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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Transition Period from ___________ to ___________
Commission File Number 1-9063
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MARITRANS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0343903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1818 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 864-1200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
on Which Registered
Title of Each Class New York Stock Exchange
Common Stock, Par Value $.01 Per Share
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
As of March 22, 1998, the aggregate market value of the common stock held by
non-affiliates of the registrant was $72,644,412. As of March 22, 1998,
Maritrans Inc. had 12,107,402 shares of common stock outstanding.
Documents Incorporated By Reference
Part III incorporates information by reference from the registrant's Proxy
Statement for Annual Meeting of Stockholders to be held on May 18, 1999.
Exhibit Index is located on page 34.
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MARITRANS INC.
TABLE OF CONTENTS
PART I
Page
-----
Item 1. Business ........................................................................ 1
Item 2. Properties ...................................................................... 8
Item 3. Legal Proceedings ............................................................... 9
Item 4. Submission Of Matters To A Vote Of Security Holders ............................. 9
PART II
Item 5. Market For The Registrant's Common Equity And Related Stockholder Matters ....... 10
Item 6. Selected Financial Data ($000 except per share amounts) ......................... 11
Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of 11
Operations
Item 8. Financial Statements & Supplemental Data ........................................ 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 31
Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant ............................. 31
Item 11. Executive Compensation ......................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management ................. 32
Item 13. Certain Relationships and Related Transactions ................................. 32
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K ................ 33
Signatures ............................................................................... 36
In this Report the statements contained or incorporated by reference that are
not historical facts or statements of current condition are forward-looking
statements. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"forecasts," "will," or "anticipates," or the negative thereof or other
variations thereon or comparable terminology; or by discussion of strategy or
intentions. These forward-looking statements, such as statements regarding
present or anticipated utilization, future revenues and customer relationships,
capital expenditures, future financings, and other statements regarding matters
that are not historical facts, involve predictions. Maritrans Inc.'s (the
"Company") actual results, performance, or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Potential risks and uncertainties that could affect the Company's actual
results, performance, or achievements include, but are not limited to, the
factors outlined in this report and general financial, economic, environmental
and regulatory conditions affecting the oil and marine transportation industry
in general. Given these uncertainties, current or prospective investors are
cautioned not to place undue reliance on any such forward-looking statements.
Furthermore, the Company disclaims any obligation or intent to update any such
factors or forward-looking statements to reflect future events or developments.
i
PART I
Item 1. BUSINESS
General
Maritrans Inc. (the "Corporation" or the "Registrant"), together with its
predecessor, Maritrans Partners L.P. (the "Partnership"), herein called
"Maritrans," has historically served the petroleum and petroleum product
industry by using tugs, barges, oil tankers and marine terminal facilities to
provide marine transportation and terminalling services primarily along the
East and Gulf Coasts of the United States.
Structure
Current. The Corporation is a Delaware corporation whose common stock, par
value $.01 per share ("Common Stock"), is publicly traded. The Corporation
conducts most of its marine transportation business activities through
Maritrans Operating Partners L.P. (the "Operating Partnership") and its
managing general partner, Maritrans General Partner Inc., wholly owned
subsidiaries of the Corporation. Most of the Corporation's terminalling and
distribution services are conducted through subsidiaries of Maritrans Holdings
Inc., a wholly owned subsidiary of the Corporation.
Historical. Founded in the 1850's and incorporated in 1928 under the name
Interstate Oil Transport Company, Maritrans' predecessor was one of the first
tank barge operators in the United States, with a fleet which increased in size
and capacity as United States consumption of petroleum products increased. On
December 31, 1980, Maritrans' predecessor operations and its tugboat and barge
affiliates were acquired by Sonat Inc. ("Sonat"). On April 14, 1987, the
Partnership acquired the tug and barge business and related assets from Sonat.
On March 31, 1993, the limited partners of the Partnership voted on a proposal
to convert the Partnership to corporate form (the "Conversion"). The proposal
was approved, and on April 1, 1993, Maritrans Inc., then a newly-formed
Delaware corporation, succeeded to all assets and liabilities of the
Partnership. The holders of general and limited partnership interests in the
Partnership and in the Operating Partnership were issued shares of Common Stock
representing substantially the same percentage equity interest in the
Corporation as they had in the Partnership, directly or indirectly, in exchange
for their partnership interest. Each previously held Unit of Limited
Partnership Interest in the Partnership was exchanged for one share of Common
Stock of the Corporation.
Overview. Since 1981, Maritrans and its predecessors have transported
annually over 200 million barrels of crude oil and refined petroleum products.
Based on research regarding competition, Maritrans believes that it is the
largest United States marine carrier, by volume transported, of petroleum in
the United States coastwise Jones Act trade (i.e. from point-to-point within
the United States) and that it owns one of the largest fleets of U.S. flag
oceangoing tank vessels in terms of cargo-carrying capacity.
Maritrans operates a fleet of oil tankers, tank barges and tugboats and
two terminal facilities. In 1998, Maritrans acquired an oil tanker with a
capacity of approximately 265,000 barrels. Its largest barge has a capacity of
approximately 380,000 barrels, and its current operating cargo fleet capacity
aggregates approximately 5.2 million barrels. Aggregate capacity at Maritrans'
terminal facilities totals approximately 1.2 million barrels at December 31,
1998.
Demand for Maritrans' services is dependent primarily upon general demand
for petroleum and petroleum products in the geographic areas served by its
vessels. Management believes that United States petroleum consumption, and
particularly consumption in New England and Florida, are significant indicators
of demand for Maritrans' services. Increases in product consumption generally
increase demand for Maritrans' services; conversely, decreases in consumption
generally lessen demand for Maritrans' services.
Management further believes that the level of domestic consumption of
imported product is also significant to Maritrans' business. Imported petroleum
products generally can be shipped on foreign-flag vessels directly into United
States ports for storage, distribution and eventual consumption. These
shipments reduce the need for
1
domestic marine transportation service providers such as Maritrans to carry
products from United States refineries to such ports. While Maritrans does
benefit somewhat from the increase in demand for domestic redistribution
services that results from the delivery of excess product to terminals by
foreign-flag vessels, the overall effect of refined product imports on the
demand for Maritrans' services is generally negative. The Gulf of Mexico
operations, headquartered in Tampa, Florida, provides marine transportation
services for petroleum products from refineries located in Texas, Louisiana and
Mississippi to distribution points along the Gulf and Atlantic Coasts generally
south of Cape Hatteras, North Carolina and particularly into Florida. The East
Coast operations, supported by a major fleet center in Philadelphia,
Pennsylvania, transports petroleum products from East Coast refineries
(primarily located in and near Philadelphia) and pipeline terminals located in
the New York Harbor area to distribution terminals primarily located along the
Eastern Seaboard between the Canadian Maritime Provinces and Norfolk, Virginia
and transports petroleum products between refineries and distribution points
along the Delaware River and in the Chesapeake Bay. Maritrans also provides, as
part of its East Coast operations, lightering services for large tankers (a
process of off-loading crude oil or petroleum products from an inbound tanker
into smaller tankers and/or barges, thereby enabling the tanker to navigate
draft-restricted rivers and ports to discharge cargo at a refinery or storage
and distribution terminal). As part of its tanker acquisition in 1997,
Maritrans also acquired two small tug/barge units and an operations office in
Yabucoa, Puerto Rico.
Sales and Marketing
Maritrans provides marine transportation, storage, and distribution
coordination services primarily to integrated oil companies, independent oil
companies, and petroleum distributors in the southern and eastern United
States. Maritrans relies primarily on direct sales efforts, minimizing its use
of chartering brokers. Maritrans monitors the supply and distribution patterns
of its actual and prospective customers and focuses its efforts on providing
services that are responsive to the current and future needs of these
customers.
Maritrans does business on a term contract basis, a spot market basis and,
to a minimal extent, on a product exchange basis. Maritrans strives to maintain
an appropriate mix of contracted business, based on current market conditions.
In light of the potential liabilities of oil companies and other shippers
of petroleum products under the Oil Pollution Act of 1990 ("OPA") and analogous
state laws, management believes that some shippers have begun to select
transporters in larger measure than in the past on the basis of a demonstrated
record of safe operations. Maritrans believes that the measures it has
implemented in the last eight years to promote higher quality operations and
its longstanding commitment to safe transportation of petroleum products
benefit its marketing efforts with these shippers. In July of 1998, all of
Maritrans' vessels received ISM (International Safety Management)
certification, which is an international requirement for all ships. Maritrans
voluntarily undertook tug and barge certification as well.
In 1998, approximately 84 percent of Maritrans revenues were generated
from 10 customers. In 1998, contracts with Sunoco, Inc., Marathon Oil and
Equiva Trading Company, accounted for approximately 28 percent, 13 percent, and
12 percent, respectively, of Maritrans revenue. During 1998, contracts were
renewed with some of Maritrans' larger customers. There could be a material
effect on Maritrans if any of these customers were to cancel or terminate their
various agreements with Maritrans. Management believes that cancellation or
termination of all its business with any of its larger customers is unlikely.
Competition and Competitive Factors
Overview. The maritime petroleum transportation industry is highly
competitive. The Jones Act, a federal law, restricts United States
point-to-point maritime shipping to vessels built in the United States, owned
by U.S. citizens and manned by U.S. crews. In Maritrans' market areas, its
primary direct competitors are the operators of U.S. flag oceangoing barges and
U.S. flag tankers. In the Gulf market, management believes the primary
competitors are the fleets of both other independent petroleum transporters and
integrated oil companies. In the Eastern market, management believes that
Maritrans competes primarily with other independent oceangoing barge operators
and with the captive fleets of integrated oil companies and, in lightering
operations, competes
2
with foreign-flag operators which lighter offshore. Some of the integrated oil
company fleets with which Maritrans competes are larger than Maritrans' fleet.
Additionally, in certain geographic areas and in certain business activities,
Maritrans competes with the operators of petroleum product pipelines.
Competitive factors which also affect Maritrans include the output of United
States refineries and the importation of refined petroleum products.
The primary competition for Maritrans' marine terminals is proprietary
storage capacity of integrated oil companies, merchant refiners, and
independent marine terminal operators.
U.S. Flag Barges and Tankers. Maritrans' most direct competitors are the
other operators of U.S. flag oceangoing barges and tankers. Because of the
restrictions imposed by the Jones Act, there is a finite number of vessels that
are currently eligible to engage in U.S. maritime petroleum transport. The
number of vessels eligible to engage in Jones Act trade had declined
significantly over the past several years. Within the past three years, several
competitors have added double-hulled capacity as replacement tonnage for
single-hulled vessels. The gradual implementation of regulations requiring
significant capital modifications and in some cases loss of vessel capacity, as
well as a decrease in the number of new vessels constructed since 1982, have
been the major causes of this pattern of retirement and/or replacement.
Competition in the industry is based upon price and service (including vessel
availability) and is intense.
Maritrans is engaged in several different market activities. A significant
portion of the Company's revenues in 1998 was generated in the coastal
transportation of petroleum products from refineries or pipeline terminals in
the Gulf of Mexico to ports which are not served by pipelines. Management
believes that the optimal vessel size suited to serve these ports is between
20,000 deadweight tons ("DWT") (approximately 160,000 barrels) and 40,000 DWT
(approximately 320,000 barrels). Maritrans currently operates seven barges and
one oil tanker in this size range in this market, which comprises a significant
number of the vessels able to compete in this market. The relatively large size
of Maritrans' fleet generally provides greater flexibility in meeting
customers' needs.
Maritrans competes with operators of generally smaller vessels in its
Eastern transportation activities. In this activity, Maritrans is competing
primarily with other barge operators. This is a diverse market allowing a
broader size range of vessels to participate than in the Gulf of Mexico.
Management believes that, based on the Company's fleet size, maintenance
and training programs, and spill record, Maritrans' independent competitors do
not provide the same level of service, quality performance, or attention to
safe operations as Maritrans.
General Agreement on Trade in Services ("GATS") and North American Free
Trade Agreement ("NAFTA").
The possible inclusion of maritime services within the scope of the GATS
and the NAFTA was the subject of discussion in the Uruguay Round of GATS
negotiations and NAFTA negotiations. Maritime services were not included in
GATS until the year 2000, if then. If maritime services were deemed to include
cabotage (vessel trade or marine transportation between two points within the
same country) and were included in any multi-national trade agreements, the
result would be to open the Jones Act trade (i.e., transportation of maritime
cargo between U.S. ports in which Maritrans and other U.S. vessel owners
operate) to foreign-flag vessels which would operate at lower costs. While
cabotage is not included in the GATS and the NAFTA, the possibility exists that
cabotage could be included in the GATS, NAFTA or other international trade
agreements in the future. In the meantime, Maritrans and the maritime industry
will continue to resist vigorously the inclusion of cabotage in the GATS, NAFTA
and any other international trade agreements.
