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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 September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission file number 0-49717
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 [X] No [ ]
As of November 14, 2002, 89,776 shares of voting common stock, $.01 par value
per share, were outstanding.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ............................................................... 2
Unaudited Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2002 and 2001............................. 3
Unaudited Condensed Consolidated Balance Sheets as of September 30,
2002 and December 31, 2001.......................................................... 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2002 and 2001....................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements for
the Three and Nine Months Ended September 30, 2002 and 2001......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................... 25
Item 4. Controls and Procedures.............................................................. 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 26
Item 6. Exhibits and Reports on Form 8-K..................................................... 26
SIGNATURES...................................................................................... 27
CERTIFICATIONS.................................................................................. 28
PART I-FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
2
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
OPERATING REVENUES $ 275,062 $ 285,025 $ 739,170 $ 754,628
EXPENSES:
Operating 225,645 243,533 649,473 659,999
General and administrative 10,138 8,488 27,063 25,306
Depreciation and amortization 13,550 13,437 40,519 38,076
--------- --------- --------- ---------
249,333 265,458 717,055 723,381
--------- --------- --------- ---------
OPERATING INCOME 25,729 19,567 22,115 31,247
OTHER INCOME (EXPENSE):
Gain (loss) on asset disposition, net (154) 1,920 592 4,429
Gain on involuntary conversion 3,897 -- 3,897 --
Interest income 285 332 492 1,916
Interest expense (4,348) (3,911) (11,264) (11,848)
Minority interest in consolidated subsidiaries (102) 152 374 731
Other income (expense) (51) 143 209 41
--------- --------- --------- ---------
(473) (1,364) (5,700) (4,731)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 25,256 18,203 16,415 26,516
Income tax expense 9,200 6,010 6,000 9,541
--------- --------- --------- ---------
NET INCOME 16,056 12,193 10,415 16,975
Preferred stock dividends (393) (439) (1,272) (1,409)
--------- --------- --------- ---------
NET INCOME ATTRIBUTABLE
TO COMMON SHAREHOLDERS $ 15,663 $ 11,754 $ 9,143 $ 15,566
========= ========= ========= =========
Basic earnings per common share $ 115.19 $ 86.29 $ 67.20 $ 114.60
Diluted earnings per common share $ 98.97 $ 74.77 $ 63.61 $ 103.32
The accompanying notes are an integral part of the Unaudited Condensed
Consolidated Financial Statements.
3
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
ASSETS
Cash and cash equivalents $ 31,206 $ 33,421
Receivables, net 153,504 133,965
Prepaid expenses and other assets 34,371 33,232
--------- ---------
TOTAL CURRENT ASSETS 219,081 200,618
Receivable from related party 16,472 15,975
Notes receivable and other assets 24,983 17,033
Goodwill 45,932 48,442
Intangibles 12,466 7,743
Property and equipment, net 549,628 514,055
--------- ---------
TOTAL ASSETS $ 868,562 $ 803,866
========= =========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 111,459 $ 110,524
Accrued payroll and related expenses 45,498 38,967
Insurance claims payable 17,334 17,880
Unearned revenue 9,769 8,227
Current portion of long-term debt 28,263 24,063
--------- ---------
TOTAL CURRENT LIABILITIES 212,323 199,661
Deferred income taxes 63,592 62,385
Deferred gain 6,026 8,035
Other liabilities 13,239 13,567
Long-term liabilities of discontinued operations 7,275 8,587
Minority interests in consolidated subsidiaries 4,823 5,426
Long-term debt 279,385 224,017
REDEEMABLE PREFERRED CLASS B STOCK, $100 par value, 200,000 shares
authorized; 23,671 shares issued and outstanding at December 31, 2001 -- 2,367
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred class A convertible stock, $100 par value, 315,000 shares issued,
authorized and outstanding 31,500 31,500
Common voting stock, $.01 par value, 4,485,000 shares authorized;
89,809 and 89,976 shares issued and outstanding at September 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 67,613 67,716
Retained earnings 189,594 180,604
Accumulated other comprehensive loss (6,809) --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 281,899 279,821
--------- ---------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY $ 868,562 $ 803,866
========= =========
The accompanying notes are an integral part of the Unaudited Condensed
Consolidated Financial Statements.
4
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS)
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------- -------------
OPERATING ACTIVITIES:
Net income $ 10,415 $ 16,975
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 40,519 38,076
Amortization of deferred gain on sale of vessels (2,009) (2,077)
Gain on asset disposition (592) (4,429)
Gain on involuntary conversion (3,897) --
Change in cash surrender value of life insurance 2,436 2,000
Deferred income tax provision 6,446 1,560
Changes in current assets and liabilities:
Receivables, net (23,250) (19,668)
Prepaid expenses and other current assets (4,330) (1,674)
Accounts payable and accrued liabilities (3,772) 1,291
Accrued payroll and related expenses 6,829 (6,190)
Other (946) 11,069
--------- ---------
Net cash provided by continuing operations 27,849 36,933
Net cash used in discontinued operations (1,209) (1,438)
--------- ---------
Net cash provided by operating activities 26,640 35,495
--------- ---------
INVESTING ACTIVITIES:
Property and equipment additions (74,408) (70,272)
Dry-docking costs (11,594) (2,550)
Proceeds from asset disposition 1,785 4,505
Proceeds from sale of MTL Petrolink Corp., net of cash sold 18,138 --
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) (2,979)
Receipts on notes receivable 306 172
--------- ---------
Net cash used in continuing operations (77,643) (111,513)
Net cash provided by discontinued operations -- 8,173
--------- ---------
Net cash used in investing activities (77,643) (103,340)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 102,906 --
Borrowings on Revolving Credit Facility 50,000 12,500
Repayments on Revolving Credit Facility (25,000) (6,000)
Payment of long-term debt (68,338) (23,969)
Debt issue costs paid (6,400) (508)
Payment of preferred stock dividends (1,757) (1,940)
Redemption of preferred stock (2,367) (2,372)
Proceeds from issuance of common stock -- 2,012
Retirement of common stock (256) (1,209)
--------- ---------
Net cash provided by (used in) financing activities 48,788 (21,486)
--------- ---------
Net decrease in cash and cash equivalents (2,215) (89,331)
Cash and cash equivalents at beginning of period 33,421 107,799
--------- ---------
Cash and cash equivalents at end of period $ 31,206 $ 18,468
========= =========
The accompanying notes are an integral part of the Unaudited Condensed
Consolidated Financial Statements.
