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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2001
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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, 2000
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COMMISSION FILE NUMBER 001-14135
OMI CORPORATION
(Exact name of Registrant as specified in its charter)
MARSHALL ISLANDS 52-2098714
(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
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
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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 26, 2001:
$449,937,429
NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING
AS OF MARCH 26, 2001:
66,167,269
THE FOLLOWING DOCUMENT IS HEREBY INCORPORATED BY REFERENCE INTO PART III OF
THIS FORM 10-K:
(1) PORTIONS OF THE OMI CORPORATION 2001 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)
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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 Results of Operations and
Financial Condition ............................................... 9
7A. Quantitative and Qualitative Disclosures about Market Risks ......... 25
8. Financial Statements and Supplementary Data ......................... 26
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"), incorporated 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.
DEVELOPMENT OF OMI'S BUSINESS
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. 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. During 2000, the Company successfully
acquired newbuilding vessels and contracts from other owners (thereby increasing
the size of its fleet without increasing the supply of tonnage) using its common
stock as partial payment.
During 2000 and early 2001, the Company:
(a) acquired a 51% interest in the SETTEBELLO (it already owned the
other 49%) from its joint venture partner;
(b) took delivery of the new Suezmaxes LOIRE, SOYANG and SOMJIN (which
was acquired through acquisition of a shipbuilding contract from another
owner);
(c) took delivery directly from the shipbuilder of the handymax
product carriers NECHES and GUADALUPE, acquired from another owner and time
chartered the vessels to an oil company for two years;
(d) agreed to acquire from another owner shipbuilding contracts for
two Suezmaxes to be delivered in September and October 2002;
(e) ordered two handymax product carriers from a shipyard, which are
to be delivered in the first quarter of 2002 and time chartered the vessels
for three years from delivery, and exercised an option for one additional
handymax to be delivered early in 2003;
(f) extended for an additional two years time charters for the
handysize product carriers SEINE and ISERE;
(g) acquired three handysize product carriers from another owner;
(h) agreed to acquire a 2000 built handysize product carrier from
another owner; and
(i) sold four handysize product carriers which no longer fit into its
strategy.
In its acquisitions the Company issued 14,499,141 shares of common stock to
the sellers as partial payment for the vessels. An additional 1,125,000 shares
will be issued when the vessel described in (h) above is delivered to the
Company. It also sold 9,583,000 shares of common stock in February of 2000 to
help finance its acquisition program and for general corporate purposes.
1
The net effect of the transactions and the building program which preceded
it was to create (a) the youngest major fleet of Suezmaxes in the world (average
age at December 31, 2000, including the vessel acquired on January 5, 2001 was
one year), which has proved very attractive to charterers, (b) a fleet of four
product carriers which are time chartered to oil companies and (c) a more
homogenous handysize product tanker fleet.
The Company's existing fleet as of March 26, 2001 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 7/2001
SOMJIN ............................... Crude Oil Tanker 2001 160,183 Spot
SACRAMENTO ........................... Crude Oil Tanker 1998 157,411 Spot
PECOS ................................ Crude Oil Tanker 1998 157,406 Spot
SABINE ............................... Crude Oil Tanker 1998 157,332 Spot
SOYANG ............................... Crude Oil Tanker 2000 157,327 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
NECHES ............................... Product Carrier 2000 47,052 9/2002
GUADALUPE ............................ Product Carrier 2000 47,037 11/2002
ISERE ................................ Product Carrier 1999 35,438 9/2003
SEINE ................................ Product Carrier 1999 35,407 7/2003
LIMAR ................................ Product Carrier 1988 29,999 Spot
SHANNON .............................. Product Carrier 1991 29,999 Spot
RADIANCE ............................. Product Carrier 1990 29,998 Spot
RAIN ................................. Product Carrier 1990 29,998 Spot
RACER ................................ Product Carrier 1989 29,998 Spot
SEVERN ............................... Product Carrier 1988 29,998 Spot
ALMA ................................. Product Carrier 1988 29,996 Spot
PAULINA .............................. Product Carrier 1984 29,992 Spot
PATRICIA ............................. Product Carrier 1984 29,974 Spot
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Total Owned Fleet: 23 Vessels 1,898,329
1 Bareboat Chartered-in Crude Tanker (3) 157,327
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Total Operating Fleet: 24 Vessels 2,055,656
=========
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(1) Weighted average age (based on carrying capacity) of the Company's owned
fleet (assuming that the four vessels delivered to it in the first quarter
of 2001 were owned at year end) at year-end 2000 is 6.1 years.
(2) The vessel was under joint ownership with Bergesen d.y. A/S, Oslo, Norway
until June 30, 2000, at which time the Company acquired the portion not
already owned.
(3) Sold and leased back. The Company has an option to reacquire the vessel.
Tonnage is included in "Chartered-in Crude Tankers."
(4) Time chartered into the Star Tankers Pool. While the vessels are committed
by time charter, the revenues are dependent on the spot market.
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.
2
Crude oil tanker--normally carries crude oil and dirty products.
Handysize--a ship of approximately 30,000 dwt or less.
Handymax--a ship of 30,000 to 50,000 dwt.
Panamax--a ship of approximately 50,000 to 70,000 dwt.
Aframax--a tanker 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.
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 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, the product carriers built prior to 1992 are
single hull and do not have segregated ballast, thereby placing them at a
competitive disadvantage with numerous vessels built in the latter 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 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 and product
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, resulted in unusually low rates which, due to continued
mild winters and substantial additional new tonnage entering into the market,
persisted through 1999. In 2000, rates improved, rising to record high levels in
the fourth quarter.
The three vessel Panamax fleet earned very high rates in 2000. The vessels
are old (two are 20 years old and the third is 17 years old). While they are
good sales candidates, the substantial cash flow from the vessels has not been
reflected in significant increases in the sales value.
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 45 vessels.
In March of 1999 the Company agreed with Osprey Maritime Limited
("Osprey"), 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. Osprey, following a
change in control, has sold all of its product tankers (including three to OMI)
and the parties agreed to disband IPC.
During March 2000, the Company announced that it had made investments in
two business-to-business internet companies. One was MarineProvider ASA, a
Norwegian-based company which is to provide services such as electronic
acquisition of bunker and other supplies for ships. The other investment was in
SeaLogistics Ltd. which offered on-line chartering and other services to
shipowners and charterers. SeaLogistics' assets have been sold to
3
LevelSeas Holdings Ltd., a competitor, for shares in LevelSeas in the first
quarter of 2001. OMI owns 1.7% of LevelSeas by virtue of the sale of assets. The
Company's total expenditures to date on the investments total approximately
$3,499,000.
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, with IPC no longer in operation, is the
commercial operator of its handysize and handymax product carriers. OMI has
entered its Panamax tankers in the Star Tankers Pool. A subsidiary, OMI Marine
Services LLC, is the technical operator of all of the Company's vessels.
OMI's vessels are available for charter on a voyage, time or bareboat
basis. Under a voyage charter, the owner 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 owner's account. A
single voyage (generally two to ten weeks) charter is often referred 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 its ULCC, one Suezmax and four product carriers operate in the spot
market.
CUSTOMERS
International Product Carriers Ltd., a company jointly owned by the Company
and Osprey Maritime Limited, accounted for $30,643,000 of the Company's revenues
in 2000, which is approximately 16%. The revenues are received by IPC from
numerous customers into a pool which is divided among the vessels in the pool.
The Company also received $43,960,000 in aggregate in approximately equal
amounts (approximately 12% of revenues in each case) from Star Tankers Inc., a
pool in which three of its vessels are entered, and Sun International Limited.
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
4
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 catastrophic 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 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 catastrophic spill could exceed the
insurance coverage available, in which event there could be a material adverse
effect on OMI.
