Kirby Corporation 10-Q 3-31-2007

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 o

	March 31,		December 31,
	2007		2006
	($ in thousands)
Current assets:
Cash and cash equivalents	$	2,769	$	2,653
Accounts receivable:
Trade - less allowance for doubtful accounts		171,072		162,809
Other		18,319		20,850
Inventory - finished goods		41,498		41,777
Prepaid expenses and other current assets		14,779		16,426
Deferred income taxes		4,966		5,077

Total current assets		253,403		249,592


Property and equipment		1,375,635		1,280,680
Less accumulated depreciation		527,854		514,074

		847,781		766,606


Investment in marine affiliates		2,409		2,264
Goodwill - net		225,284		223,432
Other assets		30,720		29,225

	$	1,359,597	$	1,271,119

	March 31,			December 31,
	2007			2006
	($ in thousands)
Current liabilities:
Current portion of long-term debt	$	949		$	844
Income taxes payable		13,191			3,016
Accounts payable		86,273			88,213
Accrued liabilities		67,181			69,782
Deferred revenues		5,110			5,012

Total current liabilities		172,704			166,867

Long-term debt - less current portion		359,625			309,518
Deferred income taxes		129,330			125,943
Minority interests		2,848			3,018
Other long-term liabilities		34,045			33,778

		525,848			472,257

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 120,000,000 shares, issued 57,337,000 shares		5,734			5,734
Additional paid-in capital		208,315			208,032
Accumulated other comprehensive income - net		(23,133	)		(23,087	)
Retained earnings		548,773			524,351
		739,689			715,030
Less cost of 4,096,000 shares in treasury (4,354,000 at December 31, 2006)		78,644			83,035

		661,045			631,995

	$	1,359,597		$	1,271,119

	Three months ended
	March 31,
	2007			2006 As Adjusted
	($ in thousands, except per share amounts)
Revenues:
Marine transportation	$	209,065		$	189,383
Diesel engine services		65,146			35,520

		274,211			224,903
Costs and expenses:
Costs of sales and operating expenses		175,599			144,490
Selling, general and administrative		30,506			23,761
Taxes, other than on income		3,134			3,187
Depreciation and amortization		19,587			15,090
Loss (gain) on disposition of assets		499			(157	)

		229,325			186,371

Operating income		44,886			38,532
Equity in earnings of marine affiliates		98			466
Other income (expense)		(248	)		66
Interest expense		(5,154	)		(2,698	)

Earnings before taxes on income		39,582			36,366
Provision for taxes on income		(15,160	)		(13,855	)

Net earnings	$	24,422		$	22,511

Net earnings per share of common stock:
Basic	$	.46		$	.43
Diluted	$	.46		$	.42

	Three months ended March 31,
	2007			2006 As Adjusted
	($ in thousands)
Cash flows from operating activities:
Net earnings	$	24,422		$	22,511
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation and amortization		19,587			15,090
Deferred income taxes		1,041			20
Equity in earnings of marine affiliates		(98	)		(466	)
Amortization of unearned compensation		1,320			1,430
Other		741			(82	)
Increase (decrease) in cash flows resulting from changes in operating assets and liabilities, net		127			(7,197	)
Net cash provided by operating activities		47,140			31,306

Cash flows from investing activities:
Capital expenditures		(53,649	)		(21,626	)
Acquisitions of business and marine equipment, net of cash acquired		(47,317	)		(15,505	)
Proceeds from disposition of assets		527			463
Other		(45	)		(1,001	)
Net cash used in investing activities		(100,484	)		(37,669	)

Cash flows from financing activities:
Borrowings on bank credit facilities, net		49,200			—
Borrowings (payments) on long-term debt, net		978			(23	)
Proceeds from exercise of stock options		1,662			7,169
Tax benefit from equity compensation plans		1,911			3,377
Other		(291	)		1,173
Net cash provided by financing activities		53,460			11,696
Increase in cash and cash equivalents		116			5,333

Cash and cash equivalents, beginning of year		2,653			17,838
Cash and cash equivalents, end of period	$	2,769		$	23,171

Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest	$	5,003		$	3,225
Income taxes	$	137		$	2,933
Non-cash investing activity:
Accrued payable for working capital adjustment related to acquisitions	$	264		$	735

In the opinion of management, the accompanying unaudited condensed financial statements of Kirby Corporation and consolidated subsidiaries (the “Company”) contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 2007 and December 31, 2006, and the results of operations for the three months ended March 31, 2007 and 2006.

The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including significant accounting policies normally included in annual financial statements, have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

On April 25, 2006, the Board of Directors declared a two-for-one stock split of the Company’s common stock. Stockholders of record on May 10, 2006 received one additional share of common stock for each share of common stock held on that day, with a distribution date of May 31, 2006. All references to number of shares and per share information in the accompanying unaudited condensed financial statements have been adjusted to reflect the stock split.

Effective January 1, 2007, the Company transitioned to the direct expense method of accounting for planned major maintenance on its marine transportation equipment. Previously, the Company used the accrue-in-advance method of accounting for planned major maintenance activities in its interim reporting periods. Issued in September 2006, Financial Accounting Standards Board (“FASB”) Staff Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities” prohibits the accrue-in-advance method in interim and annual financial reporting periods because an obligation has not occurred and therefore a liability should not be recognized. This change was applied retrospectively for all consolidated financial statements presented. The change had no impact on the annual consolidated financial statements but did result in the adjustment of prior year interim unaudited condensed financial statements. The effect of adopting AUG AIR-1 on individual line items in the condensed statement of earnings for the three months ended March 31, 2006 is as follows (in thousands, except per share amounts):

	Before AUG AIR-1 Adoption			Adjustments			After AUG AIR-1 Adoption

Costs of sales and operating expenses	$	144,378		$	112		$	144,490
Total costs and expenses		186,259			112			186,371
Operating income		38,644			(112	)		38,532
Earnings before taxes on income		36,478			(112	)		36,366
Provision for taxes on income		(13,898	)		43			(13,855	)
Net earnings	$	22,580		$	(69	)	$	22,511

Net earnings per share of common stock:
Basic	$	.43		$	-		$	.43
Diluted	$	.43		$	(.01	)	$	.42

In June 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN No. 48”) was issued. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN No. 48 effective January 1, 2007 with no effect on the Company’s financial position or results of operations.

As of January 1, 2007, the Company has provided a liability of approximately $3,400,000 for unrecognized tax benefits related to various income tax issues which includes approximately $1,300,000 of interest and penalties. The amount that would impact the Company’s effective tax rate, if recognized, is $2,200,000, with the difference between the total amount of unrecognized tax benefits and the amount that would impact the effective tax rate being primarily related to the federal tax benefit of state income tax items. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes.

The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the 2002 through 2006 tax years. The Company and its subsidiaries state income tax returns are open to audit under the statute of limitations for the 2000 through 2006 tax years. It is not reasonably possible to determine if the liability for unrecognized tax benefits will significantly change prior to March 31, 2008 due to the uncertainty of possible examination results.

