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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|
For the fiscal year ended |
|
Commission file number: |
|
December 31, 2003 |
|
1-10231 |
MC SHIPPING INC.
(Exact name of the registrant as specified in its charter)
|
LIBERIA |
|
98-0101881 |
|
State or other jurisdiction |
|
(IRS Employer |
|
of incorporation or organization) |
|
Identification No.) |
Richmond House, 12 Par-la-ville Road, Hamilton HM CX, Bermuda
(Address of principal executive offices)
441-295-7933
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act :
|
COMMON STOCK $.01 PAR VALUE |
|
AMERICAN STOCK EXCHANGE |
|
(Title of class) |
|
(Name of exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act : NONE
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 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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the closing American Stock Exchange price on March 10, 2004 was: $10,989,031.
Excluded from this amount are the shares of Common Stock beneficially owned by Securitas Holding Corporation, Greysea Limited and by each officer and director of the Company in that such companies and persons may be deemed to be affiliates of the Company. The determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of each of the registrant's classes of common stock as of March 10, 2004 was:
Common Stock, $.01 par value: 8,308,508
PART I
ITEM 1: BUSINESS - GENERAL
MC Shipping Inc. (the “Company”) was incorporated on March 17, 1989, in the Republic of Liberia.
Since its founding, the Company has been engaged in the business of investing in, owning and operating second-hand vessels. As of December 31, 2003, the Company's fleet included seven liquid petroleum gas (“LPG”) carriers, four containerships and two multipurpose seariver vessels. The Company sold four container vessels in July 2003 (please refer to "Significant Events" under Item 7). Each of the Company’s vessels is owned by a separate wholly owned subsidiary of the Company.
An LPG carrier is designed to carry petroleum gases used primarily as low pollution fuels and as feedstock in the petrochemical and fertiliser industries. A containership is a vessel designed exclusively to carry containers. A multipurpose seariver vessel is a small vessel capable of carrying general cargo and/or bulk cargo both on rivers and at sea.
The Company generally employs its vessels on time charter, bareboat charter or spot charter. With time charters, the Company receives a fixed charterhire per on-hire day and is responsible for meeting all the operating expenses of the vessels, such as crew costs, voyage expenses, insurance, repairs and maintenance. In the case of bareboat charters, the Company receives a fixed charterhire per day for the vessel and the charterer is responsible for all the costs associated with the vessel's operation during the bareboat charter period. In the case of voyage charters, the vessel is contracted only for a voyage between two ports: the Company is paid for the tonnage transported and pays all voyage costs.
The level of the Company's revenues and expenses will vary from year to year depending on, amongst other things, the number of vessels controlled by the Company during each year.
SHIPPING INDUSTRY BACKGROUND
The shipping industry is subject to cyclical fluctuations in charter rates and vessel values based on changes in supply and demand. The industry has been experiencing volatility in profitability, vessel values and charter rates resulting from changes in the supply of, and demand for, shipping capacity. The demand for ships is influenced by, among other factors, global and regional economic conditions, developments in international trade, changes in seaborne and other transportation patterns, weather patterns, crop yields, armed conflicts, port congestion, canal closures, political developments, conflicts, embargoes and strikes. The demand for ships is also influenced by, among other things, the demand for consumer goods and perishable foodstuffs, dry bulk commodities, crude oil and oil products. Demand for such products is affected by, among other things, general economic condition
s, commodity prices, environmental concerns, weather and competition from alternative fuels. The supply of shipping capacity is a function of the delivery of new vessels and the number of older vessels scrapped, converted to other uses, reactivated or lost. Such supply may be affected by regulation of maritime transportation practices by governmental and international authorities. All of these factors which affect the supply of and demand for vessel capacity are beyond the control of the Company. In addition, the nature, timing and degree of changes in the shipping markets, in which the Company operates, as well as future charter rates and values of its vessels, are not readily predictable.
During 2003, the market for small LPG carriers remained weak, while the large LPG vessels were able to fare somewhat better. The LPG market demonstrated slightly greater strength towards the very end of the year 2003. Management feels that increased import requirements in the Far East and the lack of new building orders for LPG carriers will help this trend to continue into 2004. Management is therefore cautiously optimistic for the year to come. The Company owns six small LPG carriers of the fully pressurised type. In addition, the Company owns a very large LPG carrier, which is fixed on a long-term charter ending in September 2006.
