<PAGE> 1
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, 2000
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
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 15, 2000:
Common Stock, par value $.50 per share, 6,555,368 shares
1
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MARINE TRANSPORT CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
for the three months ended
March 31, 2000 and 1999 4
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the three months ended
March 31, 2000 and for the year ended
December 31, 1999. 6
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-16
PART II: OTHER INFORMATION 17
SIGNATURES 18
2
<PAGE> 3
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 containing OMI Corp.'s international
businesses (the "Distribution"). OMI Corp. then changed its name to Marine
Transport Corporation. The Company trades under the symbol "MTLX" and is listed
on the NASDAQ National Market.
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 operations 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.
Marine Transport Corporation is a U.S.-based supplier of marine transportation
services. The Company owns and operates a fleet of vessels for its own account,
and it also manages vessels for other vessel owners. It presently operates one
of the largest U.S.-based fleets of ocean-going vessels.
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 OMI Corp's shareholders in the Distribution. In addition, as a
separate domestic business segment, OMI Corp. 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.
As a result of the Acquisition and the Distribution, the major businesses of MTC
are presently:
- - 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 shipowners, including the U.S.
Government.
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,
2000 1999
-------- --------
Revenues:
<S> <C> <C>
Voyage revenues .................................... $ 37,630 $ 32,266
Other operating revenues ........................... 6,765 5,287
-------- --------
44,395 37,553
-------- --------
Operating expenses:
Vessel and voyage ..................................... 41,440 30,822
Depreciation and amortization ......................... 3,784 3,331
General and administrative ............................ 3,802 3,290
-------- --------
49,026 37,443
-------- --------
Operating income (loss) ................................. (4,631) 110
Other income (expenses):
Interest expense ...................................... (815) (550)
Interest income ....................................... 524 330
Minority interest ..................................... 275 --
-------- --------
Net other expenses ...................................... (16) (220)
-------- --------
Loss before income taxes and
extraordinary item ..................................... (4,647) (110)
Benefit for income taxes ................................ 1,589 32
-------- --------
Loss before extraordinary item .......................... (3,058) (78)
Extraordinary income from extinguishment of debt, net
of income taxes of $352 ................................ 654 --
-------- --------
Net loss ................................................ $ (2,404) $ (78)
======== ========
Basic earnings per common share:
Loss before extraordinary item .......................... (0.49) (0.01)
Extraordinary income, net of income taxes ............... 0.10 --
-------- --------
Net loss ................................................ $ (0.39) $ (0.01)
======== ========
Diluted earnings per common share:
Loss before extraordinary item .......................... (0.49) (0.01)
Extraordinary income, net of income taxes ............... 0.10 --
-------- --------
Net loss ................................................ $ (0.39) $ (0.01)
======== ========
</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,
2000 December 31,
ASSETS (Unaudited) 1999 (1)
--------- ---------
Current assets:
<S> <C> <C>
Cash and cash equivalents ................................... $ 10,872 $ 4,658
Receivables, less allowances of $366 in 2000 and $165 in 1999 17,162 19,886
Income tax receivable ....................................... 1,504 --
--------- ---------
Prepaid expenses and other current assets ................... 5,005 4,482
--------- ---------
Total current assets .......................................... 34,543 29,026
Restricted cash ............................................... 4,000 --
Marketable securities and cash held in capital construction
fund ........................................................ 4,244 4,125
Vessels and other property, ................................... 129,489 128,784
Less: accumulated depreciation and amortization ............... (77,699) (75,498)
--------- ---------
Vessels and other property-net .............................. 51,790 53,286
Vessel drydocking costs ....................................... 6,855 8,643
Note receivable ............................................... 9,000 9,000
Other assets and deferred charges ............................. 6,421 6,769
Goodwill ...................................................... 10,782 11,016
--------- ---------
TOTAL ASSETS .................................................. $ 127,635 $ 121,865
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 11,641 $ 16,824
Accrued income taxes ........................................ -- 94
Accrued liabilities ......................................... 7,262 1,971
Current portion of debt ..................................... 5,810 5,999
--------- ---------
Total current liabilities ..................................... 24,713 24,888
Advance time charter revenues and other liabilities ........... 2,096 675
Deferred gain on sale of vessels .............................. 36,820 17,790
Deferred income taxes ......................................... 20,330 20,854
Long-term debt ................................................ 28,533 40,214
Shareholders' equity .......................................... 15,143 17,444
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $ 127,635 $ 121,865
========= =========
</TABLE>
(1) The balance sheet as of December 31, 1999 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.
