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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the Quarterly Period ended September 30, 2002
------------------
or
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from to
---------- ----------
Commission File Number 1-9063
------
MARITRANS INC.
--------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0343903
- ------------------------------- ----------
(State or other jurisdiction of (Identification No.
incorporation or organization) I.R.S. Employer)
TWO HARBOUR PLACE
302 KNIGHTS RUN AVENUE
SUITE 1200
TAMPA, FLORIDA 33602
--------------------
(Address of principal executive offices)
(Zip Code)
(813) 209-0600
--------------
Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ----
Common Stock $.01 par value, 8,136,023 shares outstanding as of November 8, 2002
1
MARITRANS INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Income - Three months
ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Income - Nine months
ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Qualitative and Quantitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
OFFICERS CERTIFICATIONS 22
2
PART I: FINANCIAL INFORMATION
MARITRANS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000)
September 30, December 31,
2002 2001
------------- ------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 1,991 $ 3,558
Trade accounts receivable 5,553 8,703
Other accounts receivable 3,668 3,620
Inventories 2,765 2,453
Deferred income tax benefit 7,258 7,258
Prepaid expenses 5,133 2,659
-------- --------
Total current assets 26,368 28,251
Vessels and equipment 330,491 307,540
Less accumulated depreciation 157,886 144,223
-------- --------
Net vessels and equipment 172,605 163,317
Note receivable 3,909 4,271
Goodwill 2,863 2,863
Other 1,132 1,725
-------- --------
Total assets $206,877 $200,427
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year $ 5,500 $ 10,738
Trade accounts payable 2,911 681
Accrued shipyard costs 3,870 6,370
Accrued wages and benefits 3,080 2,098
Other accrued liabilities 6,299 2,353
-------- --------
Total current liabilities 21,660 22,240
Long-term debt 63,000 32,250
Deferred shipyard costs 5,805 9,555
Other liabilities 3,220 3,527
Deferred income taxes 44,791 44,791
Stockholders' equity:
Common stock 135 133
Capital in excess of par value 81,056 79,781
Retained earnings 34,845 29,983
Unearned compensation (929) (855)
Less: Cost of shares held in treasury (46,706) (20,978)
-------- --------
Total stockholders' equity 68,401 88,064
-------- --------
Total liabilities and stockholders' equity $206,877 $200,427
======== ========
See notes to financial statements.
3
MARITRANS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($000, except per share amounts)
July 1 to July 1 to
September 30, 2002 September 30, 2001
------------------ ------------------
Revenues $ 30,586 $ 28,284
Costs and expenses:
Operation expense 16,310 15,474
Maintenance expense 4,968 4,036
General and administrative 1,937 1,607
Depreciation and amortization 4,771 4,483
-------- --------
Total operating expense 27,986 25,600
-------- --------
Operating income 2,600 2,684
Interest expense (627) (1,099)
Other income 726 654
-------- --------
Income before income taxes 2,699 2,239
Income tax provision 1,012 817
-------- --------
Net income $ 1,687 $ 1,422
======== ========
Basic earnings per share $ 0.21 $ 0.14
Diluted earnings per share $ 0.20 $ 0.14
Dividends declared per share $ 0.11 $ 0.10
See notes to financial statements.
4
MARITRANS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($000, except per share amounts)
January 1 to January 1 to
September 30, 2002 September 30, 2001
------------------ ------------------
Revenues $ 94,377 $ 91,685
Costs and expenses:
Operation expense 49,229 48,440
Maintenance expense 12,426 11,524
General and administrative 5,930 5,408
Depreciation and amortization 14,143 13,396
-------- --------
Total operating expense 81,728 78,768
-------- --------
Operating income 12,649 12,917
Interest expense (1,988) (4,086)
Other income 1,184 2,463
-------- --------
Income before income taxes 11,845 11,294
Income tax provision 4,442 4,258
-------- --------
Net income $ 7,403 $ 7,036
======== ========
Basic earnings per share $ 0.91 $ 0.70
Diluted earnings per share $ 0.85 $ 0.66
Dividends declared per share $ 0.31 $ 0.30
See notes to financial statements.
