<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES AND EXCHANGE ACT OF
1934.
For the quarterly period ended SEPTEMBER 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the period from to
COMMISSION FILE NUMBER
000-11573
MARINE TRANSPORT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2625280
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
1200 HARBOR BOULEVARD, C-901, WEEHAWKEN, NJ 07082-0901
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 201-330-0200
Former Name: OMI Corp.
Former Address: 90 Park Avenue
New York, NY 10016
Former Fiscal Year: Not applicable
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF NOVEMBER 9, 1998:
Common Stock, par value $0.50 per share, 5,892,605 shares
<PAGE> 2
MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of 4
Operations for the three months and nine months
ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheets- 5
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Changes in 6
Stockholders' Equity for the year ended
December 31, 1997 and the nine months ended
September 30, 1998
Condensed Consolidated Statements of Cash Flows for the nine 7
months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial 8
Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
PART II: OTHER INFORMATION 18
SIGNATURES 19
</TABLE>
2
<PAGE> 3
PART I: ITEM 1: FINANCIAL INFORMATION
SUMMARY OF CERTAIN TRANSACTIONS AFFECTING THE COMPANY
Marine Transport Corporation ("MTC" or "the Company"), formerly OMI Corp., was
established in its present form through a series of transactions, culminating
June 17, 1998, through which OMI Corp. split up and distributed to its
shareholders a subsidiary containing its international businesses (the
"Distribution") and then acquired Marine Transport Lines, Inc. in a
stock-for-stock exchange (the "Acquisition"). OMI Corp. then changed its name to
Marine Transport Corporation.
Upon completion of the Distribution, the assets, liabilities and equity related
to OMI Corp.'s international businesses were removed from the Company's balance
sheet at their recorded values. For periods prior to the Distribution, the
historical financial statements of the Company reflect the financial position
and results of operations of OMI Corp. as reported for such periods. For periods
subsequent to the Distribution and Acquisition, the Company's financial
statements include the assets, liabilities, equity and operations of OMI Corp.'s
domestic business and reflect the acquisition of Marine Transport Lines, Inc.
under the purchase method of accounting. The comparisons of financial position
and results of operations should be read with consideration of the above
transactions and presentations. Users of these financial statements should be
aware that future results of operations will significantly differ from the
historical results of operations because of the changes in the Company which
occurred as a result of the transactions described.
Notes 1 and 2 to the Condensed Consolidated Financial Statements of Marine
Transport Corporation and Subsidiaries more fully describe the Distribution and
Acquisition transactions and the impact of these transactions on the
consolidated financial statements.
3
<PAGE> 4
MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS MONTHS
ENDED SEPT 30, ENDED SEPT 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Voyage $ 25,381 $ 52,112 $ 138,143 $ 163,499
Other 5,047 2,506 9,202 5,885
-------- -------- --------- ---------
Total revenues 30,428 54,618 147,345 169,384
-------- -------- --------- ---------
Operating expenses:
Vessel and voyage 27,859 41,857 123,509 128,445
Depreciation and amortization 3,746 7,149 18,080 21,584
General and administrative 2,922 4,734 12,669 12,301
-------- -------- --------- ---------
Total operating expenses 34,527 53,740 154,258 162,330
-------- -------- --------- ---------
Operating income (loss) (4,099) 878 (6,913) 7,054
Other income (expense):
Gain (loss) on disposal of assets 2 537 908
Interest expense (370) (1,994) (3,590) (7,600)
Equity in income (loss) of affiliates 262 (3,796) 2,136 (216)
-------- -------- --------- ---------
Net other income (expense) (108) (5,788) (917) (6,908)
-------- -------- --------- ---------
Income (loss) before income taxes
and cumulative effect of
change in accounting principle (4,207) (4,910) (7,830) 146
Provision (benefit) for income taxes, including
reversal of deferred income taxes of $38.9 million
in the nine months ended September 30, 1998 resulting
from the Distribution (see Note 5) (1,420) 21 (40,304) 1,127
-------- -------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle (2,787) (4,931) 32,474 (981)
Cumulative effect of change in
accounting principle, net of
income taxes of $7,429 13,797
-------- -------- --------- ---------
Net income (loss) $ (2,787) $ (4,931) $ 32,474 $ 12,816
======== ======== ========= =========
Basic earnings per common share:
Income (loss) before cumulative effect
of change in accounting principle $ (0.46) $ (1.15) $ 6.51 $ (0.23)
Cumulative effect of change in
accounting principal, net of
income taxes $ 3.22
Net income (loss) $ (0.46) $ (1.15) $ 6.51 $ 2.99
Diluted earnings per common share:
Income (loss) before cumulative effect
of change in accounting principle $ (0.46) $ (1.15) $ 6.51 $ (0.22)
Cumulative effect of change in
accounting principal, net of
income taxes $ 3.15
Net income (loss) $ (0.46) $ (1.15) $ 6.51 $ 2.93
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT 30, DECEMBER 31,
1998 1997(1)
---- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents
in 1997-$25,900 $ 5,110 $ 32,489
Receivables, less allowances of $520 in 1998
and $528 in 1997 18,148 20,181
Prepaid expenses and other current assets 4,140 18,732
--------- ---------
Total current assets 27,398 71,402
Capital construction fund 4,029 10,969
Vessels and other property, at cost 105,402 518,709
Construction in progress 56,032
Less accumulated depreciation (65,839) (204,516)
--------- ---------
Vessels, construction in progress
and other property-net 39,563 370,225
Vessel dry-docking costs 7,065 1,818
Investments in and advances to/from
affiliates 3,012 28,155
Note receivable 9,000 9,000
Other assets and deferred charges 20,678 27,018
--------- ---------
TOTAL ASSETS $ 110,745 $518,587
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,019 $ 6,314
Accrued liabilities 10,060 22,931
Current portion of long-term debt 2,750 16,575
--------- ---------
Total current liabilities 22,829 45,820
Advance time charter revenues and other
liabilities 2,903 3,114
Deferred gain on sale and leaseback
of vessel 20,298 36,108
Deferred income taxes payable 24,004 64,264
Long-term debt 25,991 146,341
Minority interest in subsidiary 1,917
Stockholders' equity 14,720 221,023
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 110,745 $ 518,587
========= =========
</TABLE>
(1) The condensed balance sheet as of December 31, 1997 has been derived from
the audited financial statements as of that date.