On February 23, 2007, the Company purchased the assets of P&S Diesel Service, Inc. (“P&S”) for $1,450,000 in cash, subject to post-closing inventory adjustments. P&S was a Gulf Coast high-speed diesel engine services provider operating as a factory-authorized marine dealer for Caterpillar in Louisiana. Financing of the acquisition was through the Company’s revolving credit facility.

On February 13, 2007, the Company purchased from NAK Engineering, Inc. (“NAK”) for a net $3,500,000 in cash, the assets and technology to support the Nordberg medium-speed diesel engines used in nuclear applications. As part of the transaction, Progress Energy Carolinas, Inc. (“Progress Energy”) and Duke Energy Carolinas, LLC (“Duke Energy”) made payments to the Company for non-exclusive rights to the technology and entered into ten-year exclusive parts and service agreements with the Company. Nordberg engines are used to power emergency diesel generators used in nuclear power plants owned by Progress Energy and Duke Energy. Financing of the acquisition was through the Company’s revolving credit facility.

On January 3, 2007, the Company purchased the stock of Coastal Towing, Inc. (“Coastal”), the owner of 37 inland tank barges, for $19,306,000 in cash, subject to post-closing working capital adjustments. The Company had been operating the Coastal tank barges since October 2002 under a barge management agreement. Financing of the acquisition was through the Company’s revolving credit facility.

On January 2, 2007, the Company purchased 21 tank barges from Cypress Barge Leasing, LLC (“Cypress”) for $14,965,000 in cash. The Company had been leasing the barges since 1994 when the leases were assigned to the Company as part of the Company’s purchase of the tank barge fleet of The Dow Chemical Company (“Dow”). Financing of the equipment acquisition was through the Company’s revolving credit facility.

On October 4, 2006, the Company signed agreements to purchase 11 inland tank barges from Midland Marine Corporation (“Midland”) and Shipyard Marketing, Inc. (“Shipyard”) for $10,600,000 in cash. The Company purchased four of the barges during 2006 for $3,300,000 and the remaining seven barges on February 15, 2007 for $7,300,000. The Company had been leasing the barges from Midland and Shipyard prior to their purchase. Financing of the equipment acquisition was through the Company’s revolving credit facility.

On July 24, 2006, the Company signed an agreement to purchase the assets of Capital Towing Company (“Capital”), consisting of 11 towboats, for $15,000,000 in cash. The Company purchased nine of the towboats during 2006 for $13,299,000 and the purchases were financed through the Company’s revolving credit facility. The remaining two towboats will be purchased in 2007 upon the expiration of their present charters with unrelated companies, and will also be financed through the Company’s revolving credit facility. The Company and Capital entered into a vessel operating agreement whereby Capital will continue to crew and operate the towboats for the Company.

On July 21, 2006, the Company purchased the assets of Marine Engine Specialists, Inc. (“MES”) for $6,863,000 in cash. MES was a Gulf Coast high-speed diesel engine services provider, operating a factory-authorized full service dealership for John Deere, as well as a service provider for Detroit Diesel. Financing of the acquisition was through the Company’s revolving credit facility.

On June 7, 2006, the Company purchased the stock of Global Power Holding Company, a privately held company that owned all of the outstanding equity of Global Power Systems, L.L.C. (“Global”). The Company purchased Global for an aggregate consideration of $101,720,000, consisting of $98,657,000 in cash, the assumption of $2,625,000 of debt and $438,000 of merger costs. Global was a Gulf Coast high-speed diesel engine services provider, operating factory-authorized marine market dealerships for Cummins, Detroit Diesel and John Deere high-speed diesel engines, and Allison transmissions, as well as an authorized marine dealer for Caterpillar in Louisiana. As a result of the acquisition, the Company recorded $55,671,000 of goodwill and $16,292,000 of intangibles. The intangibles have a weighted average amortization period of approximately 16 years. Financing of the cash portion of the acquisition was through a combination of existing cash and the Company’s revolving credit facility.

On April 5, 2006, the Company purchased Gulf Coast Fire & Safety Service Co. (“Gulf Coast Fire & Safety”) for $1,008,000 in cash. Gulf Coast Fire & Safety provided sales and rental of equipment and various technical services related to fire suppression and protection, and is part of Kirby Logistics Management Division (“KLM”), the Company’s shore tankering and in-plant operations group. Financing of the acquisition was through the Company’s operating cash flows. During the 2007 first quarter, the Company ended its third party fire suppression and protection operations and will provide internal services exclusively.

On March 1, 2006, the Company purchased from Progress Fuels Corporation (“PFC”) the remaining 65% interest in Dixie Fuels Limited (“Dixie Fuels”) for $15,818,000 in cash. The Dixie Fuels partnership, formed in 1977, was 65% owned by PFC and 35% owned by the Company. As part of the transaction, the Company extended the expiration date of its marine transportation contract with PFC from 2008 to 2010. Financing of the acquisition was through the Company’s operating cash flows.

Effective January 1, 2006, the Company acquired an additional one-third interest in Osprey Line, L.L.C. (“Osprey”), increasing the Company’s ownership to a two-thirds interest. Osprey, formed in 2000, operates a barge feeder service for cargo containers between Houston, New Orleans and Baton Rouge, as well as several ports located above Baton Rouge on the Mississippi River.

The Company has share-based compensation plans which are described below. The compensation cost that has been charged against earnings for the Company’s stock award plans was $1,320,000 and $1,430,000 for the three months ended March 31, 2007 and 2006, respectively. The total income tax benefit recognized in the statement of earnings for stock awards was $506,000 and $545,000 for the three months ended March 31, 2007 and 2006, respectively. Compensation cost capitalized as part of inventory is considered immaterial.

The Company has six employee stock award plans for selected officers and other key employees which provide for the issuance of stock options and restricted stock. For all of the 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 vest ratably over four years. Options granted on and after February 10, 2000 have terms of five years and vest ratably over three years. At March 31, 2007, 1,487,890 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.

	Options Outstanding								Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Aggregated Intrinsic Value		Number Exercisable		Weighted Average Exercise Price		Aggregated Intrinsic Value
$ 8.95 - $ 9.94		63,000		1.69	$	9.28				63,000	$	9.28
$12.78 - $16.96		530,202		1.53	$	15.67				530,202	$	15.67
$20.89 - $22.05		211,400		2.90	$	21.80				140,928	$	21.80
$25.69 - $27.60		218,408		3.87	$	27.21				72,796	$	27.21
$35.66 - $36.94		177,766		4.83	$	35.69				—		—
$ 8.95 - $36.94		1,200,776		2.70	$	21.47	$	16,217,000		806,926	$	17.28	$	14,282,000

The Company has three director stock award plans for nonemployee directors of the Company which provide for the issuance of stock options and restricted stock. No additional options can be granted under two of the plans. The third plan, the 2000 Director Plan, provides for the automatic grants of stock options and restricted stock 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 or restricted stock in lieu of cash for all or part of the annual director fee. The exercise prices for all options granted under the plans are equal to the fair market value per share of the Company’s common stock on the date of grant. The terms of the options are ten years. The options granted when first elected as a director vest immediately. The options granted and restricted stock issued after each annual meeting of stockholders vest six months after the date of grant. Options granted and restricted stock issued in lieu of cash director fees vest in equal quarterly increments during the year to which they relate. At March 31, 2007, 173,690 shares were available for future grants under the nonemployee director plans. The director stock award plans are intended as an incentive to attract and retain qualified and competent independent directors.

