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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 14, 2003, 89,537 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........................................ 2
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2003 and 2002... 2
Unaudited Condensed Consolidated Balance Sheets as of June
30, 2003 and December 31, 2002.............................. 3
Unaudited Condensed Consolidated Statement of Stockholders'
Equity for the Six Months Ended June 30, 2003............... 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2003 and 2002............. 5
Notes to Unaudited Condensed Consolidated Financial
Statements for the Three and Six Months Ended June 30, 2003
and 2002.................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
Item 4. Controls and Procedures..................................... 21
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......... 22
Item 6. Exhibits and Reports on Form 8-K............................ 23
SIGNATURES........................................................... 24
1
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
OPERATING REVENUES................................. $241,399 $237,636 $461,201 $464,108
EXPENSES:
Operating........................................ 211,566 216,171 411,698 423,828
General and administrative....................... 7,255 9,092 16,102 16,925
Depreciation and amortization.................... 14,816 14,281 29,149 26,969
Asset recoveries................................. (1,309) (24) (1,581) (746)
-------- -------- -------- --------
232,328 239,520 455,368 466,976
-------- -------- -------- --------
OPERATING INCOME (LOSS)............................ 9,071 (1,884) 5,833 (2,868)
OTHER INCOME (EXPENSE):
Interest income.................................. 79 99 203 207
Interest expense................................. (5,450) (3,353) (10,460) (6,916)
Minority interest in consolidated subsidiaries... 267 466 806 476
Other income..................................... 94 42 162 260
-------- -------- -------- --------
(5,010) (2,746) (9,289) (5,973)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................. 4,061 (4,630) (3,456) (8,841)
Income tax expense (benefit)....................... 1,800 (1,700) (1,600) (3,200)
-------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE............................. 2,261 (2,930) (1,856) (5,641)
Cumulative effect of change in accounting
principle, net of tax benefit of $257............ -- -- (420) --
-------- -------- -------- --------
NET INCOME (LOSS).................................. 2,261 (2,930) (2,276) (5,641)
Preferred stock dividends.......................... (394) (440) (788) (879)
-------- -------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS..................................... $ 1,867 $ (3,370) $ (3,064) $ (6,520)
======== ======== ======== ========
Basic earnings (loss) per common share............. $ 13.74 $ (24.77) $ (22.55) $ (47.91)
Diluted earnings (loss) per common share........... $ 13.74 $ (24.77) $ (22.55) $ (47.91)
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 JUNE 30, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
ASSETS
Cash and cash equivalents................................... $ 8,261 $ 43,575
Receivables, net............................................ 168,301 147,346
Prepaid expenses and other assets........................... 51,982 41,805
-------- --------
TOTAL CURRENT ASSETS........................................ 228,544 232,726
Receivable from related party............................... 16,805 16,936
Goodwill.................................................... 44,786 45,097
Intangibles, net............................................ 13,693 14,211
Other assets................................................ 26,105 21,429
Property and equipment, net................................. 547,121 552,895
-------- --------
TOTAL ASSETS................................................ $877,054 $883,294
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 97,760 $102,971
Accrued payroll and related expenses........................ 41,823 38,850
Insurance claims payable.................................... 11,000 11,370
Unearned revenue............................................ 4,858 9,529
Current portion of long-term debt........................... 29,701 29,357
-------- --------
TOTAL CURRENT LIABILITIES................................... 185,142 192,077
Deferred income taxes....................................... 79,217 76,770
Deferred gain............................................... 4,017 5,356
Other liabilities........................................... 14,081 14,176
Long-term liabilities of discontinued operations............ 6,276 6,398
Minority interests in consolidated subsidiaries............. 5,739 4,568
Long-term debt, net of current portion...................... 297,338 296,019
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; 89,561 and 89,710 shares issued and
outstanding at June 30, 2003 and December 31, 2002,
respectively.............................................. 1 1
Class N common non-voting stock, $.01 par value, 54,500
shares authorized; 46,138 shares outstanding.............. -- --
Additional paid-in capital.................................. 67,436 67,540
Retained earnings........................................... 192,799 195,994
Accumulated other comprehensive loss, net of tax benefit of
$3,846 and $3,997, respectively........................... (6,492) (7,105)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 285,244 287,930
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $877,054 $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 STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED CLASS A CLASS N ACCUMULATED
CONVERTIBLE STOCK COMMON STOCK COMMON STOCK ADDITIONAL OTHER
------------------- ------------------ ------------------ PAID-IN RETAINED COMPREHENSIVE
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS LOSS
------- --------- ------ --------- ------ --------- ---------- -------- -------------
December 31, 2002.... 315,000 $31,500 89,710 $1 46,138 $-- $67,540 $195,994 $(7,105)
Stock retired from
employee benefit
plans.............. -- -- (149) -- -- -- (104) (131) --
Preferred stock
dividends.......... -- -- -- -- -- -- -- (788) --
Comprehensive Income:
Net income......... -- -- -- -- -- -- -- (2,276) --
Other comprehensive
loss:
Foreign currency
translation
adjustments,
net of tax
benefit of
$53............ -- -- -- -- -- -- -- -- (82)
Rate lock
agreement, net
of tax of
$204........... -- -- -- -- -- -- -- -- 695
Total comprehensive
income............. -- -- -- -- -- -- -- --
------- ------- ------ -- ------ -- ------- -------- -------
June 30, 2003........ 315,000 $31,500 89,561 $1 46,138 $-- $67,436 $192,799 $(6,492)
======= ======= ====== == ====== == ======= ======== =======
TOTAL
--------
December 31, 2002.... $287,930
Stock retired from
employee benefit
plans.............. (235)
Preferred stock
dividends.......... (788)
Comprehensive Income:
Net income.........
Other comprehensive
loss:
Foreign currency
translation
adjustments,
net of tax
benefit of
$53............
Rate lock
agreement, net
of tax of
$204...........
Total comprehensive
income............. (1,663)
--------
June 30, 2003........ $285,244
========
The accompanying notes are an integral part of the
Unaudited Condensed Consolidated Financial Statements.
