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 SEPTEMBER 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 November 12, 2004, 88,898 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 NINE MONTHS ENDED SEPTEMBER 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 SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 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 nine month periods ended September
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 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 had 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 had been 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.

At the request of the charterer of the vessel, the Company entered into a
termination agreement in November of 2004 which, among other things, sets forth
the terms and conditions by which: (a) the bareboat charters will be terminated
prior to their expiration dates; and (b) the Company will receive a payment
equal to the present value of the charter hire payments that, but for the
termination, would have been made between the date of the termination and
November 16, 2006, the scheduled expiration date of the charters. Pursuant to
the termination agreement and the bareboat charters, the Company received a
payment of approximately $20.1 million in November of 2004. Simultaneously with
the receipt of this payment, the Company: (a) paid the outstanding debt
associated with the vessel in the amount of $10,372; and (b) sold the vessel to
an unrelated third party at a gain of approximately $1 million.

6

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

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

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 during the second quarter of 2004 its
net liabilities and recorded income in the amount of $591 from its South America
discontinued operations.

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 nine months
ended September 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
September 30, 2004 and December 31, 2003 are as follows:

7

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

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

NOTE 4 -- EARNINGS PER COMMON SHARE

The computations for basic and diluted income per common share for the
three and nine months ended September 30, 2004 and 2003 are as follows:

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

8

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

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

NOTE 5 -- FINANCIAL INFORMATION BY SEGMENT AND GEOGRAPHIC AREA

The table below summarizes certain financial information for each of the
Company's segments and reconciles such information to the unaudited condensed
consolidated financial statements for the three and nine months ended September
30, 2004 and 2003.

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

(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 nine months ended
September 30, 2003 to reclassify the Logistics operations in Venezuela to
discontinued operations. See Note 3.

9

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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.

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

NOTE 6 -- 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
unsuccessful, it is expected that the cases will be remanded to the Ohio and
Michigan courts in the event that they are reinstated.

10

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

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

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 September 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 $1,028 as an estimate of its potential liability in this litigation. The
Company has also recorded a receivable from its insurance companies of $504
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 $403 with a corresponding re-insurance
receivable of $100. The Company became aware of asbestos related litigation
involving certain claims during the first quarter of 2004 and 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. In October 2004, the Company submitted demand letters to its
insurance underwriters for the settlement amounts and defense costs paid. The
Company will continue to 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
fourth quarter of 2004. Lease financing of the equipment is being negotiated.
The Company has also 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 units is
expected to be approximately $85,000 (including the cost of owner furnished
equipment). Both units are expected to be delivered in 2006.

NOTE 7 -- BUSINESS ACQUISITIONS

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
11

CROWLEY MARITIME CORPORATION AND SUBSIDIARIES

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

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. Net working capital is expected to range between
approximately $13 million and $19 million. 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 23, 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. The
sixty day public comment period has expired, and comments ("verified
exceptions") were filed by certain of the plaintiffs, the City of Bethel, Alaska
and several others in the aforementioned lawsuit. The Court has ordered the
Attorney General to turn over parts of his investigative file to certain of
those who filed exceptions. The Attorney General has filed a petition in the
Alaska Supreme Court seeking to have the Court's order overturned, and the
Company has joined in that request. Once this issue is resolved, the Court will
hold a hearing on the Consent Decree. Due to the judicial issues being raised
before the Supreme Court of Alaska, it is difficult to say with certainty when
the hearing on the Consent Decree will be held and when we anticipate closing
the transaction. We are hopeful that the judicial proceedings will be addressed
promptly and we will be in a position to close during the first quarter of 2005.

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 (the "Form 10-K").

Certain statements in this quarterly report on Form 10-Q, including certain
statements contained in this Item 2, constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words or
phrases "can be," "expects," "may affect," "anticipates," "may depend,"
"believes," "estimates," "plans," "projects" and similar words and phrases are
intended to identify such forward-looking statements. These forward-looking
statements are subject to various known and unknown risks and uncertainties and
the Company cautions that any forward-looking information provided by or on
behalf of the Company is not a guarantee of future results, performance or
achievements. Actual results could differ materially from those anticipated in
these forward-looking statements due to a number of factors, some of which are
beyond the Company's control.

In addition to those risks discussed below in the section entitled "Risk
Factors" and in the Company's other public filings, press releases and
statements by the Company's management, factors that may cause the Company's
actual results, performance or achievements to differ materially from any future
results, performance or achievements expressed or implied in such forward
looking statements include:

- changes in worldwide demand for chemicals, petroleum products and other
cargo shipped by the Company's customers;

- the cyclical nature of the shipping markets in which the Company's Liner
Services segment operates;

- changes in domestic and foreign economic, political, military and market
conditions;

- the effect of, and the costs of complying with, federal, state and
foreign laws and regulations;

- the impact of recent and future acquisitions and joint ventures by the
Company on its business and financial condition;

- fluctuations in fuel prices;

- the Company's ongoing need to timely replace or rebuild certain of its
tankers and barges currently used to carry crude oil or petroleum
products;

- competition for the Company's services in the various markets in which it
operates;

- risks affecting the Company's ability to operate its vessels or carry out
scheduled voyages, such as catastrophic marine disaster, adverse weather
and sea conditions, and oil, chemical and other hazardous substance
spills;

- the effect of pending asbestos related litigation and related
investigations and proceedings;

- the state of relations between the Company and its unionized work force
as well as the effects of possible strikes or other related job actions;
and

- risks associated with the Company's foreign operations.