During that same period, the market for containerships enjoyed strong growth, buoyed by dynamism in Chinese trade, and the slowdown of new vessel deliveries. The Company is not taking advantage of this strong market, since its four container vessels are on fixed charters until September 2005 to Maersk Sealand.
Certain of the information contained in this Form 10-K may constitute “forward-looking statements” as that term is defined under United States federal securities laws. “Forward-looking statements” are subject to risks, uncertainties and other factors which could cause actual events to differ materially from those stated in such statements, including the identification of suitable vessels for purchase, the availability of additional financing for the Company, if needed, the cyclical nature of the shipping industry, competition, general economic conditions and other risk factors detailed elsewhere herein and in the Company’s other filings with the SEC.
OPERATIONS
Shipowning activities entail three separate functions: (i) the overall strategic management function, which is that of an investment manager and includes the selection, purchase, financing and sale of vessels and overall supervision of both chartering and vessel technical management; (ii) the technical management function, which encompasses the day to day operation, physical maintenance and crewing of the vessels; and (iii) the commercial management function, which involves obtaining employment for the vessels and managing relations with the charterer.
Management exercises direct control over the Company's overall strategic management function. The technical management function is sub-contracted to V.Ships Inc. or its affiliates ("V.Ships"), a Company formerly affiliated with the Company, or to other technical managers. Other managers have been engaged to handle the Company’s two multipurpose seariver vessels because of the specialised nature of the trade. Management exercises regular controls over the technical managers of the vessels to ensure that they are properly maintained. Management exercises direct control of the commercial management function but may, on a case-by-case basis, engage the services of V.Ships or independent brokers in order to obtain employment for the Company’s vessels and to manage its relations with its charterers.
The Company, via its wholly owned subsidiaries, enters into management agreements with V.Ships and other technical managers for the technical operation of the Company's fleet. These agreements are “cost-plus” contracts under which the Company reimburses all costs incurred by V.Ships and other technical managers for the operation of the Company's vessels and V.Ships and other technical managers are paid a fixed management fee. For the rates of fees to V Ships, see “COMPENSATION TO AFFILIATES”. In addition, if the Company deems it necessary to employ the services of V.Ships and/or other technical managers in the chartering or commercial operation of any of the Company's vessels, V.Ships and/or other technical managers are entitled to a commercial chartering commission determined in the light of current industry practice. For the rates of fees payable to V.Ships, s
ee “COMPENSATION TO AFFILIATES”.
The Company had 17 charters covering the year 2003, 11 of which were commenced in 2003, and four charterers provided revenues exceeding 10% of the Company's total revenues. The Company’s multipurpose seariver vessels and some of the Company's LPG carriers were engaged on voyage charters in 2003 and are excluded from these statistics.
COMPENSATION TO AFFILIATES
Effective March 28, 2003, V.Ships ceased to be an affiliate of the Company following a change in the shareholding structure of V.Ships (see ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS). Therefore, the Company's disclosure with respect to payments to V.Ships covers the full years 2001 and 2002 and the period from January 1 through March 28 in 2003.
The Company, via its wholly owned subsidiaries, has entered into Management Agreements (the "Agreements") with V.Ships for the technical operation of all the Company's fleet, excluding the seariver vessels which are managed by another independent vessel manager because of the specialised nature of the trade and excluding the vessels which are on bareboat charter which are managed by the charterer.
The Agreements are “cost-plus” contracts under which the Company reimburses all costs incurred by V. Ships for the operation of the Company's vessels and V.Ships is paid a fixed management fee. For 2003, the management fees were fixed at the rate of $8,600 per vessel/per month for the container ships and the LPG carrier Laforge and at the rate of $8,500 per vessel/per month for the LPG carriers managed by V.Ships (in 2002, management fees were respectively $8,350 and $8,250 for such vessels). In 2003, up to March 28, $282,000 were paid by the Company to V.Ships for services provided to the Company pursuant to the Agreements (2002 - $1,233,510; 2001 - $1,516,059).
If the Company deems it necessary to employ the services of V.Ships in the chartering or commercial operation of any of the Company's vessels, V.Ships is entitled to a commercial chartering commission determined in the light of current industry practice. This commission can vary between 0.5% and 1.25% of such vessels’ gross charter revenue and demurrage. In 2003, up to March 28, commercial chartering commissions totalling $4,500 were paid by the Company to V.Ships (2002 - $81,714; 2001 - $300,573).
