CROWLEY MARITIME CORP - 10-Q Quarterly Report

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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, 2004

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 Identification No.)
incorporation or organization)

155 GRAND AVENUE, OAKLAND, CALIFORNIA 94612
(Address of principal executive offices) (Zip Code)

(510) 251-7500
(Registrant's telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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 16, 2004, 89,105 shares of voting common stock, par value $.01
per share, and 46,138 shares of Class N non-voting common stock, par value $.01
per share, were outstanding.

TABLE OF CONTENTS

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, 2004 AND 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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, 2004 AND DECEMBER 31, 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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, 2004
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

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, 2004 AND 2003
(IN THOUSANDS)

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, 2004 AND 2003
(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 Annual Report
on Form 10-K for Crowley Maritime Corporation (the "Company") for the year ended
December 31, 2003 as filed with the Securities and Exchange Commission on March
19, 2004.

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,
2004 are not necessarily indicative of the results that may be expected for the
full year.

NOTE 2 -- VARIABLE INTEREST ENTITY

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) $40,000 in cash; and (b) a note receivable
for $9,000 (the "Note"). After considering certain characteristics of the Note,
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.

Effective January 1, 2003, the VIE was consolidated by the Company in
accordance with Financial Accounting Standards Board Interpretation No. 46,
"Consolidation of Variable Interest Entities".

In June 2004, the Company exercised an option to purchase the vessel from
the VIE for consideration consisting of: (i) a cash payment in the amount of
$500; and (ii) cancellation of the Note (which Note was eliminated in
consolidating the VIE). Simultaneously with the exercise of the option: (a) the
VIE assigned its remaining outstanding debt in the amount of $15,347 to the
Company and the Company assumed such outstanding debt; (b) the Company assumed
the obligations of the VIE under two bareboat charters for the vessel; and (c)
an unrelated third party that capitalized the VIE in 1997 received $2,000 as a
return of capital.

NOTE 3 -- DISCONTINUED OPERATIONS

In December 2003, the Company approved a plan to sell the Logistics
operations of its Liner Services segment in Venezuela. In February 2004, the
Company sold its Venezuelan Logistics operations for $1,506.

On April 1, 1999, the Company adopted a plan to sell its South America
trade lanes, river barging operations, related subsidiaries, vessels and certain
other assets. In conjunction with the sale, the Company adopted a strategy to
exit from several other South America operations. As a result of a claims review
performed quarterly, the Company adjusted its net liabilities and recorded
income from its South America discontinued operations of $591 during the second
quarter of 2004.

6

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The Venezuelan and South American operations have been reflected as
discontinued operations in the accompanying Unaudited Condensed Consolidated
Statements of Operations. Discontinued operations for the three and six months
ended June 30 are summarized as follows:

The combined assets and liabilities of these discontinued operations
included in the Company's Unaudited Condensed Consolidated Balance Sheets at
June 30, 2004 and December 31, 2003 are as follows:

NOTE 4 -- LONG-TERM DEBT

In June 2004, the Company amended its $115,000 loan agreement with several
financial institutions to replace a covenant that required the Company to
maintain a net debt (as defined in such agreement) to earnings before interest,
taxes, depreciation and amortization ratio not to exceed 6.0. The new covenant
requires maintenance of a maximum total debt (as defined by such agreement) to
earnings before interest, taxes, depreciation, amortization and rent expense (as
defined by such agreement) not to exceed: (a) 3.25 in 2004 and 2005; and (b) 3.0
in 2006 and thereafter. The Company is in compliance with all of its debt
covenants as of June 30, 2004. This amendment was made to make the covenant
consistent with the Company's $95,000 Second Amended and Restated Credit
Agreement.

7

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 5 -- EARNINGS PER COMMON SHARE

The computations for basic and diluted loss per common share for the three
and six months ended June 30, 2004 and 2003 are as follows:

The preferred class A convertible stock is anti-dilutive for the three and
six months ended June 30, 2004 and 2003.

8

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(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 and six months ended June 30,
2004 and 2003.

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(1) During the fourth quarter of 2003, the Company approved a plan to sell the
Logistics operations of its Liner Services segment in Venezuela. The Liner
Services segment has been restated for the three and six months ended June
30, 2003 as discontinued operations. See Note 3.

9

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(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.

The Company has restated its foreign revenues for the three and six months
ended June 30, 2003 to include certain foreign revenues previously classified as
United States revenue. Operating revenues from external customers and property
and equipment, net information by geographic area are summarized as follows:

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

GENERAL LITIGATION

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

ASBESTOS LITIGATION

The Company is currently named as a defendant with other companies with
respect to approximately sixteen thousand maritime asbestos cases and other
toxic tort cases, most of which were filed in the Federal Courts in Ohio,
Michigan, California 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 Merchant Marine Act of 1920 (i.e., 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 also not known whether Judge Weiner will be
able to develop a plan which will result in settlement of the cases. If he is

10

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

unsuccessful, it is expected that the cases will be remanded to the Ohio and
Michigan courts in the event that they are reinstated.

The Company has insurance coverage that reimburses it for a substantial
portion of the: (a) costs incurred defending against asbestos claims; and (b)
amounts the Company pays to settle claims or honor judgments by courts. The
coverage is provided by a large number of insurance policies written by dozens
of insurance companies over a period of many years. The amount of insurance
coverage depends on the nature of the alleged exposure to asbestos, the specific
subsidiary against which an asbestos claim is asserted and the terms and
conditions of the specific policy.

The uncertainties of asbestos claim litigation make it difficult to
accurately predict the ultimate resolution of these claims. By their very
nature, civil actions relating to toxic substances vary according to the fact
pattern of each case, the number of defendants and their relative shares of
liability in each case, the applicable jurisdiction and numerous 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 final
resolution. The full impact of these claims and proceedings in the aggregate
continues to be unknown. At June 30, 2004, 35 claims have been reinstated by the
Judicial Panel on Multidistrict Litigation and remanded to the U.S. District
Court for the Northern District of Ohio for trial. The Company has accrued $778
as an estimate of its potential liability in this litigation. The Company has
also recorded a receivable from its insurance companies of $325 related to these
claims.

In addition to the asbestos litigation discussed above, the Company is
party to certain other proceedings in which other claimants allege injury or
illness based upon exposure to asbestos or other toxic substances. The Company
has an estimated litigation reserve of $1,034 with a corresponding re-insurance
receivable of $490. The Company became aware of asbestos related litigation
involving certain claims during the first quarter of 2004. These claims were
settled in late May 2004. The Company expensed $2.1 million and $4.2 million
related to this litigation in the first quarter and second quarter of 2004,
respectively. The Company has notified and is preparing claims for submission to
its insurance underwriters for settlement amounts and defense costs paid and
will aggressively pursue the insurance claims.

While it is not feasible to accurately 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 some of these cases could
have a material adverse affect on our financial condition, operating results or
cash flows.

OTHER COMMITMENTS

The Company has executed agreements of approximately $16,737 for the
construction of operating equipment which is expected to be delivered in the
third quarter of 2004. Lease financing of the equipment is being negotiated. The
Company has entered into a contract for the construction of two articulated
tug/barge units. Each unit will be capable of carrying 180 thousand barrels of
refined product. The aggregate cost of constructing the two vessels is expected
to approximate $85,000 (including the cost of owner furnished equipment). Both
units are expected to be delivered in 2006.

