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
involve 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, tsunamis, fog and
ice, tornados, COVID-19 or other pandemics, 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 10­K for the year ended December 31, 2021. Forward-looking statements are
based on currently available information and the Company assumes no obligation
to update any such statements. For purposes of Management's Discussion, all net
earnings per share attributable to Kirby common stockholders are "diluted
earnings per share."

Overview



The Company is the nation's largest domestic tank barge operator, transporting
bulk liquid products throughout the Mississippi River System, on the Gulf
Intracoastal Waterway, and coastwise along all three United States coasts. The
Company transports petrochemicals, black oil, refined petroleum products and
agricultural chemicals by tank barge. Through KDS, the Company provides
after-market service and parts for engines, transmissions, reduction gears and
related equipment used in oilfield services, marine, power generation,
on-highway, and other industrial applications. The Company also rents equipment
including generators, industrial compressors, high capacity lift trucks, and
refrigeration trailers for use in a variety of industrial markets, and
manufactures and remanufactures oilfield service equipment, including pressure
pumping units, manufactures cementing and pumping equipment as well as coil
tubing and well intervention equipment, electric power generation equipment,
specialized electrical distribution and control equipment, and high capacity
energy storage/battery systems for oilfield service and railroad customers.

The following table summarizes key operating results of the Company (in thousands, except per share amounts):



                                        Three Months Ended June 30,           Six Months Ended June 30,
                                         2022                 2021               2022             2021
Total revenues                      $      697,964       $      559,624     $    1,308,746     $ 1,056,474
Net earnings attributable to
Kirby                               $       28,457       $       10,190     $       45,891     $     6,815
Net earnings per share
attributable to Kirby common
stockholders - diluted              $         0.47       $         0.17     $         0.76     $      0.11
Net cash provided by operating
activities                                                                  $       95,644     $   197,818
Capital expenditures                                                        $       79,059     $    38,369

The 2022 second quarter included $1.5 million before taxes, $1.3 million after taxes, or $0.02 per share of severance expense.



Cash provided by operating activities for the 2022 first six months decreased
primarily due to the receipt of a tax refund of $119.5 million, including
accrued interest, for the Company's 2019 federal tax return during the 2021
first quarter. For the 2022 first six months, capital expenditures of $79.1
million included $66.3 million in KMT and $12.8 million in KDS and corporate,
more fully described under cash flow and capital expenditures below.

The Company projects that capital expenditures for 2022 will be in the $170
million to $190 million range. The 2022 construction program will consist of
approximately $5 million for the construction of new inland towboats, $145
million to $155 million primarily for maintenance capital and improvements to
existing marine equipment and facilities, and $20 million to $30 million for new
machinery and equipment, facilities improvements, and information technology
projects in KDS and corporate.

The Company's debt-to-capitalization ratio decreased to 27.9% at June 30, 2022
from 28.7% at December 31, 2021, primarily due to repayments under the 2024 Term
Loan in the 2022 first six months, and an increase in total equity, primarily
due to the net earnings attributable to Kirby of $45.9 million, partially offset
by treasury stock purchases of $18.1 million. The Company's debt outstanding as
of June 30, 2022 and December 31, 2021 is detailed in Long-Term Financing below.

                                       16
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Marine Transportation



For both the 2022 second quarter and first six months, KMT generated 58% of the
Company's revenues. The segment's customers include many of the major
petrochemical and refining companies that operate in the United States. Products
transported include intermediate materials used to produce many of the end
products used widely by businesses and consumers - plastics, fiber, paints,
detergents, oil additives and paper, among others, as well as residual fuel oil,
ship bunkers, asphalt, gasoline, diesel fuel, heating oil, crude oil, natural
gas condensate, and agricultural chemicals. Consequently, KMT is directly
affected by the volumes produced by the Company's petroleum, petrochemical, and
refining customer base.