All such forward-looking statements are current only as of the date on
which such statements were made. The Company does not undertake any obligation
to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.

13

CRITICAL ACCOUNTING POLICIES

The preparation of the unaudited condensed consolidated financial
statements, upon which this MD&A is based, requires management to make estimates
which impact these unaudited condensed consolidated financial statements. The
most critical of these estimates and accounting policies relate to long-lived
asset depreciation, amortization and impairment, goodwill, revenue recognition,
and litigation and environmental reserves. In particular, the accounting for
these areas requires significant judgments to be made by management. Different
assumptions in the application of these policies could result in material
changes in the Company's consolidated financial position, results of operations,
or cash flows. For a more complete discussion of these and other accounting
policies, see "Note 1 -- Summary of Significant Accounting Policies" in the
"Notes to Consolidated Financial Statements" included in the Form 10-K filed on
March 19, 2004.

LONG-LIVED ASSET DEPRECIATION, AMORTIZATION AND IMPAIRMENT

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

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

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

GOODWILL

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

REVENUE RECOGNITION

The Company's accounting policies for revenue recognition are predicated on
the type of service provided. The common carrier services included in Liner
Services are recognized ratably over each voyage by load and discharge port. The
Company's logistics services and Ship Assist and Escort Services are recognized
as services are provided. Revenues from the Oil and Chemical Distribution and
Transportation Services and Energy and Marine Services are recognized ratably
over the length of the contract. Estimated losses are provided at the time such
losses become evident. The Company's recognition of revenue includes estimates
of the total costs incurred for each service and the total billings to perform
the service that impacts the estimated operating margin. While the Company has
processes in place to assist in developing these estimates, if the

14

Company experiences significantly higher costs or a significant decrease in
estimated billings, the Company's financial position, results of operation and
cash flows could be materially impacted.

LITIGATION AND ENVIRONMENTAL RESERVES

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

The Company is a defendant with respect to numerous maritime asbestos cases
and other toxic tort cases. The Company is unable to predict the ultimate
outcome of this litigation and an estimate of the amount or range of potential
loss. In addition, the Company is responsible for environmental remediation
relating to contamination of property. Liabilities are recorded when the
responsibility for such remediation is considered probable and the costs can be
reasonably estimated. The ultimate future environmental costs however will
depend upon the extent of contamination and the future costs of remediation. The
ultimate resolution of these litigation and environmental liabilities could have
a material impact on the Company's financial position, results of operations and
cash flows. See "Item 3. Legal Proceedings" and Note 3 to the Company's
Unaudited Condensed Consolidated Financial Statements in "Part 1 -- Financial
Information -- Item 1. Financial Statements".

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.

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.

15

A summary of the Company's consolidated results of operations for the three
and nine months ended September 30, 2004 and 2003 is provided below. A summary
of certain financial information for each of the Company's segments for the
three and nine months ended September 30, 2004 and 2003 is presented in Note 5
to the Crowley Maritime Corporation Unaudited Condensed Consolidated Financial
Statements in "Part 1 -- Financial Information -- Item 1. Financial Statements"
of this Form 10Q.

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 September 30, 2004, the Company
had cash and cash equivalents of $132.4 million and long-term debt in the amount
of $393.9 million.

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

Consolidated operating revenues for the third quarter of 2004 decreased
$1.2 million, or .4%, to $273.3 million compared with $274.5 million for the
third quarter of 2003. This decrease is primarily the result of a decrease in
revenues of:

- $18.8 million in direct fuel sales from a decrease in volume sold due to
a change in customer mix;

- $5.0 million due to fewer vessels operating in the Oil and Chemical
Distribution and Transportation Services as a result of vessel disposals
and vessel repairs;

- $3.3 million as a result of reduced demand for oil transportation
activities on the United States west coast; and

- $7.0 million due to a reduction in government and commercial contract
activity in the Gulf of Mexico, on the United States west coast, and in
our northern Alaskan land operation.

These decreases were partially offset by increased revenues of:

- $11.2 million as a result of higher prices from the direct sales of fuel;

16

- $2.6 million from the resale of fuel from a tank farm in Alaska that
commenced operations during the fourth quarter of 2003;

- $7.0 million generated from the vessel mobilization and transportation of
oil exploration cargo to Far East Russia and Korea; and

- $11.0 million from our scheduled marine transportation services as a
result of an increase in rates and additional services provided in
Central America and Haiti.

Consolidated operating expenses for the third quarter of 2004 increased $.2
million, or .1%, to $232.5 million compared with $232.3 million for the third
quarter of 2003. The increase was primarily the result of increased expenses of:

- $11.2 million for the cost of fuel attributable to higher prices from
direct fuel sales;

- $1.8 million attributable to the operation of a tank farm in Alaska which
commenced operations during the fourth quarter of 2003; and

- $9.2 million in the vessel-related costs and $4.7 million in non-vessel
costs.