11

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 8 -- SUBSEQUENT EVENT

The Company has entered into a definitive agreement (the "Purchase
Agreement"), dated as of July 9, 2004 and effective from and after July 20,
2004, to purchase from Northland Fuel LLC, a Delaware limited liability company
("Northland"), and Yukon Fuel Company, an Alaska corporation ("YFC"), a marine
and land-based refined petroleum products distribution business conducted by
Northland and YFC in Western Alaska (the "Business"). Pursuant to the Purchase
Agreement, the Company also agreed to purchase from: (a) Northland Vessel
Leasing Company, LLC, a Delaware limited liability company ("NVLC"), certain
barges and other vessels used in the Business; and (b) Yutana Barge Lines, LLC,
a Delaware limited liability company ("Yutana"), certain assets used in the
Business. The aggregate purchase price payable at closing by the Company
pursuant to the Purchase Agreement and the agreement between the Company and
Yutana is $52.2 million plus an amount equal to net working capital (including
fuel inventory) determined in accordance with the Purchase Agreement, which
amount currently is estimated to be $26.0 million. The closing of this
transaction is subject to several customary conditions, including expiration of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, the absence of any material adverse change or effect, delivery
of certain title policies and title insurance, and the issuance to the Company
of a specified environmental insurance policy. In addition, closing is
conditioned upon the Consent Decree (as defined below) becoming final (which
will not occur earlier than 60 days after its filing with the Court (as defined
below)) and the Court's approval of the Consent Decree.

On July 13, 2004, the Company, together with Northland, YFC, NVLC and
Yutana (collectively, the "Sellers"), entered into a Consent Decree with the
State of Alaska (the "Consent Decree"), which settles a lawsuit filed on July
20, 2004, by the Alaska Attorney General against the Company and the Sellers in
the Superior Court for the State of Alaska, Second Judicial District at Nome
(the "Court"). The Consent Decree was filed with the Court on July 27, 2004. The
Alaska Attorney General alleges in the lawsuit that the transactions
contemplated by the Purchase Agreement violate the antitrust laws of the State
of Alaska and the United States. Pursuant to the Consent Decree, the Company
agreed, among other things, to: (a) provide approximately 4 million gallons of
tank farm storage capacity located in Bethel, Alaska to Delta Western, Inc.
("DW") for up to 10 years (with options to extend); (b) sell certain tugs,
barges and related assets to DW to enable DW to distribute petroleum products on
the coastal areas and river systems in Alaska; and (c) grant options to DW to
acquire and/or lease certain real property located in Bethel, Alaska. In
addition, the Consent Decree contains provisions that restrict the ability of
the Company to: (a) acquire any of the assets it divests pursuant to the Consent
Decree; and (b) dispose of the tank farms it operates in Bethel, Alaska.

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 with the
December 31, 2003 consolidated financial statements and notes thereto, along
with the MD&A, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003 as filed with the Securities and Exchange Commission on
March 19, 2004.

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.

In February 2004, the Company sold its Logistics operations based in
Venezuela for $1.5 million. Accordingly, all financial information in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" has been restated to present the discontinued Venezuela operations
separately from the Company's continuing operations.

EXECUTIVE SUMMARY

Crowley Maritime Corporation is a diversified transportation company with
global operations. We have four business segments: Liner Services; Ship Assist
and Escort Services; Oil and Chemical Distribution and Transportation Services;
and Energy and Marine Services. Each segment is capital intensive and requires
the periodic renewal or replacement of the assets used by it. While all of our
segments are primarily engaged in maritime transportation and services related
to maritime transportation, each segment serves a different market with separate
and distinct customers. Certain markets are primarily based in the United States
and certain markets are based overseas. In most cases, each segment uses
equipment that has been specially designed and constructed to meet the needs of
that particular segment. By operating in four distinct markets, we diversify the
nature of our capital investments and hope to minimize the impact that any
economic downturn or other unforeseen adverse event may have upon one or more of
our segments at any particular time.

During the second quarter of 2004:

(a) Our consolidated operating revenues increased to $255.6 million
from $240.3 million during the second quarter of 2003;

(b) Our consolidated operating income decreased to $5.2 million from
$8.9 million during the second quarter of 2003; and

(c) Our net income attributable to common shareholders decreased to
$.4 million ($2.71 basic and diluted income per common share) from $1.9
million ($13.74 basic and diluted income per common share) during the
second quarter of 2003.

The second quarter increase in consolidated operating revenues and
operating expenses was due to: (a) an increase in revenues from direct sales of
fuel and from the resale of fuel from a tank farm in Alaska; (b) the
commencement of seasonal operations in Far East Russia; (c) an increase in
contract activity in the Gulf of Mexico, United States west coast, and central
and western Pacific Ocean; (d) an increase in rates in our Puerto Rico and
Caribbean Island Liner Service; (e) an increase in the number of containers
carried by us between the United States and Latin America; and (f) revenues
generated by a transportation management company that we acquired in the third
quarter of 2003. The decrease in consolidated operating income was caused by:
(a) a payment in the amount of $6.3 million which the Company made during the
second quarter of 2004 to settle certain asbestos-related claims; and (b) an
increase in dry-dock amortization as a result of an

13

increase in the number of vessels dry-docked. The net loss attributable to
common shareholders was further affected by: (a) a decrease in the income tax
expense; (b) an increase in interest income; and (c) the income generated by
discontinued operations.

During the six months ended June 30, 2004:

(a) Our consolidated operating revenues increased to $482.3 million
from $460.3 million during the six months ended June 30, 2003;

(b) Our consolidated operating income decreased to $4.8 million from
$7.1 million during the six months ended June 30, 2003; and

(c) Our net loss attributable to common shareholders increased to $4.9
million ($36.34 basic and diluted loss per common share) from $3.1 million
($22.55 basic and diluted loss per common share) during the six months
ended June 30, 2003.

The increase in consolidated operating revenues and operating expenses for
the six month periods ended June 30, 2004 and 2003 was due to: (a) an increase
in revenues from direct sales of fuel and from the resale of fuel from a tank
farm in Alaska; (b) the commencement of seasonal operations in Far East Russia;
(c) an increase in contract activity in the Gulf of Mexico, United States west
coast, and central and western Pacific Ocean; (d) an increase in rates in our
Puerto Rico and Caribbean Island Liner Service; (e) an increase in the number of
containers carried by us between the United States and Latin America; and (f)
revenues generated by a transportation management company that we acquired in
the third quarter of 2003. The increase in consolidated operating losses was
caused by: (a) a payment in the amount of $6.3 million which the Company made
during the second quarter of 2004 to settle certain asbestos-related claims; and
(b) an increase in dry-dock amortization as a result of an increase in the
number of vessels dry-docked. The net loss attributable to common shareholders
was further affected by: (a) a decrease in minority interest in consolidated
subsidiaries; and (b) an increase in interest income, interest expense, income
tax benefit and the loss generated by discontinued operations.

We are continually looking for opportunities that will complement or
strengthen our existing businesses. As part of these efforts, we: (1) purchased
one transportation management company in 2003; (2) entered into a construction
contract for two articulated tug barge units in June 2004; and (3) entered into
a definitive agreement effective July 20, 2004 to purchase a fuel distribution
business in Alaska. In February 2004, we sold our Logistics business based in
Venezuela. To be certain that we have the financial resources required for any
project that meets our criteria, we maintain a revolving line of credit that may
provide up to $95 million and, in December 2003, we received proceeds of $115
million from a term loan which can be used for general corporate purposes,
acquisitions and/or other corporate projects. At June 30, 2004, the Company had
cash and cash equivalents of $122.2 million and long-term debt in the amount of
$402.8 million.