4
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS)
JUNE 30, JUNE 30,
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net loss.................................................. $ (2,276) $ (5,641)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Cumulative effect of change in accounting principle....... 420 --
Depreciation and amortization............................. 29,149 26,969
Amortization of deferred gain on the sale and leaseback of
vessels................................................. (1,339) (1,340)
Asset recoveries, net..................................... (1,581) (746)
Change in cash surrender value of life insurance.......... 131 1,046
Deferred income tax provision............................. 2,177 (1,120)
Changes in current assets and liabilities:
Receivables, net........................................ (21,122) (8,275)
Prepaid expenses and other.............................. (10,287) 3,925
Accounts payable and accrued liabilities................ 1,667 4,825
Accrued payroll and related expenses.................... 2,976 (1,409)
Other..................................................... (4,282) (4,033)
-------- --------
Net cash (used in) provided by continuing operations.... (4,367) 14,201
Net cash used in discontinued operations................ (686) (943)
-------- --------
Net cash (used in) provided by operating activities..... (5,053) 13,258
-------- --------
INVESTING ACTIVITIES:
Property and equipment additions.......................... (9,460) (51,312)
Dry-docking costs......................................... (6,953) (9,492)
Proceeds from asset disposition........................... 3,384 1,359
Proceeds from sale of MTL Petrolink Corp., net of cash
sold.................................................... 500 16,336
Deposits of restricted funds.............................. (1,544) (8,937)
Cash assumed from consolidation of Variable Interest
Entity.................................................. 1,915 --
Payments on receivable from related party................. -- (2,933)
Receipts on notes receivable.............................. (85) 284
-------- --------
Net cash used in investing activities................... (12,243) (54,695)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of debt............................ 60,909 86,759
Borrowings on Revolving Credit Agreement.................. 10,000 30,000
Repayments on Revolving Credit Agreement.................. (15,000) (15,000)
Payments on long-term debt................................ (65,446) (11,928)
Debt issuance costs....................................... (279) (6,063)
Payment of rate lock agreement............................ (7,967) --
Retirement of stock....................................... (235) (164)
-------- --------
Net cash (used in) provided by financing activities..... (18,018) 83,604
-------- --------
Net (decrease) increase in cash and cash equivalents.... (35,314) 42,167
Cash and cash equivalents at beginning of period........ 43,575 33,421
-------- --------
Cash and cash equivalents at end of period.............. $ 8,261 $ 75,588
======== ========
The accompanying notes are an integral part of the
Unaudited Condensed Consolidated Financial Statements.
5
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 and six month periods ended June 30,
2003 are not necessarily indicative of the results that may be expected for the
full year.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards 149, "Amendment to Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 133"), addresses
certain decisions made by the Financial Accounting Standards Board as part of
the Derivatives Implementation Group process. In general, SFAS 149 is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The provisions of SFAS 149 shall
be applied prospectively.
SFAS 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" addresses how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The provisions of SFAS 150 are effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective July 1, 2003.
The Company will adopt SFAS 149 and SFAS 150 on July 1, 2003. The adoption
of these standards will not have a material impact on the Company's financial
position, results of operations or cash flows.
NOTE 2 -- CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In January 1997, Marine Transport Corporation ("MTC"), a wholly owned
subsidiary of the Company, arranged a transaction with an unconsolidated
Variable Interest Entity (the "VIE") by which MTC: (a) sold a vessel to the VIE;
(b) time chartered the vessel back from the VIE; and (c) time chartered the
vessel to a third party. As consideration for the sale of the Vessel, MTC
received from the VIE a total of: (a) approximately $40,000 in cash; and (b) a
note receivable for $9,000. After considering certain characteristics of the
note receivable, it was subsequently recorded at its estimated net realizable
value of $3,000. In August of 1999, MTC negotiated the termination of the time
charters and arranged a series of bareboat charters for the vessel with periods
that extend through November 2006. In January of 2000, MTC received
approximately $25,000 from the VIE after the VIE borrowed certain additional
amounts from its lenders. Of the approximately $25,000 which was accounted for
as debt, $14,395 was outstanding at December 31, 2002.
Prior to the adoption of Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" (the
"Interpretation"), the Company followed: (a) EITF 90-15, "Impact of
Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in
Leasing Transactions"; and (b) EITF 96-21, "Implementation Issues in Accounting
for Leasing Transactions Involving Special-Purpose Entities" in determining not
to consolidate the VIE. In 1997, an unrelated third party (the "Foundation")
6
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
capitalized the VIE with a substantive equity payment of $1,500, which
represented more than 3% of the total funding of the VIE, in exchange for the
beneficial interests in the VIE.
Financial Accounting Standards Board Interpretation No. 46, "Consolidation
of Variable Interest Entities" (the "Interpretation"), clarified the accounting
treatment of certain entities in which equity investors do not have: (a) the
characteristics of a controlling financial interest; or (b) sufficient equity at
risk for the entity to finance its activities without additional subordinated
financial support from other parties. The Company adopted the Interpretation and
determined that it is the primary beneficiary of the VIE and consolidated the
VIE effective January 1, 2003.
The Company determined that the total third party equity investment in the
VIE at risk, as defined in paragraph 5 of the Interpretation, is $0. While the
Foundation capitalized the VIE with a substantive equity payment during 1997,
the $1,500 used for that payment was donated to the Foundation by MTC just
before it was invested by the Foundation in the VIE. Because the $1,500 was
donated to the Foundation, the Company concluded that the Foundation does not,
according to the Interpretation, have any equity investment at risk.
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 a $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 as a result of the
decision to consolidate the VIE.
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)
========
As a result of the consolidation of the VIE, the outstanding balance of
$25,595 at January 1, 2003 of long-term debt due the VIE's lenders has been
consolidated with the Company's financial statements and is treated as if it is
the Company's debt. As of June 30, 2003, the outstanding balance of this debt is
$23,382. The debt is payable in monthly installments through January 2006 and
bears interest at interest rates ranging from 5.0% to 8.35%. As of June 30,
2003, the debt is collateralized by: (a) the VIE's vessel with a net book value
of $12,600; (b) all other assets of $1,981; and (b) an assignment of the
vessel's earnings. Notwithstanding the accounting requirement to consolidate the
VIE's debt with the Company's financial statements, the VIE's lender's have no
recourse to the general credit of the Company.