Following the breakup of a tanker in Europe approximately one year ago,
there has been significant publicity and political movement toward the creation
of laws in Europe at least as stringent as OPA 90. IMO is expected to put new
rules into effect in April 2001 which are likely to require phase out of
non-double hull tankers in at least as expeditious a manner as is required by
OPA 90. 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. The effect should be accelerated scrapping of tankers and a lesser
supply of vessels than would otherwise exist.
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 some 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 tanker owners' 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, 2000, the Company and its subsidiaries had approximately 50
office employees.
5
The Company primarily uses hiring agents to crew its vessels. 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.
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 and exceed book value when markets are
strong. In common with other shipowners, OMI continually considers asset
redeployment which at times includes the sale of vessels at less than their book
value. At December 31, 2000, management believed that the aggregate market value
of the vessels exceeded the aggregate book value of the vessels.
OMI's results of operations and cash flow may be significantly affected by
future charter markets since currently the preponderance of its vessels are in
the spot market.
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 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 2000.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information with respect to the Company's
executive officers as of March 26, 2001.
YEAR
APPOINTED
NAME AGE POSITION TO OFFICE
- ---- --- -------- ----------
Craig H. Stevenson, Jr ....................... 47 Chief Executive Officer 1998
and President
Robert Bugbee ................................ 40 Executive Vice President and Chief 1998
Operating Officer
Kathleen C. Haines ........................... 46 Senior Vice President, Chief 1998
Financial Officer and Treasurer
Henry Blaustein .............................. 58 Senior Vice President, OMI Marine 1998
Services LLC
Fredric S. London ............................ 53 Senior Vice President, General 1998
Counsel and Secretary
Stavros Skopelitis ........................... 54 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:
6
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
Executive Vice President of the Company in January 2001. He had been Senior Vice
President of the Company from June 1998 and of Old OMI from 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.
Kathleen C. Haines was elected Senior Vice president in January 2001 and
Chief Financial Officer in August 2001. She was elected Vice President and
Controller of the Company in 1998. She had been Vice President of Old OMI since
January 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.
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 13, 2001 the number of holders of OMI common stock
was approximately 3,225. The high and low sale prices of the common stock, as
reported by the New York Stock Exchange, were as follows:
2000 QUARTER 1ST 2ND 3RD 4TH
------------ ----- ----- ----- ----
High $3 15/16 $5 7/16 $8 7/8 $8 3/16
Low $1 13/16 $2 7/8 $5 1/8 $4 1/4
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
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
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Revenues ......................................... $ 187,044 $ 115,992 $ 149,228 $ 141,985 $ 111,292
--------- --------- --------- --------- ---------
Operating expenses:
Vessel and voyage .............................. 55,521 66,842 82,368 77,686 67,008
Charter hire ................................... 16,184 15,234 25,529 8,906 4,592
Depreciation and amortization .................. 18,018 23,835 24,314 22,675 18,142
Provision for loss on lease obligation ......... -- 6,229 -- -- --
General and administrative ..................... 11,269 10,486 10,773 12,540 6,851
Loss (gain) on disposal/write down
of assets--net ............................... 10,814 48,692 (6,485) (885) (4,078)
--------- --------- --------- --------- ---------
Total operating expenses ......................... 111,806 171,318 136,499 120,922 92,515
--------- --------- --------- --------- ---------
Operating income (loss) .......................... 75,238 (55,326) 12,729 21,063 18,777
Loss on disposal/write down of investments ....... (2,971) (7,771) -- -- --
Interest expense ................................. 27,260 17,945 11,118 11,756 16,912
Provision (benefit) for income taxes ............. -- 475 (37,158) 5,407 876
Equity (loss) in operations of joint ventures .... 3,227 (510) 3,684 737 2,481
Income (loss) before extraordinary loss and
cumulative effect of change in accounting
principles ..................................... 53,085 (81,781) 42,917 6,859 5,356
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 income (loss) ................................ $ 53,085 $ (80,305) $ 42,917 $ 16,922 $ 3,693
========= ========= ========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principles ........................ $ 0.94 $ (1.94) $ 1.01 $ 0.16 $ 0.16
Net income (loss) .............................. $ 0.94 $ (1.90) $ 1.01 $ 0.39 $ 0.11
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principles ........................ $ 0.93 $ (1.94) $ 1.00 $ 0.16 $ 0.16
Net income (loss) .............................. $ 0.93 $ (1.90) $ 1.00 $ 0.39 $ 0.11
Weighted average shares outstanding ............ 56,657 42,250 42,671 42,914 33,440
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents ...................... $ 35,328 $ 7,381 $ 22,698 $ 30,608 $ 16,056
Assets to be disposed of ....................... -- 90,996 -- -- --
Vessels and other property--net ................ 484,510 291,416 393,862 286,996 394,423
Construction in progress (newbuildings) ........ 2,905 25,340 34,733 56,032 10,754
Total assets ................................... 591,504 472,415 530,127 440,708 439,463
Long-term debt ................................. 243,445 218,869 225,653 48,424 115,279
Total stockholders' equity ..................... 254,703 171,766 245,183 283,558 250,402
- -----------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
TCE revenues(1) ................................ $ 161,125 $ 90,479 $ 111,711 $ 108,805 $ 82,799
Net voyage revenues(2) ......................... $ 115,339 $ 33,916 $ 41,331 $ 55,393 $ 39,692
- -----------------------------------------------------------------------------------------------------------------------------
(1) Time charter equivalent revenue (TCE), which is voyage revenue less voyage
expenses.
(2) 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 in this Management Discussion and Analysis 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.
GENERAL
Overview
OMI is one of the largest publicly-traded providers of energy
transportation services in the world. Its ships carry crude oil and refined
petroleum products in international markets for major oil companies. The Company
is the successor to Universal Bulk Carriers, Inc., 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)
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. The Company trades under the symbol
"OMM" on the New York Stock Exchange.
For the year ended December 31, 2000, net income was $53.1 million or $0.94
basic EPS ($0.93 diluted EPS) compared to the net loss of $80.3 million or $1.90
basic/diluted loss per share (including $0.03 per share for an extraordinary
loss and $0.07 per share income from the cumulative effect of the change in
accounting principle) for the year ended December 31, 1999.
Net income for the year ended December 31, 2000 included $13.8 million in
net losses from the disposals and write downs of vessels and investments offset
partially by gains from the early termination of two time chartered vessels.
Included in the year ended December 31, 1999 net loss of $80.3 million were
losses aggregating $63.9 million, including: the provision for loss on lease
obligations, losses from the write down and disposal of vessels, losses on the
write down and disposal of three joint venture investments and the extraordinary
loss relating to the write-off of deferred finance fees. Such losses were
partially offset by income from the cumulative effect of a change in accounting
principle of $2.7 million.
OMI'S FLEET
OMI's objective is to operate a high quality, well-maintained, modern fleet
of vessels that are concentrated in selected markets. OMI began a fleet renewal
program in 1996 (the first newbuildings were delivered in 1998), which is still
in progress with the most recent newbuilding deliveries in 2000 and 2001. In
addition, OMI has acquired two Suezmax construction contracts from another owner
in 2001. By purchasing such contracts OMI has opted to target for earlier
delivery dates versus the current delivery dates from various yards ranging up
to approximately three years. OMI has also recently contracted for three
handymax newbuildings, and has available options to purchase two more handymax
vessels (one of the options was granted March 2001).