	Options Outstanding								Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Aggregated Intrinsic Value		Number Exercisable		Weighted Average Exercise Price		Aggregated Intrinsic Value
$ 8.53 - $ 9.94		31,128		1.89	$	9.71				31,128	$	9.71
$10.07 - $12.75		94,736		4.38	$	11.31				94,736	$	11.31
$15.74 - $20.28		83,442		6.50	$	17.66				83,442	$	17.66
$35.17 - $36.22		66,036		9.07	$	35.20				66,036	$	35.20
$ 8.53 - $36.22		275,342		5.88	$	18.78	$	4,460,000		275,342	$	18.78	$	4,460,000

The total intrinsic value of all options exercised and restricted stock vestings under all of the Company’s plans was $6,781,000 and $11,140,000 for the three months ended March 31, 2007 and 2006, respectively. The actual tax benefit realized for tax deductions from stock award plans was $2,597,000 and $4,244,000 for the three months ended March 31, 2007 and 2006, respectively.

As of March 31, 2007, there was $3,351,000 of unrecognized compensation cost related to nonvested stock options and $13,055,000 related to restricted stock. The stock options are expected to be recognized over a weighted average period of approximately 1.3 years and restricted stock over approximately 3.0 years. The total fair value of shares vested was $6,375,000 and $4,607,000 during the three months ended March 31, 2007 and 2006, respectively.

The weighted average fair value of options granted during the three months ended March 31, 2007 and 2006 was $10.73 and $8.34 per share, respectively. The fair value of the options granted during the three months ended March 31, 2007 and 2006 was $1,908,000 and $1,889,000, respectively. The fair value of each option was determined using the Black-Scholes option pricing model. The key input variables used in valuing the options during the three months ended March 31, 2007 and 2006 were as follows:

Marine Transportation - Marine transportation by United States flag vessels on the United States inland waterway system and, to a lesser extent, offshore transportation of dry-bulk cargoes. The principal products transported on the United States inland waterway system include petrochemicals, black oil products, refined petroleum products and agricultural chemicals.

	Three months ended March 31,
	2007			2006 As Adjusted

Revenues:
Marine transportation	$	209,065		$	189,383
Diesel engine services		65,146			35,520
	$	274,211		$	224,903

Segment profit (loss):
Marine transportation	$	38,561		$	34,829
Diesel engine services		9,897			5,765
Other		(8,876	)		(4,228	)
	$	39,582		$	36,366

	Three months ended
	March 31,
	2007		2006 As Adjusted

Net earnings	$	24,422	$	22,511

Shares outstanding:
Weighted average common stock outstanding		52,713		52,050
Effect of dilutive securities:
Employee and director common stock plans		878		952
		53,591		53,002

Basic earnings per share of common stock	$	.46	$	.43
Diluted earnings per share of common stock	$	.46	$	.42

The Company’s pension plan funding strategy is to contribute an amount equal to the greater of the minimum required contribution under ERISA or the amount necessary to fully fund the plan on an Accumulated Benefit Obligation (“ABO”) basis at the end of the fiscal year. The ABO is based on a variety of demographic and economic assumptions, and the pension plan assets’ returns are subject to various risks, including market and interest rate risk, making the prediction of the pension plan contribution difficult. Based on current pension plan assets and market conditions, the Company expects to contribute between $1,000,000 and $5,000,000 to its pension plan in December 2007 to fund its 2007 pension plan obligations. As of March 31, 2007, no 2007 year contributions have been made.

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. The Company also has an unfunded defined benefit supplemental executive retirement plan (“SERP”) that was assumed in an acquisition in 1999. That plan ceased to accrue additional benefits effective January 1, 2000.

	Pension Benefits
	Pension Plan						SERP
	Three months ended March 31,						Three months ended March 31,
	2007			2006			2007		2006
Components of net periodic benefit cost:
Service cost	$	1,491		$	1,346		$	—	$	—
Interest cost		1,703			1,474			26		24
Expected return on plan assets		(1,923	)		(1,841	)		—		—
Amortization:
Actuarial loss		740			756			5		5
Prior service credit		(22	)		(22	)		—		—
Net periodic benefit cost	$	1,989		$	1,713		$	31	$	29

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 $6,209,000 at March 31, 2007, including $5,189,000 in letters of credit and debt guarantees, and $1,020,000 in performance bonds, of which $683,000 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 five 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.

In 2000, the Company and a group of approximately 45 other companies were notified that they are Potentially Responsible Parties (“PRPs”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) with respect to a 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 entered into an agreement with the United States Environmental Protection Agency (“EPA”) to perform a remedial investigation and feasibility study. The study has been completed and a limited scope of remediation was proposed to and accepted by the EPA. The remediation project is pending while the EPA pursues non-responsive PRPs. Based on information currently available, the Company believes its exposure is limited.

In 2004, the Company and certain subsidiaries received a Request For Information (“RFI”) from the EPA under CERCLA with respect to a Superfund site, the State Marine site, located in Port Arthur, Texas. An RFI is not a determination that a party is responsible or potentially responsible for contamination at a site, but is only a request seeking any information a party may have with respect to a site as part of an EPA investigation into such site. In July 2005, a subsidiary of the Company received a notification of potential responsibility from the EPA and a request for voluntary participation in funding potential remediation activities at the SBA Shipyards, Inc. (“SBA”) property located in Jennings, Louisiana. In prior years, SBA had provided tank barge cleaning services to the subsidiary. In July 2006, the Company received a RFI from the United States Department of Agriculture - Forest Service under CERCLA with respect to a former mine site in South Dakota. Based on information currently available, the Company is unable to ascertain the extent of its exposure, if any, in these matters.

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 believes that it has recorded adequate reserves and believes that it has adequate insurance coverage or has meritorious defenses for these other claims and contingencies.

Statements contained in this Form 10-Q 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-Q could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: adverse economic conditions, industry competition and other competitive factors, adverse weather conditions such as high water, low water, tropical storms, hurricanes, fog and ice, marine accidents, lock delays, fuel costs, interest rates, construction of new equipment by competitors, government and environmental laws and regulations, and the timing, magnitude and number of acquisitions made by the Company. For a more detailed discussion of factors that could cause actual results to differ from those presented in forward-looking statements, see Item 1A-Risk Factors found in the Company’s annual report on Form 10-K for the year ended December 31, 2006. Forward-looking statements are based on currently available information and the Company assumes no obligation to update any such statements.