These increases were partially offset by decreased expenses of:

- $17.0 million for the cost of fuel from a decrease in volume sold
attributable to a change in customer mix;

- $7.1 million of vessel-related expenses due to fewer vessels operating in
the Oil and Chemical Distribution and Transportation Services as a result
of vessel disposals and vessel repairs; and

- $1.7 million as a result of reduced demand for oil transportation
activities on the United States west coast.

Consolidated general and administrative expenses for the third quarter of
2004 increased $1.1 million, or 13.6%, to $9.2 million compared with $8.1
million for the third quarter of 2003. This increase is primarily attributable
to a $.2 million increase in deferred compensation expense, $.3 million for
compliance with Sarbanes-Oxley section 404 requirements, and a $.3 million
change in the cash surrender value of split-dollar life insurance.

Consolidated depreciation and amortization expense for the third quarter of
2004 increased $1.1 million, or 7.0%, to $16.8 million compared with $15.7
million for the third quarter of 2003. This increase is the result of an
increase in dry-dock amortization in the amount of $2.6 million which was
partially offset by a $1.5 million decrease in depreciation. Dry-dock costs for
thirteen vessels were amortized in 2004 compared with eight vessels in 2003. The
decrease in depreciation was caused by lower depreciation expense due to a
reduction in the number of vessels in service.

Consolidated asset recoveries, net for the third quarter of 2004, increased
$3.4 million to a recovery of $3.4 million. The gains from the third quarter of
2004 resulted from the sale of equipment, land and two vessels. During the third
quarter of 2003, gains from the sale of equipment and two vessels were offset by
a writedown of vessel improvements.

As a result, the consolidated operating income for the third quarter of
2004 decreased $.2 million, or 1.1%, to $18.3 million compared with $18.5
million for the third quarter of 2003.

Due to an increase in the Company's average cash and cash equivalent
amounts on hand, interest income for the third quarter of 2004 increased $.6
million to $.6 million.

Due to decreased interest expense incurred for container financings and
decreased interest expense on our Revolving Credit Agreement, interest expense
for the third quarter of 2004 decreased $.1 million, or 1.9%, to $5.3 million
compared with $5.4 million for the third quarter of 2003. This decrease was
partially offset by an increase incurred for vessel financings.

17

Minority interest in consolidated subsidiaries for the third quarter of
2004 decreased $.5 million compared with the third quarter of 2003. This
decrease is the result of 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 expense for the third quarter of 2004 decreased $.3 million to
$5.5 compared with $5.8 million for the third quarter of 2003. The effective tax
rate was 40.7% and 42.3% for the three months ended September 30, 2004 and 2003,
respectively. The decrease in the income tax expense results from changes in the
Company's projections.

As a result, net income attributable to common shareholders for the third
quarter of 2004 decreased $.1 million to $7.5 million ($55.31 basic income per
common share and $48.74 diluted income per common share) compared with $7.6
million ($55.73 basic income per common share and $49.14 diluted income per
common share) for the third quarter of 2003.

Liner Services

Operating revenues from our Liner Services segment for the third quarter of
2004 increased $11.6 million, or 7.9%, to $158.0 million compared with $146.4
million for the third quarter of 2003. The increase is primarily attributable to
a 2.2% increase in container and noncontainer volume, a 9.5% increase in average
revenue per twenty-foot equivalent unit, or TEU ("average revenue"), and an
increase of 14.2% in other logistical service revenues. The Company's container
and noncontainer volume increased to 146,072 TEUs in the third quarter of 2004
from 142,948 TEUs during the third quarter of 2003 due to growth in our service
to Haiti and our Central America-Gulf service. The average revenue increase was
a result of: (a) rate increases for our services between the United States and
Puerto Rico and between the United States and certain Caribbean Islands and the
Bahamas; and (b) increases in fuel surcharges. An increase in other logistical
service revenues was the result of an increase of $1.2 million in revenues from
expanding operations in Central America and the United States. During the third
quarter of 2004, there were delayed voyages in our service between the United
States and Puerto Rico as a result of hurricanes. These voyages would have
generated approximately $4.1 million of revenue. The Company expects that
revenues will be favorably impacted by additional voyages undertaken by this
segment in the fourth quarter, although the amount of the increase cannot be
determined at this time.

Operating expenses for the third quarter of 2004 increased $9.6 million, or
7.1%, to $144.6 million compared with $135.0 million for the third quarter of
2003. An increase in container and noncontainer volume and growth in our service
to Haiti and our Central America-Gulf service resulted in an increase of $3.6
million in vessel and $5.8 million in non-vessel-related expenses.
Vessel-related expenses consist primarily of fuel, vessel maintenance and
repairs, crew and charter costs, while non-vessel expenses consist primarily of
costs for labor, facilities, purchased transportation costs, terminal, port
charges, equipment costs, and equipment maintenance and repairs.

Depreciation and amortization for the third quarter of 2004 increased $.1
million, or 3.2%, to $3.2 million compared with $3.1 million for the third
quarter of 2003. The increase was directly attributable to an increase in
dry-dock amortization as a result of amortizing dry-dock costs for nine vessels
during the third quarter of 2004 compared with five vessels during the third
quarter of 2003.

As a result, operating income from Liner Services for the third quarter of
2004 increased $1.0 million to $4.2 million compared with $3.2 million for the
third quarter of 2003.