9
The Company's fleet currently consists of 24 vessels as follows:
NUMBER DEADWEIGHT TON
OF VESSELS ("DWT")
---------- ------------------
Crude Oil Fleet:
1998-2001 built Suezmax vessels(1) .......................................... 6 150,000-160,000 dwt
1999 Suezmax vessel chartered-in ............................................ 1 157,000 dwt
1980's built Panamax vessels ................................................ 3 66,000 dwt
1986 built ULCC ............................................................. 1 322,000 dwt
--
Total .................................................................. 11
==
Product Carrier ("Clean") Fleet:
2000 built handymax product carriers ........................................ 2 47,000 dwt
1999 built handysize product carriers ....................................... 2 35,000 dwt
1984-1991 built handysize product carriers(2) ............................... 9 29,000 dwt
--
Total .................................................................. 13
==
- ----------
(1) Includes one Suezmax newbuilding, which was delivered January 2001.
(2) Includes three product carriers delivered in February and March 2001.
RECENT ACTIVITIES:
Acquisitions
OMI has recently acquired or agreed to acquire the following in 2001:
During March 2001, OMI agreed to acquire one 35,000 dwt product
carrier built in 2000 for $29.0 million. The Company agreed to issue
1,125,000 shares of common stock at $8.00 per share as partial payment for
the vessel. The Company is obligated to pay additional cash representing
the difference between $8.00 and the average closing prices for 120 trading
days following registration of the shares if less than $8.00. If the price
equals or exceeds $8.00 per share for 30 days during the period (ten of
which must be consecutive), the obligation terminates. The maximum payment
is limited to $2.3 million.
In February and March 2001, OMI acquired two 1990 and one 1989 built
product carriers from Osprey Maritime Limited for an aggregate contract
price of $41.3 million. OMI issued 2,650,000 shares of common stock to
Osprey during February and March 2001 at $7.00 per share as partial payment
for the vessels and financed the balance of the purchase.
In January 2001, OMI took delivery of a new Suezmax tanker from a
shipbuilder, the contract for which was acquired from another owner during
the fourth quarter of 2000 for an approximate cost of $60 million.
In January 2001, OMI agreed to acquire two shipbuilding contracts for
Suezmax vessels for an aggregate of $107.6 million; the vessels are to be
delivered September and October 2002. The Company issued 4,049,000 shares
of common stock at $7.00 per share for partial payment for these contracts
during February 2001. The Company is obligated to pay additional cash
representing the difference between $7.00 and the average closing prices
for 120 days following registration of the shares if less than $7.00. If
the closing price equals or exceeds $7.25 for 30 trading days during the
period (ten of which must be consecutive), the obligation terminates. The
maximum payment is $8.1 million.
In November 2000, OMI contracted to purchase a 47,000 dwt product
tanker at an approximate cost of $28.8 million to be delivered in February
2002. In the first quarter of 2001, OMI exercised two of its four options
(one additional option was negotiated for in March 2001) to purchase two
more 47,000 dwt product carriers at an approximate aggregate cost of $58.0
million to be delivered in March 2002 and the first half of 2003.
Redelivery of Vessels
The owner of OMI's two time chartered Suezmax tankers gave notice of early
termination as permitted under the charters; one vessel was redelivered in
January 2001 and the other vessel was redelivered during March 2001. As
10
stated in the charter hire agreements, OMI is to receive $1.0 million for the
early termination upon redelivery of each vessel. This fee will be included in
Gain on disposal of assets in the first quarter of 2001. The early termination
of these charters resulted in certain accounting adjustments reflected in the
fourth quarter 2000 results and upon redelivery will also result in recognition
of contractual early termination payments due to OMI in the first half of 2001.
Gains recognized upon notice of early termination included in the fourth quarter
2000 results, were due to the accelerated amortization of the deferred gain on
the sale/leaseback of one vessel, which was previously owned by OMI, and
acceleration of the provision for loss on lease obligation that was being
amortized over the original lease term for the other vessel.
Investments
During 2000, OMI invested in two business-to-business internet companies;
MarineProvider ASA, a Norwegian-based company, which will provide services such
as electronic acquisition of bunker and other supplies for ships, and
SeaLogistics Ltd., which offered on-line chartering and other services to
shipowners and charterers. In the first quarter 2000, SeaLogistic's assets have
been sold to LevelSeas Holdings Ltd. ("LevelSeas"), a competitor for shares in
LevelSeas. OMI now owns 1.7% of LevelSeas.
Market Alliances
OMI has concentrated on two selected markets, Suezmax tankers and handysize
product carriers. OMI's concentrations in specific vessel categories reflects
management's belief in the benefits of consolidation. OMI has been at the
forefront of this consolidation process with participations in partnerships and
pooling arrangements in recent years.
Tanker consolidation benefits customers and owners by providing better
scheduling opportunities through substitution and providing opportunities to
obtain contracts for large volume movements, which enhance the potential to
increase vessel utilization. Large and concentrated fleets create economies of
scale to spread the overhead and operating costs. The Company can achieve higher
quality tanker operations by enhanced operating expertise and efficiency from
concentration in certain vessel classes. OMI believes that large customers
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.
Since May 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 45 vessels.
In March 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 International Product Carriers Limited
("IPC") was established in Bermuda to commercially operate the product carriers
of its parents. OMI's vessels operating in this venture generated revenue
aggregating 16 percent of OMI's 2000 consolidated revenue. Osprey, following a
change in control in the first quarter of 2001, has sold all of its product
tankers in the pool (including three to OMI) and the parties agreed to disband
IPC. The vessels owned by OMI will be operated by the Company.
The Panamax vessels earned high rates in 2000 operating in the Star Tankers
Inc. pool. Revenues of $21.6 million earned from this pool in 2000 aggregated
approximately 12 percent of OMI's consolidated revenue in 2000. The vessels are
older, two are 20 years old and the third is 17 years old. While the Company
would typically dispose of single hull vessels of this age, the market value of
these vessels does not reflect the recent substantial cash flow from the
vessels.
MARKET OVERVIEW
Suezmax Tanker Overview
The tanker market fundamentals improved substantially throughout 2000 and,
in the fourth quarter, TCE freight rates reached levels not seen since the early
1970s. This was the result of increasing world oil demand at a time of very low
inventory levels, and increased crude oil seaborne volumes as OPEC revised its
oil production quota upward four
11
times by an aggregate total of 3.7 million barrels per day ("b/d"). At the same
time, the growth of the world tanker fleet was moderate as high tanker scrapping
activity, especially in the first half of 2000, offset tanker newbuilding
deliveries. In addition, charterers reduced their acceptance of old tankers in
favor of modern tonnage, due to environmental concerns stemming from the Erika
accident at the end of 1999.
TCE rates for Suezmax tankers have softened early in 2001 but remain above
the TCE level prevailing at the same time last year. This is due to a reduction
of Iraqi oil exports as a result of an oil pricing dispute with the United
Nations (U.N.). Though Iraq is expected to resume its oil production and exports
to the levels prior to the dispute with the U.N. soon, in the short run, Suezmax
TCE's could be lower than the recent peak as the other OPEC members have decided
to reduce their oil production quotas by 1.5 million b/d beginning February 1,
2001, and an additional 1.0 million b/d beginning April 1, 2001, to support oil
prices.
The oil inventory is expected to show a significant draw in the first
quarter because: OPEC cut oil production, Iraq reduced oil exports, and the
substitution of oil for gas in the U.S. due to very high gas prices.
Furthermore, the above events will reduce the usual commercial oil stock build
in the second quarter. This would set the stage for stronger oil and tanker
markets in the second half of 2001 as world economic activity improves and oil
supply/demand fundamentals become materially tighter.
The world tanker fleet totaled approximately 281 million dwt at the end of
2000, up by 5.8 million dwt or 2.1% from the year end 1999 level, while tanker
tonne-mile demand in 2000 increased by 4.4% compared to the 1999 level. The
tanker orderbook for delivery over the next few years totaled approximately 56.5
million dwt, or 20.1% of the existing tanker fleet at the end of 2000.