If the Company deems it necessary to employ the services of V.Ships in the acquisition or disposal of vessels, the Company will pay commissions and legal fees determined in light of current industry practice. In 2003, up to March 28, no commissions or legal fees were paid by the Company to affiliates of V.Ships (2002 - $35,493; 2001 - $84,716).
The Company leases office space from and reimburses telecommunication expenses to various affiliates of V.Ships. In 2003, up to March 28, the rental cost and telecommunications expenses paid to affiliates of V. Ships were approximately $29,316 (2002 - $88,365; 2001 - $154,328).
The Company outsources some bookkeeping functions to an affiliate of V.Ships. In 2003, up to March 28, the Company paid a total of approximately $7,750 for such accounting services (2002 $32,375; 2001 - $34,626). Starting in 2003, some bookkeeping functions are also outsourced to an affiliate of the Vlasov Group. In 2003, $5,700 was paid for such services.
In addition, on a case by case basis, as technical manager of the Company’s fleet, V.Ships uses on behalf of the Company the services of other V.Ships affiliates for insurance, crew and staff travelling, port agency services, manning, safety and training services, and miscellaneous services described below.
The Company places part of its vessel hull and machinery insurance, increased value insurance and war risk insurance through a captive insurance Company, affiliated with V. Ships. In 2003, up to March 28, the Company was charged with insurance premiums of approximately $242,679 which were included in vessel operating expenses (2002 - $993,595; 2001 - $1,050,288).
The Company uses, for crew and staff travelling, the services of a Company affiliated with V.Ships. In 2003, up to March 28, such travelling expenses amounted to approximately $47,207 and were included in vessel operating expenses or in general and administrative expenses (2002 - $144,577; 2001 - $166,310).
The Company uses from time to time the port agency services of various companies affiliated with V.Ships. In 2003, up to March 28, the Company paid approximately $81,839 for these services, which were included in vessel operating expenses (2002 - $344,018; 2001 - $503,420).
The Company uses various companies affiliated with V.Ships for manning, safety and training. . In 2003, up to March 28, such expenses amounted to approximately $95,995 and were included in vessel operating expenses (2002 - $563,954; 2001 - $917,880).
At December 31, 2003, the Company had interCompany balances of trade accounts receivables of $76,094 due from affiliates ($80,518 in 2002).
INSURANCE AND CLASSIFICATION
The business of the Company is affected by the risks of mechanical failure of the Company's vessels, collisions, property losses to the vessels, cargo loss or damage, and business interruption due to political action in foreign countries and labour strikes. In addition, the operation of any ocean-going vessel entails an inherent risk of catastrophic marine disaster. The Company maintains Hull and Machinery Insurance, War Risk Insurance, Protection and Indemnity Insurance, Freight Demurrage and Defence Insurance and Loss of Earnings Insurance on its vessels consistent with industry practice. The Company maintains total or constructive total loss coverage for each of its vessels. The insurance underwriters may require that additional premiums be paid for Hull and Machinery and War Risk Insurance prior to any vessels entering certain geographical areas subject to unstable political or
military conditions. Although the Company has had no difficulty in obtaining such insurance for its vessels, there can be no assurance that the Company will be able to continue to procure sufficient amounts of insurance to cover the repair and replacement cost of any vessel which is damaged or destroyed, loss of earnings on a vessel or the Company's liability in the event of a catastrophic marine or ecological disaster.
The Company's insurers require that the Company's vessels meet certain requirements set by maritime classification societies as a condition to obtaining insurance. The classification societies determine that the vessels are safe and seaworthy in accordance with the International Maritime Organisation and the Safety of Life at Sea Convention. All LPG carriers, containerships and multipurpose carriers are inspected by a surveyor of the classification society every year (“Annual Survey”), every two and one half years ("Intermediate Survey"), and every five years (“Special Survey”). The Company has purchased and intends to purchase only vessels, which are able to comply with such classification society requirements. It is expected that, under classification society rules, the Company's vessels will be required to undergo dry-docking at least once every three years.
Normal dry-docking takes one to two weeks. The Company estimates that current dry-docking costs in the geographical areas where the Company anticipates having such work performed will vary between approximately $200,000 and $1,600,000 per vessel, depending upon the size and complexity of the vessel concerned. This estimate is based on a dry-docking cycle of two and one half to three years between each visit to a dry-dock facility and assumes regular but no extraordinary expenses for maintenance and repairs. In addition to dry-docking, the Company is required to purchase spare parts and perform repairs on its vessels from time to time. In the case of bareboat charter arrangements, the bareboat charterer undertakes, at its expense, to ensure that the vessel is regularly dry-docked and is properly maintained.