NOTE 3 -- LONG-TERM DEBT
On January 16, 2003, the Company issued bonds in the amount of $60,909
which are 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 a fixed rate of 4.96% and are payable in semiannual
installments through 2027. The proceeds from the bonds were used to: (a)
refinance the construction financing arranged to build two articulated tug/barge
units ("ATB's"), the OCEAN RELIANCE/
7
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Barge 550-3 and COASTAL RELIANCE/Barge 550-4; and (b) reimburse the Company for
expenditures incurred for their construction.
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 these two ATB's. 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. Effective 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 in the amount of $7,967. The Company amortized $135 and $260 into
interest expense during the three and six months ended June 30, 2003,
respectively.
The Company has received a commitment for a loan from a financing
institution for $30,000. The proceeds will be used to fund working capital. The
loan is scheduled to be repaid in 24 quarterly installments of $1,250 plus
interest at LIBOR plus 1.5%. The loan will be collateralized by four vessels.
8
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4 -- EARNINGS PER COMMON SHARE
The computations for basic and diluted earnings per common share for the
three and six months ended June 30, 2003 and 2002 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Numerator:
Income (loss) before cumulative effect of
change in accounting principle........... $ 2,261 $ (2,930) $ (1,856) $ (5,641)
Less preferred dividends................. (394) (440) (788) (879)
-------- -------- -------- --------
Income (loss) for basic earnings per
common share before cumulative effect
of change in accounting principle..... 1,867 (3,370) (2,644) (6,520)
Cumulative effect of change in accounting
principle................................ -- -- (420) --
-------- -------- -------- --------
Net income (loss) for basic and diluted
earnings per common share............. $ 1,867 $ (3,370) $ (3,064) $ (6,520)
======== ======== ======== ========
Denominator:
Basic weighted average shares............ 135,927 136,078 135,888 136,096
======== ======== ======== ========
Diluted weighted average shares.......... 135,927 136,078 135,888 136,096
======== ======== ======== ========
Basic earnings (loss) per common share:
Income (loss) before cumulative effect of
change in accounting principle........ $ 13.74 $ (24.77) $ (19.46) $ (47.91)
Cumulative effect of change in accounting
principle............................. -- -- (3.09) --
-------- -------- -------- --------
Net income (loss)........................ $ 13.74 $ (24.77) $ (22.55) $ (47.91)
======== ======== ======== ========
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect of
change in accounting principle........ $ 13.74 $ (24.77) $ (19.46) $ (47.91)
Cumulative effect of change in accounting
principle............................. -- -- (3.09) --
-------- -------- -------- --------
Net income (loss)........................ $ 13.74 $ (24.77) $ (22.55) $ (47.91)
======== ======== ======== ========
The preferred class A convertible stock is anti-dilutive for the three
months ended June 30, 2003 and 2002 and the six months ended June 30, 2003 and
2002.
9
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5 -- 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 and six months ended June 30,
2003 and 2002.
OIL AND
SHIP CHEMICAL
ASSIST DISTRIBUTION ENERGY
AND AND AND
LINER ESCORT TRANSPORTATION MARINE SEGMENT CONSOLIDATED
SERVICES SERVICES SERVICES(2) SERVICES TOTAL OTHER(2) ELIMINATION TOTAL
-------- -------- -------------- -------- -------- -------- ----------- ------------
THREE MONTHS ENDED
JUNE 30, 2003
Operating revenues...... $143,566 $18,775 $ 63,555 $ 15,503 $241,399 -- -- $241,399
Intersegment revenues... -- 216 -- 8,249 8,465 $23,866 $(32,331) --
Depreciation and
amortization.......... 2,496 9 3,160 2,959 8,624 6,192 -- 14,816
Operating income
(loss)................ 6,727 3,049 6,825 (7,530) 9,071 -- -- 9,071
THREE MONTHS ENDED
JUNE 30, 2002(1)
Operating revenues...... $130,837 $17,887 $ 65,166 $ 23,746 $237,636 -- -- $237,636
Intersegment revenues... 440 386 -- 6,659 7,485 $24,077 $(31,562) --
Depreciation and
amortization.......... 1,754 9 4,607 2,874 9,244 5,037 -- 14,281
Operating income
(loss)................ 2,625 2,846 (4,108) (3,247) (1,884) -- -- (1,884)
SIX MONTHS ENDED
JUNE 30, 2003
Operating revenues...... $277,333 $37,056 $114,203 $ 32,609 $461,201 -- -- $461,201
Intersegment revenues... -- 441 -- 15,904 16,345 $49,259 $(65,604) --
Depreciation and
amortization.......... 4,834 18 6,343 6,161 17,356 11,793 -- 29,149
Operating income
(loss)................ 7,373 5,558 7,331 (14,429) 5,833 -- -- 5,833
SIX MONTHS ENDED
JUNE 30, 2002(1)
Operating revenues...... $251,683 $35,500 $135,161 $ 41,764 $464,108 -- -- $464,108
Intersegment revenues... 861 614 -- 12,921 14,396 $45,967 $(60,363) --
Depreciation and
amortization.......... 3,539 18 8,327 5,801 17,685 9,284 -- 26,969
Operating income
(loss)................ 594 5,726 (4,648) (4,540) (2,868) -- -- (2,868)
- ---------------
(1) MTL Petrolink Corp. was sold on May 15, 2002.
(2) During the second quarter of 2003, the Company contributed a subsidiary from
the Oil and Chemical Distribution and Transportation Services segment to the
Other segment. Intersegment revenues and depreciation and amortization
expenses have been restated for the quarters and six months ended June 30,
2003 and 2002 to reflect this transaction. There was no effect on the
operating income of either of these segments.
