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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __ to __
Commission File Number 33-94884
Crowley Maritime Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-3148464
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
155 Grand Avenue, Oakland, California 94612
(Address of Principal Executive Offices) (Zip Code)
(510) 251-7500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [ X ]
As of August 14, 2002, 89,851 shares of voting common stock, $.01 par value per
share, were outstanding.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ............................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 24
Item 6. Exhibits and Reports on Form 8-K.................................... 25
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Unaudited Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2002 and 2001................................. 4
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001....................................................... 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001..................................... 6
Notes to Unaudited Condensed Consolidated Financial Statements for the Three
and Six Months Ended June 30, 2002 and 2001................................. 7
3
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
------------- -------------- -------------- ---------------
Operating revenues $ 237,636 $ 248,493 $ 464,108 $ 469,603
Expenses:
Operating 216,171 220,884 423,828 416,466
General and administrative 9,092 8,643 16,925 16,818
Depreciation and amortisation 14,281 13,155 26,969 24,639
------------- -------------- -------------- ---------------
239,544 242,682 467,722 457,923
------------- -------------- -------------- ---------------
Operating income (loss) (1,908) 5,811 (3,614) 11,680
Other income (expense):
Gain on asset disposition, net 24 1,354 746 2,509
Interest income 99 384 207 1,584
Interest expense (3,353) (4,035) (6,916) (7,937)
Minority interest in consolidated subsidiaries 466 411 476 579
Other income (expense) 42 (47) 260 (102)
------------- -------------- -------------- ---------------
(2,722) (1,933) (5,227) (3,367)
------------- -------------- -------------- ---------------
Income (loss) before income taxes (4,630) 3,878 (8,841) 8,313
Income tax expense (benefit) (1,700) 1,506 (3,200) 3,531
------------- -------------- -------------- ---------------
Net income (loss) (2,930) 2,372 (5,641) 4,782
Preferred stock dividends (440) (485) (879) (970)
------------- -------------- -------------- ---------------
Net income (loss) attributable
to common shareholders $ (3,370) $ 1,887 $ (6,520) $ 3,812
============= ============== ============== ===============
Basic net income (loss) per common share $ (24.77) $ 13.83 $ (47.91) $ 28.10
Dilutive net income (loss) per common share $ (24.77) $ 13.83 $ (47.91) $ 28.10
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
4
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 30, December 31,
2002 2001
--------- ------------
ASSETS
Cash and cash equivalents $ 75,588 $ 33,421
Receivables, net 141,889 133,965
Prepaid expenses and other assets 28,160 33,232
--------- --------
TOTAL CURRENT ASSETS 245,637 200,618
Receivable from related party 17,862 15,975
Notes receivable and other assets 25,139 17,033
Goodwill 42,415 48,442
Intangibles 12,703 7,743
Property and equipment, net 540,859 514,055
--------- --------
TOTAL ASSETS $ 884,615 $803,866
========= ========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 111,526 $110,524
Accrued payroll and related expenses 37,313 38,967
Insurance claims payable 18,603 17,880
Unearned revenue 14,050 8,227
Current portion of long-term debt 76,742 24,063
--------- --------
TOTAL CURRENT LIABILITIES 258,234 199,661
Deferred income taxes 58,683 62,385
Deferred gain 6,695 8,035
Other liabilities 12,889 13,567
Long-term liabilities of discontinued operations 8,770 8,587
Minority interests in consolidated subsidiaries 4,720 5,426
Long-term debt 261,169 224,017
REDEEMABLE PREFERRED CLASS B STOCK, $100 par value, 200,000 shares authorized;
23,671 shares issued and outstanding 2,367 2,367
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred class A convertible stock, $100 par value, 315,000 shares issued, 31,500 31,500
authorized and outstanding
Common voting stock, $.01 par value, 4,485,000 shares authorized; 89,869 and
89,976 shares issued and outstanding at June 30, 2002
and December 31, 2001, respectively 1 1
Class N common non-voting stock, $.01 par value, 54,500 shares authorized;
46,138 shares outstanding -- --
Additional paid-in capital 67,653 67,716
Retained earnings 173,984 180,604
Accumulated other comprehensive loss (2,050) --
--------- --------
TOTAL STOCKHOLDERS' EQUITY 271,088 279,821
--------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY $ 884,615 $803,866
========= ========
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
5
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS)
June 30, June 30,
2002 2001
-------------- -------------
Operating activities:
Net income (loss) $ (5,641) $ 4,782
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 26,969 24,639
Amortization of deferred gain on sale of vessels (1,340) (1,362)
Gain on asset disposition (746) (2,509)
Change in cash surrender value of life insurance 1,046 992
Deferred income tax provision (1,120) 849
Changes in current assets and liabilities:
Receivables, net (8,275) (1,452)
Prepaid expenses and other current assets 3,925 (5,045)
Accounts payable and accrued liabilities 4,825 (2,724)
Accrued payroll and related expenses (1,409) (9,616)
Other (4,033) 4,721
-------------- -------------
Net cash provided by continuing operations 14,201 13,275
Net cash used in discontinued operations (943) (2,277)
-------------- -------------
Net cash provided by operating activities 13,258 10,998
-------------- -------------
Investing activities:
Property and equipment additions (51,312) (46,748)
Dry-docking costs (9,492) (1,779)
Proceeds from asset disposition 1,359 2,486
Proceeds from sale of MTL Petrolink Corp., net of cash sold 16,336 -
Deposits of restricted funds (8,937) -
Acquisition of Marine Transport Corporation, net of cash acquired - (40,389)
Payments on receivable from related party (2,933) (2,933)
Receipts on notes receivable 284 152
-------------- -------------
Net cash used in continuing operations (54,695) (89,211)
Net cash provided by discontinued operations - 8,173
-------------- -------------
Net cash used in investing activities (54,695) (81,038)
-------------- -------------
Financing activities:
Proceeds from issuance of debt 86,759 -
Borrowings on Revolving Credit Facility 30,000 1,500
Repayments on Revolving Credit Facility (15,000) (1,000)
Payment of long-term debt (11,928) (17,137)
Debt issue costs paid (6,063) (275)
Payment of preferred stock dividends - (1,940)
Redemption of preferred stock - (2,372)
Proceeds from issuance of common stock - 2,012
Retirement of stock (164) (1,057)
-------------- -------------
Net cash provided by (used in) financing activities 83,604 (20,269)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 42,167 (90,309)
Cash and cash equivalents at beginning of period 33,421 107,799
-------------- -------------
Cash and cash equivalents at end of period $ 75,588 $ 17,490
============== =============
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
6
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and the rules and regulations of the Securities and Exchange
Commission which apply to interim financial statements. These unaudited
condensed consolidated financial statements do not include all disclosures
provided in the annual financial statements. The unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto contained in the General Form for
Registration of Securities on Form 10, as amended, for Crowley Maritime
Corporation (the "Company"), as filed with the Securities and Exchange
Commission on June 26, 2002.
All adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present a fair statement of results for the interim
periods have been made. Results of operations for the three month and six month
periods ended June 30, 2002 are not necessarily indicative of the results to be
expected for the full year.
Foreign Currency Translation
The results of operations of non-U.S. subsidiaries are translated from local
currencies into U.S. dollars using average exchange rates during each period;
assets and liabilities are translated using exchange rates at the end of each
period. Translation gains and losses on assets and liabilities are reported as a
separate component of stockholders' equity and are not included in the
determination of net income (loss).
Derivative Financial Instruments
The Company does not invest in derivatives for trading or speculative purposes.
From time to time, as part of its risk management strategy, the Company uses
derivative financial instruments, such as rate lock agreements, to manage
exposures to interest rate risk on forecasted debt obligations. These hedges are
treated as a cash flow hedge with unrealized gains and losses recorded in other
comprehensive income (loss). The amount paid or received by the Company on
maturity of a rate lock agreement is recognized as an adjustment to interest
expense over the term of the underlying debt obligation.
7
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Recent Accounting Standard
SFAS No. 142, " Goodwill and Other Intangible Assets," ("SFAS 142") addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. SFAS 142 also
addresses how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. Effective
January 1, 2002 the Company has discontinued amortizing goodwill related to its
acquisition of Marine Transport Corporation in 2001. If SFAS 142 had been
effective January 1, 2001, the Company would not have recorded amortization
expense of $645 for the three months ended June 30, 2001 and $1,021 for the six
months ended June 30, 2001. The proforma effects of not recording goodwill
amortization for the three months and six months ended June 30, 2001 are as
follows:
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
---------------- ---------------
Net income $ 3,017 $ 5,803
Basic net income per common share $ 18.56 $ 35.63
Dilutive net income per common share $ 17.98 $ 34.72
The Company has completed its transitional impairment test of goodwill as of
January 1, 2002. No impairment was identified as a result of the test.
NOTE 2 - SALE OF MTL PETROLINK CORP.
On April 29, 2002, the Company entered into an agreement to sell 100% of the
outstanding common stock of MTL Petrolink Corp. for $18,000, subject to certain
working capital adjustments, and on May 15, 2002, this transaction was
completed. MTL Petrolink Corp. was a subsidiary of Marine Transport Corporation.
Marine Transport Corporation was acquired by the Company on February 7, 2001.
Based on working capital adjustments to the purchase price contained in the
sales agreement and based on certain arrangements by which the Company agreed to
charter two tankers from MTL Petrolink Corp. and to the purchaser of MTL
Petrolink Corp. for a period of approximately 85 days commencing on May 15,
2002, the Company expects the net proceeds from the sale of MTL Petrolink Corp.
not to exceed $18,187. Included in the $18,000 purchase price is a $500 escrow
deposit made by the buyer that will be used to fund certain claims, as defined
by the sales agreement, if and when such claims arise. If no such claims arise,
any funds remaining in escrow on May 15, 2003, shall be remitted to the Company.
These escrow funds will not be accounted for as proceeds until received.
8
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company decided to consider the sale of MTL Petrolink Corp. subsequent to
its acquisition of Marine Transport Corporation and made no effort to separately
determine the fair value of MTL Petrolink Corp. at that time. Accordingly, the
Company has recorded the excess of the sales price, net of selling costs, over
the net asset value as a purchase price adjustment resulting in a reduction to
goodwill of $6,027.
The following unaudited pro forma results of operations for the six months ended
June 30, 2002 and 2001 are presented as if the sale of MTL Petrolink Corp. had
been completed at February 7, 2001. The pro forma results include estimates and
assumptions which management believes are reasonable. However, pro forma results
are not necessarily indicative of the results that would have occurred if the
sale had been in effect on the dates indicated.
June 30, June 30,
2002 2001
-------------- --------------
Operating revenues $ 441,378 $ 424,123
Net income (loss) $ (5,006) $ 573
Earnings (loss) per common share $ (43.24) $ (2.93)
Earnings (loss) per common share -
assuming dilution $ (43.24) $ (2.93)
NOTE 3 - LONG-TERM DEBT
Subsequent to the sale of MTL Petrolink Corp., the Company requested an
amendment to its $115,000,000 Amended and Restated Credit Agreement ("Revolver")
which effectively removed certain lease commitments and earnings before
interest, taxes, depreciation and amortization of MTL Petrolink Corp. from the
calculation of the Company's net debt (as defined in the Revolver) to earnings
before interest, taxes, depreciation and amortization ratio. This amendment is
effective as of July 23, 2002. As of June 30, 2002, the Company is in compliance
with all of its restrictive covenants.
In June 2002, the Company borrowed $58,207 of Title XI funds from the Department
of Transportation Maritime Administration. Principal is due semi-annually with
interest at a rate of 5.85% through 2027. All of the proceeds were placed in
escrow, of which $51,270 is classified as restricted cash in cash and cash
equivalents and $6,937 is classified as Property and Equipment and is available
to reimburse the Company for future expenditures of the SEA RELIANCE/Barge 550-1
and the SOUND RELIANCE/Barge 550-2. The $51,270 of restricted cash was used to
repay $49,990 of construction financing in July 2002 and to reimburse the
Company for incurred expenditures. Since the Company borrowed these Title XI
funds to in part repay the
9
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
$49,990 construction financing, the construction financing is classified as a
current liability at June 30, 2002.
