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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 March 31, 2003
--------------
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 _____
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes __X__ No ______
Common Stock $.01 par value, 8,138,026 shares outstanding as of May 8, 2003
1
MARITRANS INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Income - Three months ended March 31,
2003 and 2002 4
Condensed Consolidated Statements of Cash Flows - Three months ended March 31,
2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Item 3. Qualitative and Quantitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
PART I: FINANCIAL INFORMATION
MARITRANS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000)
March 31, December 31,
2003 2002
----------- ------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 2,392 $ 239
Trade accounts receivable 10,521 9,396
Other accounts receivable 2,770 2,696
Inventories 3,070 3,253
Deferred income tax benefit 8,097 8,097
Prepaid expenses 1,731 3,135
-------- ---------
Total current assets 28,581 26,816
Vessels and equipment 343,415 339,574
Less accumulated depreciation 167,824 162,713
-------- ---------
Net vessels and equipment 175,591 176,861
Note receivable 3,677 3,780
Goodwill 2,863 2,863
Other 1,027 1,237
-------- ---------
Total assets $211,739 $211,557
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year $ 6,000 $ 5,750
Trade accounts payable 2,435 2,829
Accrued shipyard costs 5,815 5,060
Accrued wages and benefits 3,301 1,718
Accrued insurance 1,654 1,655
Other accrued liabilities 3,658 1,987
-------- ---------
Total current liabilities 22,863 18,999
Long-term debt 56,000 63,000
Accrued shipyard costs 8,722 7,590
Other liabilities 3,248 3,149
Deferred income taxes 49,432 49,432
Stockholders' equity:
Common stock 136 135
Capital in excess of par value 81,738 80,980
Retained earnings 38,340 36,061
Unearned compensation (1,088) (759)
Less: Cost of shares held in treasury (47,652) (47,030)
-------- ---------
Total stockholders' equity 71,474 69,387
-------- ---------
Total liabilities and stockholders' equity $211,739 $211,557
======== ========
See notes to financial statements.
3
MARITRANS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
($000, except per share amounts)
Three Months Ended March 31,
2003 2002
---------- ---------
Revenues $ 35,929 $ 31,323
Costs and expenses:
Operation expense 18,880 15,632
Maintenance expense 4,330 3,824
General and administrative 2,165 1,935
Depreciation and amortization 5,111 4,621
-------- --------
Total operating expense 30,486 26,012
-------- --------
Operating income 5,443 5,311
Interest expense (608) (806)
Other income 211 226
-------- --------
Income before income taxes 5,046 4,731
Income tax provision 1,867 1,774
-------- --------
Net income $ 3,179 $ 2,957
======== =======
Basic earnings per share $ 0.40 $ 0.35
Diluted earnings per share $ 0.37 $ 0.32
Dividends declared per share $ 0.11 $ 0.10
See notes to financial statements.
4
MARITRANS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000)
Three Months Ended March 31,
2003 2002
------------------- ---------------------
Cash flows from operating activities:
Net income $ 3,179 $ 2,957
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,111 4,621
Changes in receivables, inventories and prepaid expenses 388 (417)
Changes in current liabilities, other than debt 3,614 2,589
Other 1,318 (244)
-------- --------
10,431 6,549
-------- --------
Net cash provided by operating activities 13,610 9,506
Cash flows from investing activities:
Collections on notes receivable 378 404
Purchase of vessels and equipment (3,841) (4,634)
-------- --------
Net cash used in investing activities (3,463) (4,230)
-------- --------
Cash flows from financing activities:
Borrowings under long-term debt -- 9,000
Payment of long-term debt (1,250) (6,988)
Net (repayments) borrowings under revolving credit facilities (5,500) 19,000
Purchase of treasury stock (344) (25,145)
Proceeds from exercise of stock options -- 706
Dividends declared and paid (900) (822)
-------- --------
Net cash used in financing activities (7,994) (4,249)
-------- --------
Net increase in cash and cash equivalents 2,153 1,027
Cash and cash equivalents at beginning of period 239 3,558
-------- --------
Cash and cash equivalents at end of period $ 2,392 $ 4,585
======== ========
See notes to financial statements
5
MARITRANS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
1. Basis of Presentation/Organization
Maritrans Inc. owns Maritrans Operating Company L.P. (the "Operating
Company"), 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.
