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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
(Mark One)
/X/ -Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1999
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period from _______ to _______
Commission File Number 1-9063
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MARITRANS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0343903
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1818 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, Name of Each Exchange on
including area code Securities Which Registered
registered pursuant to Section New York Stock Exchange
12(b) of the Act: (215) 864-1200
Title of Each Class
Common Stock, Par Value $.01 Per Share
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
As of March 13, 2000, the aggregate market value of the common stock held by
non-affiliates of the registrant was $76,155,687. As of March 13, 2000,
Maritrans Inc. had 11,495,198 shares of common stock outstanding.
Documents Incorporated By Reference
Part III incorporates information by reference from the registrant's Proxy
Statement for Annual Meeting of Stockholders to be held on May 24, 2000.
Exhibit Index is located on page 35.
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MARITRANS INC.
TABLE OF CONTENTS
PART I
Item 1. Business ..................................................................... 1
Item 2. Properties ................................................................... 7
Item 3. Legal Proceedings ............................................................ 7
Item 4. Submission Of Matters To A Vote Of Security Holders .......................... 8
PART II
Item 5. Market For The Registrant's Common Equity And Related Stockholder Matters .... 9
Item 6. Selected Financial Data ...................................................... 10
Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of
Operations ................................................................... 10
Item 8. Financial Statements & Supplemental Data ..................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant ........................... 32
Item 11. Executive Compensation ....................................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and Management ............... 33
Item 13. Certain Relationships and Related Transactions ............................... 33
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K .............. 34
Signatures ............................................................................. 38
i
Special Note Regarding Forward-Looking Statements
Some of the statements under "Business," "Properties," "Legal Proceedings,"
"Market for Registrant's Common Stock and Related Stockholder Matters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report on Form 10-K (this "10-K")
constitute forward-looking statements under Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including statements made with respect to present or anticipated
utilization, future revenues and customer relationships, capital expenditures,
future financings, and other statements regarding matters that are not
historical facts, and involve predictions. These statements involve known and
unknown risks, uncertainties and other factors that may cause actual results,
levels of activity, growth, performance, earnings per share or achievements to
be materially different from any future results, levels of activity, growth,
performance, earnings per share or achievements expressed in or implied by such
forward-looking statements.
The forward-looking statements included in this 10-K relate to future
events or the Company's future financial performance. In some cases, the reader
can identify forward-looking statements by terminology such as "may," "should,"
"believe," "future," "potential," "estimate," "offer," "opportunity,"
"quality," "growth," "expect," "intend," "plan," "focus," "through,"
"strategy," "provide," "meet," "allow," "represent," "commitment," "create,"
"implement," "result," "seek," "increase," "establish," "work," "perform,"
"make," "continue," "can," "will," "include," or the negative of such terms or
comparable terminology. These forward-looking statements inherently involve
certain risks and uncertainties, although they are based on the Company's
current plans or assessments that are believed to be reasonable as of the date
of this 10-K. Factors that may cause actual results, goals, targets or
objectives to differ materially from those contemplated, projected, forecast,
estimated, anticipated, planned or budgeted in such forward-looking statements
include, among others, the factors outlined in this 10-K and general financial,
economic, environmental and regulatory conditions affecting the oil and marine
transportation industry in general. Given such uncertainties, current or
prospective investors are cautioned not to place undue reliance on any such
forward-looking statements. These factors may cause the Company's actual
results to differ materially from any forward-looking statement.
Although the Company believes that the expectations in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, growth, earnings per share or achievements. However,
neither the Company nor any other person assumes responsibility for the
accuracy and completeness of such statements. The Company is under no duty to
update any of the forward-looking statements after the date of this 10-K to
conform such statements to actual results.
ii
PART I
Item 1. BUSINESS
General
Maritrans Inc. (the "Company" or the "Registrant"), together with its
predecessor, Maritrans Partners L.P. (the "Partnership"), herein called
"Maritrans," has historically served the petroleum and petroleum product
industry by using tugs, barges and oil tankers to provide marine transportation
services primarily along the East and Gulf Coasts of the United States.
Structure
Current. The Registrant is a Delaware corporation whose common stock, par
value $.01 per share ("Common Stock"), is publicly traded. The Registrant
conducts most of its marine transportation business activities through
Maritrans Operating Partners L.P. (the "Operating Partnership") and its
managing general partner, Maritrans General Partner Inc. Both entities are
wholly owned subsidiaries of the Registrant.
Historical. Founded in the 1850's and incorporated in 1928 under the name
Interstate Oil Transport Company, Maritrans' predecessor was one of the first
tank barge operators in the United States, with a fleet which increased in size
and capacity as United States consumption of petroleum products increased. On
December 31, 1980, Maritrans' predecessor operations and its tugboat and barge
affiliates were acquired by Sonat Inc. ("Sonat"). On April 14, 1987, the
Partnership acquired the tug and barge business and related assets from Sonat.
On March 31, 1993, the limited partners of the Partnership voted on a proposal
to convert the Partnership to corporate form (the "Conversion"). The proposal
was approved, and on April 1, 1993, Maritrans Inc., then a newly formed
Delaware corporation, succeeded to all assets and liabilities of the
Partnership. The holders of general and limited partnership interests in the
Partnership and in the Operating Partnership were issued shares of Common Stock
representing substantially the same percentage equity interest in the
Registrant as they had in the Partnership, directly or indirectly, in exchange
for their partnership interest. Each previously held Unit of Limited
Partnership Interest in the Partnership was exchanged for one share of Common
Stock of the Registrant.
Overview. Since 1981, Maritrans and its predecessors have transported
annually over 200 million barrels of crude oil and refined petroleum products.
Maritrans operates a fleet of oil tankers, tank barges and tugboats. Its
largest barge has a capacity of approximately 380,000 barrels and its current
operating cargo fleet capacity aggregates approximately 3.8 million barrels.
Demand for Maritrans' services is dependent primarily upon general demand
for petroleum and petroleum products in the geographic areas served by its
vessels. Management believes that United States petroleum consumption, and
particularly consumption on the East and Gulf Coasts, is a significant
indicator of demand for Maritrans' services. Increases in product consumption
generally increase demand for Maritrans' services; conversely, decreases in
consumption generally lessen demand for Maritrans' services.
Management further believes that the level of domestic consumption of
imported refined products is also significant to Maritrans' business. Imported
refined petroleum products generally can be shipped on foreign-flag vessels
directly into United States ports for storage, distribution and eventual
consumption. These shipments reduce the need for domestic marine transportation
service providers such as Maritrans to carry products from United States
refineries to such ports. The Southern operations, headquartered in Tampa,
Florida, provide marine transportation services for petroleum products from
refineries located in Texas, Louisiana, Mississippi and Puerto Rico to
distribution points along the Gulf and Atlantic Coasts, generally south of Cape
Hatteras, North Carolina and particularly into Florida. The East Coast
operations provide lightering services for large tankers (a process of
off-loading crude oil or petroleum products from an inbound tanker into smaller
tankers and/or barges, thereby enabling the tanker to navigate draft-restricted
rivers and ports to discharge cargo at a refinery or storage and distribution
terminal).
In 1999, the Company sold various assets. The sold assets consisted of the
two small tug/barge units working in Puerto Rico, the petroleum storage
terminals in Philadelphia, PA and Salisbury, MD and twenty-seven of the smaller
tugboats and tank barges working primarily in the Northeastern United States.
These asset sales are discussed in greater detail in "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
1
Sales and Marketing
Maritrans provides marine transportation services primarily to integrated
oil companies, independent oil companies, and petroleum distributors in the
southern and eastern United States. Maritrans relies primarily on direct sales
efforts, minimizing its use of chartering brokers. Maritrans monitors the
supply and distribution patterns of its actual and prospective customers and
focuses its efforts on providing services that are responsive to the current
and future needs of these customers.
Maritrans does business on a term contract basis and a spot market basis.
Maritrans strives to maintain an appropriate mix of contracted business, based
on current market conditions.
In light of the potential liabilities of oil companies and other shippers
of petroleum products under the Oil Pollution Act of 1990 ("OPA") and analogous
state laws, management believes that some shippers have begun to select
transporters in larger measure than in the past on the basis of a demonstrated
record of safe operations. Maritrans believes that the measures it has
implemented in the last nine years to promote higher quality operations and its
longstanding commitment to safe transportation of petroleum products benefit
its marketing efforts with these shippers. In July 1998, all of Maritrans'
vessels received ISM (International Safety Management) certification, which is
an international requirement for all ships. Maritrans voluntarily undertook tug
and barge certification as well.
In 1999, approximately 85 percent of Maritrans revenues were generated
from 10 customers. In 1999, contracts with Sunoco Inc., Equiva Trading Company
and Marathon Oil accounted for approximately 24 percent, 15 percent, and 13
percent, respectively, of Maritrans revenue. During 1999, contracts were
renewed with some of Maritrans' larger customers. There could be a material
effect on Maritrans if any of these customers were to cancel or terminate their
various agreements with Maritrans, however, management believes that
cancellation or termination of all its business with any of its larger
customers is unlikely.
Competition and Competitive Factors
Overview. The maritime petroleum transportation industry is highly
competitive. The Jones Act, a federal law, restricts United States
point-to-point maritime shipping to vessels built in the United States, owned
by U.S. citizens and manned by U.S. crews. In Maritrans' market areas, its
primary direct competitors are the operators of U.S. flag oceangoing barges and
U.S. flag tankers. In the Southern clean-oil market, management believes the
primary competitors are the fleets of other independent petroleum transporters
and integrated oil companies. In the lightering operations, Maritrans competes
with foreign-flag operators which lighter offshore. Some of the integrated oil
company fleets with which Maritrans competes are larger than Maritrans' fleet.
Additionally, in certain geographic areas and in certain business activities,
Maritrans competes with the operators of petroleum product pipelines.
Competitive factors which also affect Maritrans include the output of United
States refineries and the importation of refined petroleum products.
U.S. Flag Barges and Tankers. Maritrans' most direct competitors are the
other operators of U.S. flag oceangoing barges and tankers. Because of the
restrictions imposed by the Jones Act, a finite number of vessels are currently
eligible to engage in U.S. maritime petroleum transport. The Company believes
that more Jones-Act eligible tonnage is being retired due to OPA than is being
added as replacement double-hull tonnage. However, the Company believes that
overcapacity will continue for some time. Competition in the industry is based
upon vessel availability, price and service and is intense.
A significant portion of the Company's revenues in 1999 was generated in
the coastal transportation of petroleum products from refineries or pipeline
terminals in the Gulf of Mexico to ports that are not served by pipelines.
Maritrans currently operates seven barges and two oil tankers in this market,
which are a significant number of the vessels able to compete in this market.
The relatively large size of Maritrans' fleet can generally provide greater
flexibility in meeting customers' needs.
General Agreement on Trade in Services ("GATS") and North American Free
Trade Agreement ("NAFTA").
While cabotage (vessel trade or marine transportation between two points
within the same country) is not included in the GATS and the NAFTA, the
possibility exists that cabotage could be included in the GATS,
2
NAFTA or other international trade agreements in the future. If maritime
services are deemed to include cabotage and are included in any multi-national
trade agreements, management believes the result will be to open the Jones Act
trade (i.e., transportation of maritime cargo between U.S. ports in which
Maritrans and other U.S. vessel owners operate) to foreign-flag vessels which
would operate at significantly lower costs. This could have a material adverse
affect on Maritrans. Maritrans and the U.S. maritime industry will continue to
resist the inclusion of cabotage in the GATS, NAFTA and any other international
trade agreements.
Refined Product Pipelines. Existing refined product pipelines generally
are the lowest incremental cost method for the long-haul movement of petroleum
and refined petroleum products. Other than the Colonial Pipeline system, which
originates in Texas and terminates at New York Harbor, the Plantation Pipeline,
which originates in Louisiana and terminates in Washington D.C., and smaller
regional pipelines between Philadelphia and New York, there are no pipelines
carrying refined petroleum products to the major storage and distribution
facilities currently served by Maritrans. Management believes that high capital
costs, tariff regulation and environmental considerations make it unlikely that
a new refined product pipeline system, which would have a material adverse
effect on Maritrans' business, will be built in its market areas in the near
future. It is possible, however, that new pipeline segments (including pipeline
segments that connect with existing pipeline systems) could be built or that
existing pipelines could be converted to carry refined petroleum products,
either of which could have an adverse effect on Maritrans' ability to compete
in particular locations.
Imported Refined Petroleum Products. A significant factor affecting the
level of Maritrans' business operations is the level of refined petroleum
product imports. Imported refined petroleum products may be transported on
foreign-flag vessels, which are generally less costly to operate than U.S. flag
vessels. To the extent that there is an increase in the importation of refined
petroleum products to any of the markets served by Maritrans, there could be a
decrease in the demand for the transportation of refined products from United
States refineries, which would likely have an adverse impact upon Maritrans.
