UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the Quarterly Period ended June 30, 2005
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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 1-9063
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MARITRANS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0343903
-------------------------------- -----------
(State or other jurisdiction of (Identification No.
incorporation or organization) I.R.S. Employer)
TWO HARBOUR PLACE
302 KNIGHTS RUN AVENUE
SUITE 1200
TAMPA, FLORIDA 33602
--------------------
(Address of principal executive offices)
(Zip Code)
(813) 209-0600
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Registrant's telephone number, including area code
(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 requirements
for the past 90 days.
Yes X No
---
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes X No
---
Common Stock $.01 par value, 8,535,769 shares outstanding as of July 29, 2005
MARITRANS INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2005 and December 31, 2004 3
Consolidated Statements of Income - Three months ended June 30,
2005 and 2004 4
Consolidated Statements of Income - Six months ended June 30,
2005 and 2004 5
Consolidated Statements of Cash Flows - Six months ended June 30,
2005 and 2004 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
Item 3. Qualitative and Quantitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits 23
SIGNATURES 24
2
PART I: FINANCIAL INFORMATION
MARITRANS INC.
CONSOLIDATED BALANCE SHEETS
($000)
JUNE 30, DECEMBER 31,
2005 2004
-----------------------------------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 18,831 $ 6,347
Trade accounts receivable 16,343 14,809
Claims and other receivables 1,996 2,625
Inventories 3,910 3,665
Deferred income tax benefit 8,010 6,061
Prepaid expenses 1,677 3,047
-------- --------
Total current assets 50,767 36,554
Vessels and equipment 404,867 397,523
Less accumulated depreciation 210,154 205,599
-------- --------
Net vessels and equipment 194,713 191,924
Goodwill 2,863 2,863
Other 315 442
-------- --------
Total Assets $248,658 $231,783
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year $ 3,863 $ 3,756
Trade accounts payable 3,765 4,790
Accrued shipyard costs 6,662 6,393
Accrued wages and benefits 3,169 2,477
Current income taxes 7,395 2,210
Other accrued liabilities 4,805 3,132
-------- --------
Total current liabilities 29,659 22,758
Long-term debt 57,414 59,373
Accrued shipyard costs 9,994 9,589
Long-term tax payable 6,875 6,875
Other liabilities 7,013 4,780
Deferred income taxes 35,721 36,004
-------- --------
Total non-current liabilities 117,017 116,621
Stockholders' equity:
Common stock 141 140
Capital in excess of par value 90,072 88,195
Retained earnings 66,240 57,350
Unearned compensation (1,357) (1,268)
Less: Cost of shares held in treasury (53,114) (52,013)
-------- --------
Total stockholders' equity 101,982 92,404
-------- ----------
Total liabilities and stockholders' equity $248,658 $231,783
======== ========
See notes to financial statements.
3
MARITRANS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($000, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED JUNE 30,
2005 2004
---------------------------------
Revenues $ 46,330 $ 36,747
Costs and expenses:
Operations expense 25,242 18,167
Maintenance expense 5,166 5,186
General and administrative 2,423 3,120
Depreciation 5,719 5,277
---------- ---------
Total operating expense 38,550 31,750
Operating income 7,780 4,997
Interest expense (733) (348)
Interest income 115 39
Other income 4,037 291
---------- ---------
Income before income taxes 11,199 4,979
Income tax provision 4,088 1,867
---------- ---------
Net income $ 7,111 $ 3,112
========== =========
Basic earnings per share $ 0.85 $ 0.38
Diluted earnings per share $ 0.83 $ 0.37
Dividends declared per share $ 0.11 $ 0.11
See notes to financial statements.
4
MARITRANS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($000, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS
ENDED JUNE 30,
2005 2004
---------------------------------
Revenues $ 89,870 $ 71,408
Costs and expenses:
Operations expense 47,285 36,754
Maintenance expense 10,091 10,485
General and administrative 7,809 5,537
Depreciation 11,215 10,469
---------- ---------
Total operating expense 76,400 63,245
Gain on sale of assets 647 --
---------- ---------
Operating income 14,117 8,163
Interest expense (1,421) (753)
Interest income 167 131
Other income 4,092 297
---------- ---------
Income before income taxes 16,955 7,838
Income tax provision 6,189 2,939
---------- ---------
Net income $ 10,766 $ 4,899
========== =========
Basic earnings per share $ 1.29 $ 0.60
Diluted earnings per share $ 1.26 $ 0.58
Dividends declared per share $ 0.22 $ 0.22
See notes to financial statements.
5
MARITRANS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000)
SIX MONTHS
ENDED JUNE 30,
2005 2004
---------------------------
Cash flows from operating activities:
Net income $ 10,766 $ 4,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,215 10,469
Deferred income taxes (2,232) 182
Tax benefit on stock compensation 736 1,503
Changes in receivable, inventories and prepaid expenses 220 (1,973)
Changes in current liabilities and other 6,712 (828)
Non-current asset and liability changes, net 2,765 3,459
Gain on sale of assets (647) --
-------- --------
Total adjustments to net income 18,769 12,812
-------- --------
Net cash provided by operating activities 29,535 17,711
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets 647 --
Collections on notes receivable -- 7,335
Purchase of vessels and equipment (14,004) (19,599)
-------- --------
Net cash used in investing activities (13,357) (12,264)
-------- --------
Cash flows from financing activities:
Borrowings under long-term debt -- 29,500
Payment of long-term debt (1,852) (1,250)
Payments under revolving credit facility -- (30,000)
Borrowings under revolving credit facility -- 6,500
Proceeds from exercise of stock options 34 86
Dividends declared and paid (1,876) (1,825)
-------- --------
Net cash (used in) provided by financing activities (3,694) 3,011
-------- --------
Net increase in cash and cash equivalents 12,484 8,458
Cash and cash equivalents at beginning of period 6,347 3,614
-------- --------
Cash and cash equivalents at end of period $ 18,831 $ 12,072
======== ========
See notes to financial statements
6
MARITRANS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
1. BASIS OF PRESENTATION/ORGANIZATION
Maritrans Inc. owns Maritrans Operating Company L.P. (the "Operating
Company"), Maritrans General Partner Inc., Maritrans Tankers Inc.,
Maritrans Barge Co., Maritrans Holdings Inc. and other Maritrans
entities (collectively, the "Company"). These subsidiaries, directly and
indirectly, own and operate oceangoing petroleum tank barges, tugboats,
and oil tankers used in the transportation of oil and related products,
primarily along the Gulf and Atlantic Coasts.