5
MARITRANS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000)
Nine Months Ended September 30,
2002 2001
-------------------------------
Cash flows from operating activities:
Net income $ 7,403 $ 7,036
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,143 13,396
Stock compensation 168 448
Changes in receivables, inventories and prepaid expenses 316 (382)
Changes in current liabilities, other than debt 4,658 (2,785)
Non-current changes, net (3,738) (2,331)
(Gain) loss on sale of fixed assets - (192)
--------- ---------
15,547 8,154
--------- ---------
Net cash provided by operating activities 22,950 15,190
Cash flows from investing activities:
Release of cash and cash equivalents - restricted - 13,500
Collections on notes receivable 636 369
Cash proceeds from sale of equipment - 195
Purchase of vessels and equipment (23,431) (10,266)
--------- ---------
Net cash provided by (used in) investing activities (22,795) 3,798
--------- ---------
Cash flows from financing activities:
Borrowings under long term debt 9,000 -
Payment of long-term debt (9,488) (13,524)
Net borrowings under revolving credit facilities 26,000 -
Purchase of treasury stock (25,571) (6,808)
Proceeds from exercise of stock options 878 298
Dividends declared and paid (2,541) (3,139)
--------- ---------
Net cash used in financing activities (1,722) (23,173)
--------- ---------
Net decrease in cash and cash equivalents (1,567) (4,185)
Cash and cash equivalents at beginning of period 3,558 36,598
--------- ---------
Cash and cash equivalents at end of period $ 1,991 $ 32,413
========= =========
See notes to financial statements
6
MARITRANS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
1. Basis of Presentation/Organization
Maritrans Inc. owns Maritrans Holdings Inc., Maritrans Business Services
Inc. and Maritrans Transportation Inc.; which owns Maritrans Operating
Company L.P., Maritrans General Partner Inc., Maritrans Tankers Inc.,
Maritrans Barge Co., 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.
In the opinion of management, the accompanying condensed consolidated
financial statements of Maritrans Inc., which are unaudited (except for the
Condensed Consolidated Balance Sheet as of December 31, 2001, which is
derived from audited financial statements), include all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial statements of the consolidated entities.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the unaudited condensed consolidated financial statements do
not include all of the information and notes normally included with annual
financial statements prepared in accordance with generally accepted
accounting principles. These financial statements should be read in
conjunction with the consolidated historical financial statements and notes
thereto included in the Company's Form 10-K for the period ended December
31, 2001.
7
2. Earnings per Common Share
The following data shows the amounts used in computing basic and diluted
earnings per share ("EPS"):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(000's) (000's)
Income available to common stockholders
used in basic EPS $ 1,687 $ 1,422 $ 7,403 $ 7,036
Weighted average number of common
shares used in basic EPS 7,931 9,955 8,113 10,101
Effect of dilutive securities:
Stock options and restricted shares 582 543 646 580
Weighted number of common shares
and dilutive potential common
stock used in diluted EPS 8,513 10,498 8,759 10,681
3. Income Taxes
The Company's effective tax rate differs from the federal statutory rate
due primarily to state income taxes and certain nondeductible items.
4. Share Buyback Program
On February 9, 1999, the Board of Directors authorized a share buyback
program (the "Program") for the acquisition of up to one million shares
of the Company's common stock. In February 2000 and again in February
2001, the Board of Directors authorized the acquisition of an additional
one million shares in the Program. The total authorized shares under the
Program is three million. As of September 30, 2002, 2,434,700 shares have
been repurchased under the Program and were financed from internally
generated funds, leaving 565,300 shares authorized for repurchase.
5. Tender Offer
In December 2001, the Company announced a self-tender offer (the "Offer")
to purchase up to 2,000,000 shares of its common stock. On January 18,
2002, the Offer closed, and the Company subsequently purchased 2,176,296
shares of common stock for a purchase price of $11.50 per share, or
approximately $25.0 million, on January 29, 2002. The purchase price was
funded through borrowings under the Company's Credit Facility (as defined
in Item 2).