On April 25, 2006, the Board of Directors declared a two-for-one stock split of the Company’s common stock. Stockholders of record on May 10, 2006 received one additional share of common stock for each share of common stock held on that day, with a distribution date of May 31, 2006. All references to number of shares and per share information in this discussion have been adjusted to reflect the stock split.

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 per share for the first quarter of 2007 and 2006 were 53,591,000 and 53,002,000, respectively. The increase in the weighted average number of common shares for the 2007 first quarter compared with the 2006 first quarter primarily reflected the issuance of restricted stock and the exercise of stock options, partially offset by common stock repurchases in the third quarter of 2006.

The Company is the nation’s largest domestic inland tank barge operator with a fleet of 913 active tank barges and 248 towing vessels. The Company uses the inland waterway system of the United States to transport bulk liquids including petrochemicals, black oil products, refined petroleum products and agricultural chemicals. The Company also owns and operates four ocean-going barge and tug units transporting dry-bulk commodities in United States coastwise trade. Through its diesel engine services segment, the Company provides after-market services for medium-speed and high-speed diesel engines used in marine, power generation and railroad applications.

For the 2007 first quarter, the Company reported net earnings of $24,422,000, or $.46 per share, on revenues of $274,211,000, compared with 2006 first quarter net earnings of $22,511,000, or $.42 per share, on revenues of $224,903,000. The 2007 first quarter performance reflected continued strong petrochemical and black oil products demand in its marine transportation segment, expected first quarter winter weather conditions and the favorable impact of contract rate increases during 2006 and the 2007 first quarter, as well as higher spot market prices.

The diesel engine services segment also performed at strong levels in the 2007 first quarter, reflecting the accretive acquisitions of Global in June 2006 and MES in July 2006, as well as continued strong in-house and in-field service activity and direct parts sales in its marine, power generation and railroad markets. In addition, the segment benefited from higher service rates and parts pricing implemented during 2006 and in the 2007 first quarter.

For the 2007 first quarter, approximately 76% of the Company’s revenue was generated by its marine transportation segment. The segment’s customers include many of the major petrochemical and refining companies in the United States. Products transported include raw materials for many of the end products used widely by businesses and consumers every day - plastics, fiber, paints, detergents, oil additives and paper, among others. Consequently, the Company’s business tends to mirror the general performance of the United States economy and the performance of the Company’s customer base. The following table shows the marine transportation markets serviced by the Company, the marine transportation revenue distribution for the first quarter of 2007, products moved and the drivers of the demand for the products the Company transports:

Markets Serviced	2007 First Qtr. Revenue Distribution	Products Moved	Drivers
Petrochemicals	67%	Benzene, Styrene, Methanol, Acrylonitrile, Xylene, Caustic Soda, Butadiene, Propylene	Housing, Consumer Goods, Clothing, Automobiles

Black Oil Products	20%	Residual Fuel Oil, No. 6 Fuel Oil, Coker Feedstocks, Vacuum Gas Oil, Asphalt, Boiler Fuel, Crude Oil, Ship Bunkers	Road Construction, Refinery Utilization, Fuel for Power Plants and Ships

Refined Petroleum Products	10%	Gasoline Blends, No. 2 Oil, Jet Fuel, Heating Oil, Naphtha	Vehicle Usage, Air Travel, Weather Conditions, Refinery Utilization

Agricultural Chemicals	3%	Anhydrous Ammonia, Nitrogen- Based Liquid Fertilizer, Industrial Ammonia	Corn, Cotton and Wheat Production, Chemical Feedstock Usage

The Company’s marine transportation segment’s revenue and operating income for the 2007 first quarter increased 10% and 11%, respectively, when compared with the first quarter of 2006. The petrochemical market is the Company’s largest market, contributing 67% of the marine transportation revenue for the 2007 first quarter. During the first quarter, the demand for the movement of petrochemicals remained strong, with term contract customers continuing to operate their plants and facilities at high utilization rates, resulting in high tank barge utilization. The black oil products market contributed 20% of first quarter 2007 marine transportation revenue. This market also remained strong as refineries continued to operate at close to full capacity, generating high demand for the transportation of heavier residual oil by-products. Refined petroleum products contributed 10% of 2007 first quarter marine transportation revenue, experiencing strong demand for the movement of products from the Gulf Coast to the Midwest. The agricultural chemical market, which contributed 3% of 2007 first quarter marine transportation revenue, was seasonally weak during January and February and increased in March, corresponding with the spring planting season.

During the 2007 first quarter, approximately 75% of the marine transportation revenues were under term contracts and 25% were spot market revenues. Rate renewals under term contracts, net of fuel, increased during the 2007 first quarter in the 6% to 8% average range, with some contracts increasing by a higher percentage and some by a lower percentage. Effective January 1, 2007, annual escalators for labor and the producer price index on a number of multi-year contracts resulted in rate increases on those contracts by 4% to 5%. For the 2007 first quarter, spot market rates, which include the cost of fuel, increased over 20% compared with the 2006 first quarter.

Navigational delays for the 2007 first quarter were 2,600 days, an increase of 5% compared with 2,471 delay days recorded in the 2006 first quarter. Delay days measure the lost time incurred by a tow (towboat and one or more barges) during transit. The measure includes transit delays caused by weather, lock congestion or closure and other navigational factors. The 5% increase reflected more normal 2007 winter weather conditions compared with unusually favorable winter weather conditions during the 2006 first quarter.

For the 2007 first quarter, approximately 24% of the Company’s revenue was generated by its diesel engine services segment, of which 66% was generated through service and 34% from direct parts sales. The results of the diesel engine services segment are largely influenced by the economic cycles of the industries it serves. The following table shows the markets serviced by the Company, the revenue distribution for the first quarter of 2007 and the customers for each market:

Markets Serviced	2007 First Qtr. Revenue Distribution	Customers
Marine	76%	Inland River Carriers - Dry and Liquid, Offshore Towing - Dry and Liquid, Offshore Oilfield Services - Drilling Rigs & Supply Boats, Harbor Towing, Dredging, Great Lake Ore Carriers

Power Generation	14%	Standby Power Generation, Pumping Stations

Railroad	10%	Passenger (Transit Systems), Class II Shortline, Industrial

The Company’s diesel engine services segment’s 2007 first quarter revenue and operating income increased 83% and 72%, respectively, compared with the first quarter of 2006. The results were positively impacted by the accretive acquisitions of Global, MES and P&S, as well as from continued strong in-house and in-field service activity and direct parts sales in the majority of its markets, higher labor utilization, and higher service rates and parts pricing implemented during 2006 and in the 2007 first quarter.

The diesel engine services segment’s operating margin for the 2007 first quarter was 15.2% compared with 16.2% for the first quarter of 2006. The lower 2007 first quarter operating margin reflected the timing differences between wage increases effective January 1, 2007 and pricing increases in February and March 2007, and the sale of engines which earned a lower operating margin.