In the opinion of management, the accompanying consolidated financial
statements of Maritrans Inc., which are unaudited (except for the
Consolidated Balance Sheet as of December 31, 2004, which is derived
from audited financial statements), include all adjustments (consisting
of normal recurring accruals) necessary to present fairly the financial
statements of the consolidated entities. Interim results are not
necessarily indicative of results for a full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the unaudited consolidated financial statements do not
include all of the information and notes normally included with annual
financial statements prepared in accordance with GAAP. These financial
statements should be read in conjunction with the consolidated
historical financial statements and notes thereto included in the
Company's Form 10-K for the period ended December 31, 2004.
2. EARNINGS PER COMMON SHARE
The following data show the amounts used in computing basic and diluted
earnings per share ("EPS"):
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
-------- --------- -------- ------
(000's) (000's)
Income available to common stockholders used
in basic EPS......................................... $ 7,111 $ 3,112 $10,766 $ 4,899
======= ======= ======= =======
Weighted average number of common shares used
in basic EPS......................................... 8,400 8,212 8,371 8,116
Effect of dilutive stock options and restricted shares 171 190 174 297
------- ------- ------- -------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS........... 8,571 8,402 8,545 8,413
======= ======= ======= =======
3. STOCK-BASED COMPENSATION
Maritrans Inc. has a stock incentive plan (the "Plan"), whereby
non-employee directors, officers and other key employees may be granted
stock, stock options and, in certain cases, receive cash under the Plan.
In May 1999, the Company adopted an additional plan, the Maritrans Inc.
1999 Directors and Key Employees Equity Compensation Plan, which provides
non-employee directors, officers and other key employees with certain
rights to acquire common stock and stock options. In April 2005, the
Company adopted a new plan, the Maritrans Inc. 2005 Omnibus Equity
Compensation Plan, which also provides non-employee directors, officers
and other key employees with certain rights to acquire common stock and
stock options. Any outstanding options granted under either plan are
exercisable at a price not less than the market value of the shares on
the date of grant. During the second quarter of 2005, 18,241 shares were
issued as a result of the exercise of options. The exercise price of
these options ranged from $5.375 to $14.20.
7
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148"). SFAS 148 amends Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), to provide three alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 also amends the
disclosure provisions of SFAS 123 and Accounting Principles Board Opinion
No. 28, "Interim Financial Reporting". SFAS 148 was effective for fiscal
years ending after December 15, 2002, with certain disclosure
requirements effective for interim periods beginning after December 15,
2002. The Company adopted the transition provision of SFAS 148 using the
prospective method beginning January 1, 2003. The prospective method
requires the Company to apply the fair value based method to all stock
awards granted, modified or settled in its consolidated statements of
income beginning on the date of adoption.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The
difference between stock based compensation included in net income and
total stock based compensation determined under the fair value method was
immaterial in the first six months of 2005 and results in pro forma net
income that was equal to net income in the Consolidated Statement of
Income. The Company's pro forma information in 2004 was as follows:
Three Months Six Months
Ended June 30, 2004 Ended June 30, 2004
------------------- -------------------
($000, except per share data)
Net income as reported.................................. $ 3,112 $ 4,899
Add: Stock based compensation included in net
income, net of tax................................... 12 26
Deduct: Total stock based compensation determined
under the fair value based method, net of tax........ 14 37
------- -------
Pro forma net income.................................... $ 3,110 $ 4,888
======= =======
Basic earnings per share as reported.................... $ 0.38 $ 0.60
Pro forma basic earnings per share...................... $ 0.38 $ 0.60
Diluted earnings per share as reported.................. $ 0.37 $ 0.58
Pro forma diluted earnings per share.................... $ 0.37 $ 0.58
4. INCOME TAXES
The Company's effective tax rate differed from the federal statutory rate
due primarily to state income taxes and certain nondeductible items.
5. SHARE BUYBACK PROGRAM
On February 9, 1999, the Board of Directors authorized a share buyback
program (the "Program") for the repurchase of up to one million shares of
the Company's common stock. In February 2000 and again in February 2001,
the Board of Directors authorized the repurchase of an additional one
million shares in the Program. Therefore the total authorized shares
under the Program is 3,000,000. As of June 30, 2005, 2,485,442 shares had
been repurchased.
8
6. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which
is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement 123. However, Statement
123(R) requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure is no longer an alternative.
On April 15, 2005, the Securities and Exchange Commission (the
"Commission") announced the adoption of a new rule that amends the
compliance dates for Statement 123(R). The Commission's new rule allows
companies to implement Statement 123(R) at the beginning of their next
fiscal year, instead of the next reporting period, that begins after June
15, 2005. Consistent with the new compliance date, the Company will be
adopting the provisions of Statement 123(R) as of January 1, 2006, using
the prospective method. The Commission's new rule does not change the
accounting required by Statement 123(R), it changes only the dates for
compliance with the standard.
The Company adopted the fair-value-based method of accounting for
share-based payments effective January 1, 2003 using the modified
prospective method described in FAS 148. Currently, the Company uses the
Black-Scholes formula to estimate the value of stock options granted to
employees and expects to continue using this acceptable option valuation
model upon the required adoption of Statement 123(R) on January 1, 2006.
Because Statement 123(R) must be applied not only to new awards but to
previously granted awards that are not fully vested on the effective
date, and because the Company adopted Statement 123 using the modified
prospective method (which applied only to awards granted, modified or
settled after the adoption date), compensation cost for some previously
granted awards that were not recognized under Statement 123 will be
recognized under Statement 123(R). However, had we adopted Statement
123(R) in prior periods, the impact of that standard would have
approximated the impact of Statement 123 as described in the disclosure
of pro forma net income and earnings per share in Note 3 to our
consolidated financial statements. Pro forma effects of FAS 123 had no
material effect on the net income or earnings per share for the six
months ended June 30, 2005.
7. RETIREMENT PLANS
Net periodic pension cost included the following components:
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
----- ----- ------- ----
($000s) ($000s)
Service cost of current period.......................... $ 54 $ 157 $ 222 $ 314
Interest cost on projected benefit obligation........... 504 463 973 926
Expected return on plan assets.......................... (510) (476) (1,019) (952)
Amortization of prior service cost...................... 34 35 69 70
----- ----- ------- -----
Net periodic pension cost............................... $ 82 $ 179 $ 245 $ 358
===== ===== ======= =====
8. SALE OF ASSET
In March 2005, the Company sold one vessel, the tug Port Everglades,
which had been idle and not operating as a core part of the Company's
fleet. The gain on the sale of this asset was $0.6 million.