Refined Product Pipelines. Existing refined product pipelines generally
are the lowest incremental cost method for the long-haul movement of petroleum
and refined petroleum products. Other than the Colonial Pipeline system, which
originates in Texas and terminates at New York Harbor, the Plantation Pipeline,
which originates in Louisiana and terminates in Washington D.C., and smaller
regional pipelines between Philadelphia and New York, there are no pipelines
carrying refined petroleum products to the major storage and distribution
facilities currently served by Maritrans. While the Colonial Pipeline system
reduces the amount of refined product transported into the New York area by
ship, it provides an origination point for Maritrans' business of transporting
such products from New York Harbor to New England ports. Management believes
that high capital
3
costs, tariff regulation and environmental considerations make it unlikely that
a new refined product pipeline system which would have a material adverse
effect on Maritrans' business will be built in its market areas in the near
future. It is possible, however, that new pipeline segments (including pipeline
segments that connect with existing pipeline systems) could be built or that
existing pipelines could be converted to carry refined petroleum products,
either of which could have a competitive effect on Maritrans in particular
locations.
Imported Refined Petroleum Products. A significant factor affecting the
level of Maritrans' business operations is the level of refined petroleum
product imports, particularly in Florida and New England. Imported refined
petroleum products may be transported on foreign-flag vessels, which are
generally less costly to operate than U.S. flag vessels. To the extent that
there is an increase in the importation of refined petroleum products to any of
the markets served by Maritrans, there could be a decrease in the demand for
the transportation of refined products from United States refineries, which
would likely have an adverse impact upon Maritrans. One possible outcome of the
Clean Air Act Amendments of 1990 could be the importing of more refined product
from outside the United States in order to avoid the expense of upgrading
United States refineries to comply with such Act. In this case, while there
would still be a need for marine petroleum transportation, the demand would
decrease, thereby possibly materially adversely affecting the coastwise
business of Maritrans and its competitors.
Delaware River Channel Deepening. Legislation approved by the United
States Congress in 1992 authorizes the U.S. Army Corps of Engineers to deepen
the channel of the Delaware River between the river's mouth and Philadelphia
from forty to forty-five feet. Congress has appropriated $1.5 million in the
1999 fiscal year budget to cover preliminary costs. If this project becomes
fully funded at the federal and state levels and if it is implemented and used
by vessels calling on the Delaware Valley refineries, it would have a material
adverse effect on Maritrans' lightering business which currently transports
crude oil which is off-loaded from deeply laden tankers from the mouth of the
Delaware Bay up the Delaware River to the Delaware Valley refineries.
Employees and Employee Relations
At December 31, 1998, Maritrans and its subsidiaries employed a total of
617 persons. Of these employees, 81 are employed at the Philadelphia,
Pennsylvania headquarters of the Corporation or at the Philadelphia and Tampa
fleet centers, 402 are seagoing employees who work aboard the tugs and barges,
122 are seagoing employees who work aboard the tank ships, and 12 are employed
in Maritrans' terminal facilities. Maritrans and its predecessors have had
collective bargaining agreements with the Seafarers' International Union of
North America, Atlantic, Gulf and Inland District, AFL-CIO ("SIU"), and with
American Maritime Officers ("AMO"), formerly District 2 Marine Engineers
Beneficial Association, Associated Maritime Officers, AFL-CIO, for
approximately 40 years. The collective bargaining agreement with the SIU covers
approximately 164 employees and expires on May 31, 1999. The collective
bargaining agreement with the AMO covers approximately 172 employees and
expires on October 8, 2007. Approximately one-half of the total number of
seagoing employees employed are supervisors. These supervisors are covered by
an agreement with AMO, which is limited to a provision for benefits. None of
the shore-based employees are covered by any collective bargaining agreement.
Management believes that the seagoing supervisory and non-supervisory
personnel contribute significantly to responsive customer service. Maritrans
maintains a policy of seeking to promote from within, where possible, and
generally seeks to draw from its marine personnel to fill supervisory and other
management positions as vacancies occur. Management believes that its
operational audit program (performed by Tidewater School of Navigation, Inc.)
and training program are essential to insure that its employees are
knowledgeable and highly skilled in the performance of their duties as well as
in their preparedness for any unforeseen emergency situations that may arise.
Consequently, various training sessions and additional skill improvement
seminars are held throughout the year.
Regulation
Marine Transportation -- General. The Interstate Commerce Act exempts from
economic regulation the water transportation of petroleum cargoes in bulk.
Accordingly, Maritrans' transportation rates, which are negotiated with its
customers, are not subject to special rate regulation under the provisions of
such act or otherwise.
4
The operation of tank ships, tugboats and barges is subject to regulation under
various federal laws and international conventions, as interpreted and
implemented by the United States Coast Guard, as well as certain state and
local laws. Tank ships, tugboats and barges are required to meet construction
and repair standards established by the American Bureau of Shipping, a private
organization, and/or the United States Coast Guard and to meet operational and
safety standards presently established by the United States Coast Guard.
Maritrans' seagoing supervisory personnel are licensed by the United States
Coast Guard. Seamen and tankermen are certificated by the United States Coast
Guard.
Jones Act. The Jones Act, a federal law, restricts maritime transportation
between United States points to vessels built and registered in the United
States and owned by United States citizens. Maritrans Inc. and the subsidiaries
that are engaged in maritime transportation between United States points are
subject to the provisions of the law. Therefore, it is the responsibility of
Maritrans to monitor ownership of these entities and take any remedial action
necessary to insure that no violation of the Jones Act ownership restrictions
occurs. In addition, the Jones Act requires that all United States flag vessels
be manned by United States citizens, which significantly increases the labor
and certain other operating costs of United States flag vessel operations
compared to foreign-flag vessel operations. Foreign-flag seamen generally
receive lower wages and benefits than those received by United States citizen
seamen. In addition, a significant number of foreign governments subsidize, at
least to some extent, the wages and/or benefits received by the seamen of those
nations. Furthermore, certain of these foreign governments subsidize those
nations' shipyards, resulting in lower shipyard costs both for new vessels and
repairs than those paid by United States-flag vessel owners such as Maritrans
to United States shipyards. Finally, the United States Coast Guard and American
Bureau of Shipping maintain the most stringent regime of vessel inspection in
the world, which tends to result in higher regulatory compliance costs for
United States-flag operators than those paid by owners of vessels registered
under foreign flags of convenience. Because Maritrans transports petroleum and
petroleum products between United States ports, most of its business depends
upon the Jones Act remaining in effect. There have been various unsuccessful
attempts in the past by foreign governments and companies to gain access to the
Jones Act trade, as well as by interests within the United States to limit or
do away with the Jones Act. Legislation to this effect was introduced into
Congress during 1997. Management expects that efforts of this type will
continue.
Environmental Matters
Maritrans' operations present potential environmental risks, primarily
through the marine transportation or storage of petroleum. Maritrans is
committed to protecting the environment and complying with applicable
environmental laws and regulations. Maritrans, as well as its competitors, is
subject to regulation under federal, state and local environmental laws which
have the effect of increasing the costs and potential liabilities arising out
of its operations.
Marine Storage Terminal Regulation. Maritrans marine terminal subsidiaries
are subject to various federal, state and local environmental laws and
regulations, particularly with respect to air quality, the handling of
materials removed from the tanks of vessels which are cleaned, and any spillage
of petroleum products on or adjoining marine terminal premises. Management
believes that this regulatory scheme will become progressively stricter in the
future, resulting in greater capital expenditures by Maritrans for
environmentally related equipment. Also, there are significant fines and
penalties for any violations of this scheme. Management intends to reflect any
such additional expenditures, to the extent possible, in the rates which are
charged to customers from time to time for services.
Oil Pollution Legislation. Many of the states in which Maritrans does
business have enacted laws providing for strict, unlimited liability for vessel
owners in the event of an oil spill. In addition, certain states have enacted
or are considering legislation or regulations involving at least some of the
following provisions: tank-vessel-free zones, contingency planning, state
inspection of vessels, additional operating, maintenance and safety
requirements, and state financial responsibility requirements. As a result of
this legislation and regulation, Maritrans has limited its carriage of
persistent oils, primarily crude and #6 oil, to or through portions of several
of these states. Persistent oils are those which continue to exist longer in
the water when spilled than do more highly refined products, such as gasoline,
thus making them more difficult to clean up.
In August 1990, OPA became law. OPA substantially changes the liability
exposure of owners and operators of vessels, oil terminals and pipelines from
that imposed under prior law. Under OPA, each responsible party
5
for a vessel or facility from which oil is discharged will be jointly, strictly
and severally liable for all oil spill containment and clean-up costs and
certain other damages arising from the discharge. These other damages are
defined broadly to include (i) natural resource damage (recoverable only by
government entities), (ii) real and personal property damage, (iii) net loss of
taxes, royalties, rents, fees and other lost revenues (recoverable only by
government entities), (iv) lost profits or impairment of earning capacity due
to property or natural resource damage, and (v) net cost of public services
necessitated by a spill response, such as protection from fire, safety or
health hazards.
The owner or operator of a vessel from which oil is discharged will be
liable under OPA unless it can be demonstrated that the spill was caused solely
by an act of God, an act of war, or the act or omission of a third party
unrelated by contract to the responsible party. Even if the spill is caused
solely by a third party, the owner or operator must pay all removal cost and
damage claims and then seek reimbursement from the third party or the trust
fund established under OPA.
OPA establishes a federal limit of liability of the greater of $1,200 per
gross ton or $10 million per tank vessel. A vessel owner's liability is not
limited, however, if the spill results from a violation of federal safety,
construction or operating regulations. In addition, OPA does not preclude
states from adopting their own liability laws. Numerous states in which
Maritrans operates have adopted legislation imposing unlimited strict liability
for vessel owners and operators. Management believes that the liability
provisions of OPA and similar state laws have greatly expanded Maritrans'
potential liability in the event of an oil spill, even where Maritrans is not
at fault.
OPA requires all vessels to maintain a certificate of financial
responsibility for oil pollution in an amount equal to the greater of $1,200
per gross ton per vessel, or $10 million per vessel in conformance with U.S.
Coast Guard regulations. Additional financial responsibility in the amount of
$300 per gross ton is required under U.S. Coast Guard regulations under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
the federal Superfund law. Owners of more than one tank vessel, such as
Maritrans, however, are only required to demonstrate financial responsibility
in an amount sufficient to cover the vessel having the greatest maximum
liability (approximately $40 million in Maritrans' case). Maritrans has
acquired such certificates through filing required financial information with
the U.S. Coast Guard.
OPA will require the retirement of, or retrofitting with double hulls, all
single-hulled petroleum tankers and barges operating in U.S. waters, including
most of Maritrans' existing barges. The first of Maritrans' affected barges are
legislatively required to be retired or retrofitted by 2003. However, most of
Maritrans' large oceangoing, single-hulled barges will be affected January 1,
2005. Maritrans' barges under 5,000 gross registered tons are not scheduled for
retirement until 2015. The two single-hulled tankers purchased in 1997 are
affected in 2005 and 2006, respectively, at which time they will be required to
comply with OPA or be operated outside U.S. waters. Approximately 27 percent of
Maritrans' operating capacity has been qualified by the United States Coast
Guard as meeting the double-hull requirements and, therefore, is allowed to
continue operating without modification and without a legislatively determined
retirement date. If Maritrans were to replace its entire single-hulled
oil-carrying vessel capacity with newly built double hulled vessels, the
estimated cost would be approximately $500 million, based on an estimated
replacement cost of $125 per barrel of capacity. This estimate could be higher
as shipyard costs increase. Factors that could reduce the estimate would
include decisions to replace less than 100% of existing oil-carrying capacity
or rebuilding programs with lower replacement costs per barrel of capacity.
Maritrans' pilot program to rebuild the MARITRANS 192 with on OPA-compliant
double-hull cost approximately $60 per barrel of capacity, however engineering,
coating and structural and other vessel and shipyard-specific factors may make
it inappropriate to extrapolate this per-barrel rebuilding cost to the other
single-hulled vessels in Maritrans' fleet.
OPA further required all tank vessel operators to submit, by February 18,
1993, for federal approval, detailed vessel oil spill contingency plans setting
forth their capacity to respond to a worst case spill situation. Maritrans
filed its plans prior to that deadline. Several states have similar contingency
or response plan requirements. Additionally, in certain circumstances involving
oil spills from vessels, OPA and other environmental laws may impose criminal
liability upon vessel and shoreside marine personnel and upon the corporate
entity. Such liability can be imposed for negligence without criminal intent,
or it may be strictly applied. The Company believes the laws, in their present
form, may negatively impact efforts to recruit Maritrans seagoing employees.