8
6. Adoption of Shareholder Rights Plan
In 1993, Maritrans Inc. adopted a Shareholder Rights Plan, which expired
on August 1, 2002. On June 26, 2002, the Board of Directors of Maritrans
Inc. adopted a new Shareholder Rights Plan which became effective on
August 1, 2002 and declared a dividend distribution of one Right for each
outstanding share of Common Stock, $.01 par value of the Company to
stockholders of record at the close of business on August 1, 2002. The
new plan expires on August 1, 2012.
7. Litigation Settlement
In July 2002, the Company received a $0.5 million litigation award that
was recorded as other income in the third quarter.
8. Impact of Recent Accounting Pronouncements
In September 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill is no longer amortized but is subject to the annual
impairment tests in accordance with the Statements. Other intangible
assets continue to be amortized over their useful lives. The Company
adopted the new rules on accounting for goodwill and other intangible
assets on January 1, 2002. A reconciliation of net income for the three
and nine months ended September 30, 2001 had goodwill not been amortized
pursuant to FASB No. 142 is as follows:
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
($000, except per share amounts)
Net income as reported $1,422 $7,036
Elimination of goodwill amortization 70 210
------ ------
Adjusted net income $1,492 $7,246
====== ======
Adjusted basic earnings per share $ .15 $ .72
====== ======
Adjusted diluted earnings per share $ .14 $ .68
====== ======
The Company has completed the first of the required impairment tests of
goodwill as of January 1, 2002 and the Company has concluded that there
is no impairment of goodwill recorded on the accompanying balance sheet.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Information
- ---------------------------
Some of the statements in this Form 10-Q (this "10-Q") 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-Q relate to future events or
the Company's future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "seem," "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-Q.
Factors that may cause actual results, goals, targets or objectives to differ
materially from those contemplated, projected, forecasted, estimated,
anticipated, planned or budgeted in such forward-looking statements include,
among others, the factors outlined in this 10-Q, changes in oil companies'
operating and sourcing decisions, competition for marine transportation,
domestic oil consumption, the continuation of federal law restricting United
States point-to-point maritime shipping to U.S. vessels (the Jones Act), demand
for petroleum products, future spot market rates, out of service time for vessel
maintenance, increased expenses due to regulatory and customer requirements,
changes in interest rates, the effect of terrorists activities and the 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-Q to conform such
statements to actual results.
10
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I Item 1 of this Form
10-Q and the audited financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 2001 contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
Results of Operations
- ---------------------
Time Charter Equivalent ("TCE") is a commonly used industry measure where direct
voyage costs are deducted from revenue. Maritrans enters into various types of
charters, some of which involve the customer paying substantially all voyage
costs, while other types of charters involve Maritrans paying some or
substantially all of the voyage costs. The Company monitors the TCE basis
because it essentially nets the voyage costs and voyage revenue to yield a
measure that is comparable between periods regardless of the types of charters
utilized. The Company began reporting on the TCE basis in the first quarter of
2002. For comparison purposes, the following table lists the TCE revenue for all
quarters in 2002 and 2001:
9/30/02 6/30/02 3/31/02 12/31/01 9/30/01 6/30/01 3/31/01
------- ------- ------- -------- ------- ------- -------
Voyage revenue $30,586 $32,468 $31,323 $31,716 $28,276 $31,826 $31,558
Voyage costs 4,906 4,970 4,381 4,803 4,995 5,707 5,997
------- ------- ------- ------- ------- ------- -------
Time Charter Equivalent $25,680 $27,498 $26,942 $26,913 $23,281 $26,119 $25,561
======= ======= ======= ======= ======= ======= =======
Three Month Comparison
- ----------------------
TCE revenue for the quarter ended September 30, 2002 compared to the quarter
ended September 30, 2001 is as follows:
9/30/02 9/30/01
------- -------
Voyage revenue $30,586 $28,276
Voyage costs 4,906 4,995
------- -------
Time Charter Equivalent $25,680 $23,281
======= =======
11
TCE revenue increased from $23.3 million in the third quarter of 2001 to $25.7
million, or 10 percent, in 2002. Vessel utilization, as measured by revenue days
divided by calendar days available, increased from 76.4 percent in the third
quarter of 2001 to 77.5 percent in the third quarter of 2002. Utilization
increased due to less vessel out of service time in the third quarter of 2002
compared to the third quarter of 2001. In the third quarter of each year a
vessel was out of service for its double hull rebuild. Late in the second
quarter of 2001, the OCEAN CITIES went out of service for her double hull
rebuild. She re-entered service early in 2002 as the MARITRANS 252. Late in May
2002, the OCEAN 250 went out of service for her double hull rebuild and is
scheduled to re-enter service in the fourth quarter of 2002.
