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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-49717
CROWLEY MARITIME CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3148464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 GRAND AVENUE, OAKLAND, CALIFORNIA 94612
(Address of principal executive offices) (Zip Code)
(510) 251-7500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 14, 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.
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TABLE OF CONTENTS
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 1
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2003 and 2002.......... 2
Unaudited Condensed Consolidated Balance Sheets as of March
31, 2003 and December 31, 2002.............................. 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2003 and 2002.......... 4
Notes to Unaudited Condensed Consolidated Financial
Statements for the Three Months Ended March 31, 2003 and
2002........................................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 13
Item 4. Controls and Procedures..................................... 14
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 14
SIGNATURES........................................................... 15
CERTIFICATIONS....................................................... 16
1
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED MARCH 31,
-------------------
2003 2002
-------- --------
OPERATING REVENUES.......................................... $219,802 $226,472
EXPENSES:
Operating................................................. 200,132 207,657
General and administrative................................ 8,847 7,833
Depreciation and amortization............................. 14,333 12,688
Asset recoveries.......................................... (272) (722)
-------- --------
223,040 227,456
-------- --------
OPERATING LOSS.............................................. (3,238) (984)
OTHER INCOME (EXPENSE):
Interest income........................................... 124 108
Interest expense.......................................... (5,010) (3,563)
Minority interest in consolidated subsidiaries............ 539 10
Other income.............................................. 68 218
-------- --------
(4,279) (3,227)
-------- --------
LOSS BEFORE INCOME TAXES.................................... (7,517) (4,211)
Income tax benefit.......................................... (3,400) (1,500)
-------- --------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................................. (4,117) (2,711)
Cumulative effect of change in accounting principle, net of
tax benefit of $257....................................... (420) --
-------- --------
NET LOSS.................................................... (4,537) (2,711)
Preferred stock dividends................................... (394) (439)
-------- --------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS................ $ (4,931) $ (3,150)
======== ========
Basic loss per common share................................. $ (36.30) $ (23.14)
Diluted loss per common share............................... $ (36.30) $ (23.14)
The accompanying notes are an integral part of the
Unaudited Condensed Consolidated Financial Statements.
2
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
ASSETS
Cash and cash equivalents................................... $ 31,193 $ 43,575
Receivables, net............................................ 163,237 147,346
Prepaid expenses and other assets........................... 41,787 41,805
-------- --------
TOTAL CURRENT ASSETS........................................ 236,217 232,726
Receivable from related party............................... 15,828 16,936
Goodwill.................................................... 45,097 45,097
Intangibles, net............................................ 14,084 14,211
Other assets................................................ 20,607 21,429
Property and equipment, net................................. 556,440 552,895
-------- --------
TOTAL ASSETS................................................ $888,273 $883,294
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $106,439 $102,971
Accrued payroll and related expenses........................ 37,066 38,850
Insurance claims payable.................................... 11,706 11,370
Unearned revenue............................................ 6,656 9,529
Current portion of long-term debt........................... 29,351 29,357
-------- --------
TOTAL CURRENT LIABILITIES................................... 191,218 192,077
Deferred income taxes....................................... 76,838 76,770
Deferred gain............................................... 4,687 5,356
Other liabilities........................................... 13,929 14,176
Long-term liabilities of discontinued operations............ 6,611 6,398
Minority interests in consolidated subsidiaries............. 6,006 4,568
Long-term debt, net of current portion...................... 305,397 296,019
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred class A convertible stock, $100 par value, 315,000
shares issued, authorized and outstanding................. 31,500 31,500
Common voting stock, $.01 par value, 4,485,000 shares
authorized; 89,710 shares issued and outstanding.......... 1 1
Class N common non-voting stock, $.01 par value, 54,500
shares authorized; 46,138 shares outstanding.............. -- --
Additional paid-in capital.................................. 67,540 67,540
Retained earnings........................................... 191,063 195,994
Accumulated other comprehensive loss, net of tax of $3,748
and $3,997, respectively.................................. (6,517) (7,105)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 283,587 287,930
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $888,273 $883,294
======== ========
The accompanying notes are an integral part of the
Unaudited Condensed Consolidated Financial Statements.
