CROWLEY MARITIME CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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 33-94884

CROWLEY MARITIME CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 94-3148464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 GRAND AVENUE, 94612
OAKLAND, CALIFORNIA (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(510) 251-7500

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)

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. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [ ] Yes [X] No

The aggregate market value of the shares of the registrant's $0.01 par
value voting common stock held by non-affiliates of the registrant as of June
28, 2002 was $26,283,142.40 (based upon $1,258 per share being the average of
the closing bid and asked price on June 28, 2002 as reported in the Pink
Sheets). In making this calculation the issuer has assumed, without admitting
for any purpose, that all directors of the registrant are affiliates.

As of March 17, 2003, 89,710 shares of voting common stock, $.01 par value
per share and 46,138 shares of Class N non-voting common stock, $.01 par value
per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under Part III, Items 10, 11, 12, and 13 of this
Report is, pursuant to General Instruction G(3), incorporated by reference from
the registrant's definitive proxy statement filed with the Securities and
Exchange Commission pursuant to Regulation 14A for the 2003 annual meeting of
stockholders (the "2003 Proxy Statement") that will be filed no later than 120
days after the end of the year to which this report relates.
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TABLE OF CONTENTS

Certain statements in this Form 10-K and its Exhibits ("Form 10-K") contain
or may contain information that is forward looking within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
may differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors, including, without
limitation, the risks described in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Risk Factors" of this Form
10-K. Readers should carefully review this Form 10-K in its entirety, including,
but not limited to, Crowley Maritime Corporation's consolidated financial
statements and the notes thereto. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.

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PART I

ITEM 1. BUSINESS

Unless otherwise noted, references to "the Company", "we", "our" or "us"
means Crowley Maritime Corporation, a Delaware corporation, and its
subsidiaries. Our principal executive offices are located at 155 Grand Avenue,
Oakland, California 94612, and our telephone number is (510) 251-7500. The
Company's web site is http://www.crowley.com. Information contained on the
Company's web site is not part of this report.

COMPANY OVERVIEW

We provide diversified transportation services in domestic and
international markets by means of four operating lines of business: Liner
Services; Ship Assist and Escort Services; Oil and Chemical Distribution and
Transportation Services; and Energy and Marine Services. Liner Services provides
scheduled marine transportation services between designated ports, certain
complementary inland transportation services, terminal operations, vessel
management for third parties, and varied logistics management services. Ship
Assist and Escort Services provides ship assist, tanker escort, docking, fire
fighting and oil spill response services primarily in ports located on the west
coast of the continental United States and in Alaska. Ship Assist and Escort
Services also provides emergency towing services. Oil and Chemical Distribution
and Transportation Services transports crude oil, petroleum products and
chemicals among ports on the east and west coasts of the United States, Alaska,
the Gulf of Mexico and Puerto Rico. This segment also manages vessels for third
party owners, operates tank farms and distributes and sells fuel oil in Alaska.
Energy and Marine Services provides specialized services to companies engaged in
the exploration, production and distribution of oil and gas including project
management and logistics, inventory control and emergency response services. The
Company supports all four of its segments by providing corporate services,
supervising construction of new vessels, and owning vessels which are chartered
for use in our operating lines of business. The Company arranges most of the
insurance required for its operations through its captive insurance company.

The Company employs approximately 3,900 people and provides its services
using a fleet of more than 280 vessels, consisting of RO/RO (roll on roll off)
vessels, LO/LO (lift on lift off) vessels, tankers, tugs and barges. Our
land-based facilities and equipment includes terminals, warehouses, tank farms,
office buildings, trucks, trailers, containers, chassis, cranes and other
specialized vehicles.

The grandfather of our current President, Mr. Thomas B. Crowley, Jr., began
our business on the San Francisco Bay in 1892. The business was incorporated in
the State of Delaware as "Crowley Maritime Corporation" on December 1, 1972. The
present structure, in which Crowley Maritime Corporation is a holding company
for our lines of business, was put in place in 1992.

The Company is predominantly owned by certain members of the Crowley family
and Company employees and its shares do not trade on any national securities
exchange or in any market. See "Security Ownership of Certain Beneficial Owners
and Management" in the 2003 Proxy Statement, and "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters" and Risk Factors in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".

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The following table lists the Company's owned, managed and chartered
vessels as of December 31, 2002:

For additional information about the Company's lines of business, see "Item
1. Business -- Liner Services", "Item 1. Business -- Ship Assist and Escort
Services", "Item 1. Business -- Oil and Chemical Distribution and Transportation
Services", and "Item 1. Business -- Energy and Marine Services" below, and Note
17 of the Notes to the Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data".

LINER SERVICES

Liner Services provides scheduled marine transportation services between
designated ports for the carriage of cargo including containers, trailers,
vehicles and oversized cargo, and performs logistics, warehousing, distribution
and special cargo handling services, including the carriage of apparel,
refrigerated perishable goods and hazardous materials. At December 31, 2002,
Liner Services provided service to approximately 25 countries in the Caribbean,
Central America and South America with 35 ocean going ships, tugs and barges
capable of carrying approximately 11,700 twenty foot equivalent units, or TEUs.
Liner Services also leases space for approximately 800 TEU slots on three
vessels under vessel sharing agreements. Liner Services owns or leases
approximately 37,000 pieces of intermodal equipment including containers,
trailers, and chassis. Liner Services also provides third party vessel
management services for eight vessels.

THE PUERTO RICO AND EASTERN CARIBBEAN ISLANDS SERVICE

Our Puerto Rico and Eastern Caribbean Islands service provides scheduled
liner services between:

- ports in the United States North Atlantic and ports in Puerto Rico, and

- ports in the United States South Atlantic and ports in Puerto Rico, U.S.
Virgin Islands, certain Eastern Caribbean Islands and the Bahamas.

The fleet for this service consists of nine triple-deck RO/RO barges. Five
of these barges are 730 feet in length, with an average capacity of 924 TEUs.
The remaining four barges are 580 feet in length with an

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average capacity of 617 TEUs. The nine barges are towed by a fleet of eleven
offshore tugs owned by us. This service also uses one barge for additional dock
space. Departures are normally scheduled for three or four times a week from
Jacksonville, Florida and once a week from Pennsauken, New Jersey. This service
also provides third party vessel management services for eight vessels.

The Eastern Caribbean Islands service calls on two ports in the Virgin
Islands, three ports in the Eastern Caribbean and also provides service to
various other ports through connecting carriers. This service uses two time
chartered LO/LO vessels. The average capacity of these vessels is 530 TEUs.
Departures are scheduled from Jacksonville and Port Everglades, Florida once a
week.

The Bahamas service uses a time chartered RO/RO vessel having a capacity of
approximately 191 TEUs. This service has two scheduled departures a week from
Jacksonville and Port Everglades, Florida to Nassau, Bahamas.

THE LATIN AMERICA SERVICE

Our Latin American Service provides scheduled liner services between:

- ports in the United States South Atlantic and ports in the Northern Zone
of Central America, the Southern Zone of Central America, the Dominican
Republic, Mexico and Cuba; and

- ports in the Gulf of Mexico and ports in the Northern Zone of Central
America, the Northern Coast of South America and Cuba.

The United States South Atlantic to the Northern Zone of Central America
service employs three time chartered RO/RO vessels with an average capacity of
320 TEUs. This service has three weekly sailings between Port Everglades,
Florida and ports in Guatemala and Honduras with overland services to Nicaragua
and El Salvador.

The United States South Atlantic to the Southern Zone of Central America
service employs two time chartered RO/RO vessels with an average capacity of 350
TEUs maintaining weekly sailings between Port Everglades, Florida, Costa Rica,
Panama and Guatemala northbound, and one time chartered RO/RO vessel with
capacity of 140 TEUs providing weekly service between Port Everglades and Costa
Rica.

The Gulf of Mexico to the Northern Zone of Central America service employs
two time chartered RO/RO vessels, with an average capacity of 350 TEUs. This
service (a) has twice weekly sailings from Gulfport, Mississippi to Honduras and
Guatemala with overland services to Nicaragua and El Salvador; and (b) calls
upon Cuba three or four times a month depending on cargo demand.

The United States South Atlantic to the Dominican Republic service employs
two time chartered RO/RO vessels, with an average capacity of 290 TEUs. The
service has two sailings a week between Port Everglades, Florida and the
Dominican Republic.

The United States South Atlantic to Mexico service employs one time
chartered LO/LO vessel with a capacity of 280 TEUs. The service (a) offers one
sailing every ten days between Jacksonville and Port Everglades, Florida to
Progresso and Veracruz, Mexico; and (b) calls upon Cuba two or three times a
month depending on cargo demand.

The Gulf Latin America Service is operated under a Vessel Sharing Agreement
with Lykes Lines Limited LLC, a subsidiary of Canadian Pacific Ltd., APL Limited
as agent for and on behalf of American President Lines, Ltd. and TMM Lines
Limited, LLC. Three LO/LO vessels with an aggregate capacity of approximately
1,100 to 1,300 TEUs are chartered in and managed by Lykes for this service
between ports in Houston, Texas and ports in Mexico, Costa Rica, Colombia,
Venezuela and the Dominican Republic. The Company pays for and uses
approximately 24% of the total container space in this service. Although the
Vessel Sharing Agreement expires on July 1, 2003, we expect its term to be
extended.