9
9. RETIREMENT AGREEMENT
On February 15, 2005, Stephen A. Van Dyck announced his retirement and
entered into a Confidential Transition and Retirement Agreement (the
"Agreement"). As of the date of the Agreement, Mr. Van Dyck retired and
resigned from all directorships and offices with the Company, including
Executive Chairman of the Company's Board of Directors. He will serve as
a consultant to the Company through December 31, 2007. The Company
recorded a $2.4 million charge in the first quarter of 2005 related to
the consulting agreement and to the acceleration of Mr. Van Dyck's
enhanced retirement benefit, which resulted in additional general and
administrative expenses.
10. CONTINGENCIES
In the ordinary course of its business, claims are filed against the
Company for alleged damages in connection with its operations. Management
is of the opinion that the ultimate outcome of such claims at June 30,
2005 will not have a material adverse effect on the consolidated
financial statements.
On May 2, 2005, the Company agreed to settle its pending lawsuit against
Penn Maritime Inc. and Penn Tug & Barge Inc. (together "Penn Maritime")
on Maritrans' claims for patent infringement and misappropriation of
trade secrets. Penn Maritime agreed to pay Maritrans $4 million to settle
all of Maritrans' claims. Penn Maritime agreed that the Court will issue
a judgment attesting to the validity of Maritrans' patents for the
process of converting single hull barges to double hull. Maritrans agreed
to give Penn Maritime a license to use Maritrans' patent covering all
barges presently owned by Penn Maritime. The $4 million settlement
payment was received in June 2005 and was recorded as other income in the
six months ended June 30, 2005 consolidated statement of income.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Information
---------------------------
Some of the statements in this Form 10-Q (this "10-Q") constitute
forward-looking statements under Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements made with respect to present or anticipated utilization,
future revenues and customer relationships, capital expenditures, future
financings, and other statements regarding matters that are not historical
facts, and involve predictions. These statements involve known and unknown
risks, uncertainties and other factors that may cause actual results, levels of
activity, growth, performance, earnings per share or achievements to be
materially different from any future results, levels of activity, growth,
performance, earnings per share or achievements expressed in or implied by such
forward-looking statements.
The forward-looking statements included in this 10-Q relate to future events or
the Company's future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "seem," "should,"
"believe," "future," "potential," "estimate," "offer," "opportunity," "quality,"
"growth," "expect," "intend," "plan," "focus," "through," "strategy," "provide,"
"meet," "allow," "represent," "commitment," "create," "implement," "result,"
"seek," "increase," "establish," "work," "perform," "make," "continue," "can,"
"will," "include," or the negative of such terms or comparable terminology.
These forward-looking statements inherently involve certain risks and
uncertainties, although they are based on the Company's current plans or
assessments that are believed to be reasonable as of the date of this 10-Q.
Factors that may cause actual results, goals, targets or objectives to differ
materially from those contemplated, projected, forecast, estimated, anticipated,
planned or budgeted in such forward-looking statements include, among others,
the factors outlined in this 10-Q, changes in oil companies' decisions as to the
type and origination point of the crude that it processes, changes in the amount
of imported petroleum products, competition for marine transportation, domestic
and international oil consumption, levels of foreign imports, the continuation
of federal law restricting United States point-to-point maritime shipping to
U.S. vessels (the Jones Act), the timing and success of the Company's rebuilding
program, demand for petroleum products, future spot market rates, demand for our
services, changes in interest rates, the effect of war or terrorists activities
and the general financial, economic, environmental and regulatory conditions
affecting the oil and marine transportation industry in general. Given such
uncertainties, current or prospective investors are cautioned not to place undue
reliance on any such forward-looking statements. These factors may cause the
Company's actual results to differ materially from any forward-looking
statement.
Although the Company believes that the expectations in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, growth, earnings per share or achievements. Neither
the Company nor any other person assumes responsibility for the accuracy and
completeness of such statements. The Company is under no duty to update any of
the forward-looking statements after the date of this 10-Q to conform such
statements to actual results.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I Item 1 of this Form
10-Q and the audited financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 2004 contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2004.
Overview
--------
Maritrans serves the petroleum and petroleum product distribution industry by
using tank barges, tugboats and oil tankers to provide marine transportation
services primarily along the Gulf and Atlantic coasts of the United States. The
Company owns and operates one of the largest fleets serving the U.S. coastwise
trade, consisting of 4 oil tankers and 11 oceangoing married tug/barge units
with an aggregate fleet capacity of approximately 3.6 million barrels.
11
Demand for the Company's services is driven primarily by the demand for crude
oil in the Northeastern U.S. and refined petroleum products in Florida and the
Northeastern U.S. This demand is impacted by domestic consumption of petroleum
products, U.S. refining levels, product inventory levels and weather conditions
in the Northeast. In addition, competition from foreign imports of refined
petroleum products in our primary markets, as well as demand for refined
petroleum product movements from the U.S. Gulf Coast refining centers to the
U.S. West Coast, could also have an impact on demand for the Company's services.
Maritrans has successfully rebuilt six of its existing, single-hulled, barges to
a double-hull design configuration, which comply with the provisions of OPA. The
Company intends to apply the same methodology to all of its remaining
single-hull barges. Approximately seventy percent of the Company's fleet
capacity is double-hulled. The Company holds patents for its double-hulling
technology and has been rebuilding its single-hull barges to double-hulls since
1998, in preparation for upcoming government mandated retirements of single-hull
vessels. The timing of the rebuilds will be determined by a number of factors,
including market conditions, shipyard pricing and availability, customer
requirements and OPA retirement dates for the vessels. The OPA retirement dates
fall between 2005 and 2010. Each of the Company's superbarges represent
approximately 5 to 7 percent of the total fleet capacity, which will be removed
from revenue generating service during the rebuilding of that vessel.
Definitions
-----------
In order to facilitate your understanding of the disclosure contained in the
results of operations, the following are definitions of some commonly used
industry terms used herein:
"Available days" refers to the number of days the fleet was not out of service
for maintenance or other operational requirements and therefore was available to
work.
"Barge rebuild program" refers to the Company's program to rebuild its
single-hull barges to a double-hull configuration to conform with OPA utilizing
its patented process of computer assisted design and fabrication.
"CAP" refers to the Condition Assessment Program of ABS Consulting, a subsidiary
of the American Bureau of Shipping, which evaluates a vessel's operation,
machinery, maintenance and structure using the ABS Safe Hull Criteria. A CAP 1
rating indicates that a vessel meets the standards of a newly built vessel.
"Cargo" refers to the petroleum products transported by our vessels.
"Clean oil" refers to refined petroleum products.