Term contract rates renewed with customers in 2001 were renewed at higher levels
than those experienced in 2000 on long-term contracts. The increase in these
rates resulted from a more stable supply/demand relationship in the Jones Act
trade. These rate increases had a positive impact on the third quarter of 2002
revenue. Spot market rates were significantly lower in the third quarter of 2002
than the same period in 2001. The Company believes the spot market was weak due
to the decrease in demand for distillate, particularly jet fuel, and to an
increase in the amount of gasoline imported into the United States, which
results in less demand for the Company's services. The Company currently expects
spot rates to slightly improve with the upcoming winter season in the Northeast
but to remain depressed for the remainder of 2002 compared to the same period in
2001. Barrels of cargo transported decreased from 43.4 million in the third
quarter of 2001 to 41.7 million in the third quarter of 2002, due to decreases
in demand during the quarter (as discussed above).
Voyage costs decreased from $5.0 million in the third quarter of 2001 to $4.9
million in the third quarter of 2002. Voyage costs consist of fuel costs and
port charges and were running at levels consistent with the same quarter in
2001.
Operating expenses, excluding voyage costs discussed above, increased from $10.5
million in the third quarter of 2001 to $11.4 million in the third quarter of
2002, an increase of $0.9 million or 9 percent. Insurance costs increased in the
third quarter of 2002 compared to the third quarter of 2001 as the result of
increased premiums charged by the insurance companies on policies renewed and to
additional deductible amounts paid in the current quarter. Routine maintenance
expenses incurred during voyages and in port have declined in the third quarter
of 2002 compared to the third quarter of 2001, while expenditure levels for
maintenance incurred in shipyards has increased. This reflects efforts being
made to meet increased regulatory and customer vetting requirements. These
expenses are expected to continue to increase and will result in higher
maintenance accruals in 2002 compared to 2001. Professional fees increased in
the third quarter 2002 compared to the third quarter 2001 for consulting fees
incurred to review port security and other security issues. Seagoing salary
increases, which took effect early in 2002, increased crew costs in the third
quarter of 2002 compared to the third quarter of 2001.
General and administrative fees increased due to increased professional fees
including higher litigation and consulting costs in the third quarter of 2002
compared to the third quarter of 2001. Litigation costs arose from both
immaterial litigation arising in the ordinary course of business and the
proceedings described in Part II Item 1 of this Form 10-Q. In addition, the
Company experienced increased premiums charged by the insurance companies on the
Directors and Officers policy renewed in 2002.
12
Operating income decreased as a result of the aforementioned changes in revenue
and expenses.
Interest expense in the third quarter of 2002 of $0.6 million decreased compared
to $1.1 million in the third quarter of 2001 as a result of the refinancing of
debt that took place in the fourth quarter of 2001. The new debt has a variable
interest rate, which is lower than the fixed interest rate of 9.25 percent on
most of the previously held debt and therefore resulted in decreased interest
expense when compared to the third quarter of 2001.
