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UNITED STATES
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 MARCH 31, 1999
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 MAY 13, 1999:
Common Stock, par value $.50 per share, 6,555,368 shares
1
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MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I: FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1999 and 1998 4
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the year ended December 31, 1998 and the three
months ended March 31, 1999 6
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 8-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-15
PART II: OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
2
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PART 1: ITEM 1: FINANCIAL INFORMATION
SUMMARY OF CERTAIN TRANSACTIONS AFFECTING THE COMPANY
Marine Transport Corporation ("MTC" or the "Company"), formerly named OMI Corp.,
was established in its present form through a series of transactions
culminating June 17, 1998 through which OMI Corp.: (a) acquired Marine Transport
Lines, Inc. in a stock-for-stock exchange (the "Acquisition") and (b)
distributed to its shareholders the stock of a newly created Marshall Islands
corporation named OMI Corporation ("New OMI") containing OMI Corp.'s
international businesses (the "Distribution"). OMI Corp.
then changed its name to Marine Transport Corporation.
Upon completion of the Distribution, the assets, liabilities and equity for 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 including the
international businesses. For periods subsequent to the Acquisition and
Distribution, the Company's financial statements include the assets,
liabilities, equity and operation of OMI Corp.'s domestic business and reflect
the Acquisition of Marine Transport Lines, Inc. under the purchase method of
accounting. The financial position and results of operations of the Company
should be read and analyzed with careful consideration of the above transactions
and presentations.
Notes 1 and 2 to the Condensed Consolidated Financial Statements of Marine
Transport Corporation and Subsidiaries more fully describe the Acquisition and
Distribution transactions and the impact of these transactions on the
consolidated financial statements.
3
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MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Voyage revenues ........................... $ 32,266 $ 62,070
Other operating revenues .................. 5,287 467
-------- --------
37,553 62,537
-------- --------
Operating expenses:
Vessel and voyage ......................... 30,822 47,218
Depreciation and amortization ............. 3,331 7,490
General and administrative ................ 3,290 4,617
-------- --------
37,443 59,325
-------- --------
Operating income ............................ 110 3,212
Other income (expenses):
Net gain on disposal of assets ............ -- 550
Interest expense .......................... (550) (2,056)
Interest income ........................... 330 658
Equity in income of unconsolidated joint
ventures ................................ -- 1,042
-------- --------
Net other income (expenses) ............... (220) 194
-------- --------
Income (loss) before income taxes ........... (110) 3,406
Benefit (provision) for income taxes ........ 32 (1,161)
-------- --------
Net (loss) income ........................... $ (78) $ 2,245
======== ========
Basic earnings per common share:
Net (loss) income ........................... $ (.01) $ .52
======== ========
Diluted earnings per common share:
Net (loss) income ........................... $ (.01) $ .52
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1999 December 31,
(Unaudited) 1998 (1)
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 9,384 $ 8,652
Receivables, less allowances of $278
in 1999 and $509 in 1998 ........................... 16,641 13,624
Prepaid expenses and other current assets ........... 5,615 6,664
--------- ---------
Total current assets .................................. 31,640 28,940
Marketable securities and cash held in capital
construction fund .................................... 4,098 4,069
Vessels and other property, at cost ................... 106,531 106,481
Less: accumulated depreciation ........................ (69,457) (67,703)
--------- ---------
Vessels and other property-net ...................... 37,074 38,778
Vessel drydocking costs ............................... 6,521 7,429
Note receivable ....................................... 9,000 9,000
Other assets and deferred charges ..................... 6,805 6,602
Goodwill .............................................. 11,460 11,652
--------- ---------
TOTAL ASSETS .......................................... $ 106,598 $ 106,470
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 12,640 $ 9,604
Accrued income taxes ................................ 256 --
Accrued liabilities ................................. 8,965 8,092
Current portion of debt ............................. 3,342 3,034
--------- ---------
Total current liabilities ............................. 25,203 20,730
Advance time charter revenues and other liabilities ... 715 1,500
Deferred gain on sale of vessels ...................... 20,426 21,258
Deferred income taxes ................................. 22,180 22,902
Long-term debt ........................................ 22,180 24,111
Shareholders' equity .................................. 15,894 15,969
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 106,598 $ 106,470
========= =========
</TABLE>
(1) The balance sheet as of December 31, 1998 has been derived from the
audited financial statements as of that date, but does not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. See notes to condensed
consolidated financial statements.