6
OPA is expected to have a continuing adverse effect on the entire U.S. oil
and petroleum marine transportation industry, including Maritrans. The effects
on the industry could include, among others, (i) increased requirements for
capital expenditures, which the independent marine transporters of petroleum
may not be able to finance, to fund the cost of double-hulled vessels, (ii)
increased maintenance, training, insurance and other operating costs, (iii)
civil penalties and the potential for other liability, (iv) decreased operating
revenues as a result of a further reduction of volumes transported by vessels
and (v) increased difficulty in obtaining sufficient insurance, particularly
oil pollution coverage. These effects could adversely affect Maritrans' results
of operations and liquidity.
In 1996, Maritrans filed suit against the United States government under
the Fifth Amendment to the U.S. Constitution for "taking" 37 of Maritrans' tank
barges without just compensation by passage of OPA. See "Item 3--Legal
Proceedings."
The following table sets forth Maritrans' quantifiable cargo oil spill
record for the period January 1, 1994 through December 31, 1998:
Gallons Spilled
No. of No. of . Per Million
Period Gals. Carried Spills Gals. Spilled Gals. Carried
- ------------------------ --------------- -------- --------------- ----------------
(000) (000)
1/1/1994 -- 12/31/1994 9,954,000 2 .02 .002
1/1/1995 -- 12/31/1995 9,450,000 1 16.80 1.780
1/1/1996 -- 12/31/1996 9,160,000 3 .08 .009
1/1/1997 -- 12/31/1997 10,136,000 1 .05 .005
1/1/1998 -- 12/31/1998 10,987,000 3 .29 .027
Maritrans believes that its spill ratio compares favorably with the other
independent, coastwise operators in the Jones Act trade.
Water Pollution Regulations. The Federal Water Pollution Control Act of
1972 ("FWPCA"), as amended by the Clean Water Act of 1977, imposes strict
prohibitions against the discharge of oil (and its derivatives) and hazardous
substances into navigable waters of the United States. FWPCA provides civil and
criminal penalties for any discharge of petroleum products in harmful
quantities and imposes substantial liability for the clean-up costs of removing
an oil spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and clean-up cost liabilities in the case
of a release of petroleum or its derivatives into surface waters. In the course
of its vessel operations, Maritrans engages contractors, in addition to
Maritank Philadelphia Inc., to remove and dispose of waste material, including
tank residue. In the event that any of such waste is deemed "hazardous," as
defined in FWPCA or the Resource Conservation and Recovery Act, and is disposed
of in violation of applicable law, Maritrans could be jointly and severally
liable with the disposal contractor for the clean-up costs and any resulting
damages. The United States Environmental Protection Agency ("EPA") previously
determined not to classify most common types of "used oil" as a "hazardous
waste," provided that certain recycling standards are met. While it is unlikely
that used oil will be classified as hazardous, the management of used oil under
EPA's proposed regulations will increase the cost of disposing of or recycling
used oil from Maritrans' vessels. Some states in which Maritrans operates,
however, have classified "used oil" as hazardous. Maritrans has found it
increasingly expensive to manage the wastes generated in its operations.
Air Pollution Regulations. The 1990 amendments to the Clean Air Act give
the EPA and the states the authority to regulate emissions of volatile organic
compounds ("VOCs") and any other air pollutant from tank vessels in all ports
served by Maritrans and storage terminals. Several states with ports served by
Maritrans already have established regulations to require the installation of
vapor recovery equipment on petroleum-carrying vessels to reduce the emissions
of VOCs. Compliance with these federal and state regulations has required
material capital expenditures for the retrofitting of Maritrans' barges and has
increased operating costs. Similarly, various states require vapor recovery
equipment at storage terminals for the loading of petroleum into vessels and
tank trucks. Maritrans' terminal facilities are equipped with vapor recovery
capabilities for the loading of tank trucks. They do not currently load
petroleum into vessels and therefore have not acquired vapor recovery
capabilities for that activity. The EPA also has the authority to regulate
emissions from marine vessel engines; however, with the possible exception of
the use of low sulfur fuels, direct regulation of marine engine
7
emissions is not likely in the near future in ports served by Maritrans.
However, it is possible that the EPA and/or various state environmental
agencies ultimately may require that additional air pollution abatement
equipment be installed in tugboats or tank ships, including those owned by
Maritrans. Such a requirement could result in a material expenditure by
Maritrans, which could have an adverse effect on Maritrans' profitability if it
is not able to recoup these costs through increased charter rates. Also, the
application of various air quality rules in connection with the operation of
Maritrans' facilities may require significant additional expenditures which may
not be recovered through increased rates.
User Fees and Taxes. The Water Resources Development Act of 1986 permits
local non-federal entities to recover a portion of the costs of new port and
harbor improvements from vessel operators with vessels benefiting from such
improvements. Management does not believe that Maritrans' vessels currently
benefit from such improvements. However, there can be no assurance that such
entities will not seek to recover a portion of such costs from Maritrans.
Federal legislation has been enacted imposing user fees on vessel operators
such as Maritrans to help fund the United States Coast Guard's regulatory
activities. Other federal, state and local agencies or authorities could also
seek to impose additional user fees or taxes on vessel operators or their
vessels. The Coast Guard collects fees for vessel inspection and documentation,
licensing and tank vessel examinations. These fees have not been material to
Maritrans. There can be no assurance that additional user fees, which could
have a material adverse effect upon the financial condition and results of
operations of Maritrans, will not be imposed in the future.
Item 2. PROPERTIES
Vessels. The Corporation's subsidiaries owned, at December 31, 1998, a
fleet of 58 vessels, of which 4 are oil tankers, 29 are barges and 23 are
tugboats.
In August of 1998 Maritrans purchased a 260,000-barrel double-hull
petroleum tanker, which was renamed the DILIGENCE and placed into service after
a short maintenance period. The remainder of the oil tanker fleet consists of
three tankers ranging in capacity from 242,000 barrels to 265,000 barrels.
These oil tankers were constructed between 1975 and 1982.
The barge fleet consists of a variety of vessels falling within six
different barge classifications. The largest vessels in the fleet are the
twelve superbarges ranging in capacity from 178,000 to 380,000 barrels. The
oldest vessel in that class is the OCEAN 250 which was constructed in 1970,
while the largest vessel is the OCEAN 400, for which modifications were
completed as recently as 1990. For the most part, however, the bulk of the
superbarge fleet was constructed during the 1970's and early 1980's.
The fleet's next eleven largest barges range in capacity from 60,000
barrels to 160,000 barrels and were constructed or substantially renovated
between 1967 and 1981. The remainder of the barge fleet is comprised of two
vessels falling in the 50,000 barrel class, and four vessels in the 30,000
barrel class. The majority of these vessels were constructed between 1961 and
1977.
The tugboat fleet is comprised of one 11,000 horsepower class vessel,
eleven 5,600 horsepower class vessels (two of which are chartered), five 4,000
horsepower class vessels, four 3,200 horsepower class vessels, three 2,200
horsepower class vessels, one pusher class vessel and one chartered 15,000
horsepower class vessel, which is not currently operating. The year of
construction or substantial renovation of these vessels ranges from 1962 to
1990 with the bulk of the tugboats having been constructed sometime between
1967 and 1981.
Substantially all of the vessels in the fleet are subject to first
preferred ship mortgages. These mortgages require the Operating Partnership to
maintain the vessels at a high standard and to continue a life-extension
program for certain of its larger barges. At December 31, 1998, Maritrans is in
compliance with the Operating Partnership's mortgage covenants.
Marine Terminals. At December 31, 1998, Maritank Philadelphia Inc. ("MPI")
owns 35 acres located on the west bank of the Schuylkill River in Philadelphia.
Included at MPI are twelve storage tanks with a total capacity of 1,040,000
barrels, an automated truck rack, office space, warehouse space and related
equipment used in MPI's marine terminal and tank cleaning operations. Maritank
Maryland Inc. ("MMI") owns 25 acres located on the Wicomico River in Salisbury,
Maryland. Included at MMI are fourteen storage tanks with a total capacity of
170,000 barrels, an automated truck loading rack, office space, warehouse space
and related equipment used in MMI's marine terminal operations.
8
Other Real Property. The Corporation's operations are headquartered in
Philadelphia, Pennsylvania, where it leases office space. East Coast operations
are located on the west bank of the Schuylkill River in Philadelphia,
Pennsylvania where the Operating Partnership owns approximately six acres of
improved land. In addition, the Operating Partnership also leases a bulkhead of
approximately 430 feet from the federal government for purposes of mooring
vessels adjacent to the owned land. This lease was renewed in 1993 and it is
expected that it will be renewed again in 1999. The Operating Partnership also
leases four acres of Port Authority land in Tampa, Florida for use as its Gulf
fleet center. The lease expires in 2004, with three renewal options of ten
years each.
Item 3. LEGAL PROCEEDINGS
Maritrans is a party to routine, marine-related claims, lawsuits and labor
arbitrations arising in the ordinary course of its business. The claims made in
connection with Maritrans' marine operations are covered by marine insurance,
subject to applicable policy deductibles which are not material as to any type
of insurance coverage. Management believes, based on its current knowledge,
that such lawsuits and claims, even if the outcomes were to be adverse, would
not have a material adverse effect on Maritrans' financial condition.
Maritrans has been sued by approximately 60 individuals alleging
unspecified damages for exposure to asbestos and, in most of these cases, for
exposure to tobacco smoke. Although Maritrans believes these claims are without
merit, it is impossible at this time to express a definitive opinion on the
final outcome of any such suit. Management believes that any liability would
not have a material adverse effect as it would be adequately covered by
applicable insurance.
In 1996, Maritrans filed suit against the United States government under
the Fifth Amendment to the U.S. Constitution for "taking" 37 of Maritrans' tank
barges without just compensation. Maritrans asserts that the vessels were taken
with the passage of Section 4115 of OPA and that this taking was done in
contravention of the Fifth Amendment, which specifically prohibits the United
States government from taking private property for public use without just
compensation. Maritrans is seeking compensation based on the fact that
Maritrans has been deprived of its reasonable investment-backed expectation in
the continued use of its barges by Section 4115 of OPA, which prohibits all
existing single-hull tank vessels from operating in U.S. waters under a
retirement schedule which began January 1, 1995, and ends on January 1, 2015.
Under this OPA provision, Maritrans' single-hull tank barges will be forced
from service commencing on January 1, 2003, with a significant portion of the
economic lives remaining, or be required to be retrofitted. On March 11, 1999,
the United States Court of Federal Claims ("the Court") dismissed Maritrans'
suit, in response to a government Motion for Summary Judgment, deciding
essentially that the Company's cause of action is not yet ripe for judicial
determination due to Maritrans' vessels not having yet been forced out of
service by OPA's phase-out provisions. The Court determined that since the
vessels are continuing to generate income, the Company has not suffered the
degree of economic harm sufficient to constitute a Fifth Amendment taking.
Maritrans is currently reviewing how it will react to the Court's decision.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Corporation's security holders,
through the solicitation of proxies or otherwise, during the last quarter of
the year ended December 31, 1998.
9
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information and Holders
Maritrans Inc. Common Shares trade on the New York Stock Exchange under
the symbol "TUG." The following table sets forth, for the periods indicated,
the high and low sales prices per share as reported by the New York Stock
Exchange.
QUARTERS ENDED IN 1998: HIGH LOW
- ------------------------- --------- --------
March 31, 1998 $ 11.625 $ 8.625
June 30, 1998 11.250 8.625
September 30, 1998 9.438 6.688
December 31, 1998 7.750 6.313
QUARTERS ENDED IN 1997: HIGH LOW
- ------------------------- --------- --------
March 31, 1997 $ 7.125 $ 5.875
June 30, 1997 7.875 5.750
September 30, 1997 9.813 7.750
December 31, 1997 9.875 8.313
As of January 31, 1999, the Registrant had 12,147,402 Common Shares
outstanding and approximately 928 stockholders of record.
Dividends
For the years ended December 31, 1998 and 1997, Maritrans Inc. paid the
following cash dividends to stockholders:
PAYMENTS IN 1998: PER SHARE
- --------------------------- -------------
March 11, 1998 $ .090
June 11, 1998 $ .090
September 9, 1998 $ .090
December 9, 1998 $ .100
------
Total $ .370
======
PAYMENTS IN 1997: PER SHARE
- --------------------------- -------------
March 12, 1997 $ .075
June 11, 1997 $ .075
September 10, 1997 $ .075
December 10, 1997 $ .090
------
Total $ .315
======
While dividend policy is determined at the discretion of the Board of
Directors of Maritrans Inc., management believes that it is likely Maritrans
will pay quarterly cash dividends during 1999.
10
Item 6. SELECTED FINANCIAL DATA ($000 except per share amounts)
MARITRANS INC.
