KIRBY CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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 (loss) per share attributable to Kirby common stockholders are "diluted
earnings (loss) 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 the principal operating results of the Company (in thousands, except per share amounts):

                                                                    Three Months Ended March 31,
                                                                      2022                 2021
Total revenues                                                   $      610,782       $      496,850
Net earnings (loss) attributable to Kirby                        $       

17,434 ($3,375)
Net earnings (loss) per share attributable to common shareholders of Kirby – diluted

                                           $         0.29       $        (0.06 )
Net cash provided by operating activities                        $       32,222       $      102,558
Capital expenditures                                             $       35,075       $       14,052


Cash provided by operating activities for the 2022 first quarter 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 quarter, capital expenditures of $35.1 million
included $30.1 million in KMT and $5.0 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 28.4% at March 31, 2022
from 28.7% at December 31, 2021, primarily due to repayments under the Term Loan
in the 2022 first quarter, and an increase in total equity, primarily due to the
net earnings attributable to Kirby of $17.4 million. The Company's debt
outstanding as of March 31, 2022 and December 31, 2021 is detailed in Long-Term
Financing below.

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Maritime transport

For the 2022 first quarter, 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 shipping fleet:

                                                                   March 31,
                                                               2022        2021
Inland tank barges:
Owned                                                             983       1,008
Leased                                                             42          49
Total                                                           1,025       1,057
Barrel capacity (in millions)                                    22.9       

23.7

Active inland towboats (quarter average):
Owned                                                             207         216
Chartered                                                          56          25
Total                                                             263         241

Coastal tank barges:
Owned                                                              29          43
Leased                                                              1           1
Total                                                              30          44
Barrel capacity (in millions)                                     3.1         4.2

Coastal tugboats:
Owned                                                              26          39
Chartered                                                           3           3
Total                                                              29          42

Offshore dry-bulk cargo barges (owned)                              4       

4

Offshore tugs and berthing tugs (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 first quarter of 2022, the number and capacity of the Company’s inland tank barges remained unchanged.

KMT revenues for the 2022 first quarter increased 18% and operating income
increased 773% compared to the 2021 first quarter. The increases for the 2022
first quarter were primarily due to increased tank barge utilization and term
and spot pricing in the inland market and increased fuel rebills in the inland
and coastal markets. The 2021 first quarter 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 also 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 the 2022 and 2021 first
quarters the inland tank barge fleet contributed 78% and 75%, respectively, and
the coastal fleet contributed 22% and 25%, respectively, of KMT revenues.

Inland tank barge utilization levels averaged in the mid-80% range during the
2022 first quarter compared to the mid-70% range during the 2021 first quarter.
The 2022 first quarter reflected increasing activity levels as a result of
higher refinery and petrochemical plant utilization while the 2021 first quarter
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.

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Coastal tank barge utilization levels averaged in the low 90% range during the
2022 first quarter compared to the mid-70% range during the 2021 first 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. Barge utilization in the coastal marine fleet
continued to be impacted by the oversupply of tank barges in the coastal
industry in 2022 and 2021.

During both the 2022 and 2021 first quarters approximately 65% of KMT inland
revenues were under term contracts and 35% were spot contract revenues. Inland
time charters during the 2022 and 2021 first quarters represented 58% and 61%,
respectively, of the inland revenues under term contracts. During both the 2022
and 2021 first quarters approximately 80% of the coastal revenues were under
term contracts and 20% were spot contract revenues. Coastal time charters
represented approximately 90% and 85% of coastal revenues under term contracts
during the 2022 and 2021 first quarters, respectively. 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 price changes of futures and spot contracts renewed in 2022 compared to contracts renewed in the corresponding quarter of 2021:

                             Three Months Ended
                               March 31, 2022
Inland market:
Term increase                            7% - 9%
Spot increase                          15% - 20%
Coastal market (a):
Term increase                            4% - 6%
Spot increase                            4% - 6%


(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.