Approximately 17.1 million dwt of the orderbook is scheduled for delivery in
2001, 24.1 million dwt in 2002, 14.7 million dwt in 2003 and the balance in
2004. The tanker orderbook includes 71 Suezmaxes of approximately 11.3 million
dwt, or 32.7% of the existing internationally trading Suezmax tanker fleet, and
94 VLCCs of 29 million dwt, or 23.1% of the existing VLCC fleet.
However, approximately 80.7 million dwt or 28.7% of the total tanker fleet
was 20 or more years old at the end of 2000, and about 28.1 million dwt or 10.0%
of the existing fleet was 25 or more years old. In addition, 59 Suezmax tankers
of about 8.3 million dwt or 24.1% of the existing Suezmax tanker fleet was 20 or
more years old. These old vessels are facing increasingly stricter environmental
regulations.
Tanker deletions were relatively high in 2000, despite the substantial
improvement of tanker TCE's that reached very profitable levels. Tanker
deletions totaled about 15.2 million dwt in 2000, including a VLCC which was
converted to an offshore floating production and storage facility. The total
tanker deletions in 2000 include 18 Suezmaxes and 30 VLCCs. Tanker deletions are
expected to continue at high levels in the foreseeable future given the
relatively high orderbook, the tanker fleet age demographics, stricter
enforcement of existing tanker regulations by classification societies, stricter
inspections by charterers and the new proposed tanker regulations by the
International Maritime Organization (IMO) for approval in April 2001. These
proposed regulations, similar to the OPA regulations in the United States, would
tighten controls of tankers, put pressure for more rigorous policing of
regulations, and in general, make employment of old tankers more difficult and
accelerate the phase out of single hull tankers. Furthermore, it is expected
that more tankers will be sold for conversion to offshore units due to
increasing offshore oil exploration and production activities.
World oil demand increased by about 0.8 million b/d in 2000 and is expected
to grow faster in 2001, notwithstanding the current economic slowdown in the
U.S.A. The expected increase in oil demand would reflect lower average oil
prices in 2001, high North American natural gas prices that have induced power
producers to switch to less expensive fuels as well as expected improvement of
world economic activity in the second half of the year. Commercial stocks of
crude oil, gasoline and middle distillates in the major oil consuming
areas--North America, Western Europe and Japan--at the end of 2000 were at about
the low level prevailing a year earlier. The loss in Iraqi oil recently and
OPEC's quota reduction should keep stocks relatively low in the foreseeable
future. The expected gains in world oil demand, the presence of relatively low
oil stock levels, a relatively modest tanker supply growth, given the fleet age
demographics and lower newbuilding deliveries this year, and the preference of
governments and charterers for safe, high quality modern tonnage, would maintain
the strong tanker freight environment this year.
Product Tanker Overview
The product carrier market operates in a more stable rate environment than
the crude oil market and has traditionally provided ship owners with a
predictable stream of revenues. The product carrier market is a segment of
12
the overall tanker market, which transports petroleum products such as gasoline,
jet fuel, kerosene, naphtha and gas oil. Crude oil tankers carry oil from
production areas to refineries, while product carriers move refined products
from refineries to distribution points.
The product tanker market continued to improve with each quarter in 2000
and TCE's for handysize product tankers in the Caribbean reached levels not seen
since the very strong product tanker market during the Iraqi/Kuwaiti conflict
ten years ago. This was the result of continued strong oil demand growth in the
Atlantic region at a time that oil product inventories were very low, the
charterers reduced preference for old vessels in favor of quality product tanker
tonnage after the Erika incident, and the moderate product tanker fleet increase
in 2000.
Freight rates for product tankers have continued to be strong to date in
2001. The strong product tanker market is expected to continue this year due to
expected increase of world oil demand, the tight oil product markets in the
Atlantic region, and the relatively modest product tanker fleet growth given the
orderbook for delivery this year and the continued deletion of old product
tanker tonnage due to the Erika incident.
The world product tanker fleet totaled 46.9 million dwt at the end of 2000,
up by 1.3 million dwt or 2.9% from the year earlier level, while tonne-mile
demand for product tankers in 2000 increased by 3.5% compared to the 1999 level.
The product tanker orderbook for delivery over the next few years totaled 5.9
million dwt, or 12.6% of the existing product tanker fleet at the end of 2000.
Approximately 2.1 million dwt are scheduled for delivery in 2001, 2.8 million
dwt in 2002 and the balance in 2003. At the same time, about 9.2 million dwt or
19.7% of the existing fleet was 20 or more years old and 3.2 million dwt or 6.8%
of the existing fleet was 25 or more years old. Given the moderate product
tanker orderbook and the age profile of the existing product tanker fleet, the
planned new strict tanker regulations by IMO will have substantial impact on the
product tanker sector.
The Company believes that product carrier demand will continue to increase
in the foreseeable future because world oil demand is expected to increase at a
higher rate compared to the second half of the 1990's. Additionally, the major
oil consuming areas--North America, Western Europe and Asia--have a shortage of
refinery capacity, while Latin America, Africa and the Middle East have a
surplus. Furthermore, refinery capacity is expanding in the Middle East and
Latin America while the shortage of refinery capacity in the major oil consuming
areas is expected to persist. Finally, there have been some fundamental changes
in the pattern of product trades toward longer-haul movements.
RESULTS OF OPERATIONS
Results of operations of OMI Corporation include operating activities of
the Company's vessels. The following discussion explains the Company's operating
results in terms of net voyage revenues and TCE revenues. Net voyage revenues
are voyage revenues minus vessel and voyage expenses (including charter hire
expense). Consistent with industry practice, the Company uses TCE revenue
(voyage revenue less voyage expenses) or TCE rate calculations as a measure of
analyzing fluctuations in voyage revenue between financial periods and as a
method of equating revenue generated from a voyage charter to time charter
revenue.
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 charter (generally two to ten weeks) is often referred 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
13
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 its ULCC, one Suezmax and four
product carriers, operate in the spot market. In the discussion that follows
total operating days are net of offhire days. Offhire days are any days that the
vessel is not generating revenue due to drydock, special surveys, repairs and
initial positioning of the vessel.
Vessel expenses included in net voyage revenue discussed above include
operating expenses such as crew wages and other related costs, stores, routine
maintenance and repairs, amortization of drydock costs, insurance and
miscellaneous. These expenses are a function of the fleet size, utilization
levels for certain expenses, requirements under laws, by charterer 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, 2000 VERSUS DECEMBER 31, 1999
Net voyage revenues of $115.3 million for the year ended December 31, 2000
increased by a net $81.4 million from $33.9 million for the year ended December
31, 1999. Net voyage revenues for the years ended December 31, 2000, 1999 and
1998 are as follows by market segments in which OMI primarily operates.
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---- ---- ----
(IN MILLIONS)
VOYAGE REVENUES:
Crude Oil Fleet ....................... $145.0 $ 78.1 $ 98.5
Product Carrier Fleet ................. 42.0 37.5 50.6
All Other ............................. -- 0.3 0.1
------ ------ ------
Total ............................. $187.0 $115.9 $149.2
====== ====== ======
VESSEL AND VOYAGE EXPENSES:(1)
Crude Oil Fleet(2) .................... $ 57.4 $ 59.1 $ 72.8
Product Carrier Fleet ................. 14.1 22.6 34.6
All Other ............................. 0.2 0.3 0.5
------ ------ ------
Total ............................. $ 71.7 $ 82.0 $107.9
====== ====== ======
NET VOYAGE REVENUES:
Crude Oil Fleet ....................... $ 87.6 $ 19.0 $ 25.7
Product Carrier Fleet ................. 27.9 14.9 16.0
All Other ............................. (0.2) -- (0.4)
------ ------ ------
Total ............................. $115.3 $ 33.9 $ 41.3
====== ====== ======
- ----------
(1) Includes charter hire expenses.