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 by management.
Different assumptions in the application of these policies could result in
material changes in the Company's consolidated financial position, results of
operations, or cash flows. For details regarding all of the Company's critical
and significant accounting policies, 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 filed
on March 19, 2004.

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COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003

Consolidated operating revenues for the second quarter of 2004 increased
$15.3 million, or 6.4%, to $255.6 million compared with $240.3 million for the
second quarter of 2003. This increase is primarily the result of: (a) an
increase in revenues from the direct sales of fuel and from the resale of fuel
from a tank farm in Alaska which commenced operations during the fourth quarter
of 2003; (b) the commencement of seasonal operations in Far East Russia; (c)
increased contract activity in the Gulf of Mexico, United States west coast, and
central and western Pacific Ocean; (d) revenues generated by a transportation
management company specializing in the apparel industry that we acquired in
2003; (e) an increase in rates in our Puerto Rico and Caribbean Island Liner
Service; and (f) an increase in revenues from our liner service between the
United States and Haiti which commenced operations during the third quarter of
2003. This increase was partially offset by: (a) fewer vessels operating as a
result of vessel disposals and vessel repairs; and (b) a decrease in activity in
our northern Alaskan land operations.

Consolidated operating expenses for the second quarter of 2004 increased
$16.7 million, or 7.9%, to $227.5 million compared with $210.8 million for the
second quarter of 2003. The increase was primarily caused by: (a) a payment in
the amount of $6.3 million which the Company made during the second quarter of
2004 to settle certain asbestos-related claims; (b) an increase in labor, fuel,
transportation, and repair and maintenance costs for the Company's equipment and
vessels; (c) the expenses attributable to the operation of the tank farm in
Alaska which commenced operations during the fourth quarter of 2003; (d)
one-time outfitting and mobilization charges related to the Far East Russia
projects; and (e) expenses attributable to the operations of a transportation
management company specializing in the apparel industry that we acquired in
2003. This increase was partially offset by fewer vessels operating as a result
of vessel disposals and vessel repairs. The Company is in the process of
determining the recoverability from insurance underwriters of the $6.3 million
paid to settle certain asbestos-related claims. If it is determined that the
Company has insurance coverage for these claims, the Company could recover
substantially all of the settlements.

Consolidated general and administrative expenses for the second quarter of
2004 increased $.5 million, or 6.8%, to $7.8 million compared with $7.3 million
for the second quarter of 2003. This increase is primarily attributable to a
change in the cash surrender value of split-dollar life insurance.

Consolidated depreciation and amortization expense for the second quarter
of 2004 increased $1.5 million, or 10.3%, to $16.1 million compared with $14.6
million for the second quarter of 2003. This increase is the result of an
increase in dry-dock amortization in the amount of $2.4 million caused by
amortizing dry-dock costs for eleven vessels in 2004 compared with six vessels
in 2003. This increase was partially offset by lower depreciation expense for
vessels sold in 2003.

Consolidated asset recoveries, net for the second quarter of 2004,
decreased $.3 million to a recovery of $1.0 million compared with a recovery of
$1.3 million for the second quarter of 2003. The gains from the second quarter
of 2004 resulted from the sale of equipment and three vessels while the gains
from the second quarter of 2003 resulted from the sale of equipment, land
improvements and three vessels.

As a result, the consolidated operating income for the second quarter of
2004 decreased $3.7 million, or 41.6%, to $5.2 million compared with $8.9
million for the second quarter of 2003.

Due to an increase in the Company's average cash and cash equivalent
amounts on hand, interest income for the second quarter of 2004 increased $.3
million to $.4 million compared with $.1 million for the second quarter of 2003.

Due to decreased interest expense incurred for container financings and
decreased interest expense on our Revolving Credit Agreement, interest expense
for the second quarter of 2004 decreased $.3 million, or 5.5%, to $5.2 million
compared with $5.5 million for the second quarter of 2003.

Minority interest in consolidated subsidiaries for the second quarter of
2004 decreased $.2 million compared with the second quarter of 2003. This
decrease is due to the Company's acquisition in December 2003 of the remaining
25% interest in a joint venture in which it previously owned a 75% interest.

15

Income tax expense for the second quarter of 2004 decreased $1.7 million to
zero compared with $1.7 million for the second quarter of 2003. The decrease in
the income tax expense results from changes in the Company's projections of
pre-tax income and the inability to utilize foreign tax credits in the second
quarter of 2003.

As a result, net income attributable to common shareholders for the second
quarter of 2004 decreased $1.5 million to $.4 million ($2.71 basic and diluted
income per common share) compared with $1.9 million ($13.74 basic and diluted
income per common share) for the second quarter of 2003.

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. As discussed in Note 6 to the Company's Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial Information -- Item 1.
Financial Statements", the Liner Services segment was restated in 2003 for
discontinued operations. 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 second quarter
of 2004 increased $13.8 million, or 9.7%, to $156.3 million compared with $142.5
million for the second quarter of 2003. The increase is primarily attributable
to a 3.0% increase in container and noncontainer volume, a 7.2% increase in
average revenue per twenty-foot equivalent unit, or TEU ("average revenue"), and
an increase of 70.6% in other logistical service revenues. The Company's
container and noncontainer volume increased to 148,994 TEUs in the second
quarter of 2004 from 144,586 TEUs during the second quarter of 2003 due to a
service from the United States to Haiti which commenced operations during the
third quarter of 2003. The average revenue increase was a result of rate
increases for our services between the United States and Puerto Rico and between
the United States and certain Caribbean Islands and increases in bunker
surcharges for our Latin America service. The increase in other logistical
service revenues was primarily due to revenues generated by a transportation
service provider that we purchased in July 2003.

Operating expenses for the second quarter of 2004 increased $11.7 million,
or 9.0%, to $141.1 million compared with $129.4 million for the second quarter
of 2003. These expenses consist primarily of fuel costs, purchased
transportation costs, equipment costs, maintenance and repair costs and labor
costs. An increase in other logistical service expenses was primarily due to
expenses incurred by a transportation service provider purchased in July 2003.

Depreciation and amortization for the second quarter of 2004 increased $.9
million, or 39.1%, to $3.2 million compared with $2.3 million for the second
quarter of 2003. The increase was directly attributable to an increase in
dry-dock amortization of $.8 million. Liner Services amortized dry-dock costs
for eight vessels during the second quarter of 2004 compared with five vessels
during the second quarter of 2003.

Asset recoveries, net for the second quarter of 2004, decreased $.3 million
to a recovery of $.2 million compared with a recovery of $.5 million for the
second quarter of 2003. These gains resulted from disposals of equipment during
the second quarter of 2004 and disposals of two vessels and equipment during the
second quarter of 2003.

As a result, operating income from Liner Services for the second quarter of
2004 increased $.1 million to $6.7 million compared with $6.6 million for the
second quarter of 2003.

