FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 33-82624
MORAN TRANSPORTATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 06-1399280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Greenwich Plaza
Greenwich, Connecticut 06830
(Address of principal executive offices)
(Zip Code)
(203) 625-7800
(Registrant's telephone number, including area code)
Not Applicable
--------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 11, 1997, 44,600 shares of the common stock, par value $0.01
per share, of Moran Transportation Company, were issued and outstanding.
Page 1
MORAN TRANSPORTATION COMPANY
FORM 10--Q
INDEX
PAGE
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements of Moran Transportation
Company and Subsidiaries
Consolidated Balance Sheets at December 31, 1996 and
September 30, 1997 3
Consolidated Statements of Income for the nine
months ended September 30, 1996 and September 30, 1997 5
Consolidated Statements of Income for the three
months ended September 30, 1996 and September 30, 1997 6
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and September 30, 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
Page 2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORAN TRANSPORTATION COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
DEC. 31, SEPT. 30,
ASSETS 1996 1997
------ ---- ----
(UNAUDITED)
Current Assets
Cash and cash equivalents............................................................ $ 5,827 $ 11,456
Accounts receivable, less allowance for doubtful
accounts of $323 and $541 at
December 31, 1996 and September 30, 1997, respectively............................. 12,744 12,902
Inventory............................................................................ 4,395 4,378
Unexpired insurance and other prepaid expenses....................................... 2,065 2,095
Restricted funds held for contingent consideration (Note 1).......................... 12,000 --
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Total Current Assets............................................................. 37,031 30,831
Investment in joint venture.............................................................. 2,892 3,078
Insurance claims receivable.............................................................. 2,346 2,539
Fixed assets, net........................................................................ 121,325 114,524
Shipyard assets held for sale (Note 5)................................................... 3,036 --
Restricted funds held for contingent consideration (Note 1).............................. 1,600 --
Other assets............................................................................. 4,487 3,860
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Total Assets..................................................................... $ 172,717 $ 154,832
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See accompanying notes to consolidated financial statements
Page 3
MORAN TRANSPORTATION COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
DEC. 31, SEPT. 30,
1996 1997
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable............................................................... $ 4,486 $ 3,637
Accounts payable to joint venture.................................................... 1,066 203
Accrued insurance payable............................................................ 359 402
Accrued interest payable............................................................. 4,308 1,958
Other accrued liabilities............................................................ 3,868 3,247
Backpay liability.................................................................... 885 885
Income taxes payable................................................................. 926 1,342
Liability for contingent consideration (Note 1)...................................... 12,000 --
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Total Current Liabilities........................................................ 27,898 11,674
Long-term debt........................................................................... 80,000 80,000
Insurance claims reserves................................................................ 5,989 6,695
Deferred income taxes.................................................................... 34,150 31,767
Postretirement benefits other than pensions.............................................. 3,995 4,234
Liability for contingent consideration (Note 1).......................................... 1,600 --
Other liabilities........................................................................ 6,060 5,201
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Total Liabilities................................................................ 159,692 139,571
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Commitments and contingencies (Note 4)
Mandatorily redeemable capital stock-4,000 shares outstanding............................ 1,000 1,000
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Stockholders' Equity
Common stock, par value $0.01 per share
Authorized--100,000 shares
Issued and outstanding--40,600 shares............................................ 1 1
Capital surplus...................................................................... 10,149 10,149
Retained earnings.................................................................... 1,875 4,111
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Total Stockholders' Equity....................................................... 12,025 14,261
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Total Liabilities and Stockholders' Equity............................................... $ 172,717 $ 154,832
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See accompanying notes to consolidated financial statements
Page 4
MORAN TRANSPORTATION COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
For the Nine Months Ended September 30,
(Dollars in Thousands, except per share amounts)
(Unaudited)
1996 1997
---- ----
Operating revenue........................................................................... $ 65,756 $ 75,948
Cost of operations
Operating expenses...................................................................... 40,016 48,280
Depreciation............................................................................ 5,774 5,831
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Total cost of operations.................................................................... 45,790 54,111
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Gross profit................................................................................ 19,966 21,837
General and administrative expenses......................................................... 10,790 10,883
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Operating income............................................................................ 9,176 10,954
Interest expense............................................................................ (7,736) (7,512)
Interest income............................................................................. 88 204
Equity in income/(loss) from joint venture.................................................. 122 (564)
Other income/(expense), net................................................................. 191 (36)
