from Banc of America Leasing &
Capital, LLC ("Banc of America Leasing") for $3,453,000 in cash. In addition,
the Company entered into a contract to provide inland marine transportation
services to SeaRiver.
 
PRODUCTS TRANSPORTED
 
     During 2002, the Company's marine transportation segment moved over 50
million tons of liquid cargo on the United States inland waterway system.
Products transported for its customers comprised the following: petrochemicals,
refined petroleum products, black oil products and agricultural chemicals.
 
     Petrochemicals.  Bulk liquid petrochemicals transported include such
products as benzene, styrene, methanol, acrylonitrile, xylene and caustic soda,
all consumed in the production of paper, fibers and plastics. Pressurized
products, including butadiene, isobutane, propylene, butane and propane, all
requiring pressurized conditions to remain in stable liquid form, are
transported in pressure barges. The transportation of petrochemical products
represented approximately 70% of the segment's 2002 revenues. Customers shipping
these products are petrochemical companies in the United States.
 
     Refined Petroleum Products.  Refined petroleum products transported include
the various blends of gasoline, jet fuel, naphtha and diesel fuel, and
represented approximately 13% of the segment's 2002 revenues. Customers are oil
and refining companies in the United States.
 
     Black Oil Products.  Black oil products transported include such products
as asphalt, No. 6 fuel oil, coker feed, vacuum gas oil, crude oil and ship
bunkers (ship engine fuel). Such products represented
 
                                        6

<PAGE>
 
approximately 12% of the segment's 2002 revenues. Black oil customers are United
States refining companies, marketers and end users that require the
transportation of black oil products between refineries and storage terminals.
Ship bunkers customers are oil companies and oil traders in the bunkering
business.
 
     Agricultural Chemicals.  Agricultural chemicals transported represented
approximately 5% of the segment's 2002 revenues. They include anhydrous ammonia
and nitrogen-based liquid fertilizer, as well as industrial ammonia.
Agricultural chemical customers consist mainly of United States and foreign
producers of such products.
 
DEMAND DRIVERS IN THE INLAND TANK BARGE INDUSTRY
 
     Demand for inland tank barge transportation services is driven by the
production volumes of the bulk liquid commodities transported by barge. Demand
for inland marine transportation of the segment's four primary commodity groups,
petrochemicals, refined petroleum products, black oil products and agricultural
chemicals, is based on differing circumstances. While the demand drivers of each
commodity are different, the Company has the flexibility in many cases of
re-allocating equipment to stronger markets as needed.
 
     Bulk petrochemical volumes generally track the general domestic economy and
correlate to the United States Gross Domestic Product. These products are used
in housing, automobiles, clothing and consumer goods. The other significant
component of petrochemical production consists of gasoline additives, the demand
for which closely parallels the United States gasoline consumption.
 
     Refined product volumes are driven by United States gasoline consumption,
principally vehicle usage, air travel and weather conditions. Volumes also
relate to inventory balances within the United States Midwest. Generally,
gasoline, No. 2 oil and heating oil are exported from the Gulf Coast where
refining capacity exceeds demand. The Midwest is a net importer of such
products. Demand for tank barge transportation from the Gulf Coast to the
Midwest region reflects the relative price differentials of Gulf Coast
production and gasoline produced in the Midwest.
 
     The demand for black oil products, including ship bunkers, varies with the
type of product transported. Asphalt shipments are generally seasonal, with
higher volumes shipped during April through November, months when weather allows
for efficient road construction. Other black oil shipments are more constant and
service the United States oil refineries.
 
     Demand for marine transportation of agricultural fertilizer is directly
related to domestic nitrogen based fertilizer consumption, driven by the
production of corn, cotton and wheat. The nitrogen based liquid fertilizers
carried by the Company are distributed from United States manufacturing
facilities, generally located in the southern United States where natural gas
feedstocks are plentiful, and from imported sources. Such products are delivered
to the numerous small terminals and distributors throughout the United States
farm belt.
 
MARINE TRANSPORTATION OPERATIONS
 
     The marine transportation segment operates a fleet of 911 active inland
tank barges and 215 active inland towboats. Through a partnership, the segment
operates four offshore dry-cargo barges, four offshore tugboats and one shifting
tugboat. The Company also owns 50% interests in two bulk liquid terminals
through two partnerships.
 
     Inland Operations.  The segment's inland operations are conducted through a
wholly owned subsidiary, Kirby Inland Marine, LP ("Kirby Inland Marine"). Kirby
Inland Marine's operations consist of the Canal, Linehaul and River fleets, as
well as barge fleeting services performed by Western Towing Company ("Western"),
a division of Kirby Inland Marine.
 
     The Canal fleet transports petrochemical feedstocks, processed chemicals,
pressurized products, refined petroleum products and black oil products along
the Gulf Intracoastal Waterway, the Mississippi River below Baton Rouge,
Louisiana, and the Houston Ship Channel. Petrochemical feedstocks and certain
pressurized products are transported from one refinery to another refinery for
further processing. Processed chemicals and certain pressurized products are
moved to waterfront terminals and chemical plants. Refined petroleum
 
                                        7

<PAGE>
 
products are transported to waterfront terminals along the Gulf Intracoastal
Waterway for distribution. Certain black oil products are transported to
waterfront terminals and products such as No. 6 fuel oil are transported
directly to the end users.
 
     The Linehaul fleet transports petrochemical feedstocks, processed
chemicals, agricultural chemicals and lube oils along the Gulf Intracoastal
Waterway, Mississippi River and the Illinois and Ohio Rivers. Loaded tank barges
are staged in the Baton Rouge area from Gulf Coast refineries and chemical
plants, and are transported from Baton Rouge to waterfront terminals and plants
on the Mississippi, Illinois and Ohio Rivers, and along the Gulf Intracoastal
Waterway, on regularly scheduled linehaul tows. Barges are dropped off and
picked up going up and down river.
 
     The River fleet transports petrochemical feedstocks, processed chemicals,
refined petroleum products, agricultural chemicals and black oil products along
the Mississippi River System above Baton Rouge. Petrochemical feedstocks and
processed chemicals are transported to waterfront petrochemical and chemical
plants, while refined petroleum products and agricultural chemicals are
transported to waterfront terminals. The River fleet operates unit tows, where a
towboat and generally a dedicated group of barges operate on consecutive voyages
between a loading point and a discharge point.
 
     The transportation of petrochemical feedstocks, processed chemicals and
pressurized products is generally consistent throughout the year. Transportation
of refined petroleum products, certain black oil products and agricultural
chemicals is generally more seasonal. Movements of refined petroleum products,
such as gasoline blends, generally increase during the summer driving season,
while heating oil movements generally increase during the winter months.
Movements of black oil products, such as asphalt, generally increase in the
spring through fall months. Movements of agricultural chemicals generally
increase during the spring and fall planting seasons.
 
     The marine transportation segment moves and handles a broad range of
sophisticated cargoes. To meet the specific requirements of the cargoes
transported, the tank barges may be equipped with self-contained heating
systems, high-capacity pumps, pressurized tanks, refrigeration units, stainless
steel tanks, aluminum tanks or specialty coated tanks. Of the 911 active tank
barges currently operated, 713 are petrochemical and refined products barges,
120 are black oil barges, 60 are pressure barges, 11 are anhydrous ammonia
barges and seven are specialty barges.
 
     The fleet of 215 active inland towboats ranges from 600 to 6000 horsepower.
Towboats in the 600 to 1900 horsepower classes provide power for barges used by
the Canal and Linehaul fleets on the Gulf Intracoastal Waterway and the Houston
Ship Channel. Towboats in the 1400 to 6000 horsepower classes provide power for
both the River and Linehaul fleets on the Gulf Intracoastal Waterway and the
Mississippi River System. Towboats above 3600 horsepower are typically used in
the Mississippi River System to move River fleet unit tows and provide Linehaul
fleet towing. Based on the capabilities of the individual towboats used in the
Mississippi River System, the tows range in size from 10,000 tons to 30,000
tons.
 
     Marine transportation services are conducted under long-term contracts,
ranging from one to five years with renewal options, with customers with whom
the Company has long-standing relationships, as well as under short-term and
spot contracts. Currently, approximately 70% of the revenues are derived from
term contracts and 30% are derived from spot market movements.
 
     Inland tank barges used in the transportation of petrochemicals are of
double hull construction and, where applicable, are capable of controlling vapor
emissions during loading and discharging operations in compliance with
occupational health and safety regulations and air quality concerns.
 
     The marine transportation segment is one of a few inland tank barge
operators with the ability to offer to its customers distribution capabilities
throughout the Mississippi River System and the Gulf Intracoastal Waterway. Such
distribution capabilities offer economies of scale resulting from the ability to
match tank barges, towboats, products and destinations more efficiently.
 
     Through the Company's proprietary vessel management computer system, the
fleet of barges and towboats is dispatched from centralized dispatch at the
corporate office. The towboats are equipped with
 
                                        8

<PAGE>
 
satellite positioning and communication systems that automatically transmit the
location of the towboat to the Company's traffic department located in its
corporate office. Electronic orders are communicated to the vessel personnel,
with reports of towing activities communicated electronically back to the
traffic department. The electronic interface between the traffic department and
the vessel personnel enables more effective matching of customer needs to barge
capabilities, thereby maximizing utilization of the tank barge and towboat
fleet. The Company's customers are able to access information concerning the
movement of their cargoes, including barge locations, through the Company's
website.
 
     Western operates the largest commercial tank barge fleeting service
(temporary barge storage facilities) in the ports of Houston, Corpus Christi and
Freeport, Texas, and on the Mississippi River at Baton Rouge and New Orleans,
Louisiana. Western provides service for Kirby Inland Marine's barges, as well as
outside customers, transferring barges within the areas noted, as well as
fleeting barges.
 
     Kirby Terminals, Inc. ("Kirby Terminals"), a wholly owned subsidiary of the
Company, manages the operations of Matagorda Terminal Ltd. and Red River
Terminals, LLC, a Texas limited partnership and Louisiana limited liability
company, respectively, in each of which Kirby Terminals owns a 50% interest.
Both operations are bulk liquid terminals.
 
     Kirby Inland Marine's Logistics Management division offers barge tankerman
services and related distribution services primarily to the Company and to some
third parties.
 
     Offshore Operations.  The segment's offshore operations are conducted
through a wholly owned subsidiary, Dixie Offshore Transportation Company ("Dixie
Offshore"), and its subsidiary. The offshore fleet consists of equipment owned
through a limited partnership, Dixie Fuels Limited ("Dixie Fuels"), in which a
subsidiary of Dixie Offshore, Dixie Bulk Transport, Inc. ("Dixie Bulk"), owns a
35% interest.
 
     Dixie Bulk, as general partner, manages the operations of Dixie Fuels,
which operates a fleet of four ocean-going dry-bulk barges, four ocean-going
tugboats and one shifting tugboat. The remaining 65% interest in Dixie Fuels is
owned by Progress Fuels Corporation ("PFC"), a wholly owned subsidiary of
Progress Energy, Inc. ("Progress Energy"). Dixie Fuels operates primarily under
term contracts of affreightment, including a contract that expires in the year
2005 with PFC to transport coal across the Gulf of Mexico to Progress Energy's
power generation facility at Crystal River, Florida.
 
     Dixie Fuels also has a long-term contract with Holcim (US) Inc. ("Holcim")
to transport Holcim's limestone requirements from a facility adjacent to the
Progress Energy facility at Crystal River to Holcim's plant in Theodore,
Alabama. The Holcim contract, which expires in 2010, provides cargo for a
portion of the return voyage for the vessels that carry coal to Progress
Energy's Crystal River facility. Dixie Fuels is also engaged in the
transportation of coal, fertilizer and other bulk cargoes on a short-term basis
between domestic ports and the transportation of grain from domestic ports to
ports primarily in the Caribbean Basin.
 
CONTRACTS AND CUSTOMERS
 
     The majority of the marine transportation contracts with its customers are
for terms of one year. The Company also operates under longer term contracts
with certain other customers. These companies have generally been customers of
the Company's marine transportation segment for several years and management
anticipates a continuing relationship, however, there is no assurance that any
individual contract will be renewed. Dow, with which the Company has a contract
through 2016, including renewal options, accounted for 13% of the Company's
revenues in 2002, 12% in 2001 and 10% in 2000.
 
EMPLOYEES
 
     The Company's marine transportation segment has approximately 1,950
employees, of which approximately 1,375 are vessel crew members. None of the
segment's operations are subject to collective bargaining agreements.
 
                                        9

<PAGE>
 
PROPERTIES
 
     The principal office of Kirby Inland Marine is located in Houston, Texas,
in the Company's facilities under a lease that expires in April 2006. Kirby
Inland Marine's operating locations are on the Mississippi River at Baton Rouge,
Louisiana, New Orleans, Louisiana, and Greenville, Mississippi, two locations in
Houston, Texas, on and near the Houston Ship Channel, and in Corpus Christi,
Texas. The Baton Rouge, New Orleans and Houston facilities are owned, and the
Greenville and Corpus Christi facilities are leased. The Western and Kirby
Logistics Management divisions' principal offices are located in facilities
owned by Kirby Inland Marine in Houston, Texas, near the Houston Ship Channel.
The principal office of Dixie Offshore is in Belle Chasse, Louisiana, in owned
facilities.
 
GOVERNMENTAL REGULATIONS
 
     General.  The Company's marine transportation operations are subject to
regulation by the United States Coast Guard, federal laws, state laws and
certain international conventions.
 
     Most of the Company's inland tank barges are inspected by the United States
Coast Guard and carry certificates of inspection. The Company's inland and
offshore towing vessels and offshore dry-bulk barges are not subject to United
States Coast Guard inspection requirements. The Company's offshore towing
vessels and offshore dry-bulk barges are built to American Bureau of Shipping
("ABS") classification standards and are inspected periodically by ABS to
maintain the vessels in class. The crews employed by the Company aboard vessels,
including captains, pilots, engineers, tankermen and ordinary seamen, are
licensed by the United States Coast Guard.
 
     The Company is required by various governmental agencies to obtain
licenses, certificates and permits for its vessels depending upon such factors
as the cargo transported, the waters in which the vessels operate and other
factors. The Company is of the opinion that the Company's vessels have obtained
and can maintain all required licenses, certificates and permits required by
such governmental agencies for the foreseeable future.
 
     The Company believes that additional security and environmental related
regulations may be imposed on the marine industry in the form of contingency
planning requirements. Generally, the Company endorses the anticipated
additional regulations and believes it is currently operating to standards at
least the equal of such anticipated additional regulations.
 
     Jones Act.  The Jones Act is a federal cabotage law that restricts domestic
marine transportation in the United States to vessels built and registered in
the United States, manned by United States citizens, and owned and operated by
United States citizens. For corporations to qualify as United States citizens
for the purpose of domestic trade, 75% of the corporations' beneficial
stockholders must be United States citizens. The Company presently meets all of
the requirements of the Jones Act for its owned vessels.
 
     Compliance with United States ownership requirements of the Jones Act is
important to the operations of the Company, and the loss of Jones Act status
could have a significant negative effect for the Company. The Company monitors
the citizenship requirements under the Jones Act of its employees and beneficial
stockholders, and will take action as necessary to ensure compliance with the
Jones Act requirements.
 
     The requirements that the Company's vessels be United States built and
manned by United States citizens, the crewing requirements and material
requirements of the Coast Guard, and the application of United States labor and
tax laws significantly increase the cost of U.S. flag vessels when compared with
comparable foreign flag vessels. The Company's business could be adversely
affected if the Jones Act was to be modified so as to permit foreign competition
that is not subject to the same United States government imposed burdens.
 
     User Taxes.  Federal legislation requires that inland marine transportation
companies pay a user tax based on propulsion fuel used by vessels engaged in
trade along the inland waterways that are maintained by the United States Army
Corps of Engineers. Such user taxes are designed to help defray the costs
associated with replacing major components of the inland waterway system, such
as locks and dams. A significant portion of the inland waterways on which the
Company's vessels operate is maintained by the Corps of Engineers.
 
                                        10

<PAGE>
 
     The Company presently pays a federal fuel tax of 24.4 cents per gallon,
reflecting a 4.3 cents per gallon transportation fuel tax for deficit reduction
imposed in October 1993, a .1 cent per gallon leaking underground storage tank
tax and a 20 cents per gallon waterway use tax. There can be no assurance that
additional user taxes may not be imposed in the future.
 
ENVIRONMENTAL REGULATIONS
 
     The Company's operations are affected by various regulations and
legislation enacted for protection of the environment by the United States
government, as well as many coastal and inland waterway states.
 
     Water Pollution Regulations.  The Federal Water Pollution Control Act of
1972, as amended by the Clean Water Act of 1977, the Comprehensive Environmental
Response, Compensation and Liability Act of 1981 and the Oil Pollution Act of
1990 ("OPA") impose strict prohibitions against the discharge of oil and its
derivatives or hazardous substances into the navigable waters of the United
States. These acts impose civil and criminal penalties for any prohibited
discharges and impose substantial strict liability for cleanup of these
discharges and any associated damages. Certain states also have water pollution
laws that prohibit discharges into waters that traverse the state or adjoin the
state, and impose civil and criminal penalties and liabilities similar in nature
to those imposed under federal laws.
 
     The OPA and various state laws of similar intent substantially increased
over historic levels the statutory liability of owners and operators of vessels
for oil spills, both in terms of limit of liability and scope of damages.
 
     One of the most important requirements under the OPA is that all newly
constructed tank barges engaged in the transportation of oil and petroleum in
the United States be double hulled, and all existing single hull tank barges be
retrofitted with double hulls or phased out of domestic service by 2015. In
September 2002, the U.S. Coast Guard issued new regulations that require the
installation of tank level monitoring devices on all single hull tank barges by
October 17, 2007.
 
     The Company manages its exposure to losses from potential discharges of
pollutants through the use of well maintained and equipped vessels, the safety,
training and environmental programs of the Company, and the Company's insurance
program. In addition, the Company uses double hull barges in the transportation
of more hazardous chemical substances. There can be no assurance, however, that
any new regulations or requirements or any discharge of pollutants by the
Company will not have an adverse effect on the Company.
 
     Financial Responsibility Requirement.  Commencing with the Federal Water
Pollution Control Act of 1972, as amended, vessels over 300 gross tons operating
in the Exclusive Economic Zone of the United States have been required to
maintain evidence of financial ability to satisfy statutory liabilities for oil
and hazardous substance water pollution. This evidence is in the form of a
Certificate of Financial Responsibility ("COFR") issued by the United States
Coast Guard. The majority of the Company's tank barges are subject to this COFR
requirement, and the Company has fully complied with this requirement since its
inception. The Company does not foresee any current or future difficulty in
maintaining the COFR certificates under current rules.
 
     Clean Air Regulations.  The Federal Clean Air Act of 1979 ("Clean Air Act")
requires states to draft State Implementation Plans ("SIPs") designed to reduce
atmospheric pollution to levels mandated by this act. Several SIPs provide for
the regulation of barge loading and degassing emissions. The implementation of
these regulations requires a reduction of hydrocarbon emissions released into
the atmosphere during the loading of most petroleum products and the degassing
and cleaning of barges for maintenance or change of cargo. These regulations
require operators who operate in these states to install vapor control equipment
on their barges. The Company expects that future toxic emission regulations will
be developed and will apply this same technology to many chemicals that are
handled by barge. Most of the Company's barges engaged in the transportation of
petrochemicals, chemicals and refined products are already equipped with vapor
control systems. Additionally, in Texas, a SIP calling for voluntary reductions
in towboat diesel engine exhaust emissions for the Houston-Galveston area has
been approved. Although a risk exists that new regulations could require
significant capital expenditures by the Company and otherwise increase the
Company's costs, the Company believes that, based upon the regulations that have
been proposed thus far, no material capital
 
                                        11

<PAGE>
 
expenditures beyond those currently contemplated by the Company and no material
increase in costs are likely to be required.
 
     Contingency Plan Requirement.  The OPA and several state statutes of
similar intent require the majority of the vessels and terminals operated by the
Company to maintain approved oil spill contingency plans as a condition of
operation. The Company has approved plans that comply with these requirements.
The OPA also requires development of regulations for hazardous substance spill
contingency plans. The United States Coast Guard has not yet promulgated these
regulations; however, the Company anticipates that they will not be
significantly more difficult to comply with than the oil spill plans.
 
     Occupational Health Regulations.  The Company's inspected vessel operations
are primarily regulated by the United States Coast Guard for occupational health
standards and uninspected vessel operations and the Company's shore personnel
are subject to the United States Occupational Safety and Health Administration
regulations. The Company believes that it is in compliance with the provisions
of the regulations that have been adopted and does not believe that the adoption
of any further regulations will impose additional material requirements on the
Company. There can be no assurance, however, that claims will not be made
against the Company for work related illness or injury, or that the further
adoption of health regulations will not adversely affect the Company.
 
     Insurance.  The Company's marine transportation operations are subject to
the hazards associated with operating vessels carrying large volumes of bulk
cargo in a marine environment. These hazards include the risk of loss of or
damage to the Company's vessels, damage to third parties as a result of
collision, fire or explosion, loss or contamination of cargo, personal injury of
employees and third parties, and pollution and other environmental damages. The
Company maintains insurance coverage against these hazards. Risk of loss of or
damage to the Company's vessels is insured through hull insurance currently
insuring approximately $810 million in hull values. Liabilities such as
collision, cargo, environmental, personal injury and general liability are
insured up to $500 million per occurrence.
 
     Environmental Protection.  The Company has a number of programs that were
implemented to further its commitment to environmental responsibility in its
operations. In addition to internal environmental audits, one such program is
environmental audits of barge cleaning vendors principally directed at
management of cargo residues and barge cleaning wastes. Others are the
participation by the Company in the American Waterways Operators Responsible
Carrier program and the American Chemistry Council Responsible Care program,
both of which are oriented towards continuously reducing the barge industry's
and chemical and petroleum industries' impact on the environment, including the
distribution services area.
 
     Safety.  The Company manages its exposure to the hazards associated with
its business through safety, training and preventive maintenance efforts. The
Company places considerable emphasis on safety through a program oriented toward
extensive monitoring of safety performance for the purpose of identifying trends
and initiating corrective action, and for the purpose of rewarding personnel
achieving superior safety performance. The Company believes that its safety
performance consistently places it among the industry leaders as evidenced by
what it believes are lower injury frequency and pollution incident levels than
many of its competitors.
 
     Training.  The Company believes that among the major elements of a
successful and productive work force are effective training programs. The
Company also believes that training in the proper performance of a job enhances
both the safety and quality of the service provided. New technology, regulatory
compliance, personnel safety, quality and environmental concerns create
additional demands for training. The Company fully endorses the development and
institution of effective training programs.
 
     Centralized training is provided through the training department, which is
charged with developing, conducting and maintaining training programs for the
benefit of all of the Company's operating entities. It is also responsible for
ensuring that training programs are both consistent and effective. The Company's
owned and operated facility includes state-of-the-art equipment and instruction
aids, including a working towboat, three tank barges and a tank barge simulator
for tankerman training. During 2002, approximately 1,900 certificates were
issued for the completion of courses at the training facility.
 
                                        12

<PAGE>
 
     Quality.  The Company has made a substantial commitment to the
implementation, maintenance and improvement of Quality Assurance Systems in
compliance with the International Quality Standard, ISO 9002. Currently, all of
the Company's marine transportation units have been certified. These Quality
Assurance Systems have enabled both shore and vessel personnel to effectively
manage the changes which occur in the working environment. In addition, such
Quality Assurance Systems have enhanced the Company's already excellent safety
and environmental performance.
 
                             DIESEL ENGINE SERVICES
 
     The Company is engaged in the overhaul and repair of large medium-speed
diesel engines and reduction gears, and related parts sales through Kirby Engine
Systems, Inc. ("Kirby Engine Systems"), a wholly owned subsidiary of the
Company, and its three wholly owned operating subsidiaries, Marine Systems, Inc.
("Marine Systems"), Engine Systems, Inc. ("Engine Systems") and Rail Systems,
Inc. ("Rail Systems"). Through these three operating subsidiaries, the Company
sells OEM replacement parts, provides service mechanics to overhaul and repair
engines and reduction gears, and maintains facilities to rebuild component parts
or entire engines and entire reduction gears. The Company serves the marine
market and stand-by power generation market throughout the United States,
Pacific Rim and Caribbean, the shortline, industrial, and certain transit and
Class II railroad markets throughout the United States, other industrial markets
such as cement, paper and mining in the Midwest, and components of the nuclear
industry worldwide. No single customer of the diesel engine services segment
accounted for more than 10% of the Company's revenues in 2002, 2001, or 2000.
The diesel engine services segment also provides service to the Company's marine
transportation segment, which accounted for approximately 2% of the diesel
engine services segment's total 2002 revenues and approximately 3% of its
revenues for 2001 and 2000. Such revenues are eliminated in consolidation and
not included in the table below.
 
     In July 2001, Rail Systems expanded its distributorship agreement with the
Electro-Motive Division of General Motors ("EMD") with the addition of an
agreement to distribute EMD replacement parts to certain United States transit
and Class II railroads effective July 1, 2001.
 
     In October 2000, Marine Systems completed the acquisition of the Powerway
Division of Covington Detroit Diesel -- Allison, Inc. ("Powerway") for
$1,428,000 in cash. In November 2000, Marine Systems completed the acquisition
of West Kentucky Machine Shop, Inc. ("West Kentucky") for an aggregate
consideration of $6,674,000, consisting of $6,629,000 in cash, the assumption of
$20,000 of West Kentucky's existing debt and $25,000 of merger costs. The
acquisitions were accounted for using the purchase method of accounting. With
the acquisition of Powerway, the Company became the sole distributor of
aftermarket parts and service for Alco engines throughout the United States for
marine, power generation and industrial applications. With the acquisition of
West Kentucky, the Company increased its distributorship capabilities to the
marine industry with Falk Corporation ("Falk"), a reduction gear manufacturer,
and also became a certified industrial renew center for Falk reduction gears for
industrial applications in the Midwest. In October 2000, Engine Systems entered
into a distributorship agreement with Cooper Energy Services, Inc. ("Cooper") to
become the exclusive worldwide distributor for Enterprise and Cooper-Bessemer
KSV engines to the nuclear industry.
 
     The following table sets forth the revenues for the diesel engine services
segment for the periods indicated (dollars in thousands):
 

<Table>
<Caption>
                                                   YEAR ENDED DECEMBER 31,
                                        ---------------------------------------------
                                            2002            2001            2000
                                        -------------   -------------   -------------
                                        AMOUNTS    %    AMOUNTS    %    AMOUNTS    %
                                        -------   ---   -------   ---   -------   ---
<S>                                     <C>       <C>   <C>       <C>   <C>       <C>
Overhaul and repairs..................  $43,100    51%  $46,363    54%  $38,228    55%
Direct parts sales....................   42,023    49    39,238    46    31,213    45
                                        -------   ---   -------   ---   -------   ---
                                        $85,123   100%  $85,601   100%  $69,441   100%
                                        =======   ===   =======   ===   =======   ===
</Table>

 
                                        13

<PAGE>
 
MARINE OPERATIONS
 
     The Company is engaged in the overhaul and repair of diesel engines and
reduction gears, line boring, block welding services and related parts sales for
customers in the marine industry. The Company services tugboats and towboats
powered by large diesel engines utilized in the inland and offshore barge
industries. It also services marine equipment and offshore drilling equipment
used in the offshore petroleum exploration and oil service industry, marine
equipment used in the offshore commercial fishing industry and vessels owned by
the United States government.
 
     The Company has marine operations throughout the United States providing
in-house and in-field repair capabilities and related parts sales. These
operations are located in Houma, Louisiana, Chesapeake, Virginia, Paducah,
Kentucky, Harvey, Louisiana and Seattle, Washington. The operation based in
Chesapeake, Virginia is an authorized distributor for 17 eastern states and the
Caribbean for EMD. The marine operations based in Houma, Louisiana, Paducah,
Kentucky and Seattle, Washington are nonexclusive authorized service centers for
EMD providing service and related parts sales. All of the marine locations are
authorized distributors for Falk reduction gears, and all of the marine
locations except for Harvey, Louisiana, are also authorized distributors for
Alco engines. The Chesapeake, Virginia operation concentrates on East Coast
inland and offshore dry-bulk, tank barge and harbor docking operators, the
United States Coast Guard and United States Navy. The Houma and Harvey,
Louisiana operations concentrate on the inland and offshore barge and oil
services industries. The Paducah, Kentucky operation concentrates on the inland
river towboat and barge operators and the Great Lakes carriers. The Seattle,
Washington operation primarily concentrates on the offshore commercial fishing
industry, tugboat and barge industry, the United States Coast Guard and United
States Navy, and other customers in Alaska, Hawaii and the Pacific Rim. The
Company's emphasis is on service to its customers, and it sends its crews from
any of its locations to service customers' equipment anywhere in the world.
 
MARINE CUSTOMERS
 
     The Company's major marine customers include inland and offshore barge
operators, oil service companies, petrochemical companies, offshore fishing
companies, other marine transportation entities, and the United States Coast
Guard and Navy.
 
     Since the marine business is linked to the relative health of the diesel
power tugboat and towboat industry, the offshore supply boat industry, the oil
and gas drilling industry, the military and the offshore commercial fishing
industry, there is no assurance that its present gross revenues can be
maintained in the future. The results of the diesel engine services industry are
largely tied to the industries it serves and, therefore, are influenced by the
cycles of such industries.
 
MARINE COMPETITIVE CONDITIONS
 
     The Company's primary competitors are approximately 10 independent diesel
services companies and other EMD authorized distributors and authorized service
centers. Certain operators of diesel powered marine equipment also elect to
maintain in-house service capabilities. While price is a major determinant in
the competitive process, reputation, consistent quality, expeditious service,
experienced personnel, access to parts inventories and market presence are
significant factors. A substantial portion of the Company's business is obtained
by competitive bids. However, the Company has entered into preferential service
agreements with certain large operators of diesel powered marine equipment.
These agreements provide such operators with one source of support and service
for all of their requirements at pre-negotiated prices.
 
     Many of the parts sold by the Company are generally available from other
service providers, but the Company is one of a limited number of authorized
resellers of EMD parts. The Company is also the only marine distributor for Falk
reduction gears and the only distributor for Alco engines throughout the United
States. Although the Company believes it is unlikely, termination of its
distributorship relationship with EMD or its authorized service center
relationships with other EMD distributors could adversely affect its business.
 
                                        14

<PAGE>
 
POWER GENERATION AND INDUSTRIAL OPERATIONS
 
     The Company is engaged in the overhaul and repair of diesel engines and
reduction gears, line boring, block welding service and related parts sales for
power generation and industrial customers. The Company is also engaged in the
sale and distribution of parts for diesel engines and governors to the nuclear
industry. The Company services users of diesel engines that provide standby,
peak and base load power generation, as well as users of industrial reduction
gears such as the cement, paper and mining industries.
 
     The Company has power generation and industrial operations providing
in-house and in-field repair capabilities and safety-related products to the
nuclear industry. These operations are located in Rocky Mount, North Carolina,
Medley, Florida, Paducah, Kentucky, Harvey, Louisiana and Seattle, Washington.
The operations based in Rocky Mount, North Carolina and Medley, Florida are EMD
authorized distributors for 17 eastern states and the Caribbean for power
generation and industrial applications, and provide in-house and in-field
service. The Rocky Mount operation is also the exclusive worldwide distributor
of EMD products to the nuclear industry, the exclusive worldwide distributor for
Woodward Governor ("Woodward") products to the nuclear industry and the
exclusive worldwide distributor of Cooper products to the nuclear industry. The
Paducah, Kentucky operation is a certified industrial renew center for Falk, and
provides in-house and in-field repair services for industrial reduction gears in
the Midwest. The Seattle, Washington operation provides in-house and in-field
repair services for Alco engines located on the West Coast and the Pacific Rim.
 
POWER GENERATION AND INDUSTRIAL CUSTOMERS
 
     The Company's major power generation customers are Miami-Dade County,
Florida Water and Sewer Authority, Progress Energy and the worldwide nuclear
power industry. The Company's major industrial customers include the cement,
paper and mining industries in the Midwest and southeast United States.
 
POWER GENERATION AND INDUSTRIAL COMPETITIVE CONDITIONS
 
     The Company's primary competitors are other independent diesel services
companies and industrial reduction gear repair companies and manufacturers.
While price is a major determinant in the competitive process, reputation,
consistent quality, expeditious service, experienced personnel, access to parts
inventories and market presence are significant factors. A substantial portion
of the Company's business is obtained by competitive bids. The Company has
entered into preferential service agreements with certain large operators of
diesel powered generation equipment, providing such operations with one source
of support and service for all of their requirements at pre-negotiated prices.
 
     The Company is also the exclusive worldwide distributor of EMD, Cooper and
Woodward parts for the nuclear industry. Specific regulations relating to
equipment used in nuclear power generation require extensive testing and
certification of replacement parts. Non-genuine parts and parts not properly
tested and certified cannot be used in the nuclear applications.
 
ENGINE DISTRIBUTION AGREEMENT
 
     Engine Systems has an agreement with Stewart & Stevenson Services, Inc.,
allowing Stewart & Stevenson to sell EMD engines in certain applications within
Engine Systems' distributorship territory encompassing 17 eastern states and the
Caribbean. Engine Systems receives an annual fee based on sales within the
distributorship territory.
 
RAIL OPERATIONS
 
     The Company is engaged in the overhaul and repair of locomotive diesel
engines and the sale of replacement parts for locomotives serving shortline,
industrial, and certain transit and Class II railroads within the continental
United States. The Company serves as an exclusive distributor for EMD providing
replacement parts, service and support to these markets. EMD is the world's
largest manufacturer of diesel-electric locomotives, a position it has held for
over 80 years.
 
                                        15

<PAGE>
 
RAIL CUSTOMERS
 
     The Company's rail customers are United States shortline, industrial,
transit and Class II operators. The shortline and industrial operators are
located throughout the United States, and are primarily branch or spur rail
lines that provide the final connection between the plants or mines and the
major railroad operators. The shortline railroads are independent operators. The
plants and mines own the industrial railroads. The transit railroads are
primarily located in larger cities in the Northeast and West Coast of the United
States. Transit railroads are operated by cities, states and Amtrak. The Class
II railroads are larger regionally operated railroads.
 
RAIL COMPETITIVE CONDITIONS
 
     As an exclusive United States distributor for EMD parts, the Company
provides all EMD parts sales to these markets, as well as providing rebuild and
service work. There are several other companies providing service for shortline
and industrial locomotives. In addition, the industrial companies, in some
cases, provide their own service.
 
EMPLOYEES
 
     Marine Systems, Engine Systems and Rail Systems together have approximately
260 employees.
 
PROPERTIES
 
     The principal offices of the diesel engine services segment are located in
Houma, Louisiana. The Company also operates seven parts and service facilities
that are located in Houma, Louisiana, Chesapeake, Virginia, Rocky Mount, North
Carolina, Paducah, Kentucky, Medley, Florida, Harvey, Louisiana and Seattle,
Washington. All of these facilities are located on leased property except the
Houma, Louisiana facility that is situated on approximately seven acres of
Company owned land.
 

I
TEM 2.  PROPERTIES
 
     The information appearing in Item 1 is incorporated herein by reference.
The Company and Kirby Inland Marine currently occupy leased office space at 55
Waugh Drive, Suite 1000, Houston, Texas, under a lease that expires in April
2006. The Company believes that its facilities at 55 Waugh Drive are adequate
for its needs and additional facilities would be available if required.
 

ITEM 3.  LEGAL PROCEEDINGS
 
     The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.
 
     In addition, the Company is involved in various legal and other proceedings
which are incidental to the conduct of its business, none of which in the
opinion of management will have a material effect on the Company's financial
condition, results of operations or cash flows. Management has recorded
necessary reserves and believes that it has adequate insurance coverage or has
meritorious defenses for these other claims and contingencies.
 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     During the fourth quarter of the fiscal year ended December 31, 2002, no
matter was submitted to a vote of security holders through solicitation of
proxies or otherwise.
 
                                        16

<PAGE>
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The executive officers of the Company are as follows:
 

<Table>
<Caption>
NAME                                    AGE           POSITIONS AND OFFICES
----                                    ---           ---------------------
<S>                                     <C>   <C>
C. Berdon Lawrence....................  60    Chairman of the Board of Directors
Joseph H. Pyne........................  55    President, Director and Chief
                                              Executive Officer
Norman W. Nolen.......................  60    Executive Vice President, Chief
                                              Financial Officer, Treasurer and
                                              Assistant Secretary
Steven P. Valerius....................  48    President -- Kirby Inland Marine
Dorman L. Strahan.....................  46    President -- Kirby Engine Systems
Mark R. Buese.........................  47    Senior Vice
                                              President -- Administration
Jack M. Sims..........................  60    Vice President -- Human Resources
Howard G. Runser......................  52    Vice President -- Information
                                              Technology
G. Stephen Holcomb....................  57    Vice President -- Investor Relations
                                              and Assistant Secretary
Ronald A. Dragg.......................  39    Controller
</Table>

 
     No family relationship exists among the executive officers or among the
executive officers and the directors. Officers are elected to hold office until
the annual meeting of directors, which immediately follows the annual meeting of
stockholders, or until their respective successors are elected and have
qualified.
 