Ship Assist and Escort Services

Operating revenues from our Ship Assist and Escort Services segment for the
second quarter of 2004 decreased $.3 million or 1.6%, to $18.5 million compared
with $18.8 million for the second quarter of 2003. The decrease was directly
attributable to decreased vessel volumes in Puget Sound. This decrease was
partially offset by: (a) an increase in rates which included a fuel surcharge to
cover rising fuel prices; (b) higher vessel volumes in Southern California; (c)
increased utilization in Valdez; and (d) the commencement of operations
16

in Oakland, California during the second quarter of 2004. Overall vessel
utilization rates increased to 73% during the second quarter of 2004 from 71%
during the second quarter of 2003.

Operating expenses for the second quarter of 2004 increased $1.3 million or
8.5%, to $16.6 million compared with $15.3 million for the second quarter of
2003. The increase was directly attributable to: (a) an increase in vessel
related costs, such as labor, fuel, and repairs and maintenance costs; and (b)
the commencement of operations in Oakland, California.

As a result, operating income from Ship Assist and Escort Services for the
second quarter of 2004 decreased $1.7 million to $1.3 million compared with $3.0
million for the second quarter of 2003.

Oil and Chemical Distribution and Transportation Services

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment for the second quarter of 2004 decreased $7.2
million or, 11.3%, to $56.3 million compared with $63.5 million for the second
quarter of 2003. The decrease is directly attributable to: (a) a decrease of
nine vessels that were in this service during the second quarter of 2003 that
are no longer in service as the vessels were either sold or no longer managed by
the service in 2004; and (b) a decrease in vessel utilization to 72% in 2004
compared with 80% in 2003. This decrease was partially offset by: (a) an
increase in revenues from direct sales of fuel and resale of fuel from a tank
farm in Alaska that commenced operations during the fourth quarter of 2003; and
(b) the operation of one articulated tug/barge unit ("ATB") that was placed in
service during the second quarter of 2003.

Operating expenses for the second quarter of 2004 decreased $3.7 million,
or 7.1%, to $48.5 million compared with $52.2 million for the second quarter of
2003. This decrease is primarily attributable to: (a) nine vessels that were in
this service during the second quarter of 2003 that are no longer in service as
the vessels were either sold or no longer managed by the service in 2004; and
(b) an overall decrease in vessel utilization. This decrease was partially
offset by increased expenses in 2004 associated with the operation of: (a) a new
tank farm in Alaska which commenced operations during the fourth quarter of
2003; and (b) an increase in the cost of fuel purchased for resale.

Depreciation and amortization for the second quarter of 2004 increased $1.1
million, or 34.4%, to $4.3 million compared with $3.2 million for the second
quarter of 2003. The increase was directly attributable to a $2.0 million
increase in dry-dock amortization for vessels which was partially offset by a
decrease in depreciation of $.8 million. The decrease in depreciation was caused
by the sale of vessels. Dry-dock costs for three vessels were amortized during
the second quarter of 2004 compared with one vessel during the second quarter of
2003.

Asset recoveries (charges), net for the second quarter of 2004 decreased
$.3 million to a charge of $.2 million as compared with a recovery of $.1
million during the second quarter of 2003. The loss from the second quarter of
2004 resulted from the sale of two vessels while the gains from the second
quarter of 2003 resulted from the sale of one vessel.

As a result, the operating income from Oil and Chemical Distribution and
Transportation Services for the second quarter of 2004 decreased $4.9 million to
$1.9 million compared with $6.8 million for the second quarter of 2003.

Energy and Marine Services

Operating revenues from our Energy and Marine Services segment for the
second quarter of 2004 increased $9.0 million, or 58.1%, to $24.5 million
compared with $15.5 million for the second quarter of 2003. The increase was
directly attributable to an increase in revenues generated by: (a) the
commencement of seasonal operations in Far East Russia; and (b) government and
commercial contract activity in the Gulf of Mexico, United States west coast,
and central and western Pacific Ocean. This increase was partially offset by a
decrease in revenues from our northern Alaskan land operations. Overall vessel
utilization increased to 51% during the second quarter of 2004 as compared with
40% during the second quarter of 2003. Vessel utilization

17

in this segment is impacted by oil exploration activity and general economic
conditions and tends to be very volatile.

Operating expenses for the second quarter of 2004 increased $7.4 million,
or 26.1%, to $35.7 million compared with $28.3 million for the second quarter of
2003. The increase is directly attributable to: (a) one-time outfitting and
mobilization charges related to the Far East Russia projects; (b) increased
costs for contract salvage work provided off the coast of Alaska; and (c)
increases in vessel related costs due to the increase in vessel utilization.
This increase was partially offset by a decrease in: (a) the operating costs of
our northern Alaskan land operations; and (b) cyclical spending for vessel
maintenance and operations.

Depreciation and amortization for the second quarter of 2004 decreased $.2
million, or 6.7%, to $2.8 million compared with $3.0 million for the second
quarter of 2003. The decrease was the result of an adjustment made for a vessel
placed in service during the second quarter of 2003 that was previously
classified as held for sale.

Asset recoveries, net for the second quarter of 2004 decreased $.3 million
to a recovery of $1.0 million as compared with a recovery of $.7 million during
the second quarter of 2003. The gain from the second quarter of 2004 resulted
from the sale of one vessel while the gain from the second quarter of 2003
resulted from the sale of land improvements.

As a result, the operating loss from Energy and Marine Services for the
second quarter of 2004 decreased $2.8 million to $4.7 million compared with $7.5
million for the second quarter of 2003.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

Consolidated operating revenues for the six months ended June 30, 2004
increased $22.0 million, or 4.8%, to $482.3 million compared with $460.3 million
for the six months ended June 30, 2003. This increase is primarily the result
of: (a) an increase in revenues from the direct sales of fuel and from the
resale of fuel from a tank farm in Alaska which commenced operations during the
fourth quarter of 2003; (b) the commencement of seasonal operations in Far East
Russia; (c) increased contract activity in the Gulf of Mexico, United States
west coast, and central and western Pacific Ocean; (d) revenues generated by a
transportation management company specializing in the apparel industry that we
acquired in 2003; (e) an increase in rates in our Puerto Rico and Caribbean
Island Service; (f) an increase in revenues from a liner service between the
United States and Haiti which commenced operations during the third quarter of
2003; and (g) an increase in the number of automobiles shipped to Puerto Rico.
This increase was partially offset by: (a) fewer vessels operating as a result
of vessel disposals and vessel repairs; and (b) a decrease in activity in our
northern Alaskan land operations.

Consolidated operating expenses for the six months ended June 30, 2004
increased $21.6 million or 5.3%, to $431.6 million compared with $410.0 million
for the six months ended June 30, 2003. The increase was primarily caused by:
(a) a payment in the amount of $6.3 million which the Company made during the
second quarter of 2004 to settle certain asbestos-related claims; (b) an
increase in labor, fuel, transportation, and repair and maintenance costs for
the Company's equipment and vessels; (c) expenses attributable to the operation
of a tank farm in Alaska which commenced operations during the fourth quarter of
2003; (d) one-time outfitting and mobilization charges related to the Far East
Russia projects; and (e) expenses attributable to the operations of a
transportation management company specializing in the apparel industry that we
acquired in 2003. This increase was partially offset by: (a) fewer vessels
operating as a result of vessel disposals and vessel repairs; and (b) a decrease
in activity in our northern Alaskan land operations. The Company is in the
process of determining the recoverability from insurance underwriters of the
$6.3 million paid to settle certain asbestos-related claims. If it is determined
that the Company has insurance coverage for these claims, the Company could
recover substantially all of the settlements.