Time charters for the vessels used in the services described above expire
between 2003 and 2004. Vessels of the type time chartered by the Company for
these services have been readily available and it has not been

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difficult to charter new vessels or renew the charters for existing vessels. By
chartering the vessels required on a short-term basis the Company is able to
react quickly to changes in cargo volume.

Liner Services provides logistics services in Brazil, Venezuela, Colombia,
Panama, Costa Rica, Honduras, Guatemala, El Salvador, Nicaragua, Mexico and the
United States. Logistics services include:

- trucking in the United States, the Northern part of South America and
Central America;

- providing facilities including marine terminals, trailer containers and
chassis, trailer and container yards, warehouses, and distribution
centers;

- freight booking and documentation;

- freight forwarding and non-vessel owning common carrier and warehousing
services; and

- other logistics optimization activities intended to create efficiencies
in the carriage of goods.

At December 31, 2002, Liner Services owned or leased, on a longterm basis,
marine terminals and container yards in the locations listed in the table below.
In those ports where the Company does not own or lease terminals or container
yards, it depends upon common use terminals.

MARINE TERMINALS AND CONTAINER YARDS

The Company also leases warehouse and distribution space in several
locations in Northern South America, Central America and the United States as
listed in the table below.

WAREHOUSE AND DISTRIBUTION SPACE

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CONTRACT SERVICES

The Company conducts its contract services through three separate lines of
business: Ship Assist and Escort Services, Oil and Chemical Distribution and
Transportation Services and Energy and Marine Services. The activities of these
three lines of business are described in more detail below. Each of these lines
of business uses tugs and barges for its operations which, depending upon market
conditions, may be shifted and redeployed by the Company among different
geographical locations and among the different lines of business. It is the
Company's practice to regularly monitor the demands for the services of each of
these lines of business and to transfer tugs and barges among them based upon
prevailing market conditions. In addition to using tugs and barges (including
articulated and integrated tug/barges), Oil and Chemical Distribution and
Transportation Services also uses a fleet of tankers which, as a general matter,
are not well suited for use by either Ship Assist and Escort Services or Energy
and Marine Services.

SHIP ASSIST AND ESCORT SERVICES

Ship Assist and Escort Services provides ship assist, tanker escort,
docking and related services in San Diego, Los Angeles and Long Beach,
California, Puget Sound, Washington and Valdez, Alaska. Included within its
fleet are 29 tugs ranging in length from 85 feet to 150 feet with between 3,500
and 10,192 brake horsepower, and 62 barges of various sizes, capacities and
capabilities. In addition to ship assist and escort services, the tugs and
barges based in Valdez, Alaska are capable of providing fire fighting and oil
spill response services. The Ship Assist and Escort barges are predominantly
used for these response services. The tugs operating in San Diego, Los Angeles
and Long Beach, California and Puget Sound, Washington primarily provide
assistance to large tankers and container vessels as they enter and depart from
west coast harbors.

Numerous vessels which call upon or trade between United States ports are
precluded, due to their size, the nature of their cargo or by the application of
local regulations from coming within certain distances of the docks where they
load or discharge their cargoes without the assistance of one or more tugs. The
number of tugs required and the distance at which they must be engaged vary
depending upon the port which is called. According to certain regulations
intended to protect the environment which apply to ports located in Alaska,
Washington and California, tankers loaded with full or partial cargoes of oil
are not permitted to enter or leave these ports unless they are escorted by one
or more tugs. These tugs are equipped to assume control of the tankers escorted
by them in the event that the tankers lose navigational control due to the loss
of power or otherwise. In certain cases, these escort tugs are tethered to the
tankers that they escort and in certain cases they operate without a tether but
within a prescribed distance of the escorted tanker. Our escort tugs typically
relinquish responsibility for escorted tankers either at the time that the
tankers have passed beyond the jurisdictional boundaries of the port or when the
tankers have been met by docking tugs. Our Ship Assist and Escort tugs generally
employ three to six crew members and are available 24 hours a day seven days a
week to respond to calls for their services. All of our tugs are constructed of
steel and each is powered by one or more diesel engines. After our ship assist
tugs have met the vessel which they will be assisting as it approaches or
departs from its designated dock, the assisted vessel generally decreases the
use of its own propulsion system and relies upon our tugs for the maneuvers
required to tie up and depart from a dock safely. All of our tugs are fitted and
equipped with special fenders and other equipment which allows them to maintain
contact with the vessel which is being served without damaging its hull.
Depending upon the demand for their services, it is our practice to keep between
two and seven tugs positioned in the ports which we serve.

We currently provide various marine services to the Alyeska Pipeline
Service Company ("Alyeska") pursuant to a long-term master time charter and
other related agreements. Alyeska is owned by a group of major oil companies or
their subsidiaries including BP Pipelines (Alaska) Inc., Phillips Transportation
Alaska, Inc. and ExxonMobil Pipeline Company. Our relationship with Alyeska
began in the early 1970s during construction of the Trans-Alaska Pipeline and we
have had formal agreements with Alyeska since 1994. Under the master time
charter, Alyeska may, pursuant to separate charter orders which set forth the
specific terms and conditions of each time charter, time charter from us either
our vessels or vessels owned by third parties as required to provide tanker
assist services, tanker escort services, ship docking and other related services
needed by the oil companies to transport crude oil by tanker from Alaska to the
continental United States. Each of the vessels chartered to Alyeska is manned
and operated by us. Under our agreements with
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Alyeska, we also provide the oil companies with various shore-side services. As
of December 31, 2002, 17 vessels owned by us, consisting of 10 tugs, 2 line
boats and 5 barges, are under time charter to Alyeska. The tugs currently
chartered to Alyeska are also capable of providing fire fighting and oil spill
response services.

We have also bareboat chartered from Prince William Sound Corporation nine
vessels and 48 mini-barges which are time chartered by us to Alyeska for oil
spill, oil recovery and emergency response services. A number of these vessels
are on standby throughout Prince William Sound solely for emergency response to
oil spills. Unlike the vessels that we own, the vessels owned by Prince William
Sound Corporation may only be used by Alyeska.

Because our tugs, line boats and barges chartered to Alyeska are capable of
performing similar services for other companies in other geographical locations,
in the event that Alyeska decided that it did not require some or all of these
vessels for its operations in Alaska, the Company could redeploy the vessels not
required by Alyeska to other locations. A number of our vessels chartered to
Alyeska were financed with guarantees provided by the United States government
pursuant to Title XI of the Merchant Marine Act of 1936. The Company's ability
to redeploy vessels encumbered by Title XI debt which may not be required by
Alyeska could assist the Company in honoring its obligations subject to the
guarantees provided pursuant to Title XI.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

The oil and petrochemical industries based in the United States require
various forms of transportation to supply them with the raw materials required
for their plants and to distribute their finished products. While companies
engaged in the oil and petrochemical industries employ numerous forms of
transportation including trucks, railroads and pipelines, certain distribution
patterns and requirements make the use of ocean going vessels the most efficient
means of transportation. The ocean going vessels used by Oil and Chemical
Distribution and Transportation Services consist of tugs, barges (including
articulated and integrated tug/ barges) and tankers. In each case, the vessels
are made of steel and contain a series of tanks, valves, pumps, generators and
other equipment required for the carriage of liquid cargoes. All of our barges
(including articulated and integrated tug/barges) and tankers are equipped with
pumps which are capable of discharging the cargoes which have been loaded by
shore based facilities.

While our towed barges contain the power generation systems required to
operate the pumps required to discharge cargo and other equipment, they have no
means of self propulsion and depend upon our tugs to be moved between ports.
Although there are no accommodation spaces on our barges and they are not manned
while being towed between ports, our ocean going tugs used to tow these barges
are equipped with living quarters and typically employ a crew of seven. As a
general rule, and depending upon the horsepower of the tug which is being used
for the tow, our barges typically maintain sea speeds of between 7 and 12 knots.
During 2002, we took delivery of four newly constructed articulated tug/barge
units which are dedicated to Oil and Chemical Distribution and Transportation
Services. Three of these articulated tug/barge units were placed into service in
2002 and the fourth will be placed into service in 2003. Unlike our oil barges
which are towed by steel cables connected to tugs, our articulated tug/barge
units are powered by specially designed tug boats which, through mechanical
connections which utilize two large cylindrical pins, are connected to special
fittings located in notches at the rear of their respective barges. Although the
connection between these specially designed tugs and barges is not permanent and
the tugs may operate independently of their barges, once the connection has been
made, the tugs and barges operate as a single unified unit. Our articulated tug/
barge units employ a crew of eight and are capable of operating at a speed of 12
knots.