On April 16, 2002 the Company finalized the terms of a floating rate
construction term loan facility (the "Facility") in the aggregate principal
amount of $61,327 for the OCEAN RELIANCE/Barge 550-3 and the COASTAL
RELIANCE/Barge 550-4 currently under construction. The Facility is guaranteed
pursuant to Title XI by the Maritime Administration of the United States of
America. Interest on outstanding borrowing is due semi-annually based on the
applicable commercial paper rate plus .3% (2.15% at June 30, 2002). The Company
intends to refinance this debt with Title XI funds upon delivery of the OCEAN
RELIANCE/Barge 550-3 and the COASTAL RELIANCE/Barge 550-4 in 2003. The Company
has a commitment letter from the United States Department of Transportation
Maritime Administration for this refinancing of up to 87.5% of the actual cost.
The Company must fund the construction costs in advance and request
reimbursement from the Facility for eligible expenditures. As of June 30, 2002,
the Company had expended $44,828 on the construction of these vessels. In May
and July 2002, the Company borrowed $21,620, with $2,000 being placed in escrow
and classified as Property and Equipment for reimbursement of future
expenditures, and $16,148, respectively, against the Facility.
On May 29, 2002, the Company hedged a portion of its interest rate exposure by
entering into a rate lock agreement, which has the effect of locking the
underlying benchmark rate on the permanent financing for the OCEAN
RELIANCE/Barge 550-3 and the COASTAL RELIANCE/Barge 550-4 at 5.45%. The rate
lock agreement is designated as a cash flow hedge; therefore, the changes in
fair value, to the extent the rate lock agreement is effective, are recognized
in other comprehensive income (loss) until the debt is funded. Subsequent to
funding, the amount recorded in other comprehensive income (loss) will be
recognized as an adjustment to interest expense over the term of the underlying
debt agreement using the effective interest method. The fair value of the rate
lock agreement was recorded as a current accrued liability of $1,661 at June 30,
2002. For the six months ended June 30, 2002, the Company has recorded an
unrealized loss of $1,057, net of $604 deferred taxes, to other comprehensive
income (loss) as an interest rate hedge fair value adjustment. Amounts were
determined as of June 30, 2002 based on quoted mark to market values. The
Company has not reclassified any amounts into earnings during the three and six
month periods ended June 30, 2002.
10
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
The following table provides a reconciliation of net income (loss) reported in
our unaudited condensed consolidated financial statements to comprehensive
income (loss):
2002 2001
---------------- ----------------
Three months ended June 30, 2002:
Net income (loss) $ (2,930) $ 2,372
Other comprehensive income (loss):
Foreign currency translation adjustments,
net of tax of $567
(993) -
Rate lock agreement, net of tax of $604 (1,057) -
---------------- ----------------
Comprehensive income (loss) $ (4,980) $ 2,372
================ ================
Six months ended June 30, 2002:
Net income (loss) $ (5,641) $ 4,782
Other comprehensive income (loss):
Foreign currency translation adjustments, (993) -
net of tax of $567
Rate lock agreement, net of tax of $604 (1,057) -
---------------- ----------------
Comprehensive income (loss) $ (7,691) $ 4,782
================ ================
NOTE 5 - EARNINGS PER SHARE
The computations for basic and diluted earnings (loss) per share for
the three months and six months ended June 30, 2002 and 2001 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
--------------- -------------- -------------- ---------------
Numerator:
Net income (loss) $ (2,930) $ 2,372 $ (5,641) $ 4,782
Less preferred dividends (440) (485) (879) (970)
--------------- -------------- -------------- ---------------
Net income (loss) for basic and
dilutive earnings per common share $ (3,370) $ 1,887 $ (6,520) $ 3,812
=============== ============== ============== ===============
Denominator:
Basic and dilutive weighted average shares 136,078 136,438 136,096 135,642
=============== ============== ============== ===============
Basic earnings (loss) per common share $ (24.77) $ 13.83 $ (47.91) $ 28.10
Diluted earnings (loss) per common share $ (24.77) $ 13.83 $ (47.91) $ 28.10
The preferred class A convertible stock is anti-dilutive for the three
months and six months ended June 30, 2002 and 2001.
11
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6 - FINANCIAL INFORMATION BY SEGMENT AND GEOGRAPHIC AREA
The table below summarizes certain financial information for each of
the Company's segments and reconciles such information to the unaudited
condensed consolidated financial statements for the three months and six months
ended June 30, 2002 and 2001.
Oil and
Chemical
Distribution
Ship Assist and Energy and
Liner and Escort Transportation Marine Segment
Services Services Services Services Total
-------- ----------- -------------- ----------- --------
Three Months Ended
June 30, 2002 (1)
Operating revenues $ 130,837 $ 17,887 $ 65,166 $ 23,746 $ 237,636
Intersegment revenues 440 386 - 6,659 7,485
Depreciation and amortization 1,754 9 5,645 2,874 10,282
Operating income (loss) 2,602 2,846 (4,108) (3,248) (1,908)
Three Months Ended
June 30, 2001 (2)
Operating revenues $ 128,046 $ 17,281 $ 89,508 $ 13,658 $ 248,493
Intersegment revenues 285 476 - 6,708 7,469
Depreciation and amortization 1,852 9 4,969 3,242 10,072
Operating income (loss) 196 2,199 9,534 (6,118) 5,811
Six Months Ended
June 30, 2002 (1)
Operating revenues $ 251,683 $ 35,500 $ 135,161 $ 41,764 $ 464,108
Intersegment revenues 861 614 - 12,921 14,396
Depreciation and amortization 3,539 18 10,408 5,801 19,766
Operating income (loss) 489 5,726 (4,648) (5,181) (3,614)
Six Months Ended
June 30, 2001 (2)
Operating revenues $ 252,130 $ 35,320 $ 151,406 $ 30,747 $ 469,603
Intersegment revenues 556 890 - 13,985 15,431
Depreciation and amortization 3,880 18 8,105 6,441 18,444
Operating income (loss) (584) 4,837 16,535 (9,108) 11,680
Consolidated
Other Elimination Total
--------- ----------- ------------
Three Months Ended
June 30, 2002 (1)
Operating revenues - - $ 237,636
Intersegment revenues $ 25,120 $ (32,605) -
Depreciation and amortization 3,999 - 14,281
Operating income (loss) - - (1,908)
Three Months Ended
June 30, 2001 (2)
Operating revenues - - $ 248,493
Intersegment revenues $ 22,430 $ (29,899) -
Depreciation and amortization 3,083 - 13,155
Operating income (loss) - - 5,811
Six Months Ended
June 30, 2002 (1)
Operating revenues - - $ 464,108
Intersegment revenues $ 45,967 $ (60,363) -
Depreciation and amortization 7,203 - 26,969
Operating income (loss) - - (3,614)
Six Months Ended
June 30, 2001 (2)
Operating revenues - - $ 469,603
Intersegment revenues $ 43,799 $ (59,230) -
Depreciation and amortization 6,195 - 24,639
Operating income (loss) - - 11,680
(1)MTL Petrolink Corp. was sold on May 15, 2002, as discussed in Note 2.