3
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS)
MARCH 31, MARCH 31,
2003 2002
--------- ---------
OPERATING ACTIVITIES:
Net loss.................................................. $ (4,537) $ (2,711)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Cumulative effect of change in accounting principle....... 420 --
Depreciation and amortization............................. 14,333 12,688
Amortization of deferred gain on the sale and leaseback of
vessels................................................ (669) (670)
Asset recoveries, net..................................... (272) (722)
Change in cash surrender value of life insurance.......... 1,108 (157)
Deferred income tax provision............................. 14 (645)
Changes in current assets and liabilities:
Receivables, net....................................... (16,002) (1,658)
Prepaid expenses and other............................. (91) 3,563
Accounts payable and accrued liabilities............... 12,354 (2,268)
Accrued payroll and related expenses................... (1,781) (527)
Other..................................................... (1,426) 367
-------- --------
Net cash provided by continuing operations............. 3,451 7,260
Net cash used in discontinued operations............... (340) (652)
-------- --------
Net cash provided by operating activities.............. 3,111 6,608
-------- --------
INVESTING ACTIVITIES:
Property and equipment additions.......................... (4,539) (33,045)
Dry-docking costs......................................... (3,141) (5,230)
Proceeds from asset disposition........................... 1,834 1,316
Deposits of restricted funds.............................. (1,544) --
Cash assumed from consolidation of Variable Interest
Entity................................................. 1,915 --
Receipts on notes receivable.............................. 40 266
-------- --------
Net cash used in investing activities.................. (5,435) (36,693)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of debt............................ 60,909 --
Borrowings on Revolving Credit Agreement.................. -- 30,000
Repayments on Revolving Credit Agreement.................. (5,000) --
Payments on long-term debt................................ (57,737) (6,347)
Debt issuance costs....................................... (263) (163)
Payment of rate lock agreement............................ (7,967) --
-------- --------
Net cash (used in) provided by financing activities.... (10,058) 23,490
-------- --------
Net decrease in cash and cash equivalents.............. (12,382) (6,595)
Cash and cash equivalents at beginning of period....... 43,575 33,421
-------- --------
Cash and cash equivalents at end of period............. $ 31,193 $ 26,826
======== ========
The accompanying notes are an integral part of the
Unaudited Condensed Consolidated Financial Statements.
4
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the Securities and
Exchange Commission which apply to interim financial statements. These unaudited
condensed consolidated financial statements do not include all disclosures
provided in the annual financial statements and should be read in conjunction
with the financial statements and notes thereto contained in the Form 10-K for
Crowley Maritime Corporation (the "Company") as filed with the Securities and
Exchange Commission on March 19, 2003 as amended by Amendment No. 1 thereto
filed with the Securities and Exchange Commission on March 24, 2003.
All adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present a fair statement of the results of
operations, financial condition and cash flows for the interim periods have been
made. Results of operations for the three month periods ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the full
year.
NOTE 2 -- CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In January 1997, Marine Transport Corporation ("MTC"), a wholly owned
subsidiary of the Company, entered into a transaction with an unconsolidated
Variable Interest Entity ("VIE") 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. The note receivable was
recorded 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 VIE,
which was accounted for as debt, of which $14,395 was outstanding at December
31, 2002.
Financial Accounting Standards Board Interpretation No. 46, "Consolidation
of Variable Interest Entities" (the "Interpretation"), 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.
In accordance with this Interpretation, the Company determined that it is
the primary beneficiary of the VIE and has consolidated the VIE effective
January 1, 2003. As a result of recording the assets and liabilities of the VIE
at their fair value, a cumulative effect of change in accounting principle of
$420, net of $257 deferred tax benefit, ($3.09 per common share) has been
recorded in the unaudited condensed consolidated statement of operations. Prior
year consolidated financial statements have not been restated.
The consolidation of the VIE resulted in the assumption of the following
assets and liabilities based upon their fair values as of January 1, 2003:
Cash and cash equivalents................................... $ 1,915
Deferred taxes.............................................. 257
Property and equipment, net................................. 14,097
Other liabilities........................................... (3,512)
Minority interest........................................... (1,977)
Long-term debt.............................................. (11,200)
--------
Cumulative effect of change in accounting principle......... $ (420)
========
5
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
As a result of the consolidation of the VIE, the balance of the above
assumed long-term debt due to the banks by the Company at March 31, 2003 is
$24,498, which is included in the debt balances in the Company's condensed
consolidated balance sheet as of March 31, 2003. The debt is payable in monthly
installments through January 2006 at interest rates ranging from 5.0% to 8.35%.