Delaware River Channel Deepening. Legislation approved by the United
States Congress in 1992 authorizes the U.S. Army Corps of Engineers to deepen
the channel of the Delaware River between the river's mouth and Philadelphia
from forty to forty-five feet. Congress has appropriated $1.5 million in the
1999 fiscal year budget and $10 million in the 2000 fiscal year budget for
construction. A Project Cooperation Agreement (PCA) must be executed before the
Corps of Engineers can use the appropriated funds, however as of the end of
1999, the Company was not aware of the PCA having been executed. If this
project becomes fully funded at the federal and state levels and fully
constructed (including access dredging by private refineries), it would have a
material adverse effect on Maritrans' lightering business of the off-loading of
crude oil from deeply laden tankers at the mouth of the Delaware Bay and
transportation up the Delaware River to the Delaware Valley refineries.
Employees and Employee Relations
In 1999, the Company significantly reduced the number of shoreside staff.
In addition, the Company sold the petroleum storage terminals and twenty-six
vessels, which decreased the number of seagoing personnel. As a result of these
activities, approximately 200 employees were terminated. At December 31, 1999,
Maritrans and its subsidiaries employed a total of 368 persons. Of these
employees, 57 are employed at the Philadelphia, Pennsylvania headquarters of the
Company or at the Philadelphia and Tampa fleet centers, 186 are seagoing
employees who work aboard the tugs and barges and 125 are seagoing employees who
work aboard the tank ships. Maritrans and its predecessors have had collective
bargaining agreements with the Seafarers' International Union of North America,
Atlantic, Gulf and Inland District, AFL-CIO ("SIU"), and with the American
Maritime Officers ("AMO"), formerly District 2 Marine Engineers Beneficial
Association, Associated Maritime Officers, AFL-CIO, for approximately 40 years.
Approximately one-half of the total number of seagoing employees employed are
supervisors. These supervisors are covered by an agreement with the AMO limited
only to a provision for benefits. The collective bargaining agreement with the
SIU covers approximately 142 employees consisting of seagoing non-supervisory
personnel on the tug/barge units and on the tankers. The tug/barge supplement of
the agreement expires on May 31, 2002. The tankers supplement of the agreement
expires on May 31, 2000. The collective bargaining agreement with the AMO covers
approximately 56 non-supervisory seagoing employees and expires on October 8,
2007. None of the shore-based employees are covered by any collective bargaining
agreement.
3
Management believes that the seagoing supervisory and non-supervisory
personnel contribute significantly to responsive customer service. Maritrans
maintains a policy of seeking to promote from within, where possible, and
generally seeks to draw from its marine personnel to fill supervisory and other
management positions as vacancies occur. Management believes that its
operational audit program (performed by Tidewater School of Navigation, Inc.),
Safety Management System (SMS) and training program are essential to insure
that its employees are knowledgeable and highly skilled in the performance of
their duties as well as in their preparedness for any unforeseen emergency
situations that may arise. Consequently, various training sessions and
additional skill improvement seminars, such as Bridge Resource Management
(simulator) training, are held throughout the year.
Regulation
Marine Transportation -- General. The Interstate Commerce Act exempts from
economic regulation the water transportation of petroleum cargoes in bulk.
Accordingly, Maritrans' transportation rates, which are negotiated with its
customers, are not subject to special rate regulation under the provisions of
such act or otherwise. The operation of tank ships, tugboats and barges is
subject to regulation under various federal laws and international conventions,
as interpreted and implemented by the United States Coast Guard, as well as
certain state and local laws. Tank ships, tugboats and barges are required to
meet construction and repair standards established by the American Bureau of
Shipping, a private organization, and/or the United States Coast Guard and to
meet operational and safety standards presently established by the United
States Coast Guard. Maritrans' seagoing supervisory personnel are licensed by
the United States Coast Guard. Seamen and tankermen are certificated by the
United States Coast Guard.
Jones Act. The Jones Act, a federal law, restricts maritime transportation
between United States points to vessels built and registered in the United
States and owned and manned by United States citizens. Maritrans Inc. and the
subsidiaries that are engaged in maritime transportation between United States
points are subject to the provisions of the law. Therefore, it is the
responsibility of Maritrans to monitor ownership of these entities and take any
remedial action necessary to insure that no violation of the Jones Act
ownership restrictions occurs. In addition, the Jones Act requires that all
United States flag vessels be manned by United States citizens, which
significantly increases the labor and certain other operating costs of United
States flag vessel operations compared to foreign-flag vessel operations.
Foreign-flag seamen generally receive lower wages and benefits than those
received by United States citizen seamen. Certain foreign governments subsidize
those nations' shipyards, resulting in lower shipyard costs both for new
vessels and repairs than those paid by United States-flag vessel owners, such
as Maritrans, to United States shipyards. Finally, the United States Coast
Guard and American Bureau of Shipping maintain the most stringent regime of
vessel inspection in the world, which tends to result in higher regulatory
compliance costs for United States-flag operators than for owners of vessels
registered under foreign flags of convenience. Because Maritrans transports
petroleum and petroleum products between United States ports, most of its
business depends upon the Jones Act remaining in effect. There have been
various unsuccessful attempts in the past by foreign governments and companies
to gain access to the Jones Act trade, as well as by interests within the
United States to modify, limit or do away with the Jones Act. Legislation to
this effect was blocked from being introduced into Congress during 1999 by the
Maritime Cabotage Task Force, a coalition of ship owners, ship operators,
maritime unions and industry trade groups. Management expects that efforts to
gain access to the Jones Act trade and attempts to block the introduction will
continue.
Environmental Matters
Maritrans' operations present potential environmental risks, primarily
through the marine transportation of petroleum. Maritrans is committed to
protecting the environment and complying with applicable environmental laws and
regulations. Maritrans, as well as its competitors, is subject to regulation
under federal, state and local environmental laws which have the effect of
increasing the costs and potential liabilities arising out of its operations.
Oil Pollution Legislation. OPA creates substantial liability exposure for
owners and operators of vessels, oil terminals and pipelines. Under OPA, each
responsible party for a vessel or facility from which oil is discharged will be
4
jointly, strictly and severally liable for all oil spill containment and
clean-up costs and certain other damages arising from the discharge. These other
damages are defined broadly to include (i) natural resource damage (recoverable
only by government entities), (ii) real and personal property damage, (iii) net
loss of taxes, royalties, rents, fees and other lost revenues (recoverable only
by government entities), (iv) lost profits or impairment of earning capacity due
to property or natural resource damage, and (v) net cost of public services
necessitated by a spill response, such as protection from fire, safety or health
hazards.
The owner or operator of a vessel from which oil is discharged will be
liable under OPA unless it can be demonstrated that the spill was caused solely
by an act of God, an act of war, or the act or omission of a third party
unrelated by contract to the responsible party. Even if the spill is caused
solely by a third party, the owner or operator must pay all removal cost and
damage claims and then seek reimbursement from the third party or the trust
fund established under OPA.
OPA establishes a federal limit of liability of the greater of $1,200 per
gross ton or $10 million per tank vessel. A vessel owner's liability is not
limited, however, if the spill results from a violation of federal safety,
construction or operating regulations. In addition, OPA does not preclude
states from adopting their own liability laws. Numerous states in which
Maritrans operates have adopted legislation imposing unlimited strict liability
for vessel owners and operators. Management believes that the liability
provisions of OPA and similar state laws have greatly expanded Maritrans'
potential liability in the event of an oil spill, even where Maritrans is not
at fault.
OPA requires all vessels to maintain a certificate of financial
responsibility for oil pollution in an amount equal to the greater of $1,200
per gross ton per vessel, or $10 million per vessel in conformity with U.S.
Coast Guard regulations. Additional financial responsibility in the amount of
$300 per gross ton is required under U.S. Coast Guard regulations under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
the federal Superfund law. Owners of more than one tank vessel, such as
Maritrans, however, are only required to demonstrate financial responsibility
in an amount sufficient to cover the vessel having the greatest maximum
liability (approximately $40 million in Maritrans' case). Maritrans has
acquired such certificates through filing required financial information with
the U.S. Coast Guard.
OPA requires all newly constructed petroleum tank vessels engaged in
marine transportation of oil and petroleum products in the U.S. to be
double-hulled and gradually phases out the operation of single-hulled tank
vessels, based on size and age, operating in U.S. waters, including most of
Maritrans' existing barges. Five of Maritrans' large oceangoing, single-hulled
barges will be affected on January 1, 2005. Currently three of Maritrans'
barges and two tankers are equipped with double-hulls meeting OPA's
requirements. Maritrans has initiated a program to rebuild its single-hull tank
barges to comply with OPA. This rebuilding relies upon a process of computer
assisted design and prefabrication, for which Maritrans has applied for a
patent. The first rebuilt barge, the MARITRANS 192, was completed and entered
service in November 1998. Work has already commenced on a second single-hull
barge, the OCEAN 244. The cost of rebuilding single-hull barges is
approximately $55-75 per barrel compared to estimated costs of approximately
$125-175 per barrel for construction of a completely new double-hull barge. The
total cost of rebuilding the Company's entire single-hull fleet is expected to
exceed $150 million.
OPA further required all tank vessel operators to submit detailed vessel
oil spill contingency plans setting forth their capacity to respond to a worst
case spill situation. In certain circumstances involving oil spills from
vessels, OPA and other environmental laws may impose criminal liability upon
vessel and shoreside marine personnel and upon the corporate entity. Such
liability can be imposed for negligence without criminal intent, or it may be
strictly applied. The Company believes the laws, in their present form, may
negatively impact efforts to recruit Maritrans seagoing employees. In addition,
many of the states in which Maritrans does business have enacted laws providing
for strict, unlimited liability for vessel owners in the event of an oil spill.
Certain states have also enacted or are considering legislation or regulations
involving at least some of the following provisions: tank-vessel-free zones,
contingency planning, state inspection of vessels, additional operating,
maintenance and safety requirements and state financial responsibility
requirements. However, in March of 2000, the U.S. Supreme Court (the "Court")
decided United States v. Locke, a suit brought by INTERTANKO challenging tanker
regulations imposed by the State of Washington. The Court struck down a number
of state regulations and remanded to the lower courts for further review of
5
other regulations. The ruling significantly limits the authority of states to
regulate vessels, holding that regulation of maritime commerce is generally a
federal responsibility because of the need for national and international
uniformity.
OPA and similar state laws are expected to have a continuing adverse
effect on the entire U.S. oil and petroleum marine transportation industry,
including Maritrans. The effects on the industry could include, among others,
(i) increased requirements for capital expenditures (ii) increased maintenance,
training, insurance and other operating costs, (iii) civil penalties and the
potential for other liability and (iv) decreased operating revenues as a result
of a further reduction of volumes transported by vessels. These effects could
adversely affect Maritrans' results of operations and liquidity.
In 1996, Maritrans filed suit against the United States government under
the Fifth Amendment to the U.S. Constitution for "taking" 37 of Maritrans' tank
barges without just compensation by passage of OPA. See "Item 3--Legal
Proceedings."
The following table sets forth Maritrans' quantifiable cargo oil spill
record for the period January 1, 1995 through December 31, 1999:
Gallons Spilled
No. of No. of Gals. Per Million
Period No. of Gals. Carried Spills Spilled Gals. Carried
------ ---------------------- -------- -------------- ----------------
(000) (000)
1/1/1995 -- 12/31/1995 9,450,000 1 16.80 1.780
1/1/1996 -- 12/31/1996 9,160,000 3 .08 .009
1/1/1997 -- 12/31/1997 10,136,000 1 .05 .005
1/1/1998 -- 12/31/1998 10,987,000 3 .29 .027
1/1/1999 -- 12/31/1999 10,463,000 5 .06 .006
Maritrans believes that its spill ratio compares favorably with the other
independent, coastwise operators in the Jones Act trade.
Water Pollution Regulations. The Federal Water Pollution Control Act of
1972 ("FWPCA"), as amended by the Clean Water Act of 1977, imposes strict
prohibitions against the discharge of oil (and its derivatives) and hazardous
substances into navigable waters of the United States. FWPCA provides civil and
criminal penalties for any discharge of petroleum products in harmful
quantities and imposes substantial liability for the clean-up costs of removing
an oil spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and clean-up cost liabilities in the case
of a release of petroleum or its derivatives into surface waters. In the course
of its vessel operations, Maritrans engages contractors to remove and dispose
of waste material, including tank residue. In the event that any of such waste
is deemed "hazardous," as defined in FWPCA or the Resource Conservation and
Recovery Act, and is disposed of in violation of applicable law, Maritrans
could be jointly and severally liable with the disposal contractor for the
clean-up costs and any resulting damages. The United States Environmental
Protection Agency ("EPA") previously determined not to classify most common
types of "used oil" as a "hazardous waste," provided that certain recycling
standards are met. While it is unlikely that used oil will be classified as
hazardous, the management of used oil under EPA's proposed regulations will
increase the cost of disposing of or recycling used oil from Maritrans'
vessels. Some states in which Maritrans operates, however, have classified
"used oil" as hazardous. Maritrans has found it increasingly expensive to
manage the wastes generated in its operations.
Air Pollution Regulations. Pursuant to the 1990 amendments to the Clean
Air Act, the EPA and/or states have imposed regulations affecting emissions of
volatile organic compounds ("VOCs") and other air pollutants from tank vessels.
