-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbO/mxP5lr16K8m9myHfZbtv0Td0m2/xmL135voOiG8/hj5ZFbFGiYdqS6lo4PR7 S2PieZ1zfUSyIrm7jZoN0A== 0000950123-99-006976.txt : 19990802 0000950123-99-006976.hdr.sgml : 19990802 ACCESSION NUMBER: 0000950123-99-006976 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARINE TRANSPORT CORP CENTRAL INDEX KEY: 0000732780 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 132625280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11573 FILM NUMBER: 99673651 BUSINESS ADDRESS: STREET 1: 1200 HARBOR BOULEVARD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2013300200 MAIL ADDRESS: STREET 1: 1200 HARBOR BOULEVARD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 FORMER COMPANY: FORMER CONFORMED NAME: OMI CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OGDEN MARINE INC DATE OF NAME CHANGE: 19831212 10-Q 1 MARINE TRANSPORT CORPORATION 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 JUNE 30, 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 JULY 30, 1999: Common Stock, par value $.50 per share, 6,555,368 shares 2 MARINE TRANSPORT CORPORATION AND SUBSIDIARIES INDEX
PART I: FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 1999 and 1998 4 Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 5 Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 1999 and for the year ended December 31, 1998. 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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
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 ("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 4 MARINE TRANSPORT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
For the Three Months Ended For the Six Months Ended June 30, June 30, 1999 1998 1999 1998 --------- --------- --------- --------- Revenues: Voyage revenues ............... $ 32,934 $ 50,692 $ 65,200 $ 112,762 Other operating revenues ...... 5,251 3,689 10,538 4,156 --------- --------- --------- --------- 38,185 54,381 75,738 116,918 --------- --------- --------- --------- Operating expenses: Vessel and voyage ................ 29,974 48,436 60,796 95,654 Depreciation and amortization .... 3,340 6,844 6,671 14,334 General and administrative ....... 3,546 5,128 6,836 9,745 --------- --------- --------- --------- 36,860 60,408 74,303 119,733 --------- --------- --------- --------- Operating income (loss) ............ 1,325 (6,027) 1,435 (2,815) Other income (expenses): Net gain (loss) on disposal of assets ......................... 44 (13) 44 537 Interest expense ................. (639) (5,025) (1,189) (7,081) Interest income .................. 398 3,204 728 3,862 Equity in income of unconsolidated joint ventures ................. -- 831 -- 1,873 --------- --------- --------- --------- Net other income(expenses) ......... (197) (1,003) (417) (809) --------- --------- --------- --------- Income (loss) before income taxes ............................ 1,128 (7,030) 1,018 (3,624) Provision (benefit) for income taxes ............................ 441 (40,046) 409 (38,885) --------- --------- --------- --------- Net income ......................... $ 687 $ 33,016 $ 609 $ 35,261 ========= ========= ========= ========= Basic earnings per common share: Net income ......................... $ .11 $ 7.18 $ .10 $ 7.91 ========= ========= ========= ========= Diluted earnings per common share: Net income ......................... $ .10 $ 7.06 $ .09 $ 7.77 ========= ========= ========= =========
See notes to Condensed Consolidated Financial Statements. 4 5 MARINE TRANSPORT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, 1999 December 31, ASSETS (Unaudited)1 1998 (1) --------------- ---------------- Current assets: Cash and cash equivalents ............................... $ 5,849 $ 8,652 Receivables, less allowances of $193 in 1999 and $509 in 1998 ................................................... 14,523 13,624 Prepaid expenses and other current assets ............... 4,838 6,664 --------- --------- Total current assets ...................................... 25,210 28,940 Marketable securities and cash held in capital construction fund ...................................................... 4,154 4,069 Vessels and other property ................................ 106,359 106,481 Less: accumulated depreciation and amortization ........... (71,391) (67,703) --------- --------- Vessels and other property-net .......................... 34,968 38,778 Vessel drydocking costs ................................... 6,011 7,429 Note receivable ........................................... 9,000 9,000 Other assets and deferred charges ......................... 6,949 6,602 Goodwill .................................................. 11,310 11,652 --------- --------- TOTAL ASSETS .............................................. $ 97,602 $ 106,470 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................................ $ 8,177 $ 9,604 Accrued income taxes .................................... 318 -- Accrued liabilities ..................................... 5,885 8,092 Current portion of debt ................................. 3,614 3,034 --------- --------- Total current liabilities ................................. 17,994 20,730 Advance time charter revenues and other liabilities ....... 1,250 1,500 Deferred gain on sale of vessels .......................... 19,593 21,258 Deferred income taxes ..................................... 21,087 22,902 Long-term debt ............................................ 21,085 24,111 Shareholders' equity ...................................... 16,593 15,969 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY ................. $ 97,602 $ 106,470 ========= ========= (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.