As of March 31, 2003, the debt is collateralized by a vessel with a net book
value of $13,349 and all other assets of the VIE of $1,977. The debt is also
collateralized by future revenues from the charter hire of a vessel. The
creditors of this debt have no recourse to the general credit of the Company.
NOTE 3 -- LONG-TERM DEBT
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 to build the OCEAN
RELIANCE/Barge 550-3 and COASTAL RELIANCE/Barge 550-4 and to reimburse the
Company for incurred expenditures.
On May 29, 2002, the Company entered into a rate lock agreement to fix at
5.45% the underlying benchmark rate on the permanent financing arranged for the
construction of the OCEAN RELIANCE/ Barge 550-3 and COASTAL RELIANCE/Barge
550-4. The permanent financing, which consists of debt guaranteed pursuant to
Title XI of the Merchant Marine Act of 1936, was concluded on January 16, 2003.
Because the rate lock agreement was designated as a cash flow hedge, the changes
in the fair value of the borrowings subject to the agreement were recognized in
other comprehensive income (loss) until the debt was funded. Upon the funding of
the debt on January 16, 2003, 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 Company's
liability under the rate lock agreement was fixed on January 16, 2003 and
resulted in a payment to a financial institution of $7,967. The Company
reclassified $125 into interest expense during the three months ended March 31,
2003.
NOTE 4 -- COMPREHENSIVE LOSS
The following tables provide a reconciliation of net loss reported in our
unaudited condensed consolidated statements of operations to accumulated
comprehensive loss:
2003 2002
------- -------
THREE MONTHS ENDED MARCH 31:
Net loss.................................................... $(4,537) $(2,711)
Other comprehensive loss:
Foreign currency translation adjustments, net of tax
benefit of $18......................................... (21) --
Rate lock agreement, net of tax expense of $267........... 609 --
------- -------
Comprehensive loss..................................... $(3,949) $(2,711)
======= =======
6
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOREIGN ACCUMULATED
CURRENCY OTHER
TRANSLATION RATE LOCK COMPREHENSIVE
ADJUSTMENTS AGREEMENT LOSS
----------- --------- -------------
THREE MONTHS ENDED MARCH 31, 2003:
Beginning balance................................. $(1,477) $(5,628) $(7,105)
Current-period change............................. (21) 609 588
------- ------- -------
Ending balance.................................... $(1,498) $(5,019) $(6,517)
======= ======= =======
NOTE 5 -- EARNINGS PER COMMON SHARE
The computations for basic and diluted earnings per common share for the
three months ended March 31, 2003 and 2002 are as follows:
2003 2002
-------- --------
Numerator:
Loss before cumulative effect of change in accounting
principle................................................. $ (4,117) $ (2,711)
Less preferred dividends.................................. (394) (439)
-------- --------
Loss for basic earnings per common share before cumulative
effect of change in accounting principle............... (4,511) (3,150)
Cumulative effect of change in accounting principle......... (420) --
-------- --------
Net loss for diluted earnings per common share............ $ (4,931) $ (3,150)
======== ========
Denominator:
Basic weighted average shares............................. 135,848 136,114
======== ========
Diluted weighted average shares........................... 135,848 136,114
======== ========
Basic loss per common share:
Loss before cumulative effect of change in accounting
principle.............................................. $ (33.21) $ (23.14)
Cumulative effect of change in accounting principle....... (3.09) --
-------- --------
Net loss.................................................. $ (36.30) $ (23.14)
======== ========
Diluted loss per common share:
Loss before cumulative effect of change in accounting
principle.............................................. $ (33.21) $ (23.14)
Cumulative effect of change in accounting principle....... (3.09) --
-------- --------
Net loss.................................................. $ (36.30) $ (23.14)
======== ========
The preferred class A convertible stock is anti-dilutive for the three
months ended March 31, 2003 and 2002, respectively.
7
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
]NOTE 6 -- FINANCIAL INFORMATION BY SEGMENT AND GEOGRAPHIC AREA
The table below summarizes certain financial information for each of the
Company's segments and reconciles such information to the unaudited condensed
consolidated financial statements for the three months ended March 31, 2003 and
2002.