(2) Excludes provision for loss on lease obligation 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
During 2000, OMI owned or operated 12 crude carriers, including the two
chartered-in vessels redelivered in 2001, compared to 10 crude carriers at the
end of 1999. During 2000, OMI (1) sold its aframax vessel in March 2000,
14
(2) took delivery of a Suezmax newbuilding, which began its first voyage early
April, (3) took delivery of another new Suezmax vessel in May 2000, which began
its first voyage early June and (4) acquired one ULCC vessel, which was
purchased on June 30, 2000 (the Company previously owned 49 percent) from OMI's
joint venture partner. During 1999, OMI disposed of its four older crude
carriers in the second half of the year and completed a sale/leaseback in June
1999 for a new Suezmax vessel delivered January 1999.
Net Voyage revenues earned by the crude oil fleet for the year ended
December 31, 2000 were $87.6 million, an increase of $68.6 million over the year
ended December 31, 1999.
The following table sets forth comparative operating results for the crude
oil fleet for the year ended December 31, 2000 versus the year ended December
31, 1999:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999
---- ----
(IN MILLIONS)
CRUDE FLEET:
SUEZMAXES:
TCE revenue ........................... $89.2 $34.7
----- -----
Vessel expenses ....................... 8.3 7.1
Charter hire expenses ................. 16.2 15.2
----- -----
Net voyage revenues ................... $64.7 $12.4
===== =====
ULCC:
TCE revenue ........................... $ 7.1 --
-----
Vessel expenses ....................... 1.1 --
Charter hire expenses ................. -- --
-----
Net voyage revenues ................... $ 6.0 --
=====
PANAMAXES:
TCE revenue ........................... $21.6 $12.1
----- -----
Vessel expenses ....................... 5.6 6.3
Charter hire expenses ................. -- --
----- -----
Net voyage revenues ................... $16.0 $ 5.8
===== =====
OLD SUEZMAXES/AFRAMAX:
(SOLD IN 1999 & 2000)
TCE revenue ........................... $ 1.0 $10.1
----- -----
Vessel expenses ....................... 0.1 9.3
Charter hire .......................... -- --
----- -----
Net voyage revenues ................... $ 0.9 $ 0.8
===== =====
TOTAL CRUDE FLEET NET VOYAGE REVENUE.. $87.6 $19.0
===== =====
Fluctuations in each of the crude oil fleet vessel types were as follows:
Suezmaxes--The largest increase in the crude oil fleet's net voyage revenue
of $52.3 million was earned by this group. Included in this group are the three
chartered-in vessels built in 1989, 1990 and 1999. Increases aggregating $21.7
million in net voyage revenue during the year ended December 31, 2000 were
attributed to the two newbuildings delivered in the first half of 2000.
Increases in the remaining three wholly owned and three chartered-in vessels
aggregated $30.6 million in 2000 over 1999 were primarily a result of increased
TCE's for vessels operating in the spot market. The improvement in TCE rates
above the increase in bunker costs in 2000 resulted from better market
conditions as described in the Market Overview.
15
ULCC--Increase in net voyage revenues of $6.0 million in 2000 was the
result of OMI's purchase of its joint venture partner's interest. The venture
owned one ULCC vessel, which became wholly owned by OMI on June 30, 2000.
Panamaxes--Increases of $10.2 million in the Panamaxes net voyage revenues
for the year 2000 over 1999 was the result of better performance in the Star
Tankers pool. Increased rates for Panamax vessels operating in the pool during
2000 resulted from steady demand as a result of tanker market fundamentals
discussed in the Market Overview.
Old Suezmaxes/Aframax--Earnings for the Old Suezmaxes/Aframax group for the
year ended December 31, 2000 reflect earnings for the first quarter 2000 of $0.9
million, which primarily relates to the aframax vessel sold March 2000. Net
voyage revenues of $0.8 million for the year ended December 31, 1999 included
earnings from four older Suezmax vessels sold in the second half of 1999 and the
aframax vessel. During 1999, the older Suezmax vessels incurred operating losses
or small profits.
PRODUCT CARRIER FLEET
At December 31, 2000, OMI owned 10 product carriers, six handysize vessels
which operated in the IPC pool and four product carriers on time charter. During
2000, (1) two handymax newbuildings were delivered in September and November and
began two-year time charters with an oil company and (2) four product carriers
were sold, three in May and one in August 2000. During 1999, OMI operated 10
product carriers in the IPC pool and owned two handysize product carrier
newbuildings, which were delivered in July and September and time chartered for
two-years to an oil company.
The following table sets forth comparative operating results for the
product carrier fleet for the years ended December 31, 2000 and December 31,
1999.
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999
---- ----
(IN MILLIONS)
PRODUCT CARRIER FLEET:
PRODUCTS (IPC POOL BEGINNING SECOND QUARTER 1999):
TCE revenue ........................................................ $30.5 $30.0
----- -----
Vessel expenses .................................................... 10.9 17.5
Charter hire expenses .............................................. -- --
----- -----
Net voyage revenues ................................................ $19.6 $12.5
===== =====
PRODUCTS-ON TIME CHARTER:
TCE revenue ........................................................ $11.6 $ 3.3
----- -----
Vessel expenses .................................................... 3.3 0.9
Charter hire expenses .............................................. -- --
----- -----
Net voyage revenues ................................................ $ 8.3 $ 2.4
===== =====
TOTAL PRODUCT CARRIER NET VOYAGE REVENUE ......................... $27.9 $14.9
===== =====
Net Voyage revenues earned by the product carrier fleet for the year ended
December 31, 2000 was $27.9 million, which is an increase of $13.0 million over
the year ended December 31, 1999. Fluctuations in each of the product carrier
groups were as follows:
Product Carriers (IPC Pool)--During year ended December 31, 2000, six (10
before the sale of the three product carriers in May 2000 and one in August
2000) of the Company's handysize product tankers have been operating on time
charters to a joint venture, IPC, in a marketing alliance. Time charter rates
from this venture reflect spot market rates since they are adjusted periodically
with pool profits. The vessels have been operating in this marketing pool since
its inception in May 1999. Prior to May 1999, seven vessels were operating in
the spot market. Three vessels coming off a previous time charter began
operating with the IPC pool in the third quarter of 1999.
16
Increases in net voyage revenues of $7.1 million for the year ended
December 31, 2000, reflect the increase in profits earned primarily since the
upswing in rates beginning in the second quarter 2000 compared to earnings from
prior year spot charters for these vessels. The increase in rates for the
vessels operating in both 1999 and 2000 periods were offset by lower earnings
from four vessels disposed of in 2000 (the four vessels sold in 2000 operated a
total of 862 more days in 1999). Improvement in the 2000 rates is consistent
with the rise in the TCE rates for this sector resulting from increased demand
and other factors discussed in the Market Overview.
Product Carriers (on time charter)--Increases in net voyage revenue of $5.9
million for the year ended December 31, 2000, relate to earnings from two 1999
built product carriers, which were delivered in the third quarter of 1999 and
earnings from two handymax product carriers delivered September and November
2000. Earnings for this group increased primarily from 589 more operating days
in 2000 and additional income for profit sharing based upon certain conditions
included in the two time charter agreements, which began in 1999. All four
vessels have been operating on time charters since their deliveries.
OTHER OPERATING EXPENSES
The Company's operating expenses, other than vessel, voyage and charter
hire expenses, consist of depreciation and amortization, general and
administrative ("G & A") expenses, provision for loss on lease obligation and
loss (gain) on disposal/write down of assets-net. For the year ended December
31, 2000, these expenses decreased $49.1 million to $40.1 million, from $89.2
million for the year ended December 31, 1999. The decrease of $37.9 million in
the loss (gain) on disposal/write down of assets-net and the decrease in the
provision for loss on lease obligation of $6.2 million from 1999 to 2000 are the
largest decreases in other operating expenses.