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’s operating margin was 4.8% and 0.6% for the first quarters of 2022 and 2021, 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 the 2022 first quarter KDS generated 42% of the Company's revenues, of which
88% was generated from service and parts and 12%, 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.

KDS’ revenues for the first quarter of 2022 increased by 30% and operating income increased by 277% compared to the first quarter of 2021. In the commercial and industrial market, the increases for the first quarter of 2022 were mainly attributable improving economic activity through United States which resulted in higher levels of activity in maritime and road activities. Increase in product sales in Thermo King also contributed positively to the results of the first quarter of 2022. In addition, the first quarter of 2021 was impacted by the winter storm Uri which caused a drop in activity, particularly in the Southern United States, in the commercial and industrial market. For the first quarter of 2022, the commercial and industrial market contributed 58% of KDS revenue.

In the oil and gas market, revenues and operating income improved compared to
the 2021 first quarter 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 first quarter, the oil and gas
market contributed 42% of KDS revenues.

KDS operating margin was 4.3% and 1.5% for the first quarters of 2022 and 2021, respectively.

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Outlook

Although the 2022 first quarter was heavily impacted by the COVID-19 Omicron
variant in KMT, activity levels improved considerably in March. KDS also
experienced supply chain challenges that impacted the 2022 first quarter but
expects overall demand for its products and services to continue to improve as
the year progresses. As such, the Company expects both KMT and KDS to deliver
continued 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. Rising costs from inflation, including significantly higher fuel
prices, are expected to be headwinds but are anticipated to be largely mitigated
when escalations in contracts occur during the second half of the year. 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.

Acquisition

On March 31, 2022the company paid $3.9 million in cash to purchase the assets of a gearbox repair business from KDS. The purchase was financed with cash from operations.

Operating results

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

                                   Three Months Ended March 31,
                              2022          %         2021          %
Marine transportation       $ 355,536        58 %   $ 300,951        61 %
Distribution and services     255,246        42       195,899        39
                            $ 610,782       100 %   $ 496,850       100 %



Marine Transportation

The following table shows KMT’s revenues, costs and expenses, operating profit and operating margin (in thousands of dollars):

                                              Three Months Ended March 31,
                                            2022            2021        % 

Switch

Shipping revenue $355,536 $300,951

18%

Costs and expenses:
Costs of sales and operating expenses        254,359        214,125         

19

Selling, general and administrative           32,336         30,578             6
Taxes, other than on income                    7,820          6,729            16
Depreciation and amortization                 44,086         47,579            (7 )
                                             338,601        299,011            13
Operating income                        $     16,935      $   1,940           773 %
Operating margins                                4.8 %          0.6 %




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Shipping revenue

The following table outlines the shipping markets served by the Company, the breakdown of KMT’s revenues, the products transported and the demand drivers for the products transported by the Company:

                   2022 First
                    Quarter
    Markets         Revenue
   Serviced       Distribution           Products Moved                 Drivers
Petrochemicals        50%        Benzene, Styrene, Methanol,      Consumer
                                 Acrylonitrile, Xylene,           non-durables - 70%,
                                 Naphtha, Caustic Soda,           Consumer durables -
                                 Butadiene, Propylene             30%
Black Oil             26%        Residual Fuel Oil, Coker         Fuel for Power
                                 Feedstock, Vacuum Gas Oil,       Plants and Ships,
                                 Asphalt, Carbon Black            Feedstock for
                                 Feedstock, Crude Oil, Natural    Refineries, Road
                                 Gas Condensate, Ship Bunkers     Construction
Refined               20%        Gasoline, No. 2 Oil, Jet Fuel,   Vehicle Usage, Air
Petroleum                        Heating Oil, Diesel Fuel,        Travel, Weather
Products                         Ethanol                          Conditions,
                                                                  Refinery
                                                                  Utilization
Agricultural           4%        Anhydrous Ammonia, Nitrogen -    Corn, Cotton and
Chemicals                        Based Liquid Fertilizer,         Wheat Production,
                                 Industrial Ammonia               Chemical Feedstock
                                                                  Usage


KMT revenues for the 2022 first quarter increased 18% compared to the 2021 first
quarter revenues. The increase for the 2022 first quarter was primarily due to
increased tank barge utilization and term and spot pricing in the inland market
and increased fuel rebills in the inland and coastal markets. The 2021 first
quarter 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 also 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 the 2022 and 2021 first quarters the inland tank barge fleet
contributed 78% and 75%, respectively, and the coastal fleet contributed 22% and
25%, respectively, of KMT revenues.