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Income before provision for income taxes.................................................... 1,841 3,046
Provision for income taxes.................................................................. 732 810
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Net income.............................................................................. $ 1,109 $ 2,236
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Per share of common stock outstanding:
Net income.............................................................................. $ 24.27 $ 48.61
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Weighted average number of shares outstanding (in thousands)................................ 45.7 46.0
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See accompanying notes to consolidated financial statements
Page 5
MORAN TRANSPORTATION COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended September 30,
(Dollars in Thousands, except per share amounts)
(Unaudited)
1996 1997
---- ----
Operating revenue........................................................................... $ 23,651 $ 25,900
Cost of operations
Operating expenses...................................................................... 14,977 16,172
Depreciation............................................................................ 1,928 1,908
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Total cost of operations.................................................................... 16,905 18,080
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Gross profit................................................................................ 6,746 7,820
General and administrative expenses......................................................... 3,724 3,548
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Operating income............................................................................ 3,022 4,272
Interest expense............................................................................ (2,577) (2,492)
Interest income............................................................................. 29 108
Equity in income/(loss) from joint venture.................................................. 105 (296)
Other income/(expense), net................................................................. (14) (37)
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Income before provision for income taxes.................................................... 565 1,555
Provision for income taxes.................................................................. 231 274
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Net income.............................................................................. $ 334 $ 1,281
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Per share of common stock outstanding:
Net income.............................................................................. $ 7.31 $ 27.85
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Weighted average number of shares outstanding (in thousands)................................ 45.7 46.0
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See accompanying notes to consolidated financial statements
Page 6
MORAN TRANSPORTATION COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Dollars in Thousands)
(Unaudited)
1996 1997
---- ----
Cash flows from operating activities:
Net income............................................................................... $ 1,109 $ 2,236
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Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................ 8,289 8,726
Deferred income taxes.................................................................... (1,408) (2,383)
Equity in (income)/loss from joint venture............................................... (122) 564
Loss on disposal of floating equipment................................................... 128 90
Changes in operating assets and liabilities:
Accounts receivable.................................................................. (743) (158)
Other current assets................................................................. (235) (13)
Accounts payable and accrued expenses................................................ (360) (4,640)
Income taxes payable................................................................. (298) 416
Insurance claims receivable.......................................................... 45 64
Insurance claims reserves............................................................ 208 706
Other assets and liabilities......................................................... (1,894) (418)
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Net cash provided by operating activities.................................................... 4,719 5,190
Cash flows from investing activities:
Capital expenditures..................................................................... (5,987) (4,461)
Capital contribution to joint venture.................................................... -- (750)
Net proceeds from constructive total loss................................................ -- 2,800
Proceeds from sale of leasehold interest................................................. -- 2,850
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Net cash (used for)/provided by investing activities......................................... (5,987) 439
Cash flows from financing activities:
Proceeds from borrowings................................................................. 3,524 --
Repayment of debt........................................................................ (2,698) --
Debt issuance costs...................................................................... (120) --
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Net cash provided by financing activities.................................................... 706 --
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Net (decrease)/increase in cash and cash equivalents......................................... (562) 5,629
Cash and cash equivalents at beginning of period............................................. 3,006 5,827
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Cash and cash equivalents at end of period................................................... $ 2,444 $ 11,456
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See accompanying notes to consolidated financial statements
Page 7
MORGAN TRANSPORTATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, unless otherwise noted)
NOTE 1--MORAN TRANSPORTATION COMPANY
Moran Transportation Company ("Moran" or the "Company") is a Delaware
corporation, incorporated on June 2, 1994. Moran was organized to acquire
(the "Acquisition") all of the outstanding common stock of Moran Towing
Corporation (the "Predecessor"), a company whose subsidiaries provided tug
services and marine transportation services, primarily on the East and Gulf
coasts of the United States. On July 11, 1994, the Acquisition was
consummated and was accounted for as a purchase. In connection with the
Acquisition, the Predecessor transferred its 20% equity interest in four
partnerships to entities formed by the stockholders of the Predecessor. When
the Company acquired the Predecessor, certain contingent liabilities of the
Predecessor, primarily related to certain limited and defined guarantees
given by the Predecessor in connection with the partnerships, were assumed.