The Company continued to generate strong operating cash flow during the 2007 first quarter, with net cash provided from operations of $47,140,000, a 51% increase when compared with net cash provided from operations for the 2006 first quarter of $31,306,000. In addition, during the 2007 and 2006 first three months, the Company generated cash of $1,662,000 and $7,169,000, respectively, from the exercise of stock options. The cash, and borrowings under the revolving credit facility, were used for capital expenditures of $53,649,000, including $31,413,000 for new tank barge and towboat construction and $22,236,000 primarily for upgrading the existing marine transportation fleet, and $47,317,000 for the acquisitions of Cypress, Coastal, P&S, the Nordberg engine assets and technology, seven tank barges from Shipyard, and the purchase of one towboat. The Company’s debt-to-capitalization ratio increased to 35.3% at March 31, 2007 from 32.9% at December 31, 2006, primarily due to borrowings under the Company’s revolving credit facility to finance the acquisitions and capital expenditures noted above.

During 2005 and 2006, the Company entered into contracts for the construction of twenty-three 30,000 barrel tank barges at a cost of approximately $46,400,000 and two 10,000 barrel specialty tank barges at a cost of approximately $2,600,000. Fifteen of the 30,000 barrel barges represent additional capacity and eight are replacement barges for older barges removed from service. The two 10,000 barrel barges are additional capacity. The Company took delivery of 19 of the twenty-three 30,000 barrel barges during 2006, with the remaining four scheduled for delivery in the 2007 second and third quarters. The 10,000 barrel barges were placed in service in the 2007 first quarter.

During 2006, the Company entered into contracts for the construction of twenty 30,000 barrel tank barges at a cost of approximately $43,000,000 and six 10,000 barrel tank barges at a cost of approximately $7,700,000. Fourteen of the new 30,000 barrel tank barges will be additional capacity and six will be replacement barges for older barges removed from service. The six 10,000 barrel barges will be additional capacity and are scheduled to be delivered over the last nine months of 2007. The Company took delivery of nine of the 30,000 barrel barges during the 2007 first quarter, with the remaining eleven scheduled for delivery in the last nine months of 2007 and during 2008.

The Company’s strong cash flow and unutilized loan facilities position the Company to take advantage of internal and external growth opportunities in its marine transportation and diesel engine services segments. The marine transportation segment’s external growth opportunities include potential acquisitions of independent inland tank barge operators and captive fleet owners seeking to outsource tank barge requirements. Increasing the fleet size would allow the Company to improve asset utilization through more backhaul opportunities, faster barge turnarounds, more efficient use of horsepower, barges positioned closer to cargos, lower incremental costs due to enhanced purchasing power, minimal incremental administrative staff and less cleaning due to operating more barges with compatible prior cargoes. The diesel engine services segment’s external growth opportunities include further consolidation of strategically located diesel service providers, and expanded service capability for other engine and marine gear related products.

On February 13, 2007, the Company purchased from NAK for a net $3,500,000 in cash, the assets and technology to support the Nordberg medium-speed diesel engines used in nuclear applications. As part of the transaction, Progress Energy and Duke Energy made payments to the Company for non-exclusive rights to the technology and entered into ten-year exclusive parts and service agreements with the Company. Nordberg engines are used to power emergency diesel generators used in nuclear power plants owned by Progress Energy and Duke Energy.

On October 4, 2006, the Company signed agreements to purchase 11 inland tank barges from Midland and Shipyard for $10,600,000 in cash. The Company purchased four of the barges during 2006 for $3,300,000 and the remaining seven barges on February 15, 2007 for $7,300,000. The Company had been leasing the barges from Midland and Shipyard prior to their purchase.

On July 24, 2006, the Company signed an agreement to purchase the assets of Capital, consisting of 11 towboats, for $15,000,000 in cash. The Company purchased nine of the towboats during 2006 for $13,299,000. The remaining two towboats will be purchased in 2007 upon the expiration of their present charters with unrelated companies. The Company and Capital entered into a vessel operating agreement whereby Capital will continue to crew and operate the towboats for the Company.

On June 7, 2006, the Company purchased the stock of Global for an aggregate consideration of $101,720,000, consisting of $98,657,000 in cash, the assumption of $2,625,000 of debt and $438,000 of merger costs. Global was a Gulf Coast high-speed diesel engine services provider, operating factory-authorized marine market dealerships for Cummins, Detroit Diesel and John Deere high-speed diesel engines, and Allison transmissions, as well as an authorized marine dealer for Caterpillar in Louisiana.

On April 5, 2006, the Company purchased Gulf Coast Fire & Safety for $1,008,000 in cash. Gulf Coast Fire & Safety provided sales and rental of equipment and various technical services related to fire suppression and protection, and is part of KLM, the Company’s shore tankering and in-plant operations group. During the 2007 first quarter, the Company ended its third party fire suppression and protection operations and will provide internal services exclusively.

On March 1, 2006, the Company purchased from PFC the remaining 65% interest in Dixie Fuels for $15,818,000 in cash. The Dixie Fuels partnership, formed in 1977, was 65% owned by PFC and 35% owned by the Company. As part of the transaction, the Company extended the expiration date of its marine transportation contract with PFC from 2008 to 2010.

Effective January 1, 2006, the Company acquired an additional one-third interest in Osprey, increasing the Company’s ownership to a two-thirds interest. Osprey, formed in 2000, operates a barge feeder service for cargo containers between Houston, New Orleans and Baton Rouge, as well as several ports located above Baton Rouge on the Mississippi River.

Marine transportation revenues for the 2007 first quarter were $209,065,000, or 76% of total revenues, compared with $189,383,000, or 84% of total revenues for the 2006 first quarter. Diesel engine services revenues for the 2007 first quarter were $65,146,000, or 24% of total revenues, compared with $35,520,000, or 16% of total revenues for the 2006 first quarter.

The Company, through its marine transportation segment, is a provider of marine transportation services, operating inland tank barges and towing vessels, transporting petrochemicals, black oil products, refined petroleum products and agricultural chemicals along the United States inland waterways. As of March 31, 2007, the Company operated 913 active inland tank barges, with a total capacity of 17.3 million barrels, compared with 893 active inland tank barges at March 31, 2006, with a total capacity of 16.6 million barrels. The Company operated an average of 248 active inland towing vessels during the 2007 first quarter and 239 during the first quarter of 2006. The marine transportation segment also owns and operates four offshore dry-bulk barge and tug units engaged in the offshore transportation of dry-bulk cargoes. The segment also owns a two-thirds interest in Osprey, operator of a barge feeder service for cargo containers between Houston, New Orleans and Baton Rouge, as well as several ports located above Baton Rouge on the Mississippi River.

	Three months ended March 31,
	2007			2006 As Adjusted			% Change
Marine transportation revenues	$	209,065		$	189,383			10	%

Costs and expenses:
Costs of sales and operating expenses		128,830			119,083			8
Selling, general and administrative		20,480			18,162			13
Taxes, other than on income		2,878			3,011			(4	)
Depreciation and amortization		18,316			14,298			28
		170,504			154,554			10
Operating income	$	38,561		$	34,829			11	%

Operating margins		18.4	%		18.4	%

Marine transportation revenues for the 2007 first quarter increased 10% compared with the 2006 first quarter, reflecting continued strong petrochemical and black oil products demand, 2006 year and 2007 first quarter contract and spot market rate increases, labor and producer price index escalators effective January 1, 2007 on multi-year contracts and expected first quarter winter weather conditions. The 2006 first quarter benefited from unusually favorable winter weather conditions.

