CROWLEY MARITIME CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
incorporation or organization) Identification No.)
155 GRAND AVENUE, 94612
OAKLAND, CALIFORNIA (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(510) 251-7500

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)

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. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [ ] Yes [X] No

The aggregate market value of the shares of the registrant's $0.01 par
value voting common stock held by non-affiliates of the registrant as of June
28, 2002 was $26,283,142.40 (based upon $1,258 per share being the average of
the closing bid and asked price on June 28, 2002 as reported in the Pink
Sheets). In making this calculation the issuer has assumed, without admitting
for any purpose, that all directors of the registrant are affiliates.

As of March 17, 2003, 89,710 shares of voting common stock, $.01 par value
per share and 46,138 shares of Class N non-voting common stock, $.01 par value
per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under Part III, Items 10, 11, 12, and 13 of this
Report is, pursuant to General Instruction G(3), incorporated by reference from
the registrant's definitive proxy statement filed with the Securities and
Exchange Commission pursuant to Regulation 14A for the 2003 annual meeting of
stockholders (the "2003 Proxy Statement") that will be filed no later than 120
days after the end of the year to which this report relates.
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TABLE OF CONTENTS

Certain statements in this Form 10-K and its Exhibits ("Form 10-K") contain
or may contain information that is forward looking within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
may differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors, including, without
limitation, the risks described in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Risk Factors" of this Form
10-K. Readers should carefully review this Form 10-K in its entirety, including,
but not limited to, Crowley Maritime Corporation's consolidated financial
statements and the notes thereto. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.

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PART I

ITEM 1. BUSINESS

Unless otherwise noted, references to "the Company", "we", "our" or "us"
means Crowley Maritime Corporation, a Delaware corporation, and its
subsidiaries. Our principal executive offices are located at 155 Grand Avenue,
Oakland, California 94612, and our telephone number is (510) 251-7500. The
Company's web site is http://www.crowley.com. Information contained on the
Company's web site is not part of this report.

COMPANY OVERVIEW

We provide diversified transportation services in domestic and
international markets by means of four operating lines of business: Liner
Services; Ship Assist and Escort Services; Oil and Chemical Distribution and
Transportation Services; and Energy and Marine Services. Liner Services provides
scheduled marine transportation services between designated ports, certain
complementary inland transportation services, terminal operations, vessel
management for third parties, and varied logistics management services. Ship
Assist and Escort Services provides ship assist, tanker escort, docking, fire
fighting and oil spill response services primarily in ports located on the west
coast of the continental United States and in Alaska. Ship Assist and Escort
Services also provides emergency towing services. Oil and Chemical Distribution
and Transportation Services transports crude oil, petroleum products and
chemicals among ports on the east and west coasts of the United States, Alaska,
the Gulf of Mexico and Puerto Rico. This segment also manages vessels for third
party owners, operates tank farms and distributes and sells fuel oil in Alaska.
Energy and Marine Services provides specialized services to companies engaged in
the exploration, production and distribution of oil and gas including project
management and logistics, inventory control and emergency response services. The
Company supports all four of its segments by providing corporate services,
supervising construction of new vessels, and owning vessels which are chartered
for use in our operating lines of business. The Company arranges most of the
insurance required for its operations through its captive insurance company.

The Company employs approximately 3,900 people and provides its services
using a fleet of more than 280 vessels, consisting of RO/RO (roll on roll off)
vessels, LO/LO (lift on lift off) vessels, tankers, tugs and barges. Our
land-based facilities and equipment includes terminals, warehouses, tank farms,
office buildings, trucks, trailers, containers, chassis, cranes and other
specialized vehicles.

The grandfather of our current President, Mr. Thomas B. Crowley, Jr., began
our business on the San Francisco Bay in 1892. The business was incorporated in
the State of Delaware as "Crowley Maritime Corporation" on December 1, 1972. The
present structure, in which Crowley Maritime Corporation is a holding company
for our lines of business, was put in place in 1992.

The Company is predominantly owned by certain members of the Crowley family
and Company employees and its shares do not trade on any national securities
exchange or in any market. See "Security Ownership of Certain Beneficial Owners
and Management" in the 2003 Proxy Statement, and "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters" and Risk Factors in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".

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The following table lists the Company's owned, managed and chartered
vessels as of December 31, 2002:

For additional information about the Company's lines of business, see "Item
1. Business -- Liner Services", "Item 1. Business -- Ship Assist and Escort
Services", "Item 1. Business -- Oil and Chemical Distribution and Transportation
Services", and "Item 1. Business -- Energy and Marine Services" below, and Note
17 of the Notes to the Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data".

LINER SERVICES

Liner Services provides scheduled marine transportation services between
designated ports for the carriage of cargo including containers, trailers,
vehicles and oversized cargo, and performs logistics, warehousing, distribution
and special cargo handling services, including the carriage of apparel,
refrigerated perishable goods and hazardous materials. At December 31, 2002,
Liner Services provided service to approximately 25 countries in the Caribbean,
Central America and South America with 35 ocean going ships, tugs and barges
capable of carrying approximately 11,700 twenty foot equivalent units, or TEUs.
Liner Services also leases space for approximately 800 TEU slots on three
vessels under vessel sharing agreements. Liner Services owns or leases
approximately 37,000 pieces of intermodal equipment including containers,
trailers, and chassis. Liner Services also provides third party vessel
management services for eight vessels.

THE PUERTO RICO AND EASTERN CARIBBEAN ISLANDS SERVICE

Our Puerto Rico and Eastern Caribbean Islands service provides scheduled
liner services between:

- ports in the United States North Atlantic and ports in Puerto Rico, and

- ports in the United States South Atlantic and ports in Puerto Rico, U.S.
Virgin Islands, certain Eastern Caribbean Islands and the Bahamas.

The fleet for this service consists of nine triple-deck RO/RO barges. Five
of these barges are 730 feet in length, with an average capacity of 924 TEUs.
The remaining four barges are 580 feet in length with an

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average capacity of 617 TEUs. The nine barges are towed by a fleet of eleven
offshore tugs owned by us. This service also uses one barge for additional dock
space. Departures are normally scheduled for three or four times a week from
Jacksonville, Florida and once a week from Pennsauken, New Jersey. This service
also provides third party vessel management services for eight vessels.

The Eastern Caribbean Islands service calls on two ports in the Virgin
Islands, three ports in the Eastern Caribbean and also provides service to
various other ports through connecting carriers. This service uses two time
chartered LO/LO vessels. The average capacity of these vessels is 530 TEUs.
Departures are scheduled from Jacksonville and Port Everglades, Florida once a
week.

The Bahamas service uses a time chartered RO/RO vessel having a capacity of
approximately 191 TEUs. This service has two scheduled departures a week from
Jacksonville and Port Everglades, Florida to Nassau, Bahamas.

THE LATIN AMERICA SERVICE

Our Latin American Service provides scheduled liner services between:

- ports in the United States South Atlantic and ports in the Northern Zone
of Central America, the Southern Zone of Central America, the Dominican
Republic, Mexico and Cuba; and

- ports in the Gulf of Mexico and ports in the Northern Zone of Central
America, the Northern Coast of South America and Cuba.

The United States South Atlantic to the Northern Zone of Central America
service employs three time chartered RO/RO vessels with an average capacity of
320 TEUs. This service has three weekly sailings between Port Everglades,
Florida and ports in Guatemala and Honduras with overland services to Nicaragua
and El Salvador.

The United States South Atlantic to the Southern Zone of Central America
service employs two time chartered RO/RO vessels with an average capacity of 350
TEUs maintaining weekly sailings between Port Everglades, Florida, Costa Rica,
Panama and Guatemala northbound, and one time chartered RO/RO vessel with
capacity of 140 TEUs providing weekly service between Port Everglades and Costa
Rica.

The Gulf of Mexico to the Northern Zone of Central America service employs
two time chartered RO/RO vessels, with an average capacity of 350 TEUs. This
service (a) has twice weekly sailings from Gulfport, Mississippi to Honduras and
Guatemala with overland services to Nicaragua and El Salvador; and (b) calls
upon Cuba three or four times a month depending on cargo demand.

The United States South Atlantic to the Dominican Republic service employs
two time chartered RO/RO vessels, with an average capacity of 290 TEUs. The
service has two sailings a week between Port Everglades, Florida and the
Dominican Republic.

The United States South Atlantic to Mexico service employs one time
chartered LO/LO vessel with a capacity of 280 TEUs. The service (a) offers one
sailing every ten days between Jacksonville and Port Everglades, Florida to
Progresso and Veracruz, Mexico; and (b) calls upon Cuba two or three times a
month depending on cargo demand.

The Gulf Latin America Service is operated under a Vessel Sharing Agreement
with Lykes Lines Limited LLC, a subsidiary of Canadian Pacific Ltd., APL Limited
as agent for and on behalf of American President Lines, Ltd. and TMM Lines
Limited, LLC. Three LO/LO vessels with an aggregate capacity of approximately
1,100 to 1,300 TEUs are chartered in and managed by Lykes for this service
between ports in Houston, Texas and ports in Mexico, Costa Rica, Colombia,
Venezuela and the Dominican Republic. The Company pays for and uses
approximately 24% of the total container space in this service. Although the
Vessel Sharing Agreement expires on July 1, 2003, we expect its term to be
extended.

Time charters for the vessels used in the services described above expire
between 2003 and 2004. Vessels of the type time chartered by the Company for
these services have been readily available and it has not been

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difficult to charter new vessels or renew the charters for existing vessels. By
chartering the vessels required on a short-term basis the Company is able to
react quickly to changes in cargo volume.

Liner Services provides logistics services in Brazil, Venezuela, Colombia,
Panama, Costa Rica, Honduras, Guatemala, El Salvador, Nicaragua, Mexico and the
United States. Logistics services include:

- trucking in the United States, the Northern part of South America and
Central America;

- providing facilities including marine terminals, trailer containers and
chassis, trailer and container yards, warehouses, and distribution
centers;

- freight booking and documentation;

- freight forwarding and non-vessel owning common carrier and warehousing
services; and

- other logistics optimization activities intended to create efficiencies
in the carriage of goods.

At December 31, 2002, Liner Services owned or leased, on a longterm basis,
marine terminals and container yards in the locations listed in the table below.
In those ports where the Company does not own or lease terminals or container
yards, it depends upon common use terminals.

MARINE TERMINALS AND CONTAINER YARDS

The Company also leases warehouse and distribution space in several
locations in Northern South America, Central America and the United States as
listed in the table below.

WAREHOUSE AND DISTRIBUTION SPACE

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CONTRACT SERVICES

The Company conducts its contract services through three separate lines of
business: Ship Assist and Escort Services, Oil and Chemical Distribution and
Transportation Services and Energy and Marine Services. The activities of these
three lines of business are described in more detail below. Each of these lines
of business uses tugs and barges for its operations which, depending upon market
conditions, may be shifted and redeployed by the Company among different
geographical locations and among the different lines of business. It is the
Company's practice to regularly monitor the demands for the services of each of
these lines of business and to transfer tugs and barges among them based upon
prevailing market conditions. In addition to using tugs and barges (including
articulated and integrated tug/barges), Oil and Chemical Distribution and
Transportation Services also uses a fleet of tankers which, as a general matter,
are not well suited for use by either Ship Assist and Escort Services or Energy
and Marine Services.

SHIP ASSIST AND ESCORT SERVICES

Ship Assist and Escort Services provides ship assist, tanker escort,
docking and related services in San Diego, Los Angeles and Long Beach,
California, Puget Sound, Washington and Valdez, Alaska. Included within its
fleet are 29 tugs ranging in length from 85 feet to 150 feet with between 3,500
and 10,192 brake horsepower, and 62 barges of various sizes, capacities and
capabilities. In addition to ship assist and escort services, the tugs and
barges based in Valdez, Alaska are capable of providing fire fighting and oil
spill response services. The Ship Assist and Escort barges are predominantly
used for these response services. The tugs operating in San Diego, Los Angeles
and Long Beach, California and Puget Sound, Washington primarily provide
assistance to large tankers and container vessels as they enter and depart from
west coast harbors.

Numerous vessels which call upon or trade between United States ports are
precluded, due to their size, the nature of their cargo or by the application of
local regulations from coming within certain distances of the docks where they
load or discharge their cargoes without the assistance of one or more tugs. The
number of tugs required and the distance at which they must be engaged vary
depending upon the port which is called. According to certain regulations
intended to protect the environment which apply to ports located in Alaska,
Washington and California, tankers loaded with full or partial cargoes of oil
are not permitted to enter or leave these ports unless they are escorted by one
or more tugs. These tugs are equipped to assume control of the tankers escorted
by them in the event that the tankers lose navigational control due to the loss
of power or otherwise. In certain cases, these escort tugs are tethered to the
tankers that they escort and in certain cases they operate without a tether but
within a prescribed distance of the escorted tanker. Our escort tugs typically
relinquish responsibility for escorted tankers either at the time that the
tankers have passed beyond the jurisdictional boundaries of the port or when the
tankers have been met by docking tugs. Our Ship Assist and Escort tugs generally
employ three to six crew members and are available 24 hours a day seven days a
week to respond to calls for their services. All of our tugs are constructed of
steel and each is powered by one or more diesel engines. After our ship assist
tugs have met the vessel which they will be assisting as it approaches or
departs from its designated dock, the assisted vessel generally decreases the
use of its own propulsion system and relies upon our tugs for the maneuvers
required to tie up and depart from a dock safely. All of our tugs are fitted and
equipped with special fenders and other equipment which allows them to maintain
contact with the vessel which is being served without damaging its hull.
Depending upon the demand for their services, it is our practice to keep between
two and seven tugs positioned in the ports which we serve.

We currently provide various marine services to the Alyeska Pipeline
Service Company ("Alyeska") pursuant to a long-term master time charter and
other related agreements. Alyeska is owned by a group of major oil companies or
their subsidiaries including BP Pipelines (Alaska) Inc., Phillips Transportation
Alaska, Inc. and ExxonMobil Pipeline Company. Our relationship with Alyeska
began in the early 1970s during construction of the Trans-Alaska Pipeline and we
have had formal agreements with Alyeska since 1994. Under the master time
charter, Alyeska may, pursuant to separate charter orders which set forth the
specific terms and conditions of each time charter, time charter from us either
our vessels or vessels owned by third parties as required to provide tanker
assist services, tanker escort services, ship docking and other related services
needed by the oil companies to transport crude oil by tanker from Alaska to the
continental United States. Each of the vessels chartered to Alyeska is manned
and operated by us. Under our agreements with
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Alyeska, we also provide the oil companies with various shore-side services. As
of December 31, 2002, 17 vessels owned by us, consisting of 10 tugs, 2 line
boats and 5 barges, are under time charter to Alyeska. The tugs currently
chartered to Alyeska are also capable of providing fire fighting and oil spill
response services.

We have also bareboat chartered from Prince William Sound Corporation nine
vessels and 48 mini-barges which are time chartered by us to Alyeska for oil
spill, oil recovery and emergency response services. A number of these vessels
are on standby throughout Prince William Sound solely for emergency response to
oil spills. Unlike the vessels that we own, the vessels owned by Prince William
Sound Corporation may only be used by Alyeska.

Because our tugs, line boats and barges chartered to Alyeska are capable of
performing similar services for other companies in other geographical locations,
in the event that Alyeska decided that it did not require some or all of these
vessels for its operations in Alaska, the Company could redeploy the vessels not
required by Alyeska to other locations. A number of our vessels chartered to
Alyeska were financed with guarantees provided by the United States government
pursuant to Title XI of the Merchant Marine Act of 1936. The Company's ability
to redeploy vessels encumbered by Title XI debt which may not be required by
Alyeska could assist the Company in honoring its obligations subject to the
guarantees provided pursuant to Title XI.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

The oil and petrochemical industries based in the United States require
various forms of transportation to supply them with the raw materials required
for their plants and to distribute their finished products. While companies
engaged in the oil and petrochemical industries employ numerous forms of
transportation including trucks, railroads and pipelines, certain distribution
patterns and requirements make the use of ocean going vessels the most efficient
means of transportation. The ocean going vessels used by Oil and Chemical
Distribution and Transportation Services consist of tugs, barges (including
articulated and integrated tug/ barges) and tankers. In each case, the vessels
are made of steel and contain a series of tanks, valves, pumps, generators and
other equipment required for the carriage of liquid cargoes. All of our barges
(including articulated and integrated tug/barges) and tankers are equipped with
pumps which are capable of discharging the cargoes which have been loaded by
shore based facilities.