OIL AND
SHIP CHEMICAL
ASSIST DISTRIBUTION ENERGY
AND AND AND
LINER ESCORT TRANSPORTATION MARINE SEGMENT CONSOLIDATED
SERVICES SERVICES SERVICES SERVICES TOTAL OTHER ELIMINATION TOTAL
-------- -------- -------------- -------- -------- ------- ----------- ------------
THREE MONTHS ENDED
MARCH 31, 2003
Operating revenues....... $133,767 $18,281 $50,648 $17,106 $219,802 -- -- $219,802
Intersegment revenues.... -- 225 -- 7,655 7,880 $24,355 $(32,235) --
Depreciation and
amortization........... 2,338 9 4,221 3,202 9,770 4,563 -- 14,333
Operating income
(loss)................. 646 2,509 506 (6,899) (3,238) -- -- (3,238)
THREE MONTHS ENDED
MARCH 31, 2002(1)
Operating revenues....... $120,846 $17,613 $69,995 $18,018 $226,472 -- -- $226,472
Intersegment revenues.... 421 228 1,043 6,262 7,954 $20,847 $(28,801) --
Depreciation and
amortization........... 1,785 9 4,763 2,927 9,484 3,204 -- 12,688
Operating income
(loss)................. (2,031) 2,880 (540) (1,293) (984) -- -- (984)
- ---------------
(1) MTL Petrolink Corp. was sold on May 15, 2002.
GEOGRAPHIC AREA INFORMATION
Revenues are attributed to the United States and to all foreign countries
based on the port of origin for the carriage of ocean cargo and the location of
service provided for all other operations. Revenues from external customers
attributable to an individual country, other than the United States, were not
material.
Operating revenues from external customers and property and equipment, net
information by geographic area are summarized as follows:
UNITED ALL FOREIGN CONSOLIDATED
STATES COUNTRIES TOTAL
-------- ----------- ------------
THREE MONTHS ENDED MARCH 31, 2003
Operating revenues......................................... $189,500 $30,302 $219,802
Property and equipment, net................................ $550,752 $ 5,688 $556,440
THREE MONTHS ENDED MARCH 31, 2002
Operating revenues......................................... $201,575 $24,897 $226,472
Property and equipment, net................................ $526,204 $ 8,301 $534,505
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following presentation of Management's Discussion and Analysis ("MD&A")
of Crowley Maritime Corporation's (the "Company's") financial condition, results
of operations and cash flows should be read in conjunction with the unaudited
condensed consolidated financial statements, accompanying notes thereto and
other financial information appearing elsewhere in this Form 10-Q and the
December 31, 2002 consolidated financial statements and notes thereto, along
with the MD&A included in the Company's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on March 19, 2003 amended by Amendment
No. 1 thereto filed with the Securities and Exchange Commission on March 24,
2003 (collectively, the "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 on information
currently available to management. These forward-looking statements are
identified by words such as "estimates," "expects," "anticipates," "plans,"
"believes," and other similar expressions. The Company's actual results may
differ materially from those anticipated in these forward-looking statements as
a result of changes in global, political, economic, business, competitive,
market and regulatory factors.
CRITICAL ACCOUNTING POLICIES
The preparation of the unaudited condensed consolidated financial
statements, upon which this MD&A is based, requires management to make estimates
which impact these unaudited condensed consolidated financial statements. The
most critical of these estimates and accounting policies relate to 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. See "Note 1 -- Summary of Significant Accounting Policies" in the
"Notes to Consolidated Financial Statements" and "Critical Accounting Policies"
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in the Form 10-K for details regarding all of the
Company's critical and significant accounting policies.
NEW ACCOUNTING STANDARDS
For a complete discussion of new accounting standards, see Note 2 to the
Company's Unaudited Condensed Consolidated Financial Statements in "Part
1 -- Financial Information -- Item 1. Financial Statements".
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Consolidated operating revenues for the three months ended March 31, 2003
decreased $6,670 or 2.9%, to $219,802 compared with $226,472 for the first
quarter in 2002. The decrease is primarily attributed to the sale of MTL
Petrolink Corp. on May 15, 2002. This decrease was offset by (a) an increase in
revenue in our Liner Services segment due to an increase in container and
non-container volume which was offset by a decrease in average revenue per TEU
due to competitive pressures and (b) an increase in revenue in our Oil and
Chemical Distribution and Transportation Services segment from the operation of
three new articulated tug/barge units (the "ATB's") during the first quarter of
2003.
