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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999
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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, 1998
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COMMISSION FILE NUMBER 001-14135
OMI CORPORATION
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(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 TELEPHONE NUMBER INCLUDING AREA CODE: (203) 602-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.50 PER SHARE NEW YORK STOCK EXCHANGE
- -------------------------------------- ------------------------------------
Title of Class Name of Exchange on which Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark whether the Registrant (1) Has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
YES [X] NO [ ]
Aggregate Market value of Registrant's voting stock, held by non-affiliates,
based on the closing price on the New York Stock Exchange as of the close of
business on March 24, 1999:
$96,264,780
Number of shares of the Registrant's Common Stock outstanding as of March 24,
1999:
41,628,013
The Following document is hereby incorporated by reference into Part III of this
Form 10-K:
(1) Portions of the OMI Corporation 1999 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 ................................................ 7
4. Submission of Matters to a Vote of Security Holders .............. 7
PART II
5. Market for OMI Corporation's Common Stock and
Related Stockholder Matters ...................................... 9
6. Selected Financial Data .......................................... 10
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 11
7A. Quantitative and Qualitative Disclosures about Market Risk ....... 23
8. Financial Statements and Supplementary Data ...................... 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................. 72
PART III
10. Directors and Executive Officers of OMI Corporation .............. 72
11. Executive Compensation ........................................... 72
12. Security Ownership of Certain Beneficial Owners and Management ... 72
13. Certain Relationships and Related Transactions ................... 72
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 72
SIGNATURES ....................................................... 74
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
OMI Corporation ("OMI" or the "Company"), organized under the laws of
the Republic of the Marshall Islands on January 9, 1998, is located at One
Station Place, Stamford, Connecticut. The telephone number is (203) 602-6700.
Prior to June 17, 1998, the Company was a subsidiary of OMI Corp., a
Delaware corporation ("Old OMI") and held the international assets of Old OMI.
Old OMI acquired Marine Transport Lines, Inc. ("MTL"), a privately owned company
specializing in marine and transportation services, principally to the energy
and chemical industries. In connection with the acquisition of MTL, Old OMI spun
off to its shareholders the Company. Subject to certain exceptions, the spin off
was tax free to Old OMI, its shareholders and the Company. The Company retained
the OMI name and Old OMI changed its name to Marine Transport Corporation
("MTC"). The previous management of Old OMI now manages the Company and the
previous management of MTL now manages MTC. For a more complete description of
the transaction, the conditions and certain other items shareholders are
referred to the Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission on May 15, 1998 (registration statement
number 333-52771) which is hereby incorporated by reference.
The Company provides seaborne transportation services for crude oil and
petroleum products in the international shipping markets. Its customers include
major independent and state-owned oil companies, major oil traders, government
entities and various other entities. OMI owns directly or indirectly eight crude
oil tankers of approximately 140,000-160,000 dwt ("Suezmaxes"), ten tankers of
approximately 30,000 dwt ("handysize product carriers") one crude oil tanker of
85,000 dwt ("aframax") and three tankers of approximately 65,000 dwt
("Panamaxes"). OMI has on order from a shipyard one Suezmax expected to be
delivered in May 2000 and two handysize product carriers expected to be
delivered in the summer of 1999. Through ownership of joint venture companies,
OMI owns approximately 50% interests in one 320,000 dwt crude oil carrier, one
Suezmax and one 73,000 dwt dry bulk carrier. OMI also has on time charter two
Suezmaxes.
Development of OMI's Business Over the Last Five Years
In recent years, OMI has focused its fleet into Suezmaxes and handysize
product carriers, disposing of vessels not fitting into that profile. Since
1993, OMI has disposed of three crude oil tankers, one product carrier, one
combination carrier and one liquified petroleum gas carrier which did not fit
into its strategy. In addition five dry bulk carriers and one product carrier
owned with joint venture partners have been disposed of. During the same period
OMI acquired joint venture partners' interests in two Suezmaxes and one Panamax,
ordered five new Suezmaxes (four of which are now in service) and two handysize
product carriers and increased its number of
1
handysize product carriers from five to ten. OMI also sold one of its Suezmaxes
and time chartered the vessel back from the purchaser for a period of up to five
years and currently has on time charter-in one additional Suezmax.
The Company's existing fleet is shown on the following table:
YEAR DEAD WEIGHT CHARTER
NAME OF VESSEL TYPE OF VESSEL BUILT(1) METRIC TONNAGE EXPIRATION
- -------------- -------------- ----- -------------- ----------
FOREIGN FLAG VESSELS:
SETTEBELLO (2) Crude Oil Tanker 1986 322,466 Spot
SACRAMENTO Crude Oil Tanker 1998 157,411 Spot
SABINE Crude Oil Tanker 1998 157,331 Spot
PECOS Crude Oil Tanker 1998 157,406 Spot
COLUMBIA Crude Oil Tanker 1999 155,600 Spot
WHITE SEA (3) Crude Oil Tanker 1975 155,702 Spot
CAIRO SEA Crude Oil Tanker 1975 155,869 Spot
TRINIDAD SEA Crude Oil Tanker 1974 155,755 Spot
CZANTORIA Crude Oil Tanker 1975 146,110 Spot
SOKOLICA Crude Oil Tanker 1975 145,649 Spot
COLORADO Crude Oil Tanker 1980 86,648 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
LIMAR Product Carrier 1988 29,999 Spot
SHANNON Product Carrier 1991 29,999 Spot
DANUBE Product Carrier 1990 29,998 Spot
TRENT Product Carrier 1991 29,998 Spot
TIBER Product Carrier 1989 29,996 Spot
SEVERN Product Carrier 1988 29,998 Spot
PAGODA Product Carrier 1988 29,996 Spot
ALMA Product Carrier 1988 29,996 Spot
PAULINA Product Carrier 1984 29,992 Spot
PATRICIA Product Carrier 1984 29,974 Spot
MARITIME OMI(5) Dry Bulk Carrier 1994 72,800 Spot
---------
Total Owned Fleet: 25 Vessels 2,366,937
2 Chartered-in Crude Tankers (6) 292,435
---------
Total Foreign Flag Operating Fleet: 27 Vessels 2,659,372
=========
(1) Weighted average age (based on carrying capacity) of the Company's owned
fleet (including jointly-owned) at year-end 1998 is 13.3 years.
(2) Joint ownership with Bergesen d.y. A/S Norway.
(3) Joint ownership with affiliates of Anders Wilhelmsen & Co., Oslo, Norway.
(4) Time chartered into a pool operated by Heidenreich Marine Inc.
(5) Joint ownership with an affiliate of International Maritime Carriers
Limited ("IMC"), Hong Kong and chartered into a pool operated by IMC.
(6) Time chartered-in under charters expiring in 2001 and 2002.
A brief description of the functions of the various types and sizes of
vessels owned or operated by the Company and others is set forth below:
2
Product carrier - normally carries refined petroleum products such as
gasoline, heating oil, aviation fuel, naphtha and kerosene.
Crude oil tanker - normally carries crude oil and dirty products.
Dry bulk carrier - carries dry bulk products such as coal, ore, grain and
fertilizers.
Handysize - a ship of approximately 30,000 dwt.
Panamax - a ship of approximately 50,000 to 70,000 dwt.
Aframax - a tanker (which may be a crude oil tanker or product carrier) of
approximately 70,000 to 120,000 dwt.
Suezmax - a crude oil tanker of approximately 120,000 to 160,000 dwt.
VLCC - a very large crude oil tanker, of approximately 200,000 - 300,000
dwt.
ULCC - an ultra large crude oil tanker, of more than 300,000 dwt.
The change in the fleet from Old OMI's previous year's list reflects (a)
(i) the disposition of one Suezmax tanker and the termination of time charters
on two Suezmaxes and (ii) the effective disposition of three U.S. Flag product
carriers, one time chartered U.S. flag Suezmax and time charters of four vessels
used in lightering by virtue of the spin-off, and (b) the acquisition of four
new Suezmaxes.
Over the last five 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.
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. It has been
redeploying its older Suezmaxes to the Far East and Mediterranean. 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.
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
3
efficiency are enhanced by concentration in certain vessel classes. Fourth, OMI
believes that large customers will prefer to deal with a limited number of large
shipping companies with fleets that they have pre-vetted for quality, rather
than smaller shipping companies characteristic of the fragmented international
tanker market.
Management believes that OMI maintains an ability to participate in
improvements in the international tanker markets with its Suezmax tankers. OMI
also believes that Suezmax tankers provide nearly the upside potential of larger
vessels such as VLCCs with less of the downside risk, primarily because
Suezmaxes have greater geographic flexibility than VLCCs. Product carriers
historically provided OMI with relatively more stable cash flows, even in weak
markets. However, weakness in the product carrier markets during the last
portion of 1997 and in 1998, due to a mild winter and reduced Asian demand, has
resulted in unusually low rates which have persisted.
On May 5, 1998, OMI announced the formation of Alliance Chartering LLC, a
limited liability company which is jointly owned with Frontline Ltd., a major
international shipping company. Alliance Chartering LLC handles the chartering
of OMI's and Frontline Ltd.'s Suezmaxes. Alliance's fleet currently stands at 27
vessels.
In March of 1999 the Company also agreed with Osprey Maritime Limited, a
major international shipping company based in Singapore, to consolidate their
product tanker operations, establishing International Product Carriers Limited.
("IPC") in Bermuda to commercially operate the 26 product carriers of its
parents. IPC intends to try to attract other product carrier owners into its
pools in order to enhance its marketing abilities.