"Jones Act" refers to the federal law restricting United States point-to-point
maritime shipping to vessels built in the United States, owned by U.S. citizens
and manned by U.S. crews.
"Lightering" refers to the process of off-loading crude oil or petroleum
products from deeply laden inbound tankers into smaller tankers and/or barges.
"OPA" refers to the Oil Pollution Act of 1990, which is a federal law
prohibiting the operation of singe-hull vessels in U.S. waters based on a
phase-out schedule that began on January 1, 1995 and ends on January 1, 2015.
"Revenue days" refers to the number of days the fleet was working for customers.
"Spot market" refers to a term describing a one-time, open-market transaction
where transportation services are provided at current market rates.
"Superbarge" refers to a barge with a carrying capacity in excess of 150,000
barrels.
"Term contract" refers to a contract with a customer for specified services over
a specified period for a specified price.
12
"TCE" refers to Time Charter Equivalent, a commonly used industry measure where
direct voyage costs are deducted from revenue. TCE yields a measure that is
comparable regardless of the type of contract utilized.
"Vessel utilization" refers to the ratio, expressed as a percentage, of the days
the fleet worked and is calculated as the number of revenue days divided by the
number of calendar days, each in a specified time period.
"Voyage costs" refer to the expenses incurred for fuel and port charges.
Results of Operations
---------------------
To supplement its financial statements prepared in accordance with GAAP, the
Company's management has used the financial measure of TCE. Maritrans enters
into various types of charters, some of which involve the customer paying
substantially all voyage costs, while other types of charters involve Maritrans
paying some or substantially all of the voyage costs. The Company has presented
TCE in this discussion to enhance an investor's overall understanding of the way
management analyzes the Company's financial performance. Specifically, the
Company's management used the presentation of TCE revenue to allow for a more
meaningful comparison of the Company's financial condition and results of
operations because TCE revenue essentially nets the voyage costs and voyage
revenue to yield a measure that is comparable between periods regardless of the
types of contracts utilized. These voyage costs are included in the "Operations
expense" line item on the Consolidated Statements of Income. TCE revenue is a
non-GAAP financial measure and a reconciliation of TCE revenue to revenue, the
most directly comparable GAAP measure, is set forth below. The presentation of
this additional information is not meant to be considered in isolation or as a
substitute for results prepared in accordance with GAAP.
Three Month Comparison
----------------------
Revenues
TCE revenue for the quarter ended June 30, 2005 compared to the quarter ended
June 30, 2004 was as follows:
June 30, 2005 June 30, 2004
------------- -------------
Voyage revenue $46,330 $36,747
Voyage costs 11,667 6,401
-------- --------
Time Charter Equivalent $34,663 $30,346
======= =======
Vessel utilization 81.8% 82.5%
======== =======
Available days 1,203 1,232
========= =========
Revenue days 1,117 1,126
========= =========
TCE revenue increased from $30.3 million for the quarter ended June 30, 2004 to
$34.7 million for the quarter ended June 30, 2005, an increase of $4.3 million,
or 14 percent, due to an increase in rates.
Rates
Voyage revenue consists of revenue generated under term contracts as well as
revenue generated by spot market transportation. Rates in each of these markets
are significant drivers in the amount of revenue generated by the Company.
Spot market revenue for the quarter ended June 30, 2005 was $15.0 million
compared to $7.2 million for the quarter ended June 30, 2004. The Company
increased its exposure to the spot market in the second half of 2004 and
continued this strategy in the first half of 2005. Spot market rates were higher
in 2005 than in 2004 as the result of the impact of world and oil industry
events and vessel supply as discussed below.
The shift in spot market strategy allowed the Company to meet the increased
demand for gasoline blend components in the Northeast and West Coast and
increased demand for gasoline in Florida. In particular, and consistent with
last year, a large number of U.S. Jones Act vessels transported cargos from the
Gulf of Mexico to the West Coast to meet the continuing demand for gasoline
blend components. In addition, continued reduction in the Jones Act fleet as a
result of mandatory OPA phase-outs has reduced the supply of vessels in the
markets the Company serves, resulting on upward pressure on spot rates. Finally,
spot market rates were pushed higher as a result of the increase in fuel prices
during 2005.
13
Contract revenue for the quarter ended June 30, 2005 was $31.3 million compared
to $29.8 million for the quarter ended June 30, 2004. Contract rates remained
strong and were higher in 2005 than in 2004 as the Company obtained significant
increases in rates on its renewed contracts. The increase in contract revenue
was achieved with fewer vessels on contract during 2005. In addition, the
Company benefited from positive fuel adjustment mechanisms in its contracts in a
high fuel cost environment. Demand for lightering services, which is dependent
on crude refining utilization in the Delaware Valley refineries, was higher in
2005 than in 2004 and resulted in increased revenue under contracts.
The Company believes spot market rates will be at similar levels or higher
during the remainder of 2005 compared to 2004 due to increased product demand in
the markets the Company serves and continued reduction in the supply of Jones
Act vessels. The Company expects that this increased demand will be partially
offset by an increase in imports into the Gulf Coast market the Company serves.
The Company expects its exposure to the spot market in the remainder of 2005 to
be consistent to its exposure in the first half of 2005. The Company intends to
maintain a strong position in the spot market to allow the Company to take
greater advantage of anticipated market conditions in 2005. Although the greater
spot market exposure inherently brings with it potential for reduced utilization
and revenues, the Company believes that anticipated market demand and the
continuing reduction in the size of the Jones Act fleet lessens the possibility
of this occurrence. Additionally, a Company vessel will be reaching its
mandatory OPA phase-out date in December 2005 and will no longer be able to
transport petroleum products but will be able to carry alternate products.
In April 2005, the Company entered into an 18-month time charter with Sunoco
Inc. (R&M) and re-deployed the double-hull barge M192 from its previous clean
products route along the Gulf Coast to the Northeast residual oil market to
service this contract. In June 2005, the Company completed the double-hulling of
the barge OCEAN 193. The barge returned to service as the M209 and has entered
contract service in the Gulf Coast market, which will add to revenues for the
remainder of 2005.
On August 1, 2005, the Company entered into a three year agreement with Seabrook
Carriers Inc., a wholly owned subsidiary of Fairfield-Maxwell LTD. to time
charter in the M/V Seabrook, a single-hull oil tanker with a carrying capacity
of 230,000 barrels. The agreement will expire in July 2008, after which time the
vessel will no longer be eligible to transport petroleum products in accordance
with the OPA. Subject to delivery and meeting required compliances, the M/V
Seabrook will enter the Company's service on or about October 1, 2005 and will
be deployed into the Company's clean products trade route along the Gulf Coast.