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, 2002, 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, 2002.
Certain amounts in the prior year financial statements have been
reclassified to conform to their current year presentation.
6
2. Earnings per Common Share
The following data show the amounts used in computing basic and diluted
earnings per share ("EPS"):
Three Months Ended March 31,
2003 2002
---- ----
(000's)
Income available to common stockholders used in basic EPS $ 3,179 $ 2,957
Weighted average number of common shares used in basic EPS 7,883 8,528
Effect of dilutive stock options and restricted shares 633 656
Weighted number of common shares and dilutive potential common stock
used in diluted EPS 8,516 9,184
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 March 31, 2003, 2,485,442 shares have
been repurchased under the Program and were financed from internally
generated funds, leaving 514,558 shares authorized for repurchase.
5. Tender Offer
During 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.
7
6. Impact of Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections" ("SFAS 145"). SFAS 145 requires, among other things, gains
or losses of extinguishment of debt to be classified as income (loss)
from continuing operations rather than as an extraordinary item, unless
such extinguishment is determined to be extraordinary pursuant to
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of a Disposal of a Segment of a
Business and Extraordinary, Unusual, and Infrequently Occurring
Transactions" ("Opinion 30"). The provisions of SFAS 145 related to the
rescission of SFAS 4 are effective for fiscal years beginning after May
15, 2002. Any gain or loss on extinguishment of debt that was classified
as an extraordinary item in prior periods presented that does not meet
the criteria in Opinion 30 for classification as an extraordinary item
must be reclassified.
The Company adopted the provisions of SFAS 145 beginning January 1, 2003
and, accordingly, will reclassify the loss of $2.5 million on the
retirement of debt which occurred in the fourth quarter of 2001 from an
extraordinary item to a separate component of income before taxes in the
fourth quarter of the 2003 Consolidated Statement of Income.
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148").
SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), to provide three alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148
also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28,
"Interim Financial Reporting". SFAS 148 is effective for fiscal years
ending after December 15, 2002, with certain disclosure requirements
effective for interim periods beginning after December 15, 2002. The
Company adopted the transition provisions of SFAS 148 using the
prospective method beginning January 1, 2003. The prospective method
requires the Company to recognize the fair value of all employee stock
awards in its consolidated financial statements of income beginning on
the date of adoption.
Pro forma information regarding net income and earnings per share is
required by Statement 123 and was determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options vesting
period. The Company's pro forma information for the quarters ended March
31, is as follows:
8
2003 2002
---- ----
($000, except per share data)
Net income as reported......................... $3,179 $2,957
Add: Stock based compensation included in net
income, net of tax....................... 7 --
Deduct: Total stock based compensation
determined under the fair value based
method, net of tax....................... (30) (30)
------ ------
Pro forma net income........................... $3,156 $2,927
====== ======
Basic earnings per share as reported........... $ 0.40 $0.35
Pro forma basic earnings per share............. $ 0.40 $0.34
Diluted earnings per share as reported......... $ 0.37 $0.32
Pro forma diluted earnings per share .......... $ 0.37 $0.32
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, forecast, estimated, anticipated,
planned or budgeted in such forward-looking statements include, among others,
the factors outlined in this 10-Q, changes in oil companies' decisions as to the
type and origination point of the crude that it produces, changes in the amount
of imported petroleum products, competition for marine transportation, domestic
and international 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, changes in interest
rates, the effect of war or 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, 2002 contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2002.
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's management believes that
the presentation of TCE revenue provides useful information regarding the
Company's financial condition and results of operation because TCE revenue
essentially nets the voyage costs and voyage revenue to yield a measure that is
comparable between periods regardless of the types of charters utilized. These
voyage costs are included in the "Operation expense" line item in the
Consolidated Statements of Income. TCE revenue is a non-GAAP financial measure
and a reconciliation of TCE revenue to revenue, the most directly comparable
GAAP measure, is set forth below.