Inland tank barge utilization levels averaged in the mid-80% range during the
2022 first quarter compared to the mid-70% range during the 2021 first quarter.
The 2022 first quarter reflected increasing activity levels as a result of
higher refinery and petrochemical plant utilization while the 2021 first quarter
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.

Coastal tank barge utilization levels averaged in the low 90% range during the
2022 first quarter compared to the mid-70% range during the 2021 first 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. Barge utilization in the coastal marine fleet
continued to be impacted by the oversupply of tank barges in the coastal
industry in 2022 and 2021.

The petrochemical market, the company’s largest market, contributed 50% of KMT’s revenue for the first quarter of 2022, reflecting increased volumes and usage of Gulf Coast petrochemical plants due to improved economic conditions after the peak of the COVID-19 pandemic.

The black oil market, which contributed 26% of KMT revenues for the 2022 first
quarter, 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 quarter, 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
the 2022 first quarter, 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 4% of KMT revenues for the
2022 first quarter, 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.

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For the 2022 first quarter, the inland operations incurred 3,137 delay days, 10%
more than the 2,854 delay days that occurred during the 2021 first quarter.
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. The increase in delay days in the 2022 first quarter
reflects increased volumes and barge utilization compared to the 2021 first
quarter.

During both the 2022 and 2021 first quarters approximately 65% of KMT inland
revenues were under term contracts and 35% were spot contract revenues. Inland
time charters during the 2022 and 2021 first quarters represented 58% and 61%,
respectively, of the inland revenues under term contracts. During both the 2022
and 2021 first quarters approximately 80% of the coastal revenues were under
term contracts and 20% were spot contract revenues. Coastal time charters
represented approximately 90% and 85% of coastal revenues under term contracts
during the 2022 and 2021 first quarters, respectively. 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 price changes of futures and spot contracts renewed in 2022 compared to contracts renewed in the corresponding quarter of 2021:

                             Three Months Ended
                               March 31, 2022
Inland market:
Term increase                            7% - 9%
Spot increase                          15% - 20%
Coastal market (a):
Term increase                            4% - 6%
Spot increase                            4% - 6%


(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.

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.

Shipping Costs and Expenses

Costs and expenses for the 2022 first quarter increased 13% compared to the 2021
first quarter. Costs of sales and operating expenses for the 2022 first quarter
increased 19% compared with the 2021 first quarter. The increases during the
2022 first quarter primarily reflect improved business activity levels and
increased fuel costs as well as incremental costs associated with the COVID-19
Omicron variant.

The inland marine transportation fleet operated an average of 263 towboats
during the 2022 first quarter, of which an average of 56 were chartered,
compared to 241 during the 2021 first quarter, of which an average of 25 were
chartered. The increase was primarily due to increasing business activity levels
during the 2022 first quarter. The 2021 first quarter activity was also impacted
by Winter Storm Uri. 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 first quarter, the inland operations consumed 11.5 million
gallons of diesel fuel compared to 10.8 million gallons consumed during the 2021
first quarter. The average price per gallon of diesel fuel consumed during the
2022 first quarter was $2.50 per gallon compared with $1.65 per gallon for the
2021 first quarter. 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 first quarter
increased 6% compared to the 2021 first quarter, primarily due to higher
business activity levels. Business activity levels in the 2021 first quarter
were impacted by COVID-19 and the resulting economic slowdown as well as Winter
Storm Uri.

Non-income taxes for the first quarter of 2022 increased by 16% compared to the first quarter of 2021, mainly reflecting higher property taxes on marine transportation equipment.

