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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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COMMISSION FILE NUMBER 001-14135
OMI CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
MARSHALL ISLANDS 52-2098714
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
REGISTRANT'S ADDRESS:
ONE STATION PLACE
STAMFORD, CONNECTICUT 06902
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (203) 602-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.50 PER SHARE NEW YORK STOCK EXCHANGE
- -------------------------------------- ------------------------------------
Title of Class Name of Exchange on which Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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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 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 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.
YES X NO
----- -----
AGGREGATE MARKET VALUE OF REGISTRANT'S VOTING STOCK, HELD BY
NON-AFFILIATES, BASED ON THE CLOSING PRICE ON THE NEW YORK STOCK EXCHANGE AS OF
THE CLOSE OF BUSINESS ON MARCH 24, 2000:
$215,728,793
NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MARCH
24, 2000:
57,527,678
THE FOLLOWING DOCUMENT IS HEREBY INCORPORATED BY REFERENCE INTO PART III OF
THIS FORM 10-K:
(1) PORTIONS OF THE OMI CORPORATION 2000 PROXY STATEMENT TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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INDEX
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PART I
ITEMS PAGE(S)
-------------
1. and 2. Business and Properties ........................................... 1
3. Legal Proceedings ................................................. 6
4. Submission of Matters to a Vote of Security Holders ............... 6
PART II
5. Market for OMI Corporation's Common Stock and Related
Stockholder Matters ............................................. 7
6. Selected Financial Data ........................................... 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 9
7A. Quantitative and Qualitative Disclosures about Market Risk ........ 22
8. Financial Statements and Supplementary Data ....................... 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 59
PART III
10. Directors and Executive Officers of OMI Corporation ............... 59
11. Executive Compensation ............................................ 59
12. Security Ownership of Certain Beneficial Owners and Management .... 59
13. Certain Relationships and Related Transactions .................... 59
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 59
SIGNATURES ........................................................ 61
i
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
OMI Corporation ("OMI" or the "Company"), organized under the laws of the
Republic of the Marshall Islands on January 9, 1998, is located at One Station
Place, Stamford, Connecticut. The telephone number is (203) 602-6700.
Prior to June 17, 1998, the Company was a subsidiary of OMI Corp., a
Delaware corporation ("Old OMI") and held the international assets of Old OMI.
Old OMI acquired Marine Transport Lines, Inc. ("MTL"), a privately owned company
specializing in marine and transportation services, principally to the energy
and chemical industries. In connection with the acquisition of MTL, Old OMI spun
off to its shareholders the Company. Subject to certain exceptions, the spin off
was tax free to Old OMI, its shareholders and the Company. The Company retained
the OMI name and Old OMI changed its name to Marine Transport Corporation
("MTC"). The previous management of Old OMI became the management of the Company
and the previous management of MTL became the management of MTC. For a more
complete description of the transaction, the conditions and certain other items
shareholders are referred to the Registration Statement on Form S-1 filed by the
Company with the Securities and Exchange Commission on May 15, 1998
(registration statement number 333-52771) which is hereby incorporated by
reference.
The Company provides seaborne transportation services for crude oil and
petroleum products in the international shipping markets. Its customers include
major independent and state-owned oil companies, major oil traders, government
entities and various other entities. OMI owns directly or indirectly four crude
oil tankers of approximately 150,000-160,000 dwt ("Suezmaxes"), twelve tankers
of approximately 30,000 dwt ("handysize product carriers") and three tankers of
approximately 65,000 dwt ("Panamaxes"). OMI has on order from a shipyard one
Suezmax expected to be delivered in May 2000. Through ownership of joint venture
companies, OMI owns approximately 50% interests in one 320,000 dwt crude oil
carrier. OMI also has one Suezmax on bareboat charter and two Suezmaxes on time
charter. The Company sold its joint venture interest in one Panamax dry bulk
carrier and its 1980 built aframax crude carrier during the first quarter of
2000 and recently entered into contracts to sell two handysize product carriers.
DEVELOPMENT OF OMI'S BUSINESS
In recent years, OMI has focused its fleet into Suezmaxes and handysize
product carriers, disposing of vessels not fitting into that profile. During
1999 and the first quarter of 2000, OMI disposed of its five older Suezmax crude
oil tankers (one of which was jointly owned), its joint venture interest in its
last remaining dry bulk carrier and its only aframax tanker. During the same
period, the fourth of five newbuilding Suezmax crude oil tankers was delivered
and was later sold and leased back. Two newbuilding product carriers were
delivered, as was a newbuilding Suezmax which the Company acquired from another
owner.
The Company's existing fleet as of March 24, 2000 is shown on the following
table:
DEAD-
WEIGHT CHARTER
YEAR METRIC EXPIRA-
NAME OF VESSEL TYPE OF VESSEL BUILT(1) TONNAGE TION
- -------------- -------------- -------- -------- -------
SETTEBELLO(2) ...................... Crude Oil Tanker 1986 322,466 Spot
SACRAMENTO ......................... Crude Oil Tanker 1998 157,411 Spot
SABINE ............................. Crude Oil Tanker 1998 157,332 Spot
PECOS .............................. Crude Oil Tanker 1998 157,406 Spot
COLUMBIA(3) ........................ Crude Oil Tanker 1999 157,327 Spot
LOIRE .............................. Crude Oil Tanker 2000 153,074 Spot
ELBE(4) ............................ Product Carrier 1984 66,800 Spot
NILE(4) ............................ Product Carrier 1981 65,755 Spot
VOLGA(4) ........................... Product Carrier 1981 65,689 Spot
SEINE .............................. Product Carrier 1999 35,407 7/2001
ISERE .............................. Product Carrier 1999 35,438 9/2001
1
DEAD-
WEIGHT CHARTER
YEAR METRIC EXPIRA-
NAME OF VESSEL TYPE OF VESSEL BUILT(1) TONNAGE TION
- -------------- -------------- -------- -------- -------
LIMAR(5) ............................ Product Carrier 1988 29,999 Spot
SHANNON(5) .......................... Product Carrier 1991 29,999 Spot
DANUBE(5)(6) ........................ Product Carrier 1990 29,998 Spot
TRENT(5)(6) ......................... Product Carrier 1991 29,998 Spot
TIBER(5) ............................ Product Carrier 1989 29,996 Spot
SEVERN(5) ........................... Product Carrier 1988 29,998 Spot
PAGODA(5) ........................... Product Carrier 1988 29,996 Spot
ALMA(5) ............................. Product Carrier 1988 29,996 Spot
PAULINA(5) .......................... Product Carrier 1984 29,992 Spot
PATRICIA(5) ......................... Product Carrier 1984 29,974 Spot
---------
Total Owned Fleet: 20 Vessels ................................. 1,516,724
3 Chartered-in Crude Tankers (7) .......................... 449,762
---------
Total Foreign Flag Operating Fleet: 23 Vessels ............ 1,966,486
=========
- --------------
(1) Weighted average age (based on carrying capacity) of the Company's
then-owned fleet (including jointly-owned) at year-end 1999 is 7.9 years.
(2) Joint ownership with Bergesen d.y. A/S, Oslo, Norway.
(3) Sold and leased back. The Company has options to reacquire the vessel.
Tonnage is included in "Chartered-in Crude Tankers."
(4) Time chartered into a pool operated by Heidenreich Marine Inc. While the
vessels are committed by time charter, the revenues are dependent on the
spot market.
(5) Time chartered into International Product Carriers Limited, a pooling
company jointly owned by the Company and Osprey Maritime Limited Company.
While the vessels are committed by time charter, the revenues are dependent
on the spot market.
(6) Under contract to be sold.
(7) Time chartered-in under charters expiring in 2001 and 2002.
A brief description of the functions of the various types and sizes of
vessels owned or operated by the Company and others is set forth below:
Product carrier--normally carries refined petroleum products such as
gasoline, heating oil, aviation fuel, naphtha and kerosene.
Crude oil tanker--normally carries crude oil and dirty products.
Dry bulk carrier--carries dry bulk products such as coal, ore, grain
and fertilizers.
Handysize--a ship of approximately 30,000 dwt.
Panamax--a ship of approximately 50,000 to 70,000 dwt.
Aframax--a tanker (which may be a crude oil tanker or product carrier)
of approximately 70,000 to 120,000 dwt.
Suezmax--a crude oil tanker of approximately 120,000 to 160,000 dwt.
VLCC--a very large crude oil tanker, of approximately 200,000--300,000
dwt.
ULCC--an ultra large crude oil tanker, of more than 300,000 dwt.
In recent years, OMI has sought to increase the size of, and modernize its
fleet. It consistently inspects Suezmaxes which are available for purchase and
investigates other opportunities to improve its fleet directly and through ship
brokers. While the Company has been successful in modernizing the fleet, due to
weak markets the Company has not had the resources to increase the size of its
fleet and has reduced the number of vessels and tonnage of its fleet.
OMI's Suezmax tankers principally trade from West Africa to the U.S.
Atlantic coast and from the North Sea to the U.S. Atlantic coast. The product
carrier fleet operates worldwide, with the majority now trading in the
2
Caribbean to the U.S. Atlantic coast and the U.S. Gulf of Mexico. The handysize
product carriers are well suited to trade in the U.S. eastern seaboard due to
vessel cargo size and dimensions. However, other than the two newbuildings, the
product carriers are single hull and do not have segregated ballast, thereby
placing them at a competitive disadvantage with numerous vessels built in the
last half of the 1990's.
OMI's movement toward concentrations in specific vessel categories reflects
management's belief that large concentrated fleets create strategic advantages:
First, the fleet will be more attractive to large customers by providing
better scheduling opportunities through substitution. A large fleet also
provides opportunities to obtain contracts for large volume movements. These
both create the potential to increase vessel utilization. Second, large and
concentrated fleets create economies of scale to spread efficiently the overhead
costs associated with environmental regulations and inspections. Third,
operating expertise and efficiency are enhanced by concentration in certain
vessel classes. Fourth, OMI believes that large customers will prefer to deal
with a limited number of large shipping companies with fleets that they have
pre-vetted for quality, rather than smaller shipping companies characteristic of
the fragmented international tanker market.
Management believes that OMI maintains an ability to participate in
improvements in the international tanker markets with its Suezmax tankers. OMI
also believes that Suezmax tankers provide nearly the upside potential of larger
vessels such as VLCCs with less of the downside risk, primarily because
Suezmaxes have greater geographic flexibility than VLCCs. Product carriers
historically provided OMI with relatively more stable cash flows, even in weak
markets. However, weakness in the product carrier markets commencing during the
last portion of 1997 and in 1998, due to a mild winter and reduced Asian demand,
has resulted in unusually low rates which, due to continued mild winters and
substantial additional new tonnage entering into the market, has persisted.
Since May of 1998 Alliance Chartering LLC, a limited liability company
which is jointly owned with Frontline Ltd., a major international shipping
company has handled the chartering of OMI's and Frontline Ltd.'s Suezmaxes.
Alliance's current fleet stands at approximately 36 vessels.
In March of 1999 the Company agreed with Osprey Maritime Limited, a major
international shipping company based in Singapore, to consolidate their product
tanker operations, and in May 1999 that consolidation commenced establishing
International Product Carriers Limited ("IPC") in Bermuda to commercially
operate the product carriers of its parents. IPC is seeking other product
carrier owners for its pools in order to enhance its marketing abilities. IPC's
current fleet stands at approximately 28 vessels.
During March 2000, the Company announced that it had made investments in
two business-to-business internet companies. One is MarineProvider ASA, a
Norwegian-based company which is to provide services such as electronic
acquisition of bunker and other supplies for ships. The Company owns
approximately 8% of MarineProvider. The other investment is in SeaLogistics Ltd.
which will offer on-line chartering and other services to shipowners and
charterers. The Company currently owns 50% of SeaLogistics but expects
substantial dilution as other entities invest in the project. The Company's
total expenditures to date on the investments total approximately $1,500,000. It
is committed to expend an additional $2,000,000.
NATURE OF BUSINESS
OMI is primarily engaged in the business of owning and operating tankers in
international markets. There are two aspects to vessel operation: (i) technical
operation, which involves maintaining, crewing and insuring the vessel, and (ii)
commercial operation, which involves arranging the business of the vessel. OMI
is the commercial operator of all its Suezmaxes and jointly markets those
vessels in Alliance Chartering LLC and is the commercial operator of the two
time chartered-out handysize product carriers. OMI has entered its Panamax
tankers in a pool and all of its other product carriers are commercially managed
by IPC. A subsidiary, OMI Marine Services LLC, is the technical operator of all
of the Company's vessels except its remaining jointly owned vessel, which is
commercially and technically managed by its partner.
OMI's vessels are available for charter on a voyage, time or bareboat
basis. Under a voyage charter, the operator of a vessel agrees to provide the
vessel for the transport of specific goods between specific ports in return for
the payment of an agreed upon freight per ton of cargo or, alternatively, for a
specified total amount. All operating costs are for the operator's account. A
single voyage (generally two to ten weeks) charter is often referred
3
to as a "spot market" charter. Vessels in the spot market may also spend time
idle or laid up as they await business. A voyage charter involving more than one
voyage with the same charterer is commonly known as a "consecutive voyage"
charter.
A time charter involves the placing of a vessel at the charterer's disposal
for a set period of time during which the charterer may use the vessel in return
for the payment by the charterer of a specified daily or monthly hire rate. In
time charters, operating costs such as for crews, maintenance and insurance are
typically paid by the owner of the vessel and voyage costs such as fuel and port
charges are paid by the charterer.
Under a bareboat charter, the charterer takes possession of the vessel in
return for a specified amount payable to the owner of the vessel. The bareboat
charterer must provide its own crew, pay all operating and voyage expenses and
is responsible for the operation and management of the vessel.
Voyage, time and bareboat charters are available for varying periods,
ranging from a single trip to a long-term arrangement approximating the useful
life of the ship, to commercial firms (such as oil companies) and governmental
agencies (both foreign and domestic) on a worldwide basis. In general, a
long-term charter affords the vessel owner greater assurance that it will be
able to cover its costs, including depreciation, interest, and operating costs.
Operating the vessel in the spot market affords the owner greater speculative
opportunity, which may result in high rates when ships are in high demand or low
rates (possibly insufficient to cover costs) when ship availability exceeds
demand. Ship charter rates are affected by world economics, international
events, weather conditions, strikes, governmental policies, supply and demand,
and many other factors beyond the control of OMI. Currently all of OMI's fleet
except one Suezmax and two product carriers operate in the spot market.
CUSTOMERS
International Product Carriers Ltd., a company jointly owned by the Company
and Osprey Maritime Limtied accounted for $14,237,000 of the Company's revenues
in 1999, which is approximately 12%. The revenues are received by IPC from
numerous customers into a pool which is divided among the vessels in the pool.
REGULATIONS
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its vessels. The kinds of permits, licenses and certificates required depend
upon such factors as the country of registry, the commodity transported, the
waters in which the vessel operates, the nationality of the vessel's crew, the
age of the vessel and the status of the Company as owner or charterer. The
Company believes that is has or can readily obtain all permits, licenses and
certificates necessary to permit its vessels to operate.
OMI's operations are also affected by U.S. federal, state and foreign
environmental protection laws and regulations, particularly the U.S. Port and
Tanker Safety Act, the Act to Prevent Pollution from Ships, various volatile
organic compound emission requirements, the BCH Code for chemical carriers, the
IMO/USCG pollution regulations and various SOLAS amendments. Compliance with
such laws' regulations entails additional expense, including vessel
modifications and changes in operating procedures.
The Oil Pollution Act of 1990 ("OPA 90") affects all vessel owners shipping
oil or hazardous material to, from, or within the U.S. The law phases out the
use of tankers having single hulls, effectively imposes on vessel owners and
operators unlimited liability in the event of a castastrophic oil spill and
establishes the Oil Spill Liability Trust fund. OPA 90 requires that tankers
over 5,000 gross tons calling at U.S. ports have double hulls if contracted
after June 30, 1990, or delivered after January 1, 1994. Furthermore, it calls
for the elimination of all single hull vessels by the year 2010 on a phase-out
schedule that is based on size and age, unless the tankers are retrofitted with
double hulls. The law permits existing single hull tankers to operate until the
year 2015 if they discharge at deep water ports, such as the Louisiana Offshore
Oil Port ("LOOP"), or lighter more than 60 miles offshore. The International
Maritime Organization ("IMO") has adopted a regulation that requires tankers
5,000 dwt and over, contracted after July 6, 1993, to have double hull, mid-deck
or equivalent design. Existing single hull tankers will be phased out unless
they are retrofitted with double hull, mid-deck or equivalent design no later
than 30 years after delivery. Another IMO regulation mandates that existing
single hull crude oil tankers larger than 20,000 dwt and product tankers over
30,000 dwt without segregated ballast tanks ("SBT") must convert to SBT
operations using at least 30% of their wing tanks, or cargo tank bottom area,
for this purpose by the age of 25 or be
4
hydrostatically-balance loaded in the wing tanks to provide equivalent oil
outflow abatement in the event of casualty. The U.S. has not accepted these IMO
regulations, as the IMO regulations recognize, in addition to double hull, other
designs as well as contain different phase out dates for existing single hull
tankers which are in conflict with provisions of OPA 90. As a result, some
vessels which are eligible to trade internationally will be unable to carry
cargo to or from the United States, except to LOOP or if lightered, and some
vessels which may trade in the U.S. will be unable to trade elsewhere. All of
the Company's vessels can trade to the U.S. at least until 2010 under current
rules.
In the U.S., liability for an oil spill is governed not only by OPA 90, but
also by the laws, rules and regulations established by every coastal and inland
waterway state. Federal law does not preempt such state laws and provides that
claims made by state governments and other affected parties are not subject to
limitation of liability if the oil spill results from gross negligence, willful
misconduct or violation of any federal operating or safety standard. One result
of OPA 90 has been a greater prominence for independent owners with a reputation
for high quality of technical management and well maintained physical assets.
Another effect of the law has been to increase the relative costs for liability
insurance for vessel owners trading to the U.S. While OMI maintains insurance at
levels it believes prudent, claims from a castastrophic spill could exceed the
insurance coverage available, in which event there could be a material adverse
effect on OMI.
Following the recent breakup of a tanker in Europe, there has been
significant publicity and political movement toward the creation of laws in
Europe at least as stringent as OPA 90. While nothing has to date gone into
effect, the Company expects significant legislation soon. The Company believes
that such legislation is likely to benefit owners such as the Company which have
modern fleets, by eliminating older vessels as competitors in European markets.
OMI believes that compliance with applicable environmental and pollution
laws and regulations has not had and is not expected to have a material adverse
effect upon its competitive position; however the financial position, value and
useful life of its vessels and results of operations may be affected as a result
of OPA 90 and other environmental laws and regulations.
COMPETITION
The Company competes with a large number of international fleets. The
international fleets include vessels owned by independent operators and major
oil companies; in addition, many international fleets are government owned. Some
of the Company's competitors have greater financial resources than the Company.
Competition in the ocean shipping industry varies primarily according to
the nature of the contractual relationship as well as with respect to the kind
of commodity being shipped. Competition in virtually all bulk trades, including
crude oil and petroleum products is intense.
EMPLOYEES AND LABOR RELATIONS
On December 31, 1999, the Company and its subsidiaries had approximately 60
office employees.
The Company primarily uses hiring agents to crew its vessels, one of which
recruits exclusively for the Company. Although agents sign labor contracts with
labor organizations in various foreign countries that represent seagoing
personnel from these countries, the Company is not a party to these contracts.
Some senior shipboard positions on foreign flag vessels are filled directly by
the Company.
The Company considers its relationship with its employees, including its
seagoing crews, to be satisfactory.
VALUE OF ASSETS AND CASH REQUIREMENTS
Although the replacement costs of comparable new vessels may be above the
book value of OMI's fleet, the market value of OMI's fleet may be below book
value when market conditions are weak. In common with other shipowners, OMI
continually considers asset redeployment which at times includes the sale of
vessels at less than their book value.
OMI's results of operations and cash flow may be significantly affected by
future charter markets since currently only three vessels are on charter
extending beyond year-end 2000.
5
ITEM 3. LEGAL PROCEEDINGS
OMI and its subsidiaries are not parties to any material pending legal
proceedings or related group of such proceedings, other than ordinary routine
litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information with respect to the Company's
executive officers as of March 24, 2000.