Black oil products demand during the 2007 first quarter remained strong as refineries continued to operate at close to full capacity, which generated heavy demand for waterborne transportation of heavier residual oil by-products by barge. Refined petroleum products demand for transportation into the Midwest during the 2007 first quarter was stronger than normal. Agricultural chemical demand was seasonally weak during January and February and improved in March with the traditional spring planting season.

The Company acquired an additional one-third interest in Osprey in January 2006, increasing the Company’s ownership to 67%, and purchased in March 2006 the remaining 65% of the Dixie Fuels partnership, bringing the Company’s ownership to 100%. As a result of the acquisitions, the Company began consolidating the results of both entities in the marine transportation segment beginning on their acquisition dates. During the 2007 first quarter, the entities contributed a combined $9,025,000 of marine transportation revenues.

During the 2007 first quarter, approximately 75% of marine transportation revenues were under term contracts and 25% were spot market revenues, compared with a 70% term contract and 30% spot market mix for the 2006 first quarter and full year. The increase in the term contract percentage was attributable to heavier demand for transportation services by the Company’s term contract customers. The 70% to 75% contract and 25% to 30% spot market mix provides the Company with a predictable revenue stream while maintaining spot market exposure to take advantage of new business opportunities and existing customers’ peak demands. Rates under term contracts renewed during the 2007 first quarter increased in the 6% to 8% average range, primarily the result of continued strong industry demand and high utilization of tank barges. Spot market rates, including fuel, for the 2007 first quarter increased over 20% compared with the 2006 first quarter. Effective January 1, 2007, escalators for labor and the producer price index on a number of multi-year contracts increased rates on those contracts by 4% to 5%.

Costs of sales and operating expenses for the 2007 first quarter increased 8% compared with the first quarter of 2006, reflecting increased salaries and related expenses, additional expenses associated with the increased demand, higher maintenance expenditures, and increased rates for chartered towboats. The lower price of diesel fuel consumed, as noted below, resulted in lower fuel costs to partially offset other higher cost of sales and operating expenses. During the 2007 and 2006 first quarters, the Company operated an average of 248 and 239 towboats, respectively. During the 2007 first quarter, the Company consumed 12.7 million gallons of diesel fuel, 5% less than the 13.3 million consumed in the 2006 first quarter.

The average price per gallon of diesel fuel consumed during the 2007 first quarter was $1.71, down 7% compared with $1.84 per gallon for the first quarter of 2006. Fuel escalation clauses are included in term contracts that allow the Company to recover increases in the cost of fuel; however, there is generally a 30 to 90 day delay before the contracts are adjusted.

Taxes, other than on income, decreased 4% for the 2007 first quarter compared with the first quarter of 2006, primarily reflecting a 2.3 cents per gallon reduction in the waterway user tax on propulsion fuel used by vessels engaged in trade along the inland waterways that are maintained by the United States Army Corps of Engineers. The waterway user tax reduction was from the elimination on January 1, 2007 of 2.3 cents per gallon transportation fuel tax for deficit reduction.

Depreciation and amortization for the 2007 first quarter increased 28% compared with the 2006 first quarter, primarily attributable to increased capital expenditures, including new tank barges and towboats, as well as increased depreciation and amortization from the purchases of the Coastal, Cypress, Midland and Shipyard tank barges and Capital towboats, and the consolidation of Dixie Fuels effective March 1, 2006.

The marine transportation operating income for the 2007 first quarter increased 11% compared with the 2006 first quarter. The operating margin was 18.4% for both the 2007 and 2006 first quarters. Continued strong demand, higher contract and spot market pricing, and the January 1, 2007 escalators on numerous multi-year contracts positively impacted the operating income and operating margin.

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

	Three months ended March 31,
	2007			2006			% Change

Diesel engine services revenues	$	65,146		$	35,520			83	%

Costs and expenses:
Costs of sales and operating expenses		46,769			25,407			84
Selling, general and administrative		7,310			3,922			86
Taxes, other than on income		244			87			180
Depreciation and amortization		926			339			173
		55,249			29,755			86
Operating income	$	9,897		$	5,765			72	%

Operating margins		15.2	%		16.2	%

Diesel engine services revenues for the 2007 first quarter increased 83% compared with the first quarter of 2006, positively impacted by the acquisitions of Global and MES, both high-speed Gulf Coast service providers, purchased on June 7, 2006 and July 21, 2006, respectively. In addition, the segment benefited from strong service to upper Mississippi River and Great Lakes customers whose business levels are typically slower during the winter months, as well as increased service projects and parts sales in its marine, power generation, and railroad markets. The segment also benefited from higher service rates and parts pricing implemented during 2006 and in the 2007 first quarter.

Costs and expenses for the 2007 first quarter increased 86% compared with the 2006 first quarter. The significant increase in each cost and expense category was primarily attributable to the Global and MES acquisitions. In addition, increases in costs of sales and operating expenses reflected the higher service and parts sales activity noted above, as well as increases in salaries and other related benefit expenses effective January 1, 2007. Selling, general and administrative expenses also reflected an increase in salaries and related benefit expenses effective January 1, 2007, and higher professional fees.

Operating income for the diesel engine services segment for the 2007 first quarter increased 72% compared with the 2006 first quarter, primarily reflecting the accretive earnings from the Global and MES acquisitions. The operating margin for the 2007 first quarter was 15.2% compared with 16.2% for the 2006 first quarter. The first quarter of 2007 operating margin reflected the timing differences between wage increases effective January 1, 2007 and pricing increases in February and March 2007, and the sale of engines which earned a lower operating margin.

Equity in earnings of marine affiliates for the 2007 first quarter was $98,000, consisting primarily of the Company’s 50% ownership of a fleeting operation. For the 2006 first quarter, equity in earnings of marine affiliates was $466,000, consisting primarily of the Company’s portion of the January and February 2006 earnings from the 35% ownership of Dixie Fuels. On March 1, 2006, the Company purchased the remaining 65% interest in Dixie Fuels and the March 2006 results were consolidated.

Interest expense for the 2007 first quarter increased 91% compared with the first quarter of 2006, primarily the result of additional borrowings under the Company’s revolving credit facility to fund the 2006 acquisitions of Global and MES, and the 2007 first quarter acquisitions of Cypress and Coastal. The average debt and average interest rate for the 2007 and 2006 first quarters, including the effect of interest rate swaps, were $353,812,000 and 5.9%, and $200,614,000 and 6.0%, respectively.