In December 1999, the EPA issued its final rule for emissions standards for
marine diesel engines. The final rule applies emissions standards only to new
engines, beginning with the 2004 model year. The EPA retained the right to
revisit the issue of applying emission standards to rebuilt or remanufactured
engines if, in the agency's opinion, the industry does not take adequate steps
to introduce new emission-reducing technologies. It is possible that the EPA
and/or various state environmental agencies ultimately may require that
additional air pollution abatement equipment be installed in tugboats, tank
barges or tank ships, including those owned by Maritrans. Such requirements
could result in a material expenditure by Maritrans, which could have an
adverse effect on Maritrans' profitability if it is not able to recoup these
costs through increased charter rates.
6
User Fees and Taxes. The Water Resources Development Act of 1986 permits
local non-federal entities to recover a portion of the costs of new port and
harbor improvements from vessel operators with vessels benefiting from such
improvements. A Harbor Maintenance Tax has been proposed, but not adopted.
Federal legislation has been enacted imposing user fees on vessel operators
such as Maritrans to help fund the United States Coast Guard's regulatory
activities. Other federal, state and local agencies or authorities could also
seek to impose additional user fees or taxes on vessel operators or their
vessels. To date, these fees have not been material to Maritrans. There can be
no assurance that additional user fees, which could have a material adverse
effect upon the financial condition and results of operations of Maritrans,
will not be imposed in the future.
Item 2. PROPERTIES
Vessels. The Company's subsidiaries owned, at December 31, 1999, a fleet
of 28 vessels, of which 4 are oil tankers, 12 are barges and 12 are tugboats.
The oil tanker fleet consists of four tankers ranging in capacity from
242,000 barrels to 265,000 barrels. These vessels were constructed between 1975
and 1981.
The barge fleet consists of twelve superbarges ranging in capacity from
175,000 to 380,000 barrels. The oldest vessel in that class is the OCEAN 250,
which was constructed in 1970, while the largest vessel is the OCEAN 400, for
which modifications were completed as recently as 1990. For the most part,
however, the bulk of the superbarge fleet was constructed during the 1970's and
early 1980's. One of the superbarges is currently not operating.
The tugboat fleet consists of one 11,000 horsepower class vessel, one
7,000 horsepower class vessel, nine 6,000 horsepower class vessels and one
15,000 horsepower class vessel, which is not currently operating. The year of
construction or substantial renovation of these vessels ranges from 1962 to
1990. The majority of the tugboats were constructed between 1970 and 1981.
Most of the vessels in the fleet are subject to first preferred ship
mortgages. These mortgages require the Operating Partnership to maintain the
vessels to a high standard and to continue a life-extension program for certain
of its larger barges. At December 31, 1999, Maritrans is in compliance with the
Operating Partnership's mortgage covenants.
Other Real Property. The Company's operations currently are headquartered
in Philadelphia, Pennsylvania, where it leases office space. The Company will
be moving its headquarters to Tampa, Florida in the first half of 2000 and has
entered into a lease for this office space. East Coast operations are located
on the west bank of the Schuylkill River in Philadelphia, Pennsylvania where
the Operating Partnership owns approximately six acres of improved land. In
addition, the Operating Partnership also leases a bulkhead of approximately 430
feet from the federal government for purposes of mooring vessels adjacent to
the owned land. This lease was renewed in 1999. The Operating Partnership also
leases four acres of Port Authority land in Tampa, Florida for use as its
Southern fleet center. The lease expires in 2004, with three renewal options of
ten years each.
Item 3. LEGAL PROCEEDINGS
Maritrans is a party to routine, marine-related claims, lawsuits and labor
arbitrations arising in the ordinary course of its business. The claims made in
connection with Maritrans' marine operations are covered by marine insurance,
subject to applicable policy deductibles which are not material as to any type
of insurance coverage. Management believes, based on its current knowledge,
that such lawsuits and claims, even if the outcomes were to be adverse, would
not have a material adverse effect on Maritrans' financial condition.
Maritrans has been sued by approximately 60 individuals alleging
unspecified damages for exposure to asbestos and, in most of these cases, for
exposure to tobacco smoke. Although Maritrans believes these claims are without
merit, it is impossible at this time to express a definitive opinion on the
final outcome of any such suit. Management believes that any liability would
not have a material adverse effect, as it would be adequately covered by
applicable insurance.
7
In 1996, Maritrans filed suit against the United States government under
the Fifth Amendment to the U.S. Constitution for "taking" 37 of Maritrans' tank
barges without just compensation. Maritrans asserts that the vessels were taken
with the passage of Section 4115 of OPA and that this taking was done in
contravention of the Fifth Amendment, which specifically prohibits the United
States government from taking private property for public use without just
compensation. Maritrans is seeking compensation based on the fact that
Maritrans has been deprived of its reasonable investment-backed expectation in
the continued use of its barges by Section 4115 of OPA, which prohibits all
existing single-hull tank vessels from operating in U.S. waters under a
retirement schedule which began January 1, 1995, and ends on January 1, 2015.
Under this OPA provision, Maritrans' single-hull tank barges will be forced
from service commencing on January 1, 2003, with a significant portion of the
economic lives remaining, or be required to be rebuilt. On March 11, 1999, the
United States Court of Federal Claims ("the Court") dismissed Maritrans' suit,
in response to a government Motion for Summary Judgment, deciding essentially
that the Company's cause of action is not yet ripe for judicial determination
due to Maritrans' vessels not having yet been forced out of service by OPA's
phase-out provisions. The Court later revised its ruling, holding that the
Maritrans claim is ripe with respect to vessels which were rebuilt, sold or
scrapped in response to OPA's double-hull requirements. The case is scheduled
for trial in October 2000.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Registrant's security holders,
through the solicitation of proxies or otherwise, during the last quarter of
the year ended December 31, 1999.
8
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information and Holders
Maritrans Inc. Common Shares trade on the New York Stock Exchange under
the symbol "TUG." The following table sets forth, for the periods indicated,
the high and low sales prices per share as reported by the New York Stock
Exchange.
QUARTERS ENDED IN 1999: HIGH LOW
- ----------------------- ---- ---
March 31, 1999 $ 6.875 $ 5.625
June 30, 1999 6.438 5.375
September 30, 1999 5.563 4.813
December 31, 1999 5.938 4.688
QUARTERS ENDED IN 1998: HIGH LOW
- ----------------------- ---- ---
March 31, 1998 $ 11.625 $ 8.625
June 30, 1998 11.250 8.625
September 30, 1998 9.438 6.688
December 31, 1998 7.750 6.313
As of March 13, 2000, the Registrant had 11,495,198 Common Shares
outstanding and approximately 868 stockholders of record.
Dividends
For the years ended December 31, 1999 and 1998, Maritrans Inc. paid the
following cash dividends to stockholders:
PAYMENTS IN 1999: PER SHARE
----------------- ---------
March 10, 1999 $ .10
June 9, 1999 $ .10
September 8, 1999 $ .10
December 8, 1999 $ .10
-----
Total $ .40
=====
PAYMENTS IN 1998: PER SHARE
----------------- ---------
March 11, 1998 $ .09
June 11, 1998 $ .09
September 9, 1998 $ .09
December 9, 1998 $ .10
-----
Total $ .37
=====
The dividend policy is determined at the discretion of the Board of
Directors of Maritrans Inc. While dividends have been made quarterly in each of
the two last years, there can be no assurance that the dividend will continue.
9
Item 6. SELECTED FINANCIAL DATA
MARITRANS INC.
-------------------------------------------------------------------------
JANUARY 1 TO DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
($000, except per share amounts)
CONSOLIDATED INCOME STATEMENT DATA:
Revenues ............................... $ 151,667 $ 151,839 $ 135,781 $ 126,994 $ 124,527
Operating income before depreciation
and amortization ...................... 28,092 30,407 38,339 30,249 30,738
Depreciation and amortization .......... 20,279 19,578 16,943 16,565 16,214
Operating income ....................... 7,813 10,829 21,396 13,684 14,524
Interest expense, net .................. 6,778 6,945 7,565 9,494 9,454
Income before income taxes.............. 21,151 4,986 18,157 8,379 8,120
Provision for income taxes ............. 9,095 1,870 6,696 3,130 3,139
Net income ............................. 12,056 3,116 11,461 5,249 4,981
Basic earnings per share ............... $ 1.03 $ 0.26 $ 0.95 $ 0.44 $ 0.41
Diluted earnings per share ............. $ 1.02 $ 0.26 $ 0.94 $ 0.44 $ 0.41
Cash dividends per share ............... $ 0.40 $ 0.37 $ 0.315 $ 0.275 $ 0.11
CONSOLIDATED BALANCE SHEET DATA (at period end):
Total assets ........................... $ 251,021 $ 254,906 $ 251,023 $ 235,221 $ 251,961
Long-term debt ......................... 75,861 83,400 75,365 79,123 104,337
Stockholders' equity ................... 94,697 89,815 90,795 82,594 79,875
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of Maritrans Inc. (the "Company"), and, together with its
subsidiaries and its predecessor, Maritrans Partners L.P. (the "Partnership"),
herein called "Maritrans" or the "Company."
Some of the statements under "Business," "Properties," "Legal
Proceedings," "Market for Registrant's Common Stock and Related Stockholder
Matters" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Annual Report on Form 10-K (this
"10-K") constitute forward-looking statements under Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including statements made with respect to present or
anticipated utilization, future revenues and customer relationships, capital
expenditures, future financings, and other statements regarding matters that
are not historical facts, and involve predictions. These statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results, levels of activity, growth, performance, earnings per share or
achievements to be materially different from any future results, levels of
activity, growth, performance, earnings per share or achievements expressed in
or implied by such forward-looking statements.
The forward-looking statements included in this 10-K relate to future
events or the Company's future financial performance. In some cases, the reader
can identify forward-looking statements by terminology such as "may," "should,"
"believe," "future," "potential," "estimate," "offer," "opportunity,"
"quality," "growth," "expect," "intend," "plan," "focus," "through,"
"strategy," "provide," "meet," "allow," "represent," "commitment," "create,"
"implement," "result," "seek," "increase," "establish," "work," "perform,"
"make," "continue," "can," "will," "include," or the negative of such terms or
comparable terminology. These forward-looking statements inherently involve
certain risks and uncertainties, although they are based on the Company's
current plans or assessments that are believed to be reasonable as of the date
of this 10-K. Factors that may cause actual results, goals, targets or
objectives to differ materially from those contemplated, projected, forecast,
estimated, anticipated, planned or budgeted in such forward-looking statements
include, among others, the factors outlined in this 10-K and general financial,
economic, environmental and regulatory conditions affecting the oil and marine
transportation industry in general. Given such uncertainties, current or
prospective investors are cautioned not to place undue reliance on any such
forward-looking statements. These factors may cause the Company's actual
results to differ materially from any forward-looking statement.
10
Although the Company believes that the expectations in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, growth, earnings per share or achievements. However,
neither the Company nor any other person assumes responsibility for the
accuracy and completeness of such statements. The Company is under no duty to
update any of the forward-looking statements after the date of this 10-K to
conform such statements to actual results.
Overview
Maritrans serves the petroleum and petroleum product distribution industry
by using oil tankers, tank barges and tugboats to provide marine transportation
services primarily along the East and Gulf Coasts of the United States. Between
1995 and 1999, Maritrans has transported at least 218 million barrels annually.
The high was 262 million barrels in 1998, and the low was 218 million barrels
in 1996. Many factors affect the number of barrels transported and will affect
future results for Maritrans. Such factors include Maritrans' vessel and fleet
size and average trip lengths, the continuation of federal law restricting
United States point-to-point maritime shipping to U.S. vessels (the Jones Act),
domestic oil consumption, environmental laws and regulations, oil companies'
operating and sourcing decisions, competition, labor and training costs and
liability insurance costs. Overall U.S. oil consumption during 1995-1999
fluctuated between 17.7 million and 19.8 million barrels a day.
In 1999, the Company made several strategic moves in order to focus on
those markets where it believes it possesses a long-term competitive advantage
and which should provide additional opportunities. As a result, the Company
sold two small tug and barge units, which were working in Puerto Rico, two
petroleum storage terminals in Philadelphia, PA and Salisbury, MD, and
twenty-seven vessels working primarily in the Northeastern United States. Prior
to their sales, the sold vessels had transported approximately 69 million
barrels in 1999 and had represented approximately 23 percent of 1999 revenues.
In 1998, Maritrans successfully rebuilt one of its existing, single-hulled,
175,000 barrel barges with a double-hull design configuration, which complies
with the provisions of the Oil Pollution Act of 1990 ("OPA"). Prefabrication
has already commenced on a second single-hull barge, the OCEAN 244 that is
scheduled to be in the shipyard in the spring and summer of 2000. The Company
intends to apply the same methodology to up to seven more of its existing
large, oceangoing, single-hull barges. The timing of the rebuilds will be
determined by a number of factors, including market conditions, shipyard
pricing and availability, customer requirements and OPA retirement dates for
the vessels. The OPA retirement dates fall between 2005 and 2010. Each of the
Company's superbarges represent approximately 5 to 7 percent of the total fleet
capacity, which will be removed from revenue generating service during the
rebuilding of that vessel.
Legislation
The enactment of OPA significantly increased the liability exposure of
marine transporters of petroleum in the event of an oil spill. In addition,
several states in which Maritrans operates have enacted legislation increasing
the liability for oil spills in their waters. Maritrans currently maintains oil
pollution liability insurance of up to one billion dollars per occurrence on
each of its vessels. There can be no assurance that such insurance will be
adequate to cover potential liabilities in the event of a catastrophic spill,
that additional premium costs will be recoverable through increased vessel
charter rates, or that such insurance will continue to be available in
satisfactory amounts.