Three Month Comparison
TCE revenue for the quarter ended March 31, 2003 compared to the quarter ended
March 31, 2002 is as follows:
3/31/03 3/31/02
-------- --------
Voyage revenue $35,929 $31,323
Voyage costs 7,085 4,381
-------- --------
Time Charter Equivalent $28,844 $26,942
======== ========
TCE revenue increased from $26.9 million to $28.8 million, an increase of $1.9
million or 7 percent, over the comparable quarter in 2002. Vessel utilization,
as measured by revenue days divided by calendar days available, increased from
82.8 percent in the first quarter of 2002 to 89.5 percent in the first quarter
of 2003. The increase in utilization had a positive impact on voyage revenue and
resulted from less vessel out of service time for maintenance in the first
quarter of 2003 compared to the first quarter of 2002. In the first quarter of
2002, the MARITRANS 252 re-entered service early in February after the
completion of her double hull rebuild. No vessels were out of service in the
first quarter of 2003 for double-hulling. Barrels of cargo transported increased
from 42.9 million in the first quarter of 2002 to 45.5 million in the first
quarter of 2003. The majority of the Company's fleet was deployed in contract
business in the first quarter of 2003 with limited exposure to the Jones Act
shipping spot market. Due to the contracts and the high refinery margins
experienced by the Philadelphia area refineries in the first quarter of 2003,
there was increased demand for the Company's services.
11
Spot market rates were higher than the same period in 2002 primarily due to fuel
cost increases. These fuel cost increases resulted from cold weather in the
Northeast and low distillate inventories throughout the U.S. along with supply
disturbances due to preparations for the war with Iraq, the Venezuelan oil
industry strike and accelerated U.S. Gulf refinery maintenance. European imports
continued to impact supply and demand for refined products in the Northeastern
U.S.
The Company expects that spot market rates in the second quarter of 2003 will
increase as the U.S. Gulf refineries get back on line, the Venezuela oil
industry strike ends and the U.S. distillate and gasoline stock inventories are
replenished. The Company believes there remains considerable uncertainty in what
will happen to spot market rates in the third and fourth quarters for the
remainder of 2003 due to numerous events impacting world economic factors
including the war with Iraq, economic recovery in the U.S., Europe and Asia and
other factors.
Voyage costs increased from $4.4 million in the first quarter of 2002 to $7.1
million in the first quarter of 2003, an increase of $2.7 million or 61 percent.
Most of the increase in voyage costs was in fuel costs, discussed above. The
average price per gallon of fuel increased almost 84 percent compared to the
same quarter in 2002. The remainder of the increase resulted from higher port
charges.
Operation expense, excluding voyage costs discussed above, of $11.8 million in
the first quarter of 2003 were consistent with $11.3 million in the first
quarter of 2002. Maintenance expenses increased $0.5 million or 13 percent from
$3.8 million in the first quarter of 2002 to $4.3 million in the first quarter
of 2003. Routine maintenance incurred during voyages and in port has declined
$0.4 million from the first quarter of 2002 to the first quarter of 2003, while
expenses incurred for maintenance in shipyards has increased $0.9 million from
the first quarter of 2002 to the first quarter of 2003. In the second half of
2002, the Company increased its shipyard accrual rate to reflect the expected
rise in costs resulting from an increase in regulatory and customer vetting
requirements, which increases the amount of maintenance performed in the
shipyard. This higher accrual rate continues in 2003.
Operating income increased as a result of the aforementioned changes in revenue
and expenses and is consistent with the first quarter of 2002.
Interest expense in the first quarter of 2003 of $0.6 million decreased compared
to $0.8 million in the first quarter of 2002 as a result of a decrease in
interest rates and a decrease in the amount of debt outstanding, which decreased
the amount of interest due.
12
Net income for the first quarter of 2003 increased compared to the first quarter
of 2003 due to the aforementioned changes in revenue and expenses.
Liquidity and Capital Resources
For the three months ended March 31, 2003, funds provided by operating
activities were $13.6 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 the
Company 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 for the foreseeable future. While dividends have been made quarterly
in each of the last two years, there can be no assurances that the dividend will
continue. The ratio of total debt to capitalization is .46:1 at March 31, 2003.
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 are three
million. As of March 31, 2003, 2,485,442 shares have been purchased under the
plan and financed by internally generated funds. 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.