See notes to condensed consolidated financial statements.
5
<PAGE> 6
MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
NINE MONTHS ENDED SEPT 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Unearned Accum.
Common Compensation Retained Compre-
Stock Capital Restricted (Deficit) hensive
Shares(1) Amount(1) Surplus(1) Stock Earnings Income
--------- --------- ---------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997 4,269 $2,135 $ 203,462 $ (1,039) $ (1,848) $ 4,868
Comprehensive income:
Net income 10,827
Net change in valuation account 22
Comprehensive income
Retirement of partner's equity
interest in joint venture 777
Retirement of minority stockholders'
equity interest in subsidiary (549)
Exercise of stock options 33 17 1,979
Issuance of restricted stock awards 5 2 436 (438) --
Amortization of unearned compensation 372
-----------------------------------------------------------------------------------
Balance at December 31, 1997 4,307 2,154 206,105 (1,105) 8,979 4,890
Comprehensive income:
Net income 32,474
Net change in valuation account (4,943)
Comprehensive income
Exercise of stock options 5 2 210
Retirement of minority stockholders'
equity interest in subsidiary (681)
Amortization of unearned
compensation 1,105
Issuance of common stock 1,931 965 10,287
Spin-off of foreign subsidiaries (190,952) (54,048)
Purchase of treasury stock
-----------------------------------------------------------------------------------
Balance at Sept 30, 1998 6,243 $3,121 $ 24,969 $ -- $(12,595) $ (53)
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Other Total
Compre- Share-
hensive Treasury holders'
Income Stock Equity
------ ----- ------
<S> <C> <C> <C>
Balance as of January 1, 1997 $ 207,578
Comprehensive income:
Net income $ 10,827 10,827
Net change in valuation account 22 22
--------
Comprehensive income $ 10,849
=========
Retirement of partner's equity
interest in joint venture 777
Retirement of minority stockholders'
equity interest in subsidiary (549)
Exercise of stock options 1,996
Issuance of restricted stock awards --
Amortization of unearned compensation 372
-----------------------------------------
Balance at December 31, 1997 221,023
Comprehensive income:
Net income $ 32,474 32,474
Net change in valuation account (4,943) (4,943)
--------
Comprehensive income $ 27,531
=========
Exercise of stock options 212
Retirement of minority stockholders'
equity interest in subsidiary (681)
Amortization of unearned
compensation 1,105
Issuance of common stock 11,250
Spin-off of foreign subsidiaries (245,000)
Purchase of treasury stock (722) (722)
-----------------------------------------
Balance at Sept 30, 1998 $(722) $ 14,720
=========================================
</TABLE>
(1) Restated to give retroactive effect to 1 for 10 reverse stock split.
See notes to condensed consolidated financial statements
6
<PAGE> 7
MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPT 30,
1998 1997
---- ----
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (700) $ 568
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Additions to vessels and other property (61,418) (44,886)
Cash distributed as part of spin off of UBC's net assets (12,600)
Proceeds from Capital Construction Fund 7,090
Net proceeds from sale of vessels 708 78,972
Payments for the retirement of minority
stockholders' interest (1,917) (2,456)
Purchase of MTL net of cash acquired (4,519)
Proceeds and interest received and reinvested in the
Capital Construction Fund (203) (552)
--------- ---------
Net cash provided (used) by investing activities (72,859) 31,078
--------- ---------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 72,637 114,090
Payments on long-term debt (36,774) (171,374)
Issuance of common stock 11,250 1,706
Payments for debt issue costs (211) (636)
Purchase of treasury shares (722)
--------- ---------
Net cash provided (used) by financing activities 46,180 (56,214)
--------- ---------
Net decrease in cash and cash equivalents (27,379) (24,568)
Cash and cash equivalents at beginning of period 32,489 47,877
--------- ---------
Cash and cash equivalents at end of period $ 5,110 $ 23,309
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Marine Transport Corporation ("MTC" or the "Company") (formerly OMI Corp.) is a
U.S.-based company that owns and charters a fleet of ocean-going vessels which
it operates in domestic and international markets. The Company also manages
vessels for other shipowners.