OPA has increased other operating costs as Maritrans has taken steps to
minimize the risk of spills. Among such costs are those for additional
training, safety and contingency programs; these expenses have not yet been,
and may never be, fully recovered through increased vessel charter rates.
Additionally, management believes that the legislation has reduced the total
volume of waterborne petroleum transportation because shippers of petroleum
have tried to limit their exposure to OPA liability. OPA has had a material
adverse effect on Maritrans' operations, financial performance and
expectations.
OPA is expected to continue having negative effects on the entire U.S. oil
and marine petroleum transportation industry, including Maritrans. These
negative effects include: (i) increased capital expenditures to cover the cost
of mandated double-hulled vessels, (ii) continued increased maintenance,
training, insurance and other operating costs, (iii) increased liability and
exposure to civil penalties and (iv) decreased operating revenues as a result
of further reductions in volumes transported on vessels. These effects could
adversely affect Maritrans' financial condition, profitability and liquidity.
11
OPA requires all newly constructed petroleum tank vessels engaged in
marine transportation of oil and petroleum products in the U.S. to be
double-hulled and gradually phases out the operation of single-hulled tank
vessels, based on size and age, operating in U.S. waters, including most of
Maritrans' existing barges. Five of Maritrans' large oceangoing, single-hulled
barges will be affected on January 1, 2005. Currently three of Maritrans'
barges and two tankers are equipped with double-hulls meeting OPA's
requirements. Maritrans' has initiated a program to rebuild its single-hull
tank barges to comply with OPA. This rebuilding relies upon a process of
computer assisted design and prefabrication, for which Maritrans has applied
for a patent. The first rebuilt barge, the MARITRANS 192, was completed and
entered service in November 1998. Work has already commenced on a second
single-hull barge, the OCEAN 244. The cost of rebuilding single-hull barges is
approximately $55-75 per barrel compared to estimated costs of approximately
$125-175 per barrel for construction of a completely new double-hull barge. The
total cost of rebuilding the Company's entire single-hull fleet is expected to
exceed $150 million.
Results of Operations
Year Ended December 31, 1999 Compared With Year Ended December 31, 1998
Revenues for 1999 of $151.7 million were flat compared to $151.8 million
in 1998. Barrels of cargo transported in 1999 decreased from 261.6 million in
1998 to 249.1 million in 1999. Although barrels decreased, overall vessel
utilization, including changes in the structure of the fleet, increased from
78.7 percent in 1998 to 81.8 percent in 1999. Revenue increased as a result of
the 260,000-barrel oil tanker which went into operation late in 1998. The
current year results reflect the first complete year of operations for that
tanker. Additionally, positively affecting revenues were a high level of
contract business and a temporary increase in demand due to West Coast refinery
disruptions. Offsetting this increase was the sale of a significant number of
vessels and terminals during 1999. The Company sold five vessels in the first
quarter of 1999 and sold the petroleum storage terminals in September 1999, all
of which were operating in 1998. In December 1999, the Company completed the
sale of twenty-six vessels most of which had worked in the Northeast United
States. Since this transaction occurred late in the year, revenue was affected
only in December. This transaction represented approximately twenty-five
percent of the Company's cargo carrying capacity. Compared to 1998, utilization
improved as the MARITRANS 192 returned to service after being rebuilt with a
new internal double-hull. Utilization of the remaining fleet, after vessel
divestitures, was 87.8 percent in 1999 compared to 78.5 percent in 1998.
Total costs and operating expenses were $143.9 million in 1999 compared to
$141.0 million in 1998, an increase of $2.9 million or 2.1 percent. This
increase was due to the addition to the fleet of the 260,000-barrel oil tanker
late in 1998, costs associated with turnover of qualified seagoing personnel and
crew costs associated with vessels returning to service in 1999, which had been
in the shipyard during related periods in 1998. Additionally, the Company
recorded a severance charge of $0.9 million, in the third quarter of 1999, for
the impact of Company's reduction of shoreside staff, which was announced in
September 1999. These increases were offset by a reduction in operating costs as
a result of the disposition of vessels and terminals discussed in revenue above.
Operating income decreased as a result of the aforementioned changes in
revenue and expenses.
Other income increased from $1.1 million in 1998 to $20.1 million in 1999.
This increase includes a gain of $18.5 million on the disposition of vessels
and the petroleum storage terminals in 1999. The vessel sales consisted of
seventeen barges and fourteen tugboats. The tug and barge units were
predominantly working in the Northeastern United States and Puerto Rico.
The Company's effective income tax rate increased from 38% in 1998 to 43%
in 1999. The increase in the effective tax rate is due primarily to the impact
of state taxes on certain asset sales in 1999.
Net income for the twelve months ended December 31, 1999, increased to
$12.1 million from $3.1 million for the twelve months ended December 31, 1998,
due primarily to the gain on the sale of assets.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Revenue for 1998 totaled $151.8 million compared with $135.8 million in
1997, an increase of $16.0 million or 11.8 percent. Barrels of cargo
transported increased by 20.3 million, from 241.3 million to 261.6 million
12
or 8.4 percent. Revenue and volumes in 1998 were positively impacted by the
addition of three tankers and two tug/barge units in late 1997 and one tanker
in 1998. Utilization, as measured by revenue days divided by calendar days
available, totaled 79.9 percent for 1998 compared to 82.2 percent in 1997.
Utilization for the fleet, excluding new vessels, decreased to 78.7 percent.
The fleet utilization has been impacted by a heavier than normal out of service
time due to scheduled maintenance and the MARITRANS 192 double-hull rebuild
project. Additionally, the fleet utilization was impacted by higher than normal
weather delays in both the Gulf of Mexico and Northeastern United States, two
of the Company's largest markets. Management expects market conditions to
continue to be very competitive as Maritrans' competitors are introducing new
tonnage into the market. Revenues from sources other than marine transportation
decreased to 2.5 percent of total revenues in 1998 compared to 3.0 percent in
1997.
Costs and operating expenses of $141.0 million increased by $26.6 million
or 23.3 percent from $114.4 million in 1997. This increase was due largely to
the full year's operating costs of three tankers and two tug/barges units
acquired late in 1997 and the stub period operating costs of the tanker
purchased in August 1998. Additionally, the Company had to charter in outside
tonnage, due to an extensive maintenance schedule during the year and the
MARITRANS 192 double-hull rebuild project, to cover contract commitments to
customers. The Company's oil tankers have a higher operating cost, measured per
barrel of capacity, than its tug/barge units, due primarily to their larger
crew complements and higher ongoing maintenance expenses. Expenses, excluding
the new vessels, decreased reflecting lower utilization due to maintenance,
heavier weather delays and fuel price savings. General and administrative
expenses increased reflecting higher staffing levels, shoreside travel and
shoreside training.
Interest expense decreased from $7.6 million in 1997 to $6.9 million in
1998. This decrease is the result of a reduction in the effective interest rate
as the mortgage debt of subsidiaries is replaced by debt on the Company's
revolving credit facility. The Company also capitalized interest in the amount
of $0.4 million on various capital projects. Other income decreased from $4.3
million in 1997, to $1.1 million in 1998. Comparable amounts for 1997 included
a net gain of $2.0 million on the disposal of certain assets. Interest income
decreased to $0.5 million as the Company had less cash and cash equivalents on
hand due to its asset acquisitions and capital projects.
Net income for the twelve months ended December 31, 1998, decreased to
$3.1 million from $11.5 million for the twelve months ended December 31, 1997,
due to the aforementioned changes in revenue and expenses.
Liquidity and Capital Resources
In 1999, funds provided by operating activities were sufficient to meet
debt service obligations and loan agreements restrictions, to make capital
acquisitions and improvements and to allow Maritrans Inc. to pay a dividend in
each quarter of the year. While dividends have been made quarterly in each of
the two last years, there can be no assurances that the dividend will continue.
The ratio of total debt to capitalization is .47:1 at December 31, 1999,
compared to .51:1 at December 31, 1998.
The indenture governing the Operating Partnership's long-term debt permits
cash distributions by Maritrans Operating Partners L.P. to Maritrans Inc., so
long as no default exists under the indenture and provided that such
distributions do not exceed contractually prescribed amounts.
Management believes that in 2000, funds provided by operating activities,
augmented by financing transactions and investing activities, will be
sufficient to finance operations, anticipated capital expenditures, lease
payments and required debt repayments.
On February 9, 1999, the Board of Directors authorized a share buyback
program for the acquisition of up to one million shares of the Company's common
stock. This amount represents approximately 8 percent of the 12.1 million
shares outstanding at the beginning of the program. As of December 31, 1999,
614,400 shares had been purchased under the plan and financed by internally
generated funds. In February 2000, the Board of Directors authorized the
acquisition of an additional one million shares in the program. The Company
intends to hold the majority of the shares as treasury stock, although some
shares will be used for employee compensation plans and others may be used for
acquisition currency and/or other corporate purposes. Subsequent to December
31, 1999, and through March 13, 2000, the Company has purchased 205,000 shares
of its common stock at a total cost of $1,127,000 under the program.
13
On July 30, 1999, the Company awarded a contract to rebuild a second large
single-hull barge, the OCEAN 244, to a double-hull configuration which will
have a total cost of approximately $12 million. As of December 31, 1999, the
Company has advanced $4.0 million on this project to the shipyard contractor
for prefabrication and other design work. The vessel is scheduled to enter the
shipyard in the second quarter of 2000. The Company expects to finance this
project from internally generated funds.
In August 1999, the Company entered into an agreement to purchase the MV
PORT EVERGLADES, a tugboat. The Company paid $2.5 million of cash at the
closing and entered into a note of $4.9 million payable to the previous owner.
The note has no stated interest rate, therefore the Company recorded the note
at the present value of the cash payments. The note is secured by a Mellon Bank
N.A. Letter of Credit.
As part of the focus on positioning the Company for additional
opportunities, in September 1999 the Company announced its intent to move its
corporate headquarters from Philadelphia, PA to Tampa, FL. The Company believes
the move will be completed by the summer of 2000. A fleet center will be
maintained in the Philadelphia area. No significant relocation costs were
incurred in 1999.
In September 1999, the Company announced a significant reduction of its
shoreside staff. The Company accrued $0.9 million of severance costs in the
third quarter of this year for the cash benefits to be paid to the employees
who have been terminated. At December 31, 1999, $0.3 million of severance costs
had been paid to the terminated employees. The remaining accrual of $0.6
million will be paid during the first two quarters of 2000.
In September 1999, the Company sold its petroleum storage terminal
operations to ST Services. The terminals are located in Philadelphia, PA and
Salisbury, MD. The proceeds of the sale totaled $10 million, of which $3.6
million was used to payoff the outstanding mortgage on the Philadelphia
terminal.
In December 1999, the Company sold twenty-six vessels that worked in the
Northeastern U.S. coastal waters, in separate transactions to Vane Line
Bunkering Inc. and K-Sea Transportation LLC. The sale was a result of the
Company's strategic moves previously discussed. The transactions, which included
fifteen barges and eleven tugboats, represented a divestiture of approximately
twenty-five percent of the Company's cargo-carrying capacity. The combined sale
price of the two transactions was $48 million. The Company received proceeds of
$39 million in cash and $8.5 million in notes. Due to uncertainties regarding
collectibility of the notes received, the Company recorded a reserve of $4.5
million. The remaining $0.5 million of the sales price will be received by the
Company upon certain conditions being met as defined in one of the sales
agreements; accordingly, the $0.5 million will be included in net income if the
conditions are met and the amounts are earned. In 1999, the Company negotiated a
waiver and amendment to the indenture and mortgage securing substantially all of
the vessels sold. The proceeds from the sale are required to be deposited with
the trustee, Wilmington Trust Company, and may be withdrawn to fund repairs and
improvements on mortgaged vessels, including double-hull rebuilding, to make
debt repayments and to pay income taxes resulting from the vessel transactions.
Taxes of approximately $6.0 million will be paid by the Company as a
result of the aforementioned activity in 1999.
In addition, in December 1999, the Company purchased two tugboats, the
Enterprise and the Intrepid, which had previously been operated by the Company
under operating leases. The purchase price of the vessels was $5.7 million in
the form of a note payable to the previous owner.
Debt Obligations and Borrowing Facility
At December 31, 1999, the Company had $83.6 million in total outstanding
debt, secured by mortgages on most of the fixed assets of the Company. The
current portion of this debt at December 31, 1999, was $7.8 million.
The Company has a $10 million working capital facility, secured by its
receivables and inventories. At December 31, 1999, there was no balance
outstanding, although the Company utilizes this facility from time to time for
working capital and other business needs.
14
In 1997, Maritrans entered into a multi-year revolving credit facility for
amounts up to $33 million with Mellon Bank, N.A. This facility is
collateralized by mortgages on the tankers. Subsequent to year-end, this
facility was extended to October 30, 2002. At December 31, 1999, the balance of
borrowings outstanding was $22 million.
The Company entered into an agreement with Coastal Tug and Barge Inc. in
August 1999 to purchase the MV PORT EVERGLADES. The outstanding debt on this
transaction at December 31, 1999, is $3.9 million payable to Coastal Tug and
Barge Inc. and is secured by a Mellon Bank N.A. Letter of Credit.