Our tankers are powered either by steam turbine propulsion systems or
diesel engines and are capable of propelling themselves at speeds of up to
approximately 15 knots. Our integrated tug/barge units are powered by diesel
engines and are capable of propelling themselves at speeds of up to 14 knots.
Each of our tankers and each of our integrated tug/barge units is equipped with
living quarters for its crew members. Our steam powered tankers typically employ
a crew of approximately 28 and our diesel powered tankers typically employ a
crew of approximately 24. Our integrated tug/barge units typically employ a crew
of approximately 18. Our tankers used for the carriage of crude oil are designed
and equipped only to carry one type of cargo. Our tankers and integrated
tug/barge units used for the carriage of petroleum products are capable of
carrying

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three or four types of cargo simultaneously and our tankers used for the
carriage of chemicals can carry up to 48 different cargoes at the same time.

Oil and Chemical Distribution and Transportation Services either owns or
leases numerous vessels used for the carriage of crude oil, petroleum products
and chemicals. Among these vessels is a fleet of 21 petroleum barges with
capacities of up to 29,100 long tons and a fleet of 11 tankers and 20 other
specially designed vessels (including 2 integrated and 4 articulated tug/barges)
with capacities of up to approximately 135,000 long tons. Our petroleum barges
are primarily towed by tugs owned by us. The barges, tankers and other specially
designed vessels carry crude oil, petroleum products and chemicals:

- among refineries and storage terminals on the east and west coasts of the
United States, Alaska and the Gulf of Mexico;

- among ports in Puerto Rico and the Gulf of Mexico; and

- between ports in the United States and ports in Israel.

We also provide vessel management services for 26 vessels belonging to
other owners including commercial companies and the United States government.

We also own three tank farms in western Alaska with a cumulative storage
capacity of 329,000 barrels of petroleum product, and are constructing a fourth
tank farm with a storage capacity of 130,000 barrels. A number of our oil barges
are used to carry petroleum product purchased for our account to and within
Alaska. A number of these barges also carry, together with the product owned by
us, product owned by third parties. The fuel which is purchased by us and
carried aboard our barges is sold directly from our vessels and tank farms to
customers who are the ultimate consumers.

ENERGY AND MARINE SERVICES

The vessels primarily used by Energy and Marine Services consist of flat
deck barges designed for the carriage of heavy loads and tugboats of different
sizes and capabilities. Our flat deck barges are unmanned and require the use of
our tugs to be moved between job locations.

Energy and Marine Services provides specialized services to companies
engaged, on a worldwide basis, in the exploration, production and distribution
of oil and gas. Permanent areas of operation extend from Prudhoe Bay, Alaska to
Rio de Janeiro, Brazil. These services are traditionally provided through
specialized marine transportation projects which use assets either owned by the
Company or chartered from the world market as needed.

We also offer turnkey project management for major infrastructure projects
as well as logistics and inventory control services for the oil and gas
industry. Past projects range from sea lifting supplies to Alaska for the
Trans-Alaska oil pipeline, to delivery of oversized modules for oil and gas
exploration and production in Africa, Asia and the Americas. Energy and Marine
Services also provides salvage services and transports petroleum products under
term contracts.

Due to our extensive network of facilities, our large fleet of vessels and
active services over a large geographic area, Energy and Marine Services is able
to respond quickly to a variety of situations, including emergencies, and
assemble to customer specifications unique configurations of marine equipment
which are otherwise unavailable. To provide this service we use 30 tugs, 47
barges, and one crewboat and occupy approximately 15 acres of shore side
terminals.

Projects completed by Energy and Marine Services during 2001 and 2002
include:

- providing assistance for the installation of topside structures for the
Osprey drilling platform in Alaska;

- providing assistance for the recovery and relocation of the Japanese
fishing vessel Ehime Maru;

- transporting a concrete drilling structure from Alaska to Russia;

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- providing assistance for the installation of several platforms in the
Gulf of Mexico used for oil exploration;

- transporting drilling modules from the Gulf of Mexico to West Africa;

- managing the transportation from the Gulf of Mexico and installation of
boiler units at a power facility in New Jersey;

- transporting drilling platform and ancillary equipment from the Gulf of
Mexico to Maine;

- supporting diving and oil recovery operations off the coast of
California; and

- transporting oil exploration cargo from the United States to Sakhalin
Island, Russia, and between ports in Russia.

CORPORATE SERVICES

Corporate services include supervising the construction of new vessels,
providing engineering services internally, owning vessels which are chartered by
our operating lines of business and providing insurance coverage. The Company's
risk management and insurance program is structured to allow it to self-insure a
multiple of predictable claims based on historical loss/claim experience and to
insure more significant claims in Beacon Insurance Company Ltd., which is a
wholly-owned subsidiary. Beacon Insurance Company Ltd. retains a layer of
risk/losses and purchases reinsurance in the international insurance markets to
cover catastrophic casualties and a multiple of major claims. In addition, the
program is structured to ensure compliance with federal, state and local
insurance regulations. Corporate services also provides accounting, legal, human
resources, information technology and purchasing support.

SEASONALITY

Revenues from Liner Services' trade between Puerto Rico and the United
States have historically increased during the latter part of the third quarter
and the early part of the fourth quarter of each year in anticipation of
increased holiday sales by our customers and declined during the first quarter
of each year. The activities of Ship Assist and Escort Services are generally
not affected by seasonal factors. The carriage of chemicals and petroleum
products among ports in the United States and Puerto Rico by the tankers used by
Oil and Chemical Distribution and Transportation Services usually experiences a
slight downturn during the summer months because of customer inventory
adjustments and refinery shutdowns. The activities of our barges used by Oil and
Chemical Distribution and Transportation Services to transport fuel to Alaska
tend to increase during the second and third quarters and decline during the
first and fourth quarters. It is our practice to redeploy those barges which
cannot be used in Alaska during the first and fourth quarters to other areas
which are not restricted by weather conditions. The activities of Energy and
Marine Services conducted in Alaska tend to increase during the second and third
quarters and decline during the first and fourth quarters.

2002 REVENUE AND INCOME (LOSS) BY QUARTER(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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2001 REVENUE AND INCOME BY QUARTER(2)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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(1) MTL Petrolink Corp. was sold on May 15, 2002 as discussed in Note 2 of the
Notes to Consolidated Financial Statements in "Item 8. Financial Statements
and Supplementary Data."

(2) Marine Transport Corporation was acquired on February 7, 2001 as discussed
in Note 2 of the Notes to Consolidated Financial Statements in "Item 8.
Financial Statements and Supplementary Data."

(3) During 2002, the Company adopted Statement of Financial Accounting Standard
144 "Accounting for the Impairment or Disposal of Long-Lived Assets" which
addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company has reclassified the gain (loss) on asset
disposition, net for the first three quarters of 2002 and all four quarters
of 2001 to operating income (loss). The following is a reconciliation of its
reclassification:

For segment financial information concerning our revenues, operating
profits and long-lived assets, see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 17 of the Notes to
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data."

CUSTOMERS

Many of our services are in response to discrete customer requests for
short-term services. For this reason, customers that account for a significant
portion of revenues in one fiscal year may represent an immaterial portion of
revenues in subsequent years. In general, the Company does not depend upon a
single customer or a small group of customers, the loss of which would have a
material adverse effect on its consolidated results of operations and financial
condition. However, the failure to obtain contracts for a significant number of
services could, in the aggregate, have a material adverse effect on the results
of our operations and financial condition.

Ship Assist and Escort Services derives a material amount of its revenues
from a group of contracts with Alyeska. Energy and Marine Services derives a
material amount of its revenues from two contracts with a global service
provider to transport oil exploration cargo from the United States to Sakhalin
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Island, Russia, and between ports in Russia. In the event that Alyeska decided
not to renew a substantial number of these contracts and the Company was not
able to successfully redeploy the vessels used for these contracts to other
locations, the decision by Alyeska could have a have a material adverse effect
on the results of Ship Assist and Escort Services. In the event that the global
service provider decided not to renew either of its contracts and the Company
was not able to successfully redeploy to other locations the vessels and
equipment used for these contracts, any such decision by the global service
provider could have a material adverse effect on Energy and Marine Services.

No material portion of the Company's business is subject to renegotiation
of profits by the United States government or (except as provided by certain
regulations which generally apply to contracts with the United States
government) termination of contracts or subcontracts at the election of the
United States government.

COMPETITION

The competition faced by our operating lines of business is intense. The
principal methods of competition in the Company's business are price, service,
experience and quality of equipment. The Company believes that its pricing is
competitive and that the quality of its services, experience and equipment is
among the highest in the industry. A number of our competitors have capital
resources greater than those of the Company and, from time to time, may use
those resources either to lower rates or acquire equipment which, in either
case, may provide a competitive advantage over the Company. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors" below.

Each of our operating lines of business participates from time to time in
markets in which there are more vessels than the market can support at a
profitable level. While we try to shift our tugs, barges, tankers and other
vessels away from those markets in which there is a surplus of capacity to
markets in which the supply of and demand for vessels is more balanced, our
competitors tend to engage in similar practices. Over time, these practices by
our competitors may undermine the effectiveness of our efforts to deploy our
vessels to more balanced markets.