5
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 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 of America 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 the results of
operations, financial condition and cash flows for the interim periods have been
made. Results of operations for the three month and nine month periods ended
September 30, 2002 are not necessarily indicative of the results that may 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. In accordance
with SFAS 133, as amended, these hedges are accounted for 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.
Recent Accounting Standards
SFAS 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
6
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 September 30, 2001 and $1,666 for the
nine months ended September 30, 2001. The proforma effects of not recording
goodwill amortization on net income and basic and diluted earnings per common
share for the three months and nine months ended September 30, 2001 are as
follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2001
------------- -------------
Net income $ 12,838 $ 18,641
Basic earnings per common share $ 91.02 $ 126.86
Diluted earnings per common share $ 78.74 $ 113.60
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.
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends FASB Statement No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of SFAS No. 145 related to the
rescission of SFAS No. 4 shall be applied in fiscal years beginning after May
15, 2002. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet the criteria in
Opinion 30 for classification as an extraordinary item shall be reclassified.
The provisions related to SFAS No. 13 shall be effective for transactions
occurring after May 15, 2002, with early application encouraged. The Company
does not expect the adoption of SFAS No. 145 to have a material impact on its
financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement nullifies Emerging Issues Task Force
No. 94-3 and requires that a liability for a cost associated with an exit or
disposal activity be
7
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
recognized only when the liability is incurred. SFAS No. 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. The
Company will adopt the standard effective January 1, 2003.
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's net proceeds from the sale of MTL Petrolink Corp. was $18,138.
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.
The Company decided to consider the sale of MTL Petrolink Corp. subsequent to
its acquisition of Marine Transport Corporation and made no effort separately to
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 in the amount of $2,510.
The following unaudited pro forma results of operations for the nine months
ended September 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, the
pro forma results are not necessarily indicative of the results that would have
occurred if the sale had occurred on February 7, 2001.
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------- -------------
Operating revenues $ 716,440 $ 690,430
Net income $ 10,910 $ 12,348
Basic earnings per common share $ 70.84 $ 80.53
Diluted earnings per common share $ 66.66 $ 74.78
8
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3 - GAIN ON INVOLUNTARY CONVERSION
In July 2002, a fire occurred in the engine room of one of the Company's
tankers. As a result of the fire, the extensive damages caused by it and the
short remaining useful life of the vessel, management decided not to repair the
vessel. The Company has received notification from its reinsurance underwriters
that it will receive insurance proceeds in the amount of $5,850 based upon the
damage to the vessel caused by the fire. Accordingly, the Company has recognized
a gain net of incurred costs from involuntary conversion of $3,897.
NOTE 4 - LONG-TERM DEBT
Subsequent to the sale of MTL Petrolink Corp., the Company requested and was
granted an amendment to its $115,000,000 Amended and Restated Credit Agreement
(the "Revolver") which 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 the
Company's earnings before interest, taxes, depreciation and amortization ratio.
This amendment became effective as of July 23, 2002. As of September 30, 2002,
the Company was in compliance with all of its covenants.
In June 2002, the Company received, pursuant to Title XI of the Merchant Marine
Act of 1936, a guaranty from the United States Department of Transportation,
Maritime Administration, of the repayment of $58,207 of debt issued by the
Company to finance the construction of two articulated tug/barge units, the SEA
RELIANCE/Barge 550-1 and the SOUND RELIANCE/Barge 550-2. Principal is due
semi-annually with interest at a fixed rate of 5.85% through 2027. In July 2002,
proceeds in the amount of $50,437 from the debt issued by the Company were used
to: (a) repay $49,990 of construction financing used for the construction of the
SEA RELIANCE/Barge 550-1 and the SOUND RELIANCE/Barge 550-2; and (b) reimburse
the Company for incurred expenditures. The remaining $7,770 has been placed in
escrow (with $833 classified as restricted cash in Cash and Cash Equivalents and
$6,937 classified as Property and Equipment) and is available to reimburse the
Company for incurred expenditures on these vessels.