YEAR
APPOINTED
NAME AGE POSITION TO OFFICE
- ---- --- -------- ------------
Craig H. Stevenson, Jr. ............... 46 Chief Executive Officer 1998
and President
Robert Bugbee ......................... 39 Senior Vice President and Chief 1998
Operating Officer
Vincent J. de Sostoa .................. 55 Senior Vice President, Chief 1998
Financial Officer and Treasurer
Fredric S. London ..................... 52 Senior Vice President, General 1998
Counsel and Secretary
Henry Blaustein ....................... 57 Senior Vice President, OMI Marine 1998
Services LLC
Kathleen C. Haines .................... 45 Vice President/Controller 1998
Thomas M. Scott ....................... 43 Vice President, OMI Marine 1998
Services LLC
Stavros Skopelitis .................... 53 Vice President 1998
There is no family relationship by blood, marriage or adoption (not more
remote than first cousin) between any of the above individuals and any other
executive officer or any OMI director.
The term of office of each officer is until the first meeting of directors
after the annual stockholders' meeting next succeeding his election and until
his respective successor is chosen and qualified.
There are no arrangements or understandings between any of the above
officers and any other person pursuant to which any of the above was elected as
an officer.
The following descriptions of occupations or positions that the executive
officers of the Company have held during the last five years:
Craig H. Stevenson, Jr. was appointed President and Chief Executive Officer
of the Company in 1998. Mr. Stevenson had been Chief Executive Officer of Old
OMI since January 1997 and President of Old OMI since November 1995. He was
elected Chief Operating Officer of Old OMI in November 1994 and Senior Vice
President/Chartering in August 1993.
Robert Bugbee was elected Chief Operating Officer in March 2000 and Senior
Vice President of the Company in 1998. He had been Senior Vice President of Old
OMI since August 1995. Mr. Bugbee joined Old OMI in February 1995. Prior
thereto, he was Head of Business Development at Gotaas-Larsen Shipping
Corporation for more than three years.
Henry Blaustein was elected Senior Vice President of OMI Marine Services
LLC in 1998. He had been Senior Vice President/Technical of Old OMI since July
1997. Prior thereto he was an independent consultant.
6
Vincent J. de Sostoa was elected Senior Vice President, Treasurer and Chief
Financial Officer of the Company in 1998. He had been Chief Financial Officer of
Old OMI since 1994.
Fredric S. London was elected Senior Vice President, Secretary and General
Counsel of the Company in 1998. He had been Senior Vice President, Secretary and
General Counsel of Old OMI since December 1991.
Kathleen C. Haines was elected Vice President and Controller of the Company
in 1998. She had been Vice President of Old OMI since January 1994.
Thomas M. Scott was elected Vice President of OMI Marine Services LLC in
1998. He had been Vice President of Old OMI since February 1995.
Stavros Skopelitis was elected Vice President and Economist of the Company
in 1998. He had been Vice President and Economist of Old OMI since May 1996. He
was elected Assistant Vice President and Economist of Old OMI in January 1994.
PART II
ITEM 5. MARKET FOR OMI CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
Old OMI listed for trading on the New York Stock Exchange all of its common
stock on March 13, 1992 (NYSE-OMM) and the Company acceded to that listing on
June 18, 1998. As of March 24, 1999 the number of holders of OMI common stock
was approximately 3,424. The high and low sale prices of the common stock, as
reported by the New York Stock Exchange, were as follows:
1999 QUARTER 1ST 2ND 3RD 4TH
------------ ------- ------- ------- -------
High $3 7/16 $2 3/4 $2 3/4 $2 5/8
Low $1 1/2 $1 1/2 $1 7/8 $1 5/16
1998 QUARTER 1ST 2ND 3RD 4TH
------------ ------- ------- ------- -------
High N/A $8 11/16 $8 5/16 $4
Low N/A $6 7/8 $3 1/8 $2 5/8
PAYMENT OF DIVIDENDS TO STOCKHOLDERS
The Board has not declared dividends to this date. OMI's current policy is
not to pay dividends, but to retain cash for use in its business. Any
determination to pay dividends by OMI in the future will be at the discretion of
the Board of Directors and will depend upon OMI's results of operations,
financial condition, capital restrictions, covenants and other factors deemed
relevant by the Board of Directors. Payment of dividends is limited by the terms
of certain agreements to which OMI and its subsidiaries are party. (See Note 5
to Consolidated Financial Statements.)
7
ITEM 6. SELECTED FINANCIAL DATA
OMI CORPORATION AND SUBSIDIARIES
(DOLLAR AND SHARES OUTSTANDING IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
Net voyage revenues(1) ........................... $ 33,916 $ 41,331 $ 55,393 $ 39,692 $ 27,301
======== ======== ======== ======== ========
Revenues ......................................... $115,992 $149,228 $141,985 $111,292 $ 91,819
-------- -------- -------- -------- --------
Operating expenses:
Vessel and voyage .............................. 66,842 82,368 77,686 67,008 64,518
Charter hire ................................... 15,234 25,529 8,906 4,592 --
Depreciation and amortization .................. 23,835 24,314 22,675 18,142 17,621
Provision for loss on lease obligations ........ 6,229 -- -- -- --
General and administrative ..................... 10,486 10,773 12,540 6,851 6,451
-------- -------- -------- -------- --------
Total operating expenses ......................... 122,626 142,984 121,807 96,593 88,590
-------- -------- -------- -------- --------
Operating (loss) income .......................... (6,634) 6,244 20,178 14,699 3,229
(Loss) gain on disposal/write down of
assets-net ..................................... (48,692) 6,485 885 4,078 (829)
Loss on disposal/write down of joint venture
investments .................................... (7,771) -- -- -- --
Interest expense ................................. 17,945 11,118 11,756 16,912 18,024
Provision (benefit) for income taxes ............. 475 (37,158) 5,407 876 (4,698)
Equity(loss) in operations of joint ventures ..... (510) 3,684 737 2,481 5,464
(Loss) income before extraordinary loss and
cumulative effect of change in accounting
principles ..................................... (81,781) 42,917 6,859 5,356 (4,493)
Extraordinary loss-net of tax benefit ............ (1,253) -- -- (1,663) --
Cumulative effect of change in accounting
principles-net of tax provision ................ 2,729 -- 10,063 -- --
Net (loss) income ................................ $(80,305) $ 42,917 $ 16,922 $ 3,693 $ (4,493)
==============================================================================================================
BASIC EARNINGS (LOSS) PER COMMON SHARE:
(Loss) income before extraordinary loss and
cumulative effect of change in accounting
principles ................................... $ (1.94) $ 1.01 $ 0.16 $ 0.16 $ (0.15)
Net (loss) income .............................. $ (1.90) $ 1.01 $ 0.39 $ 0.11 $ (0.15)
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
(Loss) income before extraordinary loss and
cumulative effect of change in accounting
principles ................................... $ (1.94) $ 1.00 $ 0.16 $ 0.16 $ (0.15)
Net (loss) income .............................. $ (1.90) $ 1.00 $ 0.39 $ 0.11 $ (0.15)
Weighted average shares outstanding ............ 42,250 42,671 42,914 33,440 30,745
==============================================================================================================
BALANCE SHEET DATA:
Cash and cash equivalents ...................... $ 7,381 $ 22,698 $ 30,608 $ 16,056 $ 25,963
Assets to be disposed of ....................... 90,996 -- -- -- --
Vessels and other property-net ................. 291,416 393,862 286,996 394,423 241,821
Construction in progress (newbuildings) ........ 25,340 34,733 56,032 10,754 --
Total assets ................................... 472,415 530,127 440,708 439,463 377,049
Total debt ..................................... 267,747 247,147 53,999 125,171 92,842
Total stockholders' equity ..................... 171,766 245,183 283,558 250,402 221,677
==============================================================================================================
(1) Voyage revenues less vessel and voyage expenses (including charter hire
expense)
See notes to consolidated financial statements.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following presentation of management's discussion and analysis of the
OMI Corporation ("OMI" or the "Company") financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, accompanying notes thereto and other financial information appearing
elsewhere in this Form 10-K.
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. Wherever used, the words
"believes," "estimates," "expects," "plan," "anticipates" and similar
expressions identify forward-looking statements. Any such forward-looking
statements are subject to risks and uncertainties that could cause the actual
results of the Company's results of operations to differ materially from
historical results or current expectations. 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 information contained in the discussion of the "Year 2000" ("Y2K")
constitutes forward-looking information. The identification and redemption of
Y2K issues is a technological effort that has never been undertaken before and
estimates of the outcome, time and expense of this project are, for that reason,
particularly hard to make with any certainty.
GENERAL
Overview
OMI provides seaborne transportation services primarily for crude oil and
refined petroleum. The Company is the successor to Universal Bulk Carriers, Inc.
("UBC"), a Liberian corporation, which was a wholly owned subsidiary of OMI
Corp. ("Old OMI") until June 17, 1998 at which date the Company was separated
from Old OMI (renamed Marine Transport Corporation, "MTC") through a tax-free
distribution ("Distribution") of one share of the Company's common stock for
each share of Old OMI common stock. The distribution separated Old OMI into two
publicly owned companies. OMI Corporation operates what were Old OMI's foreign
shipping businesses under the management of certain of the officers formerly of
Old OMI who moved to the new company and certain former directors of Old OMI and
additional new directors. The Company continues to trade under the symbol "OMM"
on the New York Stock Exchange.
The Company's net loss was $80.3 million for the year ended December 31,
1999 or $1.90 basic loss per share, after the extraordinary loss of $1.3 million
or $0.03 basic loss per share and income from the cumulative effect of change in
accounting principle of $2.7 million or $0.07 basic earnings per share. The 1999
net loss includes loss on disposal/write down of assets of $48.7 million, loss
on disposal/write down of joint venture investments of $7.8 million and a
provision for loss on lease obligations of $6.2 million. Net income for the year
ended December 31, 1998 was $42.9 million or $1.01 basic earnings per share. The
1998 net income included a gain from the disposal of a vessel of $6.5 million
and net income for the reversal of deferred income taxes in the amount of $38.9
million. In connection with the Distribution described above, OMI became a
decontrolled corporation and its shipping income is no longer subject to United
States federal income tax. The provision for taxes for the year ended December
31, 1999, reflects adjustments to actual for 1998 taxes.
OMI's Fleet
OMI's fleet comprises 22 vessels, including three chartered-in vessels and
one jointly owned vessel, and excluding a jointly owned bulk carrier and an
aframax, both of which were sold in the first quarter of 2000. OMI has
concentrated its fleet in two classes of vessels, Suezmax and product tankers.
OMI has been implementing its plan for fleet renewal with the delivery of four
new Suezmax vessels in the summer of 1998 and January 1999, and two deliveries
in 2000 (including the Suezmax tanker described below). During July and
September 1999, two 35,000 deadweight tons ("dwt") product carrier newbuildings
were delivered.
The Company's fleet currently consists of three wholly owned Suezmax
tankers, three chartered-in Suezmaxes, one jointly owned Ultra Large Crude
Carrier ("ULCC"), three Panamax product tankers (currently carrying crude oil)
and twelve handysize product carriers transporting clean products.
9
Recent Activities
On February 11, 2000, the Company finalized its refinancing of bank debt
with its lenders in the amount of $264.5 million. The effect of the refinancing
revises debt covenants, increases interest rate margins and reduces principle
amortization (see Financing Activities).
During February 2000, OMI agreed to sell in a private placement to four
unrelated investors, 9,583,000 shares of OMI common stock for $2.00 per share
($1.92 per share net of commissions). The funds raised will be used to partially
finance vessels delivered in 2000.
In October 1999, OMI agreed to acquire from Mega Tankers Newbuilding AS, a
Suezmax tanker, which was under construction. The purchase price of the vessel
is approximately $46.2 million. The Company issued 5,700,000 shares of common
stock in November 1999 and an additional 599,998 shares in February 2000 valued
at $2.50 per share. On March 15, 2000, OMI entered into an agreement for a $27.0
million credit facility to finance this vessel upon delivery from the yard. The
vessel was delivered on March 21, 2000 and the remaining balance of
approximately $3.4 million was paid by the Company.
During the first quarter 2000, OMI sold its investment in Geraldton
Navigation Company Inc. ("Geraldton") for approximately $2.7 million, after
receiving a dividend from the joint venture of $1.2 million. A loss of $6.6
million was recorded for the year ended December 31, 1999 relating to the
disposal of this venture.
On September 29, 1999, OMI sold its 49 percent share in its White Sea
Holdings, Inc. ("White Sea") joint venture for approximately $2.4 million. The
loss on the disposal of the joint venture of $0.9 million was recorded in 1999.
In addition, OMI agreed with its partner to terminate the OMI-Heidmar joint
venture in June 1999. This venture operated a pool of product tankers in which
OMI time chartered three of its vessels until September 1999. A write down of
$0.3 million was recognized in 1999 relating to OMI's portion of non-recoverable
investments in joint venture assets.
On July 19, 1999 and September 15, 1999, the SEINE and the ISERE, two
product tanker newbuildings, were delivered at an approximate cost of $28.5
million each. Both vessels were time chartered for two-year periods. During
January 1999, the Company took delivery of a Suezmax newbuilding, the COLUMBIA,
and on June 30, 1999, the Company completed a sale/leaseback of this vessel for
$54 million.
As a result of market conditions, OMI disposed of its older Suezmax vessels
and non-core vessels. By doing this, the Company is better able to focus its
capital where its resources can provide higher returns. During July, August and
November 1999, OMI sold four of its single hull Suezmax vessels built in the
mid-1970's. These vessels were held for sale at their net realizable values on
June 30, 1999 and adjusted to actual sales prices at their sale dates in 1999.
During December 1999, the Company entered into an agreement to sell OMI's 1980s
built aframax vessel which was also held for sale at its fair value at June 30,
1999. The aframax vessel was delivered to the new owners in March 2000. Nine
vessels (including the aframax vessel) have been classified as assets to be
disposed of at December 31, 1999. The disposal of these vessels are expected
during the next two years.
An additional non-recurring item included in the 1999 operating loss is the
provision for losses on the Company's chartered-in vessels. An accounting
adjustment was required because current lease obligations exceeded estimated
future cash flows.
In March 2000, the Company made an investment of $0.5 million to acquire
approximately 8 percent of the equity in MarineProvider ASA, a new Internet
business-to-business provider of marine services, which is based in Norway.
OMI announced on March 23, 2000, the creation of SeaLogistics.com a neutral
electronic exchange for the shipping industry. SeaLogistics will offer a broad
range of content and services for the entire shipping industry and will
initially focus on on-line chartering for the shipment of crude oil and
petroleum products. Having received positive responses from major charterers and
shipowners, SeaLogistics is in discussions with them to determine levels of
participation. It expects to be on-line during the fourth quarter of 2000.
Market Alliances
OMI has planned to concentrate its fleet in two classes of vessels, Suezmax
and product tankers. By concentrating on these two fleets, OMI is implementing
its plan to consolidate shipping activities by the formation of
10
alliances and pools with other owners. Rates for both classes of vessels were
historically low because of the imbalance of the supply and demand for crude oil
and refined products and various factors detailed in the Market Overview.
The Company has identified the advantages of owning a large modern Suezmax
fleet and has been implementing strategies to maximize earnings. First, the
fleet will be more attractive to large customers by providing better scheduling
opportunities. A large fleet also provides opportunities to obtain contracts for
large volume movements and creates the potential to increase vessel utilization.
Second, large and concentrated fleets create economies of scale to spread
efficiently the overhead costs associated with environmental regulations and
inspections. Third, operating expertise and efficiency are enhanced by
concentration in certain vessel classes. Fourth, OMI believes that large
customers will prefer to deal with a limited number of large shipping companies
with fleets that they have inspected for quality, rather than smaller shipping
companies characteristic of the fragmented international tanker market.
In 1998, in order to increase the Company's market opportunities in the
Suezmax trades in the Atlantic Basin, OMI and Frontline Ltd., a Norwegian owner
of the world's largest Suezmax fleet, combined Suezmax tanker fleets for
commercial purposes and created Alliance Chartering LLC ("Alliance"). Alliance's
control of the largest modern fleet of Suezmaxes has enabled it to strengthen
relationships and obtain contracts with customers. These contracts may allow
Alliance the opportunity to increase its Suezmax fleet utilization through
backhauls, when cargo is available, which can improve vessel earnings.
OMI's strategy for its handysize fleet is to increase market share by
consolidating commercial operations of vessels through marketing joint ventures
and through concentrating trading in selected areas. In March 1999, the Company
agreed with Osprey Maritime Limited, a major international shipping company
based in Singapore, to consolidate their product tanker operations, establishing
International Product Carriers Limited ("IPC") to form a mid-size product tanker
venture. The joint venture began operating effective May 1, 1999. IPC is
expanding the pool to include other product carrier owners to enhance its
marketing capacity. Currently all of OMI product carriers except the two new
product carriers (which are on time charter) are operating under adjustable rate
time charters with IPC.
MARKET OVERVIEW
Suezmax Tanker Overview
Average time charter equivalents ("TCE") in the Suezmax market fell in 1999
to their lowest level since 1995. This was the result of substantially lower
volumes of oil transported due to the adherence by OPEC and some non-OPEC oil
producers to their agreed oil production cuts, the fact that a high proportion
of these cuts involved long-haul Middle East oil, substantially higher bunker
prices and the draw down of oil inventories at the same time the tanker fleet
continued to grow.
Freight rates for Suezmax tankers have improved in early 2000. The crude
tanker market is expected to benefit this year as a result of the need to
transport substantially more oil to satisfy considerable oil demand, at a time
that oil inventories are at very low levels. However, a sustained improvement of
freight rates in the tanker markets will be largely dependent upon the
continuous improvement of economic activity in the Pacific region, as well as
the increase in the rate of tanker scrapings, in view of the relatively high
tanker newbuilding deliveries in the last two years and the substantial
deliveries expected in the year 2000.
The world tanker fleet grew and totaled approximately 276.7 million dwt at
the end of 1999, up by 3.9 million dwt or 1.4 % from the year-end 1998 level,
due to substantial newbuilding deliveries, offset in part by increasing
scrapping activity. At the same time, the tanker orderbook stood at 39.1 million
dwt, or 14.1% of the existing fleet. Approximately 21.5 million dwt is scheduled
for delivery in 2000, 12.0 million dwt in the year 2001 and most of the balance
in 2002. The tanker orderbook includes 44 Suezmaxes of about 6.7 million dwt, or
20.5% of the existing Suezmax fleet, and 74 VLCCs of 22.0 million dwt, or 18.1%
of the existing VLCC fleet.
However, approximately 91.8 million dwt, or one third of the total tanker
fleet, was 20 or more years old at the end of 1999. In addition, 75 Suezmax
tankers of 10.4 million dwt, or about 32% of the existing Suezmax tanker fleet,
and 10.0 million dwt, or 20.9% of the existing product tanker fleet, were 20 or
more years old.
The fall in tanker freight rates has led to increasing scrapping activity
as well as restraint in ordering new tonnage as compared to the previous two
years. Tanker sales for scrap totaled about 16.7 million dwt in 1999, more than
double
11
the amount sold for scrap in 1998, while new orders totaled 14.9 million dwt.
The sales for scrap include 36 VLCCs and 22 Suezmaxes. Tanker scrapping activity
has been strong in the first two months of 2000 as about 6.0 million dwt of
tonnage was sold for scrap, including 8 Suezmaxes and 15 VLCCs. Tanker scrapping
activity should continue at high levels given the relatively high orderbook, the
tanker fleet age, high bunker prices which penalize fuel inefficient old
tonnage, an expensive fifth special survey and stricter environmental
regulations.
World oil demand increased by about 0.9 million barrels per day (b/d) in
1999, and is expected to grow by about 2.0 million b/d in 2000. The expected
increases reflect further oil demand growth in industrialized areas and the
Pacific region as economic activity is recovering from the recent financial
crisis. World oil inventories increased substantially in 1998, especially in the
first half of the year, but fell for most of 1999 and currently are at very low
levels. World commercial oil stocks at the end of 1999 are at the low level
prevailing at the end of 1996. As a result of the current very low oil inventory
levels and the expected considerable world oil demand gains in 2000, a
substantial increase of oil production by OPEC and non-OPEC producers will be
necessary this year. Most of the oil production gains are expected in West
Africa, Latin America and the long-haul Middle East.
Product Tanker Overview
Freight rates in the product tanker market fell throughout 1999 and in the
fourth quarter were at the lowest level since the same period in 1992. This was
the result of product tanker fleet expansion, product inventory reductions, and
moderate world oil demand growth as the economies of western Europe slowed down
and oil demand in southeast Asia, though improving, was still below the level
prevailing prior to the recent economic crisis.
The world product tanker fleet increased and totaled 48.1 million dwt at
the end of 1999, up by 2.9 million dwt or 6.4% from the year-end 1998 level,
while tonne-mile demand for product tankers increased by only 2.0%. The product
tanker orderbook stood at 4.3 million dwt or 8.9% of the existing product tanker
fleet. Approximately 3.0 million dwt are scheduled for delivery in 2000, 1.0
million dwt in 2001 and the balance in the year 2002 and beyond.