On June 17, 1998 the Company distributed to its shareholders, in a tax-free
distribution (the "Distribution"), all of the shares of its wholly owned
subsidiary Universal Bulk Carriers, Inc. ("UBC"). UBC operated what were the
Company's foreign shipping businesses, and continues to operate those businesses
as OMI Corporation ("New OMI") under the Company's former management. Concurrent
with the Distribution, the Company acquired all of the outstanding common stock
of Marine Transport Lines, Inc. ("MTL"), a U.S.-based company that owns,
operates and manages U.S. and foreign flag vessels, in exchange for newly issued
shares of the Company's common stock (the "Acquisition"). The Company is managed
by certain officers formerly of MTL and certain former directors of MTL and
additional new directors. The Company trades under the symbol "MTLX" and is
listed on the NASDAQ National Market.
Unless otherwise indicated, amounts reflected in the accompanying financial
statements include the results of UBC through June 17, 1998, and the results of
MTL subsequent to June 17, 1998. Immediately following the Distribution and
Acquisition, the Company consummated a one-for-ten reverse stock split. All
share and per share amounts have been retroactively restated to reflect the
reverse stock split.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of the
management of the Company, all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of operating results have been
included in the statements. Certain accounts have been reclassified in the 1997
financial statements to conform to their 1998 presentation. Reference is made to
OMI Corp.'s Form 10-K for the year ended December 31, 1997 and the Form S-1
filed on May 15, 1998 for additional information.
NOTE 2 - ACQUISITION AND DISTRIBUTION
As consideration for the Acquisition of MTL described above, the Company issued
approximately 1,931,000 shares, including 127,453 to be held in escrow pending
resolution of certain post-closing adjustments, (as adjusted for a one-for-ten
reverse stock split) in exchange for all of the outstanding shares of MTL. The
acquisition was valued at approximately $11,250,000 representing the Company's
estimate of the fair value of MTL at the date the transaction was announced, and
has been accounted for as a purchase.
The pro forma unaudited results of operations for the nine months ended
September 30, 1998 and September 30, 1997, assuming consummation of the
Acquisition and Distribution as of January 1, 1997 are as follows:
8
<PAGE> 9
<TABLE>
<CAPTION>
Nine Months Ended Sept 30
1998 1997
---- ----
<S> <C> <C>
Revenues $ 93,924 $ 91,375
Vessel, voyage and lease expense 88,063 91,963
General and administrative expense 17,257 11,074
(Loss) before other income (expense),
income taxes, and cumulative
effect of change in accounting
principle (11,396) (11,662)
Loss before cumulative effect of change
in accounting principle (9,220) (8,600)
Net loss $ (9,220) $ (4,866)
Basic and diluted earnings per common share:
Loss before cumulative effect of change
in accounting principle $ (1.85) $ (1.13)
Net loss $ (1.85) $ (1.13)
</TABLE>
As part of the Distribution, MTC is party to certain agreements with New OMI,
including the following:
Distribution Agreement-The Distribution Agreement provides for, with certain
exceptions, assumptions of liabilities and cross-indemnities designed
principally to place financial responsibility for the domestic-related assets
and liabilities with MTC and the foreign-related assets and liabilities with New
OMI. New OMI, however, assumed the obligations of the Company with respect to
the Company's 10.25 percent Senior Notes due November 1, 2003 in exchange for a
note in the amount of $6.8 million, which is equivalent in value to the
principal amount of the Senior Notes outstanding. The Distribution Agreement
also provides that each of MTC and New OMI will indemnify the other in the event
of certain liabilities arising under the Federal securities laws. Each of MTC
and New OMI will have sole responsibility for claims arising out of respective
activities after the Distribution.
The Distribution Agreement also provides that, except as otherwise set forth
therein or in any other agreement, all costs or expenses incurred on or prior to
the date of the Distribution in connection with the Distribution will be charged
to and paid by the party incurring such costs or expenses. Except as set forth
in the Distribution Agreement or any related agreement, each party shall bear
its own costs and expenses incurred after the date of the Distribution.
As part of the Distribution Agreement, New OMI has, subject to certain
exceptions, provided indemnity to MTC for all taxes attributable to the
Distribution and to certain corporate restructuring transactions preceding the
Distribution.
Tax Cooperation Agreement-Prior to the Distribution, MTC and New OMI entered
into a Tax Cooperation Agreement which sets forth each party's rights and
obligations with respect to federal, state, local and foreign taxes for periods
prior to and after the Distribution and related matters such as filing of tax
returns and conducting audits and other proceedings. In general, the Tax
Cooperation Agreement provides that New OMI will be liable for taxes and be
entitled to refunds for each period covered by any such return which are
attributable to New OMI and its subsidiaries. Though valid as between the
parties thereto, the Tax Cooperation Agreement is not binding on the IRS and
does not alter either party's tax liability to the IRS.