While our towed barges contain the power generation systems required to
operate the pumps required to discharge cargo and other equipment, they have no
means of self propulsion and depend upon our tugs to be moved between ports.
Although there are no accommodation spaces on our barges and they are not manned
while being towed between ports, our ocean going tugs used to tow these barges
are equipped with living quarters and typically employ a crew of seven. As a
general rule, and depending upon the horsepower of the tug which is being used
for the tow, our barges typically maintain sea speeds of between 7 and 12 knots.
During 2002, we took delivery of four newly constructed articulated tug/barge
units which are dedicated to Oil and Chemical Distribution and Transportation
Services. Three of these articulated tug/barge units were placed into service in
2002 and the fourth will be placed into service in 2003. Unlike our oil barges
which are towed by steel cables connected to tugs, our articulated tug/barge
units are powered by specially designed tug boats which, through mechanical
connections which utilize two large cylindrical pins, are connected to special
fittings located in notches at the rear of their respective barges. Although the
connection between these specially designed tugs and barges is not permanent and
the tugs may operate independently of their barges, once the connection has been
made, the tugs and barges operate as a single unified unit. Our articulated tug/
barge units employ a crew of eight and are capable of operating at a speed of 12
knots.

Our tankers are powered either by steam turbine propulsion systems or
diesel engines and are capable of propelling themselves at speeds of up to
approximately 15 knots. Our integrated tug/barge units are powered by diesel
engines and are capable of propelling themselves at speeds of up to 14 knots.
Each of our tankers and each of our integrated tug/barge units is equipped with
living quarters for its crew members. Our steam powered tankers typically employ
a crew of approximately 28 and our diesel powered tankers typically employ a
crew of approximately 24. Our integrated tug/barge units typically employ a crew
of approximately 18. Our tankers used for the carriage of crude oil are designed
and equipped only to carry one type of cargo. Our tankers and integrated
tug/barge units used for the carriage of petroleum products are capable of
carrying

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three or four types of cargo simultaneously and our tankers used for the
carriage of chemicals can carry up to 48 different cargoes at the same time.

Oil and Chemical Distribution and Transportation Services either owns or
leases numerous vessels used for the carriage of crude oil, petroleum products
and chemicals. Among these vessels is a fleet of 21 petroleum barges with
capacities of up to 29,100 long tons and a fleet of 11 tankers and 20 other
specially designed vessels (including 2 integrated and 4 articulated tug/barges)
with capacities of up to approximately 135,000 long tons. Our petroleum barges
are primarily towed by tugs owned by us. The barges, tankers and other specially
designed vessels carry crude oil, petroleum products and chemicals:

- among refineries and storage terminals on the east and west coasts of the
United States, Alaska and the Gulf of Mexico;

- among ports in Puerto Rico and the Gulf of Mexico; and

- between ports in the United States and ports in Israel.

We also provide vessel management services for 26 vessels belonging to
other owners including commercial companies and the United States government.

We also own three tank farms in western Alaska with a cumulative storage
capacity of 329,000 barrels of petroleum product, and are constructing a fourth
tank farm with a storage capacity of 130,000 barrels. A number of our oil barges
are used to carry petroleum product purchased for our account to and within
Alaska. A number of these barges also carry, together with the product owned by
us, product owned by third parties. The fuel which is purchased by us and
carried aboard our barges is sold directly from our vessels and tank farms to
customers who are the ultimate consumers.

ENERGY AND MARINE SERVICES

The vessels primarily used by Energy and Marine Services consist of flat
deck barges designed for the carriage of heavy loads and tugboats of different
sizes and capabilities. Our flat deck barges are unmanned and require the use of
our tugs to be moved between job locations.

Energy and Marine Services provides specialized services to companies
engaged, on a worldwide basis, in the exploration, production and distribution
of oil and gas. Permanent areas of operation extend from Prudhoe Bay, Alaska to
Rio de Janeiro, Brazil. These services are traditionally provided through
specialized marine transportation projects which use assets either owned by the
Company or chartered from the world market as needed.

We also offer turnkey project management for major infrastructure projects
as well as logistics and inventory control services for the oil and gas
industry. Past projects range from sea lifting supplies to Alaska for the
Trans-Alaska oil pipeline, to delivery of oversized modules for oil and gas
exploration and production in Africa, Asia and the Americas. Energy and Marine
Services also provides salvage services and transports petroleum products under
term contracts.

Due to our extensive network of facilities, our large fleet of vessels and
active services over a large geographic area, Energy and Marine Services is able
to respond quickly to a variety of situations, including emergencies, and
assemble to customer specifications unique configurations of marine equipment
which are otherwise unavailable. To provide this service we use 30 tugs, 47
barges, and one crewboat and occupy approximately 15 acres of shore side
terminals.

Projects completed by Energy and Marine Services during 2001 and 2002
include:

- providing assistance for the installation of topside structures for the
Osprey drilling platform in Alaska;

- providing assistance for the recovery and relocation of the Japanese
fishing vessel Ehime Maru;

- transporting a concrete drilling structure from Alaska to Russia;

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- providing assistance for the installation of several platforms in the
Gulf of Mexico used for oil exploration;

- transporting drilling modules from the Gulf of Mexico to West Africa;

- managing the transportation from the Gulf of Mexico and installation of
boiler units at a power facility in New Jersey;

- transporting drilling platform and ancillary equipment from the Gulf of
Mexico to Maine;

- supporting diving and oil recovery operations off the coast of
California; and

- transporting oil exploration cargo from the United States to Sakhalin
Island, Russia, and between ports in Russia.

CORPORATE SERVICES

Corporate services include supervising the construction of new vessels,
providing engineering services internally, owning vessels which are chartered by
our operating lines of business and providing insurance coverage. The Company's
risk management and insurance program is structured to allow it to self-insure a
multiple of predictable claims based on historical loss/claim experience and to
insure more significant claims in Beacon Insurance Company Ltd., which is a
wholly-owned subsidiary. Beacon Insurance Company Ltd. retains a layer of
risk/losses and purchases reinsurance in the international insurance markets to
cover catastrophic casualties and a multiple of major claims. In addition, the
program is structured to ensure compliance with federal, state and local
insurance regulations. Corporate services also provides accounting, legal, human
resources, information technology and purchasing support.

SEASONALITY

Revenues from Liner Services' trade between Puerto Rico and the United
States have historically increased during the latter part of the third quarter
and the early part of the fourth quarter of each year in anticipation of
increased holiday sales by our customers and declined during the first quarter
of each year. The activities of Ship Assist and Escort Services are generally
not affected by seasonal factors. The carriage of chemicals and petroleum
products among ports in the United States and Puerto Rico by the tankers used by
Oil and Chemical Distribution and Transportation Services usually experiences a
slight downturn during the summer months because of customer inventory
adjustments and refinery shutdowns. The activities of our barges used by Oil and
Chemical Distribution and Transportation Services to transport fuel to Alaska
tend to increase during the second and third quarters and decline during the
first and fourth quarters. It is our practice to redeploy those barges which
cannot be used in Alaska during the first and fourth quarters to other areas
which are not restricted by weather conditions. The activities of Energy and
Marine Services conducted in Alaska tend to increase during the second and third
quarters and decline during the first and fourth quarters.

2002 REVENUE AND INCOME (LOSS) BY QUARTER(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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2001 REVENUE AND INCOME BY QUARTER(2)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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(1) MTL Petrolink Corp. was sold on May 15, 2002 as discussed in Note 2 of the
Notes to Consolidated Financial Statements in "Item 8. Financial Statements
and Supplementary Data."

(2) Marine Transport Corporation was acquired on February 7, 2001 as discussed
in Note 2 of the Notes to Consolidated Financial Statements in "Item 8.
Financial Statements and Supplementary Data."

(3) During 2002, the Company adopted Statement of Financial Accounting Standard
144 "Accounting for the Impairment or Disposal of Long-Lived Assets" which
addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company has reclassified the gain (loss) on asset
disposition, net for the first three quarters of 2002 and all four quarters
of 2001 to operating income (loss). The following is a reconciliation of its
reclassification:

For segment financial information concerning our revenues, operating
profits and long-lived assets, see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 17 of the Notes to
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data."

CUSTOMERS

Many of our services are in response to discrete customer requests for
short-term services. For this reason, customers that account for a significant
portion of revenues in one fiscal year may represent an immaterial portion of
revenues in subsequent years. In general, the Company does not depend upon a
single customer or a small group of customers, the loss of which would have a
material adverse effect on its consolidated results of operations and financial
condition. However, the failure to obtain contracts for a significant number of
services could, in the aggregate, have a material adverse effect on the results
of our operations and financial condition.

Ship Assist and Escort Services derives a material amount of its revenues
from a group of contracts with Alyeska. Energy and Marine Services derives a
material amount of its revenues from two contracts with a global service
provider to transport oil exploration cargo from the United States to Sakhalin
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Island, Russia, and between ports in Russia. In the event that Alyeska decided
not to renew a substantial number of these contracts and the Company was not
able to successfully redeploy the vessels used for these contracts to other
locations, the decision by Alyeska could have a have a material adverse effect
on the results of Ship Assist and Escort Services. In the event that the global
service provider decided not to renew either of its contracts and the Company
was not able to successfully redeploy to other locations the vessels and
equipment used for these contracts, any such decision by the global service
provider could have a material adverse effect on Energy and Marine Services.

No material portion of the Company's business is subject to renegotiation
of profits by the United States government or (except as provided by certain
regulations which generally apply to contracts with the United States
government) termination of contracts or subcontracts at the election of the
United States government.

COMPETITION

The competition faced by our operating lines of business is intense. The
principal methods of competition in the Company's business are price, service,
experience and quality of equipment. The Company believes that its pricing is
competitive and that the quality of its services, experience and equipment is
among the highest in the industry. A number of our competitors have capital
resources greater than those of the Company and, from time to time, may use
those resources either to lower rates or acquire equipment which, in either
case, may provide a competitive advantage over the Company. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors" below.

Each of our operating lines of business participates from time to time in
markets in which there are more vessels than the market can support at a
profitable level. While we try to shift our tugs, barges, tankers and other
vessels away from those markets in which there is a surplus of capacity to
markets in which the supply of and demand for vessels is more balanced, our
competitors tend to engage in similar practices. Over time, these practices by
our competitors may undermine the effectiveness of our efforts to deploy our
vessels to more balanced markets.

LINER SERVICES

Liner Services' sailings between the United States and Puerto Rico
currently compete with three principal other carriers, CSX Lines, Inc., Trailer
Bridge and Sea Star Line, LLC. CSX Lines, Inc. was sold to the Carlyle Group and
renamed Horizon Lines, LLC on February 27, 2003. A former competitor, Navieras
de Puerto Rico, filed for Chapter 11 bankruptcy protection on March 21, 2001 and
certain of its assets were sold to Sea Star Line, LLC in 2002. Liner Services'
operations between the United States and Central America currently compete with
three principal carriers, Maersk/Sealand, Seaboard, and American President Line.
We believe our share of these markets in 2002 was substantial.

SHIP ASSIST AND ESCORT SERVICES

Our principal competitor for providing ship assist, tanker escort, docking
and lightering services on the West Coast of the United States is Foss Maritime.
Numerous other public or privately held companies are also a source of
competition. In Southern California, major competitors are Foss Maritime and
Millennium Towing Company. In Puget Sound, our major competitor is Foss
Maritime. We believe that we had a substantial share of each of the Southern
California and Puget Sound markets in 2002.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

We are a major carrier of petroleum products by barge in Alaska and by
barge and tanker on the United States West Coast, Gulf Coast and East Coast.
Major competitors in the barge trade are Sause Brothers, Foss Maritime,
SeaCoast, Maritrans, Moran and Leevac. Oil companies and independent owners that
operate tankers and other modes of petroleum transportation, including
pipelines, also compete with our barges for petroleum cargo. Our tankers
primarily compete against certain United States railroads, Allied Towing Corp.
and Seabulk International, in the carriage of chemicals. Our tankers primarily
compete against certain United

11

States railroads, Seabulk International, America Heavy Lift, Inc., United States
Shipping LLC, Maritrans Inc. and Keystone Shipping Co. in the carriage of
petroleum products.

ENERGY AND MARINE SERVICES

Our principal United States based competitors for providing energy and
marine services include Tidewater, Edison Chouest, Delta Towing, Dolphin Towing,
Harvey Gulf Marine, McDonough Marine Service and Otto Candies Marine
Transportation and Towing, which operate in the Gulf of Mexico, and Foss,
Seacoast and Sause Brothers which operate on the West Coast. West Coast
transportation companies such as Lynden and Northland Services compete with us
for general cargo moves, and to a lesser extent, for general towing and
emergency services. Among our principal foreign competitors are Smit
International/Smit Americas, Seaspan and Seaspan Cyprus, Ltd., Anchor Marine
Transport of Great Britain, ITC Towing of the Netherlands and Fairplay Towing.
Competitors also include segments of the heavy lift shipping industry such as
Dockwise and Blue Marlin. In providing logistics services, our primary
competitors include Asco and Energy Logistics, Inc., both of which have a strong
international presence. Further competition, primarily for government work,
comes from qualified small businesses. In addition to the competitive factors
described above, the expenses of Energy and Marine Services may be higher than
those of certain competitors who provide similar services with nonunion labor.

GOVERNMENT REGULATION

The operation of our vessels is subject to regulation under various federal
laws and international conventions, as interpreted and implemented by the United
States Coast Guard, as well as certain state and local laws.

Our vessels are required to meet construction and repair standards
established by the American Bureau of Shipping, a private organization, and/or
the United States Coast Guard, and to meet operational and safety standards
presently established by the United States Coast Guard. The United States Coast
Guard licenses our seagoing supervisory personnel and certifies our seamen and
tankermen.

Our United States marine operations are also subject to regulation by
various United States federal agencies, including the Surface Transportation
Board (the successor federal agency to the Interstate Commerce Commission), the
Maritime Administration, the Customs Service, the Federal Maritime Commission
and the Coast Guard. These regulatory authorities have broad powers over
operational safety, tariff filings of freight rates, certain mergers,
contraband, environmental contamination, financial reporting and homeland, port
and vessel security.

Our common and contract motor carrier operations are regulated by the
United States Surface Transportation Board and various state agencies. The
Company's drivers, including owner-operators, also must comply with the safety
and fitness regulations promulgated by the Department of Transportation,
including certain regulations for drug testing and hours of service. The
officers and unlicensed crew members employed aboard the Company's vessels must
also comply with numerous safety and fitness regulations promulgated by the
United States Coast Guard, including certain regulations for drug testing and
hours of service.

JONES ACT

Section 27 of the Merchant Marine Act of 1920, commonly called the Jones
Act, is a federal law that restricts maritime transportation between United
States ports to vessels built and documented in the United States and owned and
operated by United States citizens. Because we carry cargo between United States
ports, we are subject to the provisions of this law. Other cabotage laws require
that all United States vessels be manned by United States citizens.

The United States Coast Guard and American Bureau of Shipping maintain the
most stringent regime of vessel inspection in the world, which tends to result
in higher regulatory compliance costs for United States flag operators than for
owners of vessels registered under foreign flags.

12

Our marine transportation business which is conducted between United States
ports is protected from foreign competition by the Jones Act. While there have
been unsuccessful attempts in the past to broaden access to the Jones Act trade
and to modify, limit or abolish the Jones Act, we believe it is unlikely that
the Jones Act will be rescinded or materially modified in the foreseeable
future. Nonetheless, there can be no assurance that the Jones Act will not be
modified or rescinded.

ENVIRONMENTAL REGULATION

All of the Company's operations are subject to various federal, state and
local environmental laws and regulations implemented principally by the
Environmental Protection Agency, the United States Department of Transportation,
the United States Coast Guard and state environmental regulatory agencies. These
regulations govern the management of hazardous wastes, discharge of pollutants
into the air, surface and underground waters including rivers, harbors and the
200-mile exclusive economic zone of the United States, and the disposal of
certain substances. We are currently involved in the remediation of thirteen
properties and have budgeted approximately $5.0 million to be spent over the
next ten years on these projects. The contamination at these properties is the
result of historic operations. We believe that our operations are in material
compliance with current environmental laws and regulations.

OIL POLLUTION ACT OF 1990

The Oil Pollution Act of 1990 ("OPA 90") established an extensive
regulatory and liability regime intended to protect the environment from oil
spills. OPA 90 applies to owners and operators of facilities operating near
navigable waters and owners, operators and bareboat charterers of vessels
operating in United States waters, which include the navigable waters of the
United States and the 200-mile exclusive economic zone of the United States.
Although it applies in general to all vessels, for purposes of establishing
liability limits, financial responsibility and response planning requirements,
OPA 90 distinguishes tank vessels (which include our chemical and petroleum
product tankers, our crude oil carriers and our oil barges) from "other vessels"
(which include our tugs and the RO/RO and LO/LO vessels used by Liner Services).
As a result of certain oil spills in 2002 by other shipping companies which
received international publicity, our single hulled tankers and barges are
subject to heightened scrutiny by our customers and various regulatory bodies.