Following large OPEC and non-OPEC oil production cuts, world commercial oil
inventories at year-end 1999 have fallen to the low levels prevailing at the end
of 1996. At the same time, oil inventories in the three major markets--United
States, Europe and Japan--are at the lowest levels in over ten years.
Oil stocks are expected to decrease further in the first quarter of 2000
with the fall expected to be larger than the same period last year. The stock
declines are expected to be more concentrated in the Atlantic region and mostly
in products (distillate and gasoline). As a result, tight distillate and
gasoline markets in the U.S. and Western Europe will create opportunities for
more oil product cargoes from the long-haul Middle East as well as more cargoes
from Asia to U.S. West Coast.
The supply/demand imbalance prevailing in the product tanker trades is
expected to persist in the short-term given the relatively high newbuilding
deliveries this year. However, prospects for recovery in the product tanker
sector may be enhanced given the relatively low total orderbook for delivery in
the next few years, and some fundamental changes in the pattern of product
trades.
Furthermore, oil product import requirements are expected to increase in
the three major world oil consuming areas (North America, Western Europe and the
Pacific region) in the next few years, as oil demand growth is expected to
exceed refinery capacity in these areas. In addition, a substantial amount of
new refinery capacity in South and Southeast Asia in the next few years will
cover part of the increasing oil demand in this area, lowering product import
requirements from the Middle East. This will increase oil product exports from
the Middle East to longer haul Western destinations, namely the U.S. and Western
Europe, increasing product tanker tonne-mile demand.
RESULTS OF OPERATIONS
Results of operations of OMI Corporation include operating activities of
the Company's vessels. The discussion that follows explains the Company's
operating results in terms of net voyage revenues and TCE. Net voyage revenues
are voyage revenues minus vessel and voyage expenses (including charter hire
expense). TCE are voyage revenues less voyage expenses in a spot charter or
voyage revenues in a time charter because fluctuations in voyage revenues and
expenses occur based on the nature of a charter. The Company's vessels currently
operate, or have operated in
12
prior years, on time, bareboat or voyage ("spot") charters. Each type of charter
denotes a method by which revenues are recorded and expenses are allocated.
Under a time charter, revenue is measured based on a daily or monthly rate and
the charterer assumes certain voyage expenses, such as fuel and port charges.
Under a bareboat charter, the charterer assumes all voyage and operating
expenses; therefore, the revenue rate is likely to be lower than for a time
charter. Under a voyage, or spot 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 revenue discussed above include
operating expenses such as crew payroll/benefits/travel, stores, maintenance and
repairs, drydock, insurance and miscellaneous. These expenses are a function of
the fleet size, utilization levels for certain expenses, 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.
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES.
FOR THE YEARS ENDED DECEMBER 31, 1999 VERSUS DECEMBER 31, 1998
Net voyage revenues of $33.9 million for the year ended December 31, 1999
decreased by a net $7.4 million from $41.3 million for the year ended December
31, 1998. Net voyage revenues of $41.3 million for the year ended December 31,
1998 decreased by a net $14.1 million from $55.4 million for the year ended
December 31, 1997. Net voyage revenues for the years ended December 31, 1999,
1998 and 1997 are as follows by market segments in which OMI primarily operates.
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
------ ------ ------
(IN MILLIONS)
VOYAGE REVENUES:
Crude Oil Fleet ......................... $ 78.1 $ 98.5 $ 72.7
Product Carrier Fleet ................... 37.5 50.6 67.9
All Other ............................... 0.3 0.1 1.4
------ ------ ------
Total ............................... $115.9 $149.2 $142.0
====== ====== ======
VESSEL AND VOYAGE EXPENSES: (1)
Crude Oil Fleet (2) ..................... $ 59.1 $ 72.8 $ 51.5
Product Carrier Fleet ................... 22.6 34.6 34.2
All Other ............................... 0.3 0.5 0.9
------ ------ ------
Total ............................... $ 82.0 $107.9 $ 86.6
====== ====== ======
NET VOYAGE REVENUES:
Crude Oil Fleet ......................... $ 19.0 $ 25.7 $ 21.2
Product Carrier Fleet ................... 14.9 16.0 33.7
All Other ............................... (0.0) (0.4) 0.5
------ ------ ------
Total ............................... $ 33.9 $ 41.3 $ 55.4
====== ====== ======
- ----------
(1) Includes charter hire expenses.
(2) Excludes provision for loss on lease obligations of $6.2 million.
Net changes are discussed as follows according to the two market segments
(crude oil and product carrier) in which OMI primarily operates.
Crude Oil Tanker Fleet
At December 31, 1999, the crude fleet consisted of three wholly owned
Suezmaxes, one aframax vessel and three chartered-in Suezmaxes; one vessel is on
time charter and the remaining vessels are currently operating in the
13
spot market. During 1999, five wholly owned vessels were classified on the
Balance Sheet as held for sale at June 30, 1999, of which four vessels were sold
and one (aframax) vessel was contracted to be sold in December 1999.
Additionally, one of OMI's three wholly owned Panamax vessels carried crude oil
in both 1999 and 1998 and the other two Panamax vessels began carrying crude oil
in May 1998 and July 1998. At December 31, 1998, OMI owned seven Suezmaxes, one
aframax and chartered-in two Suezmax vessels. During 1998 and January 1999, four
new Suezmax vessels were delivered (the first one June 1998), a vessel was sold
in August 1998 and two chartered-in vessels were redelivered to their owners in
July and December 1998.
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998
----- -----
(IN MILLIONS)
CRUDE FLEET:
NEW SUEZMAXES:
TCE revenues .............................. $34.8 $36.6
Operating expenses ........................ 7.0 3.9
Charter hire expense ...................... 15.2 22.2
----- -----
Net voyage revenues ....................... $12.6 $10.5
===== =====
AFRAMAX/PANAMAXES:
TCE revenues .............................. $15.5 $14.9
Operating expenses ........................ 8.7 6.7
Charter hire expense ...................... 0.0 0.0
----- -----
Net voyage revenues ....................... $ 6.8 $ 8.2
===== =====
OLD SUEZMAXES: (1)
TCE revenues .............................. $ 6.6 $21.6
Operating expenses ........................ 7.0 11.3
Charter hire expense ...................... 0.0 3.3
----- -----
Net voyage revenues ....................... $(0.4) $ 7.0
===== =====
Total Crude Fleet Net Voyage Revenues ..... $19.0 $25.7
===== =====
- ----------
(1) Four vessels included in this category in 1998 and 1999 were sold during
1999. One vessel chartered-in in 1998 was redelivered December 1998.
The COLUMBIA, a newly built Suezmax tanker, was delivered to the Company in
January 1999. The vessel operated in the spot market during the six months ended
June 30, 1999 and at that date was sold in a sale/leaseback transaction. The
COLUMBIA was bareboat chartered back to OMI and continues to operate in the spot
market.
Net voyage revenues for the crude oil fleet of $19.0 million for the year
ended December 31, 1999 decreased a net of $6.7 million from net voyage revenues
of $25.7 million for the year ended December 31, 1998. Decreases in net voyage
revenues in the crude fleet of approximately $14.9 million were primarily
attributable to lower earnings from the four vessels sold in 1999, in addition
to lower earnings from a vessel sold in August 1998, lower earnings in 1999 for
the aframax vessel operating in the spot market and two Panamax vessels with
higher operating expenses in 1999, and lower earnings from chartered-in vessels,
particularly one which was drydocked in 1999 and earned a lower TCE compared to
1998.
Decreases in the crude oil fleets's net voyage revenue were offset in part
by increases aggregating $8.2 million from primarily three items. First, the
earnings of four new Suezmax vessels delivered in 1998 and 1999. Second, the
increase in time charter revenue from a Panamax vessel operating in a marketing
pool in 1999 and 1998. The final item was the redelivery in December 1998 of a
chartered-in vessel, which incurred losses last year.
Product Carrier Fleet
The product carrier fleet consisted of twelve handysize vessels at December
31, 1999 and ten handysize vessels in 1998. In November 1997, May 1998 and July
1998 OMI placed its three Panamax vessels which previously carried
14
clean products, into a marketing pool. Decreases in the product carrier fleet in
the first half of 1999 pertain in part to two of the Panamaxes which were
carrying clean products in the first half 1998 and thereafter carried crude oil
(included in the crude oil fleet's operating results) in 1999.
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
----- -----
(IN MILLIONS)
CLEAN FLEET:
PRODUCTS (IPC POOL IN 1999):
TCE revenues ..................................... $29.9 $38.5
Operating expenses ............................... 17.5 22.5
Charter hire expense ............................. 0.0 0.0
----- -----
Net voyage revenues .............................. $12.4 $16.0
===== =====
PRODUCTS-ON TIME CHARTER (DELIVERED IN 1999):
TCE revenues ..................................... $ 3.4 $ 0.0
Operating expenses ............................... 0.9 0.0
Charter hire expense ............................. 0.0 0.0
----- -----
Net voyage revenues .............................. $ 2.5 $ 0.0
===== =====
TOTAL CLEAN FLEET NET VOYAGE REVENUE ............. $14.9 $16.0
===== =====
During the year ended December 31, 1999, seven of the Company's handysize
product tankers were employed in the spot market and three were on time charter.
However, since May 1, 1999, these vessels have been time chartered (at the
conclusion of their previous charters) to a newly formed joint venture, IPC,
described in the Market Alliance section above. Time charter rates from this
venture reflect spot market charter rates since they are adjusted periodically
with pool profits.
Net voyage revenues of $14.9 million for the year ended December 31, 1999
decreased a net of $1.1 million from net voyage revenues of $16.0 million for
the year ended December 31, 1998. Decreases in net voyage revenues in 1999
resulted primarily from lower TCE's for three vessels previously time chartered
from 1998 until August 1999 when they began operating in the IPC pool. This
decrease in net voyage revenues was partially offset by increased earnings from
the two new product carriers delivered July and September 1999 which began
operating on profitable time charters beginning from their delivery dates.
OTHER OPERATING EXPENSES.
The Company's operating expenses, other than vessel, voyage and charter
hire expenses consist of provision for loss on lease obligations, depreciation
and amortization and general and administrative ("G & A") expenses. For the year
ended December 31, 1999, these expenses increased $5.5 million to $40.6 million,
from $35.1 million for the year ended December 31, 1998.
The provision for loss on lease obligations of $6.2 million was recorded at
June 30, 1999 and relates to OMI's chartered-in vessels. As part of OMI's
periodic review, the Company evaluated the forecasted future net cash flows for
vessels with lease obligations. The Company determined that its current lease
obligations for the vessels exceeded their undiscounted forecasted future net
cash flows. The loss was measured by the excess of the future lease payments, as
set forth in the lease agreement, over the vessels' estimated forecasted future
cash flows over the lease terms.
Increases in operating expenses for the year ended 1999 were partially
offset by net decreases of $0.5 million in depreciation expense from the sale of
four vessels in 1999 and the sale of a Suezmax tanker in August 1998. Increases
offsetting decreases in depreciation expense related to depreciation for three
Suezmax tankers delivered in 1998 and two product carriers delivered in 1999. G
& A expense decreased by $0.2 million during the year ended December 31, 1999
compared to the year ended December 31, 1998.
OTHER (EXPENSE) INCOME.
Other (expense) income consists of (loss) gain on disposal/write down of
assets-net, loss on disposal/write down of joint venture investments, interest
expense, interest income and other-net. Net other expense increased by $70.0
million from $4.2 million for the year ended December 31, 1998 to $74.2 million
for the year ended December 31, 1999.
15
(Loss) gain on disposal/write down of assets-net was a loss of $48.7
million for the year ended December 31, 1999 compared to a gain on sale of a
vessel in August 1998 of $6.5 million during the year ended December 31, 1998.
Losses due to the sale of five vessels in 1999 aggregated $17.3 million, which
included four older Suezmax vessels (built in 1974 and 1975) that were sold for
scrap and the COLUMBIA which was sold in a sale/leaseback transaction on June
30, 1999 at a loss of $2.0 million. Vessels to be disposed of at December 31,
1999, resulted in a loss of $31.4 million. The write down of vessels includes
the realization of the cumulative translation adjustment for $7.4 million. The
adjustment relates to two vessels whose functional currency until July 1990 was
not U.S. dollars.
Loss on disposal/write down of joint venture investments was $7.8 million
for the year ended December 31, 1999. As mentioned in the Recent Activities
section, OMI disposed of its White Sea joint venture effective September 29,
1999 at a loss of approximately $0.9 million and wrote down another joint
venture investment, which was terminated in 1999 by $0.3 million also in
September 1999. OMI's investment in Geraldton was written down to its net
realizable value of $2.7 million and is included in Assets to be disposed of on
the Consolidated Balance Sheet. A loss on disposal of OMI's investment in
Geraldton of $6.6 million was recorded at December 31, 1999.
Interest expense increased $6.8 million for the year ended December 31,
1999 in comparison to the year ended December 31, 1998. The additional interest
expense was primarily due to additional borrowings to finance six newbuildings
(including one which was delivered and $37.5 million financed during January
1999 and subsequently sold and repaid June 30, 1999 in a sale /leaseback
transaction) and correspondingly a decrease in the capitalization of interest on
construction in progress. (See Financing Activities).
During February 2000, MTC paid OMI $5.1 million in full settlement of a
note which was due in November 2003. At December 31, 1999, the note receivable
of $5.1 million was included with Other receivables in current assets. A loss of
$1.2 million was recorded in the Consolidated Statements of Operations included
in Other-net for the year ended December 31, 1999.
EQUITY (LOSS) IN OPERATIONS OF JOINT VENTURES.
Equity in operations of joint ventures decreased $4.2 million for the year
ended December 31, 1999 compared to the year ended December 31, 1998. The
decrease in 1999 was primarily attributable to lower earnings from two joint
ventures, one which operates one ULCC vessel that was in drydock during the
first half of 1999 and earned lower revenues due to declines in TCE rates in
1999 and the other joint venture owning one Suezmax vessel also experienced a
decline in spot rates and was sold on September 29, 1999.
During 1999, the Company received an aggregate of $2.5 million in dividends
from joint ventures, $2.0 million from Amazon Transport, Inc. and $0.5 million
from White Sea. During 1999, OMI paid $0.6 million in capital contributions to
one of its joint ventures.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
During the second quarter 1999, OMI changed its method of accounting for
freight on voyage charters. The accounting change is effective for the period
beginning January 1, 1999 and income of $2.7 million was recorded for the year
ended December 31, 1999 as a cumulative effect of change in accounting
principle. The change in the Company's method of revenue recognition for voyages
from the load-to-load basis to the discharge-to-discharge basis is a more
reliable method in recognizing voyage revenue as it eliminates the uncertainty
associated with estimating location of the next load port under the load-to-load
basis. Voyage revenue is recognized evenly over the period from the departure of
a vessel from its original discharge port to departure at the next discharge
port.
BALANCE SHEET
In January 1999, the Company took delivery of a newly constructed
double-hulled Suezmax tanker, the COLUMBIA. At December 31, 1998, there was a
balance in Construction in Progress of $17.7 million relating to the COLUMBIA
which was recorded to Vessels upon delivery in 1999. The COLUMBIA was then sold
June 30, 1999 for $54.0 million in a sale/leaseback transaction. The $54.0
million proceeds reduced debt incurred in January 1999 of $35.0 million and OMI
has a long-term note receivable for $6.0 million from the sale of the vessel.
Additionally, the
16
Company maintains $2.0 million in escrow and $5.5 million in cash as collateral
for a standby letter of credit as required by the lease agreement (see
Commitments). The aggregate $7.5 million is included in Other assets and
deferred charges.
Decreases in Other assets and deferred charges resulted in part from an
extraordinary loss of $1.3 million, which was recorded for the year ended
December 31, 1999 and relates to the write-off of the balance of unamortized
finance fees on debt that was refinanced in February 2000.
The delivery of the two new product tankers during 1999 increased Vessels
by an aggregate of approximately $57.0 million, decreased Construction in
progress by $11.9 million, increased Long-term debt by $36.4 million and
decreased cash by approximately $8.7 million.
Assets to be disposed of, aggregating $91.0 million, include nine vessels
with an aggregate net realizable value of $88.3 million and an investment in a
joint venture of $2.7 million at December 31, 1999. The effects of the write
down of the nine vessels in 1999 were as follows: decreases to Vessels of $216.4
million, Accumulated depreciation of $98.6 million, Other assets and deferred
charges of $9.2 million related to the write-off of the remaining balances for
vessels prepaid drydock and goodwill, cumulative translation adjustment of $7.4
million and decreases in retained earnings for the loss on disposal/write down
of assets of $31.4 million. The effects of the adjustment to $2.7 million net
realizable value for the Geraldton investment, which was to be disposed of, was
a decrease in Investment in, and advances to joint ventures of $10.5 million, an
increase in Other receivables of $1.2 million relating to a dividend received
from the venture and decreases in retained earnings for the loss on write down
of Geraldton of $6.6 million.
The effects of the disposal of four older Suezmax vessels in 1999 were as
follows: cash proceeds of $11.0 million, decreases to Vessels of $52.3 million,
Accumulated depreciation of $32.3 million, Other assets and deferred charges of
$6.3 million related to the write-off of the remaining balances for vessels
prepaid drydock and goodwill, and decreases in retained earnings for the loss on
disposal of assets of $15.3 million.
Decreases in Investments in, and advances to joint ventures, other than
from the disposal of Geraldton, primarily relate to decreases in Investments in
two joint ventures that paid dividends of $2.5 million, as a return on
investment in 1999 offset partially by additional investment in joint ventures
of $0.6 million. Additionally, the disposal/ write down of two ventures
decreased Investment in joint ventures by $3.6 million.
Increases in the Current portion of long-term debt at December 31, 1999,
includes $46.5 million related to debt associated with assets to be disposed of
in accordance with the refinancing agreement with banks completed in February
2000 (see Liquidity and Capital Resources).
The cumulative effect of the change in accounting principle for freight on
voyage charters as of January 1, 1999 on the Company's Consolidated Balance
Sheets was to increase Current assets by $1.5 million, decrease Other
liabilities by $1.2 million and increase total Stockholders' equity by $2.7
million.
FOR THE YEARS ENDED DECEMBER 31, 1998 VERSUS DECEMBER 31, 1997
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES
Net voyage revenues of $41.3 million for the year ended December 31, 1998
decreased by a net of $14.1 million from $55.4 million for the year ended
December 31, 1997.
Product Carrier Fleet
The product carrier fleet consisted of thirteen vessels (ten handysize and
three Panamaxes) at December 31, 1998 and 1997. Rates in the product market
began to decline in the second half of 1997, and to minimize decreases due to
rate declines in the short-term, OMI placed three Panamaxes which previously
carried clean products, into a marketing pool. Decreases in the product carrier
fleet in 1998 pertaining to the Panamaxes relate to a part of the year in which
two of the vessels were carrying clean products and the remainder of the
decrease relates to decreased rates earned for these vessels in 1998 in
comparison to 1997.
Net voyage revenues decreased by $17.7 million for the year ended December
31, 1998 compared to the year ended December 31, 1997. The decreases were due
primarily to the market declines. Other decreases in this fleet
17
relate to the three Panamaxes with decreases in net voyage revenue of
approximately $4.4 million which were included in the crude oil fleet's earnings
for the entire 1998 year for one vessel and approximately twelve months in
aggregate for the other two vessels. Additionally, aggregate net voyage revenues
decreased approximately $2.7 million in the first half of 1998 compared to 1997
for the two Panamax vessels when they were operating as "clean" product
carriers. Additional decreases in 1998 net voyage revenues were related to six
product carriers drydocked for an aggregate of 138 days in 1998 versus four
vessels for an aggregate of 89 days in 1997.
Crude Oil Tanker Fleet
At December 31, 1998, the crude fleet consisted of eight wholly owned
vessels (seven Suezmaxes, and one aframax) and two chartered-in Suezmaxes; all
but one of the vessels were operating in the spot market. In 1997, OMI owned six
Suezmaxes, one aframax and chartered-in four vessels (one beginning in May 1997
as part of a sale/leaseback transaction and the other three beginning in the
fourth quarter of 1997). During 1998, three new Suezmax vessels were delivered
and operated an aggregate of 511 days, a vessel was sold in August 1998 and two
chartered-in vessels were redelivered to their owners in July and December 1998.