The following table summarizes the Company's marine transportation fleet:



                                                                   June 30,
                                                               2022        2021
Inland tank barges:
Owned                                                             990       1,002
Leased                                                             44          44
Total                                                           1,034       1,046
Barrel capacity (in millions)                                    23.0       

23.4



Active inland towboats (quarter average):
Owned                                                             211         218
Chartered                                                          59          42
Total                                                             270         260

Coastal tank barges:
Owned                                                              29          42
Leased                                                              1           1
Total                                                              30          43
Barrel capacity (in millions)                                     3.1         4.0

Coastal tugboats:
Owned                                                              26          38
Chartered                                                           3           3
Total                                                              29          41

Offshore dry-bulk cargo barges (owned)                              4       

4

Offshore tugboats and docking tugboat (owned and chartered) 5

5




The Company also owns shifting operations and fleeting facilities for dry cargo
barges and tank barges on the Houston Ship Channel and in Freeport and Port
Arthur, Texas, and Lake Charles, Louisiana, and a shipyard for building towboats
and performing routine maintenance near the Houston Ship Channel, as well as a
two-thirds interest in Osprey Line, L.L.C., which transports project cargoes and
cargo containers by barge.

During the 2022 first six months, the Company brought back into service seven
inland tank barges and leased two tank barges. The net result was an increase of
nine inland tank barges and approximately 0.1 million barrels of capacity.

KMT revenues for the 2022 second quarter and first six months increased 22% and
20%, respectively, and operating income increased 67% and 134%, respectively,
compared to the 2021 second quarter and first six months. The increases for the
2022 second quarter and first six months were primarily due to increased tank
barge utilization, higher term and spot pricing, and increased fuel rebills in
the inland and coastal markets. The 2021 first six months was also heavily
impacted by Winter Storm Uri which shut down many Gulf Coast refineries and
chemical plants for an extended period of time starting in mid-February. These
emergency shutdowns resulted in significantly reduced liquids production and
lower volumes for the Company's inland marine transportation market during the
2021 first quarter. The 2022 and 2021 first quarters were impacted by poor
operating conditions including seasonal wind and fog along the Gulf Coast,
flooding on the Mississippi River, and various lock closures along the Gulf
Intracoastal Waterway, in addition to ice on the Illinois River. For both the
2022 second quarter and first six months, the inland tank barge fleet
contributed 78% and the coastal fleet contributed 22% of KMT revenues. For the
2021 second quarter and first six months, the inland tank barge fleet
contributed 76% and 75%, respectively, and the coastal fleet contributed 24% and
25%, respectively, of KMT revenues.

                                       17
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Inland tank barge utilization levels averaged in the mid-80% range during the
2022 first quarter and the low 90% range during the 2022 second quarter compared
to the mid-70% range during the 2021 first quarter and the low to mid-80% range
during the 2021 second quarter. The 2022 first six months reflected increasing
activity levels as a result of higher refinery and petrochemical plant
utilization while the 2021 first six months was impacted by reduced demand
resulting from the effects of the COVID-19 pandemic causing an economic slowdown
as well as reduced volumes due to Winter Storm Uri during the 2021 first quarter
partially offset by the Colonial Pipeline outage which increased barge
transportation activity in the 2021 second quarter.

Coastal tank barge utilization levels averaged in the low 90% range during both
the 2022 first and second quarters compared to the mid-70% range during the 2021
first quarter and the low to mid-70% range during the 2021 second quarter. The
increase in coastal tank barge utilization during 2022 was primarily due to the
retirement of underutilized barges in the 2021 third quarter and some modest
improvements in customer demand.

During both the 2022 second quarter and first six months, approximately 60% of
KMT inland revenues were under term contracts and 40% were spot contract
revenues. During both the 2021 second quarter and first six months,
approximately 65% of KMT inland revenues were under term contracts and 35% were
spot contract revenues. Inland time charters during both the 2022 second quarter
and first six months represented 57% of the inland revenues under term contracts
compared with 57% and 59% in the 2021 second quarter and first six months,
respectively. During each of the 2022 and 2021 second quarters and first six
months, approximately 80% of the coastal revenues were under term contracts and
20% were spot contract revenues. Coastal time charters represented approximately
90% of coastal revenues under term contracts during both the 2022 second quarter
and first six months compared to approximately 85% during both the 2021 second
quarter and first six months. Term contracts have contract terms of 12 months or
longer, while spot contracts have contract terms of less than 12 months.