(2)Marine Transport Corporation was purchased on February 7, 2001.
The Company does not segregate assets by reporting segment. Total
assets were $884,615 and $803,866 at June 30, 2002 and December 31, 2001,
respectively.
12
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Geographic Area Information
Revenues are attributed to the United States and to all foreign countries
based on the port of origin for the ocean transportation of the carriage of
cargo and the location of service provided for all other operations. Revenues
from external customers attributable to an individual country, other than the
United States, were not material for disclosure.
Operating revenue from external customers and net property and equipment
information by geographic area, excluding discontinued operations, are
summarized as follows:
United All Foreign Consolidated
States Countries Total
--------- ----------- ------------
Three months ended June 30, 2002
Operating revenue $ 212,498 $ 25,138 $ 237,636
Three months ended June 30, 2001
Operating revenue $ 221,525 $ 26,968 $ 248,493
Six months ended June 30, 2002
Operating revenue $ 414,073 $ 50,035 $ 464,108
Net property and equipment 534,389 6,470 540,859
Six months ended June 30, 2001
Operating revenue $ 414,976 $ 54,627 $ 469,603
Net property and equipment 454,439 8,528 462,967
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following presentation of Management's Discussion and Analysis ("MD&A") of
Crowley Maritime Corporation's (the "Company's") financial condition, results of
operations and cash flows should be read in conjunction with the unaudited
condensed consolidated financial statements, accompanying notes thereto and
other financial information appearing elsewhere in this Form 10-Q and the
December 31, 2001 consolidated financial statements and notes thereto, along
with the MD&A included in the Company's General Form for Registration of
Securities on Form 10, as amended, as filed with the Securities and Exchange
Commission on June 26, 2002.
This discussion contains forward-looking statements that involve risks and
uncertainties. These statements are based on current expectations and
assumptions which management believes are reasonable and on information
currently available to management. These forward-looking statements are
identified by words such as "estimates," "expects," "anticipates," "plans,"
"believes," and other similar expressions. The Company's actual results may
differ materially from those anticipated in these forward-looking statements as
a result of changes in global political, economic, business, competitive, market
and regulatory factors.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001 (DOLLARS IN
THOUSANDS)
Net income for the three months ended June 30, 2002 declined by $5,302 to a net
loss of $2,930 compared to net income of $2,372 in the same period of the prior
year. The primary reason for this decline is a decrease in operating income of
$7,719, (a loss of $1,908 in 2002 versus operating income of $5,811 in 2001)
principally in the Oil and Chemical Distribution and Transportation Services
segment, partially offset by improvements in other business segments. In
addition, the Company had lower gains on assets dispositions and interest
income, that were substantially offset by reduced interest and income tax
expense.
LINER SERVICES
Revenues from our Liner Services segment for the three months ended June 30,
2002 increased $2,791 or 2.2%, to $130,837 compared to $128,046 from the second
quarter in 2001. The increase in revenues is primarily attributable to an 8.2%
increase in container and non-container volume, which was offset by a 10.4%
decrease in average revenue per twenty-foot equivalent units, or TEU, ("average
revenue"). The Company's container and noncontainer volume shipped during the
second quarter in 2002 and 2001 was 127,012 TEUs and 117,440 TEUs, respectively.
The Company experienced a 13.4% increase in the Puerto Rico and Eastern
Caribbean Islands Service container and noncontainer volume shipped and a 2.2%
increase in container and noncontainer volume shipped in the Latin America
Service. In the second quarter of 2002, the Company experienced a 9.4% average
revenue decrease in the Puerto Rico and Eastern Caribbean Islands Service and a
14
1.0% average revenue decrease in the Latin America Service compared to the year
earlier quarter. The decrease in average revenue was due to an over-capacity in
these trades and competitive pressures. This decrease in average revenues was
offset by an increase in other logistical service revenues. During the second
quarter of 2002, two competitors in the Puerto Rico and Eastern Caribbean
Islands Service merged, which has reduced some of the over-capacity in the
trade.
Operating expenses for the three months ended June 30, 2002 decreased $1,021, or
..8%, to $119,992 compared to $121,013 from the second quarter in 2001. These
expenses consist primarily of fuel costs, purchased transportation costs,
equipment costs, maintenance and repair costs and labor costs.
Depreciation and amortization for the three months ended June 30, 2002 decreased
$98, or 5.3%, to $1,754 compared to $1,852 from the second quarter in 2001. The
reduction in depreciation was due to the sale of container and trailer equipment
in 2001.
As a result, the operating income for the three months ended June 30, 2002 from
Liner Services increased $2,406 to $2,602 compared to $196 for the three months
ended June 30, 2001.
SHIP ASSIST AND ESCORT SERVICES
Revenues from our Ship Assist and Escort Services segment for the three months
ended June 30, 2002 increased $606 or 3.5%, to $17,887 compared to $17,281 for
the three months ended June 30, 2001. The increase was directly attributable to
an increase in activity in Puget Sound, Washington and Valdez, Alaska, resulting
in an increase of approximately .3% in the total vessel hours utilized by its
vessel fleet (70,487 vessel hours compared to 70,288 vessel hours). Vessel hours
utilized is directly impacted by harbor and oil trading activity.
Operating expenses for the three months ended June 30, 2002 decreased $321 or
2.2%, to $14,568 compared to $14,889 from the second quarter in 2001. The
decrease was directly attributable to a decrease in fuel costs.
As a result, the operating income for the three months ended June 30, 2002
increased $647 to $2,846 compared to $2,199 for the three months ended June 30,
2001.
OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES
Revenues from our Oil and Chemical Distribution and Transportation Services
segment for the three months ended June 30, 2002 decreased $24,342 or 27.2%, to
$65,166 compared to $89,508 for the three months ended June 30, 2001. The
decrease was directly attributable to the sale of MTL Petrolink Corp. on May 15,
2002, and an overall decrease in vessel utilization (69.5% compared to 78.4%).
With respect to the sale of MTL Petrolink Corp., there was only 1.5 months of
MTL Petrolink Corp.'s operations included in the Company's operations during the
three months ended June 30, 2002
15
versus 3 months of operations during the three months ended June 30, 2001. Due
to uncertainty surrounding the sale of MTL Petrolink Corp. and the time which
was required to conclude the sale, some of its customers chose to use other
lightering companies during the months preceding the conclusion of the sale. The
loss of these customers plus an overall decline in the market adversely affected
the results of MTL Petrolink Corp. which, in turn, adversely affected the
results of Oil and Chemical Distribution and Transportation Services. The
decrease in vessel utilization is a result of declining oil and trading activity
among West Coast suppliers and the 2001 reopening of the Olympic Pipeline.
Operating expenses for the three months ended June 30, 2002 decreased $10,345 or
14.2%, to $62,537 compared to $72,882 from the second quarter in 2001. The
decrease was primarily attributable to reduced expenses from MTL Petrolink Corp.
not being included in operations for 1.5 months during the three months ended
June 30, 2002. This was offset by increased repairs and maintenance costs on
older vessels.
Depreciation and amortization for the three months ended June 30, 2002 increased
$676 or 13.6%, to $5,645 compared to $4,969 for the three months ended June 30,
2001. The increase was directly attributable to an increase in dry-dock
amortization for additional vessels dry-docked in 2002, which was offset by a
decrease from not recording goodwill amortization in 2002, in accordance with
SFAS 142.
As a result, the operating income for the three months ended June 30, 2002 from
Oil and Chemical Distribution and Transportation Services decreased $13,642 to
an operating loss of $4,108 compared to operating income of $9,534 from the
second quarter in 2001.
ENERGY AND MARINE SERVICES
Revenues from our Energy and Marine Services segment for the three months ended
June 30, 2002 increased $10,088 or 73.9%, to $23,746 compared to $13,658 for the
three months ended June 30, 2001. The increase was directly attributable to a
strong exploration season in Alaska as well as receipt of revenue from a new
contract the Company entered into with a global service provider for project
barge transportation and other services to Russia. This increase in revenue was
offset by a decrease in vessel utilization. Vessel utilization during the second
quarter of 2002 was 39% compared to 48% during the same quarter of 2001. Vessel
utilization is very volatile as it is impacted by oil exploration activity and
general economic conditions.
Operating expenses for the three months ended June 30, 2002 increased $7,512 or
33.5%, to $29,936 compared to $22,424 from the second quarter in 2001. The
increase was directly attributable to the higher level of activity which led to
the increased revenues noted above. This increase was offset by the decrease in
vessel utilization.
Depreciation and amortization for the three months ended June 30, 2002 decreased
$368 or 11.4%, to $2,874 compared to $3,242 for the three months ended June 30,
2001. The decrease was directly attributable to an increase in the number of
operating vessels and
16
terminals becoming fully depreciated in 2002.
As a result, the operating loss for the three months ended June 30, 2002
decreased $2,870 to $3,248 compared to $6,118 for the three months ended June
30, 2001.
OTHER
Gain on asset disposition for the three months ended June 30, 2002 decreased
$1,330 or 98.2%, to $24 compared to $1,354 for the three months ended June 30,
2001. These gains resulted from the Company's plans to continually sell surplus
equipment and vessels that have been replaced with more modern equipment. In the
second quarter of 2002, the Company sold miscellaneous equipment, resulting in
proceeds of $43. In the second quarter of 2001, the Company sold two vessels and
other equipment, resulting in proceeds of $1,028.
Interest income for the three months ended June 30, 2002 decreased $285 or 74%,
to $99 compared to $384 from the second quarter in 2001. This decrease was due
to a decrease in the Company's average cash and cash equivalents amounts during
this period and lower interest rates in 2002.
Interest expense for the three months ended June 30, 2002 decreased $682 or
16.9%, to $3,353 compared to $4,035 from the second quarter in 2001. This is a
result of higher capitalized interest on the construction of the articulated
tug/barge units in the second quarter of 2002 as compared to 2001, which was
offset by additional interest expense from increased borrowings under the
Company's revolving line of credit agreement.
Income tax expense for the three months ended June 30, 2002 decreased $3,206 or
213%, to an income tax benefit of $1,700 compared to income tax expense of
$1,506 for the three months ended June 30, 2001. The effective tax rate was 37%
and 39% for the second quarter of 2002 and 2001, respectively. The higher
effective tax rate for the three months ended June 30, 2001 was a result of the
Company's inability to utilize foreign tax credits.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (DOLLARS IN THOUSANDS)
Net income for the six months ended June 30, 2002 declined by $10,423 to a net
loss of $5,641 compared to net income of $4,782 in the same period of the prior
year. The primary reason for this decline is a decrease in operating income of
$15,294 (an operating loss of $3,614 in 2002 versus operating income of $11,680
in 2001), principally in the Oil and Chemical Distribution and Transportation
Services segment, partially offset by improvements in other business segments.
In addition the Company had lower gains on assets dispositions and interest
income, that were substantially offset by reduced interest and income tax
expense.
17
LINER SERVICES
Revenues from our Liner Services segment for the six months ended June 30, 2002
decreased $447 or .2%, to $251,683 compared to $252,130 for the six months ended
June 30, 2001. The decrease in revenues is primarily attributable to a 9.9%
decrease in average revenue per TEU ("average revenue"), which was offset by a
4.6% increase in container and noncontainer volume. The Company's container and
noncontainer volume shipped during the six months ended June 30, 2002 and 2001
was 240,338 TEUs and 229,877 TEUs, respectively. The Company experienced a 7.8%
increase in the Puerto Rico and Eastern Caribbean Islands Service container and
noncontainer volume shipped and a 1.0% increase in container and noncontainer
volume shipped in the Latin America Service. In the six months ended June 30,
2002, the Company experienced a 7.1% average revenue decrease in the Puerto Rico
and Eastern Caribbean Islands Service and a 2.8% average revenue decrease in the
Latin America Service compared to the six months ended June 30, 2001. The
decrease in average revenues was due to an over-capacity in these trades and
competitive pressures. This decrease in average revenues was offset by an
increase in other logistical service revenues. During the second quarter of
2002, two competitors in the Puerto Rico and Eastern Caribbean Islands Service
merged, which has reduced some of the over-capacity in the trade.