Consolidated operating expenses for the three months ended March 31, 2003
decreased $7,525 or 3.6%, to $200,132 compared with $207,657 for the first
quarter of 2002. The decrease is primarily attributed to the sale of MTL
Petrolink Corp. on May 15, 2002. This decrease was offset by an overall increase
in labor, fuel, repair and maintenance costs on the Company's tugs and barges
and the cost of operating three articulated tug/barge units during the first
quarter of 2003. Consolidated general and administrative expenses increased
$1,014 or 12.9%, to $8,847 in 2003 from $7,833 in 2002. This increase was
primarily attributable to a decrease in the receivable from a related party as a
result of a decrease in certain split-dollar life insurance costs.
9
Consolidated depreciation and amortization expense increased $1,645 or 13.0%, to
$14,333 in 2003 from $12,688 in 2002 primarily as the result of an increase in
dry-dock amortization and the additional depreciation relating to the
consolidation of the VIE and the operations of three ATB's in the first quarter
of 2003. Consolidated asset recoveries, net decreased $450 or 62.3%, to a
recovery of $272 in 2003 from a recovery of $722 in 2002. This was primarily
attributed to the sale of land, vessels and various equipment during 2003 and
2002.
As a result of the above, the consolidated operating loss for the three
months ended March 31, 2003 increased $2,254 to $3,238 compared with $984 for
the first quarter of 2002.
Interest income for the three months ended March 31, 2003 increased $16 or
14.8%, to $124 compared with $108 for the first quarter of 2002. This increase
was due to an increase in the Company's average cash and cash equivalents
amounts during this period, which was partially offset by lower interest rates
in the first three months of 2003.
As a result of increased interest expenses arising from the debt arranged
for the construction of four articulated tug/barge units which were delivered in
2002, interest expense for the three months ended March 31, 2003 increased
$1,447 or 40.6%, to $5,010 compared with $3,563 for the first quarter in 2002.
Interest expense also increased due to lower capitalized interest in the first
quarter of 2003 compared with the first quarter of 2002 related to the
construction period of these units. The minority interest in consolidated
subsidiaries increased $529 for the three months ended March 31, 2003 to income
of $539 compared with income of $10 for the first quarter of 2002. This increase
is due to the Company's joint venture with Stolt-Nielsen S.A. The Company owns
75% of the interest in the joint venture and Stolt-Nielsen S.A. owns the
remaining 25%. The total loss of the joint venture was $2,402 and $116 during
the first quarter of 2003 and 2002, respectively.
Income tax benefit for the three months ended March 31, 2003 increased
$1,900 or 126.7%, to $3,400 compared with $1,500 for the first quarter in 2002.
The effective tax rate was 45% and 36% for the first quarter of 2003 and 2002,
respectively.
As a result, net loss for the three months ended March 31, 2003 increased
$1,826 to $4,537 ($36.30 basic and diluted loss per common share) in 2003
compared with a net loss of $2,711 ($23.14 basic and diluted loss per common
share) for the first quarter of 2002.
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. The following is a discussion of the results of operations
of the Company's lines of business.
Liner Services
Operating revenues from our Liner Services segment for the three months
ended March 31, 2003 increased $12,921 or 10.7%, to $133,767 compared with
$120,846 for the first quarter in 2002. The increase in revenues is primarily
attributable to a 16.5% increase in container and noncontainer volume and an
increase of 3.3% in other logistical service revenues. This increase was offset
by an 8.6% decrease in average revenue per twenty-foot equivalent units, or TEU
("average revenue"). The Company's container and noncontainer volume during the
first quarter of 2003 and 2002 was 132,029 TEUs and 113,326 TEUs, respectively.
The Company experienced a 24.9% increase in the Puerto Rico and Eastern
Caribbean Islands Service container and noncontainer volume and a 7.1% increase
in container and noncontainer volume in the Latin America Service. In the first
quarter of 2003, the Company experienced a 7.4% average revenue decrease in the
Puerto Rico and Eastern Caribbean Islands Service compared with the first
quarter of 2002 due to competitive pressures and cargo mix. The Latin America
Service experienced a 1.2% decrease in average revenue compared with the first
quarter of 2002 due to competitive pressures.