     C. Berdon Lawrence holds an M.B.A. degree and a B.B.A. degree in business
administration from Tulane University. He has served the Company as Chairman of
the Board since October 1999. Prior to joining the Company in October 1999, he
served for 30 years as President of Hollywood Marine, an inland tank barge
company of which he was the founder and principal shareholder and which was
acquired by the Company in October 1999.
 
     Joseph H. Pyne holds a degree in liberal arts from the University of North
Carolina and has served as President and Chief Executive Officer of the Company
since April 1995. He has served the Company as a Director since 1988. He served
as Executive Vice President of the Company from 1992 to April 1995 and as
President of Kirby Inland Marine from 1984 to November 1999. He also served in
various operating and administrative capacities with Kirby Inland Marine from
1978 to 1984, including Executive Vice President from January to June 1984.
Prior to joining the Company, he was employed by Northrop Services, Inc. and
served as an officer in the United States Navy.
 
     Norman W. Nolen is a Certified Public Accountant and holds an M.B.A. degree
from the University of Texas and a degree in electrical engineering from the
University of Houston. He has served the Company as Executive Vice President,
Chief Financial Officer and Treasurer since October 1999 and served as Senior
Vice President, Chief Financial Officer and Treasurer from February 1999 to
October 1999. Prior to joining the Company, he served as Senior Vice President,
Treasurer and Chief Financial Officer of Weatherford International, Inc. from
1991 to 1998. He served as Corporate Treasurer of Cameron Iron Works from 1980
to 1990 and as a corporate banker with Texas Commerce Bank from 1968 to 1980.
 
     Steven P. Valerius holds a J.D. degree from South Texas College of Law and
a degree in business administration from the University of Texas. He has served
the Company as President of Kirby Inland Marine since November 1999. Prior to
joining the Company in October 1999, he served as Executive Vice President of
Hollywood Marine. Prior to joining Hollywood Marine in 1979, he was employed by
KPMG LLP.
 
     Dorman L. Strahan attended Nicholls State University and has served the
Company as President of Kirby Engine Systems since May 1999, President of Marine
Systems since 1986, President of Rail Systems since 1993 and President of Engine
Systems since 1996. After joining the Company in 1982 in connection with the
acquisition of Marine Systems, he served as Vice President of Marine Systems
until 1985.
 
                                        17

<PAGE>
 
     Mark R. Buese holds a degree in business administration from Loyola
University and has served the Company as Senior Vice President -- Administration
since October 1999. He served the Company or one of its subsidiaries as Vice
President -- Administration from 1993 to October 1999. He also served as Vice
President of Kirby Inland Marine from 1985 to 1999 and served in various sales,
operating and administrative capacities with Kirby Inland Marine from 1978
through 1985.
 
     Jack M. Sims holds a degree in business administration from the University
of Miami and has served the Company, or one of its subsidiaries, as Vice
President -- Human Resources since 1993. Prior to joining the Company in March
1993, he served as Vice President -- Human Resources for Virginia Indonesia
Company from 1982 through 1992, Manager -- Employee Relations for Houston Oil
and Minerals Corporation from 1977 through 1981 and in various professional and
managerial positions with Shell Oil Company from 1967 through 1977.
 
     Howard G. Runser holds an M.B.A. degree from Xavier University and a
Bachelor of Science degree from Penn State University. He has served the Company
as Vice President -- Information Technology since January 2000. He is a
Certified Data Processor and a Certified Computer Programmer. Prior to joining
the Company in January 2000, he was Vice President of Financial Information
Systems for Petroleum Geo-Services, and previously held management positions
with Weatherford International, Inc. and Compaq Computer Corporation.
 
     G. Stephen Holcomb holds a degree in business administration from Stephen
F. Austin State University and has served the Company as Vice
President -- Investor Relations and Assistant Secretary since November 2002. He
also served as Vice President, Controller and Assistant Secretary from 1989 to
November 2002, Controller from 1987 through 1988 and as Assistant Controller
from 1976 through 1986. Prior to that, he was Assistant Controller of Kirby
Industries from 1973 to 1976. Prior to joining the Company in 1973, he was
employed by Cooper Industries, Inc.
 
     Ronald A. Dragg is a Certified Public Accountant and holds a Master of
Science in Accountancy degree from the University of Houston and a degree in
finance from Texas A&M University. He has served the Company as Controller since
November 2002, Controller -- Financial Reporting from January 1999 to October
2002, and Assistant Controller -- Financial Reporting from October 1996 to
December 1998. Prior to joining the Company, he was employed by Baker Hughes
Incorporated.
 

                                    PART II
 

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's common stock is traded on the New York Stock Exchange under
the symbol KEX. The following table sets forth the high and low sales prices per
share for the common stock for the periods indicated:
 

<Table>
<Caption>
                                                                SALES PRICE
                                                              ---------------
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
2003
  First Quarter (through March 5, 2003).....................  $29.25   $21.62
2002
  First Quarter.............................................   33.50    25.65
  Second Quarter............................................   32.01    23.82
  Third Quarter.............................................   24.90    20.50
  Fourth Quarter............................................   28.26    20.40
2001
  First Quarter.............................................   22.19    18.35
  Second Quarter............................................   25.45    19.83
</Table>

 
                                        18

<PAGE>
 

<Table>
<Caption>
                                                                SALES PRICE
                                                              ---------------
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
  Third Quarter.............................................   25.60    20.85
  Fourth Quarter............................................   29.00    22.00
</Table>

 
     As of March 5, 2003, the Company had 24,065,789 outstanding shares held by
approximately 1,000 stockholders of record.
 
     The Company does not have an established dividend policy. Decisions
regarding the payment of future dividends will be made by the Board of Directors
based on the facts and circumstances that exist at that time. Since 1989, the
Company has not paid any dividends on its common stock.
 

ITEM 6.  SELECTED FINANCIAL DATA
 
     The comparative selected financial data of the Company and consolidated
subsidiaries is presented for the five years ended December 31, 2002. The
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company and the
Financial Statements included under Item 8 elsewhere herein (in thousands,
except per share amounts):
 

<Table>
<Caption>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                        ----------------------------------------------------
                                          2002      2001*      2000*      1999*      1998*
                                        --------   --------   --------   --------   --------
<S>                                     <C>        <C>        <C>        <C>        <C>
Revenues:
  Marine transportation...............  $450,280   $481,283   $443,203   $290,956   $244,839
  Diesel engine services..............    85,123     85,601     69,441     74,648     82,241
                                        --------   --------   --------   --------   --------
                                        $535,403   $566,884   $512,644   $365,604   $327,080
                                        ========   ========   ========   ========   ========
     Net earnings.....................  $ 27,446   $ 39,603   $ 34,113   $ 21,441   $ 10,109
                                        ========   ========   ========   ========   ========
Earnings per share of common stock:
  Basic...............................  $   1.14   $   1.65   $   1.40   $   1.01   $    .46
                                        ========   ========   ========   ========   ========
  Diluted.............................  $   1.13   $   1.63   $   1.39   $   1.01   $    .46
                                        ========   ========   ========   ========   ========
Weighted average shares outstanding:
  Basic...............................    24,061     24,027     24,401     21,172     21,847
  Diluted.............................    24,394     24,270     24,566     21,293     22,113
</Table>

 

<Table>
<Caption>
                                                            DECEMBER 31,
                                        ----------------------------------------------------
                                          2002      2001*      2000*      1999*      1998*
                                        --------   --------   --------   --------   --------
<S>                                     <C>        <C>        <C>        <C>        <C>
Property and equipment, net...........  $486,852   $466,239   $453,807   $451,851   $256,899
Total assets..........................  $791,758   $752,435   $746,541   $753,397   $390,299
Long-term debt, including current
  portion.............................  $266,001   $249,737   $293,372   $321,607   $142,885
Stockholders' equity..................  $323,311   $301,022   $262,649   $240,036   $141,040
</Table>

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

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     Statements contained in this Form 10-K that are not historical facts,
including, but not limited to, any projections contained herein, are
forward-looking statements and involve a number of risks and uncertainties. Such
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue," or the negative
thereof or other variations thereon or comparable terminology. The actual
results of the future events described in such forward-looking statements in
this Form 10-K could differ materially from those stated in such forward-looking
statements. Among the factors
                                        19

<PAGE>
 
that could cause actual results to differ materially are: adverse economic
conditions, industry competition and other competitive factors, adverse weather
conditions such as high water, low water, fog and ice, marine accidents, lock
delays, construction of new equipment by competitors, including construction
with government assisted financing, government and environmental laws and
regulations, and the timing, magnitude and number of acquisitions made by the
Company.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company evaluates its estimates and
assumptions on an ongoing basis based on a combination of historical information
and various other assumptions that are believed to be reasonable under the
particular circumstances. Actual results may differ from these estimates based
on different assumptions or conditions. The Company believes the critical
accounting policies that most impact the consolidated financial statements are
described below. It is also suggested that the Company's significant accounting
policies, as described in the Company's financial statements in Note 1, Summary
of Significant Accounting Policies, be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
 
     Accounts Receivable.  The Company extends credit to its customers in the
normal course of business. The Company regularly reviews its accounts and
estimates the amount of uncollectable receivables each period and establishes an
allowance for uncollectable amounts. The amount of the allowance is based on the
age of unpaid amounts, information about the current financial strength of
customers, and other relevant information. Estimates of uncollectable amounts
are revised each period, and changes are recorded in the period they become
known. Historically, credit risk with respect to these trade receivables has
generally been considered minimal because of the financial strength of the
Company's customers; however, a significant change in the level of uncollectable
amounts could have a material effect on the Company's results of operations.
 
     Property, Maintenance and Repairs.  Property is recorded at cost.
Improvements and betterments are capitalized as incurred. Depreciation is
recorded on the straight-line method over the estimated useful lives of the
individual assets. When property items are retired, sold or otherwise disposed
of, the related cost and accumulated depreciation are removed from the accounts
with any gain or loss on the disposition included in income. Routine maintenance
and repairs are charged to operating expense as incurred on an annual basis. The
Company reviews long-lived assets for impairment by vessel class whenever events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. Recoverability of the assets is measured by a comparison of
the carrying amount of the assets to future net cash expected to be generated by
the assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. There are
many assumptions and estimates underlying the determination of an impairment
event or loss, if any. The assumptions and estimates include, but are not
limited to, estimated fair market value of the assets and estimated future cash
flows expected to be generated by these assets, which are based on additional
assumptions such as asset utilization, length of service the asset will be used,
and estimated salvage values. Although the Company believes its assumptions and
estimates are reasonable, deviations from the assumptions and estimates could
produce a materially different result.
 
     Goodwill.  The excess of the purchase price over the fair value of
identifiable net assets acquired in transactions accounted for as a purchase are
included in goodwill. Management monitors the recoverability of goodwill on an
annual basis, or whenever events or circumstances indicate that interim
impairment testing is necessary. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average weighted cost of capital. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. There are many assumptions and
estimates underlying the determination of an impairment event or
 
                                        20

<PAGE>
 
loss, if any. Although the Company believes its assumptions and estimates are
reasonable, deviations from the assumptions and estimates could produce a
materially different result.
 
     Accrued Insurance.  The Company is subject to property damage and casualty
risks associated with operating vessels carrying large volumes of bulk cargo in
a marine environment. The Company maintains insurance coverage against these
risks subject to a deductible, below which the Company is liable. In addition to
expensing claims below the deductible amount as incurred, the Company also
maintains a reserve for losses that may have occurred but have not been reported
to the Company. The Company uses historic experience and actuarial analysis by
outside consultants to estimate an appropriate level of reserves. If the actual
number of claims and magnitude were substantially greater than assumed, the
required level of reserves for claims incurred but not reported could be
materially understated. The Company records receivables from its insurers for
incurred claims above the Company's deductible. If the solvency of the insurers
became impaired, there could be an adverse impact on the accrued receivables and
the availability of insurance.
 
ACQUISITIONS AND LEASES
 
     On October 12, 2000, the Company's subsidiary, Marine Systems, completed
the acquisition of Powerway for $1,428,000 in cash. On November 1, 2000, Marine
Systems completed the acquisition of West Kentucky for an aggregate
consideration of $6,674,000, consisting of $6,629,000 in cash, the assumption of
$20,000 of West Kentucky's existing debt and $25,000 in merger costs.
 
     In February 2001, the Company, through its marine transportation segment,
entered into a long-term lease with Union Carbide for 94 inland tank barges. The
94 inland tank barges, all double hull, have a total capacity of 1,335,000
barrels. The inland tank barges were acquired by Dow as part of the February 5,
2001 merger between Union Carbide and Dow. The Company has a long-term contract
with Dow to provide for Dow's bulk liquid inland marine transportation
requirements throughout the United States inland waterway system. With the
merger between Union Carbide and Dow, the Company's long-term contract with Dow
was amended to provide for Union Carbide's bulk liquid inland marine
transportation requirements. At the inception of the lease, the Union Carbide
barges were used exclusively in Union Carbide service. Partial transition of the
tank barges into the Company's marine transportation fleet began in the 2001
third quarter and was completed during September 2001.
 
     In March 2002, the Company purchased the Cargo Carriers fleet of 21 inland
tank barges for $2,800,000 in cash from Cargill, and resold six of the tank
barges for $530,000 in April 2002.
 
     On October 31, 2002, the Company completed the acquisition of seven inland
tank barges and 13 inland towboats from Coastal for $17,053,000 in cash. In
addition, the Company and Coastal entered into a barge management agreement
whereby the Company will serve as manager of the two companies' combined black
oil fleet for a period of seven years. The combined black oil fleet consists of
54 barges owned by Coastal and the Company's 66 black oil barges. In a related
transaction, on September 25, 2002, the Company purchased from Coastal three
black oil tank barges for $1,800,000 in cash.
 
     On December 15, 2002, the Company purchased the 94 inland tank barges
leased in February 2001, as noted above, from Union Carbide for $23,000,000.
Nine of the 94 tank barges were out-of-service and will be sold.
 
     On January 15, 2003, the Company purchased from SeaRiver, the U.S.
transportation affiliate of ExxonMobil, 45 double hull inland tank barges and
seven inland towboats for $32,113,000 in cash, and assumed from SeaRiver the
leases of 16 double hull inland tank barges. On February 28, 2003, the Company
purchased three double hull inland tank barges leased by SeaRiver from Banc of
America Leasing for $3,453,000 in cash. In addition, the Company entered into a
contract to provide inland marine transportation services to SeaRiver.
 
RESULTS OF OPERATIONS
 
     The Company reported 2002 net earnings of $27,446,000, or $1.13 per share,
on revenues of $535,403,000, compared with net earnings of $39,603,000, or $1.63
per share, on revenues of $566,884,000 for
 
                                        21

<PAGE>
 
2001, and net earnings of $34,113,000, or $1.39 per share, on revenues of
$512,644,000 for 2000. The 2002 year included a $18,933,000, before taxes,
$12,498,000 after taxes, or $.51 per share, non-cash impairment of long-lived
assets and an equity investment. For the 2001 and 2000 years, net earnings and
earnings per share included $6,253,000, or $.26 per share, and $5,844,000, or
$.24 per share, respectively, of goodwill amortization expense. Amortization of
goodwill ceased January 1, 2002 as a result of adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142").
 
     Marine transportation revenues for 2002 totaled $450,280,000, or 84% of
total revenues, compared with $481,283,000, or 85% of total revenues for 2001
and $443,203,000, or 86% of total revenues for 2000. Diesel engine services
revenues for 2002 totaled $85,123,000, or 16% of total revenues, compared with
$85,601,000, or 15% of total revenues for 2001 and $69,441,000, or 14% of total
revenues for 2000.
 
     For purposes of the Management's Discussion, all earnings per share are
"Diluted earnings per share". The weighted average number of common shares
applicable to diluted earnings for 2002, 2001 and 2000 were 24,394,000,
24,270,000 and 24,566,000, respectively.
 
MARINE TRANSPORTATION
 
     The Company, through its marine transportation segment, is a provider of
marine transportation services, operating a current fleet of 911 active inland
tank barges and 215 active inland towing vessels, transporting petrochemicals,
refined petroleum products, black oil products and agricultural chemicals along
the United States inland waterways. The marine transportation segment is also
the managing partner of a 35% owned offshore marine partnership, consisting of
four dry-bulk barge and tug units. The partnership is accounted for under the
equity method of accounting.
 
     The following table sets forth the Company's marine transportation
segment's revenues, costs and expenses, operating income and operating margins
for the three years ended December 31, 2002 (dollars in thousands):
 

<Table>
<Caption>
                                                         % CHANGE              % CHANGE
                                                         2002 TO               2001 TO
                                     2002       2001       2001       2000       2000
                                   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>
Marine transportation revenues...  $450,280   $481,283      (6)%    $443,203       9%
                                   --------   --------     ---      --------      --
Costs and expenses:
  Costs of sales and operating
     expenses....................   269,838    286,641      (6)      262,725       9
  Selling, general and
     administrative..............    52,967     54,070      (2)       47,149      15
  Taxes, other than on income....    10,548     11,211      (6)        9,908      13
  Depreciation and other
     amortization................    42,332     40,677       4        39,705       2
  Amortization of goodwill.......        --      5,610     N/A         5,616      --
                                   --------   --------     ---      --------      --
                                    375,685    398,209      (6)      365,103       9
                                   --------   --------     ---      --------      --
          Operating income.......  $ 74,595   $ 83,074     (10)%    $ 78,100       6%
                                   ========   ========     ===      ========      ==
          Operating margins......      16.6%      17.3%                 17.6%
                                   ========   ========              ========
</Table>

 
2002 COMPARED WITH 2001
 
  MARINE TRANSPORTATION REVENUES
 
     Revenues for 2002 compared with 2001 declined 6%, reflecting a overall
continued weakness in petrochemical volumes, lower refined products volumes into
the Midwest and lower liquid fertilizer volumes. During 2002, petrochemical
volumes along the Gulf Coast remained depressed, the continued impact of the
sluggish U.S. economy; however, petrochemical volumes into the Midwest improved
in the second half of
 
                                        22

<PAGE>
 
2002 with the gradual replenishment of low inventory levels by Midwest
manufacturers. Late in the fourth quarter, petrochemical volumes along the Gulf
Coast reflected some improvement.
 
     Refined products volumes began the 2002 year strong, declined during the
first quarter, remained weak the entire second quarter, and improved during the
second half. During the 2002 first half, high Midwest refined products
inventories and a new refined products pipeline from the Gulf Coast to the
Midwest that went online April 1, 2002, negatively impacted the volumes moved by
inland tank barge. During the 2002 second half, the movement of refined products
into the Midwest returned to more traditional levels, or pre-2000 levels, driven
by seasonal demand variables based on inventory requirements and Midwest
refinery outages for maintenance.
 
     Black oil volumes were below 2001 volume levels for the first nine months
of 2002. In November and December 2002, volumes increased with the addition of
the black oil tank barges and towboats purchased from Coastal and the barge
management agreement signed with Coastal for the management of Coastal's
remaining black oil barges.
 
     Liquid fertilizer volumes were weak in the 2002 first half, the result of
significant rainfall amounts in the Midwest that kept farmers out of their
fields, reducing the demand for fertilizer usage, thereby reducing the demand
for upriver volumes of liquid fertilizer by tank barge. During the 2002 third
quarter, volumes returned to normal seasonal levels, but declined in the fourth
quarter as a major customer significantly curtailed its fertilizer output due to
production problems at its facility.
 
     In late September 2002, Tropical Storm Isidore, and in early October 2002,
Hurricane Lili, both made landfall in central Louisiana, creating delays and
diversions of marine equipment away from the path of the storms, and thereby
lowering the Company's third and fourth quarter revenues. The impact of Tropical
Storm Isidore and Hurricane Lili on the 2002 results was an estimated $.05 per
share after taxes.
 
     During the 2002 year, approximately 70% of marine transportation volumes
were under term contracts and 30% were spot market volumes. During 2002,
contract renewals remained relatively flat. Spot market rates declined
approximately 10% to 15% during the 2002 first quarter and certain spot market
rates declined an additional 15% to 20% during the second quarter. Weak
petrochemical and refined products volumes during the 2002 first half created
lower utilization and excess tank barge capacity industry wide. During the 2002
third quarter, spot market rates remained depressed, even though petrochemical
and refined products volumes into the Midwest improved. During the fourth
quarter, spot market rates moved higher as petrochemical and refined products
volumes improved, however, spot market rates for 2002 remained below 2001 fourth
quarter levels.
 
  MARINE TRANSPORTATION COSTS AND EXPENSES
 
     Total costs and expenses for 2002 were 6% lower than 2001, primarily
reflecting the 6% reduction in revenues for 2002 compared with 2001 and
corresponding lower expenses. The 2001 year included $5,610,000 of amortization
of goodwill, which the Company ceased amortizing in 2002 under SFAS No. 142.
 
     Costs of sales and operating expenses for 2002 decreased 6% compared with
the 2001 year, primarily reflecting the decrease in marine transportation
activity and corresponding lower voyage related expenses. Depending on the
amount of volumes moved, the segment adjusts the number of towboats operated and
crews required on a daily basis. The segment operated 217 towboats at December
31, 2001, 203 at March 31, 2002, 198 at June 30, 2002, 206 at September 30, 2002
and 215 at December 31, 2002. The increase in the number of towboats operated
from September 30 to December 31, reflected the fourth quarter acquisition of
the Coastal vessels and the management of Coastal's remaining 54 black oil barge
fleet. Partially offsetting the operating cost savings was the negative impact
of inclement weather conditions, which decreased revenues and increased
operating expenses. Ice conditions, frontal systems and high water during the
2002 first half and fourth quarter, and the tropical storm and hurricane noted
above in the third and fourth quarters, required additional horsepower to
complete movements, additional fuel and other variable expenses associated with
longer transit times.
 
                                        23

<PAGE>
 
     Selling, general and administrative expenses for 2002 decreased 2% compared
with 2001, reflecting lower incentive compensation accruals and professional
fees, partially offset by annual salary increases effective January 2002.
 
     Taxes, other than on income for 2002 decreased 6% compared with 2001. The
decrease reflected lower waterway use taxes, the result of decreased marine
transportation volumes, and lower franchise taxes attributable to legal
restructuring.
 
     Depreciation and other amortization expense for 2002 increased 4% compared
with 2001. The increase reflected new inland tank barge additions in 2001 and
2002, the acquisition of the Cargill 15 barge fleet in March 2002, the
acquisition of the 10 black oil barges and 13 towboats from Coastal in late
October 2002, and the acquisition of 94 tank barges from Union Carbide in
December 2002. In addition, the segment decreased the remaining useful lives of
certain older tank barges to correspond with the anticipated retirement dates of
such barges.
 
  MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
 
     Operating income for 2002 was 10% lower than 2001. The 2001 operating
income included $5,610,000 of goodwill amortization expense. Amortization of
goodwill ceased January 1, 2002 with the adoption of SFAS No. 142. Goodwill will
be evaluated annually for impairment, or whenever events or circumstances
indicate that interim impairment testing is necessary. The operating margin for
2002 was 16.6% compared with 17.3% for 2001, or 18.4% when adjusted for goodwill
amortization expense. The decline in the 2002 operating margin primarily
reflected lower 2002 spot market rates and relatively flat contract renewals
compared with 2001, as well as reduced volumes.
 
2001 COMPARED WITH 2000
 
  MARINE TRANSPORTATION REVENUES
 
     Revenues for 2001 were 9% over 2000 revenues. The increase included
revenues generated from the leasing in February 2001 of 94 inland tank barges
from Union Carbide. The marine transportation segment generated approximately
$24,000,000 of revenues during 2001 from such service. From the date of the
lease until late in the 2001 third quarter, the leased barges were employed
exclusively in Union Carbide service. Late in the 2001 third quarter, the
partial integration of the leased tank barges was completed into the segment's
inland tank barge fleet under the terms of the long-term contract with Dow. The
completed partial integration allowed for the achievement of additional
operating synergies and total use of the distribution system.
 
     For the 2001 year, the Company benefited from strong upriver refined
products volumes and favorable black oil volumes. The Company's liquid
fertilizer volumes were higher than expected for the 2001 first half.
Petrochemical volumes were depressed for the entire year, the result of the slow
U.S. economy.
 
     The strong Midwest refined products volumes were accelerated in mid-August
by a Chicago, Illinois area refinery fire, which closed the facility for an
estimated six-month period. The facility closure created an anomaly in the
normal distribution patterns of refined petroleum products into the Midwest.
Midwest volumes of refined products remained strong for the remainder of 2001.
 
     The favorable 2001 black oil volumes were primarily driven by the high
demand for asphalt for use in rebuilding of the U.S. highway infrastructure. In
addition, in the 2001 first half, high natural gas prices aided black oil
volumes by creating additional demand for residual fuel as a natural gas
substitute for boiler fuel for utility customers.
 
     During the 2001 first quarter, and into April and May, high natural gas
prices caused the U.S. manufacturers of nitrogen based fertilizer to
significantly curtail production. The agricultural demand for nitrogen based
fertilizer was strong, and foreign producers made up the shortfall of domestic
production. The significant importing of liquid fertilizer disrupted the
traditional rail and inland tank barge distribution pattern
 
                                        24

<PAGE>
 
and created additional barging volumes. Liquid fertilizer volumes in the 2001
third quarter were at normal levels while the fourth quarter volumes were weak,
the result of high Midwest inventory levels.
 
     During 2001, approximately 70% of volumes were under term contracts, with
30% spot market volumes. Contract renewals during 2001 were generally at
modestly higher prices. Spot market rates, after the mid-August 2001 refinery
fire, were generally higher than the 2001 first half, the result of increased
utilization to meet the demand for refined products volumes into the Midwest.
 
     During the 2001 first half, and particularly the first quarter, operations
were hampered by adverse weather conditions. Along the Gulf Coast, heavy fog and
strong winds caused delays, thereby increasing transit times. Operations on the
Illinois River ceased for the majority of January 2001 due to ice. In February,
March, April and early May, high water caused navigational delays on the
Mississippi River. During the second half of 2001, and particularly the third
quarter, the segment benefited from favorable weather and water conditions.
 
  MARINE TRANSPORTATION COSTS AND EXPENSES
 
     Total costs and expenses for 2001 were 9% higher than 2000, in proportion
to the higher revenues recorded in 2001. The 2001 and 2000 years included
$5,610,000 and $5,616,000, respectively, of amortization of goodwill, which the
Company ceased amortizing in 2002.
 
     Costs of sales and operating expenses were 9% higher in 2001 compared with
2000. The increase was in proportion to the higher revenues recorded in 2001.
The 2001 year included lease costs, as well as operating expenses, associated
with the February 2001 leasing of 94 inland tank barges from Union Carbide.
 
     Selling, general and administrative expenses for 2001 were 15% higher than
2000. The increase primarily reflected higher salaries, bonus and profit-sharing
accruals, and the hiring of additional personnel as a result of the leasing of
inland tank barges from Dow.
 
     Taxes, other than on income was 13% higher in 2001 than 2000, primarily
reflecting increased waterway use taxes associated with higher business activity
levels, including the additional Dow business.
 
     Depreciation and other amortization increased 2% for 2002 compared with
2001. The increase primarily resulted from the addition of eleven new tank
barges placed into service during 2000 and 2001.
 
  MARINE TRANSPORTATION OPERATING INCOME AND OPERATING MARGINS
 
     Operating income for 2001 increased 6% compared with 2000 and the operating
margin was 17.3% in 2001 and 17.6% for 2000. Excluding amortization of goodwill,
the operating margin for 2001 was 18.4% compared with 18.9% for 2000. The slight
decline in the operating margin for 2001 compared with 2000 reflected reduced
petrochemical volumes during 2001, as petrochemical volumes typically earn a
higher operating margin than refined products and liquid fertilizer volumes.
 
DIESEL ENGINE SERVICES
 
     The Company, through its diesel engine services segment, sells genuine
replacement parts, provides service mechanics to overhaul and repair large
medium-speed diesel engines and reduction gears, and maintains facilities to
rebuild component parts or entire large medium-speed diesel engines or entire
reduction gears. The segment services the marine, power generation and
industrial, and railroad markets.
 
                                        25

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

<Table>
<Caption>
                                                          % CHANGE             % CHANGE
                                                          2002 TO              2001 TO
                                       2002      2001       2001      2000       2000
                                      -------   -------   --------   -------   --------
<S>                                   <C>       <C>       <C>        <C>       <C>
Diesel engine services revenues.....  $85,123   $85,601      (1)%    $69,441      23%
                                      -------   -------     ---      -------     ---
Costs and expenses:
  Costs of sales and operating
     expenses.......................   63,928    64,150      --       52,610      22
  Selling, general and
     administrative.................   11,111    11,680      (5)       8,917      31
  Taxes, other than on income.......      303       286       6          268       7
  Depreciation and other
     amortization...................      940       873       8          605      44
  Amortization of goodwill..........       --       501     N/A           86     483
                                      -------   -------     ---      -------     ---
                                       76,282    77,490      (2)      62,486      24
                                      -------   -------     ---      -------     ---
          Operating income..........  $ 8,841   $ 8,111       9%     $ 6,955      17%
                                      =======   =======     ===      =======     ===
          Operating margins.........     10.4%      9.5%                10.0%
                                      =======   =======              =======
</Table>

 
2002 COMPARED WITH 2001
 
  DIESEL ENGINE SERVICES REVENUES
 
     Revenues for 2002 compared with 2001 were relatively flat, benefiting from
a strong 2002 power generation, industrial and railroad markets, thereby
offsetting a weak 2002 Gulf Coast oil and gas services market, a market weak
since the second half of 2001. The power generation market benefited from
favorable service and parts sales to the nuclear industry. Sales to the railroad
market benefited from the July 2001 agreement with EMD to distribute replacement
parts for locomotive engines used by certain U.S. transit and Class II
railroads, and improved service and parts sales to a slightly improved U.S.
steel industry.
 
  DIESEL ENGINE SERVICES COSTS AND EXPENSES
 
     Costs and expenses for 2002 compared with 2001 were in line with 2002
revenues, remaining relatively flat. The 2001 year included $501,000 of
amortization of goodwill, which the Company ceased amortizing in 2002, in
accordance with SFAS No. 142.
 
  DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
 
     Operating income for the diesel engine services segment for 2002 was 9%
higher than 2001, primarily the result of the $501,000 of goodwill amortization
recorded in 2001. The operating margin for 2002 was 10.4% compared with 9.5% for
2001, or 10.1% adjusted for amortization of goodwill. The operating margin for
2002 was positively influenced by increased power generation revenues, which
historically earn a higher gross profit margin, and negatively influenced by
increased railroad revenues, which historically earn a lower gross profit
margin.
 
2001 COMPARED WITH 2000
 
  DIESEL ENGINE SERVICES REVENUES
 
     Revenues for 2001 reflected a 23% increase when compared with 2000. The
2001 year included a full year of revenues from two service company
acquisitions, Powerway, acquired in October 2000 and West Kentucky in November
2000, as well as from an agreement signed in July 2001 with EMD as noted above.
During 2001, the power generation market was strong, reflecting favorable
nuclear parts sales, and the Gulf Coast oil and gas services market was strong
in the 2001 first half, however, weakened in the second half of the year. The
shortline and industrial railroad market remained weak for the entire year.
 
                                        26

<PAGE>
 
  DIESEL ENGINE SERVICES COSTS AND EXPENSES
 
     Costs and expenses for 2001 generally increased in proportion to the higher
revenues in 2001 over 2000, reflecting the full year impact of the two
acquisitions, Powerway in October and West Kentucky in November of 2000 and the
impact of the July 2001 agreement with EMD.
 
  DIESEL ENGINE SERVICES OPERATING INCOME AND OPERATING MARGINS
 
     Operating income for the diesel engine services segment for 2001 was 17%
higher than 2000, however, the operating margin declined to 9.5% for 2001
compared with 10.0% for 2000. The decline in the operating margin for 2001 was
primarily attributable to increased lower margin replacement parts sales to the
transit and Class II railroads.
 
GENERAL CORPORATE EXPENSES
 
     General corporate expenses for 2002, 2001 and 2000 were $5,677,000,
$7,088,000 and $7,053,000, respectively. The 20% decline in 2002 compared with
2001 reflected lower employee incentive compensation accruals and professional
fees, partially offset by annual salary increases effective January 2002.
 
OTHER INCOME AND EXPENSES
 
     The following table sets forth the impairment of long-lived assets, merger
related charges, gain on disposition of assets, equity in earnings of marine
affiliates, impairment of equity investment, other income (expense), minority
interests and interest expense for the three years ended December 31, 2002
(dollars in thousands):
 

<Table>
<Caption>
                                                              % CHANGE              % CHANGE
                                                              2002 TO               2001 TO
                                          2002       2001       2001       2000       2000
                                        --------   --------   --------   --------   --------
<S>                                     <C>        <C>        <C>        <C>        <C>
Impairment of long-lived assets.......  $(17,712)  $     --     N/A      $     --      N/A
Merger related charges................        --         --      --%         (199)     N/A
Gain on disposition of assets.........       624        363      72%        1,161      (69)%
Equity in earnings of marine
  affiliates..........................       700      2,950     (76)%       3,394      (13)%
Impairment of equity investment.......    (1,221)        --     N/A            --      N/A
Other income (expense)................      (155)      (540)     71%          337     (260)%
Minority interests....................      (962)      (706)    (36)%        (966)      27%
Interest expense......................   (13,540)   (19,038)    (29)%     (23,917)     (20)%
</Table>

 
  ASSET IMPAIRMENTS
 
     During the fourth quarter of 2002, the Company recorded $18,933,000 of
non-cash pre-tax impairment charges. The after-tax effect of the charges was
$12,498,000 or $.51 per share. Of the total pre-tax charges, $17,241,000 was due
to reduced estimated cash flows resulting from reduced lives on the Company's
single hull fleet and its commitment to sell certain vessels during 2003. The
reduced estimated useful lives on 114 single hull tank barges is due to market
bias against single hull tank barges and the assessment of the impact of new
regulations issued in September 2002 by the U.S. Coast Guard that require the
installation of tank level monitoring devices on all single hull tank barges by
October 2007. The Company plans to retire all of its single hull tank barges by
October 17, 2007. The Company has committed to sell 21 inactive or out-of-
service double hull tank barges and five inactive towboats during 2003 and has
reduced the carrying value of these vessels by $5,682,000 to fair value of
$2,621,000. The charges also included a $1,221,000 write-down of an investment
in a non-consolidated affiliate to its estimated fair value and a $471,000
write-down of surplus diesel shop equipment.
 
                                        27

<PAGE>
 
  GAIN ON DISPOSITION OF ASSETS
 
     The Company reported net gains on disposition of assets of $624,000 in
2002, $363,000 in 2001 and $1,161,000 in 2000. The net gains were predominantly
from the sale of marine equipment.
 
  EQUITY IN EARNINGS OF MARINE AFFILIATES
 
     Equity in earnings of marine affiliates, consisting primarily of a 35%
owned offshore marine partnership, declined to $700,000, a 76% decrease for 2002
compared with 2001, and declined $444,000, or 13% for 2001 compared with 2000.
During the 2002, 2001 and 2000 years, the four offshore dry-cargo barge and
tugboats units owned through the 35% owned partnership with a public utility
were generally employed under the partnership's contract to transport coal
across the Gulf of Mexico, with a separate contract for the backhaul of
limestone rock. The lower results for 2002 primarily reflected reduced rates on
the recently renewed coal transportation contract, and the timing of maintenance
on three of the four units in the partnership. The results for 2001 reflected
major maintenance at the customer's docking facility which closed the facility
for a portion of the 2001 third quarter, and the Company's decision to conduct
maintenance on two of the offshore barge and tugboat units while the facility
was closed. For the 2000 year, the four units were primarily fully employed in
the partnership's coal and rock trade.
 
  INTEREST EXPENSE
 
     The 29% reduction in interest expense for 2002 compared with 2001 and 20%
reduction for 2001 compared with 2000 was attributable to lower debt levels
during 2002 and lower interest rates on the Company's variable rate debt. In
January 2002, the Company retired the remaining $50,000,000 of 7.05% medium term
notes, refinancing the notes through the Company's bank revolving credit
facility. During 2002, 2001 and 2000, the average interest rate under the
Company's revolving credit facility was 3.0%, 6.0% and 7.7%, respectively.
Interest rate swap agreements totaling $150,000,000, executed in February and
April 2001 to hedge a portion of its exposure to fluctuations in short-term
interest rates and more fully discussed in Long-Term Financing below, resulted
in additional interest expense of $5,476,000 in 2002 and $2,210,000 in 2001. The
average debt and average interest rates for 2002, including the effect of
interest rate swaps, were $240,954,000 and 5.6%, compared with $264,568,000 and
7.2% for 2001 and $320,955,000 and 7.5% for 2000, respectively.
 