9
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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. Repayment of the Facility is
guaranteed pursuant to Title XI of the Merchant Marine Act of 1936 by the United
States Department of Transportation, Maritime Administration. Interest on
outstanding borrowing is due semi-annually based on the applicable commercial
paper rate plus .3%, which is 1.81% at September 30, 2002. The Company intends
to refinance this debt with long term debt guaranteed pursuant to Title XI upon
delivery of the OCEAN RELIANCE/Barge 550-3 during the fourth quarter of 2002 and
the delivery of the COASTAL RELIANCE/Barge 550-4 during the first quarter of
2003 and has received a commitment letter from the United States Department of
Transportation, Maritime Administration, to guarantee the refinancing of up to
87.5% of the actual cost of these vessels. Until the vessels have been
delivered, the Company must fund the construction costs in advance and request
reimbursement from the Facility for eligible expenditures. As of September 30,
2002, the Company had expended $57,799 on the construction of these vessels. In
May and July 2002, the Company borrowed $21,620 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, 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
lock agreement was recorded as a current accrued liability of $8,041 at
September 30, 2002. For the nine months ended September 30, 2002, the Company
has recorded an unrealized loss of $5,146, net of $2,895 deferred taxes, to
other comprehensive income as an interest rate hedge fair value adjustment.
Amounts were determined as of September 30, 2002 based on quoted dealer market
values. The Company has not reclassified any amounts into earnings during the
three and nine month periods ended September 30, 2002.
10
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5 - COMPREHENSIVE INCOME
The following table provides a reconciliation of net income reported in our
unaudited condensed consolidated statements of operations to comprehensive
income:
2002 2001
-------- --------
THREE MONTHS ENDED SEPTEMBER 30:
Net income $ 16,056 $ 12,193
Other comprehensive income (loss):
Foreign currency translation adjustments,
net of tax of $368 (670) --
Rate lock agreement, net of tax of $2,291 (4,089) --
-------- --------
Comprehensive income $ 11,297 $ 12,193
======== ========
NINE MONTHS ENDED SEPTEMBER 30:
Net income $ 10,415 $ 16,975
Other comprehensive income (loss):
Foreign currency translation adjustments,
net of tax of $935 (1,663) --
Rate lock agreement, net of tax of $2,895 (5,146) --
-------- --------
Comprehensive income $ 3,606 $ 16,975
======== ========
NOTE 6 - EARNINGS PER SHARE
The computations for basic and diluted earnings per share for the three months
and nine months ended September 30, 2002 and 2001 are as follows:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Numerator:
Net income $ 16,056 $ 12,193 $ 10,415 $ 16,975
Less preferred dividends (393) (439) (1,272) (1,409)
--------- --------- --------- ---------
Net income for basic earnings
per common share 15,663 11,754 9,143 15,566
Plus preferred dividends 393 394 1,182 1,181
--------- --------- --------- ---------
Net income for diluted earnings
per common share $ 16,056 $ 12,148 $ 10,325 $ 16,747
========= ========= ========= =========
Denominator:
Basic weighted average shares 135,975 136,219 136,056 135,834
========= ========= ========= =========
Diluted weighted average shares 162,225 162,469 162,306 162,084
========= ========= ========= =========
Basic earnings per common share $ 115.19 $ 86.29 $ 67.20 $ 114.60
Diluted earnings per common share $ 98.97 $ 74.77 $ 63.61 $ 103.32
11
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7 - 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 nine months ended
September 30, 2002 and 2001.
Oil and
Ship Chemical
Assist Distribution Energy
and and and
Liner Escort Transportation Marine Segment Consolidated
Services Services Services Services Total Other Elimination Total
--------- --------- -------------- --------- --------- --------- ----------- ------------
THREE MONTHS ENDED
SEPTEMBER 30, 2002 (1)
Operating revenues $ 138,953 $ 17,555 $ 90,853 $ 27,701 $ 275,062 -- -- $ 275,062
Intersegment revenues 274 317 -- 7,088 7,679 $ 24,563 $ (32,242) --
Depreciation and
amortization 1,948 9 5,001 2,840 9,798 3,752 -- 13,550
Operating income 6,132 3,181 10,357 6,059 25,729 -- -- 25,729
THREE MONTHS ENDED
SEPTEMBER 30, 2001 (2)
Operating revenues $ 124,664 $ 18,022 $ 113,919 $ 28,420 $ 285,025 -- -- $ 285,025
Intersegment revenues 338 377 -- 7,865 8,580 $ 20,415 $ (28,995) --
Depreciation and
amortization 1,807 9 5,348 3,110 10,274 3,163 -- 13,437
Operating income (loss) (29) 2,838 12,047 4,711 19,567 -- -- 19,567
NINE MONTHS ENDED
SEPTEMBER 30, 2002 (1)
Operating revenues $ 390,636 $ 53,055 $ 226,014 $ 69,465 $ 739,170 -- -- $ 739,170
Intersegment revenues 1,135 931 -- 20,009 22,075 $ 70,530 $ (92,605) --
Depreciation and
amortization 5,487 27 15,409 8,641 29,564 10,955 -- 40,519
Operating income 6,621 8,907 5,709 878 22,115 -- -- 22,115
NINE MONTHS ENDED
SEPTEMBER 30, 2001 (2)
Operating revenues $ 376,794 $ 53,342 $ 265,325 $ 59,167 $ 754,628 -- -- $ 754,628
Intersegment revenues 894 1,267 -- 21,850 24,011 $ 64,214 $ (88,225) --
Depreciation and
amortization 5,687 27 13,453 9,551 28,718 9,358 -- 38,076
Operating income (loss) (613) 7,675 28,582 (4,397) 31,247 -- -- 31,247
- ----------
(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
$868,562 and $803,866 at September 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 NINE MONTHS ENDED SEPTEMBER 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 carriage of ocean 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.