The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2022 compared to contracts renewed during the corresponding quarter of 2021:



                                Three Months Ended
                          March 31, 2022   June 30, 2022
Inland market:
Term increase                    7% - 9%       14% - 16%
Spot increase                  15% - 20%       15% - 18%
Coastal market (a):
Term increase                    4% - 6%       10% - 12%
Spot increase                    4% - 6%       10% - 12%


(a)
Spot and term contract pricing in the coastal market are contingent on various
factors including geographic location, vessel capacity, vessel type, and product
serviced. Contract pricing in the coastal marine market continued to be impacted
by the oversupply of tank barges in the coastal industry in 2022 and 2021.

Effective January 1, 2022, annual escalators for labor and the producer price
index on a number of inland multi-year contracts resulted in rate increases on
those contracts of approximately 5%, excluding fuel.

KMT operating margin was 7.6% and 6.3% for the 2022 second quarter and first six
months, respectively, compared to 5.6% and 3.2% for the 2021 second quarter and
first six months, respectively.

Distribution and Services



KDS sells genuine replacement parts, provides service mechanics to overhaul and
repair engines, transmissions, reduction gears and related oilfield services
equipment, rebuilds component parts or entire diesel engines, transmissions and
reduction gears, and related equipment used in oilfield services, marine, power
generation, on-highway and other industrial applications. The Company also rents
equipment including generators, industrial compressors, high capacity lift
trucks, and refrigeration trailers for use in a variety of industrial markets,
manufactures and remanufactures oilfield service equipment, including pressure
pumping units, and manufactures cementing and pumping equipment as well as coil
tubing and well intervention equipment, electric power generation equipment,
specialized electric distribution and control equipment, and high capacity
energy storage/battery systems for oilfield service and railroad customers.

For both the 2022 second quarter and first six months, KDS generated 42% of the
Company's revenues, of which 82% and 85%, respectively, were generated from
service and parts and 18% and 15%, respectively, from manufacturing. The results
of KDS are largely influenced by the economic cycles of the oil and gas, marine,
power generation, on-highway, and other related industrial markets.

                                       18
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KDS revenues for the 2022 second quarter and first six months increased 29% and
30%, respectively, and operating income increased 172% and 206%, respectively,
compared with the 2021 second quarter and first six months. In the commercial
and industrial market, the increases for the 2022 second quarter and first six
months were primarily attributable to strong economic activity across the United
States which resulted in higher business levels in the marine and on-highway
businesses. Increased product sales in Thermo King also contributed favorably to
the 2022 second quarter and first six months results. These increases were
partially offset by continuing supply chain constraints and delays. The 2021
first six months was impacted by Winter Storm Uri which caused reduced activity,
especially in the Southern United States, in the commercial and industrial
market. For the 2022 second quarter and first six months, the commercial and
industrial market contributed 55% and 56%, respectively, of KDS revenues.

In the oil and gas market, revenues and operating income improved compared to
the 2021 second quarter and first six months due to higher oilfield activity
which resulted in increased demand for new transmissions and parts in the
distribution business. Although the manufacturing business was heavily impacted
by supply chain delays, the business continued to experience increased orders
and deliveries of new environmentally friendly pressure pumping equipment and
power generation equipment for electric fracturing. For the 2022 second quarter
and first six months, the oil and gas market contributed 45% and 44%,
respectively, of KDS revenues.

KDS operating margin was 5.7% and 5.1% for the 2022 second quarter and first six
months, respectively, compared to 2.7% and 2.1% for the 2021 second quarter and
first six months, respectively.

Outlook



Refinery and petrochemical utilization levels are near historic highs. This is
favorable for the Company's barge utilization which is strong in both inland and
coastal markets with steadily increasing rates. In KDS, despite persistent
supply chain constraints and delays, demand for the Company's products and
services continues to grow. Overall, the Company expects both KMT and KDS to
deliver improved financial results in 2022.