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 wholly-owned vessels and a subsidiary, OMI
Marine Services, LLC, is the technical operator. Technical and commercial
operation of each jointly-owned vessel is allocated to OMI or its joint venture
partner based primarily on the experience of the partner with the particular
type and size of vessel.
OMI's vessels are available for charter on a voyage, time or bareboat
basis. Under a voyage charter, the operator of a vessel agrees to provide the
vessel for the transport of specific goods between specific ports in return for
the payment of an agreed upon freight per ton of cargo or, alternatively, for a
specified total amount. All operating costs are for the operator's account. A
single voyage (generally two to ten weeks) charter is often referred 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
4
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
wholly-owned vessels operate in the spot market.
Customers
No customer accounted for 10% or more of OMI's consolidated revenues in
1998.
Regulations
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its vessels. The kinds of permits, licenses and certificates required depend
upon such factors as the country of registry, the commodity transported, the
waters in which the vessel operates, the nationality of the vessel's crew, the
age of the vessel and the status of the Company as owner or charterer. The
Company believes that is has or can readily obtain all permits, licenses and
certificates necessary to permit its vessels to operate.
OMI's operations are also affected by U.S. federal, state and foreign
environmental protection laws and regulations, particularly the U.S. Port and
Tanker Safety Act, the Act to Prevent Pollution from Ships, various volatile
organic compound emission requirements, the BCH Code for chemical carriers, the
IMO/USCG pollution regulations and various SOLAS amendments. Compliance with
such laws' regulations entails additional expense, including vessel
modifications and changes in operating procedures.
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
5
owners and operators unlimited liability in the event of a castastrophic oil
spill and establishes the Oil Spill Liability Trust fund. OPA 90 requires that
tankers over 5,000 gross tons calling at U.S. ports have double hulls if
contracted after June 30, 1990, or delivered after January 1, 1994. Furthermore,
it calls for the elimination of all single hull vessels by the year 2010 on a
phase-out schedule that is based on size and age, unless the tankers are
retrofitted with double hulls. The law permits existing single hull tankers to
operate until the year 2015 if they discharge at deep water ports, such as the
Louisiana Offshore Oil Port ("LOOP"), or lighter more than 60 miles offshore.
The International Maritime Organization ("IMO") has adopted a regulation that
requires tankers 5,000 dwt and over, contracted after July 6, 1993, to have
double hull, mid-deck or equivalent design. Existing single hull tankers will be
phased out unless they are retrofitted with double hull, mid-deck or equivalent
design no later than 30 years after delivery. Another IMO regulation mandates
that existing single hull crude oil tankers larger than 20,000 dwt and product
tankers over 30,000 dwt without segregated ballast tanks ("SBT") must convert to
SBT operations using a 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. Five of OMI's Suezmaxes (including one
jointly owned) were built in 1974 and 1975 and will be ineligible to trade into
U.S. ports beginning in 1999.
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 new law has been to increase costs for liability insurance
for vessel owners trading to the U.S. While OMI maintains insurance at levels it
believes prudent, claims from a castastrophic spill could exceed the insurance
coverage available, in which event there could be a material adverse effect on
OMI.
OMI believes that compliance with applicable environmental and pollution
laws and regulations has not had and is not expected to have a material adverse
effect upon its competitive position; however the financial position, value and
useful life of its vessels and results of operations may be affected as a result
of OPA 90 and other environmental laws and regulations.
Competition
The Company competes with a large number of international fleets. The
international fleets include vessels owned by independent operators and major
oil companies; in addition, many international fleets are government owned. Some
of the Company's competitors have greater
6
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, petroleum products and dry bulk (mainly coal, grain and ore) is
intense.
Employees and Labor Relations
On December 31, 1998, the Company and its subsidiaries had approximately
700 employees, of whom approximately 625 were seagoing employees.
The Company primarily uses hiring agents to crew its foreign flag vessels,
one of which recruits exclusively for the Company. Although agents sign labor
contracts with labor organizations in various foreign countries that represent
seagoing personnel from these countries, the Company is not a party to these
contracts. Some senior shipboard positions on foreign flag vessels are filled
directly by the Company.
The Company considers its relationship with its employees, including its
seagoing crews, to be satisfactory.
Value of Assets and Cash Requirements
Although the replacement costs of comparable new vessels are significantly
above the book value of OMI's fleet, the market value of OMI's fleet may be
below book value when market conditions are weak. In common with other
shipowners, OMI continually considers asset redeployment which could at times
include the sale of vessels at less than their book value.
OMI's results of operations and cash flow may be significantly affected by
future charter markets since currently only one vessel is on charter extending
beyond year-end 1999.
ITEM 3. LEGAL PROCEEDINGS
OMI and its subsidiaries are not parties to any material pending legal
proceedings or related group of such proceedings, other than ordinary routine
litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information with respect to the Company's
executive officers as of March 31, 1999.
7
YEAR
APPOINTED TO
NAME AGE POSITION OFFICE
---- --- -------- ------
Craig H. Stevenson, Jr. 45 Chief Executive Officer and President 1998
Vincent J. de Sostoa 54 Senior Vice President, Chief Financial Officer and Treasurer 1998
Fredric S. London 51 Senior Vice President, General Counsel and Secretary 1998
Robert Bugbee 38 Senior Vice President 1998
Henry Blaustein 56 Senior Vice President, OMI Marine Services LLC 1998
Kathleen C. Haines 44 Vice President/Controller 1998
Thomas M. Scott 42 Vice President, OMI Marine Services LLC 1998
Stavros Skopelitis 52 Vice President 1998
There is no family relationship by blood, marriage or adoption (not more
remote than first cousin) between any of the above individuals and any other
executive officer or any OMI director.
The term of office of each officer is until the first meeting of directors
after the annual stockholders' meeting next succeeding his election and until
his respective successor is chosen and qualified.
There are no arrangements or understandings between any of the above
officers and any other person pursuant to which any of the above was elected as
an officer.
The following descriptions of occupations or positions that the executive
officers of the Company have held during the last five years:
CRAIG H. STEVENSON, JR. was appointed President and Chief Executive Officer
of the Company in 1998. Mr. Stevenson had been Chief Executive Officer of Old
OMI since January 1997 and President of Old OMI since November 1995. He was
elected Chief Operating Officer of Old OMI in November 1994 and Senior Vice
President/Chartering in August 1993.
ROBERT BUGBEE was elected Senior Vice President of the Company in 1998. He
had been Senior Vice President of Old OMI since August 1995. Mr. Bugbee joined
Old OMI in February 1995. Prior thereto, he was Head of Business Development at
Gotaas-Larsen Shipping Corporation for more than three years.
HENRY BLAUSTEIN was elected Senior Vice President of OMI Marine Services
LLC in 1998. He had been Senior Vice President/Technical of Old OMI since July
1997. Prior thereto he was a consultant to the Company and others.
VINCENT J. DE SOSTOA was elected Senior Vice President, Treasurer and Chief
Financial Officer of the Company in 1998. He had been Chief Financial Officer of
Old OMI since 1994. For five years prior thereto, he was Senior Vice
President/Finance of Old OMI.
FREDRIC S. LONDON was elected Senior Vice President, Secretary and General
Counsel of the Company in 1998. He had been Senior Vice President Secretary and
General Counsel of Old OMI since December 1991.
KATHLEEN C. HAINES was elected Vice President and Controller of the Company
in 1998. She had been Vice President of Old OMI since January 1994. Ms. Haines
was elected Assistant Vice President and Controller of Old OMI in December 1992.
THOMAS M. SCOTT was elected Vice President of OMI Marine Services LLC in
1998. He had been Vice President of Old OMI since February 1995. He was elected
Assistant Vice President/Operations in 1993.
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
8
of Old OMI in January 1994. Prior thereto he was Economist of Old OMI since
1987.
PART II
ITEM 5. MARKET FOR OMI CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
Old OMI listed for trading on the New York Stock Exchange all of its
common stock on March 13, 1992 (NYSE-OMM) and the Company acceded to that
listing on June 18, 1998. As of March 24, 1999 the number of holders of OMI
common stock was approximately 3,612. The high and low sale prices of the common
stock, as reported by the New York Stock Exchange, were as follows:
1998 Quarter 1st 2nd 3rd 4th
------------ --- --- --- ---
High N/A $8-11/16 $8-5/16 $4
Low N/A $6-7/8 $3-1/8 $2-5/8
PAYMENT OF DIVIDENDS TO STOCKHOLDERS
The Board has not declared dividends to this date. OMI's current policy is
not to pay dividends, but to retain cash for use in its business. Any
determination to pay dividends by OMI in the future will be at the discretion of
the Board of Directors and will depend upon OMI's results of operations,
financial condition, capital restrictions, covenants and other factors deemed
relevant by the Board of Directors. Payment of dividends is limited by the terms
of certain agreements to which OMI and its subsidiaries are party. (See Note 16
to Consolidated Financial Statements.)