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Depreciation for the first quarter of 2022 decreased by 7% compared to the first quarter of 2021, mainly reflecting retirements, sales and depreciation of marine equipment in 2021.

Shipping Operating Profit and Operating Margin

KMT operating income for the 2022 first quarter increased 773%, respectively,
compared with the 2021 first quarter. The 2022 first quarter operating margin
was 4.8% compared with 0.6% for the 2021 first quarter. The increases in
operating income and operating margin were primarily due to increased barge
utilization and term and spot contract pricing in the inland market, each as a
result of improving business activity levels, partially offset by the impacts of
the COVID-19 Omicron variant and increasing fuel prices. The 2021 first quarter
was also impacted by Winter Storm Uri.

Distribution and Services

The following table shows KDS’ revenues, costs and expenses, operating profit (loss), and operating margin (in thousands of dollars):

                                              Three Months Ended March 31,
                                            2022            2021        % 

Switch

Distribution and service revenues $255,246 $195,899

30 %

Costs and expenses:
Costs of sales and operating expenses        196,519        149,127         

32

Selling, general and administrative           41,922         36,488            15
Taxes, other than on income                    1,728          1,492            16
Depreciation and amortization                  4,106          5,881           (30 )
                                             244,275        192,988            27
Operating income                        $     10,971      $   2,911           277 %
Operating margins                                4.3 %          1.5 %

Distribution and service revenues

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

                            2022 First Quarter
                                 Revenue
    Markets Serviced           Distribution                    Customers
Commercial and Industrial          58%           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                        42%           Oilfield Services, Oil and Gas
                                                 Operators and Producers


KDS revenues for the 2022 first quarter increased 30% compared to the 2021 first
quarter. In the commercial and industrial market, the increase for the 2022
first quarter was primarily attributable to improved 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 first quarter results. In addition, the 2021 first quarter
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 first quarter, the commercial and industrial market contributed 58% of KDS
revenues.

In the oil and gas market, revenues improved compared to the 2021 first quarter
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 first quarter, the oil and gas market contributed 42%
of KDS revenues.

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Distribution and service costs and expenses

Costs and expenses for the 2022 first quarter increased 27% compared with the
2021 first quarter. Costs of sales and operating expenses for the 2022 first
quarter increased 32%, compared with the 2021 first quarter, 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 first quarter
increased 15%, compared to the 2021 first quarter, primarily due to higher
salaries and higher warranty accruals associated with increased activity levels
as well as salaries and costs related to the acquisition of assets of an energy
storage systems manufacturer in the 2021 fourth quarter.

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

Distribution and Services Operating Result and Operating Margin

KDS operating income for the 2022 first quarter increased 277% compared with the
2021 first quarter. The 2022 first quarter operating margin was 4.3% compared to
1.5% for the 2021 first quarter. The results reflect increased business levels
in both the commercial and industrial and oil and gas markets.

Gain on disposal of assets

The Company reported a net gain on disposition of assets of $4.8 million for the
2022 first quarter and $2.1 million for the 2021 first quarter. The net gains
were primarily from sales of marine transportation equipment.

Other income and expenses

The following table presents other income, non-controlling interests and interest expense (in thousands of dollars):

                                 Three Months Ended March 31,
                               2022            2021        % Change
Other income               $      4,308      $   3,791            14 %

Non-majority interests $ (152 ) $ (255 ) (40)% Debit interest

           $    (10,203 )    $ (10,966 )          (7 )%


Other Income

Other income for the 2022 and 2021 first quarters include income of $3.4 million
and $2.0 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 2021 first quarter also includes interest income from the
Company's 2019 federal income tax refund received in February 2021.

Interest charges

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

                                  Three Months Ended March 31,
                                     2022                2021
Average debt                    $     1,178,916       $ 1,417,127
Average interest rate                       3.5 %             3.1 %


Interest expense for the 2022 first quarter decreased 7%, compared with the 2021
first quarter, primarily due to lower average debt outstanding as a result of
debt repayments during 2021. There was no capitalized interest excluded from
interest expense during the 2022 or 2021 first quarters.

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