5
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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
Shares (1) Amount Surplus (Deficit) Income Income
<S> <C> <C> <C> <C> <C> <C>
Balance as of Dec 31, 1998 6,555 $3,277 $25,461 $(11,996) $ (51)
Comprehensive income:
Net income (loss) 1,624 $1,624
Net unrealized gain (loss) on
securities, net of tax
benefit of $39 (149) (149)
-------
Comprehensive income $1,475
=======
Balance as of Dec 31, 1999 ----- ------ ------- -------- -----
6,555 $3,277 $25,461 $(10,372) $(200)
Comprehensive income:
Net income (loss) (2,404) (2,404)
Net unrealized gain (loss) on
securities, net of tax
benefit 74 75
-------
Comprehensive income $(2,329)
=======
Issuance of restricted stock
awards 53 265
Amortization of deferred
compensation
===== ====== ======= ======== =====
Balance at March 31,2000 6,555 $3,330 $25,727 $(12,776) $(126)
===== ====== ======= ======== =====
</TABLE>
<TABLE>
<CAPTION>
Deferred Treasury
Compensation Stock Total
<S> <C> <C> <C>
Balance as of Dec 31, 1998 $ --- $(722) $15,969
Comprehensive income:
Net income (loss) 1,624
Net unrealized gain (loss) on
securities, net of tax
benefit of $39 (149)
Comprehensive income
Balance as of Dec 31, 1999 ----- ----- -------
$ --- $(722) $17,444
Comprehensive income:
Net income (loss) (2,404)
Net unrealized gain (loss) on
securities, net of tax
benefit 75
Comprehensive income
Issuance of restricted stock
awards (318)
Amortization of deferred
compensation 28 28
===== ===== =======
Balance at March 31,2000 $(290) $(722) $15,143
===== ===== =======
</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,
2000 1999
-------- --------
CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES:
<S> <C> <C>
Net cash provided (used) by operating activities $ 24,379 $ 5,154
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES:
Additions to vessels and other property (1,087) 26
Increase in restricted cash (4,000) --
Proceeds and interest received and reinvested in Capital
Construction Fund (45) (26)
Deferred Compensation 29 --
Additions to vessel drydocking costs (1,192) (192)
-------- --------
Net cash provided (used) by investing activities (6,295) (192)
-------- --------
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES:
Payment of lease obligations -- (2,607)
Payment of long-term debt (11,870) (1,623)
-------- --------
Net cash provided (used) by financing activities (11,870) (4,230)
-------- --------
Increase in cash and cash equivalents 6,214 732
Cash and cash equivalents at beginning of period 4,658 8,652
-------- --------
Cash and cash equivalents at end of period $ 10,872 $ 9,384
======== ========
</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 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.
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 1999
financial statements to conform to their 2000 presentation. Reference is made to
MTC's Form 10-K for the year ended December 31, 1999 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
<PAGE> 9
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 $6,400,000, 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.
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 6,205,000 for the three months
ended March 31, 2000 and 1999, 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 6,205,000 for the three months ended March 31, 2000
and 1999, respectively.
9
<PAGE> 10
NOTE 4 - INCOME TAXES
The benefit for income taxes varies from the statutory rates as follows (in
thousands):
<TABLE>
<CAPTION>
For the three
Months ended
March 31,
----------------------
2000 1999
------- -------
<S> <C> <C>
Benefit calculated at statutory rates $(1,626) $ (38)
Other 37 6
------- -------
Benefit for income taxes $(1,589) $ (32)
======= =======
</TABLE>
NOTE 5 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
At March 31, 2000 Long-Term Debt consisted of the following (in thousands):
<TABLE>
<S> <C>
Term loan $13,866
Revolving credit facility --
Promissory note due to New OMI 262
Title XI debt 20,215
-------
Total debt 34,343
Less current portion 5,810
-------
Long-term portion $28,533
-------
</TABLE>
All debt at March 31, 2000, with the exception of the Title XI debt, was created
or amended and restated concurrently with the Acquisition. The term loan and
revolving credit facilities of the Company accrue interest at a floating rate
based on LIBOR (the London Interbank Offering Rate) plus a margin (which can
range from 1.25% to 2.25%) that is determined by certain financial ratios (the
spread at March 31, 2000 was 1.75%). The Company pays a commitment fee each
quarter on the portion of the revolving credit agreement facilities that is
unused and available during the quarter. At March 31, 2000 the unused and
available revolving credit facilities totaled $3,000,000.