Net voyage revenues of $25.7 million generated by the crude tanker fleet
increased a net of $4.5 million for the year ended December 31, 1998 from $21.2
million for the year ended December 31, 1997. The net increase in net voyage
revenues can be attributed to three reasons: three Panamaxes with net voyage
revenue of $4.4 million which had been carrying clean products in 1997, net
voyage revenues of approximately $6.8 million from three Suezmax vessels
delivered in the summer of 1998 and an increase in the net voyage revenues due
to higher freight rates in 1998 earned by the aframax vessel (which also
incurred 22 days offhire in 1997). Net voyage revenues were reduced by decreases
in revenues for the remainder of the fleet as a result of: lower rates in the
spot market in 1998 due to the lower demand for oil, decreases of $3.8 million
in net voyage revenues earned from three of the four vessels chartered-in during
1998, decreases of $2.0 million from the sale of the Suezmax vessel in August
1998 and decreased revenue due to an aggregate of 77 more offhire days in 1998
compared to 1997 primarily relating to drydocking. The net voyage revenues
earned by the vessels chartered-in were substantially less due to lower current
market rates than those prevailing when the leases were fixed.
OTHER OPERATING EXPENSES
For the year ended December 31, 1998, operating expenses decreased $0.1
million to $35.1 million, from $35.2 million for the year ended December 31,
1997. The net decrease was due to a decline in G & A expenses of $1.7 million
primarily because of relocation accruals and additional professional fees for
the anticipated spin off of the Company included in the 1997 expenses. The
decrease in G & A expenses was offset by a net increase of $1.6 million in
depreciation expense from the delivery of three Suezmax tankers in 1998, offset
by the sale of a Suezmax tanker in August 1998 and a liquid petroleum gas
carrier ("LPG") vessel in May 1997.
OTHER (EXPENSE) INCOME
Net other expense decreased by $4.4 million (51 percent decrease) from $8.6
million to $4.2 million for the year ended December 31, 1998 compared to the
year ended December 31, 1997. Gain on sale of assets-net increased $5.6 million
due to the gain on the sale of a Suezmax tanker in August 1998 compared to the
gain on sale in March 1997 of an LPG vessel. Interest expense decreased by $0.7
million for the year ended December 31, 1998 compared to 1997. The decrease in
interest expense was primarily due to increases in the capitalization of
interest on construction in progress and less interest expense from repayment of
debt for the vessel sold in August 1998 offset by interest expense on additional
borrowings upon delivery of three newbuildings. Other-net of $0.9 million
expense for the year 1998 represents a litigation settlement for a vessel which
was sold in 1996.
(BENEFITS) PROVISION FOR INCOME TAXES
The income tax benefit of $37.2 million includes a provision for federal
income taxes of $1.7 million for the period from January 1, 1998 through June
17, 1998 (the date of the Distribution), net of the benefit of $38.9 million
representing the reversal of deferred income taxes at the distribution date, as
the Company became a decontrolled corporation.
18
EQUITY IN OPERATIONS OF JOINT VENTURES.
Equity in operations of joint ventures increased by $2.9 million to $3.7
million for the year ended December 31, 1998 compared to $0.8 million for the
year ended 1997. The net increase was primarily attributed to better operating
results for a vessel operating in a 49.0 percent owned venture, in addition to
increase earnings in 1998 due to a loss on sale of a vessel in 1997 owned by a
49.9 percent joint venture of approximately $10.5 million (OMI's portion of the
loss was approximately $5.1 million) offset in part by the gain on the sale of a
vessel in the same venture of $1.9 million (OMI's portion of the gain was
approximately $0.9 million).
During 1998, the Company received an aggregate of $3.4 million in dividends
from joint ventures, $2.0 million from Amazon Transport, Inc. ("Amazon") and
$1.4 million from White Sea Holdings, Ltd. ("White Sea"). Additionally, during
November 1998, OMI received cash of $3.0 million upon dissolution of a 49
percent owned joint venture and recorded a loss of $0.7 million from the
dissolution of a 25 percent equity interest in a joint venture.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents of $7.4 million at December 31, 1999 decreased
$15.3 million from cash and cash equivalents of $22.7 million at December 31,
1998. The Company's working capital of $43.9 million at December 31, 1999
increased $42.0 million from working capital of $1.9 million at December 31,
1998. Current assets increased $74.1 million and current liabilities increased
$32.1 million. Current assets increased by $91.0 million for Assets to be
disposed of at December 31, 1999, and decreased $15.3 million in cash and cash
equivalents. Current liabilities increased primarily in current portion of
long-term debt associated with assets to be disposed of at December 31, 1999.
Net cash provided by operating activities decreased $9.6 million to $8.1 million
for the year ended December 31, 1999 compared to net cash provided by operating
activities of $17.7 million for the year ended December 31, 1998 (see Results of
Operations).
The Company operates in a capital-intensive industry and augments cash
generated by operating activities with debt and sales of vessels that no longer
fit the Company's strategy. Cash used by investing activities was $43.7 million
for the year ended December 31, 1999, a decrease of $56.1 million from cash used
by investing activities of $99.8 million for the year ended December 31, 1998.
Cash used by investing activities decreased in 1999 primarily due to decreases
in additions to vessels of $56.4 million resulting from the delivery of the
three new Suezmax vessels in 1998 aggregating $138.9 million, compared to the
1999 additions aggregating $90.9 million. The 1999 additions to vessels
primarily were due to payments relating to the delivery of the COLUMBIA of $38.3
million, the delivery of two product carriers for $45.2 million and construction
in progress for a Suezmax tanker of $5.9 million (other increases of $14.3
million in construction in progress were non monetary, OMI issued stock).
Proceeds from disposal of assets increased $20.4 million relating to the sale of
a Suezmax vessel in August 1998 compared to the disposal of four 1970's built
vessels for scrap in 1999. Decreases in investing activities were partially
offset by increases relating to notes receivable of $9.0 million, cash paid to
escrow of $7.5 million and other increases in 1999.
Financing Activities
Cash provided by financing activities was $20.3 million for the year ended
December 31, 1999, compared to cash provided by financing activities of $74.2
million for the year ended December 31, 1998. In 1999, there were $113.1 million
in principal payments on long-term and short-term debt and $133.7 million in
proceeds from borrowings. The payments in 1999 included $69.6 million for
short-term financing and working capital borrowings; $37.5 million for the
COLUMBIA (delivered in January and sale/leaseback in June 1999) and $6.0 million
for required payments on three credit facilities and the 7% Convertible Note.
The proceeds in 1999 included $37.5 million for the COLUMBIA, $21.2 million for
the SEINE (delivered in July), $16.0 million for ISERE (delivered in September)
and $59.0 million for short-term financing and working capital borrowings.
As of December 31, 1999, OMI had an aggregate of $260.6 million in floating
rate credit facilities and revolving lines of credit. The following paragraphs
below describe these facilities and revolving lines of credit that OMI used
during 1999, which were refinanced in February 2000. On February 11, 2000, OMI
completed its refinancing with its
19
previous lenders for a credit agreement in the amount of $264.5 million. Prior
to the refinancing and at December 31, 1999, OMI was not in compliance with
certain of its covenants under previous credit agreements. The effect of the
refinancing revises debt covenants, interest rate margins and principle
amortization. There are two primary facilities under the new agreement. Facility
A is in the amount of $218.0 million and matures five years from the drawdown
date. It will be repaid in ten semi-annual installments commencing six months
from the drawdown date, the first four installments in the amount of $5.0
million and the remaining six installments in the amount of $12.5 million, in
addition to a balloon payment in the amount of $123.0 million as the last
installment on maturity. The outstanding balance of this Facility bears interest
at LIBOR plus a margin of 1.75% and is secured by thirteen vessels. Facility B
is in the amount of $46.5 million and is a short-term facility which matures two
years after the drawdown date. The principle of this Facility will be repaid
with proceeds on the sale of vessels secured by this facility which are vessels
to be disposed of on the Consolidated Balance Sheets at December 31, 1999. The
outstanding balance of this Facility bears interest at LIBOR plus a margin of 2%
and is secured by six vessels and OMI's interest in its 49 percent owned joint
venture. A third facility provides for certain lenders to repay a portion of
Facility A in the event certain mortgage insurance is not obtained.
At December 31, 1999, vessels and shares in a joint venture with a net book
value of $385.4 million have been pledged as collateral (under the new credit
agreement) on long-term debt issues.
An extraordinary loss of $1.3 million was recorded for the year ended
December 31, 1999. This loss relates to the write-off of the balance of
unamortized finance fees on debt which was refinanced in February 2000.
Certain of the loan agreements, including the new credit agreement, of the
Company contain restrictive covenants requiring minimum levels of cash or cash
equivalents, working capital and net worth, maintenance of specified financial
ratios and collateral values, and restrict the ability of the Company to pay
dividends. These loan agreements also contain various provisions restricting the
right of OMI and/or its subsidiaries to make certain investments, to place
additional liens on the property of certain of OMI's subsidiaries, to incur
additional long-term debt, to make certain payments, to merge or to undergo a
similar corporate reorganization, and to enter into transactions with affiliated
companies.
On February 28, 1999, the Company obtained a $25.0 million revolving line
of credit secured by five vessels, four of which were sold during the year, and
shares in a joint venture company. The revolving credit facility was used for
working capital and other general corporate purposes, and bore interest at LIBOR
plus a margin ranging from 1.375%-1.75%. The facility had a balance of $6.5
million at December 31, 1999.
The Company had a credit facility, which was assumed from Old OMI
(currently MTC), that provided for a line of credit amounting to $99.1 million
at December 31, 1999. The credit facility was secured by eleven vessels. The
Notes under the credit facility bore interest at LIBOR plus a margin ranging
from 0.60%-0.95%, which was computed based on OMI's funded debt to equity ratio
and interest coverage ratio.
On June 4, 1998, the Company entered into a secured revolving credit
agreement to refinance two Panamax tankers and to finance a new product carrier
upon delivery. On June 9, 1998, the Company drew down $16.0 million to refinance
the two Panamax tankers. The $16.0 million was to be repaid in quarterly
installments of $0.8 million over the next five years and bore interest at LIBOR
plus a margin ranging from 0.65%- 0.95%, which was computed based on the
Company's funded debt to capitalization ratio. On September 15,1999, $16.0
million was drawn down to finance a new product carrier. The balance of the loan
at December 31, 1999 was $26.8 million.
On June 4, 1998, the Company entered into a $71.5 million secured revolving
credit facility to finance two Suezmax tankers upon their delivery from the
yard. On June 9, 1998, $35.8 million was drawn to finance the first vessel, and
on August 7, 1998, $35.8 million was drawn to finance the second vessel. Each
drawdown was to be repaid by semi-annual payments of $1.3 million beginning 18
months after the initial drawdown and a balloon of $13.8 million ten years after
the initial drawdown date. The facility bore interest at LIBOR plus a margin
ranging from 0.85%- 0.95%. At December 31, 1999, the outstanding loan balance
was $70.2 million.
On July 6, 1998, the Company entered into an agreement, as amended, for a
$37.8 million secured reducing revolving credit facility to finance a Suezmax
tanker upon its delivery from the yard. The Company drew down $37.8 million on
July 20, 1998 to finance the newbuilding. The availability under this facility
was to be reduced by 14
20
semi-annual reductions of 3.9% of the original facility, and the remaining
balance is due at maturity, which is ten years after the initial drawdown. The
facility bore interest at LIBOR plus a margin ranging from 0.60%-1.05%. At
December 31, 1999 the outstanding loan balance was $36.9 million.
During December 1998, the Company entered into an agreement with a lender
for a $60.0 million revolving credit facility. The revolving credit facility was
to be used to finance, on an interim basis, the acquisition of vessels and would
be secured by such vessels. Amounts drawn on the revolving credit facility was
to be repaid no later than six months after drawdown. The facility bore interest
at LIBOR plus a margin ranging from 1.00%- 1.75% which is computed based on the
Company's funded debt to total capitalization ratio and interest coverage ratio.
On January 14, 1999, the Company drew down $37.5 million under this facility to
finance the acquisition of a Suezmax newbuilding, which was repaid in June 1999.
On July 15, 1999, $21.2 million was drawn down to finance a new product carrier,
and this balance remained at December 31, 1999.
COMMITMENTS
At December 31, 1999, the Company had two remaining construction contracts
for two Suezmax tankers with capitalized costs at delivery for the first vessel
in March 2000 of approximately $46.2 million and expected capitalized costs at
delivery in May 2000 of $51.0 million. As of December 31, 1999, total
capitalized costs for these vessels aggregated $25.3 million.
The sale/leaseback of the COLUMBIA on June 30, 1999 resulted in a three
year operating lease with the purchaser. The Company is responsible for
operating expenses of the vessel and is required to maintain $2.0 million in
escrow over the lease term, and a cash collateral account initially of $4.0
million. The cash collateral account was replaced by a standby letter of credit
in September 1999, which will increase by $750,000 per quarter in the first year
and by $500,000 per quarter in the second year to a maximum of $9.0 million. The
letter of credit will serve as additional collateral for the Company's
obligation under the lease. OMI has guaranteed a minimum resale or residual
value for this vessel at the end of the lease. At December 31, 1999, the impact
of the guarantee is not expected to be material.
In May 1997, the Company sold the ALTA (a Suezmax crude oil carrier) for
approximately $39.9 million and leased back the vessel for five years. The gain
on the sale of approximately $15.7 million has been deferred and is being
credited to income as an adjustment to lease expense over the term of the lease.
As of December 31, 1999, the deferred gain on sale was $7.5 million.
OMI was a guarantor for a portion of the debt incurred by a joint venture
with affiliates of its joint venture partner until the sale of OMI's interest in
the venture during the first quarter 2000. Such debt was approximately $13.5
million at December 31, 1999; OMI's guaranty of such debt was approximately $6.7
million.
The Company and its joint venture partners have committed to fund any
working capital deficiencies that may be incurred by their joint venture
investments. As of December 31, 1999, no such deficiencies have been funded.
EFFECTS OF INFLATION
The Company does not consider inflation to be a significant risk to the
cost of doing business in the current or foreseeable future. Inflation has a
moderate impact on operating expenses, drydocking expenses and corporate
overhead.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board Statement ("FASB")
issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"),
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB No. 133", which defers the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", establishes accounting and reporting
standards for derivative instruments and for hedging activities. Generally, it
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and
21
measure those instruments at fair value, as well as identifies the conditions
for which a derivative may be specifically designated as a hedge. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. This Statement amends and supercedes
Statements previously issued. The Company does not expect that the adoption of
SFAS 133 will have a material effect on the Company's financial condition or
results of operations.
YEAR 2000
OMI successfully transitioned into the Year 2000 without any Y2K-related
service disruptions. Although considered unlikely, the Company could be affected
by Y2K problems by the Company's customers, suppliers and other third parties.
OMI will continue to monitor the situation and take action as necessary to
remedy any problems, which might occur and ensure all processes continue to
function properly. As of December 31, 1999, the Y2K Project cost approximately
$0.2 million related to financial systems. The cost that relates to fixture of
ships software and hardware has been minimal. Additionally, the Company paid
$0.3 million, not included in the estimated budget for financial systems,
towards new financial applications implementation which included the hardware,
software and support fees. Based on responses received from vendors, to date,
the Company is not aware of any significant investments in assets that are not
Y2K compliant.
To date, OMI has not identified any material risks of not being year 2000
compliant. However, if a risk should subsequently arise, the Company would
remedy it. The Company relies on vendor guarantees that critical systems are Y2K
compliant and has not had any noncompliance thus far. OMI has full maintenance
contracts with all its vendors in the case of any system problem they are
required to resolve such problems within a reasonable amount of time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market Risk
The Company is exposed to various market risks, including interest rates.
The exposure to interest rate risk relates primarily to the debt and related
interest rate swaps. At December 31, 1999, the majority of the $267.7 million
debt was floating rate debt, which totaled $260.6 million. A one percent
increase in the floating rate would increase interest expense by $2.6 million
per year.
The fixed rate debt on the balance sheet and the fair market value were
$7.1 million as of December 31, 1999. If interest rates were to increase
(decrease) by one percent with all other variables remaining constant, the
market value of the fixed rate debt would decrease (increase) by approximately
$0.1 million.
The Company has an interest rate swap agreement to manage its exposure with
interest rates by locking in fixed interest rate from floating rates. At
December 31, 1999, there was one swap with at notional principal of $10.0
million, which matures in June 2000. The Company would have had to pay $0.1
million to terminate the agreement as of December 31, 1999. Since the agreement
matures in 2000 and the terms of the contract are known, the maximum exposure to
the interest rate swap is $0.1 million.
22
INDEX TO FINANCIAL STATEMENTS
PAGE
----
OMI CORPORATION AND SUBSIDIARIES:
Consolidated Statements of Operations and Comprehensive Income
for the three years ended December 31, 1999 ........................................................ 24
Consolidated Balance Sheets as of December 31, 1999 and 1998 ......................................... 25
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 .................... 27
Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1999 ................................................................ 28
Notes to Consolidated Financial Statements ........................................................... 29
Independent Auditors' Report ........................................................................ 46
Quarterly Results of Operations (unaudited) .......................................................... 47
FINANCIAL STATEMENTS OF SIGNIFICANT INVESTEES OF OMI CORPORATION AND SUBSIDIARIES:
AMAZON TRANSPORT, INC.
Balance Sheets as of December 31, 1999 and 1998 ...................................................... 48
Statements of Income for the three years ended December 31, 1999 ..................................... 49
Statements of Cash Flows for the three years ended December 31, 1999 ................................. 50
Notes to Financial Statements ........................................................................ 51
Independent Auditors' Report ......................................................................... 52
WHITE SEA HOLDINGS LTD.
Balance Sheets at September 29, 1999 (unaudited) and December 31, 1998 ............................... 53
Statements of Income and Retained Earnings for the period January 1, 1999 to September 29, 1999
(unaudited) and for the years ended December 31, 1998 and December 31, 1997 ....................... 54
Statements of Cash Flows for the period January 1, 1999 to September 29, 1999
(unaudited) and for the years ended December 31, 1998 and December 31, 1997 ....................... 55
Notes to Financial Statements ........................................................................ 56
Independent Auditors' Report ......................................................................... 58
23
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
--------- --------- ---------
REVENUES (Note 4) .................................................................. $ 115,992 $ 149,228 $ 141,985
--------- --------- ---------
OPERATING EXPENSES:
Vessel and voyage ................................................................ 66,842 82,368 77,686
Charter hire ..................................................................... 15,234 25,529 8,906
Depreciation and amortization .................................................... 23,835 24,314 22,675
Provision for loss on lease obligations (Note 10) ................................ 6,229 -- --
General and administrative ....................................................... 10,486 10,773 12,540
--------- --------- ---------
Total operating expenses ........................................................... 122,626 142,984 121,807
--------- --------- ---------
OPERATING (LOSS) INCOME ............................................................ (6,634) 6,244 20,178
--------- --------- ---------
OTHER (EXPENSE) INCOME:
(Loss) gain on disposal/write down of assets-net (Notes 9, 11, 12) ............... (48,692) 6,485 885
Loss on disposal/write down of joint venture investments (Note 4) ................ (7,771) -- --
Interest expense ................................................................. (17,945) (11,118) (11,756)
Interest income .................................................................. 1,455 1,346 2,222
Other-net (Note 2) ............................................................... (1,209) (882) --
--------- --------- --------
Net other expense ................................................................ (74,162) (4,169) (8,649)
--------- --------- ---------
(Loss) income before income taxes, equity in operations of joint ventures,
extraordinary loss and cumulative effect of
change in accounting principles ................................................ (80,796) 2,075 11,529
Provision (benefit) for income taxes (Note 13) ................................... 475 (37,158) 5,407
--------- --------- ---------
(Loss) income before equity in operations of joint ventures,
extraordinary loss and cumulative effect of change in
accounting principles .......................................................... (81,271) 39,233 6,122
Equity (loss) in operations of joint ventures (Note 4) ........................... (510) 3,684 737
--------- --------- ---------
(Loss) income before extraordinary loss and cumulative effect
of change in accounting principles ............................................... (81,781) 42,917 6,859
Extraordinary loss (Note 5) ........................................................ (1,253) -- --
--------- --------- ---------
(Loss) income before cumulative effect of change in accounting
principles ....................................................................... (83,034) 42,917 6,859
Cumulative effect of change in accounting principles, net of
income tax provision (Notes 7, 8) ................................................ 2,729 -- 10,063
--------- --------- ---------
NET (LOSS) INCOME .................................................................. (80,305) 42,917 16,922
OTHER COMPREHENSIVE INCOME:
Realization of cumulative translation adjustment (Note 12) ....................... (7,442) -- --
Reversal of deferred income taxes on cumulative translation
adjustment ..................................................................... -- 2,530 --
--------- --------- ---------
COMPREHENSIVE (LOSS) INCOME ...................................................... $ (87,747) $ 45,447 $ 16,922
========= ========= =========
BASIC (LOSS) EARNINGS PER COMMON SHARE:
(Loss) income before extraordinary loss and cumulative effect
of change in accounting principles ............................................. $ (1.94) $ 1.01 $ 0.16
Extraordinary loss ............................................................... (0.03) -- --
Cumulative effect of change in accounting principles ............................. 0.07 -- 0.23
--------- --------- ---------
NET (LOSS) INCOME .................................................................. $ (1.90) $ 1.01 $ 0.39
========= ========= =========
DILUTED (LOSS) EARNINGS PER COMMON SHARE:
(Loss) income before extraordinary loss and cumulative effect
of change in accounting principles ............................................. $ (1.94) $ 1.00 $ 0.16
Extraordinary loss ............................................................... (0.03) -- --
Cumulative effect of change in accounting principles ............................. 0.07 -- 0.23
--------- --------- ---------
NET (LOSS) INCOME .................................................................. $ (1.90) $ 1.00 $ 0.39
========= ========= =========
See notes to consolidated financial statements.