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MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------ Retained Other Other
Capital Earnings Comprehensive Comprehensive Restricted Treasury
Shares (1) Amount Surplus (Deficit) Income Income Stock Stock
---------- ------ ------- --------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of Dec 31, 1997 4,307 $2,154 $ 206,105 $ 8,979 $ 4,890 $(1,105) $ --
Comprehensive income:
Net income (loss) 33,072 $33,072
Net unrealized gain (loss) on
securities, net of tax
benefit of $16 (29) (29)
-------
Comprehensive income $33,043
=======
Exercise of stock options 5 2 210
Retirement of minority
shareholders' equity interest
in subsidiary (681)
Amortization of unearned
compensation 1,105
Issuance of common stock 2,243 1,121 10,779
Spin-off of foreign subsidiaries (190,952) (54,047) (4,912)
Purchase of treasury stock (722)
----- ------ --------- -------- ------- ------- -----
Balance as of Dec 31, 1998 6,555 $3,277 $ 25,461 $(11,996) $ (51) $ -- $(722)
Comprehensive income:
Net income (loss) (78)
Comprehensive income 3
----- ------ --------- -------- ------- ------- -----
Balance at March 31, 1999 6,555 $3,277 $ 25,461 $(12,074) $ (48) $ -- $(722)
===== ====== ========= ======== ======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Total
---------
<S> <C>
Balance as of Dec 31, 1997 $ 221,023
Comprehensive income:
Net income (loss) 33,072
Net unrealized gain (loss) on
securities, net of tax
benefit of $16 (29)
Comprehensive income
Exercise of stock options 212
Retirement of minority
shareholders' equity interest
in subsidiary (681)
Amortization of unearned
compensation 1,105
Issuance of common stock 11,900
Spin-off of foreign subsidiaries (249,911)
Purchase of treasury stock (722)
---------
Balance as of Dec 31, 1998 $ 15,969
Comprehensive income:
Net income (loss) (78)
Comprehensive income 3
---------
Balance at March 31, 1999 $ 15,894
=========
</TABLE>
(1) Restated to give retroactive effect to 1 for 10 reverse stock split. See
notes to condensed consolidated financial statements
6
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MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES:
Net (loss) income $ (78) $ 2,245
Adjustments to reconcile income to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,331 7,490
Amortization of unearned compensation -- 57
Amortization of deferred gain on sale and leaseback (832) (1,452)
Equity in operations of joint ventures -- (1,042)
Deferred income taxes (722) 1,161
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and
other current assets (2,069) (5)
Advances (from) to joint ventures - net -- (225)
(Decrease) increase in accounts payable and accrued
liabilities 4,166 (10,874)
Increase (decrease) in unearned income (786) (658)
(Decrease) increase in other assets and deferred
charges 2,144 983
-------- --------
Net cash provided by (used in) financing activities 5,154 (2,320)
-------- --------
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES:
Additions to vessels and other property 26 (12,436)
Proceeds and interest received and reinvested in capital
construction fund (26) (194)
Payment for the retirement of minority shareholders'
interest -- (2,584)
Additions to vessel drydocking costs (192) --
-------- --------
Net cash provided by (used in) investing activities (192) (15,214)
-------- --------
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES:
Payment of lease obligation (2,607) --
Proceeds from line of credit -- 10,000
Payments for debt issue costs -- (175)
Net proceeds from issuance of common stock -- 91
Payment of long-term debt (1,623) (772)
-------- --------
Net cash provided by (used in) financing activities (4,230) 9,144
-------- --------
Increase (decrease) in cash and cash equivalents 732 (8,390)
Cash and cash equivalents at beginning of period 8,652 32,489
-------- --------
Cash and cash equivalents at end of period $ 9,384 $ 24,099
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
7
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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 the Company's
former foreign-flagged shipping businesses, and continues to operate those
businesses as OMI Corporation ("New OMI") under the Company's previous
management.