LINER SERVICES

Liner Services' sailings between the United States and Puerto Rico
currently compete with three principal other carriers, CSX Lines, Inc., Trailer
Bridge and Sea Star Line, LLC. CSX Lines, Inc. was sold to the Carlyle Group and
renamed Horizon Lines, LLC on February 27, 2003. A former competitor, Navieras
de Puerto Rico, filed for Chapter 11 bankruptcy protection on March 21, 2001 and
certain of its assets were sold to Sea Star Line, LLC in 2002. Liner Services'
operations between the United States and Central America currently compete with
three principal carriers, Maersk/Sealand, Seaboard, and American President Line.
We believe our share of these markets in 2002 was substantial.

SHIP ASSIST AND ESCORT SERVICES

Our principal competitor for providing ship assist, tanker escort, docking
and lightering services on the West Coast of the United States is Foss Maritime.
Numerous other public or privately held companies are also a source of
competition. In Southern California, major competitors are Foss Maritime and
Millennium Towing Company. In Puget Sound, our major competitor is Foss
Maritime. We believe that we had a substantial share of each of the Southern
California and Puget Sound markets in 2002.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

We are a major carrier of petroleum products by barge in Alaska and by
barge and tanker on the United States West Coast, Gulf Coast and East Coast.
Major competitors in the barge trade are Sause Brothers, Foss Maritime,
SeaCoast, Maritrans, Moran and Leevac. Oil companies and independent owners that
operate tankers and other modes of petroleum transportation, including
pipelines, also compete with our barges for petroleum cargo. Our tankers
primarily compete against certain United States railroads, Allied Towing Corp.
and Seabulk International, in the carriage of chemicals. Our tankers primarily
compete against certain United

11

States railroads, Seabulk International, America Heavy Lift, Inc., United States
Shipping LLC, Maritrans Inc. and Keystone Shipping Co. in the carriage of
petroleum products.

ENERGY AND MARINE SERVICES

Our principal United States based competitors for providing energy and
marine services include Tidewater, Edison Chouest, Delta Towing, Dolphin Towing,
Harvey Gulf Marine, McDonough Marine Service and Otto Candies Marine
Transportation and Towing, which operate in the Gulf of Mexico, and Foss,
Seacoast and Sause Brothers which operate on the West Coast. West Coast
transportation companies such as Lynden and Northland Services compete with us
for general cargo moves, and to a lesser extent, for general towing and
emergency services. Among our principal foreign competitors are Smit
International/Smit Americas, Seaspan and Seaspan Cyprus, Ltd., Anchor Marine
Transport of Great Britain, ITC Towing of the Netherlands and Fairplay Towing.
Competitors also include segments of the heavy lift shipping industry such as
Dockwise and Blue Marlin. In providing logistics services, our primary
competitors include Asco and Energy Logistics, Inc., both of which have a strong
international presence. Further competition, primarily for government work,
comes from qualified small businesses. In addition to the competitive factors
described above, the expenses of Energy and Marine Services may be higher than
those of certain competitors who provide similar services with nonunion labor.

GOVERNMENT REGULATION

The operation of our vessels is subject to regulation under various federal
laws and international conventions, as interpreted and implemented by the United
States Coast Guard, as well as certain state and local laws.

Our vessels are required to meet construction and repair standards
established by the American Bureau of Shipping, a private organization, and/or
the United States Coast Guard, and to meet operational and safety standards
presently established by the United States Coast Guard. The United States Coast
Guard licenses our seagoing supervisory personnel and certifies our seamen and
tankermen.

Our United States marine operations are also subject to regulation by
various United States federal agencies, including the Surface Transportation
Board (the successor federal agency to the Interstate Commerce Commission), the
Maritime Administration, the Customs Service, the Federal Maritime Commission
and the Coast Guard. These regulatory authorities have broad powers over
operational safety, tariff filings of freight rates, certain mergers,
contraband, environmental contamination, financial reporting and homeland, port
and vessel security.

Our common and contract motor carrier operations are regulated by the
United States Surface Transportation Board and various state agencies. The
Company's drivers, including owner-operators, also must comply with the safety
and fitness regulations promulgated by the Department of Transportation,
including certain regulations for drug testing and hours of service. The
officers and unlicensed crew members employed aboard the Company's vessels must
also comply with numerous safety and fitness regulations promulgated by the
United States Coast Guard, including certain regulations for drug testing and
hours of service.

JONES ACT

Section 27 of the Merchant Marine Act of 1920, commonly called the Jones
Act, is a federal law that restricts maritime transportation between United
States ports to vessels built and documented in the United States and owned and
operated by United States citizens. Because we carry cargo between United States
ports, we are subject to the provisions of this law. Other cabotage laws require
that all United States vessels be manned by United States citizens.

The United States Coast Guard and American Bureau of Shipping maintain the
most stringent regime of vessel inspection in the world, which tends to result
in higher regulatory compliance costs for United States flag operators than for
owners of vessels registered under foreign flags.

12

Our marine transportation business which is conducted between United States
ports is protected from foreign competition by the Jones Act. While there have
been unsuccessful attempts in the past to broaden access to the Jones Act trade
and to modify, limit or abolish the Jones Act, we believe it is unlikely that
the Jones Act will be rescinded or materially modified in the foreseeable
future. Nonetheless, there can be no assurance that the Jones Act will not be
modified or rescinded.

ENVIRONMENTAL REGULATION

All of the Company's operations are subject to various federal, state and
local environmental laws and regulations implemented principally by the
Environmental Protection Agency, the United States Department of Transportation,
the United States Coast Guard and state environmental regulatory agencies. These
regulations govern the management of hazardous wastes, discharge of pollutants
into the air, surface and underground waters including rivers, harbors and the
200-mile exclusive economic zone of the United States, and the disposal of
certain substances. We are currently involved in the remediation of thirteen
properties and have budgeted approximately $5.0 million to be spent over the
next ten years on these projects. The contamination at these properties is the
result of historic operations. We believe that our operations are in material
compliance with current environmental laws and regulations.

OIL POLLUTION ACT OF 1990

The Oil Pollution Act of 1990 ("OPA 90") established an extensive
regulatory and liability regime intended to protect the environment from oil
spills. OPA 90 applies to owners and operators of facilities operating near
navigable waters and owners, operators and bareboat charterers of vessels
operating in United States waters, which include the navigable waters of the
United States and the 200-mile exclusive economic zone of the United States.
Although it applies in general to all vessels, for purposes of establishing
liability limits, financial responsibility and response planning requirements,
OPA 90 distinguishes tank vessels (which include our chemical and petroleum
product tankers, our crude oil carriers and our oil barges) from "other vessels"
(which include our tugs and the RO/RO and LO/LO vessels used by Liner Services).
As a result of certain oil spills in 2002 by other shipping companies which
received international publicity, our single hulled tankers and barges are
subject to heightened scrutiny by our customers and various regulatory bodies.

Under OPA 90, owners and operators of facilities and owners, operators and
bareboat charterers of vessels are "responsible parties" and are jointly,
severally and strictly liable for removal costs and damages arising from oil
spills relating to their facilities and vessels, unless the spill results solely
from the act or omission of a third party, an act of God or an act of war.
Damages are defined broadly to include:

- natural resources damages and the costs of assessment thereof;

- damages for injury to, or economic losses resulting from the destruction
of, real and personal property;

- the net loss of taxes, royalties, rents, fees and profits by the United
States government, a state or political subdivision thereof;

- lost profits or impairment of earning capacity due to property or natural
resources damage;

- the net costs of providing increased or additional public services
necessitated by a spill response, such as protection from fire, safety or
other hazards; and

- the loss of subsistence use of natural resources.

For facilities, the statutory liability of responsible parties is limited
to $350 million. For tank vessels, the statutory liability of responsible
parties is limited to the greater of $1,200 per gross ton or $10 million ($2
million for a vessel of 3,000 gross tons or less) per vessel; for any "other
vessel" such liability is limited to the greater of $600 per gross ton or
$500,000 per vessel. Such liability limits do not apply, however, to an incident
proximately caused by violation of federal safety, construction or operating
regulations or by the responsible party's gross negligence or willful
misconduct, or if the responsible party fails to report the incident or provide
reasonable cooperation and assistance as required by a responsible official in
connection with the oil removal activities. Although we currently maintain the
maximum available pollution liability insurance
13

coverage that is available through the international Protection & Indemnity
Insurers, a catastrophic spill could result in liability in excess of available
insurance coverage, resulting in a material adverse effect on our business.

Under OPA 90, with certain limited exceptions, all newly built or converted
oil tankers operating in United States waters must be built with double hulls,
and existing single-hull double-side or double-bottom vessels must be phased out
over time, unless retrofitted with double hulls. As a result of this phase-out
requirement, as interpreted by the United States Coast Guard, the vessels listed
below must stop carrying petroleum and petroleum products over the next five
years if they are not retrofitted with double hulls beginning with the listed
year.