---------------------------------------------------------------------------------
JANUARY 1 to DECEMBER 31
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- -------------
CONSOLIDATED INCOME STATEMENT DATA:
Revenues .............................. $ 151,839 $ 135,781 $ 126,994 $ 124,527 $ 124,846
Operating income before depreciation
and amortization .................... 30,407 38,339 30,249 30,738 34,250
Depreciation and amortization ......... 19,578 16,943 16,565 16,214 15,797
Operating income ...................... 10,829 21,396 13,684 14,524 18,453
Interest expense, net ................. 6,945 7,565 9,494 9,454 9,934
Income before income taxes ............ 4,986 18,157 8,379 8,120 10,355
Provision for income taxes ............ 1,870 6,696 3,130 3,139 3,823
Net income ............................ 3,116 11,461 5,249 4,981 6,532
Basic earnings per share .............. $ 0.26 $ 0.95 $ 0.44 $ 0.41 $ 0.52
Diluted earnings per share ............ $ 0.26 $ 0.94 $ 0.44 $ 0.41 $ 0.52
Cash dividends per share .............. $ 0.37 $ 0.315 $ 0.275 $ 0.11 $ 0.02
CONSOLIDATED BALANCE SHEET DATA (at period end):
Total assets .......................... $ 254,906 $ 251,023 $ 235,221 $ 251,961 $ 257,609
Long-term debt ........................ 83,400 75,365 79,123 104,337 113,008
Stockholders' equity .................. 89,815 90,795 82,594 79,875 81,173
In this annual report the statements contained or incorporated by
reference that are not historical facts or statements of current condition are
forward-looking statements. Such forward-looking statements may be identified
by, among other things, the use of forward-looking terminology such as
"believes," "expects," "forecasts," "will," or "anticipates," or the negative
thereof or other variations thereon or comparable terminology, or by discussion
of strategy or intentions. These forward-looking statements, such as statements
regarding present or anticipated utilization, future revenues and customer
relationships, capital expenditures, future financings, and other statements
regarding matters that are not historical facts, involve predictions. The
Company's actual results, performance, or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Potential risks and uncertainties that could affect the Company's actual
results, performance, or achievements include, but are not limited to, the
factors outlined in the Company's Form 10-K filed with the Securities Exchange
Commission, and general financial, economic, environmental and regulatory
conditions affecting the oil and marine transportation industry in general.
Given these uncertainties, current or prospective investors are cautioned not
to place undue reliance on any such forward-looking statements. Furthermore,
the Company disclaims any obligation or intent to update any such factors or
forward-looking statements to reflect future events or developments.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of Maritrans Inc. (the "Corporation"), and, together with
its subsidiaries and its predecessor, Maritrans Partners L.P. (the
"Partnership"), herein called "Maritrans" or the "Company."
Overview
Maritrans serves the petroleum and petroleum product distribution industry
by using oil tankers, tank barges, tugboats and marine terminal facilities to
provide marine transportation and terminalling services primarily along the
East and Gulf Coasts of the United States. Between 1994 and 1998, Maritrans has
transported at least 218 million barrels annually. The high was 262 million
barrels in 1998, and the low was 218 million barrels in 1996. Many factors
affect the number of barrels transported and will affect future results for
Maritrans, including its vessel and fleet size and average trip lengths, the
continuation of federal law restricting United
11
States point-to-point maritime shipping to U.S. vessels (the Jones Act),
domestic oil consumption -- particularly in Florida and the northeastern U.S.,
environmental laws and regulations, oil companies' operating and sourcing
decisions, competition, labor and training costs and liability insurance costs.
Overall U.S. oil consumption during 1994-1998 fluctuated between 17.7 million
and 18.7 million barrels a day.
In the fall of 1997, Maritrans added approximately 850,000 barrels of
capacity to its fleet, primarily through the acquisition of three oil tankers
varying between 242,000 and 265,000 barrels of capacity. In 1998, the Company
acquired an additional 265,000 barrel oil tanker. Additionally, during 1998
Maritrans successfully rebuilt one of its existing, single-hulled, 190,000
barrel barges with a double-hull design configuration which complies with the
provisions of the Oil Pollution Act of 1990 ("OPA"). The Company intends to
apply the same methodology to up to eight more of its existing large,
oceangoing, single-hull barges. The timing of the rebuilds will be determined
by a number of factors, including market conditions, shipyard pricing and
availability, customer requirements and OPA retirement dates for the vessels.
The OPA retirement dates fall between 2003 and 2010. There are no current plans
to perform any rebuilding in 1999.
Legislation
The enactment of OPA significantly increased the liability exposure of
marine transporters of petroleum in the event of an oil spill. In addition,
several states in which Maritrans operates have enacted legislation increasing
the liability for oil spills in their waters. Maritrans currently maintains oil
pollution liability insurance of up to $900 million per occurrence on each of
its vessels. There can be no assurance that such insurance will be adequate to
cover potential liabilities in the event of a catastrophic spill, that
additional premium costs will be recoverable through increased vessel charter
rates, or that such insurance will continue to be available in satisfactory
amounts.
Moreover, this legislation has increased other operating costs as
Maritrans has taken steps to minimize the risk of spills. Among such costs are
those for additional training, safety and contingency programs; these expenses
have not yet been and may never be fully recovered through increased vessel
charter rates. Additionally, management believes that the legislation has
effectively reduced the total volume of waterborne petroleum transportation as
shippers of petroleum have tried to limit their exposure to OPA liability. This
legislation has had a material adverse effect on Maritrans' operations,
financial performance and expectations.
OPA is expected to continue having negative effects on the entire U.S. oil
and marine petroleum transportation industry, including Maritrans. These
effects could include: (i) increased capital expenditures to cover the cost of
mandated double-hulled vessels -- expenditures that the independent marine
transporters of petroleum may not be able to finance, (ii) continued increased
maintenance, training, insurance and other operating costs, (iii) increased
liability and exposure to civil penalties, (iv) decreased operating revenues as
a result of further reductions in volumes transported on vessels and (v)
increased difficulty in obtaining sufficient insurance, particularly oil
pollution coverage. These effects could adversely affect Maritrans'
profitability and liquidity.
OPA will require the retirement of, or retrofitting with double hulls, all
single-hulled petroleum tankers and barges operating in U.S. waters, including
most of Maritrans' existing barges. The first of Maritrans' affected barges are
legislatively required to be retired or retrofitted by 2003. However, most of
Maritrans' large oceangoing, single-hulled barges will be affected January 1,
2005. Maritrans' barges under 5,000 gross registered tons are not scheduled for
retirement until 2015. The two single-hulled tankers purchased in 1997 are
affected in 2005 and 2006, respectively, at which time they will be required to
comply with OPA or be operated outside U.S. waters. Approximately 27 percent of
Maritrans' operating capacity has been qualified by the United States Coast
Guard as meeting the double-hull requirements and, therefore, is allowed to
continue operating without modification and without a legislatively determined
retirement date. If Maritrans were to replace its entire single-hulled
oil-carrying vessel capacity with newly built double-hulled vessels, the
estimated cost would be approximately $500 million, based on an estimated
replacement cost of $125 per barrel of capacity. This estimate could be higher
as shipyard costs increase. Factors that could reduce the estimate would
include decisions to replace less than 100% of existing oil-carrying capacity
or rebuilding programs with lower replacement costs per barrel of capacity.
Maritrans' pilot program to rebuild the MARITRANS 192 with on OPA-compliant
double-hull cost approximately $60 per barrel of capacity, however engineering,
coating and structural and other vessel-and shipyard-specific factors may make
it inappropriate to extrapolate this per-barrel rebuilding cost to the other
single-hulled vessels in Maritrans' fleet.
12
Results of Operations
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Revenue for 1998 totaled $151.8 million compared with $135.8 million in
1997, an increase of $16.0 million or 11.8 percent. Barrels of cargo
transported increased by 20.3 million, from 241.3 million to 261.6 million or
8.4 percent. Revenue and volumes in 1998 were positively impacted by the
addition of three tankers and two tug/barge units in late 1997 and one tanker
in 1998. Utilization, as measured by revenue days divided by calendar days
available, totaled 79.9 percent for 1998 compared to 82.2 percent in 1997.
Utilization for the fleet, excluding new vessels, decreased to 78.7 percent.
The fleet utilization has been impacted by a heavier than normal out of service
time due to scheduled maintenance and the MARITRANS 192 double hull rebuild
project. Additionally, the fleet utilization was impacted by higher than normal
weather delays in both the Gulf of Mexico and Northeastern United States, two
of the Company's largest markets. Management expects market conditions to
continue to be very competitive as new tonnage is being introduced into the
market by Maritrans' competitors. Revenues from sources other than marine
transportation decreased to 2.5 percent of total revenues in 1998 compared to
3.0 percent in 1997.
Operating expenses of $141.0 million increased by $26.6 million or 23.3
percent from $114.4 million in 1997. This increase was due largely to the full
year's operating costs of three tankers and two tug/barges units acquired late
in 1997 and the stub period operating costs of the tanker purchased in August
1998. Additionally, the Company had to charter in outside tonnage, due to an
extensive maintenance schedule during the year and the MARITRANS 192 double
hull rebuild project, to cover contract commitments to customers. The Company's
oil tankers have a higher operating cost, measured per barrel of capacity, than
its tug/barge units, due primarily to their larger crew complements and higher
ongoing maintenance expenses. Expenses, excluding the new vessels, decreased
reflecting lower utilization due to maintenance, heavier weather delays and
fuel price savings. General and administrative expenses increased reflecting
higher staffing levels, shoreside travel and shoreside training.
Interest expense decreased from $7.6 million in 1997 to $6.9 million in
1998. This decrease is the result of a reduction in the effective interest rate
as the mortgage debt of subsidiaries is replaced by debt on the Company's
revolving credit facility. The Company also capitalized interest in the amount
of $0.4 million on various capital projects. Other income decreased from $4.3
million in 1997, to $1.1 million in 1998. Comparable amounts for 1997 included
a net gain of $2.0 million on the disposal of certain assets. Interest income
decreased to $0.5 million as the Company had less cash and cash equivalents on
hand due to its asset acquisitions and capital projects.
Net income for the twelve months ended December 31, 1998, decreased to
$3.1 million from $ 11.5 million for the twelve months ended December 31, 1997,
due to the aforementioned changes in revenue and expenses.
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
Revenue for 1997 totaled $135.8 million compared with $127.0 million in
1996, an increase of $8.8 million or 6.9 percent. Barrels of cargo transported
increased by 23.2 million, from 218.1 million to 241.3 million or 10.6 percent.
Volumes in the comparable prior period were negatively impacted by the
shutdowns of refinery capacity in the Delaware Valley area during the first
part of 1996. The increase in volumes in 1997 is attributable to improvements
in Maritrans' shorter-haul route business as those refineries were placed back
in service. Several of the vessels that were reassigned to other geographic
areas last year have been moved back into Delaware Valley-based trades.
Utilization, as measured by revenue days divided by calendar days available,
totaled 82.2 percent for 1997 compared to 75.7 percent in 1996. During 1997,
contracts were renewed with some of Maritrans' larger customers. While a number
of these contracts will result in lower revenue per barrel transported,
Maritrans has gained either higher vessel utilization or higher volume
commitments with those customers, and decreased its exposure to the spot
market. The markets within which Maritrans operates continue to experience
severe price competition for oil transportation services, which is expected to
continue. Management believes, however, that the level of contractually
committed utilization will partially insulate Maritrans from these pressures.
Revenues from sources other than marine transportation decreased from 3.6
percent of total revenues in 1996 to 3.0 percent in 1997.
13
Operating expenses of $114.4 million increased by $1.1 million or 0.9
percent from $113.3 million in 1996. The increase was due to the addition of
two tug/barge units and three tankers in the fourth quarter, which increased
vessel operating costs. Prior to the fourth quarter, operating costs had
decreased primarily from earlier reductions in owned vessel capacity that
Maritrans considered excess to its long-term needs due to the equipment's size
and operating characteristics, and reduced general and administrative expenses.
Interest expense decreased by $1.9 million from $9.5 million in 1996 to
$7.6 million in 1997 due to lower levels of principal outstanding. Other income
in 1997 increased by $0.1 million from $4.2 million in 1996 to $4.3 million in
1997 due primarily to greater interest earned on short-term investments.
Net income for 1997 increased by $6.3 million to $11.5 million as a result
of the aforementioned increased revenues and other income more than offsetting
the increase in operating costs.
Liquidity and Capital Resources
In 1998, existing cash and cash equivalents, augmented by operating
activities and financing transactions, were sufficient to fully meet debt
service obligations (including $16.4 million in long-term debt repayments), to
meet loan agreement restrictions, to make capital acquisitions and
improvements, and to allow Maritrans to pay a dividend of $0.09 per common
share in each of the first three quarters and $0.10 per common share in the
last quarter. Maritrans believes that in 1999, funds provided by operating
activities, augmented by financing transactions and investing activities, will
be sufficient to finance operations, anticipated capital expenditures, lease
payments and required debt repayments. Dividend payments are expected to
continue quarterly in 1999.