Under OPA 90, owners and operators of facilities and owners, operators and
bareboat charterers of vessels are "responsible parties" and are jointly,
severally and strictly liable for removal costs and damages arising from oil
spills relating to their facilities and vessels, unless the spill results solely
from the act or omission of a third party, an act of God or an act of war.
Damages are defined broadly to include:

- natural resources damages and the costs of assessment thereof;

- damages for injury to, or economic losses resulting from the destruction
of, real and personal property;

- the net loss of taxes, royalties, rents, fees and profits by the United
States government, a state or political subdivision thereof;

- lost profits or impairment of earning capacity due to property or natural
resources damage;

- the net costs of providing increased or additional public services
necessitated by a spill response, such as protection from fire, safety or
other hazards; and

- the loss of subsistence use of natural resources.

For facilities, the statutory liability of responsible parties is limited
to $350 million. For tank vessels, the statutory liability of responsible
parties is limited to the greater of $1,200 per gross ton or $10 million ($2
million for a vessel of 3,000 gross tons or less) per vessel; for any "other
vessel" such liability is limited to the greater of $600 per gross ton or
$500,000 per vessel. Such liability limits do not apply, however, to an incident
proximately caused by violation of federal safety, construction or operating
regulations or by the responsible party's gross negligence or willful
misconduct, or if the responsible party fails to report the incident or provide
reasonable cooperation and assistance as required by a responsible official in
connection with the oil removal activities. Although we currently maintain the
maximum available pollution liability insurance
13

coverage that is available through the international Protection & Indemnity
Insurers, a catastrophic spill could result in liability in excess of available
insurance coverage, resulting in a material adverse effect on our business.

Under OPA 90, with certain limited exceptions, all newly built or converted
oil tankers operating in United States waters must be built with double hulls,
and existing single-hull double-side or double-bottom vessels must be phased out
over time, unless retrofitted with double hulls. As a result of this phase-out
requirement, as interpreted by the United States Coast Guard, the vessels listed
below must stop carrying petroleum and petroleum products over the next five
years if they are not retrofitted with double hulls beginning with the listed
year.

In addition to those vessels listed above, we either own or charter other
tank vessels which, during the eight year period beginning in 2008, will need to
be retrofitted with double hulls in order to continue to carry petroleum or
petroleum products in United States waters. While the Company has not completed
its study of what it would cost to make such vessels comply with OPA 90 or to
replace non-complying vessels with new or used complying vessels, we believe
that the cost would represent a material capital expenditure.

OPA 90 expanded pre-existing financial responsibility requirements and
requires vessel owners, operators and bareboat charterers to establish and
maintain with the United States Coast Guard evidence of insurance or
qualification as a self-insurer or other evidence of financial responsibility
sufficient to meet their potential liabilities under OPA 90. Coast Guard
regulations also implement the financial responsibility requirements of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
which imposes liability for discharges of hazardous substances such as
chemicals, in an amount equal to $300 per gross ton, thus increasing the overall
amount of financial responsibility from $1,200 to $1,500 per gross ton. We have
obtained "Certificates of Financial Responsibility" pursuant to the Coast Guard
Regulations for our product and chemical carriers through self-insurance and
commercial insurance.

OPA 90 also amended the federal Water Pollution Control Act to require the
owner or operator of certain facilities and tank vessels to prepare facility or
vessel response plans and to contract with oil spill removal organizations to
remove to the maximum extent practicable a worst-case discharge. We have
complied with these requirements.

OPA 90 does not prevent individual states from imposing their own liability
regimes with respect to oil pollution incidents occurring within their
boundaries, and many states have enacted legislation providing for unlimited
liability for oil spills. Some states have issued regulations addressing oil
spill liability, financial responsibility, and vessel and facility response
planning requirements. We do not anticipate that such legislation or regulations
will have any material impact on our operations.

We believe we are currently in compliance in all material respects with the
environmental laws and regulations to which our operations are subject. We are
currently working with different state and federal agencies through agreed upon
orders, decrees or voluntary actions on the remediation of the impacted
properties mentioned above. We are unaware of any material pending or threatened
litigation or other judicial, administrative or arbitration proceedings against
us occasioned by any alleged non-compliance with such laws or regulations. The
risks of substantial costs, liabilities, and penalties are, however, inherent in
marine operations, and there can be no assurance that significant costs,
liabilities or penalties will not be incurred by or imposed on us in the future.

14

TITLE XI

Title XI of the Merchant Marine Act of 1936 permits the Secretary of
Transportation, acting through the Maritime Administration, to provide a United
States government guarantee of the repayment of certain loans arranged for the
construction, reconstruction or reconditioning of vessels constructed,
reconstructed or reconditioned in the United States. Debt guaranteed pursuant to
Title XI can have a term of up to twenty five years and interest rates are
generally more favorable than rates available from commercial lenders. Recent
federal legislation has failed to fund the Title XI program for new projects.
Unless this is remedied by future legislation, this could effectively end the
Title XI program. Refer to "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional information.

CAPITAL CONSTRUCTION FUND

Pursuant to Section 607 of the Merchant Marine Act of 1936, we have entered
into a Capital Construction Fund Agreement with the Maritime Administration
acting for the United States of America. The Capital Construction Fund program
allows United States citizens who are owners and operators of United States flag
vessels to accumulate the capital necessary to modernize and expand their fleets
by deferring federal income taxes on vessel earnings deposited into the fund.
Moneys deposited by us into our Capital Construction Fund must be used to
acquire, construct or reconstruct United States flag vessels built in United
States shipyards. Any vessel which we may acquire, construct or reconstruct
using Capital Construction Fund funds may only be used in the United States
foreign, non-contiguous domestic or Great Lakes trade.

INTERNATIONAL

Our vessels that operate internationally are subject to various
international conventions, including certain safety, environmental and
construction standards. Among the more significant conventions are: (i) the
International Convention for the Prevention of Pollution from Ships 1973, 1978
Protocol, (ii) the International Convention on the Safety of Life at Sea, 1978
Protocol, including the International Management Code for the Safe Operation of
Ships and for Pollution Prevention, which went into effect for tank vessels on
July 1, 1998, and (iii) the International Convention on Standards of Training,
Certification and Watchkeeping for Seafarers, 1978, as amended in 1995. These
conventions govern oil spills and other matters related to environmental
protection, worker health and safety, and the manning, construction and
operation of vessels. As a general matter, surveys and inspections are performed
by internationally recognized classification societies.

Although we believe we are in substantial compliance with all applicable
requirements, the risks of incurring substantial compliance costs and
liabilities and penalties for noncompliance are inherent in some of our offshore
operations and there can be no assurance that such costs, liabilities and
penalties will not be incurred by or imposed on us in the future.

EMPLOYEES

As of December 31, 2002, we had 3,913 employees, including 1,588 employed
on vessels, and 2,325 employed at our offices and other land-based facilities.
Approximately 2,422 of the Company's employees are employed under the terms of
34 separate collective bargaining agreements with 11 different unions which,
among other things, set forth the wages and benefits of these employees. These
agreements have expiration dates ranging from 2003 to 2006.

15

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

ITEM 2. PROPERTIES

Our corporate headquarters and executive offices are located at 155 Grand
Avenue, Oakland, California 94612, where we lease approximately 15,800 square
feet pursuant to a lease which expires in 2008. Liner Services conducts its
operations from offices located at 9487 Regency Square Boulevard, Jacksonville,
Florida 32225, a 100,000 square foot building owned by the Company. The
operations of Ship Assist and Escort Services and the operations of Energy and
Marine Services are primarily conducted from offices located at 1102 Southwest
Massachusetts Street, Pier 17, Seattle, Washington 98134, where we lease
approximately 40,000 square feet pursuant to a lease which expires in 2022. The
operations of Oil and Chemical Distribution and Transportation Services are
primarily conducted from our offices located at 1200 Harbor Boulevard,
Weehawken, New Jersey 07087-0901, where we lease approximately 16,500 square
feet pursuant to a lease which, subject to a renewal option granted to the
Company, expires in 2004, and our offices located at 1102 Southwest
Massachusetts Street, Pier 17, in Seattle, Washington 98134.

We also maintain additional facilities in the United States and abroad to
support our businesses including warehouse facilities and dock facilities in
Jacksonville, Florida, Port Everglades, Florida, Pennsauken, New Jersey, Valdez,
Alaska, Seattle, Washington, and San Juan, Puerto Rico, some of which serve as
ports-of-call for many customers. In addition, we maintain strategically
dispersed operating bases, and offices in Houston, Texas, Long Beach,
California, Atlanta, Georgia, New Orleans, Louisiana, Vancouver, Washington, and
Rye Brook, New York. We believe that all of our facilities and equipment are in
good condition, well maintained and able to support our current operations. For
additional information concerning our properties, see the information concerning
our fleet of vessels and certain other properties as set forth in tabular form
in "Item 1. Business" of this Form 10-K.

ITEM 3. LEGAL PROCEEDINGS.

ASBESTOS LITIGATION

The Company is currently a defendant with respect to approximately 15,000
maritime asbestos cases and other toxic tort cases, most of which were filed in
the Federal Courts in Ohio, Michigan, and New Jersey. Additional cases were
filed in the Territorial Court of the Virgin Islands, and in state courts in
Utah, Pennsylvania, Texas, and Louisiana. Each of the cases, filed on behalf of
a seaman or his personal representative, alleges injury or illness based upon
exposure to asbestos or other toxic substances and sets forth a claim based upon
the theory of negligence under the Jones Act and on the theory of
unseaworthiness under the General Maritime Law. Pursuant to an order issued by
the Judicial Panel on Multidistrict Litigation dated July 29, 1991, all Federal
cases were transferred to the United States District Court for the Eastern
Division of Pennsylvania for pretrial processing. On May 1, 1996, the cases were
administratively dismissed by Judge

16

Charles R. Weiner, subject to reinstatement in the future. At present it is not
known how long the process will require. It is not known whether Judge Weiner
will be able to develop a plan which will result in settlement of the cases. If
he is unsuccessful, upon reinstatement, the cases should be remanded to the
Ohio, Michigan, and New Jersey courts.

We have insurance coverage that reimburses us for a substantial portion of
the costs incurred defending against open asbestos claims. This coverage also
reimburses us for a substantial portion of amounts we pay to settle claims and
amounts awarded in court judgments. The coverage is provided by a large number
of insurance policies written by dozens of insurance companies. The insurance
companies wrote the coverage over a period of many years for us, our
subsidiaries and their predecessors. The amount of insurance coverage available
to us depends on the nature of the alleged exposure to asbestos and the specific
subsidiary against which an asbestos claim is asserted.

The uncertainties of asbestos claim litigation make it difficult to
accurately predict the results of the ultimate resolution of asbestos claims. By
their very nature, civil actions relating to toxic substances vary according to
the fact pattern of each case, the applicable jurisdiction and other factors.
This uncertainty is increased by the possibility of adverse court rulings or new
legislation affecting the asbestos claim litigation or the settlement process.
Accordingly, we cannot predict the eventual number of such cases or their
eventual resolution. The full impact of these claims and proceedings in the
aggregate continues to be unknown. We do not include any amounts in our reserves
for existing asbestos related cases or cases that may be filed in the future.
While it is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or provide reasonable ranges of
potential losses, given the large and/or indeterminate amounts sought in certain
of these matters and the inherent unpredictability of litigation, it is possible
that an adverse outcome in certain matters could have a material adverse effect
on our financial condition or operating results.

ENVIRONMENTAL LITIGATION

Environmental costs represent reclamation costs filed against the Company.
Environmental expenditures for reclamation costs that benefit future periods are
capitalized. Expenditures that relate to remediating an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when the Company's
responsibility for environmental remedial efforts is deemed probable and the
costs can be reasonably estimated. The ultimate future environmental costs,
however, will depend on the extent of contamination of property and the
Company's share of remediation responsibility. The recorded liabilities for
estimated future environmental costs at December 31, 2002 and 2001 are
approximately $5,440,000 and $4,054,000, respectively.

During 2002, the Company reached an agreement with its insurance
underwriters to settle all costs incurred to date and any future costs related
to environmental remediation resulting from occurrences prior to 1986. The
amount of the settlement was $5,324,000, net of unrecoverable amounts due to the
insolvency of certain underwriters, and is recorded in the Company's
Consolidated Balance Sheet in Other Receivables at December 31, 2002. In
conjunction with this settlement, the Company increased its estimated
liabilities $3,095,000 for any remaining environmental remediation. That
resulted in the Company recognizing $2,229,000 as a reduction to claims expense
in the current year. Refer to "Item 8. Financial Statements and Supplementary
Data" for additional information.

17

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

No established public trading market exists for our common stock. Shares of
our common stock are neither listed on any national securities exchange, nor
presently traded on any public stock exchange or in any other public market and
there are no plans, proposals, arrangements or understandings with any person
with regard to the development of a public trading market in our common stock.
Although quotations for shares of our common stock may be obtained in the Pink
Sheets (a centralized quotation service that collects and publishes market maker
quotes for over-the-counter securities), because secondary market activity for
shares of our common stock has been limited and sporadic, such quotations may
not accurately reflect the price or prices at which purchasers or sellers would
currently be willing to purchase or sell such shares.

The following table shows the range of high and low closing bid prices for
our common stock, as reported in the Pink Sheets, for the periods indicated. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.

- ---------------

(1) No trades during this quarter

As of March 17, 2003, we had 552 stockholders of record of our voting
common stock and one shareholder of Class N non-voting common stock.

We pay no dividends on our common stock and do not anticipate declaring or
paying cash dividends on our common stock in the foreseeable future. We
currently intend to retain future earnings to finance operations and fund the
growth of our business. Any payment of future dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that our board of directors may deem relevant. Payment of cash dividends
on our common stock is currently prohibited by the terms of certain agreements
to which the Company is a party. (See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 9 to the Company's Consolidated Financial Statements
in "Item 8. Financial Statements and Supplementary Data".)

ITEM 6. SELECTED FINANCIAL DATA

The following table presents summary consolidated financial and operating
data for the Company. The data presented in this table are derived from the
audited financial statements of the Company. You should read the consolidated
financial statements and the notes thereto in "Item 8. Financial Statements and
Supplementary Data" for a further explanation of the financial data summarized
here. You should also read "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations", which describes a number of
factors which have affected our financial results.

18

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

- ---------------

(1) During 2002, the Company adopted SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company
has reclassified the gain (loss) on asset disposition, net for 2002 and all
of 2001, 2000, 1999 and 1998 to operating income (loss).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following presentation of Management's Discussion and Analysis ("MD&A")
of the Company's financial condition, results of operations and cash flows
should be read in conjunction with the consolidated financial statements,
accompanying notes thereto and other financial information appearing elsewhere
in this Form 10-K. Dollar figures included in MD&A are stated in thousands of
dollars, except for share and per share amounts. 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

19

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 certain factors, including those set
forth below under "Risk Factors" and elsewhere in this Form 10-K.

CRITICAL ACCOUNTING POLICIES

The preparation of the consolidated financial statements, upon which this
MD&A is based, requires management to make estimates which impact these
consolidated financial statements. The most critical of these estimates and
accounting policies relate to the long-lived asset depreciation, amortization
and impairment, goodwill, 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. For a more complete
discussion of these and other accounting policies, see Note 1 to the Company's
consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data".

LONG-LIVED ASSET DEPRECIATION, AMORTIZATION AND IMPAIRMENT

The Company carefully monitors expenditures for long-lived assets to
determine their appropriate useful lives. This determination is based on
historical experience with similar assets and the assets' expected use in the
Company's business. The determination of the assets' depreciable life can
significantly impact the financial statements. In addition, the Company
depreciates property and equipment, less estimated salvage value, using the
straight-line method as such method is considered to be the most appropriate
systematic and rational method to allocate the cost of property and equipment
over the period to be benefited from its use.

Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.

The Company assesses recoverability of the carrying value of the asset by
estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value.

Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.

GOODWILL

Goodwill represents the excess costs of acquired companies over the fair
value of their net tangible assets. In accordance with Statement of Financial
Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible Assets,"
goodwill deemed to have an indefinite life is not amortized, but is subject to
annual impairment testing. The identification and measurement of goodwill
impairment involves the estimation of the fair value of reporting units. The
estimates of fair value of reporting units are based on the best information
available as of the date of the assessment; the assessment primarily
incorporates management assumptions about expected future cash flows and
contemplate other valuation techniques. Future cash flows can be affected by
changes in industry or market conditions or the rate and extent to which
anticipated synergies or cost savings are realized with newly acquired entities.
Although no goodwill impairment has been recorded to date, there can be no
assurances that future goodwill impairments will not occur.

20

REVENUE RECOGNITION

The Company's accounting policies for revenue recognition are predicated on
the type of service provided. The common carrier services included in Liner
Services are recognized ratably over each voyage by load and discharge port. The
Company's logistics services and Ship Assist and Escort Services are recognized
as services are provided. Revenue from the Oil and Chemical Distribution and
Transportation Services and Energy and Marine Services is recognized ratably
over the length of the contract. Estimated losses are provided at the time such
losses become evident. The Company's recognition of revenue includes estimates
of the total costs incurred for each service and the total billings to perform
the service that impacts the estimated operating margin. The Company has
processes in place to assist in developing these estimates, but, if the Company
experiences significantly higher costs or a significant decrease in estimated
billings, the Company's financial position, results of operation and cash flows
could be materially impacted.