                                        28

<PAGE>
 
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
 
  BALANCE SHEET
 
     Total assets as of December 31, 2002 were $791,758,000 compared with
$752,435,000 as of December 31, 2001 and $746,541,000 as of December 31, 2000.
The following table sets forth the significant components of the balance sheet
as of December 31, 2002 compared with 2001 and 2001 compared with 2000 (dollars
in thousands):
 

<Table>
<Caption>
                                                         % CHANGE              % CHANGE
                                                         2002 TO               2001 TO
                                     2002       2001       2001       2000       2000
                                   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>
Assets:
  Current assets.................  $119,468   $113,991       5%     $118,519      (4)%
  Property and equipment, net....   486,852    466,239       4       453,807       3
  Investment in marine
     affiliates..................    10,238     10,659      (4)       10,004       7
  Goodwill, net..................   156,726    156,726      --       162,604      (4)
  Other assets...................    18,474      4,820     283         1,607     200
                                   --------   --------     ---      --------     ---
                                   $791,758   $752,435       5%     $746,541       1%
                                   ========   ========     ===      ========     ===

Liabilities and stockholders' equity:
  Current liabilities............  $ 91,245   $ 95,021      (4)%    $ 94,310       1%
  Long-term debt-less current
     portion.....................   265,665    249,402       7       288,037     (13)
  Deferred income taxes..........    85,768     89,542      (4)       89,138      --
  Minority interests and other
     long-term liabilities.......    25,769     17,448      48        12,407      41
  Stockholders' equity...........   323,311    301,022       7       262,649      15
                                   --------   --------     ---      --------     ---
                                   $791,758   $752,435       5%     $746,541       1%
                                   ========   ========     ===      ========     ===
</Table>

 
2002 COMPARED WITH 2001
 
     Current assets as of December 31, 2002 increased 5% compared with December
31, 2001. Prepaid expenses and other current assets increased 41%, partially
from the recording as a current asset $1,550,000 of a $17,500,000 November 2002
contribution to the Company's defined benefit plan for vessel personnel. The
increased contribution was the result of lower interest rates and lower
investment returns from the plan's assets, which consist primarily of fixed
income securities and corporate stocks. Funding of the plan is based on
actuarial projections that are designed to satisfy minimum ERISA funding
requirements to achieve adequate funding of accumulated benefit obligations.
Additionally, vessels with a fair value of $2,621,000, and committed to be sold
in 2003, have been reclassified from property and equipment to prepaid expenses
and other current assets. The Company also wrote-off $738,000 of trade accounts
receivables against the allowance for doubtful accounts primarily recorded in
2001.
 
     Property and equipment, net of accumulated depreciation, as of December 31,
2002 increased 4% compared with December 31, 2001. The increase reflected
$47,709,000 of capital expenditures and the acquisition of tank barges and
towboats totaling $44,653,000, more fully described under Capital Expenditures
below, net of $45,401,000 of depreciation for the 2002 year and $6,015,000 of
dispositions of marine equipment during the 2002 year. In addition, during the
2002 year the Company took impairment charges of $17,712,000, more fully
described under Asset Impairments above, and reclassified $2,621,000 of property
as assets held for sale included in prepaid expenses and other current assets.
 
                                        29

<PAGE>
 
     Other assets as of December 31, 2002 increased 283% during 2002 compared
with December 31, 2001, primarily from the $17,500,000 contribution to the
Company's defined benefit plan for vessel personnel, of which $1,550,000 was
classified as a current asset.
 
     Current liabilities as of December 31, 2002 declined 4% compared with
December 31, 2001, primarily due to a decrease in accrued liabilities, the
result of lower employee compensation accruals, the timing of such compensation
payments, and lower accrued interest expense the result of lower average
interest rates and lower average debt levels, partially offset by higher
accruals for casualty losses.
 
     Long-term debt, less current portion, as of December 31, 2002 increased 7%
compared with December 31, 2001. The increase was impacted by borrowings to
finance the 2002 first quarter Cargo Carriers acquisition, 2002 fourth quarter
Coastal and Union Carbide marine equipment acquisitions, the November 2002
$17,500,000 defined benefit plan contribution, the 2002 capital expenditures and
common stock repurchases.
 
     Minority interests and other long-term liabilities as of December 31, 2002
increased 48% compared with December 31, 2001, primarily due to the recording of
a $7,228,000 increase in the fair value of the interest rate swap agreements for
2002, more fully described under Long-Term Financing below.
 
     Stockholders' equity as of December 31, 2002 increased 7% compared with
December 31, 2001. The increase for 2002 primarily reflected net earnings of
$27,446,000, a net increase in treasury stock of $1,252,000, and a $4,698,000
decrease in accumulated other comprehensive income. The increase in treasury
stock reflected $3,931,000 of open market treasury stock purchases less
$2,679,000 associated with the exercise of employee stock options. The
$4,698,000 decrease in accumulated other comprehensive income resulted from the
net changes in fair value of interest rate swap agreements, net of taxes, more
fully described under Long-Term Financing below.
 
2001 COMPARED WITH 2000
 
     In December 2000, Oceanic, the Company's wholly owned captive insurance
subsidiary, liquidated its remaining available-for-sale securities, which
totaled $9,781,000 as of September 30, 2000. Prior to 1999, Oceanic was used to
insure risks of the Company and its subsidiaries, which required Oceanic to be
more fully capitalized.
 
     Total current assets as of December 31, 2001 decreased 4% compared with
December 31, 2000. The 4% decrease reflected a $2,808,000 reduction in cash and
cash equivalents and a $1,816,000, or 2% reduction in trade accounts
receivables, even though marine transportation and diesel engine services
revenues increased during 2001 by a combined 11% over 2000. The reduction in
trade accounts receivable reflected the Company's emphasis on the collection of
such receivables during 2001. The Company also recorded a $500,000 allowance for
doubtful accounts in the 2001 fourth quarter when a large Houston based trading
company filed for bankruptcy.
 
     Property and equipment, net of accumulated depreciation, remained
relatively constant with December 31, 2000. The 2000 balance reflected two
diesel engine services acquisitions in the 2000 fourth quarter and a final
purchase price adjustment to the Hollywood Marine acquisition totaling
approximately $4,600,000 to reflect the fair value of the property and equipment
acquired in the transaction.
 
     Goodwill as of December 31, 2001 decreased 4% compared with December 31,
2000. Goodwill totaling $157,352,000 was recorded in 1999, and adjusted in 2000
by an additional $3,900,000, for the Hollywood Marine acquisition, representing
the excess of the purchase price over the amount allocated to identifiable
assets and liabilities. In 2000, the Company also recorded goodwill totaling
approximately $3,300,000 from two diesel engine services acquisitions. Effective
January 1, 2002, the Company ceased the amortization of goodwill in accordance
with SFAS No. 142.
 
     Total current liabilities as of December 31, 2001 and December 31, 2000
were relatively constant. In December 2001, the current portion of long-term
debt decreased $5,000,000 from the prepayment of a private
 
                                        30

<PAGE>
 
placement note, more fully described under Long-Term Financing below. The debt
prepayment was offset by higher bonus, pension and profit sharing accruals and
deferred revenues as of December 31, 2001.
 
     Long-term debt, less current portion, as of December 31, 2001 declined 13%
compared with December 31, 2000. The reduction primarily resulted from the pay
down of long-term debt from the free cash flow generated by the Company in 2001,
less capital expenditures and treasury stock repurchases.
 
     Minority interests and other long-term liabilities as of December 31, 2001
increased 41% compared with December 31, 2000. During 2001, the Company recorded
$5,176,000 representing the fair value of the interest rate swap agreements for
2001.
 
     Stockholders' equity as of December 31, 2001 increased 15% compared with
December 31, 2000. The increase for the 2001 year primarily reflected net
earnings of $39,603,000, a net decrease in treasury stock of $1,635,000, an
increase of $499,000 in additional paid-in capital, and a $3,364,000 decrease in
accumulated other comprehensive income. The reduction in treasury stock
reflected $4,385,000 associated with the exercise of employee stock options,
less $2,750,000 of open market treasury stock purchases. The $3,364,000 decrease
in accumulated other comprehensive income resulted from the net change in the
fair value of interest rate swap agreements, net of taxes, more fully described
under Long-Term Financing below.
 
  LONG-TERM FINANCING
 
     The Company has an unsecured revolving credit facility (the "Revolving
Credit Facility") with a syndicate of banks, with JPMorgan Chase as the agent
bank. On November 5, 2001, the Company amended the Revolving Credit Facility to
increase the revolving credit amount from $100,000,000 to $150,000,000 and to
extend the maturity date to October 9, 2004. Borrowing options under the amended
Revolving Credit Facility allow the Company to borrow at an interest rate equal
to either the London Interbank Offered Rate ("LIBOR") plus a margin ranging from
.75% to 1.50%, depending on the Company's senior debt rating; or an adjusted
Certificate of Deposit ("CD") rate plus a margin ranging from .875% to 1.625%,
also depending on the Company's senior debt rating; or the greater of prime
rate, Federal Funds rate plus .50%, or the secondary market rate for three-month
CD rate plus 1%. A commitment fee is charged on the unused portion of the
Revolving Credit Facility at rates ranging from .20% to .40%, depending on the
Company's senior debt rating, multiplied by the average unused portion of the
Revolving Credit Facility, and is paid quarterly. A utilization fee equal to
.125% to .25%, also depending on the Company's senior debt rating, of the
average outstanding borrowings during periods in which the total borrowings
exceed 33% of the total $150,000,000 commitment, is also paid quarterly. At
March 5, 2003, the applicable interest rate spread over LIBOR was .875% and the
commitment fee and utilization fee were .25% and .125%, respectively. The
amended Revolving Credit Facility also included modifications to certain
financial covenants, including an increase in the minimum net worth requirement,
as defined, to $225,000,000. In addition to financial covenants, the Revolving
Credit Facility contains covenants that, subject to exceptions, restrict debt
incurrence, mergers and acquisitions, sales of assets, dividends and
investments, liquidations and dissolutions, capital leases, transactions with
affiliates and changes in lines of business. Borrowings under the Revolving
Credit Facility may be used for general corporate purposes, the purchase of
existing or new equipment, the purchase of the Company's common stock, or for
business acquisitions. The Company was in compliance with all Revolving Credit
Facility covenants at December 31, 2002. As of December 31, 2002, $88,000,000
was outstanding under the Revolving Credit Facility. The Revolving Credit
Facility includes a $10,000,000 commitment which may be used for standby letters
of credit. Outstanding letters of credit under the Revolving Credit Facility
totaled $741,000 as of December 31, 2002.
 
     The Company has an unsecured term loan credit facility (the "Term Loan")
with a syndicate of banks, with Bank of America, N.A. ("Bank of America") as the
agent bank. Interest rate options under the Term Loan include interest rates
equal to either LIBOR plus a margin ranging from .75% to 1.50%, depending on the
Company's senior debt rating; or an adjusted CD rate plus a margin ranging from
.875% to 1.625%, also depending on the Company's senior debt rating; or the
greater of prime rate, Federal Funds rate plus .50%, or the secondary market
rate for three-month CD rate plus 1%. A utilization fee equal to .125% to .25%,
depending on the Company's senior debt rating, of the average outstanding
borrowings during periods in which
 
                                        31

<PAGE>
 
the total borrowings exceed 33% of the original $200,000,000 commitment, is paid
quarterly. At March 5, 2003, the applicable interest rate spread over LIBOR was
.875% and the utilization fee was .25%. On November 5, 2001, the Term Loan was
amended to conform existing financial covenants to the amended Revolving Credit
Facility. In addition to financial covenants, the Term Loan contains covenants
that, subject to exceptions, restrict debt incurrence, mergers and acquisitions,
sales of assets, dividends and investments, liquidations and dissolutions,
capital leases, transactions with affiliates and changes in lines of business.
The Term Loan quarterly principal payments of $12,500,000, plus interest, began
on October 9, 2002, with the remaining principal due on October 9, 2004, the
maturity date of the Term Loan. The principal payments of $50,000,000 due in
2003 were classified as long-term debt at December 31, 2002, as the Company has
the ability and intent through the Revolving Credit Facility to refinance the
payments on a long-term basis. The Company was in compliance with all Term Loan
covenants at December 31, 2002. As of December 31, 2002, the amount borrowed
under the Term Loan was $171,500,000.
 
     The Company has an uncommitted and unsecured $10,000,000 line of credit
("Credit Line") with Bank of America whereby Bank of America will provide
short-term advances and the issuance of letters of credit on an uncommitted
basis. The Credit Line, which matured on November 15, 2002, was extended to
November 4, 2003. Borrowings under the Credit Line allow the Company to borrow
at an interest rate equal to either LIBOR plus a margin of 1%; or the higher of
prime rate or the Federal Funds rate plus .50%. As of December 31, 2002,
$5,900,000 was borrowed under the Credit Line and outstanding letters of credit
totaled $560,000. Amounts borrowed on the Credit Line were classified as
long-term debt at December 31, 2002, as the Company has the ability and the
intent to refinance the amount due under the Credit Line on a long-term basis
through the Revolving Credit Facility.
 
     In September 2002, the Company entered into a $10,000,000 uncommitted and
unsecured revolving credit note ("Credit Note") with BNP Paribas ("BNP") whereby
BNP will consider short-term advances through the maturity date of May 31, 2003.
The Credit Note allows the Company to borrow at an interest rate equal to BNP's
current day cost of funds plus .35%. Also, in September 2002, the Company
entered into a $5,000,000 uncommitted letter of credit line with BNP whereby BNP
will consider letters of credit for periods no longer than 15 months from
issuance through the maturity date of May 31, 2003. The Company did not have any
borrowings or letters of credit outstanding under the Credit Note or uncommitted
letters of credit line as of December 31, 2002. On February 27, 2003, the
available limit of the Credit Note was reduced from $10,000,000 to $5,000,000 by
mutual agreement between BNP and the Company. The $5,000,000 uncommitted letter
of credit line was cancelled due to a lack of need.
 
     The Company has on file with the Securities and Exchange Commission a shelf
registration for the issuance of up to $250,000,000 of debt securities,
including medium term notes providing for the issuance of fixed rate or floating
rate debt with maturities of nine months or longer. As of December 31, 2002,
2001 and 2000, $121,000,000 was available under the shelf registration, subject
to mutual agreement to terms, to provide financing for future business or
equipment acquisitions, and to fund working capital requirements. On January 29,
2002, the Company used proceeds from the Revolving Credit Facility to retire the
$50,000,000 of medium term notes due on that date. As of December 31, 2002,
there were no outstanding debt securities under the shelf registration.
 
     On December 31, 2001, the Company prepaid the remaining $5,000,000 of
principal outstanding on a $50,000,000 private placement 8.22% senior note with
a maturity date of June 30, 2002. Principal payments of $5,000,000, plus
interest, were due annually through June 30, 2002.
 
     In February and April 2001 the Company hedged a portion of its exposure to
fluctuations in short-term interest rates by entering into interest rate swap
agreements. Five-year swap agreements with notional amounts totaling $100
million were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50 million were executed in April 2001. Under the
swap agreements, the Company will pay a fixed rate of 4.96% on a notional amount
of $50 million for three years, an average fixed rate of 5.64% on a notional
amount of $100 million for five years, and will receive floating rate interest
payments based on LIBOR for United States dollar deposits. The interest rate
swap agreements are designated as cash flow hedges, therefore, the changes in
fair value, to the extent the swap agreements are effective, are recognized in
 
                                        32

<PAGE>
 
other comprehensive income until the hedged interest expense is recognized in
earnings. No gain or loss on ineffectiveness was required to be recognized in
2002 or 2001. The fair value of the interest rate swap agreements was recorded
as an other long-term liability of $12,404,000 and $5,176,000 at December 31,
2002 and 2001, respectively. The Company has recorded, in interest expense,
losses related to the interest rate swap agreements of $5,476,000 and $2,210,000
for the years ended December 31, 2002 and 2001, respectively. The Company
anticipates $3,922,000 of net losses included in accumulated other comprehensive
income will be transferred into earnings over the next year based on current
interest rates. Fair value amounts were determined as of December 31, 2002 and
2001 based on quoted market values of the Company's portfolio of derivative
instruments.
 
     On February 28, 2003, the Company issued $250,000,000 of floating rate
senior notes ("Senior Notes") due February 28, 2013. The unsecured notes pay
interest quarterly at an interest rate equal to LIBOR plus a margin of 1.2% and
are not callable for the first year. Thereafter, the Senior Notes may be prepaid
without penalty. The proceeds were used to repay $121,500,000 of the Term Loan
due October 9, 2004 and $128,500,000 of the Revolving Credit Facility due
October 9, 2004. The terms of the Senior Notes include certain covenants that,
subject to exceptions, restrict debt incurrence, mergers and acquisitions, sales
of assets, dividends and investments, liquidations and dissolutions, capital
leases, transactions with affiliates, and changes in lines of business.
Additionally, the Company must comply with certain financial covenants based on
the results of its operations.
 
     In connection with the issuing of the Senior Notes, the Company hedged a
further portion of its exposure to fluctuations in short-term interest rates by
entering into a one-year interest rate swap agreement on February 28, 2003 with
a notional amount of $100,000,000. Under the agreement, the Company will pay a
fixed rate of 1.39% for one year and will receive floating rate interest
payments based on LIBOR for United States dollar deposits. The interest rate
swap was designated as a cash flow hedge. Existing swap agreements totaling
$150,000,000 which had been used as cash flow hedges for floating rate bank debt
were re-designated as cash flow hedges for the Senior Notes. As of February 28,
2003, the Company had a total notional amount of $250,000,000 of interest rate
swaps with terms ranging from one to three years designated as cash flow hedges
for its Senior Notes. The Senior Notes' effective average rate on that date,
including the effect of interest rate swaps, was 5.0%.
 
  CAPITAL EXPENDITURES
 
     Capital expenditures for the 2002 year totaled $47,709,000, of which
$11,348,000 were for fleet and project construction, and $36,361,000 were
primarily for upgrading of the existing marine transportation fleet. Capital
expenditures for the 2001 year totaled $59,159,000, of which $20,305,000 were
for fleet and project construction, and $38,854,000 were primarily for upgrading
of the existing marine transportation fleet. For the 2000 year, capital
expenditures totaled $47,683,000, of which $5,635,000 were for fleet and project
construction and $42,048,000 were primarily for upgrading of the existing marine
transportation fleet.
 
     In September 2000, the Company entered into a contract for the construction
of six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemicals and refined petroleum products. The six barges
were placed into service during 2001. The total purchase price of the six barges
was approximately $8,700,000. Financing of the construction of the six barges
was through operating cash flows and available credit under the Company's
Revolving Credit Facility.
 
     In January 2001, the Company entered into a contract for the construction
of five double hull, 30,000 barrel capacity, inland tank barges which will be
used for transporting asphalt. The five barges were placed into service during
the second half of 2001. The total purchase price of the five barges was
approximately $8,900,000. Financing of the construction of the five barges was
through operating cash flows and available credit under the Company's Revolving
Credit Facility.
 
     In June 2001, the Company entered into a contract for the construction of
six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemicals and refined petroleum products. During the 2002
first quarter, one tank barge was placed into service, three tank barges were
placed into service in the second quarter, one in the third quarter and the last
tank barge was placed into service in
 
                                        33

<PAGE>
 
October 2002. The total purchase price of the six barges was approximately
$8,900,000. Financing of the construction of the six barges was through
operating cash flows and available credit under the Company's Revolving Credit
Facility.
 
     In February 2002, the Company entered in a contract for the construction of
two double hull, 30,000 barrel capacity, inland tank barges which will be used
for transporting asphalt. The two tank barges were placed into service during
the 2003 first quarter. The total purchase price of the two barges was
approximately $3,600,000 of which $164,000 was expended in 2002. Financing of
the construction of the two barges was through operating cash flows and
available credit under the Company's Revolving Credit Facility.
 
     In February 2002, the Company also entered into a contract for the
construction of six double hull, 30,000 barrel capacity, inland tank barges for
use in the transportation of petrochemicals and refined products. Delivery of
the six barges is scheduled over a six-month period starting in March 2003. The
total purchase price of the six barges is approximately $8,900,000, of which
$780,000 was expended in 2002. Financing of the construction of the six barges
will be through operating cash flows and available credit under the Company's
Revolving Credit Facility.
 
     In October 2002, the Company entered into a contract for the construction
for six double hull, 30,000 barrel capacity, inland tank barges for use in the
transportation of petrochemical and refined products. Delivery of the six barges
is scheduled over a six-month period starting in March 2004. The total purchase
price of the six barges is approximately $8,900,000, of which no payments were
made in 2002. Financing of the construction of the six barges will be through
operating cash flows and available credit under the Company's Revolving Credit
Facility.
 
  TREASURY STOCK PURCHASES
 
     During 2002, the Company purchased 165,000 shares of its common stock at a
total purchase price of $3,931,000, for an average price of $23.76 per share.
During 2001, the Company purchased 126,000 shares of its common stock at a total
purchase price of $2,750,000, for an average price of $21.77 per share. During
2000, the Company purchased 860,000 shares of its common stock at a total
purchase price of $15,791,000, for an average price of $18.37 per share.
 
     On April 20, 1999, the Board of Directors increased the Company's common
stock repurchase authorization by an additional 2,000,000 shares. As of March 5,
2003, the Company had 1,210,000 shares available under the repurchase
authorization. Historically, treasury stock purchases have been financed through
operating cash flows and borrowings under the Company's Revolving Credit
Facility. The Company is authorized to purchase its common stock on the New York
Stock Exchange and in privately negotiated transactions. When purchasing its
common stock, the Company is subject to price, trading volume and other market
considerations. Shares purchased may be used for reissuance upon the exercise of
stock options or the granting of other forms of incentive compensation, in
future acquisitions for stock or for other appropriate corporate purposes.
 
  LIQUIDITY
 
     The Company generated net cash provided by operating activities of
$72,554,000, $96,940,000 and $83,303,000 for the years ended December 31, 2002,
2001 and 2000, respectively. Uses of cash for the 2002 year included a
$17,500,000 contribution to the Company's defined benefit plan for vessel
personnel, higher trade accounts receivable primarily attributable to the
Coastal acquisition in late October 2002, the timing of employee incentive
compensation plan payments in 2002 that were accrued in 2001, as well as lower
employee incentive compensation plan accruals for the 2002 year. Higher
operating income and a $3,106,000 decrease in working capital influenced the
increase in 2001 compared with 2000.
 
     The Company accounts for its ownership in its four marine partnerships
under the equity method of accounting, recognizing cash flow upon the receipt or
distribution of cash from the partnerships and joint venture. For the year ended
December 31, 2002, the Company made a net cash payment of $30,000 to the
 
                                        34

<PAGE>
 
partnerships and joint ventures and received cash totaling $2,295,000 and
$5,592,000 from the partnerships and joint ventures during the years ended
December 31, 2001 and 2000, respectively.
 
     Funds generated are available for acquisitions, capital expenditure
projects, treasury stock repurchases, repayment of borrowing associated with
each of the above and other operating requirements. In addition to net cash flow
provide by operating activities, the Company also had available as of March 5,
2003, $149,222,000 under its Revolving Credit Facility and $121,000,000 under
its shelf registration program, subject to mutual agreement and terms. As of
March 4, 2003, the Company had $4,629,000 available under its Bank of America
Credit Line and $2,000,000 under the BNP Credit Note.
 
     Neither the Company, nor any of its subsidiaries, is obligated on any debt
instrument, swap agreement, or any other financial instrument or commercial
contract which has a rating trigger, except for pricing grids on its Term Loan,
Revolving Credit Facility, Credit Line or Credit Note. The pricing grids on the
Company's long-term debt are discussed in Note 5, Long-Term Debt in the
financial statements.
 
     The Company expects to continue to fund expenditures for acquisitions,
capital construction projects, treasury stock repurchases, repayment of
borrowings, and for other operating requirements from a combination of funds
generated from operating activities and available financing arrangements.
 
     There are numerous factors that may negatively impact the Company's cash
flow in 2003. For a list of significant risks and uncertainties that could
impact cash flows, see Note 12, Contingencies and Commitments in the financial
statements. Amounts available under the Company's existing financial
arrangements are subject to the Company continuing to meet the covenants of the
credit facilities as also described in Note 5, Long-Term Debt in the financial
statements.
 
     The Company has a 50% interest in a joint venture bulk liquid terminal
business which has a $5,888,000 term loan outstanding at December 31, 2002. The
loan is non-recourse to the Company and the Company has no guarantee obligation.
The Company uses the equity method of accounting to reflect its investment in
the joint venture.
 
     The contractual obligations of the Company and its subsidiaries at December
31, 2002, after consideration of the long-term financing subsequent to year-end
as discussed in Note 15, Subsequent Events, consisted of the following (in
thousands):
 

<Table>
<Caption>
                                                    PAYMENTS DUE BY PERIOD
                                      --------------------------------------------------
                                                 LESS THAN     1-3      4-5     AFTER 5
CONTRACTUAL OBLIGATIONS:               TOTAL      1 YEAR      YEARS    YEARS     YEARS
------------------------              --------   ---------   -------   ------   --------
<S>                                   <C>        <C>         <C>       <C>      <C>
Long-term debt......................  $266,001    $56,236    $   229   $    8   $209,528
Non-cancelable operating leases.....    34,636     10,364     17,202    6,917        153
Capital expenditures................    19,751     10,851      8,900       --         --
                                      --------    -------    -------   ------   --------
                                      $320,388    $77,451    $26,331   $6,925   $209,681
                                      ========    =======    =======   ======   ========
</Table>

 
     The Company has issued guaranties or obtained stand-by letters of credit
and performance bonds supporting performance by the Company and its subsidiaries
of contractual or contingent legal obligations of the Company and its
subsidiaries incurred in the ordinary course of business. The aggregate notional
value of these instruments is $6,468,000 at December 31, 2002, including
$1,552,000 in letters of credit and $4,916,000 in performance bonds at December
31, 2002, of which $4,679,000 of these financial instruments relates to
contingent legal obligations which are covered by the Company's liability
insurance program in the event the obligations are incurred. All of these
instruments have an expiration date within two years. The Company does not
believe demand for payment under these instruments is likely and expects no
material cash outlays to occur in connection with these instruments.
 
     During the last three years, inflation has had a relatively minor effect on
the financial results of the Company. The marine transportation segment has
long-term contracts which generally contain cost escalation clauses whereby
certain costs, including fuel, can be passed through to its customers; however,
there is
 
                                        35

<PAGE>
 
typically a 30 to 90 day delay before contracts are adjusted for fuel prices.
The repair portion of the diesel engine services segment is based on prevailing
current market rates.
 
 ACCOUNTING STANDARDS
 
     In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability associated
with an asset retirement be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be determined. The associated retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. SFAS No. 143 is effective for the
Company at the beginning of fiscal 2003. The Company will adopt SFAS No. 143
effective January 1, 2003 and expects there will be no effect on the Company's
financial position or results of operations.
 
     In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company adopted SFAS No. 145
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.
 
     In July 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company adopted SFAS No. 146 for all exit or disposal activities initiated after
December 31, 2002.
 
     In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57, and 197 and a rescission of FASB
Interpretation No. 34." This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees issued. The Interpretation also clarifies
that a guarantor is required to recognize, at inception of a guarantee, a
liability for the fair value of the obligation undertaken. The initial
recognition and initial measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial position or
results of operations. The disclosure requirements are effective for the
Company's financial statements for interim and annual periods ending after
December 15, 2002.
 
     In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure" ("SFAS
No. 148") was issued. SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation" and provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Certain of the disclosure modifications are required for fiscal years ending
after December 15, 2002 and are included in the notes to these consolidated
financial statements.
 
     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interest in variable interest entities created after
January 31, 2003, and to variable interests in variable entities obtained after
January 31, 2003. The application of this Interpretation is not expected to have
a material effect on the Company's financial position or results of operations.
 
                                        36

<PAGE>
 

I
TEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company is exposed to market risk from changes in interest rates on
certain of its outstanding debt and changes in fuel prices. The outstanding loan
balances under the Company's bank credit facilities bear interest at variable
rates based on prevailing short-term interest rates in the United States and
Europe. A 10% change in variable interest rates would impact the 2003 interest
expense by approximately $428,000, based on balances outstanding at December 31,
2002, and change the fair value of the Company's debt by less than 1%. The
potential impact on the Company of fuel price increases is limited because most
of its term contracts contain escalation clauses under which increases in fuel
costs, among other, can be passed on to the customers, while its spot contract
rates are set based on prevailing fuel prices. The Company does not presently
use commodity derivative instruments to manage its fuel costs. The Company has
no foreign exchange risk.
 
     From time to time, the Company has utilized and expects to continue to
utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions involve interest rate
swap agreements which are entered into with major financial institutions.
Derivative financial instruments related to the Company's interest rate risks
are intended to reduce the Company's exposure to increases in the benchmark
interest rates underlying the Company's variable rate bank credit facilities.
The Company does not enter into derivative financial instrument transactions for
speculative purposes.
 
     In February and April 2001 the Company hedged a portion of its exposure to
fluctuations in short-term interest rates by entering into interest rate swap
agreements. Five-year swap agreements with notional amounts totaling $100
million were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50 million were executed in April 2001. Under the
swap agreements, the Company will pay a fixed rate of 4.96% on a notional amount
of $50 million for three years, an average fixed rate of 5.64% on a notional
amount of $100 million for five years, and will receive floating rate interest
payments based on the LIBOR for United States dollar deposits. The interest rate
swap agreements are designated as cash flow hedges, therefore, the changes in
fair value, to the extent the swap agreements are effective, are recognized in
other comprehensive income until the hedged interest expense is recognized in
earnings. No gain or loss on ineffectiveness was required to be recognized in
2002 or 2001. The fair value of the interest rate swap agreements was recorded
as an other long-term liability of $12,404,000 and $5,176,000 at December 31,
2002 and 2001, respectively. The Company has recorded, in interest expense,
losses related to the interest rate swap agreements of $5,476,000 and $2,210,000
for the years ended December 31, 2002 and 2001, respectively. Fair value amounts
were determined as of December 31, 2002 and 2001 based on quoted market values
of the Company's portfolio of derivative instruments.
 
                                        37

<PAGE>
 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The response to this item is submitted as a separate section of this report
(see Item 15, page 68).
 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not applicable.
 

                                    PART III
 

ITEMS 10 THROUGH 13.
 
     The information for these items is incorporated by reference to the
definitive proxy statement filed by the Company with the Commission pursuant to
the Regulation 14A within 120 days of the close of the fiscal year ended
December 31, 2002, except for the information regarding executive officers which
is provided in a separate item, captioned "Executive Officers of the
Registrant," and is included as an unnumbered item following Item 4 in Part I of
this Form 10-K.
 

ITEM 14. CONTROLS AND PROCEDURES
 
     (a) Evaluation of Disclosure Controls and Procedures.  Based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"))
as of a date within ninety days of the filing date of this annual report, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that the disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
 
     (b) Changes in Internal Controls.  There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation. There were no
significant deficiencies or material weaknesses in the internal controls.
 
                                        38

<PAGE>
 

                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors of Kirby Corporation:
 
     We have audited the accompanying consolidated balance sheets of Kirby
Corporation and consolidated subsidiaries as of December 31, 2002 and 2001 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kirby
Corporation and consolidated subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
 
     As discussed in note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."
 
                                          KPMG LLP
 
Houston, Texas
January 30, 2003,

except as to notes 5 and 15,
which are as of March 4, 2003.
 
                                        39

<PAGE>
 
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001
 

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
                                                               ($ IN THOUSANDS)
<S>                                                           <C>        <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents.................................  $  1,432   $  1,850
  Accounts receivable:
    Trade -- less allowance for doubtful accounts of
     $819,000 ($1,583,000 in 2001)..........................    79,829     78,677
    Other...................................................     6,129      6,164
  Inventory -- finished goods, at lower of average cost or
    market..................................................    15,549     15,105
  Prepaid expenses and other current assets.................    12,777      9,082
  Deferred income taxes.....................................     3,752      3,113
                                                              --------   --------
         Total current assets...............................   119,468    113,991
                                                              --------   --------
Property and equipment:
  Marine transportation equipment...........................   732,087    714,397
  Land, buildings and equipment.............................    65,850     61,760
                                                              --------   --------
                                                               797,937    776,157
  Accumulated depreciation..................................   311,085    309,918
                                                              --------   --------
                                                               486,852    466,239
                                                              --------   --------
Investment in marine affiliates.............................    10,238     10,659
Goodwill -- less accumulated amortization of $15,566,000 in
  2002 and 2001.............................................   156,726    156,726
Other assets................................................    18,474      4,820
                                                              --------   --------
                                                              $791,758   $752,435
                                                              ========   ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................  $    336   $    335
  Income taxes payable......................................     1,443        961
  Accounts payable..........................................    37,509     35,378
  Accrued liabilities:
    Interest................................................       228      1,526
    Insurance premiums and claims...........................    25,435     23,420
    Bonus, pension and profit-sharing plans.................    11,531     15,963
    Taxes -- other than on income...........................     4,649      5,707
    Other...................................................     5,549      7,481
  Deferred revenues.........................................     4,565      4,250
                                                              --------   --------
         Total current liabilities..........................    91,245     95,021
                                                              --------   --------
Long-term debt -- less current portion......................   265,665    249,402
Deferred income taxes.......................................    85,768     89,542
Minority interests..........................................     2,691      2,819
Other long-term liabilities.................................    23,078     14,629
                                                              --------   --------
                                                               377,202    356,392
                                                              --------   --------
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................................   176,867    176,074
  Accumulated other comprehensive income....................    (8,062)    (3,364)
  Retained earnings.........................................   269,657    242,211
                                                              --------   --------
                                                               441,553    418,012
  Less cost of 6,900,000 shares in treasury (6,892,000 in
    2001)...................................................   118,242    116,990
                                                              --------   --------
                                                               323,311    301,022
                                                              --------   --------
                                                              $791,758   $752,435
                                                              ========   ========
</Table>

 
          See accompanying notes to consolidated financial statements.
 
                                        40

<PAGE>
 
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
 

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                     ($ IN THOUSANDS,
                                                                EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>        <C>        <C>
Revenues:
  Marine transportation.....................................  $450,280   $481,283   $443,203
  Diesel engine services....................................    85,123     85,601     69,441
                                                              --------   --------   --------
                                                               535,403    566,884    512,644
                                                              --------   --------   --------
Costs and expenses:
  Costs of sales and operating expenses.....................   334,146    351,155    315,435
  Selling, general and administrative.......................    66,855     69,720     60,780
  Taxes, other than on income...............................    11,136     11,668     10,223
  Depreciation and other amortization.......................    45,507     44,133     42,502
  Amortization of goodwill..................................        --      6,111      5,702
  Impairment of long-lived assets...........................    17,712         --         --
  Merger related charges....................................        --         --        199
  Gain on disposition of assets.............................      (624)      (363)    (1,161)
                                                              --------   --------   --------
                                                               474,732    482,424    433,680
                                                              --------   --------   --------
     Operating income.......................................    60,671     84,460     78,964
Equity in earnings of marine affiliates.....................       700      2,950      3,394
Impairment of equity investment.............................    (1,221)        --         --
Other income (expense)......................................      (155)      (540)       337
Minority interests..........................................      (962)      (706)      (966)
Interest expense............................................   (13,540)   (19,038)   (23,917)
                                                              --------   --------   --------
     Earnings before taxes on income........................    45,493     67,126     57,812
Provision for taxes on income...............................   (18,047)   (27,523)   (23,699)
                                                              --------   --------   --------
     Net earnings...........................................  $ 27,446   $ 39,603   $ 34,113
                                                              ========   ========   ========
Net earnings per share of common stock:
  Basic.....................................................  $   1.14   $   1.65   $   1.40
  Diluted...................................................  $   1.13   $   1.63   $   1.39
</Table>

 
          See accompanying notes to consolidated financial statements.
 