10
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
GEOGRAPHIC AREA INFORMATION
Revenues are attributed to the United States and to all foreign countries
based on the port of origin for the carriage of ocean cargo and the location of
service provided for all other operations. Revenues from external customers
attributable to an individual country, other than the United States, were not
material.
Operating 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 JUNE 30, 2003
Operating revenues......................................... $210,690 $30,709 $241,399
THREE MONTHS ENDED JUNE 30, 2002
Operating revenues......................................... $212,498 $25,138 $237,636
SIX MONTHS ENDED JUNE 30, 2003
Operating revenues......................................... $400,190 $61,011 $461,201
Property and equipment, net................................ $542,331 $ 4,790 $547,121
SIX MONTHS ENDED JUNE 30, 2002
Operating revenues......................................... $414,073 $50,035 $464,108
Property and equipment, net................................ $534,389 $ 6,470 $540,859
NOTE 6 -- ACQUISITIONS
In July 2003, the Company purchased an apparel transportation company which
will be included in the Liner Services segment. The purchase price of $3,357,
net of cash acquired, will be adjusted for certain working capital adjustments
and payments based on earnings. The Company is currently determining the fair
value of the assets and liabilities in order to allocate the purchase price.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Environmental costs represent reclamation costs expended by 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. Historically, actual provisions
for environmental costs have not differed materially from accrued amounts.
In the second quarter of 2003, the Company reached an agreement with an
insurance underwriter to settle its claim for all costs expended to date and
future costs related to environmental remediation resulting from occurrences
prior to 1986. The $1,000 settlement, which reduced claims expense in the second
quarter of 2003, is recorded in the Company's Unaudited Condensed Consolidated
Balance Sheet in Other Receivables at June 30, 2003.
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.
11
CROWLEY MARITIME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 has insurance coverage that reimburses the Company for a
substantial portion of the costs incurred defending against open asbestos
claims. This coverage also reimburses the Company for a substantial portion of
amounts the Company pays 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 the Company. The amount of insurance
coverage available to the Company 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. The Company does not include any amounts in
its reserves for existing asbestos related cases or cases that may be filed in
the future in the matter before Judge Weiner. 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, operating results or cash flows.
The Company has executed agreements for the construction of operating
equipment for approximately $4,908. Lease financing of this equipment is being
negotiated. The Company has entered into a construction agreement for two
vessels for approximately $5,874. Approximately $328 has been spent on these
agreements as of June 30, 2003.
12
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 in 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, to goodwill, to revenue
recognition, to litigation and to 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, as
amended, 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 Notes 1 and 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 JUNE 30, 2003 AND 2002
Consolidated operating revenues for the three months ended June 30, 2003
increased $3,763 or 1.6%, to $241,399 compared with $237,636 for the second
quarter in 2002. This increase was primarily attributed to: (a) an increase in
revenue in our Liner Services segment due to an increase in container and
non-container volume and an increase in average revenue per twenty-foot
equivalent units, or TEU ("average revenue"); and (b) an increase in revenue due
to the operation of four new articulated tug/barge units (the "ATB's") during
the second quarter of 2003. The increase was partially offset by: (a) the sale
of MTL Petrolink Corp. on May 15, 2002; and (b) a decrease in revenues earned
related to outfitting and mobilization for transportation of oil exploration
cargo to Sakhalin Island, Russia.
Consolidated operating expenses for the three months ended June 30, 2003
decreased $4,605 or 2.1%, to $211,566 compared with $216,171 for the second
quarter in 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 the ATB's during the second quarter of 2003.
Consolidated general and administrative expenses decreased $1,837 or 20.2%, to
$7,255 in 2003 from $9,092 in 2002. This decrease was primarily attributable to
a decrease in split-dollar life
13
insurance costs. Consolidated depreciation and amortization expense increased
$535 or 3.7%, to $14,816 in 2003 from $14,281 in 2002 primarily as the result of
depreciation of the ATB's in the second quarter of 2003 offset by the effect of
no depreciation for vessels sold in 2002. Consolidated asset recoveries, net
increased $1,285 to a recovery of $1,309 in 2003 from a recovery of $24 in 2002.
These gains resulted from the sale of three vessels, surplus properties and
equipment during the three months ended June 30, 2003 and the sale of equipment
during the three months ended June 30, 2002.
As a result, the consolidated operating income for the three months ended
June 30, 2003 increased $10,955 to $9,071 compared with an operating loss of
$1,884 for the three months ended June 30, 2002.
Interest income for the three months ended June 30, 2003 decreased $20 or
20.2%, to $79 compared with $99 for the three months ended June 30, 2002. 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 the second
quarter of 2003.
As a result of increased interest expenses arising from the debt arranged
for the construction of the ATB's which were delivered in 2002, interest expense
for the three months ended June 30, 2003 increased $2,097 or 62.5%, to $5,450
compared with $3,353 for the second quarter in 2002. Interest expense also
increased due to lower capitalized interest in the second quarter of 2003
compared with the second quarter of 2002 related to the construction period of
these units.
The minority interest in consolidated subsidiaries decreased $199, or 42.7%
for the three months ended June 30, 2003 to income of $267 compared with $466
for the three months ended June 30, 2002. This decrease 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 $1,173 and $1,847 during the second quarters of 2003
and 2002, respectively.
Income tax expense for the three months ended June 30, 2003 increased
$3,500 to $1,800 compared with an income tax benefit of $1,700 for the second
quarter in 2002. The effective tax rate was 44% and 37% for the second quarter
of 2003 and 2002, respectively. The increase in the effective tax rate results
from changes in the Company's projections of pre-tax income and permanent
differences.
As a result, net income attributable to common shareholders for the three
months ended June 30, 2003 increased $5,237 to $1,867 ($13.74 basic and diluted
earnings per common share) in 2003 compared with a net loss attributable to
common shareholders of $3,370 ($24.77 basic and diluted loss per common share)
for the second 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. During the second quarter of 2003, the Company contributed
a subsidiary from the Oil and Chemical Distribution and Transportation Services
segment to the Other segment. Intersegment revenues and depreciation and
amortization expenses have been restated for the quarters ended and six months
ended June 30, 2003 and 2002 to reflect this transaction. There was no effect on
the operating income of either of these segments. The following is a discussion
of the results of operations of the Company's segments.