In December 1999, the Company entered into an agreement with General
Electric Capital Corporation to purchase two tugboats, the Enterprise and the
Intrepid. The vessels had previously been operated by the Company under
operating leases. The outstanding debt on this purchase at December 31, 1999,
was $5.7 million payable to General Electric Capital Corporation.
The mortgage on the Philadelphia terminal, which was held by Mellon Bank
N.A., had an outstanding balance of $3.6 million at the time of sale. This debt
was paid off with proceeds of the sale.
Impact of Year 2000
Prior to December 31, 1999, the Company completed an assessment of its
computing systems, commercial off-the-shelf systems, and embedded systems, had
developed new software programs, and replaced commercial systems to take
advantage of newer technologies. As a result of this initiative, the Company's
operating systems, critical embedded systems and commercial off-the-shelf
systems were Year 2000 compliant. The Company did not experience any
significant problems with its internal systems nor with its key service
providers and customers during the change to the Year 2000. The Company will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the Year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
Market Risk
The principal market risk to which the Company is exposed is a change in
interest rates on debt instruments. The Company manages its exposure to changes
in interest rate fluctuations by optimizing the use of fixed and variable rate
debt. The information below summarizes the Company's market risks associated
with debt obligations and should be read in conjunction with Note 11 of the
Consolidated Financial Statements.
The table below presents principal cash flows and the related interest
rates by year of maturity. Fixed interest rates disclosed represent the actual
rate as of the period end. Variable interest rates disclosed fluctuate with the
LIBOR and federal fund rates and represent the weighted average rate at
December 31, 1999.
EXPECTED YEARS OF MATURITY
(Dollars in $000's)
2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Long-term debt, including
current portion:
Fixed rate 7,177 7,222 7,271 7,322 7,377 19,576 55,945
Average interest rate (%) 9.06 9.06 9.06 9.06 9.06 9.06
Variable rate 596 650 22,650 650 650 2,493 27,689
Average interest rate (%) 7.18 7.18 7.18 7.18 7.18 7.18
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion on page 15 included in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
15
Item 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA
Report of Independent Auditors
Stockholders and Board of Directors
Maritrans Inc.
We have audited the accompanying consolidated balance sheets of Maritrans Inc.
as of December 31, 1999 and 1998, and the related consolidated statements of
income, cash flows and stockholders' equity for each of the three years in the
period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the management of Maritrans
Inc. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Maritrans Inc. at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 28, 2000
16
MARITRANS INC.
CONSOLIDATED BALANCE SHEETS
($000)
December 31,
--------------------------
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 13,232 $ 1,214
Cash and cash equivalents - restricted ............................. 21,000 --
Trade accounts receivable (net of allowance for doubtful accounts of
$1,393 and $1,387, respectively .................................. 14,676 18,030
Other accounts receivable .......................................... 5,782 9,434
Inventories ........................................................ 3,355 4,656
Deferred income tax benefit ........................................ 4,013 4,627
Prepaid expenses ................................................... 3,101 3,479
-------- --------
Total current assets .......................................... 65,159 41,440
Vessels and equipment ............................................... 278,471 358,197
Less accumulated depreciation .................................... 119,013 151,506
-------- --------
Net vessels and equipment ..................................... 159,458 206,691
Note receivable (net of allowance of $4,500 in 1999) ................ 3,692 --
Other (including $18 million cash and cash equivalents -- restricted
in 1999) ........................................................... 22,712 6,775
-------- --------
Total assets .................................................. $251,021 $254,906
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year ......................................... 7,773 11,873
Trade accounts payable ........................................... 1,686 1,856
Accrued interest ................................................. 1,203 1,351
Accrued shipyard costs ........................................... 6,961 7,799
Accrued wages and benefits ....................................... 2,727 3,559
Accrued income taxes ............................................. 2,421 1,540
Other accrued liabilities ........................................ 7,230 6,054
-------- --------
Total current liabilities ..................................... 30,001 34,032
Long-term debt ...................................................... 75,861 83,400
Deferred shipyard costs ............................................. 10,442 11,698
Other liabilities ................................................... 4,095 5,107
Deferred income taxes ............................................... 35,925 30,854
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000 shares; none
issued ........................................................... -- --
Common stock, $.01 par value, authorized 30,000,000 shares; issued:
1999 -- 13,186,065 shares; 1998 -- 13,116,862 shares ............. 132 131
Capital in excess of par value ..................................... 78,279 77,858
Retained earnings .................................................. 25,945 18,691
Unearned compensation .............................................. (1,172) (1,166)
Less: Cost of shares held in treasury: 1999 -- 1,483,175 shares;
1998 -- 972,256 shares ........................................... (8,487) (5,699)
-------- --------
Total stockholders' equity .................................... 94,697 89,815
-------- --------
Total liabilities and stockholders' equity .................... $251,021 $254,906
======== ========
See accompanying notes.
17
MARITRANS INC.
CONSOLIDATED STATEMENTS OF INCOME
($000, except per share amounts)
For the year ended December 31,
---------------------------------------
1999 1998 1997
---- ---- ----
Revenues ................................................. $151,667 $151,839 $135,781
Costs and expenses:
Operation expense ....................................... 86,049 86,616 69,290
Maintenance expense ..................................... 28,213 26,148 19,699
General and administrative .............................. 9,313 8,668 8,453
Depreciation and amortization ........................... 20,279 19,578 16,943
-------- -------- --------
143,854 141,010 114,385
-------- -------- --------
Operating income ......................................... 7,813 10,829 21,396
Interest expense (net of capitalized interest of $73, $417
and $0, respectively).................................... (6,778) (6,945) (7,565)
Other income, net ........................................ 20,116 1,102 4,326
-------- -------- --------
Income before income taxes ............................... 21,151 4,986 18,157
Income tax provision ..................................... 9,095 1,870 6,696
-------- -------- --------
Net income ............................................... $ 12,056 $ 3,116 $ 11,461
-------- -------- --------
Basic earnings per share ................................. $ 1.03 $ 0.26 $ 0.95
Diluted earnings per share ............................... $ 1.02 $ 0.26 $ 0.94
See accompanying notes.
18
MARITRANS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
($000)
For the year ended December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income .............................................................. $ 12,056 $ 3,116 $ 11,461
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization .......................................... 20,279 19,578 16,943
Deferred income taxes .................................................. 5,685 733 1,729
Stock compensation ..................................................... 1,030 378 381
Changes in receivables, inventories and prepaid expenses ............... 7,488 (4,756) (753)
Changes in current liabilities, other than debt ........................ 34 (4,971) 3,387
Non-current changes, net ............................................... 1,939 (2,687) 3,125
(Gain) loss on sale of assets .......................................... (18,937) -- (2,049)
--------- --------- ---------
Total adjustments to net income ......................................... 17,518 8,275 22,763
--------- --------- ---------
Net cash provided by operating activities .............................. 29,574 11,391 34,224
Cash flows from investing activities:
Proceeds from sale of marine vessels, terminals and equipment .......... 60,136 -- 5,066
Purchase of cash and cash equivalents -- restricted, resulting from
the sale of vessels, terminals and equipment ......................... (39,000) -- --
Insurance proceeds from dock settlement ................................ -- 1,025 --
Purchase of marine vessels and equipment ............................... (9,000) (30,190) (51,298)
--------- --------- ---------
Net cash provided by (used in) investing activities .................. 12,136 (29,165) (46,232)
Cash flows from financing activities:
Payment of long-term debt .............................................. (10,916) (16,423) (10,213)
New borrowings under credit facilities ................................. 14,909 43,863 12,000
Repayments of borrowings under credit facility ......................... (25,481) (17,290) (6,000)
Proceeds from stock option exercises ................................... -- -- 143
Purchase of treasury stock ............................................. (3,402) -- --
Dividends declared and paid ............................................ (4,802) (4,474) (3,784)
--------- --------- ---------
Net cash provided by (used in) financing activities .................. (29,692) 5,676 (7,854)
Net increase (decrease) in cash and cash equivalents .................... 12,018 (12,098) (19,862)
Cash and cash equivalents at beginning of year .......................... 1,214 13,312 33,174
--------- --------- ---------
Cash and cash equivalents at end of year ................................ $ 13,232 $ 1,214 $ 13,312
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid ........................................................... $ 6,914 $ 7,574 $ 7,661
Income taxes paid ....................................................... $ 1,750 $ 1,600 $ 4,500
Non-cash activitities:
Purchase of vessels financed with issuance of long-term debt ........... $ 9,850 -- --
Note receivable from sale of vessels, net of reserve of $4,500 ......... $ 4,000 -- --
See accompanying notes.
19
MARITRANS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($000, except share amounts)
Outstanding Common Capital in
shares of Stock, $.01 excess of Retained Treasury Unearned
Common Stock Par Value Par Value Earnings Stock Compensation Total
-------------- ------------- ----------- ---------- ------------ -------------- ----------
Balance at December 31, 1996 ........ 11,959,912 $128 $75,874 $ 12,372 $ (5,067) $ (713) $ 82,594
Net income .......................... 11,461 11,461
Cash dividends ($0.315 per share of
Common Stock) ...................... (3,784) (3,784)
Stock incentives .................... 95,349 2 1,007 -- (366) (119) 524
---------- ---- ------- -------- -------- ------- --------
Balance at December 31, 1997 ........ 12,055,261 130 76,881 20,049 (5,433) (832) 90,795
---------- ---- ------- -------- -------- ------- --------
Net income .......................... 3,116 3,116
Cash dividends ($0.37 per share of
Common Stock) ...................... (4,474) (4,474)
Stock incentives .................... 89,345 1 977 -- (266) (334) 378
---------- ---- ------- -------- -------- ------- --------
Balance at December 31, 1998 ........ 12,144,606 131 77,858 18,691 (5,699) (1,166) 89,815
Net income .......................... 12,056 12,056
Cash dividends ($0.40 per share of
Common Stock) ...................... (4,802) (4,802)
Purchase of treasury shares ......... (614,400) (3,402) (3,402)
Stock incentives .................... 172,684 1 421 -- 614 (6) 1,030
---------- ---- ------- -------- -------- -------- --------
Balance at December 31, 1999 ........ 11,702,890 $132 $78,279 $ 25,945 $ (8,487) $(1,172) $ 94,697
========== ==== ======= ======== ======== ======== ========
See accompanying notes.
20
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
Maritrans Inc. owns Maritrans Operating Partners L.P. (the "Operating
Partnership"), Maritrans General Partner Inc., Maritrans Tankers Inc.,
Maritrans Barge Co., Maritrans Holdings Inc. and other Maritrans entities
(collectively, the "Company"). These subsidiaries, directly and indirectly, own
and operate oil tankers, tugboats, and oceangoing petroleum tank barges
principally used in the transportation of oil and related products along the
Gulf and Atlantic Coasts.
The Company primarily operates in the Gulf of Mexico and along the coastal
waters of the Northeastern United States, particularly the Delaware Bay. The
nature of services provided, the customer base, the regulatory environment and
the economic characteristics of the Company's operations are similar, and the
Company moves its revenue-producing assets among its operating locations as
business and customer factors dictate. Maritrans believes that aggregation of
the entire marine transportation business provides the most meaningful
disclosure.
Principles of Consolidation
The consolidated financial statements include the accounts of Maritrans
Inc. and subsidiaries, all of which are wholly owned. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to their current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Vessels and Equipment
Vessels and equipment, which are carried at cost, are depreciated using
the straight-line method. Vessels are depreciated over a period of up to 30
years. Certain electronic equipment is depreciated over periods of 7 to 10
years. Other equipment is depreciated over periods ranging from 2 to 20 years.
Gains or losses on dispositions of fixed assets are included in other income in
the accompanying consolidated statements of income. The Oil Pollution Act of
1990 requires all newly constructed petroleum tank vessels engaged in marine
transportation of oil and petroleum products in the U.S. to be double-hulled
and gradually phases out the operation of single-hulled tank vessels based on
size and age. The Company has announced a construction program to rebuild its
single-hulled barges with double hulls over the next several years. By January
1, 2005, five of the Company's large oceangoing, single-hulled vessels will be
at their legislatively determined retirement date if they are not rebuilt by
that time.
Maintenance and Repairs
Provision is made for the cost of upcoming major periodic overhauls of
vessels and equipment in advance of performing the related maintenance and
repairs. The current portion of this estimated cost is included in accrued
shipyard costs while the portion of this estimated cost not expected to be
incurred within one year is classified as long-term. Non-overhaul maintenance
and repairs are expensed as incurred.
Inventories
Inventories, consisting of materials, supplies and fuel are carried at
cost, which does not exceed net realizable value.
21
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
1. Organization and Significant Accounting Policies -- (Continued)
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes.
Revenue Recognition
Revenue is recognized when services are performed.
Significant Customers
During 1999, the Company derived revenues aggregating 52 percent of total
revenues from three customers, each one representing more than 10 percent of
revenues. In 1998, revenues from three customers aggregated 52 percent of total
revenues and in 1997, revenues from three customers aggregated 50 percent of
total revenues. The Company does not necessarily derive 10 percent or more of
its total revenues from the same group of customers each year. In 1999,
approximately 85 percent of the Company's total revenue was generated by ten
customers. Credit is extended to various companies in the petroleum industry in
the normal course of business and the Company generally does not require
collateral. This concentration of credit risk within this industry may be
affected by changes in economic or other conditions and may, accordingly,
affect the overall credit risk of the Company.