The inland marine transportation market, revenues and operating income are
expected to continue to improve, driven by increased barge utilization,
improvements in the spot market, and renewals of expiring term contracts at
higher rates. The impacts of rising costs from inflationary pressures, including
significantly higher fuel prices, are expected to be recovered as term contracts
renew and contract escalators reprice over the coming quarters and into 2023. In
coastal marine, modest improvements in demand and pricing are anticipated in
2022, but revenues and operating income are expected to be impacted by planned
shipyard maintenance and ballast water treatment installations on certain
vessels for the duration of the year.

KDS results are largely influenced by the cycles of the oil and gas, marine,
power generation, on-highway and other related industrial markets. In the oil
and gas market, high commodity prices, increasing rig counts, and growing well
completions activity are expected to result in increased demand for original
equipment manufacturer products, parts, and services as well as for new
environmentally friendly pressure pumping equipment and power generation
equipment for electric fracturing. In commercial and industrial, favorable
economic activity is expected to result in increased demand in power generation,
marine repair, and on-highway. Overall, despite ongoing supply chain issues and
long lead times, favorable oilfield fundamentals and increased demand in
commercial and industrial are expected to result in improved financial results
in 2022.

Acquisitions

On March 31, 2022, the Company paid $3.9 million in cash to purchase assets of a
gearbox repair company in KDS. During the six months ended June 30, 2021, the
Company purchased four inland tank barges from a leasing company for $7.5
million in cash. The Company had been leasing the barges prior to the purchase.
Financing of the purchases was through cash provided by operating activities.

Results of Operations

The following table sets forth the Company's KMT and KDS revenues and the percentage of each to total revenues (dollars in thousands):



                           Three Months Ended June 30,                      

Six Months Ended June 30,


                   2022           %          2021           %           2022            %            2021            %
Marine
transportation   $ 405,655          58 %   $ 332,887          59 %   $   761,191           58 %   $   633,838           60 %
Distribution
and services       292,309          42       226,737          41         547,555           42         422,636           40
                 $ 697,964         100 %   $ 559,624         100 %   $ 1,308,746          100 %   $ 1,056,474          100 %




                                       19

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Marine Transportation

The following table sets forth KMT revenues, costs and expenses, operating income, and operating margin (dollars in thousands):



                               Three Months Ended June 30,                  

Six Months Ended June 30,


                            2022            2021         % Change         2022          2021        % Change
Marine transportation
revenues                $    405,655      $ 332,887             22 %   $  761,191     $ 633,838            20 %

Costs and expenses:
Costs of sales and
operating expenses           294,343        229,959             28        548,702       444,084            24
Selling, general and
administrative                28,294         28,272              -         60,630        58,850             3
Taxes, other than on
income                         7,990          8,677             (8 )       15,810        15,406             3
Depreciation and
amortization                  44,211         47,501             (7 )       88,297        95,080            (7 )
                             374,838        314,409             19        713,439       613,420            16
Operating income        $     30,817      $  18,478             67 %   $   47,752     $  20,418           134 %
Operating margins                7.6 %          5.6 %                       

6.3 % 3.2 %

Marine Transportation Revenues

The following table shows the marine transportation markets serviced by the Company, KMT revenue distribution, products moved and the drivers of the demand for the products the Company transports:



                 2022 Second
                   Quarter      2022 Six Months
   Markets         Revenue          Revenue
   Serviced      Distribution    Distribution          Products Moved             Drivers
Petrochemicals       49%              49%         Benzene, Styrene,           Consumer
                                                  Methanol, Acrylonitrile,    non-durables -
                                                  Xylene, Naphtha, Caustic    70%, Consumer
                                                  Soda, Butadiene,            durables - 30%
                                                  Propylene
Black Oil            28%              28%         Residual Fuel Oil, Coker    Fuel for Power
                                                  Feedstock, Vacuum Gas       Plants and
                                                  Oil, Asphalt, Carbon        Ships, Feedstock
                                                  Black Feedstock, Crude      for Refineries,
                                                  Oil, Natural Gas            Road
                                                  Condensate, Ship Bunkers    Construction
Refined              20%              20%         Gasoline, No. 2 Oil, Jet    Vehicle Usage,
Petroleum                                         Fuel, Heating Oil, Diesel   Air Travel,
Products                                          Fuel, Ethanol               Weather
                                                                              Conditions,
                                                                              Refinery
                                                                              Utilization
Agricultural          3%              3%          Anhydrous Ammonia,          Corn, Cotton and
Chemicals                                         Nitrogen - Based Liquid     Wheat
                                                  Fertilizer, Industrial      Production,
                                                  Ammonia                     Chemical
                                                                              Feedstock Usage