                                        41

<PAGE>
 
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
 

<Table>
<Caption>
                                                              2002        2001        2000
                                                            ---------   ---------   ---------
                                                                    ($ IN THOUSANDS)
<S>                                                         <C>         <C>         <C>
Common stock:
  Balance at beginning and end of year....................  $   3,091   $   3,091   $   3,091
                                                            =========   =========   =========
Additional paid-in capital:
  Balance at beginning of year............................  $ 176,074   $ 175,575   $ 175,231
  Excess (deficit) of cost of treasury stock sold over
     proceeds received upon exercise of stock options.....        248          (6)       (455)
  Tax benefit realized from stock option plans............        545         505         470
  Adjustment for treasury stock reissued for
     acquisition..........................................         --          --         329
                                                            ---------   ---------   ---------
  Balance at end of year..................................  $ 176,867   $ 176,074   $ 175,575
                                                            =========   =========   =========
Accumulated other comprehensive income:
  Balance at beginning of year............................  $  (3,364)  $      --   $    (317)
  Change in fair value of derivative financial
     instruments, net of tax..............................     (4,698)     (3,364)         --
  Unrealized net gain in value of available-for-sale
     securities, net of tax...............................         --          --         317
                                                            ---------   ---------   ---------
  Balance at end of year..................................  $  (8,062)  $  (3,364)  $      --
                                                            =========   =========   =========
Retained earnings:
  Balance at beginning of year............................  $ 242,211   $ 202,608   $ 168,495
  Net earnings for the year...............................     27,446      39,603      34,113
                                                            ---------   ---------   ---------
  Balance at end of year..................................  $ 269,657   $ 242,211   $ 202,608
                                                            =========   =========   =========
Treasury stock:
  Balance at beginning of year............................  $(116,990)  $(118,625)  $(106,464)
  Purchase of treasury stock (165,000 shares in 2002,
     126,000 shares in 2001 and 860,000 shares in 2000)...     (3,931)     (2,750)    (15,791)
  Cost of treasury stock sold upon exercise of stock
     options (157,000 in 2002, 259,000 shares in 2001 and
     130,000 shares in 2000)..............................      2,679       4,385       2,157
  Cost of treasury stock reissued for acquisition (88,000
     shares in 2000)......................................         --          --       1,473
                                                            ---------   ---------   ---------
  Balance at end of year..................................  $(118,242)  $(116,990)  $(118,625)
                                                            =========   =========   =========
Comprehensive income:
  Net earnings for the year...............................  $  27,446   $  39,603   $  34,113
  Other comprehensive income (loss), net of tax...........     (4,698)     (3,364)        317
                                                            ---------   ---------   ---------
  Total comprehensive income..............................  $  22,748   $  36,239   $  34,430
                                                            =========   =========   =========
</Table>

 
          See accompanying notes to consolidated financial statements.
 
                                        42

<PAGE>
 
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
 

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                     ($ IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net earnings..............................................  $ 27,446   $ 39,603   $ 34,113
  Adjustments to reconcile net earnings to net cash provided
    by operations:
    Depreciation and amortization...........................    45,507     50,244     48,204
    Provision (credit) for deferred income taxes............    (1,883)     2,994        194
    Gain on disposition of assets...........................      (624)      (363)    (1,161)
    Equity in earnings of marine affiliates, net of
      distributions and contributions.......................      (730)      (656)     2,197
    Impairment of long-lived assets.........................    17,712         --         --
    Impairment of equity investment.........................     1,221         --         --
    Merger related charges, net of cash expenditures........        --         --        199
    Other...................................................     1,050      2,012      1,505
  Increase (decrease) in cash flows resulting from changes
    in:
    Accounts receivable.....................................    (1,092)     1,569     (5,444)
    Inventory...............................................      (444)       545       (955)
    Other assets............................................   (13,599)    (5,650)     2,944
    Income taxes payable....................................     1,028        813        522
    Accounts payable........................................     2,131       (528)     5,017
    Accrued and other liabilities...........................    (5,169)     6,357     (4,032)
                                                              --------   --------   --------
      Net cash provided by operating activities.............    72,554     96,940     83,303
                                                              --------   --------   --------
Cash flows from investing activities:
  Proceeds from sale and maturities of investments..........        --         --     13,568
  Capital expenditures......................................   (47,709)   (59,159)   (47,683)
  Acquisition of marine equipment and companies, net of cash
    acquired................................................   (44,818)        --     (7,942)
  Proceeds from disposition of assets.......................     5,938      2,774      3,583
  Other.....................................................       (70)        10        (40)
                                                              --------   --------   --------
    Net cash used in investing activities...................   (86,659)   (56,375)   (38,514)
                                                              --------   --------   --------
Cash flows from financing activities:
  Borrowings (payments) on bank credit facilities, net......    66,600    (33,300)    22,100
  Payments on long-term debt................................   (50,335)   (10,335)   (50,355)
  Purchase of treasury stock................................    (3,931)    (2,750)   (15,791)
  Return of investment to minority interests................    (1,091)    (1,195)      (996)
  Proceeds from exercise of stock options...................     2,444      4,207      1,340
                                                              --------   --------   --------
    Net cash provided by (used in) financing activities.....    13,687    (43,373)   (43,702)
                                                              --------   --------   --------
    Increase (decrease) in cash and cash equivalents........      (418)    (2,808)     1,087
Cash and cash equivalents, beginning of year................     1,850      4,658      3,571
                                                              --------   --------   --------
Cash and cash equivalents, end of year......................  $  1,432   $  1,850   $  4,658
                                                              ========   ========   ========
Supplemental disclosures of cash flow information:
  Cash paid during the year:
    Interest................................................  $ 14,441   $ 18,275   $ 24,538
    Income taxes............................................  $ 18,501   $ 24,591   $ 20,035
Noncash investing and financing activity:
  Treasury stock reissued in acquisition....................  $     --   $     --   $  1,802
  Cash acquired in acquisition..............................  $     --   $     --   $    140
  Debt assumed in acquisition...............................  $     --   $     --   $     20
  Disposition of asset for note receivable..................  $  1,100   $     --   $     --
</Table>

 
          See accompanying notes to consolidated financial statements.
 
                                        43

<PAGE>
 
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
 
(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Principles of Consolidation.  The consolidated financial statements include
the accounts of Kirby Corporation and all majority-owned subsidiaries ("the
Company"). One affiliated limited partnership in which the Company owns a 50%
interest, is the general partner and has effective control, and whose activities
are an integral part of the operations of the Company is consolidated. All other
investments in which the Company owns 20% to 50% and exercises significant
influence over operating and financial policies are accounted for using the
equity method. All material intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to reflect
the current presentation of financial information.
 
  ACCOUNTING POLICIES
 
     Cash Equivalents.  Cash equivalents consist of all short-term, highly
liquid investments with maturities of three months or less at date of purchase.
 
     Accounts Receivable.  In the normal course of business, the Company extends
credit to its customers. The Company regularly reviews the accounts and makes
adequate provisions for probable uncollectible balances. It is the Company's
opinion that the accounts have no impairment, other than that for which
provisions have been made. Included in accounts receivable as of December 31,
2002 and 2001 were $3,377,000 and $7,066,000, respectively, of accruals for
diesel engine services work in process which have not been invoiced as of the
end of each year.
 
     The Company's marine transportation and diesel engine services operations
are subject to hazards associated with such businesses. The Company maintains
insurance coverage against these hazards with mutual insurance and reinsurance
companies. As of December 31, 2002 and 2001, the Company had receivables of
$1,494,000 and $1,550,000, respectively, from the mutual insurance and
reinsurance companies to cover claims over the Company's deductible.
 
     Concentrations of Credit Risk.  Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily trade
accounts receivables. The Company's marine transportation customers include the
major oil refining and petrochemical companies. The diesel engine services
customers are offshore oil and gas service companies, inland and offshore marine
transportation companies, commercial fishing companies, power generation
companies, shortline, industrial, and certain transit and Class II railroads,
and the United States government. Credit risk with respect to these trade
receivables is generally considered minimal because of the financial strength of
such companies as well as the Company having procedures in effect to monitor the
creditworthiness of customers.
 
     Fair Value of Financial Instruments.  Cash, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short-term
maturity of these financial instruments. The fair value of the Company's debt
instruments is more fully described in Note 5, Long-Term Debt.
 
     Property, Maintenance and Repairs.  Property is recorded at cost.
Improvements and betterments are capitalized as incurred. Depreciation is
recorded on the straight-line method over the estimated useful lives of the
individual assets as follows: marine transportation equipment, 6-37 years;
buildings, 10-40 years; other equipment, 2-10 years; and leasehold improvements,
term of lease. When property items are retired, sold or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts with
any gain or loss on the disposition included in income. Maintenance and repairs
are charged to operating expense as incurred on an annual basis.
 
     Environmental Liabilities.  The Company expenses costs related to
environmental events as they are incurred or when a loss is considered probable
and estimable.
 
                                        44

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

     Goodwill.  The excess of the purchase price over the fair value of
identifiable net assets acquired in transactions accounted for as a purchase is
included in goodwill. Through the end of 2001, goodwill was amortized on the
straight-line method over the lesser of its expected useful life or forty years.
Effective January 1, 2002, the Company ceased the amortization of goodwill with
the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 also requires
periodic tests of the goodwill's impairment at least annually in accordance with
the provisions of SFAS No. 142 and that intangible assets other than goodwill be
amortized over their useful lives. The Company did not incur any transitional
impairment losses or gains as a result of adopting SFAS No. 142. The Company
conducted its annual impairment test as required by SFAS No. 142 at November 30,
2002, noting no impairment of goodwill. The Company will continue to conduct
goodwill impairment tests as required under SFAS No. 142 effective November 30
of subsequent years, or whenever events or circumstances indicate that interim
impairment testing is necessary.
 
     Amortization of goodwill for 2001 and 2000 was $6,253,000 and $5,844,000,
respectively. The following table sets forth the reported and adjusted net
earnings, and basic and diluted earnings per share for 2001 and 2000 (in
thousands, except earnings per share amounts):
 

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Reported net earnings.......................................  $39,603   $34,113
Amortization of goodwill -- marine transportation...........    5,610     5,616
Amortization of goodwill -- diesel engine services..........      501        86
Amortization of goodwill -- equity in earnings of marine
  affiliates................................................      142       142
                                                              -------   -------
  Adjusted net earnings.....................................  $45,856   $39,957
                                                              =======   =======
Reported basic earnings per share...........................  $  1.65   $  1.40
Amortization of goodwill....................................      .26       .24
                                                              -------   -------
  Adjusted basic earnings per share.........................  $  1.91   $  1.64
                                                              =======   =======
Reported diluted earnings per share.........................  $  1.63   $  1.39
Amortization of goodwill....................................      .26       .24
                                                              -------   -------
  Adjusted diluted earnings per share.......................  $  1.89   $  1.63
                                                              =======   =======
</Table>

 
     Revenue Recognition.  The majority of marine transportation revenue is
derived from term contracts, ranging from one to five years, with renewal
options, and the remainder is from spot market movements. The majority of the
term contracts are for terms of one year. The Company is strictly a provider of
marine transportation services for its customers and does not assume ownership
of any of the products it transports. A term contract is an agreement with a
specific customer to transport cargo from a designated origin to a designated
destination at a set rate. The rate may or may not escalate during the term of
the contract, however, the base rate generally remains constant and contracts
often include escalation provisions to recover changes in specific costs such as
fuel. Term contracts typically only set agreement as to rates and do not have
volume requirements. A spot contract is an agreement with a customer to move
cargo from a specific origin to a designated destination for a rate negotiated
at the time the cargo movement takes place. Spot contract rates are at the
current "market" rate. The Company uses a voyage accounting method of revenue
recognition for its marine transportation revenues which allocates voyage
revenue and expenses based on the percent of the voyage completed during the
period. There is no difference in the recognition of revenue between a term
contract and a spot contract.
 
                                        45

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

     Diesel engine service products and services are generally sold based upon
purchase orders or preferential service agreements with the customer that
include fixed or determinable prices and that do not include right of return or
significant post delivery performance obligations. Diesel engine parts sales are
recognized when title passes upon shipment to customers. Diesel overhauls and
repairs revenue are reported on the percentage of completion method of
accounting using measurements of progress towards completion appropriate for the
work performed.
 
     Stock-Based Compensation.  The intrinsic value method of accounting is used
for stock-based employee compensation whereby no compensation expense is
recorded when the stock option exercise price is equal to, or greater than, the
market price of the Company's common stock on the date of the grant. Income tax
benefits attributable to stock options exercised are credited to additional
paid-in capital.
 
     In December 2002, Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure" ("SFAS
No. 148") was issued. SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Certain of the disclosure modifications are required for fiscal years
ending after December 15, 2002 and are included in the notes to these
consolidated financial statements.
 
     The following table summarizes pro forma net earnings and earnings per
share for the years ended December 31, 2002, 2001 and 2000 assuming the Company
had used the fair value method of accounting for its stock option plans (in
thousands, except per share amounts):
 

<Table>
<Caption>
                                                             2002      2001      2000
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
Net earnings, as reported.................................  $27,446   $39,603   $34,113
Deduct: Total stock-based employee compensation expense
  determined under fair value based method for all awards,
  net of related tax effects..............................   (3,405)   (2,448)   (2,490)
                                                            -------   -------   -------
Pro forma net earnings....................................  $24,041   $37,155   $31,623
                                                            =======   =======   =======
Earnings per share:
  Basic -- as reported....................................  $  1.14   $  1.65   $  1.40
  Basic -- pro forma......................................  $  1.00   $  1.55   $  1.30
  Diluted -- as reported..................................  $  1.13   $  1.63   $  1.39
  Diluted -- pro forma....................................  $   .99   $  1.53   $  1.29
</Table>

 
     The weighted average fair value of options granted during 2002, 2001 and
2000 was $15.30, $12.88 and $10.27, respectively. The fair value of each option
was determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were as follows: no dividend yield for any
year; average risk-free interest rate based on five- and 10-year Treasury
bonds -- 2.6% for 2002, 4.2% for 2001 and 4.8% for 2000; stock price
volatility -- 67% for 2002, 71% for 2001 and 70% for 2000; and estimated option
term -- four or nine years.
 
     Taxes on Income.  The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Deferred tax assets
                                        46

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
 
     The Company files a consolidated federal income tax return with its
domestic subsidiaries and its Bermudan subsidiary, Oceanic Insurance Limited.
 
     Accrued Insurance.  Accrued insurance liabilities include estimates based
on individual incurred claims outstanding and an estimated amount for losses
incurred but not reported (IBNR) based on past experience. Insurance premiums,
IBNR losses and incurred claims losses, up to the Company's deductible, for
2002, 2001 and 2000 were $10,366,000, $14,109,000 and $12,198,000 respectively.
 
     Minority Interests.  The Company has a majority interest in and is the
general partner for the affiliated entities. In situations where losses
applicable to the minority interest in the affiliated entities exceed the
limited partners' equity capital, such excess and any further loss attributable
to the minority interest is charged against the Company's interest in the
affiliated entities. If future earnings materialize in the respective affiliated
entities, the Company's interest would be credited to the extent of any losses
previously absorbed.
 
     Treasury Stock.  The Company follows the average cost method of accounting
for treasury stock transactions.
 
     Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.  The Company reviews long-lived assets and certain identifiable intangibles
for impairment by vessel class whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
 
     Recoverability on marine transportation assets is assessed based on vessel
classes, not on individual assets, because identifiable cash flows for
individual marine transportation assets are not available. Projecting customer
contract volumes allows estimation of future cash flows by projecting pricing
and utilization by vessel class but it is not practical to project which
individual marine transportation asset will be utilized for any given contract.
Because customers do not specify which particular vessel is used, prices are
quoted based on vessel classes not individual assets. Nominations of vessels for
specific jobs is determined on a day by day basis and is a function of the
equipment class required and the geographic position of vessels within that
class at that particular time as vessels within a class are interchangeable and
provide the same service. Barge vessel classes are based on similar capacities,
hull type, and type of product and towboats are based on horsepower.
Recoverability of the vessel classes is measured by a comparison of the carrying
amount of the assets to future net cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. An impairment
charge incurred by the Company in the fourth quarter of 2002 is described in
Note 3, Asset Impairments.
 
     Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144, issued in August 2001,
addresses the accounting and reporting for the impairment or disposal of
long-lived assets and supersedes Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") and APB Opinion No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The objective of SFAS No. 144 is to establish one accounting
model for long-lived assets to be disposed of by sale, as well as to resolve
implementation issues related to SFAS No. 121, while retaining many of the
fundamental provisions of SFAS No. 121. The adoption of SFAS No. 144 had no
effect on the Company's financial position or results of
 
                                        47

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

operations. The impairment charges taken in 2002 were a result of certain
business events, not the adoption of SFAS No. 144.
 
 Accounting Standards
 
     In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") was issued. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. SFAS No. 143 requires the fair value of a liability associated
with an asset retirement be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be determined. The associated retirement
costs are capitalized as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. SFAS No. 143 is effective for the
Company at the beginning of fiscal 2003. The Company will adopt SFAS No. 143
effective January 1, 2003 and expects there will be no effect on the Company's
financial position or results of operations.
 
     In April 2002, Statement of Financial Accounting Standards No. 145
"Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical
Corrections" ("SFAS No. 145") was issued. SFAS No. 145 provides guidance for
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions and income statement classification of
gains and losses on extinguishment of debt. The Company adopted SFAS No. 145
effective January 1, 2003 with no effect on the Company's financial position or
results of operations.
 
     In July 2002, Statement of Financial Accounting Standards No. 146
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146") was issued. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than accruing
costs at the date of management's commitment to an exit or disposal plan. The
Company adopted SFAS No. 146 for all exit or disposal activities initiated after
December 31, 2002.
 
     In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51." This Interpretation addresses the consolidation
by business enterprises of variable interest entities as defined in the
Interpretation. The Interpretation applies immediately to variable interest in
variable interest entities created after January 31, 2003, and to variable
interests in variable entities obtained after January 31, 2003. The application
of this Interpretation is not expected to have a material effect on the
Company's financial position or results of operations.
 
(2)  ACQUISITIONS
 
     In March 2002, the Company purchased the Cargo Carriers fleet of 21 inland
tank barges for $2,800,000 in cash from the Cargill Corporation, and resold six
of the tank barges for $530,000 in April 2002. Financing for the equipment
acquisition was through the Company's revolving credit facility.
 
     On October 31, 2002, the Company completed the acquisition of seven inland
tank barges and 13 inland towboats from Coastal for $17,053,000 in cash. In
addition, the Company and Coastal entered into a barge management agreement
whereby the Company will serve as manager of the two companies' combined black
oil fleet for a period of seven years. The combined black oil fleet consists of
54 barges owned by Coastal and the Company's 66 black oil barges. Coastal is
engaged in the inland tank barge transportation of black oil products along the
Gulf Intracoastal Waterway and the Mississippi River and its tributaries. In a
related transaction, on September 25, 2002, the Company purchased from Coastal
three black oil tank barges for
 
                                        48

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(2)  ACQUISITIONS -- (CONTINUED)

$1,800,000 in cash. Financing for the equipment acquisitions was through the
Company's revolving credit facility.
 
     On December 15, 2002, the Company completed the acquisition of 94 inland
tank barges from Union Carbide Finance Corporation ("Union Carbide") for
$23,000,000. The Company had operated the tank barges since February 2001 under
a long-term lease agreement between the Company and Union Carbide. The Dow
Chemical Company ("Dow") acquired the inland tank barges as part of the February
2001 merger between Union Carbide Corporation and Dow. The Company has a
long-term contract with Dow to provide for Dow's bulk liquid inland marine
transportation requirements throughout the United States inland waterway system.
With the merger between Union Carbide and Dow, the Company's long-term contract
with Dow was amended to provide for Union Carbide's liquid inland marine
transportation requirements. Financing for the equipment acquisition was through
the Company's revolving credit facility.
 
     On October 12, 2000, the Company completed the acquisition of the Powerway
Division of Covington Detroit Diesel -- Allison, Inc. ("Powerway") for
$1,428,000 in cash. With the acquisition of Powerway, the Company became the
sole distributor of aftermarket parts and service for Alco diesel engines
throughout the United States for marine, power generation and industrial
applications. On November 1, 2000, the Company completed the acquisition of West
Kentucky Machine Shop, Inc. ("West Kentucky") for an aggregate consideration of
$6,674,000, consisting of $6,629,000 in cash, the assumption of $20,000 of West
Kentucky's existing debt and $25,000 of merger costs. The acquisition of West
Kentucky provided the Company with increased distributorship capabilities with
Falk Corporation, a reduction gear manufacturer used in marine and industrial
applications. The acquisitions were accounted for using the purchase method of
accounting. Financing for the two acquisitions was through the Company's
revolving credit facility.
 
(3)  ASSET IMPAIRMENTS
 
     During the fourth quarter of 2002, the Company recorded $18,933,000 of
non-cash pre-tax impairment charges. The after-tax effect of the charges was
$12,498,000 or $.51 per share. Of the total pre-tax charges, $17,241,000 was due
to reduced estimated cash flows resulting from reduced lives on the Company's
single hull fleet and its commitment to sell certain vessels during 2003. The
reduced estimated useful lives on 114 single hull tank barges is due to market
bias against single hull tank barges and the assessment of the impact of new
regulations issued in September 2002 by the U.S. Coast Guard that require the
installation of tank level monitoring devices on all single hull tank barges by
October 2007. The Company plans to retire all of its single hull tank barges by
October 17, 2007. The Company has committed to sell 21 inactive or
out-of-service double hull tank barges and five inactive towboats during 2003
and has reduced the carrying value of these vessels by $5,682,000 to a fair
value of $2,621,000. The charges also included a $1,221,000 write-down of an
investment in a non-consolidated affiliate to its estimated fair value and a
$471,000 write-down of surplus diesel shop equipment.
 
(4)  DERIVATIVE INSTRUMENTS
 
     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") establishes accounting and reporting standards
requiring that derivative instruments (including certain derivative instruments
embedded in other contracts) be recorded at fair value and included in the
balance sheet as assets or liabilities. The accounting for changes in the fair
value of a derivative instrument depends on the intended use of the derivative
and the resulting designation, which is established at the inception date of a
derivative. Special accounting for derivatives qualifying as fair value hedges
allows a derivative's gain and losses to offset related results on the hedged
item in the statement of earnings. For derivative instruments designated as cash
flow hedges, changes in fair value, to the extent the hedge is effective, are
recognized in
 
                                        49

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(4)  DERIVATIVE INSTRUMENTS -- (CONTINUED)

other comprehensive income until the hedged item is recognized in earnings.
Hedge effectiveness is measured at least quarterly based on the relative
cumulative changes in fair value between the derivative contract and the hedged
item over time. Any change in fair value resulting from ineffectiveness, as
defined by SFAS No. 133, is recognized immediately in earnings.
 
     From time to time, the Company has utilized and expects to continue to
utilize derivative financial instruments with respect to a portion of its
interest rate risks to achieve a more predictable cash flow by reducing its
exposure to interest rate fluctuations. These transactions generally are
interest rate swap agreements and are entered into with major financial
institutions. Derivative financial instruments related to the Company's interest
rate risks are intended to reduce the Company's exposure to increases in the
benchmark interest rates underlying the Company's variable rate bank credit
facilities.
 
     In February and April 2001 the Company hedged a portion of its exposure to
fluctuations in short-term interest rates by entering into interest rate swap
agreements. Five-year swap agreements with notional amounts totaling $100
million were executed in February 2001 and three-year swap agreements with
notional amounts totaling $50 million were executed in April 2001. Under the
swap agreements, the Company will pay a fixed rate of 4.96% on a notional amount
of $50 million for three years, an average fixed rate of 5.64% on a notional
amount of $100 million for five years, and will receive floating rate interest
payments based on London Interbank Offered Rate ("LIBOR") for United States
dollar deposits. Under SFAS No. 133, the interest rate swap agreements are
designated as cash flow hedges, therefore, the changes in fair value, to the
extent the swap agreements are effective, are recognized in other comprehensive
income until the hedged interest expense is recognized in earnings. No gain or
loss on ineffectiveness was required to be recognized in 2002 or 2001. The fair
value of the interest rate swap agreements was recorded as an other long-term
liability of $12,404,000 and $5,176,000 at December 31, 2002 and 2001,
respectively. The Company has recorded, in interest expense, losses related to
the interest rate swap agreements of $5,476,000 and $2,210,000 for the years
ended December 31, 2002 and 2001, respectively. The Company anticipates
$3,922,000 of net losses included in accumulated other comprehensive income will
be transferred into earnings over the next twelve months based on current
interest rates. Fair value amounts were determined as of December 31, 2002 and
2001 based on quoted market values of the Company's portfolio of derivative
instruments.
 
(5)  LONG-TERM DEBT
 
     Long-term debt at December 31, 2002 and 2001 consisted of the following (in
thousands):
 

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Long-term debt, including current portion:
  $150,000,000 revolving credit facility due October 9,
     2004...................................................  $ 88,000   $ 13,000
  Term loan credit facility, maturing in varying amounts
     through October 9, 2004................................   171,500    184,000
  $10,000,000 credit line due November 4, 2003..............     5,900      1,800
  Medium term notes due January 29, 2002....................        --     50,000
  Other long-term debt......................................       601        937
                                                              --------   --------
                                                              $266,001   $249,737
                                                              ========   ========
</Table>

 
                                        50

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(5)  LONG-TERM DEBT -- (CONTINUED)

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

<Table>
<S>                                                            <C>
2003........................................................   $ 56,236
2004........................................................        225
2005........................................................          4
2006........................................................          4
2007........................................................          4
Thereafter..................................................    209,528
                                                               --------
                                                               $266,001
                                                               ========
</Table>

 
     The Company has a $150,000,000 unsecured revolving credit facility (the
"Revolving Credit Facility") with a syndicate of banks, with a maturity date of
October 9, 2004. The syndicate of banks includes JPMorgan Chase as
administrative agent, Bank of America as syndication agent, and First Union
National Bank, Fleet National Bank and Wells Fargo Bank (Texas), N.A. as
documentation agents. Borrowing options under the amended Revolving Credit
Facility allow the Company to borrow at an interest rate equal to either the
LIBOR plus a margin ranging from .75% to 1.50%, depending on the Company's
senior debt rating; or an adjusted Certificate of Deposit ("CD") rate plus a
margin ranging from .875% to 1.625%, also depending on the Company's senior debt
rating; or the greater of prime rate, Federal Funds rate plus .50%, or the
secondary market rate for three-month CD rate plus 1%. A commitment fee is
charged on the unused portion of the Revolving Credit Facility at rates ranging
from .20% to .40%, depending on the Company's senior debt rating, multiplied by
the average unused portion of the Revolving Credit Facility, and is paid
quarterly. A utilization fee equal to .125% to .25%, also depending on the
Company's senior debt rating, of the average outstanding borrowings during
periods in which the total borrowings exceed 33% of the total $150,000,000
commitment, is also paid quarterly. At December 31, 2002, the applicable
interest rate spread over LIBOR was .875% and the commitment fee and utilization
fee were .25% and .125%, respectively. The Revolving Credit Facility includes
certain financial covenants, including a minimum net worth requirement, as
defined, of $225,000,000. In addition to financial covenants, the Revolving
Credit Facility contains covenants that, subject to exceptions, restrict debt
incurrence, mergers and acquisitions, sales of assets, dividends and
investments, liquidations and dissolutions, capital leases, transactions with
affiliates and changes in lines of business. Borrowings under the Revolving
Credit Facility may be used for general corporate purposes, the purchase of
existing or new equipment, the purchase of the Company's common stock, or for
business acquisitions. The Company was in compliance with all Revolving Credit
Facility covenants as of December 31, 2002. As of December 31, 2002, $88,000,000
was outstanding under the Revolving Credit Facility and the average interest
rate was 2.7%. The average borrowing under the Revolving Credit Facility during
the 2002 year was $53,417,000, computed by using the daily balance, and the
weighted average interest rate was 3.0%, computed by dividing the interest
expense under the Revolving Credit Facility by the average Revolving Credit
Facility borrowing. The Revolving Credit Facility includes a $10,000,000
commitment which may be used for standby letters of credit. Outstanding letters
of credit under the Revolving Credit Facility totaled $741,000 as of December
31, 2002.
 
     The Company has an unsecured term loan credit facility (the "Term Loan"),
dated October 12, 1999, with Bank of America as syndication agent, JPMorgan
Chase as administrative agent and Bank One, Texas, N.A. as documentation agent.
Interest rate options under the Term Loan include interest rates equal to either
LIBOR plus a margin ranging from .75% to 1.50%, depending on the Company's
senior debt rating; or an adjusted CD rate plus a margin ranging from .875% to
1.625%, also depending on the Company's senior debt rating; or the greater of
prime rate, Federal Funds rate plus .50% or the secondary market rate for
three-month
 
                                        51

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(5)  LONG-TERM DEBT -- (CONTINUED)

CD rate plus 1%. A utilization fee equal to .125% to .25%, depending on the
Company's senior debt rating, of the average outstanding borrowings during
periods in which the total borrowings exceed 33% of the original $200,000,000
commitment, is paid quarterly. At December 31, 2002, the applicable interest
rate spread over LIBOR was .875% and the utilization fee was .125%. The
financial covenants of the Term Loan conform to existing financial covenants of
the Revolving Credit Facility. In addition to financial covenants, the Term Loan
contains covenants that, subject to exceptions, restrict debt incurrence,
mergers and acquisitions, sales of assets, dividends and investments,
liquidations and dissolutions, capital leases, transactions with affiliates and
changes in lines of business. The Company was in compliance with all Term Loan
covenants as of December 31, 2002. At December 31, 2002, the amount borrowed
under the Term Loan totaled $171,500,000 and the average interest rate was 2.4%.
The average borrowing under the Term Loan during the 2002 year was $181,177,000,
computed by using the daily balance, and the weighted average interest rate was
2.9%, computed by dividing the interest expense under the Term Loan by the
average Term Loan borrowing. The Term Loan has quarterly principal payments of
$12,500,000, plus interest, which began on October 9, 2002, with the remaining
principal due on October 9, 2004, the maturity date of the Term Loan. The
principal payments of $50,000,000 due in the next twelve months were classified
as long-term debt at December 31, 2002, as the Company has the ability and
intent through the Revolving Credit Facility to refinance the payments on a
long-term basis.
 
     The Company has on file a shelf registration on Form S-3 with the
Securities and Exchange Commission providing for the issue of up to $250,000,000
of debt securities, including medium term notes at fixed or floating interest
rates with maturities of nine months or longer. The $121,000,000 available
balance, subject to mutual agreement to terms, as of December 31, 2002 may be
used for future business and equipment acquisitions, working capital
requirements and reductions of the Company's Revolving Credit Facility and Term
Loan. Activities under the shelf registration have been as follows (dollars in
thousands):
 

<Table>
<Caption>
                                                         OUTSTANDING   INTEREST   AVAILABLE
                                                           BALANCE       RATE      BALANCE
                                                         -----------   --------   ---------
<S>                                                      <C>           <C>        <C>
Medium Term Notes program..............................   $     --                $250,000
Issuance March 1995 (Maturity March 10, 1997)..........     34,000       7.77%     216,000
Issuance June 1995 (Maturity June 1, 2000).............     45,000       7.25%     171,000
                                                          --------
Outstanding December 31, 1995 and 1996.................     79,000                 171,000
Issuance January 1997 (Maturity January 29, 2002)......     50,000       7.05%     121,000
Payment March 1997.....................................    (34,000)                121,000
                                                          --------
Outstanding December 31, 1997, 1998 and 1999...........     95,000                 121,000
Payment June 2000......................................    (45,000)                121,000
                                                          --------
Outstanding December 31, 2000 and 2001.................     50,000                 121,000
Payment January 2002...................................    (50,000)                121,000
                                                          --------
Outstanding December 31, 2002..........................   $     --                 121,000
                                                          ========
</Table>

 
     The Company has a $10,000,000 uncommitted and unsecured line of credit
("Credit Line") with Bank of America whereby Bank of America will provide
short-term advances and the issuance of letters of credit on an uncommitted
basis. On November 5, 2002, the Credit Line was amended to extend the maturity
date to November 4, 2003. Borrowings under the Credit Line allow the Company to
borrow at an interest rate equal to either LIBOR plus a margin of 1%; or the
higher of prime rate or the Federal Funds rate plus .50%. As of December 31,
2002, $5,900,000 was borrowed under the Credit Line and the average interest
rate was 4.3%. Outstanding letters of credit under the Credit Line totaled
$560,000 as of December 31, 2002. Amounts
 
                                        52

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(5)  LONG-TERM DEBT -- (CONTINUED)

borrowed on the Credit Line were classified as long-term debt at December 31,
2002, as the Company has the ability and intent to refinance the Credit Line on
a long-term basis through the Revolving Credit Facility.
 
     In September 2002, the Company entered into a $10,000,000 uncommitted and
unsecured revolving credit note ("Credit Note") with BNP Paribas ("BNP") whereby
BNP will consider short-term advances through the maturity date of May 31, 2003.
The Credit Note allows the Company to borrow at an interest rate equal to BNP's
current day cost of funds plus .35%. Also in September 2002, the Company entered
into a $5,000,000 uncommitted letter of credit line with BNP whereby BNP will
consider letters of credit for periods no longer than 15 months from issuance
through the maturity date of May 31, 2003. The Company did not have any
borrowings or letters of credit outstanding under the Credit Note or uncommitted
letter of credit line as of December 31, 2002.
 
     In August 1992, the Company's principal marine transportation subsidiary
entered into a $50,000,000 private placement of 8.22% senior notes due June 30,
2002. Principal payments of $5,000,000, plus interest, were due annually through
June 30, 2002. On December 31, 2001, the senior notes were prepaid, with a final
principal payment of $5,000,000, plus interest, and a make-whole interest
payment of $145,000.
 
     The Company is of the opinion that the amounts included in the consolidated
financial statements for outstanding debt materially represent the fair value of
such debt at December 31, 2002 and 2001.
 
(6)  TAXES ON INCOME
 
     Earnings before taxes on income and details of the provision for taxes on
income for the years ended December 31, 2002, 2001 and 2000 were as follows (in
thousands):
 

<Table>
<Caption>
                                                           2002      2001      2000
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Earnings before taxes on income -- United States........  $45,493   $67,126   $57,812
                                                          =======   =======   =======
Provision (credit) for taxes on income:
  Federal
     Current............................................  $18,948   $23,243   $22,022
     Deferred...........................................   (2,047)    3,094       294
  State and local.......................................    1,146     1,186     1,383
                                                          -------   -------   -------
                                                          $18,047   $27,523   $23,699
                                                          =======   =======   =======
</Table>

 
     During the three years ended December 31, 2002, 2001 and 2000, tax benefits
related to the exercise of stock options that were allocated directly to
additional paid-in capital totaled $545,000, $505,000 and $470,000,
respectively.
 
                                        53

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(6)  TAXES ON INCOME -- (CONTINUED)

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

<Table>
<Caption>
                                                              2002   2001   2000
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
United States income tax statutory rate.....................  35.0%  35.0%  35.0%
State and local taxes, net of federal benefit...............   1.6    1.2    1.6
Non-deductible goodwill amortization........................    --    3.1    3.5
Non-deductible equity goodwill impairment...................   1.0     --     --
Other non-deductible items..................................   2.1    1.7     .9
                                                              ----   ----   ----
                                                              39.7%  41.0%  41.0%
                                                              ====   ====   ====
</Table>

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

<Table>
<Caption>
                                                        2002       2001        2000
                                                      --------   ---------   --------
<S>                                                   <C>        <C>         <C>
Current deferred tax assets:
  Compensated absences..............................  $  1,076   $   1,011   $    934
  Allowance for doubtful accounts...................       287         554        286
  Insurance accruals................................     2,166       1,548      1,974
  Merger charges....................................        --          --        407
  Other.............................................       223          --        120
                                                      --------   ---------   --------
                                                      $  3,752   $   3,113   $  3,721
                                                      ========   =========   ========
Non-current deferred tax assets and liabilities:
  Deferred tax assets:
     Postretirement health care benefits............  $  2,730   $   2,471   $  2,303
     Insurance accruals.............................     3,093       3,446      2,130
     Deferred compensation..........................     1,150         984      1,004
     Unrealized loss on derivative financial
       instruments..................................     4,341       1,812         --
     Other..........................................     2,782       3,167      3,459
                                                      --------   ---------   --------
                                                        14,096      11,880      8,896
                                                      --------   ---------   --------
  Deferred tax liabilities:
     Property.......................................   (86,969)    (93,708)   (92,166)
     Deferred state taxes...........................    (5,329)     (5,164)    (5,265)
     Pension benefits...............................    (7,369)     (2,209)      (357)
     Other..........................................      (197)       (341)      (246)
                                                      --------   ---------   --------
                                                       (99,864)   (101,422)   (98,034)
                                                      --------   ---------   --------
                                                      $(85,768)  $ (89,542)  $(89,138)
                                                      ========   =========   ========
</Table>

 
     As of December 31, 2002, the Company has determined that it is more likely
than not that the deferred tax assets will be realized and a valuation allowance
for such assets is not required.
 
                                        54

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(7)  LEASES
 
     The Company and its subsidiaries currently lease various facilities and
equipment under a number of cancelable and noncancelable operating leases. Lease
agreements for tank barges have terms from two to twelve years expiring at
various dates through 2008. Total rental expense for the years ended December
31, 2002, 2001 and 2000 were as follows (in thousands):
 

<Table>
<Caption>
                                                           2002      2001      2000
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Rental expense:
  Marine equipment -- tank barges.......................  $12,610   $11,839   $ 5,289
  Marine equipment -- towboats *........................   34,196    35,379    31,969
  Other buildings and equipment.........................    3,439     3,245     2,361
Sublease rental.........................................       --        (6)      (20)
                                                          -------   -------   -------
     Net rental expense.................................  $50,245   $50,457   $39,599
                                                          =======   =======   =======
</Table>

 
---------------
 
* All of the Company's towboat rental agreements provide the Company with the
  option to terminate the agreements with notice ranging from seven to 90 days.
 