LITIGATION AND ENVIRONMENTAL RESERVES

The Company carefully monitors its outstanding litigation (including
unasserted claims). The Company estimates the expected probable loss (if any) of
each claim or potential claim. If a range of probable loss is determined, the
Company records a reserve at the low end of the range, unless there are
indicators that another amount within the range better approximates the expected
loss. The determination of whether a litigation reserve is necessary is based on
internal analysis by management, consultation with the Company's general counsel
and consultations with external counsel, when necessary. The Company's
litigation reserves are a significant estimate that can and do change based on
management's evaluation of the Company's existing and potential litigation
liabilities.

The Company is a defendant with respect to numerous maritime asbestos cases
and other toxic tort cases. The Company is unable to predict the ultimate
outcome of this litigation and an estimate of the amount or range of potential
loss. In addition, the Company is responsible for environmental remediation
relating to contamination of property. Liabilities are recorded when the
responsibility for such remediation is considered probable and the costs can be
reasonably estimated. The ultimate future environmental costs however will
depend upon the extent of contamination and the future costs of remediation of
the contamination. The ultimate resolution of these litigation and environmental
liabilities could have a material impact on the Company's financial position,
results of operations and cash flows. See "Item 3. Legal Proceedings" and Note
14 to the Company's Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data."

RESULTS OF OPERATIONS

The following table sets forth: (a) operating revenues and operating income
for Liner Services, Ship Assist and Escort Services, Oil and Chemical
Distribution and Transportation Services, and Energy and Marine Services for the
years ended December 31, 2002, 2001 and 2000; and (b) other revenues and
expenses not specifically attributable to these operating segments. Other
revenues and expenses include interest income, interest expense, and minority
interest in consolidated subsidiaries. The Company evaluates the performance of
its operating segments based upon the operating income of the segment, excluding
interest income and expense, corporate expenses and income taxes. See the
Company's Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" for further information.

Included in operating income of all four of our segments are allocations
for corporate services, which include vessel management, accounting, legal,
human resources, information technology and purchasing support. Vessel
management charges represent an allocation of the utilized vessels, depreciation
and amortization based on intercompany time charters. Other corporate services
are allocated based upon various assumptions, depending on the type of cost
being allocated. Asset charges (recoveries) are allocated to the segment that
used the asset.

The Company changed its method of accounting for goodwill to conform to
SFAS 142. See Note 1 of the Company's consolidated financial statements in "Item
8. Financial Statements and Supplementary Data."

21

SEGMENT OPERATING REVENUE AND OPERATING INCOME AND OTHER
REVENUES AND EXPENSES
(IN THOUSANDS)

COMPARISON OF FISCAL YEAR 2002 TO FISCAL YEAR 2001

Operating income for 2002 was favorably impacted by the decline in vessel
capacity in the Puerto Rican trades as a result of the consolidation of two
competitors. This was partially offset by a downturn in the Oil and Chemical
Distribution and Transportation market caused by economic conditions and the
sale of MTL Petrolink Corp. In 2003 we expect that the decline in competitive
pressures in Liner's Puerto Rican markets and the addition of the four
articulated tug/barge units to the Oil and Chemical Distribution and
Transportation Services will continue to strengthen our results.

On May 15, 2002, the Company sold all of the outstanding common stock of
MTL Petrolink Corp., a subsidiary of Marine Transport Corporation ("MTC"), for
$18,000, subject to certain working capital adjustments. Based on working
capital adjustments, net proceeds from the sale 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.

Subsequent to its acquisition of MTC, the Company decided to sell MTL
Petrolink Corp. In its allocation of the purchase price of MTC, the Company made
no effort to separately determine the fair value of MTL Petrolink Corp. The
Company recorded the excess of the sales price, net of selling costs, over the
net asset value of MTL Petrolink Corp. as a purchase price adjustment resulting
in a reduction to goodwill in the

22

amount of $3,345. See Note 2 to the Company's Consolidated Financial Statements
in "Item 8. Financial Statements and Supplementary Data".

During 2002, the Company took delivery of four newly constructed
articulated tug/barge units, the SEA RELIANCE/Barge 550-1, the SOUND
RELIANCE/Barge 550-2, the OCEAN RELIANCE/Barge 550-3, and the COASTAL
RELIANCE/Barge 550-4. The first three units were placed into service in 2002 and
the fourth unit will be placed in service in 2003. These units are being
operated by Oil and Chemical Distribution and Transportation Services.

Consolidated operating revenues decreased $22,679 or 2.3%, to $977,904 in
2002 from $1,000,583 in 2001. The decrease is primarily attributed to a downturn
in the Oil and Chemical Distribution and Transportation market caused by
economic conditions and the sale of MTL Petrolink Corp. during 2002. This was
offset by the decline in vessel capacity in the Puerto Rican trades as a result
of the consolidation of two competitors.

Consolidated operating expenses decreased $32,889 or 3.7%, to $850,681 in
2002 from $883,570 in 2001. The decrease is primarily attributed to the sale of
MTL Petrolink Corp. during 2002. Consolidated general and administrative
expenses increased $5,228 or 18.6%, to $33,301 in 2002 from $28,073 in 2001. The
increase is primarily attributable to a $4,342 reduction in asbestos related
claim reserves recorded in 2001 due to the uncertainty of successful litigation
by the claimants. Refer to "Item 3. Legal Proceedings" and Note 14 of the
consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data." Consolidated depreciation and amortization expense
increased $2,928 or 5.6%, to $54,758 in 2002 from $51,830 in 2001. The increase
is primarily attributable to an increase in dry-dock amortization which was
offset by not recording amortization of goodwill in 2002 as a result of the
Company adopting SFAS 142, "Goodwill and Other Intangible Assets". Consolidated
asset charges (recoveries), net increased $5,051 or 104.2%, to a charge of $204
in 2002 from a recovery of $4,847 in 2001. This was primarily attributed to an
impairment charge of $5,487 on vessels to be disposed of.

As a result of the above, the consolidated operating income decreased
$2,997 or 7.1%, to $38,960 in 2002 from $41,957 in 2001.

Interest income decreased $1,428 or 67.5%, to $688 in 2002 compared with
$2,116 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 decreased $192 or 1.2%, to $15,482 in 2002 compared with
$15,674 in 2001. This is a result of higher capitalized interest on the
construction of the articulated tug/barge units during 2002 as compared with
2001, which was offset by additional interest expense on new vessel financings
and borrowings under the Company's revolving credit agreement.

The minority interest in consolidated subsidiaries decreased $620 to income
of $629 in 2002 compared with income of $1,249 in 2001. This decrease is due to
the Company's joint venture with Stolt-Nielsen S.A. The Company owns 75% of the
interests in the joint venture and Stolt-Nielsen S.A. owns the remaining 25%.
The total loss of the joint venture in 2002 was $2,777.

Income tax expense decreased $2,100 or 21.4%, to $7,700 in 2002 compared
with $9,800 in 2001. The effective tax rate was 30.8% for 2002 and 32.8% for
2001.

As a result, net income decreased $2,809 to $17,272 ($114.74 basic earnings
per common share and $105.89 diluted earnings per common share) in 2002 from
$20,081 ($134.14 basic earnings per common share and $122.14 diluted earnings
per common share) in 2001.

The Company provides diversified transportation services in the United
States domestic and international markets. The Company is organized to provide
services in four lines of business: Liner Services; Ship Assist and Escort
Services; Oil and Chemical Distribution and Transportation Services and Energy
and Marine Services (see "Item 1. Business".) The following is a discussion of
the results of operations by the Company's lines of business.

23

LINER SERVICES

Operating revenues from our Liner Services segment increased $34,632 or
6.9%, to $535,440 in 2002 from $500,808 in 2001. The increase in revenues is
primarily attributable to a 7.1% increase in container and noncontainer volume
and an increase of 14.0% in other logistical service revenues. This increase was
offset by a .9% decrease in average revenue per TEU ("average revenue"). The
Company's container and noncontainer volume during 2002 and 2001 was 496,823
TEUs and 463,974 TEUs, respectively. The Company experienced a 9.1% increase in
the Puerto Rico and Eastern Caribbean Islands Service container and noncontainer
volume and a 4.8% increase in container and noncontainer volume in the Latin
America Service. In 2002, the Company experienced a .8% average revenue increase
in the Puerto Rico and Eastern Caribbean Islands Service as a result of less
competition. The Latin America Service experienced a 1.7% decrease in average
revenue due to competitive pressures.

Operating expenses increased $11,138, or 2.3%, to $489,317 in 2002 compared
with $478,179 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 increased $392, or 5.2%, to $7,888 in 2002
compared with $7,496 in 2001. The increase in depreciation was due to an
increase in dry-dock amortization for additional vessels dry-docked in 2002,
which was partially offset by the sale of container and trailer equipment in
2001.

Asset charges (recoveries), net decreased $160 or 40.8% to a charge of $552
in 2002 compared with a charge of $392 in 2001. Liner Services recorded an
impairment charge on 2 vessels in 2002 and 2001 of $763 and $484, respectively.
These impairment charges were offset by gains on various equipment disposals of
$211 in 2002 and $92 in 2001.

As a result, the operating income from Liner Services increased $18,244 to
$16,555 in 2002 from an operating loss of $1,689 in 2001.

SHIP ASSIST AND ESCORT SERVICES

Operating revenues from our Ship Assist and Escort Services segment
decreased $809 or 1.1%, to $70,504 in 2002 compared with $71,313 for 2001. The
decrease was directly attributable to a decrease in activity in Puget Sound,
Washington and Los Angeles and Long Beach, California, resulting in an overall
decrease of approximately 4.7% in the total vessel hours utilized by its vessel
fleet (268,833 vessel hours compared with 282,199 vessel hours). Vessel hours
utilized is directly impacted by vessel calls and international oil activity.

Operating expenses decreased $4,525 or 7.6%, to $55,078 in 2002 compared
with $59,603 during 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 and crewing expenses.

As a result, operating income for Ship Assist and Escort Services in 2002
increased $2,528 to $13,637 compared with $11,109 for 2001.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment decreased $69,621 or 19.7%, to $283,383 in 2002
compared with $353,004 for 2001. The decrease was directly attributable to the
sale of MTL Petrolink Corp. on May 15, 2002, and an overall decrease in vessel
utilization (66.5% compared with 76.7%). 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 in 2002 as opposed to 10.5 months of
operations which were included in the Company's consolidated results in 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

24

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 based upon: (a) the acquisition of MTC on February 7,
2001, which provided additional revenue due to its inclusion in operations for a
full quarter during the first quarter of 2002; and (b) revenue earned from the
operations of three articulated tug/barge units placed in service during 2002.

Operating expenses decreased $43,103 or 14.6%, to $252,899 during 2002
compared with $296,002 during 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 decrease was offset by: (a) the
acquisition of MTC in 2001, which resulted in the inclusion of a full 12 months
of expenses in the Company's operations in 2002 versus the inclusion of only
10.5 months of expenses in 2001; and (b) expenses related to the operation of
three articulated tug/barge units placed in service during 2002.

Depreciation and amortization increased $1,305 or 6.9%, to $20,176 during
2002 compared with $18,871 during 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 12 months in 2002 versus
10.5 months in 2001, and an increase in dry-dock amortization for vessels
dry-docked in 2002. This increase was partially offset by a decrease arising
from the sale of MTL Petrolink Corp. in 2002, a decrease from not recording
goodwill amortization in 2002, in accordance with SFAS 142, and an increase in
the number of operating vessels that became fully depreciated in 2002.

Asset charges (recoveries), net increased $2,050 or 127.7%, to charges of
$445 in 2002 compared with recoveries of $1,605 in 2001. In July 2002, a fire
occurred in the engine room of one of the tankers used by Oil and Chemical
Distribution and Transportation Services. 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 insurance
proceeds 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. Also in December 2002, an agreement was entered into to
sell a vessel. An impairment analysis was performed which resulted in a charge
of $4,239. During 2002, two vessels and miscellaneous equipment were sold for a
loss of $103. During 2001, three vessels and miscellaneous equipment were sold
for a gain of $1,605.

As a result, the operating income of Oil and Chemical Distribution and
Transportation Services decreased $26,691 to $6,682 in 2002 compared with
$33,373 for 2001.

ENERGY AND MARINE SERVICES

Operating revenues from our Energy and Marine Services segment increased
$13,119 or 17.4%, to $88,577 in 2002 compared with $75,458 for 2001. The
increase was directly attributable to: (a) a strong exploration season during
2002 in Alaska and non-recurring demobilization and contract termination fees
related to contracts performed in Hawaii, Alaska, and South America; and (b) the
commencement of services under new contracts with a global service provider to
transport oil exploration cargo from the United States to Sakhalin Island,
Russia, and between ports in Russia. This increase in revenue was partially
offset by a decrease in vessel utilization. Vessel utilization during 2002 was
45% compared with 53% during 2001. Vessel utilization is very volatile and it is
impacted by oil exploration activity and general economic conditions.

Operating expenses increased $9,686 or 10.6%, to $101,006 during 2002
compared with $91,320 in 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 decreased $1,295 or 10.1%, to $11,487 during
2002 compared with $12,782 during 2001. The decrease was directly attributable
to an increase in the number of operating vessels, terminals and equipment that
became fully depreciated in 2002.

Asset charges (recoveries), net decreased $2,847 or 78.2% to a recovery of
$793 in 2002 compared with a recovery of $3,640 in 2001. Energy and Marine
Services sold two vessels and land for a gain of $1,243 in 2002.
25

Energy and Marine Services also performed an impairment analysis on five vessels
and recorded a charge of $450 in 2002. During 2001, five vessels, land and
facilities and miscellaneous assets were sold for a gain of $3,640.

As a result, operating income for Energy and Marine Services increased
$2,922 to $2,086 in 2002 compared with an operating loss of $836 for 2001.

DISCONTINUED OPERATIONS

The Company reported no income or loss from discontinued operations in 2002
and 2001. The Company had net liabilities of discontinued operations of $9,902
and $11,565, at December 31, 2002 and 2001, respectively, which are primarily
comprised of accrued liabilities for surplus leased equipment that was used in
the South America operations. These accruals require the use of estimates and
assumptions regarding the costs relating to the ultimate disposition of this
equipment. Actual results may differ from these estimates and may result in an
additional loss from discontinued operations in subsequent years.

COMPARISON OF FISCAL YEAR 2001 TO FISCAL YEAR 2000

Consolidated operating revenues increased $201,670 or 25.2%, to $1,000,583
in 2001 from $798,913 in 2000. The increase was primarily attributed to the
purchase of MTC on February 7, 2001.

Consolidated operating expenses increased $183,126 or 26.1%, to $883,570 in
2001 from $700,444 in 2000. The increase is primarily attributed to the purchase
of MTC. Consolidated general and administrative expenses decreased $1,555 or
5.2%, to $28,073 in 2001 from $29,628 in 2000. The decrease is primarily
attributable to a $4,342 reduction in asbestos related claim reserves recorded
in 2001 due to the uncertainty of successful litigation by the claimants. Refer
to "Item 3. Legal Proceedings" and Note 14 of the consolidated financial
statements in "Item 8. Financial Statements and Supplementary Data." This
reduction was offset by a $1,996 additional charge relating to the change in the
cash surrender value of the split dollar life insurance agreements for the
benefit of the principal shareholder. Consolidated depreciation and amortization
increased $13,143 or 34.0%, to $51,830 in 2001 from $38,687 in 2000. The
increase is primarily attributable the purchase of MTC in 2001. Consolidated
asset charges (recoveries), net decreased $5,817 or 54.5%, to a recovery of
$4,847 in 2001 from a recovery of $10,664 in 2000. This was primarily attributed
to a decrease in the number of vessels sold to 8 in 2001 from 19 in 2000.

As a result of the above the consolidated operating income increased $1,139
or 2.8%, to $41,957 in 2001 from $40,818 in 2000.

Interest income decreased $2,848 or 57.4%, to $2,116 in 2001 compared with
$4,964 in 2000. This decrease was due to the decrease in cash and cash
equivalents of the Company and lower interest rates in 2001. During 2001, the
Company utilized approximately $49,130 in cash to acquire MTC and $61,500 in
connection with the acquisition of the four articulated tug/barge units.

Interest expense increased $3,836 or 32.4%, to $15,674 in 2001 compared
with $11,838 in 2000. In connection with the acquisition of MTC, the Company
acquired long-term debt of $51,795.

The minority interest in consolidated subsidiaries increased $1,836 to
income of $1,249 in 2001 compared with a loss of $587 in 2000. This increase is
due to the Company's joint venture with Stolt-Nielsen S.A., which it acquired as
part of MTC. The Company owns 75% of the interests in the joint venture and
Stolt-Nielsen S.A. owns the remaining 25%. The total loss of the joint venture
from the date of acquisition of MTC to December 31, 2001 was $4,879.