9
ITEM 6. SELECTED FINANCIAL DATA
OMI CORPORATION AND SUBSIDIARIES
For the Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(dollar and shares outstanding in thousands, except per share data)
Income Statement Data:
Net voyage revenues (1)........................ $ 41,331 $ 55,393 $ 39,355 $ 26,537 $ 33,863
--------- --------- --------- --------- ---------
Revenues ...................................... $ 149,228 $ 141,985 $ 111,292 $ 91,819 $ 94,580
--------- --------- --------- --------- ---------
Operating expenses:
Vessel and voyage ............................. 82,368 77,686 67,008 64,518 52,949
Operating leases .............................. 25,529 8,906 4,592 -- 7,250
Depreciation and amortization ................. 24,314 22,675 18,142 17,621 17,816
General and administrative .................... 10,773 12,540 6,851 6,451 7,197
--------- --------- --------- --------- ---------
Total operating expenses ........................ 142,984 121,807 96,593 88,590 85,212
--------- --------- --------- --------- ---------
Operating income ................................ 6,244 20,178 14,699 3,229 9,368
Gain (loss) on disposal of assets-net ........... 6,485 885 4,078 (829) 166
Provision for writedown of
investments ................................... -- -- -- -- (1,251)
Interest expense ................................ 11,118 11,756 16,912 18,024 21,019
(Benefit) provision for income taxes ............ (37,158) 5,407 876 (4,698) (4,105)
Equity in operations of joint ventures .......... 3,684 737 2,481 5,464 5,402
Income before extraordinary loss and cum-
ulative effect of change in accounting
principle ..................................... 42,917 6,859 5,356 (4,493) (2,069)
Extraordinary loss-net of tax benefit ........... -- -- (1,663) -- --
Cumulative effect of change in accounting
principle-net of tax provision ................ -- 10,063 -- -- --
Net income (loss) ............................... $ 42,917 $ 16,922 $ 3,693 $ (4,493) $ (2,069)
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Common Share:
Income before extraordinary loss and cumulative
effect of change in accounting principle .... $ 1.01 $ 0.16 $ 0.16 $ (0.15) $ (0.07)
Net income (loss) ............................. $ 1.01 $ 0.39 $ 0.11 $ (0.15) $ (0.07)
Diluted Earnings (Loss) Per Common Share:
Income before extraordinary loss and cumulative
effect of change in accounting principle .... $ 1.00 $ 0.16 $ 0.16 $ (0.15) $ (0.07)
Net Income (loss) ............................. $ 1.00 $ 0.39 $ 0.11 $ (0.15) $ (0.07)
Weighted average shares outstanding ........... 42,671 42,914 33,440 30,745 30,417
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Cash and cash equivalents ..................... $ 22,698 $ 30,608 $ 16,056 $ 25,963 $ 12,466
Vessels and other property-net ................ 393,862 286,996 394,423 241,821 249,856
Construction in progress (newbuildings) ....... 34,733 56,032 10,754 -- --
Total assets .................................. 530,127 440,708 439,463 377,049 377,512
Total debt .................................... 247,147 53,999 125,171 92,842 55,090
Total stockholders'equity ..................... 245,183 283,558 250,402 221,677 197,847
(1) Voyage revenues less vessel and voyage expenses.
See notes to consolidated financial statements
- ---------------------------------------------------------------------------------------------------------------------------
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following presentation of management's discussion and analysis of the
OMI Corporation ("OMI" or the "Company") financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, accompanying notes thereto and other financial information appearing
elsewhere in this Form 10-K.
The information below and elsewhere in this document contains certain
forward-looking statements which reflect the current view of the Company with
respect to future events and financial performance. Wherever used, the words
"believes," "estimates," "expects," "plan" "anticipates" and similar expressions
identify forward-looking statements. Any such forward-looking statements are
subject to risks and uncertainties that could cause the actual results of the
Company's results of operations to differ materially from historical results or
current expectations. The Company does not publicly update its forward-looking
statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized. The information
contained in the discussion of the "Year 2000 Issue" ("Y2K") constitutes
forward-looking information. The identification and remediation of Y2K issues is
a technological effort that has never been undertaken before and estimates of
the outcome, time and expense of this project are, for that reason, particularly
hard to make with any certainty. Factors that may cause these differences
include, but are not limited to, those outlined in the "Risk Assessment"
category of the Year 2000 Issue.
GENERAL
Overview
OMI provides seaborne transportation services for crude oil, refined
petroleum products, and dry bulk cargoes (primarily iron ore, coal and grain).
The Company is the successor to Universal Bulk Carriers, Inc. ("UBC"), a
Liberian corporation, which was a wholly-owned subsidiary of OMI Corp. ("Old
OMI") until June 17, 1998 at which date the Company was separated from Old OMI
(renamed Marine Transport Corporation, "MTC") through a tax-free distribution
("Distribution") of one share of the Company s common stock for each share of
Old OMI common stock. The distribution separated Old OMI into two publicly-owned
companies. OMI Corporation operates what was Old OMI's foreign shipping
businesses under the management of certain of the officers formerly of Old OMI
who moved to the new company and certain former directors of Old OMI and
additional new directors. The Company continues to trade under the symbol "OMM"
on the New York Stock Exchange.
Currently, OMI's fleet comprises 27 vessels (including two chartered-in,
one newbuilding delivered in January 1999 and three jointly owned vessels). In
June, July and August of 1998, OMI took delivery of three Suezmax newbuildings
and will take delivery of a fifth Suezmax in May 2000. The Company operates
primarily Suezmax and product tankers. Its fleet comprises eight wholly and one
jointly owned Suezmaxes, two chartered-in Suezmaxes, one jointly owned Ultra
Large Crude Carrier ("ULCC"), one aframax, three Panamax product tankers
(currently carrying crude oil), ten handysize product carriers transporting
clean products and one jointly owned drybulk carrier. Two 35,000 deadweight ton
("dwt") product carrier newbuildings are to be delivered in mid-1999.
Net income for the year ended December 31, 1998 was $42.9 million compared
to $16.9 million for the year ended December 31, 1997. Included in 1998 income
of $42.9 million is a benefit of $38.9 million for federal income taxes. In
connection with the Distribution described above, OMI became a decontrolled
corporation and the deferred income taxes which had been previously recorded
were reversed. Included in the 1997 income of $16.9 million is income of $10.1
million, net of tax, from the cumulative effect of a change in accounting
principle for drydock.
11
MARKET OVERVIEW
The charter rates that the Company is able to obtain for its vessels are
determined in a highly competitive market. The industry is cyclical,
experiencing significant swings in profitability and asset values resulting from
changes in the supply of and demand for vessels. The following chart illustrates
the fluctuation of the TCE rates for product carriers and Suezmax tankers and
volatility of both markets from 1994 through 1998 (TCE's or time charter
equivalent rates equate spot market rates with time charter rates by deducting
voyage expenses from voyage revenues):
- --------------------------------------------------------------------------------
[GRAPHICAL REPRESENTATION OF LINE CHART]
Chart
-----
AVERAGE TCE RATES FOR TANKERS
PRODUCT CARRIERS -- Daily Average TCE Rates
YEAR
1994 $12,000
1995 13,500
1996 13,000
1997 14,100
1998 9,775
Caribbean/U.S. Atlantic Coast Voyages for mid-1980s built vessels.
CRUDE OIL TANKERS -- Daily Average TCE Rates
YEAR
1994 $13,300
1995 16,100
1996 19,400
1997 23,700
1998 22,400
West Africa/U.S. Atlantic Coast Voyages for mid-1970s built vessels.
Source: Fearnleys, Oslo
- --------------------------------------------------------------------------------
Product Carriers
The product carrier market is the segment of the tanker market which
transports refined petroleum products such as gasoline, jet fuel, kerosene,
naphtha and gas oil. Freight rates in this market were relatively strong from
1995 through the first quarter of 1997 showing seasonal improvement in the
winter months. After the product tanker market reached a very high level in
early 1997 it began receding gradually as a result of reduced oil product
imports in the Pacific region due to refinery capacity additions in the area and
lower oil consumption because of the financial crisis in Southeast Asia and
Korea, higher throughput in industrialized countries, and higher product tanker
fleet growth relative to product tanker ton-mile demand. For 1998, average
freight rates for product tankers were substantially lower than rates prevailing
in 1997. However, freight rates improved towards the end of 1998, but softened
again early in 1999.
The Company's handysize product tankers are currently employed in the spot
market. However, effective May 1, 1999 the majority will be time chartered to a
newly formed joint venture, International Product Carriers Limited ("IPC")
described below. Currently, three vessels are chartered to another joint venture
also described below. The two product carriers to be delivered in 1999 have been
time chartered to a major oil company for two years. OMI's strategy for its
handysize fleet is to increase market share by consolidating commercial
operations of vessels through marketing joint ventures and through concentrating
trading in selected areas.
12
OMI and Heidenreich Marine Inc. ("Heidmar"), an owner and operator of a
modern fleet of 50,000 to 90,000 dwt. tankers, have formed a jointly owned
company named "OMI-Heidmar Shipping LLC" to market tankers in the Far East.
Currently, this company operates seven handysize and handymax product tankers,
including three OMI handysize vessels. In addition, OMI has put its three
Panamax product tankers into Star Tankers, Inc. a pool of Panamax and aframax
crude/product tankers which comprises 28 vessels and operates worldwide.
In March 1999, the Company agreed with Osprey Maritime Limited, a major
international shipping company based in Singapore, to consolidate their product
tanker operations, establishing IPC Bermuda to commercially operate
approximately 30 product carriers of its parents. IPC intends to expand the pool
to other product carrier owners to enhance its marketing.
Suezmax Tankers
The improvement in Suezmax tanker rates, which began in 1995, continued
through the early part of 1998. The rate gains in the past few years have been
the result of growth in the world oil demand which, together with a modest
increase in the supply of tankers, created a better supply/demand balance.
Freight rates weakened in the second half of 1998 and the tanker market is
expected to continue to be weak in the foreseeable future as a result of OPEC
oil production cuts to support oil prices, relatively high world oil
inventories, weakness in oil demand due to the continued Southeast Asian
economic crisis as well as the onset of a recession in Latin America and the
relatively large tanker newbuilding delivery schedule.