     Future minimum lease payments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year at December 31, 2002
were as follows (in thousands):
 

<Table>
<Caption>
                                                                   LAND,
                                                               BUILDINGS AND
                                                                 EQUIPMENT
                                                               -------------
<S>                                                            <C>
2003........................................................      $10,364
2004........................................................        9,142
2005........................................................        8,060
2006........................................................        4,798
2007........................................................        2,119
Thereafter..................................................          153
                                                                  -------
                                                                  $34,636
                                                                  =======
</Table>

 
(8)  STOCK OPTION PLANS
 
     The Company has five employee stock option plans which were adopted in
1989, 1994, 1996, 2001 and 2002 for selected officers and other key employees.
The 1989 Employee Plan provided for the issuance until July 1999 of incentive
and nonincentive stock options to purchase up to 600,000 shares of common stock.
The 1994 Employee Plan provides for the issuance of incentive and non-qualified
stock options to purchase up to 1,000,000 shares of common stock. The 1996
Employee Plan provides for the issuance of incentive and non-qualified stock
options to purchase up to 900,000 shares of common stock. The 2002 Employee Plan
provides for the issuance of incentive and nonincentive stock options to
purchase up to 1,000,000 shares of common stock. The 2001 Employee Plan provided
for the issuance of incentive and nonincentive stock options to purchase up to
1,000,000 shares of common stock. With the approval of the 2002 Employee Plan by
stockholders at the April 2002 Annual Meeting, the 2001 Employee Plan was
terminated, except for stock options and restricted stock previously granted.
Under the above plans, the exercise price for each option equals the fair market
value per share of the Company's common stock on the date of grant. The terms of
the options granted prior to February 10, 2000 are ten years and the options
vest ratably over four years. Options granted after February 10, 2000 have terms
of five years and vest ratably over three years. At December 31,
 
                                        55

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(8)  STOCK OPTION PLANS -- (CONTINUED)

2002, 1,115,180 shares were available for future grants under the employee plans
and no outstanding stock options under the employee plans were issued with stock
appreciation rights.
 
     The following is a summary of the stock option activity under the employee
plans described above for the years ended December 31, 2002, 2001 and 2000:
 

<Table>
<Caption>
                                                                OUTSTANDING      WEIGHTED
                                                              NON-QUALIFIED OR   AVERAGE
                                                                NONINCENTIVE     EXERCISE
                                                               STOCK OPTIONS      PRICE
                                                              ----------------   --------
<S>                                                           <C>                <C>
Outstanding December 31, 1999...............................     1,684,725        $17.75
  Granted...................................................       389,000        $18.06
  Exercised.................................................      (113,575)       $ 9.39
  Canceled or expired.......................................        (4,000)       $18.13
                                                                 ---------
Outstanding December 31, 2000...............................     1,956,150        $18.30
  Granted...................................................       439,500        $21.53
  Exercised.................................................      (233,595)       $15.82
  Canceled or expired.......................................      (231,167)       $19.70
                                                                 ---------
Outstanding December 31, 2001...............................     1,930,888        $19.17
  Granted...................................................       377,178        $27.39
  Exercised.................................................      (157,482)       $17.39
  Canceled or expired.......................................       (15,003)       $23.68
                                                                 ---------
Outstanding December 31, 2002...............................     2,135,581        $20.64
                                                                 =========
</Table>

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

<Table>
<Caption>
                         OPTIONS OUTSTANDING
                 ------------------------------------
                                WEIGHTED                 OPTIONS EXERCISABLE
                                 AVERAGE                ----------------------
                                REMAINING    WEIGHTED                 WEIGHTED
                               CONTRACTUAL   AVERAGE                  AVERAGE
   RANGE OF        NUMBER        LIFE IN     EXERCISE     NUMBER      EXERCISE
EXERCISE PRICES  OUTSTANDING      YEARS       PRICE     EXERCISABLE    PRICE
---------------  -----------   -----------   --------   -----------   --------
<S>              <C>           <C>           <C>        <C>           <C>
$12.94-$16.44       101,150       1.85        $15.04      101,150      $15.04
$17.28-$19.01       576,875       3.10        $18.14      414,062      $18.15
$19.50-$21.53     1,104,342       3.58        $20.30      163,313      $21.36
$27.13-$28.18       353,214       4.10        $27.40           --      $   --
                  ---------                               -------
$12.94-$28.18     2,135,581       3.45        $20.64      678,525      $18.46
                  =========                               =======
</Table>

 
     For the years ended December 31, 2002, 2001 and 2000, the number of options
exercisable were 678,525, 503,280 and 582,650, respectively, and the weighted
average exercise prices of those options were $18.46, $17.37 and $16.68,
respectively.
 
     The Company has three director stock option plans for nonemployee directors
of the Company. The 1989 Director Plan, under which no additional options can be
granted, provided for the issuance until July 1999 of nonincentive options to
directors of the Company to purchase up to 150,000 shares of common stock. The
1994 Director Plan, which was superseded by the 2000 Director Plan adopted in
September 2000, provided for
 
                                        56

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(8)  STOCK OPTION PLANS -- (CONTINUED)

the issuance of non-qualified options to directors of the Company, including
advisory directors, to purchase up to 100,000 shares of common stock. The 2000
Director Plan provides for the issuance of nonincentive options to directors of
the Company to purchase up to 300,000 shares of common stock. The 2000 Director
Plan provides for the automatic grants of stock options to nonemployee directors
on the date of first election as a director and after each annual meeting of
stockholders. In addition, the 2000 Director Plan provides for the issuance of
stock options in lieu of cash for all or part of the annual director fee. The
exercise price for all options granted under the 2000 Director Plan is equal to
the fair market value per share of the Company's common stock on the date of
grant. The terms of the options under the 2000 Director Plan are 10 years. The
options granted when first elected as a director vest immediately. The options
granted after each annual meeting of stockholders vest six months after the date
of grant. Options granted in lieu of cash director fees vest in equal quarterly
increments during the year to which they relate. At December 31, 2002, 213,607
shares were available for future grants under the 2000 Director Plan. The
director stock option plans are intended as an incentive to attract and retain
qualified and competent independent directors.
 
     The following is a summary of the stock option activity under the director
plans described above for the years ended December 31, 2002, 2001 and 2000:
 

<Table>
<Caption>
                                                                OUTSTANDING      WEIGHTED
                                                              NON-QUALIFIED OR   AVERAGE
                                                                NONINCENTIVE     EXERCISE
                                                               STOCK OPTIONS      PRICE
                                                              ----------------   --------
<S>                                                           <C>                <C>
Outstanding December 31, 1999...............................       91,000         $19.48
  Granted...................................................       25,984         $19.70
  Exercised.................................................      (19,500)        $17.79
  Canceled or expired.......................................      (11,000)        $20.84
                                                                  -------
Outstanding December 31, 2000...............................       86,484         $19.75
  Granted...................................................       40,467         $20.83
  Exercised.................................................      (16,500)        $17.86
  Canceled or expired.......................................      (10,500)        $23.05
                                                                  -------
Outstanding December 31, 2001...............................       99,951         $20.15
  Granted...................................................       32,442         $31.48
  Exercised.................................................           --         $   --
                                                                  -------
Outstanding December 31, 2002...............................      132,393         $22.93
                                                                  =======
</Table>

 
                                        57

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(8)  STOCK OPTION PLANS -- (CONTINUED)

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

<Table>
<Caption>
                         OPTIONS OUTSTANDING
                 ------------------------------------
                                WEIGHTED                 OPTIONS EXERCISABLE
                                 AVERAGE                ----------------------
                                REMAINING    WEIGHTED                 WEIGHTED
                               CONTRACTUAL   AVERAGE                  AVERAGE
   RANGE OF        NUMBER        LIFE IN     EXERCISE     NUMBER      EXERCISE
EXERCISE PRICES  OUTSTANDING      YEARS       PRICE     EXERCISABLE    PRICE
---------------  -----------   -----------   --------   -----------   --------
<S>              <C>           <C>           <C>        <C>           <C>
$16.63-$19.88       41,484         5.42       $18.39       41,484      $18.39
$20.13-$25.50       58,467         7.16       $21.40       58,467      $21.40
$31.48              32,442         9.30       $31.48       29,580      $31.48
                   -------                                -------
$16.63-$31.48      132,393         7.13       $22.93      129,531      $22.74
                   =======                                =======
</Table>

 
     For the years ended December 31, 2002, 2001 and 2000, the number of options
exercisable were 129,531, 95,600 and 83,382, respectively, and the weighted
average exercise prices of those options were $22.74, $20.13 and $19.79,
respectively.
 
     The Company also has a 1993 nonqualified stock option for 25,000 shares
granted to Robert G. Stone, Jr., at an exercise price of $18.63, which is
currently exercisable. The grant served as an incentive to retain the optionee
as a member of the Board of Directors of the Company.
 
(9)  RETIREMENT PLANS
 
     The Company sponsors a defined benefit plan for vessel personnel. The plan
benefits are based on an employee's years of service and compensation. The plan
assets primarily consist of fixed income securities and corporate stocks.
Funding of the plan is based on actuarial computations that are designed to
satisfy minimum funding requirements of applicable regulations and to achieve
adequate funding of projected benefit obligations.
 
     The Company sponsors an unfunded defined benefit health care plan that
provides limited postretirement medical benefits to employees who meet minimum
age and service requirements, and to eligible dependents. The plan is
contributory, with retiree contributions adjusted annually.
 
                                        58

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(9)  RETIREMENT PLANS -- (CONTINUED)

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

<Table>
<Caption>
                                                                         POSTRETIREMENT
                                                                      BENEFITS OTHER THAN
                                                  PENSION BENEFITS          PENSIONS
                                                  -----------------   --------------------
                                                   2002      2001       2002        2001
                                                  -------   -------   ---------   --------
<S>                                               <C>       <C>       <C>         <C>
CHANGE IN BENEFIT OBLIGATION
  Benefit obligation at beginning of year.......  $49,819   $41,092   $  8,913    $ 6,968
  Service cost..................................    2,543     1,915        649        520
  Interest cost.................................    3,930     3,383        725        650
  Actuarial loss................................    7,157     5,137      2,560      1,479
  Benefits paid.................................   (1,868)   (1,708)      (670)      (704)
                                                  -------   -------   --------    -------
  Benefit obligation at end of year.............   61,581    49,819     12,177      8,913
                                                  -------   -------   --------    -------
CHANGE IN PLAN ASSETS
  Fair value of plan assets at beginning of
     year.......................................   46,748    44,333         --         --
  Actual return on plan assets..................   (5,479)   (2,377)        --         --
  Employer contribution.........................   17,500     6,500        670        704
  Benefits paid.................................   (1,868)   (1,708)      (670)      (704)
                                                  -------   -------   --------    -------
  Fair value of plan assets at end of year......   56,901    46,748         --         --
                                                  -------   -------   --------    -------
  Funded status.................................   (4,680)   (3,071)   (12,177)    (8,913)
  Unrecognized net actuarial loss...............   25,273     9,002      2,776        222
  Unrecognized prior service cost...............     (756)     (845)       373        404
  Unrecognized net transition obligation........       --         7         --         --
  Other.........................................       --        --         56         60
                                                  -------   -------   --------    -------
  Net amount recognized at end of year..........  $19,837   $ 5,093   $ (8,972)   $(8,227)
                                                  =======   =======   ========    =======
ACCUMULATED BENEFIT OBLIGATION AT END OF YEAR...  $56,180   $46,200   $  1,549    $ 1,460
                                                  =======   =======   ========    =======
WEIGHTED AVERAGE ASSUMPTIONS
  Discount rate.................................     6.75%     7.25%      6.75%      7.25%
  Expected return on plan assets................     9.25%     9.25%        --         --
  Average rate of compensation increase.........     4.00%     4.00%        --         --
</Table>

 
                                        59

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(9)  RETIREMENT PLANS -- (CONTINUED)

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

<Table>
<Caption>
                                                                     POSTRETIREMENT BENEFITS OTHER
                                            PENSION BENEFITS                 THAN PENSIONS
                                       ---------------------------   ------------------------------
                                        2002      2001      2000       2002       2001       2000
                                       -------   -------   -------   --------   --------   --------
<S>                                    <C>       <C>       <C>       <C>        <C>        <C>
Service cost.........................  $ 2,543   $ 1,915   $ 1,751    $  649     $  520     $  513
Interest cost........................    3,930     3,383     3,021       725        650        535
Expected return on assets............   (4,236)   (4,016)   (4,130)       --         --         --
Amortization of transition
  obligation.........................        7        17        17        --         --         --
Amortization of prior service cost...      (89)      (89)      (89)       32         31         32
Amortization of actuarial (gain)
  loss...............................      601        --      (146)        5          3        (49)
Less partnerships' allocation........     (103)      (70)      (52)       --         --         22
                                       -------   -------   -------    ------     ------     ------
Net periodic benefit cost............  $ 2,653   $ 1,140   $   372    $1,411     $1,204     $1,053
                                       =======   =======   =======    ======     ======     ======
</Table>

 
     The Company's unfunded defined benefit health care plan, which provides
limited postretirement medical benefits, limits cost increases in the Company's
contribution to 4% per year. For measurement purposes, the assumed health care
cost trend rate was 10.3% for 2002, declining gradually to 5% by 2006 and
remaining at that level thereafter. Accordingly, a 1% increase in the health
care cost trend rate assumption would have an immaterial effect on the amounts
reported.
 
     In addition to the defined benefit plan and postretirement medical benefit
plan, the Company sponsors defined contribution plans for all shore-based
employees and certain vessel personnel. Maximum contributions to these plans
equal the lesser of 15% of the aggregate compensation paid to all participating
employees or up to 20% of each subsidiary's earnings before federal income tax
after certain adjustments for each fiscal year. The aggregate contributions to
the plans were $6,951,000, $6,562,000 and $6,201,000 in 2002, 2001 and 2000,
respectively.
 
(10)  EARNINGS PER SHARE OF COMMON STOCK
 
     The following table presents the components of basic and diluted earnings
per share for the years ended December 31, 2002, 2001 and 2000 (in thousands,
except per share amounts):
 

<Table>
<Caption>
                                                           2002      2001      2000
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Net earnings............................................  $27,446   $39,603   $34,113
                                                          =======   =======   =======
Shares outstanding:
  Weighted average common stock outstanding.............   24,061    24,027    24,401
Effect of dilutive securities:
  Employee and director common stock options............      333       243       165
                                                          -------   -------   -------
                                                           24,394    24,270    24,566
                                                          =======   =======   =======
Basic earnings per share of common stock................  $  1.14   $  1.65   $  1.40
                                                          =======   =======   =======
Diluted earnings per share of common stock..............  $  1.13   $  1.63   $  1.39
                                                          =======   =======   =======
</Table>

 
     Certain outstanding options to purchase approximately 392,000 and 1,103,000
shares of common stock were excluded in the computation of diluted earnings per
share as of December 31, 2002 and 2000,
 
                                        60

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(10)  EARNINGS PER SHARE OF COMMON STOCK -- (CONTINUED)

respectively, as such stock options would have been antidilutive. No shares were
excluded in the computation of diluted earnings per share as of December 31,
2001.
 
(11)  QUARTERLY RESULTS (UNAUDITED)
 
     The unaudited quarterly results for the year ended December 31, 2002 were
as follows (in thousands, except per share amounts):
 

<Table>
<Caption>
                                                         THREE MONTHS ENDED
                                         ---------------------------------------------------
                                         MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                           2002        2002         2002            2002
                                         ---------   --------   -------------   ------------
<S>                                      <C>         <C>        <C>             <C>
Revenues...............................  $131,437    $129,478     $134,607        $139,881
Costs and expenses.....................   114,541     111,940      111,853         119,310
Impairment of long-lived assets........        --          --           --          17,712
Gain on disposition of assets..........       141          27          425              31
                                         --------    --------     --------        --------
  Operating income.....................    17,037      17,565       23,179           2,890
Equity in earnings of marine
  affiliates...........................       803         137          (68)           (172)
Impairment of equity investment........        --          --           --          (1,221)
Other expense..........................       (27)        (52)         (22)            (54)
Minority interests.....................      (100)       (162)        (425)           (275)
Interest expense.......................    (3,507)     (3,366)      (3,378)         (3,289)
                                         --------    --------     --------        --------
  Earnings (loss) before taxes on
     income............................    14,206      14,122       19,286          (2,121)
Provision for taxes on income..........    (5,398)     (5,366)      (7,329)             46
                                         --------    --------     --------        --------
  Net earnings (loss)..................  $  8,808    $  8,756     $ 11,957        $ (2,075)
                                         ========    ========     ========        ========
Net earnings (loss) per share of common
  stock:
  Basic................................  $    .37    $    .36     $    .50        $   (.09)
                                         ========    ========     ========        ========
  Diluted..............................  $    .36    $    .36     $    .49        $   (.09)
                                         ========    ========     ========        ========
</Table>

 
                                        61

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(11)  QUARTERLY RESULTS (UNAUDITED) -- (CONTINUED)

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

<Table>
<Caption>
                                                         THREE MONTHS ENDED
                                         ---------------------------------------------------
                                         MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                           2001        2001         2001            2001
                                         ---------   --------   -------------   ------------
<S>                                      <C>         <C>        <C>             <C>
Revenues...............................  $133,128    $147,622     $141,797        $144,337
Costs and expenses.....................   116,790     125,877      118,380         121,740
Gain on disposition of assets..........        13         102          153              95
                                         --------    --------     --------        --------
  Operating income.....................    16,351      21,847       23,570          22,692
Equity in earnings of marine
  affiliates...........................       716       1,099          487             648
Other expense..........................      (325)        (30)         (76)           (109)
Minority interests.....................      (148)       (162)        (311)            (85)
Interest expense.......................    (5,144)     (4,510)      (4,365)         (5,019)
                                         --------    --------     --------        --------
  Earnings before taxes on income......    11,450      18,244       19,305          18,127
Provision for taxes on income..........    (4,695)     (7,480)      (7,916)         (7,432)
                                         --------    --------     --------        --------
  Net earnings.........................  $  6,755    $ 10,764     $ 11,389        $ 10,695
                                         ========    ========     ========        ========
Net earnings per share of common stock:
  Basic................................  $    .28    $    .45     $    .47        $    .45
                                         ========    ========     ========        ========
  Diluted..............................  $    .28    $    .44     $    .47        $    .44
                                         ========    ========     ========        ========
</Table>

 
     Quarterly basic and diluted earnings per share of common stock may not
total to the full year per share amounts, as the weighted average number of
shares outstanding for each quarter fluctuates as a result of shares repurchased
by the Company and the assumed exercise of stock options.
 
(12)  CONTINGENCIES AND COMMITMENTS
 
     The Company and a group of approximately 45 other companies have been
notified that they are Potentially Responsible Parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to a potential Superfund site, the Palmer Barge Line Site ("Palmer"),
located in Port Arthur, Texas. In prior years, Palmer had provided tank barge
cleaning services to various subsidiaries of the Company. The Company and three
other PRPs have entered into an agreement with the EPA to perform a remedial
investigation and feasibility study. Based on information currently available,
the Company is unable to ascertain the extent of its exposure, if any, in this
matter.
 
     In addition, there are various other suits and claims against the Company,
none of which in the opinion of management will have a material effect on the
Company's financial condition, results of operations or cash flows. Management
has recorded necessary reserves and believes that it has adequate insurance
coverage or has meritorious defenses for these other claims and contingencies.
 
     Certain Significant Risks and Uncertainties.  The Company's marine
transportation segment is engaged in the inland marine transportation of
petrochemical feedstocks, industrial chemicals, agricultural chemicals, refined
petroleum products, pressurized products and black oil products by tank barge
along the Mississippi River System, Gulf Intracoastal Waterway and Houston Ship
Channel. In addition, the segment, through a partnership in which the Company
owns a 35% interest, is engaged in the offshore marine transportation of
dry-bulk cargo by barge. Such products are transported between United States
ports, with an emphasis on the
 
                                        62

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(12)  CONTINGENCIES AND COMMITMENTS -- (CONTINUED)

Gulf of Mexico and along the Atlantic Seaboard and Caribbean Basin ports, with
occasional voyages to South American ports.
 
     The Company's diesel engine services segment is engaged in the overhaul and
repair of large medium-speed diesel engines and related parts sales in the
marine, power generation and industrial, and railroad markets. The marine market
serves vessels powered by large diesel engines utilized in the various inland
and offshore marine industries. The power generation and industrial market
serves users of diesel engines that provide standby, peak and base load power
generation, users of industrial gears such as cement, paper and mining
industries, and provides parts for the nuclear industry. The railroad market
provides parts and service for diesel-electric locomotives used by shortline,
industrial, and certain transit and Class II railroads.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. However, in
the opinion of management, the amounts would be immaterial.
 
     The customer base includes the major industrial petrochemical and chemical
manufacturers, agricultural chemical manufacturers and refining companies in the
United States. Approximately 70% of the movements of such products are under
long-term contracts, ranging from one year to five years, with renewal options.
While the manufacturing and refining companies have generally been customers of
the Company for numerous years (some as long as 30 years) and management
anticipates a continuing relationship, there is no assurance that any individual
contract will be renewed. The Dow Chemical Company accounted for 13% of the
Company's revenues in 2002, 12% in 2001 and 10% in 2000.
 
     Major customers of the diesel engine services segment include the inland
and offshore barge operators, oil service companies, petrochemical companies,
offshore fishing companies, other marine transportation entities, the United
States Coast Guard and Navy, shortline railroads, industrial owners of
locomotives, certain transit and Class II railroads, and power generation,
nuclear and industrial companies. The segment operates as an authorized
distributor in 17 eastern states and the Caribbean, and as non- exclusive
authorized service centers for Electro-Motive Division of General Motors ("EMD")
throughout the rest of the United States for marine power generation and
industrial applications. The railroad portion of the segment serves as the
exclusive distributorship of EMD aftermarket parts sales and services to the
shortline and industrial railroad market. The Company also serves as the
exclusive distributor of EMD parts to the nuclear industry. The results of the
diesel engine services segment are largely tied to the industries it serves and,
therefore, can be influenced by the cycles of such industries. The diesel engine
services segment's relationship with EMD has been maintained for 37 years. No
single customer of the diesel engine services segment accounted for more than
10% of the Company's revenues in 2002, 2001 and 2000.
 
     Weather can be a major factor in the day-to-day operations of the marine
transportation segment. Adverse weather conditions, such as fog in the winter
and spring months, can impair the operating efficiencies of the fleet. Shipments
of products can be significantly delayed or postponed by weather conditions,
which are totally beyond the control of management. River conditions are also
factors which impair the efficiency of the fleet and can result in delays,
diversions and limitations on night passages, and dictate horsepower
requirements and size of tows. Additionally, much of the inland waterway system
is controlled by a series of locks and dams designed to provide flood control,
maintain pool levels of water in certain areas of the country and facilitate
navigation on the inland river system. Maintenance and operation of the
navigable inland waterway infrastructure is a government function handled by the
Corps of Engineers with costs shared by industry. Significant changes in
governmental policies or appropriations with respect to maintenance and
operation of the infrastructure could adversely affect the Company.
 
                                        63

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(12)  CONTINGENCIES AND COMMITMENTS -- (CONTINUED)

     The Company's marine transportation segment is subject to regulation by the
United States Coast Guard, federal laws, state laws and certain international
conventions. The Company believes that additional safety, environmental and
occupational health regulations may be imposed on the marine industry. There can
be no assurance that any such new regulations or requirements, or any discharge
of pollutants by the Company, will not have an adverse effect on the Company.
 
     The Company's marine transportation segment competes principally in markets
subject to the Jones Act, a federal cabotage law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States, and manned and owned by United States citizens. During the past
several years, the Jones Act cabotage provisions have come under attack by
interests seeking to facilitate foreign flag competition in trades reserved for
domestic companies and vessels under the Jones Act. The efforts have been
consistently defeated by large margins in the United States Congress. The
Company believes that continued efforts will be made to modify or eliminate the
cabotage provisions of the Jones Act. If such efforts are successful, certain
elements could have an adverse effect on the Company.
 
     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57, and 197 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and initial
measurement provisions of the Interpretation are applicable to guarantees issued
or modified after December 31, 2002 and are not expected to have a material
effect on the Company's financial position or results of operations. The
disclosure requirements are effective for the Company's financial statements for
interim and annual periods ending after December 15, 2002.
 
     The Company has issued guaranties or obtained stand-by letters of credit
and performance bonds supporting performance by the Company and its subsidiaries
of contractual or contingent legal obligations of the Company and its
subsidiaries incurred in the ordinary course of business. The aggregate notional
value of these instruments is $6,468,000 at December 31, 2002, including
$1,552,000 in letters of credit and $4,916,000 in performance bonds at December
31, 2002, of which $4,679,000 of these financial instruments relates to
contingent legal obligations which are covered by the Company's liability
insurance program in the event the obligations are incurred. All of these
instruments have an expiration date within two years. The Company does not
believe demand for payment under these instruments is likely and expects no
material cash outlays to occur in connection with these instruments.
 
(13)  SEGMENT DATA
 
     The Company's operations are classified into two reportable business
segments as follows:
 
     Marine Transportation -- Marine transportation by United States flag
vessels on the United States inland waterway system. The principal products
transported on the United States inland waterway system include petrochemicals,
agricultural chemicals, refined petroleum products, pressurized products and
black oil products.
 
     Diesel Engine Services -- Overhaul and repair of large medium-speed diesel
engines, reduction gear repair, and sale of related parts and accessories for
customers in the marine, power generation and industrial, and railroad
industries.
 
     The Company's two reportable business segments are managed separately based
on fundamental differences in their operations. The Company's accounting
policies for the business segments are the same as
 
                                        64

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(13)  SEGMENT DATA -- (CONTINUED)

those described in Note 1, Summary of Significant Accounting Policies. The
Company evaluates the performance of its segments based on the contributions to
operating income of the respective segments, and before income taxes, interest,
gains or losses on disposition of assets, other nonoperating income, minority
interests, accounting changes, and nonrecurring items. Intersegment sales for
2002, 2001 and 2000 were not significant.
 
     The following table sets forth by reportable segment the revenues, profit
or loss, total assets, depreciation and amortization, and capital expenditures
attributable to the principal activities of the Company for the years ended
December 31, 2002, 2001 and 2000 (in thousands):
 

<Table>
<Caption>
                                                         2002       2001       2000
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Revenues:
  Marine transportation..............................  $450,280   $481,283   $443,203
  Diesel engine services.............................    85,123     85,601     69,441
                                                       --------   --------   --------
                                                       $535,403   $566,884   $512,644
                                                       ========   ========   ========
Segment profit (loss):
  Marine transportation..............................  $ 74,595   $ 83,074   $ 78,100
  Diesel engine services.............................     8,841      8,111      6,955
  Other..............................................   (37,943)   (24,059)   (27,243)
                                                       --------   --------   --------
                                                       $ 45,493   $ 67,126   $ 57,812
                                                       ========   ========   ========
Total assets:
  Marine transportation..............................  $726,353   $681,976   $673,999
  Diesel engine services.............................    45,531     48,288     45,344
  Other..............................................    19,874     22,171     27,198
                                                       --------   --------   --------
                                                       $791,758   $752,435   $746,541
                                                       ========   ========   ========
Depreciation and amortization:
  Marine transportation..............................  $ 42,332   $ 46,287   $ 45,321
  Diesel engine services.............................       940      1,374        691
  Other..............................................     2,235      2,583      2,192
                                                       --------   --------   --------
                                                       $ 45,507   $ 50,244   $ 48,204
                                                       ========   ========   ========
Capital expenditures:
  Marine transportation..............................  $ 44,141   $ 56,008   $ 43,205
  Diesel engine services.............................     2,040      1,755        351
  Other..............................................     1,528      1,396      4,127
                                                       --------   --------   --------
                                                       $ 47,709   $ 59,159   $ 47,683
                                                       ========   ========   ========
</Table>

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

<Table>
<Caption>
                                                         2002       2001       2000
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
General corporate expenses...........................  $ (5,677)  $ (7,088)  $ (7,053)
Interest expense.....................................   (13,540)   (19,038)   (23,917)
</Table>

 
                                        65

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(13)  SEGMENT DATA -- (CONTINUED)

 

<Table>
<Caption>
                                                         2002       2001       2000
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Equity in earnings of affiliates.....................       700      2,950      3,394
Impairment of equity investment......................    (1,221)        --         --
Gain on disposition of assets........................       624        363      1,161
Minority interests...................................      (962)      (706)      (966)
Impairment of long-lived assets......................   (17,712)        --         --
Merger related charges...............................        --         --       (199)
Other income (expense)...............................      (155)      (540)       337
                                                       --------   --------   --------
                                                       $(37,943)  $(24,059)  $(27,243)
                                                       ========   ========   ========
</Table>

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

<Table>
<Caption>
                                                           2002      2001      2000
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
General corporate assets................................  $ 9,636   $11,512   $17,194
Investments in affiliates...............................   10,238    10,659    10,004
                                                          -------   -------   -------
                                                          $19,874   $22,171   $27,198
                                                          =======   =======   =======
</Table>

 
     The $17,712,000 charges for impairment of long-lived assets, consisted of
$17,241,000 related to assets in the marine transportation segment and $471,000
related to assets in the diesel engine services segment.
 
(14)  RELATED PARTY TRANSACTIONS
 
     During 2002, the Company and its subsidiaries paid Knollwood, L.L.C.
("Knollwood"), a company owned by C. Berdon Lawrence, the Chairman of the Board
of the Company, $197,000 for air transportation services provided by Knollwood.
Such services were in the ordinary course of business of the Company.
 
     The Company is a 25% member of The Hollywood Camp, L.L.C. ("Hollywood
Camp"), a company that owns and operates a hunting facility used by the Company
and two other members primarily for customer entertainment. Knollwood is a 25%
member and acts as manager of the facility. The other 50% member is not
affiliated with the Company or Knollwood. During 2002, the Company was billed
$683,000 by the hunting facility for its share of the facility expenses.
 
     Walter E. Johnson, a director of the Company, is a 25% limited partner in a
limited partnership that owns one barge operated by a subsidiary of the Company,
which owns the other 75% interest in the partnership. The partnership was
entered into on October 1, 1974. In 2002, Mr. Johnson received $82,000 in
proportionate distributions from the partnership, made in the ordinary course of
business.
 
     Southwest Bank of Texas has a 5% participation in the Company's Term Loan.
As of December 31, 2002, the outstanding balance of the Term Loan was
$171,500,000, of which Southwest Bank of Texas' participation was $8,575,000.
Mr. Johnson is Chairman of the Board of Southwest Bank of Texas. Southwest Bank
of Texas is one of 14 lenders under the Term Loan, which was consummated in the
ordinary course of business of the Company, and before Mr. Johnson's appointment
to the Company's board of directors.
 
(15)  SUBSEQUENT EVENTS
 
     On January 15, 2003, the Company purchased from SeaRiver Maritime, Inc.
("SeaRiver"), the U.S. transportation affiliate of Exxon Mobil Corporation, 45
double hull inland tank barges and seven inland
 
                                        66

<PAGE>
                KIRBY CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(15)  SUBSEQUENT EVENTS -- (CONTINUED)

towboats for $32,113,000 in cash, and assumed from SeaRiver the leases of 16
double hull inland tank barges. On February 28, 2003, the Company purchased
three double hull inland tank barges leased by SeaRiver from Banc of America
Leasing & Capital LLC for $3,453,000 in cash. The Company entered into a
contract to provide inland marine transportation services to SeaRiver,
transporting petrochemicals, refined petroleum products and black oil products
throughout the Gulf Intracoastal Waterway and the Mississippi River System.
Financing of the equipment acquisitions was through the Company's revolving
credit facility.
 
     On February 28, 2003, the Company issued $250,000,000 of floating rate
senior notes ("Senior Notes") due February 28, 2013. The unsecured notes pay
interest quarterly at an interest rate equal to LIBOR plus a margin of 1.2% and
are not callable for the first year. Thereafter, the Senior Notes may be prepaid
without penalty. The proceeds were used to repay $121,500,000 of the Term Loan
due October 9, 2004 and $128,500,000 of the Revolving Credit Facility due
October 9, 2004. The terms of the Senior Notes include certain covenants that,
subject to exceptions, restrict debt incurrence, mergers and acquisitions, sales
of assets, dividends and investments, liquidations and dissolutions, capital
leases, transactions with affiliates and changes in lines of business.
Additionally, the Company must comply with certain financial covenants based on
the results of its operations.
 
     In connection with the issuing of the Senior Notes, the Company hedged a
further portion of its exposure to fluctuations in short-term interest rates by
entering into a one-year interest rate swap agreement on February 28, 2003 with
a notional amount of $100,000,000. Under the agreement, the Company will pay a
fixed rate of 1.39% for one year and will receive floating rate interest
payments based on LIBOR for United States dollar deposits. The interest rate
swap was designated as a cash flow hedge. Existing swap agreements totaling
$150,000,000 which had been used as cash flow hedges for floating rate bank debt
were re-designated as cash flow hedges for the Senior Notes. As of February 28,
2003, the Company had a total notional amount of $250,000,000 of interest rate
swaps with terms ranging from one to three years designated as cash flow hedges
for its Senior Notes. The Senior Notes' effective average rate on that date,
including the effect of interest rate swaps, was 5.0%.
 
     On February 27, 2003, the available limit of the Credit Note was reduced
from $10,000,000 to $5,000,000 by mutual agreement between BNP and the Company.
The $5,000,000 uncommitted letter of credit line was also cancelled.
 
                                        67

<PAGE>
 

 
                                   PART IV
 

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
1. Financial Statements
 
     Included in Part III of this report:
 

     Report of KPMG LLP, Independent Accountants, on the financial statements of
Kirby Corporation and Consolidated Subsidiaries for the years ended December 31,
2002, 2001 and 2000.
 
     Consolidated Balance Sheets, December 31, 2002 and 2001.
 
     Consolidated Statements of Earnings, for the years ended December 31, 2002,
2001 and 2000.
 
     Consolidated Statements of Stockholders' Equity, for the years ended
December 31, 2002, 2001 and 2000.

 
     Consolidated Statements of Cash Flows, for the years ended December 31,
2002, 2001 and 2000.
 
     Notes to Consolidated Financial Statements, for the years ended December
31, 2002, 2001 and 2000.
 
     2. Financial Statement Schedules
 
     All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
 
     3. Reports on Form 8-K
 
     There were no reports on Form 8-K filed for the three months ended December
31, 2002.
 