Ship Assist and Escort Services

Operating revenues from our Ship Assist and Escort Services segment for the
third quarter of 2004 increased $.4 million or 2.2%, to $18.8 million compared
with $18.4 million for the third quarter of 2003. The increase was directly
attributable to: (a) an increase of $.1 million in revenues from an increase in
rates which included a fuel surcharge to cover rising fuel prices; and (b) $.4
million in revenues generated by our operations in Oakland, California which
commenced during the second quarter of 2004. These increases were

18

partially offset by a decrease in revenues due to a decrease in overall vessel
utilization rates to 70% during the third quarter of 2004 from 71% during the
third quarter of 2003.

Operating expenses for the third quarter of 2004 remained constant at $15.4
million for the third quarter of 2004 and 2003. Increases in vessel related
costs were incurred for: (a) fuel costs of $.2 million; (b) labor and fuel costs
of $.3 million from the operations in Oakland, California which commenced during
the second quarter of 2004; and (c) increased non vessel of costs of $.3 million
due to increased subcontracts in harbor services. These increases were offset by
a $.5 million decrease in repair and maintenance costs during the third quarter
of 2004.

As a result, operating income from Ship Assist and Escort Services for the
third quarter of 2004 increased $.2 million to $2.6 million compared with $2.4
million for the third quarter of 2003.

Oil and Chemical Distribution and Transportation Services

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment for the third quarter of 2004 decreased $13.0
million, or 14.7%, to $75.3 million compared with $88.3 million for the third
quarter of 2003. The decrease is directly attributable to: (a) an $18.8 million
decrease in direct fuel sales from a decrease in volume sold due to a change in
customer mix; (b) a $5.0 million decrease in revenues from a decrease of six
vessels that were in service during the third 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 (c) a $3.3 million decrease as a result of reduced demand for oil
transportation activities on the United States west coast. This decrease was
partially offset by an increase: (a) of $11.2 million in revenues from increased
prices for the direct sales of fuel; (b) of $2.6 million in revenues from the
resale of fuel from a tank farm in Alaska that commenced operations during the
fourth quarter of 2003; and (c) in vessel utilization to 90% in 2004 compared
with 89% in 2003.

Operating expenses for the third quarter of 2004 decreased $11.6 million,
or 16.4%, to $59.0 million compared with $70.6 million for the third quarter of
2003. This decrease is primarily attributable to: (a) a $17.0 million decrease
in the cost of fuel from a decrease in volume sold attributable to a change in
customer mix; (b) a $7.1 million decrease in expenses from a decrease of six
vessels that were in service during the third 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 (c) a $1.7 million decrease as a result of reduced demand for oil
transportation activities on the United States west coast. This decrease was
partially offset by: (a) an increase of $11.2 million for the cost of fuel
purchased for resale as a result of an increase in fuel prices; (b) an increase
of $1.8 million associated with the operation of a new tank farm in Alaska which
commenced operations during the fourth quarter of 2003; and (c) and an overall
increase in vessel utilization.

Depreciation and amortization for the third quarter of 2004 increased $1.6
million, or 44.4%, to $5.2 million compared with $3.6 million for the third
quarter of 2003. The increase was directly attributable to a $2.6 million
increase in dry-dock amortization for vessels which was partially offset by a
decrease in depreciation of $1.0 million. The decrease in depreciation was
caused by the sale of vessels. Dry-dock costs for four vessels were amortized
during the third quarter of 2004 compared with three vessels during the third
quarter of 2003.

As a result, the operating income from Oil and Chemical Distribution and
Transportation Services for the third quarter of 2004 decreased $3.0 million to
$9.5 million compared with $12.5 million for the third quarter of 2003.

Energy and Marine Services

Operating revenues from our Energy and Marine Services segment for the
third quarter of 2004 decreased $.2 million, or .9%, to $21.2 million compared
with $21.4 million for the third quarter of 2003. Overall vessel utilization
decreased to 58% during the third quarter of 2004 as compared with 66% during
the third quarter of 2003. The decreased utilization was due to a $7.0 million
reduction in government and commercial contract activity in the Gulf of Mexico,
on the United States west coast, and in our northern

19

Alaskan land operations. Vessel utilization in this segment is impacted by oil
exploration activity and general economic conditions and tends to be very
volatile. This decrease was offset by a $7.0 million increase generated from the
vessel mobilization and transportation of oil exploration cargo to Far East
Russia and Korea.

Operating expenses for the third quarter of 2004 increased $4.2 million, or
17.1%, to $28.7 million compared with $24.5 million for the third quarter of
2003. The increase is directly attributable to: (a) an increase of $2.6 million
for vessel maintenance and operations; and (b) higher fuel costs of $1.7 million
related to vessels that are intercompany chartered to our Puerto Rico and
Caribbean Islands Service. Vessel operating costs are charged to the Puerto Rico
and Caribbean Islands Service through intercompany revenues on a cost
pass-through basis. This increase was partially offset by a decrease in vessel
related costs associated with the decrease in vessel utilization.

Depreciation and amortization for the third quarter of 2004 decreased $.4
million, or 13.3%, to $2.6 million compared with $3.0 million for the third
quarter of 2003. The decrease was the result of fewer vessels in service.