Operating expenses for the six months ended June 30, 2002 decreased $1,227, or
..5%, to $237,252 compared to $238,479 from the six months ended June 30, 2001.
These expenses consist primarily of fuel costs, purchased transportation costs,
equipment costs, maintenance and repair costs and labor costs.
Depreciation and amortization for the six months ended June 30, 2002 decreased
$341, or 8.8%, to $3,539 compared to $3,880 from the six months ended June 30,
2001. The reduction in depreciation was due to the sale of container and trailer
equipment in 2001.
As a result, the operating income for the six months ended June 30, 2002 from
Liner Services increased $1,073 to $489 compared to an operating loss of $584
for the six months ended June 30, 2001.
SHIP ASSIST AND ESCORT SERVICES
Revenues from our Ship Assist and Escort Services segment for the six months
ended June 30, 2002 increased $180 or .5%, to $35,500 compared to $35,320 for
the six months ended June 30, 2001. The increase was directly attributable to an
increase in activity in Puget Sound, Washington and Valdez, Alaska during the
second quarter, but was offset by an overall decrease of approximately 3.0% in
the total vessel hours utilized by its vessel fleet (135,651 vessel hours
compared to 139,840 vessel hours). Vessel hours utilized is directly impacted by
harbor and oil trading activity.
Operating expenses for the six months ended June 30, 2002 decreased $1,161 or
3.9%, to $28,819 compared to $29,980 from the six months ended June 30, 2001.
The decrease was directly attributable to the decrease in vessel related costs
due to decreased
18
utilization hours, with the largest component being a decrease in fuel costs.
As a result, the operating income for the six months ended June 30, 2002
increased $889 to $5,726 compared to $4,837 for the six months ended June 30,
2001.
OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES
Revenues from our Oil and Chemical Distribution and Transportation Services
segment for the six months ended June 30, 2002 decreased $16,245 or 10.7%, to
$135,161 compared to $151,406 for the six months ended June 30, 2001. The
decrease was directly attributable to the sale of MTL Petrolink Corp. on May 15,
2002, and an overall decrease in vessel utilization (61.1% compared to 72.4). As
a result of the sale of MTL Petrolink Corp., only 1.5 months of the results of
its operations were included in the Company's consolidated results for the three
months ended June 30, 2002 as opposed to 3 months of operations which were
included in the Company's consolidated results for the three months ended June
30, 2001. Due to uncertainty surrounding the sale of MTL Petrolink Corp. and the
time which was required to conclude the sale, some of its customers chose to use
other lightering companies during the months preceding the conclusion of the
sale. The loss of these customers plus an overall decline in the market
adversely affected the results of MTL Petrolink Corp. which, in turn, adversely
affected the results of Oil and Chemical Distribution and Transportation
Services. The decrease in vessel utilization is a result of declining oil and
trading activity among West Coast suppliers and the 2001 reopening of the
Olympic Pipeline. The decrease was offset by an increase related to the
acquisition of Marine Transport Corporation ("MTC") on February 7, 2001, which
provided additional revenue by being included in operations for a full quarter
in 2002.
Operating expenses for the six months ended June 30, 2002 increased $4,400 or
3.6%, to $127,754 compared to $123,354 from the six months ended June 30, 2001.
The increase was primarily attributable to the acquisition of MTC in 2001, which
resulted in a full 6 months of expenses being included in the Company's
operations in 2002 versus only 4.5 months of expenses included in 2001. This
increase was offset by reduced expenses related to MTL Petrolink Corp., as a
result of less activity due to declining oil shipments discussed above and a
decrease in vessel related costs due to decreased vessel utilization.
Depreciation and amortization for the six months ended June 30, 2002 increased
$2,303 or 28.4%, to $10,408 compared to $8,105 for the six months ended June 30,
2001. The increase was directly attributable to the acquisition of MTC, which
resulted in additional depreciation expense by being included in operations for
a full quarter in 2002, and an increase in dry-dock amortization for vessels
dry-docked in 2002. This increase was offset by a decrease from not recording
goodwill amortization in 2002, in accordance with SFAS 142.
As a result, the operating income for the six months ended June 30, 2002 from
Oil and Chemical Distribution and Transportation Services decreased $21,183 to
an operating loss of $4,648 compared to operating income of $16,535 from the six
months ended June 30, 2001.
19
ENERGY AND MARINE SERVICES
Revenues from our Energy and Marine Services segment for the six months ended
June 30, 2002 increased $11,017 or 35.8%, to $41,764 compared to $30,747 for the
six months ended June 30, 2001. The increase was directly attributable to a
strong exploration season in Alaska and a non-recurring demobilization fee, as
well as receipt of revenue from a new contract the Company entered into with a
global service provider for project barge transportation and other services to
Russia. This increase in revenue was offset by a decrease in vessel utilization.
Vessel utilization during the six months ended June 30, 2002 was 39% compared to
50% during the six months ended June 30, 2001. Vessel utilization is very
volatile as it is impacted by oil exploration activity and general economic
conditions.
Operating expenses for the six months ended June 30, 2002 increased $6,844 or
15.0%, to $52,539 compared to $45,695 from the six months ended June 30, 2001
The increase was directly attributable to the higher level of activity during
2002 as noted above, and was offset by the decrease in vessel utilization.
Depreciation and amortization for the six months ended June 30, 2002 decreased
$640 or 9.9%, to $5,801 compared to $6,441 for the six months ended June 30,
2001. The decrease was directly attributable to an increase in the number of
operating vessels and terminals becoming fully depreciated in 2002.
As a result, the operating loss for the six months ended June 30, 2002 decreased
$3,927 to $5,181 compared to $9,108 for the six months ended June 30, 2001.
OTHER
Gain on asset disposition for the six months ended June 30, 2002 decreased
$1,763 or 70%, to $746 compared to $2,509 for the six months ended June 30,
2001. These gains resulted from the Company's plans to continually sell surplus
equipment and vessels that have been replaced with more modern equipment. In the
six months ended June 30, 2002, the Company sold one vessel and other equipment,
resulting in proceeds of $1,359. In the six months ended June 30, 2001, the
Company sold four vessels and other equipment, resulting in proceeds of $2,486.