The promissory note bears interest at 8% and is payable in semi-annual
installments of principal and interest through May 1, 2003, with principal
payments equaling approximately $37,000.
The Company uses interest rate swaps to manage interest costs and those risks
associated with changing interest rates. At March 31, 2000 the Company had
outstanding an interest rate swap with a notional amount of $15,886,912 which
effectively fixed the base interest rate on the Company's term loans at 4.75%
until December 17, 2001.
The term loan is payable in thirteen quarterly installments through
June 18, 2003; the first twelve installments total $797,372 each; and the final
installment totals $5,297,362. The revolving credit facilities reduces to
$2,000,000 on June 18, 2001 and expire on June 18, 2003.
On September 28, 1999 the vessels SMT Chemical Trader and SMT Chemical Explorer
(formerly the Frances Hammer and Julius Hammer, respectively) were acquired by
two wholly-owned subsidiaries of the Company. The acquisition price was
$21,884,000 consisting of a cash payment of approximately $514,000 and the
remaining principal on two loans guaranteed by the United States Department of
Transportation Maritime Administration (the "Title XI debt"), which loans were
assumed by the Company's subsidiaries. The Title XI debt, which has an interest
rate of 8.125%, is payable in thirteen semi-annual installments which total
$1,231,00 in 2000; $2,719,000 in 2001; $2,962,000 in 2002; $2,938,000 in 2003;
$3,348,000 in 2004; $3,823,000 in 2005; and $3,195,000 in 2006.
10
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The Title XI debt impose semi-annual declining penalties on any prepayment until
September 2005. Occidental Petroleum Corporation, the former guarantor of the
Title XI debt, continues to provide a reducing guaranty in favor of the United
States of America of up to $6,000,000. The Company and Stolt-Nielsen S.A.
("Stolt") also severally guarantee all the Title XI debt with the Company
providing a 75% guaranty and Stolt providing a 25% guaranty. The Company's
Marketable Securities and Cash held in the Capital Construction Fund, which
currently totals $4,244,000 has also been pledged as security for the Title XI
debt and may, under certain circumstances, be employed to reduce the outstanding
principal amount.
The Company's debt obligations restrict its 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, all Company assets (except for SMT
Chemical Explorer and SMT Chemical Trader, which are encumbered by their own
mortgages, and certain workboats owned by the Company's wholly-owned subsidiary,
MTL Petrolink) are pledged as collateral to secure the debt outstanding under
the term loan and revolving credit facility agreements. At March 31, 2000 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.
NOTE 7 - FINANCIAL INFORMATION RELATING TO SEGMENTS
During the quarter ended March 31, 2000 and 1999 the Company operated in
following two distinct operating segments:
Ship Management ("Management") Technical management of vessels owned by others,
including vessels of the U.S. Maritime Administration ("MARAD").
Transportation Services for Energy and Chemicals ("Energy and Chemicals") Owned
and chartered-in U.S.-based vessels operating under time and voyage charters
with customers, which are primarily chemical and oil-production companies.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Transportation
of Energy and
Management Chemicals Total
---------- -------------- -------
March 31, 2000
Total revenues .............................. $ 5,160 $ 39,509 $ 44,669
Vessel and voyage expenses .................. (2,864) (38,567) (41,451)
Depreciation expense ........................ (647) (3,136) (3,783)
------- -------- --------
Segment income (loss) ....................... $ 1,649 $ (2,194) (555)
======= ========
General & administrative expenses ........... (3,802)
Interest expense, net ....................... (290)
--------
Consolidated loss before income taxes and
extraordinary items........................ $ (4,647)
========
Total assets ............................ $14,291 $ 89,417 $103,708
======= ======== ========
Transportation
of Energy and
Management Chemicals Total
---------- --------------- --------
March 31, 1999
Total revenues .............................. $ 5,287 $ 32,266 $ 37,553
Vessel and voyage expenses .................. (2,505) (28,318) (30,823)
Depreciation expense ........................ (640) (2,691) (3,331)
------- -------- --------
Segment income (loss) ....................... $ 2,142 $ (1,257) (3,399)
======= ========
General & administrative expenses ........... (3,290)
Interest expense, net ....................... (219)
--------
Consolidated loss before income taxes ....... $ (110)
========
Total assets ............................ $16,058 $ 70,791 $ 86,849
======= ======== ========
</TABLE>
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.