These liabilities were fully reserved and funded by placing in escrow $13.6
million of the purchase price paid by Moran to the stockholders of the
Predecessor. In February, 1997, $12.0 million of the escrow amount was
released to the former stockholders upon the release of the Company from the
partnership guarantees. There was no impact on the Company other than assets
and liabilities being reduced. The Company released the remaining $1.6
million from escrow during the third quarter when a subsidiary of the Company
terminated its leasehold interest in Jakobson Shipyard.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim
results are not necessarily indicative of the results that may be expected
for a full year. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year
ended December 31, 1996.
NOTE 2--CHANGES IN STOCKHOLDERS' EQUITY
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS TOTAL
------------- --------- ----------- ---------
Balance at December 31, 1996........................................... $ 1 $ 10,149 $ 1,875 $ 12,025
Net Income............................................................. -- -- 2,236 2,236
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Balance at September 30, 1997.......................................... $ 1 $ 10,149 $ 4,111 $ 14,261
-- --------- ----------- ---------
-- --------- ----------- ---------
NOTE 3--INCOME TAXES
The Company and its wholly owned domestic subsidiaries file a consolidated
Federal income tax return. The Company accounts for deferred income taxes
using the asset and liability method as prescribed under Financial Accounting
Standard No. 109, "Accounting for Income Taxes". The Company provides a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized.
Page 8
NOTE 4--CONTINGENT LIABILITIES
In February 1994, a lawsuit was filed in the United States District Court for
the Eastern District of New York by the Town of Oyster Bay (the "Town"), New
York, against Jakobson Shipyard, Inc. ("Jakobson"), a subsidiary of the
Company, and several other potentially responsible parties ("PRP"). The Town
is seeking indemnification for remediation and investigation costs that have
been or will be incurred for a Federal Superfund site in Syosset, New York,
which served as a Town owned and operated landfill between 1933 and 1975. In
a Record of Decision, issued on or about September 27, 1990, the EPA set
forth a remedial design plan, the cost of which was estimated at $25,000 and
is reflected in the Town's lawsuit. In an Administrative Consent Decree
entered into between the EPA and the Town on December 6, 1990, the Town
agreed to undertake remediation at the site.
While the current state of law imposes joint and several liability upon PRPs,
as a practical matter, costs of these sites are typically shared with other
PRPs. The Company believes that Jakobson's portion of the hazardous materials
disposed at the site, if any, is insignificant when compared to that of the
other PRPs. While management is unable to estimate Jakobson's future
liability, if any, it does not believe such liability would have a material
adverse effect on the Company's financial position or results of operations.
NOTE 5--SHIPYARD ASSETS HELD FOR SALE
In the third quarter of 1997, the owner of the Jakobson Shipyard site sold
its property to the State of New York and the Town of Oyster Bay. At the same
time, Jakobson Shipyard, Inc., a subsidiary of the Company, terminated its
leasehold interest in the property and received $2.9 million. The loss
related to the lease termination was not material.
NOTE 6--FINANCIAL STATEMENTS OF GUARANTORS
All of the Company's subsidiaries ("Guarantors") have guaranteed the
Company's $80 million of First Preferred Ship Mortgage Notes. Accordingly,
the financial statements of the Guarantors have not been included,
individually or on a combined basis, because the Guarantors have fully and
unconditionally guaranteed such Notes on a joint and several basis, and
because the aggregate net assets, earnings and equity of the Guarantors are
substantially equivalent to the net assets, earnings and equity of the
Company on a consolidated basis. Therefore, separate financial statements
concerning the Guarantors are not deemed material to investors.