9
<PAGE> 10
Acquisition Agreement-The Acquisition Agreement provides for an adjustment in
the purchase price of Marine Transport Lines, Inc. based on Working Capital
amounts as of the date of the Closing compared to certain pre-established
levels. The purchase price adjustment will be made by increasing or decreasing
the number of shares of the Company which were exchanged for MTL's shares.
NOTE 3 - ACCOUNTING CHANGE FOR VESSEL DRYDOCKING COSTS
Effective January 1, 1997, the Company changed its method of accounting for
vessel drydocking costs from the accrual method to the deferral method. Vessel
drydocking costs had been accrued and charged to operating expenses over the
period between drydockings, which is generally a two to three year period. Under
the deferral method, vessel drydocking expenses are capitalized and amortized
over the period until the next scheduled drydocking. Management believes the
deferral method better matches costs with revenues, and minimizes any
significant changes in estimates associated with the accrual method. The
cumulative effect of this accounting change is shown separately in the
consolidated statement of operations and resulted in income of $13,797,000 (net
of income taxes of $7,429,000), or $3.22 and $3.15 per basic and diluted share
for the nine months ended September 30, 1997. The three months and nine months
ended September 30, 1997 was previously presented using the accrual method of
accounting and has been restated to reflect this change.
NOTE 4 - EARNINGS PER COMMON SHARE
The computation of basic earnings per share is based on weighted average number
of common shares outstanding of 6,050,000 and 4,296,000 for the three months
ended September 30, 1998 and 1997, respectively, and 4,988,000 and 4,287,000 for
the nine months ended September 30, 1998 and 1997, respectively. The computation
of diluted earnings per share, which assumes the exercise of all dilutive stock
options using the treasury method, is based on the weighted average number of
common shares outstanding of 6,050,000 and 4,384,000 for the three months ended
September 30, 1998 and 1997, respectively, and 4,988,000 and 4,375,000 for the
nine months ended September 30, 1998 and 1997, respectively.
NOTE 5 - INCOME TAXES
As a result of the Distribution, the subsidiary holding the Company's foreign
shipping businesses became a decontrolled corporation for income tax purposes.
Accordingly, the Company will not be subject to income taxes applicable to the
future operations of these foreign businesses and the balance of deferred income
taxes of approximately $38,900,000 at the date of the Distribution related to
such operations was credited to income. This income tax credit accounts for all
of the Company's net income for the nine month period ended September 30, 1998
and will not recur in subsequent periods.
NOTE 6 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
At September 30, 1998 Long-Term Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
MTL Term Loan $11,531
MTC Term Loan 8,393
MTL Revolving Credit 1,000
MTC Revolving Credit 1,000
Subordinated Debt due to OMI 6,444
Promissory Note due to OMI 373
-------
Total Debt 28,741
Less Current Portion 2,750
-------
Long-term Portion $25,991
=======
</TABLE>
10
<PAGE> 11
All debt at September 30, 1998 was created concurrently with the Acquisition.
Both the term loans and revolving credit facilities of the Company and its
wholly-owned subsidiary MTL accrue interest at a floating rate that is fixed for
brief periods (30-,60-,90, or 180-day periods) at the Company's discretion. The
interest rate is comprised of LIBOR (which, depending on the borrowing period
chosen, was approximately 5.25% at September 30, 1998) plus an incremental
margin determined by the Company's ratio of Total Debt to EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization). That incremental margin
can range from a maximum of 2.25% (3.0x Total Debt to EBITDA) to a minimum of
1.25% (1.0x Total Debt to EBITDA). The Company pays commitment fees quarterly on
the unused and available portion of the revolving credit facilities at an annual
rate equal to the aggregate of forty percent of the applicable incremental
margin and one-quarter of one percent. At September 30, 1998 there was $1
million unused and available of the revolving credit facilities. The
subordinated debt is payable in semi-annual installments of principal and
interest through November 1, 2003. The promissory note is payable in semi-annual
installments of principal and interest through May 1, 2003.
On October 20, 1998, the Company effected an interest rate swap that fixed the
base LIBOR rate on the $19,923,659 then outstanding on the Term Loan portions of
Total Debt at 4.75% for a three-year period. The total interest rate on the Term
Loans, which previously had a rate base that floated at LIBOR, also includes an
incremental margin that is reset quarterly based on the Company's EBITDA
results. That incremental margin can range from a maximum of 2.25% (3.0x Total
Debt to EBITDA) to a minimum of 1.25% (1.0x Total Debt to EBITDA). There were no
transaction fees or other costs incurred in effecting this swap.
The term loans are payable in twenty quarterly installments that began in
September 1998; the first four installments total $500,000 each; the next
fifteen installments total $906,250 each; and the final installment of
$5,406,250 is due June 18, 2003. The revolving credit facility of the Company's
wholly-owned subsidiary, MTL, reduces to $1,000,000 on June 18, 2001; the
remaining revolving credit facilities expire on June 18, 2003.