24
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31,
--------------------
1999 1998
-------- --------
CURRENT ASSETS:
Cash, including cash equivalents of:
1999-$5,172; 1998-$10,166 ...................................... $ 7,381 $ 22,698
Receivables:
Traffic ........................................................ 9,245 12,842
Other (Note 2) ................................................. 9,136 2,733
Assets to be disposed of (Notes 4, 12) ............................. 90,996 --
Prepaid drydock expense (Note 8) ................................... 250 3,550
Other prepaid expenses and other current assets .................... 4,187 5,272
-------- --------
Total current assets ....................................... 121,195 47,095
-------- --------
VESSELS, CONSTRUCTION IN PROGRESS AND OTHER PROPERTY
Vessels (Note 5) ................................................... 331,988 543,040
Construction in progress (Note 19) ................................. 25,340 34,733
Other property ..................................................... 2,354 1,407
-------- --------
Total vessels, construction in progress and other property ... 359,682 579,180
Less accumulated depreciation ................................ 42,926 150,585
-------- --------
Vessels, construction in progress and other property-net ..... 316,756 428,595
-------- --------
INVESTMENTS IN, AND ADVANCES TO JOINT VENTURES (Note 4) ............ 11,519 25,507
NOTES RECEIVABLE (Note 9) .......................................... 9,262 6,604
OTHER ASSETS AND DEFERRED CHARGES (Note 8) ......................... 13,683 22,326
-------- --------
TOTAL ............................................................ $472,415 $530,127
======== ========
See notes to consolidated financial statements.
25
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
-------- --------
1999 1998
-------- --------
CURRENT LIABILITIES:
Accounts payable ................................................. $ 7,017 $ 2,520
Accrued liabilities:
Voyage and vessel .............................................. 4,285 11,438
Interest ....................................................... 2,762 4,007
Other .......................................................... 5,190 2,571
Deferred gain on sale of vessel (Note 9) ......................... 3,151 3,151
Current portion of long-term debt (Notes 5, 6) ................... 54,834 21,494
-------- --------
Total current liabilities .................................. 77,239 45,181
-------- --------
OTHER LIABILITIES .................................................. 3,034 3,496
LONG-TERM DEBT (Notes 2, 5, 6) ..................................... 212,913 225,653
DEFERRED GAIN ON SALE OF VESSEL (Note 9) ........................... 4,363 7,514
DEFERRED INCOME TAXES (Note 13) .................................... 3,100 3,100
COMMITMENTS AND CONTINGENCIES (Note 19)
STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value; 150,000,000 shares
authorized; shares issued and outstanding: 1999-49,394,000
1998-43,694,000 (Notes 3, 7, 16, 18) ........................... 24,697 21,847
Capital surplus (Note 2) ......................................... 218,869 207,469
Retained (deficit) earnings (Note 2) ............................. (62,966) 17,465
Cumulative translation adjustment (Note 12) ...................... -- 7,442
Treasury stock (Note 18) ......................................... (8,834) (9,040)
-------- --------
Total stockholders' equity ................................. 171,766 245,183
-------- --------
TOTAL ............................................................ $472,415 $530,127
======== ========
See notes to consolidated financial statements.
26
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income ............................................ $ (80,305) $ 42,917 $ 16,922
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
Extraordinary loss ....................................... 1,253 -- --
Cumulative effect of change in accounting
principles, net of tax ................................. (2,729) -- (10,063)
Decrease in deferred income taxes ........................ -- (39,850) (2,314)
Depreciation and amortization ............................ 23,835 24,314 22,675
Loss (gain) on disposal/write down of assets--net ........ 48,692 (6,485) (885)
Loss on disposal/write down of joint venture
investments ............................................ 7,771 -- --
Net intercompany transactions ............................ -- 1,337 11,357
Amortization of deferred gain on sale of vessel .......... (3,151) (3,151) (1,940)
Provision for loss on lease obligations--net of
amortization ........................................... 4,845 -- --
Loss (equity) in operations of joint ventures--net
of dividends received .................................. 1,940 (254) (2)
Changes in assets and liabilities:
Decrease (increase) in receivables and other
current assets ......................................... 8,664 (2,460) (4,532)
(Decrease) increase in accounts payable and
accrued liabilities .................................... (4,087) 8,292 2,508
Advances from joint ventures--net ........................ 2,665 (185) (254)
(Increase) decrease in other assets and deferred
charges ................................................ (95) (3,347) 4,092
Decrease in other liabilities ............................ (1,299) (240) (1,220)
Payable to parent--net ................................... -- (3,217) (16,687)
Other .................................................... 80 -- --
--------- --------- ---------
Net cash provided by operating activities ............ 8,079 17,671 19,657
--------- --------- ---------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from disposition of vessels and other
property ............................................... 65,250 44,877 38,977
Additions to vessels and other property .................. (90,999) (147,407) (55,285)
Proceeds from dispositions of joint ventures ............. 1,561 2,989 32,301
Issuance of notes receivable ............................. (9,000) -- --
Investments in joint venture ............................. (637) (247) (343)
Escrow of funds .......................................... (7,548) -- --
Proceeds from notes receivable ........................... 424 -- --
Other .................................................... (2,769) -- --
--------- --------- ---------
Net cash (used) provided by investing activities ..... (43,718) (99,788) 15,650
--------- --------- ---------
CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term and
short-term debt ........................................ 133,698 171,300 --
Payments on long-term and short-term debt ................ (113,098) (87,070) (24,732)
Purchase of treasury stock ............................... -- (9,040) --
Capital contribution from Old OMI ........................ -- -- 4,100
Payments for debt issue costs ............................ (278) (983) (123)
--------- --------- ---------
Net cash provided (used) by financing activities ..... 20,322 74,207 (20,755)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........... (15,317) (7,910) 14,552
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................. 22,698 30,608 16,056
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 7,381 $ 22,698 $ 30,608
========= ========= =========
See notes to consolidated financial statements.
27
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
ACCUMULATED
OTHER COMPRE- TOTAL
COMMON STOCK RETAINED NET COMPRE- HENSIVE- STOCK-
----------------- CAPITAL EARNING INTERCOMPANY TREASURY HENSIVE INCOME HOLDERS'
SHARES AMOUNT SURPLUS (DEFICIT) TRANSLATIONS STOCK INCOME (LOSS) EQUITY
------ -------- -------- -------- -------- ------ ------ -------- --------
BALANCE AT JANUARY 1, 1997 ...... 42,709 $ 21,355 $238,363 $(42,374) $ 28,146 $4,912 $250,402
Comprehensive income:
Net income .................... 16,922 $ 16,922 16,922
Net change in valuation --
account ..................... --------
Comprehensive income ............ $ 16,922
========
Capital contribution of
intercompany account balance
with parent ................... 4,100 4,100
Retirement of partner's equity
interest in joint venture ..... 777 777
Net intercompany transactions ... 11,357 11,357
Issuance of common stock ........ 375 187 (187) --
------ -------- -------- -------- ------- ------ --------
BALANCE AT DECEMBER 31, 1997 .... 43,084 21,542 243,053 (25,452) 39,503 4,912 283,558
Comprehensive Income:
Net Income .................... 42,917 $ 42,917 42,917
Reversal of deferred income
taxes on cumulative
translation adjustment ...... 2,530 2,530 2,530
--------
Comprehensive income ............ $ 45,447
========
Capital distribution of net
intercompany account balance
with parent (Note 2) .......... (76,119) (76,119)
Net intercompany transactions ... 1,337 1,337
Capital distribution of net
intercompany transactions
with parent (Note 2) .......... 40,840 (40,840) --
Exercise of stock options ....... 50 25 (25) --
Issuance of common stock ........ 560 280 (280) --
Purchase of treasury stock
(Note 18) ..................... $(9,040) (9,040)
------ ------ ------- ------ ------- ------ ------ -------
BALANCE AT DECEMBER 31, 1998 .... 43,694 21,847 207,469 17,465 -- (9,040) 7,442 245,183
Comprehensive loss:
Net loss ...................... (80,305) $(80,305) (80,305)
Realization of cumulative
translation adjustment
(Note 12) ................... (7,442) (7,442) (7,442)
--------
Comprehensive loss .............. $(87,747)
========
Issuance of common stock
(Note 11) ..................... 5,700 2,850 11,400 14,250
Issuance of treasury stock
(Note 18) ..................... (126) 206 80
------ ------- -------- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1999 .... 49,394 $24,697 $218,869 $(62,966) $ -- $(8,834) $ -- $171,766
====== ======= ======== ======== ======= ======= ====== ========
See notes to consolidated financial statements.
28
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--OMI Corporation ("OMI" or the "Company"), is a bulk shipping
company incorporated in the Republic of the Marshall Islands, which provides
seaborne transportation services primarily of crude oil and refined petroleum
products. The Company is a successor to Universal Bulk Carriers, Inc. ("UBC"), a
Liberian corporation, which was a wholly-owned subsidiary of OMI Corp. until
June 17, 1998 at which date the Company was separated from OMI Corp. (renamed
Marine Transport Corporation "MTC") through a tax-free distribution
("Distribution") to OMI Corp.'s shareholders of one share of UBC common stock
for each share of OMI Corp. ("Old OMI") common stock. The Distribution separated
Old OMI into two publicly-owned companies. In connection with the Distribution,
the Company's common stock was recapitalized with 150,000,0000 shares authorized
(par value 50 cents), with 43,084,000 shares outstanding. This recapitalization
has been reflected for the earliest year presented. OMI Corporation operates
what was OMI Corp.'s foreign shipping businesses under the management of certain
officers formerly of Old OMI who moved to the new company and certain former
directors of Old OMI and additional new directors. The Company continues to
trade under the symbol "OMM" on the New York Stock Exchange.
Basis of Presentation--The accompanying consolidated financial statements
reflect the results of operations, financial position, changes in stockholders'
equity and cash flows of OMI and subsidiaries.
The financial statements have been prepared using the historical basis in
the assets and liabilities and the historical results of operations directly
attributable to OMI and all intercompany accounts and transactions between OMI
and its subsidiaries have been eliminated.
The financial statements and computations of basic and diluted earnings per
share (See Note 3) have been presented giving effect to the Distribution as
though it occurred at the beginning of the earliest year presented.
Reclassifications--Certain reclassifications have been made to the 1998 and
1997 financial statements to conform to the 1999 presentation.
Principles of Consolidation--The consolidated financial statements include
all subsidiaries which are more than 50 percent owned by OMI. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in joint ventures, in which the Company's interest is 50
percent or less and where it is deemed that the Company's ownership gives it
significant influence over operating and financial policies, are accounted for
by the equity method.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Operating Revenues and Expenses--Voyage revenues and expenses are
recognized on the percentage of completion method of accounting based on voyage
costs incurred to date as compared to estimated total voyage costs. Estimated
losses on voyages are provided for in full at the time such losses become
evident.
Effective January 1, 1999, OMI changed its accounting policy on recognition
of voyage freight for vessels operating on voyage charters from load-to-load to
the discharge-to-discharge basis. Under this method, voyage revenue is
recognized evenly over the period from the departure of a vessel from its
original discharge port to departure from the next discharge port. Management
believes that the discharge-to-discharge method is preferable because (a) it is
the predominant method for shipowners, and (b) it eliminates the uncertainty
associated with the location of the next load port (See Note 7).
29
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1997, special survey and drydock expenses are
accounted for using the prepaid method. Under the prepaid method, expenses are
capitalized and amortized over the survey cycle, which is generally a two to
five year period. Prior to 1997, special survey and drydock expenses were
accrued and charged to operating expenses over the survey cycle. The accruals of
such expenses were based on management's best estimates of future costs and the
expected length of the survey cycle. However, the ultimate liability may have
been more or less than such estimates (See Note 8).
Vessels, Construction in Progress and Other Property--Vessels and other
property are recorded at cost. Depreciation for financial reporting purposes is
provided principally on the straight-line method based on the estimated useful
lives of the assets up to the assets' estimated salvage value. The useful lives
of the vessels range from 20 to 25 years. Salvage value is based upon a vessel's
lightweight tonnage multiplied by a scrap rate.
Interest costs incurred during the construction of vessels (until the
vessel is substantially complete and ready for its intended use) are
capitalized. The amount of interest capitalized was $1,384,000 in 1999,
$3,762,000 in 1998 and $2,207,000 in 1997.
Other property and leasehold improvements are amortized on the
straight-line method over the terms of the lease or estimated useful lives of
the assets.
Expenditures for maintenance, repairs and minor renewals are expensed.
Major replacements and renewals are capitalized. In the event that facts and
circumstances indicate that the carrying amount of a vessel may be impaired, an
evaluation of recoverability is performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the vessel are compared
to the vessel's carrying value to determine if a write down to fair value is
required.
Goodwill--Goodwill, included in Other Assets and Deferred Charges,
recognized in business combinations accounted for as purchases, was $1,827,000
and $11,079,000 at December 31, 1999 and 1998, respectively, and is being
amortized over the remaining lives of assets, which were acquired in such
combinations. During 1999, $8,600,000 of goodwill was charged to loss on
disposal/write down of assets for vessels sold (See Note 11) and for vessels to
be disposed of at December 31, 1999 (See Note 12). The carrying value of
goodwill is reviewed periodically based on the estimated future undiscounted
cash flows of the entity acquired over the remaining amortization period in
order to ensure that the carrying value of goodwill has not been impaired.
Earnings (Loss) Per Common Share--Effective January 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128")
"Earnings per Share" which was adopted for interim and annual reports. SFAS 128
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS"). It replaces the presentation of primary and fully
diluted EPS with Basic and Diluted EPS. Basic EPS excludes the dilutive effect
of stock options. It is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Federal Income Taxes--Management estimated that the distribution of shares
to the shareholders of Old OMI would result in Federal income taxes becoming
payable by OMI Corporation of approximately $1,900,000 representing Federal
income taxes on previously excluded foreign ("Subpart F") income and on the
distribution of shares of non-United States shareholders. As OMI will not be
subject to any additional income taxes (other than adjustments to previously
reported amounts), $38,887,000 of the balance of deferred income taxes was
credited to income in 1998, leaving a balance of $3,100,000 (See Notes 2 and
13).
Stock Options--The Company has elected to follow Accounting Principles
Board Opinion No. 25 ("APB 25") "Accounting of Stock Issued to Employees" in
accounting for its employee stock options, and other stock based awards. Under
APB 25, if the exercise price of an employee's stock option equals or exceeds
the market price of the underlying stock on the date of grant, no compensation
expense is recognized (See Note 16).
30
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Flows--Cash equivalents represent liquid investments which mature
within 90 days. The carrying amount approximates fair value.
Newly Issued Accounting Standards--In June 1999, the Financial Accounting
Standards Board Statement ("FASB") issued Statement of Financial Accounting
Standards No. 137 ("SFAS 137"), Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB No. 133", which defers
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Generally, it requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value, as well as identifies the
conditions for which a derivative may be specifically designated as a hedge. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. This Statement amends and
supercedes Statements previously issued. The Company does not expect that the
adoption of SFAS 133 will have a material effect on the Company's financial
condition of results of operations.
NOTE 2--DISTRIBUTION
As part of the Distribution, OMI was party to certain agreements with MTC,
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 liabilities with the
appropriate company. OMI, however, assumed the obligations of Old OMI with
respect to Old OMI's 10.25 percent Senior Notes due November 1, 2003 in exchange
for a note from MTC in the amount of $6.4 million, which was equivalent in value
to the principal amount of the Senior Notes then outstanding. During February
2000, MTC paid $5.1 million in full settlement of the note, which was due in
2003. As a result, a loss of $1,209,000 was recorded in the Consolidated
Statements of Operations for the year ended December 31, 1999 in Net other
expense. The Distribution Agreement also provides that each of MTC and OMI will
indemnify the other in the event of certain liabilities arising under the
Federal securities laws. Each of MTC and OMI will have sole responsibility for
claims arising out of its 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 Distribution date in connection with the Distribution will be
charged to and paid by the party incurring such costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party shall
bear its own costs and expenses incurred after the Distribution date.
Prior to Distribution--Prior to the distribution, debt had been incurred
for the consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, in order to centrally
manage various cash functions. Consequently, the mortgage debt of Old OMI and
its related interest expense (net of tax benefit) were allocated to OMI
(formerly UBC) and its subsidiaries based upon the value of the vessel
collateralizing the debt. The changes in allocated corporate debt, the after-tax
allocated interest expense and the after tax allocated general and
administrative expenses have been included as Net intercompany transactions in
Stockholders' equity. Although management believes that the historical
allocation of corporate debt and interest expense is reasonable, it is not
necessarily indicative of the Company's debt or results of operations had the
Company been on a stand alone basis for the periods up to June 17, 1998.
Net intercompany transactions represent an aggregate of allocations for
income taxes, interest expense on unsecured corporate debt and general corporate
purposes. As of the Distribution date, the cumulative balances of the Net
intercompany transactions of $40,840,000 were credited to Capital Surplus and
the balance at June 17, 1998 in Receivable from parent-net aggregating
$76,119,000 was charged to Capital Surplus. Included in the net receivable from
parent was the assumption by OMI (formerly UBC) of the revolving line of credit,
the assumption of the 10.25% Senior Notes and the 7% convertible note due 2004
(See Note 5).
31
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--EARNINGS (LOSS) PER COMMON SHARE
The computation of basic (loss) earnings per share is based on the weighted
average number of common shares outstanding during the year. The computation of
diluted earnings per share assumes the foregoing and the exercise of all stock
options (See Note 16) using the treasury stock method and the conversion of the
7% convertible note due 2004 (See Note 5), to the extent dilutive.
The components of the denominator for the calculation of basic earnings per
share and diluted earnings per share is as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------- ------- -------
Basic earnings per share:
Weighted average common shares outstanding ........... 42,250 42,671 42,914
======= ======= =======
Diluted earnings per share:
Weighted average common shares outstanding ........... 42,250 42,671 42,914
7% Convertible Note .................................. -- -- 407
Options .............................................. -- 189 336
------- ------- -------
Weighted average common shares--diluted .............. 42,250 42,860 43,657
======= ======= =======
Basic (loss) earnings per common share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting principles $ (1.94) $ 1.01 $ 0.16
Extraordinary loss ................................... (0.03) -- --
Cumulative effect of change in accounting
principles, net of income tax provision ............ 0.07 -- 0.23
------- ------- -------
Net (loss) income per common share ..................... $ (1.90) $ 1.01 $ 0.39
======= ======= =======
Diluted (loss) earnings per common share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting
principles ......................................... $ (1.94) $ 1.00 $ 0.16
Extraordinary loss ................................... (0.03) -- --
Cumulative effect of change in accounting
principles, net of income tax provision ............ 0.07 -- 0.23
------- ------- -------
Net (loss) income per common share ..................... $ (1.90) $ 1.00 $ 0.39
======= ======= =======
The effect of the assumed conversion of the 7% convertible note due 2004
was not included in the computation of diluted earnings per share in 1999 and
1998 because the average price of OMI's stock was less than the stock conversion
price of $7.285. The effect of the assumed exercise of options was not included
in the computation of diluted earnings per share because the grant prices
exceeded the average price of OMI stock in 1999.