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 SEPTEMBER 30, 2002
Operating revenues $246,518 $ 28,544 $275,062
THREE MONTHS ENDED SEPTEMBER 30, 2001
Operating revenues $257,467 $ 27,558 $285,025
NINE MONTHS ENDED SEPTEMBER 30, 2002
Operating revenues $660,591 $ 78,579 $739,170
Property and equipment, net 543,547 6,081 549,628
NINE MONTHS ENDED SEPTEMBER 30, 2001
Operating revenues $672,443 $ 82,185 $754,628
Property and equipment, net 481,850 8,469 490,319
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.
CRITICAL ACCOUNTING POLICIES
The preparation of the unaudited condensed consolidated financial statements,
upon which this "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is based, requires management to make estimates which
impact these unaudited condensed consolidated financial statements. The most
critical of these estimates and accounting policies relate to the long-lived
asset depreciation and amortization policies and impairment, revenue
recognition, and litigation and environmental reserves. In particular, the
accounting for these areas requires significant judgments to be made by
management. Different assumptions in the application of these policies could
result in material changes in the Company's consolidated financial position or
consolidated results of operations. Refer to "Note 1 - Summary of Significant
Accounting Policies" in the "Notes to Consolidated Financial Statements" and
"Critical Accounting Policies" in the "Management Discussion and Analysis of
Financial Condition and Results of Operations" 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 for details regarding all of
the Company's critical and significant accounting policies.
NEW ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends FASB Statement No. 13, Accounting for Leases,
to eliminate an
14
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The provisions of SFAS No. 145 related to the rescission of SFAS No.
4 shall be applied in fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in Opinion 30 for
classification as an extraordinary item shall be reclassified. The provisions
related to SFAS No. 13 shall be effective for transactions occurring after May
15, 2002, with early application encouraged. The Company does not expect the
adoption of SFAS No. 145 to have a material impact on its financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement nullifies Emerging Issues Task Force
No. 94-3 and requires that a liability for a cost associated with an exit or
disposal activity be recognized only when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company will adopt the standard effective January 1,
2003.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (DOLLARS IN
THOUSANDS)
Net income for the three months ended September 30, 2002 increased by $3,863 to
$16,056 compared with net income of $12,193 in the same period of the prior
year. The primary reason for this increase is an increase in operating income of
$6,162, (operating income of $25,729 versus $19,567 for the three months ended
September 30, 2002 and 2001, respectively), principally in the Liner Services
segment. In addition, the Company had lower gains on asset dispositions and
higher interest and income tax expense that were substantially offset by a gain
on involuntary conversion.
LINER SERVICES
Revenues from our Liner Services segment for the three months ended September
30, 2002 increased $14,289 or 11.5%, to $138,953 compared with $124,664 for the
third quarter in 2001. The increase in revenues is primarily attributable to a
17.8% increase in container and non-container volume, which was offset by an
8.4% decrease in average revenue per twenty-foot equivalent unit, or TEU,
("average revenue"). The Company's container and noncontainer volume during the
third quarter in 2002 and 2001 was 135,803 TEUs and 115,278 TEUs, respectively.
The Company experienced a 25.5% increase in the Puerto Rico and Eastern
Caribbean Islands Service container and noncontainer volume and a 9.3% increase
in container and noncontainer volume in the Latin America Service. In the third
quarter of 2002, the Company experienced an 8.4% average revenue decrease in the
Puerto Rico and Eastern Caribbean Islands Service and no change in the average
revenue in the Latin America Service compared with the third quarter of 2001.
The decrease in average revenue was due to competitive pressures.
15
Operating expenses for the three months ended September 30, 2002 increased
$6,577, or 5.6%, to $124,605 compared with $118,028 from the third quarter in
2001. These expenses consist primarily of fuel costs, purchased transportation
costs, equipment costs, maintenance and repair costs and labor costs. The
increase in operating expenses is directly attributable to the increase in
container and non-container volume, as noted above.
Depreciation and amortization for the three months ended September 30, 2002
increased $141, or 7.8%, to $1,948 compared with $1,807 from the third quarter
in 2001. The increase was directly attributable to an increase in dry-dock
amortization relating to additional vessels dry-docked in 2002.
As a result, the operating income for the three months ended September 30, 2002
from Liner Services increased $6,161 to $6,132 compared with an operating loss
of $29 for the three months ended September 30, 2001.
SHIP ASSIST AND ESCORT SERVICES
Revenues from our Ship Assist and Escort Services segment for the three months
ended September 30, 2002 decreased $467 or 2.6%, to $17,555 compared with
$18,022 for the three months ended September 30, 2001. The decrease was directly
attributable to a decrease in activity in Los Angeles/Long Beach, California and
Puget Sound, Washington, resulting in a decrease of approximately 5.6% in the
total vessel hours utilized by its vessel fleet (67,137 vessel hours compared
with 71,133 vessel hours). Vessel hours utilized is directly impacted by harbor
and oil trading activity.
Operating expenses for the three months ended September 30, 2002 decreased
$1,069 or 7.2%, to $13,801 compared with $14,870 from the third quarter in 2001.
The decrease was directly attributable to a decrease in fuel and crew costs as a
result of lower vessel utilization.
As a result, the operating income for the three months ended September 30, 2002
increased $343 to $3,181 compared with $2,838 for the three months ended
September 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 September 30, 2002 decreased $23,066 or
20.2%, to $90,853 compared with $113,919 for the three months ended September
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 (88.2%
compared with 95.3%). 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.