Among other things, the Company's debt obligations restrict the Company's
ability to pay or declare dividends and require the Company to maintain certain
financial ratios, minimum cash balances, minimum asset values, and to use
proceeds of vessel sales to reduce debt. In addition, the Company's vessels are
pledged as collateral to secure the borrowings under the term loan and revolving
credit facility agreements. As of September 30, 1998, the Company was not in
compliance with certain of the financials convenants in the term loan and
revolving credit facility agreements for which waivers have been obtained. The
Company was in compliance with all other convenants included in the various
agreements and expects to be in full compliance with all convenants by December
31, 1998.
In addition to the above, as of September 30, 1998 MTL had borrowed $3,250,000
from its 50%-owned affiliate, Marine Car Carriers, Inc. under two unsecured
promissory notes that bear interest at 8%, payable quarterly in arrears. The
notes are due on June 5, 1999. The notes are shown on the balance sheet in
Investments in and advances to/from affiliates.
NOTE 7 - OTHER MATTERS
Pursuant to a prior charter agreement between a subsidiary of MTL and a
subsidiary of a bank (the "Bank"), MTL has indemnified the Bank for certain
investment tax credits previously utilized by the Bank to the extent such
credits may be disallowed by the Internal Revenue Service. These investment tax
credits are the basis for a claim by the Internal Revenue Service ("IRS")
against the Bank amounting to approximately
11
<PAGE> 12
$5,000,000 as of September 30, 1998, including interest and penalties. MTL and
the Bank are contesting the IRS claim.
In May 1998, the IRS issued a Notice of Deficiency to the Bank. The tax
deficiency and interest, in a total amount of approximately $1.1 million, must
be paid to the IRS in order to contest this matter in a venue other than the Tax
Court. In accordance with the terms of the original charter agreement, the
Company plans to advance the $1.1 million to the Bank. The Bank and the Company
intend to continue to contest the IRS claim and to seek a refund for any amounts
paid, upon which the Bank will repay to the Company any amounts previously
advanced. Management believes it is probable that the Bank and the Company will
prevail in this matter. However, in the event that the Company and the Bank do
not prevail, the charter agreement requires that the Bank credit the Company for
any amounts advanced against any ultimate indemnification obligation.
PART I: ITEM 2:
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Marine Transport Corporation ("MTC" or "the Company"), formerly OMI Corp., was
established in its present form through a series of transactions, culminating
June 18, 1998, through which OMI Corp. distributed to its shareholders a
subsidiary containing its international businesses (the "Distribution") and then
acquired Marine Transport Lines, Inc. in a stock-for-stock exchange (the
"Acquisition"). OMI Corp. then changed its name to Marine Transport Corporation.
Upon completion of the Distribution, the assets, liabilities and equity related
to OMI Corp.'s international businesses were removed from the Company's balance
sheet at their recorded values. For periods prior to the Distribution, the
historical financial statements of the Company reflect the financial position
and results of operations of OMI Corp. as reported for such periods. For periods
subsequent to the Distribution and Acquisition, the Company's financial
statements include the assets, liabilities, equity and operations of OMI Corp.'s
domestic business and reflect the acquisition of Marine Transport Lines, Inc.
under the purchase method of accounting. The comparisons of financial position
and results of operations should be read with consideration of the above
transactions and presentations. Users of these financial statements should be
aware that future results of operations will significantly differ from the
historical results of operations because of the changes in the Company which
occurred as a result of the transactions described.
Certain pro forma financial information has been presented to give effect to the
Acquisition and Distribution as if such events had occurred on January 1, 1998.
The pro forma information does not purport to represent what the operations
actually would have been or to project operating results for any projected
period. The pro forma financial information is based on certain assumptions the
Company believes are reasonable. See Note 2 to the Condensed Consolidated
Financial Statements.
The information below and elsewhere in this document contains certain forward-
looking statements which reflect the current view of the Company with respect to
future events and financial performance, as well as potential impacts of the
Year 2000 issue on the Company. Wherever used, the words "expect", "plan",
"anticipate" and similar expressions identify forward-looking statements. Such
statements are based on management's current expectations and are subject to a
number of uncertainties and risks that could cause actual results to differ
materially from those described in the forward-looking statements. The Company
does not normally publicly update its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
12
<PAGE> 13
The following presentation of management's discussion and analysis of Marine
Transport Corporation's financial condition and results of operations should be
read in connection with the Condensed Consolidated Financial Statements,
accompanying notes thereto and other financial information appearing elsewhere
in this document, as well as the Form S-1 filed on May 15, 1998 which fully
describes the Acquisition and Distribution, and the documents incorporated by
reference thereto.
General
Marine Transport Corporation, formerly OMI Corp., is a U.S.-based supplier of
marine transportation services. Prior to the Acquisition and Distribution, its
major businesses were providing seaborne transportation services for crude oil
and refined petroleum products in two distinct international market segments:
Suezmax tankers and Handymax product tankers. These businesses were separated
from the Company and were distributed to the shareholders of the Company in the
Distribution. In addition, the Company provided lightering services in the Gulf
of Mexico, operated four tank vessels in the U.S. Jones Act trade and provided
ship management services to the U.S. government for its Ready Reserve Fleet.