     4. Exhibits
 

<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <S>  <C>
  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 2 of the Registrant's July 20, 2000 Registration
               Statement on Form 8A (Reg. No. 01-07615)).
  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)).
  4.2     --   Rights Agreement, dated as of July 18, 2000, between Kirby
               Corporation and Fleet National Bank, a national bank
               association, which includes the Form of Resolutions
               Establishing Designations, Preference and Rights of Series A
               Junior Participating Preferred Stock of Kirby Corporation,
               the form of Rights Certificate and the Summary of Rights
               (incorporated by reference to Exhibit 4.1 of the
               Registrant's Current Report on Form 8-K dated July 18,
               2000).
  4.3*    --   Master Note Purchase Agreement dated as of February 15, 2003
               among the Company and the Purchasers named therein.
 10.1     --   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).
 10.2+    --   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).
</Table>

 
                                        68

<PAGE>
 

<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <S>  <C>
 10.3+    --   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).
 10.4+    --   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).
 10.5+    --   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).
 10.6+    --   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).
 10.7+    --   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).
 10.8+    --   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).
 10.9     --   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).
 10.10+   --   1996 Employee Stock Option Plan for Kirby Corporation
               (incorporated by reference to Exhibit 10.24 of the
               Registrant's Annual Report on Form 10-K for the year ended
               December 31, 1996).
 10.11+   --   Amendment No. 1 to the 1994 Employee Stock Option Plan for
               Kirby Corporation (incorporated by reference to Exhibit
               10.25 of the Registrant's Annual Report on Form 10-K for the
               year ended December 31, 1996).
 10.12    --   Credit Agreement, dated September 19, 1997, among Kirby
               Corporation, the Banks named therein, and Texas Commerce
               Bank National Association as Agent and Funds Administrator
               (incorporated by reference to Exhibit 10.0 of the
               Registrant's Quarterly Report on Form 10-Q for the quarter
               ended September 30, 1997).
 10.13    --   First Amendment to Credit Agreement, dated January 30, 1998,
               among Kirby Corporation, the Banks named therein, and Chase
               Bank of Texas, N.A. as Agent and Funds Administrator
               (incorporated by reference to Exhibit B2 of the Registrant's
               Tender Offer Statement on Schedule 13E-4 filed with the
               Securities and Exchange Commission on February 17, 1998).
 10.14    --   Second Amendment to Credit Agreement, dated November 30,
               1998, among Kirby Corporation, the Banks named therein, and
               Chase Bank of Texas, N.A. as Agent and Funds Administrator
               (incorporated by reference to Exhibit 10.22 of the
               Registrant's Annual Report on Form 10-K for the year ended
               December 31, 1998).
 10.15    --   Agreement and Plan of Merger, dated July 28, 1999, by and
               among Kirby Corporation, Kirby Inland Marine, Inc.,
               Hollywood Marine, Inc., C. Berdon Lawrence, and Robert B.
               Egan and Eddy J. Rogers, Jr., as Co-Trustees under certain
               Berdon Lawrence Trusts (incorporated by reference to Exhibit
               2.1 of the Registrant's Current Report on Form 8-K dated
               July 30, 1999).
 10.16    --   Credit Facility, dated as of October 12, 1999, among Kirby
               Corporation, the Banks named therein, Chase Bank of Texas,
               National Association as Administrative Agent, Bank of
               America, N.A. as Syndication Agent, and Bank One, Texas,
               N.A. as Documentation Agent (incorporated by reference to
               Exhibit 10.1 of the Registrant's Current Report on Form 8-K
               dated October 14, 1999).
 10.17+   --   2001 Employee Stock Option Plan for Kirby Corporation
               (incorporated by reference to Exhibit 10.23 of the
               Registrant's Annual Report on Form 10-K for the year ended
               December 31, 2000).
</Table>

 
                                        69

<PAGE>
 

<Table>
<Caption>
EXHIBIT

NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <S>  <C>
 10.18+   --   Third Amendment to Credit Agreement, dated November 5, 2001,
               among Kirby Corporation, the Banks named therein, and The
               Chase Manhattan Bank as Agent and Funds Administrator
               (incorporated by reference to Exhibit 10.1 of the
               Registrant's Quarterly Report on Form 10-Q for the quarter
               ended September 30, 2001).
 10.19    --   First Amendment to Credit Agreement, dated November 5, 2001,
               among Kirby Corporation, the Banks named herein, The Chase
               Manhattan Bank as Administrative Agent, Bank of America N.A.
               as syndication Agent, and Bank One, Texas, N.A. as
               Documentation Agent (incorporated by reference to Exhibit
               10.2 of the Registrant's Quarterly Report on Form 10-Q for
               the quarter ended September 30, 2001).
10.20*+   --   Nonemployee Director Compensation Program.
 10.21+   --   2000 Nonemployee Director Stock Option Plan (incorporated by
               reference to Exhibit 10.27 of the Registrant's Annual Report
               on Form 10-K for the year ended December 31, 2001).
 10.22+   --   2002 Stock and Incentive Plan (incorporated by reference to
               Exhibit 4.4 of the Registrant's Registration Statement on
               Form S-8 filed on October 28, 2002).
 21.1*    --   Principal Subsidiaries of the Registrant.
 23.1*    --   Consent of KPMG LLP.
 99.1*    --   Certification Pursuant to Section 906 of the Sarbanes-Oxley
               Act of 2002.
</Table>

 
---------------
 
* Filed herewith
 
+ Management contract, compensatory plan or arrangement.
 
                                        70

<PAGE>
 

                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          KIRBY CORPORATION
                                          (Registrant)
 
                                          By:      /s/ NORMAN W. NOLEN
                                            ------------------------------------
                                                      Norman W. Nolen
                                                  Executive Vice President
 
Dated: March 5, 2003
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 

<Table>
<Caption>
                    SIGNATURE                                     CAPACITY                     DATE
                    ---------                                     --------                     ----
<S>     <C>                                          <C>                                   <C>

              /s/ C. BERDON LAWRENCE                 Chairman of the Board and Director    March 5, 2003
 ------------------------------------------------              of the Company
                C. Berdon Lawrence

 
                  /s/ J. H. PYNE                     President, Director of the Company    March 5, 2003
 ------------------------------------------------      and Principal Executive Officer
                    J. H. Pyne

 
               /s/ NORMAN W. NOLEN                        Executive Vice President,        March 5, 2003
 ------------------------------------------------     Treasurer, Assistant Secretary of
                 Norman W. Nolen                     the Company and Principal Financial
                                                                   Officer

 
               /s/ RONALD A. DRAGG                        Controller of the Company        March 5, 2003
 ------------------------------------------------
                 Ronald A. Dragg

 
                 /s/ C. SEAN DAY                           Director of the Company         March 5, 2003
 ------------------------------------------------
                   C. Sean Day

 
                 /s/ BOB G. GOWER                          Director of the Company         March 5, 2003
 ------------------------------------------------
                   Bob G. Gower

 
              /s/ WALTER E. JOHNSON                        Director of the Company         March 5, 2003
 ------------------------------------------------
                Walter E. Johnson

 
            /s/ WILLIAM M. LAMONT, JR.                     Director of the Company         March 5, 2003
 ------------------------------------------------
              William M. Lamont, Jr.

 
           /s/ GEORGE A. PETERKIN, JR.                     Director of the Company         March 5, 2003
 ------------------------------------------------
             George A. Peterkin, Jr.

 
             /s/ ROBERT G. STONE, JR.                      Director of the Company         March 5, 2003
 ------------------------------------------------
               Robert G. Stone, Jr.

 
               /s/ RICHARD C. WEBB                         Director of the Company         March 5, 2003
 ------------------------------------------------
                 Richard C. Webb
</Table>

 
                                        71

<PAGE>
 
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
In connection with the filing of the Annual Report on Form 10-K for the year
ended December 31, 2002 by Kirby Corporation, J. H. Pyne, President and Chief
Executive Officer, hereby certifies that:
 
     1. I have reviewed this annual report on Form 10-K of Kirby Corporation
(the "Company");
 
     2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
 
     3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report;
 
     4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
 
          (a) designed such disclosure controls and procedures to ensure that
     material information relating to the Company, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;
 
          (b) evaluated the effectiveness of the Company's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and
 
          (c) presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;
 
     5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors:
 
          (a) all significant deficiencies in the design or operation of
     internal controls which could adversely affect the Company's ability to
     record, process, summarize and report financial data and have identified
     for the Company's auditors any material weaknesses in internal controls;
     and
 
          (b) any fraud, whether or not material, that involves management or
     other employees who have a significant role in the Company's internal
     controls; and
 
     6. The Company's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
 
                                                    /s/ J. H. PYNE
                                          --------------------------------------
                                                        J. H. Pyne
                                          President and Chief Executive Officer
 
Dated: March 5, 2003
 
                                        72

<PAGE>
 
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
 
In connection with the filing of the Annual Report on Form 10-K for the year
ended December 31, 2002 by Kirby Corporation, Norman W. Nolen, Executive Vice
President, Treasurer and Chief Financial Officer, hereby certifies that:
 
     1. I have reviewed this annual report on Form 10-K of Kirby Corporation
(the "Company");
 
     2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
 
     3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report;
 
     4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
 
          (a) designed such disclosure controls and procedures to ensure that
     material information relating to the Company, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;
 
          (b) evaluated the effectiveness of the Company's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and
 
          (c) presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;
 
     5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors:
 
          (a) all significant deficiencies in the design or operation of
     internal controls which could adversely affect the Company's ability to
     record, process, summarize and report financial data and have identified
     for the Company's auditors any material weaknesses in internal controls;
     and
 
          (b) any fraud, whether or not material, that involves management or
     other employees who have a significant role in the Company's internal
     controls; and
 
     6. The Company's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
 
                                                  /s/ NORMAN W. NOLEN
                                          --------------------------------------
                                                     Norman W. Nolen
                                           Executive Vice President, Treasurer
                                               and Chief Financial Officer
 
Dated: March 5, 2003
 
                                        73

<PAGE>
 

                                 EXHIBIT INDEX
 

<Table>
<Caption>
  EXHIBIT                                    DESCRIPTION
  -------                                    -----------
<C>            <S>   <C>
     4.3       --    Master Note Purchase Agreement dated as of February 15, 2003
                     among the Company and the Purchasers named therein.
   10.20       --    Nonemployee Director Compensation Program.
    21.1       --    Principal Subsidiaries of the Registrant.
    23.1       --    Consent of KPMG LLP.
    99.1       --    Certification Pursuant to Section 906 of the Sarbanes-Oxley
                     Act of 2002.
</Table>





<PAGE>
                                                                     EXHIBIT 4.3



                                                                  CONFORMED COPY

================================================================================


                                KIRBY CORPORATION





                                    ---------
                         MASTER NOTE PURCHASE AGREEMENT
                                    ---------



                          Dated as of February 15, 2003




              Providing for the Issuance of Senior Notes in Series
                    Without Limitation as to Principal Amount




                               Initial Issuance of
                                  $250,000,000
                           Floating Rate Senior Notes
                      Series 2003-A, Due February 28, 2013





================================================================================
                                                                PPN: 497266 A* 7

<PAGE>
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
Section                                                                                 Page
-------                                                                                 ----
<S>                                                                                     <C>
1.   AUTHORIZATION OF NOTES.............................................................  1
     1.1.   Amount; Establishment of Series.............................................  1
     1.2.   The Series 2003-A Notes.....................................................  2

2.   SALE AND PURCHASE OF SERIES 2003-A NOTES...........................................  3

3.   CLOSING............................................................................  4

4.   CONDITIONS TO CLOSING..............................................................  4
     4.1.   Representations and Warranties..............................................  4
     4.2.   Performance; No Default.....................................................  4
     4.3.   Compliance Certificates.....................................................  4
     4.4.   Opinions of Counsel.........................................................  5
     4.5.   Purchase Permitted By Applicable Law, etc...................................  5
     4.6.   Sale of Other Series 2003-A Notes...........................................  5
     4.7.   Payment of Special Counsel Fees.............................................  5
     4.8.   Private Placement Number....................................................  5
     4.9.   Changes in Corporate Structure..............................................  6
     4.10.  Proceedings and Documents...................................................  6

5.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................  6
     5.1.   Organization; Power and Authority...........................................  6
     5.2.   Authorization, etc..........................................................  6
     5.3.   Disclosure..................................................................  7
     5.4.   Organization and Ownership of Shares of Subsidiaries; Affiliates............  7
     5.5.   Financial Statements........................................................  8
     5.6.   Compliance with Laws, Other Instruments, etc................................  8
     5.7.   Governmental Authorizations, etc............................................  8
     5.8.   Litigation; Observance
 of Agreements, Statutes and Orders...................  8
     5.9.   Taxes.......................................................................  9
     5.10.  Title to Property; Leases...................................................  9
     5.11.  Licenses, Permits, etc......................................................  9
     5.12.  Compliance with ERISA....................................................... 10
     5.13.  Private Offering by the Company............................................. 11
     5.14.  Use of Proceeds; Margin Regulations......................................... 11
     5.15.  Existing Debt; Future Liens................................................. 11
     5.16.  Foreign Assets Control Regulations, Anti-Terrorism Order, etc............... 12
     5.17.  Status under Certain Statutes............................................... 12
     5.18.  Environmental Matters....................................................... 12
</TABLE>


                                        i

<PAGE>

<TABLE>
<CAPTION>
Section                                                                                 Page
-------                                                                                 ----
<S>                                                                                     <C>
6.   REPRESENTATIONS OF THE PURCHASERS.................................................. 13
     6.1.   Purchase for Investment..................................................... 13
     6.2.   Source of Funds............................................................. 13

7.   INFORMATION AS TO COMPANY.......................................................... 15
     7.1.   Financial and Business Information.......................................... 15
     7.2.   Officer's Certificate....................................................... 17
     7.3.   Inspection.................................................................. 18

8.   PREPAYMENT OF THE NOTES............................................................ 19
     8.1.   No Scheduled Prepayments.................................................... 19
     8.2.   Optional Prepayments........................................................ 19
     8.3.   Allocation of Partial Prepayments........................................... 19
     8.4.   Maturity; Surrender, etc.................................................... 19
     8.5.   Purchase of Notes........................................................... 19
     8.6.   LIBOR Breakage Amount....................................................... 20

9.   AFFIRMATIVE COVENANTS.............................................................. 20
     9.1.   Compliance with Law......................................................... 20
     9.2.   Insurance................................................................... 20
     9.3.   Maintenance of Properties................................................... 21
     9.4.   Payment of Taxes and Claims................................................. 21
     9.5.   Corporate Existence, etc.................................................... 21

10.  NEGATIVE COVENANTS................................................................. 22
     10.1.  Debt; Priority Debt......................................................... 22
     10.2.  Interest Coverage........................................................... 22
     10.3.  Liens....................................................................... 22
     10.4.  Sale of Assets.............................................................. 23
     10.5.  Mergers, Consolidations, etc................................................ 24
     10.6.  Designation of Restricted and Unrestricted Subsidiaries..................... 25
     10.7.  Nature of Business.......................................................... 26
     10.8.  Transactions with Affiliates................................................ 26

11.  EVENTS OF DEFAULT.................................................................. 26

12.  REMEDIES ON DEFAULT, ETC........................................................... 28
     12.1.  Acceleration................................................................ 28
     12.2.  Other Remedies.............................................................. 29
     12.3.  Rescission.................................................................. 29
     12.4.  No Waivers or Election of Remedies, Expenses, etc........................... 29

13.  REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...................................... 29
     13.1.  Registration of Notes....................................................... 29
     13.2.  Transfer and Exchange of Notes.............................................. 30
     13.3.  Replacement of Notes........................................................ 30
</TABLE>


                                       ii

<PAGE>

<TABLE>
<CAPTION>
Section                                                                                 Page
-------                                                                                 ----
<S>                                                                                     <C>
14.  PAYMENTS ON NOTES.................................................................. 31
     14.1.  Place of Payment............................................................ 31
     14.2.  Home Office Payment......................................................... 31

15.  EXPENSES, ETC...................................................................... 31
     15.1.  Transaction Expenses........................................................ 31
     15.2.  Survival.................................................................... 32

16.  SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT....................... 32

17.  AMENDMENT AND WAIVER............................................................... 32
     17.1.  Requirements................................................................ 32
     17.2.  Solicitation of Holders of Notes............................................ 33
     17.3.  Binding Effect, etc......................................................... 33
     17.4.  Series 2003-A Notes held by Company, etc.................................... 33

18.  NOTICES............................................................................ 34

19.  REPRODUCTION OF DOCUMENTS.......................................................... 34

20.  CONFIDENTIAL INFORMATION........................................................... 34

21.  SUBSTITUTION OF PURCHASER.......................................................... 35

22.  MISCELLANEOUS...................................................................... 36
     22.1.  Successors and Assigns...................................................... 36
     22.2.  Payments Due on Non-Business Days........................................... 36
     22.3.  Severability................................................................ 36
     22.4.  Construction................................................................ 36
     22.5.  Counterparts................................................................ 36
     22.6.  Governing Law............................................................... 36
     22.7.  Limitation on Interest...................................................... 37
</TABLE>


                                      iii

<PAGE>



<TABLE>
<S>               <C>
SCHEDULE A        --    Information Relating to Purchasers
SCHEDULE B        --    Defined Terms
SCHEDULE B-1      --    Existing Investments

SCHEDULE 4.9      --    Changes in Corporate Structure
SCHEDULE 5.3      --    Disclosure Materials
SCHEDULE 5.4      --    Subsidiaries; Affiliates
SCHEDULE 5.5      --    Financial Statements
SCHEDULE 5.8      --    Litigation
SCHEDULE 5.11     --    Licenses, Permits, etc.
SCHEDULE 5.14     --    Use of Proceeds
SCHEDULE 5.15     --    Existing Debt
SCHEDULE 10.3     --    Liens

EXHIBIT 1.1(a)    --    Form of Senior Note
EXHIBIT 1.1(b)    --    Form of Supplement
EXHIBIT 1.2       --    Form of Series 2003-A Senior Note
EXHIBIT 4.4(a)    --    Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b)    --    Form of Opinion of Special Counsel for the Purchasers
</TABLE>


                                       iv

<PAGE>
                                KIRBY CORPORATION
                                 55 Waugh Drive
                                   Suite 1000
                              Houston, Texas 77007
                                 (713) 435-1000
                               Fax: (713) 435-1011


                         Senior Notes Issuable in Series
                    Without Limitation as to Principal Amount


                                  $250,000,000
                           Floating Rate Senior Notes
                      Series 2003-A, Due February 28, 2013


                                                   Dated as of February 15, 2003


TO EACH OF THE PURCHASERS LISTED IN
     THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

     KIRBY CORPORATION, a Nevada corporation (the "Company"), agrees with you as
follows:

1.   AUTHORIZATION OF NOTES.

1.1. AMOUNT; ESTABLISHMENT OF SERIES.

     The Company desires to provide for the issuance from time to time of Senior
Notes in series (the "Notes," such term to include any such Notes issued in
substitution therefor pursuant to Section 13 of this Agreement), without
limitation as to the aggregate principal amount that may be issued. The Notes
will be substantially in the form set out in Exhibit 1.1(a), with such changes
therefrom, if any, as may be approved by the purchasers of such Notes, or series
thereof, and the Company. Certain capitalized terms used in this Agreement are
defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
Each series of Notes may consist of one or more tranches.

     Each series of Notes, other than the Series 2003-A Notes, will be issued
pursuant to a supplement to this Agreement (a "Supplement") in substantially the
form of Exhibit 1.1(b), and will be subject to the following terms and
conditions:

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          (a) the designation of each series of Notes shall distinguish the
     Notes of one series from the Notes of all other series;

          (b) the Notes of each series shall rank pari passu with each other
     series of the Notes and the Company's other outstanding senior unsecured
     Debt;

          (c) each series of Notes shall be dated the date of issue, bear
     interest at such rate or rates, mature on such date or dates, be subject to
     such mandatory prepayments, if any, on the dates and with the make-whole
     amounts, premiums or breakage amounts, if any, as are provided in the
     Supplement under which such Notes are issued, and shall have such
     additional or different conditions precedent to closing and such additional
     or different representations and warranties or, subject to Section 1.1(d),
     other terms and provisions as shall be specified in such Supplement;

          (d) except to the extent provided in foregoing clause (c), all of the
     provisions of this Agreement shall apply to the Notes of each series; and

          (e) the issuance of any subsequent series of Notes shall not dilute or
     otherwise affect the relative priority or other rights of the holders of
     the Series 2003-A Notes or in any way affect the percentages of Series
     2003-A Notes required to approve an amendment or effectuate a waiver under
     the provisions of Section 17 or the percentages of Series 2003-A Notes
     required to accelerate the Series 2003-A Notes or rescind such an
     acceleration under the provisions of Section 12.1 or 12.3.

1.2. THE SERIES 2003-A NOTES.

          (a) Amount; Designation. The Company has authorized, as the initial
     series of Notes hereunder, the issue and sale of $250,000,000 aggregate
     principal amount of Floating Rate Notes, Series 2003-A, due February 28,
     2013 (the "Series 2003-A Notes," such term to include any such Notes issued
     in substitution therefor pursuant to Section 13 of this Agreement). The
     Series 2003-A Notes shall be substantially in the form set out in Exhibit
     1.2, with such changes therefrom, if any, as may be approved by you and the
     Company. The Notes shall bear interest (computed on the basis of a 360-day
     year and the actual number of days elapsed) (i) on the unpaid principal
     thereof at a floating rate equal to the Adjusted LIBOR Rate from time to
     time, payable quarterly on each Interest Payment Date until the principal
     shall have become due and payable, and (ii) to the extent permitted by law
     on any overdue payment (including any overdue prepayment) of principal, any
     overdue payment of interest and any overdue payment of any LIBOR Breakage
     Amount at the Default Rate until paid.

          (b) Adjusted LIBOR Rate. "ADJUSTED LIBOR RATE" means, for each
     Interest Period, the rate per annum equal to 1.2% plus LIBOR for such
     Interest Period. For purposes of determining Adjusted LIBOR Rate, the
     following terms have the following meanings:

               "LIBOR" means, for any Interest Period, the rate per annum
          (rounded upwards, if necessary, to the next higher one
          hundred-thousandth of a percentage point) for deposits in U.S. Dollars
          for a 90-day period that appears on the 

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          Bloomberg Financial Markets Service Page BBAM-1 (or if such page is
          not available, the Reuters Screen LIBO Page) as of 11:00 a.m. (London,
          England time) on the date two Business Days before the commencement of
          such Interest Period (or three Business Days before the commencement
          of the first Interest Period).

               "REUTERS SCREEN LIBO PAGE" means the display designated as the
          "LIBO" page on the Reuters Monitory Money Rates Service (or such other
          page as may replace the LIBO page on that service or such other
          service as may be nominated by the British Bankers' Association as the
          information vendor for the purpose of displaying British Bankers'
          Association Interest Settlement Rates for U.S. Dollar deposits).

          (c) Determination of the Adjusted LIBOR Rate. The Adjusted LIBOR Rate
     shall be determined by the Company, and notice thereof shall be given to
     the holders of the Series 2003-A Notes, within two Business Days after the
     beginning of each Interest Period, together with (i) a copy of the relevant
     screen used for the determination of LIBOR, (ii) a calculation of the
     Adjusted LIBOR Rate for such Interest Period, (iii) the number of days in
     such Interest Period, (iv) the date on which interest for such Interest
     Period will be paid and (v) the amount of interest to be paid to each
     holder of Series 2003-A Notes on such date. If Required Holders do not
     concur with such determination by the Company, as evidenced by a single
     written notice delivered to the Company within 10 Business Days after
     receipt by such holders of the notice delivered by the Company pursuant to
     the immediately preceding sentence, the determination of the Adjusted LIBOR
     Rate shall be made by such holders of the Notes, and any such determination
     made in accordance with the provisions of this Agreement shall be
     conclusive and binding absent manifest error.

          (d) Interest Period. "INTEREST PERIOD" means for any period for which
     interest is to be calculated or paid, the period commencing on the date of
     an interest payment on the Series 2003-A Notes, or on the date of Closing
     in the case of the first such period, and ending on the next February 28,
     May 28, August 28 or November 28, as the case may be, or if such date is
     not a Business Day, the next succeeding Business Day.

2.   SALE AND PURCHASE OF SERIES 2003-A NOTES.

     Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and each of the other purchasers named in Schedule A (the
"Other Purchasers"), and you and the Other Purchasers will purchase from the
Company, at the Closing provided for in Section 3, Series 2003-A Notes of the
series and in the principal amount specified opposite your names in Schedule A
at the purchase price of 100% of the principal amount thereof. Your obligation
hereunder and the obligations of the Other Purchasers are several and not joint
obligations and you shall have no liability to any Person for the performance or
non-performance by any Other Purchaser hereunder.

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<PAGE>
3.   CLOSING.

     The sale and purchase of the Series 2003-A Notes to be purchased by you and
the Other Purchasers shall occur at the offices of Gardner, Carton & Douglas,
191 North Wacker Drive, Suite 3700, Chicago, Illinois 60606-1698, at 9:00 a.m.,
Chicago time, at a closing (the "Closing") on February 28, 2003 or on such other
Business Day thereafter on or prior to March 7, 2003 as may be agreed upon by
the Company and you and the Other Purchasers. At the Closing the Company will
deliver to you the Series 2003-A Notes to be purchased by you in the form of a
single Note (or such greater number of Series 2003-A Notes in denominations of
at least $100,000 as you may request) dated the date of the Closing and
registered in your name (or in the name of your nominee), against delivery by
you to the Company or its order of immediately available funds in the amount of
the purchase price therefor by wire transfer of immediately available funds for
the account of the Company to account number 00100359554 at JPMorgan Chase Bank,
712 Main Street, Houston, Texas 77002, ABA No. 113000609. If at the Closing the
Company fails to tender such Series 2003-A Notes to you as provided above in
this Section 3, or any of the conditions specified in Section 4 shall not have
been fulfilled to your satisfaction, you shall, at your election, be relieved of
all further obligations under this Agreement, without thereby waiving any rights
you may have by reason of such failure or such nonfulfillment.

4.   CONDITIONS TO CLOSING.

     Your obligation to purchase and pay for the Series 2003-A Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:

4.1. REPRESENTATIONS AND WARRANTIES.

     The representations and warranties of the Company in this Agreement shall
be correct when made and at the time of the Closing.

4.2. PERFORMANCE; NO DEFAULT.

     The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Series 2003-A Notes (and the application of the proceeds thereof as
contemplated by Schedule 5.14) no Default or Event of Default shall have
occurred and be continuing. Neither the Company nor any Restricted Subsidiary
shall have entered into any transaction since the date of the Memorandum that
would have been prohibited by Section 10 hereof had such Section applied since
such date.

4.3. COMPLIANCE CERTIFICATES.

          (a) Officer's Certificate. The Company shall have delivered to you an
     Officer's Certificate, dated the date of the Closing, certifying that the
     conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.

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<PAGE>

          (b) Secretary's Certificate. The Company shall have delivered to you a
     certificate certifying as to the resolutions attached thereto and other
     corporate proceedings relating to the authorization, execution and delivery
     of the Series 2003-A Notes and the Agreement.

4.4. OPINIONS OF COUNSEL.

     You shall have received opinions in form and substance satisfactory to you,
dated the date of the Closing (a) from Jenkens & Gilchrist, counsel to the
Company, covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company instructs its counsel to deliver
such opinion to you) and (b) from Gardner Carton & Douglas LLC, your special
counsel in connection with such transactions, substantially in the form set
forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.

4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.

     On the date of the Closing your purchase of Series 2003-A Notes shall (i)
be permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation U, T or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.

4.6. SALE OF OTHER SERIES 2003-A NOTES.

     Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Series 2003-A Notes to be
purchased by them at the Closing as specified in Schedule A.

4.7. PAYMENT OF SPECIAL COUNSEL FEES.

     Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4, to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.

4.8. PRIVATE PLACEMENT NUMBER.

     A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau
(in cooperation with the Securities Valuation Office of the National Association
of Insurance

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<PAGE>
Commissioners) shall have been obtained by Gardner, Carton & Douglas for each
series of the Series 2003-A Notes.

4.9. CHANGES IN CORPORATE STRUCTURE.

     Except as specified in Schedule 4.9, the Company shall not have changed its
jurisdiction of incorporation or been a party to any merger or consolidation and
shall not have succeeded to all or any substantial part of the liabilities of
any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.

4.10. PROCEEDINGS AND DOCUMENTS.

     All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.

5.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

          The Company represents and warrants to you that:

5.1. ORGANIZATION; POWER AND AUTHORITY.

     The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the Series 2003-A Notes and to perform the provisions hereof and
thereof.

5.2. AUTHORIZATION, ETC.

     This Agreement and the Series 2003-A Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

                                       6

<PAGE>
5.3. DISCLOSURE.

     The Company, through its agent, Banc of America Securities LLC, has
delivered to you and each Other Purchaser a copy of a Private Placement
Memorandum, dated January 2003 (the "Memorandum"), relating to the transactions
contemplated hereby. The Memorandum fairly describes, in all material respects,
the general nature of the business and principal properties of the Company and
its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum, the documents, certificates or other writings delivered to you by or
on behalf of the Company in connection with the transactions contemplated hereby
and the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since September 30, 2002, there has been no
change in the financial condition, operations, business or properties of the
Company or any Subsidiary except changes that individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect. There is no
fact known to the Company that could reasonably be expected to have a Material
Adverse Effect that has not been set forth herein or in the Memorandum or in the
other documents, certificates and other writings delivered to you by or on
behalf of the Company specifically for use in connection with the transactions
contemplated hereby.

5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.

          (a) Schedule 5.4 contains (except as noted therein) complete and
     correct lists of: (i) the Company's Subsidiaries, showing, as to each
     Subsidiary, the correct name thereof, the jurisdiction of its organization,
     and the percentage of shares of each class of its capital stock or similar
     equity interests outstanding owned by the Company and each other
     Subsidiary, (ii) the Company's Affiliates, other than Subsidiaries, and
     (iii) the Company's directors and senior officers. Each Subsidiary listed
     in Schedule 5.4 is designated a Restricted Subsidiary by the Company.

          (b) All of the outstanding shares of capital stock or similar equity
     interests of each Subsidiary shown in Schedule 5.4 as being owned by the
     Company and its Subsidiaries have been validly issued, are fully paid and
     nonassessable and are owned by the Company or another Subsidiary free and
     clear of any Lien (except as otherwise disclosed in Schedule 5.4).

          (c) Each Subsidiary identified in Schedule 5.4 is a corporation or
     other legal entity duly organized, validly existing and in good standing
     under the laws of its jurisdiction of organization, and is duly qualified
     as a foreign corporation or other legal entity and is in good standing in
     each jurisdiction in which such qualification is required by law, other
     than those jurisdictions as to which the failure to be so qualified or in
     good standing could not, individually or in the aggregate, reasonably be
     expected to have a Material Adverse Effect. Each such Subsidiary has the
     corporate or other power and authority to own or hold under lease the
     properties it purports to own or hold under lease and to transact the
     business it transacts and proposes to transact.

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<PAGE>
          (d) No Subsidiary is a party to, or otherwise subject to, any legal
     restriction or any agreement (other than this Agreement, the agreements
     listed on Schedule 5.4 and customary limitations imposed by corporate,
     limited liability company, limited partnership or similar statutes)
     restricting the ability of such Subsidiary to pay dividends out of profits
     or make any other similar distributions of profits to the Company or any of
     its Subsidiaries that owns outstanding shares of capital stock or similar
     equity interests of such Subsidiary.

5.5. FINANCIAL STATEMENTS.

     The Company has delivered to you and each Other Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on Schedule 5.5.
All of said financial statements (including in each case the related schedules
and notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such financial statements and the consolidated results of their
operations and cash flows for the respective periods so specified and have been
prepared in accordance with GAAP consistently applied throughout the periods
involved except as set forth in the notes thereto (subject, in the case of any
interim financial statements, to normal year-end adjustments).

5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

     The execution, delivery and performance by the Company of this Agreement
and the Series 2003-A Notes will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority, including the USA
Patriot Act, applicable to the Company or any Subsidiary.

5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.

     No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Series 2003-A Notes.

5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.

          Except as disclosed in Schedule 5.8,

          (a) there are no actions, suits or proceedings pending or, to the
     knowledge of the Company, threatened against or affecting the Company or
     any Subsidiary or any property of the Company or any Subsidiary in any
     court or before any arbitrator of any 

                                       8

<PAGE>
     kind or before or by any Governmental Authority that, individually or in
     the aggregate, could reasonably be expected to have a Material Adverse
     Effect; and

          (b) neither the Company nor any Subsidiary is in default under any
     term of any agreement or instrument to which it is a party or by which it
     is bound, or any order, judgment, decree or ruling of any court, arbitrator
     or Governmental Authority or is in violation of any applicable law,
     ordinance, rule or regulation (including Environmental Laws and the USA
     Patriot Act) of any Governmental Authority, which default or violation,
     individually or in the aggregate, could reasonably be expected to have a
     Material Adverse Effect.

5.9. TAXES.

     The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material or (ii) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of the Company and its Subsidiaries in respect of Federal, state or
other taxes for all fiscal periods are adequate. The Federal income tax
liabilities of the Company and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1998.

5.10. TITLE TO PROPERTY; LEASES.

     The Company and its Subsidiaries have good and sufficient title to their
respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects.

5.11. LICENSES, PERMITS, ETC.

          Except as disclosed in Schedule 5.11,

          (a) the Company and its Subsidiaries own or possess all licenses,
     permits, franchises, authorizations, patents, copyrights, service marks,
     trademarks and trade names, or rights thereto necessary for the conduct of
     their businesses without known conflict with the rights of others;

                                       9

<PAGE>
          (b) to the best knowledge of the Company, no product of the Company
     infringes any license, permit, franchise, authorization, patent, copyright,
     service mark, trademark, trade name or other right owned by any other
     Person; and

          (c) to the best knowledge of the Company, there is no violation by any
     Person of any right of the Company or any of its Subsidiaries with respect
     to any patent, copyright, service mark, trademark, trade name or other
     right owned or used by the Company or any of its Subsidiaries;

except, in each instance, for the lack of ownership or possession, conflicts or
violations that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

5.12. COMPLIANCE WITH ERISA.

          (a) The Company and each ERISA Affiliate have operated and
     administered each Plan in compliance with all applicable laws except for
     such instances of noncompliance as have not resulted in and could not
     reasonably be expected to result in a Material Adverse Effect. Neither the
     Company nor any ERISA Affiliate has incurred any liability pursuant to
     Title I or IV of ERISA or the penalty or excise tax provisions of the Code
     relating to employee benefit plans (as defined in Section 3 of ERISA), and
     no event, transaction or condition has occurred or exists that could
     reasonably be expected to result in the incurrence of any such liability by
     the Company or any ERISA Affiliate, or in the imposition of any Lien on any
     of the rights, properties or assets of the Company or any ERISA Affiliate,
     in either case pursuant to Title I or IV of ERISA or to such penalty or
     excise tax provisions or to Section 401(a)(29) or 412 of the Code, other
     than such liabilities or Liens as would not be individually or in the
     aggregate Material.

          (b) The present value of the aggregate benefit liabilities under each
     of the Plans (other than Multiemployer Plans), determined as of the end of
     such Plan's most recently ended plan year on the basis of the actuarial
     assumptions specified for funding purposes in such Plan's most recent
     actuarial valuation report, did not exceed the aggregate current value of
     the assets of such Plan allocable to such benefit liabilities by more than
     5% of consolidated stockholders equity of the Company and its Subsidiaries
     as reflected in the most recent balance sheet referred to in Schedule 5.5.
     The term "benefit liabilities" has the meaning specified in section 4001 of
     ERISA and the terms "current value" and "present value" have the meaning
     specified in section 3 of ERISA.

          (c) The Company and its ERISA Affiliates have not incurred withdrawal
     liabilities (and are not subject to contingent withdrawal liabilities)
     under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that,
     individually or in the aggregate, could reasonably be expected to have a
     Material Adverse Effect.

          (d) The expected postretirement benefit obligation (determined as of
     the last day of the Company's most recently ended fiscal year in accordance
     with Financial Accounting Standards Board Statement No. 106, without regard
     to liabilities attributable to continuation coverage mandated by section
     4980B of the Code) of the Company and

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<PAGE>
     its Subsidiaries is not Material or is reflected in the most recent
     consolidated financial statements of the Company and its Subsidiaries
     reflected in Schedule 5.5.

          (e) The execution and delivery of this Agreement and the issuance and
     sale of the Series 2003-A Notes hereunder will not involve any transaction
     that is subject to the prohibitions of section 406 of ERISA or in
     connection with which a tax could be imposed pursuant to section
     4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
     first sentence of this Section 5.12(e) is made in reliance upon and subject
     to the accuracy of your representation in Section 6.2 as to the sources of
     the funds used to pay the purchase price of the Series 2003-A Notes to be
     purchased by you.

5.13. PRIVATE OFFERING BY THE COMPANY.

     Neither the Company nor anyone acting on its behalf has offered the Series
2003-A Notes or any similar securities for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you, the Other Purchasers and not more than
50 other Institutional Investors, each of which has been offered the Series
2003-A Notes at a private sale for investment. Neither the Company nor anyone
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Series 2003-A Notes to the registration requirements of
Section 5 of the Securities Act.

5.14. USE OF PROCEEDS; MARGIN REGULATIONS.

     The Company will apply the proceeds of the sale of the Series 2003-A Notes
for general corporate purposes, including to refinance Debt as set forth in
Schedule 5.14. No part of the proceeds from the sale of the Series 2003-A Notes
will be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Company in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin
stock does not constitute more than 10% of the value of the consolidated assets
of the Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 10% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of buying
or carrying" shall have the meanings assigned to them in said Regulation U.

5.15. EXISTING DEBT; FUTURE LIENS.

          (a) Except as described therein, Schedule 5.15 sets forth a complete
     and correct list of all outstanding Debt of the Company and its
     Subsidiaries as of December 31, 2002, since which date there has been no
     Material change in the amounts, interest rates, sinking funds, installment
     payments or maturities of the Debt of the Company or its Subsidiaries.
     Neither the Company nor any Subsidiary is in default and no waiver of
     default is currently in effect, in the payment of any principal or interest
     on any Debt of the Company or such Subsidiary and no event or condition
     exists with respect to any Debt of the Company or any Subsidiary that is
     outstanding in an aggregate 

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     principal amount of $5,000,000 or more and that would permit (or that with
     notice or the lapse of time, or both, would permit) one or more Persons to
     cause such Debt to become due and payable before its stated maturity or
     before its regularly scheduled dates of payment.

          (b) Except as disclosed in Schedule 5.15, neither the Company nor any
     Subsidiary has agreed or consented to cause or permit in the future (upon
     the happening of a contingency or otherwise) any of its property, whether
     now owned or hereafter acquired, to be subject to a Lien not permitted by
     Section 10.3.