Depreciation and amortization--Depreciation expense decreased $5.8 million
for the year ended December 31, 2000 over 1999. The year ended December 31, 1999
included depreciation expense for the nine vessels held for sale at December 31,
1999. The decreases in depreciation expense were offset in part by depreciation
expense accounted for on the two new Suezmaxes, which began operating in the
second quarter of 2000, the ULCC vessel acquired June 2000 and two handymax
vessels in the fourth quarter of 2000.
General and administrative--G & A increased $0.8 million for the year ended
December 31, 2000 over the comparable year 1999. The increase was partially a
result of non-cash compensation expense relating to option expense in 2000.
Provision for loss on lease obligation--The provision for loss on lease
obligation of $6.2 million was recorded at June 30, 1999 and relates to one of
OMI's chartered-in vessels. The liability for the impairment was being amortized
and recorded to charter hire expense over the remaining term of the lease until
notice of early termination of the lease was given in October 2000.
Loss (gain) on disposal/write down of assets--net--The net loss decreased
$37.9 million for the year ended December 31, 2000 from a loss of $48.7 million
for the year ended December 31, 1999.
The loss on disposal/write down of assets of $14.0 million relates to the
disposals of four vessels and write downs of two vessels in 2000. Adjustments
for three vessels previously classified as Assets to be disposed of at December
31, 1999 resulted in additional losses on the sale dates aggregating $6.2
million. Two similar vessels' net realizable values, which also were classified
as Assets to be disposed of at December 31,1999 were adjusted during the first
quarter 2000 by an aggregate of $3.0 million. A vessel sold in May 2000 resulted
in a loss on disposal of $4.8 million.
Losses in 2000 were offset in part by the gain recorded of $3.2 million
from the early termination of two time charters, one part of the gain was from
the accelerated amortization of the provision for loss on a lease obligation,
discussed above. The gain on early termination of the second charter resulted
from accelerated amortization on the deferred gain on sale of the vessel by the
Company to its current owner.
Loss on disposal of assets--net, for the year ended December 31, 1999,
included losses for fourteen vessels; nine vessels to be disposed of at December
31, 1999, four vessels which were disposed of in 1999 and one Suezmax vessel,
which was sold on June 30, 1999 in a sale/leaseback transaction. The loss on the
vessels disposed of was $17.4 million and losses as a result of write downs of
vessels to their net realizable values, which were to be disposed of was $31.3
million at December 31, 1999. The write down of vessels included the reversal 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.
17
OTHER INCOME (EXPENSE)
Other income (expense) consists of loss on disposal/write down of
investments, interest expense, interest income and other-net. Net other expense
decreased by $0.1 million from $25.5 million during the year ended December 31,
1999 to $25.4 million for the year ended December 31, 2000.
Loss on disposal/write down of investments was approximately $3.0 million
for the year ended December 31, 2000 compared to a loss on investments of $7.8
million for the year ended December 31, 1999. The 2000 loss on disposal of
investments resulted from the sale of a joint venture and the write down of a
long-term investment. Loss on disposal/write down of investments during 1999,
represents the loss on OMI's disposal of two joint ventures and write down of
one venture sold in 2000.
Interest expense increased $9.3 million for the year ended December 31,
2000 in comparison to the year ended December 31, 1999. The increases were
primarily due to interest expense on additional borrowings to finance
newbuildings delivered in 2000, the reduction in capitalized interest
corresponding with the delivery of the new ships in addition to an average
higher LIBOR rate for the year and higher interest margins.
On October 12, 2000, OMI amended its credit facility and increased it to
$310 million, (which included the financing for the two new handymax vessels
delivered September and November 2000). The amended facility reduced interest
rate margins in the fourth quarter 2000. See Financing Activities for additional
information relating to the amended credit facility.
Other--net of approximately $2.0 million is an aggregate of the settlement
of claims on various vessels during the year ended December 31, 2000. A loss of
$1.2 million was recorded in Other-net for the year ended December 31, 1999
resulting from the early payment in February 2000 of the MTC note receivable due
November 2003 in exchange for a discount.
EQUITY (LOSS) IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures increased by $3.7 million for the
year ended December 31, 2000 compared to the year ended December 31, 1999.
During 2000, OMI participated in one vessel-owning joint venture, which operated
a ULCC vessel. OMI acquired the joint venture company from its partner on June
30, 2000. Improvement in rates for the ULCC vessel operating in the spot market
during the first half of 2000 increased equity during the year ended December
31, 2000 over the comparable year 1999. Additionally, OMI recorded profit
sharing during the year ended December 31, 2000 from a joint venture.
During 2000, OMI sold its 49.9 percent investment in Geraldton Navigation
Company Inc. ("Geraldton") to its partner. An adjustment for an additional loss
of $0.5 million was recorded in the first quarter relating to the disposal of
this venture for which the Company received $2.4 million. Additionally, a
dividend was paid to OMI of $1.2 million in February 2000.
EXTRAORDINARY LOSS (1999)
An extraordinary loss of $1.3 million was recorded for the year ended
December 31, 1999. This loss related to the write-off of the balance of
unamortized finance fees on debt, which was refinanced in February 2000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1999)
During the second quarter of 1999, OMI changed its method of accounting for
freight on voyage charters. The accounting change was effective for the period
beginning January 1, 1999 and income of $2.7 million was recorded in 1999 as a
cumulative effect of change in accounting principle for the year ended December
31, 1999.
BALANCE SHEET
Traffic receivables at December 31, 2000 of $22.4 million were $13.2
million higher than at December 31, 1999. Increases in receivables were
primarily attributed to receivables from three crude oil carriers delivered to
OMI in 2000. In addition, receivables were higher for the remaining vessels in
comparison to 1999, due to higher average TCE's for the year ended December 31,
2000 (see Results of Operations).
Assets to be disposed of, aggregating $91.0 million at December 31, 1999
related to nine vessels. Decreases from the December 31, 1999 balance resulted
from the sale of four vessels, (which also increased cash proceeds by $35.5
18
million), the sale of a joint venture for $2.7 million, an additional write down
aggregating $3.0 million on the two remaining vessels' net realizable values,
and an adjustment to reclass three vessels at September 30, 2000 and two vessels
at December 31, 2000 to the Vessels category.
In connection with the amended loan agreement dated October 12, 2000 (see
Financing Activities), OMI is no longer required to sell certain vessels. The
five vessels reclassed at their net realizable values from Assets to be disposed
of aggregated $44.2 million and are being depreciated over their remaining
lives. The related current portion of debt has also been adjusted for the
amended loan agreement. The amended debt agreement also increased long-term debt
by $40.0 million for the two handymax vessels delivered in 2000. Capitalized
costs relating to the two handymax vessels aggregated $60.9 million at December
31, 2000.
During 2000 OMI agreed to purchase a Suezmax vessel under construction by
another owner and paid a $6.0 million deposit for the construction contract.
This deposit was included in Other assets and deferred charges on the December
31, 2000 Consolidated Balance Sheet. The Company took delivery of the vessel in
January 2001.
On June 30, 2000, OMI purchased its partner's 51 percent interest in Amazon
Transport, Inc. The purchase price was based on the ULCC's value set at $30.0
million plus the allocation of cash for the remaining net assets. OMI issued
1,500,000 shares at $5.125 aggregating $7.7 million and paid $7.4 million to its
partner for the purchase. OMI's investment in joint ventures decreased $14.9
million and Vessels increased by $20.6 million at June 30, 2000.
On May 17, 2000, OMI took delivery of a new Suezmax vessel. Capitalized
costs included in Vessels as of December 31, 2000 were $51.6 million, which
included costs of $11.0 million that were included in Construction in progress
at year-end 1999.
On March 28, 2000, OMI sold in a private placement to four unrelated
investors, 9,583,000 shares of common stock for $2.00 per share ($1.92 net of
commissions). A portion of the funds received, were used to pay for the
newbuildings delivered in March and May 2000.