32
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--INVESTMENTS IN JOINT VENTURES
The operating results of the joint ventures have been included in the
accompanying consolidated financial statements on the basis of ownership as
follows:
PERCENT OF
OWNERSHIP
-----------
Alliance Chartering LLC .............................. 50.0(1)
Amazon Transport, Inc. ("Amazon") .................... 49.0
Gainwell Investments Ltd ("Gainwell") ............... 25.0(2)
Geraldton Navigation Company Inc. ("Geraldton") ...... 49.9(3)
International Product Carriers Limited ("IPC") ....... 50.0(4)
Kanejoy Corporation ("Kanejoy") ...................... 49.9(2)
Mosaic Alliance Corporation ("Mosaic") ............... 49.9(5)
OMI-Heidmar Shipping Ltd. ("OMI-Heidmar") ............ 50.0(6)
White Sea Holdings Ltd. ("White Sea") ................ 49.0(7)
- ----------
(1) The venture was begun on May 8, 1998.
(2) Liquidated January 27, 1999.
(3) The Company sold its interest to its partner in March 2000.
(4) The venture was formed on April 15, 1999, and began operating effective May
1, 1999.
(5) Partner's interest acquired on December 10, 1997.
(6) The Company sold its interest to its partner on August 17, 1999.
(7) The Company sold its interest to its partner on September 29, 1999.
At December 31, 1999, OMI wrote down its investment in Geraldton to its net
realizable value of approximately $2,700,000. The investment is to be liquidated
in 2000. A dividend of $2,421,000 was paid in 2000 of which OMI's portion was
$1,209,000. A loss of $6,605,000 was recorded in the Company's Consolidated
Statements of Operations at December 31, 1999 relating to the disposal of this
investment in 2000.
On September 29, 1999, OMI sold its 49 percent share in its White Sea joint
venture for approximately $2,427,000, of which $1,560,000 cash was received in
October 1999. A loss of $867,000 was recorded from the sale of the venture.
In 1999, the Company chartered ten vessels for an aggregate of $14,237,000
to IPC. This amount is included in the revenue of the Company since the
operations of IPC are not consolidated. Voyage revenues from IPC in 1999 in
aggregate were 12 percent of OMI's consolidated revenues. The revenues are
received by IPC from numerous customers into a pool which is divided among the
vessels in the pool.
In 1999 and 1998, the Company chartered three vessels for an aggregate of
$4,227,000 and $6,720,000, respectively, to OMI-Heidmar. This amount is included
in the revenue of the Company since the operations of OMI-Heidmar are not
consolidated. During 1999, the Company wrote down its investment in OMI-Heidmar
by $299,000, as the partners agreed to dissolve this venture in June 1999.
For the years ended December 31, 1999 and 1998, aggregate revenues of
$6,333,000 and $17,385,000, respectively, included in the Consolidated
Statements of Operations related to vessels chartered to a company partially
owned by an individual who was a Director of OMI.
On March 14, 2000, OMI announced it was an investor in MarineProvider ASA,
which will offer on line services to shipowners, including bunker and supply
acquisition. The Company invested approximately $500,000 in the first quarter of
2000.
33
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--INVESTMENTS In JOINT VENTURES (CONTINUED)
In November 1998, Gainwell sold the property it owned at a loss. Gainwell
repaid its outstanding obligations with proceeds from the sale, including an
outstanding loan with Kanejoy, another joint venture. Gainwell and Kanejoy were
both liquidated in January 1999, OMI received $2,989,000 cash from return of
capital in its Kanejoy venture, and recorded a loss from Gainwell of $678,000.
In September 1997, Mosaic sold a vessel to one of its joint venture
partners (the majority shareholder) at a loss, of which OMI's proportionate
share was $5,244,000.On December 10, 1997, Mosaic acquired that shareholder's
interest in the venture for cash of $32,332,000 and 50.1 percent of the stock in
its subsidiary (Kanejoy) with a proportionate book value of $3,501,535, and
Mosaic became a 100 percent owned subsidiary of OMI.
Summarized combined financial information pertaining to all affiliated
companies accounted for by the equity method is as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- ------- --------
Results of operations:
Revenues .............................................. $80,263 $55,698 $41,804
Operating (loss) income ............................... (795) 9,637 10,762
Loss on disposal of assets--net ....................... -- (423) (8,765)
Cumulative effect of change in accounting principle ... 245 -- 1,196
Net income ............................................ 1,005 7,626 2,502
DECEMBER 31,
---------------------
1999 1998
--------- --------
Net Assets:
Current assets ......................................... $19,221 $19,888
Vessels and other property--net ........................ 44,404 51,824
Other assets ........................................... 2,244 2,402
------- -------
Total assets ........................................... 65,869 74,114
------- -------
Less:
Current liabilities .................................... 10,353 10,880
Long-term debt ......................................... 11,786 13,450
Other liabilities ...................................... 1,232 1,243
------- -------
Total liabilities ...................................... 23,371 25,573
------- -------
Shareholders' and partners' equity ....................... $42,498 $48,541
======= =======
Dividends received from joint ventures were as follows:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- --------
White Sea .............................................. $ 490 $1,470 $735
Amazon(1) .............................................. 1,960 1,960 --
------ ------ ----
Total ................................................ $2,450 $3,430 $735
====== ====== ====
- ------------
(1) OMI contributed $637,000 to Amazon during 1999.
34
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt payable to banks consists of the following:
DECEMBER 31,
---------------------
1999 1998
--------- ---------
Loans under bank credit agreements at a margin plus variable
rates of the London Interbank Offering Rate ("LIBOR")(1) ....... $260,646 $239,790
10.25% Unsecured Senior Notes due 2003 ........................... 4,357 4,357
7.00% Convertible Note due 2004 .................................. 2,744 3,000
-------- --------
Total ........................................................ 267,747 247,147
-------- --------
Less current portion of long-term debt:
Scheduled amortization payments of debt ........................ 8,334 21,494
Debt related to Assets to be disposed of ....................... 46,500 --
-------- --------
Total Current Portion ........................................ 54,834 21,494
-------- --------
Long-term debt ................................................... $212,913 $225,653
======== ========
- -----------
(1) Rates at December 31, 1999 were 6.468 percent to 7.875percent (including
margins).
Rates at December 31, 1998 were 5.6384 percent to 6.60 percent (including
margins).
As of December 31, 1999, OMI had an aggregate of $260,646,000 in floating
rate credit facilities and revolving lines of credit. The following paragraphs
below describe these facilities and revolving lines of credit that OMI used
during 1999, which were refinanced in February 2000. On February 11, 2000, OMI
completed its refinancing with its previous lenders for a credit agreement in
the amount of $264,500,000. Prior to the refinancing and at December 31, 1999,
OMI was not in compliance with certain of its covenants under previous credit
agreements. The effect of the refinancing revises debt covenants, interest rate
margins and principal amortization. There are two primary facilities under the
new agreement. Facility A is in the amount of $218,000,000 and matures five
years from the drawdown date. It will be repaid in ten semi-annual installments
commencing six months from the drawdown date, the first four installments in the
amount of $5,000,000 and the remaining six installments in the amount of
$12,500,000, in addition to a balloon payment in the amount of $123,000,000 as
the last installment on maturity. The outstanding balance of this Facility bears
interest at LIBOR plus a margin of 1.75% and is secured by thirteen vessels.
Facility B is in the amount of $46,500,000 and is a short-term facility which
matures two years after the drawdown date. The principal of this Facility will
be repaid with proceeds on the sale of vessels secured by this facility which
are classified as vessels to be disposed of on the Consolidated Balance Sheets
at December 31, 1999. The outstanding balance of this Facility bears interest at
LIBOR plus a margin of 2% and is secured by six vessels and OMI's interest in
its 49 percent owned joint venture. A third facility provides for certain
lenders to repay a portion of Facility A in the event certain mortgage insurance
is not obtained.
An extraordinary loss of $1,253,000 was recorded for the year ended
December 31, 1999. This loss relates to the write-off of the balance of
unamortized finance fees on debt which was refinanced in February 2000.
Aggregate maturities during the next five years under the new credit
agreement and continued fixed rate debt from December 31, 1999 are $54,834,000,
$10,539,000, $28,577,000, $29,896,000 and $25,539,000.
During the years ended December 31, 1999, 1998 and 1997 interest paid
totaled approximately $19,202,000, $8,070,000 and $6,734,000, respectively.
Certain of the loan agreements, including the new credit agreement of the
Company contain restrictive covenants requiring minimum levels of cash or cash
equivalents, working capital and net worth, maintenance of specified financial
ratios and collateral values, and restrict the ability of the Company to pay
dividends. These loan
35
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
agreements also contain various provisions restricting the right of OMI and/or
its subsidiaries to make certain investments, to place additional liens on the
property of certain of OMI's subsidiaries, to incur additional long-term debt,
to make certain payments, to merge or to undergo a similar corporate
reorganization, and to enter into transactions with affiliated companies.
Each of the following loan facilities terminated with the completion of the
refinancing described above.
On February 28, 1999, the Company obtained a $25,000,000 revolving line of
credit secured by five vessels, four of which were sold during the year, and
shares in a joint venture company. The revolving credit facility was used for
working capital and other general corporate purposes, and bore interest at LIBOR
plus a margin ranging from 1.375%-1.75%. The facility had a balance of
$6,450,000 at December 31, 1999.
The Company had a credit facility, which was assumed from Old OMI
(currently MTC), that provided for a line of credit amounting to $99,090,000 at
December 31, 1999. The credit facility was secured by eleven vessels. The Notes
under the Credit Facility bore interest at LIBOR plus a margin ranging from
0.60%-0.95%, which was computed based on OMI's funded debt to equity ratio and
interest coverage ratio.
On June 4, 1998, the Company entered into a secured revolving credit
agreement to refinance two Panamax tankers and to finance a new product carrier
upon delivery. On June 9, 1998, the Company drew down $16,000,000 to refinance
the two Panamax tankers. The $16,000,000 was to be repaid in quarterly
installments of $800,000 over the next five years and bore interest at LIBOR
plus a margin ranging from 0.65%-0.95%, which was computed based on the
Company's funded debt to capitalization ratio. On September 15, 1999,
$16,000,000 was drawn down to finance a new product carrier. The balance of the
loan at December 31, 1999 was $26,800,000.
On June 4, 1998, the Company entered into a $71,500,000 secured revolving
credit facility to finance two Suezmax tankers upon their delivery from the
yard. On June 9, 1998, $35,750,000 was drawn to finance the first vessel, and on
August 7, 1998, $35,750,000 was drawn to finance the second vessel. Each
drawdown was to be repaid by semi-annual payments of $1,294,000 beginning 18
months after the initial drawdown and a balloon of $13,750,000 ten years after
the initial drawdown date. The facility bore interest at LIBOR plus a margin
ranging from 0.85%-0.95%. At December 31, 1999, the outstanding loan balance was
$70,206,000.
On July 6, 1998, the Company entered into an agreement, as amended, for a
$37,800,000 secured reducing revolving credit facility to finance a Suezmax
tanker upon its delivery from the yard. The Company drew down $37,800,000 on
July 20, 1998 to finance the newbuilding. The availability under this facility
was to be reduced by 14 semi-annual reductions of 3.9% of the original facility,
and the remaining balance was due at maturity, which was to be ten years after
the initial drawdown. The facility bore interest at LIBOR plus a margin ranging
from 0.60%-1.05%. At December 31, 1999 the outstanding loan balance was
$36,900,000.
During December 1998, the Company entered into an agreement with a lender
for a $60,000,000 revolving credit facility. The revolving credit facility was
to be used to finance, on an interim basis, the acquisition of vessels and would
be secured by such vessels. Amounts drawn on the revolving credit facility were
to be repaid no later than six months after drawdown. The facility bore interest
at LIBOR plus a margin ranging from 1.00%-1.75% which was computed based on the
Company's funded debt to total capitalization ratio and interest coverage ratio.
On January 14, 1999, the Company drew down $37,498,000 under this facility to
finance the acquisition of a Suezmax newbuilding, which was repaid in June
1999.On July 15, 1999, $21,200,000 was drawn down to finance a new product
carrier, and this balance remained at December 31, 1999.
At December 31, 1999, vessels and shares in a joint venture with a net book
value of $385,426,000 have been pledged as collateral on long-term debt issues.
36
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
OMI has entered into interest rate swap agreements to manage interest costs
and the risk associated with changing interest rates. The Company had one
interest rate swap agreement with a commercial bank at December 31, 1999 and
three at December 31, 1998. These agreements effectively change the Company's
interest rate exposure on floating rate loans to fixed rates ranging from 6.98
percent to 8.475 percent. The differential to be paid or received is recognized
as an adjustment to interest expense over the lives of the agreements. The
remaining swap agreement matures in June 2000. The changes in the notional
principal amounts are as follows:
DECEMBER 31,
-------------------
1999 1998
-------- -------
Notional principal amount, beginning of the year ....... $32,700 $32,700
Reductions of notional amounts ......................... (22,700) --
------- -------
Notional principal amount, end of the year ............. $10,000 $32,700
======= =======
Interest expense pertaining to interest rate swaps for the years ended
December 31, 1999, 1998 and 1997 was $296,000, $718,000 and $765,000,
respectively.
The Company is exposed to credit loss in the event of non-performance by
other parties to the interest rate swap agreements. However, OMI does not
anticipate non-performance by the counter-parties.
NOTE 6--FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31,
----------------------------------------------
1999 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- ------- --------- --------
Cash and cash equivalents ................ $ 7,381 $ 7,381 $ 22,698 $ 22,698
Notes receivable ......................... 14,362 14,362 6,604 6,604
Total debt ............................... 267,747 267,700 247,147 247,156
Unrecognized financial instruments:
Interest rate swaps in a net
payable position ...................... 88 399
The fair value of long-term debt is estimated based on current rates
offered to the Company for similar debt of the same remaining maturities. The
fair value of interest rate swaps (used for purposes other than trading) is the
estimated amount the Company would pay to terminate swap agreements at the
reporting date, taking into account current interest rates and the current
credit-worthiness of the swap counter-parties.
NOTE 7--CHANGE IN ACCOUNTING FOR VOYAGE REVENUE
Prior to 1999, voyage freight for vessels operating on voyage charters was
accounted for on a load-to-load basis. Under this method, voyage revenue is
recognized evenly over the period from arrival of the vessel at the first load
port to arrival at the next load port. Under this method of revenue recognition
it is necessary to assume the next load port to complete the revenue recognition
cycle.
Effective January 1, 1999, OMI changed its accounting policy on recognition
of voyage freight for vessels operating on voyage charters from load-to-load to
discharge-to-discharge basis. Under this method, voyage revenue is recognized
evenly over the period from the departure of a vessel from its original
discharge port to departure from the next discharge port. The change in revenue
recognition policy is a more reliable method in recognizing voyage
37
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--CHANGE IN ACCOUNTING FOR VOYAGE REVENUE--(CONTINUED)
revenue as it eliminates the uncertainty associated with the location of the
next load port. The cumulative effect of this accounting change is shown
separately in the Consolidated Statements of Operations and resulted in income
of $2,729,000 or $0.07 per basic and diluted earnings per share. The cumulative
effect of this change in accounting principle as of January 1, 1999 on the
Company's Consolidated Balance Sheets was to increase total assets by
$1,490,000, decrease total liabilities by $1,239,000 and increase total
stockholders' equity by $2,729,000.
The years ended December 31, 1998 and 1997 were previously presented using
the load-to-load method of accounting for voyages. Pro forma amounts for these
years assuming discharge-to-discharge had been retroactively applied are
summarized as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997
----------- -----------
Net income ................................................... $42,612 $18,778
------- -------
Basic earnings per share:
Net income before cumulative effect of change
in accounting principle ................................... $ 1.00 $ 0.20
Cumulative effect of change in accounting
principle--net of tax ..................................... -- 0.23
------- -------
Net income ................................................. $ 1.00 $ 0.43
======= =======
Diluted earnings per share:
Net income before cumulative effect of
change in accounting principle ........................... $ 0.99 $ 0.20
Cumulative effect of change in accounting
principle--net of tax .................................... -- 0.23
------- -------
Net income ................................................. $ 0.99 $ 0.43
======= =======
NOTE 8--ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES
Effective January 1, 1997, the Company changed its method of accounting for
special survey and drydock expenses from the accrual method to the prepaid
method. Special survey and drydock expenses had been accrued and charged to
operating expenses over the vessel's survey cycle. Under the prepaid method,
survey and drydock expenses are capitalized and amortized over the two to five
year period until the next cycle. Management believes the prepaid method better
matches costs with revenues and minimizes any significant changes in estimates
associated with the accrual method. The cumulative effect of this accounting
change is shown separately in the Consolidated Statements of Operations and
resulted in income of $10,063,000 (net of income taxes of $5,419,000).
The cumulative effect of this change in accounting principle as of January
1, 1997 on the Company's balance sheet was to increase total assets by
$8,272,000, decrease total liabilities by $1,791,000 and increase total
stockholder's equity by $10,063,000.
NOTE 9--OPERATING LEASES
Total rental expense was $16,080,000, $25,820,000 and $8,877,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. Leases are for
vessels and office space.
38
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9--OPERATING LEASES (CONTINUED)
The future minimum rental payments required by year, under operating leases
subsequent to December 31, 1999, are as follows:
2000 .......................................... $25,700
2001 .......................................... 23,673
2002 .......................................... 7,723
2003 .......................................... 686
2004 .......................................... 688
Thereafter .................................... 1,353
-------
Total ....................................... $59,823
=======
On January 19, 1999, the COLUMBIA, a new double-hulled Suezmax tanker was
delivered. The vessel, which had a book value of $55,992,000, was sold on June
30, 1999 for $54,000,000 in a sale/leaseback transaction. The COLUMBIA was then
chartered back from the purchaser over a period of three years. The resulting
lease is being accounted for as an operating lease.
Under the agreement, the Company is responsible for operating expenses and
is required to maintain $2,000,000 in escrow over the lease term, and a standby
letter of credit, which commenced September 1999.The standby letter of credit is
increased by $750,000 per quarter in the first year and by $500,000 per quarter
in the second year to a maximum of $9,000,000. The letter of credit is
additional collateral for the Company's obligation under the charter. As of
December 31, 1999, the escrow and the standby letter of credit aggregated
$7,500,000 and was included in Other Assets and deferred charges on the
Consolidated Balance Sheet.
In May 1997, the Company sold the ALTA (a Suezmax crude oil carrier) for
approximately $39,900,000 and leased back the vessel for five years. The gain on
the sale of approximately $15,700,000 has been deferred and is being credited to
income as an adjustment to lease expense over the term of the lease. As of
December 31, 1999, the deferred gain on sale was $7,514,000. The lessor has the
option to cancel the lease after two years with the payment of a $1,000,000
termination fee.
Time charters to third parties of the Company's owned vessels are accounted
for as operating leases. Minimum future revenues to be received subsequent to
December 31, 1999 on these time charters are $16,133,000 in 2000 and $8,230,000
in 2001.
NOTE 10--PROVISION FOR LOSS ON LEASE OBLIGATIONS
During 1999, as part of OMI's periodic review, the Company evaluated the
forecasted future net cash flows for vessels with lease obligations. The Company
determined that its current lease obligations for vessels exceeded its
undiscounted forecasted future net cash flows. The loss was measured by the
excess of the future lease payments, as set forth in the lease agreements, over
the vessels estimated forecasted future cash flows over the lease term. It was
determined that an impairment loss for its leases should be recognized, and a
provision of $6,229,000 was recorded in June 1999.The loss is reported as a
separate item in the Consolidated Statements of Operations. The liability for
the impairment is being amortized to charter hire expense over the remaining
term of the leases.
NOTE 11--ACQUISITIONS AND DISPOSALS OF VESSELS
The SEINE and the ISERE, two new product tankers, were delivered in July and
September 1999, respectively. Both vessels immediately went on time charter for
two years.
39
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11--ACQUISITIONS AND DISPOSALS OF VESSELS (CONTINUED)
On October 29, 1999, OMI agreed to acquire from Mega Tankers Newbuilding
AS, a Suezmax newbuilding. The purchase price of the vessel is approximately
$46,180,000.The Company issued 5,700,000 shares on November 24, 1999 to the
seller and an additional 599,998 shares in February 2000 of OMI common stock
valued at $2.50 per share. On March 15, 2000, OMI entered into a $27,000,000
credit facility to finance this vessel upon delivery from the yard. The
remaining balance, which is approximately $3,430,000, was also paid upon
delivery.
In July, August and November 1999, four Suezmax vessels, three built in
1975 and one built in 1974, were sold for scrap. These vessels were written down
to their estimated net realizable values in the period ended June 30, 1999.
Adjustments to the loss on disposal of assets were recorded at the sale dates.
On August 20, 1998, the Company sold the TANANA for approximately $45,000,000 at
a gain of $6,485,000. On March 12, 1997, OMI sold its liquid petroleum gas
carrier for gain of approximately $1,000,000.