Interest income for the six months ended June 30, 2002 decreased $1,377 or 87%,
to $207 compared to $1,584 from the six months ended June 30, 2001. This
decrease was due to a decrease in the Company's average cash and cash
equivalents amounts during this period and lower interest rates in 2002.
Interest expense for the six months ended June 30, 2002 decreased $1,021 or
12.9%, to $6,916 compared to $7,937 from the six months ended June 30, 2001.
This is a result of higher capitalized interest on the construction of the
articulated tug/barge units during the first six months ended June 30, 2002 as
compared to 2001, which was offset by
20
additional interest expense on borrowings under the Company's Revolving credit
agreement as well as additional interest expense from MTC being included in
operations for more months in 2002 versus 2001.
Income tax expense for the six months ended June 30, 2002 decreased $6,731 or
191%, to an income tax benefit of $3,200 compared to income tax expense of
$3,531 for the six months ended June 30, 2001. The effective tax rate was 36%
and 42% for the six months ended June 30, 2002 and 2001, respectively. The
higher effective tax rate for the six months ended June 30, 2001 was the result
of the Company's inability to utilize foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
COMPARISON OF THE FINANCIAL CONDITION AS OF JUNE 30, 2002 AND JUNE 30, 2001
At June 30, 2002, the Company's cash and cash equivalents totaled $75,588
($17,490 at June 30, 2001). Net cash provided by continuing operations was
$14,201 for the six-month period ended June 30, 2002 compared with $13,275 for
the six-month period ended June 30, 2001.
Net cash used in discontinued operations was $943 for the six month period ended
June 30, 2002 compared to net cash provided of $5,896 for the six month period
ended June 30, 2001, which includes the receipt of $8,173 of proceeds from the
Company's sale of its South America liner services during the six months ended
June 30, 2001.
Net cash used in investing activities of continuing operations was $54,695 for
the six month period ended June 30, 2002 compared to $89,211 for the six month
period ended June 30, 2001. The decrease reflects the acquisition of Marine
Transport Corporation in the first quarter of 2001 for approximately $40,389,
while receiving proceeds of approximately $16,336 from the sale of MTL Petrolink
Corp. in the first quarter of 2002 and the increase in capital expenditures
($51,312 in 2002 compared to $46,748 in 2001) associated with the construction
and modernization of assets of the Company. The Company has spent $9,492 for
dry-docking for the six months ended June 30, 2002 compared to $1,779 for the
six months ended June 30, 2001. The Company also placed in escrow $8,937 of
Title XI and construction borrowings that will be used to reimburse the Company
for expenditures on four articulated tug/barge units.
Net cash provided by financing activities was $83,604 for the six-month period
ended June 30, 2002 compared to net cash used of $20,269 for the six-month
period ended June 30, 2001. This increase was a result of the Company's
receiving proceeds of $86,759 to finance the construction of four articulated
tug/barge units. The Company has borrowed $30,000 and repaid $15,000 on its
Revolving Credit Agreement in 2002 compared to borrowings of $1,500 and
repayments of $1,000 in 2001. This is offset by $5,788 higher debt issue costs
paid ($6,063 in 2002 compared to $275 in 2001) and $5,209 lower
21
principal payments ($11,928 in 2002 compared to $17,137 in 2001) on long term
debt.
CAPITAL RESOURCES
Management plans to continue its efforts to modernize the Company's fleet of
vessels. Many of the tugs and barges and a number of the tankers used in Oil and
Chemical Distribution and Transportation Services are more than two-thirds
through their estimated useful lives. Federal regulations are currently
requiring the phase-out of single hull oil barges and of single hull tankers
beginning in 2003. The majority of the Company's single hull oil barges will be
retired between 2003 and 2010 and eight of the Company's tankers will, unless
they are retrofitted with double hulls, be retired between 2003 and 2006.
Accordingly, the Company is consulting with its customers and developing plans
where justified by business prospects, to either refurbish the existing fleet of
tugs and barges, thereby extending their useful lives, or to purchase used
equipment or build new equipment which complies with current federal
regulations. At June 30, 2002, the Company is constructing four articulated
tug/barge units at a total cost of approximately $133,000.
Subsequent to the sale of MTL Petrolink Corp., the Company requested an
amendment to its $115,000,000 Amended and Restated Credit Agreement ("Revolver")
which effectively removed certain lease commitments and earnings before
interest, taxes, depreciation and amortization of MTL Petrolink Corp. from the
calculation from the Company's net debt (as defined in the Revolver) to earnings
before interest, taxes, depreciation and amortization ratio. This amendment is
effective as of July 23, 2002. As of June 30, 2002, the Company is in compliance
with all of its restrictive covenants.
In June 2002, the Company borrowed $58,207 of Title XI funds from the Department
of Transportation Maritime Administration. Principal is due semi-annually with
interest at a rate of 5.85% through 2027. All of the proceeds have been placed
in escrow, of which $51,270 is classified as restricted cash in cash and cash
equivalents and $6,937 is classified as Property and Equipment and is available
to reimburse the Company for future expenditures of the SEA RELIANCE/Barge 550-1
and the SOUND RELIANCE/Barge 550-2. The $51,270 of restricted cash was used to
repay $49,990 of construction financing in July 2002 and to reimburse the
Company for incurred expenditures. Since the Company borrowed these Title XI
funds to in part repay the $49,990 construction financing, the construction
financing is classified as a current liability at June 30, 2002.
On April 16, 2002 the Company finalized the terms of a floating rate
construction term loan facility (the "Facility") in the aggregate principal
amount of $61,327 for the OCEAN RELIANCE/Barge 550-3 and the COASTAL
RELIANCE/Barge 550-4 currently under construction. The Facility is guaranteed
pursuant to Title XI by the Maritime Administration of the United States of
America. Interest on outstanding borrowing is due semi-annually based on the
applicable commercial paper rate plus .3%. The Company intends to refinance this
debt with Title XI funds upon delivery of the OCEAN
22
RELIANCE/Barge 550-3 and the COASTAL RELIANCE/Barge 550-4 in 2003. The Company
has a commitment letter from the United States Department of Transportation
Maritime Administration for this refinancing of up to 87.5% of the actual cost.