Other income was $0.7 million in both the third quarter of 2002 and 2001. Other
income in the third quarter of 2002 includes a $0.5 million litigation
settlement received. Interest income decreased due to a lower amount of cash
invested in the third quarter of 2002 compared to the third quarter of 2001. The
decrease in the average cash balance is primarily the result of the debt
refinancing discussed above.
Net income for the quarter ended September 30, 2002 increased compared to the
quarter ended September 30, 2001 due to the aforementioned changes in revenue
and expenses.
Nine Month Comparison
TCE revenue for the nine months ended September 30, 2002 compared to the nine
months ended September 30, 2001 is as follows:
9/30/02 9/30/01
------- -------
Voyage revenue $94,377 $91,660
Voyage costs 14,257 16,699
------- -------
Time Charter Equivalent $80,120 $74,961
======= =======
TCE revenue increased from $75.0 million in the nine months ended September 30,
2001 to $80.1 million in the nine months ended September 30, 2002, or 7 percent.
Vessel utilization, as measured by revenue days divided by calendar days
available, decreased from 83.7 percent in the nine months ended September 30,
2001 to 80.9 percent in the nine months ended September 30, 2002. Utilization
decreased due to more vessel out of service time in the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001 as a
result of vessel maintenance and the OCEAN 250 rebuild. In late May 2002, the
OCEAN 250 went out of service for her double hull rebuild and is scheduled to
re-enter service in the fourth quarter of 2002. In addition, the MARITRANS 252
was out of service in the beginning of 2002 while her double hull rebuild was
being completed.
13
Term contract rates renewed with customers in 2001 were renewed at higher levels
than those experienced in 2000 on long-term contracts. The increase in these
rates resulted from a more stable supply/demand relationship in the Jones Act
trade. These rate increases had a positive impact on 2002 revenue. Spot market
rates were significantly lower in the nine months ended September 30, 2002 than
in the same period in 2001 due to warm weather in the early part of 2002 in the
Northeast, which reduced the demand for heating oil, the continued reduction in
the demand for distillate, particularly jet fuel, and to an increase in the
amount of gasoline imported into the United States in the second and third
quarters, which results in less demand for the Company's services. The Company
believes the spot market continues to be weak due to these factors. The Company
currently expects spot rates to slightly improve with the upcoming winter season
in the Northeast but to remain depressed for the remainder of 2002 compared to
the same period in 2001. Barrels of cargo transported decreased from 138.5
million in the nine months ended September 30, 2001 to 127.9 million in the nine
months ended September 30, 2002, due to decreases in demand and utilization (as
discussed above).
Voyage costs decreased from $16.7 million in the nine months ended September 30,
2001 to $14.3 million in the nine months ended September 30, 2002, a decrease of
$2.4 million or 14 percent. The primary decrease in voyage costs was in fuel
costs, which resulted from the downturn in the economy in the later part of
2001. The average price per gallon of fuel decreased approximately 21 percent
compared to the same nine months in 2001.
Operating expenses, excluding voyage costs discussed above, increased from $31.7
million in the nine months ended September 30, 2001 to $34.9 million in the nine
month ended September 30, 2002, an increase of $3.2 million or 10 percent.
Insurance costs increased in the nine months ended September 30, 2002 compared
to the nine months ended September 30, 2001 as the result of increased premiums
charged by the insurance companies on policies renewed and to additional
deductible amounts paid in the current year. Charter hire expense increased in
the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001 as the result of the Company chartering in equipment in the
second quarter of 2002 from third parties to replace a tug/barge that was out of
service for scheduled maintenance. In the nine months ended September 30, 2002,
the Company engaged in a synthetic rope replacement program for most of the
tugboats resulting in an increase in supplies expense compared to the same
period in 2001. Routine maintenance expenses incurred during voyages and in port
have declined in the nine months ended September 30, 2002 compared to the nine
months ended September 30, 2001, while expenditure levels for maintenance
incurred in shipyards has increased. This reflects efforts being made to meet
increased regulatory and customer vetting requirements. These expenses are
expected to continue to increase and will result in higher maintenance accruals
in 2002 compared to 2001. Professional fees increased in the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001 for
consulting fees incurred to review port security and other security issues.