KMT revenues for the 2022 second quarter and first six months increased 22% and
20%, respectively, compared to the 2021 second quarter and first six months
revenues. The increase for the 2022 second quarter and first six months was
primarily due to increased tank barge utilization, higher term and spot pricing,
and increased fuel rebills in the inland and coastal markets. The 2021 first six
months was also heavily impacted by Winter Storm Uri which shut down many Gulf
Coast refineries and chemical plants for an extended period of time starting in
mid-February. These emergency shutdowns resulted in significantly reduced
liquids production and lower volumes for the Company's inland marine
transportation market during the 2021 first quarter. The 2022 and 2021 first
quarters were impacted by poor operating conditions including seasonal wind and
fog along the Gulf Coast, flooding on the Mississippi River, and various lock
closures along the Gulf Intracoastal Waterway, in addition to ice on the
Illinois River. For both the 2022 second quarter and first six months, the
inland tank barge fleet contributed 78% and the coastal fleet contributed 22% of
KMT revenues. For the 2021 second quarter and first six months, the inland tank
barge fleet contributed 76% and 75%, respectively, and the coastal fleet
contributed 24% and 25%, respectively, of KMT revenues.

Inland tank barge utilization levels averaged in the mid-80% range during the
2022 first quarter and the low 90% range during the 2022 second quarter compared
to the mid-70% range during the 2021 first quarter and the low to mid-80% range
during the 2021 second quarter. The 2022 first six months reflected increasing
activity levels as a result of higher refinery and petrochemical plant
utilization while the 2021 first six months was impacted by reduced demand
resulting from the effects of the COVID-19 pandemic causing an economic slowdown
as well as reduced volumes due to Winter Storm Uri during the 2021 first quarter
partially offset by the Colonial Pipeline outage which increased barge
transportation activity in the 2021 second quarter.

                                       20
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Coastal tank barge utilization levels averaged in the low 90% range during both
the 2022 first and second quarters compared to the mid-70% range during the 2021
first quarter and the low to mid-70% range during the 2021 second quarter. The
increase in coastal tank barge utilization during 2022 was primarily due to the
retirement of underutilized barges in the 2021 third quarter and some modest
improvements in customer demand.

The petrochemical market, which is the Company's largest market, contributed 49%
of KMT revenues for both the 2022 second quarter and first six months,
reflecting increased volumes and utilization from Gulf Coast petrochemical
plants as a result of improved economic conditions following the height of the
COVID-19 pandemic.

The black oil market, which contributed 28% of KMT revenues for both the 2022
second quarter and first six months, reflected improved demand as refinery
utilization and production levels of refined petroleum products and fuel oils
increased following the height of the COVID-19 pandemic. During the 2022 first
six months, the Company transported crude oil and natural gas condensate
produced from the Permian Basin and the Eagle Ford shale formation in Texas,
both along the Gulf Intracoastal Waterway with inland vessels and in the Gulf of
Mexico with coastal equipment. Additionally, the Company transported volumes of
Utica natural gas condensate downriver from the Mid-Atlantic to the Gulf Coast
and Canadian and Bakken crude downriver from the Midwest to the Gulf Coast.

The refined petroleum products market, which contributed 20% of KMT revenues for
both the 2022 second quarter and first six months, reflected increased volumes
in the inland market as refinery utilization and product levels improved
following the height of the COVID-19 pandemic.

The agricultural chemical market, which contributed 3% of KMT revenues for both
the 2022 second quarter and first six months, reflected improved demand for
transportation of both domestically produced and imported products, primarily
due to improved economic conditions following the height of the COVID-19
pandemic.