Related Party Transactions
The Company obtained protection and indemnity insurance coverage from a
mutual insurance association, whose chairman is also the chairman of Maritrans
Inc. The related insurance expense was $2,680,000, $2,577,000 and $2,536,000
for the years ended December 31, 1999, 1998 and 1997, respectively. In 1999,
1998 and 1997, the Company paid amounts for legal services to a law firm, a
partner of which serves on the Company's Board of Directors. In 1998 and 1997
the Company also paid the law firm for the lease of office space. No amounts
were paid for the lease of office space in 1999. A summary of payments to the
law firm is as follows:
1999 1998 1997
---- ---- ----
($000)
Lease of office space ......... $ -- $114 $228
Legal services ................ 207 120 232
---- ---- ----
Total ......................... $207 $234 $460
==== ==== ====
2. Sales of Assets
In March 1999, the Company sold five vessels that were no longer deemed
core to the Company's operations. The vessels consisted of two tug and barge
units that were working in Puerto Rico and a tugboat working on the Atlantic
Coast. The gain on the sale of these assets was $4.4 million and is included in
other income in the consolidated statements of income.
In September 1999, the Company sold its petroleum storage terminal
operations, located in Philadelphia, PA and Salisbury, MD. The proceeds of the
sale totaled $10 million, of which $3.6 million was used to pay off the
outstanding debt on the Philadelphia terminal. The loss on the sale of these
assets was $5.9 million and is included in other income in the consolidated
statements of income.
In December 1999, the Company sold twenty-six vessels, which worked in the
Northeastern U.S. coastal waters, in separate transactions to Vane Line
Bunkering Inc. and K-Sea Transportation LLC ("Vessel Sale"). The transactions,
which included fifteen barges and eleven tugboats, represented a divestiture of
approximately twenty-five percent of the Company's cargo-carrying capacity. The
combined sale price of the two transactions was $48 million. The Company
received proceeds of $39 million in cash and $8.5 million in notes. Due to
22
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
2. Sales of Assets -- (Continued)
uncertainties regarding collectibility of the notes received, the Company
recorded a reserve of $4.5 million. The remaining $0.5 million of the sales
price will be received by the Company upon certain conditions as defined in one
of the sales agreements; accordingly, the $0.5 million will be included in net
income if the conditions are met and the amounts are earned. The total gain on
the Vessel Sale of the assets was $20.0 million, which includes a write-off of
goodwill of approximately $1.4 million. The gain on the Vessel Sale is included
in other income in the consolidated statements of income.
The following unaudited pro forma results of operations for the fiscal
years ended December 31, 1999, 1998 and 1997 assumes that the sale of vessels
and petroleum storage terminal operations were disposed as of the beginning of
the period presented and excludes the net gain on the sale of these assets of
$10.6 million, net of taxes. No pro forma adjustment has been made for expenses
not specifically allocable to the assets sold.
1999 1998 1997
---- ---- ----
($000, except per share amounts)
Revenue ............................ $ 115,053 $ 104,643 $ 91,463
Net income ......................... 924 399 9,666
Diluted earnings per share ......... $ 0.08 $ 0.03 $ 0.80
3. Corporate Relocation and Downsizing
In September 1999, the Company announced its intent to relocate the
corporate headquarters from Philadelphia, PA to Tampa, FL. At the same time, the
Company announced a significant reduction of its shoreside staff. The Company
accrued $0.9 million of severance costs in September 1999 for the cash benefits
to be paid to the employees who had been terminated. As of December 31, 1999,
$0.3 million has been paid.
4. Stock Buyback
On February 9, 1999, the Board of Directors authorized a share buyback
program for the acquisition of up to one million shares of the Company's common
stock. This amount represents approximately 8 percent of the 12.1 million
shares outstanding at the beginning of the program. As of December 31, 1999,
614,400 shares have been purchased under the plan. The total cost of the shares
repurchased during 1999 was approximately $3.4 million.
5. Earnings per Common Share
The following data show the amounts used in computing basic and diluted
earnings per share (EPS):
1999 1998 1997
---- ---- ----
($000)
Income available to common stockholders used
in basic EPS ................................. $12,056 $ 3,116 $ 11,461
======= ======= ========
Weighted average number of common shares
used in basic EPS ............................ 11,682 11,929 12,003
Effect of dilutive securities:
Stock options and restricted shares. ......... 126 258 177
------- ------- --------
Weighted number of common shares and
dilutive potential common stock used in
diluted EPS .................................. 11,808 12,187 12,180
======= ======= ========
23
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
6. Shareholder Rights Plan
In 1993, Maritrans Inc. adopted a Shareholder Rights Plan (the "Plan") in
connection with the conversion from partnership to corporate form. Under the
Plan, each share of Common Stock has attached thereto a Right (a "Right") which
entitles the registered holder to purchase from the Company one one-hundredth
of a share (a "Preferred Share Fraction") of Series A Junior Participating
Preferred Shares, par value $.01 per share, of the Company ("Preferred
Shares"), or a combination of securities and assets of equivalent value, at a
Purchase Price of $40, subject to adjustment. Each Preferred Share Fraction
carries voting and dividend rights that are intended to produce the equivalent
of one share of Common Stock. The Rights are not exercisable for a Preferred
Share Fraction until the earlier of (each, a "Distribution Date") (i) 10 days
following a public announcement that a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 20 percent or more of
the outstanding shares of Common Stock or (ii) the close of business on a date
fixed by the Board of Directors following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 20
percent or more of the outstanding shares of Common Stock.
The Rights may be exercised for Common Stock if a "Flip-in" or "Flip-over"
event occurs. If a "Flip-in" event occurs and the Distribution Date has passed,
the holder of each Right, with the exception of the acquirer, is entitled to
purchase $40 worth of Common Stock for $20. The Rights will no longer be
exercisable into Preferred Shares at that time. "Flip-in" events are events
relating to 20 percent stockholders, including without limitation, a person or
group acquiring 20 percent or more of the Common Stock, other than in a tender
offer that, in the view of the Board of Directors, provides fair value to all
of the Company's shareholders. If a "Flip-over" event occurs, the holder of
each Right is entitled to purchase $40 worth of the acquirer's stock for $20. A
"Flip-over" event occurs if the Company is acquired or merged and no
outstanding shares remain or if 50 percent of the Company's assets or earning
power is sold or transferred. The Plan prohibits the Company from entering into
this sort of transaction unless the acquirer agrees to comply with the
"Flip-over" provisions of the Plan.
The Rights can be redeemed by the Company for $.01 per Right until up to
ten days after the public announcement that someone has acquired 20 percent or
more of the Company's Common Stock (unless the redemption period is extended by
the Board in its discretion). If the Rights are not redeemed or substituted by
the Company, they will expire on August 1, 2002.
7. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1999 and 1998 consisted of cash
and commercial paper, the carrying value of which approximates fair value. For
purposes of the consolidated financial statements, short-term highly liquid
debt instruments with original maturities of three months or less are
considered to be cash equivalents.
In 1999, the Company negotiated a waiver and amendment to the indenture
and mortgage securing substantially all of the vessels sold. The proceeds from
the sale of vessels are required to be deposited with the trustee, Wilmington
Trust Company, and may be withdrawn to fund repairs and improvements on
mortgaged vessels, including double-hull rebuilding, to make debt repayments
and to pay income taxes resulting from the vessel transactions. At December 31,
1999, deposits held by the trustee are $39 million. Of this amount, $21 million
has been classified as restricted cash and is included in current assets, as
this amount will be used in current operations. The remaining balance of $18
million is included in other assets on the Company's consolidated balance
sheet.
8. Stock Incentive Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and Related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FAS Statement No. 123, Accounting for Stock-Based
Compensation, requires the use of option valuation models that were not
developed for use in valuing employee stock options. The effect of applying
24
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
8. Stock Incentive Plans -- (Continued)
Statement No. 123's fair value method to the Company's stock-based awards
results in pro forma net income that is not materially different from amounts
reported and earnings per share that are the same as the amounts reported. Pro
forma results of operations may not be representative of the effects on reported
or pro forma results of operations for future years.
Maritrans Inc. has a stock incentive plan (the "Plan"), whereby
non-employee directors, officers and other key employees may be granted stock,
stock options and, in certain cases, receive cash under the Plan. Any
outstanding options granted under the Plan are exercisable at a price not less
than market value of the shares on the date of grant. Amendments were made to
the Plan and approved by the stockholders in 1997. The amendments included
increasing the aggregate number of shares available for issuance under the Plan
from 1,250,000 shares to 1,750,000 shares. Additionally, the amendments provide
for the automatic grant of non-qualified stock options to non-employee
directors, on a formulaic biannual basis, of options to purchase shares equal
to two multiplied by the aggregate number of shares distributed to such
non-employee director under the Plan during the preceding calendar year. In
1999, there were 5,663 shares issued to non-employee directors. Compensation
expense equal to the fair market value on the date of the grant to the
directors is included in general and administrative expense in the consolidated
statement of income. During 1999, there were 63,705 shares of restricted stock
issued under the Plan. The restrictions lapse over a two year period. The
weighted average fair value of the restricted stock issued during 1999 was
$6.00. The shares are subject to forfeiture under certain circumstances.
Unearned compensation, representing the fair market value of the shares at the
date of issuance, is amortized to expense as the restrictions lapse. At
December 31, 1999 and 1998, 435,274 and 691,109 remaining shares and options
within the Plan were reserved for grant, respectively.
In May 1999, the Company adopted the Maritrans Inc. 1999 Directors' and
Key Employees Equity Compensation Plan (the "99 Plan"), which provides
non-employee directors, officers and other key employees with certain rights to
acquire common stock and stock options. The aggregate number of shares
available for issuance under the 99 Plan is 900,000 and the shares are to be
issued from treasury shares. Any outstanding options granted under the Plan are
exercisable at a price not less than market value of the shares on the date of
grant. In 1999, there were 1,808 shares issued to non-employee directors.
Compensation expense equal to the fair market value on the date of the grant to
the directors is included in general and administrative expense in the
consolidated statement of income.
During 1999, there were 101,508 shares of restricted stock issued under
the 99 Plan. The restrictions lapse over a two year period. The weighted
average fair value of the restricted stock issued during 1999 was $6.00. The
shares are subject to forfeiture under certain circumstances. Unearned
compensation, representing the fair market value of the shares at the date of
issuance, is amortized to expense as the restrictions lapse. At December 31,
1999, 416,474 remaining shares and options within the Plan were reserved for
grant.
Compensation expense for all restricted stock was $995,000, $434,000, and
$536,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
25
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
8. Stock Incentive Plans -- (Continued)
Information on stock options follows:
Number of Weighted Average
Options Exercise Price Exercise Price
----------- ---------------- -----------------
Outstanding at 12/31/96 ......... 682,160 $4.000-6.000 $4.79
Granted ........................ 76,939 5.875-7.937 7.33
Exercised ...................... 71,264 4.000-5.625 4.60
Cancelled or forfeited ......... 140,637 5.250-6.250 5.45
Expired ........................ -- -- --
--------- ------------ -----
Outstanding at 12/31/97 ......... 547,198 4.000-7.937 5.01
Granted ........................ 66,918 9.000-9.188 9.11
Exercised ...................... -- -- --
Cancelled or forfeited ......... 35,991 5.375-6.000 5.78
Expired ........................ 98,489 4.000-5.000 4.35
--------- ------------ -----
Outstanding at 12/31/98 ......... 479,636 4.000-9.188 5.64
--------- ------------ -----
Granted ........................ 598,169 6.000-6.000 6.00
Exercised ...................... -- -- --
Cancelled or forfeited ......... 31,492 6.000-9.188 6.41
Expired ........................ -- -- --
--------- ------------ -----
Outstanding at 12/31/99 ......... 1,046,313 $4.000-9.188 $5.82
========= ============ =====
Exercisable
December 31, 1997 .............. 362,575 4.000-6.000 4.44
December 31, 1998 .............. 318,971 4.000-9.125 4.55
December 31, 1999 .............. 352,474 4.000-9.125 4.78
Outstanding options have an original term of up to ten years, are exercisable
in installments over two to four years, and expire beginning in 2002. The
weighted average remaining contractual life of the options outstanding at
December 31, 1999 is seven years.