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared to nine months ended
September 30, 1997
Operating Revenues: Operating revenues increased by $10.2 million, or 15.5%,
to $75.9 million during the first nine months of 1997 as compared to the
comparable period in 1996. Tug services revenues increased by 8.5%, to $43.6
million, primarily due to revenue from the New York City Department of
Sanitation contract, which began on July 1, 1996. Marine transportation
revenues increased by 26.3%, to $32.3 million, reflecting a general
improvement in the barge markets served by the Company, as well as the
revenues generated by two new barges operated by the Company, the barge
Portsmouth (placed in service November, 1996) and the barge Massachusetts
(acquired in February, 1997).
Operating Expenses: Operating expenses increased by $8.3 million, or 20.7%,
to $48.3 million in the first nine months of 1997. The increase is primarily
due to increased costs for labor, fuel and outside towing resulting from the
increased activity discussed above. In addition, operating expenses include
lease payments for the barge Portsmouth, which was placed in service in
November 1996 and the tug April, which was leased in conjunction with the
purchase of the barge Massachusetts. The Company expects to purchase this tug
in the fourth quarter. The Company also had higher dry-docking amortization
expense, compared to the first nine months of 1996.
General and Administrative Expenses: General and administrative expenses
increased by $0.1 million, or 0.9%, to $10.9 million in the first nine months
of 1997. During the third quarter, the Company had a favorable medical
insurance adjustment resulting from favorable claims experience and a
continued shift to managed care. This favorable adjustment was partially
offset by certain closing adjustments related to the termination of the
leasehold interest in the Jakobson Shipyard site. A variety of small cost
increases accounted for the rest of the variance.
Operating Income: Operating income increased by $1.8 million, or 19.4%, to
$11.0 million in the first nine months of 1997. This improvement is primarily
due to the increased revenues described above, partially offset by higher
operating and general and administrative costs.
Interest Expense: Interest expense decreased modestly due to the December,
1996 repayment of a term loan entered into in December, 1994.
Equity in income/(loss) from joint venture: Equity in income/(loss) from the
Company's joint venture decreased from income of $122,000 in the first nine
months of 1996 to a loss of $564,000 in the first nine months of 1997. This
decrease is due to lower rates as well as a dry-docking of the vessel, which
began in the second quarter of 1997 and was completed mid-way through the
third quarter. In addition, market conditions in the clean petroleum products
market have idled the barge New York for much of the rest of the third
quarter and management believes this could continue through the fourth
quarter.
Taxes: Taxes were favorably impacted by the realization of a deferred tax
asset. The Company applied a capital loss carry forward to offset the tax
gain associated with the termination of the Jakobson Shipyard lease (see note
5 to the financial statements). This tax asset had been valued at zero due to
the uncertainty associated with the utilization of the deferred tax asset.
The Company determined in the third quarter that is was more likely than not
that the asset could be utilized.
Net Income: Net income increased by $1.1 million, to $2.2 million in the
first nine months of 1997. The improvement in overall profitability was
principally driven by higher operating income and lower taxes, partially
offset by the decrease in equity in income/(loss) from joint venture.
Page 10
Three months ended September 30, 1996 compared to three months ended
September 30, 1997
Operating Revenues: Operating revenues increased by $2.2 million, or 9.5%, to
$25.9 million, during the third quarter of 1997 as compared to the third
quarter of 1996. Tug services revenues decreased by 4.4%, to $14.2 million,
primarily due to lower shipdocking and coastwise towing revenues. Marine
transportation revenues increased by 33.0% to $11.7 million reflecting a
general improvement in the barge markets served by the Company, as well as
the revenues generated by two new barges operated by the Company, the barge
Portsmouth (placed in service November, 1996) and the barge Massachusetts
(acquired in February, 1997).