Consolidated general and administrative expenses for the six months ended
June 30, 2004 decreased $.6 million, or 3.7%, to $15.5 million compared with
$16.1 million for the six months ended June 30, 2003. This decrease is primarily
attributable to a change in the cash surrender value of split-dollar life
insurance.

18

Consolidated depreciation and amortization expense for the six months ended
June 30, 2004 increased $2.8 million, or 9.7%, to $31.6 million compared with
$28.8 million for the six months ended June 30, 2003. This increase is the
result of an increase in dry-dock amortization of $4.4 million caused by
amortizing dry-dock costs for eleven vessels in 2004 compared with six vessels
in 2003. This increase was partially offset by lower depreciation expense for
vessels sold in 2003.

Consolidated asset recoveries, net for the six months ended June 30, 2004
decreased $.4 million to a recovery of $1.2 million compared with a recovery of
$1.6 million for the six months ended June 30, 2003. The gains from the six
months ended June 30, 2004 resulted from the sale of equipment and three vessels
while the gains from the six months ended June 30, 2003 resulted from the sale
of equipment, land, land improvements and three vessels.

As a result, the consolidated operating income for the six months ended
June 30, 2004 decreased $2.3 million, or 32.4% to $4.8 million compared with
$7.1 million for the six months ended June 30, 2003.

Due to an increase in the Company's average cash and cash equivalent
amounts on hand, interest income for the six months ended June 30, 2004
increased $.6 million to $.8 million compared with $.2 million for the six
months ended June 30, 2003.

Due to increased interest expense incurred for vessel financings and lower
capitalized interest, interest expense for the six months ended June 30, 2004
increased $.4 million, or 3.8%, to $10.9 million compared with $10.5 million for
the six months ended June 30, 2003. This increase was partially offset by a
decrease in interest expense incurred for container financings and a decrease in
interest expense on our Revolving Credit Agreement.

Minority interest in consolidated subsidiaries for the six months ended
June 30, 2004 decreased $.8 million compared with the six months ended June 30,
2003. This decrease is due to the Company's acquisition in December 2003 of the
remaining 25% interest in a joint venture in which it previously owned a 75%
interest.

Income tax benefit for the six months ended June 30, 2004 increased $1.0
million to $2.2 million compared with $1.2 million for the six months ended June
30, 2003. The effective tax rate was 43.4% and 53.8% for the six months ended
June 30, 2004 and 2003, respectively. The decrease in the effective tax rate
results from changes in the Company's projections of pre-tax income and the
inability to utilize foreign tax credits during the six months ended June 30,
2003.

As a result, net loss attributable to common shareholders for the six
months ended June 30, 2004 increased $1.8 million to $4.9 million ($36.34 basic
and diluted loss per common share) compared with $3.1 million ($22.55 basic and
diluted loss per common share) for the six months ended June 30, 2003.

Liner Services

Operating revenues from our Liner Services segment for the six months ended
June 30, 2004 increased $25.6 million, or 9.3%, to $302.1 million compared with
$276.5 million for the six months ended June 30, 2003. The increase in revenues
is primarily attributable to a 3.4% increase in container and noncontainer
volume, a 5.0% increase in average revenue and an increase of 86.5% in other
logistical service revenues. The Company's container and noncontainer volume
increased to 293,273 TEUs during the six months ended June 30, 2004 from 283,703
TEUs during the six months ended June 30, 2003 due to: (a) a service from the
United States to Haiti which commenced operations during the third quarter of
2003; and (b) an increase in the number of automobiles shipped to Puerto Rico.
The average revenue increase was a result of rate increases for our services
between the United States and Puerto Rico and between the United States and
certain Caribbean Islands and was offset by decreases in rates for our service
between the United States and Latin America due to competitive pressures. The
increase in other logistical service revenues was primarily due to revenues
generated by a transportation service provider that we purchased in July 2003.

Operating expenses for the six months ended June 30, 2004 increased $25.7
million, or 10.1%, to $279.2 million compared with $253.5 million for the six
months ended June 30, 2003. These expenses consist

19

primarily of fuel costs, purchased transportation costs, equipment costs,
maintenance and repair costs and labor costs. An increase in other logistical
service expenses was primarily due to expenses incurred by a transportation
service provider purchased in July 2003.

Depreciation and amortization for the six months ended June 30, 2004
increased $1.4 million, or 31.1%, to $5.9 million compared with $4.5 million for
the six months ended June 30, 2003. The increase was directly attributable to an
increase in dry-dock amortization of $1.4 million. Liner Services amortized
dry-dock costs for eight vessels during the six months ended June 30, 2004
compared with five vessels during the six months ended June 30, 2003.

Asset recoveries, net for the six months ended June 30, 2004, decreased $.1
million to a recovery of $.4 million compared with a recovery of $.5 million for
the six months ended June 30, 2003. These gains resulted from disposals of
equipment during the six months ended June 30, 2004 and disposals of two vessels
and equipment during the six months ended June 30, 2003.

As a result, the operating income from Liner Services for the six months
ended June 30, 2004 decreased $1.8 million to $6.8 million compared with $8.6
million for the six months ended June 30, 2003.

Ship Assist and Escort Services

Operating revenues from our Ship Assist and Escort Services segment for the
six months ended June 30, 2004 decreased $.7 million, or 1.9%, to $36.4 million
compared with $37.1 million for the six months ended June 30, 2003. The decrease
was directly attributable to decreased vessel volumes in Puget Sound. This
decrease was partially offset by: (a) an increase in rates which included a fuel
surcharge to cover rising fuel prices; (b) higher vessel volumes in Southern
California; (c) increased utilization in Valdez; and (d) the commencement of
operations in Oakland, California during the second quarter of 2004. Overall
vessel utilization rates remained consistent at 73% during the six months ended
June 30, 2004 and 2003.

Operating expenses for the six months ended June 30, 2004 increased $1.8
million, or 5.9%, to $32.3 million compared with $30.5 million for the six
months ended June 30, 2003. The increase was directly attributable to: (a) an
increase in vessel related costs, such as labor, fuel, and repairs and
maintenance costs; and (b) the commencement of operations in Oakland,
California. These increases were partially offset by a decrease in property
taxes.

As a result, operating income from Ship Assist and Escort Services for the
six months ended June 30, 2004 decreased $2.6 million to $3.0 million compared
with $5.6 million for the six months ended June 30, 2003.

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, 2004 decreased
$14.1 million, or 12.4%, to $100.0 million compared with $114.1 million for the
six months ended June 30, 2003. The decrease is directly attributable to: (a) a
decrease of twelve vessels that were in this service during the six months ended
June 30, 2003 that are no longer in service as the vessels were either sold or
no longer managed by the service in 2004; and (b) a decrease in vessel
utilization to 58% in 2004 compared with 64% in 2003. This decrease was
partially offset by: (a) an increase in revenues from direct sales of fuel and
from the resale of fuel from a tank farm in Alaska that commenced operations
during the fourth quarter of 2003; and (b) the operation of one ATB placed in
service during the second quarter of 2003.