Following the Distribution and Acquisition, the major businesses of the Company
are: marine transportation of chemicals, petroleum products and crude oil for
U.S.-based industrial customers, including lightering services for crude oil
customers in the Gulf of Mexico; and ship management services for third-party
ship owners and the U.S. government.
The Company's results of operations for the periods prior to the Acquisition and
Distribution, which were effective on June 17, 1998, include the operations of
the major businesses conducted by the Company prior to that date. The following
discussion of financial condition and results of operations is organized
accordingly.
Market Overview
Following the Acquisition and Distribution, the market for the Company's major
businesses can be described as follows:
Energy and Chemical Transportation: MTC provides an industrial shipping
philosophy, serving the chemical and petroleum liquid bulk market for large
commercial customers. In a number of cases, the Company has entered into
long-term contracts of affreightment providing for base amounts of cargo to be
shipped on an annual schedule of voyages on its vessels. Three vessels operate
under long-term contracts to third party customers who pay all direct costs of
operating the vessels. Spot market movements are used to fill out cargo capacity
on vessels not used for contract tonnage. Contracts are renewed periodically
(contract terms range from one to five years) and rate fluctuations due to a
changing market environment are generally not as large as experienced in the
spot market for chemical and petroleum tankers. Most of the Company's commercial
vessels operate in the protected U.S. Jones Act market. MTC also provides
lightering services in the Gulf of Mexico through its subsidiary MTL Petrolink.
The Company timecharters-in four international flag Aframax tankers, and
frequently charters in on a spot basis other vessels to augment its services.
MTL Petrolink provides assist vessels, equipment and personnel to discharge
large crude oil vessels offshore and deliver cargo to ports in the U.S. Gulf.
MTL Petrolink also provides vessel repair services.
Ship Management: MTC provides ship management services to industrial ship owners
who use vessels in parts of their own businesses, and to the U.S. government for
its Ready Reserve Fleet. Ship management includes technical operation and
maintenance, crewing, regulatory compliance and other ship operating activities.
MTC manages one of the largest U.S. based fleets. Management contracts range in
length from one to five years in remaining term.
13
<PAGE> 14
Results of Operations
The Company's vessels operate, or have operated in prior years, on time,
bareboat or voyage ("spot") charters. Each type of charter denotes a method by
which revenues are recorded and expenses are allocated. Under a time charter,
revenue is measured based on a daily or monthly rate and the charterer assumes
certain voyage expenses, such as fuel and port charges. Under a bareboat
charter, the charterer assumes all voyage and operating expenses; therefore, the
revenue rate is likely to be lower than a time charter. Under a voyage charter,
revenue is calculated based on the amount of cargo carried, most expenses are
for the shipowner's account and the length of the charter is one voyage. Revenue
may be higher in the spot market, as the owner is responsible for most of the
costs of the voyage. Other factors affecting net voyage revenues for voyage
charters are waiting time between cargoes, port costs, and bunker prices.
Vessel expenses included in net voyage revenue discussed above include operating
expenses such as crew payroll/benefits/travel, stores, maintenance and repairs,
insurance and miscellaneous. These expenses are a function of the fleet size,
utilization levels for certain expenses and requirements under laws, by
charterers and Company standards. Insurance expense varies with the overall
insurance market conditions as well as the insured's loss record, level of
insurance and desired coverage.
Significant Adjustments Related to Distribution and Change in Accounting
Principle:
Net income for the nine months ended September 30, 1998 was $32.5 million
compared to $12.8 million for the nine months ended September 30, 1997. Included
in the 1998 income is a benefit of $38.9 million for federal income taxes. In
connection with the Distribution, the subsidiary holding OMI Corp.'s
international business became a decontrolled corporation for income tax purposes
and deferred income taxes, which had previously been recorded, were reversed.
Similar adjustments are not expected to occur in the future. Included in the
1997 income of $12.8 million is $13.8 million, net of income taxes, from the
cumulative effect of a change in accounting principle.
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30,
1997
Voyage revenues decreased by $26.7 million for the three months and by $25.4
million for the nine months ended September 30, 1998 compared to same periods in
1997. The primary reason for the substantial decreases in revenues is the
exclusion of the revenues and the results of operations of the Company's
international businesses for periods after the Distribution.
Other revenues for all periods presented primarily represents revenues from ship
management services, with the increases in ship management revenues for the 1998
periods attributable to the Acquisition of Marine Transport Lines, Inc..
Vessel and voyage operating expenses decreased by approximately $17.6 million
for the nine months ended September 30, 1998 as compared to the same period in
1997 primarily as a result of the impact of the Distribution (international
businesses that were separated from the Company in June, 1998). This decrease
was partially offset by the impact of the addition of vessels from Marine
Transport Lines, Inc., and the costs associated with the start up expenses of
activating three vessels that had been in extended lay-up periods.
Operating lease expenses included in vessel and voyage operating expenses
increased by $12.7 million and $500,000 for the nine month and three month
periods ended September 30, 1998, respectively, compared to the same periods in
1997 because of the Company's decision to charter in four Suezmax tankers during
the 1998 periods.