Liner Services
Operating revenues from our Liner Services segment for the three months
ended June 30, 2003 increased $12,729 or 9.7%, to $143,566 compared with
$130,837 for the second quarter in 2002. The increase in revenues is primarily
attributable to a 9.1% increase in container and noncontainer volume and an
increase of 54.1% in other logistical service revenues. This increase was
partially offset by a 0.8% decrease in average revenue. The Company's container
and noncontainer volume during the second quarter of 2003 and 2002 was 144,586
TEUs and 132,466 TEUs, respectively. The Company experienced a 14.9% increase in
the Puerto Rico and Caribbean Islands Service container and noncontainer volume
and a 1.4% increase in container and noncontainer volume in the Latin America
Service. In the second quarter of 2003, average revenue in the Puerto Rico and
Caribbean Islands Service remained consistent with the second quarter of 2002.
The Latin America Service experienced a 0.8% decrease in average revenue
compared with the second quarter of 2002
14
due to competitive pressures. The increase in other logistical service revenues
was primarily due to revenue earned from a transportation service provider which
was purchased in October 2002.
Operating expenses for the three months ended June 30, 2003 increased
$10,126 or 8.4%, to $130,118 compared with $119,992 for the second quarter in
2002. These expenses consist primarily of fuel costs, purchased transportation
costs, equipment costs, maintenance and repair costs and labor costs.
Depreciation and amortization for the three months ended June 30, 2003
increased $742 or 42.3%, to $2,496 compared with $1,754 for the second quarter
in 2002. The increase was directly attributable to an increase in dry-dock
amortization of $606. Liner Services amortized dry-dock costs for five vessels
in the second quarter of 2003 compared with two vessels in the second quarter of
2002. In general, dry-dock costs are amortized over a two year period, or over a
period to the next scheduled dry-dock, which ever is less.
Asset recoveries, net for the three months ended June 30, 2003 increased
$451 to a recovery of $474 compared with a recovery of $23 for the second
quarter in 2002. These gains resulted from disposals of two vessels and
equipment during the second quarter of 2003 and disposals of equipment during
the second quarter of 2002.
As a result, the operating income from Liner Services for the three months
ended June 30, 2003 increased $4,102 to $6,727 compared with $2,625 for the
second quarter in 2002.
Ship Assist and Escort Services
Operating revenues from our Ship Assist and Escort Services segment for the
three months ended June 30, 2003 increased $888 or 5.0%, to $18,775 compared
with $17,887 for the second 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 second quarter of 2003 was
71% compared with 75% during the second quarter of 2002.
Operating expenses for the three months ended June 30, 2003 increased $683
or 4.7%, to $15,251 compared with $14,568 for the second 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 June 30, 2003 increased $203 to $3,049 compared with $2,846
for the second 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 June 30, 2003
decreased $1,611 or 2.5%, to $63,555 compared with $65,166 for the second
quarter of 2002. The decrease was directly attributable to the sale of MTL
Petrolink Corp. on May 15, 2002, and a decrease in the number of vessels in
service during the second quarter of 2003 compared with the second quarter of
2002. 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 and one ATB placed in service in the second quarter of
2003. There was also an overall increase in vessel utilization (79.9% in 2003
compared with 69.5% in 2002). The increase in vessel utilization is a result of
increased trading activity among West Coast refineries.
Operating expenses for the three months ended June 30, 2003 decreased
$10,386 or 16.6%, to $52,151 compared with $62,537 for the second quarter of
2002. This decrease was primarily attributable to the expenses which were not
incurred due to the sale of MTL Petrolink Corp. on May 15, 2002, and a decrease
in the number of vessels in service during the second quarter of 2003 compared
with the second quarter of 2002. The decrease was partially offset by an overall
increase in vessel utilization and increased expenses in 2003 related to the
operation of three ATB's placed in service during the third and fourth quarters
of 2002 and one ATB placed in service in the second quarter of 2003.
Depreciation and amortization for the three months ended June 30, 2003
decreased $1,447 or 31.4%, to $3,160 compared with $4,607 for the second quarter
in 2002. The decrease was directly attributable to a
15
decrease in depreciation of $702 and a decrease in dry-dock amortization for
vessels of $609. The decrease in depreciation was directly related to a decrease
in depreciation from the sale of vessels which was partially offset by
additional depreciation recognized as a result of the consolidation of the VIE.
Dry-dock costs were amortized for one vessel during the second quarter of 2003
compared with three vessels during the second quarter of 2002. In general,
dry-dock costs are amortized over a two year period , or over a period to the
next scheduled dry-dock, which ever is less.
Asset recoveries, net for the three months ended June 30, 2003 increased
$88 as compared with the second quarter in 2002. These gains resulted from the
sale of a vessel during the second quarter of 2003.
As a result, the operating income of Oil and Chemical Distribution and
Transportation Services for the three months ended June 30, 2003 increased
$10,933 to $6,825 compared with a loss of $4,108 for the second quarter in 2002.
Energy and Marine Services
Operating revenues from our Energy and Marine Services segment for the
three months ended June 30, 2003 decreased $8,243 or 34.7%, to $15,503 compared
with $23,746 for the second quarter of 2002. The decrease was directly
attributable to a reduction from the revenues earned from the outfitting and
mobilization for the transportation of oil exploration cargo to Sakhalin Island,
Russia. Current indications are that our revenues generated by the operations in
Russia will continue to decline substantially this year. This decrease was
partially offset by an increase in vessel utilization during the second quarter
of 2003 to 40% compared with 39% during the second quarter of 2002. Vessel
utilization in this segment is very volatile and it is impacted by oil
exploration activity and general economic conditions.
Operating expenses for the three months ended June 30, 2003 decreased
$1,684 or 5.6%, to $28,252 compared with $29,936 for the second quarter in 2002.
The decrease was directly attributable to one-time outfitting charges in 2002
related to the Sakhalin Island project, partially offset by increases in vessel
related costs due to increased fuel and repairs and maintenance costs on tugs
and barges in 2003.