The M/V Seabrook will also be available for voyages to the U.S. West Coast and
Northeast.
Utilization
Vessel utilization is the other significant driver in the amount of revenue
generated by the Company. Utilization in 2005 was consistent with 2004 levels.
In 2005, there were less days out of service due to the completion of the
double-hulling of the barge M209, which returned to service at the end of May.
In 2004, the barge M214 was out of service for her double hull rebuild for the
entire second quarter. This was offset by the additional days out of service
with the conversion and re-deployment of the double-hull barge M192 to the
Northeast. Barrels of cargo transported were 44.4 million for both the quarter
ended June 30, 2004 and the quarter ended June 30, 2005.
The Company anticipates utilization to be at similar levels in the remainder of
2005 than in 2004 due to a higher level of scheduled out of service time for
regulatory maintenance, which is expected to be partially offset by fewer
vessels being out of service for double-hull rebuilding and continued strong
demand for the Company's services.
14
Operations expense
Voyage costs increased from $6.4 million for the quarter ended June 30, 2004 to
$11.7 million for the quarter ended June 30, 2005, an increase of $5.3 million,
or 82 percent. The cost of fuel used in our vessels increased $4.4 million, or
112 percent, compared to the same period in 2004. The average price of fuel
increased 55 percent compared to the 2004 period while the number of gallons
increased 37 percent. Port charges increased $0.9 million due to the increased
West Coast moves resulting from increased spot exposure and fewer vessels on
time charter.
Operations expenses, excluding voyage costs, increased from $11.8 million for
the quarter ended June 30, 2004 to $13.6 million for the quarter ended June 30,
2005, an increase of $1.8 million, or 15 percent. Insurance expenses increased
$1.0 million as a result of a $0.8 million reversal, in 2004, of previously
recorded insurance reserves that were no longer considered a liability. The
increase was also due to higher insurance premiums and deductibles. Shoreside
support expenses increased $0.3 million, primarily as a result of salary and
benefit increases and an increase in personnel. The remainder of the increase
was due to increased vessel supply expenses and increased crew expenses
resulting from seagoing salary and benefit increases, partially offset by lower
costs of training and decreased crewing of vessels during maintenance periods.
In the second quarter of 2005, the Company entered into negotiations with the
tug/barge employee unions. In the third quarter of 2005, the contracts were
agreed upon and will result in an increase in crew expenses during the remainder
of 2005.
Maintenance expense
Maintenance expenses for the quarter ended June 30, 2005 were $5.2 million,
which was consistent with 2004 levels. The Company continuously reviews upcoming
shipyard maintenance costs and adjusts the shipyard accrual rate to reflect the
expected costs. Increases in regulatory and customer vetting requirements, which
increases the scope of maintenance performed in the shipyard, would result in
higher shipyard costs.
General and Administrative expense
General and administrative expenses decreased $0.7 million, or 22 percent, from
$3.1 million for the quarter ended June 30, 2004 to $2.4 million for the quarter
ended June 30, 2005. The decrease resulted primarily from a decrease in
employment related fees, litigation expenses and relocation expenses.
Operating Income
As a result of the aforementioned changes in revenue and expenses, operating
income increased from $5.0 million for the quarter ended June 30, 2004 to $7.8
million for the quarter ended June 30, 2005, an increase of $2.8 million, or 56
percent.
Other Income
Other income for the 2005 period included a $4.0 million settlement received
from Penn Maritime Inc. and Penn Tug & Barge Inc. (together "Penn Maritime") on
Maritrans' claims for patent infringement and misappropriation of trade secrets.
Penn Maritime agreed to pay Maritrans $4.0 million to settle all of Maritrans'
claims, and received a license to use our patented double-hulling process on
their existing fleet. The Company did not have any similar transactions in 2004.
Income Tax Provision
Income tax provision increased from $1.9 million for the quarter ended June 30,
2004 to $4.1 million for the quarter ended June 30, 2005, an increase of $2.2
million, or 119 percent, and resulted from the aforementioned changes in revenue
and expenses.
Net Income
Net income increased from $3.1 million for the quarter ended June 30, 2004 to
$7.1 million for the quarter ended June 30, 2005, an increase of $4.0 million,
or 129 percent, resulting from the aforementioned changes in revenue and
expenses.
15
Six Month Comparison
--------------------
Revenues
TCE revenue for the six months ended June 30, 2005 compared to the six months
ended June 30, 2004 was as follows:
June 30, 2005 June 30, 2004
------------- -------------
Voyage revenue $89,870 $71,408
Voyage costs 20,596 12,409
------- -------
Time Charter Equivalent $69,274 $58,999
======= =======
Vessel utilization 81.8% 81.2%
======= =======
Available days 2,392 2,418
======= =======
Revenue days 2,221 2,218
======= =======
TCE revenue increased from $59.0 million for the six months ended June 30, 2004
to $69.3 million for the six months ended June 30, 2005, an increase of $10.3
million, or 17 percent, due to increases in rates and an increase in vessel
utilization.
Rates
Spot market revenue for the six months ended June 30, 2005 was $26.4 million
compared to $11.6 million for the six months ended June 30, 2004. The Company
increased its exposure to the spot market in the second half of 2004 and
continued this strategy in the first half of 2005. Spot market rates were higher
in 2005 than in 2004 as the result of the impact of world and oil industry
events and vessel supply as discussed below.
The shift in spot market strategy allowed the Company to meet the increased
demand for gasoline blend components in the Northeast and West Coast and
increased demand for gasoline in Florida. In particular, and consistent with
last year, a large number of U.S. Jones Act vessels transported cargos from the
Gulf of Mexico to the West Coast to meet the continuing demand for gasoline
blend components. In addition, continued reduction in the Jones Act fleet as a
result of mandatory OPA phase-outs has reduced the supply of vessels in the
markets the Company serves, resulting on upward pressure on spot rates. Finally,
spot market rates were pushed higher as a result of the increase in fuel prices
during 2005.
During the first quarter, continued strong international shipping market
transportation rates, driven by the continued growth in Asia, improved the
competitive position of the Jones Act fleet relative to imports in the markets
the Company serves. This position decreased during the second quarter as import
levels rose, particularly in the Company's Gulf Coast market. In addition,
continued reduction in the Jones Act fleet as a result of the mandatory OPA
phase-outs has reduced the supply of vessels in the markets the Company serves,
resulting in upward pressure on spot rates.