Income tax expense decreased $3,200 or 24.6%, to $9,800 in 2001 compared
with $13,000 in 2000. The effective tax rate was 32.8% for 2001 and 39.1% for
2000. The decrease in the effective tax rate is due to the reduction in the
valuation allowance on certain foreign tax credit carryforwards to $822 from
$2,561 at December 31, 2001 and 2000, respectively. The Company determined that
with the acquisition of MTC, it is more likely than not that certain foreign tax
credit carryforwards will be realized.

26

As a result, net income decreased $172 to $20,081 ($134.14 basic earnings
per common share and $122.14 diluted earnings per common share) in 2001 from
$20,253 ($134.85 basic earnings per common share and $122.67 diluted earnings
per common share) in 2000.

The following is a discussion of the results of operations by the Company's
lines of business.

LINER SERVICES

Operating revenues from our Liner Services segment increased $10,220 or
2.1%, to $500,808 in 2001 from $490,588 in 2000. The increase in revenues is
primarily attributable to a 2.6% increase in container and noncontainer volume,
which was offset by a .5% decrease in average revenue per TEU ("average
revenue"). The Company's container and noncontainer volume in 2001 and 2000 was
463,974 TEUs and 452,377 TEUs, respectively. The Company experienced a 2.9%
increase in the Puerto Rico and Eastern Caribbean Islands Service container and
noncontainer volume and a 2.2% increase in container and noncontainer volume in
the Latin America Service. In 2001, the Company experienced a 3.4% average
revenue decrease in the Puerto Rico and Eastern Caribbean Islands Service and a
..2% increase in the Latin America Service. The decrease in average revenue was
due to an over capacity in these trades and competitive pressures. This decrease
in average revenue was offset by an increase in other logistical services
revenues.

Operating expenses increased $15,910, or 3.4%, to $478,179 in 2001 compared
with $462,269 in 2000. These costs are driven by fuel costs, purchased
transportation 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.

Asset charges (recoveries), net decreased $868 or 182.4% to a charge of
$392 in 2001 compared with a recovery of $476 in 2000. An impairment charge on
two vessels of $484 was recorded in 2001 which was offset by gains on various
disposals of equipment of $92. In 2000, Liner Services sold one vessel and
equipment for a gain of $476.

Depreciation and amortization decreased $1,587, or 17.5%, to $7,496 in 2001
compared with $9,083 in 2000. The reduction in depreciation was due to the sale
of certain equipment in 2001 and assets becoming fully depreciated.

As a result, the operating loss from Liner Services decreased $1,765 to an
operating loss of $1,689 in 2001 compared with operating income of $76 in 2000.

SHIP ASSIST AND ESCORT SERVICES

Operating revenues from our Ship Assist and Escort Services segment
decreased $110 or 0.2%, to $71,313 in 2001 compared with $71,423 for 2000. The
decrease was directly attributable to a decrease of approximately 2.3% in the
total vessel hours utilized of the 45 vessel fleet (282,199 vessel hours
compared with 288,769 vessel hours), which was substantially offset by increases
in rates charged.

Operating expenses increased $1,704 or 2.9%, to $59,603 in 2001 compared
with $57,899 during 2000. The increase was directly attributable to an increase
in costs associated with maintenance of the vessel fleet.

Depreciation and amortization increased $5 or 16.1%, to $36 in 2001
compared with $31 in 2000. The segment maintained a similar asset base during
these two periods.

As a result, operating income for Ship Assist and Escort Services in 2001
decreased $1,336 to $11,109 compared with $12,445 for 2000.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment increased $207,340 or 142.3%, to $353,004 in
2001 compared with $145,664 for 2000. The increase was directly attributable to
the acquisition of MTC on February 7, 2001. MTC contributed $217,191 of revenue
during 2001. Vessel utilization excluding MTC was 69% for both 2001 and 2000,
but there was a slight rate

27

decrease during 2001. Vessel utilization is determined by dividing the total
number of active hours by the available hours for all the vessels in the fleet.

Operating expenses increased $174,851 or 144.3%, to $296,002 during 2001
compared with $121,151 during 2000. The increase was primarily attributable to
the acquisition of MTC. MTC contributed $185,687 of operating expenses during
2001. This increase was partially offset by a decrease in vessel related costs
due to decreased fuel costs.

Depreciation and amortization increased $14,815 or 365.3%, to $18,871
during 2001 compared with $4,056 during 2000. The increase was directly
attributable to the acquisition of MTC. MTC contributed $14,599 of additional
depreciation and amortization during 2001.

Asset charges (recoveries), net increased $442 or 38.0% to a recovery of
$1,605 in 2001 compared with a recovery of $1,163 in 2000. During 2001, three
vessels, land and miscellaneous equipment were sold for a gain of $1,605. During
2000, three vessels and miscellaneous equipment were sold for a gain of $1,163.

As a result, the operating income of Oil and Chemical Distribution and
Transportation Services increased $14,788 to $33,373 in 2001 compared with
$18,585 for 2000.

ENERGY AND MARINE SERVICES

Operating revenues from our Energy and Marine Services segment decreased
$15,780 or 17.3%, to $75,458 in 2001 compared with $91,238 for 2000. This
decrease was due primarily to a decrease in vessel utilization. Vessel
utilization during 2001 was 53% compared with 58% during 2000. The decrease in
vessel utilization was due to a decrease in oil trading activity and a decline
in general economic conditions.

Operating expenses decreased $11,774 or 11.3%, to $92,864 during 2001
compared with $104,638 in 2000. The decrease was directly attributable to the
decrease in vessel utilization. Additionally, the operating vessel fleet
decreased to 63 vessels during 2001 compared with 70 during 2000. The number of
surplus vessels held by Energy and Marine Services decreased to 12 vessels
during 2001 from 16 during 2000.

Depreciation and amortization decreased $1,949 or 13.2%, to $12,782 during
2001 compared with $14,731 during 2000. The decrease was directly attributable
to a decrease in the number of operating and surplus vessels in Energy and
Marine Services.

Asset charges (recoveries), net decreased $5,228 or 59.0% to a recovery of
$3,640 in 2001 compared with a recovery of $8,868 in 2000. During 2001, five
vessels, land and facilities and miscellaneous assets were sold for a gain of
$3,640. During 2000, 13 vessels and miscellaneous assets were sold for a gain of
$8,868.

As a result, operating income for Energy and Marine Services decreased
$10,548 to an operating loss of $836 in 2001, compared with operating income of
$9,712 for 2000.

DISCONTINUED OPERATIONS

The Company reported no income or loss from discontinued operations in 2001
and 2000. The Company had net liabilities of discontinued operations of $11,565
and $15,423, at December 31, 2001 and 2000, respectively, which are primarily
comprised of accrued liabilities for surplus leased equipment that was used in
the South America operations. These accruals require the use of estimates and
assumptions regarding the costs relating to the ultimate disposition of this
equipment. Actual results may differ from these estimates and may result in an
additional loss from discontinued operations in subsequent years.

28

LIQUIDITY AND CAPITAL RESOURCES

The following schedule summarizes contractual obligations and other
contractual commitments as of December 31, 2002:

- ---------------

(1) Other contractual commitments are related to remaining contractual spending
on the articulated tug/barge units and other vessels.

LIQUIDITY

The Company's ongoing liquidity requirements arise primarily from its need
to fund working capital, to acquire, construct, or improve equipment, to make
investments and to service debt. Management believes that cash flows from
operations will provide sufficient working capital to fund the Company's
operating needs. In 2002 and previous years, the Company has used Title XI
financing for the acquisition, construction and improvement of vessels. Recent
federal legislation has failed to fund the Title XI program for new projects.
Unless this is remedied by future legislation, this could effectively end the
Title XI program. As of December 31, 2002, the repayment of approximately $221
million of the Company's outstanding indebtedness is guaranteed by the United
States government pursuant to Title XI. The recent actions by Congress will have
no impact upon the approximately $221 million of Company indebtedness currently
subject to Title XI guarantees. Management believes that funds needed for the
acquisition and construction of vessels will continue to be available through
bank financing. In addition, the Company has generated significant proceeds from
the disposition of certain assets and believes that additional proceeds will be
generated as it sells older assets and continues to modernize its fleet.

Comparison of the Financial Condition as of December 31, 2002 and December 31,
2001

At December 31, 2002, the Company's cash and cash equivalents totaled
$43,575 ($33,421 at December 31, 2001). Net cash provided by continuing
operations was $33,220 for 2002 compared with $66,321 in 2001.

Net cash used in discontinued operations was $1,663 in 2002 compared with
net cash provided of $6,366 in 2001.

Net cash used in investing activities of continuing operations was $87,615
in 2002 compared with $147,116 in 2001. The decrease reflects the acquisition of
Marine Transport Corporation in 2001 for approximately $40,389, while receiving
proceeds of approximately $18,138 from the sale of MTL Petrolink Corp. and
purchasing a transportation services provider for $2,986 in 2002. There was a
decrease in capital expenditures ($96,933 in 2002 compared with $108,216 in
2001) associated with the construction and

29

modernization of assets of the Company. The Company has spent $11,787 for
dry-docking in 2002 compared with $2,867 spent in 2001.

Net cash provided by financing activities was $66,212 in 2002 compared with
$51 in 2001. This increase was a result of the receipt by the Company of
proceeds of $127,534 in 2002 compared with $43,058 in 2001 to finance the
construction of four articulated tug/barge units and one tug. The Company
borrowed $50,000 and repaid $25,000 on its Revolving Credit Agreement in 2002
compared with borrowings of $12,500 and repayments of $14,000 in 2001. This is
offset by $5,565 in higher debt issue costs paid ($6,568 in 2002 compared with
$1,003 in 2001) and $38,366 in higher principal payments on long-term debt
($75,238 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 $36,872 in 2001). During 2001, the
Company received proceeds from the sale of common stock to an employee benefit
plan of $2,012.

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 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 2015 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. During 2002, the Company took delivery of four
newly constructed articulated tug/barge units, the SEA RELIANCE/Barge 550-1, the
SOUND RELIANCE/Barge 550-2, the OCEAN RELIANCE/Barge 550-3, and the COASTAL
RELIANCE/Barge 550-4. The first three units were placed into service in 2002 and
the fourth unit will be placed in service in 2003. These units are being
operated by the Oil and Chemical Distribution and Transportation Services.

The Company's $115,000 Amended and Restated Credit Agreement (the
"Revolving Credit Agreement") expires in October 2004 and is collateralized by
certain vessels with a net book value of $63,794 at December 31, 2002. Borrowing
rates are based on either Eurodollar or Bank Base rates. Borrowings outstanding
under the Revolving Credit Agreement were $25,000 at December 31, 2002.
Outstanding letters of credit totaled $32,059 at December 31, 2002, leaving
additional borrowing capacity of $57,941 under the Revolving Credit Agreement.

In December 2002, the Company received $13,000 of loan proceeds to
reimburse the cost the Company incurred to construct a vessel. Interest is due
monthly and is based on LIBOR plus 1.8%. Principal payments begin monthly in
February 2005 with a balloon payment of $6,500 due January 2013.

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 was placed in escrow (with $1,557 classified as Property and Equipment)
and made 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, each of which have been delivered to the Company.
Repayment of the Facility is guaranteed pursuant to Title XI of the Merchant
Marine Act of 1936 by the United States
30

Department of Transportation, Maritime Administration. Interest on outstanding
borrowing is due semi-annually based on the applicable commercial paper rate
plus .3%, which was 1.82% at December 31, 2002. The amount outstanding at
December 31, 2002 was $49,394.

On January 16, 2003, the Company issued debt in the amount of $60,909 which
is guaranteed pursuant to Title XI of the Merchant Marine Act of 1936 by the
United States Department of Transportation, Maritime Administration. The bonds
bear interest at 4.96% and are payable in semiannual installments through 2027.
The proceeds were used to refinance construction financing used to build two
articulated tug/barge units and to reimburse the Company for incurred
expenditures.

On May 29, 2002, the Company hedged a portion of its interest rate exposure
of the $60,909 debt pursuant to the bonds described above by entering into rate
lock agreement, which has the effect of locking the underlying benchmark rate on
the permanent financing for certain constructed vessels 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 rate lock matured on
January 16, 2003 and resulted in a payment of $7,967. The fair value of the rate
lock of $8,974 has been reported as other comprehensive income (loss) at
December 31, 2002. The Company has not reclassified any amounts into interest
expense during the year ended December 31, 2002. The Company estimates that $567
will be reclassified into interest expense during 2003.

RESTRICTIVE COVENANTS

The Company's financing agreements contain restrictive covenants which
require, among other things: maintenance of a net debt (as defined in such
agreements) to stockholders' equity ratio which shall not exceed 2.5 to 1 and
reduction of debt with the proceeds derived from the sale of any vessels. The
covenants provide for a maximum net debt (as defined in such agreements) to
earnings before interest, taxes, depreciation and amortization ratio not to
exceed 6.5 to 1 in 2002 and 6.0 to 1 in 2003 and 2004. The Company is limited to
the payment of $4,000 in preferred stock dividends at December 31, 2002. The
Company was limited to $60,000 of capital expenditures for a calendar year, not
including amounts expended for its articulated tug/barge units, which are
limited to total expenditures of $210,000. The Company is prohibited from
repurchasing shares of any class of capital stock or declaring and paying any
dividend. However, the Company may repurchase common stock from employee stock
ownership plans and pay dividends up to a combined total of $10,000 in any
twelve-month period. At December 31, 2002, the Company was in compliance with
all covenants under its financing and leasing arrangements.

TRANSACTIONS WITH SPECIAL PURPOSE ENTITY

In January 1997, MTC entered into a transaction with an unconsolidated
special purpose entity ("SPE") for the sale/leaseback of a vessel that MTC
leased to a third party on a bareboat charter. MTC received a total of
approximately $40,000 in cash and a note receivable for $9,000 in exchange for
the sale/leaseback and a pledge against the charter. MTC has recorded the note
at its estimated net realizable value of $3,000. Subsequently, MTC negotiated
charter arrangements for the vessel with periods that extend through November
2006 and subsequently received approximately $25,000 from the SPE which has been
accounted for as debt with a balance of $14,395 at December 31, 2002. MTC does
not guarantee the debt of the SPE totaling approximately $25,000 at December 31,
2002. MTC has an option to purchase the vessel at fair market value, exercisable
after the underlying debt has been repaid in January 2006. The Company has no
exposure to loss as a result of its involvement with the SPE as of December 31,
2002.

Financial Accounting Standards Board Interpretation No. 46, "Consolidation
of Variable Interest Entities", clarified the accounting of certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The Company expects to consolidate the SPE described above
effective July 1, 2003, in accordance with this interpretation.

31

EFFECTS OF INFLATION

The Company does not consider inflation to be a significant risk to the
cost of doing business in the current or foreseeable future. Inflation has a
moderate impact on operating expenses, including fuel, drydocking expenses and
corporate overhead. Refer to Risk Factors included in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2002, the Company adopted SFAS 142, "Goodwill and
Other Intangible Assets" and no longer amortizes goodwill but is required to
annually evaluate goodwill for impairment. The Company identified no impairment
as a result of its evaluation of goodwill. The Company will perform its annual
test of goodwill as of June 30 of each year unless an event occurs or
circumstances change that would reduce the fair value of MTC below its carrying
amount.

The proforma effects of not amortizing goodwill had this Statement been
adopted as of January 1, 2001 are as follows:

Net income, as reported..................................... $20,081
Goodwill amortization....................................... 2,310
-------
Adjusted net income......................................... $22,391
=======
Basic earnings per common share............................. $151.13
Diluted earnings per common share........................... $136.38

SFAS 143, "Accounting for Asset Retirement Obligations" addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS 143
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company will adopt the provisions of SFAS 143 effective
January 1, 2003.

SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Company adopted the
provisions of SFAS 144 effective January 1, 2002.

SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections," became effective for
transactions occurring after May 15, 2002. The Company has adopted the
provisions of SFAS 145.

SFAS 146, "Accounting for Costs Associated with Exit or Disposal
Activities," 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 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company will adopt
the provisions of SFAS 146 effective January 1, 2003.

Financial Accounting Standards Board Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", requires the guarantor to recognize a
liability for the fair value of the obligation at the inception of the
guarantee. The disclosure requirements of this interpretation have been
incorporated into the Notes to Consolidated Financial Statements contained in
"Item 8. Financial Statements and Supplementary Data", while the recognition
provisions will be applied on a prospective basis to guarantees issued after
December 31, 2002.

The adoption of these standards either had or will have no material impact
on the Company's financial position or results of operations.

32

RISK FACTORS

If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected.

DEMAND FOR OUR SERVICES DEPENDS ON FACTORS BEYOND OUR CONTROL.

Demand for our services is dependent on a number of factors beyond our
control, including:

- worldwide demand for chemicals and petroleum products and other cargo
shipped by our customers;

- local and international political and economic conditions and policies;
and

- weather conditions.

We have high fixed costs, and downtime or low productivity due to reduced
demand or other causes can have a significant negative effect on our operating
results.