11
<PAGE> 12
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 US Government for its Ready Reserve fleet. These
businesses were combined with those of MTL as a result of the Acquisition. The
market for the Company's present businesses can be described as follows:
Energy and Chemical Transportation: MTC operates a fleet of tankers used in
carriage of liquid chemical and petroleum cargoes for contract customers and
spot market movements in domestic and international trades. The Company owns ten
vessels used in this trade (including the vessels Chemical Explorer and Chemical
Trader discussed below) and in turn charters these vessels, or contracts for
utilization of space aboard the vessels, with owners of the products moved by
the vessels. The Company's primary customers are large oil and chemical
companies or traders who sell products to large oil and chemical companies.
During the quarter ended September 30,1999 the Company chartered in an
additional tanker and cargo space on two others to provide capacity for
contracts recently awarded to the Company. Most of the Company's vessels operate
in the protected U.S. Jones Act trades.
In August of 1999, the Company purchased the vessels Chemical Explorer and
Chemical Trader. These vessels are chartered to a joint venture which is 75%
owned by MTC and 25% owned by Stolt. Operating results of this joint
venture are consolidated with MTC's financial statements. These two vessels
presently operate in international markets.
On March 6, 2000 Marine Transport Corporation acquired the ocean bulk
transportation businesses of Mormac Marine Group, Inc.("Mormac"), a privately
held company, in exchange for a: (a) cash payment in the amount of $100,000; and
(b) a series of fixed and contingent payments to be made over the next five
years. The minimum amount payable to Mormac over the five year period is
approximately $7 million. By entering into bareboat charters for three vessels
owned by Mormac and purchasing the stock of a Company engaged in the business
of vessel management, MTC: (a) became liable for certain costs associated with
the three vessels; (b) became entitled to the benefits of certain contractual
arrangements to which these vessels
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are subject; and (c) assumed the rights and obligations arising from vessel
management agreements with third parties.
The Company also provides lightering services in the Gulf of Mexico through its
subsidiary MTL Petrolink, Inc. MTL Petrolink charters in Aframax tankers and
provides assist vessels to discharge large crude oil vessels offshore and
deliver the cargo to U.S. ports in the Gulf of Mexico.
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.
Including owned and managed vessels, MTC manages a total of 40 vessels, making
it one of the largest U.S.- based fleets. Management contracts with outside
customers have remaining terms of one to five years.
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, 2000 COMPARED TO MARCH 31, 1999
Voyage revenues increased by $5.4 million for the three months ended March 31,
2000 as compared to March 31, 1999. The primary reason for the increase is the
acquisition of SMT Chemical Trader and SMT Chemical Explorer and the revenues
generated by the operation of the three bareboat chartered Mormac tankers. These
increases were partially offset by the weaker demand for lightering services in
the U.S. Gulf of Mexico.
Other operating revenues for all periods primarily represent ship management
services. The increase in the three months ended March 31, 2000 as compared to
1999 is due to the increase in management fees for the government contracts in
July 1999, as well as the addition of the fees for the newly acquired vessel
management company from Mormac Marine Group, Inc.
Vessel and voyage operating expenses for the three months ended March 31, 2000
versus the three months ended March 31,1999 increased primarily as a result of
the new acquisitions, fuel costs increases as described below and the increase
in hire rates on the vessels chartered in by Petrolink to satisfy customer
demand of the lightering services in the U.S. Gulf of Mexico. Low lightering
demand early in the quarter ended March 31, 2000 required Petrolink to charter
its vessels into the international voyage trade at rates materially below those
paid by Petrolink, which caused Petrolink to operate at a loss. By mid-quarter,
an increase in lightering activity was accompanied by an unexpected surge in
crude oil tanker charter rates, including the Aframax tankers utilized by
Petrolink to meet customer demand, thereby causing further losses for
Petrolink.