For the 2022 second quarter, the inland operations incurred 2,762 delay days, 5%
fewer than the 2,922 delay days that occurred during the 2021 second quarter.
For the 2022 first six months, the inland operations incurred 5,899 delay days,
2% more than the 5,776 delay days that occurred during the 2021 first six
months. Delay days measure the lost time incurred by a tow (towboat and one or
more tank barges) during transit when the tow is stopped due to weather, lock
conditions, or other navigational factors. Delay days reflected poor operating
conditions due to heavy wind and fog along the Gulf Coast and high water
conditions on the Mississippi River System during the 2022 and 2021 first
quarters. The 2022 first quarter was also impacted by ice on the Illinois River
while the 2021 first quarter was impacted by closures of key waterways as a
result of lock maintenance projects.

During both the 2022 second quarter and first six months, approximately 60% of
KMT inland revenues were under term contracts and 40% were spot contract
revenues. During both the 2021 second quarter and first six months,
approximately 65% of KMT inland revenues were under term contracts and 35% were
spot contract revenues. Inland time charters during both the 2022 second quarter
and first six months represented 57% of the inland revenues under term contracts
compared with 57% and 59% in the 2021 second quarter and first six months,
respectively. During each of the 2022 and 2021 second quarters and first six
months, approximately 80% of the coastal revenues were under term contracts and
20% were spot contract revenues. Coastal time charters represented approximately
90% of coastal revenues under term contracts during both the 2022 second quarter
and first six months compared to approximately 85% during both the 2021 second
quarter and first six months. Term contracts have contract terms of 12 months or
longer, while spot contracts have contract terms of less than 12 months.

The following table summarizes the average range of pricing changes in term and spot contracts renewed during 2022 compared to contracts renewed during the corresponding quarter of 2021:



                                Three Months Ended
                          March 31, 2022   June 30, 2022
Inland market:
Term increase                    7% - 9%       14% - 16%
Spot increase                  15% - 20%       15% - 18%
Coastal market (a):
Term increase                    4% - 6%       10% - 12%
Spot increase                    4% - 6%       10% - 12%


(a)
Spot and term contract pricing in the coastal market are contingent on various
factors including geographic location, vessel capacity, vessel type, and product
serviced. Contract pricing in the coastal marine market continued to be impacted
by the oversupply of tank barges in the coastal industry in 2022 and 2021.

Effective January 1, 2022, annual escalators for labor and the producer price
index on a number of inland multi-year contracts resulted in rate increases on
those contracts of approximately 5%, excluding fuel.

                                       21
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Marine Transportation Costs and Expenses



Costs and expenses for the 2022 second quarter and first six months increased
19% and 16%, respectively, compared to the 2021 second quarter and first six
months. Costs of sales and operating expenses for the 2022 second quarter and
first six months increased 28% and 24%, respectively, compared with the 2021
second quarter and first six months. The increases during the 2022 second
quarter and first six months primarily reflect improved business activity levels
and increased fuel costs as well as incremental costs associated with the
COVID-19 Omicron variant during the first quarter.

The inland marine transportation fleet operated an average of 270 towboats
during the 2022 second quarter, of which an average of 59 were chartered,
compared to 260 during the 2021 second quarter, of which an average of 42 were
chartered. The increase was primarily due to increasing business activity levels
during the 2022 second quarter. Generally, variability in demand or anticipated
demand, as tank barges are added or removed from the fleet, as chartered towboat
availability changes, or as weather or water conditions dictate, the Company
charters in or releases chartered towboats in an effort to balance horsepower
needs with current requirements. The Company has historically used chartered
towboats for approximately one-fourth of its horsepower requirements.

During the 2022 second quarter, the inland operations consumed 12.6 million
gallons of diesel fuel compared to 11.8 million gallons consumed during the 2021
second quarter. The average price per gallon of diesel fuel consumed during the
2022 second quarter was $3.98 per gallon compared with $2.06 per gallon for the
2021 second quarter. During the 2022 first six months, the inland operations
consumed 24.2 million gallons of diesel fuel compared to 22.6 million gallons
consumed during the 2021 first six months. The average price per gallon of
diesel fuel consumed during the 2022 first six months was $3.27 per gallon
compared with $1.86 per gallon for the 2021 first six months. Fuel escalation
and de-escalation clauses are typically included in term contracts and are
designed to rebate fuel costs when prices decline and recover additional fuel
costs when fuel prices rise; however, there is generally a 30 to 90 day delay
before contracts are adjusted. Spot contracts do not have escalators for fuel.