Contract revenue for the six months ended June 30, 2005 was $63.5 million
compared to $59.9 million for the six months ended June 30, 2004. Contract rates
remained strong and were higher in 2005 than in 2004 as the Company obtained
significant increases in rates on its renewed contracts. The increase in
contract revenues was achieved with fewer vessels on contract during 2005. In
addition, the Company benefited from positive fuel adjustment mechanisms in its
contracts in a high fuel cost environment. Demand for lightering services, which
is dependent on crude refining utilization in the Delaware Valley refineries,
was higher in 2005 than in 2004 and resulted in increased revenue under
contracts.
Utilization
Vessel utilization increased from 81.2% in 2004 to 81.8% in 2005. The increase
in utilization had a positive impact on voyage revenue and resulted primarily
from lower vessel out of service time for vessel repairs in 2005 compared to
2004. During the first quarter of 2004, three of the Company's vessels were
removed from service for repairs and structural enhancements. As a result of the
increase in utilization, barrels of cargo transported increased from 87.3
million in the six months ended June 30, 2004 to 89.6 million in the six months
ended June 30, 2005.
16
Operations expense
Voyage costs increased from $12.4 million for the six months ended June 30, 2004
to $20.6 million for the six months ended June 30, 2005, an increase of $8.2
million, or 66 percent. The cost of fuel used in our vessels increased $6.8
million, or 91 percent, compared to the same period in 2004. The average price
of fuel increased 49 percent compared to the 2004 period while the number of
gallons used increased 22 percent. Port charges increased $1.4 million due to
the increased West Coast moves resulting from increased spot exposure and fewer
vessels on time charter.
Operations expenses, excluding voyage costs, increased from $24.3 million for
the six months ended June 30, 2004 to $26.7 million for the six months ended
June 30, 2005, an increase of $2.3 million, or 10 percent. Insurance expenses
increased $1.1 million as a result of a $0.8 million reversal, in 2004, of
previously recorded insurance reserves that were no longer considered a
liability. The increase was also due to a higher insurance premiums and
deductibles. Shoreside support expenses increased $0.6 million, primarily as a
result of salary and benefit increases and an increase in personnel. The
remainder of the increase was due to increased vessel supply expenses and
increased crew expenses resulting from seagoing salary and benefit increases,
partially offset by lower costs of training and decreased crewing of vessels
during maintenance periods.
Maintenance expense
Maintenance expenses decreased $0.4 million, or 4 percent, from $10.5 million
for the six months ended June 30, 2004 to $10.1 million for the six months ended
June 30, 2005. Routine maintenance incurred during voyages and in port for the
six months ended June 30, 2005 decreased $0.4 million from the six months ended
June 30, 2004. Expenses accrued for maintenance in shipyards for the six months
ended June 30, 2005 were consistent with the six months ended June 30, 2004.
General and Administrative expense
General and administrative expenses increased $2.3 million, or 41 percent, from
$5.5 million for the six months ended June 30, 2004 to $7.8 million for the
quarter ended June 30, 2005. In the first quarter of 2005, Stephen Van Dyck
retired as Executive Chairman of the Company's Board of Directors. The Company
recorded a $2.4 million charge related to a consulting agreement and the
acceleration of Mr. Van Dyck's enhanced retirement benefit. In addition,
professional fees increased $0.4 million as a result of increased audit fees
primarily related to additional services necessary to comply with Section 404 of
the Sarbanes-Oxley Act of 2002 and additional litigation expenses. These
increases were partially offset by a decrease in employment related expenses.
Gain on Sale of Assets
Gain on sale of assets for the six months ended June 30, 2005 of $0.6 million
consisted of a pre-tax gain on the sale of the tug, Port Everglades, which had
been idle and not operating as a core part of the Company's fleet. The Company
did not have any similar transactions in 2004.
Operating Income
As a result of the aforementioned changes in revenue and expenses, operating
income increased from $8.2 million for the six months ended June 30, 2004 to
$14.1 million for the six months ended June 30, 2005, an increase of $6.0
million, or 73 percent.
Other Income
Other income for the 2005 period included a $4.0 million settlement received
from Penn Maritime Inc. and Penn Tug & Barge Inc. (together "Penn Maritime") on
Maritrans' claims for patent infringement and misappropriation of trade secrets.
Penn Maritime agreed to pay Maritrans $4.0 million to settle all of Maritrans'
claims, and received a license to use our patented double-hulling process on
their existing fleet. The Company did not have any similar transactions in 2004.
17
Income Tax Provision
Income tax provision increased from $2.9 million for the six months ended June
30, 2004 to $6.2 million for the six months ended June 30, 2005, an increase of
$3.3 million or 111 percent and resulted from the aforementioned changes in
revenue and expenses.
Net Income
Net income increased from $4.9 million for the six months ended June 30, 2004 to
$10.8 million for the six months ended June 30, 2005, an increase of $5.9
million, or 120 percent, resulting from the aforementioned changes in revenue
and expenses.
Liquidity and Capital Resources
-------------------------------
General
For the six months ended June 30, 2005, net cash provided by operating
activities was $29.5 million. These funds were sufficient to meet debt service
obligations and loan agreement covenants, to make capital acquisitions and
improvements and to allow the Company to pay a dividend in the first six months
of 2005. Management believes funds provided by operating activities, augmented
by the Company's Revolving Credit Facility, described below, and investing
activities, will be sufficient to finance operations, anticipated capital
expenditures, lease payments and required debt repayments in the foreseeable
future. Dividends are authorized at the discretion of the Board of Directors and
although dividends have been made quarterly in each of the last three years,
there can be no assurance that the dividend will continue. The ratio of debt to
total capitalization was .38:1 at June 30, 2005.
On February 9, 1999, the Board of Directors authorized a share buyback program
for the acquisition of up to one million shares of the Company's common stock,
which represented approximately 8 percent of the 12.1 million shares outstanding
at that time. In February 2000 and again in February 2001, the Board of
Directors authorized the acquisition of an additional one million shares in the
program. The total authorized shares under the buyback program are 3,000,000. As
of June 30, 2005, 2,485,442 shares had been purchased under the plan. The plan
has been financed by internally generated funds. The Company intends to hold the
majority of the shares repurchased as treasury stock, although some shares will
be used for employee compensation plans and others may be used for acquisitions
and/or other corporate purposes.
Debt Obligations and Borrowing Facility
At June 30, 2005, the Company had $61.3 million in total outstanding debt,
secured by mortgages on some of the fixed assets of the Company. The current
portion of this debt at June 30, 2005 was $3.9 million.