The total world tanker fleet stands at approximately 272.7 million dwt.
Approximately 36.5 percent of the worldwide fleet, 38.5 percent of the world
Suezmax fleet and 42.7 percent of the world VLCC fleet is 20 or more years old.
The tanker orderbook totals approximately 46.7 million dwt or 17.1 percent of
the existing fleet. The combination of the tanker market weakness, the
relatively high orderbook, an expensive fifth special survey and stricter
environmental regulations should accelerate scrappings of the old tonnage.
The Suezmax market was relatively weak in the fourth quarter. Agreements
entered early in the year to cut back oil production by OPEC and other oil
producing nations as well as stock reductions have reduced oil liftings. In
addition, there were a number of temporary regional supply disruptions in the
Atlantic basin including pipeline closures in Nigeria, shutdowns in the North
Sea and interruptions in the flow of Iraqi oil to Cehan, Turkey, due to disputes
between Iraq and the United Nations concerning the embargo imposed on Iraq after
the end of the Iraqi/Kuwaiti conflict in the early 1990s.
World oil demand increased marginally in 1998 and is expected to increase
by about 1.3 million barrels per day in 1999. World commercial oil inventories
increased substantially in 1998, especially in the first half of the year. World
oil inventories are expected to fall in 1999 in line with OPEC oil production
cuts and the increase of oil demand.
The Company's Suezmax tanker fleet is one of the largest independent fleets
in the world. OMI has targeted this market segment due to the flexibility of the
Suezmax tankers to engage in long-haul and short-haul trades, growth potential
in the crude oil market and the fleet age distribution (more than 38.5% of the
fleet is 20 or more years old).
The Company has identified the advantages of owning a large Suezmax fleet
and has been implementing strategies to maximize the advantages.
In order to renew and improve the efficiency of its Suezmax fleet, the
Company ordered five vessels from a South Korean shipyard. The Company took
delivery of the first three Suezmaxes in June, July and August of 1998 and one
in January 1999. The remaining Suezmax newbuilding is scheduled for delivery in
May 2000.
13
In 1998, in order to increase the Company's market share in the Suezmax
trades in the Atlantic Basin, OMI and Frontline Ltd., a Norwegian owner
of one of the world's largest and modern Suezmax fleets, combined Suezmax tanker
fleets for commercial purposes and created Alliance Chartering LLC ("Alliance").
Alliance currently markets 27 Suezmax tankers, of which 24 tankers are employed
in the Atlantic market, comprising approximately 20 percent of the total
Suezmaxes trading in the Atlantic basin. Alliance's control of the largest
modern fleet of Suezmaxes has enabled it to strengthen relationships and obtain
contracts with a number of customers. These contracts may allow Alliance the
opportunity to increase its Suezmax fleet utilization through backhauls when
cargo is available (that is, transporting cargo on the return trip when a ship
would normally be empty) which will improve vessel earnings.
Any improvement in freight rates in the crude oil market, as well as the
product carrier market, will be largely dependent upon improvement in the Far
East and Latin American economic conditions as well as an increase in the rate
of tanker scrappings in view of the relatively high tanker orderbook for
delivery in the foreseeable future.
RESULTS OF OPERATIONS
Results of operations of OMI Corporation include operating activities of
the Company's vessels. The discussion that follows explains the Company's
operating results in terms of net voyage revenues, which equals voyage revenues
minus vessel and voyage expenses (including charter hire expense), because
fluctuations in voyage revenues and expenses occur based on the nature of a
charter. The Company's vessels currently operate, or have operated in prior
years, on time, bareboat or voyage ("spot") charters. Each type of charter
denotes a method by which revenues are recorded and expenses are allocated.
Under a time charter, revenue is measured based on a daily or monthly rate and
the charterer assumes certain voyage expenses, such as fuel and port charges.
Under a bareboat charter, the charterer assumes all voyage and operating
expenses; therefore, the revenue rate is likely to be lower than a time charter.
Under a voyage charter, revenue is calculated based on the amount of cargo
carried, most expenses are for the shipowner's account and the length of the
charter is one voyage. Revenue may be higher in the spot market, as the owner is
responsible for most of the costs of the voyage. Other factors affecting net
voyage revenues for voyage charters are waiting time between cargoes, port
costs, and bunker prices.
Vessel expenses included in net voyage revenue discussed above include
operating expenses such as crew payroll/benefits/travel, stores, maintenance and
repairs, drydock, insurance and miscellaneous. These expenses are a function of
the fleet size, utilization levels for certain expenses, requirements under
laws, by charterers and Company standards. Insurance expense varies with the
overall insurance market conditions as well as the insured's loss record, level
of insurance and desired coverage.
VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES.
Net voyage revenues of $41.3 million for the year ended December 31, 1998
decreased by a net of $14.1 million from $55.4 million for the year ended
December 31, 1997. Net voyage revenues for the years ended 1998, 1997 and 1996
are as follows by the market segments in which OMI primarily operates.
14
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
VOYAGE REVENUES:
Crude Oil Fleet ......... $ 98.5 $ 74.4 $ 49.9
Product Carrier Fleet ... 50.6 66.2 54.9
All Other ............... 0.1 1.4 6.2
-------- -------- --------
Total ............. $ 149.2 $ 142.0 $ 111.0
======== ======== ========
VESSEL AND VOYAGE EXPENSES:
Crude Oil Fleet ......... $ 71.7 $ 51.5 $ 37.6
Product Carrier Fleet ... 33.5 34.2 31.7
All Other ............... 2.7 0.9 2.3
-------- -------- --------
Total ............. $ 107.9 $ 86.6 $ 71.6
======== ======== ========
NET VOYAGE REVENUES:
Crude Oil Fleet ......... $ 26.8 $ 22.9 $ 12.3
Product Carrier Fleet ... 17.1 32.0 23.2
All Other ............... (2.6) 0.5 3.9
-------- -------- --------
Total ............. $ 41.3 $ 55.4 $ 39.4
======== ======== ========
Net voyage revenues for the Company decreased $14.1 million for the year
ended December 31, 1998. Net changes are discussed as follows according to the
two market segments (product carrier and crude oil) in which OMI primarily
operates. Decreases in net voyage revenue of $3.1 million for the year ended
1998 compared to 1997, not included in the two market segments, relate primarily
to the sale of a Liquid Petroleum Gas Carrier ("LPG") in 1997 and increases in
management fee expense in 1998 not specifically allocated to vessel expenses.
Product Carrier Fleet
The product carrier fleet consisted of thirteen vessels (ten handysize and
three Panamaxes) at December 31, 1998 and 1997. Rates in the product market
began to decline in the second half of 1997. To minimize decreases due to rate
declines in the short-term, OMI placed three Panamaxes which previously carried
clean products, into a marketing pool in November 1997, May 1998 and July 1998.
Decreases in the product carrier fleet in 1998 pertaining to the Panamaxes
relate to a part of the year (367 days in aggregate) in which two of the vessels
were carrying clean products and the remainder of the decrease relates to
decreased rates earned for these vessels in 1998 in comparison to 1997.
Net voyage revenues decreased by $14.9 million for the year ended December
31, 1998 compared to the year ended December 31, 1997. The decreases are due
primarily to the market decline in rates mentioned in the overview. Other
decreases in this fleet relate to the three Panamaxes with decreases in net
voyage revenue of approximately $4.4 million which were included in the crude
oil fleet's earnings for the entire 1998 year for one vessel and approximately
twelve months in aggregate for the other two vessels. Additionally, aggregate
net voyage revenue decreased an additional approximately $2.7 million in the
first half of 1998 compared to 1997 for the two Panamax vessels when they were
operating as "clean" product carriers. Additional decreases in 1998 net voyage
revenue were related to six product carriers drydocked for an aggregate of 138
days in 1998 versus four vessels for an aggregate of 89 days in 1997.
15
Crude Oil Tanker Fleet
At December 31, 1998, the crude fleet consisted of eight wholly-owned
vessels (seven Suezmaxes, not including the vessel delivered January 1999, and
one aframax) and two chartered-in Suezmaxes; all but one of the vessels are
currently operating in the spot market. In 1997, OMI owned six Suezmaxes, one
aframax and chartered- in four vessels (one beginning in May 1997 as part of a
sale-leaseback transaction and the other three beginning in the fourth quarter
of 1997). During 1998, three new Suezmax vessels were delivered and operated an
aggregate of 511 days, a vessel was sold in August 1998 and two chartered-in
vessels were redelivered to their owners in July and December 1998.
Net voyage revenues of $26.8 million generated by the crude tanker fleet
increased a net of $3.9 million for the year ended December 31, 1998 from $22.9
million for the year ended December 31, 1997. The net increase in net voyage
revenues can be attributed to three reasons: three Panamaxes with net voyage
revenue of $4.4 million which had been carrying clean products in 1997, net
voyage revenues of approximately $6.8 million from three Suezmax vessels
delivered in the summer of 1998 and an increase in the net voyage revenues due
to higher freight rates in 1998 earned by the aframax vessel (which also
incurred 22 days offhire in 1997). Net voyage revenues were reduced by decreases
in revenues for the remainder of the fleet as a result of: lower rates in the
spot market in 1998 due to the lower demand for oil explained in the market
overview, decreases of $3.8 million in net voyage revenues earned from three of
the four vessels chartered-in during 1998, decreases of $2.0 million from the
sale of the Suezmax vessel in August 1998 and decreased revenue due to an
aggregate of 77 more offhire days in 1998 compared to 1997 primarily relating to
drydocking. The net voyage revenues earned by the vessels chartered-in were
substantially less due to lower current market rates than those prevailing when
the leases were fixed.