The Company must fund the construction costs in advance and request
reimbursement from the Facility for eligible expenditures. As of June 30, 2002,
the Company had expended $44,828 on the construction of these vessels. In May
and July 2002, the Company borrowed $21,620 and $16,148, respectively, against
the Facility. In May 2002, the Company entered into a treasury rate lock
agreement with a notional amount of $64,000, which has the effect of locking
the underlying benchmark rate on the permanent financing for the OCEAN
RELIANCE/Barge 550-3 and the COASTAL RELIANCE/Barge 550-4 at 5.45%.
On April 29, 2002, the Company entered into an agreement to sell 100% of the
outstanding common stock of MTL Petrolink Corp. for $18,000, subject to certain
working capital adjustments, and on May 15, 2002, this transaction was
completed. MTL Petrolink Corp. was a subsidiary of Marine Transport Corporation.
Marine Transport Corporation was acquired by the Company on February 7, 2001.
Based on working capital adjustments to the purchase price contained in the sale
agreement and based on certain arrangements by which the Company agreed to
charter two tankers from MTL Petrolink Corp. and to the purchaser of MTL
Petrolink Corp. for a period of approximately 85 days commencing on May 15,
2002, the Company expects the net proceeds from the sale of MTL Petrolink Corp.
not to exceed $18,187.
The Company decided to consider the sale of MTL Petrolink Corp. subsequent to
its acquisition of Marine Transport Corporation and made no effort to separately
determine the fair value of MTL Petrolink Corp. at that time. Accordingly, the
Company has recorded the excess of the sales price, net of selling costs, over
the net asset value as a purchase price adjustment resulting in a reduction to
goodwill of $6,027.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect our results of operations and
financial condition. The Company's policy is to not use financial instruments
for trading purposes or other speculative purposes.
On May 29, 2002, the Company hedged a portion of its interest rate exposure by
entering into a rate lock agreement, which has the effect of locking the
underlying benchmark rate on the permanent financing for the OCEAN
RELIANCE/Barge 550-3 and the COASTAL RELIANCE/Barge 550-4 at 5.45%. The rate
lock agreement is designated as a cash flow hedge; therefore, the changes in
fair value, to the extent the rate lock agreement is effective, is recognized in
other comprehensive income (loss) until the debt is funded. Subsequent to
funding, the amount recorded in other comprehensive income (loss) will be
recognized as an adjustment to interest expense over the term of the underlying
debt agreement using the effective interest method. The fair value of the rate
23
lock agreement was recorded as a current accrued liability of $1,661 at June 30,
2002. For the six months ended June 30, 2002, the Company has recorded an
unrealized loss of $1,057, net of $604 deferred taxes, to other comprehensive
income as an interest rate hedge fair value adjustment. Amounts were determined
as of June 30, 2002 based on quoted mark to market values. The Company has not
reclassified any amounts into earnings during the three and six month periods
ended June 30, 2002.
During the second quarter of 2002, the Company began recognizing translation
losses on its assets in Venezuela due to the significant devaluation of the
Bolivar, the functional currency of Venezuela. As of June 30, 2002, the Company
has recorded a reduction to its property and equipment of $1,560 and recorded an
unrealized loss of $993, net of $567 deferred taxes to other comprehensive
income (loss). Amounts were determined as of June 30, 2002 based on the foreign
currency exchange rate of the Bolivar with the U.S. dollar.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 25, 2001, a complaint was filed in the Superior Court of the State of
California for the County of Alameda on behalf of Dennis Wood and a class
alleged to consist of certain holders of our common stock. The complaint named
us and each member of our board of directors as defendants and alleged, among
other things, that the defendants undertook certain actions to avoid subjecting
the Company to public reporting requirements and caused shares of the Company's
common stock to be purchased and sold at artificially low prices in connection
with the Company's tender offer announced on April 16, 2001. The plaintiff
originally asserted causes of action for breach of contract, breach of fiduciary
duty and unjust enrichment and seeks unspecified damages and injunctive relief.
The defendants subsequently answered the complaint and moved to dismiss the
breach of contract claim on the grounds that, based on the facts of the case,
the plaintiff could not properly allege such a claim as a matter of law. On
December 6, 2001, the court dismissed the breach of contract claim without leave
to amend.
On May 24, 2002, a hearing was held on plaintiff's motion to certify this case
as a class action. On June 10, 2002, the Court denied plaintiff's motion seeking
to certify this case as a class action. On June 26, 2002, the parties began
settlement negotiations. The Company expects that an agreement may be reached in
settlement of this litigation in the third quarter of 2002.
We do not believe that the ultimate resolution of this proceeding will have a
material adverse effect on our financial position or results of operations.
ITEM 5. OTHER INFORMATION.
In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is
responsible for disclosing any non-audit services approved by the Company's
audit committee to be performed by Deloitte & Touche LLP, the Company's external
auditor. Non-audit services are defined in the law as any professional services
provided to an issuer by a registered public accounting firm other than those
provided in connection with an audit or a review of the financial statements of
the Company.
On August 8, 2002, the Company's audit committee approved the engagement of
Deloitte & Touche LLP for the non-audit service of preparation of certain tax
returns.
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 Letter Agreement and Consents regarding $115,000,000 Amended
and Restated Credit Agreement
Exhibit 11 Statement regarding computation of per share earnings
(incorporated herein by reference to Note 5 to the Crowley
Maritime Corporation Unaudited Condensed Consolidated
Financial Statements in "Item 1. Financial Statements" of the
Form 10-Q)
Exhibit 99.1 Certification of the Principal Executive Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification of the Principal Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWLEY MARITIME CORPORATION
August 14, 2002 By: /s/ Thomas B. Crowley, Jr.
------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board, President and
Chief Executive Officer
August 14, 2002 By: /s/ Richard L. Swinton
------------------------------------
Richard L. Swinton
Vice President, Tax & Audit
25
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10 Letter Agreement and Consents regarding $115,000,000 Amended
and Restated Credit Agreement
11 Statement regarding computation of per share earnings
(incorporated herein by reference to Note 5 to the Crowley
Maritime Corporation Unaudited Condensed Consolidated
Financial Statements in "Item 1. Financial Statements" of the
Form 10-Q)
99.1 Certification of the Principal Executive Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Principal Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002
26