9. Income Taxes
The income tax provision consists of:
1999 1998 1997
---- ---- ----
($000)
Current:
Federal ............... $15,567 $1,011 $4,553
State ................. 1,943 126 414
Deferred:
Federal ............... $(7,583) $ 547 $1,753
State ................. (832) 186 (24)
------- ------ ------
$ 9,095 $1,870 $6,696
------- ------ ------
26
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
9. Income Taxes -- (Continued)
The differences between the federal statutory tax rate in 1999, 1998 and
1997, and the effective tax rates were as follows:
1999 1998 1997
---- ---- ----
($000)
Statutory federal tax provision ............................... $7,403 $1,695 $6,355
State income taxes, net of federal income tax benefit ......... 722 206 253
Non-deductible items (principally goodwill) ................... 602 131 88
Other ......................................................... 368 (162) --
------ ------ ------
$9,095 $1,870 $6,696
====== ====== ======
Principal items comprising deferred income tax liabilities and assets as
of December 31, 1999 and 1998 are:
1999 1998
---- ----
($000)
Deferred tax liabilities:
Depreciation ........................................ $46,278 $44,220
Prepaid expenses .................................... 1,662 1,778
------- -------
47,940 45,998
------- -------
Deferred tax assets:
Reserves and accruals ............................... 16,028 15,888
Net operating loss and credit carryforwards ......... -- 3,883
------- -------
16,028 19,771
------- -------
Net deferred tax liabilities ........................... $31,912 $26,227
======= =======
10. Retirement Plans
Most of the shoreside employees participate in a qualified defined benefit
retirement plan of Maritrans Inc. Substantially all of the seagoing supervisors
who were supervisors in 1984, or who were hired as or promoted into supervisory
roles between 1984 and 1998 have pension benefits under the Company's
retirement plan for that period of time. Beginning in 1999, the seagoing
supervisors retirement benefits are provided through contributions to an
industry-wide, multi-employer seaman's pension plan. Upon retirement, those
seagoing supervisors will be provided with retirement benefits from the
Company's plan for service periods between 1984 and 1998, and from the
multi-employer seaman's plan for other covered periods. As a result of the
implementation of changes in the retirement plan provider, the Company
recognized a curtailment gain during 1999 in the amount of $2.6 million, which
is reflected in the net pension cost below. Additionally, the Company modified
its plan for those seagoing supervisors who had been originally covered by the
District 2 Marine Engineers Beneficial Association and met certain service
requirements. As a result of this modification, additional benefits of $1.7
million have been recorded and reflected in the net pension cost below.
Net periodic pension cost was determined under the projected unit credit
actuarial method. Pension benefits are primarily based on years of service and
begin to vest after two years. Employees who are members of unions
participating in Maritrans' collective bargaining agreements are not eligible
to participate in the qualified defined benefit retirement plan of Maritrans
Inc.
27
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
10. Retirement Plans -- (Continued)
The following table sets forth changes in the plan's benefit obligation,
changes in plan assets and the plan's funded status as of December 31, 1999 and
1998:
1999 1998
---- ----
($000)
Change in benefit obligation
Benefit obligation at beginning of year ................ $ 25,647 $ 24,044
Service cost ........................................... 1,419 1,482
Interest cost .......................................... 1,635 1,553
Benefit enhancement..................................... 1,666 --
Actuarial (gain) loss .................................. (979) (653)
Curtailment gain ....................................... (2,579) --
Benefits paid .......................................... (864) (779)
-------- --------
Benefit obligation at end of year ...................... $ 25,945 $ 25,647
-------- --------
Change in plan assets
Fair value of plan assets at beginning of year ......... $ 30,533 $ 27,256
Actual return on plan assets ........................... 930 3,515
Employer contribution .................................. -- 541
Benefits paid .......................................... (864) (779)
-------- --------
Fair value of plan assets at end of year ............... $ 30,599 $ 30,533
-------- --------
Funded status .......................................... 4,654 4,886
Unrecognized net actuarial (gain) loss ................. (8,054) (8,616)
Unrecognized transition amount ......................... (408) (600)
-------- --------
Accrued benefit cost ................................... ($ 3,808) ($ 4,330)
======== ========
Weighted average assumptions as of December 31, 1999
Discount rate .......................................... 6.75% 6.75%
Expected rate of return ................................ 6.75% 6.75%
Rate of compensation increase .......................... 5.00% 5.00%
Net periodic pension cost included the following components for the years ended
December 31,
1999 1998 1997
---- ---- ----
($000)
Components of net periodic benefit pension cost
Service cost of current period ........................ $ 1,419 $ 1,482 $ 1,440
Interest cost on projected benefit obligation ......... 1,635 1,553 1,451
Expected return on plan assets ........................ (2,032) (1,832) (1,582)
Actual (gain) loss on plan assets ..................... 1,102 (1,683) (1,990)
Benefit enhancement.................................... 1,666 -- --
Curtailment gain....................................... (2,579) -- --
Net (amortization) and deferral ....................... (1,733) 1,480 1,787
------- -------- --------
Net periodic pension cost ............................. ($ 522) $ 1,000 $ 1,106
======= ======== ========
Substantially all of the shoreside employees participate in a qualified
defined contribution plan. Contributions under the plan are determined annually
by the Board of Directors of Maritrans Inc. The cost of the plan was $59,000,
$0 and $779,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
28
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
10. Retirement Plans -- (Continued)
Approximately 54 percent of the Company's employees are covered under
collective bargaining agreements, and approximately 19 percent of the employees
are covered under collective bargaining agreements that expire within one year.
Beginning in 1999, all of the Company's seagoing employee retirement
benefits are provided through contributions to industry-wide, multi-employer
seaman's pension plans. Prior to 1999, the seagoing supervisors were included
in the Company's retirement plan as discussed above. Contributions to
industry-wide, multi-employer seamen's pension plans, which cover substantially
all seagoing personnel, were approximately $1,527,000, $889,000 and $479,000
for the years ended December 31, 1999, 1998 and 1997, respectively. These
contributions include funding for current service costs and amortization of
prior service costs of the various plans over periods of 30 to 40 years. The
pension trusts and union agreements provide that contributions be made at a
contractually determined rate per man-day worked. Maritrans Inc. and its
subsidiaries are not administrators of the multi-employer seamen's pension
plans.
11. Debt
The Company has $52 million remaining on the fleet that was part of the
original indebtedness of $115.0 million incurred when the Company became a
public company in 1987. This mortgage is collateralized by mortgages on a
majority of the tugs and barges.
In 1997, Maritrans entered into a multi-year revolving credit facility for
amounts up to $33 million with Mellon Bank, N.A. This facility is
collateralized by mortgages on tankers acquired in 1997 and 1998. Borrowings
outstanding under this facility at December 31, 1999, were $22.0 million. The
interest rate on the indebtedness is variable. The weighted average interest
rate during 1999 was 6.0 percent. Subsequent to year-end, the terms of this
facility were modified and the maturity date was extended to October 2002.
Accordingly, this amount has been classified as a long-term liability as of
December 31, 1999.
The Operating Partnership has a $10 million working capital facility
secured by its receivables and inventories. The maximum amount outstanding
under this facility during fiscal 1999 was $4.7 million. There were no
borrowings outstanding under this facility at December 31, 1999. The interest
rate on the indebtedness is variable. The weighted average interest rate on
this facility during the period in which amounts were outstanding during 1999
was 4.83 percent.
In August 1999, the Company entered into an agreement to purchase the MV
Port Everglades, a tugboat. The Company paid $2.5 million of cash at the
closing and entered into a note of $4.9 million payable to the previous owner.
The note has no stated interest rate, therefore the Company recorded the note
at the present value of the future cash payments. The note is secured by a
Mellon Bank N.A. Letter of Credit.
In December 1999, the Company purchased two tugboats, the Enterprise and
the Intrepid, which had previously been operated by the Company under operating
leases. The purchase price of the vessels was $5.7 million in the form of a
note payable to the previous owner.
29
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
11. Debt -- (Continued)
December 31,
1999 1998
------ ------
($000)
Fleet Mortgage, annual principal payment of $6.5 million, interest rate 9.25% ..... $52,000 $58,500
Revolving credit facility with Mellon Bank N.A., maturity date October 2002,
variable interest rate (7% at December 31, 1999) ................................. 22,000 28,400
Working Capital Facility .......................................................... -- 4,173
Note payable with Mellon Bank N.A. ................................................ -- 4,200
Vessel notes payable, monthly payments of $76,104 including interest, no stated
interest rate (interest imputed at a rate of 6.5%) ............................... 3,945 --
Vessel notes payable, monthly payments of $54,183 including interest with a balloon
payment of $1,137,838 due February 2007, variable interest rate, (7.89% at
December 31, 1999) ............................................................... 5,689 --
------- -------
83,634 95,273
Less current portion .............................................................. 7,773 11,873
------- -------
$75,861 $83,400
======= =======
Terms of the indebtedness require the subsidiaries to maintain their
properties in a specific manner, maintain specified insurance on their
properties and business, and abide by other covenants, which are customary with
respect to such borrowings.
Based on the borrowing rates currently available for loans with similar
terms and maturities, the fair value of long-term debt was $76.3 million and
$96.1 million at December 31, 1999 and 1998, respectively. The maturity
schedule for outstanding indebtedness under existing debt agreements at
December 31, 1999, is as follows:
($000)
2000 ......................... $7,773
2001 ......................... 7,872
2002 ......................... 29,921
2003 ......................... 7,972
2004 ......................... 8,027
Thereafter ................... 22,069
-------
$83,634
=======
12. Commitments and Contingencies
Minimum future rental payments under noncancellable operating leases at
December 31, 1999, are as
follows:
($000)
2000 ......................... $ 536
2001 ......................... 629
2002 ......................... 641
2003 ......................... 486
2004 ......................... 380
Thereafter ................... 2,224
------
$4,896
======
Total rent expense for all operating leases was $1,897,000, $2,029,000,
and $2,123,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
30
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
12. Commitments and Contingencies -- (Continued)
The indenture governing the Operating Partnership's long-term debt permits
cash distributions by Maritrans Operating Partners L.P. to Maritrans Inc., so
long as no default exists under the indenture and provided that such
distributions do not exceed contractually prescribed amounts.
In the ordinary course of its business, claims are filed against the
Company for alleged damages in connection with its operations. Management is of
the opinion that the ultimate outcome of such claims at December 31, 1999, will
not have a material adverse effect on the consolidated financial statements.
13. Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- ------------
($000, except per share amounts)
1999
- ----
Revenues .................................. $ 38,398 $ 39,834 $ 39,185 $ 34,250
Operating income .......................... 1,455 2,780 1,755 1,823
Net income (loss) ......................... 2,085 900 (2,909) 11,980
Basic earnings (loss) per share ........... $ 0.17 $ 0.08 $ (0.25) $ 1.05
Diluted earnings (loss) per share ......... $ 0.17 $ 0.08 $ (0.25) $ 1.03
1998
- ----
Revenues .................................. $ 35,830 $ 38,137 $ 38,389 $ 39,483
Operating income .......................... 2,740 3,512 2,071 2,506
Net income ................................ 720 1,325 582 489
Basic earnings per share .................. $ 0.06 $ 0.11 $ 0.05 $ 0.04
Diluted earnings per share ................ $ 0.06 $ 0.11 $ 0.05 $ 0.04
In the first quarter of 1999, the Company sold five vessels consisting of
two tug and barge units that were working in Puerto Rico and a tugboat working
on the Atlantic Coast. The gain on the sale of these assets was $4.4 million
($2.7 million net of tax or $ 0.22 diluted earnings per share) and is included
in other income in the consolidated statements of income.
In the third quarter of 1999, the Company sold its petroleum storage
terminal operations. The loss on the sale of these assets was $5.9 million
($3.6 million net of tax or $0.30 diluted loss per share) and is included in
other income in the consolidated statements of income.
In the fourth quarter of 1999, the Company sold twenty-six vessels, most
of which worked in the Northeastern U.S. coastal waters. The total gain on the
sale was $20.0 million ($11.4 million net of tax or $0.98 diluted earnings per
share) and is included in other income in the consolidated statements of
income.
In the fourth quarter of 1999, the Company recorded a credit to expense of
$1.4 million ($0.8 million net of tax or $0.12 diluted earnings per share)
related to changes in the pension plan discussed in Note 10.
31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of the Registrant, and information
with respect to compliance with Section 16(a) of the Securities Exchange Act of
1934, is incorporated herein by reference to the Registrant's definitive Proxy
Statement (the "Proxy Statement") to be filed with the Securities and Exchange
Commission (the "Commission") not later than 120 days after the close of the
year ended December 31, 1999, under the captions "Information Regarding
Nominees For Election As Directors And Regarding Continuing Directors" and
"Section 16(A) Beneficial Ownership Reporting Compliance."
The individuals listed below are directors and executive officers of
Maritrans Inc. or its subsidiaries.
Name Age(1) Position
---- ------ --------
Stephen A. Van Dyck (4) ................ 56 Chairman of the Board of Directors and Chief Executive Officer
Dr. Robert E. Boni (2)(3) .............. 72 Lead Director
Dr. Craig E. Dorman (2)(3)(4) .......... 59 Director
Robert J. Lichtenstein (4) ............. 52 Director
Brent A. Stienecker (2)(3) ............. 61 Director
H. William Brown ....................... 61 Chief Financial Officer
Janice M. Smallacombe .................. 40 Senior Vice President and Secretary
Steven E. Welch ........................ 48 Vice President
John J. Burns .......................... 47 President, Maritrans Operating Partners L.P.
Walter T. Bromfield .................... 44 Treasurer and Controller
Stephen M. Hackett ..................... 41 President, Maritrans Chartering Co., Inc.