LINER SERVICES IS SUBJECT TO ECONOMIC FACTORS AND THE CYCLICAL NATURE OF ITS
BUSINESS.

Economic factors affecting the geographic regions in which Liner Services
are provided and cyclical business patterns experienced by the maritime shipping
industry have caused Liner Services' earnings to vary in the past and are likely
to cause variation in the future. There is no assurance that Liner Services will
be able to redeploy its vessels from less profitable markets into other markets
or uses. See "Item 1. Business -- Liner Services".

FLUCTUATION OF FUEL PRICES

Economic and political factors can affect fuel prices. The Company's
operations may be impacted due to the timing and our ability to pass these
changes in fuel prices to our customers.

ENERGY AND MARINE SERVICES ARE FREQUENTLY PROVIDED FOR DISCRETE PROJECTS.

Energy and Marine Services frequently provides many of its services in
response to discrete customer projects or emergency conditions and its contracts
are generally short-term, usually terminating within one year. Accordingly,
customers which account for a significant portion of operating revenues and
operating income in one fiscal year may represent an immaterial portion of
revenues in subsequent fiscal years. See "Item 1. Business -- Energy and Marine
Services".

THE COMPANY FACES INTENSE COMPETITION THAT COULD ADVERSELY AFFECT ITS ABILITY
TO INCREASE ITS MARKET SHARE AND ITS REVENUES.

Our businesses operate in highly competitive industries. These intense
levels of competition could reduce our revenues, increase our expenses and
reduce our profitability.

In addition to price, service, experience and reputation, important
competitive factors include safety record, ability to meet the customer's
schedule, customers' national flag preference, operating conditions, capability
and intended use, complexity of logistical support needs and presence of
equipment in the appropriate geographical locations.

Many of our major competitors are diversified multinational companies. Some
of these companies have substantially greater financial resources and
substantially larger operating staffs than we do. They may be better able to
compete in making vessels available more quickly and efficiently, meeting the
customer's schedule and withstanding the effect of declines in market prices.
They may also be better able to weather a downturn in our customers' industries.
As a result, we could lose customers and market share to these competitors.

33

THE COMPANY MAY INCUR SIGNIFICANT COSTS, LIABILITIES AND PENALTIES IN COMPLYING
WITH GOVERNMENT REGULATIONS.

Government regulation, such as international conventions, federal, state
and local laws and regulations in jurisdictions where the Company's vessels
operate or are registered have a significant impact on our operations. These
regulations relate to worker health and safety, the manning, construction and
operation of vessels, homeland, port and vessel security, and oil spills and
other aspects of environmental protection.

Risks of incurring substantial compliance costs and liabilities and
penalties for non-compliance, particularly with respect to environmental laws
and regulations, are inherent in the Company's business. If this happens, it
could have a substantial negative impact on the Company's profitability and
financial position. The Company cannot predict whether it will incur such costs
or penalties in the future. See " Item 1. Business -- Government Regulation".

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES EMPLOYS A NUMBER OF
TANKERS AND BARGES WHICH, IN THEIR PRESENT CONDITION, WILL NOT BE PERMITTED TO
CARRY PETROLEUM PRODUCTS IN UNITED STATES WATERS AS OF CERTAIN DATES OCCURRING
OVER THE NEXT FOUR YEARS. SEE "ITEM 1. BUSINESS -- ENVIRONMENTAL REGULATION".

In the event that the Company is not able to replace or rebuild those
tankers and barges which it currently uses to carry crude oil or petroleum
products, it could become impossible for Oil and Chemical Distribution and
Transportation Services to continue to transport crude oil and petroleum
products at current levels for its current customers between ports in the United
States. Should this occur, it could have a substantial negative impact on the
profitability of Oil and Chemical Distribution and Transportation Services.

MARINE-RELATED RISKS COULD LEAD TO THE DISRUPTION OF OUR SERVICES AND ADDED
LIABILITIES.

The operation of our vessels is subject to various risks, including
catastrophic marine disaster, adverse weather and sea conditions, capsizing,
grounding, mechanical failure, collision, oil, chemical and other hazardous
substance spills and navigation errors. These risks could endanger the safety of
our personnel, our vessels, the cargo we carry, the equipment under tow and
other property, as well as the environment. If any of these events were to
occur, the Company could be held liable for resulting damages. In addition, the
affected vessels could be removed from service and would not be available to
generate revenue.

THE COMPANY IS A DEFENDANT IN NUMEROUS ASBESTOS-RELATED LAWSUITS.

The Company is a defendant in numerous lawsuits filed on behalf of current,
retired or deceased seamen seeking damages for unspecified asbestos-related
injuries or diseases as a result of occupational exposure to fibers emitted from
asbestos-containing products in the course of employment aboard vessels owned or
operated by the Company. See "Item 3. Legal Proceedings -- Asbestos Litigation"
and Note 14 to our Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data". Additional litigation relating to these
matters may be commenced in the future. While it is not feasible to predict or
determine the ultimate outcome of all pending investigations and legal
proceedings or provide reasonable ranges of potential losses, given the large
and/or indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could have a material adverse effect on our financial condition
or operating results.

INSURANCE COVERAGE MAY NOT PROTECT THE COMPANY FROM ALL OF THE LIABILITIES THAT
COULD ARISE FROM THE RISKS INHERENT IN ITS BUSINESSES.

The Company maintains insurance coverage against the risks related to its
operations. There can be no assurance, however, that its existing insurance
coverage can be renewed at commercially reasonable rates or that available
coverage will be adequate to cover future claims. If a loss occurs that is
partially or completely uninsured, the Company could be exposed to substantial
liability.

34

While our vessels are not trading in the areas of the potential war zone, a
terrorist attack on one or more of our vessels anywhere in the world could have
a material adverse effect on our financial condition and results of operations.
Although we currently maintain the maximum available War Risk and Terrorism
liability insurance coverage that is available through the international
Protection & Indemnity Insurers, a catastrophic occurrence could result in
liability in excess of available insurance coverage, resulting in a material
adverse effect on our business.

WE DEPEND ON ATTRACTING AND RETAINING QUALIFIED, SKILLED EMPLOYEES TO OPERATE
OUR BUSINESSES AND PROTECT OUR KNOW-HOW.

Our results of operations depend in part upon our business know-how. We
believe that protection of our know-how depends in large part on our ability to
attract and retain highly skilled and qualified personnel. Any inability we
experience in the future to hire, train and retain a sufficient number of
qualified employees could impair our ability to manage and maintain our
businesses and to protect our know-how.

We require skilled employees who may have to perform physically demanding
work. As a result of the volatility of our customers' industries, particularly
the oil and petrochemical industries, and the demanding nature of the work,
potential employees may choose to pursue employment in fields that offer a more
desirable work environment at wage rates that are competitive with ours. With a
reduced pool of workers, it is possible that we will have to raise wage rates to
attract workers from other fields and to retain our current employees. If we are
not able to increase the rates we charge our customers to compensate for
wage-rate increases, our operating results may be adversely affected.

THE COMPANY IS HEAVILY DEPENDENT ON UNIONIZED LABOR.

The Company's operations are heavily dependent on unionized labor, both in
the United States and in foreign markets. Maintenance of satisfactory labor
relations is important to our operations. At December 31, 2002, approximately
62% of the Company's employees were members of unions. A protracted strike or
similar action by a union could have a material adverse effect on our results of
operations or financial condition. See "Item 1. Business -- Employees".

WE MAY NOT BE ABLE TO NEGOTIATE COLLECTIVE BARGAINING AGREEMENTS ON TERMS
FAVORABLE TO THE COMPANY.

The Company has collective bargaining agreements with 11 different unions.
These agreements will expire through 2006. There is no assurance that we will be
able to negotiate new collective bargaining agreements on terms favorable to the
Company upon expiration of the agreements. If the Company is not able to
negotiate favorable terms, it may be at a competitive disadvantage. See "Item 1.
Business -- Employees".

THERE ARE CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

Substantial amounts of our operating revenues are derived from our foreign
operations. (See Note 17 to the Consolidated Financial Statements in "Item 8.
Financial Statements and Supplementary Data".) These operations are subject to
various conditions and potential events associated with and inherent in the
conduct of business with foreign nations. These include, without limitation,
political instability, vessel seizure, nationalization of assets, fluctuating
currency values, hard currency shortages, controls of currency exchange, the
repatriation of income or capital, import-export quotas, and other forms of
public and governmental regulation, all of which are beyond our control.

While it is not possible to predict whether any of these conditions will
develop or events will occur, the development or occurrence of any one or more
of them could have a material adverse effect on our financial condition and
results of operations. While we do business in many countries outside of the
United States, substantially all such business is denominated in United States
dollars. For additional information about our foreign operations, see Note 17 of
the Notes to the Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data".

35

OTHER BUSINESS RISKS

Other risks which may affect our operations and revenues include our
ability to:

- manage our costs effectively;

- finance our operations and construct new vessels on acceptable terms;

- charter our vessels on acceptable terms; and

- manage these risks successfully.

THERE IS NO ESTABLISHED PUBLIC TRADING MARKET FOR OUR STOCK.

There is no established public trading market for our capital stock and
none is expected to develop in the foreseeable future. We do not intend to apply
for listing of any shares of our capital stock on any securities exchange. We
also will not seek to have any of our shares quoted on an interdealer quotations
system. Accordingly, no assurances can be given as to the liquidity of our
shares and the ability of the holders of our shares to sell them in secondary
market transactions, or as to the prices at which such shares may be sold.

MR. CROWLEY CAN EXERCISE CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER
APPROVAL AND COULD MAKE DECISIONS ABOUT OUR BUSINESS THAT CONFLICT WITH OTHER
STOCKHOLDERS' INTERESTS.

Thomas B. Crowley, Jr., the Chairman of the Board of Directors, President
and Chief Executive Officer of the Company, owns or is deemed to own
approximately 64.8% of our outstanding common stock, 100% of our Class N common
stock, and approximately 99.9% of our outstanding Series A preferred stock. See
"Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters", in the 2003 Proxy Statement. This ownership gives Mr.
Crowley approximately 77.8% of the total votes attributable to our outstanding
voting stock. Because the Series A preferred stock is entitled to vote along
with the shares of common stock, Mr. Crowley's stock ownership means that he is
able to exercise control over all matters requiring stockholder approval even if
other stockholders oppose them. As a result, Mr. Crowley controls all matters
affecting the Company, including:

- the composition of our board of directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers;

- any determinations with respect to mergers or other business
combinations;

- our acquisition or disposition of assets;

- our financing arrangements; and

- the payment of dividends on our stock.

Mr. Crowley and his family are the beneficiaries of certain split-dollar
life insurance agreements, as more fully described in the 2003 Proxy Statement.
The Board of Directors has approved these agreements in furtherance of its
belief that preserving Crowley family control and the closely held nature of the
Company is beneficial to the Company's stockholders and will maximize
stockholder value over the long-term. The Board of Directors has long been
concerned that short-term and long-term estate tax and other obligations of
certain Crowley family stockholders could lead to an unrelated third party
gaining a highly influential and potentially detrimental position with respect
to the business and management of the Company. Such circumstances also could
lead to stock falling into the hands of speculative investors who may later
attempt to disrupt Company affairs in order to encourage the Company to take
action favorable to such investors, yet not in the best interests of the Company
and remaining stockholders.

The Board of Directors also has been concerned that should the Company
receive a request to purchase shares held by such stockholders or their estates
in lieu of a possible sale to such investors, the Company would be unable to
effect such a purchase without negatively impacting its results of operations or
financial condition. In this regard, the spit-dollar life insurance agreements
enable Mr. Crowley and certain trusts for the benefit of his descendants to
purchase most, if not all, of such shares without involving the Company.
36

The Company expects that following the death of Mrs. Molly M. Crowley the
net proceeds of the policies of insurance on the life of Mrs. Crowley will be
used by Mr. Crowley and the trusts under his control to purchase shares of
Common Stock held by the Thomas B. Crowley Marital Trust so that this trust can
pay applicable estate taxes. Essentially, the split dollar life insurance
agreements enable Mr. Crowley and his family to retain ownership of shares and
control of the Company under circumstances when certain of such shares otherwise
might have to be sold to a third party to pay applicable estate taxes. See
"Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters," in the 2003 Proxy Statement.

ITEM 7A. 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. A discussion of
the Company's credit risk and the fair value of financial instruments is
included in Note 11 of the Company's consolidated financial statements. See
"Item 8. Financial Statements and Supplementary Data."

The Company's debt is primarily in fixed interest rate instruments. While
the fair value of these debt instruments will vary with changes in interest
rates, the Company has fixed most of its cash flow requirements and its
operations are not significantly impacted by interest rate fluctuations.

The Company leases certain equipment under operating leases which are
subject to interest rate risk. Payments under these leases are adjusted based on
a variable interest rate. At the end of the lease term, the Company may purchase
the equipment by paying the amount remaining under the lease, sell the equipment
and repay an amount remaining under the lease, or renegotiate the lease to
extend the term. If the Company was to purchase the equipment, the Company would
be at risk that the fair value of the equipment may be less than the amount
required to purchase it.

The following table provides information about the Company's non-trading
financial instruments sensitive to changes in interest rates at December 31,
2002. For debt obligations, the table presents principal cash flows and
corresponding weighted average interest rates by expected maturity dates. For
operating leases, the table presents future minimum lease payments and
corresponding weighted average interest rates by expected payment dates.
Weighted average variable rates are based on rates in place at the reporting
date.

On May 29, 2002, the Company hedged a portion of its interest rate exposure
on certain Title XI borrowings issued on January 16, 2003 by entering into a
rate lock agreement, which has the effect of locking the underlying benchmark
rate on the permanent financing for certain constructed vessels 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 rate lock matured on
January 16, 2003 and resulted in a payment of $7,967. The fair value of the rate
lock of $8,974 has been reported as other comprehensive income (loss) at
December 31, 2002. The

37

Company has not reclassified any amounts into interest expense during the year
ended December 31, 2002. The Company estimates that $567 will be reclassified
into interest expense during 2003.

During the second quarter of 2002, the Company recognized translation
losses on its net assets in Venezuela in other comprehensive loss due to the
functional currency being identified as the Venezuelan Bolivar. For the year
ended December 31, 2002, the Company has recorded a reduction to its assets and
liabilities in the amount of $2,308 and recorded an unrealized loss of $1,477,
net of $831 in deferred taxes to other comprehensive loss. Amounts were
determined as of December 31, 2002 based on the foreign currency exchange rate
of the Bolivar with the U.S. dollar.

The Company's market risk exposure has not changed materially since
December 31, 2002.

38

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

Independent Auditors' Report................................ 40
Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000.......................... 41
Consolidated Balance Sheets as of December 31, 2002 and
2001...................................................... 42
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2002, 2001 and 2000.............. 43
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.......................... 44
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2002, 2001 and 2000.................... 45
Schedule II -- Valuation and Qualifying Accounts............ 64

39

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Crowley Maritime Corporation
Oakland, California

We have audited the accompanying consolidated balance sheets of Crowley
Maritime Corporation and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedule listed in the Table of
Contents at Item 8. These financial statements and financial statement schedule
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Crowley Maritime Corporation
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Corporation changed its method of accounting for goodwill
to conform to Statement of Financial Accounting Standards No. 142.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Jacksonville, Florida
February 14, 2003

40

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of the consolidated financial
statements.
41

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The accompanying notes are an integral part of the consolidated financial
statements.
42

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The accompanying notes are an integral part of the consolidated financial
statements.
43

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS)

The accompanying notes are an integral part of the consolidated financial
statements.
44

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Crowley Maritime Corporation, operating through its subsidiaries (the
"Company"), is comprised of four principal business segments: Liner Services;
Ship Assist and Escort Services; Oil and Chemical Distribution and
Transportation Services; and Energy and Marine Services. The Liner Services
segment consists of scheduled common carrier services and logistic services. The
Ship Assist and Escort Services segment provides ship assist, tanker escort,
docking and related services. The Oil and Chemical Distribution and
Transportation Services segment uses vessels for the carriage of crude oil,
petroleum products and chemicals. The Energy and Marine Services segment
provides specialized services to companies engaged, on a worldwide basis, in the
exploration, production and distribution of oil and gas. The Company operates in
the United States, Mexico, Central America, South America, the Caribbean,
Russia, and other international markets.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Crowley
Maritime Corporation and all majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. The Company has
joint ventures that it maintains more than a 50% ownership interest in and
maintains effective control over their operations. Based on this, the Company
consolidates these joint ventures and records minority interest for the
partners' ownership interests in the joint ventures.

RECLASSIFICATION

Certain items in prior year's consolidated financial statements have been
reclassified to conform with the current year presentation.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid securities primarily invested in
overnight repurchase agreements with original maturities of three months or less
to be cash equivalents. These securities are stated at cost, which approximates
fair value.