Operating expenses for the three months ended March 31, 2003 increased
$7,817 or 6.7%, to $125,077 compared with $117,260 for the first quarter in
2002. These expenses consist primarily of fuel costs, purchased transportation
costs, equipment costs, maintenance and repair costs and labor costs.
10
Depreciation and amortization for the three months ended March 31, 2003
increased $553 or 31.0%, to $2,338 compared with $1,785 for the first quarter in
2002. The increase in depreciation was due to an increase in dry-dock
amortization.
Asset recoveries, net for the three months ended March 31, 2003 decreased
$43 or 52.4%, to a recovery of $39 compared with a recovery of $82 for the first
quarter in 2002. These gains resulted from disposals of equipment during the
first quarter of 2003 and 2002.
As a result, the operating income from Liner Services for the three months
ended March 31, 2003 increased $2,677 to $646 compared with an operating loss of
$2,031 for the first quarter in 2002.
Ship Assist and Escort Services
Operating revenues from our Ship Assist and Escort Services segment for the
three months ended March 31, 2003 increased $668 or 3.8%, to $18,281 compared
with $17,613 for the first quarter of 2002. The increase was directly
attributable to an increase in rates which included a fuel surcharge to cover
increasing fuel prices. Vessel utilization during the first quarter of 2003 was
75% compared with 72% during the first quarter of 2002.
Operating expenses for the three months ended March 31, 2003 increased $959
or 6.7%, to $15,210 compared with $14,251 for the first quarter in 2002. The
increase was directly attributable to the increase in vessel related costs due
to increased labor, fuel and repairs and maintenance costs of vessels.
As a result, operating income of Ship Assist and Escort Services for the
three months ended March 31, 2003 decreased $371 to $2,509 compared with $2,880
for the first quarter in 2002.
Oil and Chemical Distribution and Transportation Services
Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment for the three months ended March 31, 2003
decreased $19,347 or 27.6%, to $50,648 compared with $69,995 for the first three
months of 2002. The decrease was directly attributable to the sale of MTL
Petrolink Corp. on May 15, 2002, a decrease in the number of vessels in service
during the first quarter of 2003 compared with the first quarter of 2002, and an
overall decrease in vessel utilization (46.2% in 2003 compared with 52.8% in
2002). The decrease in vessel utilization is a result of declining oil and
trading activity among West Coast suppliers. This decrease was partially offset
by an increase in revenue earned in 2003 from the operation of three ATB's
placed in service during the third and fourth quarters of 2002.
Operating expenses for the three months ended March 31, 2003 decreased
$20,871 or 32.0%, to $44,346 compared with $65,217 for the first three months of
2002. This decrease was primarily attributable to the expenses which were
avoided by the sale of MTL Petrolink Corp. on May 15, 2002, a decrease in the
number of vessels in service during the first quarter of 2003 compared with the
first quarter of 2002, and an overall decrease in vessel utilization. The
decrease was partially offset by increased expenses in 2003 related to the
operation of three ATB's placed in service during 2002.
Depreciation and amortization for the three months ended March 31, 2003
decreased $542 or 11.4%, to $4,221 compared with $4,763 for the first quarter in
2002. The decrease was directly attributable to a decrease in depreciation from
the sale of vessels. These decreases were partially offset by an increase in
dry-dock amortization for vessels and additional depreciation recognized as a
result of the consolidation of the VIE.
Asset recoveries, net for the three months ended March 31, 2003 increased
$233 as compared with the first quarter in 2002. These gains resulted from the
sale of land during the first quarter of 2003.
As a result, the operating income of Oil and Chemical Distribution and
Transportation Services for the three months ended March 31, 2003 increased
$1,046 to $506 compared with a loss of $540 for the first quarter in 2002.
11
Energy and Marine Services
Operating revenues from our Energy and Marine Services segment for the
three months ended March 31, 2003 decreased $912 or 5.1%, to $17,106 compared
with $18,018 for the first three months of 2002. The decrease was directly
attributable to a decrease in vessel utilization during the first quarter of
2003 to 26% compared with 39% during the first three months of 2002. Vessel
utilization is very volatile and it is impacted by oil exploration activity and
general economic conditions. Current indications are that our revenues related
to the transportation of oil exploration cargo to Sakhalin Island, Russia will
decline substantially this year.