Operating Expenses: Operating expenses increased by $1.2 million, or 8.0%, to
$16.2 million in the third quarter of 1997. The increase is primarily due to
increased costs for labor and fuel due to the increased activity discussed
above. In addition, operating expenses include the lease payments for the
barge Portsmouth, which was placed in service in November 1996 and the tug
April, which was leased in conjunction with the purchase of the barge
Massachusetts. The Company expects to purchase this tug in the fourth quarter.
General and Administrative Expenses: General and administrative expenses
decreased by $0.2 million, or 4.7%, to $3.5 million in the third quarter of
1997. During the third quarter, the Company had a favorable medical insurance
adjustment resulting from favorable claims experience and a continued shift
to managed care. This favorable adjustment was partially offset by certain
closing adjustments related to the termination of the leasehold interest in
the Jakobson Shipyard site.
Operating Income: Operating income increased by $1.3 million, or 41.4%, to
$4.3 million due to the increased revenues described above, partially offset
by higher operating costs.
Interest Expense: Interest expense decreased modestly due to the December,
1996 repayment of a term loan entered into in December, 1994.
Equity in income/(loss) from joint venture: Equity in income/(loss) from the
Company's joint venture decreased from income of $105,000 in the third
quarter of 1996 to a loss of $296,000 in the third quarter of 1997. This
decrease was due to lower rates as well as a dry-docking of the vessel, which
began in the second quarter of 1997, and was completed mid-way through the
third quarter. In addition, market conditions in the clean petroleum products
market have idled the barge New York for much of the rest of the third
quarter and management believes this could continue through the fourth
quarter.
Taxes: Taxes were favorably impacted by the realization of a deferred tax
asset. The Company applied a capital loss carry forward to offset the tax
gain associated with the termination of the Jakobson Shipyard lease (see note
5 to the financial statements). This tax asset had been valued at zero zero
due to the uncertainty associated with the utilization of the deferred tax
asset. The Company determined in the third quarter that is was more likely
than not that the asset could be utilized.
Net Income: Net income increased by $0.9 million, to $1.3 million in the
third quarter as the result of higher operating income and lower taxes,
partially offset by lower equity in income/(loss) from joint venture.
Page 11
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the nine months ended September 30, 1997
increased by $5.6 million. This increase was attributable to the factors
discussed below:
During the nine months ending September 30, 1997, net cash provided by
operations of $5.2 million, together with net proceeds from a constructive
total loss of $2.8 million and net proceeds from the sale of a leasehold
interest of $2.9 million were used to fund capital expenditures of $4.5
million (including the purchase of the barge Massachusetts) and to fund a
capital contribution to joint venture of $0.8 million, primarily to fund a
dry-docking for the barge New York.
A subsidiary of the Company has entered into a long-term contract to provide
tug and barge services. Under the terms of the contract, the subsidiary will
build a number of tug and barge units over the next twelve months. The total
capital associated with this project is expected to be $8 to $10 million. The
Company is exploring various financing alternatives.
The Company believes that cash flow from current levels of operations, the
proceeds from the new financing to build the tug and barge units described
above and, to a lesser extent, availability under the Senior Credit Facility
will be adequate to make required payments of interest on the Company's
indebtedness, as well as to fund ongoing capital expenditures. The Company
renewed its Senior Credit Facility during the second quarter of 1997. It now
expires in July, 2000. In connection with this renewal, the parties agreed to
certain interest rate reductions and the addition of a new net worth
covenant, among other changes.
Page 12
PART II--OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K.
None
Page 13
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.
MORAN TRANSPORTATION COMPANY
BY: /s/Malcolm W. MacLeod
-----------------------------------------
Name: Malcolm W. MacLeod
Title: President and Chief Executive Officer
Date: 11/11/97 BY: /s/ Jeffrey J. McAulay
-----------------------------------------
Name: Jeffrey J. McAulay
Title: Vice President, Finance
and Administration
(principal financial officer)
Page 14
EXHIBIT INDEX
Exhibit No. Description of the Document
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27 Financial Data Schedule (1)
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(1) Submitted separately, electronically