Asset recoveries, net for the three months ended June 30, 2003 increased
$746 to $747 compared with a recovery of $1 for the second quarter in 2002.
These gains resulted from the sale of surplus properties during the second
quarter of 2003.
As a result, the operating loss for Energy and Marine Services for the
three months ended June 30, 2003 increased $4,283 to $7,530 compared with $3,247
for the second quarter in 2002.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Consolidated operating revenues for the six months ended June 30, 2003
decreased $2,907 or 0.6%, to $461,201 compared with $464,108 for the six months
ended June 30, 2002. The decrease is primarily attributed to: (a) the sale of
MTL Petrolink Corp. on May 15, 2002; and (b) a decrease in revenues earned
related to outfitting and mobilization for transportation of oil exploration
cargo to Sakhalin Island, Russia. This decrease was partially 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 due to competitive pressures; and (b) an increase in revenue from the
operation of the ATB's during the first and second quarters of 2003.
Consolidated operating expenses for the six months ended June 30, 2003
decreased $12,130 or 2.9%, to $411,698 compared with $423,828 for the six months
ended June 30, 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 the ATB's during the first and second quarters of
2003. Consolidated general and administrative expenses decreased $823 or 4.9%,
to $16,102 in 2003 from $16,925 in 2002. This decrease was primarily
attributable to a decrease in split-dollar life insurance costs. Consolidated
depreciation and amortization expense increased $2,180 or 8.1%, to $29,149 in
2003 from $26,969 in 2002 primarily as the result of depreciation relating to
the operations of the ATB's during 2003. Consolidated asset recoveries, net
increased $835 to a recovery of $1,581
16
in 2003 from a recovery of $746 in 2002. These gains resulted from the sale of
three vessels, land, surplus properties and equipment during the six months
ended June 30, 2003 and one vessel, land and equipment during the six months
ended June 30, 2002.
As a result, the consolidated operating income for the six months ended
June 30, 2003 increased $8,701 to $5,833 compared with an operating loss of
$2,868 for the six months ended June 30, 2002.
Interest income for the six months ended June 30, 2003 decreased $4 or
1.9%, to $203 compared with $207 for the six months ended June 30, 2002. This
decrease was due to a decrease in the Company's average cash and cash
equivalents amounts during this period and lower interest rates during the six
months ended June 30, 2003.
As a result of increased interest expenses arising from the debt arranged
for the construction of the ATB's which were delivered in 2002, interest expense
for the six months ended June 30, 2003 increased $3,544 or 51.2%, to $10,460
compared with $6,916 for the second quarter in 2002. Interest expense also
increased due to lower capitalized interest during the six months ended June 30,
2003 compared with the six months ended June 30, 2002 related to the
construction period of the ATB's.
The minority interest in consolidated subsidiaries increased $330 for the
six months ended June 30, 2003 to income of $806 compared with $476 for the six
months ended June 30, 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 $3,575 and $1,963 during the second quarter of 2003 and 2002,
respectively.
Income tax benefit for the six months ended June 30, 2003 decreased $1,600
or 50.0%, to $1,600 compared with $3,200 for the second quarter in 2002. The
effective tax rate was 46% and 36% for the six months ended June 30, 2003 and
2002, respectively. The increase in the effective tax rate results from changes
in the Company's projections of pre-tax income and permanent differences.
As a result, net loss attributable to common shareholders for the six
months ended June 30, 2003 decreased $3,456 to $3,064 ($22.55 basic and diluted
loss per common share) in 2003 compared with a net loss attributable to common
shareholders of $6,520 ($47.91 basic and diluted loss per common share) for the
six months ended June 30, 2002.
Liner Services
Operating revenues from our Liner Services segment for the six months ended
June 30, 2003 increased $25,650 or 10.2%, to $277,333 compared with $251,683 for
the six months ended June 30, 2002. The increase in revenues is primarily
attributable to an 11.5% increase in container and noncontainer volume and an
increase of 28.7% in other logistical service revenues. This increase was offset
by a 2.5% decrease in average revenue. The Company's container and noncontainer
volume during the six months ended June 30, 2003 and 2002 was 283,703 TEUs and
254,446 TEUs, respectively. The Company experienced a 17.2% increase in the
Puerto Rico and Caribbean Islands Service container and noncontainer volume and
a 4.1% increase in container and noncontainer volume in the Latin America
Service. In the six months ended June 30, 2003, the Company experienced a 1.6%
average revenue decrease in the Puerto Rico and Caribbean Islands Service
compared with the six months ended June 30, 2002 due to cargo mix and
competitive pressures. In the six months ended June 30, 2003, the Latin America
Service experienced a 0.9% decrease in average revenue compared with the six
months ended June 30, 2002 due to competitive pressures. The increase in other
logistical service revenues was primarily due to revenue earned from a
transportation service provider which was purchased in October 2002.
Operating expenses for the six months ended June 30, 2003 increased $17,943
or 7.6%, to $255,195 compared with $237,252 for the six months ended June 30,
2002. These expenses consisted primarily of fuel costs, purchased transportation
costs, equipment costs, maintenance and repair costs and labor costs.
Depreciation and amortization for the six months ended June 30, 2003
increased $1,295 or 36.6%, to $4,834 compared with $3,539 for the six months
ended June 30, 2002. The increase was directly attributable to
17
an increase in dry-dock amortization of $1,052. Liner Services amortized
dry-dock costs for five vessels in 2003 compared with two vessels in 2002. In
general, dry-dock costs are amortized over a two year period, or over a period
to the next scheduled dry-dock, which ever is less.
Asset recoveries, net for the six months ended June 30, 2003 increased $408
to a recovery of $513 compared with $105 for the six months ended June 30, 2002.
These gains resulted from disposals of two vessels and equipment during 2003 and
disposals of equipment during 2002.
As a result, the operating income from Liner Services for the six months
ended June 30, 2003 increased $6,779 to $7,373 compared with $594 for the six
months ended June 30, 2002.