16
Operating expenses for the three months ended September 30, 2002 decreased
$20,269 or 21.4%, to $74,365 compared with $94,634 from the third quarter in
2001. The decrease was primarily attributable to the exclusion of the expenses
associated with MTL Petrolink Corp. for the three months ended September 30,
2002 compared with the three months ended September 30, 2001.
Depreciation and amortization for the three months ended September 30, 2002
decreased $347 or 6.5%, to $5,001 compared with $5,348 for the three months
ended September 30, 2001. The decrease was directly attributable to a decrease
arising from the retirement of a number of vessels, not including the operations
of MTL Petrolink Corp. in the three months ended September 30, 2002, and a
decrease from not recording goodwill amortization in 2002, in accordance with
SFAS 142. This decrease was partially offset by an increase in dry-dock
amortization for additional vessels dry-docked in 2002.
As a result, the operating income for the three months ended September 30, 2002
from Oil and Chemical Distribution and Transportation Services decreased $1,690
to $10,357 compared with $12,047 for the third quarter in 2001.
ENERGY AND MARINE SERVICES
Revenues from our Energy and Marine Services segment for the three months ended
September 30, 2002 decreased $719 or 2.5%, to $27,701 compared with $28,420 for
the three months ended September 30, 2001. The higher revenues in 2001 resulted
from a contract to transport a drilling facility from Alaska to Russia. The
impact of this contract was offset by a new contract in 2002 with a global
service provider for project barge transportation and other activities to
Russia. Contributing to the decrease in revenue was a decrease in vessel
utilization to 54% during the third quarter of 2002 compared with 68% during the
same quarter of 2001. Vessel utilization is very volatile and is impacted by oil
exploration activity and general economic conditions.
Operating expenses for the three months ended September 30, 2002 decreased
$2,623 or 9.5%, to $25,009 compared with $27,632 from the third quarter in 2001.
The decrease was directly attributable to the decrease in vessel utilization
which led to the decreased revenues noted above.
Depreciation and amortization for the three months ended September 30, 2002
decreased $270 or 8.7%, to $2,840 compared with $3,110 for the three months
ended September 30, 2001. The decrease was directly attributable to an increase
in the number of operating vessels and terminals which became fully depreciated
in 2002.
As a result, the operating income for the three months ended September 30, 2002
increased $1,348 to $6,059 compared with $4,711 for the three months ended
September 30, 2001.
17
OTHER INCOME (EXPENSE)
Gain (loss) on asset disposition for the three months ended September 30, 2002
decreased $2,074 or 108%, to a loss of $154 compared with a gain of $1,920 for
the three months ended September 30, 2001. These gains (losses) resulted from
the Company's plans to continually sell surplus equipment and vessels that have
been replaced with more modern equipment. In the third quarter of 2002, the
Company sold 1 vessel and other equipment, resulting in net proceeds of $426. In
the third quarter of 2001, the Company sold two vessels and other equipment,
resulting in proceeds of $2,019.
In July 2002, a fire occurred in the engine room of one of the Company's
tankers. As a result of the fire, the extensive damages caused by it and the
short remaining useful life of the vessel, management decided not to repair the
vessel. The Company has received notification from its insurance company that it
will receive insurance proceeds in the amount of $5,850 based upon the damage to
the vessel caused by the fire. Accordingly, the Company has recognized a gain
net of incurred costs from involuntary conversion of $3,897.
Interest income for the three months ended September 30, 2002 decreased $47 or
14.2%, to $285 compared with $332 from the third quarter in 2001. This decrease
was due to lower interest rates in 2002.
Interest expense for the three months ended September 30, 2002 increased $437 or
11.2%, to $4,348 compared with $3,911 from the third quarter in 2001. This is a
result of additional interest expense from increased borrowings under the
Company's revolving line of credit agreement.
Income tax expense for the three months ended September 30, 2002 increased
$3,190 or 53.1%, to $9,200 compared with $6,010 for the three months ended
September 30, 2001. The effective tax rate was 36% and 33% for the third quarter
of 2002 and 2001, respectively. The higher effective tax rate for the three
months ended September 30, 2001 was a result of the Company's inability to
utilize foreign tax credits.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (DOLLARS IN
THOUSANDS)
Net income for the nine months ended September 30, 2002 declined by $6,560 to a
net income of $10,415 compared with net income of $16,975 in the same period of
the prior year. The primary reason for this decline is a decrease in operating
income of $9,132 (operating income of $22,115 versus $31,247 for the nine months
ended September 30, 2002 and 2001, respectively), principally in the Oil and
Chemical Distribution and Transportation Services segment. In addition, the
Company had lower gains on asset dispositions and interest income that were
substantially offset by a gain on involuntary conversion and reduced income tax
expense.
18
LINER SERVICES
Revenues from our Liner Services segment for the nine months ended September 30,
2002 increased $13,842 or 3.7 %, to $390,636 compared with $376,794 for the nine
months ended September 30, 2001. The increase in revenues is primarily
attributable to a 9.0% increase in container and noncontainer volume, which was
offset by a 9.6% decrease in average revenue per TEU ("average revenue"). The
Company's container and noncontainer volume during the nine months ended
September 30, 2002 and 2001 was 376,141 TEUs and 345,155 TEUs, respectively. The
Company experienced a 13.7% increase in the Puerto Rico and Eastern Caribbean
Islands Service container and noncontainer volume and a 3.7% increase in
container and noncontainer volume in the Latin America Service. In the nine
months ended September 30, 2002, the Company experienced a 7.7% average revenue
decrease in the Puerto Rico and Eastern Caribbean Islands Service and a 1.9%
average revenue decrease in the Latin America Service compared with the nine
months ended September 30, 2001. The decrease in average revenue was due to
competitive pressures. This decrease in average revenue was offset by an
increase in other logistical service revenues.