Seagoing salary increases, which took effect early in 2002, increased crew costs
in the nine months ended September 30, 2002 compared to the nine month ended
September 30, 2001.
14
General and administrative fees increased due to increased professional fees
including higher litigation and consulting costs in the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001.
Litigation costs arose from both immaterial litigation arising in the ordinary
course of business and the proceedings described in Part II Item 1 of this Form
10-Q. In addition, the Company experienced increased premiums charged by the
insurance companies on the Directors and Officers policy renewed in 2002.
Operating income decreased as a result of the aforementioned changes in revenue
and expenses.
Interest expense in the nine months ended September 30, 2002 of $2.0 million
decreased compared to $4.1 million in the nine months ended September 30, 2001
as a result of the refinancing of debt that took place in the fourth quarter of
2001. The new debt has a variable interest rate, which is lower than the fixed
interest rate of 9.25 percent on most of the previously held debt and therefore
resulted in decreased interest expense when compared to the same period in 2001.
Other income in the nine months ended September 30, 2002 was $1.2 million
compared to other income in the nine months ended September 30, 2001 of $2.5
million. Other income is made up primarily of interest income. Interest income
decreased due to a lower amount of cash invested in 2002 compared to 2001. The
decrease in the average cash balance is primarily the result of the debt
refinancing discussed above. Other income in the nine months ended September 30,
2002 includes a $0.5 million litigation settlement received whereas other income
in the nine months ended September 30, 2001 includes a pre-tax gain of $0.2
million on the sale of a barge.
Net income for the nine months ended September 30, 2002 increased compared to
the nine months ended September 30, 2001 due to the aforementioned changes in
revenue and expenses.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended September 30, 2002, net cash provided by operating
activities was $15.5 million. These funds, augmented by the Company's Credit
Facility, were sufficient to meet debt service obligations and loan agreement
restrictions, to make capital acquisitions and improvements and to allow
Maritrans Inc. to pay a dividend in the current quarter. Management believes
funds provided by operating activities, augmented by the Company's Credit
Facility, described below, and investing activities, will be sufficient to
finance operations, anticipated capital expenditures, lease payments and
required debt repayments in the foreseeable future. While dividends have been
made quarterly in each of the last three years, there can be no assurances that
the dividend will continue. The ratio of total debt to capitalization is .50:1
at September 30, 2002.
15
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,
which represented approximately 8 percent of the 12.1 million shares outstanding
at that time. In February 2000 and again in February 2001, the Board of
Directors authorized the acquisition of an additional one million shares in the
program. The total authorized shares under the buyback program is three million.
As of September 30, 2002, 2,434,700 shares had been purchased under the plan and
financed by internally generated funds. The Company intends to hold the majority
of the repurchased 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.
In August 2000, the Company awarded a contract to rebuild a third large single
hull barge, the OCEAN CITIES, to a double hull configuration. In February 2002,
this vessel was completed and put back into service as the MARITRANS 252. The
total cost of the rebuild and other improvements made while in the shipyard was
$17.5 million. The Company financed this project from internally generated
funds.
In September 2001, the Company awarded a contract to rebuild a fourth large
single hull barge, the OCEAN 250, to a double hull configuration. The Company
expects the total cost of the rebuild and other improvements will be
approximately $18.0 million. As of September 30, 2002, $14.0 million has been
paid to the shipyard contractor for the project. The Company has financed, and
expects to continue the financing of, this project from a combination of
internally generated funds and borrowings under the Company's Credit Facility.
In October 2001, the Company repaid $33.0 million of its long-term debt in
advance of its due date. The Company recorded an extraordinary charge of
approximately $2.5 million, net of taxes, or approximately $0.24 per share, in
prepayment penalties and the write-off of unamortized financing costs in the
fourth quarter of 2001 as a result of the repayment.