	March 31,		December 31,
	2007		2006		% Change
Assets:
Current assets	$	253,403	$	249,592		2	%
Property and equipment, net		847,781		766,606		11
Investment in marine affiliates		2,409		2,264		6
Goodwill, net		225,284		223,432		1
Other assets		30,720		29,225		5
	$	1,359,597	$	1,271,119		7	%
Liabilities and stockholders’ equity:
Current liabilities	$	172,704	$	166,867		3	%
Long-term debt - less current portion		359,625		309,518		16
Deferred income taxes		129,330		125,943		3
Minority interest and other long-term liabilities		36,893		36,796		—
Stockholders’ equity		661,045		631,995		5
	$	1,359,597	$	1,271,119		7	%

Property and equipment, net of accumulated depreciation, at March 31, 2007 increased 11% compared with December 31, 2006. The increase reflected $53,649,000 of capital expenditures for the 2007 first quarter, more fully described under Capital Expenditures below, the fair value of the property and equipment acquired in the Global, Cypress, Coastal, P&S and Shipyard acquisitions of $45,638,000 and the purchase of one towboat for $795,000, less $17,881,000 of depreciation expense and $1,026,000 of property disposals during the 2007 first quarter.

Current liabilities as of March 31, 2007 increased 3% compared with December 31, 2006. Income taxes payable increased 337% primarily reflecting the current federal tax provision for the 2007 first quarter, with the first federal quarterly tax payment not due until April 2007. Accrued liabilities decreased 4%, primarily from the payment during the 2007 first quarter of employee incentive compensation bonuses accrued during 2006, partially offset by increased marine and medical insurance claims.

Long-term debt, less current portion, as of March 31, 2007 increased 16% compared with December 31, 2006. During the 2007 first quarter, the Company made capital expenditures of $53,649,000 and spent $47,317,000 on acquisitions using net cash provided by operating activities of $47,140,000, proceeds from the exercise of stock options of $1,662,000 and proceeds from the disposition of assets of $527,000.

Deferred income taxes as of March 31, 2007 increased 3% compared with December 31, 2006, primarily due to the 2007 first quarter deferred tax provision of $1,041,000 and the recording of $2,960,000 of state and federal deferred taxes associated with the Coastal acquisition partially offset by deferred tax benefits of $970,000 related to the Company’s share-based compensation plans. The deferred state and federal tax liability related to the Coastal acquisition was recorded to reflect the tax effect of the difference in the financial basis of the assets over the tax basis.

Stockholders’ equity as of March 31, 2007 increased 5% compared with December 31, 2006. The increase was the result of $24,422,000 of net earnings for the first three months of 2007, a $4,391,000 decrease in treasury stock, an increase of $283,000 in additional paid-in capital and a decrease of $46,000 in accumulated other comprehensive income. The decrease in treasury stock and increase in additional paid-in capital were attributable to the exercise of stock options and the issuance of restricted stock.

The Company has an unsecured revolving credit facility (“Revolving Credit Facility”) with a syndicate of banks, with JP Morgan Chase Bank as the agent bank. On June 14, 2006, the Company increased the Revolving Credit Facility to $250,000,000 from a previous $150,000,000 facility, and extended the maturity date to June 14, 2011 from the previous maturity date of December 9, 2007. The Revolving Credit Facility allows for an increase in the commitments of the banks from $250,000,000 up to a maximum of $325,000,000, subject to the consent of each bank that elects to participate in the increased commitment. As of March 31, 2007, the Company had $156,600,000 of borrowings outstanding under the Revolving Credit Facility. The average borrowing under the Revolving Credit Facility during the 2007 first quarter was $149,838,000, computed by averaging the daily balance, and the weighted average interest rate was 5.9%, computed by dividing the interest expense under the Revolving Credit Facility by the average Revolving Credit facility borrowing. The Revolving Credit Facility includes a $25,000,000 commitment which may be used for standby letters of credit, of which $1,294,000 was outstanding as of March 31, 2007. The Company was in compliance with all Revolving Credit Facility covenants as of March 31, 2007.

The Company has $200,000,000 of unsecured floating rate senior notes (“2005 Senior Notes”) due February 28, 2013. The 2005 Senior Notes pay interest quarterly at a rate equal to LIBOR plus a margin of 0.5%. The 2005 Senior Notes are callable, at the Company’s option, with a 1% prepayment premium until May 31, 2007 and at par thereafter. No principal payments are required until maturity in February 2013. As of March 31, 2007, $200,000,000 was outstanding under the 2005 Senior Notes and the average interest rate was 5.9%, computed by dividing the interest expense under the 2005 Senior Notes by the average 2005 Senior Notes borrowings of $200,000,000. The Company was in compliance with all 2005 Senior Notes covenants at March 31, 2007.

The Company has a $5,000,000 line of credit (“Credit Line”) with Bank of America, N.A. (“Bank of America”) for short-term liquidity needs and letters of credit. The Credit Line was reduced from $10,000,000 to $5,000,000 in June 2006, with a maturity date of June 30, 2007. The Credit Line allows the Company to borrow at an interest rate agreed to by Bank of America and the Company at the time each borrowing is made or continued. The Company did not have any borrowings outstanding under the Credit Line as of March 31, 2007. Outstanding letters of credit under the Credit Line were $631,000 as of March 31, 2007.

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 a maturity of nine months or longer. The current $121,000,000 available balance, subject to mutual agreement to terms, as of March 31, 2007 may be used for future business or equipment acquisitions, working capital requirements and reductions of the Company’s Revolving Credit Facility and 2005 Senior Notes. As of March 31, 2007, there were no outstanding debt securities under the shelf registration.

From time to time, the Company hedges its exposure to fluctuations in short-term interest rates under its variable rate bank credit facility and floating rate senior notes by entering into interest rate collar and swap agreements. The interest rate collar and swap agreements are designated as cash flow hedges, therefore, the changes in fair value, to the extent the collar and swap agreements are effective, are recognized in other comprehensive income until the hedged interest expense is recognized in earnings. As of March 31, 2007, the Company had a total notional amount of $150,000,000 of interest rate swaps designated as cash flow hedges for its variable rate senior notes as follows (dollars in thousands):

On November 14, 2006, the Company entered into a $50,000,000 two-year zero-cost interest rate collar agreement. The collar uses LIBOR as its basis. The cap rate is set at 5.375% and the floor is set at 4.33%. When LIBOR is above the cap, the Company will receive the difference between LIBOR and the cap. When LIBOR is below the floor, the Company will pay the difference between LIBOR and the floor. When LIBOR is between the cap rate and the floor, no payments are required. The collar is designated as a cash flow hedge for the Company’s variable rate senior notes.

The interest rate collar and swap agreements hedge a majority of the Company’s long-term debt and only an immaterial loss on ineffectiveness was recognized in the 2007 first quarter. At March 31, 2007, the fair value of the interest rate collar and swap agreements was $1,846,000, of which $940,000 and $2,786,000 were recorded as other assets and other long-term liabilities, respectively, for swap maturities greater than twelve months. The Company has recorded in interest expense, net losses related to the interest rate collar and swap agreements of $151,000 and $213,000 for the three months ended March 31, 2007 and 2006, respectively. Gains or losses on the interest rate collar and swap agreements offset increases or decreases in rates of the underlying debt, which results in a fixed rate for the underlying debt. The Company anticipates $327,000 of net gains 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 March 31, 2007 and 2006 based on quoted market values of the Company’s portfolio of derivative instruments.