5.16. FOREIGN ASSETS CONTROL REGULATIONS, ANTI-TERRORISM ORDER, ETC.

     Neither the sale of the Series 2003-A Notes by the Company hereunder nor
its use of the proceeds thereof will violate (a) the Trading with the Enemy Act,
as amended, (b) any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto or (c) to the knowledge
of the Company, the Anti-Terrorism Order. Without limiting the foregoing,
neither Company nor any Subsidiary (i) is a blocked person described in Section
1 of the Anti-Terrorism Order or (ii) engages in any dealings or transactions,
or is otherwise associated, with any such person.

5.17. STATUS UNDER CERTAIN STATUTES.

     Neither the Company nor any Subsidiary is subject to regulation under the
Investment Company Act of 1940, as amended, the Public Utility Holding Company
Act of 1935, as amended, or the Federal Power Act, as amended. Neither the
Company nor any Subsidiary is subject to any regulation in any Material respect
under the Interstate Commerce Act, as amended by the ICC Termination Act, as
amended, and no approvals or consents are required to be obtained pursuant to
such Acts in connection with the issuance and sale of the Notes.

5.18. ENVIRONMENTAL MATTERS.

     Except as otherwise disclosed to you in writing, neither the Company nor
any Subsidiary has knowledge of any claim or has received any notice of any
claim, and no proceeding has been instituted raising any claim against the
Company or any of its Subsidiaries or any of their respective real properties
now or formerly owned, leased or operated by any of them or other assets,
alleging any damage to the environment or violation of any Environmental Laws,
except, in each case, such as could not reasonably be expected to result in a
Material Adverse Effect. Except as otherwise disclosed to you in writing,

          (a) neither the Company nor any Subsidiary has knowledge of any facts
     which would give rise to any claim, public or private, of violation of
     Environmental Laws or damage to the environment emanating from, occurring
     on or in any way related to real properties now or formerly owned, leased
     or operated by any of them or to other assets or their use, except, in each
     case, such as could not reasonably be expected to result in a Material
     Adverse Effect;

                                       12

<PAGE>
          (b) neither the Company nor any of its Subsidiaries has stored any
     Hazardous Materials on real properties now or formerly owned, leased or
     operated by any of them and has not disposed of any Hazardous Materials in
     a manner contrary to any Environmental Laws in each case in any manner that
     could reasonably be expected to result in a Material Adverse Effect; and

          (c) all buildings on all real properties now owned, leased or operated
     by the Company or any of its Subsidiaries are in compliance with applicable
     Environmental Laws, except where failure to comply could not reasonably be
     expected to result in a Material Adverse Effect.

6.   REPRESENTATIONS OF THE PURCHASERS.

6.1. PURCHASE FOR INVESTMENT.

     You represent that you are purchasing the Series 2003-A Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Series 2003-A Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or if
an exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Series 2003-A Notes. You represent that
you are an "accredited investor" as such term is defined in Rule 501(a) of
Regulation D under the Securities Act.

6.2. SOURCE OF FUNDS.

     You represent that at least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by you to pay
the purchase price of the Series 2003-A Notes to be purchased by you hereunder:

          (a) the Source is an "insurance company general account" (as the term
     is defined in the United States Department of Labor's Prohibited
     Transaction Exemption ("PTE") 95-60) in respect of which the reserves and
     liabilities (as defined by the annual statement for life insurance
     companies approved by the National Association of Insurance Commissioners
     (the "NAIC Annual Statement") for the general account contract(s) held by
     or on behalf of any employee benefit plan together with the amount of the
     reserves and liabilities for the general account contract(s) held by or on
     behalf of any other employee benefit plans maintained by the same employer
     (or affiliate thereof as defined in PTE 95-60) or by the same employee
     organization in the general account do not exceed 10% of the total reserves
     and liabilities of the general account (exclusive of separate account
     liabilities) plus surplus as set forth in the NAIC Annual Statement filed
     with such Purchaser's state of domicile; or

          (b) the Source is a separate account that is maintained solely in
     connection with such Purchaser's fixed contractual obligations under which
     the amounts payable, or 

                                       13

<PAGE>
     credited, to any employee benefit plan (or its related trust) that has any
     interest in such separate account (or to any participant or beneficiary of
     such plan (including any annuitant)) are not affected in any manner by the
     investment performance of the separate account; or

          (c) the Source is either (i) an insurance company pooled separate
     account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii)
     a bank collective investment fund, within the meaning of PTE 91-38 (issued
     July 12, 1991) and, except as you have disclosed to the Company in writing
     pursuant to this paragraph (c), no employee benefit plan or group of plans
     maintained by the same employer or employee organization beneficially owns
     more than 10% of all assets allocated to such pooled separate account or
     collective investment fund; or

          (d) the Source constitutes assets of an "investment fund" (within the
     meaning of Part V of PTE 84-14 (the "QPAM Exemption") managed by a
     "qualified professional asset manager" or "QPAM" (within the meaning of
     Part V of the QPAM Exemption), no employee benefit plan's assets that are
     included in such investment fund, when combined with the assets of all
     other employee benefit plans established or maintained by the same employer
     or by an affiliate (within the meaning of Section V(c)(1) of the QPAM
     Exemption) of such employer or by the same employee organization and
     managed by such QPAM, exceed 20% of the total client assets managed by such
     QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
     satisfied, neither the QPAM nor a person controlling or controlled by the
     QPAM (applying the definition of "control" in Section V(e) of the QPAM
     Exemption) owns a 5% or more interest in the Company and (i) the identity
     of such QPAM and (ii) the names of all employee benefit plans whose assets
     are included in such investment fund have been disclosed to the Company in
     writing pursuant to this clause (d); or

          (e) the Source constitutes assets of a "plan(s)" (within the meaning
     of Section IV of PTE 96-23 (the "INHAM Exemption") managed by an "in-house
     asset manager" or "INHAM" (within the meaning of Part IV of the INHAM
     exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption
     are satisfied, neither the INHAM nor a person controlling or controlled by
     the INHAM (applying the definition of "control" in Section IV(h) of the
     INHAM Exemption) owns a 5% or more interest in the Company and (i) the
     identity of such INHAM and (ii) the name(s) of the employee benefit plan(s)
     whose assets constitute the Source have been disclosed to the Company in
     writing pursuant to this clause (e); or

          (f) the Source is a governmental plan; or

          (g) the Source is one or more employee benefit plans, or a separate
     account or trust fund comprised of one or more employee benefit plans, each
     of which has been identified to the Company in writing pursuant to this
     paragraph (g); or

          (h) the Source does not include assets of any employee benefit plan,
     other than a plan exempt from the coverage of ERISA.

                                       14

<PAGE>
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.

7.   INFORMATION AS TO COMPANY.

7.1. FINANCIAL AND BUSINESS INFORMATION

          The Company will deliver to each holder of Notes that is an
     Institutional Investor:

          (a) Quarterly Statements -- within 60 days (or such other shorter
     period within which Quarterly Reports on Form 10-Q are required to be
     timely filed with the Securities and Exchange Commission, including any
     extension permitted by Rule 12b-25 of the Exchange Act) after the end of
     each quarterly fiscal period in each fiscal year of the Company (other than
     the last quarterly fiscal period of each such fiscal year), duplicate
     copies of,

               (i) consolidated balance sheet of the Company and its
          Subsidiaries as at the end of such quarter,

               (ii) consolidated statements of earnings and stockholders' equity
          of the Company and its Subsidiaries for such quarter and (in the case
          of the second and third quarters) for the portion of the fiscal year
          ending with such quarter, and

               (iii) consolidated statements of cash flows of the Company and
          its Subsidiaries for such quarter or (in the case of the second and
          third quarters) for the portion of the fiscal year ending with such
          quarter,

     setting forth in each case in comparative form the figures for the
     corresponding periods in the previous fiscal year, all in reasonable
     detail, prepared in accordance with GAAP applicable to quarterly financial
     statements generally, and certified by a Senior Financial Officer as fairly
     presenting, in all material respects, the financial position of the
     companies being reported on and their results of operations and cash flows,
     subject to changes resulting from year-end adjustments, provided that
     delivery within the time period specified above of copies of the Company's
     Quarterly Report on Form 10-Q prepared in compliance with the requirements
     therefor and filed with the Securities and Exchange Commission shall be
     deemed to satisfy the requirements of this Section 7.1(a);

          (b) Annual Statements -- within 105 days (or such other shorter period
     within which Annual Reports on Form 10-K are required to be timely filed
     with the Securities and Exchange Commission, including any extension
     permitted by Rule 12b-25 of the Exchange Act) after the end of each fiscal
     year of the Company, duplicate copies of,

               (i) consolidated balance sheet of the Company and its
          Subsidiaries, as at the end of such year, and

               (ii) consolidated statements of earnings, stockholders' equity
          and cash flows of the Company and its Subsidiaries, for such year,

                                       15

<PAGE>
     setting forth in each case in comparative form the figures for the previous
     fiscal year, all in reasonable detail, prepared in accordance with GAAP,
     and accompanied by an opinion of independent certified public accountants
     of recognized national standing, which opinion shall state that such
     financial statements present fairly, in all material respects, the
     financial position of the companies being reported upon and their results
     of operations and cash flows and have been prepared in conformity with
     GAAP, and that the examination of such accountants in connection with such
     financial statements has been made in accordance with generally accepted
     auditing standards, and that such audit provides a reasonable basis for
     such opinion in the circumstances, provided that the delivery within the
     time period specified above of the Company's Annual Report on Form 10-K for
     such fiscal year (together with the Company's annual report to
     shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange
     Act) prepared in accordance with the requirements therefor and filed with
     the Securities and Exchange Commission shall be deemed to satisfy the
     requirements of this Section 7.1(b);

          (c) Unrestricted Subsidiaries -- if, at the time of delivery of any
     financial statements pursuant to Section 7.1(a) or (b), Unrestricted
     Subsidiaries account for more than 10% of (i) the consolidated total assets
     of the Company and its Subsidiaries reflected in the balance sheet included
     in such financial statements or (ii) the consolidated revenues of the
     Company and its Subsidiaries reflected in the consolidated statement of
     income included in such financial statements, an unaudited balance sheet
     for all Unrestricted Subsidiaries taken as whole as at the end of the
     fiscal period included in such financial statements and the related
     unaudited statements of income, stockholders' equity and cash flows for
     such Unrestricted Subsidiaries for such period, together with consolidating
     statements reflecting all eliminations or adjustments necessary to
     reconcile such group financial statements to the consolidated financial
     statements of the Company and its Subsidiaries shall be delivered together
     with the financial statements required pursuant to Sections 7.1(a) and (b);

          (d) SEC and Other Reports -- promptly upon their becoming available,
     one copy of (i) each financial statement, report, notice or proxy statement
     sent by the Company or any Restricted Subsidiary to public securities
     holders generally, and (ii) each regular or periodic report, each
     registration statement (without exhibits except as expressly requested by
     such holder), other than registration statements on Form S-8, and each
     prospectus and all amendments thereto filed by the Company or any
     Restricted Subsidiary with the Securities and Exchange Commission and of
     all press releases and other statements made available generally by the
     Company or any Restricted Subsidiary to the public concerning developments
     that are Material;

          (e) Notice of Default or Event of Default -- promptly, and in any
     event within 10 days after a Responsible Officer becoming aware of the
     existence of any Default or Event of Default or that any Person has given
     any notice or taken any action with respect to a claimed default hereunder
     or that any Person has given notice or taken any action with respect to a
     claimed default of the type referred to in Section 11(f), a written notice
     specifying the nature and period of existence thereof and what action the
     Company is taking or proposes to take with respect thereto;

                                       16

<PAGE>
          (f) ERISA Matters -- promptly, and in any event within five Business
     Days after a Responsible Officer becoming aware of any of the following, a
     written notice setting forth the nature thereof and the action, if any,
     that the Company or an ERISA Affiliate proposes to take with respect
     thereto:

               (i) with respect to any Plan, any reportable event, as defined in
          section 4043(b) of ERISA and the regulations thereunder, for which
          notice thereof has not been waived pursuant to such regulations as in
          effect on the date hereof; or

               (ii) the taking by the PBGC of steps to institute, or the
          threatening by the PBGC of the institution of, proceedings under
          section 4042 of ERISA for the termination of, or the appointment of a
          trustee to administer, any Plan, or the receipt by the Company or any
          ERISA Affiliate of a notice from a Multiemployer Plan that such action
          has been taken by the PBGC with respect to such Multiemployer Plan; or

               (iii) any event, transaction or condition that could result in
          the incurrence of any liability by the Company or any ERISA Affiliate
          pursuant to Title I or IV of ERISA or the penalty or excise tax
          provisions of the Code relating to employee benefit plans, or in the
          imposition of any Lien on any of the rights, properties or assets of
          the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
          or such penalty or excise tax provisions, if such liability or Lien,
          taken together with any other such liabilities or Liens then existing,
          could reasonably be expected to have a Material Adverse Effect;

          (g) Notices from Governmental Authority -- promptly, and in any event
     within 30 days of receipt thereof, copies of any notice to the Company or
     any Subsidiary from any Federal or state Governmental Authority relating to
     any order, ruling, statute or other law or regulation that could reasonably
     be expected to have a Material Adverse Effect;

          (h) Supplements -- if an additional series of Notes is issued under
     this Agreement (whether or not you are a purchaser thereof), promptly, and
     in any event within 10 Business Days after execution and delivery thereof,
     a copy of the Supplement pursuant to which such Notes were issued;
     and

          (i) Requested Information -- with reasonable promptness, such other
     data and information relating to the business, operations, affairs,
     financial condition, assets or properties of the Company or any of its
     Subsidiaries or relating to the ability of the Company to perform its
     obligations hereunder and under the Series 2003-A Notes as from time to
     time may be reasonably requested by any such holder of Notes.

7.2. OFFICER'S CERTIFICATE.

     Each set of financial statements delivered to a holder of Notes pursuant to
Section 7.1(a) or (b) shall be accompanied by a certificate of a Senior
Financial Officer setting forth:

                                       17

<PAGE>
          (a) Covenant Compliance -- the information (including detailed
     calculations) required in order to establish whether the Company was in
     compliance with the requirements of Section 10.1 through Section 10.8,
     inclusive, during the quarterly or annual period covered by the statements
     then being furnished (including with respect to each such Section, where
     applicable, the calculations of the maximum or minimum amount, ratio or
     percentage, as the case may be, permissible under the terms of such
     Sections, and the calculation of the amount, ratio or percentage then in
     existence); and

          (b) Event of Default -- a statement that such officer has reviewed the
     relevant terms hereof and has made, or caused to be made, under his or her
     supervision, a review of the transactions and conditions of the Company and
     its Subsidiaries from the beginning of the quarterly or annual period
     covered by the statements then being furnished to the date of the
     certificate and that such review has not disclosed the existence during
     such period of any condition or event that constitutes a Default or an
     Event of Default or, if any such condition or event existed or exists
     (including any such event or condition resulting from the failure of the
     Company or any Subsidiary to comply with any Environmental Law), specifying
     the nature and period of existence thereof and what action the Company
     shall have taken or proposes to take with respect thereto.

7.3. INSPECTION.

          The Company will permit the representatives of each holder of Notes
     that is an Institutional Investor:

          (a) No Default -- if no Default or Event of Default then exists, at
     the expense of such holder and upon reasonable prior notice to the Company,
     to visit the principal executive office of the Company, to discuss the
     affairs, finances and accounts of the Company and its Subsidiaries with the
     Company's officers, and (with the consent of the Company, which consent
     will not be unreasonably withheld) its independent public accountants, and
     (with the consent of the Company, which consent will not be unreasonably
     withheld) to visit the other offices and properties of the Company and each
     Restricted Subsidiary, all at such reasonable times and as often as may be
     reasonably requested in writing; and

          (b) Default -- if a Default or Event of Default then exists, at the
     expense of the Company, to visit and inspect any of the offices or
     properties of the Company or any Subsidiary, to examine all their
     respective books of account, records, reports and other papers, to make
     copies and extracts therefrom, and to discuss their respective affairs,
     finances, and accounts with their respective officers and independent
     public accountants (and by this provision the Company authorizes said
     accountants to discuss the affairs, finances and accounts of the Company
     and its Subsidiaries), all at such times and as often as may be requested.

                                       18

<PAGE>
8.   PREPAYMENT OF THE NOTES.

8.1. NO SCHEDULED PREPAYMENTS.

     No regularly scheduled prepayments are due on the Series 2003-A Notes prior
to their stated maturity.

8.2. OPTIONAL PREPAYMENTS.

     The Notes are not subject to prepayment at the option of the Company prior
to February 28, 2004. Thereafter, the Company may, at its option, upon notice as
provided below, prepay at any time all, or from time to time any part of, the
Series 2003-A Notes in an amount not less than $1,000,000 in the aggregate in
the case of a partial prepayment, at 100% of the principal amount so prepaid,
plus interest on such principal amount accrued to such prepayment date and, if
such prepayment is to occur on any date other than an Interest Payment Date, the
LIBOR Breakage Amount, if any. The Company will give each holder of Series
2003-A Notes written notice of each optional prepayment under this Section 8.2
not less than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes to be prepaid on such date, the principal amount of each
Series 2003-A Note held by such holder to be prepaid (determined in accordance
with Section 8.3), and the interest to be paid on the prepayment date with
respect to such principal amount being prepaid.

8.3. ALLOCATION OF PARTIAL PREPAYMENTS.

     In the case of each partial prepayment of the Notes of a series pursuant to
this Section 8, the principal amount of the Notes of such series to be prepaid
shall be allocated among all of the Notes of such series at the time outstanding
in proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment.

8.4. MATURITY; SURRENDER, ETC.

     In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable LIBOR Breakage Amount,
if any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and the
applicable LIBOR Breakage Amount, if any, as aforesaid, interest on such
principal amount shall cease to accrue. Any Note paid or prepaid in full shall
be surrendered to the Company and canceled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.

8.5. PURCHASE OF NOTES.

     The Company will not and will not permit any Affiliate to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding
Series 2003-A Notes except (a) upon the payment or prepayment of the Series
2003-A Notes in accordance with the 

                                       19

<PAGE>
terms of this Agreement and the Series 2003-A Notes or (b) pursuant to an offer
to purchase made by the Company or an Affiliate pro rata to the holders of all
Series 2003-A Notes at the time outstanding upon the same terms and conditions.
Any such offer shall provide each holder with sufficient information to enable
it to make an informed decision with respect to such offer, and shall remain
open for at least 15 Business Days. The Company will promptly cancel all Series
2003-A Notes acquired by it or any Affiliate pursuant to any payment, prepayment
or purchase of Series 2003-A Notes pursuant to any provision of this Agreement
and no Series 2003-A Notes may be issued in substitution or exchange for any
such Series 2003-A Notes.

8.6. LIBOR BREAKAGE AMOUNT.

     The term "LIBOR BREAKAGE AMOUNT" means any loss, cost or expense reasonably
incurred by any holder of a Series 2003-A Note as a result of any payment or
prepayment of any Series 2003-A Note (whether voluntary, mandatory, automatic,
by reason of acceleration or otherwise) on a day other than an Interest Payment
Date for such Note or at scheduled maturity thereof, and any loss or expense
arising from the liquidation or reemployment of funds obtained by such holder or
from fees payable to terminate the deposits from which such funds were obtained;
provided that any such loss, cost or expense shall be limited to the time period
from the date of such prepayment through the earlier of (i) the next Interest
Payment Date or (ii) the maturity of the Series 2003-A Note. Each holder of a
Series 2003-A Note shall determine the LIBOR Breakage Amount with respect to the
principal amount of its Series 2003-A Notes then being paid or prepaid (or
required to be paid or prepaid) by written notice to the Company setting forth
such determination in reasonable detail not less than two Business Days prior to
the date of prepayment. Each such determination shall be conclusive absent
manifest error.

9.   AFFIRMATIVE COVENANTS.

          The Company covenants that so long as any of the Notes are
     outstanding:

9.1. COMPLIANCE WITH LAW.

     The Company will, and will cause each Subsidiary to, comply with all laws,
ordinances or governmental rules or regulations to which each of them is
subject, including, without limitation, Environmental Laws, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

9.2. INSURANCE.

     The Company will, and will cause each Restricted Subsidiary to, maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such 

                                       20

<PAGE>
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated, except for instances where the failure to maintain such
insurance could not reasonably be expected to have a Material Adverse Effect.

9.3. MAINTENANCE OF PROPERTIES.

     The Company will and will cause each Restricted Subsidiary to maintain and
keep, or cause to be maintained and kept, their respective properties in good
repair, working order and condition (other than ordinary wear and tear), so that
the business carried on in connection therewith may be properly conducted at all
times, provided that this Section shall not prevent the Company or any
Restricted Subsidiary from discontinuing the operation and the maintenance of
any of its properties if such discontinuance is desirable in the conduct of its
business and the Company has concluded that such discontinuance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

9.4. PAYMENT OF TAXES AND CLAIMS.

     The Company will, and will cause each Subsidiary to, file all income tax or
similar tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.

9.5. CORPORATE EXISTENCE, ETC.

     Subject to Section 10.5, the Company will at all times preserve and keep in
full force and effect its corporate existence. Subject to Sections 10.4, 10.5
and 10.6, the Company will at all times preserve and keep in full force and
effect the corporate, partnership or limited liability company existence of each
of its Restricted Subsidiaries (unless merged into the Company or a Restricted
Subsidiary) and all rights and franchises of the Company and its Restricted
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate,
partnership or limited liability company existence, right or franchise could
not, individually or in the aggregate, have a Material Adverse Effect.

                                       21

<PAGE>
10.  NEGATIVE COVENANTS.

          The Company covenants that so long as any of the Notes are
     outstanding:

10.1. DEBT; PRIORITY DEBT.

          The Company will not at any time permit:

          (a) the ratio of Consolidated Debt (as of any date of determination)
     to Consolidated EBITDA (for the Company's then most recently completed four
     fiscal quarters) to be greater than 3.25 to 1.0; or

          (b) Priority Debt to exceed 20% of Adjusted Consolidated Net Worth.

10.2. INTEREST COVERAGE.

     The Company will not permit the ratio of Consolidated EBITDA to
Consolidated Interest Expense (in each case for the Company's then most recently
completed four fiscal quarters) to be less than 2.50 to 1.0 at any time.

10.3. LIENS.

     The Company will not, and will not permit any Restricted Subsidiary to,
permit to exist, create, assume or incur, directly or indirectly, any Lien on
its properties or assets, whether now owned or hereafter acquired, except:

          (a) Liens for taxes, assessments or governmental charges not then due
     and delinquent or the nonpayment of which is permitted by Section 9.4;

          (b) Liens incidental to the conduct of business or the ownership of
     properties and assets (including landlords', lessors', carriers',
     warehousemen's, mechanics', materialmen's and other similar Liens) and
     Liens to secure the performance of bids, tenders, leases or trade
     contracts, or to secure statutory obligations (including obligations under
     workers compensation, unemployment insurance and other social security
     legislation), surety or appeal bonds or other Liens of like general nature
     incurred in the ordinary course of business and not in connection with the
     borrowing of money;

          (c) any attachment or judgment Lien, unless the judgment it secures
     has not, within 60 days after the entry thereof, been discharged or
     execution thereof stayed pending appeal, or has not been discharged within
     60 days after the expiration of any such stay;

          (d) Liens securing Debt of a Restricted Subsidiary owed to the Company
     or to another Restricted Subsidiary;

          (e) Liens securing Debt existing on property or assets of the Company
     or any Restricted Subsidiary as of the date of this Agreement that are
     described in Schedule 10.3;

                                       22

<PAGE>
          (f) encumbrances in the nature of leases, subleases, zoning
     restrictions, easements, rights of way, minor survey exceptions and other
     rights and restrictions of record on the use of real property and defects
     in title arising or incurred in the ordinary course of business, which,
     individually and in the aggregate, do not materially impair the use of the
     property or assets subject thereto by the Company or such Restricted
     Subsidiary in their business or which relate only to assets that in the
     aggregate are not Material;

          (g) Liens (i) existing on property at the time of its acquisition by
     the Company or a Restricted Subsidiary and not created in contemplation
     thereof, whether or not the Debt secured by such Lien is assumed by the
     Company or a Restricted Subsidiary; or (ii) on property created
     contemporaneously with its acquisition or within 365 days of the
     acquisition or completion of construction or improvements thereof to secure
     or provide for all or a portion of the purchase price or cost of
     construction or improvements of such property after the date of Closing; or
     (iii) existing on property of a Person at the time such Person is merged or
     consolidated with, or becomes a Restricted Subsidiary of, or substantially
     all of its assets are acquired by, the Company or a Restricted Subsidiary
     and not created in contemplation thereof; provided in each case that such
     Liens do not extend to additional property of the Company or any Restricted
     Subsidiary (other than property that is an improvement to or is acquired
     for specific use in connection with the subject property) and that the
     aggregate principal amount of Debt secured by each such Lien does not
     exceed the cost of acquisition or construction of the property subject
     thereto;

          (h) Liens resulting from extensions, renewals or replacements of Liens
     permitted by paragraphs (d), (e) and (g), provided that (i) there is no
     increase in the principal amount or decrease in maturity of the Debt
     secured thereby at the time of such extension, renewal or replacement, (ii)
     any new Lien attaches only to the same property theretofore subject to such
     earlier Lien and (iii) immediately after such extension, renewal or
     replacement no Default or Event of Default would exist; and

          (i) Liens securing Debt not otherwise permitted by paragraphs (a)
     through (h) above, provided that, after giving effect to the incurrence of
     the Debt so secured, Priority Debt does not exceed 20% of Adjusted
     Consolidated Net Worth.

10.4. SALE OF ASSETS.

     Except as permitted by Section 10.5, the Company will not, and will not
permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose
of, including by way of merger (collectively a "Disposition"), any assets,
including capital stock of Restricted Subsidiaries, in one or a series of
transactions, to any Person, other than:

          (a) Dispositions in the ordinary course of business;

          (b) Dispositions by the Company to a Restricted Subsidiary or by a
     Restricted Subsidiary to the Company or a Restricted Subsidiary; or

          (c) Dispositions not otherwise permitted by Section 10.4(a) or (b),
     provided that:

                                       23

<PAGE>
               (i) the aggregate net book value of all assets disposed of in any
          fiscal year pursuant to this Section 10.4(c) does not exceed 10% of
          Consolidated Total Assets as of the end of the immediately preceding
          fiscal year; and

               (ii) at the time of such Disposition and after giving effect
          thereto no Default or Event of Default shall have occurred and be
          continuing.

Notwithstanding the foregoing, the Company may, or may permit any Restricted
Subsidiary to, make a Disposition and the assets subject to such Disposition
shall not be subject to or included in the foregoing limitation and computation
contained in Section 10.4(c)(ii) of the preceding sentence if

          (A) such assets are leased back by the Company or any Restricted
     Subsidiary, as lessee, within 365 days of the original acquisition or
     construction thereof by the Company or such Restricted Subsidiary; or

          (B) the net proceeds from such Disposition are within 365 days of such
     Disposition:

               (i) reinvested in productive assets used in carrying on the
          business of the Company and its Restricted Subsidiaries; or

               (ii) applied to the payment or prepayment of any outstanding Debt
          of the Company or any Restricted Subsidiary that is pari passu with or
          senior to the Notes, including the Notes.

Any prepayment of Notes pursuant to this Section 10.4 shall be in accordance
with Sections 8.2 and 8.3, without regard to the minimum prepayment requirements
of Section 8.2 if such proceeds are less than such minimum.

10.5. MERGERS, CONSOLIDATIONS, ETC.

     The Company will not, and will not permit any Restricted Subsidiary to,
consolidate with or merge with any other Person or convey, transfer, sell or
lease all or substantially all of its assets in a single transaction or series
of transactions to any Person except that:

          (a) the Company may consolidate or merge with any other Person or
     convey, transfer, sell or lease all or substantially all of its assets in a
     single transaction or series of transactions to any Person, provided that:

               (i) the successor formed by such consolidation or the survivor of
          such merger or the Person that acquires by conveyance, transfer, sale
          or lease all or substantially all of the assets of the Company as an
          entirety, as the case may be, is a solvent corporation organized and
          existing under the laws of the United States or any state thereof
          (including the District of Columbia), and, if the Company is not such
          corporation, such corporation (y) shall have executed and delivered to
          each holder of any Notes its assumption of the due and punctual
          performance and 

                                       24

<PAGE>
          observance of each covenant and condition of this Agreement and the
          Notes and (z) shall have caused to be delivered to each holder of any
          Notes an opinion of independent counsel reasonably satisfactory to the
          Required Holders, to the effect that all agreements or instruments
          effecting such assumption are enforceable in accordance with their
          terms and comply with the terms hereof; and

               (ii) immediately before and after giving effect to such
          transaction, no Default or Event of Default shall have occurred and be
          continuing; and

          (b) Any Restricted Subsidiary may (x) merge into the Company (provided
     that the Company is the surviving corporation) or a Restricted Subsidiary
     or (y) sell, transfer or lease all or any part of its assets to the Company
     or a Restricted Subsidiary, or (z) merge or consolidate with, or sell,
     transfer or lease all or substantially all of its assets to, any Person in
     a transaction that is permitted by Section 10.4 or, as a result of which,
     such Person becomes a Restricted Subsidiary; provided in each instance set
     forth in clauses (x) through (z) that, immediately before and after giving
     effect thereto, there shall exist no Default or Event of Default.

No such conveyance, transfer, sale or lease of all or substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.5 from its liability under this Agreement or the
Notes.

10.6. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES.

     The Company may designate any Restricted Subsidiary as an Unrestricted
Subsidiary and any Unrestricted Subsidiary as a Restricted Subsidiary by notice
in writing given to the holders of the Notes; provided that,

          (a) if such Subsidiary initially is designated a Restricted
     Subsidiary, then such Restricted Subsidiary may be subsequently designated
     as an Unrestricted Subsidiary and such Unrestricted Subsidiary may be
     subsequently designated as a Restricted Subsidiary, but no further changes
     in designation may be made;

          (b) if such Subsidiary initially is designated an Unrestricted
     Subsidiary, then such Unrestricted Subsidiary may be subsequently
     designated as a Restricted Subsidiary and such Restricted Subsidiary may be
     subsequently designated as an Unrestricted Subsidiary, but no further
     changes in designation may be made; and

          (c) the Company may not designate a Restricted Subsidiary as an
     Unrestricted Subsidiary unless: (i) such Restricted Subsidiary does not
     own, directly or indirectly, any Debt or capital stock of the Company or
     any other Restricted Subsidiary, (ii) such designation, considered as a
     sale of assets, is permitted pursuant to Section 10.4, and (iii)
     immediately before and after such designation there exists no Default or
     Event of Default. 

                                       25

<PAGE>
10.7. NATURE OF BUSINESS.

     The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business if, as a result, the general nature of the business in
which the Company and its Restricted Subsidiaries, taken as a whole, would then
be engaged would be substantially changed from the general nature of the
business in which the Company and its Restricted Subsidiaries, taken as a whole,
are engaged on the date of this Agreement as described in the Memorandum.

10.8. TRANSACTIONS WITH AFFILIATES.

     The Company will not and will not permit any Restricted Subsidiary to enter
into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except in
the ordinary course of the Company's or such Restricted Subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate.

11.  EVENTS OF DEFAULT.

     An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:

          (a) the Company defaults in the payment of any principal or LIBOR
     Breakage Amount, if any, on any Series 2003-A Note when the same becomes
     due and payable, whether at maturity or at a date fixed for prepayment or
     by declaration or otherwise; or

          (b) the Company defaults in the payment of any interest on any Series
     2003-A Note for more than five Business Days after the same becomes due and
     payable; or

          (c) the Company defaults in the performance of or compliance with any
     term contained in Sections 10.1 through 10.5; or

          (d) the Company defaults in the performance of or compliance with any
     term contained herein (other than those referred to in paragraphs (a), (b)
     and (c) of this Section 11) and such default is not remedied within 30 days
     after the earlier of (i) a Responsible Officer obtaining actual knowledge
     of such default or (ii) the Company receiving written notice of such
     default from any holder of a Note; or

          (e) any representation or warranty made in writing by or on behalf of
     the Company or by any officer of the Company in this Agreement or in any
     writing furnished in connection with the transactions contemplated hereby
     or thereby proves to have been false or incorrect in any material respect
     on the date as of which made; or

          (f) (i) the Company or any Restricted Subsidiary is in default (as
     principal or as guarantor or other surety) in the payment of any principal
     of or premium or make-whole amount or interest in excess of $100,000 on any
     Debt that is outstanding in an 

                                       26

<PAGE>
     aggregate principal amount greater than 5% of Adjusted Consolidated Net
     Worth beyond any period of grace provided with respect thereto, or (ii) the
     Company or any Restricted Subsidiary is in default in the performance of or
     compliance with any term of any evidence of any Debt that is outstanding in
     an aggregate principal amount greater than 5% of Adjusted Consolidated Net
     Worth or of any mortgage, indenture or other agreement relating thereto or
     any other condition exists, and as a consequence of such default or
     condition such Debt has become, or has been declared, due and payable
     before its stated maturity or before its regularly scheduled dates of
     payment, or (iii) as a consequence of the occurrence or continuation of any
     event or condition (other than the passage of time or the right of the
     holder of Debt to convert such Debt into equity interests), the Company or
     any Restricted Subsidiary has become obligated to purchase or repay Debt in
     an aggregate principal amount greater than 5% of Adjusted Consolidated Net
     Worth before its regular maturity or before its regularly scheduled dates
     of payment; or

          (g) the Company or any Material Subsidiary (i) is generally not
     paying, or admits in writing its inability to pay, its debts as they become
     due, (ii) files, or consents by answer or otherwise to the filing against
     it of, a petition for relief or reorganization or arrangement or any other
     petition in bankruptcy, for liquidation or to take advantage of any
     bankruptcy, insolvency, reorganization, moratorium or other similar law of
     any jurisdiction, (iii) makes an assignment for the benefit of its
     creditors, (iv) consents to the appointment of a custodian, receiver,
     trustee or other officer with similar powers with respect to it or with
     respect to any substantial part of its property, (v) is adjudicated as
     insolvent or to be liquidated, or (vi) takes corporate action for the
     purpose of any of the foregoing; or

          (h) a court or governmental authority of competent jurisdiction enters
     an order appointing, without consent by the Company or any Material
     Subsidiary, a custodian, receiver, trustee or other officer with similar
     powers with respect to it or with respect to any substantial part of its
     property, or constituting an order for relief or approving a petition for
     relief or reorganization or any other petition in bankruptcy or for
     liquidation or to take advantage of any bankruptcy or insolvency law of any
     jurisdiction, or ordering the dissolution, winding-up or liquidation of the
     Company or any Material Subsidiary, or any such petition shall be filed
     against the Company or any Material Subsidiary and such petition shall not
     be dismissed within 60 days; or

          (i) a final judgment or judgments for the payment of money aggregating
     more than 5% of Adjusted Consolidated Net Worth are rendered against one or
     more of the Company and its Restricted Subsidiaries, which judgments are
     not, within 60 days after entry thereof, bonded, discharged or stayed
     pending appeal, or are not discharged within 60 days after the expiration
     of such stay; or

          (j) if (i) any Plan shall fail to satisfy the minimum funding
     standards of ERISA or the Code for any plan year or part thereof or a
     waiver of such standards or extension of any amortization period is sought
     or granted under section 412 of the Code, (ii) a notice of intent to
     terminate any Plan shall have been or is reasonably expected to be filed
     with the PBGC or the PBGC shall have instituted proceedings under ERISA

                                       27

<PAGE>
     section 4042 to terminate or appoint a trustee to administer any Plan or
     the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
     may become a subject of any such proceedings, (iii) the aggregate "amount
     of unfunded benefit liabilities" (within the meaning of section 4001(a)(18)
     of ERISA) under all Plans determined in accordance with Title IV of ERISA,
     shall be more than 5% of Adjusted Consolidated Net Worth, (iv) the Company
     or any ERISA Affiliate shall have incurred or is reasonably expected to
     incur any liability pursuant to Title I or IV of ERISA or the penalty or
     excise tax provisions of the Code relating to employee benefit plans, (v)
     the Company or any ERISA Affiliate withdraws from any Multiemployer Plan,
     or (vi) the Company or any Subsidiary establishes or amends any employee
     welfare benefit plan that provides post-employment welfare benefits in a
     manner that would increase the liability of the Company or any Subsidiary
     thereunder; and any such event or events described in clauses (i) through
     (vi) above, either individually or together with any other such event or
     events, could reasonably be expected to have a Material Adverse Effect.

As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.

12.  REMEDIES ON DEFAULT, ETC.

12.1. ACCELERATION.

          (a) If an Event of Default with respect to the Company described in
     paragraph (g) or (h) of Section 11 (other than an Event of Default
     described in clause (i) of paragraph (g) or described in clause (vi) of
     paragraph (g) by virtue of the fact that such clause encompasses clause (i)
     of paragraph (g)) has occurred, all the Series 2003-A Notes then
     outstanding shall automatically become immediately due and payable.