Operating expenses for the nine months ended September 30, 2002 increased
$5,350, or 1.5%, to $361,857 compared with $356,507 for the nine months ended
September 30, 2001. These expenses consist primarily of fuel costs, purchased
transportation costs, equipment costs, maintenance and repair costs and labor
costs. The increase in operating expenses is directly attributable to the
increase in container and non-container volume, as noted above.
Depreciation and amortization for the nine months ended September 30, 2002
decreased $200, or 3.5%, to $5,487 compared with $5,687 from the nine months
ended September 30, 2001. The reduction in depreciation was due to the sale of
container and trailer equipment in 2001, which was partially offset by an
increase in dry-dock amortization for additional vessels dry-docked in 2002.
As a result, the operating income for the nine months ended September 30, 2002
from Liner Services increased $7,234 to $6,621 compared with an operating loss
of $613 for the nine months ended September 30, 2001.
SHIP ASSIST AND ESCORT SERVICES
Revenues from our Ship Assist and Escort Services segment for the nine months
ended September 30, 2002 decreased $287 or .5%, to $53,055 compared with $53,342
for the nine months ended September 30, 2001. The decrease was directly
attributable to a decrease in activity in Puget Sound, Washington and Los
Angeles/Long Beach, California during the nine months, resulting in an overall
decrease of approximately 3.9% in the total vessel hours utilized by its vessel
fleet (202,788 vessel hours compared with 210,973 vessel hours). Vessel hours
utilized is directly impacted by harbor and oil trading activity.
19
Operating expenses for the nine months ended September 30, 2002 decreased $2,230
or 5%, to $42,620 compared with $44,850 from the nine months ended September 30,
2001. The decrease was directly attributable to the decrease in vessel related
costs due to decreased utilization hours, with the largest component being a
decrease in fuel costs.
As a result, the operating income for the nine months ended September 30, 2002
increased $1,232 to $8,907 compared with $7,675 for the nine months ended
September 30, 2001.
OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES
Revenues from our Oil and Chemical Distribution and Transportation Services
segment for the nine months ended September 30, 2002 decreased $39,311 or 14.8%,
to $226,014 compared with $265,325 for the nine months ended September 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 (70.0% compared with
80.1%). As a result of the sale of MTL Petrolink Corp., only 4.5 months of the
results of its operations were included in the Company's consolidated results
for the nine months ended September 30, 2002 as opposed to 7.5 months of
operations which were included in the Company's consolidated results for the
nine months ended September 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 combined with
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 during the first quarter of 2002.
Operating expenses for the nine months ended September 30, 2002 decreased
$15,869 or 7.3%, to $202,119 compared with $217,988 from the nine months ended
September 30, 2001. This decrease was primarily attributable to reduced expenses
associated with MTL Petrolink Corp., reduced activity due to declining oil
shipments as discussed above and a decrease in vessel related costs due to
decreased vessel utilization. The increase was offset by the acquisition of MTC
in 2001, which resulted in the inclusion of a full 9 months of expenses in the
Company's operations in 2002 versus the inclusion of only 7.5 months of expenses
in 2001.
Depreciation and amortization for the nine months ended September 30, 2002
increased $1,956 or 14.5%, to $15,409 compared with $13,453 for the nine months
ended September 30, 2001. The increase was directly attributable to the
acquisition of MTC, which resulted in additional depreciation expense in 2002
because MTC's operations were included for a full 9 months in 2002 versus 7.5
months in 2001, and an increase in dry-dock amortization for vessels dry-docked
in 2002. This increase was partially offset
20
by a decrease arising from the exclusion of the operations of MTL Petrolink
Corp. from the three months ended September 30, 2002 and a decrease from not
recording goodwill amortization in 2002, in accordance with SFAS 142.
As a result, the operating income for the nine months ended September 30, 2002
from Oil and Chemical Distribution and Transportation Services decreased $22,873
to $5,709 compared with $28,582 from the nine months ended September 30, 2001.
ENERGY AND MARINE SERVICES
Revenues from our Energy and Marine Services segment for the nine months ended
September 30, 2002 increased $10,298 or 17.4%, to $69,465 compared with $59,167
for the nine months ended September 30, 2001. The increase was directly
attributable to: (a) a strong exploration season during 2002 in Alaska and
non-recurring demobilization fees related to contracts performed in Hawaii and
Alaska; and (b) the commencement of services under 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 partially offset by a
decrease in vessel utilization. Vessel utilization during the nine months ended
September 30, 2002 was 44% compared with 56% during the nine months ended
September 30, 2001. Vessel utilization is very volatile and it is impacted by
oil exploration activity and general economic conditions.
Operating expenses for the nine months ended September 30, 2002 increased $4,221
or 5.8%, to $77,548 compared with $73,327 from the nine months ended September
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 nine months ended September 30, 2002
decreased $910 or 9.5%, to $8,641 compared with $9,551 for the nine months ended
September 30, 2001. The decrease was directly attributable to an increase in the
number of operating vessels and terminals that became fully depreciated in 2002.