In addition to those vessels listed above, we either own or charter other
tank vessels which, during the eight year period beginning in 2008, will need to
be retrofitted with double hulls in order to continue to carry petroleum or
petroleum products in United States waters. While the Company has not completed
its study of what it would cost to make such vessels comply with OPA 90 or to
replace non-complying vessels with new or used complying vessels, we believe
that the cost would represent a material capital expenditure.

OPA 90 expanded pre-existing financial responsibility requirements and
requires vessel owners, operators and bareboat charterers to establish and
maintain with the United States Coast Guard evidence of insurance or
qualification as a self-insurer or other evidence of financial responsibility
sufficient to meet their potential liabilities under OPA 90. Coast Guard
regulations also implement the financial responsibility requirements of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
which imposes liability for discharges of hazardous substances such as
chemicals, in an amount equal to $300 per gross ton, thus increasing the overall
amount of financial responsibility from $1,200 to $1,500 per gross ton. We have
obtained "Certificates of Financial Responsibility" pursuant to the Coast Guard
Regulations for our product and chemical carriers through self-insurance and
commercial insurance.

OPA 90 also amended the federal Water Pollution Control Act to require the
owner or operator of certain facilities and tank vessels to prepare facility or
vessel response plans and to contract with oil spill removal organizations to
remove to the maximum extent practicable a worst-case discharge. We have
complied with these requirements.

OPA 90 does not prevent individual states from imposing their own liability
regimes with respect to oil pollution incidents occurring within their
boundaries, and many states have enacted legislation providing for unlimited
liability for oil spills. Some states have issued regulations addressing oil
spill liability, financial responsibility, and vessel and facility response
planning requirements. We do not anticipate that such legislation or regulations
will have any material impact on our operations.

We believe we are currently in compliance in all material respects with the
environmental laws and regulations to which our operations are subject. We are
currently working with different state and federal agencies through agreed upon
orders, decrees or voluntary actions on the remediation of the impacted
properties mentioned above. We are unaware of any material pending or threatened
litigation or other judicial, administrative or arbitration proceedings against
us occasioned by any alleged non-compliance with such laws or regulations. The
risks of substantial costs, liabilities, and penalties are, however, inherent in
marine operations, and there can be no assurance that significant costs,
liabilities or penalties will not be incurred by or imposed on us in the future.

14

TITLE XI

Title XI of the Merchant Marine Act of 1936 permits the Secretary of
Transportation, acting through the Maritime Administration, to provide a United
States government guarantee of the repayment of certain loans arranged for the
construction, reconstruction or reconditioning of vessels constructed,
reconstructed or reconditioned in the United States. Debt guaranteed pursuant to
Title XI can have a term of up to twenty five years and interest rates are
generally more favorable than rates available from commercial lenders. Recent
federal legislation has failed to fund the Title XI program for new projects.
Unless this is remedied by future legislation, this could effectively end the
Title XI program. Refer to "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional information.

CAPITAL CONSTRUCTION FUND

Pursuant to Section 607 of the Merchant Marine Act of 1936, we have entered
into a Capital Construction Fund Agreement with the Maritime Administration
acting for the United States of America. The Capital Construction Fund program
allows United States citizens who are owners and operators of United States flag
vessels to accumulate the capital necessary to modernize and expand their fleets
by deferring federal income taxes on vessel earnings deposited into the fund.
Moneys deposited by us into our Capital Construction Fund must be used to
acquire, construct or reconstruct United States flag vessels built in United
States shipyards. Any vessel which we may acquire, construct or reconstruct
using Capital Construction Fund funds may only be used in the United States
foreign, non-contiguous domestic or Great Lakes trade.

INTERNATIONAL

Our vessels that operate internationally are subject to various
international conventions, including certain safety, environmental and
construction standards. Among the more significant conventions are: (i) the
International Convention for the Prevention of Pollution from Ships 1973, 1978
Protocol, (ii) the International Convention on the Safety of Life at Sea, 1978
Protocol, including the International Management Code for the Safe Operation of
Ships and for Pollution Prevention, which went into effect for tank vessels on
July 1, 1998, and (iii) the International Convention on Standards of Training,
Certification and Watchkeeping for Seafarers, 1978, as amended in 1995. These
conventions govern oil spills and other matters related to environmental
protection, worker health and safety, and the manning, construction and
operation of vessels. As a general matter, surveys and inspections are performed
by internationally recognized classification societies.

Although we believe we are in substantial compliance with all applicable
requirements, the risks of incurring substantial compliance costs and
liabilities and penalties for noncompliance are inherent in some of our offshore
operations and there can be no assurance that such costs, liabilities and
penalties will not be incurred by or imposed on us in the future.

EMPLOYEES

As of December 31, 2002, we had 3,913 employees, including 1,588 employed
on vessels, and 2,325 employed at our offices and other land-based facilities.
Approximately 2,422 of the Company's employees are employed under the terms of
34 separate collective bargaining agreements with 11 different unions which,
among other things, set forth the wages and benefits of these employees. These
agreements have expiration dates ranging from 2003 to 2006.

15

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

ITEM 2. PROPERTIES

Our corporate headquarters and executive offices are located at 155 Grand
Avenue, Oakland, California 94612, where we lease approximately 15,800 square
feet pursuant to a lease which expires in 2008. Liner Services conducts its
operations from offices located at 9487 Regency Square Boulevard, Jacksonville,
Florida 32225, a 100,000 square foot building owned by the Company. The
operations of Ship Assist and Escort Services and the operations of Energy and
Marine Services are primarily conducted from offices located at 1102 Southwest
Massachusetts Street, Pier 17, Seattle, Washington 98134, where we lease
approximately 40,000 square feet pursuant to a lease which expires in 2022. The
operations of Oil and Chemical Distribution and Transportation Services are
primarily conducted from our offices located at 1200 Harbor Boulevard,
Weehawken, New Jersey 07087-0901, where we lease approximately 16,500 square
feet pursuant to a lease which, subject to a renewal option granted to the
Company, expires in 2004, and our offices located at 1102 Southwest
Massachusetts Street, Pier 17, in Seattle, Washington 98134.

We also maintain additional facilities in the United States and abroad to
support our businesses including warehouse facilities and dock facilities in
Jacksonville, Florida, Port Everglades, Florida, Pennsauken, New Jersey, Valdez,
Alaska, Seattle, Washington, and San Juan, Puerto Rico, some of which serve as
ports-of-call for many customers. In addition, we maintain strategically
dispersed operating bases, and offices in Houston, Texas, Long Beach,
California, Atlanta, Georgia, New Orleans, Louisiana, Vancouver, Washington, and
Rye Brook, New York. We believe that all of our facilities and equipment are in
good condition, well maintained and able to support our current operations. For
additional information concerning our properties, see the information concerning
our fleet of vessels and certain other properties as set forth in tabular form
in "Item 1. Business" of this Form 10-K.

ITEM 3. LEGAL PROCEEDINGS.

ASBESTOS LITIGATION

The Company is currently a defendant with respect to approximately 15,000
maritime asbestos cases and other toxic tort cases, most of which were filed in
the Federal Courts in Ohio, Michigan, and New Jersey. Additional cases were
filed in the Territorial Court of the Virgin Islands, and in state courts in
Utah, Pennsylvania, Texas, and Louisiana. Each of the cases, filed on behalf of
a seaman or his personal representative, alleges injury or illness based upon
exposure to asbestos or other toxic substances and sets forth a claim based upon
the theory of negligence under the Jones Act and on the theory of
unseaworthiness under the General Maritime Law. Pursuant to an order issued by
the Judicial Panel on Multidistrict Litigation dated July 29, 1991, all Federal
cases were transferred to the United States District Court for the Eastern
Division of Pennsylvania for pretrial processing. On May 1, 1996, the cases were
administratively dismissed by Judge

16

Charles R. Weiner, subject to reinstatement in the future. At present it is not
known how long the process will require. It is not known whether Judge Weiner
will be able to develop a plan which will result in settlement of the cases. If
he is unsuccessful, upon reinstatement, the cases should be remanded to the
Ohio, Michigan, and New Jersey courts.

We have insurance coverage that reimburses us for a substantial portion of
the costs incurred defending against open asbestos claims. This coverage also
reimburses us for a substantial portion of amounts we pay to settle claims and
amounts awarded in court judgments. The coverage is provided by a large number
of insurance policies written by dozens of insurance companies. The insurance
companies wrote the coverage over a period of many years for us, our
subsidiaries and their predecessors. The amount of insurance coverage available
to us depends on the nature of the alleged exposure to asbestos and the specific
subsidiary against which an asbestos claim is asserted.

The uncertainties of asbestos claim litigation make it difficult to
accurately predict the results of the ultimate resolution of asbestos claims. By
their very nature, civil actions relating to toxic substances vary according to
the fact pattern of each case, the applicable jurisdiction and other factors.
This uncertainty is increased by the possibility of adverse court rulings or new
legislation affecting the asbestos claim litigation or the settlement process.
Accordingly, we cannot predict the eventual number of such cases or their
eventual resolution. The full impact of these claims and proceedings in the
aggregate continues to be unknown. We do not include any amounts in our reserves
for existing asbestos related cases or cases that may be filed 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 or operating results.