5 6 MARINE TRANSPORT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (IN THOUSANDS) (UNAUDITED)
Common Stock Accumulated Retained Other Other Capital Earnings Comprehensive Comprehensive Shares (1) Amount Surplus (Deficit) Income Income Balance as of Dec 31, 1997 4,307 $2,154 $206,105 $8,979 $4,890 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 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 --------------------------------------------------------------------------- Balance as of Dec 31, 1998 6,555 $3,277 $25,461 $(11,996) $(51) Comprehensive income: Net income (loss) 609 Comprehensive income 14 --------------------------------------------------------------------------- Balance at June 30, 1999 6,555 $ 3,277 $ 25,461 $ (11,385) $(37) ===========================================================================
Restricted Treasury Stock Stock Total Balance as of Dec 31, 1997 $(1,105) $----- $ 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 1,105 Issuance of common stock 11,900 Spin-off of foreign subsidiaries (249,911) Purchase of treasury stock (722) (722) ------------------------------------------ Balance as of Dec 31, 1998 $ ----- $(722) $ 15,969 Comprehensive income: Net income (loss) 609 Comprehensive income 14 ------ 623 ------------------------------------------ Balance at June 30, 1999 $ ----- $(722) $ 16,593 ==========================================
(1) Restated to give retroactive effect to 1 for 10 reverse stock split. See notes to Condensed Consolidated Financial Statements 7 7 MARINE TRANSPORT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 1998 --------------- ----------------- CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES: Net cash provided (used) by operating activities $ 6,271 $ (1,823) CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES: Additions to vessels and other property (501) (53,969) Proceeds and interest received and reinvested in Capital Construction Fund (73) (184) Payment for the retirement of minority shareholders' interest ----- (1,917) Cash distributed as part of spin off of UBC's net asset ----- (12,600) Proceeds from Capital Construction Fund ----- 7,090 Purchase of MTL, net of cash acquired ----- (4,519) Additions to vessel drydocking costs (841) ---- --------------- ----------------- Net cash provided (used ) by investing activities (1,415) (66,099) --------------- ----------------- CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES: Payment of lease obligation (5,214) (3,378) Proceeds from issuance of long-term debt ----- 72,637 Payments for debt issue costs ----- (221) Net proceeds from issuance of common stock ----- 11,250 Payment of long-term debt (2,445) (34,698) --------------- ----------------- Net cash provided (used ) by financing activities (7,659) 45,590 --------------- ----------------- Increase (decrease) in cash and cash equivalents (2,803) (22,332) Cash and cash equivalents at beginning of period 8,652 32,489 =============== ================= Cash and cash equivalents at end of period $ 5,849 $ 10,157 =============== =================
See notes to Condensed Consolidated Financial Statements. 8 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. 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 9 9 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. The pro forma unaudited results of operations for the six months ended June 30, 1998, assuming consummation of the Acquisition and Distribution as of January 1, 1998 are as follows (in thousands):
Six Months Ended June 30, 1998 ------------------------- Revenues $ 59,341 Vessel, voyage and lease expense 52,233 General and administrative expense 13,793 (Loss) before other income (expense), income taxes, and cumulative effect of change in accounting principle (6,148) -------- Loss before cumulative effect of change in accounting principle (4,608) -------- Net loss $ (4,608) ======== Basic and diluted earnings per common share: Net loss $ (0.74)
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 10 10 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 6,206,000 and 4,455,000 for the six months ended June 30, 1999 and 1998, respectively; and 6,207,000 and 4,600,000 for the three months ended June 30, 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 6,515,000 and 4,537,000 for the six months ended June 30, 1999 and 1998, respectively; and 6,567,000 and 4,675,000 for the three months ended June 30, 1999 and 1998, respectively. NOTE 4 - INCOME TAXES The provision for income taxes on income varies from the statutory rates as follows (in thousands): 11 11
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------------ 1999 1998 ------------------- ------------------- Provision (benefit) calculated at statutory rates $ 356 $ (1,268) Adjustment for equity in operations of certain joint ventures --- (37,617) Other 53 --- =================== =================== Provision (benefit) for income taxes $ 409 $ (38,885) =================== ===================
As a result of the Distribution in 1998, 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 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 almost all of the Company's net income for the six month period ended June 30, 1998 and will not recur in subsequent periods. NOTE 5 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS At June 30, 1999 Long-Term Debt consisted of the following (in thousands): Term loan $ 17,257 Revolving credit facility 1,050 Subordinated debt due to New OMI 6,093 Promissory note due to New OMI 299 ------ Total debt 24,699 Less current portion 3,614 ------ Long-term portion $ 21,085 ======