Prior to 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-flagged vessels, in exchange for the
consideration described in Note 2 (the "Acquisition"). The Company is currently
managed by certain former officers and 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 unaudited
condensed consolidated financial statements for prior years include the results
of UBC through June 17, 1998, and the results of MTL subsequent to June 17,
1998. Immediately following the Acquisition and Distribution, the Company
completed 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 1998
financial statements to conform to their 1999 presentation. Reference is made to
MTC's Form 10-K for the year ended December 31, 1998 and the Form S-1 filed on
May 15, 1998 for additional information.
NOTE 2 - ACQUISITION AND DISTRIBUTION
As consideration for the Acquisition: (a) the Company issued common stock of OMI
Corp. with a market value of $5,000,000 to the shareholders of MTL; (b) the
Company issued a certain number of shares of newly-issued common stock to the
shareholders of MTL; and (c) shareholders of MTL became entitled to additional
shares of the Company's newly-issued common stock, determined by the outcome of
certain post-transaction calculations. The Acquisition was valued at
approximately $11,886,000 representing the Company's fair value of MTL at the
date the transaction was completed plus the fair value of additional shares
issued as a purchase price adjustment for working capital amounts in excess of
pre-established levels per the Acquisition Agreement. The Acquisition has been
accounted for as a purchase.
8
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The pro forma unaudited results of operations for the three months ended March
31, 1998, assuming consummation of the Acquisition and Distribution as of
January 1, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998
--------
<S> <C>
Revenues $ 26,427
Vessel and voyage expenses 27,715
General and administrative expenses 4,433
--------
Loss before other expense and
income taxes (5,721)
--------
Net loss $ (1,247)
========
Basic and diluted earnings per common share:
Net loss $ (.29)
</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
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 $6.4 million, which was equivalent in value to the
principal amount of the Senior Notes then 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
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Acquisition Agreement-The Acquisition Agreement provided for an adjustment in
the purchase price of Marine Transport Lines, Inc. based on working capital
amounts as of the date of the Acquisition compared to certain pre-established
levels. The purchase price adjustment was made by increasing the number of
shares of the Company which were exchanged for MTL's shares. In December 1998,
MTC issued approximately 312,000 shares of its common stock to former MTL
shareholders pursuant to this provision.
NOTE 3 - EARNINGS PER COMMON SHARE
The computation of basic earnings per share is based on weighted average number
of common shares outstanding of 6,205,000 and 4,307,000 for the three months
ended March 31, 1999 and 1998 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 6,205,000 and 4,343,000 for the three months ended March 31, 1999
and 1998 respectively.
NOTE 4 - INCOME TAXES
The provision for income taxes on income varies from the statutory rates as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31
---------------------
1999 1998
------- -------
<S> <C> <C>
Provision calculated at statutory rates $ (38) $ 1,192
Adjustment for equity in operations of certain
joint ventures -- (31)
Other 6 --
------- -------
(Benefit) provision for income taxes $ (32) $ 1,161
======= =======
</TABLE>
In 1998 and prior years the Company has not provided deferred income taxes on
its equity in the undistributed earnings of foreign corporate joint ventures
accounted for under the equity method other than Amazon Transport, Inc.
("Amazon") and White Sea Holdings ("White Sea"). These earnings are considered
by management to be invested in the business for an indefinite period.
NOTE 5 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
At March 31, 1999 Long-Term Debt consisted of the following (in thousands):
<TABLE>
<S> <C>
Term loan $18,218
Revolving credit facility 700
Subordinated debt due to New OMI 6,268
Promissory note due to New OMI 336
-------
Total debt 25,522
Less current portion 3,342
-------
Long-term portion $22,180
=======
</TABLE>
All debt at March 31, 1999 was created or amended concurrently with the
Acquisition. The term loan and revolving credit facility of the Company accrue
interest at a floating rate based on LIBOR (the London Interbank Offering Rate)
plus a margin that is determined by certain financial ratios (spreads at March
31, 1999 ranged from 1.25% to 2.25%). The Company pays a commitment fee each
quarter on the portion of the revolving credit agreement facility that is unused
and available during the quarter. At March 31, 1999 the unused and available
revolving credit facility totaled $ 2,300,000.