REGULATION
The Company's business is materially affected by government regulation in the form of international conventions, national, state or local laws and regulations, and laws and regulations of the flag nations of its vessels, including laws relating to the discharge of materials into the environment. Because such conventions, laws and regulations are often revised, the Company is unable to predict the ultimate costs of complying with such conventions, laws and regulations. Under certain regulations, a vessel owner may be liable for property and environmental damages and all of its assets could be subject to claim for such damages. Moreover, in certain jurisdictions, under the “sister ship” doctrine, all of the affiliates in a fleet of ships may be liable for damages caused by, or debts incurred with respect to, a ship owned by one affiliate, and the ships and other assets of a
ll the affiliates may be subject to attachments.
In addition, the Company is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to its operations. The Company believes that it will readily be able to obtain all such permits, licenses and certificates as may be required.
Some countries have laws or practices which restrict the carriage of cargoes depending upon the nationality of a vessel or its crew or the origin or destination of the vessel, as well as other considerations relating to particular national interests. The Company cannot predict the effect that such laws or practices may have on its ability to obtain cargoes. It is expected that the Company's vessels, all of which are non-United States flag vessels, will be permitted to enter the territorial waters of the United States, but will not be permitted, under the Merchant Marine Act, 1920 (the Jones Act), to transport cargoes between United States ports. Such restriction is not expected to have a material adverse impact on the Company's operations. One of the Company's vessels made one call to a United States po
rt in 2003.
COMPETITION
Competition in the operation of containerships and LPG carriers is intense. Typically, each of the numerous owners of such vessels owns a relatively small number of vessels. However, a few large and experienced operators, with greater financial resources than those of the Company, dominate the LPG and containership sectors, particularly in the larger ship segments, and there is no assurance that the Company will be able to compete successfully with other shipping firms.
As shipping rates are not materially different among competitors, competition is based primarily upon the reputation of the vessel and its operators and the operator's relationship with charterers.
It is the opinion of Management that the most effective technique in dealing with competitive pressures is to maintain its vessels to a very high standard and to develop strong long-term relationships with charterers of high standing. Management believes that its reputation and extensive experience contributes to the Company's ability to compete effectively.
EMPLOYEES
In 2003, the Company employed four persons on a full-time basis, three of whom are officers of the Company.
The Company, through its vessel-owning subsidiaries, hires officers and crews for each of the Company's vessels. Seamen from India, Latvia, Russia, the Ukraine and the United Kingdom currently man the Company's vessels and a total of approximately two hundred and fifty seamen currently serve on the Company’s vessels. These seamen are generally unionised and the Company believes its relationships with the seamen who serve on board its vessels are good.
ITEM 2: PROPERTIES
The Company, through its wholly owned subsidiary MC Shipping S.A.M., directly rents office space and procures administrative services in Monaco. In 2003, the Company leased office space at a cost of $76,078 (2002 - $75,889; 2001 - $67,769).Additionally, the Company has at its disposal office space and administrative services in Bermuda.
At December 31, 2003, the Company's wholly-owned fleet consisted of the following vessels:
|
Name |
|
Type |
|
Year Built |
|
DWT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deauville |
|
LPG Carrier |
|
1995 |
|
2,601 |
|
Auteuil |
|
" |
|
1995 |
|
2,588 |
|
Coniston |
|
" |
|
1991 |
|
4,833 |
|
Cheltenham |
|
" |
|
1990 |
|
4,318 |
|
Longchamp |
|
" |
|
1990 |
|
4,316 |
|
Malvern |
|
" |
|
1990 |
|
4,148 |
|
La Forge |
|
" |
|
1981 |
|
45,587 |
|
Maersk Belawan |
|
Container Carrier |
|
1983 |
|
37,212 |
|
Maersk Brisbane |
|
" |
|
1976 |
|
37,129 |
|
Maersk Barcelona |
|
" |
|
1976 |
|
37,115 |
|
Maersk Bahrain |
|
" |
|
1975 |
|
37,116 |
|
Bay Trader |
|
Multipurpose Seariver Carrier |
|
1980 |
|
1,579 |
|
Link Trader |
|
" |
|
1980 |
|
1,579 |
ITEM 3: LEGAL PROCEEDINGS
The Company has no material legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Since May 31, 1989, the Company's Common Stock has traded on the American Stock Exchange. The ticker symbol for the Company's Common Stock is “MCX”.