Operating expenses for the six months ended June 30, 2004 decreased $12.7
million, or 13.0%, to $84.8 million compared with $97.5 million for the six
months ended June 30, 2003. This decrease is primarily attributable to: (a)
twelve vessels that were in this service during six months ended June 30, 2003
that are no longer in service as the vessels were either sold or no longer
managed by the service in 2004; and (b) an overall decrease in vessel
utilization. This decrease was partially offset by increased expenses in 2004
associated with the operation of: (a) a new tank farm in Alaska which commenced
operations during the fourth quarter of

20

2003; (b) an increase in the cost of fuel purchased for resale; and (c) an ATB
placed in service during the second quarter of 2003.

Depreciation and amortization for the six months ended June 30, 2004
increased $2.2 million, or 34.9%, to $8.5 million compared with $6.3 million for
the six months ended June 30, 2003. The increase was directly attributable to a
$3.8 million increase in dry-dock amortization for vessels which was partially
offset by a decrease in depreciation of $1.6 million. The decrease in
depreciation was caused by the sale of vessels. Dry-dock costs for three vessels
were amortized during the six months ended June 30, 2004 compared with one
vessel during the six months ended June 30, 2003.

Asset recoveries (charges), net for the six months ended June 30, 2004
decreased $.5 million to a charge of $.2 million as compared with a recovery of
$.3 million during the six months ended June 30, 2003. The charge from the six
months ended June 30, 2004 resulted from the sale of two vessels while the
recovery from the second quarter of 2003 resulted from the sale of land and one
vessel.

As a result, the operating income from Oil and Chemical Distribution and
Transportation Services for the six months ended June 30, 2004 decreased $3.8
million to $3.5 million compared with $7.3 million for the six months ended June
30, 2003.

Energy and Marine Services

Operating revenues from our Energy and Marine Services segment for the six
months ended June 30, 2004 increased $11.2 million, or 34.4%, to $43.8 million
compared with $32.6 million for the six months ended June 30, 2003. The increase
was directly attributable to an increase in revenues earned from: (a) the
commencement of seasonal operations in Far East Russia; and (b) government and
commercial contract activity in the Gulf of Mexico, United States west coast,
and central and western Pacific Ocean. This increase was partially offset by a
decrease in revenues from our northern Alaskan land operations. Overall vessel
utilization increased to 49% during the six months ended June 30, 2004 as
compared with 33% utilization during the six months ended June 30, 2003. Vessel
utilization in this segment is impacted by oil exploration activity and general
economic conditions and tends to be very volatile.

Operating expenses for the six months ended June 30, 2004 increased $8.4
million, or 15.1%, to $64.1 million compared with $55.7 million for the six
months ended June 30, 2003. The increase is directly attributable to: (a)
one-time outfitting and mobilization charges related to the Far East Russia
projects; (b) increased costs for contract salvage work provided off the coast
of Alaska; and (c) increases in vessel related costs due to the increase in
vessel utilization. This increase was partially offset by a decrease in: (a)
operating costs from our northern Alaskan land operations; and (b) cyclical
spending for vessel maintenance and operations.

Depreciation and amortization for the six months ended June 30, 2004
decreased $.6 million, or 9.7%, to $5.6 million compared with $6.2 million for
the six months ended June 30, 2003. The decrease was the result of an adjustment
made for a vessel placed in service during the first quarter of 2003 that was
previously classified as held for sale.

Asset recoveries, net for the six months ended June 30, 2004 increased $.3
million to a recovery of $1.0 million as compared with a recovery of $.7 million
during the six months ended June 30, 2003. The gain from the six months ended
June 30, 2004 resulted from the sale of one vessel while the gain from the six
months ended June 30, 2003 resulted from the sale of land improvements.

As a result, the operating loss from Energy and Marine Services for the six
months ended June 30, 2004 decreased $6.0 million to $8.4 million compared with
$14.4 million for the six months ended June 30, 2003.

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

21

cash flows from operations and borrowings will provide sufficient working
capital to fund the Company's operating needs and to finance capital
expenditures during the next 12 months.

FINANCIAL CONDITION AS OF JUNE 30, 2004

As of June 30, 2004 the Company has cash and cash equivalents of $122.2
million compared with $160.6 million at December 31, 2003. The Company generated
$16.9 million of cash from operations during the six month period ended June 30,
2004. The net loss before depreciation and amortization expense and taxes
provided $24.5 million of cash. Additional cash from operations were used by
higher levels of funding for working capital requirements.

The Company used $22.3 million of cash in investing activities during the
six month period ended June 30, 2004. The Company has expended $14.4 million for
the construction of vessels and the purchase of equipment. Proceeds of $2.7
million were received from asset dispositions. Dry-docking costs of $12.3
million were incurred for six vessels during the six month period ended June 30,
2004. The Company sold its Logistics operations of its Liner Services segment in
Venezuela for $1.5 million and received $2.0 million in escrowed Title XI funds
for reimbursement of construction expenditures related to the ATB's. The Company
also paid $2.0 million as return of capital to the beneficial owners of the
Company's Variable Interest Entity.

The Company used cash of $33.0 million in financing activities for: (a)
principal payments of the Company's debt; (b) payment of debt issuance costs;
and (c) retirement of the Company's stock. All of the principal payments were
scheduled except for the redemption of $10.4 million of Title XI bonds
associated with two of the Company's vessels.

CAPITAL RESOURCES

In June 2004, the Company amended its $115.0 million loan agreement with
several financial institutions to replace a covenant that required the Company
to maintain a net debt (as defined in such agreement) to earnings before
interest, taxes, depreciation and amortization ratio not to exceed 6.0. The new
covenant requires maintenance of a maximum total debt (as defined by such
agreement) to earnings before interest, taxes, depreciation, amortization and
rent expense (as defined by such agreement) not to exceed: (a) 3.25 in 2004 and
2005; and (b) 3.0 in 2006 and thereafter. The Company is in compliance with all
of its debt covenants as of June 30, 2004.

The Company has executed agreements of approximately $16.7 million for the
construction of operating equipment which is expected to be delivered in the
third quarter of 2004. Lease financing of the equipment is being negotiated.

On June 3, 2004, the Company entered into a contract with V.T. Halter
Marine Inc. ("Halter") for the construction of two articulated tug barge units.
Each of the units will be capable of carrying 180,000 barrels of refined
product. The cost of constructing the two vessels is expected to approximate an
aggregate of $85 million (including the cost of owner furnished equipment) and
the Company has been given an option to purchase two additional units from
Halter. Both units are expected to be delivered in 2006. Upon their delivery,
the Company intends to employ these units in the United States coastwise trade.

The Company has entered into a definitive agreement (the "Purchase
Agreement"), dated as of July 9, 2004 and effective from and after July 20,
2004, to purchase from Northland Fuel LLC, a Delaware limited liability company
("Northland"), and Yukon Fuel Company, an Alaska corporation ("YFC"), a marine
and land-based refined petroleum products distribution business conducted by
Northland and YFC in Western Alaska (the "Business"). Pursuant to the Purchase
Agreement, the Company also agreed to purchase from: (a) Northland Vessel
Leasing Company, LLC, a Delaware limited liability company ("NVLC"), certain
barges and other vessels used in the Business; and (b) Yutana Barge Lines, LLC,
a Delaware limited liability company ("Yutana"), certain assets used in the
Business. The aggregate purchase price payable at closing by the Company
pursuant to the Purchase Agreement and the agreement between the Company and
Yutana is $52.2 million plus an amount equal to net working capital (including
fuel inventory) determined in

22

accordance with the Purchase Agreement, which amount currently is estimated to
be $26.0 million. The closing of this transaction is subject to several
customary conditions, including expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the absence of
any material adverse change or effect, delivery of certain title policies and
title insurance, and the issuance to the Company of a specified environmental
insurance policy. In addition, closing is conditioned upon the Consent Decree
(as defined below) becoming final (which will not occur earlier than 60 days
after its filing with the Court (as defined below)) and the Court's approval of
the Consent Decree.