OTHER OPERATING EXPENSES
The Company's operating expenses, other than vessel, voyage and operating
lease expenses consist of depreciation and amortization and general and
administrative ("G & A") expenses. For the year ended December 31, 1998, these
expenses decreased $0.1 million to $35.1 million, from $35.2 million for the
year ended December 31, 1997. The net decrease was due to a decline in G & A
expenses of $1.7 million primarily because of relocation accruals and additional
professional fees for the anticipated spin off of the Company included in the
1997 expenses. The decrease in G & A expenses was offset by a net increase of
$1.6 million in depreciation expense from the delivery of three Suezmax tankers
in 1998, offset by the sale of a Suezmax tanker in August 1998 and an LPG vessel
in May 1997.
OTHER INCOME (EXPENSE)
Other income (expense) consists of gain on disposal of assets-net, interest
expense, interest income and other-net. Net other expense decreased by $4.4
million from $8.6 million to $4.2 million for the year ended December 31, 1998
compared to the year ended December 31, 1997. Gain on sale of assets-net
increased $5.6 million due to the gain on sale the of a Suezmax tanker in August
1998 compared to the gain on sale in March 1997 of an LPG vessel. Interest
expense decreased by $0.6 million for the year ended December 31, 1998 compared
to 1997. The decrease in interest expense was primarily due to increases in the
capitalization of interest on construction in progress and less interest expense
due to repayment of debt for the vessel sold in August 1998 offset by interest
expense on additional borrowings upon delivery of three newbuildings. Other-net
of $0.9 million expense for the year 1998 represents a litigation settlement for
a vessel which was sold in 1996.
16
(BENEFITS) PROVISION FOR INCOME TAXES
The income tax benefit of $ 37.2 million includes a provision for federal
income taxes of $1.7 million for the period from January 1, 1998 through June
17, 1998 (the date of the Distribution), net of the benefit of $38.9 million
representing the reversal of deferred income taxes at the distribution date, as
the Company became a decontrolled corporation.
EQUITY IN OPERATIONS OF JOINT VENTURES
OMI currently has five joint ventures with its ownership in each
approximating 50 percent. Three joint ventures each own one vessel.
Equity in operations of joint ventures increased by $2.9 million to $3.7
million for the year ended December 31, 1998 compared to $0.8 million for the
year ended 1997. The net increase is primarily attributed to better operating
results for a vessel operating in a 49.0 percent owned venture, in addition to
increase earnings in 1998 due to a loss on sale of a vessel in 1997 owned by a
49.9 percent joint venture of approximately $10.5 million (OMI's portion of the
loss was approximately $5.1 million) offset in part by the gain on the sale of a
vessel in the same venture of $1.9 million (OMI's portion of the gain was
approximately $0.9 million).
During 1998, the Company received an aggregate of $3.4 million in dividends
from joint ventures, $2.0 million from Amazon Transport, Inc. ("Amazon") and
$1.4 million from White Sea Holdings, Ltd. ("White Sea"). Additionally, during
November 1998, OMI received cash of $3.0 million upon dissolution of a 49
percent owned joint venture and recorded a loss of $678,000 from the dissolution
of a 25 percent equity interest in a joint venture.
FOR THE YEAR ENDED DECEMBER 31, 1997 VERSUS DECEMBER 31, 1996
Net voyage revenues of $55.4 million for the year ended December 31, 1997
increased by a net of $16.0 million from $39.4 million for the year ended
December 31, 1996. The increase in net voyage revenues of $16.0 million for the
year ended December 31, 1997 includes a decrease of $3.4 million (which is not
included in the two market segments net voyage revenue) which relates primarily
to additional earnings in 1996 from the LPG carrier disposed of in March 1997.
Other changes in net voyage revenue are discussed as follows according to the
two market segments in which OMI primarily operates.
Product Carrier Fleet
The product carrier fleet consisted of thirteen vessels (ten handysize and
three Panamaxes) at December 31, 1997 as compared to ten vessels (nine handysize
and three Panamaxes) at December 31, 1996. The Company maintained a mix of
approximately half its product carriers on time charters in both years.
Net voyage revenues increased $8.8 million for the year ended December 31,
1997 compared to the same period in 1996. This increase included the results of
two product carriers acquired in 1996 and one vessel purchased in 1997, one
vessel contributed to increased earnings in 1997 due to 37 offhire/drydock days
in 1996 and two vessels contributed additional revenue generated from a new
marketing pool, Star Tankers, Inc. (previously named Heidmar/Pleiades pool).
With respect to the remaining vessels in this fleet, net voyage revenues in
aggregate, remained relatively unchanged during 1997 compared to 1996.
17
Crude Oil Tanker Fleet
At December 31, 1997, the crude fleet consisted of seven wholly owned
vessels (six Suezmaxes, one aframax) and chartered-in four Suezmax vessels, nine
of which were operating in the spot market and two vessels were on time charters
at December 31, 1997. In 1996, OMI also owned seven crude carriers and
chartered- in one vessel, four of these vessels operated in the spot market.
Net voyage revenues generated by the crude oil fleet increased $10.6
million in 1997 compared to 1996 primarily for two reasons; first by $9.9
million due to the acquisition of the ALTA and the TANANA (two Suezmax tankers
in which the Company acquired its partners' interests on December 30, 1996) and
second, due to improved rates resulting from better market conditions in 1997.
OTHER OPERATING EXPENSES
For the year ended December 31, 1997, other operating expenses increased
$10.2 million to $35.2 million from $25.0 million for the same period in 1996.
G & A expenses increased $5.7 million primarily due to increases in allocations
of salary expense which include accruals for bonuses aggregating approximately
$2.0 million, relocation expenses of approximately $2.6 million of the Company's
corporate headquarters to Stamford, Connecticut in 1998 and expenses allocated
to the spin-off. Other G & A expenses allocated increased approximately $0.3
million. The increase in depreciation expense of $4.5 million relates to the two
crude oil carriers ALTA and TANANA acquired in 1996 and three product carriers
acquired in 1996 and 1997.
OTHER INCOME (EXPENSE)
Net other expense decreased by $2.3 million for the year ended December 31,
1997 compared to the same period in 1996. Interest expense decreased $5.2
million due to the following; reduction in the average mortgage debt in 1997
compared to 1996, payment of debt from proceeds of vessel sales and proceeds
from the public offering of stock in the fourth quarter of 1996, interest
capitalized on four vessels under construction for the entire twelve months of
1997 compared to two vessels for one month in 1996 and lower average interest
rates on corporate debt refinanced in July 1996 and April 1997. Decreases in Net
other expenses were offset in part by decreases in the gain on disposal of
assets-net of $3.2 million for the year ended December 31, 1997. This decrease
resulted primarily from the gain on sale of a crude oil carrier of $3.6 million
in 1996 offset in part by the gain on sale of the LPG carrier of approximately
$0.9 million in the first quarter of 1997.
(BENEFITS) PROVISION FOR INCOME TAXES
The income tax provision of $5.4 million (excluding the income tax
provision for the cumulative effect of the change in accounting principle) for
the year ended December 31, 1997 varied from statutory rates primarily because
deferred taxes were not recorded for equity in operations of joint ventures, net
of dividends declared, other than Amazon and White Sea as management considered
such earnings to be invested for an indefinite period.
EQUITY IN OPERATIONS OF JOINT VENTURES
Equity in operations of joint ventures decreased by $1.8 million to $0.7
million in the year ended 1997 compared to $2.5 million for the same period in
1996. The decrease in equity was primarily attributed to the loss on the sale of
a vessel owned by Mosaic Alliance Corporation ( "Mosaic") a 49.9 percent joint
venture, of $5.1 million, offset in part by a gain from the sale of another
vessel of $0.9 million in the same joint venture. In accordance with the
Company's plan to decrease participation in vessel owning joint
18
ventures, on December 10, 1997, Mosaic acquired the majority shareholders'
interest in the venture for cash of $32.3 million and 50.1 percent of stock in
its subsidiary Kanejoy Corporation, with a book value of $3.5 million, and
Mosaic became a 100 percent owned subsidiary of OMI. Additional decreases in
equity of $1.3 million were attributed to Wilomi, Inc. a 49 percent owned joint
venture until December 30, 1996, when Wilomi Inc. acquired its 51 percent
interest from one of its partners and became a 100 percent owned subsidiary of
OMI.
Increases in equity in operations of joint ventures of $3.1 million
offsetting the aforementioned decreases relate to Amazon, which operates one
crude oil carrier that was drydocked for 92 days in 1996 which resulted in both
lack of earnings and additional drydock expense. Equity also increased $1.7
million from White Sea as a result of 66 offhire days related to drydock in
1996.
BALANCE SHEET
In 1998, the Company took delivery of three newly constructed double hulled
Suezmax tankers increasing Vessels by approximately $167.0 million, decreasing
Construction in Progress by $27.4 million and increasing debt by $109.3 million.
On August 12, 1998, vessels (net) decreased by $38.3 million, which was the
net book value of the TANANA which was sold for a $6.5 million gain.
During 1998, the Company purchased 2,076,700 shares of OMI stock at an
average cost of $4.35 per share for a total cost of $9.0 million.
On September 4, 1998, the Company repurchased $2.5 million of its 10.25
percent Senior Notes.