Operating expenses for the three months ended March 31, 2003 increased
$4,869 or 21.5%, to $27,472 compared with $22,603 for the first quarter in 2002.
The increase was directly attributable to the increase in vessel related costs
due to increased fuel and repairs and maintenance costs on tugs and barges.
Depreciation and amortization for the three months ended March 31, 2003
increased $275 or 9.4%, to $3,202 compared with $2,927 for the first quarter in
2002. The increase was directly attributable to an adjustment for a vessel
placed in service that was previously classified as held for sale.
Asset recoveries, net for the three months ended March 31, 2003 was $0
compared with a recovery of $640 for the first quarter in 2002. This decrease is
the result of the sale of land and one vessel during the first quarter of 2002.
As a result, the operating loss for Energy and Marine Services for the
three months ended March 31, 2003 increased $5,606 to $6,899 compared with
$1,293 for the first quarter in 2002.
LIQUIDITY AND CAPITAL RESOURCES
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 and borrowings will provide sufficient working capital to fund the
Company's operating needs and to finance capital expenditures.
In previous years the Company has used debt guaranteed pursuant to Title XI
of the Merchant Marine Act of 1936 to finance the acquisition, construction and
improvement of vessels. While earlier federal legislation failed to fund the
Title XI program for new projects, more recent federal legislation has now
funded the program. As of March 31, 2003, the repayment of approximately $228
million of the Company's outstanding indebtedness is guaranteed by the United
States government pursuant to Title XI. Management believes that funds needed
for the acquisition and construction of vessels will also continue to be
available through various financial institutions. 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 FINANCIAL CONDITION AS OF MARCH 31, 2003 AND MARCH 31, 2002
At March 31, 2003, the Company's cash and cash equivalents totaled $31,193
compared with $26,826 at March 31, 2002. Net cash provided by continuing
operations was $3,451 for the three month period ended March 31, 2003 compared
with $7,260 for the three month period ended March 31, 2002. This decrease is
the result of an increase in receivables for vessels the Company manages for the
United States Government that were activated for service in the Iraqi conflict
during the first quarter of 2003.
Net cash used in discontinued operations was $340 for the three month
period ended March 31, 2003 compared with $652 for the three month period ended
March 31, 2002.
Net cash used in investing activities was $5,435 for the three month period
ended March 31, 2003 compared with $36,693 for the three month period ended
March 31, 2002. The decrease reflects a decrease in capital expenditures ($4,539
in the first quarter of 2003 compared with $33,045 in 2002) associated with the
construction and modernization of assets of the Company. The Company spent
$3,141 for dry-docking in the first quarter of 2003 compared with $5,230 spent
in the first quarter of 2002. The Company assumed cash of $1,915 from the
consolidation of the VIE effective January 1, 2003.
12
Net cash used in financing activities was $10,058 for the three month
period ended March 31, 2003 compared with net cash provided by financing
activities of $23,490 for the three month period ended March 31, 2002. This
decrease was a result of $51,390 in higher principal payments on long-term debt
($57,737 in 2003, which includes the repayment of $49,394 of construction
financing used for two articulated tug/barge units, compared with $6,347 in
2002). The Company paid $7,967 upon maturity of its rate lock agreement in 2003.
This decrease was partially offset by the receipt by the Company in 2003 of
proceeds from permanent financings in the amount of $60,909 to refinance the
construction financing for two articulated tug/barge units. The Company borrowed
$30,000 on its Revolving Credit Agreement in the first quarter of 2002 and
repaid $5,000 in the first quarter of 2003.
Capital Resources
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 to build the OCEAN
RELIANCE/Barge 550-3 and COASTAL RELIANCE/Barge 550-4 and to reimburse the
Company for incurred expenditures.
On May 29, 2002, the Company entered into a rate lock agreement to fix at
5.45% the underlying benchmark rate on the permanent financing arranged for the
construction of the OCEAN RELIANCE/ Barge 550-3 and COASTAL RELIANCE/Barge
550-4. The permanent financing, which consists of debt guaranteed pursuant to
Title XI of the Merchant Marine Act of 1936, was concluded on January 16, 2003.