Selling, general and administrative expenses for the 2022 second quarter were
flat compared to the 2021 second quarter and increased 3% for the 2022 first six
months compared to the 2021 first six months. The increase for the 2022 first
six months was primarily due to increased incentive compensation accruals and
higher business activity levels. Business activity levels in the 2021 first six
months were impacted by COVID-19 and the resulting economic slowdown as well as
Winter Storm Uri during the 2021 first quarter.

Depreciation and amortization for the both the 2022 second quarter and first six
months decreased 7% compared to the 2021 second quarter and first six months,
primarily reflecting retirements, sales, and impairment of marine equipment
during 2021 and 2022.

Marine Transportation Operating Income and Operating Margin



KMT operating income for the 2022 second quarter and first six months increased
67% and 134%, respectively, compared with the 2021 second quarter and first six
months. The 2022 second quarter operating margin was 7.6% compared with 5.6% for
the 2021 second quarter. The 2022 first six months operating margin was 6.3%
compared with 3.2% for the 2021 first six months. The increases in operating
income and operating margin were primarily due to increased barge utilization
and higher term and spot contract pricing in the inland and coastal markets,
each as a result of improving business activity levels, partially offset by
increasing fuel prices as well as the impacts of the COVID-19 Omicron variant
during the 2022 first quarter. The 2021 first six months activity levels were
also impacted by Winter Storm Uri.

Distribution and Services

The following table sets forth KDS revenues, costs and expenses, operating income, and operating margin (dollars in thousands):



                              Three Months Ended June 30,                  

Six Months Ended June 30,


                           2022            2021        % Change         2022          2021        % Change
Distribution and
services revenues       $   292,309      $ 226,737            29 %   $  547,555     $ 422,636            30 %

Costs and expenses:
Costs of sales and
operating expenses          229,196        180,096            27        425,715       329,223            29
Selling, general and
administrative               40,653         32,987            23         82,575        69,475            19
Taxes, other than on
income                        1,590          1,658            (4 )        3,318         3,150             5
Depreciation and
amortization                  4,133          5,840           (29 )        8,239        11,721           (30 )
                            275,572        220,581            25        519,847       413,569            26
Operating income        $    16,737      $   6,156           172 %   $   27,708     $   9,067           206 %
Operating margins               5.7 %          2.7 %                        5.1 %         2.1 %




                                       22

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Distribution and Services Revenues

The following table shows the markets serviced by KDS, the revenue distribution, and the customers for each market:



                            2022 Second
                              Quarter      2022 Six Months
                              Revenue          Revenue
    Markets Serviced        Distribution    Distribution                Customers
Commercial and Industrial       55%              56%         Inland River Carriers - Dry and
                                                             Liquid, Offshore Towing - Dry
                                                             and Liquid, Offshore Oilfield
                                                             Services - Drilling Rigs &
                                                             Supply Boats, Harbor Towing,
                                                             Dredging, Great Lakes Ore
                                                             Carriers, Pleasure Crafts, On
                                                             and Off-Highway Transportation,
                                                             Power Generation, Standby Power
                                                             Generation, Pumping Stations,
                                                             Mining
Oil and Gas                     45%              44%         Oilfield Services, Oil and Gas
                                                             Operators and Producers


KDS revenues for the 2022 second quarter and first six months increased 29% and
30%, respectively, compared to the 2021 second quarter and first six months. In
the commercial and industrial market, the increase for the 2022 second quarter
and first six months was primarily attributable to strong economic activity
across the United States which resulted in higher business levels in the marine
and on-highway businesses. Increased product sales in Thermo King also
contributed favorably to the 2022 second quarter and first six months results.
These increases were partially offset by continuing supply chain constraints and
delays. The 2021 first six months was impacted by Winter Storm Uri which caused
reduced activity, especially in the Southern United States, in the commercial
and industrial market. For the 2022 second quarter and first six months, the
commercial and industrial market contributed 55% and 56%, respectively, of KDS
revenues.