The distribution of OMI affected the balance sheet as follows: deferred
taxes of $38.9 million were reversed into income, the receivable from parent-
net aggregating $76.1 million was charged to Capital surplus, the balance of Net
intercompany transactions of $40.8 million was credited to Capital surplus, and
debt increased $108.9 million for debt assumed from the parent company (see
Financing Activities).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents of $22.7 million at December 31, 1998 decreased
$7.9 million from cash and cash equivalents of $30.6 million at December 31,
1997. The Company's working capital of $1.9 million decreased $29.6 million from
working capital of $31.5 million at December 31, 1997. Current assets decreased
$5.5 million primarily due to decrease in cash and cash equivalents. Current
liabilities increased $24.1 million primarily due to the increase in current
portion of long-term debt, which was assumed from the parent company at the time
of the Distribution (See Financing Activities) in addition to $12.0 million
drawn on a line of credit which was repaid in January 1999. Net cash provided by
operating activities decreased $ 2.0 million to $17.7 million for the year ended
December 31, 1998 compared to the year ended December 31, 1997.
The Company operates in a capital-intensive industry and augments cash
generated by operating activities with debt and sales of vessels that no longer
fit the Company's strategy. Cash used by investing activities was $99.8 million,
an increase of $115.4 million from cash provided by investing activities of
$15.6 million for the year ending December 31, 1997. Cash used by investing
activities increased in 1998 primarily by $145.6 million due to the acquisition
of three new vessels and additions to vessels under construction. The Company
received $44.9 million (which includes expenses of the sale) in proceeds from
the sale of its vessel in August 1998. Additionally, in 1997, the Company
received proceeds from the sale of the ALTA of $39.0 million. During 1998, OMI
received approximately $3.0 million from the dissolution of a joint venture. In
1997, cash increased $32.3 million when the Company consolidated Mosaic.
19
FINANCING ACTIVITIES
Cash provided by financing activities was $74.2 million in 1998 compared to
cash used of $20.8 million for the year ended 1997. Payments on long-term debt
of $87.1 million were made in 1998. Included in the payments of $87.1 million
were unscheduled payments of $83.5 million; $29.0 million was for payments on
short-term borrowings from a line of credit, payments from the refinancing of
$20.6 million for two vessels, the payment of debt of $31.4 million for the
vessel sold in August 1998 and the repurchase of $2.5 million of the Company's
Senior Notes. Proceeds from the issuance of long-term debt of $171.3 million
include proceeds of $109.3 million for the financing of the three newly
constructed vessels, $16.0 million from refinancing of two vessels and $46.0
million drawn on a line of credit. During 1998 $9.0 million of the Company's
stock was repurchased. In the year ended December 31, 1997, $4.1 million was
received from the Company's parent, Old OMI, as a capital contribution and $
24.7 million of debt was repaid (including $16.9 million from the sale of a
vessel).
Prior to the Distribution, debt had been incurred for the consolidated
group at the parent company level or at a limited number of subsidiaries, rather
than at the operating company level, in order to centrally manage various cash
functions. Consequently, the mortgage debt of Old OMI and its related interest
expense, net of tax, were allocated to OMI and its subsidiaries based upon the
value of the vessel collateralizing the debt. The changes in allocated corporate
debt and the after-tax allocated interest expense and the after tax allocated
general and administrative expenses had been included in Net intercompany
transactions in Stockholders' equity. Debt assumed by the Company from Old OMI
of $108.9 million comprises $99.1 million available under a line of credit
described below, $6.8 million 10.25 percent Senior Notes and a $3.0 million
seven percent Convertible Note. Although management believes that the historical
allocation of corporate debt and interest expense was reasonable, it is not
necessarily indicative of the Company's debt or results of operations had the
Company been on a stand alone basis for the periods presented.
At December 31, 1998, OMI had five credit facilities aggregating $378.0
million, $239.8 million was outstanding and $138.2 million was unused at that
date. One facility for $116.5 million was assumed from Old OMI, see below, and
the remaining four facilities aggregating $261.5 million were entered into from
June through December 1998.
In February 1999, OMI entered into a $25.0 million revolving line of credit
to be used for working capital and other general corporate purposes. The line of
credit bears interest at LIBOR plus a margin that varies with facility use which
will not be greater than 1.75%.
The Company has a credit facility, which was assumed from Old OMI, which
provides for a line of credit in the amount of $116.5 million (not to exceed 70
percent of the fair market value of the vessels securing the loan). The credit
facility is secured by eleven vessels with a book value aggregating $ 170.1
million at December 31, 1998. At December 31, 1998, the outstanding loan balance
was $116.1 million and was reduced by $12.0 million January 7, 1999. The Notes
under the credit facility bear interest at LIBOR plus a margin ranging from
0.60%-0.95% which is computed based on OMI's funded debt to equity ratio
and interest coverage ratio. The agreement, which expires in April 2002,
provides for nine semi-annual reductions (six currently remaining at December
31, 1998). As long as the available balance of the credit facility exceeds the
outstanding loan balance and the collateral tests are met, current amortization
is not required.
During June and July 1998, the Company entered into three new secured
revolving credit agreements with banks, in the amounts of $53.0 million, $71.5
million and $77.0 million to refinance two Panamax tankers and to finance two
product carriers and four Suezmax carriers when delivered. On June 9, 1998, the
Company drewdown $16.0 million to refinance the two Panamax tankers. Also on
June 9, 1998, $35.7 million was drawn to finance the first Suezmax vessel, $37.8
million on July 20, 1998 and $35.7 million on August 7, 1998, was drawn to
finance the second and third Suezmax vessels delivered. The facilities bear
interest at LIBOR plus, for the $53.0 million facility, a margin ranging from
0.65%-0.95%
20
based on the Company's funded debt to capitalization ratio, for the $71.5
million facility, a margin ranging from 0.85%-0.95% and for the $77.0 million
facility, a margin ranging from 0.60%-1.00%.
During December 1998, the Company entered into an agreement for a $60.0
million revolving credit facility to finance, on an interim basis, the
acquisition of vessels and will be secured by such vessels. The facility bears
interest at LIBOR plus a margin ranging from 0.55%-0.80% based on the
Company's funded debt to capitalization ratio and interest coverage ratio. On
January 14, 1999, the Company drew down $37.5 million to finance the Suezmax
vessel delivered. The Company intends to repay this debt with the proceeds from
permanent financing to be completed in 1999.
Certain of the loan agreements contain restrictive covenants requiring
minimum levels of cash or cash equivalents, working capital and net worth,
maintenance of specified financial ratios and collateral values, and restrict
the ability of the Company's subsidiaries to pay dividends to the Company. These
loan agreements also contain various provisions restricting the right of OMI
and/or its subsidiaries to make certain investments, to place additional liens
on the property of certain of OMI's subsidiaries, to incur additional long-term
debt, to make certain payments, to merge or to undergo a similar corporate
reorganization, and to enter into transactions with affiliated companies. At
December 31, 1998, the Company was in compliance with all its financial
covenants.
The Company believes that the actions it has taken in the last year and
continues to do currently to improve its liquidity and financial position will
give the Company greater financial flexibility to fund its vessel acquisition
program and finance its other cash needs.
OTHER COMMITMENTS
The Company has three remaining construction contracts with the same yard
for two product carriers with expected capitalized costs at delivery in 1999 of
$30.0 million each and one Suezmax carrier with an expected capitalized cost of
$51.0 million scheduled to be delivered in 2000.
OMI acts as a guarantor for a portion of the debt incurred by a joint
venture with affiliates of its joint venture partner. Such debt was
approximately $15.0 million at December 31, 1998 with OMI's guaranty of such
debt being approximately $7.5 million.
The Company and its joint venture partners have committed to fund any
working capital deficiencies that may be incurred by their joint venture
investments. In 1998 and 1997, OMI advanced $0.2 million and $0.4 million,
respectively, in the form of non-interest bearing loans to cover operating
expenses of a new joint venture. At December 31, 1998, no other such
deficiencies have been funded.
AGREEMENTS
As part of the Distribution, OMI is party to certain agreements with MTC,
including the following:
Distribution Agreement-The Distribution Agreement provides for, with
certain exceptions, assumptions of liabilities and cross-indemnities designed
principally to place financial responsibility for the liabilities with the
appropriate company. OMI, however, assumed the obligations of Old OMI with
respect to Old OMI's 10.25 percent Senior Notes due November 1, 2003 in exchange
for a note from MTC in the amount of $6.4 million, which is equivalent in value
to the principal amount of the Senior Notes then outstanding. The Distribution
Agreement also provides that each of MTC and OMI will indemnify the other in the
event of certain liabilities arising under the Federal securities laws. Each of
MTC and OMI will have sole responsibility for claims arising out of its
respective activities after the Distribution.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by the party incurring such costs or expenses. Except as set
forth in the Distribution Agreement or any related agreement, each party shall
bear its own costs and expenses incurred after the Distribution Date.
As part of the Distribution Agreement, OMI has, subject to certain
exceptions, provided indemnity to MTC for all taxes attributable to the
Distribution and to certain corporate restructuring transactions preceding the
Distribution.
21
Tax Cooperation Agreement-Prior to the Distribution, OMI and MTC entered
into a Tax Cooperation Agreement which sets forth each party's rights and
obligations with respect to federal, state, local and foreign taxes for periods
prior and after the Distribution and related matters such as the filing of tax
returns and the conduct of audits and other proceedings. In general, the Tax
Cooperation Agreement provides that OMI will be liable for taxes and be entitled
to refunds for each period covered by any such return which are attributable to
OMI and its subsidiaries and that MTC will be liable for and be entitled to
refunds for each period covered by such return which are not attributable to OMI
or OMI subsidiaries. Though valid as between the parties thereto, the Tax
Cooperation Agreement is not binding on the IRS and does not alter either
party's tax liability to the IRS.