ENVIRONMENTAL LITIGATION

Environmental costs represent reclamation costs filed against the Company.
Environmental expenditures for reclamation costs that benefit future periods are
capitalized. Expenditures that relate to remediating an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when the Company's
responsibility for environmental remedial efforts is deemed probable and the
costs can be reasonably estimated. The ultimate future environmental costs,
however, will depend on the extent of contamination of property and the
Company's share of remediation responsibility. The recorded liabilities for
estimated future environmental costs at December 31, 2002 and 2001 are
approximately $5,440,000 and $4,054,000, respectively.

During 2002, the Company reached an agreement with its insurance
underwriters to settle all costs incurred to date and any future costs related
to environmental remediation resulting from occurrences prior to 1986. The
amount of the settlement was $5,324,000, net of unrecoverable amounts due to the
insolvency of certain underwriters, and is recorded in the Company's
Consolidated Balance Sheet in Other Receivables at December 31, 2002. In
conjunction with this settlement, the Company increased its estimated
liabilities $3,095,000 for any remaining environmental remediation. That
resulted in the Company recognizing $2,229,000 as a reduction to claims expense
in the current year. Refer to "Item 8. Financial Statements and Supplementary
Data" for additional information.

17

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

No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

No established public trading market exists for our common stock. Shares of
our common stock are neither listed on any national securities exchange, nor
presently traded on any public stock exchange or in any other public market and
there are no plans, proposals, arrangements or understandings with any person
with regard to the development of a public trading market in our common stock.
Although quotations for shares of our common stock may be obtained in the Pink
Sheets (a centralized quotation service that collects and publishes market maker
quotes for over-the-counter securities), because secondary market activity for
shares of our common stock has been limited and sporadic, such quotations may
not accurately reflect the price or prices at which purchasers or sellers would
currently be willing to purchase or sell such shares.

The following table shows the range of high and low closing bid prices for
our common stock, as reported in the Pink Sheets, for the periods indicated. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.

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

(1) No trades during this quarter

As of March 17, 2003, we had 552 stockholders of record of our voting
common stock and one shareholder of Class N non-voting common stock.

We pay no dividends on our common stock and do not anticipate declaring or
paying cash dividends on our common stock in the foreseeable future. We
currently intend to retain future earnings to finance operations and fund the
growth of our business. Any payment of future dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that our board of directors may deem relevant. Payment of cash dividends
on our common stock is currently prohibited by the terms of certain agreements
to which the Company is a party. (See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 9 to the Company's Consolidated Financial Statements
in "Item 8. Financial Statements and Supplementary Data".)

ITEM 6. SELECTED FINANCIAL DATA

The following table presents summary consolidated financial and operating
data for the Company. The data presented in this table are derived from the
audited financial statements of the Company. You should read the consolidated
financial statements and the notes thereto in "Item 8. Financial Statements and
Supplementary Data" for a further explanation of the financial data summarized
here. You should also read "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations", which describes a number of
factors which have affected our financial results.

18

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

(1) During 2002, the Company adopted SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company
has reclassified the gain (loss) on asset disposition, net for 2002 and all
of 2001, 2000, 1999 and 1998 to operating income (loss).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following presentation of Management's Discussion and Analysis ("MD&A")
of the Company's financial condition, results of operations and cash flows
should be read in conjunction with the consolidated financial statements,
accompanying notes thereto and other financial information appearing elsewhere
in this Form 10-K. Dollar figures included in MD&A are stated in thousands of
dollars, except for share and per share amounts. This discussion contains
forward-looking statements that involve risks and uncertainties. These
statements are based on current expectations and assumptions which management
believes are reasonable and

19

on information currently available to management. These forward-looking
statements are identified by words such as "estimates," "expects,"
"anticipates," "plans," "believes," and other similar expressions. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth below under "Risk Factors" and elsewhere in this Form 10-K.

CRITICAL ACCOUNTING POLICIES

The preparation of the consolidated financial statements, upon which this
MD&A is based, requires management to make estimates which impact these
consolidated financial statements. The most critical of these estimates and
accounting policies relate to the long-lived asset depreciation, amortization
and impairment, goodwill, revenue recognition, and litigation and environmental
reserves. In particular, the accounting for these areas requires significant
judgments to be made by management. Different assumptions in the application of
these policies could result in material changes in the Company's consolidated
financial position or consolidated results of operations. For a more complete
discussion of these and other accounting policies, see Note 1 to the Company's
consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data".

LONG-LIVED ASSET DEPRECIATION, AMORTIZATION AND IMPAIRMENT

The Company carefully 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 to be benefited from its use.

Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.

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.

20

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. Revenue from the Oil and Chemical Distribution and
Transportation Services and Energy and Marine Services is 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. The Company has
processes in place to assist in developing these estimates, but, if the 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 carefully 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
indicators 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 consultations with external counsel, when necessary. The Company's
litigation reserves are a significant estimate that can and do 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 of
the contamination. 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
14 to the Company's Consolidated Financial Statements in "Item 8. Financial
Statements and Supplementary Data."

RESULTS OF OPERATIONS

The following table sets forth: (a) operating revenues and operating income
for Liner Services, Ship Assist and Escort Services, Oil and Chemical
Distribution and Transportation Services, and Energy and Marine Services for the
years ended December 31, 2002, 2001 and 2000; and (b) other revenues and
expenses not specifically attributable to these operating segments. Other
revenues and expenses include interest income, interest expense, and minority
interest in consolidated subsidiaries. The Company evaluates the performance of
its operating segments based upon the operating income of the segment, excluding
interest income and expense, corporate expenses and income taxes. See the
Company's Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" for further information.

Included in operating income of all four of our segments are allocations
for corporate services, which include vessel management, accounting, legal,
human resources, information technology and purchasing support. Vessel
management charges represent an allocation of the utilized vessels, depreciation
and amortization based on intercompany time charters. Other corporate services
are allocated based upon various assumptions, depending on the type of cost
being allocated. Asset charges (recoveries) are allocated to the segment that
used the asset.

The Company changed its method of accounting for goodwill to conform to
SFAS 142. See Note 1 of the Company's consolidated financial statements in "Item
8. Financial Statements and Supplementary Data."

21

SEGMENT OPERATING REVENUE AND OPERATING INCOME AND OTHER
REVENUES AND EXPENSES
(IN THOUSANDS)

COMPARISON OF FISCAL YEAR 2002 TO FISCAL YEAR 2001

Operating income for 2002 was favorably impacted by the decline in vessel
capacity in the Puerto Rican trades as a result of the consolidation of two
competitors. This was partially offset by a downturn in the Oil and Chemical
Distribution and Transportation market caused by economic conditions and the
sale of MTL Petrolink Corp. In 2003 we expect that the decline in competitive
pressures in Liner's Puerto Rican markets and the addition of the four
articulated tug/barge units to the Oil and Chemical Distribution and
Transportation Services will continue to strengthen our results.

On May 15, 2002, the Company sold all of the outstanding common stock of
MTL Petrolink Corp., a subsidiary of Marine Transport Corporation ("MTC"), for
$18,000, subject to certain working capital adjustments. Based on working
capital adjustments, net proceeds from the sale was $18,138. Included in the
$18,000 purchase price is a $500 escrow deposit made by the buyer that will be
used to fund certain claims, as defined by the sales agreement, if and when such
claims arise. If no such claims arise, any funds remaining in escrow on May 15,
2003 shall be remitted to the Company. These escrow funds will not be accounted
for as proceeds until received.

Subsequent to its acquisition of MTC, the Company decided to sell MTL
Petrolink Corp. In its allocation of the purchase price of MTC, the Company made
no effort to separately determine the fair value of MTL Petrolink Corp. The
Company recorded the excess of the sales price, net of selling costs, over the
net asset value of MTL Petrolink Corp. as a purchase price adjustment resulting
in a reduction to goodwill in the

22

amount of $3,345. See Note 2 to the Company's Consolidated Financial Statements
in "Item 8. Financial Statements and Supplementary Data".

During 2002, the Company took delivery of four newly constructed
articulated tug/barge units, the SEA RELIANCE/Barge 550-1, the SOUND
RELIANCE/Barge 550-2, the OCEAN RELIANCE/Barge 550-3, and the COASTAL
RELIANCE/Barge 550-4. The first three units were placed into service in 2002 and
the fourth unit will be placed in service in 2003. These units are being
operated by Oil and Chemical Distribution and Transportation Services.

Consolidated operating revenues decreased $22,679 or 2.3%, to $977,904 in
2002 from $1,000,583 in 2001. The decrease is primarily attributed to a downturn
in the Oil and Chemical Distribution and Transportation market caused by
economic conditions and the sale of MTL Petrolink Corp. during 2002. This was
offset by the decline in vessel capacity in the Puerto Rican trades as a result
of the consolidation of two competitors.