On February 11, 2000, OMI issued 599,998 shares of common stock to
affiliates of Mega Tankers Newbuilding AS, which combined with the 5,700,000
shares issued in November 1999 aggregated 6,299,998 shares issued for $15.8
million (at $2.50 per share) excluding expenses of $0.6 million. These shares
were issued in exchange for a Suezmax construction contract. The Suezmax tanker
was delivered to OMI in March 2000. The aggregate capitalized costs as of
December 31, 2000 were $47.4 million, which include costs of $14.4 million that
were included in Construction in progress at year-end 1999. Upon delivery, $27.0
million was financed (see Financing Activities).
During February 2000, MTC paid OMI $5.1 million for a note, which was due
in November 2003 in exchange for a $1.2 million discount, which was recorded in
Other-net expense in 1999. At December 31, 1999, the note receivable of $5.1
million was included with Other receivables in current assets.
On June 20, 2000, the OMI Corporation 1998 Performance Unit Plan (for years
1998-2002) was modified and in lieu of performance units, options were granted
pursuant to Stock Option Award Agreements. By converting the performance units
to stock options in 2000 for units in the plan for years 1998-2000, the Company
reduced the amount of cash to be used for such operating activities. The
modifications included the redemption of 394,000 performance units relating to
1998 and 1999 deferred units and 2000 units in exchange for 394,000 stock
options granted at $1.50 per share and cash bonus for the units at $1.50 per
share, which was payable in the first quarter of 2001. As of June 20, 2000,
capital surplus was credited for the differences between the stock options
granted at $1.50 per share and the market price of OMI stock on that date of
$4.938 per share, which aggregated $1.4 million.
Performance units relating to years 2001 and 2002 aggregating 400,000 units
were converted to stock options at a grant price of $4.938, which was the market
price of OMI common stock at the grant date. As of December 31, 2000, capital
surplus was credited $1.0 million for adjustments to record 2000 compensation
expense and deferred compensation relating to the above option plan at OMI's
stock price at December 31, 2000.
FOR THE YEAR ENDED DECEMBER 31, 1999 VERSUS DECEMBER 31, 1998
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES.
Net voyage revenues of $33.9 million for the year ended December 31, 1999
decreased by a net of $7.4 million from $41.3 million for the year ended
December 31, 1998.
19
CRUDE OIL TANKER FLEET
At December 31, 1999, the crude fleet consisted of three wholly owned
Suezmaxes, three Panamaxes, one aframax vessel and three chartered-in Suezmaxes;
one vessel was on time charter and the remaining vessels were operating in the
spot market. During 1999, four Suezmaxes, which were built in 1974 and 1975,
were sold, and in the fourth quarter of 1999 an aframax (built in 1980) was
contracted for sale and delivered in 2000. Additionally, one of OMI's three
wholly owned Panamax vessels carried crude oil prior to 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.
The COLUMBIA, a newly built Suezmax tanker, was delivered 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 continued 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
revenue in the crude fleet of approximately $14.8 million were primarily
attributed to less earnings from the four vessels sold in 1999, in addition to
less 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 less 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 fleet's net voyage revenue were offset in part
by increases aggregating $8.1 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 in 1998.
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 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 that carried crude oil (included in
the crude oil fleet's operating results) in 1999.
During the year ended December 31, 1999, the Company's seven handysize
product tankers were employed in the spot market and three on time charter. On
May 1, 1999, these vessels have were time chartered (at the conclusion of their
previous charters) to the joint venture, IPC.
Net voyage revenues of $14.9 million for the year ended December 31, 1999
decreased $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 revenue was partially offset by increased earnings from the two new
product carriers delivered July and September 1999 which began operating on
profitable time charters from their delivery dates.
OTHER OPERATING EXPENSES
The Company's operating expenses for the year ended December 31, 1999,
increased $60.6 million to $89.2 million, from $28.6 million for the year ended
December 31, 1998.
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 one of its current lease obligations for vessels exceeded its
undiscounted forecasted future net cash flows. The loss was measured by the
difference over the remaining lease between the vessel's forecasted cash flows
and the future lease payments. It was determined that an impairment loss should
be recognized, and a provision of $6.2 million was recorded in June 1999. The
liability for the impairment was being amortized to charter hire expense over
the remaining term of the lease until notice of early termination of the lease
was given in October 2000.
20
(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 $17.4 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 recorded to Assets to be disposed of
at December 31, 1999, resulted in a loss of $31.4 million. The write down
included the realization of the cumulative translation adjustment of $7.4
million.
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 (which were fully depreciated by the year ended December
31, 1998) 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 $0.3 million during the year ended December 31, 1999
compared to the year ended December 31, 1998.
OTHER INCOME (EXPENSE)
Net other expense increased by $14.8 million from $10.7 million during the
year ended December 31, 1998 to $25.5 million for the year ended December 31,
1999.
Loss on disposal/write down of investments, related to the disposal and
write down of three joint venture investments aggregating a loss of $7.8 million
for the year ended December 31, 1999. 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
(one of 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.
EQUITY IN OPERATIONS OF JOINT VENTURES.
Equity in operations of joint ventures decreased by $4.2 million for the
year ended December 31, 1999 compared to year ended December 31, 1998. The
decrease in 1999 was primarily attributed to lower earnings from two joint
ventures, one which operated 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 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 was 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 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents of $35.3 million at December 31, 2000 increased
$27.9 million from cash and cash equivalents of $7.4 million at December 31,
1999. The Company's working capital of $8.9 million at December 31,
21
2000 decreased $35.1 million from working capital of $44.0 million at December
31, 1999. Current assets decreased $54.6 million and current liabilities
decreased $19.5 million. Current assets decreased by $91.0 million for Assets to
be disposed of at December 31, 1999, which were offset by increases of $27.9
million in cash and cash equivalents and an increase of $13.2 million in traffic
receivables. Cash increased primarily from proceeds from disposal of vessels,
financing activities such as new equity through the issuance of common stock and
cash provided by operating activities. The decrease in current liabilities was
primarily related to the current portion of long-term debt. Decreases in current
debt were related to payments in 2000 for vessels sold or adjusted to long-term
debt for vessels no longer classified as Assets to be disposed of. Net cash
provided by operating activities increased $55.0 million to $63.0 million for
the year ended December 31, 2000 compared to net cash provided by operating
activities of $8.0 million for the year ended December 31, 1999 (see Results of
Operations).
Cash used by investing activities was $95.9 million for the year ended
December 31, 2000, compared to cash used by investing activities of $43.7
million for the year ended December 31, 1999. Cash was used by investing
activities during the year 2000 primarily for additions to vessels of $142.3
million from $91.0 million used for additions to vessels for the year ended
December 31, 1999. The cash used in 2000 for capital expenditures were primarily
for the purchase of the following: $72.2 million was used for the delivery of
two new Suezmax vessels, $60.9 million for the purchase of the two product
carriers, $6.0 million for the deposit on the Suezmax vessel delivered January
2001 and $2.9 million in construction in progress payments. 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.
Proceeds of $46.9 million included in investing activities were from the sale of
the aframax vessel in the first quarter 2000 and the sale of four product
carriers, three in May and one in August 2000. Proceeds of $65.3 million
included in disposal of assets during the year ended 1999 were from the sale of
a vessel purchased in January 1999 in a sale/leaseback transaction and the sale
of three older crude carriers. Additionally in 2000, proceeds of $5.1 million
were received from the repayment of a note receivable and proceeds of $2.7
million were received for the sale of a joint venture. In 2000, OMI paid $2.5
million into an escrow account in conjunction with the COLUMBIA lease agreements
and paid $7.5 million to the escrow account in 1999 (see Other Commitments).