Dividends-Any determination to pay dividends in the future by OMI will be
at the discretion of the board of directors and will be dependent upon its
results of operations, financial condition, capital restrictions, covenants and
other factors deemed relevant by the board of directors. Currently, the payment
of dividends by OMI is restricted by its credit agreements.
EFFECTS OF INFLATION
The Company does not consider inflation to be a significant risk to the
cost of doing business in the current or foreseeable future. Inflation has a
moderate impact on operating expenses, drydocking expenses and corporate
overhead.
YEAR 2000 ISSUE
GENERAL
The "Year 2000 issue" arises from the fact that many computer hardware and
software systems use only two digits rather than four digits to define the
applicable year. As a result, these systems may not calculate dates beyond 1999,
which may result in system failure or miscalculations by computer programs which
could cause disruption of the Company's operations.
STATE OF READINESS
The Company has taken steps to ensure that its systems will be year 2000
compliant including systems on board vessels. The Company has been in the
process over the last year of upgrading its internal hardware and software
systems for business reasons other than Year 2000 compliance. Therefore, the
Company believes, after conversion to the new systems, the Year 2000 issue will
not pose significant operational problems for its computer systems. However, the
Year 2000 readiness of the Company's customers, suppliers and business partners
may vary.
The Company developed a plan that outlines the Company's procedures to
become Y2K compliant which was approved in November 1998 by senior management of
OMI, as well as the Board of Directors. An oversight committee was formed which
includes members of senior and technical management who meet on a monthly basis
with the Company's Information Services team. The procedures in the plan or the
"Project", address the following: identification of inventory and assessment as
to its Y2K readiness, remediation strategies and remediation costs. The Company
has initiated formal communications with vendors and other customers which the
Company does business with, to determine the extent to which the Company is
vulnerable to those third parties failure to remedy their own Y2K issue. The
Company cannot predict the outcome of other companies' remediation efforts. The
Project includes procedures for fixing critical systems using a combination of
replacements and upgrades.
The Company has identified and scheduled a sufficient number of qualified
personnel to accomplish the Project objectives and has established a process for
monitoring its progress against the Y2K plan in accordance with a timetable of
expected completion dates for the various phases of the Project.
22
The Company expects all critical systems and products to be Y2K compliant
as of July 1999. Currently, 50 percent of the accounting systems and 70 percent
of the ship hardware is year 2000 compliant.
COSTS
The Y2K Project includes estimated costs of $0.2 million related to
financial systems. The cost that relates to fixture of ships' software and
hardware is expected to be minimal. Additionally, the Company has already paid
$0.3 million, not included in the estimated budget for financial systems,
towards new financial applications implementation which included the hardware,
software and support fees.
Based on responses received from vendors, to date, the Company is not aware
of any significant investments in assets that are not Y2K compliant.
There can be no guarantee that these estimates will be achieved and actual
results could differ from what has been anticipated. Based on its current
estimates and information currently available, the Company does not anticipate
that costs associated with this Project will have a material adverse effect on
the Company's consolidated financial position, results of operations or cash
flows in future periods.
RISK ASSESSMENT
At this time, until the process is tested, the Company cannot fully
estimate the risks of its Y2K issue. To date, OMI has not identified any
material risks of not being year 2000 ready. However, if a risk should
subsequently arise, OMI would identify its effects and remedy by the contingency
plan, see below. Additionally, there is exposure to third parties because
guarantees which the Company relies on as to Y2K compliance are not specifically
verified, which can also cause disruption if not remedied in a timely manner.
CONTINGENCY PLAN
The Company relies on vendor guarantees that critical systems are Y2K
compliant. Therefore, the Company anticipates that those critical systems will
function properly. OMI has "full" maintenance contracts with all its vendors in
the case of any system problem, they are required to resolve such problems
within a reasonable amount of time.
The Company does not anticipate that any of their critical and non-critical
systems will not be Y2K compliant by the required completion dates. There are no
critical and unique high volume systems for which a contingency plan may not be
possible. Further, if the computer system would go down, the Company plans to
revert to manual procedures, which will be reviewed and tested during 1999.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to various market risks, including interest rates.
The exposure to interest rate risk relates primarily to its debt and related
interest rate swaps. The majority of this exposure is the floating rate debt,
which totaled $239.8 million at December 31, 1998. A one percent increase in the
floating rate would increase the interest expense by $2.4 million per year.
The fixed rate debt on the balance sheet and the fair market value were
$7.4 million as of December 31, 1998. If the interest rate was to increase
(decrease) by one percent with all other variables remaining constant, the
market value of the fixed rate debt would decrease (increase) by approximately
$0.3 million.
The Company has entered into interest rate swap agreements to manage its
exposure with interest rates by locking in fixed interest rates from floating
rates. At December 31, 1998, there were three swaps with a total notional
principal of $32.7 million. The swap agreements have various maturity dates from
February 1999 to June 1999, and the Company would have had to pay $0.4 million
to terminate the agreements as of December 31, 1998. Since the agreements mature
in 1999 and terms of the contracts are known, the maximum exposure to the
interest rate swaps is $0.4 million.
23
INDEX TO FINANCIAL STATEMENTS
Page
----
OMI Corporation And Subsidiaries:
Consolidated Statements of Operations and Comprehensive Income for the three years ended
December 31, 1998 ............................................................................ 25
Consolidated Balance Sheets at December 31, 1998 and 1997 ...................................... 26
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 .............. 28
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1998 .... 29
Notes to Consolidated Financial Statements ..................................................... 31
Independent Auditors' Report ................................................................... 48
Quarterly Results of Operations (Unaudited)..................................................... 49
Financial Statements of Significant Investees of OMI Corporation and Subsidiaries:
Amazon Transport, Inc.
Balance Sheets at December 31, 1998 and 1997 ................................................... 50
Statements of Operations for the three years ended December 31, 1998 ........................... 51
Statements of Cash Flows for the three years ended December 31, 1998 .... ...................... 52
Notes to Financial Statement ................................................................... 53
Independent Auditors' Report ................................................................... 55
White Sea Holdings Ltd.
Balance Sheets at December 31, 1998, and 1997 .................................................. 56
Statements of Income and Retained Earnings for the three years ended December 31, 1998 ......... 57
Statements of Cash Flows for the three years ended December 31, 1998 ........................... 58
Notes to Financial Statements .................................................................. 59
Independent Auditors' Report ................................................................... 61
Mosaic Alliance Corporation
Consolidated Statements of Operations and Retained Earnings for the period ended
December 10, 1997 and the year ended December 31, 1996........................................ 62
Consolidated Balance Sheet at December 10, 1997 and December 31, 1996 .......................... 63
Consolidated Statements of Cash Flows for the period ended December 10, 1997 and the
year ended December 31, 1996.................................................................. 64
Notes to Consolidated Financial Statements...................................................... 65
Report of the Auditors ......................................................................... 71
24
Item 8: FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
For the Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
REVENUES (Note 4) ........................................... $ 149,228 $ 141,985 $ 111,292
--------- --------- ---------
OPERATING EXPENSES:
Vessel and voyage (Note 1) ................................ 82,368 77,686 67,008
Operating leases .......................................... 25,529 8,906 4,592
Depreciation and amortization (Note 1) .................... 24,314 22,675 18,142
General and administrative (Note 4) ....................... 10,773 12,540 6,851
--------- --------- ---------
Total operating expenses .................................... 142,984 121,807 96,593
--------- --------- ---------
OPERATING INCOME ............................................ 6,244 20,178 14,699
--------- --------- ---------
OTHER INCOME (EXPENSE):
Gain on disposal of assets-net (Note 11) .................. 6,485 885 4,078
Interest expense .......................................... (11,118) (11,756) (16,912)
Interest income ........................................... 1,346 2,222 1,886
Other-net ................................................. (882) -- --
--------- --------- ---------
Net other expense ........................................... (4,169) (8,649) (10,948)
--------- --------- ---------
Income before income taxes, equity in operations of joint
ventures, extraordinary loss and cumulative effect of
change in accounting principle ............................ 2,075 11,529 3,751
(Benefit) provision for income taxes (Note 9) ............... (37,158) 5,407 876
--------- --------- ---------
Income before equity in operations of joint ventures,
extraordinary loss and cumulative effect of change in
accounting principle ...................................... 39,233 6,122 2,875
Equity in operations of joint ventures (Note 6) ............. 3,684 737 2,481
--------- --------- ---------
Income before extraordinary loss and cumulative effect
of change in accounting principle ......................... 42,917 6,859 5,356
Extraordinary loss, net of tax benefit ...................... -- -- (1,663)
Cumulative effect of change in accounting principle, net of
income tax provision (Note 18) ............................ -- 10,063 --
--------- --------- ---------
NET INCOME (Notes 1, 14, 18) ................................ 42,917 16,922 3,693
Other Comprehensive Income:
Reversal of deferred income taxes on cumulative translation
adjustment .............................................. 2,530 -- --
--------- --------- ---------
Comprehensive Income ........................................ $ 45,447 $ 16,922 $ 3,693
========= ========= =========
Basic Earnings Per Common Share:
Income before extraordinary loss and cumulative effect of
change in accounting principle .......................... $ 1.01 $ 0.16 $ 0.16
Net income ................................................ $ 1.01 $ 0.39 $ 0.11
Diluted Earnings Per Common Share:
Income before extraordinary loss and cumulative effect of
change in accounting principle .......................... $ 1.00 $ 0.16 $ 0.16
Net income ................................................ $ 1.00 $ 0.39 $ 0.11
See notes to consolidated financial statements.