On October 10, 1997, Maritrans and Chevron U.S.A. Inc. ("Chevron")
executed agreements for Maritrans' purchase of two Chevron petroleum tankers
subject to certain conditions. The total cost to Maritrans was approximately
$27.3 million. The Chevron vessels are 40,000 deadweight ton, double-hulled oil
tankers that comply with all International Maritime Organization ("IMO") and
OPA design criteria for future trading. The Company purchased the first vessel
on November 7, 1997, for $13 million and purchased the second vessel on August
12, 1998, for $14.3 million. In November 1997, Maritrans borrowed $12 million
from its revolving credit facility with Mellon Bank, N.A. to complete the
purchase of the first vessel. To fund the purchase of the second vessel,
Maritrans borrowed an additional $12 million in August 1998 from its revolving
credit facility with Mellon Bank, N.A. The Company made modifications to the
second vessel, renamed the DILIGENCE, before placing it in service in the fall
of 1998. Total costs of these modifications were approximately $3 million.
During 1998, Maritrans also successfully completed rebuilding the barge
MARITRANS 192 with a double hull. The total cost of this project was
approximately $10 million.
In addition to the vessel programs previously mentioned, capital
expenditures in 1998 for improvements to its existing fleet of vessels and
marine terminals were approximately $4 million, the same as in 1997.
On May 7, 1997, the Company announced a year's extension to its previously
announced stock buy-back plan to reacquire up to 1.8 million shares of its
common stock, depending on market conditions. This amount represented
approximately 15 percent of the 12.5 million shares outstanding at the
beginning of the program. As of the end of the program, the Company had
purchased 877,955 shares at a cost of approximately $5.1 million. No open
market purchases were made in 1996, 1997 or 1998.
On February 9, 1999, the Board of Directors authorized a share buyback
program for the acquisition of up to 1 million shares of the Company's common
stock. This amount represents approximately 8 percent of the 12.1 million
shares outstanding at the beginning of the program. Maritrans intends to hold
the majority of the shares as treasury stock, although some shares may be used
for acquisition currency, employee compensation plans, and/or other corporate
purposes. Maritrans expects to finance the purchase of any reacquired shares
from internally generated funds.
Working Capital and Other Balance Sheet Changes
In 1998, working capital was generated by operating activities, proceeds
under a revolving credit facility established in 1997 and borrowing against a
working capital facility. Current assets decreased primarily due to
14
the Company having less cash and cash equivalents on hand. The ratio of current
assets to current liabilities declined from 1.27:1 at December 31, 1997 to
1.20:1 at December 31, 1998. Maritrans utilized available working capital to
purchase marine vessels and equipment, repay scheduled long-term debt
obligations, and make dividend payments.
Debt Obligations and Borrowing Facility
At December 31, 1998, Maritrans had $95.3 million in total outstanding
debt, secured by mortgages on most of the fixed assets of the subsidiaries of
the Corporation. The current portion of this debt at December 31, 1998, was
$11.9 million. Maritrans has a $10 million working capital facility, secured by
receivables and inventories of a subsidiary, which expires June 30, 1999, and
which it expects to renew. At December 31, 1998, this facility had a balance of
$4.2 million outstanding. On October 17, 1997, Maritrans entered into a
multi-year revolving credit facility for amounts up to $33 million with Mellon
Bank, N.A. This facility is collateralized by mortgages on tankers acquired in
1997 and 1998. At December 31, 1998, the balance of borrowings outstanding were
$28.4 million.
At December 31, 1998 and 1997, total debt to total capitalization was 51
percent and 48 percent, respectively. For purposes of this calculation, total
capitalization consists of long-term debt, including those portions that are
current, and stockholders' equity.
Impact of Year 2000
Some of the Company's older computer programs and embedded computer
components suffer from Year 2000 incompatibilities. If left unchanged, this may
cause a system failure or miscalculations causing disruptions in operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in normal similar business activities.
Following is a brief description of the tasks incorporated in the
Company's Year 2000 effort:
Software Inventory: List all custom software components that may have a
dependency on Year 2000.
Software Assessment: Analyze each software component to determine if a
Year 2000 dependency exists; if so then determine magnitude of impact and
effort for remediation. Prioritize remediation efforts.
Software Remediation: Implement corrections or develop alternative plans
to work around the problem.
Imbedded Systems Inventory: Develop a list of all devices which contain
embedded computer chips, such as radars, Global Positioning System, rudder
controls, engine controls and truck rack monitors
Imbedded Systems Assessment: Work with the individual manufacturing
companies to identify any problems with specific devices. Conduct
independent tests to identify any possible problems.
Imbedded Systems Remediation: Work with the manufacturing companies to
implement replacement or work around plans. Collaborate with other
companies that have the same dependencies to reduce cost and increase
effectiveness.
Service Provider Assessment: Verify that all service providers are
investigating their own Year 2000 problems and that the Company's
interactions with them are Year 2000 compliant. Identify key service
providers and conduct in-depth analysis to verify that service to Maritrans
will not be impacted.
Customer Assessment: Verify that all customers are proceeding with their
own Year 2000 efforts. Collaborate with the customers to ensure that both
parties have a smooth transition into the new millennium.
Contingency Planning: Identify and document contingency plans for core
business processes.
The Company completed an assessment of its computing systems, commercial
off-the-shelf systems, and embedded systems and has been developing new
software programs and replacing commercial systems to take
15
advantage of newer technologies. As a result of this initiative, the Company's
operating systems, critical embedded systems and commercial off-the-shelf
systems will be Year 2000 compliant upon completion of these upgrades, which
are scheduled to be complete no later than the first quarter of 1999. This date
is prior to any anticipated impact on the operating systems. For the Company's
less critical commercial off-the-shelf systems and embedded components, the
Company is working closely with the manufacturers to verify compliance and is
proceeding with remediation efforts. The Company is collaborating with its key
service providers and customers to ensure their Year 2000 efforts will identify
and address common risks as well as developing contingency plans where
necessary. The Company's major customers do not expect to incur major
disruptions in the need for services due to any Year 2000 issues. These
activities are scheduled to be completed no later than the second quarter of
1999. However, there can be no assurances that the companies with which the
Company does business will achieve a Year 2000 conversion in a timely fashion,
or that such failure to convert by another company will not have a material
adverse effect on the Company.
The Company's contingency planning effort has identified critical business
processes and any Year 2000 dependencies that these processes may have. The
Company is currently prioritizing these processes and developing contingency
plans to eliminate or manage any Year 2000 dependencies. These contingency
plans consider the internal systems, facilities, customer and supplier
readiness, and infrastructure concerns.
The Company believes that with the conversions to new software, the Year
2000 issue will not pose significant operational problems for the computer
systems. However, if such conversions are not made, or are not completed
timely, the Year 2000 issue could have a material adverse impact on the
operations of the Company. The Company believes that the most reasonably likely
worst case Year 2000 scenario would be that some of the customers' refineries
or terminal pumping systems would fail. This would cause fewer barrels to be
moved, interruption of normal distribution patterns, and/or inability to
transfer product, possibly leaving the vessels empty and crippling the delivery
system. In this event, the Company expects less than half of the fleet would be
impacted with a maximum of 5-day delays for product loading. Vessels attempting
to discharge would be rerouted to other ports or customers and thus not incur
significant delays. As part of the contingency planning efforts, the Company is
addressing this specific issue internally and with customers to reduce the
likelihood and impact of this scenario.
The total cost of the Company's Year 2000 efforts is expected to be $0.6
million, with approximately $0.2 million to be incurred during the remainder of
the project. This amount is being financed from internally generated funds. The
costs of the project and the date on which the Company believes it will
complete the Year 2000 conversions are based on management's best estimates.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to upgrade
all relevant operating systems, and similar uncertainties.
Market Risk
The principal market risk to which the Company is exposed is changes in
interest rates on debt instruments. The Company manages its exposure to changes
in interest rate fluctuations by optimizing the use of fixed and variable rate
debt. The information below summarizes the Company's market risks associated
with debt obligations and should be read in conjunction with Note 8 of the
Consolidated Financial Statements.
16
The following table presents principal cash flows and the related interest
rates by year of maturity. Fixed interest rates disclosed represent the actual
rate as of the period end. Variable interest rates disclosed fluctuate with the
LIBOR and federal fund rates and represent the weighted average rate at
December 31, 1998.
EXPECTED YEARS OF MATURITY
-----------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
--------- ---------- --------- --------- --------- ------------ -------
(Dollars in $000's)
Long-term debt,
including current portion
Fixed rate 6,500 6,500 6,500 6,500 6,500 26,000 58,500
Average interest rate 9.25 9.25 9.25 9.25 9.25 9.25
Variable rate 5,373 29,600 1,200 600 -- -- 36,773
Average interest rate 6.04 6.04 6.04 6.04 -- --
Impact of Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's ("FASB") Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("Statement
131"). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of Statement 131
did not affect results of operations or financial position.
The Company operates in the marine transportation and terminal business.
Marine transportation represents the transportation of petroleum and accounted
for substantially all of the consolidated assets of the Company at December 31,
1998 and 1997 and substantially all of the consolidated revenues for each of
the three years in the period ended December 31, 1998. Terminal operations
provide ancillary support to the marine transportation business as a discharge
location for certain marine transportation customers, tank vessel cleaning
facilities for Maritrans' vessels and as shore-based petroleum storage.
The Company primarily operates along the coastal waters of the
Northeastern United States and the Gulf of Mexico. The nature of services
provided, the customer base, the regulatory environment and the economic
characteristics of the Company's operations are similar, and the Company moves
its revenue-producing assets among its operating locations as business and
customer factors dictate. Maritrans believes that aggregation of the entire
marine transportation business provides the most meaningful disclosure.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion on page 16 included in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
17
Item 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA
Report of Independent Auditors
Stockholders and Board of Directors
Maritrans Inc.
We have audited the accompanying consolidated balance sheets of Maritrans Inc.
as of December 31, 1998 and 1997, and the related consolidated statements of
income, cash flows and stockholders' equity for each of the three years in the
period ended December 31, 1998. Our audits also included the financial
statement schedule listed in the Index at Item 14(A). These financial
statements and schedule are the responsibility of the management of Maritrans
Inc. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Maritrans Inc. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 22, 1999
18
MARITRANS INC.
CONSOLIDATED BALANCE SHEETS
($000)
December 31,
--------------------------
1998 1997
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 1,214 $ 13,312
Trade accounts receivable (net of allowance for doubtful accounts of
$1,387 and $1,258, respectively) ..................................... 18,030 18,073
Other accounts receivable .............................................. 9,434 4,447
Inventories ............................................................ 4,656 5,066
Deferred income tax benefit ............................................ 4,627 3,491
Prepaid expenses ....................................................... 3,479 3,257
-------- --------
Total current assets .............................................. 41,440 47,646
Vessels, terminals and equipment ........................................ 358,197 329,032
Less accumulated depreciation .......................................... 151,506 132,316
-------- --------
Net vessels, terminals and equipment .............................. 206,691 196,716
Other ................................................................... 6,775 6,661
-------- --------
Total assets ...................................................... $254,906 $251,023
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year ............................................... $ 11,873 $ 9,758
Trade accounts payable ................................................. 1,856 2,390
Accrued interest ....................................................... 1,351 1,563
Accrued shipyard costs ................................................. 7,413 8,723
Accrued wages and benefits ............................................. 3,559 5,208
Other accrued liabilities .............................................. 8,559 9,825
-------- --------
Total current liabilities ......................................... 34,611 37,467
Long-term debt .......................................................... 83,400 75,365
Deferred shipyard costs ................................................. 11,119 13,085
Other liabilities ....................................................... 5,107 5,326
Deferred income taxes ................................................... 30,854 28,985
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000 shares; none
issued ............................................................... -- --
Common stock, $.01 par value, authorized 30,000,000 shares;
issued: 1998 -- 13,116,862 shares; 1997 -- 12,996,157 shares ......... 131 130
Capital in excess of par value ......................................... 77,858 76,881
Retained earnings ...................................................... 18,691 20,049
Less: Cost of shares held in treasury: 1998 -- 972,256 shares;
1997 -- 940,896 shares ............................................ (5,699) (5,433)
Unearned compensation ......................................... ..... (1,166) (832)
-------- --------
Total stockholders' equity ........................................ 89,815 90,795
-------- --------
Total liabilities and stockholders' equity ........................ $254,906 $251,023
======== ========
See accompanying notes.
19
MARITRANS INC.