In December 2001, the Company announced a self-tender offer (the "Offer") to
purchase up to 2,000,000 shares of its common stock at a price between $11.00
and $12.50. On January 18, 2002, the Offer closed, and the Company subsequently
purchased 2,176,296 shares of common stock for a purchase price of $11.50 per
share, or approximately $25.0 million. The purchase price was funded through
borrowings under the Company's Credit Facility.
Debt Obligations and Borrowing Facility
- ---------------------------------------
In November 2001, the Company entered into an $85 million credit and security
agreement ("Credit Facility") with Citizens Bank (formerly Mellon Bank N.A.) and
a syndicate of other financial institutions ("Lenders"). Pursuant to the terms
of the Credit Facility, the Company could borrow up to $45 million of term loans
and up to $40 million under a revolving credit facility. Interest is variable
based on either the LIBOR rate or prime rate plus an applicable margin (as
defined in the loan documents). Principal payments on the term loans are
required on a quarterly basis. The Credit Facility expires in January 2007. The
Company has granted first preferred ship mortgages and a first security interest
in certain vessels and other collateral to the Lenders as a guarantee of the
debt. At September 30, 2002, there was $42.5 million of term loans outstanding
under the Credit Facility and $26 million outstanding under the revolving Credit
Facility.
16
Critical Accounting Policies
- ----------------------------
Accounting policies that management believes are most critical to the Company's
financial condition and operating results pertain to the valuation of accounts
receivable, claims receivable, notes receivable, goodwill and the accrual for
maintenance and repairs (discussed below). In developing estimates management
considered available information and used judgment.
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. Shipyard costs have fluctuated, particularly as
a result of changes in the size of the fleet. The Company believes that
providing for such overhauls in advance of performing the related maintenance
and repairs provides a more appropriate view of the financial position of the
Company at any point in time.
In September 2001, the AICPA issued an Exposure Draft on a Proposed Statement of
Position regarding "Accounting for Certain Costs and Activities Related to
Property, Plant, and Equipment". The Proposed Statement, if issued, would
require the Company to modify its accounting policy for maintenance and repairs.
Such costs would no longer be accrued in advance of performing the related
maintenance and repairs; rather, the Proposed Statement would require these
costs to be capitalized and amortized over their estimated useful life. The
Company has not yet quantified the impact of adopting this Proposed Statement on
its financial statements; however, the Company's preliminary assessment is that
the adoption of this pronouncement would increase the recorded value of vessels
and equipment and stockholders' equity of the Company.
Impact of Recent Accounting Pronouncements
- ------------------------------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Intangible Assets" as of January 1, 2002. SFAS No. 142 provides
that goodwill and intangible assets with indefinite lives will not be amortized.
As such, the Company did not record goodwill amortization for the three months
and nine months ended September 30, 2002. Rather, the Company performed an
impairment test on its net carrying value as of January 1, 2002, its initial
test, as required by SFAS No. 142. The Company was not required to record an
impairment charge based on its test. The test required estimates, assumptions
and judgments and results could be materially different if different estimates,
assumptions and judgments had been used.
17
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT 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. As of September 30, 2002, all of the Company's debt is variable rate debt.
The table below presents principal cash flows by year of maturity. Variable
interest rates disclosed fluctuate with the LIBOR and federal fund rates. The
weighted average rate at September 30, 2002 was 3.99%.
Expected years of maturity
- --------------------------
($000's)
2002* 2003 2004 2005 2006 2007 Total
---- ---- ---- ---- ---- ---- -----
Long-term debt, including current portion:
Variable rate $1,250 $5,750 $7,500 $11,000 $13,500 $29,500 $68,500
* For the period October 1, 2002 to December 31, 2002
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2002, an evaluation was performed with the participation of
the Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures were effective
as of September 30, 2002. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to September 30, 2002.