GOODWILL

Goodwill represents the excess costs of acquired companies over the fair
value of their net tangible assets. With the acquisition of Marine Transport
Corporation ("MTC") on February 7, 2001, goodwill was recorded and amortized on
the straight-line method over 20 years. Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards 142, "Goodwill and Other
Intangible Assets" and no longer amortizes goodwill but is required to annually
evaluate goodwill for impairment. The Company identified no impairment as a
result of its evaluation of goodwill. The Company will perform its annual test
of goodwill as of June 30 of each year unless an event occurs or circumstances
change that would reduce the fair value of MTC below its carrying amount.

45

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The proforma effects of not amortizing goodwill had this Statement been
adopted as of January 1, 2001 are as follows:

Net income, as reported..................................... $20,081
Goodwill amortization....................................... 2,310
-------
Adjusted net income......................................... $22,391
=======
Basic earnings per common share............................. $151.13
Diluted earnings per common share........................... $136.38

INTANGIBLES

Deferred financing costs are amortized on the effective interest method
over the terms of the related financing. Non-compete agreements are amortized
over 5 years.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Renewals and refurbishments
which extend asset useful lives are capitalized while normal repair and
maintenance expenditures are charged to expense as incurred. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets as follows: floating equipment (15 to 25 years); other operating
equipment (5 to 20 years); and buildings (5 to 25 years). Leasehold improvements
are depreciated over the lesser of their estimated useful lives of 20 years or
the remaining lease term. Interest is capitalized in conjunction with the
construction and refurbishment of vessels. Costs associated with the development
of internal use software are capitalized.

Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.

The Company assesses recoverability of the carrying value of the asset by
estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value. Impairment losses
are recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the asset's carrying amount.

DRY-DOCKING

Dry-docking costs for major vessels are deferred and amortized over the
estimated period between dry-dockings. Dry-docking inspections are required
generally every two to three years for regulatory purposes to demonstrate that a
vessel meets standards established by the U.S. Coast Guard and the American
Bureau of Shipping. Amortization expense of the dry-docking costs was $6,040,
$1,718, and $1,327 in 2002, 2001, and 2000, respectively.

DEFERRED GAIN

A gain on the sale and leaseback of two vessels has been deferred and is
amortized over the life of the operating lease, which expires in 2004.

46

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

REVENUE RECOGNITION

The Company's accounting policies for revenue recognition are predicated on
the type of service provided. The common carrier services included in Liner
Services are recognized ratably over each voyage by load and discharge port. The
Company's logistics services and Ship Assist and Escort Services are recognized
as services are provided. Revenue from the Oil and Chemical Distribution and
Transportation Services and Energy and Marine Services is recognized ratably
over the length of the contract. Estimated losses are recognized at the time
such losses become evident.

INCOME TAXES

The Company accounts for certain income and expense items for financial
reporting differently than for income tax purposes. The deferred tax liabilities
or assets are determined based on differences between the financial statement
carrying values and the tax basis of assets and liabilities. Deferred tax assets
and liabilities are determined based on current enacted tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
settled or realized.

EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income
attributable to common shareholders by the weighted average number of shares of
Common Stock and Class N Common Stock outstanding during each year. Shares
issued during the year and shares reacquired during the year are weighted for
the portion of the year that they were outstanding. Diluted earnings per common
share is computed by giving effect to all potentially dilutive common shares,
which are Preferred Class A Convertible Stock, that were outstanding during the
period.

INSURANCE

The Company is self-insured for marine, liability, cargo and medical
coverages. Reinsurance is obtained to cover losses in excess of certain limits.
Provisions for losses are determined on the basis of claim adjusters'
evaluations and other estimates including those for salvage and subrogation
recoveries. Such provisions and any related claim receivables are recorded when
insured events occur. The determinations of such estimates and the establishment
of the related reserves are continually reviewed and updated; however, the
actual provisions and claims receivable have not differed materially from
accrued estimated amounts. Any adjustments resulting from these reviews are
reflected in current operations.

ENVIRONMENTAL COSTS

Environmental costs represent reclamation costs filed against the Company.
Environmental expenditures for reclamation costs that benefit future periods are
capitalized. Expenditures that relate to remediating an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when the Company's
responsibility for environmental remedial efforts is deemed probable and the
costs can be reasonably estimated. The ultimate future environmental costs,
however, will depend on the extent of contamination of property and the
Company's share of remediation responsibility. The recorded liabilities for
estimated future environmental costs at December 31, 2002 and 2001 are
approximately $5,440 and $4,054, respectively.

47

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

FOREIGN CURRENCY TRANSLATION

For non-U.S. subsidiaries whose functional currency is not the U.S. dollar,
the results of operations 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 as other comprehensive income (loss) 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 accounted for as cash flow hedges 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.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues, expenses, and disclosure of contingent
assets and liabilities during the reporting period. Actual results may differ
from these estimates.

NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company will adopt the provisions of SFAS 143 effective January 1, 2003.

SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Company adopted the
provisions of SFAS 144 effective January 1, 2002.

SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections," became effective for
transactions occurring after May 15, 2002. The Company has adopted the
provisions of SFAS 145.

SFAS 146, "Accounting for Costs Associated with Exit or Disposal
Activities," 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 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company will adopt
the provisions of SFAS 146 effective January 1, 2003.

Financial Accounting Standards Board Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others", requires the guarantor to recognize a
liability for the fair value of the obligation at the inception of the
guarantee. The disclosure requirements of this interpretation have been
incorporated into these Notes to Consolidated

48

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Financial Statements, while the recognition provisions will be applied on a
prospective basis to guarantees issued after December 31, 2002.

The adoption of these standards either had or will have no material impact
on the Company's financial position or results of operations.

Financial Accounting Standards Board Interpretation No. 46, "Consolidation
of Variable Interest Entities", clarified the accounting of certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The Company expects to consolidate the SPE described in Note 8
effective July 1, 2003, in accordance with this interpretation.

NOTE 2 -- ACQUISITIONS AND SALES OF BUSINESSES

On February 7, 2001, the Company acquired all of the outstanding shares of
MTC for a total cost of approximately $49,130. The acquisition of MTC was
accounted for as a purchase and, accordingly, the Consolidated Statements of
Operations include the results of MTC beginning February 7, 2001. The purchase
price was allocated to the assets acquired and liabilities assumed based on the
estimated relative fair values. Goodwill of $50,752 was recognized for the
amount of the excess of the purchase price paid over the fair market value of
the net assets acquired.

The purchase price of the acquisition of MTC was allocated to the assets
purchased and the liabilities assumed based upon the relative fair values on the
date of acquisition as follows:

Cash........................................................ $ 8,740
Other current assets........................................ 33,129
Other assets................................................ 9,354
Goodwill.................................................... 50,752
Property and equipment...................................... 68,768
Current liabilities......................................... (41,980)
Other liabilities........................................... (27,838)
Long-term debt.............................................. (51,795)
--------
$ 49,130
========

On May 15, 2002, the Company sold all of the outstanding common stock of
MTL Petrolink Corp. (a subsidiary of MTC) for $18,000, subject to certain
working capital adjustments. Based on working capital adjustments, net proceeds
from the sale 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.

Subsequent to its acquisition of MTC, the Company decided to sell MTL
Petrolink Corp. In its allocation of the purchase price of MTC, the Company made
no effort to separately determine the fair value of MTL Petrolink Corp. The
Company recorded the excess of the sales price, net of selling costs, over the
net asset value of MTL Petrolink Corp. as a purchase price adjustment resulting
in a reduction to goodwill in the amount of $3,345.

The following unaudited pro forma results of operations for the years ended
December 31, 2002, 2001 and 2000, are presented as if the purchase of MTC and
subsequent sale of MTL Petrolink Corp. had been

49

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

completed on January 1, 2000. The pro forma results include estimates and
assumptions which management believes are reasonable. However, pro forma results
do not include any anticipated cost savings or other effects of the planned
integration of the Company and MTC, and are not necessarily indicative of the
results which would have occurred if the business combination had been in effect
on the dates indicated, or which may result in the future.

In October 2002, the Company purchased the assets of a transportation
services provider which is included in the Liner Services business segment. The
purchase price was $2,986 and consisted of the following:

Accounts receivable......................................... $ 861
Property and equipment...................................... 99
Non-compete agreement....................................... 2,026
------
$2,986
======

NOTE 3 -- RECEIVABLES

Receivables consist of the following at December 31, 2002 and 2001:

Other receivables include insurance claims receivable from third party
reinsurance companies, tax claims receivables, pollution claims receivables,
maintenance and repair receivables from third party shipping companies and
miscellaneous receivables from customers for drayage, terminal use, purchased
transportation and wharfage.

NOTE 4 -- RECEIVABLE FROM RELATED PARTY

The Company has entered into a Split Dollar Life Insurance Agreement
("Agreement") with the Company's Chairman of the Board, Chief Executive Officer,
President and principal shareholder (the "Employee") whereby the Company pays
the premiums on certain life insurance policies ("Policies"). Upon death of the
insureds, the Company will receive the total paid for premiums under the
policies, net of certain payments made by or on behalf of the Employee. If the
Company and insureds terminate the Agreement, the Company will be paid an amount
equal to the lesser of the Policy cash surrender value or the amounts of

50

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

premiums paid by the Company reduced by certain payments made by or on behalf of
the Employee. The Company has accounted for this receivable at the lower of the
net premium payments made or the cash surrender value of the Policies. The
receivable is non-interest bearing and is stated at the amount the Company is
entitled to receive under the agreement. Net premiums paid in 2002, 2001, and
2000 were $2,700, $2,979, and $2,999, respectively.

NOTE 5 -- INTANGIBLES

The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of December 31, 2002 are as follows:

Amortization expense recorded on the intangible assets for the years ended
December 31, 2002, 2001, and 2000 was $2,147, $1,268, and $421, respectively.
The amortization expense for each of the five succeeding fiscal years is as
follows:

For the fiscal year ended December 31:
2003........................................................ $1,364
2004........................................................ 1,297
2005........................................................ 1,214
2006........................................................ 1,188
2007........................................................ 1,041

NOTE 6 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 2002 and
2001:

Restricted cash and cash equivalents included in property and equipment
represent funds restricted by lenders for the future purchase of property and
equipment. Depreciation and amortization of property and

51

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

equipment was $48,078, $47,315, and $37,360 for the years ended December 31,
2002, 2001, and 2000, respectively.

Capitalized interest is recorded as part of the asset to which it relates
and is amortized over the estimated useful life of the asset. Interest of
$4,489, $1,584, and $944 was capitalized in 2002, 2001, and 2000, respectively.

NOTE 7 -- ASSET CHARGES (RECOVERIES), NET

The components of asset charges (recoveries), net for the years ended
December 31, 2002, 2001, and 2000 are as follows:

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 insurance proceeds based upon the damage to the
vessel caused by the fire. The net book value of the vessel was $2,009.
Accordingly, the Company has recognized a gain net of incurred costs from
involuntary conversion of $3,897.

The Company has certain vessels it has designated as surplus and has
implemented a plan of disposal. The Company evaluated the recoverability of its
carrying value of these vessels and as a result recorded a write down of $5,487
and $484 in 2002 and 2001, respectively. No write downs were recorded in 2000.
The net book value of these vessels at December 31, 2002 is $6,410.

NOTE 8 -- LEASES AND LEASE COMMITMENTS

The Company leases and subleases vessels on both a time charter and
bareboat charter basis, as well as terminals, office facilities, and operating
equipment.

Future minimum annual rental payments and receipts required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 2002 are summarized as follows:

Total rental expense for all leases, including short-term leases, was
approximately $148,000, $174,000, and $106,000 for the years ended December 31,
2002, 2001, and 2000, respectively.
52

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Certain lease agreements contain restrictive covenants which require the
maintenance of minimum amounts of net worth. Furthermore, a vessel with a net
book value of $10,781 at December 31, 2002 has been pledged as collateral on
certain equipment leases.

In January 1997, MTC entered into a transaction with an unconsolidated
special purpose entity ("SPE") for the sale/leaseback of a vessel that MTC
leased to a third party on a bareboat charter. MTC received a total of
approximately $40,000 in cash and a note receivable for $9,000 in exchange for
the sale/leaseback and a pledge against the charter. MTC has recorded the note
at its estimated net realizable value of $3,000. Subsequently, MTC negotiated
charter arrangements for the vessel with periods that extend through November
2006 and subsequently received approximately $25,000 from the SPE which has been
accounted for as debt with a balance of $14,395 at December 31, 2002. MTC does
not guarantee the debt of the SPE totaling approximately $25,000 at December 31,
2002. MTC has an option to purchase the vessel at fair market value, exercisable
after the underlying debt has been repaid in January 2006. The future minimum
annual lease payments under this leasing arrangement are included in the amounts
presented above. The Company has no exposure to loss as a result of its
involvement with the SPE as of December 31, 2002.

NOTE 9 -- LONG-TERM DEBT

Long-term debt consists of the following at December 31, 2002 and 2001:

The Company's $115,000 Amended and Restated Credit Agreement (the
"Revolving Credit Agreement") expires October 2004. Borrowing rates are based on
either Eurodollar or Bank Base rates. Borrowings outstanding under the Revolving
Credit Agreement was $25,000 at December 31, 2002. Outstanding letters of

53

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

credit totaled $32,059 at December 31, 2002, leaving additional borrowing
capacity of $57,941 under the Revolving Credit Agreement.

On May 29, 2002, the Company hedged a portion of its interest rate exposure
on certain Title XI borrowings in the above table by entering into a rate lock
agreement, which has the effect of locking the underlying benchmark rate on the
permanent financing for certain constructed vessels 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 rate lock matured on
January 16, 2003 and resulted in a payment of $7,967. The Company has not
reclassified any amounts into interest expense during the year ended December
31, 2002. The Company estimates that $567 will be reclassified into interest
expense during 2003.

On April 17, 2002 the Company refinanced the $10,200 New Jersey Industrial
Revenue Bonds issued by the New Jersey Economic Development Authority for which
the Company is the obligor. The new bonds are variable rate instruments which
mature in 2013. The Company makes semi-annual interest payments with annual
principal payments of $1,100 beginning April 1, 2006 through April 1, 2012 and a
balloon principal payment of $2,500 on April 1, 2013.

Pursuant to a joint venture agreement, the Company and Stolt-Nielsen S.A.
("Stolt") severally guarantee Title XI debt of $13,304 at December 31, 2002,
with the Company providing a 75% guaranty and Stolt providing a 25% guaranty.
The amount of these guarantees at December 31, 2002 is $9,978 and $3,326,
respectively. Occidental Petroleum Corporation also provides a reducing guaranty
of bareboat hire payments to fund debt service payments, in an amount originally
up to $6,000 in favor of the United States of America. The amount of the
guaranty at December 31, 2002 is $5,424. The Company's Marketable Securities and
Cash held in the Capital Construction Fund in Other Assets, with a balance of
$4,874 at December 31, 2002, has also been pledged as security for the Title XI
debt and may, under certain circumstances, be employed to reduce the outstanding
principal amount.

The Company's financing agreements contain restrictive covenants which
require, among other things: maintenance of a net debt (as defined in such
agreements) to stockholders' equity ratio which shall not exceed 2.5 to 1 and
reduction of debt with the proceeds derived from the sale of any vessels. The
covenants provide for a maximum net debt (as defined in such agreements) to
earnings before interest, taxes, depreciation and amortization ratio not to
exceed 6.5 to 1 in 2002 and 6.0 to 1 in 2003 and 2004. The Company is limited to
the payment of $4,000 in preferred stock dividends at December 31, 2002. The
Company was limited to $60,000 of capital expenditures for a calendar year, not
including amounts expended for its articulated tug/barge units, which are
limited to total expenditures of $210,000. The Company is prohibited from
repurchasing shares of any class of capital stock or declaring and paying any
dividend. However, the Company may repurchase common stock from employee stock
ownership plans, pay dividends and redeem Redeemable Preferred Stock -- Class B
in any twelve-month period up to a combined total of $10,000. At December 31,
2002, the Company was in compliance with all covenants under its financing and
leasing arrangements.

54

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Annual scheduled payments for long-term debt as of December 31, 2002 are as
follows:

2003........................................................ $ 29,357
2004........................................................ 48,989
2005........................................................ 24,357
2006........................................................ 20,332
2007........................................................ 16,498
Thereafter.................................................. 185,843
--------
$325,376
========

Total interest expense for the years ended December 31, 2002, 2001, and
2000 was $19,971, $17,258, and $12,782, respectively.