Because the rate lock agreement was designated as a cash flow hedge, the changes
in the fair value of the borrowings subject to the agreement were recognized in
other comprehensive income (loss) until the debt was funded. Upon the funding of
the debt on January 16, 2003, 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 Company's
liability under the rate lock agreement was fixed on January 16, 2003 and
resulted in a payment to a financial institution of $7,967. The Company has
reclassified $125 into interest expense during the three months ended March 31,
2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates which may adversely affect the results of our
operations and financial condition. The Company's policy is not to use financial
instruments for trading purposes or other speculative purposes.
As discussed above in Capital Resources in "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations", the Company's
rate lock agreement was fixed and paid on January 16, 2003.
The Company has logistical operations in Venezuela. The Company recognizes
translation losses on its net assets in Venezuela in other comprehensive loss
due to the identification of the functional currency as the Venezuelan Bolivar.
As of March 31, 2003, the Company has recorded a reduction to its assets and
liabilities in the amount of $2,347 and recorded an unrealized loss of $1,498,
net of $849 in deferred taxes to other comprehensive loss. For the three months
ended March 31, 2003, the Company has recorded a reduction to its assets and
liabilities in the amount of $39 and recorded an unrealized loss of $21, net of
$18 in deferred taxes to other comprehensive loss. Amounts were determined as of
March 31, 2003 based on the foreign currency exchange rate of the Bolivar with
the U.S. dollar.
In January 2003 the government of Venezuela imposed strict restrictions on
foreign exchange in an effort to protect international reserves that were
negatively affected by a two-month general strike that began in December 2002.
Due to the strict restrictions imposed on foreign exchange, the Company has
recorded at March 31, 2003 a reserve of $1,057 as an adjustment to operating
revenue for blocked currency. It is uncertain at this time how long the
government of Venezuela will continue to impose these strict foreign currency
exchange restrictions. However, the Company believes that the restrictions will
not have a material effect on the Company's financial position and operations.
13
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including its principal executive officer (who is
the Chief Executive Officer) and the principal financial officer (who is the
Vice President, Tax and Audit), has conducted an evaluation of the effectiveness
of disclosure controls and procedures pursuant to Rule 13a-14 promulgated under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). 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 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 quarterly
report on Form 10-Q. 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 II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 Certificate of Amendment of Restated Certificate of
Incorporation of Crowley Maritime Corporation*
Exhibit 3.2 Certificate of Amendment of Restated Certificate of
Incorporation of Crowley Maritime Corporation*
Exhibit 3.3 Restated Certificate of Incorporation of Crowley Maritime
Corporation*
Exhibit 3.4 Restated By-Laws of Crowley Maritime Corporation*
Exhibit 11 Statement regarding computation of per share earnings**
Exhibit 99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
Exhibit 99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
- ---------------
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form 10 filed April 1, 2002.
** See Note 3 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial
Information -- Item 1. Financial Statements" of this Form 10-Q.
(b) Reports on Form 8-K.
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWLEY MARITIME CORPORATION
(Registrant)
May 14, 2003
By: /s/ THOMAS B. CROWLEY, JR.
------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board,
President and Chief Executive
Officer
May 14, 2003
By: /s/ RICHARD L. SWINTON
------------------------------------
Richard L. Swinton
Vice President, Tax and Audit
15
CERTIFICATIONS
I, Thomas B. Crowley, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crowley Maritime
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
/s/ THOMAS B. CROWLEY, JR.
--------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board,
President and Chief Executive Officer
16
I, Richard L. Swinton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crowley Maritime
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
/s/ RICHARD L. SWINTON
--------------------------------------
Richard L. Swinton
Vice President, Tax & Audit
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
Exhibit 3.1 Certificate of Amendment of Restated Certificate of
Incorporation of Crowley Maritime Corporation*
Exhibit 3.2 Certificate of Amendment of Restated Certificate of
Incorporation of Crowley Maritime Corporation*
Exhibit 3.3 Restated Certificate of Incorporation of Crowley Maritime
Corporation*
Exhibit 3.4 Restated By-Laws of Crowley Maritime Corporation*
Exhibit 11 Statement regarding computation of per share earnings**
Exhibit 99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
Exhibit 99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
- ---------------
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form 10 filed April 1, 2002.
** See Note 3 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial
Information -- Item 1. Financial Statements" of this Form 10-Q.