As a result, the operating income for the nine months ended September 30, 2002
increased $5,275 to $878 compared with an operating loss of $4,397 for the nine
months ended September 30, 2001.
OTHER INCOME (EXPENSE)
Gain on asset disposition for the nine months ended September 30, 2002 decreased
$3,837 or 86.6%, to $592 compared with $4,429 for the nine months ended
September 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 nine months ended September 30, 2002, the Company sold two
vessels and other equipment, resulting in proceeds of $1,785. In the nine months
ended September 30, 2001, the Company sold six vessels and other equipment,
resulting in proceeds of $4,505.
21
In July 2002, a fire occurred in the engine room of one of the Company's
tankers. As a result of the fire, the extensive damages caused by it and the
short remaining useful life of the vessel, management decided not to repair the
vessel. The Company has received notification from its insurance company that it
will receive insurance proceeds in the amount of $5,850 based upon the damage to
the vessel caused by the fire. Accordingly, the Company has recognized a gain
net of incurred costs from involuntary conversion of $3,897.
Interest income for the nine months ended September 30, 2002 decreased $1,424 or
74.3%, to $492 compared with $1,916 from the nine months ended September 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 nine months ended September 30, 2002 decreased $584 or
4.9%, to $11,264 compared with $11,848 from the nine months ended September 30,
2001. This is a result of higher capitalized interest on the construction of the
articulated tug/barge units during the first nine months ended September 30,
2002 as compared with 2001, which was offset by additional interest expense on
borrowings under the Company's revolving credit agreement as well as additional
interest expense arising from the inclusion of MTC's operations for more months
in 2002 than in 2001 (MTC was purchased in February of 2001).
Income tax expense for the nine months ended September 30, 2002 decreased $3,541
or 37.1%, to $6,000 compared with income tax expense of $9,541 for the nine
months ended September 30, 2001. The effective tax rate was 37% and 36% for the
nine months ended September 30, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Funds provided from operations and borrowings have historically been the sources
for meeting working capital requirements and financing capital expenditures.
At September 30, 2002, the Company's cash and cash equivalents totaled $31,206
compared with $18,468 at September 30, 2001. Net cash provided by continuing
operations was $27,849 for the nine month period ended September 30, 2002
compared with $36,933 for the nine month period ended September 30, 2001.
Net cash used in discontinued operations was $1,209 for the nine month period
ended September 30, 2002 compared with net cash provided of $6,735 for the nine
month period ended September 30, 2001, which includes the receipt of $8,173 of
proceeds during the nine months ended September 30, 2001 related to the
Company's sale of its South America liner services in January 2000.
Net cash used in investing activities for continuing operations was $77,643 for
the nine month period ended September 30, 2002 compared with $111,513 for the
nine month period ended September 30, 2001. The decrease reflects the
acquisition of Marine
22
Transport Corporation in the first quarter of 2001 for approximately $40,389,
while receiving proceeds of approximately $18,138 from the sale of MTL Petrolink
Corp. in the second and third quarters of 2002 and the increase in capital
expenditures ($74,408 in 2002 compared with $70,272 in 2001) associated with the
construction and modernization of assets of the Company. The Company has spent
$11,594 for dry-docking for the nine months ended September 30, 2002 compared
with $2,550 for the nine months ended September 30, 2001. During the second
quarter of 2002, the Company also placed in escrow $8,937 generated by: (a) the
issuance of debt guaranteed pursuant to Title XI of the Merchant Marine Act of
1936, by the United States Department of Transportation, Maritime
Administration; and (b) construction borrowings that will be used in each case
to reimburse the Company for expenditures on four articulated tug/barge units.
Net cash provided by financing activities was $48,788 for the nine month period
ended September 30, 2002 compared with net cash used of $21,486 for the nine
month period ended September 30, 2001. This increase was a result of the receipt
by the Company of proceeds of $102,906 to finance the construction of four
articulated tug/barge units. The Company has borrowed $50,000 and repaid $25,000
on its Revolving Credit Agreement in 2002 compared with borrowings of $12,500
and repayments of $6,000 in 2001. This is offset by $5,892 in higher debt issue
costs paid ($6,400 in 2002 compared with $508 in 2001) and $44,369 in higher
principal payments ($68,338 in 2002, which includes the repayment of $49,990 of
construction financing used for the construction of the SEA RELIANCE/Barge 550-1
and the SOUND RELIANCE/Barge 550-2, compared with $23,969 in 2001) on long term
debt.
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 currently require 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 five of the Company's tankers will be retired between
2003 and 2006. Accordingly, the Company is consulting with its customers and
developing plans where justified by business prospects, either to refurbish the
existing fleet of tugs, barges and tankers, thereby extending their useful
lives, or to purchase used equipment or build new equipment which complies with
current federal regulations. At September 30, 2002, the Company continues to
construct two articulated tug/barge units, the OCEAN RELIANCE/Barge 550-3 and
the COASTAL RELIANCE/Barge 550-4 at a total cost of approximately $65,000. The
Company has taken delivery of the first two articulated tug/barge units, the SEA
RELIANCE/Barge 550-1 and the SOUND RELIANCE,/Barge 550-2 in the third quarter of
2002. These units are being operated by the Oil and Chemical Distribution and
Transportation Services.