Consolidated operating expenses decreased $32,889 or 3.7%, to $850,681 in
2002 from $883,570 in 2001. The decrease is primarily attributed to the sale of
MTL Petrolink Corp. during 2002. Consolidated general and administrative
expenses increased $5,228 or 18.6%, to $33,301 in 2002 from $28,073 in 2001. The
increase is primarily attributable to a $4,342 reduction in asbestos related
claim reserves recorded in 2001 due to the uncertainty of successful litigation
by the claimants. Refer to "Item 3. Legal Proceedings" and Note 14 of the
consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data." Consolidated depreciation and amortization expense
increased $2,928 or 5.6%, to $54,758 in 2002 from $51,830 in 2001. The increase
is primarily attributable to an increase in dry-dock amortization which was
offset by not recording amortization of goodwill in 2002 as a result of the
Company adopting SFAS 142, "Goodwill and Other Intangible Assets". Consolidated
asset charges (recoveries), net increased $5,051 or 104.2%, to a charge of $204
in 2002 from a recovery of $4,847 in 2001. This was primarily attributed to an
impairment charge of $5,487 on vessels to be disposed of.

As a result of the above, the consolidated operating income decreased
$2,997 or 7.1%, to $38,960 in 2002 from $41,957 in 2001.

Interest income decreased $1,428 or 67.5%, to $688 in 2002 compared with
$2,116 in 2001. This decrease was due to a decrease in the Company's average
cash and cash equivalents amounts during this period and lower interest rates in
2002.

Interest expense decreased $192 or 1.2%, to $15,482 in 2002 compared with
$15,674 in 2001. This is a result of higher capitalized interest on the
construction of the articulated tug/barge units during 2002 as compared with
2001, which was offset by additional interest expense on new vessel financings
and borrowings under the Company's revolving credit agreement.

The minority interest in consolidated subsidiaries decreased $620 to income
of $629 in 2002 compared with income of $1,249 in 2001. This decrease is due to
the Company's joint venture with Stolt-Nielsen S.A. The Company owns 75% of the
interests in the joint venture and Stolt-Nielsen S.A. owns the remaining 25%.
The total loss of the joint venture in 2002 was $2,777.

Income tax expense decreased $2,100 or 21.4%, to $7,700 in 2002 compared
with $9,800 in 2001. The effective tax rate was 30.8% for 2002 and 32.8% for
2001.

As a result, net income decreased $2,809 to $17,272 ($114.74 basic earnings
per common share and $105.89 diluted earnings per common share) in 2002 from
$20,081 ($134.14 basic earnings per common share and $122.14 diluted earnings
per common share) in 2001.

The Company provides diversified transportation services in the United
States domestic and international markets. The Company is organized to provide
services in four lines of business: Liner Services; Ship Assist and Escort
Services; Oil and Chemical Distribution and Transportation Services and Energy
and Marine Services (see "Item 1. Business".) The following is a discussion of
the results of operations by the Company's lines of business.

23

LINER SERVICES

Operating revenues from our Liner Services segment increased $34,632 or
6.9%, to $535,440 in 2002 from $500,808 in 2001. The increase in revenues is
primarily attributable to a 7.1% increase in container and noncontainer volume
and an increase of 14.0% in other logistical service revenues. This increase was
offset by a .9% decrease in average revenue per TEU ("average revenue"). The
Company's container and noncontainer volume during 2002 and 2001 was 496,823
TEUs and 463,974 TEUs, respectively. The Company experienced a 9.1% increase in
the Puerto Rico and Eastern Caribbean Islands Service container and noncontainer
volume and a 4.8% increase in container and noncontainer volume in the Latin
America Service. In 2002, the Company experienced a .8% average revenue increase
in the Puerto Rico and Eastern Caribbean Islands Service as a result of less
competition. The Latin America Service experienced a 1.7% decrease in average
revenue due to competitive pressures.

Operating expenses increased $11,138, or 2.3%, to $489,317 in 2002 compared
with $478,179 in 2001. These expenses consist primarily of fuel costs, purchased
transportation costs, equipment costs, maintenance and repair costs and labor
costs. The increase in operating expenses is directly attributable to the
increase in container and non-container volume, as noted above.

Depreciation and amortization increased $392, or 5.2%, to $7,888 in 2002
compared with $7,496 in 2001. The increase in depreciation was due to an
increase in dry-dock amortization for additional vessels dry-docked in 2002,
which was partially offset by the sale of container and trailer equipment in
2001.

Asset charges (recoveries), net decreased $160 or 40.8% to a charge of $552
in 2002 compared with a charge of $392 in 2001. Liner Services recorded an
impairment charge on 2 vessels in 2002 and 2001 of $763 and $484, respectively.
These impairment charges were offset by gains on various equipment disposals of
$211 in 2002 and $92 in 2001.

As a result, the operating income from Liner Services increased $18,244 to
$16,555 in 2002 from an operating loss of $1,689 in 2001.

SHIP ASSIST AND ESCORT SERVICES

Operating revenues from our Ship Assist and Escort Services segment
decreased $809 or 1.1%, to $70,504 in 2002 compared with $71,313 for 2001. The
decrease was directly attributable to a decrease in activity in Puget Sound,
Washington and Los Angeles and Long Beach, California, resulting in an overall
decrease of approximately 4.7% in the total vessel hours utilized by its vessel
fleet (268,833 vessel hours compared with 282,199 vessel hours). Vessel hours
utilized is directly impacted by vessel calls and international oil activity.

Operating expenses decreased $4,525 or 7.6%, to $55,078 in 2002 compared
with $59,603 during 2001. The decrease was directly attributable to the decrease
in vessel related costs due to decreased utilization hours, with the largest
component being a decrease in fuel and crewing expenses.

As a result, operating income for Ship Assist and Escort Services in 2002
increased $2,528 to $13,637 compared with $11,109 for 2001.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment decreased $69,621 or 19.7%, to $283,383 in 2002
compared with $353,004 for 2001. The decrease was directly attributable to the
sale of MTL Petrolink Corp. on May 15, 2002, and an overall decrease in vessel
utilization (66.5% compared with 76.7%). As a result of the sale of MTL
Petrolink Corp., only 4.5 months of the results of its operations were included
in the Company's consolidated results in 2002 as opposed to 10.5 months of
operations which were included in the Company's consolidated results in 2001.
Due to uncertainty surrounding the sale of MTL Petrolink Corp. and the time
which was required to conclude the sale, some of its customers chose to use
other lightering companies during the months preceding the conclusion of the
sale. The loss of these customers, combined with an overall decline in the
market, adversely affected the results of

24

MTL Petrolink Corp. which, in turn, adversely affected the results of Oil and
Chemical Distribution and Transportation Services. The decrease in vessel
utilization is a result of declining oil and trading activity among West Coast
suppliers and the 2001 reopening of the Olympic Pipeline. The decrease was
offset by an increase based upon: (a) the acquisition of MTC on February 7,
2001, which provided additional revenue due to its inclusion in operations for a
full quarter during the first quarter of 2002; and (b) revenue earned from the
operations of three articulated tug/barge units placed in service during 2002.

Operating expenses decreased $43,103 or 14.6%, to $252,899 during 2002
compared with $296,002 during 2001. This decrease was primarily attributable to
reduced expenses associated with MTL Petrolink Corp., reduced activity due to
declining oil shipments as discussed above and a decrease in vessel related
costs due to decreased vessel utilization. The decrease was offset by: (a) the
acquisition of MTC in 2001, which resulted in the inclusion of a full 12 months
of expenses in the Company's operations in 2002 versus the inclusion of only
10.5 months of expenses in 2001; and (b) expenses related to the operation of
three articulated tug/barge units placed in service during 2002.

Depreciation and amortization increased $1,305 or 6.9%, to $20,176 during
2002 compared with $18,871 during 2001. The increase was directly attributable
to the acquisition of MTC, which resulted in additional depreciation expense in
2002 because MTC's operations were included for a full 12 months in 2002 versus
10.5 months in 2001, and an increase in dry-dock amortization for vessels
dry-docked in 2002. This increase was partially offset by a decrease arising
from the sale of MTL Petrolink Corp. in 2002, a decrease from not recording
goodwill amortization in 2002, in accordance with SFAS 142, and an increase in
the number of operating vessels that became fully depreciated in 2002.

Asset charges (recoveries), net increased $2,050 or 127.7%, to charges of
$445 in 2002 compared with recoveries of $1,605 in 2001. In July 2002, a fire
occurred in the engine room of one of the tankers used by Oil and Chemical
Distribution and Transportation Services. As a result of the fire, the extensive
damages caused by it and the short remaining useful life of the vessel,
management decided not to repair the vessel. The Company has received insurance
proceeds based upon the damage to the vessel caused by the fire. Accordingly,
the Company has recognized a gain net of incurred costs from involuntary
conversion of $3,897. Also in December 2002, an agreement was entered into to
sell a vessel. An impairment analysis was performed which resulted in a charge
of $4,239. During 2002, two vessels and miscellaneous equipment were sold for a
loss of $103. During 2001, three vessels and miscellaneous equipment were sold
for a gain of $1,605.