In November 2001, the Company entered into a credit facility, discussed in "Debt
Obligations and Borrowing Facility" below. The amortization of the term portion
of the facility calls for escalating payments over the life of the debt. The
Credit Facility requires the Company to maintain its properties in a specific
manner, maintain specified insurance on its properties and business, and abide
by other covenants, which are customary with respect to such borrowings. The
Credit Facility also requires the Company to meet certain financial covenants.
If the Company fails to comply with any of the covenants contained in the Credit
Facility, the Lenders may foreclose on the collateral or call the entire balance
outstanding on the Credit Facility immediately due and payable. The Company was
in compliance with all applicable covenants at March 31, 2003 and currently
expects to remain in compliance going forward.
Total future commitments and contingencies related to the Company's outstanding
debt facility and noncancellable operating leases, as of March 31, 2003, are as
follows:
13
($000's)
2003* 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Debt Obligations $4,500 $7,500 $11,000 $13,500 $25,500 -- $62,000
Contractual Obligations 10,000 4,000 -- -- -- -- 14,000
Operating Leases 340 507 457 407 421 1,001 3,133
------- ------- --------- ------- ------- ------- ------
Total $14,840 $12,007 $11,457 $13,907 $25,921 $1,001 $79,133
======= ======= ======= ======= ======= ====== =======
* For the period April 1, 2003 through December 31, 2003.
In November 2002, the Company awarded a contract to rebuild a fifth large single
hull barge, the OCEAN STATES, to a double hull configuration, which is expected
to have a total cost of approximately $21 million. As of March 31, 2003, $6.0
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.
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 plus an applicable margin (as defined) or prime
rate. Principal payments on the term loans are required on a quarterly basis and
began in April 2002. The Credit Facility expires in January 2007. The Company
has granted first preferred ship mortgages and a first security interest in some
of the vessels and other collateral to the Lenders as a guarantee of the debt.
At March 31, 2003, there was $40 million of term loans outstanding under the
Credit Facility and $22 million outstanding under the revolving line of credit.
Critical Accounting Policies
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.
Based on the Company's methodology, approximately one-third of this estimated
cost is included in accrued shipyard costs as a current liability with the
remainder classified as long-term. Although the timing of the actual
disbursements have fluctuated over the years, particularly as a result of
changes in the size of the fleet and timing of the large maintenance projects,
the classification has been in line with the actual disbursements over time. 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.
14
In September 2001, the rule making body of the AICPA issued an Exposure Draft on
a Statement of Position, "Accounting for Certain Costs and Activities Related to
Property, Plant, and Equipment" (the "Proposed Statement"). This group, referred
to as AcSEC, recently decided that it will no longer issue accounting guidance
and planned to transition the majority of its projects to the FASB. However, the
FASB subsequently requested that AcSEC address certain portions of the Proposed
Statement in smaller scope projects. The FASB expressed their concern that the
project would not be completed timely, by AcSEC or the FASB, if the scope of the
project was not reduced. At this time, it is unclear whether the Proposed
Statement will be issued or in what form.
If the existing Proposed Statement is issued, it 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 requires these costs to be capitalized and
amortized over their estimated useful life. The Company has not yet quantified
the impact of adopting the Proposed Statement on its financial statements;
however, the Company's preliminary assessment is that the adoption of this
pronouncement would increase the value of vessels and equipment, decrease the
shipyard accrual and increase stockholders' equity of the Company.
Impact of Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("SFAS
145"). SFAS 145 requires, among other things, gains or losses of extinguishment
of debt to be classified as income (loss) from continuing operations rather than
as an extraordinary item, unless such extinguishment is determined to be
extraordinary pursuant to Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of a Disposal of a Segment of
a Business and Extraordinary, Unusual, and Infrequently Occurring Transactions"
("Opinion 30"). The provisions of SFAS 145 related to the rescission of SFAS 4
are effective for fiscal years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in Opinion 30 for
classification as an extraordinary item must be reclassified.
The Company adopted the provisions of SFAS 145 beginning January 1, 2003 and
accordingly, will reclassify the loss of $2.5 million on the retirement of debt
which occurred in the fourth quarter of 2001 from an extraordinary item to a
separate component of income before taxes in the fourth quarter of the 2003
Consolidated Statement of Income.