25
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 31,
--------------------
1998 1997
-------- --------
CURRENT ASSETS:
Cash, including cash equivalents of:
1998-$10,166; 1997-$25,900 (Notes 1, 8) ................ $ 22,698 $ 30,608
Receivables:
Traffic ................................................ 12,842 8,151
Other .................................................. 2,733 2,957
Prepaid drydock expense (Note 18) ........................ 3,550 4,705
Other prepaid expenses and other current assets (Note 13) 5,272 6,189
-------- --------
Total current assets ................................... 47,095 52,610
-------- --------
VESSELS, CONSTRUCTION IN PROGRESS AND OTHER PROPERTY
Vessels (Notes 1, 7) ................................... 543,040 425,209
Construction in progress (Notes 1, 17) ................. 34,733 56,032
Other property ......................................... 1,407 435
-------- --------
Total vessels, construction in progress and other property 579,180 481,676
Less accumulated depreciation (Note 1) ................... 150,585 138,648
-------- --------
Vessels, construction in progress and other property ..... 428,595 343,028
-------- --------
INVESTMENTS IN, AND ADVANCES TO JOINT VENTURES (Note 6) .. 25,507 27,810
OTHER ASSETS AND DEFERRED CHARGES ........................ 28,930 17,260
-------- --------
TOTAL .................................................... $530,127 $440,708
======== ========
See notes to consolidated financial statements.
26
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
------------------------
1998 1997
--------- ---------
CURRENT LIABILITIES:
Accounts payable ........................................... $ 2,520 $ 1,512
Accrued liabilities:
Voyage and vessel (Note 18) .............................. 11,438 7,230
Interest ................................................. 4,007 287
Other .................................................... 2,571 3,307
Deferred gain on sale of vessel (Note 10) .................. 3,151 3,151
Current portion of long-term debt (Notes 6, 7) ............. 21,494 5,575
--------- ---------
Total current liabilities ................................ 45,181 21,062
--------- ---------
ADVANCE TIME CHARTER REVENUES AND OTHER
LIABILITIES (Note 18) ...................................... 3,496 2,828
LONG-TERM DEBT (Notes 4, 6, 7) ............................... 225,653 48,424
DEFERRED GAIN ON SALE OF VESSEL (Note 10) .................... 7,514 10,665
DEFERRED INCOME TAXES (Notes 1, 9) ........................... 3,100 45,480
PAYABLE TO PARENT -NET (Note 4) .............................. -- 28,691
COMMITMENTS AND CONTINGENCIES (Note 17)
STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value; 80,000,000 shares
authorized; shares issued and outstanding: 1998-43,676,000
1997-43,066,000 (Notes 1, 5, 16) ......................... 21,838 21,533
Capital surplus (Notes 1, 3, 4) ............................ 207,478 243,062
Retained earnings (deficit) (Notes 1, 3, 4) ................ 17,465 (25,452)
Net intercompany transactions (Notes 1, 4) ................. -- 39,503
Cumulative translation adjustment .......................... 7,442 4,912
Treasury stock (Note 16) ................................... (9,040) --
--------- ---------
Total stockholders' equity ............................... 245,183 283,558
--------- ---------
TOTAL ........................................................ $ 530,127 $ 440,708
========= =========
See notes to consolidated financial statements.
27
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income .................................................... $ 42,917 $ 16,922 $ 3,693
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Cumulative effect of change in accounting principle, net of tax -- (10,063) --
Extraordinary loss, net of tax ................................ -- -- 1,663
Decrease in deferred income taxes ............................. (39,850) (2,314) (1,011)
Depreciation and amortization ................................. 24,314 22,675 18,142
Gain on disposal of assets-net ................................ (6,485) (885) (4,078)
Net intercompany transactions ................................. 1,337 11,357 9,396
Amortization of deferred gain on sale of vessel ............... (3,151) (1,940) --
Equity in operations of joint ventures over
dividends received .......................................... (254) (2) (2,114)
Changes in assets and liabilities:
Increase in receivables and other current assets .............. (2,460) (4,532) (2,295)
Increase (decrease) in accounts payable and
accrued liabilities ......................................... 8,292 2,508 (5,438)
Payable to parent-net ......................................... (3,217) (16,687) 8,549
Advances from joint ventures-net .............................. (185) (254) (6,170)
(Increase) decrease in other assets and deferred charges ...... (3,347) 4,092 (2,265)
(Decrease) increase in advance time charter revenues
and other liabilities ....................................... (240) (1,220) 1,166
Other assets and liabilities-net .............................. -- -- (93)
--------- --------- ---------
Net cash provided by operating activities ................... 17,671 19,657 19,145
--------- --------- ---------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from disposition of vessels and other property ....... 44,877 38,977 15,045
Proceeds from sale of securities .............................. -- -- 1,080
Additions to vessels and other property ....................... (147,407) (55,285) (12,602)
Proceeds from dispositions of joint ventures .................. 2,989 32,301 4,813
Investment in joint venture ................................... (247) (343) --
--------- --------- ---------
Net cash (used) provided by investing activities ............ (99,788) 15,650 8,336
--------- --------- ---------
CASH FLOWS (USED) PROVIDED By FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ...................... 171,300 -- 3,000
Payments on long-term debt .................................... (87,070) (24,732) (22,571)
Purchase of treasury stock .................................... (9,040) -- --
Payment to parent relating to notes ........................... -- -- (11,000)
Capital contribution from OMI ................................. -- 4,100 10,683
Dividends paid ................................................ -- -- (17,500)
Payments for debt issue costs ................................. (983) (123) --
--------- --------- ---------
Net cash provided (used) by financing activities ............ 74,207 (20,755) (37,388)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............ (7,910) 14,552 (9,907)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 30,608 16,056 25,963
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 22,698 $ 30,608 $ 16,056
========= ========= =========
See notes to consolidated financial statements.
28
OMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Three Years Ended December 31, 1998
(in thousands)
ACCUMULATED
COMMON STOCK RETAINED NET OTHER
----------------- CAPITAL EARNINGS INTERCOMPANY TREASURY COMPREHENSIVE
SHARES AMOUNT SURPLUS (DEFICIT) TRANSACTIONS STOCK INCOME
------ -------- ------- -------- ------------ --------- --------------
Balance at January 1, 1996 .............. 31,041 $ 15,521 $155,633 $ 28,524 $ 17,087 $4,912
Comprehensive income:
Net income ............................ 3,693
Net change in valuation account
comprehensive income ................
Comprehensive Income ....................
Transfer of subsidiaries from Parent
(Note 3) .............................. 95,953 (74,591)
Shares issued in common stock
offering .............................. 11,500 5,750 (5,750)
Exercise of stock options and stock
appreciation rights ................... 150 75 (75)
Capital contribution from Parent ........ 10,683
Retirement of partner's equity
interest in joint venture (Note 6) .... (18,072)
Net intercompany transactions ........... 11,059
------ ------- -------- -------- -------- -------- ------
Balance at December 31, 1996 ............ 42,691 21,346 238,372 (42,374) 28,146 4,912
Comprehensive income:
Net income ............................ 16,922
Net change in valuation account
comprehensive income ................
Comprehensive Income ....................
Capital contribution of .................
intercompany account balance with
parent (Note 4) ....................... 4,100
Retirement of partner's equity
interest in joint venture (Note 6) .... 777
Net intercompany transactions ........... 11,357
Issuance of common stock ................ 375 187 (187)
------ ------- -------- -------- -------- -------- ------
Balance at December 31, 1997 ............ 43,066 21,533 243,062 (25,452) 39,503 4,912
Comprehensive Income:
Net Income ............................ 42,917
Reversal of deferred income taxes
on cumulative translation
adjustment .......................... 2,530
Comprehensive income ....................
Capital distribution of net
intercompany account balance
with parent (Note 4) .................. (76,119)
Net intercompany transactions ........... 1,337
Capital distribution of net
intercompany transactions with
parent (Note 4) ....................... 40,840 (40,840)
Exercise of stock options ............... 50 25 (25)
Issuance of common stock ................ 560 280 (280)
Purchase of treasury stock (Note 16) .... $ (9,040)
------ ------- -------- -------- -------- -------- ------
Balance at December 31, 1998 ............ 43,676 $21,838 $207,478 $ 17,465 $ -- $ (9,040) $7,442
====== ======= ======== ======== ======== ======== ======
29
TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME EQUITY
------------- -------------
Balance at January 1, 1996 .............. $221,677
Comprehensive income:
Net income ............................ $ 3,693 3,693
Net change in valuation account
comprehensive income .................. --
-------
Comprehensive Income .................... $ 3,693
=======
Transfer of subsidiaries from Parent
(Note 3) .............................. 21,362
Shares issued in common stock
offering .............................. --
Exercise of stock options and stock
appreciation rights ................... --
Capital contribution from Parent ........ 10,683
Retirement of partner's equity
interest in joint venture (Note 6) .... (18,072)
Net intercompany transactions ........... 11,059
--------
Balance at December 31, 1996 ............ 250,402
Comprehensive income:
Net income ............................ $16,922 16,922
Net change in valuation account
comprehensive income ................ --
-----