The consolidated operating losses for the three month and nine month periods
ended September 30, 1998 reflect planned out of service time for two commercial
vessels for scheduled repairs during the quarter. The lost revenue related to
these outages, cumulatively 57 days, was approximately $2.7 million. In
addition, costs related to activating three ships, which had been in lay-up
since 1997 amounted to almost $1 million for the quarter ended September 30,
1998. Two of these vessels went into operation in August 1998 on spot charters,
while the other vessel went on time charter to a major oil company for a
two-year period starting in October, 1998.
14
<PAGE> 15
The Company's lightering operations had improved results due to
increased oil imports to the US Gulf on larger tankers which use the Company's
lightering services.
General and administrative expense increased by $400,000 for the nine month
period ended September 30, 1998 as compared to the comparable period in 1997,
but decreased by $1.8 million for the three months ended September 30, 1998
compared to the same period in 1997. The decrease in general and administrative
expenses for the three month period reflect the substantial changes in
organizational structure and cost controls made by Company management after the
Acquisition and Distribution.
Interest expense was approximately $400,000 for the three months and $3.6
million for the nine months ended September 30, 1998. The significant decreases
in interest expense results from lower borrowings by the Company (mostly
impacted by the Distribution) as well as lower interest rates for current
periods. In October, 1998 the Company fixed interest rates on $19.9 million of
floating rate long term debt for three years through an interest rate swap (see
Note 6 to the Condensed Consolidated Financial Statements).
Losses from equity in operations of affiliates in 1997 relate to the sale of dry
bulk vessels in which the Company had minority interest; income from joint
ventures in 1998 result from strong markets for the Suezmax and ULCC vessels
owned by the applicable joint ventures in the 1998 periods.
The income tax benefit for the nine month period ended September 30, 1998
represents principally the reversal of deferred taxes at the distribution date
for the Company's foreign subsidiaries which became decontrolled corporations
though the Distribution; income taxes are no longer payable on the deferred
taxable income of those companies and the deferred taxes were reversed. For the
three-month period ended September 30, 1998, the income tax provision is similar
to the statutory rate. The income tax provision for the three month period ended
September 30, 1997 differed from statutory rates because taxes were not accrued
on some of the earnings results of the Company's investments in joint ventures
as management considered those earnings to be invested for an indefinite period.
BALANCE SHEET
MTC's balance sheet as of September 30, 1998 reflects both the Distribution and
Acquisition transactions whereas the balance sheet as of December 31, 1997
reflects the historical balance sheet of OMI Corp. prior to such transactions.
LIQUIDITY AND CAPITAL RESOURCES
As a result of planned out of service time of certain Company vessels as
described above, the Company posted operating losses for the three months and
nine months ended September 30, 1998. After adding back charges for depreciation
and amortization, net cash used in operations was significantly less than
operating losses for the quarter and nine month periods.
Cash balances of $5.1 million as of September 30, 1998 include cash drawn from
the Company's revolving credit line of $2 million, as well as $3.25 million
borrowed from a joint venture company at market rates and terms. Concurrent with
the Acquisition and Distribution, the Company restructured various loan
agreements, including those of Marine Transport Lines, Inc. At September 30,
1998, the Company had total borrowings under these agreements of $28.7 million,
which was one million dollars less than its total borrowing capacity under the
loan agreements at that date. Other forms of cash available for operations and
investment by the Company include additional cash balances of approximately $4.5
million in the joint venture company as well as $4 million included in the
Capital Construction Fund. Both of these amounts are before applicable income
taxes payable on amounts withdrawn from their current use.
15
<PAGE> 16
During the three months ended September 30,1998 the Company used: $2.8 million
to reduce long-term debt balances; $3.7 million for planned repair and
activation of the Company's vessels as previously described; and $720,000 to
purchase 350,000 shares of the Company's Common Stock.
Cash balances and available credit lines are expected to be sufficient to meet
the Company's normal operating requirements, including scheduled payments of
long-term debt.
OTHER OPERATING MATTERS
The Company sold its vessel Savonetta in July 1998, and used the after tax
proceeds of $576,000 to reduce long term debt.
In July, 1998 MTC was awarded ship management contracts for four container
vessels operated for First Ocean Bulk Carriers and Lykes Lines.
In August, 1998 the Company completed negotiations with the owner of two
chemical/petroleum products vessels for the purchase of the vessels by the
Company by assumption of the outstanding mortgage debt on the vessels in the
aggregate amount of approximately $22.8 million.
In June, 1998 the Company was awarded contracts to manage ten vessels to replace
seventeen vessels currently managed under contracts with the U.S. Maritime
Administration which were due to expire in June, 1998. The Maritime
Administration subsequently rescinded awards to all awardees, and is
resoliciting proposals for management of its fleet. Expiring contracts have been
extended until November 30, 1998. Management expects further extensions of the
existing contract through at least December 31, 1998. The Company will resubmit
proposals to the Maritime Administration for new awards, but cannot anticipate
the outcome.