On July 13, 2004, the Company, together with Northland, YFC, NVLC and
Yutana (collectively, the "Sellers"), entered into a Consent Decree with the
State of Alaska (the "Consent Decree"), which settles a lawsuit filed on July
20, 2004, by the Alaska Attorney General against the Company and the Sellers in
the Superior Court for the State of Alaska, Second Judicial District at Nome
(the "Court"). The Consent Decree was filed with the Court on July 27, 2004. The
Alaska Attorney General alleges in the lawsuit that the transactions
contemplated by the Purchase Agreement violate the antitrust laws of the State
of Alaska and the United States. Pursuant to the Consent Decree, the Company
agreed, among other things, to: (a) provide approximately 4,000,000 gallons of
tank farm storage capacity located in Bethel, Alaska to Delta Western, Inc.
("DW") for up to 10 years (with options to extend); (b) sell certain tugs,
barges and related assets to DW to enable DW to distribute petroleum products on
the coastal areas and river systems in Alaska; and (c) grant options to DW to
acquire and/or lease certain real property located in Bethel, Alaska. In
addition, the Consent Decree contains provisions that restrict the ability of
the Company to: (a) acquire any of the assets it divests pursuant to the Consent
Decree; and (b) dispose of the tank farms it operates in Bethel, Alaska.

RISK FACTORS

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

DEMAND FOR OUR SERVICES DEPENDS ON FACTORS BEYOND OUR CONTROL

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

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

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

- weather conditions.

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

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

Economic factors affecting the geographic regions in which Liner Services
are provided and cyclical business patterns experienced by this part of the
maritime shipping industry have caused the earnings of Liner Services to vary in
the past and are likely to cause similar variations in the future. There is no
assurance that Liner Services will be able to redeploy its vessels from less
profitable markets into other markets or uses.

FLUCTUATION OF FUEL PRICES

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

23

ENERGY AND MARINE SERVICES ARE FREQUENTLY PROVIDED
FOR DISCRETE PROJECTS

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

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

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

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

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

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

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

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

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES EMPLOYS
A NUMBER OF TANKERS AND BARGES WHICH, IN THEIR PRESENT CONDITION, WILL
NOT BE PERMITTED TO CARRY PETROLEUM PRODUCTS IN UNITED STATES
WATERS AS OF CERTAIN DATES OCCURRING OVER THE NEXT THREE YEARS.

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

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

The operation of our vessels is subject to various risks, including
catastrophic marine disaster, adverse weather and sea conditions, capsizing,
grounding, mechanical failure, collision, oil, chemical and other hazardous
substance spills and navigation errors. These risks could endanger the safety of
our personnel, our
24

vessels, the cargo we carry, the equipment under tow and other property, as well
as the environment. If any of these events was to occur, the Company could be
held liable for resulting damages. In addition, the affected vessels could be
removed from service and would not be available to generate revenue.

THE COMPANY IS A DEFENDANT IN NUMEROUS ASBESTOS-RELATED LAWSUITS

The Company is a defendant in numerous lawsuits filed on behalf of current,
retired or deceased seamen seeking damages for unspecified asbestos-related
injuries or diseases as a result of occupational exposure to fibers emitted from
asbestos-containing products in the course of employment aboard vessels owned or
operated by the Company. See Note 7 to our Unaudited Condensed Consolidated
Financial Statements in "Item 1. Financial Statements". Additional litigation
relating to these matters may be commenced in the future. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, given the large and/or indeterminate amounts sought in certain of these
matters and the inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could have a material adverse effect on our
financial condition, operating results or cash flows.

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

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

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

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

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

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

THE COMPANY IS HEAVILY DEPENDENT ON UNIONIZED LABOR

The Company's operations are heavily dependent on unionized labor, both in
the United States and in foreign markets. Maintenance of satisfactory labor
relations is important to our operations. At June 30, 2004, approximately 61% of
the Company's employees were members of unions. A protracted strike or similar
action by a union could have a material adverse effect on our results of
operations or financial condition.
25

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

The Company has collective bargaining agreements with 12 different unions.
These agreements will expire through 2008. There is no assurance that we will be
able to negotiate new collective bargaining agreements on terms favorable to the
Company upon expiration of the agreements. If the Company is not able to
negotiate favorable terms, it may be at a competitive disadvantage.

THERE ARE CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS

Substantial amounts of our operating revenues are derived from our foreign
operations. (See Note 6 to the Unaudited Condensed Consolidated Financial
Statements in "Item 1. Financial Statements".) These operations are subject to
various conditions and potential events associated with and inherent in the
conduct of business with foreign nations. These include, without limitation,
political instability, vessel seizure, nationalization of assets, fluctuating
currency values, hard currency shortages, controls of currency exchange, the
repatriation of income or capital, import-export quotas, and other forms of
public and governmental regulation, all of which are beyond our control.

While it is not possible to predict whether any of these conditions will
develop or events will occur, the development or occurrence of any one or more
of them could have a material adverse affect on our financial condition, results
of operations or cash flows. While we do business in many countries outside of
the United States, substantially all such business is denominated in United
States dollars.

OTHER BUSINESS RISKS

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

- manage our costs effectively;

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

- charter our vessels on acceptable terms; and

- manage these risks successfully.

THERE IS NO ESTABLISHED PUBLIC TRADING MARKET FOR OUR STOCK

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

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

As of July 31, 2004, Thomas B. Crowley, Jr., the Chairman of the Board of
Directors, President and Chief Executive Officer of the Company, beneficially
owned approximately 65.3% of our outstanding common stock, 100% of our Class N
common stock, and approximately 99.9% of our outstanding Series A preferred
stock. This ownership gives Mr. Crowley approximately 78.2% of the total votes
attributable to our outstanding voting stock as of July 31, 2004. Because the
Series A preferred stock is entitled to vote along with the shares of common
stock, Mr. Crowley's stock ownership means that he is able to exercise control
over all

26

matters requiring stockholder approval even if other stockholders oppose them.
As a result, Mr. Crowley controls all matters affecting the Company, including:

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

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

- our acquisition or disposition of assets;

- our financing arrangements; and

- the payment of dividends on our stock.

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

The Board of Directors also has been concerned that should the Company
receive a request to purchase shares held by such stockholders or their estates
in lieu of a possible sale to such investors, the Company would be unable to
effect such a purchase without negatively impacting its results of operations,
financial condition or cash flows. In this regard, the split-dollar life
insurance agreements enable Mr. Crowley and certain trusts for the benefit of
his descendants to purchase a substantial portion of such shares without
involving the Company.

The Company expects that following the death of Mrs. Molly M. Crowley, the
net proceeds of the policies of insurance on the life of Mrs. Crowley will be
used by Mr. Crowley and the trusts under his control to purchase shares of
Common Stock held by the Thomas B. Crowley Marital Trust so that this trust can
pay applicable estate taxes. Essentially, the split dollar life insurance
agreements and related settlement agreement enable Mr. Crowley and his family to
retain ownership of shares and control of the Company under circumstances when
certain of such shares otherwise might have to be sold to a third party to pay
applicable estate taxes.