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The subordinated debt bears interest at a fixed dollar amount payable
semi-annually over the term of the note which results in an average annual
interest rate of 12.71 %. The principal is payable in semi-annual installments
of $175,000 through May 1, 2003 with a final installment of $ 4,693,000 on
November 1, 2003. The promissory note bears interest at 8% and is payable in
semi-annual installments of principal and interest
equal to approximately $ 37,000 through May 1, 2003.
The Company uses interest rate swaps to manage interest costs and those risks
associated with changing interest rates. At March 31, 1999 the Company had
outstanding an interest rate swap with a notional amount of $18,984,326 which
effectively fixed the base LIBOR interest rate on the Company's term loans at
4.75% for a three-year period.
The term loan is payable in seventeen simultaneous quarterly installments
through June 18, 2003; the first installments total $424,564; the next fifteen
installments total $830,814 each; and the final installment totals $5,330,805.
The revolving credit facility reduces to $2,000,000 on June 18, 2001 and expires
on June 18, 2003.
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 reduce debt with the proceeds
derived from the sale of any vessels. In addition, the Company's vessels are
pledged as collateral to secure the debt outstanding under the term loan and
revolving credit facility agreements. At March 31, 1999 the Company was in
compliance with all covenants imposed by its debt agreements.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of litigation and arbitration proceedings
arising from its operations. Such actions are covered by insurance or, in the
opinion of management are of such a nature that the ultimate liability, if any,
would not have a material adverse effect on the operations or financial position
of the Company.
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. acquired Marine Transport Lines, Inc. in
a stock-for-stock exchange (the "Acquisition") and then distributed to its
shareholders a subsidiary containing its international business (the
"Distribution"). 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 Acquisition and Distribution, 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
11
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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 Notes 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 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.
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.
MARKET OVERVIEW
Prior to the Acquisition and Distribution, OMI Corp.'s major business was
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
distributed to its shareholders in the Distribution. In addition, as a separate
domestic business segment, 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.
The product carrier fleet transported refined petroleum products such as
gasoline, jet fuel, kerosene, naphtha and gas oil, as well as other
non-petroleum products. Average freight rates in this market improved in 1997
over 1996. However, rates reached a very high level in the first quarter of 1997
but receded gradually after that. The decline was the result of higher refinery
throughput in industrialized countries as well as reduced growth in oil product
imports in the Pacific region due to refinery capacity additions in the area and
financial crises in Southeast Asia and Korea. Product tanker rates were at low
levels in the first quarter of 1998 as a result of a very mild winter in the
U.S. and Europe.
The improvement in tanker freight rates which began in mid-1995 continued
through 1997 with average rates increasing for all tanker size groups. The rate
gains in the last few years have been the result of high oil demand growth
together with a modest increase in the supply of tankers have created a better
tanker supply/demand balance. Average freight rates for Suezmaxes and Very Large
Crude Carriers early in 1998 were higher than the rates prevailing in the same
period a year ago, but lower for Aframax tankers. Tanker freight rates are
expected to improve further due to the general strength of the world economy,
the expected continued increase in oil demand growth (notwithstanding the
financial crises in Southeast Asia and Korea), the large proportion of old
tanker tonnage relative to the orderbook and the continued focus of governments
and charterers on safe, well maintained tonnage.
The above comments pertain to the major parts of the Company's business prior to
the Acquisition and Distribution. Following the Acquisition and Distribution,
the market for the Company's major businesses can be described as follows:
12
<PAGE> 13
Energy and Chemical Transportation: MTC's shipping philosophy is to serve 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.
Lightering Services: MTC 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 aspects of ship operation.
MTC manages one of the largest U.S.- based fleets. Management contracts range in
length from one to five years in remaining term.
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 revenues discussed above, include
operating expenses such as crew payroll/benefits/travel, stores, maintenance and
repairs, drydock, and insurance. 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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO MARCH 31, 1998
Net loss of MTC for the three months ended March 31, 1999 was $78,000 as
compared to net income of $2.2 million for the three months ended March 31,
1998.