18
Part II: OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
In 1996, Maritrans filed suit against the United States
government under the Fifth Amendment to the U.S. Constitution
for "taking" Maritrans' tank barges without just compensation.
The Fifth Amendment specifically prohibits the United States
government from taking private property for public use without
just compensation. Maritrans asserts that its vessels were taken
by Section 4115 of the Oil Pollution Act of 1990 ("OPA"), which
prohibits all existing single-hull tank vessels from operating
in U.S. waters under a retirement schedule that began January 1,
1995, and ends on January 1, 2015. This provision will force
Maritrans to remove its single-hull barges from service
commencing on January 1, 2005 or rebuild them, thus depriving
the Company of their continued use for a significant portion of
their remaining economic lives. In December 2001, the United
States Court of Federal Claims ruled that the OPA double hull
requirement did not constitute a taking of Maritrans' vessels.
The Company is currently appealing the decision.
The Company is engaged in litigation instituted by a competitor
to challenge its double-hull patent. Penn Maritime, Inc. v.
Maritrans Inc., was filed in the U.S. District Court for the
Eastern District of New York on September 6, 2001. The Plaintiff
is seeking damages of $3 million and an injunction restraining
Maritrans from enforcing its patent, which if awarded, would
have a material adverse effect on the Company. However,
management believes the suit to be without merit. Maritrans is
challenging the jurisdiction of the court to hear the matter in
New York and upon resolution of the jurisdictional issue,
intends to seek affirmative damages from Penn Maritime, Inc. for
infringement of its patent as well as other claims arising from
the conduct of Penn Maritime, Inc.'s double hull program.
In December 1999, Maritrans sold 18 vessels from its Northeast
fleet to K-Sea Transportation. The purchaser has alleged that
Maritrans breached warranties in the contract of sale pertaining
to one of the vessels, and has initiated binding arbitration to
recover damages arising from the alleged breach. The purchaser
claims damages of approximately $1.5 million. Maritrans believes
the claim to be without merit, maintains that it fully satisfied
all requirements of the contract of sale, and that no warranties
were breached. Maritrans is defending the action. The
arbitration proceeding will conclude on November 7, 2002 and a
ruling is expected shortly thereafter.
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ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.17 - Severance and Non-Competition Agreement, as amended and
restated effective October 1, 2002 between Maritrans General
Partner Inc. and Philip J. Doherty (Exhibit 10.17)
10.18 - Severance and Non-Competition Agreement, as amended and
restated effective July 12, 2002 between Maritrans Inc. and
Walter T. Bromfield (Exhibit 10.18)
10.19 - Severance and Non-Competition Agreement effective
September 25, 2002 between Maritrans General Partner Inc.
and Peter Nielsen (Exhibit 10.19)
99.1 - Certification of Chief Executive Officer
99.2 - Certification of Chief Financial Officer
(b) Reports on Form 8-K
On August 1, 2002, Maritrans Inc. filed a report on Form 8-K. In
that Form 8-K under Item 5 "Other Events", the Company reported on
the adoption of a new shareholder rights plan to be effective August
1, 2002.
On August 28, 2002, Maritrans Inc. filed a report on Form 8-K. In
that Form 8-K under Item 5 "Other Events", the Company filed a press
release which stated the Company had revised earnings estimates and
had a contract renewal with its largest customer.
20
SIGNATURES
Pursuant to the requirements 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/Walter T. Bromfield Dated: November 12, 2002
---------------------------------
Walter T. Bromfield
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Judith M. Cortina Dated: November 12, 2002
-----------------------------------
Judith M. Cortina
Controller
(Principal Accounting Officer)
21
CERTIFICATION
I, Stephen A. Van Dyck, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maritrans Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 /s/ Stephen A. Van Dyck
----------------- ---------------------------
Stephen A. Van Dyck
Chief Executive Officer
22
CERTIFICATION
I, Walter T. Bromfield, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maritrans Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 /s/ Walter T. Bromfield
----------------- -----------------------
Walter T. Bromfield
Chief Financial Officer
23