CONSOLIDATED STATEMENTS OF INCOME
($000, except per share amounts)
For the year ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenues .................................................... $151,839 $135,781 $126,994
Costs and expenses:
Operation expense .......................................... 86,616 69,290 67,286
Maintenance expense ........................................ 26,148 19,699 20,289
General and administrative ................................. 8,668 8,453 9,170
Depreciation and amortization .............................. 19,578 16,943 16,565
-------- -------- --------
141,010 114,385 113,310
-------- -------- --------
Operating income ............................................ 10,829 21,396 13,684
Interest expense (net of capitalized interest of $417, $0 and
$0, respectively)........................................... (6,945) (7,565) (9,494)
Other income, net ........................................... 1,102 4,326 4,189
-------- -------- --------
Income before income taxes .................................. 4,986 18,157 8,379
Income tax provision ........................................ 1,870 6,696 3,130
-------- -------- --------
Net income .................................................. $ 3,116 $ 11,461 $ 5,249
-------- -------- --------
Basic earnings per share .................................... $ 0.26 $ 0.95 $ 0.44
Diluted earnings per share .................................. $ 0.26 $ 0.94 $ 0.44
See accompanying notes.
20
MARITRANS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
($000)
For the year ended December 31,
-----------------------------------------
1998 1997 1996
----------- ------------ ------------
Cash flows from operating activities:
Net income .................................................. $ 3,116 $ 11,461 $ 5,249
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................. 19,578 16,943 16,565
Deferred income taxes ..................................... 733 1,729 340
Stock compensation ........................................ 378 381 347
Changes in receivables, inventories, and prepaid
expenses ................................................. (4,756) (753) (3,810)
Changes in current liabilities other than debt ............ (4,971) 3,387 2,067
Non-current changes, net .................................. (2,687) 3,125 1,063
(Gain) loss on sale of equipment .......................... -- (2,049) (3,250)
--------- --------- ---------
Total adjustments to net income .............................. 8,275 22,763 13,322
--------- --------- ---------
Net cash provided by operating activities ................. 11,391 34,224 18,571
Cash flows from investing activities:
Acquisition of investments held-to-maturity ................. -- -- (27,684)
Maturity of investments held-to-maturity .................... -- -- 35,228
Cash proceeds from sale of marine vessels, terminals
and equipment ............................................. -- 5,066 5,558
Insurance proceeds from dock settlement ..................... 1,025 -- --
Purchase of marine vessels, terminals and equipment ......... (30,190) (51,298) (2,983)
--------- --------- ---------
Net cash provided by (used in) investing activities ......... (29,165) (46,232) 10,119
Cash flows from financing activities:
Payment of long-term debt ................................... (16,423) (10,213) (23,672)
New borrowings under revolving credit facility .............. 43,863 12,000 --
Repayments of borrowings under revolving credit
facility .................................................. (17,290) (6,000) --
Proceeds from stock option exercises ........................ -- 143 378
Dividends declared and paid ................................. (4,474) (3,784) (3,255)
--------- --------- ---------
Net cash provided by (used in) financing activities ......... 5,676 (7,854) (26,549)
Net increase (decrease) in cash and cash equivalents ......... (12,098) (19,862) 2,141
Cash and cash equivalents at beginning of year ............... 13,312 33,174 31,033
--------- --------- ---------
Cash and cash equivalents at end of year ..................... $ 1,214 $ 13,312 $ 33,174
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid ................................................ $ 7,574 $ 7,661 $ 9,908
Income taxes paid ............................................ $ 1,600 $ 4,500 $ 1,050
See accompanying notes.
21
MARITRANS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($000, except share amounts)
Common Capital in
Common Stock, $.01 excess of
Stock Par Value Par Value
------------- ------------- -----------
Balance at December 31,
1995 ......................... 11,682,135 $126 $74,516
Net income, January 1, 1996
to December 31, 1996 .........
Cash dividends ($0.275 per
share of Common Stock ........
Stock incentives .............. 277,777 2 1,358
---------- ---- -------
Balance at December 31,
1996 ......................... 11,959,912 128 75,874
Net income January 1, 1997
to December 31, 1997 .........
Cash dividends ($0.315 per
share of Common Stock)........
Stock incentives .............. 95,349 2 1,007
---------- ---- -------
Balance at December 31,
1997 ......................... 12,055,261 130 76,881
---------- ---- -------
Net income January 1, 1998
to December 31, 1998 .........
Cash dividends ($0.370 per
share of Common Stock)........
Stock incentives .............. 89,345 1 977
---------- ---- -------
Balance at December 31,
1998 ......................... 12,144,606 $131 $77,858
========== ==== =======
Retained Treasury Unearned
Earnings Stock Compensation Total
---------- -------------- -------------- ----------
Balance at December 31,
1995 ......................... $ 10,378 $(5,059) $ (86) $ 79,875
Net income, January 1, 1996
to December 31, 1996 ......... 5,249 5,249
Cash dividends ($0.275 per
share of Common Stock ........ (3,255) (3,255)
Stock incentives .............. -- (8) (627) 725
-------- ---------- -------- --------
Balance at December 31,
1996 ......................... 12,372 (5,067) (713) 82,594
Net income January 1, 1997
to December 31, 1997 ......... 11,461 11,461
Cash dividends ($0.315 per
share of Common Stock)........ (3,784) (3,784)
Stock incentives .............. -- (366) (119) 524
-------- --------- -------- --------
Balance at December 31,
1997 ......................... 20,049 (5,433) (832) 90,795
-------- --------- -------- --------
Net income January 1, 1998
to December 31, 1998 ......... 3,116 3,116
Cash dividends ($0.370 per
share of Common Stock)........ (4,474) (4,474)
Stock incentives .............. -- (266) (334) 378
-------- --------- -------- --------
Balance at December 31,
1998 ......................... $ 18,691 $(5,699) $ (1,166) $ 89,815
======== ========= ======== ========
See accompanying notes.
22
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
Maritrans Inc. owns Maritrans Operating Partners L.P. (the "Operating
Partnership"), Maritrans General Partner Inc., Maritrans Tankers Inc.,
Maritrans Barge Co., Maritrans Holdings Inc. and other Maritrans entities
(collectively, the "Company"). These subsidiaries, directly and indirectly, own
and operate oil tankers, tugboats, and oceangoing petroleum tank barges
principally used in the transportation of oil and related products along the
Gulf and Atlantic Coasts, and own and operate petroleum storage facilities on
the Atlantic Coast.
Principles of Consolidation
The consolidated financial statements include the accounts of Maritrans
Inc. and subsidiaries, all of which are wholly owned. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Vessels, Terminals and Equipment
Equipment, which is carried at cost, is depreciated using the
straight-line method. Vessels are depreciated over a period of up to 30 years.
Certain electronic equipment is depreciated over periods of 7 to 10 years.
Petroleum storage tanks are depreciated over periods of up to 25 years. Other
equipment is depreciated over periods ranging from 2 to 20 years. Gains or
losses on dispositions of fixed assets are included in other income in the
accompanying consolidated statements of income. The Oil Pollution Act requires
all newly constructed petroleum tank vessels engaged in marine transportation
of oil and petroleum products in the U.S. to be double-hulled and all such
existing single-hulled vessels to be retrofitted with double hulls or phased
out of the industry beginning January 1, 1995. Because of the age and size of
Maritrans' individual barges, the first of its operating vessels will be
required to be retired or retrofitted by January 2003, and most of its large
oceangoing, single-hulled vessels will be similarly affected on January 1,
2005.
Maintenance and Repairs
Provision is made for the cost of upcoming major periodic overhauls of
vessels and equipment in advance of performing the related maintenance and
repairs. The current portion of this estimated cost is included in accrued
shipyard costs while the portion of this estimated cost not expected to be
incurred within one year is classified as long-term. Non-overhaul maintenance
and repairs are expensed as incurred.
Inventories
Inventories, consisting of materials, supplies and fuel are carried at
specific cost which does not exceed net realizable value.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes.
Revenue Recognition
Revenue is recognized when services are performed.
23
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
1. Organization and Significant Accounting Policies -- (Continued)
Significant Customers
During 1998, the Company derived revenues aggregating 52 percent of total
revenues from three customers, each one representing more than 10 percent of
revenues. In 1997, revenues from three customers aggregated 50 percent of total
revenues and in 1996, revenues from three customers aggregated 42 percent of
total revenues. The Company does not necessarily derive 10 percent or more of
its total revenues from the same group of customers each year. In 1998,
approximately 84 percent of the Company's total revenue were generated by ten
customers. Credit is extended to various companies in the petroleum industry in
the normal course of business. This concentration of credit risk within this
industry may be affected by changes in economic or other conditions and may,
accordingly, affect the overall credit risk of the Company.
Related Parties
The Company obtained protection and indemnity insurance coverage from a
mutual insurance association, whose chairman is also the chairman of Maritrans
Inc. The related insurance expense was $2,577,000, $2,536,000 and $2,654,000
for the years ended December 31, 1998, 1997 and 1996, respectively. In 1998,
1997 and 1996, the Company paid amounts for the lease of office space and for
legal services to a law firm, a partner of which serves on the Company's Board
of Directors.
1998 1997 1996
------ ------ -------
($000)
Lease of office space .................. $114 $228 $277
Legal services ......................... 120 232 163
---- ---- ----
Total .................................. $234 $460 $440
==== ==== ====
Impact of Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's ("FASB") Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("Statement
131"). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of Statement 131
did not affect results of operations or financial position.
The Company operates in the marine transportation and terminal business.
Marine transportation represents the transportation of petroleum and accounted
for substantially all of the consolidated assets of the Company at December 31,
1998 and 1997 and substantially all of the consolidated revenues for each of
the three years in the period ended December 31, 1998. Terminal operations
provide ancillary support to the marine transportation business as a discharge
location for certain marine transportation customers, tank vessel cleaning
facilities for Maritrans' vessels and as shore-based petroleum storage.
The Company primarily operates along the coastal waters of the
Northeastern United States and the Gulf of Mexico. The nature of services
provided, the customer base, the regulatory environment and the economic
characteristics of the Company's operations are similar, and the Company moves
its revenue-producing assets among its operating locations as business and
customer factors dictate. Maritrans believes that aggregation of the entire
marine transportation business provides the most meaningful disclosure.
24
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
2. Earnings per Common Share
The following data show the amounts used in computing basic and diluted
earnings per share (EPS):
1998 1997 1996
--------- ----------- ----------
(thousands)
Income available to common stockholders
used in basic EPS ........................... $ 3,116 $ 11,461 $ 5,249
Weighted average number of common
shares used in basic EPS .................... 11,929 12,003 11,828
Effect of dilutive securities:
Stock options and Restricted shares ......... 258 177 107
Weighted number of common shares and
dilutive potential common stock used in
diluted EPS ................................. 12,187 12,180 11,935
3. Shareholder Rights Plan
In 1993, Maritrans Inc. adopted a Shareholder Rights Plan (the "Plan") in
connection with the conversion from partnership to corporate form. Under the
Plan, each share of Common Stock has attached thereto a Right (a "Right") which
entitles the registered holder to purchase from the Company one one-hundredth
of a share (a "Preferred Share Fraction") of Series A Junior Participating
Preferred Shares, par value $.01 per share, of the Company ("Preferred
Shares"), or a combination of securities and assets of equivalent value, at a
Purchase Price of $40, subject to adjustment. Each Preferred Share Fraction
carries voting and dividend rights that are intended to produce the equivalent
of one share of Common Stock. The Rights are not exercisable for a Preferred
Share Fraction until the earlier of (each, a "Distribution Date") (i) 10 days
following a public announcement that a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock or (ii) the close of business on a date
fixed by the Board of Directors following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 20%
or more of the outstanding shares of Common Stock.
The Rights may be exercised for Common Stock if a "Flip-in" or "Flip-over"
event occurs. If a "Flip-in" event occurs and the Distribution Date has passed,
the holder of each Right, with the exception of the acquirer, is entitled to
purchase $40 worth of Common Stock for $20. The Rights will no longer be
exercisable into Preferred Shares at that time. "Flip-in" events are events
relating to 20% stockholders, including without limitation, a person or group
acquiring 20% or more of the Common Stock, other than in a tender offer that,
in the view of the Board of Directors, provides fair value to all of the
Company's shareholders. If a "Flip-over" event occurs, the holder of each Right
is entitled to purchase $40 worth of the acquirer's stock for $20. A
"Flip-over" event occurs if the Company is acquired or merged and no
outstanding shares remain or if 50% of the Company's assets or earning power is
sold or transferred. The Plan prohibits the Company from entering into this
sort of transaction unless the acquirer agrees to comply with the "Flip-over"
provisions of the Plan.