Asset recoveries, net for the third quarter of 2004 increased $3.1 million
to a recovery of $3.0 million as compared with a charge of $.1 million during
the third quarter of 2003. The gain from the third quarter of 2004 resulted from
the sale of two vessels. The charge from the third quarter of 2003 resulted from
a writedown of vessel improvements, which was partially offset by the sale of
two vessels.

As a result, the operating income from Energy and Marine Services for the
third quarter of 2004 increased $1.5 million to $2.0 million compared with $.5
million for the third quarter of 2003.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

Consolidated operating revenues for the nine months ended September 30,
2004 increased $20.7 million, or 2.8%, to $755.6 million compared with $734.9
million for the nine months ended September 30, 2003. An increase in revenues
was generated as follows:

- $17.4 million as the result of higher prices for direct sales of fuel;

- $7.8 million from the resale of fuel from a tank farm in Alaska that
commenced operations during the fourth quarter of 2003;

- $2.7 million from the operation of one articulated tug barge ("ATB")
placed in service during the third quarter of 2003;

- $11.3 million generated by the vessel mobilization and transportation of
oil exploration cargo to Far East Russia and Korea;

- $4.5 million from increased contract activity in the Gulf of Mexico and
United States west coast;

- $27.0 million from our scheduled marine transportation services as a
result of an increase in rates, the addition of one vessel to our Central
America-Gulf service, and the addition of a service between the United
States and Haiti which commenced operations during the third quarter of
2003; and

- $8.5 million generated by a transportation management company
specializing in the apparel industry that we acquired in 2003.

These increases were partially offset by decreases in revenues as follows:

- $34.7 million from fewer vessels operating in the Oil and Chemical
Distribution and Transportation Services as a result of vessel disposals
and vessel repairs;

- $15.5 million decrease in direct fuel sales from a decrease in volume
sold due to a change in customer mix;

20

- $5.8 million as a result of reduced demand for oil transportation
activities on the United States west coast; and

- $4.8 million as a result of reduced activity in our northern Alaskan
marine operations.

Consolidated operating expenses for the nine months ended September 30,
2004 increased $21.7 million or 3.4%, to $664.0 million compared with $642.3
million for the nine months ended September 30, 2003. An increase in expenses
was primarily caused by:

- 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;

- $17.2 million associated with higher fuel prices purchased for our direct
fuel sales;

- $5.6 million attributable to the operation of a tank farm in Alaska which
commenced operations during the fourth quarter of 2003;

- $1.3 million increase from an ATB placed in service during the third
quarter of 2003;

- $11.5 million increased outfitting and mobilization charges related to
the Far East Russia and Korea projects;

- $19.5 million in vessel-related costs and $8.4 million in non-vessel
costs; and

- $8.5 million of expenses attributable to the operations of a
transportation management company specializing in the apparel industry
that we acquired in 2003.

These increases were partially offset by decreased expenses of:

- $34.5 million in vessel-related expenses due to fewer vessels operating
in the Oil and Chemical Distribution and Transportation Services as a
result of vessel disposals and vessel repairs;

- $14.0 million for the cost of fuel from a decrease in volume sold
attributable to a change in customer mix;

- $2.6 million as a result of reduced demand for oil transportation
activities on the United States west coast; and

- $7.5 million from reduced activity in our northern Alaskan land and
marine 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. In October 2004, the Company submitted demand letters
to its insurance underwriters for the settlement amounts and defense costs paid.
The Company will continue to aggressively pursue the insurance claims.

Consolidated general and administrative expenses for the nine months ended
September 30, 2004 increased $.5 million, or 2.1%, to $24.7 million compared
with $24.2 million for the nine months ended September 30, 2003. This increase
is primarily attributable to a $.4 million increase in deferred compensation
expense.

Consolidated depreciation and amortization expense for the nine months
ended September 30, 2004 increased $4.0 million, or 9.0%, to $48.4 million
compared with $44.4 million for the nine months ended September 30, 2003. This
increase is the result of an increase in dry-dock amortization in the amount of
$7.0 million which was partially offset by a decrease in depreciation of $3.3
million. Dry-dock costs for thirteen vessels were amortized in 2004 compared
with eight vessels in 2003. The decrease in depreciation was caused by lower
depreciation expense due to a reduction in the number of vessels in service.

Consolidated asset recoveries, net for the nine months ended September 30,
2004 increased $3.0 million to $4.6 million compared with $1.6 million for the
nine months ended September 30, 2003. The gains from the nine months ended
September 30, 2004 resulted from the sale of equipment, land and five vessels.
The gains from the nine months ended September 30, 2003 resulted from the sale
of equipment, land, land improvements and five vessels, which was partially
offset be a writedown of vessel improvements.
21

As a result, the consolidated operating income for the nine months ended
September 30, 2004 decreased $2.5 million, or 9.8% to $23.1 million compared
with $25.6 million for the nine months ended September 30, 2003.

Due to an increase in the Company's average cash and cash equivalent
amounts on hand, interest income for the nine months ended September 30, 2004
increased $1.2 million to $1.4 million compared with $.2 million for the nine
months ended September 30, 2003.