Payments of $4.8 million relate to the net cash paid to purchase OMI's partners'
51 percent interest in a previously owned joint venture and payments of $3.0
million were made for two new investments in 2000 and $0.8 million in proceeds
were received from another investment.
ADJUSTED EBITDA
Adjusted EBITDA represents operating income (loss) from operations before
depreciation and amortization expense, loss on disposal/write down of assets-net
and lease provision. Cash flows for the year ended December 31, 2000 were
stronger than the comparable 1999 year, and adjusted EBITDA of $104.1 million
for the 2000 year was $80.7 million above 1999 year of $23.4 million. The
increase in adjusted EBITDA was primarily due to higher earnings, net of
operating expenses in 2000 due to the disposal of five older crude carriers and
the delivery of four new vessels. The new vessels are more marketable than the
older vessels disposed of and earn a higher TCE rate and are more cost
efficient.
OUTLOOK
The Company anticipates another favorable year for earnings, as well as
opportunities to acquire vessels that are compatible to its strategy of fleet
renewal. Although the first quarter 2001 TCE rates for vessels in the spot
market have been lower than anticipated, they are well above levels at this time
in 2000. The Company expects that the second half of 2001 will generate higher
rates as supply/demand for oil is expected to increase as discussed in the
Market Overview. Additionally, the Company continues to seek opportunities as
they arise to time charter vessels at attractive rates to maintain a secure
stream of cash flows.
The Company does not foresee any unusual increase in costs for its current
fleet in 2001, other than routine maintenance and repairs for maintaining high
operating standards. OMI's costs for its vessels in 2000 were much lower than in
the past due to higher costs in previous years to maintain older vessels. Some
of OMI's newer vessels that were delivered in 1998 and 1999 are approaching
their first drydocks and/or special surveys and will incur costs associated with
periodic routine maintenance. The majority of drydocks are expected during the
second and third quarters of 2001. The table below summarizes (dollars in
thousands) the estimated 2001 capital expenditures and offhire related to
drydocks and/or special surveys by vessel type:
22
ESTIMATED NUMBER OF ESTIMATED
NUMBER CAPITAL OFFHIRE AMORTIZATION
VESSEL TYPES OF VESSELS EXPENDITURES DAYS OF DRYDOCK (1)
------------ ---------- ------------ ---- --------------
Suezmax ..................................... 1 $ 800 30 $ 320
ULCC ........................................ 1 2,500 50 1,000
Panamax ..................................... 2 1,900 56 760
Products--Handysize ......................... 5 2,350 106 940
Products--Handymax .......................... - -- -- --
- ------ --- ------
Total ..................................... 9 $7,550 242 $3,020
= ====== === ======
- ----------
(1) Amortization of drydock expense estimated above is for a one-year period
based on a 2.5 year amortization period.
The Company plans to fund capital expenditures from cash provided by
operating activities. Capital expenditures relating to acquisition of assets may
be funded in part by operating cash, issuance of common stock and financing of
such transactions. In addition, the Company may dispose of vessels to use cash
generated from sales to purchase assets that are of greater strategic value to
the Company.
FINANCING ACTIVITIES
Cash provided by financing activities was $60.8 million for the year ended
December 31, 2000, compared to cash provided by financing activities of $20.3
million for the year ended December 31, 1999. During the year ended December 31,
2000, there were $27.8 million in principal payments ($9.2 million were
scheduled payments and $15.4 million were unscheduled payments due to sale of
vessels and $3.2 million was paid upon the amendment in the primary credit
facility in October 2000) on debt and $70.0 million in proceeds for purchases,
($40.0 million to purchase two handymax vessels in 2000, $3.0 million towards
the purchase the joint venture and $27.0 million of such borrowings used for the
purchase of the new Suezmax vessel in March 2000). In February 2000, the Company
refinanced its bank debt with its lenders in the amount of $264.5 million, which
resulted in payments of $257.9 million on debt related to the refinancing in the
first quarter 2000. The effect of the February refinancing revised debt
covenants, increased interest rate margins and reduced principal amortization,
which was later amended on October 12, 2000. The amended facility reduced
interest rate margins, no longer requires the disposal of assets and reduces
operating restrictions.
On February 11, 2000, OMI completed its refinancing with its previous
lenders for a credit agreement, as amended, in the amount of $264.5 million.
There were three primary facilities under this agreement; Facility A, a five
year loan in the original amount of $218.0 million, Facility B, a two year loan
in the original amount of $46.5 million, and Facility C, which was converted
from a letter of credit to a secured-term loan of $36.0 million on May 10, 2000.
When Facility C was drawn down, Facility A was reduced by the same amount. The
loans were secured by mortgages on the vessels; Facility B was secured by six
vessels which were to be sold and the proceeds used to pay the debt. The
interest rates on the facilities were LIBOR plus a margin from 1.75 to 3.00
percent.
On March 15, 2000, OMI agreed with an existing lender to finance $27.0
million for the new Suezmax vessel delivered on March 21, 2000. The bank
facility was for a two year term and was secured by the vessel delivered. This
facility was amended on October 12, 2000.
On October 12, 2000, OMI amended its credit agreements increasing the
principal amount to $310.0 million of which $290.0 million was received at
closing, and $20.0 million at the delivery of a new product carrier acquired on
November 29, 2000. The facility is secured by 20 vessels. The Credit Facility is
to be repaid in 20 consecutive quarterly installments, commencing 3 months after
the closing date, the first eight in the amount of $10.0 million each, the next
12 in the amount of $6.3 million each, with a balloon payment in the amount of
$155.0 million due and payable together with the last installment. Upon the sale
of a vessel, the Credit Facility is to be prepaid by an amount equal to the then
outstanding amount of the Credit Facility multiplied by an agreed upon
prepayment percentage based upon the ratio of the market value of the vessel to
the total value of the collateral. The outstanding balance of the Credit
Facility bears interest at LIBOR plus an applicable margin, which is based on
OMI's ratio of consolidated funded debt to consolidated adjusted EBITDA on a
trailing four quarter basis. The interest rate margin associated with this
agreement ranges from 1% to 2%. At December 31, 2000, the applicable margin was
1.5%.
23
The Company obtained a $35.0 million term loan to partially finance the
delivery of the Suezmax newbuilding delivered in January 2001. The loan will be
repaid in 16 consecutive semi-annual instalments, the first four in the amount
of $1.7 million each, and the next 12 in the amount of $1.2 million each, with a
balloon payment in the amount of $14.3 million due and payable together with the
last instalment. The outstanding balance of the loan will bear interest at LIBOR
plus an applicable margin based on OMI's ratio of consolidated funded debt to
consolidated adjusted EBITDA on a trailing four quarter basis. The loan is
secured by the vessel acquired. The applicable margin is 1.5% until April 12,
2001.
On March 1, 2001, the Company obtained a credit facility for $23.0 million
to finance the purchase of three product carriers acquired in February and March
2001 (see Recent Activities). The loan is secured by the vessels acquired. The
loan, which bears interest at LIBOR plus 1.5%, matures in one year; however the
Company has the option to renew the loan for an additional year after paying
principal of $4.0 million.
Restrictive Covenants
The loan agreements contain restrictive covenants as to working capital and
net worth. The Company's banks require maintenance of specified financial ratios
and collateral values; and restrict the Company's ability to pay dividends. As
of December 31, 2000, the Company was in compliance with its covenants. Pursuant
to the loan agreements liens against specific assets were granted and other
liens against those assets were prohibited.
Interest Rates
The interest rates on the 10.25% unsecured Senior Notes and 7.00%
Convertible Note are fixed. The variable interest rate at December 31, 2000 was
LIBOR plus the margin of 1.5%.
OTHER COMMITMENTS
The following are other commitments that have not been previously mentioned
in the Recent Activities section.
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 stand by letter of credit
in September 1999, whi