PRO FORMA FINANCIAL INFORMATION
Pro forma financial information included in the notes to the unaudited condensed
financial statements for the nine month periods ended September 30, 1997 and
1998 present certain historical financial information as if the Acquisition and
Distribution occurred on January 1, 1997. Although this pro forma financial
information is based on reasonable assumptions applied to past financial events,
management has taken certain actions subsequent to the Acquisition, which it
expects will improve the future operating results. These actions include:
reduction of salary and employment expenses, decrease in office rental
commitments and decreases in other administrative expenses which will reduce
total general and administrative expenses by approximately $8 million on an
annualized basis as compared to that amount allocated to OMI's Domestic Business
on a historical basis; employment of the laid up vessel Courier on a two year
charter at profitable rates, and implementation of plans for other laid up
vessels to profitably employ these vessels; and, expansion of the Company's ship
management business.
AGREEMENTS
As part of the Distribution, the Company is party to certain agreements with OMI
Corporation (New OMI), its former subsidiary. Certain provisions of these
agreements are summarized in Note 2 of the Condensed Consolidated Financial
Statements included herein. These agreements are included in the Company's Form
S-1 dated May 15, 1998.
EFFECTS OF INFLATION
The Company does not consider inflation to be a significant risk to the cost of
doing business in the foreseeable future. Inflation has a moderate impact on
operating expenses, drydocking expenditures and corporate overhead.
16
<PAGE> 17
YEAR 2000
MTC management has identified the following areas of concern relating to the
Year 2000 issue, and has determined appropriate courses of action as described
below. Internally generated funds will be used to fund testing, improvements or
replacements where necessary.
Navigation of vessels: the potential impact of failure of embedded
microprocessor chips on navigational equipment. All critical equipment on
each of the Company's vessels has been identified and vendors have been
contacted for certification for Year 2000 compliance. Where manufacturers
cannot provide certification for critical equipment, non-compliant
equipment will be replaced. Management does not anticipate material
expenditures for certification or replacement.
Communications: the potential failure of computer equipment used for
communications ship-to-shore and with other third parties ashore. All
equipment used for ship-to-shore communication will be tested for
compliance by the Company or an independent third party and will be
replaced where necessary; most of this equipment consists of personal
computers, off the shelf software and small servers. The cost of testing
and replacement is not expected to be significant.
Operations: the potential failure of embedded microprocessor chips on power,
steering and cargo systems aboard vessels. Critical machinery has been
identified and will be surveyed and tested by Company personnel or
independent third parties. Most systems have manual backup procedures or
systems in the event of failure. Management expects to complete this
testing prior to projected impact dates of Year 2000, but at this time is
not certain of the costs of remediation of any identified problems.
Administration: the impact of Year 2000 problems on the Company's computer
systems and those systems of third parties, such as vendors, customers and
banks. The Company plans to replace existing administrative (including
accounting) software and hardware used in related applications prior to
the projected impact dates of Year 2000. The cost of replacement of these
systems is expected to exceed $750,000. This expenditure was planned
because of the recent changes in the Company's operation, but
implementation has been accelerated as a result of identified Year 2000
problems.
Management is not certain of the preparedness of all of its third party
relations, and the potential impact of failure of their systems on the Company's
results of operations, liquidity and financial condition. Interruption of
services provided by the Company's vessels could result from many factors for
which the Company relies on third parties, such as delivery of equipment, fuel
and personnel, availability of assist vessels to enter and leave ports,
availability of cargo to haul and capacity to discharge ashore and availability
of repair facilities. Management is aware that most of its important customers
(mostly large, multi-national companies), and the Company's banks, are studying
Year 2000 issues and implementing changes where appropriate.
17
<PAGE> 18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
27.0 Financial Data Schedule, dated September 30, 1998
(b) Reports on Form 8-K.
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 1998
MARINE TRANSPORT CORPORATION
By:/s/ Richard T. du Moulin
-------------------------------------
Richard T. du Moulin
President and Chief Executive Officer
Date: November 10, 1998
By:/s/ Mark L. Filanowski
-------------------------------------
Mark L. Filanowski
Senior Vice President and Chief
Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27.0 Financial data schedule.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 CONTAINS SUMMARY INFORMATION EXTRACTED FROM MARINE TRANSPORT
CORPORATION SUBSIDIARIES CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,110
<SECURITIES> 0
<RECEIVABLES> 18,148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,398
<PP&E> 105,402
<DEPRECIATION> 65,839
<TOTAL-ASSETS> 110,745
<CURRENT-LIABILITIES> 22,829
<BONDS> 25,991
0
0
<COMMON> 3,121
<OTHER-SE> 11,599
<TOTAL-LIABILITY-AND-EQUITY> 110,745
<SALES> 0
<TOTAL-REVENUES> 147,345
<CGS> 0
<TOTAL-COSTS> 123,509
<OTHER-EXPENSES> 30,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,540
<INCOME-PRETAX> (7,830)
<INCOME-TAX> (40,304)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,474
<EPS-PRIMARY> 6.51
<EPS-DILUTED> 6.51
</TABLE>