          (b) If any other Event of Default has occurred and is continuing,
     holders of a majority or more in principal amount of the Series 2003-A
     Notes at the time outstanding may at any time at its or their option, by
     notice or notices to the Company, declare all the Series 2003-A Notes then
     outstanding to be immediately due and payable.

          (c) If any Event of Default described in paragraph (a) or (b) of
     Section 11 has occurred and is continuing, any holder or holders of Notes
     at the time outstanding affected by such Event of Default may at any time,
     at its or their option, by notice or notices to the Company, declare all
     the Series 2003-A Notes held by it or them to be immediately due and
     payable.

     Upon any Series 2003-A Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Series 2003-A Notes will
forthwith mature and the entire unpaid principal amount of such Series 2003-A
Notes, plus (x) all accrued and unpaid interest thereon and (y) any LIBOR
Breakage Amount determined in respect of such principal amount, shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived.

                                       28

<PAGE>
12.2. OTHER REMEDIES.

     If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Series 2003-A Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any
Series 2003-A Note at the time outstanding may proceed to protect and enforce
the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any Series 2003-A Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise.


12.3. RESCISSION.

     At any time after any Series 2003-A Notes have been declared due and
payable pursuant to clause (b) or (c) of Section 12.1, the holders of a majority
in principal amount of the Series 2003-A Notes then outstanding, by written
notice to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Series
2003-A Notes, all principal of, and LIBOR Breakage Amount, if any, on any Series
2003-A Notes that are due and payable and are unpaid other than by reason of
such declaration, and all interest on such overdue principal and LIBOR Breakage
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Series 2003-A Notes, at the Default Rate, (b) all
Events of Default and Defaults, other than non-payment of amounts that have
become due solely by reason of such declaration, have been cured or have been
waived pursuant to Section 17, and (c) no judgment or decree has been entered
for the payment of any monies due pursuant hereto or to the Series 2003-A Notes.
No rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.


12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.

     No course of dealing and no delay on the part of any holder of any Series
2003-A Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Series 2003-A Note
upon any holder thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise. Without limiting the obligations of the Company under
Section 15, the Company will pay to the holder of each Series 2003-A Note on
demand such further amount as shall be sufficient to cover all costs and
expenses of such holder incurred in any enforcement or collection under this
Section 12, including reasonable attorneys' fees, expenses and disbursements.


13.  REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

13.1. REGISTRATION OF NOTES.

     The Company shall keep at its principal executive office a register for the
registration and registration of transfers of Notes of each series. The name and
address of each 

                                       29

<PAGE>

holder of one or more Notes, each transfer thereof and the name and address of
each transferee of one or more Notes shall be registered in such register. Prior
to due presentment for registration of transfer, the Person in whose name any
Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note of a series that is an Institutional Investor, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes of such series.


13.2. TRANSFER AND EXCHANGE OF NOTES.

     Upon surrender of any Note at the principal executive office of the Company
for registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or his attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new Notes (as
requested by the holder thereof) of the same series in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1(a). Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $500,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $500,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representations and agreement set forth in
Section 6.


13.3. REPLACEMENT OF NOTES.

     Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and

          (a) in the case of loss, theft or destruction, of indemnity reasonably
     satisfactory to it (provided that if the holder of such Note is, or is a
     nominee for, an original Purchaser or another Institutional Investor holder
     of a Note with a minimum net worth of at least $50,000,000, such Person's
     own unsecured agreement of indemnity shall be deemed to be satisfactory),
     or

          (b) in the case of mutilation, upon surrender and cancellation
     thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same series, dated and bearing interest from the date to which
interest shall have been paid on

                                       30

<PAGE>

such lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.


14.  PAYMENTS ON NOTES.

14.1. PLACE OF PAYMENT.

     Subject to Section 14.2, payments of principal, LIBOR Breakage Amount, if
any, and interest becoming due and payable on the Notes shall be made in
Chicago, Illinois at the principal office of Bank of America in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.


14.2. HOME OFFICE PAYMENT.

     So long as you or your nominee shall be the holder of any Series 2003-A
Note, and notwithstanding anything contained in Section 14.1 or in such Series
2003-A Note to the contrary, the Company will pay all sums becoming due on such
Note for principal, LIBOR Breakage Amount, if any, and interest by the method
and at the address specified for such purpose below your name in Schedule A, or
by such other method or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1. Prior
to any sale or other disposition of any Series 2003-A Note held by you or your
nominee you will, at your election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid thereon
or surrender such Note to the Company in exchange for a new Note or Notes
pursuant to Section 13.2. The Company will afford the benefits of this Section
14.2 to any Institutional Investor that is the direct or indirect transferee of
any Note purchased by you under this Agreement and that has made the same
agreement relating to such Note as you have made in this Section 14.2.


15.  EXPENSES, ETC.

15.1. TRANSACTION EXPENSES.

     Whether or not the transactions contemplated hereby are consummated, the
Company will pay all costs and expenses (including reasonable attorneys' fees of
one special counsel and, if reasonably required, local or other counsel)
incurred by you and each Other Purchaser or holder of a Series 2003-A Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Series 2003-A Notes
(whether or not such amendment, waiver or consent becomes effective), including:
(a) the costs and expenses incurred in enforcing or defending (or determining
whether or how to enforce or defend) any rights under this Agreement or the
Series 2003-A Notes or in 

                                       31

<PAGE>

responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the Series 2003-A Notes, or
by reason of being a holder of any Series 2003-A Note, and (b) the costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection with
any work-out or restructuring of the transactions contemplated hereby and by the
Series 2003-A Notes. The Company will pay, and will save you and each other
holder of a Series 2003-A Note harmless from, all claims in respect of any fees,
costs or expenses if any, of brokers and finders (other than those retained by
you).


15.2. SURVIVAL.

     The obligations of the Company under this Section 15 will survive the
payment or transfer of any Series 2003-A Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Series 2003-A Notes, and the
termination of this Agreement.


16.  SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

     All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Series 2003-A Notes, the
purchase or transfer by you of any Series 2003-A Note or portion thereof or
interest therein and the payment of any Series 2003-A Note, and may be relied
upon by any subsequent holder of a Series 2003-A Note, regardless of any
investigation made at any time by or on behalf of you or any other holder of a
Series 2003-A Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Series
2003-A Notes embody the entire agreement and understanding between you and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.


17.  AMENDMENT AND WAIVER.

17.1. REQUIREMENTS.

     This Agreement and the Series 2003-A Notes may be amended, and the
observance of any term hereof or of the Series 2003-A Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Company and the Required Holders, except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to you unless
consented to by you in writing, and (b) no such amendment or waiver may, without
the written consent of the holder of each Series 2003-A Note at the time
outstanding affected thereby, (i) subject to the provisions of Section 12
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or reduce the rate or change the time of
payment or method of computation of interest or of the LIBOR Breakage Amount on,
the Notes, (ii) change the percentage of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, or
(iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.

                                       32

<PAGE>

17.2. SOLICITATION OF HOLDERS OF NOTES.

          (a) Solicitation. The Company will provide each holder of the Series
     2003-A Notes (irrespective of the amount of Series 2003-A Notes then owned
     by it) with sufficient information, sufficiently far in advance of the date
     a decision is required, to enable such holder to make an informed and
     considered decision with respect to any proposed amendment, waiver or
     consent in respect of any of the provisions hereof or of the Series 2003-A
     Notes. The Company will deliver executed or true and correct copies of each
     amendment, waiver or consent effected pursuant to the provisions of this
     Section 17 to each holder of outstanding Series 2003-A Notes promptly
     following the date on which it is executed and delivered by, or receives
     the consent or approval of, the requisite holders of Notes.

          (b) Payment. The Company will not directly or indirectly pay or cause
     to be paid any remuneration, whether by way of supplemental or additional
     interest, fee or otherwise, or grant any security, to any holder of Series
     2003-A Notes as consideration for or as an inducement to the entering into
     by any holder of Series 2003-A Notes or any waiver or amendment of any of
     the terms and provisions hereof unless such remuneration is concurrently
     paid, or security is concurrently granted, on the same terms, ratably to
     each holder of Notes then outstanding even if such holder did not consent
     to such waiver or amendment.


17.3. BINDING EFFECT, ETC.

     Any amendment or waiver consented to as provided in this Section 17 applies
equally to all holders of Series 2003-A Notes and is binding upon them and upon
each future holder of any Note and upon the Company without regard to whether
such Series 2003-A Note has been marked to indicate such amendment or waiver. No
such amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Series 2003-A Note nor any delay in exercising any rights
hereunder or under any Series 2003-A Note shall operate as a waiver of any
rights of any holder of such Series 2003-A Note. As used herein, the term "this
Agreement" or "the Agreement" and references thereto shall mean this Agreement
as it may from time to time be amended or supplemented.


17.4. SERIES 2003-A NOTES HELD BY COMPANY, ETC.

     Solely for the purpose of determining whether the holders of the requisite
percentage of the aggregate principal amount of Series 2003-A Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Series 2003-A Notes, or have directed the
taking of any action provided herein or in the Notes to be taken upon the
direction of the holders of a specified percentage of the aggregate principal
amount of Series 2003-A Notes then outstanding, Series 2003-A Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not to
be outstanding.

                                       33

<PAGE>

18.  NOTICES.

     All notices and communications provided for hereunder shall be in writing
and sent (a) by facsimile if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:

          (i) if to you or your nominee, to you or it at the address specified
     for such communications in Schedule A, or at such other address as you or
     it shall have specified to the Company in writing,

          (ii) if to any other holder of any Series 2003-A Note, to such holder
     at such address as such other holder shall have specified to the Company in
     writing, or

          (iii) if to the Company, to the Company at its address set forth at
     the beginning hereof to the attention of the Chief Financial Officer, or at
     such other address as the Company shall have specified to the holder of
     each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.


19.  REPRODUCTION OF DOCUMENTS.

     This Agreement and all documents relating thereto, including (a) consents,
waivers and modifications that may hereafter be executed, (b) documents received
by you at the Closing (except the Series 2003-A Notes themselves), and (c)
financial statements, certificates and other information previously or hereafter
furnished to you, may be reproduced by you by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process and you
may destroy any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Series 2003-A Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.


20.  CONFIDENTIAL INFORMATION.

     For the purposes of this Section 20, "Confidential Information" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary or confidential in nature and that was clearly
marked or labeled or otherwise adequately identified when received by you as
being confidential information of the Company or such Subsidiary, provided that
such term does not include information that (a) was publicly known or 

                                       34

<PAGE>

otherwise known to you prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by you or any person acting on
your behalf, (c) otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or from a third party that was not known to you to
be prohibited from making such disclosure or (d) constitutes financial
statements delivered to you under Section 7.1 that are otherwise publicly
available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your directors,
trustees, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20, (iii) any other
holder of any Note, (iv) any Institutional Investor to which you sell or offer
to sell such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from which you offer to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.


21.  SUBSTITUTION OF PURCHASER.

     You shall have the right to substitute any one of your Affiliates as the
purchaser of the Series 2003-A Notes that you have agreed to purchase hereunder,
by written notice to the Company, which notice shall be signed by both you and
such Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such 

                                       35

<PAGE>

word shall no longer be deemed to refer to such Affiliate, but shall refer to
you, and you shall have all the rights of an original holder of the Notes under
this Agreement.


22.  MISCELLANEOUS.

22.1. SUCCESSORS AND ASSIGNS.

     All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including any subsequent holder of a Series
2003-A Note) whether so expressed or not.


22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.

     Anything in this Agreement or the Series 2003-A Notes to the contrary
notwithstanding, any payment of principal of, LIBOR Breakage Amount or interest
on, any Series 2003-A Note that is due on a date other than a Business Day shall
be made on the next succeeding Business Day without including the additional
days elapsed in the computation of the interest payable on such next succeeding
Business Day.


22.3. SEVERABILITY.

     Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.


22.4. CONSTRUCTION.

     Each covenant contained herein shall be construed (absent express provision
to the contrary) as being independent of each other covenant contained herein,
so that compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.


22.5. COUNTERPARTS.

     This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one instrument.
Each counterpart may consist of a number of copies hereof, each signed by less
than all, but together signed by all, of the parties hereto.


22.6. GOVERNING LAW.

     This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law

                                       36

<PAGE>

principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State.

22.7. Limitation on Interest.

     The Company and you intend to contract in strict compliance with applicable
usury laws in effect from time to time. None of the terms and provisions of this
Agreement or the Notes shall ever be construed to create a contract to pay, for
the use, forbearance or detention of money, interest in excess of the maximum
amount of interest permitted to be contracted for, charged or received under
applicable law in effect from time to time. This Agreement, the Notes and any
other agreement between the Company and you, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of demand for payment or acceleration of maturity
or otherwise, shall the interest contracted for, charged or received by any
holder of a Note exceed the maximum amount permissible under applicable law. If
for any reason, interest would otherwise be payable to any holder of a Note in
excess of the maximum lawful amount, the interest payable to such holder shall
be reduced to the maximum amount permitted under applicable law; and if for any
reason any holder of a Note shall ever receive anything of value deemed interest
under applicable law in excess of the maximum lawful amount, an amount equal to
any excessive interest shall be applied to the reduction of the principal of the
indebtedness and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal balance, such excess shall be refunded to the
Company. In determining whether or not the interest paid or payable to any
holder of a Note, under any specific contingency, exceeds the maximum amount
permitted under applicable law, the Company (and any other payor) and such
holder shall to the greatest extent permitted under applicable law (a)
characterize any non-principal payment as an expense, fee or premium rather than
interest, (b) exclude voluntary prepayments and the effects thereof and (c)
amortize, prorate, allocate and spread the total amount of interest throughout
the entire period until payment in full of the principal (including the period
of any renewal or extension) in accordance with the amounts outstanding from
time to time in order to lawfully charge the maximum amount of interest
permitted under applicable law. The term "applicable law" as used herein shall
mean the law of the state that governs this Agreement and the Notes (or
applicable United States federal law, to the extent that it permits a holder of
a Note to contract for, charge or receive a greater amount of interest than
under applicable state law). The provisions of this section shall control all
agreements between the Company and you.

                                       37

<PAGE>
     If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.



                                          Very truly yours,

                                          KIRBY CORPORATION


                                          By: /s/ Norman W. Nolen
                                              --------------------------------
                                          Name:  Norman W. Nolen
                                          Title: Executive Vice President, Chief
                                                 Financial Officer and Treasurer

                                      S-1

<PAGE>

The foregoing is agreed 
to as of the date thereof.

METROPOLITAN LIFE INSURANCE COMPANY

METLIFE BANK, NATIONAL ASSOCIATION
By: Metropolitan Life Insurance Company, as
    investment manager

By: /s/ Timothy L. Powell
    ------------------------------
Name:  Timothy L. Powell
Title: Director

(executed by Metropolitan Life Insurance Company
(i) as to itself as a Purchaser and (ii) as investment 
manager to MetLife Bank, National Association, as
a Purchaser)

                                      S-2

<PAGE>

AIG SUNAMERICA LIFE ASSURANCE COMPANY

SUNAMERICA LIFE INSURANCE COMPANY

By: AIG Global Investment Corp.,
    investment adviser


    By: /s/ Victoria Y. Chin
        ------------------------------
    Name:  Victoria Y. Chin
    Title: Vice President

                                      S-3

<PAGE>


MONUMENTAL LIFE INSURANCE COMPANY


By: /s/ Bill Henricksen
    -----------------------------
Name:  Bill Henricksen
Title: Vice President

                                      S-4

<PAGE>

JACKSON NATIONAL LIFE INSURANCE
 COMPANY
By: PPM America, Inc., as attorney in fact, on 
behalf of Jackson National Life Insurance Company

By: /s/ Chris Raub
    ---------------------------
Name:  Chris Raub
Title: Senior Managing Director



JACKSON NATIONAL LIFE INSURANCE
 COMPANY OF NEW YORK
By: PPM America, Inc., as attorney in fact, on
behalf of Jackson National Life Insurance Company
of New York

By: /s/ Chris Raub
    ---------------------------
Name:  Chris Raub
Title: Senior Managing Director 

                                      S-5

<PAGE>

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

By: CIGNA Investments, Inc. (authorized agent)


By: /s/ Deborah B. Wiacek
    ------------------------------
Name:  Deborah B. Wiacek
Title: Managing Director

                                      S-6

<PAGE>


HARTFORD LIFE INSURANCE COMPANY

By: Hartford Investment Services, Inc.
      Its Agent and Attorney-in-Fact


By: /s/ Kurt H. Nyman
    ---------------------------
Name:  Kurt H. Nyman
Title: Vice President

                                      S-7

<PAGE>

AMERICAN EXPRESS CERTIFICATE COMPANY


By: /s/ Lorraine R. Hart
    ------------------------
Name:  Lorraine R. Hart
Title: Vice President- Investments

                                      S-8

<PAGE>

UNITED OF OMAHA LIFE INSURANCE COMPANY


By: /s/ Edwin H. Garrison, Jr.
    --------------------------
Name:  Edwin H. Garrison, Jr.
Title: First Vice President

                                      S-9

<PAGE>
                                                                      SCHEDULE B

                                  DEFINED TERMS

          As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:

          "ADJUSTED CONSOLIDATED NET WORTH" means, as of any date, consolidated
stockholders' equity of the Company and its Restricted Subsidiaries on such
date, less (a) minority interests in Restricted Subsidiaries and (b) the amount
by which outstanding Restricted Investments on such date exceed 20% of
consolidated stockholders' equity of the Company and its Restricted Subsidiaries
on such date; provided, however, that the effects on consolidated stockholders'
equity of any changes recorded by the Company and its Restricted Subsidiaries
related to the impairment of goodwill and other intangibles as may be required
under Statement of Financial Accounting Standards No. 142 shall not be taken
into account in determining Adjusted Consolidated Net Worth.

          "ADJUSTED LIBOR RATE" is defined in Section 1.2(b).

          "AFFILIATE" means, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company. Notwithstanding anything in the
foregoing to the contrary, a Person that (i) would be an Affiliate of the
Company solely by virtue of its ownership of voting or equity interests of the
Company and (ii) is eligible pursuant to Rule 13d-1(b) under the Exchange Act to
file a statement with the Securities and Exchange Commission on Schedule 13G,
shall not be deemed to be an Affiliate.

          "ANTI-TERRORISM ORDER" means Executive Order 13224 of September 23,
2001 Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)).

          "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in London,
England are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in Chicago, Illinois or New York City are required
or authorized to be closed.

                                       1

                                   Schedule B


<PAGE>

          "CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

          "CLOSING" is defined in Section 3.

          "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.

          "COMPANY" means Kirby Corporation, a Nevada corporation.

          "CONFIDENTIAL INFORMATION" is defined in Section 20.

          "CONSOLIDATED DEBT" means, as of any date, outstanding Debt of the
Company and its Restricted Subsidiaries as determined on a consolidated basis in
accordance with GAAP.

          "CONSOLIDATED EBITDA" means, for any period, the sum of Consolidated
Net Income for such period, plus, to the extent deducted in determining such
Consolidated Net Income, (i) federal, state, local and foreign income,
franchise, value added and similar taxes, (ii) Consolidated Interest Expense,
(iii) depreciation and amortization expense and (iv) other non-cash charges.
Solely for purposes of Section 10.1(a), if, during the period for which
Consolidated EBITDA is being calculated, the Company or a Restricted Subsidiary
has (i) acquired one or more Persons (or the assets thereof), Consolidated
EBITDA shall be calculated on a pro forma basis as if all of such acquisitions
(other than acquisitions by or resulting in Unrestricted Subsidiaries) had
occurred on the first day of such period.

          "CONSOLIDATED INTEREST EXPENSE" means, for any period, the
consolidated interest expense of the Company and its Restricted Subsidiaries for
such period determined in accordance with GAAP.

          "CONSOLIDATED NET INCOME" means, for any period, the net income or
loss of the Company and its Restricted Subsidiaries for such period (including,
without duplication, income attributed to minority interests) determined on a
consolidated basis in accordance with GAAP.

          "CONSOLIDATED TOTAL ASSETS" means, as of any date, the assets and
properties of the Company and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.

          "DEBT" with respect to any Person means, at any time, without
duplication,

          (a) its liabilities for borrowed money;

          (b) its liabilities for the deferred purchase price of property
     acquired by such Person (excluding accounts payable and other accrued
     liabilities arising in the ordinary course of business but including all
     liabilities created or arising under any conditional sale or other title
     retention agreement with respect to any such property);

                                       2

                                   Schedule B


<PAGE>

          (c) all liabilities appearing on its balance sheet in accordance with
     GAAP in respect of Capital Leases;

          (d) all liabilities for borrowed money secured by any Lien with
     respect to any property owned by such Person (whether or not it has assumed
     or otherwise become liable for such liabilities); and

          (e) any Guaranty of such Person with respect to liabilities of a type
     described in any of clauses (a) through (d) hereof.

          "DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.

          "DEFAULT RATE" means that rate of interest that is 2% per annum above
the rate of interest calculated pursuant to Section 1.2(c).

          "DISPOSITION" is defined in Section 10.4.

          "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.

          "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.

          "EVENT OF DEFAULT" is defined in Section 11.

          "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

          "GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.

          "GOVERNMENTAL AUTHORITY" means

          (a)  the government of

               (i) the United States of America or any State or other political
          subdivision thereof, or

                                       3

                                   Schedule B


<PAGE>

               (ii) any jurisdiction in which the Company or any Subsidiary
          conducts all or any part of its business, or which asserts
          jurisdiction over any properties of the Company or any Subsidiary, or

          (b) any entity exercising executive, legislative, judicial, regulatory
     or administrative functions of, or pertaining to, any such government.

          "GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:

          (a) to purchase such indebtedness or obligation or any property
     constituting security therefor;

          (b) to advance or supply funds (i) for the purchase or payment of such
     indebtedness or obligation, or (ii) to maintain any working capital or
     other balance sheet condition or any income statement condition of any
     other Person or otherwise to advance or make available funds for the
     purchase or payment of such indebtedness or obligation;

          (c) to lease properties or to purchase properties or services
     primarily for the purpose of assuring the owner of such indebtedness or
     obligation of the ability of any other Person to make payment of the
     indebtedness or obligation; or

          (d) otherwise to assure the owner of such indebtedness or obligation
     against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

          "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls).

          "HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.

          "INHAM EXEMPTION" is defined in Section 6.2(e).

                                       4

                                   Schedule B


<PAGE>

          "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of more than $2,000,000 in aggregate principal amount of the
Notes at the time outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.

          "INTEREST PAYMENT DATE" means, with respect to any Note, the dates
specified in the form of such Note on which interest is to be paid and, with
respect to the Series 2003-A Notes, means the dates specified in Exhibit 1.2.

          "INTEREST PERIOD" is defined in Section 1.2(d).

          "INVESTMENTS" means all investments made, in cash or by delivery of
property, directly or indirectly, by any Person, in any other Person, whether by
acquisition of shares of capital stock, indebtedness or other obligations or
securities or by loan, Guaranty, advance, capital contribution or otherwise.

          "LIBOR" is defined in Section 1.2(b).

          "LIBOR BREAKAGE AMOUNT" is defined in Section 8.6.

          "LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).

          "MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Company and its
Restricted Subsidiaries taken as a whole.

          "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of
the Company to perform its obligations under this Agreement and the Notes, or
(c) the validity or enforceability of this Agreement or the Notes.

          "MATERIAL SUBSIDIARY" means, at any time, any Restricted Subsidiary
that would at such time account for more than 5% of (i) Consolidated Total
Assets as of the end of the most recently completed fiscal quarter or (ii)
consolidated revenue of the Company and its Restricted Subsidiaries for the four
fiscal quarters ending as of the end of the most recently completed fiscal
quarter.

          "MEMORANDUM" is defined in Section 5.3.

                                       5

                                   Schedule B


<PAGE>

          "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).

          "NOTES" is defined in Section 1.1.

          "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.

          "OTHER PURCHASERS" is defined in Section 2.

          "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

          "PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.

          "PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.

          "PRIORITY DEBT" means, as of any date, the sum (without duplication)
of (a) outstanding unsecured Debt of Restricted Subsidiaries other than (i) Debt
owed to the Company or another Restricted Subsidiary and (ii) Debt of a Person
that is not an Unrestricted Subsidiary outstanding at the time it becomes a
Restricted Subsidiary, provided that such Debt was not incurred in contemplation
of such Person becoming a Restricted Subsidiary and (b) Debt of the Company and
its Restricted Subsidiaries secured by Liens not otherwise permitted by Sections
10.3(a) through (h).

          "PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.

          "PURCHASER" means each purchaser listed in Schedule A.

          "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.

          "REQUIRED HOLDERS" means, at any time, the holders of at least a
majority in principal amount of the Series 2003-A Notes at the time outstanding
(exclusive of Series 2003-A Notes then owned by the Company or any of its
Affiliates).

                                       6

                                   Schedule B


<PAGE>

          "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.

          "RESTRICTED INVESTMENTS" means all Investments of the Company and its
Restricted Subsidiaries, other than:

          (a) property or assets to be used or consumed in the ordinary course
     of business;

          (b) current assets arising from the sale of goods or services in the
     ordinary course of business;

          (c) Investments in Restricted Subsidiaries or in any Person that, as a
     result thereof, becomes a Restricted Subsidiary;

          (d) Investments in common stock of the Company;

          (e) Investments existing as of the date of this Agreement that are
     listed in the attached Schedule B-1; and

          (f) Investments in:

               (i) obligations, maturing within one year from the date of
          acquisition, of or fully guaranteed by the United States of America,
          or an agency thereof, or Canada, or any province thereof;

               (ii) state, or municipal securities having an effective maturity
          within one year from the date of acquisition that are rated in one of
          the top two rating classifications by at least one nationally
          recognized rating agency;

               (iii) certificates of deposit or banker's acceptances maturing
          within one year from the date of acquisition of or issued by
          commercial banks whose long-term unsecured debt obligations (or the
          long-term unsecured debt obligations of the bank holding company
          owning all of the capital stock of such bank) are rated in one of the
          top two rating classifications by at least one nationally recognized
          rating agency;

               (iv) commercial paper maturing within 270 days from the date of
          issuance that, at the time of acquisition, is rated in one of the top
          two rating classifications by at least one credit rating agency of
          recognized national standing;

               (v) repurchase agreements; and

               (vi) money market instrument programs that are properly
          classified as current assets in accordance with GAAP.

                                       7

                                   Schedule B


<PAGE>

          "RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which at least a
majority of the voting securities are owned by the Company and/or one or more
Restricted Subsidiaries and (b) that the Company has not designated an
Unrestricted Subsidiary by notice in writing given to the holders of the Notes
pursuant to Section 10.6.

          "REUTERS SCREEN LIBO PAGE" is defined in Section 1.2(b).

          "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.

          "SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.

          "SERIES 2003-A NOTES" is defined in Section 1.2.

          "SOURCE" is defined in Section 6.2.

          "SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership, limited liability
company or joint venture if more than a 50% interest in the profits or capital
thereof is owned by such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries (unless such partnership, limited
liability company or joint venture can and does ordinarily take major business
actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.

          "THIS AGREEMENT" OR "THE AGREEMENT" is defined in Section 17.3.

          "USA PATRIOT ACT" means Public Law 107-56 of the United States of
America, United and Strengthening America by Providing Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.

          "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has
been so designated by notice in writing given to the holders of the Notes.

                                       8

                                   Schedule B


<PAGE>
                                                                     EXHIBIT 1.2



                          [FORM OF SERIES 2003-A NOTE]


                                KIRBY CORPORATION

                            FLOATING RATE SENIOR NOTE
                      SERIES 2003-A, DUE FEBRUARY 28, 2013


No. [_____]                                                               [Date]
$[_______]                                                      PPN: 497266 A* 7

          FOR VALUE RECEIVED, the undersigned, KIRBY CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the State
of Nevada, promises to pay to [ ], or registered assigns, the principal sum of
$[ ] on February 28, 2013, with interest (computed on the basis of a 360-day
year and the actual number of days elapsed) (a) on the unpaid principal thereof
at a floating rate equal to the Adjusted LIBOR Rate from time to time, payable
quarterly on each February 28, May 28, August 28 and November 28, commencing
with the February, May, August or November next succeeding the date hereof until
the principal shall have become due and payable, and (b) to the extent permitted
by law on any overdue payment (including any overdue prepayment) of principal,
any overdue payment of interest and any overdue payment of any LIBOR Breakage
Amount at the Default Rate until paid.

          Payments of principal of, interest on and any LIBOR Breakage Amount
with respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America in Chicago, Illinois or at
such other place as the Company shall have designated by written notice to the
holder of this Note as provided in the Note Purchase Agreement referred to
below.

          This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to a Note Purchase Agreement dated as of February 15,
2003 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Reference is made to the Note Purchase Agreement for the
definitions used herein and the method of calculating the interest and other
payments to be made or in respect of this Note. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to
have made the representations and agreement set forth in Section 6 of the Note
Purchase Agreement.

          This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's 

                                  Exhibit 1.2


<PAGE>

attorney duly authorized in writing, a new Note for a like principal amount will
be issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.

          This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement but not otherwise.

          If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable LIBOR Breakage Amount) and with the effect provided in the Note
Purchase Agreement.

          Notwithstanding any other provision of this Note or the Note Purchase
Agreement, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest that may be charged on this Note
under applicable law, and this Note is expressly made subject to the provisions
of the Note Purchase Agreement which more fully set out the limitations on how
interest may be accrued, charged or paid on this Note.

          This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.



                                            KIRBY CORPORATION


                                            By:
                                                --------------------------------
                                            Name:
                                            Title:

                                       2

                                  Exhibit 1.2


<PAGE>
                                                                   Exhibit 10.20


                                KIRBY CORPORATION


                    Nonemployee Director Compensation Program

Annual Director Fee

     1. Each director will receive an annual fee of $20,000, payable in four
equal quarterly payments to be made at the end of each calendar quarter, unless
the director elects to receive a stock option for shares of Kirby common stock
in lieu of all or part of the cash fee. The fee will be prorated for any
director elected between annual stockholder meetings.

     2. The election to receive a stock option in lieu of director fees will be
made annually. Any director who elects to receive a stock option in lieu of all
or part of the annual fee for the year following any annual meeting of
stockholders must give written notice of that election to Kirby no later than
the date of such annual meeting, except that a director elected between annual
stockholder meetings must give written notice of that election to Kirby no later
than the date of his or her election as a director. Directors who elect to
receive a stock option in lieu of all or part of the unpaid portion of the
annual fee for the year in which this program becomes effective must give
written notice of that election to Kirby no later than September 29, 2000.

     3. The stock option
 shall be issued on the following terms:

          (a) The number of shares of stock subject to the option will be equal
     to (i) the portion of the annual fee that a director elects to receive in
     the form of a stock option divided by (ii) the fair market value of a share
     of stock on the date of grant multiplied by (iii) 3, with the result then
     rounded to the nearest whole share.

          (b) The exercise price will be the fair market value on the date of
     grant. The fair market value of a share of stock means the mean of the high
     and low sales price on the New York Stock Exchange on the date of
     reference. The date of grant of an option granted in lieu of the annual fee
     means the date by which a director must make the election to receive the
     option in lieu of cash fees.

          (c) The option will vest one-fourth on the first quarterly payment
     date, one-fourth on the second quarterly payment date, one-fourth on the
     third quarterly payment date and one-fourth on the fourth quarterly payment
     date or, in the case of a director elected between annual stockholder
     meetings or a director receiving an option for the year in which this
     program becomes effective, in equal parts on the remaining quarterly
     payment dates prior to the first anniversary of the most recent annual
     meeting of stockholders.

          (d) The options will be subject to the terms of the plan under which
     they are issued, including without limitation provisions relating to
     vesting, exercise, termination and transferability.



<PAGE>

     4. The quarterly payment of cash fees and vesting of stock options are
contingent on a director's continuing to serve in that capacity on each such
quarterly payment or vesting date.


Annual Committee Chairman Fee

     1. The Chairman of the Audit Committee and the Chairman of the Compensation
Committee will receive an annual fee of $10,000, payable in four equal quarterly
payments to be made at the end of each calendar quarter. The committee chairman
fee will be prorated for any director who is elected to such position between
annual meetings of the board of directors.

     2. The quarterly payment of the committee chairman fee is contingent on a
director's continuing to serve in such position on each such quarterly payment
date.


Meeting Fees

     1. Each director will receive a fee of $1,000 for each board meeting
attended in person or by telephone.

     2. Each member of a committee of the board will receive a fee of $3,000 for
each committee meeting attended in person or by telephone.


Automatic Stock Option Grants

     1. Each director will receive an option for 5,000 shares of Kirby common
stock upon his or her first election as a director.

     2. Each director will receive an option for 3,000 shares of Kirby common
stock immediately after each annual meeting of stockholders.

     3. The option price in both cases will be the fair market value on the date
of grant. The options will be subject to the terms of the plan under which they
are issued, including without limitation provisions relating to vesting,
exercise, termination and transferability.


General

     1. This compensation program became effective September 26, 2000 and was
amended effective October 21, 2002 to add the annual committee chairman fees and
to increase the meeting fees for committee members..

     2. This compensation program may be amended, modified or terminated by the
board at any time.

     3. This compensation program applies only to directors of Kirby who are not
employees of Kirby or any of its subsidiaries.


ADOPTED BY THE BOARD OF DIRECTORS: September 26, 2000
AMENDED:  OCTOBER 21, 2002


<PAGE>
                                                                               .
                                                                               .
                                                                               .
                                                                    EXHIBIT 21.1

                               KIRBY CORPORATION

                    PRINCIPAL SUBSIDIARIES OF THE REGISTRANT


<Table>
<Caption>
                                                                      PLACE OF
                                                                   INCORPORATION
                                                                   -------------
<S>                                                                  <C>
KIRBY CORPORATION -- PARENT AND REGISTRANT.......................    Nevada
SUBSIDIARIES OF THE PARENT AND REGISTRANT
     KIM Holdings, Inc.(1).......................................    Delaware
     General Energy Corporation(1)...............................    Delaware
     Kirby Exploration Company of Texas(1).......................    Delaware
     Kirby Terminals, Inc.(1)....................................    Texas
     Sabine Transportation Company(1)............................    Delaware
     AFRAM Carriers, Inc.(1).....................................    Delaware
     Kirby Engine Systems, Inc.(1)...............................    Delaware
     Kirby Tankships, Inc.(1)....................................    Delaware
     Dixie Offshore Transportation Company(1)....................    Delaware
     Mariner Reinsurance Company Limited.........................    Bermuda
     Oceanic Insurance Limited(1)................................    Bermuda

CONTROLLED CORPORATIONS
     Dixie Bulk Transport, Inc. (subsidiary of Dixie Offshore
       Transportation Company)(1)................................    Delaware
     KIM Partners, LLC (Subsidiary of KIM Holdings, Inc.)(1).....    Louisiana
     Kirby Inland Marine, LP (KIM Holdings, Inc. 1% General
       Partner, KIM Partners, LLC 99% Limited Partner)(1)........    Delaware
     Dixie Carriers, Inc. (subsidiary of Kirby Inland Marine,
       LP)(1)....................................................    Texas
     Marine Systems, Inc. (subsidiary of Kirby Engine Systems,
       Inc.)(1)..................................................    Louisiana
     Rail Systems, Inc. (subsidiary of Kirby Engine Systems,
       Inc.)(1)..................................................    Delaware
     Engine Systems, Inc. (subsidiary of Kirby Engine systems,
       Inc.)(1)..................................................    Delaware
</Table>


-----------
(1) Included
 in the consolidated financial statements.



<PAGE>
                                                                    EXHIBIT 23.1


                          INDEPENDENT AUDITORS' CONSENT

         We consent to the incorporation by reference in the Registration
Statement (No. 33-56195) on Form S-3 and (No. 33-68140), (No. 33-57621), (No.
33-57625), (No. 333-33913), (No. 333-72592) and (No. 333-100765) on Form S-8 of
Kirby Corporation of our report dated January 30, 2003, except as to notes 5 and
15, which are as of March 4, 2003, relating to the consolidated balance sheets
of Kirby Corporation and consolidated subsidiaries as of December 31, 2002 and
2001 and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2002, which report appears in the December 31, 2002 Annual Report on Form 10-K
of Kirby Corporation.

         Our report refers to the adoption of Statement of Financial Accounting 
Standards No. 142, "Goodwill and Other Intangible Assets," effective January 1, 
2002.
 

                                      /s/ KPMG LLP



Houston, Texas
March 5, 2003





<PAGE>

                                                                    EXHIBIT 99.1



     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the filing of the Annual Report on Form 10-K for the year
ended December 31, 2002 (the "Report") by Kirby Corporation (the "Company"),
each of the undersigned hereby certifies that:

         1.       The Report fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934, as
                  amended; and

         2.       The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.

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


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

Dated: March 5, 2003