In the oil and gas market, revenues improved compared to the 2021 second quarter
and first six months due to higher oilfield activity which resulted in increased
demand for new transmissions and parts in the distribution business. Although
the manufacturing business was heavily impacted by supply chain delays, the
business continued to experience increased orders and deliveries of new
environmentally friendly pressure pumping equipment and power generation
equipment for electric fracturing. For the 2022 second quarter and first six
months, the oil and gas market contributed 45% and 44%, respectively, of KDS
revenues.

Distribution and Services Costs and Expenses



Costs and expenses for the 2022 second quarter and first six months increased
25% and 26%, respectively, compared with the 2021 second quarter and first six
months. Costs of sales and operating expenses for the 2022 second quarter and
first six months increased 27% and 29%, respectively, compared with the 2021
second quarter and first six months, reflecting higher demand in the marine and
on-highway businesses in commercial and industrial markets as well as increased
demand in the oil and gas market as a result of higher oilfield activity levels.

Selling, general and administrative expenses for the 2022 second quarter and
first six months increased 23% and 19%, respectively, compared to the 2021
second quarter and first six months, primarily due to salaries and costs related
to the acquisition of assets of an energy storage systems manufacturer in the
2021 fourth quarter, annual salary raises, severance expense, and higher
warranty accruals associated with increased activity levels.

Depreciation and amortization for the 2022 second quarter and first six months
decreased 29% and 30%, respectively, compared to the 2021 second quarter and
first six months, primarily due to sales of property and equipment and reduced
capital spending during 2021.

Distribution and Services Operating Income and Operating Margin



KDS operating income for the 2022 second quarter and first six months increased
172% and 206%, respectively, compared with the 2021 second quarter and first six
months. The 2022 second quarter operating margin was 5.7% compared with 2.7% for
the 2021 second quarter. The 2022 first six months operating margin was 5.1%
compared to 2.1% for the 2021 first six months. The results reflect increased
business levels in both the commercial and industrial and oil and gas markets.

Gain on Disposition of Assets



The Company reported a net gain on disposition of assets of $2.7 million for the
2022 second quarter and $2.1 million for the 2021 second quarter. The Company
reported a net gain on disposition of assets of $7.6 million for the 2022 first
six months and $4.3 million for the 2021 first six months. The net gains were
primarily from sales of marine transportation equipment.

                                       23
--------------------------------------------------------------------------------

Other Income and Expenses

The following table sets forth other income, noncontrolling interests, and interest expense (dollars in thousands):



                                   Three Months Ended June 30,              

Six Months Ended June 30,


                               2022            2021         % Change           2022          2021         % Change
Other income               $      3,740      $   2,523              48 %    $    8,048     $   6,314              27 %
Noncontrolling interests   $       (149 )    $    (162 )            (8 )%   $     (301 )   $    (417 )           (28 )%
Interest expense           $    (10,640 )    $ (10,706 )            (1 )%   $  (20,843 )   $ (21,672 )            (4 )%


Other Income

Other income for the 2022 and 2021 second quarters include income of $3.5
million and $2.3 million, respectively, and the 2022 and 2021 first six months
include income of $6.9 million and $4.3 million, respectively, for all
components of net benefit costs except the service cost component related to the
Company's defined benefit plans. Other income for the 2022 first six months also
reflects lower interest income related to the Company's federal income tax
refunds as compared to the 2021 first six months.

Interest Expense



The following table sets forth average debt and average interest rate (dollars
in thousands):

                          Three Months Ended June 30,          Six Months Ended June 30,
                             2022               2021              2022             2021
Average debt            $     1,149,355      $ 1,330,618     $    1,163,759     $ 1,373,873
Average interest rate               3.7 %            3.2 %              3.6 %           3.1 %


Interest expense for the 2022 second quarter and first six months decreased 1%
and 4%, respectively, compared with the 2021 second quarter and first six
months, primarily due to lower average debt outstanding as a result of debt
repayments during 2021 and 2022, partially offset by a higher average interest
rate. There was no capitalized interest excluded from interest expense during
the 2022 or 2021 first six months.

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