Interest expense for the nine months ended September 30, 2004 increased $.3
million, or 1.9%, to $16.2 million compared with $15.9 million for the nine
months ended September 30, 2003. This increase was due to increased interest
expense incurred for vessel financings and lower capitalized interest and 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 nine months ended
September 30, 2004 decreased $1.3 million compared with the nine months ended
September 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 expense for the nine months ended September 30, 2004 decreased
$1.3 million to $3.3 million compared with $4.6 million for the nine months
ended September 30, 2003. The effective tax rate was 39.1% and 40.1% for the
nine months ended September 30, 2004 and 2003, respectively. The decrease in the
effective tax rate results from changes in the Company's projections of pre-tax
income.

As a result, net income attributable to common shareholders for the nine
months ended September 30, 2004 decreased $1.9 million to $2.6 million ($18.84
basic and diluted income per common share) compared with $4.5 million ($33.24
basic and diluted income per common share) for the nine months ended September
30, 2003.

Liner Services

Operating revenues from our Liner Services segment for the nine months
ended September 30, 2004 increased $37.3 million, or 8.8%, to $460.1 million
compared with $422.8 million for the nine months ended September 30, 2003. The
increase is primarily attributable to a 3.0% increase in container and
noncontainer volume, a 6.5% increase in average revenue and an increase of 52.7%
in other logistical service revenues. The Company's container and noncontainer
volume increased to 439,345 TEUs during the nine months ended September 30, 2004
from 426,631 TEUs during the nine months ended September 30, 2003 due to: (a) a
service from the United States to Haiti which commenced operation during the
third quarter of 2003; and (b) growth in our Central America-Gulf service. The
average revenue increase was a result of: (a) rate increases for our services
between the United States and Puerto Rico and between the United States and
certain Caribbean Islands and the Bahamas; and (b) increases in fuel surcharges.
An increase in other logistical service revenues was the result of an increase
of $1.4 million from expanding warehousing operations in Central America and
$8.5 million revenues generated by a transportation service provider that we
purchased in July 2003. During the third quarter of 2004, there were delayed
voyages in our service between the United States and Puerto Rico as a result of
hurricanes. These voyages would have generated approximately $4.1 million of
revenue. The Company expects that revenues will be favorably impacted by
additional voyages undertaken by this segment in the fourth quarter, although
the amount of the increase cannot be determined at this time.

Operating expenses for the nine months ended September 30, 2004 increased
$35.3 million, or 9.1%, to $423.8 million compared with $388.5 million for the
nine months ended September 30, 2003. An increase in container and noncontainer
volume and growth in our service to Haiti and our Central America-Gulf service
resulted in an increase of $7.9 million in vessel and $12.3 million in
non-vessel-related expenses. Vessel-related expenses consist primarily of fuel,
vessel maintenance and repairs, crew and charter costs, while non-vessel
expenses consist primarily of costs for labor, facilities, purchased
transportation, terminal, port charges, equipment, and equipment maintenance and
repairs. An increase of $8.5 million in other logistical service

22

expenses was due to expenses incurred by a transportation service provider
purchased in July 2003. Allocation of corporate expenses resulted in an increase
of $4.0 million for the settlement of certain asbestos-related claims.

Depreciation and amortization for the nine months ended September 30, 2004
increased $1.5 million, or 19.7%, to $9.1 million compared with $7.6 million for
the nine months ended September 30, 2003. The increase was directly attributable
to an increase in dry-dock amortization of $1.5 million. Liner Services
amortized dry-dock costs for nine vessels during the nine months ended September
30, 2004 compared with five vessels during the nine months ended September 30,
2003.

Asset recoveries, net for the nine months ended September 30, 2004,
decreased $.1 million to a recovery of $.6 million compared with a recovery of
$.7 million for the nine months ended September 30, 2003. These gains resulted
from disposals of equipment during the nine months ended September 30, 2004 and
disposals of two vessels and equipment during the nine months ended September
30, 2003.

As a result, the operating income from Liner Services for the nine months
ended September 30, 2004 decreased $.8 million to $11.0 million compared with
$11.8 million for the nine months ended September 30, 2003.

Ship Assist and Escort Services

Operating revenues from our Ship Assist and Escort Services segment for the
nine months ended September 30, 2004 decreased $.1 million, or .2%, to $55.3
million compared with $55.4 million for the nine months ended September 30,
2003. A decrease in tanker volumes in the Puget Sound resulted in a $2.2 million
reduction to revenues. This decrease was partially offset by: (a) $1.5 million
increase from an increase in rates which included a fuel surcharge to cover
rising fuel prices; and (b) $.6 million of revenues from the commencement of
operations in Oakland, California during the second quarter of 2004. Overall
vessel utilization rates remained consistent at 72% during the nine months ended
September 30, 2004 and 2003.

Operating expenses for the nine months ended September 30, 2004 increased
$1.9 million, or 4.1%, to $47.7 million compared with $45.8 million for the nine
months ended September 30, 2003. The increase was directly attributable to: (a)
a $1.3 million increase in vessel related costs, such as labor and fuel, of
which $.6 million was attributed to labor and fuel costs from the operations in
Oakland, California which commenced operations during the second quarter of 2004
and (b) increased non-vessel expenses of $.3 million due to increased
subcontracting costs in harbor services.