The high and low sales prices for the Company's Common Stock for the last two fiscal years are set forth below:
|
Quarter ended |
|
2003 |
2002 |
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
1.15 |
|
|
0.87 |
|
|
1.65 |
|
|
0.83 |
|
|
June 30 |
|
|
1.34 |
|
|
1.01 |
|
|
1.50 |
|
|
1.00 |
|
|
September 30 |
|
|
1.75 |
|
|
1.05 |
|
|
1.20 |
|
|
1.02 |
|
|
December 31 |
|
|
2.32 |
|
|
1.47 |
|
|
1.09 |
|
|
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 10, 2004, there were 70 record holders of Common Stock.
DIVIDENDS
In March 2002 and 2003, the Company’s Board of Directors determined that no dividends would be paid out of the 2001 and 2002 results, respectively. Cash dividends are currently restricted under the Indenture pursuant to which the 11.25% Senior Notes due 2008 (the "Notes") were issued. In March 2004, the Company's Board of Directors decided to distribute a stock dividend of 1 share for every 20 shares owned, rounded down to the nearest multiple of 20.
The Company has been advised that distributions to shareholders who are not citizens or residents of Liberia will not be subject to tax by Liberia under its laws as currently in effect. There is no income tax treaty between Liberia and the United States.
SECURITIES AUTHORISED UNDER EQUITY COMPENSATION PLAN
As of December 31, 2003
|
Plan category |
(a) Number of securities to be issued upon exercise of outstanding options |
(b) Weighted average exercise price of outstanding options |
(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) |
|
Equity compensation plans approved by security holders
|
100,992 |
$0.622 |
244,723 |
|
Equity compensation plans not approved by security holders
|
- |
- |
- |
|
Total
|
100,992 |
$0.622 |
244,723 |
ITEM 6: SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 are derived from the Consolidated Financial Statements of the Company. The Company’s books and records are maintained in U.S. dollars, which is the Company’s functional currency. The data should be read in conjunction with the Consolidated Financial Statements, related notes and other information included herein.
Consolidated Statements of Operations Data
|
|
|
Years ended December 31 |
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Charterhire and Other Income |
|
$ |
35,797,522 |
|
$ |
41,858,999 |
|
$ |
44,823,301 |
|
$ |
59,482,840 |
|
$ |
54,822,284 |
|
|
Commission on Charterhire |
|
|
(895,394 |
) |
|
(1,100,422 |
) |
|
(1,223,268 |
) |
|
(1,667,349 |
) |
|
(1,596,864 |
) |
|
Vessel Operating Expenses |
|
|
(17,875,984 |
) |
|
(19,547,436 |
) |
|
(22,321,851 |
) |
|
(30,879,820 |
) |
|
(28,567,124 |
) |
|
Amortisation of Dry- docking Costs |
|
|
(1,176,659 |
) |
|
(575,185 |
) |
|
(895,802 |
) |
|
(1,133,126 |
) |
|
(1,247,686 |
) |
|
Depreciation |
|
|
(8,295,583 |
) |
|
(9,127,713 |
) |
|
(10,761,040 |
) |
|
(16,194,411 |
) |
|
(15,919,206 |
) |
|
General and Administrative Expenses |
|
|
(1,419,368 |
) |
|
(1,382,587 |
) |
|
(1,652,622 |
) |
|
(1,558,510 |
) |
|
(1,624,465 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
6,134,534 |
|
|
10,125,656 |
|
|
7,968,718 |
|
|
8,049,624 |
|
|
5,866,939 |
|
|
Interest Expense |
|
|
(4,866,062 |
) |
|
(6,418,537 |
) |
|
(7,953,745 |
) |
|
(12,483,936 |
) |
|
(12,190,452 |
) |
|
Interest Income |
|
|
110,603 |
|
|
127,559 |
|
|
373,589 |
|
|
664,718 |
|
|
971,098 |
|
|
Equity in (Loss) from Associated Companies |
|
|
- |
|
|
- |
|
|
(296,378 |
) |
|
(90,314 |
) |
|
(101,585 |
) |
|
Impairment Loss |
|
|
(2,693,650 |
) |
|
(1,687,370 |
) |
|
(10,712,007 |
) |
|
(17,876,067 |
) |
|
(52,649 |
) |
|
Gains /(Losses) on Disposals of vessels |
|
|
1,785,253 |
|
|
- |
|
|
2,084,283 |
|
|
(3,931,641 |
) |