15
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
provide three alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 also amends the disclosure provisions of SFAS 123 and APB
Opinion No. 28, "Interim Financial Reporting". SFAS 148 is effective for fiscal
years ending after December 15, 2002, with certain disclosure requirements
effective for interim periods beginning after December 15, 2002. The Company
adopted the transition provisions of SFAS 148 using the prospective method
beginning January 1, 2003. The prospective method requires the Company to
recognize the fair value of all employee stock awards in its consolidated
financial statements of income beginning on the date of adoption.
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 March 31, 2003, 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 March 31, 2003 was 3.37%.
Expected years of maturity
($000's) 2003* 2004 2005 2006 2007 Total
----- ---- ---- ---- ---- -----
Long-term debt, including current portion $4,500 $7,500 $11,000 $13,500 $25,500 $62,000
* For the period April 1, 2003 through December 31, 2003
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2003, 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 March 31, 2003. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to March 31, 2003.
16
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
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 OPA 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.
On February 7, 2003, Oral Argument was held before the Court of Appeals for the
Federal Circuit on Maritrans' appeal. The Company anticipates receiving a
decision in 2003.
The Company is engaged in patent infringement litigation against a competitor
arising out of the Company's double-hull patent. In 2001, Maritrans obtained a
patent for its process and methodology of rebuilding single hull tank vessels
into double hull vessels. In September, 2001, Penn Maritime, Inc. filed a suit
against Maritrans in the U.S. District Court for the Southern District of New
York (Penn Maritime, Inc. v. Maritrans Inc.) to invalidate the patent, and, in
addition, sought damages of $3 million and an injunction restraining Maritrans
from enforcing its patent. Maritrans challenged the jurisdiction of the Court in
New York, and on March 31, 2003 the Court dismissed the action. On April 3,
2003, Maritrans sued Penn Maritime, Inc. in U.S. District Court for the Middle
District of Florida., (Maritrans Inc. v. Penn Maritime, Inc.) for patent
infringement, misappropriation of Maritrans' trade secrets, and other causes of
action. The Company currently awaits a response from Penn Maritime, Inc. It is
anticipated that Penn Maritime, Inc. will reassert the claims made in the prior
action. However, management believes these claims to be without merit.
In December 1999, Maritrans sold 18 vessels from its Northeast fleet to K-Sea
Transportation. The purchaser alleged that Maritrans breached warranties in the
contract of sale pertaining to one of the vessels and initiated binding
arbitration to recover damages arising from the alleged breach. The purchaser
claimed damages of approximately $1.5 million. On January 24, 2002, the
arbitrators concluded that the Company had technically, if inadvertently,
breached a warranty, but also concluded that much of K-Sea's claim was not
attributable to Maritrans. The arbitrator deemed that K-Sea was two-thirds at
fault for its damages and Maritrans one-third. The Company was ordered to pay
$334,546, including pre-judgment interest to K-Sea Transportation, which the
Company paid in the first quarter of 2003. The award is not subject to appeal.
17
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
99.1 - Certification of Chief Executive Officer
99.2 - Certification of Chief Financial Officer
(b) Reports on Form 8-K
On February 11, 2003, Maritrans Inc. filed a Current Report on
Form 8-K. In that Form 8-K under Item 5 "Other Events", the
Company announced the appointment of Philip J. Doherty to Chief
Executive Officer effective April 1, 2003.
On March 21, 2003, Maritrans Inc. filed a Current Report on
Form 8-K. In that Form 8-K under Item 5 "Other Events", the
Company discussed its war risk and terrorism insurance
coverage.
18
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: Walter T. Bromfield Dated: May 13, 2003
-------------------------------------
Walter T. Bromfield
Chief Financial Officer
(Principal Financial Officer)
By: Judith M. Cortina Dated: May 13, 2003
------------------------------------------
Judith M. Cortina
Controller
(Principal Accounting Officer)
19
CERTIFICATION
I, Philip J. Doherty, 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: May 13, 2003 Philip J. Doherty
------------ -----------------------
Philip J. Doherty
Chief Executive Officer
20
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: May 13, 2003 Walter T. Bromfield
------------ -----------------------
Walter T. Bromfield
Chief Financial Officer
21