Ship Assist and Escort Services
Operating revenues from our Ship Assist and Escort Services segment for the
six months ended June 30, 2003 increased $1,556 or 4.4%, to $37,056 compared
with $35,500 for the six months ended June 30, 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 second quarter of 2003 was
72% compared with 73% during the six months ended June 30, 2002.
Operating expenses for the six months ended June 30, 2003 increased $1,642
or 5.7%, to $30,461 compared with $28,819 for the six months ended June 30,
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
six months ended June 30, 2003 decreased $168 to $5,558 compared with $5,726 for
the six months ended June 30, 2002.
Oil and Chemical Distribution and Transportation Services
Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment for the six months ended June 30, 2003 decreased
$20,958 or 15.5%, to $114,203 compared with $135,161 for the six months ended
June 30, 2002. The decrease was directly attributable to the sale of MTL
Petrolink Corp. on May 15, 2002, and a decrease in the number of vessels in
service during the six months ended June 30, 2003 compared with the six months
ended June 30, 2002. 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 and one ATB placed in service in
the second quarter of 2003. There was also an overall increase in vessel
utilization (64.1% in 2003 compared with 61.1% in 2002). The increase in vessel
utilization is a result of increased trading activity among West Coast
refineries.
Operating expenses for the six months ended June 30, 2003 decreased $30,219
or 23.7%, to $97,535 compared with $127,754 for the six months ended June 30,
2002. This decrease was primarily attributable to the expenses which were not
incurred due to the sale of MTL Petrolink Corp. on May 15, 2002, and a decrease
in the number of vessels in service during the second quarter of 2003 compared
with the six months ended June 30, 2002. The decrease was partially offset by an
overall increase in vessel utilization and increased expenses in 2003 related to
the operation of four ATB's placed in service during 2002 and 2003.
Depreciation and amortization for the six months ended June 30, 2003
decreased $1,984 or 23.8%, to $6,343 compared with $8,327 for the six months
ended June 30, 2002. The decrease was directly attributable to a decrease in
depreciation of $988 and a decrease in dry-dock amortization for vessels of
$724. The decrease in depreciation was directly related to a decrease in
depreciation from the sale of vessels which was partially offset by additional
depreciation recognized as a result of the consolidation of the VIE. Dry-dock
costs were amortized for one vessel during the second quarter of 2003 compared
with three vessels during the second quarter of 2002. In general, dry-dock costs
are amortized over a two year period, or over a period to the next scheduled
dry-dock, which ever is less.
Asset recoveries, net for the six months ended June 30, 2003 increased $321
as compared with the six months ended June 30, 2002. These gains resulted from
the sale of one vessel and land during 2003.
18
As a result, the operating income of Oil and Chemical Distribution and
Transportation Services for the six months ended June 30, 2003 increased $11,979
to $7,331 compared with a loss of $4,648 for the six months ended June 30, 2002.
Energy and Marine Services
Operating revenues from our Energy and Marine Services segment for the six
months ended June 30, 2003 decreased $9,155 or 21.9%, to $32,609 compared with
$41,764 for the six months ended June 30, 2002. The decrease was directly
attributable to a reduction from the revenues earned from the outfitting and
mobilization for the transportation of oil exploration cargo to Sakhalin Island,
Russia. Current indications are that our revenues generated by the operations in
Russia will continue to decline substantially this year. Vessel utilization
during the six months ended June 30, 2003 decreased to 33% compared with 39%
during the six months ended June 30, 2002. Vessel utilization in this segment is
very volatile and it is impacted by oil exploration activity and general
economic conditions.
Operating expenses for the six months ended June 30, 2003 increased $3,185
or 6.1%, to $55,724 compared with $52,539 for the second quarter in 2002. The
increase was directly attributable to increases in vessel related costs due to
increased fuel and repairs and maintenance costs on tugs and barges in 2003,
partially offset by decreases in one-time outfitting charges in 2002 related to
the Sakhalin Island project.
Depreciation and amortization for the six months ended June 30, 2003
increased $360 or 6.2%, to $6,161 compared with $5,801 for the second quarter in
2002. The increase was directly attributable to depreciation for a vessel placed
in service in February 2003 that was previously classified as held for sale.
Asset recoveries, net for the six months ended June 30, 2003 increased
$106, or 16.5% to $747 compared with a recovery of $641 for the six months ended
June 30, 2002. These gains resulted from the sale of surplus properties during
the six months ended June 30, 2003 compared with the sale of one vessel and land
during the six months ended June 30, 2002.
As a result, the operating loss for Energy and Marine Services for the six
months ended June 30, 2003 increased $9,889 to $14,429 compared with $4,540 for
the six months ended June 30, 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.
The Company has received a commitment for a loan from a financing
institution for $30,000. The proceeds will be used to fund working capital. The
loan is scheduled to be repaid in 24 quarterly installments of $1,250 plus
interest at LIBOR plus 1.5%. The loan will be collateralized by four vessels.
COMPARISON OF FINANCIAL CONDITION AS OF JUNE 30, 2003 AND JUNE 30, 2002
At June 30, 2003, the Company's cash and cash equivalents totaled $8,261
compared with $75,588 at June 30, 2002.
Net cash used in continuing operations was $4,367 for the six month period
ended June 30, 2003 compared with net cash provided by continuing operations of
$14,201 for the six month period ended June 30, 2002. This decrease is primarily
the result of an increase in receivables from the United States Government based
upon the management by the Company of vessels that were activated for service in
the Iraqi conflict during the first six months of 2003.
Net cash used in discontinued operations was $686 for the six month period
ended June 30, 2003 compared with $943 for the six month period ended June 30,
2002.
19
Net cash used in investing activities was $12,243 for the six month period
ended June 30, 2003 compared with $54,695 for the six month period ended June
30, 2002. The decrease reflects a decrease in capital expenditures ($9,460 in
2003 compared with $51,312 in 2002) associated with the construction and
modernization of assets of the Company. The Company spent $6,953 for dry-docking
costs for the six months ended June 30, 2003 compared with $9,492 spent in the
six months ended June 30, 2002. The Company received an escrow deposit of $500
from the sale of MTL Petrolink Corp. during the second quarter of 2003. This
amount, net of income taxes of $189 reduced goodwill. The Company received
proceeds of $16,336 from the sale of MTL Petrolink Corp. in the second quarter
of 2002. The Company assumed cash of $1,915 from the consolidation of the VIE
effective January 1, 2003. There was also a decrease in the Title XI and
construction borrowings placed in escrow from $8,937 as of June 30, 2002 to
$1,544 as of June 30, 2003.