(Loss) gain on disposal/write down of assets-net consists of the following:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- ------- ------
(Loss) gain on sale of vessels ........................ $(17,398) $6,485 $885
Loss on write down of vessels (See Note 12) ........... (31,294) -- --
-------- ------ ----
Total ............................................... $(48,692) $6,485 $885
======== ====== ====
NOTE 12--VESSELS TO BE DISPOSED OF
As of December 31, 1999, the Company planned to dispose of nine vessels,
eight vessels with a net realizable value of $84,034,000 and one aframax with a
net realizable value of $4,262,000. These vessels were written down in December
1999 (the aframax was written down in June 1999 and adjusted in December 1999)
to their estimated market values, and the loss was included in the loss on
disposal/write down of assets (see Note 11) at that time. The write down of
vessels includes the reversal of the cumulative translation adjustment for
$7,442,000. The adjustment relates to two vessels whose functional currency
until July 1990 was not U.S. dollars. In December 1999, the Company contracted
to sell its aframax vessel with a delivery date scheduled for the end of the
first quarter.
As a result of the current market condition and estimated losses on the
disposal of certain vessels, the Company re-evaluated the carrying value of its
remaining vessels under the provisions of SFAS No. 121 and concluded that no
further write downs were necessary.
NOTE 13--INCOME TAXES
A summary of the components of the provision (benefit) for income taxes
excluding the cumulative effect of change in accounting principle is as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------ -------- ---------
Current provision ....................................... $475 $ 1,729 $7,721
Deferred tax benefit .................................... -- (38,887) (2,314)
---- -------- ------
Provision(benefit) for income taxes ..................... $475 $(37,158) $5,407
==== ======== ======
40
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
(ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
The provision (benefit) for income taxes on income (loss) varies from the
statutory rates due to the following:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- --------- ----------
Provision at statutory rate(1) ............................ $ -- $ 1,204 $4,293
Reversal of deferred income taxes ......................... -- (38,887) --
Equity in earnings of joint ventures (other than
Amazon/White Sea) net of dividends declared ............. -- 525 1,114
Other(2) .................................................. 475 -- --
---- -------- ------
Provision (benefit)for income taxes ....................... $475 $(37,158) $5,407
==== ======== ======
- ----------
(1) 1998 includes income before income taxes of $3,540,000 through June 17,
1998 after which OMI was no longer a taxable entity.
(2) 1999 provision reflects adjustment to actual for 1998 taxes.
The Company did not provide deferred income taxes on its equity in the
undistributed earnings of foreign corporate joint ventures accounted for under
the equity method other than those of Amazon and White Sea because these
earnings were considered by management to be invested in the business for an
indefinite period. If the earnings were not considered indefinitely invested,
approximately $6,502,000 of additional deferred tax liabilities would have been
required at December 31, 1997.
NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS
The Company organizes its business principally into two operating segments.
These segments and their respective operations are as follows:
Crude Oil Tanker Fleet--includes vessels that normally carry crude oil
and "dirty" products. This fleet includes three sizes of vessels, Suezmax,
Aframax and Panamax.
Product Carrier Fleet--includes vessels that normally carry refined
petroleum products such as gasoline, naphtha and kerosene. This fleet
includes two sizes of vessels, Panamax and handysize vessels.
41
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED)
The following is a summary of the operations by major operating segments
for the three years ended December 31, 1999:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
REVENUES:
Crude Oil Tanker Fleet ....................................... $ 78,143 $ 98,517 $ 72,678
Product Carrier Fleet ........................................ 37,570 50,649 67,919
Other ........................................................ 279 62 1,388
--------- --------- ---------
$ 115,992 $ 149,228 $ 141,985
========= ========= =========
OPERATING (LOSS) INCOME:
Crude Oil Tanker Fleet(1) .................................... $ (515) $ 13,135 $ 12,409
Product Carrier Fleet ........................................ 3,235 3,704 16,447
--------- --------- ---------
2,720 16,839 28,856
General and administrative expense not allocated to vessels .. (8,331) (7,089) (7,931)
Other ........................................................ (1,023) (3,506) (747)
--------- --------- ---------
Total .................................................... $ (6,634) $ 6,244 $ 20,178
========= ========= =========
IDENTIFIABLE ASSETS:
Crude Oil Tanker Fleet ....................................... $ 234,140 $ 252,741 $ 164,344
Product Carrier Fleet ........................................ 192,625 203,537 201,126
--------- --------- ---------
426,765 456,278 365,470
Investments in, and advances to joint ventures ............... 14,218 25,507 27,810
Cash and cash equivalents .................................... 7,381 22,698 30,608
Goodwill ..................................................... 1,827 11,079 11,763
Other ........................................................ 22,224 14,565 5,057
--------- --------- ---------
Total .................................................... $ 472,415 $ 530,127 $ 440,708
========= ========= =========
CAPITAL EXPENDITURES:
Crude Oil Tanker Fleet(2) .................................... $ 58,756 $ 133,969 $ 45,620
Product Carrier Fleet(3) ..................................... 45,546 12,714 9,241
Other ........................................................ 947 724 424
--------- --------- ---------
Total .................................................... $ 105,249 $ 147,407 $ 55,285
========= ========= =========
DEPRECIATION AND AMORTIZATION:
Crude Oil Tanker Fleet ....................................... $ 11,977 $ 11,976 $ 8,406
Product Carrier Fleet ........................................ 10,950 11,481 13,371
Other ........................................................ 908 857 898
--------- --------- ---------
Total .................................................... $ 23,835 $ 24,314 $ 22,675
========= ========= =========
INTEREST EXPENSE:
Crude Oil Tanker Fleet ....................................... $ 9,610 $ 5,631 $ 2,008
Product Carrier Fleet ........................................ 5,884 3,239 7,742
--------- --------- ---------
15,494 8,870 9,750
Intercompany borrowings ...................................... -- 1,382 1,241
Other ........................................................ 2,451 866 765
--------- --------- ---------
Total .................................................... $ 17,945 $ 11,118 $ 11,756
========= ========= =========
(1) Crude oil tanker fleet operating loss includes the provision for loss on
lease obligations of $6,229,000 in 1999.
(2) Includes progress payments and capitalized interest aggregating $58,539,000
in 1999, $133,645,000 in 1998 and $45,289,000 in 1997 for newbuildings.
(3) Includes progress payments and capitalized interest aggregating $45,209,000
in 1999 and $11,940,000 in 1998 for newbuildings.
42
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED)
Mortgage debt of Old OMI prior to the Distribution and its related interest
expense were allocated to OMI Corporation based upon the value of the vessels
collateralizing the debt.
General and administrative expense includes an allocation of costs of
corporate administrative services provided by Old OMI up to the Distribution
date. OMI Corporation, or its applicable subsidiary, was charged a fixed amount
per month per vessel for vessel management and accounting activities and was
charged 1.25 percent of revenues earned by each vessel for commercial
management. General corporate activities, such as salaries (other than those
included in the aforementioned fees), legal, accounting, communications and
other administrative expenses were allocated based on the services provided to
the segment. Rent expense was allocated based on the number of employees
included in the corporate allocation. Management believes the methods for
allocating such expenses were reasonable.
NOTE 15--SAVINGS PLAN
The Company has a 401(k) Plan (the "Plan") which continued from Old OMI,
and is available to full-time employees who meet the Plan's eligibility
requirements. This Plan is a defined contribution plan, which permits employees
to make contributions up to ten percent of their annual salaries with the
Company matching up to the first six percent in 1999. The Company may elect to
make additional contributions to the Plan at the discretion of the Company's
Board of Directors. The Company also has an Executive Savings Plan for certain
key employees. Company contributions were $261,000 and $106,000 for the 401(k)
and Executive Savings Plan, respectively, for the year ended December 31, 1999,
and were $74,000 and $54,000 for the 401(k) and Executive Savings Plan,
respectively, from June 18, 1998 (distribution date) to December 31, 1998.
NOTE 16--STOCK OPTION PLAN
The shareholders approved the 1998 Stock Option Plan ("1998 Plan") on May
19, 1998. The 1998 Plan provides for the granting of options to officers,
employees, consultants and Directors for purchase of the Company's common
shares. The total number of shares that may be awarded under the Plan are
2,500,000, not including the replacement options described in the next sentence.
Effective June 17, 1998, 855,243 options were granted to officers and employees
to replace options they held in Old OMI and have the same vesting provisions and
expiration dates as those Old OMI options forfeited. Option prices at the date
of grant represent the option prices at which options were originally granted by
Old OMI to officers and employees reduced by the estimated fair value per share
of Old OMI's domestic business. In addition, 120,000 options were issued to new
directors in 1998 and vest ratably over three years. In 1999, the Company issued
10,000 options at $3.25 per share.
The following is a summary of the change in the options (in whole numbers,
not thousands) from December 31, 1998 to December 31, 1999:
NUMBER OF NUMBER OF
OPTIONS AT OPTIONS AT WEIGHTED
RANGE OF DECEMBER 31, DECEMBER 31, AVERAGE
EXERCISE PRICE 1998 GRANTS EXPIRED FORFEITURES 1999 EXERCISE PRICE EXPIRATION DATE
- -------------- ------------ ------ ------- ----------- ------------ -------------- ---------------
$3.25 -$3.39 31,006 10,000 4,666 5,000 31,340 $3.35 January 2003 to January 2009
$4.015-$4.58 270,000 10,000 260,000 $4.10 February 2000 to April 2005
$5.14 -$5.43 416,237 22,667 393,570 $5.22 February 2004 to May 2008
$6.42 -$6.67 160,000 160,000 $6.61 June 2001 to June 2008
$8.675-$8.95 98,000 68,000 30,000 $8.95 August 1999 to May 2008
------- ------ ------ ------ -------
975,243 10,000 82,666 27,667 874,910 $5.20
======= ====== ====== ====== =======
Proceeds received from the exercise of the options are credited to the
capital accounts.
43
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16--STOCK OPTION PLAN (CONTINUED)
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the methods recommended by SFAS No. 123, the Company's net
income and net income per share for the years ended December 31, 1999 and 1998,
would have been stated at the pro forma amounts indicated below:
1999 1998
-------- -------
Net (loss) income:
As reported .................................... $(80,305) $42,917
Pro forma ...................................... (80,461) 41,409
1999 1999 1998 1998
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
Basic (loss) earnings per share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting principle .. $(1.94) $(1.94) $1.01 $0.97
Extraordinary loss ..................................... (0.03) (0.03) -- --
Cumulative effect of change in accounting principle .... 0.07 0.07 -- --
------ ------ ----- -----
Net (loss) income ........................................ $(1.90) $(1.90) $1.01 $0.97
====== ====== ===== =====
Diluted (loss) earnings per share:
Net (loss) income before extraordinary loss and
cumulative effect of change in accounting principle .. $(1.94) $(1.94) $1.00 $0.97
Extraordinary loss ..................................... (0.03) (0.03) -- --
Cumulative effect of change in accounting principle .... 0.07 0.07 -- --
------ ------ ----- -----
Net (loss) income ........................................ $(1.90) $(1.90) $1.00 $0.97
====== ====== ===== =====
The fair value of options granted under the Company's stock option plans
during 1999 and 1998, was estimated on the dates of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: no dividend yield, expected volatility of 40 percent, risk
free average interest rates of 6.13 percent in 1999 and 5.01 percent in 1998,
and expected lives ranging from one to five years.
See Note 17 regarding "Change in Control".
NOTE 17--EMPLOYMENT AGREEMENTS
OMI has employment agreements with all of its executive officers which
provide for an annual base salary and a performance incentive bonus. The base
salary is the amount paid in the previous year plus any raise granted by the OMI
Board. Under the contracts, bonuses are paid at the discretion of the OMI Board.
Each of these agreements also provide that if the employee (i) is terminated
without cause, (ii) voluntarily terminates his employment within 90 days of a
relocation following a Change in Control or reduction in compensation or
responsibilities, or (iii) is disabled, such employee will continue to receive
base salary and other benefits for a period of two years. In addition, in the
event of a Change in Control (as defined in the relevant agreement) and if any
such employee's employment is terminated without cause (other than for reasons
of disability) within two years of such a Change in Control, then OMI will pay
such employee an amount equal to the incentive bonus paid during the previous
twelve months and an amount equal to three times the sum of his then current
base salary and that incentive bonus.
NOTE 18--STOCKHOLDERS' EQUITY
Preferred Stock--The Company has 5,000,000 shares of preferred stock
authorized, none issued.
Shareholders' Rights Plan--On November 19, 1998, the Board of Directors
approved the adoption of a shareholder rights plan in which it declared a
dividend distribution of one Right for each outstanding share of common stock,
$0.50 par value (the "Common Stock") of the Company, to stockholders of record
at the close of business on December 1, 1998. Each Right entitles the record
holder to purchase from the Company one hundred-thousandth of a share of the
Company's Series A Participating Preferred Stock, $1.00 par value at a price of
$25.00 (the "Purchase Price"), subject to adjustment in certain circumstances.
44
OMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 18--STOCKHOLDERS' EQUITY (CONTINUED)
Initially, the Rights attach to the certificates representing outstanding
shares of Common Stock, and no Rights Certificates will be distributed. In
general the Rights will separate from the Common Stock and a "Distribution Date"
will occur only if a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock, or after the commencement of a tender offer or exchange offer if,
upon consummation thereof, the person or group making such offer would be the
beneficial owner of 15% or more of the outstanding shares of Common Stock.
Thereafter, under certain circumstances, each Right (other than any Rights that
are or were beneficially owned by an Acquiring Person, which Rights will be
void) could become exercisable to purchase at the Purchase Price a number of
shares of Common Stock (or, in certain circumstances, the common stock of a
company into which the Company is merged or consolidated or to which the Company
sells all or substantially all of its assets) having a market value equal to two
times the Purchase Price.
Treasury Stock--On August 4, 1998, the Board of Directors approved a plan
to repurchase up to 4.4 million shares of the Company's common stock. As of
December 31, 1998, the Company purchased 2,076,700 shares at a cost of
$9,040,000 or an average price of $4.35 per share. During March 1999, OMI issued
47,408 shares of the Company's treasury stock to Directors in lieu of cash for
fees.
Dividends--Any determination to pay dividends in the future by OMI will be
at the discretion of the Board of Directors and will be dependent upon its
results of operations, financial condition, capital restrictions, covenants and
other factors deemed relevant by the board of directors. Currently, the payment
of dividends by OMI is restricted by its credit agreements.
Private Placement--During February 2000, OMI agreed to sell in a private
placement to four unrelated investors 9,583,000 shares of OMI common stock for
$2.00 per share ($1.92 per share net of commissions).
NOTE 19--COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company had two doubled-hulled Suezmax tankers
under construction. One Suezmax with a cost of approximately $51,000,000 is to
be delivered in May 2000, and the other Suezmax with a cost of approximately
$46,180,000 was delivered in March 2000 (See Note 11).
OMI acts as a guarantor for a portion of the debt incurred by a joint
venture with affiliates of its joint venture partner. Such debt was
approximately $13,450,000 at December 31, 1999 with OMI's guaranty of such debt
being approximately $6,725,000. The guarantee ended in the first quarter of 2000
when OMI sold its interest in the joint venture (See Note 4).
OMI and certain subsidiaries are defendants in various actions arising from
shipping operations. Such actions are covered by insurance or, in the opinion of
management, are of such nature that the ultimate liability, if any, would not
have a material adverse effect on the consolidated financial statements.
The Company has guaranteed a minimum resale or residual value for a vessel
that is leased until June 2002. At December 31, 1999, the impact of the
guarantee is not expected to be material.
The Company was a defendant in an arbitration arising from alleged defects
in a vessel sold to a third party. The claims exceeded $7,000,000 which
encompassed damages for repairs to the vessel, lost revenues, interest and
costs. During 1998, this claim was settled for $900,000.
The Company and its joint venture partners have committed to fund any
working capital deficiencies which may be incurred by their joint venture
investments. At December 31, 1999, no such deficiencies have been funded.
45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of OMI Corporation:
We have audited the accompanying consolidated balance sheets of OMI
Corporation and subsidiaries (successor to Universal Bulk Carriers, Inc. and its
subsidiaries) as of December 31, 1999 and 1998 and the related consolidated
statements of operations, and comprehensive income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of certain corporate
joint ventures, which were accounted for by use of the equity method. The
Company's equity of $7,637,000 and $9,597,000 in the net assets of those
corporate joint ventures as of December 31, 1999 and 1998, respectively, and of
($637,000), $2,995,000, and ($1,284,000) in those companies' net income (loss)
for each of the three years in the period ended December 31, 1999 is included in
the accompanying financial statements. The financial statements of those
corporate joint ventures were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for such companies, is based solely on the reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the companies at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1999, the Company changed its method of accounting for vessels
operating on voyage charters from load-to-load to discharge-to-discharge basis.
As discussed in Note 8 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for special and
drydock expense from the accrual method to the prepaid method.
DELOITTE & TOUCHE LLP
New York, New York
February 17, 2000
(March 15, 2000 as to Notes 4 and 11)
46
ITEM 8. SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 QUARTER ENDED 1998 QUARTER ENDED
---------------------------------------- ---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------- -------- ------- -------- ------- ------- ------- -------
Revenues ............................ $34,978 $ 30,535 $25,771 $ 24,708 $40,032 $36,827 $38,124 $34,245
Operating income (loss) ............. 3,934 (5,764) (1,841) (2,963) 5,289 (1,790) 4,189 (1,444)
Extraordinary loss .................. -- -- -- (1,253) -- -- -- --
Cumulative effect of change in
accounting principle(1) ........... 2,729 -- -- -- -- -- -- --
Net income (loss) ................... $ 2,736 $(33,172) $(7,119) $(42,750) $ 3,089 $36,450 $ 8,043 $(4,665)
Basic Earnings (Loss)
Per Common Share:
Income before extraordinary
loss and cumulative effect
of change in accounting
principle. ...................... $ -- $ (0.80) $ (0.17) $ (0.94) $ 0.07 $ 0.84 $ 0.19 $ (0.11)
Extraordinary loss .................. -- -- -- (0.03) -- -- -- --
Cumulative effect of change in
accounting principle(1) ........... 0.07 -- -- -- -- -- -- --
------- -------- ------- -------- ------- ------- ------- -------
Net income (loss)(2) ................ $ 0.07 $ (0.80) $ (0.17) $ (0.97) $ 0.07 $ 0.84 $ 0.19 $ (0.11)
======= ======== ======= ======== ======= ======= ======= =======
Weighted average number of
shares of common stock
outstanding-basic ................. 41,611 41,647 41,647 44,020 43,072 43,271 42,837 41,609
======= ======== ======= ======== ======= ======= ======= =======
Diluted Earnings (Loss)
Per Common Share:
Income before extraordinary
loss and cumulative effect
of change in accounting
principle ....................... $ -- $ (0.80) $ (0.17) $ (0.94) $ 0.07 $ 0.83 $ 0.19 $ (0.11)
Extraordinary loss .................. -- -- -- (0.03) -- -- -- --
Cumulative effect of change in
accounting principle(1) ............. 0.07 -- -- -- -- -- -- --
------- -------- ------- -------- ------- ------- ------- -------
Net income (loss)(2) ................ $ 0.07 $ (0.80) $ (0.17) $ (0.97) $ 0.07 $ 0.83 $ 0.19 $ (0.11)
======= ======== ======= ======== ======= ======= ======= =======
Weighted average number of
shares of common stock
outstanding-diluted ............... 41,611 41,647 41,647 44,020 43,433 43,961 43,113 41,609
======= ======== ======= ======== ======= ======= ======= =======
- -----------
(1) The March 31, 1999 quarter has been restated to reflect the cumulative
effect of the change in the accounting principle effective January 1, 1999.
(2) Earnings per share are based on stand-alone quarters.
47
AMAZON TRANSPORT INC.
BALANCE SHEETS
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............. $ 3,263,011 $ 7,532,673
Accounts receivable .................... 715,810 2,340,063
Bunkers ................................ 617,705 659,933
----------- -----------
Total current assets ............. 4,596,526 10,532,669
----------- -----------
Long-term assets
Vessel ............................... 12,786,778 13,407,504
----------- -----------
Total long term assets ........... 12,786,778 13,407,504
----------- -----------
Total assets ........................... $17,383,304 $23,940,173
=========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable ....................... $ 1,796,786 $ 4,354,145
----------- -----------
Total current liabilities ............ 1,796,786 4,354,145
----------- -----------
Total liabilities .................... 1,796,786 4,354,145
----------- -----------
EQUITY:
Share capital .......................... 900 900
Accumulated result 1/1 ................. 19,585,128 17,473,325
Cash dividend .......................... (4,000,000) (4,000,000)
Capital contributions .................. 1,300,000 --
Net income (loss) ...................... (1,299,510) 6,111,803
----------- -----------
Total equity ........................... 15,586,518 19,586,028
----------- -----------
Total liabilities and equity ........... $17,383,304 $23,940,173
=========== ===========
See notes to financial statements.