As a result, operating income from Ship Assist and Escort Services for the
nine months ended September 30, 2004 decreased $2.3 million to $5.6 million
compared with $7.9 million for the nine months ended September 30, 2003.

Oil and Chemical Distribution and Transportation Services

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment for the nine months ended September 30, 2004
decreased $27.4 million, or 13.5%, to $175.2 million compared with $202.6
million for the nine months ended September 30, 2003. The decrease is directly
attributable to: (a) a $15.5 million decrease in direct fuel sales from a
decrease in volume sold due to a change in customer mix; (b) a $34.7 million
decrease in revenues from a decrease of ten vessels that were in this service
during the nine months ended September 30, 2003 that are no longer in service as
the vessels were either sold or no longer managed by the service in 2004; (c) a
$5.8 million decrease as a result of reduced demand for oil transportation
activities on the United States west coast; and (d) a decrease in vessel
utilization to 69% in 2004 compared with 72% in 2003. This decrease was
partially offset by: (a) a $17.4 million increase in revenues as the result of
higher prices for direct sales of fuel; (b) an increase of $7.8 million in
revenues from the resale of fuel from a tank farm in Alaska that commenced
operations during the fourth quarter of 2003; and (c) an increase of $2.7
million in revenues from the operation of one ATB placed in service during the
third quarter of 2003.

23

Operating expenses for the nine months ended September 30, 2004 decreased
$24.3 million, or 14.5%, to $143.8 million compared with $168.1 million for the
nine months ended September 30, 2003. This decrease is primarily attributable
to: (a) a $14.0 million decrease in the cost of fuel from a decrease in volume
sold attributable to a change in customer mix; (b) a $34.5 million decrease in
expenses from a decrease of ten vessels that were in this service during the
nine months ended September 30, 2003 that are no longer in service as the
vessels were either sold or no longer managed by the service in 2004; (c) a $2.6
million decrease as a result of reduced demand for oil transportation activities
on the United States west coast; and (d) an overall decrease in vessel
utilization. This decrease was partially offset by: (a) an increase of $17.2
million for the cost of fuel purchased for resale as a result of an increase in
fuel prices; (b) an increase of $5.6 million associated with a new tank farm in
Alaska which commenced operations during the fourth quarter of 2003; and (c) a
$1.3 million increase from an ATB placed in service during the third quarter of
2003.

Depreciation and amortization for the nine months ended September 30, 2004
increased $3.7 million, or 37.0%, to $13.7 million compared with $10.0 million
for the nine months ended September 30, 2003. The increase was directly
attributable to a $6.4 million increase in dry-dock amortization for vessels and
was partially offset by a decrease in depreciation of $2.7 million. The decrease
in depreciation was caused by the sale of vessels. Dry-dock costs for four
vessels were amortized during the nine months ended September 30, 2004 compared
with three vessels during the nine months ended September 30, 2003.

Asset recoveries, net for the nine months ended September 30, 2004
decreased $.3 million as compared with recoveries of $.3 million for the nine
months ended September 30, 2003. The recovery from the nine months ended
September 30, 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 nine months ended September 30, 2004 decreased
$6.8 million to $13.0 million compared with $19.8 million for the nine months
ended September 30, 2003.

Energy and Marine Services

Operating revenues from our Energy and Marine Services segment for the nine
months ended September 30, 2004 increased $10.9 million, or 20.1%, to $65.0
million compared with $54.1 million for the nine months ended September 30,
2003. The increase was directly attributable to an increase in revenues of: (a)
$11.3 million from vessel mobilization and transportation of oil exploration
cargo in Far East Russia and Korea; and (b) $4.5 million generated by government
and commercial contract activity in the Gulf of Mexico and United States west
coast. This increase was partially offset by a $4.8 million decrease in revenues
from our northern Alaskan marine operations. Overall vessel utilization
increased to 52% during the nine months ended September 30, 2004 as compared
with 44% during the nine months ended September 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 nine months ended September 30, 2004 increased
$12.4 million, or 15.4%, to $92.7 million compared with $80.3 million for the
nine months ended September 30, 2003. The increase is directly attributable to:
(a) increased outfitting and mobilization activity related to projects in Russia
and Korea amounting to charges of $11.5 million; (b) $2.8 million from
acceleration of vessel maintenance and repair costs to earlier in the year; (c)
increases of $2.6 million in vessel related crew costs due to the increase in
vessel utilization; and (d) higher fuel costs of $2.9 million related vessels
that are intercompany chartered to our Puerto Rico and Caribbean Islands
Service. Vessel operating costs are charged to the Puerto Rico and Caribbean
Islands Service through intercompany revenues on a cost pass-through basis.
Lower operating costs of $7.5 million were realized by our Northern Alaskan land
($3.2 million) and marine ($4.3 million) operations as a result of reduced
activity.

Depreciation and amortization for the nine months ended September 30, 2004
decreased $1.0 million, or 10.9%, to $8.2 million compared with $9.2 million for
the nine months ended September 30, 2003. The decrease was the result of fewer
vessels in service and an adjustment made for a vessel placed in service during
the first quarter of 2003 that was previously classified as held for sale.