The Rights can be redeemed by the Company for $.01 per Right until up to
ten days after the public announcement that someone has acquired 20% or more of
the Company's Common Stock (unless the redemption period is extended by the
Board in its discretion). If the Rights are not redeemed or substituted by the
Company, they will expire on August 1, 2002.
4. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1998, and 1997 consisted of cash
and commercial paper, the carrying value of which approximates fair value. For
purposes of the consolidated financial statements, short-term highly liquid
debt instruments with original maturities of three months or less are
considered to be cash equivalents.
25
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
5. Stock Incentive Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and Related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FAS Statement No. 123, Accounting for Stock-Based
Compensation, requires the use of option valuation models that were not
developed for use in valuing employee stock options. The effect of applying
Statement No. 123's fair value method to the Company's stock-based awards
results in pro forma net income that is not materially different from amounts
reported and earnings per share that are the same as the amounts reported. Pro
forma results of operations may not be representative of the effects on
reported or pro forma results of operations for future years.
Maritrans Inc. has a stock incentive plan (the "Plan"), whereby
non-employee directors, officers and other key employees may be granted stock,
stock options and, in certain cases, receive cash under the Plan. Any
outstanding options granted under the Plan are exercisable at a price not less
than market value of the shares on the date of grant. Amendments were made to
the Plan and approved by the stockholders in 1997. The amendments included
increasing the aggregate number of shares available for issuance under the Plan
from 1,250,000 shares to 1,750,000 shares. Additionally, the amendments provide
for the automatic grant of non-qualified stock options to non-employee
directors, on a formulaic biannual basis, of options to purchase shares equal
to two multiplied by the aggregate number of shares distributed to such
non-employee director under the Plan during the preceding calendar year. In
1998, there were 3,864 shares issued to non-employee directors. Compensation
expense equal to the fair market value on the date of the grant to the
directors is included in general and administrative expense in the consolidated
statement of income.
During 1998, there were 116,841 shares of restricted stock issued under
the Plan. The restrictions lapse over a two year period. The weighted average
fair value of the restricted stock issued during 1998 was $7.68. The shares are
subject to forfeiture under certain circumstances. Unearned compensation,
representing the fair market value of the shares at the date of issuance, is
amortized to expense as the restrictions lapse. At December 31, 1998 and 1997,
691,109 and 744,252 remaining shares within the Plan were reserved for grant.
Information on stock options follows:
Number of
----------- Weighted Average
Options Exercise Price Exercise Price
----------- ---------------- -----------------
Outstanding at 12/31/95 ........... 619,643 4.00-6.00 4.54
Granted ........................ 159,428 5.25-5.375 5.32
Exercised ...................... 96,911 4.00-5.375 4.10
Cancelled or forfeited ......... -- -- --
Expired ........................ -- -- --
------- ------------ ----
Outstanding at 12/31/96 ........... 682,160 4.00-6.00 4.79
Granted ........................ 76,939 5.875-7.937 7.33
Exercised ...................... 71,264 4.00-5.625 4.60
Cancelled or forfeited ......... 140,637 5.25-6.25 5.45
Expired ........................ -- -- --
------- ------------ ----
Outstanding at 12/31/97 ........... 547,198 4.00-7.937 5.01
Granted ........................ 66,918 9.00-9.188 9.11
Exercised ...................... -- -- --
Cancelled or forfeited ......... 35,991 5.375-6.00 5.78
Expired ........................ 98,489 4.00-5.00 4.35
------- ------------ ----
Outstanding at 12/31/98 ........... 479,636 4.00-9.188 5.64
------- ------------ ----
Exercisable .......................
December 31, 1996 .............. 208,957 4.00-5.00 4.20
December 31, 1997 .............. 362,575 4.00-6.00 4.44
December 31, 1998 .............. 318,971 4.00-9.125 4.55
26
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
5. Stock Incentive Plans -- (Continued)
Outstanding options have an original term of up to ten years and are
exercisable in installments over two to four years and expire beginning in
2002. The weighted average remaining contractual life of the options
outstanding at December 31, 1998 is six years.
6. Income Taxes
The income tax provision consists of:
1998 1997 1996
--------- --------- ---------
($000)
Current:
Federal ......... $1,011 $4,553 $2,788
State ........... 126 414 2
Deferred:
Federal ......... $ 547 $1,753 $ 272
State ........... 186 (24) 68
------ ------ ------
$1,870 $6,696 $3,130
------ ------ ------
The differences between the federal statutory tax rate in 1998, 1997 and
1996, and the effective tax rates were as follows:
1998 1997 1996
--------- --------- ---------
($000)
Statutory federal tax provision ..................... $1,695 $6,355 $2,932
State income taxes, net of federal income tax benefit 206 253 46
Non-deductible items ................................ 131 88 152
Other ............................................... (162) -- --
------ ------ ------
$1,870 $6,696 $3,130
====== ====== ======
Principal items comprising deferred income tax liabilities and assets as
of December 31, 1998 and 1997 are:
1998 1997
---------- ----------
($000)
Deferred tax liabilities:
Depreciation ..................................... $44,220 $38,293
Prepaid expenses ................................. 1,778 1,660
------- -------
45,998 39,953
------- -------
Deferred tax assets:
Reserves and accruals ............................... 15,888 10,531
Net operating loss and credit carryforwards ......... 3,883 3,928
------- -------
19,771 14,459
------- -------
Net deferred tax liabilities ........................ $26,227 $25,494
======= =======
At December 31, 1998, Maritrans Inc. has net operating loss carryforwards
of approximately $16.0 million for income tax reporting purposes which expire
in the year 2005 and thereafter. The Company has an Alternative Minimum Tax
credit of $6.8 million at December 31, 1998, which does not expire.
7. Retirement Plans
Most of the shoreside employees and substantially all of the seagoing
supervisors participate in a qualified defined benefit retirement plan of
Maritrans Inc. Net periodic pension costs were determined under the projected
27
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
7. Retirement Plans -- (Continued)
unit credit actuarial method. Pension benefits are primarily based on years of
service and begin to vest after two years. Employees who are members of unions
participating in Maritrans' collective bargaining agreements are not eligible
to participate in the qualified defined benefit retirement plan of Maritrans
Inc.
The following table sets forth changes in the plan's benefit obligation,
changes in plan assets and the plan's funded status as of December 31, 1998 and
1997:
1998 1997
------------- -------------
($000)
Change in benefit obligation
Benefit obligation at beginning of year ................ $ 24,044 $ 22,834
Service cost ........................................... 1,482 1,440
Interest cost .......................................... 1,553 1,451
Actuarial gain ......................................... (653) (1,001)
Benefits paid .......................................... (779) (680)
-------- --------
Benefit obligation at end of year ...................... $ 25,647 $ 24,044
-------- --------
Change in plan assets
Fair value of plan assets at beginning of year ......... $ 27,256 $ 23,188
Actual return on plan assets ........................... 3,515 3,572
Employer contribution .................................. 541 1,176
Benefits paid .......................................... (779) (680)
-------- --------
Fair value of plan assets at end of year ............... $ 30,533 $ 27,256
-------- --------
Funded status .......................................... 4,886 3,212
Unrecognized net actuarial (gain) loss ................. (8,616) (6,280)
Unrecognized transition amount ......................... (600) (803)
-------- --------
Accrued benefit cost ................................... ($ 4,330) ($ 3,871)
-------- --------
Weighted average assumptions as of December 31, 1998
Discount rate .......................................... 6.75% 6.75%
Expected rate of return ................................ 6.75% 6.75%
Rate of compensation increase .......................... 5.00% 5.00%
Net periodic pension cost included the following components for the years ended
December 31,
1998 1997 1996
----------- ----------- -----------
($000)
Components of net periodic benefit cost
Service cost of current period ........................ $ 1,482 $ 1,440 $ 1,548
Interest cost on projected benefit obligation ......... 1,553 1,451 1,365
Expected return on plan assets ........................ (1,832) (1,582) (1,405)
Actual (gain) loss on plan assets ..................... (1,683) (1,990) (626)
Net (amortization) and deferral ....................... 1,480 1,787 423
-------- -------- --------
Net pension cost ...................................... $ 1,000 $ 1,106 $ 1,305
======== ======== ========
Substantially all of the shoreside employees and seagoing supervisors also
participate in a qualified defined contribution plan. Contributions under the
plan are determined annually by the Board of Directors of Maritrans Inc. The
cost of the plan was $0, $779,000 and $0 for the years ended December 31, 1998,
1997 and 1996, respectively.
28
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
7. Retirement Plans -- (Continued)
Approximately 54% of the Company's employees are covered under collective
bargaining agreements, and approximately 27% of the employees are covered under
collective bargaining agreements which expire within one year.
Contributions to industry-wide, multi-employer seamen's pension plans,
which cover substantially all seagoing personnel covered under collective
bargaining agreements, were approximately $889,000, $479,000 and $474,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. These
contributions include funding for current service costs and amortization of
prior service costs of the various plans over periods of 30 to 40 years. The
pension trusts and union agreements provide that contributions be made at a
contractually determined rate per man-day worked. Maritrans Inc. and its
subsidiaries are not administrators of the multi-employer seamen's pension
plans.
8. Debt
At December 31, 1998, total outstanding debt of the subsidiaries of
Maritrans Inc. is $95.3 million, $83.4 million of which is long-term. At
December 31, 1997, total outstanding debt was $85.1 million, $75.4 million of
which was long-term. The debt is secured by mortgages on most of the fixed
assets of those subsidiaries. At December 31, 1998, total outstanding debt
consists of several series -- $4.2 million maturing through 1999, $28.4 million
maturing through 2000, $4.2 million maturing through 2002, and $58.5 million
maturing through 2007. The weighted average interest rate of this indebtedness
is 8.01 percent. Terms of the indebtedness require the subsidiaries to maintain
their properties in a specific manner, maintain specified insurance on their
properties and business, and abide by other covenants which are customary with
respect to such borrowings. At December 31, 1997, the total outstanding debt
consisted of several series -- $6.0 million maturing through 2000, $5.4 million
maturing through 2002, $8.7 million maturing through 2005, and $65.0 million
maturing through 2006.
In 1997, Maritrans entered into a multi-year revolving credit facility for
amounts up to $33 million with Mellon Bank, N.A. This facility is
collateralized by mortgages on tankers acquired in 1997 and 1998. Borrowings
outstanding under this facility at December 31, 1998 were $28.4 million. The
interest rate on the indebtedness is variable and the weighted average interest
rate is 6.04 percent.
The Operating Partnership has a $10 million working capital facility
secured by its receivables and inventories. The maximum amount borrowed under
this facility during fiscal 1998 was $6.2 million. Borrowings outstanding under
this facility at December 31, 1998 were $4.2 million. The interest rate on the
indebtedness is variable and the weighted average interest rate is 6.03
percent.
Based on the borrowing rates currently available for loans with similar
terms and maturities, the fair value of long term debt was $96.1 million and
$85.9 million at December 31, 1998 and 1997, respectively. The maturity
schedule for outstanding indebtedness under existing debt agreements at
December 31, 1998, is as follows:
($000)
1999 .................. $11,873
2000 .................. 36,100
2001 .................. 7,700
2002 .................. 7,100
2003 .................. 6,500
Thereafter ............ 26,000
-------
$95,273
=======
29
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
9. Commitments and Contingencies
Minimum future rental payments under noncancellable operating leases at
December 31, 1998, are as follows:
($000)
1999 .................. $ 2,140
2000 .................. 2,298
2001 .................. 2,298
2002 .................. 2,298
2003 .................. 2,131
Thereafter ............ 3,187
-------
$14,352
=======
Total rent expense for all operating leases was $2,029,000, $2,123,000 ,
and $2,195,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The indenture governing the Operating Partnership's long-term debt permits
cash distributions by Maritrans Operating Partners L.P. to Maritrans Inc., so
long as no default exists under the indenture and provided that such
distributions do not exceed contractually prescribed amounts.
In the ordinary course of its business, claims are filed against the
Company for alleged damages in connection with its operations. Management is of
the opinion that the ultimate outcome of such claims at December 31, 1998 will
not have a material adverse effect on the consolidated financial statements.
10. Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
($000, except per share amounts)
1998
- ----
Revenues ........................... $ 35,830 $ 38,137 $ 38,389 $ 39,483
Operating income ................... 2,740 3,512 2,071 2,506
Net income ......................... 720 1,325 582 489
Basic earnings per share ........... $ 0.06 $ 0.11 $ 0.05 $ 0.04
Diluted earnings per share ......... $ 0.06 $ 0.11 $ 0.05 $ 0.04
1997
- ----
Revenues ........................... $ 31,812 $ 31,472 $ 33,548 $ 38,949
Operating income ................... 5,172 4,955 6,086 5,183
Net income ......................... 1,891 2,999 3,905 2,666
Basic earnings per share ........... $ 0.16 $ 0.25 $ 0.33 $ 0.22
Diluted earnings per share ......... $ 0.16 $ 0.25 $ 0.32 $ 0.22
30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of the Registrant, and information
with respect to compliance with Section 16(a) of the Securities Exchange Act of
1934, is incorporated herein by reference to the Corporation's definitive Proxy
Statement (the "Proxy Statement") to be filed with the Securities and Exchange
Commission (the "Commission") not later than 120 days after the close of the
year ended December 31, 1998, under the captions "Information Regarding
Nominees For Election As Directors And Regarding Continuing Directors" and
"Section 16(A) Beneficial Ownership Reporting Compliance."