The Company currently maintains a $40 million credit and security agreement
("Revolving Credit Facility") with Citizens Bank (formerly Mellon Bank, N.A.)
and a syndicate of other financial institutions ("Lenders"). Pursuant to the
terms of the credit and security agreement, the Company may borrow up to $40
million under the Revolving Credit Facility. Interest is variable based on
either the LIBOR rate plus an applicable margin (as defined in the Revolving
Credit Facility) or the prime rate. The Revolving Credit Facility expires in
January 2007. The Company has granted first preferred ship mortgages and a first
security interest in some of the Company's vessels and other collateral in
connection with the Revolving Credit Facility. At June 30, 2005, there were no
amounts outstanding under the Revolving Credit Facility. The Revolving Credit
Facility requires the Company to maintain its properties in a specific manner,
maintain specified insurance on its properties and business, and abide by other
covenants which are customary with respect to such borrowings. The Revolving
Credit Facility also requires the Company to meet certain financial covenants.
If the Company fails to comply with any of the covenants contained in the
Revolving Credit Facility, the Lenders may declare the entire balance
outstanding, if any, immediately due and payable, foreclose on the collateral
and exercise other remedies under the Revolving Credit Facility. The Company was
in compliance with all covenants at June 30, 2005.
18
The Company has additional financing agreements consisting of (1) a $7.3 million
term loan with Lombard US Equipment Financing Corp. with a 5-year amortization
that accrues interest at an average fixed rate of 5.14 percent ("Term Loan A")
and (2) a $29.5 million term loan with Fifth Third Bank with a 9.5-year
amortization and a 50 percent balloon payment at the end of the term ("Term Loan
B"). Term Loan B accrues interest at an average fixed rate of 5.98 percent on
$6.5 million of the loan and 5.53 percent on $23.0 million of the loan.
Principal payments on Term Loan A are required on a quarterly basis and began in
January 2004. Principal payments on Term Loan B are required on a monthly basis
and began in November 2003. The Company has granted first preferred ship
mortgages and a first security interest in some of the vessels and other
collateral to the Lenders to secure the loan agreements. The loan agreements
require the Company to maintain its properties in a specific manner, maintain
specified insurance on its properties and business, and abide by other
covenants, which are customary with respect to such borrowings. The loan
agreements also require the Company to meet certain financial covenants that
began in the quarter ended December 31, 2003. If the Company fails to comply
with any of the covenants contained in the loan agreements, the Lenders may call
the entire balance outstanding on the loan agreements immediately due and
payable, foreclose on the collateral and exercise other remedies under the loan
agreements. The Company was in compliance with all such covenants at June 30,
2005.
In June 2004, the Company entered into an additional $29.5 million term loan
with Fifth Third Bank ("Term Loan C"). Term Loan C has a 9.5-year amortization
and a 55 percent balloon payment at the end of the term and accrues interest at
a fixed rate of 6.28 percent. A portion of the proceeds of Term Loan C was used
to pay down existing borrowings under the Revolving Credit Facility. Principal
payments on Term Loan C are required on a monthly basis and began in August
2004. The Company has granted first preferred ship mortgages and a first
security interest in the M214 and Honour to secure Term Loan C. Term Loan C
requires the Company to maintain the collateral in a specific manner, maintain
specified insurance on its properties and business, and abide by other covenants
which are customary with respect to such borrowings. If the Company fails to
comply with any of the covenants contained in Term Loan C, the Lenders may
foreclose on the collateral or call the entire balance outstanding on Term Loan
C immediately due and payable. The Company was in compliance with all applicable
covenants at June 30, 2005.
As of June 30, 2005, the Company had the following amounts outstanding under its
debt agreements:
o $ 0 under the Revolving Credit Facility
o $ 5.3 million under Term Loan A
o $ 27.5 million under Term Loan B; and
o $ 28.5 million under Term Loan C
Contractual Obligations
Total future commitments and contingencies related to the Company's outstanding
debt obligations, noncancellable operating leases and purchase obligations, as
of June 30, 2005, were as follows:
($000s)
Less than One to Three to More than
Total one year three years five years five years
------- --------- ----------- ---------- ----------
Debt Obligations $61,277 $3,863 $8,407 $6,833 $42,174
Operating Leases 2,014 397 836 781 --
Purchase Obligations* 1,442 1,442 -- -- --
------- ------ ------ ------ -------
Total $64,733 $5,702 $9,243 $7,614 $42,174
======= ====== ====== ====== =======
* Purchase obligations represent amounts due under existing vessel rebuild
contracts.
19
In August 2003, the Company awarded a contract to rebuild its sixth large
single-hull barge, the OCEAN 193, to a double-hull configuration. In addition to
the double-hull rebuild, the OCEAN 193 was fitted with a 30,000 barrel mid-body
insertion. The Company has financed this project from a combination of
internally generated funds and borrowings under the Company's Revolving Credit
Facility. The total cost of the rebuild was approximately $27 million, of which
$22 million was a fixed contract with the shipyard and the remainder was
material furnished by the Company. As of June 30, 2005, $25.7 million had been
paid for the project. The rebuilding of the OCEAN 193 was completed late in the
second quarter of 2005 and she returned to service renamed the M209.
In September 2004, the Company began refurbishment of the tugboat Enterprise
which currently works with the barge OCEAN 193. The refurbishment had a total
cost of approximately $4.5 million. The Company has financed this project using
internally generated funds. As of June 30, 2005, $4.4 million had been paid for
the project. The refurbishment of the Enterprise was completed late in the
second quarter of 2005.
In July 2005, the Company awarded contracts to rebuild the OCEAN 210 and the
OCEAN 211, to double-hull configurations. These are the seventh and eighth
single hull barges to be rebuilt. The rebuild of the OCEAN 210 is expected to
have a total cost of approximately $30.0 million, of which $24.0 million is a
fixed contract with the shipyard and the remainder is to be furnished by the
Company. The rebuild of the OCEAN 211 is also expected to have a total cost of
approximately $30.0 million, of which $23.0 million is a fixed contract with the
shipyard and the remainder is to be furnished by the Company. The rebuilds of
the OCEAN 210 and OCEAN 211 will also include the insertions of midbodies, that
will increase their capacity by approximately 30,000 barrels each. The Company
expects to finance the projects with a combination of internally generated funds
and borrowings under the Company's Revolving Credit Facility. The rebuilds of
the OCEAN 210 and the OCEAN 211 are expected to be completed in the third
quarter of 2006 and the second quarter of 2007, respectively.
Impact of Recent Accounting Pronouncements
------------------------------------------
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision
of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123. However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.