13
<PAGE> 14
Recent increases in the price of oil had a related impact on the price of fuel
consumed by the Company's vessels. Depending on a particular vessel's trade or
customer, the impacts of rising fuel prices on operating results vary. For
example, vessels involved in spot market trading frequently see immediate spot
market rate changes to compensate for changes in fuel prices. Many of the
Company's contracts of affreightment contain fuel escalation clauses to
partially compensate for increases in fuel costs beyond a certain threshold. For
those vessels on time charter or bareboat charter, fuel increases are the
responsibility of the customer. Overall, the increases in fuel prices
significantly affect voyage performance for the spot vessels. The low level of
PL-480 grain cargo awards by the U.S. Government during the quarter ended March
31, 2000 weakened the overall spot market for U.S. flag product tankers and
kept the vessels Patriot and Rover out of service for a significant portion of
the quarter, which resulted in losses.
The increase in interest expense results from higher borrowings by the Company
(mostly arising from the assumption of Title XI debt).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 the Company had $3,000,000 available to borrow from the
Company's revolving credit facilities. Concurrent with the Acquisition and
Distribution, the Company restructured various loan agreements, including those
of MTL. At March 31, 2000, the Company had total borrowings under these
agreements and the assumption of the Title XI debt associated with two recently
acquired chemical tankers of approximately $34,300,000.
Cash balances, existing 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.
OTHER OPERATING MATTERS
On January 27, 2000, the Company completed a transaction which allowed it to
monetize $48,417,638 in future charter earnings to be generated by the vessel
Marine Columbia pursuant to a time charter with BP Amoco. Of this amount,
$23,417,638 was used to replace certain indebtedness associated with the vessel,
$1,000,000 was used to settle a claim against an affiliate of MTC and the
remaining $24,000,000 was transferred to an affiliate of MTC for current
operations and growth, as well as for other projects. $1.0 million of the
proceeds received by the Company was used to prepay a portion of the term loan
indebtedness, and $4,000,000 of the proceeds was pledged as collateral to secure
the Company's bank borrowings. At March 31, 2000 the amount pledged is included
in marketable securities and cash held in capital construction fund on the
Company's Balance Sheet.
On February 7, 2000, Marine Transport Corporation discharged a promissory note
to OMI Corporation with a face amount of $6,443,000. The outstanding balance of
$5,918,000, as well as interest accrued to that date, was extinguished with a
payment of $5,100,000. The resulting extraordinary after tax gain of
approximately $649,000 ($.10 per share) is reported in the Company's financial
statements for the three months ended March 31, 2000.
14
<PAGE> 15
and contracts of affreightment, and five vessels operated for the U.S. Maritime
Administration. The operation of the two tankers trading in crude oil will be
combined with Marine Transport Lines' ship management group. The three Mormac
product carriers are bareboat chartered by a subsidiary of MTC and traded as
part of a "pooled" fleet with MTC's three similar product tankers, with the hope
of enhancing overall utilization and providing more flexible service to
customers. Mormac's government operation will be maintained as a separate unit
with its Baltimore, Maryland office. The total consideration to be paid by MTC
for the Mormac business is based on the performance of those businesses over a
five-year period.
In May, 2000 the Company, and Mormac, were each awarded five year term contracts
to manage nine vessels with the U.S. Maritime Administration ("MARAD"), which
contracts were due to expire in June, 2000.
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
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
internal systems, or software systems on the ships. The total cost of the
implementation exceeds $600,000 and includes hardware and software upgrades,
which may have been made without regard to Year 2000 problems. The Company will
continue to monitor its computer applications and those of its suppliers and
vendors throughout Year 2000 to ensure that any latent Year 2000 matters that
may arise are addressed promptly.
15
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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, 2000, 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.
MARINE TRANSPORT CORPORATION
Date: May 15, 2000 By: /s/ Richard T. du Moulin
------------ -----------------------------------------
Richard T. du Moulin
President and Chief Executive Officer
Date: May 15, 2000 By: /s/ Mark L. Filanowski
------------ -----------------------------------------
Mark L. Filanowski
Senior Vice President and Chief Financial
Officer
17
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