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.

ITEM 4. CONTROLS AND PROCEDURES.

The Company's management, including its principal executive officer (who is
the Chief Executive Officer) and its principal financial officer (who is the
Vice President, Tax and Audit), have conducted an evaluation of the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")). Based on that evaluation, the Company's principal executive
officer and the principal financial officer concluded that such disclosure
controls and procedures are effective, as of the end of the period covered by
this Quarterly Report on Form 10-Q, 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.

27

No change in the Company's internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) under
the Exchange Act that occurred during the Company's first or second fiscal
quarter of 2004 has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

GENERAL LITIGATION

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

ASBESTOS LITIGATION

The Company is currently named as a defendant with other companies with
respect to approximately sixteen thousand maritime asbestos cases and other
toxic tort cases, most of which were filed in the Federal Courts in Ohio,
Michigan, California 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 Merchant Marine Act of 1920 (i.e., 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 also not known whether Judge Weiner will be
able to develop a plan which will result in settlement of the cases. If he is
unsuccessful, it is expected that the cases will be remanded to the Ohio and
Michigan courts in the event that they are reinstated.

The Company has insurance coverage that reimburses it for a substantial
portion of the: (a) costs incurred defending against asbestos claims; and (b)
amounts the Company pays to settle claims or honor judgments by courts. The
coverage is provided by a large number of insurance policies written by dozens
of insurance companies over a period of many years. The amount of insurance
coverage depends on the nature of the alleged exposure to asbestos, the specific
subsidiary against which an asbestos claim is asserted and the terms and
conditions of the specific policy.

The uncertainties of asbestos claim litigation make it difficult to
accurately predict the ultimate resolution of these claims. By their very
nature, civil actions relating to toxic substances vary according to the fact
pattern of each case, the number of defendants and their relative shares of
liability in each case, the applicable jurisdiction and numerous 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 final
resolution. The full impact of these claims and proceedings in the aggregate
continues to be unknown. At June 30, 2004, 35 claims have been reinstated by the
Judicial Panel on Multidistrict Litigation and remanded to the U.S. District
Court for the Northern District of Ohio for trial. The Company has accrued
$778,000 as an estimate of its potential liability in this litigation. The
Company has also recorded a receivable from its insurance companies of $325,000
related to these claims.

In addition to the asbestos litigation discussed above, the Company is
party to certain other proceedings in which other claimants allege injury or
illness based upon exposure to asbestos or other toxic substances. The Company
has an estimated litigation reserve of $1,034,000 with a corresponding
re-insurance receivable of

28

$490,000. The Company became aware of asbestos related litigation involving
certain claims during the first quarter of 2004. These claims were settled in
late May 2004. The Company expensed $2.1 million and $4.2 million related to
this litigation in the first quarter and second quarter of 2004, respectively.
The Company has notified and is preparing claims for submission to its insurance
underwriters for settlement amounts and defense costs paid and will aggressively
pursue the insurance claims. By the end of the year the Company should have a
reasonable idea of the extent to which such recovery can be made.

While it is not feasible to accurately 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 some of these cases could
have a material adverse affect on our financial condition, operating results or
cash flows.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

The Company sponsors the Crowley Maritime Corporation Retirement Stock Plan
("RSP"), which held 9,338 shares of common stock at June 30, 2004, all of which
are fully vested. Distributions of shares allocated to RSP participants are made
as soon as practicable following the participant's death, disability retirement
or termination of Company employment after attainment of age 65. All other
participants are eligible for distribution on the earlier of: (a) the third
calendar quarter of the third Plan Year that follows the Plan Year in which the
participant terminates Company employment or (b) the attainment of age 65. All
distributions to a participant are in the form of a single, lump sum payment
consisting of shares of common stock. Upon the date of distribution and for the
immediately succeeding ten days, such shares of common stock are subject to the
Company's right to repurchase them for cash equal to their fair market value
(discounted for lack of marketability), determined as of the calendar year-end
that coincides with or immediately precedes the date of distributions.

The Company also sponsors the Stock Savings Plan ("SSP"), an employee stock
ownership plan which held 4,752 shares of common stock at June 30, 2004, all of
which are fully vested. Participants in the SSP have the option to sell their
stock to the Company at the common stock's marketable fair value (without
discounting for lack of marketability), determined by an independent appraisal
as of the preceding calendar year-end, upon retirement, death or after a break
in service.

A summary of the shares purchased by the Company from the RSP and SSP in
the second quarter of 2004 is as follows:

The Company's financing agreements for Title XI borrowings contain
restrictive covenants which require, among other things, annual maintenance of
working capital that is equal to or greater than 50% of the total of charter
hire and other lease obligations with remaining terms in excess of one year. The
amount of minimum working capital for 2004 is $29.1 million. While the Company
is prohibited from repurchasing shares of any class of capital stock or
declaring or paying any dividend, it may repurchase common stock from employee
stock ownership plans and pay dividends in any twelve-month period at a combined
cost not to exceed $10 million. At June 30, 2004, the Company was in compliance
with all covenants under its financing and leasing arrangements.

29

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

On May 20, 2004, the Company held its annual meeting of stockholders. The
following matters were voted upon at this annual meeting:

Proposal 1 -- Election of directors for one-year terms (expiring in 2005):

Proposal 2 -- Approval of the Crowley Maritime Corporation 2004 Management
Incentive Plan:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

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

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

30

(2) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.

(3) Neither the Company nor its subsidiaries are parties to any other instrument
with respect to long-term debt for which the securities authorized
thereunder do not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Copies of instruments with respect to
long-term debt of lesser amounts will be provided to the Securities and
Exchange Commission upon request.

(4) Schedules and exhibits listed in the table of contents for this agreement
have been omitted. Copies thereof will be furnished supplementally to the
Securities and Exchange Commission upon request.

(5) Certain exhibits listed in the table appearing at the end of this agreement
have been omitted. Copies thereof will be furnished supplementally to the
Securities and Exchange Commission upon request.

(6) See Note 5 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.

On June 3, 2004, the Company furnished a report on Form 8-K -- Item 9
Regulation FD Disclosure regarding the construction of two articulated tug barge
units.

On July 23, 2004, the Company furnished a report on Form 8-K -- Item 9
Regulation FD Disclosure regarding the purchase of a business from Northland
Fuel LLC, a Delaware limited liability company, and Yukon Fuel Company, an
Alaska corporation.

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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 16, 2004
By: /s/ RICHARD L. SWINTON
------------------------------------
Richard L. Swinton
Vice President, Tax & Audit
(Duly Authorized Officer/Principal
Financial Officer)

32

EXHIBIT INDEX

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

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

(2) Incorporated by reference to the indicated exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.

(3) Neither the Company nor its subsidiaries are parties to any other instrument
with respect to long-term debt for which the securities authorized
thereunder do not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Copies of instruments with respect to
long-term debt of lesser amounts will be provided to the Securities and
Exchange Commission upon request.

(4) Schedules and exhibits listed in the table of contents for this agreement
have been omitted. Copies thereof will be furnished supplementally to the
Securities and Exchange Commission upon request.

(5) Certain exhibits listed in the table appearing at the end of this agreement
have been omitted. Copies thereof will be furnished supplementally to the
Securities and Exchange Commission upon request.

(6) See Note 5 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial
Information -- Item 1. Financial Statements" of this Form 10-Q.