On April 15, 2005, the Securities and Exchange Commission (the "Commission")
announced the adoption of a new rule that amends the compliance dates for
Statement 123(R). The Commission's new rule allows companies to implement
Statement 123(R) at the beginning of their next fiscal year, instead of the next
reporting period, that begins after June 15, 2005. Consistent with the new
compliance date, the Company will be adopting the provisions of Statement 123(R)
as of January 1, 2006, using the prospective method. The Commission's new rule
does not change the accounting required by Statement 123(R), it changes only the
dates for compliance with the standard.
The Company adopted the fair-value-based method of accounting for share-based
payments effective January 1, 2003 using the modified prospective method
described in FASB Statement No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. Currently, the Company uses the Black-Scholes formula
to estimate the value of stock options granted to employees and expects to
continue using this acceptable option valuation model upon the required adoption
of Statement 123(R) on January 1, 2006. Because Statement 123(R) must be applied
not only to new awards but to previously granted awards that are not fully
vested on the effective date, and because the Company adopted Statement 123
using the modified prospective method (which applied only to awards granted,
modified or settled after the adoption date), compensation cost for some
previously granted awards that were not recognized under Statement 123 will be
recognized under Statement 123(R). However, had we adopted Statement 123(R) in
prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share in Note 3 to our consolidated financial statements. Pro forma
effects of FAS 123 have no material effect on the net income or earnings per
share for the six months ended June 30, 2005.
20
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk to which the Company is exposed is a change in
interest rates on its Revolving Credit Facility. The Company manages its
exposure to changes in interest rate fluctuations by optimizing the use of fixed
and variable rate debt. The table below presents principal cash flows by year of
maturity. The Company had only fixed rate debt outstanding at June 30, 2005.
Variable interest rates would fluctuate with LIBOR and federal fund rates. The
weighted average interest rate on the Company's outstanding debt at June 30,
2005 was 5.89%.
Liabilities Expected Years of Maturity
----------- --------------------------
($000s)
2005* 2006 2007 2008 2009 Thereafter
----- ---- ---- ---- ---- ----------
Fixed Rate $ 1,904 $3,973 $4,202 $4,445 $3,007 $43,746
Average Interest Rate 5.90% 5.92% 5.94% 5.97% 5.97% 5.97%
* For the period July 1, 2005 through December 31, 2005
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the period covered by this report have been designed
and are functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and (ii)
accumulated and communicated to the Company's management including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding disclosure.
Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting occurred
during the Company's most recent fiscal quarter that 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
-----------------
On May 2, 2005, the Company agreed to settle its pending lawsuit against Penn
Maritime Inc. and Penn Tug & Barge Inc. (together "Penn Maritime") on Maritrans'
claims for patent infringement and misappropriation of trade secrets. Penn
Maritime agreed to pay Maritrans $4 million to settle all of Maritrans' claims.
Penn Maritime agreed that the Court will issue a judgment attesting to the
validity of Maritrans' patents for the process of converting single hull barges
to double hull. Maritrans agreed to give Penn Maritime a license to use
Maritrans' patent covering all barges presently owned by Penn Maritime. The $4
million settlement payment was received in June 2005 and was recorded as other
income in the six months ended June 30, 2005 consolidated statement of income.
21
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
The following table summarizes the Company's purchases of its common stock for
the three months ended June 30, 2005:
ISSUER PURCHASES OF EQUITY SECURITIES
(c) Total Number of (d) Maximum Number (or
Shares (or Units) Approximate Dollar Value) of
(a) Total Number (b) Average Price Purchased as Part of Shares (or Units) that May Yet
of Shares Paid per share (or Publicly Announced Be Purchased Under the Plans
Period Purchased (1) Units) Plans or Programs or Programs (2)
---------------------- --------------------------------------------------------------- --------------------------
April 1-30, 2005 -- -- - 514,558
May 1-31, 2005 12,919 19.55 - 514,558
June 1-30, 2005 -- -- - 514,558
-------- -------
Total 12,919 19.55 -
======== =======
(1) These amounts consist of shares the Company purchased from its officers,
non-employee directors and other employees who elected to pay the exercise price
or withholding taxes upon the exercise of stock options or vesting of restricted
stock by delivering (and, thus, selling) shares of Maritrans common stock in
accordance with the terms of the Company's equity compensation plans. The
Company purchased these shares at their fair market value, as determined by
reference to the closing price of its common stock on the day of exercise.
(2) On February 9, 1999, the Company announced that its Board of Directors had
authorized a common share repurchase program for up to one million shares of its
common stock. On February 8, 2000 and February 13, 2001 each, the Company
announced that its Board of Directors had authorized an additional one million
shares in the program, for an aggregate of three million shares authorized. No
repurchases were made under this program during the first six months of 2005. At
June 30, 2005, 514,558 shares remained under these authorizations. The program
has no fixed expiration date.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company (the "Meeting")
was held on April 28, 2005. At the Meeting, the following nominees
were re-elected as directors of the Company. Dr. Boni will serve
until the Annual Meeting of Stockholders in 2006 and Dr. Dorman and
Mr. Stienecker will serve until the Annual Meeting of Stockholders
in 2008. The votes are set forth after their names below.
The voting results for all matters at the meeting were as follows:
1. Election of Directors
Name of Nominee For Withheld
--------------- --- --------
Dr. Robert E. Boni 7,425,746 69,516
Dr. Craig E. Dorman 7,429,984 65,278
Brent A. Stienecker 7,420,918 74,344
The terms of office of the following directors continued after the
meeting in accordance with the Company's Certificate of
Incorporation: Mr. Frederick C. Haab, Mr. Robert J. Lichtenstein
and Mr. William A. Smith.
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2. All Other Matters - The Company's 2005 Omnibus Equity
Compensation Plan was approved receiving 2,786,289 votes for
approval and 536,180 votes against approval with 44,816 votes
abstaining. Broker non-votes were not permitted with respect to
this proposal.
ITEM 6. Exhibits
--------
10.1 - Severance and Non-Competition Agreement, effective June 13,
2005, between Maritrans General Partner Inc. and Norman
Gauslow.
31.1 - Certification of Chief Executive Officer, pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2 - Certification of Chief Financial Officer, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.
32.1 - Certification of Chief Executive Officer, pursuant to 18
U.S.C. Section 1350.
32.2 - Certification of Chief Financial Officer, pursuant to 18
U.S.C. Section 1350.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MARITRANS INC.
(Registrant)
By: /s/ Walter T. Bromfield Dated: August 4, 2005
-------------------------------------
Walter T. Bromfield
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Judith M. Cortina Dated: August 4, 2005
----------------------------------------
Judith M. Cortina
Director of Finance and Controller
(Principal Accounting Officer)
24