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<PAGE> 14
Voyage revenues decreased by $29.8 million for the three months ended March 31,
1999 as compared to March 31, 1998. The primary reason for the substantial
decrease in revenues is the exclusion of the Company's international businesses
in 1999. In the period ended March 31, 1998, the international businesses
reported revenues of $40 million. This decrease was partially offset by
increases in revenues due to changes in market demand for certain vessels which
were not operational in 1998, but were in operation for a large part of the
1999 reporting period, as well as the addition of vessels from MTL.
Other operating revenues for all periods primarily represent revenues from ship
management services, with the increases in 1999 ship management revenues
attributable to the Acquisition of MTL.
Vessel and voyage operating expenses decreased primarily as a result of the
impact of the Distribution (international businesses that were separated from
the Company in June, 1998). This decrease in expense was partially offset by the
addition of vessels from MTL.
Operating expenses decreased $21.9 million due primarily to the Distribution in
June 1998 that separated the foreign fleet. This decrease was partially offset
by operation of additional vessels and the additions of vessels from MTL.
The significant decrease in interest expense results from lower borrowings by
the Company (mostly arising from the transfer to OMI Corporation of long-term
debt in connection with the Distribution) as well as lower interest rates for
current periods.
Equity in income of unconsolidated joint ventures primarily represents
investments the Company had in vessels used in international trade which were
part of the Distribution.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances of $9.4 million as of March 31, 1999 include cash drawn from the
Company's revolving credit facilities of $.7 million. Concurrent with the
Acquisition and Distribution, the Company restructured various loan agreements,
including those of MTL. At March 31, 1999, the Company had total borrowings
under these agreements of approximately $25.5 million. Other forms of cash
available for operations and investment include $4.1 million in marketable
securities and cash held in the capital construction fund. The above amount is
before applicable income taxes payable on amounts withdrawn from their current
use.
Cash balances, available credit facilities, and anticipated cash flow from
operations are expected to be sufficient to meet the Company's normal operating
requirements, including scheduled debt service payments.
14
<PAGE> 15
OTHER OPERATING MATTERS
The Company continues negotiations with the owner of two chemical/petroleum
products vessels for the purchase of the vessels by assumption of the
outstanding mortgage debt on the vessels in the aggregate amount of
approximately $22.8 million.
The Company recently agreed to a new arrangement for use of the vessel MARINE
COLUMBIA by BP Oil Shipping Company USA ("BP"). Under terms of the new
agreement, the vessel will be utilized until at least November 2006 by BP in
its Alaska trade. As part of the arrangement, vessel management and operations
will be performed by Alaska Tanker Company, LLC.
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 ("MARAD") which were due to expire in June, 1998. MARAD
subsequently rescinded awards to all awardees, and has resolicited proposals for
management of its fleet. Expired contracts were extended until June 30, 1999.
The Company has submitted proposals to MARAD for new awards, but cannot
anticipate the outcome of this process.
PRO FORMA FINANCIAL INFORMATION
Pro forma financial information included in the notes to the unaudited condensed
financial statements for the three month periods ended March 31, 1998 present
certain historical financial information as if the Acquisition and Distribution
occurred on January 1, 1998. 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 dollars on an annualized basis as compared
to that amount allocated to the Company's Domestic Business on a historical
basis; employment of the layed up vessel Courier on a two year charter at
profitable rates, and implementation of plans for other layed 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 and the 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.
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.
15
<PAGE> 16
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.
PART II: OTHER INFORMATION
There have been no material developments since the previously reported legal
proceedings.
Item 2. Changes in Securities.
-None-
Item 3. Exhibits and Reports on Form 8-K
(a) Exhibits
- None -
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Company filed the
following reports on Form 8-K:
- None -
16
<PAGE> 17
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: May 10, 1999 MARINE TRANSPORT CORPORATION
By: /s/ RICHARD T. du MOULIN
-------------------------------------
Richard T. du Moulin
President and Chief Executive Officer
Date: May 10, 1999 By: /s/ MARK L. FILANOWSKI
-----------------------------------------
Mark L. Filanowski
Senior Vice President and Chief Financial
Officer
17
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