Maritrans reports "design issues" with rebuilds

In reporting its annual and fourth quarter results for 2003 yesterday, Maritrans revealed that it has been having "design issues" with its three rebuilt 250,000 bbl class barges.

Maritrans has been rebuilding units of its single hulled tank barge fleet to bring them into compliance with OPA 90 double hull mandates.

At roughly half of the cost of a newly built barge, Maritrans has said, the rebuilt double hull provides an additional layer of steel around the entire side and bottom of the cargo tanks, and is intended to provide extra protection to the environment.

 The basics of the process Maritrans has used is to prefabricate a new inner hull which is then dropped in place in the existing hull and welded into place. It extends higher than the original hull to conserve cargo capacity. The original deck is then restored.

Yesterday, Maritrans CEO Philip J. Doherty said: "Late in the fourth quarter we identified several design issues in our three rebuilt 250,000 barrel class barges that led us to remove them from service for a further inspection and re-analysis of our original rebuild designs. Working with industry experts and the American Bureau of Shipping, we identified structural enhancements that will improve the long-term strength of these three barges. The company has acted in the first quarter of 2004 to make these repairs and enhancements and the vessels have returned or are in the process of returning to service. As a result we have experienced out of service time that will lower our first quarter results. We have used these enhanced designs with the class of vessels currently under construction, and remain confident in our rebuilding designs and processes."

Stephen A. Van Dyck, Chairman of Maritrans, commented, "We believe we are effectively balancing the out of service time associated with our double-hull rebuilding program with the needs of our customers. Because our results are driven by our utilization, we are foregoing current operating income as we tackle these rebuilds. However, we believe that we are creating excellent value in this OPA-compliant fleet. Our position in the market is growing stronger with time as no other U.S. marine petroleum transport provider is undertaking such an aggressive rebuilding program as Maritrans. This, combined with the benefits of our long-term relationships with our large customers, distinguishes us from our competitors. We are investing in our future today and believe this will result in long-term returns for our shareholders."

Maritrans net income for the quarter ended December 31, 2003, was $3.2 million, or $0.38 diluted earnings per share, on revenues of $32.4 million. In the fourth quarter of 2003, the company reversed a bad debt reserve related to a note receivable equivalent to approximately $0.33 diluted earnings per share, net of the related taxes. The previously reserved note receivable was repaid to Maritrans in January 2004. The reversal of the reserve is included in other income. For the quarter ended December 31, 2002, the cmpany reported net income of $2.1 million, or $0.25 diluted earnings per share, on revenues of $34.6 million.

Net income for the year ended December 31, 2003, was $18.7 million, or $2.22 diluted earnings per share, on revenues of $138.2million. In addition to the note receivable reserve reversal, the company reduced its income tax reserve by $7.7 million in the third quarter of 2003. Most of the reduction resulted from income tax reserves related to the restructuring of Maritrans Partners LP to Maritrans Inc. in 1993. This reversal resulted in a $0.92 per share increase in net income during the year. There was no effect on cash flow or income from operations as a result of this increase. For the year ended December 31, 2002, the company reported net income of $9.5 million, or $1.10 diluted earnings per share, on revenues of $129.0 million. Operating income for the year ended December 31, 2003 was $13.7 million compared to $16.6 million for the year ended December 31, 2002.