Philip J. Doherty ...................... 40 Vice President
- ------------
(1) As of March 1, 2000
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Nominating Committee
Mr. Van Dyck has been Chairman of the Board and Chief Executive Officer of
the Company and its predecessor since April 1987. For the previous year, he was
a Senior Vice President - Oil Services, of Sonat Inc. and Chairman of the
Boards of the Sonat Marine Group, another predecessor, and Sonat Offshore
Drilling Inc. For more than five years prior to April 1986, Mr. Van Dyck was
the President and a director of the Sonat Marine Group and Vice President of
Sonat Inc. Mr. Van Dyck is a member of the Board of Directors of Amerigas
Propane, Inc. Mr. Van Dyck is also the Chairman of the Board and a director of
the West of England Ship Owners Mutual Insurance Association (Luxembourg), a
mutual insurance association. He is a member of the Company's Nominating
Committee of the Board of Directors. See "Certain Transactions" in the Proxy
Statement.
Mr. Brown was named Chief Financial Officer of the Company in June 1997.
Previously, Mr. Brown was Chief Financial Officer of Conrail Inc., where he had
been employed since 1978. Mr. Brown is also a member of the Board of Directors
of XTRA Corporation.
Ms. Smallacombe is Senior Vice President and Secretary and has been
continuously employed by the Company or its predecessors in various capacities
since 1982.
32
Mr. Burns is President of Maritrans Operating Partners L.P. and has been
continuously employed by the Company or its predecessors in various capacities
since 1975.
Mr. Welch is Vice President and has been continuously employed by the
Company or its predecessors in various capacities since 1977.
Mr. Bromfield is Treasurer and Controller of the Company, and has been
continuously employed in various capacities by Maritrans or its predecessors
since 1981.
Mr. Hackett is President of Maritrans Chartering Co., Inc. and has been
continuously employed in various capacities by Maritrans or its predecessors
since 1980.
Mr. Doherty is Vice President and has been continuously employed by
Maritrans since 1997. Previously, Mr. Doherty was Director of Business
Development for Computer Command and Control Company where he had been employed
since April 1995.
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
*The information required by Item 11, Executive Compensation, by Item 12,
Security Ownership of Certain Beneficial Owners and Management, and by Item 13,
Certain Relationships and Related Transactions, is incorporated herein by
reference to the Proxy Statement under the headings "Compensation of Directors
and Executive Officers", "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Transactions".
33
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
Page
-----
(a) (1) Financial Statements
Report of Independent Auditors 16
Maritrans Inc. Consolidated Balance Sheets at December 31, 1999 and 1998 17
Maritrans Inc. Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997 18
Maritrans Inc. Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997 19
Maritrans Inc. Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 20
Notes to the Consolidated Financial Statements 21
(2) Financial Statement Schedules
Schedule II Maritrans Inc. Valuation Account for the years ended December 31,
1999, 1998 and 1997. 39
All other schedules called for under Regulation S-X are not submitted because they are not
applicable, not required, or because the required information is not material, or is
included in the financial statements or notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended December 31, 1999.
34
Exhibit Index Page
------------- ------
3.1# Certificate of Incorporation of the Registrant, as amended.
3.2# By Laws of the Registrant, amended and restated February 9, 1999.
4.1 Certain instruments with respect to long-term debt of the Registrant or Maritrans
Operating Partners L.P., Maritrans Philadelphia Inc. or Maritrans Barge Company
which relate to debt that does not exceed 10 percent of the total assets of the
Registrant are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.
Maritrans hereby agrees to furnish supplementally to the Securities and Exchange
Commission a copy of each such instrument upon request.
4.2/ Shareholder Rights Agreement amended and restated February, 1999.
10.1* Amended and Restated Agreement of Limited Partnership of Maritrans Operating
Partners L.P., dated as of April 14, 1987 (Exhibit 3.2).
10.2+ Certificate of Limited Partnership of Maritrans Operating Partners L.P., dated January
29, 1987 (Exhibit 3.4).
10.3* Form of Maritrans Capital Corporation Note Purchase Agreement, dated as of March
15, 1987 (Exhibit 10.6).
10.3(a)* Indenture of Trust and Security Agreement, dated as of March 15, 1987 from
Maritrans Operating Partners L.P. and Maritrans Capital Corporation to The
Wilmington Trust Company (Exhibit 10.6(a)).
10.3(b)* Form of First Preferred Ship Mortgage, dated April 14, 1987 from Maritrans
Operating Partners L.P., mortgagor, to The Wilmington Trust Company, mortgagee
(Exhibit 10.6(b)).
10.3(c)* Guaranty Agreement by Maritrans Operating Partners L.P. regarding $35,000,000
Series A Notes Due April 1, 1997 and $80,000,000 Series B Notes Due April 1,
2007 of Maritrans Capital Corporation (Exhibit 10.6(c)).
10.3(d)= Second Supplemental Indenture of Trust and Security Agreement, dated as of April 1,
1996 from Maritrans Operating Partners L.P. and Maritrans Capital Corporation to
Wilmington Trust Company, as Trustee.
10.3(e)= Supplement To First Preferred Ship Mortgages, dated May 8, 1996 from Maritrans
Operating Partners L.P., Mortgagor, to Wilmington Trust Company, as Trustee,
Mortgagee.
10.3(f) Third Supplemental Indenture of Trust and Security Agreement, dated as of
December 1, 1999 from Maritrans Operating Partners L.P. and Maritrans Capital
Corporation to Wilmington Trust Company, as Trustee.
10.4~ Credit Agreement of October 17, 1997, by and among Maritrans Tankers Inc.,
Maritrans Inc., and Mellon Bank, N.A. for a revolving credit facility up to
$33,000,000 (Exhibit 10.2).
10.4(a)~ Guaranty (Suretyship) Agreement of October 17, 1997, by Maritrans Inc. regarding
up to $50,000,000 in principal amount of credit accommodations to Maritrans
Tankers Inc. by Mellon Bank, N.A. (Exhibit 10.1).
10.4(b)~ Note of Maritrans Tankers Inc. to Mellon Bank, N.A., dated October 17, 1997 (Exhibit
10.3).
35
Exhibit Index Page
------------- ----
10.4(c)~ First Preferred Ship Mortgage, dated October 17, 1997, by Maritrans Tankers Inc.,
mortgagor, to Mellon Bank, N.A., mortgagee, on the vessel ALLEGIANCE (Exhibit
10.4).
10.4(d)~ First Preferred Ship Mortgage, dated October 17, 1997, by Maritrans Tankers Inc.,
mortgagor, to Mellon Bank, N.A., mortgagee, on the vessel PERSEVERANCE
(Exhibit 10.5).
10.4(e)o Agreement of Sale dated October 11, 1999 between Maritrans Operating Partners L.P.
and K-Sea Transportation LLC
Executive Compensation Plans and Arrangements
10.4(f) Supplement to Credit Agreement dated February 4, 2000, by and among Maritrans
Tankers Inc., Maritrans Inc., and Mellon Bank, N.A. for revolving credit facility up
to $33,000,000.
10.5 Severance and Non-Competition Agreement, as amended and restated effective June
30, 1999, between Maritrans General Partner Inc. and Stephen M. Hackett.
10.6 Severance and Non-Competition Agreement, as amended and restated effective July
16, 1999, between Maritrans General Partner Inc. and John J. Burns.
10.7^ Employment Agreement, dated October 5, 1993 between Maritrans General Partner
Inc. and Stephen A. Van Dyck (Exhibit 10.6).
10.8" Severance and Non-Competition Agreement, as amended and restated effective July 7,
1997, between Maritrans General Partner Inc. and Steven E. Welch.
10.9 Severance and Non-Competition Agreement, as amended and restated effective June
30, 1999, between Maritrans General Partner Inc. and Janice M. Smallacombe.
10.10^ Profit Sharing and Savings Plan of Maritrans Inc. as amended and restated effective
November 1, 1993 (Exhibit 10.13).
10.11@ Executive Award Plan of Maritrans GP Inc. (Exhibit 10.31).
10.12@ Excess Benefit Plan of Maritrans GP Inc. as amended and restated effective January 1,
1988 (Exhibit 10.32).
10.13@ Retirement Plan of Maritrans GP Inc. as amended and restated effective January 1,
1989 (Exhibit 10.33).
10.14^ Performance Unit Plan of Maritrans Inc. effective April 1, 1993 (Exhibit 10.17).
10.15& Executive Compensation Plan as amended and restated effective March 18, 1997.
10.16% 1999 Directors Equity and Key Employees Equity Compensation Plan
10.17 Severance and Non-Competition Agreement, as amended and restated effective
December 1, 1998, between Maritrans General Partner Inc. and Philip J. Doherty.
10.18 Severance and Non-Competition Agreement, as amended and restated effective
January 7, 2000, between Maritrans General Partner Inc. and Walter T. Bromfield.
21.1 Subsidiaries of Maritrans Inc.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
36
* Incorporated by reference herein to the Exhibit number in parentheses filed
on March 24, 1988 with Amendment No. 1 to Maritrans Partners L. P. Form 10-K
Annual Report, dated March 3, 1988, for the fiscal year ended December 31,
1987.
+ Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Partners L. P. Form S-1 Registration Statement No. 33-11652
dated January 30, 1987 or Amendment No. 1 thereto dated March 20, 1987.
# Incorporated by reference herein to the Exhibit of the same number filed with
the Corporation's Post-Effective Amendment No. 1 to Form S-4 Registration
Statement No. 33-57378 dated January 26, 1993.
& Incorporated by reference herein to Exhibit A of the Registrant's definitive
Proxy Statement filed on March 31, 1997.
@ Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Partners L. P. Annual Report on Form 10-K, dated March 29,
1993 for the fiscal year ended December 31, 1992.
- - Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Inc. Annual Report on Form 10-K, dated March 30, 1994 for the
fiscal year ended December 31, 1993.
= Incorporated by reference herein to the Exhibit of the same number filed with
Maritrans Inc. Annual Report on Form 10-K, dated March 31, 1997 for the
fiscal year ended December 31, 1996.
- - Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Inc. quarterly report on Form 10-Q, dated November 12, 1997
for the quarter ended September 30, 1997.
" Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Inc. Annual Report on Form 10-K, dated March 30, 1998 for the
fiscal year ended December 31, 1997.
% Incorporated by reference herein to the Exhibit number in parentheses filed
with the Maritrans Inc. Form S-8 Registration Statement No. 333-79891 dated
June 3, 1999.
o Incorporated by reference herein to the Exhibit number in parentheses filed
with the Maritrans Inc. Form 8-K Current Report dated December 22, 1999.
/ Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Inc. Annual Report on Form 10-K, dated March 26, 1999 for the
fiscal year ended December 31, 1998.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARITRANS INC.
(Registrant)
By: /s/ Stephen A. Van Dyck
-------------------------
Stephen A. Van Dyck
Chairman of the Board Dated: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Stephen A. Van Dyck Chairman of the Board and Dated: March 28, 2000
-------------------------- Chief Executive Officer
Stephen A. Van Dyck (Principal Executive Officer)
By: /s/ Dr. Robert E. Boni Lead Director Dated: March 28, 2000
--------------------------
Dr. Robert E. Boni
By: /s/ Dr. Craig E. Dorman Director Dated: March 28, 2000
--------------------------
Dr. Craig E. Dorman
By: /s/ Robert J. Lichtenstein Director Dated: March 28, 2000
--------------------------
Robert J. Lichtenstein
By: /s/ Brent A. Stienecker Director Dated: March 28, 2000
--------------------------
Brent A. Stienecker
By: /s/ H. William Brown Chief Financial Officer Dated: March 28, 2000
-------------------------- (Principal Financial Officer)
H. William Brown
By: /s/ Walter T. Bromfield Treasurer and Controller Dated: March 28, 2000
-------------------------- (Principal Accounting Officer)
Walter T. Bromfield
38
MARITRANS INC.
SCHEDULE II -- VALUATION ACCOUNT
($000)
BALANCE
BALANCE AT CHARGED TO DEDUCTIONS AT END
BEGINNING COSTS AND AND OF
DESCRIPTION OF PERIOD EXPENSES OTHER PERIOD
- ----------------------------------------- ------------ ---------------- ------------- ----------
JANUARY 1 TO DECEMBER 31, 1997
Allowance for doubtful accounts ......... $ 860 $ 410 $ 12(a) $ 1,258
Accrued shipyard costs .................. $14,435 10,942 6,069(b) $21,808
(2,500)(c)
JANUARY 1 TO DECEMBER 31, 1998
Allowance for doubtful accounts ......... $ 1,258 $ 129 $ -- $ 1,387
Accrued shipyard costs .................. $21,808 15,795 18,106(b) $19,497
JANUARY 1 TO DECEMBER 31, 1999
Allowance for doubtful accounts ......... $ 1,387 $ 237 $ 231 $ 1,393
Allowance for notes receivable .......... $ -- $ 4,500(e) $ -- $ 4,500
Accrued shipyard costs .................. $19,497 $ 17,170 $15,284(b) $17,403
3,980(d)
- ------------
(a) Deductions are a result of write-offs of uncollectible accounts receivable
for which allowances were previously provided.
(b) Deductions reflect expenditures for major periodic overhauls.
(c) Reflects increase in reserve for shipyard accrual related to assets acquired
during the year.
(d) Reflects reduction in reserve for shipyard accrual related to vessels sold.
Amount is included in gain on asset sales discussed in Note 2 to the
consolidated financial statements.
(e) Represents valuation recorded against the notes received during the current
year from the sale of assets.
39