The individuals listed below are directors and executive officers of
Maritrans Inc. or its subsidiaries.
Name Age(1) Position
- ---------------------------------------- -------- ---------------------------------------------------------------
Stephen A. Van Dyck (4)(5) ............. 55 Chairman of the Board of Directors and Chief Executive Officer
Dr. Robert E. Boni (2)(3)(4) ........... 71 Director
Dr. Craig E. Dorman (2)(3)(5) .......... 58 Director
Robert J. Lichtenstein(4)(5) ........... 51 Director
Eric H. Schless ........................ 44 Director
H. William Brown ....................... 60 Chief Financial Officer
Janice M. Smallacombe .................. 39 Senior Vice President
John J. Burns .......................... 46 President, Maritrans Operating Partners L.P.
Steven E. Welch ........................ 47 Vice President
Walter T. Bromfield .................... 43 Treasurer and Controller
Parker S. Wise ......................... 52 Secretary
- ------------
(1) As of March 1, 1999
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Finance Committee
(5) Member of the Nominating Committee
31
Mr. Van Dyck has been Chairman of the Board and Chief Executive Officer of
the Company and its predecessor since April 1987. For the previous year, he was
a Senior Vice President -- Oil Services, of Sonat Inc. and Chairman of the
Boards of the Sonat Marine Group, another predecessor, and Sonat Offshore
Drilling Inc. For more than five years prior to April 1986, Mr. Van Dyck was
the President and a director of the Sonat Marine Group and Vice President of
Sonat Inc. Mr. Van Dyck is a member of the Board of Directors of Amerigas
Propane, Inc. Mr. Van Dyck is also the Chairman of the Board and a director of
the West of England Ship Owners Mutual Insurance Association (Luxembourg), a
mutual insurance association. He is a member of the Company's Finance
(Chairman) and Nominating Committees of the Board of Directors. See "Certain
Transactions" in the Proxy Statement.
Mr. Brown was named Chief Financial Officer of the Company in June 1997.
Previously, Mr. Brown was Chief Financial Officer of Conrail Inc., where he had
been employed since 1978. Mr. Brown is also a member of the Board of Directors
of XTRA Corporation.
Ms. Smallacombe is Senior Vice President and has been continuously
employed by the Company or its predecessors in various capacities since 1982.
Mr. Burns is President of Maritrans Operating Partners L.P. and has been
continuously employed by the Company or its predecessors in various capacities
since 1975.
Mr. Welch is Vice President and has been continuously employed by the
Company or its predecessors in various capacities since 1977.
Mr. Bromfield is Treasurer and Controller of the Company, and has been
continuously employed in various capacities by Maritrans or its predecessors
since 1981.
Mr. Wise was named Secretary and General Counsel of the Company in June
1998. Previously, Mr. Wise was engaged in the private practice of law since
April 1997. Prior to that, Mr. Wise acted as in-house Counsel for Trans Ocean
Express since May 1993.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
The information required by Item 11, Executive Compensation, by Item 12,
Security Ownership of Certain Beneficial Owners and Management, and by Item 13,
Certain Relationships and Related Transactions, is incorporated herein by
reference to the Proxy Statement under the headings "Compensation of Directors
and Executive Officers", "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Transactions".
32
PART IV
Page
-----
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Report of Independent Auditors 18
Maritrans Inc. Consolidated Balance Sheets at December 31, 1998, and 1997 19
Maritrans Inc. Consolidated Statements of Income for the years ended
December 31, 1998, 1997, and 1996 20
Maritrans Inc. Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 21
Maritrans Inc. Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 22
Notes to the Consolidated Financial Statements 23
(2) Financial Statement Schedules
Schedule II Maritrans Inc. Valuation Account for the years ended December 31,
1998, 1997, and 1996. 37
All other schedules called for under Regulation S-X are not submitted because they are not
applicable, not required, or because the required information is not material, or is included
in the financial statements or notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1998.
33
(c) Exhibits
Exhibit Index Page
------------------------------------------------------------------------------------------- -----
3.1# Certificate of Incorporation of the Registrant, as amended.
3.2 By Laws of the Registrant, amended and restated February 9, 1999.
4.1 Certain instruments with respect to long-term debt of the Registrant or Maritrans
Operating Partners L.P., Maritrans Philadelphia Inc. or Maritrans Barge Company which
relate to debt that does not exceed 10 percent of the total assets of the Registrant are
omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K. Maritrans hereby agrees
to furnish supplementally to the Securities and Exchange Commission a copy of each such
instrument upon request.
4.2 Shareholder Rights Agreement, amended and restated February, 1999.
10.1* Amended and Restated Agreement of Limited Partnership of Maritrans Operating Partners
L.P., dated as of April 14, 1987 (Exhibit 3.2).
10.2 + Certificate of Limited Partnership of Maritrans Operating Partners L.P., dated January 29,
1987 (Exhibit 3.4).
10.3* Form of Maritrans Capital Corporation Note Purchase Agreement, dated as of March 15,
1987 (Exhibit 10.6).
10.3 (a)* Indenture of Trust and Security Agreement, dated as of March 15, 1987 from Maritrans
Operating Partners L.P. and Maritrans Capital Corporation to The Wilmington Trust
Company (Exhibit 10.6(a)).
10.3 (b)* Form of First Preferred Ship Mortgage, dated April 14, 1987 from Maritrans Operating
Partners L.P., mortgagor, to The Wilmington Trust Company, mortgagee (Exhibit 10.6(b)).
10.3 (c)* Guaranty Agreement by Maritrans Operating Partners L.P. regarding $35,000,000 Series A
Notes Due April 1, 1997 and $80,000,000 Series B Notes Due April 1, 2007 of Maritrans
Capital Corporation (Exhibit 10.6(c)).
10.3 (d)= Second Supplemental Indenture of Trust and Security Agreement, dated as of April 1,
1996 from Maritrans Operating Partners L.P. and Maritrans Capital Corporation to
Wilmington Trust Company, as Trustee.
10.3 (e)= Supplement To First Preferred Ship Mortgages, dated May 8, 1996 from Maritrans
Operating Partners L.P., Mortgagor, to Wilmington Trust Company, as Trustee, Mortgagee.
10.4 - Credit Agreement of October 17, 1997, by and among Maritrans Tankers Inc., Maritrans
Inc., and Mellon Bank, N.A. for a revolving credit facility up to $33,000,000
(Exhibit 10.2).
10.4 (a)- Guaranty (Suretyship) Agreement of October 17, 1997, by Maritrans Inc. regarding up to
$50,000,000 in principal amount of credit accommodations to Maritrans Tankers Inc. by
Mellon Bank, N.A. (Exhibit 10.1).
10.4 (b)- Note of Maritrans Tankers Inc. to Mellon Bank, N.A., dated October 17, 1997
(Exhibit 10.3).
10.4 (c)- First Preferred Ship Mortgage, dated October 17, 1997, by Maritrans Tankers Inc.,
mortgagor, to Mellon Bank, N.A., mortgagee, on the vessel ALLEGIANCE (Exhibit 10.4).
10.4 (d)- First Preferred Ship Mortgage, dated October 17, 1997, by Maritrans Tankers Inc.,
mortgagor, to Mellon Bank, N.A., mortgagee, on the vessel PERSEVERANCE (Exhibit
10.5).
34
Exhibit Index Page
--------------------------------------------------------------------------------------- -----
Executive Compensation Plans and Arrangements
10.5 Severance and Non-Competition Agreement, as amended and restated effective December
1, 1998, between Maritrans General Partner Inc. and Parker S. Wise.
10.6 " Severance and Non-Competition Agreement, as amended and restated effective July 7,
1997, between Maritrans General Partner Inc. and John J. Burns.
10.7 - Employment Agreement, dated October 5, 1993 between Maritrans General Partner Inc.
and Stephen A. Van Dyck (Exhibit 10.6).
10.8 " Severance and Non-Competition Agreement, as amended and restated effective July 7,
1997, between Maritrans General Partner Inc. and Steven E. Welch.
10.9 " Severance and Non-Competition Agreement, as amended and restated effective July 7,
1997, between Maritrans General Partner Inc. and Janice M. Smallacombe.
10.10- Profit Sharing and Savings Plan of Maritrans Inc. as amended and restated effective
November 1, 1993 (Exhibit 10.13).
10.11@ Executive Award Plan of Maritrans GP Inc. (Exhibit 10.31).
10.12@ Excess Benefit Plan of Maritrans GP Inc. as amended and restated effective January 1,
1988 (Exhibit 10.32).
10.13@ Retirement Plan of Maritrans GP Inc. as amended and restated effective January 1, 1989
(Exhibit 10.33).
10.14- Performance Unit Plan of Maritrans Inc. effective April 1, 1993 (Exhibit 10.17).
10.15& Executive Compensation Plan as amended and restated effective March 18, 1997.
21.1 Subsidiaries of Maritrans Inc.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
* Incorporated by reference herein to the Exhibit number in parentheses filed
on March 24, 1988 with Amendment No. 1 to Maritrans Partners L. P. Form
10-K Annual Report, dated March 3, 1988, for the fiscal year ended
December 31, 1987.
+ Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Partners L. P. Form S-1 Registration Statement No. 33-11652
dated January 30, 1987 or Amendment No. 1 thereto dated March 20, 1987.
# Incorporated by reference herein to the Exhibit of the same number filed with
the Corporation's Post-Effective Amendment No. 1 to Form S-4 Registration
Statement No. 33-57378 dated January 26, 1993.
& Incorporated by reference herein to Exhibit A of the Registrant's definitive
Proxy Statement filed on March 31, 1997.
@ Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Partners L. P. Annual Report on Form 10-K, dated March 29,
1993 for the fiscal year ended December 31, 1992.
- - Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Inc. Annual Report on Form 10-K, dated March 30, 1994 for
the fiscal year ended December 31, 1993.
= Incorporated by reference herein to the Exhibit of the same number filed with
Maritrans Inc. Annual Report on Form 10-K, dated March 31, 1997 for the
fiscal year ended December 31, 1996.
- - Incorporated by reference herein to the Exhibit number in parentheses filed
with Maritrans Inc. quarterly report on Form 10-Q, dated November 12, 1997
for the quarter ended September 30, 1997.
" Incorporated by reference herein to the Exhibit of the same number filed with
Maritrans Inc. Annual Report on Form 10-K, dated March 31, 1998 for the
fiscal year ended December 31, 1997.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARITRANS INC.
(Registrant)
By: /s/ Stephen A. Van Dyck Dated: March 26, 1999
---------------------------
Stephen A. Van Dyck
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /S/ Stephen A. Van Dyck
----------------------------- Chairman of the Board and Dated: March 26, 1999
Stephen A. Van Dyck Chief Executive Officer
(Principal Executive Officer)
By: /S/ Dr. Robert E. Boni Director Dated: March 26, 1999
-----------------------------
Dr. Robert E. Boni
By: /S/ Dr. Craig E. Dorman Director Dated: March 26, 1999
-----------------------------
Dr. Craig E. Dorman
By: /S/ Robert J. Lichtenstein Director Dated: March 26, 1999
-----------------------------
Robert J. Lichtenstein
By: /S/ H. William Brown Chief Financial Officer Dated: March 26, 1999
----------------------------- (Principal Financial Officer)
H. William Brown
By: /S/ Walter T. Bromfield Treasurer and Controller Dated: March 26, 1999
----------------------------- (Principal Accounting Officer)
Walter T. Bromfield
36
MARITRANS INC.
SCHEDULE II -- VALUATION ACCOUNT
($000)
CHARGED
BALANCE AT TO COSTS BALANCE
BEGINNING AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------- ------------ ---------- ------------ ----------
JANUARY 1 TO DECEMBER 31, 1996
Allowance for doubtful accounts ......... $ 457 $403 $ -- $ 860
JANUARY 1 TO DECEMBER 31, 1997
Allowance for doubtful accounts ......... $ 860 $410 $ 12(a) $1,258
JANUARY 1 TO DECEMBER 31, 1998
Allowance for doubtful accounts ......... $ 1,258 $129 $ -- $1,387
- ------------
(a) Deductions are a result of write-offs of uncollectible accounts receivable
for which allowances were previously provided.
37