24

Asset recoveries, net for the nine months ended September 30, 2004
increased $3.4 million to a recovery of $4.0 million as compared with $.6
million during the nine months ended September 30, 2003. The gain from the nine
months ended September 30, 2004 resulted from the sale of three vessels. The
gain from the nine months ended September 30, 2003 resulted from the sale of two
vessels, which was partially offset by a writedown of vessel improvements.

As a result, the operating loss from Energy and Marine Services for the
nine months ended September 30, 2004 decreased $7.4 million to $6.5 million
compared with $13.9 million for the nine months ended September 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 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
twelve months.

FINANCIAL CONDITION AS OF SEPTEMBER 30, 2004

As of September 30, 2004 the Company has cash and cash equivalents of
$132.4 million compared with $160.6 million at December 31, 2003. The Company
generated $37.0 million of cash from operations during the nine month period
ended September 30, 2004. The net income before depreciation and amortization
expense and taxes provided $54.6 million of cash. Additional cash from
operations were used by higher levels of funding for working capital
requirements.

The Company used $21.4 million of cash for investing activities during the
nine month period ended September 30, 2004. The Company expended $17.7 million
for the construction of vessels and the purchase of equipment. Proceeds of $7.0
million were received from asset dispositions. Dry-docking costs of $12.4
million were incurred for six vessels during the nine month period ended
September 30, 2004. The Company sold its logistics operations of its Liner
Services segment in Venezuela for $1.5 million and was reimbursed $1.9 million
in escrowed Title XI funds used to pay certain expenditures related to the
construction of our ATB's that were placed in service during 2003 and 2004. The
Company also paid $2.0 million as return of capital to the minority interest
holders of the Company's Variable Interest Entity.

The Company used cash of $43.7 million in financing activities for: (a)
principal payments of the Company's debt; (b) payment of debt issuance costs;
(c) payment of preferred stock dividends; and (d) 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 September 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
fourth 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
25

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 accordance with the Purchase Agreement. Net
working capital is expected to range between approximately $13 million and $19
million. 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 23, 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. The
sixty day public comment period has expired, and comments ("verified
exceptions") were filed by certain of the plaintiffs, the City of Bethel, Alaska
and several others in the aforementioned lawsuit. The Court has ordered the
Attorney General to turn over parts of his investigative file to certain of
those who filed exceptions. The Attorney General has filed a petition in the
Alaska Supreme Court seeking to have the Court's order overturned, and the
Company has joined in that request. Once this issue is resolved, the Court will
hold a hearing on the Consent Decree. Due to the judicial issues being raised
before the Supreme Court of Alaska, it is difficult to say with certainty when
the hearing on the Consent Decree will be held and when we anticipate closing
the transaction. We are hopeful that the judicial proceedings will be addressed
promptly and we will be in a position to close during the first quarter of 2005.

In November 2004 the Company entered into a termination agreement of a
charter of a vessel which, among other things, sets forth the terms and
conditions by which: (a) the bareboat charters will be terminated prior to their
expiration dates; and (b) the Company will receive a payment equal to the
present value of the charter hire payments that, but for the termination, would
have been made between the date of the termination and November 16, 2006, the
scheduled expiration date of the charters. Pursuant to the termination agreement
and the bareboat charters, the Company received a payment of approximately $20.1
million in November of 2004. Simultaneously with the receipt of this payment,
the Company: (a) paid the outstanding debt associated with the vessel in the
amount of $10,372; and (b) sold the vessel to an unrelated third party at a gain
of approximately $1 million.

RISK FACTORS

If any of the following risks actually occur, our business, financial
condition, operating results or cash flows could be materially adversely
affected.
26

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.

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 who 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

27

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 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. Adverse weather and sea conditions can also result in delays
in scheduled voyages and thus affect the timing of the recognition of 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 6 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
28

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 September 30, 2004, approximately
63% 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.

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 5 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.

29

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 October 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 October 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 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
30

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. The Company's
market risk exposure has not changed materially since December 31, 2003.

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.

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, second or third
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
31

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 September 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 $1.0 million as an estimate of its potential liability in this
litigation. The Company has also recorded a receivable from its insurance
companies of $.5 million 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 $.4 million with a corresponding
re-insurance receivable of $.1 million. 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. In October 2004, the Company submitted demand
letters to its insurance underwriters for the settlement amounts and defense
costs paid. The Company will continue to 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Company sponsors the Crowley Maritime Corporation Retirement Stock Plan
("RSP"), which held 9,113 shares of common stock at September 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 4,746 shares of common stock at September 30, 2004,
all of which are fully vested. Participants in the
32

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 third 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 so long as
the combined cost does not exceed $10 million. At September 30, 2004, the
Company was in compliance with all covenants under its financing and leasing
arrangements.

ITEM 6. EXHIBITS.

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

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

(2) See Note 4 to the Crowley Maritime Corporation Unaudited Condensed
Consolidated Financial Statements in "Part 1 -- Financial
Information -- Item 1. Financial Statements" of this Form 10-Q.

(3) 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.

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CROWLEY MARITIME CORPORATION
(Registrant)

November 12, 2004
By: /s/ RICHARD L. SWINTON
------------------------------------
Richard L. Swinton
Vice President, Tax & Audit
(Duly Authorized Officer/Principal
Financial Officer)

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EXHIBIT INDEX