48
AMAZON TRANSPORT INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
OPERATING INCOME AND COSTS
Gross freight ........................ $ 7,640,089 $ 15,647,357 $ 15,692,654
Voyage related costs ................. (3,830,509) (4,462,752) (6,584,317)
------------ ------------ ------------
Net voyage revenue ................... 3,809,580 11,184,605 9,108,337
------------ ------------ ------------
Crew wages and social security ....... (1,477,085) (1,284,936) (1,462,583)
Other operating costs ................ (3,193,913) (3,450,102) (3,794,536)
------------ ------------ ------------
Profit before depreciation ........... (861,418) 6,449,567 3,851,218
Depreciation ......................... (620,726) (620,726) (620,726)
------------ ------------ ------------
Operating result ..................... (1,482,144) 5,828,841 3,230,492
------------ ------------ ------------
FINANCIAL INCOME AND COSTS
Interest received .................... 202,156 323,555 200,267
Net gain (loss) on foreign exchange .. (18,652) (39,461) (311)
Other financial costs ................ (870) (1,132) (1,896)
------------ ------------ ------------
Net financial items .................. 182,634 282,962 198,060
------------ ------------ ------------
Net income (loss) .................... $ (1,299,510) $ 6,111,803 $ 3,428,552
============ ============ ============
See notes to financial statements
49
AMAZON TRANSPORT INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES
Net (loss) income ................................... $(1,299,510) $ 6,111,803 $ 3,428,552
Depreciation ........................................ 620,726 620,726 620,726
Change in short-term assets ......................... 1,666,481 (349,306) (1,150,402)
Change in short-term liabilities .................... (2,557,359) 1,362,885 1,505,321
----------- ----------- -----------
Net cash (used) provided by operating activities .... (1,569,662) 7,746,108 4,404,197
----------- ----------- -----------
CASH FLOW USED BY FINANCING ACTIVITIES
Repayment of loan to shareholders ................... -- -- (3,000,000)
Cash dividends ...................................... (4,000,000) (4,000,000) --
Capital contributions ............................... 1,300,000 -- --
----------- ----------- -----------
Net cash (used) by financing activities ............. (2,700,000) (4,000,000) (3,000,000)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents .................................. (4,269,662) 3,746,108 1,404,197
Cash and cash equivalents beginning of year ......... 7,532,673 3,786,565 2,382,368
----------- ----------- -----------
Cash and cash equivalents end of year ............... $ 3,263,011 $ 7,532,673 $ 3,786,565
=========== =========== ===========
See notes to financial statements.
50
AMAZON TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1. COMPANY
Amazon Transport, Inc. (the "Company" or "Amazon") is jointly owned by a
wholly-owned subsidiary of OMI Corporation ("OMI") and Bergesen d.y.
Shipping AS ("Bergesen d.y. Shipping"), a wholly-owned subsidiary of
Bergesen d.y. ASA ("Bergesen") with interests of 49 and 51 percent,
respectively. The Company began operating as a joint venture on December 3,
1988 for the purpose of owning and chartering commercial vessels. The
Company owns and operates one vessel, the Settebello, for all years
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Operating Revenues and Expenses--Voyage revenues and expenses are
recognized on the percentage of completion method of accounting based on
voyage costs incurred to date to estimated total voyage costs. Estimated
losses are provided in full at the time such losses become evident.
Special survey and drydock expenses are accrued and charged to
operating expenses over the survey cycle, which is generally a three year
period. The accruals of such expenses are based on management's best
estimates of future cost and the expected length of the survey cycle.
However, the ultimate liability may be more or less than such estimates.
Vessel--The vessel is recorded at cost. Depreciation is provided on the
straight-line method based on the estimated 25 year useful life of the
vessel up to the estimated salvage value. Salvage value is based upon the
vessel's light weight tonnage multiplied by a scrap rate.
Expenditures for maintenance, repairs and minor renewals are expensed.
Major replacements and renewals are capitalized.
In the event that facts and circumstances indicate that the carrying
amount of the vessel may be impaired, an evaluation of recoverability is
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the vessel are compared to the vessel's carrying
value to determine if a writedown to fair value or discounted cash flow is
required.
Federal Income Taxes--No provision has been made for Federal income taxes.
The income of the Company is not generally subject to tax as a result of
various provisions of the Internal Revenue Code. Additionally, the country
in which the Company is incorporated exempts shipping and maritime
operations from taxation.
Cash Flows--Cash equivalents represent liquid investments which mature
within 90 days. The carrying amount approximates fair value. The Company
paid no interest in the three years ended December 31, 1999.
3. RELATED PARTY TRANSACTIONS
The Company has entered into management service agreements with Bergesen,
who act as technical and commercial managers of the Settebello. The Company
paid Bergesen management fees of $267,291 for the year ended December 31,
1999, $261,246 for the year ended December 31, 1998 and $256,204 for the
year ended December 31, 1997.
During the year 1999, the Company made a cash distribution to the
shareholders of $4,000,000.
During the year 1999, the Company also called in capital from the
shareholders of $1,300,000.
During the year 1998, the Company made a cash distribution to the
shareholders of $4,000,000.
During the year 1997, the Company paid back the loan to the
shareholders of $3,000,000.
51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Stockholders of
Amazon Transport Inc.
We have audited the accompanying balance sheets of Amazon Transport Inc. as of
December 31, 1999 and 1998 and the related statements of income and changes in
financial position for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amazon Transport Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years ended December 31, 1999 in conformity with the
accounting principles disclosed in notes to the financial statements which in
all material respects are in agreement with International Accounting Principles.
ARTHUR ANDERSEN & CO.
Morten Drake
State Authorised Public Accountant (Norway)
Oslo, Norway
March 16, 2000
52
WHITE SEA HOLDINGS LTD.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
SEPTEMBER 29, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ........................... $1,550 $2,405
Advances to masters ................................. -- 27
Receivables:
Traffic ........................................... 230 98
Other ............................................. 105 211
Prepaid expenses and other current assets ........... 230 391
------ ------
Total current assets .......................... 2,115 3,132
------ ------
Vessel:
Vessel at cost ...................................... 7,430 7,430
Less accumulated depreciation ....................... 2,581 2,220
------ ------
Vessel--net ......................................... 4,849 5,210
------ ------
Total assets .................................. $6,964 $8,342
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 68 $ 121
Accrued expenses .................................... 63 495
Accrued interest .................................... -- 10
Payable to affiliates (Note 3) ...................... 19 54
Current portion of long-term debt (Note 4) .......... -- 500
------ ------
Total current liabilities ..................... 150 1,180
------ ------
Advance time charter revenues and other liabilities ... -- 211
Stockholders' equity:
Common stock--no par value; 500 shares authorized
and outstanding ................................... 1 1
Capital surplus ..................................... 2,499 2,499
Retained earnings (Note 7) .......................... 4,314 4,451
------ ------
Total stockholders' equity .................... 6,814 6,951
------ ------
Total liabilities and stockholders' equity ............ $6,964 $8,342
====== ======
See notes to financial statements.
53
WHITE SEA HOLDINGS LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
FOR THE PERIOD
JANUARY 1, FOR THE YEARS ENDED
1999 TO DECEMBER 31,
SEPTEMBER 29, --------------------
1999 1998 1997
------------ ------- -------
(UNAUDITED)
Voyage Revenues ................................. $ 4,583 $ 9,022 $12,552
------- ------- -------
Operating Expenses:
Vessel and voyage ............................. 3,542 6,738 7,375
Depreciation .................................. 361 461 442
General and administrative .................... 116 97 94
------- ------- -------
Total operating expenses ................ 4,019 7,296 7,911
------- ------- -------
Operating Income ................................ 564 1,726 4,641
Net Interest Income (Expense):
Interest expense .............................. (6) (43) (158)
Interest income ............................... 60 167 99
------- ------- -------
Net interest income (expense) ........... 54 124 (59)
------- ------- -------
Income Before Cumulative Effect of Change in
Accounting Principles ......................... 618 1,850 4,582
Cumulative Effect of Change in Accounting
Principles (Notes 5, 6) ....................... 245 -- 1,196
------- ------- -------
Net Income ...................................... 863 1,850 5,778
Retained Earnings, Beginning of Year ............ 4,451 5,601 1,323
Dividends Paid (Note 7) ......................... (1,000) (3,000) (1,500)
------- ------- -------
Retained Earnings, End of Period ................ $ 4,314 $ 4,451 $ 5,601
======= ======= =======
See notes to financial statements.
54
WHITE SEA HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE PERIOD
JANUARY 1, FOR THE YEARS ENDED
1999 TO DECEMBER 31,
SEPTEMBER 29, --------------------
1999 1998 1997
-------------- ------- -------
(UNAUDITED)
Cash Flows Provided by Operating Activities:
Net income ......................................... $ 863 $ 1,850 $ 5,778
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation ..................................... 361 461 442
Cumulative effect of change in
accounting principles .......................... (245) -- (1,196)
Change in assets and liabilities:
Decrease (increase) in receivables and advances
to masters ....................................... 43 509 (438)
Decrease in prepaid expenses and other
current assets ................................... 161 591 827
Decrease in accounts payable and accrued
liabilities ...................................... (495) (31) (229)
Decrease in payable to affiliates .................. (35) (310) (877)
(Decrease) increase in advanced time charter
revenues and other liabilities ................... (8) 19 (5)
------- ------- -------
Net cash provided by operating
activities ................................. 645 3,089 4,302
------- ------- -------
Cash Flows Used by Investing Activities:
Additions to vessel ................................ -- (40) (7)
------- ------- -------
Net cash used by investing activities ........ -- (40) (7)
------- ------- -------
Cash Flows Used by Financing Activities:
Dividends paid ..................................... (1,000) (3,000) (1,500)
Payments on long-term debt ......................... (500) (500) (500)
------- ------- -------
Net cash used by financing activities ........ (1,500) (3,500) (2,000)
------- ------- -------
Net (Decrease) Increase in Cash and
Cash Equivalents ................................... (855) (451) 2,295
Cash and Cash Equivalents, Beginning of Year ......... 2,405 2,856 561
------- ------- -------
Cash And Cash Equivalents, End of Period ............. $ 1,550 $ 2,405 $ 2,856
======= ======= =======
See notes to financial statements.
55
WHITE SEA HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
AND THE PERIOD ENDING SEPTEMBER 29, 1999
1. COMPANY
White Sea Holdings Ltd. (the "Company") was jointly owned by a
subsidiary of OMI Corporation ("OMI"), ( the successor to Universal Bulk
Carriers, Inc.) and an affiliate of Anders Wilhelmsen & Co. A/S
("Wilhelmsen"), Norway, with interests of 49 and 51 percent, respectively.
On September 29, 1999, OMI sold its 49 percent share to Wilhelmsen for
approximately $2,427,000. The Company owns and operates one crude oil
carrier, the White Sea.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Effective January 1, 1999, White Sea changed its accounting policy on
recognition of voyage freight for vessels operating on voyage charters from
load-to-load to the discharge-to-discharge basis. Under this method, voyage
revenue is recognized evenly over the period from the departure of a vessel
from its original discharge port to departure from the next discharge port.
Management believes that the discharge-to-discharge method is preferable
because (a) it is the predominant method for shipowners, and (b) it
eliminates the uncertainty associated with the location of the next load
port (See Note 6).
Operating Revenues and Expenses--Voyage revenues and expenses are
recognized on the percentage of completion method of accounting based on
voyage costs incurred to date to estimated total voyage costs. Estimated
losses are provided in full at the time such losses become evident.
Effective January 1, 1997, special survey and drydock expenses are
accounted for using the prepaid method. Under the prepaid method expenses
are capitalized and amortized over the survey cycle, which is generally a
two to five year period. Prior to 1997, special survey and drydock expenses
were accrued and charged to operating expenses over the survey cycle, which
was generally a two to three year period. The accruals of such expenses
were based on management's best estimates of future costs and the expected
length of the survey cycle. However, the ultimate liability may have been
more or less than such estimates (See Note 5).
Vessel--The vessel is recorded at cost. Depreciation is provided on the
straight-line method based on the estimated 25 year useful life of the
vessel up to the estimated salvage value. Salvage value is based upon the
vessel's lightweight tonnage multiplied by a scrap rate.
Expenditures for maintenance, repairs and minor renewals are expensed.
Major replacements and renewals are capitalized.
In the event that facts and circumstances indicate that the carrying
amount of the vessel may be impaired, an evaluation of recoverability is
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the vessel are compared to the vessel's carrying
value to determine if a writedown to fair value or discounted cash flow is
required.
Federal Income Taxes--No provision has been made for Federal income taxes.
The income of the Company is not generally subject to tax as a result of
various provisions of the Internal Revenue Code. Additionally, the country
in which the Company is incorporated exempts shipping and maritime
operations from taxation.
Cash Flows--Cash equivalents represent liquid investments which mature
within 90 days. The carrying amount approximates fair value. The Company
paid $16,000, $50,000 and $182,000 in interest during 1999, 1998, and 1997,
respectively.
56
WHITE SEA HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
3. RELATED PARTY TRANSACTIONS
The Company has a management service agreement with OMI to act as both
technical and commercial manager of the White Sea. The Company paid
management fees to OMI of $113,000 for the period January 1, 1999 to
September 29, 1999. The Company paid management fees to OMI or its
affiliates of $78,000 for each of the years ended December 31, 1998 and
1997.
White Sea Holdings Ltd. owed OMI and its affiliates $19,000 and
$54,000 as of September 29, 1999 and December 31, 1998, respectively.
4. LONG-TERM DEBT
At December 31, 1998 the Company had $500,000 outstanding on a mortgage
note secured by the vessel at a rate of 6.9062 percent. The note was paid
on March 5,1999. The fair value of long-term debt at December 31, 1998
approximates its carrying value.
5. ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES
Effective January 1, 1997, the Company changed its method of accounting
for special survey and drydock expenses from the accrual method to the
prepaid method. Special survey and drydock expenses had been accrued and
charged to operating expenses over the vessel's survey cycle, which was
generally a two to three year period. Under the prepaid method, survey and
drydock expenses are capitalized and amortized over the period until the
next survey cycle. Management believes the prepaid method better matches
costs with revenues, and minimizes any significant changes in estimates
associated with the accrual method. The cumulative effect of this
accounting change is shown separately in the consolidated statement of
operations and resulted in income of $1,196,000.
The cumulative effect of this change in accounting principle as of
January 1, 1997 on the Company's balance sheet was to increase total assets
by $1,166,000, decrease total liabilities by $30,000 and increase total
stockholders' equity by $1,196,000.
6. CHANGE IN ACCOUNTING FOR VOYAGE REVENUE
Prior to 1999, voyage freight for vessels operating on voyage charters
was accounted for on a load-to-load basis. Under this method, voyage
revenue is recognized evenly over the period from arrival of the vessel at
the first load port to arrival at the next load port. Under this method of
revenue recognition it is necessary to assume the next load port to
complete the revenue recognition cycle.
Effective January 1, 1999, White Sea changed its accounting policy on
recognition of voyage freight for vessels operating on voyage charters from
load-to-load to discharge-to-discharge basis. Under this method, voyage
revenue is recognized evenly over the period from the departure of a vessel
from its original discharge port to departure from the next discharge port.
The change in revenue recognition policy is a more reliable method in
recognizing voyage revenue as it eliminates the uncertainty associated with
the location of the next load port. The cumulative effect of this
accounting change is shown separately in the Statements of Income and
resulted in income of $245,000. The cumulative effect of this change in
accounting principle as of January 1, 1999 on the Company's Balance Sheets
was to increase total assets by $42,000, decrease total liabilities by
$203,000 and increase total stockholders' equity by $245,000.
The years ended December 31, 1998 and 1997 were previously presented
using the load-to-load method of accounting for voyages. Pro forma amounts
for these years assuming discharge-to-discharge had been retroactively
applied are net income of $1,910,000 and $5,688,000 for the years ended
December 31, 1998 and 1997, respectively.
7. DIVIDENDS
During 1999, 1998 and 1997, the Company declared and paid dividends of
$1,000,000, $3,000,000 and $1,500,000, respectively.
57
INDEPENDENT AUDITORS' REPORT
To the Stockholders of White Sea Holdings Ltd.:
We have audited the accompanying balance sheet of White Sea Holdings Ltd. as of
December 31, 1998 and the related statements of income and retained earnings and
of cash flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998,
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
As disclosed in Note 5 to the financial statements, effective January 1, 1997,
the Company changed its method of accounting for special surveys and drydock
expenses from the accrual method to the prepaid method.
DELOITTE & TOUCHE LLP
New York, New York
February 23, 1999
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OMI CORPORATION
Pursuant to General Instruction G(3) the information regarding directors
called for by this item is hereby incorporated by reference from OMI's Proxy
Statement to be filed with the Securities and Exchange Commission. Certain
information relating to Executive Officers of the Company appears at the end of
Part I of this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) the information called for by this
item is hereby incorporated by reference from OMI's Proxy Statement to be filed
with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) the information called for by this
item is hereby incorporated by reference from OMI's Proxy Statement to be filed
with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) the information called for by this
item is hereby incorporated by reference from OMI's Proxy Statement to be filed
with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. Financial statements as indicated in the index is set forth on page 23.
2. Financial Statement Schedules
None.
3. The index to Exhibits is on page 60.
(b) Reports on Form 8-K:
OMI has not filed any current reports on Form 8-K with the Commission
during the last quarter of the fiscal period covered by this report.
59
EXHIBITS
NUMBER INCORPORATED BY REFERENCE TO DESCRIPTION OF EXHIBIT
------ ---------------------------- ----------------------
3(i) Registration Statement on Form S-1 Articles of Association of OMI
(No. 333-52771) Filed May 15, 1998
3(ii) Registration Statement on Form S-1 By-laws
(No. 333-52771) Filed May 15, 1998
4.1 Registration Statement on Form S-3 Registration of 6,299,998 shares of common
(No. 333-30230) Filed February 11, 2000 stock sold in a private placement
4.2 Registration Statement on Form S-3 Registration of 9,583,000 shares of common
(No. 333-33424) Filed March 28, 2000 stock sold in a private placement
4.3 Form 8A Filed December 14, 1998 Registration Statement of Preferred Stock
Purchase Rights
10.1 Registration Statement on Form S-1 Form of Common Stock Certificate
(No. 333-52771) Filed May 15, 1998
10.2 Registration Statement on Form S-1 Corporation Stock Option Plan (1)
(No. 333-52771) Filed May 15, 1998
10.3 Form S-8 Filed June 17, 1998 Employee Benefit Plan Registration Statement
10.4 Form 10-Q Filed November 13, 1998 Form of OMI Employment Agreements for Senior
Executives (1)
10.5 Form 10-K Filed March 31, 1999 OMI Corporation 1998 Performance Share Unit
Plan (1)
10.6 Loan Agreement dated as of February 4, 2000
providing for a US $218,000,000 Secured Term
Loan Facility
10.7 Loan Agreement dated as of February 4, 2000
providing for a US $46,500,000 Secured Term Loan
Facility
10.8 Facility Agreement dated as of February 4,
2000 providing for a US $36,000,000 Convertible
Letter of Credit Facility
18 Form 10-Q Filed November 12, 1999 Preferability Letter dated August 13, 1999
21 Subsidiaries of the Company
27 Financial Data Schedule dated December 31, 1999
- ----------
(1) Denotes compensation plan and/or agreement
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OMI CORPORATION
By /s/ CRAIG H. STEVENSON, JR.
--------------------------------------
CRAIG H. STEVENSON, JR., PRESIDENT,
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER
MARCH 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
-------- ----- ----
/s/ CRAIG H. STEVENSON, Jr. President, Chief Executive Officer March 30, 2000
- --------------------------------- and Director
CRAIG H. STEVENSON, JR.
/s/ MICHAEL KLEBANOFF Director March 30, 2000
- ---------------------------------
MICHAEL KLEBANOFF
/s/ ROBERT BUGBEE Director March 30, 2000
- ---------------------------------
ROBERT BUGBEE
/s/ JAMES N. HOOD Director March 30, 2000
- ---------------------------------
JAMES N. HOOD
/s/ EDWARD SPIEGEL Director March 30, 2000
- ---------------------------------
EDWARD SPIEGEL
/s/ JAMES D. WOODS Director March 30, 2000
- ---------------------------------
JAMES D. WOODS
/s/ VINCENT J. de SOSTOA Senior Vice President, Treasurer, March 30, 2000
- --------------------------------- Chief Financial Officer and
VINCENT J. de SOSTOA Chief Accounting Officer
61