All debt at June 30, 1999 was created or amended concurrently with the Acquisition. The term loan and revolving credit facility of the Company accrues 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 June 30, 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 June 30, 1999 the unused and available revolving credit facility totaled $ 1,950,000. 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 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 June 30, 1999 the Company had outstanding an interest rate swap with a notional amount of $18,984,326 which effectively fixed the base interest rate on the Company's term loans at 4.75% for a three-year period. 12 12 The term loan is payable in sixteen simultaneous quarterly installments through June 18, 2003; the first fifteen installments total $797,372 each; and the final installment totals $5,297,362. 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 June 30, 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 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. 13 13 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 US Government for its Ready Reserve fleet. The product carrier fleet transports 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. 14 14 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: 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 U.S. ports in the Gulf of Mexico. 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 15 15 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 AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998 Voyage revenues decreased by $17.8 million for the three months and decreased by $47.6 million for the six months ended June 30, 1999 as compared to June 30, 1998. The primary reason for the substantial decrease in revenues is the exclusion of the Company's international businesses in 1999. In the three months and six months ended June 30, 1998, the international business reported revenues of $31.5 million and $71.5 million respectively. 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 by $23.5 million for the three months and $45.4 million for the six months ended June 30, 1999 due primarily to the Distribution in June, 1998 that separated the foreign fleet. This decrease was partially offset by the 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 16 16 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 $5.8 million as of June 30, 1999 include cash drawn from the Company's revolving credit facilities of $1.1 million. Concurrent with the Acquisition and Distribution, the Company restructured various loan agreements, including those of MTL. At June 30, 1999, the Company had total borrowings under these agreements of approximately $24.7 million. Other forms of cash available for operations and investment by the Company include $4.1 million in marketable securities and cash held in the capital construction fund. These amounts are 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. 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 $22.5 million. The existing charter of the vessel MARINE COLUMBIA to BP Oil Shipping Company USA, which was due to expire in December, 2002, is currently under renegotiation and may be extended until November 2006. As part of the charter extension agreement, vessel management and operations would be performed by an affiliate of the charterer. 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 September 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 Consolidated Financial Statements for the six month period ended June 30, 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 17 17 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 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's 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. This phase is substantially complete. 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 is being 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. This phase is substantially complete. Operations: the potential failure of embedded microprocessor chips on power, steering and cargo systems aboard vessels. Critical machinery has been identified and is being surveyed and tested by Company personnel or independent third parties. Most systems have manual backup procedures or systems in the event of failure and contingency plans are being developed for critical systems and forseeable events. Management expects to complete this testing 18 18 prior to projected impact dates of Year 2000. 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 may 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 $600,000. 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. Required hardware and software has been purchased and installed. 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. 19 19 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. - None - 20 20 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: July 30, 1999 MARINE TRANSPORT CORPORATION By: /s/ Richard T. du Moulin ------------------------------------- Richard T. du Moulin President and Chief Executive Officer Date: July 30, 1999 By: /s/ Mark L. Filanowski -------------------------------------- Mark L. Filanowski Senior Vice President and Chief Financial Officer 21 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 5,849 0 14,716 193 0 25,210 106,359 71,391 97,602 17,994 0 0 0 3,274 13,319 97,602 0 75,738 0 60,796 13,507 0 1,189 1,018 409 0 0 0 0 609 .10 .09
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