NOTE 10 -- INCOME TAXES

The income tax provision on income from continuing operations includes the
following for the years ended December 31, 2002, 2001, and 2000:

55

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

A reconciliation of the federal statutory income tax rate for 2002, 2001,
and 2000 of 35%, and the provision for federal, foreign, and state taxes on
income is as follows for the years ended December 31, 2002, 2001, and 2000:

The net deferred income tax assets (liabilities), both current and
noncurrent, result from the tax effects of the following temporary differences
at December 31, 2002 and 2001:

Under its agreement with the U.S. Government, the Company is allowed to
make deposits to the Capital Construction Fund ("CCF") of earnings and gains
from qualified operations without payment of federal taxes. CCF cash and
marketable securities are restricted to provide for the replacement of vessels,
additional vessels, or improvement of vessels within strict guidelines
established by the U.S. Maritime Administration for use of

56

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

these funds. Any withdrawals of funds for purposes other than those permitted
will result in a taxable event, equivalent to the statutory tax rate. Taxes on
CCF deposits and earnings made prior to January 1, 1993 are being recognized
over the remaining lives of the assets purchased with qualified CCF withdrawals.
At December 31, 2002, 2001, and 2000, the difference between the book and tax
basis of assets as a result of these past deposits for which the Company has not
provided taxes, is approximately $19,000, $21,000, and $24,000, respectively.

The Company has alternative minimum tax credit carryforwards of
approximately $8,262, which have no expiration date, available to offset future
federal taxes.

NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts of financial instruments have been
determined by the Company using available market information and valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. In addition, costs of refinancing
and/or prepayment penalties have not been considered. Accordingly, the estimates
presented are not indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies could have a material effect on the estimated fair
value amount.

The methods and assumptions used to estimate the fair value of each class
of financial instruments, which potentially subject the Company to
concentrations of credit risk, are set forth below:

- Cash and cash equivalents, marketable securities, and cash held in the
Capital Construction Fund -- The Company places its temporary cash
investments with high credit quality financial institutions and, by
policy, limits the amount of credit exposure to any one financial
institution. The carrying amounts reported in the Consolidated Balance
Sheet for these items approximate fair value at December 31, 2002 and
2001.

- Trade receivables -- Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising
the Company's customer base, and their dispersion across many diverse
industries and geographies. The carrying amounts reported in the
Consolidated Balance Sheet for trade receivables approximate fair value
at December 31, 2002 and 2001.

- Long-term debt -- Valuations for long-term debt are determined based on
borrowing rates currently available to the Company for loans with similar
terms and maturities. At December 31, 2002, the estimated fair value of
the Company's debt, with a carrying value of $325,376, is $347,250. At
December 31, 2001, the estimated fair value of the Company's debt, with a
carrying value of $248,080, was $249,760.

- Rate lock agreements -- Valuations of rate lock agreements are based on
quoted market values. The Company's rate lock agreement is recorded at
fair value of $8,974 at December 31, 2002.

NOTE 12 -- STOCKHOLDERS' EQUITY

PREFERRED STOCK

Dividends on preferred class A convertible stock are cumulative at 5% per
annum, payable annually on July 1st. Cumulative dividends in arrears bear
interest at a rate determined by the Board of Directors between 8% and 12%,
inclusive, compounded annually. There are no dividends in arrears at December
31, 2002. These shares, together with unpaid cumulative dividends and interest,
if any, are convertible to common stock at a conversion price of $1,200 per
share, subject to specified anti-dilution adjustments. Shares may be redeemed,
at the Company's option, for $100 per share plus unpaid cumulative dividends and
interest.

57

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

EARNINGS PER COMMON SHARE

The computations of the numerator and denominator for calculating basic and
diluted earnings per common share for the years ended December 31, 2002, 2001,
and 2000 are as follows:

NOTE 13 -- EMPLOYEE BENEFIT PLANS

The Company contributes to Company and multi-employer pension plans
covering substantially all employees. The Company sponsors the Crowley
Retirement Income System Plan (the "CRISP"). The CRISP is a profit sharing plan
designed to provide eligible employees with retirement, death and disability
benefits. The Company contributes 3% of eligible earnings to participants'
accounts and matches 50% of employee contributions up to 6%.

The Company has a deferred compensation plan for which the participants and
annual contributions, if any, are determined by the Board of Directors.
Participants become fully vested five years after entering the plan, upon
attaining age 65, upon death or if the Company meets certain operating income
targets. Funds may be distributed, at the participant's election, at the end of
the five years, at attainment of age 65 or upon retirement or death.
Contributions are placed in an irrevocable trust available only to the
participants and the Company's creditors, and the individual accounts are
invested at the participant's election.

The Company also sponsors the Retirement Stock Plan ("RSP"). Contributions
to the RSP are made by the Company based on an annual determination made by the
Board of Directors. If stock is contributed, the stock is valued at the stock's
non-marketable fair value, as determined by an independent appraisal. The RSP
purchased 2,010 shares of stock in 2001. At December 31, 2002, 2001, and 2000,
the plan held 9,482, 9,572, and 7,626 shares of common stock, respectively.
Vesting occurs upon completion of five years of credited service or upon the
attainment of age 65, disability retirement or death. In the event of
termination prior to becoming vested, the participant's account balance is
forfeited and reallocated to active participants. Vested participants are
eligible for immediate distribution of benefits upon death, disability
retirement or normal retirement. All other vested participants are eligible for
distribution of benefits, in the form of Crowley stock, in the third calendar
year following termination of employment. The Company has the right to acquire
stock after distribution at the stock's non-marketable fair value, as determined
by an independent appraisal.

The Company also sponsors the Stock Savings Plan ("SSP"), an employee stock
ownership plan which holds 5,069 shares of common stock at December 31, 2002,
all of which are fully vested. Participants in this plan have the option to sell
their stock to the Company at the common stock's marketable fair value, as

58

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

determined by an independent appraisal, upon retirement, death or after a break
in service. No contributions were made during the years ended December 31, 2002,
2001, and 2000.

Pursuant to collective bargaining agreements with labor unions representing
the Company's sea-going personnel, contributions are also made to various
defined benefit and defined contribution pension and welfare plans, including
some multi-employer plans, in accordance with their terms.

Expenses included in operations under the Company's benefit plans are as
follows for the years ended December 31, 2002, 2001 and 2000:

NOTE 14 -- COMMITMENTS AND CONTINGENCIES

The Company is subject to various foreign and domestic legal and regulatory
rules and certain proceedings arising therefrom in the conduct of normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse or beneficial effect on the Company's
consolidated financial condition or results of operations.

During 2002, the Company reached an agreement with its insurance
underwriters to settle all costs incurred to date and any future costs related
to environmental remediation resulting from occurrences prior to 1986. The
amount of the settlement was $5,324, net of unrecoverable amounts due to the
insolvency of certain underwriters, and is recorded in Other Receivables at
December 31, 2002. In conjunction with this settlement the Company increased its
estimated liabilities $3,095 for any remaining environmental remediation. That
resulted in the Company recognizing $2,229 as a reduction to claims expense in
the current year.

The Company is currently a defendant with respect to approximately 15,000
maritime asbestos cases and other toxic tort cases, most of which were filed in
the Federal Courts in Ohio, Michigan, and New Jersey. Additional cases were
filed in the Territorial Court of the Virgin Islands, and in state courts in
Utah, Pennsylvania, Texas, and Louisiana. Each of the cases, filed on behalf of
a seaman or his personal representative, alleges injury or illness based upon
exposure to asbestos or other toxic substances and sets forth a claim based upon
the theory of negligence under the Jones Act and on the theory of
unseaworthiness under the General Maritime Law. Pursuant to an order issued by
the Judicial Panel on Multidistrict Litigation dated July 29, 1991, all Federal
cases were transferred to the United States District Court for the Eastern
Division of Pennsylvania for pretrial processing. On May 1, 1996, the cases were
administratively dismissed by Judge Charles R. Weiner, subject to reinstatement
in the future. At present it is not known how long the process will require. It
is not known whether Judge Weiner will be able to develop a plan which will
result in settlement of the cases. If he is unsuccessful, upon reinstatement,
the cases should be remanded to the Ohio, Michigan, and New Jersey courts.

The Company is also party to numerous long-term contracts for shipment of
goods for other parties. Several of these contracts include clauses under which
contract prices may change if certain economic events occur, primarily increases
or decreases in certain components of vessel operating costs. These contracts
are subject to audit by the cargo owners. Management has estimated the
applicable amount of revenue to record for these contracts and, although it is
at least reasonably possible that contract prices will change in the near term,
management believes that it has accounted for these contracts appropriately. It
is management's opinion

59

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

that adjustments, if any, will not have a material adverse impact on the
Company's consolidated financial condition or results of operations.

Contractual commitments for the completion of construction of 3 vessels,
the construction of a tank farm and software maintenance agreements totaling
approximately $13,960 have been signed. Payments of approximately $1,276 have
been made through December 31, 2002.

NOTE 15 -- ADDITIONAL CASH FLOW INFORMATION

Interest paid, net of amounts capitalized, and income tax payments for the
years ended December 31, 2002, 2001 and 2000 are as follows:

NOTE 16 -- DISCONTINUED OPERATIONS

On April 1, 1999, the Company adopted a plan to sell its South America
trade lanes, river barging operations, related subsidiaries, vessels and certain
other assets. Related to the sale, the Company adopted a strategy to exit
operations of several other South America operations. During 2001, the Company
sold certain surplus equipment remaining from the sale of its South America
operations. Proceeds from the sale were $4,000.

The total proceeds from these sales transactions were approximately
$103,500 of which $8,200, $54,700 and $39,600 was collected in 2001, 2000 and
1999, respectively. The remaining balance of $1,000 is a note receivable that
will be collected over a 5-year period ending in 2006.

The components of liabilities of discontinued operations included in the
Company's Consolidated Balance Sheets at December 31, 2002 and 2001 are as
follows:

NOTE 17 -- FINANCIAL INFORMATION BY SEGMENT AND GEOGRAPHIC AREA

SEGMENT INFORMATION

Segment information has been prepared in accordance with Statement of
Financial Accounting Standards 131, "Disclosures about Segments of an Enterprise
and Related Information." Segments were determined based on the types of
services provided by each segment. Accounting policies of the segments are the
same as those described in the summary of significant accounting policies.
Performance of the segments is evaluated on operating revenue, intersegment
revenue, and operating income. The Company accounts for intersegment revenue and
transfers at cost.

The Company provides diversified transportation services in domestic and
international markets by means of six operating segments: Puerto Rico and
Caribbean Liner Service; Latin America Liner Service; Crowley Logistics; Ship
Assist and Escort Services; Oil and Chemical Distribution and Transportation
Services; and Energy and Marine Services.

60

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The Company has aggregated Puerto Rico and Caribbean Liner Service, Latin
America Liner Service and Crowley Logistics into one reportable segment called
Liner Services. These operating segments are aggregated based on their long-term
financial performance, their products and services and their class of customers
being similar.

Liner Services provides ocean transportation services for the carriage of
cargo between two geographic areas: (1) ports in the United States and ports in
Puerto Rico and certain eastern Caribbean islands; and (2) ports in the United
States and ports in Mexico, Central America, the Northern Coast of South America
and certain Western Caribbean islands. The Liner Services segment provides a
broad range of transportation services including the carriage of containers,
trailers, vehicles and oversized cargo known as "NIT service", cargo on a
door-to-door basis known as "intermodal service", logistics, warehousing and
distribution services, special cargo handling, including the carriage of
apparel, refrigerated or perishable goods and hazardous materials, and vessel
management services for third parties including the United States Government.
The Liner Services Segment also provides minor sub-assembly services to one or
more of its customers.

Ship Assist and Escort Services segment provides ship assist, tanker
escort, docking and related services, and fire fighting and oil spill response
through contracts of affreightment, and voyage, time and bareboat charters for
periods ranging from a single voyage to long-term arrangements.

Oil and Chemical Distribution and Transportation Services segment owns or
leases numerous vessels used for the carriage of crude oil, petroleum products
and chemicals. This segment also owns and operates three tank farms and provides
vessel management services to third parties for which it receives fees.

Energy and Marine Services segment provides specialized services to
companies engaged, on a worldwide basis, in the exploration, production and
distribution of oil and gas. These services are traditionally provided through
specialized marine transportation projects which use assets either owned by the
Company or chartered from the world market as needed. This segment also offers
turnkey project management for major infrastructure projects as well as
logistics and inventory control services for the oil and gas industry.

Other segment includes corporate services. Corporate services provides
accounting, legal, human resources, information technology, purchasing support,
insurance services and vessel acquisition to the Company's operating segments
and allocates 100% of their associated costs to the operating segments. Asset
charges (recoveries) are allocated to the segment that used the asset.

61

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The table below summarizes certain financial information of the Company's
segments and reconciles such information to the consolidated financial
statements for the years ended December 31, 2002, 2001, and 2000. The Company
does not segregate assets or expenditures to long lived assets by reporting
segment; therefore these amounts are reported in Other. Additionally, the
Company does not allocate interest expense, interest income or income taxes to
operating segments. Accordingly, such amounts are included in Other.

- ---------------

(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, as discussed
in Note 2.

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.

62

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Operating revenue from external customers and property and equipment, net
information by geographic area are summarized as follows:

NOTE 18 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summary data relating to the results of operations for each quarter of the
years ended December 31, 2002 and 2001 follows:

- ---------------

(1) MTL Petrolink Corp. was sold on May 15, 2002 as disclosed in Note 2.

(2) Marine Transport Corporation was acquired on February 7, 2001 as disclosed
in Note 2.

(3) During 2002, the Company adopted Statement of Financial Accounting Standard
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which
addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company has reclassified the gain (loss) on asset
disposition, net for the first three quarters of 2002 and all four quarters
of 2001 to operating income (loss).

63

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2002
(IN THOUSANDS)

- ---------------

(1) Represents the allowance for doubtful accounts acquired through the
acquisition of Marine Transport Corporation.

(2) Represents the allowance for doubtful accounts disposed of through the sale
of MTL Petrolink Corp.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Information concerning directors of the Company appears in the 2003
Proxy Statement, under "Compensation of Directors." This portion of the 2003
Proxy Statement is incorporated herein by reference.

(b) For information with respect to Executive Officers, see "Item 1.
Business -- Executive Officers of the Registrant" of this Form 10-K.

(c) Information concerning Section 16(a) beneficial ownership reporting
compliance appears in the 2003 Proxy Statement, under "Section 16(a) Beneficial
Ownership Reporting Compliance." This portion of the 2003 Proxy Statement is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference
from the 2003 Proxy Statement under the heading "Executive Compensation".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this item is hereby incorporated by reference
from the 2003 Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is hereby incorporated by reference
from the 2003 Proxy Statement under the heading "Certain Relationships and
Related Transactions".

ITEM 14. 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 to ensure that information required to be disclosed by
the

64

Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

There were no significant changes in the Company's internal controls, or in
other factors that could significantly affect these internal controls subsequent
to the date of their evaluation and up to the filing date of this Annual Report
on Form 10-K. There were no significant deficiencies or material weaknesses, and
therefore there were no corrective actions taken.

It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Consolidated financial statements. See Table of Contents to "Item
8. Financial Statements and Supplementary Data" on page 39.

2. Consolidated financial statement schedules. See Table of Contents
to "Item 8. Financial Statements and Supplementary Data" on page
39.

3. Exhibits.

------------------------

* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form 10 filed April 1, 2002.

** Incorporated by reference to the indicated exhibit to Amendment No.
1 of the Company's Registration Statement on Form 10 filed June 4,
2002.

*** Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended June 30, 2002.

# Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by the Registrant during the last quarter
of the fiscal year covered by this report.

67

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

CROWLEY MARITIME CORPORATION

By: /s/ THOMAS B. CROWLEY, JR.
------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board, President and
Chief Executive Officer

Date: March 19, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

By: /s/ THOMAS B. CROWLEY, JR.
------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)

Date: March 19, 2003

By: /s/ RICHARD L. SWINTON
------------------------------------
Richard L. Swinton
Vice President, Tax and Audit
(Principal Financial Officer)

Date: March 19, 2003

By: /s/ WILLIAM A. PENNELLA
------------------------------------
William A. Pennella
Vice Chairman of the Board and
Executive Vice President

Date: March 19, 2003

68

By: /s/ PHILIP E. BOWLES
----------------------------------
Philip E. Bowles
Director

Date: March 19, 2003

By: /s/ MOLLY M. CROWLEY
------------------------------------
Molly M. Crowley
Director

Date: March 19, 2003

By: /s/ GARY L. DEPOLO
------------------------------------
Gary L. Depolo
Director

Date: March 19, 2003

By: /s/ EARL T. KIVETT
------------------------------------
Earl T. Kivett
Director

Date: March 19, 2003

By: /s/ LELAND S. PRUSSIA
------------------------------------
Leland S. Prussia
Director

Date: March 19, 2003

69

By: /s/ JAMES B. RETTIG
----------------------------------
James B. Rettig
Director

Date: March 19, 2003

By: /s/ CAMERON W. WOLFE, JR
------------------------------------
Cameron W. Wolfe, Jr
Director

Date: March 19, 2003

70

- ---------------

* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form 10 that became effective April 1, 2002.

** Incorporated by reference to the indicated exhibit to Amendment No. 1 of the
Company's Registration Statement on Form 10 that became effective June 4,
2002.

*** Incorporated by reference to the indicated exhibit to the Company's Form
10-Q for the quarter ended June 30, 2002.

# Management contract or compensatory plan or arrangement.