As a result, the operating income of Oil and Chemical Distribution and
Transportation Services decreased $26,691 to $6,682 in 2002 compared with
$33,373 for 2001.

ENERGY AND MARINE SERVICES

Operating revenues from our Energy and Marine Services segment increased
$13,119 or 17.4%, to $88,577 in 2002 compared with $75,458 for 2001. The
increase was directly attributable to: (a) a strong exploration season during
2002 in Alaska and non-recurring demobilization and contract termination fees
related to contracts performed in Hawaii, Alaska, and South America; and (b) the
commencement of services under new contracts with a global service provider to
transport oil exploration cargo from the United States to Sakhalin Island,
Russia, and between ports in Russia. This increase in revenue was partially
offset by a decrease in vessel utilization. Vessel utilization during 2002 was
45% compared with 53% during 2001. Vessel utilization is very volatile and it is
impacted by oil exploration activity and general economic conditions.

Operating expenses increased $9,686 or 10.6%, to $101,006 during 2002
compared with $91,320 in 2001. The increase was directly attributable to the
higher level of activity during 2002 as noted above, and was offset by the
decrease in vessel utilization.

Depreciation and amortization decreased $1,295 or 10.1%, to $11,487 during
2002 compared with $12,782 during 2001. The decrease was directly attributable
to an increase in the number of operating vessels, terminals and equipment that
became fully depreciated in 2002.

Asset charges (recoveries), net decreased $2,847 or 78.2% to a recovery of
$793 in 2002 compared with a recovery of $3,640 in 2001. Energy and Marine
Services sold two vessels and land for a gain of $1,243 in 2002.
25

Energy and Marine Services also performed an impairment analysis on five vessels
and recorded a charge of $450 in 2002. During 2001, five vessels, land and
facilities and miscellaneous assets were sold for a gain of $3,640.

As a result, operating income for Energy and Marine Services increased
$2,922 to $2,086 in 2002 compared with an operating loss of $836 for 2001.

DISCONTINUED OPERATIONS

The Company reported no income or loss from discontinued operations in 2002
and 2001. The Company had net liabilities of discontinued operations of $9,902
and $11,565, at December 31, 2002 and 2001, respectively, which are primarily
comprised of accrued liabilities for surplus leased equipment that was used in
the South America operations. These accruals require the use of estimates and
assumptions regarding the costs relating to the ultimate disposition of this
equipment. Actual results may differ from these estimates and may result in an
additional loss from discontinued operations in subsequent years.

COMPARISON OF FISCAL YEAR 2001 TO FISCAL YEAR 2000

Consolidated operating revenues increased $201,670 or 25.2%, to $1,000,583
in 2001 from $798,913 in 2000. The increase was primarily attributed to the
purchase of MTC on February 7, 2001.

Consolidated operating expenses increased $183,126 or 26.1%, to $883,570 in
2001 from $700,444 in 2000. The increase is primarily attributed to the purchase
of MTC. Consolidated general and administrative expenses decreased $1,555 or
5.2%, to $28,073 in 2001 from $29,628 in 2000. The decrease is primarily
attributable to a $4,342 reduction in asbestos related claim reserves recorded
in 2001 due to the uncertainty of successful litigation by the claimants. Refer
to "Item 3. Legal Proceedings" and Note 14 of the consolidated financial
statements in "Item 8. Financial Statements and Supplementary Data." This
reduction was offset by a $1,996 additional charge relating to the change in the
cash surrender value of the split dollar life insurance agreements for the
benefit of the principal shareholder. Consolidated depreciation and amortization
increased $13,143 or 34.0%, to $51,830 in 2001 from $38,687 in 2000. The
increase is primarily attributable the purchase of MTC in 2001. Consolidated
asset charges (recoveries), net decreased $5,817 or 54.5%, to a recovery of
$4,847 in 2001 from a recovery of $10,664 in 2000. This was primarily attributed
to a decrease in the number of vessels sold to 8 in 2001 from 19 in 2000.

As a result of the above the consolidated operating income increased $1,139
or 2.8%, to $41,957 in 2001 from $40,818 in 2000.

Interest income decreased $2,848 or 57.4%, to $2,116 in 2001 compared with
$4,964 in 2000. This decrease was due to the decrease in cash and cash
equivalents of the Company and lower interest rates in 2001. During 2001, the
Company utilized approximately $49,130 in cash to acquire MTC and $61,500 in
connection with the acquisition of the four articulated tug/barge units.

Interest expense increased $3,836 or 32.4%, to $15,674 in 2001 compared
with $11,838 in 2000. In connection with the acquisition of MTC, the Company
acquired long-term debt of $51,795.

The minority interest in consolidated subsidiaries increased $1,836 to
income of $1,249 in 2001 compared with a loss of $587 in 2000. This increase is
due to the Company's joint venture with Stolt-Nielsen S.A., which it acquired as
part of MTC. The Company owns 75% of the interests in the joint venture and
Stolt-Nielsen S.A. owns the remaining 25%. The total loss of the joint venture
from the date of acquisition of MTC to December 31, 2001 was $4,879.

Income tax expense decreased $3,200 or 24.6%, to $9,800 in 2001 compared
with $13,000 in 2000. The effective tax rate was 32.8% for 2001 and 39.1% for
2000. The decrease in the effective tax rate is due to the reduction in the
valuation allowance on certain foreign tax credit carryforwards to $822 from
$2,561 at December 31, 2001 and 2000, respectively. The Company determined that
with the acquisition of MTC, it is more likely than not that certain foreign tax
credit carryforwards will be realized.

26

As a result, net income decreased $172 to $20,081 ($134.14 basic earnings
per common share and $122.14 diluted earnings per common share) in 2001 from
$20,253 ($134.85 basic earnings per common share and $122.67 diluted earnings
per common share) in 2000.

The following is a discussion of the results of operations by the Company's
lines of business.

LINER SERVICES

Operating revenues from our Liner Services segment increased $10,220 or
2.1%, to $500,808 in 2001 from $490,588 in 2000. The increase in revenues is
primarily attributable to a 2.6% increase in container and noncontainer volume,
which was offset by a .5% decrease in average revenue per TEU ("average
revenue"). The Company's container and noncontainer volume in 2001 and 2000 was
463,974 TEUs and 452,377 TEUs, respectively. The Company experienced a 2.9%
increase in the Puerto Rico and Eastern Caribbean Islands Service container and
noncontainer volume and a 2.2% increase in container and noncontainer volume in
the Latin America Service. In 2001, the Company experienced a 3.4% average
revenue decrease in the Puerto Rico and Eastern Caribbean Islands Service and a
..2% increase in the Latin America Service. The decrease in average revenue was
due to an over capacity in these trades and competitive pressures. This decrease
in average revenue was offset by an increase in other logistical services
revenues.

Operating expenses increased $15,910, or 3.4%, to $478,179 in 2001 compared
with $462,269 in 2000. These costs are driven by fuel costs, purchased
transportation costs, maintenance and repair costs and labor costs. The increase
in operating expenses is directly attributable to the increase in container and
non-container volume, as noted above.

Asset charges (recoveries), net decreased $868 or 182.4% to a charge of
$392 in 2001 compared with a recovery of $476 in 2000. An impairment charge on
two vessels of $484 was recorded in 2001 which was offset by gains on various
disposals of equipment of $92. In 2000, Liner Services sold one vessel and
equipment for a gain of $476.

Depreciation and amortization decreased $1,587, or 17.5%, to $7,496 in 2001
compared with $9,083 in 2000. The reduction in depreciation was due to the sale
of certain equipment in 2001 and assets becoming fully depreciated.

As a result, the operating loss from Liner Services decreased $1,765 to an
operating loss of $1,689 in 2001 compared with operating income of $76 in 2000.

SHIP ASSIST AND ESCORT SERVICES

Operating revenues from our Ship Assist and Escort Services segment
decreased $110 or 0.2%, to $71,313 in 2001 compared with $71,423 for 2000. The
decrease was directly attributable to a decrease of approximately 2.3% in the
total vessel hours utilized of the 45 vessel fleet (282,199 vessel hours
compared with 288,769 vessel hours), which was substantially offset by increases
in rates charged.

Operating expenses increased $1,704 or 2.9%, to $59,603 in 2001 compared
with $57,899 during 2000. The increase was directly attributable to an increase
in costs associated with maintenance of the vessel fleet.

Depreciation and amortization increased $5 or 16.1%, to $36 in 2001
compared with $31 in 2000. The segment maintained a similar asset base during
these two periods.

As a result, operating income for Ship Assist and Escort Services in 2001
decreased $1,336 to $11,109 compared with $12,445 for 2000.

OIL AND CHEMICAL DISTRIBUTION AND TRANSPORTATION SERVICES

Operating revenues from our Oil and Chemical Distribution and
Transportation Services segment increased $207,340 or 142.3%, to $353,004 in
2001 compared with $145,664 for 2000. The increase was directly attribu