Subsequent to the sale of MTL Petrolink Corp., the Company requested and was
granted an amendment to its $115,000,000 Amended and Restated Credit Agreement
(the "Revolver") which removed certain lease commitments and earnings before
interest, taxes, depreciation and amortization of MTL Petrolink Corp. from the
calculation for the Company's net debt (as defined in the Revolver) to earnings
before interest,
23
taxes, depreciation and amortization ratio. This amendment became effective as
of July 23, 2002. As of September 30, 2002, the Company is in compliance with
all of its covenants.
In June 2002, the Company received, pursuant to Title XI of the Merchant Marine
Act of 1936, a guaranty from the United States Department of Transportation,
Maritime Administration, of the repayment of $58,207 of debt issued by the
Company to finance the construction of two articulated tug/ barge units, the SEA
RELIANCE/Barge 550-1 and the SOUND RELIANCE,/Barge 550-2. Principal is due
semi-annually with interest at a fixed rate of 5.85% through 2027. In July 2002,
proceeds in the amount of $50,437 from the debt issued by the Company were used
to: (a) repay $49,990 of construction financing used for the construction of the
SEA RELIANCE/Barge 550-1 and the SOUND RELIANCE/Barge 550-2; and (b) reimburse
the Company for incurred expenditures. The remaining $7,770 has been placed in
escrow (with $833 classified as restricted cash in Cash and Cash Equivalents and
$6,937 classified as Property and Equipment) and is available to reimburse the
Company for incurred expenditures on these vessels.
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. Repayment of the Facility is
guaranteed pursuant to Title XI of the Merchant Marine Act of 1936 by the United
States Department of Transportation, Maritime Administration. Interest on
outstanding borrowing is due semi-annually based on the applicable commercial
paper rate plus .3%, which is 1.81% at September 30, 2002. The Company intends
to refinance this debt with long term debt guaranteed pursuant to Title XI upon
delivery of the OCEAN RELIANCE/Barge 550-3 during the fourth quarter of 2002 and
the delivery of the COASTAL RELIANCE/Barge 550-4 during the first quarter of
2003 and has received a commitment letter from the United States Department of
Transportation Maritime Administration to guarantee the refinancing of up to
87.5% of the actual cost of these vessels. Until the vessels have been
delivered, the Company must fund the construction costs in advance and request
reimbursement from the Facility for eligible expenditures. As of September 30,
2002, the Company had expended $57,799 on the construction of these vessels. In
May and July 2002, the Company borrowed $21,620 and $16,148, respectively,
against the Facility.
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's net proceeds from the sale of MTL Petrolink Corp. were
$18,138.
24
The Company decided to consider the sale of MTL Petrolink Corp. subsequent to
its acquisition of Marine Transport Corporation and made no effort separately to
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 $2,510.
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 the results of our operations
and financial condition. The Company's policy is not to 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
lock agreement was recorded as a current accrued liability of $8,041 at
September 30, 2002. For the nine months ended September 30, 2002, the Company
has recorded an unrealized loss of $5,146, net of $2,895 deferred taxes, to
other comprehensive income as an interest rate hedge fair value adjustment.
Amounts were determined as of September 30, 2002 based on quoted dealer market
values. The Company has not reclassified any amounts into earnings during the
three and nine month periods ended September 30, 2002.
During the second quarter of 2002, the Company recognized translation losses on
its net assets in Venezuela into other comprehensive income due to the
functional currency being identified as the Venezuelan Bolivar. For the three
months ended September 30, 2002, the Company has recorded a reduction to its
assets and liabilities in the amount of $1,038 and recorded an unrealized loss
of $670, net of $368 in deferred taxes to other comprehensive income (loss). For
the nine months ended September 30, 2002, the Company has recorded a reduction
to its assets and liabilities in the amount of $2,598 and recorded an unrealized
loss of $1,663, net of $935 deferred taxes to other comprehensive income (loss).
Amounts were determined as of September 30, 2002 based on the foreign currency
exchange rate of the Bolivar with the U.S. dollar.
25
ITEM 4. CONTROLS AND PROCEDURES.
The Company's management, including its principal executive officer (who is the
Chief Executive Officer) and the principal financial officer (who is the Vice
President, Tax and Audit), have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the principal executive officer and the principal financial
officer concluded that the disclosure controls and procedures are effective in
ensuring that all material required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date of their evaluation.
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. On October 4, 2002, the entire matter was settled and
the complaint was dismissed with prejudice. Neither the Company nor any members
of the Board of Directors paid any damages or other amounts to the plaintiff.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 Statement regarding computation of per share earnings*
26
Exhibit 99.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350
Exhibit 99.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350
- ----------
* Refer to Note 6 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Item 1. Financial Statements" of
this Form 10-Q.
(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
(Registrant)
November 14, 2002 By: /s/ Thomas B. Crowley, Jr.
-------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board,
President and Chief Executive Officer
November 14, 2002 By: /s/ Richard L. Swinton
-------------------------------------
Richard L. Swinton
Vice President, Tax & Audit
27
CERTIFICATIONS
I, Thomas B. Crowley, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crowley Maritime
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors
28
that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Thomas B. Crowley, Jr.
-------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board,
President and Chief Executive Officer
29
I, Richard L. Swinton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crowley Maritime
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most
30
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Richard L. Swinton
-------------------------------------
Richard L. Swinton
Vice President, Tax & Audit
31
EXHIBIT INDEX
Exhibit
Number Description
11 Statement regarding computation of per share earnings*
99.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350
- ----------
* Refer to Note 6 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Item 1. Financial Statements" of
this Form 10-Q.