Capital expenditures for the 2007 first quarter were $53,649,000, of which $31,413,000 was for construction of new tank barges and towboats, and $22,236,000 was primarily for upgrading of the existing marine transportation fleet. Financing of the construction of the new tank barges and towboats was through operating cash flows and available credit under the Company’s Revolving Credit Facility.

					Expended										Placed in Service
Contract	No. of				($ in millions)										(Barrels in thousands)
Date	Barges		Capacity		2004		2005		2006		2007		Total		2005		2006		2007*		2008*
June 2004		11		30,000	$	―	$	24.6	$	.1	$	―	$	24.7		330		―		―		―
July 2004		7		30,000		3.9		10.9		.2		―		15.0		180		30		―		―
Nov. 2004		20		10,000		―		21.9		1.4		―		23.3		200		―		―		―
July 2005		10		30,000		―		3.7		11.6		1.8		18.0 Est.		―		180		120		―
July 2005		13		30,000		―		―		28.4		―		28.4		―		390		―		―
Mar. 2006		12		30,000		―		―		2.4		20.5		28.0 Est.		―		―		360		―
April 2006		8		30,000		―		―		1.4		3.3		15.0 Est.		―		―		150		90
June 2006		2		10,000		―		―		1.8		.8		2.6 Est.		―		―		20		―
Oct. 2006		6		10,000		―		―		1.7		.9		7.7 Est.		―		―		60		―
Feb. 2007		1		30,000		―		―		―		―		2.8 Est.		―		―		30		―

							Expended
Contract	No. of						($ in millions)								Placed in Service
Date	Towboats		Horsepower		Market		2005		2006		2007		Total		2006		2007*		2008*
Dec. 2005		4		2100		River	$	3.2	$	6.8	$	2.8	$	13.0 Est.		1		3		―
Aug. 2006		4		1800		Canal		―		2.8		1.2		13.0 Est.		―		4		―
Mar. 2007		4		1800		Canal		―		―		.1		13.6 Est.		―		―		4

During the 2007 first quarter, the Company did not purchase any treasury stock. As of May 4, 2007, the Company had 2,258,000 shares available under its existing repurchase authorization. Historically, treasury stock purchases have been financed through operating cash flows and borrowing 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.

The Company generated net cash provided by operating activities of $47,140,000 during the three months ended March 31, 2007, 51% higher than the $31,306,000 generated during the three months ended March 31, 2006. The increase in the 2007 versus 2006 first quarter reflected stronger earnings in the 2007 first quarter versus the 2006 first quarter, higher depreciation and amortization expense attributable to the new construction program and acquisitions and negative cash flows resulting from changes in operating assets and liabilities for the 2006 first quarter. The cash flows from changes in operating assets and liabilities were higher in the 2007 first quarter versus the 2006 first quarter primarily due to a inventory increase in the 2006 first quarter to accommodate increased diesel engine services activity levels in 2006 versus a small decrease in the 2007 first quarter, a federal tax payment in the 2006 first quarter made related to the Internal Revenue Service’s audit of the Company’s 2002 through 2004 tax returns and larger incentive compensation payments in 2006 over 2007.

Funds generated are available for acquisitions, capital expenditure projects, treasury stock repurchases, repayments of borrowings associated with each of the above and other operating requirements. In addition to net cash flow provided by operating activities, the Company also had available as of May 3, 2007, $71,606,000 under its Revolving Credit Facility and $121,000,000 under its shelf registration program, subject to mutual agreement on terms, and $4,369,000 available under its Credit Line.

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 that generally contain cost escalation clauses whereby certain costs, including fuel, can be passed through to its customers; however, there is typically a 30 to 90 day delay before contracts are adjusted for fuel prices. Spot market rates include the cost of fuel and are subject to market volatility. The repair portion of the diesel engine services segment is based on prevailing current market rates.

The Company is exposed to risk from changes in interest rates on certain of its outstanding debt. 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 2007 interest expense by approximately $623,000, based on balances outstanding at December 31, 2006, and change the fair value of the Company’s debt by less than 1%.

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 collar and 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 floating rate senior notes and variable rate bank credit facility. The Company does not enter into derivative financial instrument transactions for speculative purposes.

Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13(a) - 15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this quarterly report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s 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. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(b)

Class III Directors elected to serve until the 2010 Annual Meeting of Stockholders were C. Sean Day, William M. Lamont, Jr. and C. Berdon Lawrence. Class I Directors continuing to serve until the 2008 Annual Meeting of Stockholders are Walter E. Johnson, David L. Lemmon and George A. Peterkin, Jr. Class II Directors continuing to serve until the 2009 Annual Meeting of Stockholders are Bob G. Gower, Monte J. Miller and Joseph H. Pyne.

	Nevada		74-1884980
	(State or other jurisdiction of		(IRS Employer Identification No.)
	incorporation or organization)

	55 Waugh Drive, Suite 1000, Houston, TX		77007
	(Address of principal executive offices)		(Zip Code)

	Outstanding Non-Qualified or Nonincentive Stock Awards			Weighted Average Exercise Price
Outstanding December 31, 2006		1,072,317		$	18.80
Granted		349,380		$	35.69
Exercised		(220,921	)	$	14.61
Outstanding March 31, 2007		1,200,776		$	21.47

	Outstanding Non-Qualified or Nonincentive Stock Awards			Weighted Average Exercise Price
Outstanding December 31, 2006		343,316		$	17.81
Exercised		(67,974	)	$	13.86
Outstanding March 31, 2007		275,342		$	18.78

	Three months ended March 31,
	2007	2006
Dividend yield	None	None
Average risk-free interest rate	4.8%	4.7%
Stock price volatility	25%	25%
Estimated option term	Four or nine years	Four or nine years

	Three months ended March 31,
	2007			2006 As Adjusted

Net earnings	$	24,422		$	22,511
Pension and postretirement benefit adjustments, net of tax		435			-
Change in fair value of derivative financial instruments, net of tax		(481	)		1,851
Total comprehensive income	$	24,376		$	24,362

	Other Postretirement Benefits
	Postretirement Welfare Plan
	Three months ended March 31,
	2007			2006
Components of net periodic benefit cost:
Service cost	$	124		$	98
Interest cost		114			110
Amortization:
Actuarial gain		(28	)		(6	)
Prior service credit		10			5
Net periodic benefit cost	$	220		$	207

C. Sean Day	For	48,374,388	Withheld	1,608,285
William M. Lamont., Jr.	For	48,553,228	Withheld	1,429,445
C. Berdon Lawrence	For	47,006,366	Withheld	2,976,307

	KIRBY CORPORATION
	(Registrant)

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

Dated: May 4, 2007