Net cash used in financing activities was $18,018 for the six month period
ended June 30, 2003 compared with net cash provided by financing activities of
$83,604 for the six month period ended June 30, 2002. This decrease was a result
of higher principal payments on long-term debt ($65,446 in 2003, which includes
the repayment of $49,394 of construction financing used for two ATB's, compared
with $11,928 in 2002) and a reduction in the proceeds from issuance of debt.
Proceeds of $86,759 were received in 2002 to finance the construction of four
ATB's. In 2003, the Company received proceeds from permanent financings in the
amount of $60,909 to refinance the construction financing for two ATB's. The
Company borrowed $30,000 and repaid $15,000 on its Revolving Credit Agreement in
the six months ended June 30, 2002 and borrowed an additional $10,000 and repaid
$15,000 in the six months ended June 30, 2003. The Company paid $6,063 of debt
issuance costs during the six months ended June 20, 2002 compared with $279
during the six months ended June 30, 2003. The Company paid $7,967 on January
16, 2003 upon maturity of its rate lock agreement.
CAPITAL RESOURCES
On January 16, 2003, the Company issued bonds 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. The Company's
liability under a rate lock agreement was fixed and paid at that time. For
additional information, see Note 3 to the Company's Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial Information -- Item 1.
Financial Statements."
In July 2003, the Company acquired an apparel transportation company. For
additional information, see Note 6 to the Company's Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial Information -- Item 1.
Financial Statements."
The Company has executed agreements for the construction of operating
equipment for approximately $4,908. Lease financing of this equipment is being
negotiated. The Company has entered into a construction agreement for two
vessels for approximately $5,874. Approximately $328 has been spent on these
agreements as of June 30, 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 in Note 3 to the Company's Unaudited Condensed Consolidated
Financial Statements in "Part 1 -- Financial Information -- Item 1. Financial
Statements" which is incorporated by reference, 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.
For the six months ended June 30, 2003, the Company has recorded a reduction to
its assets and liabilities in the amount of $135 and recorded an unrealized loss
of $82, net of $53 in deferred taxes to other comprehensive loss. Amounts were
determined as of June 30, 2003 based on the foreign currency exchange rate
between the Bolivar and the U.S. dollar. For additional information, refer to
the Unaudited
20
Condensed Consolidated Statement of Stockholders' Equity in "Part 1 -- Financial
Information -- Item 1. Financial Statements" which is incorporated by reference.
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 June 30, 2003 a reserve of $815 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 results of operation, financial
position or cash flows.
ITEM 4. CONTROLS AND PROCEDURES.
The Company's management, including its principal executive officer (who is
the President and Chief Executive Officer) and the principal financial officer
(who is the Vice President, Tax and Audit), conducted an evaluation of the
effectiveness of disclosure controls and procedures pursuant to Rule 13a-15
promulgated under the Securities and Exchange Act of 1934, as amended, as of the
end of the period covered by this report. Based on that evaluation, the
principal executive officer and the principal financial officer concluded that
the Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in this report was 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 over
financial reporting that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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 or unlikely those
conditions may be.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ENVIRONMENTAL LITIGATION
Environmental costs represent reclamation costs expended by 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. Historically, actual provisions
for environmental costs have not differed materially from accrued amounts.
In the second quarter of 2003, the Company reached an agreement with an
insurance underwriter to settle its claim for all costs expended to date and
future costs related to environmental remediation resulting from occurrences
prior to 1986. The $1,000 settlement, which reduced claims expense in the second
quarter of 2003, is recorded in the Company's Unaudited Condensed Consolidated
Balance Sheet in Other Receivables at June 30, 2003.
21
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 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 has insurance coverage that reimburses the Company for a
substantial portion of the costs incurred defending against open asbestos
claims. This coverage also reimburses the Company for a substantial portion of
amounts the Company pays 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 the Company. The amount of insurance
coverage available to the Company 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. The Company does not include any amounts in
its reserves for existing asbestos related cases or cases that may be filed in
the future in this matter before Judge Weiner. 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, operating results or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 21, 2003, the Company held its annual meeting of stockholders. The
only matter voted upon at the meeting was the election of nominees to the Board
of Directors. The nine directors named below whose terms expired in 2003 were
reelected for one year terms (expiring in 2004) at this annual meeting. The
results of the vote are set forth below.
DIRECTOR FOR WITHHELD ABSTENTIONS
- -------- ------- -------- -----------
Philip E. Bowles....................................... 126,002 6,841 9,367
Molly M. Crowley....................................... 125,990 6,853 9,367
Thomas B. Crowley, Jr. ................................ 125,992 6,851 9,367
Gary L. Depolo......................................... 132,678 165 9,367
Earl T. Kivett......................................... 132,678 165 9,367
William A. Pennella.................................... 126,002 6,841 9,367
Leland S. Prussia...................................... 132,666 177 9,367
James B. Rettig........................................ 125,945 6,898 9,367
Cameron W. Wolfe, Jr. ................................. 125,965 6,878 9,367
There were no broker non-votes.
22
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 31.1 Certification of Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a)
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a)
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
Exhibit 32.2 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 4 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
23
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)
August 14, 2003
By: /s/ THOMAS B. CROWLEY, JR.
------------------------------------
Thomas B. Crowley, Jr.
Chairman of the Board,
President and Chief Executive
Officer
August 14, 2003
By: /s/ RICHARD L. SWINTON
------------------------------------
Richard L. Swinton
Vice President, Tax and Audit
24
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 31.1 Certification of Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a)
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a)
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
Exhibit 32.2 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 4 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial
Information -- Item 1. Financial Statements" of this Form 10-Q.